Adams, J.
The plaintiffs’ motion to cancel the alleged lease and to prevent exclusive control of the hospital by one of the defendants is based upon three propositions: (1) The making of the lease was
ultra vires;
(2) it was not authorized by a majority of the members of the company; (3) the defendant J. L. Nicholson was an officer of the com
pany and by exercising a controlling influence over tbe other members acquired exclusive control of the hospital without substantial consideration.
1. The general rule is that a corporation possesses only such powers as are expressly conferred upon it or such as are reasonably incidental to the powers expressly conferred and that its principal business is to be confined to the scope and compass prescribed for the general purpose of its creation; but it may ordinarily engage in transactions incidental to its main business when they are necessary, expedient, or. profitable in the care and management of the property which it is authorized to hold. “To ascertain whether any particular act is
ultra vires
(beyond the powers) of the corporation or not, the main purpose must first be ascertained; then the special powers for effectuating that purpose must be looked for, and then, if the act is not within either the main purpose as described in or the special powers expressly given by the statute, the inquiry remains whether the act is incidental to or consequential upon the main purpose and is a thing reasonably to be done for effectuating it.”
Attorney-General v. Mersey Ry. Co.,
L. R. (1907), 1 Ch. Div., 81; L. R. (1907), A. C., 415 (Eng.).
We have given the certificate of incorporation, the deed executed to the hospital company, the instrument purporting to be a lease, and the record evidence our careful consideration, and have concluded that upon the facts now appearing we cannot hold as a matter of law that the execution of the lease (if it was authorized and properly executed) was beyond the powers conferred upon the plaintiff company; but as the corporate object was to build, conduct, maintain, and carry on a hospital for the care of those who are sick and to train nurses for them, we are of opinion that the lease, possibly incidental to the main purpose of the corporation, can be sustained only on the ground that its execution was necessary to the accomplishment of the object originally contemplated in the certificate of incorporation,, and that the burden is upon the lessee to establish -such necessity.
The plaintiffs contend that the effect of the lease is to destroy the cooperative character and the democratic control of the association and to defeat the very purpose for which the company was organized"; and the defendants insist that the former method of control resulted in failure and menaced the usefulness, as well as the continuance, of the institution. The evidence in reference to these contentions is meagre and inadequate and further inquiry concerning them as hereafter indicated, is essential to the final determination'of the controversy.
2. The plaintiffs insist also that the lease was not executed by a majority of its members and is therefore void, even if its execution was not
ultra vires.
It will be noted that this is a charitable organization, without capital stock, composed of reputable white physicians residing in the town of Washington, with the exception of five members who are not and need not be physicians or surgeons. In the certificate, as in the by-laws, the corporators are designated as “members”; the word “trustee” is not used. There is no board of directors, though the by-laws provide for a board of three supervisors. On 25 February, 1920, the members were increased to ten and on 20 of the following August to thirteen: S. T. Nicholson, P. A. Nicholson, J. L. Nicholson, L. H. Swindell,. John W. Williams, C. McGowan, J. C. Rodman, E. M. Brown, physicians, and C. G. Morris, A. M. Dumay, E. M. Ayers, S. R. Mixon, and J. I. Randolph, laymen.
The minutes of the meeting held on 4 January, 1921, record the following as voting for the lease: C. G. Morris, A. M. Dumay, E. W. Ayers, E. R. Mixon, P. A. Nicholson, L. H. Swindell, C. McGowan, and S. T. Nicholson; and John W. Williams and J. L. Nicholson as not voting. J. C. Rodman, E. M. Brown and J. F. Randolph did not attend the meeting.
The plaintiffs contend that in the absence _ of a special provision to the contrary the vote of a majority of all the members of the association was essential to granting the lease, and that a majority of the members did not vote for it. It is particularly contended that although L. H. Swindell is recorded in the minutes as having voted he was called away before any business was transacted and did not vote in the meeting of 4 January, 1921; that McGowan was not a duly elected member and had no right to vote; that J. L. Nicholson did not vote; and that only six votes were cast in favor of the lease. This position is assailed by the defendants, who say only nine members of the association attended this meeting, eight of whom voted for the lease. These contentions present two questions: (1) Whether the vote of a majority of all the members was necessary to authorize and effectuate the lease; (2) whether McGowan’s vote should be excluded from the count.
In
Cotton Mills v. Comrs.
108 N. C., 678, it is said: “The courts of this country have generally adopted the common-law principle that if an act is to be done by an incorporated body, the law, resolution, or ordinance, authorizing it to be done is valid if passed by a majority of those present at a legal meeting.”
This is the prevailing rule. If then, the names of L. H. Swindell and C. McGowan be excluded, it still appears that a quorum attended the meeting and that a majority of those present voted for the lease. For this reason it is not necessary to consider the latter of the two questions.
3. The plaintiffs say, in addition, that J. L. Nicholson, the lessee, was not only a member of the corporation, but an officer when the lease
was executed and for several years bad been in charge of tbe hospital as superintendent and financial manager. They contend that he exercised a controlling influence over the members who voted for the lease; that the transaction in effect was a contract made by himself and others with himself contrary to the purpose of the founders of the institution, and effected by means of a constructive fraud upon the minority.
When an officer or director of a corporation purchases or leases its property, the transaction is voidable, not void, and will be sustained only when openly and fairly made for an adequate consideration. The presumption is against the validity of such contract and when it is attacked the purchaser or lessee must show that it is fair and free from oppression, imposition, and actual or .constructive fraud. Firmly established in our jurisprudence is the doctrine that a person occupying a place of trust should not put himself in a position in which self-interest conflicts with any duty he owes to those for whom he acts; and as a general rule he will not be permitted to make a profit by purchasing or leasing the property of those toward whom he occupies a fiduciary relation without affirmatively showing full disclosure and fair dealing.
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Adams, J.
The plaintiffs’ motion to cancel the alleged lease and to prevent exclusive control of the hospital by one of the defendants is based upon three propositions: (1) The making of the lease was
ultra vires;
(2) it was not authorized by a majority of the members of the company; (3) the defendant J. L. Nicholson was an officer of the com
pany and by exercising a controlling influence over tbe other members acquired exclusive control of the hospital without substantial consideration.
1. The general rule is that a corporation possesses only such powers as are expressly conferred upon it or such as are reasonably incidental to the powers expressly conferred and that its principal business is to be confined to the scope and compass prescribed for the general purpose of its creation; but it may ordinarily engage in transactions incidental to its main business when they are necessary, expedient, or. profitable in the care and management of the property which it is authorized to hold. “To ascertain whether any particular act is
ultra vires
(beyond the powers) of the corporation or not, the main purpose must first be ascertained; then the special powers for effectuating that purpose must be looked for, and then, if the act is not within either the main purpose as described in or the special powers expressly given by the statute, the inquiry remains whether the act is incidental to or consequential upon the main purpose and is a thing reasonably to be done for effectuating it.”
Attorney-General v. Mersey Ry. Co.,
L. R. (1907), 1 Ch. Div., 81; L. R. (1907), A. C., 415 (Eng.).
We have given the certificate of incorporation, the deed executed to the hospital company, the instrument purporting to be a lease, and the record evidence our careful consideration, and have concluded that upon the facts now appearing we cannot hold as a matter of law that the execution of the lease (if it was authorized and properly executed) was beyond the powers conferred upon the plaintiff company; but as the corporate object was to build, conduct, maintain, and carry on a hospital for the care of those who are sick and to train nurses for them, we are of opinion that the lease, possibly incidental to the main purpose of the corporation, can be sustained only on the ground that its execution was necessary to the accomplishment of the object originally contemplated in the certificate of incorporation,, and that the burden is upon the lessee to establish -such necessity.
The plaintiffs contend that the effect of the lease is to destroy the cooperative character and the democratic control of the association and to defeat the very purpose for which the company was organized"; and the defendants insist that the former method of control resulted in failure and menaced the usefulness, as well as the continuance, of the institution. The evidence in reference to these contentions is meagre and inadequate and further inquiry concerning them as hereafter indicated, is essential to the final determination'of the controversy.
2. The plaintiffs insist also that the lease was not executed by a majority of its members and is therefore void, even if its execution was not
ultra vires.
It will be noted that this is a charitable organization, without capital stock, composed of reputable white physicians residing in the town of Washington, with the exception of five members who are not and need not be physicians or surgeons. In the certificate, as in the by-laws, the corporators are designated as “members”; the word “trustee” is not used. There is no board of directors, though the by-laws provide for a board of three supervisors. On 25 February, 1920, the members were increased to ten and on 20 of the following August to thirteen: S. T. Nicholson, P. A. Nicholson, J. L. Nicholson, L. H. Swindell,. John W. Williams, C. McGowan, J. C. Rodman, E. M. Brown, physicians, and C. G. Morris, A. M. Dumay, E. M. Ayers, S. R. Mixon, and J. I. Randolph, laymen.
The minutes of the meeting held on 4 January, 1921, record the following as voting for the lease: C. G. Morris, A. M. Dumay, E. W. Ayers, E. R. Mixon, P. A. Nicholson, L. H. Swindell, C. McGowan, and S. T. Nicholson; and John W. Williams and J. L. Nicholson as not voting. J. C. Rodman, E. M. Brown and J. F. Randolph did not attend the meeting.
The plaintiffs contend that in the absence _ of a special provision to the contrary the vote of a majority of all the members of the association was essential to granting the lease, and that a majority of the members did not vote for it. It is particularly contended that although L. H. Swindell is recorded in the minutes as having voted he was called away before any business was transacted and did not vote in the meeting of 4 January, 1921; that McGowan was not a duly elected member and had no right to vote; that J. L. Nicholson did not vote; and that only six votes were cast in favor of the lease. This position is assailed by the defendants, who say only nine members of the association attended this meeting, eight of whom voted for the lease. These contentions present two questions: (1) Whether the vote of a majority of all the members was necessary to authorize and effectuate the lease; (2) whether McGowan’s vote should be excluded from the count.
In
Cotton Mills v. Comrs.
108 N. C., 678, it is said: “The courts of this country have generally adopted the common-law principle that if an act is to be done by an incorporated body, the law, resolution, or ordinance, authorizing it to be done is valid if passed by a majority of those present at a legal meeting.”
This is the prevailing rule. If then, the names of L. H. Swindell and C. McGowan be excluded, it still appears that a quorum attended the meeting and that a majority of those present voted for the lease. For this reason it is not necessary to consider the latter of the two questions.
3. The plaintiffs say, in addition, that J. L. Nicholson, the lessee, was not only a member of the corporation, but an officer when the lease
was executed and for several years bad been in charge of tbe hospital as superintendent and financial manager. They contend that he exercised a controlling influence over the members who voted for the lease; that the transaction in effect was a contract made by himself and others with himself contrary to the purpose of the founders of the institution, and effected by means of a constructive fraud upon the minority.
When an officer or director of a corporation purchases or leases its property, the transaction is voidable, not void, and will be sustained only when openly and fairly made for an adequate consideration. The presumption is against the validity of such contract and when it is attacked the purchaser or lessee must show that it is fair and free from oppression, imposition, and actual or .constructive fraud. Firmly established in our jurisprudence is the doctrine that a person occupying a place of trust should not put himself in a position in which self-interest conflicts with any duty he owes to those for whom he acts; and as a general rule he will not be permitted to make a profit by purchasing or leasing the property of those toward whom he occupies a fiduciary relation without affirmatively showing full disclosure and fair dealing. Upon this principle it is held that a director who exercises a controlling influence over codirectors cannot defend a purchase by him of corporate property on the ground that his action was approved by them. 14 A. C. J., 112, sec. 1880;
Railroad v. Bowler,
1 Bush (Ky.), 468;
Wing v. Dillingham,
239 Fed., 54;
Lime Works v. Moss,
70 So. R. (Ala.), 292;
Hoffman v. Reichart,
37 A. S. R. (Ill.), 219;
McIver v. Hardware Co.,
144 N. C., 478.
Though not occupying the technical position of agent, trustee, or director, the lessee at the time the lease was executed was one of the members who had the management of the institution and the effect of the lease is to vest in him the exclusive control with right to receive the entire revenue. In these circumstances it is encumbent upon him to show that the lease was fairly and openly authorized and executed for an adequate consideration and that its execution was free from undue or controlling influence, oppression or imposition.
The facts in regard to these matters as well as to the necessity of the lease may be submitted to and determined by the jury upon proper issues.
It is suggested by the defendants that the present action cannot be maintained; but there is some evidence that it was duly authorized, and as the evidence concerning the contention is not satisfactory we think a more comprehensive statement of the facts is expedient if not absolutely necessary.
"We approve bis Honor’s judgment denying tbe motion to cancel tbe lease or to continue tbe restraining order upon tbe present record, but we think tbe cause should be remanded for determination of tbe two questions involved in tbe first and third propositions on which tbe plaintiffs insist, and for additional evidence as to tbe circumstances under which tbe suit was brought.
Remanded.
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