erty to be $98,884.91, and the total indebtedness to be $73,884.91, and so showing a balance equal to one half the capital stock. It is insisted that this excess in value was due to the payment of the other half in cash; but the fallacy of this may be seen in the obvious result that would have been attained if all the money, instead only of a substantial part, had been used to reduce the indebtedness. In that event (if it be assumed that before the receipt of the money the value of the assets and the amount of the indebtedness were equal), it is true it could have been said that the value of the assets exceeded the indebtedness to that extent; but that would not have been because the value of the assets had been increased, but because the indebtedness had been reduced; neither would the primary liability on the capital stock have been discharged. Nor was there any other method of using this money both to discharge its equivalent in any sort of corporate obligations and transmute the old assets into an augmented value equal to the sum of the indebtedness and the money; either such surplus value existed before, or it was not there later. We are not unmindful of the influence which this amount of money might ordinarily have upon the business activities of such a company; but, when this newly organized company (as it was at the date of this valuation) is compared with some of the pertinent features of the old company, the beneficial effect of such a sum in cash could not have been very material as respects increment in value of the corporate assets apart from the money itself. For example, the old company was so conducted as to be able to discount its bills. This was done by the plan before described of employing the indorsements of four of the directors for banking purposes; and it must not be forgotten that, in spite of Stebbins' refusal to sign renewal notes for the old company, he was liable under the agreement, secured by his collaterals with others, to indemnify the very indorsers who were disposing of the company's assets, and this agreement had been extended to a time more than eighteen months beyond the date of the sale. Besides, the official control of the old company had been for nearly six months practically the same as that proposed for and carried out later in the new company.

Furthermore, the representation as to value contained in the articles of association is strengthened by the fact that the directors and stockholders of the old company, who either carried out or sanctioned the preconcerted plan of a new company, became stockholders in that company and the larger holders officially connected with its management. Also, pursuant to statutory requirement the old company made annual reports to the Secretary of State, in 1901 and to and including 1905, showing its condition on the 1st day of January of each year. These reports were each signed by a majority of the directors and sworn to by one of their number as secretary. Moreover, in 1902 and to and including 1905, reports were made to the old company itself, showing its condition on July 1st of each year. In each of the foregoing reports, the net value of the company's assets was reported to be more. some years much more, than the net value represented in the articles of association of the new company. In 1904 the Ameri

can Appraisal Company, of Milwaukee, was employed at the instance of Melze and G. A. Alderton to make an appraisement of the buildings, machinery, and equipment of the old company. The appraisal company appears to have given both the reproductive and depreciated values. Based upon these depreciated values and values that were at least acquiesced in by the company (on July 1, 1904) respecting assets not so appraised, the difference between the value of the company's assets and the sum of its indebtedness shows a net value of more than twice that fixed in the articles of association of the new company. It is to be observed, however, that on November 30, 1905, Harker W. Jackson made a report to the stockholders of the old company containing the old estimates of value and the debts, in which the net value of the assets was fixed at $23,101.07. The report also showed the value of the company's assets according to his own estimate, and, deducting the debts, the net value was fixed at $2,934.09.

It must be conceded, in respect of the reports to the Secretary of State and the old company, that much forceful criticism has been made by counsel. We are bound under the evidence to recognize a tendency in companies, for purposes of credit, to exaggerate their financial conditions in making their annual reports to the Secretary of State. We are not so much impressed, however, concerning the reports made to the old company, which, until after the rupture that culminated in the present suit, were apparently considered by some of the principal stockholders and directors. It is difficult to conceive of either motive or reason on the part of such men to deceive themselves. We cannot attach much importance to the report made by Harker W. Jackson. That report was made at the stockholders' meeting of November 30, 1905, within a month of the sale; and it must be said of it that Jackson failed in his testimony to give any convincing reason for the large reduction he made in the value of the assets. His valuation was, moreover, fatally inconsistent with the estimate, which, in the articles of association of the new company, he shortly afterward represented to be the true value; and his valuation of November 30th cannot be explained except through his apparent zeal to exclude Stebbins and secure an interest in the business through the plan now under review. And in spite of objections urged against the appraisement of the American Appraisal Company respecting some mistakes it seems to have made, its agencies engaged in the work were at least disinterested, and allowance for these mistakes cannot change the result.

The company never paid but one dividend, and the profit so implied was for the most part rather artificial than real; and although losses were suffered, yet they were incurred under circumstances that render them of little aid in determining the value of the assets. Some of those who took part in bringing about the transfer of the old company's property, among them Alfred A. Alderton, succeeded later in purchasing a number of shares of the old stock at prices varying from 10 cents to 333 cents on the dollar; but naturally sales made under the conditions then existing would not reflect the true value of the stock; and the evidence does not show that the stock ever had a mar

ket value. Testimony given by defendants concerning the value of the assets must be weighed with the effect that attaches to their treatment of the official and other reports and representations of value, to which attention has been called.

[1] Further allusion to the range of considerations embraced in the question of value is not necessary. The parties had ample opportunity to present evidence; and, plainly under the defense that the value of the assets was materially less than the indebtedness, an issue was presented which placed upon the defendants the burden of proof. Meeker v. Winthrop Iron Co. (C. C.) 17 Fed. 48, 51, opinion by Circuit Judge Baxter; Robotham v. Prudential Insurance Co., 64 N. J. Eq. 673, 712, 53 Atl. 842; Wilkinson v. Bauerle, 41 N. J. Eq. 635, 645, 7 Atl. 514; Coombs v. Barker, 31 Mont. 526, 545, 79 Pac. 1; the instant case being distinguishable from the decision of this court in Rothchild v. Memphis & C. R. Co., 113 Fed. 476, 51 C. C. A. 310, because the sale of the railroad there involved was made under judicial approval and order. The defendants clearly failed to discharge this burden; and upon the whole evidence we conclude that, at the time the assets of the old company were taken over by the new company, their net value, that is, the value over and above the indebtedness, was as much as $25,000, and so equaled one-half the par value of the entire capital stock.

[2] Manifestly this distinguishes the instant case from that of Thoman v. Mills, 159 Mich. 402, 124 N. W. 33, relied on by the court below. The natural inference, indeed the only rational one deducible from the evidence, is that (in order to avoid friction and obtain fresh working capital) there was a preconcerted design to get rid of Stebbins. It hardly need be added that this design was carried into execution without offering to complainants an opportunity to participate in the new enterprise. However, the circumstances of the case do not incline us to believe that the directors and stockholders who brought about the sale and in effect replaced their stock in the old company by stock in the new were conscious of their true relations and duties either to the company or the minority stockholders. Of the five directors of the old company, four sanctioned the sale to and obtained stock in the new company, viz., Melze, president, G. A. Alderton, vice president, M. O. Robinson, secretary, and M. W. Tanner. They jointly owned and voted 2,900 shares in the old company, a clear majority; Smart and Fox, who held the remainder of the majority shares, each voted his holdings of 100 shares in favor of the sale; Melze, G. A. Alderton, M. O. Robinson, and M. W. Tanner each became holders of stock, and two of them, Melze and Robinson, became directors, in the new company, but Smart and Fox sold their shares in the old company, as stated later, and did not obtain shares in the new company. Thomas Jackson, who was general manager of the old company and entitled to 500 shares therein (although at the time of the sale he had not received them, as hereinafter pointed out), became a stockholder in the new company and its president; Harker W. Jackson, who was assistant to his father as manager of the old company, also became a holder of stock in and the vice presi

dent of the new company; and the shares in the new company acquired by the directors of the old, with the shares of the Jacksons, constituted a large majority of its entire capital stock.

[3] Considering these facts, in connection with the contested transaction, it needs only to be said of the majority directors and stockholders in the old company, as also of Thomas Jackson, that their relations and duties to that company and the minority stockholders were strictly fiducial. They concerned the very essence of the corporate power, indeed, the practical wrecking of the corporation itself through the sale of its entire property; and, since these men both sold and in effect bought the property, their acts cannot for a moment stand the test of the long-settled rule that trustees will not be permitted, to the detriment of their cestuis que trustent, to purchase and hold the trust property. The cases relied on by defendants, like Town v. Bank of River Raisin, 2 Doug. (Mich.) 530, and Bank v. Salt & Lumber Co., 90 Mich. 345, 51 N. W. 512, are not applicable. The corporation in each of those cases was confessedly insolvent. Further, those decisions do not, as evidently they could not, proceed upon the idea that a majority interest might rightfully appropriate to their separate use and benefit surplus assets of their company in total disregard of the rights of the minority stockholders. The case thus also falls easily within the rule laid down by the present Mr. Justice Lurton in Rogers v. Nashville, C. & St. L. Ry. Co., 91 Fed. 299, 313, 33 C. C. A. 517, 531 (C. C. A. 6th Cir.):

"But the majority shareholders will not be permitted to use this power of control for the purpose of obtaining advantages for themselves at the expense of the minority, and, when an unfair and oppressive contract is shown, a case is made which will authorize interference on behalf of the injured minority."

It follows that, in accordance with the issue and theory upon which the case was presented and tried touching a money decree, the complainants are entitled to recover sums equal to 50 per cent. of the par value of their several shares in the Michigan Wheelbarrow & Truck Company, with interest thereon at 5 per cent. per annum from January 6, 1906 (the date of taking over the property), until the date of the allowance of the decree; that is to say, Bliss Stebbins upon 940 shares, Richard S. Woodliff upon 300 shares, and Earl L. Card upon 60 shares-the face value of the shares being $10 each. We are disposed to believe, however, that a decree should not go against the defendants Fox and Smart. While it is true, as stated, that they voted in favor of the sale, yet they do not appear to have participated

4 Wheeler v. Abilene Nat. Bank Bldg. Co., 159 Fed. 391, 89 C. C. A. 477, 479, 485, and note, 16 L. R. A. (N. S.) 892, 14 Ann. Cas. 917; Backus v. Brooks, 195 Fed. 452, 454, 115 C. C. A. 334 (C. C. A. 2d Cir.); Jones v. Missouri-Edison Electric Co., 144 Fed. 765, 771, 75 C. C. A. 631 (C. C. A. 8th Cir.); Jackson v. Ludeling, 21 Wall. 616, 622, 624, 22 L. Ed. 492; Smith v. Smith, Sturgeon & Co., 125 Mich. 234, 239, 84 N. W. 144; Chicago Hansom Cab Co. v. Yerkes, 141 Ill. 320, 333, 30 N. E. 667, 33 Am. St. Rep. 315; Cook v. Berlin Woolen Mill Co., 43 Wis. 433, 439, 445; Goodin v. Cin. & Whitewater Canal Co., 18 Ohio St. 169, 182, 98 Am. Dec. 95; Hallam v. Indianola Hotel, 56 Iowa, 178, 180, 9 N. W. 111; Maas v. Lonstorf, 194 Fed. 577, 584, 114 C. C. A. 419 (C. C. A. 6th Cir.).

in any design to appropriate or get any benefit from shares of the minority. On the contrary, they sold their stock for less than its real worth to Alfred A. Alderton, who thus, through his holdings in the new company, placed himself in a position to enhance the benefits he sought under the transaction in dispute. Alfred A. Alderton and Harker W. Jackson, of course, received their stock in the new company with full knowledge of the nature of the transaction. Thomas Jackson, since deceased, received 500 shares of his stock in the new company as a gift. This was by reason of an arrangement previously entered into between him and the old company, under which he was to receive that number of the old shares in part payment for his services as its general manager. In receiving the assets of the old company through the agencies employed to bring about the transfer, the new company was chargeable with full knowledge of the facts attending the so-called sale. Jones v. Missouri-Edison Electric Co., 144 Fed. 775, 776, 75 C. C. A. 631.

[4] The allowance of a decree against the old company presents some difficulty and seemingly will be of little value; yet we content ourselves with the view that the company's liability for the wrongful act, committed through the corporate agencies mentioned, of depriving complainants of the value of their stock, cannot in principle be effectively distinguished from the familiar rule of imposing upon a corporation liability for the value of shares of its stock where it wrongfully refuses to transfer them on its registry. London, Paris & American Bank v. Aronstein, 117 Fed. 601, 605, 54 C. C. A. 663 (C. C. A. 9th Cir.); Dooley v. Mines & Milling Co., 134 Iowa, 468, 471, 109 N. W. 864, 13 Ann. Cas. 297; Lewis v. Bidwell Electric Co., 141 Ill. App. 33, 35; 2 Cook on Corp. (7th Ed.) §§ 389, 392, 581, et seq., and citations.

The decree below is reversed, with costs, save that Earl L. Card will, under the order allowing his intervention, be denied recovery of costs "incurred up to and including the final decree" entered below and now under review; and the cause is remanded, with direction to enter a decree against all the appellee-defendants, except Fred J. Fox and James S. Smart, in conformity with this opinion.

MORRISON et al. v. UNITED STATES.

(Circuit Court of Appeals, Ninth Circuit. February 2, 1914.)

No. 2295.

PUBLIC LANDS (§ 51*)— GRANT TO STATE OF SCHOOL LANDS-SUBSEQUENT INCLUSION IN FOREST RESERVATION.

Act Aug. 14, 1848, c. 177, 9 Stat. 323, establishing a territorial government for Oregon, provided that "when the lands in the said territory shall be surveyed sections numbered 16 and 36 in each township shall be and the same is hereby reserved for the purpose of being applied to schools in said territory and in the states and territories hereafter to be erected out of the same." Subsequent acts relating to dona•For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes