Court Opinion

ID: 8185097
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:07:28.676127+00
Date Added: 2024-06-11T16:40:23.250774
License: Public Domain

MaRshall, J.
The law is well settled that the promoters of a corporation occupy such relation to it that they cannot legally take any advantage over other members of such corporation, and that they are accountable to if for any profits which they may, by a violation of duty in this regard, receive. Chandler v. Bacon, 30 Fed. Rep. 538; Pittsburg M. *348Co. v. Spooner, 74 Wis. 307; Phosphate Sewage Co. v. Hartmont, 5 Ch. Div. 394; Emma S. M. Co. v. Grant, 11 Ch. Div. 918; Short v. Stevenson, 63 Pa. St. 95; Densmore Oil Co. v. Densmore, 64 Pa. St. 43; McElhenny's Appeal, 61 Pa. St. 188; 1 Morawetz, Priv. Corp. § 291; In re British Seamless Paper Box Co. 17 Ch. Div. 471. In Pittsburg M. Co. v. Spooner, supra,— a case precisely like this, in respect to defendants Garrick and Willis,— the law pertaining to the subject was most exhaustively discussed. Mr. Justice Taylor there stated the conclusion reached, as follows: “ It being shown that the defendants formed the company for the purpose of purchasing this option, and having induced the present stockholders to. furnish $90,000 of. their money to make the purchase under the false impression, created by the defendants, that the defendants would be compelled to pay that amount for the purchase price, and the defendants having afterwards, as officers and agents of the company, purchased for the company such option, and paid themselves $70,000 more than they knew they could purchase it for, and $70,000 more than they in fact paid for the same, it seems to me there can be no doubt of their liability to refund to the corporation the $70,000 so obtained.”
It being conceded, as it must be, that there is a good cause of action stated in the complaint against Garrick and Willis, the actual promoters of the enterprise and the persons who made the false representations and ’ directly received the fruits of the fraudulent transaction, the question is presented on this appeal of whether Roberts and Russell, whom they employed to assist them in perpetrating the fraud, for a portion of the profits, and who, with knowledge of the facts, aided them in the scheme, are also liable to the corporation. It is not alleged that they had any dealings directly with the plaintiff or its members, or occupied any fiduciary relation, strictly so called, to them, or that they made any misrepresentations to the stockholders, or personally knew that any were made. ' To support the contention that they are *349not liable on the facts stated, counsel for appellants cite Densmore Oil Co. v. Densmore, and McElhenny’s Appeal, supra, but an. examination of those cases fails to disclose wherein they are applicable to the facts alleged in the complaint. Here it is distinctly alleged that Garrick and "Willis entered into an agreement with appellants whereby the former were to promote the organization of the corporation and directly procure it to take the property at $23,000, and appellants agreed, in consideration of a part of the profits, to aid in carrying out the scheme which resulted in defrauding the'plaintiff out of $10,587.27; that appellants carried out their part of the agreement, and actually received a portion of the fruits of the fraudulent transaction, with knowledge of the facts. The principle of law that, where several persons combine to carry out a fraudulent conspiracy to cheat another, each and all of such persons are liable to the defrauded party, without reference to the amount of the fruits of the fraudulent transaction he obtains or the degree of his activity in the scheme, is too well settled to admit of discussion or to need any citation of authority in support of it. It is on that principle that defendants Roberts and Russell are charged in this case, and the allegations of the complaint in that regard, as appears from the statement of facts, make out a conspiracy to defraud, entered into and carried out by all the defendants; hence all are equally liable, and the complaint states a good cause of action as to each.
The duties and liabilities of promoters to a corporation and its members are reviewed in the annotation to Yale Gas Stove Co. v. Wilcox (64 Conn. 101) in 25 L. R. A. 90.— Rep.
It follows from the foregoing that the demurrer to the complaint was properly overruled.
By the Court.— The order of the circuit court for Milwaukee county is affirmed.