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§ 12. Use of the word promoter in America.
Commissioner Simpson, writing for the Supreme Court of Kansas, in the year 1887,43 said that the word promoter is used in a much more restricted sense in this country than in England. The commissioner pointed out that “ This word promoter had its origin in the methods by which joint-stock companies were formed in England, where by law they were declared partnerships. Subsequently, when the era of railroad building began in that country, the business of promoting the organization of such companies assumed definite form. The ordinary proceeding was this: The promoter introduced the enterprise to the notice of persons of wealth in the locality through which the line of the road was proposed to be located, informing them of its nature and prospects, and furnishing an estimate of its probable cost. These persons were solicited to aid by their influence or subscriptions, or both. Enough persons were secured to constitute a provisional committee, and then this committee appointed from their number a managing committee, which issued a prospectus, announcing the nature and probable profits of the scheme, the proposed means to carry it out, the amount of capital required, the number and price of shares, and other details, to which were generally attached the names of the promoters, with references to the names of those persons constituting the provisional committees. If all this resulted in fair probabilities of success, application was then made to parliament for a bill of incorporation. If the scheme failed, the expenses incurred gave rise to litigation, and many questions as to the liability of these committees and of the promoters were determined. If the incorporation was secured by the action of parliament, then another class of questions arose as to what acts of the promoters could be ratified by, and what acts resulted to the benefit of, the incorporation, and many
Pac. 544, 558.
43. St. Louis F. S. & W. R. Co, v. Tiernan, 37 Kan. 606, 630-631, 15
others growing out of the condition of affairs.” The commissioner adds, that this method “has no resemblance to our method of organizing corporations. It is true that the word has been found to have its uses in our jurisprudence, but in a much more restricted sense than that used in the English reports.”
The substantial difference in the methods of organizing corporations in the two countries, is that the charter is in England not obtained until after the share capital is largely subscribed, and often not until after a considerable part of the subscription moneys have been paid,44 while in this country the corporation is generally legally organized before any money is actually paid in, and often before the subscription list is prepared. The situation, if the scheme proves abortive, may in the one case be quite different from the other. 45
The term promoter has, however, been borrowed and is now in general use in this country, and the obligations and temptations of the relation, and the rules of law applicable thereto, are, except in cases arising out of the abandonment of the contemplated corporation, substantially the same in both countries.
§ 13. Meaning and effect of the term.
The conclusion to be drawn from the preceding sections, is that a person may be said to be a promoter of a corporation if before its organization, he directly or indirectly solicits subscriptions to its stock, or assumes to act in its behalf in the purchase of property, or in the securing of its charter, or otherwise assists in its organization.
44. As to the methods of organi- Corporations, p. 206; Brice zation pursued in England, see also Ultra Vires 2nd. Am. Ed. p. 567, note. Miller v. Denman, 49 Wash. 217, 45. The questions which arise 222, 95 Pac. 67, 69, 16 L. R. A. N. when the scheme of incorporation S. 348, 351; Thompson on Lia- proves abortive are discussed in a bility of Officers and Agents of subsequent chapter. See post, chap.
It must, however, be remembered that calling a person a promoter” does not of itself impose any responsibility upon him. The responsibility of the promoter depends upon what he does, not upon the name by which he is called.47 “ Care must be taken,” says Lord Justice Lindley, 48 “not to be misled by words. Owing to the ambiguity in the meaning of the word promoter, and the difficulty of defining his exact relation to the company he procures to be formed, it is unsafe to say that any particular person was a promoter of a particular company, and to infer from thence, that he is liable to account to it as if he had been its trustee. The question in each case must be, what has the so-called promoter done to make himself liable to the demand made against him? What fraud or breach of trust has he committed or been party or privy to? If none, he is under no liability: if any, he is liable accordingly by whatever name he may be called or by whatever terms his relation to the company may be expressed."
§ 14. Fiduciary relation.
The fact of being a promoter does not of itself cast upon one any
active duties toward the company to be formed. The promoter is, in the absence of a contract with some other person, a mere volunteer who may render as much, or as little service as he sees fit, and may discontinue his efforts at any time that he desires.
In the carrying on of such transactions as he does undertake he stands, however, in a fiduciary relation to the corporation which he creates 49 and is held to the high standards which the
law imposes upon directors and other fiduciaries.50 He is bound to exercise the utmost good faith,61 his dealings must be open
Rep. 296, 131 C. C. A. 596; Cortes Co. v. Thannhauser, 45 Fed. Rep. 730, 739; Hitchcock v. Hustace, 14 Hawaii 232.
Alabama.-Moore V. Warrior Coal & Land Co., 178 Ala. 234, 59 So. 219, Am. & Eng. Ann. Cas., 1915 B. 173.
Connecticut.-Yale Gas Stove Co. v. Wilcox, 64 Conn. 101, 119, 120, 29 Atl, 303, 308, 309, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. Cas. 647.
Illinois.-Mississippi Lumber Co. v. Joice, 176 Ill. App. 110, 120.
Massachusetts.-Old Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 177–178, 89 N. E. 193, 40 L. R. A. N. S. 314, same v. same, 188 Mass. 315, 320, 327, 74 N. E. 653, 108 Am. St. R. 479; Keith v. Radway, 220 Mass. 532, 108 N. E. 498.
New Jersey.--Bigelow Old Dominion Copper, etc., Co., 74 N. J. Eq. 457, 506, 71 Atl. 153; Plaquemines Tropical Fruit Co. Buck, 52 N. J. Eq. 219, 230, 27 Atl. 1094, 44 Am. & Eng. Corp. Cas. 686.
Nero York.-Colton Improvement Co. v. Richter, 26 Misc. 26, 30, 55, Supp. 486; Cf. Heckscher v. Edenborn, 203 N. Y. 210, 222, 96 N. E. 441, reversing, 137 App. Div. 899, 122 Supp. 1131, which followed 131 App. Div. 253, 259, 115 Supp. 673.
Ohio.-Second National Bank v. Greenville Screw Point Steel Fence Post Co., 23 Ohio C. C. 274, 281; Shawnee Comm. & Sav. Bk. Co. v. Miller, 24 Ohio C. C. 198, 210.
Lumber Co., 51 Or. 35, 40, 93 Pac. 470, 472; Wills 5. Nehalem Coal Co., 52 Or. 70, 76, 96 Pac. 528, 531.
Virginia.-Bosher V. Richmond & H. Land Co., 89 Va. 455, 460 461,. 16 S. E. 360, 362.
United Kingdom and Colonies.New Sombrero Phosphate Co. v. Erlanger, L. R. 5 Ch. Div. 73, 118, 25 W. R. 436, affirmed, sub nom. Erlanger v. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 1236, 1269, 1284, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65; Gluckstein v. Barnes, 1900, App. Cas. 240, 257; Bagnall v. Carlton, L. R. 6 Ch. Div. 371, 382–386; Emma Silver Mining Co. V. Grant, L. R. 11 Ch. Div. 918, 935–936; Nant-Y. Glo & Blaina Ironworks Co. v. Grave, L. R. 12 Ch. Div. 738, 749; Alexandra Oil & Dev. Co., v. Cook, 11 Ont. W. R. 1054.
50. Tegarden Bros. v. Big Star Zinc. Co., 71 Ark, 277, 281, 72 S. W. 989, 991; Old Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 177–178, 89 N. E. 193, 40 L. R. A. N. S. 314 and cases cited.
See note to Lomita Land & Water Co. v. Robinson, 18 L. R. A. N. S. 1107-1108. 51. Federal.-Dickerman v. North
Trust Co., 176 U. S. 181, 204, 20 Supp. Ct. 311, 44 L. Ed. 423. Alabama.-Moore
Warrior Coal & Land Co., 178 Ala. 234, 59 So. 219.
Connecticut.-Yale Gas Stove Co. V. Wilcox, 64 Conn. 101, 120, 29 Atl. 303, 25 L, R. A. 90, 42 Am. St.
and fair,52 and he must not take advantage of the corporation, nor of the subscribers for its shares.53
A promoter has, in theory of law, no power whatsoever to act for, or in any way bind, the corporation which he organizes. In practice, however," he has in his hands the creation and molding of the company; he has the power of defining how and when
Rep. 159, 47 Am. & Eng. Corp. Cas. 647.
Illinois.—Goodwin v. Wilbur, 104 Ill. App. 45, 52.
Iowa.Caffee V. Berkley, 141 Iowa 344, 118 N. W. 267.
Wisconsin.--First Avenue Land Co. v. Hildebrand, 103 Wis. 530, 534, 79 N. W. 753, 754.
United Kingdom and Colonies.Erlanger V. New Sombrero Phosphate Co., L, R. 3 App. Cas. 1218, 1255, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65; Twycross v. Grant, L. R. 2 C. P. D. 469, 538.
52. A. J. Cranor Co. v. Miller, 147 Ala. 268, 273, 41 So. 678, 680; The Telegraph V. Loetscher, 127 Iowa 383, 387, 101 N. W. 773, 774, 4 Am. & Eng. Ann. Cas. 467.
See note to Lomita Land & Water Co., v. Robinson, 18 L. R. A. N. S. 1107-1108.
53. Federal.—Yeiser U. S. Board & Paper Co., 107 Fed. 340, 344, 46 C. C. A. 567, 52 L. R. A. 724; Chandler V. Bacon, 30 Fed. Rep. 538, 540; Dickerman V. Northern Trust Co., 176 U. S. 181, 204, 20 Sup. Ct. 311, 44 L. Ed. 423.
Alabama.--Moore v. Warrior Coal & Land Co., 178 Ala, 234, 59 So. 219.
California.—Ex-Mission Land & Water Co. v. Flash, 97 Cal. 610, 626, 32 Pac. 600, 604.
Illinois.-Mississippi Lumber Co. v. Joice, 176 Ill. App. 110, 120.
Iowa.-Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 402, 107 N. W. 629, 632, 119 Am. St. R. 564; The Telegraph v. Loetscher, 127 Iowa 383, 388, 101 N. W. 773, 774, 4 Am. & Eng. Ann. Cas. 667.
Michigan.-Fred Macey Co. Macey, 143 Mich. 138, 152, 106 N. W. 722, 727, 5 L. R. A. N. S. 1036.
New Jersey.-Arnold v. Searing, 78 N. J. Eq. 146, 157-158, 78 Atl. 762, 766–767 ; See v. Heppenheimer, 69 N. J. Eq. 36, 71, 61 Atl. 843.
Ohio.-Shawnee Commercial Savings Bank Co. v. Miller, 24 Ohio C. C. 198, 210.
Oregon.-Johnson V. Sheridan Lumber Co., 51 Or. 35, 40, 93 Pac. 470, 472.
Virginia.-Jordan V. Annex Cor. poration, 109 Va. 625, 629, 64 S. E. 1050, 1052, 17 Am. & Eng Ann. Cas. 267.
United Kingdom and Colonies.Erlanger V. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 1284, 6 Eng. Rul, Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65; Bagnall v. Carlton, L. R. 6 Ch. Div. 371, 384, 386; Alexandra Oil & Dev. Co. v. Cook, 11 Ont. W. R. 1054, 1059.
54. See post, chapter IV.