cases where the officer sells to his company property which is in equity as well as at law his own, and which he could dispose of as he thought fit, and the class of cases where the officer owns the property at law but in equity it belongs to his company. In the former class of cases it is held in England that if the company claims any interest by reason of the transaction, it can only be by affirming the sale, "in which case the sale, although initially voidable, would be validated by subsequent ratification. If the company refused to affirm the sale the transaction would be set aside and the parties restored to their former position, the directors getting the property and the company receiving back the purchase price. There would be no middle course. The company could not insist on retaining the property while paying less than the price agreed. This would be for the court to make a new contract between the parties. It would be quite another thing if the director had originally acquired the property which he sold to his company under circumstances which made it in equity the property of the company."7 In other words, in England, all transactions between officers, or at least directors, and the company, are voidable merely because of the relations of the parties without regard to the fairness of the transaction or the good faith of the parties; and if the only ground for avoiding the contract is the mere relation of the parties, then the company must either disaffirm the sale or approve it, and, if it approves it, it cannot recover the secret profits made by the officer.

§ 2319. Sale of stock. If an officer is employed to sell stock, he cannot charge it to himself, or account for it at an arbitrary price, but must truly account for the whole price received. And if the president of a corporation cannot lawfully sell its treasury stock, he cannot charge it to himself at an arbitrary price and pocket the surplus resulting from a sale.10 So where unissued stock of the corporation is taken out of the treasury by its directors at par and then sold by them under a prior contract with a third person for considerably above par, the profits cannot be retained by the directors, where there never was any binding contract whereby the directors became owners of such stock.11 Where a newly organized corpora

7 Cook v. Deeks, [1916] A. C. 554, 563, approving Burland V. Earle, [1902] A. C. 83.

8 See § 2346, infra.

9 Camden Land Co. v. Lewis, 101

Me. 78, 63 Atl. 523.

10 Camden Land Co. v. Lewis, 101

Me. 78, 63 Atl. 523. See also Pollitz
v. Wabash R. Co., 207 N. Y. 113, 100
N. E. 721, modifying 150 N. Y. App.
Div. 715, 135 N. Y. Supp. 789.

11 Provident Trust Co. v. Geyer, 248 Pa. 423, 94 Atl. 77.

The profits were required to be dis

tion employed a firm to sell its stock at a fixed net price, and thereafter the president contracted with the firm so that he was to receive a percentage of the net profits from the sales in so far as made above the fixed price, it was held in California that he must account to the corporation for such profits received by him.12

In a Pennsylvania case, a corporation had practically all its capital invested in a piece of real estate which it was willing to sell. The president of the company led a prospective purchaser to believe that it could not be purchased, but granted him an option to purchase a controlling interest in the stock in the corporation. The president then bought in a controlling interest of the stock and the deal was consummated so that the purchaser of such controlling interest eventually bought the real estate. The court held that the profit realized from the sale of stock was an incident of the sale of the property; that the stock dealing was for the purpose of diverting a part of the price for the real estate from the corporation into the pockets of the president; and that such officer was liable to the corporation for such profits. 13 In another case in Pennsylvania, the directors, who were majority stockholders, accepted an offer to buy their stock as well as all the stock of the other stockholders, who should consent thereto, at a certain price per share. However, a further sum was paid directly to the directors, under a secret arrangement, for gaining immediate control of the organization. The supreme court held that it was proper to infer that the directors intended to, and did, include the sale of their positions, with the influence flowing therefrom, as part of the extra consideration, and that the directors should be adjudged to hold such further sum in trust for all the stockholders. The court quoted with approval a statement that "the law has ceased to look at the mere form of the device employed; it now pierces through the surface and seizes upon the evils which lie within."' 14

tributed pro rata among the stockholders of record when the sale was made; and the corporation itself, as an entity, was held not entitled to the profits. Hechelman v. Geyer, 248 Pa. 430, 94 Atl. 188.

12 Western States Life Ins. Co. v. Lockwood, 166 Cal. 185, 135 Pac. 496.

On a subsequent appeal in this same case, after a trial, the right of recov ery was reaffirmed and it was further held that the fact that the services of the officer in assisting in selling the stock were reasonably worth the

sum paid him, or that he gave up another position to assist the firm, or that the corporation could not have sold the stock without the aid of the president, or that the company knew the president was selling the stock where it did not know of his contract with the firm, were all immaterial. Western States Life Ins. Co. v. Lockwood, 173 Cal. 734, 161 Pac. 498.

13 Commonwealth Title Insurance & Trust Co. v. Seltzer, 227 Pa. 410, 136 Am. St. Rep. 896, 76 Atl. 77.

14 Porter V. Healy, 244 Pa. 427,

§ 2320. Loans. A bank director may be required to account for a bonus in the shape of a share in profits, secured to himself to the exclusion of the other stockholders, in making a loan of the money of the bank.15 But while a transaction whereby a corporate officer loans money to a corporation for which he receives a commission of five per cent. is voidable at the option of the company where he was the only one acting for the company in making the loan, yet if the commission. was a fair and usual one, and neither the directors nor any one else connected with the company ever objected thereto or took any steps to rescind the transaction, creditors cannot object to the commission on the theory that the officer had no right to make any profit on a transaction with the company in which he represented both himself and the company, especially where the officer took the notes of the company for the loan and it afterwards became insolvent and will not pay but a small per cent. on claims against it.16

§ 2321. — Giving up office for consideration. It is a breach of trust for officers to surrender control and pass their offices to others for a monetary consideration, and they are thereby rendered liable to account for the amount received.17 If certain directors agree to resign and deliver control of the corporation to others, in consideration of payment of debts owing them by the corporation which were uncollectible, the moneys received are moneys derived by virtue of the office for which the directors must account.18

§ 2322.

Money paid to procure election to corporate office. In a New York case it was held that, where a president and director of a corporation was paid money by outside parties upon the condition. that he should procure their election as directors of the corporation, and that they should be given the control and management of the corporation, he must be regarded as having received the money by virtue of his office and by reason of his official acts, and must account for it to the corporation, and that the fact that his act was illegal and unauthorized was immaterial. In this case, the Appellate Division treated the transaction as a bribe, and held that the money did not belong to

91 Atl. 428, quoting from Tenth Nat. Bank of Philadelphia v. Smith Const. Co., 242 Pa. 269, 287, 89 Atl. 76.

15 Farmers'. & Merchants' Bank v. Downey, 53 Cal. 466, 31 Am. Rep. 62.

16 In re Knox Automobile Co., 229 Fed. 241, 246.

17 Heineman v. Marshall, 117 Mo. App. 546, 92 S. W. 1131.

18 McClure v. Law, 161 N. Y. 78, 76 Am. St. Rep. 262, 55 N. E. 388, rev'g 20 N. Y. App. Div. 459, 47 N. Y. Supp. 84. See also Bosworth v. Allen, 168 N. Y. 157, 55 L. R. A. 751, 85 Am. St. Rep. 667, 61 N. E. 163.

the corporation. In reversing the judgment, the Court of Appeals held that the defendant could not thus set up his own wrong as a defense, and treated the money as having come into his hands by virtue of his official acts.19

§ 2323. Contracts of private persons to pay officers for services as such. In a case in England, a financier agreed to assist a corporation which was financially embarrassed, on condition that he be given two representatives on the board of directors, and the agreement, with the condition, was approved and ratified at a general meeting of the shareholders. The financier appointed a person to act with himself as the two members of the board, and agreed to pay him a certain sum per year so long as he remained director, but this agreement was not known by the other directors or the stockholders. The director sued for his compensation under the agreement, and the defense was interposed that the agreement was illegal, but the court held that the arrangement for compensation must have been contemplated by the stockholders when they ratified the agreement to give the financier two representatives on the board of directors.20

§ 2324. Liability to account to third person as officer of trustee. If property is put into the hands of a corporation as trustee for sale, and the latter pays to one of its directors out of the funds of the cestui que trust a compensation for disclosing a purchaser for the trust property, believing that the purchaser was a stranger, when in fact he was the director himself, he may be compelled to account to the cestui que trust for all profits flowing to him from the purchase including such compensation.21

F. Rights as Creditors of Corporation

§ 2325. In general. A director or other corporate officer loans money to a corporation, or advances money for use of the company, or otherwise becomes a creditor of the corporation, and then comes the question as to what are his rights as such creditor as compared with other creditors who are not officers of the company. This matter will now be considered.

19 McClure v. Law, 161 N. Y. 78, 76 Am. St. Rep. 262, 55 N. E. 388, rev'g 20 N. Y. App. Div. 459, 47 N. Y. Supp. 84.

20 Kregor v. Hollins, 109 L. T. Rep. 225.

21 Purchase v. Atlantic Safe Deposit & Trust Co., 81 N. J. Eq. 344, 87 Atl. 444, aff'd without opinion in 83 N. J. Eq. 353, 91 Atl. 1070, holding that corporation was secondarily liable.

That a director or other corporate officer may, in a proper case, become a creditor of the corporation, cannot be controverted. If he can become a creditor, he ought to have the same right, and the same remedies, to enforce his claim, as any other creditor, and there is no question but what his rights in these respects are as extensive as those of a creditor who is not a corporate officer. Thus he may sue the corporation as a creditor just as if he was not a director, 22 and he may secure a preference, where the corporation is not insolvent, by issuing attachment or garnishment.23

§ 2326. Security for or payment of debt. So long as a corporation is solvent, it may borrow money from or otherwise contract with an officer or director, and may pay him, or mortgage or pledge property to secure him, just as it may pay or secure any other creditor, and, if it afterwards becomes insolvent, the conveyance, mortgage or pledge will be valid as against other creditors, although the result may be to leave them unpaid.24 In other words, if there is an indebtedness