difference between the par value of the securities issued to her and the actual value of the lands conveyed in consideration thereof, or in the alternative the surrender and cancellation of the shares. It was urged by the defendants that the complaint failed to allege that when the plaintiffs purchased their shares they knew that Mrs. Copeland or anyone had subscribed for any stock, or that they were misled by her acts, or those of the directors, or by any failure on their part to disclose material information. The court said that it was alleged that the corporation had been organized, and before that could be done, to comply with the statute, 50 per cent of the stock must have been subscribed, and that it would be presumed that the plaintiffs and other stockholders were misled.30

§ 147. Reorganization of corporation as defense.

In Central Trust Company v. East Tennessee Land Company,31 the Federal court appointed a receiver of the East Tennessee Land Company, who brought suit against its promoters in the courts of Massachusetts.82 The defendant promoters applied to the Federal court for an order restraining the receiver from the further prosecution of such suit, relying principally upon the fact that certain stockholders and bondholders of the East Tennessee Land Company had, with a view to saving what they could from the wreck, joined in the organization of the Harriman Land Company, which then purchased the lands of the old company at judicial sale and issued its stock in exchange for the stocks and bonds of the old company. It was claimed that the transactions constituted a mere reorganization of the East Tennessee Land Company, and that the obligations of the East Tennessee Land Company against its promoters had been extinguished. The argu

30. Citing 2 Thompson on Corporations, § 1581, and Melvin v. Lamar Insurance Co., 80 Ill. 446, 22 Am. Rep. 199.

31. 116 Fed. Rep. 743.

McEwen

v. Harriman Land Co., 138 Fed. Rep. 797, 71 C. C. A. 163.

32. See Hayward v. Leeson, 176 Mass. 310, 57 N. E. 656, 49 L. R. A. 725.

ment seems to have been wholly without merit and was promptly overruled.

§ 148. Defense of assignment of company's claim against pro

moter.

In the course of the litigations arising out of the organization of the Old Dominion Copper Company, the owners of a majority of the shares of the company, a New Jersey corporation, caused a corporation to be organized under the laws of Maine, to which corporation they transferred their stock in the New Jersey company. An agreement was thereupon entered into between the New Jersey company, the Maine company, and two men named Smith and Hoar, providing that the Maine company as the majority shareholder of the New Jersey company, should cause the latter company to realize upon its suits against its promoters, and distribute the proceeds thereof as in the agreement provided. Smith and Hoar declared themselves to be trustees of any fund obtained by virtue of this agreement, and issued certificates of interest known as trust receipts, which were sold in the market, the holders thereof not being in any substantial part the holders of shares of the Maine company or of the New Jersey company. Bigelow, one of the promoters, having been sued in the courts of Massachusetts, filed a bill in the New Jersey Chancery Court to restrain the prosecution of the Massachusetts suits, alleging, among other reasons, that the holders of these trust receipts were the persons ultimately entitled to the moneys to be paid by the Maine company to Smith and Hoar as trustees, and that the prosecution of the suits in question was not for the benefit of the New Jersey company, but for the purpose of realizing the largest sums possible on the trust certificates; that the buying and selling of such certificates amounted to trading in a law suit, and that the proceeds of any recovery would not go to any persons who were originally interested in the New Jersey company, nor as far as fourteen-fifteenths were concerned would they go to the New

Jersey company, and that the greater part thereof would go to strangers to the transaction who had purchased the trust receipts. To the argument in support of the injunction, based upon the facts thus disclosed, Chancellor Pitney found eight answers: first, that it was not suggested that knowledge of the agreement mentioned had been newly acquired by the complainant Bigelow, and that there was no reason why it should not have been set up in the Massachusetts suits; second, that the New Jersey company was not a party to the agreement; third, that the agreement was made after the suits sought to be enjoined had been commenced; fourth, that neither the law nor policy of the state of New Jersey prohibited what the complainant called a speculation in a law suit; fifth, that in view of the non-adoption in the state of New Jersey of the laws against champerty and maintenance, and of the absence from the Corporation act of any prohibition, the Chancellor was unaware of anything in the policy of the state to prevent stockholders from agreeing among themselves to aid the company in proper ways in its litigations against third parties, and to use their influence as stockholders to see that out of the proceeds of the litigation, the disbursements made in the company's behalf should be refunded, and a special dividend made of the net proceeds; sixth, that the agreement, if contrary to public policy, ought to be nullified, but that the company should not, on account thereof, go without remedy against a third party who had defrauded it before the void agreement was made; seventh, that if the defendant desired to uphold the supposed public policy of New Jersey he could pay the New Jersey company what he owed it, disregarding the claims of the holders of the trust certificates; eighth, that the agreement did not constitute a voting trust, that the New Jersey corporation act recognizes that corporate stock may be placed in pledge, and that the pledger and pledgee may agree between themselves as to how it shall be voted.33

33. Bigelow v. Old Dominion Cop- 492, 71 Atl. 153. per, etc., Co., 74 N. J. Eq. 457, 487

The Supreme Court of Massachusetts later disposed of a defense based upon this same agreement by showing that the plaintiff company was not a party to the agreement, that the agreement was made long after the suit was instituted, that while the agreement might, if illegal, be set aside in appropriate proceedings, the rights of the plaintiff for the benefit of all its stockholders could not be refused enforcement by reason thereof.34

§ 149. Defense of ulterior purpose on the part of plaintiff.

Mason v. Carrothers 35 was a minority stockholders' suit brought to compel the cancellation of certain shares which were claimed to have been unlawfully taken by the promoters. A defense was interposed that the plaintiffs did not come into court with clean hands as another corporation had been formed, a majority of its board of directors being included among the plaintiffs; that this new corporation had acquired from the old corporation a lease of the patents which it had been organized to practice, and that the plaintiffs had received share for share in the new company, as a gift. It was claimed by the plaintiffs that this was done to protect the preferred stockholders. The court said that whatever its purpose, a careful study of the transaction failed to reveal anything soiling the hands of the plaintiffs and preventing their pursuing their equitable rights in the pending cause. That the maxim of clean hands applied solely to some wilful misconduct in reference to the matter in litigation, and not to some other illegal transaction though directly connected with the subject matter of the suit.86

§ 150. Defense of settlement with majority stockholders. In Spaulding v. North Milwaukee Town Site Co.,37 it appeared

34. Old Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 200201, 89 N. E. 193, 40 L. R. A. N. S. 314.

35. 105 Me. 392, 408, 74 Atl. 1030, 1037.

36. Citing 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. See ante, § 143.

37. 106 Wis. 481, 496 497, 81 N. W. 1064, 1069.

that all of the stockholders, except the plaintiffs and the holders of twelve other shares, had "settled, accepted satisfaction for their stock, and released any claim or right to be reimbursed for their share of the moneys obtained by defendants from the corporation." The court said that if the proceeding before it were an action at law, there might be no escape from the entry of a money judgment for the full amount. The action, was, however, a minority stockholders' suit, and being, as such, in equity, the court in view of the prior dissolution of the corporation, computed the proportionate amount which each stockholder was entitled to receive and decreed the payment thereof directly to him.

§ 151. Statute of limitations.

As the defense of the statute of limitations depends upon the statute of the particular jurisdiction, and as such statutes and the decisions construing them have no peculiar application to actions based upon promoters' liabilities, an extended discussion of this defense would be out of place. It is deemed sufficient to call attention in the notes to a few cases involving promoters' liability, in which the bar of the statute of limitations is discussed.38

38. Illinois.-Goodwin v. Wilbur, 104 Ill. App. 45, 54.

Iowa.-The Telegraph v. Loetscher, 127 Iowa 383, 101 N. W. 773, 4 Am. & Eng. Ann. Cas. 667; Caffee v. Berkley, 141 Iowa 344, 118 N. W. 267.

Massachusetts.-Old Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 201, 89 N. E. 193, 40 L. R. A. N. S. 314.

Missouri.-Bent v. Priest, 86 Mo. 475, 488.

Wisconsin.-Pietsch v. Milbrath, 123 Wis. 647, 659, 101 N. W. 388,

392, 102 N. W. 342, 68 L. R. A. 945, 107 Am. St. Rep. 1017.

United Kingdom and Colonies.Re The Fitzroy Bessemer Steel Co., Ltd., 50 L. T. N. S. 144; Re Sale Hotel & Botanical Gardens, 77 L. T. N. S. 681, reversed on other grounds, 78 L. T. N. S. 368.

It is said in Beatty v. Neelon, 13 Can. S. C. 1, 19 Am. & Eng. Corp. Cas. 236, affirming, 12 Ont. App. 50, 12 Am. & Eng. Corp. Cas. 20, that delay for a period less than the statutory limitation is an important feature to be considered in arriving at the merits of the case.