CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§ 711. disregard of interests which just as much as the interests of shareholders are protected by rights which are the manifesta- tions of legal rules contained in the constitution. And, there- fore, in so far as shareholders, constituting the body corporate, have power to control the funds in which creditors have legally protected interests, shareholders must be regarded as occupying towards them a position of trust ; for the latter have ordinarily no voice in the corporate management. As Jus- tice Miller said, giving the opinion of the Federal Supreme Court, in Sawyer v. Hoag : l " But, after all, this artificial body is but the representative of its stockholders, and exists mainly for their benefit, and is governed and controlled by them through the officers whom they elect ; and the interest and power of legal control of each shareholder is in exact proportion to the amount of his stock. It is, therefore, but just that when the interest of the public, or of strangers deal- ing with the corporation, is to be affected by any transaction between the stockholders who own the corporation, and the corporation itself, such transaction should be subjected to a rigid scrutiny, and if found to be affected with anything un- fair toward such third person, calculated to injure him, or designed intentionally and inequitably to screen the stock- holder from loss at the expense of the general creditor, it should be disregarded or annulled so far as it may inequitably affect him." a § 711. Thus, the Federal Supreme Court has held that a foreclosure sale, made after a railroad company, the mortgagor, had become insolvent, and expedited by an arrangement be- tween the mortgagees and the shareholders, by which the former received a part of the debt due them and the latter the 1 17 Wall. 610, 623. 8 Compare Arkansas River, etc., Co. v. Farmers' L. & T. Co., 13 Col. 587. Thus, an insolvent bank can- not convey its property to pay a debt due its sole shareholder. Swep- son o. Bank, 9 Lea ( Tenn.), 713. But it has been held that a share- holder may avail himself of his supe- rior advantages to obtain security for debts due him, to the exclusion of other creditors of the corporation. The court said that shareholders and strangers who are creditors stood on very unequal terms; but it seemed to bean inequality allowed by the law and understood by persons contract- ing with the corporation. Whitwell B. Warner, 20 Vt. 425, 444. See Keichwald v. Commercial Hotel Co., 106 111. 439, 452. 707
