§ 505 Reynolds v. Stockton, 140 U. S. 254-269, 11 Sup. Ct. 773; Moore v. Martin, 38 Cal. 428; Ricketts v. Spraker, 77 Ind. 371; In re Latta, 43 Kan. 533, 23 Pac. Rep. 655; Young v. Lorain, 11 Ill. 624; Van Fleet Col. Attack, § 61.

2. It is admitted that, when a receiver is once appointed by a federal court, other federal courts, through comity, will usually appoint the same person as receiver of the assets within their jurisdiction; but it is argued that, where the appointment is first made by a state court, federal courts are without power to act, in conformity with the principle of comity. No reason for such a distinction is apparent. The state court is of co-ordinate jurisdiction in such matters with the federal court sitting in the same locality. As between the parties, its determination of the insolvency of the corporation and of the need for a receiver is just as conclusive as if had in a federal court. The need for a uniform administration of the assets of an insolvent corporation inheres in the principles of equity, and does not vary with the forum first invoked. It is no unusual thing for a federal court to appoint an ancillary receiver of assets within its jurisdiction in aid of a primary appointment by a state court of another state. Sands v. E. S. Greeley & Co., 31 C. C. A. 424, 88. Fed. Rep. 130.

In Rust v. Water-works Co., 17 C. C. A. 16-20, 70 Fed. Rep. 129-133, the circuit court of appeals of the eighth circuit, said:

"It goes without saying that the court below (United States Circuit Court for the district of Colorado) had the power, upon the presentation to it of the decree of the court of chancery of the state of New Jersey appointing the plaintiff in error the receiver of the property of this insolvent corporation, and the trustee for it creditors and stockholders, to appoint him receiver and trustee, with the same powers, in the district of Colorado, and to authorize him to sue for and to defend suits against the water-works company in that district in the name of the corporation or in his own name."

The plaintiff's contention is without merit.

3. The third objection confounds the nature of a suit for ancillary receivership. It is in no sense a continuation of, or an incident to, the suit in which the primary receiver was appointed. A judgment against the ancillary receiver does not bind assets beyond the jurisdiction of the court appointing him. Reynolds v. Stockton, 140 U. S. 254, 11 Sup. Ct. 773; Johnson v. Powers, 139 U. S. 156, 11 Sup. Ct. 525. "Where a receiver, administrator, or other custodian of an estate is appointed by the courts of one state, the courts of that state reserve to themselves full and exclusive jurisdiction over the assets of the estate, within the limits of the state." Reynolds v. Stockton, supra. "It rests in the discretion of the court appointing the receiver whether the assets within its jurisdiction shall be distributed under its own direction, or shall be transmitted to the primary receiver. U. S. v. Coxe, 18 How. 105." Sands v. E. S. Greeley & Co., 31 C. C. A. 424-426, S8 Fed. 130-133. The two proceedings are entirely independent. The need for a uniform and equitable

distribution of the assets alone moves the discretion of the court of so-called "ancillary jurisdiction" to transmit them to the court of primary jurisdiction. Evidently, to insure equality among creditors, some one court must determine their rights, although the assets may be scattered through many jurisdictions. Among co-ordinate courts, the court of primary jurisdiction is selected for this purpose, not because of any paramount jurisdiction inhering in it, but because of the necessity of making some selection, and of the difficulty of formulating any principle of selection other than that of the first in time.

4. It is true that the matter in dispute in this action does not exceed in value the sum of $2,000, and it would therefore not be removable to this court, except that in a suit pending here the defendant Graves has been appointed receiver of the assets of the North American Savings, Loan and Building Company, that he is sued as such receiver, and the object of the suit is to determine his right to assets claimed by him as receiver. For the purposes of jurisdiction, this suit must be considered as ancillary to the suit pending in this court, in which he was appointed receiver, and, as such, cognizable here, irrespective of citizenship of parties or of amount in controversy. White v. Ewing, 159 U. S. 36, 15 Sup. Ct. 1018; State of Washington v. Northern Pac. R. Co.,.75 Fed. 333; Carpenter v. Railroad Co., 75 Fed. 850; Sullivan v. Barnard, 81 Fed. 886; Bausman v. Denny, 73 Fed. 69. The motion to remand is denied.

Note: See, 1886, Peper v. Fordyce, 119 U. S. 469; 1889, In re Farmers' L. & T. Co., 129 U. S. 206; 1885, Chicot Co. v. Sherwood, 148 U. S. 529; 1893, Empire Coal, etc., Co. v. Empire Coal & M. Co., 150 U. S. 159; 1893, U. S. Trust Co. v. Wabash R. Co., 150 U. S. 287; 1895, White v. Ewing, 159 U. S. 36; 1900, Hutchinson v. Am. Palace Car Co., 104 Fed. Rep. 182; 1900, Hale v. Tyler, 104 Fed. Rep. 757.

TITLE II. THE CORPORATION AND VARIOUS CLASSES OF PERSONS.'

CHAPTER 17.

THE RELATION OF THE CORPORATION TO ITS PROMOTERS, OFFICERS, SHAREHOLDERS, CREDITORS AND OTHERS.

SUBDIVISION I. THE CORPORATION AND ITS PROMOTERS.

Sec. 506.

Definitions and functions of promoters.

See, supra, ch. 4, p. 374..

Sec. 507. Rights of corporation,-duties of promoters.

CHANDLER v. BACON.

1887. IN THE UNITED STATES CIRCUIT COURT, District of MasSACHUSETTS. 30 Fed. Rep. 538-541.

COLT, J. These cases were heard on exceptions to the master's report. The master found that the defendants Bacon and Caduc were promoters of the National Color Printing Company; that, as such promoters, they negotiated an agreement between the owners of certain patents and the National Color Printing Company to be formed, by which, among other things, they were to receive two-sixteenths, or 3,750 shares, of the capital stock of the new company, less 625 shares, which they were to assign to Robert A. Piper; that the defendants offered to the public an option to take the stock in the new company, disclosing the fact of the purchase of the patents, and that a portion of the stock in the company was to be issued to the former owners of the patents in part payment therefor, but not informing the persons who subscribed for the stock that they were to have stock on any different terms or conditions. The master further finds that, at the time the agreement was signed, an understanding was arrived at between the defendants and the officers of the United States Label, Card and Tag Company, the owners of the patents purchased, that the defendant Bacon should be president of the new company, and the defendant Caduc treasurer, and that, pursuant to this agreement, these officers were elected; that the defendants obtained for themselves these positions, and the control of the books of the new company; that they placed a large amount of stock at the uniform price of seven dollars a share; and that, under the agreement, they obtained 3,125 shares of stock, without paying anything into the treasury of the company, as all other persons did who subscribed for the stock upon the solicitation of the defendants, or upon the solicitation

Inasmuch as the topics touched upon in the following chapters are more fully developed in the cases given (or those preceding), and the doctrines relating thereto are easily accessible in all the text-books, only few references to late cases will be hereafter given.

of other persons whom the defendants had interested in said company. The master further finds that the defendants were partners, and that they should pay the receiver at the rate of seven dollars per share for each of the 3,125 shares of stock received by them, with interest from September 23, 1880, amounting to the total sum of $28,794.78, less $17,289.55, the amount the master finds, in cause No. 1,790, the defendant Caduc advanced to the company. The defendants object to the finding of the master that they received 3,125 shares to their own use, without payment of seven dollars per share, because they say that he disregards the fact that said shares had been fully paid for, and that the Color Printing Company had received full value therefor, and that the United States Circuit Court of New Jersey had decreed that these shares were fully paid and properly issued. It appears that Judge Nixon, upon an application by the present receiver, held that these shares in question were full-paid stock for the property purchased, and therefore not liable to assessment, but he also subsequently said that no decision was made as to the validity of the issue of this stock to these defendants, and it was his intention simply to instruct the receiver not to assess this stock.

The question before us now is not whether these shares are to be considered as full-paid stock, but whether these defendants, as promoters of the new company, could take them without consideration, while other stockholders paid seven dollars per share. Clearly, they could not lawfully do this. As promoters of the new company, they occupied a fiduciary relation towards it similar to that of agent to a principal, and they had no right in these negotiations to derive any advantage over other stockholders without a full and fair disclosure of the transactions, and any secret profits so made they must refund to the company. That this may have been done without any fraudulent intent, or that the price paid for the patents was fair and reasonable, can not relieve these defendants. The law forbids them, from their position, to secretly derive any benefit over other stockholders, and makes them accountable to the company for any profit so derived. Bagnall v. Carlton, 6 Ch. Div. 371; Whaley, etc., Co. v. Green, 5 Q. B. Div. 109; New Sombrero Phosphate Co. v. Erlanger, 5 Ch. Div. 73; Emma Silver Min. Co. v. Grant, 11 Ch. Div. 918; Densmore Oil Co. v. Densmore, 64 Pa. St. 43; McElhenny's Appeal, 61 Pa. St. 188; Simons v. Vulcan Oil, etc.,. Co., 61 Pa. St. 202; Emery v. Parrott, 107 Mass. 95; Getty v. Devlin, 54 N. Y. 403.

The finding of the master that the defendants should pay seven dollars a share is objected to as without warrant of law, and it is contended that the defendants are only liable to account for the shares themselves, or for the profit, if any, they have made upon them. I think the company had a right to elect (1) whether they would have the shares transferred back to them; or, (2) if the shares had been sold, that these defendants should turn over the entire profit made by the sale; or, (3) that the company may say: "Although you may have derived no profit by selling the shares, yet you deprived us of placing them with other persons, and you must therefore pay us the

sum we have lost by reason of our being deprived of the right of placing these shares with other persons." Carling's Case, 1 Ch. Div. 115, 126, 127; McKay's Case, 2 Ch. Div. 1; De Ruvigne's Case, 5 Ch. Div. 306; Nant-y-glo, etc., Co. v. Grave, 12 Ch. Div. 738. The last measure of damages has been adopted by the master in this case. It is in proof that a large amount of the stock of the company was placed at a uniform price of seven dollars a share, and the defendants are called upon to account for their stock at this price. I can see no error in this finding of the master.

As to the third exception, the master properly said that there was no evidence that the defendant Bacon, upon request of the plaintiff, delivered up to him, before the proceedings, 750 of the shares in question, and that, therefore, Bacon must be charged as found.

The remaining exception is to the master's finding that the defendants were partners, and as such are jointly and severally liable to the complainant. These defendants signed the secret agreement as parties of second part, and they were acting in concert to promote a common purpose for their common benefit, and consequently they were jointly and severally liable to account to the complainant. When the conduct of parties operates as a fraud or deceit upon third persons, whatever their private intention, the relation of partnership may be said to exist as to such third persons. Story Partn., section 49; Emery v. Parrott, 107 Mass. 95.

Exceptions overruled.

Note. See note, supra, p. 375. 1887, St. Louis, Ft. Scott, etc., R. Co. v. Tiernan, 37 Kan. 606, supra, p. 375; 1889, Pittsburgh M. Co. v. Spooner, 74 Wis. 307; 1896, Woodbury Heights v. Loudenslager, 55 N. J. Eq. 78, and compare this with, 1898, Loudenslager v. Woodbury Heights Co., 56 N. J. Eq. 411, 41 Atl. Rep. 1115, and, 1899, Woodbury Heights L. Co. v. Loudenslager, 58 N. J. 556, 43 Atl. Rep. 671; 1899, Lagunas Nitrate Co. v. Lagunas Nitrate Syndicate, 68 L. J. Ch. 699, 81 L. T. (Ñ. S.) 334, 48 Weekly Rep. 74; 1900, Hayward v. Leeson, 176 Mass. 310, 49 L. R. A. 725.

Sec. 508. Liability of promoters to the corporation and shareholders.

HEBGEN AND OTHERS, RESPONDENTS, V. KOEFFLER, APPELLANT.1

1897. IN THE SUPREME COURT OF WISCONSIN. 97 Wis. Rep. 313-321.

[Appeal from circuit court. The action was to rescind a sale of real estate on the ground of fraud, and to recover of the promoters of a corporation profits alleged to have been fraudulently made by them. The decision was for plaintiff upon findings made.]

MARSHALL, J. There is no controversy but that the judgment appealed from is sustained by the findings of fact and conclusions of law. 1 Statement, except as given in the opinion, omitted.