Lagarde v. Anniston Lime & Stone Co.

| Ala. | Nov 15, 1899

SHARPE, J.

It is well settled that directors and other governing members of a corporation are so far agents of the corporation that in their dealings respecting corporate interests, they are subject to the rules, which apply generally to persons standing in fiduciary relations and which forbid such persons to secure an. advantage for themselves which fidelity 'to the trust reposed in them would carry to others whose interests-they ought to represent. It is a breach of their fiduciary obligations which equity will not tolerate for such officers in antagonism to the corporate interest to oust the corporation from beneficial property rights which ought to be preserved to it by acquiring the property for themselves. Derelictions of this kind are treated as a fraud on the corporation out of which equity will raise a constructive trust in its favor—3 Thompson on Corporations, § 4073; 3 Pom. Eq. Jur. § 959; Blake v. Buffalo Creek R. Co., 56 N. Y. 489; Averill v. Barker, 6 N.Y.S. 255" court="N.Y. Sup. Ct." date_filed="1889-07-09" href="https://app.midpage.ai/document/averill-v-barber-5496907?utm_source=webapp" opinion_id="5496907">6 N. Y. Supp. 255; Covington, etc. R. Co. v. Bowler, 9 Bush. 468.

There is ¿ reasonable expectancy attending a lease.of land that the tenant holding possession under it will be able to renew the lease at its expiration which expectancy . is under some circumstances recognized as a valuable property right, though the tenant may have no way of enforcing renewal. Equity will so regard and treat- it as against those occupying fiduciary relations to the tenant in respect to the leased property where they seek to supplant the tenant in the renewal of the lease, and the doctrine applies where a ■corporation’» managing officers so offend against it.—Robinson v. Jewett, 116 N.Y. 40" court="NY" date_filed="1889-10-08" href="https://app.midpage.ai/document/robinson-v--jewett-3578169?utm_source=webapp" opinion_id="3578169">116 N. Y. 40; 3 Thompson on ’Corporations, supra.

These principles condemn the purchase by the Lagardes of Christopher’s interest in the property here involved. Both by lease and the contract to sell which-Christopher had executed to the complainant it had: rights in that interest which the Lagardes as officers; of the corporation were bound to recognize and respect, but of which they will completely divest it if the transaction is allowed to stand. That purchase by them under the circumstances alleged in the bill was a palpable breach of duty to the corporation and -to prevent the 'consummation of a wrong, the purchase may beheld to enure to the complainant’s benefit upon its-equitably reimbursing the Lagardes on account of what they have expended in the purchase.

A different ease is presented in the alleged purchase of Martin’s one-third interest. When bought by the Lagardes that property was held by a title distinct from the other tertiary interests held by complainant and Christopher, respectively, and in it the complainant had no property or right. No expectancy of value springs from the alleged fact that complainant “has been negotiating for and endeavoring to purchase” that interest at divers undesignated times. It does not appear that the Lagardes had been authorized to conduct ■such negotiations, and whether they would ever have been resumed is merely conjectural.

Proprietorship of the Martin property may have been important to the corporation, but it is not .shown to be necessary to the continuance of its business, or that the Legarcl.es’ purchase in any way impaired the value of the corporation’s property. In such case it is immaterial that knowledge of the situation was gained by the Lagardes through their connection with the corporation, since no breach of duty is traceable to such knowledge. The duty is only co-extensive with the trust •so 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. An example of the latter class of cases is found in Blake v. Buffalo Creek R. Co., supra, where persons who were directors in the railroad company bought rights of way along its proiected route; also in Averill v. Barber, 6 N. Y. Supp. 255, w^ere persons occupying a like position obtained certain patent rights, to work under which, was the purpose for which the corporation was formed.

Good faith to the corporation does not require of its ■officers 'that they steer from their own to the corporation’s benefit enterprises or investments which, though capable of profit to the corporation, have in no way become subjects of their trust or duty.

The bill lacks equitv so far as it seeks relief concerning the last named property, but is good as to the Christopher property, and the demurrer haying been interposed to it as a whole was properly overruled.

Let the decree appealed from be affirmed.