INTERNATL FIDELITY INS V RUTH RICH
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STATE OF MICHIGAN
COURT OF APPEALS
INTERNATIONAL FIDELITY INSURANCE
COMPANY,
UNPUBLISHED
March 13, 1998
Plaintiff-Appellant,
v
RUTH RICH and MORTON NOVECK, successor
co-trustees of the SAMUEL RICH TRUST,
No. 198234
Oakland Circuit Court
LC No. 95-496204 CZ
Defendants-Appellees,
and
QUAKERTOWN INVESTMENTS, INC. f/k/a
GLOBE AGENCY COMPANY,
Defendant-Third-Party Plaintiff,
and
GOLDFARB BONDING AGENCY,
Third-Party Defendant.
Before: Sawyer, P.J., and Wahls and Reilly, JJ.
PER CURIAM.
Plaintiff appeals as of right the trial court order granting defendants’ motion for summary
disposition.1 We affirm.
In 1978 and in 1981, plaintiff, at the request of Samuel Rich, president of Acorn Building
Components, Inc., issued a $100,000 and a $200,000 workers’ disability compensation bond with
plaintiff acting as surety, Acorn as principal, and the Michigan Department of Labor as obligee, to be
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effective from August 1978 to August 1979 and from August 1979 to August 1982, respectively. To
obtain the bonds, Rich furnished plaintiff with indemnity agreements in June 1979 and November 1979,
signed by Acorn and Rich, individually, as indemnitors.2 Rich promised to indemnify plaintiff in the event
Acorn failed to pay its obligations. Rich also provided plaintiff with a personal financial statement setting
forth his assets and liabilities. The financial statement showed that Rich had net assets in excess of $4
million, which included his Acorn stock valued in excess of $3 million. The statement made no mention
of the existence of a Samuel Rich Revocable Living Trust.
When Rich died in 1983, his Trust was funded with, among other assets, the Acorn stock, while
his estate contained approximately $5,000. In 1992, Acorn filed for bankruptcy. At that time, there
were five pending disability claims outstanding against the company. Plaintiff assumed the obligation to
pay the claims because Acorn was unable to do so.
Subsequently, plaintiff filed a claim seeking indemnification from Ruth Rich, individually, and
Ruth Rich and Morton Noveck, as successor co-trustees of the trust. Plaintiff alleged fraud and
misrepresentation on the part of defendants due to (1) Samuel Rich’s misleading financial statement and
(2) the transfer of his ownership of the Acorn stock to the trust because the trust was actually worth the
money that Rich indicated he owned individually. The trial court granted defendants’ motion for
summary disposition because the trust was not liable under the indemnity agreements and because it was
not required or directed to make the payments. However, the court allowed plaintiff to amend its
complaint to pursue fraudulent conveyance and promissory estoppel claims which were raised for the
first time at the motion hearing.
Plaintiff filed an amended complaint and alleged fraud and misrepresentation in regard to the
creation of the trust and the financial statement. Plaintiff asked the court to declare a constructive trust
of assets in the amount of its claim. The trial court granted defendants’ motion for summary disposition,
finding that while it was unfair that plaintiff had to assume the obligation, there was no showing of fraud.
Plaintiff first argues that under a theory of promissory estoppel, defendants were estopped from
claiming that the absence of the trust’s signature on the indemnity agreements precluded its recovery.
Plaintiff was allowed to amend its complaint to address this issue below and failed to do so. Thus, the
trial court did not evaluate this issue and we will not review it here. Booth Newspapers, Inc v Univ of
Michigan Bd of Regents, 444 Mich 211, 234; 507 NW2d 422 (1993).
Plaintiff also argues that there were genuine issues of material fact regarding its claim of
fraudulent concealment and silent fraud. This Court reviews the trial court’s decision on a motion for
summary disposition de novo. Baker v Arbor Drugs, Inc, 215 Mich App 198, 202; 544 NW2d 727
(1996). A motion under MCR 2.116(C)(10) tests the factual basis underlying the plaintiff’s claim. A
court reviewing such a motion must consider the pleadings, affidavits, depositions, admissions, and any
other documentary evidence in favor of the party opposing the motion. The court’s task is to review the
record evidence, and all reasonable inferences drawn from it, and decide whether a genuine issue
regarding any material fact exists to warrant a trial. Id.
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Plaintiff contends that pursuant to a subsection of the Uniform Fraudulent Conveyance Act
(UFCA), MCL 566.131; MSA 26.921, and In re Barnhart Estate, 127 Mich App 381, 388; 339
NW2d 28 (1983), a creditor may contest a conveyance if the creditor is prevented from collecting his
claim. While we agree that plaintiff has standing to raise a cause of action under the UFCA for
fraudulent conveyance, we find that plaintiff failed to establish that the conveyance in the case at bar was
fraudulent.
Plaintiff alleges that pursuant to MCL 566.12; MSA 26.882 and MCL 566.15; MSA 26.885,
it does not need to establish fraudulent intent because Rich rendered himself insolvent by transferring the
Acorn stock to the trust. Under the UFCA:
A person is insolvent when the present fair salable value of his assets is less than
the amount that will be required to pay his probable liability on his existing debts as they
become absolute and matured. [MCL 566.12; MSA 26.882.]
***
Every conveyance made without fair consideration when the person making it is
engaged or is about to engage in a business or transaction for which the property
remaining in his hands after the conveyance is an unreasonably small capital, is
fraudulent as to creditors during the continuance of such business or transaction without
regard to his actual intent. [MCL 566.15; MSA 26.885.]
In Coleman-Nichols v Tixon Corp, 203 Mich App 645, 659; 513 NW2d 441 (1994), we interpreted
MCL 566.15; MSA 26.885 to mean that to establish a cause of action under this subsection, the
defendant corporation had to be left with unreasonably small capital.
In the case at bar, we find that plaintiff has failed to come forward with sufficient factual support
to raise a genuine issue of material fact that Rich fraudulently conveyed the Acorn stock. According to
the shareholder meeting minutes, Rich still owned the stock after the financial statement and indemnity
agreements were given to plaintiff. Plaintiff has presented no evidence to contradict this or to establish
when Rich transferred the stock into the trust, whether it was done when originally created or at some
later date, such as when Rich found out he was terminally ill. Moreover, since at the time of Rich’s
death in 1983, the company was still viable, and did not become bankrupt until some years later,
plaintiff has failed to establish that the transfer of the stock rendered Acorn, as the principal, with
unreasonably small capital for the purposes of paying workers’ compensation claims. Thus, there was
no reason to believe that the company would not continue in its existence and in its ability to pay its
creditors at that time. As well, because plaintiff has failed to establish that Rich was insolvent when he
transferred the assets to the trust, its reliance upon Regan v Carrigan, 194 Mich App 35; 486 NW2d
57 (1992), is inapplicable. Furthermore, while this Court will scrutinize transactions between a husband
and a wife when creditors are involved, the burden is upon plaintiff to establish the evidence to support
its claim. Dean v Torrence, 299 Mich 24, 35; 299 NW 793 (1941). Finally, having found that the
conveyance was not fraudulent, plaintiff’s argument that a constructive trust should have been imposed
on the assets transferred to the trust is moot.
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Plaintiff also argues that it established a cause of action for silent fraud and fraudulent
concealment because it showed that Rich did not disclose that the trust existed when he completed the
financial statement, he had defendant Ruth Rich’s signature forged on the indemnity agreement and had
it notarized by his secretary as being executed by defendant Rich. Since these actions took place while
Rich and plaintiff were in negotiations regarding the bonds, plaintiff contends it has established that Rich
had a specific intent to deceive or recklessly failed to disclose the existence of the trust.
To establish fraud and silent fraud claims, there must be (1) a material representation, (2) that is
false, (3) that defendant made it knowing it to be false or that it was made recklessly without any
knowledge of its truth and as a positive assertion, (4) with the intent that it should be acted upon by the
plaintiff, (5) that it was acted upon by the plaintiff, and (6) resulted in plaintiff’s injury. Clement-Rowe v
Michigan Health Care Corp, 212 Mich App 503, 507; 538 NW2d 20 (1995). A claim of silent
fraud requires that a plaintiff allege that the defendant intended to induce him to rely on its nondisclosure
and that defendant had an affirmative duty to disclose. Id. at 508. Beyond its allegations, we find that
plaintiff has failed to establish that the trust was funded with the Acorn stock when Rich signed the
financial statement and indemnity agreements. Accordingly, the trial court properly granted summary
disposition on behalf of defendants.
Affirmed.
/s/ David H. Sawyer
/s/ Myron H. Wahls
/s/ Maureen Pulte Reilly
1
Goldfarb Bonding Agency, Inc., was dismissed as a third-party defendant. Quakertown Investments,
Inc.’s motion for summary disposition was granted. Neither party is a party on appeal.
2
The signature of defendant Ruth Rich, Samuel Rich’s wife, was also on the indemnity agreements.
However, her signature was deemed to be a forgery and the indemnity agreements were not
enforceable against her.
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