take the first decisive step, or perform the first overt act, in the carrying out of the plan of organization.74 The chronological order of the steps in the organization of a corporation, varies in different cases, and, as the first step creates the relation, there is no one act from which the relation uniformly dates.75 The moment at which the relation has its inception depends upon the facts of each particular case,76 and the burden of proof rests upon the party affirming the existence of the fiduciary relation." 77 The filing of a certificate of incorporation is an active step in the organization of the company sufficient to mark the inception of the relation of promoter to the corporation, and so, no doubt, is the preparation of such certificate, and perhaps even the employment of attorneys to prepare it. The solicitation of subscriptions to the shares of the proposed company is an act sufficient to create the relation,78 even though there be nothing more than a mere informal invitation to subscribe for shares, extended before any written subscription agreement 38 Am. & Eng. Corp. Cas. 333; 74. Milwaukee Cold Storage Co. v. Dexter, 99 Wis. 214, 230, 74 N. W. 976, 40 L. R. A. 837, 842; Gluckstein v. Barnes, 1900 App. Cas. 240, 256. 75. See In re Olympia, Ltd., 1898, 2 Ch. Div. 153, 181-182, (affirmed sub nom. Gluckstein v. Barnes, 1900 App. Cas. 240); citing Emma Silver Mining Co. v. Lewis, L. R. 4 C. P. D. 396. 76. Yale Gas Stove Co. V. Wilcox, 64 Conn. 101, 116-118, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. Cas. 647; Ladywell Mining Co. v. Brookes, L. R. 35 Ch. Div. 400, 415, 17 Am. & Eng. Corp. Cas. 22. 77. Ladywell Mining Co. V. Brookes, L. R. 35 Ch. Div. 400, 411, 17 Am. & Eng. Corp. Cas. 22. See same v. same, L. R. 34 Ch. Div. 398, 409-410. 78. Burbank v. Dennis, 101 Cal. 90, 97, 35 Pac. 444, 446; South Joplin Land Co. v. Case, 104 Mo. 572, 581, 16 S. W. 390, 393, 38 Am. & Eng. Corp. Cas. 333; Ladywell Mining Co. v. Brookes, L. R. 35 Ch. Div. 400, 411, 415, 17 Am. & Eng. Corp. Cas. 22; Foss v. Harbottle, 2 Hare 461, 489; Highway Advertising Co. v. Ellis, 7 Ont. L. R. 504, 508, citing In re Hess Manufacturing Co., 21 Ont. App. 66, 67, affirmed, 23 Can. S. C. 644. has been prepared.79 If, however, the invitation to take shares in the proposed corporation is declined, and the corporation then in contemplation is abandoned, the moving party may purchase the contemplated property for his own account. Though he afterward revives his plan of forming a corporation, and this time successfully solicits the parties who at first refused to join him, he will not be held to have been a promoter from the time he first solicited the subscription, but will be treated as having acquired the property at a time when he was not subject to any fiduciary obligations.80 If the promoter acquired property at a time when he had already entered upon that relation to the corporation, a mere change in the details of the organization of the contemplated company is not an abandonment of the scheme such as to enable the promoter to disavow the trust relation and maintain that the property was thereafter held by him for his individual account. It has been held that the organization of the corporation under the statutes of a state other than that mentioned in the prospectus, is not an abandonment of the originally planned company; that the company organized is still the company mentioned in the prospectus and that it is entitled to the benefit of any purchase made for its account.8 81 § 18. The same subject.-An illustrative case. In Gluckstein v. Barnes,82 a syndicate had been formed to buy and resell a place of entertainment known as "Olympia." The secretary of the syndicate, before the purchase, entered into an agreement with one Gluckstein, reciting that the syndicate proposed to purchase "Olympia" with a view to its resale to a com 79. Burbank v. Dennis, 101 Cal. 90, 96, 97, 35 Pac. 444, 446. 80. Craig v. Phillips, L. R. 3 Ch. Div. 722, 723, 725. 81. Plaquemines Tropical Fruit Co. v. Buck, 52 N. J. Eq. 219, 235, 27 Atl. 1094, 1099-1100, 44 Am. & Eng. Corp. Cas. 686. But see post, § 73, note 14. 82. 1900 App. Cas. 240, 241, 256257, affirming, In re Olympia, 1898, 2 Ch. Div. 153. pany to be formed, or to some other purchaser, and stating that if the company was formed, Gluckstein and three other persons named, all of whom were members of the syndicate, had consented to become directors of the proposed company, and that these four persons should be trustees for the syndicate, with power to buy and resell "Olympia," and to promote and register the intended company. The court said that "where speculators have formed, exclusively of themselves, the directorate of a company to be immediately floated for the purpose of buying the property which those same individuals are associated to acquire and resell " they have taken a decisive step in shaping and limiting the company, and that this is certainly an act of promotion.83 It was claimed that the gentlemen forming the syndicate might have changed their minds and sold "Olympia Olympia" to an individual, but the court held that while this was true in the sense that until the registration of the company, and a binding contract with it, the parties were free to change their minds; true in the sense in which every enterprise not actually consummated may be abandoned; still the fact remained that these men intended to sell to the proposed company, that they did carry out that intention, and that the proposed directors stood in a fiduciary relation to the company from the moment that they had been provisionally appointed.84 § 19. Termination of the relation. The obligations of the promoter ordinarily continue until the capital stock has been issued and the corporation provided with a board of directors capable of protecting its interests.85 The time 83. On this point see also Hichens v. Congreve, 4 Sim. 420, 427. 84. As to this, see also Bagnall v. Carlton, L. R. 6 Ch. Div. 371, 406-407. 85. Yeiser v. U. S. Board & Paper Co., 107 Fed. Rep. 340, 348, 46 C. C. A. 567, 52 L. R. A. 724; Hitchcock v. Hustace, 14 Hawaii 232, 241-242; Hutchinson v. Simpson, 92 N. Y. App. Div. 382, 421, 87 Supp. 369 (dissenting opinion); Pietsch v. Milbrath, 123 Wis. 647, 656-657, 101 N. W. 388, 391, 102 N. W. 342, 68 L. R. A. 945, 107 Am. St. Rep. 1017; Emma Silver Mining at which the relation terminates depends to some extent upon the circumstances of the particular case.86 It was said in a recent case 87 that "the fiduciary relation must in reason continue until the promoter has completely established according to his plan the being which he has undertaken to create. His liability must be commensurate with the scheme of promotion on which he has embarked. If the plan contemplates merely the organization of the corporation his duties may end there. But if the scheme is more ambitious and includes beside the incorporation, not only the conveyance to it of property but the procurement of a working capital in cash from the public, then the obligation of faithfulness stretches to the length of the plan. It would be a vain thing for the law to say that the promoter is a trustee subject to all the stringent liabilities which inhere in that character and at the same time say that, at any period during his trusteeship and long before an essential part of it was executed or his general duty as such ended, he could, by changing for a moment the cloak of the promoter for that of director or stockholder, by his own act alone, absolve himself from all past, present or future liability in his capacity as promoter." When once the labors of the promoter, as such, have been completed and the corporation is fully organized and given over to the control of its stockholders and directors, the obligations of the promoter come to an end, and he is in his subsequent dealings with the company not subject to any fiduciary obligations.8 Co. v. Lewis, L. R. 4 C. P. D. 396, 407; and see In re Barry Ry. Co., L. R. 4 Ch. Div. 315, 323. 86. Twycross v. Grant, L. R. 2 C. P. D. 469, 541. 87. Old Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 188, 89 N. E. 193, 40 L. R. A. N. S. 314. 88 88. Iowa Drug Co. v. Souers, 139 Iowa 72, 117 N. W. 300, 19 L. R. A. N. S. 115; Russell v. Rock Run Fuel Gas Co., 184 Pa. 102, 39 Atl. 21. 7 Am. & Eng. Corp. Cas. N. S. 456; Lagunas Nitrate Co. v. Lagunas Syndicate, 1899, 2 Ch. D. 392, 432. CHAPTER II. OF AGREEMENTS FOR THE PROMOTION OF CORPORATIONS. Section 20. Introductory. 21. Validity of agreements to organize corporation to purchase 22. Unenforceable agreements. 23. Validity of agreements for employment. 24. Invalid agreements for employment. 25. Validity of agreements for election of officers. 26. Agreements for division of shares. 27. Agreements for control of corporation. 28. Property rights pending promotion. 29. Promoters' certificates. 30. Interpretation of agreements for sale of property to cor- 31. Performance of agreements for sale of property to cor- 32. Donating shares to the treasury. 33. Interpretation of agreements relating to promoter's com- 34. Interpretation of agreements for division of profits of pro- 35. Interpretation of agreements restricting sale of shares. § 20. Introductory. A corporation, unless it is in its inception a strictly one man concern, is necessarily formed as the result of some preliminary agreement or understanding. The promoters are, in many instances, themselves the sole parties to the preliminary agreement. The preliminary agreements do, however, frequently include contracts with persons whose property is to be sold to the corporation, with persons to be employed by it, or with persons in some other |