€^OMMELtt. UBRAiR.¥| O^orn^U Slam i'rljonl Sibrarg „^ , , Cornen University Library KF 1420.E33 The law of promoters; a treatise on the I 3 1924 019 226 624 Cornell University Library The original of tiiis bool< is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019226624 THE LAW OF PROMOTERS A TREATISE ON 1 THE LAW OF PBOMOTERS OF PEIVATE C0EP0BATI0N8, OOVEB- ING THE EIGHTS AND LIABILITIES OF PE0M0TEB8, AND ALSO THE EIGHTS AND LIABILITIES OP THE COEPOBA- TION AND THE SUB8CEIBEB8 FOE AND PUE0HASEB8 OF ITS SHAEES, THE EIGHTS AND LIABILITIES OF PEBSONS SELLING PEOPEETY TO THE COEPO- EATION, AND THE EIGHTS AND LIABILI- TIES OF ALL OTHEE PEBSONS AS AF- FECTED BY THE ACTS OE OMIS- ' SIGNS OF THE PEOMOTEBS. ;\V^<^^ By MANFRED W., EHRICH Of the New York BwT Albany, N. Y. MATTHEW BENDER & COMPANY, INCOEPOKATBD 1916 Copyright, 1916, By MANFRED W. EHRICH PREFACE Practically all large business enterprises are, at the present day, organized in corporate form. The transactions involved in the formation of these corporations are often intricate and of great magnitude. Yet their organization is in the main the work of promoters — persons who have no official connection with the future corporation and who occupy toward it a very indefinite, and in some respects an anomalqus, relation. The questions of law which arise from the acts and omissions of these promoters are difficult and complicated, and call for more intensive consider- ation than can well be accorded them in any general work on cor- porations. No work on promoters' law has been published since 1898, and in the eighteen years that have elapsed many interest- ing cases have been decided. That there is need for a reconsider- ■ ation of the subject there can be no doubt. Among the more important matters covered by the present book are agreements for the promotion of corporations, their validity, interpretation and enforcement; contracts made by the promoters on behalf of the projected corporation, the personal liability of the promoters thereon, the circumstances under which they become binding upon the.corporation, and the power of the promoters or the corporation to enforce such contracts ; the pro- moters' right to compensation and to reimbursement for ex- penses; the question of promoters' profits and the circumstances which render them lawful or unlawful — a matter which, under the decisions, depends not so much upon the fair dealing of the pro- moters as upon the astuteness of their attorneys — ; the remedies of a corporation complaining of its promoters, and the defenses PREFACE. of the promoters to its suits ; false representations made by pro- moters, and the resulting liability to the corporation, to the subscribers, and to other persons, and the defenses of the pro- moters to suits based on such representations; the criminal lia- bility of promoters; the rights and liabilities of persons sell- ing property to the corporation as affected by the acts of the promoters ; the relations of the promoters inter se; the rights and liabilities of promoters reorganizing or consolidating existing cor- porations ; and the rights and liabilities to be adjusted when a pro- jected corporaton proves abortive. These, together with many incidental questions, are the subject matter of this book. It has been my aim to write for the busy lawyer as well as for the academic student of the law. I have endeavored to state the underlying principles upon which the cases of promoters' law depend, and to analyze the puzzling decisions in such manner that their purport may readily be appreciated. What the practicing lawyer seeks is, however, not so much a case which establishes some broad principle, as a case which applies that principle to a situation such as the one he has in hand. Whenever I have met a case which applies an established principle to a question of pro- moters' law, or applies some principle of promoters' law to a strik- ing state of facts, I have noted and indexed it in such manner that it may be quickly found. I have in my examination of the numer- ous lengthy opinions that have been written in promoters' cases found many statements, perhaps of no interest from an academic point of view, but yet of great value to the lawyer whose case in- volves the particular point. Such, for example, are statements as to the evidence admissible on a particular question, as to the inferences that may be drawn from a given state of facts, as to matters of pleading, practice, burden of proof, jurisdiction, and as to many other incidental matters which, while establishing no new principle and, perhaps, involving a sufficiently obvious point, are nevertheless the very kind of precedent which it is most diffi- PREFACE. cult to find in case of need. All such statements I have taken pains to note and index. I wish to express my appreciation of the helpful assistance re- iceived from Mr. Bertram F. Shipman of the New York bar and Mr. Paul J. Bickel now of the Cleveland bar. MANFRED W. EHRICH. Dated, New York, April 15, 1916. TABLE OF CONTENTS. CHAPTER I. Of Psomotess Genesali^t. Paoe. Section 1. Introductory 1 2. Judicial acceptance of the term promoter 2 * 3. Definitions of the term 4 4. Circumstances that give rise to the relation 6 5. Sharing promoter's profits 9 6. Carrying on promotion by agents 9 7. Acting as vendor, vendor's agent, etc 9 8. Bankers and solicitors, not promoters 11 9. Subscribers for shares, not promoters 12 10. Promoter's partners as promoters 12 11. Corporations as promoters 13 12. Use of the word promoter in America 14 13. Meaning and effect of the term , . 15 14. Fiduciary relation 16 15. Inception of the relation 21 16. The same subject. — Purchase of property with view to re- sale to corporation 23 17. The same subject. — ^Taking step in organization of cor- poration 25 18. The same subject. — An illustrative case 27 19. Termination of the relation 28 CHAPTER II. Of Ageeements foe the Peomotion of Coepoeations. Section 20. Introductory 30 21. Validity of agreements to organize corporation to pur- chase specific property 31 22. Unenforceable agreements 32 23. Validity of agreements for employment 34 (1) ii TABLE OF CONTENTS. Page. Section 24. Invalid agreements for employment 36 25. Validity of agreements for election of officers 38 26. Agreements for division of shares 39 27. Agreements for control of corporation 40 28. Property rights pending promotion 41 29. Promoters' certificates 41 30. Interpretation of agreements for sale of property to cor- poration 42 31. Performance of agreements for sale of property to cor- poration 45 32. Donating shares to the treasury 46 33. Interpretation of agreements relating to promoter's com- pensation 47 34. Interpretation of agreements for division of profits of promotion, or shares of corporation 49 35. Interpretation of agreements restricting sale of shares... 55 CHAPTER III. Of the Enfoxcement of Ageeements foe the Peomotion op coepoeations. Section 36. Introductory 56 37. Specific performance of agreements to promote cor- poration 56 38. Specific performance where corporation has not been or- ganized 57 39. Specific performance after corporation has been organized 58 40. Actions of accounting 62 41. Action to compel corporation to issue shares 63 42. Actions for damages. — Definiteness of agreement 64 43. Measure of damages 66 44. Action to recover property conveyed, or value thereof. ... 68 45. Actions to enforce mechanics' liens 71 CHAPTER IV. Of Conteacts mabe foe the Coepoeation by its Peomotees. Section 46. Power of promoter to make contract for corporation. ... 74 47. Power of promoter to make contract for corporation after granting of charter 77 TABLE OF CONTENTS. ill Page. Section 48. Power of promoter to make contract for corporation after complete organization 7S 49. Liability Imposed upon corporation by act of incorpora- tion, or articles of association 79 50. Assumption of liability by the fully organized corporation. 80 51. Status of promoter's contract pending action of cor- poration 83 52. Status of subscription agreements pending action of cor- poration 85 53. Assumption of liability by agreement of corporation 88 54. The act of assumption. , 92 55. Necessity of consideration 96 56. Liability of corporation resulting from acceptance of benefit of promoter's contract 96 57. Enforcement at law or in equity 100 58. Lord Cottenham's Rule 102 59. Obligation of corporation to pay for services in procuring contracts accepted by it 107 60. Materiality of circumstance that original contract made by less than majority of incorporators 109 61. Acceptance must be with full knowledge 110 62. Liability of corporation accepting benefit of contract not contemplating performance by it 112 63. The same subject. — Contracts of a continuing nature. . . . 114 64. The same subject. — Amended contracts 114 65. The same subject. — Express adoption 116 66. The same subject. — Obligations cast upon assignee by terms of contract 117 67. The same subject. — Where corporation is organized to escape existing obligations 117 68. Liability of the corporation as affected by nature of par- ticular agreement 118 69. Varying written agreement of promoter 121 70. Subscription agreements 122 71. Notice to promoter as notice to the corporation 125 72. Admissions of promoter ^ . . . . 129 73. Enforcement by corporation of contract made by promoter 130 74. Right of corporation to conveyance of property purchased for it by promoter 135 75. Effect of instrument naming projected corporation as grantee 136 76. Title to property which corporation is expressly organ- ized to acquire 139 iv TABLE OF CONTENTS. Paqe. Section 77. Liability of promoter on contract made for corporation.. 139 78. Liability of promoter after obligations are assumed by corporation 144 79. Enforcement of contract by promoter 147 80. Pleading the promoter's contract 149 CHAPTER V. Of Promotion Expenses. Section 81. Introductory 151 82. Promoter's right to reimbursement for expenses 151 83. What expenses allowed 152 84. Compensation for services 154 85. Compensation of fraudulent promoters 159 86. Compensation for services in obtaining subscriptions.... 160 87. Amount of compensation by whom fixed 161 88. Compensation of persons employed by the promoters. . . . 165 CHAPTER VI. Of Seceet Peofits. Section 89. Introductory 170 90. Basis of rule against secret profits 171 91. Manner of taking profit immaterial 174 92. Taking shares as compensation 175 93. Taking commission or other compensation on sale to corporation 176 94. Accepting gift of money, qualifying shares, or other thing of value 178 95. Profit made by purchase and resale to corporation 180 96. Secret collateral agreements 182 97. Profits made in sustaining the market 183 98. Other collateral profits 184 99. Profits of business carried on with existing concern pend- ing incorporation Ig4 100. Absence of dishonest intent, or of injury to the corpora- tion, immaterial I85 101. Distinction between "secret profits," and sale of pro- moter's property to corporation lOT TABLE OF CONTENTS. v Paoe. Section 102. Restrictions upon sale of promoter's property to cor- poration 188 103. Necessity of determining whether promoter acquired property before, or after, he entered upon relation 192 104. What is deemed acquisition of property 193 105. Property acquired by gift 195 106. Promoter's rights under contract afterward modified.... 196 107. Expired options 197 108. Promoter who acquired property before commencement of relation, sometimes treated as though he had ac- quired' it thereafter 198 .CHAPTER VII. Of Lawful Promoter's Pkofits. Section 109. Introductory 199 110. Disclosure to directors 202 111. Disclosure to subscribers 208 112. Nature of the disclosure. — Constructive notice 214 113. Waiver of disclosure 218 114. Facts that must be disclosed 219 115. Necessity of disclosing price paid by promoter 222 116. The same subject. — ^Effect of independent board of di- rectors 226 117. Misrepresentations as to cost of property 227 118. Ratification of promoter's profits 227 119. Ratification by majority stockholders, or by directors.... 228 120. Profits where promoters themselves the sole subscribers. 232 121. The same subject. — Basis of the rule 235 122. The same subject. — Dummy stockholders 238 123. The same subject. — Effect of promoters' contract to sell shares 238 124. Legality of promoters' profits where shares subsequently sold by subscription 246 125. Effect of subsequent issue not contemplated at time of original transaction 243 126. Effect of unsuccessful attempt to sell shares 249 127. Effect of subsequent sale of shares donated to treasury by promoters 250 128. The Old Dominion Copper Company litigations 255 129. The same subject Subsequent decisions 263 130. The same subject. — Discussion 265 vi TABLE OF CONTENTS. CHAPTER VIII. Or Peomotees' Defenses to Suits by the Coepoeatioit. Page. Section 131. Introductory 271 132. Waiver of disclosure 271 133. Defense that shares issued to promoter had no value 272 134. Defense that promoter guaranteed obligations of the cor- poration 273 135. Defense that profits of promoter were invested in notes of corporation 274 136. Defense that profits were returned to co-promoter 274 137. Defense that promoter surrendered securities to cor- poration 274 138. Compromise between corporation and vendor no defense to promoter 275 139. Defense that judgment sought would compel promoter to pay more than his share of damages 276 140. Defense that other guilty promoters would be benefited by recovery 277 141. Defense that defrauded syndicate in turn defrauded cor- poration 279 142. Defense that corporation was itself guilty of fraud 279 143. Defense that moneys taken by promoter were acquired by corporation in an unlawful manner 280 144. Defense that plaintiff suing as minority stockholder ac- quired his shares in violation of statute 282 145. Defense of participation, or acquiescence, of plaintiff stockholder, or his assignor 283 146. Defense that subscribers had no knowledge of promoter's subscription and were not misled thereby 285 147. Reorganization of corporation as defense ' 286 148. Defense of assignment of company's claim against pro- moter 287 149. Defense of ulterior purpose on part of plaintiff 289 150. Defense of settlement with majority stockholders 289 151. Statute of limitations 290 152. Laches 291 153. Corporation not chargeable with laches until after knowledge. 292 154. What is unreasonable delay 293 155. Persons whose knowledge may be charged to corporation 295 TABLE OF CONTENTS. vii Page. Sectiox 156. Defense of laches as depending upon nature of relief asked. 296 157. Delay as defense to action at law upon a rescission 297 158. Effect of judgment for, or against, co-promoter 298 159. Defense of bankruptcy 298 CHAPTER IX. Of the Remedies of the Coepokation. Section 160. Introductory. 300 161. Remedies in case of unlawful sale to corporation of proi>- erty purchased by promoter for his individual account 301 162. Where promoter misrepresents facts 306 163. Accounting for profits. — Rescission unnecessary 308 164. Remedies when promoter's profit taken in mioney 309 165. Additional remedies when promoter's profit taken in shares 309 166. Remedies when promoter's profit taken in bonds, or other obligations, of corporation 315 167. Remedy of rescission 318 168. The same subject. — Rescission of entire transaction 320 169. The same subject. — Methods of effecting rescission 321 170. The same subject. — Restoration of status quo 321 171. Action for fraud and deceit 323 172. Election of remedies 326 173. The same subject. — ^No right of election in promoter 327 174. Remedies of corporation where promoter receives secret , commission or other benefit 328 175. Remedies in case of fraudulent representations 330 176. liiability of directors, officers, etc 331 177. Cancellation of secret agreements 332 178. Adequate remedy to be freely granted 333 CHAPTER X. Of Suits by, or on Behalf of, the Corporation. Section 179. Introductory. 334 180. Suits by the corporation 334 181. Suits by receiver of corporation 336 182. Minority stockholders' suits 337 viu TABLE OF CONTENTS. Page. Section 183. Stockholders' suits after receivership ; 340 184. Suits by stockholders other than original subscribers 341 185. Further of minority stockholders' suits 343 186. The same subject. — Judicial discretion 345 187. Rescission at suit of minority stockholder 345 188. Minority stockholder intervening to defend suit against corporation 347 189. Suits by creditors of corporation 348 190. Parties defendant 349 191. Actions against personal representatives of deceased pro- moter 351 192. Parties defendant in minority stockholders' suits 352 193. Suits at law and in equity 353 194. The same subject. — Rescission 354 195. Joinder of actions 355 196. Actions against promoters, transitory 358 197. Conflict of laws 359 CHAPTER XI. Of the Promoter's Liability for False Representations. Section 198. Introductory 361 199. False representations in prospectus 362 200. The same subject. — Who entitled to sue thereon 363 201. False certificates 365 202. Indirect misrepresentations 366 203. Liability to brokers 367 204. Liability of promoter for representations of his agents . . . 367 205. Reliance upon false statements 369 206. The same subject Agreement not to rely on represen- tations 373 207. Knowledge of falsity of representations 373 208. Intent to deceive 381 209. Innocent misrepresentation as ground for rescission 381 210. Fraud by concealment 384 211. The same subject.— The English Companies Act 389 212. Materiality of representations 397 213. Materiality of concealment of mortgage 398 214. Materiality of representations as to promoter's profits 399 215. Materiality of representations as to promoter's interest. . 400 216. Materiality of representations as to identity or position of persons selling property to corporation 403 TABLE OF CONTENTS. ix Page. Section 217. Materiality of representations in regard to directors 404 218. Materiality of representations in regard to subscriptions. 406 219. The same subject. — Sham subscriptions 408 220. Materiality of representations as to identity of subscribers. 411 221. Materiality of representations as to price paid for shares. 413 222. Materiality of representation that stock sold is treasury stock 414 223. Misstatements as to value of shares 415 224. Materiality of representations as to legal status of com- pany or shares 416 225. Representations as to future action 417 226. Falsity of representations 418 227. Interpretation of prospectus 419 228. Interpretation of prospectus in light of particular com- plainant 421 229. Interpretation of prospectus in light of preliminary character 422 230. Interpretation of ambiguous statements in prospectus. . . . 422 231. Interpretation of particular statements 425 232. Secret profits of promoter as fraud upon subscribers 428 233. Secret profits of promoter as fraud upon subsequent pur- chasers of shares 429 234. Misrepresentations giving rise to action by corporation. . . 433 CHAPTER XII. Of the Personai. Remedies of Stockholdeks. Bechon 235. Introductory. 436 236. Action for fraud and deceit 436 237. Accounting for profits 438 238. Rescission of subscription 440 239. Rescission because of secret profit of promoter 446 240. Restoration of gtatus quo as condition of rescission 448 241. Methods of effectuating rescission 449 242. Joinder of actions , 451 243. Joinder of parties 451 X TABLE OP CONTENTS. CHAPTER XIII. Of Defenses to Suits by Individual Stockholders. Page. Section 244. Introductory 454 245. Defense that no benefit accrued to promoter 455 246. Defense that promoter urged cancellation of subscriptions. 455 247. Absence of fraudulent intent 456 248. Enterprise doomed to failure in any event 456 249. Prior recovery by corporation 457 250. Defense that property in relation to which representa- tions made, not sold to corporation at time of plaintiff's subscription 457 251. Defense that plaintiff has disposed of his shares 458 252. Defense of election to disaffirm 459 253. Defense that plaintiff might readily have ascertained truth 459 254. Defense that representations concerning credit of another are not actionable unless in writing 462 255. Defense of statute of limitations 462 256. Defenses to suits for accounting 463 257. Defenses to actions for rescission. — Election to affirm... 464 258. Acts constituting election 466 259. Effect of election to affirm 469 260. Defense of laches 469 261. Delay as defense to action upon a rescission 472 262. Bescission after insolvency of corporation 473 263. Defense that oral representations were merged in sub- scription agreement 478 CHAPTER XIV. Of the Measure of Recovery. Section 264. Measure of recovery in case of unlawful sale of pro- moter's property to corporation 481 265. In action for accounting for profits 483 266. The same subject. — Allowance as compensation for services 484 267. Unlawful commissions, bribes, etc 485 268. Measure of recovery upon rescission 485 269. Measure of damages in case of false representations 486 TABLE OF CONTENTS. xi Page. Section 270. Measure of value of shares 487 271. Measure of value of bonds 490 272. Value of property sold to corporation 490 273. The same subject. — Market value the standard 491 274. The same subject. — Proof of value 491 275. Measure of value of property paid for by subsequent issue of mortgage bonds 492 276. Measure of recovery in minority stockholders' suits. . . . 493 277. Measure of damages in action for fraud in sale of shares. 495 CHAPTER XV. Of the Ceiminal Liability of Pkomotees. Section 278. Criminal liability for fraud upon corporation 501 279. Accepting qualifying shares from persons adversely in- terested 501 280. Bubble companies 502 281. Criminal liability for fraud in sale of shares 502 282. The English Companies Act 504 283. Fraudulent use of the mails 504 CHAPTER XVI. Of Vendors of Peopeety and tkeie Relation to the Peomotee. SEonoN 284. Introductory 505 285. Liability of vendor for misrepresentations made to promoter. 506 286. Rescission of purchase because of fraud in promotion committed by vendor's agent 506 287. Responsibility of vendor assisting promoter in obtaining secret profit 510 288. Liability of vendor for commission to be paid to promoter. 514 289. The same subject. — Effect of compromise between vendor and promoter 515 290. The same subject— Liability of vendor after full pay- ment to promoter 515 291. Responsibility of vendor of property for false represen- tations of promoter made upon sale of shares 518 292. Rights of vendor receiving payment in shares 521 xu TABLE OF CONTENTS. Page. Section 293. Rights of vendor receiving payment in bonds 523 294. Rights of persons donating lands to corporation 524 295. Relation inter se of persons selling property to cor- poration 525 CHAPTER XVII. Or THE Rights and Liabilities of Promoters inter se. Section 296. Fiduciary relation of promoters to each other 527 297. Liability of promoter carrying out proposed plan to ex- clusion of co-promoter 528 298. The same subject. — Promoter carrying out plan after rights under original plan have lapsed 529 299. The same subject. — No property right in mere Idea 531 300. The same subject. — Rights In corporate charter obtained by co-promoter 532 301. Frauds of promoters upon one another as basis of action by corporation ■. . 533 302. Promoters not partners 536 303. Liability in solldo 539 304. Joint liability of promoters In case of rescission 545 305. Contribution between promoters 550 306. Promoter's liability for compensation of co-promoter 551 CHAPTER XVIII. Of Reorganizations and Consolidations. Section 307. Introductory 552 308. Promotion under employment of corporation to be reor- ganized 552 309. Promoter relying upon express agreement for compen- sation bound to show performance within its terms . . . 554 310. Necessity of disclosing to new corporation compensation paid by old corporation 554 311. Payment of promoter's fee by new corporation, not a fraud upon rights of non-subscribing stockholders of old corporation 555 312. Reorganization in fraud of rights of minority stock- holders 556 313. Retention by promoter of dividend paid pending con- solidation ggij TABLE OP CONTENTS. xUi Paqe. Siotion314. New corporation not necessary party to suit arising out of promoter's fraud upon liolders of securities of old corporation 558 CHAPTER XIX. Of Aboetive Fsomotions. SEcnoir 315. Introductory 559 316. Expenses of attempted organization of corporation 560 317. Compensation of promoters 563 318. Contribution between promoters 564 319. Subscribers not liable for expenses of abortive promotion. 565 320. Circumstances rendering subscribers liable for expenses. 565 321. Repayment of subscribers' deposits 567 322. The same subject. — Circumstances under which expenses may be deducted 568 323. Liability upon subscription notes 569 324. Proof of abandonment of promotion 570 325. All promoters not necessarily liable for return of deposits. 572 326. Becovery from depositary 573 327. Rights of purchasers of shares of abortive corporation. . . 574 328. Subscriber's action for recovery of deposit 574 329. The same subject. — Voluntary account of promoter as bar to subscriber's action for accounting 576 330. Accounting by promoters. — Disbursements allowable 677 331. Disposition of property acquired pending promotion of abortive corporation 579 332. Liability of promoters of defectively organized cor- poration .(. 581 TABLE OF CASES TABLE OF GASES. (The references are to the pages.) Aaron's Reefs v. Broadhurst — 385. Aaron's Reefs v. Twiss— 214, 218, 370, 377, 386, 389, 390, 398, 404, 420, 428, 450, 451, 460, 461, 471, 472, 473. Abbott V. Hapgopd— 75, 81, 148. Abbott y. Omaha Smelting Co. — 581, 584, 585, 587. Abel V. National Reserve Bank — 111. Aberaman Ironworks v. Wickens — 372, 462. Aberdeen Railway Co. v. Blakie — 205. Ackerman v. Halsey— 340, 348, 353. Ada Dairy Ass'n v. Hears — ^123. Adams v. Collins — 378. Adams v. Empire Laundry Mach. Co.— 98, 113. Adams v. Thrift — 375. Addison's Case — 409. Addleston Linoleum Co., In re — 437. Admiral, The— 127. Advance Realty Co. v. Nichols— 177, 208, 219, 221. African M. B. Church v. Conover — 138. A. J. Cranor Co. v. Miller— 13, 18, 54, 523. Alabama Foundry & Mach. Works V. Dallas— 399, 401, 409, 450. Albion Steel & Wire Co. v. Martin —184. Alden v. Wright — 496. Aldham v. Brown— 566, 568. Aldred v. North MidUind Ry. Co.— 103. Alexander v. Searcy — 342. Alexander v. Winters — 81, 89. Alexandra Oil & Dev. Co. v. Cook — 17, 18, 23, 25, 186, 198, 203, 206, 307, 457, 459, 486, 533, 535, 539. Alger V. Anderson— 292, 322, 368, 441. Allen V. Putter— 417, 418. Allman v. H. R. & E. R. R. Co.— 78. ' Alman v. Oppert — 375. Alsop V. Riker— 297. Altenberg v. Grant— 33, 34. Altoona, etc. Co. v. Eittanning, etc., Ry. Co.— 61. Ambrose Lake Tin & Copper Min- ing Co., In re— 182, 233, 235, 236, 238, 252, 257, 303, 319, 324, 325, 430, 431. American Alkali Co. v. Salom — 470. American Bldg. & Loan Ass'n v. Bear— 405. American Bldg. & Loan Ass'n v. Rainbolt-^05, 451, 465, 466, 472, 473. American Car & Foundry Co. v. Seeger Refrigerator Co. — ^126. American Home Life Ins. Co. v. Compere— 89, 124. American Home Life Ins. Co. v. Jen- kins — 75. American Paper Bag Co. v. Van Nortwick — 145. XV TABLE OF CASES. (The references are to the pages.) American Radiator Co. v. Kinnear —583. American Salt Co. v. Heppenheimer —583, 585, 586. American Shipbuilding Co. v. Com- monwealth S. S. Co.— 16, 28, 25, 160, 178, 277, 292, 298, 322, 336, 355, 510, 511. American Silk Works v. Salomon — 139! Ames V. Witbeck — 59. Amsinck's Case — 562. Anderson v. Newcastle, etc., R. R. CO.-409. Anderson v. West Kentucky College —131. Andres v. Morgan — 119. Andrews v. Mockford — 364. Angel V. Jay— 388. Anglo-French Co-operative Society, In re— 20, 164, 274, 331. Anglo-Greek Steam Co., In re — 3, 174, 178, 179, 183, 217. Angus V. Clifford— 362, 374, 404, 420, 423, 425. Anthony v. American Glucose Co.— 63. Apperly v. Page — 575. Apps, Ex parte — 566, 577. Arapahoe Inv. Co. v. Piatt — 74, 93, 95. Archer's Case— 175, 179, 180, 186, 201, 203. Arkansas River L. T. & C. Co. v. Farmer's L. & T. Co.— 282, 283. Arkwright v. Newbold — 177, 377, 382, 386, 390, 406, 423, 426, 429, 497, 499. Armstrong v. American Exch. Bk. of Chicago— 281, 282. Armstrong v. Danahy — 409, 571. Armstrong v. Sun Printing & Pub. Ass'n — 6. Arnison v. Smith— 370, 372, 374, 407, 420, 423, 452, 469, 497, 499. Arnold v. <3onklin — 536. Arnold v. Northwestern Telephone Co.— 536. Arnold v. Searing— 7, 18, 19, 22, 25, 171, 172, 181, 200, 203, 208, 211, 212, 214, 215, 216, 233, 235, 236, 239, 245, 247, 265, 274, 282, 302, 309, 310, 311, 313, 314, 336, 337, 348, 349, 488, 489, 490, 535, 544. Arnold v. Teel— 378. Arnold Monophase Electric Co. v. Chew— 131. Arthur v. Griswold — 369. Ashbury v. Watson — 284. Ashley's Case — 474, 478. Ashmead v. Colby— 323, 357, 358, 538. Ashpitel V. Sercombe — 568, 574. Ashuelot Boot & Shoe Co. v. Hoit —131. Askew's Case — 388, 391. Aspen Water & Light Co. v. Aspen —137, 139. Athol Music Hall Co. v. Carey — 84, 87, 131. Atkinson v. Pocock — 383. Atlanta & West Point R. R. Co. v. Hodnett— 69. Atlantic City R. R. Co. v. Wood 75, 135. Atlantic & Birmingham Ry. Co. v. Johnson, 118, 120. Attorney General for Canada v. Standard Trust Co. of N. Y. — ^236. Attwood V. Small — 372. Atwool V. Merryweather — 176, 231 232, 347, 511. Auburn Bolt & Nut Works v. Shultz —87. TABLE OF CASES. (The references are to the pages.) Audenrled v. East Coast MilliQg Co. —124. Austin V. Murdock — 435, 437. Austin V. Teeumseh Nat'l Bank — 119, 120. Averill v. Barber— 136, 264, 339, 345, 446. Avery v. Ryan — 57, 58, 63. Avon Springs Sanitarium Co. v. Kel- logg— 132. Avon Springs Sanitarium Co. v. Weed— 88, 132. Ayre's Case— 442. B. Babbitt v. Gibbs— 554. Babcock v. Farwell— 205, 283, 284. Badger Paper Co. v. Bose — 78, 82, 85. Badgerovr v. Manhattan Trust Co. —63. Bagnall v. Carlton— 10, 11, 17, 18, 23, 25, 28, 152, 155, 160, 172, 175, 176, 178, 179, 180, 186, 188, 221, 275, 292, 297, 328, 351, 388, 511, 539. Bagot Pneumatic Tyre Co. v. Clif- ford Pneumatic Tyre Co. — ^93, 112, 115, 117. Bagsbaw v. Eastern Union Ky. — 338, 346. Bailey v. Haines — ^144. Bailey v. Macaulay — 537, 561. Bailey v. Pittsburg & C. G. C. & C. Co.— 247. BaUy V. Burgess— 158, 551, 564.^ Baird v. Ross— 667, 568. Baker v. Guarantee Trust & Safe Deposit Co. — 317. Baker v. Lever — 470. Baker Furniture Co. v. Hall— 119. Balfour v. Baker City Gas Co. — 87. Ball V. Gerard-^63. Ballantine v. Cummings — il6. Ballon, In re— 74, 89, 163. Baltimore Trust & Guarantee Co. v. Hambleton — See Hambleton v. Rhind. Bane v. Dow — 114. Bang V. Brett— 125. Bank of De Soto v. Reed— 585. Bank of Forest v. Orgill Bros. & Co.— 75. Bank of South Carolina v. Camp- bell— 147. Bank of Turkey v. Ottoman Co.— 163. Bannen v. Kindling — 63. Banque Franco-Egyptienne v. Brown —20, 417, 418, 421, 422, 441. Barber v. Morgan — 415. Barbour v. Hurlburt — 440, 448. Barcus v. Gates— 282, 357, 358, 441, 464. Barker v. Lyndon — 560. Barker v. Stead— 537, 560. Barnes v. Union Pacific By. Co. — 377. Barnett v. Lambert— 562. Barr v. N. Y. L. E. & W. R. E. Co. —236, 258, 297, 321. Barrett v. Blunt— 562. Barron v. International Trust Co. —563. Barry By. Co., In re— 29, 578. Bartholomew v. Bentley — 584. Bartol v. Walton & Whann Co. — 371, 382, 478. Barton v. Hutchinson — 140. Bash V. Culver Gold Mining Co. — 113. Batard v. Douglas— 144, 537. Batard v. Hawes — 144, 167. TABLE OF CASES. (The references are to the pages!) Bateman v. Straus — 59, 62. Bates V. Wilson — 49. Battele v. Northwestern Cement & Concrete Pavement Co. — 75, 76, 82, 90, 91, 93. Baty V. Keswick— 371, 391, 394, 422. Baumhoff v. St. Louis & K. R. R. Co.— 59. Beal V. Chase— 117. Beal V. Dillon — 477. Beale v. Mouls — 143. Bear v. Stevenson — 369. Beardshaw, Ex parte — 565, 569. Beare v. Wright — 495. Beatty v. Guggenheim Exploration Co.— 220, 221. Beatty v. Neelon— 290, 429, 437, 496, 521, 526, 533. Beaty v. Johnston — 67, 68. Beaunisne v. Scholz — 566, 570. Beck V. Kantorowjcz — 176, 308, 527, 533. Bedford v. Bagshaw— 366. Bedford & Cambridge Ry. Co. v. Stanley— 130. Bedwell v. Ashton — 587. Beeching v. Lloyd — 452. Belding v. Vaughan — 141, 142. Belding Land & Imp. Co. v. City of Belding— 140. Beling v. Amer. Tobacco Co. — ^284, 296. Bell V. Francis — ^140. Bell V. Shibley— 98. Bell's Gap R. R. Co. v. Christy — 78, 102,^109, 140, 155. Bellairs v. Tucker, 268, 362, 369, 421, 42a Belton Compress Co. v. Saunders — 86. Benedict v. Guardian Trust Co. — 437. Bennecke v. Insurance Co. — 111. Bennett v. Havelock E. L. & P. Co. —203, 247, 511. Bennett v. Stuart — 33. Bensinger v. Kantzler — 38. Bent V. Priest— 290. Bentinck v. Fenn— 182, 189, 190, 191, 201, 202, 204, 205, 219, 223, 231, 303, 305, 306, 319, 321, 325, 326, 341, 427, 482, 483, 489, 492. Bentley v. Craven— 173, 180, 186, 309. Benton v. Kuykendall — 378. Benton v. Minneapolis Tailoring & Mfg. Co.— 8, 12. Bergen v. Porpoise Fishing Co. — 118. Bergeron v. Hobbs— 581, 584, 585, 586. Bernard's Case — 442. Bernier v. Griscom Spencer Co. — 58. Berridge v. Abernethy — 75. Berthold v. HoUaday-Klotz Land, etc., Co. — 119. Besley, Ex parte — 560, 561. Besly's Case— 560, 561. Bevan v. Adams — 407. Big Creek Gap Coal and Iron Co. v. American Loan & Trust Co. — 348. Bigelow v. Gregory — 581, 585. Blgelow V. Old Dominion Copper, etc., Co.— 4, 17, 25, 33, 152, 157, 171, 173, 186, 187, 200, 201, 202, 203, 208, 211, 213, 228, 239, 247, 259, 263, 265, 288, 298, 305, 313, 314, 336, 349, 358, 359, 482, 488, 491, 539, 543, 550. Bigge, Ex parte — 444. Birmingham & Lichfield Junction Ry. Co., In re— 579. Bissell V. Heath — 474. TABLE OF CASES. (The references are to the pages.) Bjorngaard v. Goodhue County Bk. —232. Blackstone, Ex parte — 471. Blain v. Agar — 2, 404, 444. Blair Open Hearth Furnace Co. Ltd., In re— 396. Blake's Case— 404, 407, 441, 476. Blakely Ordnance Co., In re — 80. Bland's Case— 177, 196, 272, 313. Bland v. Crowley— 106. Bliss V. Linden Cemetery Ass'n — 247. Blodgett V. Morrill — 409. Blood V. La Serena L. & W. Co. — 9, 10, 77. Bloom V. Home Ins. Agency — 89. Blum V. Whitney— 224, 233, 237, 255, 258, 430, 523, 535. Bobzin v. Gould Balance Valve Co. —97, 121, 124, 127, 480. Boddy V. Henry — 376. Bogard v. Sweet — 137. Bohmrich v. Knoop— 283, 315, 338, 339. Bobn V. Burton-Lingo Co. — 413, 476, 477. Bohn Mfg. Co. v. Reif— 142, 146, 147. Boice V. Jones — 514, 525, 526. Boice V. McCormick — 12. Boldenweck v. Bullis— 284, 342, 344, Bolton V. Prather — 416. Bommer t. Am. Spiral, etc., Mfg. Co.— 98. Bond V. Atlantic Terra Cotta Co. — 41, 75. Bond V. Pike— 75, 90, 93, 95. Bonham Cotton Compress Co. t. Mc- Kellar— 130. Bonsall v. Piatt— 145. Booth V. Bunce — ^117. Booth V. Englert— 378. Booth V. Robinson — 354. Bosher v. Richmond & H. Land Co. —6, 17, 441, 446, 452, 453, 460. Bosley v. Nat'l Mach. Co.— 450. Boston Deep Sea Fishing & Ice Co. V. Ansell, 89, 121. Botsford V. Van Riper— 528, 538. Boulter v. Peplow— 144, 537. Boushall V. Myatt— 122. Bowen & Martin, Ex parte — 566. Bracher v. Hat Sweat Mfg. Co. — 35. Brackbill v. Bucher- 568. Brackett v. Griswold— 369. Braddock v. Phila. M. & M. R. R. Co.— 572. Bradford v. Harris— 569. Bradford v. Metcalf— 75, 81, 82, 120. Bradford & District Tramways Co., Ex parte — ^579. Bradley v. Poole — 397. Bradshaw v. Jones — 140, 141, 142, 146. Bradshaw v. KnoU — 75. Brampton & Longtown Ry. Co., In re— 79, 156, 579. Brautigam v. Dean & Co. — 93. Brazilian Rubber Plantations & Es- tates Ltd., In re— 202. Brehm v. Sperry, Jones & Co. — 39, 64, 293, 294, 311, 460, 521, 523. Bremen Sav. Bank v. Branch Crookes Saw Co. — 119. Bremner v. Chamberlayne — 167, 561. Brennan v. Vogler — 47. Breslin v. Fries-Breslin Co. — 236, 315. Brewer v. Boston Theatre— 339, 340, 346. Brewster v. Hatch— 7, 19, 21, 23, 214, 215, 221, 224, 239, 358, 428, 430, 538. j:x TABLE OF CASES. (The references are to the pages.) Bridgeport Electric & Ice Co. v. Header— 89. Brigg's Case— 398. Brlggs, Ex parte— 21T, 461, 467. Bright's Case— 562. Bright V. Hutton— 561, 562. Brighton Brewery Co., In re, The —179. Brinckerhoff v. Bostwick— 296, 339, 340, 353, 354. BrinkerhofE v. Ransom — 126. British Provident Life & Guarantee Ass'n, In re^See De Euvigne's Case. British Seamless Paper Box Co., In re— 20, 203, 236, 247, 249, 267, 441. Brittain, Ex parte — 562. Broadus v. Russell — 569. Broadwell v. Merritt— 138. Brockwell's Case — 411. Broderip v. Salomon — 236, 247. Brolaski v. Carr — 460. Bronson v. La Crosse & Milwaukee R. R. Co.— 347. Brooke v. Day — 584. Brooker v. William H. Thompson Trust Co.— 6, 16, 172, 213, 218, 233, 237, 319, 326, 430. Brookes v. Hansen — 395. Brooks V. Bonner — 139. ' Brooksville R. Co. v. Byron — 87. Broome v. Speak— 389, 390, 391, 394, 398, 497, 498, 500. Brotherton v. Gilchrist — 537. Brown, Ex parte — 105, 419. Brown v. Andrew — 561, 562. Brown v. Bedford City Land & Im- provement Co. — 358, 452. Brown v. Bracking — 40. Brown v. Britton— 37, 62. Brown v. Duluth M. & N. Ry. Co. — 284, 338. Brown v. Florida So. Ry. Co. — 49. Brown v. Swarthout — 57. Browne v. La Trinidad — 80. Browne v. San Gabriel River Rock Co.-^17. Browne & Jenkins Co. Ltd., In re — 581. Browning v. Great Central Min. Co. —93, 95. Brownlie v. Campbell — 373. Broyles v. McCoy — 120. Brundred v. Rice — 582. Bruner v. Brown — 80. Bryant's Pond Steam Mill Co. v. Felt— 86, 87. t Buerstetta v. Tecumseh Nat'l Bk. —119. Buffalo & Jamestown R. R. Co. v. Gifford— 570. Buffalo & N. Y. City R. R. Co. v. Dudley — 444. Bufflngton v. Bardon — 76, 98, 102, 111, 143. Buker v. Leighton Lea Ass'n — 468. Bull V. Chapman — 78. BuUitt V. Farrar— 378, 379. Burbank v. Dennis— 5, 20, 23, 26, 27, 186, 187, 193, 194, 198, 206, 222, 224, 225, 227, 230, 307; 327, 338, 361, 399. Burbidge v. Morris — 561. Burden v. Burden — 41, 55, 346. Burdette v. Universal Cleanser & Mfg. Co.— 54. Burgess's Case — 474. Burgess v. Sherman — ^143. Burhop V. City of Milwaukee — ^139. Burke v. Lincoln Valentine Co.— ^0, 91. Burke v. Mead— 62, 87, 148. TABLE OF CASES. (The references are to the pages.) Burland v. Earle— 24, 264, 303, 337, 346. Burnap v. Sylvania Butter Co. — ^72. Burnes v. Pennell — 427, 444, 503. Burns v. Beck— 365. Burns v. McCabe— 399, 449, 538. Burnslde v. Dayrell — 573. Burrowes v. Lock — 486. Burrows v. Smith— 122, 571. Burt V. Batavia Paper Mfg. Co. — 125. Burwash v. Ballou-^14, 415, 416, 421, 443. Busch V. Wilcox — 438. Buschmann v. Codd — 496. BushneU v. Consolidated Ice Ma- chine Co.— 584, 585. Business Men's Ass'n v. Williams — 87. Busterud v. Farrington — 400. Butler V. Murphy— 59, 62. Butler V. Prentiss— 382. Butler V. Wright— 61, 62. Butt V. Monteaux — 572. Butterfleld v. Harris — 41. Bwleh-Y-Plwm Lead Mining Co. v. Baynes — 450. Byers Bros. v. Maxwell— 373, 382. Byrne & Hammer Dry Goods Co. v. Willis-Dunn Co.— 119, 120. C. & K. Turnpike Road Co. v. Mc- Conaby — See Centre & K. Turn- pike Road Co. V. McConaby.- Cabot V. Christie— 376, 378. Caekett v. Keswick— 389, 390, 392, 394, 406, 497, 499. Caerphilly Colliery Co., In re — See Pearson's Case and Orme- rod's Case. Caffee v. Berkley— 18, 151. 157, 159, 181, 202, 214, 218, 290, 388. Cahill V. Applegarth— 376, 377. Caldwell v. Boyd-^29, 430. Caledonian & Dumbartonshire Junc- tion Ry. Co. V. Magistrates of Helensburgh— 3, 76, 103, 105, 113, 120, 140. ' Oalifornia-Calaveras Min. Co. v. Walls— 23, 233, 238, 246, 250, 265, 316, 317, 434. California, etc., Min. Co. v. Manley —125, 127. California Sugar Mfg. Co. v. Schafer —88, 132. Calivada Colonization Co. v. Hays — 163. Calthorpe v. Trechmann — ^219, 370, 390, 392, 393, 394. Camden Land Co. v. Lewis — 19, 20, 136, 232, 238, 246, 305, 310, 319, 357, 358. Campbell v. Cypress Hills Cemetery —177, 247, 317. Campbell v. Farmers' & Merchants' Bank— 119. Campbell v. First Nat'l Bk. of Den- ver- 128. Campbell v. Fleming — 467. Campbell v. Zlon's Co-op. Home Bldg., etc., Co. — 415, 444. Canadian Agency Ltd., The v. As- sets Realization Co. — 382. Canadian Direct Meat Co., In re — 441. Canadian National Oil Co., In re — See Fox's Case. Canadian Oil Works Corporation, In re — See Hay's Case. Cantwell v. Harding — 459. Cape Breton Co., In re— 182, 189, 190, 191, 204, 219, 223, 231, 303, TABLE OF CASES. (The references are to the pages.) 305, 306, 319, 320, 321, 324, 482, 489. Oapel & Co. V. Sim's Ships Compo- sition Co.— 371, 392, 401, 421, 423, 442, 446, 447, 453, 460, 497. Capper's Case— 587, 565, 568. Capps V. Hastings Prospecting Co. — 88. Card V. Moore — 41. Garden v. General Cemetery Co. — 79, 156. Carew's Case— 404,, 405, 566. Carey v. Coffee Stemming Machine Co.— 441, 452, 453. Carey v. Des Moines Co-op. Coal & Min. Co. — 74. Carglll V. Bower— 369, 398, 537. Oarling's Case— 178, 179, 310, 31B, 313, 314, 488, 489. Carlisle v. Saginaw, etc., R. E. Co. —87. Carmichael's Case— 562. Carmody v. Powers — 75, 140. Carnahan v. Campbell — 122. Carpenter's & Weiss's Case — 561. Carriage Co-operative Supply Ass'n, In re— 178, 488, 489, 539. Carrick's Case— 560, 561, 565, 574. Carter v. Gray— 117, 126. Carter v. Tucker — 12. Case Mfg. Co. v. Soxman — 146. Cass V. Pittsburg V. & C. Ey. Co. — 123. Caswell V. Hunton— 397, 414. Cazeaux v. Mali— 363, 364, 366, 378, 389, 455. Cedar Eapids Gas Light Co. v. Cedar Rapids— 152. Cedar Rapids Ins. Co. v. Butler— 470, 478. Central Land Co. v. Obenchain — 177, 178. Central Nat. Bk. v. Sheldon— 681, 585. Central Park Fire Ins. Co. v. Cal- laghan — 99. Central Railway of Venezuela v. Kiseh — See Directors, etc., of Central Railway Co. of Venezuela V. Kisch. Central Trust Co. v. East Tennessee Land Co.— 24, 286, 305, 326, 481. Central Trust Co. of Pittsburg v. Lappe — 135. Centre & K. Turnpike Road Co. v. M'Conaby-^67, 471. Chamberlain v. Trogden — 474. Chambers v. Mittnacht — 39, 64, 195. Champion Funding & Foundry Co. V. Heskett— 369, 415. Chandler v. Bacon— 18, 177, 185, 310, 312, 328, 329, 488, 538, 539. Chaplin v. Clarke — 570. Chapman v. Forsyth — 299. Charitable Corp. v. Sutton — 335. Charles F. Hollwedel Co. v. Auer- bach & Co.— 133, 138. Charlotte, etc., E. R. Co. v. Blakely —87. Charlton v. Hay — 390, 392. Chase v. Redfield Creamery Co. — 89, 90, 91, 93, 127. Chater v. San Francisco Sugar Re- fining Co.— 39, 64. Chatham Furnace Co. v. Mofeatt — 377, 379. Cheney v. Dickinson — 364, 445, 450, 455. Chesapeake & Ohio Ry. Co. v. Deep- water R. Co. — ^137. Chesbrough v. Woodworth — 496. Cheseborough' V. North Second St., etc., E. E. Co. — 92. Chester v. Comstock — 376. TABLE OF CASES. XXUl (The references are to the pages.) Chester v. Spargo — 398. Chicago Bldg. & Mfg. Co. v. Heaven —444. Chicago Bldg. & Mfg. Co. v. Gra- ham — 71. Chicago Bldg. & Mfg. Co. v. Tal- botton, etc., Mfg. Co. — 76, 145. Chicago City By. Employees Mut. Aid Ass'n V. Hogan — 119. Chicago Tel. Co. v. Northwestern Tel. Co.— 137. Chicago & Grand Trunk Ry. Co. v. Miller— 120. Chllcott V. Wash. State Colonization Co.— 76, 81, 96, 102, 145. Chllds V. Smith— 42. Chouteau Ins. Co. v. Floyd — 409. Chrlstlnevllle Bubber Estates Ltd., Be— 386, 399, 470. Chubb V. Upton— 473, 478. Chubbuck v. Cleveland— 366. Church V. Church Cementico Co. — 75, 90, 95, 96. Church of St. Stanislaus v. Alge- melne Verein — 136. Cincinnati, Ind. & Chic. B. B. Co. V. Clarkson — 160. Citizens Loan Ass'n v. Lyon — 354. Citizens' Nat'l Bank v. Elliott— 121. City Bank of Macon v. Bartlett — 358, 465. City Bldg. Ass'n v. Zahner— 102, 166, 169. Clark V. American Coal Co. — 342. Clark V. Barnes— 88. Clark V. McManus— 567, 568. Clark V. Morgan Co. National Bank —459, 499. Clarke, Ex parte — 561. Clarke V. Dickson — 362, 363, 370, 401, 420, 448. Clarke v. Lincoln Lumber Co. — 33. Clarke v. Mercantile Trust Co. — 355, 450, 453, 455, 459, 465, 495, 537. Clarke v. Omaha & S. W. R. R. Co. —78, 96, 109. Clarke v. Rogers— 299. Clarksburg Elec. Light Co. v. City of Clarksburg— 137. Clarksburg, etc., Land Co. v. Davis —122, 124, 131, 466, 480, 571. Cleaton v. Emery — 582. Clements v. Bowes — 575, 576. Clements v. Sherwood-Dunn — 59. Clements v. Todd— 568. Clergue v. Humphrey — 140. Cleveland Iron Co., Re — See Ex parte Stevenson. Cleveland Iron Co. v. Stephenson — 424. Clinton's Claim— 99. Clough V. London & Northwestern Ry. Co.^73. Coal Economizing Gas Co., In re — See Cover's Case. Coalter v. Bargamtn — 586. Coats, Ltd. V. Crossland— 392. Cobb V. Hatfield— 466, 472. Coca Cola Bottling Co. of Chicago V. Anderson— 415. Cochran v. Arnold — 365. Coe V. Leckrone Coke Co. — ^121. Coffin V. Barber — 463. Coit V. Dowling— 76, 112, 140. Cole V. Cassidy — 377. Coleman v. Second Ave. R. R. Co. —189. Coles V. Kennedy— 397, 409. CoUingwood v. Berkeley — ^143. Collins V. Southern Brick Co. — 480. Colorado Land & Water Co. v. Adams— 74, 95, 140. Colquitt V. Howard— 139. Colt V. WooUaston— 567. xxiv TABLE OF CASES. (The references are to the pages.) Colton Improvement Co. v. Richter —17, 172, 201, 205, 208, 211, 224, 309, 316, 317, 329, 336, 338. Columbine v. Chichester — 61. Commercial Bank of Augusta v. Warthen— 349. Commonwealth Bonding etc., Ins. Co. V. Cator— 406, 442, 444, 466, 467, 480. Commonwealth Bonding, etc., Ins. Co. V. Thurman^— 85, 444. Commonwealth S. S. Co. v. Ameri- can Shipbuilding Co.— 16, 23, 160, 277, 322, 336, 355, 510, 511. Compo v. Jackson Iron Co. — 294. Components Tube Co. v. Naylor — 20, 383, 385, 386, 391, 401, 403, 420, 429, 442, 447, 460, 461. Coucha V. Murrietta — 351. Cone Export & Commission Co. v. Poole— 586. Conklln v. United Const. & Supply- Co.— 50. Connecticut & Passumpsic Rivers R. R. Co. V. Bailey— 409, 480. Connell v. McWatters— 168, 554. Conner v. Abbott — 585. Constant v. University of Roches- ter— 128. Continental Ins. Co. v. N. T. & H. R. R. Co.— 232, 346. Continental Securities Co. v. Bel- miont— 190, 231, 264, 265, 284, 309, 338, 340, 342, 346, 347. Continental Trust Co. v. Toledo, etc., R. R. Co.— 97. Converse v. Blumrich — 382, 459. Converse v. Hamilton — 336. Cook V. Southern Columbia Climber Co.— 176. Cook V. Sterling- Electric Co. — ^130. Cooke V. Tonkin — 560. Cooke V. Watson — 139. Coolidge V. Goddard — 414. Cooper V. Ford — ^129. Cooper V. McKee — 571. Cooper V. Webb — 575. Cornell v. Corbin — 117. Cornell v. Hay— 20, 392, 406. Corning v. Barrett— 338, 339, 341, 353, 354. Cornwall Furniture Co., Re — 314. Cortes Co. v. Thannhauser — 17, 321, 361, 387, 399, 401, 402, 433, 485, 507, 527. Cory V. Lee— 583. Cottentin v. Meyer — 581. Cottle, Ex parte— 560. Cottrill V. Krum— 367, 370, 388, 397, 400, 417, 419, 455, 459. Coulter V. Clark-^02, 415, 428, 462. Cowley V. Smyth— 376. Cox V. National Coal & Oil Invest- ment Co.— 6, 294, 363, 441, 446, 453, 455, 465, 470, 471. Coyote G. & S. M. Co. v. Ruble— 77, 136. Craig V. PhilUps— 27, 223, 392, 395. Cranney v. McAllister — 174. Cranor Co. v. Miller — See A. J. Cranor Co. v. Miller. Cranston v. Bank of State of Georgia— 311, 350. Crater v. Binninger — 496. Crawford v. Burke— 299. Crichfield v. Julia— 58, 64, 65, 68. Cridland v. De Mauley— 398, 407, 452. Crosby Lumber Co. v. Smith — 39. Croskey v. Bank of Wales — 80, 163, 452. Cross V. Farmers Elevator Co. of Dawson — 40. TABLE OF CASES. XXV (The references are to the pages.) Cross V. Pinckneyville Mill Co. — 131. Cross V. Sackett— 363, 364, 415. Crossman v. Penrose Ferry Bridge Co.— 444. Crow V. Green — 538. Crow River Valley Creamery Co. v. Strande— 130. Crowe V. Malba Land Co.— 13, 160, 181. Crump V. U. S. Mining Co. — 441. Cuba Colony Co. v. Kirby— 22, 24, 151, 152, 158, 279, 309, 310, 312, 373. Culberson v. Alabama Const. Co. — 118. CuUen V. O'Meara — 140. Cullen V. Thompson's Trustees — 350. Cumberland Coal Co. v. Sherman— 126, 205. Cumberland Land Co. v. Daniel — 137. Cummings v. Brown — 130. Cummings v. Harsabrauch — 128. Cunningham v. Edgefield & Ky. R. R. Co.— 382, 412. Curran v. Oppenhelmer — ^178. Curran v. Smith— 68, 70. Curtis, Jones & Co. v. Smelter Natl. Bank— 118. Cushion Heel Shoe Co. v. Hartt— 19, 20, 74, 76, 80, 89, 93, 95, 98, 111, 113, 118, 155, 156, 157. Custar V. Titusville G. & W. Co. — 409, 444, 479. D. Dale & Plant, Ltd., Be— 80, 83, 96. Daly V. Wise — 378. Dansk BekylrifEel Syndikat Ak- tieselskab v. Snell — 117. Darby, In re— 152, 160, 201, 220, 233, 266. Darling v. Stuart— 378. Darragh v. Wetter Mfg. Co. — 341. Dartmouth College v. Woodward — 137. Dassler v. Rowe-^66, 468. Davenport v. Dows — 352. Davidson v. Hobson — 416, 581. Davidson v. Tulloch— 363, 473, 497, 499. Davis V. Central Land Co. — 377. Davis V. Las Ovas Co.— 159, 211, 239, 245, 277, 310, 349, 535. Davis V. Ravenna Creamery Co. — 113. Davis V. Shafer — 71. Davis V. Stuard— 388. Davis V. Trent — 377. Davis V. Valley Electric Light Co. — 98. Davis Bros. v. Montgomery F. & C. Co.— 80. Davis & Co. V. Dumont-^41, 442, 479. Davis Improved Wrought Iron W. W. Co. V. Davis Wrought Iron W. Co.— 117, 125, 128. Davis & Rankin v. Dexter Butter & Cheese Co.— 89, 116. Davis & Rankin v. Maysville Cream- ery Ass'n — 71, 72, 75. Davis & Rankin Bldg. & Mfg. Co. V. Barber — 71. Davis & Rankin Bldg. & Mfg. Co. V. Colusa Dairy Ass'n — 72, 126. Davis & Rankin Bldg. & Mfg. Co. V. Hillsboro Creamery Co. — 112. Davis & Rankin Bldg. & Mfg. Co. V. Jones — 71. TABLE OF CASES. (The references are to the pages.) Davis & Rankin Bldg. & Mfg. Co. V. Vice— 126. Davison v. Seymonr — 514. Dawson v. Morrison — 561. Day V. National Mutual Bldg. & Loan Ass'n — 358. Dayton Watervliet Valley & Xenia Turnpike Co. v. Coy— 75, 85, 132. De Giverville Land Co. v. Thompson —86. Deitz V. Stephenson — 60. De Klotz V. Broussard— 388, 428, 506, 520. De La Motte v. Northwestern Clear- ance Co.— 162, 163, 527. Delano v. Bice — 460. De Lery v. Rogers — 148. Dengler v. Helms— 119, 141, 143, 146. Dennin v. Wood— 352. Dennis v. Jones — 472. Dennison v. Keasbey — 58, 59. Densmore Oil Co. v. Densmore — ^10, 12, 20, 26, 172, 173, 181, 188, 222, 224, 305, 306, 307. Denton v. Macneil — 144, 421, 564, 574, 575. Denton v. Ontario Co. Natl. Bank —128. Denver & Sante Fe Ry. Co. v. Han- negan — 118. Deposit Life Assurance Co. v. Ays- cough — 451. Derry v. Peek— 178, 203, 862, 369, 370, 371, 373, 374, 375, 376, 377, 379, 380, 381, 382, 420, 423, 424, 457, 468, 497, 498, 499, 500. De Buvigne's Case — 178, 312, 488. Devala Provident Gold Mln. Co., In re — 442. Dexter v. McClellan — 514. Dickerman v. Northern Trust Co. — 4, 5, 16, 17, 18, 151, 157, 161, 172, 181, 219, 318, 319, 326, 347, 387, 434. Dickerson v. Appleton — 39, 63. Dickinson v. Matheson Motor Car Co.— 39, 64. Dickson v. Kittson — 37. Diel V. Kellogg — 462. Dimpfel v. Ohio & Miss. Ry. Co. — 338, 341. Dingeldein v. Third Ave. R. R. Co. — 113. Directors, etc., of Central Ry. Co. of Venezuela v. Kisch— 384, 385, 387, 388, 397, 398, 420, 421, 441, 447, 460, 461, 470, 471, 478. Disderl & Co., In re — 178. Distilled Spirits, The— 128. Dixon's Case — 460. Dobbins v. Peabody — 532. Dodge V. Woolsey — 347. Dodgson's Case — 442, 444. Dole V. Wooldredge — 440, 451, 452, 536. Dominion Cotton Mills Co., Ltd., v. Amyot— 232. Donaldson Bond & Stock Co. v. Houck— 141. Donnelly v. Baltimore Trust & Guar- antee Co. — 20, 376. Donner v. Donner — 50. Donovan v. Purtell — ^118. Doo V. London & Croydon Ry. Co. —103. Doran v. Eaton— 417, 457, 496. Dorris v. French — 171, 181, 185, 447. Dorris v. Sweeney — 88. Dotson V. Savannah Pure Food Can- ning Co. — 132. Doty V. Patterson — 584. Doubleday v. Muskett— 561. Douglas Printing Co. v. Over— 119. TABLE OF CASES. zxvil (The references are to the pages.) Downes v. Ship — 460, 466, 474, 571. Downey v. Finueane— 191, 223, 362, 368, 369, 379, 381, 388, 398, 407, 419, 420, 427, 428, 538. Doyle V. Mizner — 582. Dresser v. Mercantile Trust Co. — 365. Dresser v. Norwood — ^128. Drew V. Beall-^95. DrincQbler v. Wood— 363, 370, 375, 452. Drouet v. Taylor — 573. Drucklleb v. Sam H. Harris— 38. Drum State Quarry Oo„ In re— 179. Drummond v. Crane — 148. Dubuque Female College v. District Townships of Dubuque — 81, 89. Duffield V. B. T. Barnum Wire & Iron Works— 382, 472, 478. DufEus V. Howard Furnace Co. — 317. DufEy V. McKenna — 497. Duke V. Dive— 569. Duke V. Forbes — 569. Duke V. Taylor— 583. Duncan, In re — 352. Dundee Suburban By.— 165, 166, 553. Dunlap V. Twin City Power Co. — 159, 310, 506. Dunlop-Truffault C. & T. Mfg. Co., Ltd., In re— 404, 46& Dunn V. Candee — 474. Dunne v. English— 201, 214, 221. Dunnett v. Mitchell— 348, 458. Dunning v. Bates — 558. Dupignac v. Bernstrom — 98. Du Pont V. Tilden— 324. Du Puy V. Transportation & Ter- minal Co.— 347, 397, 404, 421. Duranty's Case — 442, 444. Durgin v. Smith — ^140. Durlacher v. Frazer — ^119. Duryea v. Zimmerman— 371, 377. Duvergier v. Fellows— 33, 502. Du Vivier & Co. v. Galilee— 118. Dyckman v. Valiente — 580. Dyer v. Rich— 68, 137, 138. Dynes v. Shaffer— 409, 472. E. Eaglesfleld v. Marquis of London- derry— 374, 398. Eaktns v. Amer. White Bronze Co. —13, 551, 553, 563. Earl of Lindsey, The t. Great Northern Ry. Co. — 103. Earl of Shrewsbury v. North Staf- fordshire Ry. Co.— 104, 105, 121. East Tennessee Land Co. v. Leeson —312, 337, 487. Eastern Counties Ry. Co. v. Hawkes —3, 103. Eastman v. Blackledge — ^168. Easton Nat'l Bk. y. American Brick & Tile Co.— 23. Eastwick's Case — ^179. Eaton V. Walker— 583, 584. Eaton, Cole & Burnham Co. v. Avery— 363, 366. Bbling V. Nekarda— 516. Economy Powder Co. v. Boyer — 369, 433, 487. Eddystone Marine Ins. Co., In re^ 158, 164. Eden v. Ridsdales RaUway Lamp & Lighting Co.— 178, 310, 312, 487. Edenbom v. Sim — 445, 448, 535. Edgar v. Sloan — See In re Hess Mfg. Co. Edger v. Knapp — 144. Edgerton v. Electric Imp., etc., Co. —33. Edgington t. Fitzmaurlce— 418. TABLE OF CASES. (The references are to the pages.) Edinburgh Northern Tramways Co. T. Mann— 167, 578. Edwards, Ex parte-^04, 467, 468. Edwards v. Grand Junction Ry. Co. —2, 103, 104. Edwards v. Johnston— 171, 200, 569. Ehrich v. Grant — 59. Eisenmayer v. Leonardt — 68. Eisleben v. Brooks — 68. El Cajon Portland Cement Co. v. Wentz Eng. Co.— 119, 348. Eldred v. Bell Telephone Co. — 46. Electric Fire Proofing Co. v. Smith —32. Electric Welding Co. v. Prince — 13. Eley V. Positive Gov't Sec. Life Ins. Co.— 80. Ellis V. Penn. Beef Co.— 344. Ellis V. Western Nat. Bk.— 113. Ellison V. Mobile & Ohio R. R. Co. —461. Ely V. Hanford— 305. Emery v. Parrott- 176, 177, 311, 328, 329, 350, 439, 485, 511, 516, 528, 539. Emma Silver Mining Co. v. Grant — 7, 8, 17, 152, 153, 160, 172, 175, 176, 180, 183, 186, 204, 221, 276, 298, 485. Emma Silver Mining Co. v. Lewis -^, 6, 9, 23, 26, 28, 328, 511. Empire Mills v. Alston Grocery Co. —581, 582, 586. Empress Engineering Co., In re— 76, 80 82, 96, 98, 102. Endicott v. Marvel— 346. Englefleld Colliery Co., In re— 162, 164, 178. English & Colonial Produce Co. Ltd., In re— 98, 152, 155, 156, 165. Ennis Cotton Oil Co. v. Burks — 89, 140, 142, 146. Ennis v. West Clare By. Co. — ^154^ Eno V. Sanders — 39. Epp V. Hinton— 398. Erlanger v. New Sombrero Phos- phate Co.— 6, 7, 11, 17, 18, 20, 24, 172, 185, 188, 190, 191, 193, 201, 202, 203, 205, 206, 208, 209, 211, 213, 218, 219, 220, 221, 223, 231, 276, 277, 291, 292, 293, 294, 295, 296, 305, 307, 319, 321, 326, 335, 351, 352, 354, 355, 401, 406, 420, 427, 433, 537, 538, 546, 550. Eskern Slate & Slab Quarries Co., Ltd., Re— 177, 178. Esper V. Miller— 97, 143. Essex Turnpike Corporation v. Col- lins— 133. Estates Investment Co., In re — 476. Etna Ins. Co., Ltd., In re — 475. Ettar Realty Co. v. Cohen— 434. Eureka Min. Smelting & Power Co. V. Lively— 233. Evans's Appeal— 292, 296. Evans v. Borie — 292, 296. Evans v. Palmer — 377. Everett v. De Fontaine— 63. Exchange Bank of Kentucky v. Gaitskill— 495. Ex-Line-Reimers Co. v. Lone Star Life Ins. Co.— 75, 81, 90. Ex-Mission Land & Water Co. v. Flash-^, 5, 18, 41, 276, 293, 294, 305, 308, 316, 317, 326, 327, 361, 399, 534, 538. Exploring Land & Minerals Co., Ltd., V. Kolckmann — 497. Exter V. Sawyer— 10, 171, 181, 187, 189, 194, 211, 224, 225, 277, 302, 336, 337, 338, 483, 506. F. Fairfield Savings Bank v. Chase— 128. TABLE OF CASES. (The references are to the pages.) Palcke V. Scottish Imp. Inv. Co. — 83. Fargo G. & C. Co. v. Fargo 6. & E. Co.— 398, 460, 495. Parjeon v. Indian Territory Illum- inating Co. — 554. Farmers & Citizens Bank v. Payne —128. Farmers' Bk. of Vine Grove v. Smith— 155, 160. Farmers' Co-op. Trust Co. v. Floyd —140. Farmers' Gin & Milling Co. v. Jones —141. Farmers' Mut. Fire Ins. Ass'n v. Burch— 150. Farmers State Bk. v. Kuchs — 581, 587. Farnsworth v. Muscatine Prod. & Pure Ice Co.— 382. Farrar v. Walker — 477, 478. Farris v. Wirt— 63, 291. Faure Elec. Accumulator Co., In re —153, 161, 164. Fay V. Noble— 586. Fear v. Bartlett— 370, 384, 398, 404, 407, 409, 417, 442, 450, 461, 466, 469, 474, 475, 477, 480. Federal Life Ins. Co. v. Griffin- 204, 211, 218, 228, 321, 322, 531, 532. Federal Sanitary Clearing & Befin- ing Co. V. Loeb— 131, 133. Feitel v. Dreyfous — 88. Felgate's Case— 122, 384. Felix Hadley & Co., Ltd., v. Hadley —249. Fenn v. Curtis— 363, 455. Fennessy v. Boss — 37. Fentress v. Steele & Sons — 146. Ferrochem Co. of Penna. y. Dan- ziger — 572. Fey V. Peoria Watch Co. — 411. Ffooks V. Southwestern Ry. Co. — 284. Field V. Cooks— 581, 584. Field V. Pierce — 45. Finck V. Canadaway Fertilizer Co. —10, 322, 510. Findlater v. Dorland — 414. Findlay v. Baltimore Trust & Guar- antee Co.— 383, 388, 449. Fink V. Lamphere — ^10, 322, 510. Finlay v. Chirney — 352. Finnegan v. Knights of Labor Bldg. Ass'n— 584, 585. First Ave. Land Co. v. Hildebrand —4, 6, 18, 172, 177, 313, 331, 488. First Nat'l Bank v. Armstrong — 76. First Nat'l Bk. v. Church Federa- tion of America — 120, 121. First Nat'l Bank v. Hurford— 442, 479. First Nat'l Bank v. People's Natl Bank— 376. Fisher v. Bush— 37. Fisher v. Mellen— 377. Fitzgerald & Mallory Const. Co. v. Fitzgerald— 188. Fitzpatrick v. O'Neill— 158, 163, 164, 208. Fitzroy Bessemer Steel Co., Ltd., Re —179, 290, 312. Fitzwilliam v. Travis— 567, 573. Flagg V. Stowe— 580. Flagler Engraving Machine Co. v. Flagler— 235, 433. Flaherty v. Cary— 36, 64, 66, 531. Flajierty v. Murray — 168. Flanagan v. Lyon— 39, 47, 233, 535. Florida Coca Cola Bottling Co. v. Bicker- 130, 139. Flower v. Brumbach — 425. Foley V. Holtry— 372, 378. Forbes v. Thorpe — 116. TABLE OF CASES. (The references are to the pages.) Force v. Sawyer-Boss Mfg. Co. — 76. Ford V. French— 128. Forest Land Co. v. Bjorkquist — 10, 350, 507, 509, 511, 512. Forrester v. Bell— 167, 537. Forrester v. Boston & M. Con. Cop- per, etc., Min. Co.— 284, 338, 342. Fort Wayne, etc.. Turnpike Co. v. Deam — 417. Foss V. Harbottle— 2, 26, 188, 189, 198, 223, 225, 227, 337, 346. Foster v. Mansfield, etc., R. R. Co. —293. Foster v. Seymour— 233, 234, 235, 236, 257, 258, 430. Fottler V. Moseley — 416. Foulkes V. Quartz Hill Consol. Gold Min. Co. — 467. Foulks Accelerating Air Motor Co. V. Thies— 382. Fountain Spring Park Co. v. Rob- erts— 350, 361, 399, 401, 511, 539. Fourchy v. Ellis — 41. Fox's Case--t76, 571. Fox V. Allensville C. S. & V. Turn- pike Co.— 122, 443. Fox V. McComb — 583. Franey v. Warner — 41, 85, 86, 188, 307, 308, 327, 338, 339, 355, 399, 400, 429, 436, 440, 445, 448, 488- 496, 534. Franey v. Wauwatosa Park Co. — 469. Frank v. Bradley Currier Co. — 378. Frank v. Drenkhahn — 138. Frankenburg v. Great Horseless Carriage Co. — 453. Frankfort & S. Turnpike Co. v. Churchill— 124. Franklin Fire Ins. Co. v. Hart — 77. Franklin Min. Co, v. O'Brien — ^117, 125, 126. Fred Macey Co. v. Macey — 18, 19, 183, 239, 253, 292, 294, 332, 388. Freeman v. Harbaugh Co. — 379. Freeman v. Watts — 126. Freeman Imp. Co. v. Osborn — 165. Friedman v. Janssen — 538, 580. Fry V. Manhattan Trust Co. — 162. Fry V. Miles — 554, 563. Furniture Carpet Co. v. Crawford — See Queen City Furniture Car- pet Co. V. Crawford. G. Gabriel v. Graham — 418. Gaines v. McAllister — 164. Galena & Southern Wisconsin R. R. Co. V. Ennor — 408. Gamble v. Queens County Water Co. —232. Garnett v. Richardson— 581, 584. Garretson v. Pacific Crude Oil Co. —208, 235, 246, 262, 266. Garrett v. Kansas City, etc., Co. — 33, 34. Garrett v. Wannfried — 307, 399, 440. Garrett Co. v. Appleton— 382. Garrett Co. v. Astor — 378. Gartside Coal Co. v. Maxwell— 582. Garvin v. Edmondson — 527. Garwood v. Ede — 568. Gas Co. V. Elder — 130. Gay's Case — 566. Gearhart v. Standard Steel Car Co. —120. General Exchange Bank v. Horner —164, 553. General Ins. Co., The, v. The U. S. Ins. Co.— 128. Geneva Mineral Spring Co. v. Cour- sey— 582. TABLE OF OASES. xxxl (The references are to the pages.) Gent V. Manuf. & Merchant's Ins. Co.— 77, 78. Georgia Co. v. Castleberry — 118. Gerding v. East Tennessee Land Co- —348. Gere v. Dorr— 310, 311, 359. Gerhard v. Bates— 363, 415; Gern^r v. Mosher— 365, 376, 378. Gerson v. Simpson — 550. Getchell v. Dusenbury — 462. Getty V. Devlin— 198, 227, 297, 305, 307, 321, 322, 351, 353, 355, 368, 399, 410, 428, 486, 440, 448, 450, 451, 459, 472, 495, 538, 539. Getty V. Donelly-^28. Glbbens v. Bourland — 379. Gibbs V. Guild— 463. Gibson's Case-^U, 412, 442, 473. GUbert v. Bunnell— 60, 62. Gildersleeve v. Balfour — 581. Giles V. Comfoot— 560. Giles V. Smith— 142, 167, 168. Gilkeson v. Thompson — 128, 129. Gillett V. Dodge— 197, 529. Gilman v. Gross— 123, 125. Ginn v. Almy-^00, 449, 465, 495. Girard v. Case Bros. Cutlery Co. — 90, 91, 98, 121, 127, 128, 129. Given v. Powell— 379. Glasier v. Rolls— 10, 362, 373, 377, 423, 428. Gleaves v. Brick Church Turnpike Co.— 87, 131. Glenn v. Bussy— 86, 131. Globe Realty Co. v. Whitney— 136. Gluckstein v. Barnes-^8, 17, 20, 22, 23, 26, 27, 172, 175, 182, 186, 200, 202, 203, 214, 218, 227, 247, 267, 305, 308, 309, 320, 325, 349, 361, 399, 420, 486, 539, 550. Goddard v. Hodges— 537. Godfrey v. Schneck— 368, 507, 508, 510, 511. Gold Co., In re— 217, 233, 235, 236, 284, 502. Goldmark v. Magnolia Metal Co. — 119. Gold Ridge Min. & Dev. Co. v. Rice —233. Goldsmid's Case — 571. Gooday v. Colchester & Stour Valley Ry. Co.— 76, 103, 110. Goodrich v. Reynolds Wilder & Co. —442. Goodwin v. Wilbur— 7, 18, 19, 290, 388, 410, 500. Goodwin Co.'s Appeal — 60. Gordon v. House of Childhood Inc. —81. Gorgier v. Morris — 168. Gough Mill & Gin Co. v. Looney — 417. Gould V. United States— 504. Gourlie v. Chandler— 86, 122, 125. Gover's Case— 10, 23, 24, 188, 192, 193, 223, 307, 386, 391, 392, 395, 441. Gower v. Couldridge — 453. GrafC V. Pittsburgh & SteubenvlUe R. R. Co.— 123. Graham v. Machine Works — 338. Grand Rapids Furniture Co. v. Grand Hotel & Opera House Co. —113, 125, 127, 139. Grand River Bridge Co. v. Rollins —89. Grand Trunk, etc., Ry. Co. v. Brodie —577. Grant v. Gold Exploration & De- velopment Synd. — 513, 514,- 515, 516. Grant v. Walsh— 64. TABLE OF CASES. (The references are to the pages.) Grape Sugar & Vinegar Mfg. Co. v. Small— 101. Gray v. Bloomlngton & Normal Ey. -40. Gray v. BonneU— 536, 537. Gray v. Collins— 415, 417. Gray v. Heinze — 331. Great Luxembourg Ry. Co. v. Mag- nay— 321, 322. Great Western Ry. Co. v. Rushout —338. Great Western Telegraph Co. v. Bush — 466. Great Western Telegraph Co. v. Haight— 408. Great Wheal Polgooth, Ltd., In re —11. Greaves v. Gouge— 338, 353. Green v. Barrett — 567. Green v. Des Garets — 438. Green v. Gen'l Prov. Assurance Co., Ltd.— 428. Greenberg v. Whitcomb Lumber Co. —140. Greenberg-Mlller Co. v. Everett Shoe Co.— 118. Greenbrier Industrial Exposition v. Rodes— 87, 88. Greenbrier Industrial Exposition v. Squires— 571, 572. Greene v. Mercantile Trust Co. — 363, 364, 455. Greenhalgh v. Manchester & Bir- mingham Ry. Co. — 108. Greenwood v. Leather Shod Wheel Co.— 219, 272, 392, 423, 424, 428. Greer v. Chartier's Ry. Co. — 125. Gress v. Knight-^74, 478. Grler v. Hazard, Hazard & Co. — 101. Griffin v. Beverley— 560. Griffith v. Blackwater Boom & Lum- ber Co.— 205. Groel V. United Electric Co. of N. J.— 171, 247, 337, 345, 353. Grover v. Cavanaugh — 397, 415, 462. Guenther v. Amer. Steel Hoop Co. — 119. Gulf & Brazos Valley Ry. Co. v. Winder — 113. Gulliver v. Roelle — 152. Gunn V. London & Lancashire Fire Ins. Co.— 77, 80, 162. H. Hadcoek v. Osmer — 378. Haines v. Franklin— 365, 403. Hale, Ex parte — 465. Hall's Case— 561. Hall V. Baker Furniture Co. — 119. Hall V. Grayson County National Bank— 372, 401, 402, 411, 412, 440, 447, 450, 460. Hall V. Herter Bros.— 91, 93, 95, 113. Hall V. Old Talargoch Lead Mining Co.^74. Hall V. Selma & Tenn. R. R. Co.— 411, 480. Hall V. Vermont & Mass. R. R. Co. —78, 155, 156, 159, 161. Hallows V. Fernie— 218, 369, 370, 398, 405, 421, 422, 423, 424, 428, 452, 461. Halsey v. Ackerman— 340, 348, 353. Halstead v. Grinnen — 293, 297. Hambleton v. Rhind— 388, 414, 514, 516. Hamilton v. American Hulled Bean Co.— 408, 452, 453, 470. Hamilton v. Granger's Life & Health Ins. Co. — 477. Hamilton v. Smith — 537, 560. TABLE OF CASES. (The references are to the pages.) Hamilton, etc., Plank Road Co. v. Rice— 86. Hamlin v. Abell— 379. Hammatt v. Emerson — 376. Hammond v. Pennock — 382. Hampton v. Buchanan — 36, 120. Hardee v. Sunset Oil Co. — 44. Hare's Case — 475. Harrill v. Davis— 145, 581, 583, 584, 586. Harrington v. Victoria Graving Dock Co.— 514. Harrison v. Vermont Manganese Co.— 77. Hart V. Bank— 128. Hart V. Ogdensburg & L. C. R. R. Co.— 346. Harvey v. Collett— 445, 567, 575. Harvey v. Sellers — 62. Harvey v. Weitzenkorn — 123, 409. Haskell v. Sells— 87, 131, 408, 572. Haskell v. Worthington — 412, 460, 477, 572. Hasklns v. Ryan — 64, 531. Hastings Lumber Co. v. Edwards — 411. Hause v. Mannheimer — ^87. Hawes v. Oakland— 338, 340, 341, 342, 343, 344, 345, 346. Hawkes v. Eastern Counties Ry. Co. —103. Hawkeye Gold Dredging Co. v. State Bank of Iowa Falls— 80, 97. Hawkins v. Mansfield Gold Mining Co.— 74. Hay's Case— 172, 175, 178, 179. Hayden v. Green— 8, 219, 326, 482. Hayes v. Stirling— 570, 571, 573, 574. Hayward v. Leeson— 20, 151, 160, 161, 171, 176, 185, 187, 208, 213, 246, 286, 306, 310, 312, 326, 328, 329, 336, 337, 353, 415, 426, 485, 487. Hayward v. National Bank — ^294. Hearther v. Southern Power & Mill- ing Co.— 162, 168. Heath v. Erie Ry. Co.— 338, 347. Heaton v. A. D. Clark & Co. — 114. Hebberd v. Southwestern Land & Cattle Co.— 283. Hebgen v. Koeffler— 307, 308, 319, 327, 336, 337, 353, 355, 400, 429, 440, 496. Hecht V. Acme Coal Co. — 137. Heckman's Estate — ^145, 512. Heckscher v. Edenborn — ^17, 19, 190, 201, 219, 228, 271, 302, 306, 355, 402, 442, 445, 447, 448, 450, 527. Hecla Consolidated Gold Mining Co. V. O'Neill— 100, 136. Hedin v. Minneapolis M. & S. Inst. —378. Henderson v. Lacon— 385, 406, 441, 446, 475. Henderson v. Royal British Bk. — 474. Hennequin v. Clews — ^299. Hennessey v. Griggs — 54, 58. Henry v. North American Ry. Const. Co.-^90. Henry Gold Min. Co. v. Henry— 126, 130. Hepner v. Maybury — 143. Hequembourg v. Edwards — 331. Herbert v. Duryea — 163. Herbert v. Uhl— 163. Hereford & So. Wales Waggon & Engineering Co., In re — 76, 80, 140, 155, 156, 160, 165, 176. Herman v. Foster & Reynolds Co. — 376. Herman v. Hall — 379. Hernreich v. Lidberg — 57. XSXLV TABLE OF OASES. (The references are to the pages.) Hersey v. Tully— 140. Hersey v. Veazie — 353. Hess V. DrafCen & Co.— 397, 399, 400, 436. Hess Mfg. Co., In re— 24, 26, 181, 188, 191, 192, 209, 223, 302, 303, 305, 306, 313, 319, 322, 323, 324, 328, 489. Heymann v. European Central Ry. Co.-^06, 470. Hichens v. Congreve— 3, 23, 28, 177, 186, 307, 308, 337, 400, 434. Hickies v. PMles — 63. Hlggins V. California P. & A. Co. — 117, 118. Hlggins V. Crouse-^63, 470, 471. Hlggins V. Hopkins— 142, 169, 563. Hlggins V. Lanslngh — 234, 235. High V. Berret— 497, 499. Hight, Ex parte — 561. Highway Adv. Co. v. Ellis— 26, 188, 196, 222, 305. Hill V. Glasgow B. R. Co.— 341. Hill V. Gould— 78. Hill V. Lane-^37, 445. Hills V. McMunn — 60. Hillside Cemetery Ass'n v. Holmes —135. Hinckley v. Pflster- 282, 284. Hlndman v. First Natl Bk.— 364, 365, 369, 370, 376, 380, 382, 437, 445, 450, 455, 496, 498, 499. Hlnkley v. Sac Oil & Pipe Line Co. —6, 18, 21, 152, 158, 172, 173, 175, 181, 194, 214, 246, 252, 273, 293, 402, 428, 441, 447, 455, 470, 477, 478, 479. Hirsche v. Sims — 312. Hirschel, Ex parte — 565. Hlrschmann r. Iron Range & H. B. R. R. Co.— 79. Hitchcock V. Hustace— 17, 28, 160, 239, 388. Hltchins v. Kilkenny, etc., Ry. Co. — 79, 156. Hlx V. Edison Electric Co. — 47, 514. Hladovec v. Paul — 40. Hoag V. Lament — ^90. Hodgens v. Jennings — 382. Hodges V. New England Screw Co. —354. Hoffman Steam Coal Co. v. Cumber- land Coal & Iron Co.— 126. Hogg V. McGuffin— 60, 61. Holcomb V. Noble— 376. Holcombe v. Trenton White City Co. —157, 163. Holdom V. Ayer— 376. Holdrldge v. Webb— 417. Holland v. Cruft— 139. Holland v. Lee — 145. Hollander v. Heaslip — 475. HoUoway & McRaney Co. v. Brame —126. Holman v. Thomas — 33. Holmes v. Hlggins — 537. Holmes v. Rivers — 459. Holmes Refining Co. v. United Re- finers' Export Oil Co.— 582. Holt's Case — 442. Holyoke Envelope Co. v. U. S. En- velope Co.— 75, 82, 85. Home Fire Ins. Co. v. Barber — 284, 342. Home Trust Co. v. Bauchens — ^222. Homer v. Barr Pumping Engine Co. —337. Homestead St. By. Co. v. Pittsburgh & Homestead Blec. St. Ry. Co.— 137. Honsucle v. Ruffin— 406, 460, 495, 499. Hood V. Eden- 234. TABLE OF CASES. (The references are to the pages.) Hoole V. Speak— 363, 377, 390. Hooper v. Central Trust Co. — ^13, 523, 538. Hoperaft v. Parker — 140. Hopkinson's Case — 566. Hopper V. Hector — 580. Hord V. Realty Investment Corpora- tion— 346. Horn V. United States — 504. Hornaday v. Ind. & 111. Cent. Ry. Co.— 384. Hornblower v. Crandall— 369, 370, 380, 460, 537, 538. Home V. Walton — 495. Horowitz V. Broads Mfg. Co. — 114. Horseshoe Pier, etc., Co. v. Sibley —131. Houghton V. Butler— 351, 352. Houldsworth v. City of Glasgow Bank— 368, 437, 474. Houseman v. Girard Mutual Bldg. & Loan Ass'n— 128, 129. Houston V. Thornton — 380. Hovey v. Blanchard — 128. Howard v. Glenn — 473. Howard v. Long — 583. Howard v. Patent Ivory Mfg. Co. —82, 83, 89, 93, 98, 102. Howard, Rec. v. Turner — 472, 474. Howard Stove Mfg. Co. v. Dingman —538. Howatson Patent Furnace Co., Re — 179, 489, 490. Howden (Lord) v. Simpson — 106. Howe V. Raymond — 569. Howerton v. Augustine — 459. Howison V. Baird — 62. Hoyer v. Ludington — 368, 519. Hoyt V. Latham — ^295. Hub Publishing Co. t. Ricbardsoo —140. Hubbard v. Internat'l Merc. Agency —413. Hubbard v. Oliver — 462. Hubbard v. Weare— 377, 378, 381, 382. Hubbell V. Meigs-^95, 499. Hubert Oil Co., In re — See (McEl- henny's Appeal.) Hudson V. West— 567, 570, 574. Hudson Milling Co. v. Higgins — 75. Hudson Real Estate Co. v. Tower — 86, 87. Hughes V. Antietam Mfg. Co. — 417. Hughes V. Cadena De Cobre Min- ing Co.— 19, 157, 172, 176, 201, 209, 211, 265, 273, 283, 284, 336. Huiskamp v. West — 39. Hull, Barnsley & West Riding Junc- tion Ry., In re — 579. Hume V. Record Reign Jubilee Synd.— 165. Humphreys v. Drew — 585. Humphreys v. Mooney — 583. Hung Man v. Ellis— 143, 537. Hunnewell v. Duxbury — 365. Hunt V. Davis— 63. Hunter v. French League Safety Cure Co.— 366, 382, 399, 414, 465. Hunter Smokeless Powder Co. v. Hunter— 33, 51. Huntress v. Blodgett— 379, 462. Huron Printing & Bindery Co. v. Kittleson— 93, 98, 125, 127. Hurt V. Miller— 473. Hurt V. Salisbury — 140, 585. Huster v. Newkirk Creamery & Ice Co.— 123, 570. Hutchinson v. Simpson — 6, 16, 28, 194, 212, 215, 216, 233, 234, 237, 239, 247, 255, 312, 345, 346, 350, 351, 352, 354, 430, 432, 433. Hutchinson v. Young— 376. xxxvi TABLE OF CASES. (The references are to the pages.) Hutchison v. Surrey Consumers Gas Light & Coke Ass'n— 77. Hutton V. Thompson— -565, 567, 568. Hutton V. Upflll— 562. Hyde Park Terrace Co. v. Jackson Bros. Realty Co.— 279, 316, 317, 493. Hyer v. Richmond Traction Co. — 60. Hyslop V. Morel Bros., etc., Ltd. — 444. I. Ijams V. Andrews — 562. Imperial Land Co. of Marseilles, In re— 317. Imperial Mercantile Credit Ass'n V. Coleman — See Liquidators of The Imp. Mercantile Credit Ass'n. V. Coleman. Inland Nursery & Floral Co. v. Rice —233, 430. Innes & Co., In re— 208, 489. Insurance Bank v. Bank of tJ. S. — 110. Insurance Press v. Montauk, etc., Wire Co.— 233, 234, 254, 255, 303, 321, 346, 359, 432. Iowa Drug Co. v. Souers — 29. Ireland v. Globe MUliug & Reduc- tion Co.— 77, 78, 81, 94, 95. Irvine v. New Tork Edison Co. — 119, Jackson's Case — 571. Jackson V. Hooper— -40. Jackson v. McChesney — 317. Jackson v. McLean's, Executors of —33, 37. Jackson v. Turquand — 383. Jacobson v. MeCuUough — 567, 568, 580. James Young & Sons, Ltd. v. Gowans — 84, 96. Jarrett v. Kennedy— 567, 570, 574. Jeanette Bottle Works v. Schall — 87, 131, 409. Jefts V. York— 141. Jenkins v. Bradley— 134, 191, 264, 313, 354, 488, 490, 494. Jennings v. Broughton- 268, 369, 384, 421, 462. Jessop V. Ivory — 125. Jessup V. Carnegie — 585. Jesup V. Illinois Central R. Co. — 294. Jewell V. Mclntyre — 572. Jewell V. Rock River Paper Co. — 408, 412, 479. Jewett V. Palmer — 317. J. H. Lane & Co. v. United Oil Cloth Co.— 116, 146. Job V. Lamb — 140. Johannesburg Hotel Co., In re — 96. Johannesburg Hotel Co., Re — 404. Johns V. Brown — 582. Johns V. Coffee— 388, 413, 416, 450, 477. Johns V. McLester — 338. Johnson v. Brooks — 61. Johnson v. Cate — 378. Johnson v. Corser — 581, 585, 587. Johnson v. Goslett — 567. Johnson v. Gulick— 376, 378. Johnson v. Okerstrom — 583, 584. Johnson v. Sheridan Lumber Co. — 17, 18, 177, 308, 317, 320, 353, 354. Johnston v. Ewlng Female Univer- sity— 131. Johnston v. Gumbel — 116. TABLE OF CASES. (The references are to the pages.) Johnston v. Standard Mining Co. — 292, 294. Jones V. AUert — ^97. Jones V. Aspen Hardware Co. — 138, 583, 584. Jones V. Dodge — 88, 416. Jones V. Gould — 41, 167. Jones V. Harrison — 568. Jones V. Smith— 82, 91, 98, 107, 110, 127, 147, 152, 155, 156. Jones V. Tunis — 61. Jordan v. Annex Corporation — ^18, 19, 22, 172, 318, 320, 321, 323, 327, 441, 450, 474. Joslin V. Stokes — 39. Jos. Rosenheim Shoe Co. v. Home — See Rosenheim Shoe Co. t. Home. Joy V. Manion— 85, 122, 480. Jury V. Stoker— 363, 392, 406, 460, 500. Just V. Idaho Canal & Imp. Co. — 342, 344. Jutte V. Hutchinson — ^292. K. Kaeppler v. Redfield Creamery Co. —81, 98. Kaiser v. Lawrence Savings Bank —581, 582, 584, 585. Kantzler v. Bensinger — 38. Karberg's Case— 268, 382, 404, 441, 470, 472, 475. Katama Land Co. v. HoUey — 87. Keelyn v. Strieder— 294, 473. Keith T. Eadway— 17, 556. KeUy V. Ruble— 130, 136. Kelner v. Baxter — 82, 146. Kelsey v. Northern Light Oil Co. — 384, 422, 444, 572. Kempson t. Saunders — 444, 574. Kennebec & Portland R. R. Co. v. Palmer— 86, 131. Kennebec & Portland R. R. Co. v.. Waters— 479, 480. Kennedy v. Bender— 469. Kennedy v. Fulton Mercantile Co. — 140, 143. Kennedy v. Panama, etc.. Mail Co. —383, 572. Kennedy Drug Co. v. Keyes — 311. Kensington Station Act., In re — 11, 579. Kent T. Freehold Land & Brickmak- ing Co.— 227, 399, 447, 474, 475. Kent V. Quick Silver Mining Co. — 284. Kent Tramways Co., In re — ^165, 16& Kerridge v. Hesse — ^142. Kiefhaber Lumber Co. v. Newport Lumber Co. — 125. Kilgore v. Bruce— 413, 486, 495, 496. Kimber v. Young— 376, 415. Kimmerle v. Dowagiac Gas Co. — 89. Kincaid's Case— 466. Kincaid v. Overshiner — ^124, 413. King V. Barnes— 32, 39, 63. King V. Howeth & Co. — 86. Kingman v. Rome, Watertown & Og- densburg R. R. Co.— 344. Kinkier v. Junica— 380. Kirkpatrick v. Reeves — 379. Kirschmann v. Lediard — 64, 66, 67. Kisch V. Central Ry. Co. of Ven- ezuela — 421, 460, 461. Kline Bros & Co. v. Royal Ins. Co. —80, 134. Knappen v. Freeman — 379. Knoop V. Bohmrich— 283, 315, 338, 339. Knox V. Childersburg Land Co. — 34, 85, 571. TABLE OF CASES. (The references are to the pages.) Knox V. Hayman— 362, 370, 377, 398. Koehler v. Black River Falls Iron Co.— 347. Kohl V. Taylor — 400. Kohler v. Agassiz — 131. Koppel V. Mass. Brick Co.— 82, 112. Koster v. Pain— 12, 174, 177, 178, 180, 514. Kountze v. Kennedy— 376, 378, 379. Krohn V. Lambeth — 144. Krohn v. Wmiamson— 33, 58, 59, 62, 282, 312, 315, 338, 346, 438, 464, 470, 527, 528. Krouse v. Woodward — 59. Krumm v. Beach — 495. Kuntz V. Tonnele — 514, 516. L. Lady Forrest Gold Mine, Ltd., , In re— 223, 305. Ladywell Mining Co. v. Brookes — 3, 24, 25, 26, 193, 219, 305, 306, 319, 321, 322, 323, 324. Lagunas Nitrate Co. v. Lagunas Syndicate— 8, 13, 19, 21, 29, 189, 190, 191, 200, 206, 208, 209, 214, 221, 223, 230, 247, 284, 293, 294, 295, 297, 322, 327, 344, 388, 398, 434, 486. Lake v. Argyll — 562. Lake v. Ocean City, etc., Co. — 137. Lake Ontario, Auburn & N. Y. R. B. Co. V. Mason— 86, 131. Lake Ontario Shore B. R. Co. v. Curtiss— 88, 124, 132. Lambert v. Elmendort— 382. Lamberton v. Dunham — 376, Lamkin v. Baldwin & Lamkin Mfg. Co.— 116. Lamphere v. Lang — 163. Lancaster G. & C. Co. v. Murray 6. S. Co.— 81, 98, 102. Land Credit Co. of Ireland, The — 404. Land Log & Lumber Co. v. Mclntyre —354. Land Title & Trust Co. v. Asphalt Co. of Am.— 348. Landman v. Entwistle — 142, 563, 567. Lands Allotment Co. v. Broad — 512, 514, 516. Lane v. DeBode — 129. Lane v. Fenn — 352, 369. Langdon v. Fogg— 233, 235, 236, 284, 338, 344, 431, 541. Langham v. East Wheal Rose Con- sol. Silver Lead Mining Co., Ltd. — 461. Lantry v. Wallace — 477. Larking, Ex parte — See Imperial Land Co. of Marseilles. Larocque v. Beauchemin — 209. Las Ovas Co. v. Davis— 159, 211, 310, 349. Lauder v. Peoria Agricultural & Trotting Soc. — 84. Law v. Grant— 368, 509. Lawrence's Case— 218, 371, 466, 470, 571. Lawrence v. Nyberg Automobile Works — 119. Lawrence v. Smith — 571. Learning v. Wise — 472, 473. Lebanon Steam Laundry v. Dyck- man— 434, 452. Lee V. K. W. Steinhart Lumber Co. —116. Leeds v. Tovmsend — 83. Leeds & Hanley Theatres of Va- rieties, In re— 13, 19, 20, 22, 24, 25, 152, 160, 203, 213, 219, 221, TABLE OF CASES. XXXIX (The references are to the pages.) 247, 267, 305, 306, 308, 321, 324, 326, 330, 362, 400, 403, 482, 492. Leffingwell v. Elliott— 139. Lefroy v. Gore — 564, 565. Le Grand v. Manhattan Mercantile Ass'n — 156. Lehman-Charley v. Bartlett— 363, 384, 418, 419, 422, 428, 441, 442, 446, 453. Le Lievre v. Gould — 374. Lemars Shoe Co. v. Lemars Shoe Mfg. Co.— 118. Lenkeit v. Mitchell— 367. Lennox Pub. Co., The, Re — 406, 475, 476. Leominster Canal Navigation Co. v. Shrewsbury & Hereford Ey. Co. — 121. Lewis V. Berryville Land & Imp. Co.-^144. Lewis V. Fisher — 140, 143. Lewis V. Smith — 142. Lewis & Nelson's Appeal — 282. Lieb V. Painter — 567. Life Ass'n of England, Ltd., Re — See Blake's Case. Xightfoot V. Davis — 4?3. Limited Inv. Ass'n v. Glendale Inv. Ass'n— 176, 320, 327, 354, 355, 511, 539, 548. Lindsay Petroleum Co. v. Hurd — 291, 292, 293, 294, 295, 322, 335, 349, 370, 401, 403, 434, 511, 517, 546. Lindsey v. Great Northern Ry. Co. — See Earl of Lindsey v. Great Northern By. Co. Lindsey v. Pasco Power & Water Co.— 158. Linn v. Dixon Crucible Co. — 553. Liquidators of the Imperial Mer- cantile Credit Ass'n v. Coleman — 13, 220, 221, 226. Litchfield v. Hutchinson— 377, 378. Litchfield Bank v. Church — 408. Little Rock & Ft. Smith R. R. Co. V. Perry— 101, 112. Livermore v. Middlesborough Town Lands Co.— 377. Lloyd, Ex parte— 560, 561. Lloyd V. Grace, Smith & Co.— 368. Locke V. Wilson — 47, 367, 563. Lockwood V. Wynkoop — 140, 141. Loewenberg v. De Volgne — 57. Loewer v. Harris — 419. Logan V. Simpson — 50. Lomita Land & Water Co. v. Rob- inson— 12, 17, 18, 19, 171, 174, 175, 176, 181, 189, 194, 202, 209, 211, 224, 233, 271, 274, 276, 282, 292, 300, 316, 318, 319, 326, 327, 349, 350, 384, 398, 428, 436, 470, 482, 511, 539, 550. Londesborough, Ex parte — 569. London Assurance Co. v. Drennen —41. London & County Gen'l Agency Ass'n, Ltd., In re — See Hare's Case. London & Leeds Bank, In re — 370, 477. / London & Provincial Starch Co., The, Re— 179. London & Southwestern Canal, Ltd., In re— 179, 313. London & Staffordshire Fire Ins. Co., In re— 383, 472. London Trust Co. v. Mackenzie — 183, 247, 249, 284, 312, 329, 488. Long V. Citizens' Bank — 76. Longman v. Hill — ^146. Lord V. Goddard — 376. Lorillard v. Clyde— 32, 38. xl TABLE OF CASES. (The references are to the pages.) Lottman Bros. Mfg. Co. v. Houston Waterworks Co.— 133. Loudenslager v. Woodbury Heights Land Co.— 7, 19, 24, 25, 171, 173, 181, 188, 193, 194, 202, 219, 221, 224, 302, 399, 400. Lovelace v. Suter— 376, 379. Low V. Bouverie — 374. Low V. Connecticut & Passumpsic Rivers R. R. Co. — 78, 79, 81, 98, 101, 103, 109, 110, 111, 120, 155, 156, 157, 158, 160. Lowance v. Johnson — 438. Lowestoft, etc.. Tramways Co., In re— 579. Lucas V. Beach — 537. Luedecke v. Des Moines Cabinet Co. —119, 120. Luetzke v. Roberts— 406, 409, 451. Luin V. Chicago Grill Co. — 93. Lungren v. Pennell— 222, 225, 452. Lunn V. Shermer — 495. Lurgan's Case, Lord — 442, 443. Lydney & Wigpool Iron Ore Co. v. Bird- 10, 12, 16, 22, 152, 153, 160, 161, 172, 176, 178, 305, 309, 328, 349, 485. Lynch v. Murphy — 417. Lynde v. Anglo-Italian Hemp Spin. ' nlng Co. — 442. Lyon's Case — 572. Lyon V. .(Taylor for use of) Wor- cester — 198. M. Mabey v. Adams — 364. Mac Ardell v. Olcott — 296. Macbride v. Lindsay — 411, 452. MacDougall v. Gardiner — 346. Macey Co. v. Globe Wernicke Co. 77. Macey Co. v. Macey — See Fred Macey Co. v. Macey. MacGregor v. Deal & Dover Ry. Co.— 653. Mack V. Latta^441, 446, 452, 453, 455. Mackey Baking Co. v. Mackey — ^20, 212, 214, 291, 310. Macklem v. Fales — 417. Macleay v. Tait— 219, 271, 389, 390, 392, 394. MacNaughton v. Osgood — 346. Maddick v. Marshall — 562. Madrid Bank, In re — See Ex parte Williams. Madrid Bank v. Pelly — 179. MagiU V. Rendigs — 35. Magnolia Shingle Co. v. J. Zim- mern's Co. — 582, 586. Mahan v. Wood — 130, 572. Maine v. Butler— 33. Maine v. Midland Inv. Co. — 355, 368, 382, 416. Maine Northwestern Dev. Co. v. Northern Commercial Co. — 447. Mair v. Rio Grande Rubber Estates, Ltd.-7-383. Maitland's Case-^60, 561. Manahan v. Varnum, 139. Manchester M. & Tramways Co., In re— 155, 165, 579. Mangold v. Adrian Irr. Co. — 19, 20, 247, 302, 305, 310. Manhattan Trust Co. v. Seattle Coal & Iron Co. — 432. Manistee Lumber Co. v. Union Nat'l Bk.— 68. Mann v. Edinburgh Northern Tram- ways Co.— 183. Manning v. Berdan — 451. Mantle v. Jack Waite Min. Co.— 97, 122. TABLE OF CASES. xli (The references are to the pages.) Manton v. Ray — 60. Marchand v. Loan & Pledge Ass'n —152, 155. Marconi's Telegraph Co. v. Cross — 81, 82, 140, 141, 145. Marie v. Garrison — 32, 34. Marion Trust Co. v. Blish — 474. Markwell's Case — 562. Marseilles Land Co. v. Aldrich — 41. Marsh v. Talker — 376, 378, 379, 380. Marshall v. Keach — 584. Marshall v. Morrison — 394. Marston v. Singapore Rattan Co. — 35, 70. Marten v. Paul O. Burns Wine Co. —467. Martin v. Pewell — 581, 582. Martin v. Pensacola & Georgia B. R. Co.^79, 573. Martin v. Remington-Martin Co. — 41. Martin v. Second and Third St, Pass. Ry. Co. — 120. Martin v. South Salem Land Co. ^74, 478. Maryland Apartment House Co. v. Glenn— 97, 101, 107. Marysville Elec. L. & P. Co. v. John- son— 130, 571. Marzetti's Case— 152, 164. Mason v. Carrothers — ^20, 21, 151, 157, 159, 204, 213, 214, 217, 226, 236, 238, 246, 253, 263, 265, 284, 285, 289, 305, 311, 339. Mason v. Harris— 81, 232, 347, 353, 506. Mason's Hall Tavern Co., Ltd., In re — See Orgill's Case. Mathew's Case— 404, 405, 565. Mathews v. Damainville — 128. Matlock V. Reppy— 495, 497. Mattern v. Canavan — 440, 463, 528, 538. Maturin v. Tredlnnick — 468. Maudsley v. Field's Case— 562, 565. Maxey v. Rideout — 34, 144. Maxwell v. McWilliams — 195, 320, 440, 463, 508, 538, 539. Maxwell v. Port Tennant, etc., Co. -^11. McAleer v. Horsey— 399, 400, 402, 415, 452, 469. McAleer v. McMurray— 337, 369, 429. McAllister v. Am. Hosp. Ass'n — 163, 176, 187, 313, 489. McArthur v. Times Printing Co. — 81, 82, 83, 90, 93, 120, 150. McBryan v. Universal Elevator Co. —365. McCallum v. Purssell Mfg. Co.— 129. McCally v. Blue Ribbon Gum Co. — 91. McCampbell v. Obear— 123, 124. McCandless v. Inland Acid Co. — 136, 138. McCausland v. Hill— 132. McClanahan v. Ivanhoe Land Co. — 444. McClymonds v. Stewart— 124, 125, 413. McConnell v. Wright— 375, 384, 418, 420, 457, 497, 498. McCord v. Southwestern Sundries Co.— 131. McCormick v. Seeberger — 141. McCracken v. Robison— 39, 234, 238, 257, 258. McCutcheon v. Dittman — ^128. McDermott v. Harrison — 75, 441, 476. McDonough v. Bank of Houston — 152, 155, 162, 166. xlii TABLE OF CASES. (The references are to the pages.) McElhenny's Appeal— 188, 193, 222, 305, 306, 353. McElroy v. Harnack — 416. McBlwee Mfg. Co. v. Trowbridge — 126. McBwan v. Campbell— 167, 560. McEwen v. Harriman Land Co. — 277, 278, 286, 348. MePall V. McK. & Y. Ice Co.— 143. McGuire v. Hartford Fire Ins. Co. — 317. Mcllquham v. Taylor — 43. McKay's Case— 162, 176, 178, 180, 186, 204, 312, 313, 335, 485, 487, 488. McKee v. Rudd— 365, 462. McKeown v. Boudard-Peveril Gear Co.— 268, 386. MeLeary v. Dawson — 139. McLellan v. Detroit File Works — 90, 113. McLennan v. Boutell — 34. McMullen v. Kitchle — ^158. McNeil V. Fulta— 44, 63. McNeill's Case — 476. McNulta V. Corn Belt Bank— 232. McQuiddy Printing Co. v. Head — 141. McKee v. Quitman Oil Co. — 6, 140, 144, 581. McVicker v. Cone — 77. McWethy v. Aurora Elec. Light Co. —137. Medill V. Collier— 587. Megibben's Admrs. v. Perin — 60. Meljolin v. Carlson — 408, 473. Meinershagen v. Taylor — 413. Meinhard, Sehaul & Co. v. Beding- field Mercantile Co. — 140, 585. Melhado v. Porto Alegre Ry. Co. — 80, 82, 96, 98, 102, 152, 155, 156. MelTin v. Lamar Ins. Co. — ^286, 408. Mercantile Nat'l Bk. v. Parsons — 126. Merchants' Fire Office, Ltd. v. Arm- strong— 159, 164. Merchants Nat'l Bk. v. Eckels — 166. Merchants' Nat'l Bk. v. Robison — 416. Merrick v. Consumer's H. & E. Co. — 407, 408. Merriman v. Magivney — 583, 584. Mesinger v. Mesinger Bicycle Sad- dle Co.— 81, 90, 91, 127. Metcalf V. American School Furni- ture Co.— 358. Methodist Episcopal Church v. Pick- ett— 584. Metropolitan Bank v. Heiron — ^295. Metropolitan Coal Consumer's Ass'n — See Karberg's Case, Wain- wright's Case and Ex parte Ed- wards. Metropolitan Coal Consumer's Ass'n V. Scrimgeour — 161. Metropolitan Elevated R. R. Co. v. Manhattan Elevated R. R. Co. — 205, 296. Metzger v. Knox — 75. Meyer's Case — 571. Meyer v. Blair— 123, 125, 174, 408, 412, 413. Meyer v. Page— 340, 506, 535. Michener v. Payson — 473. Michigan Midland & Can. R. R. Co. V. Bacon- 131, 572. Middle Branch Mut. Tel. Co. v. Jones — 565. Middleton v. Davis & Rankin Bldg. & Mfg. Co.— 126. Midland Ry. Co. v. Gordon— 572. Midland Union, etc., Ry. Co., Matter of — See Norbury's Case. TABLE OF CASES. xliii (The references are to the pages.) Midwood Park Co. v. Baker — ^175, 186, 194, 211, 279, 316, 317. 535. Milburn v. Wilson— 368, 369, 402, 407, 537. Mildenberg v. James — ^146. Miller's Case— 178. Miller v. Baker— 536, 538. MiUer v. Barber— 368, 410, 452, 459, 495, 538. Miller V. Denman— 15, 560, 567, 579. Miller v. Hanover Junction & Sus- quehanna R. R. Co.— 123, 480. Miller v. Wild Cat Gravel Road Co. —479. Mills V. Hendershot— 38. Mills V. Northern Ry. of Buenos Ayres Co.— 338, 348. Milwaukee Cold Storage Co. v. Dex- ter— 8, 26, 174, 188, 189, 190, 191, 193, 223, 225, 425, 482. Milwaukee L. H. & T. Co. v. Mil- waukee No. Ry. — ^137. Minister of Railways & Canals v. Quebec So. Ry. Co.— 25, 181, 233, 247, 521, 523. Minneapolis Threshing Mach. Co. v. Davis— 84, 85, 86, 122, 480. Miser Gold Mining & Milling Co. v. Moody— 74, 99. Mississippi Lumber Co. v. Joice — 17, 18, 23, 25, 194, 310, 528, 539. Mississippi, etc., R. R. Co. v. Cross —479, 573. Mitcalfe's Case— 179, 488. Mitchell V. Gifford & Co.— 112. Mitchell V. Jensen— 583, 584, 587. Mitchell V. Patterson — ^79. Mitchell V. United States— 504. Mixer's Case — 442. Modern Dairy & Creamery Co. v. Blanket & H. Supply Co.— 113. Moffat V. Winslow— 567. Mohler v. Carder— 382. Mokelumne, etc., Co. v. Woodbury — 585. Moneypenny v. Hartland — 165. Montgomery v, Whitbeck — 77, 78, 133. Montgomery Iron Works v. Roman —592. Montgomery Light & Power Co. v. Lahey— 297, 342. Montgomery So. Ry. Co. v. Mat- thews — 443. Moore v. Burke— 218, 370, 419, 420, 421, 461. Moore v. Explosives Co., Ltd. — 421- Moore v. Garwood— 568, 573, 574. Moore v. Hanover Junction R. R. Co.— 573. Moore v. Scott— 378. Moore v. Silver Valley Mining Co. —338, 340, 342, 344, 359. Moore v. Universal Elevator Co.— 524. Moore v. Warrior Coal & Land Co. —5, 17, 18, 19, 172, 185, 302, 308, 310, 319, 326, 336, 337, 402. Moore & De La Torre's Case — 402. Moore & Handley Hardware Co. v. Towers HardWiare Co. — 74, 77, 112, 117, 118. Moore Bros. & Co., Ltd., In re— 403. Morgan v. Bon Bon Co., Inc. — 39, 40. Morgan v. Ravey — 351. Morgan v. Skiddy— 362, 363, 369, 370, 388, 421. Morgan v. Struthers— 123, 124, 174, 408, 411, 412, 413. Morrisey v. Williams — 478. Morrison, Ex parte — 562. Morrison v. Gold Mountain Gold Mining Co.— 74. xUv TABLE OF CASES. (The references are to the pages.) Morrison v. Ogdensburgh, etc., E. R. Co.— 113. Morrow v. Nashville Iron, Steel & Charcoal Co.— 124. Morse v. Swits — 365. Morton v. Hamilton College — 106, 109. Moseley v. Cressey's Go. — 573. Mosier v. Parry — 140. Moulton V. Warren Mfg. Co. — 61. Mt. Carmel Tel. Co. v. Mt. Carmel & Flemingburg Tel. Co. — 580. Mt. Sterling Coalroad Co. v. Little — 132. Mowatt, Ex parte — 569. Mowatt V. Lord Londesborough — 568, 569, 574. Mowatt & Elliott, Ex parte— 569. Muck V. Hayden— 415, 417. Muir V. Forman's Trustees — 165, 166, 167, 578, 579. Muirkirk, etc., Bys.— 165, 166, 167, 578, 579. ' Mulholland v. Washington Match Co.— 441, 462, 468, 470. Mulvihill V. Vicksburg Ry. Power & Mfg. Co.— 39, 97. Muncy Traction Engine Co. v. Green —87. Munson v. Magee— 83, 84, 92, 146, 147. Munson v. Syracuse, Geneva & Corning R. R. Co.— 75, 78, 90, 92, 140, 189, 205, 321. Munster, Ex parte — 471. Murdock v. Lamb — 583. Murray v. Tolman — 415. Mutual Aid Ass'n v. Hogah — See Chicago City Ry. Employees Mu- tual Aid Ass'n v. Hogan. Myott V. Greer— 121. N. Nahoum v. Marcoglou & Co., Inc. — 129. Nant-Y-Glo & Blaina Ironworks Co. V. Grave— 9, 17, 179, 185, 293, 297, 310, 312, 329, 487. Nash V. Calthorpe— 371, 394. Nash V. Minnesota Title Ins. & Trust Co.— 366, 376, 425. Nash V. Rosesteel — 376. Natal Land Co. v. Pauline Colliery Synd.— 83, 134. National Bank of Commerce v. New Bedford — 499. National Bank of Dakota v. Taylor —470. National Conduit Mfg. Co. v. Conn. Pipe Mfg. Co.— 77, 126. National Exchange Co. v. Drew — 368, 451. National Leather Co. v. Roberts — 407, 414. National Motor Mail-Coaeh Co., Ltd., In re— 83, 152, 155. National Park Bank v. Nichols — 466. National Pressed Brick Co., In re — 443, 467. National Security Bank v. Cusbman —128. National Trust Co. v. Gleason — 549. National Union Bank of Md. v. Hol- lingsworth- 117, 119, 120. Naumberg v. See— 313, 316, 317, 356, 488. Neal V. Clark- 299. Nebraska Chicory Co. v. Lednicky — 131. Negley v. Hagerstown Mfg. Mtn. & Land Imp. Co. — 371, 442. Neher v. Hansen — 495. Nelles V. Hesselstine — 89. TABLE OP CASES. xlv (The references are to the pages.) Nelson v. Luling— S77, 416. Nester v. Gross — 135. Nevins v. Henderson — ^167. Newbery v. Garland — 363. Newberry Land Co. v. Newberry — 131, 134. New Brighton, etc., R. R. Co. v. Pittsburgh, etc., R. R. Co.— 137. New Brunswick & Canada Ry., etc., Co. V. Conybeare— 217, 422, 428, 437, 443, 462. New Brunswick & Canada Ry., etc., Co. V. Muggeridge— 214, 382, 384, 387, 388, 398, 420, 421, 422, 450, 460. New Jersey Stone Co. v. Vreeland — 397, 417, 441, 446, 453, 479. Newland Hotel Co. v. Wright— 408. Newport & Maysville R. R. Co. v. Hay— 155. New Sombrero Phosphate Co. v. Er- langer— 17, 20, 24, 190, 191, 193, 205, 208, 211, 213, 218, 219, 220, 223, 276, 277, 294, 295, 319, 335, 351, 352, 354, 355, 401, 406, 420, 427, 437, 537, 538, 546, 550. Newton v. Belcher — 560. Newton v. Blunt — 573. Newton v. Liddiard — 560. Newton v. Wooley — 62. Newton National Bank v. New- begin— 420, 477. N. Y. & N. H. R. R. Co. v. Ketchum —154, 155, 159. Nicholay's Case — 562. Nichols V. Buell-^02, 413, 416, 445. Nichols V. North Met Ry. & Can. Co.— 563. Nickerson v. English — 122, 408. Nickoll's Case— 122. Nicol's Case— 370, 411, 474, 478. Nlles V. Graham — 149. Nockells V. Crosby — 567, 574. Non-Electric Fibre Mfg. Co. v. Pea- body— 131. Norbury's Case— 144, 560, 562, 565. Norcross Butter & Cheese Mfg. Co. V. Summerour — 132. Norman v. Mitchell — 572. Norris v. Cottle— 560, 561. Norris v. Reynolds — 124. North American Loan & Trust Co. v. Colonial & U. S. Mtge. Co.— 114. North Anson Lumber Co. v. Smith —93, 97. North Australian Territory Co. — See Archer's Case. North Sydney Inv. & Tram. Co. v. Higglns — ^96. Northern Central Ry. Co. v. Wal- worth— 60. Northern Central Michigan R. R. Co. V. Eslow — 87. Northern Trust Co. v. Markell — 59. Northumberland Avenue Hotel Co., In re— 80, 82, 83, 112. Northup V. Altadena Min. & Inv. Synd.— 116. North- West Transportation Co. v. Beatty— 232. Northwestern Creamery Co. v. Lanning — 669. Norwich Lock Mfg. Co. v. Hocka- day— 571. Nott V. Clews— 233. Nugent V. Cincinnati, H. & I. S. L. R. R. Co.— 380, 383, 406. Nulton V. Clayton— 131. Nysewander v. Lowman — 495. 0. Oakes v. Cattaraugus Water Co. — xM TABLE OF CASES. (The references are to the pages.) 76, 81, 82, 89, 90, 91, 93, 98, 118, 120, 12T, 130, 140. Oakes v. Turquand— 217, 441, 450, 461, 466, 474. O'Brien v. Wheelock— 294. Ogilvie V. Currie — 446, 470, 474. Ogilvie V. Knox Ins. Co. — 473. Oil City Land & Imp. Co. v. Porter —217, 442, 461. Old Dominion Copper, eter, Co. v.. Blgelow-^, 5, 7, 17, 20, 28, 24, 29, 181, 189, 194, 200, 203, 208, 211, 213, 226, 228, 233, 234, 235, 236, 244, 245, 246, 247, 249, 257, 258, 259, 260, 277, 279, 284, 289, 290, 292, 293, 297, 298, 305, 306, 308, 309, 319, 326, 327, 333, 336, 349, 353, 354, 357, 359, 432, 481, 482, 486, 491, 523, 539, 550. Old Dominion Copper, etc., Co. v. Lewisohn— 21, 187, 201, 213, 228, 238, 245, 251, 255, 257, 258, 259, 261, 263, 266, 277, 335, 349, 359, 430, 536. Oldham v. Mt. Sterling Imp. Co. — 81, 82, 438, 442. Ollesheimer v. Thompson Mfg. Co. — 86, 123, 408. Olympla, Ltd., In re— 8, 20, 22, 23, 26, 27, 172, 175, 182, 200, 202, 203, 214, 218, 227, 247, 269, 305, 308, 320, 325, 349, 361, 486, 539, 550. Olympla Min. Co. v. Kerns — 130. Olympla Min. & MiU. Co. v. Kerns — 130, 136. Omaha Loan & Trust Co. v. Good- man — 84. Omnium Blec. Palaces Lim. v. Balnes— 25, 193, 222, 249, 297, 302, 320, 325. O'Neill V. Patterson— 149. Orgill's Case— 178. Ormerod's Case — 178, 179, 488. O'Rorke v. Geary— 140, 141, 146. Orr V. McLeay — 567. Ossippee Hosiery & Woolen Mfg. Co. V. Canney — 466. O'Sulllvan v. Clarkson— 331, 487. Ottinger v. Bennett — 427. Overend, Gurney & Co., In re — 441, 474. Overend & Gurney Co. v. Gibb — 335, 433, 434. Owensboro Wagon Co. v. Bliss — 583, 585. Pacaya Rubber & Produce Co., Ltd., In re— 383, 442. Paddock v. Fletcher— 219, 400, 402, 410, 436, 458. Paducah Land, Coal & Iron Co. v. MulhoUand— 311. Page V. Parker — 495. Page V. Wells — 495. Panhandle Packing Co. v. String- fellow— 86. Parbury's Case — 428, 442. Park V. Minneapolis, St. Paul, etc., Ry. Co.— 573. Park V. Modern Woodmen of Amer- ica — 74. Parker v. Boyle— 25, 172, 194, 202, 208, 211, 228. Parker v. Nickerson— 187, 189, 201, 305, 306, 482. Parker v. United States— 504. Parkin v. Fry— 551, 564. Parks V. Gates — 530, 537. Parrott v. Byers — 338, Parson v. Joseph — 283, 284, 342. Parsons v. Hayes — ^21, 233, 235, 236, 251, 254, 284. TABLE OF CASES. xlvii (The references are to the pages.) Parsons v. Johnson — 376, 495. Parsons v. McKinley— i72. Parsons v. Spooner — 142, 168. Patrick V. Reynolds — 562. Patterson v. Brown — 551, 564. Patterson v. Franklin— 365, 433. Patterson v. Hewitt — ^294. Patty V. Hillsboro Roller-Mill Co. —86. Paul & Beresford's Case— 188. Pawle's Case — 476. Paxton V. Bacon Mill. & Min. Co. — 76, 113, 116, 118, 119. Paxton Cattle Co. v. First Nat'l Bk. —98, 110. Payne v. New South Wales, etc., Co. —77. Peabody v. Flint— 297, 338, 354. Pearce v. Sutherland — 127. Pearsall v. Tenn. Central Ky. Co. — 76, 91, 588. Pearson's Case— 178, 310, 312, 313, 488. Pearson's Exrs' Case — 561, 564. Pearson & Son, Ltd. v. Dublin Cor- poration— 219, 271, 373. Peek V. Derry— 362, 370, 373, 420, 423, 457, 468, 497, 498, 499, 500. Peek V. Gurney— 284, 351, 352, 362, 363, 364, 366, 381, 386, 397, 437, 444, 463, 469, 470, 471, 473, 474, 475, 486. Peek V. Steinberg— 44, 74, 111, 125. Peel's Case— 466. Pelly, Ex parte — See In re Anglo- French Co-operative Society. Peninsula Ry. Co. v. Duncan — 131. Penn Match Co. v. Hapgood— 75, 84, 97, 133, 149. Pennell v. Lathrop — 82. Pennsylvania Knitting Mills v. Bibb Mfg. Co.— 118. Pennsylvania Tack Works v. Sowers —236. Penobscot R. R. Co. v. Dummer — 131. Penobscot R. R. Co. v. White — 410, 411. ^ Pentelow's Case — 476. People v. California Safe Dep. & Trust Co. — 477. People V. JBiQuitable Life Assur. Soc. —354. People's Ferry Co. v. Balch — ^131. People's Nat'l Bank v. Taylor — iSO, 451. Perin v. Megibben— 60. Perkins v. Merchants' & Farmers' Bank— 467, 471. Perkins v. Rouss — 582. Perrier, Ex parte — 489. Perrin v. Smith— 57, 64. Perry v. Hale— 573. Perry v. Little Rock & Ft. Smith Ry. Co.— 80, 101, 112. Persse's Case — See In re iEtna Life Ins. Co., Ltd. Peters v. Lohman — 379. Petre (Lord) v. Eastern Counties By. Co.— 103, l04. Petrie v. Guelph Lumber Co. — 874, 383, 898, 451, 467, 500, 537. Philadelphia & Reading Coal & Iron Co. V. Butler— 337. Philadelphia Creamery Supply Coi T. Davis & Rankin Bldg. & Mfg. Co.— 117. Philadelphia Medical Pub. Co. v. Wolfenden — 131. PhUes V. Hickies— 42, 62. PhiUips V. Homfray— 351, 352. Phoenix Warehousing Co. v. Badger —88, 408. Phosphate Sewage Co. v. Hartmont xlviil TABLE OF CASES. (The references are to the pages.) —9, 11, 12, 221, 293, 313, 322, 328, 330, 335, 351, 488, 547. Pietsch V. Krause— 282, 358, 537. Pietsch V. Milbrath— 28, 172, 181, 194, 203, 217, 247, 290, 302, 337, 354, 463. Pigott V. Graham — 460. Piscataqua Ferry Co. v. Jones — 479. Pitman v. Chicago Joplin L. & Z. Co.— 120. Pitt & Kellogg— 67. Pitts V. Steele Mercantile Co. — 4, 97, 101, 111. Pittsburg & Steubenville R. R. Co. V. Gazzam — 111. Pittsburg & Tennessee Copper Co. V. Quintrell— 75, 83, 102. Pittsburg Mining Co. v. Spooner — 7, 97, 189, 198, 205, 206, 207, 227, 230, 242, 247, 266, 280j 282, 305, 306, 307, 312, 326, 327, 336,, 361, 429, 439, 496. Plank's Tavern Co. v. Burkhard — 87. Planters & Merchants Ind. Packet Co. V. Webb— 87. Planters & Miners Bank v. Padgett —582. Plaquemines Tropical Fruit Co. v. Buck— 7, 17, 20, 24, 25, 27, 164, 171, 176, 187, 196, 198, 202, 204, 209, 219, 247, 266, 307, 310. PoUok V. Dodge Mfg. Co.— 367. Pollitz V. Gould— 342, 344. PoUitz V. Wabash R. B. Co.— 231, 344. Porch V. Agnew Co. — 162. Porter v. Blair — 64. Porter v. Lassen County Land & Cattle Co.— 205. Porter v. Sabin— 340, 352, 353. Possell V. Smith— 93, 111. Postage Stamp Automatic Delivery Co., In re— 179, 249, 257. Potts V. Lambie — 469. Poughkeepsie, etc., Co. v. GriflBn — 87. Powell V. Georgia F. & A. Ry. Co. — 158. Powers V. Knapp — 88. Pratt V. California Min. Co.— 294. Pratt V. Finkle— 140. Pratt V. Oshkosh Match Co.— 76, 81, 84, 91, 115. Preston, Ex parte— 163, 220. Preston v. Liverpool, Manchester, etc., Ry. Co.— 3, 103, 113. Preston v. Proprietors of the Liver- pool, Manchester, etc., Ry. Co. — 76, 103, 113, 120. Prewitt V. Trimble — 380. Prichard's Case — 566. Priest V. White— 370, 429. Primeau v. Granfield — 528. Proskey v. Manning — 47. Pulsford V. Richards— 306, 327, 383, 384, 402, 442, 443. Q. Quality Shoe Shop, In re — 93. Quartz Glass & Mfg. Co. v. Joyce — 122. Quee Drug Co. v. Plant- 89. Queen v. Aspinall— 366, 503. Queen v. Barber — 501. Queen City Furniture Co. v. Craw- ford— 81, 82, 140, 141, 146. Qulnn V. Am. Bankers Assur. Co. — 120. R. Racine Seeder Co. v. Joliet, etc., Co. —125. TABLE OF CASES. xlix (The references are to the pages.) Rader v. Bristol Land Co. — i52. Raegener v. Broekway — 86, 129, 133. Railroad Gazette v. Wherry — 143, 537, 587. Raisbeck v. Oesterricher — 586. Rambaut v. Tevis — 143, 565. Ramsey v. Thompson Mfg. Co. — 406, 474, 477. Ramskill v. Edwards — 298. Rankin v. South West Brewery & Ice Co.— 342. Ransom v. BrlnkerhofC — 126. Rapid Hook & Eye Co. v. De Ruy- ter— 93, 122. Rathbone v. Tioga Nav. Co. — 138. Ran V. Seidenberg — 60. Ran V. Union Paper Mill Co. — 139. Rawlins v. Wickham — 470. Reading Finance & Securities Co. v. Harley — 41. Red River Valley Land & Inv. Co. V. Smith— 128. Red Wing Hotel Co. v. Friedrich— 85, 131. Redding v. Godwin — 496, 499. Redding v. Wright — 459. Redgrave v. Hurd— 382, 460. Reed v. Benzine-ated Soap Co. — 472. Reed v. Gold— 371. Reed Bros v. First Nat'l Bank of Weeping Water — 119. Reese River Silver Mining Co., In re — See Smith's Case. Reese River Silver Mining Co. v. Smith— 382, 398, 442, 475, 476. Reeve v. Dennett — 418, 419. Regina v. Brinsmead — 502. Regina v. EsdaUe — 502. Regina v. Lupton — 502. Rehbeln v. Rahr— 87, 123, 125, 480. Reichwald v. Commercial Hotel Co. —89, 96. Reid V. London & North Stafford- shire Fire Ins. Co. — 467. Reinhard v. Virginia Lead Mining Co.— 138. Rennie v. Clarke — 562. Reusens v. Gerard— 364, 463. Rex V. Berengen — 503. Rex V. Lawson — 504. Rex V. Wright— 604. Reyburn v. Bennett — 567. Reynell v. Lewis— 3, 143, 537, 561, 562. Reynolds v. Franklin — 496. Rhodesian Properties, Ltd., In re — 80. Rice's Appeal— 189, 203, 208, 317. Richard Brown & Son Contracting Co. V. Bambrick Bros. Const. Co. —82, 96, 130. Richard Hanlon Millinery Co. v. Mississippi Valley Trust Co. — 13, 176, 180, 186, 279, 314. Richardson v. Graham — 76, 82, 83, 176, 194, 195, 402. Richelieu Hotel Co. v. Internat'l Military Enc. Co. — 86, 131. Richlands Oil Co. v. Morriss — 6, 7, 9, 160, 161, 163, 188, 222, 224, 225, 247, 310. Richmond's Case & Painter's Case — 411. Rideout v. Nat'l Homestead Ass'n —111. Riley v. Bell— 377, 378, 459. Riley v. Packington — 168. Ripley v. Paper Bottle Co. — 467. Ritchie v. McMuUen — 158. Rives V. Bartlett— 362, 369, 381. Rives V. Montgomery Plank Road Co.— 479. TABLE OF OASES. (Tlie references are to the pages.) Bobbins v. Bangor Ey. & El. Co. — 97, 101. Roberts, Ex parte— 560, 561, 562. Roberts Mfg. Co. v. Schlick— 143, 536, 581, 586, 587. Roberts Mfg. Co. v. Wright — 143, 537. Robinson v. Pittsburgh & C. R. R. Co.— 123. Robinson v. Smith — 353. Robinson v. West Virginia Loan Co. —338, 341. Rochester Dry Goods Co. v. Fahy — «9. Rochester H. & L. R. R. Co., Matter of— 75, 133. Rockefeller v. Merritt — 496. Rockford, Rock Island & St. L. R. R. Co. V. Sage— 152, 155, 159, 160. Rockford, Rock Island & St. L. R. R. Co. V. Schunick— 124. Rockport Coal Co. v. Carter — 127. Rogers v. Garland — 70. Rogers v. Great Southern Accident & Fidelity Co.— 175. Rogers v. N. Y. & Texas Land Co. —75, 98. Rogers v. Penobscot Mining Co. — 34, 148. Roosevelt v. Hamblin — 532. Ropes V. Nilan — 127. Rose V. Foord — 567. Rosenheim Shoe Co. v. Home — ^140, 349. Ross V. Estates Investment Co.— 8, 398, 405, 407, 420, 421, 442, 470, 572. Ross V. Sayler — 160. notch's Wharf Co. v. Judd— 138. Roth Tool Co. v. Champ Spring Co. —See B. Roth Tool Co. v. Champ Spring Co. Rotherham Alum & Chemical Co. — 80, 113, 155, 156, 165. Boussell V. Burnham — 391. Routh V. Webster — 445. Rowe V. White — 557. Royal Ins. Co. v. Kline Bros. & Co. —80, 134. Royal Victoria Palace Theatre Syn- dicate, In re — See Moore & De La Torre's Case. Ruby Chief Min. & Mill. Co. v. Gur- ley— 112. Rudd V. Magee— 92, 146, 148. Rudiger v. Coleman — 57. Ruettell V. Greenwich Ins. Co. — 139. Ruggles V. Brock — 474. Runkle v. Burrage — 384. Russell V. Broadus Cotton Mills — 124. Russell V. Henry C. Patterson Co. ' —232. Russell V. Rock Run Fuel Gas Co. —29. -Russian Iron Works Co. — See Stew- art's Case, Taite's Case, White- house's Case and Jackson's Case. Rust-Owen Lumber Co. v. Wellman —582. Rutherford v. Hill— 586, 587. Ruttle V. What Cheer Coal Min. Co. —76. Rutz V. Esler & R. Mfg. Co.— 411, 442. Ryan V. Martin — 61. Ryan v. McLane — 60. Bye, Ex parte— 571. Byland v. HoUinger — ^141. s. Safety Deposit Life Ins. Co. v. Smith— 77. TABLE OF CASES. li (The references are to the pages.) Saffold, garnishee, v. Barnes — 475. SafCord v. Barber— 60. Sagadohac Land Co. v. Ewing — 294. Sage V. Culver— 201. St. Johns Mfg. Co. v. Munger — 442, 469. St. Louis, Ft. Smith & W. R. R. Co. V. Tiernan— 8, 14, 205, 217, 223, 233, 284, 266, 313, 488. St. Louis & Utah S. M. Co. v. Jack- son— 177, 319. Sale Hotel & Botanical Gardens, Ltd., Be— S, 155, 160, 162, 163, 172, 177, 179, 218, 290. Salem Mill Dam Corporation v. Ropes— 151, 384, 410, 566.' Salomon v. Salomon— 236, 247. Salomons v. British Gold Fields of West Africa, Ltd.— 236, 284. San Antonio Irrigation Co. v. Deutsehmann — 39. Sandals v. United States — 504. Sanders v. Barnaby — 88. Sanders v. Herndon — 562. Sandford v. Handy— 368, 399. San Diego Gas Co. v. Frame — 137. San Diego Land & Town Co. v. Jas- per— 499. Sandusky Coal Co. v. Walker — 144, 566. Sandy River R. R. v. Stubbs — ^135. San Joaquin Land & Water Co. v. Beecher— 86, 131. San Joaquin Land & Water Co. v. West— 135. Santaquin Mining Co. v. High Roller Mining Co.— 138. Santa Rosa City B. Co. v. Central St. Ry. Co.— 139. Savage v. Bartlett — 477. Savin v. Hoylake Ry. Co.— 152, 158. Sayles v. Central National Bk. of Rome— 344. Sayles v. White— 344. Sayward v. Gardner — 137. Scadden Flat Gold Mining Co. v. Scadden— 130. Schagun v. Scott Mfg. Co.— 377, 378. Schanck v. Morris-^55, 460, 469. Schantz v. Oakman— 530, 537, 580. Schlesinger v. Fisk— 233, 238, 357. Schloss V. Montgomery Trade Co. — 87. Schmidt v. Nelke Art Lithograph Co.— 149. Schmidt v. Pritchard— 59, 60. Schneider v. Miller — 69. Schneider v. Sellers — ^139. Scholey v. Central Ry. Co. of Vene- zuela — 471. Scholfield Gear & Pulley Co. v. Scholfield— 370, 377, 378, 379, 434, 506. Schreyer v. Turner Flouring Co. — 82, 89, 90, 93, 113, 120. Scott V. Brown, Doering, McNab & Co.— 503. Scott V. Deweese — 477. < Scott V. Dixon— 363, 364. Scott V. Farmers, etc., Nat'l Bank — 161. Scott V. Lord Ebury— 79, 82, 142, 146, 169. Scott V. Snyder Dynamite Projec- tile Co.— 420. Scott V. Williams — 478. Scottish N. E. Ry. Co. v. Stewart— 106. Scottish Pacific Coast Min. Co., Ltd. v. Palkner, BeU & Co.— §, 13, 177, 205, 206. Ui TABLE OP CASES. (The references are to the pages.) Scottish Petroleum Co., In re (An- derson's Case) — 405. Scottish Petroleum Co., In re (Wal- lace's Case)— 404, 405, 474, 475, 476. Scovill V. Thayer— 283, 464. Scranton Luna Park Ass'n v. Os- thaus— 124, 125, 409, 410, 413. Seacoast E. R. Co. v. Wood— 75, 135. Seale v. Baker— 377. Seaman v. Law — 400. Second Nafl Bank v. Ourtiss— 378. Second Nat'l Bank v. Greenville Screw Point Steel Fence Post Co. -^, 10, 17, 188, 198, 222, 307, 319, 327, 328, 330, 350, 353, 355, 537. Security Co. v. Bennington Battle Monument Ass'n — ^152, 155. Sedalia, etc., Ry. Co. v. Wllkerson —87. Seddon v. North Eastern Salt Co., Ltd.— 383. See V. Heppenheimer — 6, 18, 172, 181, 191, 202, 203, 209, 224, 313, 316, 317, 356, 488. Seeberger v. McCormiek — 141, 585, 586. Seeger Refrigerator Co. v. Ameri- can Car & Foundry Co. — ^126. SeifCert v. Irving — 581. Selkirk v. Windsor E. & L. S. R. R. W. Co.— 78, 141. Selma M. & M. R. R. Co. v. Ander- son— 369, 383, 397, 401, 417, 461. Selover v. Isle Harbor Land Co. — 10, 39, 59, 97, 208. Serrano v. Miller & Teasdale Comm. Co.— 379. Sessions v. Elwell — 58, 529. Severson v. Kock — 459. Seymour v. McKinstry — 317. Seymour v. Spring Forest Ceme- tery Ass'n— 98, 233, 234, 235, 236, 252. Sharpe & James' Case — 562. Shattuck V. Robbms— 444, 480. Shaw's Claim— 563. Shaw V. Holland— 312, 487, 488. Shaw V. Straight— 282. Shawnee Commercial & Savings Bank Co. v. Miller— 7, 17, 18, 26, 173, 204, 361, 399, 400, 401, 460. Sheffield's Case— 383, 466, 480. Shelby County Ry. Co. v. Crow— 86. Shelton v. Healy— 397. Shepheard v. Bray— 351, 393, 550. Shepheard v. Broome — 389, 390, 394, 398, 497, 499, 500. Sherman v. American Stove Co.— 441, 452, 453. Sherman v. Herr — 61. Sherwood v. Wallin — 59. Shlbley v. Angle— 143. Shick V. Citizens Enterprise Co. — 122, 442. Shields v. Clifton Hill Land Co.— 145. Ship's Case — 466, 474, 571. Ship V. Crosskill— 362, 384, 419, 446, 571, 575. Short V. Stevenson— 208, 401, 448. Shreveport Nat'l Bank v. Maples — 75. Shrewsbury v. Blount — 421. Shrewsbury v. North Staffordshire Ry. Co.— See Earl of Shrewsbury V. North Staffordshire Ry. Co. Shufeldt V. Smith— 116, 119. Shutts V. United Box, Board & Paper Co.— 356, 521, 525. Sichell, Ex parte — 562. Sigafus V. Porter— 435, 486, 496. TABLE OF CASES. lUi (The references are to the pages.) Silvain v. Benson— 123. Sim V. Edenborn — 445. Simmons Creek Coal Co. v. Doran —126. Simon v. Weaver— 176, 337, 339, 358. Simons v. Vulcan Oil & Min. Co. — 22, 181, 198, 206, 207, 224, 225, 227, 230, 306, 307, 336, 361, 362, 399, 425, 538, 540. Simpson v. Lord Howden — 106. Sims V. Eiland— 376, 378. Singer Mfg. Co. v. Peck— 586. Skegness & St. Leonard's Tramways Co., In re— 165, 166. Skelton's Case— 471, 476. Slater Trust Co. v. Gardiner — 425. Slattery v. Sehwannecke — 128. Slattery v. St. Louis & N. O. Transp. Co.— 119, 353. Sleigh V. Glasgow & Transvaal Op- tions, Ltd.— 391, 442, 443, 466. Slide & Spur Gold Mines v. Sey- mour — ^70. Slobodinsky, Re— 127. Slocum V. Head— 583. Smith's Case— 382, 398, 441, 471, 475. Smith V. Bolles^96. Smith V. Bowker Torrey Co. — 116. Smith V. Chadwick— 218, 268, 862, 369, 371, 372, 373, 374, 381, 386, 397, 398, 401, 404, 405, 420, 421, 423, 424, 428, 460, 461. Smith V. Clench-^20. Smith V. DufCy— 499, 500. Smith V. First Nat'l Bk.— 138. Smith V. Kellogg— 132. Smith V. Land & House Property Corp.— 372. Smith V. New Hartford Water Co. —155. Smith V. Ogilvie — ^201. Smith V. Packard Co.— 378. Smith V. Parker— 81, 82, 93, 97, 98, 130, 132. Smith V. Reese River Co.— 382, 458. Smith V. So. Bldg. & Loan Ass'n — 478, 479. Smith V. Tallassee, etc., Plank-Road Co.— 479. Smith V. Texas &.N. O. R. Co.— 138. Snider v. McAtee — 460. Snider's Sons Co. v. Troy— 583. Snow V. Thompson — 130. Snyder v. Partridge — 128. Snyder v. Stemmons — 376. Society for Illustration of Practical Knowledge v. Abbott— 2, 233, 335. Solomon v. Bates — 380. Sondheimer v. Graeser — 126. Sortore v. Scott— 352. South Durham Iron Co. v. Shaw — 223. South of England Natural Gas & Petroleum Co., Ltd., In re — 390, 391, 429. South Joplin Land Co. v. Case — 8, 9, 10, 20, 23, 25, 26, 189, 206, 506. South Missouri Pine Lumber Co. v. Crommer— 6, 8, 9, 10, 350, 506, 512. Southern Hardwood Lumber Co. v. Scott— 155. Southern Ins. Co. v. Milligan — 413, 444. Southern States F. & C. Ins. Co. v. Cromartie — ^67. Southern States F. & C. Ins. Co. v. DeLong — 443, 472. Southern States F. & C. Ins. Co. v. Wihner Stoves Co. — 382. Uv TABLE OF CASES. (The references are to the pages.) Southern Tobacco Co. t. Armstrong —478. Spackman v. Lattimore — 403. Spangler Brewing Co. v. McHenry —314. Spartali, Ex parte — 466. Spaulding v. North Milwaukee Town Site Co.— 171, 200, 204, 208, 220, 224, 283, 289, 303, 493, 535, 537, 539. Spead V. Tomllnson — 378. Spier V. Hyde— 52, 63. SpIUer V. Paris Skating Rink Co. —81, 98, 102. Spotten V. De Freest-^38, 495. Spottlswoode's Case— 561, 562, 564. Spring Garden Bank v. Hulings Lumber Co.— 138. Spring Valley Water Works v. San Francisco — 137. Sproat V. Porter— 168, 566. Squiers v. Thompson — 354, 437. Stalnsby v. Frazer Metallic Life Boat Co.— 81, 113. Standard Printing Co. v. Democrat Pub. Co.— 114. Stanley v. Chester & Birkenhead Ey. Co.— 103, 104, 113. Stanley v. Luse— 219, 231, 232, 297, 319, 320. Stanton v. N. T. & E. R. R. Co.— 67, 80, 82, 89. Star Corn Millers' Soc. v. Moore — 98, 130. Starrett v. Rockland, etc., Ins. Co. — S5. State V. Jefferson Turnpike Co. — 407. State ex rel. Hadley v. People's U. g. Bank— 75, 81. State ex rel. Moore v. Manhattan Verde Co.— 163. State ex rel. Morton v. Timken — 33. State Bank of Indiana v. Cook — 409, 412, 413, 449. State Bank of Indiana v. Gates — 443, 444. State Bank of Indiana v. Mentzer — 451. State Bank of Iowa Falls v. Hawk- eye Gold Dredging Co. — 80, 97. State Fire Ins. Co., In re — 78. Steely v. Texas Imp. Co.— 86. Stelnmeyer v. Steinmeyer — ^129. Stephany v. Marsden — 292. Stern v. McKee — 571. Stevens v. Ambler — 572, 573. Stevens v. Borough of Merchant- vllle— 137. Stevens v. Episcopal Church His- tory Co.— 163. Stevens v. Hoare— 375, 390, 392, 393, 394, 497. Stevenson, Ex parte — 475. Stevenson v. Dubuque L. & L. Min. Co.— 74. Stewart's Case — 465, 466, 468, 571. Stewart v. Austin — 446, 571, 575. Stewart v. Lehigh Valley R. R. Co. —205. Stewart v. Norman — 122. Stewart v. Rutherford — 441. Stewart v. St. L. Ft. S. & W. R. Co.— 23, 189, 205, 217, 228, 234, 266. Stickney v. Buckel— 152, 161. Stickney v. Jordan — 496. StUwell V. Spokane Alarm Co. — 166. Stocker v. Wedderburn — 57. Stocks, Ex parte— 560, 561, 562. Stockton V. Anderson — 349. Stone V. City & County Bank — 474. Stone V. Fox Machine Co. — 114. TABLE OF CASES. Iv (The references are to the pages.) Stone V. Great Western Oil Co. — 131. Stoney Creek Woolen Co. v. Smal- ley— 186, 349, 361, 399, 400, 511. Storey, Ex parte — See Re The Len- nox Pub. Co. — 406. Stout V. Zulick— 583, 584. Stowe V. Flagg— 32, 77, 580. Strasburg R. B. Co. v. Echternacht —88, 132. Stratford Fuel, Ice C. & C. Co. v. Mooney— 9, 203, 206, 305, 351, 539. Stratton's Independence, Ltd. v. Dines— 233, 234, 235, 238, 251, 372, 486, 496. Stratton Massachusetts Gold Mines Co. V. Stratton— 233. Strause v. Richmond Woodworking Co.— 142, 146. Streator Ind. Tel. Co. v. Continental Tel. Const. Co.— 113. Strickland v. National Salt Co.— 33. Stroud V. Lawson — 358. Studley, Ex parte— 561. Stufflebeam v. De Lashmutt — 477. Stupart V. Arrowsmith — 575, 577. Sugg & Co., Ltd. V. Hill— 146. Sullivan v. Detroit Y. & A. A. Ry. Co.— 75, 127, 168. Sullivan v. Mitcalfe— 391, 392, 394, 395. Summerlin v. Fronteriza SU. Min. & MllL Co.— 39. Sumner-May Hardware Co. v. Scally— 74. Sumter Tobacco Warehouse Co. v. Phoenix Assurance Co. — 136. Sun Dance Gold Mining Co. v. Frost —528. Sunlight Incandescent Lamp Co., In re— 184. Swan V. Mathre — 443, Swarthmore Lumber Co. v. Parks — 130, 434. Swartout v. Michigan Air Line B. R. Co.— 87. Swift V. Smith- 293. Swing V. Empire Lumber Co. — 119. Swisshelm v. Swissvale Laundry Co. —98, 102. Sylvester v. McCuaig — 580. Symmes v. Union Trust Co. — 555. Syracuse, Chenango & N. Y. R. B. Co., In re— 284. Syracuse, Phoenix & O. B. E. Co. V. Gere— 123, 134. T. Taite's Case — 470. Talmadge v. Sanitary Security Co. —382, 406, 441. Tanner's Case — 561. Tanner v. Nichols — 480. Tanner v. Sinaloa Land & Fruit Co. —76, 78, 89, 155, 156, 157, 158, 538. Tascher v. Timerman — 41. Taussig V. St. Louis & Kirkwood Ry. Co.— 165. Taylor v. Chichester & Midhurst Ry. Co.— 103. Taylor v. Crowland Gas & Coke Co. —78. Taylor v. Holmes — 341. Teachout v. Van Hoesen— 399, 400, 436, 458. Teagarden v. Godley Lumber Co. — 129. Teeumseh National Bank v. Saun- ders— 119. ■ Teeple v. Hawkeye Gold Dredging Co.— 90, 111, 166. Tegarden Bros. v. Big Star Zinc Ivl TABLE OF CASES. (The references are to the pages.) Co.— 17, 19, 20, 22, 171, 172, 177, 224, 302, 317, 350, 511. Telegraph, The, v. Loetscher — i, 6, 8, 18, 180, 290, 328, 330. Tennent v. City of Glasgow Bank — 474. Tennessee Automatic Lighting Co. V. Massey— 583, 584, 586. Terrell's Case— 166. Terrell v. Hutton— 166. Terwilliger v. Great Western Tele- graph Co. — 40. Texas Loan Agency v. Hunter — 126. Texas West. Ey. Co. v. Gentry— 89. Thames Nav. Co. v. Reid— 8, 10, 12, 13, 140, 142, 143, 174, 527. Theys, Ex parte— 179, 310, 312. Thigpen v. Miss. Cent. R. R. Co. — 480. Third Ward Bldg. Ass'n v. Lotze— 157, 158, 165. Thistle V. Jones — 83. Thompson v. Hardy — 355, 450. Thomson v. Feeley — ^140, 142. Thomson v. Lord Clanmorris — 375. Thorn v. Volunteer St. Gregory Hospital— 119, 126. Thorpe v. Pennock Mercantile Co. — 116, 119. Thrasher v. Pike County R. R. — 132. Thurber v. Crump — 63. Tiffany v. Hess— 352. Tift V. Quaker City National Bank —78, 81, 95, 96, 109, 111, 120, 161. Tllleard, In re— 166. Tilleny v. Wolverton — 220. Tilson V. Warwick Gas Light Co. — 79, 156. Tindle v. Birkett— 299. Tinker v. Kier — 419, 421, 427. Tinnevelly Sugar Refining Co., Ltd. V. Mirrlees, etc., Co., Ltd.— 133. Titus V. Catawissa R. R. — 89, 101. Tobias v. Wierck— 582. Todd V. Millen — 403. Toledo & Ind. Traction Co. v. Toledo & Chicago Interurban St. Ry. Co. —137. Tompkins v. Sperry, Jones & Co. — 39, 233, 234, 235, 237, 242, 252, 335, 336, 343, 430, 432, 451, 523. Tonica & P. R. R. Co. v. McNeely— 131. Tooker v. Nat'l Sugar Ref. Co.— 33, 191, 205, 218, 228, 292, 307, 309, 311, 313, 465. Torrey v. Toledo Portland Cement Co.— 20, 185, 219, 273, 388, 455. Touche V. Metropolitan Ry. Ware- housing Co.— 76, 80, 98, 142, 155, 156. Townsend v. Felthousen — 398. Traill V. Baring-^19. Travis v. Travis— 13, 463, 514, 528. Treasurer v. Commercial Mining Co. —59. Trenton Passenger Ry. Co. v. Wil- son— 39. Trimble v. American Sugar Refin- ing Co.— 284. Trimble v. Reid— 376, 380, 382. Troy & Boston R. R. Co. v. Tibbltts —87. Trustee of Gonville v. Patent Cara- mel Co., Ltd.— 118. Trustees of Vincennes University v. Indiana — 137. Tryber v. Girard Creamery Co. — 97, 112, 116. Tuccillo V. Pittelli— 581, 585. Turley v. Thomas— 59, 60, 61. TA.BLE OF CASES. Ivii (The references are to the pages.) Turner v. Fidelity Loan Concern — 89. Turner v. Grangers' L. & H. Ins. Co.^77, 478. Turner v. Markham— 233, 235, 253, 264. Turnpike Road Co. v. MeConaby — See Centre & K. Turnpike Road Co. V. MeConaby. Tuttle V. George H. Tuttle Co.— 79, 95, 101. Twin Creek, etc., Turnpike Road Co. V. Lancaster— 88, 132. Twin Lick Oil Co. v. Marbury — 293, 294. Twycross v. Grant — 3, 4, 6, 7, 18, 23, 26, 29, 183, 203, 223, 390, 391, 392, 410, 441, 456, 457, 491, 497, 499, 501. Tygert-AUen Fertilizer Co. v. J. E. Tygert Co.— 109, 113. Tyler v. Savage — 453. Tyrrell v. Bank of London — 3, 11, 136, 179, 196, 305, 325, 329, 488, 516, 517. u. Union Bank v. Campbell— 128. Union Nat'l Bank v. Hunt— 460. Union Pacific Ry. Co. v. Barnes — 377. United States Steel Corporation v. Hodge— 205, 220, 346. United States Vinegar Co. v. Foeh- renbach — 124. United States Vinegar Co. v. Schle- gel— 124. United States Wood Preserving Co. V. Lawrence — 586. Upshur V. Briscoe — ^299. Upton V. Corser — 581, 585, 587. Upton V. Engelhart— 441, 459, 465, 472, 477, 478. Upton V. Hansborough — 473. Upton V. Tribilcock-^65, 473, 477, 478. Urner v. SoUenberger— 211, 231, 319, 346, 400, 472, 475. . Utah Black Marble Co. v. American Marble & Onyx Co.— 118, 126. Utah Optical Co. v. Keith— 76. V. Vail V. Reynolds— 355, 450, 495. Valk V. Crandall— 138. Vane V. Cobbold — 407. Vanneman v. Young — 584. Van Noy v. Central Union Fire Ins. Co.— 75, 82, 98, 441. Van Schaick v. Third Ave. R. R. Co.— 92, 98, 101, 115. Van Slochem v. Villard— 398, 399, 400, 415, 417. Van Vlieden v. Welles— 146. Va'rnum v. Thruston — 48. Vauxhall Bridge Co. v. Spencer — 106. Vermont Central R. R. Co. v. Clayes —134.' Vickers, Ex parte — 383. Vlncennes University v. Indiana — See Trustees of Vlncennes Univer- sity V. Indiana. Vincent v. Corbett — 379. Virginia Land Co. v. Hanpt — ^218, 388, 401, 447, 450, 470, 471, 472. Vogeler v. Punch— 310, 338. VoUans v. Fletcher- 567. Volney v. Nixon— 33, 464. Vreeland v. N. J. Stone Co. — 397, 417, 441, 446, 450, 453, 479. Iviii TABLE OF CASES. (The references are to the pages.) w. Waddy Blue Grass Cr. Co. v. Davis & Rankin Bldg. & Mfg. Co.— 126. Wainwright's Case— 382, 404, 405, 407. Wait V. Kern River Min. Mill. & Dev. Co.— 59, 63. Wakeman v. Dalley— 369, 373, 378, 428. Waldo V. Chicago, St. Paul & Fond du Lac B. B. Co. — 441. Walker's Case — 476. Walker v. Anglo-American Mort- gage & Trust Co.— 12, 368, 388, 402, 404, 410, 441. Walker v. Mobile & Ohio R. R. Co. —384, 397, 417. Walker v. Pike Co. Land Oo.-^171, 307. Walker v. Russell— 397, 462, 500. Wall V. Mines— 136. Wall V. Niagara Min. & Sm. Co. — 76, 79, 84, 89, 90, 93, 98. Wallace's Case — See In re Scottish Petroleum Co., Ltd. Wallace v. Bacon — 477. Wallace v. Long Island R. B. Co. — 346. I Walstab, Ex parte — 565. Walstab v. Spottiswoode— 567, 568, 570, 571, 573, 574. Ward V. Brigham — 586. Ward V. Lord Londesborough — 569. Ward V. Smith— 284, 358. Warfield v. Clark— 376. Waring & Gillow, Ltd. v. Thompson —65. Warner v. Benjamin — 415, 417, 432, 460, 462, 496, 499. Warner v. Hall— 128. Warner v. Wood — 62. Warner, etc., Engineering Co., Ltd. T. Kilburn— 383, 572. Warren v. Para Rubber Shoe Co. — 351, 354. Warren-Ehret Co. v. Franklinville Ice Mfg. Co.— 196. Washington & Idaho R. R. Co. v. Coeur D'Alene By. & Nav. Co.— 137. Wasser v. Western Land Securities Co.— 82. Waterloo Life, etc., Assurance Co., The, Re— 223. Waterman's Appeal — 116. Waters v. Horace Waters & Co.— 40. Water Valley Mfg. Co. v. Seaman — 479. Watkins v. Delahunty — 538. Watkins v. Mills— 21, 233, 254, 255, 265, 266. Watson, Ex parte— 120. Watson V. Bayliss — 64, 66. Watson V. Crandall— 366. Watson V. Donald — 567, 570. Watson V. Earl of Charlemont— 445, 573. Watson V. Gugino— 35, 132. Watson V. Jones— 376, 380. Watts V. Bucknall— 390, 391, 393. Watts V. Salter— 568. Weatherbe v. Whitney — 358, 497. Weatherford M. W. & N. W. By. Co. V. Granger— 75, 76, 79, 82, 84, 91, 98, 107, 127, 140, 141, 152, 155, 156, 166. Weathersby v. Texas & Ohio Lum- ber Co.— 75, 79, 90, 111. Weaver v. Barden — 317. Webb V. Direct London & Ports- mouth Ry. Co. — 103. Webb V. Rockefeller— 365. TABLE OP CASES. lix (The references are to the pages.) Weber v. Nichols— 191, 341. Webster's Case-466, 571. Webster v. Webster Refining Co. of Okmulgee— 33. Wechselberg v. Flour City National Bank— 585, 586. Weeks V. Currier — 378. Weems v. Georgia Midland & Gulf R. B. Co.— 369, 384, 418. Weir V. Harnett — 369. Weir V. Bell— 369. Weir Furnace Co. v. Bodwell — 581. Weisiger v. Richmond Ice Machine Co.— 460, 473, 478. Weiss V. Arnold Print Works — 74. Wells V. Cook— 367. Wells V. Fay & Egan Co.— 140, 141, 147. Wenstrom Consol. Dynamo & Motor Co. V. Purnell— 384, 404, 413. Werderman v. Soci6t6 G6n6ral6 D'Electricite— 117. Wert V. Crawfordsville, etc., Turn- pike Co.— 480. West, Ex parte — 468. West V. Camden— 37, 38. West V. Huiskamp — 39. West End Real Estate Co. v. Clai- borne— 217, 401, 410, 450, 460, 462, 465, 466, 467, 469, 470. West End Real Estate Co. v. Nash —217, 401, 447, 450, 465, 467, 470, 571. Western Bank of Scotland v. Addle —369, 370, 374, 380, 441, 448. Western Development Co. v. Emery —130. Western Investment Co. v. Davis — 145, 583, 584. Western Screw & Manufg Co. v. Cousley— 77, 96. Western States Life Ins. Co. v. Lockwood — ^160. Westmoreland Green & Blue Slate Co., In re — See Bland's Case. Weston's Case — 179, 488. West Point Foundry Ass'n v. Brown —587. West Point Tel. & Tel. Co. v. Rose —158. Whaley Bridge Calico Printing Co. V. Green-^, 6, 7, 171, 178, 328, 514. Wheeler v. Fradd- 142, 168. Wheeler v. Thayer — 87. Wheeling Creek Gas, Coal & Coke Co. V. Elder — See Gas Co. v. Elder. Whetstone v. Crane Bros. Manuf. Co.— 77, 140. White V. American Nat. Life Ins. Co.— 465, 466, 469. White V. Hayman— 391. White V. Kahn— 78, 87, 123. White V. Robinson — 445. White V. Westport Cotton Mfg. Co. —90. White V. Wood— 53. Whitehouse's Case — 465. Whiteley's Case — 475. White Mountains R. R. Co. v. East- man— 123, 408. White Oak Grove Benev. Soc. v. Murray— 138. Whiting V. Price — 460, 495, 499. Whiting's Adm. v. Crandall — 366. Whiting & Sons Co. v. Barton— 136. Whitney v. Allaire — 469, 495. Whitney v. Fairbanks— 264, 338, 341, 358. Whitney v. Wyman — ^97, 145. Whitten v. Jenkins — 128. Whittlesey v. Frantz — 410, 411. Ix TABLE OF CASES. (The references are to the pages.) WMtwell V. Warner — 582. Wiano Land & Improvement Co. v. Webster— 198, 307. Wiegand v. Albert Lewis Lumber & Mfg. Co.— 187, 210, 317. Wight V. Shelby R. R. Co.— 123, 461, 479. Wilbur V. N. Y. Elec. Const. Co.— 113, 120. Wilde V. Gibson— 383. Wiley V. Borough of Towanda — 132, 141. Wilkes V. Knight — 478. Wilkins v. Davies — 537. Wilkins v. Roebuck — 89. Wilkinson's Case — 466, 571. Willard v. Key— 376, 377, 378. Willard v. Wood— 294. Willey V. Parratt — 568. William Allen & Co. v. Somerset Hotel Co.— 91, 96, 97. William Cameron & Co. v. True- heart— 138. Williams, Ex parte— 163, 209, 217, 221. Williams v. Citizen's Enterprise Co. —87. Williams v. Colby— 116. Williams v. Evans — 33. Williams v. Hewitt— 584, 585. Williams v. McFadden — 495. Williams v. Montgomery — 40, 62. Williams v. Page— 575, 576, 577. Williams v. Pigatt— 562. Williams v. St. George's Harbour Co.— 94. Williams v. Salmond— 566, 575, 576, 577. Williamson v. Krohn— 33, 58, 59, 62, 282, 312, 315, 338, 346, 438, 464, 470, 527. WUlis V. Vallette— 128. Willock V. Dilworth- 12, 174. Wills V. Nehalem Coal Co. — 17, 21, 172, 173, 181, 186, 188, 189, 191, 200, 202, 20.6, 211, 213, 222, 223, 247, 285, 292, 293, 294, 297, 305, 307, 309, 310, 311, 312, 313, 327, 329, 336, 337, 338, 339, 342, 343, 353, 388, 409, 428, 429, 430, 439, 488. Wilson V. Curzon — 551, 564. Wilson V. Hotchkiss— 368, 369, 402, 407, 537. Wilson V. Hundley— 409, 437, 450, 465, 468, 469. Wilson V. Meyer — 414, 444. Wilson V. Stanhope — 575. Wilson V. Trenton, etc., R. R. Co. — 39. Wilson V. United States— 504. Wilson V. Welch— 337. Wilson Coal Co. v. United States— 126. Wimbledon Olympia, Ltd., In re — 391. Windram v. French— 417. Windsor Hotel Co. v. Schenck — 87. Wineburgh v. United States Steam, etc., Co. — 351. Wingo v. First Nat'l Bank of Pon- totoc — 467. Winsor v. Bailey— 342, 358. Winston v. Brooks — 132. Winters v. Hub Mining Co. — 74. Wiser v. Lawler— 9, 362, 388, 419, 420, 506, 518. Witmer v. Schlatter— 146. Wontner v. Shairp — 407, 467. Wood V. Argyll— 143, 560, 562. Wood V. Whelen — 94. Woodbury Heights Land Ca v. Londenslager— 7, 19, 24, 25, 181, TABLE OF CASES. Ixi (The references are to the pages.) 187, 193, 194, 202, 219, 221, 224, 252, 399, 400, 641, 543. Wood Harvester Co. v. Jefferson — 122, 123, 442. Woods Motor Vehicle Co. v. Brady —131, 571. Woodstock Iron Co. v. Richmond & D. Extension Co. — 121. Woodward v. San Antonio Traction Co.— 127. Woodward v. Thacher — 496. Woodward v. Woodward — ^282. Woolman v. Wirtsbaugh — 495. Woolmer v. Toby — 404. Worth, Ex parte— 364, 442, 443, 444. Worthington, In re — 31, 161. Wright's Case— 407, 474, 476. Wright V. St. Louis Sugar Co. — 107. Wright Bros. v. Merchants & Plant- ers Packet Co.— 87, 416. Wyatt V. Metropolitan Board of Works— 165, 166. Wyckoff V. Vicary — 137. Wyld V. Hopkins— 537, 561. Wyoming Valley Ice Co., In re — 187, 210, 316. Y. 17, 22, 23, 24, 25, 26, 171, 173, 175, 176, 177, 178, 179, 186, 188, 189, 195, 196, 200, 202, 206, 281, 289, 305, 309, 328, 336, 337, 409, 514. Yelser v. United States Board & Paper Co.— 6, 12, 18, 20, 25, 28, 171, 172, 173, 181, 185, 193, 200, 308, 310. Yonkers Gazette Co. v. Jones — 85, 122, 123, 408. Yonkers Gazette Co. v. Taylor — 88, 132, 572. York Mfg. Co. v. Brewster — 126. York Park Bldg. Ass'n v. Barnes — 123, 408. Young V. Drake — 344. Young Reversible Lock Nut Co. v. Young Lock Nut Co.— 126. z. aabel V. New State Tel. Co.— 408. Zang V. Adams — 401, 449, 450, 459, 472. Zelgler v. Valley Coal Co.— 125. Ziemer v. C. G. Bretting Mfg. Co. —116, 119, 121. Zinc Carbonate Co. v. First Nat'l Bank— 308, 353, 356, 539. Yale Gas Stove Co. v. Wilcox— 4, 6, THE LAW OF PROMOTERS. CHAPTER I. Of Pkomotees Geneeallt. Section 1. Introductory. 2. Judicial acceptance of the term "promoter." 3. Deflnitions of the term. 4. Circumstances that give rise to the relation. 5. Sharing promoter's profits. 6. '- Carrying on promotion by agents. 7. Acting as vendor, vendor's agent, etc. 8. Bankers and solicitors, not promoters. 9. Subscribers for shares, not promoters. 10. Promoter's partners as promoters. ' 11. Corporations as promoters. 12. Use of the word promoter in America. 13. Meaning and effect of the term. 14. Fiduciary relation. 15. Inception of the relation. 16. The same subject. — Purchase of property with view to resale to corporation. 17. The same subject. — ^Taking step in organization of cor- poration. 18. The same subject. — An illustrative case. 19. Termination of the relation. § I. Introductory. Some preliminary steps in the organization of a corporation must necessarily be taken before a certificate of incorporation is prepared and signed, and further steps are necessary before the (1) 2 THE LAW OF PROMOTERS. company can have directors, officers, or agents, capable of rep- resenting and acting for it, A corporation might, it is true, be organized without any action being taken prior to the signing and filing of the certificate of incorporation, other than the prep- aration thereof. The further steps necessary for the complete legal organization of the company might be carried on by the incorporators, and all questions as to the business to be conducted by the company, the properties to be acquired by it, and the method of raising the necessary capital, could be left to the future determination of the directors when qualified. In practice, however, a corporation is organized for the purpose of carrying on some particular business, and the scope of this business, the properties to be acquired, the method of raising capital, and other matters, are agreed upon before any move toward the legal organization of the corporation is made. The negotiations rel- ative to the molding of the contemplated company are therefore carried on by persons who, whatever their subsequent relation to the corporation, are, at the time, neither directors, officers, agents, nor even incorporators of the company. These preliminary ne- gotiations involve matters of great importance to the future corporation and its stockholders, and many and difficult questions of law result therefrom. A designation for the persons by whom these negotiations are carried on is a matter of necessity. The term now in general use is " promoter." § 2. Judicial acceptance of the term promoter. The complete judicial acceptance of this term " promoter " is a matter of comparatively recent date. In some of the early cases, persons engaged in the formation of a corporation are spoken of as its " projectors." ^ Other cases of about the same 1. Blaln V. Agar, (1826) 1 Sim. 2 Beav. 559; Foss v. Harbottle, 3T, 5 L. J. Oh. 1; Society for Prac- (1843) 2 Hare 461, 489; Edwards tical Knowledge v. Abbott, (1840) v. Grand Junction Ry. Co., (1836) PROMOTERS GENERALLY. 3 period, though recognizing the obligations flowing therefrom, do not give any name to the relation in which such persons stand to the contemplated company.^ The word promoter, while undoubtedly employed in common parlance before that time, does not seem to have been used in any reported decision until after it had been used, and for the pur- poses of the act defined, in the Joint Stock Companies Act of 1844..3 " I dislike the use of the word ' promoter,' " said Lord Jus- tice Cotton, as late as 1887.* The word had, however, been judicially recognized before that time, even in the House of Lords.** Lord Justice Lindley in his work on Companies Law, published in 1889,* said, " There has been considerable discussion with ref- erence to the meaning of the word promoter, and also with refer- ence to his relation to the company he is endeavoring to form. The word itself has never been defined; but it is used in common parlance, and also in Section 38 of the Companies act, 1867, to denote those persons who bring the company into existence, by taking an active part in forming it, and in procuring persons to join it as soon as it is technically formed." 1 Mylne & Cr. 660, 672, 7 Sim. Hawkes, (1855) 5 H. L. Cas. 331, 337; Preston v. Liverpool Man- 856; Caledonian, etc., Ry. Co. v. Chester, etc., Ry. Co., (1851) 1 Sim. Magistrates of Helensburgh, (1856) N. S. 586, 7 Eng. Law & Eq. 124, 21 2 Macq. 391, 407, 2 Jur. N. S. 695; L. J. Ch. N. S. 61. Tyrrell v. Bank of London, (1862) 2. Hlchens v. Congreve, (1828) 4 10 H. L. Cas. 26, 11 Eng. Rep. 934; Russ. 562; same v. same, (1829) 1 See also Reynell v. Lewis, (1846) R. & M. 150; same v. same, (1831) 4 15 M. & W. 517, 528; In re Anglo- Sim. 420, 427. Greek Steam Co., (1866) L. R. 2 3 Stat. 7 and 8 Vict, Ch. 110, Eq. 1, 35 Beav. 399; Twycross v. J 3 Grant, (1877) L. R. 2 C. P. D. 469. 4 Ladywell Mining Co. v. 6. Lindley on Companies Law, Brookes, L. R. 35 Ch. Div. 400, 411, 5th ed., (1889) 346; 6th ed., Vol. 1, 17 Am. & Eng. Corp. Cas. 22. p. 481. 5. Eastern Counties Ry. Co. v. 4 THE LAW OP PROMOTERS. § 3. Definitions of the term. The term promoter is not one of precise, inflexible meaning,'' and is hardly capable of accurate definition.* The word is defined in the English Joint Stock Companies Act of 1844 ® as applying " to every person acting by whatever name in the forming and establishing of a company at any period prior to the company obtaining a certificate of complete registration." The word is here defined only for the purposes of the act, and the definition is inadequate for general purposes. The court in Whaley Bridge Calico Printing Co. v. Green ^^ aptly says, " The term promoter is a term not of law, but of business, usefully summing up in a single word a number of business operations familiar to the commercial world by which a company is generally brought into existence." " A promoter," said Chancellor Pitney,^^ in the recent case of Bigelow V, Old Dominion Copper, etc., Co.,^^ " is one who seeks 7. Ex-Mission Land & Water Co. V. Flash, 97 Oal. 610, 625-626, 32 Pac. 600, 604; Old Dominion Cop- per, etc., Co. V. Bigelow, 203 Mass. 159, 177, 89 N E. 193, 40 L. R. A. N. S. 314; Emma Silver Mining Co. v. Lewis, L. R. 4 C. P. D. 396, 407. 8. First Ave. Land Co. v. Hilde- brand, 103 Wis. 530, 79 N. W. 753, citing Alger on Promoters, § 1. 9. Stat. 7 & 8 Victoria, Chap. 110, § 3, (Repealed Stat. 25 and 26 Victoria, Ch. 89). Quoted in Dick- erman v. Northern Trust Co., 176 TJ. S. 181, 203, 20 Sup. Ct. 311, 44 L. Ed. 423. The term is also de- fined in The Companies (Consoli- dation) Act of 1908, 8 Edward VII, Chap. 69, § 84, subd. 5. The term is ■used in The Companies Act of 1867, 30 & 31 Victoria, Chap. 131, § 88. 10. L. E, 5 Q. B. D. 109, 111, 28 W. R. 351, (1879). (Quoted in Tale Gas Stove Co. v. Wilcox, 64 Conn. 101, 119, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. Bug. Corp. Cas. 647; The Telegraph v. Loetseher, 127 Iowa 383, 101 N. W. 773, 4 Am. & Bug. Ann. Cas. 667; Pitts v. Steele Mercantile Co., 75 Mo. App. 221, 226-227; Second Nat'l Bk. V. Greenville Screw Point Fence Post Co., 23 Ohio O. C. 274, 280). To the eflfect that the term is one, not of law, but of business, see Bigelow v. Old Domin- ion Copper, etc., Co., 74 N. J. Bq. 457, 501, 71 Atl. 153; Twycross v. Grant, L. R. 2 C. P. D. 469, 503. 11. Now Associate Justice of the United States Supreme Court. 12. 74 N. J. Eq. 457, 501, 71 AtL 153. PROMOTERS GENERALLY. 5 opportunities for making advantageous purchases and profitable investments in industrial or other enterprises, who interests men of means in such a project when found, organizes them into a corporation for the purpose of ' taking over ' the project, and attends upon the newly-formed company untU it is fully launched in business. He may be stockholder, director, officer, or none of these. His services begin before the company is formed, and ordinarily are not concluded until some time after its formation." The Supreme Court of Massachusetts, considering the meaning of the term in a subsequent phase of the same litigation,-^* said: " In a comprehensive sense ' promoter ' includes those who under- take to form a corporation and to procure for it the rights, in- strumentalities and capital by which it is to carry out the pur- poses set forth in its charter, and to establish it as fully able to do its business. Their work may begin long before the organiza- tion of the corporation, in seeking the opening for a venture and projecting a plan for its development, and may continue after the incorporation by attracting the investment of capital in its securities and providing it with the commercial breath of life." The term has also been defined ^* as meaning " A person, who, by his active endeavors, assists in procuring the formation of a company and the subscription of its shares. « * * * The word ' promoter ' has no technical legal meaning and applies to any person who takes an active part in inducing the formation of a company, whether he afterwards becomes connected with the company or not." Another definition frequently quoted ^^ defines a promoter as 13. Old Dominion Copper, etc., Quoted in Dickerman v. Northern Co. v. Bigelow, 203 Mass. 159, 177, Trust Co., 176 U. S. 181, 203, 20 89 N. E. 193, 40 L. R. A. N. S. 314. Sup. Ct. 311, 44 L. Ed. 423 ; Moore 14. Morawetz on Corporations, v. Warrior Coal & Land Co., 178 (2nd ed.), § 545. Quoted in Ex- Ala. 234, 59 So. 219; Burbank Mission Land & Water Co. v. Flash, v. Dennis, 101 Cal. 90, 97, 35 97 Cal. 610, 32 Pac. 600. Pac. 444, 446; Ex-Mission Land & 15. Cook on Corporations, § 651. Water Co. v. Flash, 97 Cal. 610, 6 THE LAW OF PROMOTERS. " A person who brings about the incorporation and organization of a corporation. He brings together the persons who become interested in the enterprise, aids in procuring subscriptions, and sets in motion the machinery which leads to the formation of the corporation itself." § 4. Circumstances that give rise to the relation. There is no one circumstance, or set of circumstances, the pres- ence or absence of which determines the existence of the relation of promoter to a corporation. It has been said that " whether a person is or is not a promoter is a question of fact and not of law, and must in each case be determined with due regard to all the circumstances." ^® The 626, 32 Pac. 600, 604 ; the Telegraph V. Loetscher, 127 Iowa 383, 101 N. W. 773, 4 Am. & Eng. Ann. Gas. 667; South Mo. Pine Lumber Co. v. Crommer, 202 Mo. 504, 518, 101 S. W. 22, 26; Brooker v. William H. Thompson Trust Co., 254 Mo. 125, 162 S. W. 187, 194 ; See v. Heppen- heimer, 69 N. J. Bq. 36, 71, 61 Atl. 843; Hutchinson v. Simpson, 92 N. T. App. Div. 382, 409, 87 N. Y. Supp. 369, (dissenting opinion of Hatch, J.) ; Richlands Oil Co. v. Morriss, 108 Va. 288, 294, 61 S. E. 762, 764 ; Cox V. National Coal & Oil In- vestment Co., 61 W. Va. 291, 305, 56 S. E. 494, 500. Further definitions of the term promoter may be found in Teiser v. TJ. S. Board & Paper Co., 107 Fed. 340, 344, 46 C. C. A. 567, 52 L. R. A. 724; Yale Gas Stove Co. V. Wilcox, 64 Conn. 101, 119, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159; 47 Am. & Eng. Corp. Cas. 647; MeRee v. Quitman Oil Co., — Ga. — , 84 S. B. 487; Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 402, 107 N. W. 629, 631, 119 Am. St. R. 564 ; Armstrong V. Sun Printing & Publishing Ass'n, 137 N. Y. App. Div. 828, 830, 831, 122 Supp. 531 ; Bosher v. Richmond & H. Land Co., 89 Va. 455, 460, 16 S. E. 360, 362 ; First Avenue Land Co. V. Hildebrand, 103 Wis. 530, 534, 79 N. W. 753, 754, (titing Alger on Promoters, § 1) ; Brianger v. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 1268, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 Weekly Rep. 65; Twyeross v. Grant, L. R. 2 C. P. D. 469, 527, 541; Emma Silver Mining Co. v. Lewis, L. R. 4 C. P. D. 396, 407; Whaley Bridge Calico Printing Co. v. Green, L. R. 5 Q. B. D. 109, 111; Watts Law of Promoters, p. 1. 16. South Missouri Pine Lumber Co. V. Crommer, 202 Mo. 504, 101 S. W. 22, citing 23 Am. & Eng. Hncyc. of Law, (2nd ed.), 233. PROMOTERS GENERALLY. 7 statement is not entirely accurate, and probably intends nothing more than that whether a given person is, or is not, a promoter of a given corporation, must be determined by the facts of the particular case. An understanding of the scope and meaning of the term pro- motor can probably best be obtained by a consideration of some of the circumstances which have been held to, and some of the cir- cumstances which have been held not to, give rise to the relation. In the ordinary case certain persons, having conceived the idea of organizing a corporation for some more or less well-defined purpose, select the directors, take, or cause to be taken, the necessary steps in the formal organization of the corporation, procure the conveyance to the company of the properties and contract rights which they deem necessary for the carrying on of the contemplated business, and solicit subscriptions for the shares. These persons are obviously the promoters of the corpora- tion.^^ It is not, however, to constitute one a promoter of a cor- 17. For cases illustrative of the 1115, but modified, 58 N. J. Eq. circumstances which constitute the 556, 43 Atl. 671; Arnold v. Searing, relation, see 78 N. J. Eq. 146, 156-157, 78 AtL Illinois. — Goodwin v. Wilbur, 104 762, 766. 111. App. 45, 51-52. Ohio. — Shawnee Commercial & Massachusetts. — Old Dominion Savings Bank Co. v. Miller, 24 Copper, etc., Co. v. Bigelow, 203 Ohio C. C. 198, 209. Mass. 159, 177, 89 N. E. 193, 40 Fw-^mmo.— Richlands Oil Co. v. L. R. A. N. S. 314 ; same v. same, Morriss, 108 Va. 288, 298, 61 S. E. 188 Mass. 315, 320, 327, 74 N. E. 762. 653, 108 Am. St. Rep. 479. Wisconsin. — Pittsburg Mining Co. New York. — Brewster v. Hatch, v. Spooner, 74 Wis. 307, 42 N. W. 122 N. T. 349, 360-362, 25 N. B. 259, 17 Am. St. Rep. 149, 24 Am. & 505, 33 N. Y. St. Rep. 527. Eng. Corp. Cas. 1. New Jersey. — Plaquemines Tropi- United Kingdom '\, Sec. 41, as amd. by Laws of 1892, chap. 688), but plaintiiF, by his agreement, seeks to en- graft additional conditions. The agreement contemplated, pre- cluding any person from becoming a stockholder who would not agree in advance, in addition to paying cash for his stock, that plaintiff should be employed during th« entire corporate exist- ence subject to the termination of the contract on six months' notice, and that he should receive for his services nearly one-third of the gross receipts of the company, not only while he continued in its employ, but a like percentage thereafter of the premiums on policies then in force and on policies in renewal thereof. He was a comparative stranger in New York, having come here from Canada within two years. The directors were to have no option but to employ him on these terms, even though in their opinion his services might be of no value to the corporation. He was to have exclusive charge of soliciting and securing business for the com- pany. It is difficult to see how the directors could perform their statutory duty of managing and controlling the affairs of the corporation in the interests of the stockholders, its policy holders and other creditors, if they were to be thus limited and restricted by this contract." ^® The actual decision of this case was no doubt correct. The public at large has, however, no inherent right to subscribe for the shares of any company, and the promoters may undoubtedly lawfully agree among themselves that only such persons shall be 15. The court cites Fisher v. Mo. 130, 13 S. W. 393; West v. Bush, 35 Hun (N. Y.) 641; Brown Camden, 135 U. S. 507; 10 S. C. 838, V. Britten, 41 N. Y. App. Div. 57, 34 L. Ed. 254; Fennessy v. Ross, 5 58 Supp. 353; Dickson v. Kittson, N. Y. App. Div. 342, 39 Supp. 323; 75 Minn. 168, 77 N. W. 820; Cook on Corporations (4th ed.), Jackson v. Ex'rs. of McLean, 100 § 622. 38 THE LAW OF PROMOTERS. allowed to come in as may accord with their views as to the con- duct of the business of, and the persons to be employed by, the company. Having that power, there is no reason why they may not agree with an intended employee that only such stockholders shall be admitted as will consent to his employment upon the agreed terms. The promoters take the risk of being able to secure subscribers upon that basis. § 25. Validity of agreements for election of officers. Agreements that certain persons shall hold office in the com- pany raise a somewhat different question, and their validity may well depend upon the period of time over which the tenure of the office is to extend. If the agreement embraces only the period for which officers are elected, and pledges only the action of the organization meeting of the directors, the validity of the agree- ment should, it seems, be controlled by the same considerations which govern the questions discussed in the preceding sections. The validity of an agreement for a more lengthy retention of office, pledging the action of both the organization and subse- quent meetings of the directors, is open to very grave doubt. Such an agreement was sustained in Kantzler v. Bensinger,^® largely because all of the stockholders were parties thereto. In the absence of that circumstance an agreement attempting to promise permanent tenure of office would probably be invalid and unenforceable even between the parties.-'''^ 16. 214 111. 589, 73 N. E. 874, re- an agreement between the promot- versing, Bensinger v. Kantzler, 112 ers, to subordinate the payment of 111. App. 293. To the same effect is their salaries to the payment of Drucklieb v. Sam H. Harris, 209 N. certain specified dividends, see Y. 211, 102 N. E. 599. Mills v. Hendershot, 70 N. J. Eq. Such agreements are binding only 258, 62 Atl. 542. on the parties, and not on the cor- 17. West v. Camden, 135 U. S. poration. Drucklieb v. Sam H. Har- 507, 10 Sup. Ct. 838, 34 L. Ed. 254. ris, 209 N. T. 211, 102 N. E. 599. Cases involving the validity of As to whether the corporation, or agreements to elect certain officers, its receiver, can claim the benefit of entered into by directors or stock- AGREEMENTS FOR PROMOTION. 39 § 26. Agreements for division of shares. An agreement of the promoters fixing their respective interests in the capital stock of the intended company is valid between the parties,-'® and may sometimes become binding upon the corpo- ration.^® holders of existing corporations, rest upon a somewhat different basis. See ante, § 23. For such cases see Thompson on Corpora- tions, 2nd Ed., §§ 902, 4113, and Cook on Corporations, 7th Ed., § 622-A. 18. McCracken v. Roblson, 57 Fed. Rep. 375, 6 C. C. A. 400, 14 U. S. App. 602; Joslln v. Stokes, 38 N. J. Eq. 31, 5 Am. & Eng. Corp. Cas. 98 ; King v. Barnes, 109 N. T. 267, 16 N. E. 332; Dlck- erson v. Appletoil, 123 N. Y. App. Div. 903, 108 Supp. 293) afllrmed without opinion, 195 N. Y. 507, 88 N. E. 1117; Eno v. Sanders, 39 Wash. 238, 81 Pac. 696. In San Antonio Irr. Co. v. Deutschmann, 102 Tex. 201, 105 S. W. 486, 114 S. W. 1174, a stipula- tion that one of the parties might pay for the stock at such time as he " could arrange " was held to be in violation of the statute and unen- forceable. 19. Federal. — Crosby Lumber Co. V. Smith, 51 Fed. Rep. 63, 2 C. C. A. 97, 3 tr. S. App. 125. Cf. Dick- inson V. Matheson Motor Car Co., 161 Fed. Rep. 874, aff'd, 171 Fed. Rep. 646, 97 C. C. A. 29; Summer- lin V. Fronteriza Silver Min. & Mill Co., 41 Fed. Rep. 249. GaUfomia. — Chater v. San Fran- cisco Sugar Refining Co., 19 Cal. 220. Mitmeaota. — Selover v. Isle Har- bor Land Co., 91 Minn. 451, 98 N. W. 344, 100 Minn. 253, 111 N. W. 155. Mississippi. — Mulvihill v. Vicks- burg Ry., etc., Co., 88 Miss. 689, 40 So. 647. South Dakota. — Chambers v. Mitt- nacht, 23 S. D. 449, 122 N. W. 434. Promoters who obtain control of the corporation and take from it a consideration for the transfer of their properties greater than, or dif- ferent from, that to which they are under the preliminary agreement entitled, may be compelled to make restitution. See Huiskamp V, West, 47 Fed. Rep. 236; (re- versed, auh nom. West v. Huiskamp, 63 Fed. Rep. 749, 11 C. C. A. 401, 24 U. S. App. 133). See also dic- tum in Wilson v. Trenton Passen- ger Ry. Co., 56 N. J. Eq. 783, 40 Atl. 597, reversing, Trenton Pas- senger Ry. Co. V. Wilson, 55 N. J. Eq. 273, 37 Atl. 476. Cf. Brehm v. Sperry, et al. 92 Md. 378, 48 Atl. ,368; Tompkins v. Sperry Jones & Co., 96 Md. 560, 54 Atl. 254; Flan- agan V. Lyon, 54 N. Y. Misc. 372, 105 Supp. 1049. Where the contract to transfer certain shares is not made on be- half of the corporation, but as a personal agreement of the promot- ers, the corporation does not be- come liable thereon. Morgan v. 40 THE LAW OF PROMOTERS. An agreement of the promoters that they will not sell the shares allotted to them until after all the treasury stock, or a specified portion thereof, has been sold, is proper and may be enforced by in- junction.^" It was said in Hladovec v. Paul ^^ that an agreement limiting the number of shares which may be held by any one stockholder is, while not binding upon the corporation, valid as between the parties to the agreement. § 27. Agreements for control of corporation. An agreement between the parties engaged in the promotion of a corporation to vote their shares as a unit is valid in those juris- dictions which recognize the validity of siinilar agreements be- tween stockholders of existing corporations,^* but an agreement, or by-law, which seeks to place the voting power in the hands of the promoters and keep the control of the corporation out qf the hands of its stockholders, is unlawful and will be set aside by the courts.*^ It has been held that an agreement between the promoters that the corporation to be organized by them shall be used simply as an instrumentality for the conduct of a partnership business un- der corporate guise, is contrary to the policy of the law, and the corporation will, in spite of the agreement, be held subject to the management and control of a board of directors duly elected by the stockholders as provided by law.** Bon Bon Co., 165 N. Y. App. Div. 88, Montgomery, 148 N. Y. 519, 43 N. 150 Supp. 668. , E. 57. An agreement as to the division 21. 222 111. 254, 263, 78 N. B. 619, of future issues of stock, to which affirming, 124 111. App. 589. Fol- the corporation is not a party, can- lowed in Cross v. Farmers' Ele- not be enforced in a representative vator Co. of Dawson, — N. D. — , action brought on its behalf. Wat- 153 N. W. 279. ers V. Waters & Co., 130 N. Y. App. 22. Gray v. Bloomlngton & Nor- Div. 678, 115 Supp. 432, affirmed, mal Ry., 120 111. App. 159. 201 N. Y. 184, 94 N. E. 602. 23. TerwilUger v. Great Western 20. Brown v. Bracking, 11 Idaho Telegraph Co., 59 111. 249. 678, 83 Pac. 950 ; Williams v, 24. Jackson v. Hooper, 76 N. J. AGREEMENTS FOE PROMOTION. 41 It seems to be held in Martin v. Remington-Martin Co.^* that an agreement that one of the parties shall have, and continue to have, a one-sixth interest in the common stock of the company is invalid in so far as it deprives the corporation of the benefit of the statutory provisions for an increase of its capital stock. § 28. Property rights pending promotion. A contract under which one of the parties purchases from the others an undivided interest in property, which is to be conveyed to a company to be formed and the stock of the company divided among the parties in proportion to their respective interests in the property, does not, it is held, pass any title, legal or equitable, to an undivided interest in the property, and confers upon the pur- chaser a mere right to receive his proportionate part of the shares of the company when formed.^* § 29. Promoters' certificates. It is held in Reading Finance & Securities Co. v. Harley ^^ that a certificate of the promoters, issued to a subscriber pending the organization of the company, certifying the number of shares Eq. 592, 75 Atl. 568, 27 L. R. A. N. 1127), where the validity of an S. 658, reversing, 76 N. J. Eq. 185, agreement not to increase or de- 74 Atl. 130. Cf. Tascher v. Timer- crease the number of directors was man, 67 111. App. 568; Card v. involved. Moore, 68 N. Y. App. Div. 327, 74 26. Fourchy v. Ellis, 140 Fed. Supp. 18, affirmed, 173 N. Y. 598, Rep. 149; London Assurance Co. v. 66 N. E. 1105. Drennen, 116 V. S. 461, 29 L. Ed. 25. 95 N. Y. App. Div. 18, 88 688, 6 Sup. Ct. 442 ; Jones v. Gould, Supp. 573. 141 Fed. Rep. 698, affirmed, 149 Fed. Cf. Burden v. Burden, 8 N. Y. Rep. 153, 80 C. C. A. 1 ; Butterfleld App. Div. 160, 41 Supp. 948, aff'd, v. Harris, 20 Cal. App. 471, 129 159 N. Y. 287, 54 N. E. 17 Pac. 614 ; Ex-Mission Land & Water Compare also Bond v. Atlantic Co. v. Plash, 97 Cal. 610, 32 Pac. Terra Cotta Co., 137 N. Y. App. 600; Marseilles Land .Co. v. Aldrlch, Div. 671, 122 Supp. 425, (followed, 86 111. 504; Franey v. Warner, 96 151 App. Div. 938, 135 Supp. 1101, Wis. 222, 71 N. W. 81. affirmed, 210 N. Y. 587, 104 N. B. 27. 186 Fed. Kep. 673, 108 C. C. A. 529. 42 THE LAW OP PROMOTERS. subscribed for and the payments made thereon, is not a mere re- ceipt, but a thing of value which may properly be the subject of an action for conversion. § 30. Interpretation of agreements for sale of property to cor- poration. Questions as to the proper interpretation of contracts for the promotion of corporations necessarily arise from time to time. These contracts are, like all others, to be construed in accordance with the presumable intention of the parties, 'to be gathered from the terms of the contract read in the light of the surrounding circumstances. Certain cases, however, seem to have particular application to contracts for the promotion of corporations, and a review of some of these seems pertinent.^* In Philes v. Hickies,^® the plaintiffs conveyed all their interest in certain mining claims to the defendant Hickies, in trust to organize a corporation to take over and work the mines. The agreement provided that 120,000 shares should be set aside as working capital to defray expenses, and that an amount of stock not to exceed three-fifths of the balance, should be issued and de- livered to the plaintiffs In payment for their properties. Hickies organized a corporation with a capital consisting of 600,000 shares, transferred the properties to it, and received 584,600 shares. He succeeded in selling some 25,000 shares, but issued none to the plaintiffs. The court held that the agreement did not intend that Hickies was to keep all of the stock of the company until the stock retained for working capital had actually been sold, and that the plaintiffs were entitled to their stock as soon as the company was organized and the shares reserved for work- ing capital set apart. In Childs v. Smith '" the plaintiff agreed to convey certain 28. See also post, §§ 33, 34, 42. 154 U. S. 505, 14 Sup. Ct. 1147. 29. 2 Ariz. 407, 18 Pac. 595, 30. 46 N. Y. 34, reversing, 55 affirmed for want of prosecution. Barb. 45, 38 How. Pr. 328. AGREEMENTS FOR PROMOTION. 43 real estate to the defendant, and the defendant agreed to assume the mortgages thereon and to pay $1,000 at once, and $2,000 more when the corporation which was to operate the property should be organized. The deed was delivered and the defendant took possession. A certificate of incorporation was executed, by- laws were adopted, and officers elected, but the certificate of in- corporation was not filed. The court said that the organization of the corporation was not to fix the fact of the indebtedness, but only to mark the time when a solution of that indebtedness might be exacted ; that it would be too technical to hold that the parties meant that the time of payment should not arrive until there should be an organization so exactly in accordance with the statute as that it would successfully meet any scrutiny which the sovereign power could institute; that it was rather to be held that the parties meant such acts and doings among the associates, as would set on foot, in practical existence, a body in which they should have rights, and to which they would owe obligations, and through which they should possess rights against, and incur obligations to, each other; that such acts had been performed and that the $2,000 had become payable. The trial court in McIIquham v. Taylor '^ held that an agree- ment to pay to the plaintiff for his property, £1,000 in cash or " £1,000 worth of fully paid up shares in a company to be formed " with a- capital not to exceed £12,000, entitled the plain- tiff to stand, as to the shares to be transferred to him, upon an equal footing with the other shareholders, and that the engage- ment of the defendants was not performed by the organization of a corporation with preferred and common stock and the tender to the plaintiff of shares of the latter kind. The Court of Appeal affirmed the judgment of the trial court on the ground that " £1,000 worth of shares " meant shares of an actual, not a nom- inal, value of £1,000. 31. 1895, 1 Ch. Div. 53. 44 THE LAW OF PROMOTERS. It was held in Peek v. Steinberg *^ that an agreement that the plaintiff should receive for his property " paid up stock * * * to the amount of $12,000 " did not entitle him to receive stock actually worth $12,000, but merely stock of the par value of $12,000. In Hardee v. Sunset Oil Co.,^* one Richardson owned certain oil claims\ in California which he agreed to convey to one Handy, or to a corporation to be formed by him, in consideration of the sum of $5,000 to be paid in cash. The agreement provided that if a corporation should be formed one half of the capital stock was to be allotted to Richardson. Handy further agreed that he would deposit the sum of $25,000 with the company's treasurer, to be expended in the development of the oil claims. The com- plainants, the heirs of Richardson, subsequently claimed that the $25,000 paid into the treasury by Handy should have been credited to Richardson on the books of the corporation. The court held that this was not the proper construction of the agree- ment, — that the intention was that Richardson as the owner of one half of the stock, should reap the benefit of the expenditure of this $25,000 in the development of the property, and that there was no basis for the complainants' contention. In McNeil v. Fultz '* a promoter obtained the transfer of the plaintiff's property, under an agreement that the same shwuld be sold, with other properties, to a corporation to be formed, the promoter agreeing to give the plaintiff for his property whatever bonds and shares he, the promoter, might receive therefoi* from the corporation. The promoter was forced, in order to save some of the other properties, to borrow money and to pay a bonus there- for. He attempted to charge the plaintiff with a proportionate share of this bonus, but the court held the bonus to be an item of the expense of the flotation, the burden of which the promoter had no right to cast upon the plaintiff. 32. 163 Cal. 127, 124 Pac. 834. 34. 38 Can. Sup. Ct 198. 33. 56 Fed. Rep. 51. AGREEMENTS FOR PROMOTION. 45 § 31. Performance of agreements for sale of property to cor- poration. In Field v. Pierce,*^ the plaintiffs, having secured certain con- tracts or options for the purchase of mining properties in Nova Scotia, agreed to transfer them to the defendant upon consider- ation that the defendant should furnish the money to pay for the properties, organize a corporation to take them over, and trans- fer to the plaintiffs one-tenth of the shares issued by the com- pany. Plaintiffs duly performed on their part. The defendant organized a corporation with a capital stock of $500,000. The defendant and his associates met and each gave his check to the treasurer of the company for the par value of the shares allotted to him. The defendant gave his check for the shares to be trans- ferred to the plaintiffs. The treasurer delivered all the checks to the defendant and the corporation took a conveyance of the property. The defendant then returned the checks to the drawers, each of them paying him the price of the shares actually agreed upon between the parties. An assessment was afterwards levied upon all the shares, including the plaintiffs'. The plaintiffs called upon the defendant for their certificates, which the de- fendant declined to deliver until the assessment had been paid. The company sold the plaintiffs' shares to pay the assessment. The plaintiffs sued the defendant for the market value of" the shares. The court held that the plaintiffs' shares were full paid as to them, that the certificates were not the shares, and that the rights of the plaintiffs were not affected by the refusal of the corporation to deliver the certificates; that the plaintiffs had a right to the shares, and that if the corporation had wrongfully refused to deliver the certificates, there was nothing to show that the defendant was responsible; that the defendant, as a stock- holder, might have voted for the assessment and the sale of the plaintiffs' shares, but such acts were the acts of the corporation 35. 102 Mass. 253. 46 THE LAW OF PROMOTEKS. and not of the defendant, and that the remedy of the plaintiffs was against the company. § 32. Donating shares to the treasury. The fact that the promoters return to the treasury of the cor- poration, a portion of the shares previously issued to them, does not necessarily give rise to an implied agreement of the corpora- tion to pay therefor. In Eldred v. Bell Telephone Co.,'® the plaintiff acquired from the National Bell Telephone Company the right to operate tele- phone exchanges in Kansas City and St. Louis, his agreement re- quiring the organization of the defendant corporation under the laws of Missouri and, among other matters, the acquisition by it of certain outstanding contracts between the National Bell Tele- phone Company and the American District Telegraph Company of St. Louis. The defendant corporation was thereupon organ- ized with a nominal capital of $4<00,000, all of which was issued as full paid to the plaintiff and his associates in consideration of the transfer to it of the rights acquired, or to be acquired, from the National Bell Telephone Company. A preliminary un- derstanding was arrived at, under which the four associates of the plaintiff were to receive 1770 shares and the plaintiff was to retain the remaining 2230 shares for himself. It was subsequently found that shares were needed in order to take in the American District Telegraph Company, and the plaintiff thereupon, for this purpose, surrendered 250 shares of the stock allotted to him. The plaintiff subsequently brought suit upon a supposed implied agreement of the defendant to pay him the reasonable value of the 250 shares so surrendered. The court, upon a consideration of the evidence, decided that there was nothing to warrant the conclusion that there was any sale of this stock by the plaintiff to the defendant, or any loan or advance of it for its uses, for 36. 119 U. S. 513, 7 Sup. Ct. 296, 30 Law Ed. 496. AGREEMENTS FOR PROMOTION. 47 which it was expected that any return or payment should be made. It has been held that an agreement between the parties en- gaged in the formation of a corporation, that a portion of the stock to be issued to them shall be used for the benefit of the corporation, cannot be enforced by the corporation, but only by the parties to the agreement.*'' § 33. Interpretation of agreements relating to promoter's com- pensation. Corporations are often promoted in pursuance of an agreement by which a person owning property which he desires to sell to the contemplated company, undertakes to pay the promoter a stipu- lated compensation for his services. Such agreements are, if properly disclosed to the corporation, unobjectionable, but ques- tions arise as to their interpretation.^* In Locke v. Wilson *® the defendant Wilson employed the plaintiff to form a corporation to take over certain brewery prop- erties under an agreement to pay the plaintiff for his services, $2,000 in the shares of the" company, provided that the plaintiff secured $28,000 in bona fide subscriptions, of which said defend- ant agreed to take $12,000. The plaintiff maintained that the correspondence and evidence did not constitute the entire con- tract and that the defendant Wilson had orally agreed to take all the stock that the plaintiff could not place elsewhere. The court held that the written contract conclusively negatived this con- tention, and that the trial court had erred in submitting the ques- tion to the jury. In Hix V. Edison Electric Light Co.,*" the defendant had em- 37. Flanagan v. Lyon, 54 N. Y. 39. 135 Mich. 593, 98 N. W. 400, Misc. 872, 105 Supp. 1049. See also 10 Det. Leg. News 900. Brennan v. Vogler, 174 Mass. 272, 40. 10 N. Y. App. Div. 75, 75 N. 54 N. E. 556. Y. St. R. 1067, 41 Supp. 680. See 38. See in addition to the cases same case on later appeal, 27 N. Y. discussed in this section, Prostey v. App. Div. 248, 50 Supp. 592, Manning, 110 N. Y. Supp. 221. See affirmed, 163 N. Y. 573, 57 N. E. also §§ 30, 34 and 42. 1112. 48 THE LAW OF PROMOTERS. ployed the plaintiff to promote and organize a corporation for electric lighting in Philadelphia, under a memorandum .reciting that of the $1,000,000 of capital stock of the Philadelphia com- pany, the defendant company was to receive 30 per cent in stock and 5 per cent in cash, that the " promoters " were to receive 10 per cent in stock, as a rebate from the defendant company's 35 per cent, and that the plaintiff was to receive 5 per cent, as a rebate from the defendant company's remaining 25 per cent. The contract further provided that in case of any future in- creases in the capital of the Philadelphia corporation, 35 per cent of the increase was to go to the defendant, and a rebate of 5 per cent therefrom to the " present promoter." The court admitted evidence of surrounding circumstances to , aid in determining whether the plaintiff was the " present promoter " intended by the agreement. After the Philadelphia company was organized, the successor of the defendant company made a new agreement whereby it reduced its percentage of future incireases from^35 per cent to 10 per cent, in consideration of which the Philadelphia company relinquished certain rights. The plaintiff was a stock- holder in the Philadelphia company and voted in favor of this new contract. The court held that neither the fact that the defendant's percentage had been reduced, nor the fact that the plaintiff as a stockholder of the Philadelphia company voted in favor of the agreement reducing such percentage, affected his right to receive his 5 per cent of the increase from the defendant. The court did, however, hold that the plaintiff was not entitled to 5 per cent upon the first issue of increased stock, as that increase represented the value of earnings put into betterments, and was not an increase within the meaning of the contract. In Varnum v. Thruston,*^ the plaintiff had induced one Cbwles, the holder of certain contracts for the purchase of coal lands, to enter into an agreement with the defendants which provided for 41. 17 Md. 470. AGREEMENTS FOR PROMOTION. 49 the conveyance of the lands to the defendants, who were to pro- vide the funds necessary to complete the contract, and to organize a corporation to take title to the lands and mine the coal. The defendants were to sell sufficient shares to reimburse themselves for the cost of the land and the expenses in relation thereto, to pay to Cowles the sum of $15,000, and to raise the sum of $200,- 000 working capital. The agreement then provided that the de- fendants " after making the sales and payments aforesaid, shall next transfer one-twentieth part of the whole of the said capital stock to Charles M. Thruston (the plaintiff), and the balance of the said stock then remaining shall belong " one-half to Cowles and the other half to the defendants. The enterprise was not successful. The plaintiff brought suit, claiming that he was in any event entitled to a one-twentieth part of the entire capital stock. The court held that the plaintiff was not entitled to re- ceive any part of the stock until sufficient shares had been sold to reimburse the defendants for the cost of the land, the incidental expenses, and the amount agreed to be paid to Cowles. § 34. Interpretation of agreements for division of profits of pro- motion, or shares of corporation. Agreements for the division of the shares of the corporation, or of the profits of its promotion, frequently give rise to questions of interpretation.*^ The courts, in case of doubt, always attempt to interpret the agreement in such manner that it shall, in view of all the circumstances, effect justice between the parties. In Bates v. Wilson *^ an agreement between three parties that 42. See also cases cited, ante, §§ of the company based upon an 30 and 33, and post, § 42. equal division of the total capital 43. 14 Colo. 140, 159-160, 24 Pac. stock among all the incorporators. 99, 105. Brown v. Florida Southern Rall- The mere fact of being an incor- way, 19 Fla. 472. porator does not, independent of a A promoter who has refused to contract, entitle one to a propor- take his share of the unissued tionate share of the capital stock stock, will not be heard to complain 50 ' THE LAW OF PROMOTEES. the capital stock of the corporation to be formed should be " di- vided half and half between the pa'rties " was held, standing alone and unexplained, to be without significance unless construed to mean " equally between the parties." In Donner v. Donner,** the plaintiff bought from the defendant " $25,000 worth of the defendant's interest " in three companies. These companies were shortly afterwards sold to the United States Steel Corporation, at a large profit. A dispute having arisen as to the plaintiff's interest in the profits, the court found that the evidence established that the plaintiff acquired one-tenth of the defendant's interest of $250,000 in the stock of these com- panies, and should consequently have been allowed one-tenth of the profits of the transaction. In Logan v. Simpson,** the plaintiff had obtained control of 7202 shares of the stock of the Williamsburg Gaslight Company, and agreed to transfer the same, at a price of $87.50 a share, to a syndicate formed to effect the consolidation of various gas com- panies in Brooklyn. A syndicate agreement was prepared under which the subscribers agreed to raise a fund of $15,000,000 to be used for the purpose of bringing about such consolidation. This agreement was subscribed by the plaintiff for $650,000. The syndicate committee proceeded with the consolidation, or- ganized a new company under the name of Brooklyn Union Gas Company, and received from such company for the transfer to it of the shares of the various constituent companies, bonds of the Brooklyn Union Gas Company, amounting to $5,816,069.09 and stock of that company of the par value of $8,710,761.47. The sum which the committee had paid for the stock of the constituent that all of such stock was then 44. 211 Pa. 409, 60 Atl. 1036. See taken by his co-promoter. Conklin also Donner v. Donner, 217 Pa. 37, V. United Construction & Supply 66 Atl. 147. Co., 166 N. X. App. Div. 284, 151 45. 60 N. T. App. Div. 617, 70 Supp. 624. Supp. 86. Appeal dismissed, 169 N. T. 599, 62 N. B. 1097. AGREEMENTS FOR PROMOTION. 51 companies plus the allowance made to the committee for services, aggregated $8,725,804.01. The committee distributed profits among the members of the syndicate based upon an aggregate subscription of $15,000,000, of which the plaintiff's interest was 4% per cent, based upon his subscription of $650,000. The plaintiff claimed that he was entitled to receive that proportion of the stocks and bonds distributed, which his interest of $650,000 bore to the $8,725,804.01 actually contributed by the syndicate. The court pointed out that while the plaintiff had delivered to the pool 7202 shares of stock, for which he was allowed $87.50 a share and an additional sum representing the excess over $87.50, which the plaintiff had been compelled to pay for some of his shares, the syndicate had been called upon to pay out over $400,- 000 representing money which the plaintiff owed upon his stock. The case was complicated by a question of fact which was, how- ever, determined adversely to the plaintiff. The court held that the syndicate committee had given to the plaintiff all that he was, under the agreement, entitled to receive. In Hunter Smokeless Powder Co. v. Hunter,*^ the defendant Hunter, being the owner of a valuable secret formula, entered into an agreement with certain individuals that they should contribute $250 each to perfect a machine for utilizing the formula, the agreement providing that the interest of the defendant Hunter should be three-fifths, and the interest of the other parties should be two-fifths, " for the purpose of organizing a stock company or for the purpose of a co-partnership ; and the capital stock shall be distributed accordingly, or as the co-partnership shall be pro- vided for the same." The parties organized the plaintiff corpora- tion, with a capital stock of $100,000. The trial court held that the defendant Hunter was entitled to have $60,000 par value of the stock and that the other parties to the agreement should re- ceive $250 par value of stock each. This judgment was reversed 46. 100 N. X. App. Div. 191, 91 Supp. 620. 52 THE LAW OP PROMOTERS. on appeal, the Appellate Division holding that the individuals contributing $250 were entitled to divide between themselves $40,000 par value of the capital stock of the company. In Spier v. Hyde,*'' the plaintiff had, at the request of the de- fendants, and with a view to the resale thereof at an advance, se- cured options on 10,100 shares of the stock of the Goodson Type Casting & Setting Machine Company. The parties subsequently concluded that the shares could be used to better advantage by the formation of a new company to take over these shares. An agreenjent was thereupon entered into reciting that a new com- pany should be formed, and that it was the intention of the parties to exchange 10,100 shares of the stock of the new company for an equal number of shares of the existing company, and to pool the 10,100 shares of stock of the new company. The agreement provided that modifications and changes in the plan proposed might be made by the defendants. The plaintiflF was to receive as compensation for his services, 15 per cent of whatever net profits might be -realized by a sale of the pooled stock, the contract pro- viding that " this 15 per cent interest relates only and applies solely, to the 10,100 shares of stock of" the new company and to the net profits, if any, to be derived from the sale thereof on the basis as above stated." The defendants afterwards modified the plan outlined in the agreement by making the 10,100 shares of stock of the old company the basis of the issue of the entire capital of the new company. The court held that the defendants were, under the terms of the contract, authorized to make this change of plan, but that they could not make such change at the "expense of the plaintiff without his consent, and that the latter was entitled to 15 per cent of the value of the 10,100 shares of the old company and of the stock of the new company received in (exchange therefor, and that his agreement did not restrict him to 15 per cent of 10,100 shares of stock of the new company whiqh 47. 92 N. Y. App. DlT. 467, 87 Supp. 285. AGREEMENTS FOR PROMOTION. 53 represented only a part of the shares issued in exchange for the 10,100 shares of the stock of the old company. In White v. Wood,** the defendants, as trustees for the hold- ers of 994 bonds, of the par value of $1,000 each, of the Chatteroi Railway Company, a Kentucky corporation, purchased the prop- erty of that company under foreclosure. The agreement under which the defendants were appointed provided that, in case the defendants were unable to sell the railroad within a fixed time, a new corporation should be organized to take over the road, and the stock of such new company issued and divided among the bond- holders in proportion to the number of bonds held and deposited by them. The defendants organized a new corporation under the laws of Kentucky with an authorized capital of $2,000,000, of which it was agreed that $994,000 par value should be issued to the bondholders in consideration of the conveyance by the defendants of the property purchased by them at foreclosure. The plaintiff was the owner of 27 bonds of the old company, and brought suit to restrain the transfer of the railroad to the new company, claim- ing that he was entitled under the agreement to a proportionate share of the entire $2,000,000 capital stock of the new corpora- tion. The court pointed out that the actual property represented by the stock to be issued to the bondholders was precisely the same whether there was distributed among them, the entire $2,000,000 of capital stock or only $994,000, and held that under the laws of Kentucky the paid up capital stock which the bondholders were entitled to receive could not exceed the original cost of the road purchased ; that the plaintiffs would have a right to complain had the defendants intentionally fixed the amount of the paid up capital stock to be issued to the bondholders at less than the value of the property purchased, but as it was not suggested that they had done this, and as there was no evidence that they had acted in bad faith, the plaintiff had no cause for complaint. 48. 129 N. Y. 527, 29 N. E. 835. 54 THE LAW OF PROMOTERS. In Burdette v. Universal Cleanser & Mfg. Co.,*® the plaintiff agreed to sell his one-tenth interest in a certain business known as the Universal Manufacturing Company under an agreement that a corporation should be organized to take over such business, and that the plaintiff should " have a full one-tenth interest represented by this sale in said corporation," The court held that the plain- tiff was entitled to receive one-tenth of the issued stock but could not insist on a fuU one-tenth of the authorized capital, a large part of which had, pursuant to the agreement of the organizers, been returned to the treasury for the use of the corporation. In Hennessy v. Griggs,®" the parties entered into an agreement to form a copartnership under the name of Dakota Gas & Fuel Company, it being agreed that the copartnership should, as soon as possible, proceed to organize a corporation under the same name to take over the partnership property. The agreement pro- vided that " the capital of said copartnership shall consist of $5,0,000, — ^Alexander Griggs to furnish $5,000 ; Thomas Hennessy, $10,000; and J. S. Eshelman, $10,000; the remaining $25,000 to be held by Griggs, to be by him negotiated and raised to and from certain persons in St. Paul, Minn." The plaintiff claimed that the capital to be furnished by Griggs, Hennessy and Eshel- man was nominal only, that they were to pay in no money, but that their services as copartners were to be accepted as such capital, and that the works were to be constructed with the $25,000 to be raised from outside parties. The court held that such was not the contract, that the capital to be furnished by these parties was to be actual capital and that no compensation was to be paid for services. It was held in A. J. Cranor Co. v. Miller ^^ that an agreement providing that one-fourth of the capital stock of the proposed corporation should be issued to the owner of a certain mill prop- erty in payment therefor, and the other three-fourths to the pro- 49. 44 Utah 275, 140 Pac. 119. 51. 147 Ala. 268, 41 So. 67a 50. 1 N. D. 52, 44 N. W. 1010. AGREEMENTS FOR PROMOTION. 55 moter, intended, not that three-fourths of the capital stock should be issued to the promoter without consideration, but that such stock should be paid for by him. § 35. Interpretation of agreements restricting sale of shares. In Burden v. Burden,^^ the parties agreed to organize a corpo- ration with a total capital of 2,000 shares, of which the defend- ant was to have 1,000, the plaintiff 998 shares, and one Arts 2 shares. The defendant agreed with the plaintiff that if he, the defendant, should at any time sell 998 of his 1,000 shares, then he would, without consideration, transfer the other two shares to the plaintiff. It was further agreed that Arts should not receive any dividends on his shares, but should receive a salary in lieu thereof, and that all the profits were to be divided equally between the plaintiff and the defendant. Thereafter the defend- ant caused the corporation to increase the number of its directors from three to five, and transferred to the new directors their qualifying shares. The plaintiff brought suit, claiming that the defendant was by the agreement prohibited from making any dis- position of his shares, except a single sale of 998 shares, accom- panied by a transfer to the plaintiff of the remaining two shares. The court held that the agreement did not intend that the defend- ant must seU 998 shares at one time, but merely that when the defendant had by one sale, or by a number of sales, disposed in the aggregate of 998 shares, he must then transfer his remaining two shares to the plaintiff. 52. 159 N. T. 287, 54 N. H. 17. CHAPTER III. Or THE Enfoucement of Agkeements roE THE Pkomotion of COBPOEATIONS. Section 36. Introductory. 37. Specific performance of agreements to promote corporation. 38. Specific performance where corporation has not been or- ganized. 39. Specific performance after corporation has been organized. 40. Actions of accounting. 41. Action to compel corporation to Issue shares. 42. Actions for damages. — Definlteness of agreement. 43. Measure of damages. 44. Action to recover property conveyed, or value thereof. 45. Actions to enforce mechanics' liens. § 36. Introductory. When it has been found that a valid agreement for the promo- tion of a corporation has been broken, the next question to be considered is that of the remedy of the party aggrieved. The primary remedy, that of an action at law for damages, is pften, because of the difficulty or impossibility of making satisfactory proof of the damages, inadequate. A search for some more satis- factory form of relief necessarily results. §37. Specific performance of agreement to promote corporation. A remedy which immediately suggests itself is that of an action for specific performance. Actions for the specific performance of contracts for the promotion of corporations divide themselves into two classes; actions in which the contemplated corporation has been organized, and all that the court is required to, do is to decree the transfer of shares in accordance with the agreement, (66) ENFORCEMENT OF AGREEMENTS. 57 and actions in which the corporation has not been organized and the court is asked, not merely to decree the issue and transfer of shares, but to order and supervise the organization of a corpo- ration. § 38. Specific performance where corporation has not been organized. An action for the specific performance of an agreement to organize a corporation, involving the formation of a company under the direction of the court, presents almost insurmountable difficulties. Relief of that character has been denied on the ground that the covenants to be performed by the plaintiff were such that specific performance thereof could not be decreed,^ on the ground that some of the parties to the agreement were in- solvent and could not perform,^ on the ground that the contract in suit was not sufficiently definite,^ and on the ground that the parties were hostile and unfriendly.* All of these are valid objections, and the last two none the less so because they apply to substantially every action of the character under consideration. It is difficult to imagine an agree- ment setting forth with particularity each of the innumerable matters to be determined upon the organization of a corporation, and a case is not likely to arise in which the parties to an action for the specific performance of an agreement to form a corpo- ration, come into court in an amicable and friendly spirit. It might, perhaps, be categorically stated that an agreement to form a corporation will not be specifically enforced.^ 1. Stocker'v. Wedderburn, 3 K. & 4. Rudiger v. Coleman, 112 N. Y. J. 393. App. Div. 279, 98 Supp. 461. 2. Hernreieh v. Lidberg, 105 111. 5. Avery v. Ryan, 74 Wis. 591, App. 495. 597-598, 43 N. W. 317, 319 ; Rudiger 3. Brown v. Swarthout, 184 Mich. y. Coleman, 112 N. Y. App. Div. 279, 585, 96 N. W. 951; Loewenberg v. 98 Supp. 461; Perrin v. Smith, 135 DeVoigne, 145 Mo. App. 710, 123 S. N. Y. App. Div. 127, 119 Supp. 990. W. 99. 58 THE LAW OF PROMOTERS. § 39. Specific performance after corporation has been organized. If the corporation contemplated by the agreement of the parties has been organized, an action to specifically enforce the provisions relating to the division or transfer of its shares may often be successfully maintained.® It is, in such cases, necessary to show that the corporation organized is actually the corpora- tion contemplated by the^parties. This is a question of fact,'' and though there be some difference in detail between the corporation contemplated and that organized, the parties who organized the corporation and are responsible for the departure from the pre- cise original scheme, will not readily be permitted to escape the performance of their engagements, if the company as organized substantially conforms to that contemplated by the agreement of the parties.® Specific performance of a contract relating to the sale or trans- fer of corporate shares will not be decreed if the remedy at law is adequate. If the shares of the company are, at or about the time of the breach of contract complained of, bought and sold in the open market so that the desired shares can easily be obtained and their market value be readily established, complete relief may ordinarily be had at law and a resort to equity is unnecessary.* Though no market value has been established and the shares cannot be readily purchased, it does not necessarily follow that the remedy at law is inadequate. The measure of damages in ■such case depends upon the intrinsic value of the shares. Proof of the intrinsic value is not necessarily a matter of great diffi- culty. If the corporation is organized to take over real or per- 6. The corporation may be a 612, 24 Supp. 599. proper, but is not a necessary, party 8. Dennison v. Keasbey, 200 Mo. to such suit. Williamson v. Krohn, 408, 98 S. W. 546. Cf. Hennessy v. 66 Fed. Rep. 655, 661, 13 O. O. A. Griggs, 1 N. D. 52, 44 N. W. 1010. 668, 31 U. S. App. 325. 9. Bernler v. Griscom Spencer Co., 7. Crichfield v. Julia, 147 Fed. 161 Fed. Rep. 488; Avery v. Ryan, Rep. 65, 77 C. C. A. 297, and see 74 Wis. 591, 48 N. W. 317, and cases Sessions v. Elwell, 71 Hun (N. Y.) cited in succeeding notes. ENFORCEMENT OF AGREEMENTS. 59 sonal property, or an existing enterprise or business, of readily ascertainable value, the matter of proving, to a reasonable de- gree of certainty, the intrinsic value of the shares, presents no in- surmountable difficulties and a decree of specific performance will generally be denied.^" If, however, the value of the shares de- pends upon the commercial value of some novel patent or device, or upon the success of some theretofore untried enterprise, or upon the successful operation of a new mine, or of a projected railroad, the accurate determination of the intrinsic value of the shares is impossible. The value of the shares of a corporation organized to develop such an enterprise becomes a matter of even greater uncertainty if the shares are, as is often the case, sub- ject to the prior rights of bondholders or preferred stockholders. The intrinsic value of the shares can in these cases not be com- puted or with any reasonable degree of certainty ascertained, and if no market value has been established, a court of equity will, according to the great weight of authority, decree specific per- formance of the agreement to sell or transfer the shares.^'^ 10. Clements v. Sherwood-Dunn, Pae. 98; Sherwood v. Wallin, 1 CaL 108 N. Y. App. Div. 327, 95 Supp. App. 532, 82 Pac. 566. 766, affirmed without opinion, 187 N. Illinois — Ames v. Witbeck, 179 X. 521, 79 N. E. 1102; Bateman v. 111. 458, 53 N. E. 969. Straus, 86 N. T. App. Dlv. 540, 83 /owa.— Schmidt v. Pritchard, 135 Supp. 785 ; Ehrlch v. Grant, 111 N. Iowa 240, 112 N. W. 801. r. App. Div. 196, 198, 97 Supp. 600. Minnesota. — Selover v. Isle Har- But see Selover v. Isle Harbor Land bor Land Co., 91 Minn. 451, 98 N. Co., 91 Minn. 451, 98 N. W. 344, 100 W. 344, 100 Mian. 253, 111 N. W. Minn. 253, 111 N. W. 155. 155 ; Northern Trust Co. v. Mark- 11. Federal.— Krohn. v. William- ell, 61 Minn. 271, 63 N. W. 735. son, 62 Fed. Rep. 869, 877, affirmed, Missouri.— BvLtlei v. Murphy, 106 sub nam. Williamson v. Krohn, 66 Mo. App. 287, 80 S. W. 337; Denni- Fed. Rep. 655, 13 C. C. A. 668, 31 U. son v. Keasbey, 200 Mo. 408, 98 S. S. App. 325. W. 546; Baumhoff v. St. Louis & K. California.— KroTjse v. Woodward, R. Co., 205 Mo. 248, 104 S. W. 5, 120 110 Cal. 638, 42 Pac. 1084; Trea- Am. St. Rep. 745. surer v. Commercial Mining Co., 23 Nevada. — Turley v. Thomas, 31 Cal. 390; Wait v. Kern River Min. Nev. 181, 101 Pac. 568, 135 Am. St. Mill. & Dev. Co., 157 Cal. 16, 106 R. 667. 60 THE LAT^ OF PROMOTERS. Some jurisdictions allow an action for specific performance in any case in which it appears that the shares which the plaintiff has contracted to purchase cannot be obtained elsewhere than from the defendant.-'^ There is much to be said in support of this rule. If one has agreed to transfer to another the shares of a corporation but refuses so to do, and the promissor is the owner of the shares which he has agreed to transfer and is able to complete his contract, the simplest and surest method of doing N'ew Jersey. — Safford v. Barber, 74 N. J. Eq. 352, 70 Atl. 371. Neiv York. — Rau v. Seidenberg, 53 N. Y. Misc. 386, 104 Supp. 798; Gil- bert V. Bunnell, 92 N. Y. App. Dlv. 284, 86 Supp. 1123. Pennsylvania. — Goodwin Co.'s Ap- peal, 117 Pa. 514, 12 Atl. 736, 2 Am. St. Kep. 696. Rhode Island. — Manton v. Ray, 18 R. I. 672, 29 Atl. 998. Of. Hyer v. Richmond Traction Co., 168 U. S. 471, 483, 42 L. Ed. 547, IS S. C. 114, where the Court held — two judges dissenting — that the plaintiff's remedy at law was ade- quate as the present value of the franchise of the new company, and of its capital stock, were not wholly beyond estimate, though their value three or four years later was uncertain and might depend upon the management. The Supreme Court seems in this case to have further decided that specific per- formance would not be decreed, as the contract of the parties contem- plated a partnership to operate a traction franchise, while the ordi- nance granting the franchise created the parties to whom it was granted, a corporation. The reasoning seems to be that a court of equity will not decree specific performance of an agreement to form a partnership, and that there was no agreement to transfer shares of stock to the plain- tiff. The reasoning of the majority of the court may accord with strict logic, but one cannot but feel that more exact justice would have been attained by the adoption of the views of the minority. On the question of specific per- formance of agreements relating to the sale and transfer of shares, see note to Ryan v. McLane, 50 L. R. A. 501, and note to Hogg v. McGuffin, 31 L. R. A. N. S. 491, and note to Tur- ley V. Thomas, 135 Am. St. R. 667, 689. 13. Federal. — ^Meglbben's Adm'rs V. Perin, 49 Fed. R^p. 183, affirmed, 53 Fed. Rep. 86, 3 C. C. A. 443, 6 U. S. App. 348. Illinois. — Hills v. McMunn, 232 111- 488, 83 N. B. 963. Iowa. — Schmidt v. Prltchard, 135 Iowa 240, 112 N. W. 801. Oregon. — Deitz v. Stephenson, 51 Or. 596, 95 Pac. 803. Pennsylvania. — Northern Central Railway Co. vi Walworth, 193 Pa. 207, 44 Atl. 253, 74 Am. St. Rep. 683. See also Cook on Corporations (7th ed.), i 338. ENFORCEMENT OP AGREEMENTS. 61 exact justice between the parties is to direct the carrying out of the precise agreement. Justice Story says that " it is against conscience that a party should have a right of election whether he would perform his covenant or only pay damages for the breach of it. But, on the other hand, there is no reasonable ob- jection to allowing the other party who is injured by the breach to have an election either to take damages at law or to have a specific performance in equity." ^^ It should furthermore be said that specific performance of an agreement to transfer shares may sometimes be decreed if the aggrieved party proves that the shares have to him some special or peculiar value which cannot be measured in money damages.-'* A court of equity does not direct performance of the impossi- ble and, therefore, refuses to decree specific performance of an agreement to transfer shares if it appears that the defendant is neither the legal nor equitable owner of the shares in suit.^® If the plaintiff would, but for the inability of the defendant to per- form, have been entitled to a decree of specific performance, .a court of equity will, while refusing to make such decree, retain jurisdiction and render judgment for money damages.^® If, how- ever, it appears that the plaintiff, before he commenced his ac- tion, knew that specific performance of his agreement was, or had become, impossible, his action in equity will be dismissed.^' An agreement for the organization of a corporation and the 13. Story's Equity Jurisprudence 15. Ryan v. Martin, 165 Fed. Rep. (13th Ed.), § 717a. Quoted, but not 765; Jones v. Tunis, 99 Va. 220, 37 altogether approved of, in Johnson S. E. 841; Columbine v. Chichester, V. Brooks, 93 N. Y. 337, 343. 2 Phillips 27. 14. Moulton V. Warren Mfg. Co., 16. Altoona, etc., Co. v. Kittan- 81 Minn. 259, 83 N. W. 1082 ; Butler nlng, etc., Railway Co., 126 Fed, V. Wright, 186 N. Y. 259, 78 N. B. Rep. 559 ; Jones v. Tunis, 99 Va. 220, 1002, 37 N. Y. Civ. Proc. 253 ; Sher- 87 S. E. 841. man v. Herr, 220 Pa. 420, 69 Atl. 17. Jones v. Tunis, 99 Va. 220, 37 899. S. E. 841. See note to Turley v. Thomas, 135 Cf. Hogg v. McGuffln, 67 W. Va. Am. St. Rep. 689. 456, 68 S. E. 41, 31 L. R. A. N. S. 52 THE LAW OF PROMOTERS. division or transfer of its shares cannot be specifically enforced by a court of equity, unless the agreement is so drawn that the rights of the parties can be definitely ascertained. It is not, however, necessary that every detail of the scheme of incorpora- tion should be set out in the agreement. If the properties to be conveyed, or the services to be performed by the parties, and the shares to be received in payment therefor, are clearly stated, the agreement is sufficiently definite, and if a company is organ- ized in substantial compliance with the scheme outlined in the agreement, specific performance of the provisions relating to the transfer of the shares may be enforced.-'* It is, however, necessary to keep in mind that the granting of a decree of specific performance of a contract relating to per- sonal property, rests always in the sound discretion of the court, and that such decree will be denied if the court deems that the granting thereof would work a hardship, and that justice would not result therefrom.-'® § 40. Actions of accounting. Relief similar in efi'ect to that bbtained by an action for specific performance, is sometimes had by an action to enforce a trust or to compel an accounting for the shares issued to the promoters,^" The plaintiff must, in order to succeed in an action 491, where the court gave the plain- 540, 83 Supp. 785 ; Gilbert v. Bun- tiff a lien upon the purchase money nell, 92 N. T. App. Div. 284, 86 Supp. for the shares not yet paid by the 1123; Brown v. Britton, 41 N. 1. Innocent purchaser thereof. App. Div. 57, 58 Supp. 353. 18. Butler v. Murphy, 106 Mo. 20. Federal. — ^Krohn v. William- App. 287, 80 S. W. 337. Cf. Burke eon, 62 Fed. Rep. 869, 877, affirmed, V. Mead, 159 Ind. 252, 64 N. E. 880. sub nom. Williamson v. Krohn, 66 See post, § 42. Fed. Rep. 655, 13 C. C. A. 668, 31 U. 19. Newton v. Wooley, 105 Fed. S. App. 325; Harvey v. Sellers, 115 Rep. 541 ; Williams v. Montgomery, Fed. Rep. 757 ; Warner v. Wood, 148 N. Y. 519, 527, 43 N. E. 57; 200 Fed. Rep. 542, 118 C. C. A. 636. Butler V. Wright, 186 N. Y. 259, 78 Alabama — Howison v. Baird, 145 N. E. 1002, 37 Civ. Proc. 253 ; Bate- Ala. 683, 40 So. 94. man v. Straus, 86 N. Y. App. Div. ArieofM- — Philes v. Hickles, 2 ENFORCEMENT OF AGREEMENTS. 63 of this character, show something more than a mere contract to organize a company and transfer to him a portion of the share capital. If the plaintiflF has transferred property to the defend- ant under an agreement that such property is to be transferred to a corporation and its shares issued to the plaintiff. in payment, and the defendant transfers the property to the corporation and receives the shares therefor, he holds such shares as agent or trustee for the plaintiff and may be compelled to account there- for. Some fact upon which a finding of a partnership or trust relation can be predicated must, however, be shown in order that ■ an action of this character may be maintained.^-' § 41. Action to compel corporation to issue shares. If the plaintiff has transferred his property directly to the corporation, under an agreement that he is to receive shares of the corporation in payment, the courts may treat the plaintiff as the owner of the shares and direct the corporation to issue stock certificates to him.^^ An action of this character can Ariz. 407, 18 Pae. 595, affirmed for In Badgerow v. Manhattan Trust want of prosecution, 154 U. S. 505, Co., 64 Fed. Rep. 931, the court sus- 14 Sup. Ct. 1147. tained an action to impress a lien California. — Hunt v. Davis, 135 upon the securities. Cal. 31, 66 Pac. 957. 21. Everett v. Defontaine, 78 N. Colorado.— VsiTTia v. Wirt, 16 Y. App. Div. 219, 79 Supp. 692; Colo. App. 1, 63 Pac. 94& Avery v. Ryan, 74 Wis. 591, 43 N. New York. — King v. Barnes, 109 W. 317; Cf. Dickerson v. Appleton, N. Y. 267, 16 N. B. 332 ; Spier v. 195 N. Y. 507, 88 N. E. 1117, affirm- Hyde, 92 N. Y. App. Div. 467, 87 ing, 123 N. Y. App. Div. 903, 108 Supp. 285. Supp. 293. Wisconsin. — Bannen v. Kindling, 23. Anthony v. American Glucose 142 Wis. 613, 126 N. W. 5. Co., 146 N. Y. 407, 41 N. E. 23. United Kingdom and Colonies. — In Wait v. Kern River Mln. MUl. McNeil V. Fultz, 38 Can. Sup. Ct. & Dev. Co., 157 Cal. 16, 106 Pac. 98, 198. the plaintiff showed that he was en- The right to the shares is not en- , titled to receive 245,000 shares from forceable as against a iona fide pur- the individual defendant who had chaser thereof. Thurber v. Crump, absconded and could not be per- 86 Ky. 408, 6 S. W. 145. sonally served. It appearing that 64 THE LAW OP PROMOTERS. be maintained in any case where the facts are such that the plain- tiff may be treated as the owner of the shares, and the court is called upon only to decree the' issue of proper certificates.^* § 42. Actions for damages. — Definiteness of agreement. A remedy which is always open to every party complaining of the breach of an enforceable agreement, is an action at law for the recovery of the money damages suffered by reason of the breach.^* The party bringing an action for damages for the breach of an agreement to form a corporation must, in order to recover, show the making of a contract in terms sufficiently definite to form a basis for the computation of damages. The property that is to go into the corporation and the proportionate part of the capital stock to be issued to the plaintiff must be substantially fixed, otherwise it cannot be determined what the plaintiff was entitled to receive, or what damages he has suffered by reason of the breach.^® If the agreement fixes, with reasonable certainty, such absconding defendant was en- ' Walsh, 36 Wash. 190, 78 Pac. 786. titled to receive from the defendant 25. See Haskins v. Ryan, 71 N. corporation more than 245,000 J. Bq. 575, 581, 64 Atl. 436; Watson shares, such corporation was by v. Bayliss, 71 Wash. 499, 128 Pac. the court directed to issue 245,000 1061. of the individual defendant's shares, The court in Flaherty v. Gary, 62 directly to the plaintiff. N. X. App. Div. 116, 70 Supp. 951, 23. Ohater v. San Francisco affirmed, 174 N. T. 550, 67 N. B. Sugar Refining Co., 19 Gal. 219, 1082, defeated the plaintifC on the seems to have been an action of ground that the agreement under this character. See also Chambers consideration was a mere agreement V. Mittnacht, 23 S. D. 449, 122 N. W. to assist the plaintifC in forming a 434. corporation and not an absolute Gf. Dickinson v. Matheson Motor agreement to form the corporation. Car Co., 161 Fed. Rep. 874, affirmed. See also Porter v. Blair, 83 Fed. 171 Fed. Rep. 646, 97 G. C. A. 29. Rep. 104 ; Brehm v. Sperry, 92 Md. 24. Crichfield v. Julia, 147 Fed. 378, 403, 48 Atl. 368, 372.^ Rep. 65, 77 0. O. A. 297; Perrln v. A mere agreement to make a de- Smith, 135 N. Y. App. Dlv. 127, 119 finite agreement is not enforceable. Supp. 990; Kirschmann v. Lediard, See Haskins v. Ryan, 71 N. J. Eq. 61 Barb. (N. T.) 573; Grant v. 575, 64 Atl. 436. ENFORCEMENT OF AGREEMENTS. 65 the assets to be transferred to the corporation, the total share capital, and the portion thereof which the plaintiff is to receive, or contains definite provisions from which the relation between these factors may be computed, the courts will not, or at least should not, be too astute in discovering uncertainties by reason of which the plaintiff's right of recovery may be defeated.^® In Crichfield v. Julia,^'^ the defendant agreed to pay the plain- tiff for his asphalt mine $5,000 in cash and $100,000 in guar- anteed 6 per cent preferred shares of a corporation to be organ- ized to operate the mine. The agreement did not fix the capital- ization of the proposed company, its bonded indebtedness, or even the total amount of the preferred stock of which the plaintiff was to receive $100,000 par value. It was claimed that the contract was too indefinite for enforcement. The court said that the amount of common stock that might be issued was immaterial as such common stock would be subject to the preferred stock and would not affect its value; that in the absence of any words or •definition of limitation, " the use of the term * preferred stock,' in connection with defendant's guaranty of interest, may fairly be taken to indicate stock whose par value is to be based upon the actual value of the property it represents, and not upon any fictitious or speculative value. If the stock were so affected by, a bonded indebtedness as not to have a substantial value repre- senting a par value it would be a preferred stock merely in name, and would not represent the understanding of the parties as evi- denced by the agreement sLnd the defendant's guaranty," The contract was held sufficiently definite to enable a jury to estimate the value of the preferred stock which the plaintiff was under his contract entitled to receive. In Waring & Gillow, Ltd., v. Thompson,^^ it was held that be- cause of the indefiniteness of the contract to form the corporation, 26. Crichfield v. Julia, 147 Fed. 27. 147 Fed. Rep. 65, 77 C. C. A. Rep. 65, 77 C. C. A. 297. But see 297. eases cited under notes 28 and 29. 28. London Times, Feb. 9, 1912. 66 THE LAW OF PROMOTERS. which " left open for future agreement a number of points, e. g., the memorandum and articles of association, the borrowing and other powers of the company, and the plaintiffs' percentage of profit, with other matters," the plaintiffs could not recover damages for the breach thereof. The case is not satisfactorily reported. If the percentage of the profits to be paid to the plaintiff's was left open for future determination, the decision that the contract was too indefinite for enforcement was correct. The fact that the memorandum and articles of association and the borrowing and other powers of the company had not been agreed upon, was, however, no reason for denying the plaintiff's' re- lief in an action for damages. An understanding that the com- pany shall be organized upon a reasonable basis may be implied, and the absence of a definite understanding in regard to matters not constituting a necessary factor in the computation of the value of the shares is no reason for denying relief in damages.*' § 43. Measure of damages. The measure of damages in an action for the breach of a con- tract to organize a corporation to purchase the plaintiff's prop- erty and pay for it in shares, is the amount the plaintiff would have gained by the performance of the contract. If the plaintiff's property has been conveyed to the corporation, or to the defend- ants, the measure of damages is the value of what the plaintiff was to receive. If the plaintiff has not parted with his property, the measure of his damages is the difference between the value of the property which he agreed to convey and the value of what he was to receive under his contract.^** If the shares in which the plaintiff was to be paid are, at the time of the breach, bought and sold in the open market to such 29. See, however, Flaherty v. son v. Bayliss, 71 Wash. 499, 128 Gary, 62 N. T. App. Div. 116, 70 Pae. 1061. Supp. 951, affirmed without opinion, 30. Kirschmann v. Ledlard, 61 174 N. Y. 550, 67 N. E. 1082; Wat- Barb. (N. T.) 573. ENFORCEMENT OF AGREEMENTS. §7 an extent that their market value has been fixed, this market value forms the measure of the value of the shares. The difficulty with the action for damages is that the shares, have, in most cases, at the time of the breach, no market value, and a market value is, in many cases, never established. The fact that no market value for the shares was ever established does not defeat the plaintiff's action, or restrict his recovery to nominal damages. In Stanton v. New York & Eastern Railroad Co.,^^ the promoters of the defendant corporation had before its organization made a contract with one Hungerford that he should procure for the proposed company certain rights of way and be paid for his services in the shares of the company. The company upon its organization assumed the obligations of this contract, but, being unable to obtain the necessary authority to build a bridge across the Housatonic River, abandoned the enterprise and called in the stock that had been issued. The court below, on the theory that the stock which he was to receive for his services never had any market value, allowed Hungerford only nominal damages. The Supreme Court of Errors, however, held that the reason that this stock never had any market value was that the corporation had decided not to issue it, that it could not take advantage of its own wrong and that Hungerford was entitled to substantial damages. Where no market value of the shares is established the plaintiff's recovery is measured by the intrinsic value of the shares. He cannot recover their par value.^^ He must prove the value of the contemplated properties and assets of the projected corporation, the amount of the bonded and other indebtednesses to which the shares were to be subject, the amount and different classes of shares to be issued, and from these facts the jury must determine 31. 59 Conn. 272, 22 Atl. 300, 21 529, 52 S. W. 129; Kirschmann v. Am. St. Rep. 110. Lediard, 61 Barb. (N. Y.) 573; Pitt 32. Beaty v. Johnston, 66 Ark. v. Kellogg, 33 N. Y. St. R. 894, 11 Supp. 52& 68 THE LAW OF PROMOTERS. to the best of their ability the probable value of the shares had they been issued in accordance with the agreement.'* It would ordinarily be impossible, and the plaintiff is not called upon, to prove such value to any degree of certainty, but he must, in order to recover, adduce facts from which some fair estimate of the intrinsic value of the shares can be made.** A recovery may, of course, be defeated by proof that the contemplated scheme was wholly impracticable, and that the shares could in no event have had any value.*' § 44. Action to recover property conveyed, or value thereof. Parties, complaining of the breach of agreements to organize a corporation to take over their properties and deliver a certain part of its share capital in payment, realizing the very obvious difficulty of proving what the shares would have been worth had the corporation been organized in accordance with the agreement, frequently seek some other remedy, or, at least, some other basis of recovery. Where the plaintiff's property has been conveyed to the promoters it is sometimes sought to recover the property conveyed, or to hold the promoters liable for the value thereof, instead of suing them for the rather uncertain value of the shares which they agreed to deliver to the plaintiff. In Manistee Lumber Co. v. Union National Bank,*® the plkintifF had assigned its claim of $39,000 against an insolvent corporation 33. Crichfleld v. Julia, 147 Fed. to submit to the jury tlie question Rep. 65, 73-74, 77 C. C. A. 297, and of the value of the shares which cases cited ; Beaty v. Johnston, 66 should, under the contract, have Ark. 529, 52 S. W. 129; Dyer v. been delivered to the plaintiff. Rich, 1 Mete. (Mass.) 180. where the value of such shares de- 34. Curran v. Smith, 149 Fed. pended entirely upon the value of Eep. 945, 952-953, 81 C. O. A. 537 ; certain mineral rights, , and there Eisenmayer v. Leonardt, 148 Cal. was no evidence whatever as to the 596, 84 Pac. 43. value of such mineral rights. It was held in Eisleben v. Brooks, 35. Eisenmayer v. Leonardt, 148 170 Fed. Rep. 86, 102 C. C. A. 380, Cal. 596, 84 Pac. 43. that it was error for the trial court 36. 143 111. 490, 32 N. B. 449. ENFORCEMENT OF AGREEMENTS. 69 "to one of the defendants, receiving $11,700 in cash, it being agreed that the defendants should purchase the property and assets of the insolvent corporation, transfer the same to a new corporation to be formed, and upon the tender to it by the plaintiff, on or before May 1st, 1889, of the sum of $11,700 in cash, transfer to the plaintiff stock of the new company to the extent, and in the ratio, that $11,700 should bear to the aggregate cost of the aforesaid property and assets. The defendants subsequently de- nied their liability to deliver the stock to the plaintiff. The court held that the consideration for the assignment theretofore made by the plaintiff thereupon failed, and that a right of action arose to recover the dividend upon the plaintiff's claim against the insolvent corporation which the defendants had collected from the receivers, less the sum of $11,700 already paid to the plaintiff. In Schneider v. Miller,^'' a firm of which the plaintiff was the surviving partner, being the holder of a lease of certain asphalt lands, agreed with the defendant that the latter should organize a corporation with a capital stock of at least $30,000 to which this lease should be transferred. The defendant agreed to contribute to the corporation, as capital, $10,000 within sixty days and $20,- 000 in six months. It was agreed that the plaintiff should have two-thirds of the stock of the corporation, and the defendant's firm one-third and certain specified royalties on the product sold. The corporation was organized and the lease assigned to it. The defendant failed to contribute the capital required by the agreement. The court held that the defendant's promise to advance the required capital should be considerd a condition subsequent, and that his failure to perform justified a rescission of the contract and entitled the plaintiff to a re-assignment of the lease. In Atlanta & West Point R. R. Co. v. Hodnett,^® a deed of a right of way given upon the sole consideration of certain promises 37. 129 N. Y. App. Div. 197, 113 Y. App. Dlv. 852, 117 Supp. 287. Supp. 399. See same v. same, 132 N. 38. 36 Ga. 669. 70 THE LAW OF PROMOTERS. made by its promoters, was set aside upon the failure of the corporation to perform such promises. In Slide & Spur Gold Mines v. Seymour,^* the plaintiflF was allowed to enforce a vendor's lien for the unpaid purchase price, against property which he had sold to Haldeman, the promoter of the defendant corporation, and which Haldeman had in turn sold to the corporation. In Curran v. Smith,*" the plaintiffs and defendants entered into an agreement under which the defendants agreed to construct a pipe line and reservoir, and the plaintiffs agreed to pay them therefor $110,000 in cash and one-half of the capital stock of a corporation to be formed to take over the pipe line. The re- mainder of the stock was to be retained by the plaintiffs. In- vestigation having shown that the cost of the pipe line would largely exceed, and the water supply fall short of, the estimates, the defendants abandoned the project. The plaintiff's demand for damages was denied on the ground that the value of the shares of the proposed corporation was too uncertain. The plaintiffs were, however, allowed to recover from the defendants the amoimt of certain expenditures in furtherance of the contract, made by them at the request of the defendants. In Marston v. Singapore Rattan Co.,*^ the plaintiff conveyed his business to the defendant corporation under an agreement that the plaintiff should be continued as manager, and should receive $12,000 in the shares of the company. The individual defendants agreed to take stock in the corporation for the moneys owing to them from the plaintiff, and one of the defendants from time to time furnished money and merchandise to the corporation, accept- ing shares in payment. The plaintiff was, after some eight months, discharged from his position as manager. He brought suit 39. 153 TJ. S. 509, 38 L. Ed. 802, 41. 163 Mass. 296, 39 N. B. 1113. 14 Sup. Ct. 842. See Rogers v. Garland, 19 Dlst. 40. 149 Fed. Rep. 945, 81 O. C. Ool. 24, 41. A. 537. ENFORCEMENT OF AGREEMENTS. 71 against both the corporation and the individual defendants, and recovered the value of the property which he had transferred to the corporation. The Supreme Court reversed the judgment of the trial court, holding that the plaintiff had for eight months had the benefit of the agreement, that the parties could not be restored to their original position, and that the plaintiff could not rescind the transaction and recover the value of the property conveyed, but could only recover the damages resulting from the breach of the agreement. § 45. Actions to enforce mechanics' liens. An interesting question arises out of the scheme under which butter and cheese manufacturing companies are frequently organ- ized, and the attempt of the promoting contractors to secure their payments by means of an action to enforce a mechanic's lien. The scheme is, that the company engaged in the business of erect- ing such factories, prepares a contract in the form of a sub- scription agreement under which it agrees to erect a factory at a stated cost. The subscribers each sign for a stated amount and agree to form a corporation to take over the factory and to issue its shares to themselves in proportion to the amount of their respective subscriptions. The agreement sometimes con- tains a clause to the effect that the subscribers are liable each for himself alone, and not for the others, and this would, without such clause, be the proper interpretation of the agreement.*^ It has sometimes happened that the contracting promoters, finding themselves unable to collect all of the subscriptions, have at- tempted by enforcing a mechanic's lien against the property 43. Davis & Rankin, etc., Co. v. v. Graliam, 78 Fed. Rep. 83, 23 C. Barber, 51 Fed. Rep. 148; Davis & C. A. 657, 41 U. S. App. 680; Davis Rankin, etc., Co. v. Jones, 66 Fed. & Rankin v. Creamery Assoc., 63 Rep. 124, 14 C. C. A. 30, 32 U. S. Mo. App. 477, 480 and cases cited. App. 32 ; Chicago Bldg. & M'f g Co. Cf. Davis v. Shaf er, 50 Fed. Rep. 764. 72 THE LAW OF PROMOTERS. to secure the unpaid portion of the contract price. The en- forcement of such lien would, in effect, compel those subscribers who had paid their subscriptions, to pay the subscriptions of the delinquent subscribers in order to avoid the loss of the entire property. The right to enforce a mechanic's lien should in such case be denied,*^ but it has in at least one case been allowed.** 43. Burnap v. Sylvania Butter 44. Davis & Rankin, etc., Co. v. Co., 12 Ohio C. C. 639; Davis & Colusa Dairy Assoc, 55 111. App. Rankin v. Creamery Assoc., 63 Mo. 591. App. 47T. CHAPTER IV. Op Contbacts made foe the Cokpoeation by its Peomoteks. Section 46. Power of promoter to make contract for corporation. 47. Power of promoter to make contract for corporation after granting of charter. 48. Power of promoter to make contract for corporation after complete organization. 49. Liability imposed upon corporation by act of incorporation, or articles of association. 50. Assumption of liability by the fully organized corporation. 51. Status of promoter's contract pending action of corporation. 52. Status of subscription agreements pending action of cor- poration. 53. Assumption of liability by agreement of corporation. 54. The act of assumption. ' 55. Necessity of consideration. 56. Liability of corporation resulting from acceptance of benefit of promoter's contract. 57. Enforcement at law or in equity. 68. Lord Cottenham's Rule. 59. Obligation of corporation to pay for services in procuring contracts accepted by it. 60. Materiality of circumstance that original contract made by less than majority of incorporators. 61. Acceptance must be with full knowledge. 62. Liability of corporation accepting benefit of contract not contemplating performance by it. 63. The same subject. — Contracts of a continuing nature. 64. The same subject. — ^Amended contracts. 65. The same subject. — ^Express adoption. 66. The same subject. — Obligations cast upon assignee by terms of contract. 67. The same subject. Where corporation la organized to escape existing obligations. (73) 74 THE LAW OF PEOMOTBRS. Section 68! Liability of the corporation as affected by nature of par- ticular agreement. 69. Varying written agreement of promoter. 70. Subscription agreements. 71. Notice to promoter as notice to tlie corporation. 72. Admissions of promoter. 73. Enforcement by corporation of contract made by promoter. 74. Bight of corporation to conveyance of property purchased for it by promoter. 75. Effect of Instrument naming projected corporation as grantee. 76. Title to property which corporation is expressly organized to acquire. 77. Liability of promoter on contract made for corporation. 78. Liability of promoter after obligations are assumed by cor- poration. 79. Enforcement of contract by promoter. 80. Pleading the promoter's contract. § 46. Power of promoter to make contract for corporation. The law is well settled that contracts made for a projected cor- poration by its promoters, are not binding upon it,^ and this has been held to be so even though the promoters, after the organiza- 1. Federal. — ^Winters v. Hub Min- Co. v. Piatt, 5 Colo. App. 515, 39 ing Co., 57 Fed. Rep. 287 ; Weiss v. Pae. 584 ; Colorado Land & Water Arnold Print Works, 188 Fed. Rep. Co. v. Adams, 5 Colo. App. 190, 201, 688. In re Ballou, 215 Fed. Rep. 37 Pac. 39, 42-43; Miser Gold Mln- 810, 812. ing & Milling Co. v. Moody, 37 Colo. Atoftoma.— Moore & Handley 310, 86 Pae. 335. Hardware Co. v. Towers Hardware Florida. — Sumner-May Hardware Co., 87 Ala. 206, 6 So. 41, 13 Am. Co. v. Scally, 66 Fla. 93, 62 So. 900. St. R. 23. Illinois. — Park v. Modern Wood- CraZi/orwio.— Morrison v. Gold men of Am., 181 111. 214, 234, 54 Mountain Gold Mining Co., 52 Cal. N. E. 932. 306; Hawkins v. Mansfield Gold Indiana. — Cushion Heel Shoe Co. Mining Co., 52 Cal. 513; Peek v. v. Hartt, 181 Ind. 167, 103 N. E. Steinberg, 163 Cal. 127, 124 Pac. 1063, 50 L. R. A. N. S. 979. 834. Iowa. — Stevenson v. Dubuque L. Colorado. — Arapahoe Investment & L. Min. Co., 34 Iowa 577; Carey PROMOTERS' CONTRACTS. 75 tion of the company, constitute all its stockholders, officers and T. Des Moines Co-op. Coal & Mln. Co., 81 Iowa 674, 47 N. W. 882. Louisiana. — Bradshaw v. Knoll, 132 La. 829, 61 So. 839; Shreveport Nat'l Bank v. Maples, 119 La. 41, 43 So. 905. Massachusetts. — ^Holyoke Envel- ope Co. V. U. S. Envelope Co., 182 Mass. 171, 65 N. B. 54 ; Penn. Match Co. V. Hapgood, 141 Mass. 145, 7 N. E. 22; Abbott v. Hapgood, 150 Mass. 248, 22 N. E. 907, 5 L. R. A. 586, 15 Am. St. Rep. 193; Bradford V. Metealf, 185 Mass. 205, 70 N. E. 40. Michiffan. — Sullivan v. Detroit Y. & A. A. Ry. Co., 135 Mich. 661, 98 N. W. 756, 64 L. R. A. 673, 106 Am. St. R. 403; Carmody v. Powers, 60 Mich. 26, 26 N. W. 801, 13 Am. & Eng. Corp. Cas. 4. Minnesota — Battelle v. North- western Cement & Concrete Pave- ment Co., 37 Minn. 89, 33 N. W. 327; Bond v. Pike, 101 Minn. 127 111 N. W. 916; Church v. Church Cementico Co., 75 Minn. 85, 77 N. W. 548. Mississippi. — Bank of Forest v. Orgill Bros. & Co., 82 Miss. 81; 34 So. 325. Missouri. — ^Davls v. Maysville Creamery Ass'n, 63 Mo. App. 477; State V. People's U. S. Bank, 197 Mo. 574, 591, 94 S. W. 953, 957; Van Noy v. Central Union Fire Ins. Co., 168 Mo. App. 287, 153 S. W. 1090. New Jersey. — Seacoast R. R. Co. V. Wood, 65 N. J. Eq. 530, 537, 56 Atl. 337, affirmed (sui nom. At- lantic City R. R. Co. v. Wood), 78 N. J. Eq. 298, 81 Atl. 1132 ; Hudson Milling Co. v. Higgins, 85 N. J. Law 268, 88 Atl. 1079. New York. — ^Munson v. Syracuse G. & C. R. R. Co., 103 N. Y. 58, 75- 76, 8 N. E. 355, 29 Am. & Eng. R. R. Cas. 377 (citing 1 Redfleld on Railways 9) ; Rogers v. N. Y. & Texas Land Co., 134 N. Y. 197, 210- 211, 32 N. E. 27, 48 St. Rep. 263; Bond V. Atlantic Terra Cotta Co., 137 App. Div. 671, 677, 122 Supp. 425, followed, 151 App. Div. 938, 135 Supp. 1101, affirmed, 210 N. Y. 587, 104 N. E. 1127; Berridge v. Ab- ernethy, 24 Weekly Dig. 513; Metzger v. Knox, 77 Misc. 271, 136 Supp. 681, afE'd, 153 App. Div. 911, 137 Supp. 1129; Matter of Roches- ter H. & L. R. R. Co., 50 Hun 29, 18 St. R. 654, 2 Supp. 457. Cf. McDermott v. Harrison, 56 Hun 640, 9 Supp. 184, 30 St. R. 324, where CuUen, J. expresses a doubt that the rule that the promot- ers cannot bind the corporation ap- plies to a mere trading corporation. Ohio. — Dayton, etc., Turnpike Co. V. Coy, 13 Ohio St. 84. Tennessee. — Pittsburg & Tennes- see Copper Co. v. Quintrell, 91 Tenn. 693, 20 S. W. 248. Texas. — Weathersby v. Texas & Ohio Lumber Co., — Tex. Civ. App. — , 146 S. W. 243; Am. Home Life Ins. Co. V. Jenkins, — Tex. Civ. App. — , 138 S. W. 424; Weather- ford M. W. & N. W. Ry. Co. v. Granger, 86 Tex. 350, 24 S. W. 795, 40 Am. St. R. 837; Bxllne-Reimers Co. V. Lone Star Life Ins. Co., — Tex. Civ. App. — , 171 S. W. 1060. 76 THE LAW OF PROMOTERS. directors.^ A corporation cannot, before it has achieved legal Utah. — Wall V. Niagara Mln. & Sm. Co., 20 Utah 474, 59 Pac. 399; Long V. Citizens Bank, 8 Utah 104, 29 Pac. 878; Utah Optical Co. v. Keith, 18 Utah 464, 56 Pac. 155; Tanner v. Sinaloa Land & Fruit Co., 43 Utah 14, 134 Pac. 586. Washington. — Chilcott v. Wash- ington State Colonization Co., 45 Wash. 148, 88 Pac. 113. West Virginia. — Richardson v. Graham, 45 W. Va. 134, 30 S. B. 92. Wisconsin. — Pratt v. Oshkosh Match Co., 89 Wis. 406, 62 N. W. 84; Buffington v. Bardon, 80 Wis. 635, 50 N. W. 776. United Kingdom and Colonies. — Caledonian & Dumbartonshire Junc- tion Ry. Co. V. The Magistrates of Helensburgh, 2 Macq. 391, 2 Jur. N. S. 695; Preston v. Proprietors of Liverpool, Manchester, etc., Ry., 5 H. L. Cas. 605; Touche v. Metro- politan Ry. Warehousing Co., L. R. 6 Ch. App. 671 ; In re Empress En- gineering Co., L. R. 16 Ch. Div. 125; Gooday v. Colchester & Stour Valley Ry. Co., 15 Eng. Law & Eq. 596, 17 Beav. 132; In re Hereford & South Wales, Waggon & En- gineering Co., L. R. 2 Ch. Div. 621, 35 L. T. N. S. 40; Coit v. Cowling, 4 N. W. Terr. 464. See cases cited in note to Oakes V. Cattaraugus Water Co., 26 L. R. A. 544; and note to Cush- ion Heel Shoe Co. v. Hartt, 50 L. R. A. N. S. 980. But see Chicago Bldg. & Mfg. Co. v. Talbottom, etc., Co., 106 Ga. 84, 31 S. E. 809. The negotiations of the promoter may, however, be admitted in evi- dence to aid in determining the un- derstanding afterwards arrived at between the corporation and the other contracting party. First Nat'l Bank v. Armstrong, 42 Fed. Rep. 193, 195. The promoters' contracts may be made binding upon the corporation by statute. See Railways Con- struction Facilities Act (Stat. 27 & 28 Vict. Ch. 121), § 30, of which pro- vides that " Contracts relative to the purchase or taking of lands for the railway, entered into by the promoters before the incorporation of the company by the certificate, shall be as binding on the company as if they had been entered into by the company." 2. Battelle v. Northwestern Ce- ment & Concrete Pavement Co., 37 Minn. 89, 33 N. W. 327, and see Weatherford M. W. & N. W. R. R. Co. V. Granger, 86 Tex. 350, 357, 24 S. W. 795, 798, 40 Am. St. Rep. 837. Contra Pearsall v. Tenn. Central Ry. Co., 2 Tenn. Ch. App. 682, 709- 710; Ruttle v. What Cheer Coal Min. Co., 153 Mich. 300, 117 N. W. 168. Cf. Paxton V. Bacon Mill & Min- ing Co., 2 Nev. 257, 260, and see post, §§ 67, 71. The corporation may, in some cases, be estopped by the acts of the persons who afterwards create it, own all its capital stock, and constitute its directors and officers. Force v. Sawyer-Boss M'f g Co., Ill Fed. Rep. 902, affirmed, 113 Fed. PROMOTERS' CONTRACTS. 77 existence, have agents or enter upon contractual relations. One might, says the Supreme Court of Illinois,* as well say that a child in ventre sa mere may enter into a contract, or that its parents may bind it by contract, as that a corporation may enter into any contract, or transact any business, before it has a full and com- plete organization and existence as ail entity. § 47. Power of promoter to make contract for corporation after granting of charter. When a charter has been granted the corporation has in a sense achieved legal existence. The promoters are, however, not the agents of the corporation and cannot contract for, or otherwise represent it, and the company is not bound by the engagements made by them on its behalf pending complete organization.* The Rep. 1018, 51 C. C. A. 592 ; National Conduit M'f'g Co. v. Connecticut Pipe M'f'g Co., 73 Fed. Rep. 491; Macey Co. v. Globe Wernicke Co., 180 Fed. Rep. 401, 103 C. C. A. 547. See post, §§71 and 67. 3. Gent v. Manufacturers & Mer- chants Ins. Co., 107 111. 652, 658, 6 Am. & Eng. Corp. Cas. 588. 4. Illinois. — Gent v. Manufactur- ers & Merchants Ins. Co., 107 111. 652, 658, 6 Am. & Eng. Corp. Cas. 588; Western Screw & Manu- facturing Co. v. Cousley, 72 111. 531. Kansas. — Whetstone v. Crane Bros. M'f'g Co., 1 Kan. App. 320, 41 Pac. 211. Maryland. — Franklin Fire Ins. Co. V. Hart, 31 Md. 59. Oregon. — McVicker v. Cone, 21 Or. 353, 28 Pac. 76. Rhode Island. — Ireland v.. Globe Milling & Reduction Co., 20 R. I. 190, 38 Atl. 116, 38 L. R. A. 299. United Kingdom and Colonies. — Gunn V. London & Lancashire Fire Ins. Co., 12 Com. Bench N. S. 694; Payne v. New South Wales, etc., Co., 10 Exch. 283, and see Hutch- ison V. Surrey Consumers, etc., Ass'n, 11 C. B. 689. Nor have the incorporators power to contract for the corporation pending its complete organization. (Moore & Handley Hardware Co. v. Towers Hardware Co., 87 Ala. 206, 6 So. 41, 13 Am. St. Rep. 23 ; Blood V. La Serena L. & W. Co., 113 Cal. 221, 45 Pac. 252; Safety Deposit Life Ins. Co. v. Smith, 65 111. 309; Stowe v. Flagg. 72 111. 397; Mont- gomery V. Whitbeek, 12 N. D. 385, 96 N. W. 327; Coyote G. & S. M. Co. V. Ruble, 8 Or. 284, 291-292; McVicker v. Cone, 21 Or. 353, 28 Pac. 76; Ireland v. Globe Milling & Reduction Co., 20 R. I. 190, 38 Atl. 116, 38 L. R. A. 299. Cf. Harrison V. Vermont Manganese Co., 1 N. Y. 78 THE LAW OF PROMOTERS. corporation may be bound by the contract of the promoters, made after the granting of its charter, if a provision to that effect is contained in the corporate charter, or in the statute under which the company is organized.^ Power to contract for the company pending its complete organization would, if granted by charter or statute, generally be conferred upon the incorporators,® or upon the directors named in the charter,'' or upon some person or per- sons occupying toward the corporation some more definite relation than that of promoter. § 47. Power of promoter to make contract for corporation after complete organization. After a corporation has been fully organized,, its management Misc. 402, 49 St. Rep. 873, 20 Supp. 894), except perhaps as to acts nec- essary to be performed to perfect the corporate organization. Low v. Conn. & Pass. Rivers R. R., 45 N. H. 370, 377; Hall v. Vermont & Mass. R. R. Co., 28 Vt 401, 407 and see post, § 84, note 14. The incorporators' contract would, to bind the corporation, have to be sanctioned by a majority of them. Clarke v. Omaha & Southwestern R. R. Co., 5 Neb. 314, 328; Low v. Conn. & Passumpslc Rivers R. R., 45 N. H. 370, 379 ;'' Bell's Gap Rail- road Co. v. Christy, 79 Pa. 54, 59, 21 Am. Rep. 39; Tift v. Quaker City National Bank, 141 Pa. 550, 21 Atl. 660, 30 Am. & Eng. Corp. Cas. 339; Tanner v. Slnaloa Land & Fruit Co., 43 Utah 14, 134 Pac. 586. 5. See Joint Stock Companies Act of 1844 (Stat. 7 & 8 Vict. Chap. 110), § 23; Bull V. Chapman, 8 Exch. 444; Taylor v. Crowland Gas & Coke Co., 23 L. J. Exch. N. S. 254, 10 Exch. 293 ; In re State Fire Ins. Co., 36 L. J. Gh. N. S. 634, and see Hill v. Gould, 129 Mo. 106, lie, 30 S. W 181, and Munson v. Syracuse, etc., R. R., 103 N. Y. 58, 76, 8 N. E. 355, 29 Am. & Eng. R. R. Cas., 377. As to the Interpretation of such statutes see Gent v. Mfrs. & Mchts. Ins. Co., 107 111. 652, 6 Am. & Eng. Corp Cas. 588, and Montgomery v. Whitbeck, 12 N. D. 385, 96 N. W. 327. 6. White V. Kahn, 103 Ala. 308, 15 So. 595; Gent v. Mfrs. & Mer- chants Ins. Co., 107 111. 652; Mont- gomery V. Whitbeck, 12 N. D. 385, 96 N. W. 327; Ireland v. Globe Milling & Reduction Co., 20 R. I. 190, 38 Atl. 116, 38 L. R. A. 299; Badger Paper Co. v. Rose, 95 Wis. 145, 70 N. W. 302, 37 L. R. A. 162. 7. AUman v. H. R. & E. R. R. Co., 85 111. 521, 7 Rep. 236; Selkirk V. Windsor, etc., R. R. W. Co., 20 Ont. L. R. 290, 15 Ont. W. R. 87. PROMOTERS' CONTRACTS. 79 rests with the directors, and the promoters have, as such, no further connection therewith. It sometimes happens that the" promoters of a coi^oration are, after the organization of the company, authorized to represent it and to make engagements on its behalf.* Whatever power may be so granted to the promoters rests, not upon their relation of promoters to the corporation, but upon some agency independent thereof. § 49. Liability imposed upon corporation by act of incorpora- tion, or by articles of association. A corporation becomes liable for the contracts previously made on its behalf by the promoters if a provision to that effect is contained in the special act by which the corporation is created, or the general statute under which it is organized.® A provision contained in the articles of association that the company shall assume responsibility for the contracts made by its promoters, imposes no liability upon the corporation. The articles of association constitute, it is held, a contract between the share holders inter se, and not a contract between the corpora- tion and third parties, and a provision in the articles that the corporation shall enter upon or carry into effect a contract made by its promoters, cannot be availed of by the opposite party to such contract.^" A provision of the articles of association that 8. Hirschmann v. Iron Range, Utah. — Wall v. Niagara Mining etc., R. R. Co., 97 Mich. 384, 56 N. & Smelting Co., 20 Utah 474, 59 W. 842. Pac. 399, citing Taylor on Private 9. California. — Mitchell v. Pat- Corporations, § 87' terson, 120 Cal. 286, 52 Pac. 589. United Kingdom and Colonies. — Maine. — ^Tuttle v. Geo. H. Tuttle Carden v. General Cemetery Co., 5 Co., 101 Me. 287, 64 Atl. 496, 8 Am. Bing. N. C. 253; Tilson v. Warwick & Eng. Ann. Cas. 260. Gas Light Co., 4 Barn. & Cres. 962; New Hampshire. — Low v. Conn. & Scott v. Lord Ebury, L. R. 2 C. P. Pass. Rivers R. R., 45 N. H. 370, 255, 264, 36 L. J. C. P. 161 ; In re 380. Brampton & Longtown Ry. Co., L. R. Tcorog.— Weathersby v. Tex. & 10 Ch. App. 177; Hitchins v. Kll- Ohio Lumber Co., — Tex. Civ. App. kenny, etc., Ry., 9 C. B. 536. ^ 146 S. W. 243. 10' Weatherford, etc., Ry. Co. v. 80 THE LAW OF PEOMOTERS. the company shall assume the obligations incurred on its behalf by its promoters may, however, constitute an authorization to the board of directors to assume responsibility for the agreements made by the promoters, or to pay for the benefits received there- under. -"^^ § 50. Assumption of liability by the fully organized corporation. While the promoters have no power to represent or contract for the corporation, the corporation may, after it has been fully organized, agree to be bound by the terms of the contracts made by them on its behalf. It is sometimes said that the corporation may, after it has attained legal existence and complete organiza- tion, " ratify " the contracts made on its behalf by the pro- moters.^^ This statement is not strictly correct. There can. Granger, 86 Tex. 350, 24 S. W. 795, 40 Am. St. Rep. 837 ; In re North- umberland Ave. Hotel Co., L. R. 33 Ch. Div. 16; Melhado v. Porto Alegre Ry. Co., L. R. 9 C. P. Cas. 503; Browne v. La Trinidad, L. R. 37 Ch. Div. 1 ; In re Hereford, etc., Co., L. R. 2 Ch. Div. 621; Bley v. Positive Government Security, etc., Co., L. R. 1 Exch. Div. 20, 88, 34 L. T. N. S. 190; In re Rotherham Alum & Chemical Co., L. R. 25 Ch. Div. 103, 50 L. T. N. S. 219 ; In re Empress Engineering Co., L. R. 16 Ch. Div. 125; Gunn v. London & Lancashire Fire Ins. Co., 12 C. B. N. S. 694; In re Rhodesian Properties, Ltd., 1901 Weekly Notes 130, but see Touche v. Metropolitan Ry. Warehousing Co., L. R. 6 Ch. App. 671 ; In re Dale & Plant, Ltd., 61 L. T. N. S. 206. 11. Hawkeye Gold Dredging Co. V. State Bank of Iowa Falls, 157 Fed. Rep. 253 (reversed but not as to this question, 177 Fed. Rep. 164, 100 C. C. A. 626) ; Melhado v. Porto Alegre Ry. Co., L. R. 9 C. P. Cas. 503 ; In re Blakely Ordnance Co., L. R. 3 Ch. App. 154 ; In re Hereford, etc. Co., L. R. 2 Ch. Div. 621 ; Cros- key V. Bank of Wales, 4 Giff. 314. See post, § 87n. 13. Federal. — Kline Bros. & Co. V. Royal Ins. Co., 192 Fed. Rep. 378, reversed on another ground (auJ) norm. Royal Ins. Co. v. Kline Bros. & Co.), 198 Fed. Rep. 468, 117 C. C. A. 228. Alabama. — Davis v. Montgomery F. & C. Co., 101 Ala. 127, 8 So. 496. Arhansas. — Perry v. Little Rock & Fort Smith Ry. Co., 44 Ark. 383, 395. Connecticut. — Stanton v. N. Y. & Eastern R. R. Co., 59 Conn. 272, 285, 22 Atl. 300, 21 Am. St. Rep. 110. Indiana. — Bruner v. Brown, 139 Ind. 600, 38 N. B. 318; Cushion PKOMOTERS' CONTEACTS. 81 properly speaking, be no " ratification " of a contract entered into on behalf of the corporation at a time when it had not at- tained legal existence. A ratification dates back to the making of the original contract and necessarilj assumes a principal in existence and capable of contracting at that time. There can be no ratification of a contract entered into at a time when it could not have been made binding upon the principal.^* There Heel Shoe Co. v. Hartt, 181 Ind. 167; 103 N. B. 1063, 50 L. B. A. N. S. 979. Iowa. — Dubuque Female College V. District Township of Dubuque, 13 Iowa 555. Missouri. — State v. People's U. S. Bank, 197 Mo. 574, 591, 94 S. W. 953, 957. Nevada. — Alexander v. Winters, 23 Nev. 475, 49 Pac. 116, rehearing denied, 24 Nev. 143, 50 Pac. 798. New Hampshire. — ^Low v. Conn. & Passumpsic Rivers B. B., 45 N. H. 370, 378. New York. — Mesinger v. Meslnger Bicycle Saddle Co., 44 App. Div. 26, 60 Supp. 431; Gordon v. House of Childhood, Inc., 83 Misc. 74, 77, 144 Supp. 685. PenrisyVoania. — Tift v. Quaker City National Bank, 141 Pa. 550, 21 Atl. 660, 38 Am. & Eng. Corp. Cas. 339. South Dakota. — Eaeppler v. Eed- fleld Creamery Co., 12 S. D. 483, 81 N. W. 907. Texas. — ^Lancaster G. & C. Co. v. Murray G. S. Co., 19 Tex. Civ. App. 110, 47 S. W. 387. (Writ of error refused, 93 Tex. 732). Exline- Eeimers Co. v. Lone Star Life Ins. Co., — Tex. Civ. App. — , 171 S. W. 1060. Washington. — Chilcott v. Wash- ington State Colonization Co., 45 Wash. 148, 88 Pac. 113. Wisconsin — Pratt v. Oshkosk Match Co., 89 Wis. 406, 62 N. W. 84. United Kingdom and Colonies. — Spiller V. Paris Skating Bink Co., L. R. 7 Ch. Div. 368; Mason v. Harris, L. B. 11 Ch. Div. 97, 103. 13. Federal. — Marconi's Telegraph Co. V. Cross, 16 Hawaii 390. Indiana. — See Smith v. Parker, 148 Ind. 127, 133, 45 N. E. 770, 772. Kentucky. — Oldham v. Mt. Sterl- ing Imp. Co., 103 Ky. 529, 45 S. W. 779. Massachusetts. — Bradford v. Met- calf, 185 Mass. 205, 207, 70 N. E. 40; Abbott v. Hapgood, 150 Mass. 248, 22 N. E. 907, 5 L. B. A. 586, 15 Am. St. Eep. 193. Minnesota. — McArthur v. Times Printing Co., 48 Minn. 319, 51 N. W. 216, 31 Am. St. Bep. 653. Missouri. — Queen City Furniture Co. V. Crawford, 127 Mo. 356, 364- 365, 30 S. W. 163, 165-166. New York. — Oakes v. Cattaraugus Water Co. (dissenting opinion), 143 N. Y. 430, 440, 38 N. E. 461 ; 62 N. Y. St. Bep. 445, 26 L. E. A. 544; Stainsby v. Frazer Metallic Boat Co., 3 Daly 98. Rhode Island. — Ireland v. Globe 82 THE LAW OF PROMOTERS. is no doubt that a corporation can, by agreement express or im- plied, obligate itself to perform the contracts made on its behalf by its promoters, but it does so, not by ratifying the previous contract, but by entering upon a new agreement upon the terms contained in the contract which its promoters assumed to make on its behalf.-'* The distinction is generally one of words rather than of sub- stance, and frequently leads to unnecessary confusion. Occa- sionally, however, the distinction affects matters of substance, as Milling & Reduction Co., 20 R. I. 190, 38 Atl. 116, 38 L. R. A. 299. Texas. — Weatherford M. W. & N. W. Ry. Co. V. Granger, 86 Tex. 350, 24 S. W. 795, 40 Am. St. Rep. 837; Jones V. Smith, 87 S. W. 210. West Fw-^mio.— Richardson v. Graham, 45 W. Va. 134, 30 S. E. 92. WHsoonsin. — Badger Paper Co. v. Rose, 95 Wis. 145, 70 N. W. 302, 37 L. R. A. 162. United Kingdom and Colonies. — In re Empress Engineering Co., L. R. 16 Ch. Div. 125, 128, 130; Mel- hado V. Porto Alegre Ry. Co., L. R. 9 C. P. Cas. 503, 505, 507 ; Kelner v. Baxter, L. R. 2 C. P. 174; In re Northumberland Ave. Hotel Co., L. R. 33 Ch. Div. 16, 21-22; Howard V. Patent Ivory Mfg. Co, L. R. 38 Ch. Div. 156, 164; Scott v. Lord Ebury, L. R. 2 C. P. 255, 36 L. J. C. P. N. S. 161. See Note to Oakes v. Cattaraugus Water Co., 26 L. R. A. 544, 548. Cf. Stanton v. N. X. & Eastern R. R. Co., 59 Conn. 272, 285, 22 Atl. 30O, 21 Am. St. Rep. 110; Schreyer V. Turner Flouring Mills Co., 29 Or. 1, 43 Pac. 719. 14. Federal. — Marconi's Telegraph Co. V. Cross, 16 Hawaii 390. Indiana. — Smith v. Parker, 148 Ind. 127, 133, 45 N. E. 770. Kentucky. — Oldham v. Mt. Ster- ling Imp. Co., 103 Ky. 529, 45 S. W. 779. Massachusetts. — Koppel v. Mass. Brick Co., 192 Mass. 223, 78 N. E.. 128 ; Bradford v. Metcalf , 185 Mass. 205, 207, 70 N. E. 40; Holyoke En- velope Co. V. U. S. Envelope Co., 182 Mass. 171, 65 N. E. 54 ; Pennell V. Lothrop, 191 Mass. '357, 77 N. E. 842. Minnesota^. — McArthur v. Times Printing Co., 48 Minn. 319, 51 N. W. 216, 31 Am. St. Rep. 653 ; Wasser v. Western Land Securities Co., 97 Minn. 460, 464-465, 107 N. W. 160, 161 ; Battelle v. Northwestern Ce- ment & Concrete Pavement Co., 37 Minn. 89, 33 N. W. 327. Missouri. — Queen City Furniture Co. V. Crawford, 127 Mo. 356, 364- 365, 30 S. W. 163, 165-166; Richard Brown & Son Contr. Co. v. Bam- briek Bros. Const. Co., 150 Mo. App. 505, 131 S. W. 134; Van Noy V. Central Union Fire Ins. Co., 168 Mo. App. 287, 153 S. W. 1090. New Yorlc. — Oakes v. Cattaraugus Water Co. (dissenting opinion), 143 N. Y. 430, 440, 38 N. E. 461 ; 62 N. PKOMOTEKS' CONTRACTS. 83 in McArthur v. Times Printing Co.,^® where a contract of employ- ment would, if the promoters' agreement had been considered " ratified " and the contract in suit as entered into at the date of the original agreement, have been a contract not to be per- formed within one year and therefore void under the statute of frauds. The court, however, held that the agreement of the pro- moters was not ratified ; that the contract in suit was made at the time that the corporation agreed to be bound by the terms of the promoters' contract ; that it was to be performed within one year from that date, and was therefore valid and enforceable. It seems to be held in Re Dale & Plant, Ltd.,'^® that a resolution of the directors in terms " confirming " the agreement of the promoters, is ineffectual because such an agreement cannot be " confirmed," and that the resolution of the directors to be effectual should have provided that the corporation enter upon a new agreement upon the same terms as those contained in the agreement assumed to have been made for it by its promoters. This ruling, if intended by the court, is altogether too technical, and will, it is hoped, not be followed. § 51. Status of promoter's contract pending action of corpora- tion. It has been suggested that a contract made by the promoters on behalf of a corporation to be organized by them, is to be con- Y. St. Rep. 445, 26 L. R. A. 544; Co., L. R. 33 Ch. Div. 16, 21-22; Thistle V. Jones, 45 Misc. 215, 92 Natal Land Go. v. Pauline Colliery Supp. 113, reversed on another Synd., 1904, App. Cas. 120; Howard ground, 123 App. Div. 40, 107 Supp. v. Patent Ivory Mfg. Co., L. R. 38 840. Ch. Div. 156, 164. Cf. In re Tennessee. — ^Pittsburg & Tenn. National Motor Mall Coach Co., Copper Co. v. Quintrell, 91 Tenn. Ltd., 1908, 3 Ch. Div. 515, 525. See 693, 696, 20 S. W. 248, citing Mora- the statement of Bowen, L. J. in wetz on Corporations, § 547. Falcke v. Scottish Imp. Ins. Co., West Virginia. — Richardson v. L. R. 34 Ch. Div. 234, 249-250. Graham, 45 W. Va. 134, 30 S. E. 92. 15. 48 Minn. 319, 51 N. W. 216, United Kingdom and Colonies. — 31 Am. St. Rep. 653. In re Northumberland Ave. Hotel 16. 61 L. T. N. S. 206; cf. Mun- 84 THE LAW OF PROMOTERS. sidered a continuing offer on the part of the opposite party io the agreement, which may, unless previously withdrawn, be ac- cepted by the corporation after its complete organization.*'' The status of the promoters' contract pending the action of the cor- poration thereon, depends largely upon the terms of the agree- ment. The contract while not binding, upon the corporation is ordinarily enforceable against the promoters because of their assuming to act as agents for a non-existent principal.** The agreement also renders the opposite party liable in damages to the promoters if he, after the . organization of the corporation, re- fuses to contract with it.*® The agreement of the parties is, there- fore, pending the organization of the corporation, something more than a continuing offer which the party is at liberty to withdraw before its acceptance by the corporation. If the pro- moters expressly stipulate, as they sometimes do, that they shall not be personally liable upon their contract, there is no considera- tion for the agreement to enter into a contract with the proposed corporation, and the so called agreement amounts, in the absence of an independent consideration, to nothing more than an offer which may be withdrawn at any time before acceptance. son V. Magee, 161 N. Y. 182, 185, 55 Vtah.—W&ll v. Niagara Min. & N. E. 916, reargument denied, 161 Sm. Co., 20 Utah 474, 59 Pac. 399. N. Y. 638, 57 N. E. 1118; also per- Wisconsin. — Pratt v. Oshkosh haps James Young & Sons, Ltd., v. Match Co., 89 Wis. 406, 62 N. W. Gowans, 10 Scots Law Times 85. 84, citing Morawetz on Corpora- 17. Massachusetts. — Penn Match tions, § 548. Co. V. Hapgood, 141 Mass. 145, 149, So held of a contract signed by 7 N. E. 22 ; Athol Music Hall Co. v. the opposite party, but not on be- Carey, 116 Mass. 471. half of the corporation, in Lauder v. Minnesota. — Minneapolis Thresh- Peoria Agricultural & Trotting Soc, ing Machine Co. v. Davis, 40 Minn. 71 111. App. 475, 480, and In Omaha 110, 41 N. W. 1026, 3 L. R. A. 796, Loan & Trust Co. v. Goodman, 62 12 Am. St. Rep. 701. Neb. 197, 86 N. W. 1082. Texas. — Weatherford M. W. & N. 18. See post, § 77. W. Ry. Co. v.. Granger, 86 Tex. 350, 19. See post, § 79. 355, 24 S. W. 795, 797, 40 Am. St. Rep. 837. PROMOTERS' CONTRACTS. 85 It has also been suggested that the agreement with the pro- moters is an alternative offer to be accepted and carried out either by the promoters, or by the corporation after its organ- ization.^** A party entering into an agreement with promoters assuming to act on behalf of a proposed corporation, while bound to perform upon demand of the corporation, cannot be compelled to yield performance to the promoters as individuals if the cor- poration is not organized.^^ The agreement is, therefore, not an alternative offer which may be carried out by either the promoters or the corporation. § 52. Status of subscription agreements pending action of cor- poration. Agreements to subscribe for the shares of a company to be formed stand upon a basis somewhat different from other con- tracts made with the promoters. These subscription agreements are not binding upon the corporation until accepted by it,^^ but some cases hold that the agreement, is binding as a contract between the subscribers, and that none of them can withdraw there- from unless with the consent of all.^' Other cases hold that the 20. Holyoke Envelope Co. v. U. Ohio. — ^Dayton, etc., Turnpike Co. S. Envelope Co., 182 Mass. 171, 65 v. Coy, 13 Ohio St. 84. N. E. 54. WUconaiM. — ^Badger Paper Co. v. 21. See post, § 79. Kose, 95 Wis. 145, 70 N. W. 302, 37 22. Maine. — Starrett v. Rockland, L. R. A. 162, and cases cited ; Franey etc., Ins. Co., 65 Me. 374. v. Warner, 96 Wis. 222, 231-232, 71 3fwwe»oto.— Minneapolis Thresh- N. W. 81, 84. ing Machine Co. v. Davis, 40 Minn. Reid on Corporate Finance, § 121. HO, 41 N. W. 1026, 3 L. R. A. 796, The corporation does not, by re- 12 Am. St. Rep. 701; Red Wing fusing to accept the plaintiff's sub- Hotel Co. V. Friederich, 26 Minn, seription, become liable for the re- 112, 1 N. W. 827. turn to him of moneys paid by him Missouri. — Joy v. Manion, 28 Mo. to the promoter, but never received App. 55. by the corporation. Commonwealth New York. — Yonkers Gazette Co. Bonding & Casualty Ins. Co. v. V. Taylor, 30 App. Div. 334, 51 Thurman, — Tex. Civ. App. — , Supp. 969, 5 N. Y. Ann. Cas. 384. 176 S. W. 762. 23. Alabama. — Knox v. Childers- 86 THE LAW OF PROMOTERS. agreement is a mere offer upon the part of each individual sub- scriber, and that a subscriber may withdraw at any time before the company is organized and his subscription accepted.^* Still other cases hold that while the subscribers are at liberty to with- draw at any time before the corporation comes into existence, the subscription agreement becomes binding and irrevocable as soon as the corporation is created.^® Some authorities hold that the agreement never becomes enforceable by the corporation unless burg Land Co., 86 Ala. 180, 5 So. 578. Dist. of OoHrribia — Glenn v. Bussy, 16 Dlst. of Col. (5 Mackey) 233. Maine. — Kennebec & Portland R. R. Co. V. Palmer, 34 Me. 366. Minnesota. — Minneapolis Thresh- ing Machine Co. v. Davis, 40 Minn. 110, 41 N. W. 1026, 3 L. R. A. 796, 12 Am. St. Rep. 701. Missouri. — Shelby County Ry. Co. V. Crow, 137 Mo. App. 461, 119 S. W. 435; Olleshelmer v. Thompson Mfg. Co., 44 Mo. App. 172, 181; DeGiverville Land Co. v. Thompson, 190 Mo. App. 682, 176 S. W. 409. New York. — Lake Ontario, etc., R. R. Co. V. Mason, 16 N. Y. 451, 463 ; Hamilton, etc.. Plank Road Co. V. Rice, 7 Barb. 157, 165. Texas. — ^Helton Compress Co. v. Saunders, 70 Tex. 699, 6 S. W. 134 ; Steely v. Texas Imp. Co., 55 Tex. Civ. App. 463, 472, 119 S. W. 319, 324, and cases cited; Panhandle Packing Co. v. Stringfellow, — Tex. Civ. App. — , 180 S. W. 145. See note to Bryant's Pond Steami- Mill Co. V. Felt, 33 L. R. A. 593. 34. Ill/im)is. — Richelieu Hotel Co. V. Int. Mil. Enc. Co., 140 111. 248, 260, 29 N. E. 1044, 33 Am. St. Rep. 234. Maine. — Bryant's Pond Steam- Mill Co. V. Felt, 87 Me. 234, 47 Am. St. Rep. 323, 33 L. R. A. 593. New York. — Raegener v. Brock- way, 58 App. Div. 166, 68 Supp. 712, affirmed, 171 N. T. 629, 63 N. B. 1121. Oklahoma. — See King v. Howeth & Co., 42 Okla. 178, 140 Pac. 1182. Tessas. — Patty v. Hillsboro Roller- Mill Co., 4 Tex. Civ. App. 224, 23 S. W. 336; Steely v. Texas Imp. Co., 55 Tex. Civ. App. 463, 472, 119 S. W. 319, 324. Wisconsin. — Franey v. Warner, 96 Wis. 222, 231, 71 N. W. 81. 84. United Kingdom and Colonies. — Gourlie v. Chandler, 41 Nova Scotia 341. See note to Bryant's Pond Steam- Mill Co. V. Felt, 33 L. R. A. 593. As to the sufficiency of the notice of withdrawal, see Hudson Real Es- tate Co. V. Tower, 161 Mass. 10, 36 N. E. 680, 42 Am. St. Rep. 379. 25. CaUfornia. — Sap Joaquin L. & W. Co. V. Beecher, 101 Cal. 70, 35 Pac. 349. Maine. — Bryant's Pond Steam- Mill Co. V. Felt, 87 Me. 234, 238, 33 L. R. A. 593, 47 Am. St. Rep. 323. PKOMOTERS' CONTRACTS. 87 it contains, in addition to the agreement to subscribe for shares Missouri. — ^Haskell v. Sells, 14 Mo. App. 91, 101 ; Business Men's Assn. V. Williams, 137 Mo. App. 575, 584, 119 S. W. 439. Oregon. — Balfour v. Baker City Gas Co., 27 Or. 300, 41 Pac. 164. Pennsylvama. — Jeanette Bottle Works V. Schall, 13 Pa. Super Ct. 96. West Virginia. — Windsor Hotel Co. V. Schenk, — W. Va. — , 84 S. E. 911. WisGcmsin. — Rehbeln v. Rahr, 109 Wis. 136, 85 N. W. 315. See note to Bryant's Pond Steam- Mill Co. V. Felt, 33 L. E. A. 593. The following cases hold that a subscription may be withdrawn at any time before the corporation is formed. Planters' & Merchants' Ind. Packet Co. v. Webb, 156 Ala. 551, 46 So. 977, 16 Am. & Eng. Ann. Cas. 529; Hudson Real Estate Co. V. Tower, 156 Mass. 82, 30 N. E. 465, 32 Am. St. Rep. 934, 161 Mass. 10, 36 N. E. 680, 42 Am. St. Rep. 379 ; Athol Music Hall Co. v. Carey, 116 Mass. 471; Plank's Tavern Co. V. Burkhard, 87 Mich. 182, 49 N. W. 562; Wright Bros. y. Merchants' & Planters' Packet Co., 104 Miss. 507, 61 So. 550; Muncy Traction Engine Co. V. Green, 143 Pa. 269, 13 Atl. 747; Auburn Bolt Works v. Shultz, 143 Pa. 256, 22 Atl. 904; Gleaves v. Brick Church Turnpike Co., 1 Sneed (Tenn.) 491; Greenbrier In- dustrial Exposition v. Rodes, 37 W. Va. 738, 17 S. E. 305; Windsor Hotel Co. V. Schenk, — W. Va. — , 84 S. E. 911. There is some difficulty in enforc- ing informal subscription agree- ments where the statute prescribes a formal method of taking subscrip- tions. White V. Kahn, 103 Ala. 308, 15 So. 595; Northern Central Michigan R. R. Co. v. Eslow, 40 Mich. 222; Carlisle v. Saginaw, etc., R. R. Co., 27 Mich. 315; Sedalia, etc., Ry. Co. v. Wilkerson, 83 Mo. 235; Poughkeepsie, etc., Co. v. Griffin, 24 N. Y. 150; Troy & Boston R. R. Co. V. Tibbits, 18 Barb. (N. Y.) 297; Charlotte, etc., R. R. Co. V. Blakely, 3 Strob. L. (S. C.) 245. But see Windsor Hotel Co. v. Schenk, — W. Va. — , 84 S. E. 911. It is generally held that a sub- scription to the stock of a corpora- tion to be subsequently organized, cannot be enforced unless a cor- poration de jure is created. Alahama. — Schloss v. Mont- gomery Trade Co., 87 Ala. 411, 6 So. 360, 13 Am. St. Rep. 51. Indiana. — Wheeler v. Thayer, 121 Ind. 64, 67, 22 N. E. 972, and cases cited; Burke v. Mead, 159 Ind. 252, 64 N. E. 880; Williams v. Citizens' Enterprise Co., 153 Ind. 496, 55 N. E. 425; Williams v. Citizens' Enter- prise Co., 25 Ind. App. 351, 57 N. E. 581, and cases cited. Kentucky. — Brooksville R. Co. v. Byron, 20 Ky. Law. Rep. 1941, 50 S. W. 530. Massachusetts. — Katama Land Co. V. Holley, 129 Mass. 540, 546. Michigan. — Swartout v. Mich. Air Line R. R. Co., 24 Mich. 389. Mimnesota — ^Hause v. Mann- heimer, 67 Minn. 194, 69 N. W. 810. Mississippi. — Wright Bros. v. 88 THE LAW OF PROMOTERS. of the company when formed, an agreement by one or more of the parties thereto that they will organize the corporation.^* An agreement to subscribe for shares would, if that were the ap- parent intent, be construed as a contract on the part of the promoter, to organize a corporation upon the stipulated basis, and sell certain shares to the subscribers. Such an agreement would constitute an enforceable contract between the promoter and the subscribers.^'' § 53. Assumption of liability by agreement of corporation. Whatever theoretical questions there may exist as to whether Merchants' & Planters' Packet Co., 104 Miss. 507, 61 So. 550. Missouri. — Clark v. Barnes, 58 Mo. App. 667. Nebraska. — Capps v. Hastings Prospecting Co., 40 Neb. 470, 58 N. W. 956, 24 L. R. A, 259, 42 Am. St. Rep. 677. New York. — Dorris v. Sweeney, 60 N. Y. 463. West Virginia. — Greenbrier In- dustrial Exposition V. Rodes, 37 W. Va. 738, 17 S. B. 305. And see notie to Jones t. Dodge, L. R. A. N. S. 1915 A. 472, 485. See post, § 224. A promoter active in the organi- zation of the corporation, might be estopped from pleading a de- fective organization. Phoenix Ware- housing Co. V. Badger, 6 Hun (N. T.) 293, affirmed, 67 N. Y. 294. 26. California Sugar Manufactur- ing Co. V. Schaf er, 57 Cal. 396 ; Twin Creek, etc., Turnpike Road Co. v. Lancaster, 79 Ky. 552; Avon Springs Sanitarium Co. v. Weed, 189 N. Y. 557, 82 N. B. 1123 (re- argument denied, 190 N. Y. 521, 83 N. E. 1122), reversing, 119 N. Y. App. Div. 560, 104 Supp. 58; Yonkers Gazette Co. v. Taylor, 30 N. Y. App. Div. 334, 51 Supp. 969, 5 N. Y. Ann. Cas. 384; Sanders v. Barnaby, 166 N. Y. App. Div. 274, 151 Supp. 580; Lake Ontario Shore R. R. Co. v. Curtiss, 80 N. Y. 219; Powers v. Knapp, 71 Hun (N. Y.) 371, 55 St. R. 23, 25 Supp. 19, followed, 85 Hun 38, 66 St. R. 133, 32 Supp. 622, affirmed, 158 N. ' Y. 733, 53 N. E. 1131 ; Strasburg R. R. Co. v. Echter- nacht, 21 Pa. St. 220, 60 Am. Dec. 49. 87. See ante, Chapters II and III. See also post, § 77, et seq. See also Peitel v. Dreyfous, 117 La. 756, 42 So. 259, where it is held that an application to subscribe for shares, though made on a blank furnished by the promoters. Is a mere offer to subscribe which does not ripen into a contract until it has been acted upon favorably by the promoters, and notice of such action given to the applicant. PROMOTERS' CONTRACTS. 89 a corporation can " ratify," " adopt," or " assume " a contract entered into by its promoters before its organization, there can be no question that it may by agreement, either express or im- plied, obtain the benefits of such contract and bind itself to carry out its obligations.^* The agreement of the corporation that it shall be bound by the terms of the promoters' contract may be 28. i^'ederoL— Bridgeport Elec- tric & Ice Co. V. Meader, 72 Fed. Bep. 115, 18 C. C. A. 451, 30 U. S. App. 580; In re Ballou, 215 Fed. Rep. 810. Arkansas. — Bloom v. Home Ins. Agency, 91 Ark. 367, 375, 121 S. W. 293. Galiforwia. — Turner v. Fidelity Loan Concern, 2 Cal. App. 122, 131, 83 Pae. 62, 66. Colorado. — Grand River Bridge Co. V. Rblllns, 13 Colo. 4, 21 Pac. 897. Connecticut. — Stanton v. N. Y. & Eastern R. R. Co., 59 Conn. 272, 285, 22 Atl. 300, 21 Am. St. Rep. 110. Illinois. — Reichwald v. Com- mercial Hotel Co., 106 lU. 439, 448. Iowa. — Dubuque Female College V. District Township of Dubuque, 13 Iowa 555. Kansas. — Davis & Rankin v. Dexter Butter & Cheese Co., 52 Kan. 693, 35 Pac. 776. Michigan. — Kimmerle v. Dowa- giac Gas Co., 159 Mich. 34, 123 N. W. 565. Nevada. — Alexander v. Winters, 23 Nev. 475, 49 Pac. 116, rehearing denied, 24 Nev. 143, 50 Pac. 798. New York. — Quee Drug Co. v. Plaut, 55 App. Div. 87, 67 Supp. 10; Rochester Dry Goods Co. v. Fahy, 111 App. Div. 748, 751, 97 Supp. 1013, affirmed, 188 N. Y. 629, 81 N. E. 1174. Oregon. — Schreyer v. Turner Flouring Mills Co., 29 Or. 1, 43 Pac. 719. Pennsylvania. — Titus v. Cata- wissa R. R., 5 Phila. 172. South Da^ota.— Cba.se V. Redfield Creamery Co., 12 S. D. 529, 81 N. W. 951. Temas. — Ennis Cotton Oil Co. v. Burks, 39 S. W. 966; American Home Life Ins. Co. v. Compere, — Tex. Civ. App. — , 159 S. W. 79, 80; Texas West. Ry. Co. v. Gentry, 69 Tex. 625, 8 S. W. 98. Utah. — Wall v. Niagara Min. & Sm. Co., 20 Utah 474, 59 Pac. 399 ; Tanner v. Sinaloa Land & Fruit Co., 43 Utah 14, 134 Pac. 586. United Kingdom: and Colonies. — Boston Deep Sea Fishing & Ice Co. V. Ansell, L. R. 39 Ch. Div. 339; Wilklns V. Roebuck, 4 Drew. 281; Howard v. Patent Ivory Mfg. Co., L. R. 38 Ch. Div. 156; Nelles v. Hesselstine, 11 Ont. W. R. 1062. See note to Oakes v. Cattaraugus Water Co., 26 L. B. A. 544, 548, et seq., and note to Cushion Heel Shoe Co. V. Hartt, 50 L. R. A. N. S. 980, et seq. And see cases cited, ante, § 60, note 12. 90 THE LAW OF PROMOTERS. made by any officer who would have power to make for it a new- contract of the same character.^^ The highest degree of fairness on the part of the officers acting for the corporation is of course required,^" and the agreement to be bound by the terms of the promoters' contract is ineffectual if the officers or directors acting for the company have a personal interest in the transaction.*^ If, however, not only the directors and officers, but all of the stockholders have full knowledge of, and are parties to, the agreement by which the corporation enters upon a contract upon the terms stipulated by the promoter, the 29. /owo.— Teeple v. Hawkeye Gold Dredging Co., 137 Iowa 206, 114 N. W. 906. Minnesota. — Bond v. Pike, 101 Minn. 127, 111 N. W. 916; Battelle V. Northwestern Cement & Concrete Pavement Co., 37 Minn. 89, 33 N. W. 327; McArthur v. Times Print- ing Co., 48 Minn. 319, 51 N. W. 216, 31 Am. St. Rep. 653. New York. — Burke v. Lincoln Valentine Co., 28 Misc. 202, 58 Supp. 1077, 1124; Oakes v. Cattaraugus Water Co., 143 N. Y. 430, 436-437, 38 N. E. 461, 62 St. Rep. 445, 26 L. R. A. 544 ; Hoag v. Lamont, 16 Abb. Pr. N.- S. 91, afC'd, 60 N. T. 96, 16 Abb. Pr. N. S. 869; Mesinger v. Mesinger Bicycle Saddle Co., 44 App. Div. 26, 60 Supp. 431. Oregon — Schreyer v. Turner Flour- ing Mills Co., 29 Or. 1, 43 Pac. 719. Pennsylvania. — Girard v. Case Bros. Cutlery Co., 225 Pa. 327, 74 Atl. 201. South Dakota. — Chase v. Redfield Creamery Co., 12 S. D. 529, 81 N. W. 951. Utah.— Wall v. Niagara Min. & Sm. Co., 20 Utah 474, 59 Pac. 399. A mere agent of the corporation has not j)ower to assume for it the debts of its incorporators. White v. Westport Cotton Mfg. Co., 18 Mass. 215, 11 Am. Dec. 168. A contract was held beyond the power of the president, in Weath- ersby v. Texas & Ohio Lumber Co., — Tex. Civ. App. — , 146 S. W. 243. An act of assumption by one assuming without authority to act as an oflBcer of the corporation is, obviously, of no efCect, Exline Reim- ers Co. V. Lone Star Life Ins. Co., — Tex. Civ. App. — , 171 S. W. 1060. 30. Battelle v. Northwestern Ce- ment & Concrete Pavement Co., 37 Minn. 89, 33 N. W. 327; Church V. Church Cementico Co., 75 Minn. 85, 77 N. W. 548. 31. Munson v. Syracuse G. & C. E. R. Co., 103 N. J. 58, 76, 8 N. E. 355, 29 Am. & Eng. R. R. Cas. 377, and see M'Lellan v. Detroit File Works, 56 Mich. 579, 23 N. W. 321, but see note 37, infra. PROMOTERS' CONTRACTS. 91 agreement is valid and binding upon the corporation regardless of any personal interest of the officers acting on its behalf.*^ It has been held, though the decisions are not free from conflict, that the promoter who made the original contract is not, by reason of his relation to the subject-matter, debarred, after he has become an oflicer of the corporation, from acting for it in making a new agreement by which it accepts the burdens of the contract which he assumed to make for it as its promoter.** It has even been said that less evidence is required to establish an agreement to be bound by the terms of the promoter's contract when the officer acting for the company was himself the promoter who made the original agreement, than when such officer and the promoter who made the agreement are different persons.** It is true that the promoter who made the original agreement has a personal interest in the acceptance of its terms by the corporation, as performance by the corporation relieves him of his personal obligations under 32. Battelle v. Northwestern Ce- ment & Concrete Pavement Co., 37 Minn. 89, 33 N. W. 32T. 33. nUnois. — McCally v. Blue Ribbon Gum Co., 173 lU. App. 66. New York. — Mesinger v. Mesinger Bicycle Saddle Co., 44 App. Div. 26, 60 Supp. 431 ; Oakes v. Cattaraugus Water Co., 143 N. Y. 430, 38 N. B. 461, 62 St. Rep. 445, 26 L. R. A. 544, (two judges dissenting). Pennsylvania. — Girard v. Case Bros. Cutlery Co., 225 Pa. 327, 74 Atl. 201. South Dakota. — Chase v. Redfield Creamery Co., 12 S. D. 529, 81 N. W. 951. Wisconsin. — Pratt v. Oshkosh Match Co., 89 Wis. 406, 62 N. W. 84. Cf. Weatherford M. W. & N. W. Ry. Co. V. Granger, 86 Tex. 350, 358, 24 S. W. 795, 798, 40 Am. St. Rep. 837; Jones v. Smith (Tex.), 87 S. W. 210, 212; William Allen & Co. V. Somerset Hotel Co., 88 N. Y. Supp. 944. 34. Hall V. Herter Bros., 83 Hun (N. Y.) 19, 22, 64 St. Rep. 378. 31 Supp. 692, and see same v. same, 90 Hun 280, 35' Supp. 769, 70 St. R. 273, aflSrmed, 157 N. Y. 694, 51 N. E. 1091 ; Burke v. Lincoln Valentine Co., 28 N. Y. Misc. 202, 58 Supp. 1077, 1124, and see Pearsall v. Tenn. Central Ry. Co., 2 Tenn. Ch. App. 682. In McCally v. Blue Ribbon Gum Co., 173 111. App. 66, the promises to pay the plaintiff, made by the promoters after they had become officers of the corporation, might well have been interpreted as their individual promises. The court, however, held that an assumption of the indebtedness by the corpora- tion had been sufBciently proved. 92 THE LAW OF PROMOTERS. the contract,^® and it can readily be argued that this personal interest prevents him from acting for the company in the matter. The rule that an agent cannot bind his principal if personally interested in the transaction, is not, however, in all jurisdictions, applied with strictness to the acts of a promoter who, after he has become an officer of the corporation, causes it to accept and carry out the burden of a contract which he assumed to make on its behalf in his capacity of promoter.^® It is suggested in Munson v. Magee ^'' that the opposite party to a contract with the promoter is, if he afterwards becomes a di- rector of the corporation, not disqualified from voting on a resolu- tion that the corporation shall assume the obligations of such contract. The reasoning of the court, which is not convincing, is, that if the promoter is solvent and able to carry out his con- tract the opposite party has nothing to gain by the corporate assumption of the promoter's obligation, and that the resolution of the directors that the corporation shall enter into a contract upon the terms of the one made by the promoter, does not affect the interest of the opposite party until he sees fit to accept the liability of the corporation in place of that of the promoter, and that this the resolution did not require him to do. § 54. The act of assumption. Whether the corporation has adopted the contract made by the promoter, or, more properly speaking, entered upon a new con- tract upon the terms of that made by the promoter, is a question of fact.*® An acceptance by the corporation of the terms of 35. See post, §§ 77-78. Cf. Munson v. Syracuse G. & C. 36. See cases cited under notes R. R. Co., 103 N. T. 58, 8 N. E. 355, 33 and 34. 29 Am. & Eng. R. R. Cas. 377; Reid 37. 161 N. Y. 182, 194, 55 N. on Corporate Finance, § 190. See E. 916, reargument denied, 161 N. also ante, note 31. T. 638, 57 N. E. 1118, and see 38. Cheseborough v. North Second Rudd V. Magee, 51 N. Y. App. Dlv. St., etc., R. R. Co., 5 N. Y. Weekly 624, 65 Supp. 65. Dig. 393. (Citing Van Schalk v. PROMOTERS' CONTRACTS. 93 the promoter's contract may of course be shown by an express agreement entered into pursuant to a resolution of the board of directors. A resolution of the directors is, however, unnecessary,^® and the agreement to be bound by the terms of the promoter's contract is often inferred from the acts or mere acquiescence of the corporation.*** It has, however, been said that an agreement of the corporation to be bound by the terms of the promoter's contract should not be too hastily inferred.*^ Third Ave. R. R. Co., 38 N. Y. 346) ; Oakes v. Cattaraugus Water Co., 143 N. Y..430, 437, 438, 38 N. B. 461, 62 St. Rep. 445, 26 L. R. A. 544; Brautigam v. Dean & Co., 85 N. J. Law 549, 89 Atl. 760, affirmed, 86 N. J. Law 676, 92 Atl. 344 ; Howard V. Patent Ivory Co., L. R. 38 Ch. Div. 156, 165. See note to Oakes v. Cattaraugus Water Co., 26 L. R. A, 544, 551. 39. Possell V. Smith, 39 Colo. 127, 88 Pae. 1064; Bond v. Pike, 101 Minn. 127, 111 N. W. 916; Battelle V. Northwestern Cement & Concrete Pavement Co., 37 Minn. 89, 33 N. W. 327; Hall v. Herter Bros., 83 Hun (N. Y.) 19, 64 St. Rep. 378, 31 Supp. 692; Browning v. Great Central Mining Co., 5 H. & N. 856, 29 L. J. Exch. 399. See also cases cited under note 40. 40. In re Quality Shoe Shop, 212 Fed. Rep. 321 ; Smith v. Parker, 148 Ind. 127, 45 N. E. 770; Luin v. Chicago Grill Co., 138 Iowa 268, 115 N. W. 1024; North Anson Lumber Co. V. Smith, 209 Mass. 333, 95 N. B. 838; Bond v. Pike, 101 Minn. 127, 111 N. W. 916; BatteUe v. N. W. Cement and Concrete Pavement Co., 37 Minn. 89, 33 N. W. 327; Mc- Arthur v. Times Printing Co., 48 Minn. 319, 51 N. W. 216, 31 Am. St. Rep. 653 ; Schreyer v. Turner Flour- ing Mills Co., 29 Or. 1, 43 Pac. 719 ; Chase v. Redfleld Creamery Co., 12 S. D. 529, 81 N. W. 951; Huron Printing & Bindery Co. v. Kittleson, 4 S. D. 520, 57 N. W. 233; Wall v. Niagara Mining & Smelting Co., 20 Utah 474, 59 Pac. 399. See note to Cushion Heel Shoe Co. V. Hartt, 50 L. R. A. N. S. 983. " Whatever would amount to, a ratification of the unauthorized acts of an agent would be sufficient evi- dence of an adoption of the con- tracts of a promoter." Arapahoe Inv. Co. V. Piatt, 5 Colo. App. 515, 39 Pac. 584. 41. Bagot Pneumatic Tyre Co. v. Clipper Pneumatic Tyre Co., 1901, 1 Ch. Div. 196, 202, affirmed, 1902, 1 Ch. Div. 146. The bare affirmation of the pro- moter that his undertaking was " ratified " by the corporation, has been held insufficient to take the case to the jury. The facts upon which the claim of " ratification " is made, must be proved. Rapid Hook & Eye Co. v. De Ruyter, 117 Mich. 547, 76 N. W. 76. n^ THE LAW OF PROMOTERS. In Wood V. Whelen,*^ corporate mortgage bonds were issued pursuant to an ineffectual resolution of the promoters enacted before the complete organization of the company. These bonds were not sold until the board of directors, some months la^er, authorized their sale by an agent of the company. It was held that the act of the directors in authorizing their sale was equiva- lent to an original authority to issue the bonds, and constituted an adoption of the mortgage previously executed as security therefor. In Williams v. St. George's Harbor Co.,*^ the plaintiff had withdrawn his opposition to the bill creating the defendant cor- poration, in consideration of the promise of the promoters that the cost of the plaintiff's opposition should at once be paid by the promoters, that an additional £250 should be paid to the plaintiff within one month after the passing of the act, and that- the further sum of £1750 should be paid to him before the formation of the railway, in satisfaction of consequential damages to his property. After the company had been formed the plaintiff brought suit against it for the cost of his opposition to the bill and the first £250 payable under the agreement, and judgment in this action was by consent entered against the company. The plaintiff subsequently brought suit for the additional £1750 pay- able under the agreement. The court held that the consent of the defendant to the entry of judgment against it in the first suit, amounted to a recognition of the binding force of the promoters^ agreement, and that the corporation was liable thereunder. In Ireland v. Globe Milling & Reduction Co., the subscribers to the stock of a proposed corporation had entered into an agreement that their shares should not be transferred without first giving to the corporation an option to purchase. Upon the organizatioa of the company the incorporators adopted a by-law of like effect, and the corporation thereupon issued its shares to the subscribers. 42. 93 lU. 153, 164-166. 43. 2 DeG. & J. 547. PROMOTERS' CONTRACTS. 95 The court held that the by-law was invalid ** and that the act of the corporation in issuing the certificates did not amount to a ratification of the agreement giving it preemptive rights.*^ It is held in Tift v. Quaker City National Bank *® that the mere silence of the directors when the claim of the plaintiff was, in his presence, called to their attention, was not such an act of " ratification " as to bind the corporation. It is held in Browning v. Great Central Mining Company *'' that the issuing by the directors of the fully organized corpora- tion, of a prospectus setting forth circumstances that would arise only upon the assumption of the promoters' contract, is strong evidence of such assumption. It has been held that the assumption and payment by the cor- poration, of some of the liabilities of the promoters, has no tendency to show an assumption by it of other and different liabilities incurred by them.** As the contract of the promoters cannot become binding upon the corporation by ratification, and the liability of the company must be based upon some new agreement, express or implied, a 44. Ireland v. Globe Milling & circumstances that do, and the cir- Reduction Co., 19 R. I. 180, 32 Atl. cumstances that do not, show as- 921, 29 L. R. A. 429, 61 Am. St. Rep. sumption by the corporation of the 75g liabilities of the promoters' con- 45. 20 R. I. 190, 38 Atl. 116, 38 L. tracts, are Arapahoe Investment Co. R. A. 299. V. Piatt, 5 Colo. App. 515, 39 Pac. 46. 141 Pa. 550, 21 Atl. 660, 38 584 ; Colorado Land & Water Co. v. Am. & Eng. Corp. Cas. 339, (fol- Adams, 5 Colo. App. 190, 37 Pac. 39 ; lowed in Cushion Heel Shoe Co. v. Tuttle v. George H. Tuttle Co., 101 Hartt, 181 Ind. 167, 103 N. E. 1063, Me. 287, 292, 64 Atl. 496, 499, 8 50 L. R. A. N. S. 979), and see Am. & Eng. Ann. Cas. 260; Bond Browning v. Great Central Mining v. Pike, 101 Minn. 127, 111 N. W. Co., 5 H. & N. 856, 864, 29 L. J. 916; Hall v. Herter Bros., 83 Hun Exch. 399. (N. Y.) 19, 23, 31 Supp. 692, 64 47. 5 H. & N. 856, 29 L. J. Exch. St. R. 378, and see same case on 399. a later appeal, 90 Hun 280, 35 Supp. 48. Church v. Church Cementico 769, 70 St. R. 273, affirmed, 157 N. Y. Co., 75 Minn. 85, 77 N. W. 548. 894, 51 N. E. 1091. Other cases illustrative of the gg THE LAW OF PROMOTERS. mere resolution of the directors not communicated to the opposite party and not followed by any act from which a new agreement might be implied, does not subject the corporation to the obliga- tions of the promoters' contract or entitle the other party to pro- ceed thereon.*^ A new agreement might perhaps be inferred from a resolution of the directors adopted in the presence of the other party.^" § 55. Necessity of consideration. It has been said that in order to render a corporation liable for the payment of a debt contracted by its promoters prior to its organization, there must be shown, not only a promise of the corporation to pay the debt, but the receipt and acceptance by it of that for which the debt was incurred.^^ This may not always be strictly true, but the obligation of the corporation must rest upon a new agreement. That agreement must, to be enforceable, be founded upon some consideration, and the mere naked promise of the corporation to pay debts incurred by the promoters from which it has derived no benefit, creates no enforceable obligation.^^ § 56. Liability of corporation resulting from acceptance of benefit of promoter's contract. The rule is well settled in this country that if a corporation, after it has become fully organized and capable of contracting, 49. Clarke v. Omaha & S. W. R. and see Tift v. Quaker City Na- R. Co., 5 Neb. 314, 324, 325 ; In re tlonal Bank, note 46, supra. Johannesburg Hotel Co., 1891, 1 Ch. 51. "Western Screw & Manfg. Co. Div. 119, 130-131; Nortii Sidney I. v. Cousley, 72 111. 531, 534; Reieh- & T. Co. V. Higgins, 1899 App. Cas. wald v. Commercial Hotel Co., 106 263 ; Melhado v. Porto Alegre Ry. 111. 439, 448 ; Chilcott v. Washington Co., L. R. 9 C. P. Cas. 503, 506, 507; State Colonization Co., 45 ' Wash. In re Empress Engineering Co., L. 148, 153, 88 Pac. 113, 115. R. 16 Ch. Div. 125, and see per- 52. Church v. Church Cementico haps In re Dale and Plant, Ltd., 61 Co., 75 Minn. 85, 77 N. W. 548 ; L. T. N. S. 206. Richard Brown & Son Const. Co. v. 50. James Young & Sons, Ltd., v. Bambrick Bros. Contr. Co., 150 Mo. Gowans, 10 Scots Law Times 85, App. 505, 131 S, W. 134; William PROMOTERS' CONTRACTS. 97 with full knowledge of the facts, accepts the benefits of a contract assumed to have been made on its behalf by its promoters, it im- pliedly agrees to perform the obligations imposed thereby. It does not by accepting the benefits of the promoters' contract, pro- perly speaking, either " ratify " or " adopt " the promoters' agreement, but if it accepts a conveyance of property, or the rendition of services, known by it to be made or performed in pursuance of a contract with the promoters, it impliedly agrees that in consideration of the performance by the other party of the conditions imposed by his contract with the promoters, it will on its part perform the covenants which the promoters agreed should be performed by it.^® If the corporation knowingly ac- Allen & Co. V. Somerset Hotel Co., 88 N. Y. Supp. 944. 53. Federal. — H awkeye Gold Dredging Co. v. State Bank of Iowa Falls, 157 Fed. Rep. 253 (reversed but not as to this matter, 177 Fed. Rep. 164, 100 C. C. A. 626) ; Con- tinental Trust Co. v. Toledo, etc., R. Co., 86 Fed. Rep. 929, 948 ; Whit- ney V. Wyman, 101 U. S. 392, 25 L. Ed. 1050. California. — Jones v. AUert, 161 Cal. 234, 118 Pac. 794. Idaho. — Mantle v. Jack Waite Min. Co., 24 Idaho 613, 135 Pac. 854, 136 Pac. 1130. Indiana. — Smith v. Parker, 148 Ind. 127, 133-134, 45 N. E. 770. /owa.— Bobzin v. Gould Balance Valve Co., 140 Iowa 744, 118 N. "W. 40. Kansas. — Tryber v. Gerard Creamery Co., 67 Kan. 489, 73 Pac. 83, citing 7 Thompson on Corpora- tions, § 844. Maine. — Robbins v. Bangor Ry. & Electric Co., 100 Me. 496, 62 Atl. 136, 1 L. R. A. N. S. 963, citing 23 Am. & Eng. Encye. (2nd ed.) 241, 10 Cyc. 262 ; and the note to Pittsburg Mining Co. v. Spooner, 17 Am. St. Rep. 161. Maryland. — Maryland Apartment Plouse Co. V. Glenn, 108 Md. 377, 70 Atl. 216. Massachusetts. — Penn Match Co. V. Hapgood, 141 Mass. 145, 149, 7 N. E. 22. And see North Anson Lum- ber Co. V. Smith, 209 Mass. 333, 95 N. E. 838. Michigan. — Esper v. Miller, 131 Mich. 334, 91 N. W. 613, and cases cited. Minnesota. — Selover v. Isle Har- bor Land Co., 91 Minn. 451, 98 N. W. 344, 100 Minn. 253, 111 N. W. 155. Mississippi. — Mulvihill v. Vieks- burg Ry. Power & Manfg. Co., 88 Miss. 689, 704-705, 40 So. 647, 649- 650, citing Whitney v. Wyman, 101 U. S. 392, 25 L. Ed. 1050, 1 Beach on Private Corporations, § 198, 2 Clarke & Marshall on Private Cor- porations, 306. Missouri. — Pitts v. Steele Merc. 98 THE LAW OF PBOMOTEBS. cepts the benefit of an engagement entered into by its promoters prior to its organization, the courts will not permit it to deny that it at the same time agreed to assume the corresponding bur- dens.^* A similar rule seems in England to be enforced in chancery, but the question is, in that country, not free from confusion.^® Co., 75 Mo. App. 221, 229; Van Noy V. Central Union Fire Ins. Co., 168 Mo. App. 287, 153 S. W. 1090. Nebraska. — Paxton Cattle Co. v. First Nat'l Bank, 21 Neb. 621, 638 et seq, 33 N. W. 271, 17 Am. & Eng. Corp. Cas. 1, 59 Am. Rep. 852. Neto Hampshire. — Low v. Conn. & Passumpsic Rivers R. R., 45 N. H. 370 ; same v. same, 46 N. H. 284. New York. — Rogers v. N. Y. & Texas Land Co, 134 N. Y. 197, 211, 32 N. E. 27, 48 St. Rep. 263; Sey- mour V. Spring Forest Cemetery Ass'n, 144 N. Y. 333, 341, 39 N. E. 365, 26 L. B. A. 859; Oakes v. Cat- taraugus Water Co., 143 N. Y. 430, 440, 38 N. E. 461, 62 St. Rep. 445, 26 L. R. A. 544, (dictum in dissent- ing opinion) ; Bommer v. Am. Spiral, etc., Manfg. Co., 81 N. Y. 468; Van Schaick v. Third Ave. R. R. Co., 49 Barb. 409, affirmed, 38 N. Y. 346; Davis V. Valley Electric Light Co., 61 Supp. 580; Bell v. Shibley, 33 Barb. 610, 613; Dupignac v. Bern- strom, 37 Misc. 677, 76 Supp. 381, affirmed, 76 App. Div. 105, 78 Supp. 705. Penn. — Swisshelm v. Swissvale Laundry Co., 95 Pa. 367; Glrard v. Case Bros. Cutlery Co., 225 Pa. 327, 74 Atl. 201. South Dakota. — Huron Printing & Bindery Co. v. Kittleson, 4 S. D. 520, 527, 57 N. W. 233 ; Kaeppler v. Red- field Creamery Co., 12 S. D. 483, 81 N. W. 907. Tewaa. — Jones v. Smith, 87 S. W. 210; Weatherford M. W. & N. W. Ry. Co. V. Granger, 86 Tex. 350, 24 S. W. 795, 40 Am. St. Rep. 837 ; Lan- caster G. & C. Co. V. Murray G. S. Co., 19 Tex. Civ. App. 110, 47 S. W. 387, writ of error refused, 93 Tex. 732. Utah. — Wall v. Niagara Min. & Sm. Co., 20 Utah 474, 59 Pac. 399. Wisconsin. — Buffington v. Bardon, 80 Wis. 635, 639, 50 N. W. 776. Cf. Adams v. Empire Laundry Mach. Co., 52 Hun (N. Y.) 610, 4 Supp. 738, also Star Corn Millers Soc. V. Moore, 81 L. T. 171. See note to Cushion Heel Shoe Co. V. Hartt, 50 L. R. A. N. S. 984. 54. Smith v. Parker, 148 Ind. 127, 45 N. E. 770 (citing 1, Morawetz on . Private Corporations, § 547, 549) ; Huron Printing & Bindery Co. v. Kittleson, 4 S. D. 520, 57 N. W. 233; Kaeppler v. Redfield Creamery Co., 12 S. D. 483, 81 N. W. 907. 55. Howard v. Patent Ivory Mfg. Co., L. B. 38 Ch. Div. 156; Splller v. Paris Skating Rink Co., L. R. 7 Ch. Div. 368; In re Empress Engineer- ing Co., L. B. 16 Ch. Div. 125 ; Mel- hado V. Porto Alegre By. Co., L. B. 9 C. P. Cas. 503; Touche v. Metro- politan By. Warehousing Co., L. R. 6 Ch. App. 671. See English and PROMOTERS' CONTRACTS. 99 A few cases in this country which might, on a hasty reading, seem to conflict with this rule should perhaps be mentioned. In Central Park Fire Ins. Co. v. Callaghan,^® it was claimed as a defense to an action to foreclose a mortgage, that the pro- moter had as a condition to the making of the loan by the plaintiff corporation then in process of formation, exacted from the defendant a subscription to its shares. The court said that the contract of the promoter, made before the company was or- ganized, could not bind the company after its organization unless it in the usual way adopted and ratified his conduct, and that any improper condition imposed by the promoter would not in- validate the transaction. There were here two entirely separate transactions each of which standing alone was entirely proper. There does not seem to have been any evidence that the corpo- ration had notice of the connection between the two. In Miser Gold Mining Co. v. Moody,®'' the defendants had, pursuant to an agreement with the promoters, conveyed certain mining property to the plaintiff corporation. The deed was subsequently returned to the defendants for the purpose of mak- ing a correction in the certificate of acknowledgment. The de- fendants mutilated the deed and refused to execute a new one. The corporation sued to compel the execution of a new deed, and the defendant pleaded that the promoters had failed to finance the corporation in accordance with their agreement. The court held that the breach of the agreement as to the financing of the corporation was brought about by the defendants' failure to re- turn the deed, and added that the agreement of the promoters was not binding upon the corporation. Assuming that the agreement claimed by the plaintiff was properly proved, the rights of the Colonial Produce Co., Ltd., 1906, 2 rule (§ 58, post), which is probably Ch. Div. 435; Clinton's Claim, 1908, the cause of the confusion in the 2 Ch. Div. 515. English cases. In connection with these cases, 56. 41 Barb. (N. Y.) 448. should be read the discussion of 57. 37 Colo. 310, 86 Pac. 335, Lord Cottenham's now abandoned j^QQ THE LAW OF PKOMOTEKS. parties depended upon the intention in regard to the sequence of events. If the defendants were to execute a deed and the promot- ers were thereupon to finance the company in an agreed manner, the failure of the promoters to perform could not affect the rights of the corporation. If, on the other hand, the promoters agreed to organize a corporation and to finance it in a manner agreed upon by the parties, and the defendants were thereupon to convey their property to the corporation and receive its shares in pay- ment, they certainly could not be compelled to make a conveyance to a corporation which did not correspond to tha,t described in the agreement. In Hecla Consolidated Gold Mining Co. v. O'NeiU,^^ certain mining property was conveyed to a trustee, to be by him conveyed to a corporation when organized. After the corporation had been organized the trustee refused to make a conveyance, claim- ing that the former owners of the property, who were the pro- moters of the corporation, had failed to pay him the moneys agreed upon as remuneration for his services as trustee. The court held that the trustee was bound to make the conveyance, saying that the agreement for compensation was a personal one on the part of the promoters and that, even if they had assumed to bind the corporation, it was doubtful that their promise could be enforced against it. It is suggested that if the promise was that the compensation should be paid by the corporation, the corporation' accepting a conveyance with full knowledge of the facts might well have become bound to pay in accordance with the promoters' promise. Whether the trustee would have been per- mitted to withhold a conveyance until his compensation was paid is a different question, depending upon the particular terms of his agreement. § 57. Enforcement at law or in equity. There seems, at times, to have been some doubt as to whether 58. 47 N. Y. St. Rep. 211, 19 Supp. 592. PROMOTERS' CONTRACTS. IQl the liability of a corporation, resting upon the acceptance by it of the benefits of a contract made by its promoters, can be enforced at law, or whether the coi^joration can be held liable only in equity. There appears to be no sound reason for the uncertainty of the courts in this regard. The theory of the corporate lia- bility is that if, after it is fully organized and capable of entering upon contractual relations, it, with full knowledge of an agree- ment made for it by its promoters, accepts the benefits, it impliedly agrees to assume the burdens thereof. The obligation of the corporation rests upon an implied contract, and there is no rea- son why such contract should not be enforced at law. The rule is sometimes stated that the courts will not permit a corporation, which knowingly accepts the benefits of an agreement entered into by its promoters, to deny that it agreed to assume the corre- sponding burdens.^^ This, however, is but another way of stating that an agreement to assume the burdens will be implied. While the cases are not wholly free from confusion, the rule seems, in this country, to be that the obligations of a corporation resting upon its acceptance of the benefits of the promoters' contract can be enforced in an action at law.*° The English cases, while not al- 59. See cases cited, § 56, note 54. The following cases were appar- 60. Little Rock & Ft. Smith K. R. ently brought on the law side of Co. V. Perry, 37 Ark. 164, 191, 9 the court, and the principle under Am. & Eng. R. R. Cas. 610; Perry discussion recognized without refer- V. Little Rock & Ft. Smith Ry. ence to any theory that it was one Co., 44 Ark. 383, 394r-395; Tuttle to be applied only in equity. V. Geo. H. Tuttle Co., 101 Me. 287, Jfoiwe.— Robbins v. Bangor Ry. & 292, 64 Atl. 496, 499, 8 Am. & Eng. Electric Co., 100 Me. 496, 62 Atl. 136, Ann. Cas. 260; Grape Sugar & 1 L. R. A. N. S. 963. Vinegar Mfg. Co. v. Small, 40 Md. Maryland. — Maryland Apartment 395, 400 ; Low v. Conn. & Pass. House Co. v. Glenn, 108 Md. 377, 70 Rivers R. R., 45 N. H. 370, 378; Atl. 216. same case on a later appeal, 46 N. Missouri. — Pitts v. Steele Mercan- H. 284. Cf. Van Schaick v. Third tile Co., 75 Mo. App. 221. Ave. R. R. Co., 49 Barb. 409, 415, UTew York. — Grier v. Hazard, affirmed, 38 N. X. 346; also Titus v. Hazard & Co., 13 Supp. 583, 38 St. Catawissa R. R., 5 Phila. 172. Rep. 462, affirmed, 14 Supp. 784, 39 St. Rep. 74. 2Q2 THE LAW OF PROMOTERS. together clear, seem to indicate that the liability of a corporation based upon its acceptance of the benefits of the promoters' con- tracts can be enforced only in equity.®^ § 58. Lord Cottenham's rule. Care must be taken to differentiate between the liability of a corporation because of its acceptance, after complete organization, of the benefit of the promoters' contracts, and the supposed lia- bility of the corporation imposed by Lord Cottenham's long since abandoned rule. It seems in the early days of railroad building in England to have been not unusual for the owners of lands along the route of a projected road to oppose, or threaten to oppose, the granting of a corporate charter, and then to withdraw that opposition upon the promise of the promoters that the corporation would locate a station at some point deemed beneficial to the land owner, or take a certain portion of his land at an agreed price, or pay him a stipulated sum for consequential damages, or grant him some other real or supposed benefit in consideration of the withdrawal of his opposition. After the opposition had been withdrawn and the act of parliament passed, the corporation sometimes refused to carry out the promises made by its pro- moters. Lord Cottenham ruled, and his ruling was at one time Ohio. — City B'ld'g Ass'n v. Zah- Washington. — Chileott v. Wash- ner, 6 Ohio Dec. Reprint 1068, 10 ington State Colonization Co., 45 Am. L. Rec. 181. Wash. 148, 88 Pac. 113. Pennsylvania. — Bell's Gap R. R. Wisconsin. — Bufflngton v. Bardon, Co. V. Christy, 79 Pa. 54, 21 Am. 80 Wis. 635, 50 N. W. 776. Rep. 39 ; Swlsshelm v. Swlssvale 61. SplUer v. Paris Skating Rink Laundry Co., 95 Pa. 367. Co., L. R. 7 Ch. Div. 368; In re Temwssee.— Pittsburg & Tennes- Empress Engineering Co., L. R. 16 see Copper Co. v. Quintrell, 91 Tenn. Ch. Div. 125 ; Melhado v Porto 693, 20 S. W. 248. Alegre Ry. Co., L. R. 9 C. P. Cas. TeiBog.— Lancaster G. & C. Co. v. 503 ; Howard v. Patent Ivory Co., L. Murray G. S. Co., 19 Tex. Civ. App. R. 38 Ch. Div. 156. 110, 47 S. W. 387; writ of error re- fused, 93 Tex. 732. PROMOTERS' CONTRACTS. 103 generally followed, that it would be inequitable to permit the corpo- ration which had obtained its charter partly as a result of the withdrawal of the plaintiff's opposition, and thus received the full benefit of the promoters' agreement, to refuse to perform the obligations thereof, and that equity would compel performance.®^ Lord Cottenham's rule was questioned by the House of Lords in Preston v. The Proprietors of t}\e Liverpool, Manchester, etc., R. R. Co.®^ and disapproved in Caledonian and Dumbartonshire Junction R. R, Co. v. Magistrates of Helensburgh.®* 62. Edwards v. The Grand Junc- tion Ry. Co., 1 Mylne & Cr. 650, 1 Railway Cas. 173, (1836) by Lord Chancellor Cottenham (Opinion of Vice Chancellor reported 7 Sim. 337) ; Stanley v. Chester & Birken- head Ry. Co., 3 Mylne & Cr. 773, (1838) by Lord Cottenham (Opin- ion of Vice Chancellor reported 9 Sim. 264; 1 Railway Cas. 58) ; Lord Petre v. Eastern Counties Ry. Co., 1 Railway Cas. 462, (1838) by Lord Cottenham ; Doo v. London & Croy- don Ry. Co., 1 Ry. Cas. 257, (1839) by Lord Cottenham ; Aldred v. North Midland Ry. Co., 1 Railway Cas. 404, (1839) by Vice Chancellor Shadwell; Preston v. Liverpool, Manchester, etc., Ry. Co., 1 Sim. N. S. 586, 7 Eng. Law & Equity 124, 21 L. J. Ch. N. S. 61, (1851) by Lord Cran worth, V. C. (The House of Lords in this case came to a con- trary conclusion, basing its decision on its construction of the contract, 5 H. L. Cas. 605) ; Hawkes v. East- ern Counties Ry. Co., 15 Eng. Law & Equity 358, (1852) by Lord Chan- cellor St. Leonards; The Earl of Lindsey v. Great Northern Ry. Co., 10 Hare 664, (1853) by Vice Chan- cellor Turner; see also Greenhalgh V. Manchester & Birmingham Ry. Co., 3 MyUie & Cr. 784, 791, (1838) by Lord Cottenham, afC'g, 9 Sim. 416 ; Gooday v. Colchester & Stour Val- ley Ry. Co., 17 Beav. 132; 15 Eng. Law & Eq. 596 (1852) ; Webb v. Direct London & Portsmouth Ry. Co., 9 Hare 129, (1851) revd., 1 DeG. M. & G. 521. The foregoing decisions, or some of them, are cited as authority 1q Low V. Connecticut & Passumpsic Rivers R. R., 45 N. H. 370, (see also 46 N. H. 284), the court over- looking the subsequent decisions of the House of Lords, cited in the suc- ceeding notes. In Taylor v. Chichester & Mid- hurst Ry. Co., 4 H. & C. 409, (1866) (judgment reversed, L. R. 2 Exch. 356, but reinstated L. R. 4. H. L. 628), the agreement was made by an existing corporation in contem- plation of the extension of its line. No question of promoters' contracts was involved. (See L. R. 4 H. L. 637). 63. 5 H. L. Cas. 605, 617-618, (1856). See also Elastem Counties 104 THE LAW OF PROMOTERS. In the last mentioned case an agreement had been entered into by the Magistrates of Helensburgh on the one part, and the Com- mittee of Management of a projected railroad on the other, un- der which the Magistrates agreed to afford to the railroad com- pany, if it should obtain its act of incorporation, certain facilities enabling it to carry a branch line through the streets of Helens- burgh, to the harbor and quay which the town proposed to build, and for the right to build which the Magistrates were about to apply to Parliament. The Magistrates further agreed, by pe- titioning Parliament or otherwise, to promote the objects of the projected railroad company. The committee of management, on the other hand, agreed to advance to the magistrates the ex- penses of preparing the plans for the harbor and quay, of obtaining the act of Parliament therefor, and the cost of constructing the harbor and quay, of which advances the railroad was to be repaid the sum of £3,000 and no more. Both acts of Parliament were obtained. The railroad company, however, refused to carry out the agreement. The Magistrates brought suit and the Court of Sessions gave judgment in their favor. On appeal to the House of Lords, Lord Chancellor Cranworth reviewed the decisions of Lord Cottenham in Edwards v. Grand Junction Railway Co., Stanley v. Chester & Birkenhead Ry. Co. and Lord Petre v. East- em Counties Ry. Co.^** and said that Lord Cottenham's decisions went much further than to decide that if the company took the benefit of the contracts entered into by third persons with its promoters, the company must at the same time perform the obli- gations thereof and that "Lord Cottenham acted on the prin- ciple that a company incorporated by Act of Parliament is, or may be, bound by the previous contracts of those by whom the Ry. Co. V. Hawkes, 5 H. L. Cas. 331, Shrewsbury v. North Staffordshire 356, (1855). Ry. Co., L. R. 1 Eq. 593, 14 W E. 64. 2 Maeq. 891, 411, 415, 2 Jur. 220. N. S. 695, (1856). See also Earl of 65. See note 62, supra. PROMOTERS' CONTRACTS. 105 act of incorporation has been obtained.®^ I have stated my reason for thinking that such a doctrine rests on no sound principle, and may lead, as in Lord Petre's case I think it did lead, to great injustice. And if, therefore, the case now to be decided was in all respects similar to the three cases I have referred to, what I should have to decide would be whether I should advise your Lordships to adhere to the precedents established by Lord Cotten- ham, on the ground that it is unsafe to act against a series of decisions, even though they may appear not to rest on any solid foundation, or to depart from them and to adopt what I consider a just and more correct principle." The judgment of the Court of Sessions was reversed on the ground that the contract of the promoters attempted to commit the company to an application of its funds to an object foreign to the provisions of the act of incorporation. Lord Cottenham's rule does not seem to have been further passed upon. Parliament in 1864 enacted the Railways Construc- tion Facilities Act which provided that " Contracts relative to the purchase or taking of lands for the railway, entered into by the promoters before the incorporation of the company by the cer- tificate, shall be as binding upon the company as if they had been entered into by the company." *'' The case of Caledonian and Dumbartonshire Junction R. R. Co. V, Magistrates of Helensburgh, in which the court disapproved of Lord Cottenham's rule, was decided by the House of Lords in 1856, before the theory had been developed that a corporation, by accepting after its organization the benefits of a contract made by its promoters, impliedly agrees to assume its burdens. The difference between the principle just mentioned and Lord Cotten- ham's rule lies in the fact that in the cases decided under Lord 66. Lord Cottenham's decisions shire Ry. Co., L. R. 1 Eq. 593, 14 W. were similarly interpreted in Earl R. 220. of Shrewsbury v. North Stafford- 67. Stat. 27 & 38 Vict, Chap. 121, ! 30. 106 THE LAW OF PROMOTERS. Cottenham's rule the consideration for the promises of the pro- moters was the withdrawal or withholding of opposition to the act of incorporation. The benefit received was the birth of the corporation. Until the company had been brought into exist- ence by the passage of the act and organized thereunder, it was incapable of entering into a binding contract. The benefit which it received from the withdrawal of the opposition was there- fore received at a time when it was still incapable of contracting. The theory on which a corporation may be held to the perform- ance of the provisions of the promoters' contract if it accepts the benefits thereof, is that it enters into a new contract when it accepts these benefits. If the benefit of the promoters' contract is received at a time when the corporation is still incapable of con- tracting, it cannot be bound by an implied contract entered into at that time, any more than it could be bound by the original con- tract of the promoters.** The situation is quite different from that which arises when a corporation after its complete organ- ization deliberately accepts a conveyance or transfer of prop- erty, or the rendition of services, contracted for by its promoters. It should, before closing the discussion of the questions relating to Lord Cottenham's rule, be stated that while the corporation is not bound by the promises of its promoters made in consideration of the withdrawal of opposition to the granting of the corporate charter, there is no reason, except a possible one of public policy, why such agreement should not be enforced against the promoters individually.®' 68. See, however, Morton v. Ham- son, 10 Ad. & El. 793, affirmed, sub ilton College, 100 Ky. 281, 38 S. W. nom. Simpson v. Lord Howden, 9 1, 35 L. R. A. 275, where a corpora- CI. & F. 61, 3 Ry. Cas. 294. tlon was held bound because of On the question of public policy benefits received before its organi- see Scottish N. E. Ry. Co. v. Stew- zatlon. art, 3 Macq. 382, 408; Vauxhall 69. Bland v. Crowley, 6 Exch. Bridge Co. v. Spencer, 2 Mad. 35a 522, and see Lord Howden v. Simp- PROMOTERS' CONTRACTS. 107 § 59. Obligation of corporation to pay for services in procuring contracts accepted by it. The question as to the liability of a corporation because of the acceptance by it, of the benefits of a contract made for it by its promoters, arises in another aspect when the promoters agree that the corporation shall pay for services rendered in procuring for it stock or bonus subscriptions, or other contracts, and the cor- poration accepts the subscriptions or contracts procured by these services but refuses to pay compensation therefor. This situation arose in Weatherford, etc.. Railway Co. v. Granger.''^'' In that case the plaintiff had agreed to assist the promoter in raising a bonus for a then projected railroad com- pany, and the promoter promised that the company would pay the plaintiff for his services. The bonus was raised and accepted by the company, and the plaintiff brought suit against it to re- cover the reasonable value of his services. The court said " Now, when it is said that when a corporation accepts the benefit of a contract made by its promoters, it takes it cum onere, it is im- portant to understand distinctly what is meant. There is, so far as this matter is concerned, a radical difference between a promise made on behalf of the future corporation in the contract itself, the benefits of which the corporation has accepted, and the prom- ise in a previous contract to pay for services in procuring the lat- ter to be made. This is well illustrated by the facts of the pres- ent case. Here a proposition was made on behalf of the company, by its promoters, that if a bonus should be subscribed and paid to it, it would build its road between certain points, and would carry coal at a certain stipulated rate. By accepting the bonus, the company became bound to fulfil the stipulations of that contract. That was the burden which it took with the benefit of the agree- 70. 86 Tex. 350, 24 S. W. 795, 40 W. 210. See also Wright v. St. Louis Am. St. Rep. 83T, (reversing 23 S. W. Sugar Co., 146 Mich. 555, 109 N. W. 425; and see 22 S. W. 70, rev'd, 85 1062. Cf. Maryland Apartment Tex. 574, 22 S. W. 959). Quoted in House Co. v. Glenn, 108 Md. 377, 70 Jones V. Smith, (Tex.) 87 S. Atl. 21& 108 THE LAW OF PKOMOTEKS. ment. But it also appears that one of the promoters promised the plaintiff, that if he would assist in procuring subscribers to the bonus, the company would pay him for his services. This was no part of the contract the benefits of which were taken by the defendant. The benefits of a contract are the advantages which result to either party from a performance by the other; and in like manner its burdens are such as its terms impose. A more accurate manner of stating the nature of the plaintiff's demand is to say, that the defendant has accepted the benefit of the plain- tiff's services and should pay for them. It is true, in one sense, that the company has had the benefit of plaintiff's services, and it is equally true that it would have had that benefit if the services had been rendered under an employment by the subscribers to the bonus ; and yet in the latter case it could not be claimed that the company would be liable for such services, unless payment for them by the company were made one of the terms of the contract between the company and the subscribers." The true test of the liability of a corporation because of its ac- ceptance of the subscriptions or contracts obtained as a result of services rendered under a contract with the promoters, is whether the corporation has done any act from which an agreement to pay the compensation promised by the promoters may be implied. If, as a result of the efforts of one employed by the promoters, per- sons whom he has interested come to the corporation and offer their subscriptions, it can hardly be said that the corporation can not accept these subscriptions without impliedly agreeing to pay for the services by which the subscribers' interest was aroused. One not employed by the corporation does not, by arousing the interest of others, create a class of persons with whom the corpo- ration may not do business without subjecting itself to a collateral responsibility. But if, as would generally be the case, the corpo- ration accepts and uses the subscription lists gotten up by the employee of the promoters, it undoubtedly accepts the benefit of the promoters' contract of employment, and if it does so with PEOMOTBRS' CONTRACTS. 109 knowledge of the facts, it impliedly agrees to pay the promised compensation. § 60. Materiality of circumstance that original contract made by less than majority of incorporators. A few decisions will be found, holding that in order that the corporation may be bound by an acceptance of the benefits of a contract made on its behalf before complete organisation, it must appear that the making of such contract was authorized by a majority of the incorporators. The leading case is Bell's Gap Railroad Co. v. Christy.''^ • The court in that case said, " We do not desire to controvert the principle, established in England, and to some extent recognized! in this country, that when the projectors of a company enter into contracts in behalf of a body not existing at the time, but to be called into existence afterwards, then if the body for whom the projectors assumed to act does come Into existence, it cannot take the benefit of the contract without performing that part of it which the projectors undertook that it should perform. Conced- ing to this principle its full force and efi'ect, we are unable to see its application to the facts of this case. It may very well be that where a number of persons not incorporated are yet in- formally associated together in the pursuit of a common object, and with the intent to procure a charter in the furtherance of their design, they may authorize certain acts to be done by one or more of their number, with. an understanding that compensation shall be made therefor by the company when fully formed. And 71. 79 Pa. 54, 59, 21 Am. Rep. 39. Morton v. Hamilton College, 100 Ky. This decision is followed in Tift v. 281, 38 S. W. 1, 35 L. R. A. 275, and Quaker City Natl. Bank, 141 Pa. Clarke v. Omaha & S. W. R. R. Co., 550, 21 Atl. 660, 38 Am. & Bng. Corp. 5 Neb. 314, 323 ; Low v. Connecticut Cas. 339 and Tygert Allen Fertilizer & Passumpsic Rivers R. R., 45 N. H. Co. V. J. E. Tygert Co., 7 Pa. Dist. 370, 379. Cf. Low v. Connecticut & Ct. 430, 21 Pa. C. C. 193, affirmed, Passumpsic Rivers R. R., 46 N. H. IQl Pa. 336, 43 Atl. 224. See also 284, 297. ■\^IQ THE LAW OF PROMOTERS. if such acts are necessary to the organization and its objects, and are subsequently accepted by the company, and the benefits thereof enjoyed by them, they must take such benefits cv/m onere, and make compensation therefor. But the projectors or pro- moters of the enterprise within the meaning of the rule referred to, evidently must be a majority at least of such persons, and not one, two, or three, or a small minority thereof. Such min- ority can have no more authority to bind the association or corporation in its incipient or inchoate condition than they would have to bind it if fully organized." It is difficult to apprehend the materiality of the question whether the original contract was authorized by a majority, or a minority, of the incorporators unless the majority can actually bind the corporation.''^ If the liability of the corporation rests upon an acceptance of benefits after its organization, the number or identity of the persons who ineffectively assumed to act for it before that time, is a matter of no moment.''^ § 61. Acceptance must be with full knowledge. Before it can be held that the corporation has by an acceptance of the benefits of the promoter's contract assumed the burdens 72. See ante, § 47, note 4, also in which case the court says, (21 post, § 84, note 14. Neb. 645, 33 N. W. 282) that grant- 73. Jones v. Smith (Tex.), 87 S. ing the entire want of power of the W. 210, speaks of the adoption of officers and promoters, the retaining the unauthorized or officious acts of of possession of the consideration others. In Low v. Connecticut & after organization, is a " ratiflca- Passumpsic Rivers R. R., 45 N. H. tion " of the contract. See also 370, 378, the court says that it is Gooday v. Colchester & Stour Val- ue defense that there was no au- ley Ry. Co., 17 Beav. 132, 15 Eng. thority to make the antecedent re- Law & Eq. 596. It is said in In- quest or that no such request was surance Bank v. Bank of U. S., 4 ever made. See also same v. same, Clark (Pa.) 125, 134, 7 Leg. Int. 129, 46 N. H. 284, 298. This statement that it is the act of adoption, and is quoted in Paxton Cattle Co. v. not the act of the parties to the First National Bank, 21 Neb. 621, original agreement, which makes it 643, 33 N. W. 271, 281, 17 Am. & obligatory on the corporation. Eng. Corp. Cas. 1, 59 Am. Rep. 852, PROMOTERS' CONTRACTS. Ill thereof, it must be shown that the acceptance was made with full knowledge of the facts. Unless the corporation had full knowl- edge, an agreement to abide by the terms of the promoter's con- tract cannot be implied.'^* It has been held that the acceptance by the corporation must be made with knowledge, not only of the nature and terms of the promoter's contract, but of the fact that without such acceptance it would not be bound thereby. An agreement to be bound by the terms of the promoter's contract cannot, it is said, be implied from the act of the corporation resulting from a mistaken belief that it is already bound.'^^ 74. CaUformia. — Peek v. Stein- berg, 163 Cal. 127, 124 Pac. 834; Rideout v. Nat'l Homestead Ass'n, 14 Cal. App. 349, 112 Pac. 192. Colorado. — Possell v. Smith, 39 Colo. 127, 88 Pac. 1064. Iowa. — ^Teeple v. Hawkeye Gold Dredging Co., 137 Iowa 206, 114 N. W. 906. Missowri. — Pitts v. Steele Mer- cantile Co., 75 Mo. App. 221, 231. Pennsylvania. — ^Tift v. Quaker City National Bank, 141 Pa. 550, 21 Atl. 660, 38 Am. & Eng. Corp. Cas. 339, citing Pittsburgh & Steuben- ville R. R. Co. v. Gazzam, 32 Pa. 340 and Bennecke v. Insurance Co., 105 U. S. 355, 26 L. Ed. 990. Texas. — Weathersby v. Texas & Ohio Lumber Co., — Tex. Civ. App. — , 146 S. W. 243, Wisconsin. — Buffington v. Bardon, 80 Wis. 635, 50 N. W. 776, citing 4 Am. & Eng. Ency. of Law (1st Ed.), page 201, § 9. And see note to Cushion Heel Shoe Co. V. Hartt, 50 L. R. A. N. S. 987. The burden of proof as to the company's knowledge is on the party asserting its liability. See Abel v. National Reserve Bank, 149 N. T. App. Div. 710, 134 Supp. 379. It was said in Low v. Connecti- cut & Passumpsic Rivers R. R., 46 N. H. 284, 297, where the plaintiff claimed for services rendered in the organization of the corporation, that it was not necessary that the precise character and extent of the claim should have been made known to the stockholders, but that they were put on inquiry, if they had notice that services had been rendered of such a nature as to raise the pre- sumption that they were to be paid for. See also Low v. Connecticut & Passumpsic Rivers R. R., 45 N. H. 370, 379. Whether the knowledge of an officer, acquired as a promoter, is the knowledge of the corporation assuming his contract, see post, § 71. 75. Tift V. Quaker City National Bank, 141 Pa. 550, 21 Atl. 660, 38 Am. & Eng. Corp. Cas. 339, citing Pittsburgh & Steubenville R. R. Co. V. Gazzam, 32 Pa. 340, 348 and Bennecke v. Insurance Co., 105 TJ. S. 355, 26 L. Ed. 990. See also In ^^2 THE LAW OF PROMOTERS. § 62. Liability of corporation accepting benefit of contract not contemplating performance by it. The acceptance by the corporation of the benefits of a contract made by its promoters, does not create a contract between the corporation arid the opposite party, unless the promoters' agree- ment provided for performance by the corporation. If the pro- moters enter into a contract by which they bind themselves per- sonally to the performance of specified conditions, they can, after its organization, assign their rights under the contract to the corporation, just as to any other person, and the corporation will be compelled to perform only such conditions as are ex- pressly imposed upon it by its agreement with the promoters. It can, just as can any other person, accept an assignment with- out assuming the obligations of its assignors. The corporation becomes obligated to the opposite party only if the promoters' agreement contemplated performance by it. If in such case, with knowledge of all the facts, it accepts the benefits of the promoters' agreement, it impliedly agrees to undertake such performance as the promoters stipulated for it. The mere acceptance from the promoters of a conveyance of their properties, or a transfer of their contract rights, does not, however, commit it to the perform- ance of any obligations other than such as it may agree with the promoters to perform.''® re Northumberland Ave. Hotel Co., Co. v. Perry, 37 Ark. 164, 191, et seq, L. R. 33 Ch. Div. 16; Colt v. Dow- 9 Am. & Eng. R. R. Cas. 610. ling, 4 N. W. Terr. 464, and see Colorado. — Ruby Chief Mining & Bagot Pneumatic Tyre Co. v. Clip- Milling Co. v. Gurley, 17 Colo. 199, per Pneumatic Tyre Co., 1901, 1 Ch. 29 Pac. 668. Div. 196, afe'd, 1902, 1 Ch. Div. 146. Oeorffia.— Mitchell v. J. A. Gif- 76. Alabama. — Moore & Handley ford & Co., 133 Ga. 823, 67 S. E. 197. Hardware Co. v. Towers Hardware Indiana. — Davis & Rankin Bldg. Co., 87 Ala. 206, 6 So. 41, 13 Am. & Mfg. Co. v. HiUsboro Creamery St. Rep. 23. Co., 10 Ind. App. 42, 37 N. E. 549. Arkansas — Perry v. Little Rock Kansas. — ^Tryber v. Girard Cream- & Fort Smith Ry. Co., 44 Ark. 383, ery Co., 67 Kan. 489, 73 Pae. 83. 395 ; Little Rock & Fort Smith R. R. Massachusetts.— Koppel v. Mass. PROMOTERS' CONTRACTS. 113 It has even been doubted that a corporation, by accepting the benefits thereof, obligates itself to the performance of the condi- tions of a contract made by its promoters on behalf of another and different corporation contemplated at the time of the original contractJ'^ Brick Co., 192 Mass. 223, 78 N. E. 128. Michigan. — M'Lellan v. Detroit File Works, 56 Mich. 579, 23 N. W. 321. Nebraska. — D avis et at. v. Ravenna Creamery Co., 48 Neb. 471, 478, 67 N. W. 436, 438. Nevada. — Paxton v. Bacon Mill & Mining Co., 2 Nev. 257. New York. — Hall v. Herter Bros., 83 Hun 19, 21, 64 St. Rep. 378, 31 Supp. 692; Stainsby v. Frazer Metallic Boat Co., 3 Daly 98; Din- geldein v. Third Ave. R. R. Co., 22 Super. 79, reversed on another ground, 37 N. Y. 575; Wilbur v. N. Y. Elec. Const. Co., 58 Super. 539, 554, 35 St. Rep. 81, 12 Supp. 456; Adams v. Empire Laundry Mach. Co., 52 Hun 610, 4 Supp. 738; Mor- rison V. Ogdensburgh, etc., R. R. Co., 52 Barb. 173. Texas. — Modern Dairy & Cream- ery Co. V. Blanke & H. Supply Co., 116 S. W. 153. Washington. — Bash v. Culver Gold Min. Co., 7 Wash. 122, 34 Pae. 462. Wyoming. — Grand Rapids Furni- ture Co. V. Grand H. & O. H. Co., 11 Wyo. 128, 70 Pac. 838, 72 Pac. 687. United Kingdom and Colonies. — In re Rotherham Alum & Chemical Co., L. R. 25 Ch. Div. 103, 50 L. T. N. S. 219. See note to Cushion Heel Shoe Co. V. Hartt, 50 L. R. A. N. S. 987. Cf. Streator Ind. Tel. Co. v. Con- tinental Tel. Const. Co., 217 111. 577, 75 N. B. 546. The corporation is not liable to the lender, for moneys borrowed by the promoter upon his personal note and paid into the treasury of the corporation. Ellis v. Western Nat. Bank, 136 Ky. 310, 124 S. W. 334. The mere fact that the lender ac- cepts the note of the promoter, does not, however, necessarily bar a recovery from the corporation. Schreyer v. Turner Flouring Mills Co., 29 Or. 1, 43 Pac. 719. 77. Tygert-Allen Fertilizer Co. v. J. E. Tygert Co., 7 Pa. Dist. Ct. 430, 21 Pa. C. C. 193, affirmed, 191 Pa. 836, 43 Atl. 224, and see perhaps Gulf & Brazos Valley Ry. Co. v. Winder, 26 Tex. Civ. App. 263, 63 S. W. 1043. Cf. Preston v. Liverpool Man- chester, etc., Ry. Co., 1 Sim. N. S. 586, 7 Eng. Law & Eq. 124, 21 L. J. Ch. N. S. 61, in effect reversed, 5 H. L. Cas. 605; Stanley v. Chester & Birkenhead Ry. Co., 9 Sim. 264, 1 Ry. Cas. 58, aff'd, 3 Mylne & Cr. 773, (overruled on another ground in Caledonian, etc., Ry. Co. v. Magis- trates of Helensburgh, 2 Macq. 391, 408, et seq., 2 Jur. N. S. 695). ■^^^ THE LAW OF PROMOTERS. § 63. The same subject. — Contracts of a continuing nature. A different situation arises in regard to contracts of a con- tinuing nature. The corporation may in regard to such contracts render itself liable by accepting the benefits of a contract made by the promoters in their own behalf. If a person who has ren- dered services or furnished merchandise or materials to the pro- moters as individuals, renders similar services, or delivers similar merchandise or materials to the corporation organized to take over their business, the corporation accepting the same must nec- essarily pay therefor, but the question whether the other party must proceed upon quantum meruit or quantum, valebat, or may claim the compensfitioia or consideration agreed to be paid by the promoters, depends upon whether an agreement to pay com- pensation on the last named basis can under all the circumstances fairly be implied.'^* The situation is precisely the same where the services or merchandise instead of being rendered or fur- nished to, are rendered or furnished by, the promoters and the corporation after its organization continues the performance or delivery therof.''® The corporation does not ordinarily, by continuing the con- tract, become subject to the liability of the promoters for serv- ices rendered to them before the corporate organization.*"' § 64. The same subject — Amended contracts. If a contract of the promoters, originally drawn so as to pro- vide for performance by the promoters as individuals, is, before 78. See North American Loan & crat Publishing Co., 87 Wis. 127, 58 Trust Co. V. Colonial c& U. S. Mort- N. W. 238. gage Co., 83 Fed. Rep. 796, 28 O. C. 79. See North American Loan & A. 88, 55 U. S. App. 157; Heaton v. Trust Co. v. Colonial & U. S. Mort- Clarke & Co., 122 Iowa 716, 98 N. gage Co., 83 Fed. Rep. 796, 28 C. C. W. 597; Horowitz v. Broads Mfg. A. 88, 55 U. S. App. 157; Bane v. Co., 54 N. Y. Misc. 569, 104 Supp. Dow, 80 Wash. 631, 142 Pae. 23. 988 ; Standard Printing Co. v. Demo- 80. See Stone v. Fox Machine Co., 145 Mich. 689, 109 N. W. 659. PROMOTERS' CONTRACTS. 115 it is carried out, modified so as to provide for performance by the corporation, the corporation if 1^ accepts the benefits, will be held to a performance of the obligations of the contract.®^ Something very near to the converse of this proposition arose in Bagot Pneumatic Tyre Co. v, Clipper Pneumatic Tyre Co.*^ The plaintiff in that case had agreed to grant to one Phelps, or to a company then being formed by him, an exclusive license to use certain patents. This license was afterwards granted to Phelps individually. Phelps assigned all his rights under the license agreement to one Piercy acting as trustee for the intended company. The company upon its organization adopted the agreement made between Phelps and Piercy. The license was never actually assigned to the company by Phelps but the com- pany made some use of it. In an action by the plaintiff, the original licensor, against the company, it was held that there was no privity of contract between the parties and therefore no right of action. The explanation of the case seems to be that while the original agreement provided for a grant either to Phelps or the company then being formed, the license was actually issued to Phelps individually, and that Phelps' assignee, though it was the company mentioned in the original agreement, took the assignment of his rights without assuming his obligations. The result might have been different had the license been granted di- rectly to the company, or to Phelps in trust for the intended com- pany.^^ The English law upon the question of the corporate lia- bility resulting from the acceptance of the benefits of the pro- moters' contracts is, however, in such an uncertain state that it is impossible to determine the precise effect of a decision, arising upon such an unusual state of facts. 81. Pratt V. Oshkosh Match Co., pany in the name of the original 89 Wis. 406, 62 N. W. 84. licensee, the assignor of the com- 82. 1902, 1 Ch. Div. 146, affirming, pany. 1901, 1 Ch. Div. 196. It was in tliis 83. See Van Schaick v. Third case suggested that the licensor Ave. R. R. Co., 38 N. Y. 346. might perhaps have sued the com- 116 THE LAW OF PROMOTERS. § 65. The same subject. — Express adoption. The fact that the contract of the promoters is one made by the promoters to be performed by them individually, and not a con- tract contemplating performance by the corporation when organ- ized, is of course immaterial if the corporation not only accepts the benefits of the promoters' contract but expressly assumes its obligations.** 84. California. — Northup v. Alta- dena Min. & Inv. Synd., 6 Gal. App. 101, 91 Pac. 422. Connecticut. — ^Waterman's Appeal, 26 Conn. 96. Kansas. — Davis & Rankin v. Dexter Butter & Cheese Co., 52 Kan. 693, 35 Pac. 776, distinguished in Tryber v. Girard Creamery Co., 67 Kan. 489, 496, 73 Pac. 83, 86. Mississippi. — Johnston v. Gumbel, 19 So. 100. Missouri.— Shntelit v. Smith, 139 Mo. 367, 40 S. W. 887. Nevada. — Paxton v. Bacon Mill & Mining Co., 2 Nev. 257, 261-262. New York. — J. H. Lane & Co. v. United Oil Cloth Co., 103 App. Div. 378, 92 Supp. 1061. It has been held that where the corporation expressly assumes all the debts of a partnership whose business it takes over, a secret understanding of the directors that the claims of certain creditors are to be excepted, is of no effect and will not prevent these creditors from ■insisting on payment by the corpora- tion. Williams v. Colby, 53 Hun (N. Y.) 637, 6 Supp. 459. Compare, though a very different ease, Lee v. Steinhart Lumber Co., 66 Wash. 572, 119 Pac. 1117. It has been held that an express assumption by the corporation of all liabilities incurred in the partner- ship business which it takes over, includes tort as well as contract lia- bilities. Forbes v. Thorpe, 209 Mass. 570, 95 N. E. 955, and see Ziemer v. C. G. Bretting Mfg. Co., 147 Wis. 252, 133 N. W. 139, Am. & Eng. Ann. Cas. 1912, D. 1275. As to priorities between debts of a partnership assumed by the cor- poration and subsequent debts of the corporation itself, see Lamkin v. Baldwin and Lamkin Mfg. Co.,. 72 Conn. 57, 43 Atl. 593, 44 L. R. A. 786. As to such priorities where the debts of the partnership are not ex- pressly assumed, see Thorpe v. Pen- nock Merc. Co., 99 Minn. 22, 108 N. W. 940, 9 Am. & Eng. Ann. Cas. 229. It was held in Smith v. Bowker Torrey Co., 207 Fed. Rep. 967, where the corporation had Issued, in pay- ment for the gross personal assets of the partnership, shares to the full value thereof, that there was no consideration for the further agree- ment to assume the partnership debts. The decision rests largely upon the particular facts. As to whether a corporation tak- ing over the business of a partner- ship or of another corporation thereby necessarily assumes the debts, see post, § 67n. PROMOTERS' CONTRACTS. 117 § 66. The same subject. — Obligations cast upon assignee by terms of contract. A contract with the promoters, though made, without reference to performance thereof by a corporation to be formed for the pur- pose, may be so drawn as to make its obligations binding upon any assignee thereof, and the corporation cannot, in such case, any more than can any other assignee, accept an assignment of the contract without at the same time assuming responsibility for the performance of its obligations.®" § 67. The same subject. — Where corporation is organized to escape existing obligations. If the promoters resort to the fiction of a separate corporate entity, merely to avoid obligations to which they had before its organization become subject with respect to the business trans- ferred to the company, courts of equity will, when the ends of justice require it, look beyond the fiction of the corporate entity and hold the corporation to a discharge of the liabilities previously resting upon its members.®* 85. Werderman v. Soci6t6 G6n- Arkansas. — Carter v. Gray, 79 €rale D'Electricitg, L. R. 19 Ch. Dlv. Ark. 273, 282-283, 96 S. W. 377, 380. 246; Bagot Pneumatic Tyre Co. v. California. — Higgins v. California Clipper Pneumatic Tyre Co., 1902, 1 P. & A. Co., 122 Cal. 373, 55 Pac. Ch. Div. 146, 151; Dansk Rekylriftel 155; Higgins v. California P. & A. Syndikat Aktieselskab V. Snell, 1908, Co., 147 Cal. 363, 81 Pac. 1070; 2 Ch. Div. 127. CorMell v. Corbin, 64 Cal. 197, 30 86. Federal. — Phlla. Creamery Pac. 629. Supply Co. V. Davis & Rankin Bldg. . Colorado. — Franklin Mining Co. v. & Mfg. Co., 77 Fed. Rep. 879 ; Davis O'Brien, 22 Colo. 129, 141-142, 43 Improved Wrought Iron Wagon Pac. 1016, 1020, 55 Am. St. Rep. 118. Wheel Co. v. Davis Wrought Iron Michigan- — Real v. Chase, 31 Wagon Co., 20 Fed. Rep. 699, 700- Mich. 490, 495, 532. 701. New Yorh- — Booth v. Bunce, 33 N. Alahama.—See dictum in Moore & Y. 139, 88 Am. Dec. 372. Handley Hardware Co. v. Towers North CaroUna- — ^Nat'l Union Bk. Hardware Co., 87 Ala. 206, 211, 6 of Md. v. HoUingsworth, 135 N. C. So. 41, 43, 13 Am. St. Rep. 23. 556, 47 S. B. 618, and cases cited. 118 THE LAW OF PROMOTERS. § 68. Liability of the corporation as affected by nature of the particular agreement. It is obvious that performance of a contract entered into by PennsyVoanAa. — Penn. Knitting Mills V. Bibb Mfg. Co., 12 Pa. Super. Ct. 346, 351. Utah — Utah Black Marble Co. v. Am. Marble & Onyx Co., 43 Utah 68, 133 Pac. 472. United Kingdom and Colonies. — ■ Trustee of Gonville v. Patent Cara- mel Co., Ltd., 1912, 1 K. B. 599. See also note to Oakes v. Catta- raugus Water Co., 26 L. R. A. 551 ; note to Donovan t. Purtell, 1 L. R. A. N. S. 176 and note to Cushion Heel Shoe Co. v. Hartt, 50 L. R. A. N. S. 979, 987. See Moore on Fraudulent Conveyances, page 56. See also post, § 71. In Bergen v. Porpoise Fishing Co., (41 N. J. Eq. 238, 3 Atl. 404), the court held a mortgage made by the corporation, fraudulent as against creditors whose debts arose out of business done by the promoters be- fore incorporation, but in the name of the company afterwards formed. This judgment was, however, re- versed on appeal, 42 N. J. Eq. 397, 8 Atl. 523. It is said in Paxton v. Bacon Mill & Mining Co., (2 Nev. 257, 260) that a corporation might perhaps be liable for the debts of a firm whose business it takes over, if no persons other than the members of the firm are taken into the corporation. The fact that there are some stockholders who were not subject to the obligations sought to be avoided, is not material, if all the stockholders had notice and par- ticipated in the efCort to avoid the obligations of their associates. Moore & Handley Hardware Co. v. Towers Hardware Co., 87 Ala. 206, 211, 6 So. 41, 43, 13 Am. St. R. 23. It has been held that a subsequent transfer of shares to innocent pur- chasers does not affect the cor- porate liability. Higglns v. Cali- fornia P. & A. Co., 122 Cal. 373, 55 Pac. 155, same v. same, 147 Cal. 363, 81 Pac. 1070. As to whether a corporation tak- ing over the business of an Individ- ual, of a partnership, or of another corporation, thereby assumes its debts, see: Federal. — DuVivier & Co. v. Gal- lice, 149 Fed. Rep. 118, 80 C. C. A. 556, and note. Colorado. — Curtis, Jones & Co. v. Smelter Nat'l Bank, 43 Colo. 391, 96 Pac. 172; Denver & Santa Fe Ry. Co. V. Hannegan, 43 Colo. 122, 95 Pac. 343, 16 L. R. A. N. S. 874, 127 Am. St. Rep. 100. Georgia. — Culberson v. Alabama Const. Co., 127 Ga. 599, 56 S. E. 765, 9 L. R. A. N. S. 411, 9 Am. & Eng. Ann. Cas. 507; Georgia Co. V. Castleberry, 43 Ga. 187; Green- berg-Miller Co. v. Everett Shoe Co., 138 Ga. 729, 75 S. E. 1120 ; Atlantic & Birmingham Ry. Co. v. Johnson, 127 Ga. 392, 56 S. E. 482, 11 L. R. A. N. S. 1119. Illinois. — Lemars Shoe Co. v. Le- PROMOTERS' CONTRACTS. 119 the promoters cannot be lawfully undertaken by the corporation, and that the contract cannot become binding upon it, if the con- tract is one that the corporation could not make in the first in- mars Shoe Mfg. Co., 89 111. App. 245; Chicago City Ry. Employees' Mutual Aid Ass'n v. Hogan, 124 111. App. 447; Lawrence v. Nyberg Automobile Works, 162 111. App. 348. Iowa. — ^Luedecke v. Des Moines Cabinet Co., 140 Iowa 223, 118 N. W. 456, 32 L. R. A. N. S. 616. Kentucky. — Guenther v. Am. Steel Hoop Co., 116 Ky. 580, 25 Ky. h. R. 795, 76 S. W. 419. Minnesota. — ^Thorpe v. Pennoek Mercantile Co., 99 Minn. 22, 108 N. W. 940, 9 Am. & Eng. Ann. Cas. 229 ; Swing V. Empire Lumber Co., 105 Minn. 356, 117 N. W. 467. Missouri.^-SlSLttevy v. St. Louis & N. O. Transp. Co., 91 Mo. 217, 4 S. W. 79, 60 Am. Rep. 245 ; Shufeldt V. Smith, 139 Mo; 367, 40 S. W. 887 ; Bremen Savings Bank v. Branch- Crookes Saw Co., 104 Mo. 425, 16 S. W. 209; Berthold v. Holladay- Klotz Land, etc., Co., 91 Mo. App. 233. Netraska. — Campbell v. Farmers' & Merchants' Bank, 49 Neb. 143, 68 N. W. 344, and cases cited; Austin V. Tecum^eh Nat'l Bank, 49 Neb. 412, 68 N. W. 628, 35 L. B. A. 444, 59 Am. St. R. 543, and cases cited. Tecumseh Nat'l Bank v. Saunders, 50 Neb. 521, 70 N. W. 42, 51 Neb. SOI, 71 N. W. 779 ; Buerstetta v. Te- cumseh Nat'l Bank, 57 Neb. 504, 77 N. W. 1094; Douglas Printing Co. V. Over, 69 Neb. 320, 95 N. W. 656; Baker Furniture Co. v. Hall, 76 Neb. 88, 107 N. W. 117; 111 N. W. 129; 113 N. W. 267; Hall v. Baker Furniture Co., 86 Neb. 389, 125 N. W. 628; Reed Bros. v. First Natl. Bank of Weeping Water, 46 Neb. 168, 64 N. W. 701. Nevada. — Paxton v. Bacon Mill & Min. Co., 2 Nev. 257. New York. — Irvine v. New York Edison Co., 207 N. Y. 425, 101 N. E. 358, Am. & Eng. Ann. Cas. 1914 C. 441; Goldmark v. Magnolia Metal Co., 28 App. Div. 264, 51 Supp. 68; same v. same, 44 App. Div. 35, 60 Supp. 425, afC'd, 170 N. Y. 579, 63 N. E. 1117; Thorn v. Volunteer St. Gregory Hosp., 59 Misc. 442, 110 Supp. 931. North Carolina. — ^Nat'l Union Bk. of Md. V. HoUingsworth, 135 N. C. 556, 47 S. E 618, and cases cited. Ohio. — Andres v. Morgan, 62 Ohio St. 236, 56 N. E. 875, 78 Am. St. R. 712, and cases cited. Pennsylvania. — Dengler v. Helms, 4 Walker 476, 481. South Dakota. — Byrne & Hammer Dry Goods Co. v. Willis-Dunn Co., 23 S. D. 221, 121 N. W. 620, 29 L.,R. A. N. S. 589. Wisconsin. — Ziemer v. C. G. Bret- ting Mfg. Co., 147 Wis. 252, 133 N. W. 139 Am. & Eng. Ann. Cas. 1912 D. 1275, and cases cited. Wyoming. — Durlacher v. Frazer, 8 Wyo. 58, 55 Pac. 306, 80 Am. St. R. 918. See note to El Cajon Portland Cement Co. v. Robert F. Wentz, En- gineering Co., 92 C. C. A. 460-462; 120 THE LAW OF PEOMOTBES. stance,^'' such as a contract that is contrary to public policy,®® or one that is beyond the scope of the corporate powers.®^ note to Austin v. Tecumseh Natl. Bank, 59 Am. St. Rep. 543, 547-560; note to Atlantic & Birmingham Ey. Co. V. Johnson, 11 L. E. A. N. S. 1119; note to Byrne-Hammer Dry Goods Co. V. Willis-Dunn Co., 29 L. E. A. N. S. 589, and note to Lued- ecke V. Des Moines Cabinet Co., 32 L. E. A. N. S. 616. In Natl. Union Bank of Md. v. HoUingsworth, 135 N. C. 556, 47 S. E. 618, where a surviving partner, personally liable on an indorsement of a note in the firm name made by him without authority, organized a corporation and without fraudulent Intent transferred to it the assets of the firm in payment of his sub- scription to its capital Stock, it was held that the corporation was not liable for the debt evidenced by the note. It has been held that partners who have transferred their partnership business to the corporation remain primarily liable for the debts of the partnership. Broyles v. McCoy, 5 Sneed (Tenn.) 602. 87. McArthur v. Times Printing Co., 48 Minn. 319, 51 N. W. 216, 31 Am. St. Eep. 653 ; Schreyer v. Turner Flouring Mills Co., 29 Or. 1, 43 Pac. 719. A corporation may make Itself liable for money loaned to it through Its promoters before its or- ganization; Schreyer v. Turner Flouring Mills Co., supra. See also Pitman v. Chicago J. Ii. & Z. Co., 113 Mo. App. 513, 87 S. W. 10; Quinn v. American Bankers' Assur. Co., 183 Mo. App. 8, 165 S. W. 823. In Eiv parte Watson, L. E. 21 Q. B. D. 301, an unincorporated build- ing society borrowed money on the notes of its directors, though it had, as then constituted, no power to bor- row money. The society was after- wards incorporated with borrowing powers and the corporation gave its note for the moneys borrowed by the society. It was held that the note was unenforceable as the orig- inal loan was unlawful. 88. Michigan. — Chicago & Grand Trunk Ey. Co. v. Miller, 91 Mich. 166, 51 N. W. 981. New Hampshire. — Low y. Con- necticut & Passumpsic Elvers E. R., 45 N. H. 370, 376. New York. — Wilbur v. New York Electric Construction Co., 58 Super. 539, 35 St. Eep. 81, 12 Supp. 456; Oakes v. Cattaraugus Water Co., 143 N. Y. 430, 437, 38 N. E. 461, 62 St. Eep. 445, 26 L. E. A. 544. Pennsylvania. — Martin v. Second & Third Street Passenger Ey. Co., 3 Phila. 316; Gearhart v. Standard Steel Car Co., 56 Pitts. L. J. 94. "Washington. — ^Hampton v. Bu- chanan, 51 Wash. 155, 98 Pac. 374. 89. First Nat'l Bank v. Church Federation of America, 129 Iowa 268, 105 N. W. 578; Bradford v. Metcalf, 185 Mass. 205, 207, 70 N. B. 40 ; Tift v. Quaker City National Bank, 141 Pa. 550, 551, 21 Atl. 660, 38 Am. & Eng. Corp, Cas. 339 ; Pres- ton V. Proprietors of Liverpool, Manchester, etc., Ey. Co., 5 H. L. Cas. 605, 621; Caledonian, etc., Ey. Co. V. Magistrates of Helens- PROMOTERS' CONTRACTS. 121 A proper agreement of hiring entered into with prospective em- ployees of the corporation may become binding upon the corpo- ration after its organization.^** It has been held that as the officers of the corporation, in the absence of express agreement, are not entitled to compensation for the ordinary seryices appertaining to their office, an agree- ment between the incorporators that one of them shall be made vice-president and receive as such a specified salary, does not become binding upon the corporation because of the acceptance by the person named of the position of vice-president and the per- formance by him of the services incident to that office.®^ While a corporation cannot enter into a contract before it has been completely organized, there is no objection to its taking over a going concern as of a date prior to the corporate organ- ization.®^ § 69. Varying written agreement of promoter. Where the actual agreement of the promoter diflFers from the written memorandum thereof, the corporation, assuming the per- burgh, 2 Maeq. 391, 416, et jseq., 2 As to agreements relating to the Jur. N. S. 695 ; Leominster Canal location of the corporate plant, see Navigation Co. v. Shrewsbury & Bobzin v. Gould Balance Valve Co., Hereford Ry. Co., 3 K. & J. 654 ; 140 Iowa 744, 118 N. W. 40. Earl of Shrewsbury v. North Staf- 90. Girard v. Case Bros. Cutlery fordshlre Ry. Co., L. R. 1 Eq. 593. Co., 225 Pa. 327, 74 Atl. 201, and see See, however, Bobzin v. Gould Coe v. Leckrone Coke Co., 30 Pa. Co. Balance Valve Co., 140 Iowa 744, Ct. 113; Boston Deep Sea Fishing, 118 N. W. 40. etc., Co. v. Ansell, L. B. 39 Cfi. Div, In First Nat'l Bank v. Church 339. See ante, §§ 23-25. Federation of America, 129 Iowa 91. Citizens' Natl. Bank v. 268, 105 N. W. 578, the promoter Elliott, 55 Iowa l64, 7 N. W. 470, was, however, held personally liable. 39 Am. Rep. 167. As to agreements for the location 92. Myott v. Greer, 204 Mass. 389, of railroad lines, see Woodstock Iron 90 N. E. 895 ; Ziemer v. C. G. Bret- Co. V. Richmond & D. Extension Co., ting Mfg. Co., 147 Wis. 252, 133 N. 129 U. S. 643, 9 Sup. Ct. 402, 32 h. W. 139, Am. & Eng. Ann. Cas. 1912, Ed. 819. D. 1275, 122 THE LAW OF PROMOTERS. formance of the contract with full knowledge of the facts, may be held to a performance of the actual agreement rather than of that set forth in the memorandum.^^ § 70. Subscription agreements. A subscription may be enforced by the corporation without regard to the performance or non-performance of the collateral promises of the promoters by which the subscription was induced.^* This is not so much because the promises of the promoters are not binding upon the corporation, as that the courts will not allow the terms of the subscription agreement to be varied to the preju- dice of the rights of other subscribers.®^ 93. Stewart v. Norman (Tenn.), 39 S. W. 758. 94. Indiana. — Shick t. Citizens Enterprise Co., 15 Ind. App. 329, 44 N. E. 48, 57 Am. St. R. 230; Fox v. Allensville, etc., Turnpike Co., 46 Ind. 31, 35-36. Michigan. — Rapid Hook & Eye Co. V. DeRuyter, 117 Mich. 547, 76 N. W. 76. Missouri. — Joy v. Manion, 28 Mo. App. 55. North Carolina. — Boushall v. My- att, 167 N. C. 328, 83 S. E. 352. West Virginia. — Clarksburg, etc., Land Co. v. Davis, — W. Va. — , 86 S. B. 929. United Kingdom a/nd Colonies. — Felgate's Case, 2 DeG. J. & S. 456; Niekoll's Case, 24 Beav. 639; Gour- lie V. Chandler, 41 Nova Scotia 341. And see post, § 219. Cf. Burrows v. Smith, 10 N. T. 550; Tonkers Gazette Co. v. Jones, 30 N. Y. App. Div. 316, 51 Supp. 973. In Mantle v. Jack Waite Min. Co., 24 Idaho 613, 135 Pac. 854, 136 Pac. 1130, an agreement of the promoters that the shares subscribed for by the plaintiff should be non-asses- sable until 25 cents a share had been paid on the stock of the promoters, was held to have become binding on the corporation and enforceable against it. The promoter's promise that the subscribers need not pay their sub- scriptions, may save the latter from liability if the corporation is insol- vent, and its sole creditor and the only person whose interests will be served by enforcing the subscrip- tions, is the promoter who agreed that the same should not be en- forced. Carnahan v. Campbell, 158 Ind. 226, 63 N. E. 384. 95. California. — Quartz Glass & Mfg. Co. V. Joyce, — Cal. App. — , 150 Pac. 648. Massachusetts. — Nickerson v. Eng- lish, 142 Mass. 267, 8 N. E. 45. Minnesota. — Minneapolis Thresh- ing Mach. Co. V. Davis, 40 Minn. 110, 41 N. W. 1026, 3 L. R. A. 796, 12 Am. St. Rep. 701; Wood Harvester PROMOTERS' CONTRACTS. 123 Stipulations contained in the subscription agreement itself, or Co. V. Jefferson, 71 Minn. 367, 74 N. W. 149. Missouri. — OUesheimer v. Thomp- son Mfg. Co., 44 Mo. App. 172, 181. Nebraska. — York Park Bldg. Assoc. V. Barnes, 39 Neb. 834, 840, 58 N. W. 440. New Hampshire. — ^White Mts. R. R. V. Eastman, 34 N. H. 124, 138, et seq. New York. — Yonkers Gazette Co. V. Jones, 30 App. Div. 316, 51 Supp. 973. But see Syracuse P. & O. R. R. Co. V. Gere, 4 Hun 392, 6 T. & C. 636. Oklahoma. — Huster v. Newkirk Creamery & Ice Co., 42 Okla. 440, 141 Pac. 790, L. R. A. 1915, A. 390. Pennsylvania. — Harvey v. Weit- zenkorn, 232 Pa. 447, 81 Atl. 447 Miller v. Hanover Jctn. & Sus. R. R. Co., 87 Pa. 95, 30 Am. Rep. 349 Graff V. Pittsburg & S. R. R. Co, 31 Pa. 489; Robinson v. Pittsburgh. & C. R. R. Co., 32 Pa. 334, 72 Am. Dec. 792. And see post, § 219. It has been held that one who signs his name to a subscription list • without indicating the amount of his subscription, and thereby in- duces others to subscribe, is bound for the number of shares set op- posite his name by the promoter, and estopped from questioning the pro- moter's authority. Silvain v. Ben- son, 83 Wash. 271, 145 Pac. 175. It has been held that an under- standing that a subscription shall not become binding until some fur- ther act is performed by the sub- scriber, is valid, and available as a defense to an action to enforce the subscription. Ada Dairy Assoc. V. Mears, 123 Mich. 470, 82 N. W. 258, and see White v. Kahn, 103 Ala. 308, 15 So. 595. The same has been held in re- gard to an understanding that the subscription agreement shall not be delivered to the corporation until certain conditions have been ful- filled. Oilman v. Gross, 97 Wis. 224, 72 N. W. 885. It has, however, been held that the subscriber is in such case bound, if the subscription agree- ment, unconditional on its face, is delivered to the corporation with- out the performance of the condi- tion. Rehbeln v. Rahr, 109 Wis. 136, 85 N. W. 315. Cf. Cass V. Pittsburg V. & C. Ry. Co., 80 Pa. 31. It has been held that a delivery in escrow cannot be made to a com^ missioner appointed to receive sub- scriptions, as he is the person to whom the absolute delivery would be made, and delivery in escrow must be made to a third party. Wight V. Shelby R. R. Co., 16 B. Mon. (Ky.) 4, 63 Am. Dec. 522, but compare Cass v. Pittsburg V. & C. Ry Co., 80 Pa. 31. A collateral agreement of the promoters, to purchase from a par- ticular subscriber, on demand, at cost, the shares subscribed for by him is valid and enforceable. Mor- gan V. Struthers, 131 U. S. 246, 254, 255, 33 L. Ed. 132, 9 Sup. Ct. 726; McCampbell v. Obear, — Cal. App. — , 148 Pac. 942; Meyer v. 124 THE LAW OF PROMOTERS. rhade with every subscriber thereto, may constitute conditions precedent, without the performance of which the subscriptions cannot be enforced,®® or conditions subsequent which, the cor- poration by accepting the subscriptions impliedly agrees to per- form.®'' The collateral agreements of the promoters may, if the rights of other subscribers are not prejudiced, be enforced against the corporation if its consent to be bound thereby is shown.®® There is in any event no reason why the prompters should not be held individually liable upon their promises.®® Blair, 109 N. Y. 600, 17 N. E. 228, 4 Am. St. Rep. 500; McOlymonds v. Stewart, 2 Pa. Super. Ct. 310; Scranton Luna Park Ass'n v. Ost- haus, 8 Lack. Jur. (Pa.) 345; Kln- caid V. Overshiner, 171 111. App. 37. An agreement to " guarantee " the subscriber's " money," is an agree- ment to indemnify Mm against loss, and not an agreement to repur- chase his shares, and the subscriber must, to recover, prove Ms loss. Norris v. Reynolds, 131 N. Y. App. Div. 818, 116 Supp. 106. 96. Rockford R. I. & St. L. R. R. Co. V. Shunick, 65 111. 223; Bob- zin V. Gould Balance Valve Co., 140 Iowa 744, 118 N. W. 40; Audenried V. East Coast Milling Co., 68 N. J. Eq. 450, 455, 59 Atl. 577, and see Lake Ontario Shore R. R. Co. v. Curtiss, 80 N. Y. 219. 97. Bobzin v. Gould Balance Valve Co., 140 Iowa 744, 118 N. W. 40. See American Home Life Ins. Co. V. Compere, — Tex. Civ. App. — , 159 S. W. 79, 80. To bind the company it must appear that the condition was to be binding upon it, and not the mere personal obligation of the promoters. Russell v. Broadus Cot- ton Mills (Ala.), 39 So. 712. In Morrow v. Nashville, etc., Co., 87 Tenn. 262, 10 S. W. 495, 3 L. R. A. 37, a condition subsequent, con- trary to public policy and void, was held no bar to the enforcement of the subscription. In V. S. Vinegar Co. V. Schlegel, 143 N. Y. 537, 38 N. E. 729, affirming, 67 Hun (N. y.) 356, 22 Supp. 407, it was held that subscriptions to the stock of a corporation could not be avoided on the ground that the company was organized for an illegal pur- pose, where there was nothing to show that an illegal purpose was intended, except certain statements contained in the printed prospectus issued by the promoters. See also United States Vinegar Co. v. Foeh- renbach, 148 N. Y. 58, 42 N. E. 403, and Clarksburg, etc., Land Co. v. Davis, — W. Va. —, 86 S. B. 929. 98. See Frankfort, etc.. Turnpike Co. V. Churchill, 6 T. B. Mon. (Ky.) 427, and see cases cited in preced- ing note. 99. Morgan v. Struthers, 131 U. S. 246, 33 L. Ed. 132, 9 Sup. Ct. 726; McCampbell v. Obear, — Cal. PROMOTERS' CONTRACTS. 125 A subscription agreement, like any other agreement, does not ordinarily become binding before delivery, and the mere signature of the subscriber is of no effect until the agreement leaves his hands ; ^ but a promoter who after signing the subscription agree- ment procures other subscriptions to be made upon the faith of his signature is bound, though the agreement has not left his possession ^ at least in those jurisdictions in which a subscription agreement is held binding as a contract between the subscribers.' § 71. Notice to promoter as notice to the corporation. As the promoters are not the agents of the corporation, and have no power to act for it, notice given to a promoter is not ordi- narily notice to the corporation.* If, however, the promoters later constitute the board of- directors and the only stockholders of the corporation, their knowledge attaches to the corporation and the latter is subjected to any equities of which all the promoters had App. — , 148 Pac. 942; Meyer v. Blair, 109 N. Y. 600, 17 N. E. 228, 4 Am. St. Rep. 500; Jessop v. Ivory, 158 Pa. 71,27Atl.840; Scran- ton Luna Park Assoc, v. Osthaus, 8 Lack. Jur. (Pa.) 345; McClymonds V. Stewart, 2 Pa. Super. Ct. 310; Gourlie v. Chandler, 41 Nova Scotia 341, 350. 1. Greer v. Chartiers Ry. Co., 96 Pa. 391, 42 Am. St. Rep. 548; Gil- man V. Gross, 97 Wis. 224, 72 N. W. 885, and see Rehbein v. Rahr, 109 Wis. 136, 85 N. W. 315. 3. Greer v. Chartiers Ry. Co., 96 Pa. 391, 42 Am. St. Rep. 548. 3. See ante, § 52. 4. Federal. — ^Davis Improved Wrought Iron Wagon Wheel Co. v. Davis Wrought Iron Wagon Co., 20 Fed. Rep. 699, 700; Racine Seeder Co. v. Joliet, etc., Co., 27 Fed. Rep. 367, 375. Calif omia. — Kiefhaber Lumber Co. V. Newport Lumber Co., 15 Cal. App. 37, 113 Pac. 691 ; Peek v. Stein- berg, 163 Cal. 127, 124 Pac. 834. Colorado. — Franklin Mining Co. V. O'Brien, 22 Colo. 129, 141, 43 Pac. 1016, 1020, 55 Am. St. Rep. 118. Illinois. — Burt v. Batavia Paper Mfg. Co., 86 111. 66. South Dakota. — Huron Printing & Bindery Co. v. Kittleson, 4 S. D. 520, 57 N. W. 233. Wyoming. — Grand Rapids Furni- ture Co. V. Grand Hotel & Opera House Co., 11 Wyo. 128, 70 Pac. 838, 72 Pac. 687. Cf. California, etc., Min. Co. v. Manley, 10 Idaho 786, 81 Pac. 50. Appeal dismissed for want of juris- diction, 203 U. S. 579, 51 L. Ed. 326, 27 Sup. Ct. 779; Zelgler v. Valley Coal Co., 150 Mich. 82, 113 N. W. 775, 13 Am. & Bng. Ann. Cas. 90; Bang V. Brett, 62 Minn. 4, 63 N. W. 1067. 126 THE LAW OF PKOMOTERS. notice.^ The promoters, it has been said, are under such circum- stances practically the corporation.® Notice given to a single promoter may become notice to the corporation if the promoter, after the organization of the corpo- ration, becomes one of its agents or officers, and as such acts for the corporation with knowledge of the facts in mind.'' This is 5. Federal.— Nsit'l Conduit Mfg. Co. V. Conn. Pipe Mfg. Co., 73 Fed. Kep. 491, 495; York Mfg. Co. v. Brewster, 174 Fed. Rep. 566, 98 C. C. A. 348; Simmons Creek Coal Co. V. Doran, 142 U. S. 417, 435, 436, 35 L. Ed. 1063; Wilson Coal Co. v. United States, 188 Fed. Rep. 545, 110 C. C. A. 343; Seeger Refrigerator Co. V. American Car & Foundry Co., 171 Fed. Rep. 416, 424, affirmed, (suit, nom. American Car & Foundry Co. V. Seeger Refrigerator Co.), 178 Fed. Rep. 278, 101 C. C. A. 542. Arkansas. — Carter v. Gray, 79 Ark. 273, 283, 96 S. W. 377, 380. Colorado. — Franklin Mining Co. v. O'Brien, 22 Colo. 129, 141-142, 43 Pac. 1016, 1020, 55 Am. St. Rep. 118. Idaho. — ^Henry Gold Mining Co. v. Henry, 25 Idaho 338, 137 Pac. 523. Illinois. — Davis & Rankin Bldg. Co. V. Colusa Dairy Ass'n, 55 111. App. 591. Indiana. — Davis & Rankin Bldg. & Mfg. Co. V. Vice, 15 Ind. App. 117, 43 N. E. 889. Kentucky. — Waddy Blue Grass Cr. Co. V. Davis & Rankin Bldg. & Mfg. Co., 103 Ky. 579, 20 Ky. L. R. 259, 45 S. W. 895; Middleton v. Same, 20 Ky. L. R. 263, 45 S. W. 896. Maryhmd. — Hofeman Steam Coal Co. V. Cumberland Coal & Iron Co., 16 Md. 456, 470-472, 77 Am. Dec. 311. Minnesota. — Mercantile Nat'l Bk. V. Parsons, 54 Minn. 56, 55 N. W. 825, 40 Am. St. Rep. 299. Mississippi. — H o 1 1 o w a y & Mc- Raney Co. v. Brame, 83 Miss. 335, 36 So. 1. New Jersey. — Ransom v. Brinker- hofC, 56 N. J. Eq. 149, 162-163, 38 Atl. 919, reversed, suh nom. Brinker- hoff V. Ransom, 57 N. J. Eq. 312, 41 Atl. 725. New York. — ^Thorn v. Volunteer St. Gregory Hosp., 59 Misc. 442, 110 Supp. 931; McElwee Mfg. Co. v. Trowbridge, 62 Hun 471, 17 Supp. 3, 43 N. Y. St. R. 238; Cumberland Coal Co. V. Sherman, 30 Barb. 553. Tewas. — Texas Loan Agency v. Hunter, 13 Tex. Civ. App. 402, 409, 35 S. W. 399. And see Utah Black Marble Co. v. American Marble & Onyx Co., 43 Utah 68, 133, Pac. 472, where the promoters attempted to escape their obligations by a transfer to the cor- poration. See also Freeman v. Watts, 20 Det. Legal News 81. See ante, § 67, but see § 46. 6. Sondheimer v. Graeser, 72 111. App. 41, affirmed, 172 111. 293, 50 N. B. 174, but see ante, § 46. 7. Federal. — Young Reversible Lock Nut Co. V. Young Lock Nut Co., PROMOTERS' CONTRACTS. 127 undoubtedly the rule in those jurisdictions which hold that notice 72 Fed. Rep. 63; Pearce v. Suther- land, 3 Alaska 303. Idaho. — California, etc., Min. Co. V. Manley, 10 Idaho, 786, 81 Pac. 50, appeal dismissed for want of juris- diction, 203 U. S. 579, 51 L. Ed. 326, 27 Sup. Ct. 779. Iowa. — Bobzin v. Gould Balance Valve Co., 140 Iowa 744, 118 N. W. 40. • Pennsylvania. — Girard v. Case Bros. Cutlery Co., 225 Pa. 327, 329, 74 Atl. 201. South Dakota. — Huron Printing & Bindery Co. v. Kittleson, 4 S. D. 520, 57 N. W. 233 ; Chase v. Redfleld Creamery Co., 12 S. D. 529, 81 N. W. 951. Tesoas. — Woodward v. San An- tonio Traction Co., 95 S. W. 76, cit- ing Clark & Marshall on Private Cor- porations, § 724. Wyoming. — Grand Rapids Fur- niture Co. V. Grand H. & O. H. Co., 11 Wyo. 128, 70 Pac. 838, 72 Pac. 687. United Kingdom and Colonies. — Re Slobodinsky, 1903, 2 K. B. 517. Some authorities hold that where • the promoter has a personal inter- est in that he is attempting to shift to the corporation his respon- sibility for the performance of a contract made by him as promoter, his knowledge is not notice to the corporation. Weatherford M. W. & N. W. Ry. Co. V. Granger, 86 Tex. 350, 358, 24 S. W. 795, 798, 40 Am. St. Rep. 837; Jones v. Smith, (Tex.), 87 S. W. 210, 212, and see Ropes V. Nilan, 44 Mont. 238, 119 Pac. 479. Other authorities hold that the personal interest of the promoter is immaterial; that he may, as an officer of the corporation, act for it in assuming responsibility for the performance of a contract made by him as promoter, and that the knowledge acquired by him as pro- moter is notice to the corporation. Mesinger v. Mesinger Bicycle Sad- dle Co., 44 N. Y. App. Div. 26, 60 Supp. 431; Oakes v. Cattaraugus Water Co., 143 N. T. 430, 38 N. B. 461, 62 St. Rep. 445, 26 L. R. A. 544, (two judges dissenting) ; Girard v. Case Bros. Cutlery Co., 225 Pa. 327, 74 Atl. 201; Chase v. Redfield Creamery Co., 12 S. D. 529, 81 N. W. 951, and see ante, § 53. The promoter's knowledge cannot be charged to the corporation, if he is, while an officer of the corpora- tion, also acting for the other party to the transaction. Rockport Coal Co. V. Carter, 157 Ky. 555, 163 S. W. 734. Cf. § 53, OOTte. The mere fact that the promoter afterWiards became an officer of the company would not charge it with notice of all facts of which he had knowledge, as it cannot be pre- sumed that he communicated any fact to the company unless he acted for it in relation thereto or it in some way became his duty to notify the corporation. See The Admiral, 1 Fed. Cas. 179, 8 Monthly Law Rep. N. S. 91; Sullivan v. De- troit Y. & A. A. R. Co., 135 Mich. 128 THE LAW OF PROMOTERS. to the agent is notice to the principal, if the facts were present in the agent's mind when acting for the principal, though the no- tice was given before the commencement of the agency.® Some jurisdictions, however, follow a rule that, to visit the principal with constructive notice, it is necessary that the knowledge of the agent should have been acquired in the course of his employment.® 661, 98 N. W. 756, 64 L. R. A. 673, 106 Am. St. Rep. 403. And see Red River Valley Land & Inv. Co. v. Smith', 7 N. D. 236, 74 N. W. 194. Of. Glrard v. Case Bros. Cutlery- Co., note 11, imfra. 8. Some of the jurisdictions which apply this rule are: Federal.— TlLe Distilled Spirits, 11 Wall. 356, 20 L. Ed. 167; Davis Imp. Wrought Iron W. W. Co. v. Davis Wrought Iron W. Co., 20 Fed. Rep. 699. Colorado. — C ampbell v. First Natl. Bank of Denver, 22 Colo. 177, 43 Pac. 1007. Connecticut. — Farmers & Citi- zens' Bank v. Payne, 25 Conn. 444, 68 Am. Dec. 362. Georgia. — Whitten v. Jenkins, 34 Ga. 297. IlUnois. — Snyder v. Partridge, 138 111. 173, 184-185, 29 N. E. 851, 32 Am. St. Rep. 130. Louisiana. — Cummings v. Harsa- brauch, 14 La. Ann. 711. Mame.-^Fairfield Savings Bank V. Chase, 72 Me. 226, 39 Am. Rep. 319. Massachusetts. — ^National Secur- ity Bank V. Cushman, 121 Mass. 490. New Hampshire. — ^Hovey v. Blan- chard, 13 N. H. 145. THew 7ork. — Constant v. Univers- ity of Rochester, 111 N. Y. 604, 19 N. E. 631, 2 L. R. A. 734, 7 Am. St. Rep. 769 ; Slattery v. Schwannecke, 118 N Y. 543, 23 N. E. 922; Denton V. Ontario County Natl. Bank, 150 N. T. 126, 137, 44 N. E. 781; Mc- Cutcheon v. Dittman, 164 N. T. 355, 58 N. E. 97; Mathews v. Damainville, 100 App. Div. 311, 91 Supp. 524. North Dakota. — Red River Val- ley Land & Inv. Co. v. Smith, 7 N. D. 236, 74 N. W. 194. Tennessee. — Union Bank v. Camp- bell, 4 Humph. 394. Vermont.— HeLTt v. Bank, 33 Vt. 252. United Kingdom and Colonies. — Dresser v. Norwood, 17 Com. Bench, N. S. 466. 9. Some of the jurisdictions which apply this rule are: Kentucky.— Willis v. Vallette, 4 Mete. 186. Maryland.-lhe General Ins. Co. V. The U. S. Ins. Co., 10 Md. 517, 69 Am. Dec. 174. Michigan.— Wa.rnev v. Hall, 53 Mich. 371, 19 N. W. 40. Missouri. — Ford v. French, 72 Mo. 250. Pennsylvania.—^ ilkeson v. Thompson, 210 Pa. 355, 359, 59 Atl. 1114; Houseman v. Glrard Mutual BIdg. & Loan Assn., 81 Pa. 256. PROMOTERS' CONTRACTS. 129 One might well expect that it would in such jurisdictions be held that knowledge acquired by a promoter before the organization of the corporation, cannot be attributed to the corporation be- cause the promoter afterwards became one of its directors or officers and acted for the corporation with the facts in mind. In Pennsylvania, however, where the rule is strictly adhered to that the principal is only chargeable with notice of such matters as come to the knowledge of the agent in the course of his agency,^" it is held that " the knowledge of the principal pro- moters of a corporation, who acquire their knowledge as such promoters, and who on the organization become officers and di- rectors, is the knowledge of the corporation." ^^ § 72. Admissions of promoter. The admissions made by the promoters are not ordinarily bind- ing on the corporation or admissible in evidence against it ** but it has been said that " where a corporation adopts and acts on the negotiations and inchoate contracts of the promoters who formed it, their acts and declarations, so far as they would have been competent against themselves, are competent against the corporation." ^* But as to promoters, see Girard v. 11. Girard v. Case Bros. Cutlery- Case Bros. Cutlery Co., 225 Pa. 327, Co., 225 Pa. 327, 329, 74 Atl. 201. 74 Atl. 201. Cf. note 7, supra. South Carolina. — Steinmeyer v. 12. McCallum v. Purssell Mfg. Steinmeyer, 5b S. C. 9, 33 S. E. 15. Co., 1 N. Y. Supp. 428, and see Texas. — ^Lane v. DeBode, 29 Tex. Nahoum v. Marcoglou & Co., 146 Civ. App. 602, 69 S. W. 437; N. T. Supp. 1063. Cooper, et al v. Ford, 29 Tex. Civ. 13. Abbott's Trial Evidence, p. App. 253, 69 S. W. 487; Teagarden 45, § 52; (2nd. ed., p. 56, § 52), V. Godley Lumber Co., 105 Tex. 616, Quoted in Raegener v. Brockway, 154 S. W. 973. 58 N. Y. App. Div. 166, 171, 68 Supp. 10. Houseman v. Girard Mutual 712, aff'd, 171 N. Y. 629, 63 N. E. Banking, etc., Asso., 81 Pa. 256; 1121. Gilkeson v. Thompson, 210 Pa. 355, 359, 59 Atl. 1114, and cases cited. 130 THE LAW OF PROMOTEES. § 73. Enforcement by the corporation of contract made by the promoter. A contract made by the promoters on behalf of a projected corporation may, after the corporation has been organized and the obhgations of the contract assumed, be enforced at the suit of the corporation.^* 14. Federal. — Cook v. Sterling Electric Co., 150 Fed. Eep. 766, 80 C. C. A. 502. CaUforma. — Scadden Plat Gold Min. Co. V. Scadden, 121 Cal. 33, 53 Pac. 440. Idaho. — Henry Gold Min. Co. v. Henry, 25 Idaho 333, 137 Pac. 523; Olympia Min. & Mill. Co. v. Kerns, 24 Idaho 481, 135 Pac. 255. Indiana. — Smith v. Parker, 148 Ind. 127, 45 N. E. 770. Minnesota. — Crow River Valley Creamery Co. v. Strande, 104 Minn. 46, 115 N. W. 1038. Missouri. — Richard Brown & Son Co. V. Bambrick Bros. Const. Co., 150 Mo. App. 505, 131 S. W. 134. New 7ork. — Cummings v. Brown, 122 App. Div. 505, 107 Supp. 498. Oregon. — See dissenting opinion of Watson, C. J. in Kelly v. Ruble, 11 Or. 75, 103, 4 Pac. 593. Pennsylvania. — Snow v. Thomj)- son Oil Co., 59 Pa. 209. Texas. — Bonham Cotton Com- press Co. V. McKellar, 86 Tex. 694, 26 S. W. 1056. West Virginia. — Gas Co. v. Elder, 54 W. Va, 335, 46 S. E. 357. United Kingdom and Coloniea. — Bedford & Cambridge Ry. Co. v. Stanley, 2 Johns & H. 746. Note to Oakes v. Cattaraugus Water Co., 26 L. R. A. 544, 551. Cf. Star Corn Millers Soc. v. Moore, 81 L. T. 171; also Florida Coca Cola Bottling Co. v. Ricker, 136 Ga. 411, 71 S. E. 734. The corporation cannot compel performance unless it is organized within a reasonable time. Olympia Min. & Mill Co. v. Kerns, 24 Idaho 481, 135 Pac. 255. Specific performance has been re- fused on the ground that the plain- tiff corporation was not organized in the state contemplated by the agreement. Olympia Min. Co. v. Kerns, 13 Idaho 514, 91 Pac. 92; same v. same, 15 Idaho, 371, 97 Pac. 1031. Cf. § 17, ante. A cause of action against an agent of the promoters for a breach, before the corporation came into existence, of his contract with the promoters does not pass to 'the cor- poration in the absence of an as- signment. Swarthmore Lumber Co. V. Parks, 72 W. Va. 625, 79 S. E. 723. The corporation may enforce sub- scriptions obtained by the pro- moters before its organization. OaUforfUa. — Mahan v. Wood, 44 Cal. 462; Western Development Co. V. Emery, 61 Cal. 611; Marysville Electric, etc., Co. v. Johnson, 93 Cal. 538, 29 Pac. 126, 27 Am." St. R. 215, 109 Cal. 192, 195, 41 Pac. 1016, PROMOTERS' CONTRACTS. 131 After the promoters' contract has been adopted by the corpo- ration, or, more properly speaking, after the corporation has 50 Am. St Rep. 34; Kohler v. Agasslz, 99 Cal. 9, 15, 33 Pac. 741; San Joaquin Land & Water Co. v. Beecher, 101 Cal. 70, 35 Pac. 349; Horseshoe Pier, etc., Co. v. Sibley, 157 Cal. 442, 447, 108 Pac. 308. District of Columbia. — Glenn v. Bussy, 16 Dist. of Col. (5 Mackey) 233. IlUnois. — Johnston v. The Ewing Female University, 35 111. 518; Cross V. Pinckneyville Mill Co., 17 111. 54; Richelieu Hotel Co. v. In- ternational Military Enc. Co., 140 111. 248, 29 N. E. 1044, 33 Am. St. Rep. 234; Tonica & P. B. R. Co. V. McNeely, 21 111. 71; Stone v. Great Western Oil Co., 41 111. 85. Iowa. — ^Nulton v. Clayton, ' 54 Iowa 425, 6 N. W. 685, 37 Am. St. R. 213. Kentucky. — Anderson v. West Kentucky College, 10 Ky. Law Rep. 725. Maiaie. — Penobscot R. R. Co. v. Dummer, 40 Me. 172, 63 Am. Dec. 654; Kennebec & Portland R. R. Co. V. Palmer, 34 Me. 366. Massachusetts. — Athol Music Hall Co. V. Carey, 116 Mass. 471; People's Ferry Co. v. Balch, 8 Gray 303, 311. Michigan. — Peninsular Ry. Co. v. Duncan, 28 Mich. 130; Michigan Midland & Can. R. R. Co. v. Bacon, 83 Mich. 466. Mimnesoia.—Rea Wing Hotel Co. V. Friedrich, 26 Minn. 112, 1 N. W. 827. Missouri. — ^Haskell v. Sells, 14 Mo. App. 91, 101. Nebraska. — Nebraska Chicory Co. V. Lednicky, 79 Neb. 587, 113 N. W. 245. New Hampshire. — Ashuelot Boot & Shoe Co. V. Hoit, 56 N. H. 548. New York. — Lake Ontario Au- burn & N. Y. R. R. Co. V. Mason, 16 N. Y. 451; Federal Sanitary Clearing & Refining Co. v. Loeb, 147 App. Dlv. 737, 132 Supp. 65; Non- Blectric Fibre Mfg. Co. v. Peabody, 21 App. Div. 247, 47 Supp. 677; Woods Motor Vehicle Co. v. Brady, 181 N. Y. 145, 73 N. E. 674, (re- argument denied, 181 N. Y. 554, 74 N. E. 1128), reversing, 90 App. Div. 610, 85 Supp. 1151, which affirmed, 39 Misc. 79, 78 Supp. 203. Pennsylvania. — Arnold M. E. Co. V. Chew, 21 Pa. Super. Ct. 407; Jeannette Bottle Works v. Schall, 13 Pa. Super. Ct. 96, and cases cited. Cf . Philadelphia Medical Pub. Co. V. Wolfenden, 248 Pa. 450, 94 Atl. 138, where it was held that defendant's agreement was with the promoter personally, and not a subscription to the shares of the corporation. Tennessee. — Gleaves v. Brick Church Turnpike Co., 1 Sneed 491. Texas. — McCord v. Southwestern Sundries Co. — Tex. Civ. App. — , 158 S. W. 226. Virginia. — Newberry Land Co. v. Newberry, 95 Va. Ill, 27 S. E. 897, (dictum). West Virginia. — Clarksburg, etc., Land Co. v. Davis, — W. Va. — , 86 S. E. 929. 132 THE LAW OF PROMOTERS. agreed that the terms of the promoters' contract shall be binding upon it, no action for the breach of the contract can be main- tained by the promoters, as their contract has been superseded by that of the corporation." See note to Winston v. Brooks, 4 L. R. A. 507. And see ante, § 52. It has been held that if the sub- scription agreement contemplated payment to a contractor, and not to the corporation, the latter cannot sue thereon. Dotson v. Savannah Pure Food Calling Co., 140 Ga. 161, T8 S. E. 801. Some authorities hold that a mere agreement between the parties that they will subscribe for shares of a corporation when the same is formed, is not enforceable by the corporation; that the agreement is enforceable by the corporation only if some party thereto therein agrees to form the corporation. California. — California Sugar Manufacturing Co. v. Schafer, 57 Cal. 396. Kentucky. — ^Twin Creek, etc., Turnpike Road Co. v. Lancaster, 79 Ky. 552. New York. — Avon Springs Sani- tarium Co. V. Weed, 189 N. Y. 557, 82 N. E. 1123, (reargument denied, 190 N. Y. 521, 83 N. E. 1122), re- versing, 119 App. Div. 560, 104 Supp. 58; Yonkers Gazette Co. v. Taylor, 30 App. Div. 334, 51 Supp. 969, 5 Ann. Cas. 884; Lake Ontario Shore R. R. Co. v. Curtiss, 80 N. Y. 219. OWo.— Dayton W. V. & X. T. Co. V. Coy, 13 Ohio St. 84. Pennsylvania. — Strasburg B. E. Co. V. Echternacht, 21 Pa. 220, 60 Am. Dec. 49. A mere agreement to subscribe for shares is, however, enforceable by the corporation, against a signer who subsequently accepted his shares. Avon Springs Sanitarium Co. V. Kellogg, 125 N. Y. App. Div. 51, 109 Supp. 153, affirmed, sub nom. Smith V. Kellogg, 194 N. Y. 567, 88 N. E. 1132. It has been held that if the de- fendant has not formally subscribed for shares, but merely agreed to sub- scribe for shares, the corporation cannot sue him for the subscription price, its remedy being an action for damages. Thrasher v. Pike County R. R. Co., 25 111. 393; Mt. Sterling Coalroad Co. v. Little, 14 Bush (Ky.) 429. 15. Wilfey V. Borough of To- wanda, 26 Fed. Rep. 594; Smith v. Parker, 148 Ind. 127, 45 N. E. 770; Norcross, etc., Co. v. Summerour, 114 Ga. 156, 39 S. E. 870. But see McCausland v. Hill, 23 Ont. App. Rep. 738, also Watson v. Gugino, 140 N. Y. App. Div. 33, 124 Supp. 321, questioned (but reversed on other grounds), 204 N. Y. 535, 98 N. B. 18, 39 L. R. A. N. S. 1090, Am. & Eng. Ann. Cas. 1913, D. 215. After the promoters' rights under a contract have passed to the cor- poration, it is improper to join them with the corporation as plain- tiffs in an action thereon. Lott- PROMOTEES' CONTRACTS. 133 As the promoters have no power to contract for the corporation, a suit arising out of the breach of a contract made by the pro- moters cannot be maintained by the corporation unless there is shown, some act on the part of the fully organized company from which its agreement to be bound by the terms of the promoters' contract can at least be implied. The mere commencement of the action is insufficient. Some prior act of assumption must be shown. ^® In order that the corporation may maintain a suit for the breach of the terms of a contract made for it by its promoters, it must appear that the corporation, before the other party gave notice of his withdrawal, acted upon the promoters' contract and agreed to be bound by its terms. The corporation cannot, . ac- cording to the weight of authority, " ratify " or " adopt " a con- tract made for it by its promoters, and it acquires no rights there- under unless it can show a new contract, express or implied, the terms of which may be sought in the agreement made by the pro- moters.^'' An agreement made with the promoters of a projected corporation is ordinarily nothing more than an agreement to enter upon a contract with the corporation when organized. If the other party refuses to contract with the corporation he may be- come liable to the promoters because of the breach of his contract man, etc., Co. V. Houston Water 654, 2 Supp. 457; Raegener v. Works Co. (Tex.), 38 S. W. 357. Brockway, 58 N. Y. App. Div. 166, It is unnecessary to join the pro- 170, 68 Supp. 712, affirmed, 171 N. moters as defendants. Federal Sanl- T. 629, 63 N. E. 1121, (citing Thomp- tary & Refining Co. v. Loeb, 3 New son on Corporations, § 482) ; Tinne- Xork Current Decisions 78. velly Sugar Ref. Co., Ltd., v. Mirr- 16. Penn Match Co. v. Hapgood, lees, etc., Co., Ltd., Sessions Cases, 141 Mass. 145, 149, 7 N. E. 22; Es- 21 Rettie 1009. sex Turnpike ' Corp. v. Collins, 8 Cf. Chas. F. Hollwedel Co. v. Mass. 292 ; Montgomery v. Whit- Auerbach & Co., 67 N. Y. Misc. 148, beck, 12 N. D. 385, 96 N. W. 327; 121 Supp. 597. Matter of Rochester H. & L. R. R. And see the Tennessee Code of Co., 50 Hun (N. Y.) 29, 18 St. B. 1896, § 2036. > 17. See ante, § 50. ■1 o^ THE LAW OF PROMOTERS. with them,^® but the only complaint of the corporation is that the other party refused to enter upon a contract with it, and no cause of action accrues to it therefrom.^^ If the promoters insert in the contract made by them for the projected corporation, a provision that they shall in no event be personally liable thereunder, their contract is, in the absence of an independent consideration, void for lack of mutuality and not enforceable by either the corporation or the promoters. It is held in Kline Bros, & Co. v. Royal Insurance Co.^" that an insurance policy taken out by the promoters in the name of the company, inures to the benefit of the fully organized corporation upon acceptance by it, provided that such acceptance takes place before a loss occurs. It has been held that a check given to the promoters as a de- posit upon a subscription to the shares of a company to be formed, may after its organization be sued upon by the corporation.^^ It was held in Newberry Land Co. v. Newberry ^^ that the sale by the promoters to the corporation, of lands contracted for by the former in their individual capacity, did not enable the corpo- ration on failure of title to recover from the vendor the sums paid on the contract by the promoters, as the contract had not been assigned to the corporation; that the right of recovery remained in the promoters, and that the corporation must look to them for relief. , In Jenkins v. Bradley,^' the promoters were tenants in common of certain property to be sold to the corporation. There was a question as to the validity of the title to one of the undivided in- terests. The other promoters agreed with the apparent owner of 18. See post, § 79. 21. Syracuse, etc., R. R. Co. v. 19. Natal Land Co. v Pauline Gere, 4 Hun (N. Y.) 392, 6 T. & C. Colliery Synd. 1904, App. Cas. 120. 636; Vermont Cent. R. R. Co. v. 20. 192 Fed. Rep. 378. Reversed Clayes, 21 Vt. 30. on another ground, («m6 nom. Royal 22. 95 Va. Ill, 27 S. E. 897. Ins. Co. V. Kline Bros. & Co.), 23. 104 Wis. 540, 80 N. W. 1025. 198 Fed. Rep. 468, 117 C. C. A. 228. PROMOTERS' CONTRACTS. 135 the doubtful title that they would indemnify both him and the corporation against any failure of title. The court held that this agreement did not inure to the benefit of the corporation. In Hillside Cemetery Association v. Holmes,^* a corporation was allowed to maintain an action for the cancellation of certain of its shares, because of the failure of the consideration for their issue agreed upon by the promoters. § 74. Right of corporation to conveyance of property purchased for it by promoter. Whether a corporation can compel its promoters to convey to it property which they purchased for it before its organization, is a question upon which the cases are not in accord. Some au- thorities hold that while the corporation is not bound by the promoters' contracts, it can after it has been fully organized, incur the obligations and assume the benefits thereof and compel the promoters to convey to it the property purchased for it be- fore its organization,^^ particularly if it acts before any with- drawal or disavowal on the part of the promoters.^® Other au- thorities hold that a mere intention on the part of the promoters that their purchase is made for a corporation to be formed, does not subject the property to any trust and that the promoters are 24. 97 Minn. 261, 105 N W. 905. Instalments of stock subscriptions 25. Seacoast R. R. Co. v. Wood, paid to the promoters must, of 65 N. J. Equity 530, 537-539; 56 course, be accounted for to the cor- Atl. 387 ; affirmed, sub nom. Atlantic poration. San Joaquin L. & W. City R. R. Co. v. Wood, 78 N. J. Eq. Co. v. West, 94 Cal. 399, 29 Pac. 298, 81 Atl. 1132; Central Trust 785. Co. of Pittsburg v. Lappe, 216 Pa. 26. Central Trust Co. of Pitts- 549, 65 Atl. 1111. See also Nester burg v. Lappe, 216 Pa. 549, 65 Atl. V. Gross, 66 Minn. 371, 69 N. W. 39. 1111. In the case last cited the retention If the company at first refuses to of the property by the promoter was take the property from the promoter under the additional facts a gross it cannot afterwards compel a con- fraud upon the corporation. veyance. Sandy River R. R. v. Stnbbs, 77 Me. 594, 2 Atl. 9. 136 THE LAW OF PROMOTERS. at liberty to change their minds and make whatever disposition of the property that they see fit.^'^ The power of the corporation to compel a conveyance is un- questionable if the conveyance to the promoters was made upon an express trust to convey to the corporation when formed.^® The equitable title, in such case, vests in the corporation immedi- ately upon its organization.^® § 75. Effect of instrument naming projected corporation as grantee. It frequently happens that a deed, bill of sale, or assignment running directly to the projected corporation is, before its organ- ization, delivered to the promoters. The effect of such an instru- ment is by no means free from doubt. It has been held that such an instrument passes no title,'** but there are other cases which hold that it takes effect upon the organization of the company.'^ 27. Camden Land Co. v. Lewis, 101 Me. 78; 63 Atl. 523, and see Tyrrell v. Bank of London, 10 H. L. Cas. 26, 52, 11 Eng. Rep. 934. In the case first cited the purchase was made by the president of the corporation and the court made the point that even though the presi- dent had orally agreed with the corporation to make the purchase for it, the statute of frauds would have rendered this promise unen- forceable ; citing 15 Am. & Eng. Enc. of Law (2nd Ed.) 1187. Cf. Averill v. Barber, 25 N. T. St. Rep. 194, 198, et seq., 6 Supp. 255, 2 Silv. 40, 53 Hun 636. 28. McCandless v. Inland Acid Co., 115 Ga. 968, 42 S. E. 449 ; Olym- pia Min. & Mill. Co. v. Kerns, 24 Idaho, 481, 135 Pac. 255 ; Hecla Con- sol. Gold Min. Co. v. O'Neill, 47 N. Y. St. Rep. 211, 19 Supp. 592; Church of St. Stanislaus v. Alge- melne Verein, 31 N. T. App. Div. 133, 52 Supp. 922, affirmed, 164 N.- Y. 606, 58 N. E. 1086. And see Coyote G. & S. M. Co. v. Ruble, 8 Or. 284, 299, but compare Kelly v. Ruble, 11 Or. 75, 104-105, -4 Pac. 593, (dissenting opinion of Watson C. J.). 29. McCandless v. Inland Acid Co., 115 Ga. 968, 42 S. B. 449. 30. Wall v. Mines, 130 Cal. 27, 43, 62 Pac. 386; Globe Realty Co. v. Whitney, 106 La. 257, 30 So. 745 ; Whiting & Sons Co. v. Barton, 204 Mass. 169, 90 N. E. 528. 31. Sumter Tobacco Warehouse Co. V. Phoenix Ass. Co., 76 S. C. 76, 56 S. E. 654, 121 Am. St. Rep. 941, 10 L. R. A. N. S. 736, 11 Am. & Eng. Ann. Oas. 780, (citing 4 Thompson PROMOTERS' CONTRACTS. 137 If the corporation is never organized the deed is void^^ and a suit in equity to cancel it as a cloud upon title may be main- tained.^* The fact that the deed bears date, and was executed, at a time when the company was not yet organized, is immaterial if delivery is made after its organization,** and even if delivery is made be- on Corporations, 5114, 5115) ; Hecht V. Acme Coal Co., 19 Wyq. 10, 113 Pac. 786. This question is in Tennessee con- trolled by statute (Code of 1896, S 2036). See Cumberland Land Co. V. Daniel (Tenn.), 52 S. W. 446. As to grants of land by tbe state for public use, see Trustees of Vin- cennes Univ. v. Indiana, 14 How. (U. S.) 268, 274, 14 L. Ed. 416; Dartmouth College v. Woodward, 4 Wheat. (U. S.) 518, 690, et seq., 4 L. Ed. 629. As to ordinances granting fran- chises to corporations, before organ- ization, see Spring Valley Water Works V. San Francisco, 22 Cal. 434 ; Aspen Water & Light Co. v. Aspen, 5 Colo. App. 12, 37 Pac. 728; Chi- cago Tel. Co. V. Northwestern Tel. Co., 199 111. 324, 346, 65 N. E. 329, affirming, 100 111. App. 57, 62-63 ; Mc- Wethy V. Aurora Elec. Light Co., 202 111. 218, 228-229, 67 N. E. 9 ; Stevens V. Borough of Merchantville, 62 N. J. Law 167, 40 Atl. 688; Lake v. Ocean City, etc., Co., 62 N. J. Law 160, 41 Atl. 427; Clarksburg Elec. Light Co.' v. City of Clarksburg, 47 W. Va. 739, 749-750, 35 S. E. 994, 50 L. R. A. 142, 152. And see cases cited, American Di- gest, Decennial Edition, "Muni- cipal Corporations," § 111 (1). As to the rights of a railroad cor- poration under surveys made by its promoters, see Washington, etc., R. R. Co. V. Coeur D'Alene Ry. & Nav. Co., 160 U. S. 77, 99, 16 Sup. Ct. 231, 40 L. Ed. 355; New Brighton, etc., R. R. Co. V. Pittsburgh, etc., R. R. Co., 105 Pa. 13; Homestead Street Ry. Co. v. Pittsburg & Home- stead Elec. Street R. Co., 166 Pa. 162, 30 Atl. 950, 27 L. R. A. 383; Chesapeake & O. Ry. Co. v. Deep- water Ry. Co., 57 W. Va. 641, 667, 50 S. E. 890; Milwaukee, etc., Co. V. Milwaukee No. Ry., 132 Wis. 313, 341, 112 N. W. 663, 672. As to the effect of the promoters' surveys and contracts upon the power of other railroads to take a right of way by eminent domain, see Toledo & I. Traction Co. v. Toledo & C. Interurban Ry. Co., 171 Ind. 213, 86 N. E. 54. 32. WyekofC v. Vicary, 75 Hun (N. Y.) 409, 56 St. R. 774, 27 Supp. 103; Bogard v. Sweet, 17 Okla. 40, 87 Pac. 669, affirmed, 209 U. S. 464, 52 L. Bd. 892, 28 Sup. Ct. 595.' 33. Bogard v. Sweet, 17 Okla. 40, 87 Pac. 669, affirmed, 209 V. S. 464, 52 L. Bd. 892, 28 Sup. Ct. 595. 34. San Diego Gas. Co. v. Frame, 137 Cal. 441, 446, 70 Pac. 295 ; Dyer v. Rich, 1 Mete. (Mass.) 180, 190; Sayward v. Gardner, 5 Wash. 247, 138 THE LAW OF PEOMOTERS. fore that time a redelivery may sometimes be inferred.^® A de- livery to the promoter in escrow for the projected corporation, has been held valid to pass title.*® It has been held that the grantor of a deed naming as grantee a corporation afterwards organized, is estopped from denying the power of his grantee to take the conveyance.^'' In African M. E. Church v. Conover,^® it was held that a deed to a voluntary association afterwards incorporated, left the title in the vendor in trust, at first for the members of the association, and later for the corporation. In Smith v. First National Bank,^® it was held that a deed to a corporation not yet organized, is valid, in equity at least, to pass title to the incorporators individually. It is held in McCandless v. Inland Acid Co.*" that a deed to certain persons as directors or incorporators does not pass title to the corporation upon its organization. A deed to the corporation made between the date of the grant- ing of the charter and the date of the complete organization of the company, is a valid deed to a legally existing body.*^ 31 Pac. 761, 33 Pac. 389, and sec Colo. 263, 268, 40 Pae. 457, 29 L. oases cited in succeeding notes. B. A. 143, 52 Ani. St. R. 220. 35. Valk V. Orandall, 1 Sandf. Ch. 38. 27 N. J. Eq. 157. (N. T.) 179, 182. And see Charles 39. 43 Tex. Civ. App. 495^, 504, 95 F. Hollwedel Co. v. Auerbach & Co., S. W. 1111, 1116, 16 Tex. Ct. Rep. 67 N. T. Misc. 148, 121 Supp. 597. 729, writ of error refused, 101 36. Santaquln Mln. Co. v. High Tex. 659. See also Smith v. Texas Roller Min. Co., 25 Utah 282, 289, et & N. O. R. Co., 101 Tex. 405, 108 aeq., 71 Pac. 77; Spring Garden S. W. 819. And WilUam Cameron Bank V. Hulings Lumber Co., 32 W. & Co. v. Trueheart, — Tex. Civ. Va. 357, 9 S. E. 243, 3 L. R. A. 583. App. — , 165 S. W. 58. 37. Dyer V. Rich, 1 Mete. (Mass.) 40. 112 Ga. 291, 37 S. E. 419; 180, 190; White Oak, etc., Soc. v. see also Frank v. Drenkhahn, 76 Murray, 145 Mo. 622, 47 S. W. 501 ; Mo. 508. Broadwell v. Merritt, 87 Mo. 95; 41. Dyer v. Bich, 1 Mete. (Mass.) Relnhard v. Virginia Lead Mining 180, 190, and see Botch's Wharf Co. Co., 107 Mo. 616, 18 S. W. 17. Cf. v. Judd, 108 Mass. 224; Bathbone v. Jones v. Aspen Hardware Co., 21 Tioga Nav. Co., 2 Watts & Serg. PROMOTERS' CONTRACTS. 139 § 76. Title to property which corporation is expressly organ- ized to acquire. It has been held that the organization of a corporation, pursu- ant to a special act describing the particular real estate which the corporation is to take over, which real estate is owned by the incorporators as tenants in common, vests the title to such prop- erty in the corporation without further action on the part of the owners.*^ Ordinarily, however, a corporation organized to take over specific real property does not obtain title except by a proper deed of conveyance.*' Title to personal property which the corporation is organized to acquire does not vest in the corporation without some act of transfer,** but title to such property may in general be trans- ferred by delivery.*^ § 77. Liability of promoter on contract made for the corpora- tion. A promoter who assmnes to make a contract for a projected corporation, acts as agent for a non-existing principal, and is, (Pa.) 74; Burhop v. City of Mil- W. 417); McLeary v. Oawson, 87 waukee, 21 Wis. 257. Cf. Aspen Tex. 524, 29 S. W. 1044. Water & Light Co. v. Aspen, 5 Colo. Cf. Cooke v. Watson, 30 N. J. Eq. App. 12, ."57 Pae. 728. 345, where the court, under the spe- 43. Colquitt v. Howard, 11 Ga. cial facts, held the equitable title to 556 ; Santa Rosa City R. Co. v. Cen- have passed to the corporation, tral St. Ry. Co. (Cal.), 38 Pae. 986, 44. Ruettell v. Greenwich Ins. Co., dealing with a street railroad fran- 16 N. D. 546, 113 N. W. 1029 ; Mana- chlse; and see Eau v. Union Paper han v. Varnum, 11 Gray (Mass.) Mill Co., 95 Ga. 208, 22 S. E. 146. 405 ; Florida Coca Cola Bottling Co. Cf. Florida Coca Cola, etc., Co. v. v. Ricker, 136 Ga. 411, 71 S. B. 734. Ricker, 136 Ga. 411, 71 S. E. 734. But see American Silk Works v. 43. Lefflngwell v. Elliott, 8 Pick. Salomon, 4 Hun (N. Y.) 135, 6 T. (Mass.) 455, 19 Am. Dec. 343; Hoi- & C. 352; Brooks v. Bonner, — Tex. land V. Cruft, 3 Gray (Mass.) 162, Civ. App. — , 149 S. W. 564. 173 ; Schneider v. Sellers, 81 S> W. 45. See Grand Rapids Furniture 126, (modified, 98 Tex. 380, 84 S. Co. v. Grand Hotel, etc., Co., 11 Wyo. 128, 70 Pae. 838, 72 Pac. 687. 140 THE LAW OF PROMOTERS. according to the weight of authority, personally liable thereon,*** unless it is expressly agreefi that the other party shall look for 46. Federal. — Marconi's Telegraph Co. V. Cross, 16 Hawaii 390. Colorado. — C o 1 o r a d o Land & Water Co. v. Adams, 5 Colo. App. 190, 201, 37 Pac. 39; Hersey v. Tully, 8 Colo. App. 110, 44 Pac. 854. Georgia. — Meinhard Schaul & Co. V. Bedingfleld Mercantile Co., 4 Ga. App. 176, 61 S. E. 34, 36; Pratt V. Finkle, 99 Ga. 616, 25 S. E. 941; Jos. Rosenheim Shoe Co. v. Home, 10 Ga. App. 582, 73 S. E. 953 ; McRee V. Quitman Oil Co., — Ga. App. — , 84 S. E. 487; Wells v. J. A. Fay & Egan Co., — Ga. — , 85 S. E. 873. Kansas. — Whetstone v. Crane Bros. Manuf'g Co., 1 Kan. App. 320, 41 Pac. 211. Kentucky. — Kennedy v. Fulton Mercantile Co., 38 Ky. L. R. 60, 108 S. W. 948. Michigam. — Belding Land & Imp. Co. V. City of Belding, 128 Mich. 79, 87 N. W. 113; Carmody v. Powers, 60 Mich. 26, 26 N. W. 801, 13 Am. & Eng. Corp. Cas. 4. Cf. Durgin v. Smith, 133 Mich. 331, 94 N. W. 1044; Lockwood v. Wynkoop, 178 Mich. 388, 144 N. W. 846. Missouri. — Queen City Furniture Co. V. Crawford, 127 Mo. 356, 364, 30 S. W. 163, 165; Hurt v. Salisbury, 55 Mo. 310; Lewis v. Fisher, 167 Mo. App. 674, 151 S. W. 172. New York. — Oakes v. Cattaraugus Water Co., 143 N. Y. 430, 439^40, 38 N. E. 461, 62 St. Rep. 445, 26 L. R. A. 644 ; Hub . Publishing Co. v. Richardson, 13 Supp. 665 ; 37 St. R. 541, 59 Hun 626; Munson v. Syra- cuse G. & C. R. R. Co., 103 N. T. 58, 76, 8 N. E. 355, 29 Am. & Eng. R. R. Cas. 377. Ohio. — Mosier v. Parry, 60 Ohio St. 388, 54 N. E. 364; Farmer's Co.-op. Trust Co. v. Floyd, 47 Ohio St. 525, 26 N. E. 110, 12 L. R. A. 346, 21 Am. St. Rep. 846. Pennsylvania. — Bell's Gap R. R. Co. V. Christy, 79 Pa. 54, 59, 21 Am. Rep. 39; O'Rorke v. Geary, 207 Pa. 240, 56 Atl. 541. Texas. — Weatherford M. W. & N. W. Ry. Co. V. Granger, 86 Tex. 350, 354, 24 S. W. 795, 40 Am. St. Rep. 837; Ennis Cotton Oil Co. v. Burks, 39 S. W. 966; Bradshaw v. Jones, — Tex. Civ. App. — , 152 S. W. 695. United Kingdom and Colonies. — Caledonian & Dumbartonshire Ry. Co. V. Magistrates of Helensburgh, 2 Macq. 391, 407-^08, 2 Jur. N. S. 695 ; In re Hereford & South Wales Waggon & Engineering Co., L. R. 2 Ch. Div. 621, 627, 35 L. T. N. S. 40 ; Hopcrof t v. Parker, 16 L. T. N. S. 561 ; Bell v. Francis, 9 C. & P. 66; Barton v. Hutchinson, 2 Car. & K. 712; Job V. Lamb, 25 L. J. Exch. 87; Cullen v. O'Meara, Ir. R. 1 Com. Law 640, reversed on other grounds, Ir. R. 4 Com. Law 537; Clergue v. Humphrey, 31 Can. S. C. 66; Coit v. Dowling, 4 N.. W. Terr. 464; Thomson v. Feeley, 41 r. C. Q. B. 229 ; Thames Nav. Co. v. Reid, 9 Ont. 754, rev'd, 13 Ont. App. 303. See note to Greenberg v. Whit- comb Lumber Co., 48 Am. St. Rep. PROMOTERS' CONTRACTS. 141 performance only to the corporation to be formed and in no event to the promoter.*'^ If the promoter is, under the terms of the 911, 914. See also cases cited tn succeeding notes. This may not be the rule In all jurisdictions. Alabama. — ^McQuiddy Printing Co. V. Head, 7 Ala. App. 384, 62 So. 287. Illinois. — Seeberger v. McCor- mick, 178 111. 404, 416, 53 N. E. 340, affirming, 73 111. App. 87, writ of error dismissed, 175 U. S. 274, 44 L. Ed. 161, 20 Sup. Ct. 128. Massachusetts. — Jefts v. York, 4 Cush. 371, 50 Am. Dec. 791; same V. same, 10 Cush. 392. Michigan. — See supra. And see 16 Am. Law. Rev. 281, 282. A somewhat different situation arises if the other party to the con- tract is also one of the promoters of the corporation. Belding v. Vaughan, 108 Ark. 69, 157 S. W. 400. It is held in Bradshaw v. Jones, — Tex. Civ. App. — , 152 S. W. 695, that the promoters are not liable for services rendered directly to the corporation after • its organization, though pursuant to a contract made with the promoters before its or- ganization. To hold the promoters liable it must be shown that they actually made a contract. Mere negotia- tions for a contract to be made with the corporation when organ- ized, do not fasten any liability upon them. Donaldson Bond & Stock Co. V. Houck, 213 Mo. 416, 112 S. W. 242. As to whether the promoters can be held personally liable where the corporation is organized on the same day that the contract is made, see Ryland v. HoUinger, 117 Fed. Rep. 216, 54 C. C. A. 248; see also Lockwood V. Wynkoop, 178 Mich. 388, 144 N. W. 846. As to the liability of the pro- moters for damages for personal in- juries suffered pending the com- plete organization of the corpora- tion, see Farmers' Gin & Milling Co. y. Jones, — Tex. Civ. App. — , 147 S. W. 668. In Selkirk v. Windsor, etc.. Rail- way Co., 20 Ont. L. R. 290, 15 Ont. W. R. 87, the promoters' liability was based upon their misrepresenta- tion as to their authority to bind the company. See also Seeberger v. McCormlck, 178 111. 404, 53 N. E. 340, affirming, 73 111. App. 87, writ of error dismissed, 175 U. S. 274, 44 L. Ed. 161, 20 Sup. Ct. 128. 47. Federal. — Wiley v. Borough of Towanda, 26 Fed. Rep. 594; Marconi's Telegraph Co. v. Cross, 16 Hawaii 390. Georgia.— WeWs v. J. A. Fay & Bgan Co., — Ga. — , 85 S. E. 873. Missouri. — Queen City Furniture Co. V. Crawford, 127 Mo. 356, 30 S. W. 163. Pennsylvania. — O'Rorke v. Geary, 207 Pa. 240, 56 Atl. 541 ; Dengler v. Helms, 4 Walker 476, 481. Texas. — Weatherford M. W. & N. W. Ry. V. Granger, 86 Tex. 350, 352, 24 S. W. 795, 796, 40 Am. St. 142 THE LAW OF PROMOTERS. contract, not to be held individually responsible for the perform- ance thereof, there is, until the corporation after its organization assumes responsibility, no mutuality of contract, and the pro- moter's agreement constitutes, in the absence of an independent consideration, a mere offer not binding upon any one. An agreement will not be construed as intending that the pro- moter is to be free from personal responsibility, unless that in- tention is clearly stated.*® If the written contract contains no provision to that effect, evidence of a parol understanding that the promoters should be free from personal liability, is inadmissible.*^ The promoters of a corporation are not partners ^^ and have. Rep. 837; Ennis Cotton Oil Co. v. Burks, 39 S. W. 966; Bradshaw v. Jones, — Tex. Civ. App. — , 152 S. W. 695. Virgima. — Strause v. Richmond Woodworking Co., 109 Va. 724, 65 S. E. 659, 132 Am. St. R. 937. United Kingdom, and Colonies. — Touche V. Metropolitan Ry. Ware- housing Co., L. R. 6. Ch. App. 671, 676; Parsons v. Spooner, 5 Hare, 102; Higgins v. Hopkins, 3 Exch. 163; Giles v. Smith, 11 Jur. 334; Landman v. Bntwistle, 7 Exch. 632 ; Kerridge v. Hesse, 9 Car. & Payne 200; Thomson v. Feeley, 41 U. C. Q. B. 229 ; Thames Nav. Co. v. Reid, 13 Ont. App. 303, 307. And see post, §§ 88, 316. It has been held that one who loans money to the promoter under an agreement that he shall be re- paid when the promoter receives the money from the corporation, cannot recover from the promoter if the corporation is not formed, Wheeler V. Fradd, 14 Times Law Rep. 302. A promoter who as "agent and trustee" for the proposed corpora- tion agrees to make a certain pay- ment upon the organization of the corporation, is not liable if the cor- poration is not organized. Belding V. Vaughan, 108 Ark. 69, 157 S. W. 400. 48. See Scott v. Lord Ebury, L. R. 2 C. P. 255, 36 L. J. C. P. 161. See post, § 88. It was held in Lewis v. Smith, 19 L. J. C. P. 278, that an agree- ment to indemnify a provisional committeeman against personal re- sponsibility and to hold him harm- less against any costs, charges and expenses incurred in the formation of the company does not extend to costs incurred in the defense of an action unsuccessfully brought against such provisional committee- man. 49. See Bohn Mfg. Co. v. Reif, 116 Wis. 471, 93 N. W. 466. 50. See post, §§ 302, 316. PROMOTERS' CONTRACTS. 143 in the absence of an express or implied authorization, no power to act for nor bind each other. It follows that only those pro- moters can be held liable on a contract made for the corporation, who either themselves made the contract, or in some way au- thorized or sanctioned it.'-^ The question whether a contract is authorized or sanctioned by a particular promoter is one of fact,®* and while the burden of proof rests upon the party asserting the promoter's liability ®^ an authorization, or sanction, will readily be inferred.®* The courts look through the form of the transac- tion to the substance, and seek to hold the actual principals.^® 51. Kennedy v. Fulton Mercantile Co., 33 Ky. Law Rep. 60, 108 S. W. 948 ; Railroad Gazette v. Wherry, 58 . Mo. App. 423; Hepner v. Maybury,' 23 N. Y. Misc. 262, 51 Supp. 170, (citing Taylor on Private Corpora- tions, § 77) ; Beale v. Mouls, 10 Ad. & El. N. S. 976 ; Hung Man v. Ellis, 3 Brit. Col. 486; Thames Naviga- tion Co. V. Keid, 13 Ont. App. 303, 311. And see post, § 316. Presumably, nothing to the con- trary is intended by the somewhat loosely worded Aictum in Lewis v. Fisher, 167 Mo. App. 674, 676-677, 151 S. W. 172. As to the liability of those who allow their names to be published as directors of the proposed com- pany, see CoUingwood v. Berkeley, 15 C. B. N. S. 145, evidently de- cided upon the particular facts. As to the liability of promoters who with the knowledge and con- sent of the opposite party drop out before the organization of the cor- poration, see Burgess v. Sherman, 147 Pa. 254, 23 Atl. 554. 52. Reynell v. Lewis, 15 M. & W. 517, and ^ post, § 88 and § 316n. 53. Wood V. Argyll, 6 M. & 6. ;'928, and see post, § 316n. 54. Roberts Mfg. Co. v. Schlick, 62 Minn. 332, 64 N. W. 826; same v. Wright, 62 Minn. 337, 64 N. W. 827, and see post, § 88 and § 316n. 55. McPall v. MeK. & T. Ice Co., 123 Pa. 253, 16 Atl. 478. Subscribers for the shares of the corporation are not liable upon the promoter's contracts, (Esper v. Mil- ler, 131 Mich. 334, 91 N. W. 613; Shibley v. Angle, 37 N. Y. 626; Rambaut v. Tevis, 164 N. Y. App. Div. 324, 149 Supp. 993; Dengler v. Helms, 4 Walker (Pa.) 476, 484), unless the promoter was expressly authorized to act for them. Buf- flngton V. Bardon, 80 Wis. 635, 50 N. W. 776. An agreement to advance the money necessary for the purchase of a mine, made in consideration of a promise of a certain portion of the capital stock of the projected cor- poration which is to take over the mine, does not make the lender liable as an undisclosed principal upon a note of the promoter, given ]^44 THE LAW OF PROMOTERS. The liability of those promoters who can be connected with the contract has been said to be joint,^^ and a promoter who has been made to bear the entire obligation of a contract is entitled to contribution from such of his fellow promoters as were likewise responsible therefor.^'^ Where, however, expenses have been in- curred by other promoters, the promoter seeking contribution must consent to the taking of an account of all the expenses so that the mutual liabilities of all the promoters may be determined in one action.'* § 78. Liability of promoter after obligations are assumed by corporation. That the promoters are personally liable on the contracts made by them for the proposed corporation is established by the great weight of authority. The question of the liability of the pro- moters after the corporation has been organized and has assumed the performance of the contract made for it by them, is one on which the cases are, however, not in~ accord. Some cases hold that when a corporation has treated as binding in part payment for the mine, protection of the plaintiff, and not Krohn v. Lambeth, 114 Oal. 302, 46 an agreement to Indemnify him Pac. 164. against liability on the note, and In Maxey v. Rldeout, 173 Fed. that the plaintiff had, before satis- Rep. 172, the defendant had agreed fying the judgment recovered with the plaintiff to advance to the against him, no right of action corporation sufficient money to en- against the defendant, able it to pay for lands sold to 56. Bailey v. Haines, 15 Ad. & it by the plaintiff. The plaintiff El. N. S. 533. And see McRee v. accepted the corporation's notes in Quitman Oil Co., — Ga. App. — , payment and discounted one of 84 S. E. 487. them. The corporation failed to 57. Boulter v. Peplow, 9 C. B. pay this note at maturity. The de- 493; Batard v. Douglas, 2 El. & Bl. fendant refused to protect the note 287; Batard v. Hawes, 2 El. & Bl. and judgment was taken against the 287 ; Edger v. Knapp, 7 Jur. 583 ; plaintiff as indorser. It was held and see Norbury's Case, 5 DeG. & that the defendant's contract to ad- Sm. 423, and Sandusky Coal Co. v. vance money for the promotion of Walker, 27 Ont. 677. the corporation was an agreement 58. Denton v. Macneil, L. R. 2 to create an indemnity fund for the Eq. 352. PROMOTERS' CONTRACTS. 145 upon it, a contract made on its behalf before its organization upon the understanding by all the parties that such contract was made on behalf of the proposed corporation, tiie adoption of the con- tract by the corporation makes it in all respects what it would have been had the corporate power existed when the contract was entered into by the promoters, and that the promoters are thereby released from further liability.®^ This rule would in most cases undoubtedly effect justice between the parties. When the pro- moters agree that the corporation to be organized by them shall enter into a particular contract, and the corporation is organized in accordance with the terms of the agreement, the assumption by the corporation of the obligations of the contract constitutes a complete and exact performance of the promoters' engagements and should relieve them from further responsibility. Some cases, however, hold that the agreement entered into by the promoters contsitutes a valid contract with the opposite party, and that the assumption of its obligations by the corporation cannot, with- qut the consent of such opposite party, release the promoters from liability thereon.®" The promoters may, of course, protect 59. Federal.— Whitney v. Wyman, W. 668, 26 L. R. A. 509, 45 Am. St. 101 U. S. 392, 25 L. Ed. 1050; Har- E. 700, is not really in point, rill V. Davis, 168 Fed. Rep. 187, 94 Washington. — CMleott v. Wash- C. C. A. 47, 22 L. R. A. N. S. 1153. ington State Colonization Co., 45 Georgia.— Ghic. Bldg. & Mfg. Co. Wash. 148, 88 Pac. 113. V. Talbotton, etc., Co., 106 Ga. 84, 60. FederoJ.— Bonsall v. Piatt, 31 S. E. 809. 153 Fed. Rep. 126, 82 C. C. A. 260. Indian Territory. — Western In- Petition for writ of certiorari de- vestment Co. V. Davis, 7 Ind. Terr, nied, 206 U. S. 564, 27 Sup. 152, 104 S. W. 573, 15 Am. & Eng. Ct. 796, 51 L. Ed. 1190; Am- Ann. Cas. 1134, reversed, «mB worn.; eriean Paper Bag Co. v. Van Harrill v. Davis, 168 Fed. Rep. 187, Nortwick, 52 Fed. Rep. 752, 3 C. C. 94 C. C. A. 47, 22 L. R. A. N. S. A. 274, 9 U. S. App. 25; Marconi's 1153. Telegraph Co. v. Cross, 16 Hawau, Pennsylvania. — Heekman's Estate, 390, citing Clark & Marshall on 172 Pa. 185, 33 Atl. 552. Priv. Corp. 107. Tennessee. — Shields v. Clifton Maryland. — Holland v. Lee, 71 Hill Land Co., 94 Tenn. 123, 28 S. Md. 338, 18 Atl. 661. 146 THE LAW OF PROMOTERS. themselves by stipulating in -their contract that they shall, upon the assumption of their contract by the projected corporation, be released from further personal liability thereunder.®^ It is generally held that the promoters are released from further responsibility if the other party accepts the corporate responsi- bility.®^ The mere presentation by the opposite party of a claim against the corporation does not release the promoters from lia- bility. That result is only affected when it is made to appear, not only that the opposite party expressed his willingness to accept the corporate liability, but also that the corporation accepted responsibility.®^ It has been held that the promoters are not re- leased by the opposite party's acceptance of partial payments Missouri. — Queen City Furniture Co. V. Crawford, 127 Mo. 356, 365, 30 S. W. 163, 166. PennsyVvania. — Witmer v. Schlat- tei% 2 Rawle, 359. TeoBos. — Bradshaw v. Jones, — Tex. Civ. App. — , 152 S. W. 695. Yirgmia. — Fentress v. Steele & Sons, 110 Va. 578, 66 S. E. 870; Strause v. Richmond Woodworking Co., 109 Va. 724, 65 S. E. 659, 132 Am. St. R. 937, citing Taylor on Priv. Corp., § 76. Wisconsin. — Bohn Mfg. Co. v. Rlef, 116 Wis. 471, 93 N. W. 466. United Kingdom, and Colonies. — Kelner v. Baxter, L. R. 2 Com. PI. Gas. 174 ; Sugg & Co., Ltd., v. Hill, 10 Times Law Rep. 288; Scott v. Lord Bbury, L. R. 2 C. P. 255, 267, 270, 36 L. J. C. P. 161. 61. O'Rorke v. Geary, 207 Pa. 240, 56 Atl. 541. 62. Case Mfg. Co. v. Soxm^n, 138 U. S. 431, 11 Sup. Ct. 360, 34 L. Ed. 1019; Van Vlieden v. Welles, 6 Johns (N. T.) 84; Mildenberg v. James, 31 N. Y. Misc. 607, 66 Supp. 77, afTd, 62 App. Div. 617, 71 Supp. 1142, afC'd, 175 N. T. 494, 67 N. E. 1085; J. H. Lane & Co. v. United Oil Cloth Co., 103 N. T. App. Div. 378, 92 Supp. 1061; Munson v. Magee, 161 N. Y. 182, 55 N. E. 916, reargument denied, 161 N. T. 638, 57 N. E. 1118; Rudd v. Magee, 51 N. Y. App. Div. 624, 65 Supp. 65; Ennis Cotton Oil Co. V. Burks, (Tex.), 39 S. W. 966. And see Bradshaw v. Jones, — Tex. Civ. App. — , 152 S. W. 695. Cf. Bohn Mfg. Co. v. Relf, 116 Wis. 471, 93 N. W. 466; Dengler v. Helms, 4 Walker (Pa.) 476, 483. It was held in Scott v. Lord Ebury, L. R. 2 C. P. 255, 36 L. J. C. P. 161 that under the circumstances of that case the creditor by bringing suit against the corporation did not release the promoters from liability upon a loan made to them. 63. Sugg & Co., Ltd., V. Hill, 10 T. L. R. 288; Longman v. Hill, 7 T. L. R. 639. PROMOTERS' CONTRACTS. 147 made by the corporation, and not necessarily by his bringing suit against it.®* It has been said that after the corporation has assumed re- sponsibiKty for the performance of the promoters' contract, the promoters, if not completely released, become, as between them- selves and the corporation, sureties for the latter, and are re- leased from liability if the opposite party with knowledge of the facts deals with the corporation in such a way as to prejudice the promoters' rights.®^ If the promoters are made to satisfy the obligations which have been assumed by the corporation, they are as such sureties entitled to be subrogated to the claim of the other party against the corporation.^® It has, in one case, been said that if the corporation has as- sumed responsibility for the performance of the promoters' con- tract, both it and the promoters may be joined as parties defend- ant in an action thereon.®'' The fact that the act of the corporation in assuming responsi- bility for the performance of the promoter's contract, is voidable because the promoter himself voted as a director upon the reso- lution pursuant to which such responsibility was assumed, does not affect the question of the promoter's discharge, as the action of the directors is voidable only upon the complaint of the corpo- ration.®® § 79. Enforcement of contract by promoter. After a contract made by the promoter has been assumed by the corporation, or, strictly speaking, after the corporation has entered upon a new contract upon the terms of the agreement 64. Wells V. J. A. Fay & Egan An action for compensation for Co., — Ga. — , 85 S. E. 873. services rendered for the benefit of 65. Bohn Mfg. Co. v. Rief, 116 the promoter individually cannot be Wis. 471, 93 N. W. 466. joined with a cause of action 66. Bank of South Carolina v. against the corporation. Jones v. Campbell, 2 Rich. Eq. 179. Smith, (Tex.), 87 S. W. 210. 67. Jones v. Smith, (Tex.), 87 S. 68. Munson v. Magee, 161 N. Y. W. 210. 182, 55 N. B. 916, reargument denied. 148 THE LAW OF PROMOTERS. which the promoter attempted to make for it before its organiz- ation, the corporation is, in case of breach, the only proper party to bring suit.®^ If, however, the other party breaches the contract, or with- draws therefrom, before any binding agreement with the corpo- ration has been made, no cause of action accrues to the latterJ" The only binding agreement that in such case exists is the con- tract between the promoter and the opposite party. An action for the breach of this contract may be maintained by the pro- moter and such damages recovered as were fairly in contempla- tion at the time of making the agreement. '^^ A question arises as to whether a suit may be maintained by the promoter for the specific performance of the agreement of the opposite party to convey lands to the coirporation. There should be no difiiculty in sustaining such suit in a proper case. The promoter is a party to a valid agreement in the enforcement of which he has in almost every case a personal interest. In Rogers v. Penobscot Mining Co.,''^ an agreement with the promoter to convey mining claims to a proposed, corporation was specifically enforced at the suit of the promoter's assignees. Op- tions upon these mining claims had, however, in that case been procured by the promoter in the name of the individual defendant, under an agreement that the latter should convey the options to the corporation to be formed, and the suit might well have been sustained as an action to enforce a trust. 161 N. Y. 638, 57 N. E. 1118 ; Rudd and see DeLery v. Rogers, 71 N. Y. V. Magee, 51 N. Y. App. Div. 624, App. Div. 99, 75 Supp. 513. 65 Supp. 65. 72. 154 Fed. Rep. 606, 83 C. C. A. 69. See ante, § 73. 380. 70. See ante, § 73. See Burke v. Mead, 159 Ind. 252, 71. Abbott V. Hapgood, 150 Mass. 64 N. E. 880, where a suit by a pro- 248, 22 N. E. 907, 5 L. R. A. 586, 15 moter for specific performance of an Am. St. Rep. 193 ; Drummond v. agreement to convey to the corpora- Crane, 159 Mass. 577, 35 N. E. 90, 23 tion was dismissed on other grounds. L. R. A. 707, 38 Am. St. Rep. 460, PROMOTERS' CONTRACTS. 149 If the promoters fail to organize the corporation which was under the agreement to assume the performance of their contract, or if the corporation after its organization refuses to be bound by its terms, the other party cannot be compelled to carry out the agreement with the promoters as individuals. His contract con- templates performance by the corporation, and he may properly refuse to accept performance by the promoters. ''* In Niles v. Graham,'^* the defendant delivered to the plaintiff an assignment of a certain patent, under an agreement that, after certain clouds thereon had been removed, the patent should be as- signed to a corporation to be formed, the working capital of which was to be furnished by the plaintiff and the shares divided equally between the parties. While the plaintiff was proceeding to have the clouds on the patent removed the defendant wrongfully re- possessed himself of the written assignment, mutilated it, and thereafter refused to recognize it as binding. The court directed the plaintiff to re-execute the assignment, saying that if the plain- tiff did not within a reasonable time assign the patent to a corpo- ration formed as provided in the agreement and furnish the capital reasonably necessary therefor the defendant might have an action for damages. § 80. Pleading the promoter's contract. After the obligations of a contract made by the promoter have been assumed by the corporation, a pleading based thereon must set forth the making of the contract by the promoter and the subsequent acts of the fully organized corporation by which the obligations of the contract became binding upon it,'''* or else, without referring to the contract of the promoter, set forth the 73. See O'Neill v. Patterson, 27 see Schmidt v. Nelke Art Lithograph Pitts. Leg. Journal O. S. 189. Co., 16 N. Y. Misc. 300, 74 St. Rep. 74. 181 Mass. 41, 62 N. B. 986. 308, 37 Supp. 1138, reversed, 17 N. 75. Penn Match Co. v. Hapgood, Y. Misc. 124, 39 Supp. 353. 141 Mass. 145, 149, 7 N. B. 22, and 150 TSf^ ^^^ O^ PROMOTERS. making of an agreement by the corporation at the date when it accepted responsibility for the performance of the obligations of the promoter's contract.^® 76. McArthur v. Times Printing Fire Ins. Assn. v. Burch, 46 S, 0. Co., 48 Minn. 319, 51 N. W. 216, 31 550, 24 S. E. 503. Am. St. Rep. 653; Farmers*^ Mut. CHAPTER V. Of Promotion Expenses. Section 81. Introductory. 82. Promoter's right to reimbursement for expenses. 83. What expenses allowed. 84. Compensation for services. 85. Compensation of fraudulent promoters. 86. Compensation for serivces in obtaining subscriptions. 87. Amount of compensation by whom fixed. 88. Compensation of persons employed by promoters. § 81. Introductory. Questions relating to the payment of the expenses of an abortive attempt to organize a corporation will be considered in a subse- quent chapter.^ This chapter is devoted to a consideration of the expenses of a successful promotion. § 82. The promoter's right to reimbursement for expenses. Ordinary fairness seems to require that the promoter should be reimbursed, out of the funds of the corporation, for the proper and legitimate expenses of the promotion. While the promoter's right to reimbursement for expenses seems to be recognized by the great weight of authority in this country,^ the matter is in Eng- land not free from doubt.' 1. See post, Chapter XIX. Massachusetts. — Hayward v. Lee- 2. Federal. — Dickerman v. North- son, 176 Mass. 310, 322, 57 N. B. 656, ern Trust Co., 17Q U. S 181, 205- 49 L. R. A. 725 ; and see Salem Mill 206, 20 Sup. Ct. 311, 44 L. Ed. 423. Dam Corporation v. Ropes, 6 Pick. /owo.— CafCee v. Berkley, 141 28, 42. Iowa 344, 347, 118 N. W. 267, 268. Michigan.— Cuba. Colony Co. v. Maine. — Mason v. Carrothers, 105 Klrby, 149 Mich. 453, 458, 112 N. W. Me. 392, 410, 74 Atl. 1030, 1037-1038. 1133, 1135. (151) 152 THE LAW OF PROMOTERS. The promoter is not, in. any jurisdiction, entitled to reimburse- ment for moneys advanced, or expenses incurred, by him if he either represented to his associates, or allowed them to believe, that no allowance for promotion expenses would be asked,* or if the expenses were incurred without expectation of reimbursement.^ § 83. What expenses allowed. The promoters are entitled to reimbursement only for legiti- mate expenses. They are not entitled to reimbursement for moneys expended by them in bribing public officials,* or in " rig- ging the market," '' or in any other improper manner. New Jersey. — Bigelow v. Old Do- minion Copper, etc., Co., 74 N. J. Eq. 457, 501, 71 Atl. 153. Contra Rockford R. I. & St. L. R. \R. Co. V. Sage, 65 111. 328, 332, 16 Am. Rep. 587; Gulliver v. Roelle, 100 111. 141, 148; Weatherford, etc., R. R. Co. V. Granger, 86 Tex. 350, 357, 24 S. W. 795, 40 Am. St. Rep. 837, overruling McDonough v. Bank of Houston, 34 Tex. 309; Jones v. Smith, (Tex.), 87 S. W. 210; Secur- ity Co. V. Bennington Monument Ass'n, 70 Vt. 201, 206, 40 Atl. 43. As to making allowance for pro- motion expenses, as an item of value of plant, in proceedings to fix proper rates to be charged by public service corporations, see note to Cedar Rapids Gas Light Co. v. Cedar Rapids, 48 L. R. A. N. S. 1048. 3. That the promoters are entitled to reimbursement for their legiti- mate expenses, see Emma Silver Mining Co. v. Grant, L. R. 11 Ch. Div. 918, 939; Lydney & Wigpool Iron Ore Co. v. Bird, L. R. 33 Ch. Div. 85, 95, 24 Am. & Bng. Corp. Cas. 23; Bagnall v. Carlton, L. R. 6 Ch. Div. 371, 400, 404, 408; In re Leeds & Hanley Theatres of Varie- ties, 1902, 2 Ch. Div. 809, 826-827; Stickney v. Buckel, 6 Ont. W. R. 751, 753; In re Darby, 1911, 1 K. B. 95, 101, 80 L. J. K. B. Div. 180, 183. Cf. Melhado v. Porto Alegre Ry. Co., L. R. 9 C. P. Cas. 503, 507 ; In re National Motor Mail-Coach Co., Ltd., 1908, 2 Ch. Div. 515, and see In re English & Colonial Produce Co., Ltd., 1906, 2 Ch. Div. 435. 4. Cuba Colony Co. v. Kirby, 149 Mich. 453, 458, 112 N. W. 1133, 1135. This is so though the act of in- corporation expressly provides for the payment of the expenses by the corporation. ' Savin v. Hoylake Ry. Co., L. R. 1 Bxch. 9. 5. Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 400, 107 N. W. 629, 631, 119 Am. St. R. 564. See In re National Motor Mail-Coach Co., Ltd., 1908, 2 Ch. Div. 515. 6. See Marehand v. Loan & Pledge Association, 26 La. Ann. 389. 7. See Marzetti's Case, 28 Weekly Kep. 541. PROMOTION EXPENSES. 153 Emma Silver Mining Co. v. Grant ® was an action to compel the defendant Grant, the promoter of the plaintiff corporation, to account for secret profits unlawfully retained by him. Grant claimed that he was entitled to credit for the moneys that he had disbursed for the benefit of the company. It appeared that he had paid a sum of money to the persons by whom the directors were introduced, had furnished shares to the directors and paid large sums in various ways to brokers for sustaining the market, paid £10,000 to a firm of brokers for waiving an option, and paid considerable sums to persons connected with the press for laudatory statements respecting the company and the mine which it was to take over. It was claimed that these payments were immoral and improper and that they ought not be allowed. The court held that the amount of Grant's profit was not affected by the fact that some of the payments made by him were not com- mendable, that the payments were made in good faith at a time when he believed that the money was his own, and that the profit for which he should be made to account was the net profit of the transaction, whether or not the method in which the transaction was carried on received the approval of the court. The court would, apparently, have arrived at a different result had the ques- tion arisen in a suit brought by the promoter to recover the amount of these expenses, instead of in an action by the company to recover the promoter's unlawful profits. The decision should not, in any event, be followed.® It is probable that extraordinary and unusual expenses of a promotion wduld not be allowed unless the subscribers had knowl- edge thereof. The subscribers are bound to know that a corpo- ration cannot be organized without expense, the nature and ex- tent of which expense depends lairgely upon the character and scope of the corporate scheme. It is therefore no hardship upon 8. L. R. 11 Ch. Div. 918, 939-940. 24 Am. & Eng. Corp. Cas. 23; In re 9. See Lydney & Wigpool Iron Ore Faure Electric Accumulator Co., L. Co. v. Bird, L. R. 33 Ch. Div. 85, 95, R. 40 Ch. Div. 141, 156. ^^^ THE LAW OF PROMOTERS. the subscribers to compel them, through the corporation, to bear their share of the cost of the promotion. If, however, there are unusual circumstances which necessitate unusual expenditures which the subscribers cannot be expected to anticipate, the facts should be disclosed, as the desirability of the shares is necessarily lessened if an unusual portion of the capital is devoted to pre- liminary expenses.^** § 84. Compensation for services. The promoter of a corporation not only performs the labor of organizing the corporation, but assumes all the risks incidental to the promotion. He frequently enters upon contracts which subject him to heavy personal liability in case the corporation, after its organization, refuses to assume responsibility therefor.^^ If the promotion is unsuccessful and the corporation proves abor- tive, the promoter must personally bear the expenses, and can- not, in the absence of express agreement, hold the subscribers liable for any part thereof. •'^ While it is quite proper that a pro- moter should not be allowed to reap any secret profit from his dealings with the corporation,^* it is only reasonable that after the corporation has been organized and has obtained the full benefit of his labors, he should receive from it not only reimburse- ment for his expenses, but compensation for his. services as well. It is, however, held, in England and in the earlier Amer- ican decisions, that no compensation can be allowed the promoter for services rendered prior to the creation of the corporation, for the reason that the plaintiif could not have been employed by the corporation before it achieved legal existence, and that no contract can be implied as of a time when the corporation was in- capable of making one.^* It is true that the promoter's services 10. In re Ennis & West Clare Ry. 11. See ante, § 77, et seq. Co., L. R. 15 Ir. 180, the promoters' 13. See post, §§ 316, 319, 321. claim for reimbursement for interest 13. See post, chap, VI. on moneys borrowed by them was 14. Connecticut. — N. T. & N. H. disaUowed. R. R. Co. v. Ketehum, 27 Conn. 170. PROMOTION EXPENSES. 155 are not rendered pursuant to any contract made on behalf of the corporation, and it cannot be said that the corporation, by Illinois. — Roekford R. I. & St. L. R. R. Co. V. Sage, 65 111. 328, 16 Am. Rep. 587. Kentucky. — Newport & Maysville R. R. Co. V. Hay, 8 Ky. L. R. 115. Louisiana. — Marchand v. Loan & Pledge Assn., 26 La. Ann. 389. New Hampshire. — ^Low v. Conn. & Pass. Rivers R. R., 45 N. H. 870. Compare same ease on later appeal, 46 N. H. 284, 295. Pennsylvania. — Bell's Gap R. R. Co. V. Christy, 79 Pa. 54, 21 Am. Rep. 39. Texas. — Weatherford, etc., Ry. Co. V. Granger, 86 Tex. 350, 24 S. W. 795, 40 Am. St. R. 837, overruling McDonough v. Bank of Houston, 34 Tex. 309; Jones v. Smith, 87 S. W. 210. Vermont. — Hall v. Vermont & Mass. R. Co., 28 Vt. 401, 406; Secur- ity Co. V. Bennington Monument Assn., 70 Vt. 201, 206, 40 Atl. 43. United Kingdom and Colonies. — In re National Motor Mail-Coach Co., Ltd., 1908, 2 Ch. Div. 515 ; In re English & Colonial Produce Co., Ltd., 1906, 2 Ch. Div. 435, overruling In re Hereford, etc., Waggon & En- gineering Co., L. R. 2 Ch. Div. 621. (Cf. In re Manchester, etc.. Tram- ways Co., 1893, 2 Ch. Div. 638, 649- 650). See Bagnall v. Carlton, L. R. 6 Ch. Div. 371, 391, 400, 404, 408. It was apparently conceded that a claim might be founded on a sub- sequent promise. See Cushion Heel Shoe Co. V. Hartt, 181 Ind. 167, 103 N. E. 1063, 50 L. R. A. N. S. 979; Roekford R I. & St. L. R. R. Co. v. Sage, 65 111. 328, 332, 16 Am. Rep. 587 ; Low v. Conn. & Pass. Rivers R. R., 46 N. H. 284, 295-296 ; Tanner v. Sinaloa Land & Fruit Co., 43 Utah 14, 134 Pac. 586; Hall v. Vt. & Mass. R. R. Co., 28 Vt. 401, 406; Rother- ham Alum & Chemical Co., L. R. 25 Ch. Div. 103, 50 L. T. N. S. 219; Touche V. Metropolitan Ry. Ware- housing Co., L. R. 6 Ch. App. 671; Re Sale Hotel & Botanical Gardens, Ltd., 78 L. T. N. S. 368. Cf. N. X. & N. H. R. B. Co. y. Ket- cbum, 27 Conn. 170; Melhado v. Porto Alegre Ry. Co., L. R. 9 C. P. 503. A corporate note given in payment for a promoter's services is founded upon a sufficient consideration. Smith V. New Hartford Water Co., 73 Conn. 626, 48 Atl. 754. Cf. N. X. & N. H. R. R. Co. V. Ketchum, 27 Conn. 170. Payments for such services vol- untarily made by the corporation cannot be recovered back. Southern Hardwood Lumber Co. v. Scott, 46 111. App. 285. Recovery might, under the author- ity of some of these cases, be had for services necessary to the perfect- ing of the organization of the com- pany, rendered pursuant to the re- quest of a majority of the incorpora- tors on the understanding that the corporation would pay therefor. See Farmers Bai-k of Vine Grove v. Smith, 105 Ky. 816, 49 S. W. 810, 88 Am. St. Rep. 341, and cases cited: X56 THE '^^^ OF PROMOTERS. adopting the benefit of the services, impliedly agrees to pay therefor, at least not as to those services which directly relate to the creation of the company the benefits of which are received by the company at the /ery moment that it achieves existence. The corporation cannot, in such case, be said to have entered upon any implied agreement to compensate the promoter for his serv- ices, for the corporation is at the time that it receives the benefit of these services incapable of making a contract.-'^ Such services of the promoter as do not directly affect the legal organization of the corporation, that is, such as relate to the acquisition of property or contract rights, the benefit of which services may be accepted or rejected by the company after its complete organ- ization, stand upon a different basis. It may well be said that the corporation, by accepting the benefits of these services, im- pliedly agrees to pay the reasonable value thereof or such com- pensation as may to the knowledge of the corporation have been Low V. Conn. & Pass. Rivers R. R., Warehousing Co., L. R. 6 Oh. App. 45 N. H. 370, 377 ; Le Grand v. Man- 671 ; Re Rotherham Alum & Chemi- hattan Mercantile Ass'n, 80 N. Y. cal Co., L. R. 25 Ch. Div. 103, 50 638; Tanner v. Slnaloa Land & L. T. N. S. 219; Melhado v. Porto Fruit Co., 43 Utah 14, 134 Pac. 586, Alegre Ry. Co., L. R. 9 C. P. 503; and cases cited ; Hall v. Vt. & Mass. In re Hereford, etc.. Waggon & En- R. Co., 28 Vt. 401, 406-407.' gineering Co., L. R. 2 Ch. Div. 621, Cf. In re English & Colonial Pro- 624, 35 L. T. N. S. 40. And see Til- duce Co., Ltd., 1906, 2 Ch. Div. 435, son v. Warwick Gas Light Co., 4 B. overruling In re Hereford, etc., & C. 962; In re Brampton & Long. Waggon & Engineering Co., L. R. town Ry. Co., L. R. 10 Ch. App. 177; 2 Ch. Div. 621. Hitchiiis v. Kilkenny, etc., Ry. Co., As to the foundation of a claim 9 d. B. 536. And see ante, § 49, and for compensation upon the act, or post, § 87n. articles of incorporation, see : 15. See post, §§ 87-88. For a Weatherford, etc., Ry. Co. v. discussion of a similar question see Granger, 86 Tex. 360, 357, 24 S. W. ante, § 58. And see Cushion Heel 795, 40 Am. St. R. 837 ; Jones v. Shoe Co. v. Hartt, 181 Ind 167 103 Smith, (Tex.), 87 S. W. 210; Carden N. E. 1063, 50 L. R. A. N. 8.979 V. General Cemetery Co., 5 Blng. N. quoting 10 Cyc. 265. C. 253; Touche v. Metropolitan Ry. PROMOTION EXPENSES. 157 agreed upon by the promoter.^^ The fact that it is difficult to fasten \ipon the corporation any contract to pay for those serv- ices of the promoter which are accepted, if at all, at the moment of its legal creation, is no reason for denying the promoter rea- sonable compensation therefor. Contracts made before the organ- ization of the corporation fixing the amount to be paid the pro- moter for services of this character are not, and do not after its organization become, binding upon the corporation. Justice, however, requires the payment to the promoter of reasonable com- pensation for his services, and this should be allowed regardless of the technical difficulty of fastening upon the company any im- plied promise to pay the same. Recent cases in America have, without extended discussion, stated in broad terms that the promoter is entitled to reasonable compensation for his serv- 17 ices.-" Compensation for services will not be allowed a promoter who has stated to his associates, or allowed them to understand, that 16. See ante, § 56, et seq. But see Oadena DeOobre Min. Co., 13 Ariz. § 59. 52, 66, 108 Pac. 231, 236, where the 17. Dickerman v. Northern Trust court concluded that no services Co., 176 U. S. 181, 205-206, 20 Sup. had been rendered. Ct. 311, 44 L. Ed. 423; Cafifee v. The services must, to entitle the Berkley, 141 Iowa 344, 347, 118 N. promoter to compensation, have W. 267, 268 ; Mason v. Carrothers, been " necessary and reasonable." 105 Me. 392, 410, 74 Atl. 1030, 1037- Low v. Conn. & Pass. Rivers R. R., 1038 ; Third Ward Bldg. Ass'n v. 45 N. H. 370, 377-378. Lotze, 9 Ohio Dec. Rep. 248, 11 If the promoter is himself the Weekly Law Bui. 285; Bigelow v. owner of property which the cor- Old Dominion Copper, etc., Co., 74 poration is organized to purchase, N. J. Eq. 457, 501, 71 Atl. 153; Hoi- and his services in organizing the combe v. Trenton White City Co., 80 corporation are therefore largely in N. J. Eq. 122, 155, 82 Atl. 618, 632. his own interest, his right to re- Cf. Cushion Heel Shoe Co. v. ceive compensation from the cor- Hartt, 181 Ind. 167, 103 N. E. 1063, poration is somewhat doubtful. 50 L. R. A. N. S. 979 ; Tanner v. Tanner v. Sinaloa Land & Fruit Co., Sinaloa Land & Fruit Co., 43 Utah 43 Utah 14, 134 Pac. 586. 14, 134 Pac. 586; also Hughes v. 158 THE LAW OF PBOMOTEES. no allowance for promotion expenses is to be made,^® or who ren- dered his services without expectation of payment.^^ The promoter's right to compensation for services will neces- sarily be determined in the light of the enterprise which he pro- motes. If the enterprise is a small one, consisting of but few stockholders, and resembling a partnership under corporate guise, it may readily be inferred that the promoter did not expect to be paid for his services, but looked to the success of the enter- prise for his compensation.^" If, on the other hand, the enter- 18. Federal. — Ritchie v. McMul- len, 79 Fed. Rep. 522, 553-554, 25 O. C. A. 50, 47 U. S. App. 470. (Petition for writ of certiorari denied, 168 U. S. 710, 42 L. Ed. 1212, 18 Sup. Ct. 945), affirming, on this point, 64 Fed. Rep. 253, 258-259. Georgia. — Powell v. Georgia F. & A. Ry. Co., 121 Ga. 803, 49 S. E. 759. Michigan. — Cuba Colony Co. v. Kirby, 149 Mich. 453, 112 N. W. 1133. Mississippi. — West Point Tel. & Tel. Co. V. Rose, 76 Miss. 61, 23 So. 629. Oftto.— Third Ward Bldg. Assn. V. Lotze, 9 Ohio Dec. Reprint, 248, 11 W. L. Bull. 285. United Kingdom and Colonies. — Savin v. Hoylake Ry. Co., L. R. 1 Exch. 9. The representations of the pro- moter's i)artners are binding upon him and a bar to his recovering comi)ensation. Tanner v. Slnaloa Land & Fruit Co., 43 Utah 14, 134 Pac. 586. A by-law of a corporation provid- ing that none of its " officers " shall receive any compensation for ser- vices has been held to have no bear- ing upon the question of the pro- moter's compensation. Fitzpatrick V. O'NeUl, 43 Mont. 552, 118 Pac. 273, Am. & Eng. Ann. Cas., 1912 C. 296. 19. Lindsey v. Pasco Power & Water Co., 203 Fed. Rep. 251, 121 O. C. A. 449; Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 400, 107 N. W. 629, 631, 119 Am. St. R. 564 ; Low v. Conn. & Pass. Rivers R. R., 45 N. H. 370, 377-378, 384 ; In re Eddystone Marine Ins. Co., 1803, 3 Ch. Div. 9, 14; Third Ward Bldg. Assn. V. Lotze, 9 Ohio Dec. Rep. 248, 11 Weekly Law Bui. 285. 20. See Baily v. Burgess, 48 N. J. Eq. 411, 22 Atl. 733, where the court held that the promoter was not entitled to compensation " for the reason that it was a mutual effort upon the part of the Rowlands and Burgess (the promoter claiming compensation) to organize a com- pany. This was part of the work to that end. Mr. Rowlands was to furnish the money and Mr. Burgess was to secure the title and dis- charge the liens, and the company, of which they were members, was to have the benefit thereof." PROMOTION EXPENSES. 159 prise is an extensive one, and the corporation is organized with a large capitalization and a great number of stockholders, and the promoter's interest represents only a small proportion of the total capital, the presumption is strong that the promoter ex- pected not only to reap a profit from his investment in the shares, but to be paid for his promotion services as well. For services rendered after he has become a director of the corporation, the promoter is not entitled to compensation unless pursuant to an express agreement to that eflFect,^^ except, per- haps, if the services are of a character not within the ordinary duties of a director.^^ § 85. Compensation of fraudulent promoters. Whether the promoter's right to compensation for services may be defeated by showing that he has committed a fraud upon the company, or unlawfully taken a secret profit upon the promotion, is a question upon which the authorities do not agree. In some cases promoters compelled to account for secret profits have been allowed to offset against such profits the fair value of their serv- ices upon the promotion.^^ Other cases hold, with better reason, that a promoter who commits a fraud upon the company, fails in the discharge of his duties, and is not entitled to compensation.^* 21. New York & New Haven R. 587; Cook on Corporations, § 657; R. Co. v. Ketchum, 27 Conn. 170 ; Thompson on Corporations (2nd Hall V. Vt. & Mass. R. R. Co., 28 Ed.), § 1715; Clark & Marshall on Vt. 401, 409; Merchants Fire OflElce, Private Corporations, § 671. Ltd., V. Armstrong, 1901 Weekly 23. Mason v. Carrothers, 105 Me. Notes 163. See also Cook on Cor- 392, 410, 74 Atl. 1030, 1037-1038, see porations, § 657; Thompson on also Caffee v. Berkley, 141 Iowa, Corporation (2nd Ed.), § 1715; 344, 347, 118 N. W. 267, 268. Clark & Marshall, on Private Cor- 24. Davis v. Las Ovas Co., 227 porations, § 671. U. S. 80, 33 Sup. Ct. 197, 57 L. Ed. 22. See N. Y. & N. H. R. R. Co. 426, affirming. Las Ovas Co. v. V. Ketchum, 27 Conn. 170, 181; Davis, 35 App. Cas. Dist. of Col. Rockford R. I. & St. L. R. R. Co. v. 372 ; Dunlap v. Twin City Power Sage, 65 lU. 328, 332, 16 Am. Rep. Co., 226 Fed. Rep. 161, — C. C. 160 THE LAW OF PROMOTERS. Different considerations might arise if the promoter's fraud were a technical one, and it appeared that he had acted in good faith throughout.*^ A promoter who retains a secret profit is certainly not en- titled to receive additional compensation for services, and securi- ties issued to him in payment for services may be cancelled upon the discovery of the fact that he has himself fixed and taken his compensation.*® § 86. Compensation for services in obtaining subscriptions. ' The obtaining of subscriptions to the capital stock of the cor- poration is often a necessary step In the promotion, and the pro- moter's services in procuring such subscriptions may according to the weight of authority be taken into consideration in fixing his compensation.*^ A. — ; Hitchcock v. Hustace, 14 Hawaii 232, 244; Bagnall v. Carl- ton, L. R. 6 Ch. Div. 371, 391 ; In re Hereford & South Wales Waggon & Engineering- Co., L. R. 2 Ch. Div. 621, 85 L. T. N. S. 40 ; Re Sale Hotel and Botanical Gardens, Ltd., 77 L. T. N. S. 681, reversed on other grounds, 78 L T. N. S. 368. The promoters were allowed to offset their expenses against their liability for unlawful profits in Hayward v. Leeson, 176 Mass. 310, 322-323, 57 N. E. 656, 49 L. R. A. 725; Lydney & Wigpool Iron Ore Co. V. Bird, L. R. 33 Ch. Div. 85, 95, 24 Am. & Eng. Corp. Cas. 23 ; In re Leeds & Hanley Theatres of Varie- ties, 1902, 2 Ch. Div. 809, 826-827; In re Darby, 1911, 1 K. B. 95, 101 ; 80 L. J. K. B. Div. 180, 183 ; Emma Silver Min. Co. v. Grant, L. R. 11 Ch. Div. 918. 25. Richlands Oil Co. v. Morriss, 108 Va. 288, 298, 61 S. E. 762, 765. 26. Crowe v. Malba Land Co., 76 N. Y. Misc. 676, 135 Supp. 454. 27. Federal. — See Commonwealth S. S. Co. V. American Ship Building Co., 197' Fed. Rep. 797, 814, afe'd, 215 Fed. Rep. 296, 304, 131 C. C. A. 596. California. — See Western States Life Ins. Co. v. Loekwood, 166 Cal. 185, 194, 135 Pac. 496, 500. Illinois. — Ross v. Sayler, 104 111. App. 19, citing Rockford R. I. & St. L. R. R. Co. V. Sage, 65 111. 328, 16 Am. Rep. 587. Indiana. — Cincinnati Ind. & Chi. R. R. Co. V. Clarkson, 7 Ind. 595. Kentucky. — Farmers Bank of Vine Grove v. Smith, 105 Ky. 816, 49 S. W. 810, 88 Am. St. Rep. 341. New Hampshire. — Low v. Conn. & Pass. Rivers R. R., 45 N. H. 370, 377-378. PROMOTION EXPENSES. 161 The court in Lydney & Wigpool Iron Ore Co. v. Bird ^* said that it was " wholly wrong to make the company pay for the issue of its own shares. No part of the capital of the company could be properly so applied." In Metropolitan Coal Consumers Association v. Scrimgeour,^^ the court said that this statement had application to the circumstances of the particular case, and held that an agreement to pay a firm of stock brokers a commission upon the sale of the company's shares was proper. While the promoters may be allowed compensation for their services in selling the company's shares, they cannot properly claim commissions for their services in securing agents to sell these shares.*** § 87. Amount of compensation by whom fixed. When it is said that the promoters are entitled to reasonable compensation for their services upon the promotion, that does not mean that they may themselves fix the amount of their com- pensation and take it from the funds of the corporation.*^ It is Vermont. — Hall v. Vt. & Mass. B. In re Faure Electric Accumulator Co., 28 Vt. 401. Co., L. R. 40 Ch. Dlv. 141. United Kingdom and Colonies. — 29. 1895, 2 Q. B. Dlv. 604, 60T- Stlckney v. Buckel, 6 Ont. W. B. 608, 609. Cf. In re Faure Electric 751, 753. Accumulator Co., L. R. 40 Ch. Div. As to banking corporations, see 141. Tift V. Quaker City Natl. Bk., 141 See Cook on Corporations, § 42; Pa. 550, 21 Atl. 660, 38 Am. & Eng. Clark & Marshall on Priv. Corp., Corp. Cas. 339, citing Taylor on § 390g. Corporations, § 86. 30. Stickney v. Buckel, 6 Ont. W. In England a commission may, by R., 751, but see Richlands Oil Co. v. statute, be paid for procuring sub- Morriss, 108 Va. 288, 298, 61 S. E. scriptions, if such payment is au- 762, 765. thorized by the Articles. Companies 31. Dickerman v. Northern Trust (Consolidation) Act of 1908, § 89. Co., 176 U. S. 181, 205-206, 20 Sup. In re Worthington, 1914, 2 K. B. Ct. 311, 44 L. Ed. 423; Hayward v. 299, 83 L. J. K. B. 885, 110 L. T. N. Leeson, 176 Mass. 310, 320, 57 N. S. 599. E. 656, 660, 49 L. R. A. 725 ; Scott 28. L. R. 33 Ch. Div. 85, 95, 24 v. Farmers, etc., Natl. Bank, 97 Tex. Am. & Eng. Corp. Cas. 23. And see 31, 53-54, 75 S. W. 7, 104 Am. St. IQ2 THE LAW OF PROMOTERS. for the corporation, and not for the promoters, to determine the latter's compensation.^^ A contract made before the organization of the company fixing the amount of the promoter's compensation is not binding upon the company unless the obligations thereof are assumed by the fully organized company,^^ and the fact that the company has received the benefit of the services rendered pursuant to the terms of the contract, does not necessarily obligate it to pay the com- pensation named therein. If, as may sometimes be the case, the services of the promoter are directed to the legal organization of the corporation, and the benefit of his services received by the cor- poration is ' the achievement of its legal existence, such benefit is received by it at a time when it Is still incapable of making a con- tract, and no Implied promise to pay the agreed amount of the promoter's compensation can be implied from its receiving the benefit of his services.^* As the promoter has, according to the weight of recent au- thority, an enforceable claim against the corporation for the reasonable value of his services upon the promotlon,^^ there is no reason why his compensation should not be adjusted and paid by the directors.** The action of the directors in fixing the com- Rep. 835; see Re Sale Hotel & Rep. 566, 24 Supp. 573, that a pro- Botanical Gardens, Ltd., 78 Law meter should not be compelled to Times N. S. 368. furnish a bill of particulars setting See note 38, infra. forth an itemized statement of the 32. McKay's Case, L. R. 2 Ch. services rendered by him. Div. 1, 3, note. 36. See Hearther v. Southern 33. McDonough v. Bank of Hous- Power & Milling Co., 16 Pa. Dist. Ct. ton, 34 Tex. 309. See Gunn v. Lon- 198. See also De La Motte v. North- don & Lancashire Fire Ins. Co., 12 western Clearance Co., 126 Minn. Com. Bench N. S. 694; also In re 197, 148 N. W. 47; and see, though Englefleld Colliery Co., L. R. 8 Ch. hardly in point, Porch v. Agnew Co., Div. 388. 70 N. J. Eq. 328, 332-336, 61 Atl. 34. See §§ 84, 88, 58. 721, affirmed, 71 N. J. Eq. 305, 65 35. See ante, § 84. Atl. 485, and Re Sale Hotel & It was held in Fry v. Manhattan Botanical Gardens, Ltd., 78 L. T. N. Trust Co., 4 N. Y. Misc. 611, 53 St. g. 368. PROMOTION EXPENSES. 163 pensation of the promoter is, of course, ineffective if it appears But see the statement in Cook on Corporations, § 651, quoted In Rich- lands Oil Co. V. Morrlss, 108 Va. 288, 294, 61 S. B. 762, 764, that " it is not legal for promoters to cause the board of directors to vote stock to such promoters for services al- ready performed." The resolution of the directors to compensate the promoter for his services is ineffective if one of the directors has, unknown to his fel- lows, obtained an agreement from the promoter to share in such com- pensation. De La Motte v. North- western Clearance Co., 126 Minn. 197, 148 N. W. 47. The directors may, of course, pay the promoters' compensation, if such compensation is fixed by the articles of association, (Croskey v. Bank of Wales, 4 Gifif. 314), or if the articles of association expressly confer such power upon the directors. See Bank of Turkey v. Ottoman Co., L. E. 2 Eq. 366, 14 L. T. N. S. 884 ; Be Sale Hotel & Botanical Gardens, Ltd., 78 L. T. N. S. 368. And see ante, § 49. The payment is not justified by the articles of association, if the articles assume to name as the pro- moter, one who is in fact a mere dummy to receive the compensation for the real promoters whose iden- tity is concealed. Ex parte Preston, 37 L. J. Ch. N. S. 618, 19 L. T. N. S. 138. The payment to the promoter is unlawful if a part thereof Is, under a secret agreement, paid to the directors. Eos parte Williams, L. B. 2 Bq. 216. Stock of mining companies issued in payment of promoters' services or disbursements must under the Nevada statute be stamped " Pro- motion Stock," Ch. 56, Statutes of 1909, State ew ret. Moore v. Manhat- tan Verde Co., 32 Nev. 474, 109 Pac. 442. It has been held that shares can- not be lawfully issued for pro- moters' services under a statute pro- viding that " no corporation shall issue either stocks or bonds, except for money, labor done or property actually received." Herbert v. Dur- yea, 34 N. Y. App. Div. 478, 54 Supp. 311, af&rmed without opinion, 164 N. T. 596, 58 N. E. 1088; Stevens v. Episcopal Church History Co., 140 N. T. App. Div. 570, 582, 125 Supp. 573; Lamphere v. Lang, 157 N. T. App. Div. 306, 141 Supp. 967, (re- versed on another ground, 213 N. Y. 585, 108 N. E. 82). See also Mc- Allister V. American Hospital Ass'n, 62 Or. 530, 125 Pac. 286. Of. Cali- vada Col. Co. v. Hays, 119 Fed. Bep. 202; 7» re Ballon 215 Fed. Bep. 810; De La Motte v. Northwestern Clear- ance Co., 126 Minn. 197, 148 N. W. 47; Fitzpatrick v. O'Neill, 43 Mont. 552, 563, 118 Pac. 273, 276, Am. & Bng. Ann. Cas. 1912, C. 296, and cases cited; Holcombe v. Trenton White City Co., 80 N. J. Eq. 122, 155, 82 Atl. 618, 632; Herbert v. TJhl, 66 Hun (N. Y.) 626, 20 Supp. 743. A payment made under a mistake as to the services rendered gives rise to a legal demand, and relief cannot be had in equity. Bank of Turkey v. Ottoman Co., 20 L. T. N. S. 220. 164 THE LAW OF PKOMOTERS. that the directors were subject to the domination of the pro- moter.*^ If there is any doubt as to the entire independence of the board of directors, the determination of the promoter's com- pensation should be left to the stockholders.** A corporation is, however, ordinarily to be managed by its board of direcfors, and not by its stockholders, and the effect of a vote of the stockhold- ers, unaccompanied by any action on the part of the directors, is open to serious question.*^ It has been held that directors who, without proper scrutiny and without the exercise of a fair discretion, pay to the promoter compensation to which he is not entitled, are jointly and severally liable to the company for the moneys so paid out.*" If the pro- moters' services were rendered without expectation of payment, and the directors, desiring to distribute stock without consider- ation, issue shares ostensibly in payment for services rendered upon the promotion, such shares may be treated as issued without consideration and the owners held for the par value thereof in case of the insolvency of the company.*-^ 37. See poat, § 110. And see note to Fitzpatriek v. 38. Fitzpatriek v. O'Neill, 43 O'Neill, Am. & Eng. Ann. Cas. 1912, Mont. 552, 118 Pac. 273, Am. & Eng. O. 296, 300. Ann. Cas. 1912, C. 296. See Thompson on Corporations The voting by the promoters (2n(i Ed.), § 1184; Cook on Oor- themselves of proxies for a ma- porations, § 709 ; Clark & Marshall jority of the shares, upon the reso- on Private Corporations, § 627. lution by which their compensation 40. In re Englefield Colliery Co., is fixed, has been said to be a badge L. R. 8 Ch. Div. 388 ; In re Anglo of fraud. Gaines v. McAllister, 122 French Co-op. Soc. L. R. 21 Ch. N. C. 340, 29 S. E. 844. Div. 492, 496; Marzetti's Case, 28 39. Plaquemines Tropical Fruit Weekly Rep.- 541; Merchants Fire Co. V. Buck, 52 N. J. Eq. 219, 238, Office, Ltd., v. Armstrong, 1901 27 Atl. 1094, 1101, 44 Am. & Eng. Weekly Notes 163, and see In re Corp. Cas. 686; Gaines v. Mc- Faure Electric Accumulator Co., L. Allister, 122 N. C. 340, 29 S. E. R. 40 Ch. Div. 141. 844. And see post, § llln. Cf. Cf. General Exchange Bank v. Fitzpatriek v. O'Neill, 43 Mont. Horner, L. R. 9 Eq. 480. 552, 563, 118 Pac. 273, 276 Am. & 41. In re Eddystone Marine Ina. Eng. Ann. Cas. 1912, C. 296, and Co., 1893, 3 Ch. Div. 9. authorities cited. PROMOTION EXPENSES. 165 § 88. Compensation of persons employed by the promoters. Persons employed by the promoters to render legal or other services in the organization of the corporation are, in the ab- sence of an agreement to the contrary, entitled to receive compen- sation from the promoters.*^ The amount paid as such compen- sation may, if the services were necessary and proper and the compensation reasonable, be charged to the corporation by the promoters as a disbursement incurred in its organization.*^ Persons rendering services under an employment by the pro- moters should not ordinarily be allowed to recover compensation directly from the corporation. The authorities on this point are not altogether satisfactory. The rule just stated seems to be sus- tained by a line of English cases based to some extent upon statu- tory provisions.** Cases may be found both in England and in this country in which the courts sustained suits brought against the corporation by employees of the promoters, without making any reference to the rule that such compensation should be sought from the promoters.*^ Both justice and simplicity of procedure 42. In re Hereford, etc., Waggon ford, etc., Waggon & Engineering & Engineering Co., L. R. 2 Oh. Div. Co., L. R. 2 Ch. Div. §21, 627, 35 L. 621, 627, 35 L. T. N. S. 40, and see T. N. S. 40) ; Dundee Suburban ante, §§ 77-78, and post, § 316. Railway, 10 Scots Law Times 253, . 43. See ante, §§ 82-83. 257; Muir v. Forman's Trustees, 44. In re Skegness & St. Leon- Sess. Cas. 5 Eraser 546, 577, aflBrm- ard's Tramways Co., L. R. 41 Oh. ing, Muirkirk, etc., Rys., 10 Scots Div. 215, where the authorities are Law Times 247, 249. reviewed; In re Manchester, etc., Cf. Moneypenny v. Hartland, 1 Tramways Co., 1893, 2 Ch. Div. 638, Car. & P. 352. 648 ; Be Rotherham Alum & Chemi- 45. Colorado. — Freeman Imp. Co. cal Co., L. R. 25 Ch. Div. 103, 50 L. v. Osborn, 14 Colo. App. 488, 60 T. N. S. 219 ; Hume v. Record Reign Pac. 730. Jubilee Syndicate, 80 L. T. N. S. Missouri.— TaMs&ig v. St. Louis, 404; In re Kent Tramways Co., L. etc., Ry. Co., 166 Mo. 28, 38, 65 S. R., 12 Ch. Div. 312; Wyatt v. Met- W. 969, 971, 89 Am. St. Rep. 674; ropolitan Board of Works, 11 0. B. same v. same, 186 Mo. 269, 85 S. N. S. 744 ; In re English & Colonial W. 378. Produce Co., 1906, 2 Ch. Div. 435, 0/i.io.— Third Ward Bldg. Assoc, (disapproving a dictum in Be Here- v. Lotze, 9 Ohio Dec. Reprint 248, j^gg THE LAW OF PROMOTERS. are, however, ordinarily better served by compelling one, who rendered services under an employment by the promoters, to seek his compensation from his employers, and by allowing only those to recover directly from the corporation who have no one else to whom they may look for payment. One rendering services under employment by the promoters may recover his compensation from the Corporation if the act of in- corporation provides that such expenses shall be paid by it.*® The intent of the statute must, however, be clearly expressed, as it will otherwise be interpreted as intending payment in the first instance by the promoters and their reimbursement by the corporation.*'' A suit against the corporation may be maintained by one who rendered seirvices under an agreement with the promoters that he should be compensated by the corporation ; provided that the cor- poration after its organization agreed to be bound by the terms of the promoters' contract.** A promoter rendering professional services upon the organiz- ation of a company has ordinarily no right of recovery against 11 , Weekly Law Bulletin 285 ; City Ch. Dlv. 215 ; In re Kent Tramways Bldg. Assoc. V. Zahner, 6 Ohio Dec. Co., L. R. 12 Ch. Div. 312 ; Wyatt v. / Reprint 1068, 10 Am. Law Record Metropolitan Board of Works, 11 181. C. B. N. S. 744; Dundee Suburban PenJisj/tooMia.— Merchants' Natl. By., 10 Scots Law Times 253, 257; Bank v. Eckels, 191 Pa. 372, 43 Atl. Muir v. Forman's Trustees Sess. 245. Cas., 5 Fraser 546, 577, affirming. United Kingdom and Colonies. — 10 Scots Law Times 247, 249. Terrell v. Button, 4 H. L. Cas. 1091, 48. McDonough v. Bank of Hous- reversing Terrell's Case, 2 Sim. N. ton, 34 Tex. 309. (See, however, S. 126; In re TlUeard, 3 DeG. J. & Weatherford, etc., R. R. Co. v. S. 519. Granger, 86 Tex. 350, 358, 24 S. W. 46. /m re Tilleard, 3 DeG. J. & S. 795, 40 Am. St. Rep. 837). See 519, but see In re Skegness & St. Teeple v. Hawkeye Gold Dredging Leonard's Tramways Co., L. R. 41 Co., 137 Iowa 206, 114 N. W. 906; Ch. Div. 215. also Stillwell v. Spokane Alarm Co., 47. See In re Skegness & St. 66 Wash. 703, 120 Pac. 85. Leonard's Tramways Co., L. R. 41 PROMOTION EXPENSES. 167 his fellow promoters,*® and should, therefore, be allowed to recover compensation for such services directly from the corporation.''*' One who assists in the promotion of a corporation can recover compensation from those promoters only, who employed him or in some way authorized or sanctioned his employment.®^ The question as to whether a particular promoter has been sufficiently 49. See post, §§ 306, 317. 50. Muirkirk, etc., Rys., 10 Scots Law Times 247, 249, affirmed, (sub nam. Muir v. Forman's Trustees) Sess. Gas. 5 Fraser 546; Edinburgh Northern Tramways Co. v. Mann, Sess. Oas., 23 Rettie 1056. 51. McEwan t. Campbell, 2 Macq. 499; Giles v. Smith, 11 Jur. 334; Nevins v. Henderson, 5 Ry. & Can. Cas. 684; Batard v. Hawes, 2 El. & Bl. 287; Forrester v. Bell, 10 Ir. L. K. 555, and see Bremner v. Chamberlayne, 2 Car. & K. 560, and rnite, § 77, and also post, § 316. In Jones v. Gould, (200 N. Y. 18, 92 N. E. 1071, reversing, 138 App. Div. 889, 118 Supp. 1116, which fol- lowed 123 App. Div. 236, 108 Supp. 31. See same case on later appeal, 209 N. Y. 419, 103 N. E. 720, affirming, 152 App. Div. 881, 136 Supp. 600), the plaintiff alleged that he had, at the request of the defendants, acting as syndicate managers, advanced moneys for the examinaton of cer- tain properties and for the pur- chase thereof, and caused a corpora- tion to be organized to which title to said properties was conveyed, and that he was ready and willing to convey to the defendants all the capital stock of the corporation or title to the properties, upon the pay- ment of his expenses and reasonable compensation for his services, but that the defendants had failed and refused to make such payment. The Appellate Division held that the syndicate managers acted as agents for their syndicate, a disclosed prin- cipal, and were therefore not per- sonally liable to the plaintff for the contracts made by them as such agents. The Court of Appeals, how- ever, held that as the syndicate agreement provided that each sub- scriber should be liable only to the syndicate managers and then only to the amount of his subscription, it was the intention that the sub- scribers should Incur no liability to third parties, and if that intention was effectual in law, then the syn- dicate managers were not authorized to pledge the credit of the sub- scribers; that If it should be as- sumed that under the law, the subscribers to the syndicate agree- ment became partners as to third parties despite their agreement not to become such as among them- selves, then the syndicate managers, being themselves members of the syndicate, were principals equally with the other subscribers and jointly liable with them, and that the objection as to the non-joinder of the other syndicate members, not having been taken by demurrer or answer, was waived. IQQ THE LAW OF PROMOTEKS. connected with the employment is one of fact ®^ and an authoriz- ation or sanction will be readily inferred.^^ An actual employment, express or implied, and the rendition of services, must be shown. A claim for compensation cannot be founded upon the fact that suggestions made by the plaintiff were accepted and acted upon by the promoters.^* One who has rendered services under an express contract must prove that he performed the contract according to its terms,®® or that such performance was prevented by his employer.®^ If the ex- press contract is, because of its terms, unenforceable, compen- sation may, perhaps, be recovered upon a quantum meruit.^'' The promoter may save himself from personal liability by ex- acting from those assisting him in the promotion, a stipulation that they will not hold him personally responsible for their com- pensation, or that they shall be paid only when the corporation has paid the promoter.®* If the employees of the promoter agree that they shall receive their compensation only when the promoter has been paid by the corporation, they cannot recover from the promoter if he is for any reason unable to obtain satisfaction from it.®® The intention that the promoter shall not be per- 52. Riley v. Packington, L. R. 2 of the corporation made between C. P. 536, and see ante, § 77, and himself and another promoter but post, § 316n. not adopted by the corporation. 53. Sproat v. Porter, 9 Mass. 300, Hearther v. Southern Power & MUl- and see ante, § 77, and post, § 316n. ing Co., 16 Pa. Dist. Ct. 198. 54. Flaherty v. Murray, 60 N. Y. 56. Eastman v. Blackledge, 171 App. Div. 92, 69 Supp. 675, appeal 111. App. 404. Compare Gorgier v. dismissed, 172 N. Y. 646, 65 N. E. Morris, 7 C. B. N. S. 588. 1116. See also post, § 309. 55. Connell v. McWatters, 64 57. Sullivan v. Detroit-, etc., Ry., Pitts. Legal Journal (O. S.) 69, and 135 Mich. 661, 98 N. W. 756, 64 L. see post, § 309. R. A. 673, 106 Am. St. R. 403. It has been held that .it is no 58. Parsons v. Spooner, 5 Hare answer to a promoter's claim for 102 ; Giles v. Smith, 11 Jur. 334, and reimbursement for moneys expended see ante, § 77, and see post, § 316. by him, that he has failed to per- 59. See Wheeler v. Fradd, 14 form an agreement for the financing PEOMOTION EXPENSES. 169 sonally liable to those employed by him must, however, be clearly expressed, for the courts are inclined, in case of doubt, to fasten the responsibility upon the promoter.®" If one employed by the promoter to perform services preliminary to the organization of the company agrees to hold the promoter free from personal liability, there is, in case his claim for services be, after the suc- cessful organization of the corporation, rejected, some difficulty in granting him relief. If the services rendered were of such char- acter that the benefit thereof was received by the corporation at the moment that it achieved legal existence, it cannot be said that the corporation by accepting such benefits impliedly agreed to pay therefor.®^ The obvious injustice of not granting any com- pensation for services duly rendered and fully enjoyed should, whenever possible, be avoided by interpreting the agreement as intending merely that the promoter shall not be made to pay for the services rendered if he fails to organize and float the corpora- tion.®^ Such interpretation, while preventing what amounts to a fraud on his part, works no hardship upon the promoter, as he can recover from the corporation, as one of his disbursements upon the promotion, the moneys which he is made to pay to his as- sistants.®^ Times Law Rep. 302, and see ante, Ohio Dec. Reprint 1068, 10 Am. L. § 77n. ' Rec. 181. 60. See Scott v. Lord Ebury, L. 62. The question as to the under- R. 2 C. P. 255, 36 L. J. C. P. 161. standing of the parties may in some See ante, § 77. cases be left to the jury. See Hig- 61. See discussion under §§ 84 gins v. Hopkins, 3 Exch. 163. and 87, ante. See also ante, § 58.' See post, § 316. But see City Bldg. Assn. v. Zahner, 6 63, See ante, § 82. CHAPTER VI. Of Seceet Pkofits. Section 89. Introductory. 90. Basis of rule against secret profits. 91. Manner of taking profit immaterial. 92. Taking shares as compensation. 93. Taking commission or other compensation on sale to cor- poration. 94. Accepting gift of money, qualifying shares, or other thing of value. 95. Profit made by purchase and resale to corporation. 96. Secret collateral agreements. 97. Profits made in sustaining the market. 98. Other collateral profits. 99. Profits of business carried on with existing concern pending incorporation. 100. Absence of dishonest intent, or of injury to the corporation, immaterial. 101. Distinction between " secret profits," and sale of promoter's property to corporation. 102. Restrictions upon sale of promoter's property to corporation. 103. Necessity of determining whether promoter acquired property before, or after, he entered upon relation. 104. What is deemed acquisition of property. 105. Property acquired by gift. 106. Promoter's rights under contract afterward modified. 107. Expired options. 108. Promoter who acquired property before copimencement of relation, sometimes treated as though he had acquired it thereafter. § 89. Introductory. Promoters are, according to the weight of modem authority, entitled to reasonable compensation for their services upon the (170) SECRET PROFITS. 171 promotion, and there is no objection to the taking of promoters' profits in whatever amount, provided that the facts in regard to such profits are fully disclosed.^ The promoters' profits become unlawful only when they, either through oversight, or because of a fear that knowledge thereof might prevent the successful con- summation of their plans, or for any other reason, fail to disclose the profits which they are deriving from the promotion.^ § 90. Basis of the rule against secret profits. While a promoter is neither a trustee nor an agent of the cor- poration which he promotes, and has, in theory of law, no power to act for nor in any way to represent it, he does in fact mold the corporation and control it while in process of formation. He stands, because of this control, in a fiduciary relation to the cor- 1. Yale Gas Stove Co. v. Wilcox, 64 Conn. 101, 122, 29 Atl. 303, 25 L. E. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. Cas. 647 ; Bige- low V. Old Dominion Copper, etc., Co., 74 N. J. Eq. 457, 501, 71 Atl. 153 ; Arnold v. Searing, 78 N. J. Eq. 146, 158, 78 Atl. 762, 76T ; Spaulding V. North Milwaukee Town Site Co., 106 Wis. 481, 489^92, 81 N. W. 1064, 1066-1068 ; Edwards v. Johnston, — Wyo. — , 152 Pac. 273; Whaley Bridge Calico Printing Co. v. Green, L. R. 5 Q. B. D. 109, 112, 28 W. R. 351. 2. Federal. — Walker v. Pike County Land Co., 139 Fed. Rep. 609, 611, 71 C. C. A. 593 ; Yeiser v. TJ. S. Board & Paper Co., 107 Fed. Rep. 340, 46 C. C. A. 567, 52 L. R. A. 724. Arkansas. — ^Tegarden Bros. v. Big Star Zinc Co., 71 Ark. 277, 281, 72 S. W. 989, 991. California. — ^Lomita Land & Water Co. v. Robinson, 154 CaL 36, 45, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1122, and cases cited. Connecticut.— Yale Gas Stove Co. V. Wilcox, 64 Conn. 101, 121-122, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. Cas. 647. Massachusetts. — Hayward v. Lee- son, 176 Mass. 310, 318, 57 N. E. 656, 49 L. R. A. 725, and cases cited. Missouri. — Exter v. Sawyer, 146 Mo. 302, 47 S. W. 951. New Jersey. — Bigelow v. Old Do- minion Copper, etc., Co., 74 N. J. Eq. 457, 501, 71 Atl. 153; Plaque- mines Tropical Fruit Co. v. Buck, 52 N. J. Eq. 219, 230, 27 Atl. 1094, 44 Am. & Eng. Corp. Cas. 686; Groel V. United Electric Co. of N. J., 70 N. J. Eq. 616, 622, 61 Atl. 1061; Loudenslager v. Woodbury Heights Land Co., 58 N. J. Eq. 556, 559-60, 43 Atl. 671 ; Arnold v. Sear- ing, 78 N. J. Eq. 146, 78 Atl. 762. Hew 7ork. — ^Dorris v. French, 4 172 THE LAW OF PROMOTERS. poration, and will not, without a full disclosure, be permitted to derive any personal profit from the promotion.^ The Supreme Court of Arkansas in a recent case said,* " While the promoters of a corporation are not its agents, they assume a relation of trust and confidence towards those whom they invite to join them in the contemplated enterprise by becoming members of the corporation. Such relation ' requires the same good faith on their part which the law exacts of directors of corporations Hun 292, 296; Oolton Improvement Co. V. Richter, 26 Misc. 26, 30, 55 Supp. 486. PenmsyVoama. — Densmore Oil Co. V. Densmore, 64 Pa. 43, 49-50. Wisconsin. — First Avenue Land Co. V. Hildebrand, 103 Wis. 580, 79 N. W. 753; Pietsch v. Milbrath, 123 Wis. 647, 101 N. W. 388, 102 N. W. 342, 68 L. R. A. 945, 107 Am. St. Rep. 1017. United Kingdom and Colonies. — In re Olympia, Ltd., 1898, 2 Oh. Div. 153, 166, (affirmed, suh nom. Gluek- stein V. Barnes, 1900 App. Cas. 240) ; Re Sale Hotel & Botanical Gardens, 78 Law Times N. S. 368. 3. Federal. — Dickerman v. North- ern Trust Co., 176 V. S. 181, 204, 20 Sup. Ct. 311, 44 L. Ed. 423; Yeiser V. U. S. Board & Paper Co., 107 Fed. Rep. 340, 344, 46 C. C. A. 567, 52 L. R. A. 724, 727. Alabama. — Moore v. Warrior Coal & Land Co., 178 Ala. 234, 59 So. 219, Am. & Eng. Ann. Cas., 1915 B. 173. Arizona. — ^Hughes v. Cadena De- Cobre Min. Co., 13 Ariz. 52, 61, 108 Pac. 231, 234. Indiana. — Parker v. Boyle, 178 Ind. 560, 99 N. B. 986. Iowa. — Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 402- 403, 107 N. W. 629, 632, 119 Am. St. R. 564. Missouri. — Brooker v. William H. Thompson Trust Co., 254 Mo. 125, 156, 162 S. W. 187, 194-195. Tiew Jersey. — ;Arnold v. Searing, 78 N. J. Eq. 146, 157-158, 78 Atl. 762, 766-767; Loudenslager v. Woodbury Heights Land Co., 58 N. J. Eq. 556, 559-560, 43 Atl. 671; See V. Heppenheimer, 69 N. J. Eq. 36, 72, 61 Atl. 843. Oregon. — Wills v. Nehalem Coal Co., 52 Or. 70, 76, 96 Pac. 528, 531. Vvrgima^ — Jordan v. Annex Cor- poration, 109 Va. 625, 64 S. E. 1050, 17 Am. & Eng. Ann. Cas. 267. United Kingdom and Colonies. — Erlanger v. New Sombrero Phos- phate Co., L. R. 3 App. Cas. 1218, 1229-1230, 6 Eng. Rul. Cas. 777, ^9 L. T. N. S. 269, 27 W. R. 65; Bagnall v. Carlton, L. R. 6 Ch. Div. 371, 406, 408; Emma Silver Mining Co. V. Grant, L. R. 11 Ch. Div. 918, 936-937; Hay's Case, L. R. 10 Ch. App. 593, 601; Lydney & Wigpool Iron Ore Co. v. Bird, L. R. 33 Ch. Div. 85, 94, 24 Am. & Eng. Corp. Cas. 28. 4. Tegarden Bros. v. Big Star Zinc Co., 71 Ark. 277, 281, 72 S. W. 989, 991. SECRET PROFITS. 173 and all other fiduciaries.' Like directors and other officers of cor- porations, they can make no profit out of such relation except openly and with the consent of those to whom they are so related. If they take advantage of their position, and make a secret profit out of their purchases for the corporation or corporators, the profit is the property of the proposed corporation when organized, and they may be compelled to account for it in any proper pro- ceeding." It has been said that " the doctrine of promoter's liability is not the creature of statute; it is ' judge-made ' law, in the sense that courts of equity everywhere,- recognizing the obligations arising from the fiduciary relation, have applied to it the same principles of equity that obtain in all cases of trust." ® Some authorities base the rule against promoters' secret profits upon the similarity of the relation between the promoters and those whom they bring into the transaction, to a partnership re- lation.® It should, however, be noted that the principle of the law of partnership here referred to, is itself founded upon the doctrines of the law of agency .'' It has been said that those who buy shares from the treasury of the corporation have the right to assume, in the absence of knowl- edge to the contrary, that all other subscribers are paying the same price for their shares.^ It is, however, inadvisable to make 5. Chancellor Pitney (now As- 8. Yelser v. U. S. Board & Paper sociate Justice of the United States Co., 107 Fed. Rep. 340, 344, 46 C. C. Supreme Court) In Bigelow v. Old A. 567, 52 L. R. A. T24; Hinkley v. Dominion Copper Co., 74 N. J. Eq. Sac Oil & Pipe Line Co., 132 Iowa 457, 506, 71 Atl. 153. 396, 403, 107 N. W. 629, 632, 119 6. Yale Gas Stove Co. v. Wilcox, Am. St. R. 564, (citing Helllwell on 64 Conn. 101, 121, 29 Atl. 303, 25 Stock & Stockholders, § 146) ; Shaw- L. R. A. 90, 42 Am. St. Rep. 159, nee Comm. & Sav. Bk. Co. v. Miller, 47 Am. & Eng. Corp. Cas. 647; 24 Ohio C. C. 198, 211; Wills v. WiUs v. Nehalem Coal Co., 52 Or. Nehalem Coal Co., 52 Or. 70, 85, 96 70, 81, 96 Pac. 528, 532; Densmore Pac. 528, 534. See also cases cited Oil Co. V. Densmore, 64 Pa. 43, 50. under note 10. 7. Bentley v. Craven, 18 Beav. 75. A subscriber is, of course, entitled 174 THE LAW OF PROMOTEBS. this statement the basis of the rule against promoters' secret profits. The rule against secret profits is settled beyond question, but the right of each subscriber to assume that all are going in on the same basis is not conclusively established. To say that the promoters can in no event secure to themselves any secret ad- vantage is a very different thing from saying that they cannot offer a special inducement to some subscriber whose co-operation is deemed of particular importance. Some authorities indicate that such special inducements are entirely proper.® Other cases support a rule that all are presumed to come in on the same basis, and that no secret profit, or advantage over the others, may be given to any subscriber.^" It may, of course, be a material consideration that the special inducement is given at the personal expense of the promoters, and not at the expense of the corporation. § 91. Manner of taking profit immaterial. A promoter's secret profit is unlawful because of the fiduciary relation in which he stands to the corporation. It is the fact of to assume that all shareholders Robinson, 154 Cal. 36, 50, 97 Pac. stand on the same basis as to their 10, 18 L. R. A. N. S. 1106, 1130; future relations to the company. Koster v. Pain, 41 N. Y. App. Div. In re Anglo Greek Steam Co., L. R. 443, 58 N. Y. Supp. 865 ; Clark & 2 Bq. 1, 9-^10, 35 Beav. 399, 410-^11. Marshall on Private Corporations, § 9. Willock V. Dilworth, 204 Pa. 467c. See cases cited under note 8. St. 492, 54 Atl. 278; Cranney v. See also omte, § 9. McAllister, 35 Utah 550, 101 Pac. The matter is in England par- 985 ; Milwaukee Cold Storage Co. v. tially controlled by statute : Corn- Dexter, 99 Wis. 214, 74 N. W. 976, panics (Consolidation) Act of 1908. 40 L. R. A. 837; Thames Navigation (Stat. 8 Edw. VII), § 89. Co. v. Reid, 9 Ont. 754, reversed on One joining with others in the another ground, 13 Ont. App. 303. signing of a subscription agreement, See Morgan v. Struthers, 131 U. cannot vary his obligations by prov- S. 246, 33 L. Ed. 132, 9 Sup. Ct. 726, ing some collateral understanding, and Meyer v. Blair, 109 N. Y. 600, but this Is a different matter. See 17 N. E. 228, 4 Am. St. R. 500. aiMe, % 70, and post, \\ 219, 263. 10. Lomita Land & Water Co. v. SECRET PROFITS. 175 obtaining the secret profit, not the manner in which it is obtained, that constitutes the wrong. No evasion, however ingenious or skill- ful, can make the secret profit lawful.^^ Many devices, some of them palpable, others ingenious, have been resorted to from time to time. All of them have, upon discovery, been condemned.^^ § 92. Taking ^hares as compensation. The issue by the promoters to themselves, without the consent of the stockholders or directors, of a substantial part of the share 11. Yale Gas Stove Co. v. Wil- cox, 64 Conn. 101, 121-122, 29 Atl. 303, 25 L. B. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. Cas. 647. Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 403, 107 N. W. 629, 632, 119 Am. St. R. 564. Midwood Park Co. v. Baker, 128 N. X. Supp. 954, afE'd, 144 N. T. App. Div. 939, 129 N. Y. Supp. 1135, affirmed, 207 N. Y. 675, 100 N. E. 1130. In re Olympia, Ltd., 1898, 2 Ch. Div. 153, 166, 171, affirmed, sub nom. Glucksteln v. Barnes, 1900, App. Cas. 240; Archer's Case, 1892, 1 Ch. Div. 322, 336; Hay's Case, L. B. 10 Ch. App. 593. Note to Yale Gas Stove Co. v. Wilcox, 25 L. R. A. 92, and note to Lomita Land & Water Co. v. Robin- son, 18 L. R. A. N. S. 1110. 13. A trifling profit might per- haps be overlooked upon the prin- ciple de minimis non curat lex. Emma Silver Mining Co. v. Grant, L. R. 11 Ch. Div. 918, 934. See Bagnall v. Carlton, L. R. 6 Ch. Div. 371, 408, to the effect that the amount of the profit does not effect the promoter's liability. If the secret profit of the promoter does not exceed reasonable com- pensation for his services, the courts might in some jurisdictions grant him an allowance for services which would completely offset the claim of the corporation. See ante, § 85. It is true that the rule against secret profits may be, in effect, evaded by the promoters taking the entire issue of the capital stock of the company in payment for their property, regardless of its cost, and then reselling the shares to the pub- lic. This practical exception to the rule against secret profits, rests upon the theory that all the sub- scribers are parties to the transac- tion, and that there is In contempla- tion of law no secret profit. See post, §§ 120, 130. The court in Rogers v. Great Southern Accident & Fidelity Co., 137 Ga. 555, 73 S. E. 848, sustained, without opinion, a demurrer to a complaint demanding an account- ing for moneys unlawfully taken by the promoters. The petition was inartiflcially drawn, but it is unfor- tunate that the court did not set forth its precise reasons for dis- 176 THE LAW OF PROMOTEES. capital of the corporation as compensation for promoters' serv- ices, is obviously improper.^^ § 93. Taking commission or other compensation on sale to the corporation. The acceptance by promoters of commissions from persons selling property to the corporation has frequently been con- demned.^* An agreement by such vendors to pay the promoters missing a petition which unques- tionably proceeded upon a gross fraud. 13. Hughes V. Cadena DeCobre Min. Co., 13 Ariz. 52, 108 Pae. 231; Hayward v. Leeson, 176 Mass. 310, 57 N. E. 656, 49 L. R. A. 725; Mc- Allister V. American Hospital Ass'n, 62 Or. 530, 125 Pac. 286. As to whether shares may ever be lawfully issued in payment" for promoters' services, see ante, § 87n. The taking of shares without con- sideration is obviously unlawful, Simon v. Weaver, 143 Wis. 330, 127 N. W. 950, and cases supra. 14. California. — Lomita Land & Water Co. v. Robinson, 154 Oal. 36, 50, et seq., 97 Pac. 10, 18 L. B. A. N. S. 1106, 1130, et seq. Massachusetts. — Emery v. Par- rott, 107 Mass. 95. Mississippi. — Oooli v. Southern Columbian Climber Co., 75 Miss. 121, 21 So. 795. New Jersey. — Plaquemines Tropi- cal Fruit Co. V. Buck, 52 N. J. Eq. 219, 231-232, 27 Atl. 1094, 44 Am. & Eng. Corp. Cas. 686. Wisconsin. — Limited Inv. Assn. v. Glendale Inv. Assn. 99 Wis. 54, 74 N. W. 633. United Kingdom and Colonies. — Bagnall v. Carlton, L. R. 6 Ch. Div. 371 1 Emma Silver Mining Co. v. Grant, L. R. 11 Ch. Div. 918; Lydney & Wigpool Iron Ore Co. v. Bird, L. R. 33 Ch. Div. 85, 24 Am. & Eng. Corp. Cas. 23, reversing, L. R. 31 Ch. Div. 328, 12 Am. & Eng. Corp. Cas. 6; Beck v. Kantorowicz, 3 K. & J. 230; McKay's Case, L. R. 2 Ch. Div. 1; In re Hereford & South Wales Waggon & Engineering Co., L. R. 2 Ch. Div. 621, 35 L. T. N. S. 40; Atwool V. Merry weather, L. R. 5 Eq. 464n, 37 L. J. Ch. N. S. 35. And see note to Yale Gas Stove Co. V. Wilcox, 25 L. R. A. 92, also note to Lomita Land & Water Co. V. Robinson, 18 L. R. A. N. S. 1115. Compare Richard Hanlon Milli- nery Co. V. Mississippi Valley Trust Co., 251 Mo. 553, 591, 158 S. W. 359, 368, where the court refused, on the ground that the moneys received by the promoter had never been In the possession of the corporation, to compel him to account therefor. Compare also Richardson v. Graham, 45 W. Va. 134, 30 S. E. 92, where it was held that the payment by the vendor to the promoters of compensation for their services in SECRET PROFITS. 177 whatever sum above a certain fixed price may be received for the property from the corporation is likewise unlawful.^^ Any ar- rangement by which the promoters secretly receive a part of the purchase price paid by the corporation is objectionable.^^ The fact that the promoter had, before he conceived the idea of organizing the corporation, been employed as agent to sell the obtaining subscriptions was not im- proper. It has been held that a commission paid by a vendor to a promoter can- not be recovered by the corporation if it was agreed between the cor- poration and the vendor that the latter should pay all promotion ex- penses. Re Sale Hotel & Botanical Gardens, Ltd., 78 L. T. N. S. 368, reversing, 77 L. T. N. S. 681; and see Arkwrlght v. Newbold, L. R. 17 Ch. Div. 301. (Of. Re Eskern Slate, etc., Co., Ltd., 37 L. T. N. S. 222). The correctness of these decisions may well be doubted. It seems on principle that the corporation is en- titled to know the promoter's inter- est in the transaction. The language of the court in Central Land Co. v. Obenchain, 92 Va. 130, 142, 22 S. E. 876, 880, seems to intend that the promoter's com- mission would be lawful if the agree- ment for the payment thereof were entered into before the promoter en- tered upon his fiduciary relation to the corporation. This, if intended, is unsound in principle and contrary to the weight of authority. See cases cited infra, note 17. It has been held that if the sub- scribers are Informed that the pro- moter is to be paid a commission. the fact that the amount of the com- mission is not disclosed does not make the promoter liable for a secret profit. Advance Realty Co. V. Nichols, 126 Minn. 267, 148 N. W. 65, compare post, §§ 114, 115. 15. Tegarden Bros. v. Big Star Zinc Co., 71 Ark. 277, 72 S. W. 989 ; First Avenue Land Co. v. Hilde- brand, 103 Wis. 530, 79 N. W. 753. 16. Federal. — Chandler v. Bacon, 30 Fed. Rep. 538. Connecticut. — Yale Gas Stove Co. V. "Wilcox, 64 Conn. 101, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. Cas. 647. Massachusetts. — Emery v. Par- rott, 107 Mass. 95. Missouri. — St. Louis & Utah S. M. Co. V. Jackson, 5 Central L. J. 317. New York. — See Koster v. Pain, 41 App. Div. 443, 58 Supp. 865; Campbell v. Cypress Hills Cemetery, 41 N. Y. 34. Oregon. — Johnson v. Sheridan Lumber Co., 51 Or. 35, 40, 93 Pac. 470, 472. United Kingdom and Colonies. — Hichens v. Congreve, 4 Russ. 562, 574; Bland's Case, 1893, 2 Ch. Div. 612 ; Scottish Pacific Coast Min. Co., Ltd., V. Palkner, Bell & Co., Sess. Cas., 15 Rettie 290. See also cases cited in preceding notes. 178 THE LAW OF PROMOTERS. property in question, does not legalize the payment of a commis- sion upon the sale to the corporation, nor relieve him from ac- countability therefor.^'' § 94. Accepting gift of money, qualifying shares, or other thing of value. Promoters have frequently been compelled to account to the corporation for moneys or shares gratuitously given them by one selling property to the corporation or otherwise interested in the organization thereof,-'® for shares given them as their qualification for the office of director,^^ for qualifying shares sold to them for 17. Koster v. Pain, 41 N. Y. App. Div. 443, 58 Supp. 865; Lydney & Wigpool Iron Ore. Co. v. Bird, L. R. 33 Ch. Div. 85, 94-95, 24 Am. & Eng. Corp. Cas. 23, reversing, L. R. 31 Ch. Div. 328, 12 Am. & Eng. Corp. Cas. 6; Whaley Bridge Calico Printing Co. V. Green, L. R. 5 Q. B. Div. 109, 112, 28 W. R. 351 ; Bagnall v. Carl- ton, L. R. 6 Ch. Div. 371, 407. Cf. Central Land Co. v. Obenchaln, 92 Va. 130, 142, 22 S. E. 876, 880. C£. also American Shipbuilding Co. v. Commonwealth S. S. Co., 215 Fed. Rep. 296, 299, 131 C. C. A. 596. 18. McKay's Case, L. B. 2 Ch. Div. 1, 5; Hay's Case, L. R. 10 Ch. App. 593, 602, 603, 604-605. See also In re Anglo Greek Steam Co., L. R. 2 Eq. 1, 35 Beav. 399 ; Eden v. Ridsdales Ry. Lamp & Lighting Co., L. R. 23 Q. B. D. 368. Compare Curran v. Oppenheimer, 164 N. Y. App. Div. 746, 150 Supp. 369, where the broker on the sale divided his commission with two of the pro- moters. 19. Pearson's Case, L. R. 5 Ch. Div. 336, arg, L. B. 4 Ch. Div. 222 ; Hay's Case, L. R. 10 Ch. App. 593, (overruling Orgill's Case, 21 L. T. N. S. 221) ; Catling's Case, L. R. 1 Ch. Div. 115; In re Carriage Co-opera- tive Supply Association, L. R. 27 Ch. Div. 322; De Ruvigne's Case, L. R. 5 Ch. Div. 306; Ormerod's Case, 37 L. T. N. S. 244, 25 W. R. 765 ; Derry V. Peek, L. R. 14 App. Cas. 337, 345- 6; In re Englefleld Colliery Co., L. R. 8 Ch. Div. 388; In re Dlsderi & Co., L. R. 11 Eq. 242. Note to Yale Gas Stove Co. v. Wilcox, 25 L. R. A. 101-102. See Re Eskern Slate & Slab Quarries Co., Ltd., 37 L. T. N. S. 222, where a clause of the articles of association purporting to legalize the transaction was held invalid. Cf. Miller's Case, L. R. 5 Ch. Div. 70, aff'g, L. R. 3 Ch. Div. 661. The directors were in Re Carriage Co-operative Supply Association, L. R. 27 Ch. Div. 322, held both jointly and severally liable for the value of such shares. If the director actually pays for his own shares, but a sum equal to the purchase price Is deposited in SECRET PROFITS. •179 a nominal consideration ^^ or at less than their fair market value,^^ and for moneys or other considerations beyond the es- tablished directors' fees paid them in consideration of their acting as directors of the company.^^ It was held in Re London & South- western Canal Co., Ltd.,^^ that the fact that the qualifying shares were not given to the director as an absolute gift, but to be held by him as trustee for the transferor, was no defense to the demand of the corporation for the value thereof. An agreement by the vendor of property, that he will, whenever requested, repurchase a,t cost the shares sold to the promoter to qualify him as director, is improper, and the promoter may be compelled to account to the corporation for all benefits received thereunder.^* the director's bank account by the vendor to the corporation, the di- rector Is liable to the corpora- tion for the moneys so placed to his credit, but his shares cannot be treated as unpaid, unless he knew that the moneys were deposited for the purpose of reimbursing him for the payment made for his shares. Eastwicb's Case, 45 L. J. Ch. N. S. 225, distinguishing Hay's Case, L. R. 10 Ch. App. 593, 44 L. J. Ch. N. S. 721. 20. Mitcalfe's Case, L. R. 13 Ch. Div. 169. 21. Weston's Case, L. R. 10 Ch. Div. 579. 22. Bagnall v. Carlton, L. R. 6 Ch. Div. 371, 388-389; Nant-Y-Glo & Blaina Iron Works Co. v. Grave, L. R. 12 Ch. Div. 738, 744, et seq.; Car- ling's Case, L. R. 1 Ch. Div. 115; Ormerod's Case, 37 L. T. N. S. 244, 25 W. R. 765; see In re Postage Stamp Automatic Delivery Co., 1892, 3 Ch. Div. 566; Re Sale Hotel & Botanical Gardens, Ltd., 78 L. T. N. S. 368 ; In re The Brighton Brewery Co., 37 L. J. Ch. N. S. 278, and Re Fitzroy Bessemer Steel Co., Ltd., 50 L. T. N. S. 144; In re Drum Slate Quarry Co., Ltd., 55 L. J. Ch. N. S. 36, 53 L. T. N. S. 250; In re Howat- son Patent Furnace Co., 4 Times Law Rep. 152; In re Anglo Greek Steam Co., L. R. 2 Eq. 1, 7-8, 35 Beav. 399, 407, 408. Re London and Provincial Starch Co., 20 L. T. N. S. 390. Ex parte Theys, L. R. 22 Ch. Div. 122. Cf. dictum in Tyrrell v. Bank of London, 10 H. L. Cas. 26, 59, 11 Bng. Rep. 934. The directors are liable to the corporation for any gifts received from the promoters. Madrid Bank V. Pelly, L. R. 7 Eq. 442. 23. 1911, 1 Ch. Div. 346, 80 L. J. Ch. N. S. 234. 24. Archer's Case, 1892, 1 Ch. Div. 322, cited in Tale Gas Stove Co. V. Wilcox, 64 Conn. 101, 122-124, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. 180 THE LAW OF PROMOTERS. The promoter must in all these cases account to the corporation for his profits, not because he has taken anything from the cor- poration, for the fact that the corporation has lost nothing by the transaction is immaterial,^^ but because anything received by an agent beyond his agreed compensation must be accounted for to the principal.^® § 95. Profit made by purchase and resale to corporation. One method of obtaining secret profits, frequently resorted to by promoters, is the purchase for their individual account of Gas. 647, and in The Telegraph v. Loetscher, 127 Iowa 383, 388, 101 N. W. 773, 775, 4 Am. & Bng. Ann. Gas. 667; Reid on Gorporate Finance, § 255. 25. Emma Silver Mining Go. v. Grant, L. R. 11 Gh. Div. 918, 938; Archer's Gase, 1892, 1 Gh. Div. 322. 36. Koster v. Pain, 41 N. T. App. Div. 443, 58 Supp. 865; McKay's Gase, L. R. 2 Gh. Div. 1, 5; Emma Silver Mining Go. v. Grant, L. R. 11 Gh. Div. 918, 938 ; Bentley v. Graven, 18 Beav. 75, 78. But see Bagnall v. Garlton, L. R. 6 Gh. Div. 371. In that ease the title to certain collieries and iron works was in Joseph Naylor, W. S. Naylor and another, as trustees under the will of James Bagnall, Richard Bagnall was the life tenant of the property. Richard Bagnall agreed to give to one Duignan, sol- icitor for the trustees, a commission of £1,500, if he found a purchaser for the property. Accordingly a cor- poration was organized to take over the property and the court held that Duignan and the trustees under the will of James Bagnall, and a number of other persons, were all promoters of the corporation. It appeared that the Naylors, trustees under the will of James Bagnall, had as a condition of their signing the agreement for the sale of the property. Insisted upon the payment to them by Richard Bagnall, the life tenant, of two sums of £6,000 and an annuity of £500 each, for a term. In a suit to compel the various pro- moters to account for secret profits, it was held that the agreement just referred to was a personal engage- ment of Richard Bagnall, to be satis- fied out of his own moneys, and that the corporation was not en- titled to recover the payments made thereunder. The court also held that the company was not entitled to recover the £1,500 paid to Duig- nan by Richard Bagnall, as that sum never formed any part of the funds of the company, but was paid by Richard Bagnall in respect to a personal liability, and out of his own pocket. The case must, if it is to be approved, rest upon the par- ticular facts. Gf. Richard Hanlon Millinery Go. v. Mississippi Trust Go., 251 Mo. 553, 591, 158 S. W. 359, 368. SECRET PROFITS. 181 property which the corporation is organized to acquire, and the subsequent resale thereof to the corporation at an advance.*'' Sometimes title to the property is actually taken by the promot- ers, and by them conveyed to the corporation. Sometimes the promoters merely contract for the purchase of the property, or take an option thereon, and, after arranging a resale to the cor- poration at an increased price, cause the title to pass from the original vendors directly to the corporation. The substance of the transaction is in either case the same, and the profit unlawful.*® If the purchase is made by the promoters at a time when they have entered upon their fiduciary relation to the corporation, it is their duty to make the purchase for the corporation upon the best terms obtainable, and if, in disregard of their duty, they pur- chase for their individual account what they ought to purchase for the corporation, any profit- obtained upon a subsequent resale to the corporation is, unless fully disclosed, wrongfully taken.*^ 27. Federal. — D ickerman v. Northern Trust Co., 176 U. S. 181, 20 Sup. Ct. 311, 44 L. Ed. 423; Yeiser v. U. S. Board & Paper Co., 107 Fed. Rep. 340, 46 C. C. A. 567, 52 L. R. A. 724. CaUfornia. — Lomita Land &■ Water Co. v. Robinson, 154 Cal. 36, 97 Pac. 10, 18 L. R. A. N. S. 1106. Iowa. — ^Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 107 N. W. 629, 119 Am. St. Rep. 564; Caf- fee v. Berkley, 141 Iowa 344, 118 N. W. 267, and cases cited. Missouri. — ^Bxter v. Sawyer, 146 Mo. 302, 47 S. W. 951. New Jersey. — Arnold v. Searing, 78 N. J. Eq. 146, 78 Atl. 762; Loudenslager v. Woodbury Heights Land Co., 58 N. J. Bq. 556, 43 Atl. 671 ; See v. Heppenheimer, 69 N. J. Eq. 36, 61 Atl. 843. New 7ork. — Crowe v. Malba Land Co., 76 Misc. 676, 135 Supp. 454; Dorris v. French, 4 Hun 292, and cases cited in foot note, p. 296. OresroM.— Wills v. Nehalem Coal Co., 52 Or. 70, 96 Pac. 528. Pennsylvania. — Densmore Oil Co. v. Densmore, 64 Pa. 43, 50; Simons V. Vulcan Oil & Min. Co., 61 Pa. 202, 218, 100 Am. Dec. 628. Wisconsin. — Pietsch v. Milbrath, 123 Wis. 647, 101 N. W. 388, 102 N. W. 342, 68 L. R. A. 945, 107 Am. St. Rep. 1017. United Kingdom and Colonies. — Minister of Rys. & Canals v. Quebec So. Ry. Co., 12 Exch. Rep. of Can. 11. 28. In re Hess Man'f'g Co., 23 Can. S. C. 644, 659. 29. Old Dominion Copper, etc., Co. V. Bigelow, 188 Mass. 315, 321, 74 N. B. 653, 108 Am. St. Rep. 479 ; Simons V. Vulcan OH & Min. Co., 61 Jg2 THE LAW OF PROMOTERS. An entirely different situation arises if the property sold to the corporation was acquired by the promoters before they entered upon any fiduciary relation to the corporation. They are in such case bound to disclose their interest in the property, but its cost to them is wholly immaterial, and while the transaction may, be- cause of a failure to disclose the promoters' interest, be unlawful, the promoters have not, properly speaking, taken any " secret profit." 3" An ingenious method of gaining a secret profit was tried in Gluckstein v. Barnes.** In that case a mortgage upon a place of entertainment known as " Olympia," and some debenture bonds of the company which then owned the property, were purchased at a discount by the promoters. The property was then sold at public auction and bought in by the pro- moters at £140,000, that price being sufficient to pay the face value of the mortgage and debenture bonds. The prop- erty was sold to the new company for £180,000, the promot- ers disclosing that they were retaining as their profit, the differ- ence between the £140,000 paid at the public sale and the £180,- 000 paid by the corporation. The promoters did not, however, disclose the fact of their prior purchase at a discount of the mort- gage and debenture bonds, which purchase had netted them an additional profit of £20,000. The court held that the corporation was entitled to the benefit of the purchase of the mortgage and debenture bonds, and that the promoters must account to it for the £20,000 profit gained thereby. § 96. Secret collateral agreements. A secret agreement whereby a proposed contractor with a cor- Pa. 202, 217, (quoting from Ltodley re Ambrose Lake Tin & Copper Min- on Partnership, 497) ; In re Cape Ing Co., L. R. 14 Ch. Dlv. 390, 398. Breton Co., L. R. 29 Ch. Dlv. 795, 30. See post, § 101. 803-804, a£Srmed, sub nom. Bentinck 31. 1900 App. Cas. 240, affirming, V. Fenn, L. R. 12 App. Cas. 652 ; In In re Olympia, Ltd., 1898, 2 Ch. Dlv. 153. SECRET PROFITS. 183 poration in process of formation, promises to pay a commission to the promoter, is unlawful.^^ A secret collateral agreement with a contractor who has obli- gated himself to pay the expenses of the corporate organization, that the promoters will, in consideration of the payment to them of a certain fixed sum, assume the burden of organizing the com- pany is improper, and any profits accruing to the promoters therefrom must be accounted for to the corporation.*^ The failure of the promoters to disclose to the subscribers that the corporation is, under an agreement with one of the promoters, obligated to pay to such promoter a royalty upon a certain patented device to be manufactured and sold by the company, renders the royalty agreement unenforceable and subject to can- cellation.** § 97. Profits made in sustaining the market. Emma Silver Mining Co. v. Grant *® was an action to compel the defendant to account for a secret commission obtained by him. The defendant had, in order to sustain the market, dealt in the shares of the plaintiff corporation. The net result of his dealing in these shares was a small profit. The court upon his accounting charged the defendant with this profit. The defendant had in that case claimed, and been allowed as an off-set upon his accounting, sums of money paid to various brokers for sustaining the market, and that no doubt was the reason why he was charged with the profits derived from these transactions. If a promoter, in order to sustain the price of the company's shares, should on his own 32. Twycross v. Grant, L. R. 2 Sess. Cas. 20 Rettie, 7, 9 Times Law O. P. D. 469 ; see also London Trust Rep. 102, 68 L. T. N. S. 96, affirm- Co. V. Mackenzie, 62 L. J. Ch. N. S. ing, Sess. Cas. 18 Rettie, 1140. 870 ; In re Anglo Greek Steam Co., 34. Fred Macey Co. v. Macey, 143 L. R. 2 Bq. 1, 8-9, 35 Beav. 399, 409- Mich. 138, 106 N. W. 722, 5 L. R. A. 410. N. S. 1036. 33. Mann v. Edinburgh Northern 35. L. R. 11 Oh. Div. 918, 941, Tramways Co., 1893, App. Cas. 69, 940. w 04^ THE LAW OF PROMOTERS. responsibility, with his own money, and at his own risk, buy and sell such shares in the market, the profits, if any, derived from such transactions would belong to the promoter and he could not be called upon to account therefor. A different situation would arise if the promoter had represented that he was trading for the corpo- ration, or had attempted to hold the corporation responsible for his losses, or had made use of the funds of the corporation in his operations. § 98. Other collateral profits. A curious situation arose in Re Sunlight Incandescent Gas Light Co., Ltd.^® Pending the organization of a company formed to purchase a certain invention, a litigation arose between the vendor corporation and a syndicate formed to test the invention to be purchased by the new company. The syndicate having suc- ceeded in the first stage of the litigation, and the vendor company having threatened an appeal, it was arranged to secure the syndi- cate against the threatened appeal by insuring the result at Lloyd's. Two of the directors of the syndicate underwrote a part of the risk. Thereafter the vendor corporation abandoned the appeal. It was claimed by the liquidator that the syndicate was entitled to recover from the two directors who underwrote a part of the risk, as profits made in the conduct of the company's affairs, the premiums paid to them for the insurance. The court, with- out attempting to declare any general rule, declined to hold the directors liable for these moneys, largely because of the fact that most of the shareholders did not want the money and would have returned it to the directors. The court said, however, that a full and detailed disclosure of the transaction should have been made. § 99. Profits of business carried on with existing concern pend- ing incorporation. In Albion Steel & Wire Co. v. Martin,^'^ the plaintiff corpora- 36. 16 Times Law Rep. 535. 37. L. R. 1 Ch. Div. 580. SEGKET PROFITS. 185 tion was organized to take over the business of Fox & Bear as of September 1, 1872. The defendant, a steel converter and iron merchant doing a large business with Fox & Bear, agreed to be- come a director of the new company, but pending the incorpo- ration, and after September 1, 1872, and likewise after the incorporation of the company on October 31, 1872, continued to transact business with Fox & Bear in the same manner as there- tofore. The defendant admitted his liability to account for the profits derived from the contracts made with Fox & Bear after the incorporation. He contended, however, that he was entitled to retain his profits on all contracts made before the incorporation. This contention was sustained. The defendant was apparently not one of the promoters of the plaintiff corporation, but, had he been, that circumstance would not have affected the result. § 100. Absence of dishonest intent, or of injury to the corpo- ration, immaterial. If the promoter takes his profit without a proper disclosure, he will be compelled to account therefor, though no fraud or in- justice was intended,'^ and though he honestly believes that the profits so taken by him do not exceed the reasonable value of his services as promoter. ^^ The promoter is not relieved from liability for his secret profits by the fact that the property sold to the corporation was actually worth the price that it was made to pay therefor,*" nor because 38. Chandler v. Bacon, 30 Fed. 39. Hayward v. Leeson, 176 Mass. Rep. 538, 540; Torrey v. Toledo 310, 31S-319, 57 N. B. 656, 49 L. R. Portland Cement Co., 158 Mich. 348, A. 725. 122 N. W. 614; Dorris v. French, 4 40. Federal. — Yelser v. U. S. Hun (N. T.) 292, 297; Erlanger v. Board & Paper Co., 107 Fed. Rep. New Sombrero Phosphate Co., L. B. 340, 348-349, 46 C. C. A. 567, 52 L. 3 App. Cas. 1218, 1256-1257, 6 Eng. R. A. 724; Chandler v. Bacon, 30 Rul. Cas. 777, 39 L. T. N. S. 269, 27 Fed. Rep. 538, 540. W. E. 65; Nant-Y-Glo & Blaina Alabama. — Moore v. Warrior Coal Ironworks Co. v. Grave, L. R. 12 & Land Co., 178 Ala. 234, 59 So. 219, Ch. Div. 738, 746. Am. & Eng. Ann. Cas., 1915 B. 173. 186 THE LAW OF PKOMOTERS. his profits were not received at the expense of the corporation.*^ Even if, as might well happen, the secret commissions paid to the promoter had enabled the corporation, by bringing suit for a re- scission against its vendor, to obtain a compromise which allowed it to retain the property at a net cost lower than the lowest price at which it could have been purchased, that circumstance would not relieve the promoter from liability to the corporation, al- though it was undoubtedly the gainer by the fraud of which it complains.*^ The basis of the promoter's liability for secret profits is, not that the corporation has been damaged to the ex- tent of his secret profit, but that the promoter occupies a posi- tion analogous to that of agent of the corporation, and that any profits resulting from his dealings with the corporation must be accounted for to it.*' OaUforfda — Burbank v. Dennis, 101 Cal. 90, 101, 35 Pac. 444, 448. Connecticut. — Yale Gas Stove Co. V. Wilcox, 64 Conn. 101, 121, 125, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Bep. 159, 47 Am. & Eng. Corp. Cas. 647. New Jersey. — Bigelow v. Old Do- minion Copper, etc., Co., 74 N. J. Eq. 457, 500, 503, 71 Atl. 153. New York. — Midwood Park Co. v. Baker, 128 Supp. 954, affirmed, 144 App. Div. 939, 129 Supp. 1135, affirmed, 207 N. T. 675, 100 N. E. 1130. Oregon. — Wills v. Nehalem Coal Co., 52 Or. 70, 81, 96 Pac. 528, 532. United Kingdom and Colonies. — Bentley v. Craven, 18 Beav. 75; Hichens v. Congreve, 4 Sim. 420, 427, cited in Glucksteln v. Barnes, 1900, App. Cas. 240, 252-254; Alexandra Oil & Dev. Co. V. Cook, 11 Ont. W. B. 1054, 1061. 41, Archer's Case, 1892, 1 Cli. Div. 322. See opinion of Lindley, L. J., p. 339, Bowen, L. J., p. 340-341, and of Fry, L. J., p. 342. Compare, however, Richard Hanlon Millinery Co. V. Mississippi Valley' Trust Co., 251 Mo. 553, 591, 158 S. W. 359, 368 ; also Bagnall v. Carlton, L. R. 6 Ch. Div. 371. 43. Emma Silver Mining t^o. v. Grant, L. B. 11 Ch. Div. 918, 938. See also Bagnall v. Carlton, L. B. 6 Ch. Div. 371, 399^00, 404. Cf. Stoney Creek Woolen Co. v. Smalley, 111 Mich. 321, 69 N. W. 722, citing 1 Am. & Eng. Ency. of Law (2nd. ed.), 428. 43. McKay's Case, L. B. 2 Ch. Div. 1, 5; Emma Silver Mining Co. V. Grant, L. R. 11 Ch. Div. 918; Bentley v. Craven, 18 Beav. 75, 78. Cf. Richard Hanlon MUlinery Co. v. Mississippi Valley Trust Co., 251 Mo. 553, 591, 158 S. W. 359, 368. SECRET PROFITS. 187 The fact that the shares taken by the promoter were issued to him as full paid in compliance with the statutes of the domicile of the corporation, has no bearing upon the propriety of his secret profit or upon his right to retain the shares as against the com- plaint of the corporation or its stockholders.** § 101. Distinction between "secret profits," and sale of pro- moter's property to the corporation. It is necessary, in considering the question of promoters' profits and the right of a promoter to deal with the corporation to his personal advantage, to keep in mind the distinction between the profits derived by a purchase of property by the promoter and its resale to the corporation, and a mere sale of the promoter's property to the corporation. The distinction is that in the one case the promoter makes the purchase for himself at a time when it is his duty to make it for the corporation; in the other, he merely sells his own property to a purchaser to which he stands in a fiduciary relation. If the facts are concealed, the promoter has in the one case gained an unlawful secret profit, — in the other made a voidable sale.*® If the promoter's purchase is made at a 44. Hayward v. Leeson, 176 Mass. 530, 125 Pac. 286, and see post, §§ 310, 317-318, 57 N. E. 656, 49 L. R. 165, 270. A. 725; Bigelow v. Old Dominion 45. California. — Burbank v. Den- Copper, etc., Co., 74 N. J. Eq. 457, nis, 101 Cal. 90, 97-99, 35 Pac. 444, 503, 71 Atl. 153, and see post, §| 446-447. 165, 270. Massachusetts. — 1 d Dominion If bonds or shares are, tn violation Copper Co. v. Bigelow, 188 Mass. of statute, issued to the promoters 315, 321, 322, 74 N. E. 653, 108 Am. without adequate consideration, the St. Rep. 479; Parker v. Nickerson, promoter will be subjected to such 137 Mass. 487, 497. penalties as may be prescribed Missouri. — See Exter v. Sawyer, by the statute. Wiegand v. Albert 146 Mo. 302, 320-321, 47 S. W. 951, Lewis Lumber & Mfg. Co., 158 955-6. Fed. Rep. 608, 85 C. C. A. 430, New Jersey. — Plaquemines Tropi- afflrinlng In re Wyoming Valley Ice cal Fruit Co. v. Buck, 52 N. J. Eq. Co., 153 Fed. Rep. 787 ; McAllister 219, 230, 27 Atl. 1094, 44 Am. & Eng. V. American Hospital Ass'n, 62 Or. Corp. Cas. 686; Woodbury Heights 188 THE LAW OF PROMOTERS. time when he already occupies a fiduciary relation towards the corporation, the price which he pays for the property directly affects the rights of the corporation in the transaction. If the property was acquired by the promoter before he entered upon that relation to the corporation, the cost of the property to him does not concern the corporation.*® § 102. Restrictions upon sale of promoter's property to the corporation. The promoter may, if his interest in the transaction is properly disclosed, freely sell his own property to the corporation regard- less of its cost to him.*'' He must not, however, if he is himself Land Co. v. Loudenslager, 55 N. J. Bq. 78, 90-91, 35 Atl. 436, affirmed, 56 N. J. Eq. 411, 41 Atl. 1115, but modified, 58 N. J. Bq. 556, 43 Atl. 671. Ohio. — Second National Bank v. Greenville Screw Point Steel Fence Post Co., 23 Ohio C. C. 274, 279. Oregon, — Wills v. Nehalem Coal Co., 52 Or. 70, 81, 96 Pac. 528, 531. Pennsylvania. — Denstnore Oil Co. V. Densmore, 64 Pa. 43, 49; Mc- Elhenny's Appeal, 61 Pa. 188, 195. Virginia. — Richlands Oil Co. v. Morriss, 108 Va. 288, 294, 61 S. E. 762, 764, quoting Cook on Corpora- tions, § 651. Wisconsin. — Milwaukee Cold Stor- age Co. V. Dexter, 99 Wis. 214, 74 N. W. 976, 40 L. R. A. 887; Franey v. Warner, 96 Wis. 222, 233- 236, 71 N. W, 81, 85-86, and cases cited. United Kingdom and Colotiies. — Foss V. Harbottle, 2 Hare 461, 489; Cover's Case, L. R. 20 Eq. 114, 122, affirmed, L. R. 1 Ch. Div. 182, (see p. 187) ; Bagnall v. Carlton, L. R. 6 Ch. Div. 371, 386; Paul & Beres- ford's Case, 33 Beav. 204; Erlanger V. New Sombrero Phosphate Co., L. R. 3 App. Cases 1218, 1242-1243, 1244, 1263, 1270, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65; In re Hess Manufacturing Co., 23 Can. Sup. Ct. 644, affirming, 21 Ont. App. 66, reversing, 23 Ont. 182; Highway Advertising Co. v. Ellis, 7 Ont. L. R. 504. Note to Tale Gas Stove Co. v. Wilcox, 25 L. R. A. 90. 46. See post, § 115. 47. See post, § 115. A loan of money made to the cor- poration by the promoter is, if the transaction is open and fair, not subject to objection. See Fitzgerald Construction Co. v. Fitzgerald, 137 U. S. 98, 110, 34 L. Ed. 608, 11 Sup. Ct. 36, and cases cited. Reid on Cor- porate Finance, § 190. Even though the transaction were in some way objectionable, the remedy of the corporation would generally be con- SECRET PROFITS. 189 the vendor on the sale to the corporation, attempt, without disclos- ing his interest, to influence the action of the vendee corporation.** He must make a full disclosure of all the material facts,*® either to fined to a rescission, which would necessitate the repayment of the moneys received by it, and interest. It is, however, conceivable that peculiar facts might give the trans- action an aspect that would justify other remedies. The court might, for example, not permit the pro- moter to realize upon his security. See Reid on Corporate Finance, § 190. 48. Connecticut. — Yale Gas Stove Co. V. WUcox, 64 Conn. 101, 121, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. & Bng. Corp. Cas. 647. Massachusetts. — O 1 d Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 322, 74 N. E. 653, 108 Am. St. Rep. 479 ; same v. same, 203 Mass. 159, 89 N. E. 193, 40 L. R. A. N. S. 314 ; Parker v. Nickerson, 112 Mass. 195, 196; same v. same, 137 Mass. 487, 497. Missouri. — South Joplin Land Co. V. Case, 104 Mo. 572, 578-579, 16 S. W. 390, 392, 38 Am. & Eng. Corp. Cas. 333. New York. — Munson v. Syracuse, etc., R. R. Co., 103 N. Y. 58, 73, 8 N. E. 355, 29 Am. & Eng. R. R. Cas. 377; Coleman v. Second Ave. R. R. Co., 88 N. Y. 201. Oregon. — Wills v. Nehalem Coal Co., 52 Or. 70, 78-79, 96 Pac. 528, 531. Pennsylvania. — Rice's Appeal, 79 Pa. 168, 205. Wisconsin. — Pittsburg Mining Co. V. Spooner, 74 Wis. 307, 319-320, 42 N. W. 259, 262, 17 Am. St. Rep. 149, 24 Am. & Eng. Corp. Cas. 1; Mil- waukee Cold Storage Co v. Dexter, 99 Wis. 214, 74 N. W. 976, 40 L. R. A. 837. United Kingdom and Colonies. — In re Cape Breton Co., L. R. 29 Ch. D. 795, aflBrmed, sub nom.. Bentinck V. Fenn, L. R. 12 App. Cas. 652 ; Foss V. Harbottle, 2 Hare 461; Lagunas Nitrate Co. v. Lagunas Syndicate, 1899, 2 Ch. 392, 422, 442, per Rigby, L. J., who was, however, in the minority on the decisive points of the case. See note to Lomita Land & Water Co. V. Robinson, 18 L. R. A. N. S. 1112-1113. 49. Federal. — Stewart v. St. Louis Ft. S. & W. R. Co., 41 Fed. Rep. 736, 738. Massachusetts. — Parker v. Nicker- son, 112 Mass. 195, 196; Old Do- minion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 322, 74 N. E. 653, 108 Am. St. Rep. 479. Missouri. — South Joplin Land Co. V. Case, 104 Mo. 572, 579, 16 S. W. 390, 392, 38 Am. & Eng. Corp. Cas. 333; Exter v. Sawyer, 146 Mo. 302, 321-322, 47 S. W. 951, 956. Oregon. — ^WiUs v. Nehalem Coal Co., 52 Or. 70, 76-77, 96 Pac. 528, 531. Wisconsin. — Milwaukee Cold Stor- age Co. V. Dexter, 99 Wis. 214, 74 N. W. 976, 40 L. R. A. 837; Pittsburg Mining Co. v. Spooner, 74 190 THE LAW OF PROMOTERS. a competent and independent board of directors ^'^ so that they may exercise an independent judgment as to the advisability of making the purchase, or else to every subscriber ®^ so that each subscriber may, with knowledge of the facts, decide for himself whether or not he desires to come in. If the promoter sells his own property to the corporation with- out a sufficient disclosure of his interest in the transaction, neither the fact that no fraud or injustice was intended,^^ nor the fact that the price at which the property was sold to the corporation was fair and reasonable,^^ constitutes a defense to its complaint. The promoter must also, it has been held, in any event satisfy Wis. 307, 42 N. W. 259, 17 Am. St. R. 149, 24 Am. & Eng. Corp. Cas. 1. United Kingdom and Colonies. — ^ew Sombrero Phosphate Co. v. Erlanger, L. R. 5 Oh. Div. 73, 118, 25 W. R. 436, affirmed, sub nom. Erlanger v. New Sombrero Phos- phate Co., L. R. 3 App. Cas. 1218, 1236, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65; In re Cape Breton Co., L. R. 29 Ch. D. 795, affirmed, suh nom. Bentinek v. Fenn, L. R. 12 App. Cas. 652. Cf. Heckscher v. Edenborn, 131 N. Y. App. Div. 253, 258, 115 Supp. 673, followed, 137 N. Y. App. Div. 899, 122 Supp. 1131, which is, how- ever, reversed, 203 N. Y. 210, 96 N. E. 441. 50. See post, §§ 109, 110, 119. 51. See post, §§ 109, 111, 119. 52. Erlanger v. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 1256, 6 Eng. Rul. Cas., 777, 39 L. T. N. S. 269, 27 W. R. 65; La- gunas Nitrate Co. v. Lagunas Syndi- cate, 1899, 2 Oh. Div. 392, 461-^62, by Rigby, L. J., who dissented from his associates upon the decisive points of the case. 53. Lagunas Nitrate Co. v. La- gunas Syndicate, 1899, 2 Ch. Div. 392, 450, 451, per Rigby, L. J., who dissented from his associates on the decisive points of the case. The fact that the property was actually worth the price at which it was sold to the corporation would, in case the corporation sued for damages, limit its recovery to nominal damages. See Bentinek v. Fenn, L. R. 12 App. Cas. 652, 659, 661, 662, affirming. In re Cape Breton Co., L. R. 29 Ch. D. 795, affirming, L. R. 26 Ch. D. 221. Quoted in Milwaukee Cold Storage Co. v. Dexter, 99 Wis. 214, 230, 74 N. W. 976, 40 L. R. A. 837, 842. The burden of proof is, in such case, upon the corporation to show that damages were In fact suffered. Bentinek v. Fenn, supra, at page 659. And see Continental Securities Co. V. Belmont, 83 N. Y. Misc. 340, 144 Supp. 801, affirmed, 168 N. Y. App. Div. 483, 154 Supp. 54. SECRET PROFITS. 191 himself that the property he sells to the corporation, is, at the time of its sale, reasonably worth the price which he obtains from the corporation therefor.®* In Jenkins v, Bradley,^® the promoters in good faith, and with- out concealment, conveyed to the corporation by quit claim deeds, certain property the title to which was afterwards found to be in part defective. They were treated by the court as having paid upon the shares issued to them in payment for the property, only the sum represented by the value of the property to which they had transferred good title, and made to pay in cash the balance of the price at which they received the shares. This decision was 54. New Sombrero Phosphate Co. V. Erlanger, L. R. 5 Ch. Div. 73, 97, 25 W. R. 436, affirmed, L. R. 3 App. Cas. 1218, 6 Eng. Rul. Oas. 777, 39 L. T. N. S. 269, 27 W. R. 65 ; In re Hess Manufacturing Co., 23 Can. S. C. 644, 657-658, 667-668; Lagunas Nitrate Co. v. Lagunas Syndicate, 1899, 2 Oh. Div. 392, 410-411. And see Weber v. Nichols, 75 N. J. Eq. 117, 75 Atl. 997. See also Tooker v. National Sugar Refining Co., 80 N. J. Eq. 305, 314, 84 Atl. 10, holding that value added by the combination of the control of rival plants cannot be considered "property" within the meaning of the New Jersey Corporation Laws, citing See v. Heppenheimer, 69 N. J. Eq. 36, 42, 61 Atl. 843. It should be noted that while the cost of the property to the promoters does not directly concern the cor- poration, or afCect the validity of the transaction, the fact that the property was purchased by the pro- moters a short time before at a price very much smaller than the price charged to the corporation, has a very material bearing upon the question of the good faith of the pro- moters, and upon the question whether the property was actually worth the price at which it was transferred to the corporation. Wills V. Nehalem Coal Co., 52 Or. 70, 79-80, 96 Pac. 528, 532 ; Downey V. Finucane, 205 N. T. 251, 98 N. E. 391, 40 L. R. A. N. S. 307; Cham- berlayne on the Modern Law of Evidence, §§ 2159 and 2175c. Such discrepancy in price is of course open to explanation. See Milwaukee Cold Storage Co. v. Dexter, 99 Wis. 214, 227-228, 74 N. W. 976, 40 L. R. A. 837, 841; Ben- tinck v. Fenn, L. R. 12 App. Cas. 652, 659-660, affirming. In re Cape Breton Co., L. R. 29 Ch. Div. 795, affirming, L. R. 26 Ch. Div. 221. 55. 104 Wis. 540, 80 N. W. 1025. The court held further that the promoters could not, by surrender- ing to the corporation the shares re- ceived in payment for the interest to which they did not have good title, relieve themselves from fur- ther liability. 192 THE LAW OF PROMOTERS. put upon the ground that while a purchaser, in the absence of warranty, ordinarily assumes all risks as to the title of real prop- erty, yet when the grantors occupy a fiduciary relation to the grantee, and the parties have acted in ignorance of, or under a mistake as to, their antecedent legal rights, a court of equity may grant relief. § 103. Necessity of determining whether promoter acquired property before, or after, he entered upon the rela- tion of promoter to the corporation. A sale by the promoter to the corporation without a disclosure of his interest is, as has been shown in preceding sections, unlawful, whether the promoter acquired the property before or after he entered upon the relation of promoter to the corporation. When, however, it is said that the promoter jn the one case takes a secret profit, and in the other unlawfully sells his property to the cor- poration, the distinction is by no means one of words. The ex- tent of the disclosure to be made to the corporation,^® the reme- dies to be pursued by it,®'^ and the measure of damages when money relief is sought,®® all depend upon the question whether the pro- moter made his purchase at a time when he was already subject to the fiduciary relation, or whether he acquired the property before he became a promoter. If the promoters acquired their property before they entered upon the fiduciary relation of promoters to the corporation, it is quite immaterial whether they acquired the property just before they entered upon that relation, or whether they had owned it for thirty years.®* The substantial rights of the parties may, there- fore, depend upon the determination of the precise moment at which the promoters became such, and the precise moment at which they acquired the property under consideration. The circum- 56. See post, § 115. 59. In re Hess Mfg. Co., 23 Can. 57. See post, § 161. Sup. Ct. 644, 657, and see Gover's 58. See post, § 264. Case, L. R. 1 Ch. Div. 182, 192. SECRET PROFITS. 193 stances which determine the commencement of the relation of pro- moter to the corporation have already been considered.®" § 104. What is deemed acquisition of property. When it has in any particular case been determined at what moment the relation of promoter to the corporation had its in- ception, there remains for determination the question whether the promoter became the owner of the property sold to the corpora- tion, before or after that moment. It is not, in order that he may be considered to have become the owner of the property before he entered upon the relation of promoter to the corporation, neces- sary that he should before that time have actually acquired the legal title. The complete equitable title is, of course, sufficient, and the promoter will be considered to have owned the property before he became a promoter, if he, when he entered upon that re- lation, held an enforceable contract for its purchase.®^ The mere holding of an option upon the property does not, however, entitle the promoter to be considered the owner thereof.®^ The promoter 60. See ante, §§ 15-18. W. R. 65, afl5rming, New Sombrero 61. California. — Burbank v. Den- Phosphate Co. v. Erlanger, L. R. 5 nis, 101 Oal. 90, 35 Pac. 444. Ch. Div. 73, 25 W. R. 436; Gover's New Jersey.— Woodbuvy Heights Case, L. R. 1 Ch. Div. 182, 187-188, Land Co. v. Loudenslager, 55 N. J. affirming, L. R. 20 Eq. 114. Eq. 78, 88, 35 Atl. 436, affirmed, 56 That the promoters never did take N. J. Eq. 411, 41 Atl. 1115, but modi- title, but caused the deeds to run fied, 58 N. J. Eq. 556, 43 Atl. 671. from the original vendor directly to Pennsylvania. — McElhenny's Ap- the corporation, is immaterial. Mc- peal, 61 Pa. 188, 195. Elhenny's Appeal, 61 Pa. 188. Wisconsin. — ^Milwaukee Cold Stor- An unenforceable contract subse- age Co. V. Dexter, 99 Wis. 214, 227, quently performed may be sufficient. 74 N. W. 976, 40 L. R. A. 887, 841. See Omnium Electric Palaces, Ltd., United Kingdom and Colonies. — v. Baines, 1914,' 1 Ch. Div. 332, 82 Ladywell Mining Co. v. Brookes, L. L. J. Ch. N. S. 519, 109 L. T. N. S. R. 35 Ch. Div. 400, 409, 17 Am. & 206. Eng. Corp. Cas. 22 ; Erlanger v. New 62. Federal. — Yeiser v. United Sombrero Phosphate Co., L. R. 3 States Board & Paper Co., 107 Fed. App. Cas. 1218, 1234-1235, 6 Eng. Rep. 340, 345, 347, 46 C. C. A. 567, Rul. Cas. 777, 39 L. T. N. S. 269, 27 52 L. R. A. 724. 194 THE LAW OF PROMOTERS. has, whether he holds a contract or an option for the purchase of the property, an equal right and power to acquire the legal title. The distinction between the two cases lies in the fact that the promoter is in the one case bound in any event to complete his pur- chase, while he may in the other complete the purchase if the corporation is formed, or allow the option to lapse if the promo- tion proves abortive. He assumes when he makes a contract, a personal responsibility for the completion of the purchase, and becomes in practical effect the owner of the property. He is when he takes an option, free to abandon the venture at any time.*^ If the option were itself a thing of substantial value, and the CaUfomia. — Burbank v. Dennis, 101 Gal. 90, 98, 35 Pac. 444 ; Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 49, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1128. Indiana. — Parker v. Boyle, 178 Ind. 560, 99 N. E. 986. 7otco.^Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa, 396, 398, 107 N. W. 629, 630, 119 Am. St. R. 564. Missouri. — Exter v. Sawyer, 146 Mo. 302, 321, 47 S. W. 951, 956. New Jersey. — ^Woodbury Heights Land Co. v. Loudenslager, 55 N. J. Eq. 78, 87-88, 35 Atl. 436, affirmed, 56 N. J. Eq. 411, 41 Atl. 1115, but modified, 58 N. J. Eq. 556, 43 Atl. 671. New York. — |)Iidwood Park Co. v. Baker, 128 Supp. 954, affirmed, 144 App. Div. 939, 129 Supp. 1135, af- firmed, 207 N. Y. 675, 100 K E. 1130. Wisconsin. — Pietsch v. Mllbrath, 123 Wis. 647, 101 N. W. 388, 102 N. W. 342, 68 L. R. A. 945, 107 Am. St Rep. 1017. See note to Lomita Land & Water Co. V. Robinson, 18 L. R. A. N. S. 1114. The contrary might appear from the language of the court in Old Dominion Copper, .etc., Co. v. Bige- low, 203 Mass. 159, 202, 89 N. E. 193, 40 L. R. A. N. S. 314, but an ex- amination of the earlier decision in the same case (188 Mass. 315, 317, 321, 74 N. E. 653, 108 Am. St. Rep. 479), there relied on, shows that title to the property had been, ac- quired by the promoters before the corporation was organized. Hut- chinson V. Simpson, 92 N. X. App. Div. 382, 87 Supp. 369, contains nothing to the contrary. The de- cision in that case rested upon the ground that the promoters had made a complete disclosure of their posi- tion. See, however, Richardson v. Graham, 45 W. Va. 134, 30 S. B. 92, also Mississippi Lumber Co. v. Joice, 176 111. App. 110, 118. 63. See Woodbury Heights Land Co. v. Loudenslager, 55 N. J. Eq. 78, 88, 35 Atl. 436, affirmed, 56 N. J. Eq. 411, 41 Atl. 1115, but modified, 58 N. J. Eq. 556, 43 Atl. 671. SECRET PROFITS. ]^95 corporation purchased and paid the promoter, not for the prop- erty, but for his option thereon, the option might be considered property which the promoter had a right to sell to the corporation regardless of its cost to him.®* § 105. Property acquired by gift. In Yale Gas Stove Co. v. Wilcox,*" one Foley, being the owner of certain patents which he desired to dispose of, offered to sell them to the defendant Wilcox for the sum of $2500. Wilcox pro- posed that the patents be sold to a company to be organized for the purpose and that the proceeds of the sale be divided between Foley and Wilcox. An agreement was thereupon prepared by which Wilcox agreed to organize a company to purchase the patents for the sum of $3,000 in cash and $5,000 in shares, and Foley agreed with Wilcox, that, upon the execution of the cove- nants therein described Foley should assign to Wilcox a half in- terest in the letters patent and one-half of the cash and shares to be received from the corporation in payment therefor. The scheme was carried out, the corporation organized, and the patents transferred, without disclosing Wilcox's interest. The court held that the original arrangement between Wilcox and Foley did not contemplate the acquisition by Wilcox of any interest in the patents, but merely the organization of the corporation, the sale to it of the patents, and a division of the proceeds of the sale, and that the written contract was entered into only for the pur- pose of carrying out this plan. The court refused to treat Wilcox as having become the owner of an interest in the patents before he entered upon the promotion of the corporation. If the promoter, before the promotion is undertaken, becomes 64. See the possible suggestion in Richardson v. Graham, 45 W. Va. Maxwell v.McWilliams, 145 111. App. 134, 140, 30 S. E. 92. 155, 168-169; Chambers v. Mitt- 65. 64 Conn. 101, 121-122, 29 AtL nacht, 23 S. D. 449, 122 N. W. 434; 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. Cas. 647. 1 gg THE LAW OF PROMOTERS. the actual owner of property which the corporation is organized to purchase, it is obviously immaterial whether he acquires such property by gift or purchase. If the owner of property, before the promotion, makes a boiM fide gift of an undivided interest therein to the person who subsequently promotes the corporation, the validity of the gift must be recognized and the promoter treated as the actual owner of the undivided interest,^® Where, however, the gift is made only upon condition of the organization of the corporation and the purchase of the property by it, the transaction is a mere cloak for the payment of a secret profit, and the courts, looking through the color of the transaction, refuse to consider the promoter as having acquired an interest in the prop- erty before he undertook the promotion of the company .^'^ § 106. Promoter's rights under contract afterward modified. In Plaquemines Tropical Fruit Co. v. Buck,®* the defendant Buck, having procured from one White a contract for the pur- chase of certain lands in Louisiana, proceeded to organize a cor- poration to take over the lands. White refused to carry out his contract and Buck commenced suit for specific performance. The suit was compromised by an agreement under which the original contract was amended to cover additional lands, to increase the purchase price from $25,000 to $27,000, and to reserve to White the right to cut willows for one year. The court was of the opin- ion that Buck had originally purchased the property for the cor- poration, but held that, assuming the contrary, the modifications of the original contract constituted a new contract ; that this was entered into by Buck as agent of the company and that he could 66. Highway Advertising Co. v. don, 10 H. L. Cas. 26, 51-53, 11 Eng. Ellis, 7 Ont. L. R. 504, 511. See Rep. 934. post, § 115. Cf. Warren-Bhret Co. v. Franklin- 67. Tale Gas Stove Co. v. Wilcox, ville Ice Mfg. Co., 198 Pa. 412, 48 64 Conn. 101, 2? Atl. 303, 25 L. R. A. Atl. 1119. 90, 42 Am. St. R. 159, 47 Am. & Eng. 68. 52 N. J. Eq. 219, 239, 27 Atl. Corp. Cas. 647 ; Bland's Case, 1893, 2 1094, 44 Am. & Eng. Corp. Cas. 686. Ch. D. 612 ; Tyrrell v. Bank of Lon- SECRET PROFITS. 197 not take any profit upon the sale to the corporation. The decision was correct upon the particular facts. The corporation had, before the modified contract between Buck and White was entered into, already agreed to purchase the property. The contract was modified, not only as to the lands to be conveyed and the price to be paid therefor, but also by inserting the reservation of the right to cut willows. There was no evidence as to the value of this right, but it unquestionably placed an additional burden upon the land. When Buck consented to a modification of the original contract which rendered it impossible for him to sell the property to the corporation upon the terms previously agreed upon, he acted as agent for the corporation and was unquestionably bound to look solely to its interests, and he could not make the modified contract for his own account and sell the property to the corporation at an advance. It seems clear on principle that a promoter who had, before he entered upon the fiduciary relation, made a contract for the pur- chase of the property which he has agreed to sell to the corpora- tion, may modify his contract for the purchase of the property without thereby in any way affecting his rights as against the corporation, provided that he can and does carry out his contract with the corporation in exact accordance with its terms. § 107. Expired options. It was held in Gillett v. Dodge *^ that the promoter might, after an option held by the company had expired, purchase for himself the property covered thereby and, having done so, could not be compelled to convey it to the corporation. The transaction under consideration was in all respects fair and above board, and the decision undoubtedly correct. A different question would have arisen had the promoter, after acquiring the property, sold it to the corporation upon terms that would, unknown to his associates, have yielded him a profit. The court would in such case un- 69. 50 Or. 552, 89 Pac. 741. 198 THE LAW OF PROMOTERS. doubtedly have held that he acquired the property after he had entered upon the relation of promoter to the corporation, and, unless the promotion had, when he made his purchase, been for the time being completely abandoned, have compelled him to ac- count to the corporation for any profits made on the resale. § 108. Promoter who acquired property before the commence- ment of relation sometimes treated as though he had acquired it thereafter. Although the promoter makes a contract to purchase, or even pays for the property sold to the corporation, before he enters upon the relation of promoter to the corporation, he will be sub- jected to the same liabilities as though he had made the purchase after he assumed that relation, if he represents that he acted for the corporation in making the purchase, or that he is turning in the property at its cost to him, or if concealing his interest he leads the company to believe that it is purchasing the property from his vendor.'"' 70. GaUfomia. — Burbank v. Den- Oil & Min. Co., 61 Pa. 202, 100 Am. nis, 101 Cal. 90, 35 Pac. 444. Dec. 628. IllmoiB. — Lyon v. Worcester, 49 Wisconsin. — Pittsburg Min. Co. v. 111. App. 639. Spooner, 74 Wis. 307, 42 N. W. 259, Missouri. — Wiano Land & Im- 17 Am. St. Rep. 149, 24 Am. & Bng. provement Co. v. Webster, 75 Mo. Corp. Gas. 1. App. 457. United Ki/ngAom and Colonies. — iVew Jersey. — ^Plaquemines Tropi- Foss v. Harbottle, 2 Hare 461, 489; cal Fruit Co. v. Buck, 52 N. J. Eq. Alexandra Oil & Dev. Co. v. Cook, 219, 235-287, 27 Atl. 1094, 44 Am. & 11 Ont. W. K. 1054. Eng. Corp. Cas. 686. , And see pcist, §§ 162, 264. New York. — Getty v. Devlin, 54 N. If the purchase of the promoter T. 403, 70 N. T. 504. is made on behalf of the corporation Ohio. — Second Nat'l Bank v. to be promoted, the latter is entitled Greenville S. P. S. F. P. Co., 23 to the full benefit thereof. See ante, Ohio C. C. 274, 280. § 16. Pennsylvania. — Simons v. Vulcan CHAPTER Vn. Of Lawfui, Pkomotee's Pkomts. Section 109. Introductory. 110. Disclosure to directors. 111. Disclosure to subscribers. 112. Nature of the disclosure. — Constructive notiee. 113. Waiver of disclosure. 114. Facts that must be disclosed. 115. Necessity of disclosing price paid by promoter. 116. The same subject. — ^Effect of independent board of directors. 117. Misrepresentations as to cost of property. 118. Ratification of promoter's profits. 119. Katiflcation by majority stockholders, or by directors^ 120. Profits where promoters themselves the sole subscribers. 121. The same subject. — Basis of the rule. 122. The same subject. — Dummy stockholders. 123. The same subject. — Effect of promoters' contract to sell shares. 124. Legality of promoters' profits where shares subsequently sold by subscription. 125. Effect of subsequent issue not contemplated at time of original transaction. 126. Effect of unsuccessful attempt to sell shares. 127. Effect of subsequent sale of shares donated to the treasury by promoters. 128. The Old Dominion Copper Company litigations. 129. The same subject. — Subsequent decisions. 130. The same subject. — Discussion. § 109. Introductory. Promoters' profits are not in themselves unlawful. It is not the taking of a profit, but the secrecy, that is the gist of the (199) 200 THE LAW OF PROMOTERS. wrong. Promoters' profits, in whatever amount, a,re quite proper if fairly disclosed.-' The Supreme Court of Massachusetts recently laid down four methods by which a promoter might, notwithstanding his fiduci- ary relation, render lawful and binding his personal transactions with the corporation. These methods the court stated as fol- lows: " (o) He (the promoter) may provide an independent board of officers in no respect directly or indirectly under his control, and make full disclosure to the corporation through them; (6) He may make a full disclosure of all material facts to each original subscriber of shares in the corporation; (c) He may procure a ratification of the contract, after disclosing its circumstances by vote of the stockholders of the completely es- tablished corporation; (d) He may be himself the real subscriber of all of the shares of the capital stock contemplated as a part of the promotion scheme." ^ The Supreme Court of the United States, in another litigation arising out of the same transaction, extended the fourth method stated by the Supreme Court of Massachusetts, to all cases where 1. Federal.— Ye is er v. U. S. Co., 52 Or. 70, 78-79, 96 Pac. 528, Board & Paper Co., 107 Fed. Rep. 531-532. 340, 344, 46 C. C. A. 567, 52 L. R. A. Wisconsin. — Spaulding v. North 724. Milwaukee Town Site Co., 106 Wis. Connecticut. — Tale Gas Stove Co. 481, 81 N. W. 1064. V. Wilcox, 64 Conn. 101, 122, 29 Atl. Wyoming. — Edwards v. Johnston, 303, 25 L. R. A. 90, 42 Am. St. Eep. — Wyo. — , 152 Pac. 273. 159, 47 Am. & Eng. Corp. Cas. 647. United Kingdom and Colonies.— Massachusetts. — 1 d Dominion In re Olympia, Ltd., 1898, 2 Ch. Dlv. Copper, etc., Co. v. Blgelow, 188 153, 174, affirmed, suh nom. Gluck- Mass. 315, 322, 74 N. E. 653, 108 Am. stein v. Barnes, 1900, App. Cas. 240 ; St. Rep. 479. Lagunas Nitrate Co. v. Lagunas New Jersey. — Arnold v. Searing, Syndicate, 1899, 2 Ch. Div. 392, 425, 78 N. J. Eq. 146, 158, 78 Atl. 762, 426. 767; Blgelow v. Old Dominion Cop- 2. Old Dominion Copper, etc., Co. per, etc., Co., 74 N. J. Eq. 457, 502, v. Blgelow, 203 Mass. 159, 178, 89 71 Atl. 153. N. E. 193, 40 L. R. A. N. S. 314. Oregon. — Wills v. Nehalem Coal LAWFUL PEOFITS. 201 the promoter is himself, at the time of the transaction in question, the sole subscriber for the shares of the corporation, and held that disclosure need not be made to those who are thereafter, though as a part of the opginal scheme, brought in as subscribers for the company's shares.^ The courts were in these cases considering the question of the legality of a promoter's sale of his own property to the corporation, but the rules stated apply with like effect to any profit taken by a promoter. All of these methods rest in their final analysis upon the same basis, — that of disclosure and acquiescence.* The burden of sus- taining the legality of the transaction rests in each case upon the promoter, and he must make certain, not only that one of the methods mentioned is strictly followed, but also that a proper, record thereof is made, so that proof may not be lacking in case he should ever be called to account.^ 3. Old Dominion Copper, etc., Co. V. Lewisohn, 210 U. S. 206, 212-217, 28 Sup. Ct. 634, 52 L. Ed. 1025. For a full discussion of the Old Do- minion Copper Co. litigations, see post, §§ 128-130. 4. See post, § 121. 5. Arizona. — Hughes v. Cadena DeCobre Min. Co., 13 Ariz. 52, 63, 108 Pac. 231, 235. Massachusetts. — Parker v. Nicker- son, 112 Mass. 195, 197-198. New Jersey. — Bigelow v. Old Do- minion Copper, etc., Co., 74 N. J. Bq. 457,/ 502, 71 Atl. 153. New York. — Colton Improvement Co. V. Rlchter, 26 Misc. 26, 30, 55 Supp. 486 ; Sage v. Culver, 147 N. Y. 241, 247, 41 N. E. 513; Smith v. bgilvle, 127 N. Y. 143, 148, 27 N. E. 807 ; Of. Heckscher v. Bdenborn, 131 App. Div. 253, 258, 260, 115 Supp. 673, followed, 137 App. Div. 899, 122 Supp. 1131, reversed, 203 N. Y. 210, 96 N. E. 441. United Kingdom and Colonies. — Erlanger v. New Sombrero Phos- phate Co., L. R. 3 App. Cas. 1218, 1230, 1277, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65 ; Dunne V. English, L. R. 18 Eq. 524; In re Darby, 1911, 1KB. 95, 103, 80 L. J. K. B. Div. 180. It is said in Bentinck v. Fenn (L. R. 12 App. Cas. 652, 661, see also 666 and 670, see also Archer's Cdse, 1892, 1 Ch. Div. 322, 341-342), that there is a distinction between an ac- tion for the rescission of the pro- moter's sale to the corporation, and an action under the 165th section of the Companies Act of 1862 based upon the misfeasance of a director. In the first case the burden of proof is upon the fiduciary, in the second, upon the complainant. Sec- 202 THE LAW OF PROMOTERS. § 110. Disclosure to directors. The promoter may lawfully sell his own property to the corpora- tion he is promoting, if he provides it with a competent board of directors wholly free from his control or influence, and makes to such board of directors a full disclosure of his interest in the property, leaving it to the board to determine whether the pur- chase shall be made.® A disclosure to the directors is ineffectual if the promoters are tion 165 of the Companies Act of 1862 provided tliat "where, in the course of the winding up of any Company under this Act, it appears that any past or present Director, Manager, Official or other Liquida- tor or any Officer of such Company, has misapplied or retained in his own hands or become liable or ac- countable for any monies of the Company, or been guilty of any mis- feasance or breach of trust in re- lation to the Company, the Court may ♦ * * examine into the conduct of such Director, Manager or other Officer, and compel him to repay any monies so misapplied or retained, or for which he has become liable or accountable * * • " 6. Connecticut. — Tale Gas Stove Co. V. Wilcox, 64 Conn. 101, 120, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. Cas. 647. Indiana. — Parker v. Boyle, 178 Ind. 560, 99 N. E. 986. Iowa. — CafCee v. Berkley, 141 Iowa 344, 118 N. W. 267. New Jersey. — Bigelow v. Old Do- minion Copper, etc., Co., 74 N. J. Eq. 457, 502, 505-506, 71 Atl. 153; Pla- quemines Tropical Fruit Co. v. Buck, 52 N. J. Eq. 219, 230, 27 Atl. 1094, 44 Am. & Eng. Corp. Cas. 686; Woodbury Heights Land Co. v. Loudenslager, 55 N. J. Eq. 78, 91, 35 Atl. 436, (affirmed, 56 N. J. Eq. 411, 41 Atl. 1115, but modified on an- other point on reargument, 58 N. J. Eq. 556, 43 Atl. 671) ; See v. Hep- penheimer, 69 N. J. Eq. 36, 72, 61 Atl. 843. Oregon. — Wills v. Nehalem Coal Co., 52 Or. 70, 78-79, 96 Pac. 528, 531-532. United Kingdom and Colonies. — Erlanger v. New Sombrero Phos- phate Co., L. R. 3 App. Cas. 1218, 1236, (see also pp. 1229 and 1260), 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65 ; Bentinck y. Fenn, L. R. 12 App. Cas. 652, 670-671 ; In re Olympia, Ltd., 1898, 2 Ch. Div. 153, 167, 173, affirmed, suh nom. Gluckstein v. Barnes, 1900 App. Cas. 240. See note to Lomita Land & Water Co. V. Robinson, 18 L. R. A. N. S. 1108-1109. As to the liability of the directors for negligence or fraud, see In re Brazilian Rubber Plantations and Estates, Ltd., 1911, 1 Ch. Div. 425. LAWFUL PROFITS. 203 themselves the directors/ or if, the promoter being a corporation, the directors of the promoting company are also the directors of the company promoted.^ The disclosure is of no avail if the di- rectors are in any manner dominated by the promoter, or under his control,® if the directors are qualified by shares belonging to the promoter,^" or receive their qualifying shares as a gift from the promoter,^ ^ or if they purchase their qualifying shares under an agreement of the promoter to indemnify them against loss thereon.^^ The disclosure is likewise ineffectual if the promoter has promised the directors a bonus in the shares of the new com- 7. Old Dominion Copper, etc., Co. V. Bigelow, 203 Mass. 159, 188-189, 89 N. E. 193, 40 L. R. A. N. S. 314; Arnold v. Searing, 78 N. J. Bq. 146, 158, 78 Atl. 762, 767; Gluckstein v. Barnes, 1900, App. Cas. 240, 247, 249, 259, affirming, In re Olympia, Ltd., 1898, 2 Ch. Div. 153, 167-168, 173, In re British Seamless Paper Box Co., L. R. 17 Ch. Div. 467, 471 ; In re Leeds & Hanley Theatres of Varieties, 1902, 2 Ch. Div. 809, 824 ; Alexandra Oil & Dev. Co. v. Cook, 11 Ont. W. R. 1054, 1060; Bennett V. Havelock E. L. & P. Co., 16 Ont. Week. Rep. 19. 8. See In re Leeds & Hanley Theatres of Varieties, 1902, 2 Ch. Div. 809, 831. 9. Bigelow V. Old Dominion Cop- per, etc., Co., 74 N. J. Eq. 457, 501- 502, 505-506, 71 Atl. 153; See v. Heppenheimer, 69 N. J. Bq. 36, 72, 75-76, 61 Atl. 843; Arnold v. Sear- ing, 78 N. J. Eq. 146, 159, 78 Atl. 762, 767; Rice's Appeal, 79 Pa. 168, 198; Pietsch v. Milbrath, 123 Wis. 647, 657, 101 N. W. 388, 392, 102 N. W. 342, 68 L. R. A. 945, 107 Am. St. Rep. 1017. Erlanger v. New Sombrero Phos- phate Co., L. R. 3 App. Cas. 1218, 1256-1257, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65; In re Leeds & Hanley Theatres of Varie- ties, 1902, 2 Ch. Div. 809, 823-824, 831 ; Stratford Fuel Ice C. & C. Co. V. Mooney, 21 Ont. L. R. 426. 10. Erlanger v. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 1228, 1246, 1256, 1260, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 2T W. R. 65; In re Leeds & Hanley Theatres of Varieties, 1902, 2 Ch. Div. 809, 828. 11. See In re Leeds & Hanley Theatres of Varieties, 1902, 2 Ch. Div. 809; Twycross v. Grant, L. R. 2 C. P. D. 469, 493, et aeq.; Erlanger V. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 1228, 1256, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65. See Derry v. Peek, L. R. 14 App. Cas. 337, 345- 346. 12. Archer's Case, 1892, 1 Ch. Div. 322, 341. See cmte, § 94. 204 THE LAW OF PROMOTERS. pany,^* or has given or promised them any inducement beyond their prescribed directors' fees.^* It should be noted that the statutes of the .various states pro- viding that stock may be paid for in property and that the judg- ment of the directors as to the value of such property shall be con- clusive in the absence of fraud, have no application to the ques- tion of the legality of the promoter's profits.^® The fact that one of the directors is himself the owner of, or to some extent interested in, the property to be sold to the corpo- ration, renders the sale voidable at the election of the company, if the interested director assumes to act for the corporation, or if his presence is necessary to constitute a quorum at the meeting at which the resolution to purchase is adopted,-'® or if his interest is concealed from his fellow directors.^'' Whether the sale is voidable if the director discloses his interest and refrains from acting in the transaction or in any way influenc- ing his fellow directors, is a question upon which the authorities are not in accord. Some authorities hold that the transaction is valid if the presence of the interested director is not neccessary to form a quorum,^^ his vote is not needed to pass the resolution, and his fellow directors with entire independence and with full 13. Plaquemines Tropical Fruit Ohio C. C. 198, 213-214, whicb was a Co. V. Buck, 52 N. J. Eq. 219, 240, case of actual fraud. 27 Atl. 1094, 44 Am. & Eng. Corp. 17. Spaulding v. North Milwau- Cas. 686. kee Town Site Co., 106 Wis. 481, 14. See McKay's Case, L. R. 2 493, 81 N. W. 1064, 1068; Bentinck Ch. Div. 1, 5 ; Emma Silver Mining v. Fenn, Lr E. 12 App. Cas. 652, Co. V. Grant, L. R. 11 Ch. Div. 918. 658, 661, 670, 671, affirming, In re 15. Mason v. Carrothers, 105 Me. Cape Breton Co., L. R. 29 Ch. D. 392, 403-404, 74 Atl. 1030, 1035. 795, afTg, L. R. 26 Ch. Div. 221. But see post, § 118, note. See also 18. The vote of the directors is a §§ 100, 165, 270. nullity if there are not sufficient 16. Plaquemines Tropical Fruit disinterested directors to form a Co. V. Buck, 52 N. J. Eq. 219, 238, quorum-. Federal Life Ins. Co. v. 27 Atl. 1094, 44 Am. & Eng. Corp. Griffin, 173 111. App. 5, 18. And see Cas. 686. See Shawnee Commercial cases cited in following note. & Savings Bank Co. v. Miller, 24 LAWFUL PROFITS. 205 knowledge of the facts, pass upon the question of the purchase.^' Other authorities hold that the law wUl not attempt to measure the influence of a director with his associates; that the value of the rule declaring voidable transactions in which any director has an individual interest, lies in its rigidity ; and that the sale to the corporation is voidable at its election, unless ratified by the stock-, holders, if a single director has a personal interest, even though he absents himself from the meeting, and scrupulously abstains from influencing his fellows.*" 19. Porter v. Lassen County Land & Cattle Co., 127 Cal. 261, 59 Pac. 563; Griffith v. Blackwater Boom & Lumber Co., 55 W. Va. 604, 48 S. E. 442, 69 L. R. A. 124, (citing Clark & Marshall on Cor- porations, § 761c, and 10 Cyc. of Law & Proc, 794, 795); Erlanger V. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 1233, 1262, 1280, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65, affirming, ■New Sombrero Phosphate Co. v. Erlanger, L. R. 5 Ch. Div. 73, 112- 113, 25 W. R. 436 ; Bentinck v. Fenn, L. R. 12 App. Cas. 652, 658, 661, 671. Cook on Corporations (7th ed.), § 652. See note to Pittsburg Min. Co. v. Spooner, 42 N. W. 259, 265. Some cases, without discussing the other limitations referred to in the text, state that a director may sell his property to the corporation if he discloses all the facts and the transaction is free from fraud or collusion. Stewart v. St. Louis F. S. & W. R. Co., 41 Fed. Rep. 736, 738; Babcock v. Farwell, 146 111. App. 307, 344, (aff'd, 245 111. 14, 91 N. E. 683, 137 Am. St. Rep. 284, 19 Am. & Eng. Ann. Cas. 74) ; St. Louis F. S. & W. R. Co. v. Tier- nan, 37 Kan. 606, 632, 15 Pac. 544, 559. 20. U. S. Steel Corporation v. Hodge, 64 N. J. Eq. 807, 813, 54 Atl. 1, 60 L. R. A. 742, and eases cited ; Tooker v. National Sugar Re- fining Co., 80 N. J. Eq. 305, 313, 84 Atl. 10; Stewart v. Lehigh Valley R. R. Co., 38 N. J. Law, 505, 523, and cases cited, holding that it is a breach of the director's duty to the stockholders, for him to abstain from acting as a director in the transaction. Munson v. Syracuse G. & C. R. R. Co., 103 N. X. 58, 73-75, 8 N. E. 355, 29 Am. & Eng. R. R. Cas. 377, and cases cited; Cumberland Coal Co. v. Sherman, 30 Barb. (N. Y.) 553, 572-573; Col- ton Improvement Co. v. Richter, 26 N. Y. Misc. 26, 31, 55 Supp. 486; Metropolitan El. R. R. Co. v. Manhattan R. R. Co., 11 Daly (N. Y.) 373, 517, 14 Abb. N. C. 103, 287, et seq.; Aberdeen Ry. Co. v. Blakie, 1 Macq. 461, 471, 473, 2 Eq. 1281; Scottish Pac. Coast Min. Co., Ltd., V. Falkner, Bell & Co., ^ess. Cas., 15 Rettie 290, 305-306. 206 THE LAW OF PROMOTERS. It is held in Scottish Pacific Coast Mining Co., Ltd., v. Falkner, Bell & Co.,^^ that if the promoter is himself a director, the fact that a committee of directors of which he is not a member is ap- pointed to determine whether the company shall be organized and the transaction consummated does not, though the facts are fully disclosed to the committee, alter the situation or legalize a com- mision paid to the promoter. Though the transaction in which the promoter is interested be acted upon by a board of directors free from his control or influ- ence, the transaction is not binding on the corporation if the interest of the promoter and aU the facts bearing theron, are not fully disclosed to such board,^^ or if any misstatement in relation thereto is made to the subscribers for the company's shares.*^ A question may well arise as to whether the consent of an inde- pendent board of directors, though given with knowledge of all the facts, would in every case be effectual to render the promoter's profits lawful. The directors are bound to act, and have power to act, only in the interest of the corporation, and not against it.^* If a promoter, being the owner of the property which the corpo- ration is organized to acquire, discloses all the facts to, and deals at arms' length with, an independent board of directors, such See note to Pittsburg Mln. Co. v. phate Co., L. R. 3 App. Cas. 1218, Spooner, 42 N. W. 259, 262. 1229, 1236, 6 Eng. Rul. Cas. 77T, 39 See also 21 Am. & Eng. Ency. of L. T. N. S. 269, 27 W. R. 65; La- Law, 2nd. ed., 898. gunas Nitrate Co. v. Lagunas Syndl- 21. Sess. Cas., 15 Rettie 290, 305- cate, 1899, 2 Cli. Div. 392, 445-446; 306. Alexandra Oil & Dev. Co. v. Cook, 22. Yale Gas Stove Co. v. Wilcox, 11 Ont. W. R. 1054, 1060, and see 64 Conn. 101, 120, 29 Atl. 303, 25 Stratford Fuel Ice C. & C. Co. v. L. R. A. 90, 42 Am. St. Rep. 159, Mooney, 21 Ont. L. R. 426. 47 Am. & Eng. Corp. Cas. 647; 23. Burbank v. Dennis, 101 Cal. South Joplin , Land Co. v. Case, 90, 101, 35 Pac. 444, 448 ; Simons 104 Mo. 572, 579, 16 S. W. 390, 393, v. Vulcan Oil & Mining Co., 61 Pa. 38 Am. & Eng. Corp. Cas. 333 ; Wills 202, 221, 100 Am. Dec. 628. V. Nehalem Coal Co., 52 Or. 70, 76, 24. Simons v. Vulcan Oil & Min- 96 Pac. 528, 531-532. ing Co., 61 Pa. 202, 221, 100 Am. Erlanger v. New Sombrero Phos- Dee. 628. Cited In Pittsburg Min- LAWFUL PROFITS. 207 board of directors has power to decide whether the purchase shall be made, and its action is binding upon the corporation. If, how- ever, the promoter has nothing to offer or withhold from the cor- poration, if the property on the resale of which he asks a profit was acquired by him under such circumstances that a conveyance at cost might be Compelled by the corporation, it is the duty of the board of directors to insist upon such conveyance, and the legal effect of their consent to pay a profit to the promoter is open to question.^^ If the promoter has taken a commission from the vendor under circumstances which render him liable to ac- count therefor, or if he seeks from the directors payment in excess of reasonable compensation for his services, it is the duty of the directors to insist upon the rights of the corporation, and the binding effect of their consent to the retention or payment of the promoter's profit is doubtful.^® The directors may, of course, compromise a debatable claim, or even make reasonable concessions to buy peace where the claim is without merit. The courts will, however, be quick to see through any cloak for the payment of an unlawful promoter's profit, and if necessary set aside the action of the directors. The legalization of promoters' profits by means of a disclosure to an independent board of directors, appears upon careful con- sideration to be a matter of theory rather than of practice. The cases must indeed be rare where a promoter, having acquired prop- erty or the control thereof, is willing to go to the labor and ex- pense of organizing a corpojration to take it off his hands, and then, without any inquiry as to their views in the matter, to select a board of directors quite free from his control to decide upon the advisability of consummating the transaction. One can readily ing Co. V. Spooner, 74 Wis. 307, 628, and see post, § 119, as to when 321, 42 N. W. 259, 262, 17 Am. St. the corporation can compel a con- Rep. 149, 24 Am. & Eng Corp. veyance see ante, § 74. See post, § Cas. 1. 161n. 25. Simons v. Vulcan Oil & Min. 26. See post, § 119. Co., 61 Pa. 202, 221, 100 Am. Dec. 208 THE LAW OF PROMOTERS. conceive of a promoter who organizes a corporation to take over his property, disclosing to every subscriber the exact circum- stances of the transaction, thus enabling each subscriber to de- cide for himself whether he wishes to come in; but the situation would be somewhat extraordinary in which a promoter, having organized the corporation and obtained the necessary subscribers to its shares, would be willing to leave the consummation of his plan to the judgment of a board of directors over which he exer- cises no control. No such instance seems to be found in the re- ported cases. § 111. Disclosure to subscribers. A sale to the corporation of the promoter's property, or the retention by him of a personal profit upon the promotion in what- ever manner derived, may be made lawful and binding upon the corporation, by a full and fair disclosure of the facts to, and the acquiescence of, all the subscribers for the company's shares. ^'^ An 27. Califorma. — Garretson v. Pa- etc., Co., 74 N. J. Eq. 457, 502, 506, cific Crude Oil Co., 146 Cal. 184, 79 71 Atl. 153. Pac. 838. New York. — Colton Improvement Indiana. — Parker v. Boyle, 178 Co. v. Richter, 26 Misc. 26, 31, 55 Ind. 560, 99 N. E. 986. Supp. 486. Massachusetts. — Hayward v. Lee- Pennsylvania. — Rice's Appeal, 79 son, 176 Mass. 310, 320, 57 N. E. Pa. 168, 198 ; Short v. Stevenson, 63 656, 49 L. R. A. 725; Old Dominion Pa. 95. Copper, etc., Co. v. Bigelow, 188 Wisconsin. — Spaulding v. North Mass. 315, 325, 74 N. E. 653, 108 Milwaukee Town Site Co., 106 Wis. Am. St. Rep. 479. 481, 493, 81 N. W. 1064, 1066. Minnesota. — Selover v. Isle Har- United Kingdom and Colonies. — bor Land Co., 91 Minn. 451,. 98 N. W. In re Innes & Co., Ltd., 1903, 2 Ch. 344, 100 Minn. 253, 111 N. W. 155; Div. 254, 260, 266; Erlanger v. New Advance Realty Co. v. Nichols, 126 Sombrero Phosphate Co., L. R. 3 Minn. 267, 148 N. W. 65. App. Cas. 1218, 1245, 1262, 1280, 6 Mowtomo.— Fitzpatrick v. O'Neill, Eng. Rul. Cas. 777, 39 L. T. N. S. 43 Mont. 552, 118 Pac. 273, Am. & 269, 27 W. R. 65, afE'g New , Som- Eng. Ann. Cas., 1912, C. 296. brero Phosphate Co. v. Erlanger, L. New Jersey.— Arnold v. Searing, R. 5 Ch. Div. 73, 113, 25 W. R. 436; 73 N. J. Eq. 262, 265, 67 Atl. 831; Lagunas Nitrate Co. v. Lagunas Bigelow V. Old Dominion Copper, Syndicate, 1899, 2 Ch. Div. 392, 409, LAWFUL PROFITS. 209 independent board of directors is in such case unnecessary.^® A subscriber in possession of the facts may decide for himself whether or not he wishes to come into the company, and if all the subscribers, with full knowledge, decide to join in the venture, their unanimous consent binds the corporation.^^ 426, 462, (Rigby, L. J., dissenting.) Larocque v. Beauchemin, 1897 App. Cas. 358, 364. See note to Lomita Land & Water Co. V. Robinson, 18 L. R. A. N. S. 1108-1109. The burden of proving the dis- closure is upon the promoters. Hughes V. Cadena DeOobre Min. Co., 13 Ariz. 52, 63, 108 Pac. 231, 235, and see cases cited, ante, § 109n, 5. 28. See Lagunas Nitrate Co. v. Lagunas Syndicate, 1899, 2 Ch. 392, 425, and other cases cited under note 27; Larocque v. Beauchemin, 1897, App. Cas. 358, 364. The stockholders cannot make a purchase for the company. Their action, even though embodied in a formal resolution, is advisory only, and does not dispense with the necessity of action by the board of directors, (Plaquemines Tropical Fruit Co. V. Buck, 52 N. J. Bq. 219, 238-239, 27 Atl. 1094, 44 Am. & Eng. Corp. Cas. 686, and see ante, § 87. See Cook on Corporations, (7th ed.), § 709; Thompson on Corporations, (2nd ed.), § 1184), but does ef- fectually avoid any objection based upon the fact that the directors were not disinterested. There are some dicta sounding to the contrary of the rule stated in the text, in Be Hess Mfg. Co., (23 Can. S. C. 644, 658, 668), but the court there relies on Erlanger V. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65), in which case it is distinctly said that the disclosure to the share- holders would have been sufficient, had the fact that the board of di- rectors was not independent also been disclosed. (See pp. 1262- 1263). The statement in the Hess Mfg. Co. case, probably means that only a disclosure to an independent board of directors could bind future subscribers. (Seep. 668). For this distinction, see post, § 124, et seq. If anything more is intended, the dictum is in conflict with the au- thorities cited under note 27. It may be safely assumed that noth- ing contrary to the rule stated in the text was intended by the court in See v. Heppenheimer, 69 N. J. Eq. 36, 71-72, 61 Atl. 843. An agreement to pay the pro- moters a specified compensation for their services, though fully dis- closed to the subscribers, is not en- forceable if there is a secret agree- ment of the promoters to pay a part of such com.i)ensation to the di- rectors. Ex parte Williams, L. R. 2 Eq. 216. 29. See post, §§ 120n, 121, 128 note 33. See also cases cited under note 27. 210 THE LAW OF PROMOTERS. If the promoter relies, for the legalization of his profits, upon a disclosure to the subscribers, he must show a disclosure to all of the subscribers and their unanimous consent. The majority stockholder's may, after the corporation has been fully organized, bind both the corporation and the minority stockholders upon all matters within the scope of the corporate powers. While, how- ever, the corporation is in process of formation, each subscriber acts for and can bind only himself, and the corporation is bound only by their unanimous consent. It has frequently been said that an independent board of directors can bind the company and its shareholders in regard to a transaction involving the promoter's individual interest,^" but the directors stand in a fiduciary rela- tion to the company and its subscribers, and are bound to act solely in the interest of their cestms, while the majority stock- holders are free from any fiduciary obligation and may vote their shares as they see fit, provided that they do not commit any fraud upon the minority. To permit the majority of the subscribers to control the corporation, and to bind the minority, in relation to a transaction involving the organization of the company, or the purchase of the property which it is organized to operate, and upon the nature of which transaction the desirability of becoming a shareholder must very largely depend, would be wholly unreason- able and open the door to all manner of promoters' frauds. Each subscriber must, therefore, if the acquiescence of the subscribers is relied on to legalize the promoters' profits, be fully informed of the facts and permitted to fairly exercise his own judgment as to the advisability of taking shares. A disclosure to some of the subscribers would no doubt bar the consenting sub- The assent of all the stockholders oming Valley Ice Co., 153 Fed. Rep. will not, upon the insolvency of the 787", affirmed, suh nom. Wiegand v. company, bar the creditors from Albert Lewis Lumber & Mfg. Co., questioning the validity of bonds 158 Fed. Rep. 608, 85 C. C. A. 430. issued to the promoters without 30. See ante, § 110. adequate consideration. In re Wy- LAWFUL PROFITS. 211 scribers, and all subsequent transferees of their shares, from com- plaining of the transaction,*^ but the consent of less than the whole body of the subscribers does not bind the corporation.*^ The disclosure to be effective must be made to all who have at the time acquired an interest in the shares or the company. This includes those who have by subscription, or otherwise, agreed to take shares from the company, though the stock certificates have not as yet been issued,** and all who have contracted for the 31. Hughes V. Cadena DeCobre Min. Co., 13 Ariz. 52, 61, 64, 108 Pac. 231, 235; Old Dominion Cop- per, etc., Co. V. Bigelow, 188 Mass. 315, 325, 74 N. E. 653, 108 Am. St. Rep. 479, and see post, §§ 121, 127, 145, 145n, 185. 32. Federal. — ^Davis v. Las Ovas Co., 227 U. S. 80, 38 Sup. Ct. 197, 57 L. Ed. 426, affirming, Las Ovas Co. v. Davis, 35 App. Cas. Dist. of Col., 372. Arizona. — ^Hughes v. Cadena De- Cobre Min. Co., 13 Ariz. 52, 64, 108 Pac. 231, 234. California. — ^Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 51, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1132-1133. Indiana. — Parker v. Boyle, 178 Ind. 560, 99 N. E. 986. Massachusetts. — O 1 d Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 198, 89 N. E. 193, 40 L. R. A. N. S. 314; same v. same, 188 Mass. 315, 325, 74 N. E. 653, 108 Am. St. Rep. 479. Missouri. — Exter v. Sawyer, 146 Mo. 302, 325-326, 47 S. W. 951, 957. New Jersey. — Bigelow v. Old Do- minion Copper, etc., Co., 74 N. J. Bq. 457, 502, 506, 71 Atl. 153; Arnold V. Searing, 73 N. J. Eq. 262, 265, 67 Atl. 831. New Yorh. — Colton Improvement Co. V. Richter, 26 Misc. 26, 30, 31, 55 Supp. 486; Midwood Park Co. v. Baker, 128 Supp. 954, affirmed, 144 App. Div. 939, 129 Supp. 1135, af- firmed, 207 N. Y. 675, 100 N. E. 1130. Oregon. — Wills v. Nehalem Coal Co., 52 Or. 70, 83-84, 96 Pac. 528, 533, quoting Clark and Marshall on Private Corporations, § 397. United Kingdom and Colonies. — Erlanger v. New Sombrero Phos- phate Co., L. R. 3 App. Cas. 1218, 1245, 1280, 6 Eng. Rul. Cas. 777, 39 L. T. N S. 269, 27 W. R. 65, affirm- ing, New Sombrero Phosphate Co. v. Erlanger, L. R. 5 Ch. Div. 73, 118, 25 W. R. 436. But see TJrner v. Sollenberger, 89 Md. 316, 48 Atl. 810. Mere dummy stockholders need, of course, not be considered. See post, § 122. Disclosure to all but a very few subscribers indicates an absence of actual fraud. Federal Life Ins. Co. V. Griffin, 173 111. App. 5, 17. 33. Old Dominion Copper, etc., Co. V Bigelow, 203 Mass. 159, 198, 89 N. E. 193, 40 L. R. A. N. S. 314, 212 THE LAW OF PKOMOTEKS. purchase of shares and thus become the equitable owners thereof.^* Some authorities seem to suggest that if the promoters enter into contracts for the sale of the shares of a corporation to be formed to acquire certain named properties and to be capitalized upon an agreed basis, and the corporation is organized as agreed and the shares delivered to the purchasers in exact accordance with the promoters' contract, the concealment from these purchasers of the promoters' profits gives rise to no action by the corpora- tion.** This, however, is an unsound doctrine which should not be followed. It is true that those who agreed to purchase stock from the promoters receive, in such case, just what they have con- tracted for, but the same argument would, if accepted, require the reversal of the entire rule against secret profits. If the pro- moters, before the transaction complained of, contract for the sale of shares of the corporation, the purchasers of these shares have from the date of their contract an interest in the corpora- tion, and the promoters' profit is not made lawful by the assent of the original subscribers. The legality of the promoters' profits would not be affected by the fact that purchasers of shares whose interest was unknown to the promoters did not have notice of the transaction. The undisclosed purchaser is, in such case, bound by the knowledge and acquiescence of his vendor. Disclosure of the promoters' profits must, in order to render the transaction lawful, be made not only to all existing stock- holders, to all subscribers for shares, and to all who have, to the knowledge of the ^omoters acquired an equitable interest therein and cases cited ; Mackey Baking Co. 369. The court in the case last V. Mackey, 19 Pa. Dist. Ct. 893. cited, however, pointed out (p. 397), 34. See post, § 123. that it could not assume that the 35. See dictum in Arnold v. Sear- agreement for the sale of the shares ing, 73 N. J. Eq. 262, 265, 67 Atl. was entered Into before the trans- 831. See also Hutchinson v. Simp- action between the promoters and son, 92 N. Y. App. Div. 382, 87 Supp. the corporation had been consum- mated. LAWFUL PROFITS. 213 but also, according to many authorities, to all who are, as a part of the original scheme, to be brought in as subscribers for the company's shares. ^^ If disclosure is made to all those who have, at the time of the transaction, a legal or equitable interest in the shares of the corporation, and to all who are to be brought in as original subscribers, future purchasers from the promoters or from other subscribers need not be taken into account. They are bound by the knowledge of their vendors.*'^ A question may well arise as to whether those purchasing, from the treasury of the corporation, shares which had been im- mediately after their issue turned back to the corporation, are to be considered as original subscribers, or as purchasing indirectly from those to whom these shares were originally issued. The pur- 36. Maine. — Mason v. Carrothers, 105 Me. 392, 399, 401-402, 74 Atl. 1030, 1038, 1034. Massachusetts. — O 1 d Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 322-327, 74 N. E. 653, 108 Am. St. Rep. 479 ; same v. same, 203 Mass. 159, 193, 89 N. E. 193, 40 L. R. A. N. S. 314 ; Hayward v. Leeson, 176 Mass. 310, 320, 57 N. E. 656, 49 L. R. A. 725. Missouri. — Brooker v. William H. Thompson Trust Co., 254 Mo. 125 158-159, 162 S. W. 187, 195. New Jersey. — Bigelow v. Old Do- minion Copper, etc., Co., 74 N. J. Eq. 457, 502, 71 Atl. 153. Oregon. — Wills v. Nehalem Coal Co., 52 Or. 70, 83-84, 96 Pac. 528, 533, quoting from Clark & Marshall on Private Corporations, § 397. United Kingdom and Colonies. — New Sombrero Phosphate Co. v. Brlanger, L. R. 5 Ch. Div. 73, 113, 25 W. R. 436, affirmed, sub nom. Erlanger v. New Sombrero Phos- phate Co., L. R. 3 App. Cas. 1218, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65; In re Leeds & Hanley Theatres of Varieties, 1902, 2 Ch. Div. 809, 823, 824. Contra Old Dominion Copper, etc., Co. V. Lewisohn, 210 U. S. 206, 215, 28 Sup. Ct. 634, 52 L. Ed. 1025, affirming, 148 Fed. Rep. 1020, 79 C. C. A. 534, 136 Fed. Rep. 915. These are presumably the cases referred to by Chancellor Pitney, in Bigelow V. Old Dominion Copper, etc., Co., 74 N. J. Eq. 457, at p. 502, 71 Atl. 153, at p. 172. This question is discussed at length in subsequent sections of this chapter. See post, §§ 124-130. 37. Mason v. Carrothers, 105 Me. 392, 399, 74 Atl. 1030, 1033, 1036; Old Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 325, 74 N. E. 653, 108 Am. St. Rep. 479, and see post, §§ 121, 127, 145, 185. 214 THE LAW OF PROMOTERS. chasers of these shares from the treasury of the corporation are in practical effect original subscribers and should be so considered.'* § 112. Nature of the disclosure. — Constructive notice. A disclosure must, in order to render lawful a transaction in which the promoter has a personal interest, be a full, complete and direct statement of the material facts relating thereto. Reliance cannot be had upon inferences. " In considering this question we must," says Sir Nathaniel Lindley, " recollect that we are dealing with matters of daily business, and must have regard to the habits and practical necessities of ordinary business men. Refined equit- able doctrines of constructive notice have little, if any, applica- tion to such matters as are now being dealt with. To inform a person of a fact is one thing; to give him the means of finding it out, if he will take trouble enough, is another thing. A promoter of a company, whose duty it is to disclose what profits he has made, does not perform that duty by making a statement not dis- closing the facts, but containing something which, if followed up by further investigation, will enable the inquirer to ascertain that profits have been made and what they amounted to." '® In Gluckstein v. Barnes,*" the promoters, after buying at a dis- 38. Hinkley v. Sac Oil & Pipe 408, 107 N. W. 629, 633-634, 119 Line Co., 132 Iowa 396, 107 N. W. Am. St. R. 564; Brewster v. Hatch, 629, 119 Am. St. R. 564. See also 122 N. Y. 349, 361, 25 N. E. 505, 33 § 127, post. N. Y. St. Rep. 527; Mackey Baking 39. In re Olympia, Ltd., 1898, 2 Co. v. Mackey, 19 Pa. Dist. Ct. 893 ; Ch. Div. 153, 166, affirmed, sui nom. Aaron's Reefs v. Twiss, 1896, App. Gluckstein v. Barnes, 1900, App. Cas. 273, 287; Lagunas Nitrate Co. Cas. 240. Quoted in Mason v. Car- v. Lagunas Syndicate, 1899, 2 Ch. rothers, 105 Me. 392, 403, 74 Atl. Div. 392, 448, (dissenting opinion) ; 1030, 1035, and in Arnold v. Sear- New Brunswick & Canada Railway, ing, 78 N. J. Eq. 146, 160, 78 Atl. etc., Co. v. Muggeridge, 1 Drewry 762, 768. & Smale 363, 372-373, 380-383; See also Caffee v. Berkley, Dunne v. English, L. R. 18 Eq. 524, 141 Iowa 344, 349, 118 N. W. 535, and cases cited. 267, 269; Hinkley v. Sac Oil & 40. 1900 App. Cas. 240, 246-247, Pipe Line Co., 132 Iowa 396, 249-252, affirming. In re Olympia, LAWFUL PROFITS. 215 count a mortgage upon the place of entertainment known as " Olympia " and some debenture bonds of the company by which this property was then owned, purchased the Olympia property at public auction for the sum of £140,000, which price, being suffi- cient to pay the face value of all the obligations, yielded the pro- moters a profit of some £20,000 upon the mortgage and de- benture bonds. The property was thereupon sold t

nom. Bohmrich v. Krohn, 66 Fed. Rep. 655, 13 C. C. A. Knoop, 50 N. J. Eq. 485, 27 Atl. 636; 668, 31 U. S. App. 325. See also Breslin v. Fries-Breslin Co., 70 N. J. post, § 245. Law 274, 58 Atl. 313. 40. See ante, § 133. 316 \ THE LAW OF PROMOTERS. notes, mortgages, or other obligations of the corporation, a court of equity will at the suit of the corporation cancel the same, un- less the obligations sought to be cancelled are securities of a negotiable character and in the hands of bona fide holders.*^ If obligations of the corporation wrongfully taken by the promoter have come into the hands of bona fide purchasers for value, a court of equity may, even though the obligations are non-ne- gotiable in character, refuse a cancellation in toto if the guilty promoters would, as stockholders of the corporation, be the prin- cipal beneficiaries of the cancellation.*^ The corporation may, instead of bringing suit for the cancel- lation of its obligations, remain passive and resist the payment thereof on the ground of fraud or lack of consideration.*^ 41. Ex-Mission Land & Water Co. V. Flash, 97 Cal. 610, 32 Pac. 600 ; Calif ornia-Calaveras Mining Co. V. Walls, — Cal. — , 149 Pac. 595 ; Lomita Land & Water Co. v. Robin- son, 154 Cal. 36, 51, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1133-1134 ; Col- ton Improvement Co. v. Richter, 26 N. Y. Misc. 26, 55 Supp. 486; See v. Heppenheimer, 55 N. J. Eq. 240, 36 Atl. 966, affirmed, suh nam. Naum- berg V. See, 56 N. J. Eq. 453, 41 Atl. 1116. If the bonds are not negotiable, a iona fide purchaser stands in no better position than his transferor. Midwood Park Co. v. Baker, 128 N. Y. Supp. 954, affirmed, 144 N. X. App. Div. 939, 129 Supp. 1135, af- firmed, 207 N. Y. 675, 100 N. B. 1130. But see following note. 43. In Hyde Park Terrace Co. v. Jackson Bros. Realty Co., 161 N. Y. App. Div. 699, 146 Supp) 1037, a mortgage had, without the knowl- edge of the subscribers, been given to the promoters to enable tbem to reap secret profits. The corporation, upon discovering the fraud, brought suit for the cancellation of the mort- gage which had, tn the meantime, come into the hands of hona fidfi purchasers for value. The stock of the corporation was, to the extent of $67,000, held by persons who were privey to the fraud, and to the ex- tent of not more than $48,000 by defrauded subscribers. A cancella- tion of the mortgage would have in- ured largely to the benefit of the tort feasors. The court said that such a result was abhorrent to every conception of. equity, and adjudged that the cancellation of the mort- gage should be refused if the holders thereof would pay to the corporation for distribution to the innocent sub- scribers an amount equal to the subscriptions paid by such sub- scribers. That in the event that such sum should not be paid to the plaintiff within sis months, the mortgage would be cancelled. 43. Federal. — In re Wyoming Val- REMEDIES OF CORPORATION. 317 The burden is upon a person holding the securities by assign- ment from the promoters, to prove that he is a bona fide holder for value.** In Ex-Mission Land & Water Co. v. Flash,*^ a mortgage held by the promoters and constituting a part of their illegal profits was foreclosed, the mortgaged property bought in by the pro- motors and a deficiency judgment entered against the corporation before it discovered the facts. The court, in an action brought by the corporation, set aside the decree of foreclosure and the deficiency judgment, and cancelled the notes and mortgage upon which the decree and judgment were founded. In See v. Heppenheimer,*® the receiver of a corporation was allowed to maintain an action against the bondholders to deter- mine which of the bonds that had been issued to the promoters ley Ice Co., 153 Fed. Rep. 787, affirmed, sub nom. Wiegand v. Albert Lewis Lumber & Mfg. Co., 158 Fed. Rep. 608, 85 C. C. A. 430. Arkansas. — Tegarden Brothers v. Big Star Zinc Co., 71 Ark. 277, 72 S. W. 989. New York. — Campbell v. Cypress Hills Cemetery, 41 N. Y. 34; Mid- wood Park Co. v. Baker, 128 N. Y. Supp. 954, affirmed, 144 N. Y. App. Div. 939, 129 Supp. 1135, affirmed, 207 N. Y. 675, 100 N. E. 1130. Oregon. — Johnson v. Sheridan Lumber Co., 51 Or. 35, 93 Pac. 470. Pennsylvania. — Rice's Appeal, 79 Pa. 168, 203-204. United Kingdom and Colonies. — In re Imperial Land Co. of Mar- seilles, L. R. 4 Ch. Div. 566. 44. California-Calaveras Miniag Co. v. Walls, — Cal. — , 149 Pac. 595 ; See V. Heppenheimer, 55 N. J. Eq. 240, 243, 36 Atl. 966, affirmed, sub nom. Naumberg v. See, 56 N. J. Bq. 453, 41 Atl. 1116; Baker v. Guaran- tee Trust & Safe Deposit Co., 31 Atl. 174; Colton Improvement Co. v. Richter, 26 N. Y. Misc. 26, 32, 55 Supp. 486, citing Jewett v. Palmer, 7 Johns. Ch. (N. Y.) 65, 11 Am. Dec. 401 ; Jackson v. McChesney, 7 Cow. (N. Y.) 360; Weaver v. Barden, 49 N. Y. 286, 297-299; Seymour v. Mc- Kinstry, 106 N. Y. 230, 239-242, 12 N. E. 348, 14 N. E. 94; Duffus v. Howard Furnace Co., 8 N. Y. App. Div. 567, 572, 57 St. Rep. 320, 4 Supp. 925 ; McGuire v. Hartford Fire Ins. Co., 7 N. Y. App. Div. 575, 591, 592, 40 Supp. 300. 45. 97 Cal. 610, 32 Pac. 600. 46. 55 N. J. Eq. 240, 36 Atl. 966, affirmed, sub nom. Naumberg v. See, 56 N. J. Eq, 453, 41 Atl. 1116. See also See v. Heppenheimer, 69 N. J. Eq. 36, 61 Atl. 843, and compare Hyde Park Terrace Co. v. Jackson Bros. Realty Co., discussed in note 42, supra. 318 THE LAW OF PROMOTERS. without consideration were held by bona fide holders for value, so that it might be ascertained upon how many bonds the company was actually liable. In Dickerman v. Northern Trust Co.,*'' the Supreme Court of the United States, considering the same transaction, held that the fact that some of the bonds were owned by promoters claimed to be liable to the debtor corporation for secret profits received, was not a ground for refusing a decree of foreclosure of the trust mortgage by which the bonds were secured, a large part of the bonds being in the hands of bona fide holders. The court said that there might, when the bonds were presented for redemption from the proceeds of sale, be an inquiry as to their validity in the hands of the then holders. The fact that a promoter has been guilty of taking a secret profit upon the promotion, does not prevent him, except in so far as subject to a set-oif, from enforcing his lawful claims against the company.** § 167. Remedy of rescission. The one remedy against promoters guilty of selling their prop- erty to the corporation without a sufficient disclosure of the facts, the existence of which has never been questioned, is the remedy of rescission. Whether the property sold to the corporation was owned by the promoters before the fiduciary relation was assumed, or whether it was acquired by them after they had entered upon the organization of the company, the sale thereof to the corpo- ration without a proper disclosure of the facts *^ is in either case a fraud and subject to rescission at the election of the corpora- tion. The cases in which the remedy of rescission has been re- sorted to are, for the most part, cases in which the promoters ac- 47. 176 U. S. 181, 206, 20 Sup. Ct. Lomita Land & Water Co. v. Robin- 311, 44 L. Ed. 423. son, 154 Cal. 36, 51-52, 97 Pac. 10, 48. Jordan v. Annex Corporation, 18 L. R. A. N. S. 1106, 1133-1134. 109 Va. 625, 631, 64 S. B. 1050, 1052, 49. As to the disclosure to be 17 Am. & Bng. Ann. Oas. 267; made, see a»te, §§ lia-116. REMEDIES OF CORPORATION. 319 quired the property in question at some time before the commence- ment of the fiduciary relation. That the sale may, in such case, be rescinded if the promoters' interest in the transaction is not disclosed, is established by an unbroken line of authorities.®" It has in fact sometimes been doubted that any other remedy is in such case open to the corporation.^^ If it appears that the pro- moters acquired the property sold to the corporation at a time when they were already subject to the fiduciary relation, an action for an accounting for secret profits is generally a more satis- factory remedy and a rescission is rarely resorted to. There seems, however, to be no sound reason why the corporation should not, if it so desires, be allowed to rescind its purchase.®^ 50. Federal. — Dickerman v. Northern Trust Co., 176 V. S. 181, 204, 20 Sup. Ct. 311, 44 L. Ed. 423, citing Morawetz on Private Corpora- tions, §§ 291, 294, 546. Alabama. — Moore v. Warrior Coal & Land Co., 178 Ala. 234, 59 So. 219, Am. & Eng. Ann. Cas., 1915, B. 173. Maryland. — U r n e r v. SoUen- berger, 89 Md. 316, 331, 43 Atl. 810. Massachusetts. — 1 d Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 328-329, 74 N. E. 653, 108 Am. St. Rep. 479 ; same v. same, 203 Mass. 159, 201-202, 89 N. E. 193, 40 L. R. A. N. S. 314. Missouri. — Brooker v. William H. Thompson Trust Co., 254 Mo. 125, 157-158, 162 S. W. 187, 195. Oregon. — Stanley v. Luse, 36 Or. 25, 58 Pae. 75. WisconsiM. — Hebgen v. Koeffler, 97 Wis. 313, 72 N. W. 745. United Kingdom and Colonies. — Erlanger v. New Sombrero Phos- phate Co., L. R. 3 App. Cas. 1218, 6 Eng. Bui. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65, affirming. New Sombrero Phosphate Co. v. Erlanger, L. R. 5 Ch. Div. 73, 25 W. B. 436; Bentinck v. Fenn, L. R. 12 App. Cas. 652, 658, affirming. In re Cape Breton Co., L. R. 29 Ch. Div. 795, affirming, L. R. 26 Ch. Div. 221; In re Ambrose Lake Tin & Copper Min- ing Co., L. R. 14 Ch. Div. 390, 394 ; Ladywell Mining Co. v. Brookes, L. R. 35 Ch. Div. 400, 17 Am. & Eng. Corp. Cas. 22, affirming, L. R. 34 Ch. Div. 398 ; In re Hess Manufacturing Co., 23 Can. S. C. 644. 51. See post, § 171. 53. California. — Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 45, 97 Pae. 10, 18 L. R. A. N. S. 1106, 1122. Mame. — Camden Land Co. v. Lewis, 101 Me. 78, 95, 63 Atl. 523, 530. Missouri. — St. Louis & Utah Silver Mining Co. v. Jackson, 5 Central Law Journal 317. Ohio. — Second National Bank v. Greenville Screw-Point Steel Fence 320 THE LAW OF PROMOTERS. It must, however, to sustain the action of rescission, be made to appear that the promoters were at some time the owners of the property and the vendors on the sale to the corporation. It has been held that if the promoters acquired their secret profit by means of an option, and never owned or pretended to own the property which was conveyed to the corporation directly by the original vendor, no action for the rescission of the company's purchase will lie against the promoters.^* § 168. The same subject. — Rescission of entire transaction. If several properties are sold to the corporation as a part* of the same transaction, it is not necessary, in order to render the entire transaction voidable, that the non-disclosure of the pro- moters should extend to all the parcels. If there is fraud in the sale of a single parcel, the whole transaction, being incapable of severance, is tainted by the fraud and voidable at the election of the corporation.^* If a number of ,parcels are sold to the cor- poration in a single transaction, it cannot rescind as to one par- cel, without rescinding the entire transaction.*^ The purchase of the corporation may be rescinded if any single promoter is personally interested in the transaction. The fact that there are other promoters not interested in the property sold to the corporation, or that some of the vendors of the property were not promoters of the company, is immaterial.*® Post Co., 23 Ohio C. C. 274, 281. 153, 168-lTO, affirmed, sw& nom. Oregon. — Johnson v. Sheridan Gluckstein v. Barnes, 1900, App. Lumber Co., 51 Or. 35, 93 Pac. 470. Gas. 240. Virginia. — Jordan v. Annex Cor- 53. Maxwell v. McWilliams, 145 poration, 109 Va. 625, 64 S. E. 1050, 111. App. 155, 167-168. 17 Am. & Bng. Ann. Cas. 267. 54. Stanley v. Luse, 36 Or. 25, 37, Wisconsin. — Limited Investment 58 Pac. 75, 79. Association v. Glendale Investment 55. Omnium Electric Palaces Lun. Association, 99 Wis. 54, 74 N. W. v. Baines, 1914, 1 Ch. Div. 332, 82 L. 633. J. Oh. N. S. 519, 109 L. T. N. S. 206. United Kingdom and Oolomes. — 56. In re Cape Breton Co., L. R. In re Olympia, Ltd., 1898, 2 Ch. Div. 29 Ch. Div. 795, affirming, L. R. .26 REMEDIES OF CORPORATION. 321 § 169. The same subject. — Methods of effecting rescission. If the fraud is not discovered until after the transaction has been consummated the corporation may either bring an action in equity for a rescission, offering in its complaint to reconvey the property sold to it, or else give notice of rescission, tender a re- conveyance, and bring a suit at law for the recovery of the pur- chase price.®''^ If the fraud of the promoters is discovered before the trans- action has been consummated, the remedy of the corporation is to refuse to take title, and to bring suit against the vendors for such part of the consideration as has already been paid.®* § 170. The same subject. — Restoration of status quo. A corporation wishing to rescind its purchase because of a fraud committed by its promoters, must restore, or offer to restore, to the vendors the property received upon the purchase.®* The fact that this is difficult, or even impossible, does not affect the question Ch. Div. 221, affirmed, sub nom. Ben- Getty v. Devlin, 54 N. Y. 403, 414- tinck V. Fenn, L. R. 12 App. Gas. 415 ; Barr v. N. Y . L. E. & W. R. R. 652. Co., 125 N. Y. 263, 272, 26 N. B. 145, 57. See post, §§ 194, 241. 34 St. Rep. 743. 58. Cortes Co. v. Thannhauser, Ladywell Mining Co. v. Brookes, 45 Fed. Bep. 730; Munson v. Syra- L. R. 35 Ch. Div. 400, 17 Am. & cuse, Geneva & Corning Railroad Eng. Corp. Cas. 22, affirming, L. R. Co., 103 N. T. 58, 8 N. E. 355, 29 34 Ch. Div. 398, 409, 411, 412; The Am. & Eng. R. R. Cas. 377; Jordan Great Luxembourg Ry. Co. v. Mag- V. Annex Corporation, 109 Va. 625, nay, 25 Beav. 586; Erlanger v. New 64 S. E. 1050, 17 Am. & Eng. Ann. Sombrero Phosphate Co., L. R. 3 Cas. 267. App. Cas. 1218, 1278, 6 Eng. Rul. A minority stockholder may sue Cas. 777, 39 L. T. N. S. 269, 27 W. to prevent the consummation of the R. 65 ; In re Cape Breton Co., L. R. transaction. Insurance Press v. 26 Ch. Div. 221, 228, affirmed, L. R. Montauk Wire Co., 103 N. Y. App. 29 Ch. Div. 795, affirmed, suh nom. Div. 472, 475, 93 Supp. 134. Bentinck v. Fenn, L. R. 12 App. Cas. 59. Federal Life Ins. Co. v. Grif- 652 ; In re Leeds & Hanley Theatres fin 173 111. App. 5, 17. of Varieties, 1902, 2 Ch. Div. 809, 322 THE LAW OF PROMOTERS. unless the restoration of the status quo is prevented by the act of the wrong-doer himself.®" In Phosphate Sewage Co. v. Hartmont,®-' the property sold to 826 ; Lagunas Nitrate Co. v. Lagunas Syndicate, 1899, 2 Ch. Div. 392, 433, 463, (but see dissenting opinion of Rigby, L. J. 456, et seq.) ; In re Hess Manufacturing Co., 23 Can. S. C. 644, 663-664. In Federal Life Ins. Co. v. Grif- fin, 173 HI. App. 5, 21, where the promoter sued in equity for moneys due him under a contract with the corporation which the latter had failed to rescind, the court limited his recovery to the reasonable value of the rights which he had trans- ferred to the corporation.' Where it is sought to hold parties other than the vendors jointly liable with them, (see post, § 304), the offer of a conveyance should be made to all parties whom the cor- poration seeks to hold liable. See Lindsay Petroleum Co. v. Hurd, L. R. 5 P. C. 221, 231. As to accounting for interim profits derived by the corporation from the operation of the property, see American Shipbuilding Co. v. Commonwealth S. S. Co., 215 Fed. Rep. 296, 131 C. C. A. 596; Lindsay Petroleum Co. v. Hurd, L. R. 5 P. O. 221, 240; Lagunas Nitrate Co. v. Lagunas Syndicate, 1899, 2 Ch. Div. 392, 460, et seq., (dissenting opinion of Rigby, L. J.) As to making an allowance for use and occupation, see Flnck v. Canadaway Fertilizer Co., 152 N. Y. App. Div. 391, 395-396, 136 Supp. 914, modified and affirmed, 208 N. Y. 607, 102 N. E. 1102. Where the subject matter of the purchase was ships to be manufac- tured for the corporation, a re- delivery of the completed ships was held to sufficiently place the de- fendant in statu quo. Common- wealth S. S. Co. V. American Ship- building Co., 197 Fed. Rep. 780, 787, same v. same, 197 Fed. Rep. 797, 814, affirmed, 215 Fed. Rep. 296, 131 C. O. A. 596. See also post, § 240. For cases dealing with the ques- tion of restoration of the former status as a condition of rescission, see 24 Am. & Eng. Enyc. (2nd Ed.), 620, et seq. See also editorial, N. T. Law Journal, June 15, 1912. 60. Getty v. Devlin, 54 N. T. 403, 415; Ladywell Mining Co. v. Brookes, L. R. 34 Ch. Div. 398, 411, affirmed, L. R. 35 Ch. Div. 400, 17 Am. & Eng. Corp. Cas. 22. See The Great Luxembourg Ry. Co. v. Mag- nay, 25 Beav. 586, 596-597. See post, § 240. A trifling change in the condition of the property may no doubt be disregarded. Alger v. Anderson, 78 Fed. Rep. 729. And see Finck v. Canadaway Fertilizer Co., 152 N. Y. App. Div. 391, 136 Supp. 914, modi- fied and affirmed, 208 N. Y. 607, 102 N. E. 1102. 61. L. R. 5 Ch. Div. 394, 446, 454, 455, 46 L. J. Ch. 661, KEMEDIES OF CORPORATION. 323 ■the corporation consisted of a concession which had before its conveyance to the corporation become subject to forfeiture, this fact being concealed from the vendee. The concession was afterwards, by reason of the facts existing at the time of the pur- chase, declared forfeited. It was held that the corporation could maintain a suit for the recovery of the purchase price though restoration had become impossible. In Ashmead v. Colby ,®^ the corporation duly tendered a recon- veyance. The defendants failed to accept the reconveyance, and the property was afterward sold on an execution issued against the corporation. A reconveyance had thus become impossible. The corporation was, however, permitted to recover the purchase price paid by it, deducting the fair value of the land. In Ladywell Mining Co. v. Brookes,**^ the corporation had pur- chased a leasehold interest in a lead mine. The corporation, without notifying the vendors of its intention to proceed against them for a rescission, allowed the landlord to take judgment by default in an action to recover possession of the property. It was held that a reconveyance having become impossible, the corpo- ration could not sue the vendors for the recovery of the purchase price. In Jordan v. Annex Corporation,®* the court refused to permit the rescission of the purchase of a lease after two-thirds of the demised term had expired. § 171. Action for fraud and deceit. A question which should be, but is not, entirely free from doubt, is that of the right of a corporation to sue its promoters in an action at law for the damages suffered by reason of the fraudulent sale to it of the promoters' own property; that is, the right of 62. 26 Conn. 287. In re Hess Manufacturing Co., 23 63. L. R. 34 Ch. Div. 398, 410- Can. S. C. 644, 663-664. 411, affirmed, L. R. 35 Ch. Div. 400, 64. 109 Va. 625, 64 S. E. 1050, 17 17 Am. & Bng. Corp. Cas, 22, cited Am. & Bng. Ann. Cas. 267. 324 THE LAW OF PROMOTERS. the corporation to hold the promoters liable, not for the profits made by them, but for the damage caused to it by the fraud — ^not for the difference between the cost of the property to the pro- moters and the price at which it was sold to the corporation, but for the difference between the cost of the property to the corpo- ration and its actual market value at the time of the sale. This question is, if the circumstances are such that the promoters may be compelled to account for their profits in the transaction, of no great moment, as the action for an accounting is generally more satisfactory and easier of proof, though it might sometimes hap- pen that the recovery in an action for damages would exceed the recovery upon an accounting for promoters' profits.®^ The right to maintain an action for damages is of importance, if the prop- erty sold to the corporation was owned by the promoters before they entered upon the fiduciary relation. An action for an ac- counting for secret profits does not in such case lie,®® and the re- scission of the purchase is after the lapse of even a short period of time generally inadvisable and often impossible. Some of the earlier English cases seem to hold that if the pro- moters acquired the property sold to the corporation before they became subject to the fiduciary relation, the only remedy open to the corporation is the rescission of its purchase, it being said that to allow the company to take the property, not at the price'fixed by its vendor, but at its fair market value, amounts to making a new bargain for the parties.®'' The reasoning of these cases is 65. In re Leeds & Hanley Thea- Brookes, L. R. 35 Ch. Div. 400, 408, tres of Varieties, 1902, 2 Oh. Dlv. 17 Am. & Eng. Corp. Gas. 22, af- 809, 814. firming, L. R. 34 Ch. Div. 398, and 66. See ante, § 161. An account- see dictum in Be Hess Manufactur- ing for profits may under some cir- ing Co., 23 Can. S. C. 644, 665. Cf. cumstances be liad. See ante, § Dupont v. Tilden, 42 Fed. Rep. 87. 162. The Ladywell Mining Company 67. In re Ambrose Lake Tin & cases rely upon In re Cape Breton Copper Mining Co., L. R. 14 Ch. Dlv. Company, L. R. 29 Ch. Dlv. 795, 390, 398 ; Ladywell Mining Co. v. affirming, L. R. 26 Ch. Dlv. 221, 229, REMEDIES OF CORPORATION. 325 not at all satisfactory. The same argument could with equal force, be applied to any case in which a vendee, having been in- duced by the fraud of his vendor to purchase property, sues the vendor for damages for fraud and deceit and by a recovery in such action in effect reduces the price paid for the property.^® It has sometimes been stated that the corporation can maintain an action for fraud and deceit if a rescission has become impossible or impracticable, the implication being that the action for dam- ages would otherwise not lie.®® The rule sustained by the weight of authority is that a sale of the promoter's property to the corporation, without a proper disclosure of his personal interest in the transaction, constitutes a violation of the diities which flow from the fiduciary relation, and that the corporation may sue the promoter for the damages suffered by reason of his deceit, the measure of such damages being 234. In that case Cotton, L. J., said (p. 805), that the company could not collect damages, as the property had no definite market value. Fry, L. J., concurred on the ground that the transaction com- plained of had been ratified by the company, while Bowen, L. J., dis- sented on the ground that a proper case for damages had been made out. The House of Lords when af- firming the case, (sm6 nom. Ben- tinck V. Fenn, L. R. 12 App. Cas. 652), disapproved of the opinions below, and aflBrmed on the ground that there was no evidence of non- disclosure, and no proof that the purchase price exceeded the mar- ket value, clearly intimating that an action for damages for fraud and deceit would lie in a proper ease. See In re Olympia, Ltd., 1898, 2 Ch. Div. 153, 178-179, (affirmed, «u6 nom. Gluckstein v. Barnes, 1900 App. Cas. 240). Care must be taken not to be mis- led by the statement sometimes made that a rescission is, if the promoters owned the property be- fore they entered upon the fiduciary relation, the sole remedy in equity, the action for damages for fraud and deceit being generally an action at law. See Tyrrell v. Bank of Lon- don, 10 H. L. Cas. 26, 52-53, 11 Bng. Rep. 934, but see post, § 193. 68. See In re Olympia, Ltd., 1898, 2 Ch. Div. 153, 179, affirmed, sui nom. Gluckstein v. Barnes, 1900 App. Cas. 240. 69. In re Ambrose Lake Tin & Copper Mining Company, L. R. 14 Ch. Div. 390, 394, and see Omnium Electric Palaces Lim. v. Baines, 1914, 1 Ch. Div. 332, 343-344, 82 L. J. Ch. N. S. 519, 524; 109 L. T. N. S. 326 THE LAW OF PROMOTERS. the difference between the price the corporation paid for the prop- erty, and the actual value thereof J" § 172. Election of remedies. As shown in the preceding sections of this chapter, the corpora- tion may, in case of the unlawful sale to it of the promoters' own property, rescind its purchase and recover the purchase price paid by it, or sue the promoters for the difference between the price paid for the property and the actual value thereof, or in a proper case compel the promoters to account for the profits gained by them in the transaction. These remedies being open to the cor- poration, it may in its discretion elect which of them to pursue.''-^ 206. See also Hayward v. Leeson, 176 Mass. 310, 321, 57 N. E. 656, 49 L. R. A. 725, and Old Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 329, 74 N. E. 653, 108 Am. St. Rep. 479. 70. Federal. — Central Trust Co. v. East Tennessee Land Co., 116 Fed. Rep. 743, 748; Dickerman v. North- ern Trust Co., 176 U. S. 181, 204, 20 Sup. Ct. 311, 319, 44 L. Ed. 423. Alahama. — M o o r e v. Warrior Coal & Land Co., 178 Ala. 234, 59 So. 219, Am. & Eng. Ann. Cas., 1915, B. 173. California. — h o m i t a Land & Water Co. v. Robinson, 154 Cal. 36, 45, 97 Pae. 10, 18 L. R. A. N. S. 1106, 1122; Ex-Mission Land & Water Co. v. Flash, 97 Cal. 610, 626, 32 Pae. 600, 604, citing Morawetz on Corporations, § 546. Kansas. — ^Hayden v. Green, 66 Kan. 204, 71 Pae. 236. Massachusetts. — 1 d Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 202, 89 N. E. 193, 40 L. R. A. N. S. 314; same v. same, 188 Mass. 315, 328-^29, 74 N. E. 653, 108 Am. St. Rep. 479. Missouri. — Brooker v. William H. Thompson Trust Co., 254 Mo. 125, 158, 162 S. W. 187, 195. United Kingdom and Colonies. — Erlanger v. New Sombrero Phos- phate Co., L. R. 3 App. Cas. 1218, 1278, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65; In re Leeds & Hanley Theatres of Varie- ties, 1902, 2 Ch. Div. 809, 825-827; Bentinck v. Fenn, L. R. 12 App. Cas. 652. And see the statement in Pitts- burg Mining Co. v. Spooner, 74 Wis. 307, 320, 42 N. W. 259, 262, 17 Am. St. Rep. 149, 24 Am. & Eng. Corp. Cas. 1, where the court perhaps loses sight of the distinction be- tween the case where the promoter sells his own property to the com- pany, and the case where he may be deemed to have made the original purchase as trustee for the com- pany. 71. Federal. — D ickerman v. Northern Trust Co., 176 U. S. 181, REMEDIES OF CORPORATION. 327 The election of the corporation once made is binding upon it. Having disaffirmed the contract it cannot afterwards resort to a remedy based upon an affirmance, and if it has with knowledge of the facts affirmed its purchase, it cannot afterwards proceed upon a disaffirmance.''^ § 173. The same subject. — No right of election in promoter. Promoters guilty of making an unlawful sale of their own prop- erty to the corporation have not, upon discovery of the facts, an election to pay the damages of the corporation or make good their representations, and thereby avoid a rescission of their sale.''' In Ex-Mission Land & Water Co. v. Flash,''* the court at the suit of the corporation cancelled a mortgage taken by the pro- moters as part of their unlawful profits. The promoters claimed that the proper relief to be granted the corporation was the re- scission of the entire transaction. The court said that the remedy 204, 20 Sup. Ct. 311, 44 L. Ed. 423, Citing Morawetz on Private Cor- porations, §§ 291, 294, 546. CaUforwia. — Ij o m i t a Land & Water Co. v. Robinson, 154 Cal. 36, 45, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1122; Burbank v. Dennis, 101 Cal. 90, 102, 35 Pac. 444, 448; Ex- Mission Land & Water Co. v. Flash, 97 Cal. 610, 626, 32 Pac. 600, 604, citing Morawetz on Corporations, § 546. Massachusetts. — 1 d Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 328-329, 74 N. E. 653, 108 Am. St. Rep. 479. Ohio. — Second National Bank v. Greenville Screw-Point Steel Fence Post Co., 23 Ohio C. C. 274, 281. Oregon.— Wills v. Nehalem Coal Co., 52 Or. 70, 86, 96 Pac. 528, 534, quoting from note to Pittsburg Mining Co. v. Spooner, 17 Am. St. Rep. 149. Virgima. — Jordan v. Annex Cor- poration, 109 Va. 625, 64 S. E. 1050, 17 Am. & Eng. Ann. Cas. 267. Wisconsin. — Hebgen v. Koeffler, 97 Wis. 313, 320, 72 N. W. 745, 747, following Franey v. Warner, 96 Wis. 222, 71 N. W. 81, 85 ; Pittsburg Mining Co. v. Spooner, 74 Wis. 307, 42 N. W. 259, 17 Am. St. Rep. 149, 24 Am. & Eng. Corp. Cas. 1. 72. Limited Investment Ass'n v. Glendale Investment Ass'n, 99 Wis. 54, 58, 74 N. W. 633, 634. And see post, §§ 252, 257. 73. Lagunas Nitrate Co. v. La- gunas Syndicate, 1899, 2 Ch. Div. 392, 417. Cf. Pulsford v. Richards, 17 Beav. 87, 95. 74. 97 Cal. 610, 636, 32 Pac. 600, 607. 328 THE LAW OF PEOMOTERS. of rescission was not exclusive, that the promoters may not have been financially able to repay the entire purchase price, and that they would have been in a more favorable position to maintain their contention had they made a tender of the necessary sum, in- timating, somewhat vaguely it is true, that the promoters might, by offering a return of the purchase moneys, have confined the company to a rescission of the purchase. It would seem on principle that the election of remedies should rest entirely with the corporation, and that the promoters should be made to respond to whatever appropriate relief may be asked by it. § 174. Remedies of the corporation where promoter receives secret commission or other benefit. If the promoter's profit is made, not by selling his own prop- erty to the corporation, nor by purchasing property, for himself individually and re-selling it to the corporation, at an advance, but by means of a secret commission received from persons selling property to the corporation, the corporation may upon discover- ing the facts compel the promoter to account to it for the amount of the commission so received by him.'^^ 75. Federal. — Chandler v. Bacon, 371; Emma Silver Mining Co. v. 30 Fed. Rep. 538. Lewis, L. R. 4 C. P. D. 396, 408- Connecticut. — Tale Gas Stove Co. 409; Lydney & Wigpool Iron Ore v. Wilcox, 64 Conn. 101, 121-122, Co. v. Bird, L. R. 33 Ch. Div. 85, 125-128, 29 Atl. 303, 25 L. R. A. 90, 94 ; Whaley Bridge Calico Printing 42 Am. St. Rep. 159, 47 Am. & Eng. Co. v. Green, L. R. 5 Q. B. D. 109, Corp. Cas. 647. 112, 28 W. R. 351 ; Phosphate Iowa. — The Telegraph v. Loet- Sewage Co. v. Hartmont, L. R. 5 scher, 127 Iowa 383, 101 N. W. 773, Ch. Div. 394, 441^42, 457, 46 L. J. 4 A. & B. Ann. Cas. 667. Ch. 661 ; In re Hess Manufacturing Massachusetts. — Emery v. Par- Co., 23 Can. S. C. 644, 659. rott, 107 Mass. 95, 100, 104; Hay- The diotum in Second National ward V. Leeson, 176 Mass. 310, Bank v. Greenville Screw-Point 322, 57 N. E. 656, 49 L. R. A. 725. Steel Fence Post Co., 23 Ohio C. C. United Kingdom and Colonies. — 274, 280, probably intends nothing Bagnall v. Carlton, L. R. 6 Ch. Div. to the contrary. REMEDIES OF CORPORATION. 329 The same remedy is open to the corporation if the promoter receives, as a gift from a vendor to the corporation, the shares nec- essary to qualify the promoter as a director, or if the promoter by any other means unlawfully procures for his own benefit without consideration any money, securities, or other benefits^® The promoter may, if his profit is received in shares, be com- pelled to surrender such shares to the company or to pay the value thereof, or to account for the proceeds of such shares as he has sold.''^ If the profit is received by the promoter in the bonds or notes of the company, the corporation may, unless the securities have come into the hands of a bona fide holder, repudiate liability thereon, and either defend' a suit brought to enforce the same, or maintain an action in equity for the cancellation thereof.''* If the promoters obtain from a person selling property to the corporation a secret agreement to pay them a commission or other compensation for services, the corporation may, if the fact is discovered before the agreed compensation is paid, compel its vendor to pay the amount of the agreed commission directly to it.^® If payment has before that time been made, the vendor may still be held liable to the corporation as a kind of surety for the promoters and, if the corporation is unable to obtain satisfaction from the promoters, be made to pay the agreed compensation a second time.*" These questions, as well as that relating to the right 76. Hayward v. Leeson, 176 Mass. 77.^ See ChandleF v. Bacon, 30 310, 57 N. E. 656, 49 L. R. A. 725; Fed. Rep. 538; Hayward v. Leeson, Colton Improvement Co. v. Richter, 176 Mass. 310, 322, 57 N. E. 656, 49 26 N. Y. Misc. 26, 32, 55 Supp. 486 ; L. R. A. 725 ; Emery v. Parrott, 107 Wills V. Nehalem Coal Co., 52 Or. Mass. 95, 100, 104; Nant-T-Glo & 70, 81, 86, 96 Pac. 528, 532, 534; Blaina Ironworks Co. v. Grave, L. London Trust Co. v. Mackenzie, 62 R. 12 Ch. Div. 738, 749, 750, and see L. J. Ch. N. S. 870, 877, and see ante, § 165. ante, § 94. 78. gee ante, § 166. Of. dictum, in Tyrrell v. Bank of 79. See post, § 288-289. London, 10 H. L. Cas. 26, 59, 11 80. See post, § 290. Eng. Rep. 934. 330 THE LAW OF PROMOTERS. of the corporation to rescind its purchase because of a secret com- mission paid by the vendor to the promoters, are discussed at greater length in a subsequent chapter.*^ § 175. Remedies in case of fraudulent representations. A promoter guilty of making fraudulent representations to the corporation may be sued at law for fraud and deceit. It is in such case immaterial whether the property belonged to the promoter or another, or whether the promoter gained anything by his repre- sentations.*^ A sale induced by the false representations of the promoters may be set aside ®^ whether or not the representations were au- thorized by the vendor, for he cannot insist on the validity of the sale while repudiating the fraud by which it was induced.®* If it is shown that the false representations which induced the purchase by the corporation were made by the promoters with the authority of the vendor, or if the vendor in any way assisted the promoters in defrauding the company, he may be held liable with the promoters as a joint tort feasor. ^^ If the false representations of the promoter, complained of by the corporation, are representations made by the promoter in regard to the cost to him of property which he is selling to the corporation, he may be compelled to account for the whole or a part of his profits upon such sale according to the nature of his misrepresentations.** 81. See post, chapter XVI. 1902, 2 Ch. Div. 809, and see post, 82. The Telegraph v. Loetscher, § 245. 127 Iowa 383, 38T, 101 N. "W. 7T3, 83. Phosphate Sewage Co. v. 4 A. & B. Ann. Gas. 667, (citing Hartmont, L. R. 5 Ch. Div. 394, 46 Morawetz on Corporations, § 546) ; L. J. Ch. 661, and see post, § 286. Second National Bank v. Greenville 84. See post, § 286. Screw-Point Steel Fence Post Co., 85. See post, § 287. As to false 23 Ohio C. C. 274, 280; In re Leeds representations generally, see post, & Hanley Theatres of Varieties, chapter XI. 86. See ante, § 162. REMEDIES OF CORPORATION. 331 There is some authority for the rule that a promoter who falsely represents that a certain number of shares of a corpora- tion have been subscribed for, may be compelled to take and pay for a sufficient number of shares to make his representation good : but the weight of authority seems to be that no contract with the corporation arises from such a representation, and that the only liability of the promoter is one for damages to such persons as may have been deceived by his representation.*'' It is held in one case that promoters who falsely represent that the liabilities of one of the constituent companies taken into a consolidation, do not exceed a sum named, may be compelled to indemnify the consolidated company against the payment of any liabilities in excess of that sum.*^ § 176. Liability of directors, officers, etc. It has been held that directors who cause unlawful payments to be made to a promoter become liable to the corporation for the repayment of all sums so paid.*® The officers of the corporation may likewise become personally liable because of a payment un- lawfully made by them to the promoter, and resort may no doubt in a proper case be had to the sureties upon their bonds. In First Avenue Land Co. v, Hildebrand,®*' Hildebrand had received authority from the owner to sell certain property at $2500 an acre, it being agreed that Hildebrand should receive as his commission all that he obtained beyond that price. He, together with four others, organized a corporation to purchase the land at $2700 per acre. The profit, amounting to $8250, was divided among the five promoters in various amounts. Four of the promoters subscribed 87. See post, § 215. 88. O'SuUivan v. Clarkson, 9 As to the remedy.for false certi- Ont. W. R. 46. ficates as to the amount actually 89. In re Anglo-French Co-opera- paid in, see Hequembourg v. Ed- tive Society, L. R. 21 Ch. Div. 492. wards (Mo.) 50 S. W. 908, and cases And see Gray v. Heinze, 82 N. Y. cited, (reversed, 155 Mo. 514, 56 S. Misc. 618, 144 Supp. 1045. W. 490), and see post, § 201n. 90. 103 Wis. 530, 79 N. W. 753. 332 THE LAW OF PKOMOTERS. for the stock of the new corporation. Hildebrand, who had been made treasurer of the company, credited their respective portions of the profits against the subscriptions of these four promoters, two of them whose portion of the profits exceeded their subscrip- tion receiving a small balance in cash. The fifth promoter, one Seidenschwarz, did not subscribe for any stock, and was paid his entire profit in cash. Hildebrand made a report as treasurer, in which he charged himself with having received as the first assess- ment on the stock subscriptions, the sum of $22,680 instead of the $14,430 actually received, and credited himself with a first pay- ment on the land of $18,375 instead of the $10,125 actually paid. The corporation, on discovering the facts, brought suit against the sureties on the bond given by Hildebrand as treasurer of the corporation. The court held that the treasurer's report was not conclusive upon his sureties, and that the latter were only liable for moneys actually received ; that the sureties were not liable for the payment to Seidenschwarz because that payment was made before the bond was given; that the sureties were liable for the cash balances paid to two of the other promoters, such payments having been made after the bond was given ; that the crediting of the profits against the stock subscriptions resulted simply in the issue of stock without payment, that the promoters receiving such stock were liable therefore to the corporation; that it might be that if it were shown that this stock had been transferred to inno- cent parties and that the corporation was unable to make collec- tion, the treasurer and his sureties would be liable. No such show- ing having been made the judgment in favor of the plaintiiF was reversed and a new trial granted. § 177. Cancellation of secret agreements. In Fred Macey Co. v. Macey,®^ the defendant, one of the pro- 91. 143 Mich. 138, 106 N. W. 722, 115 N. W. 966. 5 L. R. A. N. S. 1036, 152 Mich. 164, REMEDIES OF CORPORATION. 333 moters of the plaintiff corporation, had in the course of the or- ganization of the company, without the knowledge of the subscrib- ers, obtained a contract which purported to obligate the company to pay him royalties on the patents which it was organized to prac- tice. > A bill in equity demanding the cancellation of this agree- ment was held good upon demurrer. § 178. Adequate remedy to be freely granted. It should in closing this chapter on the remedies of the corpo- ration be said that when a promoter " has committed a breach of trust, there is no occasion to be over-solicitous to see that the faithless fiduciary should not make reparation for the wrong done," ®^ and that when once it has been shown that a promoter has been guilty of a fraud upon the corporation, the courts will make every possible effort to find some adequate remedy for the wrong. 92. Old Dominion Copper, etc., 89 N. E. 193, 40 L. R. A. N. S. 314. Co. v. Bigelow, 203 Mass. 159, 202, CHAPTER X. Of Suits by, oe on Behalf of, Coepoeation. Section 179. Introductory. 180. Suits by the corporation. 181. Suits by receiver of corporation. 182. Minority stockholders' suits. 183. Stockholders' suits after receivership. 184. Suits by stockholders other than original subscribers. 185. Further of minority stockholders' suits. 186. The same subject. — Judicial discretion. 187. Rescission at suit of minority stockholder. 188. Minority stockholder intervening to defend suit against cor- poration. 189. Suits by creditors of corporation. 190. Parties defendant. 191. Actions against presonal representatives of deceased promoter. 192. Parties defendant In minority stockholders' suits. 193. Suits at law and in equity. 194. The same subject. — Rescission. 195. Joinder of actions. 196. Actions against promoters, transitory. 197. Conflict of laws. § 179. Introductory. Questions as to the proper parties to maintain a suit for the redress of wrongs done to the corporation by its promoters, as to the parties to be joined as defendants, and other matters incidental to such suits, arise from time to time. It is proposed in this chapter briefly to discuss these questions. § 180. Suits by the corporation. It might, at the present day, seem unnecessary to state that an (334) SUITS BY CORPORATION. 335 action to redress a wrong done to a corporation by its promoters, may be maintained by the corporation itself. This proposition wais, however, at one time vigorously contested. It was claimed in Phosphate Sewage Co. v. Hartmont,^ that the plaintiff corpora- tion " was a fluctuating body " and that it might be that no per- son who was a member at the time of the transaction complained of, remained a member of the plaintiff corporation at the time of the suit. The vice chancellor held that he was bound to consider the company as a body having perpetual existence, and that he was not at liberty to go into the question of the individuals of whom it was composed.^ A similar plea was made, and likewise overruled in New Sombrero Phosphate Co. v. Erlanger.^ It is, however, held in a recent Maryland case that a suit aris- ing out of a wrong done to the corporation by its promoters, can- not be maintained by a receiver of the corporation, unless it ap- pears that some of those who held shares at the time of the suit, held their shares at the time of the wrong complained of.* This ruling rests upon a complete misapplication of the authorities cited and may safely be disregarded."^ It is now well settled that the taking, by the promoters, of a secret profit, or the unlawful sale by them of their own property to the corporation, or the commission by the promoters of any other fraud upon the corporation, is an injury to the company in its 1. L. R. 5 Ch. Div. 394, 440, 46 216, 28 Sup. Ct. 634, 52 L. Ed. 1025, L. J. Oh. 661. and cases cited. 2. Citing Charitable Corporation 3. L. R. 5 Ch. Div. 73, 121, 122, V. Sutton, 2 Atk. 400; Society for 25 W. R. 436, affirmed, sub nom. Illustration of Practical Knowledge Erlanger v. New Sombrero Phos- V. Abbott, 2 Beav. 559; McKay's phate Company, L. R. 3 App. Cas. case, L. R. 2 Ch. Div. 1; Overend & 1218, 6 Eng. Rul. Cas. 777, 39 L. T. Gurney Co. v. Gibb, L. R. 5 H. L. N. S. 269, 27 W. R. 65. 480; Lindsay Petroleum Company 4. Tompkins v. Sperry, Jones & V. Hurd, L. R. 5 P. C. 221. Co., 96 Md. 560, 583-584, 54 Atl. 254. See also Old Dominion Copper, 5. This question is discussed at etc., Co. V. Lewisohn, 210 U. S. 206, greater length in § 184, post. 336 THE LAW OF PROMOTEES. corporate capacity and gives rise to a cause of action which may be prosecuted by the corporation ^ or its assignee.'' § 181. Suits by the receiver of the corporation. A suit may, after the company has gone into the hands of a receiver, be prosecuted by him.* The suit must, however, in some 6. Federal. — Commonwealth S. S. Co. V. American Shipbuilding Co., 197 Fed. Eep. 797, 805, affirmed, 215 Fed. Eep. 296, 131 C. C. A. 596. Alaiama. — Moore v. Warrior Coal & Land Co., 178 Ala. 234, 59 So. 219, Am. & Eng. Ann. Cas., 1915 B. 173. Arizona. — Hughes v. Cadena De Cobre Min. Co., 13 Ariz. 52, 61, 108 Pac. 231, 236. ConnectiGut. — Yale Gas Stove Company v. Wilcox, 64 Conn. 101, 128-129, 29 Atl. 303, 25 L. E. A. 90, 42 Am. St. Eep. 159, 47 Am. & Eng. Corp. Cas. 647. Massachusetts. — 1 d Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 192, 89 N. E. 193, 40 L. E. A. N. S. 314. Missouri. — Exter v. Sawyer, 146 Mo. 302, 324, 47 S. W. 951, 956- 957. New Jersey. — Arnold v. Searing, 78 N. J. Eq. 146, 161-163, 78 Atl. 762, 768-769; Bigelow v. Old Do- minion Copper, etc., Co., 74 N. J. Eq. 457, 506, 71 Atl. 153. New York. — Colton Improvement Co. V. Eichter, 26 Misc. 26, 31, 55 Supp. 486. Oregon. — Wills v. Nehalem Coal Company, 52 Or. 70, 77-78, 86, 96 Pac. 528, 531, 534. Pennsylvania. — Simons v. Vulcan Oil & Mining Company, 61 Pa. 202, 221, 100 Am. Dec. 628. Wisconsin. — Pittsburg Mining Company v. Spooner, 74 Wis. 307, 321, 42 N. W. 259, 261, 17 Am. St. Eep. 149, 24 Am. & Eng. Corp. Cas. 1; Hebgen v. Koeffler, 97 Wis. 313, 320, 72 N. W. 745, 747. See also cases cited in notes 1, 2 and 3, supra. 7. See Commonwealth S. S. Co. v. American Shipbuilding Co., 197 Fed. Eep. 780, 794; same v. same, 197 Fed. Eep. 797, affirmed, 215 Fed. Eep. 304, 131 C. C. A. 604 ; Bigelow V. Old Dominion Copper, etc., Co., 74 N. J. Eq. 457, 490, 71 Atl. 153. There might be some difficulty in the way of allowing the company's assignee to maintain a suit for the rescission of its purchase, but where the corporation has been reorganized or merged with other corporations. Its purchase may be rescinded at the suit of the successor company. American Shipbuilding Co. v. Com- monwealth S. S. Co., 215 Fed. Rep. 304, 131 C. C. A. 604, affirming, 197 Fed. Eep. 797; same case on de- murrer, 197 Fed. Eep. 780, 794. 8. Hay ward v. Leeson, 176 Mass. 310, 57 N. E. 656, 49 L. E. A. 725; Tompkins v. Sperry, Jones & Co., 96 Md. 560, 583-584, 54 Atl. 254, 258-259; Arnold v. Searing, 78 N. J. Eq. 146, 161, 78 Atl. 762. As to suits by receivers appointed in another jurisdiction, see Converse SUITS BY CORPORATION. 337 jurisdictions, be brought by the receiver in the name of the corpo- ration.' § 182. Minority stockholders' suits. It frequently happens that a corporation continues, after its complete organization, under the control of its promoters, who naturally prevent its bringing suit against themselves. It then becomes necessary for the minority stockholders to prosecute the company's claim.-^" While a lengthy discussion of the subject of minority stock- holders' suits would be out of place, a brief reference to some of V. HamUton, 224 U. S. 243, 257, 32 Sup. Ct. 415, 56 L. Ed. 749, Am. & Eng. Ann. Gas., 1913 D. 1292, and cases cited. 9. Hayward v. Leeson, 176 Mass. 310, 324-325, 57 N. E. 656, 49 L. R. A. 725; Wilson v. Welch, 157 Mass. 77, 80, 31 N. E. 712, and cases cited. Homer v. Barr Pumping Engine Co., 180 Mass. 163, 61 N. E. 883, 91 Am. St. Rep. 269, and cases cited. Proceedings erroneously com- menced in the name of the receiver may be amended by substituting the corporation as plaintiff. Hayward v. Leeson, 176 Mass. 310, 326, 57 N. E. 656, 49 L. R. A. 725 ; Wilson v. Welch, 157 Mass. 77, 81, 31 N. E. 712; Philadelphia & Reading Coal & Iron Co. v. Butler, 181 Mass. 468, 63 N. E. 949; East Tennessee Land Co. v. Leeson, 178 Mass. 206, 59 N. E. 639; Arnold v. Searing, 78 N. J. Bq. 146, 162-163, 78 Atl. 762, 769. 10. Alaiama. — ^Moore v. Warrior Coal &'Land Co., 178 Ala. 234, 69 So. 219, Am. & Eng. Ann. Cas., 1915 B. 173. Missouri. — Exter v. Sawyer, 146 Mo. 302, 324, 47 S. W. 951, 956, 957. New Jersey. — ^Arnold v. Searing, 73 N. J. Eq. 262, 269, 67 Atl. 831; same v. same, 78 N. J. Eq. 146, 161, 78 Atl. 762 ; Groel v. United Electric Co. of N. J., 70 N. J. Eq. 616, 623, 61 Atl. 1061. Oregon. — Wills v. Nehalem Coal Co., 52 Or. 70, 87, 96 Pac. 528, 534. Pennsvlvama. — ^McAleer v. Mc- Murray, 6 Phila. 244. Wisconsin. — ^Hebgen v. Koeffler, 97 Wis. 313, 72 N. W. 745; Pietseh V. Milbrath, 123 Wis. 647, 101 N. W. 388, 102 N. W. 342, 68 L. B. A. 945, 107 Am. St. Rep. 1017; Simon v. Weaver, 143 Wis. 330, 127 N. W. 950. United Kingdom and Colonies. — Hichens v. Congreve, 4 Russ. 562, 575. See also Burland v. Earle, 1902, App. Cas. 83, 93 ; Foss v. Harbottle, (1831), 2 Hare 461, 491-^95. See cases cited in succeeding notes, and see note to Tale Gas Stove Co. V. Wilcox, 25 L. R. A. 102. The plaintiff is, if successful in his suit, entitled to reimbursement for attorneys' fees and other ex- penses, to be paid out of the moneys 338 THE LAW OP PROMOTERS. the rules applicable thereto may not be amiss.^^ A minority stock- holder maintaining a suit for the benefit of the corporation, must allege and prove a request made to the board of directors that they cause the corporation to bring the suit and the refusal of the directors so to do,^^ or that the directors or a majority of them recovered for the corporation. Gra- ham V. Machine Works, 138 Iowa 456, 114 N. W. 619, 15 L. R. A. N. S. 729; Forrester v. Boston & Mon- tana Con. Copper, etc., Co., 29 Mont. 397, 74 Pac. 1088, 76 Pac. 211. 11. As to minority stockholders* suits in general, see note to Johns V. McLester, 97 Am. St. Rep. 27. Whether a minority stockholders' action may be maintained by the mere equitable owner of shares not transferred to him upon the books of the company is a question of some doubt. To the effect that the suit may be maintained by the un- registered holder of shares, see Par- rott V. Byers, 40 Cal. 614, 625 ; Bag- shaw V. Eastern Union Ry., 7 Hare 114, 132, affirmed, 2 Mac. & G. 389, 19 L. J. Ch. N. S. 410, and see The Great Western Ry. Co. v. Rushout, 5 DeGex & Sm. 290. To the con- trary, see Heath v. Erie Railway Company, 8 Blatch. 347, 11 Fed. Cas. 976, 999; Brown v. Duluth M. & N. Ry. Co., 53 Fed. Rep. 889, 894. The question is left open in Moore V. Silver Valley Mining Company, 104 N. C. 534, 544, 10 S. E. 679, 682- 683, and in Mills v. Northern Rail- way of Buenos Ayres Co., L. R, 5 Ch. App. 621, 628. 12. Federal. — Krohn v. William- son, 62 Fed. Rep. 869, 872-873, af- firmed, sub nom. Williamson v. Krohn, 66 Ted. Rep. 655, 13 C. C. A. 668, 31 U. S. App. 325; Dlmpfel V. Ohio & Miss. Ry. Co., 110 U. S. 209, 3 Sup. Ct. 573, 28 L. Ed. 121; Robinson v. West Virginia Loan Co., 90 Fed. Rep. 770; Hawes v. Oak- land, 104 U. S. 450, 461, 26 L. Ed. 827 ; Whitney v. Fairbanks, 54 Fed. Rep. 985. California. — Burbank v. Dennis, 101 Cal. 90, 105, 35 Pac. 444, 449. Massachusetts. — Peabody v. Flint, 88 Mass. 52, 56. Missouri. — Eiter v. Sawyer, 146 Mo. 302, 319, 47 S. W. 951, 956-957; Vogeler v. Punch, 205 Mo. 558, 103 S. W. 1001. New Jersey. — Knoop v. Bohmrich, 49 N. J. Eq. 82, 84, 23 Atl. 118, affirmed, sub nom. Bohmrich v. Knoop, 50 N. J. Bq. 485, 2J Atl. 636. New York. — Colton Improvement Co. V. Richter, 26 Misc. 26, 31, 55 Supp. 486 ; Langdon v. Fogg, 14 Abb. N. C. 435; Corning v. Barrett, 22 Misc. 241, 48 Supp. 1013 ; Greaves v. Gouge, 69 N. Y. 154. Oregon. — Wills v. Nehalem, 52 Or. 70, 87, 96 Pac. 528, 534. Wisconsin. — Praney v. Warner, 96 Wis. 222, 227, 71 N. W. 81, 82-83. As to pleading the request and refusal, see Continental Securities Co. V. Behnont, 206 N. T. 7, 99 N. SUITS BY CORPORATION. 339 are themselves the persons, or subject to the control of the persons, against whom the suit is brought.^^ A request to such directors that they institute suit would presumably be refused,^* and if it should be granted the litigation, being under the control of per- sons opposed to its success, would be necessarily unsatisfactory and inconclusive.-'® The right to maintain a minority stockholder's suit may also rest upon any other state of facts which renders it reasonably certain that a suit by the corporation would be impos- sible or inexpedient.-'® That the board of directors is subject to the control of the parties to be sued may be inferred from the fact that such parties are the holders of a great majority of the corporate stock.^'' A suit on behalf of the corporation may be maintained by the mi- nority stockholders even though the plaintiff stockholders them- selves constitute or control the majority of the directors, if the de- fendants, on the other hand, control a majority of the stock. It is in such case clear that any suit instituted by the corporation would be suppressed by the defendants as soon as a new board of di- rectors could be elected.-'® E. 138, 51 L. R. A. N. S. 112, Am. rich, 49 N. J. Eq. 82, 85, 23 Atl. 118, & Eng. Ann. Gas., 1914 A. 777. affirmed, sub nom. Bohmrich v. 13. See cases cited in notes 14 Knoop, 50 N. J. Eq. 485, 27 Atl. 636 ; and 15. BrlnckerhofC v. Bostwick, 88 N. T. 14. Mason v. Carrothers, 105 Me. 52, 59; Averill v. Barber, 25 N. T. 392, 409, 74 Atl. 1030, 1037; Knoop St. Rep. 194, 6 Supp. 255, 2 Silv. V. Bohmrich, 49 N. J. Eq. 82, 84, 40, 53 Hun 636 ; Corning v. Barrett, 23 Atl. 118, affirmed, sub nom. 22 N. Y. Misc. 241, 48 Supp. 1013; Bohmrich v. Knoop, 50 N. J. Eq. Simon v. Weaver, 143 Wis. 330, 127 485, 27 Atl. 636; Wills v. Nehalem N. W. 950. Coal Company, 52 Or. 70, 87, 96 Pac. 16. Wills v. Nehalem Coal Com- 528, 534, (citing Pomeroy's Equity pany, 52 Or. 70, 87-88, 96 Pac. 528, Jurisprudence, (3rd. Ed.), Vol. 3, 534-535, quoting Pomeroy's Equity § 1095) ; Franey v. Warner, 96 Wis.. Jurisprudence, (3rd. Ed!), Vol. 3, 222, 227, 71 N. W. 81, 82-83. § 1095. See, however. Brewer v. Boston 17. Wills v. Nehalem Coal Corn- Theatre, 104 Mass. 378, 388. pany, 52 Or. 70, 88, 96 Pac. 528, 15. Brewer v. Boston Theatre, 535. 104 Mass. 378, 387 ; Knoop v. Bohm- 18. Mason v. Carrothers, 105 Me. 340 THE LAW OF PROMOTERS. A question on which there is some uncertainty is that of the nec- essity of showing a demand to bring suit, not only upon the board of directors, but upon the stockholders as well. The law seems to be that in the ordinary case, where the means of redress lies in the hands of the board of directors and the stockholders have no power or authority in relation thereto, a demand upon the stock- holders would be useless and unnecessary and need not be alleged or proved. If the subject matter of the stockholders' complaint is for any reason within the immediate control of the vote of the stockholders the matter must be brought to their attention before suit is commenced unless, of course, it appears from the facts that such application could not be expected to receive fair consider- ation.^* § 183. Stockholders' suits after receivership. After the company has gone into the hands of a receiver, the stockholders may, in case of the reteiver's refusal to bring suit against the promoters, maintain a suit as stockholders, joining the receiver, the corporation and the guilty promoters as parties de- fendant.^" The stockholders must, in such case, prove that they have an actual interest in the prosecution of the suit, and would as stockholders be the gainers by a recovery, in other words, that 392, 409, 74 Atl. 1030, 1037. Cf . See note to Continental Securities Brewer v. Boston Theatre, 104 Mass. Co. v. Belmont, Am. & Eng. Ann. 378, 389, et seq. Cas., 1914 A. 777, 782. Also note 19. Brewer v. Boston Theatre, to same case, 51 L. R. A. N. S. 112. 104 Mass. 378, 387 ; Continental 20. Porter v. Sabin, 149 U. S. 473, Securities Co. v. Belmont, 206 N. Y. 13 Sup. Ct. 1008, 37 L. Ed. 815; 7, 16-19, 99 N. E. 138, 51 L. R. A. Ackerman v. Halsey, 37 N. J. Eq. N. S. 112, Am. & Eng. Ann. Cas., 356, 362, affirmed, suh nom. Halsey 1914 A. 777, affirming, 150 N. Y. App. v. Ackerman, 38 N. J. Eq. 501 ; Div. 298, 134 Supp. 635. But see, Brinckerhoff v. Bostwick, 88 N. Y. however, Hawes v. Oakland, 104 U. 52. S. 450, 461, 26 L. Ed. 827, and For a suit after bankruptcy, see Moore v. Silver Valley Mining Co.,. Meyer v. Page, 112 N. Y. App. Div. 104 N. C. 534, 10 S. E. 679. 625, 627, 98 Supp. 739. SUITS BY CORPORATION. 341 ,there will, in the case of a recovery against the promoters, be a surplus for distribution among the stockholders.^^ If, after paying the debts, there remains in the hands of the re- ceiver a surplus to be apportioned pro rata among the sharehold" ers, an innocent stockholder may bring a suit for the cancellation of such shares as were unlawfully issued to the promoters, thereby increasing the moneys to be distributed among the bona fide stock- holders.*^ § 184. Suits by stockholders other than original subscribers. A minority stockholder suing in the Federal courts must allege that he was a shareholder at the time of the transaction of which he complains, or that his shares have devolved on him since by operation of law, and that the suit is not a collusive one to confer, on a court of the United States, jurisdiction of a case of which it would not otherwise have cognizance.*^ As the transactions of the promoters are generally consummated before the shares of the corporation have to any considerable extent been dealt in, this rule in practical effect confines minority stockholders' suits against promoters, to the original subscribers. This rule of the Federal courts, first announced in Hawes v. Oakland,** and subsequently embodied in Equity Rule No. 94, 21. Darragh v. Wetter Mfg. Co., Robinson v. West Virginia Loan 78 Fed. Rep. 7, 15-16, 23 C. C. A. Company, 90 Fed. Rep. 770 ; Whit- 609, 49 U. S. App. 1; Corning v. ney v. Fairbanks, 54 Fed. Rep. 985. Barrett, 22 N. Y. Misc. 241, 48 Supp. Rules of Practice in Equity, No. 94. 1013; Bentinck v. Fenn, L. R. 12 For the purpose of determining App. Cas. 652, 664r-665, 666-667, the jurisdiction of the Federal 671-672. courts, the amount involved in the 23. Weber v. Nichols, 75 N. J. Eq. minority stockholders' suit is to be 117, 75 Atl. 997. taken as the amount claimed on 23. Hawes v. Oakland, 104 U. S. behalf of the corporation and not 450, 452, et seq., 26 L. Ed. 827; the minority stockholders' interest Dimpfel v. Ohio & Miss. Ry. Co., 110 therein. Hill v. Glasgow R. R. Co., U. S. 209, 3 Sup. Ct. 573, 28 L. Ed. 41 Fed. Rep. 610. Foster's Federal 121; Taylor v. Holmes, 127 TJ. S. Practice, § 16-J. 489, 32 L. Ed. 179, 8 Sup. Ot. 1192 ; 24. 104 V. S. 450, 26 L. Ed. 827. 342 THE LAW OF PROMOTERS. seems to be, not a general principle of law applicable to pleadings in all courts, but a rule adopted to save the Federal courts from the burden of cases not properly within their jurisdiction. Many of the state courts, accepting this view of the rule, hold that it has no application to a suit in the state courts.^® Some state courts, however, follow the rule of Hawes v. Oak-, land, in most cases without discussion.^® In Home Fire Ins. Co. v. Barber,^'^ however, the court stated that the rule, while designed in part to prevent collusive proceedings in fraud of the jurisdic- tion of the Federal courts, goes far beyond the requirements of such a purpose. " If that were the sole purpose of the rule, it should go no further than to prevent such suits where the vendor of the stock was a citizen of the same state as the corporation. If the vendor and purchaser were citizens of the same state, and the 25. Alabama. — Parson v. Joseph, 92 Ala. 403, 8 So. 788 ; Montgomery L. & P. Co. V. Lahey, 121 Ala. 131, 25 So. 1006. Idaho. — Just V. Idaho Canal & Imp. Co., 16 Idaho 639, 102 Pac. 381, 133 Am. St. Rep. 140. Montana. — Forrester v. Boston & M. Consol. Copper & Silver Mining Co., 21 Mont. 544, 565, 55 Pac. 229, 353. New Hampshire. — W i n s o r v. Bailey, 55 N. H. 218. 2Vew Torfc.— PoUitz v. Gould, 202 N. Y. 11, 14, 94 N. E. 1088, 38 L. R. A. N. S. 988, Am. & Eng. Ann. Cas., 1912 D. 1098; Continental Securities Co. V. Belmont, 206 N. Y. 7, 99 N. E. 138, 51 L. R. A. N. S. 112, Am. & Eng. Ann. Cas., 1914 A. 777; Con- tinental Securities Co. v. Belmont, 83 Misc. 340, 355-356, 144 Supp. 801, 811, affirmed, 168 App. Div. 483, 154 3upp. 54. Oregon. — Wills v. Nehalem Coal Company, 52 Or. 70, 82, 88, 96 Pac. 528, 533, 535. Morawetz on Private Corpora- tions, §§ 269, 270. See also note to PoUitz V. Gould, Am. & Eng. Ann. Cas., 1912 D. 1102. 26. C olorad o. — JBoldenweck v. BuUis, 40 Colo. 253, 90 Pac. 634. Georgia. — Alexander v. Searcy, 81 Ga. 536, 8 S. E. 630, 12 Am. St. "Rep. 337. Iowa. — Clark v. American Coal Co., 86 Iowa 436, 53 N. W. 291, 17 L. R. A. 557. 2few Mexico. — Rankin v. South West Brewery & Ice Co., 12 N. M. 54, 73 Pac. 614. 'North CaroUna. — Moore v. Silver Valley Mining Co., 104 N. C. 534, 10 S. E. 679. See also note to Pollltz v. Gould, Am. & Eng. Ann. Cas., 1912 D. 1098, 1101. 27. 67 Neb. 644, 657-658, 93 N. SUITS BY CORPORATION. 343 vendor, an original stockholder, had never had the same citizenship as the corporation, no fraud on the jurisdiction of the court would be possible, and in such case, if recovery were proper and the pur- chaser's cause were meritorious, it would be highly unjust for the court to abrogate its jurisdiction. * * * * The rule has its foundation in a sound and wholesome principle of equity, — namely, that the rules worked out by chancellors in furtherance of right and justice shall not be used, because of their technical char- acter, as rules, to reach inequitable or unjust results." It was held in Tompkins v. Sperry Jones,^® an action brought against the promoters by the receivers of an insolvent corporation, that an allegation that some of " the present bond or stockholders were the original holders of those securities or that they received them from the defendants or from either of them " is necessary to enable the receiver to maintain his suit. This extension of the rule of Hawes v. Oakland seems to be supported neither by prin- ciple nor authority. It may be stated without fear of contradiction that even in the courts of the United States, or of those states which apply the rule of Hawes v. Oakland, it would in any case be sufficient for the plaintiff to show that he had subscribed for the stock at the time of the transaction complained of, though the share certificates were not issued to him until a later date. It has been said that the rule would not in any event prevent a suit by an original subscriber, although subscribing for his stock at a time subsequent to the transactions complained of, as the contractual rights of such subscriber with the corporation, and with every other subscriber, are, by relation, co-extensive with the legal existence of the corpo- ration.^^ § 185. Further of minority stockholders' suits. A suit against the promoters cannot be maintained for the W. 1024, 60 L. R. A. 927, 934, 108 39. See Wills v. Nehalem Coal Am. St. Rep. 716. Company, 52 Or. 70, 83-86, 96 Pac. 28. 96 Md. 560, 54 Atl. 254. 528, 534. 344 THE LAW OF PROMOTERS. benefit of the corporation by a minority stockholder who was him- self a party to, or who acquiesced in, the fraud of which he com- plains.^** As the transferee of shares stands in the shoes of his transferor and is bound by his acts, an action on behalf of the corporation does not lie at the suit of a minority stockholder whose predecessors in title would, because of their participation or ac- quiescence, be debarred from maintaining such suit.'-* It has been said that a shareholder, though he purchased his shares with knowledge of the promoters' fraud, may successfully maintain his suit as a minority stockholder if his transferor was in a position so to do.^* The action could not be maintained by a shareholder who purchased his shares for the purpose of bring- ing the suit.** If the plaintiff purchased his shares only so as to bring suit, he has not been prejudiced by the transaction of which he complains. If a person actually deems the stock of a corpo- ration a desirable investment, the fact that this stock can be made more valuable by a suit against the promoters, is no reason why he should not purchase the stock even though he make the pur- 30. See ante, § 145. v. Rome, Watertown & Ogdensburgh 31. See ante, § 145. ' R. R. Co., 30 Hun (N. Y.) 73; Sayles 32. Lagunas Nitrate Company v. v. Central National Bank of Rome, Lagunas Syndicate, 1899, 2 Ch. Div. 18 N. T. Misc. 155, 41 Supp. 1063, 392, 449, by Rigby, L. J., who was, reversed on another ground, {sub however, in the minority on the de- nam. Sayles v. White), 18 N. Y. cisive points of the case. App. Dlv. 590, 46 Supp. 194 ; Moore See Ellis v. Penn Beef Co., 9 Del. v. Silver Valley Mining Co., 104 N. Ch. 213, 218, 80 Atl. 666, 668; Pol- C. 534, 545, 10 S. E. 679, 688. litz V. Wabash R. R., 150 N. Y. App. See note to PoUitz v. Gould, Am. Div. 709, 713, 135 Supp. 785 ; Young & Eng. Ann. Cas., 1912 D. 1098. V. Drake, 8 Hun (N. Y.) 61. 1102-1103. Contra Langdon v. Fogg, 14 Abb. Compare Pollitz v. Wabash R. R., N. C. (N. Y.) 435, citing Hawes v. 150 N. Y. App. Div. 709, 713, 135 Oakland, 104 U. S. 450, 460-^61, Supp. 785, where the court seems to 26 L. Ed. 827, which is not really lose sight of the distinction between in point — see preceding section. examining into the motives of .i 33. Boldenweck v. Bullis, 40 Col. bona fide stockholder in bringing 253, 90 Pac. 634 ; Just v. Idaho Can. suit, and looking into the motives of & Imp. Co., 16 Idaho 639, 102 Pac. the plaintife in becoming a stock- 381, 133 Am. St. Rep. 140 ; Kingman holder. SUITS BY CORPORATION. 345 chase with such suit in view, but if the stock is not of itself de- sirable, and the intended suit is the sole reason for the purchase, the plaintiff can save himself from the effects of the promoters' transactions by not purchasing the stock, and he should not be heard to complain of the promoters' frauds. The fact that the plaintiff had as promoter, or otherwise, com- mitted a fraud upon the corporation would not affect his right to maintain a minority stockholder's suit on its behalf, based upon a distinct and independent fraud with which the plaintiff had no connection.^* § 186. The same subject — Judicial discretion. It has been said that " it is a matter of discretion in the court whether to permit a suit to be brought by a stockholder on behalf of his corporation, and that the court will exercise its discretion, having in view the circumstances of the parties, their relationship to each other and to the cause of action, the refusal to sue, &c." ^^ The purpose of a minority stockholder's suit is to prevent those in control of the corporation from working a fraud. If, though the corporation has a good cause of action against the promoters, there be some question as to the advisability of bringing suit thereon, the court will not interfere with the determination of the directors not to sue, if it appears that such determination was ar- rived at by a fair exercise of the directors' discretion.^® § 187. Rescission at suit of minority stockholder. It follows from what is said in the preceding section that there is in general considerable difficulty in maintaining a minority stock- holder's suit for the rescission of a purchase made by the corpo- 34. Averill v. Barber, 25 N. Y. Supp. 369, dissenting opinion of St. Rep. 194, 197, et seg., 6 Supp. Hatch, J. 255, 2 Sllv. 40, 53 Hun 636. 36. Hawes v. Oakland, 104 TJ. S. 35. Groel v. United Electric Co. 450, 456-457, 26 L. Ed. 827; Groel of N. J., 70 N. J. Eq. 616, 626, 61 v. United Electric Co. of N. J., 70 Atl. 1061. See Hutchinson v. Simp- N. J. Eq. 616, ?23, 61 Atl. 1061; son, 92 N. Y. App. Div. 382, 413, 87 Hutchinson v. Simpson, 92 N. Y. 346 THE LAW OF PROMOTERS. ration. ^^ The advisability of rescinding the purchase would gen- erally be a matter of opinion, and the refusal of the directors or majority stockholders to rescind would not ordinarily constitute a fraud upon the minority.^* A further difficulty lies in the fact that the majority stockholders could by a vote at a meeting duly called bind the minority by their election to retain the property,^* and a transaction which is subject to ratification by the majority stockholders cannot be set aside at the suit of the minority.*** The minority stockholders' suit might well be maintained if it were shown that the relation of the directors to the transaction was such that they could not be expected to exercise a fair discretion in regard thereto, and that some of the majority stockholders were, App. Div. 382, 412-413, 87 Supp. 369; MacDougall v. Gardiner, L. B. 1 Ch. Div. 13, 21, and cases cited. 37. See Brewer v. Boston Thea- tre, 104 Mass. 378, 394 ; Hutchinson V. Simpson, 92 N. Y. App. Div. 382, 412-413, 87 Supp. 369, (dissenting opinion of Hatch, J. ) ; cf . Insurance Press V. Montauk Wire Co., 103 N. Y. App. Div. 472, 475, 93 Supp. 134. 38. Krohn v. Williamson, 62 Fed. Rep. 869, 872, affirmed, sub nom. Williamson v. Krohn, 66 Fed. Rep. 655, 13 C. C. A. 668, 31 U. S. App. 325. 39. See ante, § 119. 40. Federal. — Hawes v. Oakland, 104 U. S. 450, 26 L. Ed. 827. Maryland. — Urner v. SoUenberger, 89 Md. 316, 338, 43 Atl. 810. New Jersey. — United States Steel Corporation v. Hodge, 64 N. J. Eq. 807, 817, 54 Atl. 1, 60 L. R. A. 742 ; Endicott V. Marvel, 81 N. J. Eq. 378, 87 Atl. 230, affirmed, 83 N. J. Eq. 632, 92 Atl. 373. New York. — Continental Securi- ties Co. V. Belmont, 206 N. Y. 7, 99 N. E. 138, 51 L. R. A. N. S. 112, Am. & Eng. Ann. Cas., 1914 A. 777, af- firming, 150 App. Div. 298, 134 Supp. 635; Continental Ins. Co. v. N. Y. & H. R. R. Co., 187 N. Y. 225, 238, 79 N. E. 1026; Burden v. Burden, 159 N. Y. 287, 306, 54 N. E. 17; Wal- lace V. Long Island R. R. Co., 12 Hun 460; Hart v. Ogdensburg & L. C. R. R. Co., 89 Hun 316, 70 St. Rep. 226, 35 Supp. 566; MacNaughton v. Osgood, 41 Hun 109, (reversed", on another ground, 114 N. Y. 574, 21 N. E. 1044) ; Hord v. Realty Invest- ment Corporation, N. Y. Law Jour- nal, May 10, 1906. Cf. Insurance Press V. Montauk Wire Co., 103 App. Div. 472, 475, 93 Supp. 134. United Kingdom and Colonies. — Burland v. Earle, 1902, App. Cas. 83, 93; Bagshaw v. Eastern Union Ry. Co., 7 Hare 114, 129, (affirmed, 2 Mac. & G. 389, 19 L. J. Ch. N. S. 410), citing Foss v. Harbottle, 2 Hare 461, 494-^95, 504-506. The majority 'is, in the absence of SUITS BY CORPOEATION. 347 because of their participation in the fraud, debarred from voting upon the question of rescission,*^ and that the plaintiffs actually represented a majority of the shares entitled to vote.*^ The action might also be maintained by showing that the directors and stock- holders were under the control of the guilty parties.*^ It should be stated that if the situation is such that a minority stockholders' action for a rescission can be maintained, the plain- tiff stockholders, not being in control of the corporation, cannot, and therefore need not in their complaint offer to restore the prop- erty purchased. The equities of the parties will in such case be adjusted upon the trial.** § 188. Minority stockholder intervening to defend suit against corporation. It sometimes happens that the rights of the corporation arising out of the frauds of its promoters are not asserted before an action is brought against it upon the bonds, notes, or other obligations of the corporation unlawfully taken by the promoters.*^ The mi- nority stockholder may in such case, upon the same principles which permit him to prosecute the company's claims against the promoters, intervene in the suit against the corporation, if it ap- pears that the company has a defense to such suit which there is reason to believe would otherwise not be properly asserted.** fraud or illegality, entitled to con- 44. Continental Securities Co. v. trol the policy of the corporation. Belmont, 206 N. Y. 7, 99 N. E. 138, DuPuy V. Transportation and Ter- 51 L. R. A. N. S. 112, Am. & Eng. minal Co., 82 Md. 408, 426, 33 Atl. Ann. Cas., 1914 A. 777. 889, 890, 34 Atl. 910. 45. See ante, § 166. 41. For cases dealing with the 46. Dickerman v. Northern Trust question as to when the promoters Co., 176 TJ. S. 181, 188, 20 Sup. Ct. may, and when they may not, vote 311, 41 L. Ed. 423; Bronson v. La as stockholders on the matter of the Crosse & Milwaukee R. R. Co., 2 rescission, see ante, § 119. Wall. 283, 17 L. Ed. 725, (cited in 42. See Atwool v. Merryweather, Heath v. Erie Ry. Co., 8 Blateh. 347, L. R. 5 Eq. 464n, 37 L. J. Ch. N. S. 11 Fed. Cas. 976, 997) ; Dodge v. 35. Woolsey, 18 How. (U. S.) 331, 15 L. 43. Mason v. Harris, L. R. 11 Oh. Ed. 401 ; Koehler v. Black River Diy. 97. FaUs Iron Co., 2 Black (U. S.) 715; 348 THE LAW OF PROMOTERS. § 189. Suits by creditors of corporation. A bondholder or other creditor of a corporation, will not ordi- narily be permitted to prosecute the company's claim against the promoters.*'' The proper remedy of the creditor is to obtain a judgment against the corporation and then proceed by judgment creditor's action if he can make out a case for such relief,** or to apply for the appointment of a receiver who must, in a proper case, enforce the promoters' liability. If the receiver fails to prosecute the company's claim against the promoters, the creditor may, per- haps, bring an action against the receiver, the corporation, and the guilty promoters to establish the liability of the latter.*® It would generally, however, be better practice for the aggrieved creditor to move the court which appointed the receiver, for an order direct- ing the latter to sue the promoters, or if there were reason to be- lieve that the suit would in such case not be prosecuted with suffi- cient vigor, to apply for the appointment of a different receiver. A creditor induced by the fraud of the promoters to purchase the debentures of, or lend money to, the corporation, may bring a personal suit against the promoters for the damages suffered by reason of their fraud.®" Big Creek Gap Coal & Iron Co. v. See Cook on Corporations, § 735. American Loan & Trust Co., 127 49. Land Title & Trust Co. v. As- Fed. Rep. 625, 62 C. C. A. 351. phalt Co. of America, 121 Fed. Rep. See also Cook on Corporations, § 587; Ackerman v. Halsey, 37 N. J. 848 (i) ; American Digest Century Eq. 356, affirmed, sub nom. Halsey , Ed. " Corporations," § 777, et seq., v. Ackerman, 38 N. J. Eq. 501. Decennial Ed., § 202, et seq. See also Cook on Corporations, § 47. El Cajon Portland Cement Co. 735. v. Wentz Eng. Co., 165 Fed. Rep. See as to terms, etc., Gerding v. 619, 92 C. C. A. 447 ; Arnold v. Sear- East Tennessee Land Co., 185 Mass. ing, 73 N. J. Eq. 262, 269, 67 Atl. 380, 70 N. B. 206; McEwen v. Harri- 831 ; Mills v. Northern Ry. of Buenos man Land Co., 138 Fed. Rep. 797, 71 Ayres Co., L. R. 5 Ch. App. 621, 628. C. C. A. 163. See Cook on Corporations, § 735. 50. Dunnett v. Mitchell, Session 48. Mills V. Northern Ry. of Cases, 12 Rettie 400, and see post, Buenos Ayres Co., L. R. 5 Ch. App. § 205n, also § 254. 621. It has been said that while one SUITS BY CORPORATION. 349 § 190. Parties defendant. As promoters guilty of taking secret profits, or otherwise de- frauding the company, are regarded as joint tort feasors, suit may be brought against any one or more, or all of such promot- ers. Any person who aids the promoters in defrauding the corpo- ration, such as the vendor of property sold to the corporation who helps to deceive it by stating an exaggerated consideration in his deed, contract, or receipt, may be joined with the promoters as a party defendant.®^ The agent of one selling property to the extending credit to a corporation may properly complain of fraudu- lent statements made in reference to the affairs and conditions of the corporation at the time the credit is extended, he cannot complain of mismanagement on the part of the officers of the corporation prior to the time that the credit was ex- tended. Commercial Bank of Au- gusta V. Warthen, 119 Ga. 990, 47 S. E. 536, citing Thompson on Lia- bility of Officers and Agents of Corporations, page 460; quoted In Joseph Rosenheim Shoe Co. v. Home, 10 Ga. App. 582, 73 S. E. 953. 51. Old Dominion Copper, etc., Co. V. Lewisohn, 210 U. S. 206, 214- 215, 28 Sup. Ct. 634, 52 L. Ed. 1025; Davis V. Las Ovas Co., 227 U. S. 80, 33 Sup. Ct. 197, 57 L. Ed. 426, af- firming. Las Ovas Co. v. Davis, 35 App. Cas. Dist. of Col. 372 ; Bigelow V. Old Dominion Copper, etc., Co., 225 U. S. Ill, 127, 132, 32 Sup. Ct. 641, 56 L. Ed. 1009, Am. & Eng. Ann. Cas., 1913 E. 875. Old Dominion Copper, etc.,. Co. v. Bigelow, 188 Mass. 315, 328-329, 74 N. E. 653, 108 Am. St. Rep. 479 ; Old Dominion Copper, etc., Co. v. Bige- low, 203 Mass. 159, 201, 89 N. E. 193, 40 L. B. A. N. S. 314, affirmed, 225 U. S. Ill, 56 L. Ed. 1009, 32 Sup. Ct. 641, Am. & Eng. Ann. Cas., 1913 E. 875. Arnold v. Searing, 73 N. J. Eq. 262, 268, 67 Atl. 831; Stockton v. Anderson, 40 N. J. Eq. 486, 4 Atl. 642, and cases cited. In re Olympia, Ltd., 1898, 2 Ch. Div. 153, affirmed, sub nom. Gluck- stein V. Barnes, 1900, App. Cas. 240. And see post, § 303. 52. Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 45-^7, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1123-1126; Stoney Creek Woolen Co. v. Smalley, 111 Mich. 321. 69 N. W. 722; Lind- say Petroleum Co. v. Hurd, L. R. 5 P. C. 221, 230, 243-244. See cases cited iQ note 18, L. R. A. N. S. 1119- 1121, and see post, § 287. The agent of the promoters who assists them in the perpetration of their fraud is likewise liable. Lid- ney & Wigpool Iron Ore Co. v. Bird, L. R. 33 Ch. Div. 85, 95, 24 Am. 350 THE LAW OF PKOMOTERS. corporation becomes jointly liable with the promoters if he, with knowledge of their relation to the corporation, divides with them the commissions paid to him by his principal.^' It has been held that one, who with knowledge of the promoters' unlawful profits aids them in securing subscribers for the shares of the company, thereby makes himself jointly liable with the pro- moters, though he Was not a party to the scheme from its incep- tion and did not receive any part of the promoters' profits.^* It may be broadly stated that any one who aids the promoters to commit a fraud upon the company becomes a joint tort feasor and jointly and severally liable with them for all damages suffered by the corporation. ®® In order that a third person may be held liable with the promoters it must, however, be shown that such third person acted with knowledge of the facts and with the intent to assist the promoters in the perpetration of their fraud.^® One who, with knowledge of the facts, acted as a dummy for the & Eng. Corp. Cas. 23; CuUen v. Thompson's Trustees, 4 Macq. 424, 433. See post, § 204n. Cf. Hutchinson v. Simpson, 92 N. Y. App. Div. 382, 425, 87 Supp. 369. 53. Emery v. Parrott, 107 Mass. 95, and see Tegarden Bros. v. Big Star Zinc Co., 71 Ark. 277, 72 S. W. 989. 54. Lomita Land & Water Co. v. Robinson, 154, Cal. 36, 44, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1127; Fountain Spring Park Co. v. Roberts, 92 Wis. 345, 66 N. W. 399, 53 Am. St. Rep. 917. 55. Fountain Spring Park Co. v. Roberts, 92 Wis. 345, 66 N. W. 399, 53 Am. St. Rep. 917. One who, after knowledge of the secret profit pays his subscription to the guilty promoter instead of to the treasurer of the corporation, is liable for the amount thereof. Sec- ond Nat'l Bank v. Greenville Screw- Point Steel Fence Post Co., 23 Ohio O. C. 274, 283. To the effect that the participa- tion must be established by proof, not by mere suspicious circum- stances, see Second National Bank V. Greenville Screw-Point Steel Fence Post Co., 23 Ohio C. C. 274, 282, and see Cranston v. Bank of State of Georgia, 112 Ga. 617, 37 S. E. 875. See also post, § 287. 56. Cranston v. Bank of State of Georgia, 112 Ga. 617, 37 S. E. 875; South Missouri Pine Lumber Co. v. Crommer, 202 Mo. 504, 519, 101 S. W. 22, 26; Forest Land Co. v. BJorkquist, 110 Wis. 547, 86 N. W. 188. SUITS BY CORPORATION. 351 promoters, is at least a proper party to a suit based upon their fraud." Whether a person who received a share of the promoters' profits can, in an action for an accounting, be held liable beyond the amount received by him, is a question that is not free from doubt.*® Such a person is, however, always a proper party to the suit.°® § 191. Actions against personal representatives of deceased pro- moter. An action may, even in those jurisdictions in which the rule that actions ex delictu die with the person has not been changed by statute,^** be maintained against the personal representatives of a deceased promoter, if the liability upon which the suit is based rests upon a violation of the promoter's fiduciary relation to the corporation,®^ or if the promoter's estate benefited by his fraud.®^ 57. Hutchinson v. Simpson, 92 N. Y. App. Div. 382, 425, 87 Supp. 369. (Dissenting opinion of Hatch, J.) 58. See post, § 303. 59. Getty v. Devlin, 70 N. Y. 504, 511 ; Stratford Fuel Ice C. & C. Co. V. Mooney, 21 Ont. L. B. 426. 60. See Cyclopedia of Law and Procedure, Vol. 1, p. 66. See also generally, p. 50, et seq. 61. Warren v. Para Rubber Shoe Co., 166 .Mass. 97, 104, 44 N. B. 112; Wineburgh v. United States Steam, etc., Co., 173 Mass. 60, 53 N. E. 145, 73 Am. St. Rep. 261; Houghton V. Butler, 166 Mass. 547, 44 N. B. 624. Bagnall v. Carlton, L. R. 6 Oh. Div. 371, 388-389; Phosphate Sewage Co. v. Hartmont, L. R. 5 Ch. Div. 394, 441, 46 L. J. Ch. 661 ; New Sombrero Phosphate Co. v. Er- langer, L. R. 5 Ch. Div. 73, 117-118, 25 W. R. 436, afl^med, sui nom. Erlanger v. New Sombrero Phos- phate Co., L. R. 3 App. Oas. 1218, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65; Concha v. Murri- etta, L. R. 40 Ch. Div. 543 ; Phillips V. Homfray, L. R. 24 Ch. Div. 439, 456-457, affirmed, L. R. 11 App. Cas. 466; Morgan v. Ravey, 6 H. & N. 265, 276. As to the liability of the per- sonal representatives of the pro- moter, in an action for damages for fraud and deceit, see Peek v. Gur- ney, L. R. 6 H. L. 377, 392, et seq.; Shepheard v. Bray, 1906, 2 Ch. Div. 235, 253, 75 L. J. Ch. N. S. 633, but see 1907, 2 Ch. Div. 571, 76 L. J. Ch. N. S. 692. 62. Warren v. Para Rubber Co., 166 Mass. 97, 104, 44 N. B. 112; Wineburgh v. United States Steam, 352 THE LAW OF PROMOTERS. The rule that an action against the personal representatives of one of two or more joint debtors cannot be maintained unless it appears that the survivors are insolvent, does not prevent the joinder of the personal representatives of a deceased promoter as co-defendants with the surviving promoters in an action to recover secret profits, for this rule has no application to a cause of action predicated upon a wrong or violation of duty as agent or trus- tee.«3 The personal representatives of a deceased promoter cannot, however, be joined with other defendants in action for damages, for fraud and deceit.®* § 192. Parties defendant in minority stockholders' suits. Where a suit is brought by a minority stockholder the corpo- ration is a necessary party defendant, as the judgment sought is one in its favor. If the corporation were not a party the judg- ment rendered would not be conclusive upon its rights, and it would be manifestly unfair to compel the promoters to litigate the ques- tion of their liability to the corporation, in a suit which would not be conclusive if decided in their favor.®^ etc., Co., 173 Mass. 60, 53 N. E. Co. v. Brlanger, L. R. 5 Ch. Div. 145, 73 Am. St. Rep. 261 ; Houghton 73, 117-118, 25 W. R. 436, affirmed, V. Butler, 166 Mass. 547, 44 N. E. L. R. 3 App. Cas. 1218, 6 Eng. Rul. 624 ; Peek v. Gurney, L. R. 6 H. L. Cas. 777, 39 L. T. N. S. 269, 27 W. 377, 393 ; Phillips v. Homf ray, L. R. R. 65. 24 Ch. DIv. 439, 457, et seq., af- 64. Dennln v. Wood, 162 N. Y. firmed, L. R. 11 App. Cas. 466 ; Fin- App. DIv. 930, 147 Supp. 1107, af- lay V. Chirney, L. R. 20 Q. B. Div. firmed, 212 N. X. 602, 106 N. E. 494, 504. Compare, however, In re 1032. Duncan, 1899, 1 Ch. Div. 387. Cf. Lane v. Fenn, 76 N. Y. Misc. 63. Hutchinson v. Simpson, 92 N. 48, 134 Supp. 92. Y. App. DIv. 382, 426, 87 Supp. 369, 65. Federal.— Porter v. Sabin, (dissenting opinion of Hatch, J.) ; 149 U. S. 473, 478, 13 Sup. Ct. 1008, Tiffany v. Hess, 67 N. Y. Misc. 37 L. Ed. 815; Davenport v. Dows, 258, 261, 22 Supp. 482; Sortore V. 18 Wall. 626, (and cases cited in Scott, 6 Lans. (N.. Y.) 271, 276, note at foot of p. 627), 21 L. Ed. and see New Sombrero Phosphate 938. SUITS BY CORPORATION. 353 A minority stockholder must, if the corporation is in the hands of a receiver, join the receiver as a party defendant.®® § 193. Suits at law and in equity. A suit to recover the promoters' profits as distinguished from an action for damages done to the corporation ^'' is, if brought as an action for an accounting, a suit in equity.®* Substantially the same relief may, however, often be had at law by means of an Maine. — ^Hersey v. Veazie, 24 Me. 9, 41 Am. Dee. 364. Tfew Jersey. — Groel v. United Electric Co. of N. J., 70 N. J. Eq. 616, 623, 626, 61 Atl. 1061. New York. — Greaves v. Gouge, 69 N. Y. 154 ; Brinckerhoff v. Bostwlck, 88 N. Y. 52, 59 ; Corning v. Barrett, 22 Misc. 241, 48 Supp. 1013; Robin- son V. Smltli, 3 Paige's Ch. 222. Oregon. — Wills v. Nehalem Coal Co., 52 Or. 70, 87, 96 Pac. 528, 534, quoting Pomeroy's Equity Juris- prudence, (3rd Ed.), Vol. Ill, § 1095. Under the English practice the corporation is joined as a party complainant. If it objects it is eliminated as a complainant, and made a defendant. See Groel v. United Electric Co. of N. J., 70 N. J. Bq. 616, 626, 61 Atl. 1061, and see Mason v. Harris, L. R. 11 Ch. Div. 97. It is held in Slattery v. St. Louis & New Orleans Transportation Co., (91 Mo. 217, 4 S. W. 79, 60 Am. Rep. 245), that the recalcitrant directors must also be joined as parties de- fendant. 66. Porter v. Sabin, 149 U. S. 473, 478, 13 Sup. Ct. 1008, 37 L. Ed. 815 ; Ackerman v. Halsey, 37 N. J. Eq. 356, 362, affirmed, suh nam. Halsey V. Ackerman, 38 N. J. Eq. 501; Brinckerhoff v. Bostwlck, 88 N. Y. 52, 61. The corporation should, perhaps, be joined with the receiver, Brinck- erhoff v. Bostwlck, 88 N. Y. 52, 61. 67. For the distinction between the recovery of the promoters' " profits " and an action for " dam- ages," see ante, § 161n. 68. Massachusetts. — Old Domin- ion Copper, etc., Co. v. Blgelow, 188 Mass. 315, 329, 74 N. E. 653, 108 Am. St. Rep. 479, citing Hayward v. Lee- son, 176 Mass. 310, 57 N. E. 656, 49 L. R. A. 725. New Tork. — Getty v. Devlin, 70 N. Y. 504, 511. Ohio. — Second National Bank v. Greenville Screw-Point Steel Fence Post Co., 23 Ohio C. C. 274, 281. Oregon. — Johnson v. Sheridan Lumber Co., 51 Or. 35, 40, 93 Pac. 470, 472. Pennsylvania. — McElhenny's Ap- peal, 61 Pa. 188, 193. Wisconsin. — Hebgen v. Koeffler, 97 Wis. 313, 320, 72 N. W. 745, 747- 748 ; Zinc Carbonate Co. v. First Na- tional Bank, 103 Wis. 125, 135, 79 N. W. 229, 232, 74 Am. St. R. 845. 354 THE LAW OF PROMOTERS. action for money had and received to the company's use.®" The damages suffered hy the corporation by reason of the fraud com- mitted upon it by the promoters may be recovered in an action at law. It has even been said that such an action cannot be main- tained in equity.''" Equity jurisdiction of an action of that char- acter might, however, be sustained because of the fiduciary rela- tion of the promoter to the corporation.'^ A minority stockholder's suit is, whatever the nature of the com- plaint, or the relief demanded therein, always an action in equity.''^ § 194. The same subject. — Rescission. The corporation may either bring its suit in equity for a rescis- 69. Johnson v. Sheridan Lumber Co., 51 Or. 35, 40, 93 Pac. 470, 472, citing Thompson on Corporations, (1st ed.), § 457; Pietsch v. Milbrath, 123 Wis. 647, 658-660, 101 N. W. 388, 392, 102 N. W. 343, 68 L. B. A. 945, 107 Am. St. Rep. 1017 ; Limited Investment Assoc, v. Glendale In- vestment Assoc., 99 Wis. 54, 59, 74 N. W. 633. 70. Erlanger v. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 1278, 6 Bng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65, affirm- ing, New Sombrero Phosphate Co. v. Erlanger, L. R. 5 Ch. Div. 78, 25 W. R. 436, cited in Hutchinson v. Simpson, 92 N. T. App. Div. 382, 400, 87 Supp. 869. See ante, § 171 note. 71. Maryland. — Booth v. Robin- son, 65 Md. 419, 437-438. Massachusetts. — 1 d Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 329, 74 N. B. 653, 108 Am. St. Rep. 479; same v. same, 203 Mass. 159, 202, 89 N. B. 193, 40 L. R. A. N. S. 314; Warren v. Para Rubber Shoe Co., 166 Mass. 97, 104, 44 N. E. 112, and cases cited; Peabody v. Flint, 88 Mass. 52, 56. New Jersey. — Citizens Loan As- sociation V. Lyon, 29 N. J. Eq. 110. New York. — BrlnckerhofE v. Bost- wick, 99 N. Y. 185, 193, 1 N. E. 663, and cases cited. Squiers v. Thomp- son, 73 App. Div. 552, 76 Supp. 734, 11 Ann. Cas. 160, affirmed without opinion, 172 N. Y. 652, 65 N. E. 1122. Rhode Island. — ^Hodges v. New England Screw Co., 1 R. I. 312, 340, citing authorities. See ante, § 171n, and post, § 286n. 72. Corning v. Barrett, 22 N. Y. Misc. 241, 48 Supp. 1018 ; Land, Log & Lumber Co. v. Mclntyre, 100 Wis. 245, 255-256, 75 N. W. 964, 968, 69 Am. St. Rep. 915; Jenkins v. Bradley, 104 Wis. 540, 552, 80 N. W. 1025, 1028. As to the statute of limitations applicable to such suits, see People V. Equitable Life Assurance Society, 124 N. Y. App. Div. 714, 734, 109 Supp. 453. SUITS BY CORPORATION. 355 sion,''^ or after giving notice of rescission and tendering a recon- veyance, maintain its suit at law for the recovery of the moneys paid by it.'* If the action is brought in equity, a tender of a re- conveyance need not, according to the weight of authority, be made before the commencement of the action. The complaint in such case does not proceed upon, but prays for, a rescission of the con- tract, and it is sufficient to make the offer of restoration in the complaint.''® It has even been held that an offer of restoration in the complaint is not necessary, as a court of equity would in any event, by its decree, make the reconveyance of the property a con- dition of the repayment of the purchase price.''® § 195. Joinder of actions. Great latitude in the joinder of causes of action arising out of 73. Commonwealth S. S. Co. v. Am- erican Shipbuilding Co., 197 Fed. Rep. 780; same v. same, 197 Fed. Rep. 797, affirmed, 215 Fed. Rep. 296, 131 C. C. A. 596; Vail v. Rey- nolds, 118 N. T. 297, 302, 23 N. B. 301 ; Heckscher v. Edenborn, 203 N. X. 210, 220, 96 N. B. 441 ; Hebgen v. Koeffler, 97 Wis. 313, 320, 72 N. W. 745, 747 ; Erlanger v. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 1278-1279, 6 Bng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65, affirming. New Sombrero Phosphate Co. V. Erlanger, L. R. 5 Ch. Div. 73, 25 W. R. 436. 74. American Shibuilding Co. v. Commonwealth S. S. Co., 215. Fed. Rep. 296, 131 C. C. A. 596; Getty v. Devlin, 54 N. T. 403, 415; Vail v. Reynolds, 118 N. Y. 297, 302, 23 N. E. 301 ; Heckscher v. Edenborn, 203 N. Y. 210, 220, 96 N. B. 441 ; Second National Bank v. Greenville Screw- Polat Steel Fence Post Co., 23 Ohio C. C. 274, 281; Limited Investment Association v. Glendale Investment Association, 99 Wis. 54, 74 N. W. 633. 75. Maine v. Midland Inv. Co., 132 Iowa 272, 109 N. W. 801; Vail V. Reynolds, 118 N. Y. 297, 302, 23 N. E. 301; Heckscher v. Edenborn, 203 N. Y. 210, 220, 96 N. E. 441; Clarke v. Mercantile Trust Co., 110 N. Y. App. Div. 901, 902, 95 Supp. 1118, and cases there cited. Thomp- son V. Hardy, 19 S. D. 91, 102 N. W. 299, and cases cited. And see cases cited 24 Am. & Eng. Bncyc. of Law, (2nd ed.), 621. See, however, Second National Bank v. GreenvUle Screw-Point Steel Fence Post Co., 23 Ohio C. C. 274, 281 ; Hebgen v. Koeffler, 97 Wis. 313, 320, 72 N. W. 745, 747-748, and Franey v. Warner, 96 Wis. 222, 235, 71 N. W. 81, 85. 76. See eases cited 24 Am. & Bng. Bncyc. of Law, (2nd ed.), 621-622. 356 THE LAW OF PROMOTEES. promoters' frauds has generally been allowed by courts of equity. In See v. Heppenheimer,'''' the receiver of an insolvent corpora- tion brought suit in equity, claiming that certain bonds and shares of the corporation had been issued to the promoters without con- sideration. The action was brought to ascertain the amount of the valid bonds and to reduce the secured indebtedness of the company accordingly; to declare all those bonds that were issued without consideration void in the hands of the holders ; to ascertain the amounts actually paid to the company for their shares by the re- spective stockholders, and to assess the amount needed to pay the creditors, against such stockholders as had not paid for their shares in full. A demurrer for multifariousness was overruled. In Shutts V. United Box, Board & Paper Co.,''® the promoters had by secret agreements with certain of the vendors to the com- pany given to such vendors an advantage over others. These secret agreements were afterwards assumed by the company. It was held that a bill joining the corporation, the promoters, and all the favored vendors in an action for an accounting for their profits under the secret agreements was not multifarious. In Zinc Carbonate Co. v. First National Bank,^^ the complaint alleged that the defendant promoters had conspired together to un- lawfully obtain for themselves large secret profits, and had, in furtherance of their scheme, as officers of the fully organized cor- poration, allowed the defendant bank to obtain a judgment against it upon certain unfounded claims and to purchase the corporate property at a wholly inadequate price upon execution sale. The complaint of the corporation demanded an accounting by the de- fendants, the recovery of damages, and the nullification of the As to ple&ding In minority stock- United Box,' Board & Paper Co., 67 holders' suits, see ante, § 187. N. J. Eq. 225, 58 Atl. 1075. 77. 55 N. J. Eq. 240, 36 Atl. 966, 78. 67 N. J. Bq. 225, 58 Atl. 1075. (affirmed, suh nom.. Naumberg v. 79. 103 Wis. 125, 79 N. W. 229, See, 56 N. J. Eq. 453, 41 Atl. 1116), 74 Am. St. Rep. 845. explained and followed in Sliutts v. SUITS BY CORPORATION. 357 judgment against it. The court held that the complaint did not improperly unite causes of action. In Barcus v. Gates,** it was held that a bill against the corpo- ration and its promoters praying for a rescission of the plaintiffs' contracts of subscription and the recovery of the moneys paid thereon, that the corporation be declared insolvent and dissolved, and that a receiver be appointed and the property remaining after the payment of its debts distributed, was not multifarious, as all the rights claimed and the relief demanded were based upon the same fraudulent scheme upon the part of the individual defend- ants. A prayer by the corporation for the rescission of a purchase from the promoters, may be joined with a demand for the damages sustained by reason of such purchase.®-*^ It was held in Camden Land Co. v. Lewis ®^ that a bill to com- pel certain defendants to account for shares of stock unlawfully received by them, to compel another defendant to account for the proceeds of certain other shares unlawfully received and sold by him, and to compel still another defendant to convey to the corpo- ration two certain farms purchased by him for it and paid for wholly or partly with its funds or with the proceeds of its shares unlawfully issued and sold, was multifarious. It was held in Schlesinger v. Fisk ®* that an action against the promoters for the conversion of the shares and bonds of the cor- poration could not be joined with an action against the directors based upon their neglect and misconduct. It does not clearly ap- pear whether or not the misconduct of the directors related to the transfer of the shares and bonds to the promoters. If it did, the directors might well have been held jointly liable with the pro- 80. 89 Fed. Rep. 783, 32 C. C. A. N. E. 653, 108 Am. St. Rep. 479. 337, 61 U. S. App. 596. See also 82. 101 Me. 78, 85-86, 63 Atl. 523, Ashmead v. Colby, 26 Conn. 287. 526. 81. Old Dominion Copper, etc., Co. 83. 60 N. T. Misc. 442, 113 Supp. V. Bigelow, 188 Mass. 315, 330, 74 578. 358 THE LAW OF PROMOTERS. moters on the theory that they had assisted the latter in perpetrat- ing their fraud upon the company. Causes of action arising out of separate and distinct frauds, some committed by certain defendants, some by others, cannot be joined in the same complaint.** A demand personal to the plaintiff, cannot in general be joined with a demand made by him as a minority stockholder suing on behalf of the corporation.*^ This is particularly so, if the per- sonal demand is one for a rescission of the plaintiff's subscription, for such a demand is inconsistent with the assertion of the plain- tiff's right to sue as a minority stockholder,*® § 196. Actions against promoters, transitory. An action to enforce a promoter's liability is transitory in its nature, and may be instituted wherever the defendant can be served with process.*'' This is equally so whether the action be main- 84. Winsor v. Bailey, 55 N. H. 218; Camden Land Co. v. Lewis, 101 Me. 78, 63 Atl. 523; Brown v. Bedford City Land & Improvement Co., 91 Va. 31, 20 S. E. 968. See post, § 243. 85. Whitney v. Fairbanks, 54 Fed. Rep. 985; Metcalf v. American School-Furniture Co., 108 Fed. Rep. 909, affirmed, 113 Fed. Rep. 1020, 51 C. C. A. 599; Pietsch v. Krause, 116 Wis. 344, 93 N. W. 9 ; (explained in Simon v. Weaver, 143 Wis. 330, 127 N. W. 950) ; Weatherbe v. Whit- ney, 30 Nova Scotia 104 ; and see Ward V. Smith, 95 N. Y. App. Dlv. 432, 88 Supp. 700; Stroud v. Law- son, 1898, 2 Q. B. Dlv. 44. See, however, some of the cases cited in the next note. In Brewster v. Hatch, 122 N. Y. 349, 350, 25 N. E. 505, 33 N. Y. St. R. 527, the trial court required the plaintiffs to elect whether they would seek to recover for the bene- fit of the corporation, or to recover their personal damages. 86. Brown v. Bedford City Land & Improvement Co., 91 Va. 31, 20 S. E. 968, and authorities cited. Day V. National Mutual Building & Loan Assoc, 53 W. Va. 550, 44 S. E. 779 Cf. Bareus v. Gates, 89 Fed. Rep. 783, 32 C. C. A. 337, 61 U. S. App. 596; Ashmead v. Colby, 26 Conn. 287; City Bank of Macon v. Bart- lett, 71 Ga. 797. See post, § 242. 87. See Bigelow v. Old Dominion Copper, etc., Co., 74 N. J. Eq. 457, 509, 71 Atl. 153, where it was claimed that the general rule that the plaintiff may choose his own forum- in any jurisdiction where the defendant may be found, does not SUITS BY OORPOBATION. 359 •Eained by the corporation, or by a minority stockholder suing in its behalf.88 § 197. Conflict of laws. It has been held that the law by which the validity of the pro- moters' transaction with the corporation is to be determined is not the law of the state of the corporate organization, nor the law of the place where the directors' meeting authorizing the trans- action was held, but the law of the place where the transaction was consummated by the delivery of the deeds and the payment of the purchase price.^* As the question of promoters' liability is one of general law, the Federal courts declare the law upon their own view and are not bound by the decisions of the state courts.®** extend to corporations, and that these should pursue their rights ac- cording to the laws of the state of their origin. It is held in Moore v. Silver Val- ley Mining Co., 104 N. C. 534, 545- 546, 10 S. E. 679, 683, that an action involving the interpretation of the corporate charter and by-laws, the regularity and sufficiency of its proceedings, and the laws of the state of its domicile, should ordi- narily be brought in such state. 88. Gere v. Dorr, 114 Minn. 240, 130 N. W. 1022. 89. Old Dominion Copper, etc., Co. V. Bigelow, 203 Mass. 159, 173- 174, (two judges dissenting, see pp. 222, 232), 89 N. E. 193, 40 L. R. A. N. S. 314 ; Bigelow v. Old Dominion Copper, etc., Co., 74 N. J. Bq. 457, 507, 71 Atl. 153. Insurance Press v. Montauk Wire Co., 83 N. Y. App. Div. 259, 82 Supp. 104, affirmed, 178 N. Y. 623, 70 N. E. 1100, (see opinion on later ap- peal, 103 N. T. App. Div. 472, 93 Supp. 134), is not to the contrary. The court in that case held that there was no liability for unlawful promoters' profits, and that the ground of complaint, if any, de- pended upon a violation of the statutes of West Virginia relating to the issue of shares without full payment. 90. Old Dominion Copper, etc., Co. V. Lewisohn, 210 TT. S. 206, -28 Sup. Ct. 634, 52 L. Ed. 1025; same T. same, 195 Fed. Rep. 637, affirmed, 202 Fed. Rep. 178, 120 C. C. A. 392, petition for writ of certiorari de- nied, 229 U. S. 613, 33 Sup. Ct. 772, 57 L. Ed. 1352; Bigelow V. Old Dominion Copper, etc., Co., 225 U. S. Ill, 32 Sup. Ct. 641, 56 L. Ed. 1009, Am. & Eng. Ann. Cas., 1913 E. 875; Old Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 175, 89 N. E. 193, 40 L. R. A. N. S. 314, and cases cited. CHAPTER XI. Of the Peomotee's Liability foe False Repeesentations. Section 198. Introductory. 199. False representations in prospectus. 200. The same subject. — Who entitled to sue thereon. 201. False certificates. 202. Indirect misrepresentations. 203. Liability to brokers. 204. Liability of promoter for representations of his agents. 205. Reliance upon false statements. 206. The same subject. — Agreement not to rely on representations, 207. Knowledge of falsity of representations. 208. Intent to deceive. 209. Innocent misrepresentation as ground for rescission. 210. Fraud by concealment. 211. The same subject. — The English Companies Act. 212. Materiality of representations. 213. Materiality of concealment of mortgage. 214. Materiality of representations as to promoter's profits. 215. Materiality of representations as to promoter's interest. 216. Materiality of representations as to Identity or position of persons selling property to corporation. 217. Materiality of representations in regard to directors. 218. Materiality of representations in regard to subscriptions. 219. The same subject. — Sham subscriptions. 220. Materiality of representations as to identity of subscribers. 221. Materiality of representations as to price paid for shares. 222. Materiality of representation that stock sold is treasury stock. 223. Misstatements as to value of shares. 224. Materiality of representations as to legal status of company or shares. 225. Representations as to future action, (360) FALSE REPRESENTATIONS. 361 Section 226. Falsity of representations. 227. Interpretation of prospectus. 228. Interpretation of prospectus in light of particular com- plainant 229. Interpretation of prospectus in light of its preliminary char- acter. 230. Interpretation of ambiguous statements in prospectus. 231. Interpretation of particular statements. 232. Secret profits of promoter as fraud upon subscribers. 233. Secret profits of promoter as fraud upon subsequent pur- chasers of shares. 234. Misrepresentations giving rise to action by corporation. § 198. Intrdductory. A source of even more frequent litigation than the taking of un- lawful promoters' profits, are misrepresentations made by the pro- moters upon the sale of the company's shares. Both liabilities may arise out of the same or closely related facts, in that false repre- sentations are often made with regard to, and with the purpose of concealing, the promoter's profits.^ The same considerations may determine whether the statement in question was on the one hand a sufHcient disclosure of the promoter's profits and a fair state- ment of the facts, or, on the other, an insufficient disclosure of the promoter's profits and a misleading statement of the facts. The liabilities are, however, quite distinct. The rule against secret profits arises out of the fiduciary relation of the promoter to 1. Illustrative cases are, Cortes ing Co., 61 Pa. 202, 100 Am. Dec. 628 ; Co. V. Thannhauser, 45 Fed. Rep. Pittsburg Min. Co. v. Spooner, 74 730; Ex-Mission Land & Water Co. Wis. 307, 42 N. W. 259, 17 Am. St. T. Flash, 97 Cal. 610, 32 Pac. 600; Rep. 149, 24 Am. & Eng. Corp. Cas. Burbank v. Dennis, 101 Gal. 90, 35 1; Fountain Spring Park Co. v. Pac. 444; Stoney Creek Woolen Co. Roberts, 92 Wis. 345, 66 N. W. 399, y. Smalley, 111 Mich. 321, 69 N. W. 53 Am. St. Rep. 917; Gluckstein v. 722; Shawnee Commercial & Sav- Barnes, 1900 App. Cas. 240, afflrm- ings Bank Co. v. Miller, 24 Ohio C. ing. In re Olympia, Ltd., 1898, 2 Ch. C. 198; Simons v. Vulcan Oil & Min- Div. 153, and see post, §§ 214, 23^- 233. 362 THE LAW OF PROMOTERS. the corporation, and a violation thereof is primarily an injury to the corporation. The promoter's liability for false representations is a liability for fraud and deceit, and the injury is in general an injury to the subscribers in their individual capacity. § 199. False representations in prospectus. The false representations of the promoter are frequently made in a prospectus issued to procure subscribers for the company's shares. To hold any promoter liable for the statements made in such prospectus, it must be shown that it was issued by him, or with his knowledge and privity.^ The English Companies Act provides that every promoter who is a party to the preparation of the prospectus, or of the portion thereof con,taining the untrue statement, shall be liable to pay com- pensation to all persons who subscribe on the faith thereof, and 2. Wiser v. Lawler, 189 U. S. 260, 264, et seq., 47 L. Ed. 802, 23 S. C. 624. Morgan v. Skiddy, 62 N. Y. 319; Downey v. Finucane, 205 N. Y. 251, 259, 98 N. B. 391, 40 L. R. A. N. S. 307, affirming, 146 N. Y. App. Div. 209, 130 Supp. 988; Rives v. Bart- lett, 156 N. Y. App. Div. 552, 141 Supp. 561, reversed on another ground, 215 N. Y. 33, 109 N. B. 83. Simons V. Vulcan Oil & Mining Co., 61 Pa. 202, 218-219, 100 Am. Dec. 628. Peek V. Gurney, L. R. 6 H. L. 377, 392; Bellalrs v. Tucker, L. R. 13 Q. B. D. 562, 571-572; Smith v. Chadwick, L. R. 20 Oh. Div. 27, 70- 71, 46 L. T. N. S. 702, affirmed, L. R. 9 App. Gas. 187, 5 Am. & Eng. Corp. Cas. 23 ; In re Leeds & Hanley Theatres of Varieties, 1902, 2 Oh. Div. 809, 823-824, 832; Peek v. Derry, L. R. 37 Oh. Div. 541, 568- 569, 579, 586, reversed on another point, sub nom. Derry v. Peek, L. R. 14 App. Gas. 337 ; Angus v. Clifford, 1891, 2 Ch. Div. 449 ; Clarke v. Dick- son, 6 C. B. N. S. 453; Knox v. Hayman, 67 L. T. N. S. 137 ; Glasier V. Rolls, L. R. 42 Ch. Div. 436 ; Ship V. Crosskill, L. R. 10 Eq. 73. It is said in Rives v. Bartlett, 156 N. Y. App. Div. 552, 557-558, 141 Supp. 561, (reversed, 215 N. Y. 33, 109 N. E. 83), that "directors, who organize a corporation * * * knowing that attempts are being made to induce the public to sub- scribe to the corporation or to pur- chase Its securities, have imposed upon them a duty that is not dis- charged by wilfully shutting their eyes to the acts of other officers or agents of the company as to methods used to procure money from the public." FALSE REPRESENTATIONS. 363 that every director shall be responsible for the prospectus unless he proves that it was issued without his knowledge or consent, and that on becoming aware of its issue he forthwith gave reasonable public notice that it was issued without his knowledge or consent.' § 200. The same subject. — Who entitled to sue thereon. A subscriber suing because of a misrepresentation contained in a prospectus, need not show that the prospectus was intended to de- ceive him personally. If he made his subscription in reliance upon the prospectus, he has a right of action against such persons, as with knowledge of its falsity and with intent to deceive, put the prospectus in circulation. The representations are deemed made to every person within the class intended to be influenced thereby, and no relation or privity between the parties need be shown other than that created by the wrongful and fraudulent act of issuing or circulating the false prospectus.* The right to maintain an action because of misrepresentations in a prospectus, is ordinarily confined to the subscribers for the 3. English Companies Act of 1908, App. Div. 914, 112 Supp. 1131 ; (Stat. 8 Edw. VII., Ch. 69), § 84, Eaton, Cole & Burnham Co. v. taken from Directors IiiabiUty Act Avery, 83 N. Y. 31, 33-34, 38 Am. St. of 1890, (Stat. 53 and 54 Vict, Ch. Rep. 389, and cases cited; Lehman- 64). See also Chapter 216, Ontario Charley v. Bartlett, 135 N. T. App. Revised Statutes of 1897; DrinCr tUv. 674, 683-684, 120 Supp. 501, qbier v. Wood, 1899, 1 Oh. Div. 393 ; affirmed, 202 N. Y. 524, 95 N. E. Hoole V. Speak, 1904, 2 Oh. Div. 1125; Cox v. National Coal & OU 732. Investment Co., 61 W. Va. 291, 307- 4. Morgan v. Skiddy, 62 N. Y. 308, 56 S. B. 494, 501. 319, 325-326; Newbery v. Garland, Clarke v. Dickson, 6 0. B. N. S. 31 Barb. (N. Y.) 121, 129-131; 453; Scott v. Dixon, 29 L. J. Exch. Cazeaux v. Mali, 25 Barb. (N. Y.) N. S. 62; Peek v. Gurney, L. R. 6 578, 583 ; Cross v. Sackett, 2 Bosw. H. L. 377, 397 ; Davidson v. Tulloch, (N. Y.) 617, 6 Abb. Pr. 247, 16 How. 3 Maeq. 783, 791, 2 L. T. N. S. 97; Pr. 62; Fenn v. Curtis, 23 Hun Jury v. Stoker, L. R. 9 Ir. 385, (N. Y.) 384, 390; Greene v. Mer- 397, et seq.; Gerhard v. Bates, 2 E. cantile Trust Co., 60 N. Y. Misc. 189, & B. 476. Ill Supp. 802, affirmed, 128 N. Y. See cases cited, 14 Am. & Eng. Bncyc, (2nd ed.), 151. 364 THE LAW OF PROMOTERS. company's shares and does not in general extend to those who subsequently purchase shares in the open market. The office of the prospectus is to obtain subscribers and not to effect a subse- quent resale of the shares. Those who, relying upon statements made in the prospectus, purchase shares otherwise than by original subscription are not within the class intended to be influenced thereby and cannot maintain an action thereon.^ If, however, it can be shown that a prospectus was issued, not merely for the purpose of inducing the readers to take shares from the company by subscription, but for the further purpose of in- ducing the purchase of shares in the open market, the parties re- sponsible for the publication of the prospectus may be held liable in damages to all who purchased shares in reliance thereon.® It has been held that a prospectus purporting on its face to be a mere invitation to the public to subscribe for the bonds of the corporation, may be made the basis of an action by one who was induced to purchase shares if it can be shown that the prospectus was in fact circulated for the purpose of creating a demand for the shares.'' 5. Cheney v. Dickinson, 172 Fed. 112 Fed. Rep. 931, 50 O. 0. A. 623, Rep. 109, 96 C. C. A. 314, 28 L. R. A. 57 L. R. A. 108; Greene v. Mer- N. S. 359, and cases cited ; Htndman cantile Trust Co., 60 N. ¥. Misc. 189, V. First Natl. Bk., 112 Fed. Rep. Ill Supp. 802, affirmed, 128 N. T. 931, 50 C. C. A. 623, 57 L. R. A. 108; App. Div. 914, 112 Supp. 1131; Greene v. Mercantile Trust Co., 60 Reusens v. Gerard, 160 N. ¥. App. N. T. Misc. 189, 111 Supp. 802, and Div. 625, 146 Supp. 86; Cross v. cases cited, affirmed, 128 N. Y. App. Sackett, 2 Bosw. (N. T.) 617, 649, Div. 914, 112 Supp. 1131; Peek v. 6 Abb. Pr. 247, 16 How. Pr. 62; Gurney, L. R. 6 H. L. 377. (Dis- Cazeaux v. Mali, 25 Barb. (N. Y.) tinguished in Andrews v. Mockford, 578; Andrews v. Mockford, 1896, 1 1896, 1 Q. B. D. 372, 383) ; Bx parte Q. B. D. 372, (distinguishing Peek Worth, 4 Drewry 529. v. Gurney, L. R. 6 H. L. 377) ; Scott Cf. Mabey v. Adams, 3 Bosw. v. Dixon, 29 L., J. Exch. N. S. 62. (N. Y.) 346, 353, and see Hindman 7. Greene v. Mercantile Trust Co., V. First Natl. Bk., 98 Fed. Rep. 562, 60 N. Y. Misc. 189, 111 Supp. 802, 569, 39 C. C. A. 1, 48 L. R. A. 210. affirmed, 128 N. Y. App. Div. 914, 6. Hindman v. First Natl. Bk., 112 Supp. 1131. FALSE EEPKESBNTATIONS. 365 § 201. False certificates. It has been held that a misstatement in a certificate required by law to be filed as a prerequisite to legal incorporation, or as a condition of doing business in a particular state, does not render the parties responsible for the certificate liable to those who pur- chase the company's bonds or shares on the faith thereof.* There are, however, dicta to the contrary.® The promoters are certainly liable to any persons whom they refer to such certificate for infor- mation as to the matters therein set forth, and to all persons in- tended to be influenced by the certificate.^" Where the plaintiff, influenced by an alleged false prospectus issued to sell the securities of the so called " Shipbuilding Trust," purchased shares of the Trust Company of the Republic which was to act as the bank of deposit of the " Shipbuild- ing Trust " and represent it in other matters under a contract which would yield the trust company a profit of $1,500,000, the court held that the plaintiff had no right of action against the authors of the prospectus. Dresser v. Mercantile Trust Co., 124 N. Y. App. Div. 891, 108 Supp. 577. 8. Hindman v. First Natl. Bank, 112 Fed. Rep. 931, 941, et seq., 50 C. C. A. 623, 57 L. R. A. 108; Hunnewell V. Duxbury, 154 Mass. 286, 28 N. E. 267, 13 L. R. A. 733, and cases cited ; McKee v. Rudd, 222 Mo. 344, 364, 121 S. W. 312, 318, 133 Am. St. Rep. 529; Webb v. Rockefeller, 195 Mo. 57, 93 S. W. 772, 6 L. R. A. N. S. 872, and cases cited. As to bank statements, see Gemer V. Mosher, 58 Neb. 135, 78 N. W. 384, 46 L. R. A. 244 ; Morse v. Swlts, 19 How. Pr. (N. Y.) 275. 9.^ Haines v. Franklin, 87 Fed. Rep" 139 ; Burns v. Beck, 83 Ga. 471, 10 S. E. 121; McBryan v. Universal Elevator Co., 130 Mich. Ill, 97 Am. St. Rep. 453, 89 N. W. 683; Coch- ran V. Arnold, 58 Pa. 399, 407 ; Pat- terson V. Franklin, 176 Pa. 612, 35 Atl. 205, and see note to Webb v. Rockefeller, 6 L. R. A. N. S. 872. In Patterson v. Franklin, 176 Pa. 612, 35 Atl. 205, the promoters had, in order to consummate the organi- zation of the corporation, falsely certified that 10 per cent, of the capi- tal stock had been paid in cash. The corporation became insolvent and the assignee brought suit against the promoters. The court held that they were not liable to the corporation, as it was benefited, rather than damaged, by the making of the false certificate. 10. Hindman v. First Natl. Bank, 112 Fed. Rep. 931, 941, et seq., 50 C. C. A. 623, 57 L. R. A. 108; Hindman V. First Natl. Bank, 98 Fed. Rep. 562, 569, 39 C. C. A. 1, 48 L. R. A. 210; Hunnewell v. Duxbury, 157 Mass. 1, 31 N. E. 700. And see § 200. 366 THE LAW OF PROMOTERS. In Bedford v. Bagshaw,^^ the promoters had, for the purpose of listing the shares of their company on the stock exchange, falsely certified that two-thirds of the scrip had been paid upon, and the plaintiff, knowing that the rules of the stock exchange required such certificate, and relying upon the fact that the shares had been listed, purchased them upon the assumption that two-thirds of the scrip must have been paid upon. The court held the defendants liable to the plaintiff for false representations, but the decision was subsequently overruled.-'^ An action for fraud and deceit might well be based upon a false statement in a certificate filed with the stock exchange, if it could be shown that the purpose of listing the shares was to create the impression that the requirements of the stock exchange had been complied with, and to induce the purchase of shares upon that as- sumption. ■'* § 202. Indirect misrepresentations. If the complainant is a member of the class intended to be in- fluenced by a false statement, the manner of the publication thereof is not material. It is not necessary that the representation com- plained of be made to the plaintiff directly. If the promoters misrepresent the facts intending their misrepresentations to be circulated and thus to induce subscriptions for the company's shares, they become liable to all persons who are, by the circulation of their false statements, induced to subscribe.^* 11. 29 L. J. Bxch. N. S. 59, 4 H. sota Title Ins. & Trust Co., 150 & N. 538. Mass. 437, 442, 34 N. B. 625. 12. Peek v. Gurney, L. R. 6 H. Mvnmesota. — Chubbuck v. Cleve- L. 377, 396-397. land, 37 Minn. 466, 35 N. W. 362, 13. Queen v. Aspinall, L. R. 2 5 Am. St. Rep. 864. I Q. B. D. 48, where a conviction for Missouri. — Watson v. Crandall, 7 criminal conspiracy was sustained. Mo. App. 233, affirmed, 78 Mo. 583 ; 14. Iowa. — Hunter v. French Lea- Whiting v. Crandall, 78 Mo. 593. gue Safety Cure Co., 96 Iowa 573, 65 New York. — Eaton, etc., Co. v. N. W. 828. Avery, 83 N. Y. 31, 38 Am. St. Rep. Massachusetts. — Nash v. Minne- 389; Cazeaux v. Mall, 25 Barb. (N. Y.) 578, 583. FALSE RBPKBSBNTATIONS. 367 § 203. Liability to brokers. In Pollak V. Dodge Manufacturing Co.,^" the plaintiff alleged that he was by the false representations of the defendant, made to the public generally " in order to attract investors and to induce persons to become interested in the sale of the stock," induced to undertake the sale of the defendant's stock and to devote a large part of his time and energy to that end, and had " practically " succeeded in effecting the sale of a large amount of stock, and that he was by reason of the falsity of such representations prevented from selling such stock. A demurrer to the complaint was sus- tained on the ground that it was not alleged that the represent- ations were made to induce brokers or others to sell the shares ; that is that the complaint did not show that the plaintiff was one of the class whom the representations complained of were intended to deceive. If the plaintiff had shown an express employment to sell the shares he might have sued on the contract, on the theory that the defendant had prevented performance.^® Had the plain- tiff brought himself within the class intended to be influenced by the misrepresentations of the defendant, his action wbuld have been properly brought for fraud and deceit.^'^ § 204. Liability of promoter for representations of his agents. The promoter is obviously liable for any misrepresentations made by his agents pursuant to his direction or suggestion. See note to Cottrlll v. Krum, 18 seription if made in reliance upon Am. St. Kep. 549, 562. misrepresentations made to others And see ante, § 200. in his presence. Southern States F. The promoter would presumably & C. Ins. Co. v. Cromartie, 181 Ala. not be liable to those who acted 295, 61 So. 907. upon a repetition of his representa- 15. 78 N. Y. Misc. 350, 138 Supp. tions if he actually did not intend 429. his representations to be repeated. 16. Locke v. Wilson, 135 Mich. See note to Wells v. Cook, 88 Am. 593, 98 N. W. 400, 10 Det. Leg. News Dec. 436, 442. See also ante, § 200. 900. A subscriber may rescind his sub- 17. Lenkeit v. Mitchell, 55 N. Y. Misc. 395, 106 Supp. 549. 368 THE LAW OF PROMOTERS. If the promoter misrepresents or conceals the facts from his agent and the agent procures subscriptions by a repetition thereof, the promoter is responsible, and liable in damages if the other necessary elements of fraud exist.*® A question less free from doubt arises, when the agent of the promoter procures subscriptions by means of false and fraudulent representations made without the knowledge or authority of his principal. The principal is, by the weight of authority, re- sponsible for the false representations of his agent, though the representations be made without the knowledge or connivance and even contrary to the express instructions of the principal.*® If the agent by whom the misrepresentations are made, is the agent, not of the promoters, but of the company, the promoters are not liable for his acts though they as directors appointed him, unless it can be shown that the misrepresentations were made pur- 18. Walker v. Anglo-American Mortgage & Trust Co., 72 Hun (N. T.) 334, 341, 55 St. Rep. 54, 25 Supp. 432, and see National Exchange Co. V. Drew, 32 Bng. Law & Bq. 1, 14, et seq. And see ante, § 202. 19. Federal. — Alger v. Anderson, 78 Fed. Rep. 729, 735-736, and cases cited. Missouri. — Hornblower v. Cran- dall, 7 Mo. App. 220, affirmed, 78 Mo. 581. New York. — ^Downey v. Finucane, 205 N. Y. 251, 259, 98 N. E. 391, 40 L. R. A. N. S. 307 ; Miller v. Barber, 66 N. Y. 558, 567; Getty v. Devlin, 54 N. Y. 403, 414; Sandford v. Handy, 23 Wend. 260. Wisconsin. — Hoyer v. Ludington, 100 Wis. 441, 445, 76 N. W. 348, and cases cited ; Godfrey v. Schneck, 105 Wis. 568, 571, 81 N. W. 656; Law v. Grant, 37 Wis. 548. United Kingdom and Colonies. — Houldsworth v. City of Glasgow Bank, L. R. 5 App. Cas. 317, 326, 338-339; Wilson v. Hotclikiss, 2 Ont. L. R. 261, 271, and eases cited, af- firmed, sm6 nom. Milburn v. Wilson, 31 Can. S. C. 481. See review of cases in Lloyd v. Grace, Smith & Co., 1912, App. Cas. 716. See Clark & Skyles on Agency, §§ 507-510, Mechem on Agency, (2nd ed.), § 1984, et seq.; Tiffany on Agency, §§ 64-66. See also cases cited in succeeding note. The agent is himself ipersonally responsible. Clark & Skyles on Agency, § 597, Mechem on Agency, (2nd ed.), § 1458; Tiffany on Agency, § 96, and see ante, § 190, note. Unless he makes the representa- tions without knowledge of their falsity. Maine v. Midland Inv. Co., 132 Iowa 272, 280, 109 N. W. 801. FAIiSE REPRESENTATIONS. 369 suant to the directions of the promoters, or that the agent, while apparently the agent of the company, was actually appointed to further the interests of the promoters, and that the latter were the actual principals in respect to the particular matter com- plained of.^° § 205. Reliance upon false statements. A subscriber must, in order to base an action upon the misrepre- sentations of the promoters, prove that he relied upon the truth of their statements and that his subscription was, to some extent at least, induced thereby.^^ If the subscription was entered in 20. Downey v. Finucane, 205 N. Y. 251, 259-260, 98 N. E. 391, 40 L. R. A. N. S. 307; Arthur v. Griswold, 55 N. Y. 400 ; Lane v. Fenn, 146 N. y. App. Div. 205, 130 Supp. 995, af- firming, 65 N. Y. Misc. 336, 120 Supp. 237; Weir v. Bell, L. R. 3 Exch. Div. 238; Cargill v. Bower, L. R. 10 Ch. Div. 502, 513, et aeq.; Weir v. Barnett, L. R. 3 Exch. Div. 32, 39-41; Bear v. Stevenson, 30 L. T. N. S. 177. Cf. Western Bank of Scotland v. Addie, L. R. 1 So. & Div. App. Cas. 145, also Wilson v. Hotchkiss, 2 Ont. L. R. 261, 271, 277, (affirmed, sub notn. Milburn v. Wilson, 31 Can. S. C. 481), where the agents were appointed by the promoters before the company had come Into ex- istence; also Rives v. Bartlett, 156 N. Y. App. Div. 552, 141 Supp. 561, reversed on another ground, 215 N. Y. 33, 109 N. E. 83. 21. Federal.— nindmsin v. First Natl. Bk., 112 Fed. Rep. 931, 945, 50 C. C. A. 623, 57 L. R. A. 108. Georgia. — Weems v. Georgia M. & G. R. R. Co., 88 Ga. 303, 14 S. E. 583. Mississippi. — Selma M. & M. R. R. Co. V. Anderson, 51 Miss. 829. Missouri. — Champion Funding & Foundry Co. v. Heskett, 125 Mo. App. 516, 102 S. W. 1050. New York. — Morgan v. Skiddy, 62 N. Y. 319, 328; Wakeman v. Dalley, 51 N. Y. 27, 30, 10 Am. Rep. 551; Braekett v. Griswold, 112 N. Y. 454, 20 N. E. 376, 128 N. Y. 644, 28 N. B. 365. Pennsylvania. — ^McAleer v. Mc- Murray, 6 Phila. 244; Economy Powder Co. v. Boyer, 2 Berks. 131. United Kingdom and Colonies. — Bellairs v. Tucker, L. R. 13 Q. B. D. 562, 578; Smith v. Chadwick, L. R. 20 Ch. Div. 27, 44-45, 68, 80, 46 L. T. N. S. 702, affirmed, L. R. 9 App. Cas. 187, 190, 5 Am. & Bng. Corp. Cas. 23; Derry v. Peek, L,. R. 14 App. Cas. 337, 344; Hallows v. Fer- nie, li. R. 3 Ch. App. 467, 476; Jen- nings V. Broughton, 17 Beav. 234, affirmed, 5 DeG. M. & 6. 126. 370 THE LAW OF PROMOTERS. reliance upon the misstatement of the promoters, it is immaterial that the subscriber was also influenced by other circumstances. It is sufficient, to give rise to an action, that the false statement was one, though not the sole, inducement to the making of the subscription.^^ It is not necessary that the subscriber point out the precise statements in the prospectus which induced him to subscribe for shares. " It is an old expedient, and seldom successful," said Halsbury, L. C, in Amison v. Smith,^^ " to cross-examine a per- son who has read a prospectus, and ask himi as to each particular statement what influence it had on his mind, and how far it deter- mined him to enter into, the contract. This is quite fallacious, it assumes that a person who reads a prospectus and determines to take shares on the faith of it can appropriate among the different Note to Cottrill v. Krum, 18 Am. St. Rep. 549, 561, and see note to Fear v. Bartlett, 33 L. R. A. 721, 730. The same rule applies to a credi- tor claiming damages for fraudulent representations. Priest v. White, 89 Mo. 609, 1 S. W. 361. 22. Federal. — Hindman v. First Natl. Bk., 112 Fed. Rep. 931, 945, 50 C. C. A. 623, 57 L. R. A. 108. Gormecticut. — Scholfield Gear & Pulley Co. V. Scholfield, 71 Conn. 1, 17, 40 Atl. 1046. Missouri. — Hornblower v. Cran- dall, 7 Mo. App. 220, 232, affirmed, 78 Mo. 581. New York. — Morgan v. Skiddy, 62 N. Y. 319, 328. United Kingdom and Colonies. — Clarke v. Dickson, 6 C. B. N. S. 453; Peek v. Derry, L. R. 37 Ch. Div. 541, 574, 584, 588, reversed on another point, auh nom. Derry v. Peek, L. R. 14 App. Cas. 337 ; Lind- say Petroleum Co. v. Hurd, L. R. 5 P. C. 221 ; In re London & Leeds Bank, 56 L. J. Ch. N. S. 321, 56 L. T. N. S. 115, 35 W. R. 344 ; Amison v. Smith, L. R. 41 Ch. Div. 348, 359- 360 ; Moore v. Burke, 4 F. & F. 258, 288; Knox v. Hayman, 67 L. T. N. S. 137; Western Bank of Scotland V. Addie, L. R. 1 Sc. & Div. App. Cas. 145, 158, (citing Nicol's Case, 3 DeG. & J. 387, 420). See note to Cottrill v. Krum, 18 Am. St. Rep. 549, 559, and note to Fear v. Bartlett, 33 L. R. A. 721, 732. 23. L. R. 41 Ch. Div. 348, 369. See also Aaron's Reefs v. Twiss, 1896, App. Cas. 273, 280; Drincqbier V. Wood, 1899, 1 Ch. Div. 393, 404; Calthorpe v. Trechmann, 1906, App. Cas. 24, 75 L. J. Ch. N. S. 90, 94 L. T. N. S. 68, 22 Times Law Rep. 149. Cf. Hallows v. Fernie, FALSE REPRESENTATIONS. 371 parts of it the effect produced by the whole. This can rarely be done even at the time, and for a shareholder thus to analyze his mental impressions after an interval of several years, so as to say which representation in particular induced him to tate shares is a thing all but impossible. A person reading the prospectus looks at it as a whole, he thinks the undertaking is a fine com- mercial speculation, he sees good names attached to it, he observes other points which he thinks favorable, and on the whole he forms his conclusion. You cannot weigh the elements by ounces. It was said, and I think justly, by Sir G. Jessel in Smith v. Chadwick,^* that if the Court sees on the face of the statement that it is of such a nature as would induce a person to enter into the contract, or would tend to induce him to do so, or that it. would be a part of the inducement to enter into the contract, the inference is, if he entered into the contract, that he acted on the inducement so held out, unless it is shewn that he knew the facts, or that he avowedly did not rely on the statement whether he knew the facts or not." An action cannot be based upon a false statement in, or an omission from, a part of the prospectus which the plaintiff did not read,^® nor in general upon a prospectus which was not received by the plaintiff until after he had applied for his shares.^® An action may be based upon a misrepresentation made after the plaintiff had applied for shares, if he was by the misrepresentation L. R. 3 Ch. App. 467, 476-477; 25. Baty v. Keswick, 85 L. T. N. Derry v. Peek, L. R. 14 App. Gas. S. 18, W. N. 1901, 167. 337, 344. 26. Bartol v. Walton & Whann 24. L. R. 20 Ch. Div. 27, 44, 46 Co., 92 Fed. Rep. 13, 17; Negley v. L. T. N. S. 702, affirmed, L. R. 9 Hagerstown, etc., Co., 86 Md. 692, App. Cas. 187, 196, 5 Am. & Eng. 39 Atl. 506; Duryea v. Zimmerman, Corp. Cas. 23. See also Capel & 143 N. T. App. Div. 60, 127 Supp. Co. V. Sim's Ships Composition Co., 664; Reed v. Gold, 102 Va. 37, 45 57 L. J. Ch. N. S. 713, 714; Law- S. E. 868; Smith v. JChadwick, L. R. Fence's Case, L. R. 2 Ch. App. 412, 20 Ch. Div. 27, 40, 62, 68, 46 L. T. 422 ; Nash v. Calthorpe, 1905, 2 Ch. N. S. 702, affirmed, L. R. 9 App. Div. 237, 249, and cases cited. 372 THE LAW OF PROMOTERS. induced to refrain from withdrawing his subscription.^'' The fact that a prospectus was not seen by the plaintiff is immaterial if statements therein contained were repeated to him and he entered his subscription in reliance thereon.^* In Amison v. Smith,^^ an action was based upon certain untrue statements contained in the prospectus and it was claimed by the defendants that the effect of the false statement was done away with by a later circular in which the facts were correctly stated. The court held that the circular did not have this effect even as to those subscribers who had received the circular before they had paid the entire subscription price, but reserved opinion as to what would have been the result had the circular stated in so many words that there had been a misrepresentation in the prospectus and that the allottees might, if they wished, have their instalments returned. A subscriber must, in order to maintain his action upon the misrepresentations of the promoters, show that he believed the statements made to him, and acted in reliance thereon. If he does not accept the statements of the promoters, but makes his own examination, and takes the shares as a result of such examination, and not in reliance upon the promoters' representations, he has no right of action against the promoters.*" Gas. 187, 197, 5 Am. & Eng. Corp. Fed. Rep. 449, 68 C. C. A. 161, peti- Cas. 23. tion for writ of certiorari denied, 27. Hall V. Grayson County Natl. 197 U. S. 623, 25 Sup. Ct. 800, 49 L. Bank, 36 Tex. Civ. App. 317, 330, 81 Ed. 911 ; Attwood v. Small, 6 CI. & S. W. 762, 769. Cf. Smith v. Chad- F. 232, cited in Aberaman Ironworks wick, L. R. 20 Ch. Div. 27, 40, 46 L. v. Wickens, L. R. 5 Eq. 485. And T. N. S. 702, affirmed, L. R. 9 App. see post, § 253. Cas. 187, 5 Am. & Eng. Corp. Cas. Cf. Smith v. Land & House Prop- 23. erty Corporation, L. R. 28 Ch. Div. 28. See Northern Commer- cial Co., 213 Fed. Rep. IC®. Towa. — Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 107 N. W. 629, 119 Am. St. Rep. 564. Virffinta. — ^Virginia Land Co. v. Haupt, 90 Va. 533, 536-537, 19 S. E. 168, 169, 44 Am. St. R. 939. West Virginia. — West End Real Estate Co. v. Nash, 51 W. Va. 341, 41 S. E. 182. United Kingdom and Colonies. — Components Tube Co. v. Naylor, 1900, 2 Ir. R. 1. But see Heckscher v. Edenborn, 203 N. Y. 210, 224r-225, 96 N. B. 441, where the fact that the subscriber sought permission to subscribe, without solicitation by the defend- ant, was held to relieve the defend- ant from the burden of disclosing his personal interest in the trans- action. 30. See cases cited in preceding note. As to the action for damages, see ante, §§ 232-233. 448 THE LAW OF PROMOTERS. § 240. Restoration of status quo as condition of rescission. A stockholder, though induced by fraud io take the shares of the corporation, cannot rescind his purchase or subscription with- out restoring the former status.'^ In Franey v. Wamer,^^ the complainant had been induced by the false representations of the promoters and by the concealment of their secret profits, to join with them in the purchase of certain real estate afterwards conveyed to the corporation in payment for its shares. The court held that a transfer of the complainant's shares would not amount to a reconveyance of the promoters' former interest in the real estate, and that the complainant was not in a position to rescind. This decision seems too technical. The interest in the realty conveyed to the complainant was, if the situation were otherwise unchanged, substantially represented by the shares, and a transfer thereof amounted in practical effect to a reconveyance of the real estate.®' A tender of the plaintiff's shares was, in a recent New York case, held a sufficient offer to restore, although the property purchased from the defendant promoter was only one of a number of proper- ties that went into the corporation, and the shares of the company were by no means the equivalent of the former property of the promoter.^* The United States Circuit Court of Appeals consid- ering the same facts came, however, to a different conclusion.*' 31. Getty v. Devlin, 54 N. Y. 403, 33. See Heckscher v. Edenborn, 414 ; Franey v. Warner, 96 Wis. 222, 203 N. T. 210, 227-230, 96 N. E. 71 N. W. 81 ; Western Bank of Scot- 441 ; Barbour v. Hurlburt, 137 Mich, land T. Addie, L. R. 1 Sc. & Div. 534, 539, 100 N. W. 781, 783 ; Short App. Cas. 145, 164-165; Clarke v. v. Stevenson, 63 Pa. St. 95. Of. Dickson, 1 El. Bl. & El. 148. mite, § 170, note. 32. 96 Wis. 222, 234, 71 N. W. 81, 34. Heckscher v. Edenborn, 203 85, relying to some extent on Getty N. Y. 210, 230, 96 N. E. 441. Of. V. Devlin, 54 N. Y. 403, 70 N. Y. ante, § 170, note. 504. See Western Bank of Scotland 35. Edenborn v. Sim, 206 Fed. V. Addle, L. R. 1 Sc. & Dlv. App. Rep. 275, 124 C. C. A. 339. Cf. ante, Cas, 145, 165-166. Cf. ante, § 170, § 170, note, note. BEMEDIE8 OF STOCKHOLDERS. 449 In Ginn v. Almy,^® the plaintiff had, by the false representations of the defendant, been induced to purchase the shares of two min- ing companies. These companies were subsequently consolidated with the consent of the stockholders including the defendant. It was held that a tender by the plaintiff of his shares in the con- solidated company, amounted to an offer to restore to the defend- ant what had originally been received, and placed the plaintiff in a position to recover the purchase price of the original shares. The rule making an offer to restore a condition of the rescission, is one of substance and not of form, and such an offer is unneces- sary if there is in fact nothing substantial to restore.*'' In Zang V. Adams,*® the note in suit, given by the defendant in payment for his shares, had, before the discovery of the fraud, been pledged by the corporation as collateral security to its bank. The corpo- ration no longer owned any property, and the shares were worth- less. The court held that the defendant might under these cir- cumstances, plead fraud as a defense to an action on his note, though he had not tendered the shares to the corporation nor de- manded of it a surrender of the note. A subscriber may also rescind without returning his shares if the return of such shares has been made impossible by the act of the defendant.** § 241. Methods of effectuating rescission. The remedy of rescission may be pursued in a number of differ- ent ways. If the purchase price of the shares, or a part thereof, has already been paid, the subscriber or purchaser may give notice of disaffirmance, offer to return his shares, and maintain an action 36. 212 Mass. 486, 507, 99 N. E. 38. 23 Colo. 408, 48 Pac. 509, 58 276. Cf. ante, § 170, note. Am. St. R. 249. 37. Bums V. McCabe, 72 Pa. 309. 39. Flndlay v. Baltimore Trust & It is held in State Bank of In- Guarantee Co., 97 Md. 716, 55 Atl. dlana v. Cook, (125 Iowa 111, 100 379. Where the plaintiff had sold N. W. 72), that if the shares are his securities on the advice of the valueless, it is not necessary to re- defendant, turn them. See ante, § 170. 450 THE LAW OF PROMOTERS. at law for money had and received, for the recovery of the moneys paid; or he may, without a prior oiFer to restore the shares, bring an action in equity for the rescission of his subscription or purchase, offering in his complaint to return the shares.*" If the subscriber learns of the promoter's fraud before the sub- scription price has been paid, he may give notice of disaffirmance, and after offering to surrender his shares, defend, upon the ground of fraud, any action brought against him upon his subscription,*^ or he may sue in equity to enjoin action upon his subscription and 40. Cheney v. Dickinson, 172 Fed. Rep. 109, 96 0. C. A. 314, 28 L. R. A. N. S. 359 ; Hindman v. First Nat'l Bk., 112 Fed. Rep 931,^944, 50 C. C. A. 623, 57 L. R. A. 108 ; Vail v. Reynolds, 118 N. Y. 297, 302-303, 23 N. E. 301; Hecksclier v. Eden- born, 203 N. Y. 210, 220, 96 N. E. 441; Getty v. Devlin, 54 N. Y. 403, 414-415 ; Clarke v. Mercantile Trust Co., 110 N. Y. App. Div. 901, 902, 95 Supp. 1118, (dissenting opinion), and cases cited; Bosley v. Nat'l Mach. Co., 123 N. Y. 550, 25 N. E. 990; Thompson v. Hardy, 19 S. D. 91, 102 N. W. 299, and cases cited: Jordan v. Annex Corporation, 109 Va. 625, 64 S. E. 1050, 17 Am. & Eng. Ann. Cas. 267; Wilson v. Hundley, 96 Va. 96, 30 S. E. 492, 70 Am. St. Rep. 837. See note to Fear v. Bartlett, 31 L. R. A. 721. 41. Texas. — Hall v. Grayson County Nat'l Bk., 36 Tex. Civ. App. 317, 81 S. W. 762. Virginia. — Virginia Land Co. v. Haupt, 90 Va. 533, 19 S. B. 168, 44 Am. St. Rep. 939; Jordan v. Annex Corporation, 109 Va. 625, 630, 64 S. E. 1050, 1052, 17 Am. & Eng. Ann. Cas. 267; Wilson v. Hundley, 96 Va. 96, 30 S. B. 492, 70 Am. St. Rep. 837; West End Real Estate Co. v. Claiborne, 97 Va. 734, 34 S. B. 900. Washington. — Johns v. Coffee, 74 Wash. 189, 133 Pac. 4, affirmed on reargument, 77 Wash. 700, 137 Pac. 808. West Virginia. — West End Real Estate Co. v. Nash, 51 W. Va. 341, 41 S. E. 182. United Kingdom and Colonies. — Oakes v. Turquand, L. R. 2 H. L. 325, 344 ; New Brunswick & Canada By., etc., Co. v. Muggeridge, 1 Drewry & Smale 363, 383 ; Bwlch-Y- Plwm Lead Mining Co. v. Baynes, L. R. 2 Exch. 324 ; Aaron's Reefs v. Twiss, 1896, App. Cas. 273. See note to Pear v. Bartlett, 33 L. R. A. 721, and see Vreeland v. New Jersey Stone Co., 29 N. J. Eq. 188, 189, note. Fraud may likewise be pleaded as a defense to an action upon a note given in payment of the subscrip- tion price of the shares. Alabama Foundry & Mach. Works v. Dallas, 127 Ala. 513, 29 So. 459; Zang v. Adams, 23 Colo. 408, 48 Pac. 509, 58 Am. St. Rep. 249 ; People's Natl. KEMEDIES OF STOCKHOLDERS. 451 for the cancellation thereof and the surrendel- of any note or other obligation given in payment therefor.*^ A subscriber who has borrowed the money to pay for his shares, from the persons by whose fraud his subscription was induced, may plead such fraud as a defense to an action for the recovery of the money loaned to him.*^ § 242. Joinder of actions. A subscriber cannot join a demand for the rescission of his sub- scription with a demand for the enforcement of ^ right claimed thereunder.** A demand for individual relief cannot be joined with a demand on behalf of the corporation.*" § 243. Joinder of parties. If the circumstances are such as to justify an action for an accounting to the individual subscribers for the secret profits of the promoters, all the subscribers may unite as plaintiffs in a single action.*® A number of subscribers whose subscriptions were induced by Bank v. Taylor, — Ariz. — , 149 held not to be an innocent purchaser Pac. 763. in State Bank of Indiana v. Ment- As to pleading fraud as a defense zer, 125 Iowa 101, 100 N. W. 69. to an action under the Statute of 7 42. Manning v. Berdan, 135 Fed. and 8 Victoria, (Oh. 110, § 55), see Rep. 159. See Luetzke v. Roberts, Aaron's Beefs v. Twiss, 1896, App. 130 Wis. 97, 109 N. W. 949. Gas. 273, 277-278; Deposit Life As- 43. National Exchange Co. v. surance Co. v. Ayscough, 6 E. & B. Drew, 32 Eng. Law & Eq. 1. 761. 44. See Petrie v. Guelph Lumber A subscriber pleading fraud as a Co., 11 Can. S. C. 450, 15 Am. & defense to an action upon a sub- Eng. Corp. Cas. 487, and see ante, § scription must, in his answer, show 195. that he rescinded promptly upon 45. See ante, § 195. discovering the fraud. See Ameri- 46. Getty v. Devlin, 54 N. T. 403, can Bldg. & Loan Ass'n v. Bainbolt, 415 ; same v. same, 70 N. T. 504, 48 Neb. 434, 67 N. W. 493. See also 511 ; Dole v. Wooldredge, 135 Mass. Deposit Life Ass. Co. v. Ayscough, 140, and see cases cited under notes 6 E. & B. 761, 764. to § 237, ante. Cf. Tompkins v. A bank discounting subscription Sperry, Jones & Co., 96 Md. 560, notes was, under the facts found, 583, 54 Atl. 254, 258-259. 452 THE LAW OF PROMOTERS. false representations contained in the same prospectus, may join as plaintiffs in an action for the rescission of their several sub- scriptions,*'' but they cannot bring their suit on behalf of them- selves and all other subscribers similarly situated.** In Hamilton V. American Hulled Bean Co.,*® parties who had been induced to subscribe for their shares by means of identical false represen- tations made at different times, were permitted to join as plaintiffs in an action for the rescission thereof. Parties deceived by the same or similar misrepresentations can- not join as plaintiffs in an action at law to recover damages for fraud and deceit.*"* 47. Sherman v. American Stove Co., 85 Mich. 169, 48 N. W. 537. Mack V. Latta, 178 N. Y. 525, (at pages 531 and 534), 71 N. E. 97, 67 L. R. A. 126. Bosher v. Richmond & H. Land Co., 89 Va. 455, 16 S. B. 360. (Ap- proved In Brown v. Bedford City Land and Improvement Co., 91 Va. 31, 20 S. B. 968, foUowed in Rader V. Bristol Land Co., 94 Va. 766, 27 S. E. 590) ; Carey v. Coffee Stem- ming Machine Co., 20 S. E. 778. Beeching v. Lloyd, 3 Drewry 227; Arnison v. Smith, L. R. 41 Ch. Dlv. 348; Macbride v. Lindsay, 9 Hare 574; Oridland v. DeMauley, 1 DeG. & Sm. 459. In Lungren v. Pennell, 10 Weekly Notes Cas. 297, 13 Cent. L. J. 211, a joinder was held improper, the representations to the various plain- tiffs having been made by various defendants. Creditors of the corporation can- not be joined as plaintiffs with stockholders demanding a rescission of their subscriptions, as their in- terests are antagonistic. Brown v. Bedford City Land & Imp. Co., 91 Va. 31, 20 S. E. 968. 48. Mack V. Latta, 178 N. T. 525, 531, 71 N. E. 97, 67 L. R. A. 126, quoting from Cook on Corporations, § 156; Croskey v. Bank of Wales, 4 GieC. 314; Hallows v. Fernie, L. R. 3 Ch. App. 467, 471. Cf. Bosher v. Richmond & H. Land Co., 89 Va. 455, 16 S. E. 360; Brown v. Bedford City Land & Imp. Co., 91 Va. 31, 20 S. E. 968. 49. 143 Mich. 277, 106 N. W. 731, 156 Mich. 609, 121 N. W. 731. 50. Dole V. Wooldredge, 135 Mass. 140. But see Drincqbier v. Wood, 1899, 1 Ch. Div. 393. Where the representations com- plained of are made orally, evi- dence of similar misrepresentations to other subscribers is said to be competent on the question of fraud- ulent intent. Miller v. Barber, 66 N. T. 558, 568; McAleer v. Horsey, 35 Md. 439, 461. In Lebanon Steam Laundry v. Dyckman, 22 Ky. L. R. 348, 57 S. W. 227, the individual defendants set up a counter-claim for damages REMEDIES OF STOCKHOLDERS. 453 A stockholder wishing to rescind his subscription because of the fraudulent represeptations by which it was induced, may join the corporation and the fraudulent promoters as defendants in an action in equity, demanding a rescission of the subscription as against the corporation, and a judgment against the corporation and the guilty promoters for the repayment of the moneys paid thereon.*^ Separate causes of action against a number of promoters can- not be joined in one action unless each of the defendant promoters is alleged to be liable upon every cause of action.^^ for fraud and deceit. It was claimed that the plaintiff had by false representations induced the defendant Newcome to purchase the plant at an excessive valuation and had subsequently by similar repre- sentations induced the defendant Edmonds to purchase from the de- fendant Newcome an interest there- in. The court held that the counter- claim was properly stricken out, as the representations to Newcome did not damage Edmonds, and the rep- resentations to Edmonds, If they damaged him, must have benefited Newcome. 51. Federal. — Tyler v. Savage, 143 U. S. 79, 36 L. Ed. 82, 12 S. C. 340. Michigam,. — Sherman v. American Stove Co., 85 Mich. 169, 48 N. W. 537; Hamilton v. American Hulled Bean Co., 156 Mich. 609, 121 N. W. 731; same case on demurrer, 143 Mich. 277, 106 N. W. 731. New Jersey. — Vreeland v. New Jersey Stone Co., 29 N. J. Eq. 188, affirmed, 29 N. J. Eq. 651. New York. — Mack v. Latta, 178 N. Y. 525, 71 N. E. 97, 67 L. R. A. 126, and authorities cited ; Lehman- Charley V. Bartlett, 135 App. Div. 674, 120 Supp. 501, affirmed, 202 N. Y. 524, 95 N. E. 1125. Vwginia. — Bosher v. Richmond & H. Land Co., 89 Va. 455, 462, 16 S. E. 360, 362; Carey v. Coffee Stem- ming Machine Co., 20 S. E. 778. West Virginia. — Cox v. National Coal & Oil Investment Co., 61 W. Va. 291, 313, 56 S. E. 494, 503. United Kingdom and Colonies. — Capel & Co. V. Sim's Ship Composi- tion Co., 57 L. J. Ch. N. S. 713, 717- 718, 58 L. T. N. S. 807, 36 W. R. 689. As to joining an action agaiust the corporation, for a rescission, with an action against the pro- moters, for fraud and deceit, see Clarke v. Mercantile Trust Co., 110 N. T. App. Div. 901, 95 Supp. 1118, (dissenting opinion), Frankenburg V. Great Horseless Carriage Co., 1900, 1 Q. B. Div. 504. 53. Gower v. Couldridge, 1898, 1 Q. B. Div. 348, explained in Frankenburg v. Great Horseless Carriage Co., 1900, 1 Q. B. Div. 504, 509, and see note 47, supra. See ante, § 195. CHAPTER XIII. Of Defenses to Suits by Individtjal Stockholdees. Section 244. Introductory. 245. Defense that no benefit accrued to promoter. 246. Defense that promoter urged cancellation of subscriptions. 247. Absence of fraudulent intent. 248. Enterprise doomed to failure in any event. 249. Prior recovery by corporation. 250. Defense that property in relation to vfhich representa- tions made, not sold to corporation at time of plaintiff's subscription. 251. Defense that plaintiff has disposed of his shares. 252. Defense of election to disaflSrm. 253. Defense that plaintiff might readily have ascertained truth. 254. Defense that representations concerning credit of another are not actionable unless in writing. 255. Defense of statute of limitations. 256. Defenses to suits for accounting. 257. Defenses to actions for rescission: — ^Election to affirm. 258. Acts constituting election. 259. Effect of election to afBrm. 260. Defense of laches. 261. Delay as defense to action upon a rescission. 262. Rescission after insolvency of corporation. 263. Defense that oral representations were merged in subscrip- tion agreement. § 244. Introductory. Questions relating to the defenses interposed by promoters to suits brought against them by, or on behalf of, the corporation have been considered in an earlier chapter. It is proposed in this chapter to discuss briefly some defenses which have, from time to (454) DEFENSES. 455 lime, been interposed in suits brought against the promoters by subscribers for the company's shares. § 245. Defense that no benefit accrued to promoter. An action for damages for fraud and deceit is based upon the injury done to the plaintiff, not upon the benefits received by the defendants. It is, therefore, immaterial that the promoters charged with inducing a purchase of shares by fraudulent repre- sentations were not themselves the owners of the shares sold, had no interest therein, and derived no benefit from the trans- action.^ If the subscriber complains that shares were secretly and im- properly appropriated to themselves by the promoters, it is no defense that such shares never had any value or ultimately be- came valueless, and that the promoters derived no profit, but, on the contrary, suffered loss from the transaction.^ § 246. Defense that promoter urged cancellation of subscrip- tions. It has been held that a promoter sued by the subscribers for 1. Cheney v. Dickinson, 172 Fed. 578; Fenn v. Curtis, 23 Hun (N. Y.) Rep. 109, 96 C. C. A. 314, 28 L. B. 384 ; Cox v. National Coal & Oil In- A. N. S. 359 ; Hindman v. First Natl, vestment Co., 61 W. Va. 291, 312- Bk., 112 Fed. Eep. 931, 945, 50 C. 313, 56 S. E. 494, 503, and cases C. A. 623, 57 L. R. A. 108 ; Hinkley cited ; but see Schanek v. Morris, 30 V. Sac Oil & Pipe Line Co., 132 Iowa N. Y. Super. 658. 396, 406, 107 N. W. 629, 633, 119 Note to Cottrill v. Krum, 18 Am. Am. St. R. 564; Mack v. Latta, 178 St. Rep. 549, 555, 14 Am. & Eng. N. Y. 525, 529, 71 N. E. 97, 67 L. R. Ency. (2nd. Ed.) 153, and see ante, A. 126, and cases cited; Clarke v. § 175. Mercantile Trust Co., 110 N. Y. App. 2. Hinkley v. Sac Oil & Pipe Line Div. 901, 904, 95 Supp. 1118, (dis- Co., 132 Iowa 396, 406, 107 N. senting opinion) ; Greene v. Mercan- W. 629, 632, 119 Am. St. R. 564. tile Trust Co., 60 N. Y. Misc. 189, See also Torrey v. Toledo Portland 111 Supp. 802, affirmed, 128 N. Y. Cement Co., 158 Mich. 348, 122 N. App. Div. 914, 112 Supp. 1131; W. 614. Cazeaux v. Mali, 25 Barb. (N. Y.) See emte, §§ 133, 165. 456 THE LAW OF PROMOTERS. damages for fraud and deceit, cannot avoid liability by showing that he, at a time when the capital of the corporation was still intact, urged upon the directors the return to the shareholders of the amount of their subscriptions, for, it is said, a tort feasor cannot absolve himself from liability by showing that the conse- quences of his unlawful acts might have been avoided by persons over whom the plaintiff had no control.^ § 247. Absence of fraudulent intent. An honest belief on the part of the promoter in the truth of the representations made by him is, if such representations were in fact false, no defense to an action for the rescission of the sub- scription or purchase induced thereby. The vendor of the shares, whether the corporation or the promoter himself, cannot excuse the making of the false representations by showing that the repre- sentations were, when made, believed to be true, and at the same time obtain the full benefit of the misrepresentations by holding the party deceived to the performance of the purchase induced thereby.* The sufficiency, as a defense to an action for fraud and deceit, of a bona fide belief in the truth of one's representations, presents a question of some difficulty which is considered at length in an earlier chapter.^ § 248. Enterprise doomed to failure in any event. If the purchase of the plaintiff's shares was induced by a mis- representation of a material fact, it is no defense to his suit that the company subsequently collapsed by reason of facts in no way related to the representation of which he complains. Though the event proved that the company would have been doomed to failure even had everything been in fact just as represented to the plain- tiff, it does not follow that the matters misrepresented were imma- 3. Twycross v. Grant, L. R. 2 C. 4. See ante, § 209. P. D. 469, 490. 5. See ante, §§ 207-208. DEFENSES. 457 terial, nor that the plaintiff was not damaged by the misrepresen- tation. The basis of his complaint is that he was induced by a mis- representation to purchase the shares and that loss resulted from his purchase; that had the actual facts been presented to him he would not have purchased the shares, and that whatever loss he suffered by reason of his investment was caused by the misrepre- sentation which induced him to make the purchase.* § 249. Prior recovery by corporation. Complaint is frequently made by subscribers that their sub- scriptions were induced by the promoter's concealment of, or false representations in relation to, some secret advantage taken of the corporation. It is clear on principle that the circumstance that the corporation had upon learning the facts brought suit and recovered judgment against the promoter because of the secret advantage taken of it, does not affect the right of a subscriber to recover his personal damages from the promoter, except in so far as a recovery by the corporation increases the value of his shares and thereby reduces his damages. A recovery by the corporation would not affect the amount of the subscriber's damages if he had, before the corporation recovered its judgment, parted with his shares.'' § 250. Defense that property in relation to which representa- tions were made, had not been sold to the corporation at time of plaintiff's subscription. A question has been raised whether an action for fraud and de- 6. Peek v. Derry, L. E. 37 Ch. Div. be taken in some jurisdictions. See 541, 577, reversed on another point, post, § 277, and see Doran v. stib nom. Derry y. Peek, L. R. 14 Eaton, 40 Minn. 35, 41 N. W. 244, App. Cas. 337. See Twycross v. but compare the other Minnesota Grant, L. R. 2 C. P. D. 469, 504 ; cf . cases cited under § 277, post. McConnell v. Wright, 1.903, 1 Ch. 7. Alexandra Oil & Dev. Co. v. Div. 546. Cook, 10 Ont. W. R. 781, 785, af- A different view might perhaps firmed, 11 Ont. W. R. 1054. 458 THE LAW OF PROMOTERS. ceit will lie at the hands of a subscriber who made his subscription before the property to which the false representations related had been acquired by the company.* The argument made is that no injury was done to the plaintiff at the time of his subscription, and that the injury at the time of the subsequent sale was an injury to the corporation and not to the existing subscribers. It seems clear on principle that if a person is induced to subscribe for shares of a corporation by fraudulent representations in regard to property to be acquired by it, his subscription is induced by the false representation of an existing fact, and he has an action for damages against the guilty parties. This would be so though the directors on discovering the truth refused to complete the pur- chase.' It has been held that if the plaintiff was induced to subscribe for shares by the fraudulent representations of the promoters and by the concealment of the fact that the promoters were themselves the owners and vendors of the property which the corporation was organized to purchase, the plaintiff has an action for fraud and deceit, and the fact that the scheme of selling the promoters' prop- erty to the corporation was ultimately abandoned is no defense, for the gist of the action is that the plaintiff was induced by fraud to subscribe and pay for his shares.^** § 251. Defense that plaintiff has disposed of his shares. It is obviously no defense to an action for damages for fraud and deceit that the plaintiff had sold his shares before the commence- ment of his action. The injury was done and the cause of action accraed when the shares were subscribed for, and the right of action remains with the subscriber, and is not affected by the transfer of his shares. ■'•' 8. Dunnett v. Mitchell, Session 10. Paddock v. Fletcher, 42 Vt. Oases, 12 Rettie 400. 389, 393-394. 9. Smith V. Reese River Co., L. R. 11. Teachout v. VanHoesen, 76 2 Eq. 264. Iowa 113, 121, 40 N. W. 96, 100, 1 DEFENSES. 459 It is held in Clark v. Morgan County National Bank ^^ that the fact that the plaintiff has resold the securities for as much as or even more than he paid for them is not a defense to his action to re- cover damages for the false representations which induced his purchase. § 252. Defense of election to disaffirm. It has been held that the commencement by the subscriber of an action based upon a disaffirmance of his subscription is an election which is conclusive upon him and a bar to a subsequent action for damages for fraud and deceit.-'^ A mere notice of disaffirmance and an offer to return the shares is, if rejected, probably not a conclusive election.^* § 253. Defense that plaintiff might readily have ascertained the truth. When it is shown that the plaintiff's subscription for, or pur- chase of, shares was induced by a false representation as to a ma- terial fact, it is not a defense to his action for fraud and deceit that he might by proper inquiry have ascertained the truth.^" L. R. A. 664; of. Alexandra Oil & Colorado. — ^Zang v. Adams, 23 Dev. Co. v. Cook, 10 Ont. W. R. Colo. 408, 48 Pac. 509, 58 Am. St. 781, 785, afBrmed, 11 Ont. W. R. R. 249. 1054. Illinois. — Cantwell v. Harding, 155 The cause of action is, of course, ill. App. 578, reversed on another assignable. Getty v. Devlin, ib N. ground, 249 111. 354, 94 N. E. 488. T. 504, 512. Jowtt.— Riley v. Bell, 120 Iowa 12. 196 Fed. Rep. 709. 618, 95 N. W. 170; Howerton v. 13. Clarke v. Mercantile Trust Augustine, 145 Iowa 246, 121 N. W. Co., 110 N. Y. App. Div. 901, 904, 373; Holmes v. Rivers, 145 Iowa 95 Supp. 1118, (dissenting opinion), 702, 709, 124 N. W. 801; Severson v. and cases cited. Kock, 159 Iowa 343, 140 N. W. 220. 14. Miller v. Barber, 66 N. Y. Michigan. — Converse v. Blumrich, 558. 14 Mich. 109, 121. 15. Federal. — Upton v. Bngel- Minnesota — Redding v. Wright, hart, 3 Dill. (U. S.) 496, 500, 28 Fed. 49 Minn. 322, 330, 51 N. w! 1056. Cas. No. 16,800. ifissoitri.— Cottrill v. Krum, 100 460 THE LAW OF PROMOTERS. " He has a right to retort upon his objector, ' You, at least, who have stated what is untrue, or have concealed the truth, for the purpose of drawing me into a contract, cannot accuse me of want of caution because I relied implicitly upon your fairness and hon- esty.' " ^* It is on this principle held that a promoter who has Mo. 397, 13 S. W. 753, 18 Am. St. Rep. 549; Hornblower v. Crandall, 7 Mo. App. 220, 232, affirmed, 78 Mo. 581; Union Nat'l Bk. v. Hunt, 76 Mo. 439; Brolaski v. Carr, 127 Mo. App. 279, 105 S. W. 284 ; Snider V. McAtee, 165 Mo. App. 260, 147 S. W. 136. New York. — Delano v. Rice, 23 App. Div. 327, 330, 48 Supp. 295. North Dakota. — Fargo Gas & Coke Oo. V. Fargo Gas & Electric Co., 4 N. D. 219, 59 N. W. 1066, 37 L. R. A. 593. Ohio. — Shawnee Commercial & Savings Bank Co. v. Miller, 24 OMo C. O. 198, 213. Texas. — Hall v. Grayson County Nat'l Bank, 36 Tex. Civ. App. 317, 325, 81 S. W. 762, 766-767, and cases cited. VirginAa. — West End Real Estate Oo. V. Claiborne, 97 Va. 734, 750- 751, 34 S. E. 900, 906; Bosher v. Richmond & H. Land Co., 89 Va. 455, 461, 16 S. E. 360, 362, cited in Weisiger v. Richmond Ice Machine Co., 90 Va. 795, 797, 20 S. E. 361. United Kingdom and Colonies.-^ Directors of Central Railway Co. of Venezuela v. Kisch, L. R. 2 H. L. 99, 120-121, 16 L. T. N. S. 500, and cases cited, affirming, Kisch v. Cen- tral Ry. Co. of Venezuela, 3 DeG. J. & S. 122, 34 L. J. Oh. N. S. 545, 552; Downes v. Ship, L. R. 3 H. L. 343; Redgrave v. Hurd, L. R. 20 Ch. Div. 1, 13; Aaron's Reefs v. Twiss, 1896, App. Oas. 273, 279, 287 ; New Brunswick & Canada Ry., etc., Co. V. Muggeridge, 1 Drewry & Smale 363, 382 ; Smith v. Chadwick, L. R. 20 Ch. Div. 27, 57, 46 L. T. N. S.'702, affirmed, L. R. 9 App. Cas. 187, 5 Am. & Eng. Corp. Cas. 23; Capel & Co. V. Sim's Ships Com- position Co., 57 L. J. Ch. N. S. 713, 716-717; Components Tube Co. v. Naylor, 1900, 2 Ir. R. 1, 33; Jury V. Stoker, L. R. 9 Ir. 385, 399. See notes to Pigott v. Graham, 14 L. R. A. N. S. 1176, and to Fargo Gaslight & Coke Co. v. Fargo Gas & Electric Co., 37 L. R. A. 593. Of. Brehm v. Sperry, Jones & Co., 92 Md. 378, 404-405, 48 Atl. 368, 373; Whiting v. Price, 172 Mass. 240, 51 N. B. 1084, 70 Am. St. Rep. 262, (cited in Honsucle v. Ruffln, 172 Mass. 420, 52 N. E. 538) ; Haskell V. Worthington, 94 Mo. 560, 7 S. W. 481; Sehanck v. Morris, 30 N. Y. Super. 658; Warner v. Benjamin, 89 Wis. 290, 62 N. W. 179; Dixon's Case, 15 L. T. N. S. 651. The failure of the subscriber to investigate is likewise no defense to an action for the rescission of his subscription. See post, § 260. 16. Directors, etc., of Central Ry. Co. of Venezuela v. Kisch, L. R. 2 H. L. 99, 16 L. T. N. S. 500. DEFENSES. 461 obtained subscriptions by the concealment of material contracts, cannot escape the consequences of his fraud by showing that the contracts were in some way mentioned in the prospectus. The fact that a document is mentioned in the prospectus does not charge subscribers with constructive notice of its contents.-'^'' Some authorities hold that each subscriber is chargeable with knowledge of the contents of the corporate charter, and cannot claim to have been deceived by a misrepresentation in relation thereto.^* The better rule seems to be that while, a subscriber is ordinarily chargeable with knowledge of the contents of the cor- porate charter and cannot complain of the failure of the promoters to expressly inform him thereof, an affirmative misrepresentation cannot be excused by showing that an examination of the charter would have disclosed its falsity.^® 17. Aaron's Beefs v. Twiss, 1896, App. Cas. 273, 287; Components Tube Co. v. Naylor, 1900, 2 Ir. R. 1, 33, 78-79; Langham v. East Wheal, etc., Min. Co., Ltd., 37 L. J. Ch. N. S. 253. See ante, § 112. ■ Cf. Hallows V. Fernie, L. B. 3 Ch. App. 467, 477; Moore v. Burke, 4 F. & F. 258. 18. Oil City Land & Improvement Co. V. Porter, 99 Ky. 254, 35 S. W. 643, 18 Ky. Law. Bep. 151; Wight V. Shelby B. B. Co., 16 B. Mon. (Ky.) 4, 63 Am. Dec. 522; Selma M. & M. B. B. Co. V. Anderson, 51 Miss. 829 ; Ellison v. Mobile & Ohio R. R. Co., 36 Miss. 572. See Moore v. Burke, 4 F. & F. 258, 287, where the fact that the plaintiff was a country clergyman who could not be expected to come to the city to make inquiries, was held immaterial. See note to Fear v. Bartlett, 33 L. B. A. 721, 732. See also Ameri- can Digest, Century Edition "Cor- porations," § 251. 19. See Langham v. East Wheal etc.. Mining Co., Ltd., 37 L. J. Ch. N. S. 253; Directors, etc., of Cen- tral Railway of Venezuela v. Kisch,^ L. B. 2 H. L. 99, 123, 16 L. T. N." S. 500, affirming, Kisch v. Central Bailway Co. of Venezuela, 3 DeG. J. & S. 122, 34 L. J. Ch. N. S. 545, 551, 552, (cited in Oakes v. Tur- quand, L. B. 2 H. L. 325, 368, and in Components Tube Co. v. Naylor, 1900, 2 Ir. B. 1, 40) ; Smith v. Chadwick, L. B. 20 Ch. Div. 27, 57, 46 L. T. N. S. 702, affirmed, L. B. 9 App. Cas. 187, 5 Am. & Eng. Corp. Cas. 23; Ete parte Briggs, L. B. 1 Eq. 483, and see ante, § 112. Distinction must be made between promises inconsistent with the char- ter, and false representations con- tradicted by it. 462 THE LAW OF PROMOTERS, I It has been held that a subscriber cannot claim to have been de- ceived if the subject matter of the promoter's representations was at hand for inspection and the matter was one within the under- standing of the lay mind, or if the subscriber, not satisfied with the representations of the promoter, instituted his own inquiry and personally examined into the matter.^* § 254. Defense that representations concerning credit of an- other are not actionable unless in writing. While statutes providing that representations in regard to the credit, ability, trade, or dealings of another person shall not be actionable unless in writing, apply to representations inducing the purchase of corporate notes,^^ such statutes have, in most juris- dictions, no application to representations made to induce a pur- chase of, or a subscription to, the shares of a corporation.** § 255. Defense of statute of limitations. Where the subscriber seeks relief in an action at law to recover damages for fraud and deceit the only delay that will bar his 20. West End Real Estate Co. v. 66 N. E. 739 ; Grover v. Cavanaugh, Claiborne, 97 Va. 734, 751, 34 S. E. 40 Ind. App. 340, 82 N. B. 104 ; Wal- 900, 906; Mulholland v. Washing- ker v. Russell, 186 Mass. 69, 71 N. ton Match Co., 35 Wash. 315, 321, E. 86, 1 Am. & Eng. Ann. Gas. 688; 77 Pac. 497, 499; Warner v. Benja- Huntress v. Blodgett, 206 Mass. mln, 89 Wis. 290, 62 N. W. 179 ; 318, 92 N. E. 427. Jennings v. Broughton, 5 DeGex. It is held in Michigan that the M. & G. 126, affirming, 17 Beav. statute applies if the party making 234, (cited in Aberaman Ironworks the representation has no personal V. Wickens, L. R. 5 Eq. 485, 506) ; interest in the transaction, but ap- New Brunswick & Canada Ry., etc., parently not if he derives a profit Co. V. Conybeare, 9 H. L. Cas. 711, or commission therefrom. See and see ante, § 205. Getchell v. Dusenbury, 145 Mich. 21. McKee v. Rudd, 222 Mo. 344, 197, 108 N. W. 723; Diel v. Kellogg, 367-369, 121 S. W. 312, 319, 133 163 Mich. 162, 128 N. W. 420, 17 Am. St. Rep. 529, and cases cited. Det. Leg. News 891; Hubbard v. 22. Coulter v. Clark, 160 Ind. 311, Oliver, 173 Mich. 337, 139 N. W. 77. DEFENSES. 463 remedy is that fixed by the statute of limitations.^^ Whether the time to commence the action is to be computed from the date of the fraud, or from the date of its discovery, depends upon the provisions of the statute of the particular forinn.''* It has been held that the statute runs from the date when the subscription is made, though payment be postponed until a later time.^® § 256. Defenses to suits for accounting. It is held in Maxwell v. McWilliams ^® that a promoter who has taken an unlawful profit under such circumstances that he may be compelled to account therefor directly to the subscribers, can- not escape liability by voluntarily surrendering such profits to the corporation. His liability being to the subscribers cannot be avoided by a payment to the company. The subscribers cannot compel the promoter to account to them for a profit which would, even though acquiesced in by all the complaining subscribers, have constituted a fraud upon the corpo- ration. The complaining subscribers would in such case, by taking a share of the promoter's unlawful profit, make themselves parties to the fraud, and the courts will not assist them to that end.^'' 23. Peek v. Gurney, L. E. 6 H. L. See also note to Pietsch v. Mil- 377, 384, 402! brath, 68 L. R. A. 945. 24. Higgins v. Grouse, 147 N. Y. 25. Ball v. Gerard, 160 N. Y. App. 411, 42 N. E. 6; Ball v. Gerard, 160 Div. 619, 146 Supp. 81; Reusens v. N. Y. App. Dlv. 619, 622, 146 Supp. Gerard, 160 N. Y. App. Div. 625, 81 ; Coffin v. Barber, 115 N. Y. App. 146 Supp. 86. Dlv. 713, 101 Supp. 147; Gibbs v. 26. 145 111. App. 155, 176, et seq. Guild, L. R. 8 Q. B. Div. 296, af- 27. See Travis v. Travis, 140 N. firmed, L. R. 9 Q. B. Div. 59. Y. App. Div. 191, 124 Supp. 1021. See the interesting discussion in Of. Mattern v. Canavan, 3 Cal. Lightfoot V. Davis, 198 N. Y. 261, 91 App. 493, 86 Pac. 618, where Smith, N. E. 582, 139 Am. St. Rep. 817, J., concurring in the result arrived 29 L. R. A. N. S. 119, 19 Am. & Eng. at by the majority, said that had Ann. Gas. 747, as to the effect of the corporation been made a party, a fraudulent concealment of the as it should have been, the issue facts on the running of the statute of the shares to the defendant of limitations. would have been held fraudulent 464 THE LAW OP PROMOTERS. This objection does not arise if the complaining subscribers and the guilty promoters comprise all the stockholders of the cor- poration. In Krohn v. Williamson,^® the promoters had by an agreement with a contractor, received and appropriated to themselves a large block of the company's shares, which should under the agreement of all the parties, as interpreted by the court, have been divided pro lata among the subscribers. The plaintiff subscribers having demanded an accounting, the defendant promoters objected that if the shares were to be treated as belonging to the original sub- scribers they would have to be treated as issued without consider- ation, and that the issue thereof as full paid stock constituted a fraud upon the company which a court of equity would not coun- tenance by compelling a transfer thereof from one subscriber to another. The court held that the issue of stock was, however sub- ject to attack by creditors, entirely valid as between the company and its stockholders.^® A different conclusion would perhaps have been reached by the New Jersey courts.^" § 257. Defenses to actions for rescission. — Election to affirm. The subscriber's election, after discovery of the fraud, to affirm and the shares cancelled, but that plaintiff's subscription were in as the corporation was not made violation of the statute requiring a party, and its non-joinder was not that shares should not be issued objected to, it was necessary for except for cash or property equal the court to determine the con- in value to the par value thereof, troversy between the parties as far is no defense to a demand for a re- as it could be done without preju- scission of the subscription on the dice to the rights of others. ground of fraud. Barcus v. Gates, See ante, § 22. 89 Fed. Rep. 783, 32 C. C. A. 337, 28. 62 Fed. Rep. 869, affirmed, 61 U. S. App. 596. sub nom. Williamson v. Krohn, 66 29. Citing Scoville y. Thayer, 105 Fed. Rep. 655, 13 C. ,C. A. 668, 31 U. S. 143, 153, 26 L. Ed. 968. TT. S. App. 325. ■ 30. Volney v. Nixon, 68 N. J. The fact that the terms of the Bq. 605, 60 Atl. 189, affirming, 67 DEFENSES. 465 his contract of subscription, is conclusive upon him and a com- plete answer to a subsequent rescission.^^ An election to affirm a subscription cannot be inferred from any act done before the subscriber had knowledge of the fraud,^^ but an election made with knowledge of the essential facts is binding though some of the incidents of the fraud be not discovered until a later time.®^ Acts of affirmance after the discovery of the falsity of some represen- tations do not bar a rescission of the subscription upon the subse- quent discovery of the falsity of other and different represen- tations.^* It has been held that a subscriber is bound at his peril promptly to inform himself of the contents of the charter and by- laws of the corporation and will not be heard to excuse his acts, or his failure to act, by a plea of ignorance thereof.^^ It has like- N. J. Eq. 457, 58 Atl. 75; Tooker v. National Sugar Refining Co., 80 N. J. Eq. 305, 84 Atl. 10. See also ante, § 22. 31. Wilson V. Hundley, 96 Va. 96, 101, 30 S. B. 492, 494, 70 Am. St. Rep. 837, and authorities cited; American Bldg. & Loan Assn. v. Rainbolt, 48 Neb. 434, 440, 67 N. W. 493, and authorities cited; Clarke v. Mercantile Trust Co., 110 N. Y. App. Div. 901, 95 Supp. 1118, (dissenting opinion), and cases cited; Cox v. Nat'l Coal & Oil Inv. Co., 61 W. Va. 291, 311, 56 S. E. 494, 502. And see post, § 258. 32. City Bk. of Macon v. Bartlett, 71 Ga. 797 ; Ginn v. Almy, 212 Mass. 486, 500, 99 N. E. 276; White v. American Natl. LiCe Ins. Co.,' 115 Va. 305, 78 S. B. 582. 33. Wilson v. Hundley, 96 Va. 96, 101-103, 30 S. E. 492, 494, 70 Am. St. Rep. 837. 34. Hunter v. French League Satety Cure Co., 96 Iowa 573, 65 N. W. 828 ; Eiv parte Hale, 55 L. T. N. S. 670. It was held in Whitehouse's Case, L. R. 3 Eq. 790, 15 W. R. 891, (dis- tinguishing Stewart's Case, L. R. 1 Ch. App. 574), that a subscriber after demanding the cancellation of his subscription on account of a variance between the prospectus and the articles of association, and having waived this discrepancy re- lying upon its being corrected, could not later insist upon being released because of the discovery of another discrepancy, the court saying that the moment the subscriber puts him- self at arm's length with the com- pany, he must be taken to know all the discrepancies upon which he intends to rely. 35. Upton V. TribUcock, 91 U. S. 45, 54, 23 L. Ed. 203; Upton v. Bngelhart, 3 Dill. (U. S.) 496, 501, 28 Fed. Cas. No. 16800. West End Real Estate Co. v. 466 THE LAW OF PROMOTERS. wise been held that the subscriber must examine his stock certifi- cates when received by him, and may be charged with constructive notice of such matters as appear upon the face thereof.^® § 258. Acts constituting election. An election to affirm may be manifested in many difi'erent ways : *'' by accepting the stock certificates,'* by consenting to act as a director of the corporation,'® by the acceptance of dividends,*" by the payment of installments of the subscription price,*^ by the Claiborne, 97 Va. 734, "50, 34 S. E. 900, 906; West End Real Estate Co. V. Nash, 51 W. Va. 341, 41 S. E. 182. Oakes v. Turquand, L. R. 2 H. L. 325, 351-352, 369, and cases cited; Lawrence's Case, L. R. 2 Ch. App. 412; Kincaid's Case, L. R. 2 Ch. App. 412; Peel's Case, L. R. 2 Ch. App. 674; Wilkinson's Case, L. R. 2 Ch. App. 536, 12 W. R. 499 ; Shef- field's Case, Johns. Ch. 451, 5 Jur. N. S. 216; Sleigh v. Glasgow & Trans- vaal Options, Ltd., Sess. Cas. 6 Fraser 420, 427. Cf. Clarksburg, etc.. Land Co. v. Davis, — W. Va. — , 86 S. E. 929; Stewart's Case, L. R. 1 Ch. App. 574, and Webster's Case, L. R. 2 Eq. 741, also Ship's Case, 2 DeG. J. & S. 544, aflSrmed, suJ) nom. Downes v. Ship, L. R. 3 H. L. 343. The decision of the House of Lords in the case last cited, turned en- tirely upon the fact that the sole appellant had himself been a party to, and therefore could not be heard to charge the subscriber/ with neg- ligence in failing to discover, the fraud. 36. Nat'l Park Bank v. Nichols, 2 Biss. (U. S.) 146. 37. See cases cited in note to Fear v. Bartlett, 33 L. R. A. 721, 723. The burden of proof is upon the party asserting aflBrmance. Commonwealth Bonding & Casualty Ins. Co. V. Cator, — Texas. Civ. App. — , 175 S. W. 1074; White v. American Natl. Life Ins. Co., 115 Va. 305, 78 S. E. 582. 38. Cobb V. Hatfield, 46 N. Y. 533, 536. 39. American Bldg. & Loan Assn. V. Rainbolt, 48 Neb. 434, 67 N. W. 493. 40. American Bldg. & Loan Assn. V. Rainbolt, 48 Neb. 434, 440-441, 67 N. W. 493, 496, (citing Cook on Stock & Stockholders, (2nd ed.), § 198) ; Dassler v. Rowe, 91 Neb. 637, 136 N. W. 846; Stewart's Case, L. R. I. Ch. App. 574, 587; Ex parte Spartali, 17 L. T. N. S. 193. 41. Great Western Telegraph Co. V. Bush, 35 111. App. 213; Ossippee Hosiery & Woolen Mfg. Co. v. Canney, 54 N. H. 295; West End Real Estate Co. v. Claiborne, 97 Va. 734, 750, 34 S. E. 900, 906. It was held In Re Dunlop-Truf- fault C. & T. Mfg. Co., Ltd., 13 DEFENSES. 467 payment of an assessment,*^ or even by attendance at a stock- holders' meeting.** A voluntary discontinuance of an action for a rescission has been held an election to affirm the subscription.** It was held in Ex parte Briggs,*® that the making by the sub- Times Law Rep. 33, that the pay- ment of calls after repudiation, and under a mistaken opinion that such payment would place the subscriber in a position to recover the money already paid, nevertheless barred a rescission. In Ripley v. Paper Bottle Co., 57 L. J. Ch. N. S. 327, a subscriber who had commenced an action for the rescission of his subscription, was by the court allowed to pay a call without prejudice. 43. Marten v. Paul O. Burns Wine Co., 99 Cal. 355, 33 Pac. 1107. 43. Federal. — In re National Pressed Brick Co., 212 Fed. Rep. 878, 129 C. C. A. 398. CaUforma. — Marten v. Paul O. Burns Wine Co., 99 Cal. 355,-33 Pac. 1107. Mississippi. — Perkins v. Mer- chants' & Farmers' Bank, 103 Miss. 179, 60 So. 131, Am. & Eng. Ann. Cas., 1915 B. 788; Wingo v. First Nat'l Bank of Pontotoc, — Miss. — , 60 So. 133. Pennsylvania. — C. & K. Turnpike Road Co. V. McConaby, 16 Serg. & R. 140. Texas. — Commonwealth Bonding & Casualty Ins. Co. v. Cater, — Tex. Civ. App , 175 S. W. 1074. Virgima. — West End Real Estate Co. V. Claiborne, 97 Va. 734, 750, 34 S. E. 900, 906. West Virginia. — ^West End Real Estate Co. v. Nash, 51 W. Va. 341, 41 S. E. 182. United Kingdom and Colonies. — Foulkes V. Quartz Hill Consol. Gold Min. Co., 1 Cab. & E. 156; see Petrie v. Guelph Lumber Co., 11 Can. S. C. 450, 15 Am. & Eng. Corp. Cas. 487, aflSrming, 11 Out. App. 336, affirming, 2 Ont. 218. See note to Perkins v. Merchants' & Farmers' Bank, Am. & Eng. Ann. Cas., 1915 B. 788, 791. There is, of course, no election if the plaintiff at the meeting proposes that the deposits be re- turned to the subscribers. Wontner V. Shairp, 4 C. B. 404. Attendance at a stockholders' meeting after an action for re- scission had been commenced has been held an election and a bar to the action. Foulkes v. Quartz Hill Consol. Gold Min. Co., 1 Cab. & E. 156. The mere attendance at a meet- ing for a few minutes, without tak- ing any part therein, does not con- stitute an election to affirm ; Esb parte Edwards, 64 L. T. N. S. 561. Attendance by proxy is a sufficient election. Perkins v. Merchants' & Farmers' Bank, 103 Miss. 179, 60 So. 131, Am. & Eng. Ann. Cas., 1915 B. 788. 44. Reld V. London & North Staffordshire Fire Ins. Co., 49 L. T. N. S. 468. 45. L. R. 1 Eq. 483. See Camp' 468 THE LAW OF PROMOTERS. scriber of a contract for the sale of his shares, which sale ulti- mately fell through without his fault, was an act of acquiescence upon his part. A mere attempt to sell shares was held in Stewart's Case ** not to constitute an affirmance. A sale, before knowledge of the fraud, of a portion of the shares received under a subscrip- tion, will not defeat a rescission of the subscription as to such shares as are still held by the subscriber at the time when the fraud is discovered.*'^ A more serious question might arise if there were different kinds of shares purchased as a part of a single trans- action, for the vendor could not in such case be restored to his previous situation, and it would generally be impossible to deter- mine what part of the consideration applied to the shares of each character.*® The approval by a subscriber of a settlement, between the cor- poration and the promoters, of differences arising out of the pro- moters' fraud, may well bar a disaffirmance of his subscription be- cause of the same fraud.** A statement of a subscriber, after knowledge of the facts, that he has confidence in the management and will stay with the corpo- ration, has been held an election to affirm his subscription.®" A mere failure to act with reasonable promptness upon the discovery of the fraud may amount to a ratification of the subscription and bell V. Fleming, 1 Ad. & Bl. 40; 48. Maturin v. Tredlnnick, 9 L. Dassler v. Rowe, 91 Neb. 637, 136 T. N. S. 82, 2 New. R. 514, 10 L. N. W. 846. T. N. S. 331, 4 New. R. 15. The buying or selling of other 49. See. Buker v. Lelghton Lea shares in the same company Is ob- Assoc, 18 N. Y. App. Div. 548, 46 viously of no moment. HulhoUand Supp. 35, reversed, but on another v. Washington Match Co., 35 Wash, point, 164 N. X. 557, 58 N. E. 1085. 315, 77 Pac. 497. 50. Wilson v. Hundley, 96 Va. 46. L. R. 1 Ch. App. 574, 583, 96, 100, 30 S. E.-492, 494, 70 Am. (opinion of Vice Chancellor), and St. Rep. 837; Peek v. Derry, L. R. see Ete parte Edwards, 64 L. T. N. 37 Ch. Div. 541, 576, reversed on S. 561. another point, suT) nom. Derry v. 47. Em parte West, 56 L. T. N. S. Peek, L. R. 14 App. Cas. 337. 622, and cases cited. DEFENSES. 469 an election to affirm it.^^ Acts which would otherwise be sufficient for that purpose do not constitute a ratification if induced by the promise of the guilty parties to expurgate the fraud and its con- sequences from the transaction.^* The commencement by a subscriber of an action for damages for fraud and deceit in procuring the subscription, has been held to be a conclusive affirmance of the subscription, and a bar to a subse- quent rescission.*^ § 259. Effect of election to affirm. An election to affirm a subscription is a mere consent to be bound by the provisions of the contract, and while a bar to a rescission and perhaps to an action for damages against the corpo- ration,®* is not a bar to an action for damages for fraud and de- ceit against the individuals guilty of the fraud.*" § 260. Defense of laches. Laches on the part of the plaintiff is a valid defense to an action in equity for a rescission.*® While a subscriber desiring to rescind 51. See post, § 261. 29 L. R. A. 63, 58 Am. St. Rep. 468. 52. West End Real Estate Co. v. New York Whitney v. Allaire, 1 Claiborne, 97 Va. 734, 752-753, 34 N. Y. 305, 312; Potts v. Lambie, S. E. 900, 907. 138 App. Div. 144, 122 Supp. 935. Or ij induced by a reasonable Texas. — Kennedy v. Bender, 104 expectation that the fraud would Tex. 149, 135 S. W. 524. be remedied. White v. American Virginia. — ^Wilson v. Hundley, 96 Nat. Life Ins. Co., 115 Va. 305, Va. 96, 101, 103-104, 30 S. E. 492, 78 S. E. 582, citing Cook on Cor- 494, 495, 70 Am. St. Rep. 837, and porations, § 161. cases cited. 53. Franey v. Wauwatosa Park United Kingdom and Colonies. — Co., 99 Wis. 40, 74 N. W. 548. Arnison v. Smith, L. R. 41 Ch. 54. Wilson v. Hundley, 96 Va. Div. 348, 361. 96, 103-105, 30 S. E. 492, 70 Am. Cf. Schanck v. Morris, 30 N. Y. St. Rep. 837. Super. 658. 55. Maryland. — ^McAleer v. Hor- 56. As to the defense of laches sey, 35 Md. 439, 461. generally, see note to Fear v. Bart- Michigan.— St. Johns Mfg. Co. v. lett, 33 L. R. A. 721, 724-725. Munger, 106 Mich. 90, 64 N. W. 3, The defense of laches was in Peek 470 THE LAW OF PROMOTERS. his subscription must act promptly upon the discovery of the fraud, no account will ordinarily be taken of the lapse of time prior to the discovery of the fraud.^^ The subscriber is not called upon to suspect the promoters of violating their fiduciary obligations and will not be held guilty of laches because, having faith in the promoters, he did not discover their fraud as soon as he might.^* V. Gurney, L. R. 13 Eq. 79, 119, et aeq., applied in an action in equity for damages, but this ruling was, on appeal, disapproved by the House of Lords, (L. R. 6 H. L. 377, 384- 385), where it was said that the only delay that would in such case act as a bar would be a delay for the period prescribed by the statute of limitations. 57. Federal. — Krohn v. William- son, 62 Fed. Rep. 869, 876, affirmed, sub nom. Williamson v. Krohn, 66 Fed. Rep. 655, 13 O. C. A. 668, 31 U. S. App. 325. Iowa. — Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 409, 107 N. W. 629, 634, 119 Am. St. R. 564. Michigan. — Hamilton v. American Hulled Bean Co., 143 Mich. 277, 106 N. W. 731, 156 Mich. 609, 121 N. W. 731. ViirgvnAa. — ^Virginia Land Co. v. Haupt, 90 Va. 533, 19 S. E. 168, 44 Am. St. R. 939. Washington. — M ulholland v. Washington Match Co., 35 Wash. 315, 77 Pac. 497. West Virginia. — Cox v. National Coal & Oil Investment Co., 61 W. Va. 291, 310, 56 S. B. 494, 502. United Kingdom and Colonies. — Directors, etc., of Central Ry. Co. of Venezuela v. Kiseh, L. R. 2 H. L. 99, 112, 125-126, 16 L. T. N. S. 500; Peek v. Gurney, L. R. 6 H. L. 377, 384; Heymann v. European Central Ry. Co., L. R. 7 Eq. 154, 169; Taite's Case, L. R. 3 Eq. 796 ; Be Christineville Rubber Estates, Ltd., 106 L. T. N. S. 260, 81 L. J. Ch. N. S. 63; Karberg's Case, 1892, 3 Ch, Div. 1, 13-14, 66 L. T. N. S. 700; Lawrence's Case, L. R. 2 Ch. App. 412, 423; Ogilvie V. Cufrie, 37 L. J. Ch. N. S. 541; Ross V. Estates Investment Co., L. R. 3 Ch. App. 682. Note to Lomita Land & Water Co. V. Robinson, 18 L. R. A. N. S. 1134. 58. American AlkaU Co. v. Salom, 131 Fed. Rep. 46, 51, 65 C. C. A. 284; Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 409, 107 N. W. 629, 634, 119 Am. St. R. 564; Hig- gins V. Crouse, 147 N. Y. 411, 42 N. E. 6; Baker v. Lever, 67 N. X. 304, 23 Am. Rep. 117 ; National Bank of Dakota V. Taylor, 5 S. D. 99, 58 N. W. 297. See also West End Real Estate Co. v. Nash, 51 W. Va. 341, 41 S. E. 182, citing West End Real Estate Co. v. Claiborne, 97 Va. 734, 34 S. E. 900. See also Rawlins V. Wickham, 3 DeG. & J. 304, and cases cited in foot note. And see ante, §§ 153, 253, but see post, § 262. Cf. Cedar Rapids Insurance Co. v. DEFENSES. 471 The subscriber should investigate promptly when once his sus- picions have been aroused,^^ but mere rumors which the plaintiff has no means of substantiating are not sufficient to put him on inquiry,*" and the ultimate failure of the enterprise does not neces- sarily give rise to any suspicion of fraud in the organization of the company.®^ A subscriber will not be charged with knowledge of facts disclosed at a meeting of the stockholders which he did not attend, and at which his proxy was held by one of the guilty pro- moters.®^ A postponement of action at the request of the de- fendants is not laches,®^ and a period during which negotiations for a peaceable settlement are pending cannot be charged to the Butler, 83 Iowa 124, 48 N. W. 1026, where the court fails to distinguish between the assertion of fraudulent representations inducing the pur- chase of shares when rights of creditors are involved, and the as- sertion of the same claim when rights of creditors are not involved. See post, § 262. Cf. also Peek v. Gurney, L. R. 13 Bq. 79, 119, et seq., affirmed, L. R. 6 H. L. 377; Perkins v. Merchants' & Farmers' Bank, 103 Miss. 179, 60 So. 131, Am. & Eng. Ann. Cas., 1915 B. 788 ; C. & K. Turnpike Co. v. McConaby, 16 Serg. & R. 140. The subscriber is chargeable with notice of the ordinary and plain meaning of a circular received and read by him. Scholey v. Central Ry. Co. of Venezuela, L. B. 9 Bq. 266. Greater vigilance may perhaps be demanded of a subscriber who is also a director. Ex parte Munster, 14 L. T. N. S. 723, 14 W. B. 957. 59. Higgins v. Crouse, 147 N. Y. 411, 42 N. B. 6; VirgiDia Land Co. V. Haupt, 90 Va. 533, 19 S. E. 168, 44 Am. St. R. 939, citing Cook on Corporations, § 162 ; Ex parte Black- stone, 16 L. T. N. S. 273, and see Skelton's Case, 68 L. T. N. S. 210. But he may await the results of an investigation undertaken by the directors themselves. Smith's Case, L. R. 2 Ch. App. 604. 60. Aaron's Reefs, Ltd., v. Twiss, 1896, App. Cas. 273, 290, 293, and see Directors of Central By. Co. of Venezuela v. Kisch, L. R. 2 H. L. 99, 112, 16 L. T. N. S. 500, also Hig- gins V. Crouse, 147 N. T. 411, 42 N. B. 6; cf. Ex parte Blackstone, 16 L. T. N. S. 273. 61. Higgins v. Crouse, 147 N. Y. 411, 42 N. E. 6. 63. Virginia Land Co. v. Haupt, 90 Va. 533, 19 S. E. 168, 44 Am. St. B. 939. The shareholder may, in general, be charged with knowledge of what was said and done at a meeting at which he was represented by proxy. See ante, § 112n. 63. Cox V. National Coal and Oil Inv. Co., 61 W. Va. 291, 310-312, 56 S. E. 494, 502-503. 472 THE LAW OF PBOMOTBKS. complainant in estimating his laches.®* The burden is upon the party asserting laches to prove both that the other party had knowledge of the facts, and that he unreasonably delayed action.*^ § 261. Delay as defense to action upon a rescission. The defense of laches is an equitable doctrine which has, strictly speaking, no application to a suit at law. If the subscriber, in- stead of bringing an action for a rescission in equity, gives notice of disaffirmance and brings his suit at law for money had and re- ceived, laches cannot be pleaded as a defense, but the same result is arrived at by the application of the rule that a subscriber wish- ing to rescind because of fraud must act promptly upon discover- ing the facts.®® 64. See ante, § 154. Nor will a delay due to a reason- able expectation that the fraud and its consequences were to be ex- purgated from the transaction be charged against the complainant. See ante, § 258. 65. Virginia Land Co. v. Haupt, 90 Va. 533, 19 S. E. 168, 44 Am. St. B. 939, citing Cook on Corporations, § 162 ; In re London & Staffordshire Fire Ins. Co., L. R. 24 Ch. Div. 149, 154-155, followed in Karberg's Case, 1892, 3 Ch. Div. 1, 5, 66 L. T. N. S. 184, reversed on another ground, 1892, 3 Ch. Div. 8, et seq., 66 L. T. N. S. 700, and see Aaron's Reefs V. Twi^, 1896, App. Cas. 273, 295. 66. Federal. — Upton v. Engel- hart, 3 Dill. (U. S.) 496, 501-502, 28 Fed. Cas. No. 16,800. Alabama. — Southern States Fire Ins. & O. Co. V. De Long, 178 Ala. 110, 59 So. 61. Colorado. — Zang v. Adams, 23 Colo. 408, 48 Pac. 509, 58 Am. St. R.,249. Indiana. — Dynes v. Shaffer, 19 Ind. 165. Maryland. — Urner v. SoUenberger, 89 Md. 316, 335, 43 Atl. 810. Michiffan. — Duffield v. E. T. Bar- num Wire & Iron Works, 64 Mich. 293, 301, 31 N. W. 310, 313. Minnesota. — Parsons v. McKinley, 56 Minn. 464, 57 N. W. 1134. Nebraska. — American B 1 d g. & Loan Assn. v. Rainbolt, 48 Neb. 434, 440, 67 N. W. 493, 495^96. New Jersey. — Dennis v. Jones, 44 N. J. Eq. 513, 516, 14 Atl. 913, 6 Am. St. Rep. 899, and cases cited. Reed V. Benzine-ated Soap Co., 81 N. J. Eq. 182, 86 Atl. 263. New York. — Getty v. Devlin, 54 N. Y. 403, 414-415; Cobb v. Hatfield, 46 N. Y. 533, 537. Pennsylvania Howard, Receiver V. Turner, 155 Pa. 349, 357, 26 Atl. 753, 35 Am. St. Rep. 883; Leaming V. Wise, 73 Pa. 173. DEFENSES. 473 § 262. Rescission after insolvency of corporation. It is, after insolvency or bankruptcy proceedings have been in- stituted against the corporation, too late, according to the weight of authority, to rescind a subscription because of the fraudulent representations by which it was induced. When such proceedings have been commenced, and it has become clear that there is noth- ing to be gained by remaining a stockholder, the temptation to rescind one's subscription and thus become a creditor is strong, and these belated complaints must necessarily be viewed with sus- picion.®^ Virginia. — ^Hurt v. Miller, 95 Va. 32, 2T S. E. 831; Weisiger v. Klch- mond Ice Machine Co., 90 Va. 795, 20 S. E. 361. United Kingdom and Colonies. — Aaron's Reefs v. Twiss, 1896, App. Cas. 273, 294, citing cases. (Com- pare the opinion of Lord Watson in the same case at page 290, where he cites Clough v. London & North- western Ry. Ck)., L. R. 7 Ex. 26) ; Peek V. Gurney, L. R. 6 H. L. 377, 384; Davidson v. TuUoch, 3 Macq. 783, 789, 2 L. T. N. S. 97; Gibson's Case, 2 DeG. & J. 275. And see ante, § 157. This is particularly true where the stock is of a speculative char- acter and likely to fluctuate in value. Keelyn v. Strieder, 148 111. App. 238, 247, and cases cited. Where there is no dispute as to the facts, the question as to what Is an undue delay is a question of law. Learning v. Wise, 73 Pa. 173. Delay is to be charged only from the time that the subscriber ac- quires knowledge of the fraud. Aaron's Reefs v. Twiss, 1896, App. Cas. 273, 290. An offer to surrender his shares made upon the discovery of one fraud, will not avail the subscriber when he claims a rescission because of another fraud which he did not discover until a later time. Upton V. Tribilcock, 91 U. S. 45, 54, 23 L. Ed. 203, and cases cited. It is held in American Bldg. & Loan Assn. v. Rainbolt, 48 Neb. 434, 441, 67 N. W. 493, that a plain- tiff bringing his suit at law upon a rescission must plead and prove a rescission within season, and that a waiver by delay may be shown under a general denial. 67, Federal. — Upton v. Hans- brough, 3 Biss. 4l7, 425-426, 28 Fed. Cas. 16801; Michener v. Pay- son, 13 Natl.. Bkcy. Reg. 49, 17 Fed. Cas. 9524 ; Chubb v. Upton, 95 U. S. 665, 24 L. Ed. 523; Ogilvie v. Knox Ins. Co., 22 How. 380, 16 L. Ed. 349. Georgia. — ^Howard v. Glenn, 85 Ga. 238, 11 S. E. 610, 21 Am. St Rep. 156. Idaho. — ^Meholin v. Carlson, 17 Idaho 742, 107 Pac 755, 134 Am. St Rep. 286. 474 THE LAW OF PROMOTERS. The rescission is, however, effectual if the subscriber has ex- ercised due diligence in the discovery of the fraud, acted promptly - thereon, and taken action before the insolvency or bankruptcy Michigan. — Blssell v. Heath, 98 Mich. 472, 57 N. W. 585. New York. — Ruggles v. Brock, 6 Hun 164. Pennsylvania. — ^Howard, Receiver V. Turner, 155 Pa. 349, 26 Atl. 753, 35 Am. St. Rep. 883. Virginia. — Martin v. South Salem Land Co., 94 Va. 28, 49, et seq., 26 S. E. 591; Jordan v. Annex Cor- poration, 109 Va. 625, 64 S. E. 1050, 17 Am. & Eng. Ann. Cas. 267. United Kingdom and Colonies. — Oakes v. Turquand, L. R. 2 H. L. 325, affirming. In re Overend, Gurney 6 Co., L. R. 3 Eq. 576; Henderson V. Royal British Bank, 7 El. & Bl. 356; Stone v. City & County Bank, L. R. 3 C. P. D. 282 ; Peek v. Gurney, L. R. 13 Eq. 79, 118-119, affirmed, L. R. 6 H. L. 377; Nicol's Case, 3 DeG. & J. 387, 430, et seq.; Kent V. Freehold Land & Brickmaklng Co., L. R. 3 Ch. App. 493; Tennent V. City of Glasgow Bank, L. R. 4 App. Cas. 615; Houldsworth v. City of Glasgow Bank, L. R. 5 App. Cas. 317; Wright's Case, L. R. 12 Eq. 331, (but see Wright's Case, L. R. 7 Ch. App. 55, 41 L. J. Ch. N. S. 1) ; In re Scottish Petroleum Co., L. R. 23 Ch. Div. 413, 49 L. T. N. S. 348, 31 W. R. 846; Burgess's Case, L. R. 15 Ch. Div. 507, 49 L. J. Ch. N. S. 541, 43 L. T. N. S. 45, 28 W. R. 792; Ashley's Case, L. R. 9 Eq. 263; OgUvie v. Currie, 37 L. J. Ch. N. S. 541, 543-644. See also cases cited in succeeding notes. And see note to Fear v. Bartlett, 33 L. R. A. 721, 726, et seq.; note to Gress v. Knight, 31 L. R. A. N. S. 900; note to Chamber- lain V. Trogden, 16 Am. & Eng. Ann. Cas. 177, 178. But see cases cited under note 73. Cf. Marion Trust Co. v. Blish, 170 Ind. 686, 84 N. E. 814, 18 L. R. A. N. S. 347, (and cases cited in note), in effect reversing Marion Trust Co. V. Blish, 79 N. E. 415; Ramsey v. Thompson Mfg. Co., 116 Mo. 313, 22 S. W. 719; Hall v. Old Talargoch Lead Mining Co., L. R. 3 Ch. Div. 749, 45 L. J. Ch. N. S. 775, 34 L. T. N. S. 901, also Ship's Case, 2 DeG. J. & S. 544, affirmed, suh nom. Downes v. Ship, L. R. 3 H. L. 343. It is under the English Companies Act of 1862, immaterial that the as- sets are sufficient to pay all credi- tors. Burgess's Case, L. R. 15 Ch. Div. 507, 49 L. J. Ch. N. S. 541, 43 L. T. N. S. 45, 28 W. R. 792. See In re Scottish Petroleum Co., L. R. 23 Oh. Div. 413, 437, 49 L. T. N. S. 348, 31 W. R..846. In New York the subscriber may, if diligent, rescind his subscription after receivership, if the assets in the hands of the receiver are suffi- cient to pay all the creditors. Dunn V. Candee, 98 N. X. App. Div. 317, 90 Supp. 674. It has been held that when an ac- tion has been brought against the company by a creditor, and an at- DEFENSES. 475 proceedings were commenced. As to the nature of the action nec- essary to save the subscriber's rights, the courts of this country and of England are not in accord. In England, where the matter is to some extent controlled by statute, it is not sufficient to show that the sXibscriber had before the commencement of the insolvency proceedings given notice of rescission, but he must to save his rights, have instituted legal proceedings to have his name removed from the rolls.®® An ex- ception is made if the subscriber, after repudiating his subscrip- 68. Reese River Mining Co. v. Smith, L. R. 4 H. L. 64, affirming, Smith's Case, L. R. 2 Ch. App. 604 ; In re Scottish Petroleum Co., L. R. 23 Ch. Div. 413, 433, 437, 439, 49 L. T. N. S. 348, 31 W. R. 846; Hender- son V. Lacon, L. R. 5 Eq. 249, 17 L. T. N. S. 527; Hare's Case, L. R. 4 Ch. App. 503; Kent v. Freehold Land and Brickmaking Co., L. R. 3 Ch. App. 493; Whlteley's Case, 1899, 1 Ch. Dlv. 770; Re Lennox Publishing Co., Ltd., 62 L. T. N. S. 791; Karberg's Case, 1892, 3 Ch. Div. 1, 10, 66 L. T. N. S. 700; Peek V. Gurney, L. R. 13 Eq. 79, 119, (af- firmed, L. R. 6 H. L. 377), and cases cited. The fact that the subscriber, be- fore the commencement of the in- solvency proceedings, had success- fully resisted an action for calls, does not save his right to have his name stricken from the rolls. In re Etna Ins. Co., Ltd., Ir. Rep. 6 Eq. 298, and see Etv parte Stevenson, 16 W. R. 95. The pleading of a counterclaim demanding rescission would save this right. Whlteley's Case, 1900, 1 Ch. Div. 365. tachment levied against the moneys due from a subscriber upon his sub- scription, the subscriber will not be allowed as against such creditor to plead that his subscription was In- duced by fraud. Saffold, garnishee, V. Barnes, 39 Miss. 399. See note to Fear v. Bartlett, 33 L. R. A. 721, 724, 726. If the subscriber has, by delay, lost his right to rescind his sub- scription, It is, in an action brought against him upon his subscription by the assignee of the insolvent corporation, no defense that the moneys sought to be collected are in part to be applied to the very obligations to the promoters, the fraudulent nature of which would, had he acted promptly, have en- titled the subscriber to rescind his subscription. Urner v. SoUenberger, 89 Md. 316, 43 Atl. 810. The subscriber may defend an action brought against him by the receiver of the insolvent corpora- tion to recover the subscription price, by showing that the conditions of the subscription agreement have not been performed. Hollander v. Heaslip, 222 Fed. Rep. 808, 137 C. C. A. 1. 476 THE LAW OF PROMOTERS. tion, agreed with the company to take no action pending the out- come of thte Suit of another shareholder similarly situated.^® The complaining subscriber is, in that case, to all intents and purposes a party to the suit of the other shareholder, and a rule that his right to rescind is lost by a failure to commence his own suit, would necessitate useless litigation. The subscriber's rights are, of course, preserved if his no- tice of repudiation is accepted by the directors. His subscrip- tion is in such case effectually cancelled, and the cancellation may be insisted upon though the corporation is afterwards de- clared insolvent.'^" The subscriber may likewise save his rights by repudiating his subscription before it has become a completed binding contract.''^ A rule more liberal to the subscriber is generally recognized in this country. Our courts hold that if the subscriber has ex- ercised due diligence both in discovering the fraud and in taking action after such discovery, and has actually given notice of the rescission of his subscription before corporate insolvency or bank- ruptcy proceedings are instituted, he may, after the commence- ment of such proceedings, plead his rescission as a defense if 69. Pawle's Case, L. K. 4 Ch. Co. v. Smith, L. R. 4 H. L. 64, 74, App. 497; In re Scottish Petroleum 77; Blake's Case, 34 Beav. 639, 34 Co., L. R. 23 Ch. Div. 413, 433, 437, L. J. Ch. N. S. 278, 13 W. R. 486. 49 L. T. N. S. 348, 31 W. R. 846; See also McDermott v. Harrison, 56 McNiell's Case, L. R. 10 Eq. 503; Hun (N. T.) 640, 9 Supp. 184, 30 Re Lennox Publishing Co., Ltd., 62 St. B. 324; Bohn v. Burton Lingo L. T. N. S. 791; In re Estates In- Co., — Tex. Civ. App. — , 175 S. W. vestment Co., 38 L. J. Ch. N. S. 318. 173. There must, however, be a formal An agreement that the sub- binding repudiation. Skelton's Case, scriber^s shares should be trans- 68 L. T. N. S. 210. ferred to the promoters will not 70. Wright's Case, L. B. 7 Ch. save him from liability as a con- App. 55, 41 L. J. Ch. N. S. 1 ; Fox's tributory if the transfer was not Case, L. B. 5 Eq. 118; Re Lennox entered on the register. Walker's Publishing Co., Ltd., 62 L. T. N. S. Case, L. R. 6 Eq. 30. 791. See Reese River Silver Mining 71. Pentelow's Case, L. B. 4 Ch. App. 178. DEFENSES. 477 sued for calls or other liability thereon, or file his claim for the return of the moneys paid upon his subscription^* Some cases go even further and hold that if the subscriber shows that he has exercised due diligence in discovering the fraud, and acted promptly upon such discovery, the pendency of insolvency or bankruptcy proceedings does not bar his action for a rescission though begun before notice of disaffirmance.''^ It follows, from what has been said, that the fact that the com- pany is at the time of the trial insolvent, is neither in this country, nor in England, a defense to a subscriber's suit for a rescission if no insolvency or bankruptcy proceedings are pending.^* 73. Upton V. Trlbilcoek, 91 U. S. 45, 56, 23 li. Ed. 203, (dissenting opinion) ; Upton v. Bngelhart, 3 Dill. (U. S.) 496, 505, 28 Fed. Cas. 16,800 ; Hinkley v. Sac Oil and Pipe Line Co., 132 Iowa 396, 410-^11, 107 N. W. 629, 634-635, 119 Am. St. R. 564; Fear v. Bartlett, 81 Md. 435, 443, 32 Atl. 322, 33 L. K. A. T21, 724 ; Savage v. Bartlett, 78 Md. 561, 28 Atl. 414 ; Johns v. Coffee, 74 Wash. 189, 196-197, 133 Pac. 4, 7, affirmed on reargument, 77 Wash. 700, 137 Pac. 808. It was, however, in a Georgia case, held that the subscriber could not rescind as to creditors who be- came such after the making of his subscription. Turner v. Grangers' Life & Health Ins. Co., 65 Ga. 649, 38 Am. Rep. 801, quoted in Hamil- ton V. Grangers' Life & Health Ins. Co., 67 Ga. 145. See also Bohn v. Burton Lingo Co., — Tex. Civ. App. — , 175 S. W. 173. 73. Newton National Bank v. Newbegin, 74 Fed. Rep. 135, 140-141, 20 C. C. A. 339, 40 U. S. App. 1, 33 L. R. A. 727; Farrar v. Walker, 3 Dill. (U. S.) 506, 510; Wallace v. Bacon, 86 Fed. Rep. 553; Stuffle- beam v. De Lashmutt, 101 Fed. Rep. 367; (but see Scott v. Deweese, 181 U. S. 202, 45 L. Ed. 822, 21 Sup. Ct. 585 ; Lantry v. Wallace, 182 U. S. 536, 45 L. Ed. 1218, 21 Sup. Ot. 878) ; People v. California Safe Deposit & Trust Co., 19 Cal. App. 414, 126 Pac. 516; Beal v. Dillon, 5 Kan. App. 27, 47 Pac. 317 ; Ramsey v. Thompson Mfg. Co., 116 Mo. 313, 22 S. W. 719, citing Has- kell V. Worthington, 94 Mo. 560, 7 S. W. 481. The decision of this question was reserved in Fear v. Bartlett, 81 Md. 435, 444, 32 Atl. 322, 33 L. R. A. 721, 725. 74. Hinkley v. Sac Oil and Pipe Line Co., 132 Iowa 396, 410-412, 107 N. W. 629, 634-635, 119 Am. St. R. 564, and see In re London and Leeds Bank, 56 L. J. Ch. N. S. 321, 56 L. T. N. S. 115, 35 W. R. 344. The question seems in Georgia, and to some extent in West Virginia, to depend upon whether or not there are creditors who became such after 478 THE LAW OF PROMOTERS. We have seen that the fact that the subscriber might have dis- covered the fraud more quickly is, in an action against the company or its promoters, not material provided that he acted with due diligence upon its discovery.''^ As against the creditors, the subscriber will be held, not only to prompt action upon the dis- covery of the fraud, but to reasonable diligence in making such discovery.''® § 263. Defense that oral representations were merged in sub- scription agreement. The point has been raised, and was sustained in Smith v. South- ern Building & Loan Association,'''' that where a subscription agreement is plain and unambiguous and embraced in a writing apparently containing the entire contract of the parties, a sub- scriber cannot avoid liability thereon, by proof of misstatements made in a prospectus not referred to in the subscription agree- the making of the subscription under consideration. Grass v. Knight, 135 Ga. 60, 68 S. E. 834, 31 L. R. A. N. S. 900; Wilkes v. Knight, 142 Ga. 458, 83 S. E. 89; Turner v. Grangers' Life and Health Insur- ance Co., 65 Ga. 649, 38 Am. Rep. 801; Southern Tobacco Go. v. Arm- strong, 11 Ga. App. 501, 75 S. E. 828; Morrissey v. Williams, 74 W. Va. 636, 82 S. E. 509; Scott v. WUliams, 74 W. Va. 635, 82 S. E. 511. 75. See ante, § 260. 76. Federal. — Upton v. Bngle- hart, 3 Dill. 496, 28 Fed. Gas. 16,- 800; Farrar v. Walker, 3 Dill. 506; Upton V. Tribilcock, 91 U. S. 45, 54, 23 L. Ed. 203; Chubb v. Upton, 95 U. S. 665, 667, 24 L. Ed. 523; Bartol V. Walton & Whann Co., 92 Fed. Rep. 13, 20-21. Iowa.: — Hinkley v. Sac Oil & Pipe Line Co., 132 Iowa 396, 409, 107 N. W. 629, 634, 119 Am. St. R. 564 ; Cedar Rapids Ins. Co. v. Butler, 83 Iowa 124, 48 N. W. 1026. Michigan. — Duffleld v. E. T. Bar- num Wire & Iron Works, 64 Mich. 293, 301-302, 31 N. W. 310, 313-314, and cases cited. Virginia. — Weisiger v. Richmond Ice Machine Co., 90 Va. 795, 20 S. E. 361 ; Martin v. South Salem Land Co., 94 Va. 28, 52-^8, 26 S. E. 591, 598. United Kingdom and Colonies. — Ashley's Case, L. R. 9 Eq. 263 ; Di- rectors of Central Ry. Co. of Vene- zuela V. Kisch, L. R. 2 H. L. 99, 125, 16 L. T. N. S. 500; Nicol's Case, 3 DeG. & J. 387, 441. 77. Ill Ga. 811, 35 S. E. 707. DEFENSES. 479 ment. The same contention was made in Hinkley v. Sac Oil & Pipe Line Company/^ and the Southern Building & Loan Asso- ciation case was cited. The Supreme Court of Iowa said, " We are confident that, had the court (in the Southern Building and Loan Association case) undertaken to state its reasons for such a conclusion, a different result would have been reached. At any rate the current of authority is that the general rule to the effect that parol representations are not admissible to vary the terms of a written agreement has no application to those represen- tations which amount to a fraud on the part of the company, were made at the time of subscribing, and were the inducements by which the subscribers were obtained.'^® This is for the very satis- factory reason that the parol evidence is not introduced to vary or contradict the written application or contract, but to show that none such was even properly made." The apparent effect of a subscription agreement cannot be de- feated by proof of oral representations as to its legal effect and as to the liability of the subscriber thereunder, nor by proof of parol promises that the obligations thereof would not be en- forced against the particular subscriber, nor by proof that collateral promises made at the time of the subscription and as an inducement thereof, were not performed.®^ The agreement 78. 132 Iowa 396, 407, 107 N. W. 29 N. J. Eq. 188, (affirmed, 29 N. J. 629, 638, 119 Am. St. R. 564. Eq. 651) ; Custar v. Titusville G. & 79. Citing First National Bank v. W. Co., 63 Pa. 381 ; Blodgett v. Mor- Hurford, 29 Iowa 579; Davis v. rill, 20 Vt. 509. Dumont, 87 Iowa 47 ; Kives v. Mont- 80. Alabama.-^Smith v. Tallas- gomery Plank Road Co., 30 Ala. 92 ; see, etc.. Plank Road Co., 30 Ala. Martin v. Railway, 8 Fla. 370, 73 650, 667. Am. Dec. 713; Miller v. Wild Cat Arkansas. — Mississippi, etc., R. R. Gravel Road Co., 57 Ind. 241 ; Co. v. Cross, 20 Ark. 443, 454. Kennebec & P. R. R. Co. v. Waters, Illinois — Jewell v. Rock River 34 Me. 366; Water VaUey Mfg. Co. Paper Co., 101 111. 57, 68. V. Seaman, 53 Miss. 655 ; Piseataqua Kentucky. — Wight v. Shelby R. R. Ferry Co. v. Jones, 39 N. H. 491; Co., 16 B. Mon. (Ky.) 4, 63 Am. Dec. Vreeland v. New Jersey Stone Co., 480 THE LAW OF PROMOTERS. may, however, be avoided by p'roof that the subscription was pro- cured by false representations in regard to the substance of the shares to be received thereunder.*^ 522; Tanner v. Nichols, 25 Ky. L. R. 2191, 80 S. W. 225. MaAne. — Kennebec & Portland R. K. Co. V. Waters, 34 Me. 366. Mississippi. — ^Thigpen v. Miss. Cent. R. R. Co., 32 Miss. 347. Missouri. — Joy v. Manlon, 28 Mo. App. 55. New Hampshire. — Shattuck v. Robbins, 68 N. H. 565, 44 Atl. 694. Pennsylvania. — ^Miller v. Hanover Jctn., etc., R. R. Co., 87 Pa. 95, 30 Am. Rep. 349. Vermont. — Connecticut & Pass. Rivers R. R. Co. v. Bailey, 24 Vt. 465, 58 Am. Dec. 181. West VisrginAa. — Clarksburg, etc., Land Co. v. Davis, — W. Va. — , 86 S. E. 929. Wisconsin Rehbein v. Rahr, 109 Wis. 136, 85 N. W. 315. United Kingdom and Colonies. — Sheffield's Case, Johns. Oh. 451, 5 Jur. N. S. 2ia See also ante, §§ 70, 219. See also note to Fear v. Bartlett, 33 L. R. A. 721, 732, and note to Minneapolis Threshing Machine Co. V. Davis, 3 L. R. A. 796. Cf. Bobzin v. Gould Balance Valve Co., 140 Iowa 744, 118 N. W. 40. An opinion as to the effect of the subscription agreement, expressed by one of the commissioners ap- pointed by the act of incorporation to receive subscriptions, is inadmis- sible. Hall V. Selma & Tenn. R. R. Co., 6 Ala. 741. Proof of an oral representation as to the effect of the subscription paper has been admitted where the sub- scriber was illiterate and unable to read the instrument. Wert v. Craw- f ordsville, etc., Turnpike Co., 19 Ind. 242. 81. The distinction is pointed out in Collins v. Southern Brick Co., 92 Ark. 504, 123 S. W. 652, 135 Am. St. Rep. 197. See also Common- wealth Bonding & Casualty Ins. Co. V. Cator, — Tex. Civ. App. — , 175 S. W. 1074. See Chamberlayne on the Modern Law of Evidence, § 3556. See also ante, § 238, et seq. CHAPTER XIV. Of the Measure of Recovery. Section 264. Measure of recovery in case of unlawful sale of promoter's property to corporation. 265. In action for accounting for profits. 266. The same subject. — Allowance as compensation for services. 267. Unlawful commissions, bribes, etc. 268. Measure of recovery upon rescission. 269. Measure of damages In case of false representations. 270. Measure of value of shares. 271. Measure of value of bonds. 272. Value of property sold to corporation. 273. The same subject. — Market value the standard. 274. The same subject. — Proof of value. 275. Measure of value of property paid for by subsequent issue of mortgage bonds. 276. Measure of recovery in minority stockholders' suits. 277. Measure of damages in action for fraud in sale of shares. § 264. Measure of recovery in case of unlawful sale of pro- moter's property to corporation. The sum to be recovered by the corporation in case of the un- lawful sale to it of the promoter's own property, depends upon the circumstances of the case ; that is whether the promoter ac- quired the property before he became such and is to be con- sidered as having made an unlawful sale of his own property to the corporation, or whether he acquired the property after hie entered upon the fiduciary relation of promoter to the corpora- tion and should have made the purchase for its benefit.^ 1. Central Trust Co. v. East 743, 748 ; Old Dominion Copper, etc., Tennessee Land Co., 116 Fed. Hep. Co. v. Bigelow, 203 Mass. 159, 202, (481) 482 THE LAW OP PKOMOTEKS. If the property sold to the corporation belonged to the pro- moter before he entered upon the fiduciary relation, the corpora- tion is not entitled to the benefit of his purchase, and the limit of its recovery, unless upon a rescission of its purchase, is the differ- ence between the price it paid for the property and its fair market value at the time.^ If the promoter, on the other hand, acquired the property sold to the corporation at a time when he had already entered upon the relation of promoter to the corporation, he was bound, on account of the fiduciary nature of that relation, to make the pur- chase for the benefit of the corporation. The corporation is therefore entitled to the benefit of the promoter's purchase, and may recover from him the difference between the price that he paid for the property and the sum which he received for it.* 89 N. E. 193, 40 L. R. A. N. S. 314; same v. same, 188 Mass. 315, 321, 74 N. E. 653, 108 Am. St. Rep. 479; Parker v. Nlckerson, 137 Mass. 487, 497; Blgelow v. Old Dominion Cop- per, etc., Co., 74 N. J. Bq. 457, 504, 71 Atl. 153; In re Cape Breton Co., L. R. 29 Oh. Div. 795, 805, affirmed, s«6. nom. Bentinck v. Fenn, L. R. 12 App. Cas. 652. See also cases cited, ante, § 161. The statement in the case first cited that the company is entitled to the benefit of the promoter's pur- chase, if he purchased the property in contemplation of its organiza- tion, is contrary to the weight of authority. See ante, § 16. As to the measure of damages In general in an action by the corpora- tion against its promoters, see note to L'omita Land & Water Co. v. Robinson, 18 L. R. A. N. S. 1131- 1132. As to when property wiU be deemed to have been acquired by the promoter before he entered upon the fiduciary relation, and when it will be deemed to have been ac- quired thereafter, see ante, §§ 104- 108, 15-18. 2. See cases cited under note 1, also Hayden v. Green, 66 Kan. 204, 71 Pac. 236, and Bentinck v. Fenn, L. R. 12 App. Cas. 652, 658-659. Cf. In re Leeds & Hanley Thea- tres of Varieties, 1902, 2 Ch. Div. 809. If the property is fairly worth the price paid by the corporation, the recovery would be limited to nominal damages. See Bentinck v. Fenn, L. R. 12 App. Cas. 652, 659, 661, 662, affirming, In re Cape Breton Co., L. R. 29 Ch. D. 795, L. R. 26 Ch. D. 221, cited in Milwau- kee Cold Storage Co. v. Dexter, 99 Wis. 214, 230, 74 N. W. 976, 40 L. R. A. 837, 842. 3. See cases cited under note 1; MEASURE OF RECOVEKT. 483 The corporation may also recover the difference between the price paid the promoter for the property and its cost to him, if the promoter, though he actually acquired the property before he entered upon the relation of promoter to the corporation, represented to the corporation, or to its subscribers, that he acted for it in making the original purchase, or that he was turning the property in to it at cost, or if he concealed his interest in the property and lead the company to believe that it was purchasing the property from his vendor.* An action for the difference between the price paid for the prop- erty by the promoter, and the amount received by him from the corporation is, when open to the corporation, generally more satisfactory and, as far as the damage is concerned, easier of proof ® than an action for fraud and deceit for the recovery of the difference between the price paid for the property and the fair value thereof. The form of action first mentioned is, there- fore, when maintainable, generally preferred. It may, however, happen that the difference between the price paid for the prop- erty by the corporation and the fair market value thereof ex- ceeds the promoter's profit on the resale, and there seems to be no reason why the corporation should not, although the pro- moter acquired the property after he had entered upon the fidu- ciary relation, be allowed, if it so desires, to sue the promoter for damages for fraud and deceit.' § 265. In action for accounting for profits. A somewhat complicated situation arose in Tyrrell v. Bank of London.'' One, Read, having obtained a contract for the pur- also Exter v. Sawyer, 146 Mo. 302, fact suffered by it, but also the 326, 47 S. W. 951, 957. amount of such damage. Bentlnck 4. See ante, §§ 108, 162. v. Fenn, L. R. 12 App. Cas. 652, 659, 5. The burden is upon the cor- 667-668. poration claiming damages, to 6. See ante, §§ 171, 161. prove, not only that damage was in 7. 10 H. L. Cas. 26, 45-48, 50, 57-60, 11 Eng. Rep. 934. 484 THE LAW OF PROMOTERS. chase of certain real estate, entered into an agreement with the appellant Tyrrell, who was acting as solicitor for the respondent bank then in process of organization, that Read and Tyrrell should be jointly interested in the former's contract of purchase. Tyrrell then, as solicitor of the bank, acting under the instruc- tions of its board of directors to whom he did not disclose his interest in the transaction, entered into ostensible negotiations with Head which resulted in the sale to the bank for the sum of £65,000 of a portion of the property in which Tyrrell had ob- tained a half interest. It was claimed that Tyrrell's share of the profits of the transaction amounted to £6,000 together with a half interest in unsold property worth £8,000. The master of the rolls held that Tyrrell was a trustee for his client of all the interest acquired by him in the property and that the respondent bank was entitled to the clear profit that Tyrrell derived from the transaction. The House of Lords, however, held that Tyrrell was a trustee for his client of only that particular property which it afterward purchased, and that the bank was entitled to re- cover from Tyrrell only the difference between what it paid for his share of the property and the cost of that share to him. The cost to Tyrrell of his share was, however, ascertained by deduct- ing from the sum which he paid for his interest in the entire prop- erty, the value of his share of that part of the property which was not sold to the bank and which still remained in his and Tyrrell's hands. § 266. The same subject. — Allowance as compensation for services. A promoter should, on an accounting for his secret profits, be allowed credit for his legitimate expenses on the promotion. Reasonable compensation for the promoter's services has in some cases also been allowed, but the better rule seems to be that a pro- moter who has violated the obligations of his fiduciary relation MEASURE OF RECOVERY. 485 by committing a fraud upon the corporation, is not entitled to compensation for services.* § 267. Unlawful commissions, bribes, etc. The measure of the corporation's recovery from a promoter who improperly accepts a commission, bribe or gratuity from a person selling property to the corporation or making contracts with it, is obviously the amount of the unlawful commission, bribe or gratuity received by the promoter.^ The same rule applies to a promoter who unlawfully takes from the corporation as com- pensation for his services, or without consideration, any moneys, securities or other things of value.*" § 268. Measure of recovery upon rescission. The measure of the corporation's recovery in case of the re- scission of a purchase made by it, is, generally speaking, the amount of the purchase price. It was claimed in Cortes Co. v. Thannhauser ** that the de- fendant vendors should also be held liable for the amount of the expenses incurred in the organization of the corporation and in its administration, including the services of its officers and agents — the argument being that these expenses were the direct result of the fraud committed by the vendors' agent. The court held that the agency was merely an agency to sell the property, and that if the purchasers chose to incur unnecessary expenses with a view to capitalizing their investment and managing it through the instrumentality of a corporate organization, that was not the affair of the defendants, and that the losses incident thereto were not the direct and immediate consequences of any acts of the 8. See ante, §§ 85, 164. Bird, L. R. 33 Ch. Div. 85, 24 Am. 9. Emery v. Parrott, 107 Mass. & Bng. Corp. Cas. 23. 95 ; Emma Silver Mining Co. v. 10. Hayward v. Leeson, 176 Mass. Grant, L. R. 11 Ch. Div. 918; Mc- 310, 57 N. E. 656, 49 L. R. A. 725. Kay's Case, L. R. 2 Ch. Div. 1; 11. 45 Fed. Rep. 730, 739-740. Lydney & Wigpool Iron Ore Co. v. 486 THE LAW OF PROMOTERS. agent for which the vendors were accountable. It appears from the reasoning of the court that a different conclusion might have been reached had the defendant vendors themselves promoted the plaintiff corporation. § 269. Measure of damages in case of false representations. The measure of the corporation's damages in case the promoter by false representations induces it to purchase his own property, is not the same in all jurisdictions. It is held in some jurisdic- tions that the measure of damages is, just as in an action upon a warranty, the difference between the value of the property as it was in fact, and its value as it would have been had the repre- sentations been true.^^ Other jurisdictions fix the measure of damages at the difference between the price which the corpora- tion paid for the property and the actual value thereof. ■'' The measure of damages may also vary according to the par- ticular nature of the misrepresentation complained of. In Gluckstein v. Barnes,-'* the promoters, while admitting that they were deriving a profit upon the resale of certain property to the corporation, understated the amount of this profit. The 12. Old Dominion Copper, etc., 135 Fed. Rep. 449,' 459, 68 C. C. Co. V. Bigelow, 188 Mass. 315, 320- A. 161, affirming, 126 Fed. Rep. 321, 74 N. E. 653, 108 Am. St. Rep. 968. Petition for writ of certiorari 479 ; Lagunas Nitrate Co. v. Lagunas denied, 197 U. S. 623, 25 Sup. Ct Syndicate, 1899, 2 Ch. Dlv. 392; 800, 49 L. Ed. 911. Burrowes v. Lock, 10 Ves. Jr. 470, See also ante, § 102, note 53, and 475, and cases cited ; Peek v. Gurney, post, § 277. L. R. 6 H. L. 377, 390; Alexandra 14. 1900, App. Cas. 240, affirming. Oil & Development Co. v. Cook, 10 In re Olympia, Ltd., 1898, 2 Ch. Dlv. Ont. W. R. 781, affirmed, 11 Ont. W. 153 ; see Old Dominion Copper, etc., B. 1054, and see post, § 277. Co. v. Bigelow, 188 Mass. 315, 320- 13. Sigafus V. Porter, 179 U. S. 321, 74 N. E. 653, 108 Am. St. Rep. 116, 21 Sup. Ct. 34, 45 L. Ed. 113, 479; Kilgore v. Bruce, 166 Mass. reversing, 84 Fed. Rep. 430, 28 C. 136, 44 N. B. 108; Alexandra Oil & C. A. 443, 51 U. S. App. 693; Strat- Development Co. v. Cook, 10 Ont. tons Independence, Ltd., v. Dlnes^ W. R. 781, affirmed, 11 Ont. W. R. 1054. MEASURE OF BBCOVERY. 487 measure of their liability was held to be the difference between the price which they represented that they had paid for the property, and its actual cost to them. In Economy Powder Co. v. Boyer,^® a promoter who had ob- tained subscriptions by falsely stating that he was receiving his shares at the same price as the other subscribers, was, in an action by the corporation, compelled to pay the difference be- tween the price he had paid for his shares, and the price which he represented that he was paying therefor. In O'SuUivan v. Clarkson,-^® promoters who had represented that the liabilities of one of the constituent companies taken over by the new corporation did not exceed a sum named, were com- pelled to indemnify the consolidated company against the pay- ment of any debts of the constituent company in excess of the sum so stated. § 270. Measure of value of shares. It often becomes necessary, in fixing the amount of the pro- moter's liability, to determine the value of shares taken by him. It frequently happens that these shares are so taken before the corporation has acquired any property, and before the shares can be said to have any value. The date at which the value of the shares is to be fixed must, in such case, be carried forward to a time when the corporation has been fully organized and the value of its shares in some measure fixed.^'' Some cases hold that the corporation may recover the highest value of the shares at any time while they are owned by the promoter.^* 15. 2 Berks (Pa.) 131. But com- 18. Eden v. Ridsdales Railway pore § 215, ante. Liamp & Lighting Co., L. R. 23 Q. 16. 9 Ont. W. R. 46. B. Div. 368; Nant-Y-Glo & Blaina 17. Hay ward v. Leeson, 176 Mass. Ironworks Co. v. Grave, L. R. 12 310, 322-323, 57 N. E. 656, 49 L. R. Cli. Div. 738 ; McKay's Case, -L. R. A. 725; East Tennessee Land Co. v. 2 Ch. Div. 1. Leeson, 183 Mass. 37, 66 N. E. 427. Cf. Shaw v. Holland, 1900, 2 Ch. Div. 305. 488 THE LAW OF PROMOTERS. The value of the shares taken by the promoter may be proved by the price at which other shares were allotted to subscribers,^* or by the price at which shares were afterwards sold in the open market.^" The fact that a small number of shares were sold at a certain price does not, however, necessarily prove that a large number of shares could have been disposed of at the same price.^^ The promoter will not ordinarily be held liable for the par value of the shares in the absence of some evidence fixing that sum as their value.^^ The promoter may, in case of the insolvency of the corpora- tion, become liable to the creditors for the par value of the shares issued to him without consideration.** If the shares were prop- 19. Chandler v. Bacon, 30 Fed. Rep. 538, 540; London Trust Co. v. Mackenzie, 62 L. J. Ch. 9. S. 870, 877; Weston's Case, L. R. 10 Ch. Div. 579; Mitcalfe's Case, L. R. 13 Ch. Div. 169. See also cases cited under note 22, infra. 20. See eases cited under note 18, supra, and see Bigelow v. Old Do- minion Copper, etc., Co., 74 N. J. Eq. 457, 499, 71 Atl. 153. 21. Shaw V. Holland, 1900, 2 Ch. Div. 305. 22. St. Louis F. S. & W. R. Co. V. Tiernan, 37 Kan. 606, 635, 15 Pac. 544, 560; Arnold v. Searing, 78 N. J. Eq. 146, 163, 78 Atl. 762, 769; Carting's Case, L. R. 1 Ch. Div. 115, 126-127; McKay's Case, L. R. 2 Ch. Div. 1, 6, 8, and see ante, i 165. For cases in which there was evi- dence that the shares were worth par, see Bigelow v. Old Dominion Copper, etc., Co., 74 N. J. Bq. 457, 499, 71 Atl. 153; Wills v. Nehalem Coal Co., 52 Or. 70, 96 Pac. 528; First Avenue Land Co. v. Hllde- brand, 103 Wis. 530, 536-537, 79 N. W. 753; Jenkins v. Bradley, 104 Wis. 540, 80 N. W. 1025; Franey v. Warner, 96 Wis. 222, 237, 71 N. W. 81, 86; McKay's Case, L. R. 2 Ch. Div. 1, 6, 8, (followed in Phosphate Sewage Co. v. Hartmont, L. R. 5 Ch. Div. 394, 442, 447, 46 L. J. Ch. 661) ; In re Carriage Co-opera- tive Supply Assoc, L. R. 27 Ch. Div. 322, 332; De Ruyigne's Case, L. R. 5 Ch. Div. 306; Ormerod's Case, 37 L. T. N. S. 244, 25 W. R. 765; Pearson's Case, L. R. 5 Ch. Div. 336, 341, affirming, L. R. 4 Ch. Div. 222, and see ante, § 165. 23. Bigelow v. Old Dominion Copper, etc., Co., 74 N. J. Eq. 457, 503, 71 Atl. 153; See v. Heppen- heimer, 69 N. J. Eq. 36, 73, 78, 61 Atl. 843 ; same case on demurrer, 55 N. J. Eq. 240, 36 Atl. 966, af- firmed, «m6 nom. Naumberg v. See, 56 N. J. Eq. 453, 41 Atl. 1116; Arnold v. Searing, 78 N. J. Eq. 146, 163, 78 Atl. 762, 769. MEASURE OF RECOVBBY. 489 erly issued as full paid in payment of property, and the vendor of the property improperly transfers some of these shares to the promoters, the promoters may be made to account to the corpo- ration for the shares received by them, but they are not liable to the creditors for the par value thereof.^* In Bentinck v. Fenn,^® certain mining property was sold to the company for £12,000 in cash and £30,000 in shares. Lord MacNaghten took the price paid for the property as £12,000, leaving out of consideration the portion of the purchase price paid in shares "which represented the profit to be gained either from working the coalfield or from the credulity of the public." It does not appear whether the other judges concurred in this statement. It appears from the report of the case in the Chan- cery Division that the shares were at or about the time of the organization of the company salable at a substantial price.^® In Arnold v. Searing,^'' the promoters had unlawfully taken a large profit in the bonds and shares of the corporation. All the shares of the corporation had been issued either to the pro- moters, or as a bonus to the bona fide purchasers of bonds. The vice-chancellor concluded that this fact indicated that the share- holders considered the stock to have no actual value, and that the promoters should not be made to account for any of the McAllister v. American Hospital (1857), 7 Ir. Ch. Rep. N. S. 256, Assn., 62 Or. 530, 125 Pac. 286. where both the directors and the In re Hess Manufacturing Co., 23 vendor were held liable upon the Can. S. C. 644, 659-660; In re Car- shares given by the vendor to the riage Co-operative Supply Assoc., L. directors. B. 27 Ch. Div. 322. 25. L. B. 12 App. Cas. 652, 671, See ante, § 165. affirming. In re Cape Breton Co., 24. Carling's Case, L. B. 1 Cb. L. B. 29 Ch. Div. 795, affirming, L. Div. 115; In re Innes & Co., Ltd., B. 26 Ch. Div. 221. 1903, 2 Ch. Div. 254 ; In re Howat- 26. See L. B. 26 Ch. Div. 221. son Patent Furnace Co., 4 Times 27. 78 N. J. Eq. 146, 163-164, 78 Law Rep. 152, and see mte, §§ 100, Atl. 762, 769; cf. Bentinck v. Fenn, 165, 110. L. B. 12 App. Cas. 652, 667. See, however. Ex parte Perrier, 490 THE LAW OF PROMOTERS. " stock profits " taken by them.^* It is suggested that it should, in the absence of evidence to the contrary, be assumed that the shares of the company have at least some value. ^® § 271. Measure of value of bonds. While it frequently happens that bonds of the corporation are taken by the promoters without consideration, as compensation for services, or in payment for property, under such circum- stances as to render them liable to the corporation, questions relating to the proper measure of the value of such bonds do not seem to have been passed upon by the courts.*" It might well be argued that as a bond represents an obligation of the corporation for the face thereof which the corporation, presumably, will have to pay, the promoters should be charged with the face value of the bond. It would, however, in most cases, more nearly meet the ends of justice to charge the promoters with the fair market value of the bonds at the time of the taking, and if the bonds have no market value, then with their actual value. This is pre- sumed, in the absence of evidence to the contrary, to be the face value of the bonds.*^ § 272. Value of property sold to the corporation. It is frequently, in order to determine the extent of the pro- moters' liability because of an unlawful sale of their property to the corporation, necessary to fix the value of the property so sold to the corporation. The value of the property is generally to be taken as of the time of its conveyance.*^ 28. This decision is discussed in 31. Henry v. North American § 165, ante. Ry. Const. Co., 158 Fed. Rep. 79, 29. See In re The Howatson 80, 85 C. C. A. 409. Patent Furnace Co., 4 Times Law 32. See, though hardly in point, Rep. 152. And see ante, §§ 133, the interesting case of Jenkins v. 165. Bradley, 104 Wis. 540, 558, et seq. 30. See perhaps Arnold v. Sear- 80 N. W. 1025, 1031, et seq., where ing, 78 N. J. Eq. 146, 164, 78 Atl. the promoters were held liable on 762. the ground that the title conveyed MEASURE OF RECOVERY. 491 § 273. The same subject. — Market value the standard. In Old Dominion Copper, etc., Co. v. Bigelow,^' the promoters after acquiring at a cost of about $1,000,000 the entire capital stock of an existing corporation had, by skillful manipulation, increased the market value thereof to $2,000,000, and then sold such stock to the plaintiff corporation for an even larger sum. It was contended on behalf of the plaintiff corporation that the promoters should, for the purpose of estimating the damages, be credited with only the intrinsic value, and not with the market value of the shares. The court, however, held that market value is, when ascertainable, the standard to be applied, and that the promoters should be credited with the market valqe of the shares of the old company though established by their manipulations. § 274. The same subject. — Proof of value. It has at times been claimed that the value of property con- veyed to the corporation by its promoters may be established by the price at which the shares of the corporation were subsequently sold in the market. This contention was overruled in Bigelow v. Old Dominion Copper, etc., Co.,** Chancellor Pitney *® saying, " Common experience tells us that the sale value of corporate shares in the market has only an indirect and sometimes a re- mote relation to the fair market value of the property that forms the assets of the corporation. It is easy to see, for instance, how when men of standing in the financial world promote a company, make over to it mining properties, and cause the shares to be placed upon the market, the confidence of purchasers of the shares by them was in part defective. The 193, 40 L. R. A. N. S. 314. See the damages were fixed at the diCEerence query in Bigelow v. Old Dominion between the actual value of the Copper, etc., Co., 74 N. J. Eq. 457, property and the value of the title 504, 71 Atl. 153; cf. Twycross v. conveyed by the promoters, and not Grant, L. R. 2 C. P. D. 469, 489. at the far larger sum which it had 34. 74 N. J. Eq. 457, 499-500, 71 cost the corporation to buy in the Atl. 153, 171. outstanding interest at a later time. 35. Now Associate Justice of the 33. 203 Mass. 159, 202, 89 N. E. Supreme Court of the United States. 492 THE LAW OF PROMOTERS. in the standing and good faith of the promoters may enter largely into the competition for the shares, and thus affect their market value. Such purchasers may reasonably believe that the prop- erty was sold to the company by the promoters at a fair and open price." The price at which property is purchased by the promoter shortly before its sale to the corporation, has a material bearing upon the question of its value at the time of the resale. In Re Leeds & Hanley Theatres of Varieties,'® the promoter had shortly before the sale to the corporation purchased the property in question at £24,000, and this property was sold a year or two later at £19,000. It was held that these circumstances proved that the property was not, at the time of its sale to the corpora- tion, worth the £75,000 paid for it, or even the £64,000 and odd, remaining to the promoter as the net proceeds of the sale after de- ducting the moneys expended partly in promotion expenses and partly in improving the property ; and that the damages suffered by the corporation were sufficiently proved to have amounted to at least the £12,000 allowed by the trial court. It was held in Bentinck v. Fenn ®^ that the fact that a certain coal property was purchased for £5,600 in 1871 did not neces- sarily prove that a price of £42,000 paid £12,000 in cash, and £30,000 in shares (the £30,000 paid in shares was apparently dis- regarded,^*) was excessive in 1873, it appearing that it was a matter of common knowledge that there had been a very sub- stantial rise in the value of coal properties during that period, and there being other evidence to indicate that the price paid by the corporation was not unreasonable. § 275. Measure of value of property paid for by subsequent issue of mortgage bonds. In Montgomery Iron Works v. Roman,^® the promoters having 36. 1902, 2 Ch. Dlv. 809, 826, 830. 38. See p. 671. 37. L. R. 12 App. Cas. 652, 659- 39. 147 Ala. 434, 41 So. 811. eeo. MEASURE OF RECOVERY. 493 subscribed for $50,000 par value of stock, conveyed in payment of their subscriptions and in payment for $30,000 of bonds, property worth not more than $50,000. The bonds were, how- ever, not issued until a later time. The corporation having be- come insolvent, the creditors brought suit against the promoters upon the theory that their stock subscriptions had not been fully paid. The promoters contended that the gross value of the prop- erty should be taken as received by the corporation in payment for the shares. This contention was overruled on the ground that the bonds, though not issued until a later time, were issued by the corporation and received by the promoters as a part of the or- iginal transaction, and as the bonds were secured by a trust mort- gage on the property conveyed, the promoters should be credited, as against the shares received by them, with the difference be- tween the value of the property and the amount of the mortgage bonds. § 276. Measure of recovery in minority stockholders' suits. The measure of the recovery in a minority stockholders' suit is ordinarily the same as though the suit were brought by the corpo- ration itself. Situations, however, arise from time to time which make the application of a different rule of recovery necessary. In Spaulding v. North Milwaukee Town Site Co.,*** it appeared that all the stockholders, except the plaintiffs and the holders of twelve other shares, had " released any claim or right to be reim- bursed for their share of the moneys obtained by defendants from the corporation." The court said that if the case before it were an action at law by the corporation, there might be no es- cape from the entry of a money judgment for the full amount,** but as the action was in equity and the corporation had been dis- 40. 106 Wis. 481, 495, et seq., 81 poration, see Hyde Park Terrace N. W. 1064, 1069. Co. v. Jaokson Bros. R'lty Co., 161 41. As to the powers of a court N. Y. App. Div. 699, 146 Supp. 1037. of equity in an action by the cor- 494 THE LAW OF PROMOTERS. solved and had no use for the money except for distribution among its stockholders', the court would not compel the defendants to pay over to the corporation moneys which as their trustee it must return to them, either in their own right as stockholders or in the right of others who by settlement had released their claims. After referring to Jenkins v. Bradley,*^ the court concluded that the defendants should be made to pay to the plaintiffs, and to the unknown holders of the twelve shares, only such part of their liability to the corporation as was represented by the shares of the non-releasing stockholders. As the names of the holders of the twelve shares were not disclosed and no judgment could be rendered in their favor, and as both plaintiffs were indebted to the corporation for assessments on their stock, the court con- cluded that the rights of all parties would best be served by or- dering a recovery in the name of the corporation as trustee for the two plaintiffs and the unknown holders of the twelve shares, the money so recovered to be applied to these beneficiaries by crediting the same upon the assessments on their shares, or pay- ing it over to them as their rights might be determined. In Jenkins v. Bradley,** the plaintiffs suing as minority stock- holders had, during the progress of the litigation, made a settle- ment with some of the defendants upon the payment by these defendants of a sum supposed to represent their proportion of the moneys which would go to the plaintiffs in the event of a re- covery from all of the defendants. The trial court required the remaining defendants to pay to the corporation the entire dam- ages claimed on its behalf. The appellate court, however, said that this looked like throwing a much greater obligation upon the men who did not settle than equity would permit ; that if the plaintiffs had a right, pending the suit, to settle with some of the defendants, a cause of action in favor of the corporation and 42. See next note. 43. 104 Wis. 540, 557-658, 80 N. W. 1025, 1030-1031. MEASURE OF RECOVERY. 495 to accept the fruits of such settlement for themselves, it would have been more exact justice, all the parties being before the court, to have required the defendants to pay such sum as would make the plaintiffs whole, instead of the larger sum which would go to the credit of all the shares alike. § 277. Measure of damages in action for fraud in sale of shares. The measure of damages in an action for fraudulent repre- sentations upon a sale of shares is, in some jurisdictions, the same as the measure of damages in an action upon a warranty ; that is the difference between the value of the shares as they were and their value as it would have been had the representations com- plained of been true.** The rule prevailing in other jurisdictions \ 44. Arkansas. — ^Matlock v. Reppy, 47 Ark. 148, 14 S. W. 546. California. — Neher v. Hansen, 12 Gal. App. 370, 107 Pae. 565. Florida. — ^Williams v. McFadden, 23 Fla. 143, 1 So. 618, 11 Am. St. Rep. 345. Illinois. — Drew v. Beall, 62. IlL 164; Home v. Walton, 117 111. 130, 7 N. B. 100. Indiana. — ^Nysewander v. Low- man, 124 Ind. 584, 24 N. E. 355. Kentucky. — Exchange Bank of Kentucky v. GaitsklU, 18 Ky. L. R. 532, 37 S. W. 160. Massachusetts. — Whiting v. Price, 172 Mass. 240, 51 N. E. 1084, 70 Am. St. Rep. 262, cited in Honsucle V. Ruffln, 172 Mass. 420, 52 N. E. 538; Kilgore v. Bruce, 166 Mass. 136, 139, 44 N. E. 108; Ginn v. Almy, 212 Mass. 486, 502, 99 N. E. 276. Michigan.— Pase v. WeUs, 37 Mich. 415. Nebraska. — Woolman v. Wirts- baugh, 22 Neb. 490, 35 N. W. 216. New Hampshire. — Page v. Parker, 43 N. H. 363, 80 Am. Dec. 172. New York. — Vail v. Reynolds, 118 N. Y. 297, 301, 23 N. E. 301, (citing Krumm v. Beach, 96 N. Y. 398, 406; and Whitney v. Allaire, 1 N. Y. 305, 312) ; Miller v. Barber, 66 N. Y. 558, 568; Spotten v. De Freest, 140 App. Div. 792, 125 Supp. 497; Parsons v. Johnson, 28 App. Div. 1, 50 Supp. 780; Clarke v. Mercantile Trust Co., 110 App. Div. 901, 903, 95 Supp. 1118, (dissenting opinion) ; Hubbell V. Meigs, 50 N. Y. 480; cf. Getty V. Devlin, 54 N. Y. 403, 415. North Carolina. — Lunn v. Sher- mer, 93 N. C. 164. North Dakota. — Beare v. Wright, 14 N. D. 26, 103 N. W. 632, 69 L. R. A. 409, 8 Am. & Eng. Ann. Cas. 1057; Fargo Gas & Coke Co. v. Fargo Gas & Electric Co., 4 N. D. 219, 226, 59 N. W. 1066, 37 L. R. A. 593, 615. 496 THE LAW OF PROMOTERS. is that the measure of damages in an action for fraud and deceit upon the sale of shares is, just as the measure of damages in other actions of fraud, the injury done to the plaintiff by the fraudu- lent representations — that is in the case of a fraudulent sale of shares, the difference between the price the plaintiff paid for his shares, and their actual value at the time of the purchase.*' Vermont. — ^Woodward v. Thacher, 21 Vt. 580, 52 Am. Dec. 73. Wisconsin. — Warner v. Benjamin, 89 Wis. 290, 62 N. W. 179. See also Sedgwicfe on Damages, (9th ed.), §§ 777, et seq.; Suther- land on Damages, (3rd ed.), §§ 1171-1172. It has been said that if a pro- moter invites others to join with him in the purchase of property at a given price, falsely representing that all are to share equally in the cost and equally in the benefits of the enterprise, and the promoter in fact acquires secretly a profit to himself, he commits a fraud upon the innocent subscribers, and they may sue him for damages for the fraud to the extent of the enhanced value they were made to pay by reason thereof. See Franey v. War- ner, 96 Wis. 222, 235, 71 N. W. 81, 85; Hebgen v. Koeffler, 97 Wis. 313, 320, 72 N. W. 745, 747-748; Beatty V. Neelon, 13 Can. S. C. 1, 19 Am. & Eng. Corp. Cas. 236. See note of Freeman, J., to Pittsburg Mining Co. V. Spooner, 17 Am. St. Rep. 149, 167-168. It has also been held that where the plaintiff's subscription is in- duced by a false representation that another subscriber Is paying the same price as the plaintiff, the plaintiff may recover the difference between the subscription price paid by him and the price . paid by the other subscriber. Kllgore v. Bruce, 166 Mass. 136, 44 N. E. 108. 45. Federal.— Bmitb. v. BoUes, 132 U. S. 125, 32 L. Ed. 279, 10 Sup. Ct. 39; Sigafus v. Porter, 179 U. S. 116, 21 Sup. Ct. 34, 45 L. Ed. 113, and cases cited; Hlndman v. First Nat'l Bk., 112 Fed. Rep. 931, 50 C. C. A. 623, 57 L. R. A. 108; Strat- ton's Independence, Ltd., v. Dines, 135 Fed. Rep. 449, 459, 68 C. C. A. 161, affirming, 126 Fed. Rep. 968. Petition for writ of certiorari de- nied, 197 U. S. 623, 25 Sup. Ct. 800, 49 L. Ed. 911; Rockefeller v. Mer- rltt, 76 Fed. Rep. 909, 22 C. C. A. 608, 40 U. S. App. 666, 35 L. R. A. 633; cf. Chesbrough v. Woodworth, 195 Fed. Rep. 875, 885, 116 C. C. A. 465. Maryland. — Buschman v. Codd, 52 Md. 202. Minnesota. — Redding v. Godwin, 44 Minn. 355, 46 N. W. 563 ; Alden V. Wright, 47 Minn. 225, 49 N. W. 767 ; Reynolds v. Franklin, 44 Minn. 30, 46 N. W. 139, 20 Am. St. Rep. 540; Stlckney v. Jordan, 47 Minn. 262, 49 N. W. 980; cf. Doran v. Eaton, 40 Minn. 35, 41 N. W. 244. yew Jersey. — Crater v. Binnlnger, 33 N. J. L. 513, 97 Am. Dec. 737; MEASURE OP RECOVERY. 497 The rule last mentioned is, certainly in an action for damages for the fraud of a promoter in the sale of the company's shares, greatly to be preferred. The rule of damages first mentioned would, in many cases, prove wholly inadequate. It may often happen that the shares purchased by the plaintiff would, even though the facts represented by the promoter had been true, still have been worthless, and the plaintiff could under the rule first stated recover only nominal damages. It may be urged that the plaintiff has, in such case, suffered no injury. This is, how- ever, not so, for, it may well be that the plaintiff, had he known the facts, would not have purchased the shares, and 'that the entire loss sustained by him because of his unfortunate invest- ment is, therefore, the direct result of the defendant's misrepre- sentation. Again if the misrepresentation complained of is a statement that the promoter is making no profit from the trans- Duffy V. McKenna, 82 N. J. L. 62, 67, 81 Atl. 1101. Pennsylvania. — ^Higta v. Berret, 148 Pa. 261, 23 Atl. 1004. United Kingdom and Colonies. — Twycross v. Grant, L. R. 2 C. P. D. 469, 489-491, 503-505, 542-543, (evidently approved in Capel & Co. V. Sim's Ships Composition Co., 57 L. J. Ch. N. S. 713) ; Peek v. Derry, L. R. 37 Ch. Dlv. 541, 578, 591-594, (reversed on another point, s«6 worn. Derry v. Peek, L. R. 14 App. Oas. 337), followed in Exploring Land & Minerals Co., Ltd., v. Kolck- mann, 94 L. T. N. S. 234 ; Davidson V. TuUoch, 3 Macq. 783, 790, 794, 2 L. T. N. S. 97; Arkwright v. New- bold, L. R. 17 Ch. Dlv. 301, 312, re- versed on another point, see page 316, et seq.; Arnison v. Smith, L. R. 41 Ch. Dlv. 348, 363; Broome v. k, 1903, 1 Ch. Div. 586, 605- 606, affirmed, sub nom. Shepheard V. Broome, 1904, App. Cas. 342; Cackett v. Keswick, 1902, 2 Ch. Div. 456, 468; McConnell v. Wright, 1903, 1 Ch. Div. 546; Stevens v. Hoare, 20 Times Law Rep. 407; Weatherbe V. Whitney, 30 Nova Scotia 104. See ante, § 269. See Sedgwick on Damages, (9th ed.), § 777, et seq.; Sutherland on Damages, (3rd ed.), §§ 1171-1172. The courts of Arkansas appar- ently allow the plaintiff an election as to which measure of damages shall be applied. See Matlock v. Reppy, 47 Ark. 148, 14 S. W. 546. It is said in Duffy v. McKenna, (82 N. J. L. 62, 67, 81 Atl. 1101), that the measure of damages is the difference between the price paid by the plaintiff and the value of the shares at the time of the discovery of the fraud. 498 THE LAW OF PROMOTERS. action, that he has no personal interest therein, that he is taking shares upon the same basis as the other subscribers, or that he has no interest in the property to be sold to the corporation, the application of the rule of damages first stated, would often re- sult in the recovery of a very insignificant judgment. The real injury is in such case not measured by the amount that the unlawful profit taken by the promoter reduced the value of the shares. The injury lies in the fact that the judgment of the subscribers was affected by the consideration that the pro- moter, who was thoroughly familiar with the enterprise, was risk- ing his own money therein. Had the subscribers known that the promoter was taking no risk, but was, regardless of the success or failure of the enterprise, secured against personal loss, they would undoubtedly have accepted his suggestions in a more guarded spirit, and perhaps have summarily refused to subscribe for shares. If the subscribers show that their purchase was in- duced by the false representations of the promoter, the proper measure of their damage is the sum which they lost by reason of their ill-advised investment.*® If the measure of damages is the difference between the price the plaintiff paid for his shares and the value thereof at the time of the purchase, the general rule that market prices are the standard of value is not applicable; for the purchase induced by the fraud is frequently, if not generally, made at the market price, and this market price is very often the result of the very fraud of which the plaintiff complains.*'^ If the market value were taken 46. The same result would be tively the case, reached by the application of either 47. Hlndman v. First Natl. Bank, rule of damages In any case in 112 Fed. Rep. 931, 936, 50 C. C. A. which the shares would, had all the 623, 57 L. R. A. 108 ; Peek v. Derry, representations been true, have been L. R. S7 Ch. Div. 541, 591, et seq., worth the precise sum paid there- (reversed on other grounds, suh for by the plaintiff. This, it is said nom. Derry v. Peek, L. R. 14 App. in McConnell v. Wright, (1903, 1 Cas. 337) ; McConnell v. Wright, Ch. Div. 546, 556, 559), is presump- 1903, 1 Ch. Div. 546, 557; Broome MEASURE OF RECOVERY. 499 as the standard, the recovery would frequently be limited to nominal damages and a miscarriage of justice would result. The damages resulting from a subscription for shares induced by fraud and deceit is therefore from the necessities of the case the difference between the price paid and the intrinsic value of the shares,** the market value being regarded only as evidence, and not very substantial evidence, of intrinsic value.*® Subsequent events in the history of the company,^** such as the amount which the shares ultimately yielded to the holders upon the winding up of the company, may be taken into consideration, at least if no more satisfactory evidence can be found, in determining the intrinsic v. Speak, 1903, 1 Ch. Dlv. 586, 606, affirmed, ««& nom. Shepheard v, Broome, 1904, App. Gas. 342. Cf. Whiting V. Price, 172 Mass. 240, 242, 51 N. E. 1084, (cited in Honsucle v. Ruffin, 172 Mass. 420, 422, 52 N. B. 538, and in National Bank of Commerce v. New Bedford, 175 Mass. 257, 262, 56 N. E. 288), and Warner v. Benjamin, 89 Wis. 290, 62 N. W.,179, where the other measure of damages was applied. 48. High V. Berret, 148 Pa. 261, 23 Atl. 1004 ; Twycross v. Grant, L. R. 2 C. P. Div. 469, 489-491, 505; Davidson v. TuUoch, 3 Macq. 783, 790, 794, 2 L. T. N. S. 97; Ark- wright V. Newbold, L. R. 17 Ch. Div. 301, 312, (reversed on another ground, see page 316, et seg.) ; Ami- son V. Smith, L. R. 41 Ch. Div. 348, 363 ; Cackett v. Keswick, 1902, 2 Ch. Div. 456, 468-469, and see cases cited under note 47. Cf. Redding v. Godwin, 44 Minn. 355, 46 N. W. 563. A properly qualified witness may be permitted to give his opinion as to such value. See Chamberlayne on The Modern Law of Evidence, § 2175e. The fact that the plaintiff has resold the securities at a profit has been held immaterial. Clark v. Morgan County Nat'l Bank, 196 Fed. Rep. 709. 49. Twycross v. Grant, L. R. 2 C. P. D. 469, 489, 490, 545, et seq.; Smith V. DufCy, 57 N. J. Law 679, 690, 32 Atl. 371; Peek v. Derry, L. R. 37 Ch. Div. 541, 591, et seq., (reversed on another point, sub nom. Derry v. Peek, L. R. 14 App. Cas. 337) ; see Hubbell V. Meigs, 50 N. Y. 480. The burden is upon the plaintiff to prove that damages were in fact suffered. Cackett v. Keswick, 1902, 2 Ch. Div. 456, 468. 50. Hindman v. First Nat'l Bk., 112 Fed. Rep. 931, 50 C. C. A. 623, 57 L. R. A. 108; San Diego Land & Town Co. V. Jasper, 189 TJ. S. 439, 444, 47 L. Ed. 892, and cases cited; Whiting V. Price, 172 Mass. 240, 243, 51 N. E. 1084, 70 Am. St. Rep. 262. 500 THE LAW OF PROMOTERS. value of the shares at the time of their issue.®^ That the shares were not, in fact, worth the price at which thej were issued to the subscribers may be shown by any facts indicating that the corporation paid more for the assets acquired by it than the same were reasonably worth.®^ The subscriber has in some cases been allowed to recover the difference between the price which he paid for his shares and their actual value after the fraud ceased to be operative upon him, that is, after he learned of the deceit and was in a position to exercise his judgment in the matter.^* , 51. Walker v. Russell, 186 Mass. 69, 74, 71 N. E. 86, 1 Am. & Eng. Ann. Oas. 688; Peek v. Derry, L. R. 37 Oh. Div. 541, 593, (reversed on another point, sui nom. Derry v. Peek, li. K. 14 App. Gas. 337) ; Broome v. Speak, 1903, 1 Oh. Div. 586, 606, 622-623, affirmed, suh nom. Shepheard v. Broome, 1904, App. Gas. 342; Jury v. Stoker, L. R. 9 Ir. 385, 403. Such evidence is, of course, open to explanation. See Petrie v. Guelph Lumber Co., 11 Can. S. C. 450, 481, 15 Am. & Eng. Corp. Gas. 487, 513. 52. See Broome v. Speak, 1903, 1 Gh. Div. 586, 606, affirmed, sub nom. Shepheard v. Broome, 1904, App. Gas. 342. 53. Goodwin v. Wilbur, 104 111. App. 45, 53-54; Smith v. DufEy, 57 N. J. Law 679, 690, 32 Atl. 371. CHAPTER XV. Of THE CRIMIXAIi LlABIUTY OF PkOMOTEKS. Section 278. Criminal liability for fraud upon corporation. 279. Accepting qualifying sliares from persons adversely in- terested. 280. Bubble companies: 281. Criminal liability for fraud in sale of sbarea 282. The English Companies Act. 283. Fraudulent use of the mails. § 278. Criminal liability for fraud upon the corporation. A promoter may under the authority of Queen v. Barber^ be convicted of conspiracy if he enters into an agreement with per- sons selling property to the corporation, that such vendors shall secretly pay to him a portion of the purchase price to be received from the corporation. § 279. Accepting quedifying shares from persons adversely in- terested. In Twycross v. Grant,* it was agreed that the contractors who were to construct and sell to the proposed corporation, two lines of tramways to be operated by it, should qualify the directors. Lord Justice Bramwell said, " As to the cost of qualifying the di- rectors, nothing can be said to extenuate it, except that honor- 1. 3 Times Law Rep. 491. of his acting in any particular man- The New York statute making it ner in his principal's business, (see a misdemeanor for an agent, em- Penal Law — ^Laws of 1909, Chap. ployee or servant to receive, vrith- 88, § 439), probably does not apply out the knowledge of his principal, to promoters of corporations. a gift or gratuity in consideration 2. L. B. 2 C. P. D. 469, 493. (501) 502 THE LAW OF PROMOTERS. able men have been parties to such transactions, though not see- ing their, to me, obvious impropriety. The impropriety of being nominees of sellers and at the same time agents of buyers, a thing the impropriety of which I had occasion to point out as long as thirty-five years ago, with a warning that it might bring the parties to it within the law of conspiracy." § 280. Bubble companies. The court in Duvergier v. Fellows * said, " It is apparent from the facts disclosed by the condition of this bond and the patents, that the scheme in which the parties to this action were engaged was one of those bubbles by which, to the disgrace of the present age, a few projectors have obtained the money of a great number of ignorant and credulous persons, to the ruin of those dupes and their families, and by which a passion for gambling has been excited, that has been most injurious to commerce and to the morals of the people. What any one must discover from reading the instruments, the parties to them must be fully informed of. It cannot be too well known, that there is no place for persons engaged in such transactions in courts appointed for the deci- sion of civil causes. Although the statute of 6 G. I be repealed, the common law relating to such schemes is expressly reserved by the repealing statute; and no one doubts, if it can be shown, as it easily may, that such schemes are fraud-traps, and injurious to the public welfare, that the forming of them is an indictable offense at the common law." § 281. Criminal liability for fraud in sale of shares. Promoters who join in issuing false statements to deceive the public and delude them into purchasing shares, may be convicted of conspiracy.* It is not necessary that the falsehood consist of 3. 5 Ring. 248, 266. May 4-9, 1898 ; Reg. v. Lupton, et aj. 4. rn re Gold Co., L. R. 11 Ch. London Times, August 2-8, Div. 701, 723, 48 L. J. Ch. 281 ; Reg. Reg. v. Esdaile, 1 F. & F, 213. V. Brinsmead, et al. London Times, CRIMINAL LIABILITY. 503 a direct affirmation of what is not so. A charge of conspiracy may be predicated upon any act of the conspirators by which a false impression is created.^ A charge of conspiracy may also be based upon the declaration of a fictitious dividend,® upon an agreement to create an apparent market by ordering the pur- chase of shares at a premium/ or upon the procuring, by false reports, the listing of the shares with the purpose of inducing the public to purchase in reliance upon the false assumption that the rules of the Stock Exchange have been complied with.* A recent New York statute provides that any person who, with intent to deceive, makes, issues or publishes, or causes to be made, issued or published, any statement or advertisement as to the value, or as to facts affecting the value, of the stocks, bonds or other evidences of debt of a corporation, or as to the financial condition of ® facts affecting the financial condition of any cor- poration, which has issued, is issuing, or is about to issue stocks, bonds or other evidences of debt, and who knows, or has reason- able ground to believe that any material representation, predic- tion or promise made in such statement or advertisement is false, is guilty of a felony.-*^** Another statute, enacted at the same time, provides that a person who, with intent to deceive, reports or publishes, or causes to be reported or published as a purchase or sale of the stocks, bonds or other evidences of debt of a corpo- ration, any transaction therein whereby no actual change of ownership or interest is effected, is likewise guilty of a felony. ■'^■' 5. Bumes v. Pennell, 2 H. L. Cas. B. D. 730, affirmed, L. K. 2 Q. B. D. 497, 525. See also Queen v. Aspinall, 48. L. R. 1 Q. B. D. 730, 743, affirmed, 9. So in original. L. R. 2 Q. B. D. 48, 59 ; Rex v. Ber- 10. New York Penal Law, § 952, enger, 3 M. & S. 67. (added by Chapter 475 of the laws 6. Burnes v. Pennell, 2 H. L. Cas. of 1913). 497, 525. 11. New York Penal Law, § 951, 7. Scott V. Brown, Doering, Mc- (added by Chapter 476 of the laws Nab & Co., 1892, 2*Q. B. D. 724. of 1913). 8. Queen v. Aspinall, L. R. 1 Q. 504 THE LAW OF PROMOTERS. § 282. The English Companies Act. Any person who wilfully makes a false representation in the statement which the English Companies Act requires to be filed in lieu of a prospectus where no prospectus is issued, is guilty of a misdemeanor and liable to fine and imprisonment, but false statements in the prospectus itself do not seem to fall within the penal provision of the statute.^* § 283. Fraudulent use of the mails. In this country criminal prosecutions against promoters have generally been brought under the Federal statute declaring the use of the mails for purposes of fraud, a criminal offense.** 12. See Companies Act, 1908, (Stat. 8 Edw. VII., chap. 69), § 281, Fifth Schedule and § 82, amended, Stat. 1 & 2 Geo. Y, Ch. 6, § 17. See § 5 of same statute. Section 84 of Chapter 96 of the Statutes of 24 & 25 Victoria, ap- parently does not apply to pro- moters as such. (As to the mean- ing of the word " manager " as used therein, see Rex t. Lawson, 1905, 1 K. B. 541, 74 L. J. K. B. N. S. 296). It was for violating this section, and section 83 of the same act, that Whitaker Wright was tried and con- victed. See Rex v. Wright, London Times, Jan. 12-27, 1904. 13. See for example Wilson v. United States, 221 U. S. 361, 31 Sup. Ct. 538, 55 L. Ed. 771 ; Wilson V. United States, 190 Fed. Rep. 427, 111 C. C. A. 231; Parker v. United States, 203 Fed. Rep. 950, 122 C. C. A. 252; Mitchell v. United States, 196 Fed. Rep. 874, 116 C. C. A. 436 ; Horn V. United States, 182 Fed. Rep. 721, 105 C. C. A. 163; Gould v. United States, 209 Fed. Rep. 730, 126 C. C. A. 454 ; Sandals v. United States, 213 Fed. Rep. 569, 130 C. C. A. 149. The provision in question is now contained in § 215 of the Federal Criminal Code enacted March 4, 1909, superseding § 5480 of the Fed- eral Statutes. CHAPTER XVI. Or Vendoks of Peopeety and Theie Relation to the Peo- MOTEE. Section 284. Introductory. 285. Liability of vendor for misrepresentations made to promoter. 286. Rescission of purchase because of fraud in promotion com- mitted by vendor's agent. 287. Responsibility of vendor assisting promoter in obtaining secret profit. 288. Liability of vendor for commission to be paid to promoter. 289. The same subject. — Effect of compromise between vendor and promoter. 290. The same subject. — Liability of vendor after full payment to promoter. 291. Responsibility of vendor of property for false representa- tions of promoter made upon sale of shares. 292. Rights of vendor receiving payment in shares. 293. Rights of vendor receiving payment in bonds. 294. Rights of persons donating lands to corporation. 295. Relation inter se of persons selling property to corporation. § 284. Introductory. It frequently happens that the promoters are themselves the owners of the property which the corporation is organized to ac- quire. Their relation of vendors to the corporation becomes in such case involved with their fiduciary obligations as promoters of the corporation. The rights and liabilities arising from this dual relation have already been considered. If the owners of the property to be acquired do not aid in the promotion of the cor- poration, and deal at arm's length both with the company and (505) 506 THE LAW OF PROMOTERS. its promoter, they are subject to no fiduciary obligations.^ The rights and liabilities of the vendors are in such case controlled by the rules of law generally applicable to vendors and purchasers. A consideration of these rules is not within the scope of the pres- ent work. It is, however, proposed to consider the rights and liabilities of the vendors as affected by the acts of the promoter. § 285. Liability of vendor for misrepresentations made to pro- moter. If the owner of property procures a sale thereof to the cor- poration by means of false representations made to its pro- moters, he may be held liable to the corporation on the theory that its purchase was induced by fraud, though the promoters oc- cupied, at the time that the representations were made, no official relation to the corporation.* § 286. Rescission of purchase because of fraud in the promo- tion of the corporation committed by the vendor's agent. It sometimes happens that an agent employed by the owner to sell property, promotes a corporation to make the purchase. The responsibility of the vendor for a fraud committed by the 1. Wiser v. Lawler, 189 XJ. S. 260, poration at arm's length as a non- 265, 47 L. Ed. 802, 23 S. C. 624 ; De- fiduciary vendor. Dunlap v. Twin Klotz v. Broussard, 203 Fed. Rep. City Power Co., 226 Fed. Rep. 161, 942, 122 C. C. A. 244 ; South Missouri — C. C. A. — . Pine Lumber Co. v. Crommer, 202 Z. Scholfleld Gear & Pulley Co. v. Mo. 504, 518, 101 S. W. 22; South Scholfleld, 71 Conn. 1, 40 Atl. 1046; Joplln Land Co. v. Case, 104 Mo. Mason v. Harris, L. R. 11 Ch. Div. 572, 578, 16 S. W. 390, 392, ?8 Am. 97. Compare Meyer v. Page, 112 N. & Eng. Corp. Cas. 333; Exter v. Y. App. Div. 625, 98 Supp. 739. Sawyer, 146 Mo. 302, 322, 47 S. W. Compare also Wiser v. Lawler, 951, 956, and see ante, § 7. 189 U. S. 260, 47 L. Ed. 802, 23 Sup. One cannot claim, under an agree- Ct. 624, where the representations ment, a share of the promoter's were made to the subscribers after compensation, and at the same time the purchase had been made by the claim the right to deal with the cor- corporation. See also ante, § 234, and notes. VENDORS. 507 agent in the course of the promotion is, in such case, a question not free from difficulty. If the agency is a mere agency to sell, the agent is not, in promoting the corporation, acting within the scope of his agency, and the principal is not responsible for his acts in relation thereto.^ If, however, the purchase by the corpo- ration is induced by the fraud of the promoter, whether acting as agent of the vendor or as promoter of the corporation, the purchase may be set aside; for whether or not the fraud can be said to have been committed by the agent of the vendor, the latter cannot repudiate the fraud and at the same time retain the bene- fits which result therefrom.* In Cortes Co. v. Thannhauser,^ the defendants had obtained an option to purchase the Valle Mines at a cost of $110,000, and employed one Brooks to sell the property, agreeing that Brooks should have two-thirds of any sum above cost realized therefor. Brooks submitted the properties to Hatch & Co., who organized the plaintiff corporation, of which Brooks seems to have been one of the promoters. It was arranged that the mines should be purchased by the company for $150,000 net, and that Brooks should subscribe for $40,000 in shares. The defendants knowing that Brooks was financially irresponsible, induced the owners to accept $80,000, in lieu of the $110,000 originally agreed upon. Brooks represented to the other pro- moters that the price at which the company was offered the prop- erty, was the price which the original owners were to be paid therefor, and that neither he nor the defendants were to receive any profit on the resale. The court said that as Brooks was the agent of the defendants on the sale, his fraud was imputable to them, notwithstanding that they were personally innocent of any misrepresentation; that the contract that the defendants were seeking to enforce was tainted with the fraud of their agent, and 3. See Forest Land Co. r. Bjork- 4. See ante, § 238. quist, and Godfrey v. Schneck, dis- 5. 45 Fed. Rep. 730. cussed in the text. 508 THE LAW OF PKOMOTEKS. that they could not repudiate his acts while seeking to obtain the fruits thereof. If, however, the fraud is committed by the promoter not in his capacity as agent for the vendor but in his capacity as pro- moter of the corporation, and the acts complained of consist, not of fraudulent representation inducing the purchase, but of the taking of an unlawful secret profit or some other manner of fraud which qannot be deemed to have induced the purchase or in any way assisted in the consummation of the sale, the vendor is, unless a party to the fraud, not responsible therefor, and the company's purchase cannot be rescinded by reason thereof.* In Godfrey v. Schneck,'' the plaintiff, being the owner of a tract of land, placed it in the hands of one Meyers to sell at a price of $5S5 an acre. Meyers conceived the plan of organizing a corporation to purchase the property, and interested one Whaley, it being agreed that the land should be conveyed to the corpora- tion at $600 an acre, Whaley and Meyers to divide the profit. Whaley engaged one Hinners to assist him in procuring sub- scriptions and agreed to give him one-half of his share of the profits. Whaley and Hinners represented to the defendant Schneck that the land could be secured at $600 an acre, and agreed with Schneck that if he would assist in syndicating it at $750 an acre, he should have one-third of the difference. Pending the organization of the company, Whaley represented to the sub- scribers that the time in which they could purchase the land at the price mentioned had about expired, and it was arranged that Schneck should take the title, and hold it pending incorporation. The corporation was afterwards formed and the plan consmn- mated. Some months later the officers of the company discovered that Whaley, Hinners and Schneck had made a secret profit, that is, the difference between $600 and $750 per acre, and upon suit being threatened, the matter was settled by the payment of 6. See cases cited in succeeding 145 111. App. 155, 169. notes, also Maxwell v. McWUUams, 7. 105 Wis. 568, 81 N. W. 656. VENDORS. 509 $1,500. At that time neither the officers of the company nor Schneck knew of the further profit made by Whaley, Hinners and Meyers. The company upon discovering this profit offered to rescind the transaction. The plaintiff, being threatened with suit, took up a mortgage upon the land evidently made by him before the sale, and sought to foreclose it. The defendant cor- poration and Schnecl^ then asked for a rescission of the sale, and a discharge from liability on the mortgage. The court said that the theory of the defendants was that the division of the profits between Meyers and the promoters was in effect a bribe, and that Meyers being the plaintiff's agent the latter must be held re- sponsible; that there was, however, no evidence that the plaintiff had any actual knowledge of Meyers' plans, or shared in any way in the profits; that the agency of Meyers contemplated the securing of a purchaser for the land ; that any fraud or misrepre- sentation made by the agent in the scope of his agency would be binding on the principal,* but that the mere authority to sell did not contemplate the organization of a corporation to purchase; that the agent's acts were not done in the interest of his em- ployer nor for his profit, but were distinctly personal and pri- marily to the agent's own advantage; that they were not in legal contemplation the acts of the principal and that the principal could not be bound thereby. In Forest Land Company v. Bjorkquist,® the defendant being the owner of certain premises gave to one Myers the privilege of selling the property at such a price that Bjorkquist should re- ceive $30,000 net. Myers thereupon caused the plaintiff com- pany to be incorporated and to purchase the property at a price of $32,000, the defendant giving a deed to the company reciting a consideration of $32,000 and Myers retaining $2,000 in the stock of the compiany as his commission. The corporation brought an action to set aside its purchase, and for incidental 8. Citing Law v. Grant, 37 Wis. § 204. 548. As to this question see ante, 9. 110 Wis. 547, 86 N. W. 183. 510 THE LAW OF PEOMOTEKS. relief. The court after stating that an owner of property who aids the promoter in secretly perpetrating a fraud and receives a portion of the profits is accountable to the corporation, said that Bjorkquist employed Myers simply to find a purchaser; that Bjorkquist first ascertained that a corporation was to be the purchaser a few days prior to the date of the deed; that Bjork- quist did not stand in any fiduciary relation to the plaintiff or to the subscribers for its capital stock, and owed neither to it nor to them any duty to refrain from making a sale under the cir- cumstances stated; that the mere authority of Myers to find a purchaser of the land did not contemplate the organization of a corporation to effectuate the purchase, and that Myers' acts in assisting in the formation of the corporation were, in the absence of evidence showing that Bjorkquist had knowledge of Myers' plans or shared in his profits, outside of the real or apparent scope of the authority given by Bjorkquist and not binding upon him, citing Godfrey v. Schneck, swpra. § 287. Responsibility of vendor assisting promoter in obtain- ing secret profit. While, as shown in the preceding section, a sale to the corpo- ration cannot be set aside as against innocent vendors, because of a secret profit taken by the promoter, the vendors may be held responsible if the promoter's profit was obtained with their aid or connivance. If the vendors pay the promoter a secret commis- sion, or, in order to enable him to secure a secret profit, state an exaggerated consideration in their deed or give him a receipt for a sum larger than that actually paid, the vendors become parties to the promoter's fraud, and the corporation may, at its election, rescind its purchase ^° or hold the vendors jointly liable with the 10. Commonwealth S. S. Co. v. 131 0. C. A. 596; Finck v. Canada- American Shipbuilding Co., 197 Fed. way Fertilizer Co., 152 N. Y. App. Rep. 780 ; same v. same, 197 Fed. Div. 391, 136 Supp. 914, modified and Bep. 797, affirmed, 215 Fed. Rep. 296, affirmed, 208 N. Y. 607, 102 N. E. VENDORS. 511 promoter in an action for damages ■'^ or in an action for the re- covery of the promoter's profit.-'^ It is, in such case, immaterial that the vendors received no direct benefit from the promoter's fraud.^^ In Emery v. Parrott,^* the agent of the vendor entered into an agreement with the promoter of the vendee corporation to 1102; Limited Inv. Assoc, v. Glen- dale Inv. Assoc, 99 Wis. 54, 74 N. W. 633; Atwool v. Merry weather, L. R. 5 Eq. 464n, 37 L. J. Ch. N. S. 35; Bagnall v. Carlton, L. R. 6 Ch. Div. 371, 385, 399; Lindsay Petro- leum Co. V. Hurd, L. R. 5 P. C. 221, 243-244; Emma Silver Mining Co. V. Lewis, L. R. 4 C. P. D. 396, 408- 409. See also Maxwell v. Port Temiant, etc., Co., 24 Beav. 495. But see ante, § 286, particu- larly Godfrey v. Schneck, and Forest Land Co. v. Bjorkquist, there discussed. The contract may be rescinded at the suit of the corporation, although it was in form a contract of sale to the promoters " as trustees," and by the promoters assigned to the corporation when organized. Am- erican Shipbuilding Co. v. Common- wealth S. S. Co., 215 Fed. Rep. 296, 131 C. C. A. 596. The action is not one in which the corporation sues as assignee within the meaning of § 629 of the United States Revised Statutes pro- viding that no Federal court shall have cognizance of any suit " to re- cover the contents of any. . . . chose in action in favor of any assignee .... unless such suit might have been prosecuted in such court to re- cover the said contents if no as- signment or transfer had been made." Commonwealth S. S. Co. v. American Shipbuilding Co., 197 Fed. Rep. 780; same v. same, 197 Fed. Rep. 797, affirmed, .215 Fed. Rep. 296, 131 C. C. A. 596. 11. Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 45-46, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1123- 1124, and authorities there cited. Stoney Creek Woolen Co. v. Smalley, 111 Mich. 321, 69 N. W. 722. Forest Land Co. v. Bjorkquist, 110 Wis. 547, 551-552, 86 N. W. 183, 184, and cases cited; Fountain Spring Park Co. v. Roberts, 92 Wis. 345, 66 N. W. 399, 53 Am. St. Rep. 917. Bagnall v. Carlton, L. R. 6 Ch. D. 371, 385, et seq.; Lindsay Petro- leum Co. V. Hurd, L. R. 5 P. C. 221, 232, 243. 12. See cases cited under note 14, also §§ 288-290. Compare, however, Bennett v. Havelock E. L. & P. Co., 21 Ont. L. R. 120, 16 Ont. Week Rep. 19. 13. Stoney Creek Woolen Co. v. Smalley, 111 Mich. 321, 69 N. W. 722. 14. 107 Mass. 95. A case very similar in principle is Tegarden Bros. V. Big Star Zinc Co., 71 Ark. 277, 72 S. W. 989. 5]^2 THE LAW OF PROMOTERS. divide with the promoter the commissions upon the sale. The court held that though the agent of the vendor did not, as such, stand in any fiduciary relation to the purchasing corporation, he knew the position of the promoter and by his agreement became a partner with the latter, and that the two were jointly and sev- erally liable not only for the one-half of the commission paid to the promoter, but for the entire commission received by the "agent of the vendor. Before the vendors can be held liable for assisting the pro- moter to obtain an unlawful profit, their intent to so assist the promoter must be shown.-'® If the promoter acted as agent of the vendors on the sale to the corporation and they paid him his commission in ignorance of the fact that he had become one of the promoters of the vendee company, they cannot be held liable to the corporation as parties to the promoter's fraud. ^^ In South Missouri Pine Lumber Co. v. Crommer,-''^ the defendants WiUiam Crommer and William F. Crommer, the owners of certain property, were in financial straits, and being anxious to dispose of their property, authorized the defendant Newhouse to sell it for $21,000, agreeing to pay him, as his commission on the sale, the sum of $500 and whatever he could obtain above $21,000. New- house interested one Ewart* and others who organized the plaintiff company to take over the property. They purchased the prop- erty at a price of $37,500 — of which $5,000 was paid in cash, $13,000 in notes, $3,000 by assuming a mortgage on the premises, and the balance by giving in trade certain real estate belonging to Ewart — and resold it to the company for $60,000. The company 15. South Missouri Pine Lumber be the explanation of the decision in Co. V. Crommer, 202 Mo. 504, 101 S. Forest Land Co. v. Bjorkquist, 110 W. 22; Forest Land Co. v. Bjork- Wis. 547, 86 N. W. 183, (ante, § quist, 110 Wis. 547, 86 N. W. 183. 286), where the court did not dis- 16. Heckman's Estate, 172 Pa. 185, cuss the fact that the vendor had 33 Atl. 552, and see Lands Allot- paid a commission of $2,000 to the ment Co. v. Broad, 13 Rep. 699, 2 promoter. Manson's Bkpy. Cas. 470. This may 17. 202 Mo. 504, 101 S. W. 22. VENDORS. 513 on learning that the property given by Ewart in trade to the Crommers was not worth nearly the sum at which it was put in, and that the Crommers only received $21,000 of the purchase price, brought suit against Newhouse and the Crommers, claim- ing that they, by raising the price from $21,000 to $37,500, had aided Ewart in the perpetration of a fraud upon the company, and were jointly liable with him. It appeared that the only price ever made by the Crommers and Newhouse to the promoters of the plaintiff corporation, was $37,500, and the court said that though the property put in by Ewart was not worth the price at which it was taken by the vendors, Newhouse, to whom this property was to go as his commission, was not particular at what price it was valued in the trade; that fraud and collusion will not be presumed, but must be proved, and that there was not sufficient evidence to connect the Crommers and Newhouse — ^the vendors and their agent — ^with the fraud of Ewart the pro- moter. Though the vendors do not, at the time that they agree with the promoter to pay him a commission, know of his relation to the corporation, they become liable to the corporation for the amount of such commission if they pay it after they have learned of the relationship between the promoter and the corpora- tion.". The corporation may, perhaps, rescind its purchase, or recover the amount of the promoter's commission from its vendors if they, knowing their agent to be a promoter of the corporation, pay him a commission on the sale in the belief that the matter has been disclosed to the corporation, for the vendors could in such case, readily avoid all risk by themselves disclosing the facts to the corporation.^® The vendors could not, however, very well 18. Grant v. Gold Exploration & see post, § 290. Development Synd., 1900, 1 Q. B. 19. Grant v. Gold Exploration & D. 233, 240, 253. Development Synd., 1900, 1 Q. B. As to the nature of such liability, D. 233, 248-250, 253, and cases cited. 514 THE LAW OF PROMOTERS. be liable for damages for fraud and deceit as long as they acted in good faith.20 § 288. Liability of vendor for commission to be paid to promoter. A secret agreement between the owners of property to be sold to the corporation and the promoter, by which they agree to pay him a commission upon the sale, is contrary to public policy and not enforceable at the suit of the promoter.^^ The corporation may, however, if it discovers the agreement before the commission is paid, compel the vendors to pay the amount thereof directly to it.*^ This solution is, from every point of view, just and fair. j80. Lands Allotment Co. v. Broad, 13 Rep. 699, 2 Manson's Bkcy. Oas. 470; and see ante, §§ 207-208. 21. Yale Gas Stove Co. v. Wilcox, 64 Conn. 101, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. Oas. 647; Koster v. Pain, 41 N. Y. App. Div. 443, 58 Supp. 865, and see Travis v. Travis, 140 N. Y. App. Div. 191, 124 Supp. 1021; Davison v. Seymour, 1 Bosw. (N. Y.) 88; Harrington v. Victoria Graving Dock Co., L. R. 3 Q. B. D. 549. Cf. Boice V. Jones, 106 N. Y. App. Div. 547, 94 Supp. 896; same v. same, 86 N. Y. App. Div. 613, 83 Supp. 230. The agreement of the vendor to compensate the promoters is valid and enforceable if made known to the corporation, and the burden is, in an action by the promoters to re- cover such compensation, upon the vendor to prove fraud. Dexter v. McClellan, 116 Ala. 37, 22 So. 461, and see next note. A contract of similar nature was enforced according to its terms in Hix V. Edison Elec. Light Co., 10 N. Y. App. Div. 75, 41 Supp. 680, 75 N. Y. St. R. 1067, 27 N. Y. App. Div. 248, 50 Supp. 592, affirmed, 163 N. Y. 573, 57 N. E. 1112. 22. Yale Gas Stove Co. v. Wilcox, 64 Conn. 101, 129, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. Cas. 647 ; Ham- bleton v. Rhind, 84 Md. 456, 36 Atl. 597, 40 L. R. A. 216; Kuntz v. Tonnele, 80 N. J. Eq. 373, 84 Atl. 624 ; Whaley Bridge Calico Printing Co. V. Green, L. R. 5 Q. B. D. 109, 28 W. R. 351; Grant v. Gold Ex- ploration & Development Synd., 1900, 1 Q. B. D. 233. As to the form of action in such case, see Grant v. Gold Exploration & Development Synd., 1900, 1 Q. B. D. 233. As to the burden in such case, of proving disclosure, see same case at page 244, and see preceding note. VENDORS. 515 CompeUing the vendors to pay to the corporation the commission agreed to be paid to the promoter works no hardship upon them. They were willing to part with their property at the price de- manded of the corporation, less the commission agreed to be paid to the promoter. They are no worse off by being made to pay the commission to the corporation instead, and there is no reason why they should be allowed to benefit by their refusal to carry out their unlawful agreement with the promoter. § 289. The same subject. — Effect of compromise between ven- dor and promoter. The fact that the vendor after the sale to the corporation had been consummated compromised, at a smaller sum than originally agreed upon, the promoter's claim for commissions on the sale, is not a bar to the corporation's claim against the vendor for the balance of the agreed commission. The corporation's claim against the vendor having accrued before the compromise with the promoter, its rights against the vendor cannot be affected by an agreement to which it was not a party .^' § 290. The same subject. — Liability of vendor after full pay- ment to promoter. A question less free from difficulty arises in regard to the ven-j dor's liability to the corporation after the unlawful commission lias actually been paid to the promoter. As the payment of the commission agreed to be paid to the promoter can be enforced only at the suit of the corporation, a payment thereof to the pro- moter should, if strict logic is to be applied, have no bearing upon 23. Grant v. Gold Exploration & pelled the promoter to surrender to Development Synd., 1900, 1 Q. B. D. it the sum received by him from the 233. See also § 290. It was, in the vendor, did not constitute an adop- case just cited, further held that tion of the compromise such as to the circumstance that the corpora- bar its rights to collect the balance tion had, on learning the facts, com- of the commission from the vendor. 516 THE LAW OF PEOMOTEES. the vendor's liability to the corporation.^* Some cases, however, seem to indicate that the promoter is, after he has collected his unlawful commission, primarily liable to the corporation, and that the vendor is only secondarily liable as a sort of surety for the promoter. In Tyrrell v. Bank of London,^^ one Read wishing to sell cer- tain property to a bank then in process of organization, of which one Tyrrell was the solicitor, agreed in case of a sale to give Tyrrell one-half of the profits of the transaction. The bank was organized, the transaction consummated, and his share of the profits paid to Tyrrell. Upon discovery of the facts the bank brought suit against Tyrrell and Read. Judgment was given against Tyrrell, but the bill was dismissed as against Read. The lord chancellor said that " as Read was a party implicated in the violation of trust, committed by Tyrrell, I should have been better pleased if Read had been retained in the character of a surety for the fulfilment of Tyrrell's obligation." This dictum was expressly approved by Lord Chelmsford. 24. See Hambleton v. Ehind, 84 argument denied, 210 N. Y. 611, 104 Md. 456, 36 Atl. 597, 40 L. E. A. N. E. 1129), where the trial court 216; Kuntz v. Tonnele, 80 N. J. Bq. found that one Pressberger who had 373, 84 Atl. 624; Lands Allotment ' sold certain real estate to the cor- Co. V. Broad, 13 Eep. 699, 2 Man- poration, had agreed with its pro- son's Bkey. das. 470; Grant v. Gold moters to pay to them $14,000 out Exploration & Development Synd., of the purchase price paid by the 1900, 1 Q. B. D. 233, 250, 251, 254. corporation, and that of this sum, It is held in Emery v. Parrott, $7,385 had been paid to the pro- 107 Mass. 95, that the agent of the moters, and $6,615 remained in vendor who divides his commission Pressberger's hands. A judgment with the agent of the purchasers, is against Pressberger for the sum of liable with the latter jointly and $6,615 was reversed on the ground severally for the entire amount of that the burden was upon the plain- the commissions divided between tiff to show that this money re- them. mained in Pressberger's possession, Compare, however, Ebling v. and that this burden had not been Nekarda, (148 N. Y. App. Div. 193, sustained. 132 Supp. 309, affirmed, 210 N. Y. 25. 10 H. L. Oas. 26, 47, 53, 11 566, 104 N. E. 1129, motion for re- Eng. :^ep. 934. VENDORS. 517 In Lindsay Petroleum Co. v. Hurd,^® one Kemp being the owner of a certain lot, and one Farewell the owner of two other lots, Farewell made a colorable transfer of his lots to Kemp, who gave to one Hurd a month's option to purchase the three lots at the expressed price of $13,750.00. The lots were then conveyed at the option price to the plaintiff company of which Hurd was the promoter. The true price paid by Hurd was the sum of $10,000, the price expressed in the agreement being a nominal price inserted in furtherance of a collusive scheme to enable Hurd to make a profit out of the transaction. Upon the discovery of this fraud and of the falsity of certain other representations, suit was brought, and the vice chancellor decreed the rescission of the pur- chase. An appeal was taken to the Court of Error and Appeal in Ontario which reversed the decree of the Chancery Court on the ground that a rescission was barred by laches. Mr. Justice Gwynne said that the company was " still entitled to a decree against Hurd to make good to the company the $3,750 which he, in breach of trust, made out of the plaintiffs * * * * and the other defendants should be decreed to reinstate that amount in default of the plaintiffs being able to collect it of Hurd ; this is the utmost extent to which the decree should, in my opinion, go, and this is the decree which Tyrrell v. Bank of London "'' in appeal, war- rants. The decree should be primarily against Hurd, who was alone guilty of a breach of trust, which is a fraud different in its character from that committed by the other defendants. All the purposes of justice are, as it appears to me, obtained by de- creeing the party guilty of that breach of trust to restore the fruits of his fraud. And in case he should be unable, by decreeing the other defendants to do so for him." ^* 26. h. K. 5 P. C. 221. and in default of their so paying, 87. See supra. that Farewell should pay unto the 28. It is stated at p. 236 that an present appellants .... the sum of order was made directing that Hurd $3,750, being the difference between and Kemp "should forthwith pay, the actual and the nominal price 518 THE LAW OF PKOMOTERS. § 291. Responsibility of vendor of property for false repre- sentations of promoter made upon the sale of cor- porate shares. While a sale to the corporation may be set aside if brought about by the fraud of the promoter, the sale of property to the corporation is not ordinarily so directly connected with the sale of the corporate shares, that the vendor of the property can be made responsible for the fraudulent representations of the pro- moter entering into the subsequent sale of the company's shares. In Wiser v. Lawler,^® the defendants were the owners of certain mines known as the " Hillside Group " which they agreed to sell to one Warner at $450,000, of which $20,000 was paid in cash. A deed was executed and deposited in escrow to be delivered upon payment of the full purchase price. Warner then organized a corporation, to which were assigned, the rights under the escrow agreement and certain properties. Prospectuses were issued which, in addition to exaggerated and delusive statements, set forth in substance that the corporation held title to the Hillside Group. Upon the discovery of the fraud an action was brought demand- ing judgment that the defendants be estopped from disputing the title of the company to the Hillside Group, that they be made to account for the proceeds of all the ore taken from the mines, or, of the said lands, etc." This does reversed by the Privy Council, (see not seem to be in accord with the pp. 239-246) on the ground that the opinion of Mr. Justice Gwynne, at right of rescission had not been lost p. 235, and it is diflicult to under- by laches, and that the company stand why Kemp should have been was still entitled to a rescission un- made liable in the first instance less it had, by dissolution, disabled and Farewell as his surety. It is itself from making the necessary probable that there is a clerical reconveyance. The judgment of the error, and that it was intended Court of Error and Appeal as to the that Hurd only should be liable in secondary liability of the vendors the first instance, and the others as does not seem to have been dis- sureties. The judgment of the Court turbed. of Error and Appeal in Ontario was 29. 189 U. S. 260, 47 L. Ed. 802, 23 Sup. Ct. 624. VENDOES. 519 in the alternative, for a money decree against the defendants for the amount received by them from the proceeds of subscriptions induced by the fraudulent prospectuses. The court held that the defendants were not promoters of the company, that while they might have known of the prospectuses, they were under no obliga- tion to read them, or to contradict their exaggerated statements and promises ; that there were no relations between themselves and the purchasers of the shares, that they were under no duty to interfere, and that they had a right to rely upon the fact that their record title was notice to every one who contemplated taking the company's shares. The court said that if it were shown that the prospectuses were put forth by the defendants personally, they could justly be held liable as participants in the fraud, but that the mere fact that they turned over the organization of the company to others, would not of itself charge the defendants with the duty of examining and verifying the statements of these parties. The court pointed out that, assuming that the defendants were fully apprised of the contents of the prospectuses, there was no way in which they could have given notice, not krjowing the names and addresses of those to whom prospectuses had been sent, and that a notice to the company would have been futile in case the di- rectors chose to disregard it. In Hoyer v. Ludington,^" the complaint alleged that the de- fendant Ludington being the owner of certain lands, employed the defendant Myers as his agent to effect a sale thereof; that the defendant Myers, together with certain other persons, pre- tended to organize a corporation, and by false representations induced the plaintiff to subscribe for 150 shares of stock ; that the defendant Ludington had at about that time conveyed the real estate in question to the corporation, that the moneys procured from the plaintiff on the subscription for his shares were paid to Ludington for such conveyance and for interest on a mort- 30. 100 Wis. 441, 76 N. W. 348. 520 THE LAW OF PROMOTERS. gage on the property, and that the stock issued to the plaintiff was worthless. The plaintiff demanded judgment for the amount paid for his shares. The court dismissed the complaint as against the defendant Ludington, saying that the alleged false represen- tations were not made in reference to the sale of the land which was the subject matter of Myers' agency, but in reference to the creating and organizing of a corporation to purchase the land ; that there was no pretense that Ludington had anything to do with the corporation or the procuring of subscriptions to its capital stock, and that the representations of Myers in relation thereto were not within the apparent scope of his authority to sell the land. In DeKlotz v. Broussard,^^ the plaintiff sold his lands for $110,000 in cash and one-third of the profits of any resale. His vendees promoted a corporation to which they resold the lands at a profit, and the defendant subscribed for shares of this cor- poration. The defendant claimed that he had been induced to take the shares by the fraudulent representations of the pro- moters, and when sued by the plaintiff upon a claim purchased from the receiver of the corporation, set up a counterclaim for the damages resulting from the fraudulent representations of the promoters. The court held that the plaintiff was in no way con- nected with the representations complained of, and was not re- sponsible therefor. A sale of property to the corporation might well be set aside on account of the false, representations made to procure subscrip- tions for the shares of the corporation, if these false represen- tations were made before the purchase by the corporation and could fairly be said to have influenced the corporate action in regard thereto.'^ 31. 203 Fed. Bep. 942, 122 G. O. 32. See ante, § 285, also § 234. A. 244. VENDORS. 521 § 292. Rights of vendor receiving payment in shares. If the purchase price of property sold to the corporation is to he paid in whole or in part by an issue of the company's shares, the vendor is in effect a subscriber and as such entitled to the same rights and to the same consideration as any other sub- scriber.** If the promoters are guilty of taking unlawful profits 33. Shutts V. United Box, Board & Paper Co., 67 N. J. Eq. 225, 58 Atl. 1075 ; Beatty v. Neelon, 12 Ont. App. 50, 12 Am. & Eng. Corp. Cas. 20, affirmed, 13 Can. S. C. 1, 19 Am. & Eng. Corp. Cas. 236, and see Minister of Rys. & Canals v. Quebec South. Ry. Co., 12 Exch. Rep. of Can. 11, 24. Compare Brehm v. Sperry, Jones & Co., 92 Md. 378, 48 Atl. 368. In that case the complaint alleged that the plaintiff, Brehm, being the owner of a certain brewery prop- erty, entered into an agreement with Sperry, Jones & Co., (who were en- deavoring to consolidate a number of breweries), by the terms of which Sperry, Jones & Co., were to organ- ize the Maryland Brewing Co., which was to have a capital of $6,- 500,000, one-half in preferred and one-half in common stock, and to issue bonds not to exceed $7,500,- 000; that the issue of the shares and bonds was to be used entirely for the purchase of the brewery properties to be acquired, and to provide a working capital of not less than $500,000; that the issue of shares and bonds to the amount mentioned was predicated upon the company starting with the control of breweries having an annual out- put of 700,000 barrels ; that the con- solidation was nevertheless to take place provided that the consoli- dated company should embrace cer- tain specified breweries, and that the output of the consolidated breweries should equal at least 560,000 barrels; that in the event that the output should be less than 700,000 barrels, the issue of stocks and bonds should be reduced at the rate of $20. per barrel ; that Sperry, Jones & Co. should furnish $500,- 000 in cash for working capi- tal, and were to receive for such moneys and for their services all the bonds and shares not necessary for the acquisition of the constituent breweries. It was further agreed that if by March 1st, 1899, Sperry, Jones & Co. had procured the con- solidation of breweries with an annual output of at least 560,000 barrels, Brehm was to convey his property to the company for $1,- 050,000 payable $450,000 in cash, $100,000 in bonds and $500,000 in shares. The bill of complaint alleged that the Maryland Brew- ing Company 576 THE LAW OF PROMOTERS. to an action for an accounting, but such subscribers must be made parties to the suit.*^ In Williams v. Salmond,^" the plaintiff brought suit against the provisional directors of an abortive com- pany, on behalf of himself and all other holders of shares except the defendant directors, for an accounting of -the moneys deposited with them. Two dividends had previously been distributed by the provisional directors and accepted by all the subscribers. A third and final dividend had been declared, and accepted by a number of the subscribers. Other subscribers, the plaintiff among them, re- fuse to accept this final dividend. The court held that the plain- tiff had, by refusing the dividend and bringing suit, reopened the whole account, and that it might well appear that he had already been repaid too large a part of his deposit ; that no one of the other subscribers on whose behalf the plaintiff sued, could demand the account prayed for without reopening the entire account, and as the defendants might be entitled to an affirmative judgment against such other subscribers, they were entitled to have all such sub- scribers substantially upon the record. § 329. The same subject. — Voluntary account of promoter as bar to subscriber's action for accounting. The subscriber's action for an accounting cannot be defeated by showing that the promoters have already rendered a complete statement of the disposition made by them of the deposits, for the subscriber is entitled to an account taken with the aid of the ma- chinery of the court, and is not bound to accept the promoters' voluntary statement as correct.^'- If the subscriber has, without objection, received the promoters' statement of accounts and ac- cepted his share of the balance distributed thereunder, he cannot, 49. Clements v. Bowes, 1 Drew. 50. 2 K. & J. 463. 684 ; Williams v. Page, 24 Beav. 654, 51. Clements v. Bowes, 17 Sim. 667, et seq., 4 Jur. N. S. 102, 27 L. 167, 16 Jur. 96, 21 L. J. Oh. N. S. J. Ch. N. S. 425. 306 ; Clements v. Bowes, 1 Drew. 684, 692. ABORTIVE PROMOTIONS. 577 in the absence of fraud, demand an accounting in equity after allowing a considerable period of time to elapse.®^ A statement of accounts accepted by the subscribers may, however, be set aside and an accounting in equity demanded, if it is shown that the statement made by the promoters was frauduent or unfair to the subscribers and that there are further moneys due to the latter.^® A subscriber seeking to avoid the effect of his accept- ance of a distribution made by the promoters, must rescind the transaction m toto and return, or offer to return, all moneys re- ceived by him thereunder.^* It is said in Williams v. Salmond ^^ that the account rendered by the promoters is generally conclusive against the promoters as to those subscribers who accepted the moneys distributed there- under, but not as to those who refused to accept the final payment and demanded a further accounting. § 330. Accounting by promoters. — Disbursements allowable. As the promoters are not in the absence of agreement entitled to charge their expenses against the deposits made by the sub- scribers, it follows that the determination of the nature of the expenses that may be credited to the promoters when the de- posits are subject to the payment of expenses, depends upon the particular terms of the agreement relied upon. The necessary expenses of obtaining a charter and legally organizing the cor- poration would, however, in almost every case be allowed, as 52. Williams v. Page, 24 Beav. 53. Williams v. Page, 24 Beav. 654, 674, 4 Jur. N. S. 102, 27 L. J. 654, 4 Jur. N. S. 102, 27 L. J. Ch. N. Ch. N. S. 426. S. 425. See also Stupart v. Arrowsmlth, 54. Grand Trunk, etc., Ry. Co. v. 3 Sm. & G. 176, where the accoiints Brodie, 9 Hare 823 ; Williams v. of the promoters had, some years Page, 24 Beav. 654, 673, 4 Jur. N. before, been accepted by a majority S. 102, 27 L. J. Ch. N. S. 425. of the subscribers, but apparently 55. 2 K. & J. 463, 470. Cf. Em not by the plaintiff. pa''*e Apps, 18 L. J. Ch. N. S. 409, ante, § 320. 578 THE LAW OF PROMOTERS. would the cost of purchasing, or obtaining options upon, property which the corporation is organized to acquire. Moneys paid, or debts fairly incurred, by the promoters for professional services of attorneys and others in the promotion, would also generally be allowed. Compensation for services rendered by the promoters themselves would presumably be refused,®® but if the services so rendered by the promoters were professional services, payment for which would otherwise be properly chargeable against the deposits, the propriety of such charge would perhaps not be affected by the circumstance that the party who rendered the services was himself one of the promoters.*'^ There do not seem to be any cases dealing directly with these questions, but the Eng- lish decisions dealing with the distribution of parliamentary de- posits are suggestive.®* 56. See cases cited, ante, § 317. 57. See Muir v. Forman's Trus- tees, Session Cases, 5 Fraser 546, affirming, Muirkirk, etc.. Railways, 10 Scots Law Times 247 ; Edinburgh Northern Tramways Co. v. Mann, Session Cases, 23 Rettie 1056. 58. It became the custom, at an early period in the history of the or- ganization of railroads in England, to compel the promoters seeking an act of Parliament incorporating their railroad company, to deposit securities or furnish bonds for the completion of the road. If the con- templated railway was abandoned, questions as to the distribution to be made of such securities or bonds arose, and the cases dealing there- with have perhaps some bearing upon the question of the claims that can be allowed against subscribers' deposits. The Railways Abandonment Act of 1869, (Stats. 32 and 33 Vict, Oh. 114), provided in § 5 "If the war- rant for the abandonment was made on condition that the money de- posited as security for the comple- tion of the railway, or the stocks, funds, or securities In which the same is invested, or the money se- cured by any bond conditioned for the completion of the railway, or for payment of money in default thereof, should be applied as part of the assets of the company, the court may, if it think fit, direct that such money, stocks, funds, and securities shall not be applicable for the payment of any debt or part of a debt which, regard being had to what is fair and reasonable as be- tween all the parties interested under all the circumstances of the case, appears to the court to have been incurred on account of the pro- motion of the company." Under this statute the bills of solicitors, {In re Barry Railway Co., ABORTIVE PROMOTIONS. 579 The application of the subscribers' deposits to the purchase of properties other than those to be acquired by the contemplated corporation is obviously improper, and the subscribers cannot be charged with the cost of such properties, unless such use of their deposits was expressly authorized or ratified by them.^® § 331, Disposition of property acquired pending promotion of abortive corporation. Questions may well arise as to the ownership and disposition to be made of property acquired for the abortive corporation. It may in general be said, that such property belongs to the parties who have paid, or will be made to pay, the expense of L. E. 4 Ch. Div. 315 ; cf . In re Ken- sington Station Act, L. R. 20 Eq. 197), and compensation for the services of the parliamentary agent, and claims for moneys advanced to- wards the expenses of carrying the bill through Parliament, {In re Brampton and Longtown Rail- way Co., L. B. 10 Bq. 613), were disallowed. These cases turned upon the words " incurred on ac- count of the promotion of the company." This act of 1869, applied only to railways, sanctioned by acts passed before the Parlia- mentary session of 1867. Muir v. Forman's Trustees, Session Cases, 5 Fraser, 546, 567, aflBrming, Muir- kirk, etc., Rys., 10 Scots Law Times, 247, 251. See also In re Lowestoft, etc.. Tramways Co., L. B. 6 Ch. Div. 484, decided under the Board of Trade regulations, and In re Bir- mingham and Lichfield Junction By. Co., L. R. 28 Ch. Div. 652, decided under a special act. The Parliamentary Deposits and Bonds Act of 1892, (Stats. 55 and 56 Vict., Ch. 27), provided that the court might " order that the de- posit fund or any part thereof be paid or transferred to the receiver or to the liquidator of the company, or be applied as part of the assets of the company for the benefit of the creditors thereof." It was held that this statute did away with the distinctions made under the act of I 1869 between so-called " meri- torious " and " non-meritorious " creditors and that the debts of all creditors, including solicitors and parliamentary agents, were proper charges against the fund. In re Manchester M. & D. Tramways Co., 1893, 2 Ch. Div. 638 ; Ew parte Brad- ford and District Tramways Co., 1893, 3 Ch. Div. 463. See also In re Hull, Barnsley & West Riding Junc- tion Railway, 1893 W. N. 83; Muii* V. Forman's Trustees, Session Cases, 5 Fraser 546, 568, affirming, Muir- kirk, etc., Railways, 10 Scots Law Times 247. 59. Miller v. Denman, 49 Wash. 217, 95 Pac. 67, 16 L. R. A. N. S. 348. 580 THE LAW OF PROMOTERS. acquiring it. Subscribers disclaiming liability for the expenses of the attempted organization of the corporation will certainly not be heard to assert an interest in property that has been ac- quired. A mere subscriber for the shares of the company, under no agreement to share the expenses of the attempted formation of the company, who is merely bound to pay for his allotted shares when and if issued, would not ordinarily have an option to pay his share of the expenses and thereby acquire an interest in the prop- erty acquired by the promoters. Promoters who are not parties to the contract for the purchase of the property, and who disclaim liability for its cost, are clearly not entitled to an interest therein, and a promoter demanding an interest in the property acquired would undoubtedly have to pay his share, not only of the direct cost of the property, but of all of the incidental and collateral expenses of the promotion. The disposition to be made of the property that has been acquired by the promoters pending the organization of an abortive corporation depends necessarily upon the agreement of the parties, and upon their relation to each other and to the transactions in question, and each case must, as it arises, be decided in accordance with the equities of the partic- ular situation.*" 60. Illinois. — Flagg v. Stowe, 85 443; Hopper v. Hoctor, 35 Can. S. 111. 164 ; Stowe v. Flagg, 72 111. 397. C. 645. Kentucky. — Mt. Carmel Tel. Co. v. If a promoter represents to an Mt. Carmel & Flemlngburg Tel. Co., architect employed to draw plans 119 Ky. 461, 27 Ky. L. Rep. 30, 84 for the proposed company, that S. W. 515. land standing in the name of the Minnesota. — Jacobson v. McCul- promoter was to be acquired by the lough, 113 Minn. 332, 129 N. W. 759, corporation, such land may, if the and cases cited. promoter has received shares in New York. — Schantz v. Oakman, payment therefor, be treated as held 163 N. Y. 148, 57 N. E. 288, aflarmlng, in trust for the corporation and sub- 10 App. Div. 151, 75 St. R. 1140, 41 jected to the payments of its debts. Supp. 746; Dyckman v. Valiente, 42 The want of legal organization of N. Y. 549, affirming, 43 Barb. 131. the company is immaterial. See United Kingdom and Colonies. — Friedman v. Janssen, 23 Ky. L. R. Sylvester v. McCuaig, 28 U. C. C. P. 2151, 66 S. W. 752. ABORTIVE PROMOTIONS. 581 § 332. Liability of promoters of defectively organized corpo- ration. Promoters who carry on business in the name of a defectively organized corporation may sometimes be held liable as partners for the debts contracted in the name of the company. The doc- trine supported by the weight of authority is that persons who associate themselves to engage in business for profit under any name are liable as partners for the debts incurred in that name; that the limited liability of stockholders of corporations is an exception to the general rule, and that the stockholders come within that exception only if the company in whose name they carry on business is in fact a corporation.®^ The associates need 61. Federal. — ^Harrill v. Davis, 168 Fed. Rep. 187, 94 C. O. A. 47, 22 L. R. A. N. S. 1153. Arkcmaas. — Garnett v. Richardson, 35 Art. 144. Georgia. — ^McRee v. Quitman Oil Co., — Ga. — , 84 S. E. 487. IlMnois. — Bigelow v. Gregory, 73 111. 197. Iowa. — Kaiser v. Lawrence Sav. Bank, 56 Iowa 104, 8 N. W. 772, 41 Am. Rep. 85. Kansas. — Central Nat. Bank. v. Sheldon, 86 ^an. 460, 121 Pac. 340. Louisiana. — In re Browne & Jen- kins Co., Ltd., 106 La. 486, 31 So. 67 ; Field v. Cooks, 16 La. Ann. 153. Minnesota. — Roberts Mfg. Co. v. Schlick, 62 Minn. 332, 64 N. W. 826. Missouri. — Martin v. Fewell, 79 Mo. 401; Farmers' State Bk. v. Kuchs, 163 Mo. App. 606, 147 S. W. 862; Weir Furnace Co. v. Bodwell, 73 Mo. App. 389; Davidson v. Hob- son, 59 Mo. App. 130. Neln-aska ^Abbott v. Omaha Smelting Co., 4 Neb. 416. New Jersey. — Cottentin v. Meyer, 80 N. J. Law 52, 76 Atl. 341. New York. — Tuecillo v. Pittelli, 127 Supp. 314. Wisconsin — Bergeron v. Hobbs, 96 Wis. 641, 71 N. W. 1056, 65 Am. St. Rep. 85. United Kingdom, and Colonies Seiffert v. Irving, 15 Ont. Rep. 173; GUdersleeve v. Balfour, 15 Ont. Pr. Rep. 293. And see note to Empire Mills v. Alston Grocery Co., 12 L. R. A. 366. The intended incorporators of an abortive corporation not' intended to be formed for profit, were held liable, not as co-partners, but on the theory of agency in Johnson v. Cor- ser, 34 Minn. 355, 25 N. W. 799, and in Upton v. Corser, 34 Minn. 355, 25 N. W. 801. Some authorities seem to sustain a rule that one who has contracted with an abortive company as a cor- poration, will not, even though no de facto corporation ever existed, be allowed to deny the corporate ex- 582 THE LAW OF PROMOTERS. not, to escape liability, prove the existence of a de jure corpora- tion. The creditor cannot, if there is a corporation de facto. Istence and hold the stockholders liable as partners. (Gartslde Coal Co. V. Maxwell, 22 Fed. Rep. 19T; Magnolia Shingle Co. v. J. Zim- mern's Co., 3 Ala. App. 578, 58 So. 90; Planters and Miners Bank v. Uadgett, 69 Ga. 159). Such a rule is in conflict with that established by the weight of authority, (see cases, supra) and must not be con- fused with the rule that one who has entered into a contract with a supposed corporation as such, is estopped from avoiding his obliga- tions by showing the want of cor- porate existence of the opposite party. (This estoppel is peculiarly potent as against one who himself promoted the corporation. See Geneva Mineral Spring Co. v. Cour- sey, 45 N. T. App. Div. 268, 61 Supp. 98; cf. Doyle v. Mizner, 42 Mich. 332, 3 N. W. 968). There is a plain distinction between, on the one hand, forbidding persons who have made engagements and reaped the benefit thereof, to avoid their obligations by denying the legal ex- istence of the opposite party, and on the other hand allowing individuals who have not even attempted to comply with the forms prescribed by statute and necessitated by pub- lic policy, to escape personal lia- bility and thus obtain the most sub- stantial advantages of a legal corporate organization. See Kaiser V. Lawrence Savings Bank, 56 Iowa 104, 108-109, 8 N. W. 772, 774-775, 41 Am. Rep. 85; Cleaton v. Emery, 49 Mo. App. 345, 355-356; see also note to Empire Mills v. Alston Gro- cery Co., 12 L. R. A. 366. A partnership liability somewhat similar to that referred to in the text, but based upon a very different theory is sometimes cast upon the promoters, if they, being members of a partnership, organize a cor- poration to take over the partner- ship 'business under the same or even a diflferent name, and then pro- ceed to conduct the business for the corporation without bringing home to those with whom they do busi- ness, notice of the fact of their in- corporation. Perkins v. Rouss, 78 Miss. 343, 29 So. 92; Martin v. Fewell, 79 Mo. 401, 412 ; Holmes Re- fining Co. V. United Ref. Exp. Oil Co., 33 N. Y. App. Div. 62, 53 Supp. 81; Tobias v. Wierck, 21 N. T. Misc. 763, 48 Supp. 146, and see Rust-Owen Lumber Co. v. Well- man, 10 S. D. 122, 72 N. W. 89; Johns v. Brown, 1 Tex. Ct. of App. Civ. Cas., § 1016; Thomp- son on Corporations, (2nd ed.), § 4753 ; Cook on Corporations, (7th ed.), § 243; cf. Whitwell v. Warner, 20 Vt. 425. It has also been said that if a corporation is organized by the pro- moters simply for the purpose of consummating an illegal agreement, while shielding themselves from the consequences of receiving the illegal exactions made thereunder, the act of incorporation does not avail them as a defense. Brundred v. Rice, 49 Ohio St. 640, 32 N. E. 169, 34 Am. St. Rep. 589. ABORTIVE PROMOTIONS. 583 call its legal existence into question.®* If there be a law under which the corporation might be organized de jure, an attempt in good faith to organize thereunder, and a user of the assumed corporate powers, there is, according to the weight of authority, a corporation de facto.^^ It is sometimes held that to relieve the associates from personal liability there must be a substantial com- pliance with the terms of the statute under which the organization 62. Federal. — Harrill v. Davis, 168 Fed. Rep. 187, 94 C. C. A. 47, 22 L. R. A. N. S. 1153. Alahama. — Snider's Sons Co. v. Troy, 91 Ala. 224, 8 So. 658, 24 Am. State Rep. 887, 11 L. R. A. 515; Cory v. Lee, 93 Ala. 468, 8 So. 694; Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 31 So. 81, 90 Am. St. Rep. 907. Indian Territory. — ^Western In- vestment Co. V. Davis, 7 Ind. Terr. 152, 104, S. W. 573, 15 Am. & Bng. Ami. Cas. 1134, and cases dted, (re- versed, sub nom. Harrill v. Davis, 168 Fed. Rep. 187, 94 C. C. A. 47, 22 li. R. A. N. S. 1153. Kansas. — Murdock v. Lamb, 92 Kan. 857, 142 Pae. 961. MichigoM. — ^Eaton v. Walker, 76 Mich. 579, 43 N. W. 638, 6 L. R. A. 102, and cases cited. Minnesota. — Johnson v. Oker- strom, 70 Minn. 303, 73 N. W. 147. New York. — Fox v. McComb, 44 State Rep. 178, 17 Supp. 783, 63 Hun 630. New Jersey. — Stout v. Zulick, 48 N. J. L. 599, 7 Atl. 362. Tennessee. — ^Merriman v. Magiv- ney, 12 Heisk. 494 ; Tennessee Auto- matic Lighting Co. v. Massey, 56 S. W. 35. Texas. — American Salt Co. v. Heidenheimer, 80 Tex. 344, 15 S. W. 1038, 26 Am. St. Rep. 743. Utah. — Mitchell v. Jensen, 29 Utah 346, 81 Pac. 165. Washington. — ^American Radiator Co. V. Kinnear, 56 Wash. 210, 105 Pac. 630, 35 L. R. A. N. S. 453. It has been held that the creditor may hold the individuals, if he had no knowledge of any attempted in- corporation and supposed that he dealt with a co-partnership. Slocum V. Head, 105 Wis. 431, 81 N. W. 673, 50 L. R. A. 324. The organizers of a de facto cor- poration are not liable for its torts. Howard v. Long, 142 Ga. 789, 83 S. E. 852. 63. ii'ederoJ.— Harrill v. Davis, 168 Fed. Rep. 187, 94 C. C. A. 47, 22 L. R. A. N. S. 1153. Alabama. — Snider's Sons Co. v. Troy, 91 Ala. 224, 8 So. 658, 24 Am. State Rep. 887, 11 L. R. A. 515. Colorado — Jones v. Aspen Hdw. Co., 21 Colo. 263, 40 Pae. 457, 29 L. R. A. 143, 52 Am. St. Rep. 220; Humphreys v. Mooney, 5 Colo. 282, 288. Florida. — Duke v. Taylor, 37 Fla. 64, 19 So. 172, 53 Am. State Rep. 232, 31 L. R. A. 484. 584 THE LAW OF PROMOTERS. of the corporation is attempted.®* These general statements as to what constitutes a de facto corporation are of little assistance. What constitutes on the one hand an attempt in good faith to organize, or on the other a substantial compliance with the pro- visions of the statute, is a matter of much doubt and confusion. The authorities substantially agree that when the organization of a corporation is attempted under the provisions of a general law, a certificate of incorporation must at least be filed. The mere ex- ecution of a certificate, or the agreement of the parties that they exist as a corporation, is ineffectual.®^ The filing of a certificate Oeorffia. — Brooke v. Day, 129 Ga. 694, 59 S. E. 569. Illinois. — Bushnell v. Consolidated Ice Machine Co., 138 111. 67, 27 N. E. 596. Indiana. — Doty v. Patterson, 155 Ind. 60, 56 N. E. 668. Indian Territory. — Western In- vestment Co. V. Davis, 7 Ind. Terr. 152, 175, 104 S. W. 573, 15 Am. & Eng. Ann. Cas. 1134, and cases cited, reversed, sm6 worn. Harrlll v. Davis, 168 Fed. Rep. 187, 94 C. C. A. 47, 22 L. R. A. N. S. 1153. Michigan. — ^Eaton v. Walker, 76 Mich. 579, 43 N. W. 638, 6 L. R. A. 102. Mimiesota. — Finnegan v. Knights of Labor Bldg. Assoc, 52 Minn. 239, 53 N. W. 1150, 18 L. R. A. 778, 38 Am. St. Rep. 552; Johnson v. Oker- strom, 70 Minn. 303, 73 N. W. 147. Nehraska. — ^Abbott v. Omaha Smelting Co., 4 Neb. 416. New Jersey. — Stout v. Zulick, 48 N. J. L. 599, 7 Atl. 362; Vanneman V. Toung, 52 N. J. L. 403, 20 Atl. 53. New York. — ^Methodist Episcopal Church V. Pickett, 19 N. T. 482. Tennessee. — ^Tennessee Automatic Lighting Co. v. Massey, 56 S. W. 35; Merriman v. Magivney, 12 Heisk. 494. Utah. — Mitchell v. Jensen, 29 Utah 346, 81 Pac. 165. See cases cited in dissenting opin- ion in Bergeron v. Hobbs, 96 Wis. 641, 71 N. W. 1056, 65 Am. St. Rep. 85; In Western Investment Co. v. Davis, 7 Ind. Terr. 152, 104 S. W. 573, 15 Am. & Eng. Ann. Cas. 1134; and in note to Marshall v. Keach, 118 Am. St. Rep. 253. 64. Kaiser v. Lawrence Savings Bank, 56 Iowa 104, 8 N. W. 772, 41 Am. Rep. 85 ; Field v. Cooks, 16 La. Ann. 153; Williams v. Hewitt, 47 La. Ann. 1076, 17 So. 496, 49 Am. State Rep. 394; Abbott v. Omaha Smelting Co., 4 Neb. 416, 423 ; Bar- tholomew V. Bentley, 1 Ohio St. 37, 41. 65. Federal. — Harrlll v. Davis, 168 Fed. Rep. 187, 193, 94 C. C. A. 47, 22 L. R, A. N. S. 1153. Arkansas. — Garnett v. Richard- son, 35 Ark. 144. Colorado. — Jones v. Aspen Hard- ware Co., 21 Colo. 263, 40 Pac. 457, 29 L. R. A. 143, 52 Am. St. Rep. 220. ABORTIVE PROMOTIONS. 585 seems to be uniformly considered a condition precedent to the existence of a corporation either de jure or de facto, but whether any particular provision as to the contents or execution of such certificate, or any other requirement of the statute, is to be deemed a matter of substance — a compliance with which is a condition precedent to the existence of the corporation — or a mere matter of form, is a question that depends upon the phraseology and interpretation of the particular statute, and upon which there is no uniformity of decision.®^ Georgia. — Meinhard, Schaul & Co. V. Bedingfield Mercantile Co., 4 Ga. App. 176, 61 S. E. 34. Illinois. — Bigelow v. Gregory, 73 111. 197. Minnesota. — Johnson v. Corser, 34 Minn. 355, 25 N. W. 799; Upton v. same, 34 Minn. 355, 25 N. W. 801; Finnegan y. Knights of Labor Bldg. Assoc, 52 Minn. 239, 53 N. W. 1150, 18 L. R. A. 778, 38 Am. St. Rep. 652. Nebraska. — Abbott v. Omaha Smelting Co., 4 Neb. 416. TJew Yorfc.— Tuccillo v. Pittelli, 127 Supp. 314. Texas. — Bank of DeSoto v. Reed, 50 Tex. Civ. App. 102, 109 S. W. 256; American Salt Co. v. Heiden- heimer, 80 Tex. 344, 349, 15 S. W. 1038, 1039-1040, 26 Am. St. Rep. 743, and cases cited. Wisconsin. — Bergeron v. Hobbs, 96 Wis. 641, 71 N. W. 1056, 65 Am. St. Rep. 85. It is held in the case last cited that the recording of a certificate of incorporation is not- a compliance with a statute requiring its filing. 66. Federal. — Wechselberg v. Flour City Natl. Bank, 64 Fed. Rep. 90; 12 C. C. A. 56, 24 U. S. App. 308, 26 L. R. A. 470. Alabama. — Owensboro Wagon Co. V. Bliss, 132 Ala. 253, 31 So. 81, 90 Am. St. Rep. 907. Arlcan^as. — Conner v. Abbott, 35 Ark. 365. California. — ^Mokelumne, etc., Co. V. Woodbury, 14 Cal. 424, 73 Am. Dec. 658. Florida. — Humphreys v. Drew, 59 Fla. 295, 52 So. 362. IlUnois — Bigelow v. Gregory, 73 111. 197; Bushnell v. Consolidated Ice Machine Co., 138 111. 67, 27 N. E. 596 ; Seeberger v. McOormick, 178 111. 404, 53 N. E. 340, writ of error dismissed, 175 U. S. 274, 44 L. Ed. 161, 20 Sup. Ct. 128. Iowa. — Kaiser v. Lawrence Sav- ings Bk., 56 la. 104, 8 N. W. 772, 41 Am. Rep. 85. Kansas. — Central Nat. Bank v. Sheldon, 86 Kan. 460, 121 Pac. 340. Louisiana. — Williams v. Hewitt, 47 La. Ann. 1076, 17 So. 496, 49 Am. State Reports, 394. Missouri. — Hurt v. Salisbury, 55 Mo. 310. TlJew York. — Jessup v. Carnegie, 80 N. Y. 441, 36 Am. Rep. 643, re- 586 THE LAW OF PROMOTERS. When it has been determined that there is no de facto corpora- tion sufficient to protect the associates from personal liability for the debts contracted in the name of the company, it does not nec- essarily follow that all the promoters and shareholders are jointly liable therefor. A subscriber does not, by agreeing to become a shareholder in a corporation to be organized to carry on a par- ticular business, agree that he wiU, in case the organization of the corporation is abandoned, become a member of any partner- ship or association which may conduct the contemplated business. It is one thing to become a shareholder of a limited liability cor- poration, another to become a member of a partnership. To hold one liable for the debts of a partnership resulting from the carry- ing on of business in the name of a defectively organized corpo- ration there must be some evidence of participation in or author- ization of the business carried on in such name or of holding one's self out as a principal in relation thereto.®^ A promoter does not, versing, 12 J. & S. 260 ; Raisbeck v. Oesterrieher, 4 Abb. N. C. 444. South Dakota. — Singer Mfg. Oo. v. Peck, 9 S. D. 29, 6T N. W. 947. Texas. — American Salt Co. v. Heldenheimer, 80 Tex. 344, 15 S. W. 1038, 26 Am. St. Rep. 743. Virginia. — Coalter v. Bargamin, 99 Va. 65, 37 S. E. 779. Wisconsin. — Bergeron v. Hobbs, 96 Wis. 641, 71 N. W. 1056, 65 Am. St. Rep. 85. See cases cited In note to Ruther- ford V. Hill, 17 L. R. A. 549. As to foreign corporations, see note to Cone Export & Commission Co. V. Poole, 24 L. R. A. 289, 293, and note to Empire Mills v. Alston Grocery Co., 12 L. R. A. 366. The fact that the corporation en- gages in ultra vires business does not affect the validity of its organi- zation. Tennessee Automatic Light. Co. V. Massey, (Tenn.) 56 S. W. 35; Seeberger v. McCormick, 178 lU. 404, 53 N. E. 340, writ, of error dis- missed, 175 U. S. 274, 44 L. Ed. 161, 20 Sup. Ct. 128. 67. Federal. — Harrill v. Davis, 168 Fed. Rep. 187, 192, 94 C. C. A. 47, 22 L. R. A. N. S. 1153 ; cf . Wech- selberg v. Flour City Natl. Bank, 64 Fed. Rep. 90, 97, 12 C. C. A. 56, 24 U. S. App. 308, 26 L. R. A. 470. Alabama. — Magnolia Shingle Co. V. J. Zimmern's Co., 3 Ala. App. 578, 584, 58 So. 90. Connecticut. — See U. S. Wood Preserving Co. v. Lawrence, 89 Conn. 633, 95 Atl. 8. Massachusetts See Ward v. Brigham, 127 Mass. 24; Fay v. Noble, 7 Cuah. 188. Minnesota. — Roberts Mfg. Oo. v. ABORTIVE PROMOTIONS. 587 by joining in the promotion of a proposed company, authorize his associates, in case the organization of the company is abandoned, to carry on the proposed business on his behalf. The court in Rutherford v. Hill ®^ said, " The sole question, therefore, seems to be whether or not, where three or more per- sons sign, acknowledge, and file articles of incorporation under the laws of this state, and do nothing further towards efi'ecting an organization or carrying on the proposed business, and one of them assumes to do business under the proposed corporate name and incurs liabilities, the other persons who signed said articles are liable. * * * It is not doubted that cases might arise and can readily be imagined where the incorporators sought to be charged might take such part in conducting the business, or hold themselves out to the world as partners or as principals in the business, that they would be held liable ; but this would grow out of their conduct in carrying on the business, and not out of the mere Schlick, 62 Minn. 332, 64 N. W. 826; Johnson v. Corser, 34 Minn. 355, 26 N. W. 799 ; Upton v. same, 34 Minn. 355, 25 N. W..801. In the Corser cases the corpora- tion involved was not Intended to be formed for profit. Missouri. — Railroad Gazette v. Wherry, 58 Mo. App. 423; Farmers State Bank v. Kuchs, 163 Mo. App. 606, 612, 147 S. W. 862. Nebraska. — ^Abbott v. Omaha Smelting Co., 4 Neb. 416. New Torfc.— West Point Foundry Ass'n V. Brown, 3 Bdw. Ch. 284. Ofcio.— Medill v. Collier, 16 Ohio St. 599, 47 Am. Dec. 387. .Oregon. — Rutherford v. Hill, 22 Or. 218, 29 Pac. 546, 17 L. B. A. 549, 29 Am. St. Rep. 596. Utah.— Mitchell v. Jensen, 29 Utah 346, 359, 81 Pac. 165, and cases cited. And see Thompson on Corpora- tions, (2nd Ed.), § 4745. Cf. Bed- well V. Ashton, 87 111. App. 272. See also Clark & Marshall on Private Corporations, § 78. It is said in Roberts Mfg. Co. v. Schlick, 62 Minn. 332, 64 N. W. 826, that where the defendant sued was one of several promoters, and all acted as a body by a board of di- rectors, and he was a member of such board, only slight additional evidence is required to establish prima facie his authorization or ratification of contracts made in the name of the association, whether they were made before or after he became a director. 68. 22 Or. 218, 29 Pac. 546, 17 h. R. A. 549, 29 Am. St. Rep. 596. 588 THE LAW OF PROMOTERS. fact of signing and filing the articles. If the appellants could be held liable in this case, such liability would rest on the mere act of signing and filing the articles, and not upon any participation in the business, either directly or indirectly. It would have to rest upon the theory, that by the mere signing the articles with Martin, they constituted him their general agent to proceed to conduct the business contemplated by the proposed corporation, thus creat- ing a liability for any act of his done within the scope of the powers of the proposed corporation. No authority to which our attention has been directed, has gone so far, and we feel safe in saying that none can be found to support that doctrine." The liability of persons carrying on business in the name of a defectively organized corporation is not really a promoter's lia- bility. It has been briefly mentioned because it is a liability to which promoters may, and frequently do subject them- selves, but the liability is cast upon them, not because they are the promoters of a defectively organized corporation, but be- cause they carry on business in its name. Their liability, if any, exists not because of their having been the promoters of an abor- tive corporation, but because of their being members of an unin- corporated company. The question is more properly one for discussion in a work on corporation law.^® 69. See Thompson on Corpora- Beach on Private Corporations, § tions, (2nd ed.), § 4737, et seg.; 128, et seq., % 598; Clark & Mar- Cook on Corporations, (7th ed.), shall on Private Corporations, § 78 ; § 231, et seq.; Morawetz on Cor- Taylor on Corporations, (5th ed.), porations, (2nd ed.), § 748; Purdy's § 148, § 739, et seq. INDEX INDEX [Keferences are to pages, except that numbers following an "n" refer to notes.] ABORTIVE PROMOTIONS : Expenses of, by whom borne, 560-9. Liability of promoters, For compensation of co-promoters, 563. For expenses in general, 560. To creditors who agreed to look to moneys paid by sub- scribers, 562-3. Returning moneys to subscribers, 563. Where payment conditioned upon organization of company, 563. What promoters, liable for expenses, 560-2. For repayment of subscribers' deposits, 567. What promoters liable for, 572-3. Liability of depositary, 573. Deduction of expenses, 567-9. What expenses deducted, 577. Contribution between promoters, 564. Suits for recovery of deposits, 574-6. Actions for money had and received, 574. Accounting, 574-6. Joinder of other subscribers, 575-6. Effect of voluntary account, 576. Remedies of purchasers of shares, 574. Subscribers not ordinarily liable for expenses, 565, 567-8. When liable, 565, 568-9. Effect of statement of accounts,, 566-7, 576, 564n. 12. Liability on subscription notes, 569. Proof of abandonment of promotion, 570. Variance between corporation as organized and as intended, 570-1. Disposition of property acquired, 579. 591 ,592 INDEX. [References are to pages, except that numbers following an "n" refer to notes.] ACCOUNTING : (By promoters to corporation, see Remedies of corporation; By pro- moters to subscribers, see Remedies of individual stockholders; By promoters of abortive corporations, see Abortive promotions.) For shares received on behalf of associates in promotion, 62-3. Between promoters, 144, 527, 564. ACTION FOR DAMAGES : (See Damages, Action for.) ACTIONS : (See also Remedies of corporation, Remedies of individual stock- holders. Action for damages, Specific performance. Accounting, Con- tracts of promoters. Recovery of expenses. Property purchased by promoters. Parties to actions.) Action by corporation because of fraud on promoters, 433, 506, 437n. 3. Because of fraud of promoter on co-promoters, 533. Action against promoters transitory, 358. Assignable, 336, 459n. 11. Survives death of promoter, 351. To compel corporation to issue shares, 63. To recover property conveyed to promoter, 68. For breach by third party of contract with promoters, 147, 130n. 14, 511n. 10. ADMISSIONS : Of promoter as evidence against corporation, 129. Of promoter as evidence against co-promoters, 538a. 16. AFFIRMANCE : (See Rescission, Defenses.) AGENTS : (See also Brokers, Employees of promoters.) Promoters not agents of corporation, 22, 76-7. Liability of promoter for representations of agent, 367. Liability of agent, 349-50, 349n. 52, SeSn. 19. AGREEMENTS FOR PROMOTION OF CORPORATION: (Interpretation of, see Interpretation; Actions for breach of, see INDEX. 593 [References are to pages, except that numbers following an " n " refer to notes.] AGREEMENTS FOR PROMOTION OF CORPORATION— (Continued) : Specific performance, Accounting, Action for damages, Property pur- chased by promoters, Recovery of expenses. Measure of damages, Mechanics' liens; Contracts made on behalf of corporation by pro- moters, see Contracts; Rights and liabilities of promoters inter 86, see Liability of promoters.) Not necessarily terminated by death of promoter, 31n. 1. Definiteness of agreement, 61-2, 64-6. Agreement to make definite agreement, 61n. 25. Agreement to assist in forming corporation, 64n. 25. Agreements involving purchase of specific property. Validity of, 31. When fraud involved, 32-4. Of oral agreement involving conveyance of real estate, 31. Interpretation of, 42-4. Performance of, 45. Involving contracts of employment. Validity of, 34. Where control of directors impaired, 36-8. Where no time specified, 35n. 10. Involving election of oflScers, 38. For division of capital stock, 3^-41. Enforcement by corporation, 39-40n. 19. Interpretation of such agreements, 49-55. Where fraud on public intended, 528n. 2. Promoter refusing share of unissued stock, 49n. 43. Fixing promoter's compensation, 47-9, 162. Restricting sale of promoter's shares, 40. Interpretation of such agreements, 55. Limiting number of shares to be held by single stockholder, 40. For control of corporation, 40. Interfering with increase of capital stock, 41. Interfering with increase or decrease of directors, 41n. 25. Involving issue of shares in violation of statute, 33-4, 36-7. For subscription to shares of proposed company, 85-8. To use shares for benefit of corporation, 47. To issue full paid shares; liability of promoters because of Invalid assessment, 45. AMENDMENT: Of proceedings brought In name of receiver, 337n. 9. 594 INDEX. [References are to pages, except that numbers following an " n " refer to notes.] ARTICLES OF ASSOCIATION: (See also Charter.) Fixing promoters compensation, 163n. Where promoter's identity concealed, 163n. Where part of compensation secretly paid to directors, 163n. Granting directors power to fix promoter's compensation, 163n. Provisions making corporation liable on promoter's contracts, 79-80. Alteration in, 384n. 55. ASSIGNEES OF CORPORATION: Suits by, 336. Rescission by, 336n. 7. ATTORNEYS : Of prospective corporation, not promoters, ll. Observations on duties of, lln. 33. Compensation of, 165-9. On abortive promotion, 577-8. Fees in minority stockholder's suit, 337n. 10. Non-disclosure of facts on advice of, 389. Promoter dealing through dummy on advice of, 401n. 84. False statements based on opinion of, 374n. 36, 379n. 47. B. BANK STATEMENTS : False representations in, 365n. 8. BANKERS : Are not promoters, 11. Liability for return of deposits, 573. BANKING CORPORATIONS : Compensation of promoters selling shares of, 161n. 27. BANKRUPTCY : Of promoter as discharge, 298. BILL OF PARTICULARS: Of services rendered by promoter, 162n. 35. Of grounds of belief in truth of representations, 375n. 39. INDEX. 595 [References are to pages, except that numbers following an " n " refer to notes.] BONA FIDE HOLDERS : Of shares unlawfully taken by promoters, 310-12, 63n. 20. Of obligations of corporation unlawfully taken by promoters, 315-8, 329. Of instruments not negotiable in terms, 316n. 41 and 42. Of subscription notes, 569, 451n. 41. Burden of proof, 317. Suit to determine who are, 317-8. Cancelling promoters' shares to increase dividend of, 341. BONDHOLDERS : Fiduciary relation of promoter to, 19. Suits by, in behalf of corporation, 348. BONDS : (See also Creditors.) Purchase of, induced by fraud, 348. Right of purchasers of, to assume property worth par value of shares issued therefor, 432n. 95. Liability of promoters receiving bonds issued in violation of statute, 187n. 44. Bonds unlawfully taken by promoters. Assent of all stockholders not conclusive upon creditors, 210n. 29. Remedies and defenses of corporation, 315^8, 329. Measure of damages, 490. Prospectus inviting subscription for; complaint by purchasers of shares, 364. BROKERS : (See also Agents, Employees of promoters.) Selling shares, compensation of, 160-1. Liability of promoter for false representations to, 367, BUBBLE COMPANIES : 502, 567n. 21. BURDEN OF PROOF : Of commencement of relation of promoter, 26. Of abandonment of promotion, 570. Of liability on contracts of promoter, 143, 562n. 4. Of knowledge, llln. 74, 285n. 27. 596 INDEX. [References are to pages, except that numbers following an "n" refer to notes.] BURDEN OF PROOF— (Continued) : Of legality of promoter's profit, 201. Of disclosure of promoter's profit, 201, 209n. 27. Of disclosure of promoter's compensation, 514n. 21. Of acquiescence, 284n. 26, 285n. 27. Of aflSirmance of voidable subscription, 466n. 37. In action by promoter to recoTer commission from vendor, 514n. 21. and 22. In action by corporation to recover commission agreed to be paid to promoter, 516n. 24. Of laches, 293, 472. That party is innocent holder for value, 317. Of damages, 190n. 53, 499n. 49. la action for fraud and deceit. Of defendant's knowledge of falsity of representations, 377n. 44. As to sense in which subscriber read prospectus, 423n. 66. As to sense in which promoter meant prospectus, 425. Of defendant's belief In truth of representation of knowledge, 378-9. BX-LAWS : Action involving interpretation of; in what jurisdiction maintained, 359n. 87. CANCELLATION : (See also Remedies of corporation, Remedies of Individual stock- holders. ) Of shares unlawfully taken by promoters, 310-11, 314-6, 329. Recovery of dividends paid on, 311n. 24. Possible injury to creditors considered, 310-11. Shares pledged as security for loan, 312. After receivership, 341. Of obligations unlawfully taken by promoters, 315-8, 329. Of judgment unlawfully taken against corporation, 317, 356-7. Of secret royalty agreement, 332-3. CEMETERY CORPORATIONS: Rights of purchases of lots against promoters, 247n. INDEX. 597 [References are to pages, except that numbers following an "n" refer to notes.] CERTIFICATES : (See also Stock certificates.) Promoters' certificates, 41. Required by law, false representations in, 365, 331n. 87. Under New Xork statute, 376n. 43. Required by stock exchanges, false representations in, 366, 503. CHARTER : (See also Articles of association.) Provisions making corporation liable on promoters' contracts, 79-SO. Provisions for compensation of persons employed by promoters, 166. Provisions authorizing promoters to contract for corporation, 77-8. Actions Involving interpretation of, where brought, 359n. 87. Property rights in charter obtained by promoters, 532. CHECKS : Given to promoters, enforcement by corporation, 134; Given by provisional committee, 561n. "CLEAN HANDS," MAXIM OF, 279-81, 289. CLOUD ON TITLE: ' Deed to corporation never formed, 137. COMMENCEMENT OF RELATION OF "PROMOTER": No decisive test, 22. Depends on particular facts, 26. Before existence of corporation, 22-3. First overt act in organization of corporation, 25-8. Preparation and filing of certificate of incorporation, 26. Solicitation of subscriptions, 26-7. Purchase of property with view to re-sale to corporation, 23-5, 27-& Purchase of property on behalf of corporation, 24-5. Burden of proof, 26. COMMISSIONS OF PROMOTERS : (See Secret profits, Vendors to the corporation.) COMPENSATION OF PROMOTERS : Right to, dependent on scope of enterprise, 158, 267. View that promoters not entitled to, 154. 598 INDEX. [References are to pages, except that numbers following an "n" refer to notes.] COMPENSATION OF PROMOTERS— (Continued) : Claim founded on act of incorporation, 156n. 14. Claim founded on subsequent promise, 155n. Services rendered pursuant to request of incorporators, 155n. Corporate note given in payment for services, 155n. Shares issued in payment for, 164, 163n. Recovery of payments made by corporation, 155n. 163n. View that promoter entitled to reasonable compensation, 154-7. Services must be reasonable and necessary, 157n. 17. And rendered with expectation of payment, 157-8, 164. Where promoter stated no allowance would be made, 157-8. Professional services, 166-7, 578. Services in obtaining subscriptions, 160-1. Under English statute, 161n. 27. In procuring agents to solicit subscriptions, 161. Services rendered after promoter became director, 159. Effect of fraud on promoter's right to, 159, 309. Effect of breach of agreement vrlth co-promoter, 168n. 56. Not affected by provisions relating to compensation of "officers," 158n. 18. As between promoters, 166-7, 551, 563, 578. Amount of compensation. To be fixed by corporation, 161. Corporation not bound by prior agreement, 157, 162. Power of co-promoter to modify, 537n. 14. Power of directors to fix, 162. Where power granted by articles of incorporation, 163o. Where directors not independent, 162-4. When concealment practised, 163n. Directors' liability for negligence in paying, 164. Resolution of stockholders fixing, 164. Right of promoters to vote proxies on, 164n. 88. Shares issued In payment for services, 164, 163n. Agreements of third parties to pay, 47-9, 328, 514-7. (See also Consolidations, Reorganizations.) Compensation upon reorganization, 552-6. Upon abortive promotion, 563, 578. As item of value of plant in rate cases, 152n. 2. INDEX. 599 [References are to pages, except that numbers following an "n" refer to notes.] CONCEALMENT: (Fraud by concealment, see False representations ; Concealment of promoters' profits, see Secret profits.) CONFLICT OF LAWS: 359. CONSOLIDATIONS : In general, 552. Misrepresentations in regard to constituent companies, 331, 427, 437n. 3. Promoter's liability for dividends upon shares of constituent com- pany, 557. Added value from combination not " property " for which shares may be issued, 191n. 54. Promoter's compensation. Under employment by constituent company, 552-3. Where consolidation is ultra vires, 553n. 2. Compensation must be disclosed, 554. Promoter acting under express agreement must prove perform- ance, 168, 554. Services of director presumed gratuitous, 553. CONSTEUCTIVE NOTICE : (See also Notice.) Doctrine of, in general inapplicable, 214. Of contents of charter and by-laws, 217-8, 461, 465. Of corporate records, 217. Of stock certificates, 465-6. Of recorded deeds, 218. Of prospectus and circulars received, 471n. 58. Of documents mentioned la prospectus, 218, 461. Facts disclosed at stockholders' meeting, 217n. 46. Where stockholder represented by proxy, 218n. 46. Where proxy held by guilty promoter, 471. Putting stockholders on inquiry, 471, llln. 74. Where party lives at a distance, 461n. 18. Of facts contradicted by representations, 218, 461. To third parties, of fraud committed by promoters, 311n. 23. After subscriber puts himself at arm's length, 465n. ^. 600 INDEX. [References are to pages, except that numbers following an "n" refer to notes.] CONTRACTS OF PROMOTERS: (See also Agreements for promotion of corporation.) Power of promoters to contract for corporation, Before corporation has achieved existence, 74-7, lOS-6. Pending complete organization, 77-8. After complete organization, 78. Under provisions of statute, 77-8, 76n. 1. Under charter provisions, 77-8. Liability of corporation. Imposed by statute, 79, 76n. 1. By articles of association, 79-80. Assumption of liability by fully organized company, 80, 88. Not a ratification, 80-3, 97. Effect of resolution to "confirm," 83. Power of officers to bind corporation, 89--90. Limits on power of president, 90n. 29. Power of mere agent, 90n. 29. Good faith required, 90. Officer must be free from interest, 90-2. Where all stockholders are parties to agreement, 90-1. Officer who, as promoter made original contract, 91-2, 147. Officer who is opposite party to contract, 92. Act of assumption, 92-6. Assumption by corporation a question of fact, 92. Resolution of directors not communicated to other party, 95-6. Necessity of consideration, 96. Corporate liability because of acceptance of benefits, 96-117. Enforcement at law or equity, 100. Benefits received before complete organization, 105-6, 154-6, 169. Lord Cbttenham's rule, 102. Promises In consideration of withdrawing opposition to char- ter, 102-6. Corporate obligation to pay for services in procuring contracts accepted by it, 107. Contracts made by incorporators, 109. Benefits must be accepted with knowledge, 110. Burden of proof of knowledge, llln. 74. Putting corporation on Inquiry, llln. 74. INDEX. 601 [References are to pages, except that numbers following an "n" refer to notes.] CONTBACTS OF PROMOTERS— (Continued) : Corporation not bound unless agreement contemplates per- formance by it, 112-16, 39n. 19, 124n. 97. Unless obligation expressly assumed, 116. Contract amended to require corporate performance, 114-5. Contract contemplating performance by different cor- poration, 113. Contracts of continuing nature, 114. Contracts drawn to cast liability on assignee, 117. Corporation organized to avoid obligations of assignor, 117. Particular contracts. Contracts of employment, 34-8, 121. Naming officers and fixing salaries, 38, 121. For division and control of shares, 39-40. As to price to be paid for promoter's property, 39n. 19. As to increase or decrease of directors, 41n. 25. Taking over going concern as of earlier date, 121. Subscription agreements, 122. Tirnt corporation could not make, 118-20. Ultra vires agreements, 118-20. Contrary to public policy, 118-20. Relative to location of route or plant, 121n. 89. Improper conditions annexed to lawful contract, 99. Actual, different from written, 121-2. Not to be performed within one year, 82-3. Status pending action of corporation, 83. Theory of continuing offer, 83-4. Theory of alternative offer, 85. Of subscription agreements, 85-8. Personal liability of promoters, 84, 91, 139-47. Enforcement of promotera' contracts. By corporation, 130-5, 147-9. (See also Conveyances, Public grants, Options, Franchises, Sur- veys.) Defense that improper conditions imposed by promoters, 99. That promoters failed to perform personal promises, 99-100. Corporation must be organized within reasonable time, 130n. 14. And in contemplated state, 130n. 14. 602 INDEX. [References are to pages, except that numbers following an " n " refer to notes.] CONTRACTS OP PROMOTERS— (Continued) : Breach before organization of corporation, 148, 130n. 14. Enforcement of subscription agreements, 130n. 14. By promoters, 133-^, 147-9. After contract accepted by corporation, 131-2. On refusal of other party to deal with corporation, 133-4, 148. On failure to organize corporation, 149. CONTRIBUTION BETWEEN PROMOTERS: For expenses of abortive promotion, 564. For contract liabilities, 144. For damages paid, 550. Under English Companies Act, 550. For secret profits repaid, 550. CONVEYANCES : (See also Franchises, Public grants, Surveys.) To corporation not yet formed, effect of, 136-8. After granting of charter, 138. Necessity of deed to property which corporation organized to acquire, 139. Compelling conveyance by promoter to corporation, 135-6. CORPORATE NAME: Incorporation of partnership without change of name, 5S2n. CORPORATE RECORDS: Constructive notice of, 217, 461, 465. CORPORATION : (See also Liability of corporation; Responsibility for acts of pro- moters, see Contracts of promoters. Notice, Actions.) Fiduciary relation of promoter to, 16-19. Action by, for false representations of promoters, 433, 437n. 3. Corporation acting as promoter, 13. COST OF PROPERTY : (See Lawful profits, Selling property to corporation.) COTTENHAM'S (LORD) RULE: 102. INDEX. 603 [References are to pages, except that numbers following an "n" refer to notes.] COUNSEL: (See Attorneys.) CREDITORS OF CORPORATION : Fiduciary relation of promoter to, 19. Action by, for fraud and deceit, 348, 370n. 21. For mismanagement prior to giving credit, 348n. 50. Suits by, to enforce rights of corporation, 348. Injury to, as preventing cancellation of promoter's shares, 310-1. CRIMINAL LIABILITY OF PROMOTERS : Accepting gratuities from persons selling property to corporation, 501. From persons contracting with corporation, 501. " Bubble companies," 502. Fraud in sale of shares, 502-4. False statements, 502. Creating false impression, 502-3. Fictitious dividends, 503. Creating fictitious market for shares, 503. Procuring listing by false reports, 503. Under New Xork Statute, 503. Under English Companies Act, 504. Fraudulent use of mails, 504. DAMAGES, Action for: (See also Remedies of corporation. Remedies of individual stock- holders.) For breach of agreement to promote corporation, 64, 70-1. Agreement must be definite, 64-6. Effect of uncertainty as to value of shares to be received, 67-8, 70. For unlawful sale of promoter's property to corporation, 301-5, 323-6. For fraud and deceit in sale to corporation, 330-1. For fraud and deceit in sale of shares, 436. DEFECTIVE ORGANIZATION OF CORPORATION: Partnership liability of promoters, 581-8. Rescission of subscriptions, 416, 87n. 604 INDEX. [References are to pages, except that numbers following an "n" refer to notes.] DEFENSES : To complaint by corporation. That property sold to corporation was worth selling price, 185, 190, 314. That promoter believed profits did not exceed reasonable compensa- tion, 185. That corporation was not injured, 185-6. That corporation was actually benefited, 186. That promoter acted in good faith, 185, 190. That shares issued to promoter were full-paid, 187. That cause of action did not survive promoter, 351. That disclosure of profits waived, 218, 271, 373. That promoter gained nothing by transaction, 272, 330, 455. That shares taken by promoter had no value, 272, 314-5, 455. That promoter guaranteed obligations of corporation, 273. Invested profits in notes of corporation, 274j Returned profits to co-promoter, 274. Surrendered securities to corporation, 274. That corporation compromised with vendor who paid commission to promoter, 275. That judgment would compel promoter to pay more than share of damages, 276. That other guilty promoters would be benefited by recovery, 277. That no innocent stockholders still Interested, 27S-9. That defrauded syndicate in turn defrauded corporation, 279. That corporation itself defrauded subscribers, 279. That moneys taken by promoter were unlawfully acquired by corpora- tion, 280. That corporation might readily have ascertained the facts, 218, 459. That defendants acted on advice of counsel, 389, 374n. 36, 379n. 47, 401n. 84. That subscribers had no knowledge of promoter's subscription, 286. That no original stockholders remain, 335, 343. Of reorganization of corporation, 286. That corporation has assigned claim, 287, 336n. 7. Of statute of limitations, 290, 462. Laches (See Laches, Delay), 291-7. Delay as defense to rescission, 297, 472. Of judgment for or against co-promoter, 298. Of bankruptcy of promoter, 298. INDEX. 605 [References are to pages, except that numbers following an "n" refer to notes.] DEFENSES— (Continued) : Defenses to minority stockholders' suits. That plaintiff acquired shares in violation of statute, 282. After fraud complained of, 341-3. With knowledge of fraud, 344-5. That plaintiff or transferor acquiesced in fraud, 283, 343-4. That plaintiff purchased shares for purpose of bringing suit, 344-5. Maintains suit for ulterior purpose, 289. Committed other fraud on corporation, 345. Defense of settlement with majority stockholders, 289, 493. Defense of settlement with other promoters, 494. Laches, 291-7. To actions for false representations. That defendant believed representations to be true, 373-80, 456. That no benefit accrued to defendant, 330, 455. That defendant urged directors to return subscription moneys, 455-6. That enterprise was doomed to failure in any event, 456. That representations subsequently became true, 418-9, 384n. 61. That later circular corrected misrepresentations, 372. Statement based on opinion of counsel, 374n. 36, 379n. 47. Disclosure omitted on advice of counsel, 389, 401n. 84. That property misrepresented not sold to corporation at time of subscription, 457. That unlawful plan of selling property to corporation not carried out, 458. That suit on same misrepresentation might be maintained by cor- poration, 434-5. Prior recovery by corporation, 457. \ That plaintiff had before suit parted with shares, 458. That plaintiff resold shares at a profit, 459. That plaintiff had notice that promoter's information not reliable, 383n. That plaintiff did not rely upon representations, 369-73, 462. That plaintiff agreed not to rely upon representations, 373. That plaintiff might have ascertained falsity of representations, 459, 462. That subject matter of representations was at hand for inspec- tion, 462. That plaintiff made independent investigation, 372-3, 462. 606 INDEX. [References are to pages, except that numbers following an " n " refer to notes.] DEFENSES— (Continued) : That representations as to credit must be in writing, 462. Of Statute of limitations, 462. That oral representations merged in subscription agreement, 122, 478. That plaintiff had elected to follow inconsistent remedy, 459. That cause of action does not survive death of promoter, 351. AflSrmance of transaction, 469. To action for rescission of subscription. That promoter believed representations to be true, 373-80. That plaintifC might readily have ascertained falsity, 459. That representations subsequently became true, 384, 418. That no complaint made by other subscribers, 411n. 22. That later subscriptions made on faith of plaintiff's, 411. That plaintiff's subscription made in violation of statute, 464n. 28. That plaintiff has remedy at law, 442n. 15. AfSrmance of subscription, 464-9, 572n. 37. Laches, 469-78. Delay in disaffirmance, 472, 571n. 37. To action of subsciihers demanding accounting for profits, That promoter returned profits to corporation, 463. That profits constituted fraud on other subscribers, 463. That shares issued in violation of statute, 464. DEFINITIONS: 4-6, 15. Explanation of term promoter, 1, 6-15. DELAY : (See Statute of limitations, Laches.) As defense to action at law upon rescission, 297, 472. To rescission for variance, 571n. 37. Pleading delay, 451n. 41, 473n. 66. DIRECTORS : (See also Officers: Disclosure to, see Lawful profits; Directors Lia- bility Act, see English Companies Act.) Agreements interfering with control of, 36, 38, 40. (See Agreements for promotion of corporation.) Liability for unlawful payments made to promoters, 331. For negligently paying promoters' profits, 202n. 6. INDEX. 607 [References are to pages, except that numbers following an " n " refer to notes.] DIRECTORS— (Continued) : For negligently paying promoters' compensation, 164. For expenses of abortive promotion, 561n. Effect of secret agreement to share promoter's compensatibn, 209n. 28. Liability for fraud of others in sale of shares, 362n. 2. For fraud of agents, 36&-9. Power to fix promoters' compensation, 162-4. Right to vote for assumption of contract made as promoters, 91-2, 147. Right to vote for assumption of contract to which parties, 92. Personal liability on contracts made by promoters, 143n. 51. Power to contract for proposed corporation, 78. To consent to promoters' profits, 202-8, 229-30. To ratify promoters' profits, 228-32. To effectuate rescission or affirmance, 230. Compensation for services on promotion, 159. Right to receive gifts from vendors to corporation, 178-9, 4S9n. 24. From promoters, 179n. 22. Of qualifying shares, 178, 329, 501. Accepting agreement to repurchase qualifying shares, 179. False representations in regard to identity of, 404. Subscribing for shares, vigilance required, 471n. 58. As parties defendant to minority stockholders' suits, 353n. 65. DISCLOSURE : (Of promoters' profits, see Lawful profits; Concealment of facts as fraud upon subscribers, see False representations.) DIVIDENDS : On shares of constituent company pending consolidation, 557. False representations in relation to earned by constituent company, 427. Declaration of unearned as fraudulent representation, 427, 503. Paid on shares unlawfully issued to promoters, recovery of, 311n. 24. DONATING SHARES TO CORPORATION: (Donating property, see Gifts.) No implied agreement of corporation to pay for shares, 46. Agreement to use shares for benefit of corporation, enforcement, 47. 608 INDEX. [References are to pages, except that numbers following an " n " refer to notes.] DUMMY PROMOTEES : Joinder of, as parties defendant, 350-1. Concealing Identity by means of, 9, 210-20, 163ii. DUMMY STOCKHOLDERS: Disclosure to, of promoters' profits, 238, 211n. 32. DUTIES OF PROMOTER: In general, 15-21, 171-3. E. ELECTION: Of remedies by corporation, 321, 326. Conclusive effect of, 327. Election not to rescind, Effect of, on other remedies, 231n. 82. Power of directors to exercise for corporation, 230. Power of majority stockholders to exercise for corporation, 231, 346-7. Of remedies by subscribers. Conclusive effect of election to rescind subscription, 459. What amounts to disaffirmance, 459. Conclusive effect of election to affirm, 464-5. What constitutes affirmance, 466-9. Election to affirm not a bar to action for damages, 469. To sue for personal damages, or on behalf of corporation, 239n. 96. By promoters. To avoid rescission by making good representations, 327-8. To avoid liability by surrendering payments received from cor- poration, 191n. 55. EMINENT DOMAIN: Promoters' contracts and surveys as bar to, 137n. 31. EMPLOYEES OF PROMOTERS: Cannot recover compensation from corporation, 165. Unless pursuant to charter provision, 166. 1 Or unless upon subsequent promise of corporation, 166, INDEX. 609 [References are to pages, except that numbers following an " n " refer to notes.] EMPLOYEES OF PROMOTERS— (Continued) : May recover compensation from promoters, 165-9, 560. TJnless by express agreement to the contrary, 168, 562-3. Interpretation of such agreement, 168-9. If services rendered under express contract, must shovf performance, 168. Or that performance prevented by promoter, 367, 563n. 9. i Recovering compensation from subscribers, 565-6. Impressing lien on property, 580n. 60. EMPLOYMENT : Agreements for employment by proposed corporation. Validity of, between parties, 34-6. Where control of directors infringed, 36-8. Obligations of corporation thereunder, 121. ENGLISH COMPANIES ACT: Provisions relating to prospectus, 362, 389-97, 429n. 85. Provisions of Directors Liability Act, 362-3, 424. Contribution between promoters, 550. Penal provisions, 504. Commissions for procuring subscriptions, 161n. 27. Inducements to particular subscribers, 174n. 10. Rescission of subscription after insolvency, 474n. ESCROW : Delivery in, to promoter, 138, 123n. ESTOPPEL : Of promoter to question corporate existence, 88n. 25, 582n. Of promoter representing that property Is to be transferred to corpora- tion, 580n. 60. Promoters not estopped by representation that shares sold are treasury shares, 235n. 88. That moneys in treasury represent subscription moneys, 403. Of corporation by acts of promoters, 76n. 2. Of grantor to question corporate existence, 138. Of subscriber signing In blank, 123n. EVIDENCE : (See Parol agreements, Statute of frauds, Value.) 610 INDEX. [References are to pages, except that numbers following an " n " refer to notes.] EVIDENCE— (Continued) : Declaration of promoter as evidence against corporation, 129. As evidence against co-promoters, 538n. 17. Statements made at stockholders' meeting as evidence against corpora- tion, 442n. 15. Prospectus as evidence of illegal purpose, 124n. 97. Cost of property to promoter as evidence of value when sold to cor- poration, 223, 492. As evidence of promoter's good faith, 191n. 54. Of participation in fraud, 350n. 55, 537n. 15. Of abandonment of promotion, 570. Of value of shares, 312-5, 487, 499n. 48. Contracts made for corporation by promoter, Negotiations of promoter as evidence of terms, 129, 76n. 1. Evidence of assumption by corporation, 92-6. Where promoter as officer, acts for corporation, 91. May prove actual rather than written agreement, 121. Of parol agreement that promoters shall not be personally liable, 142. Evidence to connect particular promoter with, 562n. 4. In action for false representation, That promoter did not believe representations to be true, 380, Grounds of promoter's belief, 379n. 47. Of sense in which promoter used ambiguous language, 425n. 72. Statements at stockholders' meeting as evidence against corpora- tion, 442n. 15. Oral representations inducing subscription, 462, 478-80. Evidence of similar representations, 452n. 50. Suhsciiption agreements, Parol agreement that subscription to be paid in property, 407n. 10. That subscription not to be enforced, 122, 408. Opinion as to effect of, 480n. 80. Oral representations inducing subscription, 462, 478. That subscribers were to be liable for expenses of abortive promo- tion, 566n. 18. EXECUTORS AND ADMINISTRATORS OF DECEASED PROMOTERS : Actions against, 351-2. Liability on promoter's agreement to organize corporation, 31n. 1. INDEX. 611 [References are to pages, except that numbers following an "n" refer to notes.] EXPENSES OP PROMOTION: (See also Abortive promotions, Compensation of promoters, Employees of promoters. ) Promoters liable for compensation of employees, 165-9. Reimbursement by corporation, 151, 165-6, 169. When not entitled to reimbursement, 152. EfEect of fraud on promoters' right to reimbursement, 160n. 34. Expenses allowable. Legitimate expenses, 152. Expenses of " rigging the market," 152. Of bribing officials, 152. Other improper expenses, 152-3. Unusual expenses, 153. Interest on moneys borrowed, 154n. 10. Moneys paid for services of employees, 165-6, 169. FALSE REPRESENTATIONS : (See also Prospectus.) Complaint by corporation because of false representation made to promoter, 433, 506, 437n. 3. Of false representation made by promoter, 306, 433, 518. Compelling promoter to make representation good, 308, 402-3, 487, 306n. 12. Complaint by persons who purchase property with view to transfer to proposed corporation, 435n. 2. Complaint by persons induced to purchase obligations of corporation, 348. To lend money to corporation, 348. To subscribe for shares of corporation, 363-4. To purchase shares in the market, 363^. To purchase shares of allied corporation, 365n. 7. To perform services as broker in sale of shares, 367. To donate lands to corporation, 416n. 36. ynta/t parties liable for, Representations made in prospectus, 362. Under English Companies Act, 362, 390n. Representations made by agents of promoter, 367. By agents of corporation, 368-9, 437-8. 612 INDEX. [References are to pages, except that numbers following an " n " refer to notes.] FALSE REPRESENTATIONS— (Continued) : Repeated by others, 366, 372. Promoters liable in solido, 539. Personal representatives of deceased promoter, 351. Corporate liability for representations of promoter, 437-8. What parties entitled to complain. Of representations in prospectus. In general, 363. Subscribers, 363. Subscribers who did not read, 371. Purchasers of shares, 363-4. Corporation, 433. Persons to whom representations repeated, 366. Persons present when representations made to others, 367n. 14. Assignee of subscriber, 459n. 11. Broker who attempted to sell shares on faith of, 367. Inducing cause, representations must be, 369-73, 410, 414-5, 393n. Making plaintiff point out statement which induced action, 370. Representations made after plaintiff's subscription, 371. Representations inducing plaintiff not to withdraw subscription, 371-2. Representations subsequently corrected, 372. Reliance upon promoter's representations, 369-73, 462. Effect of independent inquiry, 372-3, 462. Effect of temporary doubt, 373. Effect of partial disbelief, 373. Effect of agreement not to rely on representations, 373. Effect of notice that Information not reliable, 383n. Defendant's knowledge of falsity of representations, 373-81. Under English Companies Act, 375. Statements made as on knowledge, 377-80. Knowledge of falsity Inferred from absence of reasonable grounds for belief, 380. Knowledge subsequently acquired, 377n. 44. Intentional Ignorance, 380. Innocent concealment, 389. Under English Companies Act, 389. Rescission because of Innocent misrepresentation, 381, Liability of promoters for return of subscription price, 445-6. Intent to deceive, 381, 388. Under English Companies Act, 3S9n. 75. INDEX. 613 [References are to pages, except that numbers following an " n " refer to notes.] FALSE REPRESENTATIONS— (Continued) : Materiality of representation. In general, 397. As to promoters' interest or position, 400, 447. As to identity of promoters, 219-20, 163n. As to promoters' profits, 399, 425-6, 42&-32. As to directors, 404, 426, 427. As to advisory board, 405n. 1. As to commercial agents of corporation, 406. As to persons selling property to corporation, 40(^1, 403, 427. As to value or cost of property sold to corporation, 227, 308, 330, 399-401, 425. As to reports of engineers, etc., 375, 404, 422, 383n. As to subscriptions, 406. As to number of shares subscribed for, 331, 406. Sham subscriptions, 408. That promoters themselves shareholders, 401-2. As to number of shares in treasury, 408. That share list has been closed, 407n. 8. As to amounts paid In to corporation, 331n. 87. As to identity of subscribers, 409-11. As to character of other stockholders, 412n. 23. As to price paid for shares by others, 413. As to value of shares, 415, 426, 400n. 81. Wash sales, 416, 503. That shares offered are treasury shares, 414, 235n. 88. As to calls made on shares, 398n. 78. As to legal status of corporation or shares, 416. As to use to be made of moneys subscribed, 418. As to mortgage on corporate property, 398, 427. As to debts of corporation, 427. As to dividends paid by constituent companies, 427. As to contracts of constituent companies, 437n. 3. As to liabilities of constituent companies, 331. Matters of opinion, 415, 417, 426, 443. As to future action, 417, 443. That shares are non-assessable, 417. Misstatements of matters of law, 398n. 78. Of foreign law, 398n. 78. Falsity of representations, In general, 400^, 406-7, 417-21, 404n. 1. 614 INDEX, [References are to pages, except that numbers following an " n " refer to notes.] FALSE REPRESENTATIONS— (Continued) : Must be substantially false, 407n. 8. Representations in relation to future action, 417, 443. That shares are to be non-assessable, 417. Representations subsequently made true, 384, 418. Statements true when made becoming untrue before allotment, 419, 377n. Ooncealmeut, Fraud by concealment, 384. Innocent concealment, 389. Under English Companies Act, 389. Rescission because of concealment, 38&-8. Concealment of promoters' profits, 428-32, 446. Of fact that directors and commercial agents receiving shares for acting, 406. That concession to be paid for by corporation, 420n. 56. Of fact that would be implied, 420. Of fact of which subscriber had independent knowledge, 394n. Manner of making false representations, In prospectus, 362-4. In certificates required by law or by stock exchanges, 365, 503, 331n, 87. Repetition by others, 366, 372. By agents, 367. By issue of stock certificates before legal organization, 416. False recital in deed, 399-400. FEDERAL COURTS : Not bound by decisions of state courts, 359. Minority stockholders' siAts in, 341-3. Jurisdictional amount in, 341n. 23. Jurisdiction of suit against vendor because of commission paid pro- moter, 511n. 10. FIDUCIARY RELATION OF PROMOTERS: To corporation, 16-19, 22-3. To stockholders, 19. To subscribers, 19, 172-4. Where there are no outside subscribers, 237. To those who subscribe without solicitation, 19n. 56. INDEX. 615 [References are to pages, except that numbers following an "n" refer to notes.] FIDUCIARY RELATION OF PROMOTERS— (Continued) : To future subscribers, 20-1, 212-3, 246, 255-«9. To future purchasers of shares, 21, 213, 236, 430. Of treasury shares, 21n. 60. To each other, 527-8. To bondholders or other creditors, 19. Theory that fiduciary relation dependent upon subscription for shares, 12. Ends with termination of relation, 29. FRANCHISES : Granted to corporation before organization, ISTn. 31. Title to franchise which corporation Is expressly organized to ac- quire, 139n. 42. FRAUD : (See False representations. Secret profits. Remedies of corporation. Remedies of individual stockholders.) Effect of, on promoter's right to compensation, 159. On promoter's right to reimbursement for expenses, 160n. 24. On promoter's right to enforce lawful claims, 318. On promoter's right to complain as minority stockholder, 345. Upon agreement to promote corporation, 32-3. GIFTS : (See Donating shares to corporation.) Sales to corporation of property received by promoter as gift, 195-6, 222. Liability of promoters or directors accepting gifts, 178-80. Rights of persons donating property to corporation, 524. If donation induced by fraud may sue for damages, 4ien. 36. GOOD FAITH: Required of promoters, 16-21, 527-8. As affecting promoters' secret profits, 185. Of promoters selling property to corporation, 190. Cost of property as evidence of, 191n. 54. 616 INDEX. [References are to pages, except that numbers following an " n " refer to notes.] GOOD FAITH— (Continued) : Required of officers assuming obligations of promoters' con- tracts, 90. Corporation not called upon to suspect, 293. Stockholders not called upon to suspect, 293, 470, As against creditors, 478. IDEAS : No property right in mere idea, 532. IDENTITY OF CORPORATION: 27, 570-1, 130n. 14, 572n. 37. IDENTITY OF PROMOTERS : (See also False representations.) Effect of concealment on legality of profits, 163n. IMPLIED WARRANTY: Of promoter conveying lands to corporation, 191. INCORPORATORS : Power to contract for corporation, In general, 77n. 4. In regard to acts necessary to perfect organization, 78n. 4. Authority granted by provisions of statute or charter, 78. Interpretation of such provisions, 78n. 5. Can act only by majority, 109, 78n. 4. Not as such entitled to proportionate share of capital stock, 49n. 43. INDEMNITY : Agreement to Indemnify provisional committeemen construed, 142n. 48. To indemnify subscriber for shares, 413, 123n. INJUNCTION : Restraining transfer of shares pendente lite, 310-ln. 22. Restraining departure from proposed route, 572n. 38. INTEREST : Paid by promoters, reimbursement, 154n. 10. On proceeds of shares unlawfully taken, 310n. 21. On subscribers' deposits, 567-8. INDEX. 617 [Keferences are to pages, except that numbers following an "n" refer to notes.] INTERPRETATION AND CONSTRUCTION : (See Prospectus.) Of agreements to organize corporation to purchase specific property. 42-5. To pay for property in shares, 42-5. For division of shares of corporation, 4&-55. For division of profits of promotion, 49-61. Restricting sale of shares, 55. To furnish capital, 47, 48-9, 51, 54. Fixing promoters' compensation, 4T. To indemnify provisional committeemen, 142n. 48. That promoter not liable on contract, 142, 168-9, 563. Of statute authorizing incorporators to contract for corporation, 78n. 5. Of statute providing that corporation shall pay promotion expenses, 166. Actions involving interpretation of charter and by-laws, where brought 359n. 87. JOINDER OF ACTIONS : Actions arising out of promoters' frauds, In general, 355-8, 451-3. In suits by or on behalf of corporation, 355-8. Demand for individual relief, with demand on behalf of cor- poration, 358, 451. Demand for rescission of subscription, and right claimed there- under, 358. Different demands against different defendants, 358, 453, 452n. 47. Demand Against corporation for rescission, and promoters for re- payment of subscription price, 453. Demand against corporation for rescission, and promotfers for frdud and deceit, 453n. 51. Joinder of several subscribers demanding accounting for promoters' profits, 451. Rescission of subscriptions, 451-2. In action for fraud and deceit, 452. Action for services rendered promoters individually, with action against cori>oration, 147n. 67. 618 INDEX. [References are to pages, except that numbers following an "n" refer to notes.] JOINDER OF PARTIES : Parties plaintiff, Creditors of corporation and subscribers for shares, 452n. 47. Several subscribers demanding rescission of subscriptions, 451-2. Demanding damages for fraud and deceit, 452. Demanding accounting for promoters' profits, 451. Corporation and promoters in action on promoters' contract, 132n. 15. Purchaser and his subsequent vendee deceived by similar repre- sentations, 452n. 50. Parties defendant, One or all fraudulent promoters, 349. Vendor and promoters defrauding corporation, 330, 349. Vendor and promoters in action for rescission, 545-50. Agent of vendor and promoter with whom he divides commission, 349-50. Promoters and their agents, 349n. 52. Promoters and their dummies, 350-1. Promoters and persons receiving share of profits, 351, 539n. 18. Promoters and persons who aid in fraud, 350. Promoters and those who aid in procuring subscriptions, 350. Personal representatives of deceased promoter, 352. Corporation and promoters, in action for rescission of subscrip- tion, 445-6, 453. Promoters in action by corporation on promoters' contract, 133n. 15. Promoters and corporation, in' action on promoters' contracts, 147. Corporation, promoters and favored vendors in action on secret agreement, 356. In action for recovery of deposits on shares of abortive corpora- tion, 575-6. Corporation not necessary party to suit involving transfer of shares, 58n. 6. Nor to action for fraud and deceit against promoters, 437n. 3. Nor to action for damages for false representations made to corporation and subscribers, 434-5. Nor to action for fraud committed on holders of securities of reorganized company, 558. Parties defendant in minority stockholders' suits, 352-3. After receivership, 340, 353. To suits by creditors to enforce corporate rights, 348. INDEX. 619 [References are to pages, except that numbers following an " n " refer to notes.] JOINT AND SEVERAL LIABILITY OF PROMOTERS : (See Liability of promoters, Contribution between promotera) For each others' acts in general, 536-8. Where they join for personal profit, 537-8. For Joint fraud, 349, 539. For secret profits, 349, 539-45. Upon rescission of corporate purchase, 545. Upon contracts authorized by them, 144. For expenses of abortive promotion, 560. For return of deposits, 572-3. JURISDICTION : (See also Federal courts.) Actions against promoters generally transitory, 358. Where interpretation of charter and by-lawa involved, 359n. 87. KNOWLEDGE : (See also Notice, Contracts of promoters, False representations. Laches.) Necessary to make promoters' contracts binding on corporation, 110-11, Necessary to make election of remedy conclusive, 464-6. Necessary to defense of laches, 292, 295. L. (LACHES : In general, 291-7, 469. What amounts to unreasonable delay, 293-5. May depend upon relief demanded, 296. Consideration that corporation necessarily acts slowly, 294-6. Particularly when acting against opposition of directors, 295n. 54. Consideration of fiduciary relation, 295. When no actual fraud involved, 295. Where property is of fluctuating value, 294. Delay in discovering fraud, 292-3, 469-71, 478. Where rights of creditors involved, 478. Delay in making investigation after suspicions aroused, 471. 620 INDEX. [Keferences are to pages, except that numbers following an " n " refer to notes.] LACHES— (Continued) : After subscriber puts himself at arm's length, 465n. 34. Lack of diligence in prosecuting suit, 294. From what time delay computed, 292-4, 470-1. Time consumed in investigation, 293. In negotiations for settlement, 294, 471-2. Postponement of action at request of defendants, 471. No laches until after knowledge, 292. Knowledge of what persons starts time running against corpora- tion, 295-6. Against minority stockholder, 296. Laches as defense to rescission of subscriptions, 469-71, 473. As defense to liability of promoters on rescission of subscription in- duced by fraud, 446. Delay as defense to action at law upon rescission, 297, 468-8, 472. Pleading, 294n. 49, 451n. 41. LAW AND EQUITY : Actions for fraud and deceit, 353, 325n. 67, 437n. 3. For recovery of promoters' profits, 353. Rescission, 354-5, 449-50. Minority stockholders' suits, 354. Recovery of deposits upon abortive promotion, 574-5. Recovery of compensation paid promoters under mistake, 163n. LAW AND FACT: (See Questions of law and fact.) LAWFUL PROFITS : ( See also Compensation of promoters. ) Four methods of legalizing profits, 199-201. Burden of proof, 201. Disclosure to independent board of directors, 200, 202-8, 229-30. Where promoter is himself a director, 202-3. Or controls directors, 203-4. Where single director interested, 204-6. Where facts misrepresented to directors, 206. Where identity of promoters concealed, 163n. Limits of directors' power to allow promoters' profits, 20ft-7, 230, 232. INDEX. 621 [References- are to pages, except that numbers following an "n" refer to notes.] LAWFUL PROFITS— (Continued) : Disclosure to subscribers, 200, 208-14, 229-32, 235-7. Must be made to each subscriber, 210-11. Dummy subscribers disregarded, 238. To all beneficial owners of shares, 211-12. To future subscribers, 212-13, 246-69. To future purchasers of shares, 213-4, 232-46. To future purchasers of treasury shares, 213-4, 250-5. Effect of representation that shares offered are treasnty ^aaxee, 253^. Nature of disclosure, Must be full and complete, 214-8, 224n. 69. Doctrines of constructive notice inapplicable, 214, 217-8L Kjiowledge chargeable to subscribers, 217-18. When facts actively misrepresented, 218. Waiver of disclosure, 218-9, 271-2. Facts to be disclosed, 219-27. Promoters' interest, 219-21. Identity of promoters, 219-20, 163n. Control of board of directors, 221. Directors' interest in promoters' profits, 221n. 60. That promoters' attorney is attorney for company, 221, That promoters will not exercise option unless company Is floated, 221. That promoters have no binding contract, 222. Price paid for property by promoters, 222-7. Where corporation represented by independent board of direc- tors, 226, 220n. 56. Amount of promoters' profits, 219-227. Amount of commission received by promoter, 177n. 14. Facts otherwise known to subscribers, 394n. Batificatiou, By stockholders, 227-232. Must be formal act, 231n. 82. By majority vote, 228-32, 346. When further issue of shares contemplated, 228. Where shares were issued to promoters in violation of statute, 228n. 74. Right of promoters to vote as stockholders, 232. By board of directors, 228-32. 622 INDEX. [References are to pages, except that numbers following an " n " refer to notes.] LAWFUL PKOFITS— (Continued) : Legality of profits where promoters are themselves sole subscrlhers, 232-269. Reasons for rule, 233-7. Subsequent re-sale of shares immaterial, 232-7, 246-8, 257, 265-9. Effect of previous sale of shares, 238-46. Dummy subscribers disregarded, 238. Effect of existing syndicate, 239-46. Transaction when deemed consummated, 260-3. When promoters merely hold options, 234n. 86. Effect of subsequent sale of shares by direct subscription, 246-9, 255-69. Not contemplated at time of transaction, 248. Effect of unsuccessful attempt to sell shares by subscription, 249. Effect of subsequent sale of shares donated to treasury by pro- moters, 250-5, 21n. 60, 233n. 85. Effect of representation that shares offered are treasury shares, 253-4, 239n. 96. Effect of fraud on parties accepting shares in payment for prop- erty, 242-3, 521. LEASEHOLD : Rescission of purchase — restoration of status quo, 323. LIABILITY OF CORPORATION : (See also Contracts of promoters. Compensation of promoters, Ex- penses of promotion.) Accepting property acquired by promoters, 112-7. Express assumption of promoters' obligations, 116. Express assumption of partnership obligations, 116n. 84. Tort liabilities, 116n. 84. Secret understanding excluding certain claims, 116n. 84. Priority between debts assumed and subsequent obligations, 116n. 84. Taking over assets of partnership or other corporation, 116n. 84, 118n. Taking over business as of past date, 121. Liable on actual rather than written agreement, 121-2. For fraud of promoters, 437-8, 440-7. For services rendered to promoters, 114. For services of persons assisting promoters in organization, 165-8. For moneys loaned to promoters, 113n. 76, 120n. 87. For moneys loaned by promoters, 188n. 47. INDEX. 623 [References are to pages, except that numbers following an "n" refer to notes.] LIABILITY OF PROMOTERS : (See Secret profits, Remedies of corporation, False representations. Contracts of promoters, Abortive promotions, Shares, Joint and several liability, Contribution between promoters.) Duties and responsibilities in general, 15-21, 171-3. Courts careful to protect from unjust liability, 267-8. Diverting proceeds . of treasury shares, 233-4n. 85. Taking more shares than entitled under promotion agreement, 39n. 19. Accepting shares in payment for services gratuitously rendered, 164. On corporation's refusal to deliver shares in accordance with pro- motion agreement, 45. For compensation paid under mistake, 163n. Issuing certificates before legal organization, 416. On contracts made for corporation, 84, 91-2, 106, 139-47. After liability assumed by corporation, 144-7. Where opposite party also a promoter, 141n. Misrepresenting authority to act for corporation, 141n. On ultra vires contracts, 121n. 89. On promises made as inducement to subscriptions, 124. On agreement to repurchase shares, 123n., 124n. 95. Upon rescission of subscriptions induced by their fraud, 445-6, 453. Laches as a defense to such liability, 446. Upon rescission by corporation because of commissions paid to pro- moter, 547-50. For personal injuries done pending promotion, 141n. 46. For acts of co-promoters, 536-8, 560-2. On contracts made by co-promoters, 142-4. To corporation for frauds on co-promoters, 533. For services rendered by co-promoters, 551, 563. For professional services of -co-promoters, 166-7, 578. For compensation of assistants on promotion, 165-9, 560-3. What promoters liable, 167-8, 560-2. For expenses of abortive promotion, 560-5. For re-payment of deposits on abandonment of promotion, 567-9, 572, 574-6. For par value shares upon insolvency, 313-14, 488, 187n. 44. For debts of defectively organized corporation, 581-8. Organizing corporation for Ulegal purpose, 582n. Liability to co-promoters, Excluded from promotion, 528-33. 624 INDEX. [References are to pages, except that numbers following an "n" refer to notes.] LIABILITY OF PKOMOTBRS— (Continued) : For secret profits, 527. For compensation of co-promoters, 166-7, 551, 563. Liability in solido, Upon rescission of corporate purchase induced by fraud, 545. For unlawful profits, 539-15. For fraud, 539. For acts of co-promoters, 142-4, 560-2. LIENS : Action for breach of agreement to transfer shares and to impress lien thereon, 63n. 20. Rescinding subscriber not entitled to lien on corporate property, 442n. 15. Employee of promoter when entitled to lien on property to be con- veyed to corporation, 580n. 60. Mechanics' liens, 71. Vendors' liens, 70. LOANS : Liability of corporation for loans' to promoters, 113n. 76, 120n. 87. Promoters not entitled to reimbursement for Interest paid on, 154n. 10. To promoters, to be repaid when money received from corporation, 142n. 47. By promoter to corporation, 188n. 47. To corporation. Induced by fraud of promoters, 348. To promoters on security of shares unlawfully taken, 312. Estoppel of promoter to claim that moneys in treasury represent loans to corporation, 403. Persons agreeing to lend money for purchase not liable on note given in payment, 143n. 55, 144n. 55. Fraud as defense to action for money borrowed to pay subscrip- tion, 451. Agreement to advance money to vendor to perfect title, 34n. 9. M. MEASURE OF DAMAGES: (See Burden of proof.) In actions for breach of agreement to promote corporation, 66-8. Uncertainty of damages as ground for denying relief, 59, 67-8, 70, INDEX. 625 [Keferences are to pages, except that numbers follow ing an "n" refer to notes.] MEASURE OF DAMAGES— (Continued) : In case of unlawful sale of promoters' property to corporation, 481, 487-95, 190n. 53. "Damages" distinguished from "profits," 305n. 11. Measure of value of property, 490-3. Measure of recovery on accounting for unlawful profits, 309-15, 481-5. Allowance for compensation and expenses, 159-60, 309, 484. In action to recover unlawful commission, bribes, etc., 485. To recover securities unlawfully taken, 309-18, 485. To recover proceeds of sale of shares unlawfully taken. Interest, 310n. 21. Dividends, 311n. 24. Equity if possible frames decree to avoid benefit to guilty promoters, 278-9, 316. Value of shares, how determined, 66-8, 312-5, 487. Value of bonds, how determined, 490. In actions for false representations, 486, 495. Representations subsequently made true, 418-0. Misrepresentations of amount of promoters' profits, 486-7. Compelling promoter to make representations good, 308, 331, 487, 306n. 12, 496n. In case of rescission, 485. In minority stockholders' suits, 493. In action by promoter to enforce unlawful sale, 322ii. 59. MECHANICS' LIENS: (See Liens.) MINORITY STOCKHOLDERS: Reorganization in fraud of, 556. Sue only in right of corporation, 264. Suits by, in Federal courts, 341. What must show to maintain suit, 337-40. Suit by unregistered owner of shares, 338n. 11. Pleading request and refusal, 338n. 12. Suits after receivership, 340-1, 353. After bankruptcy, 340n. 20. Suits by other than original subscribers, 341. Suit always in discretion of court, 345. Where advisability of suit open to question, 345. 626 INDEX. [References are to pages, except that numbers following an " n " refer to notes.] MINORITY STOCKHOLDERS— (Continued) : Rescission at suit of minority stockholder, 345. Necessity of offer to restore, 347. Rescission of transaction subject to ratification by majority, 346-7. Suit to enjoin consummation of unlawful transaction, 321n. 58. Intervening to defend suit against corporation, 347. Parties defendant in minority stockholders' suits, 352. Joinder of actions, 358, 451. Measure of damages, 493. Expenses of suit, 337n. 10. Defenses to suits by minority stockholders, That plaintiff or transferor acquiesced in transaction, 283, 343-4. Committed other fraud on corporation, 345. That plaintiff acquired shares in violation of statute, 282. Purchased shares for purpose of bringing suit, 344. Purchased shares with knowledge of fraud, 344. After fraud complained of, 341-3. Maintains suit for ulterior purpose, 289. Defense of settlement with majority stockholders, 289. Defense of settlement with other promoters, 494. Laches, 295-6, 295n. 54. Statute of limitations, 354n. 72. MORTGAGES : Unlawfully taken by promoter. Remedies of corporation, 315, 329. Unenforceable, 316-8, 329. Cancellation of, rescission of entire transaction, 327-8. On property of corporation, concealment of, 398, 427. N. NOTES : Of corporation unlawfully taken by promoter, Remedies of corporation, 315, 329. Unenforceable, 316-8, 329. Given in payment for services, 155n. In payment of subscription to shares. Fraud as a defense to, 451, 450n. 41. Cancellation for fraud, 450-1. Status of, upon abandonment of promotion, 569. INDEX. 627 [References are to pages, except that numbers following an "n" refer to notes.] NOTICE : (See also Constructive notice.) Notice to promoter as notice to corporation, 125. Where promoters are sole stockholders, 125-6, 258. Notice putting stockholders on inquiry, llln. 74. Putting third parties on inquiry as to promoter's fraud, 311n. 23. Transactions at meetings as notice to stockholders, 217n. 46. Notice to proxy as notice to stockholder, 471, 218n. 46. OFFICBBS : (See also Directors.) Agreements as to officers of proposed corporation, Validity between parties, 38. When binding on corporation, 121, 38n. 16. Agreements for compensation of, 121. Liability for unlawful payments made to promoter, 331-2. Liability of sureties, 331-2. OPTIONS : Rights of promoter under, 528-31, 302n. 5. After expiration of rights of corporation under, 197. Liability of corporation delaying until expiration of promoter's option, 302n. 5. Promoter holding option not " owner " of property, 193-5. When promoters are sole subscribers, 234n. 86. Concealing Intention not to exercise, 221. Option of subscriber to re-sell shares to promoter, validity of, 413, 123n. ORDINANCES: (See Franchises.) OWNERSHIP OF PROPERTY: (See Selling property to corporation.) P. PARLIAMENTARY DEPOSITS : 578. PAROL AGREEMENTS : (See Statute of frauds. Evidence.) ^ ^ ,.„ Parol understanding that promoters not Uable on contract, 142. 628 INDEX. [References are to pages, except that numbers following an "n" refer to notes.] PAROL AGREEMENTS— (Continued) : Corporation assuming promoter's agreement lield to actual rather than written, 121. Varying terms of subscription agreement, 122, 408. That unconditional subscription to be paid in property, 407n. 10. PARTIES TO ACTIONS : (See Joinder of parties.) Parties plaintiff in action for fraud on corporation, The corporation, 334-6. Its assignee, 336. Rescission at suit of, 336n. 7. Its receiver, 336-7. (See also Minority stockholders. Creditors of corporation.) PARTNERS : (See Defective organization of corporation.) Promoters are not, 142-3, 536, 560. Rights and liabilities of promoter's partners, 12. Representation by, that promoter will not ask compensation, 158n. 18. PARTNERSHIP NAME: Organizing corporation under, 5S2n. PERSONAL PROPERTY: Title to, which corporation expressly organized to acquire, 139. PERSONAL REPRESENTATIVES OF PROMOTERS: Actions against, 351-2. Joinder of, in action against surviving promoters, 352. PLEADING : Contract of promoters assumed by corporation, 149-50. Connecting promoter with fraud of co-promoter, 537n. 15. In action for cancellation of promoters' shares, 311n. 22. In action to recover commissions promised to promoter, 514n. 22. In action for rescission, 355. INDEX. 629 [References are to pages, except that numbers following an "n" refer to notes.] PLEADING— (Continued) : In action upon rescission, 473n. 66. Pleading delay as a defense, 451n. 41, 473n. 66. Pleading laches, 294n. 49. Pleading circumstances excusing laches, 294n. 49. Complaint In minority stockholders' suits, 338, 284n. 26, 338n. 12. In minority stockholder's suit demanding rescission, 347. Acquiescence of plaintiff stockholder as defense, 284n. 26. PLEDGEE : Recovery of shares in hands of, 312. PROFITS OF PROMOTERS : (See Secret profits. Lawful profits, Compensation of promotera) PROMOTERS : Defined, 4-6, 15. Explanation of term, 1. Early use of term, 2. Origin of term, 14. Use in America, 14r-15. Circumstances that create the relation, 6-13, 15. Solicitation of subscriptions, 8. Signing certificate of incorporation, 8. Attending to formalities of incorporation, 8. Assisting promoters, 9. Sharing in promoter's profits, 9. Carrying on promotion by agents, 9. Selling property to corporation, 9. Selling property to, and assisting in organization Of, corporation, 9-10. Acting as banker pending organization, 11. Acting as solicitor for prospective company, 11. Subscribing for shares, 12. Partners of promoters, 12. Corporations as promoters, 13. Effect of the relation, 15-21. Commencement and termination of relation, 21-9. Partnership relation between, 142-4, 536, 560. 630 INDEX. [References are to pages, except that numbers following an "n" refer to notes.] PROPERTY PURCHASED BY PROMOTERS: (Before commencement of relation, see Selling property to corpora- tion; After commencement of relation, see Purchase and re-sale to corporation; see also Conveyances, Franchises, Public grants, Sur- veys, Personal property.) Recovery by vendor if corporation not organized, in accordance with agreement, 68-71. Or if corporation refuses to carry out promises of promoter, 69-70. Recovery of value of property conveyed, 68. Compelling corporation to issue shares in payment for, 63. Right of corporation to compel conveyance of, 99-100, 135. Without paying trustee's compensation, 100. After refusing to take property, 135n. 26. Statute of frauds, 136n. 27. Rights in, pending promotion, 41, 135-9, 528-33. Upon abandonment of promotion, 529-31, 579. PROSPECTUS : False representations in. What parties liable for, 362, 436-8. Under English Companies Act, 362, 390a Who entitled to complain of, 348, 363, 367. Subscriber who did not read, 371. Who received prospectus after subscription, 371. The corporation, 433-4. Interpretation of prospectus, General rules, 419-21. Marginal notes, 421. In light of particular complainant, 421, 461n. 18. In light of preliminary character, 422. Present sometimes read as future tense, 422. Reports accompanying prospectus, 422. Quoted in prospectus, 383n. Ambiguous language, 422. Particular representations, 415-16, 425. PROVISIONAL COMMITTEEMEN: 560n. 4. PROXIES : Right of promoter to vote on resolution fixing compensation, 16to. 38. INDEX. 631 [References are to pages, except that numbers following an " n " refer to notes.] PROXIES— (Continued) : Notice to as notice to stockholder, 471, 218n. 46. Attendance by as election to affirm subscription, 467n. 43. PUBLIC GRANTS: To corporation not yet formed, 137n. 31. PUBLIC POLICY: (See also Unlawful purpose.) Agreements for withdrawal of opposition to charter, 106. Agreement that corporation shall purchase specific property, 31-4. Or employ specified persons, 34-8. Or elect specified officers, 38. Agreements contemplating fraud or violation of statute, 32-4, 39n. 18. Interfering with control of stockholders or directors, 36-7, 40. Depriving corporation of power to increase stock, 41. Or change number of directors, 41n. 25. Corporation cannot assume contract contrary to public policy, 118-20. Collateral conditions contrary to, no defense to subscription, 124n. 97. PURCHASE AND RE-SALE TO CORPORATION: (For matters relating to property purchased before commencement of relation, see Selling property to corporation; As to when relation commences, see Commencement of relation of promoter. When property deemed to be acquired, see Selling property to corporation. See also Lawful profits.) Promoters' profits on re-sale unlawful, 180-2. (How made lawful — see Lawful profits.) Profits derived by buying in liens at a discount, 182. Property actually worth price paid to promoters, 185, 190, 314, 190n. 53. Property purchased during temporary abandonment of scheme, 27. Effect of change in proposed corporation, 27. Where property purchased before commencement of relation, 181-2, 187, 192, 220, 222-7, 301-5. When treated as purchased for corporation, 198, 306-8, 483. PURCHASE OF PROPERTY : (See Property purchased by promoters, Purchase and re-sale to cor- poration.) 632 INDEX. [References are to pages, except that numbers following an "n" refer to notes.] PURCHASE OF PROPERTY— (Continued) : Agreement for purchase of property by corporation to be organized, "Validity between parties, 31-2. Not binding upon corporation, 31-2. When unenforceable between parties, 32-1. PURCHASERS OP SHARES : (See Subscribers, False representations, Remedies of individual stock- holders. ) Fiduciary relation of promoter to, 21, 430. Secret profit of promoter as fraud upon, 232-6, 2S0-69, 429. Right to assume that property purchased worth par value of shares issued therefor, 432. When entitled to sue on representations in prospectus, 363-4. Purchasers of shares of abortive corporation, 574. QUESTIONS OP LAW AND FACT: Undue delay, 473n. 66. Assumption by corporation of liability on promoter's contract, 92. Agreement that promoter not liable for compensation of employee, 169n. 62. Purchase of property for corporation, 25n. 70. Authorization of co-promoter, 561-2n. R. RAILROADS : Agreement of promoters as to location of route, 121n. 89. Rescission of subscriptions because of departure from prescribed route, 572n. 38. Injunction to restrain departure, 572n. 38. Rights of under surveys made by promoters, 137n. 31. Surveys of promoters as bar to condemnation by other road, 137n. 31. Promotion expenses as item of value in fixing rates, 152n. 2. Railways Abandonment Act, 578n. 58. RATIFICATION : (See Lawful profits. Contracts of promoters.) INDEX. 633 [References are to pages, except that numbers following an " n '' refer to notes.] REAL PROPERTY: (See Property purchased by promoters, Statute of frauds, Convey- ances, Franchises, Public grants.) RECEIVERS : Appointment of, because of promoters' control and mismanagement, 311n. 22. Suits by, against promoters, 336. Suits by foreign, 336n. 8. Suits by minority stockholders after appointment of, 340, 353. RECOVERY OF EXPENSES : (See Expenses of promotion, Abortive promotions.) Recovery of expenses incurred in furtherance of abandoned project, 70. REIMBURSEMENT FOR EXPENSES: (See Expenses of promotion, Abortive promotions.) REMEDIES OF CORPORATION: Adequate remedy to be freely granted, 333. Remedy of accounting for profits, 301-18. ^ Where promoter after inception of relation purchases property and re-sells to corporation, 301-5. Where property acquired by promoter before commencement of relation, 301-5, 324. Exceptions to rule, 198, 306-8, 330. Rescission not necessary, 308. Right of promoter to allowance for services, 309. . Measure of recovery on accounting, 309-15, 481-5. Where profits taken in shares, 309-15, 329. In bonds or other obligations of the company, 315-8, 329, 490. Rescission of purchase, 301-3, 31&-23. Must appear that defendant at sometime owned property, 320. Must be m toto, 320. Where fraud affects only one of several parcels, 320. Where fraud affects one of several promoters, 320. Methods of effecting, 321, 354-5, 449. Restoration of status qvo, 321-3, 448. Tender, to whom made, 322n. 59. Where restoration impossible, 321-3. 634 INDEX. [Beferences are to pages, except that numbers following an " n " refer to notes.] REMEDIES OF COEPORATION— (Continued) : Trifling changes disregarded, 322n. 60. Where restoration rendered impossible by defendant, 321-3. Accounting for use of property before, 322n. 59. Of purchase from third party because of fraud of promoter, 330, 506-14, 518-20. Action for damages for fraudulent sale by promoter to corporation, 301-3, 323-6. " Damages " and " Profits " distinguished, 305n. 11. Remedies against promoter unlawfully taking shares, 309-15. Recovery from promoter of commissions received by him, 328-30. Of moneys or securities received by him, 328-9. Of qualifying shares received by him, 329. Recovery of commissions from third person agreeing to pay same to promoter, 329-30, 514-7. Remedies for fraudulent representations of promoter. Action for damages, 330. Rescission of sale induced by, 330. Promoter sometimes compelled to make representations good, 308, 331, 306n. 12. False representations as to price paid for property, 306-8, 330. As to liabilities of constituent company, 331. Cancellation of secret agreements, 332. REMEDIES OF INDIVIDUAL STOCKHOLDERS : In general, 436-51. Action for fraud and deceit against promoter, 436. Against corporation, 437-8. Compelling promoter to account for profits, 438. Rescission of subscriptions, (See Rescission). Subscribers for shares of abortive corporation (See Abortive promo- tions). REORGANIZATIONS : (See also Defenses.) In general, 552. Authority of corporation to employ promoter to reorganize it, 552-3. When in hands of receiver, 553. Ultra vires reorganization, 553n. 2. Services of directors impliedly gratuitous, 553. INDEX. 635 [References are to pages, except that numbers following an " n " refer to notes.] REORGANIZATIONS— (Continued) : Promoter acting under express agreement must show performance, 554. Necessity of disclosing promoter's compensation, 554. Payment of promoter's fees not fraud upon non-assenting stock- holders, 555. Reorganization in fraud of minority stockholders, 556. New corporation not necessary party to action based on fraud upon owners of securities of reorganized corporation, 558, Rescission at suit of reorganized company, 336n. 7. REPORTS : Quoted in prospectus — effect of, 383n. Representation in regard to, 404. Directors Liability Act, 375. Interpretation of, 422. BE8 JUDICATA : Effect of judgment for or against co-promoter, 298. Xjffect of judgment in relation to part of property sold to coriwra- tion, 262. RESCISSION : (See also Remedies of corporation. Remedies of individual stock- holders. Pleading, Law and Equity.) By corporation Rescission of purchase of property because of fraud in promotion by vendor's agents, 506, 518-20. Because of fraud of promoter, 330, 506-10, 518-20. Because of fraud on promoter, 506. Because of fraud in sale of shares, 433-5, 518-20. Power of directors to determine upon rescission, 230. Power of majority stockholders to determine upon rescission, 231. By reorganized company or assignee, 336n. 7. By corporation as assignee of promoter's contract, 511n. 10. At suit of minority stockholder, 345-7. Parties defendant in suit for rescission, 545-50. By signers of certificate of incorporation, 443. Sy suhscrlhers or purchasers of shares. For misrepresentations of promoters, 440-3. Of inter-meddlers, 441-2. 636 INDEX. [References are to pages, except that numbers following an " n " refer to notes.] BBSCISSION— (Continued) : Because of loose conversations, 443n. 16. Misrepresentations must be Inducing cause, 383-4. Subsequent misrepresentations, 371, 444n. 19. Misunderstanding, mismanagement, etc., insufficient, 384. Matters of opinion or future action, 443, 444n. 18. False statements subsequently made true, 384, 41*-9. Rescission because of innocent misrepresentations, 381, 446. Executed contracts, 383n. Where subscriber advised promoter's information not reliable, 383n. Because of Innocent ambiguity, 424-5. Concealment of facts, 384-8, 390-ln. Promoter's secret profit, 446. Misrepresentation of promoter's interest, 447. Rescission of other subscriptions, 411. Release of other subscribers, 410n. 19. Variance between corporation as organized and as planned, 570-1, 572-3n. 37 and 38. Variance between draft and final prospectus, 383n. When lies against corporation, 444. Rescinding subscriber not entitled to lien on corporate property, 442n. 15. Liability of promoters for return of subscription price, 445-6, 453. Necessity of fraudulent intent, 446. Not liable after right of rescission lost, 446. When lies against promoters, 445. When lies against syndicate manager, 445n. 22. Necessity of restoring status quo, 448. Methods of effecting rescission, 321, 449. Defending suit on subscription agreement, 450. After insolvency of corporation, 473-8. Obtaining cancellation of subscription notes, 450-1. Must disaffirm promptly, 468-9. What amounts to affirmance, 466-9. Disaffirmance before discovery of fraud, 473n. 66. After insolvency of corporation, 473. RIGGING THE MARKET: (See also Wash sales. Criminal liability of promoters.) Expenses of, not allowed to promoters, 162-3. INDEX. 637 [References are to pages, except that numbers following an "n" refer to notes.] S. SECRET PROFITS : (See also Purchase and re-sale to corporation, Selling property to cor- pbration, Remedies of corporation, Defenses.) In general, 170-198. Basis of rule against, 171-4, 180, 186. Manner of taking, 174. Taking shares as compensation for services, 175. Without consideration, 176n. 13. Insignificant profits, 175n. 12. Accepting commission from vendors, 1761 Accepting gifts, 178, 195. Qualifying shares, 178-9. Taking agreement to re-purchase qualifying shares, 179. Purchase of property and re-sale to corporation, 180-2. Buying In liens at discount, 182. Collateral agreements with contractors, 182-3. Secret royalty agreements, 183. Profits made in sustaining market, 183. Premiums for underwriting risk of litigation, 184. Profits of business transacted pending promotion, 184-5i, Gift of interest as cloak for profit, 195. Secret profit as basis of action for fraud and deceit by sub- scribers, 428. Under English Companies Act, 429n. 85. By creditors, 429n. 85. By purchasers of shares, 429-32. As basis for rescission of subscriptions, 446-7. Secret profit taken from co-promoters as basis of action by corpora- tion, 533-6. Promoters when liable in soUdo, 539. Liability of other parties sharing promoter's profits, 539n. 18. Secret profits as affecting promoter's right to compensation, 159, 309. As affecting promoter's right to reimbursement for expenses, 160n. 24. As affecting promoter's right to enforce other claims, 318. As affecting promoter's right to sue as minority stockholder, 343-6. 638 INDEX. [References are to pages, except that numbers following an "n" refer to notes.] SELLING PROPERTY TO CORPORATION: (See Agreements for promotion of corporation, Contracts of promo^ ters, Options, Conveyances, Public grants. Franchises, Surveys; For matters relating to sale of property purchased by promoters after commencement of relation, see Purchase and re-sale to corporation.) Distinctions depending upon whether property acquired before or after commencement of relation, 181-2, 187, 192, 220, 222-7, 301-5. When property deemed acquired by promoter, 193-5. When enforceable contract of purchase obtained, 193-4. Unenforceable contract, 193n. 61. Contract subsequently modified, 196-7. Option not ovniership, 193-5. Length of time property owned by promoter not material, 192. Property acquired by gift, 195-6. Property owned before commencement of relation when treated as acquired after, 198, 306-7, 483. When relation commences, see Commencement of relation of pro- moter. Promoter's right to sell property to corporation regardless of cost, 188, 222-7. Property acquired by gift, 195-6, 222. Where gift to promoter cloak for secret profit, 195. Promoter need not disclose cost, 222-7. Must not misrepresent cost, 227. Cost as evidence of value, 223, 492. Cost as evidence of good faith, 191n. 54. Must disclose interest, 188-9. And other material facts, 189-90. Secret Interest of single promoter voids transaction, 320. Must see that property worth selling price, 190-1. That property worth selling price does not legalize transaction, 190. Unlawful sale — corporation may refuse to complete, 321. Implied warranty of title, 191. SHAM SUBSCRIPTIONS: (See False representations.) SHARES : Bight to issue shares in payment for promoter's services, 163n. When services gratuitously rendered, 164. INDEX. 639 [References are to pages, except that numbers following an " n " refer to notes.] SHARES— (Continued) : Issued in violation of statute Not made lawful by ratification, 228n. 74. Liability of promoters on, 313-4, 488, 187n. 44. Effect of, on agreement to promote corporation, 33-4. Value arising from combination not taken into consideration, 191n. 54. Effect of statute on liability for promoter's profits, 187, 204, 318-4, 488-9. Effect on minority stockholder's suit, 282. SPECIFIC PERFORMANCE: Of agreements to promote corporation, 56-64. Where corporation not organized, 57. After corporation organized, 58. Contract contemplating partnership, 60n. 11. Where performance impossible, 61. Indefinite agreements, 61-2. Discretion of court, 62. Defence of adequate remedy at law, 58-61. Of agreement to convey property to corporation, 99-100, 135-6, 148-9. Of agreement to locate railroad route, 573n. 38. 8IFATU8 QUO : Restoration of, as a condition of rescission, 70-1, 321, 448. As a condition of setting aside account to subscribers of abortive corporation, 577. STATUTE OF FRAUDS: Agreements to promote corporation to purchase specific real estate, 34. Agreement of promoter to furnish money to perfect title, 34n. 9. As affecting right of corporation to enforce conveyance of property purchased for it by promoter, 136n. 27. Contracts not to be performed within one year, 82-3. STATUTE OF LIMITATIONS, 290, 462, 311n. 24, 469n. 56. In minority stockholders' suits, 354n. 72. STOCK CERTIFICATES : (See also Shares.) Constructive notice of contents of, 465-6. 640 INDEX. [References are to pages, except that numbers following an "n" refer to notes.] STOCK CERTIFICATES— (Continued) : Liability of promoters issuing before Incorporation, 416. Suit to compel corporation to issue, pursuant to promotion agreement, 63-4. Liability of promoter for refusal, of corporation to issue, 45. STOCK EXCHANGE: (See Certificates.) STOCK LEDGER: Striking name from, 445. STOCKHOLDERS OF CORPORATION: (See Stock certificates. Shares, Minority stockholders. Subscribers, Purchasers of shares.) Fiduciary relation of promoter to future stockholders, 20-1. To future stockholders other than original subscribers, 21. To what extent called upon to suspect fraud, 293, 459-61, 470, 478. Acts or acquiescence of transferors, 210-1, 213, 236, 253, 254-5, 288, 343^. Generally entitled to rights of action of transferor, 21n. 60. Knowledge of transferors, 210-1, 213, 253. Knowledge of proxies, 471, 218n. 46. Knowledge of matters transpiring at stockholders' meeting, 217n. 46. Power of stockholders to act for corporation, 164, 209n. 28. Power of stockholders to fix promoter's compensation, 164. Effect of vote where promoter holds proxies for majority, 164n. 38. Power of stockholders to consent to promoter's profits, 208-14. To ratify promoter's profits, 227-32. Assent of all stockholders binding upon corporation, 236, 258. But not as to liability on unpaid shares, 228n. 74. Does not bind creditors, 210n. 29. Power of majority stockholders. To determine upon rescission, 231, 346-7. To consent to or ratify promoters' profits, 208-14, 228-32. Right of interested promoter to vote as, 232. Assumption that all stand on same footing, 173. As to future relations, 173n. 8. SUBROGATION: Right of promoter satisfying obligations assumed by coritoration, 147. INDEX. 641 [References are to pages, except that numbers following an " n " refer to notes.] SUBSCRIBERS : (See also Subscription agreements, Abortive promotions, Purchasers of shares.) Fiduciary relation of promoter to, 18-20. To future subscribers, 20. To those subscribing without solicitation, 19-20n. 56, 447n. 29. Right of to accept special inducement, 173-4. Right to assume that all stand on same basis as to future relations, 173n. a Validity of agreement of promoter to re-purchase shares, 413, 123n. Liability for paying subscription to promoter after kijowledge of fraud, 350n. 55. Assignability of cause of action against promoter, 459n. 11. Liability on promoter's contracts, 565, 143n. 55. To what extent called upon to suspect fraud, 293, 459-61, 470, 478. SUBSCRIPTION AGREEMENTS : (See also False representations, Rescission, Evidence.) Status pending acceptance by corporation, 85-8. Status of application pending acceptance by promoter, 88n. 27. Not binding on corporation, 85. Binding effect as between subscribers, 85-6, 122. Withdrawal of subscriber, 85-8. Notice of withdrawal, 86n. 24. Application for shares not contract, 88n. 27. Enforcement by corporation, 85-8, 122, 134, 130n. 14. Where statute prescribes method of taking, 87n. Must be de jure corporation, 87n. Rejection by corporation— liability for money paid to promoter, 85n. 22. Varying by parol, 122, 408, 479. Collateral promises of promoter, 122, 408, 479. Corporate acceptance of, 124. When promoter sole party interested, 122n. 94. Agreement signed in blank, 123n. Conditions precedent to enforcement, 123-4. Conditions subsequent, 124. Promoter's personal liability on collateral promises, 124. Promoter accountable to corporation for instalments received, 135n. 25. Right of corporation to sue on check given to promoter, 134. Delivery of agreement, 125. 642 INDEX. [References are to pages, except that numbers following an "n" refer to notes.] SUBSCRIPTION AGREEMENTS— (Continued) : Delivery in escrow, 123n. Alterations in, 383n. Effect of affirmance, 464r-9. What constitutes affirmance, 466. Not conclusive unless with knowledge of facts, 465 Effect of election to affirm, 469. DisafBrmance, conclusive effect of, 459. What constitutes disaffirmance, 459. SUBSCRIPTION NOTES : Fi-aud of promoters as defense to, 450. Cancellation of, for fraud, 460-1. Innocent purchaser, 451n. 41. Given for shares of abortive corporation, 569. SURETIES : On treasurer's bond, liability for unlawful payments made to pro^ moter, 331-2. Liability of vendors as, for payment to corporation of commission paid to promoter, 516-7. Liability of promoters as, after contract assumed by corporation, 147. SURVEXS : Rights of corporation under surveys made by promoter, 137n. 31. Made by promoter, as bar to condemnation by other railroads, 137n. 31. SYNDICATES: Title of members of to property purchased pending promotion, 41. Status of promoter's certificate of interest in, 41. Liability of manager for return of moneys paid on subscriptions pro- cured by fraud, 445n, 22. Liability of manager on contract made for syndicate, 167n. 51. Fraud on syndicate as fraud on corporation, 239-42, 243-6, 259-60, 533-6. Defense that syndicate in turn defrauded corporation, 279. Liability of promoter for fraud upon, 528n. 2. Suits by one member on behalf of associates, 436n. 2. INDEX. 643 [References are to pages, except that numbers following an " n " refer to notes.] T. TERMINATION OF RELATION: Depends upon particular circumstances, 28-9. Not until scheme completed, 28-9. Not necessarily coincident with legal organization, 29. Relieves promoter from fiduciary obligations, 29. TORTS : Liability of promoters for personal injuries, 141n. Liability of promoters of de facto corporation, 583n. 62. Liability of corporation assuming debts of partnership, 116u. 84. TREASURY SHARES: (See Donating shares to corporation. Lawful profits.) u. ULTRA TIRES: Corporation cannot assume promoters' contract if ultra vires, 118-20. Corporation engaging in ultra vires business, liability of members, 586n. 66. Effect of, on enforcement of subscriptions, 572-3n. 38i UNDERWRITERS : Complaining of false prospectus, 421-2. Release by variation of prospectus, 572n. 37. UNLAWFUL PURPOSE: (See also Public policy.) Liability of promoter of corporation organized for, 582n. Effect of, on liability of subscribers, 124n. 97. Proof of, 124n. 97. Agreement to organize for, not enforceable, 32-4, 118-20. VALUE: (See Evidence.) Of shares, 58-9, 64-8, 312-5, 487. 644 INDEX. [Beferences are to pages, except that numbers I following an "n" refer to notes.] VALUE— (Continued) : When all shares Issued as bonus, 314-5, 489. In action for fraud in sale of shares, 498-500. Of bonds taken by promoters, 490. Of property sold to corporation, 490-3. False representations as to value of shares, 415, 426, 400ii. SL VARIANCE : Between corporation as planned and organized. Right of subscribers to rescind subscriptions, 570-1. Or to follow funds, 572n. 3T. In detail, as abandonment, 27, 571. Between draft prospectus and final prospectus, 383n. VENDORS TO THE CORPORATION: ( See Agreements for promotion of corporation. Contracts of promoters. Selling property to corppration. Purchase and re-sale to corpora- tion, Conveyances, Property purchased by promoters.) Under no fiduciary obligation, 9, 505-6. Liability for false representations made to promoters, 506. To subscribers, 518, 506n. 2. For fraud of agent, 506. For fraud of promoters, 330, 506-10, 518, 525-6. For fraud of promoters, 380, 506-10, 518, 525-6. For fraud in sale of corporate shares, 518. For assisting promoter to obtain secret profit, 510. Paying commission to promoter, 329, 515. Liable for commission agreed to be paid to promoter, 329, 514. Effect of compromise with promoter, 515. Effect of receipt by corporation of moneys paid to promoter in settlement, 515n. 23. Validity of agreement with promoter for sale to corporation, 31-4. Enforcement by corporation, 130-9, 147-8. Enforcement against corporation, 74r-125. Enforcement by promoter, 147-9. Enforcement against promoter, 139-47. Interpretation, 42-5. Liability of promoter for refusal of corporation to Issue certifl. cates to, 46. Liability in case of defective title, 191-2. INDEX. 645 [References are to pages, except that numbers following an " n " refer to notes.] VENDORS TO THE CORPORATION— (Continued) : Rights of, when receiving shares in payment, 521, 525-6, 437n. 3. When receiving bonds in payment, 523. Enforcing vendor's lien, 70. Rescinding sale to corporation, Because of failure to organize corporation, 68-71. Because of secret profits of promoter, 521-3. Because of failure of corporation to carry out promoter's promises, 69-70. Recovery of value of property conveyed to promoter, 70-1. Agreement of vendor to compensate promoter, 47-9, 514r-7. Rights and liabilities inter se of different vendors, 525, 437n. 3. Joint liability upon rescission of sale, 545. VOTING : Right of interested promoter to vote as stockholder, 232, 164n. 38. W. WAIVER OF DISCLOSURE, 218, 271-2. Under English Companies Act, 392-3n. WASH SALES, 416, 503. [Total number of pages 71L]