Wilson v. Jennings

• Decision Date: 27 June 1962
• Citation: 184 N.E.2d 642,344 Mass. 608
• Parties: Woodrow S. WILSON et al. v. Clifford R. JENNINGS et al. (and a companion case).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 642

184 N.E.2d 642

344 Mass. 608

Woodrow S. WILSON et al. v. Clifford R. JENNINGS et al. (and a companion case).

Supreme Judicial Court of Massachusetts, Middlesex and Suffolk.

Argued April 2, 1962.

Decided June 27, 1962.

Meyer H. Goldman, Boston (Herbert L. Sostek, Boston, and James A. King, Jr., Brighton, with him), for defendants.

Joseph Ford, Boston, for plaintiffs.

Before WILKINS, C. J., and SPALDING, CUTTER, KIRK and SPIEGEL, JJ.

CUTTER, Justice.

These two bills in equity were brought by Wilson and one Malick, stockholders of Polytop Corporation (Polytop), a Massachusetts corporation. The first suit (the Suffolk case) is a stockholders' derivative bill against Jennings, Polytop, Amberland Corporation, Inc. (Amberland), Mrs. Jennings (clerk and a director of Polytop), O'Neil (a director of Polytop), and Kubiliunas, president of Amberland. The second suit (the Middlesex case), brought by the plaintiffs in their own behalf, is against Jennings, Mrs. Jennings, O'Neil, and Polytop. Demurrers to each bill were overruled. After hearing the cases on the merits, the trial judge made voluntary findings of fact. A final decree was entered in each case, in substantially all respects favorable to the plaintiffs. The defendants, in each case, appealed from the interlocutory decree overruling the demurrer and from the final decree. ¹

No request was made in either case for a report of material facts under G.L. c. 214, § 23 (as amended through St.1947, c. 365, § 2). Even if the judge's voluntary findings were not sufficient by themselves to sustain the decree, it will not be reversed if the reported evidence shows that the decree nevertheless was right. See Barnhart v. Board of Appeals of Scituate, Mass., 179 N.E.2d 251. ^a See also Birnbaum v. Pamoukis, 301 Mass. 559, 561-562, 17 N.E.2d 885; Matter of Loeb, 315 Mass. 191, 195, 52 N.E.2d 37; Thomas W. Watkins & Son, Inc. v. Town of Amesbury, 338 Mass. 796, 156 N.E.2d 422; Johnson v. McMahon, Mass., 182 N.E.2d 507. ^b Cf. Corkum v. Salvation Army of Mass., Inc., 340 Mass. 165, 166, 162 N.E.2d 778. These findings (supplemented in minor respects by the evidence) are summarized below.

In 1955 Wilson and Malick, each a resident of California, and one Carabel invented a plastic top for containers of liquids or powders. They assigned to Poleete, Inc., a California corporation controlled by Wilson and Malick, the exclusive right for twenty years to make and sell the top. In December, 1956, Wilson and Malick agreed with Jennings upon the formation of Polytop to promote the top. One third of the stock was to be held by each of them. Jennings was to manage Polytop and Wilson and Malick were to cause Poleete, Inc., to assign to Polytop 'all of Poleete, Inc.'s * * * interest in * * * [the] plastic tops.' Polytop was formed. Wilson, Malick, and Jennings each became the owner of ten shares of Polytop stock. The assignment from Poleete, Inc., to Polytop took place on January 21, 1957. Jennings became president and treasurer of Polytop and Jennings, O'Neil, and one Mildred Kent became its directors. Jennings spent 'a great deal of time and money in furthering the interest of Polytop.'

On August 1, 1957, Jennings entered into an employment contract with Polytop under which he was to be employed until August 1, 1973, at what essentially was a minimum salary of $15,000 per year plus a commission on the total sales of plastic tops. Under the agreement Jennings could convert into voting stock any indebtedness of Polytop to him at the rate of one share for each $1,000 of debt. Although he was in almost daily communication with Wilson and Malick, Jennings did not disclose this contract until a meeting on February 25, 1959. On February 14, 1959, Jennings had issued an additional thirty shares of Polytop to himself pursuant to the employment contract, and these shares were voted at the meeting on February 25, 1959. These shares were sold back to Polytop (as the evidence shows, on April 29 or 30, 1959).

Polytop and Amberland executed a contract by which Amberland received 'the exclusive right to manufacture Polytop products over a period of 19 years and * * * the right to change prices' (a right to be exercised, as the evidence shows, 'by mutual agreement'). Jennings became a director of Amberland and its treasurer, and 15,000 of its 30,000 shares were issued to Jennings and his wife. ²

In February, 1959, Polytop was negotiating with a firm known as Lambert & Co. for financing assistance. Wilson urged Jennings not to issue further stock until these negotiations had ended. On April 30 1959, each shareholder of Polytop was offered a chance to subscribe to sixty new shares at '$450 per share with a time limit of May 8, 1959, on the exercising of this purchase.' Notice of this was mailed on May 2, 1959, by Jennings and received on May 4 by Wilson and Malick. The judge concluded that 'the mailing of the notice on May 2nd to California with an expiration date of May 8th should not be construed as giving the other stockholders reasonable time to subscribe.' He ruled that it was improper to issue (on May 12) new Polytop shares to Jennings and his wife, and ordered that such shares be cancelled.

The final decree in the Suffolk case (a) declared that Wilson, Malick, and Jennings each owned only the ten shares issued to them, respectively, in January, 1957, and ordered that all shares issued thereafter be cancelled; (b) declared void the employment contract with Jennings of August 1, 1957, the contract with Amberland of July 1, 1958, and all proceedings taken at the stockholders' meetings of February 3 and 25, 1959; (c) ordered Jennings and his wife to transfer to Polytop all their Amberland shares and to pay to Polytop all dividends received from Amberland; (d) declared invalid all guaranties and indorsements by Polytop of Amberland's obligations; (e) ordered Jennings and his wife to make available to Wilson and Malick all documents belonging to Polytop; (f) directed Jennings and his wife to refrain from entering into or carrying out any agreements for the manufacture of the plastic tops by anyone other than Polytop and to disclose all such agreements; (g) enjoined the defendants other than Polytop in broad terms (see fn. 4, infra) from competition with Polytop and from divulging processes and trade secrets; and (h) ordered Jennings and his wife to pay $5,000 to Polytop for expenses and counsel fees. The findings of fact in the Middlesex case were substantially the same as those in the Suffolk case. ³

1. The judge justifiably found that Wilson and Malick each owned ten shares of Polytop's stock and thus had standing (see Mendelsohn v. Leather Mfg. Corp., 326 Mass. 226, 237, 93 N.E.2d 537) to maintain these suits. The trial judge did not abuse his discretion in denying the defendants' motion to amend each answer. See G.L. c. 231, § 51; Knox v. Springfield, 273 Mass. 109, 110-111, 173 N.E. 439; Abbott v. Bean, 285 Mass. 474, 478-479, 189 N.E. 435; Smith v. Miles, 296 Mass. 126, 129, 5 N.E.2d 12; Fryefield v. Boston Diaper Serv., Inc., 338 Mass. 401, 404, 155 N.E.2d 879. Although the evidence was confusing, exhibits showed that Jennings himself had asserted that both Wilson and Malick had paid into Polytop's treasury at least sufficient value to support (see G.L. c. 156, § 15) the issue of ten shares of no par stock to each of them, and that such payments were reflected on an audited balance sheet of Polytop as at December 31, 1958.

2. We cannot say that the trial judge, upon conflicting evidence, was plainly wrong in concluding (a) that Wilson, Malick, and Jennings 'agreed to be equal one-third owners of * * * Polytop * * * with the stock ownership to be divided equally'; (b) that 'throughout the transactions * * * Wilson and Malick reposed a great * * * trust in * * * Jennings'; and (c) that 'Jennings * * * owed a duty of disclosure to * * * Wilson and Malick' with respect to the employment contract and the Amberland contract. The relations of the parties in respect to Polytop were stated in part in the corporation's by-laws and other corporate documents (see Bushway Ice Cream Co. v. Fred H. Bean Co., 284 Mass. 239, 244-245, 187 N.E. 537; Crocker v. Waltham Watch Co., 315 Mass. 397, 402, 53 N.E.2d 230), and it could have been found that in these documents the agreements of the parties had been merged. Nevertheless, it was open to the judge on the evidence to find that Wilson, Malick, and Jennings, on an informal and somewhat ambiguous basis (cf. Samia v. Central Oil Co. of Worcester, 339 Mass. 101, 109, 158 N.E.2d 469), had entered into what was essentially a joint venture in corporate form to exploit the plastic top invention; that Jennings was obligated in order 'to get his third [share of the stock] * * * to do the financing' and to 'be * * * [g]eneral [m]anager of the business, and operate it on behalf of the stockholders'; and that there was a 'mutual understanding that * * * [Wilson and Malick] would know what was going on' on the east coast and that they in turn would keep Jennings informed of their own activities. There was evidence that the three way equal division of stock was to be 'permanent.'

If the parties arranged for a permanent equal participation in Polytop's operations, and undertook the obligation of disclosure to one another of relevant information, a fiduciary relationship arose, in addition to that (see Spiegel v. Beacon Participations, Inc., 297 Mass. 398, 410-411, 8 N.E.2d 895) between Jennings, as a director, and Polytop. The evidence justified the conclusion that the relationship was to be one of trust and confidence. See Sher v. Sandler, 325 Mass. 348, 353, 90 N.E.2d 536, 114 A.L.R. 849; Mendelsohn v. Leather Mfg. Corp., 326 Mass. 226, 233, 93 N.E.2d 537. Cf. Cardullo v. Landau, 329 Mass. 5, 8-9, 105 N.E.2d 843.

3. There was evidence that Jennings gave up another position to undertake to manage Polytop and that his operations for Polytop resulted...