12 Mass. 140, are both said by Chief Justice Parker to hold merely that: "A sale may be fraudulent as to creditors on account of a secret trust accompanying it, but if, by a subsequent agreement, before the creditors interfere, the secret trust is discharged, and the sale is otherwise valid, the fact that the trust once existed will not operate longer to vitiate the sale, the fraud being purged." And Mr. Bigelow says (2 Bigelow on Fraud, 408) that, where, "after the conveyance has been made, and before any steps have been taken against it by the creditor, a reconveyance is made, this is proper, and there is nothing then for the statute to operate upon"; and, concluding a review of the authorities, he says: "On the 890 whole it is difficult to sustain the doctrine of purging fraud in its ordinary manifestation, and it is better to leave the parties to the unlawful transaction in the meshes of their own net."

The true view is, that there is not, properly speaking, any ex post facto purgation of fraud, a doctrine which would encourage fraud and put a premium upon its perpetration. Cases which are said to illustrate that doctrine are often misunderstood, and simply hold that, where a conveyance which is voidable for fraud has been abandoned, and, before the rights of third parties intervene, a new and independent conveyance is made in good faith, it will be upheld, not because of any supposed purging of the fraud from the old, but because of the good faith and legality of the new conveyance.

We

But, whatever the true doctrine, it has no possible application on the facts of this case. It is wholly immedicable. see no good to be subserved by setting out at large the facts. Affirmed.

FRAUDULENT CONVEYANCES-PURGING FRAUD.-A conveyance fraudulent as against creditors or against subsequent purchasers is voidable only, not absolutely void, and may be purged of the fraud by matter ex post facto, whereby the fraudulent intent is abandoned, and the conveyance confirmed for a good and adequate consideration bona fide: Oriental Bank v. Haskins, 3 Met. 332, 37 Am. Dec. 140, and note; Wood v. Jackson, 8 Wend. 9, 22 Am. Dec. 603; Verplank v. Sterry, 12 Johns. 536, 7 Am. Dec. 348.

MILLSAPS V. CHAPMAN.

[76 MISSISSIPPI, 942.]

CORPORATIONS-LIABILITY OF DIRECTORS.—If a director in a corporation resigns, buys the corporate property shortly thereafter, and is then re-elected a director, he is liable as though he were a director when the property was purchased.

CORPORATIONS-LIABILITY

OF DIRECTORS-RESIG NATION-RE-ELECTION.-If a director in a corporation is reelected, serves his term, attends meeting, receiving pay therefor, then resigns, but accepts re-election three months thereafter, and permits himself to be advertised as a director during the entire time, he must be held liable as a director during the entire period, within the rule preventing a director in an insolvent corporation from purchasing its property and paying therefor in the stock of the corporation.

CORPORATIONS-INSOLVENCY-PURCHASE BY DIRECTOR.-At the option of an insolvent corporation, or of its creditors, a sale of the corporate property to a director may be set aside, and he may be treated as a trustee for the corporation.

CORPORATIONS-INSOLVENCY-PURCHASE BY DIRECTOR.-If a contract of purchase of corporate property is made be tween an insolvent corporation and its director, such contract may be wholly annulled, if actual fraud entered into it, and the director may be denied any reimbursement, and, if not corrupted by fraud, the court may vacate or uphold the purchase, and in either event may require the director to account for profits, or the difference between the price actually paid and the real value at the time of the purchase. The remedy must be molded to fit the circumstances of each case.

CORPORATIONS-INSOLVENCY-LOAN TO.-A loan made in good faith by a director and a third person to an insolvent corporation may be validly secured by a mortgage on the corporate property.

MORTGAGES-ATTORNEY'S FEE FOR COLLECTION.—A mortgage note may validly stipulate for the payment of an attorney's fee for its collection.

Brame & Alexander and Jayne & Watson, for the appellants.

Carroll & McKellar, for the appellees.

952 WOODS, C. J. The bill charges combination and confederation by the directors of the bank whereby and in pursuance of which they have wasted the assets of the bank, have used the deposits of creditors to pay obligations on which they were liable, and have violated their duty as directors, being trustees for creditors and depositors, all the while saving themselves harmless by thus using and appropriating the funds of the bank and those of depositors. In the nineteenth and twentieth paragraphs of the bill two specific objects are sought. In the nineteenth paragraph it is charged that the defendant, Millsaps, hav

1

ing resigned as director for that purpose, bought from the sorely straitened and really insolvent bank, for about one-half its value, certain real estate belonging to the bank, to wit, the Harris-Andrews and Weesinger properties, and soon after such purchase was re-elected a director. It is charged that he paid for the properties seven thousand five hundred dollars in cash, and two thousand five hundred dollars in stock of the bank, then worthless, and that the properties were of the actual value of ten thousand dollars to twelve thousand dollars. The prayer of the bill is to set aside the sale, divest the title out of Millsaps, and revest it in the bank. If mistaken in this, the complainants seek a decree against Millsaps for the difference between the seven thousand five hundred dollars cash paid by him and the actual value of the properties 953 at the time of the sale, inasmuch as the bank could not legally accept for property owned by it stock held by a director, and especially where the stock was worthless.

Was Millsaps a director at the time of the purchase? He was first elected a director in the year 1891, and he formally accepted. He was re-elected as a director in 1892, and was reelected in the years 1893 and 1894. In his answer he states that he was not informed of his re-election in the years 1893 and 1894, and that he promptly resigned in February, 1894, on ascertaining the fact of his re-election for the year 1894. But it is shown that his name was continuously published to the public as a director in a newspaper issued in the town where the bank was located. It appears, moreover, that he presented to the bank his account for expenses incurred in attending the meeting held in February, 1894, and received the amount of the account as a director, as we must assume. There is nothing to indicate that stockholders had been paid by the bank their expenses incurred in attending a stockholders' meeting at which they were looking after their own interests only. It is significant, too, that, after his formal resignation in February, he purchased this property in April of the same year, and in May, the month following his purchase, he was again elected a director and formally accepted. He must, therefore, under these circumstances, be treated as a director and held to liability as one.

That the bank was in the year 1895, and had long been prior thereto, insolvent seems not open to controversy.

While the rule requiring directors of a bank, because of their fiduciary character, to act with the utmost good faith, and forbidding them to deal in the funds or property of the bank for their own personal advantage, is of universal recognition, we are

of opinion that, substantially, the rule had proper enforcement in the court below. At the option of the bank, or its depositors and creditors, the sale of its corporate property to a director may be set aside, the purchasing director being 954 treated as a trus tee of the property for the bank. The contract of purchase may be wholly annulled, if actual fraud entered into it, and the fraudulent and faithless director denied any reimbursement. If not corrupted by fraud in fact, the court may vacate the purchase, because made in violation of law, or may uphold it, and, in either case, where only constructive fraud is shown, require the fiduciary to account for profits, or the difference between the price actually paid and the real value of the property at the time of the purchase. The remedy will be molded to meet the circumstances of each particular case.

In this case the respondent, Millsaps, appears to have been not anxious to make this purchase, as his letters to his codirectors show. They show also, we think, that he made the purchase without any willfully fraudulent purpose. But these letters likewise abundantly show that he believed, and had strong ground for believing, that the transaction could not legally be made, at least to the extent of using stock as part payment of the purchase price. He was so advised by his counsel. But he yielded to the solicitations of others, and while saying he "would ne'er consent, consented," just as other mortals have done, and will continue to do. The court below did not think Millsaps should be treated as a trustee ex maleficio, and denied reimbursement to the extent of the seven thousand five hundred dollars in cash actually paid by him, but that the purchase was fraudulent in law only, and that the purchaser, while entitled to be protected in his title, should be required to pay to complainants the profits derived by him from his purchase that is to say, the difference between seven thousand five hundred dollars, which he paid in money, and the actual value of the property at the date of his purchase. This difference was found by the master, who took and stated an account to be about four thousand six hundred dollars, including interest. The evidence as to the value of the property was conflicting. The court below confirmed the master's report, and we are not disposed to disturb that action. On the cross-appeal from the 955 decree of foreclosure on the cross-bill of Millsaps and Tribbette, we see no error in the decree of the court. This was a loan, pure and simple, made by Tribbette, who was never a director, and Millsaps, of eight thousand dollars, on two years' time, and, we entertain

no doubt, entitled the mortgagees to foreclosure for the satisfaction of their debt. The item of attorney's fees allowed Millsaps and Tribbette was strictly in accordance with the terms of the contract made between them and the bank. The mortgage, it is true, provided only for a reasonable attorney's fee, if the property should be sold by the trustee named in it, but the note, whose payment was secured by the mortgage, stipulated for a fixed attorney's fee if the note had to be placed in the hands of an attorney for collection, and by foreclosure decree as prayed in the cross-bill of Millsaps and Tribbette, the attorney's fees were a proper charge against the mortgagor.

Affirmed on direct and cross-appeal.

CORPORATIONS-LIABILITY OF DIRECTORS-PURCHASING CORPORATE PROPERTY.-The directors of a corporation are trustees for the corporation, and within the rule that one holding a fiduciary relation to trust property cannot, either directly or indirectly, become the purchaser of such property, or transfer it to his own use, or for his own benefit, and, if he does, the sale or transfer is voidable, and will be set aside at the mere pleasure of the beneficiaries, though such fiduciary may have paid full price and gained no advantage: Sweeney v. Grape Sugar Co., 30 W. Va. 443, 8 Am. St. Rep. 88.

CORPORATIONS-DIRECTORS DEALING WITH.-A director of a solvent corporation is a trustee and agent of it and of its stockholders only and so far as its creditors are concerned. He may deal with it, loan it money, and take security therefor, in like manner as a stranger. In such case, the subsequent insolvency of the corporation will not affect such officer's right to recover his loan or enforce his security: Mullanphy Sav. Bank v. Schott, 135 Ill. 655, 25 Am. St. Rep. 401; Schufeldt v. Smith, 131 Mo. 280, 52 Am. St. Rep. 628, and note.

CORPORATIONS.-DIRECTORS OF AN INSOLVENT CORPORATION cannot secure to themselves a preference: Hill v. Pioneer Lumber Co., 113 N. C. 173. 37 Am. St. Rep. 621; Corey v. Wadsworth, 99 Ala. 68, 42 Am. St. Rep. 29.

CORPORATIONS-INSOLVENCY-PURCHASE BY DIRECTOR.-The assets of an insolvent corporation are regarded as a trust fund for the payment of all its creditors; the directors occupy the position of trustees of such fund, and may be prohibited from purchasing the trust property, and thus securing a preference over other creditors: Beach v. Miller, 130 Ill. 162, 17 Am. St. Rep. 291, and monographic note thereto, especially on page 301, where this question is discussed.

ATTORNEY'S FEE STIPULATED FOR IN MORTGAGE.-In Michigan, an agreement for an attorney's fee in an instrument is void unless expressly sanctioned by statute, and a court of equity has no inherent power to enforce such an agreement: Kittermaster v. Brossard, 105 Mich. 219, 55 Am. St. Rep. 437. The great weight of authority, however, supports the rule laid down in the principal case: See the monographic note to Kittermaster v. Brossard, 55 Am. St. Rep. 438.