his profits were not received at the expense of the corporation.11 Even if, as might well happen, the secret commissions paid to the promoter had enabled the corporation, by bringing suit for a rescission against its vendor, to obtain a compromise which allowed it to retain the property at a net cost lower than the lowest price at which it could have been purchased, that circumstance would not relieve the promoter from liability to the corporation, although it was undoubtedly the gainer by the fraud of which it complains.2 The basis of the promoter's liability for secret profits is, not that the corporation has been damaged to the extent of his secret profit, but that the promoter occupies a position analogous to that of agent of the corporation, and that any profits resulting from his dealings with the corporation must be accounted for to it.43

California.-Burbank v. Dennis, 101 Cal. 90, 101, 35 Pac. 444, 448.

Connecticut.-Yale Gas Stove Co. v. Wilcox, 64 Conn. 101, 121, 125, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. Cas. 647.

New Jersey.-Bigelow v. Old Dominion Copper, etc., Co., 74 N. J. Eq. 457, 500, 503, 71 Atl. 153.

New York.-Midwood Park Co. v. Baker, 128 Supp. 954, affirmed, 144 App. Div. 939, 129 Supp. 1135, affirmed, 207 N. Y. 675, 100 N. E. 1130.

Oregon.-Wills v. Nehalem Coal Co., 52 Or. 70, 81, 96 Pac. 528, 532.

United Kingdom and Colonies.Bentley v. Craven, 18 Beav. 75; Hichens v. Congreve, 4 Sim. 420, 427, cited in Gluckstein v. Barnes, 1900, App. Cas. 240, 252-254; Alexandra Oil & Dev. Co. v. Cook, 11 Ont. W. R. 1054, 1061.

41. Archer's Case, 1892, 1 Ch. Div. 322. See opinion of Lindley, L. J., p. 339, Bowen, L. J., p. 340-341, and of Fry, L. J., p. 342. Compare, however, Richard Hanlon Millinery Co. v. Mississippi Valley Trust Co., 251 Mo. 553, 591, 158 S. W. 359, 368; also Bagnall v. Carlton, L. R. 6 Ch. Div. 371.

42. Emma Silver Mining Co. v. Grant, L. R. 11 Ch. Div. 918, 938. See also Bagnall v. Carlton, L. R. 6 Ch. Div. 371, 399-400, 404. Cf. Stoney Creek Woolen Co. v. Smalley, 111 Mich. 321, 69 N. W. 722, citing 1 Am. & Eng. Ency. of Law (2nd. ed.), 428.

43. McKay's Case, L. R. 2 Ch. Div. 1, 5; Emma Silver Mining Co. v. Grant, L. R. 11 Ch. Div. 918; Bentley v. Craven, 18 Beav. 75, 78. Cf. Richard Hanlon Millinery Co. v. Mississippi Valley Trust Co., 251 Mo. 553, 591, 158 S. W. 359, 368.

f

The fact that the shares taken by the promoter were issued to him as full paid in compliance with the statutes of the domicile of the corporation, has no bearing upon the propriety of his secret profit or upon his right to retain the shares as against the complaint of the corporation or its stockholders.44

§ 101. Distinction between "secret profits," and sale of promoter's property to the corporation.

It is necessary, in considering the question of promoters' profits and the right of a promoter to deal with the corporation to his personal advantage, to keep in mind the distinction between the profits derived by a purchase of property by the promoter and its resale to the corporation, and a mere sale of the promoter's property to the corporation. The distinction is that in the one case the promoter makes the purchase for himself at a time when it is his duty to make it for the corporation; in the other, he merely sells his own property to a purchaser to which he stands in a fiduciary relation. If the facts are concealed, the promoter has in the one case gained an unlawful secret profit,-in the other made a voidable sale.45 If the promoter's purchase is made at a

44. Hayward v. Leeson, 176 Mass. 310, 317-318, 57 N. E. 656, 49 L. R. A. 725; Bigelow v. Old Dominion Copper, etc., Co., 74 N. J. Eq. 457, 503, 71 Atl. 153, and see post, §§ 165, 270.

If bonds or shares are, in violation of statute, issued to the promoters without adequate consideration, the promoter will be subjected to such penalties as may be prescribed by the statute. Wiegand v. Albert Lewis Lumber & Mfg. Co., 158 Fed. Rep. 608, 85 C. C. A. 430, affirming In re Wyoming Valley Ice Co., 153 Fed. Rep. 787; McAllister v. American Hospital Ass'n, 62 Or.

530, 125 Pac. 286, and see post, §§ 165, 270.

45. California.-Burbank v. Dennis, 101 Cal. 90, 97-99, 35 Pac. 444, 446-447.

Dominion

Massachusetts. -Old Copper Co. v. Bigelow, 188 Mass. 315, 321, 322, 74 N. E. 653, 108 Am. St. Rep. 479; Parker v. Nickerson, 137 Mass. 487, 497.

Missouri.-See Exter v. Sawyer, 146 Mo. 302, 320-321, 47 S. W. 951, 955-6.

New Jersey.-Plaquemines Tropical Fruit Co. v. Buck, 52 N. J. Eq. 219, 230, 27 Atl. 1094, 44 Am. & Eng. Corp. Cas. 686; Woodbury Heights

time when he already occupies a fiduciary relation towards the corporation, the price which he pays for the property directly affects the rights of the corporation in the transaction. If the property was acquired by the promoter before he entered upon that relation to the corporation, the cost of the property to him does not concern the corporation.46

§ 102. Restrictions upon sale of promoter's property to the corporation.

The promoter may, if his interest in the transaction is properly disclosed, freely sell his own property to the corporation regardless of its cost to him.47 He must not, however, if he is himself

the vendor on the sale to the corporation, attempt, without disclosing his interest, to influence the action of the vendee corporation.48 He must make a full disclosure of all the material facts,49 either to

a competent and independent board of directors 50 so that they may exercise an independent judgment as to the advisability of making the purchase, or else to every subscriber 51 so that each subscriber may, with knowledge of the facts, decide for himself whether or not he desires to come in.

If the promoter sells his own property to the corporation without a sufficient disclosure of his interest in the transaction, neither the fact that no fraud or injustice was intended,52 nor the fact that the price at which the property was sold to the corporation was fair and reasonable,53 constitutes a defense to its complaint. The promoter must also, it has been held, in any event satisfy

Wis. 307, 42 N. W. 259, 17 Am. St. R. 149, 24 Am. & Eng. Corp. Cas. 1. 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, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65; In re Cape Breton Co., L. R. 29 Ch. D. 795, affirmed, sub nom. Bentinck v. Fenn, L. R. 12 App. Cas. 652.

Cf. Heckscher v. Edenborn, 131 N. Y. App. Div. 253, 258, 115 Supp. 673, followed, 137 N. Y. App. Div. 899, 122 Supp. 1131, which is, however, reversed, 203 N. Y. 210, 96 N. E. 441.

50. See post, §§ 109, 110, 119. 51. See post, §§ 109, 111, 119. 52. Erlanger v. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 1256, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65; Lagunas Nitrate Co. v. Lagunas Syndicate, 1899, 2 Ch. Div. 392, 461-462, by Rigby, L. J., who dissented from

his associates upon the decisive points of the case.

53. Lagunas Nitrate Co. v. Lagunas Syndicate, 1899, 2 Ch. Div. 392, 450, 451, per Rigby, L. J., who dissented from his associates on the decisive points of the case.

The fact that the property was actually worth the price at which it was sold to the corporation would, in case the corporation sued for damages, limit its recovery to nominal damages. See Bentinck v. Fenn, L. R. 12 App. Cas. 652, 659, 661, 662, affirming, In re Cape Breton Co., L. R. 29 Ch. D. 795, affirming, L. R. 26 Ch. D. 221. Quoted in Milwaukee Cold Storage Co. v. Dexter, 99 Wis. 214, 230, 74 N. W. 976, 40 L. R. A. 837, 842.

The burden of proof is, in such case, upon the corporation to show that damages were in fact suffered. Bentinck v. Fenn, supra, at page 659. And see Continental Securities Co. v. Belmont, 83 N. Y. Misc. 340, 144 Supp. 801, affirmed, 168 N. Y. App. Div. 483, 154 Supp. 54.