V. J. Brennan, J.
Plaintiffs brought this action on August 4, 1974, alleging violation of various Michigan security laws, fraudulent misrepresentation, and conspiracy in the sale of stock in Farm Estates, Inc. They sought the return of their investments in this corporation. The case was tried in Macomb County Circuit Court on May 4, 6 and 7, June 29-30, and July 1, 2, 7, 14 and 15, 1976.
In an opinion dated February 14, 1977, Judge Raymond R. Cashen ruled that defendant Ott had committed a common law fraud against plaintiff Mitchell Rzepka in failing to disclose to him the corporation’s shaky financial situation and the existence of litigation against it when she sold him $5,000 worth of stock on October 26, 1973. The court also found that commissions had been collected for the sale of stock, which prevented the corporation from claiming a statutory exemption to the registration requirement. MCL 451.802; MSA 19.776(402).
Consequently, the court held defendants Ott, Refior and Casterline liable to plaintiffs Rzepka for $20,000 and plaintiffs Locke for $10,000. A judgment of no cause of action was entered in favor of Farm Estates, Inc. and R and C Investments, Inc. A similar judgment was entered against plaintiff Hacker.
On March 22, 1977, a judgment was entered, altering the amount of liability slightly and also awarding plaintiffs Locke and plaintiffs Rzepka $6,354.76 for costs and attorney fees. On April 11, 1977, amended findings of fact and conclusions of
law were entered, holding that Farm Estates, Inc., was also liable for the $10,000 judgment in favor of Locke, the $20,000 judgment in favor of plaintiffs Rzepka and the award of attorney fees. The individual defendants now appeal as a matter of right. GCR 1963, 806.1. Plaintiffs Rzepka have filed a cross-appeal regarding the extent of their recovery.
Defendants, and plaintiffs on cross-appeal, collectively raise three allegations of error in the trial court’s decision. We will deal with only one claim at any length.
Defendants contend the record at trial indicates no proof of their culpable knowledge, even though liability was grounded upon their own act of approving the receipt of commissions for the sale of unregistered stock in violation of MCL 451.701; MSA 19.776(301) and MCL 451.802(b)(9); MSA 19.776(402)(b)(9).
Judge Cashen found defendants’ corporation, Ott, Casterline and Refior jointly and severally liable to plaintiffs Rzepka and Locke for the purchase price of the securities which were not registered as required by MCL 451.701; MSA 19.776(301.).
We agree with the court.
On the basis of the evidence presented, we find Judge Cashen was not in error when he inferred that Farm Estates stock was never registered. Moreover, we find uncontroverted the fact that commissions were authorized by the Board of Directors on March 29, 1971, for the sale of corporate stock and that such commissions were reversed on the corporate books effective April 30, 1973. The reversal occurred only after defendant Ott had met with a representative from the Department of Commerce. We also find that Mrs. Ott received a number of commissions pursuant to this authorization including $4,000 on August 6, 1970, paid to Business Management Consultants, one of Ott’s alter-ego corporations, for the sale of stock to Rzepka. Further, Refior testified that he knew of these commissions, and the record is uncontroverted that these commissions were noted in the minutes of the meeting of the Board of Directors on March 29, 1971. At that time, the Board of Directors consisted of Ott, Refior and Casterline.
We also find proper the trial court’s conclusion that the corporate stock did not qualify for the exemption under MCL 451.802; MSA 19.776(402), since commissions were paid on the sale of this stock. Further, nothing in the statute leads us to conclude that returning the commissions would have the effect of retroactively placing the stock within the exemption for the period in which such commissions were collected. Statutory exceptions are to be given a limited, rather than expansive
construction.
Lee v J H Lee & Son,
72 Mich App 257, 260; 249 NW2d 380 (1976),
Northville Coach Line, Inc v Detroit,
379 Mich 317, 329; 150 NW2d 772 (1967) (plurality opinion). Moreover, the narrow view we take here is consistent with the statutory purpose of protecting the public.
People v Dempster,
396 Mich 700, 707-708; 242 NW2d 381 (1976).
We also find reasonable Judge Cashen’s conclusion that Ott received commissions on all sales made during the period in which such commissions were authorized, including: the sale on October 14, 1972, of $20,000 worth of stock to Rzepka and the sale on November 1, 1972, of $10,000 worth of stock to Locke. This conclusion is supported by Ott’s admissions as to the receipt of commissions throughout the period and the existence of a commission check of $4,580 for the sale of stock to several persons whose names could not be recalled at trial. Evidence also appears that Ott received a commission in connection with the August 5, 1970, sale of stock to Rzepka, although commissions were not authorized at that time.
Consequently, we find that the sales of stock to Rzepka on August 5, 1970, and October 14, 1972, and the sale of stock to Locke on November 1, 1972 were in violation of MCL 451.701; MSA 19.776(301) and that plaintiffs Rzepka and Locke maintain a valid cause of action against defendants under MCL 451.810(a)(1); MSA 19.776(410)(a)(1).
Having established defendant’s liability as seller under MCL 451.810(a)(1); MSA 19.776(410)(a)(1), we further affirm the court’s finding of liability as to the individual defendants predicated upon MCL 451.810(b); MSA 19.776(410)(b).
The trial court concluded that "no proof’ was advanced to bring the knowledge exception of this section into play. Although this characterization may be extreme, we do hold that the individual defendants have failed to meet their burden of proof under the statute. We find clear the fact that Ott, Casterline and Refior all knew about the commissions which were authorized by them in their positions as members of the Board of Directors. Testimony also appears supporting the proposition that Ott and Casterline knew the stock had not been registered. Although no evidence exists that Refior knew of the stock’s unregistered status, likewise no evidence appears that he "could not
have known” of this fact. Since the individual defendants have clearly failed to establish their lack of knowledge, actual or constructive, we find them liable under MCL 451.810(b); MSA 19.776(410)(b) in their positions of directors and officers of the corporation. Their ignorance of blue sky laws is irrelevant for purposes of this statute, as the exception only speaks of the lack of knowledge of "the existence of the facts by reason of which the liability is alleged to exist”. Clearly, under the statute, ignorance of the law is no excuse. See
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V. J. Brennan, J.
Plaintiffs brought this action on August 4, 1974, alleging violation of various Michigan security laws, fraudulent misrepresentation, and conspiracy in the sale of stock in Farm Estates, Inc. They sought the return of their investments in this corporation. The case was tried in Macomb County Circuit Court on May 4, 6 and 7, June 29-30, and July 1, 2, 7, 14 and 15, 1976.
In an opinion dated February 14, 1977, Judge Raymond R. Cashen ruled that defendant Ott had committed a common law fraud against plaintiff Mitchell Rzepka in failing to disclose to him the corporation’s shaky financial situation and the existence of litigation against it when she sold him $5,000 worth of stock on October 26, 1973. The court also found that commissions had been collected for the sale of stock, which prevented the corporation from claiming a statutory exemption to the registration requirement. MCL 451.802; MSA 19.776(402).
Consequently, the court held defendants Ott, Refior and Casterline liable to plaintiffs Rzepka for $20,000 and plaintiffs Locke for $10,000. A judgment of no cause of action was entered in favor of Farm Estates, Inc. and R and C Investments, Inc. A similar judgment was entered against plaintiff Hacker.
On March 22, 1977, a judgment was entered, altering the amount of liability slightly and also awarding plaintiffs Locke and plaintiffs Rzepka $6,354.76 for costs and attorney fees. On April 11, 1977, amended findings of fact and conclusions of
law were entered, holding that Farm Estates, Inc., was also liable for the $10,000 judgment in favor of Locke, the $20,000 judgment in favor of plaintiffs Rzepka and the award of attorney fees. The individual defendants now appeal as a matter of right. GCR 1963, 806.1. Plaintiffs Rzepka have filed a cross-appeal regarding the extent of their recovery.
Defendants, and plaintiffs on cross-appeal, collectively raise three allegations of error in the trial court’s decision. We will deal with only one claim at any length.
Defendants contend the record at trial indicates no proof of their culpable knowledge, even though liability was grounded upon their own act of approving the receipt of commissions for the sale of unregistered stock in violation of MCL 451.701; MSA 19.776(301) and MCL 451.802(b)(9); MSA 19.776(402)(b)(9).
Judge Cashen found defendants’ corporation, Ott, Casterline and Refior jointly and severally liable to plaintiffs Rzepka and Locke for the purchase price of the securities which were not registered as required by MCL 451.701; MSA 19.776(301.).
We agree with the court.
On the basis of the evidence presented, we find Judge Cashen was not in error when he inferred that Farm Estates stock was never registered. Moreover, we find uncontroverted the fact that commissions were authorized by the Board of Directors on March 29, 1971, for the sale of corporate stock and that such commissions were reversed on the corporate books effective April 30, 1973. The reversal occurred only after defendant Ott had met with a representative from the Department of Commerce. We also find that Mrs. Ott received a number of commissions pursuant to this authorization including $4,000 on August 6, 1970, paid to Business Management Consultants, one of Ott’s alter-ego corporations, for the sale of stock to Rzepka. Further, Refior testified that he knew of these commissions, and the record is uncontroverted that these commissions were noted in the minutes of the meeting of the Board of Directors on March 29, 1971. At that time, the Board of Directors consisted of Ott, Refior and Casterline.
We also find proper the trial court’s conclusion that the corporate stock did not qualify for the exemption under MCL 451.802; MSA 19.776(402), since commissions were paid on the sale of this stock. Further, nothing in the statute leads us to conclude that returning the commissions would have the effect of retroactively placing the stock within the exemption for the period in which such commissions were collected. Statutory exceptions are to be given a limited, rather than expansive
construction.
Lee v J H Lee & Son,
72 Mich App 257, 260; 249 NW2d 380 (1976),
Northville Coach Line, Inc v Detroit,
379 Mich 317, 329; 150 NW2d 772 (1967) (plurality opinion). Moreover, the narrow view we take here is consistent with the statutory purpose of protecting the public.
People v Dempster,
396 Mich 700, 707-708; 242 NW2d 381 (1976).
We also find reasonable Judge Cashen’s conclusion that Ott received commissions on all sales made during the period in which such commissions were authorized, including: the sale on October 14, 1972, of $20,000 worth of stock to Rzepka and the sale on November 1, 1972, of $10,000 worth of stock to Locke. This conclusion is supported by Ott’s admissions as to the receipt of commissions throughout the period and the existence of a commission check of $4,580 for the sale of stock to several persons whose names could not be recalled at trial. Evidence also appears that Ott received a commission in connection with the August 5, 1970, sale of stock to Rzepka, although commissions were not authorized at that time.
Consequently, we find that the sales of stock to Rzepka on August 5, 1970, and October 14, 1972, and the sale of stock to Locke on November 1, 1972 were in violation of MCL 451.701; MSA 19.776(301) and that plaintiffs Rzepka and Locke maintain a valid cause of action against defendants under MCL 451.810(a)(1); MSA 19.776(410)(a)(1).
Having established defendant’s liability as seller under MCL 451.810(a)(1); MSA 19.776(410)(a)(1), we further affirm the court’s finding of liability as to the individual defendants predicated upon MCL 451.810(b); MSA 19.776(410)(b).
The trial court concluded that "no proof’ was advanced to bring the knowledge exception of this section into play. Although this characterization may be extreme, we do hold that the individual defendants have failed to meet their burden of proof under the statute. We find clear the fact that Ott, Casterline and Refior all knew about the commissions which were authorized by them in their positions as members of the Board of Directors. Testimony also appears supporting the proposition that Ott and Casterline knew the stock had not been registered. Although no evidence exists that Refior knew of the stock’s unregistered status, likewise no evidence appears that he "could not
have known” of this fact. Since the individual defendants have clearly failed to establish their lack of knowledge, actual or constructive, we find them liable under MCL 451.810(b); MSA 19.776(410)(b) in their positions of directors and officers of the corporation. Their ignorance of blue sky laws is irrelevant for purposes of this statute, as the exception only speaks of the lack of knowledge of "the existence of the facts by reason of which the liability is alleged to exist”. Clearly, under the statute, ignorance of the law is no excuse. See
Cola v Terzano,
129 NJ Super 47; 322 A2d 195 (1974). See, also, Anno:
What Amounts to Participation by Corporate Officer or Agent in Illegal Issuance of Security in Order to Impose Liability upon Him Under State Security Regula
tions, 44 ALR3d 588.
We therefore sustain the trial court in granting Rzepka judgment for $20,000 plus interest and Locke judgment for $10,000 plus interest. We find that plaintiffs were entitled to the return of their purchase price. Clearly, they filed suit within two years of the purchase and did not refuse any prior offers or reimbursement.
As to the remaining claims, we address them only briefly.
Defendants claim the trial court erred in finding either common-law or statutory fraud based on Ott’s sale of stock to plaintiff Locke without disclosing to him the existence of pending litigation or the corporation’s poor financial condition.
The trial court found that Ott committed common-law fraud in selling $5,000 worth of her stock
to Locke on October 26, 1973. The record supports the court’s finding of fraud. See
Hi-Way Motor Co v International Harvester
Co, 398 Mich 330, 336; 247 NW2d 813 (1976). Specifically, Ott’s failure to disclose the bleak financial position of the corporation constitutes adequate support for the action. An affirmative misrepresentation of one’s financial condition has been held adequate in such cases.
First State Savings Bank v Dake,
250 Mich 525; 231 NW 135 (1930).
Consequently, assuming Ott had a duty of disclosure as seller, that duty should encompass disclosure of the corporation’s poor financial status. Failure to disclose these facts under the circumstances of this case is tantamount to a representation that the corporation was solvent. Such representation was clearly false; and Ott, as director, officer and creditor of the corporation, obviously knew the representation was false. Such a misrepresentation is clearly material as bearing upon a fact crucial to Locke’s decision to buy.
Papin v Demski,
17 Mich App 151, 155; 169 NW2d 351 (1969),
aff'd
383 Mich 561; 177 NW2d 166 (1970). We find reliance here where the facts not disclosed are of the sort that would have induced plaintiff not to have acted had he known of them. The corporation’s dire financial condition clearly qualifies under such a test. The trial court reached the correct decision. We find no error.
Plaintiff Rzepka on cross-appeal contends the trial court improperly denied him recovery of the purchase price of the stock he bought in August, 1970, despite the fact that (1) no fiduciary relationship existed between Rzepka and Ott, (2) an action based upon MCL 451.810(a)(2); MSA 19.776(410)(a)(2) was barred by a statute of limitations and (3) plaintiffs have not proven the exis
tence of material misrepresentation or the nondisclosure of facts which would have affected plaintiff’s decision to purchase the stock.
The trial court found that plaintiff’s action for statutory fraud was barred by the statute of limitations and that plaintiff’s theory based upon common-law fraud and breach of fiduciary duty were without merit. We agree.
This action was filed on August 4, 1974. The alleged fraud occurred four years previously. MCL 451.810; MSA 19.776(410) provides in part:
"(e) No person may sue under this section more than 2 years after the contract of sale. No person may sue under this section (1) if the buyer received a written offer, before suit and at a time when he owned the security or commodity contract, to refund the consideration paid together with interest at 6% per year from the date of payment, less the amount of any income received on the security, and he failed to accept the offer within 30 days of its receipt, or (2) if the buyer received such an offer before suit and at a time when he did not own the security or commodity contract, unless he rejected the offer in writing within 30 days of its receipt.”
Consequently, plaintiff’s action is barred since the case was commenced more than two years from the date of the sale. We find no merit to plaintiff’s claim and sustain the trial court.
Having reviewed each of the claims of defendants and plaintiffs, we affirm the decision of the trial court.
Affirmed. Neither side to be assessed costs.