boards of directors of two corporations contracting with each other are identical, does not make the contract subject to attack, where it is not unfair.28 So in Missouri it is held that a sale of property by one corporation to another having the same directors cannot be complained of by a stockholder where the sale was for full value and in no way fraudulent.29 So in Maryland the rule is that contracts between two corporations having more or less common officers are valid unless shown to be unfair.30 The majority rule is approved in New York in some cases although the governing rule in that state is a matter of doubt.31 In fact, this rule is the one laid down by the courts of most of the states.32

In still other jurisdictions, the question is incidentally discussed without formulating any definite rule.33 Even in those states, such as New Jersey, where a contract is voidable at the option of the corporation, exercised within a reasonable time, if made between a corporation and one or more of its officers, without regard to the fairness. of the contract or the good faith of the officers adversely interested,34 such rule is generally not applied to transactions between corporations where the only vice is the identity of one or more members of the respective boards of directors, or the identity of one or more other officers.35

In a New York case, the president of a woolen company in which he was the principal stockholder, contracted with a gas company of which he was a director and chairman of the executive committee, whereby the first-named company obtained great benefits at the expense of the latter company. The lower court held that inasmuch as the president did not vote on the contract and took no part in reference thereto, the gas company was not entitled to a rescission. Upon appeal, however, the Appellate Division of the Supreme Court said that it was apparent that the president, through his influence as a member of the executive committee of the gas company, procured or permitted the contract to be entered into; that it was his duty as a member of the executive committee to see to it that the best possible contract was negotiated on behalf of the gas company, or, at least that a contract which was fair and equitable was so negotiated and approved; that as president of the woolen company in which he was the principal stockholder he was practically dealing in his own behalf; that it was immaterial that the officer represented the gas company silently and did not openly advocate or vote for the adoption of the contract, since his negotiation of the contract implied and carried with it the force and effect of his approval; and that the contract was voidable at the election of the gas company without regard to whether there was good or bad faith on the part of the officer.36

§ 2378.Where unfair or fraudulent. If unfair or entered into in bad faith, transactions between corporations having common

33 Metropolitan Telephone & Telegraph Co. v. Domestic Telegraph & Telephone Co., 44 N. J. Eq. 568, 573, 14 Atl. 907.

34 See § 2346, supra.

35 Marcy v. Guanajuato Development Co., 228 Fed. 150, 151, where the court seems to hold that the mere

fact of common directors does not give them "any personal beneficial interest in any of the transactions complained of."

36 Globe Woolen Co. v. Utica Gas & Electric Co., 151 N. Y. App. Div. 184, 136 N. Y. Supp. 24, rev'g 75 N. Y. Misc. 539, 136 N. Y. Supp. 16.

officers, wholly or in part, are always voidable by the injured corporation or its stockholders,37 provided there has been no valid ratification or the right to urge the invalidity is not barred by laches.38 Inadequacy of price is unfairness within this rule.39

Where one corporation purchases a majority of the stock of another corporation, in order to prevent competition, the rights of minority stockholders of the latter must not be infringed upon by the purchasing corporation-the two companies being thereafter controlled by the same officers by contracts between the two corporations through the same officers.40

§ 2379. Where common directors are a minority and their votes not necessary to creation of contract. A contract made between two corporations by their boards of directors is not voidable at the election of one of the parties thereto merely because a minority of its board of directors are also directors of the other company, where there is a quorum of wholly disinterested officers who vote in favor of the contract.41 In other words, the mere fact that both corporations have a director in common, or a number of directors less than a majority, does not affect an otherwise fair contract.42 On the other hand, it is immaterial that the common directors were not a majority of either board, so far as the rule that transactions between corporations having common directors will be closely scrutinized and may be set aside unless fair, is concerned.43

37The extent to which the courts will go in refusing to enforce contracts of this kind, as shown by the adjudicated cases, depends in a great measure upon the facts of each particular case. No inflexible rule has been established." City Nat. Bank v. Merchants' & Planters' Nat. Bank (Tex. Civ. App.), 105 S. W. 338.

Managing officials of one corporation cannot enter into a secret agreement with a third person to form a new corporation, with the intent of binding the old corporation with a contract highly beneficial to the new corporation, which was not for the best interests of the old company. Attalla Iron Ore Co. v. Virginia Iron, Coal & Coke Co., 111 Tenn. 527, 77 S. W. 774.

If bad faith is present, the officers

may be held personally liable or the Ideal may be set aside. See Brinckerhoff v. Holland Trust Co., 171 Fed. 781.

38 See 2394-2402, infra.

39"Inadequacy of price is unfairness, and condemns without further inquiry in an attempt to determine whether due to corruption or honest, but mistaken, judgment unconsciously swayed by adverse interest.” Geddes v. Anaconda Copper Min. Co., 222 Fed. 129, 133.

40 Cannon v. Brush Elec. Co., 96 Ma. 446, 94 Am. St. Rep. 584, 54.Atl. 121.

41 United States Rolling Stock Co. v. Atlantic & G. W. R. Co., 34 Ohio St. 450, 32 Am. Rep. 380.

The by-laws of the United States Steel Corporation provide that "inasmuch as the directors of this company are men of large and diversified interests, and are likely to be connected with other corporations with which from time to time this company must have business dealings," no contract with another company shall be affected by the fact that directors of the steel company shall be directors or officers or interested in, the other company, if there are present at the directors' meeting of the steel company passing on such deals "a quorum of directors not so interested." 44

§ 2380. - Application of rules to mere agents or officers other than directors. Questions often arise where an officer of a corporation other than a director or a mere agent, contracts with another corporation, of which he is also an officer other than a director, or a mere agent, as to the validity and effect of the contract.45 The fact that the same person was the president of both the mortgagor and mortgagee corporations does not necessarily invalidate the mortgage.46 If one person is treasurer of a company depositing money, and also of the company with whom the money is deposited, "the rights, duties and liabilities of each company are just the same as if a different individual had acted as treasurer of the respective companies.' "'47 Of course the fact that the same person is the president of two corporations does not invalidate dealings between the two corporations in which he acted with full authority from the directors and stockholders of each corporation.48

In Mississippi it has been held that an insurance policy issued by an agent of the company to a corporation in which he was a director is not binding upon the insurance company.49

were not a majority of either board
is a difference in degree, but not in
principle. They may have dominated
the board. In both cases is divided
duty, conflicting interest, possible im-
paired judgment of unknown effect,
difficulty of proof, and danger to
stockholders.'' Geddes v. Anaconda
Copper Min. Co., 222 Fed. 129, 133.
44 See Fletcher's Corporation Forms,
687.

45 Rights where same person was secretary of four corporations, and he drew a check on one, in favor of another, and deposited it to the credit of a third corporation, and then checked it out to pay his individual

If the manager of a gas company turns over to himself as man ager of a competing gas company, its gas well, but without authority, the second company cannot claim to hold adversely, within the rule that if the corporation was in adverse possession under a claim of title that question must first be determined by an action of ejectment before an action would lie for the gas taken.5 50 Where the same person acts as agent of two corporations standing in the relation of debtor and creditor, he cannot, without the consent of the debtor company, assign its note to secure a debt owed to a stranger by the creditor company in such a way as to prevent it from using its setoffs against the creditor corporation as a defense to a suit on a note.51

§ 2381. -Where common officer (not director) necessarily takes no part in the transaction. The fact that a contract is between two banks, and that the president of one is the vice president of the other, does not make the contract voidable at the option of one corporation where the concurrence of such common officer was not necessary to the authoritative consummation of the contract and, although he participated in making the contract, another officer who was at least an equal factor with the common officer in making the contract, had power to make the contract alone.52

§ 2382.Necessity that interests be adverse to bring rule into cperation. The underlying rule that an agent cannot serve two masters without acquainting both of all the facts attending the particular transaction applies only where the interests of the two masters, the corporations, are in fact adverse.53 Ordinarily, however, it would seem that the interests of two corporations who are the opposing parties to a contract between them will be deemed adverse so far as the contract is concerned.

§ 2383. Security for debts. A director of one corporation may vote or otherwise seek in a legitimate way security for an honest debt due from that corporation to another of which he happens to be an officer.54

50 McCullough v. Ford Natural Gas Co., 213 Pa. 110, 62 Atl. 521.

51 Guthrie v. Huntington Chair Co., 71 W. Va. 383, 76 S. E. 795.

52 City Nat. Bank v. Merchants' & Planters' Nat. Bank (Tex. Civ. App.), 105 S. W. 338.

53 Render v. Arkansas Valley Trus. Co., 196 Fed. 1, 4.

54 Rawlings v. New Memphis Gaslight Co., 105 Tenn. 268, 285, 80 Am. St. Rep. 880, 60 S. W. 206, pledge of bonds. See also § 2326, supra.