The record-union., 1891-03-13
SUPREME COURT DECISIONS.
Titled March 3, 1911
DEPARTMENT ONE,

HoWEs EFT AL,
Respondents.
This was suit in equity by three
stockholders of the Semi-Tropic Land
and Water Company, for relief against
certain transactions of the company with
the defendants f. G. Howes, George II.
Bonebrake and Samuel Merrill. The
Irlal court gave final Judgment for the
I defendants upon demurrer to the COM
plant, and the plaintiffs appeal. The
complaint consists ofseyenty-tive printed
pages, and is exceedingly prolix and in
volved. 1t contains three causes of ac
ton separately stated. The demurrer was
TO the whole complaint and TO each sepa-
rate cause of action.
l. The substance of the material facts
alleged in the first division of the COM
plant is as follows
AT the period in question two of the
plaintiffs and the defendants Howes,
Bonebrake and Merrill were stockholders
Of the corporation. The third plaintiff
acquired his stock somewhat later than
the others, but this is not material in the
view we have taken. The defendant
Howes was Director of the company,
and it is alleged that the other mem
bers of the board ''were only nominal
Directors thereof for the purpose
OF carrying out the plans and sub
serving the individual interests of
defendants Howes, Bonebrake and
Merrill, and had no interest in the man
agement and conduct of its affairs, except
as the implements and representatives of
the interests and wills of the defendants
Howes, Bonebrake and Merrill" (Fois.
1S-l9) In this condition of affairs, the
said Board of Directors, disregarding
the interests and rights ofall stock holders
of said company other than said Howes,
Bonebrake and Merrill, and for the pur-
pose of defrauding such stockholders.
and through the connivance of said
plnral 10 fnr
the purpose Of subscribing the individual
interests of said Howes, Bonebrake and
Merrill sold to them for the price of $50
per acre certain specifically described
lands, which carried with them as Incl
dent or appurtenant thereto their pro
rata proportion of all the waters owned
by the Semi-Tropic Land and Water
Company" AT the time of this transac-
ton the land sold was worth the sum of $500
per acre, which was known to all the
parties. (FolS. % to 2S.) Subsequently the
three defendants named became Directors
OF the company, and were so at the COM
mencement of the suit. The plaintiffs
demanded that suit be commenced in
the name OF the corporation. But this
demand not having been complied with,
the plaintiffs brought the present suit on
behalf of themselves and the other
stockholders, joining the corporation as a
defendant.
In addition TO the foregoing facts much
unnecessary matter is alleged, as, for ex-
ample, the representations which the de-
PENDANTS made to the plaintiffs at the time
the latter acquired their stock. The suit
is not for relief against the contract under
which they acquired said stock, and
hence the representations referred to are
lmmaterial. So, too, it is immateral to
the case stated in this division of the COM
plant how the corporation acquired its
rights to the property-though it may be
tn totn To Shn
that the three causes OF action grew out
of the same set of transactions.
In support of their demurrer to this
part of the complaint the defendants
make the following points:
q. 1t IS said that a main foundation of
this part of the case is inadequacy of price,
and that ''inadequacy of price does not
even raise a presumption of fraud.'
This may be true as to persons who do
not stand in a fduciary relation towards
each other. But it is not true as to per-
sons whose relations are fiduciary. A
trustee is not ordinarily allowed to make
money out of his ceStWi que trust, if he
does, the presumption is against him, and
he must show affirmatively that the trans
action was perfectly fair. Inadequacy OF
consideration in such a case is one of the
facts constituting the fraud. (Goison VS..
Dunlap, 73 Cal. 1919 And it Is hardly
necessary TO say that the relation which a
director SuStainS to his corporation is
fiduciary within the meaning of the rule.
In the present case it is not necessary to
consider whether the inadequacy of con-
slderatiOn alleged is sufficient to make q
case of constructive fraud, because, as
will be shown below, there are other al
legations which, in connection with the
one mentioned, make a case of actual
fraud.
b. 1t is urged that at this time Howes
only was director; that the other fou1
cfi ifr1tn Of InI orI hot
it is not shown that Howes took any part
as director in the act complained of, and
that the mere fact that the three defend
ants persuaded the disinterested majority
of the board to do the act complained OF
does not amount to fraud. Persuasion" "
say the learned counsel, sis never fraud
ulent.''
In one sense it may be true that per-
suasion is not fraudulent. In the same
sense it may be said that persuasion is
not theft; yet, if man persuades his
''implementS and representatives. tC
steal and knowingly shares the booty he
is certainly guilty of theft. And so, if he
persuades his implements and represent
atives to commit fraud, and knowingly
takes the fruits thereof, he is guilty o
fraud. In the case before us it is ad
mitted for the purposes of the demurrer
that the Directors were the implements
and representatives of Howes, Bonebrake
and Merrill, and acted with their ICON
nivance" for the purpose of defraudine
the other stockholders in the interest o.
said defendants. Such conduct was
clearly fraudulent on the part of the Di.
rectors. and as said defendants connivet
at such fraud and received the fruits
thereof, they must be held to have partic
ipated therein.
C. 1t is contended that the charges o
fraud are too general. All that is neces
sary for the pleader to do in this regard
however, is to set forth the facts consti
tutinglthe fraud in ordinary and concis,
language. Now what are the facts consti
tuting the fraud?
In the first place. there is the fact of tn,
relation of the parties, viz: That tn,
plaintiffs and defendants were stock
holders of the corporation, and that tn,
Directors were the implements and repre-
sentatives of Howes. Bonebrake and Mer
rill. This is set forth with sufficient par
ticularity. 1t was not necessary to stat,
the means by which said defendants in
duced the Directors to act as their i'm
plements and representatives. 1t is sutfi
cient to the cause made by the complain
that they did so act.
In the second place there is the fact tina
the land was worth $500 per acre, and wa
sold to said defendants for $50 per acre
1t was surely sufficient to allege this il
terms. And the criticism made upon i
does not seem to be that the fact is no
stated with sufficient particularly, bu
that it is not true. AN allegation sa,
the learned counsel, may be SO absur(
that not even demurrer will admit it
and in this case the court is presumed b.
the counsel for the appellants to assum
that this property had increased in yalu
from April to August, 1887, somethin.
like 1000 per cent. There are SOM
things that even courts are presumed L
lrpn,y opn Of which iS that unirnprOyef