Keith v. Radway, 220 Mass. 532

Keith v. Radway

220 Mass. 532 | Mass. | 1915

De Courcy, J.

Leave to appeal from the final decree has been granted under R. L. c. 159, § 28, and the parties have argued the case on its merits. See Boston & Albany Railroad v. Commonwealth, 157 Mass. 68.

The plaintiffs are minority stockholders in the Credit Reporting Company of New England, a Massachusetts corporation, and bring this bill for its use and benefit on the alleged ground that the directors have refused to take action to enforce the rights of the corporation against the defendant William S. Radway, and further that they will take no such action as the defendants are in full and active control of the corporation. Hill v. Murphy, 212 Mass. 1, 3, and cases cited.

*534The bill is inartificially drawn. The second paragraph is extraneous; and those numbered 13, 14 and 15 seem to be irrelevant, except as a recital of the dealings between the individual parties. But in substance the bill alleges the following facts: The Credit Reporting Company of New England, a Maine corporation carrying on business in Boston, had an authorized capital of $20,000, divided into two thousand shares of the par value of $10 each. The defendant William S. Radway (hereinafter referred to as the defendant) and his mother Sarah E. Radway owned fourteen hundred and eighty-one shares and were in full and exclusive control of the company, the defendant being treasurer and general manager. It had outstanding $7,900 of twenty-year six per cent bonds, of which $6,300 were held in the name of Sarah E. Radway.

The defendant formed a fraudulent purpose and design to reorganize the corporation in such a way as to leave the stockholders in possession of two fifths of the value of its assets, and to possess himself of the remaining three fifths without paying anything for the same. In pursuance of this fraudulent scheme, on December 8, 1913, he had a corporation organized under the laws of Massachusetts, with an authorized capital of $50,000, divided into five thousand shares of the par value of $10 each, and bearing the same name as that of the Maine corporation. In effecting the organization he associated with him two of his employees, one Perry and one Moore, who acted under his direction and control. Each of these subscribed to ten shares of the capital stock, and the defendant subscribed to the remaining forty-nine hundred and eighty shares by an unqualified and unconditional personal subscription, but never has paid any money therefor. A meeting of the Maine corporation was held on December 21, 1913, and by means of the controlling stock of the defendants Radway it was voted to sell to the defendant (William S. Radway) the business and all the assets, cash and accounts receivable of the (Maine) corporation, subject to its outstanding bonds and other indebtedness, for $19,540, payable in stock of the Massachusetts corporation at par. On December 24, 1913, the defendant caused to be issued to himself an original certificate for forty-nine hundred and eighty shares of the Massachusetts corporation. This he later exchanged for two certificates, one for nineteen hundred and *535fifty-five shares, with which to pay the stockholders of the Maine corporation for its assets, in accordance with said vote, and the other for three thousand and twenty-five shares, which he retained for himself. The only consideration received by the Massachusetts corporation for its capital stock of $50,000 was the above mentioned property of the Maine corporation, for which the defendant gave only a portion of that same stock of the par value of $19,540. Subsequently the defendant caused the Massachusetts company to issue its bonds for $7,900, in exchange for the bonds of the Maine corporation, and he had assigned to himself the shares in the Maine corporation which had been exchanged for shares in the Massachusetts company.

These allegations must be considered as true for the purposes of the demurrer. Baldly stated, and considering the substance of the transaction, they charge that the capital stock of a going concern was increased from $20,000 to $50,000, and that the promoter, acting through the machinery of two corporate organizations which he controlled, appropriated the increase of three thousand shares without paying to the corporation any consideration therefor. It needs no discussion to show that the law will permit no such fraud upon the corporation and its stockholders. The well recognized doctrine that a promoter stands in a fiduciary relation toward the corporation, and that he cannot lawfully take a secret profit in the sale to it of his own property, is thoroughly considered and formulated in the recent case of Old Dominion Copper Mining & Smelting Co. v. Bigelow, 188 Mass. 315; S. C. 203 Mass. 159. Plainly the Massachusetts corporation, for whose benefit this suit was brought, is entitled to some relief on the above facts. It is not necessary at this time to determine specifically in what form that relief shall be given.

The decrees of the Superior Court sustaining the demurrer and dismissing the bill are to be reversed, and a decree entered overruling the demurrer.

Decree accordingly, with costs.