72 N.J. Eq. 791 | New York Court of Chancery | 1907
It must be regarded as the settled policy of the law of this state that express contracts between a corporation and one of its directors are voidable at the instance of the corporation. When the transaction is one in which there arises by operation of law obligations co-extensive with the contract, as would be the case in the loan of money bjr a director to his corporation, it is manifest that no reasonable objection can be found'to the transaction, but where the right must find its support in the convention it will not be sustained as a right. The underlying reason for the rule is that it is the duty of a director to represent the interests of his corporation, and that duty cannot be impartially performed when he contracts with it in his own behalf. I under
The contract of sale in this case, however, was made between the corporation and Mrs. Malott, who was not a director, but was the wife of a director. I entertain the view that the policy which forbids a contract between a corporation and- its director necessarily includes a director’s wife. A trustee, or an agent bo sell lands, could not properly be permitted to make sale of the trust property to his wife. Irrespective of the husband’s interest in his wife’s property, present or prospective, his interests in her welfare would, in such cases, necessarily interfere with an impartial exercise of his duties to his trust. A contract made by a trustee to purchase lands owned by his wife would, in like manner, operate as a strain upon his duties to his trusteeship. See Reed v. Aubrey, 91 Ga. 435, and cases there collected. If, therefore, a contract between a corporation and its director is to be deemed voidable, a like contract between a corporation and the wife of a director should stand upon the same plane. I entertain the view that the contract of sale from Mrs. Malott to tire corporation was, on these grounds, voidable at. the option of the corporation.
I reach this conclusion with perhaps greater freedom than I should otherwise exercise by reason of the fact that other considerations in this case lead me to the same result. October 7th, 1905, Mrs. Malott contracted with a land company for the purchase of the two lots which were afterwards sold by her to complainant corporation. By her contract of purchase she took the lots at a valuation of $450 per lot, but a clause in the agreement made the entire purchase price $450 in case she built on the
It is urged that the corporation has not promptly asserted its rights to avoid -the contract. The testimony discloses that much if not all of the capital which came into the corporation by the sale of stock to new stockholders after the organization meeting was procured through misrepresentations of fact by Mr. and Mrs. Malott touching this very transaction. These new stockholders have testified that both Mr. and Mrs. Malott represented to them that Mrs. Malott had sold five instead of two lots to the corporation, and that they remained under that belief until the contrary was disclosed by a search of title made after the insolvency of the corporation. The bill in this ease was originally filed under the claim that Mrs. Malott had in fact contracted to sell five instead of two lots, and had failed to convey the remaining three. Both Mr. and Mrs. Malott deny having made these representations, but the evidence is strongly against them as to that fact. Under these circumstances it is manifest that no
The contract of sale having been subsequently executed by a •conveyance to the corporation, and a hotel having been built on the property, the parties cannot now be'placed in their original positions. It becomes necessary, therefore, to restore to Mrs. Malott'what she is rightfully entitled to. She paid for the contract of purchase which she sold to tire company $450. • It is claimed that when she sold it to the company it had greatly en-haneed in value by reason-of certain developments in the land company enterprise. The claim that it increased in value from $450 to $3,000 in less than three months .cannot be seriously entertained. It may have increased in valúe in s'ome degree, but I cannot conclude that its enhancement in value during that time was-of such substantial amount that Mrs. Malott can at this time, under the circumstances of this'case, become equitably entitled to more than the amount which the contract cost her, with interest on that amount.
• It remains to be considered whether defendant Nixon, as present owner of the mortgage, enjoys rights superior to those which would be extended to Mrs. Malott as owner- of the mortgage. The mortgage was assigned to defendant Nixon as security for a fee of $300 for defending the application for a receiver of complainant corporation. Later, and after Mr. Nixon had been informed that defences existed to this mortgage, he purchased it absolutely at a valuation of fifty per cent, of its face value, paying for it $700, in addition to the $300 owing to him as a fee. Even as an innocent purchaser of a negotiable instrument he could not, under these circumstances, claim protection beyond the $300 originally loaned. But the assignee of a mortgage securing a bond takes it subject to all defences to the bond, whether with or without notice. “The mortgage is a mere incident of the debt which it is intended to secure, and a defence to the debt is a defence to the mortgage.” Magie v. Reynolds, 51 N. J. Eq. (6 Dick.) 113, 117. Before making the loan of $300 on the mortgage defendant Nixon procured a declaration against offsets executed in the name of complainant corporation, and this is urged as an estoppel against complainant. This declaration
The receiver of the corporation urges that the entire abatement from the contract price should be charged against the mortgage. I cannot accede to that view. I think the $150 and interest, which is to be restored, should be allowed to stand as due on the mortgage, and that the decree should adjudge that amount as due on the mortgage, and no more. I will so advise.