Black v. Parker Mfg. Co.

• Decision Date: 03 June 1952
• Citation: 106 N.E.2d 544,329 Mass. 105
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: BLACK v. PARKER MFG. CO. et al.

Page 544

106 N.E.2d 544

329 Mass. 105

BLACK v. PARKER MFG. CO. et al.

Supreme Judicial Court of Massachusetts, Norfolk.

Argued Feb. 14, 1952.

Decided June 3, 1952.

A. M. Boal, (R. Bancroft, Boston, with him,) for plaintiff.

L. E. Stockwell, Worcester, for defendants.

Before QUA, C. J., and LUMMUS, WILKINS, SPALDING and WILLIAMS, JJ.

WILLIAMS, Justice.

This is a bill in equity brought by a minority stockholder of Parker Manufacturing Company against Parker Manufacturing Company, Snell Manufacturing Company, American Gun Sight Co., New England Plating Co., Inc., all Massachusetts corporations, Dwight E. Priest, John Z. Buckley, Sumner B. Tilton, and Hoyt E. Battey. The corporations are hereinafter referred to as Parker, Snell, Gun Sight, and Plating. No service of process was made upon Battey and no complaints concerning Buckley and Tilton are now pressed. It is alleged that Priest, while president, a director and a majority stockholder of Parker, acquired certain businesses and caused them to be taken over by Plating, Snell, and Gun Sight, corporations which he organized and controlled; that he thereby seized business opportunities which rightly belonged to Parker and exploited them for his own profit; and that, while president of Parker, he has drawn excessive and unreasonable salaries. It is prayed that Priest and the three corporations be ordered to account to Parker for their earnings and profits; that Priest account for all salaries and dividends received by him from them; that he further account to Parker for the amount by which his salaries exceeded the reasonable value of his services; and that the shares of stock in Snell, Gun Sight, and Plating standing in Priest's name be decreed to be held in trust for Parker. The case was heard by a master. A motion by the plaintiff to recommit his report was denied, this denial being equivalent to an interlocutory decree. Churchill v. Churchill, 239 Mass. 443, 445-446, 132 N.E. 185; Wallin v. Smolensky, 303 Mass. 39, 42, 20 N.E.2d 406; Kilroy v. O'Connor, 324 Mass. 238, 240, 85 N.E.2d 441. An interlocutory decree was entered confirming the report and overruling the plaintiff's exceptions, and a final decree dismissing the bill. The plaintiff has appealed from both interlocutory decrees and from the final decree.

The facts as found by the master may be summarized as follows. Parker is a manufacturing company located in Worchester. The defendant Priest is its president and a director. It was incorporated in 1901 as Parker Wire Goods Company, which name was changed to Parker Manufacturing Company in 1943. Its authorized capital stock is 1,250 shares of which 1,243 have been issued. One E. D. Priest was president of the corporation until his death in 1931 and owned a majority of its corporate shares. The defendant Priest, who is his son, owned 545 shares at the time of his father's death and thereafter by inheritance acquired 126 shares in 1934, making his holdings 671 shares, or a majority of the outstanding stock. In 1941 he acquired 68 additional shares from his father's estate and has since continued to hold majority control. In 1943 he transferred 91 shares to his wife and 22 shares to one Battey, an employee. The plaintiff is a sister of the defendant Priest and holds 168 shares of Parker stock received from her father's estate. Two other sisters own a like number of shares. It, therefore, appears that except for the 22 shares standing in the name of Battey, all of the issued stock is owned by Priest, his wife, and his three sisters.

Previous to 1939 Parker's business consisted largely of the manufacture and sale of items of small hardware sold mainly in large quantities at low prices and at small profit to mail order houses and chain stores. It owned some ten patents for the manufacture of appliances which Priest had invented and between 1928 and 1940 had assigned to the company without compensation. On his father's death, Priest took over the management of the business. He found the business and the finances of the company in poor condition and made efforts to improve the situation and to develop new lines both in manufacturing and in selling. He had made considerable progress in this respect when the war in Europe beginning in 1939 provided Parker with unusual additional business opportunities. 'The manner in which Priest took advantage of these opportunities gave rise to the complaints now made.'

Many of the items manufactured by Parker required plating. Parker had no facilities for doing this work and was accustomed to have it done by various small concerns, which were not equipped to handle large orders promptly. Resulting delays sometimes caused cancellation of orders by Parker's customers. In 1933 when Priest, although president of Parker, had not acquired a majority of its shares, he was 'instrumental' in organizing Plating for the purpose of acquiring the machinery and equipment of a certain plating plant in Worcester owned in whole or in part by one Jorjorian. Of the 51 shares issued by Plating, Jorjorian received 25 shares for his plant, Priest received 25 shares for a consideration not disclosed by the evidence, and one Soderberg received 1 share which was at once transferred to Priest. In 1934 Plating acquired Jorjorian's stock and from 1935 until 1940 Priest was its sole stockholder. In the latter year he sold 18 shares to an employee of Plating. Since 1938 Plating has occupied space in the building owned and occupied by Parker. 'At no time has it been in competition with Parker.' It has paid Parker from January 1, 1940, to August 31, 1947, the amount of $153,931.56 for rent, steam, electricity, and water, which payments were not 'nominal.' There was no evidence that these payments 'were unreasonably low or that they were not fixed in good faith.' There was also no evidence that the prices charged by Plating to Parker for plating work 'were unreasonable or resulted in unfair profit.' They have, however, produced an actual profit for Plating. In at least three out of five years (1941-1946) Plating did substantially more work for customers with which Parker had no connection than for Parker. Plating has never paid dividends and has not acquired any unreasonable surplus not needed as capital in the conduct of its business.

With the outbreak of war in 1939, Priest realized that there would be 'opportunities for Parker in the manufacture of parts for arms and other military equipment. He at once began to bid for war contracts on behalf of Parker.' Parker was not equipped to do forging and other similar work which would be required in the fulfilment of such contracts. Priest learned that Snell Manufacturing Company, Inc., a New York corporation which owned a plant in Sturbridge and a 'forge shop' and whose principal business was the manufacture of bits for boring purposes, was in bankruptcy. In July, 1940, he agreed with the trustees in bankruptcy to buy its assets and good will including the right to use its name for $18,500. Snell was organized by Priest to take over this business when the purchase was completed. Priest paid the trustees $500 in cash and borrowed $30,000 from a bank from which sum he paid the balance of $18,000. Snell then acquired the property from Priest for the amount paid by him to the trustees and made its payment to Priest by giving a note secured by a mortgage on the property purchased. Priest subscribed for 501 shares of the 1,000 authorized shares of the new corporation and paid for them $11,500 with the money remaining from his bank loan. The mortgage note of Snell to Priest was soon paid and the proceeds were used by Priest to liquidate his loan from the bank.

In April, 1941, Priest negotiated a contract for Parker with Savage Arms Corporation to manufacture 333,000 bayonets and 333,000 each of front and rear gun sights for a total price of $1,824,600 of which approximately $888,600 was for bayonets. A substantial part of the work upon the bayonets was subcontracted by Parker to Snell. Parker received an advance payment of $300,000 and 'loaned and advanced' to Snell $104,590.73 to enable it to improve its plant and to install new machinery. So much of this sum as constituted money lent has been repaid. So much as was a contract advance has been fully accounted for under the manufacturing contract. 'This contract for bayonets was profitable both to Snell and to Parker. The latter received a 5% profit on all work turned over to Snell. It could not have done that work in its own plant.' Snell has never paid dividends.

On May 28, 1941, Priest organized Gun Sight to take over from Snell a part of its plant and to take by subcontract from Parker a part of the gun sight portion of the Savage Arms contract. Of the 330 shares issued by Gun Sight, Priest subscribed for 166 shares at $50 per share, and his wife for 2 shares, and others for the remaining shares. In order to purchase his shares Priest borrowed $8,300 from Plating, which company in turn obtained this sum by a bank loan. To facilitate this loan the directors of Parker voted to subordinate any claim Parker had against Plating to the claim of the bank against Plating on account of this loan. Both of these loans have been fully repaid. On July 11, 1941, Gun Sight purchased from Snell the latter's 'forge shop.' Parker subcontracted to Gun Sight a part of its contract with Savage Arms and certain other war contracts. 'These subcontracts were advantageous to Parker, since they involved a profit to it and permitted its plant to be devoted at its full capacity to other manufacturing contracts.' Dividends were paid by Gun Sight from April 30, 1943, through April 30, 1946. Snell and Gun Sight maintained their manufacturing plants at Sturbridge but Parker at its Worcester plant furnished these corporations purchasing, administration, and sales services 'for which they each paid compensation determined subject to the approval of Priest as majority...