It is generally laid down in the encyclopedias and text books, and affirmed in many court opinions that "the doctrine that officers and directors [of corporations] are trustees of the stockholders, applies only in respect to their acts relating to the property or business of the corporation. It does not extend to their private dealings with stockholders or others, though in such dealings they take advantage of knowledge gained through their official position."1 Much of this doctrine is based upon the language of Chief Justice SHAW in Smith v. Hurd2 decided in 1847. He said: "There is no legal privity, relation, or immediate connection between the holders of shares in a bank, in their individual capacity on the one side, and the directors of the bank on the other. The directors are not the bailees, factors, agents, or trustees of such individual stock-holders." This case was an action on the case at common law, by an individual share holder against the directors for damages due to various acts of negligence and malfeasance in office through a series of years, in consequence of which the whole bank capital was wasted and lost, and the plaintiff's shares, along with the others, became of no value. In sustaining a demurrer, the court gave the following reasons for the rule above: (1) The corporation is a distinct person in the law, in whom the whole stock and property are vested. (2) The individual members have no right to inter-meddle with the property, simply because they are not the legal owners of it. (3) Injury done to the capital stock by impairing its value is not in the first instance a damage to the stockholder. (4) Shares do not constitute a legal estate and property, but a qualified, equitable interest, and an injury done to the stock is not an injury to such separate interest but to the whole body of stockholders in common.
Wilgus, Horace LaFayette. "Purchase of Shares of Corporation by a Director from a Shareholder." Mich. L. Rev. 8 (1910): 267-97.