Corporation, Officers and agents. Equity Jurisdiction, To compel accounting for illegal expenditure of funds of corporation. Contract, Implied, Of indemnity.
A corporation is not bound by the action of a majority of its board of directors, intentionally kept secret by them from the minority of the board, in arranging for the purchase by a bank of shares of stock in the corporation necessary to assure their control of it and a continuance of their policies in the face of threatened opposition, for a guaranty of the bank against loss by the treasurer of the corporation, one of the majority of the board, and for the holding of such shares in the name of a friend of the treasurer and an employee of the bank who indorsed them in blank and placed them in the treasurer's possession and gave the treasurer proxies for voting upon them until an opportune time for the corporation openly to acquire and pay for the stock, although such conduct of the majority of the board was beneficial to the corporation.
Nor do the circumstances above described give rise to an implied promise on the part of the corporation to save the treasurer harmless upon his guaranty given to the bank.
And if a later board of directors of the corporation, a majority of whom are the same persons who carried out the plan above described but a minority of whom are in ignorance of the foregoing facts, by a vote empower the same treasurer to purchase the stock "now held by" the employee of the bank without naming a price, such vote cannot be construed as a ratification of the former action of the majority of the board nor as giving to the treasurer authority to pay for such stock a price, far in excess of the market value of the stock, which equals the price which was paid by the bank and interest on the sum advanced by the bank.
Under the circumstances above described, the corporation may maintain a suit in equity to compel the treasurer to account to it for the excessive price thus paid for the stock and to repay to it so much of the amount so paid as was in excess of the fair market value of the stock at the time of the purchase which was legally authorized.
PIERCE, J.
The purchase of stock by the National Shawmut Bank in 1908 and its transfer to Henry F. Smith, — an employee of the bank and friend of the defendant, — at the request of the defendant with the individual approval of a majority of the persons who with him constituted the directorate of the Commercial Brewing Company, the indorsement in blank and delivery of stock and proxies to the defendant for the purpose of ensuring the annual election of a board of directors whose votes would support and sustain him in retaining the control of the management and the direction and determination of the policies of the corporation, until an opportune time came for the corporation openly to acquire and pay for the stock, were inoperative, — even if conceded to be beneficial to the corporation, — to bind the corporation to pay for the stock on demand and tender of the certificates or to raise an implied promise binding the corporation to save the defendant harmless upon his guarantee of the purchase price to the bank, for the reason that the purchase, transfers and plan were always intentionally kept secret from the minority of the board of directors and were assented to and approved by the majority of the board acting individually and not collectively. Buttrick v. Nashua Lowell Railroad, 62 N.H. 413. National Bank v. Drake, 35 Kans. 564. Cook on Corporations, (7th ed.) § 713.
The vote of the board of directors in 1912, whereby the treasurer, the defendant, was authorized and empowered to purchase the stock "now held by Henry F. Smith," was not in terms a ratification of the purchase of stock and of the plan to use it in furtherance of the policies of the defendant until an opportune time came to transfer it to the corporation; nor can the vote by implication be held to ratify and adopt the irregular action of the individual majority members of the board of 1908, because a minority of the board authorizing the purchase of the Smith stock were ignorant of, and intentionally kept in ignorance of, the purchase and the scheme and plan for the use and final disposition of the stock assented to, adopted and finally carried out by the individual members, who in 1908 as in 1912 constituted a majority of the members of the board of directors.
A majority only of the board of directors knew that since 1908 the treasurer, the defendant, had held the legal title to the stock standing on the stock books of the corporation in the name of Henry F. Smith by transfer and delivery of the certificates of stock indorsed in blank by Smith. St. 1910, c. 171, § 1. Bellows Falls Power Co. v. Commonwealth, 222 Mass. 51, 59.
The vote, presumptively, only authorized a purchase of the stock described at the fair market value, and the concealment of the fact that it was owned by the treasurer rebuts any inference that it was intended thereby to pay the price of its purchase in 1908 and interest thereon. Malden Melrose Gas Light Co. v. Chandler, 209 Mass. 354. It is not disputed that the treasurer, the defendant, purchased the stock under the authority of the vote paying therefor $12,776.75 in excess of its fair market value, nor is it denied that such act was illegal if not excused and warranted by the facts and circumstances disclosed.
Decree affirmed with costs.