Promoters of corporations stand in a relation of trust and confidence to the corporation and to the stockholders thereof.1 If promoters wish to sell their property to the corporation promoted by them, in which others than promoters have an interest,,they must deal with independent and impartial directors who represent the corporation and not the promoters;2 they must make full disclosure of their own identity and their interest in the property which they convey to the company,3 and they must disclose the material facts affecting the value of the property transferred by them to the corporation, and therefore affecting the value of the corporate stock.4 If the owner of land gives an option on such land to one who has acted as his agent with knowledge that he is promoting a corporation to purchase such land, the corporation which purchases such land without knowledge of the fact that such agent receives a commission, may have rescission of such sale.5 If the promoters conceal the fact that they are acting in an interest adverse to that of the corporation and thereby attempt to obtain a secret profit for themselves,6 or to obtain a secret commission for selling such property,7 constructive fraud exists. An action for secret profits may be maintained,8 or

7 San Diego, etc., Co. v. Beach, 112 Cal. 53, 33 L. R. A. 788, 44 Pac. 333; Manning v. App. Consol. Gold Mining Co., 171 Cal. 610, 154 Pac. 301.

8Burden v. Burden, 159 N. Y. 287, 54 N. E. 17.

9Booth v. Robinson, 55 Md. 419.

So where a minority of one board constituted the entire board of the other corporation. United States Rolling Stock Co. v. Atlantic and Great Western Railroad Co., 34 O. S. 450, 32 Am. Rep. 380.

10 General Rubber Co. v. Benedict, 215 N. Y. 18, L. R. A. 1915F, 617, 109 N. E. 96.

11General Rubber Co. v. Benedict, 215 N. Y. 18, L. R. A. 1915F, 617, 109 N. E. 96.

1 England. Erlanger v. Phosphate Co., L. R. 3 App. Cas. 1218; New Sombrero Phosphate Co. v. Erlanger, 5 Ch. D. 73, 118.

United States. Dickerman v. Trust Co., 176 U. S. 181, 44 L. ed. 423; Maine Northwestern Development Co. v. Northern Commercial Co., 213 Fed. 103.

California. Burbank v. Dennis, 101 Cal. 90, 35 Pac. 444; Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 18 L. R. A. (N.S.) 1106, 97 Pac. 10.

Iowa. The Telegraph v. Loetseher, 127 la. 383, 4 Am. & Eng. Ann. Cas. 667, 101 N. W. 773.

Maine. Mason v. Carrothers, 105 Me. 392, 74 Atl. 1030.

New Jersey. Plaquemines Tropical Fruit Co. v. Buck, 52 N. J. Eq. 219, 27 Atl. 1094.

Oregon. Johnson v. Sheridan Lumber Co., 51 Or. 35, 93 Pac. 470.

Wisconsin. Pittsburgh Mining Co. v. Spooner, 74 Wis. 307, 17 Am. St. Rep. 149, 42 N. W. 259; see Promoters as Corporate Fiduciaries, by Adelbert Hamilton, 16 American Law Review 671; The Liability of Corporation Promoters to Account for Profits, by Boyd Lee Spahr, 45 American Law Register (N.S.) 65, 163.

2Dickerman v. Trust Co., 176 U. S. 181, 44 L. ed. 423; Maine Northwestern Development Co. v. Northern Commercial Co., 213 Fed. 103; Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 18 L. R. A. (N.S.) 1106, 97 Pac. 10; Bliss v. Linden Cemetery Association, 83 N. J. Eq. 494, 91 Atl. 304.

3Gluckstein v. Barnes [19001, App. Cas. 240; In re Olympia [1898], 2 Ch. 153; New Sombrero Phosphate Co. v. Erlanger, 5 Ch. D. 73, 118; Burbank v. Dennis, 101 Cal. 90, 35 Pac. 444; De La Motte v. Northwestern Clearance Co., 126 Minn. 197, L. R. A. 1918E, 830, 148 N. W. 47.

4 England. Directors, etc., v. Kisch, LR.2H. L. App. Cas. 99.

California. California-Calaveras Mining Co. v. Walls, 170 Cal. 285, 149 Pac. 595.

New York. Brewster v. Hatch, 122 N. Y. 349, 19 Am. St. Rep. 498, 25 N. E. 505.

Oregon. Hall v. Catherine Creek Development Co., 78 Or. 585, L. R. A. 1916C, 996, 153 Pac. 97.

Virginia. Bosher v. Land Co., 89 Va. 455, 37 Am. St. Rep. 879, 16 S. E. 360; Virginia Land Co. v. Haupt, 90 Va. 533, 44 Am. St. Rep. 939, 19 S. E. 168.

5Hall v. Catherine Creek Development Co., 78 Or. 585, L. R. A. 1916C, 996, 153 Pac. 97.

6England. In re Leeds & Hanley Theaters [1902], 2 Ch. 809.

Connecticut. Yale Gas Stove Co. v. Wilcox, 64 Conn. 101, 42 Am. St. Rep. 159, 25 L. R. A. 90, 29 Atl. 303.

Maryland. Urner v. Sollenberger, 89 Md. 316, 43 Atl. 810.

Massachusetts. Hayward v. Leeson, 176 Mass. 310, 49 L. R. A. 725, 57 N. E. 656.

Missouri. South Joplin Land Co. v. Case, 104 Mo. 572, 16 S. W. 390.

Ohio. Shawnee, etc., Co. v. Miller, 24 Ohio C. C. 198.

Pennsylvania. Simons v. Vulcan Oil & Mining Co., 61 Pa. St. 202, 100 Am. Dec. 628.

Wisconsin. Franey v. Warner, 96 Wis. 222, 71 N. W. 81.

7 Hall v. Catherine Creek Development Co., 78 Or. 585, L. R. A. 1916C, 996, 153 Pac. 97; Limited Investment Association v. Investment Association, 99 Wis. 54, 74 N. W. 633.

8United States. Davis v. Las Ovas Co., 227 U. S. 80, 57 L. ed. 426.

Iowa. Hinkley v. Sac Oil & Pipe Line Co., 132 la. 396, 119 Am. St. Rep. 564, 107 N. W. 629.

the contract of the corporation may be rescinded.9 If the promoter makes a full disclosure of his adverse interest and of all the material facts to the corporation, and if it is not intended that those who hold stock in the corporation shall sell their stock to persons to whom such disclosure has not been made, and if it is not intended to offer other stock to new subscribers to whom such facts have not been disclosed, the promoter may sell to the corporation at a profit, since no one is injured by such transaction, full disclosure having been made to every one having a financial interest in the corporation.10

If the promoter makes disclosure of the material facts to some of those who are interested financially in the corporation, but he does not make such disclosure as to others, constructive fraud exists, even though it may be necessary, in order to protect those of whom advantage was taken, to give relief which will inure to the benefit of those who were not misled.11

If full disclosure is made to all who are at the time interested in the corporation, but it is intended to offer other stock to new subscribers to whom such disclosures will not be made, such transaction is regarded as fraudulent.12 If full disclosure is made to all who are stockholders at the time, but the intention of the parties to the transaction is to have all the stock taken by the promoters and resold to the general public, such transaction operates as a fraud upon those to whom such stock is resold, and such transaction is regarded as fraudulent.

Massachusetts. Hayward v. Leeson, 176 Mass. 310, 49 L. R. A. 725, 57 N. E. 656; Old Dominion Copper Mining & Smelting Co. v. Bigelow, 203 Maes. 159, 40 L. R. A. (N.S.) 314, 89 N. E. 193.

Michigan. Fred Macey Co. v. Macey, 143 Mich. 138, 5 L. R. A. (N.S.) 1036, 106 N. W. 722.

Wisconsin. Pietsch v. Milbrath, 123 Wis. 647, 68 L. R. A. 945, 107 Am. St. Rep. 1017, 101 N. W. 388, 102 N. W. 342.

9Hall v. Catherine Creek Development Co., 78 Or. 585, L. R. A. 1916C, 996, 153 Pac. 97; Cox v. National Coal & Oil Investment Co., 61 W. Va. 291, 56 S. E. 494; Limited Investment Association v. Investment Association, 99 Wis. 54, 74 N. W. 633.

10 England. Lagunas Nitrate Co. v. Lagunas Syndicate [1899], 2 Ch. 392 [distinguishing Erlanger v. Phosphate Co., L. R. 3 App. Cas. 1218].

Kansas. St. Louis, Fort Scott & Wichita R. R. Co. v. Tiernan, 37 Kan. 606, 15 Pac. 544.

Maryland. Tompkins v. Sperry, 96 Md. 560, 54 Atl. 254.

Minnesota. Battelle v. Northwestern Cement and Concrete Pavement Co., 37 Minn. 89, 33 N. W. 327.

New York. Seymour v. Spring Forest Cemetery Association, 144 N. Y. 333, 39 N. E. 365.

11 Old Dominion Copper Mining and Smelting Co. v. Bigelow, 203 Mass. 159, 40 L. R. A. (N.S.) 314, 89 N. E. 193.

12Maine. Mason v. Can-others, 105 Me. 392, 74 Atl. 1030.

Massachusetts. Old Dominion Copper Mining & Smelting Co. v. Bigelow, 188 Mass. 315, 108 Am. St. Rep. 479, 74 N. E. 653; Old Dominion Copper Mining and Smelting Co. v. Bigelow, 203 Mass. 159, 40 L. R. A. (N.S.) 314, 89 N. E. 193.

Michigan. Fred Macey Co. v. Macey, 143 Mich. 138, 5 L. R. A. (N.S.) 1036, 106 N. W. 722.