the promoter is himself, at the time of the transaction in question, the sole subscriber for the shares of the corporation, and held that disclosure need not be made to those who are thereafter, though as a part of the original scheme, brought in as subscribers for the company's shares.3 The courts were in these cases considering the question of the legality of a promoter's sale of his own property to the corporation, but the rules stated apply with like effect to any profit taken by a promoter.

All of these methods rest in their final analysis upon the same basis, that of disclosure and acquiescence. The burden of sustaining the legality of the transaction rests in each case upon the promoter, and he must make certain, not only that one of the methods mentioned is strictly followed, but also that a proper record thereof is made, so that proof may not be lacking in case he should ever be called to account.5

3. Old Dominion Copper, etc., Co. v. Lewisohn, 210 U. S. 206, 212–217, 28 Sup. Ct. 634, 52 L. Ed. 1025. For a full discussion of the Old Dominion Copper Co. litigations, see post, §§ 128-130.

4. See post, § 121.

V. Cadena

5. Arizona.-Hughes DeCobre Min. Co., 13 Ariz. 52, 63, 108 Pac. 231, 235.

Massachusetts.-Parker v. Nickerson, 112 Mass. 195, 197-198.

New Jersey.-Bigelow v. Old Dominion Copper, etc., Co., 74 N. J. Eq. 457, 502, 71 Atl. 153.

New York.-Colton Improvement Co. v. Richter, 26 Misc. 26, 30, 55 Supp. 486; Sage v. Culver, 147 N. Y. 241, 247, 41 N. E. 513; Smith v. Ogilvie, 127 N. Y. 143, 148, 27 N. E. 807; Cf. Heckscher v. Edenborn, 131 App. Div. 253, 258, 260, 115 Supp. 673, followed, 137 App. Div. 899, 122

Supp. 1131, reversed, 203 N. Y. 210, 96 N. E. 441.

United Kingdom and Colonies.Erlanger v. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 1230, 1277, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65; Dunne v. English, L. R. 18 Eq. 524; In re Darby, 1911, 1 K B. 95, 103, 80 L. J. K. B. Div. 180.

It is said in Bentinck v. Fenn (L. R. 12 App. Cas. 652, 661, see also 666 and 670, see also Archer's Case, 1892, 1 Ch. Div. 322, 341-342), that there is a distinction between an action for the rescission of the promoter's sale to the corporation, and an action under the 165th section of the Companies Act of 1862 based upon the misfeasance of a director. In the first case the burden of proof is upon the fiduciary, in the second, upon the complainant. Sec

The promoter may lawfully sell his own property to the corporation he is promoting, if he provides it with a competent board of directors wholly free from his control or influence, and makes to such board of directors a full disclosure of his interest in the property, leaving it to the board to determine whether the purchase shall be made.

A disclosure to the directors is ineffectual if the promoters are

themselves the directors, or if, the promoter being a corporation, the directors of the promoting company are also the directors of the company promoted.8 The disclosure is of no avail if the directors are in any manner dominated by the promoter, or under his control, if the directors are qualified by shares belonging to the promoter,10 or receive their qualifying shares as a gift from the promoter,11 or if they purchase their qualifying shares under an agreement of the promoter to indemnify them against loss thereon.12 The disclosure is likewise ineffectual if the promoter has promised the directors a bonus in the shares of the new com

pany, 13 or has given or promised them any inducement beyond their prescribed directors' fees.14

It should be noted that the statutes of the various states providing that stock may be paid for in property and that the judgment of the directors as to the value of such property shall be conclusive in the absence of fraud, have no application to the question of the legality of the promoter's profits.15

The fact that one of the directors is himself the owner of, or to some extent interested in, the property to be sold to the corporation, renders the sale voidable at the election of the company, if the interested director assumes to act for the corporation, or if his presence is necessary to constitute a quorum at the meeting at which the resolution to purchase is adopted,16 or if his interest is concealed from his fellow directors.17

Whether the sale is voidable if the director discloses his interest and refrains from acting in the transaction or in any way influencing his fellow directors, is a question upon which the authorities are not in accord. Some authorities hold that the transaction is valid if the presence of the interested director is not neccessary to form a quorum,18 his vote is not needed to pass the resolution, and his fellow directors with entire independence and with full

13. Plaquemines Tropical Fruit Co. v. Buck, 52 N. J. Eq. 219, 240, 27 Atl. 1094, 44 Am. & Eng. Corp. Cas. 686.

14. See McKay's Case, L. R. 2 Ch. Div. 1, 5; Emma Silver Mining Co. v. Grant, L. R. 11 Ch. Div. 918. 15. Mason v. Carrothers, 105 Me. 392, 403-404, 74 Atl. 1030, 1035. But see post, § 118, note. See also §§ 100, 165, 270.

16. Plaquemines Tropical Fruit Co. v. Buck, 52 N. J. Eq. 219, 238, 27 Atl. 1094, 44 Am. & Eng. Corp. Cas. 686. See Shawnee Commercial & Savings Bank Co. v. Miller, 24

Ohio C. C. 198, 213-214, which was a case of actual fraud.

17. Spaulding v. North Milwaukee Town Site Co., 106 Wis. 481, 493, 81 N. W. 1064, 1068; Bentinck v. Fenn, L. R. 12 App. Cas. 652, 658, 661, 670, 671, affirming, In re Cape Breton Co., L. R. 29 Ch. D. 795, aff'g, L. R. 26 Ch. Div. 221.

18. The vote of the directors is a nullity if there are not sufficient disinterested directors to form a quorum. Federal Life Ins. Co. v. Griffin, 173 Ill. App. 5, 18. And see cases cited in following note.

knowledge of the facts, pass upon the question of the purchase.19 Other authorities hold that the law will not attempt to measure the influence of a director with his associates; that the value of the rule declaring voidable transactions in which any director has an individual interest, lies in its rigidity; and that the sale to the corporation is voidable at its election, unless ratified by the stockholders, if a single director has a personal interest, even though he absents himself from the meeting, and scrupulously abstains from influencing his fellows.20