The recent case of Goodwin v. Agassiz presents the problem of the duty owed by a director to existing and prospective stockholders in its most typical and difficult form. The defendants were president and general manager, respectively, as well as directors of the Cliff Mining Corporation which owned mineral lands in Northern Michigan. The stock of the corporation was listed on the Boston Stock Exchange. The defendants in their capacity of directors had knowledge of a geologist's report which forecast possible existence of copper deposits in the corporation's lands. The defendants were also directors of another mining corporation owning lands in the same vicinity. The defendants had faith in the geologist's theory but suppressed the information in order to enable the second corporation to secure options on adjacent land at low prices. There was no mention of the report in the annual statement to shareholders which disclosed the termination of previous explorations by the Cliff Corporation. The defendants purchased a considerable amount of the Cliff Mining Corporation's stock in the market based on their belief that the report, if true, would cause the market price to rise. Plaintiff, one of the selling stockholders, had read newspaper notices of the statement to stockholders as to the closing of explorations. The defendants were not responsible for these notices. Plaintiff had no knowledge of the geologist's findings. The court found he would not have sold if he had known these facts. The sale was completely anonymous, brokers representing both parties. The subsequent discovery of copper as prophesied caused the stock to increase substantially in value. The plaintiff filed suit, alleging these facts, and claiming that the defendants were liable because of their omission to disclose their knowledge of the geologist's theory to the stockholders. The trial court dismissed the bill for failure to state a cause of action. The dismissal was affirmed by the Supreme Judicial Court of Massachusetts.
CORPORATIONS - DUTY OF DIRECTOR TO STOCKHOLDER ON STOCK EXCHANGE SALES,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol32/iss5/6