Where a promoter acts as the agent of the company, if he is under no special duty to purchase the land in question for the cor poration, he may sell his own land to it, or buy any other land, and sell at a profit, provided he do so fairly, but it must appear that the company had an independent board of directors, who could exercise their own discretion in the purchase of the property; 3 App. Cas. 1218; 23 Cana Sup. Ct. 644; Plaquemines T. F. Co. v. Buck, 52 N. J. Eq. 219, 27 Atl. 1094 ; he must disclose his in terest in the property ; 3 App. Cas. 1218; Burbank v: Dennis, 101 Cal. 94, 35 Pac. 444; he must state truly all the material facts; 3 App. Cas. 1218; Burbank v. Dennis, 101 Cal. 90, 35 Pac. 444 ; Pittsburg Min. Co. v. Spooner, 74 Wis. 307, 42 N. W. 259, 17 Am. St. Rep. 149. A promoter who acts as a mere agent for the purchase of the property cannot retain a secret profit out of the trans action ; 11 Ch. D. 918 ; 4 C. P. D. 396; Chandler v. Bacon, 30 Fed. 538 ; Brewster v. Hatch, 122 N. Y. 349, 25 N. E. 505, 19 Am.
St. Rep. 498; but a profit made with the knowledge and assent of all the members of the corporation may be retained; 14. Ch. D. 390. . But where a promoter deals with the corporation at arm's length, he• may I make such profit as he can ; 2 Hare 461.
The remedy for the corporation is either to rescind the contract, if no equities in tervene to prevent, or to call upon the pro moter to account for his unlawful profit; 4 Russ. 562 ; Getty v. Devlin, 54 N. Y. 403.
If promoters are guilty of any misrepre sentation of facts or suppression of truth in relation to the property or their personal in terest in the proposed sale, the company would be entitled to set aside the transac tion or recover compensation for any loss which it has suffered ; Dickerman v. Trust Co., 176 U. S. 181, 204, 20 Sup. Ct. 311, 44 L Ed. 423; citing 5 Ch. Div. 73; 11 id. 918. . Where the promoters have the power of selecting directors who are to represent the company in the proposed purchase, they are bound to select competent, and trustworthy persons who will act honestly in the interest of the shareholders. A purchase made through promoters under these circumstan ces will not bind the company unless it was a fair and honest bargain; Dickerman v. Trust Co., 176 U. S. 181, 204, citing L. R. 5 Ch. Div. 73 ; Brewster v. Hatch, 122 N. Y. 349, 25 N. E. 505, 19 Am. St. Rep. 498; Si mons v. Min. Co., 61 Pa. 202, 100 Am. Dec. 628. They are liable to the corporation or its creditors for the difference between the price which they received for such property from the corporation and the price at which they purchased it, without regard to its actual value ; Cent. Trust Co. v. Land Co., 116 Fed. 743; Bosher v. Land Co., 89 Va. 455, Is S. E. 360, 37 Am. St. Rep. 879.
A subordinate fraud practiced by some of the promoters of a corporation upon some of their associates was held a matter wholly between them and the syndicate, which gave rise to no corporate right of action, in the absence of innocent incorporators or stock holders; Old Dominion Copper Co. v. Lewl
sohn, 210 U. S. 206, 28 Sup. Ct. 634, 52 L. Ed. 1025. But fraud in the purchase of prop• erty which is to be conveyed to a corpora tion composed partly of those purchasing the property and partly of others may become operative against the corporation itself, and give it a right to maintain an action against some or all of those guilty of the fraud, to protect the innocent stockholders who bought in ignorance thereof ; Davis v. Las Ovas Co., 227 U. S. 80, 33 Sup. Ct. 197, 57 L. Ed. 426, where it was said : "The distinction between a case in which all of the owners of the property and all of the members of the buying corporation are the same persons and participate in the profit realized, and the case here presented, is fully recognized in Old Dominion Copper Co. v. Lewisohn, 210 U. S. 206, 28 Sup. Ct. 634, 52 L. Ed. 1025, as well as in Phosphate Co. v. Erlanger, 5 Ch. Div. 73, and in the well considered opinion of Judge Severens in Yeiser v. Paper Co., 107 Fed. 340, 46 C. C. A. 567, 52 L. R. A. 724. There was no error in cancelling the shares issued to the plaintiffs in error for promotion of the corporation. They and the other members of the syndicate received the shares upon the assumption that they had in good faith served the corporation in the procure ment of the property. Obviously appellants were serving themselves, to the detriment of the corporation and innocent subscribers to its stock. In such a situation the corpo ration may recover the shares." There is some difference of opinion in re gard to the time when one becomes a pro moter within the meaning of the rule. Some cases hold that he is chargeable with a trust when he enters upon the execution of the scheme which is intended to result in the transfer of the property to a company to be organized and controlled by him. All, how ever, agree that he comes within the rule when he begins to organize the company, and that, from that time, he is bound to deal openly and fairly, and in such a way as that those having independent charge of the com pany, as well as those who are Induced to become subscribers to its stock, may be ful ly advised of the relation he bears to the property which he proposes to sell ; Yeiser v. Paper Co., 107 Fed. 340; 46 C. C. A. 567, 52 L. IL A. 724, citing South Joplin Land Co. v. Case, 104 Mo. 572, 16 S. W. 390; Hebgen v. Koeffter, 97 Wis. 313, 72 N. W. 745; Dens more Oil Co. v. Densmore, 64 Pa. 43; Hay ward v. Leeson, 176 Mass. 310, 57 N. E. 656, 49 L. R. A. 725 ; Burbank v. Dennis, 101 Cal. 90, 35 Pac. 444; Yale Gas Stove Co. v. Wil cox, 64 Conn. 101, 29 All. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159; Brewster v. Hatch, 122 N. Y. 349, 25 N. E. 505, 19 Am. St. Rep. 498.