
    ACTION FOR CANCELLATION OF CERTIFICATES OF STOCK.
    Common Pleas Court of Jefferson County.
    The Bertram Coal Mining Company v. S. C. Bigger, William M. Johnson, E. R. Cole, W. J. Bertram and Isaac Barricklow. Same v. E. R. Cole; Same v. Isaac Barricklow; Same v. William M. Johnson; Same v. John J. Minkemyer and S. C. Bigger.
    Decided, April Term, 1919.
    
      Promoters — Occupy a Trust Relation — Like Directors They Must Act Toward the Gorporation with the Utmost Good Faith — -Entitled to Reasonable Compensation — But not to Secret Ptofits or Profits Based on an Excessive Valuation — Stock Representing Profits Wrongfully Taken may be Canceled — Accounting may. be Demanded, When — Application of the Blue Sky Law — Option on Land — Value of Determined, How — Specific Performance Does Not Lie Against the Land Owner, When — Cancellation of Stock Issued by the Secretary of a Corporation to Himself.
    
    1. A promoter occupies a fiduciary relation towards the corporation which he organizes, and to the persons who may afterwards become stockholders. He is thus bound by the same rules and principles as govern other persons acting in a trust relation. He is not allowed to profit by a transaction in which his interest may he inconsistent with the interest of the company he is organizing. So, with a director, he must act towards the corporation in the ■utmost good faith and manage the corporate business with an eye single to the company’s interest, and he can not acquire any profit or reward different from that of any other stockholder.
    2. The promoter is entitled to reasonable compensation from the company for necessary services rendered in the organization of the corporation, the benefit of which it has accepted, when rendered under such circumstances as would imply an obligation upon its part to pay for the same, -but not by way of secret profits or excessive valuation of property turned over to it.
    3. Where a promoter takes a thirty day option for the purchase of certain coal lands with a view of speculating therein, and after failure of negotiations with others, organizes a corporation, to which, through a trustee, he turns over the option at twice the value of the lands payable in stock, aided by a fellow promoter who becomes a director and the president of the company and is to share equally with him in the profits, and four other directors, each of whom is also to have a large 'block of the stock for assisting in the deal and subscribing for a certain amount of other stock, and no disclosure thereof is made to those subscribing for stock, such part of the stock as may represent the profits still in the hands of such defendants, may be canceled at the, suit of the company. This, of course,- includes the stock delivered to the directors for their part in the transaction.
    4. And where, in the organization of the corporation and the allotment of the stock to the several defendants, as set forth in paragraph three, was agreed upon by them in advance, and the action of each was dependent upon the consummation of the transaction, an accounting may be had as against all the defendants for all such stock not now held by them.
    5. Whether a corporation complied with the “Blue Sky Law,” (Sections 6373-1 to 6373-24 General Code) to enable it to procure a license to sell its stock to the public, is not involved in a case brought by the company against it promoters for cancellation of stock received as secret profits, or as against directors for cancellation of stock delivered to them as compensation pre-arranged for their action in the consummation of the deal.
    6. In determining the value of an option for the purchase of land, any objection which might be urged against its enforcement, whether valid or not, is an element to be considered. And where the optionee attempts to “side .step” personal responsibility in the matter until after the expiration of the option period, and for that purpose arranges to have his option accepted by an insolvent foreign corporation, equity will not come to the aid of either in specific performance against the owner of the land.
    7. Corporate stock issued by the secretary of a company to himself, personally, without consideration, using -blank certificates signed up by the president to be used in his absence, may be canceled at the suit of the company.
    
      Kennon <& Kennon and D. M. Gruber, for plaintiff.'
    
      A. C. Lewis and E. E. Erskine, for defendants.
    
      John D. Gardener, for defendant W. J. Bertram.
   Duncan, J.

(of Findlay), sitting by designation.

The plaintiff brings these actions to enforce the surrender and cancellation of certain certificates of stock held by the defendants in its corporation. The five cases were heard and submitted together.

On the 27th of July,-1917, the defendants, Bertram and Bigger, took options at the nominal consideration of $1.00 each for the purchase of six farms, aggregating 702 acres of land, in Muskingum county, this state, at the price of about $82,000, to be exercised within a period of thirty days. The purchase price in each case was to be paid one-third cash, except one instance, and in that it was to be all cash. They took the options for speculative purposes and not with a view of purchasing the land for their own use. On one of these farms was a small mine with some equipment for deep mining, not then in operation, and on another, what is known as a country mine. These men observed these mines a few days before as they were driving along the public road by automobile on a trip to view another coal prospect which they did not undertake, and consequently, on their way back, went upon this property and took a casual view of the same. Favorably impressed on the next day they took the options in the name of Bertram in behalf of both.

They then began negotiations with one Elkin for the operation of .the property on the shares, but failed to consummate a deal. They then began negotiations with the attorney of The Colridge Coal & Coke Co., in an effort to realize something oirt of them, but later as the options were about to expire and the company had not yet made sufficient examination of the property to determine its value, if any, and pending the investigation, it was arranged with the said attorney, who was also attorney for the Elkin Coal & Coke Company of Wheeling, that he should elect to take the property under the options in the name of the latter company. This was done for the express purpose of avoiding the risk of personal liability of Bertram. This company was a West Virginia corporation, not then in business. It had a capital stock of $10,000, but had no assets. The options were then turned over to the attorney and on August 24th, notice was given in the name of the Elkin Company to the respective owners of the farms of its acceptance under the options, in accordance with the arrangement, but no part of the purchase money was paid. ■ The attorney also gave a written statement to Bertram to the effect that the options were held in trust and that he would turn them over to the Colridge Company in case the deal went through, or to Bertram in the event it failed. Bertram made no written assignment of the .options to either of the companies or to the attorney,

'The negotiations with the Colridge Company also failed and Bertram and Bigger began to promote a corporation of their own to be known as the Bertram Coal Mining Company, now the plaintiff herein. They procured the defendants, Cole, Barricklow and Johnson, and one Bargar, to become the incorporators the directors thereof with said Bigger, who should be the president, and organized the same with a capital stock of $300,000, divided into 3,000 shares of $100 e.ach.

, While the said options were taken in the name of Bertram, Bigger all the time had a half interest therein, and. it was agreed in advance among all these men that when the company should be organized, Bigger and Bertram should each have $40,000 of the stock for the options, that the said Cole, Barrieklow, Johnson and Bargar should each have $10,000 of the stock for becoming directors and “backing” or “underwriting” the company, and that $30,000 of the stock should be held by the company as treasury stock, from which commissions in kind could be paid for the sale of stock.

The articles of incorporation are dated September 1, 1917, and the organization meeting was held September 7th. At this meeting Cole subscribed for 135 shares of the stock, and Barrieklow, Johnson and Bargar for 130 shares each, all with the understanding that they should not.be required to take and pay for the same, if it could be sold to other people. “Backing” or “underwriting” the company, they say, consisted of these subscriptions which the company could rely upon as an asset.

Soon thereafter, they each paid for 12 shares of the stock and a certificate therefor was issued to each of them accordingly. The other stock they subscribed for was sold to other parties. Bigger also subscribed for 5 shares.

At this same time, after the organization of the board of directors, the Elkin Company submitted a proposition to the meeting, according to the arrangement, for the sale of the options to the new company for $150,000, payable in the stock a.t par,-,the plaintiff company to complete and pay for the lands in accordance with the terms of each option, Avhich it did some time after September 7th.

The proposition was immediately acted upon by the board and accepted, the options were turned over and the 1,500 shares of stock were issued to the Elkin Company in accordance therewith, in seven certificates as follows: Two for 400 shares each, four for 100 shares each and -one for 300 shares. They were then distributed -by the Elkin Company as follows: One to Bertram for 400 shares, one to Bigger for 400 shares, one each to Cole, Barricblow, Johnson and Bargar for 100 shares, and the other to the company for 300 shares as “donated,” and the company thus eventually, after the option period had expired, became the owner of the farms by paying something like $2,000 less than the options called for. :

In the discovery of the coal prospect, the taking of the options, and in the promotion of the corporation, the services of Bertram and Bigger were probably worth $2,000.

On September-15, 1917, the board of directors adopted a resolution electing the defendant Minkemyer a member of the board. At this time he was not a stockholder and no stock was issued to him until October 23rd, when he received a certificate for 10 shares, which he never paid for. Tie began to attend the meetings September 29th, and soon became active in the affairs of the company. On January 28, 1918, the defendant Bargar resigned as secretary and the defendant Minkemyer was elected in his place. The salary of the office of secretary-treasurer was $25 per month, but the offices were then separated and the salary of the new secretary was fixed at $200 per month, and that of treasurer at $50 per month. The salaries of the other officers also, were doubled at this meeting. It was the habit of the president, Bigger, to sign up certificates of stock in blank so as to. make it convenient for the secretary to issue stock to any person to whom the same might be sold, in his absence, and on February 8th, the defendant Minkemyer issued to himself certificates for 90' shares moré, without authority from anyone, none of which was paid for. He attempts to justify his failure to pay for this stock upon the claim that he had an arrangement with the board whereby he was to have 100 shares for his services in the sale of stock, regardless of the amount he sold, but this is not supported by the evidence. There was an understanding, however, that any person selling stock should have a commission of ten per cent, of the amount thereof, payable in stock, but the proof as to the number of shares sold by this defendant, and when he sold the same,-is so unreliable that it is impossible to make a finding in this behalf with any assurance of its correctness.

■ Practically all of the remaining stock was sold to other parties who-paid for the same in cash at par, without any information upon their-part as to the secret profit of the promoters and the distribution of the first 1,500 shares, and some of it through the positive misrepresentations of Minkemyer as to the foregoing facts, until about the time the new -board was elected last October.

The defendants now hold stock in the corporation, thus acquired, as follows: S. C. Bigger, 307 shares; W. J. Bertram, 80 shares; William M. Johnson, 100 shares; E. R. Cole, 100 shares; Isaac Barrieklow, 100 shares; John J. Minkemyer, 100 shares.

I might say also that these men had the advice of competent counsel in the promotion and organization of this corporation; that on February 15, 1918, they filed an application with the State Department of 'Securities for a license to sell its securities, and that the Commissioner issued the company a license thereon. It was stated in the application, among other things, that the company had paid $80,000 in stock for said property and had paid $40,000 in stock for “organizing.” Under the head of remarks on another page in this statement: “W. J. Bertram obtained valuabie real estate contracts on lands in Muskingum county. These were assigned to the Elkin Coal & Coke Co. The Elkin Coal & Coke Co. sold all of these contracts to the Bertram Coal Mining Co. for $150,000 of its capital stock. Out of this $150,000, the contract provided that $80,000 should be issued to W. J. Bertram, $30,000 was donated to the Bertram Coal Mining Co. for treasury stock.”

Among the assets, this property was valued at $161,700. The Department was also informed that it was the intention of the company to pay a commission of 10 per cent, in stock for the selling of stock.

It was the $40,000 for “organizing” that went to the four directors in accordance with the agreement above mentioned.

There is but little controversy in the evidence except as to the value of the options at the time the plaintiff company took them over. Bertram and Bigger had spent less than three days in the investigation of the property and the taking of the six options. The consideration was but $1.00 in each case, and they had done nothing to test the prospect, except to drill three or four holes which gave some indication of its value, but this was not of the character or extent to be relied upon for the enterprise. The market value of the lands was then not to exceed $80,000.

One expert on values testified that the lands .were then worth $225, while another said they were worth $400 or $500 an acre. These, of course, were opinions, but the fact, is that the options were taken at $82,000, and that the same were closed up at $2,000 less after the option period had expired. A farmer living in that locality who had been the assessor for a number of years and the last land appraiser, testified that the six farms were worth $66,740, an average of $95 an acre. Actual demonstration favors the opinion of the land appraiser. The value of the options was, therefore, merely nominal.

This, I think, is a fair statement of the facts. Three, however, stand out in bold relief from the others, and to my notion, control and determine the rights of the parties. They are: 1st. The arrangement of Bigger and Bertram whereby they were to have 800 shares of the stock for these options. 2nd. The arrangement which they had with the four directors through which the action of the board was controlled in the consummation of the deal. And 3rd. The secrecy and camouflage in and by which the arrangement was carried through and the facts concealed from the men who paid for their stock in money at 100 cents on the dollar.

The relation of Bigger and Bertram to this corporation was that of promoters. The Telegraph et al v. Loetscher, 127 Ia., 383, 101 N. W., 773; Hinkley v. Iac. Oil & P. Co., 132 Ia., 396, 107 N. W., 629; Dickerman v. Northern Trust Co., 176 U. S., 181, 44 L. Ed., 423. A promoter occupies a fiduciary relation towards the corporation which he organizes, and to the persons who may afterwards become stockholders. ITe is thus bound by the same rules and principles as govern other persons in a trust relation. ITe is not allowed to profit by a transaction in which his interest may be inconsistent with the interest of the company he is organizing. So, with a director, he must act toward his company in the utmost good faith and manage the corporate business with an eye single to its interests, and he can not acquire any profit or reward different from that of any other ■stockholder. 2 Cook on Corporations, 6th Ed., Sections 650, 651, and eases there cited.

The Supreme Court of Massachusetts in Old Dominion C. M. & S. Co. v. Bigelow, 203 Mass., 159, 89 N. E., 193, laid down the rule that a promoter may, notwithstanding his fiduciary relation to the corporation, sell property to it; but that to make the sale binding he must provide an independent board of officers, not directly or indirectly under his control, and make full disclosure to the corporation through them, or make a full disclosure of all the facts to each original subscriber of corporate stock, or procure a ratification thereof, after full disclosure, by vote of all the stockholders. But Bigger and Bertram, instead of providing a board that could and would exercise an independent judgment, Bigger became a director himself, and by their procurement the four others were elected to whom the additional block of 400 shares was to be divided, dependent upon the deal going through.

In contrast with this procedure, I quote the following from the opinion of Judge Donahue, in Thomas v. Matthews, 94 O. S.. at page 43:

“ It is the settled law of this state that directors must manage the corporate business with a view solely to the common interest, and can not directly or indirectly derive personal profit or advantage from their position which is not shared by all the stockholders. ’ ’
“The maxim, uberrima fides, of the eivil law applies without limitation or restriction to their relation to the corporate property and business. They occupy a strictly fiduciary relation to the stockholders and are accountable to them on principles governing that relationship.”

So that, there is a double ground for challenging this transaction. One is the relation of Bigger and Bertram as promotors, and the other, that of Bigger as a director contracting with himself, aided by the four other self-serving directors looking to him for their reward.

. In the organization of the company it was the duty of the promoters not only to faithfully disclose all facts touching the character and value of the property to be turned over, but also their personal interest in the proposed sale. The opinion in the Loetscher case, supra, quotes with approval from the opinion of the Lord Chancellor when speaking of the duties and obligations of promoters. Believing the doctrine salutary and applicable to the facts of this case, I quote the same here:

‘ ‘ They stand, in my opinion, undoubtedly, in a fiduciary position. They have in their hands the creation and molding of the company. They have the power of defining how and when and in what shape and under what supervision it shall start into existence and begin to act as a trading corporation. If they are doing all this in order that the company may, as soon as it starts into life, become, through its managing directors, the purchasers of the property of themselves (promoters), it is, in my opinion, incumbent upon the promoters to take care that in forming the company they provide it with an executive (that is to say, with a board of directors) who shall both be aware that the property which they are asked to buy is the property of the promoters, and who shall be competent and impartial judges as to whether the purchase ought or ought not to be made. I do not say that the owner of property may not promote and form a joint-stock company, and then sell his property to it; but I do say that if he does he is bound to take care that he sells it to the company through the medium of a board of directors who can and do exercise an independent and intelligent judgment on the transaction, and who are not left under the belief that the property belongs, not to the promoter, but to some other person.”

I also quote from the opinion in the Hinkley case, supra, dealing with an aspect common to this ease:

‘ ‘ The 10 men who planned and organized the defendant company were promoters, within the meaning of the law. The Telegraph v. Loetscher, 127 Iowa, 383, 101 N. W., 773. A promoter is a person who brings about the incorporation and organization of a corporation. This was done by all of them, and with a specific design to defraud any of the public whom they might be able to induce to subscribe for stock. Those of them who were called as witnesses candidly admitted that the scheme adopted at the preliminary meeting was to engage in some enterprise, the costs of which and- of its development should be paid solely from the proceeds derived from the sale of stock to others, should cost them nothing, and that enough stock should be issued to themselves so that in event of success they would manage and control of the affairs of the corporation. In other words, the plan contemplated: (1) That in event of failure the entire loss should fall upon their neighbors; and (2) that in event of success they would appropriate to their own use without any consideration whatever more than one-half of the profits and property acquired. That this was a conspiracy to defraud the public is not open to doubt. As promoters these men stood in a fiduciary relation to the company to be organized and those who should subscribe for its stock. As such they were bound to act in good faith and to deal with them in perfect candor. ’ ’
“In pursuance of the scheme these promoters elected eight of themselves, including Petersmeyer, directors, and in serving as directors all agree that everything was done in accordance with the plans originally made. The first act of the board was to undertake and to so manipulate the stock that it could he said to be ‘fully paid.’ But Smith, as he was both promoter and director, might not acquire a secret advantage for himself or others lawfully. He merely transferred the contract, which had cost him nothing and was without value, and received the stock without consideration. Of this he distributed about 185,000 shares to himself and the other nine promoters gratuitously. They then proceeded to dispose of the treasury stock to whomsoever could be induced to buy at 25 cents per share and a portion of the 39,000 shares at from 6 to 10 cents a share. Those who bought had the right to assume, in the absence of knowledge to the contrary, that all other stockholders were paying the same price for stock issued as that they were contracting to pay.”

A case similar to the one at bar is Yeiser v. U. S. Bd. & P. Co., 107 Fed., 304, an Ohio ease decided by the United States Circuit Court of Appeals at Cincinnati in 1901. The opinion is by Severens, Circuit Judge, and is concurred in by Judges Lurton and Day, afterwards on the Supreme Court of the United States. Two of the defendants took an option on a manufacturing plant at the price of $75,000 and turned the property over to the corporation, which they organized for the purpose, and of which they were directors, at the price of $100,000. A majority of the stockholders had no knowledge of the price actually paid, but supposed it to be $100,000, until the company had taken possession and was operating -the plant, when other officers were elected and suit was brought for cancellation of the stock paid for with the profits of the transaction. Held that, under the circumstances shown, the benefit of the purchase made by the holders of the option inured to the company, regardless of the actual value of the property, and that, since the purchase from them could not be rescinded without great injustice to the company, the cancellation of the stock as prayed for was an appropriate remedy.

“It is a well-settled principle of equity,” says Judge Sever r ens at page 344, “that those who participate in bringing about the organization of an incorporated company, and in getting it in condition for transacting the business for which it is organized, assume the obligations of a trust towards the company aüd those who shall be invited to come into the enterprise as stockholders and share in its fortunes. The latter have the right to rely on the good faith and fair dealing of.those who have promoted the company and to assume that they have not perverted the organization by secret means to tbe accomplishment of selfish purposes, and the destruction of that equality of right which, in the absence of some known modification, all the shareholders are entitled to enjoy,
“The reasons for the enforcement of that principle in such cases as this are obvious. Without it there is nothing to hinder the concoction of schemes which the reports of decisions show are becoming quite too frequent in recent years, during which corporations have so greatly multiplied, whereby one may take an option or conditional contract for the purchase of property, and then turn it over, at a profit to himself, to a corporation to be organized, and be under his own control for a sufficient time to enable him to realize the fruits of his enterprise. Unless the promoter of a company is restrained by the obligations of a duty which prevents him from bringing the consequences which are liable to result to others who may be led into danger, he may practice such schemes with impunity.”

Hayward v. Leeson, 176 Mass., 310, 57 N. E., 656, is another ease very similar to this. The promoters, subsequent to the creation of the corporation and while they were the sole stockholders, voted to issue the corporate stock to themselves in payment for services rendered before the company was organized, in securing options on land which they assigned to the company. Thereafter the promoters invited the public to subscribe to the stock, without disclosing those facts and getting their consent to the transaction. The court held that the promoters were guilty of fraud and that the company could maintain an action for the recovery of the stock, without returning the lands acquired under the options.

The distinction between that case and this is that the purpose of forming the corporation was conceived before the options were taken, while here the options were taken for speculative purposes and their final use was decided upon afterward. The options were sold in each case, that is, that was the appearance, but there the court say: “Really this $700,000 of paid-up stock was issued to the promoters as remuneration for their services as promoters.”

The suit was instituted to charge the defendants with ‘ ‘ secret profits made by them as promoters and not on tire ground that the stock subscribed had not been paid for under the laws of Tennessee.” In this behalf the court say: “Whether it was or was not properly issued as paid up stock so far as a compliance with the statutes were concerned, is not material, and we express no opinion upon that point.” It was because “they •stood in a fmdueiary relation to the future shareholders of the corporation, and by reason thereof could not receive any remuneration for their services as promoters of that corporation without making full disclosure thereof and obtaining the consent ■of those shareholders thereto.”

And after' quoting at length from the opinion of Judge Severens in the Yeiser case, supra, the Circuit Court of the Sixth Circuit in Shawnee Bank v. Miller, 1 O.C.C.(N.S.), 569, lays down the rule that those who participate in the organization of an incorporated company and enter the board of directors oe.eupy a fiduciary relation thereto, and that where such promo-ters and directors urge the sale of property to the corporation at three times its real value, and vote for its purchase with full knowledge as to its actual value, there is such a lack of good .faith toward the corporation, its stockholders and creditors as to constitute a fraud per se.

See also generally, Toodin v. Canal Co., 18 O. S., 169, 183; Gates v. Tippecanoe Stone Co., 57 O. S., 70; Wills v. Nehalem Coal Co., 96 Pac., 528; Lomita L. & W. Co. v. Robinson, 154 Cal., 36, 97 Pac., 10; See v. Heppenheimer, 61 Atl., 843; Johnson v. Sheridan, 93 Pac., 470; First Nat. Bk. v. Hildebrand, 79 N. W., 753; Klein v. Ind. Brew. Co., 231 Ill., 594; 83 N. E., 434; Nickerson v. English, 142 Mass., 267, 8 N. E., 45.

■ ■ The cases cited in behalf of the defendants are based upon an entirely different state of facts. The promoters either owned the property, or had closed the option by contracting to take- it and turned the same over after full disclosure of all facts af■feeting its value and their personal interest in the transaction, as was their duty in the premises. Here, as already explained, there was no such disclosure, except to-those-who were, under the arrangement, to participate in the secret profits of the transaction. Neither Bertram nor the Elkin Co. owned the property or liad any interest therein, and it is very doubtful whether either had any interest in the options which could be enforced.

Options were defined by our Supreme Court in Brewing Company v. Maxwell, 78 O. S., at page 63, 'as “merely contracts by which one party in consideration of the payment of a certain sum to the other party, acquires the privilege of buying from or otherwise acquiring, or selling to such other party an interest in specified property at a fixed price within a stated time.” And in Longworth et al v. Mitchell, 26 O. S., 334. it is held that “where a party makes an offer to sell on specified terms, giving the proposed purchaser the option to accept the terms within a limited period, time is to be regarded as of the essence of the offer, and an acceptance of the terms after the period limited will not be binding.” Accordingly, some authorities hold that in order to make the acceptance binding upon the optioner, it is necessary to tender the cash payment called for in the option before the expiration of the option period and thus make the contract of mutual obligation. That is to say, before the acceptance is complete, tender of the cash payment must be made. Steel v. Bond, 32 Minn., 14, 18 N. W., 830; Bostwick v. Hess, 80 Ill. 138; Coleman v. Applegrath, 68 Md., 21, 11 Atl., 284. This, however, has not been decided in Ohio,, and is not in accordance with the weight of authority in this behalf. Watson v. Coast et al, 35 W. Va., 463, 14 S. E., 249; Breen v. Moyne, 141 Ia., 399; 118 N. W., 441; Levy v. Lyon, 153 Cal., 213, 94 Pac., 881.

There is also some question as to whether it was necessary, under the statute of frauds, that the assignment from Bertram to the Elkin Company should have been in writing. It is claimed and it would seem reasonable to hold that if it was necessary for the owner to enter into a writing to grant an option to purchase his lands, it would also be necessary for the optionee to execute a written assignment to transfer the right to another, but I am not prepared to say that this is the law, nor is it necessary for the solution of this case. These facts, however, would ordinarily be taken into consideration by competent business men, independent of any domination or self interest, moved with an eye single to the interests of the trust which they might represent.

■ But however these two questions affecting value might bp determined when directly in issue, I am quite sure that the Elkin Company could hot enforce specific performance of the option contracts if for no other reason, because it was not the real party in interest. And Bertram could not because he made no effort to accept them at any time, and for the further reason that he attempted to “side step” personal responsibility by arranging to have the same done by an insolvent foreign corporation. Equity will not come to the aid of a plaintiff in specific performance of a contract, who, until after the expiration of the option period, has sought to avoid the obligation upon his part which forms the consideration essential to make the contract binding.

Though promoters are entitled to compensation for necessary services rendered, in the organization of a corporation, the benefit of which it has accepted, 2 Thompson on Corporations (2d Eel), Section 89, Farmers’ Bank v. Smith, 105 Ky., 816 (49 S. W., 810), Railroad Co. v. Cristy, 79 Pa. St., 54, it must be reasonable and commensurate with the services performed and paid as such, and not by way of secret profits or excessive valuation of property turned over or sold to the corporation. And finding that the services performed by Bigger and Bertram were necessary to the organization of the corporation, and that-they were rendered under such circumstances in the absence of the secret profits arranged for, as to imply an obligation upon the part of the company to pay them therefor, I am inclined to allow them the sum of $2,000 as such compensation.

Whether any license issued by the Commissioner of Securities to sell the stock of a company under what 'is known as the “Blue Sky Law,” Sections 6373-1 to 6373-24 of the General Code, is a defense against the claim of persons buying the stock relying thereon, is not involved in this ease. This law is “a regulation of business, constrains conduct only to that end, the purpose being to protect the public against the imposition of unsubstantial schemes and the securities based upon them.” Hall v. Geiger-Jones Co., 242 U. S., 539, 61 L. Ed., 480. It operates between the company and the state for the protection of the public and it does not extend to schemes of designing promoters who attempt to profiteer the company itself.

The. organization of the corporation, the issuance, manipulation, and sale of its stock, involving breaches of duty both as promoters and directors, were in accordance with and steps in the execution of the scheme by which Bigger and Bertram and their four directors were enabled to defraud the company and those who might subscribe and pay for their stock at a hundred cents on the dollar. A part of the means as well as tire object was fraudulent, it amounted to a conspiracy to defraud, and the the participators therein are liable therefor, both jointly and. severally, and the company is entitled to an accounting against all of them for the amount of the stock disposed of by them, or any of them, before the commencement of this action.

The order will be that each of the defendants surrender to the cleric of this court the certificates of stock so held by him and that the clerk deliver the same to the secretary of the plaintiff company for cancellation. This applies to all the cases.

It is further ordered in case No. 14342 that for the 93 shares disposed of by the defendant Bigger, and the' 320 shares disposed of by the defendant Bertram, that the plaintiff recover from all the defendants in that .ease the sum of $41,300 as the value of said stock, provided, that if before the filing of the entry herein any of said stock so disposed of by said Bigger or Bertram should be surrendered for cancellation, the same shall reduce the judgment to the extent of the par value thereo f. Exceptions. Notice of appeal. 
      
       Affirmed by the Court of Appeals with the exception that in case No. 14342 the judgment should bp several, and not jpint, far. 4,Syl.
     