
    PARSONS v. HAYES.
    
      N. Y. Superior Court, General Term ;
    
    May, 1883.
    Action by Stockholder to Compel Directors to Account for Capital Stock.—Corporations; mining; directors’ liability.—Pleading ; demurrer.— Former Adjudication.
    
      It seems, that, upon demurrer to the answer, the court will consider the sufficiency of the complaint, although a prior demurrer interposed by the defendant to substantially the same complaint, had been overruled, and no appeal taken. The former decision was not res judicata.
    
    The plaintiff, suing on behalf of himself and all other stockholders in a mining corporation organized under the act of 1848, alleged that the defendants, who were the trustees of the corporation, issued its entire capital stock, consisting of 200,000 shares of the par value of §3,000,000, to one C., as fully paid up stock, in exchange for certain mining property, which they knew was not worth more than §150,000; that O. thereupon gave up over 20,000 shares of the stock to be sold for the benefit of the corporation, and turned over 90,000 other shares to the defendants for their personal benefit; that all this was done in pursuance of a previous agreement between C. and the trustees, and that the latter obtained large profits from the sale of stock which had been turned over to them.—Held, that inasmuch as the acts complained of were performed with the consent and participation of C., who was for the time being, the holder of all the stock in the corporation, the latter had no cause of action or right to damages, and that the plaintiff, suing on behalf of the corporation, was not entitled to relief.
    
    
      It seems, in view of the facts in this case, that O., being a party to the acts complained of, was disqualified from suing; and that as plaintiff’s title to the stock held by him, was derived from O. with nolice, he could have no greater rights than his assignor (Per Sedgwick, Oh. J., and Ingraham, J.).
    The plaintiff, Levi H. Parsons, claiming to be a shareholder in the Varlmff Mining, Smelting and Milling Company, a corporation formed under the laws of the State of New York, brought this action against Joseph Hayes and others, president, and directors of such corporation. The complaint alleged, inter alia, that the corporation was under a disability to sue, by reason of being controlled by its directors, who were guilty of malfeasance in office. The other averments are stated in the opinion. The defendants demurred to the original complaint for insufficiency and upon trial of the issue of law, the plaintiff had judgment with leave to defendants to answer over (per Tjbtjax, J.). The defendants did not appeal and had not pleaded over, when plaintiff voluntarily amended his complaint, setting up somewhat more specifically the same matters stated in his former complaint, and referred to at large in the opinion at general term.
    The defendants answered the amended complaint setting up the various defenses referred to in the opinion. The plaintiff then demurred to these specific defenses, and upon the trial of the plaintiff’s demurrer, the defendants had judgment overruling the demurrer.
    From this judgment the plaintiff appealed to the general term.
    The further facts appear in the opinion.
    
      Grove M. Harwood and John B. O' Donnel, for appellant.
    I. The court overruled the demurrer on the ground that the plaintiff’s motive in buying the stock, and the consideration paid therefor, were improper. Neither the plaintiff’s motives in buying the stock, nor the cost thereof can change the interest acquired by the plaintiff. The claim is against the trustees in collecting which every stockholder has an interest (Boardman v. L. S. & M. R. R. Co., 84 N. Y. 157 ; Hyatt v. Allen, 56 Id. 553), and he can sue in a court of equity (Seaton v. Grant, L. R. 2 Chan. Ap. 459 ; Bloxam v. Metropolitan R. R., 3 Id. 337; Ramsey v. Erie R. R., 8 Abb. Pr. N. S. 174).
    
      II. The defense that the o defendants issued the whole stock to Catlow for property worth the full market value of the stock in good faith, was bad (Foreman v. Bigelow, 4 Cliff. 548; Douglass v. Ireland, 73 N. Y. 100). Shares cannot be paid up at less than their value (Morawetz on Corp. § 374, note).
    III. The corporation could sue as it is a distinct person from its shareholders (Pollock on Cont. 81, 82; Lindley on Part. 4, 5 ; Dicey on Parties, 163). The members are but agents of the corporation and the corporation may sue its members (Society v. Abbott, 2 Beav. 559).
    IY. The corporation holds the property and assets as a trustee for the members (Hotel Co. v. Wade, 97 U. S. 13), and if the corporation will not sue, the members can (Butts v. Wood, 37 N. Y. 317 ; Greaves v. Gouge, 69 Id. 154).
    
      Robt. L. Fowler, for some, and Victor Morawetz, for others of the defendants.
    I. On demurrer to the answer, the sufficiency of the complaint must be considered, and if the complaint fails to set forth a good cause or action, the decision must be for the defends ant, without regard to the character of the answer (Wright v. Booth, 69 N. Y. 620 ; People v. Booth, 32 N. Y. 397; Girvin v. Hickman, 58 How. Pr. 244; Newman v. Board of Supervisors, 1 Lans. 476). The court must reconsider the sufficiency of the complaint on the present appeal, notwithstanding the decision of the special term on th"e demurrer to the complaint. There is a distinction between a revision of a previous order or judgment of the court, and a reconsideration of a simple proposition of law enunciated by the court on a previous occasion in the same case. After the demurrer to the complaint was withdrawn it was entirely out of the case. It is logically impossible to determine that the answer is bad without considering the character and sufficiency of the complaint (Wheelock v. Lee, 74 N. Y. 495, 499; Smith v. Britton, 2 Supm. Ct. [T. & C.] 498 ; Aurora City v. West, 7 Wall. 82, 92; Cummins v. Gray, 4 Stew. & Port. [Ala.] 397; Johnson v. Pensacola, &c. R. R. Co., 16 Florida, 623, 656).
    II. This is not an action fora wrong to the plaintiff. |If the defendants had deceived the plaintiff, or caused him any injury directly, he would be entitled to recover the amount of damages he had suffered in an action of a legal nature. No such claim is made. The complaint is framed as a proceeding on behalf of the corporation for a wrong against the corporation. Plaintiff alleges that the stock which he purchased was issued as paid up stock, and represented to the world as paid up stock by the board of directors. But he does not state that he was deceived by this representation, or that it caused him any injury. The’ form of the complaint is that of the ordinary stockholders’ bill known in chancery practice. It is fundamental that' a suit of this character cannot be maintained by a stockholder, unless the corporation itself would be entitled to recover in an action for the wrongs complained of. The complaint does not show that the corporation ever had a cause of action against the individual defendants. It was deprived of nothing of value by the issue of its shares. Shares of stock are merely the proportionate interests of the holders in the wkole corporate concern, and their value depends upon the real capital which the company owns. The whole and the sum of its parts must be equal. In the present case the purchaser took back what he gave in another form. The corporation was not really in existence until the shares had been issued, although the statute provides that it shall be deemed in existence for certain purposes from the filing of the certificate of incorporation. The existence of a corporation before its shares have been issued is a fiction. The corporation could not be injured by the act which brought it into being.
    III. It is not shown that the directors caused the corporation any loss by issuing the unauthorized certificates, even if the first taker of the stock became liable for its lull amount. The unauthorized issue of certificates reciting that the shares werepaid up, would not bind the company or discharge the subscriber, if the shares were not in fact paid up.
    IV. If a subsequent bona fide purchaser was deceived by the unauthorized and untrue certificates issued by the directors, he would have his remedy for damages. Creditors also would be entitled to redress to the extent of their claims. But the corporation as a body could not complain.
    V. The law recognizes the fact that a corporation and the whole number of its stockholders are identical ;—that the one represents and is made up of the other. It is upon this ground alone that the plaintiff has any standing in this court. A corporation cannot complain even on account of a breach of trust, or a direct misapplication of the corporate funds by the directors, after the acts complained of have been acquiesced in and ratified by the whole body of shareholders. If the corporation itself cannot complain under these circumstances, it is plain that a stockholder cannot complain on its behalf (Hotel Co. v. Wade, 97 U. S. 13; Kent v. Quicksilver Mining Co., 78 N. Y. 159, 184; Scott v. Depeyster, 1 Edw. Ch. 513, 536; Watt’s Appeal, 78 Pa. St. 370; Terry v.. Eagle Lock Co., 47 Conn. 141; Kitchen v. St. Louis, &c. Ry. Co., 69 Mo. 224, 264 ; Samuel v. Holladay, 1 Woolw. 400; Zabriskie v. Hackensack, &c. R. R. Co., 18 N. J. Eq. 178,194 ; Phosphate of Lime Co. v. Green, L. R., 7 C. P. 43; Ffooks v. Southwestern Ry. Co., 1 Sm. & G. 142, 164; Graham v. Birkenhead, &c. Ry. Co., 2 Mc. M. & G. 146).
    
      VI. Courts of civil jurisdiction and, especially,courts of equity have jurisdiction only for the protection of private rights. They have no jurisdiction to enjoin or punish naked violations of the law (Attorney General v. Utica Ins. Co., 2 Johns. Ch. 371, 378, 380, 389 ; People v. Miner, 2 Lans. 396 ; Attorney General v. Tudor Ice Co., 104 Mass. 244; Attorney General v. Great Eastern Ry. Co., L. R., 11 Ch. Div. 449, 501-503 ; Sparhawk v. Union Passenger Ry. Co., 54 Pa. St. 401; Sargent v. Boston, &c. R. R. Co., 115 Mass. 416; Ware v. Regents Canal Co., 3 De G. & J. 212, 238). The well known doctrine that a shareholder, who has acquiesced in a transaction involving a Avrong against the corporation, cannot thereafter complain on account of the wrong, rests upon this principle. So, where the shareholders buys his shares for the very purpose of restraining the commission of unauthorized acts in the interests of a rival company, he will be denied relief (Waterbnry v. Merchants’ Union,&c. Co., 50 Barb. 157; Belmont v. Erie Ry. Co., 52 Id. 637 ; Burt v. British, &c. Assoc. Co., 4 De G.&J. 158 ; Forrest v. Manchester, &c. Ry. Co., 4 De G. F. & J. 126; Ffooks v. Southwestern Ry. Co., 1 Sm. & G. 142 ; Sparhawk v. Union Passenger Ry. Co., 54 Pa. St. 401). It follows, that xvhere a shareholder purchases after a wrong against the corporation has been committed, and Avith full notice, he cannot claim relief (Hawes v. Oakland, 104 U. S. 450; Matter of Syracuse, &c. R. R. Co., 91 N. Y. 1).
    VII. There is a distinction between a suit by a shareholder for relief on account of a wrong committed before he purchased his shares, and a suit brought to restrain the performance of an unauthorized and void contract, which had been previously entered into.
    
      
       See note at the end of this case.
    
   Sedgwick, Ch. J. [After reference to a question of practice.]

The respondent claims that upon the appeal, it is proper to examine the complaint to see if it contained a statement of any cause of action. The appellant, on the other hand, maintains, that such an examination cannot here be made, because an original complaint was demurred to by the defendant and the demurrer was overruled; that the present amended complaint contains the statements that in the original complaint were held to set forth a cause of action, and that, therefore, it stands, as the law of the case, that the present complaint gives a cause of action apparently. The original complaint having been, by force of its amendment, withdrawn, the demurrer to it and the decision thereon are taken from the case. The present respondents have been deprived by the amendment of an opportunity to be heard by appeal as to the correctness of the decisions of the demurrer.

Clearly, upon the question as to whether an interlocutory judgment against the plaintiff is correct, the defendants have a right to show, that, on the face of the record, the plaintiff can never be entitled to final judgment.

The learned counsel for the appellants states the claim of the complaint as follows. The plaintiff sues on behalf of himself and all other stockholders of the corporation defendant, alleging that the individual defendants, then being trustees of the said corporation, immediately after the organization thereof, by agreement with one Catlow, issued to him, the whole capital stock of said corporation, viz.: §2,000,000 in exchange for property worth not to exceed $150,000. That 90,000 shares of the stock vrere turned over to the defendant Hayes and his associates, and 20,000 shares to the defendant corporation by said Catlow, without payment therefor, in pursuance of the real agreement between the parties, for the purchase of property and the issue of stock. That the individual defendants knew, or could have known, the value of the property and that a portion of the stock was to be 1 turned over as stated. That the defendants’ trustees ■' represented the stock as full paid, and that the stock i has been sold as full paid to innocent purchasers, including the plaintiff. That the plaintiff purchased his stock regularly in the open market, relying upon such representations, and received regular certificates, and that the stock was regularly transferred to him on the ■ books of the corporation. That the individual defendants have received large gains and profits from the sale of that portion of the stock turned over to them. That the individual defendants have sold the stock turned over to the defendant corporation, or a large portion of it, at one dollar per share. That the individual defendants have not accounted for the difference between the value of the stock and the amount of property received (except as to the one dollar a share received from the treasury stock), nor for the gains and profits received by them from the sale of the stock turned over to them. That the corporation defendant is still under the control of the individual defendants.

. The defendants among other defenses pleaded that \ plaintiff purchased his stock knowing the facts attending the transaction set out in the complaint.

By the terms of the complaint the plaintiff sues for himself and “all other stocldiolders of the defendant company who may choose to come in and avail them- * selves of the benefits of the action.” ’ The plaintiff is excused from naming all of these stockholders, on account of the inconvenience of 'making a great number of persons parties, but in legal contemplation, all of them are parties plaintiff, and all of them are in like case with the plaintiff named. These persohs are stock- ' holders, as it is called, having become so by transfer of shares from Catlow, remotely or directly, and Catlow himself, if he has not transferred all his stock, unless as to Catlow, he is not to be deemed a party because he is not in like case with the plaintiff.

It will be convenient first to inquire, if Catlow as a plaintiff, could have maintained such an action. The facts would have been that previous to the impeached issue of certificates of shares, the corporation would have been in existence by virtue of the statute which declares (L. 1848, c. 40, § 2; 3 Edm. St. 733), that when the certificate shall have been filed, the persons who shall have signed and acknowledged the same, and their successors shall be a body politic and corporate in fact and in name, by the name stated in such certificate, and by that name have succession and shall be capable of suing and being sued, and they and .their successors may have a common seal, and they shall by their corporate name be capable in law of purchasing property, &c.

There was no stock or capital, and there could be none, excepting by third persons paying money or property for certificates of shares of the capital issued to them. There were then, of course, no shareholders. Catlow and the trustees of the corporation, which by the statute were the corporation, made an agreement that was carried out, that certificates should be issued to him by the trustees, which should represent that he was the owner of the whole number of shares of the capital stock, or 200,000 shares of the stock which by the certificate of incorporation was to be $2,0Q0,000, and he should convey to the company, mining claims and property, which in fact had no greater value than $150,000, as the parties to the transaction knew. In substance Catlow subscribed for the whole of the shares, agreeing to pay therefor only property of the value named.

The statute declared that only money should be taken by the trustees to the nominal amount of the shares issued, or property,^ the actual value of which. was equal to that nominal amount. The agreement was unlawful and its execution could, not have been enforced by either party to it. It was in fact made and executed to evade the statute.

It was a part of the agreement that, upon the certificates being issued to Catlow, he should transfer to some of the trustees certain shares. The trustees received these shares from Catlow, and afterwards sold them for large sums of money for their own benefit.

Upon the certificates being issued to Catlow, he would become a shareholder. Át least it is necessary to suppose, that although the transaction was forbidden by law, yet it was in fact done, and by it Catlow became a shareholder.

Upon the supposition that Catlow, being the owner of all the shares excepting such as he had transferred to the trustees, brought his action, he would claim that he had a right to demand that the company should bring an action against the trustees to compel them to pay the company money, sufficient, with the value of the mining property, to amount to $2,000,000, which was by the certificates to be the capital, and also pay to the company, the amounts of money for which they had sold the shares he had transferred to them.

As the action would be by him declared to be for his benefit, it would ordinarily be necessary to say no more than that he was not entitled to be benefited through claiming an interest in what may be called damages for an act in which he had taken part, and, indeed, which he had promoted.

But certain positions have been taken for the present plaintiff, which would apply to' Catlow, and these may be now examined.

It is said for the present plaintiff that the transaction was unlawful and invalid, and cannot be made lawful or be validated. If that be so, it would be true in the case of Catlow. It is nevertheless also true, that there is nothing unlawful or invalid in the parties to an unlawful arrangement, being without a right to share in damages, to use a convenient word, which have flowed from the unlawful act.

There is at this point a distinction, taken for the plaintiff, between the right of the corporation to damages, and the right of a party consenting to the wrong, being entitled to damages.

It is said that a corporation is an artificial person, a legal entity entirely different and distinct from the persons of which it is composed, and the corporation as a distinct person may be injured by one or all of its members, and in either case has a right of action. Without stopping to ascertain the real meaning of this definition of a corporation, and assuming the other proposition to be correct, it has further to be ascertained if the corporation has been injured in the transaction or has suffered damage.

The injury or damage, in one direction, would be the consequence of issuing certificates by an invalid act that, on the assumption of the plaintiff’s argument, is incapable of ratification. If this be a void act, then it would be necessary to say, that the certificates issued were void, and the corporation cculd now proceed to issue certificates of shares in a legal manner. But such a view would disclose that Catlow or the plaintiff would not be a shareholder, and, therefore, not entitled to bring such an action as the present.

Such an injury, of course, is not claimed, but it is claimed that the injury was the trustees’ issuing for property of small value certificates to the nominal amount of $2,000,000 whereas it was the duty of the trustees not to issue them except for §150,000. The complaint does not allege, nor can it be presumed, that, if the certificates had been properly dealt with, any more could have been procured for them than was in fact, and therefore it does not appear that any pecuniary damage was suffered. Or, in other words, j it does not appear, that if the trustees had performed ! their duty of not issuing except for equivalent value, that the corporation would have had more capital than now.

Excepting these considerations, it may be supposed that there was damage to the company from the trustees’ acts. Was there any injury under the facts ?

It is true that the corporation is something more than its trustees and shareholders, but its property, chattels, money or choses in action it owns, not in its own interest, but for the pecuniary, benefit of the natural persons connected with it. It would be impossible to look upon the. property rights of a corporation merely having regard to its being an ideal creature. It acts through natural persons. It acts for the benefit of natural persons. In truth, natural persons compose it. The statute under which it was formed says this.

The trustees, who are trustees under the statute .for the corporation, are the trustees for the shareholders. In Karnes v. Rochester & Genesee Valley R. R. (4 Abb. Pr. N. S. 107, 111), the court said, “The directors stand in the relation of trustees to the stockholders, and between them exists the relation of trustee and cestui que trust.” As for this Butts v. Wood (38 Barb. 181, afterwards affirmed 37 N. Y. 317), was quoted, it must have been said upon an identification of the stockholders and the corporation.

The same case said, p. 110 : “The corporation does not stand in any fiduciary relation to its stockholders. Such a relation, between the corporation and its corporators, is shown in a well considered opinion by Vice-Chancellor McComsr, in Verplanck v. Mercantile Ins. Co. (1 Edw. Ch. 85, 87), to be impossible. The stockholders are in no sense creditors of a corporation, nor are they in the situation of partners. They are constituent parts of the corporation.”

The language of Vice-Chancellor MoCoun, in Verplanck v. Mercantile Ins. Co. (1 Edw. Ch. 85, 87), was: 61 The corporation is merely the creature of the law, a political body, not a natural body, made up of the compact entered into by the stockholders, each of whom becomes a corporator identified with and forming a constituent part of the corporate body, and therefore when we speak of stockholders and the incorporated company of which they are the components, wre refer to one and the same collection of persons. How then can the relation of trustees and cestui que trust exist for such a relation requires separate and distinct persons or separate and distinct bodies to constitute it.” This case afterwards affirms that the directors are the agents and trustees of the corporation or stockholders.

In Railway Company v. Allerton (18 Wall. 233, 234), the charter declared that all the corporate powers of the corporation shall be vested in and exercised by a board of directors, &c., and it also declared that the capital stock of the corporation may be increased from time to time at the pleasure of said corporation. The court held that the capital could not be increased by the directors without the consent of the shareholders. The opinion said that the corporation, like a partnership, is an association of natural persons, and that fundamental changes of corporate purposes cannot foe made without the express or implied consent of the members.

Again, considering that the fundamental position is, that Oatlow became, in fact, shareholder to the amount of all the capital stock, the following was the relation between the parties : the corporation was the holder of the legal title of the property of the corporation, subject to corporate uses. Excepting this legal title for corporate uses, the shareholders were the parties interested in the property, in fact, owning all of it, excepting the legal title, which, as against them,

. could be used for corporate purposes. The trustees were the statutory corporation. The shareholders were members or a part of the corporation. The corporation held the legal title for the pecuniary benefit of the shareholders having no beneficial or pecuniary benefit in it.

On the claims for the plaintiff, the thing possessed is the right of the corporation to have an action against its trustees for damages for their acts, which it is claimed were wrongful to the corporation. This right, if it existed, was held by the same tenure and for the same purposes that other property would be held. The corporation would have a bare title to it for the beneficial use of shareholders. It seems to be evident, that the corporation could not claim as damage to its interest what would be damage to the benefioial interest, when the owners of the latter had con-, sented to the so-called injury. In fact, however, the case is a little different in point of circumstance, although not essentially. The beneficial owner or shareholder having in advance of the occurrence, which but for their participation would have created a cause of action in the corporation, promoted it and then participated in it, the conduct of the trustees never made a cause of action because that \ conduct ivas not wrongful as respects the shareholders 'The principles that have now been used are established by Scott v. Depeyster (1 Edw. Ch. 513); Hotel Co. v. Wade (97 U. S. 13) ; Kent v. Quicksilver Mining Co. (78 N. Y. 159). It is not necessary to give the reasoning of these cases; they are applicable here. It is supposed that in the last case there is a difference, in that acquiescence of shareholders was held to estop them in favor of innocent third parties. But it must be considered that after the power to ratify or acquiesce is held to exist, the same principle would act in favor of third parties although not innocent, against whom damages for the act ratified were claimed.

It seems to be clear that Catlow could not maintain an action like this, first, because he could not claim that the corporation should bring an action for his benefit on account of a transaction which he took part in, and, second, because the corporation would have no cause of action or rigli t to damages.

If the second proposition be true, then it necessarily follows, there never having been any cause of action, or the right to damages having never accrued, that the claim cannot be revived in the future in favor of any person, whether or not a transferee of shares from Catlow.

The plaintiff, however, because he claims through a transfer from Catlow, cannot bring an action which Catlow could not have brought upon this case. .

In Mann v. Currie (2 Barb. 294,298), the court said of the defendant,-that if he became a stockholder by transfer to him of the stock of an original subscriber, lie at once adopted his contract with the company, and became substituted in his place, both as regards his rights and liabilities. This was said in relation to the obligations of the defendant to fulfil the terms' of the original subscription of his assignor.

The reasoning that tends to the application of this conclusión in this case is just, and seems to be clear. The shares which the plaintiff holds, came to him through a certificate which ivas issued upon a particular arrangement, under which the plaintiff claims, necessarily admitting it to have been effective. One feature of that arrangement was that the cerfificáte should be issued to Catlow as his property for a consideration, which the plaintiff claims was injurious to the corporation. As the plaintiff claims that the consideration, although unlawful, was sufficient to give a title which he maintains, he must abide by it as a fact, and, therefore, in all its consequences. It is not competent for him to take part and reject part, as it was one transaction. Counsel for the defendant in a later case before the general term cited, on this point, Hooker v. London Railway Co. (7 Ins. 368); the opinions in Williams v. Western Union Tel. Co. (48 Super. Ct. [J. & R.] 353); Mechanics’ Bank v. N.Y. & New Haven R. R. Co. (13 N. Y. 599, 600); Hughes v. Vermont Copper Co. (72 N. Y 207). .

The claim that the corporation had a right to recover the amount of profits made by the trustees for themselves, individually, in a transaction which they were conducting for the corporation, has not yet been noticed. What has been already said is to be applied to this claim. There is no doubt of this general rule, that trustees are liable to respond to those for whom they act for any profits made by them individually, but this is limited by the proposition, in the language of the court of appeals (Moody v. Smith, 70 N. Y. 598, 600): “A principal may give an agent express power to act in the business of the principal, so that the agent may reap a benefit, and in such case the principal is bound by the acts of their agent.”

It has been already considered that the shareholders were the real parties interested, and that their consent would bind the corporation, and it follows that the corporation could not recover from the trustees what shareholders liad arranged they should individually receive.

This opinion has had in regard solely the right of a member of a corporation to require that corporation to assert for his benefit, a claim for damages in which he may share, when in reality he stands in the shoes of one who took part in the transaction complained of. His want of light to maintain such an action does not affect any claim he may have for individual damage from misrepresentation by the corporation or third parties, nor does it affect the claim of creditors or the liability of the corporation or its trustees to an action by the attorney-general.

Judgment affirmed, with costs.

Ingraham, J. [Cocurring.]

I concur with the chief judge on the ground stated by him, that as Cat-low was a party to the agreement under which the stock was issued, and received the benefit of such agreement, he would not be entitled to bring such an action as the present one, and that plaintiff’s title to the stock he owns and on which he brings his action, having come through Catlow, he can have no greater right as stockholder than his assignor had.

Truax, J., dissented.

Note on Liability for Illegal or Exaggerated Stock.

Liability for issuing stoclc receiving inadequate payment.

Liability independent of statute. The following cases show the line of decision on the question of liability independent of statute.

The capital stock of a corporation is a trust fund for the payment of its debts, and the directors of the corporation, who are the trustees of the fund, will not be permitted to waste it, either directly by releasing subscribers from the obligations created by their subscriptions, or by receiving payment for stock, issued without a subscription, in the form of property or services, at more than a sum which a faithful trustee in the honest exercise of his judgment might deem the just value thereof. Thus it was held that a receiver, who represents both the corporation and its creditors, may maintain an action against directors who have issued stock in exorbitant quantities in payment under a construction contract with the company in which they are personally interested, to account for the difference between the nominal amount of the stock, and the actual value of the work rendered. Van Cott v. Van Brunt, 2 Abb. N. C. 283.

Tins decision was reversed by the court of appeals on the ground that the directors had a right to issue stock to a construction con- , tractor at its market value, even though that was greatly below par, and that the transaction in suit being for the best interest of the corporation, there was no breach of duty on the part of the directors. Van Cott v. Van Brunt, 82 N. Y. 535.

When a party projects and publicly promulgates the scheme of a joint-stock corporation ; when he causes the usual books to be opened, and allows or causes the inscription of a person as an owner of an interest to a definite amount and value therein, which is false within his knowledge; when he embodies such false statement in a certificate of stock directly issued and of the same effect as if issued by himself; when he accompanies that certificate by a written power, authorizing a transfer at large by the party to whom he has given the certificate; when that representation induces an innocent person to advance his money;—his own act creates a privity of contract, and he must be held to be responsible to any one who has been deceived. Cross v. Sackett, 6 Abb. Pr. 247, 272.

The issuing of stock certificates by the trustees of a corporation with the attendant power of attorney endorsed .thereon, amounts to a representation that the party named in it is entitled to an interest proportionate to the whole stock, in a money capital or in property equivalent substantially'to a money capital of the nominal amount of its entire capital stock. There is an implied engagement for the truth of such representations. Cross v. Sackett, 6 Abb. Pr. 247, 262.

Four projectors of a corporation having obtained a charter, by which their capital was declared at £20,000, to be divided into 400 shares, before any subscriptions had been had, divided the entire stock among themselves, and accounted to the corporation for £12,000 only. They afterwards disposed of their shares. On a bill filed against them by the corporation,—Held, that although at the time of the acts complained of they were the only persons interested in the company, yet it -was not competent for them to take the shares without paying the full consideration, and they should be compelled to account to the company for the difference. Society for Illustration of Practical Knowledge v. Abbott, 2 Beav. 560. See also In re Ambrose Lake Tin Mining Co., L. R. 14 Ch. Div. 390.

In the absence of any limitation by statute, or in the charter of a company, its officers may receive property in payment of a subscription, and such payment will exonerate the subscriber. East N. Y. & Jamaica R. R. Co. v. Lighthall, 5 Abb. Pr. N. S. 458. To same effect., Williams v. Western Union Teleg. Co., 9 Abb. N. C. 443.

There is no principle of public policy which condemns an agreement between parties about to form a corporation, by which the capital stock is to be represented by property which they severally contribute at a valuation agreed upon between themselves. But otherwise, it seems, where the transaction is shown to be a device to defraud the public by putting valueless shares on the market, having an apparent basis only. Lorillard v. Clyde, 86 N. Y. 384.

On the question of the good faith of trustees in issuing the capital stock in exchange for properly, they may show representations made to them by experts and others competent to judge, as to the value of the property; but it is for the jury to determine whether they in good faith acted and relied on such opinions believing the property to be of the value represented. Brockway v. Ireland, 61 How. Pr. 372.

The fact that trustees act fraudulently in issuing stock in exchange for property is sufficiently shown by proving (1) that the stock issued exceeded in amount the value of the property, and (2) that the trustees deliberately and with knowledge of the real value of the property, overvalued it, and paid in stock for it an amount which they knew was in excess of its actual value. The value must be determined, having respect to the circumstances and nature of the property; and the scienter and guilty action maybe proved either directly or inferred from circumstances. Douglass v. Ireland, 73 N. Y. 100.

As to evidence justifying a finding that an exchange of the entire capital stock of a corporation for patents was in good faith and valid, see Lake Superior Iron Co. v. Drexel, 90 N. Y. 87; Draper v. Beadle, 16 Weekly Dig. 475.

As to liability of bona, fide holders of stock issued as full paid, see Brant v. Ehlen, 59 Md. 1.

The statutory liability rests of course on different grounds. For an introduction to the principles applicable to such statutes, see note to Chase v. Lord, in 6 Abb. N. C. 258.

As to the general nature and extent of liability of trustees or directors under statutory provisions of the different states, see Thompson on Liability of Officers, &c., of Corporations, 431 et seq.

For recent article on powers of officers and agents of corporations, see 17 Western, Jurist, 49, Feb. 1883.

Corporation holding its own stock.

In the absence of a statutory prohibition or any restriction in its charter, a corporation may receive its own stock in payment of debts, due upon stock subscriptions. The stock so received does not necessarily become thereby extinguished, but some manifestation of such intent on the part of the company is necessary to produce that result. City Bank of Columbus v. Bruce, 17 N. Y. 507.

Shares held by the corporation itself or in trust for its benefit cannot be voted upon, as this would virtually give the agents of the company the privilege of voting upon shares belonging to shareholders collectively, and thus diminish the authority of the latter in the management of their own company. Matter of Holmes, 5 Cow. 426; and see Morawetz on Private Corp. § 361 and cases cited.

And the corporation cannot vote on such stock, although it has been pledged by it to another to secure a loan. Vail v. Hamilton, 20 Hun, 355; affirmed, 85 N. Y. 453.

Where directors fraudulently' purchase the stock of the company with corporate funds, the remedy of a stockholder is not against the company in its corporate capacity, but against the directors committing the wrong. Verplauck v. Mercantile Ins. Co., 1 Edw. Ch. 84.

As to liability as stockholder of person holding stock for benefit of the corporation itself, see Matter of Empire City Bank, 18 N. Y. 199, 226.

Statutory report. Grounds of liability may however, in some cases exist under'statutory provisions,requiring a report of the payment of capital. -

A statutory report of a corporation, which states that its entire capital has been paid in, without specifying the manner of such payment, imports that such payment was in" cash, and if in fact part of the stock was issued in exchange for property, such report is false, and will impose upon the trustees making it the statutory liability for a false report, but if the penalty is confined to reports knowingly false, bad faith or intention to deceive must be shown. Pier v. Hanmore, 86 N. Y. 95. See also Bonnell v. Griswold, 89 N. Y. 122.

Overissue of Stock.

An action may be maintained by a single stockholder against directors of the corporation who have unlawfully issued stock in excess of the amount authorized by law, and received the proceeds thereof to their own use, by reason of which the market value of plaintiQ’s stock is depreciated, although the company is not legally liable for the overissued stock. The fact that the depreciation in the market is caused by ignorance of the public as to the liability of the company, does not excuse the directors. Cazeaux v. Mali, 25 Barb. 578.

Such directors are also liable to a remote purchaser of the spurious stock. The fact that he has a remedy against his seller is no defense. lb. See also Bruff v. Mali, 36 N. Y. 200, disapproving Seizer v. Mali, 32 Barb. 76, and see Shotwell v. Mali, 38 Barb. 445.

Concealment by directors of the fact that they have largely over-issued the stock of the company, they representing that it is in a good and prosperous condition, which representations come to plaintiff, although indirectly, inducing him to purchase the stock, will sustain an action against such directors for the deceit. Cazeaux v. Mali, 25 Barb. 578, 583.

Representations in Prospectus, <6e.

A director who knowingly issues or sanctions the circulation of a false prospectus, containing untrue statements of material facts, the natural tendency of which is to mislead and deceive the community, and to induce the public to purchase its stock, is responsible to those who are injured thereby. When such a prospectus has been issued no other relation or privity between the parties need be shown except that created by the wrongful act of the directors in issuing or circulating the prospectus, and the resulting injury to the purchaser. But directors who have a merely nominal interest in the corporation, never take any part in its management or business after its organization and are not shown to have known of the existence of the prospectus, cannot in the absence of proof of actual fraud, be held liable. The purchaser must show that he relied on the prospectus in making his purchase, though he need not have been influenced by that solely. Morgan v. Skiddy, 62 N. Y. 319; modifying 36 Super. Ct. (J. & S.) 152. See also Smith v. Chadwick, 46 L. T. Rep. N. S. 702.

An action for deceit by a purchaser of stock from a director of the company against the latter, may be based upon the published reports and statements of the condition and property of the company, made and signed by him as one of its officers, and generally and publicly circulated and advertised, although the sale of the stock was negotiated by an agent of the defendant. Newbery v. Garland, 31 Barb. 121.

A director cannot be held for deceit, in reference to the published cards or circulars of the company, showing the payment of its capital stock, without showing his knowledge of their falsity and intent to deceive. Such knowledge and intent cannot bo presumed but must be proven. The director will not, for the purpose of charging him with deceit, be charged with knowledge of the facts as to the payment in of the capital stock. Wakeman v. Dalley, 51 N. Y. 27; aff’g 44 Barb. 298.

The mere fact that a person is a director of a corporation is not sufficient to charge him with fraud, resting upon the publication of a prospectus, prepared by another person before the organization of the company, and of which he is not shown to have had any knowledge. Arthur v. Griswold, 55 N. Y. 400.

As to liability of directors for false prospectus, see also Thompson on Liability of Directors, &c. of Corporations, 401 et seq., and cases cited.

As to false representations by a meeting of the corporators, see Abb. Tr. Ev. 37.

Acquiescent Director.

The mere fact of being a director is not per se sufficient to hold a party liable for the frauds and misrepresentations of the active managers of a corporation. Some knowledge of and participation in the act claimed to be fraudulent, must be brought home to the person charged. Arthur v. Griswold, 55 N. Y. 400.

Secret Profits.

A director of a corporation stands in the position of a trustee, and will be compelled to account to the corporation for secret profits which have come to him through a corporate transaction with a third person. European & N. A. Ry. Co. v. Poor; 59 Me. 277; S. C., Thomp. Liab. Officers of Corp. 243 and note Id. 360 and eases cited.

For article on directors’ contracts with themselves, and directors as stock speculators, see 16 Amer. Law Rev. 917, 918, Dec. 1882.

Liability of Promoters.

To hold promoters and directors with fraudulently combining to organize a company to deceive such of the public as might become stockholders, or witli fraudulently inducing a purchase of the stock, falsehood uttered with intent to deceive must be shown. Nelson v. Luling, 36 Super. Ct. [J. & S.) 544; aff’d, 62 N. Y. 645.

A director cannot, though not a promoter, make a profit out of a transaction and purchase by the promoters, which he ought as a trustee, to protect, by purchasing at a discount the obligations of the company received by the promoters in the transaction. Ex parte, Larking, L. R. 4 C. D. 577; 20 Monk Eng. 762.

For a recent article on the rights and liabilities arising through the promotion and formation of a corporation, see 16 Amer. L. Rev. 357, May, 1882.

Waiver.

Acts of a corporation which although ultra vires are not illegal per se or malum prohibitum, and only affect the interest of stockholders, may be made good as to strangers relying thereon, by the assent of the stockholders. Express assent is not necessary; acquiescence may be implied from failure -to take proper measures to avoid the act. Kent v. Quicksilver Mining Co., 78 N. Y. 159.

That stockholders by acquiescence in the course of business pursued by the directors are bound thereby as between themselves and the directors, see also Scott v. Depeyster, 1 Edw. Ch. 513, 536, and that the corporation is estopped from questioning the validity of a contract sanctioned by the stockholders, see Hotel Company v. Wade, 97 U. S. (7 Otto) 13.

Neither directors nor stockholders of a corporation can waive the provisions of a statute prohibiting its directors from being concerned in certain contracts witli the corporation. Barton v. Port Jackson, &c. Plank Road Co., 17 Barb. 397.

Stockholder's right as affected by time of purchase or complicity of seller.

A holder of the bills and notes of a bank purchased after its insolvency and with knowledge of the facts complained of, cannot bring an action against a director of the bank for malfeasance causing the insolvency. Butt v. Cameron, 53 Barb. 642. To same effect, Patterson v. Baker, 6 Supm. Ct. (T. & C.) 76.

That a stockholder, acquiring his stock after the acts complained of have been committed, and deriving title thereto through one who was a party to the transaction complained of, canuot maintain a proceeding based on such transaction—was also held in Matter of Syracuse. &c. R. R. Co., 91 N. Y. 1.

' A contract which is unlawful because it provides for influencing tlie action of corporate directors for the benefit of others, and to the prejudice of their company, is not rendered valid by the fact that the contracting parties own all the corporate stock, the presumption being that the stock will subsequently become distributed among other persons to a greater or less extent. Bliss v. Matteson, 45 N. Y. 22. 
      
       In Langdon v. Fogg, N. Y. Superior Court, Special Term, November, 1883, a demurrer was sustained to a stockholder’s complaint on behalf of himself and his co-stockholders, against the original trustees of a mining corporation to recover the difference between the nominal value of the stock, and the alleged actual value of the property for which the stock was issued, and for profits upon stock received by them.
      , E. Francis Hyde, for defendants in support of the demurrer.
      
        John Jt. O'Donnell and Grove If. Harwood, for plaintiff, opposed.
      O’Gobman, J.—Plaintiff brings this action, as well on his own behalf as on behalf of his co-stockholders in the Silver Era Mining Company, against the company and its trustees, and prays for the appointment of a receiver. All the acts of the individual defendants, either in their capacity of trustees or otherwise, of which the plaintiff complains, occurred before lie obtained stock in the company, and the title to the stock he holds, is derived from the said trustees, defendants, or through Sanders, their alleged co-conspirator, to whom all the stock of the company was issued by the trustees, as is averred in the complaint, in payment for certain mining property conveyed to the company by him. The plaintiff’s title to his stock is thereforeo affected by an illegality or infirmity which may have attached to the stock at its first issue (Kent v. Quicksilver Co., 78 N. Y. 188; Hawes v. Oakland, 104 U. S. 450, 401; In re Railroad Co., 91 N. Y. 4).
      
        As to some of the material facts plaintiff’s complaint is vague and uncertain. He does not distinctly charge that the acts of the defendants, to which he objects, were fraudulent. He does not state which of the defendants received any gains or profits thereby. He does not show, in support of his own standing before the court, as representing stockholdbrs, that he has made any effort to induce the defendant trustees to accede to any just demand, nor has ho made any effort to obtain the concurrence of the other stockholders, as a body, in the action he has brought. He does not allege that he was ignorant of the transactions, which he regards as illegal, at the time he purchased his stock (Hawes v. Oakland, 104 U. S. 450, 460-1). He alleges that he is a Iona fide, holder of his stock for value, but how much stock he now holds, from whom he obtained it, or for what consideration, or how, or to what extent, he has been damaged by the alleged misconductof the defendants, does not appear.
      Whether the stock purchased by the plaintiff could be regarded as “ full paid-up stock ” might be a question of law under chapter 8'8, Laws of 1853, section 1. But if it had been untruly represented to him that the stock was “ full-paid stock,” while in fact it was not so, but was comparatively worthless, and if he were induced by such representation to buy the stock and pay for it, he might have an action on his own behalf against the person by whose falsehood and deceit he had been defrauded. But this action would be inconsistent with the present action on behalf of his co-stockholders, and it would not entitle him to the appointment of a receiver as against the defendant trustees. Under these circumstances, and as the action now stands, I do not see how plaintiff could recover on the merits, irrespective of any technical defects which are alleged against it. The doctrine of the United States supreme court in Hawes v. Oakland (supra), cited with approval in Detroit v. Dean (106 U. S. 537-542), seems to apply to the case at bar.
      I do not stop to discuss the proposition of the learned counsel for the defense, that .this action should, under the provision of section 1782 of the Code, have been brought by the attorney general, or that there was a fatal defect of parties by reason of the omission of one Sanders, to whom all the stock of the company was issued, as a defendant. I prefer to base my opinion on the other grounds above stated, and to hold that the demurrer should be sustained, with costs, but with leave to the plaintiff,to amend his complaint.
      For a decision upon a motion to remand this case to the State court after its removal to the U. S. circuit court, see Langdon v. Fogg, 18 Fed. Rep. 5.
      
        In Nott v. Clews, N. Y. Supreme Court, First Department, Special Term, June, 1883, a somewhat similar complaint was sustained on demurrer.
      The complaint was as follows:
      The complaint of the above named plaintiff, who sues as well for all other stockholders of the defendant, Las Nueve Minas de Santa Maria Gold and Silver Mining Company, who may choose to come in and avail themselves of the benefits of this action, and pay their proportion of the expenses thereof, as for himself, respectfully shows to this court. That he is a stockholder of the defendant, Las Nueve Minas de Santa Maria Gold and Silver Mining Company ; that he purchased his stock in good faith, and for a valuable consideration.
      And the plaintiff further shows and alleges on information and belief:
      First. That the defendant, Las Nueve Minas de Santa .Maria Gold and Silver Mining Company, is a corporation having been duly created and organized in the month of October, 1881, under and by virtue of the laws of the state of New York, providing for the formation of corporations for mining and other purposes, and with a capital stock of §25,000,000 divided into one million shares of §25 each, having its principal office and place of business in the city of New York.
      Second. That the individual defendants above named were the trustees and directors of said defendant, Las Nueve Minas de Santa Maria Gold and Silver Mining Company, for the first year after the organization of said corporation, and at the time of the issue and disposition of its stock as hereinafter mentioned.
      Third. That soon after the organization of said defendant corporation as aforesaid, the said individual defendants, assuming to act' for said defendant corporation, entered into an agreement, or pretended agreement, with the owner of certain mining claims and property, situated in the State of Sonora, in the Republic of Mexico, to issue to him or to a trustee for him, or him and his associates, a« full-paid stock, nine hundred and ninety-nine thousand nine hundred and ninty-three shares of the capital stock of said defendant corporation, amounting to $24,909,825 (being all the capital stock of said company, except seven shares which were issued for cash), for the consideration, or pretended consideration, of the conveyance to said defendant corporation of said mining claims and property; and that add mining claims and property were conveyed in form, and said stock issued accordingly.
      Fourth. That said mining claim and property were of little or no value for mining purposes, In the condition in which the same were, when conveyed as aforesaid. That the only workings for mines or ores on said property were abandoned a century or more ago, and the shafts or openings were, in a great measure, filled with mirth, debris, mud and water, and the same could only be reopened by a great amount of labor, and the expenditure of immense sums of money, and only after such expenditure of labor and money could the presumption of the unproductiveness of said mines, arising from the abandonment of such working, be overeogae. That said mining claims and property were not worblvthe sum of’§^,999,825, paid for them as aforesaid, or any considerable prdpoftioh of that amount. That the same were purchased for §17,000 from the Mexican owners a short time before the conveyance thereof to the defendant corporation by the person who, directly or mediately, conveyed the same to said corporation. That the actual value of said mining claims and property did not, at any rate, exceed $500,000, and that the market value of same was less than said last mentioned sum, and that §24,999,835 was an unfair, excessive, and improvident consideration for tiie conveyance of said mining claims and property.
      Fifth. That immediately after the issue of such stock as aforesaid, a large portion of the same was turned over by sucii vendor to, and received by, the individual defendants and their associates, friends, and nominees, at a nominal price, which price was less than live per cent, of the par value of such stock.
      Sixth. That the. shares of stock, mentioned and referred to ilithe last preceding paragraph, were transferred and delivered to the individual defendants, their friends and nominees, in pursuance of the real scheme devised, and agreement made, between said vendor and the individual defendants, for the sale of the mining claims and property, and the issue of the stock of the defendant corporation thereof, or of a further agreement made at the same time. And that thereafter said stock, or the portion thereof turned over to the individual defendants, was disposed of or might have been disposed of, in the market at a large profit-.
      Seventh. That the individual defendants at the time of the issue and delivery of the stock, and the conveyance of said mining claims and property, well knew or could and would, with the exercise of due and reasonable care and diligence, have known the condition and value of said property so conveyed to the defendant corporation, and that the market value thereof did not exceed §500,000. They also well knew, or could with reasonable care and diligence have ascertained, the cost of said property to the said vendor, and that' the same was purchased by him with the design and intention of conveying the same to the defendant corporation, then organized, or intended to be organized, under the laws of the State of New York.
      Eighth. That the individual defendants, after the issue of the whole capital stock of the defendant corporation, failed and neglected to make a record in the office of the clerk of the county of New York, a certificate stating the amount of capital so fixed and paid, as required by statute under which defendant corporation was organized, and that no such certificate has at any time been filed or recorded in such clerk’s office.
      Ninth. That after the issue and disposition of said stock of the defendant corporation, as hereinbefore stated, said corporation was entirely without means to work and improve said mining property, except the sum of $175 derived from the sale of the seven shares issued for cash. That the said individual defendants with a view of giving an apparent value to and encbancing the market value of the stock, made ostensible efforts to work said mines, and to extract ores therefrom, and that the result of such operations has been to create an indebtedness on the part of said defendant corporation to the amount of $1)0,000 and upwards.
      Tenth. That the individual defendants, assuming to act on behalf of the defendant corporation, by the certificates of stock issued and circulated by them represented to the public, including this plaintiff, that the said stock was full paid. That such stock or a large proportion thereof, including the stock.now held by the plaintiff, has been sold as full paid stock in the open market, in pursuance of such representations, and thus passed to innocent holders and purchasers including the plaintiff.
      Eleventh. That plaintiff purchased his stock in the open market, relying upon the representations aforesaid, and thereupon received from the prior holder or holders thereof certificates before that time, duly issued under the'sauclion of said individual defendants, declaring such stock to be full paid and accompanied by the usual power or powers of attorney for the transfer of the same. That said plaintiff caused such certificates, with such power or powers of attorney, to be presented at the office of said defendant corporation, and upon the surrender of such certificate and the proper transfer of such stock on the books of said corporation, in pursuance of the by-laws thereof, the said defendant corporation through its proper offices duly issued to the plaintiff, certificates, declaring that he was the owner and holder of three hundred full paid up shares in the capital stock of said defendant corporation, that being the number of shares represented by such surrendered certificates.
      Twelfth. That the individual defendants have individually receivecl large sums of money, gains and profits, from the sale of that portion of the stock of the defendant corporation turned over to them at a nominal price by the vendor of the property, as hereinbefore stated. That plaintiff is unable to state definitely the amount received by said individual defendants, and each of them, from the sale of such stock.
      Thirteenth. That the individual defendants have not, nor have any or either of them, accounted concerning or paid over to the defendant corporation the difference between the §24,990,825, represented by the capital stock of the defendant corporation, issued for property as aforesaid, and the real value or market value of the property conveyed to the said corporation in exchange therefor, nor any part of such amount, nor have the individual defendants or either of them accounted for or paid over to said defendant corporation the sums of money, gains and profits received by them, or either of them, from the sale of the stock of the defendant corporation as herein-before stated.
      Fourteenth. That four of the individual defendants are still directors of the defendant, Las Nueve Minas de Santa Maria Gold and Silver Mining Company, and are a majority of the board of directors, and control the same, for which reason said defendant, Las Neuve Minas de Santa Maria Gold and Silver Mining Company, is in no condition to bring and prosecute an action for the relief sought by this action and neglects to do so, and is for that reason made a defendant in this action, but no personal claim is made against the defendant, Las Nueve Minas de Santa Maria Gold and Silver Mining Company.
      The plaintiff therefore prays: that the individual defendants may be adjudged and declared to be trustees as to the §25,000,000 represented by the one million shares of the capital stock of the defendant corporation, and that they may collectively and severally he adjudged and decreed to account of and concerning such sum. That they may also be severally adjudged and decreed to account of and concerning the sums of money, gains a-nd profits received by each from the sale of the stock of the defendant corporation as aforesaid.
      That the value of the property conveyed to said defendant corporation, to be determined by this court, be credited on such accounting as may be just.
      That the amount found due on such accounting may be brought into court and paid to a special receiver to be appointed by this court, and dispose of, as the court may direct.
      That the plaintiff, and other stockholders of such corporation, who may choose to come in and share the benefits and expenses of this action, may be paid their proportion of the amount found due on such accounting, after satisfying all prior just claims thereon, and that the plaintiff and such other stockholders and the defendant, Las Nueve Minas do Santa Maria Gold and Silver Mining Company, may have such other or further relief as may be just and equitable with costs of this action to be paid by said individual defendants.
      
        Abbott Brothers, for defendants, in support of the demurrer.
      
        Horatio F. Averill, for plaintiff, opposed.
      Donohue, J.—It is sufficient to hold the complaint good to find any cause of action on the statement whether it entitles the party to the relief asked for or not. In this case, I think there are such facts as entitle plaintiff to some relief. The demurrer will be overruled.
     