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05/30/78 SIDNEY ANDERSON v. K. G. MOORE

May 30, 1978

SIDNEY ANDERSON
v.
K. G. MOORE, INC.



Norfolk. Bill in equity filed in the Superior Court on September 12, 1973. The suit was heard by Hallisey, J.

Hale, C.j., Armstrong, & Brown, JJ.

SYLLABUS BY THE COURT

Corporation, Stockholder, Purchase by corporation of its stock, Officers and agents. Sale, Stock. Fiduciary.

The opinion of the court was delivered by: Armstrong

In an action by a plaintiff seeking specific performance of the terms of a contract, the evidence warranted findings that the contract was not merely a sham, that the plaintiff signed the contract with the reasonable expectation that the parties intended to carry out its terms, and that the defendant breached a subsequent oral agreement to rescind the original contract. [388-391]

In an action by a plaintiff seeking specific performance of a contract with a New Hampshire corporation, there was no merit to the defendant's contention that, under N.H. Rev. Stat. Ann. c. 294, § 101, the contract should not be enforced because enforcement would render the defendant insolvent, where the defendant failed to carry its burden of showing this, and where, in view of the acquiescence of all of its directors, officers, and shareholders, the defendant had no independent standing to invoke any rights under § 101, a provision intended for the benefit of creditors of the corporation. [391-393]

The plaintiff brought this action to enforce a contract he and the defendant had executed in August, 1972. The defendant appeals from a judgment which ordered specific performance.

The defendant is an interstate trucking company incorporated under the laws of New Hampshire with a principal place of business in Nashua, New Hampshire. During the period of time material to this dispute, the corporation had 100 shares of capital stock outstanding. The plaintiff and his brother Walter were each the registered owners of 20 shares. The remaining 60 shares were owned by a third brother, Robert, although they were registered in the name of Robert's son. *fn1 The directors were Walter, the plaintiff, and Robert's son; Walter was the president and treasurer; the plaintiff was vice president. Nothwithstanding these designations, Robert was "the dominant force in the management of the corporation"; it was he who made the major decisions of corporate policy (as contrasted with Walter, who made the day-to-day business decisions). The defendant was only one of several corporations through which Robert conducted his various trucking enterprises.

In August, 1972, the plaintiff entered into the written contract in question with the defendant corporation. By its terms the plaintiff promised to transfer his 20 shares to the corporation and to resign as officer and director "immediately . . . upon receipt of the amount agreed to as purchase price" for the 20 shares. The corporation promised to purchase the shares; the purchase price was $100,000. The contract had been prepared by the corporation's attorney in accordance with instructions from Robert.

At the time of signing the contract the plaintiff was given part payment of $25,000, a sum which had been transferred by Robert to the corporation for that purpose. The plaintiff, according to his testimony, was told that the balance of the $100,000 would follow shortly. A day or two after the signing, the plaintiff sent the defendant a letter resigning his positions as vice president and director. About three months later, for reasons which were the subject of conflicting testimony, the plaintiff returned the uncashed $25,000 check to Robert, who returned it to the corporation. The plaintiff now asks for specific performance, seeking the purchase price of $100,000. It is not disputed that he is ready, willing and able to do whatever is necessary to transfer the 20 shares registered in his name to the corporation. *fn2

The principal factual question which was litigated at trial concerned the intentions of the parties in executing the contract sued on. The plaintiff testified that the contract arose out of disputes between Walter and himself, as a result of which Robert decided that the best course was for the corporation to buy out the plaintiff's interest. Robert and Walter testified that it was part of a scheme by which Robert hoped to acquire an Interstate Commerce Commission interstate operating license held by a New Jersey trucking company. Such a transfer would require ICC approval, which could be delayed, perhaps for as long as three years, if the transferee were an operating company like the defendant. The alleged plan was to have the plaintiff ostensibly sever all ties with the defendant and to apply for approval of a transfer to himself. The $25,000 he received and the contract showing he was to receive $75,000 more were intended to convince the transferor and the ICC of his financial capacity. Robert and other members of the family would put up the remainder of the estimated $100,000 the license would cost. After a period of time the trucking enterprise thus put together would be merged with the defendant corporation and the plaintiff would be restored to his 20 shares, directorship, and vice presidency of the corporation, thus augmented by the acquisition. According to Robert, the plaintiff returned the $25,000 check in November because the acquisition plan had fallen through and thus there was no point in continuing the sham. The plaintiff did not deny the existence of a plan whereby he was to acquire the New Jersey license, with Robert's help, but denied that the corporation's purchase of his 20 shares was made contingent or interdependent on the success or failure of such a plan. The plaintiff testified that he returned the $25,000 as part of an oral agreement between the brothers to rescind the contract sued on, and that the brothers failed to carry out the terms of the oral agreement in that they declined to restore the plaintiff to his positions as director, vice president and employee of the corporation.

The Judge believed the plaintiff and expressly indicated his disbelief of the testimony of Robert and Walter. The defendant argues that the weight of the evidence favors the version given by Robert and Walter, and that, as the evidence is reported, this court should make its own findings. Moss v. Old Colony Trust Co., 246 Mass. 139, 144 (1923), and cases cited. But that principle is subject to the qualification that an appellate court will not ordinarily disturb a finding made by a trial Judge on conflicting oral testimony. Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578, 580 (1975). Sher v. Malden Taxi, Inc., 4 Mass. App. Ct. 404, 407-408 (1976).

The Judge found that the plaintiff signed the contract in the expectation, reasonable under the circumstances, that the parties intended to carry out its terms, and that finding cannot be said to be clearly erroneous. The truth may be otherwise; but a party to a sham contract necessarily runs the risk that a court may accept the contract at face value and decline to believe that it was intended by all parties as a sham. The Judge was not clearly in error in finding that the contract sued on was independent of any plan to acquire the interstate operating authority of the New Jersey company. Nor can the Judge be said to have committed clear error in accepting the plaintiff's testimony about the existence of an agreement to rescind and the subsequent breach of that agreement.

Apart from a contention, discussed later, concerning the solvency of the corporation, the findings discussed above justify the Judge's Conclusion that the contract sued on is binding and enforceable, whether the question is viewed as matter of New Hampshire or Massachusetts law. *fn3 Procedural formalities were not observed; the board of directors did not meet to authorize the contract, notwithstanding a document signed by Walter stating that it had done so. But a formal meeting of the board of directors was not essential to the validity of the contract. Tenney v. East Warren Lumber Co., 43 N.H. 343, 356 (1861). Sherman v. Fitch, 98 Mass. 59 64 (1867). Dome Realty Co. v. Gould, 285 Mass. 294, 300 (1934). Hurley v. Ornsteen, 311 Mass. 477, 480 (1942). George H. Gilbert Mfg. Co. v. Goldfine, 317 Mass. 681, 686 (1945). As we credit the Judge's finding that Robert's son was merely a nominee for Robert (see note 1, (supra) ), it is apparent that the contract to repurchase the plaintiff's shares was known to and acquiesced in by all the then directors, officers, and shareholders of the corporation, and it was therefore enforceable as an act of the corporation. Kidd v. New York Security & Trust Co., 75 N.H. 154, 156 (1909). Hennessey v. Nelen, 299 Mass. 569, 572-573 (1938). Medlinsky v. Premium Cut Beef Co., 317 Mass. 25, 32 (1944). Winchell v. Plywood Corp., 324 Mass. 171, 175-177 (1949), and cases cited. Compare In re National Piano Co., 252 F. 950, 951 (D. Mass. 1918). The plaintiff's resignation as officer and director was effective notwithstanding the absence of an acceptance at a formal meeting of the board of directors. *fn4 See Briggs v. Spaulding, 141 ...


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