One of the directors of Independent Pallet Mill purchases 100 acres of timberland. In order for him to sell the timber from this land to Independent, what must he do? If he does not act properly in this situation, what duty would he violate, and what would be the result?

The transaction will be valid if the disinterested members of the board of directors approve the transaction; the disinterested shareholders approve it; or the transaction is entirely fair to Independent. If the director does not act properly, he would be violating the duty of loyalty to his company. Self-dealing means that a manger makes a decision benefiting either himself or another company with which he has a relationship. If a manager engages in self-dealing, the business judgment rule no longer applies. This does not mean the manager is automatically liable to the corporation or that the decision is automatically void. It just means a court will scrutinize the deal more carefully.