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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

barked. 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 capi

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.88

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. r. Bigelow, 203 Mass. 159, 188, 89 N. E. 193, 40 L. R. A. N. S. 314.

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.



Section 20. Introductory.

21. Validity of agreements to organize corporation to purchase

specific property. 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

poration. 31. Performance of agreements for sale of property to cor

poration. 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-

motion, or shares of corporation.
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 manner interested in the enterprise. The agreements may determine, not only the general plan under which the corporation is to be organized, but the property to be acquired by it, the price, terms and conditions of its purchase, the nature of the business to be carried on, the manner in which it is to be conducted, the officers and managers by whom it is to be controlled, and the distribution to be made of the share capital. Questions as to the validity, interpretation and performance of such agreements nec

erned by the rules of law applicable to contracts generally. A few questions which have peculiar application to contracts for the promotion of corporations must, however, be briefly considered."

§ 21. Validity of agreements to organize corporation to purchase

specific property. It has sometimes been urged that an agreement to promote a corporation which shall purchase some particular property, upon stated terms, is invalid as interfering with the free exercise of the judgment of the directors of the fully organized company. Agreements of this character are, however, while not binding upon

1. In re Worthington, 1914, 2 K. B. 299, 83 L. J. K. B. 885, 110 L. T. N. S. 599, one Worthington had made an agreement with Pathé Frères by which he undertook within seven days from the date thereof (November 30th, 1912) to organize an English corporation for the exclusive sale in the United Kingdom of the cinematograph machines

shares at par within ten days from the date of the agreement, for a further 25,000 shares before March 31st, 1913, and for a further 45,000 shares on or before December 31st, 1913. Worthington died in February, 1913, and Pathés Frères filed a claim against his estate for damages suffered by reason of the failure of Worthington, his execu

pany to have a capital of £105,000. consisting of 100,000 ordinary shares of £1. each and 100,000 participation shares of 1s. each. Worthington further undertook to procure subscriptions for 25,000 ordinary

his contract. It was held that Worthington's contract was not of such a personal nature as to be terminated by his death, and that Pathé Frères were entitled to recover damages from his estate,

the corporation, held to be valid as between the parties, and enforceable against them.3 It has been said that such an agreement“ is to be construed as relating to the formation of a corporation upon a lawful and honest basis, and it will not be assumed as matter of law that it was within the intention of the parties to organize a corporation, and have its stock issued in exchange for the property and rights of the plaintiff unless the directors or stockholders of the corporation should approve and ratify, after inquiry, the scheme as detailed in the contract.” 4

It is perhaps difficult seriously to believe that parties who have entered into a formal agreement to organize a corporation to take over certain specified properties at an agreed price, actually intend that the matter of the consummation of their plan is to be left to the untrammelled discretion of the directors of the fully organized company. The promoters in almost every case in fact intend to take no chances with their board of directors, and to see to it that the personnel of the board shall be such that no repudiation of the preliminary contract need be feared. It must be conceded that agreements of this character generally do, in effect, fetter in advance the judgment of the directors, and, from a theoretical point of view, their validity might well be questioned.

Few corporations, however, are, or could be, organized without some preliminary understanding as to the property to be acquired, and the price and terms and conditions of the purchase, and where the transaction is an honest one, and there is no intention to defraud the subscribers, such agreements are properly held valid and enforceable between the parties. § 22. Unenforceable agreements.

A contract for the organization of a corporation is void and 2. Stowe v. Flagg, 72 Ill. 397; and Co. v. Smith, 113 N. Y. App. Div. see post, $8 46, et seq.

615, 99 N. Y. Supp. 37; Marie v. 3. King v. Barnes, 109 N. Y. 267, Garrison, 83 N. Y. 14. 16 N. E. 332; Lorillard v. Clyde, 86 4 . Electric Fire Proofing Co. v. N. Y. 384; Electric Fire Proofing Smith, 113 N. Y. App. Div. 615, 623,

99 N. Y. Supp. 37.

unenforceable if the purpose of the parties is, or the successful carrying out of their plan would necessarily result in, the perpetration of a fraud upon future subscribers or upon the public in general.

The agreement is likewise void if it provides for the issue of shares in violation of the statute of the domicile of the contemplated corporation. If the promoter's agreement is in violation of the statutes of the state where one would naturally expect the cor

5. Jackson v. McLean's Execu- 515-6, 71 Atl. 153, 177; Tooker y. tors, 100 Mo. 130, 13 S. W. 393; National Sugar Refining Co., 80 N. Lorillard v. Clyde, 86 N. Y. 384, J. Eq. 305, 321, 84 Atl. 10; Strick388; Duvergier v. Fellows, 5 Bing land v. National Salt Co., 77 N. J. 248.

Eq. 328, 76 Atl. 1048, affirmed, 79 See Holman v. Thomas, 171 Fed. N. J. Eq. 182, 223, 81 Atl. 828, 832. Rep. 219, reversed, 178 Fed. Rep. And see Edgerton v. Electric Imp., 675, 102 C. C. A. 175.

etc., Co., 50 N. J. Eq. 354, 24 Atl. 6. Federal.--Altenberg v. Grant, 540; State ex rel. Morton v. Timken, 85 Fed. Rep. 345, 29 C. C. A. 185, 48 N. J. Law 87, 2 Atl. 783, 12 Am. 62 U. S. App. 568. Cf. Krohn v. & Eng. Corp. Cas. 34. Williamson, 62 Fed. Rep. 869, Oklahoma.-Webster v. Webster affirmed, sub nom, Williamson V. Ref. Co., 36 Okla, 168, 128 Pac. 261. Krohn, 66 Fed. Rep. 655, 13 C. C. Wisconsin.-Clarke v. Lincoln A. 668, 31 U. S. App. 325.

Lumber Co., 59 Wis. 655, 18 N. W. Alabama.-Williams y. Evans, 87 492. Ala. 725, 6 So. 702, 6 L. R. A. 218. Thompson on Corporations (2nd

Kentucky.-Bennett v. Stuart, 161 Ed.), 8 3916. Clarke & Marshall Ky. 264, 170 S. W. 642.

on Private Corporations, $ 395-b. Massachusetts.-Maine v. Butler, Cf. Leeds v. Townsend, 228 II. 130 Mass. 196.

451, 81 N. E. 1069, 13 L. R. A. N. S. Missouri.-Garrett v. Kansas City 191, where no violation of a statuCoal Min. Co., 113 Mo. 330, 20 S. W. tory provision was, however, in965, 35 Am. St. R. 713.

volved, also Hunter Smokeless PowNew Jersey.-Volney v. Nixon, 68 der Co. v. Hunter, 100 N. Y. App. N. J. Eq. 605, 60 Atl. 189, affirming, Div. 191, 91 Supp. 620, where the 67 N. J. Eq. 457, 58 Atl. 75; Easton question does not seem to have been Natl. Bk. V. American Brick Co., raised. Also Krohn v. Williamson, 70 N. J. Eq. 722, 728, 64 Atl. 1095, 62 Fed. Rep. 869, affirmed, sub nom. 1098: Bigelow v. Old Dominion Williamson v. Krohn, 66 Fed. Rep. Copper, etc., Co., 74 N. J. Eq. 457, 655, 13 C. C. A. 668, 31 U. S. App.

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