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Law School Case Brief

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

Rule:

A beneficiary, about to plunge into a ruinous course of dealing, may be betrayed by silence as well as by the spoken word. The trustee is free to stand aloof, while others act, if all is equitable and fair. He cannot rid himself of the duty to warn and to denounce, if there is improvidence or oppression, either apparent on the surface, or lurking beneath the surface, but visible to his practiced eye.

Facts:

Plaintiff Globe Woolen Company (Globe), which operated mills, brought this action against defendant Utica Gas and Electric Company (Utica) to compel the specific performance of contracts to supply electricity to the mills. Utica argued that the contracts were made under the dominating influence of a common director and that their terms were unfair and oppressive. The trial court held in favor of Utica and annulled the contracts, and the appellate court affirmed. 

Issue:

Was the annulment of the contracts between Globe and Utica on the ground that they were made under the dominating influence of a common director and that their terms were unfair and oppressive proper?

Answer:

Yes

Conclusion:

In affirming this judgment, the court held that the common director's refusal to vote on the contracts did not nullify the influence and predominance that he had exerted in arranging the contracts. The court found that as a result of the contracts, Utica was losing large amounts of money and that such consequence was foreseeable to the common director who stood by and said nothing while the contracts were presented to the other directors of Utica as a mere formality.

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