Case Name: Edgar L. Black & others vs. William E. Taft & others
Court: Massachusetts Supreme Judicial Court
Jurisdiction: Massachusetts
Decision Date: 1933-09-13
Citations: 284 Mass. 77
Docket Number: 
Parties: Edgar L. Black & others vs. William E. Taft & others.
Judges: 
Reporter: Massachusetts Reports
Volume: 284
Pages: 77–83

Head Matter:
Edgar L. Black & others vs. William E. Taft & others.
Suffolk.
October 4, 1932.
September 13, 1933.
Present: Rugg, C.J., Cbosby, Pierce, Wait, Field, Donahue, & Lummus, JJ.
W. J. Bannan, (T. F. Bannan with him,), for the. defendants.
W. J. Lyons, for the plaintiffs.

Opinion:
Crosby, J.
This suit in equity is brought by the plaintiffs as stockholders of the Metropolitan Linen Supply Company, Inc., to compel the defendants Dora B. Taft, Thomas F. Bannan and Richard Kingston to return to the corporation for cancellation certain certificates of shares of its capital stock standing in their names, respectively, on the ground that the same were illegally issued. The case was referred to a master and an interlocutory decree was entered in the Superior Court confirming his report. Thereafter a final decree was entered by which it was adjudged that the shares of stock issued in pursuance of the votes of meetings of the directors of the corporation held on April 3 and April 9, 1931, to Dora B. Taft, otherwise known as Mrs. William E. Taft, Thomas F. Bannan and Richard Kingston be declared null and void and requiring that they be returned to the corporation for cancellation. The case is before this court upon appeal by the defendants from the final decree.
The corporation was organized under the laws of this Commonwealth on January 30, 1929, with an authorized capital of one thousand shares without par value. The incorporators were the plaintiffs Black and Bailey and the defendant William E. Taft, each of whom subscribed for and received one hundred shares, thereby leaving an "unissued balance" of capital. G. L. (Ter. Ed.) c. 156, § 16, provides, "The whole or any part of any unissued balance of the authorized capital stock may be issued, subsequent to the issue of stock certified by the articles of organization, by vote of the directors, under authority of the by-laws or of a general or special vote of the incorporators at the first meeting or of the stockholders at a subsequent meeting, if, within thirty days after such vote of the directors, a certificate signed and sworn to by the president, treasurer and a majority of the directors is submitted to the commissioner . . . . " The master found that on July 30, 1930, the directors voted to issue to Kingston ten shares of stock in payment for services rendered the corporation, but that no certificate of such issue pursuant to G. L. (Ter. Ed.) c. 156, § 16 and 17, was filed with the commissioner of corporations; that at a special meeting of the stockholders held October 3, 1930, it was voted to issue fifty shares of stock to each of the incorporators, but no certificate was ever filed with the commissioner of corporations as required by G. L. (Ter. Ed.) c. 156, §16 and 17. On February 13, 1931, a special meeting of the directors was held and it was voted to issue fifty shares to each of the incorporators, and ten shares to Kingston, and on the following day a certificate of the issue of this stock was filed with and approved by the commissioner as required by G. L. (Ter. Ed.) c. 156, § 16. There was no evidence that any certificates of stock were in fact executed and delivered to Black, Taft, Bailey or Kingston subsequently to October, 1930. On March 27, 1931, a special meeting of the stockholders was called to be held on April 4, 1931, but on April 3, 1931, without notice to Black, one of the stock holders, William E. Taft and Kingston voted to issue one hundred shares of stock to Dora B. Taft in payment of an alleged debt owed her by the corporation, and fifty shares to Thomas F. Bannan in payment of an alleged debt for legal services. At a special meeting of the directors held on April 9, 1931, a majority of the directors voted that the issue of one hundred shares to Dora B. Taft and fifty shares to Thomas F. Bannan in payments of their accounts against the corporation be approved. It does not appear from the record that there is a by-law authorizing the directors to issue any unissued balance of stock, or a general or special vote of the incorporators at the first meeting, or of the stockholders at a subsequent meeting where a certificate was submitted to the commissioner as required by G. L. (Ter. Ed.) c. 156, § 16. The only stock issued subsequently to the issue certified by the articles of organization was issued by vote of the directors, except the issue voted at the special meeting of the stockholders held on October 3, 1930, but as no certificate of the issue of this stock was filed with the commissioner it was illegal. Art. 4, § 5, of the by-laws recites that "The Directors shall have and exercise full control and management of the affairs and business of the corporation except such as are conferred by law or by these By-Laws upon the stockholders or upon an officer of the Corporation or may be delegated to the Executive Committee." This provision cannot rightly be construed as conferring upon the directors authority to vote the issue of an unissued balance of stock without compliance with the provisions of G. L. c. 156, § 16.
"The directors of a corporation act in a strictly fiduciary capacity. Their office is one of trust and they are held to the high standard of duty required of trustees . Corporate directors cannot manipulate the property, of which they have control in a trust relation, primarily with the intent to secure a majority of the stock or of directors in any particular interest . . . . " Elliott v. Baker, 194 Mass. 518, 523. In the present case the stock issued by the directors could not be voted without a compliance with the provisions of the statute above recited. It results that the issue of stock to Dora B. Taft, Thomas F. Bannan and Richard Kingston was without validity.
The circumstance that the records of the special meeting of the stockholders held on October 3, 1930, mentions Kingston as a stockholder cannot rightly be found to be a ratification of the issue of stock to him by the directors. This is not a case where there was an informality in the issue of stock which the corporation had power to create not affecting the essential rights of the corporation, its creditors or other stockholders, as was held in Mitchell v. Mitchell, Woodbury Co. 263 Mass. 160.
Decree affirmed with costs.