LEGAL PHASES OF COOPERATIVE ASSOCIATIONS 37 
tions, the courts scrutinize such contracts jealously, and they may 
be set aside on slight grounds, 3 even if all the directors of an asso- 
ciation, except the one receiving the contract, voted therefor; and 
if a director acted both for himself and the association, an additional 
reason for scrutinizing the contract would exist. 4 Such contracts 
under common-law principles may be set aside at the election of the 
association unless of advantage thereto and unless fair and rea- 
sonable. 5 
Withheld facts, large profits, suspicious circumstances, or un- 
favorable terms may furnish an association a basis for setting aside 
such a contract, but if a contract is made by a director with an 
association when the association is represented by a majority of the 
directors, the contract will be upheld if fair and reasonable and if 
without disadvantage to the association. 6 
The cases are rare, if not nonexistent, in which a director, although 
inattentive to his duties, has been held liable on account of the gen- 
eral collapse of a corporation, if fraud or specific losses traceable to 
specific transactions are not involved. 7 Probably this is due in part 
to the difficulty in showing the amount of the loss suffered in such 
a case, or that it is chargeable to the neglect of the director. But a 
director who fails to attend properly to the duties of his office is 
always confronted by the fact that, generally, he will be held liable 
for losses due to the fraud of officers, agents, or other directors of 
the association, or for specific losses such as one caused by the unlaw- 
ful expenditure or employment of association funds, if he could 
reasonably have been expected to prevent the losses by attending 
to his duties. 8 A director is not liable for losses occasioned by the 
misconduct of codirectors where he is without fault. 9 Directors are 
not liable for losses due to dishonesty by officers or employees, unless, 
without using reasonable care, they selected or employed dishonest 
men or retained them after their dishonesty was known. 10 
If the directors or officers of an association misappropriate its 
funds or engage in other fraudulent conduct that results in losses 
thereto, their action can not be condoned ; that is, ratified, " except by 
the unanimous consent of the stockholders (members) ; otherwise a 
majority, or a director who might control a majority vote in the 
corporation, would be able to rob and despoil it with impunity." * xx 
If it is claimed that the members of an association have ratified trans- 
actions of its directors or officers, it must be shown that the members 
were advised of all the material facts, because without knowledge of 
such facts there could be no ratification. 12 
Primarily, the right to bring suit against directors for an account- 
ing, or to annul a contract voidable because a director was unlawfully 
3 Twin-Lick Oil Co. v. Marbury, 91 U. S. 587. 
4 Wainwright v. P. H. & F. M. Roots Co., 176 Ind. 682, 97 N. E. 8. 
B Wing v. Dillingham et al., 239 F. 54 (petition for writ of certiorari denied), 244 
U. S. 654 ; Geddes et al v . Anaconda Copper Mining Co. et al., 254 U. S. 590 ; Lembeck & 
Betz Eagle Brewing Co. v. McAnarney, 287 F. 927 ; Stanton v. Occidental Life Ins. Co., 81 
Mont. 44, 261, P. 620. 
8 Nicholson v. Kingery, Wyo. , 261 P. 122 ; Stanton v. Occidental Life Ins. 
Co., 81 Mont. 44, 261 P. 620. 
7 Barnes v. Andrews, 298 F. 614. 
8 McGinnis v. Corp .ration Funding & Finance Co., 8 F. (2d) 532; Smith v. Cornelius, 
41 W Va. 59, 23 S. E. 599, 30 L. R. A. 747. 
9 Fisher v. Graves, 80 F. 590. 
10 Bates v. Dresser, 251 U. S. 524. 
11 Ford v. Ford Roofin- Products Co., Mo. App. , 285 S. W. 538. 
^Mallory v. Mallory Wheeler Co., 61 Conn. 131, 23 A. 708. 
