allowing such transfer and from the payment of dividends to the holders. Perdicaris v. Charleston Gas Light Co., Chase's Dec., 435.

§ 610. By an order of a Confederate court certain stock in a company held by adherents of the Union was sequestrated, sold, and transferred to purchasers, to whom new certificates were issued. Held, that such sequestration, sale, transfer and issue of stock were void, and that the original shareholders might maintain an action to be restored to all their rights as stockholders as against the company and purchasers of the stock. Dewing v. Perdicaries, 6 Otto, 196.

§ 611. Rights of bona fide purchaser of stock.— A bona fide purchaser of stock, fraudulently issued to its vendor at a price less than that authorized by charter, can compel its transfer to him upon the books of the company. Fosdick v. Sturges,* 1 Biss., 255.

§ 612. Such purchaser may also rescind the contract of purchase and recover the price he has paid the fraudulent vendor for the stock. Ibid.

§ 613. Independently of any provision in the charter of a banking corporation, it would be extremely difficult to maintain, upon general principles of law, that a private fraud, between the original subscribers and commissioners, could be permitted to be set up to the injury of subsequent purchasers of the stock, who became bona fide holders without participation or notice of the fraud. Minor v. Mechanics' Bank of Alexandria, 1 Pet., 46.

§ 614. Cannot dismiss an appeal.- A majority of shareholders cannot dismiss an appeal, they not being parties to the record, against the wishes of their directors. Railway Co. v. Alling, 9 Otto, 463 (§§ 1605-1607).

615. Misapplication of funds. It seems that where the directors of a corporation have misapplied a portion of its funds to which a stockholder has a distinct right, as, for instance, a dividend, he may, in an action, recover the amount misapplied; and that when such misapplication is threatened, but has not been effected, he may, by a bill in equity for an injunction, prevent it. Samuel v. Holladay, 1 Woolw., 418; McCahon, 214.

$ 616. Frauds of officers.- If an officer (cashier) of a bank sell the property and assets, and fail to account to a shareholder for his distributive share of the proceeds, such officer is not liable in assumpsit. The defrauded stockholder must proceed in equity. Brown v. Adams, 5 Biss., 181.

§ 617. Where a shareholder in a corporation agrees to sell his stock at a fair valuation, to be ascertained by an inquiry into the books and affairs of the company, equity will relieve him where he has been deceived by concealment and misrepresentation during his examination into the affairs of the company. Hager v. Thompson, 1 Black, 80.

§ 618. Corporate directors are trustees or managing partners, and stockholders are cestuis que trust, having a joint interest in all the property and effects of the corporation, and no injury which stockholders may sustain by a fraudulent breach of trust can, upon the general principles of equity, be suffered to pass without a remedy. (Citing Charitable Corporations v. Sutton, 2 Atk., 404; Robinson v. Smith, 3 Paige, 220; Hodges v. N. E. Screw Co., 1 R. I., 321; York, etc., R. Co. v. Hudson, 19 Eng. L. & Eq., 361.) Koehler v. Black River Falls Iron Co., 2 Black, 717.

§ 619. A bill was filed against a corporation by a stockholder, alleging that the corporation had unlawfully issued to him a certain amount of stock, the stock having been created by the conversion of bonds issued by the corporation into stock; and praying that the legality of the stock might be inquired into; that the company might be decreed to pay to him the amount paid by him for such spurious stock; that the company might be enjoined from disposing of so much of its property as would indemnify him, and for a receiver. The prayer was denied on the ground that it did not claim indemnity from the specific fund received by the company in exchange for the bonds, and that that fund had become mixed up with the other assets of the corporation. Whelply v. Erie R'y Co., 6 Blatch., 27.

§ 620. Right to defend. Where stockholders are dissatisfied with the action of the directors and the attorney of their company in the defense of a foreclosure suit, it is not sufficient merely for them to adopt a resolution requesting the directors to employ counsel to aid in the defense of the foreclosure suit; such stockholders must themselves secure an attorney and intervene in such suit for the protection of their interests. Pacific R. Co. v. Missouri & Pac. R. Co., 2 McC., 230. See § 542.

§ 621. Generally stockholders in a company have not the right to appear in its naine and defend a suit brought against it. But if directors of a company, against which a bill has been filed, refuse to appear and defend it, for the fraudulent purpose of sacrificing the interests of the stockholders, any of the latter, on behalf of themselves and all others who may desire to join them, may appear and file an answer in defense of the suit. But such answer, although in the name of the company, is in fact a defense independent of the company and of its directors, and the stockholders become real and substantial parties to the extent of their interests, and against them any proceeding, order or decree of the court is binding and may be

enforced. But their answers are not to be regarded as those of the corporate body, which must appear and answer to the bill, not under oath, but under its corporate seal, and an omis. sion thus to appear entitles the complainants as against the company that the bill be taken pro confesso. Bronson v. La Crosse, etc., R. Co., 1 Wall., 302.

§ 622. Right to sue.- In case of an incorporated company with a capital stock divided into shares and held by individuals, the corporation and the shareholders are distinct legal persons, and can sue and be sued by each other. Samuel v. Holladay, 1 Woolw., 418. See S$ 540-546, 549-556.

§ 623. Where a corporation or its rights of property are threatened with an injury of such a nature as the court will enjoin, but it refuses to take any legal steps to protect itself, a stockholder may maintain a bill in equity against the party threatening the mischief and the corporation, in order to restrain by injunction the commission of the act and in order thereby to protect his interest from immediate damage. Ibid.; McCahon, 214.

§ 624. An individual shareholder cannot come into court and prosecute the cause of action when the corporation has been injured by a tort or a breach of a contract, or has any right of action, legal or equitable, against a party, and refuses to prosecute it itself. Ibid.

§ 625. The cases in which a stockholder may proceed in a court of equity to protect his interest in the corporation are limited to restraining by injunction those who administer the affairs of the corporation from doing acts which would amount to a violation of its charter; also to inquiries concerning and enjoining, as the case may require, individuals, in whatever character they may assume to act, from prosecuting any course of conduct which is a violation of the corporate franchise, or in denial of a right growing out of it, when, for the injury which will result, there is no adequate remedy at law. Where other parties are also concerned, the jurisdiction of courts in such proceeding is limited to cases in which preventive remedies are efficient for the protection of rights endangered by the neglect of the directors and the threatened aggressions of others. Ibid.

§ 626. Courts of equity have jurisdiction over corporations to apply preventive measures at the instance of their stockholders and against their officers, to restrain the latter from consummation of fraud. Heath v. Erie R'y Co.,* 8 Blatch., 347.

§ 627. Corporate officers are trustees of their corporations. A corporation is a trustee for its stockholders. Thus arise equitable interests and rights which must be enforced by equitable remedies. Ibid.

§ 628. Where the powers of a corporation have been or are about to be exceeded, a bill may be maintained by a stockholder for himself and other stockholders to prevent the consummation of ultra vires acts. Ibid.

§ 629. A stockholder in a corporation addressed to the president and directors of his company two notes, requesting it to proceed to test the right of certain other stockholders to appoint directors to its board of management. The president and directors neglected to reply to such notes and took no steps to comply with the request contained in them. Held, that the controversy being a controversy between different classes of stockholders, the directors could not with propriety institute a suit by which they would take part with one or the other of such classes of stockholders, and that in any case, whenever the course pursued by the corporate body would amount to a breach of trust or be a violation of the chartered rights of the stockholders, and there exists no adequate remedy at law, a court of equity will interfere, and its powers may be put in motion by a single shareholder, though it is usual for him to act for himself and all the other stockholders similarly situated who will come in and contribute to the expense of the suit. City of Wheeling v. Mayor of Baltimore,* 1 Hughes, 90.

§ 630. Whether holders of single shares can bring suit on their own behalf and on behalf of all the other shareholders for the same grievances and for accounting of the same transaction, query. Dannmeyer v. Coleman,* 11 Fed. R., 97.

§ 631. A shareholder in one corporation may bring a suit in a federal court to test the right of another corporation to use the corporate name of his company, although it could not sue in a federal court, and although its bonds were transferred to him for the express purpose of enabling him to sue there. Newby v. Oregon Central R. Co.,* 1 Saw., 63.

§ 632. If a stockholder of a corporation is aggrieved by the refusal of the board of directors to accept his views, his remedy is to unite with other stockholders and change the directors. But if irreparable injury to his interests may ensue in the meantime, equity will administer preventive justice until such time as the will of the body of the stockholders can be ascertained. Samuel v. Holladay, 1 Woolw., 420.

§ 633. A non-resident complainant may sue, on behalf of a corporation in which he is a shareholder, another corporation in a federal court, although both companies are citizens of the same state. Newby v. Oregon Central R. Co.,* 1 Saw., 63.

§ 634. It is held that a stockholder in a corporation may maintain a bill in behalf of himself against the trustees of the corporation and the auditor of the state to prevent the trustees

from paying an unlawful tax assessed upon the corporation. Since the trustees are made parties, and a court of chancery will decree as between the parties to the record, whether they be plaintiffs or defendants, the bill is brought to protect the rights of the trustees as well as those of the complainant. Foote v. Lick, 5 McL., 616; Woolsey v. Dodge, 6 McL., 142. § 635. One who is president, stockholder and creditor of a company cannot maintain an action against another for wrongfully procuring an injunction restraining plaintiff's corporation from proceeding to finish its work, and resulting in injury to plaintiff in various ways, by the inability of the company to repay him moneys advanced, by breaking down his credit, by causing a loss of time and labor, and a failure to receive a large amount of profits and emoluments which he would have received had the company gone on with its operations. The right of action is in the plaintiff's corporation and not in one or any number of its officers, stockholders, creditors or employees. Donovan v. Dean,* 1 Flip., 182.

§ 636. Where a judgment is obtained without the consent, and against the will, of a company, a corporator thereof cannot attack such judgment by an action in his own name. Where the corporate rights and interests are affected in any way wrongfully or unjustly, these rights and interests, generally speaking, and unless some special ground be shown, must be asserted and defended both at law and in equity in the corporate name. Bradley v. Richardson,* 23 Vt., 720.

§ 637. A shareholder suing on behalf of a corporation, but in his own name, must show that he was a shareholder at the time of the transaction of which he complains, or his shares have devolved on him since by operation of law. Dannmeyer v. Coleman,* 11 Fed. R., 97.

§ 638. A suit by a stockholder on behalf of a corporation may be barred by lapse of time in analogy to the statute of limitations. Such an action for relief on the ground of fraud must be brought within three years, according to the code of civil procedure of California. Ibid.

§ 63). Where a corporation is entitled to a grant of land, and another corporation is wrongfully using its name for the purpose of obtaining such grant, a bondholder in the first corporation, whose bonds are secured by mortgage on said land, has such an interest as will enable him to maintain a suit to enjoin such wrongful use. Newby v. Oregon Cent. R. Co.,* Deady, 610.

§ 610. But he must make his own corporation a party plaintiff, and if it refuses to join it must be made a party defendant. Ibid.

§ 641. Where a corporation neglects and omits to bring suit, a stockholder may bring such suit on his own behalf. Perdicaris v. Charleston Gas Light Co., Chase's Dec., 435.

§ 642. A shareholder of a corporation, who brings a suit to restrain the wrongful use of the corporate name, must allege a request to the corporation to bring such suit itself, and its refusal so to do. Newby v. Oregon Central R. Co.,* 1 Saw., 63.

§ 643. A stockholder cannot sue in equity on behalf of a corporation, without averring that its officers are derelict in their duty. The company itself is the proper party to sue. Morgan v. Railroad Co.,* 1 Woods, 15.

§ 644. A stockholder owns no legal estate in the property of his corporation. Ibid.

§ 645. The reason for requiring a stockholder, before prosecuting a suit in his own name against corporate officers, to apply to the board of directors, is to enable such board to affirm or make good the acts complained of; but a board of directors cannot affirm, or sanction, or make good, an issuance of stock ultra vires, or breaches of trust which are frauds on stockholders. In respect to such acts as these, a stockholder may file a bill against negligent or fraudulent corporate officers, on his own behalf, and without first requesting the board of directors to proceed. Heath v. Erie R'y Co.,* 8 Blatch., 347.

§ 616. A stockholder cannot sue in his own name on behalf of the corporation without first making an honest and earnest effort to induce the corporation to take the necessary steps to obtain relief. Huntington v. Palmer, 14 Otto, 482.

§ 647. A bill of complaint set out that the railroad company of which complainant was a stockholder was unjustly and illegally taxed in many particulars, and alleged that the complainant informed and caused to be informed the board of directors of the company of the invalidity of the pretended assessment and the taxes founded thereon, and requested the board to take such action or legal proceedings as might be proper to test and determine their validity. It alleged that the board absolutely and wilfully refused to do so and that it will pay the illegal taxes out of the funds of the company, to the detriment of complainant and other stockholders. There was no averment that the taxes were so burdensome as to be destructive to the corporation itself, or that there was any fraud on the part of the directors, or anything to show that their decision not to resist the taxes was unwise or opposed to the best judgment they could exercise in the matter; nor was there any averment of any effort to invoke control of the body of the stockholders, or any reason why it was not done; nor was it made to appear that a single stockholder was consulted by the complainant, or had any

wish to contest the payment of the taxes with the state authorities; there was no formal written appeal to the board, nor any formal resolution of that body shown, nor was there anything to repel the presumption that parties were improperly and collusively made in order to invoke the jurisdiction of the federal court. The case appeared to be a bald claim of one stockholder owning $100,000 of the stock out of ten millions, or thereabouts, without any serious effort to bring the others to his views to assert the right of action for the whole body in the very common matter of paying more taxes than he thinks to be just. Held, therefore, that the demurrer to the bill was properly sustained, and the decree dismissing it was affirmed. Ibid.

§ 648. It is good ground for abating a suit, brought by a stockholder on behalf of his company, to show that the company has itself brought suit for the same cause of action. Memphis v. Dean, *8 Wall., 74.

§ 649. If directors of a corporation refuse to prosecute, by collusion with those who make themselves answerable by negligence or fraud, or if the corporation is still under the control of those who would be the defendants in the suit, stockholders, who are the real parties in interest, will be permitted to file a bill in their own names making the corporation a party defendant. Heath v. Erie R'y Co.,* 8 Blatch., 347.

§ 650. Where the directors of a corporation are the persons alleged to be acting in fraud of its interests, a stockholder may bring his bill and make the corporation a party. Ibid.

§ 651. The principle that a stockholder of a company cannot maintain a bill in equity against a wrongdoer to prevent an injury to the corporation, unless it shall be averred and shall affirmatively appear that the corporation has refused to take measures to protect itself, does not extend to a bill which is in good faith filed by a creditor. Lothrop v. Stedman,* 42 Conn., 583.

§ 652. Where an application to the board of directors to take action in the name of the corporation to redress wrongs alleged to have been done complainants and other stockholders would have been a mere idle ceremony, it is sufficient to allege the circumstances showing such to be the case; and a stockholder's bill is not demurrable for failure to allege a specific request upon the directors to prosecute, and a refusal on their part so to do. County of Tazewell v. Farmers' Loan & Trust Co.,* 12 Fed. R., 752.

§ 653. Two of the directors of a corporation were residents of the state of Michigan. The third, a citizen of New York state, was willing that the rights of the corporation should be litigated in the state court in Michigan, but he was overruled by the other two directors, and a collusive arrangement made by which he was to bring a suit on behalf of the corporation against a third party in a federal court. Held, that the refusal to take legal proceedings in the local courts was a mere contrivance, a pretense, the result of a collusive arrangement to create for one of the directors a fictitious ground for federal jurisdiction. That the neglect and refusal of corporate officers to bring suit in the name of the corporation must, in order to justify such a suit by a shareholder, be real and persisted in after earnest efforts to overcome it, without which the non-resident shareholder would not be permitted to bring the suit. Detroit v. Dean,* 16 Otto, 537.

§ 654. When a shareholder sues in his own name to vindicate the rights of a corporation he should show to the satisfaction of the court that he has exhausted all the means within his reach to obtain out of the corporation itself the redress of his grievances, or action in conformity to his wishes. He must make an earnest, not a simulated, effort with the managing body of the corporation to induce remedial action on its part, and this must be made apparent to the court. If time permits, or has permitted, he must show, if he failed with the directors, that he has made an honest effort to obtain action by the stockholders as a body in the matter of which he complains. Dannmeyer v. Coleman,* 11 Fed. R., 97.

§ 655. A stockholder seeking to sue in his own name on behalf of the corporation cannot, in order to show the refusal of its board of directors to act, show a request to such board, made four years before by a third person, at that time a stockholder in the company, unless the stockholder bringing the suit is in privity with the one making the request, or is in some way connected with it. Ibid.

§ 656. In choosing between remedies which are presumed to be equally effective, a corporation has the right to exercise its judgment. For an error of judgment in this respect no stockholder or creditor can sue the corporation or call it to account. (Citing Woolsey v. Dodge, 18 How., 341.) Newby v. Oregon Central R. Co.,* 1 Saw., 63.

§ 657. A stockholder cannot maintain an action against directors for mismanaging the company by removing its engineer, getting it into expensive litigation, and causing work on its railroad to be stopped. The corporation itself is the proper party to bring such a suit. Smith v. Poor,* 3 Ware, 148.

§ 658. A shareholder can maintain an action against his corporation or its directors for a personal wrong to him, such as, for example, the use, without consent or compensation, of an

article patented by such stockholder, or for any other illegal and fraudulent appropriation of his private property. Ibid.

§ 659. When directors by collusion refuse to prosecute, or when they are themselves the persons charged with neglect, or misfeasance, or fraud, any of the stockholders may file a bill in equity against them in their own behalf and in behalf of all the other stockholders, but must make the corporation a party. Ibid.

VI. OFFICERS AND AGENTS.

SUMMARY Contracts with themselves, §§ 650-663, 670.— Power of president to make mortgage, §§ 665, 667, 663.— Ratification of prior acts by directors, $$ 666-668.- Breach of trust by director, § 669.- Cannot derive benefit from their contracts, §§ 670, 671.- Oppressive exercise of authority, § 672.- Purchase of bond from president, § 673.— Stockholders as parties to suits, § 674.— Increasing indebtedness beyond capital stock, §§ 675, 676.— Annual reports, §§ 677–680, 685.— Liability for debts of company, §§ 680–685.

§ 660. The contracts of corporate officers and directors who occupy fiduciary positions, made with themselves and in relation to the subject matter of their trust, are viewed with jealousy by the courts and may be set aside on slight grounds. Twin-Lick Oil Co. v. Marbury, S 686-690.

§ 661. The contracts of corporate fiduciaries, however, are not absolutely void; but are voidable at the election of the party whose interest is represented by the parties claiming under such contract. That is the general rule, but there may be cases where such contracts are void ab initio. Ibid.

§ 662. There is no rule of law which forbids one director among several from loaning money to the corporation when it is needed, and the transaction is open and otherwise free from blame.

Ibid.

§ 663. A corporation may make contracts with its stockholders and officers as well as with others. Ibid.

§ 664. Where an oil company was in need of funds to carry on its business, and a loan was made to it by a director, secured by trust deed on the property of the company, and the company being unable to repay the loan, the trust deed was foreclosed and the property sold by the trustee and purchased by the director who loaned the money, held, that the loan and sale being honestly and fairly made, without any apparent fraud, the sale could not be set aside at the suit of the company, especially as it had waited four years without an effort to disaffirm or set aside the sale, and until the director had put more money into the enterprise and developed the business so that it became profitable. Ibid.

§ 665. Authority to the president and secretary of a corporation to make its note and mortgage for a specified sum does not include a contract to pay an attorney's fee in case legal proceedings are taken to enforce the same. Pacific Rolling Mill Co. v. Dayton S. & G. R. Co., $$ 691-693.

§ 666. The knowledge which directors must have to ratify a prior act of their corporation must be a full knowledge of all the facts on the part of a quorum of the board of directors, Knowledge of the facts by a minority of the directors is not enough. Ibid.

§ 667. A mortgage given by a corporation contained a stipulation, inserted without authority, to pay an attorney's fee in case of its foreclosure. Held, that the ratification of such mortgage by the board of directors, of whom only a minority knew of this unauthorized provision in the mortgage, is not a ratification so far as that particular provision is concerned. Ibid.

§ 668. Directors are presumed to know what is in the records of their company, but not what is in a mortgage executed by their president and secretary without authority or knowledge of the corporation from the record of it in the county records. Ibid.

§ 669. Where a director aids in the passage of resolutions of the board of directors, by which, as a stockholder, he appropriates certain bonds which were assets of the company, then procures the passage of a resolution by which an assessment is made of thirty per cent. upon the capital stock of the company, and afterwards procures a third resolution, that the treasurer be authorized to receive from him and others, in payment of this assessment, the bonds which by the first resolution he had appropriated, held, that this conduct amounts to a breach of trust on the part of such director, and that he is liable as a trustee to creditors for the value of the bonds thus misappropriated. Union National Bank v. Douglass, §§ 694, 695.

$670. Officers and directors of a railroad company, knowing of deposits of coal along its line, and that such coal could be mined at a cost of $2 per ton, formed a company and became