Knoop v. Bohmrich. were issued on his promise to pay for them in money. This suit is brought to compel Bohmrich to pay into the treasury of the corporation the par value of the shares issued to him. The complainant's right to maintain this suit is disputed. The contract, which he is asking to have enforced, was made by Bohmrich with the corporation, and hence, it is said, that nobody but the corporation can maintain an action on it. That would unquestionably be so if it did not appear that the corporation is under the control of managers who cannot bring a suit, in the name of the corporation, for the purpose for which this suit is brought without accusing one of their number, and he their chief, of an attempt to defraud the corporation. If they could be induced to consent to sue, it is manifest that their bias would constrain them to so conduct its prosecution as to insure defeat rather than success. When the complainant first insisted that Bohmrich should pay for the stock issued to him, and also when he instituted this suit, Bohmrich and his wife, Brand and the complainant and his wife were the directors of the corporation. Brand is the partizan of Bohmrich. He was a witness for him, and gave substantially the same account respecting the means by which Bohmrich acquired his stock that Bohmrich himself did. It may be safely assumed, without proof, that Bohmrich's wife would not have voted that a suit should be brought to compel him to pay for his stock. She would, undoubtedly, have insisted, as he does now, that the corporation had no right of action against him, and that if a suit should be brought it would result in nothing but a useless expenditure of money. So that it is obvious that, had the complainant, before bringing this suit, requested the directors to sue, for the same cause of action, his request would have been denied by a vote of three to two. Bohmrich and his partizans had control of the corporation—they held one hundred and two of the two hundred shares of stock, and had three votes out of the five in the board of directors. In this condition of affairs the complainant was under no duty, before bringing his suit, to ask the directors to sue in the name of the corporation. The rule is settled that such application need not be made when the interest or bias of the managers of the Knoopt. Bohmrich. corporation makes it certain that, if it was made, it would be denied, or, if granted, that the litigation following would necessarily be under the control of persons opposed to its success. Ackerman v. Halsey, 10 Stew. Eq. 356,362; S. C. on appeal, 11 Stew. Eq. 501; Brinckerhoff v. Bostwick, 88 N. Y. 52, 59; Peabody v. Flint, 6 Allen 52, 56; Brewer v. Boston Theatre, 104 Mass. 378, 387; Mor. Corp. § 242. Nothing can be much more certain than that justice will not be done in any case where the person against whom redress is sought by suit is in a position where he has power to control both sides of the litgation—to act both as plaintiff and defendant. The reason of the rule, which controls in cases like the one under consideration, was stated by Judge Rapallo, in Brinckerhoff v. Bostwick, supra, in this wise: "In such cases [that is, where the managers are the wrong-doers and must be made defendants in the suit] a demand upon the corporation to bring the suit would be manifestly futile. A suit prosecuted under the direction and control of the very parties against whom the misconduct is alleged, and a recovery is sought, would scarcely afford to the shareholders the remedy to which they are entitled, and the fact that the delinquent parties are still in control of the corporation is, of itself, sufficient to entitle the shareholders to sue in their own names. If they could not be permitted in such cases to assert their rights in their own names, the directors, so long as they remained in office, could set them at defiance." And where, as in this case, the directors opposed to suing hold a majority of the stock, they would have it in their power, if a stockholder could not sue in his own name, to defeat justice absolutely and forever. Where the directors are themselves the wrong-doers, or a majority of them are the partizans of the wrong-doer, they are, in the language of the supreme court of Massachusetts, in Brewer v. Boston Theatre, supra, by the very nature of the case, incapacitated for the service of representing the corporation in an action against the wrong-doers. Το say that no redress can be had in such a case except by a suit in the name of the corporation, prosecuted by its managers, would amount to a plain denial of justice to the injured stockholders. Knoop v. Bohmrich. There can be no doubt, therefore, that the complainant has a clear right, on the facts stated, to maintain this action. Bohmrich does not pretend that he has paid for his stock with money, nor that he has made a written transfer of property to the corporation in payment of it. His certificate is not stamped, as the statute says certificates of stock issued in payment for property purchased shall be. Rev. 187 § 55. It does not declare upon its face that the stock, for which it was issued, had been paid for by property and not by money. Nor does Bohmrich pretend that the corporation agreed with him that he might pay for his stock with property as distinguished from money. It is admitted that the corporation did not agree, by a vote of its directors, or in any other way, that he might pay for his stock with property. There was no corporate action on the subject, and, so far as appears, the question, as to whether or not he should have the right to pay for his stock in a manner different from the other stockholders, was never suggested or mentioned: in the presence of either the directors or stockholders. Theseare matters about which there is no dispute. Bohmrich rests his right, as against the complainant, to the stock he holds on this ground: he says, prior to the formation of the corporation, and also on the day the corporation was formed, it was agreed between the complainant and himself, that he should transfer to the corporation a business in which he was then engaged, together with the machinery used in such business, his stock on hand,. fixtures, books of account and the lease of the premises where the business was carried on, and that in payment of such transfer fifty-one shares of stock were to be issued to him. He further says, that the stock he holds was issued to him in execution of this contract, with the knowledge and approval of the complainant. If this claim is true, it would seem to be quite clear that the complainant is not entitled to the decree he seeks. Though the corporation may not be bound by this contract, still it would seem. to be unquestionably just, that the complainant should be held to be bound by it to the extent of depriving him of the right to maintain an action in equity to compel Bohmrich to pay for his stock in a manner entirely different from that agreed upon; especially Knoop v. Bohmrich. should this be so, if it be true, as alleged, that the complainant was present when the stock was issued and consented to its issue in execution of the contract. The question, then, on this branch of the case is, was such contract made? On this issue the burden is on Bohmrich. As it stands admitted that no money was paid for the fifty-one shares, and as the certificate for those shares does not show on its face, as the statute requires, that it was issued in payment of property purchased, the law will, under such a state of facts, presume, until the fact is shown to be otherwise, that the stock has not been paid for. The corporation was organized to manufacture and sell dress and cloak trimmings. Bohmrich had carried on this business, prior to the organization of the corporation, under the same name adopted by the corporation. He commenced business in March, 1890, and the corporation was formed in June following. Prior to March, 1890, Bohmrich had never manufactured or sold trimmings, and knew nothing about the business. While he carried on the business he admits that he lost money. His sales amounted to less than $200. He says he had invested in the business, when the corporation was formed, about $1,660, including the sums he had paid for wages and rent. The person who purchased for him the machinery, utensils and stock he had on hand when the corporation was formed, says that his outlay for those purposes was less than $800. Bohmrich does not claim that the property he was to transfer to the corporation, under his arrangement with the complainant in payment of the fifty-one shares of stock, was worth $5,100; he, on the contrary, admits that it was worth only about $1,660, but says that the difference between the last named sum and the value of the stock was made up of the value of his time in establishing the business, of a lease of the premises where the business was carried on, and the good will of the business; in other words, that he was to be paid for his time, the lease and good will over $3,400. But he does not say that any of these things, except the lease, was ever mentioned or alluded to in any conversation between the complainant and himself. He does not claim that the complainant ever agreed or consented that he should be paid for his Knoop v. Bohmrich. time, or the lease or good will. At the time when the corporation was formed he had not succeeded in establishing a business. His sales amounted to less than $200-not sufficient to be called a business so that in fact he had neither a business nor a good will. It is plain that no man with discernment enough to see the difference between something and nothing would ever, understandingly, have consented that another should be paid, in part at his cost, either for founding such a business, or for the good will of such a business. Bohmrich does not pretend that, in any of their negotiations, he intimated to the complainant that he wanted the corporation to pay him for his time while he was attempting to establish the business, or for the good will of the business. His description of what was said when the contract, on which his defence rests was made, is this: he says, that he said to the complainant: "You put in $5,000, and I will give the business, plant, machinery, stock, lease and everything with which I do business for a controlling interest in the company," and that thereupon the complainant at once agreed to his terms. Brand says on the day the certificate of incorporation was drawn, Bohmrich stated, in the hearing of the complainant, that the complainant was to pay $5,000 for fifty shares of stock, and that he (Bohmrich) "should get shares to the amount of $5,100 for selling his machinery, stock and business," and that, although the complainant heard this statement, he in no way expressed dissent or disagreement. Neither, it will be observed, pretends that on either occasion was anything said which indicated, in the most distant way, that any stock was to be issued to Bohmrich to pay him for his time in establishing the business, or for the good will of the business. I do not believe that such a thing was, on either occasion, in the mind of either party. At any rate, I feel quite sure that, had such a thing been suggested on either occasion, the complainant would at once have refused to put down his $5,000. The complainant denies that he ever consented in any way that Bohmrich might pay for his stock with property. He denies that such a method of payment was ever suggested to him, or in his presence, but says, on the contrary, that at the time when it was first agreed that a corporation |