CORPORATIONS - OFFICERS AND DIRECTORS - DUTY TO INVESTIGATE PURCHASERS OF CONTROLLING INTEREST

Authors

Michigan Law Review, University of Michigan Law School

Abstract

Plaintiff corporation, an investment trust specializing in shares of small life insurance companies, brought an action against its former officers and directors, referred to as "the management group," who in 1937 owned twenty-seven per cent of the outstanding stock of the corporation. This group sold all their stock at an inflated price to another group, referred to as "the Boston group," who on the resignation of the management group immediately elected themselves to the control of the corporation. By this control the Boston group obtained access to the portfolio and proceeded systematically to rob the corporation of all its securities. At the time the stock was sold the management group had some inkling of the purposes of the Boston group. No investigation of the purchasers was made, though the vendors were warned of their possible liability. The court assumed the situation should have awakened the suspicion of prudent men, and adequate facilities to make an investigation were available. Held, under these circumstances the transaction must be treated as a sale of the control of the corporation, not a mere sale of its stock; and as the vendors of that control had not made a reasonably adequate investigation of the purchasers, though put on guard, they must be liable for the harm that resulted to the corporation. lnsuranshares Corporation of Delaware v. Northern Fiscal Corp., (D. C. Pa. 1940) 35 F. Supp. 22.

Recommended Citation

Michigan Law Review, CORPORATIONS - OFFICERS AND DIRECTORS - DUTY TO INVESTIGATE PURCHASERS OF CONTROLLING INTEREST, 39 Mich. L. Rev. 650 (1941).
Available at: https://repository.law.umich.edu/mlr/vol39/iss4/14