Goodwinv.Agassiz

Whether directors of a corporation owe a fiduciary duty to an individual stockholder requiring disclosure of material information when purchasing the stockholder's shares through brokers on a stock exchange?¹²

Directors of a commercial corporation stand in a relation of trust to the corporation and are bound to exercise the strictest good faith in respect to its property and business.¹³ The contention that directors also occupy the position of trustee toward individual stockholders in the corporation is plainly contrary to repeated decisions of this court and cannot be supported.¹⁴ The fact that the defendants were directors created no fiduciary relation between them and the plaintiff in the matter of the sale of his stock.¹⁵ While the general principle is as stated, circumstances may exist requiring that transactions between a director and a stockholder as to stock in the corporation be set aside.¹⁶ The knowledge naturally in the possession of a director as to the condition of a corporation places upon him a peculiar obligation to observe every requirement of fair dealing when directly buying or selling its stock.¹⁷ Purchases and sales of stock dealt in on the stock exchange are commonly impersonal affairs.¹⁸ An honest director would be in a difficult situation if he could neither buy nor sell on the stock exchange shares of stock in his corporation without first seeking out the other actual ultimate party to the transaction.¹⁹ Disclosure would then be required of everything which a court or jury might later find that he then knew affecting the real or speculative value of such shares.

No. The rule establishes that directors owe duties to the corporation itself but not to individual stockholders in stock transactions.²⁰ The trial judge expressly found on all the circumstances that no fiduciary relation required disclosure by the defendants to the plaintiff before buying his stock in the manner in which they did.²¹ The purchase of the plaintiff's seven hundred shares occurred through brokers on the Boston stock exchange in an entirely impersonal transaction.²² Neither party knew the identity of the other and there was no direct communication or personal solicitation by the defendants.²³

The only knowledge possessed by the defendants not open to the plaintiff was the existence of an untested geologist's theory that had not passed the nebulous stage.²⁴ The findings establish that the defendants were not guilty of fraud and committed no breach of duty owed by them to the Cliff Mining Company.²⁵ The stock exchange setting and the absence of any personal seeking out of the plaintiff by name therefore fall squarely within the rule that directors are not trustees for individual stockholders with respect to their stock.²⁶

Directors do not owe a fiduciary duty to an individual stockholder requiring disclosure of material information when purchasing the stockholder's shares through brokers on a stock exchange, and the decree dismissing the bill was therefore rightly entered.²⁷

Whether nondisclosure of an untested geologist's theory regarding possible copper deposits, combined with the purchase of shares and the closing of exploratory operations, constitutes an actionable wrong by directors against a selling stockholder?²⁸

Mere silence does not usually amount to a breach of duty, but parties may stand in such relation to each other that an equitable responsibility arises to communicate facts.²⁹ Fraud cannot be presumed; it must be proved.³⁰ The facts found afford no ground for inferring fraud or conspiracy.³¹ The only knowledge possessed by the defendants not open to the plaintiff was the existence of a theory formulated in a thesis by a geologist as to the possible existence of copper deposits where the geological conditions described in the theory existed common to the property of the Cliff Mining Company and that of other mining companies in its neighborhood.³² This thesis did not express an opinion that copper deposits would be found at any particular spot or on property of any specified owner.³³ Whether that theory was sound or fallacious, no one knew, and so far as appears has never been demonstrated.³⁴ The defendants made no representations to anybody about the theory.³⁵ No facts found placed upon them any obligation to disclose the theory.³⁶ The Cliff Mining Company was not harmed by the nondisclosure.³⁷ There would have been no advantage to it, so far as appears, from a disclosure.³⁸

No. The rule requires proof of fraud or breach of duty before nondisclosure can give rise to an actionable wrong.³⁹ The trial judge made an express finding that the defendants were not guilty of fraud and that the company suffered no harm from the nondisclosure of the geologist's theory or from the purchases of its stock.⁴⁰ The theory remained untested and at most a hope or expectation at the time of the May 1926 stock purchase.⁴¹ The defendants had agreed to keep it confidential only to secure options on adjacent lands for another company they directed without causing detriment to the Cliff Mining Company itself.⁴²

The plaintiff sold his shares on the exchange after reading a newspaper article about the closure of exploratory operations.⁴³ He acted on his own judgment as a member of the Boston stock exchange and made no inquiries of the defendants.⁴⁴ The findings confirm that the plaintiff would not have sold only if he had known of the theory but that no duty to disclose arose under these facts.⁴⁵ The combination of nondisclosure, the impersonal exchange purchase, and the shutdown of operations therefore supplies no basis for inferring actionable wrong or for granting the requested accounting, rescission, or redelivery of shares.⁴⁶

Nondisclosure of an untested geologist's theory regarding possible copper deposits, combined with the purchase of shares and the closing of exploratory operations, does not constitute an actionable wrong by directors against a selling stockholder, and the plaintiff cannot prevail.⁴⁷