misbehavior during his term. This right is called the right of amotion. Aside from the provisions of statute or by-law there is a right in the stockholders to remove any director who seriously offends against the law of the land or the duties of his office.91 If the charge is that he has been unfaithful in his official duties, he is entitled to a regular trial by the corporation, to know beforehand the specific charge against him, and have counsel in his defense.92 B. The Responsibilities and Rights of the Directors. Sec. 87. THE DIRECTOR'S RESPONSIBILITY TO THE CORPORATION. The director is liable to the corporation for any damage occasioned by his participation in ultra vires acts, his culpable negligence, or purposeful injury by him. If it is alleged that a director has wrought injury to the corporation, is he responsible in damages? This would depend. His office is one of large discretion. Because in the exercise of that discretion he has done something that another person feels that he would not have done, he cannot be held responsible. For mere timidity in entering into ventures where it is now thought the corporation would have made a profit he is not liable. If, however, he has been palpably negligent in guarding the welfare of the corporation he may be liable to damages directly traceable to such negligence. So in cases, if he acts as no prudent man would have acted and thereby brings disaster upon the corporation he is liable. In a 91. Toledo Traction Light & Power Co. v. Smith, 205 Fed. 643. 92. Alliance Co-op. Ins. Co. v. Gasche, 93 Kan. 147. New York case, directors of a savings bank were held responsible because they had erected a large costly office building when the bank was in a failing condition, although it was admitted they had had the good of the corporation in mind in such action.93 Directors must use a fair degree of prudence. A fortiori if a director maliciously injures a corporation he is liable. So if he commits any ultra vires act, knowing it to be ultra vires, or even if as a reasonably prudent man he should have known, he is responsible.$4 Sec. 88. LIABILITY OF DIRECTOR TO THIRD PERSONS. A director acting as such may become responsible to third persons, by reason of making false reports, declaring dividends wrongfully, etc. If a director misuses his office to the injury of creditors or other persons, he is personally liable for the damage caused. Thus a creditor might hold him for using the funds out of which debts should be paid, for other purposes, as by declaring a dividend when the corporation is insolvent.95 Or if he makes false reports to give the corporation a standing it is not entitled to and to secure credit the corporation could not otherwise have obtained, a creditor who was meant to act on such a report and who did act upon it, could hold him personally,96 By statute in various states it is set out how a director may become liable in different ways to creditors.97 93. Hun v. Cary, 82 N. Y. 65. 94. McKinnon v. Morse, 177 Fed. 576; New Haven Trust Co. v. Doherty, 75 Conn. 555. 95. Lexington & O. R. Co. v. Bridges, 7 B. Mon (Ky.) 556, 46 Am. Dec. 528. 96. Morgan v. Skiddy, 62 N. Y. 319. 97. Fletcher Cyclopedia Corporation, Vol. 4, Sec. 2591-2647. Sec. 89. RIGHT OF DIRECTOR TO PROFIT BY THE RELATIONSHIP. The directors occupy a position of trust, and cannot use such position for purpose of secret profit and contracts with the corporation without full and fair disclosure of all facts and without, or without the vote of majority directors are voidable. (1) Director's position of a fiduciary character. A director is not technically a trustee, for he has no title to the corporate property, but he is in the position of a trustee so far as his duty toward the corporation is performed. He is entrusted by the stockholders with the affairs of the corporation. He is not given his office for purposes of taking advantage thereof, but in order to look after the interests of the corporation. (2) Right of director to contract with the corporation. If a director procures by his own vote a contract with himself in which his own interests are adverse to those of the corporation, the contract is voidable by the corporation or its stockholders regardless of the fairness of the contract, for the reason that the law will not permit the director to put himself in a position of temptation to betray the interests of the corporation for his own advantage. If, however, the contract is voted by other directors in a meeting in which the director contracted with is not counted to make up the quorum the contract is not voidable; provided, however, that the director made full disclosure of all material facts. Example 20. A., a manufacturer of iron furnishings, sold same to a corporation of which he was director, procuring the contract through his own vote. Held, a void able contract. "So strictly is this principle adhered to that no question is allowed to be raised as to the fairness or unfairness of a contract entered into.98 Example 21. If in the above case, the stockholders knowing all the facts consented to it, there would be ratification. Such a contract is voidable, not void, and becomes binding upon ratification by the shareholders.99 It is held that the director cannot be counted to make up the quorum where such a contract is voted to him although he does not vote himself,100 If the director is not the one who procures the contract by his own vote (or a vote of a majority of a quorum which he is needed to constitute), and the corporation is duly represented by other directors, a contract made with a director is not voidable. 101 But in such a case the director must make disclosure of every fact material to the bargain. A stranger may remain silent, so long as he does not actively conceal his knowledge, and there is no fraud thereby upon the other party to the contract. But a party in a fiduciary relation cannot remain silent. He must give the other party the benefit of his own information. And this general principle governing fiduciary relationships applies with full force to the situation at hand.102 98. Aberdeen Rwy. Co. v. Blackee, 1 Macq. 461, quoted from and approved in Steam Coal Co. v. Coal & Iron Co., 16 Md. 456, 77 Am. Dec. 311. 99. Kelley v. Newburyport, and A. H. R. Co., 141 Mass. 496, 6 N. E. 745. 100. Curtin v. Salmon River Hydraulic, etc. Co., 130 Cal. 345, 62 Pac. 552. 101. Manufacturing Co. v. Bradley, 105 U. S. 175; Twin Lick Co. v. Marbury, 91 U. S. 587. 102. Twin Lick Co. v. Marbury, supra. (3) Right of director to vote himself salary. A director is not entitled to a salary for services performed in the line of his duty unless agreed upon before the services were rendered, whether acting merely as director or as a member of a committee, or as an officer (president, etc.).103 (4) Right of director to compensation for special services outside the line of his duty. If a director renders services outside the scope of his duties as director, clearly he may recover compensation if it has been so expressly agreed upon before the services were rendered. But what if not expressly agreed upon? Pennsylvania cases hold that a director cannot recover even for special and unusual services unless before the services were rendered, there was express agreement.104 But the majority of cases hold that for services rendered outside the scope of his duties, the director (or other officer) can recover where he can show that prior to the rendition of the services it was understood or should have been understood that he expected compensation, but not otherwise. Example 22. P. was a director and the president of the First National Bank of G. The bank bought a building to be used as its official home. The directors voted to repair it and appointed P. as one of a committee of three on alterations and repairs. P. rendered valuable services in overseeing the repairs. P. sued for the reasonable value of his services. There was no express promise to pay him anything. Held, he could not recover as there was no 103. Citizen's Nat. Bk. v. Elliott, 55 Ia. 104, 7 N. W. 470. 104. Althouse v. Cobaugh Colliery Co., 227 Pa. 580. |