Lagarde v. Anniston Lime & Stone Co.

Supreme Court of Alabama · Corporations

CorporationsFiduciary dutyCorporate opportunityConstructive trustdirectorsofficersfiduciary relationsconstructive trust

Facts

The complainant corporation had rights in Christopher's interest in certain property through both a lease and a contract to sell executed by Christopher to the corporation. The Lagardes, who were officers of the corporation, purchased Christopher's interest for themselves. They also allegedly purchased Martin's one-third interest, but that interest was held by a distinct title, and the corporation had no existing property right in it, only alleged prior negotiations and efforts to buy it. The bill sought relief as to both purchases.

Issue

Whether corporate officers breach their fiduciary duty by purchasing for themselves property connected to the corporation's business when the corporation has existing rights or expectancies in the property, and whether that principle also reaches property in which the corporation has no existing right or expectancy. Also, whether the bill was sufficient when the demurrer was addressed to it as a whole.

Rule

Corporate directors and officers, as fiduciaries, may not in antagonism to the corporate interest acquire for themselves beneficial property rights that ought to be preserved to the corporation. Their disability generally extends to property in which the corporation has an already existing interest, an expectancy arising from an existing right, or property whose acquisition by the officers would in some degree balk the corporation in effecting the purposes of its creation; equity may treat such an acquisition as held in constructive trust for the corporation upon equitable reimbursement. By contrast, officers are not required to divert to the corporation independent enterprises or investments that, though possibly profitable to the corporation, have not become subjects of their trust or duty.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Red Mesa Brickworks, Inc., based in Tucson, leases clay fields outside Flagstaff from Owen Barrett and also holds Barrett's signed agreement to convey the fields to the company next spring. Before closing, Red Mesa's president, Dana Mercer, and treasurer, Luis Paredes, buy Barrett's interest in their own names.

If Red Mesa sues in equity, which result is most consistent with the governing rule?

Explanation. Corporate officers may not, in antagonism to the corporation, acquire for themselves beneficial property rights the corporation already has a right to preserve. Where the corporation holds both lease rights and contract rights in the same property, the officers' personal purchase is a palpable breach of duty, and equity may impose a constructive trust for the corporation upon equitable reimbursement. (Derived from Lagarde v. Anniston Lime & Stone Co. (n.d.).)