ment of shares to subscribers to two of their number and the manager, nor can they confer upon the manager of the company the power to purchase of a stockholder his shares. But the directors having determined upon a mortgage, may commit to some other officers of the company the execution thereof. And they may delegate the powers of the board in ordinary business affairs to a committee of the board, which committee may even pledge or mortgage property.

§ 231. The same subject continued - Executive committees. Notwithstanding the rule against the delegation of discretionary powers, the affairs of many great corporations are largely conducted by executive committees appointed by the directors from among themselves. These committees perform most, if not all, the ordinary functions of the board itself, and legality is imparted to their acts through subsequent ratification thereof by the board at its regular meetings. It has

1 In re Leeds Banking Co., (1867) to intrust to them. 8 Vict. ch. 16, 36 L. J. Eq. 42. § 95. The power which may be 2 In re County Palatine &c. Co., granted to any committee to make (1874) 43 L. J. Eq. 588.

Saltmarsh v. Spaulding, (1888) 147 Mass. 224; Burrill v. Bank, 2 Metc. 166; s. c. 35 Am. Dec. 395.

4 Hoyt v. Thompson, (1859) 19 N. Y. 205; Burrill v. Nahant Bank, (1840) 2 Metc. 163.

Cf. Sheridan Electric Light Co. v. Chatham Nat. Bank, (1889) 59 Hun, 575; Burrill v. Nahant Bank, (1840) 2 Metc. 163; Ives v. Smith, (1890) 8 N. Y. Supl. 46; Hoyt v. Thompson, (1859) 19 N. Y. 205. This is regulated in England by the Companies Clauses Act of 1845, by which the directors of a corporation are authorized to delegate their powers to one or more committees of their own number; and they may grant to those committees respectively power on behalf of the company to do any acts relating to the affairs of the company which the directors could lawfully do, and which they shall from time to time think proper

contracts as well as the power of the directors to make contracts on behalf of the company, may lawfully be exercised with respect to any contract which, if made between private persons, vould be by law required to be in writing, and under seal, and the committee or the directors may make such a contract on behalf of the company in writing, and under the common seal of the company, and in the same manner may vary or discharge it. 8 Vict. ch. 16, § 97. Committees thus appointed may meet from time to time, and may adjourn from place to place, as they think proper, for carrying into effect the purposes of their appointment; but no committee shall exercise the powers intrusted to them except at a meeting at which there shall be present the quorum prescribed in the act of incorporation, or if no quorum be prescribed thereby, then a quorum to be fixed for that purpose by the

even been held that a committee could delegate its authority to one of its number. But knowledge on the part of an executive committee of the directors of a corporation that a purchaser of its mortgage bonds made the purchase under a belief that the proceeds were to be used for particular purposes, is not sufficient to bind the corporation to a trust limiting the use of the proceeds.2

§ 232. Shareholders' control of the directors.-- While it is true, that the power which ultimately controls the corporation is its stockholders, since they may at proper times change the board of managing officers, and may also have recourse to courts of equity for proper redress should occasion demand,3

general body of directors; and at all meetings of the committees one of the members present shall be appointed chairman, and all questions at any meeting of the committee shall be determined by a majority of votes of the members present, and in case of an equal division of votes, the chairman shall have a casting vote in addition to his vote as a member of the committee. 8 Vict. ch. 16, § 96.

A trading corporation had five trustees, one of whom never qualified or acted, and another of whom attended only the first meeting of the board. Three of the trustees were appointed, by resolution, as an executive committee of the company, such appointment being sanctioned by statute, with power to transact the usual business of the corporation. The stock of the company was substantially owned by the members of the committee and one other person. And it was decided that the committee had power to authorize one of their number, by power of attorney, to indorse the name of the company on certain negotiable paper payable to its order, and it was immaterial that no former resolution defining the limits of the authority was

passed, and that in other respects the power of attorney exceeded the committee's authority. Sheridan Electric Light Co. v. Chatham Nat. Bank, (1889) 59 Hun, 575. This case further held that a bank which accepts and discounts the negotiable paper in good faith, on an indorsement executed under such power of attorney, can not be held liable for a conversion of the paper, on the ground that the proceeds are misappropriated by the trustee, acting under the power of attorney, which misappropriation is afterwards ratified at a meeting of the board of trustees at which a majority are present, and where the company receives and uses a part of the proceeds, knowing how it was obtained. Nor is the bank liable for paper discounted by it on the indorsement, concerning the disposition of the proceeds of which no ratification is made, where the trustees and executive committee acquiesce in the indorsement and transfer to the bank. Sheridan Electric Light Co. v. Chatham Nat. Bank, (1889) 59 Hun, 575. 2 Ives v. Smith, (1890) 8 N. Y. Supl.

46.

3" Directors of Corporations," by Joseph A. Joyce, 19 Cent. L. J. 305;

yet powers expressly conferred upon the directors are exclusive of any action by the members. When a charter invests a board with the power to manage the concerns of a corporation, the power is exclusive in its character. The corporators have no right to interfere with it, and the courts will not, even on a petition of a majority, compel the board to do an act contrary to its judgment. Within the sphere of their duties, the right of the directors to act is exclusive, but nevertheless all corporate powers do not reside in the board of directors.3 Generally, so long as honesty and good faith concur, the expediency of a contract made by the directors of a corporation in its behalf is for their determination, and their decision concludes the corporation. The statute has altered the rule in England, however, so that the powers delegated to the directors are subject to the control and regulation of any general meeting especially convened for that purpose, but not to such an extent as to render invalid any act done by the directors prior to any resolution passed by such a general meeting.

Cass v. Manchester &c. Co., (Pa. 1881) 13 The Reporter, 167; Morse on Banks & Banking, 90.

1. Moses v. Tompkins, (1887) 84 Ala. 613; Sims v. Street R. Co., (1882) 37 Ohio St. 556, where the court said: "If, however, the directors who are presumed to represent the will of a majority, act within the scope of their powers, their will must govern in the absence of fraud or breach of trust;" and cited Dodge v. Woolsey, 18 How. 342; Ware v. Grand Junction Co., 2 Russ. & M. 470; Gifford v. New Jersey R. Co., 10 N. J. Eq. 171; Stevens v. Rutland &c. R. Co., 29 Vt. 545; Bissell v. Michigan S. & J. R. Co., 22 N. Y. 258; Kean v. Johnson, 1 Stock. Ch. 401. In Conro v. Port Henry Iron Co., 12 Barb. 27, the directors having authority to make a lease, one made by the stockholders was held to be void. Metropolitan Elevated R. Co. v. Manhattan Elevated R. Co., (1884) 11 Daly, 482, distinguishing In re

Excelsior Fire Ins. Co., (1862) 16 Abb. Pr. 8, 14; Elwell v. Dodge, 33 Barb. 336, 339; Robertson v. Bullions, 11 N. Y. 243, 250; In re St. Ann's Church, 23 How. Pr. 285; Dana v. Bank of the United States, 5 Watts & S. 223, 246.

2 McCullough v. Moss, 5 Denio, 567, 575. In Railway Co. v. Alling, 99 U. S. 463, and Elkins v. Camden &c. R. Co., 36 N. J. Eq. 241, persons obtaining majorities of stock were not enabled immediately to carry out their wishes against the board of directors.

3 Metropolitan Elevated R. Co. v. Manhattan Elevated R. Co., 11 Daly, 475.

4 Park v. Grant Locomotive Works, (1885) 40 N. J. Eq. 114. In this case, however, the directors were managing the property of the company under an agreement with creditors, in regard to the disposition of net profits, and their discretion was limited by that agreement. 58 Vict. ch. 16, § 90.

The legality

§ 233. Directors de facto.- To constitute directors de facto, there must be a color of election or an exercise of the functions of office under such circumstances and for such a length of time, without interference, as to justify the presumption of a legal election.' A board of directors, claiming an election at a meeting at which a quorum for the transaction of business was not present, can not, as against another board holding over from a previous election, about which no question is raised, be regarded as officers de facto. That doctrine has no application where other individuals are claiming to hold the title to the office, and the right to act therein. of their acts rests upon the law of estoppel. whom they have been held out by the corporation as its duly authorized agents having no notice of the flaw in their title, may safely deal with them until judgment of ouster has been rendered and made a matter of record. So that where certain directors met and executed a note for the company just after a decision removing them from office had been rendered, but before the judgment had been filed and recorded, the corporation was held to be bound by their act. But the corporation is concluded by their acts where the person dealing with them had reason to know that they were acting without authority. The law as to the acts of directors de facto has been

1 Beach on Railways, § 498, citing Cary v. State, 76 Ala. 78, and Moses v. Tompkins, (1888) 84 Ala. 613; s. c. 4 Ry. & Corp. L. J. 268, holding that the mere exercise of the functions of office is not in itself sufficient, and saying that it might well be doubted whether allegations of only two official acts would suffice to make out a prima facie case of de facto ten

ure.

The public to

trustees and stockholders of a corporation sold to one subscriber the entire stock of the corporation, and delivered to him all of the property of the corporation. He remained in possession of it for three years, openly using and managing it, and then sold out to others. The trustees closed up their accounts after the sale and did no further act as trustees until three years afterwards

2 Ellsworth Woolen Manuf. Co. v. when the majority of them met and Faunce, (1887) 10 N. E. Rep. 250.

3 Moses v. Tompkins, (1888) 84 Ala. 613.

4 Mahoney Mining Co. v. AngloCalifornian Bank, (1881) 104 U. S.

192.

5 In Orr Water Ditch Co. v. Reno Water Co., (1883) 17 Nev. 166, the

allowed an account and drew a check; and it was held, that the trustees were not then such either de jure or de facto, and that the corporation could not be held liable by reason of the check, especially as the person in whose favor it was drawn was not misled.

reduced to statutory form in England by the Companies Clauses Act of 1845.1

§ 234. The same subject continued. The rule of estoppel from which the acts of directors de facto derive validity, operates as well against third persons dealing with them as against the corporation; accordingly, they may not evade the obligation of contracts which they have made with directors de facto by pleading the flaw in their title. But in an action between a member and the corporation the former is not regarded as a third party and is not estopped from denying the right of the acting directors to represent the corporation in the matter in controversy. Thus persons acting as directors of a street-railway company, alleged not to have been legally elected, will be enjoined from selling complainants' stock for non-payment of assessments and calls thereon, and from making other calls, and the validity of their election will be examined into, as collateral to the relief sought, though an original bill to test such election would not be sustained.'

§ 235. Directors entitled to remuneration for extra services only. It is not customary to compensate directors

1 All acts done by any meeting of the directors, or of a committee of directors, or by any person acting as a director, shall, notwithstanding it may be afterwards discovered that there was some defect in the appointment of any such directors or persons acting as aforesaid, or that they or any of them were or was disqualified, be as valid as if every such person had been duly appointed and was qualified to be a director. 8 Vict. ch. 16, § 99.

from using the effects of the corporation for that purpose; alleging that such act was unauthorized, and contrary to the wishes of a majority of the stockholders, but not that it was ultra vires or a breach of trust. It was held that the injunction will be dissolved so far as it restrains the use of the corporate property in extending the road. Stone, C. J., dissenting. Cf. Atlantic &c. R. Co. v. Johnson, 70 N. C. 348, where in an action in trespass brought by a board

2 Moses v. Tompkins, (1888) 84 Ala. of de facto directors against another 613.

3 Moses v. Tompkins, (1888) 84 Ala. 613; Thorington v. Gold, 59 Ala. 461; People's Mutual Ins. Co. v. Westcott, 14 Gray, 440.

Moses v. Tompkins, (1888) 84 Ala. 614. The bill in this case also sought to enjoin the extension of the railway, and to prevent the directors

board claiming to be directors de jure, the latter were not allowed to defend by impeaching the title of the former, as this, it was said, would be doing collaterally what may be done only by direct proceedings under a writ of quo warranto. See also Taylor on Corporations, § 809.