Chapter 8 - Duties of Directors & Controlling Stockholders

Question 1

Taylor v. Wright

Answer 1

Majority Rule: In dealings with or for the corporation, the director is exercising a corporate function, and is subject to the usual fiduciary duty to disclose all material facts; but that in personal dealings with stockholders he is not exercising a corporate function, and is free to deal with them at arm’s length

Minority Rule: A director has a fiduciary obligation to the stockholders individually as well as collectively, because the stockholders have placed the directors in a strategic position where they can secure first-hand knowledge of important developments, and where they can make it appear the shares are much less valuable than they really are.

Special Facts Rule: Where “special circumstances or facts” are present which make it inequitable for the director to withhold information from the stockholder, the duty to disclose arises, and concealment is a fraud.

Question 2

Gokongwei v. SEC

Answer 2

Every corporation has the inherent power to adopt by-laws ‘for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs’. Under the Corporation Law, a corporation may prescribe in its by-laws “the qualifications, duties and compensation of directors, officers and employees. In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the corporation in adopting measures to protect legitimate corporation

Question 3

Singer v. Carlisl

Answer 3

A director occupies a fiduciary relation towards the minority stockholders and is charged with the duty of exercising a high degree of good faith and diligence in the protection of such minority interests.

Directorship in two competing corporations does not in and of itself constitute a wrong. It is only when a business opportunity arises which places the director in a position of serving two competing corporations, and when, dominated by one, he neglects his duty to the other, that a wrong has been done.

Question 4

Irving v. Trust

Answer 4

Directors of a solvent corporation are forbidden to take over for their own profit a corporate contract on the plea of the corporation’s financial inability to perform. If the directors are uncertain whether the corporation can make the necessary outlays, they need not embark it upon the venture; if they do, they may not substitute themselves for the corporation any place along the line and divert possible benefits into their own pockets.

Question 5

Globe Woolen

Answer 5

Contract must be fair and reasonable

Question 6

Insuranceshares

Question 7

Philpotts v. Manufacturing

Answer 7

That the right of inspection given to a stockholder in the provision above quoted can be exercised either by himself or by any proper representative or attorney in fact, and either with or without the attendance of the stockholder.

Question 8

Pardo

Answer 8

You cannot determine what business days are open for the right to inspection. The rule is still that it should be open provided it is a business day.

Question 9

Veraguth

Answer 9

Draft of minutes are not open to inspection until approved by the Board

Question 9

Veraguth

Answer 9

Draft of minutes are not open to inspection until approved by the Board

Question 10

Gonzales v. PNB