stockholders of said improvement company who were not holders of said collateral trust certificates. Your orator further avers and charges that during the time of the occurrence of the matters herein complained of the said Joy Morton, president of said improvement company, was also first vice president of the said the American Trust & Savings Bank, by reason of which his interests became and were still more antagonistic and adverse to the interests of the stockholders of the improvement company."

In the nineteenth paragraph it is said:

"Your orator further avers and charges that by reason of the premises the said sale made by said the American Trust & Savings Bank of said collaterals to the said Atlantic Coast Line Company was unfair and unjust, and constitutes a fraud upon the rights of the said improvement company and upon the rights of your orator and other stockholders thereof similarly situate, and that the attempted ratification of said sale made by said Joy Morton on behalf of the said improvement company was without authority, and void."

The affidavit verifying the bill recites:

"Deponent further says that he was a shareholder of the stock of the Illinois & Georgia Improvement Company (owning the shares of said stock stated in said bill as owned by him) at the time of the transactions of which he complains in said bill, and that he still owns said stock, and that this suit is not a collusive one to confer on a court of the United States jurisdiction of a case of which he would not otherwise have cognizance."

It is claimed that these matters so alleged in connection with the whole case made by the bill dispensed the complainant from applying to the board of directors and to the stockholders for relief.

In the leading case of Hawes v. Oakland, 104 U. S. 450, 26 L. Ed. 827, which was immediately followed by the ninety-fourth equity rule, it is laid down:

"We understand that doctrine to be that to enable a stockholder in a corporation to sustain in a court of equity in his own name a suit founded on a right of action existing in the corporation itself, and in which the corporation itself is the appropriate plaintiff, there must exist as the foundation of the sult some action or threatened action of the managing board of directors or trustees of the corporation which is beyond the authority conferred on them by their charter or other source of organization; or such a fraudulent transaction completed or contemplated by the acting managers in connection with some other party, or among themselves, or with other shareholders, as will result in serious injury to the corporation, or to the interests of the other shareholders; or where the board of directors, or a majority of them, are acting for their own interest, in a manner destructive of the corporation itself, or of the rights of the other shareholders; or where the majority of shareholders themselves are oppressively and illegally pursuing a course in the name of the corporation which is in violation of the rights of the other shareholders, and which can only be restrained by the aid of a court of equity. Possibly other cases may arise in which, to prevent irremediable injury or a total failure of justice, the court would be justified in exercising its powers, but the foregoing may be regarded as an outline of the principles which govern this class of cases. But, in addition to the existence of grievances which call for this kind of relief, it is equally important that, before the shareholder is permitted in his own name to institute and conduct a litigation which usually belongs to the corporation, he should show to the satisfaction of the court that he has exhausted all the means within his reach to obtain within the corporation itself the redress of his grievances, or action in conformity to his wishes. He must make an earnest, not a simulated, effort with the managing body of the corporation to induce remedial action on their part, and this must be made apparent to the court. If time permits or has permitted, he must show, if he fails with the directors, that he has made an honest effort to obtain action

by the stockholders as a body, in the matter of which he complains. And he must show a case, if this is not done, where it could not be done, or it was not reasonable to require it."

In Corbus v. Goldmining Company, 187 U. S. 455-463, 23 Sup. Ct. 157, 160, 47 L. Ed. 256, the court, after quoting approvingly the above from Hawes v. Oakland and reciting the ninety-fourth equity rule, says:

"It must not be understood that a mere technical compliance with the foregoing rule is sufficient and precludes all inquiry as to the right of the stockholder to maintain a bill against the corporation. This court will examine the bill in its entirety and determine whether, under all the circumstances, the plaintiff has made such a showing of wrong on the part of the corporation or its officers and injury to himself as will justify the suit. The directors represent all the stockholders, and are presumed to act honestly and according to their best judgment for the interests of all. Their judgment as to any matter lawfully confided to their discretion may not lightly be challenged by any stockholder, or at his instance submitted for review to a court of equity. The directors may sometimes properly waive a legal right vested in the corporation in the belief that its best interests will be promoted by not insisting on such right. They may regard the expense of enforcing the right or the furtherance of the general business of the corporation in determining whether to waive or insist upon the right. And a court of equity may not be called upon at the appeal of any single stockholder to compel the directors or the corporation to enforce every right which it may possess, irrespective of any considerations. It is not a trifling thing for a stockholder to attempt to coerce the directors of a corporation to an act which their judgment does not approve, or to substitute his judgment for theirs. As said in Dodge v. Woolsey, 18 How. 344, 15 L. Ed. 401: The circumstances of each case must determine the jurisdiction of a court of equity to give the relief sought.'"

If we assume that under the facts averred in the thirteenth paragraph of the bill given above the complainant gives some reason for not applying to the managing directors of the improvement company and from setting forth with particularity his efforts to secure such action as he desires, yet we find nothing in the bill to excuse him from failure to apply to the shareholders. Counsel argues that complainant was excused from applying to the shareholders because the bill charges fraud; but the fraud charges are general and do not. reach the shareholders as parties thereto. If for no other reason, it would seem that the bill should be dismissed on this ground.

If we pass by the ninety-fourth equity rule we find that the bill is without sufficient equity to warrant relief to the complainant. This want of equity is particularly pointed out in the second, third, fourth, and fifth assignments of error, each one of which seems to be well taken. There can be no doubt that under the chartered powers of the improvement company the assets acquired from the Macon, Dublin & Savannah Railroad Company could be lawfully pledged and sold as required to meet the business management or the necessities of the company. The improvement company did pledge the assets in question in the regular course of business. The bill neither attacks the pledge nor suggests bad faith in relation thereto. Three years. after the pledge, and after long standing default, the pledgee, with the consent of the managers of the improvement company, sold the assets to pay the secured debt. The complaint is that this sale was

made without due corporate consent of the pledgor. The articles of pledge granted to the pledgee the power to sell on default at public or private sale, and, if they had not so provided, the sale as made, if wrongful, was one that could be validated by the ratification of the improvement company. It is not alleged that a majority or even a considerable minority of the improvement company's shareholders disapprove. As counsel well say:

"This bill is not brought to enjoin the consummation of any sale or the carrying out of an alleged unauthorized act. It avers the act complained of to have been completed, the property delivered, proceeds of sale received, and all but a small part thereof to have been applied to the payment of the corporate debts. It is brought avowedly to set aside the executed sale, no matter what the board of directors or any majority of the stockholders, however large, may think. There is no pretense in the bill that the directors and a great majority of the stockholders do not approve and ratify the sale and would so vote on a submission to them. The bill practically charges that they would approve. No averment is made why the stockholders, other than complainants or the board of directors, should not exercise their judgment and ratify the act if they deem that course wisest. The act complained of being one capable of authorization by the board or a given majority of the shareholders, a minority who would be bound by such action, if taken, cannot, under the allegations of this bill, have the sale set aside."

See Foss v. Harbottle, 2 Hare, 461-488; MacDougal v. Gardiner, 1 L. R. Ch. Div. 13; Flagg v. Manhattan Railway Co. (C. C.) 10 Fed. 413; North American Land & Timber Co. v. Watkins, 109 Fed. 104, 48 C. C. A. 254; Metcalf v. American School Furniture Co. (C. C.) 122 Fed. 115.

In MacDougal v. Gardiner, supra, James, L. J., said:

"I am of opinion that this demurrer ought to be allowed. I think it is of the utmost importance in all these companies that the rule which is well known in this court as the rule in Mozley v. Alston, 1 Phil. Ch. 790, and Lord v. Copper, Miners' Company, 2 Phil. Ch. 740, and Foss v. Harbottle, should be always adhered to; that is to say, that nothing connected with internal disputes between the shareholders on behalf of himself and others, unless there be something illegal, oppressive, or fraudulent, unless there is something ultra vires on the part of the company qua company, or on the part of the majority of the company, so that they are not fit persons to determine it, but that every litigation must be in the name of the company, if the company really desire it. Because there may be a great many wrongs committed in a company, there may be claims against directors, there may be claims against officers, there may be claims against debtors, there may be a variety of things which a company may well be entitled to complain of, but which, as a matter of good sense, they do not think it right to make the subject of litigation; and it is the company, as a company, which has to determine whether it will make anything that is wrong to the company a subject-matter of litigation, or whether it will take steps itself to prevent the wrong from being done."

And Mellish, L. J., said:

"In my opinion, if the thing complained of is a thing which in substance the majority of the company are entitled to do, or if something has been done irregularly which the majority of the company are entitled to do regularly, or if something has been done illegally which the majority of the company are entitled to do legally, there can be no use in having a litigation about it, the ultimate end of which is only that a meeting has to be called, and then ultimately the majority gets its wishes. Is it not better that the rule should be adhered to that, if it is a thing which the majority are the masters of, the majority in substance shall be entitled to have their will followed? If it is a matter of

that nature, it only comes to this: that the majority are the only persons who can complain that a thing which they are entitled to do has been done irregularly, and that, as I understand it, is what has been decided by the cases of Mozley v. Alston and Foss v. Harbottle."

Now, in this case, it appears by the record that since the bill was filed and before the hearing in the Circuit Court at an annual meeting held on February 20, 1905, after full report and discussion, the stockholders of the improvement company by a large majority in number and stock voted down a motion to disapprove the sale complained of, and, instead, voted to ratify and approve the same. The facts asserted in the bill and shown on the hearing do not show fraud nor negligence and mismanagement equivalent to fraud, nor the doing of any act ultra vires, nor even any unwise or injurious act, though as to this last opinions may differ. The pledge was valid, the debt was due, the pledgee would not renew, the pledgor was unable to pay, except through an advantageous sale of the pledged assets, and to secure and effectuate such sale the directors of the pledgor company did the best they could under the circumstances. The complainant as a minority stockholder has no just and equitable ground of complaint nor any equitable right to represent the company in a suit attacking the sale satisfactory to the majority and by which the company is unquestionably bound.

In North American Land & Timber Co. v. Watkins, supra, this court (Shelby, J.,) said:

"Even where the management of the majority appears to be unwise and inJurious, equity will not interfere if such management be not dishonest or ultra vires, but will require the complaining stockholder to seek relief within the corporation. When the management is not shown to be fraudulent or dishonest, and when it is a matter of opinion whether it is wise or unwise, advantageous or disadvantageous, if the acts complained of be intra vires, there is no authority for equity to interfere. To do so would be to place the control indirectly in the hands of the minority whenever interference removes from control the officers selected by the majority. There is certainly no presumption that a minority stockholder is right, and a majority stockholder is wrong, in opinion as to the values and the management of the corporate property." We find no equity in complainant's bill. None developed on the hearing. There is no case for an injunction to preserve the status of assets.

The interlocutory decree of the Circuit Court granting an injunction is reversed, and the cause is remanded, with instructions to dismiss the bill.

JOHNSON v. GEORGIA LOAN & TRUST CO. et al. (Circuit Court of Appeals, Fifth Circuit. December 5, 1905. On Rehearing, January 30, 1906.) No. 1,497.

VENDOR AND Purchaser-SUBSEQUENT PURCHASER FROM VENDOR-RIGHT TO PROTECTION.

To entitle a defendant to protection as a bona fide purchaser for value and without notice of lands which had previously been conveyed by the grantor, he must allege and prove, not only want of notice, but also actual 141 F.-38

payment of the purchase money, independently of the recitals in his deed, which do not constitute proof of such payment.

[Ed. Note. For cases in point, see vol. 48, Cent. Dig. Vendor and Purchaser, § 568.]

Appeal from the Circuit Court of the United States for the Northern District of Georgia.

The following is conceded to be a substantially correct statement of the

case:

Elizabeth Johnson, a citizen and resident of the state of New York, brought her bill in equity against the Georgia Loan & Trust Company, a Georgia corporation, with its principal domicile in Bibb county, Ga., and against E. C. Armistead and the other appellees, who are citizens and residents of the Northern district of Georgia. The purpose of the bill was: (1) To establish a constructive or implied trust as against the defendant the Georgia Loan & Trust Company relative to certain property, the subject-matter of the cause. Complainant contended, and set out facts sufficient to establish her contentions, that the lands in question in equity belonged to her, the legal title, however, being in the Georgia Loan & Trust Company, who by construction or implication was complainant's trustee, holding a mere naked legal title. Complainant contended that in equity she was to be regarded as the true owner of the lands, although the legal title was outstanding in the Georgia Loan & Trust Company. (2) Complainant sought to have her right and equitable title to the lands in question set up and established, as against the defendant E. C. Armistead, who claimed title adversely, and as against the other defendants, who were mere tenants of Armistead in possession, and to recover of said defendants the actual possession of the lands.

Complainant's bill showed all necessary jurisdictional facts. It set up that the principal defendant, E. C. Armistead, and his tenants in possession, claimed title to the lands in question, the nature, character, and extent of which claim was unknown to complainant; that such claim was without validity, and was subordinate to the right, title, and claim of complainant; that the claim of the said Armistead and others was under a common propositor, namely, A. D. Martin. The bill further averred that on the 2d day of December, 1889, the said A. D. Martin conveyed the lands in question to the defendant the Georgia Loan & Trust Company by deed duly executed and recorded, for a consideration of $6,000; that the Georgia Loan & Trust Company was the agent and representative of the said A. D. Martin for the purpose of securing a loan of money, and as such agent and representative applied to complainant for said loan; that complainant paid over to the Georgia Loan & Trust Company, for said Martin, in pursuance of the application aforesaid, the sum of $6,000, the consideration of the deed above referred to from Martin to the Georgia Loan & Trust Company; that the defendant the Georgia Loan & Trust Company, instead of taking the deed to said land to complainant, Elizabeth Johnson, took the same directly to itself, as grantee. The bill alleges that, the money-the consideration of the deed aforesaid-having been furnished by complainant. and the defendant the Georgia Loan & Trust Company having taken title to the lands in question to itself, said Georgia Loan & Trust Company became and was a mere naked trustee, holding said lands for the benefit and on behalf of complainant, and should be required to convey the legal title to said lands to complainant. It appeared from the allegations of the bill that the deed aforesaid from Martin to the Georgia Loan & Trust Company was made pursuant to an act of the Legislature of the state of Georgia, as codified in section 1969 of the Code of 1882 of said state, the pertinent portion of which is as follows: "Whenever any person in this state conveys any real estate by deed to secure any debt to any person loaning or advancing said vendor any money, or to secure any other debt, and shall take bond for title back to said vendor upon the payment of such debt or debts, such conveyance of real property shall pass the title of said property to the vendee." It was conceded (that is to say, no issue was made in this regard) that under the statute law of Georgia and the decisions of the Supreme Court of the state a deed of the character indicated