Talbot v. James

FACTS:  Talbot (Plaintiff) and James (Defendant) entered into a written agreement to form a corp. to construct and operate an apartment complex.  The day following the election of officers and the issuance of capital stock, the board of directors of the corp. passed a resolution authorizing the corp. to borrow $850,700 from a mortgaging company.  The record showed that Defendant personally received the sum of $25,025.31 from the proceeds of the mortgage loan.  Plaintiff, after being advised that the corp. was in financial trouble, demanded an examination of the corp. records kept by Defendant.  Defendant refused.  Plaintiff then began an action against Defendant for an accounting as an officer and director of the corporation and contended that D violated his fiduciary relationship to the corp. and to Plaintiff, as a stockholder thereof, by diverting the funds to himself.  The Master found that Defendant had entered into a K w/himself, as president of the corp., to receive funds from the proceeds of the mortgage loan w/out disclosing the identity of his interest to the other SH’s, and that Defendant would have to repay the sum received.  Defendant appealed, and the court reversed the master’s findings.  Plaintiff appealed.

ISSUE:  When a director, in selling corp. property to himself, represents or joins in the representation of the corporation, is the transaction voidable at the option of the corp.?

HOLDING:  Yes.  When a director, in selling corp. property to himself, represents or joins in the representation of the corporation, the transaction is voidable at the option of the corp.  Here, Defendant entered into a K w/himself to receive benefits in the sum of $25,025.31 from the proceeds of the mortgage loan to the corp. w/out making full disclosure of his identity of interest to the other stockholders of the corp.  Thus, the corp. is entitled to judgment against Defendant in the amount of $25,025.31.  Reversed and remanded

RULE:  When a director, in selling corporate property to himself, represents or joins in the representation of the corporation, the transaction is voidable at the option of the corporation.

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