Dustin v. Randall Faichney Corp.

• Decision Date: 06 March 1928
• Citation: 160 N.E. 528,263 Mass. 99
• Parties: DUSTIN v. RANDALL FAICHNEY CORPORATION et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

263 Mass. 99

160 N.E. 528

DUSTIN

v.RANDALL FAICHNEY CORPORATION et al.

Supreme Judicial Court of Massachusetts, Suffolk.

March 6, 1928.

Report from Superior Court, Suffolk County; Marcus Morton, Judge.

Suit by George H. Dustin against the Randall Faichney Corporation and others. Defendant's demurrer was overruled. On report. Affirmed.

T. W. Morris and S. L. Solomont, both of Boston, for defendants.

D. Burstein, of Boston, and Buff, Everts & Ladd, for plaintiffs.

CARROLL, J.

In the superior court the demurrer of the defendants Buff, Everts and Ladd to the plaintiff's amended bill in equity was overruled, and the case was reported to this court.

The bill alleges that it is brought under G. L. c. 156, § 38, by a creditor of the defendant corporation in behalf of himself and such other creditors as may join against the corporation and against the officers and directors thereof, to enforce the statutory liability of such directors and officers; that the corporation was organized under the laws of Massachusetts;that Buff, Everts and Ladd were directors in December, 1924, when the plaintiff made a contract with the corporation, by which he offered to buy $10,000 worth of preferred stock of the corporation ‘at the price of 80 with a bonus of 50% of common,’ and agreed to work for the corporation at $60 a week, the corporation to have the right to terminate the relation on sixty days' notice, and the plaintiff's stock ‘in the corporation * * * [was] to be bought back’ by the corporation ‘at the same rate as * * * [he] paid for it, if * * * [he should] so desire’; that this offer was accepted, and in pursuance of the agreement the plaintiff paid to the corporation $10,000 ‘in exchange for a certificate of stock representing one hundred and twenty (120) shares of the preferred stock * * * and a certificate of stock representing sixty-two (62) shares of the non par common stock’; that before entering into the agreement it was represented to the plaintiff that the corporation had a surplus in excess of §10,000; that in October, 1925, the defendant corporation terminated the employment of the plaintiff; that he thereupon demanded $10,000 in exchange for the capital stock held by him, and the demand was refused. The bill also alleges that the stock cannot be readily resold at a reasonable price; that no certificate under G. L. c. 156, § 16, to validate subsequent issues of stock, has ever been submitted to the commissioner of corporations; that the stock issued to the plaintiff has never been carried on the books or records of the corporation as part of its validly issued capital stock; that in December, 1926, the plaintiff, in accordance with G. L. c. 156, § 38, made a further demand in writing on the corporation for the performance of its contractual obligation with him which it has refused to perform; that while the defendants Buff, Everts and Ladd were officers and directors, capital stock was issued in violation of G. L. c. 156, §§ 15 and 16, without any of said directors being recorded as voting against such issue; that they have signed reports under chapter 156 which were false and known to be such, or which on reasonable examination they could have known to be false. The bill sets out specific instances where stock of the corporation was issued greatly below its par value. The bill further alleges that at various times the directors signed certain statements required by G. L. c. 156, which were false.

The principal grounds of the demurrer are that the plaintiff as a stockholder, although a creditor, cannot maintain the suit under G. L. c. 156, § 38; and further, that the performance of the alleged contract is against public policy.

By G. L. c. 156, § 36, so far as material to the issue, the president, treasurer and directors of the corporation are made liable for the debts and contracts of the corporation if stock is issued in violation of section 15 or section 16, or if any statement or report required by this chapter is made by them which is false in any material representation which they knew or had reasonable cause to have known to be false. By section 38 the president, treasurer or a director shall be so liable under section 36 or section 37, if, before the suit to enforce such liability is brought by a creditor of said corporation, a written demand by or on behalf of the creditor upon such corporation for the payment of his claim has been made, and said corporation has for ten days thereafter neglected to pay.

It has been held that a stockholder who is a contract creditor is not entitled to the remedy provided under St. 1862, c. 218, § 4. Potter v. Stevens Machine Co., 127 Mass. 592, 34 Am. Rep. 428. The ground of that decision was that a stockholder who was a creditor could not enforce the liability under the statute which required that all stockholders should be joined as defendants. In the course of the opinion it was said at page 594:

‘The intention is to protect third persons, who deal with the corporation. * * * The remedy is fitted to enforce the liability of stockholders in favor of outside parties, and not to adjust the conflicting and complicated claims of stockholders among themselves. * * * The requirement...