erly issued as full paid in payment of property, and the vendor of the property improperly transfers some of these shares to the promoters, the promoters may be made to account to the corporation for the shares received by them, but they are not liable to the creditors for the par value thereof.24

In Bentinck v. Fenn,25 certain mining property was sold to the company for £12,000 in cash and £30,000 in shares. Lord MacNaghten took the price paid for the property as £12,000, leaving out of consideration the portion of the purchase price paid in shares "which represented the profit to be gained either from working the coalfield or from the credulity of the public." It does not appear whether the other judges concurred in this statement. It appears from the report of the case in the Chancery Division that the shares were at or about the time of the organization of the company salable at a substantial price.26

In Arnold v. Searing,27 the promoters had unlawfully taken a large profit in the bonds and shares of the corporation. All the shares of the corporation had been issued either to the promoters, or as a bonus to the bona fide purchasers of bonds. The vice-chancellor concluded that this fact indicated that the shareholders considered the stock to have no actual value, and that the promoters should not be made to account for any of the

McAllister v. American Hospital Assn., 62 Or. 530, 125 Pac. 286.

In re Hess Manufacturing Co., 23 Can. S. C. 644, 659-660; In re Carriage Co-operative Supply Assoc., L. R. 27 Ch. Div. 322.

See ante, § 165.

24. Carling's Case, L. R. 1 Ch. Div. 115; In re Innes & Co., Ltd., 1903, 2 Ch. Div. 254; In re Howatson Patent Furnace Co., 4 Times Law Rep. 152, and see ante, §§ 100, 165, 110.

See, however, Er parte Perrier,

(1857), 7 Ir. Ch. Rep. N. S. 256, where both the directors and the vendor were held liable upon the shares given by the vendor to the directors.

25. L. R. 12 App. Cas. 652, 671, affirming, In re Cape Breton Co., L. R. 29 Ch. Div. 795, affirming, L. R. 26 Ch. Div. 221.

26. See L. R. 26 Ch. Div. 221. 27. 78 N. J. Eq. 146, 163-164, 78 Atl. 762, 769; cf. Bentinck v. Fenn, L. R. 12 App. Cas. 652, 667.

"stock profits" taken by them.28 It is suggested that it should, in the absence of evidence to the contrary, be assumed that the shares of the company have at least some value.29

§ 271. Measure of value of bonds.

While it frequently happens that bonds of the corporation are taken by the promoters without consideration, as compensation for services, or in payment for property, under such circumstances as to render them liable to the corporation, questions relating to the proper measure of the value of such bonds do not seem to have been passed upon by the courts.30 It might well be argued that as a bond represents an obligation of the corporation for the face thereof which the corporation, presumably, will have to pay, the promoters should be charged with the face value of the bond. It would, however, in most cases, more nearly meet the ends of justice to charge the promoters with the fair market value of the bonds at the time of the taking, and if the bonds have no market value, then with their actual value. This is presumed, in the absence of evidence to the contrary, to be the face value of the bonds.31

§ 272. Value of property sold to the corporation.

It is frequently, in order to determine the extent of the promoters' liability because of an unlawful sale of their property to the corporation, necessary to fix the value of the property so sold to the corporation. The value of the property is generally to be taken as of the time of its conveyance. e.32

§ 273. The same subject.-Market value the standard.

In Old Dominion Copper, etc., Co. v. Bigelow,33 the promoters after acquiring at a cost of about $1,000,000 the entire capital stock of an existing corporation had, by skillful manipulation, increased the market value thereof to $2,000,000, and then sold such stock to the plaintiff corporation for an even larger sum. It was contended on behalf of the plaintiff corporation that the promoters should, for the purpose of estimating the damages, be credited with only the intrinsic value, and not with the market value of the shares. The court, however, held that market value is, when ascertainable, the standard to be applied, and that the promoters should be credited with the market value of the shares of the old company though established by their manipulations. § 274. The same subject.-Proof of value.

It has at times been claimed that the value of property conveyed to the corporation by its promoters may be established by the price at which the shares of the corporation were subsequently sold in the market. This contention was overruled in Bigelow v. Old Dominion Copper, etc., Co.,84 Chancellor Pitney 35 saying, "Common experience tells us that the sale value of corporate shares in the market has only an indirect and sometimes a remote relation to the fair market value of the property that forms the assets of the corporation. It is easy to see, for instance, how when men of standing in the financial world promote a company, make over to it mining properties, and cause the shares to be placed upon the market, the confidence of purchasers of the shares

by them was in part defective. The damages were fixed at the difference between the actual value of the property and the value of the title conveyed by the promoters, and not at the far larger sum which it had cost the corporation to buy in the outstanding interest at a later time.

33. 203 Mass. 159, 202, 89 N. E.

193, 40 L. R. A. N. S. 314. See the query in Bigelow v. Old Dominion Copper, etc., Co., 74 N. J. Eq. 457, 504, 71 Atl. 153; cf. Twycross v. Grant, L. R. 2 C. P. D. 469, 489.

34. 74 N. J. Eq. 457, 499-500, 71 Atl. 153, 171.

35. Now Associate Justice of the Supreme Court of the United States.

in the standing and good faith of the promoters may enter largely into the competition for the shares, and thus affect their market value. Such purchasers may reasonably believe that the property was sold to the company by the promoters at a fair and open price."

The price at which property is purchased by the promoter shortly before its sale to the corporation, has a material bearing upon the question of its value at the time of the resale. In Re Leeds & Hanley Theatres of Varieties,36 the promoter had shortly before the sale to the corporation purchased the property in question at £24,000, and this property was sold a year or two later at £19,000. It was held that these circumstances proved that the property was not, at the time of its sale to the corporation, worth the £75,000 paid for it, or even the £64,000 and odd, remaining to the promoter as the net proceeds of the sale after deducting the moneys expended partly in promotion expenses and partly in improving the property; and that the damages suffered by the corporation were sufficiently proved to have amounted to at least the £12,000 allowed by the trial court.

It was held in Bentinck v. Fenn 37 that the fact that a certain coal property was purchased for £5,500 in 1871 did not necessarily prove that a price of £42,000 paid £12,000 in cash, and £30,000 in shares (the £30,000 paid in shares was apparently disregarded,38) was excessive in 1873, it appearing that it was a matter of common knowledge that there had been a very substantial rise in the value of coal properties during that period, and there being other evidence to indicate that the price paid by the corporation was not unreasonable.

§ 275. Measure of value of property paid for by subsequent issue of mortgage bonds.

In Montgomery Iron Works v. Roman, 39 the promoters having

36. 1902, 2 Ch. Div. 809, 826, 830. 37. L. R. 12 App. Cas. 652, 659

38. See p. 671.

39. 147 Ala. 434, 41 So. 811.

subscribed for $50,000 par value of stock, conveyed in payment of their subscriptions and in payment for $30,000 of bonds, property worth not more than $50,000. The bonds were, however, not issued until a later time. The corporation having become insolvent, the creditors brought suit against the promoters upon the theory that their stock subscriptions had not been fully paid. The promoters contended that the gross value of the property should be taken as received by the corporation in payment for the shares. This contention was overruled on the ground that the bonds, though not issued until a later time, were issued by the corporation and received by the promoters as a part of the original transaction, and as the bonds were secured by a trust mortgage on the property conveyed, the promoters should be credited, as against the shares received by them, with the difference between the value of the property and the amount of the mortgage bonds.

§ 276. Measure of recovery in minority stockholders' suits.

The measure of the recovery in a minority stockholders' suit is ordinarily the same as though the suit were brought by the corporation itself. Situations, however, arise from time to time which. make the application of a different rule of recovery necessary.

In Spaulding v. North Milwaukee Town Site Co.,40 it appeared that all the stockholders, except the plaintiffs and the holders of twelve other shares, had "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 case before it were an action at law by the corporation, there might be no escape from the entry of a money judgment for the full amount,11 but as the action was in equity and the corporation had been dis

40. 106 Wis. 481, 495, et seq., 81 N. W. 1064, 1069.

41. As to the powers of a court of equity in an action by the cor

poration, see Hyde Park Terrace Co. v. Jackson Bros. R'lty Co., 161 N. Y. App. Div. 699, 146 Supp. 1037.