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benefit of the corporation by a minority stockholder who was himself a party to, or who acquiesced in, the fraud of which he complains.30 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 acquiescence, be debarred from maintaining such suit.31

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.32 The action could not be maintained by a shareholder who purchased his shares for the purpose of bringing the suit.33 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 corporation 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.

31. See ante, § 145.

32. Lagunas Nitrate Company v. Lagunas Syndicate, 1899, 2 Ch. Div. 392, 449, by Rigby, L. J., who was, however, in the minority on the decisive points of the case.

See Ellis v. Penn Beef Co., 9 Del. Ch. 213, 218, 80 Atl. 666, 668; Pollitz v. Wabash R. R., 150 N. Y. App. Div. 709, 713, 135 Supp. 785; Young v. Drake, 8 Hun (N. Y.) 61.

Contra Langdon v. Fogg, 14 Abb. N. C. (N. Y.) 435, citing Hawes v. Oakland, 104 U. S. 450, 460-461, 26 L. Ed. 827, which is not really in point-see preceding section.

33. Boldenweck v. Bullis, 40 Col. 253, 90 Pac, 634; Just v. Idaho Can. & Imp. Co., 16 Idaho 639, 102 Pac. 381, 133 Am. St. Rep. 140; Kingman

v. Rome, Watertown & Ogdensburgh R. R. Co., 30 Hun (N. Y.) 73; Sayles v. Central National Bank of Rome, 18 N. Y. Misc. 155, 41 Supp. 1063, reversed on another ground, (sub nom. Sayles v. White), 18 N. Y. App. Div. 590, 46 Supp. 194; Moore v. Silver Valley Mining Co., 104 N. C. 534, 545, 10 S. E. 679, 683.

See note to Pollitz v. Gould, Am. & Eng. Ann. Cas., 1912 D. 1098, 1102-1103.

Compare Pollitz v. Wabash R. R., 150 N. Y. App. Div. 709, 713, 135 Supp. 785, where the court seems to lose sight of the distinction between examining into the motives of a bona fide stockholder in bringing suit, and looking into the motives of the plaintiff in becoming a stockholder.

chase with such suit in view, but if the stock is not of itself desirable, 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, committed 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.3 34

§ 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." 35 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 arrived at by a fair exercise of the directors' discretion.30

§ 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 stockholder's suit for the rescission of a purchase made by the corpo

34. Averill v. Barber, 25 N. Y. St. Rep. 194, 197, et seq., 6 Supp. 255, 2 Silv. 40, 53 Hun 636.

35. Groel v. United Electric Co. of N. J., 70 N. J. Eq. 616, 626, 61 Atl. 1061. See Hutchinson v. Simpson, 92 N. Y. App. Div. 382, 413, 87

Supp. 369, dissenting opinion of
Hatch, J.

36. Hawes v. Oakland, 104 U. S. 450, 456 457, 26 L. Ed. 827; Groel v. United Electric Co. of N. J., 70 N. J. Eq. 616, 623, 61 Atl. 1061; Hutchinson v. Simpson, 92 N. Y.

ration.37 The advisability of rescinding the purchase would generally 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.38 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, 39 and a transaction which is subject to ratification by the majority stockholders cannot be set aside at the suit of the minority.40 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. R. 1 Ch. Div. 13, 21, and cases cited.

37. See Brewer v. Boston Theatre, 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. Sollenberger, 89 Md. 316, 333, 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, affirming, 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; Wallace 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 Investment Corporation, N. Y. Law Journal, 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, 494-495, 504-506.

The majority is, in the absence of

because of their participation in the fraud, debarred from voting upon the question of rescission,11 and that the plaintiffs actually represented a majority of the shares entitled to vote.42 The action might also be maintained by showing that the directors and stockholders were under the control of the guilty parties.43

It should be stated that if the situation is such that a minority stockholders' action for a rescission can be maintained, the plaintiff stockholders, not being in control of the corporation, cannot, and therefore need not in their complaint offer to restore the property purchased. The equities of the parties will in such case be adjusted upon the trial.44

§ 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.45 The minority 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 appears that the company has a defense to such suit which there is reason to believe would otherwise not be properly asserted.46

fraud or illegality, entitled to control the policy of the corporation. Dupuy v. Transportation and Terminal Co., 82 Md. 408, 426, 33 Atl. 889, 890, 34 Atl. 910.

41. For cases dealing with the question as to when the promoters may, and when they may not, vote as stockholders on the matter of the rescission, see ante, § 119.

42. See Atwool v. Merryweather, L. R. 5 Eq. 464n, 37 L. J. Ch. N. S. 35.

43. Mason v. Harris, L. R. 11 Ch. Div. 97.

44. 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.

45. See ante, § 166.

46. Dickerman v. Northern Trust Co., 176 U. S. 181, 188, 20 Sup. Ct. 311, 41 L. Ed. 423; Bronson v. La Crosse & Milwaukee R. R. Co., 2 Wall. 283, 17 L. Ed. 725, (cited in Heath v. Erie Ry. Co., 8 Blatch. 347, 11 Fed. Cas. 976, 997); Dodge v. Woolsey, 18 How. (U. S.) 331, 15 L. Ed. 401; Koehler v. Black River Falls Iron Co., 2 Black (U. S.) 715;

§ 189. Suits by creditors of corporation.

A bondholder or other creditor of a corporation, will not ordinarily 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,48 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, perhaps, bring an action against the receiver, the corporation, and the guilty promoters to establish the liability of the latter.49 It would generally, however, be better practice for the aggrieved creditor to move the court which appointed the receiver, for an order directing the latter to sue the promoters, or if there were reason to believe that the suit would in such case not be prosecuted with sufficient 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.50

Big Creek Gap Coal & Iron Co. v.
American Loan & Trust Co., 127
Fed. Rep. 625, 62 C. C. A. 351.

See also Cook on Corporations, §
848 (1); American Digest Century
Ed. "
Corporations," § 777, et seq.,
Decennial Ed., § 202, et seq.
47. El Cajon Portland Cement Co.
v. Wentz Eng. Co., 165 Fed. Rep.
619, 92 C. C. A. 447; Arnold v. Sear-
ing, 73 N. J. Eq. 262, 269, 67 Atl.
831; Mills v. Northern Ry. of Buenos
Ayres Co., L. R. 5 Ch. App. 621, 628.
See Cook on Corporations, § 735.
48. Mills V. Northern Ry. of
Buenos Ayres Co., L. R. 5 Ch. App.
621.

See Cook on Corporations, § 735. 49. Land Title & Trust Co. v. Asphalt Co. of America, 121 Fed. Rep. 587; Ackerman v. Halsey, 37 N. J. Eq. 356, affirmed, sub nom. Halsey v. Ackerman, 38 N. J. Eq. 501.

See also Cook on Corporations, § 735.

See as to terms, etc., Gerding v. East Tennessee Land Co., 185 Mass. 380, 70 N. E. 206; McEwen v. Harriman Land Co., 138 Fed. Rep. 797, 71 C. C. A. 163.

50. Dunnett v. Mitchell, Session Cases, 12 Rettie 400, and see post, § 205n, also § 254.

It has been said that while one

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