Metropolitan Elevated Railway Co. v. Manhattan Railway Co.

were, at the time of the making of the October agreements, also directors of the Manhattan Company—one of the contracting parties, whose interests were antagonistic to those of the Metropolitan Company.

3d. Because the personal interests of several of the Metropolitan directors were opposed to those of that company.

4th. Because of the actual fraud upon the part of certain Metropolitan directors, who entered into a scheme to benefit themselves at the expense of their corporation.

The defendants admit that the October agreements were not assented to by the stockholders of the Metropolitan Company, and claim that such assent was not at all necessary to the- validity of the contract. They further admit that three of the Metropolitan directors were also, at the time of the making of the October agreements, directors of the Manhattan Company, but they deny that this circumstance in any way invalidated the action taken. They deny that the personal interests of any of the Metropolitan directors were opposed to those of that company; and they also deny that there was any actual fraud; and aver that the agreements of October, 1881, were for the best interests of all the parties concerned, and that they presented the only solution of the difficulties and embarrassments which surrounded the Elevated Bailway system in the summer and fall of 1881.

In addition to the above defenses, the defendants also present certain preliminary objections to the maintenance of this action, and.also certain affirmative defenses.

The preliminary objections are as follows :

1st. Ho case is presented in this action for the interference of a court of. equity. .

2d. If the October agreements are fraudulent, as

the plaintiff contends, then the plaintiff itself was a party to the fraud.

3d. The plaintiff, in its complaint, alleges that the agreements and leases of May 20,1879, which it seeks to reinstate, wére a nullity, being made without authority of law.

4th. That the October agreements have never been disaffirmed by the stockholders of the Metropolitan Company, in any way, nor even by the directors, by any direct vote.

The fifth and last preliminary objection is the lapse of time ; and the acquiescence of the plaintiff.

The following affirmative defenses are also urged:

1st. That the Manhattan Company had, at the time of the commencement of this action, already brought its action in the supreme court against the New York Company, the Metropolitan Company, and all the persons who had brought actions to set aside the October agreements, in the nature of the old bill of quia timet, asking in its complaint that all matters relating to the October agreements should be determined in that action, and that the defendants and all others should be restrained from bringing any actions on account of these agreements.

2d. The judgment of the supreme court in the action of the People against the Manhattan Railway Company entered on the 17th day of November, 1881.

3d. The judgment of the superior court of the city of New York, entered on the 8th of December, 1881, in the action wherein the New York Elevated Railroad Company was plaintiff and the Manhattan Railway Company and the Metropolitan Railway Company were defendants.

4th. That restitution cannot be had.

I will first consider the preliminary objections and then the affirmative defenses, and lastly, will discuss

the four questions upon which the plaintiff bases the right to equitable relief in this action.

The first preliminary objection urged is, that the facts elicited upon this trial do not present a case for the interference of a court of equity.

It is claimed by the defendants, that the plaintiff has a complete remedy at law, and, therefore, cannot seek the intervention of a court of equity. That the plaintiff could have sued for the rent which is claimed: to be due under the leases and agreements of May 20, 1879, and if the October agreements were set up as a. defense, they could have been attacked upon precisely the same grounds as they have been in this action.

, In Grand Chute v. Winegar, 15 Wall. 373 , it was held, that a municipal corporation, obligor in a bonds cannot ask in equity that the obligee be enjoined from proceeding at law, and that the bond be surrendered when the bill alleges that the bond was issued without authority in violation of law, and in fraud of the plaintiff ; that the obligee knew this when he took it ; that the obligee’s possession is merely colorable, and that he gave no value to it, and never had any right or title to it. Such allegations show a complete defense to the bond at law; and a judgment against the ' obligee at law would give as full protection in every way to the obligor as a decree in equity.'

Mr. Justice Hunt, in this case, uses language us follows:

“And the result of the argument is, that wherever' a court of law is competent to take cognizance of a right, and has power to proceed to a judgment which affords a plain, adequate and complete remedy, without the aid of a court of equity, the plaintiff-must proceed at law, because the defendant has a constitutional right to a trial by jury. The right to a trial by jury is a great constitutional right, and it is only in excep

agreements without the presence of the New York Company, a party to them. The New York Company had a right to be heard upon the question. One party cannot be released by legal proceedings from a tripartite agreement, in an action against one other party. All the parties must be brought before the court, as all have a right to be heard upon the question as to whether the agreement which is mutual shall be broken up. Therefore, the New York Company is a necessary party to any action seeking to avoid the October agreements, that company being one of the parties to them. If an action was brought upon the lease of May 20, 1879, the New York Company could not have been broughtin, as has been done in this case, and which was the reason given in Gfould v. Cayuga County Bank, for the entertaining of a bill for rescission. It seems, therefore, that the first preliminary objection is not well taken.

The second preliminary objection is, that if the October agreement is fraudulent, as the plaintiff contends it is, then the plaintiff itself was a party to the fraud.

The defendant claims, that as this is not a suit by a stockholder to set aside an agreement which is chargeable with fraud, but a suit by the corporation itself— one of the parties to the fraud—a court of equity will not interfere; and we are referred to the ojfinion of Mr. Justice McCrary, in the case of Lewis v. Meier ( 14 Fed. Rep. 311 , 312, 313), as an authority to sustain the proposition. The case cited, however, is not analogous to the one at bar.

That action was to avoid railroad bonds in the hands of innocent holders, upon the ground that the directors had issued them fraudulently. The bondholders were innocent parties, and not in any manner privy to the fraud perpetrated by the directors, and had no knowledge of such fraud. A stockholder could not maintain an action to set aside any fraudulent contract made by

the corporation, without alleging a refusal, or good reason to suppose that the corporation would not bring any action. If this rule is to prevail, the directors of corporations may act as fraudulently as they please, and it is impossible to redress the wrongs which the corporation may have received at their hands, unless some stockholder is willing to undertake the labor and expense of an action therefor. Such cannot be the rule. Where directors are faithless to their trust and have acted without any authority, the corporation may repudiate the acts so done, because the stockholders not only may claim, but must claim their rights by and through the corporation, unless the corporation refuses to assert such rights. The directors are the agents of the corporation, and if they act wdthout authority in making a contract for their principal, or fraudulently, certainly the principal may repudiate it. That it is the sanie principal who made the contract that seeks to repudiate it, is no bar to the relief.

The next preliminary objection is, that' the plaintiff claims that the agreement and leases of May 20, 1879, which it seeks to reinstate, were a nullity, being made without authority of law.

I understand that the claim that the agreements and leases of May 20, 1879, were void, was abandoned upon the argument, it being conceded that under the statute of 1839, a corporation may lease its road.

But this is not at all necessary to answer the. objection made. The plaintiff, by its complaint, does not seek to reinstate anything; it simply asks that the agreement of October 22, 1881, may be declared null and void ; whether such judgment will reinstate anything or not, is not a question involved in this action.

The next prelirninary objection is, that the October agreements have never been disaffirmed by the stockholders of the Metropolitan Company in any way, nor even by the directors, by any direct vote.

and must be called together in the manner provided by law, otherwise they have no power to act.

In the case at bar, the only way in which the stockholders were required to act was, upon the first oppor- - tunity to appoint other agents Avho Avould assert their rights, if they had any. Moreover, the Manhattan Company, on December 9, 1881, commenced its bill of peace suit, and all stockholders were enjoined from suing, which injunction continued in force until February, 1883. Can the Manhattan Company now claim laches, because no other stockholders have brought suit to set aside these agreements, when they were prevented by so doing by reason of the injunction which that company had obtained %

It is urged that because a new board of directors has been elected, no right is given to impeach the acts of a previous board, as the corporation is the same.

I am unable to appreciate the force of this objection. If my agent has entered in my name into a fraudulent agreement, I know- of no reason why I may not appoint anew agent and through him repudiate the fraudulent contract. In the case supposed, I am the party acting in both instances. I have never heard that a man was bound by the fraudulent contract made by his agent in his name, because he—the same person in whose name the fraudulent contract was made—sought to set aside the contract. The directors of the corporation are its agents and executive officers; they, as such agents, manage the business and affairs of the corporation, and when the business and affairs' of the' corporation are to be managed by directors, 1 do not think that the stockholders can do any act or make any contract except by the use of the means provided by law, viz., its directors. Therefore, if one set of-agents act beyond their authority or are recreant to their trust, the principal—that is, the corporation—may appoint a new set of agents, and through them seek redress for

the wrongs which it has suffered. The corporation being able to act only through its directors, at the very first opportunity after the October agreements were made, the shareholders of the Metropolitan Company elected a new board of directors, such change in the board being evidently made because of the fact that the old directors had made these agreements; and within one month thereafter this action was brought, and within one week after these agreements were executed shareholders had commenced their actions to set them aside. I do not know how, if the most extreme diligence had been required, any more prompt action could have been taken; and thus is answered the last preliminary objection—that of laches.

We are now brought to the consideration of the four affirmative defenses urged by the defendants. The first is:

1st. That the Manhattan Company had, at the time of the commencement of this action, already brought its action in the supreme court, against the New York Company, the Metropolitan Company and all the persons who had brought actions to set aside the October agreements, in the nature of the old bill of quia timet; asking in its complaint that all matters relating to the October agreements should be determined in that action, and that the defendants and all others should be restrained from bringing any actions on account of the October agreements.

The commencement of this action could not in any way interfere with the rights of the Metropolitan Company, to file its bill for a rescission. The mere filing of the bill by the Manhattan Company restrained nobody, and the plaintiffs in that action knew this, because they asked for, and obtained an injunction preventing the bringing of any more suits, which was set aside by the general term. Merely because the Manhattan Company .had filed a bill of peace against

all the world in general, and the Metropolitan Company and its stockholders in particular, the latter company did not lose any rights which it might acquire to the protection of the court. The Metropolitan Company had the right to file its bill for rescission, and the Manhattan Company could not deprive it of this right by filing a bill asking the court to adjudicate upon the question involved. Before such an action can restrain anybody’s proceedings, the right to an injunction must be established, either preliminarily or by final judgment.

The second affirmative defense is the judgment of the supreme court in the action of People v. Manhattan Railway Co., entered November 17, 1881.

I have searched in vain in the judgment-roll in the case of People v. Manhattan Railway Co.,, for anything which could in any way operate upon any rights which the Metropolitan Company had. This company was not a party to the action, and in the findings and judgment is not treated as a party. The second finding speaks of agreements made with the defendant, by certain other corporations, to wit: The. New York Elevated Railroad Company and the Metropolitan Railway Company. So also, in the fifth finding, similar language is used. In the judgment, also, the New York Company and the Metropolitan Company are treated as strangers to the record, and they evidently were so con-, sideréd by the court. The only question at issue in that action' was the solvency of the Manhattan Company. With that issue the New York and Metropolitan Companies had nothing to do. That question was one existing between the people on the one side, and the Manhattan Company on the other, and nobody else had any interest in it. It is true that this question of solvency depended upon the October agreements, but an adjudication by the court in that action could only affect the

parties to it, and as to them only to the extent of the question involved.

But it is said that the three companies united in a petition to have the property delivered back to the Manhattan Company. The order of restoration made upon that petition in no way adjudicated upon the question of the validity of the October agreements. No such question was presented to the court. The union of the New York Company and the Metropolitan Company in that petition, operated only as a consent upon their part that restoration might be made. And no order that the court did make, in that proceeding, could have had the force of an adjudication, because the doctrine of res acl/judieata does not apply to interlocutory judgments or orders, which the court which rendered them has power to vacate or modify at any time. The order of restoration in the people’s case, expressly reserved to the court the power of alteration and modification. These companies did not become parties to the record, and as has already been shown, they were not treated by the court, in its findings and judgments, as parties whose rights were being determined. Therefore the judgment in that action barred no rights which this plaintiff might have.

The third affirmative defense rests upon the judgment of the superior court of the city of New York, entered on December 8,1881, in the action wherein the New York Elevated Railroad Company was plaintiff, and the Manhattan Railway Company and the Metropolitan Railway Company were defendants.

In considering this question, it is necessary that we should have plainly before our minds the facts relating to that action and the proceedings therein.

The action was commenced upon July 2 by the New York Company against the Manhattan Company and the Metropolitan Company, and the plaintiff claimed the right to recover possession of its property

from the Manhattan Company, because of its breach of the terms of the lease between the New York and Manhattan Companies, and no relief whatever is asked for against the Metropolitan Company. The Metropolitan Company, in its answer, denies the right of the New York Company to get back its road, and the Manhattan Company put in a similar plea.

On November 22, 1881, the October agreements having then been made, the Manhattan Company put in a supplemental answer, setting up the proceedings in the people’s suit, and also the October agreements above-mentioned, alleging them to be an adjustment of all the controversies between the parties' to the action, the parties then went before the- court, and without the plaintiff offering any proof whatever, the parties admitting the facts alleged in the supplemental answer of the Manhattan Company to be true, obtain certain findings of facts and conclusions of law, all of which are expressly stated to be founded on the admissions of the parties, adjudging these October agreements valid, and a judgment to the same effect is entered thereon.

I fail to see how this judgment can operate as a bar to the rights of the Metropolitan Company to contest the validity of the October agreements. If those agreements are fraudulent and this judgment should be held to preclude the Metropolitan Company from rescinding them, then the law would be used for the purpose of fortifying a wrong, and not for the purpose for which it was instituted, viz.: the redress of wrongs. When such a manifest injustice would result from the application of any rule of law as that a fraud would be protected, we may be sure that there is something wrong in our premises, if they lead to such a conclusion, as equity and justice go' hand in hand together.

If this judgment o-f the superior court is a bar to the right óf this plaintiff to maintain this action, we

have this state of things, as a necessary result: directors of a company may make an agreement which is absolutely void, and in the making of which there has been a plain violation of duty, and if their corporation is sued upon it, the same board of directors being in office—their term not having expired—may confess judgment, and then there is no power in any court to redress the wrong. The mere statement of the proposition, it seems to me, shows that such cannot be the law, and it is not the law.

In order that a judgment may be a bar, there must be a real controversy. There was no controversy in the superior court. The Manhattan Company alleged the making of the October agreements, and that they adjusted all matters in difference. The New York Company and the Metropolitan Company say : “We agree that that is true,” and the judgment is entered. This was nothing more than a judgment by consent. All the parties to the action consented that these agreements had been made and had adjusted the differences, and the court so ordered. If these agreements were voidable for want of power in the directors to make them, or fraudulent, then the obtaining a judgment affirming these agreements by the same directors who made them, was a fraud upon the court, not necessarily an intentional fraud, but a fraud in law ; and such a judgment binds no court, and its nullity upon that ground, though it has not been set aside or reversed, may be established in'another action (Webster v. Reid, 11 How. U. S. 437).

In Earl of Bandon v. Becher (3 Cl. & Fin. 479, at p. 510), Lord Brougham adopts the language of Wedderburn, in the Duchess of Kingston’s case, as follows :

“A sentence is a judicial determination of a cause agitated between the real parties, upon which a real interest has been settled. In order to make a sentence, there must be a real interest, a real argument, a real

prosecution, a real defense, a real decision. Of all these requisites, not one takes place in the case of a fraudulent and collusive suit; there is no judge, but a person invested with the ensigns of a judicial office, is misemployed in listening to a fictitious cause proposed to him ; there is no party litigating, there is no party defendant; no real interest brought into question.”

In the case of Gaines v. Relf (12 How. U. S. 472), the principle was distinctly enunciated that in order that a judgment should be a bar there must be a real controversy, and that a judgment entered by consent to be used in the future cannot affect the parties to it, because-there was no controversy carried on in earnest. In that case the defendant admitted the decree, but contended,

“ That said decree was designed as no honest exposition of the merits of the case, but was brought about, allowed, and consented to, for the purpose of pleading, the same as res adjudícala upon points in litigation not honestly contended.”

The court say:

“That this proceeding on the part of Patterson and General and Mrs. Gaines was amicable, and that no earnest litigation was had, is too manifest for controversy. They agreed to go to trial at once, on the depositions found in the probate court; and as Patterson was to lose nothing' by the event he was of course indifferent as to what evidence might be introduced on the hearing.

“ It also appears by his evidence that when a decree was obtained in the circuit court against him, his name was used to carry up an appeal to this court, but it was in fact brought up by General and Mrs. Gaines. Patterson employed counsel here, who of course had .to take the record as they found it, and make the best of it they- could, and it is conceded on all hands they

It seems, from the evidence in this case, that the judgment in the superior court was obtained for future use. Claims had then been advanced by shareholders that these October agreements were fraudulent and

void, and this judgment would appear to have bee», obtained by and with the consent of the very directors whose acts were attacked in' the suits by the shareholders, in order that it might be interposed as a bar to

any relief to which the shareholder might show his corporation was entitled.

The denial of the motion to vacate the judgment before Mr. Justice Freedman gave such judgment no greater force or effect than it had before. It left the judgment in precisely the same position that it was before, with the same force it befDre had, and no more (Schrauth v. Dry Dock Savings Bank, 86 N. Y. 390 -395). .

The judgment, therefore, of the superior court does not operate in any way as a bar to the assertion of its rights by the Metropolitan Company in this action.

The fourth and last affirmative defense is, that res-, titution cannot be had.

It is claimed that because by any judgment in this case the receivers cannot be put again in possession of the property of the Manhattan Company:

That because the people’s suit in the supreme court cannot be restored to the condition in which it then stood:

That because we cannot restore the bondholders’ suit to the position it then had, with its injunction :

That because the superior court suit cappot be restored to the condition it would have occupied had

not so much time been lost; that, therefore, no rescission can be had.

It is urged that we would have to undo the increase of Manhattan stock. That it has been proved that this stock has been increased with the sanction of the state engineer and surveyor, pursuant to law, from $13,000,000 to $26,000,000. What can we do with that ? shall we reduce it ? what will we do with the stockholders who hold it ? shall they be paid or will we take their stock away without payment? Then we would have to re-exchange the first preferred stock for New York stock, and the second preferred stock for Metropolitan stock. How is that to be done? Then we would have to dismiss the Burnham suit and the quia timet suit, and the merger suit; enter an order denying the New York application in the people’s suit, take an appeal from the order; put it on the calendar of the general term for argument; pay back the interest which the Manhattan Company had paid on the mort1 gage bonds of the other two companies ; make a question of the insolvency of the Manhattan Company; restore to the other two companies their earnings since October, 1881; in short, undo everything that has been done since October 22,1881, pursuant to the settlement. But that is impossible. The New York Company cannot be restored to the condition it then held. It parted with its whole earnings, and if they could be ascertained and received back, there is no corporation or person to pay them ; a portion of them have been paid over to the Metropolitan Company and distributed to. its bondholders and stockholders ; they are not parties to any pending suit, and if they were, they are under no obligations to pay back. Each company has been released from the six and a half million claim ; that release must be canceled, but it cannot be canceled without imperiling the interests of the stockholders of the constituent companies.”

Certainly, if all these things are to be done, as a condition of relief, then the plaintiff in this action is remediless, because it would be impossible for the plaintiff to comply with such a judgment.

But I do not understand the rule to be that a plaintiff is deprived of all relief, because he cannot restore the other parties to the same position which they occupied before they entered into the void or voidable agreements, when the other parties to the agreement have put themselves in the position in which they find themselves, with full knowledge that the other party •claims the agreement to be void and fraudulent, and every means had been taken at once by those who have the right to question the legality of the proceedings to restrain the wrong.

Long before any of these things .were done, in respect to which restoration may now be impossible, suits had been brought by more than one stockholder seeking to avoid the October agreements, and indeed, the first suit was begun within one week after the agreements had been made, by a stockholder to annul them and to have them declared void. These suits multiplied so rapidly that as early as December 9,1881, the Manhattan Company filed its bill of peace for the purpose of restraining the increase of this cloud of suits with which it was threatened by stockholders of the Metropolitan Company. The Metropolitan Company could commence no action itself, because it was in the hands of the very directors who, it was claimed, had either exceeded their powers or acted fraudulently, in fact or in law, in the making of these agreements ; and the stockholders, therefore, necessarily were required to assert their own rights. If, in the face of all these facts, the other parties to the agreement went on and acted in such a way that they cannot be set back to the position which they occupied at the time of the making of the alleged fraudulent agreements, it cer-.

tainly is not the fault of the plaintiff or of the court-. They have only themselves to blame. Their heedlessness cannot deprive the plaintiff of any rights to which it otherwise would be entitled. If this is not the rule,' then, all that a party has to do, who has procured the execution of an agreement by fraud, even after the fraud has been discovered, and the party defrauded has informed him that as. soon as possible an action for rescission will be begun, to defeat such an action, is to hasten and put himself in such a position that his steps cannot be retraced. I do not understand this to be the rule. Where, however, a party has, without any knowledge of any intention to rescind, and for no ulterior purpose, acted upon "the faith of the agreement and has lost rights thereby, and such rights cannot be restored, the injured party can obtain no relief except such imperfect reparation as his action at law to recover the damages occasioned by the fraudulent deceit will afford. The court would, however, compel the plaintiff to do everything that lay in its power to restore the then statu quo.

As to the people’s suit, I do riot know that the Manhattan Company is in any respect harmed by the discontinuance of a suit brought against it on account of insolvency, nor is it injured in any decree by not being in the possession of receivers.

As to the bondholders’ suit, it was not discontinued because of the October agreements ; the discontinuance having taken place October 6, more than two weeks before the agreements were made.

As to the superior court suit, the judgment and findings can be vacated, the injunction restored and then the action will be in the same condition in which it was at the time of the October agreements.

With the increase of the capital stock of the Manhattan Company and the result flowing therefrom, this plaintiff has nothing to do ; all those things' were done

ors, among whom is B., a debtor for $1,000, and before his return, his agent dies. Upon his return he finds, among his papers, no evidence that B. paid his agent, and then he calls upon B. and he claims that he paid the agent the whole debt. A. disputes this, and they finally agree to compromise the dispute, B. paying $500. Afterward A. concludes that B. did not, in fact, pay his agent, and claims that he was induced by fraud to enter into the compromise.' So long as the compromise remains in force, no action based upon the original indebtedness can be maintained. The bar can be removed only by rescinding the compromise agreement, and that can be rescinded only by a restoration of the 8500, so that they can resume their dispute upon a footing of equality, just where they left it before they entered into the compromise. When A. sues upon the original indebtedness, B. must be permitted to renew his dispute, and set up payment of the entire debt to A’s agent. If he can establish that, the $500 will be again in his hands, where it belongs. If he fails, A. will recover his whole debt. If A. can maintain Ms suit without first returning the $500, he will have all the game in his own hands. If he wins the suit he will retain the $500 and get $500 more. If he loses the suit, in consequence of proof that the whole debt has been paid to Ms agent, he will still have the $500. He will thus in effect hold B. to the compromise, but himself be released. Such inequality and injustice cannot be tolerated by correct principles of law.”

It is plainly stated in the above case that the reason why restoration is made a condition of rescission is, that the retaining of that which has been received is inconsistent with the abrogation of the contract.

But the rule, that if any party to the agreement has done anything which cannot be undone, or has omitted to do anything which he might have done, no rescission can be had, does not apply to things done

or left undone by such party to the agreement, who has knowledge before anything is done or omitted to be done, that the agreement is repudiated either by the other party or by those who have a right to contest its validity on his behalf.

It is claimed, that as a condition of rescission all the moneys paid out since October 22, 1881, by the Manhattan Company, both to the bondholders and shareholders of the New York Company, must be restored ; that the New York Company cannot be restored to the condition that it then held; that it has parted with its whole earnings and they cannot be got together again and paid back; they have been paid out and distributed to bondholders and shareholders who are not parties to this action, and if they were, they are under no obligation to pay back.

As far as the distribution of the earnings of the New York Company by the Manhattan Company is concerned, such distribution was not only permitted, but connived at by the New York Company—they well knowing of the claim that was made by the Metropolitan shareholders, that the October agreements were void or voidable, and that they would not be accepted by the stockholders of the latter company.

I say, that the distribution of its earnings was connived at by the New York Company, because, with the full knowledge above stated, they consented to the dismissal of the action in the superior court, and to the entry of a judgment in that court affirming the validity of the October agreements. They did all these things, not in ignorance, but with full knowlege of every claim which has ever been advanced, affecting the validity of these agreements. Therefore, if they have empowered tho Manhattan Company to distribute, their earnings, and they cannot now get them back, it has not been done in reliance upon anything which the plaintiff has done—in ignorance that there was any claim of wrong

affecting the validity of these agreements. They knowingly took the risk of the success of the attacks upon these agreements, and they cannot now complain if they have lost the battle.

Upon the question of the restoration of the money received by the Metropolitan Company, it will be necessary to advert again to the rule governing restoration upon rescission.

The rule is very distinctly laid down, that to retain any part of what has been received upon a contract is incompatible with its rescission (Cobb v. Hatfield, 46 N. Y. 533 -537).

To retain the whole, or a part only, of what has been received upon the contract, is incompatible with its rescission, and hence the necessity of restoring what has been received upon it (Mason v. Bovet, 1 Denio, 69 ). The same rule was held in the case of Gould v. Cayuga County Bank, supra.

In all these cases, however, there was but one contract, and the right to retain the money received depended entirely upon the contract which it was sought to avoid, and, therefore, its retention was incompatible with its rescission. But this rule does not apply where, if the contract sought to be rescinded had never been made, the plaintiff would have, been entitled to receive more than the payments made under the said contract. In such a case, no offer to return is necessary, nor is it proper for the court to order restitution. This principle was distinctly held in the case of Allerton v. Allerton, 50 N. Y. 670 . In that case, the complaint alleged that plaintiffs, defendant and one McPherson, were partners in conducting certain stockyards at Pitts-burg, Pennsylvania; that plaintiffs, induced by the fraudulent representation of defendant (who had the management of the business), that the business was not profitable, and that he, in conjunction with them, would sell out to McPherson, consented to unite with

him in such sale upon being refunded the amount invested by them, and that thereafter the defendant represented that he had sold out, and paid to plaintiffs the money advanced by them ; that, in fact, defendant did not sell, but retained his interest and subsequently acquired McPherson’s interestthat the business had been profitable, and defendant had received large gains and profits. Plaintiffs asked that the sale be declared void, that defendant account for all moneys received by him, and that they have judgment for their portion of the profits under the copartnership agreement, less the amount they had received. The case was tried by the court, who found the fraud as alleged, and decided that the plaintiff was entitled to the share of the profits which they could have origi-' nally claimed, less the amount received by them on the sale; and that the defendants execute a retransfer" to plaintiff of the interest they had prior to the sale. Judgment was entered upon the decision, which was reversed by the general term, upon the ground that no fraud was- shown ; that McPherson, or his representatives should have been joined as defendants, and that the plaintiffs should have tendered back the sums received by them on the sale. The court of appeals reversed the judgment of the general term, and af-' firmed that of the special term, holding that the fraud alleged was established ; that no tender of the amount received was necessary before suit brought, as the judgment"sought for and given, allowed it to the defendant-, and this was, in fact, an actual return of the consideration paid ; that the question as to misjoinder or non-joinder of parties, not having been raised by the pleadings or upon the trial, could not be raised upon appeal. .The principle contended for was clearly applied in the above case.

"If the plaintiff is entitled to recover the money of the defendant, contract rescinded or not, no tender or

have no power to lease without the assent of the shareholders, such shareholders might determine the terms and conditions of the lease to be given. If their consent is necessary it must be because they are to be consulted as to the advisability and desirability of leasing their property, and that question depends almost always upon the terms and conditions of the lease proposed. Therefore, how can they intelligibly act unless they know what is to be done? They might give their assent to a lease upon certain terms and refuse it upon other conditions. The stockholders could, if they chose, give a power, to lease to their directors, leaving the latter to determine the terms and conditions ; but that was not done in respect to the agreements and leases of May 20, 1879. The stockholders approved of these instruments after they were executed and- after they had been read and considered. They consented to lease upon these terms and no other, and to say that if the board of directors had no original power to lease they could, whenever they thought the exigency of the situation required, radically change and alter the terms and conditions of a lease granted by authority of shareholders, would be to deprive the shareholders of intelligent action.

If these agreements had merely been a settlement of existing claims due, or about speedily to become due, they might be considered as mere compromise agreements ; but when they change in many substantial particulars the leases of May 20, 1879, and that, too, for a period of over 900 years, I cannot see how they can be called mere compromise agreements.

But it is urged “ that, conceding the fact that shareholders have a voice as to the transaction of extraordinary business, the extraordinary business of leasing the railroad for nine hundred and ninety-nine years had been approved by the shareholders.

“ This action settled the question of parting with

the possession of the property for nine hundred and ninety-nine years. This having been done, what business, ordinary or extraordinary, was then left for the directors of the lessor road to do ? They had no railroad to run or manage. The usual ordinary business of the directors of a railroad as such had ended. Those in office and those afterward elected were empowered, and in fact employed in looking after the affairs and interests of the lessor under the lease and nothing else. Although called directors of a railroad company, they had no railroad to direct,. all the property of the railroad company having passed into other hands for a long period of time, with the assent of its shareholders. The ordinary business which remained for the directors to. attend to was the collection and distribution of the rents falling due under the lease. Would it be extraordinary business and in excess of their powers to accept and receive a less amount than that reserved in the lease, if unexpected difficulties and complications arose ? In other words, to waive part of a demand if it appeared clear that the interests of their principals called for it. Although leasing may be extraordinary business, the element of leasing did not enter into the October agreements ; and therefore were not the subsequent modifications as to rent, &c., a mere matter relating to money affairs and ordinary business, as that term is generally understood? It clearly appearing that the carrying out of the terms of the lease as to amount of rent to be paid had beqome an impossibility, what was to be done ? A modification was necessary, and the October agreements’ "were simply modifications.

“ If it be said that if the lessee could not perform,, it was the duty of the directors of the lessor to have insisted upon the taking possession of the property, and to do anything else was extraordinary and not within the power ; it must be remembered that all

parties liad agreed that the running of the roads under one management was a necessity ; that they could not be run otherwise, except at the risk of inconvenience and delay to the public and danger to human life.

“To insist upon breaking up the lease because the lessor could not pay the full rent; to resume the old status which all concerned had agreed could not be maintained, except at the risk above mentioned, would have been directly opposed to the expressed views of the shareholders. Therefore, if the lessee was unable to pay all, it was the part of wisdom to agree to take less, when to maintain the former agreements was an impossibility and was fairly within the meaning of ordinary business.”

That there is great force in the above argument . must be conceded, but I think that its fallacy arises from overlooking the fact that, if the shareholders had the right to determine the terms and conditions upon which their property was to be parted with, such terms and conditions form the consideration for the assent, and the consideration cannot be taken away without destroying the assent. The assent depended upon and was supported by the terms and conditions, it sprang from such terms and conditions, and when they were removed the foundation of the whole structure upon which the assent rested was removed, and the assent necessarily fell. Although it might have been within the powers of the directors to have made temporary arrangements for relief from the difficulties, and such arrangements would be called ordinary business, yet they could not make radical changes in the terms and conditions of the lease, as to which the stockholders had never been consulted.

The result of the October agreements certainly was a permanent and radical change in the terms and conditions of the lease.

If the board of directors could not make a new

lease upon different terms and conditions, then clearly they could not radically modify the old lease.

If they could not make a new lease directly, then they could not in effect make a new lease by striking out of the old lease substantial covenants, upon the part of the lessee, and inserting others ; what would be unlawful, if done directly, cannot be legal because done indirectly. It is undoubtedly true that directors may compromise a debt due to their corporation ; but the October agreements went much further than this. They changed the lease in many radical and substantial particulars, and took away rights which may have been the very things that induced the shareholders to assent to a leasing of their properties, and without the presence of which such assent would never have been given.

It is true that all conceded the necessity of united management, and this concession might have justified the directors in the making of temporary arrangements to continue such management, if the leases could not be complied with, until they had an opportunity to consult with their principals ; but such concession could not possibly have given the directors power to radically change the old lease for all time, which was in effect done by the October agreements, simply because the corporation, through its shareholders had consented to the leasing of its road upon certain other specified terms.

. Directors, as I shall hereafter attempt to establish, are the agents of the corporation, having as such, exclusive authority to act within their sphere.

But they are also in some respects merely the executive agents of the shareholders, and as such may perform certain other acts if specially authorized thereto by. their principals, and in respect to such action they are simply the agents of the shareholders as well as of the corporation. •

'■ - The shareholders, the principals, having fixed the

terms and conditions, which they had a right to do, upon which the directors, their agents, were authorized to part with the possession of the property without change and to commit the possession and managements thereof into other hands, what right have the agents to radically change or alter those terms and conditions without consulting their principals ?

Suppose an agent parts with the principal’s property upon certain terms which have been determined upon by his principal, and the principal has the right to recover back his property if these terms are not complied with; can it be said that the agent, simply because he had a general authority to compromise debts due to his principal, could have the right to alter the terms upon which his principal had authorized him to part with his property, and which were the inducements, and the only ones, which led the principal to give such authority ?

In other words, in case of a failure to comply with the terms upon which the property had been parted with, who is to elect whether the property shall be taken, back or not ? Is it not the principal % And how can the agent claim any power to make this election simply because he has a general authority to compromise debts %

This would be exercising a widely different authority in the name of the principal from that which would be called into action by the mere taking of a smaller sum in settlement for a larger sum due.

The principal might much prefer to have his property back again rather than to take a smaller sum for it, and he would have the right to determine that question for himself.

So in the case at bar; the Metropolitan stockholders fixed the terms upon which they would consent to part with their property, and they stipulated that in case those terms were not complied with they should

be entitled to recover back their property. Can there be any doubt but that in case of a failure to comply with the terms which they had fixed, it is a question for them to determine whether they would prefer to take the property again into their possession, and manage it for themselves, rather than to accept different terms from those which had originally induced them to part with their property %

But it is not necessary to pursue further the discussion of this question, because I do not understand that the defendants base their claim of the validity of these agreements upon any such ground ; but that they insist that the directors of the New York Company, and those of the Metropolitan Company, did make, and had the right to make, their leases of May 20, 1879, without any assent upon the part of the shareholders of their respective companies, and that the subsequent submission of the leases to the stockholders was merely to obtain their moral support.

That the directors of a corporation are agents, seems to be clearly recognized in all the cases in which the relations of directors and shareholders to their corporation have been discussed.

It is said in Twin Lick Oil Co. v. Marbury, 91 U. S. (1 Otto), 587, 589, that the directors are the officers or agents of the corporation, and represent the. interests of that abstract legal entity, and those who own the shares of its stock.

In Cumberland Coal Company v. Sherman ( 30 Barb. 553 , 571), the court say :

“There can be no question at the present time that a director of a corporation is the agent or trustee of the stockholders.”

In Angell and Ames on Corporations, sec. 771, it is stated that,

“The stockholders compose the company, and the managers, directors, or officers are their agents, necesr

shareholders could not cause the lease to be executed and delivered, nor could they compel the directors to execute and deliver the same against their own judgment ; all that the shareholders could do would be to authorize the directors to act, or confirm an act of the directors, which would be incomplete without such ratification.

The case of Hoyt v. Thompson ( 19 N. Y. 207 ), is also claimed to be an authority against the suggestion made above; but upon an examination it will be seen that much is said in respect to the relation of directors to their corporation, and their rights and powers, and the source from which they are derived, which was not at all necessary to the decision of the question involved, and is directly contrary to the principles announced in the United States supreme court, in a case where the direct question was presented.

The adjudication in the case of Hoyt v. Thompson had necessarily to be put upon the ground that the act under -investigation was u ordinary business,” and in that case a distinction was plainly recognized between “ ordinary business” and such as was within the corporate powers, but unusual and not coming within the general business of the corporation. The court held that, although the charter of the corporation declared that its powers should be exercised by a board of directors, consisting of a specified number, yet the board might delegate its authority to agents or to a quorum of less than a majority of the number.

The court further held, that when a by-law of the corporation declared that five directors should be a quorum for the transaction of “ ordinary business,” the general business of the corporation was embraced in the authority thus delegated, including, as incident thereto, the power of pledging or assigning assets of the corporation for the purpose of securing a debt, it appearing that such pledge was made for the pur

‘6 Section 4. All the corporate powers of said corporation shall be vested in and exercised by a board of directors, and such officers and agents as said board shall appoint.”

An increase of the capital stock of the corporation by the directors without the assent of the stockholders, was held to be void, .as beyond the power of the board of directors, although the charter provided that all the corporate powers of the corporation should be vested in and exercised by a board of directors, etc., and that the powers thus granted to the directors refer only to the ordinary business transactions of the corporation. The necessary conclusion to be drawn from the reasoning employed in that case is, that the board of directors are the managers of the business which the corporation is chartered to carry on, and they have the control and management of that business ; but that they have no power to affect organic and fundamental changes in the corporation or its business without the consent of the corporation. The Metropolitan Company was chartered for the purpose of making, constructing, maintaining and operating a railway upon certain streets, avenues, thoroughfares and places in the city of New York. This was its business, and this was all the business upon the execution of which it entered. Could it be imagined that a change more fundamental could possibly be made, than that a corporation chartered for the above purpose should lease its road and properties to another corporation, and deliver possession of the same for all time, and thus change its business from that of making, constructing, maintaining and operating a railroad, to that of receiving rent for the use of such road %

In considering this question, it is not at all improper to look for a moment at the result arising from a rule, that the directors are the primary possessors of all-the powers which the charter confers. If the board

of directors have the power without the assent of the shareholders to lease the properties of the corporation for all time, then the shareholders may be deprived of not only the administration of their property through its agents, the directors, but its very possession, without a moment’s warning. A board of directors are elected for one year to manage the business and affairs of the corporation, such business being the operation and maintaining a railroad. At the time of their election the shareholders have no intimation that anything else is to be done by the directors, and the expectation is that such directors at the end of their year in office will turn over the property committed to them to their successors in office, with an. account of their stewardship. Can it be possible that this board, elected for only one year, without any notice or warning, has the power to terminate the business of the corporation, and transfer all the properties to another corporation ? It seems to me clearly not. This is not the management of the business of the corporation. It is terminating the business, to carry on which it was incorporated. It is justas fundamental and radical a change as an increase of its papital stock, or the entering upon a new business by a corporation authorized by its charter can possibly be. Although I have not intended to quote as an authority any decision, except those of our own State, or of the United States supreme court, I must refer to the language used by the learned court, in the case of Cass v. Manchester (13 Reporter, 167), in which it was held that directors had no power to make a lease, even for five years, without the consent of the shareholders. The court say:

“But if this conclusion is the result of too strict a construction of the charter, we are of the opinion that the power in question is not exercisable independently of the judgment of the stockholders. The directors and officers of a corporation are its exclusive executive

agents, and, as it can only act by and through them, the powers vested in the corporation are deemed to be-conferred upon its representatives, but they are, never theless, trustees for the stockholders. The law recognizes the stockholders as the ultimately controlling power in the corporation, because they may at each authorized election entirely change the organization, and may at any time keep the trustees within the line of faithful administration by an appeal to a court of equity. Hence, it has been held that the directors of a corporation cannot alone increase its capital stock, where such increase was. authorized by its charter ‘ at the pleasure of said corporation,’ and where it was provided that ‘ all powers of such corporation shall be vested in and exercised by a board of directors,’ etc. ; and this for the reason that the general power to perform all corporate acts refers to the ordinary business transactions of the corporation, and not to a change so fundamental and organic ( 18 Wall. 234 ).

“The change proposed is not organic, but it is thorough and fundamental, as it affects the administration of the company’s affairs. It involves a withdrawal from the control and management of the stockholders of the entire property of the corporation for at least five years ; it will preclude, for a like period, the exercise by the stockholders of their judgment as to the particular character and method of conducting the business affairs of the corporation ; and it denied to the stockholders any right of suggestion or disapproval of the conditions, when such a relinquishment of important corporate faculties may be conceded. Surely a power which will be attended with such consequences does not relate c to the ordinary business transactions,’ nor ‘ to the orderly and proper administration of the affairs ’ of the company ; and hence cannot be exercised by the directors without express authority to them.’’

the latter in managing the affairs of the bank; may turn any one, or more, or the whole of them out of the direction, and place it in other hands.”

The claim made by virtue of these decisions is, that the stockholders have no power to do anything in relation to any matter whatever, pertaining to their corporation, except that if dissatisfied with the conduct of their directors in managing the affairs of the corporation, they may turn them out at the next election ; and this is certainly the language of all the above decisions. But how inapplicable is such remedy to an act of the directors which has terminated the business of the corporation and placed all its property in other hands for a thousand years. Will that give back the property to the corporation ; will that set right any mal-administration if the directors had the power to thus act? Clearly not, and the language was intended to apply to cases where the action taken was neither radical nor fundamental in its character. . For mismanagment-of the ordinary business of the company, the turning out of the directors is a reasonably adequate redress ; but when the directors have divested the company of all its property, it is difficult to see hów any remedy is afforded by turning them out. Further, the courts of this State, as has already been seen, expressly recognize the fact, notwithstanding the decision above mentioned, that the shareholders have certain other rights and privileges besides that of electing directors, viz. : the right to be consulted in respect to change of business, increase of capital stock, dissolving and winding up the affairs of the corporation, sale of any portion of its property necessary for the transaction of its business, etc.

It need hardly, therefore, be necessary, in view of the principles which have controlled the decisions already quoted, to discuss further the question that there are powers reserved to the corporation which can

ity of stockholders to assent, or the conferring of a new power upon corporations and affixing the conditions upon which such power is to be exercised.

I fail to see that legislation of this character in any way aids us in the determination of this question. If, however, a solution of the problem is to be reached by the light of legislative interpretation, chapter 349 of the Laws of 1880, seems to clearly indicate the necessity of stockholders’ assent, given at a stockholders’ meeting to the leasing of the property of a railroad corporation, otherwise, what necessity for legislative intervention in the terms of the act referred to ?

The cases of Fisher v. New York Central R. R. Co. 46 N. Y. 644 , and the Central Cross Town Company v. Twenty-third Street R. R. Co., 54 How. Pr. 168 , 183, are cited as deciding that a lease may be made without the assent of the shareholders. I have failed to find any such adjudication in either of those cases. All that can be claimed for those cases is that they decide that a lease of its road, made by a railroad corporation, is not ultra vires, and they decide nothing more upon the question of power.

No question is raised or discussed as to the manner of the exercise of its power by the corporation. There was no person before the court seeking to impeach the lease, who could be heard upon the question of stockholders assent. The only question was whether the lease was not actually void not voidable.

There is no question, but that admitting that a board of directors alone have no power to lease the property of their corporation, yet if such lease is executed by the directors without the assent of the stockholders, such stockholders may accept the lease or repudiate it; and that if they allow the parties. to the lease to go on under the lease without any action being taken in respect thereto within a reasonable time they will be held to have acquiesced in the lease and

ratified it. Therefore, conceding that the corporation has the power to lease, when the action is taken and the stockholders have acquiesced, no third party can raise the objection that the stockholders have not formally assented.

In the cases cited, the leases had long been in operation, and the time for dissent had long passed, and therefore, the only question that could be raised, was the power of the corporation to act at all. After an examination of the reasoning in all the adjudicated cases (which has been by no means cursory), after a consideration of the principles governing the relations of shareholders of a corporation and its directors, conceding that a corporation can do no act unless specially authorized thereto, except through its board of directors, J am irresistibly brought to the conclusion that acts making organic or fundamental changes in the character of the business of the corporation, cannot be done either by the directors alone, or by the shareholders alone ; but that both the executive and administrative officers of the corporation must unite with the shareholders of the corporation who confer the right to act upon the individuals entrusted with the office of directors. That directors are merely temporary officers of the corporation by virtue of their office, entitled to manage the business and affairs of the corporation during their term of office without interference from the stockholders, but they cannot say that a new board of directors, although duly elected by the stockholders, shall never thereafter interfere with the management of the properties of the corporation, because they have placed their possession and management into other hands forever.

This brings me to the consideration of the remaining question:

Were the agreements voidable at the option of the Metropolitan company, because three of its directors

were also directors of theManhattan company; or because'Metropcflifan directors- held.' also stock in the Metropolitan company .?

-' In' considering-this question, it must be conceded at the outset, that the interests of the Manhattan company were directly antagonistic to those of the Metropolitan Company.

■ In the negotiations which resulted in the October, agreements, it was for the- interest of the Manhattan Company, to get as large a reduction of rental as possible; and it was the interest of the Metropolitan Company, to secure as advantageous terms as the Manhattan Company could comply with and a similar interest pertained to the New-York Company ; but it was to the interest of neither to secure such terms as would bring about again the disasters under which the whole elevated system was then suffering.

Three propositions are urged in answer to the claim of the plaintiff, that the conflicting interests rendered the October agreements voidable. The first is, that although conflicting interest may disqualify an agent, strictly so called, from acting, that this rule does not apply to trading corporations, so many of them have common directors. Secondly, if such conflicting interests induce any incapacity, it' is not fatal to the agreement if such agreement can be proven just and fair ; and thirdly, that if any of the directors were disqualified because of an adverse interest, enough voted for the adoption of the agreement who were not disqualified, to have carried the measure, even if all the disqualified directors had voted no.

It will not be denied, I imagine, that as between natural persons, where an agent or trustee has a personal interest opposed to that of the principal, or where a man acts as agent of both parties to the contract, although he may have no personal interest on either, side, that the principal or cestui que trust may

Also in Exp. James, 8 Vesey, 337, p. 344 :

“ This doctrine as to purchases by trustees, assignees and persons having a confidential character, stands much more upon general principle than upon the circumstances of any individual case. It rests upon this, that the purchase is not permitted in any case, however honest the circumstances; the general interests of justice requiring it to be destroyed in every instance, as no court is equal to the examination and ascertainment of the truth in much the greater number of cases.”

In Gillett v. Peppercorne, 3 Beav. 78, 84, it is said:

“It is not necessary to show that fraud was intended, or that loss afterwards took place in consequence of these transactions, because the defendant, though he might have entertained no intention whatever of fraud, was placed in such a situation of trust with regard to the plaintiff, that the transaction cannot in the contemplation of this court, be considered valid.” We might multiply authorities upon this point, but these are sufficient to show how stringently the rule has always been applied, and that under no circumstances should it be departed from.

It was intimated, that although this rule was so stringent as to purchases and sales, yet that it was not applied with the same rigor to other contracts. I have failed to find any foundation for this distinction, either upon principle or authority. It maybe true that most of the adjudicated cases have arisen in reference to purchases and sales, but no distinction has been made by any court between contracts of this nature and any others which were tainted with the same infirmity. There is no reason for any such limitation, and I do not find that it has ever been attempted to be enforced.

In the case of Aberdeen Railway Company v. Blaikie Brothers {H. L. Cases, 1 Macqueen, 461), the same

This language must be interpreted having in view the facts of the case under consideration, and what wrong it was proposed to commit under the alleged forms of law. The court was speaking in reference to a claim made by the defendants of its right to keep the money loaned- by the director to the corporation, and to avoid the security given for its repayment. The court adds: “Thus, the beneficiary may avoid the act of the. trustee, but cannot do so without restoring what he has received,” and applied the rule that before it could repudiate its contract of security it must return that which it had received.

Reference is further made to the language used in Angelí & Ames on Corporations, § 233, which is as follows:

“ By the common law, and by the Civil Code, too, as a corporation aggregate may contract witli persons who are not members, so it may contract with persons who are members of it; and the contract is not on this account invalid ; a member of a corporation contracting with it being regarded, as to that contract, a stranger. Hence, a vote of the corporation affecting a contract between it and a member cannot bind the member without his assent to it. And, though the . member of the corporation be also one of the trustees of the corporation, it would seem that this would not incapacitate him from contracting with it; but he may recover against the corporation for his services rendered under a contract with the other trustees, in a case where there is no evidence of such gross partiality in the contract as amounts to fraud. And where the members of three distinct corporations were the same, yet, in the Proprietors of the Canal Bridge ». Gordon, it was held by the supreme court of Massachusetts that contracts between the several corporations were valid, and might even be implied from corporate acts. The banking associations of Hew York, under the

Cases in which a trustee buys or contracts with himself, or several trustees qf which he is one, or a board of trustees of which he is one ; and it will be seen, by reference to the authorities hereinafter cited, that the incapacity to purchase applies to all these cases. Second. Cases in which a trustee buys of or contracts with his cestui que trust, who is sui juris and is competent to deal independently of the trustee in respect to the trust estate.

“As to the first class of cases, the purchase or contract is voidable at the option of the cestui que trust, without reference to the fairness or unfairness of the purchase or contract. For the reasons before given, the disqualification of the party purchasing or contracting is a conclusion of law, and is absolute.”

Some confusion seems to have arisen in the enunciation of the principle under discussion because of a failure to distinguish between the two classes of cases. The disability as to dealings between trustee and cestui que trust being absolute, while that in respect to dealings between attorney and client is less strict. Story, in his Equity Jurisprudence, section 811, says : “In this respect there is said to be a distinction between the case of an attorney and client, and that of a trustee and cestui que trust. In the former, if the attorney retaining his connection contracts with his client, he is subject to the onus of proving that no advantage has been taken of the situation of the latter. But, in the case of a trustee, it is not sufficient to show that no advantage has been taken, but the cestui que trust may set aside the transactions at his own option.”

The ground upon which the decision of the case of Jackson v. New York Central It. R„ Co., supra, may well have proceeded is well stated in the opinion in the case of Gardner v. Butler, 80 N.

“The rule is, that the trustee cannot fortify himself by a contract which he makes with himself, or for his own interest, and set it up, either at law or in equity, as a valid obligation. It is of no binding force as a contract, and the cestui que trust may repudiate it at will. The agreements, therefore, which the directors made with themselves, must be pronounced to be illegal, and can furnish no support to their defense, as contracts. But while the express undertaking is without legal force, the directors of a company have a right to serve it in the capacity of officers, agents or employees, and for such services the law will enable them to recover a just and reasonable compensation. The law restrains them from making a contract where their own gain intervenes between their exercise of judgment and their duty as trustees; but it does not operate to deprive the company of the services of those who, in many cases, may alone possess the skill requisite to the successful management and conduct of the corporate business, and who may have thechiefest interest in its prosperity. Stockholders, because they are directors, are not compelled to commit the success of their company to strangers, or else render their own services gratuitously. No claim which they may make against their company can acquire any support or validity from the fact that they have expressly sanctioned it; it must, rest exclusively upon its fairness and justice, and be enforced upon the qioantum meruit. That such is the full scope and effect of the rule, and the extent to which the transaction is annulled, will be found by an examination of the cases.” *- * * *

V-The same principle must apply, whether it is property conveyed or services rendered, to the company. The cupidity and avarice of the trustee is guarded against by giving the cestui que trust the right to repudiate the contract at all times, where it is exec

utory, and to allow simply a just remuneration, without reference to the contract price where it is executed. The trustee thus derives no advantage from his breach of duty, and the company can suffer no detriment from his service in their behalf.”

In the case of Thomas v. Brownsville, Fort Kearney & Pacific R. R. Co., decided in the supreme court of the United States in October last, the right to recover upon a quantum meruit for services rendered and materials furnished under a voidable contract, is distinctly enunciated. The court say :

“ But we are asked to reverse the decree so far as to permit the trustees in this case to recover such a sum as the Construction Company actually earned in building the road. The matter was referred to a master, who, on this hypothesis, reported that the contractors had done work for the Railroad Company, which it had accepted, to the value of $205,947.66, beyond what they had received payment for, except as it was paid by these bonds. He also reported that this work was of that much advantage to the company, and its value or cost is estimated on a quantum meruit, without regard to the prices fixed by the contract.

“We are of the opinion that the appellants’ view of this part of the transaction is sound.

“The bonds and mortgages in the hands of the trustee were issued in payment for this work. To the extent of $205,947.66, the consideration is good, and no sound principle is seen on which they cannot, to that extent, be enforced. To this extent they do not rest on the original contract, but on work, labor and materials actually furnished to the company, and received by it. These services and materials are not estimated by the prices named in the contract, but by their real value to the company.”

In the case of Wardell v. Union Pacific R. R. Co,5 103 U. S. (13 Otto), 651-659, the incapacity of a director

point: “ We must assume, therefore, here, that it was, when made, a legal contract, such as the corporators could make. It is claimed, however, that the assignment of the interest in that contract to the plaintiff, while he was a director, was void, as being contrary to public policy. It is true that the plaintiff, while acting as a director of the corporation, held-a fiduciary-relation to it. He was a trustee of the corporation, and was under the same disability which attaches to all trustees in dealing with trust property, and in transacting the business pertaining to the trust. He could not act as trustee and for himself at the same time, and he would not be permitted to make a profit to himself in his dealings with the corporation. It is against public policy to allow persons occupying fiduciary relations to be placed in such positions as that there will be constant danger of a betrayal of trust by the vigorous operation of selfish motives. The rules upon this subject are illustrated in many cases, but few of which are here cited (Risley v. Indianapolis, B. & W. R. R. Co., 62 N. Y. 240 ; Butts v. Wood, 37 Id. 317 ; Stewart v. Lehigh Valley R. R. Co., 9 Vroom, 506 ; Gardner v. Butler, 30 N. J. Eq. 703 ; Foster v. Oxford W. & W. Ry. Co., 14 Eng. L. and Eq. 306 ; Aberdeen Ry. Co. v. Blaikie, 1 Macqueen H. L. 461).

“The assignment of a portion of the Byrne contract to the plaintiff did not render that contract void. There was nothing done under the contract. If the plaintiff had attempted to do anything under it, so that his interest under it might come in conflict with his duty as trustee, then the principle of the above cases could have been invoked against him. The corporation could have permitted him and Byrne to perform the contract, and then could make him account to it for all the profits he made by such performance. If he had attempted to perform the contract while he was director, the shareholders could probably have

intervened, by some suit in equity adapted to the nature of the case, to nullify the contract as to him, or to restrain him from the performance thereof, or to compel him to elect to resign his office of director or to give up the contract. In any view of the case the assignment to him was not absolutely void ; it was at most voidable at the election of the corporation or its stockholders. Besides, the assignment to him did not destroy the Byrne contract, and before he attempted with Byrne to perform it, and before any objection was made by the corporation or any of its stockholders to his connection with it, he assigned, as he was perfectly competent to do, all his interest therein to Brown and Seligman, who were perfectly competent to take.”

In Aberdeen Railway Company v. Blaikie, H. L. Cases (1 Macq.) 461, which is the leading case in England upon this point, the question was as to the validity of a contract made by the plaintiff with the defendants, a firm, one of whose members was a director in the railway company, and the court say :

11 The directors are a body to whom is delegated the duty of managing the general affairs of the company. A corporate body can only act by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal, and it is a rule of universal application, that no one having such duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.

So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into. It obviously is, or

may be, impossible to demonstrate how far, in any particular case, the terms of such a contract have been the best, for the interest of the cestui que trust, which it was possible to obtain.

“It may sometimes happen that the terms on which a trustee has dealt or attempted to deal with the estate or interest of those for whom he is a trustee, have been as good as could have been obtained from any other person ; they may even at the time have been better.

“But still so inflexible is the rule that no inquiry on that subject is permitted. The English authorities on ■> this subject are numerous and uniform.” -~

The decision in this case seems to me to have been based upon principle and not upon the 85th, 86th and 87th sections of the act of 8 & 9 Vic. ch. 16, which provide that:

“Ho person interested in any contract with the company shall be capable of being a director, and no director shall be capable of being interested in any contract with the company during the time he shall be director and that “ if any director at any time subsequent to his election be directly or indirectly concerned in any contract with the company, then the office of such director shall become vacant, and he shall cease from voting or acting as directorand that “no person being a shareholder or member of any incorporated joint stock company shall be disqualified or prevented from acting as a director by reason of any contract entered into between such joint stock company and the company incorporated by the special act: but no such director, being a shareholder or member of any such joint company, shall vote on any question as to any contract with such joint stock company.”

In the case of Foster v. Oxford, &c. Railway Co., 13 Com. Bench, 200, this act was construed as imposing at law the penalties prescribed in the act, viz.: the loss of his office by any director becoming or being in

teres ted in any contract with the corporation during his term of office. The contracts being valid at law, no greater penalty could be imposed by a law court than was provided by the act.

In the case of Aberdeen Railway Co. v. Blaikie, supra, this case is referred to, and the decision is sustained upon the ground that at law the contract was valid, while in equity it was voidable. The Lord Chancellor says:

“ The statute, i. e., the Company’s Clauses Act, it was argued, has impliedly, if not expressly, recognized the validity of the contract, by enacting that its effect shall be to remove the director from his office, indicating thereby that a binding obligation would have been created which would render the longer tenure of the office of director inexpedient, and reference wa,s made to the case of Foster v. Oxford, Western & Wolverhampton Railway Co. This was an action for breach of a contract under seal, whereby the defendants covenanted writh the plaintiffs to purchase from them a quantity of iron. The defendants pleaded that at the time of the contract one of the plaintiffs was a director of their company, and to this plea there was a general demurrer. That such a contract would in this country be good at common law, is certain. The rule which we have been discussing is a mere equitable rule, and therefore all that the court of common pleas had to consider was how far the contract was effected by the statute. The decision was that the statute left the contract untouched, and that its operation was only to remove the. director from his office. The 85th and 86th sections of the English statute, 8 and 9 Vie., eh. 16, on which the court proceeded, are in the same words as the 38th and 39th sections of the Scotch statute, and the counsel relied on this decision as being strictly applicable to the acts now under appeal; but there is a clear distinction between them. In Scotland there is no

technical division of law and equity the whole question, equitable as well as legal, was before the court of sessions All that the court of common pleas decided was, that a contract, clearly good at law, was not made void by an enactment that its effect should be to deprive one of the contracting parties of an office. This decision will not help the respondents unless they can go further and show that the statute has had the effect of making valid a contract which is bad on general principles, that is to say, principles enforceable here only in equity, and not recognized in our courts of common law.”

Lord Brougham, in his opinion, states: “I, also, concur with my noble and learned friend, that the decision in the case of Poster v. Wolverhampton Co., in the court of common pleas, upon which great reliance was placed, and which appears, to a certain degree, at least, to have been the ruling decision in the court below, does not apply to this case, because there the transaction was past all doubt valid at common law, though not in equity. But had the court of common pleas had an equitable jurisdiction as well as a common law jurisdiction, the anomaly could never have happened of a transaction being found legal and valid in that court which could not stand an examination on the other side of Westminster Hall.”

The language used by the court in its opinion in Twin Lick Oil Co. v. Marbury, 91 U S. (1 Otto), 587, seems certainly to sustain the views of the learned counsel for the defendants upon this point. The court say: “ That a director of a joint stock corporation occupies one of those fiduciary relations where his dealings with the subject matter of his trust or agency and with the beneficiary or party whose interest is confided to his care, is viewed with jealousy by the courts, is a doctrine founded on the soundest morality and which has received the clearest recognition in this

court and in others (Koehler v. Black River Falls Iron Co., 2 Black, 715 ; Drury v. Cross, 7 Wall. 299 ; Luxemberg R. R. Co. v. Maquay, 25 Beav. 586 ; Cumberland Co. v. Sherman, 40 Barb. 553 ; 16 Md. 456 .)

The general doctrine, however, in regard to contracts of this class is, not that they are absolutely void, but that they are voidable at the election of the party whose interest has been so represented by the party claiming under it. We say, this is the general rule; for there may be cases where such contracts would be void ab initio; as when an agent to sell buys of himself and by his power of attorney conveys to himself that which he was authorized to sell. But, even here, acts which amount to a ratification by the principal may validate the sale.

“ The present case is not one of that class. While it is true that the defendant, as a director of the corporation, was bound by all those rules of conscientious fairness which courts of equity have imposed as the • guides for dealing in such cases, it cannot be maintained that any rule forbids one director among several from loaning money to the corporation when the money is needed, and the transaction is open, and otherwise free from blame. No adjudged case has gone so far as this. Such á doctrine, while it would afford little protection to the corporation against actual fraud or oppression, would deprive it of the aid of those most interested in giving aid judiciously, and best qualified to judge of the necessity of that aid, and°of the extent to which it may safely be given.

“ There are in such a transaction three distinct parties whose interest is affected by it, namely, the lender, the corporation, and the stockholders of the corporation.

“ The directors are the officers or agents of the corporation, and represent the interests of that abstract legal entity, and of those who own the shares of its

stock. One of the objects of creating a corporation by law is to enable it to make contracts, and those contracts .may be made with stockholders as well as with others. In some classes of corporations, as in mutual insurance companies, the main object of the act of incorporation is to enable the company to make contracts with its stockholders, or with persons who become stockholders by the very act of making the contract of insurance. It is very true that, as a stockholder, in making a contract of any kind with the corporation of which he is a member, is in some sense dealing with a creature of which he is a part, and holds a common interest with the other stockholders who, with him constitute the whole of that artificial entity, he is properly held to a larger measure of candor and good faith than if he were not a stockholder. So, when the lender is a director, charged with others with the control and management of the affairs of the corporation, representing in this regard the aggregated interest of all the stockholders, his obligation, if he becomes a party to a contract with the company, to candor and fair dealing, is increased in the precise degree that his representative character has given him power and control derived from the confidence reposed in him by the stockholders who appointed him their agent. If he should be a solé director, or one of a smaller number vested with certain powers, this obligation would be still stronger, and his acts subject to more severe scrutiny, and their validity determined by more rigid principles of morality, and freedom from motives of selfishness. All this falls far short, however, of holding that no such contract can be made which will. be valid, and we entertain no doubt that the defendant in this case could make a loan of money to the company, and.as we have already said that the evidence shows it to have been an honest transaction for the benefit of the corporation and its shareholders, both in the rate'

of interest and in the security taken, we think it was valid originally, whether liable to be avoided after-wards by the company or not.”

But I think that a careful examination of this case will show that the learned court’s language was intended to show that such a contract was not absolutely void, so as not under any circumstances to afford the basis for future action, or subsequent rights. The last clause of the language above quoted, seems clearly to indicate this, which is, “ we think it was valid originally, whether liable to be avoided after-wards by the company or not.” In other words, ie was valid at law but subject to avoidance in equity by the company, if such right was exercised within a reasonable time; and the sale in that case was upheld expressly upon the ground of laches. One of the grounds upon which it was sought to set aside the sale was because of certain declarations made by the defendant that he only designed to purchase the property for the benefit of all or a part of the shareholders, and the court say : “But we need not decide

whether any of these declarations raised a legal obligation to do so or not; nor whether without such declarations the sale and deed were voidable at the election of the complainants—a proposition "which is entitled to more consideration, resting solely on the fiduciary relations of the defendant to the plaintiffs than on the evidence in this case of the declaration referred to. We need not decide either of these propositions because plaintiff comes too late with the offer to avoid the sale.”

This language is entirely consistent with the view that the court did consider such contracts although valid at law, voidable in equity at the option of the corporation, and the decision, as above stated, is put distinctly upon the ground of laches. This ease, therefore, decides nothing whatever which is in any respect

in hostility to the rule as laid down by the decisions in the courts of our own state. The learned court, in its language referring to the fact that a contract to repay money loaned made by a corporation with one of its directors has been held to be valid, seems to have overlooked the fact, that, in any event, 'such a contract could not be repudiated by the corporation without the return of the money received by it; and, therefore, the result would be precisely the same if the transaction was open and free from blame, whether the contract was held to be voidable or binding, as the corporation could hot disaffirm without returning the money loaned to it, and this seems to be the foundation of those cases holding such contracts valid.

I think, therefore, that the undoubted rule of law in this state is, that every contract entered into by a director with his corporation may be avoided by the corporation within a reasonable time, irrespective of the merits of the contract itself.

But we are asked, does this disability extend to the case of a contract between two corporations some of whose directors hold that office in each corporation ?

I can see no difference in principle between the case of a director contracting with his corporation and that of directors of one corporation contracting with themselves as directors of another corporation. The evils to be avoided are the same, the temptations to a breach of trust are the same, the want of independent action exists, and the divided allegiance is just as aparen t. The fact that there is no such distinction is expressly stated in the case of Wallace v. Long Island R. R. Co., 12 Hun, 460 -464. The court say :

‘£ The rule that all persons acting in a fiduciary capacity shall not, directly or indirectly, make any profit by means of such acts, or be interested in ■ contracts made by their principals, undoubtedly applies

to directors of corporations. It is a valuable principle, and ought not to be impaired by any subtle or refined distinctions. Still, the mere fact that the same persons were directors of the corporation which made the lease, and of that which took it, is not of itself sufficient to avoid the contract at the instance of one or more stockholders against the will of the corporation. That fact alone might entitle either corporation to avoid the lease, but I apprehend it does not give that right to a stockholder.”

The principle is here recognized that the majority of the shareholders may ratify a lease made by the directors, and that a minority cannot disaffirm. That, therefore, it must be the majority of the shareholders acting through the corporation who repudiate, and no shareholder has the power to exercise that right against the will of the majority.

The case of United States Bolling Stock Co. *. Atlantic & Great Western R. B. Co., 34 Ohio St, 450 , is relied upon by the defendants’ counsel as conclusive upon this point. It seems to be necessary that this case should be referred to at length, as it is claimed to decide, and upon a cursory examination appears to decide, much more than was intended by the court:

“The action below was brought by the plaintiff against the defendant, to recover the sum of $985,934.02, most of which sum was a balance alleged to be due the plaintiff from the defendant for the use of the rolling stock furnished by the former to the latter, from February, 1872, to December 10, 1874, under an express contract. It appears from the record that the plaintiff was incorporated under the laws of New York, on October 31, 1871, with a board of five directors, empowered to manage its affairs, and that on December 11, 1871, the defendant was organized as a consolidated railroad company, under the laws of New York, Pennsylvania and Ohio, with a Board of thirteen directors;

that at the date of the organization of the railroad company, the five directors of the Bolling Stock Company, George B. McClellan, Samuel L. M. Barlow, James B. Hodgkins, William Butler Duncan, and Lawrence Wells, were elected and became five of the thirteen directors of the railroad company. That said five persons continued to be the sole members of the plaintiff’s board of directors and five of the thirteen members of the defendant’s board until December 11, 1873, and that one or more of said directors of the plaintiff continued to be directors of defendant until the termination of the contract on which suit was brought. It further appears that on November 6,1871, a provisional contract was entered into by James McHenry, purporting to act for plaintiff, and Leonard J. Woodman, purporting to act for and on behalf of the executive committee of the Atlantic and Great Western Bailroad Company, by the terms of which the plaintiff agreed to supply to the defendant, and the defendant to receive, at an agreed monthly rental for the period of seven years from January 1, 1872, the rolling stock mentioned in a schedule thereto annexed.

“On July 19,1872, this contract with a certain modification, was ratified and adopted by the' plaintiff’s board of directors, and on August 2, 1872, was as modified, adopted and confirmed by the defendants’ board of directors. It farther appears that at the meeting of the defendants’ board at which said contract was ratified and confirmed, only eight of the thirteen members were present, two of whom, McClellan andJHodgkins, were the directors of the plaintiff.

“ The question presented by the record arises upon the exception to the charge of the court upon the point of the defendants’ right to avoid the contract upon which the action was founded. The rule that an agent or trustee in matters touching his agency or pertaining to his trust, cannot bind the principal or cestui que

trust, without his consent, by a contract in which the former is adversely interested, rests upon a very satisfactory foundation, and is supported by a great weight of authority (Wade v. Pettibone, 11 Ohio, 57 ; Morison v. Thompson, L. R., 9 Q. B. 480; 1 Lead. Cas. Eq. 210).

6 6 In Story on Agency, § 210, the rule is said to be founded ‘upon the plain and obvious consideration that the principal bargains, in the employment, for the exercise of the disinterested skill, diligence and zeal of the agent for his own exclusive benefit. It is a confidence necessarily reposed in the agent, that he will act with a sole regard to the interest of his prin cipal as far as he lawfully may.’ And in 2 Kents Com. 618, the same principle is asserted, and in the following language: 6 An agent acting as such, cannot take upon himself at the same time an incompatible duty. He cannot have an adverse interest or employment. He cannot be both a buyer and seller, for this would expose his fiduciary trust to abuse and fraud.3 In Bennett, Ex parte, 10 Ves. 393, Lord Eldor, commenting on a sale of the trust property to the trustee, stated the reason of the rule denying the right of the trustee to buy the-trust property to be, ‘ That it would not be safe with reference to the administration of justice in the general affairs of the trust that a trustee should be permitted to purchase ; for human infirmity will, in a very few instances permit a man to exert against himself that prudence which a vendor ought to exert in order to sell to the best advantage, and which a purchaser is at liberty to exert for himself, in order to purchase at the lowest price. The rule which prevents the agent or trustee from acting for himself in a matter where his interest would conflict with his duty also prevents him from acting for another whose interest is adverse to that of the principal; and in all cases where (without the assent of the principal) the agent has assumed to act in such a double capacity, the principal

may void the transaction at his election.’ No question of its fairness or unfairness can be raised. The law holds it constructively fraudulent and voidable at the election of the principal (Aberdeen Ry. Co. v. Blaikie, 1 Macqueen, H. L. Cas. 461; York Bldgs. Co. v. Mackenzie, 3 Paton, H. L. 378 ; Bispham's Princ. Eq. 106 ; 18 Ohio St. 182 ).

“ But, does the present case fall within the operation of this principle. The right to avoid the contract because the agent has a personal interest in its subject matter adverse to that of the principal, or has assumed an incompatible duty, is one arising in equity for the principal’s protection. He may avail himself of the right to avoid the contract, or he may waive it, at his option. That the agent may represent two persons, with their assent, in a transaction relating to or embracing a subject matter respecting which their interests may be adverse or conflicting, admits of no doubt. In Adams Mining Company v. Senter ( 26 Mich. 73 ), upon the question of ho$v far the double agency of one affected, his relation to his employer or third persons, it was held that where the same person - is made the agent of two mining corporations in the same vicinity, ■and it becomes necessary for one to deal with the other, he must be presumed to have the same power to act for both that he would be possessed of if there were two agents acting separately, and may dispose of the property in the same way ; and such double authority would dispense with such formalities as could not be complied with where one man acts for both companies. The court, in announcing its opinion, say: ‘ The authority of agents, where no law is violated, is as large as th.eir employers choose to make it. There are multitudes of cases where the same person acts under powér from different principals in their mutual transactions. Every survey of boundaries by a' surveyor jointly agreed upon would come within similar difficulties.

There can be no presumption that the agent of two parties will deal unfairly with either.’ ”

“ So, where the subsequent assent is given to the acts of the agent, the same resul-t follows ; that is, if the principal, with full knowledge of all the facts affecting his rights, ratifies the acts of his agent, the right to avoid the contract or transaction is gone.”

The learned court then points out that dissent must be made within a reasonable time, and that a principal who has an option to avoid or stand by- the contract of Ms agent, is not permitted to await the issue of events and then adopt or reject the contract as he may think most for his interest, and that an acceptance of the benefits of a transaction imposes the obligation to assume its burdens and operates to confirm it as a whole ; but that if the contract in question was absolutely void because agents in common of the two corporations'participated in making it, there could be no ratification by acquiescence. The learned court then calls attention to the fact that at common law a contract between two corporations having common directors made by their respective boards, or between a corporation and an individual director or a firm of which he is a member, is valid, and cites the cases of Foster v. Oxford, &c. Railway Co., supra; Ernst v. Nichols, 6 H. L. Cases, 401; and Murray’s Ex’rs’ Case, 5 De Gex, Macn. & G. 746. This is undoubtedly the rule at common law, but it is equally well settled in equity that all such contracts are voidable at the option of the corporation. The learned court then argues, that, conceding the contract was voidable in equity at the election of the company, for the want of the presence at that meeting of a quorum of directors who were not directors of the plaintiff, that—

“ It nevertheless appeared that the board was composed of thirteen persons, a clear majority of whom were affected with no incapacity to act for the best in

terests of the company, and who sustained no fiduciary relation to the plaintiff whatever. This majority possessed ample power to restrain and control the action of the minority, and if the contract was voidable at the option of the company, it had full power to express the company’s election if it saw fit to avoid the con- ' tract. The fact that one of the persons composing this majority might vote with those who were members of both boards and thereby create a majority in favor of the contract, would in nowise affect the validity of the transaction, nor relieve the board from the duty to move in the matter, if they desired the company’s escape from liability.

“We have not, upon the most diligent research been able to find a case holding a contract made between two corporations by their respective boards of directors invalid, or voidable at the election of one of the parties thereto, from the mere circumstance that a minority of its board of directors are also directors of the other company. Nor do we think such a rule ought to be adopted. There is no just reason where a quorum of directors, sustaining no relation of trust or duty to the other corporation are present, participating in the action of the boa,rd, why such action should not be binding upon the company, in the absence of such fraud as would lead a court of equity to undo or set aside the transaction. If the mere fact that a minority of one board are members of the other, gives the company an option to avoid the contract without respect to its fairness, the same result would follow where such minority consists of but one person, and notwithstanding the board might consist of twenty or more. In our judgment, where a majority of the board are not adversely interested and have no adverse employment, the right to avoid the contract or transaction does not exist without proof of fraud or unfairness ; and hence the fact that five of the defendants’

board of directors were members of the plaintiff’s board, whatever may have been its effect on the defendant’s right to disaffirm or repudiate the contract if exercised within a reasonable time, did not disable the defendant from subsequently affirming the contract if satisfied with its terms, or rejecting it, if not, nor did it relieve it from the duty to exercise its election to avoid or rescind within a reasonable time, if not willing to abide by its terms.

“That it did not do this, nor take any steps towards its disaffirmance, but continued to act under it for nearly two years and a half, receiving the rolling stock for .the use of which it stipulated, and with which it operated its road for the whole of said period making payments for such in accordance with the rate fixed by the contract, very clearly appears from the admitted facts.”

It will be observed that no question as to a minority of common directors was involved in that case, and the discussion was based entirely upon failure,to repudiate within a reasonable time, and in the discussion of the minority question "the learned court overlooked the principle which seems to me to be well established by authority, as I shall attempt to show hereafter, that the corporation is entitled to all the knowledge and skill which each and every director can bring to bear upon the subject before the directors of such corporation.

The court further says, that'“ the instruction given by the court to the jury as applied to the undisputed facts, was therefore erroneous.” Why? Because “ the jury were told that the fact that the said directors of the plaintiff were five of the thirteen directors of the defendant, with the further fact that two of said five were two of the quorum of eight directors of the defendant who confirmed the contract, rendered such contract in law invalid and voidable at the election of

the defendant, irrespective of the motive of the directors participating. This was intended and understood to mean that such election could then be made, notwithstanding the admitted facts, constituting in law a complete affirmance of the contract.” In other words, although the contract was voidable in equity for the reasons given in the instruction above stated, yet it not having been repudiated within a reasonable time that right had been lost. And all that was decided in the above case was that such a contract although voidr able in equity was valid at law, and unless repudiated" within a reasonable time could be enforced.

Attention is also called to Ashhurst’s Appeal, 60 Penn. 290 -314, in which it is said :

“ I come then to consider the facts that the purchasers were the same persons as those who, as directors, sold, and, as stockholders, authorized the sale. It is often said, and truly, that the same persons cannot be both buyers and sellers in one transaction. They were not strictly in this. All the purchasers were not directors who made the sale. But I make no account of that. Still, why may not directors of a corporation sell to themselves ? Each director has an interest distinct and antagonistic to his interest as, a mere man. There is identity of persons, but not of interest. There must be many things which directors can do for their individual benefit which are binding upon a corporation of which they are directors. • If they have advanced money I cannot doubt they may pay themselves with corporate funds. If they have become liable as sureties for the corporation they may provide for their indemnity. And though ordinarily the law frowns upon contracts made by them in their representative character, with themselves - as private persons, such contracts are not necessarily void. They are carefully watched and their fairness must be shown. But I repeat the question, why may not direc

tors sell to themselves in any case % It is because of the danger that the stockholders may suffer, if such sales be permited, for want of antagonism between the parties to the contract. But such sales are supported in equity where the fiduciary relations of the purchaser has ceased before the purchase, when the purchase was made with full consent of the stockholders, or where the stockholders have, by their acquiescence, debarred themselves from questioning the transaction.”

The doctrine here is again enunciated that such contracts are valid in law, and although voidable in equity may be affirmed by actual ratification or acquiescence.

In the case of Bill v. Western Union Tel. Co., the same distinction is taken, and it is nowhere held that such a contract is not voidable in equity even if valid at law. *

The case of Booth v. Robinson, 55 Md. 419 -438, it is claimed, also decides that a contract is not voidable between corporations because of common directors. That case was an action brought by the stockholders of a corporation against some of its directors who were common directors in another corporation, upon an allegation that they, with an intent to cripple the corporation in which the plaintiffs were stockholders, made certain arrangements with another corporation in which they were directors and in which the plaintiffs were not stockholders. The corporations were made parties defendant upon an allegation that these directors had control of the corporations, and by means of that control they could frustrate and defeat any attempt to induce the corporation to take action for the redress of the wrongs alleged. The court in that case say:

“In these cases the proper and primary party to complain and call the directors to an account in a court

of equity for fraud or breaches of trust in the management of the affairs of the corporation, is the corporation itself, because the duty is owing and the wrong is done directly to the corporation and only indirectly to the shareholders ; and therefore, to enable a shareholder, either for himself alone, or for himself and others, to maintain a bill against the directors for such fraud or breaches of trust, he must allege and show not only the violations of duty or breach of trust on the part of the directors, but that he as a stockholder had been damnified thereby, and that the corporation has failed or refused to take the proper legal steps for the redress of the wrong.”

The nature of the action, it will thus be seen, was entirely different from that which is now before the court. It was an attempt upon the part of 'stockholders to assert their individual rights independent of the corporation, upon the ground of absolute fraud and mismanagement of the affairs of the corporation by certain of its directors. The fact that these directors held also the same offices in the other company had nothing whatever to do with the cause of action involved, because independent of that fact a cause of action existed, if such fraud and gross mismanagement was shown. It is clearly stated in that case that the fraud must be proven, and that mere indiscretion, want of skill, or deceit or mistake of judgment in the conduct of the affairs of the corporation affords no ground of personal liability on the part of the directors. The court therefore, say that two directors representing both corporations, this fact alone, while it should subject their conduct to rigid scrutiny by the court, does not afford ground of presumption against the legality and fairness of the dealings and transactions between the two companies. In other words, that upon the issue of fraud—actual fraud and gross mismanagement—the fact that these two directors had

conflicting interests would be considered in determining that issue, and nothing else was meant by the court in the use of this language. The court then go on and say:

£<The two companies were certainly competent to contract, the one with the other, and the two directors whose conduct is in question were interested in both companies, and by their relation to and official position in them they owed duties and were bound to be faithful alike to both ; therefore, while acting within the scope of the affairs delegated to them by the stockholders of the corporation, there is no presumption of illegality or unfairness in their dealings and transactions as between the two companies. They were the chosen agents of both, and tobe sucoeessful in any attempt to impeach the validity of their acts with a view of making them personally responsible either to the corporation or to the stockholders, there must be distinct charges of misconduct, fully supported by proof” (Adams Mining Co. v. Senter, 26 Mich. 73 ; United States Rolling Stock Co. v. Atlantic & Great Western Rw. Com., 34 Ohio St. 450 ).

Thus it will be seen that the court, in the use of this language, had in mind only the fact, that in order to make trustees personally responsible, it was necessary to prove actual misconduct, and that the mere fact that som. of the directors of the two contracting corporations were common directors did not necessarily establish that proposition. It must be fully supported by proof. And, in support of this proposition are cited the cases to which reference has previously been had—the one of which referred to the fact that an agent might act for both parties where his agency was known and his action approved, and- the other that the mere fact that two contracting corporations had common directors did not make their contract void in law, but simply voidable in equity, which right might

be lost by lapse of time. The court goes .on and says:

“This case is altogether unlike that of a trusted agent or director bargaining in a matter of personal advantage to himself, individually, with .the party reposing the confidence in him and where it is incumbent in him to show that a fair and reasonable use has been made of that confidence, as in the case of the Hoffman Steam Coal Co. v. Cumberland Coal & Iron Co., 16 Md. 456 ; Cumberland Coal & Iron Co. v. Parrish, 42 Md. 598 ; Jackson v. Luddling, 21 Wall. 616 ; aud other cases of that class to which reference .igh't be made. In that class of cases the law proceeds upon the principle of constructive fraud irrespective of fraud in fact; and hence the onus of proof is upon the party seeking to maintain the transaction. But in a case like the present, where the effort is to make the defendants personally liable for alleged injuries occasioned by conduct willfully fraudulent, in intent and purpose amounting to breaches of trust, the proof in support of the allegations must be other than mere constructive fraud or breaches of trust; there must be affirmative proof of the misconduct charged, going to establish the fraud in fact.”

Therefore, all that seems to be established by the case above cited is that in order to hold directors personally responsible, affirmative proof of fraud, absolute fraud is requisite. The power of corporations having common directors to loan and borrow money, one from the other, and to give and to receive security therefor, is recognized and upheld, the court, however, not referring to the fact that such contracts, although voidable in equity, cannot be repudiated without the return of the money borrowed, and, therefore the contract is allowed to stand, as there can be no object in entertaining an action for rescission, the borrower having a right upon tender of the money received to

get its securities back without the intervention of a court of equity, which is all the relief a court of equity can give.

These cases, therefore, cannot be held to overcome the adjudications of our own State, nor should they be held to have, in the slightest degree, shaken a principle so deeply imbedded in the rules governing the action of trustees with their cestui que trust. In none of the cases has there been any attempt, as far as I have been able to discover, to distinguish between the disqualification of interest as applicable to contracts between a director and his corporation, and such disqualification as applicable to contracts made between two corporations having common directors, they being treated as resting upon the same basis.

It seems to me that it has been conclusively shown, by the authorities both in England and this State, that any contract which may be entered into between a corporation with one of its directors, is voidable at the option of the corporation, although it may be entirely valid at law. The question as to what the condition of affairs may be in case a contract is entered into between two corporations, one or more of the directors of one of which might have been at the time of the contract a director of the other, has not been so distinctly met or disposed of by any adjudications to which I have referred. But the principle seems to me to be the same, as has been already suggested, and the dangers to be overcome and to be met are of an analogous character, and the only rule which can be adopted by the court in dealing with such contracts is to apply that which has always obtained in the cases of contracts between a director and his corporation.

It may be urged that the position of a director in a corporation does not give him the same degree of personal interest in its success as would be the fact were he simply entering into the contract to be personally

benefited thereby; that he is one of many, his interests are divided with that of the other shareholders, and his influence may be counteracted by his co-directors. But the fact that he has an adverse interest to the one or the other of the corporations is apparent, and that he is attempting to serve two masters is also equally plain. It must necessarily happen, according to the rules which have been laid down by the courts' of equity in reference to the action of agents, that he will in nine cases out of ten serve the interest of the one principal and betray those of the other; and in order to remove persons so situated from all temptation, in order that there may be no uncertainty in the law in reference to such contracts, courts of equity have held that where there is such a conflict of interests between an individual and a corporation, or between corporations having common directors, that the contract shall be voidable as matter of equity without any evidence whatever of misconduct upon the part of the agent or director. If the rule is to be so far relaxed that common directors may participate in the contracts between corporations, or if common directors may allow contracts to be made between the two corporations that they represent, it would present the same field of speculation and the same uncertainty of results for courts to attempt to investigate the motives of the common directors ; to determine the influences which they failed to exert upon their associates ; to determine the fairness and reasonableness of the contract; to investigate all the influences which were at work which led to the entering into the contract, which have been so severely condemned by the cases passing upon the rights of cestui que trusts in reference to contracts made by common trustees. Contracts of this kind would be left involved in a sea of doubt, and a prediction as to the result of an investigation as to their fairness and honesty would be the merest speculation.

It was to relieve the court" from such investigations, and to let parties understand precisely the ground upon which they stood, that the stringent rules in regard to agents and principals were adopted, and the same reasons require that in order that there may be reasonable certainty in reference to the results to be arrived at in investigating the contracts between two corporations who have common directors, and therefore conflicting interests and conflicting duties, the same rule must be necessarily adopted, namely, that at the option of the cestui que_ trust of the corporation, such contraéis may be avoided.

It is urged against this rule that if common directors are disqualified from acting, so are common shareholders incompetent to ratify agreements between their companies, and that the holders of one share of stock in each of the companies could prevent any action at a shareholder’s meeting, relating to the two companies, no matter how advantageous such action might seem to the holders of every other share of stock. I do not say that the disqualification extends to a shareholder. I can see no reason why it should. The disability rests entirely upon the fiduciary relationship. A shareholder is trustee for nobody ; he has only his own interests to look after as such shareholder, closely connected as they undoubtedly are in practice with the interests of the othershareholders ; but he holds no such fiduciary relation to the corporation as pertains to the office of director ; and I think that it is carrying the rule to a much greater length than the reasons which have given it existence require, and in this respect the New Hampshire case of Pearson v. Concord Railway, extends the disqualification too far, and beyond all reason.

This brings us to the consideration of the question, whether this infirmity does exist in the October agreements, a number of uncommon directors sufficient to

constitute a majority having voted for them, even if all of the common directors had voted? No such question as this was presented in the Content case, as it is called, nor was the question of common directors at all discussed.

The general tenor of all the authorities is that this fact does not cure the infirmities in the contract. It is true that some cases, like those above cited, may be found where such a proposition has been stated ; but I can find no adjudication to that effect in any case where the question was directly involved, and where its discussion was necessary to the decision of the case. The foundation of the rule lies in the fact that the corporation, as has been before stated, is entitled to all the knowledge and skill which each and every director can bring to bear upon the subject before the directors of such corporation. This rule is clearly recognized in respect to various statutory boards. In order that valid action may be taken by such a board (unless different provision is made by statute), all the members of the board must meet, although a majority may control the action of the board. The argument being, that the arguments and reasoning of one man of a number, may convince and frequently has convinced the minds of many associates as to the propriety or impropriety of contemplated action, and whose 'votes would have undoubtedly been just the opposite of what they were had such member been absent. This was the point upon which turned the decision of the case In re East Norfolk Tramway Company, L. R. 5 Ch. Div. 963. There the articles of association provided that no man should be eligible as a director unless be was recommended to the shareholders by the board of directors. Six out of seven of the directors were present at a shareholders’ meeting at which Mr. Barber was chosen a director, and it was

claimed that this was a virtual “ recommending of" him.” Sir George Jessel, Master of the Rolls, says : “ First of all, he was not recommended by the board of directors. Six directors out of seven met in a friendly capacity, and for a different purpose, and such a meeting does not make them a board of directors.”

-/<■ 'X* -X* *X* -X' 'X*

“ It by no means follows that if a board meeting had been summoned, and the seventh had attended, the seven would have come to the same conclusion as the six without him. People are very apt to change their minds when they hear arguments. . . . Then it might well be that the absent director might have known something against the person proposed, and that if he had stated it to the board of directors they would have entirely changed their minds.”

Again, in the Aberdeen Railway Company case, upon this point, the Lord Chancellor says: “Iobserve that Lord Fullerton' seemed to doubt whether the rule would apply where the party whose act or contract is called in question is only one of a body of directors, not a sole trustee or manager.”

“But, with all deference, this appears to me to make no difference. It was Mr. Blaikie’s duty to give to his co-directors, and through them to the.company, the full benefit of all the knowledge and skill which he could bring to bear on the subject. He was bound to assist them in getting the articles contracted for at the cheapest possible rate. As far as related to the advice he should give them, he put his interest in conflict with his duty, and whether he was the sole director, or only one of many, can make no difference in principle.”

In the case of the Imperial Mercantile Credit Association v. Coleman (6 Ch. App. Cas. 558), this point is also discussed, and the Lord Chancellor says :

“ The ordinary operation of the rules of this court

lay down firmly that no director of a company can, in the absence of any stipulation to the contrary, be allowed to be a partaker in any benefit whatever from any contract which requires the sanction of a board of which he is a member. The reasons are given fully by Vice-Chancellor Knight Bruce, in Benson v. Heathron (1 Y. & C. Ch. 326), cited by the Vice-Chancellor in his judgment, and amount to this: that the company have a right to the services of their directors whom they remunerate by considerable payments.; they have a right to their entire services ; they have a right to. the voice of every director, and to the advice of every director in giving his opinion upon matters which are brought before the board for consideration ; and the general rule that no trustee can derive any benefit from dealing with those funds of which he is a trustee, applies with still greater force to the state of things in which the interest of the trustee deprives the company of the benefit of his advice and assistance.”

. In the case of Paine v. Irwin ( 16 Hun, 390 ), which came upon a demurrer before me, and which was affirmed at the, general term, this question was distinctly presented, and in respect to the trustee not having voted at the meeting authorizing the contract, it was said:

- “I have not thought it necessary to discuss the .question as to the defendant’s presence at the meeting at which it was resolved to purchase this property, because his presence or absence at such a meeting would in no manner affect his disability to deal with the corporation. This confidential relation existed, whether he was at the meeting which directed the purchase or not.”

- In the case of Cumberland Coal Co. v. Sherman, 30 Barb. 553 , the court sets forth with great clearness, the reasons upon which the rule is founded. It says: “Neither are the duties or obligations of a direc

tor or trustee altered from the circumstance that he is one of a number of directors or trustees, and that this circumstance diminishes his responsibility, or relieves him from any incapacity to deal with the property of his cestui que trust. The same principles apply to him as one of a number, as if he- was acting as sole trustee. It is not doubted that it has been shown that the relation of the director to the stockholders is the same as that of the agent to his principal, the trustee to his cestui que trust; and out of the identity of these relations necessarily spring the same policy of the law. In the language of the plaintiff’s counsel it is justly said: 6 Whether it be a director dealing with the board of which he is a member, or a trustee dealing with his co-trustees and himself, the real party in interest, the principal, is absent—the watchful and effective self-interest of the director or trustee seeking a bargain, is not counteracted by the equally watchful and effective self-interest of the other party, who is there only by his representatives; and the wise policy of the law treats all such cases as that of trustee dealing with himself.’

“ The number of directors or trustees does not lessen the danger, or insure security that the interests of the cestui que trust will be protected. The moment the directors permit one or more of their number *to deal with the property of the stockholders, they surrender their own independence and self-control. If five directors permit the sixth to purchase the property intrusted to their care, the same thing must be done with the others if they desire it. Increase of the number of agents in no degree diminishes the danger of unfaithfulness. ■

“ Whichcote v. Lawrence, 3 Vesey, 740, was a case of several trustees. In this case Lord Loughborough says: ‘ There was more opportunity for that species of management which does not betray itself much in

the conduct and language of the party, when several trustees are acting together. I am sorry to say there is greater negligence where there is a number of trustees.’ ”

The fact of the importance of individual influence, was recognized in the judiciary amendment to the constitution, wherein it was provided that a judge could not sit in an appellate court in review of his own decision, although he might be only one of seven composing the court.

In Duryea v. Traphagen, 84 N. Y. 652 , a judgment of the general term was reversed on the ground that Judge Beady improperly sat in review of his own decision, although he was only one of the three judges in the general term, and Judges Davis and Barrett (the other judges present), constituted a good court.

In Regina v. Justices, 6 Adol. & Ellis (Q. B.) N. S. 753, it was held that the fact that an interested magistrate sat in a court, vitiated the decision, even when' there was a majority in favor of the decision without counting his vote.

Lord Dermar says:

“It is contended that, as tne majority, without reckoning his vote, was in favor of the confirmation, the order is not vitiated. But after making every possible deduction from the strength of my opinion, in defense to that of my brother Pattesor, still, in my judgment, a decision is vitiated by any one interested person taking part in it. We cannot enter into an analysis of the different motives which may have produced the decision; it is enough to say that a single interested person has formed part of the court.”

“I suppose that in Regina v. Cheltenham Commissioners, 1 Q.

majority; and I suppose that I was satisfied with limiting my decision to that ground. But, on consideration, I think this is unsound; I think that it is very dangerous to allow an interested person to join, whether the majority turn on his vote or not. The magistrates discuss the question among themselves ; and it is impossible to say what effect that discussion may have on the decision. The real question is, has an interested person taken any part at all? ”

“ I will merely add, as I was not present at the decision of Regina v. Cheltenham Commissioners, 1 Q. B. 467, that I agree in the view now taken by my lord, and my brother Pattesow; Whether there is a properly constituted court, is a question which must be prior to the' decision. My brother Patteson does not appear to have differed very decidedly, in Regina v. Cheltenham Commissioners, from our present view; he there intimates that a magistrate who knows that he is interested, and still takes part in the discussion, is not justified in saying that, because so many other magistrates were present, he could not have influenced the decision.”

“ I agree and I meant, in Regina v. Cheltenham Commissioners, to rest upon the principle on which we are now deciding ; that we cannot enter into a discussion as to the extent of the influence exercised by the interested party.”

In our own courts the disqualification of interest is as strictly upheld. . A judge, the holder of one share of stock out of one million shares in a corporation, is just as certainly disqualified to sit in a cause in which that corporation is interested, as though he held one thousand shares. It is not the amount of the interest which works the disqualification; it is the existence of any interest, however slight.

The rule, therefore, seems to be clearly established, that the question of minority cannot be considered in

determining the right in equity to avoid a contract. ■ The presence of one disqualified director is just as fatal ‘ to action which cannot be repudiated, as the existence of a dozen. It being impossible to ascertain the amount of influence which each director exerts, or' which he fails to exert in opposition to action in which he is interested, the only rule which can be adopted, or which can be applied with any. certainty, is that if there is even one director who is disqualified; the whole-action of the board is subject to repudiation.

But it is urged that the Metropolitan shareholders knextf that at the time Messrs. Garrison, Navarro and Porter were elected directors of' the Metropolitan’ Company, they were also directors of the Manhattan Company.

I have been unable to find proof of any such knowledge ; but if they had, I do not see how it can affect the question under consideration.

There is no proof that the shareholders of the Metropolitan Company had any reason to suppose that any new agreements were to be made between the Metropolitan and the Manhattan Companies, by xvhich virtually a nexv lease was to be made. There is nothing to show that such shareholders, in any degree, contemplated the making by this board of permanent-changes in the terms and conditions by which the Manhattan Company was to hold their property. Tf the shareholders, knowing that new arrangements would have to be-made betxveen the Manhattan Company and the Metropolitan Company, had elected directors, some of whom they knew to be directors in the Manhattan Company, then the case presented would have been similar to those cited. But this element of knowledge upon the part of the shareholders of the Metropolitan Company, that the lease was to be substantially altered to the advantage of the Manhattan Company, is entirely absent in the case at bar! They

knew nothing of it. They elected a board simply to manage the affairs of the Metropolitan Company under the lease, affairs which were of the most limited nature, and not to radically change the whole basis upon which the shareholders had assented to the lease to the Manhattan Company. After the leases were made then all antagonism of interest between the companies had ceased, no more contracts or agreements were to be made between them, and common directors were, therefore, entirely proper. But when unexpected contingencies arose, by which the sharp conflict of interest which existed before the leases was revived, a state of affairs was presented which had not been anticipated by the shareholders ; and it is fair to assume, if they had been foreseen, such shareholders would have preferred directors who had no divided allegiance, and whose sole interest would have been to maintain the right of their company. In order that an agent or trustee may act for two principals, the principals must each know not only that he is the agent of each, but also that action by the agent is contemplated, in which such agent is to represent the hostile interests of both principals, and if such knowledge is not shown, the principal may repudiate. MTone of the cases have gone further *han thr\

I hav brefore, been lead to the conclusion that the direc s had no power to modify the leases of May 20, lfc 9, in the manner that they did by the October agreements, without the assent of the stockholders ; and that, even if they had such power, that the presence of directors in the Metropolitan board, who were also directors of the Manhattan Company at the time of the adoption of these October agreements, gave either company the right, in equity, to repudiate those contracts within a reasonable time, although the contracts may have been perfectly valid at law.

The Metropolitan Company certainly did repudiate

these agreements within a reasonable time, having com,-’ menced this action within one month after the shareholders of that company had an opportunity to elect a new board of directors who could take action in the matter.

The plaintiff, therefore, is entitled to a judgment relieving all the parties in this action from the October agreements, upon making such restitution as is suggested in a former portion of this opinion.

It has been said that this conclusion, if reached, would cause great confusion and conflict of interest among a vast number of railroads in this country, so many of whom have common directors, and also traffic arrangements with each other. This evil is not so great by any means as has been depicted. Agreements of this character are not void, but simply voidable, and if the corporation wishes to avoid them, as has been shown, it must act within a reasonable time. If.the shareholders are dissatisfied with the acts of their directors, they, must repudiate them within a reasonable time, which in most cases would be held to mean at the next meeting for the election of directors, wrhen they can elect a new board, who can take the necessary action to annul the voidable contract; and it must, therefore, be the dissatisfaction of the majority of the shareholders, and not that'of a minority, which can call the power into operation. If the shareholders renew the terms of office of the directors who have made the voidable contract, or if they take no action showing plainly their dissent, the contract will become binding by acquiescence.' 'As in most corporations, boards of directors are elected by the shareholders annually, the right to annul can seldom exist for more than one year. Thus it will be seen that there can be but few cases in which the decision of these questions nan affect past action, whatever influence it may have

in shaping the proceedings of trading corporations hereafter.

Although it is not necessary for me to decide the question of fact, in reference to Mr. Stout’s vote, in view of the conclusion to which I have come above, yet, in order that, if I should have been mistaken in my view, the whole case may be disposed of by the appellate court, I will briefly state why I shall find that Mr. Stout voted in the affirmative, on the 22d of October, at the meeting of the board of directors of the Metropolitan Company ; and for the purposes of this question I am willing to concede that every director present supposed that he voted no.

I am satisfied from the evidence that notone of the members of the board present at that meeting remembers the physical fact of hearing Mr. Stout’s voice when he voted. I do not think Mr. Stout himself recollects the precise act of voting. It is not a circumstance which he would be likely to recollect. It was at the time, probably, not thought of much consequence how he voted. He was, if he voted with Mr. Kneeland, in a hopeless minority, and he undoubtedly thought it was not of much consequence how he voted, as is shown by his action at the next meeting, on the 24th of October. The minutes record his vote as in the affirmative ; and at the next meeting of the board, held two days after, when these agreements are being canvassed and all sorts of motives impugned to their supporters, these minutes, in wffiich his vote is recorded in the affirmative, are read in his presence and that of Mr. Kneeland, the latter of whom had voted “no,” and they are approved unanimously. It is not claimed that he or anybody else then voted no. It seems to me that after Mr. Stout had allowed those minutes to be approved it is too late for him now to say that they are incorrect. He has voted that they are correct-There is no claim that the minutes of the meeting of

dence, and according to nay own conviction, founded upon the evidence, that he did vote “ Aye.” 'Hr. Stout’s excuse that he was not permitted to see the minute-books, is too flimsy to need much comment-. He did not try to see them, and as far as I know, there was no reason why he should have done so. Even if his vote was wrongly recorded, if his evidence is to be believed, he had no reason to suspect it. His lame attempt to find what he believed to be a necessary excuse for not examining the books, showed a disposition to rely, where he deemed it important, upon the imagination rather than upon the recollection.

The enormous length of this opinion certainly needs some apology ; but I have in vain endeavored to condense it. It-has frequently been necessary to make long quotations from cases cited, because it seemed impossible otherwise to present the precise attitude of the court toward the subject under discussion.

I have deemed it proper, in view of the, large interests involved, and the magnitude of the questions to be disposed of, and the divergent views entertained by the eminent counsel engaged in the cause, to consider all the questions involved at much greater length than was perhaps necessary, because I did not desire that there should be any misunderstanding as to the grounds upon which my decision was based.

After a most laborious and critical examination pf all the principles and authorities to which my attention has been called, or which I could find, I have satisfied my own mind, that the conclusions to which I have arrived, are those which must be reached by every impartial mind, upon a careful examination of the questions involved in this action, and that they . best accord with those great principles of equity by which the injustice and hardships of the strict letter of the law are remedied.

[No appeal vas taken.]

Hote on Rescission oe Contracts.

There is an important difference between the doctrine recognized in England, as to the jurisdiction of courts of equity to entertain suits for the rescission and cancellation of contracts, and the decisions of the American courts on the same subject.

It is elementary law that a party, defrauded by a contract for sale of chattels, and in some cases of lands, has at law, his election either to sue for the damages suffered by the fraud, or to treat the contract as rescinded, and recover, in an appropriate action, the consideration paid by him, and that he can if sued on the contract, set up the fraud as a defense. The legal judgment in such a case proceeds upon the assumption that one of the parties had himself rescinded 'the contract or conveyance prior to the suit and that he was justified in doing so (see Pomeroy Equity Jurisprudence, § 110, note). The remedy of cancellation is not expressly asked for as in an equity action, but its effects are obtained indirectly. The action of “ assumpsit,” which in a majority of cases will be the one adopted, has, for this reason, been likened to a bill in equity in its spirit and objects. Lockwood v. Kelsea, 41 N. II. 185, 187 ; Moore v. Mandlebaum, 8 Mich, 433 , 448; Wright v. Butler, 6 Wend. 284 , 290. See Bowen v. Mandeville, 95 N. Y. 237 .

In England, however, it is settled that the special jurisdiction of courts of equity to order the cancellation of an instrument is not affected by the probability or practical certainty that the plaintiff in equity would have a good defense to an action on the instrument. “ lie is entitled not only not to have the contract enforced against him but to have it judicially annulled.” Pollock on Contracts, 519.

A different rule is adopted in this country. The great majority of cases hold that equity will Only interfere when the remedy at law is not complete and adequate. In some States the courts of equity decline in such a case to entertain a suit for rescission on the ground that the statutes of the state do not give them all the powers of the English court of chancery, but expressly limit their power to cases where the remedy at law is not complete and adequate. Jones v. Hewhall, 115 Mass. 244 , 251; Suter v. Matthews, 115 Mass. 253 . The same reason is given in the Federal courts. Hopp v. Babin, 19 How. 271 ; Insurance Company v. Bailey, 13 Wall. 616 ; Grand Chute v. Winegar, 15 Id. 373; Girard Ins. Co. v. Guerard, 3 Woods, 427 . In several of these cases where the bill was dismissed there was either a suit at law actually pending or the matter stated in the bill might have been pleaded as a defense in a former suit (Ins. Co. v. Baily, 13 Wall. 616 ), and it is suggested in Mutual Life Ins. Co. v. Beals, 50 How. Pr. 236 ,

in case of fraud is undoubted, the cases differ where there is an innocent misrepresentation. In the recent case of Huffner v. Ridley 16 Rep. 282, it was held that where the contract for a sale of land is executed, equity will entertain a suit for rescission, even if there is only an innocent and mutual misapprehension as to the quantity conveyed, where the deficiency is so large as to amount to a failure of consideration; and in Baptiste v. Peters, 51 Ala. 158 , a suit was entertained where the title proved to be defective, though no fraud was proved. See Cullum v. Bank, 4 Ala. 35 , and cases cited. On the other hand, in Smith v. Hughes, 12 Centr. L. J. 17, it was held that where there was a warranty of title, possession had been given, and the title proved to be defective, equity would not interfere in the absence of fraud, but would leave the parties to their legal remedies. And in Bruner v. Meigs, 64 N. Y. 506 , where the purchase was made at an auction, and it was proved, after part of the purchase money had been paid, that no good title could be given, it was held that no action in equity to rescind the sale would lie, as there was a good defense at law, but that an action at law could be brought to recover the money paid on the ground of failure of consideration.

In the majority of the cases where equity interferes, the reason is either to prevent a multiplicity of suits (McHenry v. Hazard, 45 N. Y. 580 ), or because the contract, which it is asked to rescind, might be made use of to harass the party who asks the cancellation. As a general rule, a suit will not be sustained to cancel an executory, non-negotiable instrument, like a policy of life insurance, where there are no special circumstances which would prevent the defense from being available; it is not sufficient that a defense exists, and that the evidence might be lost. Globe Ins. Co. v. Neals, 79 N. Y. 202 , Allerton v. Belden, 49 N. Y. 373 .

Some decisions in this State, however, recognize that the contract of life insurance is a peculiar one, and that, when doubts as to the rights of the parties under it exist, it is often desirable to bring an action in equity to have it decided what those rights are in advance of any action at law. Cohen v. New York Life Ins. Co., 50 N. Y. 610 ; Mausbach v. Metropolitan Life Ins. Co., 53 How. Pr. 496 . It is true that in those cases the action was brought by the insured to have the policy declared valid, but the reasoning seems to be applicable when action is brought by the insurer to have the policy canceled.

But when the instrument is perpetual in its nature, and the keeping of it in force, is a fraud against the party complaining, the case is one for equity, though there may bo an action at law for damages. It was held in Jones v. Bolles, 9 Wall. 364 , that a stockholder of a

corporation who had been induced to buy his stock by representations that the property was unincumbered was entitled to an injunction restraining the person who had made such representations from enforcing a certain contract in his favor, which constituted an incumbrance on the property of the corporation.

So in Fuller v. Percival, 126 Mass. 381 , it was decided that where a member of a firm had fraudulently made a promissory note in the name of the firm and delivered it to a third person, who had knowledge of the fraud, a bill in equity brought by another member of the firm, after dissolution of the firm, to have the note canceled, would lie, though no suit was brought upon the note, and though it was overdue. As the-court founds its decision on Commercial Ins. Co. v. McLoon, 14 Allen, 351 , where a suit to cancel a policy of life insurance was entertained under substantially the same circumstances under which it was dismissed in this State, in Globe Ins. Co. v. Reals, 79 N. Y. 202 , the decision above quoted would probably not be followed in New York.

The remedy in all such cases depends on the circumstances. The court can order the instrument to be canceled, or if the contract has not been executed, enjoin the party guilty of the fraud from enforcing it. Dale v. Roosevelt, 5 Johns. Ch. 173 , 181.

It is not a sufficient reason to justify the interference of a court of equity that the contract which is sought to be set aside might be transferred to parties who are qualified to bring suits in the federal courts, where such instruments may be adjudged valid, contrary to-the decisions in this State. Town of Venice v. Woodruff, 62 N. Y. 462 . Nor will a promissory note be canceled where no fraud is alleged, for the mere purpose of preventing an anticipated erroneous judgment by a court of concurrent jurisdiction, in which the plaintiff’s action at law is pending. Quebec Bank v. Weyand, 30 Ohio St. 126 .

While the mere fact that there are numerous' holders of instruments similar to that asked to be cancelled, does not warrant the interference of a court of equity, yet when the instrument creates also a. prima facie liability and requires an affirmative defense, the combination of all those circumstances makes out a case for "the interference of a court of equity. Town of Springport v. Savings Bank, 75 N. Y. 897 , 402; Metzger v. Attica R. R. Co., 79 N. Y. 171 . So' it was lield that an action -would lie to set aside'a lease executed by one of the city departments^ which was claimed to be invalid ón account of certain informalities. The presumption of law as to the regularity of all acts of public officers was held to afford a sufficient reason for the maintaining of an equitable action. Mayor v. Staten Isl. Ferry Co., 9 Hun, 620 ; see Mayor v. Union Ferry, 55 How. Pr. 138 .

Mistake and accident are grounds for a rescission of a contract in equity. Some New York cases hold, that in order to invoke the aid of a court of equity to rescind a contract, it is enough, even if no fraud has been practiced by the other party, that the plaintiff alone has acted under a mistake which prevented the uniting of the minds, and that mutuality of mistake is only necessary where reformation of the contract is asked. Smith v. Mackin, 4 Lans. 41 ; Mills v. Lewis, 55 Barb. 179 . But the later cases hold that “a court of equity relieves parties from a mutual mistake of fact, but not when ignorance or mistake is confined to one party, and no unconscientious advantage is taken by fraud or concealment by the other.” Matter of Potter, 10 Daly, 139 ; Moran v. McLarty, 75 N. Y. 25 . Relief will also be granted when the mistake is one of law, but has been induced by inequitable conduct of the other party, even if not fraudulent or intentionally misleading. Burrows v. Peck, 19 W. D. 15, cf. Snell v. Ins. Co., 98 U. S. 85 ; Taylor v. Holmes, 14 Fed. Rep. 498 .

While, in the absence of fraud, a contract for a specific object cannot be rescinded in the case of a mutual mistake as to quality, but the rule of caveat emptor applies, an exception is recognized in England by courts of law, in case the difference between what the object was thought to be and what it really was, is so great as to make it substantially a different object. Kennedy v. Panama Mail Co., L. R. 2 Q. B. 580, 587.

The reasoning in that case seems to warrant the application of the same rule where the mistake is only on one side. The case of Smith v. Hughes, L. R. 6 Q. B. 597, quoted in Bulloch on Contracts, 423, to sustain a different view docs not decide this point, as the mistake there did not go to the substance of the thing sold.

An action of an equitable nature to rescind the contract without indicating any claim to damages, cannot, by amendment on the trial, be changed into an action for damages. Sinclair v. Neill, 1 Hun, 80 .

The New York cases on the question whether a party defrauded is in all cases debarred from maintaining a suit in equity for the rescission of the contract, if he is unable to restore the consideration received, are somewhat contradictory. In Sinclair v. Neill, 1 Hun, 82 , it is held, that the ability to restore the consideration received is a condition precedent to the bringing of an action, based on or asking for rescission, both in law and in equity. See also Van Lieuw v. Johnson, 6 T. & C. 648. But it is doubtful whether these cases state the law correctly. This is well settled, that there is a distinction between suits at law and in equity, in so far that while in the former an actual tender of the property is necessary as a condition precedent for the bringing of an action based on the rescission, no such tender is necessary

in an equitable suit for cancellation. Dusenbury v. Lehmnier, 46 How. Pr. 417 ; Gould v. Cayuga Bank, 86 N. Y. 75 , 83. It is certainly enough in an equity action to make the offer to restore in the complaint. (See cases quoted.) The reason of this distinction is stated in the latter case to be, that in an action at law the return of all the property obtained under the contract is a part of the act of rescission. In equity, “ however, the action does notproceed as upon arescission, but proceeds for a rescission.” The only reason it seems, therefore, why a return of the property can be required in an equitable suit is, in virtue of the maxim, that he who seeks equity must do equity. But that maxim is satisfied when the property actually in possession of the plaintiff is returned, and does not call in all cases for a restoration of all that has been received. If this were not so it would be difficult to see on what ground the distinction pointed out in Gould v. Cayuga Bank, 86 N. Y. 75 , between suits at law and suits in equity could be maintained at all. The language of the court of appeals in Getty v. Devlin, 54 N. Y. 403 , 415, seems to favor this view. In that case the action was brought to have an agreement by which plaintiffs bound themselves to contribute a certain sum for the payment of some real estate which belonged to defendants, declared void on the ground of fraud and for an accounting of the money received under it. The property bought under the agreement had been transferred to a corporation, and a certain number of shares given to plaintiff, which he offered to surrender in his complaint. After the discovery of the fraud, and before beginning the action, the plaintiff had caused the property to be sold,- in satisfaction of some claims against the corporation.

The court held that the tender of .the shares did not place the defendants in the position they were in before the real estate was conveyed, because -what they parted with was the real estate, and it held also that the plaintiffs, by their own acts, had made it impossible to restore this property to the defendants. The court then says: “It is a rule, quite uniform, that a party who seeks to recover money which he has been induced to pay for property by fraud, must restore the property before he can rescind the contract and recover the money paid. It matters not, as far as I can discern, that it is difficult or even impossible for him to do so, as long as he is not prevented by the act of the wrongdoer. Before he can adopt this form of remedy he must do it, and the action in such case may he at law.” .... “In this case, if the tender of the release of the stock was sufficient, no resort to equity was necessary or proper.”

But the court., though holding that the action could not be maintained on the theory that the plaintiffs had restored to the defend

ants all they parted with, gave relief in a mode which practically amounted to a rescission of the contract, by ordering defendants to account for all the money they had received for the property, beyond the original cost price. The fact, therefore, that the plaintiffs had, by their own act, made it impossible to tender back what they had received, was not held to debar them from equitable relief; nor did the fact that they could have sued the defendants to recover damages for the fraud prevent equity from taking cognizance of the case. (See p. 451.) The reason for granting equitable relief was found exclusively in the fact that the strict rule of the common-law, as to restoration of the property received, made an action at law impossible.

A question closely connected with this subject is whether a bill in which an offer to do equity is not made is open to a demurrer. In Gould v. Cayuga Bank, 86 N. Y. 83 , it was held that in an equitable action such an offer was sufficient, but the question whether an omission made the bill demurrable was not before the court. In the case of Hay v. Hay, 13 Hun, 353 , the question was answered in the negative. The court held that, while the condition to return the property received will be imposed whether there be an offer in the complaint or not, it must be considered as merely a condition for granting relief, not of instituting the suit, this seems to be in harmony with the general rule of equity pleading, see Town of Venice v. Woodruff, 62 N. Y. 462 , 471 ; Quin v. Brittain, 1 Hoff'm. Ch. 353; Whelan v. Reilly, 61 Mo. 569 ; 2 Story Eq. 693, 694.

The differences, as to the necessity of tender, between suits at law and in equity and also the rule of pleading thus laid down by New York cases are sustained by authority both in England and in America. So it was held in the English courts that an action of assumpsit would not lie to recover money paid for shares in a company organized on the cost book plan, if between the sale and the discovery of the fraud, the company has been reorganized and it was therefore impossible to place the parties in statu quo (Clarke v. Dickson, E. B. & E. 148 ; Western Bank v. Addie, L. R. 1 Se. & D. 145). On" the other hand, in a suit in equity brought in behalf of an insurance company to rescind a policy of life insurance, where no tender had been made of the premiums received and no express offer to restore them was made in the complaint, Lord LangdaIjE expressed a doubt whether it was necessary that a bill should contain any offer to do equity, but even if it were necessary he held that the mere form in which the prayer for relief was made “ that the plaintiffs maybe relieved in such manner as the court may think fit,” was a sufficient offer to do equity. Barker v. Walters, 8 Beav. 92, 96.

In Garner v. Leverett, 32 Alab. 410, the court says: “In a court of law a restoration of the property or an offer to restore it would ■be necessary before the contract could be treated as annulled. But a court of chancery, unlike a court of law, may .require as a condition precedent to the rescission an abandonment of the lánd and the payment for the use and occupation by the purchaser, and therefore, does not adopt the same principle which prevails at law,” citing Coffin v. Newson, 2 Kelly, 640. See also Martin v. Martin, 35 Ala. 560 , 569; Keefer v. Rogers, 19 Minn. 32 ; Whelan v. Reilly, 61 Mo. 565 .

In Indiana the distinction pointed out is recognized (Harper v. Terry, 70 Ind. 264 ; Gatling v. Newell, 9 Ind. 572 ); although it was held that even in a suit in equity a demurrer, may be sustained, unless an offer to restore the property is made or a sufficient excuse is shown for not making the offer. McCormick v. Malin, 5 Blackf. 533 . The reasoning in that case clearly shows that the restoration is not considered as an element of the cause of action, but that the omission of the offer under the circumstances made the bill indefinite and embarrassed the court, as to the mode of administering it. No demurrer having been interposed the court granted relief but did not allow plaintiff any costs as a penalty for the “inexcusable frame of the bill.”

It may well be doubted whether under the system of pleading of the New York Code, the principle laid down in this decision would have authorized the interposing of a demurrer and whether the remedy would not have been a motion to make the complaint more definite and certain.

The above quoted case is approved in Wiscorsin (Dunn v. Amos, 14 Wisc. 106 ; Hollenback v. Shoyer, 16 Wisc. 499), while in that State in actions at law the strict obligation to tender back all that has been received is recognized (Weed v. Paige, 7 Wisc. 503.)

■ In 'Illinois the restoration of the consideration is required both for* actions at law and suits in equity. Wolf v. Dietzch, 75 Ill. 205 ; Smith v. Brilttenham, 98 Ill. 197 .

The rule requiring restoration applies only to actions based on rescission and not where the action is brought for damages for the fraud, Horton v. Dorr, 19 W. D. 224. But, before an offer is made to return the property no damages can be recovered for the expense of keeping it, West v. Anderson, 9 Conn. 107 ; Caswell v. Coare, 1 Taunt. 566. In Harris v. Ins. Co., 64 N. Y. 196 , it was doubted whether the rule applied where fraud was pleaded as a defense.

The rule, is moreover, subject to several exceptions.

Where the action is brought by an infant, there is no obligation to restore the property received by him, in so far as he has consumed

it or parted with it during infancy, Green v. Green, 69 N. Y. 553 . The same rule applies to a person not compos mentis. Price v. Furman, 27 Vt. 268 . In so far as Bartlett v. Cowles, 15 Gray, 445 , holds a different doctrine, it is expressly overruled in Bartlett v. Drake, 100 Mass. 174 , 176.

But in order to absolve the infant from the duty to restore, it must appear affirmatively that he has squandered or lost his property. In the absence of such proof it was recently held that a request to charge the jury, that a mortgage made by an infant could not be avoided without the restoration of, or at least, an offer to restore, should have been granted. Haugen v. Hachmeister, 16 Week, Dig. 552.

Where the conveyance is absolutely void, as in the case of a married woman under the common law disabilities, it can be dis-affirmed at law without an offer to restore the consideration money. Bartlett v. Cowles, 15 Gray, 445 . But equity in such a case will interfere at the instance of a bona fide purchaser and decree the payment of the purchase money, making it a first lien on the land. Pilcher v. Smith, 2 Head, (Tenn.) 208.

So where a statute declares the assignment of a married woman’s life insurance policy void, she can sue at law, in opposition to her assignment, without restoring the consideration received. Eadie v. Slimmons, 26 N. Y. 9 ; Wilson v. Lawrence, 13 Hun, 238 ; but if she brings an action in equity to set the assignment aside, no relief will be granted unless the money is returned. Wilson v. Lawrence, 8 Hun, 593 .

A return as a condition for bringing the action is not necessary where the property received is of no value. So it was held that where suit was brought, upon a consideration for which, the defendant’s promissory notes have been subsequently taken, an offer to restore on the trial was sufficient, as by the bringing of the action the notes became valueless. Armstrong v. Tuffts, 6 Barb. 432 ; Thurston v. Blanchard, 22 Pick. 18 . And see Parks v. Evansville R. R. Co., 23 Ind. 571 . So where the consideration received for a note was an interest in an insolvent partnership, it was held that fraud could be set up as a defense without any tender to restore. Smith v. Smith, 30 Vt. 139 . But see Ahrens v. Adler, 33 Cal. 616 .

Where the fraud itself is the cause that no tender was made, a tender at the trial is sufficient. So where at the trial of an action for a personal injury, the defendant put in evidence the plaintiff’s receipt of a sum of money in full satisfaction, and the plaintiff testified that the receipt was obtained by fraud, that she did not know its contents till it was read, and that she thought the money was given her in

another account, an offer to return, during defendant’s argument to the jury, was held sufficient. Smith v. Holyoke, 112 Mass. 517 .

If the right to what was received does not depend necessarily on the disaffirmed transaction, return may be dispensed with, as where a mortgage debtor pays his creditor partly in cash and partly in a worthless security, fraudulently representing it to be good, the creditor is not bound to return the cash as a condition to reinstating the lien of the mortgage to the extent of the amount of the security thus transferred and interest. Hollenbeck v. Thayer, 16 Wisc. 499. Nor • is it necessary to restore property not mentioned in the contract, although received under it. Harper v. Sherman, 14 W. D. 12. Rut where money had been paid on a compromise and not because it was conceded to be due, and a release was executed, it was held that no action at law could be brought disaffirming the release, without an offer to restore the money received under it. McMichael v. Kilmer, 76 N. Y. 36 , 46. -There is no necessity in order to establish a rescission to prove a return or offer to return, as against a third party, claiming under a fraudulent vendee. Clough v. L. & N.Y. R. Rd. Co., L. R. 7 Ex. 26; Kinney v. Kiernan, 49 N. Y. 164 ; Pearse v. Pettis. 47 Barb. 276 .

The latter case also holds that where the fraudulent party has paid a small amount of his own means as one of the instruments to effect his purpose and by such means has secured to himself a large amount, the defrauded party is not bound to restore what he has received as a condition precedent to his right to disaffirm. This seems to be an application of the equitable doctrine to actions at law. See Watts v. White, 13 Cal. 323 ; Allerton v. Allerton, 50 N. Y. 670 ; North Pac. R. R. v. Kindred, 14 Fed. Rep. 77 , also Smith v. Felton, 43 N. Y. 419 .

The reasonable doctrine stated in Pearse v. Pettis, on the authority of a dictum in Ladd v. Moore, 3 Sandf. 589 , that ¿a party defrauded may, in an action at law, always make his offer to restore conditional, on his being restored to his original condition, is -subjected to some doubt in view of the later cases quoted which lay down the rule quite generally that an absolute tender is necessary to succeed in this form of action. The case of Ladd v. Moore is also disapproved in Weed v. Page, 7 Wise. 512, in so far as it holds that it is sufficient to show that an effort has been made to make a tender, but that the defendant could not be found. It is a different question whether where an unconditional tender has been made and refused, the plaintiff is bound to keep it good. The question was answered in the negative in Mich. Cent. Rd. v. Dunham, 30 Mich. 128 .

If impossibility to restore what has been received results from the act itself of the fraudulent party, it is enough even in an action at law if the party defrauded does whatever is in his power, to undo

what has been done. Masson v. Bovet, 1 Den. 69 ; Hammond v. Pennock, 01 N. Y. 146 , 152. Where damaged goods had been mixed with other goods, though a stipulation had been made that no damaged goods should be included, it was held that the plaintiff could recover the price paid for the damaged goods, without tendering the other goods. Vernol v. Keeler, 47 N. Y. 674 .

Another class of cases where the necessity of tendering the consideration received is dispensed with is where a title is acquired by actual fraud, at an execution or sheriff’s sale. McCaskey v. Graff, 23 Penn. St. 321 ; citing Sands v. Codwise, 4 Johns. 597 . In that case the money was paid to the sheriff and reduced liens on the estate, and the action in ejectment was brought against the purchaser by the debtor’s assignee for creditors. The same rule was applied to a purchaser by actual fraud from an administrator, when the administrator de bonis non sues to recover the property. (Forniquet v. Forstall, 34 Miss. 87 ), and to a creditor’s bill to set aside a fraudulent mortgage for an exaggerated amount. Wheeler v. Hawes, 10 Conn. 50 . In a recent New York case, it, was held that section 1440 of the Code of Civil Procedure,—which provides that if the title of one claiming under a sheriff’s deed is adjudged void in an action brought by the judgment debtor, the judgment shall have no force unless the purchase money be returned within a specified time,—is not applicable to the case of a fraudulent purchaser. McIntyre v. Sanford, 89 N. Y. 634 .

In a case where restoration of the property received is necessary, a mere redelivery of the deed received is not effectual (Nichols v. Halsey, 1 Johns. Ch. 417 , 422), but a tender of it may, under the circumstances, show an offer to reconvey and a refusal. Mitchell v. Moore, 24 Iowa, 394 . A grant or quit-claim deed (where such a deed is effectual as a grant) with covenants against encumbrances and warranty against all lawful claims, is a sufficient reconveyance and it is no objection that the consideration expressed is less than the value. Kiefer v. Rogers, 19 Minn. 32 , 38.

Where it is sought to have a contract rescinded on the ground of fraud, the facts constituting the alleged fraud must be clearly stated so that it may appear to the court whether the transaction was fraudulent or not and how and by what practices the plaintiff was imposed upon. Bell v. Lawrence, 51 Ala. 160 ; Bailey v. Litten, 52 Al. 282; Kilgo v. Castlebery, 38 Ga. 512 . An allegation that a deed was fraudulent is a mere conclusion of law and not sufficient. Bryan v. Spruill, 4 Jones (N. C. Eq.) 27. But it is sufficient to allege the facts and it is not necessary to allege the fraud in so many words. Grove v. Rentch, 26 Md. 367 , 377. So it was held in Whelan v. Whelan, 3 Cow. 537 , 571, that,

although in the complaint there is no -specific allegation of “undue influence,” the relief prayed for will be granted if it appears from the facts that the respondent necessarily exercised undue influence.

In Byard v. Holmes, 5 Vr. (N. J. L.) 296, the court went so far as to hold that if a representation is alleged to be false, the allegation must show in what respect it is false, otherwise it would be uncertain whether a denial would not merely be of time and circumstance.

But where by reason of concealment, practiced by the defendants, the plaintiff cannot make an allegation sufficiently specific to sustain a decree, a general■ allegation coupled with an allegation of concealment, -is sufficient on demurrer and the defect may be cured by amendment after the facts have been discovered. Northern Pac. R. R. v. Kindred, 14 Fed. Rep. 77 .

The mere fact that the defendant has been guilty of fraud is not sufficient to entitle the plaintiff to a decree for rescission; the bill must contain allegations that plaintiff has been injured by the fraud. Crittenden v. Craig, 3 Bibb {Ky.) 474; Cole v. Miller, 60 Ind. 463 ; Byard v. Holmes, 5 Vroom (N. J.) 296 . In Martin v. Martin, 35 Al. 560, an allegation of great inadequacy of price was hesitatingly held good as an allegation of injury. This rule does not, of Course, apply where a rescission is sought on the ground of constructive fraud arising out of the relations of the parties ; in such a case damage is presumed by law.

Where it is sought to set aside a decree for fraud, the decree itself and the proceedings which led to it with the circumstance of the fraud must be stated so as to enable the defendant to traverse them. If plaintiff pleads as if there were no decree, and defendant sets it up by answer,' and plaintiff only interposes a denial, evidence of the fraud is not admissible. Davis v. Landcraft, 10 W. Virg. 718, 739, 743. See Naltion v. Cameron, 11 N. W. Rep. 525 .

But it is not necessary to state the history of the title, prior to the conveyance by the fraudulent'deed. Wilson v. Miller, 16 Iowa, 11 .

The same rule as to allegation exists where the relief is sought on the ground of mistake or accident. The mistake must be alleged with precision, and be established by clear proof. Stover v. Poole, 67 Me. 217 ; Jenkins v. Netherland, 3 Ky. Law Rep. 538 .

It must be shown that but for the mistake the complainant would not have assumed the obligation from which he asks to be relieved. Grymes v. Sanders, 93 U. S. 61 . See Caton v. Willis, 5 Ired. (Eq.) 335.

Where fraud is set out in the complaint and relief is asked-on that ground, the complaint cannot in this State in the absence of-proof of fraud, be sustained on the ground of mutual mistake. Elwood v.

Gardner, 45 N. Y. 349 ; Barnes v. Quigley, 59 N. Y. 265 ; McMichael v. Kilmer, 76 N. Y. 36 .

The same rule is recognized in other States. Hoyt v. Hoyt, 27 N. J. Eq. 399 ; affirmed 28 N. J. Eq. 485 ; Pasman v. Montague, 30 N. J. Eq. 385 . Nor, it seems, can a bill charging actual fraud be sustained on constructive fraud being proved. Wilde v. Gibson, 1II. L. Cases, 605. Under this rule it was doubted whether where a suit was brought to have a promissory note canceled and an action upon it restrained on the ground that defendant knew that the person from whom he received it had stolen it, could be sustained on proof merely that the defendant knew that the bill was an accommodation note. Parr v. Jewett, 1 K. & J. 671. See Brown v. Bulkely, 14 N. J. Eq. 451 , 459. But where several charges of fraud are made, and some of them are disproved, the bill will not be dismissed, if the charges proved are sufficient to show that the court has jurisdiction. Hilliard v. Effe, 7 L. R. H. L. Cases, 39, nor, it seems, where fraud and another distinct ground of relief arealleged, and the charge of fraud fails. Parr v. Jewett, 1 K. & J. 671. See Pearsoll v. Chapin, 44 Penn. St. 917 .

It has been held that one who seeks to have an instrument set aside as invalid, cannot in the same action ask relief on the theory of any right which he can claim only if the instrument is valid; such causes of action are inconsistent. Wilkinson v. Dobbie, 12 Blatchf. 298 . The rule that a bill may be framed with a double aspect, or in the alternative applies only when either of the aspects or alternatives entitles plaintiff to the same relief, but where the allegations are inconsistent and repugnant, there must be at least some allegation of ignorance of the facts showing a necessity for discovery in order to ascertain the proper aspect or alternative. Wilkinson v. Dobbie, 12 Blatchf. 298 , 302; Micou v. Ashurst, 55 Alab. 607, 612.

But in Goodenow v. Curtis, 33 Mich. 505 , it was held that where a bill is filed to cancel a mortgage past due, and the court finds the mortgage to be valid, a decree for redemption will be made, even if no such relief is asked for in the complaint, on the principle that a plaintiff coming into a court of equity must come prepared to do equity.

Where a bill asked that a certain mortgage might be declared void, or that it might be foreclosed, and there was also an averment that the mortgage was satisfied, it was held that this averment prevented the relief being granted, as it was inconsistent with a prayer for foreclosure. Walthall v. Rives, 34 Ala. 91 .

But where the different kinds of relief asked are not inconsistent with the theory on which the complaint is based, they may be joined

in the same action. So,it was held, that a complaint, seeking to set aside a deed under which the defendant claims possession, may include a claim to recover the possession of the premises. \ Lattin v. McCarty, 41 N. Y. 107 ; Bockes v. Lansing, 74 N. Y. 437 ; or a claim of rents collected by the grantee, they having been secured through the deed of conveyance. Coleman v. Phelps, 57 How. Pr. 393 ; see also Elliott v. Lamon, 1 McArthur, 647; Miller v. Jamison, 24 N. J. Eq. 41 .

If a party who has the right to rescind a contract continues to treat the property as his own, after discovery of the fraud, he will be considered to have elected to ratify it, and no action' to disaffirm it will lie either at law or in equity. Schiffer v. Dietz, 83 N. Y. 300 , 308; Grymes v. Sanders, 93 U. S. 55 , 62.

But performance by thq plaintiff of what was required by the contract is not necessarily a waiver, unless intended as such. Montgomery v. Pickering, 116 Mass. 227 .

Mere lapse of time before bringing the action, however, without any affirmative acts, will not generally be construed as amounting to a ratification. So where an exchange of policies was sought to be set aside, and the second policy was so obscure that it could only be understood by experts, a lapse of five years was not considered as sufficient evidence of ratification. Knauer v. Globe Mutual Life Ins. Co., 48 Sup. Ct. (J. & S.) 454. Nor does it lie in the mouth of those who have withheld necessary information to say that the fraudulent act has been ratified. New Sombr. Phosph. Co. v. Erlanger, L. R. 3 App. Cases, 1248.

The influence of lapse of time in granting equitable relief was thus stated in England : “Where it would be practically unjust to give a remedy, either because a party has by his conduct done what might be fairly regarded as equivalent to a waiver of it, or where by his conduct or neglect he has, though not perhaps waiving the remedy, yet put the. other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted in either of those cases, lapse of time and delay are most material.” Lindsay Petroleum Co. v. Hurd, L. R. 5 P. C. 240.

The provision in the Rev, St. (now embodied in § 383 of the Code-of Civil Procedure) limiting the time for bringing a suit for relief on the ground of fraud to six years after the discovery of the. fraud, does not take away the right of equity to refuse relief in a proper case even if the action is brought within that time ; the granting of relief is discretionary. See Hay v. Star Ins. Co., 77 N. Y. 235 . The dictum of Russell, J., to the contrary in Knauer v. Globe Ins. Co., 48 N. Y. Super. Ct. (J. &. S.) 454, is not supported by the case he

quotes (Matter of Manhattan Savings Bank, 82 N. Y. 142 ), as that was a special proceeding, and the decision was put expressly on that ground. See also Harper v. Terry, 70 Ind. 264 , 270, where it is held that if the property is returned with due diligence after discovery of the fraud, the plaintiff can always wait the full statutory time before bringing the action.

But in the absence of acts showing ratification, equity in this State will not deny the relief on the ground of laches, if the party against whom the action is brought is not injured by the delay. Platt v. Platt, 58 N. Y. 646 ; McMurray v. McMurray, 66 N. Y. 175 .

The rule in equity pleading was that a party who seeks to have a contract or conveyance set aside on the ground of fraud, after a long period, must set out specifically the facts showing that the fraud could not, by due diligence, have been ascertained by him. Buckner v. Calcote, 28 Miss. 432 , 434; Cole v. McGlathry, 9 Me. 131 ; Underhill v. Nelson, 1 Lea (Tenn.) 98. And the same rule was applied in Wood v. Carpenter, 101 U. S. 135 , where a statute gave a period of six years to begin an action after the fraud was' discovered" but only if the fraud had been concealed by the defendant.

In New York a different rule prevails, and it is not necessary, •where fraud is charged, to aver in the complaint that the discovery was not made till within six years of bringing the suit. The statute must be set up in the answer, and this throws the burden of proof on the plaintiff to show that the discovery was not made till within six years of bringing the action. Baldwin v. Martin, 14 Abb. Pr. N. S. 9. See Ericsohn v. Quinn, 3 Lans. 304 . It would seem, under the words of the statute, that it is enough if the plaintiff proves the time of the discovery, and that it is not a part of his case to show that the discovery could not have been made sooner. It is for the defendant to show that the right which, prima facie, the statute confers on the plaintiff has been lost by his laches. This is the rule in England. Lindsay Petroleum Co. v. Hurd, L. R. 5 P. C. 221.

All persons whose rights or relations would be affected by the cancellation or rescission must be made parties to the suit. Pomeroy on Remedies, § 379, and cases quoted. So where an action was brought by a stockholder to set aside a lease made by a railroad corporation to another railroad, it was held that both corporations were necessary parties. Dinsmore v. Atlantic & Pacific R. R. Co., 46 How. Pr. 193 .

In an,action to set aside a judgment obtained through fraud, the person who is alleged to have profited through such fraud, is a necessary party. Wiedersun v. Nauman, 10 Abb. N. C. 149 . See Alexander v. Katte, Id. 449. But where a sale is sought to be set aside on the ground that defendant induced plaintiff, who was his partner, by fraudulent representations to make the sale, at an inadequate price, to defendant and three others, it was held, in the absence of charges of fraud against the three others, that they were not necessary parties. Palmer v. Stevens, 100 Mass. 461 . In that case it apj>eared, .on the face of .the complaint, that an effectual decree could be made without joining these parties to the transaction sought to be impeached, and it was held that the correct modern practice was not to make them parties -to the bill.