of duty. There can be no doubt that if the directors or officers of a company do acts clearly beyond their power, whereby loss ensues to the company, or dispose of its property or pay away its money without authority, they will be required to make good the loss out of their private estate. . . This is the rule where the disposition made of money or property of the corporation is one either not within the lawful power of the corporation, or, if within the power of the corporation, is not within the power or authority of the particular officer or officers. Where the ground of liability is for non-feasance, negligence, or misjudgment in regard to matters within the scope of the proper powers of the officer, he will be held responsible only for a failure to bring to the discharge of his duties such degree of attention, care, skill, and judgment as are ordinarily used and practiced in the discharge of such duties or employments; the degree of care, skill, and judgment depending upon the subject to which it is to be applied, the particular circumstances of the case, and the usages of business."

"In respect to directors or those acting ex-officio as such

the rule may be regarded as settled, to the effect that directors, although often called "trustees," are not such in any technical sense, but that they are mandataries, the relation between them and the corporation being rather that of principal and agent, but under circumstances they may be treated as occupying, in consequence of the power conferred on them, the position of trustees. . . ; that the degree of care required of them depends upon the subject to which it is to be applied, and each case is to be determined upon its own circumstances; that, as they render their services gratuitously, they are not to be held to the degree of responsibility of bailees for hire, or expected to devote their whole time and attention to their duties; that they are not, in the absence of any element of positive misfeasance, and solely on the ground of passive negligence, to be held liable, unless their negligence is gross or they are fairly subject to the imputation of want of good faith. It is to be remembered that they have the same interests to protect and subserve as other stockholders, and self-interest naturally prompts them to look after their own, and the degree of care they are bound to exercise is that which ordinarily prudent and diligent men would exercise under similar circumstances in respect to a like gratui

tous employment, regard being had to the usages of business and the circumstances of each particular case; that they are not liable, in the absence of fraud or intentional breach of trust, for negligence, mistakes of judgment, and bad management in making investments on doubtful or insufficient security. Where they have not profited personally by their bad management, or appropriated any of the property of the corporation to their own use, courts of equity will treat them with indulgence. Were a more rigid rule to be applied, it would be difficult to get men of character and pecuniary responsibility to fill such positions. . . .These views are applicable, we think, to the case of all officers serving and acting within the scope of their authority gratuitously or practically so....

The officers or directors occupy a fiduciary relation, demanding care, vigilance, and good faith. If they violate their duty, they at once become responsible to the corporation. If they are guilty of misfeasance or malfeasance, the latter may at once bring an action at law to enforce such liability. If the corporation refuses to act, the stockholders before insolvency and the creditors after insolvency, may enforce such liability in the right of the corporation, and not otherwise."

Two of seven directors of a corporation offered the corporation a certain tract of land and stated that it was offered at an advance of ten per cent. over the cost of the land to them. The corporation purchased the land from them, and it subsequently was discovered that they had made a profit of about forty per cent. It was held that the corporation could recover from them not only the undisclosed profit, but also the ten per cent. All the directors of a corporation who take part in obtaining money from it by a violation of duty towards it are jointly and severally liable for the whole amount obtained.

Contracts between officer and corporation.-On account of the fiduciary relation existing between an officer and the corporation, he cannot act for the corporation in any matter in which he is personally interested, any more than an agent can ordinarily contract with himself in behalf of his principal. It is plainly against the best interest of a corporation to allow an officer to deal with himself as the corporation's representative. Therefore, any contract with a corporation, in which an officer is directly interested, and in

the making of which he acts, is voidable at the option of the corporation. Such contracts are not void absolutely; the officer making them is bound by them, but the corporation may disaffirm them if it sees fit. But in order that the corporation may avoid such a contract it must restore to the officer what it has received or compensate him for the benefit received if the officer in making the contract acted in good faith. The option of avoiding such a contract must be exercised by the corporation within a reasonable time. An officer of a corporation may, however, deal with it, providing the contract is made with him by other officers of the corporation and the contract is made in good faith. The fact that an officer in making a contract of this kind performs some ministerial act under the supervision and direction of a superior, will not affect it. The courts will look carefully into such transactions, however, in order to avoid collusion between the contracting officer and other officers of the corporation.

The board of directors of a corporation were authorized to sell the entire property to one who had charge of the entire business of the corporation, had been its superintendent for some time, and had accurate knowledge of the books and accounts of the corporation. One of the stockholders objected to the sale to the superintendent and brought suit to set it aside. There was no actual fraud in the purchase, but it did not appear that the superintendent had made full disclosures to the corporation of his entire knowledge concerning the value of the property purchased by him. The court set the sale aside, saying: "Such agent, contemplating a purchase of the subject of his agency, has dangerous power to confuse its condition and make it appear worth less than it is. Such an agent might well be tempted, and would generally have some power so to shape his agency as not only to depreciate in apparent value, but temporarily in real value, what he designs to to purchase. . . . ." It was also held that those who wished to uphold such a purchase took upon themselves the burden of proof to show that the agent had not abused his power; that he acted throughout with positive and explicit frankness and impartiality; had imparted to his principals all his own information bearing on the value of the property; had given all the advice against himself that he should have given against a stranger, had derived no advantage from his agency, but had acted in the utmost good faith. It was also de

cided that if the corporation itself refused to bring suit to set aside the transfer, any stockholder might bring the suit in behalf of the corporation.

An officer of an insolvent corporation who has a claim against it cannot prefer himself over other creditors by causing the corporation to give him security, such as a mortgage. Thus, in a case in which an insolvent corporation gave a mortgage to some of its directors to secure a debt due them the court said: "The directors and officers made the mortgage or directly caused it to be made, to themselves. They occupied a fiduciary relation to the corporation, its stockholders, and its creditors, and they had no right to use such relation and their official position for their own benefit, to the injury of others in equal right.....Directors, officers, and agents, and other like trustees, cannot mortgage or convey to themselves any more than one can contract with himself. The idea that the same persons constitute different entities of themselves by being called directors or officers of a corporation, so that, as directors or officers, they can convey or mortgage to or contract with themselves as private persons, is in violation of common sense."

Compensation.-In the absence of agreement, express or implied, for compensation, an officer of a corporation is not entitled to any compensation for his services. This rule does not apply to an officer who is not a stockholder. The compensation of officers is usually provided for by the articles of incorporation or by-laws, and is fixed by the directors. The compensation of agents and other employees is fixed by the directors or managing officers, and in the absence of express agreement the law governing contracts of employment in general applies to them. When an officer of a corporation at the express or implied request of the corporation performs services outside of the scope of his duty, he may recover reasonable compensation therefor from the corporation.

An officer of a corporation cannot fix his own compensation. Thus, when the salary of the president or other officer is fixed by the board of directors, of which such officer is a member, he has no right to vote, and if his vote was necessary to pass the resolution fixing the salary, the action of the board is voidable at the option of the corporation. If he votes, however, and there are enough disinterested votes so that the compensation provided for would have been granted without his vote, the vote is not affected.

Whenever the corporation may avoid the action of officers in voting themselves salaries or making any other contract with it, it may, of course, by a subsequent vote of disinterested directors, or stockholders, ratify the voidable action of officers. The compensation of directors of a corporation should be provided for by by-law, or fixed by the stockholders at a regular or special meeting. An officer may be a creditor of a corporation as any other individual, and is entitled to the same remedies and rights against it, except that when the corporation is insolvent, he cannot prefer himself.

SECTION VI.

PROMOTERS.

A promoter, as the term is understood in corporation law, is one who undertakes to form and set going a corporation to carry out a certain project. The promoters are those persons who are active in bringing about the incorporation, the subscription to the stock, and start the corporation in business. The promoters generally reap some direct or indirect benefit in consideration for their services, such as payment for services or a salaried position with the corporation when formed. Very often the promoters have property which they wish to sell to the corporation, or are instrumental in bringing about the sale of property, at a profit to themselves. A favorite method with promoters is to buy a piece of property at apparently a certain price, which is higher than the actual price, and then to form a corporation to which they sell at the apparent purchase price, or even at a slight advance.

Such secret profits are not allowed to promoters, and when discovered may be recovered in behalf of the defrauded corporation. Promoters stand in a position of trust and confidence towards the corporation they are forming or have formed and may be required to account for any profit made out of an abuse of their trust. A promoter, however, may sell property to a corporation at a profit when he is no longer acting for the corporation. The board of directors or other officers of a corporation, acting in good faith, may purchase from a promoter in the same way as from any other person; it is only in cases where the promoter is acting for the corporation that he is prevented from making a profit out of the transaction.