author: Cynar, P.J.

text:
    GILBERT v GRAND TRUNK WESTERN RAILROAD
    Docket No. 78-4331.
    Submitted October 3, 1979, at Grand Rapids.
    Decided February 5, 1980.
    Lawrence E. Gilbert started an action against Grand Trunk Western Railroad, United Transportation Union, Mary P. Sclawy, C. Thomas Wilson and others for damages for defamation, fraudulent concealment of a conspiracy to defame and employment discrimination. The defendants’ motions for accelerated judgment were granted, Calhoun Circuit Court, Stanley Everett, J. The plaintiff appeals, alleging 1) that since he alleged fraudulent concealment of a conspiracy to defame, the trial court erred in concluding that the statute of limitations had run with respect to all but one of the plaintiffs claims of defamation, 2) that the trial court improperly granted accelerated judgment as to the defamation claims against defendants Sclawy and Wilson based upon their having an absolute privilege, and 3) that the trial court improperly concluded that the statute of limitations had run as to the plaintiffs claim of employment discrimination. Held:

    1. The trial court properly granted accelerated judgment as to all but one of the claims of defamation based on their being barred by the statute of limitations. The action was commenced after the running of the applicable statute of limitations for actions for libel and slander and the plaintiff did not commence the action within two years of his learning of the existence of the claim, the time period in which a person was allowed to bring an action after learning of the existence of a cause of action which has been fraudulently concealed according to a statute of limitations which was in effect at the time that the action was commenced. No circumstances were alleged which would have tolled the running of the statute.

      References for Points in Headnotes
    [1] 51 Am Jur 2d, Limitation of Actions §§ 453, 468-472.
    [2] 51 Am Jur 2d, Limitation of Actions § 468.
    [3] 5 Am Jur 2d, Appeal and Error §§ 727, 785.
    [4] 16 Am Jur 2d, Conspiracy § 52.
    [5] 50 Am Jur 2d, Libel and Slander §§ 429, 437.
    73 Am Jur 2d, Summary Judgment § 13.
    61 Am Jur 2d, Pleading §§ 229, 230, 233.
    Pleading or raising defense of privilege in defamation action. 51 ALR2d 552.
    [6] 73 Am Jur 2d, Summary Judgment § 13.
    [7] 51 Am Jur 2d, Limitation of Actions § 27.

      2. The statements made by defendant Wilson during the course of a previous legal action initiated by the plaintiff and which were also attributed to defendant Sclawy were not actionable as a matter of law. However, defendants Wilson and Sclawy raised the issue of privilege in a motion for accelerated judgment. This was error as the proper method to raise this defense is by a motion for summary judgment based on the plaintiffs failure to state a claim upon which relief can be granted. The trial court’s error in granting the mislabeled motion was not reversible error since there was no prejudice or surprise to the plaintiff.
    3. Federal court decisions involving Michigan law have applied a three-year limitations period to actions for employment discrimination. Adopting these holdings as the rule in Michigan, the plaintiffs claim was barred by the statute of limitations since the action was not commenced within the three-year period. The plaintiffs allegation of fraudulent concealment does not change the result as the action was not commenced within the two-year period between the discovery of the claim and institution of this action.
    Affirmed.
    1. Judgment — Accelerated Judgment — Statute of Limitations — Court Rules.
    A motion for accelerated judgment is the proper vehicle by which to raise the affirmative defense of the statute of limitations (GCR 1963, 116.1[5]).
    2. Limitation of Actions — Pleadings — Affidavits •— Hearings — Court Rules.
    A trial court, in deciding the efficacy of a statute-of-limitations defense, generally is permitted to rule on the basis of the complaint alone, or may, in appropriate circumstances, additionally examine any affidavits submitted by either party, or further allow an immediate hearing on disputed questions of fact prior to ruling, or may postpone any hearing on the motion until after a trial on the merits of the plaintiffs claims (GCR 1963, 116.3).
    3. Appeal and Error — Wrong Reason for Right Result.
    A result reached by a trial court will not be disturbed on appeal where the court achieved the right result, but assigned the wrong reason therefor.
    4. Conspiracy — Gravamen of Civil Action.
    The gravamen of a civil action for damages resulting from wrongful acts claimed to have been perpetrated in the furtherance of a conspiracy is not the conspiracy but the wrongful acts.
    5. Libel and Slander — Privilege — Summary Judgment — Court Rules.
    The proper way to raise the defense of absolute privilege to an action for defamation is by a motion for summary judgment on the ground of failure to state a claim upon which relief can be granted (GCR 1963, 117.2[1]).
    6. Judgment — Motions — Accelerated Judgment — Summary Judgment.
    The Court of Appeals may treat a motion for accelerated judgment as a motion for summary judgment where there is no prejudice to the non-moving party.
    7. Limitation of Actions — Employment Discrimination — Statutes.
    An action by an employee alleging discrimination in employment practices is subject to a three-year limitations period under the statutory provision which requires that "all other actions to recover damages for injuries to person and property” be commenced within three years of the time the claim accrues (MCL 600.5805[7]; MSA 27A.5805[7]).

      John Wilkinson, for plaintiff.

      Mary P. Sclawy and C. Thomas Wilson, for defendants.
    Before: Cynar, P.J., and D. F. Walsh and L. B. Bebeau, JJ.

       Former circuit judge, sitting on the Court of Appeals by assignment pursuant to Const 1963, art 6, § 23 as amended in 1968.

   Cynar, P.J.

Plaintiff appeals as of right the trial court’s grant of defendants’ motion for accelerated judgment and the resultant, dismissal of plaintiffs action with prejudice.

Plaintiff first contends that the trial court erred in concluding that the statute of limitations had run with respect to all of plaintiffs claims of defamation, save one. Specifically, plaintiff says that since he alleged fraudulent concealment of a conspiracy to defame him, the trial court should have applied MCL 600.5855; MSA 27A.5855 as the appropriate statute of limitations, instead of ruling on the basis of MCL 600.5805(6); MSA 27A.5805(6), the subsection otherwise applicable as of the date the trial court made its ruling. Defendants argue that plaintiff failed to plead specifically those facts necessary to support a claim of fraudulent concealment and that the trial judge therefore relied upon the correct limitation of actions provision in ruling.

A motion for accelerated judgment is the proper vehicle by which to raise the affirmative defense of the statute of limitations. GCR 1963, 116.1(5). The purpose of a motion for accelerated judgment is to test certain special defenses which may make trial on the merits unnecessary, even though factual issues may have to be resolved in order to rule upon the motion. Ceplin v Bastian-Blessing Division of Golconda Corp, 90 Mich App 527, 530; 282 NW2d 380 (1979). In deciding the efficacy of the statute of limitations defense, a trial court generally is permitted to rule on the basis of the complaint alone, or may, in appropriate circumstances, additionally examine any affidavits submitted by either party, or further allow an immediate hearing on disputed questions of fact prior to ruling, or postpone any hearing on the motion until after a trial on the merits of plaintiffs claims. GCR 1963, 116.3.

In the instant case, affidavits were filed and a hearing was held, but no testimony was heard at that time. Following the hearing, the court below found that plaintiff had alleged fraudulent concealment in his complaint. With this conclusion we agree. Although the court failed thereafter to apply MCL 600.5855 in ruling on the defendants’ motion with respect to the concealment, application of the proper statute of limitations would not alter the result in this Court. The reason we arrive at this determination is that plaintiffs complaint itself establishes that he discovered the underlying defamation claims in the early part of 1975. Yet he did not commence this action until September 19, 1977, well after the two-year statute of limitations found in MCL 600.5855 had run on plaintiffs claims, since he had alleged no circumstances which would have tolled the running of the statute. Janiszewski v Behrmann, 345 Mich 8, 35; 75 NW2d 77 (1956).

Where, as here, the trial judge achieves the right result, but assigns the wrong reason therefor, the result will not be disturbed on appeal. Peninsular Construction Co v Murray, 365 Mich 694, 699; 114 NW2d 202 (1962), inter alia.

The language in plaintiffs complaint, intimating that a continuing conspiracy to defame him occurred, is of no moment. As noted in Roche v Blair, 305 Mich 608; 9 NW2d 861 (1943), in a civil action for damages resulting from wrongful acts (here, defamation) claimed to have been perpetrated in furtherance of a conspiracy, the gravamen of the action is not the conspiracy but the wrongful act. Roche, supra, 614-615. The language adverting to a conspiracy was thus superfluous insofar as it might affect the applicability of a particular statute of limitations.

Moreover, as noted earlier, plaintiffs complaint indicates that, with one exception, all the alleged instances of defamation occurred no later than early 1975, thus refuting plaintiffs own unspecific contention that they were ongoing in nature and therefore fell within the statutory period for bringing such an action. Accordingly, we conclude that plaintiff’s claims of defamation against all defendants, except defendants Wilson and Sclawy, were barred by the operation of MCL 600.5855; MSA 27A.5855.

As it further appears that the trial judge relied solely on the averments contained in plaintiffs complaint as factual support for his legal conclusion, he did not impermissibly resolve controverted questions of fact in denigration of plaintiffs demand for a jury trial. See GCR 1963, 116.3. This is true notwithstanding the fact that the trial court erroneously held an affidavit hearing in this case contrary to the aforementioned proscription found in GCR 116.3. The affidavit hearing did not prejudice plaintiff or deny him his right to trial by jury where the trial judge instead relied solely on the allegations in plaintiffs complaint and accepted as true each averment therein in ruling on defendants’ motion and where the complaint itself recited facts showing that plaintiff had no such entitlement. Thus, this procedural irregularity denied plaintiff no substantial right.

We conclude that statements made by defendant Wilson during the course of a previous legal action initiated by plaintiff, which were attributed to defendant Sclawy also by plaintiff, were not actionable as a matter of law, under Sanders v Leeson Air Conditioning Corp, 362 Mich 692, 695-696; 108 NW2d 761 (1961), and Pagoto v Hancock, 41 Mich App 622, 623-624; 200 NW2d 777 (1972), as allegations contained in plaintiffs complaint disclosed that these defendants were presumptively clothed with an absolute privilege to defame with respect to the statements made by them in the course of the earlier judicial proceedings, which presumption was unrebutted by any other averments in plaintiffs complaint.

However, defendants Wilson and Sclawy raised the question of privilege in their motion for accelerated judgment. This was error, as the proper method to raise the defense would be by a motion for summary judgment under GCR 1963, 117.2(1), on the ground of failure to state a claim upon which relief can be granted. Pagoto v Hancock, supra, 623. Cf., Pompey v General Motors Corp, 385 Mich 537, 563; 189 NW2d 243 (1971).

However, the error of the trial court in granting the mislabeled motion was not reversible error. This Court has held that where the trial judge mistakenly grants a motion for accelerated judgment, we may consider whether the decision may be upheld under the summary judgment rule, at least where there is no prejudice to the plaintiff. American Fidelity Fire Ins Co v Barry, 80 Mich App 670, 679; 264 NW2d 92 (1978), Warvel v Michigan Community Blood Center, 74 Mich App 440, 444; 253 NW2d 791 (1977), Stewart v Trout, 73 Mich App 378, 383; 251 NW2d 594 (1977).

We detect no prejudice to plaintiff, or surprise, which would constrain us to reverse the ruling below, solely because the motion was mislabeled and the court’s ruling thereupon was predicated on the wrong court rule. Plaintiff was clearly put on notice of the underlying basis for defendants’ motion, and that the relief sought by defendants Wilson and Sclawy was a dismissal of plaintiff’s claims against them. The result arrived at was correct under the circumstances, as defendants were entitled to a grant of summary judgment on the facts as stated in plaintiff’s complaint. Pagoto v Hancock, supra, 623-624, Sanders v Leeson Air Conditioning, supra, 695-696.

Finally, we are asked to review the trial court’s grant of defendants’ motion for accelerated judgment with respect to plaintiffs claim of employment discrimination, again on the basis that the applicable statute of limitations had run on plaintiffs claim. The lower court ruled that the appropriate limitation for bringing such an action was three years, and that the statute had begun to run more than three years prior to the commencement of the instant action by plaintiff. However, the court cited neither statute nor judicial decision as authority for the proposition that the three-year period was the relevant span within which one must institute an action for employment discrimination.

What limitation of actions provision is controlling as against this claim of plaintiffs is a question of first impression in Michigan. Plaintiff argues that an action.for employment discrimination falls under MCL 600.5813; MSA 27A.5813 as an "other personal action”, and is thus subject to a six-year statute of limitations.

Defendants urge us to hold that an action for damages relating to employment discrimination is in actuality a claim for damages for injury to a person and therefore falls within the ambit of MCL 600.5805(7); MSA 27A.5805(7), as in effect on the date the order granting defendants’ motion for accelerated judgment was entered.

There are no Michigan cases on point. However, there are Federal decisions which have faced the precise question before us, while applying Michigan law. Although not binding precedent, we find their reasoning illuminating and highly persuasive. In Marlowe v Fisher Body, 489 F2d 1057 (CA 6, 1973), Judge Lively, writing for a unanimous court, held that MCL 600.5805(7) applied to an action by an employee alleging discrimination in employment practices. Marlowe, supra, 1063. Accord, Weldon v Detroit Board of Education, 403 F Supp 436, 438 (ED Mich, 1975). We adopt the holdings in these cases as the rule in Michigan.

We conclude that, generally, the provision to be applied in ruling on whether a claim of alleged employment discrimination is barred is MCL 600.5805(7). On the face of plaintiffs complaint in the case at bar, it is stated that he has not been employed by defendant Grand Trunk Western Railroad since 1973. Necessarily, any acts of employment discrimination must have occurred during or before that year. We note parenthetically that plaintiff averred that his discrimination claim was founded upon MCL 423.301 et seq.; MSA 17.458(1) et seq., thus circumscribing any such claim within the confines of his employment. Since, at a minimum, three years nine months had elapsed between the last possible date employment discrimination could have occurred and the date plaintiff commenced this action, plaintiffs complaint itself would ordinarily supply the factual support for the lower court’s ruling.

However, we note that a fraudulent concealment is alleged with regard to this claim. This does not alter the result in the court below, for as mentioned earlier, plaintiff discovered this claim, at the latest, in early 1975. If MCL 600.5855; MSA 27A.5855 is applied instead of MCL 600.5805(7), our disposition is the same. Under either provision, plaintiffs action for employment discrimination would be barred. If MCL 600.5855 is applied, more than two years passed between discovery of the claim and institution of this suit and the action is barred thereunder. If MCL 600.5805(7) is employed, nearly four years passed between plaintiff’s last day on the job and the commencement of the instant litigation and the claim is without the statute and therefore barred by its terms.

Having discovered no error which would compel reversal, we affirm the disposition in the court below.

Affirmed. Costs to defendants.

       The provision reads as follows:
      “Sec. 5855. If a person who is or may be liable for any claim fraudulently conceals the existence of the claim or the identity of any person who is liable for the claim from the knowledge of the person entitled to sue on the claim, the action may be commenced at any time within 2 years after the person who is entitled to bring the action discovers, or should have discovered, the existence of the claim or the identity of the person who is liable for the claim, although the action would otherwise be barred by the period of limitations.”

       On the date the order granting defendants’ motion was entered, the statute read:
      "Sec. 5805. No person may bring or maintain any action to recover damages for injuries to persons or property unless, after the claim first accrued to himself or to someone through whom he claims, he commences the action within the periods of time prescribed by this section.
      "(6) The period of limitations is 1 year for actions charging libel or slander.
      The statute was amended by 1978 PA 495, and the above-noted provision is now contained in subsection (7).

       Defendants argue that fraudulent concealment. is a species of fraud which must be pleaded with particularity, as required by GCR 1963, 112.2.

       GCR 1963, 116.3 reads in relevant part:
      "As to defenses and objections based upon subrule 116.1(5), the court may order immediate trial of any disputed questions of fact, and judgment may be rendered forthwith if the proof shows that the moving party is entitled to judgment on the facts as determined; or the court may postpone the hearing on the matter until the trial on the merits, and shall postpone the hearing if a jury trial has been demanded pursuant to right on or before the day of hearing.”

       On the date the order granting defendants’ motion was entered, the statute in relevant portion stated:
      "Sec 5850. No person may bring or maintain any action to recover damages for injuries to persons or property unless, after the claim first accrued to himself or to someone through whom he claims, he commences the action within the periods of time prescribed this section.
      "(7) The period of limitations is 3 years for all other actions to recover damages for injuries to persons and property.”


source: Caselaw Access Project

author: D. C. Riley, J.

license: Public Domain

text:
    KLAGER v ROBERT MEYER COMPANY
    Docket No. 78-4462.
    Submitted November 14, 1979, at Detroit.
    Decided February 5, 1980.
    Leave to appeal applied for.
    Wayne G. Klager and others brought an action seeking unpaid rent under a lease for certain land located in the City of Ann Arbor. The lease was with the Robert Meyer Company, that company intending to erect a shopping center upon the land if the necessary zoning changes and construction permits could be secured. The Robert Meyer Company, a partnership, assigned the lease to Packard Platt Plaza, Inc., a corporation formed for the express purpose of limiting the personal liability of the Robert Meyer Company partners. The Robert Meyer Company was dissolved and some of that partnership’s activities were undertaken by a newly formed partnership, the Meyer C. Weiner Co. The two partnerships, the corporation, and the members and stockholders of those entities were made defendants to the action to recover rent. Plaintiffs were awarded a judgment by the Washtenaw Circuit Court, Edward D. Deake, J., in the amount of $203,446.59, jointly and severally, against the Robert Meyer Company, Packard Platt Plaza, Inc., Meyer C. Weiner and Benjamin H. Rabin, who were partners in the Robert Meyer Company and stockholders in Packard Platt Plaza, Inc., and Joshua T. Weiner, who was a stockholder in the corporation. Those defendants and defendant Meyer C. Weiner Co. appeal. The individual defendants argue that they were released from personal liability by the assignment of the lease to the corporate defendant and that.the provisions of the lease agreement did not create personal liability in the corporate members. Defendants also argue that plaintiffs failed to mitigate their damages as required by law. Held:

      References for Points in Headnotes
    [1, 2] 18 Am Jur 2d, Corporations §§ 15-17. 19 Am Jur 2d, Corporations § 987.
    Inadequate capitalization as factor in disregard of corporate entity. 63 ALR2d 1051.
    [2] 18 Am Jur 2d, Corporations § 14.
    19 Am Jur 2d, Corporations § 713.
    [3, 4] 5 Am Jur 2d, Appeal and Error §§ 641, 642.
    22 Am Jur 2d, Damages § 200.
    [4] 29 Am Jur 2d, Evidence § 127.
    [5] 5 Am Jur 2d, Appeal and Error §§ 545, 548, 549.

      1. Individual liability of partnership members cannot be avoided by assignment of a lease to an under-capitalized corporation set up for the sole purpose of avoiding such liability. The trial court may properly pierce the veil of the corporate identity where there is fraud, sham or other improper use of the corporate form.
    2. The stockholders of the corporation were properly found to be personally liable under the lease provision which provided that, if the lease were assigned to a corporation or other entity, the members of such entities shall assume the obligations under the lease jointly and severally. That language in the lease is sufficient to support the finding of the trial court that it was intended that the stockholders of the corporation be per-, sonally liable under the lease.
    3. The question of mitigation of damages is not properly raised on appeal, since it was not pled or proved before the trial court.
    Affirmed.
    Bronson, P.J., dissented. He would hold that there was sufficient proof established at trial to carry the defendants’ burden of proof with respect to showing a failure by plaintiffs to mitigate damages. He would hold that the failure to raise the question of mitigation of damages before the trial court does not preclude consideration of the question on review, since ■resolution of the issue is necessary to a proper determination of the case and since to so refuse to consider that question would result in a miscarriage of justice. He would remand to the trial court for a hearing on damages in which the trial court would be instructed to reduce the award by any amount which would have been saved if plaintiffs had exercised reasonable efforts to mitigate their damages.
    Opinion op the Court
    I. Corporations — Piercing the Corporate Veil — Fraud.
    Individual liability under a lease cannot be avoided by assignment of the lease to an under-capitalized dummy corporation, since a court can pierce the veil of the corporate identity where there is fraud, sham or other improper use of the corporate form.

      2. Corporations — Stockholder Liability — Lease Assignment — Findings of Fact.
    Stockholders of a corporation may be found to be personally liable under a lease held by the corporation as an assignee where the lease provides that, if the lease is assigned to a corporation or other entity, all the members of such entities shall assume the obligations of the lease jointly and severally; that language is sufficient to support a finding that the parties intended that the stockholders of any assignee corporation be personally liable under the lease.
    3. Appeal and Error — Damages — Mitigation of Damages — Preserving Question.
    The question of mitigation of damages under a lease is not preserved for appellate review where the lessee failed to raise the question before the trial court and failed to meet the burden of proof of showing that the lessor had not used every reasonable effort to minimize his damages.
    Dissent by Bronson, P.J.
    4. Damages — Mitigation of Damages — Burden of Proof — Sufficiency of Proof.

      The burden of pi oof necessary to establish a lessor’s failure to mitigate damages on the breach of a lease by the lessee is satisñed by the lessee where the lessor admits in his testimony at trial that he undertook no efforts to minimize his damages.

    5. Appeal and Error — Preserving Question — Exceptions.

      Failure to assert an issue before the trial court will, as a general rule, preclude appellate review; however, questions may be raised for the first time on appeal where all the facts necessary for the resolution of the question have been presented, where consideration of such a question on appeal is necessary for a proper determination of the case or where consideration of such a question is necessary in order to prevent injustice.

      Ulrich, Pear, Barense & Eggan, P.C., for plaintiffs.

      Clark, Hardy, Lewis, Fine & Asher, P.C., for defendants.

      Before: Bronson, P.J., and D. C. Riley and E. A. Quinnell, JJ.

       Circuit judge, sitting on the Court of Appeals by assignment.

   D. C. Riley, J.

Defendants-appellants (hereinafter called defendant even though there were other defendants in the trial court) appeal as of right from the November 17, 1978, judgment of the trial court awarding plaintiffs $203,446.59 plus seven per cent interest, pursuant to a lease agreement.

Plaintiffs leased approximately ten acres of land in Ann Arbor, Michigan, for 50 years at $36,000 per year, to defendant Robert Meyer Company, a partnership, which intended to erect a shopping center on the land. Since part of the land was zoned commercial and part was zoned multiple-dwelling, the lease was delivered into escrow on three conditions. First, the lease was to become legally effective upon the subject premise being rezoned in its entirety. Second, if the land was not rezoned by January 3, 1972, then, at the option of the tenant, the lease could be rendered null and void on written notice by the tenant. Third, waiver of the requirement of rezoning would be implied by the tenant’s election not to serve the written notice.

The partnership never gave written notice of termination to plaintiffs. In fact, rather than terminate the lease because of rezoning problems, the partnership assigned its rights and obligations under the lease to Packard Platt Plaza, Inc., a corporation formed for the express purpose of limiting the personal liability of the Robert Meyer Company partners. Packard Platt Plaza, Inc., was incorporated with approximately $1,000 capital. The only assets of the corporation were the lease and additional funds infused to pay corporate expenses. Plaintiffs gave written consent to the assignment based upon the understanding that the individual partners of Robert Meyer Company would remain liable under the lease.

The Robert Meyer Company was dissolved in February of 1972, and a partnership was formed to perform work (unrelated to the instant transaction) which had been done prior to that time by the Robert Meyer Company. This partnership was called the Meyer C. Weiner Co.

The lease was delivered out of escrow on March 14, 1972, and the parties orally modified the lease in April of 1972. The modification cut the rent from $36,000 to $18,000 per annum; the lessees agreed to pay the real estate commission; the portion of the property zoned multiple was deleted and plaintiffs agreed to pay one quarter of the taxes on the whole parcel. Payments under the lease were still to begin on May 1, 1972.

. The City of Ann Arbor refused to issue a building permit for the smaller development and the defendant corporation lost its mandamus action when the Michigan Supreme Court refused to hear the case in April of 1976. Plaintiffs instituted this action on April 24, 1975, seeking the unpaid rent on the orally modified lease.

Defendants Meyer C. Weiner and Benjamin H. Rabin first contend that they were released from personal liability by the assignment of the lease to the corporation. We do not agree.

Individuals cannot avoid their responsibility by assigning a lease to a corporation formed solely to avoid liability. The notion of a separate corporate identity distinct from those persons composing the corporation is merely a legal fiction. Montgomery v Central National Bank & Trust Co of Battle Creek, 267 Mich 142, 147-148; 255 NW 274 (1934). A corporate veil will be pierced where there is fraud, sham or other improper use of the corporate form. Williams v American Title Ins Co, 83 Mich App 686, 697; 269 NW2d 481 (1978).

In the instant case, defendants Meyer C. Weiner and Benjamin H. Rabin intentionally assigned the lease to an under-capitalized dummy corporation for the purpose of avoiding personal liability under the lease. The trial court did not err when it pierced the corporate veil and held defendants Meyer C. Weiner and Benjamin H. Rabin personally liable on the lease. See Cinderella Theatre Co, Inc v United Detroit Theatres Corp, 367 Mich 424; 116 NW2d 825 (1962).

The individuals next claim that they are not liable under the following assignment provision contained in the lease:

"In the event this Lease shall be assigned to a partnership, tenancy-in-common, joint tenancy, syndicate, joint venture or similar entity or to more than one person, corporation or other entity, all such persons, corporations and entities and all members of such entities shall assume the obligations of this Lease jointly and severally. Nothing contained herein shall preclude the right of a stockholder or owner of interest at the time of the signing of this Lease to transfer all or part of his or their interest by gift or otherwise, to or for the benefit of his wife, children or heirs.”

Under this provision, defendant Joshua T. Weiner was held personally liable as a stockholder of the corporation. The trial court ruled that the understanding of the parties to the lease was the relevant consideration. It concluded that the parties intended to include corporate stockholders within those persons to be personally liable under the lease. The finding of the trial court is not clearly erroneous. GCR 1963, 517.1.

Defendants also contend that plaintiffs failed to mitigate their damages as required by Michigan law. However, defendants did not raise this issue before appealing to this Court. This Court has recognized that a landlord has a duty to mitigate damages when a lessee breaches a lease. Tel-Ex Plaza, Inc v Hardees Restaurants, Inc, 76 Mich App 131; 255 NW2d 794 (1977), Froling v Bischoff, 73 Mich App 496; 252 NW2d 832 (1977). Under well settled Michigan authority cited in Froling, supra, the burden is upon the lessee to show, in mitigation of the damages claimed, that the lessor has not used every reasonable effort within his power to so minimize his damages. In addition to waiving this issue by not presenting it to the trial court, defendants failed to meet this burden.

Defendants’ other allegations of error are without merit.

Affirmed.

E. A. Quinnell, J., concurred.

Bronson, P.J.

(concurring in part, dissenting in part). I agree with the majority that the individual defendants were not released from personal liability by the assignment of the lease to the corporation, and that the trial court’s finding that the parties intended to include corporate members within those persons to be personally liable under the lease was not clearly erroneous. I respectfully dissent, however, on the issue of mitigation.

As the majority has pointed out, a landlord has a duty to mitigate the damages when a lessee breaches. Tel-Ex Plaza, Inc v Hardees Restaurants, Inc, 76 Mich App 131; 255 NW2d 794 (1977), Froling v Bischoff, 73 Mich App 496; 252 NW2d 832 (1977). The burden is on the lessee to show that the lessor has not used every reasonable effort to limit the damages. Froling v Bischoff, supra. In the instant case, plaintiff Wayne Klager was questioned regarding his efforts to mitigate his damages:

"Q [by Terrance Page, attorney for defendants]: Since May of ’72, Mr. Klager, have you been making any efforts to lease the property to others?

"A No.

"Q Have you ever — have you made any efforts to sell this property to others?

"A I have spoken to a number of real estate people but I haven’t — we haven’t discussed price or anything. I was just seeing if there was a general interest.

"Q But you have never listed the property with a real estate agent or lease for sale?

"A No.”

This testimony not only demonstrates that plaintiffs did not make every reasonable effort to minimize their damages; it reveals that they made no such effort at all. I would accordingly hold that defendants met their burden of showing plaintiffs’ failure to mitigate.

While it is true that as a general rule issues not raised in the trial court may not be asserted on appeal, the rule is not inflexible and knows several exceptions. Questions may be raised for the first time on appeal where the issue is one of law, and all the facts necessary for its resolution have been presented. Kahn-Reiss, Inc v Detroit & Northern Savings & Loan Ass’n, 59 Mich App 1, 12; 228 NW2d 816 (1975). Similarly, the rule will not be applied when consideration of an issue first raised on appeal is necessary to a proper determination of the case. Prudential Ins Co of America v Cusick, 369 Mich 269, 283, 290; 120 NW2d 1 (1963). Appellate courts have reserved the authority to consider manifest and serious errors even though the issue was not raised below in an effort to prevent injustice, and this applies to both civil and criminal cases. People v Snow, 386 Mich 586, 591; 194 NW2d 314 (1972). See generally, Siirila v Barrios, 398 Mich 576, 610-611; 248 NW2d 171 (1976) (Williams, J., concurring).

I would hold that under these authorities the question of plaintiffs’ failure to mitigate is properly reviewable by this Court. Defendants have been held liable in the amount of $203,446.59 on a lease when plaintiffs have admittedly made no efforts to limit their losses. This Court must reach this issue to make a proper determination of the instant case, and to prevent injustice. I would remand for a hearing on damages, instructing the trial court to deduct the amount that would have been saved if plaintiffs had exercised reasonable efforts to mitigate their damages.


author: Beasley, J.

text:
    SWARTZ v DOW CHEMICAL COMPANY
    Docket No. 78-4639.
    Submitted December 4, 1979, at Lansing.
    Decided February 5, 1980.
    Leave to appeal applied for.
    Brian Swartz, a 19-year-old employee of Raker-Perkins Company, died from asphyxiation when he was cleaning a gimbal box with Dowclene. William L. Swartz, his father, individually and as administrator of his estate and his mother Anna Swartz, individually, brought a wrongful death action against Dow Chemical Company and McKesson Chemical Company, the manufacturers and distributors of Dowclene, in Saginaw Circuit Court. The jury rendered a verdict of no cause of action in favor of defendants. Fred J. Borchard, J., entered judgment for the defendants. Plaintiffs appeal. On appeal, plaintiffs allege that the trial court erred when it admitted evidence that decedent’s employer violated certain Occupational Safety and Health Administration regulations, that comments made by counsel for Dow Chemical may have prejudiced one juror and thus plaintiffs’ case, and that the trial court erred when it excluded the expert testimony of a psychologist which was offered to prove the loss of decedent’s future earning capacity. Held:

    1. Generally, a criminal conviction is inadmissible as substantive evidence of conduct arising out of the same occurrence which is at issue in a civil case. However, in a wrongful death action such evidence is admissible to prove an intervening cause of decedent’s death, not as affirmative proof of culpability, but as an operative fact to bar plaintiff’s recovery. Admission of evidence of the Occupational Safety and Health Administration citations to Baker-Perkins for purposes of barring plaintiff’s recovery was not error.
    2. Plaintiff failed to bring the problem of possible juror prejudice to the attention of the trial judge and there was no opportunity to interrogate the juror or to make findings of the presence or absence of bias or prejudice. Plaintiffs claim of error was not preserved for review and there is no such miscarriage of justice as would require a review of the alleged error in the absence of objection at trial.

      References for Points in Headnotes
    [1] 22 Am Jur 2d, Death §§ 31,105 et seq.

    29 Am Jur 2d, Evidence § 334.
    [2] 47 Am Jur 2d, Jury §§ 200, 267 et seq.

    75 Am Jur 2d, Trial § 1098.
    [3] 22 Am Jur 2d, Death §§ 119,123, 218, 250.

      3. For parents to recover future support damages in a wrongful death action involving an adult child it is necessary to establish' that the decedent had assumed an obligation during his lifetime to support his parents or had contributed to the support of his parents prior to death. Trial testimony indicates that decedent had never contributed to the support of his parents and there was no reasonable expectation that he would in the future. Exclusion of expert testimony offered to prove the loss of decedent’s future earning capacity was not improper.
    Affirmed.
    1. Evidence — Criminal Convictions — Civil Suits — Wrongful Death — Contributory Negligence — Governmental Regulations.
    Cases which hold that a criminal conviction is inadmissible as substantive evidence of conduct arising out of the same occurrence which is at issue in a civil case do not apply in a wrongful death action where defendant chemical companies, as producers and distributors of the agent that allegedly caused the decedent’s asphyxiation, denied liability and charged that decedent was guilty of contributory negligence and the negligence of decedent’s employer was an intervening cause of decedent’s death; the introduction of the employer’s violations of a governmental agency’s regulations are admissible not as affirmative proof of culpability but as operative facts to bar recovery.
    2. Trial — Jury — Bias — Prejudice — Interrogation of Juror.
    The proper procedure, where the possibility of juror prejudice arises during trial, is to bring the problem to the attention of the trial judge promptly in 'order that the problem may be resolved at the trial level if possible; where raised promptly, the trial judge has an opportunity to interrogate the juror and to make appropriate findings regarding the presence or absence of bias or prejudice.
    3. Damages — Death — Wrongful Death — Adult Child — Parents — Expectation of Support — Assumed Support Obligations — Prior Support Contributions.
    The test for determining whether damages for loss of future support may be recovered by a parent in a wrongful death action for the death of an adult child is whether there is reasonable expectation of support; generally, for a parent to recover damages for future support it is necessary to establish that the decedent had assumed an obligation during his lifetime to support his parent or had contributed to the support of his parent prior to death.

      Dean A. Polzin Law Offices (by Robert A. Kaminski), for plaintiff.

      Isackson & Neering, P.C. (by Frank M. Quinn and James J. Kent), for Dow Chemical Company.

      Troester, Picard, MacNeil, Learman & DeWit, for McKesson Chemical Company.
    Before: Danhof, C.J., and Beasley and Cynar, JJ.
   Beasley, J.

Plaintiffs decedent, Brian Swartz, a 19-year-old relatively new employee of Baker-Perkins Co., was killed in an industrial accident on April 25, 1974. His death apparently occurred from asphyxiation when he was cleaning a gimbal box by applying Dowclene with an atomizer spray gun contrary to advice of his more experienced coemployee. Dowclene is manufactured by defendant Dow Chemical Co., and is distributed by defendant McKesson Chemical Co.

Plaintiffs claim defendants negligently failed to properly label the product and failed to adequately warn of its dangerous propensities. In denying liability, defendants claimed, among other things, that the sole proximate cause of the accident was the negligence of plaintiffs’ decedent and of his employer Baker-Perkins Co.

After trial on the merits, the jury rendered a verdict of no cause of action in favor of defendants. Plaintiffs appeal as of right, raising four issues, three of which merit discussion.

First, plaintiffs claim that the trial court erred when it admitted evidence that decedent’s employer violated certain Occupational Safety and Health Administration (O.S.H.A.) regulations. Defendant Dów’s counsel questioned Basil Hibbard, safety director for Baker-Perkins Co., concerning an investigation into decedent’s accident by the State Health Department and by O.S.H.A. Hibbard testified that both the State Health Department and O.S.H.A. issued a citation for violations found. This line of questioning, which was objected to by plaintiffs’ counsel, was admitted in support of defendants’ affirmative defense that decedent’s employer and decedent were the parties responsible for the accident and not defendants.

Plaintiffs cite Wheelock v Eyl and Kirby v Larson in support of their claim of error. In Wheelock, the Michigan Supreme Court held "that a criminal conviction after trial, or plea, or payment of fine is not admissible as substantive evidence of conduct at issue in a civil case arising out of the same occurrence”. Kirby also was concerned with a civil action arising out of a traffic accident. In Kirby, the question addressed by the Court was whether the issuance of a traffic citation as opposed to a conviction could be admitted into evidence for purposes of proving negligence in a subsequent civil trial. The Court ruled that evidence of the issuance of a traffic ticket may not be admitted. The Kirby Court relied on the reasoning in Wheelock in making its determination that civil and criminal cases involve different considerations and satisfy different policies, and a violation under one does not necessarily mean liability under the other.

Defendants argue that Kirby and Wheelock are factually distinguishable from the instant case as the citations were given to a nonparty to the suit and were not issued by criminal enforcement agencies. We are not persuaded that, for purposes of admissibility in another civil case, a citation by a government agency such as O.S.H.A. is substantially different than a traffic ticket issued by the police. Both would be likely to carry a great deal of weight with a jury. We view both as enforcement agencies, and we reject defendants’ argument that they are distinguishable.

Next, we address defendants’ contention that since Baker-Perkins, decedent’s employer, was not a party to this suit, the holdings in Kirby and Wheelock are inapposite. This argument finds support in Imperial Kosher Catering, Inc v Travelers Indemnity Co. In Imperial Kosher Catering, the plaintiff corporation was suing the defendant insurance company for proceeds under a fire insurance policy. As an affirmative defense, the defendant argued that the sole shareholders, who were also officers of the plaintiff corporation, had intentionally caused the fire. The trial court permitted the defendant to introduce evidence of a criminal conviction of arson against the two shareholders arising out of this same fire. The Court in Imperial Kosher Catering, while not expressly rejecting the Wheelock doctrine, did criticize the policy of law that would seem to allow convicted persons to profit from their crimes. The Court also distinguished Wheelock on two grounds. The primary ground for distinguishing the holdings was that the arson convictions in Imperial Kosher Catering were not used affirmatively as proof of culpability in trial of a civil action brought against the person convicted in the criminal case. Rather, evidence of the criminal conviction was an operative fact advanced to bar recovery by the plaintiffs.

In the instant case, in answering plaintiffs’ complaint, defendants denied any negligence on their parts and, by way of affirmative defenses, charged that plaintiffs’ decedent was guilty of contributory negligence and that the negligence of decedent’s employer was an intervening cause of decedent’s death. The introduction of the employer’s violations of O.S.H.A. regulations were admitted in order to bar plaintiffs’ recovery. The facts here more closely resemble those set forth in Imperial Kosher Catering than those in Wheelock and Kirby where the liability of the very party against whom the evidence was introduced was the pivotal question for which the prior finding of guilt was to be admitted.

Further, we note that the jury was instructed that there could be more than one proximate cause and that the jury was free to find that even if decedent’s employer had some responsibility for the accident, plaintiffs could still recover if defendants also contributed to the occurrence. Under the Court’s rationale in Imperial Kosher Catering, we find the admission of O.S.H.A. violation citations to Baker-Perkins for purposes of barring plaintiffs’ recovery was not error.

Plaintiffs’ next claim of error relates to comments made by counsel for defendant Dow Chemical, which allegedly may have prejudiced one juror and, thus, plaintiffs’ case. These comments referred to a product sold by a company for whom the juror might have been employed at the time. There was no objection made at the time concerning the comments.

When the possibility of juror prejudice arises during trial, the proper procedure is to bring the problem to the attention of the trial judge promptly in order that the problem be resolved, if possible, in the trial court. When raised promptly, the trial judge has an opportunity to interrogate the juror and to make appropriate findings regarding the presence or absence of bias or prejudice. In this case plaintiffs’ counsel did nothing at the time of the alleged misconduct. We view the raising of the error at the appellate level to be untimely under the circumstances of this case. The trial court had the capability of correcting any error if, in fact, one occurred; but, plaintiffs failed to bring the possible bias of the juror to the trial court’s attention. Thus, the error is not preserved for our review. Further, we find no such miscarriage of justice as would require us to review the alleged error even where not preserved.

Finally, plaintiffs claim the trial court erred when it excluded the expert testimony of Dr. William Hunter, a psychologist experienced in vocational and economic losses whose testimony was being offered to prove the loss of future earning capacity of decedent. The death of the decedent occurred after he reached the age of majority. Decedent’s survivors included his father, mother and two brothers. Defendants objected to this testimony, claiming that the testimony of plaintiffs’ decedent’s father indicated that there was no support or contribution by decedent to his parents.

The Michigan wrongful death statute [MCL 600.2922(2); MSA 27A,2922(2)] provides in pertinent part:

"Every such action shall be brought by, and in the names of, the personal representatives of such deceased person, and in every such action the court or jury may give such damages, as, the court or jury, shall deem fair and just, under all of the circumstances to those persons who may be entitled to such damages when recovered * * *.”

Rytkonen v City of Wakefield was a wrongful death case in which the Supreme Court upheld a jury award to decedent’s mother based upon loss of support by decedent, an adult child. The facts in Rytkonen indicate that decedent had assumed an obligation during his lifetime to support his mother.

In Mooney v Hill, the Court found in accordance with the holding in Rytkonen that where the adult, unmarried decedent had contributed to the support of his parents prior to his death, his parents could recover under the death act for future loss of his contribution. The Court in Thompson v Ogemaw County Board of Road Commissioners held that in regard to recovery of loss of possible support, the test is reasonable expectation of support in determining whether damages may be had when death of an adult child results.

Our review of decedent’s father’s testimony indicates that decedent had never contributed to the support of his parents, but instead his parents continued to support him while he was working and that, barring a catastrophe, his father did not ever expect to be dependent on decedent. Taking this testimony, along with the fact that decedent’s father had a pension plan, the trial court properly found that there was no reasonable expectation that decedent would contribute to the support of his parents from future earnings. We, therefore, find no error in the exclusion of this testimony.

Affirmed. Costs to defendants.

       393 Mich 74; 223 NW2d 276 (1974).

       400 Mich 585; 256 NW2d 400 (1977).

        Wheelock, supra, at 79.

       73 Mich App 543; 252 NW2d 509 (1977).

        Id. at 545.

        People v Kaigler, 34 Mich App 659, 661; 192 NW2d 41 (1971).

       364 Mich 86; 111 NW2d 63 (1961). Although decided prior to the amendment to the statute, 1971 PA 65, § 1, effective March 30, 1972, the case is still instructive on the issue presented here.

       367 Mich 138; 116 NW2d 231 (1962).

       357 Mich 482, 489; 98 NW2d 620 (1959).


author: R. M. Ransom, J.

text:
    MURPHY v OAKLAND COUNTY DEPARTMENT OF HEALTH
    Docket No. 78-4813.
    Submitted June 12, 1979, at Detroit.
    Decided February 6, 1980.
    Plaintiff, Clayton Murphy, was the owner of certain property in White Lake Township. He petitioned defendant Oakland County Department of Health for permits to construct a septic tank system on the property. The permits were denied, and plaintiff appealed to the Oakland Sanitary Appeal Board, which affirmed. Plaintiff filed a complaint for superintending control in the Oakland Circuit Court against defendants, Oakland County Department of Health and White Lake Township. The court, William John Beer, J., refused to consider the "Summary of Discussion” of the appeal board. It looked only to the board’s resolution recording the vote of the members, held the decision to be arbitrary and ordered the issuance of the permits. Defendant Oakland County Department of Health appeals. Held:

    A court, in reviewing an administrative decision, must decide whether the decision is supported by competent, material and substantial evidence on the whole record. The court erred in refusing to consider the "Summary of Discussion” of the appeal board.
    Reversed and remanded for further proceedings.
    Administrative Law — Judicial Review — Standard of Review.
    A trial court, in reviewing an order of a sanitation appeal board denying the issuance of building permits, committed error in refusing to consider a "Summary of Discussion” of the board and in considering only the board’s resolution, which contained only the recorded vote of the members; a court, in reviewing an administrative decision, must decide whether the decision is supported by competent, material and substantial evidence on the whole record.

      Paul G. Valentino, J.D., P.C., for plaintiff.
    Reference for Points in Headnote
    2 Am Jur 2d, Administrative Law §§ 678 et seq., 697, 698.

      Donald F. Slavin, Assistant Oakland County Civil Counsel, for defendant Oakland County Department of Health.
    Before: J. H. Gillis, P.J., and Beasley and R. M. Ransom, JJ.

       Circuit judge, sitting on the Court of Appeals by assignment.

   R. M. Ransom, J.

Defendant Oakland County Department of Health (hereinafter referred to as Oakland) appeals as of right from the trial court’s order directing it to issue permits allowing the construction of an on-site sewage disposal system on plaintiffs property in White Lake Township.

Facts

Plaintiff applied for permits to construct a septic tank system on certain lakefront property owned by him. Oakland refused to issue the permits on the basis that the property consisted of unsuitable soils and the ground water table was too high. Plaintiff appealed to the Oakland Sanitary Appeal Board, which upheld Oakland’s denial of the permits. According to the Board’s "Summary of Discussion”, plaintiffs plan would only provide a height of three feet above the water table, while a minimum of four feet above the water table was required.

Thereafter, plaintiff filed a complaint for superintending control with the Oakland County Circuit Court. At a hearing on the trial court’s order to show cause, the trial judge found that a July 19, 1978, appeals resolution of the Oakland Sanitary Appeal Board failed to give the reasons for the action taken. The judge refused to consider the Board’s "Summary of Discussion” stating it would be meaningless. The trial court ordered Oakland to issue the necessary permits, because the action taken by the Sanitary Appeal Board was unreasonable and arbitrary, thus not conforming to the requirements of law.

Discussion

On appeal, Oakland argues the trial court erred in failing to review the whole record in the administrative hearing below. We agree.

The proper standard of judicial review to be employed when reviewing an administrative board decision is whether that decision is supported by competent, material and substantial evidence on the whole record. Const 1963, art 6, § 28, see also Viculin v Dep’t of Civil Service, 386 Mich 375; 192 NW2d 449 (1971), Arnold v Crestwood Board of Education, 87 Mich App 625; 277 NW2d 158 (1978), MCL 24.304; MSA 3.560(204), and MCL 24.306(l)(d); MSA 3.560(206)(l)(d).

We are not aware of whether a transcript of the sanitary Appeal Board’s hearing is or could be made available. The trial court record does reflect that appellant sought to have considered the Board’s "Summary of Discussion”, which the court rejected. The only evidence considered by the trial court was the Board’s resolution, which contained only the recorded vote of the Board members. The issues raised by appellant could not have been considered on that evidence alone. The whole record consisted, minimally, of the Sanitary Appeals Board’s resolution and "Summary of Discussion”. The trial court failed to consider the whole record.

The reviewing court should not substitute its opinion for that of the administrative agency where there is the requisite evidence to support the administrative decision, notwithstanding that the court might have reached a different result had it been sitting as the agency. Viculin v Dep’t of Civil Service, supra, Union Bank & Trust Co v First Michigan Bank & Trust Co, 44 Mich App 83; 205 NW2d 54 (1972).

The reason for upholding Oakland’s denial of a septic tank permit as cited by the Sanitary Appeal Board in its "Summary of Discussion” was that plaintiff’s plan would only provide a height of three feet above the water table where a minimum of four feet was required.

From Viculin v Dep’t of Civil Service, supra, we note:

"Courts are indulgent toward administrative action to the extent of affirming an order where the agency’s path can be 'discerned’ even if the opinion 'leaves much to be desired.’ ” 386 Mich 375, 406.

"* * * an agency or commission must articulate with clarity and precision its findings and the reasons for its decisions. The importance of this requirement is inherent in the doctrine of judicial review which places only limited discretion in the reviewing court.” 386 Mich 375, 405.

Conclusion

We reverse the trial court’s November 8, 1978, order directing Oakland to issue permits to plaintiff for construction of an on-site sewage disposal system.

Because the record of proceedings below is presented in extremely brief summary fashion, lacking in clarity, we order this matter remanded to the Oakland Sanitary Appeal Board to provide detailed findings of fact and conclusions of law, together with supporting evidence. Lorland Civic Ass’n v DiMatteo, 10 Mich App 129, 143; 157 NW2d 1 (1968).


author: Cynar, J.

text:
    SMITH v O’HARROW CONSTRUCTION COMPANY
    Docket No. 78-5046.
    Submitted November 13, 1979, at Lansing.
    Decided February 6, 1980.
    Leave to appeal applied for.
    O’Harrow Construction Company was the general contractor for the City of Jackson’s sewage treatment plant additions in 1971. One of the subcontractors was Phoenix Contractors, Inc., the company responsible for the pipe-fitting and related matters. Phoenix had an employee, Virgil Smith, who was allegedly injured while working for Phoenix on this project. Smith and his wife, Betty Smith, commenced an action against O’Harrow for damages for the injuries. O’Harrow filed a third-party action against Phoenix and Kent Electric Co. O’Harrow sought indemnification from Phoenix under an indemnification provision in O’Harrow’s contract with Phoenix. The Jackson Circuit Court, Kevin J. Daly, J., entered summary judgment for Phoenix finding that the indemnification clause was against public policy under a statutory provision and, therefore, void and unenforceable. O’Harrow appeals, alleging that the adoption of the doctrine of comparative negligence by the Supreme Court as a rule of law in Michigan served to invalidate the statutory provision, at least as applied to the facts of this case. Held:

    The Supreme Court decision adopting comparative negligence is applicable to this case. Applying the concept of comparative negligence to the instant case means that any award of damages to the plaintiffs would flow solely from O’Harrow’s negligence and the indemnification clause in the contract between O’Harrow and Phoenix cannot stand. The clause is against public policy and is void and unenforceable even under a pure comparative negligence scheme.
    Affirmed.
    1. Negligence — Comparative Negligence — Case Precedent.
    The Supreme Court decision adopting the doctrine of comparative negligence as a rule of law in Michigan, as well as being applicable to the precedent case, was made applicable to "all appropriate cases in which a retrial is to occur because of remand on any other issue * * * to any case presently pending on appeal in which application of the doctrine was requested at the trial court and the issue preserved for appeal * * * [and] shall be the applicable rule in any case commenced but not submitted to the trier of fact prior to the date of this decision, but in no case shall it apply unless there is an appropriate request by counsel prior to submission to the trier of fact”.

      References for Points in Headnotes
    [1] 57 Am Jur 2d, Negligence § 428 et seq.

    Judicial adoption of comparative negligence doctrine as applicable retrospectively. 78 ALR3d 421.
    [2] 57 Am Jur 2d, Negligence §§ 426, 433.

      2. Negligence — Comparative Negligence — Distribution of Liability. •
    Pure comparative negligence distributes responsibility, and therefore liability, according to the fault of the respective parties; a wrongdoer does not recover to the extent of his fault, but only to the extent of the fault of others.

      Dykema, Gossett, Spencer, Goodnow & Trigg (by Alan R. Dominick and William H. Stephens, III), for defendant and third-party plaintiff.

      Reid, Reid, Mackay, Emery & DeVine, P.C. (by Fred C. Newman), for third-party defendant Phoenix Contractors, Inc.
    Before: T. M. Burns, P.J., and Cynar and A. M. Bach, JJ.

       Former circuit judge, sitting on the Court of Appeals by assignment pursuant to Const Í963, art 6, § 23 as amended in 1968.

   Cynar, J.

Defendant and third-party plaintiff O’Harrow Construction Company appeals as of right from the entry of orders which dismissed its third-party complaint for indemnification and denied its motion for rehearing on a summary judgment in favor of third-party defendant Phoenix Contractors, Inc.

O’Harrow initially contends that the trial court erred in granting Phoenix’s motion for summary judgment and in dismissing O’Harrow’s third-party complaint. In support of this contention, O’Harrow takes issue with the reasoning of the lower court in ruling against its position. Specifically, O’Harrow assails the finding of the lower court that the indemnification clause contained in the contract between O’Harrow and Phoenix, running in fávor of O’Harrow, was against public policy under MCL 691.991; MSA 26.1146(1), and, therefore, void and unenforceable.

O’Harrow seeks to avoid the effect of this statute by claiming that the decision in Placek v Sterling Heights, 405 Mich 638; 275 NW2d 511 (1979), adopting the doctrine of comparative negligence, sub silentio invalidates MCL 691.991, at least as applied to the facts of this case. O’Harrow’s syllogism operates thus. The statute operates to bar indemnification for liability resulting only from the indemnitee’s (O’Harrow’s) sole negligence. O’Harrow has claimed negligence on the part of plaintiff Virgil Smith (not a party to this appeal) which contributed to Smith’s injuries. Since, under Placek, such contributory negligence is not a per se bar to recovery by plaintiff, any damages awarded to him would not have been a result of the sole negligence of O’Harrow. Therefore, the indemnification clause would not be in violation of the statute, and the lower court’s ruling to the contrary was reversibly erroneous.

To address this argument, we must first determine whether Placek applies to the case at bar.

The Michigan Supreme Court specifically addressed this question in Placek, and ruled to this effect:

"Therefore, we hold the rule announced today applicable to the instant case and all appropriate cases in which trial commences after the date of this opinion including those in which a retrial is to occur because of remand on any other issue. Further, we find comparative negligence applicable to any case presently pending on appeal in which application of the doctrine was requested at the trial court and the issue preserved for appeal. Finally, comparative negligence shall be the applicable rule in any case commenced but not submitted to the trier of fact prior to the date of this decision, but in no case shall it apply unless there is an appropriate request by counsel prior to submission to the trier of fact.” Placek, supra, 667-668.

Applying this test to the instant action, we conclude that Placek does indeed apply here. Although plaintiffs complaint was filed in February of 1974, extensive discovery has been had, pretrial conferences held, and a plethora of motions filed, this litigation has not yet been brought to trial. Therefore, under Placek, the comparative negligence doctrine is applicable to this action.

This mediate holding, however, does not ipso facto require a reversal of the lower court’s decision. We are not persuaded by O’Harrow’s ultimate conclusion, viz., that any award of damages to plaintiff after application of a pure comparative negligence doctrine to the facts of this case would not stem from negligence attributable solely to defendant. Such a proposition flies in the face of the plain language of Placek.

As noted in Placek, pure comparative negligence distributes responsibility (and therefore liability) according to the fault of the respective parties. Placek, supra, 660. " 'The wrongdoer does not recover to the extent of his fault, but only to the extent of the fault of others.’ ” Id., 661.

Thus, it is clear beyond peradventure that the damages which O’Harrow might ultimately be called upon to pay would still be a result of its sole negligence, as the negligence of plaintiff Smith would pro tanto reduce the amount of his recovery from O’Harrow. Any injuries (and the damages attendant thereto) resulting from Smith’s own negligence would not be reflected in a jury award. As stated in Placek, "What pure comparative negligence does is hold a person fully responsible for his or her acts and to the full extent to which they cause injury”. Id.

Having so concluded, it is but a short step to a final resolution of the question. Since any award of damages would flow solely from O’Harrow’s (the indemnitee’s) negligence, the indemnification clause in the contract between O’Harrow and Phoenix cannot stand against the legislative command found in MCL 691.991; MSA 26.1146(1). Accordingly, the clause is against public policy and is void and unenforceable, even under a pure comparative negligence scheme. As such, we affirm the disposition in the court below on this issue.

Finally, we note that the remaining issue raised by O’Harrow in its brief on appeal is not properly before this Court, as O’Harrow failed to file a claim of appeal with respect to said issue, which is required under GCR 1963, 802 in order to vest this Court with jurisdiction over the matter. Additionally, O’Harrow’s motion to amend its claim of appeal was previously denied by this Court, and we see no reason to disturb that ruling.

Affirmed. Costs to appellee.

       This provision reads as follows:
      "Sec. 1. A covenant, promise, agreement or understanding in, or in connection with or collateral to, a contract or agreement relative to the construction, alteration, repair or maintenance of a building, structure, appurtenance and appliance, including moving, demolition and excavating connected therewith, purporting to indemnify the promisee against liability for damages arising out of bodily injury to persons or damage to property caused by or resulting from the sole negligence of the promisee or indemnitee, his agents or employees, is against public policy and is void and unenforceable.”


author: E. A. Quinnell, J.

text:
    IN THE MATTER OF JOHN C KURZAWA, JR
    Docket No. 43901.
    Submitted November 13, 1979, at Detroit.
    Decided February 6, 1980.
    John Kurzawa, Sr., and Frances Kurzawa filed a petition in the Lenawee Probate Court alleging that their son John Casmere Kurzawa, Jr. (Cass), was without proper custody and guardianship and asking that he be placed temporarily in a foster home. The court so ordered. Later hearings resulted in Cass’s placement at the Yorkwoods Center for Psychological Evaluation and then in the home of his parents with outpatient treatment at the Yorkwoods Center. Finally, a Children’s Services caseworker filed a petition for rehearing to determine whether the rights of the parents should be terminated. A hearing was held and the court ordered termination, holding Cass to be a child with emotional difficulties for which his parents were unable to provide proper guidance. Mr. and Mrs. Kurzawa appealed to the Lenawee Circuit Court. Rex B. Martin, J., affirmed. The Kurzawas appeal by leave granted. Held:

    A parent’s right to the custody of his child is an element of "liberty” guaranteed by the Fifth and Fourteenth Amendments to the United States Constitution. The statutory authority to terminate parental rights by making a child a permanent ward of the court when the child is "deprived of emotional well-being” must be interpreted consistently with the other statutory bases of jurisdiction and the constitutional rights of a parent to the custody of his child and cannot be employed as a catch-all jurisdictional grant. Probate court jurisdiction to terminate the custodial rights of parents over children must be based on parental neglect, not delinquency, and the state bears the burden of proving the need for the court’s exercising jurisdiction by clear and convincing evidence. Evidence of parental neglect was wholly lacking.
    Reversed and Cass ordered returned to his parents.
    References for Points in Headnotes
    [1, 3] 42 Am Jur 2d, Infants §§ 28, 29.
    59 Am Jur 2d, Parent and Child §§ 27, 39, 40.
    [2, 3] 59 Am Jur 2d, Parent and Child §§ 25, 42.

      1. Parent and Child — Jurisdiction — Termination of Custodial Rights — Statutes.
    Probate court jurisdiction to terminate the custodial rights of parents over children must be based on parental neglect, not delinquency, and the state bears the burden of proving the need for the court’s exercising jurisdiction by clear and convincing evidence (MCL 712A.2[b]; MSA 27.3178[598.2(b)]).
    2. Parent and Child — Custody — Constitutional Law.
    A parent’s right to the custody of his child is an element of "liberty” guaranteed by the Fifth and Fourteenth Amendments to the United States Constitution (US Const, Am V, XIV).
    3. Parent and Child — Custody — Termination of Custodial Rights — Statutes — Deprivation of Emotional Well-Being.
    The statutory authority to terminate parental rights by making a child a permanent ward of the court when the child is "deprived of emotional well-being” must be interpreted consistently with the other statutory bases of jurisdiction and the constitutional rights of a parent to the custody of his child and cannot be employed as a catch-all jurisdictional grant (MCL 712A.2[b]; MSA 27.3178[598.2(b)]).

      Martin J. Beres, for appellants.
    Before: Bronson, P.J., and D. C. Riley and E. A. Quinnell, JJ.

       Circuit judge, sitting on the Court of Appeals by assignment.

   E. A. Quinnell, J.

This case comes to us after a series of hearings culminating in the termination of the parental rights of appellants John Kurzawa, Sr. and Frances Kurzawa in their son John Casmere Kurzawa, Jr. ("Cass”) by order of the Probate Court for Lenawee County on April 5, 1978. The Circuit Court for Lenawee County affirmed the same without conducting a trial de novo. We granted leave to appeal.

Cass, born February 27, 1970, is the only child of the Kurzawas. Mr. Kurzawa is a teacher of the blind and is himself totally blind and Mrs. Kurzawa has had some vision impairment, a condition that has apparently improved while this case has been in the courts, Mr. Kurzawa’s handicap has been a factor of some unknown significance.

The matter first came to the attention of the probate court when the Kurzawas signed the following petition:

"* * * [Cass] who is without proper custody and guardianship, to-wit: John Kurzawa, Jr., is not controlled by his parents. On Tuesday, 6/17/75, he hit his mother in the head with a rock. He also threw a butcher knife at her on 6/17/75. On 6/18/75, John, Jr., hit a neighbor girl in the head with a rock. He also tried to stab his mother on that day. In April, 1975, John, Jr., attempted to burn the neighbor’s barn. During this same day he threw baby rabbits out and watched them die, threw a duck into a German shepherd dog’s pen and watched the dog kill the duck and was continually hurting neighbor children.

"John Kurzawa, Sr., is totally blind and unable to administer effective discipline to the boy. Frances Kurzawa indicates she cannot control the child. Both parents request temporary placement in foster care and this is supported by Mrs. Brenda Pincheon, therapist at the mental health unit.”

The factual allegations in this initial petition by the Kurzawas clearly refer to the delinquency provisions of the probate code, MCL 712A.2(a); MSA 27.3178(598.2)(a), and not the neglect portions, MCL 712A.2(b); MSA 27.3178(598.2)0»), Apparently some sort of hearing was conducted on June 19, 1975, but no transcript of this proceeding exists, In any event, the Kurzawas were in probate court on July 25, 1975. The Kurzawas waived counsel and a guardian ad litem appeared in behalf of Cass. The court informed the Kurzawas that they could admit or deny the allegations of the petition, a petition they themselves had initiated. Mr. Kurzawa’s response was enigmatic. He explained: "The charges aren’t true, of course, we made them ourselves because we had gone through that experience”, but he later positively responded when the court asked him if the petition was true. The Kurzawas maintained throughout the later proceedings that they initiated the petition in order to receive temporary assistance from the Department of Social Services (DSS) while moving into a new home in Hillsdale County. The Kurzawas believed Cass was being improperly influenced by their neighbor’s children and that his behavior would improve with a more salubrious environment and thought DSS could provide a temporary home for the child during their brief period of dislocation. Mr. Kurzawa, however, did not clearly explain this at the hearing. The court made Cass a temporary ward of the court and ordered him into foster care.

The court conducted a review hearing, MCL 712A.19; MSA 27.3178(598.19), on January 8, 1976. Since the previous hearing, Cass had run into difficulties with his foster parents and had been placed in the Yorkwoods Center for Psychological Evaluation in Ypsilanti by an ex parte order on August 16, 1975. The Kurzawas, in the meantime, had moved into a new home in Jerome, Michigan, which is in Hillsdale County. The Kurzawas arranged for Cass to start public school in Jerome. Frances Rich, a social worker from the Lenawee County DSS, recommended that Cass be returned to his parents and continue treatment at York-woods on an outpatient basis. Ms. Rich noted that there were no particular behavioral problems with Cass. Upon Ms. Rich’s recommendation, the court ordered the child continued as a temporary ward of the court and further ordered that he be returned home on a trial basis.

The next review hearing was held July 13, 1976. The Kurzawas were the only witnesses and testified that Cass’s behavior had improved markedly since his return home, that he was doing well in school, and that there were no particular problems with the child. The court ordered the continued wardship of the boy in his parents’ home.

It is somewhat difficult to understand what happened next. Joan Mueller, a DSS social worker, filed the following petition on August 6, 1976:

"John 'Cass’ Kurzawa, Jr. is not able at this time to function in the home of Mr. and Mrs. John C. Kurzawa, parents. Mother is having problems controlling John’s behavior. On 8-4-76 conference with Mrs. Kurzawa, I was told that John had taken a puppy’s leg and put it in a spinning bicycle tire. He had also taken stones, etc., and put them in the gas tank of his mother’s car. I had a conference with Sue Cooley, Yorkwoods Center, on 8-4-76 and 8-6-76. She and I both believe it is in John’s best interest that he be removed from the family home and placed temporarily in foster care.”

The petition seems to have been granted ex parte since Cass was already in the Children’s Psychiatric Hospital (CPH) in Ann Arbor when the hearing was conducted on August 17, 1976. Mr. Kurzawa, now represented by counsel, was the only witness at that hearing. He denied in part and explained the allegations of misbehavior on Cass’s part, allegations stemming from a discussion between Mrs. Kurzawa and Ms. Mueller. He explained that he had contacted Ms. Mueller through the auspices of a Yorkwoods social worker, Susan Cooley, only to have Cass placed in a summer camp through DSS. Somehow, the petition resulted. Mr. Kurzawa did, however, testify that he would cooperate with the court and with CPH. Ms. Mueller, the petitioner, did not testify.

The Kurzawas petitioned the court for the return of their child on February 22, 1977. The rehearing was conducted before a different probate judge on March 30, 1977. The guardian ad litem functioned as prosecutor and the Kurzawas were represented by counsel. The guardian ad litem presented testimony from Ms. Mueller, Dr. Purza Onate, a resident in psychiatry from CPH, and Dr. Kay Tooley, Dr. Onate’s supervisor. Their testimony was to the effect that Cass was an aggressive child in need of close supervision and psychotherapy. Dr. Onate had met the Kurzawas on only two occasions while Dr. Tooley had observed neither the parents nor the child. Susan Cooley testified on behalf of the Kurzawas. She had been Cass’s social worker while she was at Yorkwoods and had supervised his case until his commitment to CPH. She recommended that he be returned home. In her opinion, the Kurzawas were capable of rearing the child but were in need of some counseling. Robert Gaberdiel, the principal of the school Cass had attended in Jerome, testified that the child had behaved well in school and had no unusual problems. Mr. Kurzawa testified that he was willing to cooperate with the school and work with Ms. Cooley for the benefit of his child. On the basis of the testimony, the court reached the following conclusion:

"Now, it appears obvious that this Court is called upon pretty much to make a medical decision here as opposed to a judicial or legal decision because what is best for Cass is the — is what this Court is all about. I’m confronted with the dispute between people, both of whom are sincere in their professional opinions. By that I’m referring to the doctors who have testified and also to Miss Cooley. I’m also impressed with the fact that Mr. and Mrs. Kurzawa are — they love their child. They feel that there’s some — the Court is saying something here, somebody’s saying something here about their ability as parents and that’s not what’s at issue here at all. The issue is what is good for Cass. THis [sic] Court finds Cass to be a sick young boy, and that he needs some help. THat [sic] he’s mentally disturbed, and that if we do not do something for him and if the treatment is not continuous and if he’s not closely supervised in an institutional atmosphere at least at this time, that perhaps we’ll loose [sic] what we have accomplished this far. Based on that, it is the judgment of this Court in view of all of the evidence and all of the good intentions on everybody’s part that Cass will be continued at the Children’s Psychiatric Hospital. Therefore, it is hereby ordered, that John Casmere Kurzawa, Jr. be and is by this order made a temporary ward of the Court and is placed at the Children’s Psychiatric Hospital under the supervision of the State Department of Social Services.” (Emphasis added.)

The Kurzawas obtained new counsel. They moved for a change of venue on September 12, 1977, which motion was denied.

On November 30, 1977, Ms. Mueller filed the following petition for the termination of the Kurzawas’ parental rights:

"John Kurzawa, Jr., was placed in foster care on September 28th, 1977, and placed there upon recommendation of Dr. Kay Tooley, Psychologist, Children’s Psychiatric Hospital, Ann Arbor, Michigan. Mr. and Mrs. John Kurzawa have had agency intervention since 1974. John 'Cass’ Kurzawa, Jr., has been removed from the home of Mr. and Mrs. Kurzawa on 3 different occasions. Based on the background information which necessitated John’s removal from his parent’s home and the present recommendation of Dr. Kay Tooley that the child not be returned home, I believe that a decision as to John Kurzawa’s permanent placement is essential to his present and future adjustment. I believe the unanswered question of whether he will returned [sic] to his parents or not is producing anxiety for him which hinders his psychotherapy. I wish to petition the Court for a rehearing to determine if the parental rights of Mr. and Mrs. John Kurzawa, parents of John Kurzawa, Jr., should be terminated, and that the parents be warned that future hearings could result in this decision.”

As was true of previous petitions, this petition did not allege any neglect by the Kurzawas.

After an adjournment so that a prosecutor would represent the county rather than having the guardian ad litem prosecute the case, the termination hearing was held before a visiting probate judge on March 29, 1978. After taking testimony from both sides, as well as that of an independent psychiatrist, the court decided on April 5 to terminate the rights of the Kurzawas. The court found that Cass was a child with emotional difficulties and that the Kurzawas were unable to provide him with the proper guidance. Although the court noted their love for the child, it held them to be "emotionally neglectful to their children [sic] in that they cannot see that he has done anything wrong or they merely pass everything that happens or that he does off as an accident”. On appeal to the circuit court, the order was affirmed.

The record does not indicate where Cass has been placed during the pendency of the appellate process.

The Kurzawas raise several issues on appeal. The most fundamental of these is whether the probate court exceeded its jurisdiction in ordering Cass into its temporary wardship and then terminating the rights of his parents. Our review of the record and the applicable law convinces us that the court did exceed its jurisdiction.

The petition to invoke the court’s jurisdiction "shall set forth plainly the facts which bring said child within the provisions of this chapter * * *” MCL 712A.11; MSA 27.3178(598.11). Jurisdiction under the statute must be based on evidence of parental neglect, not on delinquency. Fritts v Krugh, 354 Mich 97; 92 NW2d 604 (1958), In the Matter of LaFlure, 48 Mich App 377; 210 NW2d 482 (1973). The state carries the burden of proving the need for the court’s exercising jurisdiction by clear and convincing evidence. In the Matter of LaFlure, supra, 383, JCR 8.3(b).

The probate court’s jurisdiction over neglected children is set forth in MCL 712A.2; MSA 27.3178(598.2):

"(b) Jurisdiction in proceedings concerning any child under 17 years of age found within the county

"(1) Whose parent or other person legally responsible for the care and maintenance of such child, when able to do so, neglects or refuses to provide proper or necessary support, education as required by law, medical, surgical or other care necessary for his health, morals, or who is deprived of emotional well-being, or who is abandoned by his parents, guardian or other custodian, or who is otherwise without proper custody or guardianship; or

"(2) Whose home or environment, by reason of neglect, cruelty, drunkenness, criminality or depravity on the part of a parent, guardian or other custodian, is an unfit place for such child to live in, or whose mother is unmarried and without adequate provision for care and support.”

The only colorable basis for probate court jurisdiction to terminate parental rights in the instant case is the language conferring jurisdiction over a child "who is deprived of emotional well-being”, MCL 712A.2(b)(l); MSA 27.3178(598.2)(b)(l), by the alleged inability of the Kurzawas to control their child’s behavior. There were absolutely no allegations of physical neglect or deprivation. Nor did anyone ever claim the Kurzawas did not love their child or were not devoted parents. The petition alleged an inability on the part of the Kurzawas to discipline Cass.

The statutory authority of the probate court to make a child a permanent ward of the court, thereby terminating parental rights, is found in § 19a, MCL 712A.19a; MSA 27.3178(598.19a). That section provides that such action can be taken if the child has been deserted or abandoned by his parents for more than six months, the parent is unable to provide proper care for a period in excess of two years because of mental illness without a reasonable expectation of recovery, the parent faces incarceration for more than two years, the child has been in foster care in the temporary custody of the court on the basis of a neglect petition for a period of at least two years or the parent is unable to provide a fit home by reason of neglect. The term "neglect” can be assumed to mean neglect as defined in § 2(b), previously quoted, which in turn refers to "emotional well-being”, the deprivation of which can be characterized as neglect.

The statutory phrase "deprived of emotional well-being” must be interpreted consistently with the other statutory bases of jurisdiction and with the constitutional rights of a parent to the custody of his or her child. A parent’s right to the custody of his or her child is an element of "liberty” guaranteed by the Fifth and Fourteenth Amendments of the United States Constitution. Reist v Bay Circuit Judge, 396 Mich 326, 339-346; 241 NW2d 55 (1976), In the Matter of LaFlure, supra, 385. A substantial deprivation of a constitutionally-protected right cannot be wrought by imparting overgeneralized meaning to vague statutory language. Consistent with these principles, the phrase "deprived of emotional well-being” cannot be employed as a catch-all jurisdictional grant. The phrase must be considered in its context to require proof of seriously neglectful parents.

None of the petitions on file even hint at the type of neglect contemplated by the statute as authorizing the termination of parental rights. Further, even if one or more of the petitions could be considered sufficient to authorize that kind of inquiry, the evidence is clearly insufficient to establish, clearly and convincingly, that the state has proved that termination of parental rights was warranted. Not until the hearing of March 30, 1977, nearly two years after the court first ordered Cass into its custody, did any witness testify that the Kurzawas were unable to discipline their child. Even at that stage, the evidence was insufficient to support a finding of emotional neglect. Joan Mueller, a social worker, testified to the child’s behavioral difficulties. She further testified that the Kurzawas did not cooperate with her, which could hardly provide a basis for finding neglect, in that the parents had cooperated with others. Dr. Onate, the resident in psychiatry, had met the Kurzawas on only two occasions while Dr. Tooley had never even met them. While their testimony was relevant to Cass’s "emotional well-being”, it added little or nothing of substance to the fundamental question of whether the Kurzawas were so neglectful of Cass’s emotional welfare as to permit state interference with their fundamental right to raise

their child. At the conclusion of the hearing, the court explained that it was forced to make essentially a "medical decision here as opposed to a judicial or legal decision because what is best for Cass is what the — is what this Court is all about”, and mistakenly noted that the ability of the Kurzawas as parents was not at issue. The ability of the Kurzawas as parents, however, was precisely the issue. In re Mathers, 371 Mich 516, 529-531; 124 NW2d 878 (1963), Fritts v Krugh, supra, 115.

Accordingly, we hold that the probate court erred in assuming jurisdiction and that the proceedings were void ab initio. We order Cass returned to the custody of his parents.

Costs to appellants.

All concurred.

       No issue has been raised as to compliance with the Mental Health Code, MCL 330.1001 et seq.; MSA 14.800(1) et seq., or whether such compliance is required.


author: Bashara, J.

text:
    AMERICAN OIL COMPANY v L A DAVIDSON, INC
    Docket No. 44282.
    Submitted December 12, 1979, at Lansing.
    Decided February 6, 1980.
    Defendant L. A. Davidson, Inc. (Davidson) contracted with the Michigan State Highway Department (state) for several highway construction projects on which Davidson was to be the general contractor. Defendant American Casualty Company issued payment and performance bonds as surety on the projects, for which Davidson executed applications containing assignment and indemnity provisions. Davidson later assigned to American Casualty rights to certain property, including all accounts receivable. American Casualty filed a financing statement, perfecting its interest in the property pursuant to Article Nine of the Uniform Commercial Code (UCC). Five years later American Casualty lost its UCC protection by failing to file a continuation statement. Davidson was adjudged bankrupt and American Casualty was required to complete performance pursuant to the bonds, thus obligating the state to pay on the contracts. American Oil Company (Amoco) brought an action in the Ingham Circuit Court, against Davidson, L. A. Davidson and Virnie B. Davidson to recover on a promissory note. A default judgment was entered and Amoco attempted to satisfy it by garnishing the payments due from the state. The court allowed the state to tender an amount sufficient to satisfy the judgment, released the state from further liability and allowed American Casualty to intervene as a party defendant. American Casualty moved to establish priority to the funds, claiming equitable subrogation. Amoco argued that American Casualty had only an unperfected security interest, subordinate to the rights of a lien creditor. The court, Jack W. Warren, J., held the UCC to control and released the funds to Amoco. American Casualty appeals. Held:

    Subrogation rights are not within the secured transactions provisions of the Uniform Commercial Code. American Casualty has priority to the funds.
    Reversed.
    Reference for Points in Headnote
    68 Am Jur 2d, Secured Transactions § 29.

      Subrogation — Uniform Commercial Code — Secured Transactions.
    Subrogation rights are not within the secured transactions provisions of the Uniform Commercial Code (MCL 440.9101 et seq.; MSA 19.9101 et seq.).

      Glassen, Rhead, McLean & Campbell, for plaintiff.

      Jenkins, Nystrom & Sterlacci, P.C. (by Chris Parñtt), for intervenor-defendant.
    Before: T. M. Burns, P.J., and Gillis and Bashara, JJ.
   Bashara, J.

This case involves the competing claims of a defaulting contractor’s surety and a judgment lien creditor of the contractor. Defendant American Casualty Company (hereinafter known as "American Casualty”) and plaintiff American Oil Company (hereinafter called "Amoco”) claim funds withheld on a construction contract and deposited with the circuit court. The lower court released the funds to Amoco and American Casualty appeals.

The events giving rise to this dispute began when American Casualty, from 1965 to 1968, issued payment and performance bonds as surety for defendant L. A. Davidson, Inc. (hereinafter referred to as "Davidson”). The bonds were issued in connection with several highway construction projects for the state in which Davidson was the general contractor. As part of the consideration for the bonds, Davidson assigned its rights in the underlying construction contract on December 12, 1965. The assignment was conditional on Davidson’s inability to perform its duties as general contractor.

On July 7, 1969, Davidson assignéd to American Casualty its rights in certain assets, including all accounts receivable. American Casualty perfected the later assignment under Article Nine of the Uniform Commercial Code (hereinafter "UCC”) by filing a financing statement on July 16, 1969. However, American Casualty lost the protection of the UCC when it failed to file a continuation statement five years later. Davidson was unable to complete the construction contracts and was subsequently adjudged bankrupt. American Casualty was required to complete performance pursuant to the payment and performance bonds. American Casualty’s performance obligated the State Highway Department to make payments which are the subject of this litigation.

The present litigation began on July 6, 1970, when Amoco commenced an action against Davidson to recover on a promissory note. A default judgment was entered on December 18, 1970, which plaintiff attempted to satisfy by serving a writ of garnishment on the garnishee defendant, Michigan State Highway Department.

The state tendered $30,000 to the circuit court and was released of all liability.

American Casualty intervened in the action and sought priority to the funds on the basis of both the express assignments and the doctrine of equitable subrogation.

Amoco claimed priority to the funds on the basis of MCL 440.9301; MSA 19.9301, which gives a lien creditor priority over an unperfected security interest.

The lower court held that American Casualty could not assert equitable subrogation because it had filed a financing statement with respect to the assignments, thereby subjecting itself to the UCC, framing the basis for this appeal.

American Casualty did not waive its right to assert equitable subrogation by filing a financing statement with respect to the express assignments. Assignment rights are independent from rights derived from equitable subrogation. This distinction has been observed by both the courts and legal commentators.

Canter v Schlager, 358 Mass 789; 267 NE2d 492 (1971), involved a priority dispute between a surety and the trustee in bankruptcy of a general contractor. The surety had taken an express assignment from the contractor of all payments due or to become due under the contract. No financing statement was filed by the surety. Justice Braucher, writing for the court, held that if the surety were claiming priority solely on the basis of the assignments, then the UCC would be applicable. However, in Canter, as in the present case, the surety was claiming priority both on the basis of the assignments and equitable subrogation.

"Such claims are not superseded by the Uniform Commercial Code. Section 1-103 of the Code provides in part, 'Unless displaced by the particular provisions of this chapter, the principles of law and equity * * * shall supplement its provisions.’ 'No provision of the Code purports to affect the fundamental equitable doctrine of subrogation.’ French Lumber Co Inc v Commercial Realty & Fin Co Inc, 346 Mass 716, 719. 'Of basic importance is the general rule of Section 9-102(2) that Article 9 "applies to security interests created by con tract” (Emphasis supplied.) Rights of subrogation, although growing out of a contractual setting and ofttimes articulated by the contract, do not depend for their existence on a grant in the contract, but are created by law to avoid injustice. Therefore, subrogation rights are not "security interests” within the meaning of Article 9.’ Jacobs v Northeastern Corp, 416 Pa 417, 429” Canter v Schlater, supra, 791-792.

The present case may be distinguished from Canter on the basis that a financing statement was filed to perfect the assignments.

We find that this distinction lacks significance because the drafters of the UCC intended to leave the surety’s right to equitable subrogation unaffected by Article Nine. As stated in White & Summers, Uniform Commercial Code, § 22-5, p 771, "conflicts between sureties and third parties do not comprise an Article Nine casus omissus. The issue of Article Nine coverage was fought out at the drafting stage, and the surety companies prevailed in their efforts to remain outside the Article.”

Having determined that American Casualty did not lose its right to assert equitable subrogation, we also conclude that American Casualty has priority to the disputed funds. The surety’s priority is well settled at common law and has not been affected by the adoption of the UCC.

Reversed. Costs to American Casualty.

       MCL 440.9101 et seq.; MSA 19.9101 et seq.

       MCL 440.9302(1); MSA 19.9302(1).

       MCL 440.9402; MSA 19.9402.

         See Alaska State Bank v General Ins Co of America, 579 P2d 1362 (Alas, 1978), Canter v Schlager, 358 Mass 789; 267 NE2d 492 (1971).

       See Note, National Shawmut Bank: Another Step Toward Confusion in Surety Law, 64 NWU Law Rev 582 (1969).

       Justice Braucher was one of the principal drafters of the UCC and a professor of law at Harvard University.

       The authors were undoubtedly referring to proposed 9-312(7) which was rejected by the drafters of the UCC. 9-312(7) would have provided:
      "(7) A security interest which secures an obligation to reimburse a surety or other person secondarily obligated to complete performance is subordinate to a later security interest given to a secured party who makes a new advance, incurs a new obligation, releases a perfected security interest or gives other new value to enable the debtor to perform the obligation for which the earlier secured party is liable.”

       See, Prairie State National Bank of Maryland v United States, 164 US 227; 17 S Ct 142; 41 L Ed 412 (1896), Henningsen v United States Fidelity & Guaranty Co, 208 US 404; 28 S Ct 389; 52 L Ed 547 (1908),
        Detroit v Fidelity & Deposit Co of Maryland, 240 Mich 213; 215 NW 394 (1927), Lake States Engineering Corp v Lawrence Seaway Corp, 15 Mich App 637; 167 NW2d 320 (1969).

       See, Alaska State Bank v General Ins Co of America, 579 P2d 1362 (Alas, 1978), United States Fidelity & Guaranty Co v First State Bank of Salina, 208 Kan 738; 494 P2d 1149 (1972), Canter v Schlager, 358 Mass 789; 267 NE2d 492 (1971), Jacobs v Northeastern Corp, 416 Pa 417; 206 A2d 49 (1965). For additional citations and a discussion of the above cases, see Shure, The UCC Does Not Affect Adversely the Surety’s Priority, 11 Forum 630 (1976).