SECTION V. Election of Directors. 1. Should be at general meeting, or upon spe- | 3. Company bound by act of directors, de cial notice. facto. 2. Shareholders may restrain their authority. 4. Act of officer de facto, binds third persons. § 22. 1. The election of directors is regarded as more important to the interests of the company than most other business, inasmuch as, when duly elected, they hold office for a considerable term, and have all the powers of the corporation in regard to the transaction of its ordinary business, unless specially restrained. They should, therefore, be elected at the regular meetings of the company, and even vacancies should not properly be filled at special meetings, unless special notice of that particular business had been given according to the laws of the company; which include its charter and statutes, and the general laws of the state applicable to the subject. 2. The shareholders may, in a proper assembly, pass statutes, general or special, which shall control the directors, as between them and the company. Where the by-laws of the company. 1 1 But where the charter vests the control of the concerns of the company in a select board or body, the shareholders at large have no right to interfere with the doings of these, their charter agents. Commonwealth v. Trustees of St. Mary's Church, 6 Serg. & R. 508; Dana v. Bank of the United States, 5 Watts & Serg. 223, 247; Conro v. Port Henry Iron Co., 12 Barb. 27. And courts are always reluctant to interfere with the conduct of directors of a corporation, even at the instance of a majority of the shareholders, and ordinarily will not, when such directors have acted in good faith. State v. The Bank of Louisiana, 6 La. R. 745. But in Scott v. Eagle Fire Co., 7 Paige, 198, it was held, that the directors of a joint-stock corporation may be compelled to divide the actual surplus profits of the company among its stockholders from time to time, if they neglect or refuse to do so, without any reasonable cause. But if they abuse their power to make dividends of surplus profits, by dividing the unearned premiums received by them, without leaving a sufficient fund, exclusive of the capital stock, to satisfy the probable losses upon risks assumed by the company, it seems they will be personally liable to such creditors of the company, if, in consequence of extraordinary losses, the company should become insolvent so as to be unable to pay its debts. ** require notice of the meeting for electing directors, but do not specify the time or mode of such notice, it must be given according to the requirements of the general statutes of the state upon the subject.2 3. But the company cannot object that its directors, who have acted as such, were not elected at a meeting properly notified.3 Nor can the validity of the acts of the directors be collaterally called in question on the ground of irregularity in the notice of the meeting at which they were elected. Where the charter fixes the number of directors, and vacancies occur, the act of the board is not thereby invalidated, provided a quorum still remains.5 2 Matter of Long Island Railroad, 19 Wend. 37; s. c. 2 Am. Railw. C. 453. Sampson v. Bowdoinham Steam Mill Co., 36 Maine, R. 78. Where persons have acted as directors of a railway company, the court will not summarily inquire into the validity of their appointment. Tindal, C. J., said: "If the shareholders allow parties to act as directors, it may be they have no right to turn round in a court of justice and say, that such parties were not properly elected." The Thames Haven Dock & R. Co. v. Hall, 5 Man. & Gr. 274 - 286. In a late case, Port of London Assurance Company's case, 35 Eng. L. & Eq. 178, one registered insurance company agreed to sell its business to another registered insurance company, and a deed of assignment was accordingly executed, whereby the latter company covenanted to indemnify the former against all claims. After the business had been carried on for some time by the purchasing company, that company failed, and both companies were wound up under the Winding-up Acts. On the official manager of the selling company tendering a proof against the purchasing company, in respect of claims satisfied by the selling company, one part of the deed of assignment was produced having affixed to it the seal of the purchasing company, but another part, alleged to have been executed by the selling company, was not forthcoming. Held, first, that after what had taken place, it was unnecessary to determine whether the selling company had executed the purchase-deed, or whether its directors had exceeded their powers in making the sale. Secondly, that where a purchaser has enjoyed the subject-matter of a contract, every presumption must be made in favor of its validity. Thirdly, that if all the proceedings on the part of the directors of the purchasing company, with reference to the purchase, had not been in strict accordance with their own deed of settlement, still, if the contract with the other company was the means of the purchasing company coming into existence, they could not act in contravention of that contract. 4 Chamberlain v. Painesville & Hudson Railw. Co., 15 Ohio N. S. 225. 5 Walford on Railw. 71, 72; Thames Haven R. v. Rose, 4 M. & G. 552. *18 VOL. I. 6 4. An election of directors will not be set aside, because the inspectors of the election were not sworn as required by the statute. This statute is merely directory, and, so far as third persons are concerned, it is sufficient that the inspectors were elected and entered upon the duties of the office, and became officers de facto.6 *SECTION VI. Meetings of Directors. 1. All should be notified to attend. 2. Adjourned meeting still the same. 5. Usage will often excuse irregularities. 6. Decisions of majority valid. n. 8. Records of proceedings, evidence. § 23. 1. As a general rule, where corporate powers are vested in certain members, whether the whole body of the shareholders, the directors, or a committee, and the general laws of the state, the charter of the company, or the corporate statutes, contain no directions in regard to assembling the body, it is requisite to give due legal notice to each member. Accordingly, when by the rules of a friendly society the power of electing officers was vested in a committee of eleven, at a meeting of the committee, where ten of the members were present, the eleventh not having received notice, and the defendant was removed from the office of treasurer, and the plaintiff appointed in his stead by a majority of votes, it was held that the election was void, although the absent committee-man had, for a considerable period, absented himself from the meetings, and intimated an intention not to attend any more, and although the defendant himself had demanded a poll at the election, and was now objecting to its validity.1 • Matter of Mohawk & Hudson R., 19 Wend. 135; s. c. 2 Am. Railw. C. 460. 1 Roberts v. Price, 4 C. B. 231. In the course of the argument, Cresswell, J. referred to The King v. Langhorn, 4 Ad. & Ellis, 538, and in giving his opinion said: "This case seems to me directly applicable." In a late case in the House of Lords, Smyth v. Darley, 2 H. L. Cases, 789, 803, it is said: "The election being by a definite body, on a day, of which, till summons, the electors had no notice, they were all entitled to be specially summoned; and if there were any omission 2. But an adjourned general meeting of directors, which is provided for by the general regulations of the board, and is for the transaction of the general business of the company, requires no special notice of either time or place, or of the business to be transacted.2 * 3. But where the charter of a railway provides that its business shall be carried on under the management of twelve directors, to be elected in a particular mode, pointed out, and that where vacancies shall occur it shall be lawful for the remaining directors to fill them, it was held that this provision did not require that the board should be always full; but was merely directory, as to the mode of filling vacancies.3 4. Where it is complained that the existing board of directors have usurped their places in violation of the wishes of the majority of the shareholders, the question should be referred to a meeting of such shareholders, or it may be tried upon a quo warranto.5 4 5. But in practice, in this country, it is believed that most of the routine business of railway and other joint-stock commercial companies is transacted through the agency of sub-committees of the board of directors, and that, where the voice of the board is taken, it is more commonly done without any formal assembly of the board. And long-established usage as to particular companies, in regard to the mode of conducting an election, has been held of binding force in regard to such company. And 6 to summon any of them, unless they all happened to be present, or unless those not summoned were beyond summoning distance, as, for instance, abroad, there could not be a good electoral assembly; and even an unanimous election by those who did attend, would be void." Post, § 211; Great Western R. v. Rushout, 10 Eng. L. & Eq. 72. 2 Ante, § 21. Wills v. Murray, 4 Exch. 843. But see Reg. v. Grimshaw, 10 Q. B. 747. 3 Thames Haven Dock and Railway Co. v. Rose, 4 Man. & Gr. 552; ante, § 21; Wills v. Murray, 4 Exch. 843. * Post, § 211. 5 Post, § 204. Attorney-General v. Davy, cited 1 Vesey, sen. 419. It would savor of bad faith to allow the business of the company to be transacted in a particular mode, and then to attempt to repudiate the acts of their agents, because the transaction proved disadvantageous, when they were in a condition to take the benefit of it if it proved successful. the same course of reasoning might induce courts to sanction a practice, which had become universal from its great convenience, although not strictly in accordance with the principles of the decided cases upon analogous subjects, or the results of a priori reasoning. 6. The decision of a majority of the board of directors is usually regarded as binding upon the company; and the assembling of a majority will be treated as a legal quorum for the transaction of business, unless the charter or by-laws contain some specific provision upon the subject; and notice to the absent * directors will be presumed unless the contrary appears. The general rule upon this subject is, that the act of a majority of a body of public officers is binding; but that if they be of private appointment, all must act, and, in general, all must concur, unless there is some provision to accept the decision of a majority. In this respect, railway directors come under the former head certainly. The proper distinction upon the general subject seems to be, that where the matter is of public concern, and of an executive or ministerial character, the act of the majority of the board will suffice, although the others are not consulted. But where the function is judicial, involving a determination of some definite question, the whole body must be assembled and act together. If the matter is of public concern, the decision of a majority will bind; but in private concerns, as arbitrations, all must concur.8 7 Cram v. Bangor House, 3 Fairfield, 354; Sargent v. Webster, 13 Met. 497; 2 Kent, Comm. 293 and notes; The King v. Whitaker, 9 B. & C. 648; Commonwealth v. Canal Commissioners, 9 Watts, 466; Ex parte Willcocks, 7 Cowen, 402; Field v. Field, 9 Wend. 394, 403, where it is held, that in regard to the body of the stockholders, any number who attend is a quorum for doing business, if the others be properly summoned. But as to the directors, it is requisite that a majority attend. 2 Kent, Comm. 293; Cahill v. Kalamazoo Ins. Co., 2 Doug. (Mich.) R. 124; Holcomb v. N. H. D. B. Co., 1 Stockton, Ch. 457. 8 Green v. Miller, 6 Johns. 39; The King v. Great Marlow, 2 East, 244; Battye v. Gresley, 8 East, 319; Rex v. Coln St. Aldwins, Burr. Settl. Cas. 136; The King v. Winwick, 8 T. R. 454. But it has never been held that the entire board of directors must assemble; it is enough if all be summoned, and a majority attend. See note 7. Edgerly v. Emerson, 3 Foster, 555. If the doings of directors are not recorded, they may be proved by parol. Ib. The president |