Suppose that Art has just bought land for $125,000 and contemplates selling it to Paula for use in a residential development. Art has developed a plan that contemplates that the development will be conducted by a corporation called Art Corp. , in which he will have no interest. He considers three approaches to selling his land to Paula. Under the first approach he causes a corporation to be formed. The corporation then sells all the shares of its stock in the corporation to Paula for $200,000 cash. Paula, her husband Peter, and her daughter Peggy become the directors of the corporation and Paula becomes its president. Art then sells the land to the corporation for $200,000; the transaction is approved by the corporation's board of directors. In this scenario, the relevant general rule of corporate law is that Art, as a promoter, owes a fiduciary obligation to the corporation. His obligation is like that of an agent to a principal (as in Case 2). If he does not reveal his interest in the land, and his profit, and adequately secure the approval of directors of the corporation (or, possibly, the approval of Paul as sole shareholder), can the corporation recover the
a) Yes, because Art is obligated to disclose his interest in the land and profit to the corporation.
b) No, because Art has fulfilled his obligations as a promoter by selling the land to the corporation at a fair price.
c) Yes, if the transaction is not approved by the directors or shareholders of the corporation.
d) No, because Art's fiduciary duty only extends to disclosing his interest in the land, not the profit made from the sale.