255 Mass. 273 | Mass. | 1926
The first of these actions, with a declaration in eight counts, is brought against the executors of the will of Robert M. Morse for breach of contract; the second is in tort for conversion of a certificate or certificates for twenty-nine hundred shares of stock of the Elkhorn Coal and Coke Corporation, a Maine corporation, and a certificate or certificates for eleven hundred and twenty-five shares of common stock of the Big Sandy Company, a Maine corporation. The answer to the first action, after making a general denial, alleges, among other things, that the contract is against public policy and void, that the agreement was within the statute of frauds and is not in writing, that if any contract was made it has been performed, and that the plaintiff expressly or by conduct has excused further performance.
The plaintiff, as a law student, entered Mr. Morse’s office in 1888, and for many years continued to be associated with him under an arrangement by which Mr. Morse was to pay him a fixed sum annually for general assistance rendered in legal matters, and additional compensation for special work. The plaintiff also had the right to practise law on his own account.
In 1894, a certificate for fifteen thousand shares of stock in the Elkhorn Coal and Coke Company, a corporation organized under the laws of Virginia, was issued to Mr. Morse. Five hundred of these shares were disposed of, and at a later time upon a reduction in the capital stock of the corporation, Mr. Morse’s holding was represented by a certificate for twenty-nine hundred shares. A Maine corporation called the Elkhorn Coal and Coke Corporation was organized to take over the assets of the Virginia company, and a certificate for twenty-nine hundred shares in the new
In 1904, a certificate for eleven hundred and twenty-five shares of the capital stock of the Big Sandy Company, a corporation organized under the laws of Virginia, was issued to Mr. Morse. A Maine corporation (the Big Sandy Corporation) was organized to take over the assets of this Virginia company; and Mr. Morse, at the time of his death, either had a certificate for the shares in the Virginia corporation or had exchanged it for the same number of shares in the Big Sandy Corporation. The Elkhorn Company of Virginia sold its landed property to the Big Sandy Company of Virginia and took in payment stock of the latter company, and this stock became its only asset. In 1905 after stock of the Big Sandy Company was exchanged, share for share, for stock in the Big Sandy Corporation of Maine, the Elk-horn corporation of Maine held fourteen thousand two hundred and fifty-seven shares of stock in the Big Sandy Corporation of . Maine. This latter corporation had a capital of $5,000,000 but the ten thousand first preferred shares were without voting rights. The ten thousand second preferred shares and the outstanding common shares were entitled to vote. The right to vote the Big Sandy Company stock held by the Elkhorn Coal and Coke Corporation was given to the attorney for two brothers named Weld and the plaintiff, jointly, in 1909. The auditor found that although there were forty thousand shares of second preferred and common stock of the company at this time, many of these shares were in the treasury, and that the shares owned by the Elkhorn Coal and Coke Corporation controlled the Big Sandy Corporation.
The case was tried to a jury upon the auditor’s report and other evidence. At the close of the evidence, the defendants filed a motion for directed verdicts, which was at first denied, and certain questions were submitted to be answered. Before the jury had reported answers to the. questions, they were recalled and by direction of the trial judge returned a verdict for the defendant in each case. The plaintiff’s exception to the right of the judge to order a verdict
Upon the findings of the auditor, the contract alleged by the plaintiff was not made and there was no breach of contract; the stock alleged to have been converted was not owned by the plaintiff and there was no conversion. But, in deciding whether the orders directing verdicts for the defendants were right, it must be assumed that the jury would take the view of the evidence most favorable to the plaintiff and follow the auditor’s report only in so far as there was no evidence tending to contradict or modify it. Upon the plaintiff’s testimony, the jury could have- found that in 1894 he owned certain shares in the Elkhorn Coal and Coke Company of Virginia, and at the request of Mr. Morse, to recoup him for his losses, gave him the fourteen thousand five hundred shares of this stock above referred to; that the plaintiff said to Mr. Morse when the request for stock was made, “Well, Mr. Morse, I must protect my control of this' situation,” and that he had said to bondholders that they would get their money back and that they were looking to him to do it and he must be protected in doing it. Mr. Morse said, “Of course, Hellier, I will always protect your control so that you can work out this for the interest of the bondholders and for the corporation .... As long as you hold your stock, I will hold mine. You shall have my proxy, arid I will protect you and do everything I can to aid you. in working out this matter and protect you while you are doing it”; and the plaintiff told Mr. Morse it might take years to do it; and Mr. Morse said he would hold his stock and the plaintiff would hold his until the property was sold; that they would not sell their stock but sell the property; that the plaintiff told Mr. Morse he would do his best for the corporation, and Mr. Morse said he would protect the plaintiff in doing that as long as he did his best for the corporation, arid the plaintiff said to Mr. Morse that he would give him the stock on those conditions.
The jury could further have found that in 1904 the plaintiff owned certain shares of the common stock of the Big Sandy Company of Virginia, and at Mr. Morse’s request gave
In May, 1919, Mr. Morse wrote the plaintiff that he thought a receiver should be appointed for Big Sandy. In reply the plaintiff wrote that Big Sandy had no debts nor guaranties and was not likely to be embarrassed, and that if he could not get the results he would be glad to stand aside and let some one else try. The plaintiff resigned as president about the end of June, 1919. His testimony as to the facts leading up to this resignation is in substance that on June 19, 1919, he received a telegram from Mr. Morse and substantially all the Boston stockholders containing the following statement: “We have agreed upon reorganization of Elkhorn and Big Sandy Companiés and request you to return here at once.” At this time both Mr. Morse and the Weld interests wanted the property sold. The plaintiff next saw Mr. Morse on June 21 at Falmouth and Mri Morse informed him
An agreement binding a stockholder to a vote which may be inconsistent with the performance of his duty as a stockholder is void. Guernsey v. Cook, 120 Mass. 501. Noyes v. Marsh, 123 Mass. 286. Woodruff v. Wentworth, 133 Mass. 309. Palmbaum v. Magulsky, 217 Mass. 306.
It was held in Guernsey v. Cook, supra, page 502, that an agreement to secure to a stockholder an office in a corporation with a fixed salary is void as against public policy and as a fraud on the other members of the corporation. “It was the purpose and effect of the contract to influence the defendant, in the decision of a question affecting the private rights of others, by considerations foreign to those rights. The promisee was placed under direct inducement to disregard his duties to other members of the corporation, who had a right to demand his disinterested action in the selection of suitable officers.. He was in a relation of trust and.confidence, which required him to look only to the best interest of the whole, uninfluenced by private gain. The contract operated as a fraud upon his associates.” An action in affirmance of such a contract cannot be maintained.
It was said in Noyes v. Marsh, supra, that an agreement with a person, that, if he would buy certain shares of stock in a corporation, the corporation would employ him at a certain yearly salary, should be held to be void as against public policy.
In Woodruff v. Wentworth, supra, the court held that if one stockholder in consideration of a sum of money paid by the other agreed to vote for a certain person as manager of the corporation and to vote to increase salaries of the officers of the corporation, including that of manager, the agreement is void as against public policy unless assented to by all the stockholders; and it was said to be a question whether the contract would be valid even if such assent had been obtained. If a part of the consideration for a contract is void,
In West v. Camden, 135 U. S. 507, 520, 521, an agreement by a director to keep another person permanently in place as an officer of the company was held to be void as against public policy even though there was not to be any direct private gain to the promisor. The court said: “The agreement . . . was one . . . whereby . . . [the defendant] might be required to act contrary to the duty which, as an officer ... he owed to that company and to the stockholders other than the plaintiff. ... It does not appear that the defendant was to receive direct personal pecuniary compensation or gain for what he was to do. The plaintiff, on his own showing, dealt with the defendant in reference to the fiduciary relation which the latter bore to the stockholders . . . bound the defendant as to his future action as a director . . . and an agreement to keep the plaintiff permanently in the position of vice-president of that company, irrespective of its interests. It amounted to a stipulation on the part of the defendant that no contingency should happen which should require a change of management and a reduction of expenses. ... it was the right of the other stockholders ... ‘to have the defendant’s judgment, as an officer . . . exercised with a sole regard to the interests of the company. ’ ” “Where an agreement is made which is either contrary to public policy or fraudulent as to third parties, it will not be enforced, although in the particular instance no injury may have resulted.” Palmbaum v. Magulsky, 217 Mass. 306, 308. Gibbs v. Smith, 115 Mass. 592.
The contract in the case to be decided does not come within the principle of the voting trust agreements which have been held to be valid. Brightman v. Bates, 175 Mass. 105. Bullivant v. First National Bank of Boston, 246 Mass. 324.
The plaintiff contends that the case at bar is to be distinguished from Guernsey v. Cook, supra, on two grounds, (1) because the agreement was to keep the plaintiff in control so long as he worked for the best interests of the corporation; and (2) because there was evidence that all the stock
The second ground urged for distinguishing the case from Guernsey v. Cook, supra, is also untenable. The date of the alleged contract with Mr. Morse is not definitely stated, except that it was about September 1, 1894. The Elkhorn Coal and Coke Company had its inception in connection with the foreclosure of a mortgage on the property of the Virginia Mining and Improvement Company. It appears that when this mortgage to secure the payment of three hundred bonds of the Virginia Mining and Improvement Company was foreclosed, the plaintiff arranged with the bondholders that, if he bought the property, it would be turned over to a new company which would issue its bonds for the bonds in the mining company; that the Welds held a substantial number of the bonds in the mining company, and the plaintiff agreed with them that, in addition to bonds in the company to be organized, they were to have forty-two per cent of the stock of the new company. This agreement bound him to deliver to the Welds that portion of the stock. In pursuance of this arrangement the Elkhorn Coal and Coke Company of Virginia was formed and on August 1, 1894, a certificate for the whole capital stock of that company was issued to the plaintiff. Mr. Morse held twenty-four bonds in the mining company, but the plaintiff testified that there was no agree
The plaintiff’s contention that all of the stockholders knew of and assented to his agreement is based upon a conversation which he said he had with one Freeman, in which the plaintiff stated that he would not undertake the task unless he could be protected in his control so that, if he started on it at a good deal of sacrifice to his law business, he would be protected in the result of his work. He outlined to Freeman his plans for the development of the property which were entirely satisfactory to .Freeman. It does not appear when this conversation with Freeman took place or what Freeman’s authority was to speak for the Welds except that he was said to be their financial agent. But, if Freeman had authority to speak for the Welds, and if no one else except the plaintiff had rights as a stockholder, it does not appear that the plaintiff stated to him the terms of the agreement with Mr. Morse, upon which he relies, or that either Freeman or the Welds agreed to those terms.
It follows from a consideration of the whole case that, assuming that the terms of the contract upon which the plaintiff relies are sufficiently definite, that the contract related to control of the Maine corporations, that the plaintiff by receiving proxies on Mr. Morse’s stock could keep control of the corporations, and that there was evidence of a breach and of no waiver by the plaintiff of his rights, still the contract was unenforceable as against public policy and the exception to the order directing the jury to return a verdict for the defendants in the action of contract must be overruled.
In the action of tort, the defendants (executors of the will of Robert M. Morse) are alleged to have converted to their own use a certificate or certificates for the twenty-nine hundred shares of Elkhorn stock and for eleven hundred and twenty-five shares of Big Sandy stock referred to in the first case. . Mr. Morse died February 21, 1920. His executors
In deciding these cases, the evidence offered and excluded has been considered and there is nothing in the excluded evidence which, if it had been admitted, would change the conclusion here reached. All exceptions argued have been considered and no reversible error appears. ,
Exceptions overruled.