such illegal sales. Admitting this to be a true statement of the facts alleged in the complaint, I think, under the decisions of this and many other courts, these agents cannot set up the illegality of the transactions as a defense to an action by the principal to recover the money of its agents." The court added that the allegations of the complaint furthermore showed that the money received on the sale of stock came into the possession of the corporation; that such money was, notwithstanding the illegality of the transaction, the money of the corporation as against all the world, and that the promoters must account therefor.

In Yale Gas Stove Co. v. Wilcox,22 the defendants, desiring to sell certain patents to the corporation for $3,000 in cash and $5,000 in shares, made a contract to sell the patents to it for $20,000 par value of shares. Of these shares the defendants retained $5,000 par value, returned $5,000 to the treasury of the company and sold $10,000 par value for $6,000, in cash, of which sum they retained $3,000 and paid the other $3,000 into the treasury. The company brought suit to recover the amount of a commission unlawfully paid to one of the defendants. The defendants claimed that the corporation had, to avoid the statute and defraud the public, made a sham contract, and that a court of equity should leave the parties where it found them; that the court should not order one party to give up to the other an illegal profit while permitting that other to keep an equally illegal profit obtained in the same transaction. The court said that the maxim that "he who comes into equity must come with clean hands" had no application, as it refers solely to wilful misconduct in regard to the matter in litigation, and that an indirect connection between an obligation and an illegal transaction would not bar the enforcement of the obligation if the plaintiff did not require the aid of the illegal transaction to make out his case.23

22. 64 Conn. 101, 128, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159,

47 Am. & Eng. Corp. Cas. 647.

23. Citing Snell's Eq. 35; Arm

§ 144. Defense that plaintiff suing as minority stockholder acquired his shares in violation of statute.

Where suit on behalf of the corporation is brought by a minority stockholder, the fact that the shares of the plaintiff stockholder were issued to him, in violation of the provisions of the statute, at less than the par value thereof, does not in most jurisdictions constitute a defense to the promoters when sued by the corporation. This question, however, depends upon the interpretation of the statutes of the state in which the corporation is organized, and the language of the particular statute must in each case be considered.

In Arnold v. Searing,24 the plaintiffs were members of a syndicate which had received $2,000,000 in bonds and a bonus of a like amount of stock upon the payment of $1,900,000. The vice chancellor said, "Is there to be found in this plan such uncon

strong v. American Exchange Bank

of Chicago, 133 U. S. 433, 33 L. Ed. 747, 10 Sup. Ct. 450; Lewis & Nelson's Appeal, 67 Pa. 153, 166; Woodward v. Woodward, 41 N. J. Eq. 224, 4 Atl. 424; Pittsburg Mining Co. v. Spooner, 74 Wis. 307, 42 N. W. 259, 17 Am. St. R. 149, 24 Am. & Eng. Corp. Cas. 1.

And see post, § 149.

24. 73 N. J. Eq. 262, 267-268, 67 Atl. 831. See same case after a trial of the issues, 78 N. J. Eq. 146, 78 Atl. 762.

See also Pietsch v. Krause, 116 Wis. 344, 93 N. W. 9, where the court arrived at the same conclusion, (overruling Hinckley V. Pfister, 83 Wis. 64, 53 N. W. 21), though the Wisconsin statute declared that "No corporation shall issue any stock or certificate of stock except in consideration of

money, or labor or property, esti-
mated at its true money value,
actually received by it, equal to the
par value thereof
and all
stocks . . . . issued contrary to the
provisions of this section.... shall
be void."

See also Krohn v. Williamson, 62
Fed. Rep. 869, 875, affirmed, sub
nom. Williamson v. Krohn, 66 Fed.
Rep. 655, 13 C. C. A. 668, 31 U. S.
App. 325; Barcus v. Gates, 89 Fed.
Rep. 783, 32 C. C. A. 337, 61 U. S.
App. 596; Shaw v. Staight, 107
Minn. 152, 119 N. W. 951, 20 L. R.
A. N. S. 1077. Note to Lomita Land
& Water Co. v. Robinson, 18 L. R.
A. N. S. 1134. See post, § 256.

The result may be different if the shares were issued wholly without consideration. See Arkansas, etc., Co. v. Farmers' L. & T. Co., 13 Colo. 587, 22 Pac. 954.

scientious conduct as will operate as a bar to equitable relief at the instance of complainants? I think not. Stock issued as a bonus with the sale of bonds, or stock issued through the means of over-valuation of property cannot properly be regarded as necessarily issued fraudulently. In the absence of intervening rights of creditors such transactions appear to have been generally supported by the courts unless positive fraud has been clearly established, notwithstanding the constitutional and statutory provisions of many of the states designed to secure a proper relationship between the capital stock and the assets of corporations.25 Complainants are de facto stockholders. The management of the corporation will not sue. To whatever extent the syndicate plan may be said to be violative of the spirit of our legislation touching the issuance of stock, I think the case presented by the bill is one in which public policy may be said to be promoted by allowing complainants to sue in behalf of the corporation for the restoration of the assets alleged to have been fraudulently appropriated by defendants."

§ 145. Defense of participation, or acquiescence, of plaintiff stockholder, or his assignor.

The fact that the plaintiff suing as a minority stockholder was a party to, or acquiesced in, the transaction complained of, is a bar to his suit.26 The transferee of shares stands, according to

25. Citing Cook on Corporations, §§ 46, 47; Scoville v. Thayer, 105 U. S. 143, 153, 26 L. Ed. 968, and Hebberd v. Southwestern Land & Cattle Co., 55 N. J. Eq. 18, 36 Atl. 122.

26. Alabama.-Parson v. Joseph, 92 Ala. 403, 8 So. 788.

Arizona.-Hughes v. Cadena De Cobre Min. Co., 13 Ariz. 52, 61, 108 Pac. 231, 234.

Colorado.-Arkansas River Land Town & Canal Co. v. Farmers' Loan

& Trust Co., 13 Colo. 587, 603, 22 Pac. 954.

Illinois.-Babcock v. Farwell, 245 Ill. 14, 40-41, 91 N. E. 683, 137 Am. St. Rep. 284, 19 Am. & Eng. Ann. Cas. 74.

New Jersey.-Knoop v. Bohmrich, 49 N. J. Eq. 82, 86-87, 23 Atl. 118, affirmed, sub nom. Bohmrich v. Knoop, 50 N. J. Eq. 485, 27 Atl. 636. Wisconsin.-Spaulding V. North Milwaukee Town Site Co., 106 Wis.

the weight of authority, in the shoes of his transferor, and cannot maintain a suit based upon a transaction in which any prior holder of his shares participated or acquiesced.27

§ 146. Defense that subscribers had no knowledge of promoter's subscription and were not misled thereby.

Subscribers claiming to have been deceived by sham subscriptions made by promoters, must, no doubt, in order to recover damages, show that the subscriptions came to their attention, and that they acted in reliance thereon. This question is discussed in a subsequent chapter.28 If, however, the promoters are sued by the corporation, because of their failure to properly disclose their interest in the transaction under which they received the shares of the company as consideration for a conveyance of property, the failure to show that the subscribers had knowledge of the promoters' subscriptions and were misled thereby, seems to be quite immaterial. This question was, however, considered in Wills v. Nehalem Coal Co.,29 and the case decided on the ground that the plaintiff and other stockholders were presumably misled. The promoters in that case having acquired an option to purchase a tract of land for $12,000, caused the vendors to convey the land to a Mrs. Copeland, the wife of one of the promoters. She, having subscribed for 750 shares of a par value of $75,000, conveyed the land to the corporation for a pretended consideration of $87,000, which was paid $12,000 in the corporation's note, and $75,000 in shares. The plaintiffs sued as minority stockholders demanding that Mrs. Copeland be required to pay to the corporation the

In Mason v. Carrothers, 105 Me. 392, 74 Atl. 1030, the promoters having received in payment for certain patents $100,000 in the preferred and about $800,000 in the common stock of the company, turned back to the treasury $200,000 of common stock, some of which was afterwards issued to the plaintiffs as a bonus upon their subscriptions to the preferred stock. It was claimed that the plaintiffs having received some of this common stock as a bonus

with their preferred stock, must be held to have acquiesced in all that went before. The court, however, overruled this contention on the ground that the plaintiffs could not be held to have acquiesced in a transaction of which they had no knowledge, and that the burden of proving such knowledge was upon the defendants.

28. See post, §§ 205-206.

29. 52 Or. 70, 89, 96 Pac. 528, 535.