such act is voidable at the instance of the cestui que trust.54 The weight of authority, however, as applied to purchases by corporate officers, is to the contrary, and the better rule, it is submitted, is that such sales should never be set aside or the officer held as a trustee where there are no grounds except the relationship of the officer, provided he has in no way acted as the representative of the corporation in bringing about or conducting the sale.55 In fact, the principles relied on and governing this debated question are the same, for practical purposes, as those governing the same question as applied to dealings between a corporation and its officers in general, as hereafter stated.56 At any event, it would seem that if the officer is also a creditor of the corporation, or in effect a creditor, as where he has guaranteed debts of the corporation, he may purchase to protect his own interests, provided, of course, he acts in good faith and the consideration is fair; and this includes the right to purchase at his own execution or judicial sale.57

In short, in a particular state, it may be necessary, among other things, to consider one or more of the following matters: (1) who brought about the sale?; (2) was the officer guilty of any breach of trust causing the default resulting in the sale?; (3) did the officer have any control, and if so, how extensive, over the proceedings resulting in the sale or the sale itself?; (4) was the corporation in the hands of a receiver or the like at the time of the sale?; (5) what is the rule in the particular jurisdiction as to whether dealings between a corporation and its officers are voidable merely at the option of the corporation without other grounds than the relationship of the parties?; (6) was there any bad faith on the part of the purchasing officer?; (7) was the price paid a fair one?; and (8) did the officer purchase to protect himself as a creditor of the corporation or did he purchase merely as a speculation or for other reasons?

The effect as against creditors of an officer's purchase of corporate property at an execution, foreclosure or other judicial sale is considered in a subsequent chapter.58

§ 2292. Always voidable where purchase a breach of trust or not in good faith. The directors and other managing officers of a corporation are under a duty to the corporation and the other stockholders to prevent the property of the corporation from being sold. under execution, or for taxes, or on foreclosure, etc., or, if they cannot

54 See textbooks on Trusts.

55 See § 2294, infra.

56 See §§ 2330-2403, infra.

57 See 2295, infra.

58 Infra, chapter on Insolvency.

prevent the sale, to do what they can to have it sell at the highest possible price, and, if they bring about such a sale, not under any right acquired by contract with the corporation, but in violation of their trust, and purchase the property themselves, or if, although the sale is brought about by a creditor, they purchase the same otherwise than in the most perfect good faith, all of the courts undoubtedly agree that the corporation is entitled to have the sale set aside, or hold them as trustees, or to compel them to account for profits made, or pay the fair value of the property.59 For instance, a corporate officer who is made an agent to procure a loan for the corporation to save its property from a sheriff's sale, but who procures a loan for himself and purchases for himself at such sale, cannot hold the property as against the corporation, regardless of whether he acted in good faith or whether actual gain resulted to him, provided the corporation acts within a reasonable time.60 Furthermore, if a corporate officer purchases at his own execution or judicial sale, the court will look into the acts and conduct of the purchaser "with far greater scrutiny" than as if "he sustained no relation to the company other than that of creditor," and is justified in setting the sale aside on "much slighter ground." 61

§ 2293. View that purchase voidable regardless of fairness or good faith. In some jurisdictions, at one time or another, the courts have gone to the extent of holding that the corporation has a right to have the sale set aside, even when there is no actual bad faith or unfairness, unless there are special circumstances which render the rule inapplicable.62 In some of the older cases it was held that where an

59 Illinois. J. W. Butler Paper Co. v. Robbins, 151 Ill. 588, 38 N. E. 153; Hoffman v. Reichert, 147 Ill. 274, 37 Am. St. Rep. 219, 35 N. E. 527.

Kentucky. Covington & L. R. Co. v. Bowler's Heirs, 9 Bush 468.

New Jersey. Raleigh v. Fitzpatrick, 43 N. J. Eq. 501, 11 Atl. 1.

New York. Hoyle v. Plattsburgh & M. R. Co., 54 N. Y. 314, 13 Am. Rep. 595.

Canada. In re Iron Clay Brick Mfg. Co., 19 Ont. 113.

60 Fricker v. Americus Manufacturing & Improvement Co., 124 Ga. 165, 52 S. E. 65.

61 Hallam v. Indianola Hotel Co., 56 Iowa 178, 180, 9 N. W. 111.

62 Arkansas. Jones v. Arkansas Mechanical & Agricultural Co., 38 Ark. 17.

Illinois. Hoffman v. Reichert, 147 Ill. 274, 37 Am. St. Rep. 219, 35 N. E. 527; Allen v. Jackson, 122 Ill. 567, 13 N. E. 840; Harts v. Brown, 77 Ill. 226. Missouri. McAllen v. Woodcock, 60 Mo. 174.

New Jersey. Raleigh v. Fitzpatrick, 43 N. J. Eq. 501, 11 Atl. 1.

New York. Hoyle v. Plattsburgh & M. R. Co., 54 N. Y. 314, 13 Am. Rep. 595.

officer purchases corporate property at a forced sale, the purchase must be regarded as made for the benefit of the corporation.63 In 1873, the Court of Appeals of New York, while refusing to decide the rights of a purchaser under his own execution sale, said generally that a director could not become the purchaser of corporate property at judicial or execution sale, except subject to the right of the corporation "to elect to disaffirm the sale and demand a resale." As director, the court said, "it was his duty to prevent a sale if possible; and if not, then to endeavor to have the property produce the highest price; and, in order to the attainment of these objects, to use the knowledge he had derived from the confidence reposed in him as director. As purchaser, on the other hand, it was his interest to pay as little as possible, and to use his special knowledge for his own advantage. Actual fraud or actual advantage do not need in such cases to be shown." 64 Furthermore, as an additional reason, the Arkansas court has said that the appearance of a corporate officer as a bidder may have the effect to prevent bidding.65 In a Kentucky case, the court called attention to the fact, in holding a judicial sale of a railroad to a director to be voidable, that the purchaser and his co-directors might have prosecuted an appeal from the judgment under which the sale was made, and hence that the officer by his purchase placed

Canada. In re Iron Clay Brick Mfg. Co., 19 Ont. 113.

"The rule, as sustained by sound moral principles and the weight of authority, is that, where a director purchases at judicial sale the properties of the corporation, he does so subject to the right of the corporation or its stockholders to disaffirm the sale and to demand a resale without showing any actual fraud or any actual prejudice." Fagan v. Stuttgart Normal Institute, 91 Ark. 141, 120 S. W. 404.

A person is not within this rule merely because he was elected a director, where it was without his knowledge, and he has not acted as such. Rozecrans Gold Min. Co. v. Morey, 111 Cal. 114, 43 Pac. 585.

On the ground that a corporate officer sustains a fiduciary relation to the corporation, it has been held that

he will not be permitted to purchase corporate property at a sale thereof which he causes to be held, and that if he so purchases the sale may be set aside without a showing of fraud. Fricker v. Americus Manufacturing & Improvement Co., 124 Ga. 165, 176, 52 S. E. 65.

Effect of California statutes relating to trustees in general, see San Francisco Water Co. v. Pattee, 86 Cal. 623, 25 Pac. 135.

That the corporation must offer to redeem, see Harpending v. Munson, 91 N. Y. 650.

63 McAllen v. Woodcock, 60 Mo. 174, 180. See also Brewster v. Stratman, 4 Mo. App. 41.

64 Hoyle v. Plattsburgh & M. R. Co., 54 N. Y. 314, 13 Am. Rep. 595.

65 Fagan v. Stuttgart Normal Institute, 91 Ark. 141, 120 S. W, 404.

himself in a position in which his personal interests were adverse to those of the corporation.66

§ 2294. View that purchase not voidable where fair and in good faith. "The principle that a trustee may purchase the trust property at a judicial sale brought about by a third party, which he had taken no part in procuring, and over which he could not have had control," says the Supreme Court of the United States, "is upheld by numerous decisions of this court and of other courts of this country." 67 And by the weight of authority a purchase of corporate property by a director or other officer of the corporation at an execution or judicial sale is not voidable at the instance of the corporation or its stockholders, if he purchased fairly and openly, and if at the time he did not represent the corporation in the matter, and did not bring about the sale in violation of his duty to the corporation; 68 and this

is particularly true where the purchase was necessary in order to protect interests previously acquired by him by a valid contract with the corporation.69 It has even been held that where a purchase by directors at foreclosure sale is in all respects fair and open, the purchase will be sustained although as a matter of fact the secured loan was made to the corporation by the directors in order that they might have opportunity of buying in the property at foreclosure.70

§ 2295. Purchase to protect debt or rights of officer. A corporate creditor, although also a director or other officer of the corporation, ordinarily may purchase at a forced sale of the corporate property, in order to protect his interests as a creditor or under a contract with the corporation.71

Where a deed of trust was given to secure a loan made by a director to the corporation, and the director purchased at the trustee's sale, the Supreme Court of the United States, in the leading case on this subject, in upholding the purchase, called attention to the facts that the director was not both seller and buyer, but that a trustee was interposed who made the sale, and that if it should be held that the director could not bid, then "he would have been deprived of the only means which his contract gave him of making his debt out of the security on which he had loaned his money.'

"' 72

For instance, when a corporation is indebted to a director or other officer, the latter, as against the corporation, has the same right as a stranger to attach or levy an execution on its property, and have the same sold to satisfy the debt; 73 and it necessarily follows that he can purchase at such a sale to protect his interests,74 although whether

The value of the goods sold, less the amount paid, may be recovered. Fishel V. Goddard, 30 Colo. 147, 69 Pac. 607. 69 See § 2295, infra.

70 Schnittger v. Old Home Consol. Min. Co., 144 Cal. 603, 78 Pac. 9.

71 Buchler v. Black, 226 Fed. 703, aff'g 213 Fed. 880; Janney v. Minneapolis Industrial Exposition, 79 Minn. 488, 50 L. R. A. 273, 82 N. W. 984.

"Having made themselves liable for the payment of the debt, it would be a harsh rule that would force them to remain passive and allow property to be sacrificed at judicial sale for less than the debt, and require them to pay the amount remaining due."

College Park Elec. Belt Line v. Ide, 15 Tex. Civ. App. 273, 40 S. W. 64.

72 Twin-Lick Oil Co. v. Marbury, 91 U. S. 587, 590, 23 L. Ed. 328.

73 Hoffman v. Reichert, 147 Ill. 274, 37 Am. St. Rep. 219, 35 N. E. 527; Rollins v. Shaver Wagon & Carriage Co., 80 Iowa 380, 20 Am. St. Rep. 427, 45 N. W. 1037.

74 Marr v. Marr, 72 N. J. Eq. 797, 66 Atl. 182, rev'd on other grounds in 73 N. J. Eq. 643, 133 Am. St. Rep. 742, 70 Atl. 375; Law v. Fuller, 217 Pa. 439, 66 Atl. 754. See also Relender v. Riggs, 20 Colo. App. 423, 79 Pac. 328.