is not consistent with good faith, nor with | instrument or act of the parties or of the the duty which the connection of the parties, law or not." as claimants of a common subject, created, that one of them should be able, without the consent of the other, to buy in an outstanding title, and appropriate the whole subject to himself, and thus undermine and oust his companion. It would be repugnant to a sense of refined and accurate justice. It would be immoral, because it would be against the reciprocal obligation to do nothing to the prejudice of each other's equal claim, which the relationship of the parties, as joint devisees, created. Community of interest produces community of duty, and there is no real difference, on the ground of policy and justice, whether one co-tenant buys up an outstanding incumbrance, or an adverse title, to disseise and expel his co-tenant." Judge Story fully approved the doctrine as laid down by Kent, saying: "It stands approved equally by ancient and modern authority, by the positive rule of the Roman law, the general recognition of continental Europe, and the actual jurisprudence of England and America." Flagg v. Mann, 2 Sumn. 524, Fed. Cas. No. 4,847. There are some cases, however, in which the suggestion is made that the rule is applicable to tenants in common only when their interests accrue under the same instrument, or act of the parties, or of the law, or where there is some understanding among them which creates such a trust. The suggestion seems not to be much regarded. In Rothwell v. Dewees, 2 Black, 613, 17 L. Ed. 309, the Supreme Court of the United States applied the principle to the husband of a tenant in common who had bought in an outstanding title or incumbrance, and Mr. Justice Miller there said: "In this connection much stress is laid by counsel upon the language of the court in Van Horne v. Fonda, to the effect that in that case there was an equality of estate between the co-devisees. It does not appear to us, however, that any particular force was given to that fact by the learned judge, but rather that the rule was based on a community of interest in a common title, which created such a relation of trust and confidence between the parties that it would be inequitable to permit one of them to do anything to the prejudice of the other in reference to the property so situated." In Bracken v. Cooper, supra, in speaking of this suggested qualification of the doctrine as applied to tenants in common, the court said: "We do not find sufficient authority or reason to induce us to adopt the qualification of the doctrine, as applied to tenants in common, that their interests should accrue under the same instrument or act of the law. We regard the rule as founded upon the duty which the connection of the parties as claimants of a common subject creates, and not as dependent upon the accidental circumstances whether the relation In Hunter v. Bosworth, 43 Wis. 583, Chief Justice Ryan said: "The rule rests, not upon the strict relation of joint tenants, or tenants in common, but upon community of interests in a common title creating such a relation of trust and confidence between the parties that it would be inequitable to permit one of them to do anything to the prejudice of the others." Mr. Freeman in his work on Co-Tenancy, previously cited, says: "As the rule forbidding acquisition of adverse titles by a co-tenant from being asserted against his companions is always said to be based upon considerations of mutual trust and confidence supposed to be existing between the parties, the question naturally arises whether the rule is applicable where the reasons on which it is based are absent. Joint tenants, tenants by entirety, and copartners always hold under the same title. Their union of interest and of title is so complete that beyond a doubt such a relation of trust and confidence unavoidably results therefrom that neither will be permitted to act in hostility to the interests of the others in relation to the joint estate. Tenants in common, on the other hand, may claim under separate conveyances, and through different grantors. Their only unity is that of right to the possession of the common subject of ownership. An examination of the decisions clearly shows that tenants in common are not necessarily prohibited from asserting an adverse title. If their interests accrue at different times, and under different instruments, and neither has superior means of information respecting the state of the title, then either, unless he employs his co-tenancy to secure an advantage, may acquire and assert a superior outstanding title, especially where the co-tenants are not in joint possession of the premises." It will be noted that the author does not approve the suggested qualification of the doctrine that tenants in common are not subject to it unless they have acquired title under the same instrument, or act of the parties, or of the law. The distinction which he points out between joint tenants and tenants in common respecting the application of this rule appears to be this: That in the case of the former the essential relation of trust and confidence necessarily exists as the result of their union of interest and title; while in the case of the latter such essential relation does not necessarily exist in the legal status of the co-tenants, but it may be, and often is, created and developed out of the co-tenancy. And when such a relation of trust and confidence does exist between tenants in common, in respect to the common property and title, so that it would be inequitable for one to procure and assert for his exclusive benefit an adverse title against his co-tenants, this doctrine is applicable, and should conservative statement of the rule as appli- | tenant in the debt thereby secured. In such cable to tenants in common. But the defendants do not contend here against this doctrine. They admit that they hold some of their purchase in trust for the plaintiffs, but they say it is only the excess of the three-fifths over what is required to fully protect Page's undivided quarter in the common property against the whole adversary claim. Or, in other words, that Page, holding one-fourth or five-twentieths of the common property, and having purchased only three-fifths or twelve-twentieths of the adversary claim, is entitled to retain five-twentieths to cover fully his original interest, and therefore should be required to convey to the plaintiffs but seven-twentieths, instead of nine-twentieths, as they claim. The learned counsel for the defendants in their brief say: "But it is equitable that having protected his one-fourth interest, which would be five-twelfths, then he should be compelled to relinquish and give up all claim to the seven-twelfths interest, because that was not necessary for his own protection. It inured, in other words, for the benefit of the plaintiffs in this case." Admitting, as the defendants do, and as we think, in accord with reason and authority, that the general doctrine forbidding one tenant in common to procure and assert against his co-tenants an outstanding adverse claim applies in this case, and that the defendants hold some part of their purchase in trust for the plaintiffs, we do not perceive on what reasonable grounds the defendants can maintain the position which they here contend for. We have cited the authorities above not merely to show that the rule is firmly established in judicial precedent but to indicate the principles and reasons underlying the doctrine, and their application to cases arising between co-tenants, which principles and reasons must, we think control in the determination of the defendant's contention as made here. Previous to 1871 Abner and Philander Coburn claimed to be the owners of this township. The title of all the co-tenants is derived from them-most of them as heirs and devisees, some through mesne conveyances, including Page, who acquired his title in 1890. While it does not so appear, we assume from the circumstances that the possession of the property was in all the tenants, in common, and that they had been and were receiving such rents and profits in stumpage as the property yielded from time to time. The claim acquired by the deed to Mrs. Page of February 19, 1902, was an outstanding right to redeem three-fifths of this common property from mortgages. It is no doubt true that ordinarily one tenant in common of a mortgage title may buy in the equity of redemption thereof and hold it for his exclusive benefit, if in so doing he does not case it may be said that the right to redeem is not an adverse claim to the mortgagees' title. But that is not this case. Here the co-tenants supposed that they were the absolute owners of the common property. They had possessed and enjoyed it for many years, using it as they saw fit as owners. They may have materially decreased its value by hard cutting of timber, or they may have increased its value by improving the facilities for getting the lumber therefrom. Under such facts and conditions, these discovered outstanding rights of redemption must be regarded as adverse claims to the common interests and title. In Bracken v. Cooper, 80 Ill. 221, it was held that where a mortgagee in possession died, claiming to own the property, and, by his will, devised it to his sons, a grantee of one of the sons, and tenant in common of the others, could not purchase the equity of redemption of the mortgage for his own exclusive benefit as against his co-tenants, but such purchase would inure to the common benefit of himself and his co-tenants at their option. Was the relation between Page and his cotenants such that it would be inequitable for him to enforce the redemption of the common property from these old mortgages? We think it was. The right of redemption may be contested, in which case one tenant in common would be prosecuting a suit against the others to extinguish the common title. The mortgages have been standing a very long time, during which the plaintiffs and defendant jointly, and those under whom they claim, have had the possession. Manifestly much difficulty and conflict of interest would necessarily arise in ascertaining the rents and profits, and the amount due under the mortgages. Indeed, in such a case, because of the long joint possession, and the relation of trust and confidence naturally existing as the result of that possession, the co-tenant prosecuting redemption proceedings against the common property might have the sole knowledge and control of the essential evidence for his co-tenant's defense. It would be inequitable to permit Page by asserting this equity of redemption to undermine and destroy the common title under which he and his co-tenants have for years held joint possession of the property, for, in the language of Chancellor Kent above quoted: "It is not consistent with good faith, nor with the duty which the connection of the parties, as claimants of a common subject, created." If this be so, and Edward P. Page, at the time he purchased in this interest in the adversary claim, stood in such relation of trust and confidence to his co-tenants that he is not permitted to assert the whole of that interest against them, then, how may he be permitted to assert any disproportionate promoters undertake to sell property to the corporation, they are bound to disclose all the facts connected with the transaction. [Ed. Note.--For other cases, see Corporations, Cent. Dig. §§ 97, 98; Dec. Dig. § 30.*] 2. CORPORATIONS (§ 30*)-PROMOTERS-PROF lation of trust and confidence his purchase | the treasury of the corporation; and, when such inured to the benefit of all. The whole purchase must be impressed with the trust or none. If he is permitted to assert against the common title any greater share of these three-fifths than his proportionate part, which would be one-fourth thereof, or three- ITS-DISCLOSURE NOTICE. twentieths, to that extent he will have an advantage over his co-tenants, and to that extent there will be the same breach of the relation of trust and confidence, and to that extent the same evils and inequities will arise, as if he were asserting the whole purchase. The argument that it is equitable for him to retain enough of his purchase to protect his interest seems at first plausible and reasonable, but it is in fact not well founded. It cannot be harmonized with the reasons and principles of the general doctrine. The doctrine here invoked by the plaintiffs is founded in equitable principles. It is to enforce that good faith and fair dealing required between those who stand in close and intimate relations as to their property ownerships. A failure to enforce it may result in great injustice, while under its enforcement substantial justice is always obtained, for the purchasing co-tenant is to be fully reimbursed for all his necessary expenditures for the benefit of the common property. We think the doctrine is especially applicable to the case at bar and should be enforced so that each co-tenant upon a pro rata contribution will receive his pro rata share of the whole three-fifths of the equity of redemptions purchased by Page and as conveyed to his wife, Lizzie M. Page. A promoter of a corporation, whose duty it is to disclose what profits he has made, does not perform that duty by making a statement not disclosing the facts, but containing something which, if followed up by further investigation, will enable the inquirer to ascertain that profits have been made and what they amounted to. [Ed. Note.-For other cases, see Corporations, Cent. Dig. §§ 97, 98; Dec. Dig. § 30.*] 3. CORPORATIONS (§ 206*)-PROMOTERS-PROFITS-ACTION BY STOCKHOLDERS. When the promoters of a corporation have received secret profits for which they should account, and it is apparent that an application to the officers of the corporation to take the necessary steps to secure an accounting would be ineffectual, the stockholders may proceed in their own name. Cent. Dig. § 795; Dec. Dig. § 206.*] Where the promoters of a corporation made The defendants can take nothing by their objection that no demand was made upon ceeded in transferring to the corporation for Where the promoters of a corporation sucMrs. Page. The presiding justice found that $100,000 of its preferred stock and $799,400 of the plaintiffs seasonably made request upon its common stock certain patent rights, which Edward P. Page for their share of his pur- the owners of such rights were ready to transchase and offered to reimburse him propor-ferred stock and $50,000 of its common stock, fer to the corporation for $100,000 of its pretionally for his expenses incurred, and he and such owners did transfer such rights to the refused their request. Mrs. Page was the corporation for the less consideration, but the holder of the title of the interest purchased promoters took care that the transfer should by her husband, either as his trustee or his be made not directly to the corporation, but by her husband, either as his trustee or his through themselves as a conduit, and that $749,voluntary donee. The presiding justice ruled 400 of the common stock should adhere to them that the want of demand on Mrs. Page was in transit, held that subsequent purchasers of of "no importance, except as to the awarding the preferred stock from the treasury paying of costs against her." We think this ruling of the transaction on the part of the promoters, full cash value therefor, and without knowledge had a remedy in equity. was correct. It is the opinion of the court that the entry must be: Decree of single Justice affirmed. MASON et al. v. CARROTHERS et al. (Supreme Judicial Court of Maine. May 28, 1909.) 1. CORPORATIONS (§ 30*)-PROMOTERS-RELATION-SALE TO CORPORATION - DISCLOSURE OF FACTS. The promoters of a corporation stand in a fiduciary relation to the corporation itself and to future bona fide purchasers of stock from [Ed. Note.-For other cases, see Corporations, Cent. Dig. § 804; Dec. Dig. § 207.*] 6. CORPORATIONS (§ 207*)-PROMOTERS-PROFITS-STOCK-CANCELLATION. Where the persons who promoted a corporation and controlled it through their nominee stockholders and directors obtained a profit for themselves without revealing the fact to any persons except their associates, and that profit consisted of $549,400, the common stock of the corporation, and subsequent bona fide purchasers of stock from the treasury without notice of the profit received by the promoters, brought a bill in equity for a surrender of the stock certificates and the cancellation of the same, held that the bill was maintainable, and that equity would not allow the stock so received by the promoters to be retained by them, nor by any person holding under them with no superior rights. [Ed. Note.-For other cases, see Corporations, Cent. Dig. § 804; Dec. Dig. § 207.*] 7. CORPORATIONS (§ 30*)-PURCHASES BY CORPORATION-PAYMENT IN STOCK-STATUTES— CONSTRUCTION. Rev. St. c. 47, § 50, provides that any corporation may purchase property necessary for its business and "issue stock to the amount of the value thereof in payment therefor * and the stock so issued shall be full paid stock and not liable to any further call or payment thereon; and in the absence of actual fraud in the transaction, the judgment of the directors as to the value of the property purchased *** shall be conclusive." This statute contemplates two independent contracting parties, the one buying and the other selling; each looking out for his own interests. It does not contemplate one party dealing with himself and acting in two capacities. It means, also, the honest and bona fide judgment of the directors. [Ed. Note. For other cases, see Corporations, Cent. Dig. §§ 97, 98; Dec. Dig. § 30.*] and praying for the surrender and cancellation of the stock so alleged to have been illegally and fraudulently issued. Answers were filed by 10 of the defendants, and the usual replications were filed by the plaintiffs. Argued before WHITEHOUSE, SPEAR, CORNISH, and KING, JJ. Charles E. Gurney and Moses, Morris & Westervelt, for appellants. Verrill, Hale & Booth and John P. Carrothers, for appellees Carrothers, Barcus, Hallam, and others. Ernest E. Noble, for appellee Marine Safety Appliance Company. CORNISH, J. Bill in equity brought by bona fide purchasers at par of treasury preferred stock in the Marine Safety Appliance Company, against certain prior takers of common stock alleged to have been illegally and fraudulently issued in exchange for letters patent, and against the corporation, praying for the surrender and cancellation of said certificates. The cause was fully heard Where the promoters of a corporation had by a single justice, who, after making exreceived secret profits for which they should account, held that a master should be appointed haustive findings of fact and various rulings to hear and determine the claims of the pro- in matters of law, made a decree dismissing moters for services and expenses in promoting the bill. The cause is before the law court the corporation, and also to determine the value on plaintiffs' appeal from this decree. of certain shares of stock at the time it was is-record is voluminous, but, so far as material 8. EQUITY ($ 401*)-MASTER-ACCOUNTING BY PROMOTERS OF CORPORATION. sued to them. [Ed. Note. For other cases, see Equity, Cent. Dig. 88 869-873; Dec. Dig. § 401.*1 9. EQUITY (§ 65*)-MAXIMS-CLEAN HANDS. The maxim of clean hands applies solely to some willful misconduct with reference to the matter in litigation, and not to some other illegal transaction, although it may be directly connected with the subject-matter of the suit. [Ed. Note.-For other cases, see Equity, Cent. Dig. 88 185-187; Dec. Dig. § 65.*] (Official.) Appeal from Supreme Judicial Court, Cumberland County, in Equity. to the decision, the facts are these: The In May, 1905, Frank W. Irvine and James T. Lihou were the owners of certain letters patent of the United States covering inventions for handling lifeboats, and of application for letters patent in the Dominion of Canada. They met James S. Barcus and Willard F. Hallam, two of the defendants, and after various negotiations a written contract was entered into at Wasbington, D. C., on July 10, 1905, between Barcus and Hallam on the one part and Irvine and Lihou on the other, whereby Barcus and Hallam agreed to cause a corporation to be organized within four months (subsequently extended six months) for the purpose of manufacturing and selling said lifeboat handler in the United States and Canada, with a capital stock of $1,000,000, $200,000 of which was to be 6 per cent. cumulative preferred stock, and $800. Action by George W. Mason and others against John P. Carrothers and others. From a decree dismissing the bill on the merits, plaintiffs appeal. Reversed as to defendants James S. Barcus, Willard F. Hallam, John P. Carrothers, and the Marine Safety Appliance Company, and dismissed as to the other defendants, and remanded for further pro-000 common stock. Barcus and Hallam furceedings. ther agreed to cause the corporation to do the Bill in equity by the plaintiffs, 11 in num- following acts: To issue to Irvine and Lihou ber, and all of New York City, holders of $100,000 paid up and nonassessable preferred preferred stock in the Marine Safety Appli- stock at par and $50,000 paid up and nonasance Company, a corporation organized under sessable common stock at par, to enter into a the laws of Maine and located at Portland, contract to pay Irvine and Lihou a royalty of Me., against "John P. Carrothers, of Port 10 per cent. on the gross receipts from the Clinton, Ohio, James S. Barcus, of New York sales of the lifeboat handler, and to make an City, Willard F. Hallam, of Harpers Ferry, advance payment of $10,000 on royalty acW. Va.," and 16 others, stockholders in said count. Barcus and Hallam also agreed to corporation, and against said Marine Safety personally pay $2,500 thereof immediately, Appliance Company, alleging, in substance, the balance, $7,500, to be paid by the corporathat certain stock issued to certain prior tion; Irvine and Lihou assigning to Barcus takers had been illegally and fraudulently and Hallam their interest in the royalty conissued in exchange for certain letters patent, tract. Irvine and Lihou agreed to transfer to the | Hallam, but were retained by the treasurer. corporation, in consideration of the foregoing, all their rights in the patents, on receipt of the stock and the $10,000 advance payment on royalties. In case of failure to have the stock issued and the $10,000 paid, Barcus and Hallam were to forfeit all rights in the premises, including all money advanced by them before the completion of the contract, and all compensation for services already rendered and to be rendered in connection with the enterprise. It was further stipulated that a copy of this contract, together with an assignment of the patents, should be placed in escrow with a trust company in Washington, to be delivered to Barcus and Hallam upon the payment of the remaining $7,500 on or before November 1, 1905. On November 13, 1905, Barcus and Hallam caused the Marine Safety Appliance Company to be organized under the laws of Maine for the purpose and with the capital stock previously agreed upon. There were six incorporators, each subscribing for one share of common stock; one being the attorney of Barcus and Hallam residing in Boston, three being employés in their New York office, and two residents of Maine used as a convenience. The attorney and the two residents of Maine were elected directors at the first meeting, but one of the latter resigned as soon as the organization was completed, and one of the employés was elected in his stead. On November 17, 1905, the attorney director and the employé director held a meeting at the office of Barcus and Hallam in New York, at which the attorney director and the Maine director also resigned, and two other employés were substituted. This left the entire board of directors employés of Barcus and Hallam. On the following day another directors' meeting was held, and Barcus and Hallam, in consideration of the corporation note of $5,000, retransferred and gave back to the corporation $200,000 of the common stock, to be used as a bonus in its sale of the remaining $100,000 of preferred stock. They also split up their certificates, and carved out $50,000 common stock for which certificates were written in the name of Irvine and Lihou, but none of the certificates were delivered before December 12, 1905. On that date Barcus and Hallam on the one part and Irvine and Lihou on the other, or their representatives, met in New York, and reached a settlement of their affairs. Barcus and Hallam delivered to Irvine and Lihou $100,000 of the preferred stock and $50,000 of the common stock, certificates for which had been written November 18th, and assigned to them the royalty contract made between the corporation and Barcus and Hallam on November 17th, and instead of the $10,000 advance royalty payment, Irvine and Lihou accepted part cash and part notes of the corporation. The corporation at the same time delivered to Barcus and Hallam the remaining $549,400 of common stock. Irvine and Lihou then acknowledged and delivered to Barcus and Hallam, instead of to the corporation, an assignment of their interest in the patents, which on November 17th Barcus and Hallam had conveyed to the corporation, the assignment from Irvine and Lihou bearing date July 10, 1905, though not acknowledged until December 12, 1905. This left $100,000 of the preferred stock in Irvine and Lihou, and $100,000 in the treasury, $50,000 of the common stock in Irvine and Lihou, $549,400 in Barcus and Hallam, the sale of the preferred stock. The number of directors was increased on January. 8, 1906, from three to nine, and Barcus and Hallam were two of the number, so that with the three employés they still had a majority of the board. The plaintiffs became stockholders between November 18, 1905, and February 13, 1906, by the purchase of preferred stock at its par value from the corporation itself, the stock being a part of the $100,000 not issued to Barcus and Hallam, and they received as a bonus two shares of common stock for each share of preferred. The active plaintiffs hold $5,800 of such preferred stock, and ask to After this organization was completed, and $600 in the dummy incorporators, and $200,at this same meeting of November 17, 1905,000 in the treasury to be used as bonus in Barcus and Hallam, representing themselves to be the exclusive owners of these patent rights, offered to sell the same to the corporation in consideration of $100,000 of the full paid and nonassessable preferred stock and $799,400 of the full paid and nonassessable common stock of the corporation at par, being all the common stock except the six shares subscribed for by the dummy incorporators and directors, and of a. 10 per cent. royalty agreement and a $10,000 advance royalty payment in cash, the terms of the royalty agreement being similar to those in the July 10th contract between Barcus and Hallam, and Irvine and Lihou. The directors, with what the single justice aptly terms "a grave a represent other holders not appearing as pareloquent mummery of whereases," accepted the proposal and voted to make the purchase. Thereupon Barcus and Hallam executed an assignment of all right, title, and interest in the letters patent to the corporation, the royalty contract was executed, and the requisite certificates of preferred and common stock ties plaintiff, making a total of $11,500, being all the preferred stock issued for cash. In June, 1906, Barcus and Hallam assigned to the defendant Carrothers all interest in the stock held by them, in consideration that he would push the business of the company and carry out an agreement previously made with Λ |