Case 3 - Conflict of interest

Summary

Case

Jacob is managing Esther's assets with full power to sell them. One of the assets he holds on her behalf is an undeveloped piece of land called Blackacre.

Alternative 1

While exploring investment possibilities for Esther, Jacob learns that the zoning rules for the area that includes Blackacre are likely to change in a way that will make land in that area more valuable. A month before the change is announced, Jacob uses his own money to buy Greenacre, an undeveloped piece of land in the same area. When the zoning change is announced, the value of both Blackacre and Greenacre increases by 100 per cent. When Esther becomes aware of what has happened, she seeks an amount corresponding to the increased value of Greenacre from Jacob. She claims that this increase is a wrongful gain from a transaction that created a conflict of interest and duty, since Jacob's duty involves using the information he acquires in managing Esther's assets for her benefit and not for his own gain. Will Esther's claim succeed?

Alternative 2

Jacob owns Greenacre, an undeveloped piece of land in the same area as Blackacre, in his personal capacity. Jacob sells Blackacre to Bill, a member of the zoning board responsible for the planning of the district including both Blackacre and Greenacre. The transaction is at market value.