money made out of any transactions of the company's business or connected therewith. And where a director had to vote for a contract with himself to secure its passage, the contract was held invalid. But on the other hand, it has been held that where a quorum of a board of directors of a corpo could see, hear or act.' There has never been held to be any determined number of days or years as applied to every case, like the statute of limitations, but must be decided in every case upon all the elements of it which affect that question. Twin Lick Oil Co. v. Marbury, (1875) 91 U. S. 591. Gaskell v. Chambers, 26 Beav. 360; York &c. Ry. Co. v. Hudson, 16 Beav. 485; Madrid Bank v. Pelly, L. R. 7 Eq. 442. 2 Bennett v. St. Louis Car Roofing Co., 19 Mo. App. 349. Cf. Reilly v. Oglesbay, 25 W. Va. 36, a case in which, the corporation having no directors, the stockholders acted in that capacity, and a sale of property to a stockholder ordered at a meeting from which some of stockholders were absent, was held voidable, although a reasonable price had been paid. Where certain officers of a corporation have, in their capacity of directors and trustees of the stockholders, passed resolutions allowing and ordering an indebtedness to themselves to be paid, the resolutions are voidable by the corporation, or, upon its refusal, by a minority of the stockholders, whether the transaction was fair and honest or not. Graves v. Mono Lake Hydraulic Min. Co., 81 Cal. 303, decided under Cal. Civ. Code, which provides 2230 that no trustee shall take part in any transaction concerning the trust in which he has any interest adverse to that of his beneficiary, except, inter alia, when the beneficiary, having capacity to contract, with full knowledge of the motives of the trustee, and of all the facts concerning the transaction which might affect his own decision, and without the use of any influence on the part of the trustee, permits him to do so. § 2234 that every violation of said section is a fraud against the beneficiary of the trust. § 2322 that an authority to an agent, expressed in general terms, however broad, does not authorize him to do any act that a trustee is forbidden to do by the section above. This case further holds that a note and mortgage to secure such indebtedness are likewise voidable where they are executed in pursuance of a resolution of the board of directors, at the instance of such officers, without passing upon the merits of the demand, and under a deception practiced by such officers, who informed them that the debts were fictitious, and that the mortgage, being for the purpose of preventing an attachment of the property of the corporation, would be canceled as soon as money could be raised to pay the other debts. And that a finding that such mortgage was ratified by the holders of two-thirds of the stock is not warranted, where the evidence shows that certificates for a part of the stock necessary to make up the two-thirds had been canceled shortly after such attempted ratification, without showing that they remained in the hands of the person whose vote is alleged to have represented them until canceled. ration votes to make a contract with some of their number, the contract is not necessarily void because those members voted, no fraud or bad faith being charged. And generally a director of a company may deal with it in like manner as may any other individual, if he deal honorably, with full disclosure to the company that he is acting in his own behalf and adversely to it, and without endeavoring to influence or control it.2 Independently of statute a contract between a director and the corporation is not voidable merely because made with a director, when all interested in the corporation, officers, directors, and stockholders, not only know of but consent to it, and the property acquired by it is kept and used by the corporation. But the company must either adopt the transaction, or repudiate it, and if it elect to do the latter, it must repudiate it altogether. It cannot repudiate it so far as it is onerous and adopt it so far as it is beneficial. Thus in case of an election to set aside a transaction with a director the purchase price paid by the latter must be refunded. In no case can specific performance of an agreement by a director with the company for the benefit of himself or his firm be enforced. 5 1 Leavitt v. Oxford & Geneva Sil- wards on the ground that it was ver Mining Co., 3 Utah, 265. ultra vires. Pneumatic Gas Co. v. Berry, 113 U. S. 322. 2. Directors' Contracts with Themselves," 16 Am. L. Rev. 917, citing Harts v. Brown, 77 Ill. 226; United States Rolling Stock Co. v. Atlantic &c. R. Co., 34 Ohio St. 450; Mayor of Griffin v. Inman, 57 Ga. 370; Foster v. Oxford W. & W. R. Co., 13 C. B. 200. 3 Battelle v. Northwestern Cement &c. Co., (1887) 37 Minn. 89; Knowles v. Duffy, (1886) 40 Hun, 485; Budd v. Walla Walla &c. Co., 2 Wash. 347; Santa Cruz R. Co. v. Spreckles, 65 Cal. 193; Hill v. Nisbet, 100 Ind. 341. Thus where a transaction fairly and openly entered into between a corporation and one of its directors, sanctioned by all and inuring to the benefit of the corporation, will not be set aside at its instance seven years after 4 Great Luxembourg Ry. Co. v. Magnay, (1858) 25 Beav. 586. In this case the railway company furnished a director with a large sum of money, to enable him to purchase the "concession" of another line. He purchased it, as it turned out, from himself, he being the concealed owner of it. And it was held that the transaction could not stand, but that the company having sold the concession pending the suit impeaching the transaction, they could have no relief, either as to the application of the money or otherwise. 5 Cornell v. Clark, (1887) 104 N. Y. 451; Saltmarsh v. Spaulding, (1887) 147 Mass. 224. 6 Flanagan v. Great Western Ry. Co., (1868) L. R. 7 Eq. Cas. 116. Where officers of § 243. The same subject illustrated. a corporation sell property to it on the one hand, and buy for t on the other, and make a profit for themselves by the transaction, they will be liable to the company for the profit.' Directors are agents to buy labor and materials with which to build roads and works for their companies; in brief, to make construction contracts. Such contracts made with themselves, or with third persons who are their partners in business, are voidable. They can not purchase on their own account what they sell on account of their company. If they do the company may repudiate the sale, or may charge the profits made by the directors as trustees or agents, with an implied trust for its benefit. Neither can directors purchasing property for their companies retain a commission paid them by the vendor for effecting the sale. 1 Pittsburg Min. Co. v. Spooner, (1889) 47 Wis. 307, in which case a complaint alleged that defendants, having obtained the right to purchase a mining option for twenty thousand dollars, proceeded to form a corporation to make the purchase, representing to the persons who subscribed for stock that the option would cost ninety thousand dollars; and that, having first induced third persons to subscribe for the stock on those representations, and to pay to the corporation the sum of one hundred thousand dollars for their stock, the corporation then, through defendants, its officers, purchased the option nominally for ninety thousand dollars, paying the twenty thousand which it actually cost them with the money received by the corporation from the sale of stock, and converting the remaining seventy thousand to their own use. The action was brought in the name of the corporation, to recover the latter amount, and upon the principle stated in the text it was held that a good cause of action was stated. And it was further held that it was immaterial that the sale and purchase And if property is conveyed were made at a time when defendants were the only members of the corporation, the stock not having been then actually allotted to the third persons, who were in reality interested in the formation of the corporation, and who had agreed to take the stock; that the fact that the ninety thousand which the corporation paid defendants for the option were the proceeds of an issue of its stock in violation of the statute could be set up to defeat the recovery from defendants of the excess over the actual purchase price; and that the defendants were in no position to attack either the issue of the stock or the legality of the corporate organization. 2 European &c. R. Co. v. Poor, 59 Me. 279; Flint &c. R. Co. v. Dewey, 14 Mich. 477; Paine v. Lake Erie & L. R. Co., 31 Ind. 283; Port v. Russell, 36 Ind. 60; Weed v. Little Falls & D. R. Co., (1883) 31 Minn. 154. 3 Parker v. Nickerson, (1873) 112 Mass. 195; Greenfield Sav. Bank v. Simons, (1882) 133 Mass. 415. 4 Morrison v. Ogdensburg & L. C. R. Co., 52 Barb. 173, 179. to them personally, they can hold it only as trustees for the company. Under no circumstances can they resell to the company at an advance.2 The purchase of assets of an incorporated company by one of its directors is voidable only at the instance of a party in interest. Such director is conclusively presumed to know the financial condition of the company, and therefore the transaction is not bona fide. The mere fact, however, that one of the directors was interested in a purchase made by a corporation will not avoid the purchase, no damage appearing to have resulted to the shareholder making the complaint. A director buying up claims against a company for a third party must act in good faith." 1 York & North Midland R. Co., 19 Eng. L. & Eq. 361; Blake v. Buffalo Creek R. Co., 56 N. Y. 485; Buffalo &c. R. Co. v. Lampson, 47 Barb. 533; Great Luxembourg R. Co. v. Magnay, 25 Beav. 586. 2 Redmond v. Dickerson, 9 N. J. Eq. 515; McAleer v. Murray, 58 Pa. St. 126. 3 Jones v. Arkansas Agricultural & Mechanical Co., 38 Ark. 17. And where the directors of a railroad company, which has suspended operation, purchase part of the construction material, execution creditors of the company can not avoid the purchase, and take the material from the directors' possession under execution against the company. Cornell v. Clark, (1887) 104 N. Y. 451. A director of a corporation purchased at a foreclosure sale property of the corporation mortgaged by vote of the directors. But it was held that good faith being shown, the sale could not be avoided; and, in the absence of good faith, the sale could be avoided only upon repayment of the purchase price, and then by the corporation or its stockholders, and not by the purchaser of the land at a sale on execution in a suit against the corporation. Saltmarsh v. Spaulding, (1888) 147 Mass. 224. 4 Hill v. Nisbet, 100 Ind. 341. So it is not necessarily a fraud on the creditors of a corporation for its trustees to purchase of one of their number property for the alleged benefit of the corporation, paying therefor the entire capital stock of the corporation. Such a transaction may or may not be fraudulent, according to circumstances. Knowles v. Duffy, 40 Hun, 485. And the owners of a graded railroad bed can sell it to a railroad company, whose officers, directors, and stockholders are composed of the owners of the road-bed, and receive in payment therefor shares in the capital stock of the railroad company, at a time when those who sell the road-bed, and own and control the railroad company, are the absolute owners of all the stock issued by the railroad company, and where the terms of sale, and the issue of stock, are matters of record on the books of the railroad company, and when the transaction occurs months before any other or additional stock is issued by the railroad company. St. Louis, F. S. & W. R. Co. v. Tiernan, (1887) 37 Kan. 606. 5 So decided. An attorney, who was also a director, of an insolvent railroad company, was employed by 8244. Secret profits.- A director may sell to the company property in which he has an interest provided the property be of a kind which the company is authorized to purchase and which as a matter of fact it needs for the purposes of its incorporation if the transaction be in good faith.' But any secret profits that directors may make in transactions with their corporations can not be retained from the company, although the latter may also have profited by the transaction. For fraud is presumed as a matter of law if it be shown that the directors have in this way acquired any secret profits. They can not sell property to the corporation at an advance upon the price paid by them, where they have purchased it with that end in view, and nothing has been third parties, who desired to reorganize the road, to buy up the claims of plaintiffs, creditors of the company, which he did, not informing them of the scheme of reorganization. His position as director and attorney for the debtor company required him, in his dealings with plaintiffs, to exercise the utmost good faith; but, where they received all that their claims were worth, the fact that they were not informed as to the new scheme would not constitute constructive fraud on the part of the director. Powell v. Willamette Val. R. Co., (1887) 14 Oregon, 356. 1 Knowles v. Duffy, (1886) 40 Hun, *485, where the whole capital stock was paid for the property, and it was held not to be a fraud upon corporate creditors. 2 European &c. Ry. Co. v. Poor, 59 Me. 195; Greenfield Savings Bank v. Simons, 133 Mass. 415; Parker v. Nickerson, 112 Mass. 195; Bent v. Priest, 10 Mo. App. 543. See Imperial Mercantile Credit Assoc. v. Coleman, L. R. 6 H. L. 189; 2 Lindley on Partnership, 588-589. 3 Duncomb v. New York &c. R. Co., 84 N. Y. 190; Flint v. Dewey, 14 Mich. 477; 'Greenfield Savings Bank v. Simons, 133 Mass. 415; Stewart v. Lehigh Valley R. Co., 38 N. J. 505; Bent v. Priest, 10 Mo. App. 543; Cook v. Berlin Woolen Mills Co., 43 Wis. 433. Cf. Davone v. Fanning, 2 Johns. Ch. 252. Where the president of packet company made a contract in his own behalf with the United States government for the carriage of the mails and used the boats of the company for that purpose, it was held that he should not be allowed to make any profit out of the use of the company's boats, but must account to it for all that he received for the service performed by them. Clubb v. Davidson, (1888) 95 Mo. 467; s. c. 4 Ry. & Corp. L. J. 161. But where a director purchased in good faith at a foreclosure sale property of the corporation which had been mortgaged by a vote of the directors, he does not necessarily hold the purchased property in trust for the corporation. Saltmarsh v. Spaulding, (1888) 147 Mass. 224; ɛ. c. 4 Ry. & Corp. L. J. 151. Acc. Hancock v. Holbrook, (La. 1888) 3 So. Rep. 351. Cf. County Court v. Baltimore &c. R. Co., (1888) 35 Fed. Rep. 161. |