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their doing so without taking security for corporation at an advance over its cost to its repayment, just as Thompson laid out him, so as to derive a secret profit thereand expended these immense sums, under from; but in the accounting which takes the like belief? The law does not demand place under the principle the director will the infliction of any such punishment, nor be compelled to yield to the corporation the will its principles warrant the court in de secret profit, but will be allowed a credit for priving him of compensation for his expend the property sold to the corporation at its .itures merely because of his fiduciary real value.” 10 Cyc. Law & Proc. p. 795. status at the time the contract was made, "In most jurisdictions, as we have seen, even if this court has correctly decided that a contract or other transaction between a he is not entitled to damages by way of corporation and its directors or other ofcompensation for the loss of anticipated ficers, the corporation being represented by profits, as to which it is now too late to en- others, or a contract or other transaction beter upon any inquiry.

tween a corporation and a third party, from “The rule under consideration does not ex- which a director or other officer derives a tend so far as to work an entire confiscation profit, or in which he is otherwise personof the property of the unfaithful director, ally interested, is merely voidable at the opwhich he may have attempted to sell to his ' tion of the corporation, and not absolutely provable demand, although he consented to a fresh appointment. Yelland's Case, L. R. 4 take one half the amount until such time as it | Eq. 350. might be convenient for the company to pay the When it is part of the contract under which other half. Cope's Case, 20 L. J. Ch. N. S. 28, one is employed as manager for a corporation, 1 Sim. N. S. 51.

that, if he is deprived of his employment for The salaries of the officers of a corporation other than his gross misconduct, he shall be cease upon the appointment of a receiver em- paid by the company a sum equal to three years' powered and directed to take control of all its salary, he is entitled, upon the winding up of property and to assume the entire management the corporation under the English companies of all its affairs. Lenoir v. Linville Improv. Co. act, to the sum stated without deduction as in 126 N. C. 322, 51 L, R. A. 150, 36 S. E. 185. Yelland's Case, because, had the corporation

The New Jersey rule, as exemplified in Spader while a going concern discharged him without F. Mural Decoration Mfg. Co. 47 N. J. Eq. 18, his misbehavior, it would be bound to pay him 20 Atl. 373, that claims for damages arising the three years' salary, and he might have en-' from breaches of contract for services occasion- tered at once upon new employment. Re ed by the insolvency of a corporation are en- London & S. Bank, L. R. 9 Eq. 149, 18 Week. titled to be paid pro rata out of funds in the Rep. 273. hands of the receiver, has much to commend it, One who has a contract to serve a corporasays the North Carolina supreme court; but we tion as superintendent for a period of ten years think that the average ends of justice would be at a stated annual salary and a percentage of better and more generally subserved by follow- profits, which is duly performed for nearly two ing the New York rule as laid down in People years by both parties, when further performV. Globe Mut. L. Ins. Co. 91 N. Y. 174, that such ance is stopped by the adjudication of bankcontracts are terminated by the dissolution of ruptcy of the corporation, is entitled to prove the corporation at the instance of the sovereign against the assets in bankruptcy, and to share power, and not broken. Ibid.

in the distribution thereof, damages for the The dissolution of a corporation and annul- breach of such contract as if he had been disment of its charter for the nonpayment of taxes charged without legal cause at the time the preclude a manager, who was at the same time adjudication took place. Ex parte Pollard, 2 one of its stockholders and directors, from re- | Low. Dec. 411, Fed. Cas. No. 11,252. covering from its assets in the hands of a re- The reasoning of Lowell, J., in the above case ceiver any salary on account of services ren- as to the provability and right of participation dered in continuing the business after dissolu- of a claim for damages against a bankrupt tion of the corporation, as his contract termi- | manufacturing corporation, of one employed as nated when the corporation was dissolved. its superintendent under a written contract at Louchheim v. Clewson Printing & Weighing Co. a stated annual salary for ten years with a per12 Pa. Super. Ct. 55.

centage of profits, and which was in course of

performance by both parties, and had eight 2. With superintendents.

years and upwards to run when it was inter

rupted by an adjudication in bankruptcy folWhen, by the insolvency and winding up of a lowing the voluntary petition of the corporation, banking company, its manager is discharged by is worth outlining, and in striking contrast to the official liquidator, and his contract has not the reasoning of the New York case of People v. expired, and he was by such contract entitled, Globe Mut. L. Ins. Co. 91 N. Y. 174. Has there, in addition to a stated annual salary, to resi- he asks, been such a breach of the contract as dence aud offices upon the bank's premises free will give the petitioner a right of proof for any of rent and taxes, he is entitled to damages damages which he may have suffered against from the effects of the bank for the loss of his the estate of the bankrupt corporation? That, contract, computed upon the basis of the pres- he says, is a difficult question. It is easy to ent value of an annuity equal to his annual show the very great hardship of a negative ansalary and terminating at the end of his term of No corporation has been wound up in employment, with a proper rent for the bank bankruptcy in this district, and ever been repremises for the unexpired term, deducting vived in such a form as to give its old creditors what is just for his being at liberty to obtain redress. In most cases, here or elsewhere, a



void. It follows that the transaction, if, rendered binding by ratification or within the powers of the corporation, may quiescence on the part of the stockholders. be consented to, ratified, or acquiesced in, Ratification is to be implied if the corporaby the stockholders, or by the board of di- tion accepts or retains the benefit of the rectors, if it could be authorized by them. transaction (assuming, of course, that it If it is consented to or ratified with full can do otherwise), with knowledge of the knowledge of the facts, it is finally and ab- facts; and it may be implied from acquiessolutely binding, and neither the corpora- cence. Ordinarily, it is for the corporation tion nor individual stockholders can after--the stockholders collectively—to ratify or wards sue to set it aside, or otherwise at disaitirm the transaction, and individual tack its validity. And since the corporation stockholders cannot object. Of course, ratimay thus consent to the transaction and fication or acquiescence by a majority of the render it binding, if it acquiesces, strangers stockholders cannot bind a dissenting stockcannot object. This is true of contracts holder where the transaction is a fraud and other transactions between two corpora- upon his rights, or beyond the powers of the tions having directors or other officers in corporation, and cannot prevent the dissentcommon. They are not absolutely void, but, ing stockholder from suing in a proper case at the most, merely vo ole, and may be ' to set the transaction aside, and obtain redividend is all that is left. And adverting | claim for damages for a breach of his contract to the English companies act (26 & 27 Vict. of employment.

There were more tban one chap. 89, $ 158) allowing proof of claims for ground assigned for this conclusion, but the damages, certain and uncertain, present and chief one was that there had been no breach of future, which, he says, is no more than common the contract on the part of the company, nor justice; and expressing regret that the atten- was it possible for the agent to perform, or tion of Congress was not attracted to this mat- tender performance, upon his part, so as to put ter, and that the law as it stands is the same the company in default, a sine qua non, to a for corporations and individuals notwithstand- recovery of such a claim. Both parties were in ing the difference in their situation,-be con- good faith, it was said, performing this concludes that, as this claim could be proved tract, when the state, in the exercise of its against an individual bankrupt, it can be proved sovereign power, interfered. It forbade by inagainst a bankrupt corporation. He justifies junction both parties, alike, from going on with this conclusion by saying that it is now well the contract, and rendered performance impossettled that where one party to a contract defi-sible, alike, by the company and the agent by nitely refuses to perform it, even before the the same sovereign act and at the same instant time for performance arrives, the other party of time. Roth parties contracted in view of has his immediate action, a fortiori when, after the possibility of the dissolution of the corporapart performance, there is a refusal to com- tion at any time by the act of the state. plete, the only question in doubt being whether It was necessary, to reach this judgment, for the injured party could have an immediate and the court co distinguish two of its prior decicomplete reinedy once for all without tender of sions. In People v. Security L. Ins. Co. 78 N. performance on his part, and the decisions are Y. 114, 34 Am. Rep. 522, and People v. National that he may. It is plain, therefore, that if the Trust Co. 82 N. Y. 283, the respective corporacorporation had discharged its superintendent tions defendant had been enjoined from the day before it began the bankruptcy proceed- tinuing business, placed in the hands of a reings, he would have had a claim for damages ceiver, and dissolved absolutely. In the one which he might prove. Does it make any dif.

case it was held that policy holders had conference that the company neglected to give tracts of value which were broken by the dissothe employee a formal dismissal ?--he inquires. lution, and in the other case that a lease for Not at all. It did an act which incapacitated

years was not thereby terminated; so that in it from fulfilling its contract, and it is unnec

the first case the policy holders had valid claims essary and false nicety to hold that, because this act was the very filing of a petition in

upon the corporate assets for the value of their bankruptcy, therefore there was no breach at policies which were destroyed by the dissolution.

and in the second case that the landlord had the time of filing that petition. The contract was ipso facto dissolved by the filing of the pe

a valid claim for the future accruing rent to the

end of the leased term. tition in bankruptcy, which made its perform ance by the bankrupt impossible and by the

It was said that the policy holder stood upon employee illegal, for he had no right to employ

a breach of his contract, but that breach was a man or pay a dollar after that time; and the

not the dissolution of the company, but the fact that the bankrupt corporation did not, five

failure upon its part, before the dissolution, to minutes or more before such filing, formally maintain the legal reserve which was the prodismiss him from its service, is immaterial.

voking cause of the state's intervention, and

the promise to maintain, which was an implied 3. With agents.

part of its contract with every policy holder.

The state, finding these contracts with the polIn People v. Giobe Mut. L. Ins. Co. 91 X. Y.

icy holders broken in this unexpressed condi174, a general agent who had a running con

tion, stepped in and wound up the recalcitrant tract for a term of years with a life insurance corporation. The landlord's case, affected, it company, and whose employment was termi- was said, property rights which survived the nated by the compulsory dissolution of his cor- death of the corporation. He could perform porate employer, was denied any participation upon his part, his ability to do so existed and in the assets of the company upon his asserted was not restrained. The agent could not per


dress for the benefit of the corporation, as so as to bar the right to relief, will depend has been explained in a former chapter. But upon the circumstances, and not merely where the transaction is of such a character upon the length of time which has elapsed. that it might lawfully have been authorized It was said by Mr. Justice Miller in a leadby the majority, it may lawfully be ratified ing case in the Supreme Court of the United or acquiesced in by them, and their ratifica States [Twin-Lick Oil Co. v. Marbury, 91 U. tion or acquiescence will bar an action by a S. 587, 23 L. ed. 328], in which a director dissenting minority to set it aside. The had purchased property of a corporation at board of directors may ratify a transaction a sale under a deed of trust: "The doctrine if they could have authorized it, but not is well settled that the option to avoid such otherwise. When they do undertake to rati a sale must be exercised within a reasonable fy, a majority must be disinterested. It is time. This has never been held to be any also well settled that the corporation and determined number of days or years, as apthe stockholders may and will lose the right plied to every case, like the statute of limito have the contract or transaction set aside tations, but must be decided in each case by laches in exercising their option to disaf- upon all the elements of it which affect that firm it. Whether the delay in electing to question. These are generally the presence set the transaction aside constitutes laches, 'or absence of the parties at the place of the form because the state would not allow him to help, since both policy holder and landlord did do so.

the same.

It is also unsatisfactory to say that The court dismissed the English cases with there was, by the failure to maintain the legal the statement that in all of them the companies reserve, a breach of the contract with the stopped payment before the law took them in policy holder before dissolution,—such breach hand, and they did so by open public notice, being the cause and the dissolution the conse. which was in legal effect a refusal to perform quence. This alleged breach did not authorize their contracts. The law did not break the con any policy holder to refuse to carry out his contracts; they were already broken.

tract until the state intervened. The policy After disposing of the troublesome precedents holder was bound to pay his premiums down to. in this wise, the court faced the contention the very moment of dissolution, or his policy that the agent's contract is to be regarded as would have lapsed and he have been barred only dissolved when destroyed by an outside, in from sharing in the corporate assets. Why, dependent force, operating separately, and not then, was not the company up to the instant set in motion directly or indirectly by the act of its dissolution as much performing its conof the party pleading it as an excuse. In other tracts with its policy holders as with its genwords, such party must be innocent and blame eral agents ? Ilow could the policy holder, less respecting the vis major which dissolves more than the agent, when dissolution occurred the contract, and, if not so, cannot plead as an by the vis major, put the company in default? excuse what is practically his own act and In Hepburn v. Montgomery, 97 N. Y. 618, fault. The argument was pressed upon the and in Atty. Gen. v. Continental L. Ins. Co. 93 court that, unlike the corporations in all the N. Y. 630, the decision in People v. Globe Mut. precedent authorities, the Globe company at L. Ins. Co. 91 N. Y. 174, was followed. the bar was not only not blameless, but that its A question arose in a New Jersey litigation dissolution resulted from, and was directly over the sufficiency of a plea in answer to a caused by, its own acts and omissions.

declaration by the general agent of a credit inThe answer to this seems deplorably weak. surance company claiming damages for a breach The court said, the fact is not shown, nor neces of his contract to solicit insurance, which set sarily to be inferred, from aught in the record, up in defense, in substance, that the corpora that the corporation was derelict, although at tion became insolvent, and ceased to employ the the same time it admitted that it should pre agent because it was declared insolvent and ensume the legal reserve to have fallen below the joined from doing further business by the court safe level, since this was the statutory ground of chancery, was put in the hands of a receiver, for state intervention. Moreover, this result, and its charter was declared to be forfeited and it added, may have been due to investments void, except for the purpose of collecting and seemingly prudent when made, but which, con- distributing its assets. The supreme court held trary to all reasonable expectation and fore the plea good, and overruled the plaintiff's sight, turned out bad. As, however, even this demurrer thereto, reasoning as follows: It is pointed to an indirect responsibility, the court well settled that contracts for personal servretreated to the fellow-servant doctrine, that ices are made upon the implied agreement that has done such yeoman service in preventing re both contracting parties will continue alive, coveries for personal injuries.

and are terminated when either dies. The disOn the whole this decision is unsatisfying. tinction between such contracts and those with Waiving the question as to why the court in one policy holders was applied in People v. Globe case implied a contract with the policy holder Mut. L. Ins. Co. 91 N. Y. 174, a case involving that the company should maintain the legal re the question here, and where, as here, the life serve, and not provoke corporate death at the of the company was extinguished by the act of hands of the state; and in the other refused the state. The New York supreme court held, to imply any contract with its agent to refrain and its view was unanimously concurred in by from disabling itself from doing the business it the court of appeals, that a general agent was chartered to do, there are difficulties with whose compensation depended upon his sucthe court's theories. To say that the agent cess in procuring insurance for the company contracted with knowledge that the corporation upon a percentage could not maintain an action must die whenever its creator so willed does not for damages against the receiver because, be

transaction, their knowledge or ignorance of Stockholders will not be heard to complain the sale and of the facts which render it of their own acts as directors. The right of voidable, the permanent or fluctuating char- individual stockholders to complain may acter of the subject-matter of the transac- also be barred by laches." Clark & M. Priv. tion as affecting its value, and the actual Corp. § 764. rise or fall of the property in value during This text is supported by authorities too the period within which this option might numerous to mention or examine, one of have been exercised.' Laches may bar the which is the leading case of Foss v. Har. right of a corporation or its stockholders to bottle, 2 Hare, 461, in which the vice chanmaintain a suit to compel directors to ac- cellor, after laying down the rigid rules of count for secret profits. Individual stock law requiring the exercise of the utmost holders may be estopped to attack a con- good faith on the part of promoters of cortract or other transaction on behalf of the porations, treating them as acting in a ficorporation on the ground that directors or duciary capacity, proceeds as follows:

"If other officers were personally interested. If persons, on the other hand, intending to they participated or consented, or if they form a company, should purchase land with have ratified the transaction with knowledge a view to the formation of it, and state at of the facts, they are clearly estopped.' once that they were the owners of such land, fore the expiration of the period for which he contract which had not expired at the date of was engaged, he was prevented by the insol- that forfeiture. Following the reasoning of the vency, receivership, and dissolution of the com- New York court in the case mentioned, the pany from continuing his employment, The court below, he said, looked upon the contract rule in that case will be accepted here. Rosen- as one merely for skilled personal service, and baum v. United States Credit System Co. 60 N. treated the insolvency of the company and forJ. L. 294, 37 Atl. 395.

feiture of its charter as analogous to the death But this judgment was reversed by the New of the master of such a servant, which, by an Jersey court of errors and appeals, which, in implied condition, ended the contract. The doing so, said: In the case of People v. Globe court of appeals of New York carried the doc Mut. L. Ins. Co. 91 N. Y. 174, upon which the trine of implied condition in the contract still supreme court relied, both parties to the con- further, Finch, J., saying: What bad happened tract, the company and the agent, were re- was the dissolution of the contract by the sor. strained by injunction, at the instance of the ereign power of the state, rendering performattorney general, from further prosecution of ance on either side impossible. This result was the business of the company and the exercise within the contemplation of the parties, and of any of its corporate franchises, followed by must be deemed an unexpressed condition of the appointment of a receiver and dissolution their agreement. One party was a corporation. of the company; and it was held that, as the It drew its vitality from the grant of the state, action of both contracting parties was para

and could only live by its permission. It er lyzed by injunction at the same time, so that isted within certain defined limitations, and neither could put the other in the wrong, there must die whenever its creator so willed. The was no breach of the contract. But in the case general ageut who contracted with it did so with at bar there was no such injunction. The con- knowledge of the statutory conditions, and traction of debts and disposition of assets was

these must be deemed to have permeated the forbidden, and afterwards there was

an ad- agreement and constituted elements of the obli. judication of insolvency and a receiver, but gation. The judge admits, says the chancellor, without continuing the injunction. The New that the implication will not exist if it appears Jersey statutes do not provide that a mere ad

that the corporation was culpably responsible judication of insolvency and the appointment of for state intervention. He then proceeds: It a receiver take from a corporation its right to appears to us that both these implied condo business. The practical effect is to stop busi

ditions are forced, or at least forced in their apness, but the right to go on is not taken away. plicntion to cases in this state similar to the Rosenbaum v. United States Credit System Co.

case now considered. It appears to us that the 61 N. J. L. 513, 40 Atl. 591.

material fact that the corporation defendant is Chancellor McGill, of New Jersey, in writing a stock company, and that its capital stands as for the court of errors and appeals in Rosen

a trust fund for the payment of its debts, is baum v. United States Credit System Co. 61 lost sight of. Such a company may become in. N. J. L. 543, 40 Atl. 591, which unanimously solvent, and its charter may be forfeited when reversed the supreme court in the same case its assets may be more than sufficient to pay (60 N. J. L. 294, 37 Atl. 595), sharply criticises its debts. Everyone who deals with such a the reasoning of the New York court of appeals corporation does so in view of the trust fund in People v. Globe Mut. L. Ips. Co. 91 N. Y. its capital provides and the security that fund 174. upon which the court below had relied in is intended to afford. The stockholders who procoming to the conclusion about to be reversed. vide the fund invite confidence because of it, The learned chancellor had pointed out at the and through such confidence their venture mar beginning a very material distinction between be profitable to them. The mere statement of the case in hand and the New York case, which this situation makes conspicuous the injustice deprived the latter of authority as a precedent; of any course of reasoning which will return to but he did not rest there. lle took up the broad the stockholders their capital before satisfac. question whether the forfeiture of the corpo.

tion of all losses induced by faith in it should rate charter would bar a general soliciting be made. The state creates corporations, and agent's claim for damages for a breach of his requires of them the provision of such a trust contract of employment for the term of the fund, and, when it destroys their corporate er.

and propose to sell it at a price fixed, for | made known, or can by due diligence be asthe purposes of the company to be formed, certained. As the courts have never prethe transaction, so far as the public are scribed any specific period as applicable to concerned, commencing with that statement, every case, like the statute of limitations, might not fall within the principle of Hich- the determination as to what constitutes a ens v. Congreve, 4 Russ. Ch. 562. A party reasonable time in any particular case must may have a clear right to say: 'I begin be arrived at by a consideration of all its the transaction at this time. I have pur- elements which affect that question.” In chased land, no matter how or from whom, Stewart v. Lehigh Valley R. Co. 38 N. J. or at what price. I am willing to sell it at L. 505, Mr. Justice Dixon, delivering the a certain price for a given purpose.'

.'" An- opinion of the court, said: “After an exother is Twin-Lick Oil Co. v. Marbury, 91 | amination of all the cases cited, and such U. S. 587, 23 L. ed. 328, heretofore quoted others as I have found, and a careful confrom. It holds: “The right of a corpora- sideration of the principle, and the results tion to avoid the sale of its property by rea- of regarding and disregarding it, I have son of the fiduciary relations of the pur- come to the conviction that the true legal chaser must be exercised within a reasonable rule is that such a contract is not void, but time after the facts connected therewith are' voidable, to be avoided at the option of the

istence, natural justice requires that it shall Bacon, V. C., distinguished English & S. provide for distribution of the fund so that no Marine Ins. Co.'s Case by the circumstance that part of it shall be returned to those who offer it Maclure was to be paid a salary and a tithe of as security for the action of others, until the the net profits besides, while the claimants at latter shall have all the protection against loss bar were to be paid a commission on sales as in their undertaking that it is capable of af- sole compensation, and whether the sales were fording.

profitable or not. He did not venture to state The insolvency of a corporation and appoint any rule for computing the damages, or suggest ment of a receiver of its assets under the New any method of proving them. Jersey laws do not rescind or terminate a con- The winding up of a corporation does not ab. tract with individuals to set up and operate a rogate a contract made with a broker to place soda water fountain in the premises of the cor- its shares and receive a stated fee for doing som poration, and pay, in lieu of rent, 15 per cent. payable when all the shares have been allotted. of the gross receipts. Bolles v. Crescent Drug Inchbald v. Western Nellgherry Coffee, Tea & & Chemical Co. 53 N. J. Eg. 614, 32 Atl. 1061. Cinchona Plantation Co. 17 C. B. N. S. 733.

The ground of the decision in People v. Globe. Notwithstanding the assignee of a corpora Mut. L. Ins. Co. 91 N. Y. 174, that the contract tion is enjoined by the courts from consummatfor service was annulled by the act of the state ing a sale of the corporate property negotiated in dissolving the corporation, not by default of by a broker, the latter may recover his commisthe corporation in performing it, “does not seem sions, since these were earned as soon as he to be very perspicuous or satisfactory in any found a purchaser ready and able to buy. Gibview ; but the case certainly does not hold that son v. Gray, 17 Tex. Civ. App. 646, 43 S. W. contracts for personal services are rescinded by 922. the insolvency of a corporation." Ibid.

This is the distinguishing feature that makes An agent of a corporation, engaged for the inapplicable People v. Globe Mut. L. Ins. Co. 91 term of five years, during which period the com- N. Y. 174. pany goes into voluntary liquidation, and is The salaried selling agent of a corporation, wound up, and whose employment is continued employed for a definite term, who is discharged by the official liquidators for a considerable before that term expires because the company length of time after the winding-up order, is en- is embarrassed and unable to continue business, titled, under the rule in Yelland's Case, L. R. and when, immediately after such discharge the 4 Eq. 350, to his full salary to the end of the corporation is dissolved by the decree of a com: five years' term. Re London & C. Co. L. R. 7 petent court in regular proceedings voluntarily Eq. 550, 38 L. J. Ch. N. S. 562, 20 L. T. N. S. instituted, has а valid claim for damages 774.

against the property and assets of such corpoAn agent of an insurance company, employed ration for a breach of his contract of employfor a term of years upon a stated annual salary ment, and the measure of such damages is the and a commission of 10 per cent of the net salary for the rest of the term less the net profits of each year, when the company is amount he has earned in the meantime. Tiffin wound up before the term of employment ex- Glass Co. v. Stoehr, 54 Ohio St. 157, 43 N. E. pires, is entitled to his stated salary, but not 279. to damages for loss of his commission for the In Tiffin Glass Co. v. Stoehr, 54 Ohio St, rest of the term of employment. The reason 157, 43 N. E. 279, the supreme court of Ohio is, he cannot compel the company to do busi- properly distinguished the case at bar from ness, and, unless business is profitable, he earns People v. Globe Mut. L. Ins. Co. 91 N. Y. 174, no commissions. Re English & S. Marine Ins. by pointing out that in the case before it the Co. L. R. 5 Ch. 737, 39 L. J. Ch. N. S. 685, 23 employee had been discharged from his employL. T. N. S. 685, 18 Week. Rep. 1122.

ment before the company was dissolved, and, If an agent is employed for a term of years consequeutly, that a breach of his contract had to sell goods of a corporation upon a commis- been committed by the corporation before its sion, and the company winds up before the term dissolution, and that dissolution was the result expires, he is entitled to his damages for the of its own voluntary request. The fact that the breach of his contract. Re Patent Floor Cloth damage could not be computed until long after Co. 41 L. J. Ch. 1. S. 476, 26 L. T. N. S. 467. the dissolution did not affect the case. Unlike


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