NULLIFYING THE LAW
But this wholesome rule of business, so clearly laid down, was practically nullified by courts in creating two unfortunate limitations, as concessions doubtless to the supposed needs of commerce.
First: Courts held valid contracts between a corporation and a director, or between two corporations with a common director, where it was shown that in making the contract, the corporation was represented by independent directors and that the vote of the interested director was unnecessary to carry the motion and his presence was not needed to constitute a quorum.
Second: Courts held that even where a common director participated actively in the making of a contract between two corporations, the contract was not absolutely void, but voidable only at the election of the corporation.
The first limitation ignored the rule of law that a beneficiary is entitled to disinterested advice from all his trustees, and not merely from some; and that a trustee may violate his trust by inaction as well as by action. It ignored, also, the laws of human nature, in assuming that the influence of a director is confined to the act of voting. Every one knows that the most effective work is done before any vote is taken, subtly, and without provable participation. Every one should know that the denial of minority representation on boards of directors has resulted in the domination of most corporations by one or two men; and in practically banishing all criticism of the dominant power. And even where the board is not so dominated, there is too often that “harmonious coöperation” among directors which secures for each, in his own line, a due share of the corporation’s favors.
The second limitation—by which contracts, in the making of which the interested director participates actively, are held merely voidable instead