Some courts take the view that in all cases of such contracts their nature and terms and the circumstances under which they were made must be taken into consid eration, and that after having been subject, ed to careful scrutiny they will be enforced if for the benefit of the corporation; Stewart v. R. Co., 41 Fed. 736; Appeal of Hammond, 123 Pa. 503, 16 Atl. 419. A corporation act ing in good faith and with the sole object of continuing a business which promises to be successful, may give a mortgage to direc tors who have lent their credit to it, in order to induce a continuance of that credit, and to obtain renewals of maturing paper at a time when it is in fact a going business and expects to continue in business, although its assets may not in fact equal its indebted ness ; Sandford Fork & Tool Co. v. Howe, Browne & Co., 157 U. S. 312, 15 Sup. Ct. 621, 39 L. Ed. 713. See, generally, 3 Thomp. Corp. § 4059 to 4075; note by J. C. Harper ; Cook v. Sherman, 20 Fed. 175, and one by Dr. Francis Wharton; Meeker v. Iron Co., 17 Fed. 53. This rule extends even to cases where a majority of directors in one corpo ration contract with another corporation in which they are directors; Green's Brice, Ul tra Vires 479, n.; Attaway v. Bank, 93 Mo. 485, 5 S. W. 16. A railroad company de sired to purchase the entire property of a canal company, both companies having the same president, who by a purchase of a ma jority of the stock of the canal company at nominal rates obtained the election of di rectors favorable to the railroad company. Through collusive legal proceedings the rail road company purchased the canal property at a price which was grossly inadequate. The sale was set aside as a sale by a trustee to himself, neither in good faith nor for an adequate consideration; Goodin v. Canal Co., 18 Ohio St. 169, 98 Am. Dec. 95. The same principles are supported by many authori ties ; Koehler v. Iron Co., 2 Black (U. S.) 715, 17 L. Ed. 339 ; Cook v. Mill Co., 43 Wis. 433; Stewart v. R. Co., 38 N. J. L. 505; Rice's Appeal, 79 Pa. 168.
In some cases the question has arisen as to the effect of a minority only of the di rectors being Interested in both companies. A contract made between two corporations through their respective boards of directors is not voidable at the suit of one of the par ties thereto from the mere circumstance that a minority of its board of directors are also directors of the other company ; U. S. Rol ling Stock Co. v. R. R., 34 Ohio St. 450, 32 Am. Rep. 380, where the court said it had found no case holding such a contract in valid from the mere fact that a minority of the directors of one company are also di rectors of the other company, and, "in our judgment, where a majority of the board are not adversely interested and have no adverse employment, the right to avoid the contract or transaction does not exist with out proof of fraud or unfairness ;" id.; Flagg v. Ry. Co., 10 Fed. 413 ; Harts v. Brown, 77 Ill. 226. This rule is criticised by Mr. Harper in a note to Cook v. Sherman, 20
Fed. 180, upon the ground that the corpora tion is entitled to a full board of disinterest ed directors. In another case it was said: "A director whose personal interests are ad verse to those of the corporation has no right to be or act as a director. As soon as he finds that he has personal interests in conflict with those of the company he ought to resign ;" Goodin v. Canal Co., 18 Ohio St. 183, 98 Am. Dec. 95. In considering the same subject McCrary, J., said: "Besides, where shall we draw the line? If the pres ence of two interested directors in the board at the time of the ratification does not viti ate the act, would the• presence of a larger number of such directors have that effect, and, if so, what number." Thomas v. R. Co., 2 Fed. 879. On appeal his judgment was affirmed and the supreme court per Miller, J., said, "We concur with the circuit judge that no such contract as this can be enforced in a court of equity where 'it Is 'resisted and its immorality is brought to light. . . . Such contracts are not absolutely void, but are voidable at the election of the parties affected by the fraud. It may often occur that, notwithstanding the vice of the trans action, namely, the directors or trustees, or a majority of them, being interested in op position to the interest of those whom they represent, and in reality parties to both sides of the contract, that it may be one which those whose confidence is abused may prefer to ratify or submit to. It is, there fore, at the option of these latter to avoid it, and, until some act of theirs indicates such a purpose, it is not a nullity." Thomas v. R. Co., 109 U. S. 524, 3 Sup. Ct. 315, 27 L. Ed. 1018.
Arrangements made by directors of a rail road company to secure from it unusual ad vantages through the medium of a new com pany in which they are to be stockholders, and which is to receive valuable contracts from the railroad company, are not to be enforced by the courts ; Wardell v. R. Co., 103 U. S. 651, 26 L. Ed. 509, affirming War dell v. R. Co., 4 Dill. 330, Fed. Cas. No. 17,164; such contracts cannot be made or ratified by a board of directors including members of the construction company and are void ; Thomas v. R. Co., 109 U. S. 522, Sup. Ct. 315, 27 L. Ed. 1018 ; but a recovery may be had on such a contract for work actually benefiting the railroad company, on a quantum menat; id.
Third parties; without notice, are not bound to know of limitations placed upon directoys by by-laws or otherwise ; 'Brice, Ultra Vires 4744 L. R. 5 Ch. 288 ; Fay v. Noble, 12 Cush. (Mass.) 1; but see Risley v.
R. Co., 62 N. Y. 240 ; Salem Bank v. Bank, 17 Mass. 1, 9 Am. Dec. 111. When convened as a board, the directors are held to pos sess all the corporate powers ; Hoyt v. Thompson's Ex'r, 19 N. Y. 207 ; Burrill y. Bank, 2 Metc. (Mass.) 163, 35 Am. Dec. 395. As principals they can delegate the per formance of acts which they thethselves can perform ; Jones v. Williams, 139 Mo. 1, 39