fact that interested directors vote in favor of a contract between the corporation and themselves personally does not vitiate it where there was a majority vote in favor thereof without counting the votes of such interested directors.69 In other words, in such a case, the rule applying to transactions between the corporation on the one side represented by disinterested officers, with interested officers as the other party to the contract,. is applicable. For instance, it is held that a director's vote for his own salary does not make the resolution voidable, where otherwise fair and in good faith, if the result would have been the same if he had not voted.70 In discussing this question, it has been said that "as the interested director's vote was not necessary to the passage of the resolution, the argument is plausible that the contract should be regarded as made between the director, or trustee, on the one side, and the corporation, or cestui que trust, represented by the other directors, on the other; and that consequently the contract, being governed by the second of the two broad principles above stated, should be enforceable against the company if the interested director sustains the burden of proving affirmatively that he acted with the utmost good faith and that the contract was entirely fair to the company. An answer to this argument is, however, that the influence of the interested director is not measured by his vote alone, but that his participation in the meeting, his arguments, and the weight of his judgment may have prevailed mightily with his colleagues, so that in substance he should be deemed to have made the

69 Schnittger v. Old Home Consol. Min. Co., 144 Cal. 603, 78 Pac. 9; Porter v. Lassen County Land & Cattle Co., 127 Cal. 261, 59 Pac. 563; Leavitt v. Oxford & Geneva Silver Mining Co., 3 Utah 265, 273, 1 Pac. 356. To same effect, Tenison v. Patton, 95 Tex. 284, 67 S. W. 92.

See also, generally, § 1889, vol. 3. In Washington, in one case, it ap peared, although not clearly stated, that there was a majority of directors not counting the interested director. The court said: "Giving his vote was a formal, but not a substantial, participation in the doings of the board. On the business in hand, he had no power to pass; and, therefore, his seeming exercise of power cannot be considered as real or effective. Doubt

less, in the absence of a statute to the contrary, the corporation could contract with him, for its interest might lie that way. Admitting this, it would seem to follow that he could treat with the corporation through its proper business functionaries, the trustees other than himself, doing it in a fair and openhanded manner; and he could appear before them in his own interest, and in good faith press them to comply with his desires or necessities."' Budd v. Walla Walla Prtg. & Pub. Co., 2 Wash. T. 347, 7 Pac. 896.

70 Clark v. American Coal Co., 86 Iowa 436, 17 L. R. A. 557, 53 N. W. 291. See also infra, chapter on Compensation of Officers.

contract, in part at least, on behalf of the company as well as on his own behalf. According to this view, the contract would be voidable. even though the utmost good faith were proved." 71

The leading case in this country on the other side of this question was decided by the Court of Appeals of New York in 1886. In that case a director dealt with his corporation but it was expressly stated that there was no unfairness or bad faith connected therewith. The director was one of ten directors (and it may be assumed that there were no other directors or that nine constituted a majority) and all voted in favor of the contract. Justice Andrews, in deciding that the transaction was voidable merely because of the relationship of the parties, said: "The contract on its face notified Munson's associates of his relation to the corporation, and that the contract was subject to be defeated on that ground; and, on the other hand, a corporation, in order to defeat a contract entered into by directors, in which one or more of them had a private interest, is not bound to show that the influence of the director or directors having the private interest determined the action of the board. The law cannot accurately measure the influence of a trustee with his associates, nor will it enter into the inquiry in an action by the trustee in his private capacity to enforce the contract, in the making of which he participated. The value of the rule of equity to which we have adverted, lies, to a great extent, in its stubbornness and inflexibility."72

It is also held in New York that the effect of such rule cannot be obviated by an agreement between the directors that several resolutions should be proposed-one in favor of each director-and that each of the directors should vote for the resolution in favor of the director interested who should not vote.73

The application of this rule is most often found in connection with the voting of salaries to directors or other officers by the board of directors.74

§ 2352.Where vote of interested officer necessary to make up a majority vote. It has already been stated in a preceding volume that the vote of an interested director cannot be counted to make up 71 Machen, Corporations, § 1566.

72 Munson v. Syracuse, G. & C. R. Co., 103 N. Y. 58, 8 N. E. 355, citing in support of this rule Davoue v. Fanning, 2 Johns. Ch. (N. Y.) 252, and Aberdeen R. Co. v. Blaikie, 1 Macq. H. L. 461. See also Lowndes v. Gar

nett Gold Min. Co., 33 L. J. Ch. 418.

73 McNab v. McNab & Harlin Mfg. Co., 62 Hun (N. Y.) 18, 24, 16 N. Y. Supp. 448.

74 Infra, chapter on Compensation of Officers.

a majority vote necessary to pass a resolution of the board of directors, 75

In such a case, where a director is the other party to a transaction with his corporation, or is the agent of the other party, or is personally interested in the other party, and he votes in favor of the transaction as a director of his corporation, and his vote is necessary to make up a majority necessary to pass the resolution, there is no question but that the transaction is included in the class where the officer deals with himself and represents both sides of the transaction,76 and hence is voidable at the option of the corporation merely because of the relationship of the parties, without any other ground and regardless of the fairness or good faith of the transaction. Thus, if one director necessary to make up a majority vote of the board to authorize a lease is interested in the lessee corporation, the lease is voidable." So it has been held that the acceptance of a deed to the corporation from a director is not binding on the corporation where there were seven directors but the acceptance was by only four, one of whom was the grantor in the deed.78

This rule is often applied in connection with the vote of a director 239, 104 Am. St. Rep. 703, 76 Pac. 194, aff'd 31 Mont. 563, 79 Pac. 248.

75 See 1889, vol. 3.

76 United States. Hardee v. Sunset Oil Co., 56 Fed. 51; Bill v. Western U. Tel. Co., 16 Fed. 14; Sellers v. Phoenix Iron Co., 13 Fed. 20.

Arizona. Martin v. Santa Cruz Water Storage Co., 4 Ariz. 171, 36 Pac. 36.

California. Wickersham v. Crittenden, 106 Cal. 327, 39 Pac. 602; Graves v. Mono Lake Hydraulic Min. Co., 81 Cal. 303, 320, 22 Pac. 665; Lowe v. Los Angeles Suburban Gas Co., 24 Cal. App. 367, 141 Pac. 399.

Colorado. Burns v. National Mining Tunnel & Land Co., 23 Colo. App. 545, 130 Pac. 1037.

Michigan. Miner v. Belle Isle Ice Co., 93 Mich. 97, 17 L. R. A. 412, 53 N. W. 218.

Minnesota. Jones v. Morrison, 31 Minn. 140, 16 N. W. 854.

Missouri. Ward v. Davidson, 89 Mo. 445, 1 S. W. 846; Bennett v. St. Louis Car-Roofing Co., 19 Mo. App. 349.

Montana. McConnell v. Combination Mining & Milling Co., 30 Mont.

New York. Butts v. Wood, 37 N. Y. 317; Copeland v. Johnson Mfg. Co., 47 Hun (N. Y.) 235.

West Virginia. Sweeny v. Grape Sugar Refining Co., 30 W. Va. 443, 8 Am. St. Rep. 88, 4 S. E. 431.

If an adversely interested director whose vote is necessary to the passage of a resolution is present and votes therefor, the transaction is at least prima facie voidable. Ravenswood, S. & G. Ry. Co. v. Woodyard, 46 W. Va. 558, 33 S. E. 285.

A salary voted to the president by a quorum of three directors, two being absent, and the president being one of the three, is not enforceable. Copeland v. Johnson Mfg. Co., 47 Hun (N. Y.) 235.

77 Parsons v. Tacoma Smelting & Refining Co., 25 Wash. 492, 65 Pac. 765.

78 Chilton v. Bell County Coke & Improvement Co., 153 Ky. 775, 156 S. W. 889.

fixing his own salary or other compensation as the incumbent of another office, or for services to be performed by him outside of the ordinary duties of his office, where his vote is necessary to the passage of the resolution.79

§ 2353. Where majority of directors deal with themselves. It is self-evident that if a majority of the directors are adversely interested, then any transaction between themselves and the corporation as represented by its board of directors is simply a case of officers dealing with themselves.80 It has been held that the entire board. of directors cannot contract with the corporation, since there is no one to represent the corporation.81 This is undoubtedly true if it merely means that such a contract is voidable as distinguished from being void. Furthermore, such dealings undoubtedly are to be considered as dealings between interested officers acting for themselves as one party to the contract and acting for the corporation as the other party to the contract, so as to authorize the corporation to set aside the contract merely on the ground of the relationship of the parties without reference to its fairness or the good faith of the parties.82

For instance, it was so held where a settlement was made between a corporation and its creditors where a majority of the board of directors were interested in the matter adversely to the corporation, and it was well said that "it has not been held that the company or its stockholders may not avoid a contract requiring the action of the board of directors to make it, whether made in good faith or not, where so many of the directors are interested in the contract, adversely to the company, that the company is not represented by a disinterested majority of the directors voting. On the contrary, it is held that the directors, without the sanction of the stockholders, have no power to contract, for the corporation, with themselves, or for the benefit of themselves, and if they attempt to do so the contract may be avoided by the corporation or its stockholders not consenting, whether the contract appears to be fair and just or not." 83

79 Infra, chapter on Compensation of Officers.

80 See Parker v. Nickerson, 112 Mass. 195.

81 Scott v. Farmers' & Merchants' Nat. Bank (Tex. Civ. App.), 67 S. W. 343, 66 S. W. 485, rev'd on other grounds in 97 Tex. 31, 104 Am. St. Rep. 835, 75 S. W. 7.

82 Graves v. Mono Lake Hydraulic Min. Co., 81 Cal. 303, 320, 22 Pac. 665; Coleman v. Second Ave. R. Co., 38 N. Y. 201.

83 Higgins v. Lansingh, 154 Ill. 301, 40 N. E. 362.

In Minnesota, however, the question recently arose as to the effect of such a transaction between the corporation and a majority of its directors who acted for the corporation and for themselves, and it was held that where a majority of the directors advance money or procure it to be advanced on their guaranty, and take security, the transaction will be upheld "if affirmatively shown upon close scrutiny to be fair and not to involve a breach of fiduciary duty and not to result in wrong" but "if otherwise, it may be avoided." 84 And it seems that a board of directors, all of whom are creditors of the company, may vote security to themselves, at least if the corporation is solvent, where they act fairly and in good faith.85

The fact that the action of a majority of directors in dealing with themselves or for their.benefit is open, and not secret, does not validate the transaction, where otherwise voidable where the stockholders have not agreed to the transaction.86

§ 2354. - Where presence of interested director necessary to make a quorum. "The same rules," says the Supreme Court of California, "which preclude an interested director from uniting with other directors in the creation of an obligation in favor of himself by his vote forbid him from uniting with them in creating such obligation by any act or exercise of his official position; and a meeting at which there is not a majority of the directors, exclusive of such interested director, is not a competent board for the transaction of any corporate business."' 87

This is the well-settled rule,88 as already stated in a preceding volume in connection with the law as to meetings of directors.89 In such a case the interested director is disqualified from acting because he cannot deal with himself, and without him there is no quorum of the directors such as is necessary to transact business.90 It follows that if the presence of an interested director is necessary to the

84 Minnesota Loan & Trust Co. v. Peteler Car Co., 132 Minn. 277, 156 N. W. 255.

85 Ramsey v. W. M. Welch Co., 163 Iowa 324, 144 N. W. 323; Webster v. Ypsilanti Canning Co., 149 Mich. 489, 113 N. W. 7, and see § 2326, supra.

86 Goodell v. Verdugo Canon Water Co., 138 Cal. 308, 314, 71 Pac. 354.

87 Curtin v. Salmon River Hydraulic Gold Mining & Ditch Co., 130 Cal. 345, 80 Am. St. Rep. 132, 62 Pac. 552.

88 Jones v. Morrison, 31 Minn. 140, 16 N. W. 854; Vanhook v. Somerville Mfg. Co., 5 N. J. Eq. 137, 169; Butts v. Wood, 37 N. Y. 317; Copeland v. Johnson Mfg. Co., 47 Hun (N. Y.) 235; United States Ice & Refrigerating Co. v. Reed, 2 How. Pr. N. S. (N. Y.) 253; San Antonio St. R. Co. v. Adams, 87 Tex. 125, 132, 26 S. W. 1040.

89 See $1889, vol. 3.

90 Butts v. Wood, 37 N. Y. 317.