This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
A question that frequently arises, relates to contracts between a corporation and a director, or between a corporation and another enterprise in which a director is interested. There are several views in the various jurisdictions as to the validity of such contracts. In New York the law is somewhat unsettled, but several decisions have been made to the effect that they are voidable but not void, and that they are therefore binding on the corporation at its own option. The United States Supreme Court has held that such contracts may be voided if lack of good faith is proven, but that they are presumptively valid. The United States Steel Corporation has an interesting proviso in its by-laws covering this point, which reads as follows:
Inasmuch as the directors of this Company are men of large and diversified business interests, and are likely to be connected with other corporations with, which from time to time this Company must have business dealings, no contract or other transaction between this Company and any other corporation shall be affected by the fact that directors of this Company are interested in or are directors or officers of such other corporation, if at the meeting of the Board or at the Committee of this Company making, authorizing or confirming.such contract or transaction, there shall be present a quorum of directors not so interested; and any director individually may be a party to or may be interested in any contract or transaction of this Company provided that such contract or transaction shall be approved or be ratified by the affirma-tive vote of at least 10 directors not so interested.