exempted from liabilities already incurred and are chargeable with losses resulting after the termination of their holding of office from breaches of duty previously committed.97 However, the duties of national bank directors are not terminated when an examiner is put in charge by the comptroller of the currency.9 98

§ 2412. Effect of illegality of election or ineligibility to become officer. If a person is elected and acts as a director or other officer, he cannot escape personal liability by showing that his election was illegal' or that he was not eligible.99 In other words, de facto officers are liable as well as de jure officers.1

§ 2413. Consent or ratification as precluding liability. Of course, there is no liability on the part of corporate officers in regard to an act which all of the stockholders either gave their prior consent to or thereafter ratified, so far as the corporation and stockholders are concerned. However, the mere fact that the other directors ratify a fraud perpetrated by one of the directors will not relieve him from liability to the corporation. And it is no defense where suit is brought by a receiver against directors for negligence, that the stockholders authorized or ratified the alleged wrongdoing, where the receiver represents the creditors of the corporation as well as the stockholders. The transactions of a board of directors which cannot be sustained against the will of a single stockholder, either with or without the sanction of the remaining stockholders, are acts which are either ultra vires, fraudulent or illegal. It follows that directors

Removal of officers, see §§ 18141824, vol. 3.

97 This question usually arises in connection with liability of officers as created by statute. See § 2618, infra.

98 Robinson v. Hall, 63 Fed. 222,

227.

99 Thayer v. New England Lithographic Steam Printing Co., 108 Mass. 523; Easterly v. Barber, 65 N. Y. 252; Union Nat. Bank of Troy v. Scott, 53 N. Y. App. Div. 65, 66 N. Y. Supp. 145; St. George Vineyard Co. v. Fritz, 48 N. Y. App. Div. 233, 62 N. Y. Supp. 775; Halstead v. Dodge, 19 Jones & S. (N. Y.) 169. Compare, however, Craw v. Easterly, 4 Lans. (N. Y.) 513.

Persons who act as directors, and

fail to file the annual report as required by law, cannot escape liability to creditors on the ground that they did not hold the number of shares required by statute to qualify them to be directors. Donnelly v. Pancoast, 15 N. Y. App. Div. 323, 44 N. Y. Supp. 104.

1 Daily v. Marshall, 47 Mont. 377, 133 Pac. 681, and see §§ 1833-1852, vol. 3.

2 Williams v. Riley, 34 N. J. Eq. 398.

3 Coddington v. Canaday, 157 Ind. 243, 61 N. E. 567.

4 United States Steel Corporation v. Hodge, 64 N. J. Eq. 807, 60 L. R. A. 742, 54 Atl. 1.

cannot give corporate property to themselves or others, even with the consent of a majority of the stockholders.5

The effect of ratification of ultra vires acts is considered hereafter.6

§ 2414. Right to sue as precluded by laches or estoppel. It is generally held that the right of stockholders to sue may be barred by laches; but it has been held in Alabama that laches is no defense, the court saying that "when called upon to account by the corporation, or by the shareholder when he is authorized to maintain suit in his own name, the unfaithful director cannot cover his mala fides with the plea of laches on account of mere delay in calling him to account." 8 And in New York it is held that laches is no defense, where less than the statute of limitations, to an action by stockholders to recover from corporate officers damages from their misuse of the corporate assets, for the reason that the discretion of the court' is not appealed to.9 In any event, there must be knowledge, actual or constructive, to warrant laches as a defense,10 and delay not prejudicial to the party setting up laches, or to any one else, is not fatal.11 Thus, a delay of over two years after a receiver was appointed, in obtaining leave to sue officers for misconduct, is not fatal, where the status is in no way changed by the delay.12 An officer cannot sue other officers of the same company for an accounting for mismanagement of which he had knowledge and acquiesced in until dissension arose because of other matters, on the theory that he does not come into equity with clean hands.13 Acquiescence of a creditor, with knowledge, in a conversion of property by corporate officers, may be shown in a suit by him to hold an officer individually liable for such conversion.14 Equity will disregard the fiction that a corporation is an entity distinct from one who owns substantially all its stock, where

5 Endicott v. Marvel, 81 N. J. Eq. 378, 87 Atl. 230, and see § 2507, infra. 6 See § 2441, infra, and § 2181, supra. 7 Hughes Manufacturing & Lumber Co. v. Culver, 126 Ark. 72, 189 S. W. 850.

Twelve years held fatal. Kelly v. Dolan, 233 Fed. 635, 640.

8 Montgomery Light Co. v. Lahey, 121 Ala. 131, 25 So. 1006.

9 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.

IV Priv. Corp.-20

10 Von Arnim v. American Tube Works, 188 Mass. 515, 74 N. E. 680; Wills v. Nehalem Coal Co., 52 Ore. 70, 96 Pac. 528.

11 Bergman v. Evans, 92 Wash. 158, 158 Pac. 961.

12 Weslosky v. Quarterman, 123 Ga. 312, 51 S. E. 426.

13 Conners v. Conners Bros. Co., 110 Me. 428, 86 Atl. 843.

14 Birdsell Mfg. Co. v. Oglevee, 187 Ill. 149, 58 N. E. 231, aff 'g 87 Ill. App. 351.

a corporation is suing an officer for an accounting in regard to a matter as to which the then majority stockholder is estopped.15

A stockholder may be precluded from suing by having expressly waived his right to object to the acts complained of,16 or by his consent thereto,17 or by having acquiesced therein; 18 and an assignee of stock cannot sue in regard to transactions with the corporation done or assented to by his assignor.19

It has been held that stockholders cannot recover from a director who was a nonresident, for negligence in connection with the misconduct of the president of the bank, where his acts were a matter of general knowledge in the city where the stockholders resided.20 However, it is not the duty of a stockholder to investigate the management of the corporation, nor to discover and correct the incapacity of its managing officers, and hence where a stockholder is not shown to have had knowledge of mismanagement, he cannot ordinarily be said to have acquiesced therein by his failure to protest.21 Moreover, it has been held that it is no defense to a suit in equity by stockholders to compel directors to pay back into the treasury certain dividends unlawfully paid out, that plaintiffs, or those from whom they purchased their stock, participated in the distribution of the illegal dividends, since in reality the suit is brought by the corporation and is maintained solely for its benefit.22

18 Illinois. Babcock v. Farwell, 245 Ill. 14, 137 Am. St. Rep. 284, 19 Ann. Cas. 74, 91 N. E. 683; Klein v. Independent Brewing Ass'n, 231 Ill. 594, 83 N. E. 434.

New Jersey. Fish v. Harrison, N. J. Ch. —, 100 Atl. 185.

New York. Murray v. Smith, 166 N. Y. App. Div. 528, 152 N. Y. Supp. 102.

Vermont. Davenport v. Crowell, 79 Vt. 419, 65 Atl. 557, where act complained of was exchange of notes with another corporation.

Wisconsin. Figge v. Bergenthal,

130 Wis. 594, 110 N. W. 798, 109 N. W. 581.

19 Babcock v. Farwell, 245 III. 14, 137 Am. St. Rep. 284, 19 Ann. Cas. 74, 91 N. E. 683, aff'g 146 Ill. App. 307. 20 Wallach v. Billings, 277 Ill. 218, 115 N. E. 382.

21 King v. Livingston Mfg. Co., 192 Ala. 269, 68 So. 897.

22 Appleton v. American Malting Co., 65 N. J. Eq. 375, 54 Atl. 454.

However, where recovery of divi dends paid out was sought under a statute, by a stockholder, it was held that the use of the action to recover back such dividends, where the corporation was solvent, was highly penal, and that a recovery should not be allowed, since it would be unjust and inequitable for the stockholders directly or indirectly to recover from the directors the very moneys which they have already re

The estoppel of stockholders by participation, etc., and the effect of laches, as applied to stockholders' suits in general, are considered at length in a subsequent chapter.23

Laches of stockholders as a bar to relief in attacking dealings between a corporation and an officer, or where the officer is adversely interested, or dealings of an officer with corporate property, has already been noticed.24

§ 2415. Contracts inducing disregard of duties. Contracts with officers of corporations which tend to induce them to disregard their duties are illegal and void.25 Thus, a contract by a director as to his official action in regard to the payment of dividends by the corporation, based on a consideration personal to himself, is against public policy and void.26 So a contract whereby a corporate officer agrees to assist others to gain control of the company by buying in stock, is invalid on the ground that it conflicts with his duties as an officer.27 So a promise to pay money to directors of a railroad company if they will locate the road on a specified route or establish a station at a point named, is void as against public policy, as tending to unduly influence the action of the directors.28 So a contract, for a consideration, to resign as director, is illegal.29 Moreover, an agreement by a director to keep another person permanently in place as an officer of the corporation, is void as against public policy, even though

ceived." Siegman v. Maloney, 63 N. J. Eq. 422, 51 Atl. 1003.

23 Infra, chapter on Stockholders. 24 See §§ 2401, 2402, supra.

25 Illinois. Linder v. Carpenter, 62 Ill. 309.

Indiana. Gilchrist v. Hatch (Ind. App.), 100 N. E. 473.

Michigan. Scripps v. Sweeney, 160 Mich. 148, 125 N. W. 72.

Minnesota. Lum v. McEwen, 56 Minn. 278, 57 N. W. 662.

Missouri. Attaway v. Third Nat. Bank, 93 Mo. 485, 5 S. W. 16.

New York. See Drucklieb v. Sam H. Harris, 209 N. Y. 211, 102 N. E. 599.

See §§ 1753, 1754, vol. 3, and § 2310 supra, and compare Pungs v. American Brake-Beam Co., 200 Ill. 306, 65 N. E. 645, aff'g 102 Ill. App. 76, holding

contract not such a one as to come within rule.

A contract to buy of a director shares of its stock belonging to him, on condition that the cashier shall be made president of the bank, is void as against public policy. Noel v. Drake, 28 Kan. 265, 42 Am. Rep. 162.

26 Thomas v. Matthews, 94 Ohio St. 32, L. R. A. 1917 A 1068, 113 N. E. 669.

27 Carlisle v. Smith, 234 Fed. 759. 28 Peckham v. Lane, 81 Kan. 489, 25 L. R. A. (N. S.) 967, 19 Ann. Cas. 369, 106 Pac. 464; Berryman v. Trustees of Cincinnati Southern Ry., 77 Ky. 755; McGriffin v. Coyle & Guss, 160 Okla. 648, 6 L. R. A. (N. S.) 524, 86 Pac. 962, 85 Pac. 954; Holladay v. Patterson, 5 Ore. 177.

29 Forbes v. McDonald, 54 Cal. 98.

there is no private gain to the director therefrom.30 However, an officer or agent of a corporation cannot question the validity of his own contract for services on the theory that it induced him to disregard his duties as an officer of another corporation.31

If a corporate officer obtains a profit for himself, as a result of such a contract, the corporation may compel him to turn it over to the company.32

§ 2416. Liabilities as joint or several. The liability of a tort feasor is both joint and several. It follows that the liability of corporate officers for mismanagement is several as well as joint.33 The liability is joint and several where two or more directors participate in the wrongful acts.34 Where corporate officers were joint adventurers in the incorporation of a company and the manipulation of its capital stock, and joint tort feasors in the fraud perpetrated in the marketing of such stock, they are jointly and severally liable.35 But the liability for conversion of money, different sums having been converted by different directors, is not joint, so far as the money itself is concerned.36

§ 2417. Contribution among officers-In general. There are more or less vague references in many opinions to the right to contribution without expressly deciding the question.37 If the right of

30 West v. Camden, 135 U. S. 507, 34 L. Ed. 254.

31 Pungs v. American Brake-Beam Co., 200 Ill. 306, 65 N. E. 645, aff'g 102 Ill. App. 76.

32 See $2303-2324, supra.

33 Cooper v. Hill, 94 Fed. 582; Mills v. Hendershot, 70 N. J. Eq. 258, 62 Atl. 542; Sigwald v. City Bank, 82 S. C. 382, 64 S. E. 398.

34 Benedum v. First Citizens' Bank, 72 W. Va. 124, 78 S. E. 656.

35 In re Kornit Mfg. Co., 192 Fed. 392, 398.

36 Although directors may be held jointly liable for misfeasance where they have taken over corporate assets personally or have permitted them to be diverted to other stockholders, yet, nevertheless, as to sums received by them individually and separately as stockholders they cannot be held jointly liable. "If it had

all been received by the directors together,'' said the court, "and divided among themselves, all would probably have been liable together, and each for the whole, till all should be recov ered; but each received his share separately, without connection with the others, from the avails of the sale of the bonds that his stock went with. Each may have been liable for the whole loss for neglect of personal duty in not preventing it, but not for the money itself." Great Western Min. & Mfg. Co. v. Harris' Estate, 111 Fed. 38, 44, rev'd on other. grounds 128 Fed. 321.

37 See Murphy v. Penniman, 105 Md. 452, 121 Am. St. Rep. 583, 66 Atl. 282; North Hudson Mut. Building & Loan Ass'n v. Childs, 82 Wis. 460, 33 Am. St. Rep. 57, 52 N. W. 600.

That director held liable for profits made by him and his co-directors, in