Seder v. Gibbs

• Decision Date: 11 January 1956
• Citation: 131 N.E.2d 376,333 Mass. 445
• Parties: Samuel SEDER, trustee In bankruptcy, v. G. Wayne GIBBS and Raymond E. Shea.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 376

131 N.E.2d 376

333 Mass. 445

Samuel SEDER, trustee In bankruptcy, v. G. Wayne GIBBS and Raymond E. Shea.

Supreme Judicial Court of Massachusetts, Worcester.

Argued Sept. 27, 1955.

Decided Jan. 11, 1956.

Joseph Kruger, Alan J. Dimond, Sydney, Berkman, Boston, and Samuel Seder, Worcester, for plaintiff.

Francis T. Mullin, Henry C. Donnelly, Worcester, for defendants.

Before QUA, C. J., and RONAN, SPALDING, WILLIAMS and COUNIHAN, JJ.

COUNIHAN, Justice.

This is a suit in equity by which the plaintiff as trustee in bankruptcy of the Athol Hotel Corporation, hereinafter called the corporation, seeks to establish and recover claims against the defendants, one of whom held certain offices in and both of whom were directors of the bankrupt corporation, for an alleged breach of their fiduciary duties as such officer and directors and as mortgagees, as will hereinafter appear. The judge dismissed the bill and the plaintiff appealed. In our opinion there was error.

The judge made a report of material facts and the evidence is reported. G.L.(Ter.Ed.) c. 214, §§ 23, 24, as amended. In these circumstances it is the duty of this court to examine the evidence and to decide the case on its own judgment, giving due weight to the findings of the judge, which will not be reversed on oral testimony unless plainly wrong. Trade Mut. Liability Ins. Co. v. Peters, 291 Mass. 79, 83-84, 195 N.E. 900; MacLennan v. MacLennan, 316 Mass. 593, 595, 55 N.E.2d 928.

In this case no question of belief or disbelief of oral testimony is present, for there is no variation in any essential respect in the testimony of the witnesses, two of whom were the defendants, and all of whom were called by the plaintiff. 'Inferences from the basic facts shown by such testimony, however, are open for our decision, and the inferences drawn by the trial judge are entitled to no weight in this court.' Malone v. Walsh, 315 Mass. 484, 490, 53 N.E.2d 126, 129, and cases cited; MacLennan v. MacLennan, supra. It is true that there was a dispute about the amount of money owed the defendant Gibbs (hereinafter called Gibbs) by the corporation at certain times but this is not material except perhaps as to what the plaintiff is entitled to recover.

With these principles in mind, we find the following facts: On November 17, 1944, the corporation was formed with an authorized capital of $10,000, consisting of one hundred shares of common stock with a par value of $100 each, and the amount of capital stock then issued was three shares to be paid for in cash. Later additional capital stock was authorized to be issued so that shortly before March 15, 1949, Gibbs had acquired more than a majority of the common stock of the corporation. On October 11, 1946, the corporation acquired a lease from the Garbose Realty Co. of premises known as the Pequoig Hotel in Athol, together with all furniture, furnishings, and equipment therein. This lease by its terms was to expire on December 31, 1966. In January, 1949, Gibbs, the defendant Shea, Loretta M. Gibbs, wife of Gibbs, and Howard H. Gibbs, his brother, were elected directors of the corporation and Gibbs was elected president and treasurer. Besides the furniture, furnishings and equipment mentioned in the lease the corporation had acquired additional furniture, fixtures, and equipment, the extent of which does not appear. The corporation also on March 15, 1949, had a license to sell liquor on the premises which was required to be renewed annually. G.L.(ter.Ed.) c. 138, § 16A, as appearing in St.1937, c. 424, § 1. On that day the board of directors of the corporation, which was made up of those persons elected on January 26, 1949, voted that 'the treasurer of the corporation be authorized to sign in the name of the corporation a note and a chattel mortgage on all of the chattels and stock in trade of the corporation, said chattel mortgage to run to G. Wayne Gibbs and Raymond E. Shea, to secure said Gibbs and Shea for advances made and to be made by them to said corporation. Said chattel mortgage and note is to be in the amount of fifteen thousand ($15,000) dollars and is to be payable on demand.' On March 16, 1949, the corporation, by its treasurer, Gibbs, executed and delivered to the defendants a note for $15,000, together with a chattel mortgage to secure the same. The mortgage covered all of the personal property of the corporation including stock and liquors on hand. It did not cover the lease nor the liquor license. At that time the corporation owed Gibbs $4,240 for money previously lent it by him. Shea never made any investment in the corporation and never lent any money to it. The plaintiff admitted in his brief that at the time the mortgage was given the corporation owed Gibbs $4,240, and that from the date of the mortgage to the date it was foreclosed, as will subsequently appear, Gibbs advanced $2,691.49 to pay debts of the corporation. Gibbs contended that at the date of the foreclosure there was due him also from the corporation the sum of $9,450 for salary and traveling expenses under an oral agreement with the corporation. There is no vote of the directors authorizing such an arrangement and he was not on the payroll and the corporation did not pay any social security or employment security contributions on such salary. Gibbs in his testimony admitted that at the time the mortgage and note were given and even as far back as October 11, 1946, when the lease was entered into, the corporation was insolvent.

Some time in June or July, 1949, the defendants decided that they would sell the hotel business if they could find a buyer. One LaPierre became interested and on July 12, 1949, they entered into a written agreement with him whereby they agreed to sell him all the personal property described in the mortgage which they held for the sum of $39,500. This agreement was subject to several conditions of which important ones are as follows: LaPierre was to pay $3,500 at the signing of the agreement; when the sale was completed he was to give the defendants a note for $1,750 payable on November 15, 1949, and a note for $37,050 ¹ payable at the rate of $80 per week for five hundred twenty weeks, the payments of $80 a week to include any interest; LaPierre was to assign to the defendants a new lease covering the hotel premises which he was to obtain from the Garbose Realty Co. as collateral security for the payment of the note for $37,050; there was an express condition that LaPierre or a corporation to be formed by him should be able to obtain a new lease from the Garbose Realty Co. upon the same terms as in the lease which the Athol Hotel Corporation had; if and when this happened the defendants would cause to be recovered a duly executed cancellation of the former lease to the Athol Hotel Corporation; and there was also an express condition that LaPierre or a corporation to be formed by him should be able to obtain a liquor license from the town of Athol to sell liquor on the premises. A very significant condition reads, 'This Agreement is also upon the express condition that the Parties of the First Part [the defendants] are able to foreclose the chattel mortgage running from the Athol Hotel Corporation to the Parties of the First Part and dated March 16, 1949 * * *.' There was also the usual condition that if the parties of the first part should be unable to give good title or make conveyance as stipulated any payments made under the agreement should be refunded and all other obligations of either party thereunder should cease.

Thereafter on July 13, 1949, pursuant to their agreement to foreclose the mortgage as provided in the agreement of sale, the defendants sent the corporation a written notice of intention to foreclose for default in the conditions of the mortgage. On July 21, 1949, the mortgage was foreclosed by public auction on the premises. No one was present at that time except the defendants, their attorney, deputy sheriffs, and 'somebody * * * from the town.' The chattels described in the mortgage were bought by Gibbs for $15,500 which was the only bid. Gibbs then saw one Garbose of the Garbose Realty Co. with LaPierre and Garbose agreed to a cancellation of the lease with the corporation and to execute a new lease to the Pequoig Hotel, Inc. a Corporation in the name of which LaPierre was to take the lease. Gibbs also went to the selectmen of Athol with LaPierre and surrendered the liquor license held by the corporation and requested the selectment to issue a new liquor license to the Pequoig Hotel, Inc., which they agreed to do.

On September 6, 1949, as appears from the date of the notes taken by the defendants as part payment of the purchase price, the defendants sold the personal property which they acquired by foreclosure of their mortgage, to LaPierre or the Pequoig Hotel, Inc., for what appears to have been a price of $46,850 which included interest for the term of a note for $41,600 given to the defendant Shea as part of the purchase price. This price appears to have been arrived at in the following manner: sale price per agreement $39,500 and interest on note of $41,600, $7,350. The price was paid in the following manner: deposit $3,500; a note of LaPierre for $1,750 to the...