316 Mass. 194 | Mass. | 1944
This is a bill in equity, brought in accordance with G. L. (Ter. Ed.) c. 213, § 3, Tenth A, and Rule 101 of the Superior Court (1932), for a decree interpreting a written contract made as of January 3, 1938, between the plaintiff, the defendant Epstein and the defendant Atlantic Finance Corporation, hereinafter called the corporation. The corporation since its organization in 1937 has done a large and profitable business in lending money. Epstein is the general manáger of the corporation. Leventhal has for many years engaged in the business of making loans. None of his varioús contentions' that this contract gave him certain rights was sustained in' the Superior Court. He has appealed from the final decree.
The corporation agreed in the first paragraph of the contract to cause and permit its liquidation and dissolution after the end of any year beginning with 1942 upon the written request of either Leventhal or Epstein and upon
The first contention of Leventhal is that the contract created a partnership between Epstein and himself. He points out that the contract gives an option to Epstein and himself to liquidate and dissolve the corporation; that while he can transfer his stock, the stock is deemed his for the purposes of the contract; that loans made by him or Epstein to the corporation are to be subordinated to loans made by banks; and that the activities of Leventhal in the affairs of the corporation indicate that it was the intent of all the parties to the contract that Leventhal and Epstein were to be partners. Under this contract, Leventhal and Epstein were regarded as each holding one half of the outstanding capital stock. The corporation, however, executed the contract in its own behalf as a party in its own right and not as the principal or agent of either of these two stockholders but with them as separate and independent parties. It was the intention of all the parties that the corporation should continue to conduct its business as a corporation. The fact that all the capital stock of a corporation is owned by one or two persons who thereby secure the power to elect officers, to determine the policy to be followed or to put an end to the corporation, does not destroy the existence of the corporation. It still continues as a legal entity distinct from the stockholders. England v. Dearborn, 141 Mass. 590. McAlevey v. Litch, 234 Mass. 440, 441. Star Brewing Co. v. Flynn, 237 Mass. 213, 217. Van Heusen v. Commissioner of Corporations & Taxation, 257 Mass. 488, 489. Berry v. Old South Engraving Co. 283 Mass. 441, 451. M. McDonough Corp. v. Connolly, 313 Mass. 62, 66. The legal title to its property remains in the corporation while the beneficial interest is in the stockholders, and the right to recover damages for an impairment of the corporate assets belongs to the corporation and not to the stockholders. Hirshberg v. Appel, 266 Mass. 98. Comerford v. Meier, 302 Mass. 398. Shaw v. Harding, 306 Mass. 441. The ordinary relationship between stockholders is not that of partners. They have an interest in the corporation as evidenced by their shares, but
Nor was the effect of the contract to enable Leventhal and Epstein to conduct their business as partners under a corporate form. The testimony and the findings of the judge negative any contention that the corporation was a mere matter of form. It was actively engaged in conducting a large and successful business under the immediate supervision of Epstein, who in accordance with the contract of January 3, 1938, was employed as general manager. The participation of Leventhal in the affairs of the corporation, by giving instructions to some of the employees, approving loans and examining the books and records and by other similar conduct was not inconsistent with the fact that he held one half of the stock. For instance, with reference to the furnishing of monthly statements to Leventhal, the judge found that these statements were furnished at the request of Leventhal for the purpose of safeguarding his investment, that they were given to him as a gesture of courtesy to a large stockholder, and that the board of directors was acting within its rights in rescinding a vote giving Leventhal the power to approve loans over a certain amount made by the corporation. The rights given by this contract to Leventhal and Epstein with reference to the dissolution of the corporation and the transfer of their stock are rights
There is nothing in the contract of January 3, 1938, giving either Leventhal or Epstein power to act in any manner that will bind the other or showing that one is the agent of the other. Under that contract each acts for himself and in his own behalf. Each held his stock in his own right. Whatever profits they received came to them as stockholders of the corporation. These profits did not come to them directly from the business as they would if they were conducting the business as coowners. These profits might be more or less depending upon the success of the corporation, but they did not by the contract assume any personal obligation to pay any losses that might be incurred by the corporation, or to pay any creditors of the latter while both
The case is plainly distinguishable from Silversmith v. Sydeman, 305 Mass. 65, where a corporation sold most of its property to another corporation and one stockholder agreed to wind up the old corporation for the benefit of himself and the remaining stockholder. This is not an instance where a court of equity may look beyond the corporate entity to the responsible wrongdoers in order to protect the public, prevent fraud, compensate an injury or accomplish substantial justice. Hallett v. Moore, 282 Mass. 380, 399. New England Theatres, Inc. v. Olympia Theatres, Inc. 287 Mass. 485, 493. Hanson v. Bradley, 298 Mass. 371, 379-380. Browne v. Brockton National Bank, 305 Mass. 521, 529.
The contract provided in paragraph 1 (C) that both Leventhal and Epstein or "the legal representative of his estate, shall have free access to and shall be entitled to examine all assets, including books, papers and documents, of the corporation at reasonable times, and shall be entitled to be represented at any stocktaking, for the purpose of determining the value of his stock.” We are not concerned with any common law or statutory right of the plaintiff as a stockholder to examine the books and records of the corporation. See Varney v. Baker, 194 Mass. 239; Powelson v. Tennessee Eastern Electric Co. 220 Mass. 380; Klotz v. Pan-American Match Co. 221 Mass. 38; Shea v. Parker, 234 Mass. 592; Dennison v. Needle, 274 Mass. 416; Mairs v. Madden, 307 Mass. 378. The question is as to what rights in this respect the plaintiff acquired under the contract. This provision appears in the first and only paragraph in
Under the contract, the corporation agreed with Epstein to employ him as general manager for the term of five years at a certain salary, This agreement for employment was to terminate if prior to the date of its expiration the corporation was dissolved or Leventhal purchased Epstein’s stock. Epstein agreed in this contract of January 3, 1938, to accept employment upon the conditions stated. The agreement for employment ran its full term and the board of directors has made a new agreement with him. The contract of January 3, 1938, did not make Leventhal a party to the original agreement of employment or to the present one. Lovell v. Commonwealth Thread Co. Inc. 272 Mass. 138. Electro-Formation, Inc. v. Ergon Research Laboratories, Inc. 284 Mass. 392, 394. The corporation and Epstein were free to make an agreement for his employment as general manager so long as the agreement would not render either of them unable to perform fully the contract of January 3, 1938, between them and Leventhal. The latter has argued that under the by-laws of the corporation he has a right as a shareholder to participate in making a contract of employment- with Epstein as general manager. We do not pass upon this alleged right of Leventhal for the scope of this proceeding is to interpret the written contract of January 3, 1938, and not the by-laws of the corporation.. Under that contract, whatever his rights may be under the by-laws, he is not a party to any such agreement with Epstein.
The contract gave Leventhal the right to have his shares “issued to others, in amounts of not less than one hundred shares,” but for the purposes of the contract all of his half of the outstanding shares in whatever name they stood were to be regarded as his shares. The other outstanding shares
At the date of the contract the making of small loans, so called, G. L. (Ter. Ed.) c. 140, § 96, see now St. 1941, c. 158, constituted a branch of the corporation’s business. Its license to engage in the small loan business was revoked in October, 1939. Bernhardt v. Atlantic Finance Corp. 311 Mass. 183. After the law was amended, in 1941, the licensing authority informed the corporation that a license would be issued if it filed an application. Both Leventhal and Epstein agreed to drop the matter of a license. The corporation has not since engaged in the small loan business. Under the contract Leventhal agreed that he would not during the existence of the contract engage in the small loan business except in a particular not now material. There is nothing in the contract qualifying the absolute promise of Leventhal not to engage in this business, and there is no condition implied that Leventhal’s promise was to be effec
The effect of the contract upon the right of Leventhal to bring proceedings under G. L. (Ter. Ed.) c. 155, § 50, as amended, for a dissolution of the corporation is the final question presented for decision. This statute provides that a corporation that desires to close its affairs may, “unless otherwise provided in the agreement of association,” by vote of a majority of its members file a petition for its dissolution, and a person holding not less than forty per cent of its outstanding shares may file such petition if the votes of the directors and stockholders are equally divided on a question affecting the general management of its affairs or if votes of the stockholders are equally divided in the elec: tion of directors and no way appears to break the deadlock. The dissolution of a corporation which is a creature of the Legislature is primarily a legislative function, and the only authority courts have to deal with this subject is the power conferred upon them by the Legislature. Olds v. City Trust, Safe Deposit & Surety Co. 185 Mass. 500. Cook v. Cook, 270 Mass. 534. Hurley v. Boston Railroad Holding Co. 315 Mass. 591, 614-615. It is not suggested that the' agreement of association of the defendant corporation contains any provision relating to its dissolution. The fact that the incorporators or stockholders might make a provision for the dissolution of the corporation indicates a recognition by the Legislature that the corporation and its stockholders might agree in the agreement of association upon a method for dissolution other than that given by this statute. Soon after the enactment of the original statute, St. 1852, c. 55,
The filing of a petition by a corporation or by a stockholder under § 50 is a privilege afforded to the corporation and to the stockholder if the conditions of the statute are complied with by the petitioner. A stockholder may or may not invoke this remedy. The contract expressly prohibited either stockholder from causing a dissolution of the corporation except as therein provided. Leventhal and Epstein owned all the beneficial interest in the corporation by virtue of their ownership of the stock, and there is nothing in the nature of the remedy afforded a stockholder by § 50 that he cannot waive or contract away. It comes within the general rule that one may waive the benefits of a statutory remedy provided he does not thereby contravene the public policy of the Commonwealth. There was no error in the ruling that the plaintiff has waived any right to file a petition for dissolution. Middlesex Co. v. Osgood, 4 Gray, 447. Brown v. Eastern Slate Co. 134 Mass. 590. Livingstone v. Murphy, 187 Mass. 315. Herschman v. Justices of the Municipal Court, 220 Mass. 137. Federal National Bank v. Koppel, 253 Mass. 157. Castaline v. Swardlick, 264 Mass. 481. McLearn v. Hill, 276 Mass. 519. Stoneham Five Cents Savings Bank v. Johnson, 295 Mass. 390. Casavant v. Boreka, 298 Mass. 528. Mulligan v. Hilton, 305 Mass. 5.
It follows that the second paragraph of the final decree is to be struck out and a new paragraph is to be substituted
Ordered accordingly.
The contract neither included nor referred to the by-laws. — Reporter.