Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/658

 § 633.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. X. the courts at the suit of the corporation. 1 Yet it has been held that the treasurer of a corporation may with his own money purchase its notes at a discount and collect their face value from the corporation, provided that at the time of the pur- chase he was under no duty to the corporation to purchase or pay the notes in its behalf. 2 But it has also been held that directors cannot, when the corporation is insolvent, buy up claims against it at a discount, and then prove them at their face on the winding up of the corporation. 3 The following is a recent utterance of the New York Court of Appeals : " The rule [forbidding a trustee to purchase obligations of his cestui at less than par and enforcing them at par] is founded upon the unwillingness of the law to uphold contracts which bring into collision the trust duty and the personal interests, and it is because of that collision, and the temptations which surround it, that it declares the contract voidable at the election of the beneficiary without investigating the good or the bad faith of the trustee. The entire basis of the rule consists in this col- lision between trust duty and personal interest, and the equi- table prohibition has no application where there is no such pos- sible inconsistency. There is no such conflict in the ordinary case of the purchase by a director in a going corporation of its outstanding obligations." 4 i Duncomb v. N. Y., H. & N. R. R. Co., 84 N. Y. 190. See Fitzgerald v. Fitzgerald, etc., Co., 41 Neb. 374. If a director, by agreement with his co-directors, take, directly from bis company, its bonds below par on bis private account and sell tbem at an advance, he may be compelled to account for the profits for tbe benefit of the corporation, its shareholders, or creditors; and this, although he acted in good faith. Widrig v. New- port St. Ry. Co., S2 Ky. 511. But when suit is brought to foreclose a mortgage made to secure bonds is- sued to directors, they will not be declared void at the instance of a subsequent lienor, when the corpo- ration does not defend. Bassett v. Monte Christo M. Co., 15 Nev. 393. 638 2 St. Louis, etc., R. R. Co. v. Waller, 30 Kan. 51; Glenwood M'f'g Co. ». Syme, 109 Wis. 355. 3 Linglu v. Nat. Ins. Co., 45 Mo. 109; In re Imperial Land Co., Ex parte Larking, 4 Ch. D. 566; Patrick v. Boonville Gas Light Co., 17 Mo. App. 402. See § 759. Compare Iu- glehart v. Thousand Islands Hotel Co., 32 Hun (N. Y.), 377. The ques- tion is, whether the director has acted fairly for the interest of the corporation in buying the securities at a discount. Higgius v. Lansingh, 154 111. 301, 380. In this case he was not allowed to enforce them at their face. 4 Seymour v. Cemetery Ass'n, 144 N. Y. 333, 344. Opin. of court per Finch, J.