Munson v. Syracuse, G. & C. R. R. Company

New York Court of Appeals · 1886 · Corporations

103 N.Y. 58 (1886)

Updated August 22, 2026

CorporationsDirectors' fiduciary dutiesSelf-dealingSpecific performancePromoter contractsdirector self-dealingfiduciary conflictexecutory contract

Facts

The plaintiffs held and controlled most of the bonds of the insolvent Sodus Bay & Corning Railroad Company and agreed with Magee that they would foreclose the mortgage, buy the old company's property, and convey it in exchange for bonds of a proposed new railroad company. After the new corporation was organized, plaintiff Munson became a director, stockholder, and president of that corporation. Munson participated in the board action by which the new corporation assumed Magee's contract, and he also executed a later contract on the corporation's behalf substituting it for Magee. The plaintiffs later bought the old railroad property at foreclosure and tendered a deed to the defendant corporation, which refused to deliver the promised bonds.

Issue

Can plaintiffs obtain specific performance of an executory contract against a corporation when one plaintiff, as a director of that corporation, participated in the corporation's adoption and execution of the contract while also being personally interested on the other side as a seller? Does the fact that the corporation merely adopted a promoter's earlier arrangement remove the transaction from the ordinary rule against fiduciary self-dealing?

Rule

A trustee or fiduciary cannot validly act for a principal in a contract in which he has a personal interest adverse or potentially adverse to that principal; equity will, at the election of the represented party, set aside or refuse to enforce such a transaction without inquiring into its fairness or actual fraud. This rule applies where a director participates in corporate action adopting or making an executory contract with himself or with a group in which he has an interest, even if he is only one of several directors and even if the corporation adopted a promoter's prior contract.

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

Lakeview Transit Company, a rail corporation in Ohio, agreed to buy a strip of graded right-of-way near Toledo from a group of land investors. One investor, Daniel Kerr, had become a director of Lakeview before the board meeting, attended the meeting, and joined in the board's approval of the purchase. When the company later refused to close, the investors sued for specific performance, arguing the price was favorable and no fraud occurred.

Should a court of equity order specific performance against Lakeview Transit Company?

Explanation. The controlling rule is that equity will refuse to enforce an executory contract when a director acts for the corporation in a transaction in which he is personally interested on the opposite side. The court does not inquire into actual fraud or fairness once the fiduciary conflict and participation are shown. It also does not matter that the interested fiduciary was only one of several sellers.