Leland v. Ford , 245 Mich. 599 ( 1929 )

1. The provisions in the alleged contract, as set forth in the bill of complaint, do not, in my opinion, sustain the claim that the promise of the Lelands to continue in the service of the corporation to be organized by the defendants was for their "advantage and benefit." Such promise on their part but secured to the defendants the benefit of the skill and ability of the Lelands and the use of their name as designers and manufacturers of high grade automobiles. This offer on their part, and it was no more than an offer, to remain with the new corporation for the purpose stated, was made as an inducement to the defendants to make the purchase of the assets of the old corporation. It was not made, as I read the contract, as set out in the bill of complaint, to secure any personal advantage to the Lelands. It is not averred therein that the defendants in any way bound themselves to retain their services for any stated length of time, nor do the Lelands ask for any relief for a breach thereof. The amended bill alleges that the Lelands —

"further explained that they, said Lelands, were primarily interested in the protection of the creditors and stockholders of said corporation, and proposed to exert every effort to effect a reorganization upon a basis that would insure the accomplishment of that purpose."

The agreement further provided that —

"a new company would be formed to take over the assets of said corporation, which company would continue the business of said corporation and would continue its selling organization and would be under the direction and control of said Lelands; that said Lelands would accept the control and direction of said new company and would operate same so as to maintain the high manufacturing standards and ideals of the former company and the high quality of its products."

The understanding of the parties is apparent. The Lelands, as a consideration for the obligations assumed by the defendants, promised to aid them in the conduct of the reorganized corporation to the extent possible on their part.

The bill further alleges that the new corporation began operating under the direction and control of the Lelands and that thereby "the high standing of the products" was given recognition and the "good will of said business was fully maintained," and that after its success had been "definitely assured" the defendants took control thereof and have since continued to direct the same. I find no allegation therein of an "agreement by the Fords to vote for the Lelands for directors and managers of the corporation " to be organized by the defendants. The services which the Lelands agreed to render, and did render, were understood to be and were for the benefit and advantage of the defendants. In my opinion the record does not sustain the conclusion reached that the contract was unenforceable for this reason.

2. Is it unenforceable because the interests of what are termed the "minority stockholders" were not protected therein? No question of public policy is here involved. The rights said to be affected are those of the holders of certain certificates of stock in the old company. If it be conceded that the agreement operated as a fraud upon them, may the defendants rely thereon as a defense to this suit? They make no claim of injury by reason thereof. Their rights were in no way affected thereby. They have received all the benefits and advantages secured to them in the agreement, and, if relieved from the obligation therein assumed by them, they will profit to the extent of several millions of dollars.

In an early case in this court (Quirk v. Thomas, 6 Mich. 76,107), Mr. Justice CHRISTIANCY said:

"And if a court of equity cannot grant relief in such a case, it must be deplorably infirm in the administration of remedial justice. Just reasoning should lead to just results; and any course of reasoning which leads to a result opposed to the just rights of the parties, should, at least, be carefully scrutinized before it is admitted as established law."

Where the element of fraud enters into a contract, it is not void; it is only voidable. Hall Lumber Co. v. Gustin, 54 Mich. 624,632. That which is here claimed to render it so is of no concern to the defendants. They surely would not contend that they understood the contract was unenforceable for this reason at the time they entered into it and that they permitted the Lelands to be deceived thereby. In Mott v. Rowland, 85 Mich. 561, 566, it was said:

"It cannot be presumed that the parties intended to enter into an illegal contract. The presumption is rather in favor of its validity. The law will presume an honest intention, unless there is something in the nature of the transaction or in the proofs to establish the contrary."

Full performance on the part of the Lelands is alleged. Payment as agreed by the defendants is all that remains to be done. In Richardson v. Welch, 47 Mich. 309, 312, the court said:

"Even in cases where public and not merely private interests were involved, courts have refused to relieve parties who had the money of other people in their hands, against accounting, when there was no question of public policy to be involved in that transaction;" citing Willson v. Owen, 30 Mich. 474.

As presented here, there is no claim on the part of the defendants that any deception was practiced upon them. They entered into the contract with full knowledge of its terms and of the purpose sought to be accomplished by the Lelands thereby. That of which they complain has in no way operated prejudicially on their rights under the contract. Its only effect, if their claim be sustained, is to relieve them from the obligation they assumed thereunder. They assert that by reason thereof they may resist payment as agreed.

"The fraud which should give one rights must be a fraud which in some way concerns his own interest." Judge v. Vogel,38 Mich. 569, 573.

Quoting further from Richardson v. Welch, supra, (page 312):

"The rule is general that when contracts are legal except as against persons in adverse interest, courts will not listen to complaints of persons not injured. Conveyances fraudulent as against creditors can only be attacked by creditors, and the principle is general as applied to private frauds. It is no doubt competent for courts of equity to use some discretion when asked to become instruments in helping parties to the fruits of fraud."

In City of Marquette v. Wilkinson, 119 Mich. 413 (43 L.R.A. 840), the defendant had executed to the city a bond for the safe keeping of its funds. The officials of two other banks became sureties on this bond under an agreement with Wilkinson that their banks would bid less for the deposits and that Wilkinson should keep one-third of the deposits in each bank. On Wilkinson's death the city sought to reach the money deposited in the other banks. As to the agreement among the banks it was said:

"It is urged that this agreement is void as against public policy. If this be granted, neither Wilkinson, nor the banks, nor the bondsmen could take advantage of it. The city alone could rescind it on this account. It has not chosen to do so, and no other party can complain."

Except that the question of public policy was there involved, this holding was but in accord with the general rule that —

"contracts which are valid, except as against those in adverse interest, cannot be assailed by persons not prejudiced thereby." Baldwin v. Burt, 43 Neb. 245, 254 (61 N.W. 601).

There is, I think, a clear distinction between a contract prohibited by statute, or which is void because against public policy, and a private contract such as is here considered. The rule of nonenforcement of the former at the suit of a party thereto is well established. But, as to the latter, one who has received the benefits secured to him thereunder is estopped from asserting its invalidity as a defense. He may not retain that which he has received and resist the performance of obligations fixed therein because such performance will, in effect, operate as a fraud upon others not parties thereto. The rule forbidding it is clearly stated in Bigelow on Estoppel (6th Ed.), pp. 597 and 746, as follows:

"A similar rule of law applies to employees and contracting parties generally; they cannot accept the benefits of the contract and yet, when called upon to perform their duties under it, repudiate it as made without right, or as otherwise wanting in force, if it is not actually in violation of law, or wholly void."

"Though a contract be in fact wholly invalid when executed, still (supposing it not to be prohibited by law as relating to some illegal transaction), if it be acted upon afterwards by the parties to it as valid, they will, if sui juris, be estopped thereafter to allege its invalidity."

In 21 C. J. p. 1209, it is said:

"One of the most familiar applications of the rule relating to the acceptance of benefits arises in the case of contracts. It has been repeatedly held that a person by the acceptance of benefits may be estopped from questioning the existence, validity, and effect of a contract."

The effect of the receipt and retention of benefits under a voidable contract is well illustrated in Foster v. Rowley,110 Mich. 63. See, also, Hamburger v. Berman, 203 Mich. 78.

The holding in Sparrow v. E. Bement Sons, 142 Mich. 441 (10 L.R.A. [N. S.] 725), is, I think, in no way decisive of the question here presented. It involved the action of the old Bement company in transferring its assets to a new company and the right of the plaintiff as a stockholder in the old company to participate therein. This court held that "the two companies were identical so far as the rights of complainant are concerned," and ordered the issue to him of preferred stock in the new company of the value of that held by him in the old company.

The order of the circuit court denying the motion to dismiss should be affirmed, with costs to appellees.