§ 327. Rights of purchasers of shares of abortive corporation. The rights of a party who had contracted to purchase from a subscriber, shares of a company which proved abortive, are necessarily somewhat different from those of an original subscriber for the shares.

It is held in Kempson v. Saunders 43 that one who has purchased, or agreed to purchase, from the supposed equitable owner thereof, shares of a company to be formed, may, upon the organization of the company being abandoned, sue his vendor for the moneys paid him leaving the vendor to proceed in turn against his vendor until the original promoters are ultimately reached.

§ 328. Subscriber's action for recovery of deposit.

The remedy to be pursued by a subscriber seeking to recover his deposit depends upon whether the deposit is subject to deduction for the expenses of the attempted promotion. If the deposit was simply a payment on account of the purchase price of the shares of a company to be organized, and there are no circumstances which make such deposit applicable to the payment of the expenses of the attempted organization, the subscriber is, upon the proposed corporation proving abortive, entitled to recover his deposit on the ground of failure of consideration, and his remedy is an action at law for money had and received.44 If, on the other hand, the circumstances are such as to subject the deposit to the payment of the expenses of the attempted incorporation, the amount due the subscriber cannot be determined without a determination of the expenses incurred by the promoters,

43. 4 Bing. 5, 12 Moore 44, 2 C. & P. 366.

44. Hudson v. West, 189 Pa. 491, 42 Atl. 190; Denton v. Macneil, L. R. 2 Eq. 352, 356; Nockells v. Crosby, 3 B. & C. 814, 5 D. & R. 751; Walstab v. Spottiswoode, 15 M. & W. 501; Ashpitel v. Sercombe, 5 Exch

147, 19 L. J. Exch. N. S. 82, 6 Ry. ' Cas. 224; Mowatt v. Lord Londesborough, 4 E. & B. 1; Jarrett v. Kennedy, 6 C. B. 319; Moore v. Garwood, 4 Exch. 681, 19 L. J. Exch. N. S. 15; Carrick's Case, 1 Sim. N. S. 505; Hayes v. Stirling, 14 Ir. Com. L. R. 277.

and the remedy of the subscriber is an action in equity for an accounting.45

Resort to equity cannot be had if the claim of the subscriber is simply for a return of his deposit because of failure of consideration. He has in such case an adequate remedy at law, and there is, it seems, no basis for equity jurisdiction.46

A subscriber suing the promoters for an accounting may, and generally does, bring his action on behalf of himself and other subscribers similarly situated.47

If the plaintiff asserts that some of the subscribers have received more than their share of the unexpended deposits, complete justice cannot be done unless such subscribers are parties to the suit. The interests of such alleged favored subscribers are represented neither by the promoters, nor by the complaining subscriber, and a complete determination of the controversy cannot be had without their presence.18 The fact that there are subscribers, other than the promoters, whose situation is different from that of the plaintiff, and whose interests are, or may be, adverse to that of the plaintiff, does not affect the plaintiff's right

45. Cooper v. Webb, 15 Sim. 454, 4 Ry. Cas. 582, 11 Jur. 93, 443; Clements v. Bowes, 17 Sim. 167, 16 Jur. 96, 21 L. J. Ch. N. S. 306; Clements v. Bowes, 1 Drew. 684; Williams v. Page, 24 Beav. 654, 4 Jur. N. S. 102, 27 L. J. Ch. N. S. 425; Williams v. Salmond, 2 K. & J. 463; Wilson v. Stanhope, 2 Coll. Ch. Cas. 629, 10 Jur. 421; Apperly v. Page, 16 L. J. Ch. N. S. 100, affirmed, 16 L. J. Ch. N. S. 302, 1 Phil. 779.

46. See Denton v. Macneil, L. R. 2 Eq. 352, 356; Ship v. Crosskill, L. R. 10 Eq. 73, 83; Stewart v. Austin, L. R. 3 Eq. 299; cf. Harvey v. Collett, 15 Sim. 332, 15 L. J. Ch. N. S. 376, 10 Jur. 603.

47. Clements v. Bowes, 17 Sim. 167, 16 Jur. 96, 21 L. J. Ch. N. S. 306; Clements v. Bowes, 1 Drew. 684; Cooper v. Webb, 15 Sim. 454, 4 Ry. Cases 582, 11 Jur. 93, 443; Williams v. Page, 24 Beav. 654, 4 Jur. N. S. 102, 27 L. J. Ch. N. S. 425; Williams v. Salmond, 2 K. & J. 463; Wilson v. Stanhope, 2 Coll. Ch. Cas. 629, 10 Jur. 421; Apperly v. Page, 16 L. J. Ch. N. S. 100, affirmed, 16 L. J. Ch. N. S. 302, 1 Phil. 779.

48. Williams v. Page, 24 Beav. 654, 674-676, 4 Jur. N. S. 102, 27 L. J. Ch. N. S. 425; and see Stupart v. Arrowsmith, 3 Sm. & G. 176, 182

to an action for an accounting, but such subscribers must be made parties to the suit.49 In Williams v. Salmond,50 the plaintiff brought suit against the provisional directors of an abortive company, on behalf of himself and all other holders of shares except the defendant directors, for an accounting of the moneys deposited with them. Two dividends had previously been distributed by the provisional directors and accepted by all the subscribers. A third and final dividend had been declared, and accepted by a number of the subscribers. Other subscribers, the plaintiff among them, refuse to accept this final dividend. The court held that the plaintiff had, by refusing the dividend and bringing suit, reopened the whole account, and that it might well appear that he had already been repaid too large a part of his deposit; that no one of the other subscribers on whose behalf the plaintiff sued, could demand the account prayed for without reopening the entire account, and as the defendants might be entitled to an affirmative judgment against such other subscribers, they were entitled to have all such subscribers substantially upon the record.

§ 329. The same subject.-Voluntary account of promoter as bar to subscriber's action for accounting.

The subscriber's action for an accounting cannot be defeated by showing that the promoters have already rendered a complete statement of the disposition made by them of the deposits, for the subscriber is entitled to an account taken with the aid of the machinery of the court, and is not bound to accept the promoters' voluntary statement as correct.51 If the subscriber has, without objection, received the promoters' statement of accounts and accepted his share of the balance distributed thereunder, he cannot,

49. Clements v. Bowes, 1 Drew. 684; Williams v. Page, 24 Beav. 654, 667, et seq., 4 Jur. N. S. 102, 27 L. J. Ch. N. S. 425.

50. 2 K. & J. 463.

51. Clements v. Bowes, 17 Sim. 167, 16 Jur. 96, 21 L. J. Ch. N. S. 306; Clements v. Bowes, 1 Drew. 684, 692.

in the absence of fraud, demand an accounting in equity after allowing a considerable period of time to elapse.52 A statement of accounts accepted by the subscribers may, however, be set aside and an accounting in equity demanded, if it is shown that the statement made by the promoters was frauduent or unfair to the subscribers and that there are further moneys due to the latter.58 A subscriber seeking to avoid the effect of his acceptance of a distribution made by the promoters, must rescind the transaction in toto and return, or offer to return, all moneys received by him thereunder.54

It is said in Williams v. Salmond 55 that the account rendered by the promoters is generally conclusive against the promoters as to those subscribers who accepted the moneys distributed thereunder, but not as to those who refused to accept the final payment and demanded a further accounting.

§ 330. Accounting by promoters.-Disbursements allowable.

As the promoters are not in the absence of agreement entitled to charge their expenses against the deposits made by the subscribers, it follows that the determination of the nature of the expenses that may be credited to the promoters when the deposits are subject to the payment of expenses, depends upon the particular terms of the agreement relied upon. The necessary expenses of obtaining a charter and legally organizing the corporation would, however, in almost every case be allowed, as

52. Williams v. Page, 24 Beav. 654, 674, 4 Jur. N. S. 102, 27 L. J. Ch. N. S. 425.

See also Stupart v. Arrowsmith, 3 Sm. & G. 176, where the accounts of the promoters had, some years before, been accepted by a majority of the subscribers, but apparently not by the plaintiff.

53. Williams v. Page, 24 Beav. 654, 4 Jur. N. S. 102, 27 L. J. Ch. N. S. 425.

54. Grand Trunk, etc., Ry. Co. v. Brodie, 9 Hare 823; Williams v. Page, 24 Beav. 654, 673, 4 Jur. N. S. 102, 27 L. J. Ch. N. S. 425.

55. 2 K. & J. 463, 470. Cf. Ex parte Apps, 18 L. J. Ch. N. S. 409, ante, § 320.

would the cost of purchasing, or obtaining options upon, property which the corporation is organized to acquire. Moneys paid, or debts fairly incurred, by the promoters for professional services of attorneys and others in the promotion, would also generally be allowed. Compensation for services rendered by the promoters themselves would presumably be refused,56 but if the services so rendered by the promoters were professional services, payment for which would otherwise be properly chargeable against the deposits, the propriety of such charge would perhaps not be affected by the circumstance that the party who rendered the services was himself one of the promoters.57 There do not seem to be any cases dealing directly with these questions, but the English decisions dealing with the distribution of parliamentary deposits are suggestive.58

56. See cases cited, ante, § 317.

57. See Muir v. Forman's Trustees, Session Cases, 5 Fraser 546, affirming, Muirkirk, etc., Railways, 10 Scots Law Times 247; Edinburgh Northern Tramways Co. v. Mann, Session Cases, 23 Rettie 1056.

58. It became the custom, at an early period in the history of the organization of railroads in England, to compel the promoters seeking an act of Parliament incorporating their railroad company, to deposit securities or furnish bonds for the completion of the road. If the contemplated railway was abandoned, questions as to the distribution to be made of such securities or bonds arose, and the cases dealing therewith have perhaps some bearing upon the question of the claims that can be allowed against subscribers' deposits.

The Railways Abandonment Act of 1869, (Stats. 32 and 33 Vict., Ch.

114), provided in § 5 "If the warrant for the abandonment was made on condition that the money deposited as security for the completion of the railway, or the stocks, funds, or securities in which the same is invested, or the money secured by any bond conditioned for the completion of the railway, or for payment of money in default thereof, should be applied as part of the assets of the company, the court may, if it think fit, direct that such money, stocks, funds, and securities shall not be applicable for the payment of any debt or part of a debt which, regard being had to what is fair and reasonable as between all the parties interested under all the circumstances of the case, appears to the court to have been incurred on account of the promotion of the company."

Under this statute the bills of solicitors, (In re Barry Railway Co.,