upon a person the liability of promoter, however, it is necessary that it be affirmatively shown that he was acting in behalf of the projected corporation or that he so assumed to act.1

239. Of sales of property to corporations by promoters. A person owning property may afterwards become the promoter of a corporation and sell the property to it without reference to its original cost, because he was not a promoter when he acquired it. So a promoter may effect a valid sale of his own property to the corporation, provided the latter be fully cognizant of his interest therein. But if the corporation have no knowledge thereof, it may repudiate that the promoter of the corpora- after describing the English method tion had become indebted to them of getting up companies, out of for the construction of the works, which the word "promoter" grew, which he turned over to the com- the court continued: "That has no pany; that in payment thereof he resemblance to our method of or transferred to them coupons of the ganizing corporations. It is true company at par value; that the cou- that the word has been found to pons fell due before the completion have its uses in our jurisprudence, of the work, but that the promoter but in a much more restricted sense advanced the amounts to the hold- than that used in the English reers, and took a transfer of the cou- ports." pons; that the money thus used ought to have been applied to the intervenors' indebtedness; and claimed priority, etc. But it was held that since it was shown that the promoter was essentially the company, and that he had instructed his agents to call in the coupons as if for payment, and that many of them were canceled by him, a finding that the coupons had been paid before they were turned over to intervenors would not be disturbed. Wood v. Guarantee Trust & Safe Deposit Co., (1889) 128 U. S. 416.

1 St. Louis, F. S. & W. R. Co. v. Tiernan, (1887) 37 Kan. 606. In this case it was held that merely signing the charter of the projected railway some time before it was filed with the Secretary of State does not place a person in a fiduciary position with respect to the corporation. And

2 Densmore Oil Co. v. Densmore, (1870) 64 Pa. St. 49; Taylor on Corporations, § 83. But Mr. Taylor thinks that, even in such case, he may not sell at an unfair or exorbitant price, if at the time of the sale he occupies toward the corporation, as promoter or otherwise, a position of trust or confidence. And he cites McElhenny's Appeal, (1869) 61 Pa. St. 188, a case in which a person not acting as a promoter sold property to persons who were organizing a company, and afterwards united with them, and they together, as promoters, consummated a sale of the property to the company at a large advance; it was held that the original owner of the property, or his estate, he being dead, was entitled to retain the profit derived from the first sale, but must pay back his proportion of profit derived from the second.

the contract, and, upon relinquishment of the property, recover the purchase-money. Where the promoter has first purchased the property with that intention, and afterwards sells it to the company at an advance upon the original purchase price, he may be compelled to make restitution to the corporation of the profit so acquired by him. If the payment for property taken of promoters is made in the stock of the company, having no marketable value, the par value of the stock may be very disproportionate to the cost of the property for which it is given.'

§ 240. Fiduciary position of directors (a) Toward the corporation. It is by no means a well settled point, what is the precise relation which directors sustain to stockholders. They are undoubtedly said by many authorities to be trustees, but this is to be taken only in a general sense, as the term is applied to any agent or bailee intrusted with the care and management of the property of another. It is certain that they are not technical trustees. They can only be regarded as manda

tories, persons who have gratuitously undertaken to perform certain duties. But whether a director of a corporation is to be called a trustee or not in the strict sense of the word, there can be no doubt that his character is fiduciary, being intrusted by others with powers, which are to be exercised for the common and general interests of the corporation. And it is well settled that directors and managers of corporations and other companies, are equally within the rule which guards and restrains the dealings and transactions between trustee and cestui que trust, and agent and his principal; directors or managers being in fact trustees and agents of the bodies represented by them. A director whose personal interests are adverse to those of the corporation has no right to act as a director. As soon as he finds that he has personal interests which are in conflict with those of the company he ought to resign. Directors of a railroad company can not acquire such an interest in the profits of a contract for the construction of the road as would give them a standing in a court of equity to interpose an objection to the consummation of a compromise between the railroad company and its contractor."

241. (b) Toward corporate creditors. The directors of a company stand in the same relation toward creditors of the corporation that they do to its shareholders, being trustees for the benefit of corporate creditors also. They can not

the purchase. At the time of the sale there were no stockholders, and the stock thus issued was all that had been subscribed. The company had no property except its charter and the road-bed, and the notes and stock issued to T. and A. had no marketable value. Even this transaction was not deemed fraudulent.

1 Sharswood, J., in Spering's Appeal, 78 Pa. St. 11.

2 Hoyle v. Plattsburg &c. R. Co., 54 N. Y. 314. Appleton, C. J., in European &c. R. Co. v. Poor, 59 Me. 277, said that the president and directors of a corporation must be held as occupying a fiduciary relation to the stockholders, for and in behalf of whom they act.

3 Cumberland &c. Co. v. Parish, (1875) 42 Md. 598, 605, citing Atty.Gen. v. Wilson, 1 Craig & P. 1; Benson v. Heathorn, 1 Young & C. Ch. 326; York &c. R. Co. v. Hudson, 16 Beav. 485; Aberdeen R. Co. v. Blaikie, 1 Macq. 461; Great Luxembourg R. Co. v. Magnay, 25 Beav. 586; Hoffman &c. Co. v. Cumb. &c. Co. 16 Md. 456; s. c. 20 Md. 117.

4 Goodin v. Cincinnati &c. Co., (1868) 18 Ohio St. 183.

5 Paine v. Lake Erie &c. R. Co., (1869) 31 Ind. 283, 353.

6 Thomas v. Sweet, (1887) 37 Kan. 183; Wilkinson v. Bauerle, 41 N. J. Eq. 635; Goodin v. Cincinnati &c. Co., (1868) 18 Ohio St. 183; Delano v. Case, (1887) 121 Ill. 247; s. c. 2

divert the corporate property from the general purpose of paying the creditors. A violation of this duty will entitle the creditors who suffer thereby to relief. When a sale of corporate property, charged to be a diversion thereof from the payment of corporate debts, is a sale of such property to one of the directors taking part in the transaction as buyer and seller, it devolves on the directors to establish both the good faith of the transaction, and that the sale produced the full value of the property. If not made in good faith, or if it did not produce the full value of the property, the directors taking part in the sale will be answerable to creditors for what was thus lost. In case of the insolvency of a corporation, there is no power in its directors or officers to mortgage or convey the corporate property to themselves, or to secure to themselves a preference. For the directors of an insolvent corporation are trustees for the creditors of the corporation, and they can not obtain priority over a creditor by taking mortgages to themselves to secure them for advances and for their indorsement of the notes of the corporation, after the creditor has brought suit, and when the company is insolvent. But a sale of its property by an insolvent corporation to one of its directors to satisfy a debt, though made without an order of the board of directors, is ratified by the company's receiving and canceling the notes in payment of which it was made.3

242. Contracts between directors and the company voidable.- Directors are disqualified from acting in the right and behalf of themselves and of their companies at the same

Am. St. Rep. 81, holding that directors of a bank are trustees for depositors as well as for stock

holders.

facts that the creditor had not reduced his claim to judgment at the time the mortgage was given, and that the claim was for damages suf

1 Wilkinson v. Bauerle, (1886) 41 fered by the creditor through the

N. J. Eq. 635, 645.

2 Wilkinson v. Bauerle, (1886), 41

N. J. Eq. 635, 645.

negligence of the company while he was a guest at the company's hotel, do not change the duty of the di

3 Haywood v. Lincoln Lumber Co., rectors to him, as they had notice of

64 Wis. 639.

4 Olney v. Conanicut Land Co., (R. I. 1889) 6 Ry. & Corp. Law J. 414, where it was held also that the

the claim by the commencement of suit.

5 Beach v. Miller, 123 Ill. App. 151.

time; and transactions with themselves or wherein they are interested are voidable, either by the company or by its stockholders, or by its creditors,1 provided they repudiate the transaction within a reasonable time. The same rule applies to any