American Discount Corp. v. Kaitz

• Decision Date: 01 April 1965
• Citation: 348 Mass. 706,206 N.E.2d 156
• Parties: AMERICAN DISCOUNT CORPORATION v. Haskell A. KAITZ et al. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 156

206 N.E.2d 156

348 Mass. 706

AMERICAN DISCOUNT CORPORATION v. Haskell A. KAITZ et al. ¹

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Jan. 6, 1965.

Decided April 1, 1965.

Marcien Jenckes, Boston (William B. Dockser, Boston, with him), for plaintiffs.

Robert W. Blakeney, Boston (Alfred Sigel, Boston, with him), for defendants Kaitz and another.

Harold Lavien, Boston (Lionel H. Perlo and Joshua A. Guberman, Boston, with him), for defendant Kaplan.

Before WILKINS, C. J., and SPALDING, WHITTEMORE, CUTTER and SPIEGEL, JJ.

WILKINS, Chief Justice.

This action in contract and in tort for negligent performance of contracts for making audits of the plaintiff, American Discount Corporation, a corporation of Massachusetts (Discount), is in four counts. Courts 1 and 2 are for breach of contract. Counts 3 and 4 are in tort for negligence. Counts 1 and 3 are by Discount. Counts 2 and 4 are by three of the five directors of Discount. ² The three defendants were partners. They filed pleas in abatement to counts 1 and 3 attacking the authority of counsel to appear for Discount. The defendants Wolf and Kaitz also answered in abatement as to these counts that there is a misjoinder of parties plaintiff and parties defendant, and that the 'action improperly joins causes of action against different defendants.' The third defendant, Kaplan, also answered in abatement that the entire action should be abated because the declaration improperly joins causes of action against different defendants. The pleas were heard on a stipulation of agreed facts, and were sustained. The plaintiffs all excepted.

The record might more clearly present the facts essential to the consideration of the questions of law which are the issues on appeal. There were no findings by the judge and no statement of any choice of ground upon which he relied for sustaining of the pleas. A few facts were given in a stipulation. Other facts may be culled from the declaration.

According to the stipulation, from March 31, 1958, until his resignation on March 31, 1963, William J. Leventhal was treasurer and general manager of Discount. From March 31, 1958, there was a board of five directors of Discount: Frank Palumbo, Aaron Rosenberg, Louis J. Blank, William J. Leventhal, and Tillye Leventhal. Each director owned twenty per cent of the issued and outstanding stock.

The declaration alleges that Discount engaged the defendants to make audits of its affairs in accordance with generally accepted principles of accounting applicable to finance companies 'for period ending September 30, 1958, and each six months thereafter to March 31, 1962.' William J. Leventhal, therefore, was treasurer of Discount during the periods of the contracts which are the basis of this suit. The declaration makes the allegation, which is not denied: 'In reliance upon the audits made by the defendants, the individual plaintiffs guaranteed notes of the plaintiff corporation which they were required to honor and which cannot be collected from the plaintiff corporation because its assets have been dissipated by its treasurer in making loans or advances in violation of directors' resolutions and against collateral which did not exist, which matters the defendants failed to audit or report upon.'

Allegations not denied are admitted to be true for the purpose of hearing the pleas. Cole v. Wells, 224 Mass. 504, 513, 113 N.E. 189. Moran v. Manning, 306 Mass. 404, 409, 28 N.E.2d 478. S. Solomont & Sons Trust, Inc. v. New England Theatres Operating Corp., 326 Mass. 99, 110, 93 N.E.2d 241. Donahue v. Kenney, 327 Mass. 409, 414, 99 N.E.2d 155. Kalmus v. Kalmus, 330 Mass. 41, 42, 110 N.E.2d 760. Braunstein v. Devine, 337 Mass. 408, 413, 149 N.E.2d 628. See Bay State Wholesable Drug Co. v. Whitman, 280 Mass. 188, 194-195, 182 N.E. 361.

1. At the outset we consider the plea in abatement of the defendant Kaplan, which, according to his brief, was the only plea applicable to the whole case, and, therefore, the only one which could abate all four counts. He appears to argue that because two of the counts are not printed in full in the record, it is impossible to show that all four counts arise out of the same matter. This failure to print is not fatal. Under G.L. c. 231, § 135, third paragraph (as amended through St.1941, c. 187), 'The supreme judicial court may make and promulgate rules regulating the contents of the record and may in any case order the transmission of the original or a copy of any paper not appearing in the record, or appearing therein in an abbreviated form, if at any time such omitted paper or any omitted part of such abbreviated paper becomes material.' ATLANTIC ALUMINUM & METAL DISTRIBS. INC. V. STANDARD PAINT & WALL PAPER CO., INC., 347 MASS. 415, ----, 198 N.E.2D 307³. The full counts have been so transmitted, and clearly arise out of the same matter, as alleged in the declaration. The declaration is within the provision of G.L. c. 231, § 7, Sixth (as amended by St.1939, c. 67); § 1A (inserted by St.1951, c. 403). There was no misjoinder of parties or of causes of action. Id. § 4A (as amended through St.1947, c. 408, § 1).

The defendants Kaitz and Wolf have not argued their pleas in abatement, and they are treated as waived.

2. The defendants contend that only the stockholders had power to hire counsel. We cannot agree. We are referred to Discount's by-laws, art. II, which reads in pertinent part: 'Except as may be prohibited by law, all the powers of the corporation shall at all times be vested in, and may be exercised by the stockholders. The directors shall exercise only such powers as they are required by law to exercise, and such powers as are expressly delegated to them by the by-laws of the corporation; and any delegation of powers by the by-laws or by the stockholders to the directors notwithstanding, the stockholders may at all times exercise the same powers. The stockholders may at any time, at their pleasure, direct the officers and employees of the corporation and define their duties and powers, and do all and everything which they may deem necessary, proper or convenient for the conduct of the affairs of the corporation.' This should be read with art. IV, which provides: 'Subject to the provisions of article II, the powers and duties of the officers of the corporation shall be--Section 1. Directors: The board of directors may exercise all the powers of the corporation, except such as are conferred upon the stockholders by law, by the agreement of association and by these by-laws, borrow money and incur such indebtedness as it may deem necessary, authorize the making, drawing or acceptance of bills of exchange, promissory notes and contracts on behalf and for the purposes of the corporation, and purchase and acquire for the corporation, upon such terms and conditions as it may determine, such property as it may deem expedient for the purposes for which the corporation is organized. * * *' A reading of the by-laws makes clear that the stockholders have not been given exclusive authority on behalf of the corporation to make contracts, including contracts for the hiring of counsel. The authority to the directors to make contracts must include the authority to enforce them by suit. At most, the stockholders have been accorded permissive authority which is concurrent in this respect with that of the directors. This interpretation is in accordance with G.L. c. 156 relating to business corporations. 'The business of every corporation shall be managed and conducted by...