Law Commons^™

Enterprise Without Entities, Andrew Verstein

Michigan Law Review

Scholars and practicing lawyers alike consider legal entities to be essential. Who can imagine running a large business without using a business organization, such as a corporation or partnership? This Article challenges conventional wisdom by showing that vast enterprises—with millions of customers paying trillions of dollars—often operate without any meaningful use of entities.

This Article introduces the reciprocal exchange, a type of insurance company that operates without any meaningful use of a legal entity. Instead of obtaining insurance from a common nexus of contract, customers directly insure one another through a dense web of bilateral agreements. While often overlooked or …

Rewarding Outside Directors, Assaf Hamdani, Reinier Kraakman

Michigan Law Review

While they often rely on the threat of penalties to produce deterrence, legal systems rarely use the promise of rewards. In this Article, we consider the use of rewards to motivate director vigilance. Measures to enhance director liability are commonly perceived to be too costly. We, however demonstrate that properly designed reward regimes could match the behavioral incentives offered by negligence-based liability regimes but with significantly lower costs. We further argue that the market itself cannot implement such a regime in the form of equity compensation for directors. We conclude by providing preliminary sketches of two alternative reward regimes. While …

Corporations-Officers And Directors-Liability For Representative Acts Under The Sherman Act, Leon E. Irish

Michigan Law Review

An indictment brought under section 1 of the Sherman Act charged appellee and the corporation that employed him with conspiracy to eliminate price competition in the greater Kansas City milk market. Appellee was charged solely, in his capacity as officer, director or agent of the corporation. The district court dismissed the indictment on the ground that natural persons are indictable under section 1 of the Sherman Act only for acts done on their own account. On direct appeal to the Supreme Court, held, reversed and remanded. A corporate officer is liable under section 1 of the Sherman Act whether …

Municipal Corporations-Liability In Tort-Prospective Judicial Abrogation Of The Sovereign Immunity Concept, Donald E. Vacin

Michigan Law Review

Plaintiff's decedent was killed by a fall down the elevator shaft of a building owned and maintained by the City of Detroit. Plaintiff alleged that defendant city negligently failed to protect and enclose the shaft, in violation of its own ordinances, and that such failure was the proximate cause of her husband's death. The city moved to dismiss, claiming that it was engaged in a governmental function and therefore was immune from tort liability. On appeal from an order dismissing the complaint, held, affirmed by an evenly divided court. However, a majority of the court prospectively overruled the judicial …

Corporations - Clayton Act - Service Of Process On Alien Corporations Through Their Local Subsidiaries, George R. Haydon Jr.

Michigan Law Review

Two affiliated German corporations, one of which is the defendant, established a jointly owned subsidiary in New York. Three members of the subsidiary's five-man board of directors are officers or directors of the German parents, while a fourth is a former employee sent to this country to manage the subsidiary. The American company is devoted exclusively to the business of the German parents. It assists in the negotiation of contracts, although it has no power to bind the parents, advises with respect to patents, and makes infrequent sales and purchases. For these services, it receives a flat fee plus a …

Municipal Corporations - Tort Liability - Liability For Torts Committed By Municipal Employees In Exercise Of Governmental Functions, Ralph E. Boches

Michigan Law Review

Plaintiff sued the Town of Cocoa Beach for damages for the alleged wrongful death of her husband. Plaintiff's husband had died of smoke suffocation after being locked in a jail which was left unattended by the city jailor. The lower court dismissed plaintiff's complaint. On appeal, held, reversed. A person injured by the negligence of a municipal employee acting within the scope of his employment may recover against the municipal corporation. Hargrove v. Town of Cocoa Beach, (Fla. 1957) 96 S. (2d) 130.

Corporations - Liabilites - Inadequate Capitalization As Ground For Disregarding Corporate Entity, Lewis L. Clum

Michigan Law Review

Defendant Resnick, meeting minimum statutory incorporation requirements, organized a corporation and thereafter persuaded defendants Cowan to join him in operating a used car enterprise under the corporate name. No stock was issued, nor capital paid in, although a checking account was opened for use by the business. Car purchases were financed through loans made or guaranteed by the elder Cowan, who held title until resale. Proceeds from resale transactions were deposited in the checking account, from which defendant Resnick reimbursed Cowan for money advanced. Sales volume averaged from $100,000 to $150,000 monthly. Assured that the elder Cowan was "backing" the …

Partnership - Partnership By Estoppel -Application To Tort Actions, Thomas Erickson S.Ed.

Michigan Law Review

Plaintiff-motorist brought action against defendant who, it was alleged, owned a truck which was driven into the rear of the plaintiff's automobile. Defendant had arranged to take title to the truck from his son. The transfer was to be effective three days before the accident but was not in fact completed until after the accident. Defendant also had taken out insurance on the truck and had joined with his son in purchasing it and in taking out an ash-hauling license in which business the truck was used. Other trucks previously used in the business by defendant's son had been carried …

Corporations - Promotion - Discharge Of Promoter's Liability As Bidder At A Bankruptcy Sale, John Morrow

Michigan Law Review

On October 1, defendant made the high bid at a bankruptcy sale of hotel properties as "Mr. Ash, trustee." Later that same day a certificate of incorporation was executed for a corporation with Ash as treasurer. On October 4 the proper corporate papers were filed with the secretary of state. On October 4 the receivers receipted for the earnest money deposit, the instrument acknowledging, as interpreted by the court, that the receivers would look to the corporation to complete the contract and would not look to Mr. Ash personally. On October 14, the referee confirmed the sale to "Mr. Ash, …

Corporations - Shareholders - Majority Liability For Improper Stock Redemption By Corporation And For Misrepresentations In Private Stock Purchases From Minority Holders, James M. Tobin

Michigan Law Review

In 1942 a seemingly innocuous suit was brought against the Axton-Fisher Tobacco Corporation to determine the propriety of the alteration of a stock redemption. In 1955 Judge Leahy of the Federal District Court for Delaware handed down an opinion on the damages and relief to be given in the case in what he hopefully termed was the final phase of this famous litigation. It is the purpose of this comment to appraise the basis of the recovery allowed by Judge Leahy. Two readily distinguishable problems will be treated: (1) the nature of relief from a stock redemption called by fiduciaries …

Service On Foreign Corporations After Withdrawal From The State, Alvin E. Evans

Michigan Law Review

It might reasonably be expected in this corporate age that the question of how service of process should be made upon foreign corporations would have been solved, especially in situations where the cause of action arose within the state and grew out of business done there. Such is not the case, at least respecting suits brought after the withdrawal of the corporation from the state on causes of action arising during the period that it did business there. That there is a conflict in the decisions seems to be due either to a difference inter se of the statutes under …

Current Phases Of Derivative Actions Against Directors, Ralph M. Carson

Michigan Law Review

In assuming to discuss in this place some of the current phases of stockholders' derivative actions against directors of corporations, I shall try to keep a course between two extremes. On the one hand, it is of little use to fulfill the easy duty of enunciating general rules of law, stated in such a form that both parties in a contested cause may equally invoke them. Nor, on the other hand, is it of much value to fill an hour's time with details of cases recently decided which, although interesting in themselves, resist general application. What I shall try instead …

Corporations - Officers And Directors - Duty To Investigate Purchasers Of Controlling Interest, Michigan Law Review

Michigan Law Review

Plaintiff corporation, an investment trust specializing in shares of small life insurance companies, brought an action against its former officers and directors, referred to as "the management group," who in 1937 owned twenty-seven per cent of the outstanding stock of the corporation. This group sold all their stock at an inflated price to another group, referred to as "the Boston group," who on the resignation of the management group immediately elected themselves to the control of the corporation. By this control the Boston group obtained access to the portfolio and proceeded systematically to rob the corporation of all its securities. …

Corporations - Power Of Attorney To Transfer Stock On The Books Of The Corporation, Royal E. Thompson

Michigan Law Review

Although a power of attorney to transfer stock on the books of the corporation is found almost as a matter of course on the reverse side of stock certificates, along with a form for assignment of the certificate, there is surprisingly little to be found in the authorities, as to why it is there. An inquiry into the reasons, if any, for such a provision is the purpose of this discussion. A decision of last summer, by the New York Supreme Court, New York County, lends present emphasis to the query. Three certificates of stock which had been indorsed in …

The Corporate Entity As A Solvent Of Legal Problems, Elvin R. Latty

Michigan Law Review

If a layman were to ask a lawyer what is the reason that a stockholder is ordinarily not liable for his corporation's debts or that a deed to corporate property by the sole stockholder in his own name is not a flawless conveyance, the answer the layman would get would be: a corporation is a wholly different person from its stockholders-it is an entity separate and distinct from them. That answer reveals the traditional approach to scores of problems in corporation law, an approach which, it is submitted, can lead the incautious into considerable trouble.

Corporations - Fiduciary Relation Of Directors - Purchase Of Stock For Company

Michigan Law Review

A company needed a block of stock offered to it in order to acquire certain patent rights. The finances of the company were insufficient to effect the purchase. The board of directors accepted the offer for the company with the understanding that the directors would acquire the stock individually and turn over to the company the needed patent rights. After bankruptcy, the trustee of the company sued to recover profits realized by the directors from a sale of the stock. Held, the inability of the company to purchase the stock itself does not relieve the directors from liability for …

Corporations - Obligation To Refund Dividends Paid Out Of Capital

Michigan Law Review

The general rule is fairly well established that, where dividends are paid, in whole or in part, out of the capital stock, corporate creditors, being such when the dividend was declared, or becoming such at any subsequent time, may, to the extent of their claims, if such claims are not otherwise paid, compel the stockholders to whom the dividend has been paid to refund whatever portion of the dividend was taken out of the capital stock. This, however, has been modified in the federal courts to the extent that where the dividend, although paid entirely out of capital, was received …

Review: A Textbook On Law And Business, J. Wayne Ley

Michigan Law Review

A Book Review on A TEXTBOOK ON LAW AND BUSINESS By William H. Spencer

Recent Important Decisions, Michigan Law Review

Michigan Law Review

No abstract provided.

Recent Important Decisions, Michigan Law Review

Michigan Law Review

Admiralty - Workmen's Compensation - Is a Hydroplane a Vessel? - Claimant was employed in the care and management of a hydroplane which was moored in navigable waters. The hydroplane began to drag anchor and drift toward the beach, where it was in danger of being wrecked. Claimant waded into the water and was struck by the propeller. Held, claimant is not entitled to compensation under the Workmen's Compensation Law, since a hydroplane while on navigable waters is a vessel, and therefore the jurisdiction of the admiralty excludes that of the State Industrial Commission. Reinhardt v. Newport Flying Service Corp. …