2. CORPORATIONS 99(2) DIRECTORS ULTRA VIRES ACT OF DIRECTORS-PAYMENT FOR PROPERTY BY STоск.

In view of Code Pub. Gen. Laws 1888, art. 23, §§ 61, 62, 65, relating to the sale of corporate stock in return for property, such transaction must be made by the stockholders, and the action of the directors in issuing a duebill for such property was ultra vires, and a fraud upon prospective purchasers of stock, who would look to the records of stockholders' and not directors', meetings, and it is immaterial that all stockholders were directors. 3. CORPORATIONS 80(8)-SALE OF CORPOBATE STOCK-NOTICE TO PURCHASER of CORPORATE DEBTS.

Stockholders and directors of a corporation holding duebills under resolution of the board of directors in payment for property furnished the corporation, when selling the corporate stock, were in equity and justice under obligation to make known to the purchaser the fact that they held such certificates and claimed the right to be paid for them, in view of their sale contract covering all their rights.

4. CORPORATIONS 473-CERTIFICATES OF INDEBTEDNESS- VALIDITY-RELIEF OF BONDHOLDERS OF PURCHASER.

Where plaintiff, representing holders of power company bonds secured by mortgage, purchased the mortgage and also land company stock owned by the power company, and the power company, when giving mortgage, had notice of claims against the land company evidenced by duebills given to directors, the bondholders were not precluded from relief from such duebills, if invalid.

5. CORPORATIONS mm 273

BONDHOLDERS' SUIT TO CANCEL CERTIFICATES OF INDEBTEDNESS-EQUITY JURISDICTION.

In a suit by plaintiff, representing bondholders of a corporation, to cancel certificates of indebtedness against the corporation, made payable to bearer, unlawfully issued without consideration, and to enjoin their payment, held, that plaintiff was entitled to protection, and could obtain ample relief only in a court of equity.

6. CORPORATIONS 473-RIGHTS OF BONDHOLDERS- LACHES — JUSTIFICATION OF DELAY IN BRINGING SUIT.

Delay in asking relief by bondholders in sait to cancel and set aside corporate certificates of indebtedness held justified, because of delays through objections filed to sale of properties to bondholders and by pending litigation

between the corporation and holders of such certificates.

Appeal from Circuit Court No. 2 of Baltimore City; James M. Ambler, Judge.

Bill in equity by Frank J. Hoen against George K. McGaw and another. From a decree for complainant, defendant McGaw appeals. Affirmed.

Argued before BOYD, C. J., and BRISCOE, BURKE, THOMAS, URNER, and CONSTABLE, JJ.

W. Irvine Cross, of Baltimore (W. T. Warburton, of Elkton, on the brief), for appellant.

Thomas H. Robinson, of Bel Air, for appellee.

BOYD, C. J. In the case of Conowingo Land Co. v. McGaw, 124 Md. 643, 93 Atl. 222, we reversed the judgment and awarded a new trial. When that case was about to be reached for retrial, the appellee filed a bill in equity against McGaw and the Conowingo Land Company, in which he alleged that he was the owner of 400 shares of the capital stock of that company, and prayed, amongst other things, that McGaw be required to deliver up the evidences of debt claimed by him, which were involved in the case in 124 Md. 643, 93 Atl. 222; that they be declared to have been invalidly, illegally, and fraudulently issued, and void; that said McGaw be enjoined from asserting any right or claim to the said evidences of debt, and to the sums of money mentioned therein, and from prosecuting his said claim against the Conowingo Company. It was further prayed that the Conowingo Company be enjoined from paying said evidences of debt, or any sum or sums of money thereunder, and there was a prayer for general relief. A preliminary injunction was issued, separate answers of the defendants filed, and testimony taken. A decree was passed, making the injunction permanent, and enjoining McGaw from further prosecution of the action referred to, or from instituting any other action or proceeding on the "duebills" or "certificates of indebtedness" mentioned. It further ordered McGaw to cancel said duebills, or cause them to be canceled, and to pay the costs. From that decree this appeal was taken.

The most important questions for our decision are: (a) Were the certificates of indebtedness legally and validly issued by the Conowingo Company? and (b) if they were not, was the plaintiff entitled to relief in a court of equity? Other questions were argued, but those are the most material ones.

[1] (a) The form of the certificate is set out in full in 124 Md. 643, 93 Atl. 222, and we will not copy it in this opinion. Mr. McGaw had two certificates for $5,000 each and

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

mitted to the stockholders of the Conowingo Land Company the following proposition:.

"I, Charles C. Caldwell, hereby submit a proposition to subscribe for 591 shares of the capital stock of the par value of $100 each, of the Conowingo Land Company of Cecil county, and in payment therefor it is proposed to sell, transfer, and convey to said company all my right, title, interest, and claim of, in, and to the tracts of land located on the east bank of the Susquehanna river in the Eighth district of Cecil T. Bell and others, representing the estate of county, as conveyed to me by deed from Philip James C. Bell, deceased, by their deed dated the 10th day of July, 1900, and duly recorded in the land records of Cecil county, and upon the said property, your company is to assume and pay the purchase-money mortgage of $25,000 made and given by me in part payment for said James C. Bell, deceased, and is also to issue land and property to the estate of the said and deliver to me the said 591 shares of the capital stock of your company, of the par value of $100 each. All of which is respectfully

one for $3,150. Certificates were issued to James H. Harlow for the same amounts. What we said in the opinion in 124 Md. 643, 93 Atl. 222, is sufficient to show that we were of opinion that there was nothing in the form of the certificates which would necessarily affect their validity, but it is strange that the president of the company was not called upon to sign them, as the treasurer, who did sign them, was an interested party. But, inasmuch as the directors had unanimously authorized them to be issued, at a meeting over which the president presided, it may be that they were executed in the form they were for convenience, and not for the purpose of withholding from him knowl-delivery of a deed by me to your company for edge that they were issued. After a careful examination of the evidence and the law applicable thereto, we are of opinion that there was no consideration for them, and that the directors had no power to pay Messrs. McGaw and Harlow the amounts they represented. Mr. Caldwell held the title to what was spoken of as the Bell property. He pur-submitted. chased it for $50,000, $25,000 of which were paid in cash and the remainder secured by mortgage. Mr. McGaw and Mr. Harlow each contributed $13,150, which was used in making the cash payment and some other payments in connection with the purchase. They had an arrangement with him by which he was to have an interest in the profits or the proceeds of sale to be made by him, and without now referring to the evidence of Messrs. Harlow and Caldwell on that subject, we will quote from that of Mr. McGaw, which in part was as follows:

"5 Q. What was the purpose of the incorporation of the Conowingo Land Company? A. The purpose was to define the three interests to Mr. Harlow, Mr. Caldwell, and myself. We had agreed to give Mr. Caldwell one-third of the profits above the cost of the property, and the corporation was formed and the stock issued in order that he might definitely confine his interest above the cost of the property. * 6 Q. It has been suggested that the stock issued represented the total value of the land free from the debt to you and Harlow. Please state what the fact was about that. Mr. Robinson: I object. The Witness: It did not. It was done more especially to define and to give Mr. Caldwell his interest above the cost that we had promised him for his various services."

"[Signed] Charles C. Caldwell."

and later on the same day Charles C. CaldThat was accepted by the stockholders, well, George K. McGaw, S. J. Caldwell, and

James H. Harlow, who were four of the five directors, met and organized by electing Charles C. Caldwell president, James H. Harlow secretary, and George K. McGaw treasurer. At that meeting the secretary read the resolutions of the stockholders passed relative to the purchase by the company from Charles C. Caldwell of the property recently acquired by him from the estate of James C. Bell and the subscription thereby made by him to the capital stock of the company. It was resolved that the proper officers of the company be directed to carry out the instructions as provided for in the resolutions adopted at the meeting of the stockholders, and, after providing for the procuring of a corporate seal, stock certificates, and necessary books and stationery, the minutes of that meeting concluded as follows:

"On motion, it was unanimously resolved that the officers be and they are hereby authorized and directed to issue due bills of this company for cash advances with interest, namely: A duebill to George K. McGaw for $13,150, and a duebill to James H. Harlow for a like amount of $13,150, and that said duebills shall bear The Conowingo Land Company was organ-interest from the 1st day of April, 1902, at the ized to take over that property. It had an rate of 6 per cent. per annum until paid by the authorized capital stock of $60,000, divided company; the same having been part of the into 600 shares of $100 each. After it was purchase money paid the said Bells for the real organized, 9 shares of stock were subscribed -3 by Mr. McGaw, 3 by Mr. Harlow, and 3 A certificate of stock was issued to Caldby Mr. Caldwell. A share was given by Mr. well for 591 shares, which was returned, and Harlow to his brother, George R. Harlow, three certificates, for 197 shares each, were and one by Mr. Caldwell to his brother, S. J. issued to Messrs. McGaw, Harlow, and CaldCaldwell, for the purposes of the organiza- well, which, together with the shares already tion. Those five were named as directors. held or controlled by each of them, made 200

estate."

the capital stock of the company. Sections [mitted by the statute. Any one desiring to 61 and 62 of article 23 of the Code of 1888 were still in force when the subscription of Caldwell was made and accepted for the 591 shares, as they continued to be for some years afterwards. The transactions were therefore governed by them and other provisions of the statute then applicable to subscriptions of the capital stock of corporations payable in land or other property.

buy stock of a company which had issued any of its stock for property would, under the statute, look to the minutes of the proceedings of the stockholders, and not to those of the directors, to ascertain what was done. The property was paid for by the stock, but, if the theory of the appellant be correct, then any person who subscribed for stock to be paid for in property could not only have gotten stock, represented to be fully paid, but he could have been repaid all that the property had cost him. In short, he would have gotten his money back in cash and then got the stock for nothing, if the property was not worth more than it had cost him. The law as found in those sections has been very materially changed, but it never contemplated such results as those we have suggested.

By section 61 subscriptions to capital stock of a corporation were authorized to be made in land or other property at a valuation to be agreed upon between the corporation and the subscriber, when the property was such as it was proper that the corporation should own, but not unless previously authorized by the stockholders, assembled in general meeting pursuant to a call to consider the propriety of receiving the subscription and of fixing the terms. By section 62, when property of any kind was so received in pay-titled to-one-third of the profits out of the ment of stock, it was provided that

"The books of the company shall be so kept as to show at all times fully what property was received for the said stock, at what value and the number of shares of the capital stock issued for the same; in all other cases money only shall be considered as payment of a subscription to any part of the capital stock."

Then by section 65 the president and a majority of the trustees, directors, or managers of such corporation were required to make a certificate, within 30 days after the payment of the last installment of stock limited in the certificate of incorporation, stating the amount of the capital stock so fixed and paid in, and of all property received in payment for any of said subscriptions, and the extent to which said payments have been made in property, which certificates were required to be sworn to by the president, and filed with the clerk of the court in which the certificate of incorporation was recorded.

It is therefore clear that the stockholders, and not the directors, were required to act in such matters. There is no suggestion in the proposition submitted by Caldwell and accepted by the stockholders of a proposed payment by the company of any sum of money, except the $25,000 secured by the mortgage, subject to which the land was conveyed. The 591 shares of the capital stock were to be in full payment of the property, subject to the mortgage. That was required to be made a matter of record on the books of the company, so as to show what the corporation received and what it gave in the transaction. In this case it gave $59,100 in the par value of stock for property which was subject to a $25,000 mortgage, but was not subject to the mortgage, plus $26,300 of indebtedness. The directors had no power to add such a burden on the company in that transaction. It would have opened the door to the grossest fraud, if that had been per

Mr. McGaw said that the plan was adopted so that Caldwell would get what he was en

land. That was a matter between Caldwell, of the one part, and McGaw and Harlow, of the other part, and not between the company and them. If the understanding was that they were first to be paid what they had paid out on the property, it could easily have been arranged. It could have been provided in the subscription that the company was to pay the amount or give a mortgage for it in addition to the stock, or they could have agreed with Caldwell that $26,300 worth of stock, or such amount as would have been proper and fair, should be first given to them, and the balance divided into three parts. According to the terms of the subscription the property was to cost the company $59,100, plus the $25,000 mortgage, and that is what parties dealing with the company or in its stock had the right to believe it did cost; but according to the appellant it cost $26,300 more. Such a transaction would be directly contrary to the letter and spirit of the stat

ute.

[2] It was suggested that the stockholders and the directors were the same parties, and hence it could make no real difference; but, as we have shown, when they acted in one capacity, as stockholders, they were authorized to do what they could not do when acting in the other, as directors, and the same protection is not afforded the public in the one case as in the other. Moreover, the stock was liable to be sold as it subsequently was sold, but there was nothing in the books of the company to suggest that there was such an indebtedness as this, excepting the resolution of the directors authorizing the giving of "duebills" and some later action by them providing for giving a second mortgage. We feel constrained, therefore, to answer the first question in the negative and to hold that the certificates of indebtedness were not legally issued and the directors' action was ultra vires.

them. Then, as Mr. Caldwell was president, when the directors authorized the certificates to be issued, and was present when that was done, and is still president, the appellee and those he represented might well have hesitated to permit him to have charge of the defense in a suit at law against the company for those certificates. Although the appellee is owner of the majority of the stock, and might have controlled the election of officers when the time for an election arrived, in the meantime the law case might have been tried. For these and other reasons which might be given we are of the opinion that the appellee was entitled to relief in equity.

E. P. Spinney, of North Berwick, and Bradbury & Bradbury, of Saco, for defendant.

PER CURIAM. Action brought to recover damages sustained by reason of an alleged defect in a highway which the defendant town was bound by law to keep in repair. At the close of plaintiff's evidence, upon motion of defendant, the presiding justice directed a nonsuit. The case comes to us upon exceptions to this ruling.

We have examined the record with great care, and, while there may be sufficient evidence therein to require submission to the jury of the question whether a defect actually existed, yet there is no testimony showing that the municipal officers of the town, its road commissioners, or any person authorized to act for either of them, had 24 hours' actual notice of the alleged defect or want of repair.

It follows therefore that the nonsuit was properly directed, and the mandate must, accordingly, be: Exceptions overruled.

[6] Explanation of the delay in asking the relief is shown by the fact that, although the appellee purchased the properties, etc., for the bondholders in February, 1913, objections were filed to the sale and were not disposed of until May, 1914, when the sale was ratified and confirmed. Pending the ratification of the sale the suit reported in 124 Md. 643, 93 Atl. 222, was tried, and a verdict rendered on April 2, 1914, upon which judgment was entered on June 13, 1914. An appeal was taken to this court, and the judg- USZKAY v. DILL, Commissioner of Motor ment was reversed on the 13th of January, 1915, and a new trial was awarded. The bill in this case was filed May 25, 1915, when a new trial was about to be begun. So, without further prolonging this opinion by discussing other questions, we will affirm the decree.

Vehicles.

(92 N. J. Law, 327)

(Supreme Court of New Jersey. Feb. 19, 1919.)

1. MANDAMUS 72-CONTROL OF ADMINIS TRATIVE DISCRETION.

A court will not, except in a case of palpa

Decree affirmed; the appellant to pay the ble unreasonableness in the exercise of the powcosts, above and below.

(118 Me. 488)

PERKINS v. INHABITANTS OF YORK.
(Supreme Judicial Court of Maine. April 2,
1919.)

HIGHWAYS 213(2) — INJURIES FROM WANT
OF REPAIR-NOTICE TO TOWN-DIRECTION OF
VERDICT.

In suit for damages from defect in highway, required to be kept in repair by defendant town, nonsuit was properly directed, where there was no evidence that the town had 24 hours' actual notice of the defect.

Exceptions from Supreme Judicial Court, York County.

Action by Charles L. Perkins against the Inhabitants of York. A nonsuit was directed, and plaintiff brings exceptions. Exceptions overruled.

Argued before SPEAR, HANSON, PHILBROOK, WILSON, and DEASY, JJ.

Ray P. Hanscom, of Ogunquit, and Leroy Haley, of Biddeford, for plaintiff.

er, direct an administrative officer to exercise the power committed to him in any particular method.

To warrant issuance of writ of mandamus in any case, petitioner's right must be clear, and the public duty sought to be enforced must be clear and specific.

3. MANDAMUS 87-ACTION BY ADMINISTRATIVE OFFICER-CORRECTION.

Where the commissioner of motor vehicles

does not refuse to act in the grant of a chauffeur's license, but has acted adversely to the status claimed by petitioner, mandamus, unless there is a clear and palpable violation of legal duty, or a palpably unreasonable exercise of it, will not lie.

Application for writ of mandamus by Julius Uszkay against William L. Dill, Commissioner of Motor Vehicles. Alternative writ to issue.

Argued February term, 1919, before PARKER and MINTURN, JJ.

William Reich, of Trenton, for prosecutor. Thomas F. McCran, Atty. Gen., and William Newcorn, Asst. Atty. Gen., for defendant.

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes
106 A.-2