154 N.Y.S. 580 | N.Y. App. Div. | 1915
The controversy between the parties herein arises out of the affairs of a corporation known as the St. Gabriel Lumber Company, Limited, formed under letters patent of the Province of Quebec, Canada, in September, 1902. Prior to the incorporation of said company, Lindley M. Garrison, one of the plaintiffs who had met defendant Durant socially, had a conversation with the latter, in which Durant said that he had been interested from time to time largely in the matter of purchasing tracts of land containing timber, either for purchasers who had commissioned him so to do or as a broker, and Garrison having clients who were largely interested in the purchase of timber lands and lumber, they concluded to interest themselves together, Durant undertaking to search in Canada for suitable timber land which could be purchased at an attractive price, and Garrison undertaking to look for persons desirous of investing therein, the intention being that in the event of a sale they should profit therefrom as brokers. Garrison at that time was a member of the firm of Garrison, McManus & Enright, attorneys at Jersey City, N. J., the other partners being
According to the agreement entered into at Montreal, April 10, 1908, between the St. Gabriel Lumber Company, Limited, Howard M. Durant and Alex. MacLaurin, the trustee, the debts of the St. Gabriel Lumber Company assumed by Durant amounted to $96,981.06, and the live or liquid assets thereof, acquired by Durant under the agreement, amounted to $94,329.81. Durant, however, claims that this-amount never has been realized for the property shown on the schedules. His liability under the agreement never has been determined and he does not know whether it will result in a profit or a loss, note No. 16 still being deposited with the trust company to secure the bag company for any debit whatever. On cross-examination Durant could not recollect having communicated to McManus after the failure of the Sovereign Bank the details of his negotiations with the bag company from October, 1907, but he did admit that when he had his interview with McManus in New York on March twelfth, he had received the written proposition of the bag company dated March seventh. He admitted the giving of the notes to Wm. C. Sheldon & Co. in payment of his indebtedness, which had been running over a period of years. It also appears that out of note No. 16, still due and unpaid, he had assigned $5,000 to Sheldon because of some claim or loss on Sheldon’s part, the exact nature of which is difficult to gather from the evidence. He claims that when he talked with McManus on March 12, 1908, he did not know how much he was to receive for his own stock. He was unable to state definitely how much he would realize or what the price
While it is true that Durant had personally guaranteed the loan of credit with the Sovereign Bank to the amount of $175,000 on January 30, 1907, he wrote on April 23, 1907, to McManus saying: “ The Bank here insists on my guaranteeing their loan to the St. Gabriel Company and I have about made up my mind there is no way out of it. If this is done it would be only right that all the other stockholders should join me in the guarantee, but this I suppose they will not wish to do. In connection with the above I feel that it is time to say that I am not receiving a salary adequate to the work done and the responsibility incurred and I wish the salary to be raised to $8,000 per year commencing with our current fiscal year. There is now no reason why this should not be done, for while we did not meet with anticipated results at the start we are more than doing so now.” McManus and Garrison, who
This is not the ordinary case of misrepresentation by which advantage is taken of a seller, for there is no proof of any actual misstatement by Durant of the terms of the purchase by the bag company of the stock in the St. Gabriel Company. The question whether or not the plaintiffs are entitled to hold Durant to an accounting must depend on the answer to the question whether he was under any duty to the plaintiffs of disclosure to them of the exact terms and conditions of the sale of the stock in the St. Gabriel Company to the bag company, and the other conditions of that sale by which the St. Gabriel Company parted with all its property and its business devolved upon the bag company. This is not a case of a large corporation with many stockholders dealing with each other at arm’s length, where each was at liberty to do as he pleased with his stock, regardless of its effects upon the other stockholders, and where, being upon an equal footing, no special trust or confidence was reposed in any particular stockholder. The St. Gabriel Company was a comparatively small corporation whose stock at the time of the occurrences complained of was controlled by Durant, who owned about seventy per cent thereof, the remaining thirty per cent being owned by McManus, his sister (Mrs. Archer) and Garrison, and as McManus acted for his sister as well as for himself, there were but three persons who ever were consulted in the slightest degree about the company’s business. Of these, Durant was not only the president, manager and a director, but exercised exclusive and unquestioned sway over the affairs and policy and business of the company, and being the only one interested who had any practical experience in lumbering, his domination was never questioned by his associates. The relations between the parties appear to have been always cordial down to the discovery of the real terms of the sale, and the confidence of Garrison and McManus in Durant was never shaken until then. So he not only did not furnish
A case having many features in common with the one at bar is that of Strong v. Repide (213 U. S. 419). In that case Mrs. Strong was the owner of 800 shares of the capital stock of the Philippine Sugar Estates Development Company, Limited, which were sold and delivered by her agent to the defendant. She sued to recover them from the defendant on the ground that he had fraudulently concealed from her agent facts affecting the value of the stock. Repide was the owner of 30,400 out of 42,030 shares issued by the company; was a director thereof and its administrator-general. The company was one of the owners of the “ friars lands,” and Repide had rejected the government’s offer for the purchase of the lands owned by the company without any consultation with the minority stockholders. He kept insisting upon a higher price than the government was willing to pay until the other owners agreed to pay him $335,000 out of their purchase price, and the government agreed to exclude 1,000 hectares out of the sale by his company. The contract of sale was signed by Repide as attorney in fact for his company in December, 1903. The negotiations for the purchase had been proceeding for some time, the government first beginning to make inquiries about a possible sale in 1902, and making an offer for the property July 5, 1903. The possibility of government purchase was all this time a matter of public notoriety. While the negotiations were progressing, and before the final offer was made, Repide took steps
“ If it were conceded, for the purpose of the argument, that the ordinary relations between directors and shareholders in a business corporation are not of such a fiduciary nature as to make it the duty of a director to disclose to a shareholder the general knowledge which he may possess regarding the value of the shares of the company before he purchases any from a shareholder, yet there are cases where, by reason of the special facts, such duty exists. The Supreme Courts of Kansas and of Georgia have held the relationship existed in the cases before those courts because of the special facts which took them out of the general rule, and that under those facts the director could not purchase from the shareholder his shares without informing him of the facts which affected their value. Stewart v. Harris, 69 Kansas, 498; S. C., 77 Pac. Rep. 277; Oliver v. Oliver, 118 Georgia, 362; S. E., 45 S. E. Rep. 232. The case before us is
“It is here sought to make defendant responsible for his actions, not alone and simply in his character as a director, but because, in consideration of all the existing circumstances above detailed, it became the duty of the defendant, acting in good faith, to state the facts before making the purchase. That the defendant was a director of the corporation is but one of the facts upon which the liability is asserted, the existence of all the others in addition making such a combination as rendered it the plain duty of the defendant to speak. He was not only a director, but he owned three-fourths of the shares of its stock, and was, at the time of the purchase of the stock, administrator general of the company, with large powers, and engaged in the negotiations which finally led to the sale of the company’s lands (together with all the other friar lands) to the Government at a price which very greatly enhanced the value of the stock. He was the chief negotiator for the sale of all the lands, and was acting substantially as the agent of the shareholders of his company by reason of his ownership of the shares of stock in the corporation and by the acquiescence of all the other shareholders, and the' negotiations were for the sale of the whole of the property of the company. By reason of such ownership and agency, and his participation as such owner and agent in the negotiations then going on, no one knew as well as he the exact condition of such negotiations. * * * The lands were the only valuable asset owned by the company. * * * The inference is inevitable that at this time he had concluded to press the negotiations for a sale of the lands to a successful conclusion. * * * Concealing his identity when procuring the purchase of the stock, by his agent, was in itself strong evidence of fraud on the part of the defendant. * * * • The whole transaction gives con-
Viewing the transaction in question not as a sale of the stock of the plaintiff to Durant individually, but as a sale of the entire assets of the company effected by the majority stockholder, an equally stringent rule has been laid down in Wheeler v. Abilene Nat. Bank Bldg. Co. (159 Fed. Rep. 391): “A corporation holds its property in trust for its stockholders. The stockholders have a joint interest in the same property and in the same title. Community of interest in a common property or title imposes a community of duty and a mutual obligation to do nothing to impair either. It creates such a fiducial relation as makes it inequitable for any of those who thus share in the common property to do anything to or with it for their own profit, to the detriment of others who have the same rights. * * * His [majority stockholder’s] power to control and direct the action of the corporation places him in its shoes, and constitutes him the actual, if not the technical, trustee for the holders of the minority of the stock. * * * In effect he holds an irrevocable power of attorney from the minority stockholders to manage and to sell the property of the corporation, for himself and for them. * * * This devolution of unlimited power imposes on a single holder of the majority of the stock a correlative duty, the duty of a fiduciary or agent, to the
Upon the record before us it is impossible to determine what profit was so realized by Durant, and, therefore, there must be a reference to determine same. As to the defendants Sheldon and Prentice, there is no proof justifying any recovery against them. The testimony does not justify a finding that George E. Sheldon was a party to Durant’s transactions or assisted him in any way in his suppression of the facts, or that his firm realized more out of the transaction than the repayment by Durant of his lawful indebtedness to them. While there is much
Disposition is made of certain of the findings herein, as follows: The following findings of fact are reversed as not warranted by the evidence: XIII, XXI, XXIII, XXV, XXVIH, XXX, XXXI, XXXIX, XLV, XLVI, XLVII, XLVin, XLIX, L, LIV, LVI, LVII, LVIII, LXV, LXVI, LXVII, LXVHI, LXIX, LXX, LXXI, LXXII, LXXTTT, LXXIV, LXXV, LXXVII, LXXXIV, LXXXVI, LXXXVH, LXXXVIII, XO, XOII, XCIII, XOV, XCVI, XOVII, xovin, xoix, o, on, cm, ov, ovi.
The following findings of fact are modified: III. After the word and figures, “in 1901,” insert “after Durant had told him that he had been interested largely in purchasing tracts of timber land either for customers or as a broker.” VI. By adding after the word “G-arrison” “participated in.” XIX. By adding after the words “advised the plaintiff McManus that he had,” the word “ some,” and striking out the words “ such a ” before the word “ plan.” XX. By striking out all after the word “situation.” LIX. By striking out all after the word “ Archer.” LX. By striking out all after the word “Indebtedness ” before the word “stating.”
The following conclusions of law are also reversed: I to XTTT inclusive.
The following findings of fact proposed by plaintiffs are hereby found: 8, 9, 10, 13, 19, 21, 22, 33, 34, 35, 36, 37, 38, 40, 41, 42, 43, 44, 45, 46, 47, 47%, 51, 52, 53, 58, 59, 62, 64, 68,- 72, 73, 74, 75, 78, 79, 80, 88, 94, 96. And the following conclusions of law: 2, 5, 6, 7, 8, 10, with a final conclusion that plaintiffs are entitled to judgment against the defendant Howard M. Durant that he account to them for the profit
Costs of the appeal and of the trial are awarded to plaintiffs as against Durant. ■
Clarke, Scott and Hotchkiss, JJ., concurred; Ingraham, P. J., dissented.
Judgment affirmed, with costs, as to respondents Sheldon and Prentice, and as to defendant Durant reversed, with costs, and judgment directed in favor of plaintiffs as stated in opinion.
■ Order to be settled on notice.