The opinion of the court was delivered by: BODY
This is an action by certain of the shareholders of the Pilgrim Broadcasting Company ["Pilgrim"], which owned and operated radio station WORL in Boston, against Paul F. Harron for damages allegedly sustained by reason of defendant's alleged breach of a contract to purchase their stock. In July 1958 the defendant was approached by a New York stockbroker Schimmer with facts about a Boston radio station WORL that he might be interested in buying. Mr. Harron, experienced in the area of radio and television broadcasting, showed interest in the purchase, and began negotiations with the plaintiff stockholders, primarily through Frederick W. Roche, Esquire, of Boston, Massachusetts. On August 1, 1958 Harron made a firm offer by letter to buy plaintiffs' stock at twenty-two dollars ($22.00) per share. This offer was subsequently accepted by all the stockholders of Pilgrim.
This so-called August 1st agreement contemplated "a more formal agreement evidencing the terms of this offer and any acceptance hereof, containing standard and reasonable clauses for the protection of the parties. * * *" In addition, Harron was given the opportunity to:
"* * * elect that this said agreement will be executed by my nominee, which may be a corporation to be formed for the purpose or any person not reasonably objectionable to the stockholders."
The more formal agreement was made on October 3, 1958 with some later amendments in November. It was signed by Paul F. Harron, President of the WORL Broadcasting Corporation and the plaintiffs.
"I shall, however, remain personally responsible for my undertakings hereunder until the transaction is closed or voided as provided below."
The stockholders, on their part, warranted, among other things:
"* * * that no undisclosed material adverse change in the condition and affairs of the Company subsequent to that date [December 31, 1957] took place nor will take place to the time of closing."
On October 3 Harron signed the "Memorandum Agreement" as President of the WORL Broadcasting Corporation of which Harron owned 89%, the rest being divided between Harron's attorney Biele [10%] and his secretary [1%]. There is no question that this corporation was formed for the purpose of entering into the more formal agreement, and was in fact to be the operating company.
The October 3 "Memorandum Agreement" recited in its preamble that:
"Whereas Paul F. Garron on August 1, 1958 offered to purchase in the name of a corporation to be formed for the purpose (Buyer) from the Sellers and the Sellers accepted said offer copy of which offer and acceptance is attached and made part hereof and marked Exhibit A. * * *"
The price remained $22.00 per share.
The Seller warranted that:
"* * * said Balance Sheet and Profit and Loss Statement [thru June 30, 1958] are true and correct and that no material adverse change in the financial condition and affairs of Company, other than those resulting from normal station operations, has taken place since June 30, 1958, nor will take place up to the time of closing."
The station's billings had been lower for the first four months in 1958 than they had been in the corresponding months of the two previous years, which had also declined. For instance, the billings for April 1958 were $29,926.54 as compared to $41,400.00 for April 1957.
This October Memorandum Agreement provided that the "net quick assets" of WORL station at closing would be $55,000.00. However, an amendment made in November 1958 set December 31, 1958 as the time the net quick assets would be determined since it was felt that FCC approval of the WORL Broadcasting Company should not be sought immediately. Harron had other applications before the FCC at this time. The closing was to take place after FCC approval was final. If on December 31, 1958 the net quick assets were below $55,000.00 then a downward adjustment was to be made in the selling price. No provision existed for an upward adjustment.
On March 10, 1959 the station's general manager, Arthur Haley, at Biele's request wrote him about Pilgrim's present situation:
"The billing for January 1959 is $13,266.50, as compared with January 1958, $28,521.35.
The billing for February 1959 is $16,568.78, as compared with February 1958, $26,594.38."
In addition, Haley stated: "As you will recall, we lost all our announcing staff." New announcers had been hired but the station's best salesman had also left.
On March 12, 1959, one month and two days before the agreed upon closing date, Biele wrote Roche:
"I have reviewed the same [Haley's letter] with Mr. Harron and he is astonished. That billings should have fallen off so sharply in January and February compared to previous years is baffling. While total income decreased 7% in 1957 over 1956 and 20% in 1958 over 1957, it appears that during the first two months of 1959 it dropped 46% over the same period of 1958. Additionally, it would appear that your cash position since December 31, 1958 has deteriorated materially.
Accordingly, he advised that Mr. Harron no longer feels obligated to consummate ...