validity is a matter of practical necessity. It should be noted that the objection, that contracts of the nature discussed in this and the preceding sections are contrary to public policy and invalid because they assume to promise in advance the action of the directors, could with equal force be made to any contract which the promoters assume to make for the intended company. Such contracts, while of no binding effect upon the corporation, have been repeatedly held to be enforceable against the individual promoters.12 The difference between a promise of corporate action made by a promoter and a similar agreement made by a director, is that the preliminary agreement of the promoter is often a matter of necessity, while in the case of an existing corporation the board of directors can and should exercise its judgment in the first instance, and there is no necessity or excuse for, and a very practical objection to, an individual director personally guaranteeing in advance the favorable action of his board.

§ 24. Invalid agreements for employment.

Agreements for employment intending to leave the employee free from the control of the directors of the projected corporation, and not subject to discharge for proper cause, are void and unenforceable.13

In Flaherty v. Cary,14 the plaintiff sued upon an agreement with the defendants under which the latter agreed to organize a mortgage insurance company which should employ the plaintiff as sole general agent, and bound themselves not to allow any person to become a stockholder, trustee, director or incorporator of the company, who did not agree that the plaintiff should be made such sole general agent. The Appellate Division said that the contract was void as against public policy. "It was an attempt on the part of the plaintiff to use the corporation laws for his

12. See post, § 77.

13. See Hampton v. Buchanan, 51 Wash. 155, 98 Pac. 374.

14. 62 N. Y. App. Div. 116, 70 Supp. 951, affirmed without opinion, 174 N. Y. 550, 67 N. E. 1082.

special benefit and advantage. The law requires that subscriptions to the original issue of capital stock shall be paid for in money or property, and the directors are authorized to open subscription books and receive subscriptions for such stock (Stock Corp. Law [Laws of 1890, chap. 564], Sec. 41, as amd. by Laws of 1892, chap. 688), but plaintiff, by his agreement, seeks to engraft additional conditions. The agreement contemplated, precluding any person from becoming a stockholder who would not agree in advance, in addition to paying cash for his stock, that plaintiff should be employed during the entire corporate existence subject to the termination of the contract on six months' notice, and that he should receive for his services nearly one-third of the gross receipts of the company, not only while he continued in its employ, but a like percentage thereafter of the premiums on policies then in force and on policies in renewal thereof. He was a comparative stranger in New York, having come here from Canada within two years. The directors were to have no option but to employ him on these terms, even though in their opinion his services might be of no value to the corporation. He was to have exclusive charge of soliciting and securing business for the company. It is difficult to see how the directors could perform their statutory duty of managing and controlling the affairs of the corporation in the interests of the stockholders, its policy holders and other creditors, if they were to be thus limited and restricted by this contract." 15

The

The actual decision of this case was no doubt correct. public at large has, however, no inherent right to subscribe for the shares of any company, and the promoters may undoubtedly lawfully agree among themselves that only such persons shall be

15. The court cites Fisher V. Bush, 35 Hun (N. Y.) 641; Brown v. Britton, 41 N. Y. App. Div. 57, 58 Supp. 353; Dickson v. Kittson, 75 Minn. 168, 77 N. W. 820; Jackson v. Ex'rs. of McLean, 100

Mo. 130, 13 S. W. 393; West v. Camden, 135 U. S. 507; 10 S. C. 838, 34 L. Ed. 254; Fennessy v. Ross, 5 N. Y. App. Div. 342, 39 Supp. 323; Cook on Corporations (4th ed.), § 622.

allowed to come in as may accord with their views as to the conduct of the business of, and the persons to be employed by, the company. Having that power, there is no reason why they may not agree with an intended employee that only such stockholders shall be admitted as will consent to his employment upon the agreed terms. The promoters take the risk of being able to secure subscribers upon that basis.

§ 25. Validity of agreements for election of officers.

Agreements that certain persons shall hold office in the company raise a somewhat different question, and their validity may well depend upon the period of time over which the tenure of the office is to extend. If the agreement embraces only the period for which officers are elected, and pledges only the action of the organization meeting of the directors, the validity of the agreement should, it seems, be controlled by the same considerations which govern the questions discussed in the preceding sections.

The validity of an agreement for a more lengthy retention of office, pledging the action of both the organization and subsequent meetings of the directors, is open to very grave doubt. Such an agreement was sustained in Kantzler v. Bensinger,16 largely because all of the stockholders were parties thereto. In the absence of that circumstance an agreement attempting to promise permanent tenure of office would probably be invalid and unenforceable even between the parties.17

16. 214 Ill. 589, 73 N. E. 874, reversing, Bensinger v. Kantzler, 112 Ill. App. 293. To the same effect is Drucklieb v. Sam H. Harris, 209 N. Y. 211, 102 N. E. 599.

Such agreements are binding only on the parties, and not on the corporation. Drucklieb v. Sam H. Harris, 209 N. Y. 211, 102 N. E. 599.

As to whether the corporation, or its receiver, can claim the benefit of

an agreement between the promoters, to subordinate the payment of their salaries to the payment of certain specified dividends, see Mills v. Hendershot, 70 N. J. Eq. 258, 62 Atl. 542.

17. West v. Camden, 135 U. S. 507, 10 Sup. Ct. 838, 34 L. Ed. 254.

Cases involving the validity of agreements to elect certain officers, entered into by directors or stock

§ 26. Agreements for division of shares.

An agreement of the promoters fixing their respective interests in the capital stock of the intended company is valid between the parties, 18 and may sometimes become binding upon the corporation.19

An agreement of the promoters that they will not sell the shares allotted to them until after all the treasury stock, or a specified portion thereof, has been sold, is proper and may be enforced by injunction.20

It was said in Hladovec v. Paul 21 that an agreement limiting the number of shares which may be held by any one stockholder is, while not binding upon the corporation, valid as between the parties to the agreement.

§ 27. Agreements for control of corporation.

An agreement between the parties engaged in the promotion of a corporation to vote their shares as a unit is valid in those jurisdictions which recognize the validity of similar agreements between stockholders of existing corporations,22 but an agreement, or by-law, which seeks to place the voting power in the hands of the promoters and keep the control of the corporation out of the hands of its stockholders, is unlawful and will be set aside by the courts.23

It has been held that an agreement between the promoters that the corporation to be organized by them shall be used simply as an instrumentality for the conduct of a partnership business under corporate guise, is contrary to the policy of the law, and the corporation will, in spite of the agreement, be held subject to the management and control of a board of directors duly elected by the stockholders as provided by law.24

Bon Bon Co., 165 N. Y. App. Div. 89, 150 Supp. 668.

An agreement as to the division of future issues of stock, to which the corporation is not a party, cannot be enforced in a representative action brought on its behalf. Waters v. Waters & Co., 130 N. Y. App. Div. 678, 115 Supp. 432, affirmed, 201 N. Y. 184, 94 N. E. 602.

20. Brown v. Bracking, 11 Idaho 678, 83 Pac. 950; Williams V.