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The court in Lydney & Wigpool Iron Ore Co. v. Bird 28 said that it was "wholly wrong to make the company pay for the issue of its own shares. No part of the capital of the company could be properly so applied." In Metropolitan Coal Consumers Association v. Scrimgeour, 29 the court said that this statement had application to the circumstances of the particular case, and held that an agreement to pay a firm of stock brokers a commission upon the sale of the company's shares was proper.

While the promoters may be allowed compensation for their services in selling the company's shares, they cannot properly claim commissions for their services in securing agents to sell these shares.30

§ 87. Amount of compensation by whom fixed.

When it is said that the promoters are entitled to reasonable compensation for their services upon the promotion, that does not mean that they may themselves fix the amount of their compensation and take it from the funds of the corporation.31 It is

Vermont.-Hall v. Vt. & Mass. R. Co., 28 Vt. 401.

United Kingdom and Colonies.— Stickney v. Buckel, 6 Ont. W. R. 751, 753.

As to banking corporations, see Tift v. Quaker City Natl. Bk., 141 Pa. 550, 21 Atl. 660, 38 Am. & Eng. Corp. Cas. 339, citing Taylor on Corporations, § 86.

In England a commission may, by statute, be paid for procuring subscriptions, if such payment is authorized by the Articles. Companies (Consolidation) Act of 1908, § 89. In re Worthington, 1914, 2 K. B. 299, 83 L. J. K. B. 885, 110 L. T. N. S. 599.

28. L. R. 33 Ch. Div. 85, 95, 24 Am. & Eng. Corp. Cas. 23. And see

In re Faure Electric Accumulator
Co., L, R. 40 Ch. Div. 141.

29. 1895, 2 Q. B. Div. 604, 607608, 609. Cf. In re Faure Electric Accumulator Co., L. R. 40 Ch. Div.

141.

See Cook on Corporations, § 42; Clark & Marshall on Priv. Corp., § 390g.

30. Stickney v. Buckel, 6 Ont. W. R., 751, but see Richlands Oil Co. v. Morriss, 108 Va. 288, 298, 61 S. E. 762, 765.

31. Dickerman v. Northern Trust Co., 176 U. S. 181, 205-206, 20 Sup. Ct. 311, 44 L. Ed. 423; Hayward v. Leeson, 176 Mass. 310, 320, 57 N. E. 656, 660, 49 L. R. A. 725; Scott v. Farmers, etc., Natl. Bank, 97 Tex. 31, 53-54, 75 S. W. 7, 104 Am. St.

for the corporation, and not for the promoters, to determine the latter's compensation.32

A contract made before the organization of the company fixing the amount of the promoter's compensation is not binding upon the company unless the obligations thereof are assumed by the fully organized company,33 and the fact that the company has received the benefit of the services rendered pursuant to the terms of the contract, does not necessarily obligate it to pay the compensation named therein. If, as may sometimes be the case, the services of the promoter are directed to the legal organization of the corporation, and the benefit of his services received by the corporation is the achievement of its legal existence, such benefit is received by it at a time when it is still incapable of making a contract, and no implied promise to pay the agreed amount of the promoter's compensation can be implied from its receiving the benefit of his services.34

As the promoter has, according to the weight of recent authority, an enforceable claim against the corporation for the reasonable value of his services upon the promotion,35 there is no reason why his compensation should not be adjusted and paid by the directors.36 The action of the directors in fixing the com

Rep. 835; see Re Sale Hotel &
Botanical Gardens, Ltd., 78 Law
Times N. S. 368.

See note 38, infra.

32. McKay's Case, L. R. 2 Ch. Div. 1, 3, note.

33. McDonough v. Bank of Houston, 34 Tex. 309. See Gunn v. London & Lancashire Fire Ins. Co., 12 Com. Bench N. S. 694; also In re Englefield Colliery Co., L. R. 8 Ch. Div. 388.

34. See §§ 84, 88, 58. 35. See ante, § 84.

It was held in Fry v. Manhattan Trust Co., 4 N. Y. Misc. 611, 53 St.

Rep. 566, 24 Supp. 573, that a promoter should not be compelled to furnish a bill of particulars setting forth an itemized statement of the services rendered by him.

36. See Hearther V. Southern Power & Milling Co., 16 Pa. Dist. Ct. 198. See also De La Motte v. Northwestern Clearance Co., 126 Minn. 197, 148 N. W. 47; and see, though hardly in point, Porch v. Agnew Co., 70 N. J. Eq. 328, 332-336, 61 Atl. 721, affirmed, 71 N. J. Eq. 305, 65 Atl. 485, and Re Sale Hotel & Botanical Gardens, Ltd., 78 L. T. N. S. 368.

pensation of the promoter is, of course, ineffective if it appears

But see the statement in Cook on Corporations, § 651, quoted in Richlands Oil Co. v. Morriss, 108 Va. 288, 294, 61 S. E. 762, 764, that "it is not legal for promoters to cause the board of directors to vote stock to such promoters for services already performed."

The resolution of the directors to compensate the promoter for his services is ineffective if one of the directors has, unknown to his fellows, obtained an agreement from the promoter to share in such compensation. De La Motte v. Northwestern Clearance Co., 126 Minn. 197, 148 N. W. 47.

The directors may, of course, pay the promoters' compensation, if such compensation is fixed by the articles of association, (Croskey v. Bank of Wales, 4 Giff. 314), or if the articles of association expressly confer such power upon the directors. See Bank of Turkey v. Ottoman Co., L. R. 2 Eq. 366, 14 L. T. N. S. 884; Re Sale Hotel & Botanical Gardens, Ltd., 78 L. T. N. S. 368. And see ante, § 49. The payment is not justified by the articles of association, if the articles assume to name as the promoter, one who is in fact a mere dummy to receive the compensation for the real promoters whose identity is concealed. Ex parte Preston, 37 L. J. Ch. N. S. 618, 19 L. T. N. S. 138. The payment to the promoter is unlawful if a part thereof is, under a secret agreement, paid to the directors. Ex parte Williams, L. R. 2 Eq. 216.

Stock of mining companies issued

in payment of promoters' services or disbursements must under the Nevada statute be stamped "Promotion Stock," Ch. 56, Statutes of 1909, State ex rel. Moore v. Manhattan Verde Co., 32 Nev. 474, 109 Pac. 442.

It has been held that shares cannot be lawfully issued for promoters' services under a statute providing that "no corporation shall issue either stocks or bonds, except for money, labor done or property actually received." Herbert v. Duryea, 34 N. Y. App. Div. 478, 54 Supp. 311, affirmed without opinion, 164 N. Y. 596, 58 N. E. 1088; Stevens v. Episcopal Church History Co., 140 N. Y. App. Div. 570, 582, 125 Supp. 573; Lamphere v. Lang, 157 N. Y. App. Div. 306, 141 Supp. 967, (reversed on another ground, 213 N. Y. 585, 108 N. E. 82). See also McAllister v. American Hospital Ass'n, 62 Or. 530, 125 Pac. 286. Cf. Calivada Col. Co. v. Hays, 119 Fed. Rep. 202; In re Ballou 215 Fed. Rep. 810; De La Motte v. Northwestern Clearance Co., 126 Minn. 197, 148 N. W. 47; Fitzpatrick v. O'Neill, 43 Mont. 552, 563, 118 Pac. 273, 276, Am. & Eng. Ann. Cas. 1912, C. 296, and cases cited; Holcombe v. Trenton White City Co., 80 N. J. Eq. 122, 155, 82 Atl. 618, 632; Herbert v. Uhl, 66 Hun (N. Y.) 626, 20 Supp. 743.

A payment made under a mistake as to the services rendered gives rise to a legal demand, and relief cannot be had in equity. Bank of Turkey v. Ottoman Co., 20 L. T. N. S. 220.

that the directors were subject to the domination of the promoter.37 If there is any doubt as to the entire independence of the board of directors, the determination of the promoter's compensation should be left to the stockholders.38 A corporation is, however, ordinarily to be managed by its board of directors, and not by its stockholders, and the effect of a vote of the stockholders, unaccompanied by any action on the part of the directors, is open to serious question.39

It has been held that directors who, without proper scrutiny and without the exercise of a fair discretion, pay to the promoter compensation to which he is not entitled, are jointly and severally liable to the company for the moneys so paid out.40 If the promoters' services were rendered without expectation of payment, and the directors, desiring to distribute stock without consideration, issue shares ostensibly in payment for services rendered upon the promotion, such shares may be treated as issued without consideration and the owners held for the par value thereof in case of the insolvency of the company.

37. See post, § 110. 38. Fitzpatrick V. O'Neill, 43 Mont. 552, 118 Pac. 273, Am. & Eng. Ann. Cas. 1912, C. 296.

The voting by the promoters themselves of proxies for a majority of the shares, upon the resolution by which their compensation is fixed, has been said to be a badge of fraud. Gaines v. McAllister, 122 N. C. 340, 29 S. E. 844.

39. Plaquemines Tropical Fruit Co. v. Buck, 52 N. J. Eq. 219, 238, 27 Atl. 1094, 1101, 44 Am. & Eng. Corp. Cas. 686; Gaines V. McAllister, 122 N. C. 340, 29 S. E. 844. And see post, § 111n. Cf. Fitzpatrick v. O'Neill, 43 Mont. 552, 563, 118 Pac. 273, 276 Am. & Eng. Ann. Cas. 1912, C. 296, and authorities cited.

41

And see note to Fitzpatrick v. O'Neill, Am. & Eng. Ann. Cas. 1912, C. 296, 300.

See Thompson on Corporations (2nd Ed.), § 1184; Cook on Corporations, § 709; Clark & Marshall on Private Corporations, § 627.

40. In re Englefield Colliery Co., L. R. 8 Ch. Div. 388; In re Anglo French Co-op. Soc. L. R. 21 Ch. Div. 492, 496; Marzetti's Case, 28 Weekly Rep. 541; Merchants Fire Office, Ltd., V. Armstrong, 1901 Weekly Notes 163, and see In re Faure Electric Accumulator Co., L. R. 40 Ch. Div. 141.

Cf. General Exchange Bank v. Horner, L. R. 9 Eq. 480.

41. In re Eddystone Marine Ins. Co., 1893, 3 Ch. Div. 9.

§ 88. Compensation of persons employed by the promoters. Persons employed by the promoters to render legal or other services in the organization of the corporation are, in the absence of an agreement to the contrary, entitled to receive compensation from the promoters.42 The amount paid as such compensation may, if the services were necessary and proper and the compensation reasonable, be charged to the corporation by the promoters as a disbursement incurred in its organization.43

Persons rendering services under an employment by the promoters should not ordinarily be allowed to recover compensation directly from the corporation. The authorities on this point are not altogether satisfactory. The rule just stated seems to be sustained by a line of English cases based to some extent upon statutory provisions.44 Cases may be found both in England and in this country in which the courts sustained suits brought against the corporation by employees of the promoters, without making any reference to the rule that such compensation should be sought from the promoters.45 Both justice and simplicity of procedure

42. In re Hereford, etc., Waggon & Engineering Co., L. R. 2 Ch. Div. 621, 627, 35 L. T. N. S. 40, and see ante, §§ 77-78, and post, § 316.

43. See ante, §§ 82-83.

44. In re Skegness & St. Leonard's Tramways Co., L. R. 41 Ch. Div. 215, where the authorities are reviewed; In re Manchester, etc., Tramways Co., 1893, 2 Ch. Div. 638, 648; Re Rotherham Alum & Chemical Co., L. R. 25 Ch. Div. 103, 50 L. T. N. S. 219; Hume v. Record Reign Jubilee Syndicate, 80 L. T. N. S. 404; In re Kent Tramways Co., L. R., 12 Ch. Div. 312; Wyatt v. Metropolitan Board of Works, 11 C. B. N. S. 744; In re English & Colonial Produce Co., 1906, 2 Ch. Div. 435, (disapproving a dictum in Re Here

ford, etc., Waggon & Engineering Co., L. R. 2 Ch. Div. 621, 627, 35 L. T. N. S. 40); Dundee Suburban Railway, 10 Scots Law Times 253, 257; Muir v. Forman's Trustees, Sess. Cas. 5 Fraser 546, 577, affirming, Muirkirk, etc., Rys., 10 Scots Law Times 247, 249.

Cf. Moneypenny v. Hartland, 1 Car. & P. 352.

45. Colorado.-Freeman Imp. Co. v. Osborn, 14 Colo. App. 488, 60 Pac. 730.

Missouri.-Taussig v. St. Louis, etc., Ry. Co., 166 Mo. 28, 38, 65 S. W. 969, 971, 89 Am. St. Rep. 674; same v. same, 186 Mo. 269, 85 S. W. 378.

Ohio.-Third Ward Bldg. Assoc. v. Lotze, 9 Ohio Dec. Reprint 248,

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