Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/662

 § 639.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. X. to prove actual fraud, or that the transaction was against its interest. 1 § G39. Wardell v. Railroad Co. 2 is a leading and instruc- tive case in connection with this subject. There the president of the Union Pacific Railroad, by order of the executive committee of the board of directors, entered into a contract to allow one Wardell and another to work coal lands belonging to the company, agreeing that the railroad company would purchase coal of them for fifteen years at prices which secured them high profits. Thereupon a coal company was formed, in which six of the railroad directors owned a majority of stock, and, in pursuance of a previous secret arrangement, the con- tract was assigned to it without consideration. The court held the contract a fraud on the railroad company, and that Wardell could sustain no claim against that company for its repudiation of the contract. " All arrangements by directors of a railroad company, to secure an undue advantage at its expense, by the formation of a new company as auxiliary to the original one, with an understanding that they, or some of them, shall take stock in it, and then that valuable contracts shall be given it, in the profits of which they, as stockholders of the new company, are to share, are so many unlawful devices to enrich themselves to the detriment of the stock- holders and creditors of the original company, and will be con- demned whenever properly brought before the courts for consideration." 3 1 Oilman, etc., R. R. Co. v. Kelly, 77 111. 426. Compare Union Pac. R. R. Co. v. Credit Mobilier, 135 Mass. 367. 2 103 U. S. 651. See, also, Union Pacfic R. R. Co. v. Credit Mobilier, 135 Mass. 367, 376. 3 Wardell v. Railroad Co., 103 U. S. 651, 658. Opinion of the court per Justice Field. In a later case in the Federal Supreme Court, the di- rectors of a railroad had made a contract, in which two of them were personally interested, for the con- struction of the road, and had issued the bonds of the company to the 642 contractors; suit was brought to foreclose the mortgage made to se- cure the bonds, and the corporation allowed judgment to be taken against it by default. Thereupon certain shareholders intervened, and the court held that the contract could not be enforced, nor the bonds either which had not come into the hands of innocent holders for value. But the court also held that the share- holders seeking equity must do equity, and that the bondholders were entitled to be reimbursed the sums which they had actually ex- pended, and to be paid the fair value