from office, or because of the insolvency of the corporation, the fiduciary relation ceases. If all the powers of a director cease upon the appointment of a receiver, then his fiduciary relation ceases at that time so far as subsequent dealings with the receiver or the corporate property is concerned.68 A fortiori, fiduciary relations of corporate directors or other officers are terminated when a receiver is appointed and the officers are enjoined from any further acts relating to the management of the business.69

B. Acquiring Adverse Title or Interests

§ 2281. General rule. The general rule is that a director or other corporate officer cannot acquire an interest adverse to that of the corporation, while acting for the corporation or when dealing individually with third persons.70 It has been said that "in general the legal restrictions which rest upon such officers in their acquisitions

are generally limited to property wherein the corporation has an interest already existing, or in which it has an expectancy growing out of an existing right, or to cases where the officers' interference will in some degree balk the corporation in effecting the purposes of its creation." 71 Where the superintendent of the manufacturing department of a corporation was also a director, he "was legally bound not to act in antagonism to the interests of" the corporation, said the Supreme Judicial Court of Massachusetts, in considering the rights under an assignment of a patent to such superintendent from a third person; and Justice Sheldon clearly states the governing rule as follows: "If there was property which was necessary for the business of the plaintiff [corporation], and which he knew that the 'plaintiff desired to acquire and intended and was able to purchase and pay for, in order to protect and develop its business interests, it would be a violation of his duty for him secretly to purchase that property, either for the purpose of afterward selling it to the plaintiff at an advanced price and thus taking advantage of its necessities, or of using such property otherwise to the injury of the plaintiff; and the plaintiff could by proper proceedings in equity secure to itself the benefit of his purchase.

1172

If it is the duty of officers in a particular case to enter into a contract, or to purchase or take a transfer of property, on behalf of the corporation, and, in violation of this duty, they enter into the contract or acquire the property personally, they will not be permitted to retain the benefit, but will be held as trustees for the corporation."

71 Lagarde v. Anniston Lime & Stone Co., 126 Ala. 496, 28 So. 199.

72 American Circular Loom Co. v. Wilson, 198 Mass. 182, 206, 126 Am. St. Rep. 409, 84 N. E. 133.

73 Higgins v. Lansingh, 154 Ill. 301, 40 N. E. 262; Trenton Banking Co. v. McKelway, 8 N. J. Eq. 84; McClure v. Law, 161 N. Y. 78, 76 Am. St. Rep. 262, 55 N. E. 388; Blake v. Buffalo Creek R. Co., 56 N. Y. 485; Averell v. Barber, 53 Hun (N. Y.) 636, 6 N. Y. Supp. 255. See Earle v. Burland, 27 Ont. App. (Can.) 540.

the corporation to negotiate with the vendor to procure the land for the corporation. Trenton Banking Co. v. McKelway, 8 N. J. Eq. 84.

Where two directors of a corporation assumed to acquire title to certain patents in their own name, instead of in the name of the corporation, as they should have done, and transferred them to another corporation, which had no knowledge of the equity of the first company therein, and the second corporation transferred the patents to one of such directors as trustee, it was held proper to decree that such director should assign all the interest which he held individually and as trustee to a receiver, and that both directors should account for

Where the president of a corporation buys land and has it conveyed to himself, he will be held in equity as trustee for the corporation, where he had previously been selected by

Directors "must remember that they are not at liberty to sacrifice the interests which they are bound to protect, and, while ostensibly acting for the company, divert in their own favour business which should properly belong to the company they represent.

74

If a person should make an offer to a corporation, through one of its officers intrusted with its management, to transfer property to the corporation on certain terms, and the officer, in violation of his duty to the corporation, should make a counter proposition to take the property and enter into the contract personally, and the proposition should be accepted and property transferred to him, it would undoubtedly be decreed by a court of equity, at the suit of the corporation, or at the suit of a stockholder in a proper case, that he held the property in trust for the corporation. Such a case falls, no doubt, within the rule prohibiting an officer from making any secret profit or acquiring any secret personal advantage in his dealings on behalf of the corporation.75 However this may be, he is clearly liable

on the ground of fraud and breach of trust.

"Whether in any case an officer of a corporation is in duty bound to purchase property for the corporation, or to refrain from purchasing property for himself, depends upon whether the corporation has an interest, actual or in expectancy, in the property, or whether the purchase of the property by the officer or director may hinder or defeat the plans and purposes of the corporation in the carrying on or development of the legitimate business for which it was created." 76

§ 2282. Limitations of and exceptions to rule. There is a vast field for individual activity lying outside the duty of a director, yet well within the general scope of the corporation's business.77 The test seems to be whether there was a specific duty, on the part of the officer sought to be held liable, to act or contract in regard to the particular matter as the representative of the corporation— all of which is largely a question of fact.78 If there is no such duty,

all profits made by them out of the patents. Averell v. Barber, 53 Hun (N. Y.) 636, 6 N. Y. Supp. 255.

74 Cook v. Deeks, 27 Dom. L. R. (Can.) 1, 8, rev'g 21 Dom. L. R. 497.

75 McClure v. Law, 161 N. Y. 78, 76 Am. St. Rep. 262, 55 N. E. 388, rev'g 20 N. Y. App. Div. 459, 47 N. Y. Supp. 84.

76 Zeckendorf v. Steinfeld, 12 Ariz. 245, 100 Pac. 784, citing Trice v. Com

IV Priv. Corp.-11

stock, 121 Fed. 620, 61 L. R. A. 176, in which latter case Judge Sanborn reviews the question at some length so far as agents generally are concerned.

77 See note in 13 Columbia L. Rev. 431.

78 Mackey v. Burns, 16 Colo. App. 6, 64 Pac. 485; New York Automobile Co. v. Franklin, 49 N. Y. Misc. 8, 97 N. Y. Supp. 781.

then the director or other corporate officer may acquire outside interests, although the corporation may be more or less interested. Thus a director or other officer may acquire what would otherwise be adverse interests where the other party to the transaction refuses to deal with the corporation,79 or where the corporation is financially unable to undertake the transaction,80 or where the transaction is beyond the powers of the corporation.81

§ 2283. Illustrations of rules-In general. The rule against acquiring adverse interests is illustrated by a purchase by directors of certain patent rights to work under which was the purpose for which the corporation was formed,82 and by purchases by railroad directors of rights of way along the projected route of the railroad.83 If the president of a company takes "in his own name the title to property conveniently designed for the use of the business of the corporation and occupied by it, the law will deem such an act, prima facie, at least, potentially fraudulent as against the corporation, and the officer will at the instance of the corporation be held to hold the title as trustee for its use." 84 Where it was the duty of one as a director of a power company to take part in procuring water rights essential to the operation of the power plant, he cannot acquire adverse rights to waters of the same stream, and if he does so equity will restore to the corporation the benefits of his hostile acts.85 So the president of a corporation cannot obtain title to property of another company, at a trustee's sale thereof, where the sale was merely a scheme to clear the title of the first-named corporation and no money was in fact paid.86 It has been held that property transferred to the president of a street railway company, in consideration of extending the line to the grantor's property, will be deemed to be held by him as trustee, where no contract between the company and the president is shown.

87

On the other hand, it has been held that if a corporate officer purchases property with his own money, the mere fact of his relationship

79 See § 2285, n. 4, infra.

80 See § 2285, infra.

81 See Barr v. Pittsburg Plate Glass Co., 51 Fed. 33. Compare § 2309, infra. 82 Averell v. Barber, 53 Hun (N. Y.) 636, 6 N. Y. Supp. 255.

83 Blake v. Buffalo Creek R. Co., 56 N. Y. 489.

84 Leader Pub. Co. v. Grant Trust & Savings Co., 182 Ind. 651, 108 N. E.

121.

85 Nebraska Power Co. v. Koenig, 93 Neb. 68, 139 N. W. 839.

86 Scott v. Farmers' & Merchants' Nat. Bank, 97 Tex. 31, 104 Am. St. Rep. 835, 75 S. W. 7, rev'g (Tex. Civ. App.), 67 S. W. 343, 66 S. W. 485.

87 Scott v. Farmers' & Merchants' Nat. Bank, 97 Tex. 31, 104 Am. St. Rep. 835, 75 S. W. 7, rev'g (Tex. Civ. App.), 67 S. W. 343, 66 S. W. 485.

and of his intent to afterwards sell it to the company does not create any enforceable trust in the property for the benefit of the corporation.88 So it has been held that the mere fact that a corporation has been negotiating for and trying to purchase land not necessary to the continuance of the corporate business does not invalidate its purchase by a corporate officer for himself.89 So it has been held that a mere statement to corporate officers by another officer that he intended to purchase certain property for the benefit of the company, does not make him a trustee where he afterwards purchases the property, where the corporation parted with nothing and was not deprived of anything of value by virtue of the promise; 90 but in the same case it was held that one who as managing partner of a firm dominates the affairs of a corporation through its board of directors, cannot, even though not himself a director, purchase property the value of which he had learned from his connection with the affairs of the company, but he will be held as trustee for the company.91 Where a mining engineer was employed by an exploration company under a contract providing that he should not accept or enter into any other business or employment whatsoever, it was held that he could, nevertheless, where sent to examine and report upon certain mining properties, take an option on other nearby properties where he believed the claims would be valuable to the company in connection with the larger properties if the company decided to take the larger properties, and also that the claims might be profitably developed by himself if the company decided not to embark in the larger scheme.92

§ 2284. Obtaining assignment of corporate contract from other party thereto. When an officer of a corporation has made a contract. on behalf of the corporation with a third person, he will not be allowed to afterwards take an assignment of the contract from the latter, or otherwise acquire an interest therein adverse to the corporation, without the consent of the corporation.93

88 Camden Land Co. v. Lewis, 101 Me. 78, 63 Atl. 523.

89 Lagarde V. Anniston Lime & Stone Co., 126 Ala. 496, 28 So. 199. 90 Zeckendorf v. Steinfeld, 12 Ariz. 245, 100 Pac. 784.

91 Zeckendorf v. Steinfeld, 12 Ariz. 245, 100 Pac. 784.

92 Beatty v. Guggenheim Exploration Co., 167 N. Y. App. Div. 864, 153 N. Y. Supp. 757.

93 Gilman, C. & S. R. Co. v. Kelly, 77 Ill. 426; Flint & P. M. Ry. Co. v. Dewey, 14 Mich. 477; Western R. Co. v. Bayne, 11 Hun (N. Y.) 166; Cook v. Berlin Woolen Mill Co., 43 Wis. 433.

Where officers of a corporation execute a contract for the sale of corporate property to a stranger, a repurchase by them from him, while the contract is executory, is voidable at