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this manner ratification may be presumed, of acts of promoters,' of the president, of a director, or other officer. Where a corporation borrows money which is applied to the improvement of its property, and the stockholders, knowing of such

dividual in the community, are affected like private persons with obligations arising from implications of law, and from equitable duties which imply obligations; with constructive notice, implied assent, tacit acquiescence, ratifications from acts and from silence, and from acting upon contracts made by those professing to be their agents; and by those legal and equitable considerations which affect the rights of natural persons. Melledge v. Boston Iron Co. 5 Cush. 158, 175." See also Selma &c. R. Co. v. Tipton, 5 Ala. 787; Philadelphia &c. R. Co. v. Howard, 13 How. 307; Scaggs v. Baltimore &c. R. Co. 10 Md. 268; 20 Cent. L. J. 412. It is provided by statute in New York, that where directors have exceeded their authority in borrowing money for the corporation, the contracts are not to be deemed invalid as against the company by reason thereof. N. Y. Laws of 1845, ch. 230, § 1.

1 Vide infra, § 198. Where the promoters of a corporation, after the signing but before the filing of articles of incorporation, and before the fixing of a time for the commencement of business, selected a president, and authorized him to make a note in payment for certain property, which came duly into the possession of the corporation and was used and employed by it, recovery was allowed an assignee of the note. Paxton Cattle Co. v. First National Bank, 21 Neb. 621; s. c. 59 Am. Rep. 852. But to impute to a corporation liability for services rendered prior to its creation, under an agreement

with the promoter thereof, it must be shown that the services resulted to the interest of the corporation and were performed on the corporate credit rather than on the individual credit of the promoter. Perry v. Little Rock & Fort Smith Ry. Co., 44 Ark. 383.

2 Thus in a recent case in Alabama, it was held that a company retaining the proceeds of a note executed by its president can not deny his authority to make it. Tuscaloosa &c. Co. v. Perry, (1888) 85 Ala. 158. And so a railway company, by accepting the benefits arising under a deed conveying to it a right of way, has been held to be affected with notice of, and to be bound to perform certain covenants in an-other instrument, previously executed by its president, relating to the same subject matter, the two instruments being considered as one. Mobile & M. Ry. Co, v. Gilmer, (Ala. 1889) 5 So. Rep. 138.

3 Where a director of a corporation, after proposing a loan to the corporation at a regular meeting of the directors, sought the advice of counsel as to the authority of the corporation to borrow, and a form of bonds was drawn up by the counsel with the knowledge of the corporation though without his being actually employed by it, the corporation was declared liable for the services of the counsel. Holmes v. Kansas City Board of Trade, 81 Mo. 137.

4 Where a corporation had accepted a deed of land, bought by one of its officers, it was held estopped from

improvement, and the loan to effect it, allow the creditor to advance the money, and the money to be used, without any indication of dissent on their part, they are estopped to object to the validity of the debt that it was not authorized by a previous meeting and consent of stockholders. But a board of directors who have made a barter of the assets of the company for personal gain, can not, by an act purporting to be an acceptance of an equivalent for such assets, conclude the stockholders, or their representatives, from showing that no equivalent was actually received."

§ 198. Ratification of acts of promoters. The transactions and contracts of persons engaged in promoting the organization of a corporation are necessarily, from the nature of the case, unauthorized, and depend for their validity as corporate acts upon the ratification of the company subsequently formed. For the promoters of a corporation do not strictly represent it in any relation of agency, and have no authority to enter into preliminary contracts binding upon the corporation when it shall come into existence. The company can

denying the authority of the officer to agree to pay a price additional to the consideration set forth in the deed: Kickland v. Menasha &c. Co., (1887) 68 Wis. 34.

the owners of nearly the whole issue of mortgage bonds made by a railroad company. Said corporation having become insolvent and having abandoned the enterprise of con

1 Manhattan Hardware Co. v. Bo- structing its road, plaintiffs entered land, (1889) 128 Pa. St. 119. into a contract with defendant

2 Guild v. Parker, (1881) 43 N. J. Magee which recited that Magee

430.

3 Munson v. Syracuse &c. R. Co., (1886) 103 N. Y. 58; Doubleday v. Musket, 7 Bing. 110; Moneypenny v. Hartland, 1 Car. & P. 35; Kerridge v. Hesse, 9 Car. & P. 200. In the first case the sanction of the contract of the promoter was obtained by the act or co-operation of a director who had a private interest, and it was held that the company might resist an action for specific performance, at least as it had not accepted the consideration or taken the benefit of the contract. The circumstances of this case were these: Plaintiffs were

represented persons and interests proposing to organize another railroad company. By the contract, plaintiffs agreed to foreclose the mortgage securing the bonds, to purchase the property covered by the mortgage on foreclosure sale, and to convey the same to Magee, or to the company proposed to be organized. Magee agreed to deliver to plaintiffs in payment for the property so conveyed, first mortgage bonds of the new company to an amount specified. A new company was organized, which contemplated building a road on substantially the same line

not, however, accept the benefits of a contract entered into in its behalf by its promoters without also assuming the burdens thereof. When promoters' contracts have been thus adopted by the new company and their benefits received they become the contracts of the corporation and are enforcible against it.2 The same rule applies to contracts entered into with promoters of one company by an amalgamated company or a rival company that has assumed the first company's liabili

as that of the old company, of which new company plaintiff Munson was president and a director. Its board of directors passed a resolution assuming the obligations of Magee, and subsequently a new contract was made between it and plaintiffs, which substituted the company in place of Magee in the contract. Munson, as a director, participated in the meeting of the board at which the resolution was passed and, as its president, executed the new contract. The new company subsequently located an entirely new line upon which to build its road. Plaintiffs foreclosed the mortgage and purchased the property, which consisted of rights of way and a roadbed, partially graded over a portion of the route of the old company.

1 See cases in last note, and Gooday v. Colchester &c. Ry. Co., L. R. 15 Eq. 596; Edwards v. Grand Junction Ry. Co., 1 Mylne & C. 650; Preston v. Liverpool &c. Ry. Co., L. R. 7 Eq. 124; Little Rock & Fort Smith R. Co. 1. Perry, 37 Ark. 164; s. c. 9 Am. & Eng. R. Cas. 610; s. c. 44 Ark. 383; s. c. 25 Am. & Eng. R. Cas. 44, 50; Boomer v. American Spiral Hinge Manuf. Co., 81 N. Y. 468; Despatch Line v. Bellamy Manuf. Co., 12 N. H. 205; Grape Sugar &c. Manuf. Co. v. Small, 40 Md. 395; Fister v. La Rue, 15 Barb. 323. Cf. Edwards v. Grand Junction R. Co., 1 Mylne & C. 650. In the first Arkansas case,

at p. 190, Eakin, J., said: "The rule has been fully adopted in the American courts upon the English authorities and with the same limitations. The rule is thus defined by Mr. Redfield in his work on the Law of Railways, vol. 1, p. 16: Whenever a third party enters into a contract with the promoters of a railway, which is intended to inure to the benefit of the company, and they take the benefit of the contract, they will be bound to perform it upon the familiar principle that one who adopts the benefit of an act, which another volunteers to perform in his name and in his behalf, is bound to take the burden with the benefit.” This is a very well formulated expression of the rule, and on all points carefully guarded to conform with the decided cases, and limit its scope. It has also, in some cases, been held in America, that a corporation is liable at law upon an implied assumpsit, for services rendered before it came in esse, but which were necessary to perfect its organization, and which, after such organization was perfected, it accepted, and the benefits of which it enjoyed." And the judge cited Low v. Connecticut & Passumpsic Rivers R. Co., 45 N. H. 375.

2 Paxton Cattle Co. v. First Nat. Bank, (1887) 21 Neb. 621; Swisshelm v. Swissvald Laundry Co., (1880) 95 Pa. St. 367.

ties. A similar, but somewhat extended rule has been enacted by the English Railway Construction Facilities Act of 1864, which provides that contracts relative to the purchase or taking of lands for the railway, entered into by the promoters before the incorporation, shall be as binding on the company as though entered into by the company. So also the company may be bound by an express ratification of the promoters' contracts, or by the acceptance of a charter which recognizes and provides for the fulfilment thereof. There is a line of English cases which holds that there can be no ratification by a corporation of the contracts of its promoters;

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1 Stanley v. Chester &c. Ry. Co., 3 Mylne & C. 773; Greenhalgh v. Manchester &c. Ry. Co., 9 Sim. 416; Preston v. Liverpool &c. Ry. Co., 1 Sim. N. S. 586; Lindsey v. Great Northern Ry. Co., 10 Hall, 664; Hacker v. Mid Kent Ry. Co., 12 Law T. N. S. 669.

227 & 28 Vict. ch. 121, § 30.

3 Payne v. New South Wales Coal Co., 10 Ex. 283; Hutchinson v. Surrey Gas Assoc., 11 C. B. 689. And in Wood v. Whelen, (1879) 93 Ill. 153, where the promoters of a private corporation, acting as directors of the de facto organization, not yet incorporated, adopted a resolution that for the purpose of completing and putting in successful operation the works for the erection and carrying on of which the company had been organized, and to provide for the subsequent extension of such works, there should be issued a certain number of bonds of the company, to be secured by a mortgage upon its property, upon which to borrow money for the purpose indicated. In pursuance of this resolution and after the company became incorporated, the bonds were executed by the regularly constituted officers of the corporation, and also a mortgage under the seal of the

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company. Subsequently, and while the bond and mortgage were still in the possession of the company, the directors of the corporation, by resolution, gave express authority to their agent to sell these bonds, upon certain prescribed terms, and to deliver the mortgage for their security. It was held that this action of the board of directors of the corporation was equivalent to an original authority to issue the bonds, and an adoption of the mortgage previously executed, as well as a ratification of the action of the promoters of the corporation in respect thereto, so that, irrespective of the question as to the power of the promoters of the corporation to bind the future corporation, the securities became the valid and binding obligations of the corporation by its own act of adoption and ratification through its directors.

4 Tilson v. Waunek Gaslight Co., 4 Barn. & C. 962; Shaw's Claim, L. R. 10 Ch. 177; Caledonian &c. Ry. Co. v. Helensburgh, 2 Macq. 395.

5 Melhado v. Porto Allegre Ry. Co. L. R. 9 C. P. 503; Kilner v. Baxter, L. R. 2 C. P. 174; In re Empress Engineering Co., 16 Ch. 125; In re Northumberland Avenue Hotel, 33 Ch. 16.

that the apparent ratification is in fact a new contract, and that the liability of the corporation depends upon the doctrine of equitable estoppel. But a late American case with sound reason holds that while a corporation is not bound by engagements made on its behalf by its promoters, before it is organized, it may, after it is organized, make such engagements its contracts by adopting them; and this it may do precisely as it might make similar original contracts, formal action of its board of directors being necessary only where it would be necessary to a similar original contract. But to the direct contrary again and in accordance with the English cases the latest of American cases holds that where a contract is made in the name and for the benefit of a projected corporation, the corporation, after its organization, cannot become a party to the contract, either by adoption or ratification of it.'

§ 199. Enforcement of its promoters' contracts by the corporation dependent upon ratification. Upon its ratification of the promoters' contracts depends the company's right to enforce them. When, however, the corporation has ratified the contract and performed the obligations undertaken by the promoters, it may compel the other contracting party to comply with the terms of the agreement.

§ 200. Of the compensation of officers and agents. The authorities are not uniform upon the question of the right of

1 Touche v. Metropolitan Ry. Warehousing Co., 6 Ch. 67; Lindsey v. Great N. Ry. Co., 10 Hare, 664; Edwards v. Grand Junction Ry. Co., 1 Mylne & C. 650; Stanley v. Chester &c. Ry. Co., 3 Mylne & C. 773; Bedford &c. Ry. Co. v. Stanley, 2 Johns. & H. 746.

2 Battelle v. Northwestern Cement & Concrete Pavement Co., (1887) 37 Minn. 89.

3 Abbott v. Hapgood, (Mass. 1890) 22 N. E. Rep. 907, citing Kellner v. Baxter, L. R. 2 C. P. 174; Gunn v. Insurance Co., 12 C. B. (N. S.) 694; Melhado v. Porto Allegre Ry. Co. L. R. 9 C. P. 503; In re Engineering Co., 16 Ch. Div. 125.

4 Burrows v. Smith, 10 N. Y. 550; Penn Match Co. v. Hapgood, (1886) 141 Mass. 145. Allen, J. said in this case: • The power of a corporation to make contracts can be exercised in accepting and adopting proposed contracts made in its name and behalf before its incorporation. Such a contract must derive its validity from the meeting of minds when both parties are in existence; until then, it can be nothing more than an offer by one party."

5 Bedford & C. Ry. Co. v. Stanley, (1862) 2 J. & H. 746. See 3 Ry. & Corp. Law J. 482. Cf. cases cited in § 198.

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