aside, or affirmed and any profits recovered, without proof of actual

ford Fire Ins. Co., 72 Miss. 338, 28 L. R. A. 220, 48 Am. St. Rep. 558, 17 So. 282; Greenwood Ice & Coal Co. v. Georgia Home Ins. Co., 72 Miss. 46, 17 So. 83.

Missouri. Hill v. Rich Hill Coal Min. Co., 119 Mo. 9, 24 S. W. 223. Nebraska. Leonhardt v. Citizens' Bank of Ulysses, 56 Neb. 38, 76 N. W.

fraud, or of actual injury to the corporation.16 Generally, this rule is applied in case of directors but it is equally applicable to other officers.17

§ 2341. Extent of interest as immaterial. The doctrine that a director or other officer of a corporation cannot be personally interested in a contract or other transaction in which he, alone or with other directors or officers, also represents the corporation, is not limited to cases in which he is alone interested in the contract or transaction, and, as a general rule, the extent of his interest is not material.18

§ 2342. Fairness of contract or injury to corporation as immaterial. It is to be noted that the main, if not the only difference, between dealings with a corporation as dependent upon whether the officer adversely interested to the corporation acts also for the corporation in the transaction, or whether the corporation acts through other officers, is that in the former case the corporation may have the contract or other transaction set aside merely because of the relationship of the parties and without regard to whether the corporation has been injured, or the contract is fair or unfair, or the officer has acted in good faith or in bad faith,19 while in the latter class

stockholders." Burnes v. Burnes, 137 Fed. 781, 790, aff'g 132 Fed. 485.

Rule applied where agent was known to be promoting a corporation, and he made a sale to the corporation which did not know that he was an agent for the seller. Hall v. Catherine Creek Development Co., 78 Ore. 585, L. R. A. 1916 A 996, 153 Pac. 97. 16 See § 2342, infra.

17The principle acted upon in these cases is a general principle of the law of agency, and applies to every agent of a corporation, whatever may be his position. Thus, a president, cashier, or managing agent, having authority to sign the name of the corporation to negotiable instruments, cannot execute a note or indorse a note to himself, or certify a check for his own benefit." wetz, Corporations, § 517.

18 See §§ 2357-2363, infra.

1 Mora

19 Pacific Vinegar & Pickle Works v. Smith, 145 Cal. 352, 104 Am. St. Rep. 42, 78 Pac. 550; Goodell v. Verdugo Canon Water Co., 138 Cal. 308, 71 Pac. 354; Sims v. Petaluna Gas Light Co., 131 Cal. 656, 63 Pac. 1011, rev'g 62 Pac. 300, and following Wickersham v. Crittenden, 93 Cal. 17, 29, 28 Pac. 788; Davis v. Rock Creek Co., 55 Cal. 359, 364, 36 Am. Rep. 40; Higgins v. Lansingh, 154 Ill. 301, 40 N. E. 362; Bingham v. Bell & Zoller Coal Co., 175 Ill. App. 469, 476; Hutchison v. Rock Hill Real Estate & Loan Co., 65 S. C. 45, 43 S. E. 295; Nueces Valley Irr. Co. v. Davis (Tex. Civ. App.), 116 S. W. 633, rev'd on other grounds 103 Tex. 243, 126 S. W. 4. To same effect, Fricker V. Americus Manufacturing & Improvement Co., 124 Ga. 165, 52 S. E. 65.

Where one acts in a dual capacity, representing both sides, the act is al

of cases the weight of authority holds that in order to set the contract or other transaction aside there must be proof of unfairness causing actual injury or of bad faith of the officer or officers.20 "Actual injury is not the principle the law proceeds on" in holding such transactions liable to be set aside. "Fidelity in the agent is what is aimed at, and as a means of securing it, the law will not permit the agent to place himself in a situation in which he may be tempted by his own private interest to disregard that of his principal." 21 "The philosophy of this rule is quite apparent," says Justice Lorigan of the Supreme Court of California, "and its inflexibility is the strongest safeguard which the law can offer for the protection of the interests of the beneficiary. The great purpose of the law is to secure fidelity in the agent. When one undertakes to deal with himself in different capacities-individual and representative there is a manifest hostility in the position he occupies. His duty calls upon him to act for the best interests of his principal; his self-interest prompts him to make the best bargain for himself. Humanity is so constituted that when these conflicting interests arise the temptation is usually too great to be overcome, and duty is sacrificed to interest. In order that this temptation may be avoided, or, if ways voidable without further grounds, upon the grounds of public policy, without reference to the fairness or good faith of the transaction. Shaw v. Crandon State Bank, 145 Wis. 639, 129 N. W. 794.

transaction and determine its validity by finding whether it was fair and free of bad faith and of wrong and injury." Minnesota Loan & Trust Co. v. Peteler Car Co., 132 Minn. 277, 156 N. W. 255. However, this case is out of line, and is correctly decided only if the giving of a mortgage by a majority of the directors to secure themselves is to be considered as not a case of individual officers dealing with themselves, or else is to be deemed as fixing a different rule where security is voted to officers than is applicable to other transactions.

20 See § 2347, infra.

21 Manning, J., in People v. Township Board of Overyssel, 11 Mich. 222.

"The two positions impose different obligations, and their union would at once raise a conflict between interest and duty; and, 'constituted as humanity is, in the majority of cases duty would be overborne in the struggle. '"' Wardell v. Union Pac. R. Co., 103 U. S. 651, 26 L. Ed. 509.

This question is discussed by Commissioner Dibell in a late Minnesota case and he sums up the cases apparently forbidding such dealings by stating that "in none of these cases did the court refuse to examine the

indulged in, must be at the peril of the trustee, it has been wisely provided that the trustee shall not be permitted to make or enforce any contract arising between himself as trustee and individually with reference to any matter of the trust, nor will the court enter into any examination of the honesty of the transaction." 22 "The law," said Judge Andrews in a New York case, "permits no one to act in such inconsistent relations. It does not stop to inquire whether the contract or transaction was fair or unfair. It stops the inquiry when the relation is disclosed, and sets aside the transaction or refuses to enforce it, at the instance of the party whom the fiduciary undertook to represent, without undertaking to deal with the question of abstract justice in the particular case. It prevents frauds by making them as far as may be impossible, knowing that real motives often elude the most searching inquiry, and it leaves neither to judge nor jury the right to determine upon a consideration of its advantages or disadvantages, whether a contract made under such circumstances shall stand or fall.' '' 23

*

**

*

So it has been held in New Jersey that "where directors contract with themselves, such contract is voidable at the option of a shareholder who promptly applies to the court; and that where work, services or material has been furnished under such contract the court will disregard its terms, and the burden of showing what the work is worth, or what the materials and services are worth, is upon the contracting parties, and is not upon the complaining stockholder." 24 This general rule has been said to be "fully recognized and enforced by the courts of this country, but has not always been carried to quite the same extent as in England. Thus, in this and some other states it has been held not to prohibit purchases by mortgagees at their own public sales made under powers given in the mortgages.

,, 25

To illustrate further: if a president of a company takes notes payable to the company and indorses them to himself as an officer of the corporation, no investigation as to the fairness or good faith of the

22 Pacific Vinegar & Pickle Works V. Smith, 145 Cal. 352, 104 Am. St. Rep. 42, 78 Pac. 550.

23 Munson v. Syracuse, G. & C. R. Co., 103 N. Y. 58, 8 N. E. 355. See also Pearson v. Concord R. Corporation, 62 N. H. 537, 13 Am. St. Rep. 590; Sweeny v. Wheeling Grape Sugar Refining Co., 30 W. Va. 443, 8 Am. St. Rep. 88.

This rule is "the settled law of this state." Brooklyn Heights R. Co. v. Brooklyn City R. Co., 151 N. Y. App. Div. 465, 135 N. Y. Supp. 990.

24 Booth v. Land Filling & Improvement Co., 68 N. J. Eq. 536, 59 Atl. 767.

25 Tenison v. Patton, 95 Tex. 284, 67 S. W. 92, rev'g (Tex. Civ. App.), 64 S. W. 810.

transaction is permissible, where the corporation seeks to set the transfers aside.26 Another familiar illustration of this rule is where a di rector votes himself a salary.27 And this rule applies equally well where the vote of the interested director is necessary to constitute a quorum or to make a majority vote.28

§ 2343. - Directors as to whom rule is applicable. This rule does not apply to a person who has been elected a director without his knowledge, and who has never accepted the office or acted as such.29 But it applies to de facto directors, although their election may have been illegal or irregular, and to persons who have been elected and are acting as directors, although they may not be stockholders, or otherwise qualified for the office.30 Sc it applies to a director, in office at the time his proposal to contract was made, who had ceased to be a director when the contract was executed.31

§ 2344.- Effect of ownership of all of stock by contracting directors. Directors who own all the stock of a corporation are not within the rule prohibiting persons in a fiduciary relation from contracting for their own advantage in the name of the beneficiaries.32

§ 2345. Dealings between director or other officer and the corporation when it is represented by other directors or officers-General rules. In the case stated in the catch line, it is settled beyond controversy (1) that the transaction is not, at any event, void as distinguished from voidable,33 and (2) that the transaction is always voidable where not fair and entered into in good faith by the officers of the corporation.34

On the other hand, there is some conflict of opinion as to the effect of a contract or other transaction between a director or other officer of a corporation and the corporation, when it is represented by other officers, as to whether it may be avoided by the corporation solely upon the ground of the relationship of the parties. If the interested director takes part in making or authorizing the contract or other

26 Pacific Vinegar & Pickle Works v. Smith, 145 Cal. 352, 104 Am. St. Rep. 42, 78 Pac. 550.

27 Infra, chapter on Compensation of Officers.

28 See §§ 2352, 2354, infra.

29 Rozecrans Gold Min. Co. V. Morey, 111 Cal. 114, 43 Pac. 585.

30 Stetson v. Northern Inv. Co., 104 Iowa 393, 73 N. W. 869.

31 Kessler & Co. v. Ensley Co., 141 Fed. 130, 162, aff'd 148 Fed. 1019 (mem. dec.).

32 McCracken v. Robison, 57 Fed. 375.

33 See $2333, supra.
34 See § 2335, supra.