Liability for Acts of Dissolved Corporation
Where defendant corporation entered into contracts while it was dissolved as a matter of law, once corporation is reinstated, the agreements are enforceable against the corporation, but not against the individual officers, directors and shareholders.
Plaintiff pursued claims of breach of contract against a corporate defendant, its president and vice president. The corporate defendant whose name appeared on the contracts, was dissolved automatically for failure to file its annual report. The contracts were entered into between the plaintiff and the dissolved corporation, while the corporation was dissolved. The individual defendants sought summary judgment claiming that they were immune from any liability as a result of the corporation having been reinstated. Plaintiff responded that the count alleged alternative grounds for liability against the individual defendants, including (a) liability under a "piercing the corporation veil" theory, (b) liability for operating the contracting corporate defendant as a partnership of the two individuals while it was dissolved, and (c) liability for purchasing plaintiff's products as individuals trading and doing business under various corporate names alleged in the complaint.
The court found that under Michigan law the corporate veil will not be pierced absent fraud, sham or other improper use of the corporate form. In this case, plaintiff failed to allege fraud, sham or other improper use of corporate form and, consequently, pursuant to FRCP 8, plaintiff cannot pursue such a theory.
Also, once the charter of a statutorily dissolved corporation is reinstated, the corporation is considered to have at least de facto existence during the period of dissolution and upon revival the actions of the corporation are in full force and effect and the individual officers, directors and shareholders are not liable for the debts of the corporation incurred during the time period between automatic dissolution and reinstatement. Therefore, the partnership theory claims must be dismissed.
However, factual questions remain regarding plaintiff's claim that it believed that it was dealing with the individuals who were doing business under various corporate names and the motion for summary judgment as to this theory is dismissed without prejudice. Phoenix Energy Sales, Co., vs. Randy Goodman, et al. Civil action No. 96 40391, ED Mich, 3/31/97, Gadola, J. (dkt #30).
This article was written by William F. Frey, a partner in our Litigation Department, and previously appeared in the June 1997 edition of the Michigan Bar Journal.