Opinion ID: 2206450
Heading Depth: 1
Heading Rank: 2

Heading: Title to Real Estate

Text: The real estate housing Gomer's Bar was purchased from Herbert Althaus and LeVon A. Althaus, husband and wife, in the name of Gomer's, Inc. Bitter and the Smiths were all active in the negotiations for the purchase of the property. All three signed an offer to purchase as corporation officers, although at that time a corporation had not yet been formed. Bitter claims, and it is not disputed, that the designation corporation officers was added by the real estate broker after the offer to purchase was signed. Under the record before us, we do not deem that to be material. Later a contract for the purchase of the property was signed by Steve J. Smith as president and Joseph J. Bitter as secretary of Gomer's, Inc., which had by then been issued a certificate of incorporation by the State. Within a short time, other financing was arranged through the Dubuque Bank & Trust Company. The sellers were paid off, and they then conveyed the property by warranty deed to Gomer's, Inc. Gomer's, Inc. executed a note and mortgage encumbering the property to Dubuque Bank & Trust Company in the amount of $50,000. In connection with this loan, Bitter furnished the lender with a title opinion certifying Gomer's, Inc. as the holder of fee simple title. Now Bitter contends the corporation does not have title because the original offer to purchase worked an equitable conversion in favor of the Smiths and him as individuals. He premises this on the fact the corporation was not in existence when the offer was signed. In negotiating for the purchase of the real estate, Bitter and the Smiths were promoters acting for the corporation they were then in the process of organizing. A promoter is one who undertakes to bring about the incorporation, procures for it the rights and capital by which it is to carry out its purposes, and establishes it as able to do business. The Telegraph v. Loetscher, 127 Iowa 383, 386, 101 N.W. 773, 774 (1904). 18 Am.Jur.2d Corporations, § 106, at 647 (1965); see also King Features Syndicate Dept. of Hearst Corporation International News Service Division v. Courrier, 241 Iowa 870, 874, 43 N.W.2d 718, 722 (1950). A promoter stands in a fiduciary position toward both the corporation and its stockholders and is prohibited from acquiring a secret personal advantage from any action taken on behalf of the corporation. Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 462-63, 107 N.W. 629, 632 (1906); The Telegraph v. Loetscher, 127 Iowa at 385-86, 101 N.W. at 774; 18 Am.Jur.2d Corporations, § 109 at 650-51. In the present case the Smiths and Bitter owed a fiduciary duty to the corporation for which they were acting and to its stockholders. The fact that the promoters themselves were the stockholders does not alter that obligation. Bitter had an additional obligation as attorney for the corporation. The record is clear that all negotiations for purchase of the real estate were made on behalf of Gomer's, Inc., which the Smiths and Bitter were then organizing. Bitter cannot profit personally from this transaction nor can he assert personal ownership of the real estate against those toward whom he was bound to exercise the utmost good faith. There is no merit to Bitter's argument.