Lead Opinion

ROGERS, Circuit Judge

(after stating the facts as above). This is the third time that the subject-matter of this litigation has been before this court. It came here first in Du Pont v. Gardiner, 238 Fed. 755, 151 C. C. A. 605. We held at that time .that an injunction was improperly granted restraining Gardiner from maintaining an action at law against Du Pont. All that we decided in that case was that in an action brought on a contract which was not under seal it was a good defense at law that the contract was induced by fraudulent representations. The matter came here next in Gardiner v. Du Pont, 250 Fed. 227, 162 C. C. A. 363, and we decided that the evidence was insufficient to sustain an action against Du Pont for breach of contract; the evidence not indicating that Du Pont was binding himself individually, or *445that the parties believed he was binding himself, but that the understanding was that the contract should be performed by a corporation to be formed.

In the present suit the action is brought against the corporation which the parties contemplated should be formed and which later was formed, it having been decided that the contract was not the personal obligation oí Du Pont, we must now determine whether there exists any obligation on the part of the defendant corporation. [1] it has been held in some jurisdictions that, if the promoters of a corporation necessarily perform services or incur expenses in obtaining a charter, in securing subscriptions to the capital stock, and in otherwise perfecting the organization and such services were necessary and reasonable, and not rendered gratuitously, but with the understanding and expectation of the promoters that they were to be paid for, a promise to pay by the corporation after its organization and acceptance of the benefits of such services or expenses will be implied. Farmers’ Bank of Vine Grove v. Smith, 105 Ky. 816, 49 S. W. 810, 88 Am. St. Rep. 341: Low v. Connecticut & Passumpsic Rivers R. Co., 45 N. H. 370; Hall v. Vermont & Massachusetts R. Co., 281 Vt. 401. In laying down the above rule it has been said that any other doctrine would render it difficult to organize any corporation, however necessary. But the weight of authority seems clearly to be that there is no such liability on the part of a corporation to its promoters, in the absence of an express promise by it after its organization, unless, as is sometimes the case, such liability is imposed by the charter or the general law. Melhado v. Porto Algere, New Hamburgh & B. Ry. Co.. L. R. 9 C. P. 503; New York & New Haven R. Co. v. Ketchum, 27 Conn. 170; Rockford. Rock Island & St. L. R. Co. v. Sage, 65 Ill. 328, 16 Am. Rep. 587; Weatherford, Mineral Wells & Northwestern Railroad Co. v. Granger, 86 Tex. 350, 24 S. W. 795, 40 Am. St. Rep. 837.

Then it is said that a corporation which has had the benefit of a promoter’s contract accepts it ettm onere, and is liable thereon. The rule na this subject is stated in Cook on Corporations (7th Ed.) vol. 3, p. 2411, as follows:

“A corporation, accepting tho benefits of the contract of its incorporators, must accept the burden, and a promoter’s contract, which has been ratified or adopted by tiie Corporation, or the benefits of which have been accepted by the corporation with knowledge of such contract, may be enforced against it.”

And see Morgan v. Bon Bon Co., 222 N. Y. 22, 118 N. E. 205.

But it is important to understand exactly what is meant 'when it is said that, if a corporation accepts the benefit of a contract made by its promoters, it takes it cum onere. In Re Rotherum, etc., Co., 50 Law T. (N. $.) 219, this language is used by one of the justices:

“It is said that Mr. Peace has an equity against the company, because the company had the benefit of his labor. '.Vhat does that moan? If I order a coat, and receive it. I get the benefit of the labor of the cloth manufacturer; but does any one dream that I am under any liability to him? It is a mere fallacy to say that, because a person gets the benefit of work done by somebody else, he is liable to pay the person who did. the work.”

*446And see Weatherford, etc., Ry. Co. v. Granger, supra.

We do not challenge the proposition that a corporation, in accepting tire benefits of a promoter’s contract, takes it subject to the burdens, but we do not see wherein it has any application to the facts of this particular case. The theory, as we understand it, seems to be that Andrews made arrangements with Gardiner to procure information, which information was procured by Gardiner and was valuable to Andrews, and enabled him to prepare and formulate a plan for organizing and financing the project for the purchase of the Equitable site and the erection of an office building thereon; that after a tentative plan had been formulated by Andrews, and after information had been obtained by Gardiner in connection therewith, Du Pont entered into arrangements with, Andrews to take over the enterprise and to provide for the payment of the obligations incurred in the formation thereof; that a statement was made up, showing the obligations and expenses incurred, included in which was an item of $200,000 to be paid to Gardiner, in consideration of the services rendered and to be rendered by him; that in consideration of the turning over by Andrews to Du Pont of said enterprise and offthe services rendered by Gardiner, Du Pont promised that there should be paid out of the treasury of the company the obligations and expenses incurred in the formation thereof; that defendant was organized by Du Pont, and in consideration of the turning over to it of said plan and enterprise promoted by Andrews and Du Pont, with Gardiner’s assistance, and of the payments to it by Du Pont referred to in his offer, the. defendant has had the benefit of Du Pont’s agreement, and is therefore impliedly hound to pay the Gardiner commission.

[2] So far as this argument is concerned, it is enough to say that to make the principle applicable the corporation must have accepted the benefits with .knowledge of the facts. All of the cases which recognize the doctrine so hold. And there is no evidence in this record that the corporation knew of the agreement made by Du Pont in the Andrews letter. It is true it is said that two of the directors, Du Pont and Dunham, had actual knowledge of the letter at the time of the taking over of the enterprise by the defendant. So far as the knowledge of Du Pont is concerned, it is clear that it was not imputable to the corporation. A corporation is not charged with notice of facts known to a director in a transaction between him and the corporation, in which he is acting for himself and not for the corporation. Davis Improved Iron Wagon Co. (C. C.) 20 Fed. 699; Commercial Bank v. Cunningham, 24 Pick. (Mass.) 270, 276, 35 Am. Dec. 322; Burt v. Batavia Paper Manufacturing Co., 86 Ill. 66. The general rule that the knowledge of the agent is imputed to the principal rests upon the presumption that the agent will disclose what it is his principal’s business to know and the agent’s duty to impart. But the rule does not apply where the agent contracts with his principal, because in such a case there is fio reason to presume that the agent will impart information which it is for his interest to suppress. The knowledge of a promoter is not to be imputed to his corporation. Machen on Corporations, vol. 1, § 348.

*447It is also true that the knowledge of 'Dunham cannot be imputed to the corporation. At the time Dunham obtained knowledge of the transaction, he was not a director. In Houseman v. Girard Mut. Bldg. & Loan Ass’n, 81 Pa. 256, quoted in Gilkeson v. Thompson, 210 Pa. 355, 359, 59 Atl. 1114, 1115, Judge Sharswood said:

“It is only (luring tlie agency that the agent represents, and stands in the shoes of Ms principal. Notice to him is then notice to liis principal. Notice to Mm 24 hours before the relation commenced is no more notice than 24 hours after it had ceased would be.”

It is not necessary that we should express our opinion concerning Judge Sharswood’s statement. It is a proposition not everywhere accepted. While the knowledge of an agent, according to the trend of recent decisions, may be attributed to his principal, it camiot he so attributed unless it is clearly shown that the agent, while acting for the principal in a transaction to which the information is material, has the information present in his mind. Harrington v. United States, 11 Wall. 356, 20 L. Ed. 167; Vulcan Detinning Co. v. American Can Co., 72 N. J. Eq. 387, 67 Atl. 339, 12 L. R. A. (N. S.) 102; Suit v. Woodhall, 113 Mass. 391; Slattery v. Schwannecke, 118 N. Y. 543, 23 N. E. 922; Booker v. Booker, 208 Ill. 529, 70 N. E. 709, 100 Am. St. Rep. 250. Or unless, according to some of the authorities, the information, was acquired so recently or under such circumstances that it will he presumed to have been in his mind at the time of the transaction in Question. Alger v. Keith, 105 Fed. 105, 44 C. C. A. 371; Henry v. Omaha Packing Co., 81 Neb. 237, 115 N. W. 777; Brothers v. Kaukauna Bank, 84 Wis. 381, 54 N. W. 786, 36 Am. St. Rep. 932; Jenkins Bros. Shoe Co. v. Renfrow, 151 N. C. 323, 66 S. E. 212, 25 L. R. A. (N. S.) 231.

In Cook on Corporations (7th Ed.) vol. 3, § 727, p. 2591, it is said:

“The corporation is sometimes chargeable with knowledge of facts which are known to one of its directors; but there are so many exceptions to this rule that the only safety lies in a study of the eases themselves.”

We shall not enter upon a detailed study of the cases, not finding it necessary, in view of the fact that it does not affirmatively appear upon this record that Dunham was present at the time Du Pout’s offer was submitted to and acted upon by the board. It is true the record states that the vote taken on the offer was unanimous. But that affords no proof that a full board was present. It simply shows that no one who was present voted against the acceptance of the offer.

[3] The English courts hold that a contract made by promoters in behalf of a corporation projected, but not yet formed, cannot by adoption bind the company when incorporated. They hold that a new contract is necessary. The adoption and confirmation by the deed of settlement, or its modern equivalent, the memorandum of association, will not render the contract binding on the company. Gunn v. London, etc., Fire Ins. Co., 12 C. B. (N. S.) 694; In re Northumberland Ave. Hotel Co., 33 Ch. D. 16. In the same way the confirmation by the directors of a preincorporation contract is under the laws of England insufficient to bind the corporations to the contract. In re Dale *448& Plant, 61 L. T. 206; North Sydney Investment, etc., Co. v. Higgins, [1899] A. C. 263, 271.

-In this country our courts have held, and the great weight of authority supports the proposition, that a preincorporation contract may he adopted by the corporation and become binding on it, if it expressly 'or impliedly adopts it after it comes into existence. In re Lance Lumber Co., 237 Fed. 357, 150 C. C. A. 371; In re Ballou (D. C.) 215 Fed. 810; In re Quality Shoe Shop (D. C.) 212 Fed. 321; Cook v. Sterling Electric Co., 150 Fed. 766, 80 C. C. A. 502; Bridgeport Electric, etc., Co. v. Meader, 72 Fed. 115, 18 C. C. A. 451; Seymour v. Spring Forest Cemetery Association, 144 N. Y. 333, 39 N. E. 365, 26 L. R. A. 859; Forbes v. Thorpe, 209 Mass. 570, 95 N. E. 955; Brautigam v. Dean, 85 N. J. Law, 549, 89 Atl. 760; Streator Independent Tel. Co. v. Continental Tel. Construction Co., 217 Ill. 577, 75 N. E. 546; Stanton v. New York, etc., R. R. Co., 59 Conn. 272, 22 Atl. 300, 21 Am. St. Rep. 110; Girard v. Case Bros. Cutlery Co., 225 Pa. 327, 74 Atl. 201; Machen on Corporations, vol. 1, § 329; 14 C. J. 257.

But the fundamental question which the present suit presents is not whether the defendant after its incorporation adopted an agreement previously made between its promoters, Andrews and Du Pont, as embodied in the letter of August 9, 1912. There is nothing in the record to show that -the defendant corporation ever took action upon that particular agreement, or that it was ever brought directly to its attention. The contract which the defendant made with Du Pont, growing out of his offer and its acceptance, immediately after its incorporation on April 24, 1913, is the one contract which the defendant made upon which the plaintiff can- rely. However, in determining the liability of the defendant under that contract, it will be necessary, as we shall presently see, to consider the meaning of the agreement made between Andrews and Du Pont in the letter of August 9, 1912, to which reference has already been made, and which we shall more particularly consider in a subsequent portion of this opinion.

[4] We now proceed to consider the contract the defendant made with Du Pont. It appears from the facts stipulated that the defendant was organized as a corporation on April 24, 1913, with Du Pont as one of the incorporators and directors. On the same day that the company was organized Du Pont submitted to it an offer which embraced 12 distinct propositions of things that he would cause to.be done on its behalf by the Equitable Life Assurance Society of the United States and by other parties therein named. And in submitting this offer of the things he would cause to be done he stated that it was “in consideration and on condition that” it (the defendant) agreed that it would do certain things set forth in 11 paragraphs, of which paragraph 10 alone can have any possible relation to the matter now under consideration. By that paragraph -the defendant was to—

“assume and discharge and reimburse me [Du Pont] for all my expenses in connection with : (1) Negotiating for and securing the delivery of the various instruments and agreements hereinabove mentioned; and (2) in connection with work done and materials supplied for construction of said building in anticipation of the arrangements about to be made; and (3) all other ex-*449pc ¡isos of every kind either incurred or which may be incurred by me in bringing about such arrangements, including the incorporation of your company and the preparation of instruments for use in perfecting such arrangements.”

Neither in the things which Du Pont was to do nor in the things which the defendant was to do-, if the offer was accepted, was there any express mention of Gardiner. The offer was accepted by the board of directors unanimously, Du Pont not voting. The vote directed that the officers of the company should execute and deliver all agreements and other instruments in writing and other things necessary and proper to carry out and consummate the transaction according to the terms of the offer.

If paragraph 10 simply imposes upon the defendant an obligation to assume and discharge and reimburse Du Pont for all of his expenses, either incurred or which may be incurred by him in doing certain things, and for which he had become or should become personally liable, then this suit cannot be maintained; for the commission sought to be recovered in this suit is not an expense incurred by Du Pont for which he became personally liable, this court having already so decided in the former case. And by stipulation of the parties it is agreed that Gardiner never rendered any service to Du Pont, and the latter never incurred any obligations to him, unless one was created by the letter of August 9, 1912. If that is the meaning which must be given to the agreement between the defendant arid Du Pont, then Du Pont failed in his offer to the defendant to incorporate and provide for the claim of Gardiner, and has broken his promise to Andrews that he would see that the corporation paid it.

This action then must fail, unless the words “expenses * * * incurred * * * by me,” as employed in the agreement made between the promoter, Du Pont, and the defendant corporation, are entitled to receive a broader construction than that already considered. To maintain the action it is necessary that the words quoted should be sufficienlly comprehensive to include expenses incurred by Andrews as the original promoter, but which Du Pont, in taking over the enterprise from Andrews, agreed should be paid to Gardiner by the corporation which Du Pont was to organize. We must, so far as this record is concerned, regard this commission of Gardiner’s as an “expense” of the enterprise. Whether the original undertaking between Andrews and Gardiner was, at the time the services were rendered, that they were to be paid for by Andrews, or whether Gardiner was to look to the corporation when it was organized, is not disclosed upon the record, and fc immaterial so far as the issue now under consideration is concerned.

The important question is whether the agreement made by Du Pont with Andrews that this commission to Gardiner for services rendered in connection with the promotion of the enterprise should be paid by the corporation he was to form can be regarded as an expense connected with the enterprise which Du Pont can be said to have incurred by this recognition of it. If it can be so regarded, the defendant corporation has agreed to pay it, and this action can be maintained. If it *450cannot be so regarded, the defendant has not promised to pay it, and the action cannot be maintained. The fact that Du Pont did not obligate himself personally to pay this expense does not preclude it from being regarded as an expense of the enterprise incurred by him. It is not at all unusual in the case of promoters’ contracts for A. to incur expense with the understanding that B. is to look for payment to C. And it does not seem to us a ¿trained or improper construction of the agreement to hold that, when Du Pont found it necessary or desirable, in taking over the enterprise, to promise that Gardiner’s commission should be paid by the corporation, he thereby made or recognized its payment as an expense of the enterprise which he had incurred by virtue of the letter of August 9, 1913. Therefore the defendant, by its acceptance of Du Pont’s offer on April 24, 1913, to paj'- the expenses incurred by him, became liable to pay the Gardiner commi¿sion as Du Pont promised.

We are dealing with a promoter’s contract, and the actual intention of the parties should be given effect as in the case of other contracts. We must assume that Andrews, in turning over to Du Pont the enterprise which he was promoting, was influenced by Du Pont’s promise, that Gardiner’s commission should be paid. We cannot assume that Andrews would have turned, the enterprise over, unless Du Pont incurred an expense incidental to the prosecution of the enterprise, the payment of which expense was to be contingent upon the action of the corporation to be formed. That corporation was in effect Du Pont. He was to incorporate it, and to name its board of directors, and would presumably control its policy. Good faith seems to require the construction we have placed upon the words the parties used. The question as to any false or fraudulent representations having been made to Du Pont by Andrews by which he was induced to agree that Gardiner should be paid is not before us upon this record.' The allegations in the answer upon that subject did not influence the court below in arriving at its conclusion. The learned District Judge expressly disclaimed any knowledge whatever as to whether any such false or fraudulent representations were in fact made. His languag* on this phase of the matter was as follows:

“In all that I -have stated I want it distinctly understood that I know nothing, nor do I want this record to indicate that Mr. Andrews made any false representation, knowing it to be false, or anything of the kind.” ( ;

That court did not know, and this court does nqt know, anything of the kind. At this stage of the case, and upon this record, that question is not in any way before us. If any such representation was made, that was a matter of defense, and had nothing whatever to do with the sufficiency of the complaint, nor of the facts upon which the plain; tiff relies. That was the only question before the lower court/ and it is the only question before this court. The court was asked to dismiss the complaint, and the court had intimated that, if the plaintiff went to trial and proved certain, facts, he should feel compelled to dismiss the complaint. Thereupon certain facts were stipulated by counsel on both sides as constituting the fundamental facts which would be *451proven by the plaintiff, if the case should go to trial. So that upon the complaint, supplemented by the stipulated facts which the plaintiif couid. prove, the complaint was dismissed. The sole difference between the lower court and this court grows out of the meaning to be attached to the words “expense incurred by me” in the acceptance, by the defendant of 'Du Font’s offer. The agreement of the defendant that it would pay the debts of the enterprise which Du Font had incurred was in the most general and comprehensive terms. It was that the defendant would pay “all other expenses of every kind either incurred or which may be incurred” by Du Font in bringing about “such arrangements.” Such arrangements, as we understand them in the connection in which they are used, relate to the consummation of the enterprise he had undertaken.

[5] Upon the pleadings and the facts as stipulated, it was error therefore for the court to dismiss the complaint as respects the first cause of action. The agreement made between the defendant and Du Font on April 24, 1913, bound the former to pay the Gardiner commission as an expense connected with the enterprise which Du Font had incurred; and under the law as laid down in this circuit it stated a cause of action in equity. Goodyear Shoe Machinery Co. of Portland v. Dancel, 119 Fed. 692, 56 C. C. A. 300; Id., 144 Fed. 679, 75 C. C. A. 481.

The decree is reversed, and the cause remanded to the District Court, with directions to reinstate so much of the complaint as relates to the first cause of action, and to further proceed as may be required and as shall be in conformity with this opinion.

Dissenting Opinion

HOUGII, Circuit Judge

(dissenting). “Expense” is a word that always implies disbursement or liability on the part of the expense incurren If, as this court has heretofore held, Du Pont incurred no personal liability to Gardiner, and if, as we now hold with obvious truth, Gardiner never rendered any services to either Du Pont or the defendant company, it is impossible for me to perceive how Gardiner’s claim can be regarded as an “expense incurred” by any one, except perhaps Andrews.

The material facts have long been patent in the record of Du Pont v. Gardiner, supra; that evidence has never been varied in any essential ; the subsequent proceedings are but a game of legal hide and seek. Du Pont promised to make an intended corporation pay Gardiner; he was induced so to do by what he regarded as false representations, and so did not keep his promise. After he became (rightly or wrongly) convinced of Andrews’ falsity, of course he never intended to keep that promise.

It is now held that Du Pont smuggled into his long subsequent agreement with this defendant corporation a contract to pay as an “expense” something he was not liable for, and for which he thought it morally impossible any one could be made to respond. From this proposition I dissent.