Wm. Filene's Sons Co. v. Gilchrist Co., 1575.

• Decision Date: 13 November 1922
• Docket Number: 1575.
• Citation: 284 F. 664
• Court: U.S. Court of Appeals — First Circuit
• Parties: WM. FILENE'S SONS CO. v. GILCHRIST CO. [1] In re GILCHRIST CO.

284 F. 664

WM. FILENE'S SONS CO. v. GILCHRIST CO. ^[1]

In re GILCHRIST CO.

No. 1575.

United States Court of Appeals, First Circuit.

November 13, 1922

George R. Nutter, of Boston, Mass. (Jacob J. Kaplan and Dunbar Nutter & McClennen, all of Boston, Mass., on the brief), for appellant.

Sherman L. Whipple, of Boston, Mass. (Alexander Lincoln, of Boston Mass., on the brief), for appellee.

Before BINGHAM and JOHNSON, Circuit Judges, and HALE, District Judge.

HALE District Judge.

On May 29, 1912, the Gilchrist Company made a written guaranty to William Filene's Sons Company of a lease executed by the Filene Company to the Wm. S. Butler Company of premises at the southwest corner of Washington and Winter streets in the city of Boston. For some time before the execution of this guaranty, these three Massachusetts corporations had been engaged in the conduct of dry goods stores; the Butler Company on Tremont street, the Gilchrist Company on the northwest corner of Washington and Winter streets, and the Filene Company on the southwest corner of Washington and Winter streets, directly opposite the Gilchrist Company. This store of the Filene Company was a collection of buildings, which had been built by annexing surrounding stores. At the time in question the Filene Company had arranged to move into a new site, located on the corner of Summer and Washington streets, diagonally opposite its old location. The Filene Company moved into this new store, and the Butler Company took possession under its lease early in September, 1912. On November 7, 1912 receivers were appointed by the United States District Court for the Butler Company and also for the Gilchrist Company. On December 9, 1912, the Filene Company entered by leave of court for breach of conditions of the lease and took possession of its former property. In March, 1913, an involuntary petition in bankruptcy was filed against the Gilchrist Company. On September 13, 1913, the Filene Company filed a petition for damages under the lease against the Butler Company, which was finally allowed by the Supreme Court of the United States (William Filene's Sons Co. v. Weed, 245 U.S. 597, 38 Sup.Ct. 211, 62 L.Ed. 497) for $205,805.71. A claim in bankruptcy against the Gilchrist Company was filed by the Filene Company; and after many hearings before the referee, it was allowed by him for $205,805.71. The Gilchrist Company petitioned to the District Court for a review; that court vacated the order of the referee and entered an order disallowing the claim. The case is now before us upon an appeal by the claimant, the Filene Company, from this order of the District Court.

The Gilchrist Company was organized under the General Corporation Laws of Massachusetts (Public Statutes, c. 106), the certificate stating the purposes of the company to be:

'Buying, selling, jobbing, manufacturing and dealing in dry goods and general merchandise and carrying on the business of a department store.'

Section 50 provides that a corporation subject to that chapter shall 'not direct its operations or appropriate its funds to any other purpose than that specified in its agreement of association or its charter, as the case may be. ' It is assumed on all sides that the power to manufacture, buy and sell merchandise, and carry on the business of a department store does not include the power to guarantee a lease to another corporation on neighboring premises, unless it can be shown that such power is fairly incidental or auxiliary to the main business of the corporation, and necessary or expedient in the protection, care and management of its property. Teele v. Rockport Granite Co., 224 Mass. 20, 25, 112 N.E. 497.

The case presents this plain question of fact: Has the claimant proved by a preponderance of evidence that the execution of the guaranty by the Gilchrist Company was reasonably incidental and auxiliary to its business and within the scope of its powers?

The claimant has offered testimony tending to show that, at the time of the execution of the guaranty, the Gilchrist Company was vitally interested in the nature of the occupation to be made of the old Filene store; that the site of that store was in the general location of the department stores of Jordan & Marsh, the Hovey Company, and the R. H. White Company; that it was of importance to have the old Filene site occupied by a department store, rather than by an office building or a manufacturing plant; that it was of special advantage to the Gilchrist Company that this site be held by a 'kindly competitor,' that is, by a competitor who would not compete in a hostile way, so as to break prices, and that thus it was of advantage that it be occupied by a company who held a majority of the stock of the Gilchrist Company and could therefore be counted upon to operate the competing store in a friendly way; that the financial welfare of the Gilchrist Company was vitally linked with that of the Butler Company by reason of a joint bond issue; and that co-operative advertising would be of advantage to both companies. Mr. Dunbar, claimant's learned counsel, testified that Mr. Butler, head of the Butler Company, had told him that he regarded it as very important for the Gilchrist Company to have the old Filene corner occupied by a concern in a similar line of business to that of the Filene store on the corner of Summer and Washington streets, and with these two stores on the corner of Winter and Washington streets that corner would be the great department store center and the most important place in Boston; that there would be a great many people there; and that, while some thought it might be a disadvantage for competing stores to be on opposite corners, it was his opinion that those three stores in the same line of business on three of the four corners would attract so many people to that locality that it would be beneficial to all.

The record does not show very clearly in what way the joint bond issue between the two companies would be dependent upon proximity of stores, nor does it show that co-operative advertising would be greatly assisted thereby. The record also fails to disclose any other bidders who were seeking to obtain the old Filene corner under the terms offered by the Gilchrist Company. It appears, too, that the Filene Company preferred to get a bonus of $20,000 under the lease to the Butler Company rather than to keep their old site and put into this store a 'kindly competitor' who would not compete too much.

The appellee urges that the plan of guaranty was not devised by the Gilchrist Company for purpose of obtaining for itself special advantages; that such guaranty with the limited capital of that company could not bring to it any advantage; that it in fact brought bankruptcy; that it was a scheme of finance conceived by an adventurer, who was looking only to his own personal advantage, and who later committed suicide, after he had wrought the ruin of himself and two leading dry goods companies.

Let us follow the current of facts leading up to the execution of the guaranty. Early in 1912, William E. Butler, head of the Butler Company, appears by the testimony to have had the general purpose of getting into the group of department stores on Washington street and to have formed the plan of obtaining a lease of the old store of the Filene Company when that company should vacate it to go into its new store. It appears to have been a part of Butler's plan to operate a store conducting a similar line of business with the Gilchrist Company and the Filene Company, and on a more ambitious scale than that which the old Butler store had conducted on Tremont street. His new venture was to carry on a medium high-priced specialty business in women's garments on Washington street. Charles C. Ferris, the president of the Gilchrist Company, had heard of Butler's plan, and in February or March, 1912, Ferris asked Butler if it...