In the case of The New

Schuyler, Cross, et al. 17 N.

York & New Haven R. Company v. Y. 592, where the railroad compary filed a bill against Schuyler and the holders of the over issued stock, to have it cancelled, the court say—

"It is well settled that the directors or managers of a corporation are trustees for the holders of its stock. It is on this ground that the shareholders are entitled to relief in equity against an actual or threatened waste or misapplication of its corporate funds. It seems also to be settled that a suit for that purpose must be brought in the name of a corporation, unless it appears that the directors refuse to prosecute or are themselves the guilty parties answerable for the wrong. If they do refuse, or are thus answerable the shareholders may sue in their own names, but in such case the corporation must be made a defendant, either solely or jointly, with the directors sought to be charged. (Robinson v. Smith, 3 Paige, 222, and cases there cited). I have nowhere seen it laid down that the corporation itself, considered as a mere legal abstraction, is a trustee for its stockholders; yet it is not difficult to see that certain trust relations exist between it and them. A corporation aggregate is clothed with a legal title to its real and personal estate,franchises and privileges, while the shareholders, as individuals, have in them equitable interests, the interests of each being in proportion to the amount of stock which he holds. The corporation is entitled to receive, and does receive, the gross amount of the earnings; upon a trust, however, or at least under a duty, to pay over to the stockholders the net profits, as dividends upon their stock. If not under all circumstances bound to make and pay over, in money, the dividends earned, it must at all events, use them for the shareholders benefit, in the prosecution of its legitimate enterprises, and subject to ultimate accountability. If these relations are not precisely defined in the books, it is because the occasion has not arisen requiring this to be done."

In the case of Scott v. Depeyster, et al., 1 Edwards, 513, which was a bill filed by complainant for himself, and other stockholders of the National Insurance Company, against the directors of said

company for the purpose of charging them personally with heavy amounts embezzled by their secretary, the court say

"Persons who become directors or managers of a corporation place themselves in the situation of trustees; and the relation of trastee and cestui que trust is thereby created between them and the stockholders. The former are obliged to take the same care, and use the same diligence as factors and agents. They are answerable not only for their own fraud and gross negligence, but also for all faults which are contrary to the care required of them. Directors are to be looked upon as bailees of the property. And as they are persons generally having an interest in the stock, they are not bailees who are to derive no benefit from thir undertaking, and therefore, to be held responsible for slight neglect, but they act in relation to a bailment beneficial to both parties. And the rule then is, they must answer for ordinary neglect; and "ordinary neglect " is understood to be, the omission of that care which every man of common prudence takes of his own concerns."

In March v. R. R. Co., 43 N. H. 529, the court said—

"Directors of railroads who have charge of other people's money, should, and must be held to exercise the same care, caution, and prudence which they would be expected to exercise in their own affairs."

The court, then, after referring to the case of Coleman v. Eastern Counties R. Co., 6 Eng. R. Cases, 573, in which it was held that directors have no right to enter into, or pledge the funds of the company in support of any project not pointed out by their act although such project may tend to increase the traffic upon the railway and may be assented to by a majority of the stockholders and the object may not be against public policy, and that acquiescense by shareholders in such a project for ever so long time affords no presumption of its legality; and to Macedon Plank R. Co. v. Lapham, 18 Barb. 312, then adds on p. 533—

"In the case before us there has been a misapplication, as it would seem, of the funds-to some part of which, these plaintiffs are entitled to purposes and objects not provided for in their contract between the defendant companies nor within the scope of the ob

jects then in the contemplation of the parties, which is illegal and which is treated in law as a breach of trust or as a fraud upon the plaintiffs (whatever the intention of the directors and a majority of the stockholders in the defendant companies may have been), which is the proper subject of inquiry and for correction by this court in an application like the present."

The court further beld in this case that it was not necessary for the plaintiff to make out a case of actual fraud and conspiracy or to charge any moral turpitude or guilt to the directors, but it was sufficient, if it appeared that the defendants were managing the roads in a manner detrimental to the plaintiff's interest, in consequence of their mistaken views of the law of their rights. And in support of this Salomons v. Laing, 6 Eng. R. Cases, 289, is par ticularly referred to.

In the case of Sturges v. Knapp, 31 Vt. (2 Shaw, 1), the court held that the trustees of bondholders were liable to the minority of the bondholders for a faithful discharge of their duties.

Ang. & Ames on Corporations, page 371.

"The directors of an incorporated company must take the same care, and use the same diligence, as factors or agents. They are answerable not only for their own fraud and gross negligence, but, as they are usually interested in the stock, and act in relation to a bailment of the corporate funds to them, beneficial to both parties, they must answer for 'ordinary neglect,' or the omission of that care which every man of ordinary prudence takes of his own concerns."

In Peabody et al. v. Flint et al., 6 Allen, 36, CHAPMan, J., says : "As between the corporation itself and its officers, it was long since held that they were trustees, and that a court of equity would hold them responsible for every breach of trust. Charitable Corporation v. Sutton, 2 Atk. 400.

The corporation itself holds its property as trustees for the stockholders, who have a joint interest in all its property and effects, and each of whom is related to it as cestui que trust. The corporation may call its officers to account, if they willfully abuse their

trust, or misapply the funds of the company; and if it refuses to sue, or is still under the control of those who must be made defendants in the suit, the stockholders, who are the real parties in interest, may file a bill in their own names, making the corporation a party defendant; or a part of them may file a bill in behalf of themselves and all others standing in the same relation, if convenience requires it. Robinson v. Smith, 3 Paige 222, and cases there cited; Hersey v. Beazie, 24 Maine 9; 40 Maine 415.

and Smith v. Poor,

If other parties have participated with the officers in such proceedings, they may, according to the established principles of equity pleading, be joined as parties. In the discovery of frauds, and in furnishing remedies to parties defrauded, equity does not suffer technicalities to stand in its way, but seizes upon the substance of the case, and holds all parties to their first responsibility, following trust property into the hands of remote grantees and purchasers, who have taken it with notice of a trust, in order to subject it to a trust. The objection, therefore, that a court of equity has no power to furnish a remedy in a case of this character, is untenable."

Blain v. Agar, 1 Sims. 37; 2 Sims. 289. In Robinson et al. v. Smith et al., 3 Paige 221, the Chancellor says:

"The directors are the trustees, or managing partners, and the stockholders are the cestui que trusts, and have a joint interest in all the property and effects of the corporation. [See Wood's Just. B., 1 Ch. 8, p. 110; 11 Coke's Rep. 98, b.] And no injury the stockholders may sustain by a fraudulent breech of trust, can, upon the general principles of equity, be suffered to pass without a remedy. In the language of Lord HARDWICKE, in a similar case, "I will never determine that a court of equity can not lay hold of every such breech of trust; I will never determine that frauds of this kind are out of the reach of courts of law or equity, for an intolerable grievance would follow from such a determination."

In the York & Midland R. Co. v. Hudson, 18 Eng. L. & Eq. 365, the court said: "The directors are persons selected to man

age the affairs of the company for the benefit of the shareholders. It is an office of trust, which, if they undertake, it is their duty to perform fully and entirely." And the court, in this case, held them to the strict rules of trusts.

See, also

Deeks v. Stanhope, 5 Eng. L. & Eq. 97.

Borgate v Shortridge, 31 Eng. L. & Eq. 44.

National Exchange Co. v. Drew, 32 Eng. L. &
Eq. 1.

The directors of an incorporated company cannot speculate with the funds or credit of the company, and appropriate to themselves the profits of the speculation.

See

Redmond v. Dickenson, 1 Stockt. (N. J.) 507.

Barton v. Port Jackson & Union Falls Plank

Road Co., 17 Barb. 397.

The declarations or acts of a director will not bind or affect, in any manner, the corporation, unless they are within the scope of his ordinary powers, or some special agency.

Loper v. Buffalo R. R. Co., 19 Barb. 310.

A director of a manufacturing company, who has assented to a dividend amounting to more than the profits, may be sued for such violation of duty, without joining with him the company as a codefendant.

Hill v. Frazier, 22 Penn. 320.

Fidelity, by directors, to the interests of stockholders well be enforced in every thing.

Butler v. Cornwall Iron Co., 22 Conn. 335.

NOTA BENE-Colquett v. Howard, 11 Georgia 556.

All corporate action, as well that of the directors and agents, as of the corporation itself, is but a succession of trials, in regard to which the creditors of the corporation, in the order of their priority, are the primary, and the shareholders the ultimate cestui qui

trust.

Sturges v. Knapp, 31 Vt. (2 Shares) 1.

The directors or trustees of a corporation, when not themselves