University:
University College London
Course:
LAWS0007 | Criminal Law
Academic year:

2020
Views:

194

Pages:

2
Author:

esfredint7qo

Wilkes v. Springside Nursing Home, Inc. Facts: In 1951, Wilkes secured an option to purchase a building on Springside Avenue. He shared the option with his friends Riche, Quinn and Pipkin who joined in on the investment. On their legal advisor, advising them that if they had purchased it individually- they would be partners and hence generally liable, the four of them formed a close corporation under Massachusetts Law and began functioning as a nursing home. In running the business they exchanged roles as director/clerk every few months but drew equal salaries. All was well, everyone made lots of money, lol! In 1959, Pipkin sold his share to Connor who was also known to the other 3 stockholders. Everything continued smoothly. In 1965, the stockholders decided to a portion of the corporate property to Quinn. During this transaction, Wilkes was successful in securing a higher price for the sale. This led to a bad blood between Quinn and Wilkens. January 1967 -As a result of the bad blood, Wilkens gave notice of his intention to sell his share. February 1967 – Directors held meeting and the board exercised its right to determine salaries of its employees and officers. March 1967- Annual meeting- Wilkens was not re-elected as director, nor officer and further informed that his services were no longer required thereby severing him from the payroll of the company. Issue: Wilkens filed a suit for damages alleging breach of fiduciary duty Rules discussed: 1. Liabilities in a close corporation is similar to a partnership i.e., duty between directors is akin to that of a partnership. 2. In Donahue, the Court had held that it is permissible for the majority stakeholders of a corporation to freeze out the minority shareholders. However, the Court also held that majority stockholders in a close corporation have to deal with the minority stock holders with utmost good faith and loyalty. Held: The question to be considered is whether the action taken by the majority stockholder can demonstrate a legitimate business purpose for its action. .. When an asserted business purpose for their action is advanced by the majority, it is open to minority stock holders to demonstrate that the same legitimate objective could have been achieved through an alternative course of action less harmful to the minority’s interest. Applying this approach, it is apparent that the majority stockholders in Sprinside Corp did not show a legitimate business purpose for severing Wilkins from the payroll of the corporation.