Highland Park Investment Co. v. List (1915) · DecisionDepot

Highland Park Investment Co. v. List

Name: California Superior Court Tentative Rulings
Creator: DecisionDepot
License: https://creativecommons.org/licenses/by-nc/4.0/

California Court of Appeal Jun 24, 1915 No. Civ. No. 1550.Published

Before: James

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Holding. The court held that while a corporation may rescind a contract where a director secretly profits from a sale to the company, it cannot compel an accounting for profits if the director did not acquire the property while acting as an agent for the corporation.

Issues

Whether a corporation may compel an accounting for secret profits from a director who sold property to the corporation without disclosing his ownership.
Whether the evidence supported the trial court's findings that the director was acting as an agent for the corporation when he acquired the property.

Disposition. reversed

Quotations verified verbatim against the opinion

“A fundamental obligation of trusteeship is that a trustee may not obtain any benefit or advantage over his cestui que trust.”

Synopsis

APPEAL from a judgment of the Superior Court of Los Angeles County and from an order denying a new trial. J. P. Wood, Judge.

The facts are stated in the opinion of the court.

[762]

JAMES, J.

Appeal from a judgment in favor of the plaintiff and. from an order denying defendants’ motion for a new trial.

This action was brought to recover a sum of money alleged to have been secured by appellant B. D. List as a secret profit upon a sale of certain lots of land to plaintiff corporation. It is alleged in the complaint that List was a director and agent of plaintiff corporation and as such undertook to carry on negotiations for the purchase of the land in question, and that he reported to the corporation that the same could be purchased for the sum of eight thousand dollars. It is then alleged: “That said B. D. List, unknown to the plaintiff corporation, subsequent to the time that the negotiations for the purchase by the corporation of said lots had begun and prior to the 27th day of August, 1908, had purchased said lots in the name of Ms wife, the defendant Iola B. List, paying therefore the sum of approximately $2,700 in cash, and agreeing to give $2,000 par value of the stock of the plaintiff corporation, making a total consideration for the said purchase of said lots of $4,700, which facts were unknown to the plaintiff corporation on the 27th day of August, 1908, and the same were not discovered by the plaintiff corporation until on or about the .... day of April, 1909, when the plaintiff corporation for the first time became aware of the facts concerning said transaction.” Other allegations set forth that at a meeting of the board of directors of the plaintiff corporation held on the twenty-seventh day of August, 1908, List being present, it was resolved that the plaintiff corporation purchase the real property referred to and pay therefor the sum of eight thousand dollars, two thousand dollars in stock of the corporation at par and six thousand dollars in cash. The court in the findings determined that prior to the 27th day of August, 1908, B. D. List learned that the lots of land described in plaintiff’s complaint could be purchased for the price of two thousand dollars in cash and two thousand dollars in stock and by the payment of certain street liens, and that said List reported to the officers and directors of the corporation that the property could be purchased for eight thousand dollars; that between the entering into of the negotiations and the twenty-seventh day of August, By conferring with the different directors said List learned that the directors of the corpo

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73 Cal. 157, [14 Pac. 576].) Under the condition shown by the proof as to non-disclosure of the 'facts as to the List ownership in the lands, there was abundant cause, if the corporation so desired, to rescind the contract and insist upon having restored by List everything of value received by Mm from the corporation under the transaction. We find difficulty, however, in sustaining particular of the findings of the trial judge which were essential to the judgment. The judgment sought and recovered in this case was not one of rescission; the corporation elected to retain what it had received from List and to secure from him the" profits which he,had made on the sale of the land. There is no doubt but that such a judgment would have been proper were it shown that while the board of directors, of wMch List was one, was negotiating for the purchase of this property, List secretly obtained title thereto and thereupon resold the property to the company, maMng a profit thereon. The evidence as it is set out in the transcript does not show that the directors had taken up the matter of the purchase of these particular lots prior to the meeting of August 27, 1908. It appeared without dispute that List had purchased the lots five days prior to this time. None of the witnesses, directors, and stockholders of plaintiff corporation, testified to having talked with List regarding the desire of the corporation to purchase the lots prior to the day upon which the directors’ meeting was held at wMch the resolution authorizing the purchase was adopted. Upon this state of the evidence, the legal situation presented is no different than had it appeared that List had become the owner of the lots thirty or ninety days, or more, prior to the twenty-seventh day of August. If he made the purchase for himself in good faith, he might have resold the property to the corporation at a profit, dealing openly and fairly, and no objection could have been made thereto. If having so acquired the property he used his influence as a member of the board to induce the corporation to buy at an advanced figure the land and, as the-evidence here showed, concealed

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Synopsis

JAMES, J.

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