But if the president or other officer makes a contract with a subordinate officer for a certain salary, the board of directors may ratify the agreement. And such ratification may arise from the continuance of services under the agreement with the knowledge or acquiescence of the directors.24 The usual rules as to ratification apply, and it must appear that the directors had knowledge of the contract entered into.25 The ratification of the appointment of a subordinate officer does not necessarily operate as the ratification of a contract of a manager, for instance, with such subordinate officer fixing his salary. The question was involved in one case where the plaintiff sought to apply a statute providing that the ratification of a part of an individual transaction is a ratification of the whole. It was held that the statute did not apply.26

§ 2752. Effect of votes or presence of interested directors or officers. A director cannot vote on a resolution fixing his own salary or compensation as the incumbent of another office or for services to be performed by him outside of the ordinary duties of his office.27

rectors and the by-laws do not provide a salary for the president. Henry Wood's Sons Co. v. Schaefer, 173 Mass. 443, 73 Am. St. Rep. 305, 53 N. E. 881.

A treasurer of a corporation has no implied authority to make an agreement with a person to issue treasury stock as a commission on a purchase by a third party of the company's treasury stock, as such an agreement clearly required a vote of the board of directors to warrant it. Hill v. Troegerlith Tile Co., 168 N. Y. App. Div. 639, 154 N. Y. Supp. 535.

As to extra compensation,

§ 2764, infra.

see

24 Mobile, J. & K. C. R. Co. v. Owen, 121 Ala. 505, 25 So. 612.

Where a president appointed a person as general counsel of a company for five years at a salary of $10,000 per year, and the executive committee voted a salary of $6,000 and tendered payment accordingly, which the attorney accepted when the president

stated that the full amount would be paid, there was a continuing contract

25 Powers v. Rutland R. Co., 88 V376, 92 Atl. 463.

26 Colpe v. Jubilee Min. Co., 2 CalApp. 393, 84 Pac. 324.

27 California. Zellerbach v. Allenberg, 99 Cal. 57, 33 Pac. 786; Wickersham v. Crittenden, 106 Cal. 327, 39 Pac. 602, 93 Cal. 17, 28 Pac. 788Shattuck v. Oakland Smelting & Refining Co., 58 Cal. 550.

Colorado. Steele v. Gold Fissure Gold Min. Co., 42 Colo. 529, 126 AmSt. Rep. 177, 95 Pac. 349.

Kentucky. Beha v. Martin, 161 Ky. 838, 171 S. W. 393; Poutch v National Foundry & Machine Co., 147 Ky. 242, 143 S. W. 1003.

Maine. Conners v. Conners BrosCo., 110 Me. 428, 86 Atl. 843.

This is the general rule, and in some jurisdictions it is held that the trust relation between a director and his corporation render such contracts void as against public policy.28 The theory upon which this view is supported is that the law will not allow a trustee for his own private advantage to do that which may place him in a position in which his interest is antagonistic to that of the beneficiaries of his trust.29 Under the rule that such contracts are void, there can be no ratification by the stockholders of the resolution fixing a salary.30

In other jurisdictions, the view is taken that such contracts are not absolutely void, but are voidable at the option of the corporation or its representative, provided such option is exercised within a time which is reasonable under all the circumstances of the case. 31 In its essentials, this rule is substantially the same as that which holds such contracts absolutely void, the exception being that the power of ratification is reserved to the stockholders. If the option of the corporation is exercised within a reasonable time, the contracts involved are given no contractual force, however open, fair and honest they may be.32 In such circumstances, the courts also hold, in accordance with the theory rendering such contracts void, that directors, as trustees, voting salaries to themselves are in a position of dealing with themselves to their own advantage, and the

presumption is that they act in their own interest.33 The officer cannot act both for himself and for his principal, without the full knowledge and assent of the principal.34

Pursuant to the general rules as to voting, it is also held in most cases that the vote of an interested director cannot be counted for the purpose of ascertaining if a quorum is present,35 although there are decisions to the contrary. Thus it has been held that a resolution was valid where the interested director did not vote, although his presence was necessary to constitute a quorum, the resolution being passed not only by a majority of the quorum, but by a majority of the entire board.36 A resolution passed at a meeting where an interested director presided has been held invalid, although he testified that he did not vote and the records did not show that he voted.37 But a resolution of the board of directors fixing the salary of a director as the incumbent of another office is not invalid merely because such other director voted, if there were enough votes without him to constitute a majority of the board,38 or if the board, without his participation, has subsequently ratified the resolution by a majority vote.39 And it has been held that the mere fact that a director is present when his salary as another officer is fixed does not render the resolution invalid, it appearing that he did not vote. 40 There is also authority to the effect that directors may vote to fix or increase salaries to themselves as officers where each one refrains

33 Francis v. Bringham-Hopkins Co., 108 Md. 233, 70 Atl. 95; Davids v. Davids, 135 N. Y. App. Div. 206, 120 N. Y. Supp. 350.

34 Burton v. Lithie Mfg. Co., 73 Ore. 605, 144 Pac. 1149.

35 California. Bassett v. Fairchild, 132 Cal. 637, 52 L. R. A. 611, 64 Pac. 1082, (Cal.), 61 Pac. 791.

Colorado. Steele v. Gold Fissure Gold Min. Co., 42 Colo. 529, 126 Am. St. Rep. 177, 95 Pac. 349.

Kentucky. Beha v. Martin, 161 Ky. 838, 171 S. W. 393.

Montana. McConnell V. Combination Mining & Milling Co., 31 Mont. 563, 79 Pac. 248, 30 Mont. 239, 104 Am. St. Rep. 703, 76 Pac. 194.

South Dakota. Crocker v. Cumberland Mining & Milling Co., 31 S. D. 137, 139 N. W. 783.

36 Gumaer v. Cripple Creek Tunnel,

Transportation & Mining Co., 40 Colo. 1, 122 Am. St. Rep. 1024, 13 Ann. Cas. 781, 90 Pac. 81.

37 Beers v. New York Life Ins. Co., 66 Hun (N. Y.) 75, 20 N. Y. Supp. 788; Ashley v. Kinnan, 18 N. Y. St. Rep. 791, 2 N. Y. Supp. 574.

38 Bassett v. Fairchild, 132 Cal. 637, 52 L. R. A. 611, 64 Pac. 1082, 61 Pac. 791; Wickersham v. Crittenden, 110 Cal. 332, 28 Pac. 788; Clark v. American Coal Co., 86 Iowa 436, 17 L. R. A. 557, 53 N. W. 291; McNab v. McNab & Harlin Mfg. Co., 62 Hun (N. Y.) 18, 16 N. Y. Supp. 448, 133 N. Y. 687, 31 N. E. 627; Keans v. New York & College Point Ferry Co., 17 N. Y. Misc. 272, 40 N. Y. Supp. 366.

39 Wickersham v. Crittenden, 110 Cal. 332, 28 Pac. 788.

40 Hax v. R. T. Davis Mill Co., 39 Mo. App. 453.

42

from voting when the resolution affecting himself is voted on. Such decisions are opposed to the weight of authority, and the courts will not separate a resolution into parts and hold it valid on the ground that each part was carried by a majority of the vote of the other directors not interested in that particular portion.43 In the same way, a resolution passed by the vote of an interested officer will not be sustained by applying the presumption that he was authorized to vote as the representative of another director; and the interested director cannot recover on the ground that the corporation is precluded from questioning the validity of an executed contract when such facts arise.45 But if a resolution fixing compensation is ratified by the stockholders and partly executed, it cannot be questioned.46

If the passage of a resolution fixing compensation of an interested director is effected by the votes of persons subservient to his wishes,

41 Where three directors of a corporation by a unanimous vote fixed the salary of one of their number as president and of another as secretary, the resolution was valid, as to the salary of each officer, as it was supported by two disinterested votes. Funsten v. Funsten Commission Co., 67 Mo. App. 599.

A clause in a resolution of a board of directors fixing the salary of one officer is not rendered invalid by the invalidity of another clause fixing the salary of another officer. Funsten v. Funsten Commission Co., 67 Mo. App.

559.

42 Beha v. Martin, 161 Ky. 838, 171 S. W. 393. See also Fitchett v. Murphy, 26 N. Y. Misc. 544, 56 N. Y. Supp. 322, rev'd on other grounds 46 N. Y. App. Div. 181, 61 N. Y. Supp. 182.

The fact that a resolution increasing salaries is voted on in parts, so that no director votes on the proposition to increase his own salary, does not justify the increase, the effect being merely to give a semblance of legality to a wrongful act. Davids v. Davids, 135 N. Y. App. Div. 206, 120 N. Y. Supp. 350.

43 Beha v. Martin, 161 Ky. 838, 171 S. W. 393.

44 Steele v. Gold Fissure Gold Min. Co., 42 Colo. 529, 126 Am. St. Rep. 177, 95 Pac. 349.

45 Steele v. Gold Fissure Gold Min. Co., 42 Colo. 529, 126 Am. St. Rep. 177, 95 Pac. 349.

46 Where a by-law of a corporation provides for the fixing of compensation of officers by the directors or by the executive committee, and a resolution fixing compensation of the president on the basis of a percentage of the net profits is ratified by the stockholders and payments are made pursuant to such resolution, no question can arise as to the propriety, under the by-law, of fixing compensation in the manner indicated. Young v. United States Mortgage & Trust Co., 214 N. Y. 279, 108 N. E. 418.

A contract for the compensation of a director is merely voidable and may be ratified by the majority vote of stockholders, and the interested director may vote as a stockholder at such meeting. Lillard v. Oil, Paint & Drug Co., 70 N. J. Eq. 197, 58 Atl. 188, 56 Atl. 254.