Singer v Carlisle AUTHOR: Tan

27 NYS 2d 19; 1941 NOTES:

TOPIC: Seizing Corporate Opportunity Sorry…Couldn’t find the full text. This is a copy of a digest
PONENTE: Sheintag I found online.
FACTS:
 Plaintiffs are stockholders of the United Corporation which owns all stock of its subsidiary, New York United
Corporation.
 Both companies were engaged in the business of underwriting securities in public utility holding and operating
companies.
 United Corporation was also engaged in the business of owning and holding such securities.
 Defendants (directors of the 2 corporation, officers of the United Corporation, partners of J.P. Morgan & Co. ,
partners of Drexel & Co., Morgan, Stanley, Inc., Bonbright & Co., Inc. and two officers and stockholders of the latter)
are engaged in the underwriting business in competition with the Untied and New York Corporation.
 It is alleged that in 1929, United Corporation acquired substantial blocks of the voting stock of various holding and
operating companies.; that from 1929 to present the corporation obtained funds by public issuance of securities; that
the underwriting business and large ensuing profits were obtained by J.P. Mogran, Stanley & Co., Inc., as
underwriters, and the United Corporation and New York United Corporation were not permitted to participate.
 Plaintiffs charge that the defendants of the United Corporation and New York United Corporation, who acted with
the defendant bank, to obtain the underwriting business, and that the defendant bank fraudulently caused the
corporations to use their influence and control over their subsidiaries in order to induce the corporations to award the
underwriting business to the defendant bankers.
ISSUE(S): WON defendants utilized their domination and influence in order to control the business for themselves.

HELD: No, because the allegations in the complaint of conspiracy of directors to obtain corporate opportunity were
deficient.

RATIO:

The directors of the United Corporations and New York United Corporation have the duty to make every effort consonant
with good, honest judgment to obtain for those corporations as much of the underwriting business as possible, and to make
this feild of activity as profitable as it could be. This does not mean that the plaintiffs were required to do anything
detrimental to the affairs of the corporations. They could not lawfully conduct themselves in a manner detrimental to the
interests of the United Corporation and New York Untied Corporation.

However, in the case at bar, there was a failure to incorporate the essential allegations which may be corrected upon
amendment. There is no allegation when the securities and what securities were issued and that the same might have been
underwritten by United. Directorship in 2 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 masters, and when, dominated by
one, he neglects his duty to the other, that a wrong has been done.
CASE LAW/ DOCTRINE:

Seizing Corporate Opportunity (Sec. 34)

–If a director acquires for himself, by virtue of his office, a business opportunity which should belong to the corporation,
thereby obtaining profits to the prejudice of the corporation, he must account to the corporation for all such profits by
refunding the same. However, if his act was ratified by 2/3 stockholders' vote, he need not refund said profits. This
provision applies even though the director may have risked his own funds in the venture.
- Note: This provision is to be distinguished from Sec. 32 on contracts of self-dealing directors: contracts of self- dealing
directors are voidable at the option of the corporation even if it has not suffered any injury; on the other hand, Sec. 34
applies only if the corporation has been prejudiced by the contract.
DISSENTING/CONCURRING OPINION(S):