Validity of Contracts Between Corporations Having Common Directors

Authors

Harold M. Bowman, Dartmouth College

Abstract

Among many who heed the results of the examinations into the methods of trust, corporation and extensive financial activities, there is a conservative belief that improvement is to be secured not by sweeping alterations in legislation, or revolutionary conversions in public opinion, but by persistent and skillful reformation of the detail of law itself. The recommendations of the Armstrong insurance committee of New York bear adequate witness to this fact. But it is interesting to note that most of the recommendations have been addressed to executive and legislative authority, not to the judiciary. This is but natural, considering the purposes of these recommendations and the sources from which they emanate. And yet the plan which neglects the judiciary is not as highly practical as it might be. With the judges remains in great measure the determination of the adequacy of the law affecting corporate and financial organizations. The bench plays an inestimable part in shaping this law. No doubt it will be appropriately memorialized in due time, but by the judges themselves, or the legal profession, who are the proper custodians of the law as a science. Until that time comes, however, will it not be of value to give some study to certain phases of the law for which the courts are peculiarly responsible? The contract between corporations having common directors is common in business at the present time. It is oftentimes useful and valuable to all concerned. But it offers peculiar opportunities for fraud and oppression. It is an open gateway through which unscrupulous interests can pass to dishonest advantage, and through which the weaker can of ten be turned to their ruin. There can be no doubt that it demands consideration--consideration at the hands of the bench as much as anywhere. It is the judiciary that has made the law concerning such contracts, and they can best alter it if need be. An examination of the decisions will suggest the problems involved. It may be premised that contracts between corporations having common officers present practically the same questions as these between corporations having common directors. Furthermore, it makes little difference whether the common directors constitute a majority on either or both boards". Where, however, the decisions have turned upon, or have been materially affected by these differences, special note will be made of them.

Recommended Citation

Harold M. Bowman, Validity of Contracts Between Corporations Having Common Directors, 4 Mich. L. Rev. 577 (1906).
Available at: https://repository.law.umich.edu/mlr/vol4/iss8/1