Jacobson v. Yaschik
| Decision Date | 12 June 1967 |
| Docket Number | No. 18667,18667 |
| Parties | Frances C. JACOBSON, Respondent-Appellant, v. Henry YASCHIK, Appellant-Respondent. |
| Court | South Carolina Supreme Court |
Buist, Buist, Smythe & Smythe, Charleston, for respondent-appellant.
Morris D. Rossen, Charleston, for appellant-respondent.
Frances C. Jacobson, the plaintiff herein, instituted this action against Henry Yaschik, the defendant herein, and in her complaint she set forth two causes of action. It is alleged in the complaint that the plaintiff was the owner of fifty shares of the capital stock of a corporation known as Syndicate, Inc. and such was 25% Of the capital stock thereof, and the defendant was the owner of 150 shares or 75% Of the capital stock of the corporation. It is alleged that the defendant was the president, general manager, majority stockholder and dominant figure in the corporation. The only asset of the corporation was a tract of land containing 82 acres in Charleston County, about 80 acres of the said tract was on a northwest side of Highway No. 7 and two acres on the southeast side of said highway. It is alleged that the parties were negotiating for the sale of the land and subsequently negotiated with each other for the purchase by the defendant of the 50 shares of stock owned by the plaintiff. These negotiations resulted in an agreement and sale of the plaintiff's stock to the defendant on May 8, 1964, for a consideration of $30,000.00. It is further alleged that, unknown to the plaintiff, the defendant had on May 1, 1964, entered into a contract with Southern Mortgage Company for the sale of all of the capital stock of Syndicate, Inc. for the sum of $144,000.00, and at such price the plaintiff's stock had a value of $36,000.00. The contract further provided that there was excluded from its operation the two acre tract of land hereinbefore referred to, which tract was conveyed, for a nominal consideration, to a corporation owned by the defendant.
The first cause of action alleges that the defendant had contracted to sell plaintiff's stock in Syndicate, Inc. at a price in excess of that which he was paying the plaintiff, entitling her to an accounting and recovery of the excess of the value that the defendant received for the stock over the price that he paid her. It is further alleged that the defendant failed to inform the plaintiff that he had contracted to sell her stock at a price in excess of that which he was paying to her and such was a fraudulent concealment on his part, in violation of his fiduciary duty to her as a fellow stockholder. She asks that the defendant he required to account to her for all her proper pro rata share of the full value received by him for the sale of the corporate stock and the distribution of its assets.
In the second cause of action the plaintiff alleges that by reason of the defendant's fiduciary duty to reveal to her the offer and actual contract that he had received for the sale of the corporate stock and his failure to reveal such amounted to a constructive representation to her that no such offer or contract had been received. It is alleged that this representation was false and material; defendant knew it was false and he intended that the plaintiff should rely on its truth; the plaintiff was ignorant of the falsity and did rely on its truth as she had a right to do, to her injury and damage, in the sum of $100,000.00 actual and punitive damages.
The defendant demurred to both causes of action and contends (1) that neither states facts sufficient to constitute a cause of action against him since there is no allegation that he actively misled or perpetrated a fraud upon the plaintiff, the only wrong alleged being that he was silent as to the arrangements he had previously made to sell the stock of the corporation; and (2) there is no allegation that the defendant had gained any special knowledge in his capacity as an officer and member of the board of the corporation.
The defendant, reserving his rights under the demurrer, moved to require the plaintiff to elect as to whether she would proceed on the first or second cause of action set forth in the complaint, where both the causes of action are based upon the same unlawful conduct of the defendant, namely, alleged fraudulent concealment and alleged fraudulent constructive representation due to concealment.
The demurrer and motion of the defendant were heard by The Honorable C. Bruce Littlejohn, Presiding Judge, and on August 31, 1966, he filed an order overruling the demurrer of the defendant and requiring the plaintiff to elect whether she would proceed under the first or second cause of action stated in the complaint. Timely notice of intention to appeal to this court was given by both parties.
We first consider whether the trial judge was in error in overruling the demurrer interposed by the defendant. We consider the foregoing question in the light of the rule that in passing upon a demurrer the defendant is limited to a consideration of the pleadings under attack. All of the factual allegations thereof that are properly pleaded are for the purpose of such consideration deemed admitted. When a fact is pleaded, whatever inferences of law and conclusions of fact that may properly arise from it, are to be regarded as embraced in such averment. When a complaint is attacked by a demurrer it must be liberally construed. Sandy Island Corp. v. Ragsdale, 246 S.C. 414, 143 S.E.2d 803.
The issue involved in this case is whether, under the circumstances above set forth, it was the duty of the defendant, acting in good faith, to disclose to the plaintiff the facts bearing upon or which might affect the value of her stock. The defendant argues that no cause of action is stated in the complaint because a corporate officer owes no fiduciary duty to a stockholder before purchasing the stock of such stockholder for himself. The question of the obligation of an officer of a company to disclose all information that he may have as to the value of the corporate stock before purchasing the stock of a fellow stockholder for himself has been the subject of some conflict of authority.
The majority rule is that an officer or director of a corporation does not stand in a fiduciary relation with a stockholder with respect to his stock and in the absence of circumstances from which fraud or unfair dealings may be inferred, an officer or director of a close corporation is under no duty to volunteer information to a stockholder from whom he purchases stock. An exception or limitation to this general or majority rule is that where a director or officer has knowledge of special facts by virtue of which the value of the stock has been enhanced, but which special facts are not known to the minority stockholder, the officer or director is required to make a full disclosure of such facts. The failure of such officer or director to make a full disclosure may amount to actual fraud or deceit so as to entitle the minority stockholder to relief. 7 A.L.R.3d 500. The minority rule is that an officer or director of a corporation stands in a fiduciary relationship to the individual stockholders and irrespective of any special facts an officer or director of a corporation acts in a fiduciary capacity and in every instance must make a full disclosure of all relevant facts when purchasing shares of stock from a stockholder. Fletcher's Cyclopedia on Corporations, Vol. III, Sec. 1168.2.
One of the exceptions to the general rule that a corporate officer or director does not stand in a fiduciary relation with a stockholder with respect to the purchase of the latter's stocks is when special circumstances affecting the value of the stocks exist. Such may consist of a forthcoming assured sale of corporate assets, or an offer of purchase of the stocks by an interested third party, or any other fact or condition enhancing the value of the stocks, known by the officer, director, or the majority but not by the minority stockholder, and which could not be ascertained by an inspection of the books, which special circumstances would require the purchasing party having knowledge of such circumstances to make a full disclosure of all pertinent information as to the property and financial condition of the corporation. 7 A.L.R.3d 504.
In the case of Black v. Simpson, 94 S.C. 312, 77 S.E. 1023, 46 L.R.A.,N.S., 137, it appears that the defendant was a director and general manager of the corporation in which the plaintiffs were shareholders. It is alleged that while the defendant was occupying this trust relation to the plaintiffs and by means of false...
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