The herald., 1894-10-18
gated than those set forth in this bill |

gated than those set forth in this bill
were never perpetrated on q helpless
corporation by its managing directors.
That these frauds are such as court
OF equity would relieve in proper case
may be seen in the opinion OF the circuit
court for the Nebraska district, in suit
growing out OF the Wyoming Coal COM
pany's contract. Wardell va. the Union
Pacific company. Dill. 330."
The attempted Justification of their
fraudulent conduct by the directors OF
the Central Pacific simply serves to
bring out more strongly the applicabili-
ty of the rule in question. We quote
from n written argument filed on their
behalf before the Pacific railroad COM
miseon and referred TO by the president
in bis message transmitting the report /:
"Is is said" say the authors OF this
argument, "thst they (shs drectors) vi
olated we'll known rule OF equity in
dealing with themselves; that they
were trustees and that they were repre-
senting both sides OF the contract"
(But) "when it is said that they were
trustees, if they did occupy such rela-
tions, it was merely technical, for they
represented only their own interests on
both sides-there being no one else con-
cerned in the transaction. They be-
came the incorporators OF the company
that was to build the road subscribed
for it's stock and were the only subscrib-
ers. Therefore, it is difficult to see how
anyone was wronged by their anton.
The rule of equity invoked, which had
its origin in the injunction. No man
can serve two masters certainly did not
apply to them, because they were acting
i'll their own interests and were not
charged with the duty Of caring for
others rights. there being no other per-
sons interested in the subject matter"
Tho attempted justification, however,
ignores the principle that the corpora
ton represents the interests OF its cred
itors as well as those of it's stockholders,
and that the former are even paramount
to the latter. Hence the directors are
trustees directly of the company and in
directly OF it's creditors as we'll as its
stockholders.
1t ie, therefore, well said by the presi-
dent:
"When the relations created between
the government and the companies by
the legislation referred to, are con-
sidred, it is astonishing that the claim
should be made that the directors OF
these roads owed no duty, except to
themselves, in their construction; that
they need regard no interests but their
own, and that they were justified in
contracting with themselves and making
such bargains as resulted in conveying
to their pockets ell the assets of the
company. AS a iienor the government
was vitality interested in the amount OF
the mortgage, to which its security has
been subordinated."
1.-The doctrine of complete independ-
ence on the part of the directors of these
companies and their freedom from any
obligation to care for others interests
than their own in the construction OF
these roads seems to have developed the
natural consequences OF its application,
portrayed in the majority report OF the
commissioners"
By tho construction contracts, above
referred to, the directors received, in
addition to other profits, the whole of
the stock OF the company. This was di-
rectly in contravention OF the second
section OF the act of 1864, and under
that act and the general law. inde.
psndently of the ground OF fraud, the
holders of the stock are liable to be as
sessed for its whole value, and under q
we'll settled and familiar practice in
equity any competent court can make
the assessment at the suit of the govern.
msnt or any judgment creditor.
Upon this stock there was distributed
by Stanford, Hopkins, Huntington and
Crocker to themselves and the stock.
holders, in dividends the sum OF $32.
30S, ,055. (p. Is. supra). Ia making these
dividends no provision was made for
the payment of the dabt to the United
States, but the evident purpose was to
defeat this indebtedness and thus de-
fraud the government. This amount,
therefore, may be recovered both on the
ground of fraud. and on the ground that
the stock was held by the stock holders
as constructive trustees OF the COMPANY,
and that the dividends also Injured to its
benefit and were held upon like trust.
In addition there are many other in
stances given bv the commissioners of
miaappropriation of the assets of the
company. The books show the receipt
by Stanford and Huntington OF the sum
of 81, 8l8 1885,. for which no vouchers
appear. This, in the opinion of the
commissioners, wac used for the pur-
pose OF influencing legislation and other
improper purposes. (p. S4.) Stanford and
Huntington are responsible for it. The
directors of the Central Pacific, in con-
junction with those OF tho Union Pacific.
also paid in subsidies to the Pacific Mail
Steamship company the Gam OF 81 900,
900, an illegal expenditure for which
they are liable. Stanford, Crocker,
Hopkins and Huntington, together with
Mills and Tevis. also received in the
year 1869 upon a contract made by them
as directors. with Wells, Fargo & Gem
pany, one third of the capital stock of
that company, (Which was $4,000, ,000)
which stock has ever since paid div.
dends at the rate of eight per cent per
annum, (p 83) and OF which their share
with accretions to date. cannot prob ably
be worth less than $4,000 The total
amount OF the assets OF the company
missppropriated by them will then be
as follows: