Butts v. Wood et al.

Butts v. Wood et al. Directors of corporations. A director of a corporation occupies the position of a trustee 5 if also secretary of the hoard, he is incompetent to act upon the auditing of Iris ow. claim for extra compensation ; and if such claim he allowed, at a meeting at which his presence is necessary to constitute a quorum, any stockholder may sue on hehalf of himself and the other stockholders to avoid the transaction, and compel a repayment of the money. Butts v. Wood, 38 Barb. 181, affirmed. Appeal from the general term of the Supreme Court, in the seventh district, where a judgment entered in favor of the plaintiff, upon the report of a referee, had been affirmed. (Reported below, 38 Barb. 181.) This was a suit by Isaac Butts for himself, and'on behalf of the other stockholders of the Rochester and Webster Plank-road Company, against William Wood, Daniel Wood and John Cornwall, three of the five directors of that company (the corporation also being made a party defendant), among other things, to set aside the proceedings of the said directors in voting to the defendant Daniel Wood, a sum of $933.33, for extra compensation as secretary of the company. This was the only question that came before this court, the decision of the referee as to the other matters in controversy having been acquiesced in by the parties. The complaint alleged that the defendant, Daniel Wood, had been appointed secretary and treasurer of the company, under a resolution adopted the 17th December 1855, which provided that his compensation should be one per cent, of the receipts of the company, and fifty cents per week, in addition. That at a meeting of the board of directors of the company, held on the 5th July 1859, at which were present three of the five directors, to wit, the said Daniel Wood, William "'^r°0<^’ ^a^er> *an¿ John Cornwall, a kinsman, the said Daniel Wood presented a claim for services as secretary and treasurer, amounting to $933.33, which was audited, allowed, and ordered to be paid by the treasurer. It was conceded, that this was greater than would have been due under the resolution of the 17th December 1855, which had never been repealed or modified. The referee directed the entry of a judgment in favor of the plaintiff; and the same having been affirmed at general term, the defendants took this appeal. Wood, for the appellants. Cogswell, for the respondent. Also reported m 4 Trans. App. 432. [MAJORITY — Fullerton, J.] 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.