The same remedy is open to the corporation if the promoter receives, as a gift from a vendor to the corporation, the shares necessary 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." 76 The promoter may, if his profit is received in shares, be compelled 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.77 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.78 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.7 79 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.80 These questions, as well as that relating to the right 76. Hayward v. Leeson, 176 Mass. 310, 57 N. E. 656, 49 L. R. A. 725; Colton Improvement Co. v. Richter, 26 N. Y. Misc. 26, 32, 55 Supp. 486; Wills v. Nehalem Coal Co., 52 Or. 70, 81, 86, 96 Pac. 528, 532, 534; London Trust Co. v. Mackenzie, 62 L. J. Ch. N. S. 870, 877, and see ante, § 94. Cf. dictum in Tyrrell v. Bank of London, 10 H. L. Cas. 26, 59, 11 Eng. Rep. 934. 77. See Chandler v. Bacon, 30 Fed. Rep. 538; Hayward v. Leeson, 176 Mass. 310, 322, 57 N. E. 656, 49 L. R. A. 725; Emery v. Parrott, 107 Mass. 95, 100, 104; Nant-Y-Glo & Blaina Ironworks Co. v. Grave, L. R. 12 Ch. Div. 738, 749, 750, and see ante, § 165. 78. See ante, § 166. of the corporation to rescind its purchase because of a secret commission paid by the vendor to the promoters, are discussed at greater length in a subsequent chapter.81 § 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 representations.82 A sale induced by the false representations of the promoters may be set aside 83 whether or not the representations were authorized by the vendor, for he cannot insist on the validity of the sale while repudiating the fraud by which it was induced.84 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.85 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.86 81. See post, chapter XVI. 82. The Telegraph v. Loetscher, 127 Iowa 383, 387, 101 N. W. 773, 4 A. & E. Ann. Cas. 667, (citing Morawetz on Corporations, § 546); Second National Bank v. Greenville Screw-Point Steel Fence Post Co., 23 Ohio C. C. 274, 280; In re Leeds & Hanley Theatres of Varieties, 1902, 2 Ch. Div. 809, and see post, § 245. 83. Phosphate Sewage Co. V. Hartmont, L. R. 5 Ch. Div. 394, 46 L. J. Ch. 661, and see post, § 286. 84. See post, § 286. 85. See post, § 287. As to false representations generally, see post, chapter XI. 86. See ante, § 162. There is some authority for the rule that a promoter who falsely represents that a certain number of shares of a corporation 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.87 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. 88 § 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.89 The officers of the corporation may likewise become personally liable because of a payment unlawfully 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,90 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. As to the remedy for false certificates as to the amount actually paid in, see Hequembourg v. Edwards (Mo.) 50 S. W. 908, and cases cited, (reversed, 155 Mo. 514, 56 S. W. 490), and see post, § 201n. 88. O'Sullivan Ont. W. R. 46. V. Clarkson, 9 89. In re Anglo-French Co-operative Society, L. R. 21 Ch. Div. 492. And see Gray v. Heinze, 82 N. Y. Misc. 618, 144 Supp. 1045. 90. 103 Wis. 530, 79 N. W. 753. 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 subscription 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 assessment on the stock subscriptions, the sum of $22,680 instead of the $14,430 actually received, and credited himself with a first payment 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 innocent parties and that the corporation was unable to make collection, the treasurer and his sureties would be liable. No such showing having been made the judgment in favor of the plaintiff was reversed and a new trial granted. § 177. Cancellation of secret agreements. In Fred Macey Co. v. Macey,91 the defendant, one of the pro 91. 143 Mich. 138, 106 N. W. 722, 5 L. R. A. N. S. 1036, 152 Mich. 164, 115 N. W. 966. moters of the plaintiff corporation, had in the course of the organization of the company, without the knowledge of the subscribers, obtained a contract which purported to obligate the company to pay him royalties on the patents which it was organized to practice. A bill in equity demanding the cancellation of this agreement was held good upon demurrer. § 178. Adequate remedy to be freely granted. It should in closing this chapter on the remedies of the corporation 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," 92 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., Co. v. Bigelow, 203 Mass. 159, 202, 89 N. E. 193, 40 L. R. A. N. S. 314. |