Twin Lick Oil Company v. Marbury

Supreme Court of the United States · 1875 · Corporations

91 U.S. 587 (1875)

Updated August 22, 2026

Corporationscorporate directorsfiduciary dutyself-dealingvoidable transactionsreasonable timeratificationdeed of trust sale

Facts

Twin Lick Oil Company, a West Virginia corporation engaged in petroleum production, became financially distressed in early 1867 and borrowed $2,000 from the defendant, a stockholder and director, giving a note secured by a deed of trust on all corporate property, rights, and franchises. When the debt matured and the company had no apparent ability to pay, the trustee sold the property under the deed of trust, and the defendant bought it through an agent at a fair and open sale for a reasonable price. The corporation later alleged that the defendant abused his fiduciary position and sought in 1871, nearly four years after the sale, to set aside the purchase and require an accounting. In the meantime, the defendant surveyed the leased land, discovered that it included a profitable well, obtained possession of that well through suit and compromise, and invested more money to make the venture profitable.

Issue

Was the director's purchase of corporate property at the trustee's sale absolutely void because of his fiduciary position, or merely voidable? If merely voidable, did the corporation wait too long to exercise any right to avoid the sale?

Rule

Dealings by a director with the corporation concerning the subject matter of his fiduciary relation are closely scrutinized and may be set aside on slight grounds, but the general rule is that such contracts are not absolutely void; they are voidable at the election of the represented party. A director may validly loan money to the corporation when the transaction is open and otherwise free from blame, and may bid at a trustee's foreclosure sale under that security, subject to rules of candor and fairness. Any option to avoid such a sale must be exercised within a reasonable time, determined from the circumstances, including knowledge of the facts, presence or absence of the parties, the nature of the property, and changes in its value.

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

Red Mesa Energy, a Colorado corporation based in Denver, ran short of cash after a drilling setback. One of its directors, Nora Benton, openly lent the company $300,000 on market terms, took a security interest approved by the board, and later acquired the collateral at a public foreclosure sale conducted by an independent trustee after the company defaulted.

If the corporation later sues only on the ground that Benton was a director when she bought the property, which is the best answer?

Explanation. The governing rule is that a director's dealing with the corporation concerning the subject matter of the fiduciary relation is generally not absolutely void, but voidable at the election of the represented party. The majority recognized that a director may loan money to the corporation and may later purchase at a trustee's sale, so long as the transaction is open and free from blame, subject to strict equitable scrutiny.