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and in what shape and under what supervision it shall start into existence and begin to act as a trading corporation. It is he who selects the directors, to whom he gives such power as he chooses ; it is he who settles the regulations of the company, regulations under which the company, as soon as it comes into existence, may find itself bound to anything not in itself illegal, which the promoter may have chosen. This control of the promoter over the company, so plenary and absolute, involves a correlative responsibility, and out of this responsibility arises the doctrine now well settled of the fiduciary relation of the promoter toward the company he creates.” 55

This fiduciary obligation of the promoter extends to the corporation, to its existing stockholders, and to the subscribers for its shares, 56 but not to its bondholders or other creditors.57

55. Arnold v. Searing, 78 N. J. Eq. 146, 157, 78 Atl. 762, 766. See also Tegarden Bros. v. Big Star Zinc Co., 71 Ark. 277, 281, 72 S. W. 989, 991; Goodwin v. Wilbur, 104 In. App. 45; Jordan v. Annex Corporation, 109 Va. 625, 629, 64 S. E. 1050, 1052, 17 Am. & Eng. Ann. Cas. 267.

56. Alabama.-Moore v. Warrior Coal & Land Co., 178 Ala. 234, 59 So. 219.

Arizona.-Hughes v. Cadena De Cobre Min. Co., 13 Ariz. 52, 61, 108 Pac. 231, 234.

Arkansas.—Tegarden Bros. v. Big Star Zinc Co., 71 Ark. 277, 281, 72 S. W. 989, 990-991.

Indiana.-Cushion Heel Shoe Co. v. Hartt, 181 Ind. 167, 103 N. E. 1063, 50 L. R. A. N. S. 979.

Maine.-Camden Land Co. v. Lewis, 101 Me. 78, 95, 63 Atl. 523, 530.

Michigan.-Fred Macey Co. .

Macey, 143 Mich. 138, 152, 106 N.
W. 722, 727, 5 L. R. A. N. S. 1036.

New Jersey.-Woodbury Heights Land Co. v. Loudenslager, 55 N. J. Eq. 78, 88, 35 Atl. 436, 440, affirmed, 56 N. J. Eq. 411. 41 Atl. 1115, but modified, 58 N, J. Eq. 556, 43 Atl. 671.

Nero York.-Brewster v. Hatch, 122 N. Y. 349, 362, 25 N. E. 505, 33 N. Y. St. Rep. 527.

Washington.--Mangold v. Adrian Irr. Co., 60 Wash. 286, 290, 111 Pac. 173, 175.

United Kingdom and Colonies. Lagunas Nitrate Co. v. Lagunas Syndicate, 1899, 2 Ch. Div. 392, 422; In re Leeds & Hanley Theatres of Varieties, 1902, 2 Ch. Div. 809, 824–832.

See note to Lomita Land & Water Co. v. Robinson, 18 L. R. A. N. S. 1107.

Heckscher v. Edenborn, 203 N. Y. 210, 224-225, 96 N. E. 411, seems

Whether this fiduciary relation of the promoter extends to future subscribers is a question on which the courts are not entirely in accord. It is held in many jurisdictions that the promoter stands in a fiduciary relation, not only to the existing stockholders and subscribers, but to all those whom the promoter intends as a part of the original scheme, to bring in as subscribers to the company's shares.58 The Supreme Court of the

to hold that the promoter does not Michigan. Torrey v. Toledo Portstand in a fiduciary relation to land Cement Co., 158 Mich. 348, one who, without being solicited, 122 N. W. 614. asks permission to become a sub- Missouri.-South Joplin Land Co. scriber.

v. Case, 104 Mo. 572, 579-580, 16 S. 57. Banque Franco-Egyptienne v. W. 390, 392, 38 Am. & Eng. Corp. Brown, 34 Fed. Rep. 162, 190–191, Cas. 333. 196; Donnelly v. Baltimore Trust New Jersey.—Plaquemines TropCo., 102 Md. 1, 29; 61 Atl. 301. See ical Fruit Co. v. Buck, 52 N. J. Eq. also Cornell v. Hay, L. R. 8 C. P. 219, 232, 233, 27 Atl. 1094, 44 Am. Cas. 328.

& Eng. Corp. Cas. 686. 58. Federal.--Yeiser v. United Pennsylvania.-Densmore Oil Co. States Board & Paper Co., 107 Fed. v. Densmore, 64 Pa. 43, 50; Mackey 340, 344, 46 C. C. A. 567, 52 L. R. A. Baking Co. v. Mackey, 19 Pa. Dist. 724.

Ct. 893, 902. Arkansa8.—Tegarden Bros. v. Big Washington.—Mangold v. Adrian Star Zinc Co., 71 Ark, 277, 281, 72 Irrigation Co., 60 Wash. 286, 290, S. W. 989, 990–991.

111 Pac. 173, 175. California.-Burbank v. Dennis, United Kingdom and Colonies.101 Cal. 90, 98, 35 Pac. 444, 447. In re British Seamless Paper Box

Indiana.-Cushion Heel Shoe Co. Co., L. R. 17 Ch. Div. 467, 479; v. Hartt, 181 Ind. 167, 103 N. E. In re Olympia, Ltd., 1898, 2 Ch. 1063, 50 L, R. A. N. S. 979.

Div. 153, 175–177, affirmed sub Maine.—Mason v. Carrothers, 105 nom. Gluckstein v. Barnes, 1900, Me. 392, 399, 401–402, 74 Atl. 1030, App. Cas. 240, 257; New Som1033, 1034; Camden Land Co. v. brero Phosphate Co. v. Erlanger, L. Lewis, 101 Me. 78, 95, 63 Atl. 523, R. 5 Ch. Div. 73, 113, 25 W. R. 530.

436, affirmed sub nom. Erlanger v. Massachusetts.Old Dominion New Sombrero Phosphate Co., L. R. Copper, etc., Co. v. Bigelow, 203 3 App. Cas. 1218, 6 Eng. Rul. Cas. Mass. 159, 183, 187, 193, 89 N. E. 777, 39 L. T. N. S. 269, 27 W. R. 193, 40 L. R. A. N. S. 314; Hayward 65; In re Leeds & Hanley Theatres v. Leeson, 176 Mass. 310, 318, 57 of Varieties, 1902, 2 Ch. Div. 809, N. E. 656, 49 L. R. A. 725.

823–824; In re Anglo French Co

United States has, however, refused to recognize this doctrine 59

It seems to be generally agreed that the trust relation of a promoter to future stockholders extends in any event, only to those who acquire their shares from the corporation itself as original subscribers, and not to those who subsequently acquire by purchase, shares originally issued to others.60

§ 15. Inception of the relation.

The question as to when a promoter first entered upon that relation to the corporation may become a matter of considerable moment, if he has sold to the corporation, property which he acquired at about the time that he undertook the promotion. In such case the question whether the promoter's transaction was a proper one, the remedies open to the corporation, and the measure of its recovery may depend upon whether the property was ac

operative Society, L. R. 21 Ch. Div. 492, 496 497; Components Tube Co. v. Naylor, 1900, 2 Ir. R. 1, 71.

See post, $ 124, et seq.

A subsequent issue of shares not contemplated at the time of the organization of the company does not extend the trust obligations of the promoters to the subsequent subscribers. See post, $ 125.

59. Old Dominion Copper, etc., Co. v. Lewisohn, 210 U. S. 206, 215, 28 S. C. 634, 52 L. Ed. 1025. This matter is discussed at length in a subsequent chapter. See post, $ 124-130.

60. Mason v. Carrothers, 105 Me. 392, 399, 74 Atl. 1030, 1033.

See post, $8 120-121, 233.

Cf. Wills v. Nebalem Coal Co., 52 Or. 70, 77, 96 Pac, 528; Brewster v. Hatch, 122 N. Y. 349, 25 N. E. 505, 33 N. Y. St. Rep. 527.

If shares are upon their issue, transferred as a gift to the treasury of the corporation, the purchasers of these treasury shares may perhaps be considered original subscribers. Hinkley V. Sac Oil & Pipe Line Co., 132 Iowa 396, 107 N. W. 629, 119 Am. St. R. 564. But see Parsons v. Hayes, 50 N. Y. Super. 29, 14 Abb. N. C. (N. Y.) 419; Watkins v. Mills, 114 N. Y. App. Div. 903, 100 Supp. 1148. See post, $ 127.

While the fiduciary relation does not extend directly to persons who acquire their stock otherwise than from the company or its treasury, the purchaser of shares stands in some respects in the shoes of his vendor, and is entitled to some of the rights of the latter against the promoters. Lagunas Nitrate Co. V. Lagunas Syndicate, 1899, 2 Ch. Div. 392, 449.

quired by the promoter before, or after, he entered upon the trust relation. It, therefore, often becomes necessary to determine at what precise moment the person in question first entered upon the somewhat indefinite relation of promoter to the corporation.

There is, it has been said, no one decisive test of the moment at which the character of promoter is assumed.61 That the promoter may become such, and subject himself to the limitations of the fiduciary relation, before the corporation achieves legal existence, is not open to doubt. It has been objected that a promoter cannot be an “agent ” for a non-existing corporation,62 and a similar difficulty is felt in calling him a “ trustee.” 68 Lord Justice Lindley remarked in Lydney & Wigpool Iron Ore Co. v. Bird 64 that it is not “ much less objectionable to talk of his being in a fiduciary relation to the company before the company had

61. In re Olympia, Ltd., 1898, 2 109 Va. 625, 64 S. E. 1050, 17 Am. Ch. Div. 153, 181-182, affirmed sub & Eng. Ann. Cas. 267. nom. Gluckstein v. Barnes, 1900, The promoter does not, strictly App. Cas. 240.

speaking, ever become, as such, the 62. Yale Gas Stove Co. v. Wil agent of the corporation. Tegarden cox, 64 Conn. 101, 122, 29 Atl. 303, Bros. v. Big Star Zinc Co., 71 Ark. 25 L. R. A. 90, 42 Am. St. Rep. 159, 277, 281, 72 S. W. 989, 991. And 47 Am. & Eng. Corp. Cas. 647; see post, $$ 46-48. Arnold v. Searing, 78 N. J. Eq. 146, Promoters are spoken of as agents 157-158, 78 Atl. 762, 767; Lydney in Simons v. Vulcan Oil & Mining & Wigpool Iron Ore Co. v. Bird, L. Co., 61 Pa. 202, 218, 100 Am. Dec. R. 33 Ch. Div. 85, 93, 24 Am. & Eng. 628. Corp. Cas. 23.

63. In re Leeds & Hanley TheaIt is said in Arnold v. Searing, tres of Varieties, 1902, 2 Ch. Div. supra, that the fiduciary relationship 809, 819, 822; Lydney & Wigpool of the promoter to the corporation Iron Ore Co. v. Bird, L. R. 33 Ch. is “an extension of the doctrine of Div. 85, 94, 24 Am. & Eng. Corp. agency, a sort of agency by antici- Cas. 23; Cuba Colony Co. v. Kirby, pation, for the promoter is not, 149 Mich. 453, 457, 112 N. W. 1133, strictly speaking, an agent of or 1135; Arnold v. Searing, 78 N. J. trustee for the company before in Eq. 146, 157-158, 78 Atl. 762, 766 corporation, but it is a salutary and 767. necessary fiction of equity for the 64. L. R. 33 Ch. Div. 85, 93, 24 protection of the company." See Am. & Eng. Corp. Cas. 23, quoted also Jordan v. Annex Corporation, in Cuba Colony Co. v. Kirby, 149

any existence.” The difficulty is, however, merely one of terms, for in all of these, and in numerous other cases, the fact that the fiduciary relation of the promoter can, and does, arise before the corporation has acquired existence, is fully conceded.65

§ 16. The same subject.-Purchase of property with view to

resale to corporation. The purchase of property with a view to its resale to a corporation to be formed, does not, though the plan be subsequently fully carried out, constitute the purchaser a promoter of the company as of the time of the original purchase, for the mere contemplation of the organization of a corporation is not, of itself, sufficient to create that relation.66 This is so, even though the

371, 384 ; 2. 469, 521; 187, ali

595.

Mich. 453, 457, 112 N. W. 1133, v. Congreve, 4 Sim. 420, 427; Bag1135.

nall v. Carlton, L. R. 6 Ch. Div. 65. Federal. Commonwealth S. 371, 384; Twycross v. Grant, L. R. S. Co. v. American Shipbuilding Co., 2 C. P. D. 469, 527; Gover's Case, 197 Fed. 797, 804, affirmed, 215 Fed. L. R. 1 Ch. Div. 182, 187, affirming, Rep. 296, 131 C. C. A. 596.

L. R. 20 Eq. 114; Gluckstein v. California.-Burbank v. Dennis, Barnes, 1900, App. Cas. 240, 249, 101 Cal. 90, 97, 98, 35 Pac. 444, 446, 256, affirming, In re Olympia, Ltd., 447; California-Calaveras Mining 1898, 2 Ch. Div. 153; Alexandra Co. v. Walls, - Cal. - 149 Pac. Oil & Dev. Co. v. Cook, 11 Ont.

W. R. 1054, 1059. Illinois.-Mississippi Lumber Co. See also cases cited in notes 62, v. Joice, 176 Ill. App. 110, 120. 63, and 64.

Massachusetts.—oid Dominion See contra Stewart v. St. Louis Copper Mining, etc., Co. v. Bigelow, Ft. S. & W. R. Co., 41 Fed. Rep. 203 Mass. 159, 177, 89 N. E. 193, 736, 738. 201, 40 L. R. A. N. S. 314.

It is said in Gluckstein v. Barnes, Missouri.—South Joplin Land Co. 1900 App. Cas. 240, that the prov. Case, 104 Mo. 572, 580, 16 S. W. moter stands before the company 390, 392, 38 Am, & Eng. Corp. Cas. is formed in a fiduciary position 333.

towards it for some, but not for New York.-Brewster v. Hatch, all, purposes. 122 N. Y. 349, 362, 25 N. E. 505, 66. Connecticut.-Yale Gas Stove 33 N. Y. St. Rep. 527.

Co. v. Wilcox, 64 Conn. 101, 115, United Kingdom and Colonies.- 29 Atl. 303, 25 L. R. A. 90, 42 Am. Emma Silver Mining Co. v. Lewis, St. Rep. 159, 47 Am. & Eng. Corp. L. R. 4 C. P. D. 396, 407; Hichens Cas. 647.

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