Court Opinion

ID: 3372846
Source: CourtListenerOpinion
Date Created: 2016-07-05 18:14:23.51432+00
Date Added: 2024-06-11T12:01:36.701262
License: Public Domain

While I am unable to agree with the final conclusion reached by the majority of the Court, I do, however, agree with their conclusion that the actual conveyance of the Pickrell property to the Big Lake Oil Company, rather than to the Plymouth Oil Company, does not materially affect the merits of this case, with respect to that property.
The Big Lake Company was merely organized for the purpose of protecting the interest of Pickrell and his associates, and as the majority opinion aptly says:
"The Plymouth Oil Company was at all times the real company in the minds of the parties."
For most purposes, we may, therefore, consider this case from the same standpoint as though the conveyance of that property had been made directly to the Plymouth Oil Company.
The main facts have already been stated and I, therefore, will neither repeat nor add to them, except where it may be necessary to justify certain conclusions reached by me.
It is, however, material to state that it is admitted that Stearns was one of the Pittsburgh group, who organized the Plymouth Oil Company, and, in all acts performed by him, was acting for that group.
  It is, also, material to state that as a part *Page 211
of the consideration for the issuance of the Plymouth Oil Company stock to him, Stearns, on October 23d, 1923, offered to assign to that company certain rights which he claimed to hold in the Pecos and Upton County properties. This offer was accepted on the same date by the corporation, but, as a matter of fact, it is admitted by the respondents that he had no rights whatever in those properties at that time, and acquired no rights in the Pecos County property until November 29th, 1923, and in the Upton County property until October 29th, 1923.
The record also shows that Lockhart became the owner of stock in the Plymouth Oil Company on November 2d, 1023, Montelius on November 7th, 1923, and McCullough on November 12th, 1923.
Various other persons among the appellants also purchased considerable blocks of the preferred stock from the corporation in January, February, March and May of 1924, while the success of the company was not assured, and it had not gotten beyond what was termed the "wildcat" stage until the early summer of 1924; as a matter of fact, well No. 9 though a large producer, was not completed until June 20th, 1924.
Henderson then purchased the last of the preferred stock issue after that date, though he then owned more than 13,000 shares, the most of which had been purchased from the corporation in January and February, 1924.
The production, if any, of any of the other wells, drilled either under the Pickrell contract, or otherwise, does not appear at least from the analysis of the testimony in the briefs. 50,000 shares of the preferred stock remained unsold in February of 1924, so a letter soliciting further subscriptions was sent to each stockholder of the Plymouth Oil Company. This letter was signed by Hallanan and Farquhar, as president and treasurer of the corporation, though they were, also, members of the promotion group. It, also, stated that the corporation had been formed to take over the oil rights forming the basis of this action.
It appears that the purchase price of the Upton County property was $1,920 and that this amount was paid out of the funds of the Plymouth Oil Company about October 20th, 1923, but in November, 1924, was charged in the books of the corporation to Stearns, and subsequently paid by him and his associates. The purchase price of the Pecos County property does not appear.
While the appellants admit that, at least, some of them knew that the Stearns group had retained 200,000 shares of the common stock of the Plymouth Oil Company, representing a par value of $1,000,000, as a profit on their transaction with that company, it is not contended that it clearly appears that they knew of the retention of the remaining 700,000 shares, representing a par value of $3,500,000, in addition thereto, or a total profit of $4,500,000.
The Pickrell contract, as well as the stock retained, was, however, set out in the minutes of the Plymouth Oil Company as of October 23d, 1923, and it is, therefore, contended that there was no concealment from that corporation.
The details with respect to the Upton and Pecos County properties also appeared therein, but it was admitted that they had been filled in later.
Whether the persons above named indirectly acquired their stock from the promotion group, or as original subscribers from the corporation, and the facts with respect thereto, will be considered hereafter.
The appellants base their contention on the claim that 700,000 shares of the common stock of the Plymouth Oil Company were improperly, and contrary to the rules of equity, issued to the Stearns group, who promoted the organization of that company, and in so far as such shares are not now held by bona fide purchasers should, therefore, be cancelled.
Their right to cancellation is based on the contention that a fiduciary relation then existed between the promotion group and the Plymouth Oil Company.
So far as the Pickrell property is concerned, this contention is based on two separate and distinct grounds:
1. That when the Stearns group contracted to buy the oil rights in that property, they occupied the relation of promoters toward the Plymouth Oil Company, and were acting for it, though that company had not then been organized and, therefore, had no right to retain any secret profits on the transaction. When they subsequently conveyed the oil rights in the lands in question to that company, they nevertheless retained a secret profit of 700,000 shares of the common stock of the Plymouth Oil Company, which had a par value of $3,500,000.
2. But even if it be conceded, for the sake of argument, that the Stearns group did not occupy the relation of promoters toward the Plymouth Oil Company, when they executed that contract, and were not then acting for that corporation, but for themselves individually, they subsequently sold the oil rights in the lands in question to the Plymouth Oil Company, and at the time of such sale the same group composed the board of directors of that corporation, and, therefore, controlled its actions.
That, while by reason of controlling the corporation, they had no right to sell the oil rights in question to it at a price in excess of their fair and reasonable value at the time, they, nevertheless, sold them to the Plymouth Oil Company for $5,250,000; and that such price was far beyond the fair market value of the property at the time.
If the Plymouth Oil Company had a right of action in this case, the right of the complainants *Page 212 
to file their bill in order to litigate such corporate rights is conceded. Sohland, Bankers' Mortgage Co. et al. v. Baker et al., 15 Del. Ch. —, 141 A. 277. Whether, however, the corporation had any such right is the question at issue.
The contention of the appellants that the Stearns group were acting for the Plymouth Oil Company, when they agreed to purchase the Pickrell property, is a fundamental question in this case, and I will, therefore, consider that contention first.
The Pickrell contract was executed October 8th, 1923, and the Plymouth Oil Company was not organized until October 23d of that year.
The appellants, however, claim that the record shows that prior to October 8th, 1923, the Stearns group had not only decided to organize the Plymouth Oil Company, and, in effect, to convey the Pickrell property to it, but had, also, taken definite steps to promote the organization of that corporation with the intent that the whole purchase price of the Pickrell property, and all obligations under the Stearns' contract, should be assumed by it when it should be finally organized.
With respect to this contention, Ehrich on Promoters, at section 5, aptly says:
"One method of obtaining secret profits, frequently resorted to by the promoters, is the purchase for their individual account of property which the corporation is organized to acquire, and the subsequent resale thereof to the corporation at an advance. Sometimes title to the property is actually taken by the promoters and by them conveyed to the corporation. Sometimes the promoters merely contract for the purchase of the property, or take an option thereon, and after arranging a resale to the corporation at an increased price cause the title to pass from the original vendors directly to the corporation. The substance of the transaction is in either case the same, and the profit unlawful. If the purchase is made by the promoter at a time when they have entered upon their fiduciary relation to the corporation, it is their duty to make the purchase for the corporation upon the best terms obtainable, and, if, in disregard of their duty, they purchase for their individual account what they ought to purchase for the corporation, • any profit obtained upon a subsequent resale to the corporation is, unless fully disclosed, wrongfully taken. An entirely different situation arises if the property sold to the corporation was acquired by the promoters before they entered upon any fiduciary relation to the corporation. They are, in such case, bound to disclose their interest in the property, but its cost to them is wholly immaterial, and while the transaction may, because of a failure to disclose the promoters' interest, be unlawful, the promoters have not, properly speaking, taken any secret profit."
Because the Plymouth Oil Company was not finally organized until after October 23d, the relation of the promoters to it, strictly speaking, perhaps, could not be that of principal or agent, nor, for other reasons, could it, strictly speaking, be that of trustee and cestui que trust, but a relation of that general character, and analogous to that of a director to a corporation, would, nevertheless, arise.
With respect to this question, Ehrich on Promoters, in section 15, says:
"That the promoter may become such, and subject himself to the limitations of the fiduciary relation before the corporation achieves legal existence, is not open to doubt. It has been objected that a promoter cannot be an 'agent' for a nonexisting corporation, and there is a similar difficulty in calling him a `trustee.' Lord Justice Lindley remarked in Lydney v. Wigpool Iron Ore Co. v. Bird 'that it is not much less objectionable to talk of his being in a fiduciary relation to the company before the company had any existence.' The difficulty is, however, merely one of terms for in all of these, and in numerous other cases, the fact that the fiduciary relation of the promoter can and does arise before the corporation had acquired existence, is fully conceded."
In Arnold v. Searing, 78 N. J. Eq. 146, 78 A. 762, the Court said that the fiduciary relationship of the promoter of a corporation to the corporation is —
"an extension of the doctrine of agency, a sort of agency by anticipation, for the promoter is not, strictly speaking, an agent of or trustee for the company before incorporation, but it is a salutary and necessary fiction of equity for the protection of the company."
In Woodbury Heights Land Co. v. Loudenslager, 55 N. J. Eq. 78,35 A. 436, the Court said:
But if the contract was "entered into * * * on behalf of the future company, under such circumstances that the company, when formed, could say that the purchase made * * * was made for the company, or if, at the time the actual purchase was made from White, Dr. Buck was a trustee, officer or agent of the company, he cannot be permitted to make any profit from the sale to the company."
In Ladywell Mining Co. v. Brooks [1887] L. R. 35 Ch. D. 500, Cotton, Judge, in applying the test as to whether there was a fiduciary relation between the persons, who were claimed to be the promoters, and the corporation subsequently formed, said that, in order to establish that relation, the company must be entitled to say to the promoters:
"When you bought this mine, you were acting for us; this purchase, although made by you, is one that must be considered as having been made by you for the company which was afterwards formed at your invitation. If persons bought property in such a position it would be wrong for them, the original purchase having been made at a smaller price, to add to that price afterwards and to put in their own pockets a further sum of money for the purchase of that which from the very first had been the property of the company." *Page 213 
See, also, Plaquemines Trop. Fruit Co. v. Buck, 52 N. J. Eq. 219,27 A. 1094; Commonwealth S. S. Co. v. American Shipbldg. Co. (D. C.) 107 F. 797; South Joplin Land Co. v. Case, 104 Mo. 572, 16 S.W. 390.
The real principle involved in the above cases is shown more clearly by the following Statement in Enrich on Promoters, at section 16:
"The purchaser does, it seems, enter upon the relation of promoter to the corporation, if he makes his purchase not for himself, but on behalf of the contemplated corporation. He will, at any rate, be held to have acted for the corporation in the transaction and be compelled to give to it, when formed, the full benefit of his purchase."
While the principle contended for by the appellants was conceded by the court below, and by the majority opinion, its application necessarily depends upon the facts in each particular case. Ehrich on Promoters, § 16.
As the language of the court below is quoted in the majority opinion, I will not repeat it here.
The burden is on the appellants to show facts that created a fiduciary relation between the Stearns group and the Plymouth Oil Company on or prior to October 8th, 1923. Ehrich on Promoters, § 17; Ladywell Mfg. Co. v. Brooks. [1887] L. R. 35 Ch. D. 400; L. R. 34 Ch. D. 398.
It is conceded that a mere intent, unaccompanied by definite acts to that end, on and prior to that date to form a corporation at a subsequent date, and to convey the property covered by the Pickrell contract to such corporation, would not be sufficient to create a fiduciary relation between the Stearns group and the corporation, when created. Ehrich on Promoters, § 16; Yale Gas Stove Co. v. Wilcox, 64 Conn. 101, 115, 29 A. 303, 25 L.R.A. 90, 42 Am. St. Rep. 159; Old Dona. Copper Co. v. Bigelow, 1SS Mass. 315, 74 N.E. 653, 108 Am. St. Rep. 479; Plaquemines Trop. Fruit Co. v. Buck, 52 N. 3. Eq. 219, 27 A 1094; New Sombrero Phosphate Co. v. Erlanger, L, R. 5 Ch. D. 73; Erlanger v. New Sombrero Phosphate Co., [1878] L. R. 3 App. Cas. 1218.
An examination of the record shows, however, that prior to the execution of the Pickrell contract, the Stearns group had taken the following definite steps, with respect to the creation of the Plymouth Oil Company:
1. They had agreed to organize at once both the Big Lake Oil Company and the Plymouth Oil Company.
2. The whole corporate structure of both corporations had been worked out. It had been agreed that the Big Lake Oil Company should have a capital of $2,000,000 which was later changed at the request of Pickrell to $4,000,000 and the Plymouth Oil Company a capitalization of $6,000,000. The capital stock of the latter company was to be divided into 150,000 shares of preferred stock and 1,050,000 shares of common stock, and each issue was to have a par value of $5 per share.
3. Hallanan had been agreed upon as president, Farquhar as treasurer and Hennen as a director of the Plymouth Oil Company, and the other directors had been, at least, tentatively agreed upon.
4. It had been agreed that the charter of the Plymouth Oil Company should contain a provision that the preferred stock, at the option of the holders thereof, could be exchanged for common stock of that company, and that 150,000 shares of the common stock should, therefore, be retained in the treasury of the company to secure that privilege.
5. That the Big Lake Oil Company was to be the operating company and the Plymouth Oil Company the holding company, and that title to the Texas property should first be taken in the name of Stearns, and then transferred to the Big Lake Oil Company in return for the issuance to Stearns of three-fourths of the capital stock of that company. The remaining stock was to be issued to Pickrell and his associates. It had been further agreed that Stearns would assign all of the stock of the Big Lake Oil Company, issued to him, to the Plymouth Oil Company, and that the Plymouth Oil Company would then issue all of its capital stock, with the exception of 150,000 shares of the common stock, necessary to be retained in the treasury to secure the conversion privileges above referred to, to Stearns.
6. It had been agreed that the preferred stock of the Plymouth Oil Company should be sold to raise the necessary capital to both purchase and develop the Pickrell property, and that the sale price should be $3 per share.
7. Various members of the promotion group had been requested to make an effort to secure subscriptions for the preferred stock of the Plymouth Oil Company, though that company had not then been organized, and had solicited such stock subscription's from various persons.
8. It had been agreed and planned that the purchase price of the Pickrell property should not only be wholly paid for by the sale of stock of the Plymouth Oil Company, but that the promoters would retain 900,000 shares of the common stock as a profit on the transaction.
None of the above facts are disputed. In fact, it does not seem to be denied that every detail, except the preparation of the corporate charters and the actual organization of the contemplated corporations had been decided upon prior to October 8th.
The record further shows that directly after the execution of the Pickrell contract, the charters of both the Big Lake Oil and Plymouth Oil Companies were prepared, and the Big Lake Oil Company was actually *Page 214 
organized on October 22d, 1923, and the Plymouth Oil Company on October 23d of that year; that the conveyances by Stearns were carried out as planned; that the money due on the subscriptions for $50,000, procured from Davenport and Laing October 20th, was actually paid on October 23d, and the respondents concede that it was applied to the purchase price of the Pickrell property; and in fact that the whole of the purchase price for the Pickrell property was paid from funds of the Plymouth Oil Company.
Another significant fact is that while, practically all of the promoters testified in the case, none of them testified that there was any intention to purchase the Pickrell property for their own individual accounts.
The reason for holding that a fiduciary relation exists between promoters and the corporation which they organize is that they create it, and, therefore, mould its organization and policies. Old Dom. Copper Co. v. Bigelow, 203 Mass. 159, 89 N.E. 193, 40 L.R.A. (N.S.) 314.
While there is, perhaps, no one decisive test of the moment at which the relation of promoters to a corporation is assumed
(Enrich on Promoters, § 15; In re Olympia, Ltd., [1898] 2 Oh. D. 153, 181, 182, affirmed under the name of Gluckstein v. Barnes, [1900] App. Cas. 240) generally speaking that relation begins when they actually enter upon its formation or creation; when they take the first decisive steps to carry out their prior plans to create a corporation (Ehrich on Promoters, § 17; Yeiser v. U. S. Board  Paper Co. [C.C.A.]107 F. 340, 52 L.R.A. 724; Densmore Oil Co. v. Densmore, 64 Pa. 43).
As I view it, it is apparent from the above facts that the Pittsburgh group, who mainly composed the respondents in this case, not only did not stop with a mere vague intention to organize the Plymouth Oil Company, but prior to October 8th, 1923, had taken numerous decisive steps to carry out that intent.
Further than that, it is not denied that the whole of the purchase price of the Pickrell property was paid by the Plymouth Oil Company and by money furnished, in part, at least, by stock subscriptions made by the appellants.
While this fact, standing alone, may not be controlling, it is extremely important when considered in connection with the other facts in this case. Ehrich on Promoters, § 16, and cases hereinafter cited.
My conclusion, therefore, is that the Stearns group had become promoters of the Plymouth Oil Company prior to October 8th, 1923, and were acting for that company when the Pickrell contract was executed; or, at any rate, by reason of the fiduciary relation existing between them and the Plymouth Oil Company, that the corporation was entitled to the benefit of the Pickrell contract and to the utmost good faith on the part of the Stearns group.
The retention of any secret and undisclosed profits by that group was, therefore, unlawful and constituted a fraud on the corporation.
The relation of promoter to a corporation has been held to exist in much weaker cases than this but as I am only concerned with this particular case, it is sufficient to say that the authorities support the conclusions above stated. In re Olympia, Ltd., [1S9S] 2 Ch. D. 153 (affirmed under the name of Gluckstein v. Barnes, [1900] App. Cas. 240); Foss v. Harbottle, 2 Hare 461; Pietsch v. Milbrath, 123 Wis. 647, 101 N.W. 3S8, 102 N.W. 342, 68 L.R.A. 945, 107 Am. St. Rep. 1017; Simons v. Vulcan Oil  Mining Co., 61 Pa. 202, 100 Am. Dec. 628; Densmore Oil Co. v. Densmore, 64 Pa. 43; Burbank v. Dennis, 101 Cal. 90, 35 P. 444; Woodbury Heights Land Co. v. Loudenslager, 55 N. J. Eq. 78, 35 A. 436; Yeiser v. U. S. Board  Paper Co. (C.C.A.) 107 F. 340, 52 L.R.A. 724; Central Trust Co. v. East Term. Land Co. (C.C.A.) 116 F. 743; Plaqueminos Trop. Fruit Co. v: Buck, 52 N. J. Eq. 219, 27 A. 1094; Hinkley v. Sac Oil  Pipe Line Co., 132 Iowa, 396, 107 N.W. 629, 119 Am. St. Rep. 564; Ladywell Mng. Co. v. Brooks, [1SS7] L. R. 35 Ch. D. 400.
The appellees attempt to distinguish some of the above cases on the ground that they were not quasi agency cases, and also on the ground that actual misrepresentations were made by the promoters. But if a fiduciary relation existed, the principles involved would be the same, and it would not matter whether they were quasi agency cases or overvaluation cases, or whether there were concealments of facts which it was their duty to disclose, or actual misrepresentations of facts. Either would constitute fraud, and the method of committing the fraud in a particular case would not matter.
Having reached the conclusion that the facts above stated establish a fiduciary relation between the Stearns group and the Plymouth Oil Company, it is unnecessary for me to consider the effect of any representations alleged to have been made by Farquhar and others after October 23d, as to the amount of stock authorized and outstanding; nor is it necessary for me to consider the letter of March 1st, 1924, sent to the stockholders of the Plymouth Oil Company, stating that that corporation had been organized to take over the Texas oil lands, and signed by certain officers of the corporation, who were also members of the promotion group.
The majority opinion does not expressly pass on, or even discuss, the so-called agency question, but the court below held that Stearns and the group for whom he was acting acted for themselves when they entered into the Pickrell contract of October 8th, 1923, and not for the Plymouth Oil Company. *Page 215 
The Chancellor, apparently, based his conclusions on two grounds:
1. That Stearns and his associates had assumed definite obligations to Pickrell by the contract of October 8th, 1923, and by the guarantees of such contract and the execution and endorsement of certain rotes.
2. That the Plymouth. Oil Company had not then been organized and that the Stearns group were not bound to organize that company and to convey the Pickrell property to it.
It is true that certain nominal obligations were assumed by Stearns and his associates when they executed the Pickrell contract, and the guarantees and notes given in connection therewith. From the very beginning, however, they had planned that these obligations should be met by the corporation when organized, and that they, individually, would not pay one cent thereon; and, pursuant to this plan, they had the Plymouth Oil Company assume all of such obligations the very day that it was organized. Further than that, as I have already pointed out, they had not only planned that this obligation should be met by the corporation, but even before the execution of the contract of October 8th had set to work soliciting subscriptions for the preferred stock of the corporation intended to be created.
But that is not all. They had even figured that the purchase price and cost of drilling the other wells referred to in the Pickrell contract would amount to approximately $450,000 and they planned that the preferred stock of the corporation should be sold for exactly that amount — that is to say, at $3 per share.
It may be true that the promoters were not bound to organize the Plymouth Oil Company, but the answer is that they did organize it, and that argument was rejected in In re Olympia, Ltd., [1898] 2 Ch. Div. 153. This case was affirmed under the name of Gluckstein v. Barnes, [1000] App. Cas. 240, and the same principle was announced. See, also, Simons v. Vulcan Oil  Mining Co., 61 Pa. 202, 100 Am. Dec. 628; South Joplin Land Co. v. Case, 104 Mo. 572, 16 S.W. 390.
As I have already stated, the appellants admit that the promoters disclosed the fact that they had retained a profit of 200.000 shares of its common stock on their transactions with the Plymouth Oil Company, but claim that they knew nothing whatever about the retention of the remaining 700,000 shares of such stock.
This contention is not specifically denied, though it is pointed out that the minutes of the Plymouth Oil Company show what was Paid for the Pickrell property and what profits, in the way of stock, were retained by Stearns and his associates, but there is nothing to show that any of the appellants ever saw these minutes, or that they had any Knowledge of the facts appearing therein when they bought their stock in that company.
Because of what appears in the books of the corporation, the respondents contend that the profits taken were not concealed. In support of this contention, they cite Mason v. Carrothers, 105 Me. 392,74 A. 1030; Burneagle Coal  Coke Co. v. Henritze, 139 Va. 422,124 S.E. 224; St. L., etc., Ry. Co. v. Tiernan, 37 Kan. 606, 15 P. 544; Ehrich on Promoters, § 112.
In this connection, Chancellor Wolcott, in Cahall, Receiver, v. Burbage, 13 Del. Ch. 303, 119 A. 576, aptly said:
"The failure of stockholders to examine the corporate records and books and thus acquire knowledge of the wrongful acts of the corporate officers and directors, is not to be attributed to their negligence, for they have a right to assume that the officers and directors will be faithful to their trust."
The same principle was announced by the then chancellor in Cahall, Receiver, v. Lofland et. al., 12 Del. Ch. 125, 107 A. 769. The case was affirmed by this court on appeal. 13 Del. Ch. 384, 118 A. 1.
In principle, so far as this state is concerned, this would seem to settle this contention.
Further than that, while apparently complete in every detail, itis not perfectly clear when these minutes became a part of the corporate records, as it is admitted that the details, with respect to the Pecos and Upton County properties, were not filled in at the time they purport to have been written in the books.
It is contended that there wag, at any rate, no intentional concealment of the promoters' profits, but this is not an action for false representations, and that question would, therefore, seem to be wholly immaterial to this issue. Ehrich on Promoters, § 100.
As we have already seen, the burden of proof to show the existence of facts, creating a fiduciary relation between the Plymouth Oil Company and the Stearns group, rests upon the complainants below, the appellants in this court, but the burden of showing that the fiduciaries, when such relation is established, acted fairly with the corporation rests squarely on such fiduciaries. Erlanger v. New Sombrero Phosp. Co., [1878] L. R. App. Cas. 1218.
But there are other important questions that must be considered in determining whether the appellants can recover in this action. The enormous block of stock in dispute, retained by the promoters, as a part of their profits in their transactions with the Plymouth Oil Company, represented a par value of $3,500,000 and was and is a corporate liability to that amount. It, therefore, affected the corporation and the value of every share of stock held by any original subscriber. *Page 216 
By reason of that fact, and because of the fiduciary relation existing between them, it may be stated as a general rule that promoters of a corporation have no right to retain any profits in any transactions with such corporation unless all persons who have subscribed for, and then owned stock in it, have full knowledge of the facts and have either expressly or impliedly consented to the retention of such profits. Old Dom. Copper Co. v. Bigelow, 203 Mass. 159, 89 N.E. 193, 40 L. R.
A. (N.S.) 314; Old Dom. Copper Co. v. Lewisohn, 210 U.S. 206,28 S. Ct. 634, 52 L. Ed. 1025; Davis v. Las Ovas Co., 22T U. S. 80, 33 S, Ct. 19T, 57 L. Ed. 426; Id., 35 Ohio App. D. C. 372. It may be further stated as a general rule that where undisclosed profits are retained, a court of equity will grant the appropriate relief in a bill filed by the corporation against the promoters who retained such profits. Old Dom. Copper Co. v. Bigelow and Old Dom. Copper Co. v. Lewisohn, and Davis v. Las Ovas Co., supra.
The same rule would also be applied even if the promotion group were then the only persons who owned stock and were, therefore, the only persons then interested in the corporation, if a further issue and sale to the public was then authorized and intended, and stock was issued and sold pursuant to that intent. Ehrich on Promoters, § 124; Old Dom. Copper Co. v. Bigelow, 203 Mass. 159, 89 N.E. 193, 40 L.R.A. (N.S.) 314; Bigelow v. Old Dom. Copper Co., 74 N. J. Eq. 457, 71 A. 153; In re Leeds and Hanley Theaters, [1902] 2 Ch. D. 809; Luganos Nitrate Co. v. Luganos Syndicate, [1899] 2 Ch. D. 392; Gluckstein v. Barnes, [1900] App. Cas. 240; In re Seamless Paper Box Co., L. R. Oh. D. 467; Plaquemines Trop. Fruit Co. v. Buck, 52 N. J. Eq. 219, 27 A. 1094; Pietsch v. Milbrath, 123 Wis. 647, 101 N.W. 388; 102 N.W. 342, 68 L.R.A. 945, 107 Am. St. Rep. 1017.
And the mere fact that the value of stock held by other persons, who might have assented to such profits, would be affected thereby does not affect this rule. New Sombrero Phos. Co. v. Erlanger, 5 Ch. D. 73, 3 App. Cas. 1218; Davis v. Las Ovas Co., 227 U.S. 80, 87, 33 S. Ct. 197,57 L. Ed. 426.
It is conceded, however, that the rule last stated would not apply, and the corporation would have no right of action if the promoters, who organized it, intended when such profits were taken that they themselves should alone compose the corporation, as originally created, and, therefore, subscribe for all of the authorized issue of stock. Old Dom. Copper Co. v. Bigelow, 188 Mass. 315, 74 N.E. 653, 108 Am. St. Rep. 479; Id., 203 Mass. 159, 89 N.E. 193, 40 L.R.A. (N.S.) 314; Arnold v. Searing, 73 N. J. Eq. 262, 67 A. 831; Id., 78 N. J. Eq. 146,78 A. 762.
In discussing this rule, Ehrich on Promoters at section 121, says:
"In its final analysis, the basis of the rule just stated is the fundamental one, that the promoters' profits are lawful if disclosed to all the subscribers, and acquiesced in by them. There is, when all the shares are issued to the promoters, no one to complain, for all the original subscribers are parties to and have full knowledge of the transaction. All subsequent holders receive their shares directly or indirectly from the promoters, stand in their shoes, and are bound by their acquiescence."
Section 124 of the same work is to the same effect.
Before considering these questions any further, I shall consider the rights of the corporation from the standpoint of the Pecos and Upton County properties.
It is true that the record shows that Stearns had no rights whatever, in these properties when he contracted to assign rights therein to the Plymouth Oil Company on October 23d, 1923.
And as I view the matter, the fact that he then hoped to acquire, and at a subsequent date did actually acquire, rights in those properties, while important as between Stearns and the corporation, cannot in a court of equity affect the rights of persons who subscribed for stock after October 23d, but before any such rights were actually acquired by the Plymouth Oil Company.
However that may be, as is pointed out both by the court below and the majority opinion, there is no evidence in the record to show what profits were retained by the promotors on these properties; and even if as contended by the appellants, the strict application of equitable principles throws the burden on the respondents to show that they acted fairly with the corporation, and that in the absence of such proof the relief asked for should be granted, I prefer not to consider that question, or to base any relief on that ground.
Returning to the main question, it is true that the Supreme Court of the United States in Old Dom. Copper Co. v. Lewisohn, 210 U.S. 206,28 S. Ct. 634, 52 L. Ed. 1025, refused to allow any recovery in an action by a corporation against the promoters, where corporate action was based on the rights of subsequent, though originally contemplated subscribers for stock.
The court based its decision on the ground that there were no outside interests when the transaction complained of took place.
There were two questions involved in that case. One question was as to the rights of syndicate members between themselves, and the other was whether property purchased by the promoters, months before, with their own funds had been sold to the corporation which they controlled at an unfair price; and some seven years later, when the stock of the corporation must have been to some extent scattered, it was sought to hold Lewisohn alone *Page 217 
responsible for all acts committed by his associates, as well as by himself.
The appellants contend that the Lewisohn Case has no bearing on this case because it was admitted in the brief riled by the attorneys for Lewisohn that the promoters would have been liable to the corporation if the property had been originally purchased with corporate funds.
That question was not involved in the case and was, therefore, not passed or. The court, however, apparently applied on the technical rule that the identity of £ corporation remains unchanged, though there may be changes in its membership: and as there was stock not held, by the promoters, which was intended to be issued to the public, this case may, therefore, support the contention of the respondents that there can be no right of action by the appellants because there were no other persons interested in the corporation on October 23d, with the possible exception of Davenport and Laing, who are not complainants.
Whether the Supreme Court would apply this rule in all cases, or whether it might in an appropriate case look behind the mere corporate entity, is not perfectly clear, but the court in this connection did say:
"We, at least shall require stronger equities than are shown by this bill to allow it [the corporation] to renew its claim at a later datebecause its internal constitution has changed."
In the same connection it also said:
"On the other hand, if we should undertake to look through fiction to facts, it appears to us that substantial justice would not be accomplished, but rather a great injustice done, if the corporation were allowed to disregard its previous assent in order to charge a single member with the whole results of a transaction to which 13/15of its stock were parties, for the benefit of the guilty, if there was guilt in any one, and the innocent alike."
From the above quotations, it may be doubted whether the Supreme Court meant to wipe out the old established rule in its entirety, or merely refused to look behind the corporate entity in that particular case any further than to ascertain that, at the time the transaction complained of took place, no outside interests were involved.
The Supreme Court of Massachusetts, in a suit growing out of the same transaction, in the leading case of Old Dominion Copper Co. v. Bigelow,203 Mass. 159, 89 N.E. 193, 40 L.R.A. (N.S.) 314, supra, analyzed the authorities at great length, and refused to follow the Lewisohn Case, either on reason or authority. The appellants also point out certain differences between the allegations in the bills filed in these cases, but as my conclusions arc not based on the Pecos and Upton County properties, though they were acquired by the corporation after the appellants had purchased their stock, it seems unnecessary to consider them in this case. See Bigelow v. Old. Dom. Copper Co.,74 N. J. Eq. 457, 71 A. 153; Old Dom. Copper Co. v. Bigelow, 203 Mass. 159,89 N.E. 193, 40 L.R.A. (N.S.) 314; Old . Dom. Copper Co. v. Lewisohn (C. C. A.) 195 F. 637; Old Dom. Copper Co. v. Lewisohn (C.C.A.) 202 F. 178.
While an analysis of the cases would not be helpful, Mason v. Carrothers, 105 Me. 392, 74 A. 1030; Bigelow v. Old Dom. Copper Co.,74 N. J. Eq. 457, 71 A. 153; Allenhurst Park Est. v. Smith (N. J. 'Ch.)138 A. 709; Victor Oil Co. v. Drum, 184 Cal. 226, 193 P. 243; Beal v, Smith,46 Cal. App. 271, 189 P. 341; American Forging Co. v. Wiley,206 Mich. 664, 173 N.W. 515; Meier v. Eaton, 46 S. D. 286, 192 N.W. 721 — apparently still adhere to the old established rule as laid down by the Massachusetts Court.
The Federal and Territorial Courts are necessarily bound by the Lewisohn Case. Hughes v. Cadena De.Cobre Mining Co., 13 Ariz. 52,108 P. 231; Ball v. Breed, etc. (C.C.A.) 294 F. 227; Ball v. Chapman (C. C. A.) 1 F.(2d) 895; American Shipbldg. Co. v. Commonwealth S. S. Co. (C. C. A.) 215 F. 296; Old Dom. Copper Co. v. Lewisohn (C.C.A.) 202 F. 178; Id., 229 U.S. 613, 33 S. Ct. 772, 57 L. Ed. 1352.
While the rights of syndicate members, only, were involved because of the facts the Lewisohn Case was distinguished and a different conclusion was reached, in Davis v. Las Ovas Co., 227 U.S. 80, 33 S. Ct. 197,57 L. Ed. 426 (Id., 35 Ohio App. D. C. 372).
Neither Ball v. Breed, Ball v. Chapman, nor American Shipbldg. Co.v. Commonwealth S. S. Co., supra, is particularly helpful.
In both Ball v. Breed and Ball v. Chapman, however, it not only appeared that a prospectus issued by the promoters stated that they were taking a profit, but it also appeared that no outside stockholders were contemplated and that the promoters' stock was sold to the public.
In American Shipbldg. Co. v. Commonwealth S. S. Co. it also appeared that there were prior uninformed subscribers for stock, and both the Bigelow and Lewisohn Cases would therefore seem to apply.
The appellees claim that the Lewisohn Case was also approved in Hoffman Motortruck Co. v. Erickson, 124 Minn. 279, 144 N.W. 952; Lilylands, etc., Co. v. Wood, 56 Cal. 130, 136 P. 1026; Hamilton v. Hamilton, etc., Co., 110 Or. 546, 223 P. 926; Inland Nursery Co. v. Rice, 57 Wash. 67, 106 P. 499; Joe Vasey v. New Export Coal Co., 89 W.Va. 491, 109 S.E. 619; Ringolsky v. Maud Mining Co., 262 Mo. 241,171 S.W. 56; Roberson v. Draney, 53 Utah, 263, 178 P. 35.
But the courts in many of those cases, apparently, were not required, under the facts, to either approve or disapprove that case. *Page 218 
In Hoffman v. Erickson, the court, among other things, said:
"Nor is claim here made that any of the subsequent purchasers of stock were without knowledge of the facts when they purchased, or were in any way deceived."
In Hamilton v. Hamilton Mines Co., the promoters actually took all the stock and there was nothing to show any intent to sell any of it to the public; further than that; while it appears that there were subsequent sales by the promoters, the purchasers knew that they were buying from them, and not from the corporation. The court, therefore, relied on both the Bigelow and Lewisohn Cases.
In Vasey v. New Export Coal Co., while the capital of the corporation was increased after its organization and stock was ultimately sold to the public, the promoters had originally taken all of the authorized stock issue in return for the transfer of property owned by them, and there was nothing to indicate that any stock was originally intended to be sold to the public. This case would, therefore, seem to come directly within the principles announced in Salomon v. Salomon  Co., [1897] App. Cas. 22, In re British Seamless Paper Box Co. L. R. 17 Ch. D. 467, and the like.
While the Lewisohn Case was cited the court said, "But innocent subsequent purchasers of stock are not complaining as parties in this suit"; and it does not clearly appear that a distinction between the rights of the corporation and the individual stockholders was intended.
In Ringolsky v. Maud Mining Co. the Court said that:
"There was neither intent to sell nor sale of stock to third persons. There were no subscribers save the eight [meaning the promoters]."
They also said:
"This is not a ease in which promoters have deceived their fellow incorporators or subsequent subscribers by misrepresenting or concealing the price of property delivered to a corporation they were forming."
In Roberson v. Draney, all of the stockholders apparently consented to the transaction. On page 272 (178 P. 38), the court said:
"The principal cases relied on by plaintiffs' counsel are [citing among others the Bigelow Case]. * * * Upon the whole, we are of the opinion that the better reason and the weight of authority are found in the cases cited by plaintiffs' counsel."
The facts in Lilylands Co. v. Wood are not perfectly clear, but while there was considerable discussion as to both the Bigelow and Lewisohn Cases, they would seem to indicate that all subsequent contemplated stockholders had consented to what had been done.
In, at least, some of the above cases the courts also call attention to the fact that the facts were more similar to the Lewisohn than to the Bigelow Case, and, therefore, apparently did not cite the Lewisohn Case to sustain the technical legal entity rule, that would apply to all cases and would prevent corporate recovery where there were subsequent, though originally contemplated, subscribers for stock.
The rule relied on by the appellants Is a practical one intended for the prevention of fraud and injustice. Bigelow v. Old Dom. Copper Co.,74 N. J. Eq. 457, 71 A. 153; Allenhurst Park Est. v. Smith (N. J. Ch.)138 A. 709. While there may be isolated cases where justice would not be done, if this rule be applied, if the Lewisohn Case intended in all cases to apply the corporate entity rule, though subsequent sales of authorized stock were contemplated by the corporation, I prefer to adhere to the old rule as laid down by the Massachusetts Court, as being more likely to prevent fraud.
As the Court below based its conclusion on the value of the property and not on the ground that the corporation had no right of action in this case, the Chancellor must have been of the same opinion.
While the Massachusetts case was an overvaluation, and not a so-called agency case, so far as the right to sue is concerned, the same principle is involved.
Judge Rugg, who delivered an exhaustive opinion setting forth the views of the majority of the court, among other things said:
"In this respect the question is one of intention of the promoters. If they actually intend at the time the company is brought out to remain its sole owners and that it shall not receive the money of innocent shareholders in the future, then although thereafter the exigencies of the company may be such as to require the issue of additional stock, they may not be responsible. In re British Seamless Paper Box Co., 17 Ch. D. 467, is an illustration of this principle. There it was found that the promoters were and intended to remain the sole proprietors of the property of the company and the sole members of the company. Cotten, L. J. at p. 479, said: 'Here it is an established fact that when the company was formed, * * * it was intended to carry it on without calling in the public, or issuing any shares except to the then existing shareholders. Therefore the doctrine that directors may not take a profit for themselves is inapplicable, because all the members knew that they intended to make a profit. It is true that some new members were subsequently taken in. If shortly after this transaction a prospectus had been issued and the public had been invited to come in and take shares, no court would have listened to directors who said that it was not intended to take in fresh members. But this was commenced and carried on entirely as a private company, and a *Page 219 
considerable time, elapsed before they asked any one to join them."
Judge Rugg also said:
"The real ground of the decisions of which Salomon v. Salomon is a type is that the corporation is estopped by the circumstance that all persons with financial concern in the matter have assented with knowledge, and thus the lips of everybody are sealed. It is not that no wrong has been done, but that whatever wrong has been done has been condoned."
The theory applied by the Massachusetts Court is that there is a fraud on the corporation, if property is conveyed to it at an overvaluation by the promoters who control it, but that a Court of Equity will disregard the corporate entity and refuse any remedy as long as the whole of its outstanding stock is held by the promotion group.
It further held, however, that a remedy will be granted to right the wrong previously done when originally contemplated stockholders subsequently subscribe for stock, even if the promoters had owned all of the stock that had been actually issued when the act complained of took place. This is shown by the quotations from the opinion of that court appearing in the majority opinion.
If the decision of the court in the Lewisohn Case was based on the fact that it would be inequitable to permit the corporation to recover in that particular case, I see no inequity in permitting a recovery in this case. If, as the promoters have from the outset strenuously contended the oil rights in question were worth anything like $5,250.000 on October 23d. as there had been no material change in conditions since October 8th, they ran no risk in assuming the obligations of the Pickrell contract, This was conceded by the court below, as well as by the majority opinion.
It is true that they procured the oil rights in question for the corporation, but they, at all times, expected it to pay for such rights with funds furnished by subsequent subscribers for its preferred stock. The complainants, who insist on litigating corporate rights, belong to that class, and the fact that promoters were instrumental in procuring such rights did not justify their retaining, as against such innocent contemplated subscribers, profits in stock having a par value of $4,500.000 of what was, in effect, a total authorized capital stock of $5,250,000.
It is conceded that the retention of slock, having a par value of $1,000,000 was known to the complainants, but the remaining $3,500,000 was not known when they purchased their stock.
It was suggested in the brief of appellants that if the promoters were entitled to any compensation, in addition to the $1,000,000 disclosed, that they might have been allowed a reasonable amount for organizing the corporation. There is authority for such an allowance (Mason v. Carrothers, 105 Me. 392, 74 A. 1030; Allenhurst Park Est. v. Smith [N. J. Ch.] 138 A. 709; Bigelow v. Old Dom. Copper Co., 74 N. J. Eg. 496; 14 C. J. Corporations, § 332), but as it was not argued before us, I express no opinion on that question.
However that may be, if all subscribers for the preferred stock had been notified, before they purchased their stock, of what profits the promoters had retained, there could be no recovery against them in this action, but for obvious reasons the promoters preferred the indirect rather than the direct method.
The majority opinion states that the complainants did not take stock until the success of the corporation had been assured, but as I read the record it does not sustain this statement, as the success of the corporation does not seem to have become an assured fact until the early summer of 1924. In fact, it apparently did not get beyond the "wildcat" stage until well No. 9 was completed on June 20th of that year.
It is true that there is some evidence that the stock was being sold by those who owned it at a price of from $5 to $6 a share in March of 1924, but the reasons for such prices, apparently, do not appear. At any rate, my attention has not been called to its being due to the production of any other wells.
Some of the stock owned by the complainants was purchased as early as November 2d, 1923, and numerous other purchases were
made in January and February, to say nothing of March and May of 1924. Nor am I able to say that the fact that the appellants only purchased about 20 per cent. of the preferred stock issue affects their right to corporate recovery in this action.
It, apparently, does not appear who purchased the remainder of that issue. While it appears that the whole issue was sold for approximately $453,000, it was apparently sold to the public and it is not contended that the Stearns group invested a single dollar in it, though it was almost wholly used to meet the purchase price of the Texas property and the other obligations of the Pickrell contract. At any rate, that group certainly invested no money in this stock in the formative or uncertain stage of the corporation.
It is true that the investment made by the appellants in the stock of the Plymouth Oil Company has been more than profitable, but that does not affect the principle involved or the equities of the case. See Lagunas Nitrate Co. v. Lagunas Syndicate, [1899] L. R. 2 Ch. D. 392, 442.
But even if the appellants are entitled to no special consideration by reason of the fortunate character of their investment of the stock in this company, this is a case of first impression in this state, and while largely a question of fact, it, nevertheless, involves certain legal principles which will have some bearing in governing the attitude of this *Page 220 
court in subsequent eases. The conclusion reached by this court is, therefore, of much more importance than the mere controversy between the parties interested in this action, though the amount of money involved may be very large.
As I view it, the final solution of the question as to whether the appellants have a remedy in this case depends upon whether the Stearns group really intended that they should be the only persons interested in the Plymouth Oil Company, and to that end were to be the real subscribers for the whole of its authorized capital stock when it was organized; or whether the preferred stock was in effect sold to the appellants by the corporation as an original issue.
It is true that the record shows that prior to the execution of the Pickrell contract, the promotion group had agreed that all of the benefits as well as the obligations of that contract should be transferred to the Plymouth Oil Company. While it was, also, agreed that the preferred stock, as well as 900,000 shares of the common stock, should be issued to that group in return for the assignment of the stock of the Big Lake Oil Company, it was further agreed that the whole of the authorized preferred stock issue should be turned back to a trustee for the Plymouth Oil Company, to be sold at $3 per share, to raise the necessary funds to meet the obligations of the Pickrell contract, and to supply working capital for that company.
Pursuant to this plan, when the Plymouth Oil Company was organized on October 23d, 1923, a resolution passed on that date provided for the issuance of the preferred stock to Stearns, but at the same meeting a letter from Stearns bearing a previous date was presented which, in substance, stated that he understood it would be necessary to sell the preferred stock to raise the required capital to finance the corporation and offered to assign to it, or to a trustee to be named by it, the whole of the preferred stock issue, to be sold at such price as the corporation might fix. The corporation therefore designated Farquhar, its treasurer, trustee to sell such stock, and a trust agreement, providing for such sale, at such a price as the corporation should fix was executed by the Plymouth Oil Company and by Stearns and Farquhar on October 25th, 1923.
The board of directors of the Plymouth Oil Company prescribed a sale price of $3 per share, and the stock was sold and all checks were made payable to the Plymouth Oil Company.
Stock subscriptions had already been solicited by Farquhar and others of the group, who organized the Plymouth Oil Company, and pursuant to such solicitations we have seen that Davenport and Laing had already subscribed for preferred stock to the amount of $50,000 on October 20th, and it is conceded that this amount was paid on October 23d, and applied to the purchase price of the Pickrell property; the first installment thereon being due November 6th, 1923.
A court of equity will disregard mere form and consider the substance of a matter, and my conclusion from the above facts is that the Stearns group never intended that they, alone, should compose the corporation, by reason of being the real owner of all of the stock which it was then authorized to issue, and that their unlawful acts in this case have, therefore, not been condoned.
The preferred stock was never actually issued to them, and from the very first they had contemplated raising the necessary funds to pay for the Pickrell property, and to otherwise finance the corporation by a sale of the preferred stock to the public, and there is nothing to indicate that such sale was to be made by them as individual owners. While they took certain steps in which they attempted to make it appear that they were the owners of the preferred stock, and therefore the only persons interested in the corporation, as I view it such steps were mere subterfuges, and it was, at all times, intended that the corporation should receive the benefit of the sale of that stock.
If that be true, no facts justifying the application of the law of estoppel against the appellants, because of their having required the stock indirectly from the promotion group, appear.
This conclusion seems not only to be supported by reason, but also by authority.
In California-Calaverae Mining Co. v. Walls, 170 Cal. 285, 149 P. 595, the Court said:
"It is to be observed that by the antecedent oral agreement and understanding between Manson and the Chicago parties and by the terms of the written contract between them it was contemplated and intended that in the organization of the corporation future stockholders should be brought in; that treasury stock to the amount of 150,000 shares should be issued to Brown as trustee of the corporation to be sold to third parties for the benefit of the corporation at prices and terms set out in the contract, and another 150,000 shares were to be held by the corporation as a fund for its future use which of course, involved a right in the corporation to sell it to future stockholders. There were then 150,000 corporate shares which the agreement expressly provided should be sold to constitute future stockholders in the corporation and 150,000 shares additional subject to sale for such purpose; an aggregate of 300,000 shares or three-fifths of the capital stock of the corporation. Brown actually did sell a very large portion of this treasury stock pursuant to the agreement."
It also said:
"It is true that upon the organization of this corporation the form of the transaction respecting the transfer of the property to it was one between Manson as owner of all its stock and *Page 221 
himself as having received in effect an option on the mining property transferred by him to it.
"The mere form * * * which the transaction between Manson and the corporation took may not be interposed to defeat what was the evident purpose and intent of all the parties interested in the organization of the corporation and the acquirement of the property by it."
With regard to certain parties who were equitable stockholders, as contrasted with other stockholders, the court further said:
"While nominally issued to Manson the stock was in reality acquired by him to a large extent for the benefit of his associates as intended stockholders with him in the corporation and" to a still larger extent "for the immediate benefit of the corporation as treasury stock to be sold to future stockholders."
While this case involved unissued stock, as well as stock that had been issued to the promoters, and pursuant to a prior plan, donated to the treasury of the corporation to be sold for corporate purposes, no distinction was made on that ground. Yale Gas Stove Co. v. Wilcox, 64 Conn. 101, 29 A. 303, 25 L.R.A. 90, 42 Am. St. Rep. 159, and Anderson v. Johnson, 45 Rawle I. 17, 119 A. 642, would seem to support this conclusion. See, also, Ehrich on Promoters, § 125; section 14, note 60; Pittsburgh Mining Co. v. Spooner, 74 Wis. 307, 42 N.W. 259, 17 Am. St. Rep. 149; Macey Co. v. Macey, 143 Mich. 138, 106 N.W. 722, 5 L.R.A. (N.S.) 1036; Hinkley v. Sae Oil, etc., Co., 132 Iowa, 39G, 107 N.W. 629, 119 Am. St. Rep. 564; Tilden v. Barber (D. C.) 268 F. 587; American Forg. Co. v. Wiley, 206 Mich. 664, 173 N.W. 515; Lagunas Nitrate Co. v. Lagunas Syndicate, [1899] 2 Ch. D. 392, 449.
It is true that some states have held that the purchase from the corporate treasury of stock that in accordance with the original plan has been taken by the promoters hut immediately donated to the corporation to be sold for corporate purposes gives no rights to corporate action in a case of this character (Ins. Press Co. v. Montauk Wire Co., 93 N. Y. S. 134, 103 A.D. 472; see also Soule v. Kunkle,71 Colo. 221, 205 P. 529: Flagler Engraving Co. v. Flagler [C.C.A.] 19 F. 468), but as I view it, such oases overlook the basic principles upon which eases like Salomon v. Salomon Co., [1897] App. Cas. 22; Attorney Gen. v. Standard Trust Co. of New York [1911] App. Cas. 498; In re British Seamless Paper Box Co., L. R. 17 Ch. D. 467, and the like, referred to in the Bigelow Case, 203 Mass. 159, 89 N.E. 193, 40 D. R. A. (N.S.) 314, are based, and substitute mere form for substance, and thereby not only encourage fraud, but defeat substantial rights.
While the principles laid down by the cases above referred to arc well-established exceptions to the general rule, I see no reason for extending such exceptions to the extent of Practically doing away with the rule regardless of the principles upon which such exceptions are based.
From the standpoint from which I have considered this case, the value of the property on October 23d, 1923, has no bearing on the rights of the promoters, because a fiduciary is bound to purchase at the best price pos sible and has no right to retain any secret profits on his transactions with the corporation. Certainly, if the property conveyed was worth the money, and there was, therefore, consideration for the stock issued, no question as to the rights of any bona fide purchasers of the disputed stock from the promoters can be involved in this case. Ehrich on Promoters, §§ 165, 166.
I have already stated that the majority opinion does not consider the promotion or quasi agency theory. It does, however, consider the rights of the parties based on a fiduciary relation growing out of the fact that the Stearns group, also composed the directors of the Plymouth Oil Company, and therefore, controlled its actions, when the oil rights in question were transferred to that corporation, at a valuation of $5,250,000. from this aspect of the case the majority of the Court necessarily treated the Stearns group as owners and not as quasi agents.
With respect to this question, the appellants contend that a three-fourths interest in property which was purchased October 6th, 1923, for approximately $450,000 without any material change in conditions, was not worth $5,250,000 on October 23d, 1923, or only 15 days later.
It is true that the Pecos and Upton County properties were included in the valuation of October 23d, but it is pointed out that the cost of the Upton County property was $1,920.
As I have previously stated, the cost of the Pecos County property does not appear, but it does appear that those properties had not been in any way developed on October 23d. The majority of the court hold that the purchase price above named was reasonable. They base their conclusion on the ground that the court below so found and that there was sufficient evidence to sustain that conclusion.
As my conclusions are based on entirely different grounds, it is not necessary for me to consider that question, or any other contentions made by the appellants. It is intimated that any other conclusion than that the property was worth the agreed sale price would affect the validity of the stock issued to the promoters, even in the hands of bona fide purchasers from such promoters (Const. 1897, art. 9, § 3; Sohland, Bankers' Mortg. Co. et al. v. Baker et al., 15 Del. Ch. —, 141 A. 277); whatever the result of such a conclusion might ordinarily be the prayers of this bill merely ask for the cancellation of stock standing in the name of the promoters, and for an account of the proceeds of any part of the disputed stock that may have been sold (Cahall, Rec., v. Burbage,13 Del. Ch. 303, 119 A. 574) *Page 222 
and there could, therefore, be no such result in this case.
When fraud has been committed it does not rest with the persons who have committed the wrong to select the remedy against them, and under the facts of this case I see no good reason why the stock which the promoters illegally issued to themselves, and which constitutes a tremendous corporate liability, should not be cancelled. Enrich on Promoters, §§ 165, 166; Hayward v. Leeson, 176 Mass. 310, 57 N.E. 656, 49 L.R.A. 725; Davis v. Las Ovas Co., 227 U.S. 80, 33 S. Ct. 197,57 L. Ed. 426; Yeiser v. U. S. Board  Paper Co. (C.C.A.) 107 F. 340, 52 L.R.A. 724.
For the reasons above given, my conclusion, therefore, is that the decree of the court below should be reversed.
A motion for reargument was made by the appellants and heard February 2, 1928.
PENNEWILL, C. J., delivering the opinion of the majority of the Court:
The Court have considered the reasons urged by complainants' counsel for a reargument of the above mentioned case.
It is not satisfactorily shown that any material fact was misconceived or not considered by the Court, neither is it shown that any principle of law applicable to the facts was misapplied or disregarded. The position of complainants' counsel is that they believe the decision to be erroneous and that if permitted to reargue the case, they will be able to convince the Court of that fact.
There has perhaps never been in the Courts of this State a case of more importance or one in which the printed and oral arguments were more thorough and complete. For two years the case has been in litigation here, and during that time two exceptionally able and elaborate arguments have been made before the Chancellor and one before this Court. It is reasonable to believe the last word has been said on the subjects involved. No doubt every point that could be made and every authority that could be cited in support of any contention on either side has been made and cited. Such being the case, we think the final determination of the case should not be longer delayed. If the Court were in doubt about the correctness of its decision, or there was any reason to believe it might be changed by a further argument, we would not hesitate to grant complainants' application. But we are not convinced by anything said in support of the present motion which was a reargument in brief, that another hearing could result in a different decision. The Court are, therefore, constrained to refuse the application.
In disposing of the motion, we wish to refer very briefly to some observations made by counsel on certain language in the Court's opinion, because we feel that the meaning of such language was misconceived. The reasons urged for a reargument were entirely oral; there were no reasons filed, but from our recollection of the argument, we think the criticism of the opinion related mainly to three points. It was contended:
1. That the Court indicated that a promissory note bearing responsible endorsement and given in payment for a stock subscription is property within the meaning of the Constitution.
Certainly there is no basis for this contention. The only reference to "notes" is in that part of the opinion in which the Court stated the reasons given by the Chancellor for his conclusion on the question of agency, viz.:
"Pickrell had Stearns' notes endorsed by certain of his associates. When many of these endorsements were made, not much risk of loss to the endorsers was incurred, hut there is the fact of their existence which cannot be overlooked."
The Chancellor was not speaking of notes given to a company for stock, but notes given to an individual for his property. Obviously there is nothing in the language that warrants the construction placed upon it by counsel.
2. That the minutes of the company showing the profits the promoters received for their property were notice to future stockholders of such profits.
The only reason given for this contention is the following language, on page 34 of the opinion:
"Another fact, tending at least to rebut intentional concealment or misrepresentation by the promoters, is that the minutes of the company showed the Stearns-Pickrell contract, the profits made by the promoters, the total amount of stock issued to the promoters for their property, and other material facts."
This is far from saying that future stockholders are bound by whatever the minutes of the company may disclose. The Court were not considering that question.
3. Exception was taken to the following language used by the Court on page 51 of the opinion:
"The complainants say it was their money that furnished the working capital and caused the success of the company. They did not furnish all the working capital or even the half of it, and besides they bought their stock at a time when the success of the company was assured and their investments safe."
This extract contains two statements of fact and counsel challenges the correctness of both of them.
They say the promoters did not furnish any of the working capital; the Court have not said they did. It must be remembered that some of the outsiders who bought preferred stock, and in that way furnished working capital, were not complainants. Davenport and Laing, and others, who were *Page 223 
large purchasers of preferred stock, are not complainants.
It appears from the record that prior to June, 1924, when the success of the company was unquestionably assured and well known, the complainants had purchased 29,334 shares of preferred stock, costing $88,002. There were 150,000 shares of preferred stock and $450,000 was needed to fulfill the requirements of the Pickrell contract.
Did the complainants buy their stock at a time when the success of the company was assured and their investments safe?
None of the complainants subscribed for preferred stock until November 2, 1923. Davenport, who was a very important witness in the case, and who, together with his friend Laing, paid $50,000 for preferred stock on October 23, 1923, testified that before that date he went to Pittsburgh to look the situation over and became convinced that the proposition was a good one, mainly from the reports of the geologists and the known production of the well that had been brought in, and had held up in production for several months. This indicated to him that it was draining from a large pool of oil, and he thought one of the major pools of the continent had been discovered. He was so fully convinced and satisfied that he was willing to invest $25,000 in preferred stock and advised Laing to do the same. This was several weeks before any complainant invested. It is fair to believe from the testimony that when the first complainant bought preferred stock the, known production of well No. 1 was so great and continuous as to make the success of the company reasonably certain and the preferred stock reasonably safe.
But, after all, these are only questions of fact relating to the equities of the ease, and have no real bearing on its legal aspects. *Page 271