It was held by the United States supreme court that the directors might, in the exercise of a reasonable discretion, use profits, not needed to pay floating indebtedness, in making improvements upon the corporate property instead of paying preferred dividends. They undoubtedly should be allowed to make all repairs and improvements which become necessary for the preservation and continued profitableness of the undertaking. These may well be classed among operating or current expenses; but to extend the principle beyond this would be to open the door to frauds upon preferred stockholders. It would be an easy matter, under the practical application of such a principle, to reduce preferred to the condition of common stock, and deprive the holders of the former of any advantages over the latter with respect to dividends. The line should be drawn at the payment of preferred dividends at the expense of creditors, and crippling the corporate enterprise. A preferred shareholder in one of two corporations which are consolidated may prosecute an action for dividends against the consolidated company. The right to ex

stock was in the nature of a mortgage, and the case did not involve any necessity for enforcing the declaration of a dividend. Under a claim by the common stockholders in a re-organized company, that the preferred stockholders were defrauding them, a preliminary injunction was refused because it did not appear that there was imminent danger. McIntosh v. Flint, etc., R. R. Co., 32 Fed. Rep. 350. See generally Thompson v. Erie Ry. Co., 45 N. Y. 468; Chase v. Vanderbilt, 37 N. Y. Super Ct. 334; s. c. 62 N. Y. 307; Rutland, etc., R. R. Co. v. Thrall, 35 Vt. 536; Richardson v. Vt., etc., R. R. Co., 44 Vt. 613; Bates v. Androscoggin, etc., R. R. Co., 49 Me. 491.

N. Y., etc., R. R. Co. v. Nicholls, 119 U. S. 296.

See Hazeltine v. Belfast, etc., R. R. Co., 79 Me. 411; 10 Atl. Rep. 328; Chaffee v. Rutland, etc., R. R. Co., 55 Vt. 110. A payment of dividends by the issue of preferred stock is irregular and invalid for the reason that it is an increase of stock which does not add its par value to the capital. Hoole v. Gt. West. Ry. Co., L. R. 3 Ch. 262.

3 Boardman v. Lake Shore, etc., R. R. Co., 84 N. Y. 157; Chase v. Vanderbilt, 62 Id. 307. See Prouty v. Lake Shore, etc., R. R. Co., 52 N. Y. 563.

change common for preferred stock may be lost by laches.1

§ 604. Collusive agreements to escape liability.-Growing out of the mutual obligations between all the members to share equally all the burdens and losses as well as the benefits of the corporate venture, is the rule that no agreement with a shareholder or a class of shareholders, by which an advantage is given them in the matter of contributing capital not equally enjoyed by all, will be allowed to stand as against the other members not consenting to the special arrangement. Such contracts will be disregarded and set aside in equity whenever disclosed, whether made with the managing agents or with strangers with the same object.2

To the relations between members of an association applies with peculiar fitness the maxim that "equality is equity;" but aside from equitable considerations the constitutional inhibitions against the impairment of the contract each member makes with every other member coming into the association may here be invoked.

1 Holland v. Cheshire Ry. Co., 151 Mass. 231; 24 N. E. 206, where the holder of the common stock had delayed presenting it for exchange for thirty-three years.

2 Chouteau Ins. Co. v. Flloyd, 74 Mo. 289. No such collateral secret agreements between part of a number of subscribers to the capital stock of a corporation by which some attempt to derive an advantage over others will be allowed to be carried into effect against the objection of the others. As to them such agreement will be held fraudulent and invalid. Jackman v. Mitchell, 13 Vesey, 581; Ex parte Sadler and Jackson, 15 Vesey, 52; Leicester v. Rose, 4 East. 372; Coleman v. Waller, 3 Younge & Jer. 212; White Mt. R. Co. v. Eastman, 34 N. H. 124; Miller v. Hanover Junct. R., 87 Pa. St. 95; Robinson v. Pittsburgh & Connellsville R., 32 Pa. St. 334; Melvin v. Lamar Iron Co., 80 Ill. 446; Blodgett v. Morrill, 20 Vt. 509; Conn. Riv. R. Co. v. Bailey, 24 Vt. 465; Hodge v. Twitchell, 33 Minn. 389; 23 N. 547; Sternburg v. Bowman, 103 Mass. 325; Fay v. Fay, 121 Mass. 561; Getty v. Devlin, 54 N. Y. 403; Meyer v. Blair, 109 N. Y. 600; 17 N. E. 228. But a contract between a subscriber to the stock of a proposed incorporated company and another subscriber to the same, made without the knowledge of the remaining subscribers, by which one agrees to purchase the stock at the price paid for it, can be enforced if made fairly and honestly and if untainted with actual fraud. Morgan v. Struthers, 131 U. S. 246.

Each member subscribing the articles of association has a right to assume that each other person whose name appears as such on the books of the company is subject to all the obligations he has himself assumed and to insist that such obligations shall continue until released. or transferred according to the terms of subscription. Hence all secret agreements between the agents of the company and a subscriber, that the subscription shall be colorable merely and not binding upon the subscriber, are fraudulent as against other shareholders and creditors, and all such subscriptions are enforceable unconditionally.1

§ 605. Complicity of part no bar to others.-The collateral equities between the wrong-doers and the non-participating shareholders are usually adjusted in the same suit. But even if that should prove to be impracticable, it is clear that the innocent shareholders ought not to be made to suffer loss or be deprived of a remedy merely because some of the parties may be put to the inconvenience of a separate action, for an adjustment of their claims against the fund recovered against them. In New Sombrero Phosphate Co. v. Erlanger, it was contended by the defence that it would be unfair to allow shareholders who had suffered no damage to benefit by a recovery in the name of the corporation. But Sir George Jessel, M. R., answering for the court, said:"If the argument were once allowed to prevail, it would only be necessary to corrupt a single shareholder to

1 Melvin v. Lamar Ins. Co., 80 Ill. 446, and cases cited: Minor v. Mech. B’k, 1 Pet. 65; Mann v. Cooke, 20 Conn. 178; Muller v. Hanover Junct., etc., R. R. Co., 87 Pa. St. 99; White Mts. R. R. Co. v. Eastman, 34 N. H. 124; Conn., etc., R. R. Co. v. Bailey, 24 Vt. 475, 476; Jewett v. Valley Ry. Co., 34 O. St. 601; Blodgett v. Morrill, 20 Vt. 509; Pickering v. Templeton, 2 Mo. App. 424; Bates v. Lewis, 3 Ohio St. 459. See Davidson's Case, 3 De G. & Sm. 21; Supra, §

2 L. R. 5 Ch. D. 114.

prevent the company from ever setting the contract aside. It may be said you give to the shareholder who was a party to the fraud a profit, because he will take it in respect of his shares, and since, as between the conspirators there is no contribution, therefore his brotherconspirators who are made liable for the fraud, cannot make him repay his proportion. But the doctrine of this court has never been to hold its hand, and avoid justice in favor of the innocent, because it cannot apportion the punishment fully amongst the guilty."

If, however, a portion of the members have acquiesced and the balance subsequently do so, the entire cause of complaint is gone. The corporation would itself be bound by unanimous sanction of wrong-doing and barred from maintaining an action thereon.1

§ 606. A case properly before the court will be fully disposed of. Where a case has been once properly brought before the court by a shareholder shown to be entitled to temporary relief, jurisdiction will be retained to settle all disputes connected with the subject matter in the suit, whether for wrongs past or in presenti. Where the proper parties are before the court in a proceeding the immediate object of which is to obtain. an injunction to which the plaintiff is found to be entitled, the court will not, after having afforded the immediate relief demanded, turn the parties out of court to begin new actions for the settlement of matters which the policy of preventing multiplicity of suits forbids. In such case the suit should proceed to a full accounting between the parties with respect to all

1 Fooks v. Southwestern Ry. Co., 1 Si. & G. 142, 164; Burt v. British Assur. Ass'n, 4 De G. & J. 158; Samuel v. Hollday, 1 Woolw. 416; Kent v. Quicksilver Min. Co., 78 N. Y. 159, 188; Kitchen v. St. L., etc., Ry. Co., 69 Mo. 224, 264; Watts' App., 78 Pa. St. 370; Peabody v. Flint, 6 Allen, 57; Thompson v. Lambert, 44 Ia. 239.

matters growing out of the particular corporate enterprise. And other persons and corporations may be. brought in, if necessary, to the complete attainment of justice, and they can properly be made parties to the action or their connection with the parties litigant, and the subject matter of the litigation can be properly considered in the same action.1

Where a bill is brought by the minority stockholders of a corporation to prevent an asset of the corporation. from being appropriated by a majority stockholder to his own use, and the claim is sustained, it is proper for the court, at the further request of such petitioners, to have such fund distributed under its supervision.2

§ 607. Parties. A corporation is not a necessary party to actions between shareholders which concern solely

1 A leading case on this subject is that of Russell v. Wakefield Water Wks. Co., L. R. 20 Eq. 474, 481, where it was said:-" When you have got the second corporation or person a party to the suit, it may happen that, in addition to the relief that you are entitled to as regards the first, you are entitled to as regards the second, for something that has been done under the ultra vires agreement. You may be entitled to have money paid back which has been paid under the ultra vires agreement, as in the case of Salomons v. Laing, 12 Beav. 372, and you may be entitled to have property returned, or other acts done. If the detainer or holder of money or property, that is, the second corporation or other. person, is already a party, and a necessary party, to the suit, it would be indeed a lame and halting conclusion if the court were to say it could not do justice to a suit framed by ordering the money to be returned or the property restored. It is a necessary incident to the first part of the relief which can be obtained by individual corporators, and that has always been the practice of the court. Therefore, in a case so framed, there is no objection to a suit by an individual corporator to recover from another corporator, or from any other persons being strangers to this corporation, the money or property so improperly obtained. But this is not the only case. Any other case in which the claims of justice require it is within the exception." A certificate of stock "transferable only on the books of the company, on the endorsement and surrender of this certificate," having been issued by a corporation duly authorized, its cancellation and the issue of a new certificate cannot be decreed by a court which does not first obtain possession and control of the certificate. Joslyn v. St. Paul Distilling Co., 44 Minn. 183; 46 N. W. 337.

Davis v. Gemmell (Md.), 21 A. 712; Gemmell v. Poe, Id.; Brydon v. Gemmell, Id.; North Branch Co. v. Same, Id.