Appellant's points. in fact, the law under which the plaintiff was organized requires that all capital stock shall be issued and paid in, one-half within one year, the other half within two years from the time of its incorporation. Laws of 1848, chap. 40, § 10. This distinguishes the present case from the case of Greenpoint Sugar Co. v. Whitin, 69 N. Y. 328, supra. The proof is that the mortgage in question received the consent of only 125 legally issued and full paid shares. The written consent which was filed contained the alleged consent of 245 shares, but of these 80 shares were part of the stock dividend which was issued without consideration and in violation of the law which provided that stock shall all be paid in full either in cash or in property necessary for the business of the company, and 40 shares, 20 belonging to Van Brunt and 20 to Pirsson, had only been paid for in part. These shares, therefore, cannot be counted for the purpose of making up the necessary two-thirds-to permit them to be so counted would defeat the purpose of the statute, the design of which clearly is to enable a corporation to mortgage its property to pay necessary debts upon the assent of the actual owners of two-thirds of full paid, legally issued stock, that is, those representing two-thirds of the interest and property which has been paid into or vested in the corporation. In this case, part of the assenting stock not being full paid, and a still larger part having been illegally issued, two-thirds of the interest and property, that is, the real assets of the corporation, were not represented by the assenting stockholders, but by the stockholders who had fully paid for their stock and by the creditors who had given their services and materials to the corporation, and to permit the mortgage to stand upon such a consent would defeat the purposes of the statute and be a fraud upon the corporation and its honest stockholders and creditors. The mort Appellant's points. gage was not issued in good faith for the purpose of liquidating the debts of the company. See Laws above cited; Carpenter v. Black Hawk Gold Mining Co., 65 N. Y. 43; Denike v. N. Y. & Rosendale Lime & Cement Co., 80 Ib. 599; Leslie v. Lorillard, 110 Ib. 532. The statute says that a corporation "may secure the payment of any debt heretofore contracted, or which may be contracted by it, in the business for which it was incorporated, by mortgag ing all or any part of its real or personal estate,' and the above cases hold that a mortgage given to raise money to carry on its business is void. The proof in this case was that only $10,000 of the bonds were used for paying the debts of the company. The remaining $14,000 were used for giving the trustees and their friends a direct profit of $3,500, and indirectly a profit of 333 per cent. of the amount of stock held by them, by releasing themselves from the payment of what was due from them to the company on account of their proportion of the $12,000 stock dividend. If such a transaction as this can stand the whole purpose of the statute can be defeated, II. If the mortgage is valid in whole or in part, the defendants are still liable by reason of their improper acts as trustees of the plaintiff. As trustees of the plaintiff, they must account for all profits made by them out of their trust-those who bought the bonds at 75 per cent. must account for the 25 per cent. thereof wrongfully appropriated by them. Taylor on Corporation, § 612; Pomeroy's Equity Juris., SS 1049, 1075, 1076, 1088; Morawetz on Corporations, 2d ed., § 525; Perry on Trusts, § 428; Bolton v. Gardner, 3 Paige, 273; Butts v. Wood, 37 N. Y. 317; Barnes v. Brown, 80 Ib. 527; Wardell v. Railroad Co., 113 U. S. 651. The defendants attempt to defeat the application of this principle to this case by suggesting that efforts were made to sell the Appellant's points. bonds at par without success, and that 75 per cent. was all that they were reasonably worth. It may be conceded that courts of equity will sustain a transaction between trustee and cestui que trust, provided the trustee (who has the burden of proof) is able" to vindicate" it "from any shadow of suspicion, and to show that it was perfectly fair and reasonable in every respect." (Perry on Trusts, § 428). It is scarcely necessary to say that the proof in this case falls far short of this. On the contrary, it is conclusively proved that the transaction was not fair and reasonable by the following evidence: (1.) Ten thousand dollars of the $24,000 of bonds were placed at par with creditors of the company. (2.) Myers sold his bonds at par to an outsider. (3.) The defendants claim that the bonds were secured by property having a value three or four times greater than the entire amount of the bonds. (4.) The testimony of two witnesses is that with such a security the bonds could have readily been placed at par. (5.) The fact that they were not placed at par is because the directors, and especially Ellis, wanted to get them at 75 per cent., and hence the remarkable resolution of March 5th, actually prohibiting the Bond Committee from disposing of the bonds to outsiders at any price, so long as the stockholders' option to take them at 75 per cent. continued, and extending that option to May 15, 1885. (6.) The bonds are dated March 2, 1885, and defendant Ellis, partly for himself, and, as he now claims, partly also for his wife, took one-half of the entire issue, the first 24 bonds (Nos. 1 to 24), on or before March 9, 1885, that is, either before or shortly after they were issued. It is preposterous to claim that the transaction can stand as to these twentyfour bonds, especially in view of the fact that about the same time twenty of the bonds were placed with creditors at par. Respondents' points. III. Assuming for the present that all the stockholders of the plaintiff may have acquiesced in the wrongful acts of the trustees, that is not a defence to this action. It is clearly not a defence to the action so far as this action is based upon the principles stated, and seeks to invalidate the mortgage as executed in direct violation of the law. Morawetz on Corporations, § 623; Kent v. Quick Silver Co., 78 N. Y. 185; Thomas v. Railroad Co., 101 U. S. 71. Nor is the assent of the stockholders a defence to this action, so far as it is based upon the principles stated First-With respect to the corporate funds the directors are trustees to the corporation only, and are charged with the exclusive duty and responsibility of managing its funds. Pomeroy's Eq. Jur., § 1090; Conn v. Iron Co., 12 Barb. 27; Dabney v. Stevens, 40 How. 341; McCullough v. Moss, 5 Den. 567, 575; Bank U. S. v. Dandridge, 12 Wheat. 64, 113. Second-The rules governing the liability of directors to the corporation with respect to the corporate funds are founded upon public policy and the interests of the corporation, and not upon the interests of the stockholders. Taylor on Corporations, § 269; Morawetz on Corporations, § 623; Barton v. Plank Road Co., 17 Barb. 397; Kent v. Mining Co., 78 N. Y. 185; Wood v. Dummen, 3 Mason, 311; Burke v. Smith, 16 Wall, 390; Thomas v. R. R. Co., 101 U. S. 71; Bagshaw v. East Union R. R. Co., 7 Hare, 130; Phosphate Co. v. Erlanger, L. R., 5 Ch. Div. 114; Society v. Abbott, 2 Beav. 560. Hubbard Hendrickson and Lemuel Skidmore, attorneys and of counsel, for respondents, on the questions considered, argued: I. It appeared sufficiently on the trial that the requisite number of stockholders owning more than two-thirds of the stock had consented in writing to the execution of the mortgage; that the only stock Respondents' points. issued during the year 1884 was 240 shares issued to fourteen stockholders, and that no other stock was issued until February 10, 1885, when it was issued ratably to the same stockholders and the consent of the mortgage, was signed January 30, 1885, by eleven stockholders (more than a majority) owning 165 shares, which was more than two-thirds of the whole number, 240, then issued, the remainder of the stock remaining the property of the corporation plaintiff. In the case of Greenpoint Sugar Co. v. Whitin, 69 N. Y. 339, the court say: “For the purposes of this act, we think that the amount actually issued and owned should be regarded as the amount of the capital stock. The design was to confer this power of assent upon those who represented two-thirds of the actual stock. They represented two-thirds of the pecuniary interest and property of the corporation. Otherwise it might happen that there would not be a sufficient ownership of stock to enable the company to execute a mortgage at all." In the same case it was held (page 335) that where the consent is sufficient in form to show the intention of the stockholders to give their assent to a mortgage, and when construed with the mortgage on record gives all necessary information, that then such consent is sufficient. In order to invalidate the consent for defect of form, the court say (page 336): "We think the defects must be so radical that an intention to consent cannot be inferred," and "if the papers themselves are defective, it was competent by parol evidence to connect the instrument with the subject matter." In Rochester Savings Bank v. Averell, 96 N. Y. 475, the court say: 66 Compliance with the condition of the statute involves the performance of two separate and successive acts, namely, the procuring of the assent of the requisite number of stockholders, and the filing of such assent in the proper clerk's office. The first |