Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/666

 § 644.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. X. directors cannot take part in the making of impor- boardsof tant contracts between two adversely interested irectors. corporations when the action of the common direct- ors is an essential factor in the transactions. 1 And it has been finally held, and with such propriety of reasoning as to lead one to believe that the rule will remain fixed, that when common directors constitute a majority in each board, the two boards of directors cannot in the same transactions validly represent two adversely interested corporations. 2 In Pearson v. Concord R. R. Co., the contracts made by the common boards were set aside, and the court appointed a trustee for the company, whose shareholders were suing to enjoin their direct- ors from taking the contemplated action, to represent it in the transactions. Giving the opinion of the court Judge Smith said : " Their interests being conflicting, it was impossible for common directors to procure the lowest rates for one party and the highest rates for the other. ' No man can serve two mas- ters.' They were not arbitrators called in to adjust con- flicting claims, nor were they disinterested. The referee has found that the purchase of Concord stock at prices largely in excess of its market value w T as made with the intent and purpose of obtaining control of the Concord, and thereby to secure more favorable contracts for the business of the upper companies over the lower. The plan was formed, the purchase was made, the control of the Concord was obtained, and more favorable contracts were secured. By taking the control of the Concord, the upper companies disabled it as a contracting party. In fixing the rates of that company for their business, 1 Metropolitan Telephone Co. v. Domestic Telephone Co., 44 N. J. Eq. 569; Metropolitan El. R. R. Co. v. Manhattan El. R. R. Co., 11 Daly (N. Y. ), 373, 503. A common direct- or cannot execute an assignment by debtor corporation to creditor corpo- ration when the former is insolvent. Sweeny v. Sugar Co., 30 W. Va. 443. But see Pauly v. Pauly, 107 Cal. 8. 2 Memphis, etc., R. R. Co. v. Woods, 88 Alabama, 641; O'Connor Mining Co. v. Coosa Furnace Co., 95 Alabama, 646 614; Pearson v. Concord R. R. Co., 62 N. H. 537; Fitzgerald v. Fitz- gerald, etc., Co., 44 Neb. 463, 490. And see Bill v. Western Union Tel. Co., 16 Fed. Rep. 14; and compare Wallace ». Long Island R. R. Co., 12 Hun (N. Y.), 460. But such trans- actions can be attacked by creditors only on the ground of actual fraud on creditors. O'Connor Mining Co. v. Coosa Furnace Co.. 95 Alabama, 614.