Directors and officers have a fiduciary duty of loyalty to their corporation and its stockholders. Branch v. Western Factors, Inc., 28 Utah 2d 361, 502 P.2d 570 (1972); Elggren v. Woolley, 64 Utah 183, 228 P. 906 (1924); Durfee v. Durfee Canning, Inc., 323 Mass. 187, 80 N.E.2d 522 (1948); Guth v. Loft, 23 Del. Ch. 255, 5 A.2d 503 (1939). They are obligated to use their ingenuity, influence, and energy, and to employ all the resources of the corporation, to preserve and enhance the property and earning power of the corporation, even if the interests of the corporation are in conflict with their own personal interests.
8. CORPORATIONS. Corporation's directors occupy fiduciary relations, and are held liable to corporation as trustees. 9. CORPORATIONS. Courts cannot sanction corporate directors' acts which are not fair and equitable to all stockholders. 10. CORPORATIONS. Wherever there is collision between trust, duty, and personal interest, purchase of corporate property at judicial sale, or otherwise, by officers, is forbidden. 11. CORPORATIONS. Corporate directors' acts, looking to sacrifice of corporate interests, retardation of corporation's objects, or destruction of corporation, are regarded as flagrant breach of trust. 12. CORPORATIONS. Where corporate officer purchased corporate property at foreclosure sale, court could not require reconveyance without compensation. 13. CORPORATIONS. Where corporate officer purchased corporate property at foreclosure sale without informing stockholders of opportunity to purchase mortgaged indebtedness at discount, officer could not retain profits. Elggren v. Woolley, 64 Utah 183, 228 P. 906, 910. Appeal from District Court, Fourth District, Wasatch County; Geo. P. Parker, Judge.
The alienation or disposition of property of a corporation in that manner constitutes a violation of the rights of the stockholders and is ultra vires. See also, McCormick v. Market Bank, 165 U.S. 538, 17 S.Ct. 433, 41 L.Ed. 817 (1897); S.E. C. v. Insurance Securities, Inc., 254 F.2d 642 (9th Cir.), cert. denied, 358 U.S. 823, 79 S.Ct. 38, 3 L.Ed.2d 64 (1958); Knox v. First Security Bank of Utah, 206 F.2d 823 (10th Cir. 1953); Elliott v. Federal Home Loan Bank Board, 233 F. Supp. 578 (S.D.Cal. 1964), rev'd on other grounds, 386 F.2d 42 (9th Cir. 1967), cert. denied, 390 U.S. 1011, 88 S.Ct. 1260, 20 L.Ed.2d 161 (1968); Burt v. Irvine Co., 237 Cal.App.2d 828, 47 Cal.Rptr. 392 (1965); Elggren v. Woolley, 64 Utah 183, 228 P. 906 (1924); 2 Fletcher Cyc.Corp. § 752 (Perm.Ed. 1969); 7 Fletcher Cyc.Corp. §§ 3426, 3428 and 3432 (Perm.Ed. 1964). Finding no error, we affirm the judgment.
A.C. Milner was interested in having that obligation on his part discharged by the Milner Corporation adopting the contract of March 16, 1909. His interests were adverse to the Milner Corporation, and that being so, he could not bind the corporation under his general authority as president. See Fletcher, Corporations, Permanent Ed., Vol. 3, § 922 et seq.; Kahn v. Perry Zolezzi, Utah, 226 P.2d 118, 123; Elggren v. Woolley, 64 Utah 183, 228 P. 906. I think we should leave open for trial on remand the issue of whether the Milner Corporation received any real and substantial benefit from the contract of March 16, 1909, and the issue of whether Milner was duly authorized as the agent of the Milner Corporation, other than by the general authority reposed in him as its president, to write the letter of November 4, 1924.
The law says that no agent's acts that are statutorily unlawful can be ratified. Elggren v. Woolley, 64 Utah 183, 228 P. 906 (1924). Thus, for April to be bound on any theory of ratification, the directors' behavior cannot be violative of U.C.A., Section 16-10-33. It states:
They stand in a position similar to that of a trustee, and it is a well-settled rule that such a trustee can make no profit out of his trust. Magruder v. Drury, 235 U.S. 106, 35 S.Ct. 77, 59 L.Ed. 151, 156; Young v. West Edmond Hunton Lime Unit, Okla., 275 P.2d 304, 3 Oil and Gas Reporter, p. 1736 (1954), appeal dismissed 359 U.S. 909, 75 S.Ct. 600, 99 L.Ed. 1245; Angelus Securities Corporation v. Ball, 20 Cal.App.2d 436, 67 P.2d 158; Elggren v. Woolley, 64 Utah 183, 228 P. 906; 13 Am.Jur. Corporations § 998, pp. 950-951 (1958); 19 C.J.S. Corporations § 786, pp. 161-162. The rule precluding a director from deriving a profit from the corporate business is especially applicable where the corporation itself is a trustee.
This includes acts that are prohibited by statute or conflict with the statutory obligations of the corporation or which are against public policy — they cannot be ratified. Parrott v. Noel, D.C., 8 F.2d 368; Elggren v. Woolley, 64 Utah 183, 228 P. 906. Furthermore, the duty of good faith on the part of an officer is to the corporation as anentity, distinct from its stockholders.
It is against public policy for officers of a corporation to deal with others in relation to corporate business for their own separate advantage and the law affords no sanction whatever for such acts. Elggren v. Wooley, 64 Utah 183, 228 P. 906; Western Securities Co. v. Silver King Consolidated Mining Co., 57 Utah 88, 192 P. 664. In this case, however, there was no such dealing.
That in that capacity they may not for their own profit use knowledge and information which should have been used for the profit and benefit of the corporation. Citing: Kleinschmidt v. American Min. Co., 49 Mont. 7, 139 P. 785; Barker v. Montana etc. Mining Co., 35 Mont. 351, 89 P. 66; Gerry v. Bismarck Bank, 19 Mont. 191, 47 P. 810; Duffy v. Hastings, 78 Mont. 22, 252 P. 316; Kavanaugh v. Kavanaugh Knitting Co., 226 N.Y. 185, 123 N.E. 148; Wickersham v. Crittenden, 93 Cal. 17, 28 P. 788; Coleman v. Hanger, 210 Ky. 309, 275 S.W. 784; Elggren v. Woolley, 64 Utah, 183, 228 P. 906; Michigan Crown Fender Co. v. Welch, 211 Mich. 148, 13 A.L.R. 896, 178 N.W. 684; Zeckendorf v. Steinfeld, 12 Ariz. 245, 100 P. 784; Hussong Dyeing Machine Co. v. Morris (N.J. Ch.), 89 A. 249; Acker etc. Co. v. McGraw, 106 Md. 536, 68 A. 17; Latta v. Kilbourn, 150 U.S. 524, 37 L.Ed. 1169, 14 Sup. Ct. Rep. 201; Williamson v. Monroe, 101 Fed. 322; Lind v. Webber, 36 Nev. 623, Ann. Cas. 1916A, 1202, 50 L.R.A. (n.s.) 1046, 134 P. 461, 135 P. 139, 141 P. 458; Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 122 N.E. 378; Nebraska Power Co. v. Koenig, 93 Neb. 68, 139 N.W. 839; Winn v. Dillon, 27 Miss. 494; Fox v. Simons, 251 Ill. 316, 96 N.E. 233; National Manufacturers Co. v. Bird, 97 N.J. Eq. 242, 127 A. 819; Trice v. Comstock, 121 Fed. 620, 61 L.R.A. 176, 57 C.C.A. 646. Counsel cite a great many cases declaring the law as it relates to directors of a corporation, their duties and responsibilities.
See Glen Allen, 296 P. at 240. For instance, they must show (1) they fully disclosed their business with the corporation when necessary, see Hansen v. Granite Holding Co., 117 Utah 530, 542, 218 P.2d 274, 280 (1950); (2) they did not use confidential information to further their own interests, see Glen Allen, 296 P. at 240 (citing Trice, 121 F. at 622); Elggren v. Woolley, 64 Utah 183, 192, 228 P. 906, 909 (1924) (citation omitted); (3) they did not wrongfully withhold ideas from the corporation that would have increased the value of the corporation, see Nicholson, 642 P.2d at 730; and (4) they did not promote the sale of the corporation's only valuable asset to the detriment of the corporation, see Nicholson, 642 P.2d at 730 (citing Glen Allen, 296 P. at 241); Rocket Mining Corp., 483 P.2d at 899-900. As a director at the time he initiated negotiations to buy MRC, Condie further bears the burden of showing his vote was not necessary to the approval of the "contract" he sought to enforce with the corporation.