
    Parsons v. Joseph.
    
      .Bill -in Equity iy Stockholders in Corporation, for Co$ic,citation of alleged Fictitious Stock.
    
    1. Fictitious or fraudulent issue of stock; u'ho may assail. — Under the rules of equity'practice adopted by the Supreme Court of the United States (Rule Ño. 94,104 U. ¡S. Rep. IX), a stockholder in a corporation, assailing an issue of stock to another on the ground that it was fictitious or fraudulent, is required to allege that he was a stockholder at the time of the transaction of which he complains, or that his shares have since devolved on him by operation of law; but this is not a general principle of law, and this court has never adopted it as a rule.
    2. Fame; estoppel against transferror or transferrer, — A stockholder in a corporation, participating in a fictitious issue of stock, or other fraudulent act or contract, is estopped from afterwards assailing its validity, especially jyhen a benefit resulted to him or the corporation ; but the estoppel is not blndingjon a transferree. of thjM&tock, unless bBTLcquired it wiflTTcñovvledge or notice of the facts constituting the fraud:
    8. Payment for stock in property. — When property is received, at a fair valuation, in payment for stock subscribed in a corporation, the transaction is neither fraudulent:, nor violative of constitutional and statutory provisions; otherwise, if the property is knowingly taken at X an excessive valuation.
    Appeal from the Chancery Court of Jefferson.
    Hoard before the Hon. Thomas Cobbs.
    The bill in this case was filed on the 19th day of July, 1890, by Henry Joseph, as a stockholder in the Birmingham, Powderly & Bessemer Street Railroad Company, against the said corporation and J. II. Parsons; and sought tbe cancellation of] certain certificates of slock issued by the corporation to said ' Parsons, on the ground that the stock was fictitious and fraudulent. There was a demurrer to the bill, and a motion to dissolve the injunction, each of which was overruled: and ibis appeal is sued out by the defendants from that interlocutory decree.
    Lea <fc Greene, for appellants,
    cited Alexander v. Sercy, 12 Am. St. Rep. 347; líém,es v. Oakland, 104 U. S. 459; s. c., 28 Lawyers’ Co-op. Ed. of U. S. Rep. p. 852 (b); Cook on •Stocks and Stockholders, §§ 39, 40, 640, and 690.
    White & Howze, contra.
    
    Stock can not be lawfully issued for land worth greatly less than the par value of the stock-Douglass v. Ireland, 73 N. Y. 100; Boynton v. Andrews' 63 N. Y. 93. The objection that the bill does not aver that complainant was a stockholder when the stock he seeks to cancel was issued, is not well taken. — 1 Morawetz on Priv. Corp., §§ 260-270; Cook on Stocks and Stockholders, § 735; Wait on Insolvent Corp., 628.
   COLEMAN, J.

The purpose of the bill is to have certain certificates of stock issued by the Birmingham, Powderly & Bessemer Street Railroad Co. to defendant Parsons, cancelled, on the ground that the stock is fictitious, and was issued in violation of the Constitution and statute law of the State. -‘■The bill prayed an injunction, and tire writ was awarded by the chancellor. A demurrer was interposed, and also an answer by the defendant Parsons. The cause was submitted for decree on the demurrer, and upon motion to dissolve the injunction. The court overruled the demurrer, and denied the motion to dissolve the injunction, and from this interlocutory decree the appeal is taken.

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

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

In the case of Dimpfell v. Ohio & Miss. R. R. Co., 110 U. S. p. 209, relied upon by appellant, it was held, that a stockholder, contesting as ultra vires an act of the directors, should aver “that he was a stockholder at the time of the transaction of which he complains, or that his shares have devolved on him since by operation of law.” To the same effect was Homes v. Oakland, 104 U. S. 450; and many others might be cited. Upon an examination of these authorities, it will be seen that the principle asserted rests solely upon equity Bule No. adopted by the United States Supreme Court^/ and which may be found in the preface to vol. 104 of U. S.J*f Beports. Morawetz on Private Corporations, speaking of this rule,' says, it was evidently designed as a rule of practice merely, and was deemed necessary to guard courts from being imposed upon by collusion of parties. — Morawetz on Priv. . Oorp., §§ 209, 270. The rule is not a general principle of law, applicable to pleadings in all the courts, and has never been applied to the courts of this State. The demurrer to the bill . for failing to make this averment was properly overruled.

The motion to dissolve the injunction was heard upon the sworn bill and answer. The answer denied that plaintiff was a bona fide stockholder, and set up chat plaintiff was the transferee of one E. Lesser. The answer admits that defendant’s-stock was doubled without the payment of any additional consideration than that of the ..land; but by way of explanation and defense, avers that the lands were not truly and properly valued at first, and the increased valuation of the lands only raised them to their real and true value, and the additional issue of stock was for property at its fair valuation. The answer continues, however, as follows : that if said transaction had been illegal and'fraudulent, and not done in good , faith, complainant is estopped from setting up fraud in said ¶ transaction, or seeking to cancel said stock, because E. Lesser, who was complainant's transferrer, participated in all of said^ transactions and himself fixed the value ol said lands, with . full knowledge of and after full investigation of the value oft said land.

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

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

If a : oi holder participates in a wrongful or fraudulent contract, n<mtly acquiesces.until the contract becomes executed, lie ■■ then come into a court of equity, to cancel fthe contract, . . 'ore especially, if the company, or himself, as a stockholdc reaped a benefit from the contract; and this rule holds go. 1 though Ihe consideration of the contract may be one expro prohibited by statute. The same disability would attach ( *e transferee of his stock who bought ■l with notice.) We con,.- . -r this general rule of equity abundantly sustained. — Morawetz on Priv. Corp., §§ 261, 262; Cook on Stock and Stockholders, §§ 39, 40, 735; Wright v. Hughes, 12 Amer. St. Rep. 413. It sustained by the familiar rule, that he who invokes 11 ' of a .court of equity must have clean hands. Mr. (look s< to. the conditions upon which a" stockholder can sustain a suit - ' remedy the frauds, ultra vires acts or negligence of directors. be, first, the acts complained of must be such as to amour- a breach of trust, and such as neither a majority of the dn -rs nor of the stockholders can ratify or condone; second, - 1 the complaining stockholder himself is free from lac,,■ acquiescence of the acts to remedy which the suit is brougl ; third, that the corpora- , tion has been requested and reh ; or neglected to institute the suit, that the suit is institutes bona fide stockholders as complainants, and that the c< oration and the guilty parties, and other proper parties ha- been made defendants, Cook, supra, § 646.

If the averments of the bill are gusta ’ xl by proof, the stock issued to the defendants was in vioiat .¡n of section 1662 of the. Code and of section 6, Article AT of the Constitution. On the contrary, if the proof shows hat the property was received in payment, of stock, at a L. valuation, such would not be the result. — Davis Bros. v. Montgomery Fur. & Chem. Co., at present term.

In cases where the stockholders or the c mpany by any laches, acquiescence or participation in the ui." t vful and fictitious issue of stock or for any other sufficien -use are preeluded from instituting the proper proceedin: o remedy the wrong, the remedy is still open to the Stat. institute all necessary and proper proceedings to vacate and dissolve the corporation, or have such other proper judgment and decree rendered, as the proof and justice may demand.

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

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

Affirmed.

The case of Downey v. Joseph was affirmed on the authority of the above case.  