269 Mass. 102 | Mass. | 1929
This is a suit in equity by a minority holder of common and preferred stock in the defendant corporation against that corporation and its five directors. The main grounds of complaint by the plaintiff are that he is being unjustly and fraudulently deprived of all the privileges of a holder of common stock, and that the individual defendants have dealt improperly and fraudulently with certain shares of stock in the corporation acquired by it from the estate of a deceased stockholder in deprivation of personal rights of the plaintiff and in derogation of the rights of the corporation.
The case was sent to a master under the usual order to hear the parties and their evidence and to find and report the facts. Therefore no evidence is reported. Interlocutory decrees were entered denying the plaintiff’s motion to recommit the master’s report and overruling the plaintiff’s objections to, and confirming, the master’s report, and a final decree was entered dismissing the bill. Appeals by
The objections of the plaintiff to the master’s report for the most part are based upon fragments of testimony and isolated facts which, standing alone, might possibly be thought to be basis for a claim that the findings were inconsistent or repugnant one to another. It was the duty of the master to weigh all the evidence and to reach a definite conclusion as his mind was led by the credible parts of it, and then to place the salient facts as found by him in their true perspective, *so as to present in his report in sufficient detail a fair statement of his determination respecting the essential issues involved and thus to make a lucid and intelligible final announcement of the decision required by the exercise of his judicial faculties. The value of the testimony was a matter to be settled by the master upon his observation of the witnesses. He might have regarded some as dependable and others as shifty, biased, or unreliable. He might accept or reject in whole or in part the testimony of any witness. Klayman v. Silberstein, 252 Mass. 275, 278. Commonwealth v. Buss, 232 Mass. 58, 70. There is nothing in the master’s report to indicate that he failed in any particular in the performance of his duties or to cast discredit upon the facts found by him.
The facts are that the plaintiff with others constituting the firm of Little, Brown and Company in 1913 organized the defendant corporation for the purpose of continuing the business of publishing and selling books. The partners transferred the assets of the business subject to its liabilities to the corporation and in payment took all its shares of capital stock both common and preferred. It was provided in the agreement of association that there were no restrictions on the transfer of stock. Soon after the organization of the corporation a special meeting of the stockholders was held at which there was presented what is designated an agreement to amend the by-laws, signed by all persons either then holding or entitled to hold common stock under the terms of the purchase of the partnership assets. Among the others this agreement was signed by the plaintiff and
Restrictions on the sale of shares of stock in a corporation are valid and binding in this Commonwealth. The absence of definite statutory limitations upon the power to impose such restrictions must be taken as a legislative determination that considerable latitude in this particular is permissible. No restrictions can be declared void unless palpably unreasonable. Unless prohibited, a corporation may purchase shares of its own stock. New England Trust Co. v. Abbott, 162 Mass. 148. Barrett v. King, 181 Mass. 476. Silversmiths Co. v. Reed & Barton Corp. 199 Mass. 371. Adams v. Protective Union Co. 210 Mass. 172. Long-year v. Hardman, 219 Mass. 405. Fairfield Holding Corp. v. Souther, 258 Mass. 540. Fopiano v. Italian Catholic Cemetery Association, 260 Mass. 99. Albert E. Touchet, Inc. v. Touchet, 264 Mass. 499.
Without passing upon the validity of the restrictions imposed by these amendments as abstract propositions, we are of opinion that, in view of all the circumstances here disclosed, the plaintiff is not in a position to invoke the aid of a court of equity to have them declared void as to him. It becomes unnecessary to discuss Topken, Loring & Schwartz, Inc. v. Schwartz, 249 N. Y. 206, and the principles on which it rests.
In this connection reference may be made to the exception to the part of the master’s report to the effect that there is nothing in these amendments "which is inequitable, unreasonable or contrary to public policy. There is involved no possible question of prejudice to creditors or public.” If this be treated as a ruling of law, it was beyond his power because not within the scope of the rule to the master. New England Foundation Co. v. Reed, 209 Mass. 556, 562. Bradley v. Borden, 223 Mass. 575, 586. It is interpreted, however, as a finding of fact with reference to its effect. Whatever may be its true significance, it has no
The plaintiff managed the retail department of the defendant corporation and also attended to the customs incident to importations. During the last few years of his connection with the company, he had allowed his work and his conduct during business hours to be appreciably affected by an indiscreet and excessive use of liquor. This weakness grew upon him until it was quite apparent that during 1924 and 1925 his conduct was exceedingly detrimental to the best interests of the business and highly distasteful to his associates. Without giving details the master found that the directors of the company had ample justification for the action which followed. On February 25, 1926, after an informal conference with the plaintiff, the other directors of the company voted that he be granted a leave of absence from March 1, 1926, to and including January 31, 1927, on half pay. The plaintiff accepted this decision and with the permission of his codirectors announced that his absence from business was caused by ill health. At the following annual meeting of the stockholders held on March 11, 1926, the plaintiff was not reelected a director. ' This was within the power of the stockholders. Opinion of Justices, 261 Mass. 556, 597. In December, 1926, at an informal conference with the president of the company, the plaintiff was told that the directors had determined to make his retirement permanent. This was done. Under the by-laws unquestionably this was within their power. Hayden v. Perfection Cooler Co. 227 Mass. 589, 592. At this conference the plaintiff was asked to surrender his common stock in accordance with amended by-law I and it was suggested that, if he did so before January 31, 1927, the end of the fiscal year, the price which he would receive by the terms of the by-law would be considerably greater than that which he would receive by surrender after January 31, 1927. This was because earnings for the year ending in 1927 would be much less than those for the year ending 1924. Stock surrendered before January 31, 1927, would be priced according to the by-law at the aggregate net
The main question on this branch of the case is whether the plaintiff has become “a holder of shares of common stock who shall retire from employment by the corporation” within the description of article I of the amendments. The significance of words of doubtful import or susceptible of different meanings may take color from the time and circumstances of their use and the presumed intention of the parties in connection with all attendant conditions. Every instrument in writing is to be interpreted in the light of all pertinent facts within the knowledge of those who signed it, and in such manner as to give effect to the main end designed to be accomplished. Words of a writing are to be construed according to the common and approved usage of the language and are not to be wrested from their usual sense to meet an exigency not foreseen when the instrument was drafted. Eustace v. Dickey, 240 Mass. 55, 72. Moss v. Old Colony Trust Co. 246 Mass. 139, 155. Erickson v. Ames, 264 Mass. 436, 441, 444. The natural impression conveyed by the words already quoted, in their context, is that the holder of common stock does not come within their scope unless he shall voluntarily withdraw from the employment. This interpretation is confirmed by closer analysis. The word “retire” may be used in either
If it had been the intention of the stockholders in adopting the amendment to provide for such a contingency as has arisen, and to require the transfer of his stock by a shareholder who rightly and for sufficient cause was discharged from the service of the corporation, or who ceased for any coercive reason to be in the employment of the corporation, it would have been easy to use words expressing that intention in unmistakable terms. The failure to do this and the selection of words of an opposite signification' cannot be regarded as without weight. The circumstances that the highly prosperous condition of the corporation prior to the existence of the facts already stated had been brought about by a group of earnest, intelligent stockholders “working in perfect harmony and complete coordination for a single purpose,” that “Faithful service has been rewarded and new executives have been picked from the ranks,” and that the plaintiff’s connection with the business has ceased for ample cause, cannot enlarge the meaning of the words of the amendment. They were chosen by the stockholders. By their meaning the rights of the parties hereto must be governed. It may be that the intent of those adopting the amendment was to provide that only those actively connected with the conduct of its business should be holders of common stock in the corporation. But the words of the amendment do not express that idea. We can only interpret those words; we cannot supply omissions. Arruda v. Director General of Railroads, 251 Mass. 255, 263. It follows that article I of the amendment has not become operative to require the plaintiff to transfer his stock to the corporation because he had not come within its description as “a holder of shares of common stock who shall retire from employment by the corporation.” No exception to the master’s report seems to be directed to this point, but it is open on appeal from the final decree.
With respect to these transactions the master’s findings were: "I find that the Allen stock was sold at the by-law price without question by the representatives of the Allen
The plaintiff alleges that three of the defendants planned to .defraud him and enrich themselves by forcing him to sell his stock to the corporation at the price ascertained by amendment article I and then to buy it themselves. He also avers that the defendants, in pursuance of the plan to defraud him, intentionally depressed the by-law price of his stock by increasing their own salaries, and by certain bookkeeping and accounting manipulations; and have withheld from distribution to stockholders an unwarranted portion of earnings which they have carried to surplus for future division among themselves. With respect to these charges the master said: “I find that the salary increases were reasonable and proper. The 'changes made in the company accounts were in accord with the best accounting practice, and that the accumulation of surplus was the part of sound business judgment. Neither salary increases, accounting changes, or additions to surplus, were made with any thought to defraud Brown or to enrich the defendants.” As to every charge of fraud or misconduct on the
Fraudulent conduct commonly cannot be inferred. It must be found to exist. The general assumption of the law is in favor of honesty. Everybody is presumed to intend the natural consequences of his actions, and not infrequently this principle requires the inference of a fraudulent purpose from particular conduct in the absence of moral turpitude, and even when accompanied by an innocent and honest intention to accomplish a good object. Matthews v. Thompson, 186 Mass. 14, 21-23. Smith v. Clark, 242 Mass. 1, 7. Illinois Watch Case Co. v. Cowan-Myers Co. 250 Mass. 347, 350. Directors of business corporations often have been said to be trustees. Certainly they occupy a .fiduciary relation. They must place their management of corporate affairs above their purely personal concerns. They are bound to act with reasonable intelligence although they cannot be held responsible for mere errors of judgment or want of prudence. Albert E. Touchet, Inc. v. Touchet, 264 Mass. 499, and cases there collected. Manning v. Campbell, 264 Mass. 386, 390. Generally the question of fraud is one of fact. It must be proved. It cannot be inferred from graphic denunciation or opprobious epithets. Barron v. International Trust Co. 184 Mass. 440, 443. Phinney v. Friedman, 224 Mass. 531, 533. There is nothing in the facts reported by the master which shakes the binding force of his general finding that no duty owed to the plaintiff by the individual defendants was violated by them.
It was the duty of the directors under article II of the amendments to sell the shares of stock acquired by the corporation “at such price and for such consideration” as they might decide for the advantage of the corporation, and to sell them “to such persons as shall appear to them from their situation and character, most likely to promote confidence in the stability of the corporation.” It is not
It is not necessary to examine in detail the exceptions to the master’s report. For the reasons already stated, the interlocutory decrees are affirmed and the decree dismissing the bill must be reversed. A final decree is to be entered enjoining the defendants from denying to the plaintiff the full enjoyment of his rights as a holder of common stock in the defendant corporation, and for his costs.
Ordered accordingly.