for successfully effecting the consolidation, but on the contrary was a condition precedent to any consolidation at all.81 § 2312. Right to patents or inventions. A corporation which uses the patented inventions belonging to a director, with his consent, may be held liable, in a proper case, notwithstanding such relationship, for a reasonable compensation therefor.82 In Massachusetts it is held that a patented invention made by the superintendent of the manufacturing department of a corporation, while employed as superintendent, belongs to him and not to the corporation, even though it was his duty to use his skill and inventive ability to further the interests of his employer by devising improvements generally in the appliances and machinery used in the employer's business.83 This is also the settled doctrine of the federal courts.84 However, under some circumstances, the employer is entitled to an irrevocable license under the patent to use the invention protected by it.85 This question, however, is not peculiar to corporation law but is in reality governed by the rules of law relating to master and servant, and hence reference should be made to textbooks on that subject,8 86 as well as to textbooks on the law of patents. Where the manager of a corporation invented a gas tip which was thereafter, but before the issuance of a patent, manufactured by the corporation without any agreement as to royalties, and he sold the tips to himself under another name at a big profit to the company and then resold them for double the amount paid the corporation, he must account to the corporation for the profits, since he had no property right in the invention before it was patented.87 § 2313. Right of corporation to earnings of officer-In general. Ordinarily, it would seem, a corporation is not entitled to the earnings of one of its officers outside the corporate business, at least unless 81 Bristol v. Scranton, 63 Fed. 218. 82 Deane v. Hodge, 35 Minn. 146, 59 Am. Rep. 321, 27 N. W. 917. 83 American Circular Loom Co. v. Wilson, 198 Mass. 182, 201, 126 Am. St. Rep. 409, 84 N. E. 133. 84 Dalzell v. Dueber Watch Case Mfg. Co., 149 U. S. 315, 37 L. Ed. 749; Hapgood v. Hewitt, 119 U. S. 226, 30 L. Ed. 369. See also Pressed Steel Car Co. v. Hansen, 137 Fed. 403, 415, 2 L. R. A. (N. S.) 1172. 85 Solomons v. United States, 137 U. S. 342, 346, 34 L. Ed. 667. But see American Circular Loom Co. v. Wilson, 198 Mass. 182, 203-206, 126 Am. St. Rep. 409, 84 N. E. 133. 86 The rights of employers in and to inventions of employees is treated at length in 5 Labatt's Master and Servant (2nd Ed.), §§ 2042-2047. 87 D. M. Steward Mfg. Co. v. Steward, 109 Tenn. 288, 70 S. W. 808. it is entitled to all his time.88 Thus, a corporation is not entitled to the salary earned as a postmaster, by the manager of one of its supply stores, where there was no agreement to that effect.89 So the fact that a director holds his qualification shares of stock as trustee for another company does not render him accountable to the second company for the fees which he earns as director of the first company.90 § 2314. Compensation earned as receiver. In a Maryland case, a trust company was given power to act as receiver. Its president was individually appointed a receiver of a company. The trust company sued its president to recover the amount allowed him for services as receiver, but was not permitted to recover. It was held that no right to recover could be based on the fact (1) that he was appointed on the nomination of the trust company as provided for in a corporate deed of trust nor because (2) he was paid a salary as president where the receivership duties were not incidental thereto, nor because (3) the by-laws of the trust company provided that no office of receiver should be accepted by its president without the approval of the executive committee, nor because (4) the president agreed to turn over the compensation allowed him, where there was no consideration for the agreement.91 § 2315. Right to reward offered by corporation. In an early case in Illinois, this rule was applied to the right of a director to a reward offered by his corporation for the discovery of a robbery of the bank. It was held that he could not recover because of his relationship to the bank. The court said: "He was a director of that branch at the time the robbery was committed, and when he procured the arrest of Towne. In that character, he, with the other officers of the branch, was charged with its control and management. He was placed there by the principal bank, in the capacity of a trustee, to act for the benefit of, and faithfully represent the interests of the stockholders and others interested in the concerns and conduct of the bank. If he obtained any information, which would in any manner lead to the recovery of the money stolen, or to the detection of the person taking it, it was his duty to communicate it promptly to the bank, without reward. He has done nothing more in the present case than his duty as director imposed on him. The fact of his receiving no compensation 88 See generally 1 Mechem, Agency (2nd Ed.), §§ 1229, 1230. 89 Bailey v. Sibley Quarry Co., 166 Mich. 321, 129 N. W. 17. 90 In re Dover Coalfield Extension, [1908] 1 Ch. 65. 91 Citizens' Trust & Deposit Co. v. Tompkins, 97 Md. 182, 54 Atl. 617. for his services as director does not alter the case. He had voluntarily assumed the duties of the station, and he was bound as faithfully to discharge them, as if he was to be liberally paid for his services."' 92 § 2316. Miscellaneous applications of rule-In general. Cases illustrating the general rules already stated as to profits or benefits are so numerous, and in so many of them the application of the rule is self-evident, that only a few are noticed herein. In New York, where a corporation was largely indebted to the estate of a former officer, and the estate contracted with directors that if they would find a purchaser for part of the corporate property and pay part of the debt to the estate, the estate would assign the remainder of the debt to them, it was held that where it was possible for the corporation to make such payment from its treasury and a sale of the plant, but the payment was made by the directors individually, the directors must account for the secret profits.93 § 2317. Speculations. Where corporate officers speculate with the funds of the corporation, they cannot keep the profits.94 In a Minnesota case the general manager of a farmers' warehouse company, under the by-laws of which the stockholders were authorized to bring their grain to the warehouse, to be received, forwarded and sold, and for which they were to pay one cent a bushel to the company, himself purchased all the grain delivered and shipped and sold it for his own profit. He invested no money but paid for the grain through orders on the treasury of the company. The proceeds of the first sale furnished the capital for the next, and so on. It was held that "as the salaried agent of the plaintiff, the manager had no right to use his position, and the opportunities afforded by it, or to use its warehouse, business equipment, and its name, credit and money, for his personal profit. It may be that the personal motive of the manager was not bad, but the rule is one which the law, upon the best considerations of public policy, has established, and it cannot be too rigidly enforced." 95 * § 2318. Sales or leases by or to the corporation. The cases in which corporate officers have been held liable for profits, upon this trust principle, have generally arisen where, in the acquisition or disposition of property for the corporation, the officer has received per 94. 92 Stacy v. State Bank, 5 Ill. 91, 93 Billings v. Shaw, 209 N. Y. 265, 103 N. E. 142. 94 Redmond v. Dickerson, 9 N. J. Eq. 507, 59 Am. Dec. 418. 95 Goodhue Farmers' Warehouse Co. v. Davis, 81 Minn. 210, 83 N. W. 531. sonally a profit, as where he has sold property for one price, and accounted to the corporation for a less price, or has bought at one price and sold to the company at a larger one, or has received a secret bonus or advantage in the transaction in which he has acted for the corporation.96 Generally it is held that a director will not be permitted to receive and retain a commission or other secret profit or advantage in the case of a sale or lease of property by or to the corporation.97 Thus, a general manager of a company who sells the entire capital stock cannot `retain a secret compensation from the purchaser for effecting the sale.98 So where the manager of a corporation, as such, bought shares of stock of his corporation for a small sum and turned them into the company for over ten times the sum paid for them, as a credit on his debt to the company, he must account for the difference.99 And where directors voted to purchase property from the promoter of the corporation for five hundred thousand dollars above what he paid for it, such excess to be divided between the promoter and the directors, they may be required to refund such excess to the corporation.1 If a 96 Tenison v. Patton, 95 Tex. 284, 67 S. W. 92, rev'g (Tex. Civ. App.), 64 S. W. 810. 97 Alabama. Perry v. Tuskaloosa Cotton-Seed Oil-Mill Co., 93 Ala. 364, 9 So. 217. Arkansas. Loewer v. Lonoke Rice Mill. Co., 111 Ark. 62, 161 S. W. 1042. California. Farmers' & Merchants' Bank of Los Angeles v. Downey, 53 Cal. 466, 31 Am. Rep. 62; Highland Park Inv. Co. v. List, 27 Cal. App. 761, 151 Pac. 162. Farmers' Minnesota. Goodhue Warehouse Co. v. Davis, 81 Minn. 210, 83 N. W. 531. New York. Asphalt Const. Co. v. Bouker, 150 App. Div.. 691, 135 N. Y. Supp. 714; Colonizers' Realty Co. of Brooklyn v. Shatzkin, 129 App. Div. 609, 114 N. Y. Supp. 71; Rickert v. White, 54 Misc. 114, 105 N. Y. Supp. 653; Goldshear v. Barron, 42 Misc. 198, 85 N. Y. Supp. 395; Ryan v. Grissinger, 136 N. Y. Supp. 134. Pennsylvania. Bird Coal & Iron Co. v. Humes, 157 Pa. St. 278, 37 Am. St. Rep. 727, 27 Atl. 750. Vermont. Rutland Elec. Light Co. v. Bates, 68 Vt. 579, 54 Am. St. Rep. 904, 35 Atl. 480. Profits derived by a cashier of a bank from a sale of bonds negotiated by him while cashier, and in discharge of his duties as such, belong to the bank. Mt. Vernon Bank v. Porter, 148 Mo. 176, 49 S. W. 982, rev'g 65 Mo. App. 448. Where the president of a corporation was appointed to purchase land, and he bought for much less than the price he represented to the corporation, he is accountable to the corporation for the excess. Malden & Melrose Gas Light Co. v. Chandler, 209 Mass. 354, 95 N. E. 791. Application of rule to promoters, see § 147, vol. 1. 98 Barber v. Martin, 67 Neb. 445, 93 N. W. 722. 99 Badger Oil & Gas Co. v. Preston, 1 Brooker v. William H. Thompson Trust Co., 254 Mo. 125, 162 S. W. 187. treasurer is especially authorized to sell property, and he at once sells to himself and associates at the minimum price authorized, without offering the property to others or making any attempt to find purchasers at a higher price, the corporation may recover the difference between the sum for which the property was sold and its cash value at the time of the sale.2 If a corporate officer is intrusted with the power to make certain purchases, and he purchases from himself or from a firm in which he is a member, and conceals the situation from the corporation, the profits of the seller belong to the company.3 So where one who was the president, secretary and a director of a corporation which desired to procure a new location for its business, procured, in the name of another person, an option to buy land at a certain sum and then, without disclosing his interest, sold it to the corporation for more than twice such sum, it was held that he must account to the corporation for the secret profits. This rule also applies to sales of property acquired by the president of a company with the idea of selling it to the company." A peculiar case arose in Pennsylvania where a stockholder sued to enjoin a lease of coal lands by the company, on the ground that the royalty of fifteen cents a ton was grossly inadequate. The lessee obtained a discontinuance of the action by secretly agreeing to pay such stockholder individually three cents a ton on all coal mined under the lease. Thereafter the stockholder became a director and shortly afterwards the lessee obtained from the company a reduction of the royalty to twelve cents a ton because of the depression existing in the coal trade, without the new director divulging his secret arrangement. Afterwards the corporation, on learning the facts, sued the director for secret profits received by him. It was held that he was liable from the time of the reduction of the royalty, not to the extent of three cents a ton, but only for his actual profit which was figured at one-sixth of three cents, i. e., the amount saved to the director by deducting the three cents from the five-sixths of the royalty in place of from the whole royalty." So far as secret profits connected with the purchase of property and its resale to the corporation, by directors or other officers, is concerned, it is necessary to keep in mind the distinction between the class of 2 Greenfield Sav. Bank v. Simons, 133 Mass. 415. 3 Rickert v. White, 54 N. Y. Misc. 114, 105 N. Y. Supp. 653. 4 Douglass-Whisler Simpson, 233 Pa. 515, 82 Atl. 759. 5 Southwestern Portland Cement Co. v. Latta & Happer, Tex. Civ. App. 193 S. W. 1115. 6 Bird Coal & Iron Co. v. Humes, 157 Pa. St. 278, 37 Am. St. Rep. 727, 27 Atl. 750. Brick Co. V. |