Building Assn., 89 Fed. Rep. 779; 1898, Exter v. Sawyer, 146 Mo. 302, 47 S. W. Rep. 951; 1898, Weir v. Bay State Gas Co., 91 Fed. Rep. 940; 1899, Jasper Land Co. v. Wallis, 123 Ala. 652, 26 So. 659; 1899, Montgomery L. Co. v. Lahey, 121 Ala. 131, 25 So. Rep. 1006; 1899, Flynn v. Brooklyn C. R., 158 N. Y. 493; 1899. Blair v. Newspaper Co., 172 Mass. 201; 1900, Wolf v. Pennsylvania R. Co. 195 Pa. St. 91, 45 Atl. Rep. 936; 1903, Niles v. N. Y. C., &c. R. Co.,

176 N. Y. 119.

What is sufficient demand, see, 1899, Ball v. Rutland R. Co., 93 Fed. Rep. 513; 1899, Jasper Land Co. v. Wallis, 123 Ala. 652, 26 So. Rep. 659.

Demand upon the corporation is unnecessary if the officers themselves who control corporate action are the guilty parties, or the court has jurisdiction on other grounds, or if the corporation itself could not enforce the claim or demand-and generally when the act is an ultra vires corporate act: 1863, Bronson v. La C. & M. R., 2 Wall. 283, supra, p. 1713; 1890, Eschweiler v. Stowell, 78 Wis. 316, 23 Am. St. Rep. 411; 1892, Hannerty v. Standard Theater Co., 109 Mo. 297, 19 S. W. Rep. 82; 1892, Chicago, etc., Cab Co. v. Yerkes, 141 Ill. 320, 33 Am. St. Rep. 315, note 325; 1898, Barcus v. Gates, 89 Fed. Rep. (C. C. A.) 783; 1898, Rogers v. Nashville, etc., R., 91 Fed. Rep. 299; 1898, Old Colony Trust Co. v. Dubuque, etc., Co., 89 Fed. Rep. 794; 1898, Pencille v. State F. M. H. Ins. Co., 74 Minn. 67, 73 Am. St. Rep. 326, 76 N. W. Rep. 1026; 1898, Forrester v. Min. Co., 21 Mont. 544; 1899, Harding v. Am. Glucose Co., 182 Ill. 551, 74 Am. St. Rep. 189; 1899, Hodges' Admx. v. South F. L. Co., 21 Ky. L. Rep. 20, 50 S. W. Rep. 969; 1900, Shively v. Eureka T. G. M. Co., 129 Cal. 293, 61 Pac. Rep. 939; 1900, Fitzwater v. Nat'l Bank, 62 Kan. 163, 61 Pac. Rep. 684; 1900, State v. Holmes, 60 Neb. 40, 82 N. W. Rep. 109. Suits by shareholders to restrain ultra vires acts, see, 1862, Durfee v. Old Colony R. Co., 5 Allen 230, supra, p. 1462; 1867, Zabriskie v. Hackensack, etc., R. Co., 18 N. J. Eq. 178, supra, p. 1466; 1887, Tompkinson v. S. E. R. Co., L. R. 35 Ch. D. 675; 1899, Davis v. Congregation, etc., 40 App. Div. 424. Compare, 1884, Dimpfell v. R. Co., 110 U. S. 209; 1899, Burden v. Burden, 159 N. Y. 287.

As to multifariousness of bill, see, 1875, Winsor v. Bailey, 55 N. H. 218; 1888, Dunphy v. Travelers' Assn., 146 Mass. 495; 1900, South Bend Chilled Plow Co. v. Cribb, 105 Wis. 443, 81 N. W. Rep. 675.

The corporation is a necessary party: 1898, Edwards v. Bay State Gas Co., 91 Fed. Rep. 946. See Quincy v. Steel Co., 120 U. S. 241 (pleading).

Sec. 585. Same. (e) Good faith of shareholder.

PARSONS v. JOSEPH.

1890. IN THE SUPREME COURT OF ALABAMA. 92 Ala. Rep.

403-407.

[Bill by Joseph, a stockholder in a street railroad company, to have certain certificates of stock canceled.]

COLEMAN, J. The purpose of the bill is to have certain certificates of stock issued by the Birmingham, Powderly and Bessemer Street Railroad Company to defendant Parsons canceled, on the ground that the stock is fictitious, and was issued in violation of the constitution and statute law of the state. The bill prayed an inchancellor. Á demurrer A

junction and the writ was awarded by the was interposed, and also an answer by the defendant Parsons. The cause was submitted for decree on the demurrer and upon motion to dissolve the injunction. The court overruled the demurrer and denied the motion to dissolve the injunction, and from this interlocutory decree the appeal is taken.

Among other averments, the bill substantially alleges that plaintiff is a bona fide stockholder in said company; that shortly after organization of the company, the defendant subscribed for one hundred and seven shares of the capital stock of the company, of the par value of fifty dollars each, and paid for the same in full by conveying to the company thirty-nine acres of land (describing the land) at an agreed price and valuation of one hundred and thirty-seven dollars per acre, when the land was not worth more than twenty-five dollars per acre, and for this land Parsons was to receive one hundred and seven shares of the stock; that shortly thereafter, the capital stock of the company was doubled, and without further consideration than the thirty-nine acres of land, Parsons' stock was doubled, and he received two hundred and fourteen shares of the capital stock. The bill, as amended, charges the excessive valuation of the land was made knowingly, willfully, and with the fraudulent intent of having issued to Parsons the fictitious stock, in violation of law. This is a sufficient. statement of the facts for the consideration of the demurrer.

The demurrer admits the truth of the averments. It is contended that the bill is defective in not averring that plaintiff was a stockholder at the time of the transaction complained of as being fraudulent, or that his stock devolved upon him by operation of law.

In the case of Dimpfell v. Ohio & Mississippi R. Co., 110 U. S. 209, relied upon by appellant, it was held that a stockholder, contesting as ultra vires an act of the directors, should aver "that he was a stockholder at the time of the transaction of which he complains, or that his shares have devolved on him since by operation of law." To the same effect was Hawes v. Oakland, 104 U. S. 450, and many others might be cited. Upon an examination of these authorities it will be seen that the principle asserted rests solely upon equity Rule No. 94, adopted by the United States supreme court, and which may be found in the preface to volume 104 of U. S. report. Morawetz on Private Corporations, speaking of this rule, says it was evidently designed as a rule of practice merely, and was deemed necessary to guard courts from being imposed upon by collusion of parties. Morawetz on Priv. Corp., §§ 269, 270. The rule is not a general principle of law, applicable to pleadings in all the courts, and has never been applied to the courts of this state. The demurrer to the bill for failing to make this averment was properly overruled.

The motion to dissolve the injunction was heard upon the sworn bill and answer. The answer denied that plaintiff was a bona fide stockholder, and set up that plaintiff was the transferee of one E. Lesser. The answer admits that the defendant's stock was doubled without the payment of any additional consideration than that of the land; but by way of explanation and defense, avers that the lands were not truly and properly valued at first, and the increased valuation of the lands only raised them to their real and true value, and the additional issue of stock was for property at its fair valuation. The answer continues, however, as follows: That if said transaction had been illegal and fraudulent, and not done in good faith, complainant is es

topped from setting up fraud in said transaction, or seeking to cancel said stock, because E. Lesser, who was complainant's transferrer, participated in all of said transactions and himself fixed the value of said lands, with full knowledge and after full investigation of the value of said lands.

A transferee of stock is not necessarily disqualified as a suitor in all cases because the prior holders were personally disqualified. If the transferee purchased the shares in good faith, and without notice of the fact that the prior holder had precluded himself from suing, he would have as just a title to relief as if he had purchased from a shareholder who was under no disability; but if the purchaser was aware that the prior holder had barred his right to relief, neither justice nor public policy would require that the transferee, under these circumstances, should be accorded any greater rights than his transferrer. Morawetz, supra, § 267.

The same rule prevails in this state in favor of derivative purchasers. The claimant, who was a bona fide purchaser, without notice of fraud, or of facts which the law considers sufficient to establish it, or from which it is inferable, then he could not be affected by notice to his vendor. Horton v. Smith, 8 Ala. 78; Fenno v. Sayre, 3 Ala. 458; Wier v. Davis, 4 Ala. 442; Martinez v. Lindsey, 91 Ala. 334; Wait on Insol. Cor., §§ 628, 630.

If a stockholder participates in a wrongful or fraudulent contract, or silently acquiesces until the contract becomes executed, he can not then come into a court of equity to cancel the contract, and more especially if the company, or himself, as a stockholder, has reaped a benefit from the contract; and this rule holds good, although the consideration of the contract may be one expressly prohibited by statute. The same disability would attach to the transferee of his stock who bought with notice. We consider this general rule of equity abundantly sustained. Morawetz on Priv. Corp., §§ 261, 262; Cook on Stock and Stockholders, §§ 39, 40, 735; Wright v. Hughes, 12 Am. St. Rep. 413. It is sustained by the familiar rule that he who invokes the aid of a court of equity must have clean hands. Mr. Cook states the conditions upon which a stockholder can sustain a suit to remedy the frauds, ultra vires acts or negligence of directors, to be: First, the acts complained of must be such as to amount to a breach of trust, and such as neither a majority of the directors nor of the stockholders can ratify or condone; second, that the complaining stockholder himself is free from laches, acquiescence of the acts to remedy which the suit is brought; third, that the corporation has been requested and refused or neglected to institute the suit, that the suit is instituted by bona fide stockholders as complainants, and that the corporation and the guilty parties, and other proper parties, have been made defendants. Cook, supra, § 646.

If the averments of the bill are sustained by proof, the stock issued to the defendants was in violation of section 1662 of the code, and of section 6, article XIV, of the constitution. On the contrary, if the proof shows that the property was received in payment of stock,

at a fair valuation, such would not be the result. Montgomery Fur and Chem. Co., at present term.

Davis Bros. v.

In cases where the stockholders or the company by any laches, acquiescence or participation in the unlawful and fictitious issue of stock, or for any other sufficient cause, are precluded from instituting the proper proceedings to remedy the wrong, the remedy is still open to the state to institute all necessary and proper proceedings to vacate and dissolve the corporation, or have such other proper judgment and decree rendered as the proof and justice may demand.

It may be that stockholders, who knowingly and intentionally have subscribed and paid for stock with property upon a fictitious valuation, are liable as stockholders who have not paid up in full for their stock, within the meaning of the statute, to creditors who have not precluded themselves from maintaining the suit. Wait, supra, § 593; Douglas v. Ireland, 73 N. Y. 100; Boynton v. Andrews, 63 N. Y. 93.

Applying the rule of law applicable when a motion to dissolve an injunction is submitted upon bill, exhibits, and answer, and considering only so much of the answer as is responsive to the bill, we are of opinion that the decretal order, overruling the demurrers and motion to dissolve the injunction, is free from error.

Affirmed.

Note. See, 1867, Seaton v. Grant, L. R. 2 Ch. App. 459; 1896, Green v. Hedenberg, 159 Ill. 489, 50 Am. St. Rep. 178; 1900, Morris v. Elyton Land Co., Ala. 28 So. Rep. 513.

Compare, 1883, Parsons v. Hayes, 14 Abb. N. C. 419; 1898, Robinson v. W. Va. Loan Co., 90 Fed. Rep. 770. Also, Hawes v. Oakland, supra, p. 1716.

SUBDIVISION III. THE CORPORATION AND ITS Officers.

ARTICLE I. RIGHTS OF THE CORPORATION.

Sec. 586. 1. General doctrine.

Smith v. Hurd, 12 Metc. (Mass.) 371, supra, p. 1706.

Sec. 587. Same. 2. Theories of the relation of the directors and the corporation.

(a) Agents of the corporation, and not trustees of the shareholders.

ALLEN v. CURTIS.1

1857. IN THE SUPREME COURT OF ERRORS OF CONNECTICUT. 26 Conn. Rep. 456-461.

Action on the case, brought by a stockholder of the Woodbury Bank against the defendants, as directors thereof. The declaration 1 Arguments and part of opinion omitted.

alleged that on the 27th day of September, 1852, the stockholders of the Woodbury Bank appointed the defendants directors thereof, who accepted the trust and undertook to manage and conduct its business and financial affairs in a prudent and skillful manner, but that they did not so conduct the affairs of the bank, but on the contrary willfully and designedly managed the same in an unskillful, careless and reckless manner, making false entries in the books of the bank, loaning money without security, etc., whereby the bank became insolvent, and the stock of the plaintiff wholly worthless and a total loss. The declaration contained three counts substantially alike, the third containing a more direct averment of fraud in the defendants. The defendants demurred generally and the case was reserved for the advice of this court.

*

ELLSWORTH, J. It is obvious that the present is not the proper form of redress to be pursued, even for civil purposes, unless we are prepared to break down long established principles of law. No such private suit will lie against the defendants, nor even a bill in equity without more parties are brought in and the allegation of certain further facts.

The general rule of law is, that an action at law must be brought by the person having the title or right to the thing demanded, or to the damages which are sought to be recovered for the injury. Hence the Woodbury Bank should have brought this suit. It is its property which has been misappropriated and lost, and the damages to be recovered belong to it-to be sure, in trust for bill-holders, depositors and other creditors, if any there be, and finally for the stockholders, but for all of them and not for some of them exclusively. The bank then must sue. It may compromise, and settle, or release the defendants on terms mutually satisfactory, which the stockholders can not do, and should they do it, it would be no bar to a suit afferwards brought by the bank. In this respect the defendants are liable to the bank as any other agents or persons would be for robbing or defrauding it or in any way injuring the corporate property. Now, to permit the plaintiff to recover for himself, as he does if he recovers at all, to the extent of the loss which he suffers in his stock, will be the means of giving him a preference to which he is not entitled. The defendants can be sued only once, and not separately by every one who is indirectly injured by their wrongful acts. Coke, Lit., 56a. Stetson v. Faxon, 19 Pick. 155.

Besides, the directors of the bank are the agents of the bank. The bank is the only principal, and there is no such trust for, or relation to a stockholder as has been claimed by the plaintiff. The entire duty of the directors, growing out of their agency, is owed to the bank, which, under the charter, is the sole representative of the stockholders, and the legal protector and defender of their property. Nor is any other protector or defender necessary, until the bank shall neglect its duty in refusing to call the directors to account; in which event, upon a case properly stated, and with proper parties before the