## Facts

- Lincoln Stores, Inc. operated a chain of retail stores, including a successful store in Norwich, Connecticut.
- Douglas J. Grant was a director and store manager; Martin was a director and general manager; Haley was a long-time employee and buyer.
- In April 1937, a real estate broker informed Grant that the capital stock of Reid & Hughes, a nearby Norwich department store, was for sale.
- Grant relayed the information and proposed terms to Martin; Grant, Martin, and Haley agreed to buy the stock for themselves, and Haley planned to resign and manage the Reid & Hughes store.
- The stock was purchased in the defendants’ individual capacities; some investigation and acquisition-related expenses were charged to Lincoln Stores.
- After the purchase, the defendants concealed their ownership interest and operated Reid & Hughes in competition with Lincoln Stores’ Norwich store, conduct found to violate duties owed to Lincoln Stores.
- Lincoln Stores filed a bill in equity seeking injunctive relief, an accounting and damages, and (by amendment) a constructive trust over the defendants’ Reid & Hughes shares.
- A master’s report was confirmed; final decree awarded damages against Grant, Martin, and Haley, dismissed the bill as to Mrs. Martin, and refused to impose a constructive trust on the shares; Lincoln Stores appealed the refusal to impose a constructive trust.

## Issues

1. Whether corporate directors and an employee who acquire control shares in a competing business must be declared constructive trustees of those shares for the corporation.
2. Whether later disloyal competition, standing alone, justifies imposing a constructive trust when the corporation had no interest or expectancy in the acquired opportunity and the information was not obtained through the fiduciaries’ corporate positions.

## Decision

- The Supreme Judicial Court affirmed the decrees insofar as they refused to impose a constructive trust over the Reid & Hughes shares.
- The court held that, on the facts found, the defendants’ acquisition of the shares did not make them constructive trustees for Lincoln Stores.
- The court accepted that operating the competing store was a breach of duty, but treated that misconduct as supporting damages rather than transfer of ownership of the acquired shares.

## Legal Principles

- A constructive trust for diversion of a business opportunity depends on whether the opportunity properly belonged to the corporation, including whether the corporation had an existing interest or a reasonable expectancy in it.
- A constructive trust is less likely where the opportunity is not essential to the corporation, the corporation had no plan or interest in acquiring it, and the information enabling acquisition was not obtained through the fiduciary’s corporate connection.
- Breach of loyalty through competition may warrant damages or other relief, but does not automatically require a constructive trust over property the fiduciary acquired outside the corporation’s opportunity.

## Conclusion

The court declined to treat the defendants’ stock ownership in a competing store as held in trust for Lincoln Stores because the corporation had no interest or expectancy in the acquisition and the purchase was prompted by non-corporate information, even though the defendants’ later competitive conduct breached their duties and supported an award of damages.


Lincoln Stores, Inc. v. Grant, 309 Mass. 417, 34 N.E.2d 704 (Mass. 1941)