Any action tending to their own advantage at the expense of the corporation, the stockholders, or its creditors, whether accomplished by direct acts or indirectly through collusive litigation, will be set aside in equity upon proper application, as fraudulent and void.1 And if one of the directors of a railway corporation purchases the railroad at a judicial sale, without permission from the corporation, or the court directing the sale, the purchase will enure to the benefit of the corporation upon his being reimbursed by it for the sums expended by him in the purchase.2 corporation at a time when it was in pressing need, and a deed of trust was given to secure it, and a fair public sale of the property subsequently made under the deed; he purchased it and the court sustained it, saying: "The right of a corporation to avoid such a sale of its property by reason of the fiduciary relation of the purchaser must be exercised within a reasonable time after the facts connected therewith are made known or can by due diligence be ascertained. And as the courts have never prescribed any particular period as applicable to every case, like the statute of limitations, the determination as to what constitutes a reasonable time in any particular case must be determined by a consideration of all the elements which affect that question." A similar doctrine was held in Harts v. Brown, 77 Ill. 226, in a case involving similar questions. But see Covington, &c. R. R. Co. v. Bowler, 9 Bush (Ky.), 468, where it was held that the purchase of the railroad by a director at a judicial sale to which he was not a party plaintiff, was voidable. Colden v. Walsh, 14 John. (N. Y.) 407; Bostwick v. Atkins, 3 N. Y. 53; Gallatin v. Cunningham, 8 Cow. (N. Y.) 361; Johnson v. Bennett, 39 Barb. (N. Y.) 237; Bradt v. Brooks, 8 Wend. (N. Y.) 426; Harts v. Brown, 77 Ill. 226. But even a purchase at such a sale is voidable. Boerum v. Schenck, 41 N. Y. 182. 1 Drury v. Cross, 7 Wall. (U. S.) 289; Hoyle v. Plattsburgh, &c. R. R. Co., 54 N. Y. 314; Wardell v. Union Pacific R. R. Co., 103 U. S. 651; Turquand v. Marshall, L. R. 4 Ch. 376. 2 Covington, &c. R. R. Co. v. Bowler, 9 Bush (Ky.), 468. In Bill v. Western Union Tel. Co., 16 Fed. Rep. (U. S.) 14, And this preJones v. ArkanDirectors assent it was held that the directors of a telegraph company, who are also directors of another telegraph company, which owns two-fifths of the stock of the former company, cannot properly vote to lease the former company to the latter. Such a lease is voidable, and will be set aside at the suit of a stockholder who has exhausted all means to obtain redress within the corporation, or who has made proper efforts to induce action upon the part of other stockholders, and has failed, but not otherwise. So the purchase of the assets of a corporation by one of its directors is voidable, at the instance of a party in interest; and the presumption in such cases is that the director knew the financial condition of the company, and therefore that the transaction is not bona fide. sumption is conclusive. sas, &c. Co., 38 Ark. 17. ing to a contract with the corporation from which they are to derive a secret profit, will be compelled to surrender it to the corporation. Bent v. Priest, 10 Mo. App. 543. Where the trustees of a corporation purchased of themselves, for the corporation, a patent right, which they had by vote been authorized to purchase, charging the corporation $50,000 therefor, when they paid only $16,000 for it, was held to be fraudulent, and that they could not be permitted to make any profit out of the contract. Downs v. French, 4 Hun (N. Y.), 292. In Simons v. Vulcan Oil Co., 61 Penn. St. 202, where lands were purchased by parties, and shortly afterwards they with others formed a corporation, to which the land was conveyed by them at a considerable advance, it was held that the defendants were liable for the difference between the price actually Directors may properly become creditors of the corporation, and as creditors may use any fair means to secure payment. Thus, in a Pennsylvania case, where a bill was filed by a minority of stockholders to set aside a sale of property of an insolvent corporation, made to certain creditors, some of whom were also directors, it was observed by STRONG, J., as follows: "I come then to consider the facts that the purchasers were the same persons as those who as directors sold, and as stockholders authorized the sale. It is often said, and truly, that the same persons cannot be both buyers and sellers in the same transaction. They were not, strictly, in this. All the purchasers were not directors who made the sale. But I make no account of that. Still, why may not directors of a corporation sell to themselves? Each director has an interest distinct and antagonistic to his interest as a mere man. There is an identity of person, but not of interest. There must be many things which directors can do for their individual benefit, which are binding upon a corporation of which they are directors. If they have advanced money, I cannot doubt they may pay themselves with the corporate funds. If they have become liable as sureties for the corporation, they may provide for their indemnity. And though ordinarily the law frowns upon contracts made by them in their representative character with themselves as private persons, such contracts are not necessarily void. They are carefully watched, and their fairness must be shown. But I repeat the question, why may not directors sell to themselves in any case? It is because of the danger that the interests of stockholders may suffer, if such sales be permitted, for want of antagonism between the parties to the contract. But such sales are supported in equity, where the fiduciary relation of the purchasers has ceased before the purchase, where the purchase was made with the full consent of the stockholders, or where stockholders. have, by their acquiescence, debarred themselves from questioning the transactions. I do not, however, deem it necessary to decide that the rule in this case was absolutely indefeasible. The utmost paid by them for the land and the price paid them therefor by the company, they having failed to disclose the fact that the lands were purchased by them at a less price. McAllen v. Woodcock, 60 Mo. 174; Getty v. Devlin, 54 N. Y. 403; Blake v. Buffalo, &c. R. R. Co. 56 id. 485; McElhenny's Appeal, 61 Penn. St. 188. They cannot buy claims against the corporation, or participate in their purchase with others at less than their face, and recover the full amount of the corporation. McDonald v. Houghton, 70 N. C. 393; Brewster v. Streetınan, 4 Mo. App. 41; Halladay v. Patterson, 5 Oreg. 177; Halladay v. Davis, 5 id. 40. Nor will they be permitted to favor any particular class of stockholders. Chase v. Vanderbilt, 62 N. Y. 307. the complainants claim is that it was voidable. Certainly nothing more can be claimed. Let it be, then, that it might have been set aside at the instance of the corporation, or even of a stockholder, as against the policy of the law and constructively fraudulent. Still, it was valid in equity as well as in law, unless one or the other chose to avoid it; and in all cases in which an attempt is made to fasten a constructive trust upon a purchaser, the attempt must fail unless made in a reasonable time."1 The doctrine thus clearly set 1 Ashurst's Appeal, 60 Penn. St. 291. See also Chester v. Dickerson, 54 N. Y. 1; Getty v. Devlin, id. 403; Barton v. Plank Road Co., 17 Barb. (N. Y.) 397. Acquiescence is presumed from delay. Lapse of time, indeed, is no bar to the assertion of a direct trust, but not so when the trust is constructive. Twin Lick Oil Co. v. Marbury, 91 U. S. 587. Where a com pany is insolvent, and the directors have given the stockholders an opportunity to make advances and relieve the embarrassment, the directors may buy the indebted ness, and acquire title to corporate property at a sale under a deed of trust to secure the indebtedness, free from objection on the part of the stockholders. Harts v. Brown, 77 I. 226. Courts of equity will regard with great jealousy the contracts made between directors and the corporation; and as a general rule such contracts are voidable at the instance of the company or stockholders. And this rule has been held to apply to cases where the majority of the directors in one corporation contract with another corporation, in which they are also directors. San Diego v. San Diego, &c. R. R. Co., 44 Cal. 106; Abbot v. American H. R. R. Co., 33 Barb. (N. Y.) 578; St. James' Church v. Church of the Redeemer, 45 id. 356; Polar Star Lodge v. Polar Star Lodge, 16 La. An. 76; Paine v. Lake Erie, &c. R. R. Co., 31 Ind. 283. They have no right to enter into or participate in any combination the object of which is to divest the company of its property and obtain it for themselves, to the prejudice of the members or creditors. Jackson v. Ludeling, 21 Wall. (U. S.) 616; Nelson v. Luling, 62 N. Y. 645. Nor are they entitled to any share of capital stock, nor to any dividends of the profits, until its creditors are paid. The property of the VOL. I. - - 24 corporation, in equity, is regarded as held in trust for the payment of its debts; and a sale of its capital stock, and a division of the proceeds among the directors, will not defeat the rights of creditors; but they may proceed in equity to compel the directors to contribute pro rata out of the moneys so received and in their hands. Equity regards the property of a corporation as held in trust for the payment of the debts of the corporation, and recognizes the right of creditors to pursue it, into whosesoever possession it may be transferred, unless it has passed into the hands of a bona fide purchaser; and the rule is well settled that the stockholders are not entitled to any share of the capital stock nor to any dividend of the profits, until all the debts of the corporation are paid. Story's Eq. Jur., § 1252; Mumma v. Potomac Company, 8 Pet. (U. S.) 286; Wood v. Dummer, 3 Mas. (U. S. C. C.) 308; Voce v. Grant, 15 Mass. 522; Spear v. Grant, 16 id. 14; Curran v. Arkansas, 15 How. (U. S.) 307. The Chicago, etc., R. R. Co. v. Howard, 7 Wall. (U. S.) 392; Hale v. Bridge Co., 8 Kan. 466; Jones v. Terre Haute R. R. Co., 29 Barb. (N. Y.) 359; Barton v. Port Jackson R. R. Co., 17 id. 397. But the relation they occupy to the company and its creditors will not prevent directors or other officers and agents from protecting themselves as creditors of the company by the same means that are open to others. Thus, where the president and two directors of a company constituted a quorum, and they, being the only stockholders at the time, sold corporate property to the president in consideration of past indebtedness, and an agreement by him to pay other specified debts of the corporation, and a judgment debtor levied upon the forth has been also held in other States, where contracts are made with directors or officers of a railroad company for the purpose of securing their influence or interest in attaining the location of depots or machine shops, or the construction of the road so as to promote private interests; and especially would this be the case where the interest of the director under the contract thus made would depend upon the location as desired. The corporation, as well as the stockholders and creditors, would be not only entitled to the unbiassed judgment of the director, which could not be expected under the above state of facts, but also to the benefit of his influence and argument in deciding such questions as a member of the board, — which, of course, would be unreasonable to expect under the facts supposed. And such a course would tend to sacrifice both the public rights and the interests of stockholders.1 property thus sold, — it was held that he Jackson v. Ludeling, 21 Wall. (U. S.) 616; Cook v. Berlin Woollen Mills Co., 43 Wis. 433. Where a contract in which two of the directors were interested was made with the company, it was held "that nothing short of a ratification by the board, after a full explanation and knowledge of their interest and all the circumstances, could render such a contract binding upon the company." Per CHRISTIANCY, J., in Flint, &c., R. Co. v. Dewey, 14 Mich. 477. This doctrine was carried to its extreme limits in Fuller v. Dame, 18 Pick. (Mass.) 472, in which case there was a contract, not with a director or officer of the corporation, but with a member merely, for a payment of a pecuniary cousideration to such corporation on the location of a depot in a specified place. It was held that such a contract was against public policy on the ground that the interests of the corporation and the public were identical; that each member was required to use his best and unbiassed judgment upon the question of the fitness of the location without the influence which such arrangement might have; and that the question involved was one of good faith, to be left to the jury. Stark Bank v. United States Pottery Co., 34 Vt. 144. 1 Pacific R. Co. v. Seely, 45 Mo. 212; Linder v. Carpenter, 62 Ill. 399; Ogden v. Murray, 39 N. Y. 202; Re Union Pacific R. Co., 1 Cent. L. J .582. There is no reason why, if the corporation stands in need of money, a director may not loan his money to it, as well as a stranger might; nor, having done so in good faith, why he should not be entitled to the same remedies and advantages in enforcing its payment that any other creditor would have. But, while they may pursue the race of diligence in securing their claims against the corporation, with other creditors, and make use even of the knowledge which their position as directors has enabled them to acquire, in securing their claim, yet, they must act fairly, and cannot by any vote or action as a board secure to themselves a preference over other creditors; and if they do, a court of equity, in an action by a creditor, will compel them to yield up the advantage which was acquired by a violation of their trust. If the loan is made in good faith, it is held that they are entitled to be reimbursed therefor, although it in fact had no authority to borrow. So, too, they may deal in the stock of the corporation on their own account, and may buy the same of, or sell it to the stockholders, as any stranger might do, and in respect thereto assume no other obligations or liabilities than a stranger would.3 It is their duty to act for the best interests of the company, and if they enter into a contract with the company, their duty as officers is in conflict with their duty as individuals. And the same doctrine has been held to apply, whether they are a party to the contract in its inception, or whether they subsequently acquire an interest in it; as the rule is, that directors cannot acquire an interest, directly or indirectly, adverse to the corporation; and if, taking advantage of their knowledge and position, they make an advantageous bargain in the purchase of a claim against the corporation, the profits thus made will be treated as held in trust for the company. This is in conformity with the rule that no man can faith 1 Twin Lick Oil Co. v. Marbury, 91 U. S. 587; Bradley v. Williams, 3 Hughes (U. S. C. C.), 26; Danst v. Gale, 83 Ill. 136; Harts v. Brown, 77 id. 226; Merrick v. Penn. Coal Co., 61 id. 472; Hotel Co. v. Wade, 97 U. S. 13. In Twin Lick Oil Co. v. Marbury, 91 id. 587, it was held that a loan of money to a corporation by one of its directors, openly and in good faith, and his subsequent purchase of the property at a fair public sale under a deed of trust, executed to secure the payment of the money so loaned, were valid trans |