(31 N. D. 116, 153 N. W. 279.) an opportunity to vote on each and mond received a majority of the every ballot held, and voted upon votes cast, and were declared elected some of such ballots; that at such as directors for the year beginning annual meeting of the stockholders July 7, 1913.

July 7, 1913. (9) That the plainthe following resolution was unani- tiff, C. A. Cross, in order to secure mously adopted : 'No. 7. Whereas, control of this corporation, during to the best knowledge and belief of the winter and spring of 1912 and the majority of the stockholders of 1913, with full knowledge of the this company, a certain resolution

agreement among the stockholders was adopted at the regular annual and by-law of said corporation set meeting of the stockholders on July out in finding No. 1 herein, and with 3, 1912, which provided for four of the intent and purpose to avoid the the seven directors to be elected for force and effect of such agreement a term of two years, and three for and by-law, bought and owns fiftya term of one year, and provided three (53) shares of the capital that the board of directors should stock of said corporation, being a designate which members should majority of the stock then issued, serve for two years, and which mem- and placed them in the names of his bers for one year; and whereas the children and friends. (10) That the secretary then acting failed to enter

purchasers of said seventy shares of such action of the stockholders in

stock sold in the year 1913, as found the minutes of the meeting; and

and set out in finding No. 3 hereof, whereas the directors all at this purchased the same in order that meeting on July 6th, 1912, carried they, and those of the stockholders out a portion of said instruction by

were providing that four of the directors friendly to them, might retain con

of said corporation who were elected for two years and three

trol of the corporation, and in order for one year, and did at their meet

to prevent the plaintiff Cross from ing on January 30th, 1913, carry out

securing control thereof, and that the full instruction of the stockhold

the said corporation and the officers ers at their meeting on July 3, 1912,

and directors thereof knew the moby the passage of a former by-law tive and reason for such purchase by providing that four of the seven di

said purchasers at the time of the rectors should hold office for a term

sale and issuance of said stock to of two years, and three for a term

them.” of one year, and designating George Magee, William Hoeft, Frank Eberl,

Messrs. W. P. Costello and Miller & and Sam Swanson as directors to

Zuger for appellant. hold for a term of two years, and

Messrs. R. L. Phelps and Newton,

Dullam, & Young, for respondents: John C. Taylor, Henry Albreacht,

Plaintiff does not come into equity and R. A. Haase directors to hold for

with clean hands. a term of one year. Now, there

New England Trust Co. v. Abbott, fore, be it resolved by the stockhold- 162 Mass. 148, 27 L.R.A. 271, 38 N. E. ers of this company that the said 432; Adley v. Whitstable Co. 17 Ves. action of said stockholders, as di- Jr. 322, 34 Eng. Reprint, 124, 11 Rerected at their respective meetings

vised Rep. 87; Seattle Trust Co. v.

Pitner, 18 Wash. 401, 51 Pac. 1048; on July 3 and July 6, 1912, and of

Cratty v. Peoria Law Library Asso. the said directors on January 30, 219 Iị. 523, 76 N. E. 707; Thomp. Corp. 1913, as hereinbefore set forth, be $980; John C. Grafflin Co. v. Woodside, and the same hereby is in all re- 87 Md. 146, 39 Atl. 413; Vogel v. Pekoc, spects approved, ratified, and con- 157 Ill. 339, 30 L.R.A. 491, 42 N. E. firmed, and is hereby adopted as the

386; Griffin v. Bristle, 39 Minn. 456, 40 action of this assembly.' That at

N. W. 523; McDermott v. Mahoney, such stockholders' meeting the

139 Iowa, 292, 115 N. W. 32, 116 N. W.

788; McFadden v. Los Angeles Counpresident announced that three di

ty, 74 Cal. 571, 16 Pac. 397; Austin rectors were to be elected, and E. L.

v. Searing, 69 Am. Dec. 665, and note, Bunker, S. E. Kepler, and E. J. Ray- 16 N. Y. 112; Michigan Pipe Co. v. Fremont Ditch, Pipe Line & Reservoir Printing Co.1 N. D. 434, 12 L.R.A. 787,

, Co. 49 C. C. A. 324, 111 Fed. 287; Ed- 26 Am. St. Rep. 639, 48 N. W. 347; ward Thompson Co. v. American Law State ex rel. Martin v. Chute, 34 Minn. Book Co. 62 L.R.A. 607, 59 C. C. A. 148, 135, 24 N. W. 353. 122 Fed. 922; Fetridge v. Wells, 4 Abb. Pr. 144; Manhattan Medicine Co. v.

Bruce, J., delivered the opinion of

the court: Wood, 108 U. S. 218, 27 L. ed. 706, 2 Sup. Ct. Rep. 436; Scranton Electric

It is difficult for us to find in the Light & Heat Co.'s Appeal, 122 Pa. voluminous record which is before 154, 1 L.R.A. 285, 9 Am. St. Rep. 79, 15 us, or in the brief of counsel, any Atl. 446.

ground whatever on which the Bad faith on the part of defendants plaintiff can seek equitable relief. has not been shown.

He seeks the control of the corporaState ex rel. Page v. Smith, 48 Vt.

tion, and complains that stock has 266; Rural Homestead Co. v. Wildes, 54 N. J. Eq. 668, 35 Atl, 896.

been sold since he obtained the maThe unissued stock was properly jority thereof, and that the purpose sold to any persons who were willing

of this sale was to take the control to purchase the same. The original from him, when, as a matter of stockholders had no preferential right fact, the only purpose for which he thereto.

acquired the stock which he did, and Curry v. Scott, 54 Pa. 270; Reese v.

which he admits was acquired Bank of Montgomery County, 31 Pa.

through "dummies” and in viola78, 72 Am. Dec. 726; Ohio Ins. Co. v. Nunnemacher, 15 Ind. 294; Gray v.

tion of the agreement between the Portland Bank, 3 Mass. 364, 3 Am. Dec.

stockholders that no person should 156; Grant, Corp. 226, 231, 252;

acquire more than ten shares, was Hodges v. New England Screw Co. i in order that he himself might get R. I. 312, 53 Am. Dec. 624.

that control. The evidence is clear Plaintiff has never offered to take, that the stock of the corporation has nor demanded a pro rata share of the at all times been for sale, and that unissued stock.

quite recently, and before the sale Gray y. Portland Bank, 3 Mass. 364,

of the seventy shares which plain3 Am. Dec. 156; Stokes v. Continental Trust Co. 186 N. Y. 285, 12 L.R.A.

tiff now seeks to set aside, he him(N.S.) 969, 78 N. E. 1090, 9 Ann. Cas.

self had the opportunity of buying 738; Jones v. Morrison, 31 Minn. 140,

fifty of these shares, and thus of 16 N. W. 854; Thomp. Corp. [ 3648; gaining a permanent control. His Bonnet v. First Nat. Bank, 24 Tex. Civ. proposition, however, is that if the App. 613, 60 S. W. 325; Wilson_v. motive of the directors of a corporaBank of Montgomery County, 29 Pa. tion in selling the balance of the 537; Crosby v. Stratton, 17 Colo. App.

unsold capital stock, or in taking 212, 68 Pac. 130.

subscriptions thereto, is to take the Plaintiff has waived his right to a

control from one who holds the mapro rata portion of the stock. Gray v. Portland Bank, supra; Jones

jority of the shares before such sale, v. Morrison, 31 Minn, 140, 16 N. W.

such sale is fraudulent and may be 854; Crosby v. Stratton, supra; Bon- set aside, even though such stock is net v. First Nat. Bank, 24 Tex. Civ. sold at par and the money therefor App. 613, 60 S. W. 325; Hoyt v. She- is collected. This proposition is to nango Valley Steel Co. 207 Pa. 208, 56

us a novel one, and has no support Atl. 422; Thomp. Corp. SS 3645, 3648; whatever in principle or in the auStokes v. Continental Trust Co. 186 N.

thorities. Section 4525, Compiled Y. 285, 12 L.R.A.(N.S.) 969, 78 N. E. 1090, 9 Ann. Cas. 738; Curry v. Scott,

Laws of 1913, provides that, "after 54 Pa. 270.

the secretary of state issues the cerPlaintiff is estopped to complain of tificates of incorporation as providirregularities in the election of of- ed in $ 4512, the directors named in ficers.

the articles of incorporation must Thomp. Corp. 88 921, 935; People ex rel. Swan v. Loomis, 8 Wend. 396,

proceed in the manner specified 24 Am. Dec. 33; State ex rel. Martin

in their by-laws, or, if none, v. Thompson, 27 Mo. 365; Philips v.

then in such manner as they may by Wickham, 1 Paige, 590; Re Argus order adopt, to open books of sub

excessive

(31 N. D. 116, 155 N. W. 279.) scription to the capital stock then scribed, and who have rights which unsubscribed, and to secure sub- should be protected. It is to be rescriptions to the full amount of the membered that in the case at bar we fixed capital; and to levy and collect are not dealing with treasury stock assessments thereon in the manner which has been bought in or otherprovided by article 7 [10] of this wise acquired by the corporation, chapter.”

but with the unsubscribed balance of The only understanding that we the capital stock, which $ 4525, Comcan derive from this section is that piled Laws of 1913, says the directit was the intention of the legisla- ors must endeavor to have subture that the stock of private cor- scribed to the full amount, and porations, even if not to be looked which constitutes the only asset with upon as a trust fund, so that the which a corporation comes into the same might not be depleted by divi. world. It is clear to us that no dends after once having been collect- stockholder should be allowed to ed (see discussion in 4 Thomp. Corp. complain because the directors have 2d ed. $$ 3415 et seq.; on this ques. done their duty, tion we are not here required to and have not mere

Corporationpass), should be fully subscribed for ly obtained sub- capitalization

complaint. as soon as possible, and this not scriptions for, but merely for the protection of the pub- have obtained the payment in full lic, who, when it is dealing with a

and at par for, the balance of the $10,000 or a $50,000 corporation, stock which the public and the other has the right to deal with one which stockholders had the right to believe is not on paper merely, but for the the corporation would have subprotection of the subscribers to the scribed. stock, who have the right to believe

It may be, and on this question we that they are subscribing for stock

are not required to pass, that the in a corporation which will have

stockholders of a corporation have a funds, or at any rate have subscrib- preference in regard to subscripers who can be held for the amount tions to the treasury stock, but we which will be sufficient for fully de

as yet know of no case which has veloping the purpose and business

held that one who has purchased a of the institution.

majority of the stock of a corpora“The stockholders,” too, says the tion at a time before the stock has supreme court of Wisconsin, in Ad- been fully subscribed has a vested ler v. Milwaukee Patent Brick Mfg. interest in the control of the corpoCo. 13 Wis. 57, "being in general ration so that the remaining stock free from personal responsibility, may not be sold and subscribed for, the capital stock constitutes the sole

nor can we see any reason for such fund to which creditors look for the a holding. The evidence, it is true, liquidation of their demands. It is

It is shows that the sale of such stock was the basis of the credit which is ex

not absolutely necessary to the extended to the corporation by the istence of the corporation. It is public, and a substitute for the in- quite clear, however, that with the dividual liability which exists in increased money the business could other cases.

So far as the creditors be greatly enlarged, and more ecoare concerned it is regarded in the nomically conducted. Even if it law as a trust fund pledged for the

would not, the public and the stockpayment of the debts of the corpora- holders had a right to have the tion.” And how can stock which is stock subscribed. not subscribed for, and which, in Not only is this true, but the cases of insolvency or approaching plaintiff is hardly in the position to insolvency, would never be sub- come into a court of equity and comscribed for, be any protection to the plain of his loss of the control of creditors of a corporation or to the the corporation. It is clear from stockholders who have already sub- the record that he was the original

promoter of the enterprise, and that of equity and complain because as such he drew an agreement and others have obtained control of the contract of subscription in which it corporation, and this not by evading was provided that no stockholder the agreement, but by doing that should hold more than ten shares. which the law contemplates. The purpose of this agreement was There is, too, no merit in the propthat the elevator could be in fact, osition that, on account of the prosas well as in name, a farmers' eleva- perous condition of the corporation tor, and that the farmers of the com- and some accumulated earnings, the munity might be generally interest- stock was worth more than par, and ed and benefited thereby. It is that a fraud was committed on the clear that, even though he may not plaintiff by the sale at par.

We are have signed this agreement himself, here, it is to be remembered, not a number of the subscriptions were dealing with treasury stock, but taken on it with his knowledge and with the original unsubscribed capiacquiescence. It is also shown that

It is also shown that tal stock, the value of which was this agreement was later embraced fixed by the articles of incorporain the by-laws of the company, and tion. The record of the corporation we find no objection in the record in the past has shown that it has not made by the plaintiff to the adoption been a wise thing to dissipate all of of this by-law. It is also clear from its earnings in dividends, and the testimony that, though plaintiff though the plaintiff complains that may have had some doubt of the the directors are about to declare validity of the by-law, he was so far dividends and to apportion the same controlled thereby that he obtained

on the new stock, as well as on the the subscriptions to the shares of old, there is absolutely no proof in stock which gave him his majority, the record of this fact. Whether in the names of his family and his the new stock would share in the friends, for the purpose of evading past profits it is not necessary for the same. He now comes into a

us to determine. It is shown, incourt of equity and asks relief be- deed, that during the second year cause the officers of the corporation of the existence of the corporation at one time refused to transfer on accumulated profits of 7 per cent the books of the corporation the as- were entirely swept away by a failsignments of these "dummies" to

ure of crops. The record shows also him, though in spite of this fact he

that no provision has been made for was allowed to vote the shares of

deterioration. It also shows that stock at the meetings of this corpo- feed mill is a part of the scheme of ration. It is unnecessary for us to the corporation, and reasonably say whether the by-law was valid

necessary.

It further shows that or not.

It is sufficient to say that running capital is necessary in orthe subscribers to the stock of a cor- der to save borrowing money, and poration may enter into an agree- to be able to take advantage of the ment, under the terms of which nei- exigencies of the market. ther themselves nor subsequent sub- Plaintiff's sole and only ground of scribers to the stock will be entitled complaint, when reduced to its es

to and receive more sentials, is that he has lost the conthan the stipulated trol of the corporation by the officers

number of shares, of the corporation doing that which and this agreement will be binding the statute contemplates that they upon the parties to it, though not on should do, that is, by obtaining the corporation. 4 Thomp. Corp. 2d subscriptions to all of the shares of ed. $ 3523; Hladovec v. Paul, 222 Ill. capital stock, when he himself at no 254, 78 N. E. 619. A plaintiff who time would have had that control if has violated this agreement, and he had not violated his agreement thus obtained the control of a cor- with the other stockholders. The poration, cannot come into a court record shows no mismanagement or

-agreement as to holding of stock.

(31 N. D. 116, 153 N. W. 279.) business inability on the part of the that he ought to be dismissed from directors. There is no pretense that a court of equity without relief, for any of the other stockholders own the reason that his own conduct has or control more than ten shares. been so in outrage of his duties as a We agree thoroughly with the find- director and officer of the corporaing of the trial court that he does tion that no court can patiently lis

not come into equity ten to his prayer for enforcement -violation of with clean hands, subscription

of fiduciary principles and duties. contraet

and that he is not That objection does not, however, redressclean hands.

entitled to any relief exist to some of the other plaintiffs,

herein, but should who, as stockholders, ask that their be left in the position in which the rights be protected as to them." court finds him.

In the case at bar, C. A. Cross is The above considerations, we the sole plaintiff. No other creditthink, are the only ones that are ors or stockholders complain. He material in this case, though other does not come into equity, therefore, questions are involved.

with clear hands, and even the deThe judgment of the District cision of Luther v. C. J. Luther Co. Court is affirmed.

would deny him relief. A petition for rehearing having

The petition for a rehearing is been filed, on June 15, 1915, Bruce,

denied. J., handed down the following additional opinion:

NOTE. Our attention is called in the petition for a rehearing, to the decision in the case of Luther v. C. J.

The maxim, “He who comes into Luther Co. 118 Wis. 112, 99 Am. St.

equity must come with clean hands," Rep. 977, 94 N. W. 69, which, al

is held in the reported case (CROSS V. though referred to in the main brief,

FARMERS ELEVATOR Co. ante, 13) to is claimed to have been overlooked prevent a promoter who, in violation by us. In that case, however, al

of the subscription agreement, purthough relief was granted to the

chased through "dummies” a controlplaintiff and his co-complainants, it

ling interest, from obtaining equiwas granted wholly on account of table relief against the acts of the dithe co-complainants, and not on ac- rectors in selling stock in such manner count of the plaintiff. The court as to deprive him of the control. The in the opinion expressly said: cases involving the maxim in question "Were Clarence J. Luther the sole are reviewed in the note following plaintiff, we should have little doubt LANGLEY v. DEVLIN, post, 44.

Cloud - removal — deed to defraud creditors.

1. Where a deed is executed and placed on record by a grantor for the purpose alone of placing the property beyond the reach of his creditors, and such deed is not delivered by the grantor to the grantee or anyone Headnotes 1 and 2 by COLLIER, C.