corporation itself." 2 Cook Stock and Stockholders, § 651, 3d ed.,

p. 910.

"The constitution of a company is merely a means to an end,— the carrying on by the company of some business, the building of a pier or a railway. It is the person called a promoter who determines what this end shall be, and who sets the statutory machinery of formation in motion. Promoter is a term not of law, but of business, summing up a number of business operations familiar to the commercial world by which a company is generally brought into existence. Preparing or settling the prospectus, forming the company, negotiating agreements between vendors and a proposed company, providing directors, making contracts for the company or otherwise actively engaging either alone or in co-operation with others in the formation of a joint stock company will make a man a promoThe promoter has in his hands the creation and moulding of the company. He has the power of defining how and when, and in what shape and under what supervision it shall start into existence and begin to act as a trading corporation." 3 Ency. of the Laws of England, p. 182.

ter.

See 4 Am. and Eng. Ency., 201; Beach, §§ 269, 270; Clark, ch. iv; Cook, $$ 650. 705; Elliott, §§ 51-62; Morawetz, §§ 234, 291, 545; Taylor, ch. v; 1 Thompson, $$ 415-490, vii Ib., §§ 8282-8291; 1828, Frankfort S. T. Co. v. Churchill, 6 T. B. Mon. (Ky.) 427, 17 Am. D. 159; 1846, Reynell v. Lewis, 15 Mees. & W. 517; 1877, Bagnall v. Carlton, 6 Ch. D. 371; 1877, Erlanger v. New Sombrero P. C., 5 Ch. D. 73, 3 App. C. 1218; 1878, Emma Silver Mining Co. v. Grant, 11 Ch. D. 918; 1879, Emma Silver Mining Co. v. Lewis, L. R. 4 C. P. D. 396; 1884, Perry v. Little Rock, etc., R., 44 Ark. 383; 1891, South Joplin L. Co. v. Case, 104 Mo. 572; 1892, Bosher v. Richmond, etc., Co., 89 Va. 455, 37 Am. St. R. 879; 1894, Yale Gas S. Co. v. Wilcox, 64 Conn. 101. 25 L. R. A. 90; 1895, Whetstone v. Crane Bro., 1 Kan. App. 320, 41 Pac. 211; 1896, Fountain Spring Park Co. v. Roberts, 92 Wis. 345, 53 Am. St. R. 917; 1898, Gaines v. McAlister, 122 N. C. 340; 1898, Milwaukee Cold S. Co. v. Dexter, 99 Wis. 214; 1898, Benton v. Minneapolis T., etc., Co., 73 Minn. 498, 76 N. W. 265; 1898, Exter v. Sawyer, 146 Mo. 302, 47 S. W. 951; 1898, Loudenslager v. Woodbury H. L. Co., 56 N. J. Eq. 411, 41 Atl. 1115; 1899, Hudson v. West, 189 Pa. St. 491, 42 Atl. 190; 1899, Honsucle v. Ruppin, 172 Mass. 420, 52 N. E. 538; 1900, Hayward v. Leeson, 176 Mass. 310, 49 L. R. A.

725.

Sec. 77. Self-constituted. Functions generally. Illustration.

THE ST. LOUIS, FORT SCOTT AND WICHITA RAILROAD COMPANY v. FRANCIS TIERNAN.1

1887. IN THE SUPREME COURT OF KANSAS. 37 Kansas Reports 606-636.

[Error from district court. Action by Tiernan against the corporation on a note for $10,000, and an account for $4,600, all for salary as president and general manager of the railroad company. Judgment

1Statement of facts abridged. Only that part of opinion relating to promoters given.

in the lower court for plaintiff. defendent brings error.]

Motion for new trial overruled, and

Opinion by SIMPSON, J. * * Condensing the documentary and oral evidence into a brief summary, and reciting both in chronological order, the material facts are as follows: The note sued upon by the plaintiff below was executed by the president of the railroad company, and it was claimed that this was done in pursuance of a resolution of the board of directors, adopted at a meeting held on the 10th day of March, 1882. The authority of the president to execute the note is denied by a verified answer. As this is one of the most vigorously contested questions in the case, we pass it for the present. The residue of the plaintiff's demand against the railroad company consisted of a claim for salary as president and general manager from March 7, 1882, to March 7, 1884, at an established rate of $5,000 per year; and about this part of the claim there does not seem to be much controversy. The answer of the defendant below alleges that Tiernan and Ayers were promoters, incorporators and directors of the railroad company, and that Tiernan was its president and active manager; that while acting in that capacity, he and Ayers, on the 12th of January, 1881, purchased from one M. S. Carter, a road-bed of a defunct railroad corporation extending from Fort Scott to Humboldt, at its full value for $15,000, and then, in collusion with other certain officers and directors of the St. Louis, Fort Scott and Wichita Railroad Company, sold it to that company for the sum of $200,000 cash or its equivalent, and $3,600,000 of the capital stock of said company; that this was done in violation of their obligations and duties as officers of said railroad company, and that the stock was of par value, and defendant prays for a judgment against Tiernan for $3,804,600.95.

For some years before the organization of the St. Louis, Fort Scott and Wichita Railroad Company, there had been graded a roadbed with some bridges built on it from Fort Scott to a little distance beyond Humboldt, by an organization known as the Fort Scott, Humboldt and Western Railroad Company. The length of this road-bed was about forty-four miles. The company which had graded the road-bed and built the bridges had failed, and one M. S. Carter had foreclosed the mortgage against it, and bid in its property, consisting of the road-bed and bridges, and had become the absolute owner thereof. On the 17th of February, 1880, Carter sold this road-bed to Francis Tiernan and Alexander M. Ayers, together with all maps and profiles in the possession or in the control of Carter, of said line of road between Fort Scott and Humbolt, and thence westward or southwestward through the state of Kansas. The consideration of this sale was the sum of $15,000 to be paid as follows: One thousand dollars within ninety days, and $14,000 within one year, and the additional agreement that the said Tiernan and Ayers were to commence within thirty days to procure the unsecured right of way over which the said road-bed or line of railroad was originally surveyed, established and partially graded, and all deeds

and contracts for the right of way, side tracks and switches, depot grounds, tanks and stock yards were to be taken in the name of M. S. Carter, and were to inure to his benefit and to be absolutely his until Tiernan and Ayers paid in accordance with the terms herein specified, and Tiernan and Ayers agreed that within ninety days they would use their best endeavors to secure aid to said road, by procuring bonds to be voted by the various municipalities through which said line would pass in Bourbon and Allen counties, and that all such aid procured in the construction of a railroad from Fort Scott to Humboldt should accrue to the benefit of Carter and become his property if they should fail to pay him as specified. The terms of this agreement were reduced to writing and signed by the parties on the 17th day of February, 1880. The first $1,000 was paid on the 14th of May following. On the 23 day of February, 1880, the charter of the St. Louis, Fort Scott and Wichita Railroad Company was filed in the office of the secretary of state. It was signed and acknowledged by Francis Tiernan and Alexander M. Ayers in Champaign county, Illinois, on the 20th day of January, 1880. On the 20th day of February, 1880, the company was organized at Fort Scott by the election of Francis Tiernan as president, Alexander M. Ayers as vice-president and Ira D. Bronson as secretary.

Of

On the 17th day of April, 1880, Tiernan and Ayers sold to John J. Franklin, of Philadelphia, one-third interest in the road-bed known and called the Fort Scott, Humboldt and Western Railroad, commencing at Fort Scott and running to Humboldt, the estimated distance being forty-four miles, for the consideration of $25,000. that amount $5,000 was to be paid as soon as Franklin could examine the title and approve it, and the sum of $20,000 was to be paid within eight months. When Franklin paid the $5.000 he was to be elected treasurer of the St. Louis, Fort Scott and Wichita Railroad Company. Some time during the month of May, 1880, the St. Louis, Fort Scott and Wichita Railroad Company made an agreement to purchase the old road-bed of the Fort Scott, Humboldt and Western Company, and it is this agreement which is hereafter referred to in the minutes of the meeting of the directors of the St. Louis, Fort Scott and Wichita Railroad, held on November 12, 1880. On the 12th day of November, 1880, the directors of the St. Louis, Fort Scott and Wichita Railroad adopted a resolution approving and confirming the contract of Tiernan, Ayers and Franklin, of the sale by them, and the purchase by the company, of the road-bed, etc., ordering the issue and delivery of the stock, and the execution and delivery of orders for cash or first mortgage bonds, as provided in the agreement of sale. On the 3d day of December, 1880, Franklin sold to Ira J. Bronson all his right, title, interest and claim in and to the St. Louis, Fort Scott and Wichita Railroad Company, and the old road-bed, etc. On the 6th day of March, 1881, at a meeting of the stockholders of the St. Louis, Fort Scott and Wichita Railroad Company, the following resolution was adopted, by a vote of all the stockholders present, in its favor:

"Be it resolved, That all actions of the board of directors of the

St. Louis, Fort Scott and Wichita Railroad Company, in relation to selling and disposing of the capital stock of said railroad, and receiv ing payment therefor in the manner and kind in which such payments were made, be and they are hereby approved and ratified.”

The road-bed was paid for by issuing to Francis Tiernan, Alexander M. Ayers and Ira J. Bronson, or his assignee, each $1,200,000 of paid-up capital stock, and an order on the railroad company in favor of each one of these persons for $66,666.66 in cash, or first mortgage bonds, but the order for cash or bonds was in no manner to become a lien on that part of the road running from Fort Scott to a point where it crosses the Kansas City, Lawrence and Southern Kansas Railroad in Allen county. At the time of these various transactions about the old road-bed there had been no amount of the capital stock of the railroad company issued, the first being issued to one L. M. Bates, of New York, in December, 1880. Bates was an assignee of Ira J. Bronson for a part of Bronson's share of the stock of the purchase of the road-bed.

Plaintiff in error contends (inter alia):

Fourth. Tiernan and Ayers, occupying the positions hereinbefore recited, bought an old road-bed which the company needed, for $15,ooo, and for the purpose and with the intention of selling it to the company, with an agreement among themselves, Bronson and Hill, divided the profits of the transactions, sold it to the company for $200,000 cash and $3,600,000 of the company's capital stock, and then carried out their agreement about the division of profits. The company is entitled to recover of Tiernan the difference between the price paid by him and Ayers for the road-bed and that at which they sold it to the company,

Fifth. Tiernan and Ayers did not disclose to any of their associate directors, except Bronson and Hill, the price paid by them for the road-bed, and the other five directors had no knowledge on that subject. Such a transaction will not be upheld when it is challenged in a proper action by the company.

Sixth. Tiernan took $3,600,000 of the company's capital stock in the manner above set forth, and in a proper action by the company he is answerable to it for the par value of the stock, and judgment should be rendered against him accordingly.

Seventh. Tiernan was a director from the time of the organization of the company down to the time of the commencement of the action to recover for the matters hereinbefore referred to, and, as, during all that time he was trustee for the company, statutes of limitation did not commence to run as long as that relation continued.

1. Some very important questions grow out of the purchase of the road-bed by Tiernan and his associates, and their sale of it to the railroad company. It is alleged in the answer of the railroad company, that at the time the purchase was made Tiernan was one of the incorporators and directors of the company, and occupied such a position toward the company that whatever dealings he had respecting the road-bed resulted to the benefit of the corporation, or that, if this is

not so, then if he made the sale to the company while acting in the capacity of president and director, he was bound to disclose the price he paid, the profit he was making and that the whole transaction must be characterized by fair, open and unmistakable candor in all its features. The first question we shall discuss is were the defendants in error, Tiernan and Ayers, corporate fiduciaries at the time they purchased the road-bed? They signed and acknowledged the charter of the St. Louis, Fort Scott and Wichita Railroad Company on the 20th day of January, 1880, at Champaign county, state of Illinois. It was filed with the secretary of state on the 23d day of February, 1880. The contract of purchase of the road-bed was made on the 17th day of February, 1880. It thus appears that the road-bed was purchased before the railroad company had any existence. Section 10, chapter 23, of the Compiled Laws of Kansas, 1885, being the act concerning private corporations, is as follows: "Section 10. The existence of the corporation shall date from the time of filing the charter, and the certificate of the secretary of state shall be evidence of the time of such filing." This express statutory declaration determines the fact that the railroad company had no existence prior to the 23d day of February. Important legal consequences flow from this determination. The legislature has prescribed the act that gives life to a corporation, and the date of the performance of that act is the birthday of its creation. From the moment of the filing of the charter with the secretary of state, the duties and obligations of those named as its first directors began. There would not have existed any fiduciary relations before that time, because there was no corporation in existence to create them. It is clear, then, that at the time they made the purchase of the road-bed they were not directors, and did not occupy such a relation of confidence and trust to this railroad company that this purchase was presumably for its benefit, or by operation of law resulted in its favor. All such theories and considerations are swept out of our pathway by the vigorous terms of the

statute.

It is sometimes the case that parties who are dealing with each other about the organization of a corporation make such declarations or give such pledges respecting its future creation that causes of action arise between them which must be settled in accordance with the recognized rules of law with reference to contracts, agency or partnership. There is nothing developed in the record which justifies the assertion that such causes of action arose against Tiernan and his associates on behalf of others who participated in the organization. We do not believe that any one would seriously contend for a single moment that there is such a statement of facts in the record that, if Tiernan had refused to sell his road-bed to the railroad company, it could have enforced the sale. To make him responsible in this action there must be an affirmative showing that at the time he made the purchase he was either acting for and on behalf of the company, or that he so assumed to act, or that he occupied such a relation of trust and confidence with respect to the company that his purchase resulted to its benefit, and