ganization of the company and prior to the last-named date, Sperry & Jones, who were bankers and brokers by profession, contracted for and on its behalf with each one of certain named brewers and brewing companies of Baltimore, including George Brehm and Joseph Strauss, to the end that they should sell and transfer their brewing establishment to the company, to be paid for by it partly in cash and partly in its bonds and stock at a valuation to be determined by their respective barrelage, or output of barrels of beer, for the preceding year; that the total capitalization of the company, which was expected to absorb all of the breweries in Baltimore having an estimated output of 700,000 barrels per annum, was fixed in the contracts at $14,000,000, being $20 of capital for each barrel of output, it being further understood that, if the entire brewing interests of Baltimore were not brought into the company, its capitalization should be reduced at the rate of $20 per barrel of output of such breweries as failed to come in, such reduction of capitalization to be pro rata in bonds and stock; that it was further provided in the contracts that the several properties should be transferred free of debt to the company, but the latter would buy for cash the stock of malt and hops on hand at the several component breweries as of March 1, 1899, and, further, that out of the proceeds of the bonds and stock to be issued by the company a cash working capital of $500,000 should be provided, and that the balance of the stock and bonds so to be issued should go to Sperry & Jones as compensation for their services, they to pay all of the expenses attending the promotion of the enterprise. Copies of the alleged contracts between Sperry & Jones and George Brehm and Joseph Strauss were filed as Exhibits A and B with the bill, which alleged that all of the contracts with the other brewers were similar in terms to the two of which the copies were filed, and that the other contracts were in the possession of Sperry & Jones. It was further alleged that all of those contracts were made by Sperry & Jones for and on behalf of the company, and provided on their faces that they were to be assigned to and filed with it. The bill, then, after having directly charged that Sperry & Jones in making the contracts with the brewers were acting for and on behalf of the company, proceeds to aver that Sperry & Jones, through the said board of directors, "did compel the said Maryland Brewing Company on February 28, 1899, to assume the obligations of the various contracts with various brewers hereinbefore referred to." The bill then further alleges that the various breweries which were, in fact, transferred to the company, without averring that they were so transferred by virtue of said contracts, represented an output for the preceding year of only 543,000 barrels, against which the terms of the contracts would have permitted an issue

of only $5,320,000 of bonds, and a corresponding amount of stock by the company, but that the appellees Sperry & Jones, having control as aforesaid of the company, caused it to issue to them against the said properties $7,500,000 of bonds, and $2,750,000 of preferred and $2,750,000 of common stock; that this issue of bonds and stock was authorized at a meeting of the company held on February 15, 1899, by the presentation to a stockholders' meeting, and the acceptance by the stockholders in such meeting assembled of a written offer from Sperry & Jones to subscribe for, and take the abovementioned amounts of, bonds and stock of the company, and to pay for $500,000 of the bonds in cash, and to pay for the remainder of bonds and stock so to be subscribed for by a transfer and conveyance to the company of certain specified brewery properties, at the valuations therein set forth. A copy of the minutes of said stockholders' meeting, showing that all of the stockholders were present in person or by proxy, and containing in full the said proposition of Sperry & Jones, is filed with the bill as Exhibit C. The bill then charges that this stockholders' meeting had no legal right to receive or accept said proposition, because it does not appear that prior notice had been given of the meeting and its purpose, as is required by law in such cases.

The bill further charges that the two trust companies, which were made codefendants with Sperry & Jones, and which appear in this court as appellees, with full knowledge of the matters herein before mentioned, entered into an agreement with Sperry & Jones to furnish them the sum of $3,300,000 to consummate the promotion of the company, for which they received $4,000,000 of the bonds and a large amount of the stock of the company, and that they became jointly interested with Sperry & Jones in such promotion and in the transactions connected therewith, and that they subsequently sold said bonds for the sum of $4,240,000, but did not account to the company or its receivers therefor, and that Sperry & Jones failed to account for such of the bonds as were retained by them. The bill then charges that this alleged overissue and sale and disposal of the bonds and stock of the company, procured by Sperry & Jones with the aid and connivance of the two trust companies, was a fraud upon the company and its original stockholders and its creditors. The bill further avers that subsequently the company was compelled to default upon its bonds, and was, upon a bill filed for that purpose, put in the hands of receivers under sections 264 and 264a of article 23 of the Code, and that, after a sale of substantially all of its property and effects and the application of the proceeds to the payment of its debts, there still remains over $4,000,000 due to its bondholders, and that the institution of the present suit was authorized by an order of court passed in the receivership case. The prayer

of the bill is for an account from the defendants of the proceeds of the bonds of the company unlawfully obtained and sold by them or appropriated to their own use, and for general relief. The appellees Sperry & Jones and the Citizens' Trust & Deposit Company demurred to the bill, and the issue thus made was tried; and the decree appealed from, which sustained the demurrers and dismissed the bill, was entered before the time of the other appellee to respond to the bill had expired.

Notwithstanding the positive averment already referred to in the bill, that, on February 28, 1899, Sperry & Jones compelled the company to assume the obligations of the contracts with the various brewers, the theory of the bill is that Sperry & Jones acted for and on behalf of the corporation in making the contracts with the brewers, and for that reason stood in a fiduciary relation to it, and could have no undisclosed interest in the property covered by the contracts nor make any secret profit out of their execution. It is charged that they violated their fiduciary obligation by procuring the company to issue to them a larger amount of stocks and bonds than are called for by the contracts. The case against the two trust companies, who are also made defendants to the bill, rests upon the allegation that they, with full knowledge of the relation of Sperry & Jones to the company and of the terms of the contracts under which the breweries were to be acquired by it, not only aided and abetted their codefendants in securing their alleged secret profits, but also shared in the profits. The allegation of the bill is that all of the contracts with the brewers were similar in their terms to the Brehm and Strauss contracts. Copies of these contracts are filed with and made part of the bill, and they constitute the avowed foundation upon which it rests in averring what relation Sperry & Jones occupied to the company in making them, and what were the terms and conditions upon which, and the extent to which the company was to issue its bonds and stock in payment for the breweries. It therefore becomes of fundamental importance to ascertain what are the character and scope of these contracts, in order to determine whether they, when construed in the light of the other allegations of the bill, and taken together with them, present such a case of breach by Sperry & Jones of a fiduciary relation to the company as would constitute a sufficient cause of action to maintain the present bill.

If we now turn to the Brehm and Strauss contracts, it becomes apparent at the first inspection of them that they are dissimilar in character, and proceed upon theories which are inconsistent if not conflicting with each other. It cannot be accurately asserted that all of the other contracts with the brewers were similar in their terms to these two, for

Brehm contract recites that Brehm is the owner of a brewing establishment in Baltimore City, and believes that it would be to his advantage to have his business consolidated with other breweries, so as to effect certain economies, and to produce an annual output of not less than 560,000 barrels of beer, and that he desires to secure the assistance of Sperry & Jones in effecting such a combination, and that they are willing to make an effort to accomplish the desired result. Sperry & Jones then agree "to give their best efforts to procure" the desired combination upon the terms briefly outlined in the earlier part of this opinion, and Brehm agrees to sell and transfer his brewery to the consolidated corporation when formed, at the fixed price of $1,050,000, to be paid $450,000 in cash, $100,000 in bonds, $250,000 in preferred, and $250,00 in common, stock of the company. But it is provided by the terms of this agreement that certain breweries therein named and specified must be embraced within the proposed combination, and that the annual output of the combined establishments should not be less than 560,000 barrels of beer; and it is expressly declared that the agreement "is not to be binding upon said George Brehm unless the above enumerated breweries, companies, and individuals become part of the said consolidation."

Now, the bill nowhere alleges that all of the breweries named in the agreement did come into the consolidation, or that the annual output of those that came in amounted to 560,000 barrels. On the contrary, it avers that such output was only 543,000 barrels, and it appears from Exhibit C, filed with the bill, that the breweries specified in the Brehm contract did not all come into the company. So it is apparent upon the face of the bill and exhibits that the so-called Brehm contract, by its own terms, never became a binding obligation, or fixed the terms upon which Sperry & Jones were bound to effect the organization of the company, or on which Brehm was bound to convey his brewery to it when organized, or upon which a proposed consolidation of breweries was to be made. Nor does it appear that any attempt was ever made to put this contract into execution. By reference to Exhibit C, it appears that Brehm's brewery went into the company, not at the price of $1,050,000, fixed by this contract, of which $450,000 were required to be paid in cash, but that it went in at the price of $925,000, of which no part was paid in cash, but $400,000 was paid in the bonds and the residue in the stock of the company. Moreover, the brewery was not acquired by the company from Brehm or the price paid by it to him, but it was acquired from Sperry, Jones & Co. in payment for stock and bonds issued to them. Not only, therefore, does it appear from the exhibits that the Brehm contract by its own provi

but also that his brewery was not acquired by the company from him or under the terms of that contract.

If we turn now to an examination of the contract between Strauss and Sperry & Jones, we find that it was one for the out and out sale by the former to the latter of the brewery therein mentioned, at the price of $1,100,000, of which $890,000 was to be in the preferred and common stock of the company, and the balance in cash or bonds of the company, as Strauss might prefer. This contract contains no provision whatever, such as is found in the Brehm contract, stipulating that it is to be assigned to the company, or any statement that it was made for its account or on its behalf. The contract does provide that the property to which It relates is to be paid for by Sperry & Jones in bonds and stock of the company, which are to be issued by it only to the extent of $20 per barrel of the total output for the preceding year of such breweries as shall be acquired by it, exclusive of cash or working capital; but as there is nothing in the contract giving rights under it to any other persons than the contracting parties, no right of action would have accrued to the company or to its receiver from a breach of that provision, if such breach ever, in fact, occurred.

There is an allegation in the bill that the various breweries were put into the company under the management of Sperry & Jones at much higher prices than those fixed on them in the contracts with the various brewers; but, when we turn to the only contracts produced by the plaintiffs, we find that Sperry & Jones turned in the Brehm brewery to the company at a distinctly less price than that mentioned in the contract on which the bill rests its allegations, and that the brewery mentioned in the Strauss contract was turned into the company at precisely the same price as that for which the contract filed with bill shows that he agreed to sell it to Sperry & Jones. The exhibits filed with the bill not only fail to afford reasonable ground for making this allegation, but directly contradict it.

Taruing now to Exhibit C, we find that, when the breweries in question were finally acquired by the company, they were taken by it, not from the several brewers who had formerly owned them, but from Sperry & Jones, who must in the meantime have acquired them. It is entirely consistent with the exhibits on which the allegations of the bill rest that these gentlemen should have purchased the properties on their own account, with a view to capitalize their combined value by turning them into the company in payment for its bonds and stock. The Brehm contract, which was, on its face, made for the benefit of the company, was a purely conditional one, which was to become operative and take effect only upon the happening of events which the bill alleges nev54 A.-17

er occurred. No inoperative contract like that could create a fiduciary obligation to the company on the part of Sperry & Jones. The Strauss contract is not only consistent with, but it, in its terms, contemplates that Sperry & Jones are to acquire on their own account, and not in a fiduciary capacity, the property to which it relates. The bill itself alleges that Sperry & Jones were the real owners of all of the company's stock issued prior to the meeting of February 15, 1899. There was nothing unlawful, in that condition of affairs, in the fact that some of the shares stood in the names of their employés or agents. Pott & Co. v. Schmucker, Trustee, 84 Md. 535, 36 Atl. 592, 35 L. R. A. 392, 57 Am. St. Rep. 415. Nor was there anything unlawful in their subscribing for the remainder of the stock, and paying for it by a transfer to the company of the brewing properties at any fair price agreed upon, if they owned or controlled and could procure the conveyance of those properties, and complied with the provisions of the law in such The company could also validly purchase property suitable for the purposes for which it was incorporated, and issue its bonds or other obligations in payment therefor. The presence of all the stockholders at the meeting of February 15, 1899, overcame any supposed difficulty from want or prior notice of the meeting, even though the statute prescribed the notice. Cook on Corporations, vol. 2, § 599; Clark & Marshall on Corporations, vol. 3, p. 1968; and cases cited by those two authors.

cases.

The transfer to a corporation, by a subscriber to its stock, of property under such an arrangement as was followed in this case, if the property were valued at a grossly exaggerated price, might, it is true, not constitute payment in full of the stock, so as to protect him from liability to its creditors in a suit brought by them under the provisions of section 64, art. 23, Code. Basshor v. Dresel, 34 Md. 511, 512. But this is not a suit of that character. There could have been, under the conditions of the meeting of February 15th, no concealment of the true situation from any of the real stockholders, for they were the same persons as the ven. dors of the property to the company. It was simply a changing by Sperry & Jones of the form of property owned by them, or under their control for that purpose, from individual estate to corporate securities. The public were not invited to subscribe to any stock. It was perfectly well known by the parties to the transaction that the full $7,500,000 of bonds were also being issued for the property. The bill itself alleges that "there were issued by the Maryland Brewing Company against the properties therein set forth $7,500,000 in first mortgage 6 per cent. gold bonds."

When Sperry & Jones afterwards sold or disposed of the bonds and stocks to the brewers or to the public, either directly or

through the agency of their codefendants, they were bound to exhibit the same candor and practice the same good faith toward the persons with whom they dealt that all vendors are, and if they failed to do so they were liable to their vendees in proper proceedings, seasonably instituted, for damages, or for a rescission of the sales, as we held in the case of Brehm v. Sperry, Jones & Co., 92 Md. 378, 48 Atl. 368; but that issue is not presented in this case brought by the receiver.

The proposition that no fraud is involved in the transmutation of property, suitable to the purposes of a corporation, into the form of corporate securities, in the manner adopted by Sperry & Jones in the present instance, has been recently decided, after a full examination and discussion of the subject, by the House of Lords, in Salomon v. Salomon. App. Cases 1897, p. 22, and was also adopted in Re Ambrose Lake Tin & Copper Min. Co., L. R. 14 Chy. Div. 390. Mr. Morawetz in section 290 of volume 1 of his work on Corporations takes the same view, saying: "The vendor of the property in truth took back what he gave. He placed the property in the corporate name, and at the same time practically became the corporation by becoming its sole stockholder. Evidently no one was injured by that transaction. subsequent transferees were deceived by the false representation that the amount of shares had in fact been paid into the treasury of the company, their claims should have been for the damages, caused to themselves individually through the false representation, and not for an infringement of the collective or corporate rights of the shareholders."

If

There is no real conflict between these authorities and those relied on by the appellants. In Gluckstein v. Barnes, L. R. App. 1900, p. 240, and Erlanger v. New Sombrero Phosphate Co., L. R. 3 App. Cases, 1218, the promoters had a secret. profit in the land which the corporation was formed to take over, and they issued a prospectus, which did not disclose that fact, and thereby induced other persons to subscribe to the stock. The same thing is true of the case of the Yale Gas Stove Co. v. Wilcox (Conn.) 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, with the aggravation that the promoter, who had a secret profit in the property turned in to the company, induced persons to put their money into the enterprise by the false representation that they would stand upon exactly the same basis that he did. In Hooper v. Central Trust Co., 81 Md. 559, 32 Atl. 505, 29 L. R. A. 262, Hooper's executors sold a lot of ground to Hammond, a promoter, to be paid for in part by second mortgage bonds of a corporation to be formed to take over the land. It was agreed, as part of the terms of sale, that certain things should be done by the corporation tending to give value to the land. The corporation, when formed, put a first mortgage on the land, under circumstances which this

court held to constitute a fraudulent breach of the agreement with the vendors of the land who had taken $100,000 of the second mortgage bonds in part payment for it. Under these circumstances, when the corporation defaulted in the interest on its bonds and foreclosure proceedings had been instituted, the court, upon the petition and cross-bill of the defrauded vendors, finding that the holders of the first mortgage bonds were not bona fide holders, gave the second mortgage bonds, held by the vendors of the land, priority over the first mortgage bonds in the distribution of the proceeds of the foreclosure.

The true test of the responsibility of parties occupying positions such as Sperry & Jones did, in putting the brewing properties into the company in this case, is whether other persons than themselves hold stock in the company, and are not made aware of the true state of facts, or are induced to come into it by concealment or misrepresentation of the facts, or have furnished all or part of the capital embarked in the enterprise, and are misled or kept in the dark as to the actual transaction. In other words, the ground of their liability is the concealment or misrepresentation by those whose duty it is, by virtue of their relation to the other persons interested in the transaction, to make a full disclosure. It is a misuse of terms in the present case to say that Sperry & Jones stood in a fiduciary relation to the company at the time they made the contracts with the brewers, or when they turned the property into the company in payment for its stock and bonds. They, at that time, held all of its stock, and were the sole owners of the company. They were, in equity, the company itself. Swift v. Smith, Dixon & Co., 64 Md. 428, 5 Atl. 534, 57 Am. Rep. 336. There was no invitation to others to subscribe for the stock.

The relations of Sperry & Jones to each of the brewers were, it is alleged in the bill. fixed by a separate contract. Assuming that these contracts called for the delivery by them to the respective brewers of bonds and stock of the company capitalized upon a certain basis, and that they delivered securities issued upon a different basis of capitalization, that might afford to each individual brewer a right of action against Sperry & Jones for such damage as he suffered under the terms of his particular contract, but these various contract rights of the different brewers cannot be asserted collectively in this suit by the receiver. When Sperry & Jones offered any of the bonds or stock issued to them by the company for barter or sale to other persons, and thus, as it were, invited them to become interested in the enterprise, they were bound, as we have already said, to practice no concealments toward those persons, and to give them all desired information as to their own relations to the company. But this, like their duty to the contracting brewers, was an obligation to each person with whom they so dealt, and the rights of

their several vendees, in case of a breach of the obligation, are several and according to the nature of the particular transaction, and cannot be collectively asserted in this suit. In fact, the bill does not allege that any of the present bond or stock holders were the original holders of those securities, or that they received them from the defendants or from either of them. Such an allegation has, in several cases, been held to be necessary to enable a receiver to maintain a suit of this character, even when it is free from the other objections existing in the present case. Dimpfel v. O. & M. R. Co., 110 U. S. 209, 210, 3 Sup. Ct. 573, 28 L. Ed. 121; Robinson v. W. V. Loan Co. (C. C.) 90 Fed. 770-772.

We do not think that the bill states a good cause of equitable action in the receiver against Sperry & Jones, and still less does it do so against the other appellees, and we will affirm the decree appealed from. Decree affirmed, with costs.

1. Findings of fact in a suit in equity will not be disturbed unless clearly wrong.

2. A railroad company located a branch line on land to which it had title in part by condemnation proceedings and in part by deed, and was in actual or constructive possession of all the land for railroad purposes. Held, that it could sue to restrain a railroad company subsequently chartered seeking to oust it by force from the land, although such company set up a title under a deed from the same person from whom plaintiff claimed.

Appeal from Court of Common Pleas, Beaver County.

Bill by the Pennsylvania Company, lessee of the Pittsburg, Youngstown & Ashtabula Railroad Company and the Pittsburg, Ft. Wayne & Chicago Railway Company, against the Ohio River Junction Railroad Company. Decree for plaintiff, and defendant appeals. Affirmed.

The following is the opinion of the court below:

"The plaintiff complains that the Pittsburg, Youngstown & Ashtabula Company had caused to be surveyed, staked out, and located a branch railroad from its road in the borough of New Brighton to a point near Remington, in Economy township, Beaver county, Pennsylvania, which said line had been duly adopted by the proper officers of said company; that since the location and adoption of said line it has become the owner of a certain tract of land over which said line extends (giving the boundaries), and that the defendant company, on March 21, 1901, entered upon and began to lay tracks over the said land purchased without having filed any bond, or attempted to agree with the owners

for the payment of damages sustained, and so forth; and alleges that, if the defendant is permitted to take and occupy said lands as herein before set forth, the plaintiff will be irreparably damaged, and will have no adequate remedy at law, and asks that the preliminary injunction be made perpetual to re-. strain the defendant from interfering with said lands in any manner whatever.

"To these allegations the defendant answers, admitting the fact of entry, but averring that the defendant was the owner in fee simple of all the land upon which it so entered and began to lay its track, and the appropriation of the land by the defendant company for railroad purposes; and further alleging that it was under no obligation whatsoever to file any bond, or to attempt to agree with any person for the payment of damages.

"Findings of Fact.

"(1) The plaintiff company is a corporation chartered and organized under a special act of assembly approved April 7, 1870 (P. L. 1025), entitled 'An act incorporating the Pennsylvania Company,' and is the lessee of and operates the Pittsburg, Youngstown & Ashtabula Railroad and the Pittsburg, Ft. Wayne & Chicago Railway.

"(2) The Pittsburg, Youngstown & Ashtabula Railroad is a railroad formed by a consolidation and merger of the Ashtabula, Niles & Youngstown Railroad and the Lawrence & Pittsburg Railroad, the Lawrence & Pittsburg Railroad Company having been formed by the consolidation and merger of the New Brighton & New Castle Railroad Company and the Lawrence Railroad Company, the articles of consolidation in both cases being duly filed at Harrisburg. The said New Brighton & New Castle Railroad Company was chartered on March 24, 1881, under the act of April 14, 1868, and the supplements thereto, and authorized to construct, operate, and maintain a railroad between New Brighton, in Beaver county, Pennsylvania, and New Castle, in Lawrence county, Pennsylvania.

"(3) The Pittsburg, Youngstown & Ashtabula Railroad Company, with its franchises, etc., was leased by articles of agreement dated December 12, 1887, to the Pennsylvania Company, and has been operated since that time by the Pennsylvania Company.

"(4) The defendant company is a corporation of the state of Pennsylvania, organized and existing under the provisions of the act of April 4, 1868, and the several supplements thereto.

“(5) On August 8, 1898, a survey was made under the direction of the chief engineer of the Pennsylvania Company, who was also chief engineer of the Pittsburg, Youngstown & Ashtabula Railroad Company, and a location staked for an extension or branch line on the line of the said Pittsburg, Youngstown & Ashtabula Railroad on the easterly