existence of a quorum, action taken is voidable at the instance of the corporation, and it would seem that no question as to fairness or good faith can be raised.

§ 2355. Where interested director dominates other directors. If the director who is adversely interested in fact directs, influences and controls the board of directors, i. e., if the other directors are mere dummies who have no personal interest in the affairs of the company and who exercise not their own judgment and discretion. but merely the will of the dominating director, a case is presented of an officer dealing with himself.92 In other words, if a director or other officer dealing with his corporation is in reality in complete control of the corporation and its board of directors, and he dictates the acts of the board, or as has been said if they are "pegs to fill the required places," 93 then it would seem that the situation is one where the officer represents both sides although in fact he is only one of several directors or did not in reality formally act as officer of the corporation in connection with the transaction.94 But the fact that the officer who is the other party to the contract holds the majority of the stock, and that his co-directors who made the contract with him, were chosen by him in the sense that the majority of the stock elects the directors, or the fact that some of such directors owned only a single share of stock, does not make the contract one between himself personally and himself as director.95

§ 2356.- Where corporate officer or agent acts under immediate instructions of superior officer. An agent may "represent the corporation in executing a contract with himself personally," says Mr. Morawetz, "provided he acts under immediate instructions. from some other superior agent or from the board of directors." 96

91 Mobile Land Improvement Co. v. Gass, 142 Ala. 520, 39 So. 229; Bassett v. Fairchild, 132 Cal. 637, 52 L. R. A. 611, 64 Pac. 1082; Smith v. Los Angeles Immigration & Land Co-operative Ass'n, 78 Cal. 289, 12 Am. St. Rep. 53, 20 Pac. 677; Burns v. National Mining, Tunnel & Land Co., 23 Colo. App. 545, 130 Pac. 1037.

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

also president, induces the directors, who are under his influence and control, to vote a large salary to him, the corporation may defeat an action by him to recover it. Davis v. Memphis City Ry. Co., 22 Fed. 883.

93 Adams v. Burke, 201 Ill. 395, 66 N. E. 235.

94 See Bingham v. Bell & Zoller Coal Co., 175 Ill. App. 469, 478.

43.

Where the chief stockholder, who is

95 Cowell v. McMillin, 177 Fed. 25,

961 Morawetz, Corporations, § 527.

This rule was applied in Illinois where the Supreme Court said that the manager, "in making the lease, was acting under the instructions of the president and directors of the railway company. The lease was not his act as agent of the railway company, but it was the act of his superior, the president of the corporation, and hence he cannot be regarded as dealing with himself." 97

§ 2357. Manner in which individual interest of officer is evidenced-General considerations. How far does the rule making voidable the dealings between a corporation and one or more of its directors or other officers, apply where the director or other officer is not individually the other party to the contract but is merely a member of a firm contracting with the company, or a mere stockholder or officer of another corporation which is the other contracting party? This question, and other kindred cases, are discussed in the following sections. The validity or invalidity of a transaction wherein a director or other officer is adversely interested cannot depend, it is held, "upon the extent of the adverse interest of the fiduciary agent any more than upon how far in any particular case the terms of a contract have been the best obtainable for the interest of the cestui que trust, upon which subject no inquiry is permitted." 98 This statement must be explained, however, by saying that it was made in an English case, and that the rule in England is that all corporate dealings are voidable where a director or other officer is adversely interested, merely because of the relationship and without regard to the fairness of the deal or the good faith of the officers.

Interlocking officers, i. e., where one or more directors or other officers represent both corporations which are the opposing parties in a transaction, present some troublesome questions concerning which the courts have not always been in harmony.9

99

§ 2358. Officer acting as agent both for corporation and for adverse party. The form of the interest of the corporate officer in the transaction, on the side opposed to the corporation, may be that of an agent for such other party to the contract or transaction with the corporation. The rule governing the relation of principal and agent where there is a double agency-and this rule applies equally well where an officer of a corporation acts as agent both for the cor

97 Louisville, N. A. & C. R. Co. v. Carson, 151 Ill. 444, 38 N. E. 140. See also Fudickar v. East Riverside Irrigation Dist., 109 Cal. 29, 41 Pac. 1024.

98 Transvaal Lands Co. v. New Belgium Land & Development Co., [1914] 2 Ch. 488, 503.

99 See §§ 2376-2391, infra.

by

poration and also for the other party to the transaction or contracthas been correctly stated as follows: "If the agent reason of being or becoming the agent of the opposite party, has an interest of the latter to protect which may conflict with the interest of the principal, it is his duty to fully advise his principal of the circumstances, and not to undertake to act without the principal's consent. If, after a full and frank disclosure, the principal is willing to confide his interests to him the principal cannot afterwards object. Otherwise, it is the practically invariable rule that the agent may not, in the same transaction, be both agent and opposite party, or while agent of one, become the agent of the other party whose interests may conflict. If, without such knowledge and consent, he does undertake to contract, the law deems the principal in that transaction to be practically unrepresented, and any bargain in his name, or act done on his account, is usually voidable at the principal's option. He need not show himself injured, and his right to repudiate the transaction is not affected by the good faith of the opposite party."1

In such a case, the corporation may set aside the contract, provided it did not, with knowledge of the double agency, either expressly authorize it or thereafter ratify it. And the corporation may rescind the contract and obtain a return of the consideration paid from the other party who knew of the double agency. However, the fact that one of three directors acts in the double capacity of agent for both borrower and lender has been held not to invalidate the note where

11 Mechem, Agency (2nd Ed.), § 1206.

2 Compare Pauly v. Pauly, 107 Cal. 8, 48 Am. St. Rep. 98, 40 Pac. 29; Adams Min. Co. v. Senter, 26 Mich. 73.

"One man cannot serve two masters with reference to any matter where their interests are adverse, and it matters not, where one of those masters be a corporation, whether the servant be a director or agent. His duty to his master is none the less imperative." Estate of Smythe v. Evans, 209 Ill. 376, 381, 70 N. E. 906, rev'g 108 Ill. App. 145.

Where one acts both for a corporation in his own behalf and as agent

3

for a third person, his acts are not binding on the corporation. Smith v. Courant Co., 23 N. D. 297, 136 N. W. 781.

An attorney for a director, who is also a director qualified to act as such by a transfer of shares to him by his client without consideration, is to be counted as personally interested where he presents a proposal at a directors' meeting, on behalf of his client, to loan money to the company on a chattel mortgage. In re Webster Loose Leaf Filing Co., 240 Fed. 779, 782.

3 Hall v. Catherine Creek Development Co., 78 Ore. 585, L. R. A. 1916 A 996, 153 Pac. 97.

the corporation suffers no detriment thereby the decision being based, apparently, upon the theory that the director did not represent the corporation. In any event, if an officer of a corporation sacrifices. its interests in dealing with a third person whose agent he is, the agreement may be set aside.5

The rights of the corporation where it deals with another corporation, and there are one or more common directors or other officers, are considered in subsequent sections.

§ 2359. Transactions between corporation and firm of which officer is a member. A director or other officer cannot represent the corporation in making or authorizing a contract or other transaction with a partnership of which he is a member, except subject to the right of the corporation to avoid the same, unless there was express authority to act for the corporation in making the contract. In any event, if the majority directors are also members of a firm contracted with to act as agent in selling the products of the company on a commission, they have the burden of showing that the contract was fair and reasonable.9

On the other hand, suppose a contract is made between a corporation and a firm, a member of which is a director or other officer of the corporation, but the corporation is represented in the transaction wholly by other directors or officers. In such a case, upon principle, the contract may be avoided by the corporation but only, according to the weight of authority, where the contract is shown to be unfair or entered into by the firm or partner in bad faith.10

4 Buck v. Troy Aqueduct Co., 76 Vt. 75, 56 Atl. 285.

5 Fox v. Robbins (Tex. Civ. App.), 62 S. W. 815, where waiver of service of process was held invalid.

6 See § 2376 et seq., infra.

7 Salem Iron Co. v. Lake Superior Consol. Iron Mines, 112 Fed. 239; Sims v. Petaluma Gas Light Co., 131 Cal. 656, 63 Pac. 1011, aff'g 62 Pac. 300; Davis v. Rock Creek Lumber, Flume & Mining Co., 55 Cal. 359, 36 Am. Rep. 40; Aberdeen Ry. Co. v. Blaikie, 1 Macq. H. L. Cas. 461. And see Doe V. Northwestern Coal & Transportation Co., 78 Fed. 62.

8 Leigh v. American Brake Beam

Co., 205 Ill. 147, 68 N. E. 713, aff'g 107 Ill. App. 444.

9 Ross v. Quinnesec Iron Min. Co., 227 Fed. 337.

Where the president of a corporation signed a contract as such for the corporation and also as a member of a firm which was the other contracting party, it was held voidable but not void, and that if fair and not onesided it cannot be set aside by the corporation. Salem Iron Co. v. Lake Superior Consol. Iron Mines, 112 Fed. 239.

10 For law governing such a situa tion see §§ 2345-2347, supra.

§ 2360. Transactions between corporate officers as such and another corporation in which they are stockholders. That the directors "cannot represent it in transactions with another corporation. in which they are shareholders, if their interest in the latter company might induce them to favor it at the expense of the company whose interests have been intrusted to their care" is stated in a recent Vermont decision 11 citing Mr. Morawetz's valuable work on Corporations as authority for the statement.12 However, this statement may mislead, since it should be qualified by stating that such a transaction is not void, according to the weight of authority, but only voidable.13 The extent of the interest of the corporate officers in the other corporation ought to have some weight. For instance, if they held only one share of stock apiece in the other company or a very small percentage of the outstanding stock, or if their interest in the corporation in which they are officers is much greater than their interest in the other company in which they are merely stockholders, then it would seem that the transaction should not be so closely scrutinized as if the officers' interest in the other company was much greater than in the company in which they are officers.14

Dealings between two corporations where officers of the one are stockholders in the other are not void as distinguished from voidable, and whether they will be enforced generally depends upon whether the deal was fair and in good faith.15 If all or a majority of the

11 Corry v. Barre Granite & Quarry Co., Vt. 101 Atl. 38.

Of course such transactions are always voidable if the directors who act for the corporation do not act in good faith for the benefit of the company in which they are officers, but instead for the benefit of the other corporation in which they are stockholders.

12 1 Morawetz, Private Corporations, $ 520.

13 The fact that a majority of the directors of a corporation are stockholders in another corporation does not make a contract between the two

corporations void as distinguished from voidable. Jesup v. Illinois Cent. R. Co., 43 Fed. 483, 503.

14 See note 15, infra, and also Corry v. Barre Granite & Quarry Co., Vt. -, 101 Atl. 38, where nearly all the

stock of the transferee company was owned by the four directors whom the resolution empowered to make the sale, and the court said: "Upon the case as thus presented there could be no room to doubt. The directors of the defendant company would, in effect, be selling the property to themselves. The right to do this is denied to all persons acting in a fiduciary capacity."

15 If the officer participating as such in making contracts between his corporation and another corporation is a very small stockholder in the corporation in which he is an officer but is a heavy stockholder in the other corporation, and the terms of the contract are grossly inequitable in favor of the latter company, the former may repudiate and set aside the contract. Globe Woolen Co. v.