the company has done, if the action which he complains of was taken with his knowledge and consent. He can not be heard to complain that he has been injured by the doing of something which he knew of at the time, and expressly consented to, or, by long silence, acquiesced in.' Allen v. Wilson (C. C.), 28 Fed. 677, 2 Thompson 1981." To uphold the above classification as accurate for the purposes for which it was made, it must be understood that the second class refers to cases in which the situation is like that described in the quotation; that is to cases in which the receiver, on behalf of creditors, seeks to set aside a transaction of the company that was ultra vires in character, but because of equitable reasons was binding upon the company and the stockholders. In regard to the third class, the expression "supplemental to execution" must be understood as broader than the purely statutory "supplemental proceedings" and to include such proceedings, except as far as cases coming under the first class are concerned, and, as well, actions to set aside fraudulent conveyances and to recover equitable or canceled assets. The property, or assets, referred to in the fourth class must be such as at one time belonged to the company but the legal title to which has been lost through some wrongful act on the part of the company, such that its detrimental effect could be avoided as far as creditors are concerned. Moreover, to make a distinction between the last two classes the receivers referred to in the last must be understood as corporation receivers alone. 7 See Gay v. Hudson River, etc., Co., 187 Fed. 12, 109 C. C. A. 66. 8 See Chapter XII, supra, § 354. Actions on Behalf of Creditors to Recover Corporate Property from Strangers Where Corporation Itself Estopped. Actions which the receiver may institute in his socalled capacity as representative of creditors and as acting only for their benefit may be directed against (a) strangers to the corporation, (b) directors of the corporation, or (c) stockholders of the corporation. As to strangers to the corporation it may be stated that, in general, the receiver may pursue what was formerly the property of the company when it has passed into the hands of others through some wrongful or fraudulent act of the corporation, detrimental to the interests of creditors, wherever he may find it, subject only to the defense of purchase for a valuable consideration by one innocent of and without knowledge of the infirmity in the chain of title. In this respect his powers are analogous to and as extensive as those of a trustee in bankruptcy or the receiver of an individual appointed under any of the principles referred to in Chapter XII, supra.1 The receiver may set aside, or have annulled, a fraudulent conveyance or assignment of corporate property.2 He may set aside or successfully resist enforcement of a chattel mortgage or other lien void as to creditors because not executed or recorded in accordance with statutory provisions. A receiver may sue a pledgee of the 3 1 Minnesota Thresher Mfg. Co. v. Langdon, 44 Minn. 37, 46 N. W. 310; Bradley v. United Wireless Tel. Co., 79 N. J. Eq. 458, 81 Atl. 1107; Powers v. C. H. Hamilton Paper Co., 60 Wis. 23, 18 N. W. 20. 2 Whitman v. United Surety Co. (Dorsey), 110 Ma. 421, 72 Atl. 1042; Bradley v. United Wireless Telegraph Co., 79 N. J. Eq. 458, 81 Atl. 1107; Nevitt v. First Nat. Bank, 91 Hun 43, 36 N. Y. Supp. 294. 3 Bell V. New York Safety Steam Power Co., 183 Fed. 274; American Can. Co. v. Erie Preserving Co., 171 Fed. 540; Franklin National Bank v. Whitehead, 149 Ind. 560, 63 Am. St. Rep. 302, 39 L. R. A. 725, 49 N. E. 592; Fidelity Trust Co. v. Staten Island Clay Co., 70 N. J. Eq. 550, 67 Atl. 1078; Mutual Investment Co. v. Walton Mach. Co., 91 Wash. 298, 157, Pac. 682. With the permission of the corporation for conversion of the pledged property, and, where there had been a previous judgment, binding on the company but not on the receiver, the recovery will be limited to the benefit of creditors. A receiver may raise the defense of usury where the company might not be able to do so. The receiver may institute an action to have declared void bonds issued by the corporation." A court creditors whose claims have been allowed may intervene and exercise this same right. Equitable Trust Co. v. Great Shoshone, etc., Co., 245 Fed. 697, 158 C. C. A. 99. (Petition for Writ of Certiorari pending.) 4 Lynn v. McCue, 94 Kan. 761, 147 Pac. 808. The judgment referred to in the text was obtained in an action pending against the company at the time of the appointment of the receiver and prosecuted to judgment thereafter without the receiver's being made a party. On the principle that all equities are to be determined as of the time when the receiver was appointed (see § 23 this chapter, supra) it was held that the judgment was not binding upon the receiver. 5 James Bradford Co. v. United Leather Co. (Del. Ch.), 95 Atl. 308. In this case it was said: "It is the right and duty of a receiver or other fiduciary to raise the question as to the validity of the agreement, for he acts for all who have interests against the borrowing company and is therefore in a different position in this court in this proceeding from a borrower who seeks the aid of a court of equity against the lender on the ground of usury." The receiver had sued to recover certain assets that had been assigned as security for a debt and claimed that the contract was invalid because usurious. See Lynn v. McCue, 94 Kan. 761, 147 Pac. 808; Curtis v. Leavitt, 15 N. Y. 9. The receiver of an insolvent corporation may question a transaction whereby the corporation borrowed money, paying an alleged usurious rate of interest. James Bradford Co. v. United Leather Co. (Del. Ch.), 95 Atl. 308. 6 See v. Heffenheimer, 55 N. J. Eq. 240, 36 Atl. 966. With the consent of the receivership court, a creditor may, in the receivership proceedings, contest the validity of bonds issued by the company. On the cancellation of the bonds bona fide holders thereof will be protected by having the lien of the mortgage preserved for their benefit; but, in this connection, unsecured creditors will be protected by judgments against the transferrers of the bonds in favor of the estate. Where bonds were issued as bonus to stockholders for the purpose of protecting minority stockholders the agreement of the stockholders among themselves will be carried out as far as possible by giving the minority preference in such surplus as may be left after creditors 917 wrong against creditors which receivers are frequently called upon to remedy, is that accomplished by the transfer of the assets of one corporation to another on the agreement that the purchasing company will issue its stock to the stockholders of the selling company in lieu of the old stock and will assume the debts of the seller. Such a substitution of one debtor for another is a fraud upon creditors and the receiver may recover the assets or their value from the purchasing company.7 are fully paid. Williamson v. Collins, 243 Fed. 835, 156 C. C. A. 347. 7 McIver v. Young Hardware Co., 144 N. C. 478, 119 Am. St. Rep. 970, 57 S. E. 169; Dalsheimer v. Graphic Arts Co., 86 N. J. Eq. 49, 97 Atl. 497; Alexander v. Relfe, 74 Mo. 495. This was practically a case of the transfer of assets of one company to another, although the object was accomplished in a more round-about way than the simple one mentioned in the text. The action took the form of one for damages against a corporation that through ownership of stock in the receivership corporation and control of its directors accomplished the transfer and the denuding of the latter company of all of its property. In the opinion it is said: "Though the proof may not estab lish that defendant mitted an actual fraud in doing the wrong for which redress is asked, yet it is clearly shown that the wrong committed was a constructive fraud because done in contravention of that public policy of this state which forbids the assets of corporations to be wasted, canceled, or in any manner withdrawn from the reach of creditors. Fraud com of this description-constructive fraud-though not originating in any actual evil design, having for its purpose the perpetration of injury on others, is yet equally prohibited by law as within the same reason and mischief as acts and contracts done malo animo. 'On the part of fraud,' therefore, equity can afford relief asked in the name of the receiver as well as upon the ground of avoiding a multiplicity of suits which would have to be brought if each creditor were compelled to seek a several redress for his own injury." There may be mentioned here, as illustrating the principle that, where several ways of proceeding to remedy a wrong are open, equity will travel the surest and shortest way. Gillett v. Chicago Title & T. Co., 230 Ill. 373, 375, 82 N. E. 891. In this case, which sought to remedy the wrong mentioned in the text, the stockholders were held liable for the value of their stock in the new company, it being held that they had not paid anything for the new stock since the transfer of the assets from one company to the other was in reality not a sale at all. § 355. Actions on Behalf of Creditors Against Directors and Officers in Cases Where Corporation Itself Is Estopped. It was stated in a preceding section that many of the actions which receivers find it necessary to institute against directors, or other similar officers, of the corporation, as such, are founded upon the directors' misfeasance, malfeasance, or negligence. It often happens that the right of stockholders to complain of transactions giving rise to charges of this character against directors is barred by their active participation or silent acquiescence therein. The right of even a dissenting stockholder may be lost by laches. The right of creditors to complain and to seek a remedy may, however, remain and pass to the receiver. "The general creditors have as much right as the stockholders or the bondholders to be protected against the fraud and negligence of the directors and they have a right, through the receiver, to compel the directors to make good any loss which resulted from the purchase by the company of valueless parcels of real estate if it appears that the loss was occasioned either by the fraud or the negligence of the defendants."2 Under this principle receivers may hold directors liable for misfeasance, malfeasance, or negligence in selling stock for property at an exaggerated value or for any like wrongful disposition of corporate assets.3 There is quite commonly created by statute, on behalf of creditors, a joint and several liability of directors for dividends illegally paid from the capital fund. Although this liability did not exist at the common law, and although it is usually created only for the benefit of those 1 See, Dalsheimer V. Graphic Arts Co., 86 N. J. Eq. 49, 97 Atl. 497. 2 Howland v. Caru, 232 Fed. 35, 146 C. C. A. 227; Coddington v. Canaday, 157 Ind. 243, 61 N. E. 567. 3 Coddington v. Canaday, supra. See also Waterhouse v. Jamieson, 2 Paters (Scotch) 1812, L. R. 2 H. L. (Sc.) 29; Williamson v. Collins, 243 Fed. 835, 156 C. C. A. 347. |