Law School Case Brief
Fill Bldgs., Inc. v. Alexander Hamilton Life Ins. Co. - 396 Mich. 453, 241 N.W.2d 466 (1976)
Contracts between a corporation and one of its directors or with a partnership or other group or association of which any such director shall be a member or with any other corporation of which such director may be a member or director must be fair and in the interest of the corporation and all of the material facts must be made known to the directors. Any unfair advantage taken by an officer or director may be the basis for an attack upon the validity of the contract under the provisions of Mich. Comp. Laws § 450.13(5) (Mich. Stat. Ann. § 21.12(5)). When the validity of any such contract is questioned, the burden of proving the fairness to the contracting parties of any such contract shall be upon such director, partnership, other group or association, or corporation who shall be asserting the validity of such contract. When it is alleged that a director was enriched at corporate expense, the burden to establish fairness resting on the director requires not only a showing of "fair price" but also a showing of the fairness of the bargain to the interests of the corporation. Only when a convincing showing is made in both respects can "fairness" under the statute be said to have been established.
Plaintiff Fill Buildings, Inc., brought an action in Michigan state court to collect unpaid rent from defendant Alexander Hamilton Life Insurance Company of America, the successor to Wayne National Life Insurance Company (Wayne), which had entered into a lease agreement with plaintiff. Dr. Leon Fill was the principal stockholder, secretary, and a director of Wayne National and the sole shareholder, president and director of plaintiff. Defendant sought to avoid liability under the lease contending that, based on Dr. Fill's relationship with each corporation, it was unfair to Wayne. The trial court found for defendant, concluding that plaintiff failed to surmount its burden of establishing the fairness of the contract. Subsequently, plaintiff appealed the decision.
Did plaintiff Fill Buildings, Inc., fail to surmount its burden of establishing the fairness of the contract?
According to the state appellate court, a contract between a corporation and one of its officers or directors must be fair and in the interest of the corporation. When its validity was questioned, the statute puts the burden of proving fairness on the officer or director asserting validity. The court averred that given an instance of alleged enrichment of a director at corporate expense, the statutory burden resting on the director to establish fairness required not only a showing of "fair price" but also a showing of the fairness of the bargain to the interests of the corporation. Only when a convincing showing was made in both respects can "fairness" under the statute be said to have been established. In the case at bar, the court held that the trial judge's application of the law to the facts, and his conclusion that the "fairness" of the contract was not established by plaintiff, was not clearly erroneous.
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