THE LAW OF RAILWAYS.

CHAPTER I.

INTRODUCTORY-OF PROMOTERS.

81. Definition and general considerations.

§ 2. Of the fiduciary relation of promoters to the corporation.

§ 3.

A promoter may not accept a gift from a person dealing with the corporation.

§ 4. Under what circumstances a promoter may sell property to the

85.

corporation.

Of the personal liability of promoters.

§ 6. Consent of creditors necessary to relieve promoters of personal lia

bility.

§ 7. The promoter's admissions as affecting his liability.

8. Promoters not ordinarily liable as partners.

§ 9. Promoters may render themselves liable as partners.

§ 10. No presumption of the relation of principal and agent between pro

moters.

§ 11. The same subject continued-The relation between provisional and

acting committee-men.

§ 12. Whether agency may be shown by a prospectus.

§ 13.

Of the liability of promoters to subscribers when the scheme proves abortive.

§ 14. Whether the promoters are entitled to compensation from the com

pany.

§ 15. Whether the promoters are entitled to compensation from each

other.

§ 16. The same subject continued The subscribers entitled to an equal division of the unexpended funds.

§ 17. How far the corporation is liable for the acts of its promoters. § 18. When the corporation may enforce the contracts of its promoters.

§ 19. Of contracts to quiet opposition to charter.

§ 20. Whether contracts to quiet opposition are in the nature of a bribe. § 21. of petitions in equity to quiet opposition to charters.

BEACH ON RAILWAYS-1

§ 1. Definition and general considerations.A promoter is a person who brings about the incorporation and organization of a corporation. He brings together the persons who are interested in the enterprise, aids in procuring subscriptions, and generally is the representative of parties who wish to sell property to the corpora tion, or to construct its works." 1 "As used in connection with companies, the term 'promoter' involves the idea of exertion for the purpose of getting up and starting a company (or what is called 'floating' it), and also the idea of some duty towards the company imposed by or arising from the position which the so-called promoter assumes toward it before it comes into existence." " It is necessary in order to impose upon a person the liability of promoter that it be affirmatively shown. to the court that he was acting in behalf of the projected corporation, or that he so held himself out, and that it was upon the faith of such acts or representations that the complainant dealt with him. But slight circumstances which indicate that a person is acting in his own interest, and not merely as an agent for others, are sufficient to impose upon him the fiduciary character of promoter.* Those who subscribe the articles, or take stock in a company not yet incorporated, are not partners with those who assume the risk of acting for it.3 It has been said, however, that attendance at a meeting, announcement of being present and taking stock, and concurrence in measures for incorporation, may be strong evidence that a person "held himself out as a paymaster to all who executed the orders." 6

1 Cook on Stock and Stockholders, § 651.

2 Emma Silver M. Co. v. Lewis, 4 C. P. Div. 396.

3 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 Stare does not place a person in a fiduciary position with respect to the corporation.

4 Lidney etc. Co. v. Bird, 31 Ch. Div. 328.

5 Ward v. Brigham, 117 Mass. 24.

6 Lake v. Argyle, 6 Q. B. 477.

§ 2. Of the fiduciary relation of promoters to the corporation.—A promoter occupies a fiduciary position with respect to the company, of such a character as incapacitates him from making a secret profit at the expense of the company.1 The law forbids promoters to secretly derive any benefit over other stockholders, and renders them accountable to the company for any profit so derived. They must inform their company of any profit acquired by them from the transaction, and deal with it, as it is said, "at arm's length.' A corporation is entitled to the full benefit of all the contracts and agreements of persons assuming to act in the capacity of promoters, and may recover from them any secret profit acquired by them in the course of these transactions. A promoter who. has distributed part of his secret profits among his co-promoters is not thereby relieved of liability to account to the corporation for the whole amount.5

1 Emma Silver M. Co. v. Grant, 11 Ch. Div. 918; Chandler v. Bacon, 30 Fed. Rep. 533.

2 Chandler v. Bacon, 30 Fed. Rep. 538, 540; Emery v. Parrott, 107 Mass. 95; Getty v. Devlin, 54 N. Y. 403; Densmore Oil Co. v. Densmore, 64 Pa. St. 43.

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

4 Short v. Stevenson, 63 Pa. St. 95; Simons v. Vulcan Oil Co. 61 Pa. St. 202; Emma Silver Mining Co. v. Grant, 11 Ch. Div. 918; Bagnal v. Carlton, 6 Ch. Div. 371; Phosphate Sewage Co. v. Harmont, 5 Ch. Liv. 304; New Sombrero Phosphate Co. v. Erlanger, 5 Ch. Div. 73; Hickens v. Congreve, 1 Russ. & M. 153; Beck v. Kantorowicz, 3 Kay & J. 230; 2 Lindley on Partnership, 583.

5 Getty v. Devlin, 70 N. Y. 504.

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§ 3. A promoter may not accept a gift from a person dealing with the corporation.-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; and he is not relieved of this liability by reason of the fact that the sale was a fair one.2 If upon the discovery of the agreement between the promoter and vendors of property sold to the company, the gift or commission has not yet been paid, the corporation may recover it from the vendors.3

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

2 Em:na Silver M. Co. v. Grant, 11 Ch. Div. 918.

3 Whaley Bridge etc. Co. v. Green, 5 Q. B. Div. 199; Bagnall v. Carlton, 6 Ch. Div. 371; St. Louis etc. Co. v. Jackson, 5 Cent. L. J. 317; In re Murvah etc. Co. 24 W. R. 49.

§ 4.

Under what circumstances a promoter may sell property to the corporation.-In cases in which 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.' But 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 knowl edge thereof, it may repudiate the contract, and, upon relinquishment of the property, recover the purchase-money. If a person owning a piece of property becomes a promoter in a scheme of incorporation relating to the development of this prop

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erty, he may sell it to the corporation without reference to the original price paid by him therefor, on the hypothesis that when he acquired the property he did not act as promoter. Nevertheless, 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. In 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.5

1 Simcns v. Vulcan Oil etc. Co. 61 Pa. St. 202; 100 Am. Dec. 28; McElhenny's Appeal, 61 Pa. St. 188; In re Hereford etc. Co. 2 Ch. Div. 182; Lichens v. Congreve, 4 Russ. 562; Bank of London v. Tyrrell, 5 Jur. N. S. 924.

2 New Sombrero etc. Co. v. Erlander, 5 Ch. Div. 73, 103; S C. affirmed, 3 App. Cas. 1218; Phosphate Sewage Co. v. Hartmont, 5 Ch. Div. 391; Lindsay Petroleum Co. v. Hurd, Law R 6 Com. P. 221.

3 Taylor on Corporations, § 83; Densmore Oil Co. v. Densmore, 64 Pa. St. 43, 49. Cf. Grover's Case, 1 Ch. Div. 182, where this question, although not directly involved, was fully discussed.

4 Taylor on Corporations, § 83.

5 McElhenny's Appeal, 61 Pa. St. 188.

§ 5. Of the personal liability of promoters.The promoters of a company prior to its incorporation stand in the position of agents of an undisclosed principal, and are personally liable upon all contracts entered into by them on behalf of the projected corporation. And if officers of a corporation sign a note on its behalf prior to its organi