for services rendered by them to the company in the regular course of their duty, and they can not recover therefor except upon some express agreement entered into between them and the company before the rendition of the services, or under a previously existing charter provision or by law. But for services beyond the scope of their official duty, directors, like other persons, may demand a quantum meruit compensation. Thus a director of a railroad company who at its request renders services as attorney, and in procuring aid notes, right of way, and in enlisting capitalists in the enterprise, may recover the reasonable value of his services on an implied contract.' So, also, the managing director of a steamboat company, acting as captain of one of the boats, is entitled, without express contract, to compensation for laborious and responsible services, according to custom and value. But it has been held that a company is under no obligation to pay for the services of a director in efforts to form another corporation in another State, rendered in pursuance of an unofficial arrangement between himself and the other directors, without any agreement as to remuneration, and for the general corporate advantage.

Shattuck v. Oakland Smelting & R. Co., (1881) 58 Cal. 550; Barstow v. City R. Co., 42 Cal. 465; Loan Assoc. v. Stonemetz, 29 Pa. St. 534; Carr v. Chartiers Coal Co., 25 Pa. St. 337; Maux Ferry &c. Co. v. Branegan, 40 Ind. 361; Illinois Linen Co. v. Hough, 91 Ill. 63; American Central Ry. Co. v. Miles, 52 Ill. 174; Lafayette &c. Ry. Co. v. Cheeney, 87 Ill. 446; s. c. 68 Ill. 570; Citizens' National Bank v. Elliott, 55 Iowa, 104; Barstow v. City R. Co., 42 Cal. 465; State v. People's Mut. Ben. Assoc., (1884) 44 Ohio St. 579, holding that trustees of a mutual benefit insurance association who have received compensation for past years of service have no authority to vote themselves "back pay" for those years; Blatchford v. Rose, 54 Barb. 42; Gardner

v. Butler, 30 N. J. Eq. 702, 721; Butts v. Wood, 37 N. Y. 317; State v. People's &c. Assoc., 42 Ohio St. 579; Kelsey v. Sargent, 40 Hun, 150, where it was held that corporate officers have no authority to determine upon their own salaries.

2 Ten Eyck v. Pontiac, O. & P. R. Co., (Mich. 1889) 41 N. W. Rep. 905; New Orleans, B. R. &c. Packet Co. v. Brown, (1884) 36 La. Ann. 138; s. c. 51 Am. Rep. 5.

3 Ten Eyck v. Pontiac, O. & P. A. R. Co., (Mich. 1889) 41 N. W. Rep. 905.

4 New Orleans, Baton Rouge &c. Packet Co. v. Brown, 36 La. Ann. 138; s. c. 51 Am. Rep. 5.

5 Eakins v. American White Bronze Co., (1889) 95 Mich. 568.

CHAPTER XIII.

FIDUCIARY POSITION OF DIRECTORS AND OFFICERS, AND HEREIN OF PROMOTERS.

1

§ 243. The same subject illustrated. 244. Secret profits.

245. Directors entitled to security for loans to the company. 246. Dealings by directors in the company's bonds and stock. 247. Contracts between companies having directors in com

mon.

248. Consummation of fraudulent contracts may be en

joined.

§ 236. Introductory.- The directors, officers and agents of a corporation are held to the general rule of law, resting "upon our great moral obligation to refrain from placing ourselves in relations which ordinarily excite a conflict between self-interest and integrity." The directors and officers are but agents of the company, and while acting in that capacity for it, can not deal with themselves to the detriment of the corporation. All contracts of that character are voidable at the option of the corporation. Thus an officer of an association, who knows that it is insolvent, can not discharge his indebtedness to it with stock held by him. As a general rule, directors and officers can not buy up claims against it at a dis

1 Michoud v. Girod, 4 How. 555. Meeker v. Winthrop Iron Co., (1882) 17 Fed. Rep. 48. Acc. Sellers v. Phoenix Iron Co., 13 Fed. Rep. 20; McAllen v. Woodcock, (1875) 60 Mo. 174; Brewster v. Stratman, (1877) 4 Mo. App. 41; First Nat. Bank v. Reed, (1877) 36 Mich. 263.

Quein v. Smith, (1885) 108 Pa. St. 325. Although it is held that after

an assignment by a corporation for the benefit of its creditors, and the sale of its entire assets, one who was its treasurer and a director may purchase debts owing by the corporation, and having done so, is entitled to participate in the distribution of the fund. Appeal of Hammond, (1879) 123 Pa. St. 503.

count, and then prove them at their face value on the winding up of the company. And the vice-president of a company who is its treasurer also, and at the same time its managing and controlling officer, will not be permitted to use the corporation's funds to purchase claims against it at a large discount and prove them for their face value on foreclosure of the corporate property, without accounting to the creditors and stockholders for all profits thus realized. Even the holders of a majority of the capital stock of a corporation, by their votes in a stockholders' meeting, can not lawfully authorize its officers to lease its property to themselves, or to another corporation formed for the purpose, and exclusively owned by them, unless the lease be made in good faith, supported by an adequate consideration; and in a suit properly prosecuted, to set aside a contract of that character, the burden of proof is upon the parties claiming thereunder. All doubts will be solved in favor of the corporation for whom the stockholders assumed to act. Contracts between the president and a corporation, by which the former agrees, for a commission, to effect and become liable for a loan to the company, while looked upon with suspicion and disfavor by the court, may be enforced, if shown to have been for the benefit of the corporation. And one agent may validly act in a transaction for

1 Taylor on Corporations, § 633; Lingle v. National Ins. Co., 45 Mo. 109; Thomas v. Sweet, 37 Kan. 183; Ex parte Larkin, 4 Ch. Div. 566.

2 Thomas v. Sweet, (1887) 37 Kan. 183.

And it was decided, in an action by a stockholder against the president, to set aside the conveyance to him, that the transaction lacked the elements of fraud and only acccomplished justice. In Baker v.

3 Meeker v. Winthrop Iron Co., Harpster, (1889) 42 Kan. 511, the (1882) 17 Fed. Rep. 48.

4 Trust Co. v. Weed, 14 Phila. 422. In Hancock v. Holbrook, (1888) 40 La. Ann. 53, a newspaper corporation bought property, giving its bond in payment, with a surety. Being unable to pay the bond, it transferred the property to the surety who had paid it, by a vote of the majority of the stockholders at a regularly called meeting. The surety sold to the president of the late corporation, taking his notes therefor.

officers of an incorporated company entered into a written contract with its president, by the terms of which the president was to advance, from time to time, sums of money to carry on the business of the company, and was to have as security for said advances a first lien upon all of the property of the company. Under this agreement large sums of money were advanced by him for its use, and afterwards said company was reorganized, with the under

two adversely interested corporations, if there be no improper concealment of his double agency. A director may even en force a claim against his company which he has purchased from another provided he seek to derive no secret profit.2

§ 237. The fiduciary position of promoters.— The principle stated in the foregoing section applies likewise to the promoters of a corporation who occupy a fiduciary relation towards the new company, such that they have no right to derive any advantage over other members without a full and fair disclosure of their transactions. They are accountable

to the company for any profit so derived. Thus if the vendors of property purchased by a corporation make any payment

to a promoter thereof by way of commission or gift, he is liable to his company for the amount thus paid, less the amount of his disbursements in its behalf expended, though the sale was a fair one. Recovery for a gift or commission may be had even from the vendors of the property, if the agreement therefor is found out before it has been paid. A promoter who has given away part of his secret profits is, it would seem, not thereby relieved of liability to account to the corporation for the whole amount."

§ 238. The same subject continued.- The promoter must inform his company of any profit acquired by him from a transaction, and deal with it, it is said, "at arm's length;" and this from the time he begins or starts the project of the new company. So where the promoter of a corporation had detached overdue coupons from bonds of the corporation before disposing of the bonds, and delivered them to materialmen in part payment of their demands, it was held that, as it would be inequitable to permit the promoter to use these coupons as a basis of a preference over purchasers of the bonds from which they had been cut, the material-men, who had taken them after maturity, had no greater rights. To impose

disclosing the purchase of the patents, and that a portion of the stock was to be issued to the former ownners in part payment, but not informing purchasers that they were to have stock on any different terms or conditions. It was further agreed that B. should be president and C. treasurer of the corporation, and they were so elected, and placed a large amount of stock at seven dollars a share, obtaining their own stock for nothing. In this case, the corporation was held to have a right to elect (1) whether the shares should be transferred back to it; or, (2) if the shares had been sold, that the entire profits made by the sale should be turned over; or (3) that it should be paid the sum lost by reason of being deprived of the right to place

the shares with other persons at seven dollars per share.

1 Emma Silver M. Co. v. Grant, 11 Ch. Div. 918; Beach on Railways, §3.

2 Whaley Bridge &c. Co. v. Green, 5 Q. B. Div. 109; Bagnall v. Carlton, 6 Ch. Div. 371; In re Murrah Co., 24 W. R. 49.

3 Getty v. Devlin, (1873) 54 N. Y. 413.

4 Emma Silver M. Co. v. Grant, 11 Ch. Div. 918.

5 Densmore Oil Co. v. Densmore, (1870) 64 Pa. St. 50.

6 Wood v. Guarantee Trust & Safe Deposit Co., (1889) 128 U. S. 416. In this case, in proceedings to foreclose a mortgage securing coupon bonds of a corporation, materialmen filed their petition, alleging