Vandewalle, Gerald W

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North Dakota Law Review Volume 33 Number 1 Article 14 1957 Trusts - Constructive Trusts - Fiduciary Status of Corporate Employees and Officers Gerald W. Vandewalle Follow this and additional works at: https://commons.und.edu/ndlr  Part of the Law Commons Recommended Citation Vandewalle, Gerald W. (1957) "Trusts - Constructive Trusts - Fiduciary Status of Corporate Employees and Officers," North Dakota Law Review: Vol. 33 : No. 1 , Article 14. Available at: https://commons.und.edu/ndlr/vol33/iss1/14 This Case Comment is brought to you for free and open access by the School of Law at UND Scholarly Commons. It has been accepted for inclusion in North Dakota Law Review by an authorized editor of UND Scholarly Commons. For more information, please contact und.commons@library.und.edu. NORTH DAKOTA LAW REVIEW [VOL. 33instant case is more reasonable than allowing the tax purchaser to take thesevered mineral interest. The severed interests support a relationship analag-ous to that between owners of adjoining tracts of land. No one would contendthat one owner's forfeiture of realty for taxes could affect the rights of hisneighbor in the adjoining tract.ARMOND C. ERICKSON.TRUSTS - CONSTRUCTIVE TRUSTS - FIDUCIARY STATUS OF CORPORATE Eat-ILOYEES AND OFFICaRS. - Employer sued a defendant employee to compel aconveyance to the employer of mineral interests acquired by the employee forhis own use. Plaintiff was engaged in purchasing and developing oil and gasleases, mineral interests and royalties in land, and producing minerals there-from. Defendant was production manager for the plaintiff in the Williston Basinwhere the mineral acres in dispute were located. Plaintiff corporation had arule stating that all mineral interests purchased by employees would be con-sidered to be held in trust for the corporation. Defendant employee did notsign any agreement to this effect or agree to it orally, but did know of the rule.Evidence proved that defendant did not use confidential information in secur-ing the lease. The United States Court of Appeals held that the trial court wascorrect in finding that defendant was not a fiduciary of plaintiff with respectto the acquisition of mineral interests for his own benefit. Amerada PetroleumCorporation v. Burline, 231 F.2d 862 (10th Cir. 1956).A constructive trust is defined as a trust raised by operation of law, imposedby a court of equity upon a person in a fiduciary or confidential relationship,in order to prevent him from holding an advantage which he gained byreason of breach of such relationship.' A confidential relationship is of majorimportance in establishing a constructive trust.2 A fiduciary or confidentialrelationship is not restricted to such confined relations as trustee and benefici-ary, partners, attorney and client, principal and agent, 3 but applies to allpersons who occupy a position out of which the duty of good faith ought, inequity and good conscience, to arise.4 Therefore the rule is formed that anemployee in a confidential relationship is barred from using, for his own bene-fit, secret information belonging to his employer.5 The rule is deceptively1. N. D. Rev. Code, J 59-0108 (1943) (Constructive trust. Everyone who volun-tarily assumes a relation of personal confidence with another is deemed to be a trusteewithin the meaning of this chapter, not only as to the person who reposes confidence, butas to all persons of whose affairs he thus acquires information which was given to suchperson in the like confidence or over whose affairs he, by such confidence obtains, anycontrol); Bradley v. Fox, 7 Ill.2d 106, 129 N.E.2d 699, 705 (1955) (dictum); Comptonv. Compton, 414 I1. 149, 111 N.E.2d 109, 113 (1953) (dictum).2. McDonald v. Miller, 71 N. D. 474, 16 N.W.2d 270 (1944); Young v. Bradley,142 F.2d 658, 660 (6th Cir. 1944) (dictum); See Nelson Development Co. v. Ohio OilCo., 45 F.Supp. 933 (E. D. Ill. 1942); City of Rochelle v. Stocking, 336 Il1. App. 6,82 N.E.2d 693 (1948) (Mere failure to perform an agreement or to carry out a promisecannot in itself give rise to a constructive trust).3. Cranwell v. Ogelsky, 229 Mass. 148, 12 N.E.2d 81 (1937). See Coombs v.Minor, 60 Cal. App.2d 645, 141 P.2d 491, 495 (1943) (dictum); Fipps v. Stidham, 174Old. 322, 50 P.2d 680, 683 (1935) .(dictum) ("Confidential" and "'fiduciary" relationsheld to be synonymous).4. Barker v. Barker, 75 N. D. 253, 27 N.W.2d 576 (1947); Metzger v. Metzger, 338Pa. 564, 14 A.2d 285 (1940); Risk v. Risher, 197 Miss 155, 19 So.2d 484, 486 (1944)(dictum).5. Witmer, v. Arkansas Dairies, 202 Ark. 470, 151 S.W.2d 971 (1941); Reiss v.Srnford, 47 Cal. App.2d 244, 117 P.2d 694 (1941); Empire Steam Laundry v. Lazier,165 Cal. 95, 130 Pac. 1180 (1913) (by statute); Morrison v. Woodbury, 105 Kan. 617,185 Pac. 735 (1919); Junker v. Plummer, 320 Mass. 71, 67 N.E.2d 667 (1946); JewelTea Co. v. Grissom, 66 S. D. 146, 279 N.W. 544, 545 (1938) (dictum).1957] RECENT CASESsimple however. Not all employer-employee relations are confidential.6 Be-fore the rule can be applied it must be decided when an employee is in afiduciary capacity and what information is secret.It has been said that there is no invariable rule which determines the ex-istence of a confidential relationship, 7 but existence of a fiduciary relationshipin a particular case is to be determined by facts established. s "A mere em-ployee not an agent with respect to matter under consideration does notoidinarily occupy a position of trust toward his employer; but if an employeein course of his employment acquires secret information relating to employer'sbusiness, he occupies a position.of trust analogous in most respects to that offiduciary and must govern his actions accordingly."' Thus it has been heldthat a constructive trust over the res gained by the use of secret information,as well as a discharge of the employee is available as a remedy to an employerinjured by his fiduciary.10 This rule has been applied to a secretary wholearned of his employer's future stock trading plans,"1 and to officers of acorporation who formed a partnership adverse to plaintiff stockholder's inter-ests.1 2 A confidential relationship was also held to exist where an engineersupervised production methods,13 an industrial chemist had possession ofsecret formulae, 14 and where a store manager was in possession of customercredit ratings. 15Ordinarily the term "confidential information" is understood to mean a secretprocess or formula, tool, compound, or mechanism known only to its ownersand those 6f his employees in whom it is necessary to confide for its profitableutilization.1 ° A review of cases however evidences that courts have consideredit a wise public policy to extend the term "confidential" to protect other typesof information shown to be peculiarily essential in the owner's business."-However, the mere fact that the owner considers it to be secret is not con-6. See e.g., Van Dale v. Prudential Ins. Co. of America, 225 Wis. 281, 274 N.W.153, 159 (1937); Watkins v. Mertz, 83 Ga. App. 115, 62 S.E.2d 744 (1950).7. See Oldland v. Gray, 179 F.2d 408 (10th Cir. 1950); Koehler v. Huller, 62 Ind.App. 8, 112 N.E. 527, 528 (1916) (dictum). 3 Bogert, Trusts § 482 (1946) (There isno uniform practice among courts in their use of phrases "fiduciary relationship" and "con-fidential relationship").8. Cann v. Barry, 293 Mass. 313, 199 N.E. 905, 907 (1936) (dictum); Halper v.Homestead Building and Loan Ass'n., 59 N.Y.S.2d 689 (Sup. Ct. 1944), aff'd 269 App.Div. 1044, 59 N.Y.S.2d 695 (2d Dep't. 1945) (dictum).9. Brophy v. Cities Service Co., 31 Del. Ch. 241, 70 A.2d 5, 7 (1949).10. Ohio Oil Co. v. Sharp, 135 F.2d 303 (6th Cir. 1943) (Where an employee of asurvey company, hired by plaintiff, imparted information obtained in a survey to a de-fcndant, the defendant was held to be a constructive trustee for the plaintiff).11. See Brophy v. Cities Service Co., 31 Del. Ch. 241, 70 A.2d 5 (1949).12. Rosenblum v. Judson Engineering Corp., 99 N. H. 267, 109 A.2d 558 (1954).13. State v. Kirkwood, 357 Mo. 325, 208 S.W.2d 257 (1926).14. Marcalus Mfg. Co. v. Sullivan, 142 N.J.Eq. 434, 60 A.2d 330 (1948).15. Friedman v. Stewart Credit Corp., 26 N. Y. S.2d 529 (Sup.Ct.1939),af#'d 261App. Div. 990, 26 N. Y. S.2d 533 (2d Dep't. 1941).16. National Tube Co. v. Eastern Tube Co., 23 Ohio C. D. Dec. 468 (1902), affd70 N.E. 1127 (1902).17. See Hunter v. Shell Oil Co., 198 F.2d 485 (1952) (geological data); Smith Corp.v. Petroleum Iron Works, 74 F.2d 934 (6th Cir. 1935) (machinery); Brophy v. CitiesService Corp., 31 Del. Ch. 241, 70 A.2d 5 (1949) (trading plans); Morrison v. Wood-bury, 105 Kan. 185 Pac. 735 (1919) (insurance debts and expiration dates); MarcalusMfg. Co. v. Sullivan, 142 N.J.Eq. 434, 60 A.2d 330 (1948) (chemical formulae);Friedman v. Stewart Credit Corp., 26 N.Y.S.2d 529 .(Sup. Ct. 1939), afl'd 261 App.Div. 990, 26 N.Y.S.2d 533 (2d Dep't. 1941) (credit ratings); Talmon v. Mulcahy, 119App. Div. 42, 103 N. Y. Supp. 936 (2d Dep't. 1907) (office methods and techniques);State v. Kirkwood, 357 Mo. 325, 208 S.W.2d 257 (1926) (production methods andmanufacturing processes); Pressed Steel Car Co. v. Standard Steel Car Co., 210 Pa. 464,60 Atl. 4 (1904) (blue prints); Simmons Hardware Co. v. Waibel, 1 S. D. 488, 47N.W. 814 (1891) (Code system showing cost and selling prices of merchandise).NORTH DAKOTA LAW REVIEWtrolling.-S If the information is in fact confidential a constructive trust for theemployer will be formed only if that informatiofi was the basis for an ad-vantage gained by the employee as against his employer1OIn the instant case evidence proved the defendant did not obtain or usesecret data or information belonging to plaintiff in acquiring the mineral inter-ests involved. The specific mineral leases were purchased by an agent for thedefendant. The defendant did not know the exact location of such interestsuntil they had been purchased by the agent. It is submitted that the natureof employment was such as could easily give rise to a fiduciary relationship.Applying the above principles to the instant case it can be seen that no fiduci-ary relationship existed with respect to the defendant's duties to plaintiff,therefore the defendant had not breached any confidential relationship andhence no constructive trust could result.GERALD W. VANDEWALLE.WOKNIEN'S COMPENSATION - EXTRATERRITORIAL OPERATION OF STATUTEJURISDICTION TO AWARD COMPENSATION FOR THE OUT-OF-STATE INJURY. -Claimant, a resident of Montana, presented a claim to the Industrial AccidentBoard of Montana based on an injury he had received while working for aMontana corporation on a section of road within the State of Idaho. Theboard refused compensation on the grounds that since the Montana Act iscompulsory and the injury occurred outside the state it had no jurisdiction.The Montana Supreme Court, in sustaining the claim, held that the MontanaAct was based upon the employer-employee relationship as well as beingcentractual; and therefore coverage should extend to the employee injuredoutside the state. Morgan v. Industrial Accident Board of Montana, 300 P.2d954 (Mont. 1956).One of the early attempts to solve the dilemna of out-of-state injuries inworkmen's compensation cases was by use of the "tort" or "territorial theory."'Under this theory a state was deprived of jurisdiction where the injury occur-red outside the state. Other courts adopted the "contract theory," reasoningthat the compensation law became part of the employment contract and itapplied even though the injury occurred outside the state.2 These courtshave laid great stress on the nature of the Workmen's Compensation Act, andhave applied the contract theory where the law was elective.;; The earlycourts, however, were reluctant to extend coverage to the out-of-state injuryunder the "contract theory" if their law was compulsory. 4In the instant case the contract of employment was made in Montana, thecorporation was domiciled in Montana, claimant was a resident of Montana,18. Young v. Bradley, 142 F.2d 658 (6th Cir. 1944).19. Smith v. Bolin, 261 S.W.2d 352 (Tex.Civ.App. 1953).1. North Alaska Salmon Co. v. Pillsbury, 174 Cal. 1, 162 Pac. 93 (1916); UnionBridge and Constr. Co. v. Industrial Comm'n, 287 I11. 396, 122 N.E. 609 (1919); In reGould, 215 Mass. 480, 102 N.E. 693 (1913).2. Kennerson v, Thames Towboat Co., 89 Conn. 367, 94 AtI. 372 (1915); Peirce v.Bekins Van and Storage Co., 185 Iowa 1346, 172 N.W. 191 (1919); Grinnel v. Wilk-inson, 39 R.I. 447, 98 Atl. 103 (1916).3. Peirce v. Bekins Van and Storage Co., 185 Iowa 1346, 172 N.W. 191 (1919);Contra, Anderson v. Miller Scrap Iron Co., 169 Wis. 106, 170 N.W. 275 (1919) (whereth court applied their act extraterritorially but repudiated the contract theory.)4. See note 1 supra.[VOL. 3

Trusts - Constructive Trusts - Fiduciary Status of Corporate Employees and Officers

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Trusts - Constructive Trusts - Fiduciary Status of Corporate Employees and Officers

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