the same reason when the false representations are made by a committee appointed by the directors.1

§ 576. Fraud in exchange for consolidated stock.—Analogous to obtaining original subscriptions by fraud are fraudulent devices and representations by which a stockholder, in an original corporation, is induced to consent to a consolidation or amalgamation with another corporation, and accept its shares in lieu of such original stock. The same principles govern, the same evidence is admissible, and the party is entitled to the same remedies in the one case as in the other.2

§ 577. Must proceed with diligence to avoid contract.-In whatever form a party seeks to avail himself of the right to avoid his contract of membership for fraud, he must not be guilty of such laches as would work a fraud upon or do any injustice to others.3

A contract induced by fraud is not void but voidable, and a person induced by fraud to become a member in a corporation, must proceed with diligence upon discovering the fact to have the contract set aside. He would be estopped from doing so if he, knowing himself to have been defrauded, has slept upon his rights and enjoyed the benefits of his connection until other persons have been misled by his remaining a member.* In the language of Lord ROMILY he must not say, "I

Waldo v. Chicago, etc., R. R. Co., 14 Wis. 5.

2 Nelles v. Ontario Inv. Ass'n, 17 Ont. Rep. 129; 26 Am. & Eng. Cor. Cas. 82. On the right in the case of a sale of part of the stock held by a party to a rescission as to the balance, see Maturin v. Tredemick, 12 W. R. 740, per WOOD, V. C.

3

Upton v. Tribilcock, 91 U. S. 45, 55; Cunningham v. Edgefield, etc., R. Co., 2 Head (Tenn.), 23; Upton v. Englehart, 3 Dill. 496, 502; Centr. Ry. Co. v Kisch, L. R. 2 H. of L. 99; Smith's Case, L. R. 2 Ch. 684. A party cannot take advantage of the fraud where it would injure other shareholders who have likewise been imposed upon. Perry v. Hale, 10 N. E. 174; 143 Mass. 540.

* Infra. § 793.

will abide by the company if successful, and I will leave the company if it fails."

§ 578. How taken advantage of. The methods by which the party defrauded in the sale of shares in a corporation may avail himself are three in number: 1. He may sue in equity for a cancellation of the contract; 2. He may sue at law for damages; 3. He may plead the fraud as a defence in a suit to collect the price of his shares or other membership liability. The advantage of either of these over the others depends, to some extent, upon the rules of procedure employed in the court having jurisdiction of the particular matter.2 In actions for rescission, fraud being established against a party, it is for him, if he alleges laches against the other party, to show when the latter acquired a knowledge of the truth and prove that he knowingly forebore to assert his right.3

§ 579. Conflicting claims to stock-Interpleader. It often happens that more than one party claims to be the owner of stock, and it becomes the duty of the corporation to either decide between their respective titles at its peril, or to resort to the courts for an adjudication of their rights. Whether such cases arise upon execu

1 Ashby's Case, L. R. 9 Eq. 263-8.

2 A party is not entitled to an injunction to restrain other shareholders from voting that the corporation engage in business which he considers unauthorized on the strength of assurances given him at the time of subscribing that the corporation would not do so. Converse v. Hood, 149 Mass. 471; 21 N. E. 878. May rescind for fraud and recover back purchase money. Bridge v. Penniman, 105 N. Y. 642; 12 N. E. 19.

3 Lindsay Petroleum Co. v. Hurd, L. R. 5 P. C. 221. But it is too late after winding up has commenced to rescind a contract for shares on the ground of fraud if innocent third parties have acquired rights which would be defeated by the rescission. Whether or not it can be rescinded up to that time depends upon the particular circumstances of each case. See Hawes v. Turquand, L. R. 2 H. of L. 325; Tennent v. City of Glasgow B'k, 4 App. Cas. 621, 622.

tion or attachment and sale of the registered owner's title or otherwise, the safest course for the corporation, where the rights of neither of the parties is clear, is to wait until it is sued by one of the parties and then interplead by leave of the court. Sometimes, under such circumstances, it may file a bill of interpleader in a court of equity.1 The mere pretext of a conflicting claim will not justify the corporation in filing a bill interpleading at law. The court must be able to see, from the facts stated, that there is a real question to be tried.2 No definite rules can be laid down as a guide to corporations, in determining when they may refuse to decide between conflicting claimants and require them to contest their rights in courts. Business sagacity would generally suggest the proper course. Where, however, the title of one of the parties is reasonably clear, a corporation would have no right to refuse registration and renewal of the certificate. Any other course would enable any person with a pretended or trivial claim, or no claim at all but a naked one, to deprive a stockholder of the possession of his stock by simply notifying the corporation that he claims it. After one of the claimants has been allowed to register his transfer, the

1 See Mechanics' Bank v. Richards, 6 Mo. App. 454; s. c. 74 Mo. 77; State Ins. Co. v. Gennett, 2 Tenn. Ch. 100; Leavitt v. Fisher, 4 Duer, 1. For proper practice under a bill of interpleader, see State Ins. Co. v. Gennett, supra, where it was decided to be that if the bill entitles the corporation to proceedings to determine the conflicting claims, a motion to dismiss the bill will be granted, whereupon the court decides between the defendants if the case is ready as between them. If not ready, an action or issue or reference is directed to ascertain contested facts as may be best suited to the nature of the case. Under the practice of courts in same jurisdictions the defendants are allowed to formulate their own proceedings as between themselves; East & West, etc., Co. v. Littledale, 7 Hun, 62; Martinius v. Helmouth, 2 V. & B. 412, 1st note; Horton v. Baptist Church, 34 Vt. 317; Rome v. Hoagland, 7 N. J. Eq. 131; Crawford v. Fisher, 1 Hare, 441.

2 State Ins. Co. v. Gennett, supra; Norton v. Union Trust Co., N. Y. Daily Reg., Apr., 1887.

3 Re Tahiti Cotton Co., L. R. 17 Eq. 273; Ex parte Sargent, L. R. 17 Eq. 273.

right of the corporation to interplead is gone;1 nor can the name of a person which has been registered, be afterwards removed without his consent.2 But a clerical mistake may be corrected, though it involve the removal of the name of a party registered as a stockholder.3

§ 580. Fraudulent transfers.-The object of statutes making shareholders responsible to creditors, to the extent of their interest in capital stock corporations, could be defeated, or great injustice might be done to other shareholders, by the simple process of assignment to irresponsible parties, if safeguards were not provided by law and limitations upon the right of transfer established by courts to prevent and defeat abuses of the right. To allow an irregular or collusive transfer to an insolvent or incompetent party by a solvent shareholder would be an infringement of the rights not only of creditors, but of other solvent members; since it would increase their proportionate liability to the creditors in case of insolvency of the corporation. Therefore, they have their right of action in such cases to enjoin such transfer, or if already consummated to have it annulled.

And though the parties to a fraudulent transfer may in making it have complied with all the by-laws and the formality of having the proper entries made in the books of the corporation, yet such transfers will be treated as a nullity by the court, upon proper proceeding and showing. This rule, however, as we have seen, does not apply to bona fide purchasers of stock who

1 Dalton v. Midland Ry. Co., 12 C. B. 458; Cady v. Patton, 55 Barb. 463; Mt. Hally L. & M. T. Co. v. Fenie, 17 N. J. Eq. 117.

2 Ward v. Southeastern Ry. Co., 6 Jur. N. S. 890; Hart v. Frantino, etc., Co., 22 L. T. (N. S.) 30; Cohen v. Graymar, 4 Md. Ch. 357.

have not participated in the fraudulent incentive. They are not presumed to have notice of the rights and equities existing between any particular creditor and his vendor.

§ 581. Diligence required on part of corporation.—The corporation itself has a duty to perform in connection with the transfer of shares. When acting as intermediary, it is not allowed to abuse its trust to the detriment either of its cestuis que trust or of its creditors. Whatever conduct or omission would amount to negligence ordinarily will create liability on the part of a corporation in favor of an injured party.1 An action is maintainable by the stockholder against the corporation for conversion of the stock, and the measure of damages will be its market value. If the agent of a corporation allows shares of its stock to be transferred upon a forged power of attorney, or

1 Chew v. Bank of Balt., 14 Md. 300; N. Y. & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30. The market value on the day when the demand for the stock was made and refused is the proper measure of damages. Sturges v. Keith, 57 Ill. 451; Eastern R. R. Co. v. Benedict, 10 Gray, 212; McMurrich v. Bond Head Harbor Co., 9 Up. Can. (Q. B.) 333; Wyman v. American Powder Co., 8 Cush. 168; West Br., etc., Canal Co.'s App., 81 Pa. St. 19; Baltimore City, etc., R. R. Co. v. Sewell, 35 Md. 238; Huntington, etc., Coal Co. v. English, 86 Pa. St. 247; North v. Phillips, 89 Pa. St. 250. Compare Wilson v. Whittaker, 49 Id. 114; Colt v. Owens, 90 N. Y. 368; Harris v. Tumbridge, 83 Id. 92; Bryan v. Baldwin, 52 N. Y. 236. In other cases the measure of damages has been fixed at the market value on the day of trial. Shepherd v. Johnson, 2 East, 211; Owen v. Routh, 14 C. B. 327; Bereich v. Marye, 9 Nev. 312; Compare Williams v. Archer, 5 C. B. 318; s. c. 5 Rail. & Canal Cas. 289; 17 L. J. (C. P.) 82; and see Wilson v. Little, 2 N. Y. 443, 450.

In California, Georgia and South Carolina it is held that the highest market value between the conversion and day of trial is the measure of damages. Fromm v. Sierra Nevada Silver Min. Co., 61 Cal. 629; Dent v. Holbrook, 54 Id. 145. Compare Thompson v. Toland, 48 Cal. 99; Central R. R. & Bk'g Co. v. Atlantic, etc., R. R. Co., 50 Gal. 444; Kid v. Mitchell, 1 Nott & McCord, 334. And dividends. North v. Phillips, 89 Pa. St. 250; McKenney v. Haines, 63 Me. 74; Fisher v. Brown, 104 Mass. 259; O'Meara v. North Am. Min. Co., 2 Nev. 112; Pinkerton v. Manchester, etc., R. R. Co., 42 N. H. 424; Seymour v. Ives, 46 Conn. 109; Ormsby v. Copper Min. Co., 56 N. Y. 623; Baltimore City, etc., R. R. Co. v. Sewell, 35 Md. 238, 257; Noonan v. Ilsley, 17 Wis. 314.