Donahue v. Rodd Electrotype Co. of New England, Inc.

The plaintiff, Euphemia Donahue, a minority stockholder in the Rodd Electrotype Company of New England, Inc. (Rodd Electrotype), a Massachusetts corporation, brings this suit against the directors of Rodd Electrotype, Charles H. Rodd, Frederick I. Rodd and Mr. Harold E. Magnuson, against Harry C. Rodd, a former director, officer, and controlling stockholder of Rodd Electrotype and against Rodd Electrotype (hereinafter called defendants). The plaintiff seeks to rescind Rodd Electrotype’s purchase of Harry Rodd’s shares in Rodd Electrotype2 and to compel Harry Rodd “to repay to the corporation the purchase price of said shares, $36,000, together with interest from the date of purchase.”3 The plaintiff alleges that the defendants caused the corporation to purchase the shares in violation of their fiduciary duty to her, a minority stockholder of Rodd Electrotype.4

*580The trial judge, after hearing oral testimony, dismissed the plaintiffs bill on the merits. He found that the purchase was without prejudice to the plaintiff and implicitly5 found that the transaction had been carried out in good faith and with inherent fairness. The Appeals Court affirmed with costs. Donahue v. Rodd Electrotype Co. of New England, Inc. 1 Mass. App. Ct. 876 (1974). The case is before us on the plaintiff’s application for further appellate review.

The trial judge entered voluntary findings of fact which do not appear to state the.complete ground for his decision. The evidence is reported. Accordingly, it is the duty of this court to examine the evidence and to form an independent judgment on the facts in the case. Due weight must be given to the findings of the trial judge, who has heard the witnesses and has had an opportunity to gouge their credibility and reliability. His findings of fact based on oral testimony will not be reversed unless they are plainly wrong. Spiegel v. Beacon Participations, Inc. 297 Mass. 398, 407 (1937). Seder v. Gibbs, 333 Mass. 445, 446 (1956). However, all inferences to be drawn from the facts are open on this appeal. Malone v. Walsh, 315 Mass. 484, 490 (1944). Seder v. Gibbs, supra, at 447.

The evidence may be summarized as follows: In 1935, the defendant, Harry C. Rodd, began his employment *581with Rodd Electrotype, then styled the Royal Electrotype Company of New England, Inc. (Royal of New England). At that time, the company was a wholly-owned subsidiary of a Pennsylvania corporation, the Royal Electrotype Company (Royal Electrotype). Mr. Rodd’s advancement within the company was rapid. The following year he was elected a director, and, in 1946, he succeeded to the position of general manager and treasurer.

In 1936, the plaintiffs husband, Joseph Donahue (now deceased), was hired by Royal of New England as a “finisher” of electrotype plates. His duties were confined to operational matters within the plant. Although he ultimately achieved the positions of plant superintendent (1946) and corporate vice president (1955), Donahue never participated in the “management” aspect of the business.

In the years preceding 1955, the parent company, Royal Electrotype, made available to Harry Rodd and Joseph Donahue shares of the common stock in its subsidiary, Royal of New England. Harry Rodd took advantage of the opportunities offered to him and acquired 200 shares for $20 a share. Joseph Donahue, at the suggestion of Harry Rodd, who hoped to interest Donahue in the business, eventually obtained fifty shares in two twenty-five share lots priced at $20 a share. The parent company at all times retained 725 of the 1,000 outstanding shares. One Lawrence W. Kelley owned the remaining twenty-five shares.

In June of 1955, Royal of New England purchased all 725 of its shares owned by its parent company. The total price amounted to $135,000. Royal of New England remitted $75,000 of this total in cash and executed five promissory notes of $12,000 each, due in each of the succeeding five years. Lawrence W. Kelley's twenty-five shares were also purchased at this time for $1,000. A substantial portion of Royal of New England’s cash expenditures was loaned to the company by Harry *582Rodd, who mortgaged his house to obtain some of the necessary funds.

The stock purchases left Harry Rodd in control of Royal of New England. Early in 1955, before the purchases, he had assumed the presidency of the company. His 200 shares gave him a dominant eighty per cent interest. Joseph Donahue, at this time, was the only minority stockholder.

Subsequent events reflected Harry Rodd’s dominant influence. In June, 1960, more than a year after the last obligation to Royal Electrotype had been discharged, the company was renamed the Rodd Electrotype Company of New England, Inc. In 1962, Charles H. Rodd, Harry Rodd’s son (a defendant here), who had long been a company employee working in the plant, became corporate vice president. In 1963, he joined his father on the board of directors. In 1964, another son, Frederick I. Rodd (also a defendant), replaced Joseph Donahue as plant superintendent. By 1965, Harry Rodd had evidently decided to reduce his participation in corporate management. That year, Charles Rodd succeeded him as president and general manager of Rodd Electrotype.

From 1959 to 1967, Harry Rodd pursued what may fairly be termed a gift program by which he distributed thé majority of his shares equally among his two sons and his daughter, Phyllis E. Mason. Each child received thirty-nine shares.6 Two shares were returned to the corporate treasury in 1966.

We come now to the events of 1970 which form the grounds for the plaintiff’s complaint. In May of 1970, Harry Rodd was seventy-seven years old. The record indicates that for some time he had not enjoyed the best of health and that he had undergone a number of opera*583tians. His sons wished him to retire. Mr. Rodd was not averse to this suggestion. However, he insisted that some financial arrangements be made with respect to his remaining eighty-one shares of stock. A number of conferences ensued. Harry Rodd and Charles Rodd (representing the company) negotiated terms of purchase for forty-five shares which, Charles Rodd testified, would reflect the book value and liquidating value of the shares.

A special board meeting convened on July 13, 1970. As the first order of business, Harry Rodd resigned his directorship of Rodd Electrotype. The remaining incumbent directors, Charles Rodd and Mr. Harold E. Magnuson (clerk of the company and a defendant and defense attorney in the instant suit), elected Frederick Rodd to replace his father. The three directors then authorized Rodd Electrotype’s president (Charles Rodd) to execute an agreement between Harry Rodd and the company in which the company would purchase forty-five shares for $800 a share ($36,000).

The stock purchase agreement was formalized between the parties on July 13, 1970. Two days later, a sale pursuant to the July 13 agreement was consummated. At approximately the same time, Harry Rodd resigned his last corporate office, that of treasurer.

Harry Rodd completed divestiture of his Rodd Electrotype stock in the following year. As was true of his previous gifts, his later divestments gave equal representation to his children. Two shares were sold to each child on July 15, 1970, for $800 a share. Each was given ten shares in March, 1971.7 Thus, in March, 1971, the shareholdings in Rodd Electrotype were apportioned as follows: Charles Rodd, Frederick Rodd and Phyllis Mason each held fifty-one shares; the Donahues8 held fifty shares.

*584A special meeting of the stockholders of the company was held on March 30, 1971. At the meeting, Charles Rodd, company president and general manager, reported the tentative results of an audit conducted by the company auditors and reported generally on the company events of the year. For the first time, the Donahues learned that the corporation had purchased Harry Rodd’s shares. According to the minutes of the meeting, following Charles Rodd’s report, the Donahues raised questions about the purchase. They then voted against a resolution, ultimately adopted by the remaining stockholders, to approve Charles Rodd’s report. Although the minutes of the meeting show that the stockholders unanimously voted to accept a second resolution ratifying all acts of the company president (he executed the stock purchase agreement) in the preceding year, the trial judge found, and there was evidence to support his finding,9 that the Donahues did not ratify the purchase of Harry Rodd’s shares. Cf. Braunstein v. Devine, 337 Mass. 408, 413 (1958).

A few weeks after the meeting, the Donahues, acting through their attorney, offered their shares to the corporation on the same terms given to Harry Rodd. Mr. Harold E. Magnuson replied by letter that the corporation would not purchase the shares and was not in a financial position to do so.10 This suit followed.

In her argument before this court, the plaintiff has characterized the corporate purchase of Harry Rodd’s *585shares as an unlawful distribution of corporate assets to controlling stockholders. She urges that the distribution constitutes a breach of the fiduciary duty owed by the Rodds, as controlling stockholders, to her, a minority stockholder in the enterprise, because the Rodds failed to accord her an equal opportunity to sell her shares to the corporation. The defendants reply that the stock purchase was within the powers of the corporation and met the requirements of good faith and inherent fairness imposed on a fiduciary in his dealings with the corporation. They assert that there is no right to equal opportunity in corporate stock purchases for the corporate treasury. For the reasons hereinafter noted, we agree with the plaintiff and reverse the decree of the Superior Court. However, we limit the applicability of our holding to “close corporations,” as hereinafter defined. Whether the holding should apply to other corporations is left for decision in another case, on a proper record.

A. Close Corporations. In previous opinions, we have alluded to the distinctive nature of the close corporation (e.g., Brigham v. M. & J. Corp. 352 Mass. 674, 678 [1967]; see Samia v. Central Oil Co. of Worcester, 339 Mass. 101, 112-113 [1959]), but have never defined precisely what is meant by a close corporation. There is no single, generally accepted definition. Some commentators emphasize an “integration of ownership and management” (Note, Statutory Assistance for Closely Held Corporations, 71 Harv. L. Rev. 1498 [1958]), in which the stockholders occupy most management positions. Kruger v. Gerth, 16 N. Y. 2d 802, 806 (1965) (Fuld, J., dissenting). Foreward, 18 Law & Contemp. Prob. 433 (1953). See Helms v. Duckworth, 249 F. 2d 482, 486 (D. C. Cir. 1957). Others focus on the number of stockholders and the nature of the market for the stock. In this view, close corporations have few stockholders; there is little market for corporate stock. The Supreme Court of Illinois adopted this latter view in Galler v. Galler, 32 Ill. 2d 16 (1965): “For our pur*586poses, a close corporation is one in which the stock is held in a few hands, or in a few families, and wherein it is not at all, or only rarely, dealt in by buying or selling.” Id. at 27. Accord, Brooks v. Willcuts, 78 F. 2d 270, 273 (8th Cir. 1935). See, generally, F. H. O’Neal, Close Corporations: Law and Practice, § 1.02 (1971).11 We accept aspects of both definitions. We deem a close corporation to be typified by: (1) a small number of stockholders; (2) no ready market for the corporate stock; and (3) substantial majority stockholder participation in the management, direction and operations of the corporation.

As thus defined, the close corporation bears striking resemblance to a partnership. Commentators and courts have noted that the close corporation is often little more than an “incorporated” or “chartered” partnership.12 Ripin v. United States Woven Label Co. 205 N. Y. 442, 447 (1912) (“little more than [although not quite the same as] chartered partnerships”). Clark v. Dodge, 269 N. Y. 410, 416 (1936). Hornstein, Stockholders’ Agreements in the Closely Held Corporation, 59 Yale L. J. 1040 (1950). Hornstein, Judicial Tolerance of the Incorporated Partnership, 18 Law & Contemp. Prob. 435, 436 (1953). Cf. Barrett v. King, 181 Mass. 476, *587479 (1902). The stockholders “clothe” their partnership “with the benefits peculiar to a corporation, limited liability, perpetuity and the like.” In the Matter of Surchin v. Approved Bus. Mach. Co. Inc. 55 Misc. 2d (N. Y.) 888, 889 (Sup. Ct. 1967). In essence, though, the enterprise remains one in which ownership is limited to the original parties or transferees of their stock to whom the other stockholders have agreed,13 in which ownership and management are in the same hands, and in which the owners are quite dependent on one another for the success of the enterprise. Many close corporations are “really partnerships between two or three people who contribute their capital, skills, experience and labor.” Kruger v. Gerth, 16 N. Y. 2d 802, 805 (1965) (Desmond, C.J., dissenting). Just as in a partnership, the relationship among the stockholders must be one of trust, confidence and absolute loyalty if the enterprise is to succeed. Close corporations with substantial assets and with more numerous stockholders are no different from smaller close corporations in this regard. All participants rely on the fidelity and abilities of those stockholders who hold office. Disloyalty and self-seeking conduct on the part of any stockholder will engender bickering, corporate stalemates, and, perhaps, efforts to achieve dissolution. See Lydia E. Pinkham Medicine Co. v. Gove, 303 Mass. 1 *588(1939); In the Matter of Radom & Neidorff, Inc. 307 N. Y. 1, rearg. den. 307 N. Y. 701 (1954); Kruger v. Gerth, 16 N. Y. 2d 802 (1965); In the Matter of Gordon & Weiss, Inc. 32 App. Div. 2d (N. Y.) 279, app. withdrawn, 25 N. Y. 2d 959 (1969).

In Helms v. Duckworth, 249 F. 2d 482 (D. C. Cir. 1957), the United States Court of Appeals for the District of Columbia Circuit had before it a stockholders’ agreement providing for the purchase of the shares of a deceased stockholder by the surviving stockholder in a small “two-man” close corporation. The court held the surviving stockholder to a duty “to deal fairly, honestly, and openly with . . . [his] fellow stockholders.” Id. at 487. Judge Burger, now Chief Justice Burger, writing for the court, emphasized the resemblance of the two-man close corporation to a partnership: “In an intimate business venture such as this, stockholders of a close corporation occupy a position similar to that of joint adventurers and partners. While courts have sometimes declared stockholders ‘do not bear toward each other that same relation of trust and confidence which prevails in partnerships,’ this view ignores the practical realities of the organization and functioning of a small ‘two-man’ corporation organized to carry on a small business enterprise in which the stockholders, directors, and managers are the same persons” (footnotes omitted). Id. at 486.

Although the corporate form provides the above-mentioned advantages for the stockholders (limited liability, perpetuity, and so forth), it also supplies an opportunity for the majority stockholders to oppress or disadvantage minority stockholders. The minority is vulnerable to a variety of oppressive devices, termed “freeze-outs,” which the majority may employ. See, generally, Note, Freezing Out Minority Shareholders, 74 Harv. L. Rev. 1630 (1961). An authoritative study of such “freeze-outs” enumerates some of the possibilities: “The squeezers [those who employ the freeze-out techniques] may refuse to declare dividends; they may drain *589off the corporation’s earnings in the form of exorbitant salaries and bonuses to the majority shareholder-officers and perhaps to their relatives, or in the form of high rent by the corporation for property leased from majority shareholders . . .; they may deprive minority shareholders of corporate offices and of employment by the company; they may cause the corporation to sell its assets at an inadequate price to the majority shareholders . . ..” F. H. O’Neal and J. Derwin, Expulsion or Oppression of Business Associates, 42 (1961). In particular, the power of the board of directors, controlled by the majority, to declare or withhold dividends and to deny the minority employment is easily converted to a device to disadvantage minority stockholders. See Hayden v. Beane, 293 Mass. 347 (1936); Lydia E. Pinkham Medicine Co. v. Gove, 303 Mass. 1, 11-12 (1939); Casson v. Bosman, 137 N. J. Eq. 532 (Ct. E. & A. 1946); Patton v. Nicholas, 154 Texas 385, 393 (1955). Cf. Taylor v. Standard Gas & Elec. Co. 306 U. S. 307, 323 (1939).

The minority can, of course, initiate suit against the majority and their directors. Self-serving conduct by directors is proscribed by the director’s fiduciary obligation to the corporation. Elliott v. Baker, 194 Mass. 518, 523 (1907). Sagalyn v. Meekins, Packard & Wheat, Inc. 290 Mass. 434, 438 (1935). However, in practice, the plaintiff will find difficulty in challenging dividend or employment policies.14 Such policies are considered to be within the judgment of the directors. This court has said: “The courts prefer not to interfere . . . with the sound financial management of the corporation by its directors, but declare as a general rule that the declaration of dividends rests within the sound discretion of the directors, refusing to interfere with their determination unless a plain abuse of discretion is made to appear.” *590Crocker v. Waltham, Watch Co. 315 Mass. 397, 402 (1944). Accord, Daniels v. Briggs, 279 Mass. 87, 95 (1932). See Fernald v. Frank Ridlon Co. 246 Mass. 64, 71-72 (1923); Perry v. Perry, 339 Mass. 470, 479 (1959). Judicial reluctance to interfere combines with the difficulty of proof when the standard is “plain abuse of discretion” or bad faith, see Perry v. Perry, supra, to limit the possibilities for relief. Although contractual provisions in an “agreement of association and articles of organization” (Crocker v. Waltham Watch Co., supra, at 401) or in by-laws (Lydia E. Pinkham Medicine Co. v. Gove, supra) have justified decrees in this jurisdiction ordering dividend declarations, generally, plaintiffs who seek judicial assistance against corporate dividend or employment policies15 do not prevail. See Fernald v. Frank Ridlon Co. 246 Mass. 64 (1923); Daniels v. Briggs, supra; Perry v. Perry, supra; Conviser v. Simpson, 122 F. Supp. 205 (D. Md. 1954); Berwald v. Mission Dev. Co. 40 Del. Ch. 509 (Sup. Ct. 1962); Moskowitz v. Bantrell, 41 Del. Ch. 177 (Sup. Ct. 1963); Casson v. Bosman, 137 N. J. Eq. 532 (Ct. E. & A. 1946); Note, Minority Shareholder Suits to Compel Declaration of Dividends, 64 Harv. L. Rev. 299, 300 (1950); Note, Minority Shareholders’ Power to Compel Declaration of Dividends in Close Corporations — A New Approach, 10 Rutgers L. Rev. 723, 724 (1956). But see Dodge v. Ford Motor Co. 204 Mich. 459 (1919); Patton v. Nicholas, 154 Texas 385 (1955).

Thus, when these types of “freeze-outs” are attempted by the majority stockholders, the minority stockholders, *591cut off from all corporation-related revenues, must either suffer their losses or seek a buyer for their shares. Many minority stockholders will be unwilling or unable to wait for an alteration in majority policy. Typically, the minority stockholder in a close corporation has a substantial percentage of his personal assets invested in the corporation. Galler v. Galler, 32 Ill. 2d 16, 27 (1965). The stockholder may have anticipated that his salary from his position with the corporation would be his livelihood. Thus, he cannot afford to wait passively. He must liquidate his investment in the close corporation in order to reinvest the funds in income-producing enterprises.

At this point, the true plight of the minority stockholder in a close corporation becomes manifest. He cannot easily reclaim his capital. In a large public corporation, the oppressed or dissident minority stockholder could sell his stock in order to extricate some of his invested capital. By definition, this market is not available for shares in the close corporation. In a partnership, a partner who feels abused by his fellow partners may cause dissolution by his “express will ... at any time” (G. L. c. 108A, § 31 [1] [b] and [2]) and recover his share of partnership assets and accumulated profits.16 Fisher v. Fisher, 349 Mass. 675, 678 (1965). Fisher v. Fisher, 352 Mass. 592, 594-595 (1967). G. L. c. 108A, § 38. If dissolution results in a breach of the partnership articles, the culpable partner will be liable in damages. G. L. c. 108A, § 38 (2) (a) II. By contrast, the stockholder in the close corporation or “incorporated partnership” may achieve dissolution and recovery of his share of the enterprise assets only by compliance with the rigorous terms of the applicable chapter of the General Laws. Rizzuto v. Onset Cafe, Inc. 330 Mass. 595, 597-*592598 (1953). “The dissolution of a corporation which is a creature of the Legislature is primarily a legislative function, and the only authority courts have to deal with this subject is the power conferred upon them by the Legislature.” Leventhal v. Atlantic Fin. Corp. 316 Mass. 194, 205 (1944). To secure dissolution of the ordinary close corporation subject to G. L. c. 156B, the stockholder, in the absence of corporate deadlock, must own at least fifty per cent of the shares (G. L. c. 156B, § 99 [a]) or have the advantage of a favorable provision in the articles of organization (G. L. c. 156B, § 100 [a] [2]). The minority stockholder, by definition lacking fifty per cent of the corporate shares, can never “authorize” the corporation to file a petition for dissolution under G. L. c. 156B, § 99 (a), by his own vote. He will seldom have at his disposal the requisite favorable provision in the articles of organization.

Thus, in a close corporation, the minority stockholders may be trapped in a disadvantageous situation. No outsider would knowingly assume the position of the disadvantaged minority. The outsider would have the same difficulties. To cut losses, the minority stockholder may be compelled to deal with the majority. This is the capstone of the majority plan. Majority “freeze-out” schemes which withhold dividends are designed to compel the minority to relinquish stock at inadequate prices. See Lydia E. Pinkham Medicine Co. v. Gove, 303 Mass. 1, 12 (1939); Mansfield Hardwood Lumber Co. v. Johnson, 263 F. 2d 748, 756 (5th Cir.), reh. den. 268 F. 2d 317 (5th Cir.), cert. den. 361 U. S. 885 (1959); Cochran v. Channing Corp. 211 F. Supp. 239, 242-243 (S. D. N. Y. 1962); Gottfried v. Gottfried, 73 N. Y. S. 2d 692, 695 (Sup. Ct. 1947); Patton v. Nicholas, 154 Texas 385, 393 (1955). When the minority stockholder agrees to sell out at less than fair value, the majority has won.

Because of the fundamental resemblance of the close corporation to the partnership, the trust and confidence *593which are essential to this scale and manner of enterprise, and the inherent danger to minority interests in the close corporation, we hold that stockholders17 in the close corporation owe one another substantially the same fiduciary duty in the operation of the enterprise18 that partners owe to one another. In our previous decisions, we have defined the standard of duty owed by partners to one another as the “utmost good faith and loyalty.” Cardullo v. Landau, 329 Mass. 5, 8 (1952). DeCotis v. D’Antona, 350 Mass. 165, 168 (1966). Stockholders in close corporations must discharge their management and stockholder responsibilities in conformity with this strict good faith standard. They may not act out of avarice, expediency or self-interest in derogation of their duty of loyalty to the other stockholders and to the corporation.

We contrast19 this strict good faith standard with the somewhat less stringent standard of fiduciary duty to *594which directors and stockholders20 of all corporations must adhere in the discharge of their corporate responsibilities. Corporate directors are held to a good faith and inherent fairness standard of conduct (Winchell v. Plywood Corp. 324 Mass. 171, 177 [1949]) and are not “permitted to serve two masters whose interests are antagonistic.” Spiegel v. Beacon Participations, Inc. 297 Mass. 398, 411 (1937). “Their paramount duty is to the corporation, and their personal pecuniary interests are subordinate to that duty.” Durfee v. Durfee & Canning, Inc. 323 Mass. 187, 196 (1948).

The more rigorous duty of partners and participants in a joint adventure,21 here extended to stockholders in a close corporation, was described by then Chief Judge Cardozo of the New York Court of Appeals in Meinhard v. Salmon, 249 N. Y. 458 (1928): “Joint adventurers, like copartners, owe to one another, while the enterprise continues, the duty of the finest loyalty. Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary duties. . . . Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.” Id. at 463-464.22

*595Application of this strict standard of duty to stockholders in close corporations is a natural outgrowth of the prior case law. In a number of cases involving close corporations, we have held stockholders participating in management to a standard of fiduciary duty more exacting than the traditional good faith and inherent fairness standard because of the trust and confidence reposed in them by the other stockholders. In Silversmith v. Sydeman, 305 Mass. 65 (1940), the plaintiff brought suit for an accounting of the liquidation of a close corporation which he and the defendant had owned. In assessing their relative rights in the discount of a note, we had occasion to consider the defendant’s fiduciary duty with respect to the financial affairs of the company. We implied that, in addition to the fiduciary duty owed by an officer to the corporation, a more rigorous standard of fiduciary duty applied to the defendant by virtue of the relationship between the stockholders: “. . . it could be found that the plaintiff and the defendant were acting as partners in the conduct of the company’s business and in the liquidation of its property even though they had adopted a corporate form as the instrumentality by which they should associate in furtherance of their joint venture.” Id. at 68.

In Samia v. Central Oil Co. of Worcester, 339 Mass. 101 (1959), sisters alleged that their brothers had systematically excluded them from management, income and partial ownership of a close corporation formed from a family partnership. In- rejecting arguments that the plaintiffs’ suit was barred by the statute of limitations or loches, we stressed the familial relationship among the parties, which should have given rise to a particularly scrupulous fidelity in serving the interests of all of the *596stockholders: “All three brothers . . . were directors of Central, a small family corporation, not a large publicly owned organization, and as such were in a special position of family trust.” Id. at 112.

In Wilson v. Jennings, 344 Mass. 608 (1962), the plaintiffs, stockholders in a close corporation, brought suit on their own behalf and on behalf of the corporation against a number of defendants, including the third stockholder who was generally in charge of corporate operations. The corporation had been organized to exploit a “plastic top” for containers invented by the plaintiffs and another. The defendants appealed from a final decree which, inter alla, cancelled shares of stock issued to the operating stockholder after the original issue, voided an employment contract between the operating stockholder and the corporation, and ordered transfer to the corporation of stock in and dividends from a corporation the operating stockholder had established to manufacture the container tops. Although we modified the decree, we sustained the judge’s finding that the operating stockholder had violated his duty to the other stockholders in causing other shares to be issued to himself. Justice Cutter wrote for the court: “ [I]t was open to the judge on the evidence to find that Wilson, Malick, and Jennings, on an informal and somewhat ambiguous basis . . ., had entered into what was essentially a joint venture in corporate form to exploit the plastic top invention; that Jennings was obligated in order ‘to get his third [share of the stock] ... to do the financing’ and to ‘be ... [g]eneral [m]anager of the business, and operate it on behalf of the stockholders’; and that there was a ‘mutual understanding that . . . [Wilson and Malick] would know what was going on’ on the east coast and that they in turn would keep Jennings informed of their own activities. There was evidence that the three way equal division of stock was to be ‘permanent.’

*597“If the parties arranged for a permanent equal participation in Polytop’s operations, and undertook the obligation of disclosure to one another of relevant information, a fiduciary relationship arose, in addition to that . . . between Jennings, as a director, and Poly top. The evidence justified the conclusion that the relationship was to be one of trust and confidence.” Id. at 614-615.

In these and other cases (e.g., Sher v. Sandler, 325 Mass. 348, 353 [1950]; Mendelsohn v. Leather Mfg. Corp. 326 Mass. 226, 233 [1950]), we have imposed a duty of loyalty more exacting than that duty owed by a director to his corporation (Spiegel v. Beacon Participations, Inc. 297 Mass. 398, 410-411 [1937]) or by a majority stockholder to the minority in a public corporation23 because of facts particular to the close corporation in the cases. In the instant case, we extend this strict duty of loyalty to all stockholders in close corporations. The circumstances which justified findings of relationships of trust and confidence in these particular cases exist universally in modified form in all close corporations. See Kruger v. Gerth, 16 N. Y. 2d 802, 806 (1965) (Fuld, J., dissenting). Statements in other cases (Mairs v. Madden, 307 Mass. 378, 380 [1940]; Leventhal v. Atlantic Fin. Corp. 316 Mass. 194, 198-199 [1944]; Cardullo v. Landau, 329 Mass. 5, 9 [1952]) which suggest that stockholders of a corporation do not stand in a relationship of trust and confidence to one another will not be followed in the close corporation context.

B. Equal Opportunity in a Close Corporation. Under settled Massachusetts law, a domestic corporation, unless forbidden by statute, has the power to purchase its own shares. Dupee v. Boston Water Power Co. 114 Mass. 37, 43 (1873). Dustin v. Randall Faichney Corp. 263 Mass. 99, 102 (1928). Brown v. Little, Brown & Co. (Inc.) 269 Mass. 102, 110 (1929). Barrett v. W. A. Webster *598Lumber Co. 275 Mass. 302, 307 (1931). Scriggins v. Thomas Dalby Co. 290 Mass. 414, 418 (1935). Winchell v. Plywood Corp. 324 Mass. 171, 174 (1949). An agreement to reacquire stock “is enforceable, subject, at least, to the limitations that the purchase must be made in good faith and without prejudice to creditors and stockholders.” Scriggins v. Thomas Dalby Co., supra. Winchell v. Plywood Corp., supra, at 174