## Facts

- A minority shareholder brought a derivative action nominally on behalf of two brick manufacturing corporations against directors who controlled the boards and voting power.
- Two director-officers (Stanley and Sturgis) dominated the manufacturing companies and also wholly owned and controlled a separate sales corporation.
- The manufacturing companies entered exclusive sales contracts (1948 and 1949) under which the sales corporation purchased bricks at fixed prices and captured resale profits after expenses.
- The arrangement shifted the manufacturing companies’ sales function and profit potential to the director-owned sales corporation.
- The trial court held the 1949 contracts void for unfairness and breach of duty but upheld the 1948 contracts, finding unfairness not shown when made; it also allowed compensation to Stanley and Sturgis and issued conditional director-removal relief.
- Both sides appealed: the plaintiff challenged the validation of the 1948 contracts and the compensation rulings; defendants challenged the invalidation of the 1949 contracts and the removal/accounting orders.

## Issues

1. Whether exclusive sales contracts between corporations and a sales entity owned by controlling directors were voidable for breach of fiduciary duty due to conflict of interest and unfairness.
2. Whether disclosure, shareholder approval, and technical compliance with the interested-director statute (former Corp. Code § 820) insulated the contracts from challenge.
3. Whether a director’s resignation during appeal mooted review of an order conditionally removing the director based on fraud-related findings.
4. What equitable remedies (rescission, accounting, restitution, and limits on compensation) were proper for profits obtained through self-dealing.

## Decision

- Affirmed the judgment voiding the 1949 contracts as unfair self-dealing and a breach of fiduciary duty.
- Reversed the ruling upholding the 1948 contracts and directed that they also be set aside as voidable under the same fairness analysis.
- Held that statutory compliance and shareholder approval prevented automatic invalidity but did not authorize directors to obtain unfair advantage or profit at the corporation’s expense.
- Ordered equitable relief requiring accounting and restitution/disgorgement of profits diverted to the sales corporation and its owner-directors.
- Held the appeal from a conditional director-removal order was not moot despite resignation where the order involved fraud charges warranting appellate review and similarly situated directors remained.

## Legal Principles

- Corporate directors are fiduciaries who owe a duty of highest good faith to the corporation and all stockholders.
- Interested-director transactions are not validated solely by disclosure, shareholder approval, or formal statutory compliance; substantive fairness to the corporation remains required.
- A director may not use control of corporate decisionmaking to divert a core corporate function and its profits to an entity the director owns.
- A fiduciary who obtains unfair profits through conflicted dealings may be compelled to account and restore those profits to the corporation.
- Resignation does not necessarily moot appellate review of director-removal relief where fraud findings and continuing consequences remain at issue.

## Conclusion

The court held that controlling directors breached their duty of loyalty by routing corporate sales and profits to their own sales corporation; both years’ contracts were voidable as unfair despite procedural compliance, and equitable remedies required rescission and restitution with an accounting, while director-removal issues remained reviewable despite resignation.


Remillard Brick Co. v. Remillard-Dandini Co., 109 Cal. App. 2d 405, 241 P.2d 66 (Cal. Ct. App. 1952)