Goodwin v. Agassiz

• Decision Date: 29 June 1933
• Citation: 283 Mass. 358,186 N.E. 659
• Parties: GOODWIN v. AGASSIZ et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

283 Mass. 358

186 N.E. 659

GOODWIN

v.AGASSIZ et al.

Supreme Judicial Court of Massachusetts, Suffolk.

June 29, 1933.

Appeal from Superior Court, Suffolk County; Donahue, Judge.

Suit by Homer Goodwin against Rodolphe L. Agassiz and another. From a decree dismissing plaintiff's bill, plaintiff appeals.

Affirmed.

W. Powers and C. R. Cabot, both of Boston, for appellant.

E. F. McClennen, of Boston, for appellees.

RUGG, Chief Justice.

A stockholder in a corporation seeks in this suit relief for losses suffered by him in selling shares of stock in Cliff Mining Company by way of accounting, rescission of sales, or redelivery of shares. The named defendants are MacNaughton, a resident of Michigan not served or appearing, and Agassiz, a resident of this commonwealth, the active party defendant.

The trial judge made findings of fact, rulings, and an order dismissing the bill. There is no report of the evidence. The case must be considered on the footing that the findings are true. The facts thus displayed are these: The defendants, in May, 1926, purchased through brokers on the Boston stock exchange seven hundred shares of stock of the Cliff Mining Company which up to that time the plaintiff had owned. Agassiz was president and director and MacNaughton a director and general manager of the company. They had certain knowledge, material as to the value of the stock, which the plaintiff did not have. The plaintiff contends that such purchase in all the circumstances without disclosure to him of that knowledge was a wrong against him. That knowledge was that an experienced geologist had formulated in writing in March, 1926, a theory as to the possible existence of copper deposits under conditions prevailing in the region where the property of the company was located. That region was known as the mineral belt in Northern Michigan, where are located mines of several copper mining companies. Another such company, of which the defendants were officers, had made extensive geological surveys of its lands. In consequence of recommendations resulting from that survey, exploration was started on property of the Cliff Mining Company in 1925. That exploration was ended in May, 1926, because completed unsuccessfully, and the equipment was removed. The defendants discussed the geologist's theory shortly after it was formulated. Both felt that the theory had value and should be tested, but they agreed that, before starting to test it, options should be obtained by another copper company of which they were officers on land adjacent to or nearby in the copper belt, that if the geologist's theory were known to the owners of such other land there might be difficulty in securing options, and that that theory should not be communicated to any one unless it became absolutely necessary. Thereafter, options were secured which, if taken up, would involve a large expenditure by the other company. The defendants both thought, also that, if there was any merit in the geologist's theory, the price of Cliff Mining Company stock in the market would go up. Its stock was quoted and bought and sold on the Boston Stock Exchange. Pursuant to agreement, they bought many shares of that stock through agents on joint account. The plaintiff first learned of the closing of exploratory operations on property of the Cliff Mining Company from an article in a paper on May 15, 1926, and immediately sold his shares of stock through brokers. It does not appear that the defendants were in any way responsible for the publication of that article. The plaintiff did not know that the purchase was made for the defendants and they did not know that his stock was being bought for them. There was no communication between them touching the subject. The plaintiff would not have sold his stock if he had known of the geologist's theory. The finding is express that the defendants were not guilty of fraud, that they committed no breach of duty owed by them to the Cliff Mining Company, and that that company was not harmed by the nondisclosure of the geologist's theory, or by their purchases of its stock, or by shutting down the exploratory operations.

The contention of the plaintiff is that the purchase of his stock in the company by the defendants without disclosing to him as a stockholder their knowledge of the geologist's theory, their belief that the theory was true, had value, the keeping secret the existence of the theory, discontinuance by the defendants of exploratory operations begun in 1925 on property of the Cliff Mining Company and their plan ultimately to test the value of the theory, constitute actionable wrong for which he as stockholder can recover.

The trial judge ruled that conditions may exist which would make it the duty of an officer of a corporation purchasing its stock from a stockholder to inform him as to knowledge possessed by the buyer and not by the seller, but found, on all the circumstances developed by the trial and set out at some length by him in his decision, that there was no fiduciary relation requiring such disclosure by the defendants to the plaintiff before buying his stock in the manner in which they did.

The question presented is whether the decree dismissing the bill rightly was entered on the facts found.

The directors of a commercial corporation stand in a relation of trust to the corporation and are bound to exercise the strictest good faith in respect to its property and business. Elliott v. Baker, 194 Mass. 518, 523, 80 N. E. 450;Beaudette v. Graham, 267 Mass. 7, 165 N. E. 671;L. E. Fosgate Co. v. Boston Market Terminal Co., 275 Mass. 99, 107, 175 N. E. 86. The contention that directors also occupy the position of trustee toward individual stockholders in the corporation is plainly contrary to repeated decisions of this court and cannot be supported. In Smith v. Hurd, 12 Metc. 371, 384,46 Am. Dec. 690, it was said by Chief Justice Shaw: ‘There is no legal privity, relation, or immediate connexion, between the holders of shares in a bank, in their individual capacity, on the one side, and the directors of the bank on the other. The directors are not the bailees, the factors, agents or trustees of such individual stockholders.’ In Stewart v. Joyce, 201 Mass. 301, 311, 312, 87 N. E. 613, and Lee v. Fisk, 222 Mass. 424, 426, 109 N. E. 835, the same principle was reiterated. In Blabon v. Hay, 269 Mass. 401, 407, 169 N. E. 268, 271, occurs this language with reference to sale of stock in a corporation by a stockholder to two of its directors: ‘The fact that the defendants were directors created no fiduciary relation between them and the plaintiff in the matter of the sale of his stock.’

The principle thus established is supported by an imposing weight of authority in other jurisdictions. Steinfeld v. Nielsen, 15 Ariz. 424, 139 P. 879;Bawden v. Taylor, 254 Ill. 464, 98 N. E. 941;Tippecanoe County Commissioners v. Reynolds, 44 Ind. 509, 15 Am. Rep. 245;Waller v. Hodge, 214 Ky. 705, 283 S. W. 1047;Buckley v. Buckley, 230 Mich. 504, 202 N. W. 955;Dutton v. Barnes, 162 Minn. 430, 203 N. W. 414;Crowell v. Jackson, 53 N. J. Law, 656, 23 A. 426;Carpenter v. Danforth, 52 Barb. (N. Y.) 581;Shaw v. Cole Mfg. Co., 132 Tenn. 210, 177 S. W. 479, L. R. A. 1916B, 706;White v. Texas Co., 59 Utah, 180, 188, 202 P. 826; Percival v. Wright, [1902] 2 Ch. D. 421; Tackey v. McBain, [1912] A. C. 186. A rule holding that directors are trustees for individual stockholders with respect to their stock prevails in comparatively few states; but in view of our own adjudications it is not necessary to review decisions to that effect. See, for example, Oliver v. Oliver, 118 Ga. 362, 45 S. E. 232;Dawson v. National Life Ins. Co., 176 Iowa, 362, 157 N....