§ 190. Parties defendant. As promoters guilty of taking secret profits, or otherwise defrauding the company, are regarded as joint tort feasors, suit may be brought against any one or more, or all of such promoters.51 Any person who aids the promoters in defrauding the corporation, such as the vendor of property sold to the corporation who helps to deceive it by stating an exaggerated consideration in his deed, contract, or receipt, may be joined with the promoters as a party defendant.52 The agent of one selling property to the extending credit to a corporation may properly complain of fraudulent statements made in reference to the affairs and conditions of the corporation at the time the credit is extended, he cannot complain of mismanagement on the part of the officers of the corporation prior to the time that the credit was extended. Commercial Bank of Augusta v. Warthen, 119 Ga. 990, 47 S. E. 536, citing Thompson on Liability of Officers and Agents of Corporations, page 460; quoted in Joseph Rosenheim Shoe Co. V. Horne, 10 Ga. App. 582, 73 S. E. 953. 51. Old Dominion Copper, etc., Co. v. Lewisohn, 210 U. S. 206, 214215, 28 Sup. Ct. 634, 52 L. Ed. 1025; Davis v. Las Ovas Co., 227 U. S. 80, 33 Sup. Ct. 197, 57 L. Ed. 426, affirming, Las Ovas Co. v. Davis, 35 App. Cas. Dist. of Col. 372; Bigelow v. Old Dominion Copper, etc., Co., 225 U. S. 111, 127, 132, 32 Sup. Ct. 641, 56 L. Ed. 1009, Am. & Eng. Ann. Cas., 1913 E. 875. Old Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 328-329, 74 N. E. 653, 108 Am. St. Rep. 479; Old Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 201, 89 N. E. 193, 40 L. R. A. N. S. 314, affirmed, 225 U. S. 111, 56 L. Ed. 1009, 32 Sup. Ct. 641, Am. & Eng. Ann. Cas., 1913 E. 875. Arnold v. Searing, 73 N. J. Eq. 262, 268, 67 Atl. 831; Stockton v. Anderson, 40 N. J. Eq. 486, 4 Atl. 642, and cases cited. In re Olympia, Ltd., 1898, 2 Ch. Div. 153, affirmed, sub nom. Gluckstein v. Barnes, 1900, App. Cas. 240. And see post, § 303. 52. Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 45-47, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1123–1126; Stoney Creek Woolen Co. v. Smalley, 111 Mich. 321, 69 N. W. 722; Lindsay Petroleum Co. v. Hurd, L. R. 5 P. C. 221, 230, 243-244. See cases cited in note 18, L. R. A. N. S. 11191121, and see post, § 287. The agent of the promoters who assists them in the perpetration of their fraud is likewise liable. Lidney & Wigpool Iron Ore Co. v. Bird, L. R. 33 Ch. Div. 85, 95, 24 Am. corporation becomes jointly liable with the promoters if he, with knowledge of their relation to the corporation, divides with them the commissions paid to him by his principal.53 It has been held that one, who with knowledge of the promoters' unlawful profits aids them in securing subscribers for the shares of the company, thereby makes himself jointly liable with the promoters, though he was not a party to the scheme from its inception and did not receive any part of the promoters' profits.54 It may be broadly stated that any one who aids the promoters to commit a fraud upon the company becomes a joint tort feasor and jointly and severally liable with them for all damages suffered by the corporation.55 In order that a third person may be held liable with the promoters it must, however, be shown that such third person acted with knowledge of the facts and with the intent to assist the promoters in the perpetration of their fraud.56 One who, with knowledge of the facts, acted as a dummy for the & Eng. Corp. Cas. 23; Cullen v. Thompson's Trustees, 4 Macq. 424, 433. See post, § 204n. Cf. Hutchinson v. Simpson, 92 N. Y. App. Div. 382, 425, 87 Supp. 369. 53. Emery v. Parrott, 107 Mass. 95, and see Tegarden Bros. v. Big Star Zinc Co., 71 Ark. 277, 72 S. W. 989. 54. Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 44, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1127; Fountain Spring Park Co. Roberts, 92 Wis. 345, 66 N. W. 399, 53 Am. St. Rep. 917. V. 55. Fountain Spring Park Co. v. Roberts, 92 Wis. 345, 66 N. W. 399, 53 Am. St. Rep. 917. One who, after knowledge of the secret profit pays his subscription to the guilty promoter instead of to the treasurer of the corporation, is liable for the amount thereof. Second Nat'l Bank v. Greenville ScrewPoint Steel Fence Post Co., 23 Ohio C. C. 274, 283. To the effect that the participation must be established by proof, not by mere suspicious circumstances, see Second National Bank V. Greenville Screw-Point Steel Fence Post Co., 23 Ohio C. C. 274, 282, and see Cranston v. Bank of State of Georgia, 112 Ga. 617, 37 S. E. 875. See also post, § 287. 56. Cranston v. Bank of State of Georgia, 112 Ga. 617, 37 S. E. 875; South Missouri Pine Lumber Co. v. Crommer, 202 Mo. 504, 519, 101 S. W. 22, 26; Forest Land Co. V. Bjorkquist, 110 Wis. 547, 86 N. W. promoters, is at least a proper party to a suit based upon their fraud.57 Whether a person who received a share of the promoters' profits can, in an action for an accounting, be held liable beyond the amount received by him, is a question that is not free from doubt.58 Such a person is, however, always a proper party to the suit.59 § 191. Actions against personal representatives of deceased pro moter. An action may, even in those jurisdictions in which the rule that actions ex delictu die with the person has not been changed by statute,0 be maintained against the personal representatives of a deceased promoter, if the liability upon which the suit is based rests upon a violation of the promoter's fiduciary relation to the corporation, or if the promoter's estate benefited by his fraud.62 61 58. See post, § 303. 59. Getty v. Devlin, 70 N. Y. 504, 511; Stratford Fuel Ice C. & C. Co. v. Mooney, 21 Ont. L. R. 426. 60. See Cyclopedia of Law and Procedure, Vol. 1, p. 66. See also generally, p. 50, et seq. 61. Warren v. Para Rubber Shoe Co., 166 Mass. 97, 104, 44 N. E. 112; Wineburgh v. United States Steam, etc., Co., 173 Mass. 60, 53 N. E. 145, 73 Am. St. Rep. 261; Houghton v. Butler, 166 Mass. 547, 44 N. E. 624. Bagnall v. Carlton, L. R. 6 Ch. Div. 371, 388-389; Phosphate Sewage Co. v. Hartmont, L. R. 5 Ch. Div. 394, 441, 46 L. J. Ch. 661; New Sombrero Phosphate Co. V. Er langer, L. R. 5 Ch. Div. 73, 117-118, 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; Concha v. Murrietta, L. R. 40 Ch. Div. 543; Phillips v. Homfray, L. R. 24 Ch. Div. 439, 456 457, affirmed, L. R. 11 App. Cas. 466; Morgan v. Ravey, 6 H. & N. 265, 276. As to the liability of the personal representatives of the promoter, in an action for damages for fraud and deceit, see Peek v. Gurney, L. R. 6 H. L. 377, 392, et seq.; Shepheard v. Bray, 1906, 2 Ch. Div. 235, 253, 75 L. J. Ch. N. S. 633, but see 1907, 2 Ch. Div. 571, 76 L. J. Ch. N. S. 692. 62. Warren v. Para Rubber Co., 166 Mass. 97, 104, 44 N. E. 112; Wineburgh v. United States Steam, The rule that an action against the personal representatives of one of two or more joint debtors cannot be maintained unless it appears that the survivors are insolvent, does not prevent the joinder of the personal representatives of a deceased promoter as co-defendants with the surviving promoters in an action to recover secret profits, for this rule has no application to a cause of action predicated upon a wrong or violation of duty as agent or trustee.63 The personal representatives of a deceased promoter cannot, however, be joined with other defendants in action for damages, for fraud and deceit.64 § 192. Parties defendant in minority stockholders' suits. Where a suit is brought by a minority stockholder the corporation is a necessary party defendant, as the judgment sought is one in its favor. If the corporation were not a party the judgment rendered would not be conclusive upon its rights, and it would be manifestly unfair to compel the promoters to litigate the question of their liability to the corporation, in a suit which would not be conclusive if decided in their favor.65 etc., Co., 173 Mass. 60, 53 N. E. 145, 73 Am. St. Rep. 261; Houghton v. Butler, 166 Mass. 547, 44 N. E. 624; Peek v. Gurney, L. R. 6 H. L. 377, 393; Phillips v. Homfray, L. R. 24 Ch. Div. 439, 457, et seq., affirmed, L. R. 11 App. Cas. 466; Finlay v. Chirney, L. R. 20 Q. B. Div. 494, 504. Compare, however, In re Duncan, 1899, 1 Ch. Div. 387. 63. Hutchinson v. Simpson, 92 N. Y. App. Div. 382, 426, 87 Supp. 369, (dissenting opinion of Hatch, J.); Tiffany v. Hess, 67 N. Y. Misc. 258, 261, 22 Supp. 482; Sortore v. Scott, 6 Lans. (N. Y.) 271, 276, and see New Sombrero Phosphate Co. v. Erlanger, L. R. 5 Ch. Div. 64. Dennin v. Wood, 162 N. Y. App. Div. 930, 147 Supp. 1107, affirmed, 212 N. Y. 602, 106 N. E. 1032. Cf. Lane v. Fenn, 76 N. Y. Misc. 48, 134 Supp. 92. 65. Federal.-Porter V. Sabin, 149 U. S. 473, 478, 13 Sup. Ct. 1008, 37 L. Ed. 815; Davenport v. Dows, 18 Wall. 626, (and cases cited in note at foot of p. 627), 21 L. Ed. 938. A minority stockholder must, if the corporation is in the hands of a receiver, join the receiver as a party defendant.66 § 193. Suits at law and in equity. A suit to recover the promoters' profits as distinguished from an action for damages done to the corporation 67 is, if brought as an action for an accounting, a suit in equity.68 Substantially the same relief may, however, often be had at law by means of an Maine.-Hersey v. Veazie, 24 Me. 9, 41 Am. Dec. 364. New Jersey.-Groel V. United Electric Co. of N. J., 70 N. J. Eq. 616, 623, 626, 61 Atl. 1061. New York.-Greaves v. Gouge, 69 N. Y. 154; Brinckerhoff v. Bostwick, 88 N. Y. 52, 59; Corning v. Barrett, 22 Misc. 241, 48 Supp. 1013; Robinson v. Smith, 3 Paige's Ch. 222. Oregon.-Wills v. Nehalem Coal Co., 52 Or. 70, 87, 96 Pac. 528, 534, quoting Pomeroy's Equity Jurisprudence, (3rd Ed.), Vol. III, 1095. Under the English practice the corporation is joined as a party complainant. If it objects it is eliminated as a complainant, and made a defendant. See Groel v. United Electric Co. of N. J., 70 N. J. Eq. 616, 626, 61 Atl. 1061, and see Mason v. Harris, L. R. 11 Ch. Div. 97. It is held in Slattery v. St. Louis & New Orleans Transportation Co., (91 Mo. 217, 4 S. W. 79, 60 Am. Rep. 245), that the recalcitrant directors must also be joined as parties defendant. 66. Porter v. Sabin, 149 U. S. 473, 478, 13 Sup. Ct. 1008, 37 L. Ed. 815; Ackerman v. Halsey, 37 N. J. Eq. 356, 362, affirmed, sub nom. Halsey v. Ackerman, 38 N. J. Eq. 501; Brinckerhoff v. Bostwick, 88 N. Y. 52, 61. The corporation should, perhaps, be joined with the receiver, Brinckerhoff v. Bostwick, 88 N. Y. 52, 61. 67. For the distinction between the recovery of the promoters' "profits" and an action for "damages," see ante, § 161n. Domin 68. Massachusetts.-Old ion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 329, 74 N. E. 653, 108 Am. St. Rep. 479, citing Hayward v. Leeson, 176 Mass. 310, 57 N. É. 656, 49 L. R. A. 725. New York. Getty v. Devlin, 70 N. Y. 504, 511. Ohio.-Second National Bank v. Greenville Screw-Point Steel Fence Post Co., 23 Ohio C. C. 274, 281. Oregon.-Johnson V. Sheridan Lumber Co., 51 Or. 35, 40, 93 Pac. 470, 472. Pennsylvania.-McElhenny's Appeal, 61 Pa. 188, 193. Wisconsin.-Hebgen V. Koeffler, 97 Wis. 313, 320, 72 N. W. 745, 747748; Zinc Carbonate Co. v. First National Bank, 103 Wis. 125, 135, 79 N. W. 229, 232, 74 Am. St. R. 845. |