Mr. Justice Cartwright.
Appellee brought this suit upon a contract alleged to have been made and entered into with him by appellant, and set out in his declaration as follows:
“The Charter Gas Engine Company, a.corporation of Sterling, Illinois, and John Charter, of same'place, in settlement of all questions of royalties, and in lieu of all former contracts between them on the subject, do hereby mutually agree as follows:
Charter hereby grants to said company the exclusive right to manufacture and sell within and throughout the United States and the territories thereof, and in all countries where patents have not been obtained, gasoline engines under U. S. Letters Patent Ho. 465,388, granted to him July 7, 1891, for the term of said patent, together with all improvements in gasoline engines which he may hereafter make during said term.
Charter also agrees to accept four thousand dollars ($4,000) in full for royalties on engines made, sold and shipped by said company to July 1,1891, and ten per cent on net sales of gasoline engines made and sold or shipped by said company subsequent to July 1, 1891, statements of sales to be made to him every ninety days and royalties to be then due and payable on all of said engines then sold and paid for, and in proportion to payments made on any not wholly paid for.
Said company accepts the above and agrees to make said engines of good workmanship and material, and to make all reasonable efforts to introduce and sell gasoline engines containing said patented improvements, and to supply all demand therefor; but in case said company shall be unable to fully supply such demand, said Charter shall have the right to procure additional manufacture of said engines elsewhere.
This contract, however, is made subject to the following mutually agreed upon conditions, to wit:
Said Charter shall prosecute to final issue all infringers of said patent, so as to protect this company in its monopoly under said patent, and in case this company and said Charter can not agree as to whether a certain engine made, sold or used by others, without permission of this company, is an infringement of said patent, said question shall be decided b)r two reputable patent lawyers or patent experts, one to be selected by each of the parties hereto, and said two so selected, if unable to agree, to mutually select, a third person of like attainments to act with them; and the decision of said board or a majority of them, shall be conclusive and binding upon' the parties hereto, and if said decision shall be that the construction in question is an infringement , of said patent, said Charter shall prosecute, as aforesaid, the parties so offending, or otherwise suppress such infringement.
And it is a further condition of this contract that said Charter guarantees to said company the validity of his aforesaid letters patent to this- extent, that if said letters patent should hereafter be declared to be invalid, either by a court or a board of arbiters, which may be constituted as aforesaid, said company is to be no longer under obligations to pay royalties under said patent.
Executed in duplicate by the parties hereto, this 9th day of July, 1891.
Charter Gas Engine Co.,
[Seal.] G. M. Kobinson, Pres.
John Charter.”
The declaration also contained the common counts." To this declaration the defendant pleaded the general issue, and filed four special pleas alleging that said contract constituted the only cause of action and setting up defenses thereto. The first of these special pleas alleged that defendant was organized in 1871,under “An act to authorize the formation of corporations for maufacturing, mining, mechanical or chemical purposes,” approved February 18, 1857; that the board of directors who assumed to make the contract in question, were not legal directors of the company, because elected at a pretended stockholders’ meeting at which no notice was given to the stockholders as required by said act; that over one-third of the stockholders were not present and without notice or knowledge of the meeting; that such directors received a majority of votes by illegal cumulative voting of certain stockholders, and that plaintiff was a member of said board of directors who made the contract with him. The second special plea alleged that the contract was made upon the condition therein stated that plaintiff should, and would, protect defendant in its monopoly under the patent, but that the patent had been continuously infringed, whereby defendant was injured; yet the plaintiff, although notified, took no steps to interfere with infringements or to protect defendant. The third special plea alleged that the sole consideration of the contract was the representation of plaintiff that the patent was valid and would give defendant a monopoly of the manufacture and sale of gas engines of the construction and operation described in the patent, but that the patent contained no novel device or combination and did not secure defendant a monopoly in the construction of the gas engines. The fourth special plea, as amended, alleged that at the time of making the contract the patent had not been received by plaintiff, but that he represented to defendant that when received it would secure a monopoly of the manufacture and sale of the essential parts of the gas engine as made by defendant, and demanded $4,000 for royalties on manufactures by defendant from the date of application for the patent to July 1, 1891, and agreed that if defendant would pay said $4,000, and ten per cent of net sales after July 1, 1891, that the patent would secure sucli monopoly, and that in consideration of that promise defendant entered into the contract; but that the patent did not secure a monopoly because the things claimed as plaintiff’s invention were not new or novel.
A demurrer was overruled as to the first special plea and replications were filed thereto. Demurrers were sustained to the other special pleas, and defendant elected to stand by them, and now urges that the court was wrong in sustaining said demurrers.
The second special plea professed to answer the whole cause of action, but did not pretend to set up any defense to the promise to pay $4,000 for past use of the patent, and was bad for that reason, and also because, under its averments, all that could be claimed by defendant would be the damage suffered, and no damages were alleged. The third special plea was bad because it failed to allege that defendant had been disturbed in the use of the patent. A licensee can not raise the question of the validity of a patent as between the patentee and the United States, where such licensee has not been molested; because in such case the licensee has got all he bargained for. Marston v. Sweet, 66 N. Y. 266; Dean v. Hodge, 35 Minn. 146. By the contract set out in the declaration defendant was only to be absolved from further payment of royalties upon the patent being declared invalid by a court or board of arbiters. The same rules apply to the fourth amended special plea as to the third, and it presented no defense to the declaration. "We think that there was no error in sustaining demurrers to said pleas.
There was a trial and a verdict was returned for plaintiff for §0,112.05, on which the court, after overruling a motion for a n'ew trial, entered judgment.
The act under which appellant was organized provided "for an annual election of officers, to be held at such time and place as the board of directors might designate, of which a Avritten or printed notice should be giAren to each stockholder, personally, or sent to him through the post office, at least fifteen days before the day of election, at Avliich election each stockholder Avould be entitled to one vote for each share of stock held by him. It appeared at the trial that a meeting of stockholders Avas held January 20, 1891, and that notice Avas not given as provided in said act. There Avas a publication of notice in a neAvspaper for two weeks prior to the meeting, but it Avas not equivalent to the notice provided by the act under Avhich defendant AAras incorporated.
Every stockholder had a right to be present at that meeting, and it could not be legally held until after notice of the time and place had been given in an authentic and legal mode, unless all stockholders were present and consenting in person or by proxy. They Avere not so present. The Avhole nmnber of shares Avas 1,078 and only 768 Avere represented at that meeting. It is claimed, hoAvever, that although the charter prescribed a mode of giving notice, it was not necessary to pursue that mode for the reason that a particular day Avas fixed by the by-laAvs. The bylaAV offered in evidence AAras as follows: “ Article 1st. The corporation shall be under the control of a board of directors avIio shall be elected yearly, on the second Tuesday in June, in the city of Sterling, at such place and hour as shall be determined by the president and secretary, íavo weeks notice of which time of election shall be published in some newspaper in the city of Sterling; and in case of the failure to elect on such day, for any cause, an election may be held on any Tuesday thereafter.” The meeting in question was held in January, and the presumption that every stockholder knew the day in June appointed by the by-laws for the regular meeting would rather tend to prove the illegality of the meeting than its legality. Mr. Robinson, the president, testified that the time was afterward changed to January, but how or by whom does not appear. hTo record of any change appeared, and the only evidence of any day of which the stockholders had any notice by the records of the company was in June. Besides, if it be conceded that a by-law is notice of the day of a meeting so as to dispense with the notice required by the charter, a by-law like the one in question is still insufficient, because no ¡dace or hour is named. In San Buenaventura Com. Mining and Mfg. Co. et al. v. Vassault et al., 50 Cal. 534, it was held that the fact that a by-law names a day upon which, instead of a week within which, the annual meeting is to be held, while it may diminish, does not remove the uncertainty as to the time at which it is to be held, and that such a by-law is insufficient as notice. Even if the month was changed from June to January, so as to afford notice to the stockholders, the necessity of the statutory notice was not thereby removed.
At that meeting the plaintiff and three of his associate stockholders cumulated their votes upon themselves for directors, while the other stockholders each cast one vote for each share of stock held by them for each of the seven directors. The four received a majority of the votés cast, and they were a majority of the board that subsequently acted as such: The evidence proved, however, that by counting only the votes which the parties cumulating their votes were legally entitled to cast, there was still a majority of votes for said four persons as directors.
The persons so chosen as directors elected a president and secretary and acted as directors until the next meeting of stockholders, January 19,1892. Said board met three times during the year, once to elect the president and secretary, and twice to make this contract. At the time of the meeting of January 20, 1891, and previous thereto, the defendant was manufacturing the same style of gas engine mentioned in the contract, which plaintiff claimed as his invention and continued to manufacture and sell the same. At a meeting of the directors held June 29, 1891, the plaintiff and two other directors were appointed a committee to confer with plaintiff regarding the matter of royalties, and such committee was to report to ail adjourned meeting to be held July .8,1891. At the adjourned meeting held on the latter date, the plaintiff and the other directors, except 0. E. Tracy, being present, the contract was authorized by the board and it bears that date. Plaintiff was one of the committee to confer with himself and one of the board that directed the making of the contract. After the making of the contract there was no visible change in the business of the company, but it continued to make and sell the same engine as before.
The questions raised and argued in this court touching\^ the validity of the contract are mainly whether the plaintiff, as an acting member of the board of directors, ivas incapacitated in law from contracting for his own benefit with the corporation which he represented, through the board of which he was a member, so as to bind the corporation; and if he was not incapacitated by his relation to the corporation, whether the directors, having been permitted to act as such, had power to bind the corporation, as a de faeto board, by a contract with plaintiff, who had notice of the irregularity and consequent infirmity of title to the office.
In considering the first question, the plaintiff is to he treated as a director, regardless of the manner of his election. Having claimed to be a director and acted as such, he is to be treated as such so far as his claim against the defendant is concerned. 1 Redfield on Railways, 584.
While a stockholder represents no interest but his own, a director occupies a trust relation toward all the stockholders. That relation demands that he should act in the interest of those whom he represents. His authority is conferred upon the trust and confidence that it will be exerted only for the interest of the stockholders, and not for his private gain or advantage. Being so conferred, he is bound to manage the business intrusted to him in the interest of the stockholders alone, and by the most obvious rules of justice is forbidden to administer the affairs of the corporation for his private emolument. Accordingly,it has been held in numerous cases that a director can not, without the assent of the stockholders, become a contractor with the corporation, or have any personal or pecuniary interest in a contract between it and a third person, and that such contracts are voidable at the instance of the corporation or' of stockholders. The corporation is entitled to the best efforts of the director for its exclusive benefit, and by entering into a contract with the board of which he is a part for his private gain, it is held that he disregards and violates his duty. He thereby places himself in a situation where his personal interests conflict with the interests of the stockholders and with the duties that he owes to them and the corporation. In Aberdeen Railway Co. v. Blaikie, 1 Macq. 461, it was held to be a rule of universal application that no one having duties to discharge of a fiduciary character shall he allowed to enter into engagements in which he has or can have a personal interest conflicting, or which may possibly conflict, with the interests of those whom he is hound to protect. In Wardell v. Railroad Co., 103 U. S. 651, a contract had been made, by direction of an executive committee of the board of directors of the Union Pacific R. R. Co., with Godfrey and Ward ell, which contract was assigned to a corporation in which directors of the company were stockholders, and it was said to be among the rudiments of the law. that the same person can not act for himself, and, at the same time, with respect to the same matter, as the agent of another whose interests are conflicting, and that directors of corporations can not enter into or authorize contracts on behalf of those for whom they are appointed to act, and then personally participate in the benefits.
In Gardner v. Butler, 30 N. J. Eq. 702, it is said to be well settled that “ directors of a company shall not be permitted to enter into engagements in which they have a personal interest conflicting with the interests of those whom they are bound by fiduciary duty to protect, and that no consideration of their apparent or intrinsic fairness will induce a court, either of law or equity, to enforce them against the resisting cestui que trustP It is held that a trustee can not fortify himself with a contract in violation of duty, and set it up either in law or equity as a valid obligation. In the case of Thomas v. Brownville, Fort Kearney and Pacific R. R. Co., 109 U. S. 524, a contract made by directors of a railroad company with a construction company in which they were interested was held voidable, and stockholders having repudiated the contract it was held void. The rule that a trustee can not enter into any relation or place himself in any position which would subject him to conflicting duties or expose him to, the ten' ptation of acting contrary to the best interests of his cestui que trust applies to directors, and a contract connected with the trust or its management entered into in violation of duty is voidable, and may be defeated or set aside at the suit of the beneficiary. 2 Pomeroy’s Eq. Jur., Sec. 1077; San Diego v. San Diego & L. A. R. R. Co., 44 Cal. 106; Barnes v. Brown, 80 N. Y. 527; Risley v. I. B. & W. R. R. Co., 62 N. Y. 240; Railroad Co. v. Poor, 59 Me. 277; Flint, etc., Railroad Co. v. Dewey, 14 Mich. 477; Paine v. L. E. & L. R. Co., 31 Ind. 283; Hoffman Steam Coal Co. v. Cumberland Coal Co., 16 Md. 456; Simons v. Oil Co., 61 Penn. St. 202; In re Coalbrook Railway Co., 18 Beav. 339; Coal Co. v. Sherman, 30 Barb. 553.
It is contended that the question has been settled in this State the other way. We do not so understand. The only questions that have been before the Supreme Court, so far as we know, relate to the right of directors or officers to loan money to the corporation and take securities, and to obtain payment of debts due them from the corporation. In Merrick v. Peru Coal Co., 62 Ill. 472, the question was whether Merrick, who was an officer of the corporation, and who had purchased with his own means, notes and drafts made by the corporation to persons in no wise connected with it, and which were undeniably binding upon it, could sue and recover from the corporation the money paid for the same. It was there said that an officer of a corporation has a right to deal with it in the same manner as strangers-may, and in such case each party acquires the same rights and incurs the same liabilities as would strangers; but the only kind of dealing that was in question was that above stated, and the court subsequently refused to be bound by what was said.
In Harts v. Brown, 77 Ill. 226, the question was whether a director could loan money to the corporation and take a mortgage on corporate property with a power of sale. In that case the Supreme Court said: “ We have never known it questioned that a director or stockholder may trade with, borrow from of loan money to the corporation of which he is a member, on the same terms and in like manner as other persons. He then had power to loan money to the company and they became liable to pay the same.” This statement was evidently intended to refer only to a loan of money.
Darst v. Gale, 83 Ill. 136, was a bill to enjoin a sale on a trust deed executed by a corporation to Pulsifer and others, and it was held that the fact that Pulsifer was for a time one of the directors of the corporation, in the absence of evidence showing bad faith in his transactions with the company, was of no moment; and that he might, acting in good faith and fairly, as lawfully advance money to the corporation, upon the faith of its securities, as any one else.
In Beach v. Miller, 130 Ill. 162, Miller, who was a director, had loaned the corporation $2,000 and taken judgment notes. The president and secretary sold to him property to the amount of $1,877, to be applied as a payment on the notes. The judgment in favor of Miller, based on rights claimed under that sale, was reversed on account of a refusal to admit evidence of the insolvency of the corporation at the time of the sale, and it was held that the facts offered to be proven were proper for the consideration of the jury on the question whether the sale to Miller was fraudulent as to other creditors. It was there said: “ While a corporation remains solvent, we perceive no reason why a director, with the knowledge of the stockholders, may not deal with the corporation, loan it money, take security or buy property of it, in like manner as a stranger. * * "" So long as a corporation remains solvent, its directors are agents or trustees for the shareholders. They owe no duties or obligations to others.”
But it was held that if the corporation was insolvent, the directors would occupy a different relation and hold its assets in trust for creditors, and in that event Miller could not take the property purchased in exclusion of the other creditors, but would take it charged with a trust in favor of all creditors, himself included, and all should share in it. It was there further said that the expressions made in Merrick v. Peru Coal Co. and Harts v. Brown, supra, to the effect that a director had a right to deal with his corporation the same as a stranger, were not authorized by the cases under consideration.
In Roseboom v. Whittaker, 132 Ill. 81, the rule laid down in Beach v. Miller, supra, and above quoted, was repeated and affirmed. By that rule the directors of a corporation during its solvency are agents or trustees for the stockholders, and it is made a condition of their right to deal with the corporation that such dealings shall be with the knowledge of the stockholders.
The requirement of knowledge presupposes a right in the ¡ stockholders of approval or rejection of proposed dealings, for knowledge merely would be of no avail unless for the. purpose of enabling them to exercise a right.
In none of these cases was there any contract of the nature of the one in question, and they all come within a recognized exception to the rule, as will be hereafter seen.
In Beach v. Miller the court refers to the following cases as announcing the correct doctrine concerning dealings of a director with his corporation. Twin Lick Oil Co. v. Mar-bury, 91 U. S. 587; Whitehall v. Warner, 20 Vt. 425; Smith v. Lansing, 22 N. Y. 526; City of St. Louis v. Alexander, 23 Mo. 483.
Twin Lick Oil Co. v. Marbury was a case where Marbury, who was a director of the Twin Lick Oil Oo., loaned the corporation $2,000, for which a note was given secured by a trust deed. The property was sold under the trust deed and bought for Marbury and conveyed to him. The bill in the case was filed four years afterward, to have him declared a trustee of the corporation and for an accounting. The court found that the loan was made in good faith, to assist the corporation in embarrassment, and that the purchase by Mar-bury was the only way for him to make his money. The court said that contracts of directors with their corporations were generally not absolutely void, but voidable, and that no rule of law forbade a director loaning money to the corporation in good faith when it was needed. Such a rule, it was said, would deprive a corporation of the aid of those most interested in it and most likely to render assistance, and would afford no protection to the corporation. The court declined to decide whether the sale and deed were voidable -at the election of the company, because the company came tod late with the offer to avoid the sale.
The case of White well v. Warner, 20 Vt. 425, holds that constructive fraud is not to be predicated of the mere fact of a stockholder availing himself of his superior advantages to obtain security for debts due to himself to the exclusion of other creditors; and that while the courts would no doubt guard the exercise of such a privilege with some degree of severity, yet they should not watch the exercise of a right with so much strictness as to declare its mere exercise to be a constructive fraud.
The case of Smith v. Lansing, 22 New York, 520, was a suit by Smith, as receiver of a bank which had no board of directors, against Lansing, who was president and managing officer and agent of the bank, which had applied for and received deposits of canal moneys of the State of Mew York, upon condition that it should give security for the return of such, deposits; and Lansing had entered into bonds for the repayment of the moneys so deposited, and had purchased in his own name three parcels of real estate upon which the bank had mortgages, and the entire consideration paid or allowed wras the money and property of the bank. He took the conveyances to himself for the purpose of securing himself and his co-sureties for their liabilities aforesaid.
The judge below held that the defendant could hold the lands to secure himself and his co-sureties for the sum of $±8,501.78, which they had paid or remained liable to pay, and he ordered judgment for a conveyance to the receiver, upon his paying that sum, or that, at the election of the plaintiff, the lands should be sold and the first proceeds appropriated to indemnify the president and his co-sureties. This judgment was reversed at the general term, but was affirmed by the Court of Appeals. It was said: “ It is undeniably a well settled general rule that where one acts as agent, trustee, guardian, executor, or administrator in the purchase or sale of property, or in the transaction of other business, in a fiduciary relation, the law will not permit him, in such purchase, sale or transaction, to act in his own name and for his individual benefit. This rule has been established in consequence of the liability of mankind to be influenced by the motive of selfishness, which would, in most cases, lead the agent, etc., to give an undue prominence to his own interest, to the injury of that of his principal, etc. 6 This rule/ says Judge Story, ‘ is founded on the plain and obvious consideration that the principal bargains, in the employment, for the exercise of the disinterested skill, diligence and zeal of the agent, for his own exclusive benefit. It is a confidence necessarily reposed in the agent, that he will act with a sole regard to the interests of his principal, as far as he lawfully may; and, if impartiality could possibly be presumed: on the part of the agent, where his own interests were concerned, that is not what the principal bargains for; and, in many instances, it is the very last thing which would advance his interests.’ Story on Agency, Secs. 210, 211, and authorities there cited. In the case of Moore v. Moore, 1 Seld. 256, Judge Gardiner uses the following language: ‘The law does not stop to speculate upon the probabilities that the agent has resisted temptation; it removes the temptation, by proclaiming in advance that he shall not acquire the property. The rule is a most reasonable and wholesome one, and has been too long settled to require the approbation of this court to commend it to the judgment and conscience of every intelligent mind for its support.’ If, therefore, the present case falls within the influence of this principle, the judgment of the general term of the Supreme Court should be affirmed.”
It was held, however, that the case did not come within the rule; and that it was lawful for Lansing to apply for and receive the moneys, and his duty to do so, if he supposed they could be used to advantage in the business of the association. The moneys could not be obtained without security beyond the corporate responsibility of the association; he was then bound to furnish such security, if in his power, and in doing so it was lawful for him to pledge the property of the association to indemnify the sureties. He procured others to unite with him on the bonds, and had a right to indemnify himself and his co-sureties through the property and means of the association against his and their liabilities so incurred. To secure such indemnity was a duty the defendant owed not only to himself, but pre-eminently to the sureties whom he had procured to be bound with him; and it was held that what was fairly and honestly done for such purpose should be allowed to stand.
The case of City of St. Louis v. Alexander, so far as the question of the right of a director to deal with the corporation was involved, related only to the right of such director, who is also a creditor, to use any fair means to obtain security for his debt.
It will be seen, therefore, that the cases referred to by the Supreme Court in Beach v. Miller, were of the same character as the cases decided by that court, and did not relate to the right of a director to enter into a contract of the nature of this one, by which §4,000 was to be transferred from the assets of the corporation to the director, and he was to have ten per cent of the proceeds of its business for a long term of years. The cases either relate to making advances to, or incurring liabilities for the corporation in good faith and obtaining payment or security therefor, or belong to the class of Beach v. Miller, which was merely a competition among creditors, where the corporation had no interest. It is not supposed, because a creditor is also a director, that he is thereby disqualified from entering into fair competition with other creditors. This case involves the question whether a director having duties of a fiduciary nature to discharge toward stockholders shall be allowed to enter into a contract of this kind, in the making of which he has a personal interest conflicting with the interests of the stockholders whom he is bound to represent and protect, and shall be allowed to enforce such contract against the resisting corporation. lie have not been able to find any case where such a contract has been so enforced, and we think that this one can not be.
. As held in Twin Lick Oil Co. v. Marbury, supra, a loan of money to the corporation when needed is not within the rule, because to apply the rule in such case would deprive the corporation of aid and afford it no protection. See also Sutter Street R. R. Co. v. Baum, 66 Cal. 44, where it is held that a director may advance money to the corporation in good faith. 1 Beach on Private Corporations, Sec. 245. So in Dunscomb et al. v. N. Y. H. & R. R. R. Co. et al., 84 N. Y. 190, it is said that the rule can have no application where the transaction consists in the officer taking collateral security for a debt honestly due him, since the payment of the debt or the discharge of the liability is an essential prerequisite of the avoidance of the transaction; but the general rule of a disability imposed upon a director to deal in his own behalf 'in respect to any matter involving his duties to the stockholders is distinctly recognized.
Advances of money by directors in good faith and in case of need, and taking security for repayment, are upheld by the courts, and a rule against them would be injurious rather than beneficial to stockholders. Besides, there is no rule which prohibits a corporation from availing itself of property of a director necessary for its convenience or profit, under circumstances implying a contract to pay a reasonable compensation therefor. Rider v. Union India Rubber Co., 5 Bosw. 85. If money has been advanced or property furnished in good faith by a director, the corporation is liable to him on an implied assumpsit. The rule is not made to enable a corporation to appropriate the money or property of a director for less than it is reasonably worth, and there may be a recovery of such reasonable worth. So that in case of a loan there is an enforceable implied contract regardless of the express contract. The rule is adopted to secure justice, not to work injustice; to prevent a wrong, not to substitute one wrong for another; and there may be a recovery upon a quantum meruit. Wardell v. Railroad Co., 103 U. S. 651; Gardner v. Butler, 30 N. J. Eq. 702.
The view we have taken of the contract renders it unnecessary to consider the question concerning the power of a de facto board as between a member of such board and the corporation, since the liability of the corporation for the value of the right appropriated and used would be the same in any view of that question. There would be an implied contract to pay what the use of the patent was reasonably worth.
There are some objections to instructions given for plaintiff. The first told the jury that if two-thirds of the capital stock was represented at the meeting at -which plaintiff and his associates, James Charter, L. hi. Barrett and C. F. Tracy, were said to have been elected, and that a majority of the stock so represented ivas cast for the said four directors, then said directors should be considered legally elected. It ignored the question whether any notice was given which would authorize holding the meeting at all, and was bad. The third stated that although the jury might believe that the contract was made by a board irregularly elected,, yet if they further found from the evidence that defendant, by its subsequent conduct, ratified the making of such contract, they should find for plaintiff. As it is a question of law what will make a valid contract, so it is a question of law what will make it valid as a ratification, if proven; and the instruction was wrong in allowing the jury to determine that the contract was ratified from any fact appearing in evidence which they might fancy a ratification.
The fourth and fifth stated that if defendant made and sold gasoline engines according to the contract, then the defendant had ratified the contract. Ho one could ratify the contract except those who could have made or authorized it, and the only evidence of action under the contract and in acknowledgment of it was by the persons who made it.
They could not ratify their own contract so as to bind any one whom they could not hind by making it. Paine v. L. E. & L. R. R. Co., 31 Ind. 283. Such a contract is not void, but voidable at the election of the parties affected; and while the stockholders might prefer to ratify it, or submit to it, yet the ratification or acquiescence which would prevent them from resisting it must be established by' their conduct. The right to repudiate must be lost by affirmative act, or by unreasonable delay after opportunity to act with ’freedom, and with full knowledge of all material facts. ' '
In Mallory v. Mallory Wheeler Co., Supreme Court of Errors, Conn., June 1, 1891, 5 Am. R. R. & Corp. Rep. 509, a suit for salary as manager and director of a corporation was successfully defended against on the ground of the personal interest of the directors making the contract. The contract was entered into October 31,1881. There was a stockholders’ meeting in May, 1888, and there was no evidence that the stockholders knew of the contract before that, and there was no other meeting until the annual meeting in May, 1889, when a new board of directors was chosen, that repudiated it; and it was held that the delay could not operate as ratification, waiver, acquiescence or estoppel, and that the right of the corporation to avail itself of the original invalidity of the contract was not lost. Such a contract, being voidable merely, does not necessarily require any independent and substantive act of ratification; but it may become finally established as a valid contract by acquiescence for such a length of time as would amount to a waiver of the right to avoid it. Kelly v. N. & A. Horse R. R. Co., 141 Mass. 496. But the contract did not become binding on the stockholders from the fact that there was some manufacture and sale of gasoline engines by the same board that made the contract.
The judgment will be reversed and the canse remanded.
Reversed and remanded.