Daily Los Angeles herald., 1879-04-09
Supreme Court Decision.
Filled April s, 1901

Filled April s, 1921
THE FARMERS AND MER-l
CHAINS BANK OF Los AN
0ELBS, Ia corporation duly
organized under the laws }No. GQ5l.
OF the State Of California;
| VS..
JOHN G.. DowNEY.
SYLLABUS.
1.-The Directors OF Corporation act in
fiduciary capacity and are trustees oi
the stockholders.
l2.-Courts OF Equity will not permit them
In the exercise of their duties as Direct
ors, to make profit for themselves, to
the exclusion of the other stockhoid
ers.
a.-Therefore, where the defendant, a Di-
rector OF a bank, loaned the moneys ot
bank and took from the borrowers a
note. running 10 the bank, for the prIn-
cipal sum loaned, at q rate of interest
| therein stipulated, but at the sam
| time and a. part Of the same transac-
| tion made an agreement with the bor-
| rowers that they should permit the de-
fendant to participate with them In the
Pronts ora purchase and sale Of certain
| lands-HELD: that the defendant could
| not be permitted to retain for himself
the profits thus contracted for, but
| must surrender them to the bank to be
participated in by all the stockhold-
ers.
The complaint filed liz this ac.
ton seeks to charge the defendant,
John g. Downey, as trustee Of the
plaintiff, touching the benefits se.
cured to the defendant by the terms
Of certain contract between the
latter, and Melchert and Linden
feldt.
The circumstances appearing are
that these persons had purchased
the Wilhart tract of land situate
IN the city OF Los Angeles, upon
which they had payments to make.
They had also'agreed to sell Q por-
tion of the same tract to the "Pio-
neer Building Lot Association of
East Los Angeles,". at a oonsidera.
BILE advance upon the price they
had agreed to pay to the Wilharts.
In order to provide themselves
With money to pay to the Wilharts
they applied to Childs, who was one
of the Directors of the banking cor
poration, plaintiff here; but with
'ut success. At the Instance of
Nelchert and Lindenfeldt, Childs
brought the matter to the attention
IT the defendant, who was another
Director Of the banking corpora
don, plaintiff here, and at the time
acting as Its President, and these |
two agreed to furnish the sum re-
quired, upon condition that they
should become personally interest,"
ed in the sale to be made to the Pi-
oneer Building Lot Association, to
the extent of one. third of the net
profits. The loan was, accordingly,
made, and a note therefor taken,
bearing Interest at the rate of one
and One-quarter per cent. per
month; running on its face to the
bank, and executed by Melchert
and Lindenfeldt as makers. The
bank subsequently and upon ascer.
tanning the existence Of this agree.
ment, claimed to. be entitled to its
benefits, and demanded of Childs
and the defendant Downey that
they assign to it the agreement and
all benefits derived or to be derived
Childs complied with the demand
and executed the required assign.
ment. but the defendant refused,
whereupon this action was brought.
The Court below gave Judgment for
the plaintiff In accordance with
the prayer OF the complaint, from
which judgment and from an order
entered denying his
motion for new trial, the defend
ant has brought this appeal.
The controversy between the par.
Ties Involves the right to the one.
sixth of the profits of the land
already referred TO.
These profits constitute the bonus
which the defendant attempted to
'ecure TO himself to the exclusion
If the other stockholders, in maxi
ng the loan Of the money Of the
,ank.
Upon we'll settled principles gov
,rning Courts of Equity the de-
'sndant cannot be permitted to re-
,aln these profits for himself. They
part of the consideration
which the borrowers paid or agreed
% pay in obtaining the loan, and
ire as clearly the property OF the
as Is the interest ac-
,rued and stipulated to be paid, on
;hs face of the note itself. In maxi
ng the loan the defendant was |
.cting as q Director-the President I
-of the corporation, plaintiff here.
He was Its trustee.- "The officers
and directors Of . corporate body v
care trustees Of the stock
holders and cannot, without being
guilty Of fraud, secure to themselves
not common to the lat
ter" (Bigelow on Fraud, p. 248,
and cases cited in note.)
This is the we'll settled rule and
the general language OF the author.
tiles. In Kochler vs.. Black River
Falls Iron Company (2d Black r.,
72D the Supreme Court Of the
United States says: ''The Directors
are the trustees or managing part
ners and the stockholders are the
cestuis que trust and have q joint
interest in all the property and ef-
fects OF the corporation, and no in
jury that the stockholders may
sustain by fraudulent breach Of
trust can, upon the general prinoi-
Piles of Court of Equity, be suffer-
ed to pass without q remedy.n
The law will not permit them to
mako a private profit for them
selves In the discharge of their of.
dclal duties, and as observed by the
Court Of Appeals of the State of
New York In Bow vs. Brown, (56 |
N. Y. r., 2S8): "When agents and
others acting in fiduciary capacity
understand that these rules will be
rigidly enforced, even without
proof of actual fraud, the honest
will keep clear of all dealings fall
ing within their prohibition, and