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They have sometimes been held partnerships, and at other times, unincorporated joint-stock associations.1

§ 592. Extent and nature of liability.-When the trust is formed by the organization of a new corporation, by the cestuis que trust the liability of the latter is the same as that of other shareholders under the laws of the state where it is organized. They are personally and primarily liable, however, where the trust does not become incorporated, but its members maintain the relation among themselves as a partnership joint-stock association, or simple beneficiaries in a trust estate, the last being the relation they are held to assume in England.2

Where the interests of corporations in the trust are represented by their own shares issued to the trustee, he is liable, as other shareholders whose names appear the stock book, to the full amount of such stock and special statutory liability, though the character in which he holds it be shown on the books.3

upon

He may escape such liability by taking the stock in the name of an irresponsible party or "dummy," provided he is able to keep his ownership concealed. He is in that case the real owner, however, and may be

1 In State v. American Trust, 1 Ry. & Corp. L. J. 1, it was held by the Louisiana supreme court to be the latter, and for that reason subject to the proceeding against it by quo warranto. But joint stock-associations are not illegal at common law, and the same ruling would not be made on this point in any other state than Louisiana and perhaps Illinois, unless the form of the organization and its other acts amounted to an assumption of corporate franchises and powers.

2 Wingfield v. Potter, 45 L. T. 612; Crowther v. Thorley, 32 W. R. 330; In re Siddall, L. R. 15 Ch. D. 247.

3 Chapman v. Barker's Case, L. R. 3 Eq. 361; Davis v. Essex, etc., Soc., 44 Conn. 582; Bugg's Case, 2 Dr. & Sm. 952; Ind's Case, L. R. 7 Ch. 485. Compare Saunders' Case, 2 De G. J. & S. 101; Hoare's Case, 2 Johns. & H. 229; Cunningham v. City of Glasgow, L. R. 4 App. Cas. 607, supra, §§ 476, 498.

held as such when discovered, while the "dummy" is merely his agent.'

The liabilities and remedies between the trustee and cestuis que trust are in these cases in no material respect different from those in other trusts, in the absence of contracts limiting or enlarging them. And the trustees may by contract assume all liabilities and absolutely exempt the cestuis que trust.2

1 Davis v. Stevens, 17 Blatch. 259.

2 Ex parte Chippendale, 4 De G. M. & G. 19, 52; Gillan v. Morrison, 1 De G. & Sm. 421,

CHAPTER XXIII.

ACTIONS BETWEEN MEMBERS.

$593. Wrongs to corporate interests by members.
Intra vires acts of majority will not be restrained.

594.

595. Demand upon corporation.

596. Title to office will not be tried.

597. Inability of board to agree.

598. Discrimination among shareholders.

599. Discriminations in collecting subscriptions.

600.

Interest-bearing stock.

601. The right of preferred shareholders.

602. Action to prevent wrongful issue of preferred stock. 603. Actions to compel payment of preferred dividends.

604. Collusive agreements to escape liability.

605. Complicity of part no bar to others.

606. A case properly before the court will be fully disposed of. 607.

Parties.

608. Actions for contribution.

§ 593. Wrongs to corporate interests by members.-Where wrongs by a portion of the shareholders have resulted in injury to the common corporate interests, the remedy lies through the corporation by the non-participating shareholders. Upon recovery against the wrong

It

1 In Gorham v. Gilson, 28 Cal. 479, defendant stockholders had by fraudulent collusion with an outside party holding a mortgage on all the property of the corporation, and by fraudulent representation to plaintiffs who held the balance of the stock, procured the consent of the latter to a conveyance of the entire property through the mortgagee to themselves. The action was in equity to compel the stockholders thus holding title fraudulently to convey an interest in the property to plaintiffs proportional to their interest in the corporation. was held that the action could not be maintained. But although the form of the action precluded the court from granting relief in that case, the court said an action would lie in equity against the guilty parties, notwithstanding the authority from plaintiffs, fraudulently received. See also Ayer v. Seymour, 5 N. Y. S. 650. A complaint which alleges that plaintiffs and defendants are stockholders in a corporation; that the directors are the "implements and representatives" of defendants, who own a majority of the stock; and that the

doers they are allowed to set off their proportionate interest in the amount recovered against the amount itself. The right of minority stockholders to attack transactions between other stockholders and the corporation, as fraudulent, is not affected by the fact that they are completely "executed," where such transactions were not merely beyond the powers of the corporation, but procured by the fraud of defendants, who controlled it; nor need the minority stockholders offer to place defendants in statu quo.1

§ 594. Intra vires acts of majority will not be restrained. -Where the preventive relief sought is not against the directors but against the majority, the contemplated acts must be clearly shown to be unauthorized by the company's charter or contrary to general law. It is not enough merely to show that it will be injudicious, as, for instance, that it will result in loss or involve the corporation in expensive and vexatious litigation. It is for the majority and not the individual stockholders to say how the authorized powers shall be exercised and in what authorized enterprises the funds shall be invested.2

directors conveyed to defendants land of the corporation at one-tenth of its real value, in fraud of the other stockholders,-states facts constituting actual fraud, and is sufficient on demurrer. Woodroof v. Howes (Cal.), 26 P. 111.

The bondholders of a railroad company authorized defendants, as trustees, to purchase the road and property on foreclosure, and to organize a new corporation, and divide the stock among the bondholders proportionate to the number of their bonds. Defendants formed a company, with a capital of $2,000,000, and transferred the property to it, but only required $994,000 of stock to be turned over for distribution to the bondholders, leaving the balance to be disposed of at the directors' discretion. In addition to the stock, defendants took from the corporation a note for $56,800 to repay them for the expenses of the reorganization. It was held that the failure to require all the stock to be turned over for distribution among the bondholders was a breach of the trust agreement, and a bondholder is entitled to enjoin the collection of the note until the agreement is complied with. White v. Wood, 13 N. Y. S. 631.

1 Woodroof v. Howes (Cal.), 26 P. 111.

2 In Converse v. Hood, 149 Mass. 471; 21 N. E. 878, the act sought to be pre

A court will not, at the suit of a member of an incorporated society, have declared null and void a by-law thereof, although by means of such by-law he is injured in his business relations with outside parties. Especially will any relief be refused where it appears that the injury to such party results from his voluntary obedience to such by-law.1

§ 595. Demand upon corporation. In the case of actions between members, as in those where the agents or third parties are complained against, it must be made to appear to the court that the corporation is unable or unwilling, in the hands of its constituted government, to protect the complaining member; and here, as in the other class of actions, the best and only evidence of such unwillingness or inability is a demand upon the managing agents or of such facts as show a demand to be excusable or unnecessary.2

vented was the undertaking by the defendant corporation of the manufacture of rubber boots and shoes. The action was brought to restrain stockholders from voting for and the corporation from carrying on a business authorized by its charter, on the ground that by so doing it would infringe the rights of another corporation and expose itself to litigation therefor. The supreme court affirmed the decision of the court below, denying the prayer of the bill. See also, McIntosh v. Flint & P. M. R. Co., 32 F. 350; St. Croix Lumber Co. v. Mittlestadt, 43 Minn. 91; 44 N. W. 1079.

1 Thomas v. Mus. Mut., etc., Un., 121 N. Y. 45; 24 N. E. 42.

2 Dunphy v. Trav. Newsp. Ass'n, 146 Mass. 495; 16 N. E. 426. In this case it was alleged in a complainant's bill that the directors were under the influence of the president; that they had abdicated their proper functions and surrendered the entire control of the affairs of the corporation to him, three of them not being bona fide stockholders, but having been made such by the voluntary transfer of stock to them by the president to enable them to act as such. The court held that it was unnecessary under these circumstances for plaintiff to show demand of the board of directors to commence action against the president before bringing suit. See also, Rogers v. Lafayette Agr. Wks., 52 Ind. 296. The same view was taken where the complaint showed such a state of affairs as would have rendered the making a demand but an idle ceremony. County of Tazwell v. Farmers' Loan Trust Co., 12 Fed. Rep. 752. See also Board of Tippecanoe County v. Lafayette, etc., R. Co., 50 Ind. 85; Brower v. Boston Theatre Co., 104 Mass. 378; Kelsey v. Sargent, 40 Hun, 150; Currier v. N. Y., etc., R. R. Co., 35 Hun, 355. A denial in the answer of any trust relation with

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