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The wrong committed by the officer of a corporation which affects the stockholders generally, through their interests in the corporation, is not a wrong to them as individuals, but to the corporate entity. To illustrate this, the case may be instanced of the treasurer of a corporation embezzling its funds. Here every shareholder may suffer, but one of them individually cannot sue, for the money was not his; it belonged to the corporation. The interest the shareholder had which was affected was not in the money itself, but it consisted in a right to an accounting by the corporation in respect to it, and nothing could come to him from it except through the corporation, and as dividends, or by division on the final winding up of the corporate concerns. The case mentioned in the note was an action in case by a stockholder in a printing and publishing corporation against persons who were alleged to have conspired with two of its directors to suspend and destroy the business and franchises of the company, and to have induced such directors to suspend the publication of their daily and weekly newspapers for the benefit of a rival establishment, thereby rendering the plaintiff's interest in the corporation valueless. The conclusive answer to this claim was that the wrong alleged was a corporate wrong, in which all the stockholders were proportionally interested; and the corporation should represent all for the purposes of legal remedy.' There is a want of legal privity between the stockholder and the directors whose action is complained of; the latter are not his agents and bailees, but the agents and bailees of the body politic, whose officers they are.' It is true that this principle may sometimes prove embarrassing, when the officers charged with wrong are the governing board of the corporation, and the very parties who should represent its interests in the redress of its [*519] wrongs; *but the remedies in equity are ample for such a case, and a single shareholder may there bring to account the delinquent or fraudulent officer, or obtain redress

that complainant is injured. Elkins v. Camden &c., R. R. Co., 36 N. J. Eq., 241.

Talbot . Scripps, 31 Mich. 268. See Robinson v. Smith, 3 Paige, 222; Hodges v. N. E. Screw Co., 1 R. I. 312. The point is forcibly and clearly discussed and presented in the leading

case of Smith v. Hurd, 12 Met. 371. And see Craig . Gregg, 83 Penn. St.

19.

'Smith. Hurd, 12 Met. 371; Gorham v. Gilson, 28 Cal. 479; Butts e. Wood, 37 N. Y. 317; Abbott v. Merriam, 8 Cush. 588.

from others who have wronged the corporation, but against whom the directors refuse to proceed.' Such a suit, however, is instituted not on behalf of the complainant alone, but of all other stockholders, and stands as a substitute for a suit by the corporation itself.

Recurring to the duties which it has been said above, the officers owe to the stockholders, some illustrations may be given of the acts which constitute breaches thereof:

1. If the managers of a corporation knowingly exceed the corporate powers, this is a species of fraud upon the corporators for which the latter may have the appropriate relief in equity. No doubt they might be enjoined from persistence in such action, on the application of individual corporators, and be called to account for what had already been done. So an individual corporator might perhaps obtain relief from his obligations to the company, and permission to withdraw, where powers were exercised which when he came in he had no reason to understand the corporation was to assume.'

2. The obligation to furnish accurate information is partic ularly forcible, as it applies to the regular reports which are required of the managing board and perhaps of other principal

Hodges v. New England Screw Co., 1 R. L. 312; 3 R. I. 9; Brown v. Van Dyke, 4 Halst. Ch. 795; Taylor . Miami, &c., Co., 5 Ohio 162; Pratt . Pratt, 33 Conn. 446; Butts v. Wood, 37 N. Y. 317; March v. Eastern R. R. Co. 43 N. H. 515; Rogers v. Lafayette Ag. Works, 52 Ind 296; Watts' Appeal, 78 Penn. St. 370; Peabody v. Flint, 6 Allen, 52, Brewer . Boston Theater, 104 Mass. 378; Allen. Curtis 26 Conn. 456; Wright

Oroville, &c., Co. 40 Cal., 20; Goodin . Cincinnati, &c., Co. 18 Ohio (N. s.) 169; Dodge v. Woolsey, 18 How. 331; Bronson v. LaCrosse R. Co., 2 Wall. 283; Memphis v. Dean, 8 Wall. 64; Barr v. New York, &c. Co. 96 N. Y. 444. See La Grange v. State Treasurer, 24 Mich. 468; Blain

. Agar, 1 Sim. 37; Hichens. Congreve, 4 Russ. 562; DuPont v. Nor. Pac. R. Co., 18 Fed. Rep. 467. The

question as to what circumstances will warrant the bringing of such action is fully considered and the rule laid down in Hawes v. Oakland, 104 U. S 450, followed in Dimpfell v. Ohio &c. Co. Ry. Co. 110 U. S. 209. The stockholder must have exhausted all means within his reach to obtain redress within the corporation. But it is said that he need not demand corporate action before suit, if all the officers are committing a wrong upon him. Kelsey v. Sargent, 40 Hun, 150. 2 Robinson v. Smith, 3 Paige, 222; Dodge . Woolsey, 18 How. 331; Heath. Erie R. R. Co., 8 Blatch. 347; Mason v. Harris, L. R. 11 Ch. D. 97.

Ship' Case, 2 De G., J. & S. 544. If the stockholder has assented to the illegal act, he cannot be heard to complain, Weed v. Little Falls &c. Co., 31 Minn. 154.

officers. These are supposed to state facts upon which not only may the associates act in their corporate meetings but also in individual transactions; and a statement of important facts, pur

posely made untrue, is a fraud when acted upon. But [*520] the cases *must be so peculiar that would give rise to an action to charge the directors personally that it can hardly be useful to undertake to suggest what facts might suffice to render them liable.

A corporator at all reasonable times is entitled to an inspection of the books of the corporation, and if this is denied him, he may, by mandamus, obtain it. But as this proceeding might not be speedy enough to make the inspection accomplish the intended purpose, the incorporator should also be entitled to redress in a special action on the case against the custodian of the books, or, if the refusal was under corporate orders, against the corporation itself. And here the right which is denied is plainly an individual right, and does not in a legal sense concern other corporators.

3. Under the third head of duties above stated, the general principle is that whatever a corporate officer does officially it is his duty to do with judicial fairness as regards his own interests and those of his associates, and whatever advantage he takes of his own position for his individual benefit to the prejudice of the others is a fraud. Therefore where directors of a corporation instructed their treasurer to purchase of a certain ferry company a steamboat owned by it, at the cost of the boat and repairs, and it turned out that the directors constituted the ferry company, and that the price that company demanded and received for the steamboat was a sum much above the cost of the boat and repairs, this was adjudged a fraud for which the purchasing company might hold them responsible.' So if the directors of an embarrassed railroad company proceed under proper authority to sell the road, but do so in a way calculated not to produce its value, and become purchasers themselves, the

'When false reports of the financial condition of the corporation are published it will not be presumed for the purpose of charging a director with fraud that he had knowledge of all the affairs of the company, but

there must be evidence that he knew the report was false or had reason to believe it was. Wakeman . Dalley, 51 N. Y. 27.

2 Parker v. Nickerson, 112 Mass. 195.

the corporation, So if a

sale is a fraud upon their trust, and may be vacated on that ground. So where shares in a corporation are placed in the hands of directors to sell for the company, and they are enabled to sell at a premium, this premium belongs to and it is a fraud in them to appropriate it." director of a railway company contract in his own name [*521] for iron for the road, any pecuniary advantage derived from the contract belongs to the company. So it is not competent for a director in a railway company to become contractor with the company for constructing the road; the two positions he would occupy as member of the board of directors letting the contract, and as contractor taking it, being inconsistent." Nor does it make any difference that no actual fraud was intended in the transaction, or that it can be shown that the corporation suffered no loss; the policy of the law will not permit the integrity of the trustee to be put to the trial of transactions where duty to his cestuis que trust would stand opposed to interest. So direct

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2 York, &c., R. Co. v. Hudson, 16 Beav. 485. Where a director has loaned the bank's money with an agreement to share in the profits of the enterprise for which it was borrowed, the share belongs to the bank. Farmers', &c., Bank . Downey, 53 Cal. 466. A promoter is liable for secret profits from the sale to the comI any of a mine. Emma Silver Min. Co. v. Lewis, L. R. 4 C. P. D. 396. See in re West Jewell, &c., Co., L. R. 10 Ch. D. 579. Directors may not vote themselves additional pay

after receiving pay for the time covered. State v. People's, &c., Ass., 42 Ohio St. 579; Bennett v. St. Louis, &c., Co., 19 Mo. App. 349.

See Benson . Heathorn, 1 Y. & Coll. 326.

Flint, &c., R. R. Co. v. Dewey, 14 Mich. 477; European, &c., R. Co. v. Poor, 59 Me. 277; Thomas o. Brownville, &c., R. R. Co. 110 U. S. 522. An assignment to him of an interest in such a contract is voidable at the election of the corporation. Barnes v. Brown, 80 N. Y. 527. So railroad directors may not buy up land for station grounds. Cook v. Sherman, 20 Fed. Rep. 167. See Blair Town, &c., Co. v. Walker, 50 Ia. 376. Nor become interested in a company formed to mine coal to be sold to the

railroad company. Wardell v. Railroad Co., 103 U. S. 651.

5 Flint, &c., R. R. Co. v. Dewey, 14 Mich. 477. A member of a board of directors who presents a bill on his own behalf for extra compensation cannot act as director on the question

ors will not be permitted to avail themselves of a mortgage which they cause to be made by the corporation to themselves, and by which they obtain an undue advantage.' So payments made by the directors to the company, in property at more than its value, will not be suffered to stand.' These cases illustrate the general principle."

Nevertheless there is nothing in the relation of managing officer and stockholder that shall preclude the former dealing with the latter in respect to his shares and becoming purchaser thereof, provided that in their negotiations there is no decep tion and no concealment of facts which the purchaser has a right to know. Nor would the officer be under obligation, in such dealings, to put before the stockholder the facts within his knowledge which might influence the negotiation, any further than would be required of his position by his duty to the stockholders generally, irrespective of the negotiation. His duty may require of him regular reports, but further information which a stockholder may desire he will be expected to call for. No doubt a director has the same right as other persons to buy and sell stock in market, and in New York it has been

of its allowance. Butts v. Wood, 37 N. Y. 317. See Gilman R. R. Co. v. Kelly, 77 Ill. 426.

'Koehler v. Black River Falls Iron Co., 2 Black, 715. See Davis v. Rock Creek, &c., Co., 55 Cal. 359; Chouteau v. Allen, 70 Mo. 290. But a director may become a creditor of and enforce a mortgage against the corporation if the transaction is fair. Twin Lick Oil Co. v. Marbury, 91 U. S. 587; Hallam v. Ind. Hotel Co., 56 Ia. 178. If to secure an honest debt a director takes bonds, the company cannot repudiate the transaction without restoring what it has received. Duncomb v. New York, &c., Co., N. Y. 190; 88 N. Y. 1.

2 Osgood v. King, 42 Iowa, 478.

84

3 See, also, for other illustrations, Bartholomew v. Bentley, 15 Ohio, 659; S. C. 1 Ohio, (N. 8.) 37, and cases in notes to Duncomb v. Housatonic, &c., R. R. Co., 4 A. & E. R.

R. Cas. 306; Cook v. Sherman, 20 Fed. Rep. 175. Every contract entered into by a director with his corporation may be avoided by the latter within a reasonable time and so of a contract between two corporations, some of the directors holding that office in each. Metrop. &c., Co. v. Manhattan, &c., Co., 11 Daly, 373, where VAN BRUNT, J. discusses these questions elaborately with full citation of authorities. A contract between a corporation and its directors is only voidable and the right to avoid may be waived by acquiescence. Kelly . Newburyport, &c., Co., 141 Mass. 496. See, further, as to dealings between corporations when the same persons act as directors of each. Pearson v. Concord R. R. Co., 62 N. H., 13 A. & E. R. R. Cas. 102; Rolling Stock Co. v. Railroad Co, 34 Ohio St. 465; Munson . Syracuse, &c., Co., 103 N. Y. 58.

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