afterwards discovered that the promoters had by a secret agreement with the vendors received a commission of £85,000 for their services in selling the property and getting up the company. The company thereupon brought suit against the vendors and the promoters, demanding judgment for a rescission of its purchase, or in the alternative for an accounting by the promoters for the amount of their secret commission. Pending the suit, the plaintiff company entered into a compromise with the trustees of the estate of James Bagnall, by which, in consideration of the payment of £31,000, it abandoned its demand for a rescission. The corporation, however, pressed its suit against the promoters. It was claimed that the promoters were entitled to a deduction from the amount of their commissions of the sum which was received upon the compromise with the Bagnall Estate. The court very properly overruled this contention. Promoters are quasi agents of the corporation which they promote, and any profits received by them without its knowledge must be accounted for to it. The measure of their liability upon such accounting is, not what the corporation lost, but the profits which the promoters gained by the transaction.12

§ 139. Defense that judgment sought would compel promoter to pay more than his share of damages.

As promoters who combine to secure for themselves unlawful profits or benefits are joint tort feasors, it is immaterial that the judgment sought by the corporation will result in compelling one of them to pay more than his proportionate share of the profits received by the promoters, or of the damages suffered by the corporation.13

12. See Emma Silver Mining Co. v. Grant, L. R. 11 Ch. Div. 918, 938. See ante, § 100.

13. Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 52, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1134; Ex

Mission Land & Water Co. v. Flash, 97 Cal. 610, 636, 32 Pac. 600, 607. See also New Sombrero Phosphate Co. v. Erlanger, L. R. 5 Ch. Div. 73, 114, 25 W. R. 436, affirmed, sub nom. Erlanger v. New Sombrero Phos

§ 140. Defense that other guilty promoters would be benefited by recovery.

The fact that other and equally guilty promoters will, as stockholders of the company, be benefited by the recovery, is no defense to a promoter sued by the corporation. Such a defense was overruled in New Sombrero Phosphate Co. v. Erlanger,11 the master of the rolls saying, "The argument goes too far, because it would apply to a case of the grossest fraud in every instance in which one or more of the actual shareholders of a company took part in that fraud. If the argument were once allowed to prevail, it would only be necessary to corrupt one single shareholder in order to prevent a company from ever setting the contract aside. It may be said you give to the shareholder, who was a party to the fraud, a profit, because he will take it in respect of his shares, and since as between co-conspirators there is no contribution, therefore his brother conspirators, who are made liable for the fraud, cannot make him repay his proportion. But the

phate Co., L. R. 3 App. Cas. 1218, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65. See also post, §§ 190 and 303.

14. L. R. 5 Ch. Div. 73, 114, 25 W. R. 436, affirmed, sub nom. 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, followed in Exter v. Sawyer, 146 Mo. 302, 325, 47 S. W. 951, 957; Old Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 327, 74 N. E. 653, 108 Am. St. Rep. 479; same v. same, 203 Mass. 159, 193194, 89 N. E. 193, 40 L. R. A. N. S. 314. See also Davis v. Las Ovas Co., 227 U. S. 80, 33 Sup. Ct. 197, 57 L. Ed. 426; McEwen v. Harriman Land Co., 138 Fed. Rep. 797, 71 C. C. A. 163.

And see Commonwealth S. S. Co. v. American Shipbuilding Co., 197 Fed. Rep. 780, 793, and same v. same, 197 Fed. Rep. 797, 810, affirmed, 215 Fed. Rep. 296, 131 C. C. A. 596, where the suit was against the vendor for a rescission of the sale because of a secret commission paid to the promoters, and the fact that the promoters were stockholders of the plaintiff corporation was held to be immaterial.

In Old Dominion Copper, etc., Co. v. Lewisohn, 210 U. S. 206, 28 Sup. Ct. 634, 52 L. Ed. 1025, the court said (p. 213), that if there had been innocent members at the time of the sale, the fact that there were also guilty ones would not have prevented a recovery.

doctrine of this Court has never been to hold its hand and avoid doing justice in favor of the innocent, because it cannot apportion the punishment fully amongst the guilty. A dozen parties to a fraud may be defendants, and one decree or judgment go against all, and if it is a fraud of such a character that none of them can bring an action for contribution, the plaintiff may at his will and pleasure enforce that judgment against any one of them, and perhaps pass over the most guilty of them; still there is no remedy as between those who commit the fraud. It is one of the punishments of fraud that there is no such remedy, and that a guilty party, though not the most guilty, may suffer the greatest amount of punishment. It is one of the deterrents to men to prevent their committing fraud."

In McEwen v. Harriman Land Company,15 the receivers of the East Tennessee Land Company, an insolvent corporation, had brought suit against Leeson and Hopewell, two of its promoters, to recover the secret profits made by them upon the promotion of the corporation, and had as a result of such suit recovered large sums of money. In the meantime, the Harriman Land Company had been organized by a reorganization committee of the East Tennessee Land Company and the creditors of the old company were permitted to transfer their claims to the new company receiving its shares in exchange. Among the larger holders of the Harriman Land Company stock were certain promoters of the East Tennessee Land Company, who had upon the organization of the East Tennessee Land Company made profits to a like extent with Leeson and Hopewell. It was held that this was no ground for refusing to allow the Harriman Land Company to share in the moneys recovered in the suits against Leeson and Hopewell.

A court of equity will, however, when possible, so frame its decree that the guilty parties shall receive no benefit from the

15. 138 Fed. Rep. 797, 71 C. C. A. 163.

recovery of the corporation."

The fact that all the shares are,

at the time of the suit, held by persons who were parties to the transaction complained of, and that there are no longer any innocent stockholders to be benefited, prevents a recovery by the corporation.17

§ 141. Defense that defrauded syndicate in turn defrauded corporation.

A cause of action may sometimes result to the corporation from a fraud committed by one of the promoters upon a syndicate which purchased property and resold it to the corporation.18 It is in such case, when the legality of the promoter's transaction is questioned by the corporation, no answer that the syndicate was itself guilty of another and independent fraud upon the corpo

ration.19

20

§ 142. Defense that corporation was itself guilty of fraud. Promoters sued by the corporation in one case set up as a defense that the corporation had itself been guilty of fraud in the subsequent sale of its shares. In Cuba Colony Co. v. Kirby,2 the promoters had unlawfully obtained a profit of $20,000 in the shares of the company. The company sued for the cancellation of these shares. The promoters claimed that the corporation had after the acquisition of the property issued statements misrepresenting its value, and cited the maxim " He who comes into equity must come with clean hands." The court said, "Now that the promoters who were largely responsible for the issuance of these

16. Hyde Park Terrace Co. v. Jackson Bros. Realty Co., 161 N. Y. App. Div. 699, 146 Supp. 1037.

17. Richard Hanlon Millinery Co. v. Mississippi Valley Trust Co., 251 Mo. 553, 158 S. W. 359.

18. See post, § 301.

19. See Midwood 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. See Old Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 199-200, 89 N. E. 193, 40 L. R. A. N. S. 314.

20. 149 Mich. 453, 112 N. W. 1133.

false statements-have no longer any relation to the corporation, we do not believe that such statements will continue to be issued or that harm will come from those that have been issued. It is not to be assumed therefore that the decree in this case will be so used as to enable complainant to perpetrate a fraud similar in kind to that of which it complains. Under these circumstances the maxim relied upon by the defendants does not apply."

§ 143. Defense that moneys taken by the promoter were acquired by the corporation in an unlawful manner.

Promoters have, when sued by the corporation for unlawful profits, set up as a defense the fact that the moneys taken had been acquired by the corporation by means of an illegal issue of its shares.

In Pittsburg Mining Co. v. Spooner,21 the corporation brought suit against the promoters to recover profits unlawfully taken by them. The defendants demurred to the complaint claiming that the money with which the corporation paid the defendants for their option had been obtained by it by an illegal issue or sale of its stock, and that no action would lie to recover of the defendants any part of the money so illegally obtained by it. Judge Taylor, writing the opinion of the court, said, "Under my construction of the allegations of the complaint, it is very clear that the fact that the corporation received the money which paid the defendants for their mining option upon an illegal issue of its stock, cannot be a defense to this action to compel them to refund to the company so much of the purchase price as was unlawfully received by them on such sale. The basis of the argument of the learned counsel is that these defendants received the money of the stockholders upon this alleged illegal sale of the stock as the agents of the corporation, and that as such agents they cannot be made to account to their principal for the money so received by them upon

21. 74 Wis. 307, 324, 42 N. W. 24 Am. & Eng. Corp. Cas. 1. 259, 263-264, 17 Am. St. Rep. 149,