Battelle v. Northwestern Cement & Concrete Pavement Co.

33 N.W. 327, 37 Minn. 89, 1887 Minn. LEXIS 40

• Court: Supreme Court of Minnesota
• Decided: June 13, 1887
• Status: Published

Opinion

Gilfillan, 0. J.

It is self-evident, that a corporation is not bound by engagements of its “promoters,” (i. e., those who bring about its organization,) assuming to contract for it in advance. It cannot have-agents till it has an existence. The promoters are not the corporation, and their contracts cannot be its contracts. This is so, though the promoters become, at the creation of the corporation, its only stockholders, directors, and officers. After it comes into existence- and operation, it may, by adopting the engagements thus made for it in advance, make them its contracts, precisely as it might make similar contracts had no previous engagements been entered into. There can be no difference between its making a contract by adopting an agreement originally made in advance for it by promoters, and its making an entirely new contract. No greater formality can be required in the one case than in the other; and if it could make an entirely new similar oontraet, without the use of its seal, or without writing, or without formal action of its board of directors, it may also so adopt an agreement assumed to be made for it in advance by promoters. It is not requisite that such adoption or acceptance be express, but it may be shown from acts or acquiescence of the corporation or its authorized agents as any similar contract may be shown.

It is true that the relations between the promoters and the agents and shareholders may be such, or the engagements made in advance by the promoters be of such a character, that the matter of adoption will be scrutinized by the courts with great strictness. The highest degree of fairness is required. In this case no complaint can be made-as to the fairness of the transaction. Not only did every stockholder and director and officer of the corporation, after it was formed, know that the property was conveyed to it upon the agreement that, when formed, it should assume and pay the indebtedness to which the property was subject, but each of them was a party to that agreement. After receiving the benefit of the previous engagement, and accepting and using the property in its business, knowing that, as part of the price of the property, the corporation was to pay the indebtedness, it can hardly be permitted now to deny its liability to pay it; and the same may be said as to the claim that, because plaintiff was a’direetor, the agreement of the corporation, by its adoption of the previous arrangement with him, was not binding upon it. The rule that a contract between a director of a corporation and the corporation is voidable at the instance of the latter, or of its stockholders, cannot be applicable to a case where all interested in the corporation, its officers, directors, and stockholders, not only know of but consent to it, and where the property acquired by the corporation under the contract is kept and used by it, no one dissenting.

The evidence was sufficient to sustain a verdict for plaintiff, within the rules herein stated.

Order affirmed.