Pierce v. Columbia Securities Co.

246 Mass. 210

• Court: Massachusetts Supreme Judicial Court
• Decided: September 13, 1923
• Status: Published

Opinion

Pierce, J.

This is an appeal by the plaintiffs from interlocutory decrees overruling exceptions to and confirming the findings of the master, from an interlocutory decree ordering a certain alleged “ stipulation ” to be stricken from the records of this court, and from a final decree dismissing the plaintiff’s bill.

D. M. James, the plaintiff, died on January 8, 1920, and the administrators of his estate, Richard deZ. Pierce and Arthur M. Beale, Esquire, were admitted as parties plaintiff to prosecute the action. The defendant Alice James is the widow and personal representative of D. W. James, hereinafter referred to. Following the death of the plaintiff and the appointment of the administrators of his estate, the original bill was amended by additions to the several paragraphs thereof and to the prayers for relief. The plaintiffs have abandoned all claims to relief under the facts charged in the original and amended bill, except in so far as the facts proved in such bills entitle the plaintiff to specific performance of the agreements. The cause was referred to a master “ to hear the parties and their evidence, to find the facts, and report the same to the court.”

Without a report of the evidence the facts found by the master must stand unless on the face of his report they are mutually inconsistent or contradictory and plainly wrong. Glover v. Waltham Laundry Co. 235 Mass. 330, and cases cited. The facts found by the master establish that prior to 1910 the plaintiffs’ decedent with his five brothers owned all or practically all the stock of eight corporations organized under the laws of the State of Pennsylvania. They also owned exclusively the stock of a corporation organized under the laws of West Virginia, but neither this corporation nor any stock thereof is involved in this litigation.

A want of harmony in the management of the corporations developed in the year 1910. In that year D. M., H. J., E. B. and E». W. James, combined their interests and agreed to organize in Massachusetts the corporation which became known as the Columbia Securities Company and which is one of the defendants in this suit in equity. • When the corporation was formed in 1910 each of the four brothers in combination agreed to transfer and convey to the Columbia Securities. Company certain specific shares of stock; and it was agreed between them that the Columbia Securities Company should issue and deliver in return and payment therefor stock and securities issued by that company, thereby constituting the latter a holding company. Each of the four brothers executed an agreement with the other three. These agreements were all executed in anticipation of and before the company was organized, and represented what the four brothers intended, when they signed the agreements, to have transpire when the new Massachusetts corporation should come into being. The original scheme was never fully carried out. Some stock was transferred to the company by each of the four brothers, but they took payment partly in stock and partly in bonds. D. W. and E. B. James transferred in compliance with the terms of the agreement more stock than D. M. and H. J. James, and through their ownership of a majority of stock in the holding company had control over all the corporations.

At the times these agreements were signed D. M. and some of the others had outstanding individual indebtedness for which the stock which they agreed to turn over to the Columbia Securities Company was pledged as collateral; and although the individuals retained title to this stock and exercised the right of voting the stock, D. M. “ never during his lifetime had in his physical possession, ready for delivery, a sufficient number of shares to comply with the provisions of . . . [the fraternal agreement,] either as originally drawn or as modified by the corporation votes.” The master further finds that “ The complainants, as administrators of his estate, have never been, and are not now, in possession of certificates of stock sufficient in number to make up the difference between what was turned over to the Columbia Securities Company by D. M. and the amount which he had agreed to deliver.”

It further appears that neither W. A. nor J. C. James was a party to agreements of the four brothers; and that neither of them originally held any stock, common or preferred, or any collateral trust bonds or debenture bonds of the Columbia Securities Company; that the scheme for the organization of the Columbia Securities Company to act as a holding company for the management and control of the Pennsylvania corporations, did not meet with the approval or support of either W. A. or J. C. James; that they offered to sell their stock to the other four brothers; that they were unable to agree upon a price for the stock; that W. A. and J. C. thereupon each brought a suit in the Pennsylvania courts for a receiver, the dissolution of all the Pennsylvania corporations and the winding up of their affairs; that when these suits came on for trial, at the court’s suggestion agreements were entered into between the parties, which agreements are annexed to the master’s report and in substance, so far as is material to this litigation, state that W. A. and J. C. James on the one part agree to sell and the four other brothers agree to buy, the interest of W. A. and J. C. in all the Pennsylvania corporations, and W. A. and J. C. agree to buy and the other four brothers agree to sell, the interest of the other four in the other corporations and real estate; that the price was to be fixed by “ appraisers ” and that all conveyances and payments were to be made in thirty days from the date of the receipt of the report of the appraisers.

It appears that the four brothers who had caused the formation of the securities company were dissatisfied with the report of the appraisers and refused to abide by the arbitration; that thereupon W. A. and J. C. James each brought suits under the above contract dated January 30, 1911, and W. A. recovered judgment in his action in the sum of $106,210.72; that H. J. and D. W. soon after that agreed that J. C. James had a claim against the four brothers amounting to about $125,173.80 and interest; that on August 12, 1913, W. A. and J. C. entered into an agreement with D. W. and H. J. James stating that the assets of H. J. and D. W. then consisted to a considerable extent of stocks, bonds and corporate securities under attachment issued on said judgment; that the agreement then proceeded to give power of attorney to W. A. James to act in behalf of H. J. and D. W. to vote, use and control the stock owned by them as set forth in a certain schedule, so as to enable him, the said W. A., to collect his judgment and the claim of J. C. The agreement further recites that it is the purpose of W. A. to collect from the codefendants of H. J. and D. W. (D. M. and E. B. James) as much as one half of said judgment and the claim of J. C. if possible, and upon the collection of said judgment and claim either from the assets of D. M. or E. B., or from the securities of H. J. or D. W. he, the said W. A., will then make distribution of said property, stock, bonds and corporate securities belonging to the said H. J. and D. W. as in his judgment alone may seem right and proper.

It further appears that on November 20, 1913, another agreement was made between W. A. and J. C. on the one part and D. M. and E. B. on the other part. This agreement recited the facts with relation to the recovery of judgment by W. A. and the existence of the claim of J. C. and it was agreed that D. M. and E. B. should turn over to W. A. all their stock in the Kane and Elk Railroad Company, James Brothers Lumber Company, James Manufacturing Company, Lamont Chemical Company, Consolidated Chemical Company, James City Realty Company, and James City Gas Company, except qualifying directors’ shares; also their interest in the Hovencamp Gas Property, and all of the interests and stock in the William James Sons Company. They further agreed to turn over to W. A. all stocks and bonds issued in the Columbia Securities Company, subject to legal liens thereon, except what was then held by W. A. James, the said W. A. to provide the money to purchase, not to exceed $3,500, bonds of said company at par. It was provided that in the event of said stocks and bonds being hypothecated by D. M. and E. B., the said W. A. and J. C. were authorized to liquidate such loans and to take and hold the collateral that may have been deposited to secure the same subject to the terms of this contract.

“ It is further provided that it is the intention of this agreement to place in the hands and control of W. A. the several corporations above named to the end and purpose that the said W. A. shall have, hold and manage the same as in his judgment shall seem fit and proper; that he shall elect such boards of directors or vote the stock of said several corporations in such a manner as he sees fit and with the same force and effect as if he were the actual owner thereof.

“ The agreement further provided that notwithstanding the powers given to W. A., the said D. M. and E. B. were to be elected directors of certain corporations, and managers, at a stipulated salary, of certain corporations.

“ The agreement then recites that it is the ultimate purpose of this agreement to pay the indebtedness to W. A. and J. C. and that this is to be accomplished either out of the earnings of the corporations or by conversions of the assets of the same in such manner as the boards of directors shall provide, and that the said W. A. shall have the right to dispose of the assets of said corporations and apply the proceeds thereof to the liquidation of the indebtedness. There was, however, a proviso that the said W. A. should not have the right prior to the expiration of three years from date of the agreement to dissolve any of the corporations except the Consolidated Chemical Company. The agreement recognizes that there is certain outstanding indebtedness of the said D. M. and E. B. James, and of the several corporations mentioned which it may be necessary to take into consideration in carrying out the purposes of the contract, and that W. A. will use his influence to have the indebtedness carried, if possible, until it can be paid from the management of said corporations, but if it becomes necessary in order to save collateral, the debts may be paid by the said W. A. individually, and he thereby acquire the collateral and hold the same subject to the terms of this agreement.”

H. J. and D. W. delivered to W. A. most, but not all, of the stocks and bonds they had agreed on August 12, 1913, to turn over; but E. B. and D. M. failed to deliver the stocks and bonds covered by their agreement of November 20,1913, or to turn over to the possession of W. A. the books and papers of the various corporations. It appears that in December, 1913, W. A. brought a bill in equity in the Pennsylvania courts alleging these facts and making other allegations (the truth of which the master does not pass upon), and praying for specific performance of the agreement of November 20, 1913, and for a receiver.

It further appears that the defendant Hamlin Bank and Trust Company was appointed receiver for all the Pennsylvania corporations. The receivership lasted until October 15, 1914. During all this time the Commonwealth Trust Company of Boston, Massachusetts, had been acting as trustee under the collateral trust deed from the Columbia Securities Company. On October 25, 1917, the directors of the securities company, including E. B. and D. M. James, but not including J. C. and D. W. (the first of whom was never a director and the second of whom had resigned on November 29, 1913), by a unanimous vote elected the Hamlin Bank and Trust Company trustee in place of the Commonwealth Trust Company. The master specifically finds that the selection of the Hamlin Bank and Trust Company to act as trustee “ was with the knowledge, consent and approval of D. M. James” the original plaintiff in this cause. He further finds that “ at the time of this appointment, W. A. James was in actual control of all of the Pennsylvania corporations and the Columbia Securities Company. In fact, this had been the condition of affairs since shortly after the appointment of the Hamlin Bank and Trust Company as receiver; ” that “ The receivership was only nominal, and the actual management of the affairs of the corporations was entirely in the control of W. A. James. The sole reason for the receivership proceedings was to compel D. M. and E. B., against whom W. A. and J. C. had succeeded in establishing claims, to carry out the terms of the agreement of November 20, 1913, and to place W. A. in position to collect these claims on behalf of J. C. and himself, and with the understanding and agreement by all parties, that when he and J. C. had been so paid, they were to retire from the Pennsylvania corporations, and turn the stock and management over to the other four brothers.” It appears that the business of some, if not all, of the Pennsylvania companies, was financially successful, and at last,’ in 1919, the claims of W. A. and J. C. James, Which by that time had amounted with interest and costs to approximately $300,000, were fully paid, or the earnings of the various Pennsylvania corporations were sufficient so that they could have been paid.

The master finds that the make-up of the contending factions had by that time changed. D. W. had died and D. M. had lost the controlling influence which he had theretofore exerted over E. B., who appears to have gone over to the side of W. A., while H. J., who had theretofore been cooperating with W. A., 'again became a partisan of D. M. W. A. showed no disposition to turn over the stock and control of the various companies or retire from their management, and this resulted in the institution in the Pennsylvania courts of proceedings against him. As a result, the parties filed a stipulation which is annexed to the master’s report. It provided that certain exceptions filed by D. M. James were withdrawn without prejudice; that W. A. was to continue the management of the various corporations for a period of ninety days from July 10, 1919; that during said ninety days W. A. was to take such action as might be necessary to pay himself and J. C. the balance due them, and at the expiration of the period turn over the property and assets and management of the corporations, as provided in the contract of November 20, 1913; and that W. A. was forthwith to advance to D. M. $500 upon delivery to him by D. M. of his collateral note payable to the Lamont Chemical Company in ninety days. Pursuant to this stipulation W. A. turned over to the four brothers certain stocks and bonds.

In considering the charge of the administrators of the estate of D. M. James, set out in the amended bill, “ that all stocks in the underlying companies owned by D. M. James and other parties under said contract were put into the possession or control of said W. A. James and they are still in the possession or control of said W. A. James or other parties to this litigation, or of the corporations controlled exclusively by parties to this litigation, and are available for the carrying out of said contracts, by transfer of their said stock to said Columbia Securities Company,” the master recites that he is “ unable to find the facts in terms as stated. There is, however, no question but what all the stocks and bonds that W. A. claimed he was entitled to receive were placed in his possession and control, and that he managed and controlled the various corporations for several years. It is also clear that, in the summer of 1919, he returned to their respective owners certain of the stocks and bonds held by him under the contract. Some of the stocks and bonds standing in the name of D. M. were, however, at that time held by some of the underlying corporations under the claim that they were collateral for certain alleged indebtedness of D. M.” He further finds that the allegation taken from the amended bill, that all stocks in the underlying companies owned by D. M. and other parties “ are available for the carrying out of said contracts by transfer of their said stock to said Columbia Securities Company ” is not supported by the evidence. In this regard he also finds that the stock for carrying out the contracts will not be available until the claims of the underlying corporations to hold these stocks as collateral are adjudicated.

He further finds that during the time W. A. was in control of the corporations, he discovered that there were many outstanding notes and other evidences of indebtedness of D. M. secured by collateral in the shape of stocks and bonds both of the Columbia Securities Company and the underlying corporations, and these he redeemed by paying such indebtedness with funds which he took out of the various underlying corporations as he was authorized to do according to the contract. The aggregate of these claims against D. M. was many thousand of dollars.

At the time that W. A. returned such stocks and bonds as he did deliver to D. M. the latter claimed an indebtedness of $14,277.77 from the Columbia Securities Company. All the other brothers denied this claim. On the other hand W. A. on behalf of some of the underlying corporations claimed that D. M. was indebted to them in the sum of approximately $60,000, and that these corporations had the right to hold some of the stocks and bonds of D. M. as collateral security for this alleged indebtedness. “ Such indebtedness has never been paid by D. M. James or his Estate, and there is no offer made by the Estate to pay it.” The master specifically finds as above stated that the plaintiffs as administrators of the estate of D. M. James, have never been, and are not now, in possession of certificates of stock sufficient in number to make up the difference between what was turned over to the Columbia Securities Company by D. M. and the amount he had agreed to deliver.

It is the contention of the plaintiffs that W. A., under the agreement of November 20, 1913, had authority to save the collateral by the payment of the outstanding debts individually and thus acquire the collateral which he would hold under the agreement; that he did pay the indebtedness of D. M. James for which these stocks and bonds were held as security, with money furnished by some one or more of the underlying corporations; and that he had no right to turn over the stocks and bonds to the companies furnishing the money. We think the redeemed stocks and bonds were properly held as security by the corporations which furnished the money to discharge the indebtedness of D. M. James; and that it would be inequitable to hold that su.ch stock thereby became free of liens without the repayment of the money borrowed on it by D. M. James.

The plaintiffs filed objections and exceptions, sixteen in number, to the master’s report. These exceptions are argumentative statements of alleged facts, from which the plaintiffs contended that the master drew an erroneous conclusion of fact “ that the plaintiff is not able to carry out his part of the contract and, therefore, is not entitled to specific performance; ” or are directed to an attack upon the finding of the master that the conduct of the trustee and its representative “ was wise and impartial.” The plaintiffs state in their brief that the responsibility of the trustee, and the exceptions taken to the master’s report in respect to his findings in relation thereto, do not fundamentally affect the relief asked for specific performance and are of importance only in case specific performance is decreed and the occasion calls for the appointment of a new trustee. The exceptions taken as a whole, in the language of the plaintiffs “ bear . . . only on the form of the relief asked for.” In the aspect of the relief now sought by the plaintiffs, specific performance of the agreement, no assistance to the determination of this issue could come from the long analysis of the facts found by the master in reference to acts of the trustee and its attorney. Accordingly no reference is made thereto. A careful examination of the facts set out in the exceptions, and a comparison of them with the findings of the master and his conclusions of fact therefrom, require that the several exceptions be overruled.

On June 27,1922, after the denial of a motion to recommit for reasons not disclosed in the appeal record, after the overruling of the exceptions to the master’s report, the confirmation of the report, and after an appeal from the interlocutory decrees entered June 15, 1922, the plaintiffs, without leave of court and without knowledge of the court, filed in court a document signed by the plaintiffs and by one only of the defendants, which reads: “Stipulation. Whereas H. J. James and Estate of D. M. James have jointly a sufficient number of shares in the several Pennsylvania corporations to complete the contract of January 31, 1910 (Exh. 2) and supplementary agreements in above entitled suit and have always been ready to use their stock jointly if necessary to do so. It is hereby stipulated that the said shares of H. J. James and D. M. James shall be used to furnish all the shares due to Columbia Securities Company under contracts to be specifically performed.” On June 29, 1922, the court entered a final decree dismissing the bill. On July 17, 1922, the defendants, except H. J. 'James, filed a “ motion to strike stipulation from record.” This motion was allowed on July 19, 1922, and on the same day the plaintiffs and H. J. James appealed from the allowance of the motion and the plaintiffs from the final decree.

The question presented by this action of the court in reference to the so-called stipulation is, ought the court in the exercise of its equitable functions to have recommitted the case for further hearing or have taken evidence to determine, if the fact were disputed, whether the plaintiffs were then able to transfer the stocks and bonds to the Columbia Securities Company as required by the conditions of the agreement of January 31, 1910, and agreements supplementary thereto, even though they were unable so to do at the confirmation of the master’s report. It is obvious that time is not of the essence of these agreements and if the plaintiffs have taken proper procedural steps and are able to perform the agreements they are required to perform, equity requires that the plaintiffs be permitted to perform at any time before the entry of a final decree dismissing the bill. Dresel v. Jordan, 104 Mass. 407, 415. Barnard v. Lee, 97 Mass. 92. McMurtrie v. Guiler, 183 Mass. 451. Hanscom v. Malden & Melrose Gas Light Co. 220 Mass. 1, 9. Ensign v. Faxon, 229 Mass. 231, 233. Langford v. Pitt, 2 P. Wms. 629, 630. Esdaile v. Stephenson, 6 Madd. 366, 367. Sidebotham v. Barrington, 4 Beav. 110; 5 Beav. 261. Sugden on Vendors (8 Am. ed.) 264. Coffin v. Cooper, 14 Ves. 205. Paton v. Rogers, 6 Madd. 256.

After the filing of the so-called “ stipulation ” the plaintiffs took no steps to call the subject matter thereof to the attention of the court, they made no motion in reference thereto, and in their brief present no statement from which it can be learned or inferred whether the document so filed was intended as a mere declaration of fact or was intended by the signers to operate as a motion to discontinue as to H. J. and join him as a party plaintiff with his consent, and to amend their amended bill by alleging that the joint holdings of the plaintiffs and H. J. under the bill as amended were sufficient to enable them to specifically perform the contracts of D. M. and that they were ready to tender, and did by the bill tender sufficient stock to comply with the contract of January 31,1910, and the supplementary contracts. While a motion to amend the bill was the proper practice, Equity Rule 25, Hanscom v. Malden & Melrose Gas Light Co. supra, Reno v. Cotter, 236 Mass. 556, 563, 564, it is obvious that the “ stipulation ” itself cannot take the place of such a motion: and plain that considered as a statement of fact to be proved, if disputed, its mere filing could not prevent nor stay the entry of a final decree in the suit which was ripe for such entry before the filing of such alleged fact. If the “ stipulation ” be treated as a motion to amend the bill, such motion was addressed to the equitable discretion of the court and the entry of the final decree was necessarily a refusal to exercise that discretion and a denial of the motion, without the entry of an interlocutory decree to that effect.

The motion to strike the stipulation from the record was filed after the entry of the final decree and the court was without jurisdiction to receive or pass upon it. White v. Gove, 183 Mass. 333, 340. Morgan v. Steele, 242 Mass. 217, 218. The action of the court was not harmful to the plaintiffs and is disregarded.

It results that the decree dismissing the bill is affirmed with costs.

Decree accordingly.