either of them, in signing the paper marked 'No. 31,' or in signing the subscription for stock on June 6th, and in becoming directors of the East Tennessee Land Company on June 10th, and in voting for the making of the contract with the Phoenix Land Company, and in taking, each, 250 shares of stock, intended any actual fraud, or intended to defraud or cheat either the corporation or the future stockholders or creditors of the East Tennessee Land Company. They did not anticipate the failure or insolvency of the company. Whatever those who originated the project expected, these defendants, when they became parties to it, believed (and, I think, not without some reason, with proper management) that it would succeed, and result in building up a prosperous town or city at Harriman." And the defendants contend that the stock issued to them was lawfully issued for interests in land and for services rendered or to be rendered; that under these findings there was no fraudulent overvaluation in the issuing of the $700,000 of shares of stock; that the issue of this stock was voted for by the defendants and others as stockholders, and that stockholders are under no fiduciary relation to anybody, and can do as they will with their own; and, moreover, that it was consented to by all the stockholders and incorporators of the East Tennessee Land Company, and consequently cannot now be made the basis of any complaint by the corporation or anybody else. But this argument omits from the case the fact that the defendants, together with their associates in the Syndicate of Ten, and Gates, with his associates in the Phoenix Land Company, were promoters of the East Tennessee Land Company, and that these suits are instituted to charge them with secret profits made by them as such promoters, and not on the ground that the stock subscribed for by them has not been paid for under the laws of Tennessee. Whether it was or was not properly issued as paid-up stock, so far as a compliance with Tennessee statutes is concerned, is not material, and we express no opinion upon that point. See McKay's Case, 2 Ch. Div. 1, 6, 8. Moreover, it is not sought in these suits to charge the defendants because they voted, as stockholders, to issue the $700,000 of stock, but it is sought to charge each defendant because he, with others, was a promoter of the East Tennessee Land Company; because, as a promoter, he stood in a fiduciary relation to the future shareholders of that corporation, and by reason thereof he could not receive any remuneration for his services as a promoter of that corporation without making a full disclosure thereof, and obtaining the consent of these shareholders thereto. McKay's Case, 2 Ch. Div. 1; Bagnall v. Carlton, 6 Ch. Div. 371; Mining Co. v. Grant, 11 Ch. Div. 918; Mining Co. v. Lewis, 4 C. P. Div. 396; Printing Co. v. Green, 5 Q. B. Div. 109; Ore Co. v. Bird, 33 Ch. Div. 85; Bland's Case [1893]

2 Ch. Div. 612; Archer's Case [1892] 1 Ch. Div. 322; Hichens v. Congreve, 4 Russ. 562, 1 Russ. & M. 150, note; Beck v. Kantorowicz, 3 Kay & J. 230; Pearson's Case, 5 Ch. Div. 336; Sewage Co. v. Hartmont, Id. 394; Stove Co. v. Wilcox, 64 Conn. 105, 29 Atl. 303; Fruit Co. v. Buck, 52 N. J. Eq. 219, 27 Atl. 1094; Chandler v. Bacon (C. C.) 30 Fed. 538. See, also, Emery v. Parrott, 107 Mass. 95. That a promoter stands in a fiduciary relation to the future shareholders, see Railway Co. v. Kisch, L. R. 2 H. L. 99; Phosphate Co. v. Erlanger, 5 Ch. Div. 73; Erlanger v. Phosphate Co., 3 App. Cas. 1218; Oil Co. v. Densmore, 64 Pa. St. 43; Bosher v. Land Co., 89 Va. 455, 460, 461. 16 S. E. 360; Mining Co. v. Spooner, 74 Wis. 307, 42 N. W. 259; Burbank v. Dennis, 101 Cal. 90, 98, 35 Pac. 444; Land Co. v. Case, 104 Mo. 572, 16 S. W. 390.

If the fullest effect is given to the finding of the court that the defendants intended no actual fraud in taking 250 shares each, and did not intend to defraud or cheat either the corporation or the future stockholders or creditors of the East Tennessee Land Company, all that the finding means is that the defendants honestly believed that the natural resources of the lands in question were so great that shares amounting to $700,000, par value, would be a fair remuneration to be paid to them and their associates for their services as promoters. But even if they did so believe, and their belief was honest, and there was a foundation for that honest belief, they none the less were guilty of a fraud. It is a fraud for promoters to undertake to decide for the future stockholders in the corporation to be organized that onethird of the whole capital stock of that corporation is a fair remuneration for their services as promoters, to issue one-third of the capital stock to themselves as such remuneration, and then to invite the public to subscribe to the stock of the corporation, without disclosing that fact to the subscribers, and without getting their consent to the payment of that remuneration. The defendants say that they did disclose the fact to the East Tennessee Land Company, and that they did get the consent of the East Tennessee Land Company to the payment of this $700,000 of stock to them for their remuneration as promoters, and that is not only enough, but it is final. It is true that the vote authorizing the issue of this stock to them, as the profits which they were to have out of the organization of the company, was voted unanimously by all the incorporators of the East Tennessee Land Company, and all who were then subscribers to its capital stock; that is, by all the persons who then had any interest in that corporation. That is to say, it is true that the fact that the promoters were to receive $700,000 of paid-up capital stock as remuneration for their services was disclosed and consented to by all the persons who then had any interest in the cor

poration. But it is also true that at that time no person except the promoters had any interest in the corporation, barring one Mason, in whose name some of the options were subsequently taken, and who was plainly a mere nominee of the promoters, and that at that time no capital stock of the corporation had been issued to the public. Payment to promoters of remuneration for their services is not made valid by a vote passed by the corporation, when the corporation is in the sole control of the promoters, before the capital has been issued to the public. Phosphate Co. v. Erlanger, 5 Ch. Div. 73; Erlanger v. Phosphate Co., 3 App. Cas. 1218; In re Olympia [1898] 2 Ch. Div. 153; In re British Seamless Paper-Box Co., 17 Ch. Div. 467, 471, 472. The persons to whom the promoters owe the duty which they owe by reason of their fiduciary relation are the persons who put their money into the enterprise at the invitation of the promoters; that is to say, the future stockholders. It is to the future stockholders that the promoters must make the disclosure of the remuneration which is or is to be paid to them, and it is the consent of the future stockholders that must be obtained to make that payment valid; and if the promoters undertake to make to themselves remuneration for their services as promoters without making a full disclosure of the fact to the future stockholders, their principals, and getting their consent, they are guilty of a fraud. Promoters can make the necessary disclosure of the remuneration they stipulate for, by including in the prospectus a full statement thereof. If such a statement is not made therein, they cannot honestly take any remuneration for promoters' services unless it is voted by the stockholders after all the stock has been taken by the public.

In this case it is found that "neither of the defendants personally did anything to conceal the paper marked 'No. 31,'-the agreement of March 25th,-or took any part in concealing or keeping it from the knowledge of future stockholders or creditors of the corporation. I find, however, that as a fact it was kept from the knowledge of the stockholders, other than the thirteen directors aforesaid, and of future creditors, probably by the original inventors of the scheme, the officers of the Phoenix Land Company, until after the failure of the East Tennessee Land Company." That finding is conclusive of the defendants' liability, but there is a further finding which gives to the defendants' actions a more serious character, and that finding is this: "The prospectus made an exhibit to the deposition of A. A. Hopkins was issued with the consent and approval of the defendants Leeson and Hopewell, and was widely circulated among the general public." | That prospectus contains the following statement: "The capital stock of this company represents actual value, without inflation, but does not approximate the entire value of

the properties on which it is based. It was the intention of the projectors and incorporators to shape this enterprise so that its stock should be as solid as that of a national bank. Over half a million dollars of its capital was subscribed before the company's organization, at par. Subscriptions for the remainder are now solicited." The defendants, therefore, not only did not disclose to their principals the fact that stock to the amount of $700,000, par value, was issued to them and their associates as remuneration for promotion services, but a prospectus containing an incorrect and misleading, if not false, statement was issued with their consent and approval.

The defendants' next contention is that the action cannot be maintained until the East Tennessee Land Company tenders back to the Phoenix Land Company the lands acquired by it under the contract of June 11th. But this is not a suit to recover damages from promoters for fraud in a sale of their property to the corporation organized by them as promoters. If it were, it is clear that it could be maintained without returning the lands which had been bought. If at the time when a fraud is discovered, which was perpetrated by promoters in a sale to the corporation of property owned by them, the property is no longer in the condition in which it was when the company took it, the company may, keeping the property, sue the promoters for the secret profits which it was their duty not to make without notifying the company thereof. In re Olympia [1898] 2 Ch. Div. 153. In the case at bar the Phoenix Land Company has never been anything but a paper corporation, with five of the promoters of the East Tennessee Land Company as its incorporators, without capital stock, and without property. The lands bought by the East Tennessee Land Company were bought by that company from strangers who owned them. The suggestion that the East Tennessee Land Company must turn over to the Phoenix Land Company the lands which it bought of strangers means that the East Tennessee Land Company must turn over its lands to the promoters of the East Tennessee Land Company. The Phonix Land Company was merely the paper corporation under whose shelter the promoters sought to obscure the real nature of their transactions. That the corporation may sue for the secret profits made by a promoter who secured a sale of lands for a third person to the corporation without returning the lands obtained by means thereof, is well settled. Emery v. Parrott, 107 Mass. 95; Ore Co. v. Bird, 33 Ch. Div. 94; Mining Co. v. Lewis, 4 C. P. Div. 396.

In case of such a fraud by promoters, the corporation is entitled to follow the shares taken by the promoters, or the proceeds thereof, in the hands of the promoters, and to recover them specifically, or to recover damages for the loss thereof. Carling's Case.

1 Ch. Div. 115, 126, 127; Iron-Works Co. v. Grave, 12 Ch. Div. 738, 747, 748; Eden v. Lighting Co., 23 Q. B. Div. 368, 371, 372; Pearson's Case, 5 Ch. Div. 336, 341; Chandler v. Bacon (C. C.) 30 Fed. 538. Promoters who have wrongfully taken remuneration for their services, and have paid the promoters' expenses and the expenses of organizing the corporation, are entitled to deduct those expenses in accounting to the corporation. Bagnall v. Carlton, 6 Ch. Div. 371, 400, 403, 407, 408; Mining Co. v. Grant, 11 Ch. Div. 918, 939; Association v. Scrimgeour [1895] 2 Q. B. Div. 604. In this case it appears, by the seventeenth finding, that all payments made in procuring the options after June 11, 1889, were repaid by the East Tennessee Land Company, but it does not appear that the $6,008 prepaid purchase money expended under options held by the Phoenix Land Company on June 10, 1889, has been repaid; and there may be other expenses incurred by the promoters, in the name of the Phoenix Land Company or otherwise, in organizing the company, which, if not heretofore repaid to them, should be deducted by them in accounting to the company.

Ordi

The plaintiff claims that, under the twentyfifth finding of the superior court, he is entitled to a decree against each defendant for $25,000 and interest, less his share of the expenses, which we have already dealt with. If the balance of this stock, amounting to $1,300,000, par value, had been subsequently issued for cash, at par, the plaintiff would be entitled to such a decree. narily the damages are to be assessed as of the date of the taking; yet when, as in this case, the property taken had no value at that time, because it was stock of a corporation not then launched into being, the date must be carried forward to the date when the value of the stock was fixed. See Carling's Case, 1 Ch. Div. 115, 126; McKay's Case, 2 Ch. Div. 1; Pearson's Case, 5 Ch. Div. 336; De Ruvigne's Case, Id. 306; Eden v. Lighting Co., 23 Q. B. Div. 368; Chandler v. Bacon (C. C.) 30 Fed. 538. For cases in this commonwealth where the value at some date other than the date of the wrongful conversion has been taken in actions to recover damages for the wrongful conversion of personal property, see Fowle v. Ward, 113 Mass. 548; McKim v. Hibbard, 142 Mass. 422, 8 N. E. 152. But we are of opinion that the twenty-fifth finding ought not to be acted on as a finding warranting that decree. It is not, in terms, a finding as to the market value of the stock, neither is it, in its terms, a satisfactory finding; and it was not made in the light of the principles which it is now established govern the defendant's liability. The case, therefore, must stand for a hearing as to what the net profits are for which these defendants must severally account. At that hearing the plaintiff may follow the shares or the proceeds, or recover damages, as he may elect. The defendants must ac

count for the shares, with the dividends received by them, or the proceeds, with interest from the date when the proceeds were received by them, or for the fair market value of the stock, with interest from the date when the market value may be found to have been established, as the plaintiff may have elected to proceed; and in any event the plaintiff must repay to the defendants, or deduct from the sum due them, the defendants' share of the expenses of the formation of the corporation, paid by them, and not heretofore repaid to them.

By the frame of the bills in equity in these two cases, and from the scope of the argument made in behalf of the plaintiff, the relief which the plaintiff seeks to recover from each defendant is limited to the 250 shares issued to him; and the plaintiff does not seek to recover the one-tenth of one-half of the 200 shares of stock originally subscribed for by the Phoenix Land Company, to which each defendant was entitled under the agree ment between the Phoenix Land Company and the Syndicate of Ten, by providing that all profits should be divided equally between the two contracting parties, the Phoenix Land Company and the Syndicate of Ten. Nor does the plaintiff seek to recover the 50 shares received by each of the defendants, being one-tenth of one-half of the 100,000 shares issued to the Phoenix Land Company under the adjustment of May 6, 1890, referred to in finding 34. And, lastly, from the frame of the bills, the plaintiff seeks to charge each defendant severally, and not to charge the defendants as jointly and severally liable with the other promoters, for all secret profits received, whether received by them or their associates. Bagnall v. Carlton, 6 Ch. Div. 371, 390, 411; Bland's Case [1893] 2 Ch. Div. 612; Emery v. Parrott, 107 Mass. 95, 103. For these reasons, we do not express any opinion on these matters, and we have limited the matters on which the case is to stand for hearing under the present bills as above stated.

The last objection made by the defendants is that the plaintiff, as receiver, cannot bring the suit in his own name, and we think that this objection is well taken. The final order directing the receiver to prosecute these suits is as follows: "Said John K. Hayward, receiver, be, and is hereby, directed to proceed with said causes in the courts of Massachusetts, either in his own name as receiver, or in the name of the East Tennessee Land Company, or jointly in his name as receiver and in the name of the East Tennessee Land Company, as he may be advised by counsel to be proper, and in accordance with the rules of practice in the courts in which such cases are being prosecuted." This order does not operate as an assignment to the receiver of these choses in action. Neither did the previous orders under which this receiver was acting operate as an assign ment of them. The plaintiff was appointed

*

a receiver by order dated April 20, 1897, providing that he should "possess the power and authority conferred by former orders" on the receivers. The original order appointing receivers under the general creditors' bill provided that the receiver should "collect, take possession of, preserve, and care for all of the property, real, personal, and mixed, bonds, notes, bills, drafts, and other choses in action of the defendant wherever found, as well as of the accounts, books, and papers of the defendant, and hold and dispose of the same under the order of this court." There is nothing in the original order under which the bills in equity in the cases at bar were filed which in any way affects this question. The plaintiff, as receiver, by virtue of these orders has the powers usually conferred by a court of equity upon a receiver to preserve property pending litigation, and nothing more. Mr. Justice Gray, speaking for the supreme court of the United States of the powers of a receiver under a similar order, said: "The utmost effect of his appointment is to put the property from that time into his custody as an officer of the court, for the benefit of the party ultimately proved to be entitled, but not to change the title or even the right of possession in the property." Union Bank of Chicago v. Kansas City Bank, 136 U. S. 223, 236, 10 Sup. Ct. 1013, 34 L. Ed. 341. That such a receiver cannot sue in his own name to enforce a right of action of the corporation is settled. Wilson v. Welch, 157 Mass. 77, 31 N. E. 712.

There is nothing in the objection that, by the terms of the orders of the United States circuit court for the Southern division of the Eastern district of Tennessee, these suits are now being prosecuted for the benefit of the Harriman Land Company and one Rhodes, to the exclusion of other creditors, if any, of the East Tennessee Land Company, and the further objection that it was not proved in the suits now before the court that the Harriman Land Company and Rhodes were creditors of the East Tennessee Land Company. This is a fact, and the fact came about in the following way: The receivers of the East Tennessee Land Company were originally appointed under the general creditors' bill. When a bill was filed to foreclose the mortgage of the East Tennessee Land Company, the two causes were consolidated, and the receivership was extended to the consolidated cause. The bill to foreclose was terminated by a decree directing a sale of the property, and after that decree had been carried into effect the trustee of the mortgage filed a motion asking that the receiver should be discharged, or that it (the trustee) be absolved from costs of the receivership thereafter incurred. On this motion the court entered an order directing that the costs and expenses of the receiver thereafter incurred should in no event be taxed to the plaintiff, the trustee of the mortgage, and directing

that the funds theretofore realized should not be used to pay those costs and expenses. The order then recited that, as the receivership was continued to enforce claims for secret profits, which claims would inure to the benefit of the general creditors, to the exclusion of the trustee of the mortgage, who disclaimed any interest therein, the receivership should continue only if the general creditors should give security for the payment of the receiver's expenses in those suits, and that the proceeds of those suits should be divided among those creditors who gave that security. In a general creditors' bill, only those creditors who come in under the decree and contribute to the suit are entitled to the fruits of the litigation; and the order of the circuit court in this connection was, under the circumstances, the only order which it could pass. Whether the Harriman Land Company and Rhodes are creditors of the East Tennessee Land Company is a question for the United States circuit court for the Southern division of the Eastern district of Tennessee, and not for this court. McCarty's Appeal, 110 Pa. St. 379, 4 Atl. 925. And the decision of that court on that point could not be raised collaterally in these suits.

Upon substituting the East Tennessee Land Company as plaintiff in place of John K. Hayward, the causes are to stand for hearing as to what the net profits are which the defendants have respectively received, or as to what the damages are which the plaintiff has suffered, as the plaintiff shall elect to proceed for the property or its proceeds, on the one hand, or for damages, on the other hand. Decree accordingly.

(176 Mass. 354)

JONES v. PACIFIC MILLS. (Supreme Judicial Court of Massachusetts. Suffolk. June 20, 1900.) INJURY TO EMPLOYE-NEGLIGENCE—ASSUM

ING RISK.

1. Where it appeared that plaintiff was injured by the breaking of a ladder while in the employ of defendant, and that the ladder had been previously broken and spliced, and several witnesses testified that a spliced ladder was nly one-half to three-fourths as strong as originally, this was sufficient evidence to go to the jury on the question of defendant's negligence in furnishing such a ladder.

2. Plaintiff was injured by the breaking of a ladder which he had been using for a considerable time as defendant's employé, and which he knew had been broken previously and was spliced. The testimony as to the strength of spliced ladders was conflicting; some witnesses stating that they were only from one-half to three-fourths as strong as originally, and others that they were just as strong. Held, that it cannot be said from this evidence that the danger of using this ladder was so obvious that the plaintiff must be held to have assumed all risk, but that the question is one of fact, which was properly submitted to the jury. Exceptions from superior court, Suffolk county.

Action by Nathaniel W. Jones against the Pacific Mills for injuries sustained by reason

of a defective ladder. From a judgment in favor of plaintiff, defendant excepts. Exceptions overruled.

W. H. Baker and Edward Lowe, for plaintiff. Gaston, Snow & Saltonstall and E. J. Holmes, for defendant.

HAMMOND, J. At the argument before us the exception that the evidence showed that the plaintiff was not in the exercise of due care was waived.

1. As to the negligence of the defendant: Under the instructions, the jury must have found, upon the evidence, that the ladder broke while the plaintiff was using it in the manner in which he was expected to use it, and for the purpose for which it was intended to be used, and that therefore it was defective. It was incumbent upon the defendant to use reasonable care to provide a safe ladder for the plaintiff, and to keep it safe; and it is contended by the plaintiff that, in the absence of any satisfactory explanation, the fact that the ladder is not safe for the use for which it is intended may be of itself some evidence that such care had not been used, and consequently that there was negligence on the part of those answerable for such care. Graham v. Badger, 164 Mass. 42, 41 N. E. 61, and cases cited. Without, however, passing upon this contention, we are of opinion that there was other evidence bearing upon the question of the defendant's negligence. The broken ladder was shown to the jury at the trial, and they had full opportunity to see exactly the manner in which it had been spliced, and the effect upon its strength. Moreover, the experts for the plaintiff testified that the side of a ladder thus spliced was only one-half to three-fourths as strong as the side not spliced "when the splice was new, and that it grew weaker as time went on." Nor does it appear that any care was taken after the ladder was spliced to see what its condition was. Upon this state of the evidence, we cannot say, as matter of law, that the jury were not warranted in finding that the defendant was negligent.

2. The defendant contends that the plaintiff was a man of mature years, and ample experience in using ladders; that he knew this ladder had been spliced, and, since the danger was obvious, he voluntarily assumed the risk of using it in the condition in which it then was. The plaintiff may fairly be held to have assumed such risks as were obvious, or such as he knew and appreciated. The plaintiff knew that this ladder had been spliced, and that three bolts from two to three inches apart had been used to fasten the parts together; but the ends of the bolts were covered by nuts, so that he could not see how large the bolts were, and exactly how much of the wood there was left, although he must have known that there was not so much wood as before. The experts for the plaintiff testified, as hereinbefore stated, con

cerning the strength of the side which was spliced; and one testified that "the spliced side would not be more than one-half to three-quarters as strong as the other after it had been used six months." The carpenters and master builders called as experts for the defendant testified that ladders spliced as was this were, in their judgment, as strong as a ladder not spliced. In this state of the evidence, we do not see how it can be held, as matter of law, that the danger of using this spliced ladder was so obvious that the plaintiff must be held to have assumed the risk, or that he must be held to have known and appreciated the danger arising from using such a ladder. Packer v. Electric Co. (Mass.; decided March 3, 1900) 56 N. E. 704. We think that, upon the evidence, the questions whether the accident was attributable to the use of the ladder as it was intended to be used, whether the defendant was negligent, and whether the plaintiff knew and appreciated the risk arising from the manner in which this ladder had been spliced, were questions of fact for the jury. Exceptions overruled.

(176 Mass. 384)

BATCHELDER et al. v. CITY OF CAMBRIDGE.

(Supreme Judicial Court of Massachusetts. Middlesex. June 20, 1900.) EXECUTORS AND ADMINISTRATORS ASSESSMENTS-METHOD APPLICABLE.

In the absence of any special statutory provisions as to the assessment of property in the hands of executors and administrators, the same method applicable to taxpayers generally will be adopted, and the amount determined by the list he has filed with the assessor, or, if no list is filed, then by such information as the assessor can otherwise obtain.

Report from superior court, Middlesex county; John Hopkins, Judge.

Petition by one Batchelder and another, as executors of the will of Alfred F. Washburn, against the city of Cambridge, for abatement of taxes. Finding for plaintiffs, and judgment rendered on report.

W. W. Vaughan and H. G. Vaughan, for plaintiffs. Geo. A. A. Pevey, City Sol., for defendant.

MORTON, J. In Vaughan v. Commissioners, 154 Mass. 143, 28 N. E. 144, the executor had been assessed, and had paid taxes on the amount for which he was assessed, and the amount for which he was taxable was thus fixed for succeeding assessments, unless he brought in a list, and. in case of distribution, gave notice to the assessors of the names and residences of the distributers, and of the amounts paid to them. Pub. St. c. 11, § 20, cl. 7; Id. §§ 38, 44. In this case the executor had not been assessed at all, and consequently section 48, c. 11, Pub. St., does not apply. The question is, how was the amount for which the ex