## Facts

- Globe Woolen Company operated two textile mills in Utica, New York, using an outdated steam-power plant.
- Utica Gas & Electric Company, a public utility, supplied electricity for light and power in Utica.
- John F. Maynard was Globe’s principal stockholder and president and also served as a director of Utica and chair of its executive committee.
- Maynard had a substantial financial interest in Globe and no comparable economic stake in Utica.
- After negotiations led primarily by Maynard and Utica’s electrical manager, the parties entered two contracts for Utica to supply electricity to Globe.
- The contracts guaranteed Globe at least $300 per month in savings compared with its prior steam-power expenses, a term later shown to expose Utica to heavy losses as Globe’s operations expanded.
- Utica’s board ratified the contracts at meetings where Maynard was present; he did not vote and did not warn the board about the contracts’ risks.
- Globe sued in equity for specific performance; Utica asserted the contracts were the product of a conflicted common director’s dominating influence and were unfair and oppressive.
- A referee annulled the contracts; the Appellate Division affirmed with a modification requiring Utica to reimburse Globe for certain installation/conversion expenditures; Globe appealed.

## Issues

1. Whether contracts negotiated under the dominating influence of a director common to both corporations are voidable by the disadvantaged corporation, even if the common director abstains from voting on ratification.
2. Whether a common director’s fiduciary duty requires affirmative disclosure and protest of materially unfair terms, such that silence can constitute a breach.
3. Whether equity should deny specific performance and allow rescission where the bargain is unfair and oppressive to the corporation seeking to avoid it, while granting restitution for reliance expenditures.

## Decision

- The Court of Appeals affirmed the judgment annulling the contracts and denying specific performance.
- The court held the contracts were voidable at Utica’s election because they were made under the dominating influence of a conflicted common director and were unfair and oppressive to Utica.
- The court rejected the argument that Maynard’s abstention from the vote insulated the transactions from review.
- The court upheld equitable relief that conditioned rescission on reimbursement to Globe for specified installation/conversion costs incurred in reliance on the contracts.

## Legal Principles

- A director owes undivided loyalty and the highest good faith to the corporation; when serving both sides of a transaction, the fiduciary standard is applied with special strictness.
- In conflict transactions influenced by a common director, formal abstention from voting does not, by itself, satisfy the director’s duty of loyalty.
- A conflicted director may have an affirmative obligation to disclose material facts and warn the board against an improvident or one-sided bargain; silence may constitute a breach when it permits approval of an unfair transaction.
- Transactions shaped by a conflicted fiduciary’s dominating influence are subject to searching equitable scrutiny, and the party seeking enforcement must show the transaction’s fairness.
- Equity may refuse specific performance of an unfair contract and permit rescission while requiring restitution so the avoiding party does not retain benefits derived from the other party’s reliance expenditures.

## Conclusion

The court refused to specifically enforce power-supply contracts that imposed severe, one-sided risk on a utility where a common director with divided loyalties negotiated and then remained silent at ratification; the contracts were voidable for fiduciary breach and unfairness, with rescission conditioned on reimbursement of reliance costs.


Globe Woolen Co. v. Utica Gas & Elec. Co., 224 N.Y. 483, 121 N.E. 378 (N.Y. 1918)