George H. Gilbert Mfg. Co. v. Goldfine

• Decision Date: 08 February 1945
• Citation: 317 Mass. 681,59 N.E.2d 461
• Parties: GEORGE H. GILBERT MFG. CO. v. GOLDFINE et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

317 Mass. 681

59 N.E.2d 461

GEORGE H. GILBERT MFG. CO.

v.GOLDFINE et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Feb. 8, 1945.

Suit by George H. Gilbert Manufacturing Company against Bernard Goldfine and others for an accounting wherein defendant filed a counterclaim. From an interlocutory decree overruling exceptions to a master's report and confirming report and from a final decree dismissing the bill as to plaintiff and establishing the counterclaim, plaintiff appeals.

Interlocutory decree confirming report reversed and new interlocutory decree confirming report as modified entered and final decree modified and as modified affirmed.Appeal from Superior Court, Suffolk County.

Before FIELD, C. J., and QUA, DOLAN, and RONAN, JJ.

C. J. Miller and I. Springer, both of Boston, for plaintiff.

F. H. Chase, of Boston, for defendant.

RONAN, Justice.

This is a bill in equity seeking an accounting from Goldfine, hereinafter called the defendant, of the proceeds from the sale of a lot of worsted goods belonging to the plaintiff, and also the sum of $5,000 which it was alleged it was induced to pay to the defendant by his false and fraudulent representation that he had paid this amount to one Newman for the benefit of the plaintiff. The defendant's answer contained a counterclaim for $2,000. The plaintiff appealed from an interlocutory decree overruling its exceptions to the master's report and confirming the report, and from a final decree dismissing the bill as to the plaintiff and establishing the counterclaim.

The facts appearing in the master's report may be briefly summarized. The plaintiff's stockholders on January 18, 1932, voted to wind up the business and authorized the directors to dispose of its property. The defendant on February 24, 1933, purchased all the outstanding capital stock of the plaintiff for $160,125, and pledged the stock with the bank from which he had borrowed this sum. This bank also insisted that the defendant should remain the sole stockholder until the loan was paid. Prior to February 24, 1933, the defendant had negotiated with Shoolman and McDonald, both of whom were men of wide and varied business experience but had no knowledge about textiles, for the acquisition by each of them of one third of the stock upon payment of one third of its cost to the defendant, and on the day last mentioned a written agreement to this effect was executed by these three. The stock was released by the bank on November 15, 1933, and one third of the shares was transferred to Shoolman and a like amount to McDonald. These three thereafter owned all the capital stock until 1935 when McDonald and the defendant sold their stock to Shoolman, who has since owned the entire stock.

The plaintiff had on hand on February 24, 1933, about one hundred seven thousand five hundred yards of woolens. A part of this lot was ‘streaky’ because of defective dyeing, but the greater portion of it was in perfect condition and in all likelihood could be sold separately in small lots over a period of time. The plaintiff had endeavored for a year to sell these woolens in a single lot, and the best offer it received was fifty cents a yard. The defendant, soon after he began to negotiate for the purchase of the capital stock, sought a customer for these goods but secured none willing to pay more than $45,000. The defendant and his brother were copartners dealing in woolen goods under the name of the Strathmore Woolen Company, hereinafter called Strathmore. It was the intention of Shoolman, McDonald and the defendant from the beginning to liquidate all the assets of the plaintiff as soon as circumstances would permit and to divide the profits equally, to sell the woolen goods in a lot for the best price obtainable and to apply the proceeds to the payment of the defendant's loan at the bank, thereby releasing the stock in order that it could be divided between them, and then to wind up the plaintiff promptly in order to avoid carrying charges and taxes.

Shortly before February 24, 1933, at a conference between Shoolman, McDonald and the defendant with reference to the joint purchase of the capital stock, the defendant told them that he was unable to secure an offer of fifty cents a yard for the sale of the woolens in one lot, and that Strathmore would pay fifty cents a yard provided he could get some one to share half the deal with Strathmore. Shoolman and McDonald knew that the defendant and his brother comprised the Strathmore firm. These three orally agreed that Strathmore would purchase this merchandise at the said price in its own name for the joint account of Strathmore and one Axelrod, ‘no returns, and no allowances.’ Shoolman and McDonald knew that the buyers intended to sell at a profit if they could. Fifty cents a yard was a fair price for the sale of this merchandisein a single lot. Strathmore purchased the goods in March, 1933, and in the same month sold them to various persons but principally to one Cooper, a dealer, who bought more than ninety-eight thousand yards at sixty-five cents a yard on credit to October 1, 1933, payable in monthly instalments and under the following terms: ‘Off Price, No returns, No claims, No allowances.’ Strathmore disposed of the merchandise for a gross amount of $68,686.25 and paid the plaintiff $50,000 in June, 1933, and in March, 1936, paid the balance $2,168.75, of the purchase price. Strathmore divided the profits equally with Axelrod, and its share of the profits amounting to $8,409.16 was divided between the defendant and his brother as members of the Strathmore firm.

Shoolman and McDonald knew as early as March 28, 1933, that Strathmore had resold all the woolens, and they also knew the name and address of the purchaser in each instance and the quantity of goods that each purchaser had bought from Strathmore. They knew on April 15, 1933, that all this merchandise had been charged upon the plaintiff's books to Strathmore at fifty cents a yard and for the total sum of $52,168.75. Neither Shoolman nor McDonald knew what profit the defendant had made out of the resale of the woolens until after the present bill was filed, although the defendant had informed Shoolman in December, 1934, that he had made $3,000 and offered to pay $700 to Shoolman when the latter asked him what profit he had made, but Shoolman made no reply to this offer. Thereafter, when accountings were had between Shoolman, McDonald and the defendant as individuals and between themselves and the plaintiff, and when Shoolman purchased the capital stock held by McDonald and the defendant, and when Strathmore made its final payment in March, 1936, no question was raised about the profit that Strathmore had made from the resale of the woolens.

This bill is not brought by Shoolman to recover a share of the profits of a joint adventure upon which he embarked with McDonald and the defendant, but the bill is brought by the corporation to recover a profit secured by the defendant from the sale of a lot of merchandise owned by the plaintiff which, it is alleged, the defendant retained in violation of a fiduciary duty owed the plaintiff, and it is further contended that the sale was unauthorized and that the defendant and Strathmore are bound to account to the plaintiff for the full amount which they received from a resale of the goods.

The defendant at the time of this sale to Strathmore was the sole owner of all the outstanding capital stock other than the interest that Shoolman and McDonald might have had by virtue of a buy and sell agreement they had with the defendant. The defendant was also then the treasurer and a director of the corporation, and a copartner in Strathmore with his brother. As a director he occupied a fiduciary relation to the corporation, and his primary duty was to act solely in the interest of the corporation; and if, by subordinating his obligation to the corporation to his personal pecuniary interests, he secured an individual financial gain, then he is accountable to the corporation for such gain. United Zinc Co. v. Harwood, 216 Mass. 474, 103 N.E. 1037, Ann.Cas.1915B, 948.Lazenby v. Henderson, 241 Mass. 177, 135 N.E. 302;Buckman v. Elm Hill Realty Co. of Peabody, 312 Mass. 10, 42 N.E.2d 814. But a contract between a corporation and a director is valid if, with full knowledge of all the facts, it is assented to by all the officers and the stockholders. Warren v. Para Rubber Shoe Co., 166 Mass. 97, 44 N.E. 112;Hays v. The Georgian, Inc., 280 Mass. 10, 181 N.E. 765, 85 A.L.R. 1251;Dome Realty Co. v. Gould, 285 Mass. 294, 189 N.E. 66;Foster v. Bowen, 311 Mass. 359, 41 N.E.2d 181; Shoolman, McDonald and the defendant were all the persons who had any interest in the capital stock and they expressly assented to the sale, and these...