a corporation, do not render the latter liable thereon. The court further says: "Whilst contracts of this character, made by a promoter, may be ratified by the corporation, and the benefits it has accepted may be enforced against it to the extent that it may be rendered liable for damages for failing to comply therewith where there is such a ratification, yet all subsequent members or stockholders cannot be precluded, nor the welfare of the corporation jeopardized or prejudiced, by requiring it to perform some contract perpetually, where the interests of almost every person connected with the association or corporation may be disastrously affected thereby. In case of ratification, compensation may be had in damages for a violation thereof." The basis of the decision seems to be that the location of the head office is a charter matter, which may be changed at will by the legislature, and that no contract can prevent such alteration.

But in Bobzin v. Gould Balance Valve Co. (1908) 140 Iowa, 744, 118 N. W. 40, in which it appeared that the promoters agreed that, in return for stock subscriptions, the corporation should be located at a certain place, the court held that when the corporation accepted the money on such subscriptions, and so located the plant, it was bound by the contract. The court said: "It is well settled that a corporation may ratify even an ultra vires act so as to bind itself, when it has received and retained benefits on account thereof."

In State ex rel. Hadley v. People's United States Bank (1906) 197 Mo. 574, 94 S. W. 953, a receiver was sought because of the failure of a bank to fulfil the promises of the promoter to the subscribers, with respect to the management of the bank. The court, after recognizing the fact that the corporation is not bound by the contracts of its promoters, but may ratify them, says the most that can be deduced from the record is that the bank, by accepting, presumably with full knowledge, the benefits of the subscriptions, intended to ratify the

same, and thereby became liable to the nonagreeing stock subscriber for nonperformance. But the court held that, since the subscribers were not objecting, the state had no standing to ask for a receiver.

b. Knowledge of facts necessary.

Since a meeting of minds is necessary to the formation of a contract, a corporation will not be bound by acts or resolutions looking to the adoption of a prior contract of its promoters, unless its responsible officers have, or are chargeable with, knowledge of the facts upon which it is acting. Buffington v. Bardon (1891) 80 Wis. 635, 50 N. W. 776.

It is said in Teeple v. Hawkeye Gold Dredging Co. (1908) 137 Iowa, 206, 114 N. W. 906, that, "assuming that ratification may be implied from an acceptance and retention of the proceeds or benefits of such a contract [of promoter before incorporation], still, two things, in addition to the fact that the benefits of the contract came into the hands of the company, are essential to be proven the ratification must be by the officer or governing body having authority to make or to enter into such a contract, and the ratification must be upon full knowledge."

And it is held in Pitts v. D. M. Steele Mercantile Co. (1898) 75 Mo. App. 221, that, in order to bind a corporation by way of ratification by acceptance of benefits, it must be shown that the corporation acted with full knowledge of all material facts connected with the transaction; especially the existence of the contract, its nature, and consideration.

Ratification by a corporation of a contract of its promoters will not be presumed by acceptance of benefits, unless actual notice of the specific contract out of which the benefits arise is made to appear. Where, therefore, promoters of a contract agreed to pay an agent for advances and services incident to the organization, he cannot recover against the corporation merely because it became incorporated, where it appeared that the only corporators who knew of the contract were the two promoters who

made it. Rideout v. National Homestead Asso. (1910) 14 Cal. App. 349, 112 Pac. 192.

Where the owner of an ironworks agreed with certain persons that if . they would organize a corporation to buy the works, they should have a certain amount for their services, and the articles of association required the directors to pay all expenses of organization, it was held that but for the concealment of the contract the plaintiff would have had a good claim against the corporation, although it never did business, but was soon wound up. But since the agreement was concealed, it was regarded as a fraud on the stockholders, and since the corporation had never received any benefit from the services, the claim was rejected. The court says that an action could not be maintained on legal grounds, because the corporation was not in existence at the time the services were performed, and the articles only gave authority to pay the costs, and did not constitute a contract to pay them; but that if the corporation could properly be considered to have received any direct benefit from the services, it would, in equity, be bound to pay for them. Re Hereford & S. W. Waggon & Engineering Co. (1876) L. R. 2 Ch. Div. (Eng.) 621, 45 L. J. Ch. N. S. 461.

c. Must be with incorporation in view.

If the true theory upon which a corporation is held liable is that the offer is a continuing one, to be accepted or rejected by it, it must of necessity have been made with the fact in view that a corporation was to be formed, because if the proposition is made to the promoters merely, with no idea that a corporation is to be formed which may take the benefit of it, the corporation cannot take advantage of it any more than any other stranger.

Therefore, the plaintiff must show either an express promise by the new corporation, or that the contract was made with persons then engaged in its formation, and taking preliminary steps thereto; and that the contract was made on behalf of the new corporation, in the expectation on the part of plaintiff, and with the assur

ance on the part of the projectors, that it would become a corporate debt; and that the corporation afterwards entered upon and enjoyed the benefit of the contract, and by no other title than that derived through it. Little Rock & Ft. S. R. Co. v. Perry (1881) 37 Ark. 164. In that case, which was an action for services rendered in the construction of defendant's railroad at the request of its promoters before incorporation, the court said: "It should appear that the view of future organization was mutual between the contracting parties, and that the labor, material, etc., were furnished, at the time, on behalf of the future company, wtih the view, authorized by the assurances of the projectors, that the company, when chartered, would assume the debt as created in its behalf. In such case only would the acceptance of benefits of the contract amount to a ratification, and implied promises at law, although there still might arise an obligation on a promise expressed and accepted." The action. finally failed ((1884) 44 Ark. 383) because the court was not convinced that it was a case of a contract made with promoters of a future corporation, upon the credit of the corporation to be formed, and with the intention, mutually entertained, that the corporation should be bound when organized. But the credit was extended to individuals, and not to the projected corporation.

A corporation, formed by a purchaser of real estate and one interesting him in the project, is not liable upon an agreement by the latter with the agent who employed him that, if such agent would relinquish his interest in the transaction and right to commissions, the employee would pay him a certain amount, where the corporation was not then in contemplation, and never made any promise or did anything to render itself liable to pay commissions to the agent on account of the sale of the land. Mitchell v. Gifford & Co. (1910) 133 Ga. 823, 67 S. E. 197.

d. Contract must be formed between corporation and beneficiary.

In Kerridge v. Hesse (1839) 9 Car.

& P. (Eng.) 200, where a secretary to a committee to form a railroad brought an action for salary against its promoters, Alderson, B., said the real question is whether the plaintiff agreed that he was not to look for payment from members of the committee individually, but was only to be paid from the depositors' instalments in case the corporation was formed.

Melhado v. Porto Alegre & N. H. & B. R. Co. (1874) L. R. 9 C. P. (Eng.) 503, was an action by promoters where the articles of association authorized the directors to pay such expenses as they might consider might be deemed and treated as preliminary expenses. The directors had not approved the claim, and it was therefore rejected. The chief justice states that he reaches this conclusion somewhat reluctantly, because it does seem just, in general, that if a corporation takes the benefit of the work and expenditure by which its existence has been rendered possible, and voluntarily comes into existence on the terms that it shall be liable to pay for such work and expenditure, that a cause of action should be given. The opinion of Brett, J., however, seems to bring the case more nearly within the scope of this annotation. He states: "We may be entitled to assume . . . that before the company came into existence certain persons had agreed with the plaintiffs that, if they would advance money for the purpose of floating the company, when the company was formed it should repay them." Plaintiffs did advance the necessary money, and after the corporation was formed the directors did resolve that the plaintiffs ought to be paid, and that they should be paid. Yet notwithstanding this fact they could not recover. He continues: "There is no contract, in my judgment, of any sort, upon which they can sue, and unless there be a contract of some sort between them and the company, I do not see that they can have any cause of action. No contract made with them before the existence of the company can be ratified by the company." It was suggested that by taking advan

tage of the work and expenditure, and coming into existence through them, the corporation gave rise to an implied contract to remunerate them. But the judge says: "It seems to me that the defendant's counsel gave the right answer to this suggestion when he said that, if that were so, promoters might in all cases sue the company for the expenses of the promotion. I apprehend that all the decisions on this subject show that they cannot do so." It will be noticed that that was an action at law, and that the suit was by the promoters themselves, without anything directly to show a contract that the corporation should pay, and therefore there was little upon which an implied contract to pay could be based.

The adoption and completion, by a corporation organized to take over the business of a partnership, of contracts which the partners had undertaken to perform, do not render the corporation liable for agents' commissions in securing the contracts originally. But where the parties to the agency contract, and the directors and officers of the corporation intended that the agency contract should be assumed, and the promoters became the officers of the corporation, and the agents were requested to continue to serve the corporation on the same terms as they worked for the partnership, and all the debts of the partnership were paid by the corporation, the corporation was held to have assumed liability for the agents' commissions. Hall v. Herter Bros. (1894) 83 Hun, 19, 31 N. Y. Supp. 692.

In an action to recover the contract price for work performed under a contract entered into before defendant became incorporated, the court said it is true, in principle, that the adoption of such a contract, made for its benefit by a corporation thereafter formed, amounts to a new contract requiring a sufficient consideration; but where such appears it imposes an equally valid obligation as though made with the corporate entity in the first instance. And the court held that the adoption of the contract, and performing services and receiving

compensation therefor, was a sufficient consideration. Richard Brown & Son Contracting Co. v. Bambrick Bros. Constr. Co. (1910) 150 Mo. App. 505, 131 S. W. 134.

Where plaintiff's employer stated that he would pay for the services, the mere fact that a corporation was organized to take advantage of the contract which plaintiff secured does not render it liable for such compensation. Wilbur v. New York Electric Constr. Co. (1891) 26 Jones & S. 539, 12 N. Y. Supp. 456.

In Teeple v. Hawkeye Gold Dredging Co. (1908) 137 Iowa, 206, 114 N. W. 906, which was an action to enforce a promoter's contract to give plaintiff a commission in stock on all stock sold by him, it is said that the fact that proof of ratification is essential to a right of recovery by plaintiff is not made a subject of question, as it could not well be. It was contended that the corporation took and retained the benefit of plaintiff's services, and by that ratification must be implied.

A corporation is not liable upon a promise to a stranger who is in no way a party to the contract. Lorillard v. Clyde (1890) 122 N. Y. 498, 10 L.R.A. 113, 25 N. E. 917.

e. Necessity of majority action.

The idea appears in a few cases that, in order to make a contract binding on the corporation, a majority of the promoters must unite in the promise.

In denying liability for services and expenditures of a promoter of a railroad, the court in Bell's Gap R. Co. v. Christy (1875) 79 Pa. 54, 21 Am. Rep. 39, while recognizing that there might be cases where the corporation could not take the benefit without taking the burden, said: "But the projectors. or promoters of the enterprise, within the meaning of the rule referred to, evidently must be a majority, at least, of such persons, and not one, two, or three, or a small minority thereof. Such minority can have no more authority to bind the association or corporation in its incipient or inchoate condition than they would have to bind it if fully organized. In this

case the two or three persons who, it is alleged, promised the plaintiff to see him paid, bound no one but themselves. They had no authority to speak for anyone else. In the absence of any such authority, and of any satisfactory proof that the result of the plaintiff's labor and expenditures was accepted and enjoyed by the corporation, that it used the plaintiff's survey, or located its road upon any considerable portion of the line thereof, the court below should have instructed the jury that the defendants were not liable."

In Tift v. Quaker City Nat. Bank (1891) 141 Pa. 550, 21 Atl. 660, where the promise to pay for securing subscriptions to stock was made by a single promoter, the corporation was held not liable, but the court says the promise was made by a single promoter, and there is no evidence of a subsequent ratification by the corporation.

In Clarke v. Omaha & S. W. R. Co. (1877) 5 Neb. 314, the action was to enforce a contract by which plaintiff became entitled to compensation for the surveys and right of way turned over to defendant, and the court said it is contended that the prior agreement was made by promoters before the charter, and for this reason it may be enforced. "It is not doubted that the majority of persons associated for a common object, intending to procure a charter, may authorize acts to be done not contrary to public policy and sound morality, and if such acts are accepted by the corporation, they must be taken cum onere; but the minority of such persons cannot authorize such acts to be done."

A contract by one promoter of a mining corporation hiring a superintendent at a stated salary, which is not assented to by the other promoters, or by the corporation, is not bindStevenson ing on the corporation. v. Dubuque Level & Lead Min. Co. (1872) 34 Iowa, 577.

tI would seem, however, that this idea is without foundation to support it. The promoters cannot make a contract which will bind the corporation, no matter how unanimous they may be, and if the contract made is regard

ed as a mere offer, for acceptance or rejection by the corporation, it cannot matter how few of the promoters agree in presenting it.

V. What makes contract binding.

a. Incorporation.

If it is true that there must be a meeting of minds between the corporation and the one making the proposition, the circumstances are very few in which the mere securing of a charter and perfecting its organization by the corporation would make it a party to the contract. Only where it acts with knowledge that such a course on its part will, under the terms of the proposition made, be deemed to be an adoption of the contract, will it have that effect.

KIRKUP V. ANACONDA AMUSEMENT Co. (reported herewith) ante, 441, holds that the promoter's contract does not ipso facto become the contract of the corporation by its mere organization.

A promoter cannot recover a commission on the sales of a corporation for a series of years, for services in securing subscriptions to stock, if such agreement was not agreed to by the majority of the promoters, was not understood by those taking advantage of his efforts, and was distinctly repudiated by the directors when the corporation was formed. Van Zandt v. St. Louis Wholesale Grocery Co. (1917) 196 Mo. App. 640, 190 S. W. 1050. The court says: "We are unwilling to hold that, by the mere fact of accepting incorporation and proceeding as a corporate body, the corporation, as such, could be made liable on any such contract by a few of its promoters, and we venture to go further and say that we do not believe that it was within the power of any promoter, in any such manner as here claimed, to encumber the whole property of the corporation-all of its business. We are aware that there are some cases which seem to hold that mere services in procuring the sale or subscriptions to the capital stock of a proposed corporation are such services, when rendered at the instance of the promoters, as imposed

an obligation on the corporation, when formed, to pay the reasonable value of those services. . . . We find no authority in our state authorizing any such conclusion, and, in the absence of controlling decisions of our Own courts, we are unwilling to sanction such a rule. Here we have nothing to carry knowledge to the stockholders as a body, or even a majority of them, nor is there any proof even tending to show ratification by the stockholders of any agreement by which the assets of the corporation which they were invited to become a part of were subject to any burden for preliminary work of organization-a burden which might have 'killed' the organization at its start."

Where the promoters agree that each shall have a certain proportion of the stock when the corporation is organized, so far as the then members are concerned, the agreement becomes as effectual as if a part of the corporate act. Chater v. San Francisco Sugar Ref. Co. (1861) 19 Cal. 220. The court says: "Suppose A, B, and C agree to form a corporation for running stages, and put in each $10,000, but there are to be no certificates of stock issued and no debts incurred. This agreement precedes, of course, the incorporation; and suppose the money is paid before the corporate act is consummated. The corporation is formed and proceeds to do business. Will it be contended that these men are not entitled to their respective shares of the profits, etc., from the mere fact that all this occurred before the technical, ideal thing-the corporation-was called into existence? The truth is, the corporation under our system, following such an agreement,, would be the mere agency of the associates, created for the sake of convenience in carrying out the agreement, as between those who made the bargain; the different characters or forms in which, or by which, the bargain was made, and the order in which the several parts of it were executed, make no substantial difference in the obligation."

There is a series of cases in England