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III. THE DUTIES OF DIRECTORS.

§ 75. The policy of limitation.

76. Residence in the state.

77. Place and time of election.
78. Qualification and election.
79. Powers of the majority.

80. President and other officers.
81. No compensation as a director,
82. Directors and stock subscriptions.
83. Directors and mortgage bonds.
84. Annual public report.

85. Report to the shareholders.
86. Perry on Directors.

875. We have seen that a railway corporation has a board of directors as a part of its organization; that the board must classify themselves; that the elections of directors must be upon the cumulative plan, sometimes erroneously called the "minority representation” plan. It can hardly have escaped notice that the policy of the state is not only to restrict the powers of corporations, but to vest, as far as practicable, in individual stockholders the power to prevent and arrest abuse of authority by the officers of the company. The importance of this was much greater than the public is accustomed to suppose, or rather, than it was accustomed to suppose at the time the existing constitution of Illinois was adopted.

§ 76. By virtue of a clause of the constitution of Illinois, incorporated also into the statute of 1872, a majority of the directors of a railroad company must be residents of the state. This provision is expressly extended to all railway corporations created by this state, in whatever way or at whatever time. It does

1 Illinois Constitution, art. xi, sec. 11.

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not, as a matter of course, apply to companies existing by virtue of charters derived from other states and doing business in Illinois. The greater part of the constitutional provisions made in regard to railroads admit of no distinctions between those merely doing business in the state and those created by the laws of this state.

§ 77. The directors must be elected at the annual meetings of the shareholders, held at the public office of the company in Illinois. This provision in regard to the place of election not being found in the constitution, nor by its express terms made applicable to railroad companies existing under special charters, may be held obligatory only upon those corporations created under the general statute. While the law requires these elections to occur at the regular meeting, at a given time, it is provided that "in case it shall happen, at any time, that an election of directors shall not be made on the day designated by the by-laws of such corporation for that purpose, the corporation, for such cause, shall not be dissolved, if within ninety days thereafter the stockholders shall meet and hold an election for directors in such manner as shall be provided by the by-laws of the corporation."1

$78. The statute declares that all corporate powers of a railroad company shall be vested in, and be exercised by a board of directors, adding that the same shall be stockholders of the corporation, to be elected at the annual meetings of the corporation. At special meetings a two-thirds majority in value of the stock may depose an officer for cause; but the mode of filling

1 Gross, vol. ii, R. R. chap. sec. 170.

vacancies prescribed in the by-laws shall not be changed except at a regular annual meeting. 1

§ 79. The law, as we have seen, specifies what may be done by a two-thirds majority of the stockholders; what by a plurality; what by one-fourth; and what by a single shareholder, making, in a sense, a four-fold division. Directors must act as a whole. No provision is made for the individual or the minority action of the directors. The board is in itself a unit. There are no property rights involved; but simply official or functional authority. This does not preclude the delegation of certain powers to an executive committee, selected from and by the board. Such selection, although not specifically provided for, is not infrequent, and may be said to exist, if at all, in contemplation of law. The by-laws generally determine that matter. At common law the general duties of the board are regarded as ministerial. In case the action in a given instance is judicial in its nature, the concurrence of all the directors is required, at least the whole must assemble and take action thereon. In fine, if the matter is of public concern, the decision of the majority will bind; but in private concerns, as arbitration, all must concur. 2

§ 80. The directors must chose, and that from their own membership, a president and "such other subordinate officers as such corporation, by its by-laws, may designate, who may be elected or appointed, and shall perform such duties and be required to give such security for the faithful performance thereof as such corporation, by its by-laws, shall require; provided

1 For county railroad directors, see sec. 156.

* See Redfield on the Law of Railways, vol. 1, p. 91.

that it shall require a majority of the directors to elect or appoint any officer."1 This clause brings up again the powers of majorities. An early Illinois decision declares that if a number of persons are entrusted with powers in matters of public or corporate concern, and all of them are regularly assembled and consulting, the majority may act and determine, provided the authority be not otherwise limited and restricted.”

§ 81. It is a well-established principle of law that a director is not entitled to compensation for services. performed as a director. The law looks with jealousy upon the delegation of special labors by the board to its own members, and the making of contracts with themselves, for constructing the road, equipping it, etc., would be regarded as a breach of fiduciary trust, unless the contract were made with the knowledge and consent of all the stockholders. It sometimes happens that all the shareholders are members of the board. The directors cannot indirectly pay themselves by borrowing money of the company, or using the corporate funds for any purpose, except for the legitimate objects of the corporation.4

If a

$82. The directors may require the subscribers to the stock of the corporation to pay the amount by them respectively subscribed in such manner and in such installments as they may deem proper. stockholder fails to meet the assessment the directors may declare his stock, and all previous payments upon it, forfeited for the use of the corporation. Abuse of

1 Gross, vol. ii, R. R. chap. sec. 173.

2 Louk v. Woods, 15 Ill. 256.

3 Americen Central R. R. Co. v. Miles, 52 Ill. 174.

4 Gross, vol. ii, R. R. chap. sec. 173.

this power is guarded against with special care. The directors cannot declare such forfeiture without having first caused a notice in writing to be first served upon the stockholder, personally, or by mail. The letter, in the latter case, must be directed properly. At least sixty days must be given in which to make payment. If the person in whose name the stock stands be dead, then his legal representative must be notified. The notification must state the resolution or order in accordance with which payment is requested, with full particulars as to time and place. Also the penalty of non-compliance. In case of any such forfeiture to the company of stock, the same may be sold and new certificates of shares issued therefor.1

$83. A meeting of the stockholders for the purpose of increasing the capital stock of a company may be called by the directors. The meeting called, the directors as such have no authority until the question of increase has been decided. If agreed upon, the resolution to that effect must be recorded by the directors, as provided in the case of the articles of incorporation. If the stockholders, by a two-thirds majority, as previously defined in this treatise, decide to mortgage the property and franchises of the company, issuing bonds to that effect, the directors shall carry out the details of the business. The company as such adopts an order or resolution authorizing the mortgaging or bonding of the road, and the same having been duly recorded, the directors may confer upon any holder of any money so borrowed the right to convert the principal into stock at any time not exceeding ten years after the date

1 Gross, vol. ii, R. R. chap. sec. 172. Gross, vol. ii, R. R. chap. sec. 174.

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