p. 196tian, and is to enforce a right of the corporation, and not a private right of the plaintiff. He is personally interested only to the extent that he, as a shareholder, would participate in the benefit of a recovery. The whole theory of stockholders’ actions in cases like the' one at bar may be stated in a very few words extracted from the opinion of the court in Brinckerhoff v. Bostwick, 88 N. Y., 52 , which was an action by a stockholder, brought against directors of a bank for negligent and improper conduct in their official relations, whereby the bank suffered damage. A request had been made that the receiver of the bank sue the directors, and he declined. The court said (page 56): *' The causes of action set forth in the complaint are losses and misapplication of the funds of the bank through the negligence and misconduct of its directors. For these losses the bank, if still exercising its corporate functions, would have a claim upon the guilty directors which it could enforce by action, but if it refused to prosecute, or if it still remained under the control of the very directors against whom the action should be brought, the stockholders would have a standing in a court of equity to sue in their own names, making the corporation a party defendant. Robinson v. Smith, 3 Paige, 222, 223; Greaves v. Gouge, 69 N. Y., 154 ; Ang. & A. Corp. § 310. See review of cases in Heath v. Railway Co., 8 Blatchf., 347 .’ The foregoing citation expresses in brief terms the rule as to the right of the stockholders to maintain an action for a wrong perpetrated by directors to the detriment of the company when the officers of the corporation refuse to institute the suit; or where the-directors in control of the corporation are the very persons against whom the action is to be brought. The general idea deducible from the rule, is that the stockholder, suing as a substituted plaintiff for the corporation, is merely asserting the corporate rights, and not his own. The cause of action belongs to it, and not to him.“It is claimed, however, by the defendants, that the plaintiff cannot maintain this action because of certain alleged false statements and representations made by him as the promoter and organizer of the American Company. The matters referred to grow out of the plaintiff’s declarations as to his patents for making asphalt pavements, and are connected with the history of the organization of the American Company, the transfer to it of the assets of the Trinidad Company (so-called), and involve an inquiry into the circumstances under which the American Company was organized, and under which Barber, McLain and Langdon were induced to or did become associated with the enterprise of the American Company. It is at this point of the case that I feel embarrassed by a mass of evidence taken at the former trial. Some of that evidence was received by the learned judge before whom the plaintiff’s proof was put in (so-far as I am able to gather) on the question of the right of the
p. 197plaintiff to maintain the action at all upon equitable grounds relating to his good faith; and, looking at an opinion written by that learned judge, I should infer from the conclusion at which he arrived, that he deemed it wise to admit the evidence, rather than reject it, and imperil a possible recovery by the plaintiff on the whole merits. When the case came to me, finding such evidence already in, I allowed the defendant to add to it, and so the question is in the case as to the effect to be given to the alleged statements of the plaintiff (conceding they are established), made at or before the organization of the American Company, concerning his own patents and his control of the De Smedt patents, and as to other representations referred to in the proof on the‘record, to which special reference is not now necessary.“The action against the three individual defendants is to hold them to a responsibility incurred in their capacity as directors of the American Company, to compel them to account for property which, it is claimed, they should have acquired for the benefit of that company, but which, it is alleged, they obtained for their own individual benefit, and have held and used for their own behalf; and it is claimed that they are to be charged, as trustees for the company, with the value of that property, and with such profits as they may have realized from the use and control thereof. Alleged frauds of the plaintiff are urged as an affirmative defense going to the direct right to maintain the suit. It is not claimed that he is estopped to sue as a stockholder by reason of any complicity or connivance in the acts of the individual defendants, nor that he has been guilty of loches. If such a claim were made, there is absolutely no foundation for it in the evidence. Such matters, if proved, would have been available to defeat the action, but there is no such proof concerning them as would authorize a finding of fact against the plaintiff. The substantive defense is, that the plaintiff, although suing upon a cause of action belonging to the company, cannot maintain the action, because he, as the promoter of the corporation, did or said certain things which amounted to fraudulent acts or representations, whereby the individual defendants were induced to become shareholders, and have been injured. I think this subject must be considered as a question of law; and, if the conclusion at which I have arrived is correct, it is unnecessary to make any finding of fact concerning what the plaintiffs did or said in connection with the formation of the American Company. If the cause of action belongs to the company, all that the individual defendants could set up by way of defense to it would be such matters as tended to relieve them from responsibility to the corporation. What might have been said or done by persons inducing them to become, shareholders, would not relieve them. This may be illustrated by the case of a subscriber sued by
p. 198the corporation upon his subscription, and who sets up as a defense that the promoters of the company bought property transferred to and for the purposes of the corporation, and from themselves, as vendors, at such exorbitant prices as to amount to a gross fraud. That would not be a defense (Hornaday v. Railroad Co., 9 Ind., 263 ), and the precise illustration given was in the case of Dorris v. French ( 4 Hun, 292 ), in which the promoters, owning patent rights ' of small value, turned them into the corporation at several hundred per cent in advance of their real value, and the defendant sought to escape liability on his subscription on that ground. A gross fraud had been perpetrated, but it was upon the corporation; and so in this case, if there were any wrong in putting in a patent of but small value, or in otherwise causing the capital stock to be issued in payment of comparatively worthless property, it was, as the proof stands, an injury to the corporation, and not to the individual defendants—I mean, so far as this action is concerned only. For such injury as they individually may have sustained, the defendants have their appropriate remedies. As nothing that the plaintiff is alleged to have done as a promoter in organizing the company would be a defense to an action by the company against those who were under contract, or owed a duty to it as a corporation, so it cannot be a defense to a suit brought by a shareholder in behalf of the company; and for the simple reason that the . court will not try, in an action framed as this is, the particular grievances the defendants may have against the plaintiff individually, standing in court, as he does, merely to enforce corporate claims. Their wrong to the corporation cannot be excused and remain without redress, because the plaintiff, at some time, himself may have been guilty of an entirely independent wrong against the corporation or against them. If he really committed frauds upon the corporation or upon the individual defendants, he is responsible, but that cannot be urged as a reason for the corporation not recovering in this action. A plaintiff must enter a court of equity with clean hands—that means concerning the subject matter of the suit. If the plaintiff had done anything concerning the particular cause of action set forth in this complaint, he might be held estopped even from bringing the suit on behalf of the corporation, but no such estoppel can be raised' upon the proof, and immunity for the wrong of the defendants (if there be any wrong) cannot be asked, because they choose to charge the plaintiff with having deceived them and others before the corporation was formed. The issue cannot be changed, and the action of the court diverted from the nroper subject of litigation by raising such a contest.
. “2. It remains, then, to be considered if, on the whole evidence, the defendants Barber, McLain and Langdon have, as directors or trustees of the American Company, made
p. 199themselves liable in equity to that company for the two De Smedt patents, and the profits derived from their use. I speak of the reissued patents, or those which are now in contest, and I do not intend to consider the plaintiff’s claim as to the value of his patents, and the comparative value of the two De Smedt patents before the reissue. The three defendants named were directors of the American Company.“It is not necessary to cite authorities to the proposition that, if they were under a duty or obligation of any kind to-get the control of the De Smedt patents for the benefit of the American Company, they could not do so for their individual benefit. The fact is conceded that they did get them, and that they have not transferred them to, nor held them for, nor had them used in any manner to the advantage of, the American Company. This they frankly admit, and in doing so they seek to justify their conduct by circumstances hereinafter to be adverted to. It is claimed by the plaintiff that the defendants Barber, McLain, and Lang-don hold the De Smedt patents in trust for the American Company; that they have so held them since 1881; that they have used them, done work under them, and realize large gains therefrom, which should have gone to the American Company; that by agreement of the three defendants named, or some of them, they were to get the control of those patents for the benefit of the company; or that, the company having been organized to work under those patents as well as under Gen. Averill’s patents, they were bound on securing them to turn them over to the American Company. As before stated, there can be no doubt that these three defendants did get the control of the De Smedt patents by purchasing a controlling interest in the Anthracite Company for a few dollars, and that they so used and manipulated those patents as to secure the benefit of their use to themselves. I am not satisfied that any specific or express agreement was ever made by either of the three defendants to transfer .those patents to the American Company upon obtaining control of them, but these facts are established by uncontradicted testimony. Indeed, all seem to concur in stating it, viz.: that Warren believed the De Smedt patents were the foundation and security of the whole right to carry on the business of asphalt paving, and every one desired and intended that those patents should belong to and form part of the rights of the American Company; and further than that the evidence shows conclusively that both McLain and barber believed those patents did virtually belong to the American Company, for they thought Gen. Averill controlled them, and had put them into that company.There were nine De Smedt patents in all, and it seems Gen. Averill had but seven of them. When it was ascertained that the two important De Smedt patents were not controlled by Averill, the defendants, or some of them,
p. 200•above named, sought to procure them. It is not all important whether they distinctly contracted to do so or not. 'They knew they were required by the American Company; that the company was organized to work under them; and they believed those patents to be necessary to the success of that company. Their duty was plain. They were bound to transfer them or hold them for the American Company, of which they were directors. Had the patents not been those under which the American Company was to operate, a different question might be presented; but there can be no doubt that they were required by the company, and that it was supposed by all, when that company was organized, that those very patents were or would become its property. The defendants, upon acquiring them, should have tendered them to the company, and transferred them, on being repaid what they cost; and in not doing so, but holding them for their own profit, they have become liable to the corporation. I have spoken of the three defendants in association without stating the part each took in the transaction, as it is admitted that after the purchase of the Anthracite stock the interests became vested in those three defendants. The only reason assigned for the course pursued by the defendants in retaining these two De Smedt patents, seems to be that stated by McLain, that they wished to protect themselves against Averill, or against loss from their investment in the American Company. But such considerations cannot prevail. Those two patents should have been put into the American Company with the seven other De Smedt patents, and the personal interests of the defendants can no more justify them in retaining this property than if they had appropriated any other property of the corporation to indemnify themselves against loss from their investment in its stock. I cannot, in this action, appoint a receiver of the American Asphalt Pavement Company, but to make a decree effectual it is necessary that a special receiver should be appointed of the reissued De Smedt patents, and that such patents should be assigned to such special receiver, to hold the same for the benefit of the American Company, and that there also be paid to him such sum as may be awarded as profits against the defendants above referred to, and such receiver act under the orders of the court to be hereafter given.
’’Judgment must be entered in accordance with the findings I have made and handed down with this opinion. Mr. George B. Morris- will be appointed referee, to take and state the accounts of profits, and Mr. Theron G. Strong will be appointed receiver.”Wm. W. Niles, for Amzi L. Barber and others, app’lts; A. L. Worthington, for the Barber Asphalt Paving Co., app’lt; Thomas Muing, for resp’t.
The principal questions involved in this appeal are satisfactorily discussed in the elaborate opinion which was rendered in the court below. The proofs warranted the conclusion that the defendants Barber, McLain and Langdon as directors or trustees of the American Asphalt Pavement Company, were liable in equity to account to that corporation for the profits which they derived from the so-called De Smedt patents which they acquired and sought to appropriate to their own use as individuals. The right of the plaintiff as a stockholder of the American Asphalt Pavement Company to enforce the cause of action growing out of the appropriation of these patents depended upon a refusal of the corporation to assert its rights, or upon circumstances showing that any attempt to get it to do so would be ineffectual. The evidence of a serious and determined effort on the part of the plaintiff to induce the company or its officers to take appropriate action in the premises was not so clear or conclusive as could be wished; but we are inclined to think it was sufficient to sustain the prosecution of the suit in his own name. He addressed a letter to Mr. Cyrus M. Warren, as president of the corporation, on April 2, 1883, requesting that legal proceedings should at once be taken against the defendants Barber and McLain, by reason of their misconduct and neglect of duty. To this communication he received a response from Mr. Warren to the effect that he had resigned the presidency of the company two years before. With the exception of the assertion contained in this answer, however, there is nothing in the case to show that Mr. Warren had actually resigned, or that his resignation had been accepted. Furthermore, it appears from the evidence of the defendant Barber that there never was a meeting of the company of any kind since the meeting in April, 1881, when Mr. Warren was elected president in place of the plaintiff. The testimony of the trustees other than the defendants Barber and McLain indicates that those two gentlemen were most active in its management and practically controlled it; and as this suit is based upon their alleged misconduct, these circumstances put the plaintiff in a position to sue as a stockholder in his own name. Brinckerhoff v. Bostwick, 88 N. Y., 52 , 60.
As we have intimated, it is" preferable in this class of cases for the plaintiff to make clearer proof in the first instance of his ..inability to secure redress by means of corporate action; but in view of the attitude which the American Asphalt "Pavement Company itself has assumed throughout the^litigation, and of the fact, which is sufficiently manifest^ that" its attitude in this suit is friendly instead of hostile to the defendants Barber and McLain, we are unwilling to grant a new trial simply because the court might' properly have required the plaintiff to Drove more
p. 202positively than he did that the corporation would not enforce the rights which he seeks to assert herein.
Upon the present appeal a separate brief has been filed in behalf of the Barber Asphalt Paving Company, one of the defendants. The complaint charges that the defendants, Barber, McLain and Langdon, having acquired the De Smedt patents in controversy, have in their own names individually and in the name of the Barber Asphalt Paving Company, and in the names of other persons unknown, made and fulfilled contracts for the manufacture and laying of pavements in various cities of the United States. This appears to be the only allegation of fact against the Barber Asphalt Paving Company. The findings of the court are to the effect that the Barber Asphalt Paving Company is a foreign corporation, organized under the laws of West Virginia, of which the defendant, Amzi L. Barber, is the president; that the nominal title to the said De Smedt patents is in the defendant, Barber, in trust for the Barber Asphalt Paving Cmpany; and that it does not appear that the Barber Asphalt Paving Company, as a corporation, has done anything contrary to equity and good conscience, or that such company or its board of directors or trustees has ever had any direct connection whatever with the De Smedt patents, or has in any way approved, ratified, adopted or interfered with the transactions of the defendants, Barber and McLain, in regard to said patents. The judgment based upon these findings directs: First, that the defendant, Barber, not only individually, but as trustee for the Barber Asphalt Paving Company, assign all right, title and interest in and to the said De Smedt patents to a special receiver, who shall hold them in trust for the American Asphalt Pavement Company; and furthermore, that the Barber Asphalt Paving Company, as well as the defendants, Barber, McLain and Langdon, account and pay over to such receiver all profits made by them or either of them, directly or indirectly, out of the said De Smedt patents.
We are unable to perceive anything in the proof or findings sufficient to sustain the judgment, so far as it relates to the Barber Asphalt Paving Company. It was proper to decree that the defendants Barber, McLain and Langdon should account for and pay over all profits realized by them out of their purchase of the De Smedt patents, which they assumed to acquire for themselves individually when they ought to have acquired them for the American Asphalt Pavement Company; but if these patents, to which they held the legal title, have been transferred to the Barber Asphalt Paving Company without notice of any equity existing in behalf of the American Asphalt Company, there is no principle of law upon which the Barber Asphalt Company can be made to account for profits which it may have realized from the use of the patents. These views lead to
p. 203the conclusion that the judgment should be reversed so far as it relates to the Barber Asphalt Paving Company.
The notice of appeal attempts to bring up for review a number of intermediate orders granted in the cause at various stages of its progress. Unless separately appealed from, these are only reviewable upon an appeal from a final judgment (Code Civ. Pro., 11316); and the decree of the court below, now under consideration, is an interlocutory and not a final judgment.
The interlocutory judgment should be affirmed as to all the appellants except the Barber Asphalt Paving Company; and so far as that corporation is concerned, should be reversed, with costs.
Van Brunt, Ch. J., and Daniels, J., concur.