In this case, the officers and directors of the W.M. Corporation arranged with the Camden Safe Deposit and Trust Company to foreclose a second mortgage which it held covering corporate premises. A new corporation was then formed by them to take title at the foreclosure sale. Complainant, therefore, lost her third mortgage covering the premises in question. The new corporation it appears will take a considerable profit, and complainant sought to have a trust imposed upon its assets to prevent an unjust enrichment of those who resorted to such means to defeat her claims to their own advantage.
A court of equity is not circumscribed as are courts of law. Equity does what ought to be done. Landell: A Brief Survey ofEquity Jurisdiction. The corporate charter is not a shield for fraudulent practice. The corporate officers cannot, at the expense of creditors and stockholders, enrich themselves. Equity draws the veil and orders that done which ought to be done. Corporate officers are fiduciaries and are bound by strict rules of moral conduct. They may not divert to themselves assets which should go to stockholders or creditors. Marr v. Marr, 73 N.J. Eq. 642. In that case, it was held that even though a trustee purchase trust property at public sale the purchase was voidable at the instance of the cestui que trust. Chancellor Pitney said for this court: "It is settled that a director has not complete freedom to contract *Page 27 with his corporation. In Stewart v. Lehigh Valley RailroadCo., 38 N.J.L. 505, 522, Mr. Justice Dixon, speaking for this court, said: `After an examination of all the cases cited, and such others as I have found, and a careful consideration of the principle and the results of regarding it and of disregarding it, I have come to the conviction that the true legal rule is that such a contract is not void, but voidable, to be avoided at the option of the cestui que trust exercised within a reasonable time. I can see no further safe modification or relaxation of the principle than this. A director of a corporation may have rights not arising out of express contract — such as the right to pass over its railroad, or to transport his goods over its canal, on paying reasonable tolls, or to have money which he had loaned it repaid to him; but where the right is one which must stand, if at all, upon an express contract, and which does not hold it against the will of his cestui que trust; for in the very bargain which gave rise to it, in which he should have kept in view the interest of that cestui que trust, there intervened before his eyes the opposing interest of himself.' See, also, Gardner v.Butler, 30 N.J. Eq. 702, 721."
The Court of Chancery should have compelled the defendants West and Warren to do justice to the complainant and it was error to dismiss the bill of complaint as to them.
Mr. Justices Heher, Perskie and Porter concur in these views.
For affirmance — THE CHIEF-JUSTICE, PARKER, CASE, DEAR, WELLS, WOLFSKEIL, RAFFERTY, HAGUE, JJ. 8.
For reversal — BODINE, HEHER, PERSKIE, PORTER, JJ. 4. *Page 28