The Helena independent. [volume] (Helena, Mont.) 1875-1943, 1893-11-02
PROMOTER AND TRUSTEE
Decision by Judge Hunt in Which
the Privileges and Responsible
tiles Of Each Are Defined.
The Case One In Which Gallatin
County Farmers and Helena
People Are Interested.
The Concl aiding Portion Of the Opinion
VIII be Road with Intereat by Those
Nho Float Big EntsrprissA

Yesterday morning Judge Hunt In the
district court, road an opinion In the ease
Of Tracy and other stockholders In the
Gallatin Canal company against Albert
Kleinschnidt, ". N. Granger, John ID. Nc
Intyrs and the Gallatin Canal som pany.
Ths Gallasin Canal company was organized
upon June Z. 1885. by Messls. Kleinschmidt.
Ailisch and Mcintyre. vhs were the first
trustees These parties solicited subserip-
items from various people In The Gallatin
valley. To start the corporation Messrs.
Kleinschmidt, Milisoh and NcIntyre each
had 6vs shares transferred TO him. After
The organization was under way Messrs.
Granger, Miliseh, Kleinsohnidt and Nc
Intyre offered TO convey to the GallaSin
Canal company Ill the Upper West Gallatin
and Bozeman Canal company's prop
critics. The confederation for this convey
ancs was to b IA, 9S5 shares of Gsllatin
Canal company stock, and $4,000 In first
mortgage bonds Of the company. Tbs
proposition was accepted. Granger, who
was also a trustee, then made a contract to
dig twenty-three miles OF ditch for the
company. Upon June 20. 1888. tbs entire
capital stock Of the mpan was in the
name Of Nessrs. Kleinsohmidt. Mcintyre.
Nilisch and Granger. Five thousand
shares of the stock were then assigned to
the corporation BY Asssrs. Klsinsohmidt.
keIntyre and Granger. One OF the trus-
tsss. Granger, at 4 meeting on June %.
proposed to transfer 5000 shares OF tho
sition was accepted and the stock ordered
sold. The opinion holds that these $4,000
shares were evidently the same which had
been transferred to the Gallstin Canal COM
pany on Juns 20. On Sept. 8,
1883, = stookholdsrs' meeting was called.
stood in the following order: MoIntyre five
shares, Kleinschmidt Ave shares. Milisoh
nve shares and Granger IA, 9s5 shares.
Granger was elected president. Klein
schnnidt secretary INK Mcintyre engineer.
ln January. 1889, these trustees ordered
S45. 600 worth Of frat nerteaQ6 bonds to DO
issued to Granger. The plaintiffs. who are
stoskholders, charge that the issue OF TO- 900
shares Of stock BY the trustees to them-
a~lvos was illegal and fraudulent; that the
trustees misnanaRed the affairs OF the
corporation. and that the bonds were
f%raudulently issued to Granger. and they
pray for relief by the court.
The defendants deny the fraud and rely
upon . composition agreement. wherein the
Upper Gallatin Canal company WAS to
transfer all its property to Messrs. Klein
schmidt. Granger. Milisoh and Mcintyre In
consideration Of $15, 600 wo-th of Gallatin
Canal company bonds, and they were then
10 transfer il to tho Gallatin Canal COM
pany. They claim this was q Legitimate
transaction and they had a right 10 profit
by their first purchase and TO issue the
stock to themselves In oonsid eration of IL.
They also claim that the stockholders have
no right TO sue.
The opinion holds that although q corpe-
ration is properly the party to bring she
suit against w4onR-doing directors, yet
stockholders may do so where IL becomes
impossible TO, them to obtain Justice If the
right we're denied them. The court decides
that prior TO the incorporation OF the Gal
latin Canal company ths defendants. Klein
schmidt and others. stood In the attitude of
promoters OF those who by their activities
and exertions are instrumental In bringing
about an association OF individuals, or who
procure subscriptions for shares Of stock in
. corporate enterprise sbont to material
izs."
The opinion continues: 1T NAV b
granted that promoters are not prohibited
from selling property to a company formed
by their own exeltions at a profit. and that
the principle OF law which prohibits q
trustee from dealing with a cestui que trust
does not apply. But 1t is uniformly estab-
lished that whore promoters start q COM
pany and induce others to subscribe for
they are bound 10 exercise the
degree of fairness in their dealings.
In this eass, however, II Ia unnecessary to
at length in defining the exact rela-
of the defendants named towards the
Gallatin Canal company. because upon the
day preceding the date of the subso iptions
TO the capital stock by the plaintiffs the
corporation had been formed. and they
the n sslves had been designated as the sole
and only trustees thereof. do not hesi-
tate to say that under such circumstances. |
whether they were called promoters or di- :
~reotors, the relationship which existed be-
tween them and the corporation was by
operation Of law q 6duoiary one and must
be subject to the equitable and legal prin-
eiples applicable to trustees and esstui qua
trusts"
It is decided that the defendants did not
inform the stockholders In the Gallatin
Canal company that they proposed to sell
the property At a figure in advance of $15,-
OOO, but, by the terms Of the composition
agreement, 1t is decided that they were
trustees for the latter corporation.
II is held that Kleinsohmidt and the
other defendants. by their conduct. brought
themselves within The rule shat q trustee
or agent cannot purchase on his own &C
eount what he sells ON the account OF
another. nor purchase on the account OF
another what he sells on his own account,
and II he does 80 the pr ncipal. unless he
sAS 49, 1A0y ~ IVA AaAk I
ths profits made by this Trustee with an i'm
piled trust for his benefit"
Tn court holds that the defendants never
paid for any shares Of stock except fifteen,
and that when they issued to thems.lves
1885 shares they com mitted a fraud
against the shareholders who had sab
sozibed for stock In the corporation.
The minutes Of the company rsoited that
tho coronation was indebted to GRANGE.
for 800, 600. In addition to $15, 600. But tho
court holds that neither Grsnger nor his
co-defendants had eyer gnid for a share of
stock. except fifteen. nor had they bought a
bond. except nine, In pay of which
900 10 charged to them.
Autho1ities for all the legal propositions
appear In the opinion. And one interest
Ing case ts cited from Massachusetts, very
recently decided by Judge Colt, who laws
down She law shat a promoter Of a COM
pany oannot take stock without a consider
alton while other stockholdsrs raw for
shares, because the relation of trustee az
1858, and a trustee can derive no go
over other stockholders without a full and
lair disclosure OF the transactions entered
into A wisconsin csse Ii also cited,
where . mining ca, porstion waa formed
and the promoters sold TO the corporation
OF which they were directo. 9 at a very large
pront; 1t WAS held they could not retain
profit.
The opinion then proces DIS AZ follows:
Il deduce from these authorities that m
der the law the Gallatin Canal COMPANY
was entitled to the full benefit of all the
acts done and the contracts made by Klein
schmidt. Milish. Mcintyre and Grange,
while they made negotiations with the