Butts v. Wood , 4 Trans. App. 432 ( 1867 )

Fullerton, J.

(after stating the case.)—The bill of the defendant, Daniel Wood, was presented, audited, and ordered to be paid, at a meeting of the board of directors of the company, on the 5th day of July 1859, when but three of the five directors who composed the board were present; the defendant, Daniel Wood, being one of those present, and his father, William Wood, and John Cornwall, another kinsman, being the other two. This board, as thus constituted, had no authority to entertain the bill in question, nor to do anything in relation to it. Daniel Wood, being the claimant, was disqualified from acting, because he could not deal with himself, and without him, there was no quorum of the directors, and they had no authority to transact business.

The relation existing between Daniel Wood and the corporation, was that of trustee and cestui que trust (Robinson *v. Smith, 3 Paige 322; Angell and Ames 258, 260; Cumberland Coal Co. v. Sherman, 1 Macq. 461; Aberdeen Railway Co. v. Blaikie, 30 Barb. 571.) This being the case, I am disposed, on this ground alone, to think that the action of these directors was void. The rule that one holding a position of trust cannot use it to promote his individual interests, by buying, selling, or in any way disposing of the trust property, is now rigidly administered in every enlightened nation, and its usefulness and necessity become more and more apparent.

A careful examination of the testimony in this case shows, that Wood could not have enforced this claim against the company; and the circumstances under which it was allowed and paid, were a fraud upon its stockholders. To permit such a transaction to stand, would be a reproach to the administration of justice. The authorities maintaining the invalidity of any act of a trustee, in violation of his trust, are numerous. It is sufficient to refer to the learned and exhaustive opinion of Davies, C. J., in Gardner v. Ogden (22 N. Y. 332), where the whole subject is ably discussed, and the leading authorities collected. No principle of law is better settled and understood, and there is none of more frequent application, or more useful in its results.

The payment of this bill being a fraud upon the stockholders, the action was properly brought against the three trustees, to recover the damages they had caused, and the judgment rendered seems, in every way, calculated to promote the ends of justice. It should be affirmed, with costs.

Judgment affirmed.