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Law School Case Brief

Samia v. Cent. Oil Co. - 339 Mass. 101, 158 N.E.2d 469 (1959)

Rule:

Mere failure to reveal may be fraudulent where there is a duty to reveal.

Facts:

Seven siblings formed a closely-held corporation to carry on the "oil business."  A month after the incorporation, one of the four brothers, who was a lawyer and had drawn up the incorporation papers, died unexpectedly, leaving his mother as his sole heir. The mother died three years later.  One brother was appointed executor of both his mother's and his deceased brother's estates. An accounting of those estates did not show any stock in the closely-held corporation.

Plaintiffs three sisters filed a minority shareholders' suit against defendants three brothers and corporations, the closely-held corporation and a large oil company, alleging that defendant brothers systematically excluded them from management, income, and partial ownership of a close corporation formed from a family partnership. Defendant closely-held corporation counterclaimed, seeking relief against defendant brothers and defendant oil company. The trial court granted substantially all the relief sought by plaintiffs and defendant closely-held corporation. Defendants appealed.

Issue:

Were the plaintiff sisters and defendant closely-held corporation entitled to relief?

Answer:

Yes.

Conclusion:

The court ultimately affirmed in large part, holding that defendant brothers' mere failure to reveal their secret appropriation of a deceased brother's stock was fraudulent because they had a duty to reveal their actions to their sisters, who were shareholders in the closely-held family corporation. Thus, under such circumstances, neither the statute of limitations nor the defense of laches was available to defendants. Further, the rule of corporate recovery for wrongs to the corporation was not inflexible where direct relief to plaintiffs as the complaining shareholders more justly apportioned the burden of recovery among the wrongdoers.

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