Elliott v. Baker

• Decision Date: 01 March 1907
• Parties: ELLIOTT et al. v. BAKER et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

194 Mass. 518

80 N.E. 450

ELLIOTT et al. v. BAKER et al.

Supreme Judicial Court of Massachusetts, Suffolk.

March 1, 1907

COUNSEL

Samuel J. Elder, for appellant Foster.

Homer Albers and G. L. Mayberry, for other appellants.

G. K Bartlett and Samuel W. Emery, for appellees.

OPINION

RUGG J.

This is a suit in equity brought by the plaintiffs as stockholders of the Elliott Company in behalf of themselves and all other stockholders, who may desire to join as plaintiffs, to compel the return to the corporation and the cancellation of a certain certificate for 900 shares of stock. The justice of this court, before whom the case was tried filed a memorandum, which includes a report of his findings of fact. Such a memorandum is a part of the record, and its findings stand upon the same basis as those contained in a report and will not be set aside unless they are plainly wrong. Cohen v. Nagle, 190 Mass. 4, 76 N.E. 276, 2 L. R. A. (N. S.) 964. A decree was entered for the plaintiffs, and, the evidence having been taken by a commissioner, the whole case is brought before us on appeal. The material findings of fact are that there was a contest between two factions among its stockholders for the control of the Elliott Company, a Maine corporation, having its principal place of business in Boston. In April, 1904, the plaintiff Elliott with his friends bought sufficient of the outstanding stock to give them control of the company. Nickerson, who was in Colorado, immediately returned to Boston, and, learning of this fact, arranged with a majority of the board of directors, who were his friends, to issue for $13 a share, to the defendant Foster, 900 shares of stock, owned by and held in the treasury of the company, which, if Foster voted with the Nickerson faction, would give it the control of the corporation. The justice has found that this was not issued in good faith by the directors voting for its issue, but to enable Nickerson and his friends to oust Elliott and his friends from the control and give the control to Nickerson; that it was not reasonably necessary to issue the stock to raise money to be used in the business; and that the price, at which the stock was issued to the defendant Foster, while ordinarily fair, was less than probably could have been obtained in view of the peculiar condition of affairs, if other directors and stockholders had been allowed to bid. The company thus received less money for it than might have been procured. The stock so issued to Foster was a part of stock formerly issued to Elliott, in payment of certain patents transferred by him to the company, and by him returned into the treasury of the corporation to be disposed of for its benefit in such way and for such price or purpose as the directors might determine. It was contended that this circumstance made a difference as to the rights and obligations of the directors in disposing of it. The justice ruled that this contention was unsound; that the directors were bound to dispose of the stock in good faith and for the best interests of the corporation and having found as a fact that they did not so dispose of it, that they exceeded their authority in issuing the stock. He found as a further fact that there was a secret understanding or arrangement between defendants Foster and Nickerson and one Lamson as to the control of the corporation at the time the stock was issued and that the defendant Foster was in some way cognizant of the purpose for which the stock was issued and a party to it. He further ruled that if the directors did not issue the stock in good faith and its issue was not required by the condition of the corporation or reasonably necessary for the proper prosecution of its business, but it was issued to oust Elliott and his friends, and to give Nickerson and his friends control, and if Foster was cognizant of and a party to such purpose, then even though the directors believed that it would be for the best interests of the corporation to have the control in the hands of Nickerson and his friends, their conduct would constitute a breach of trust and the issuing of the stock would be in excess of their authority and a certificate would be invalid in the hands of Foster, notwithstanding he paid what would have been a fair price for the stock under ordinary circumstances. The questions raised are whether the findings of fact are plainly wrong upon the evidence reported, and as to the correctness of the rulings.

This is peculiarly a case for the application of the rule that the court who hears the witnesses has opportunities for testing their reliability and veracity which no appellate tribunal can acquire. It is stated in the memorandum that the court believes, 'though it is denied by all of them that there was some secret understanding or arrangement between Lamson, Foster and Nickerson in regard to the situation.' This finding must have based not alone upon what was said, but upon a scrutiny of the witnesses, inferences drawn from their appearance, and the atmosphere they created in testifying, which cannot be reproduced in a printed report. A careful examination of all the evidence demonstrates, however, that not only was this finding not plainly wrong, but was amply warranted. It had been the policy of the...