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Cloud on title

cienn hands,

was sane, and that she subsequently sign her personal right to sue for a fully understood what she had done. cancelation of com

--right of action. A deed of one insane, if not previ- plainant's deed on ously adjudicated to be such or the ground of fraud. Crocker v. placed under guardianship, is mere- Bellangee, 6 Wis. 645, 70 Am. Dec. ly voidable and can subsequently be 489; Graham v. La Crosse & M. R. ratified by the grantor when men- Co. 102 U. S. 148, 26 L. ed. 106.

tally normal, as in It was the theory of the trial Incompetent person-deed

case of a minor court, and is urged here, that equity, validity.

upon coming of age. having once acquired jurisdiction in Moran v. Moran, 106 Mich. 8, 58 the controversy, can and should reAm. St. Rep. 462, 63 N. W. 989; tain it to give full relief and make Wolcott v. Connecticut General L. final disposition of all matters in-) Ins. Co. 137 Mich. 309, 100 N. W. volved, and that relief should be de569; De Vries v. Crofoot, 148 Mich. nied complainant under the maxim 183, 111 N. W.775; Allis v. Billings, that "he who comes into equity must 6 Met. 415, 39 Am. Dec. 744.

come with clean hands." The appliMrs. Abts, being the owner in fee cation of this maxim is limited to of this land, conveyed it by a regular the defendant in the litigation, and warranty deed, prima facie valid, there can be no claim that complainand received from the grantee a con- ant came with hands soiled in a sideration therefor which she re- fraudulent transaction with him. tained. Conceding this deed to be The act or transaction concerning voidable, it nevertheless carried the which complainant fee to the grantee, and remained in asks relief is the bill to quietforce as a valid instrument of de- taking of a deed by feasance until such time, if ever, as defendant from Mrs. Abts, and reit would be set aside in an appro- cording it. Complainant had nothpriate judicial proceeding, at the ing to do with that transaction, and option and instance of the party en- was not guilty of any wrongful contitled to institute such proceeding. duct in that connection. In obtainIn the meantime, the original grant- ing this deed from Mrs. Abts, who or held no title to the property, and

was then sole owner of the property, the grantee in whom the fee rested complainant did not perpetrate any

might convey it to -effect of

fraud upon defendant or commit a bona fide pur

any inequity against him. The chaser, who would

wrong must have been done to detake a title to the estate which

fendant himself, and not to some could not be attacked.

third party. The power in equity At the time Mrs. Abts gave a quit

.

to grant complete Equity-fall claim deed of the land in question to

relief when juris- relief-who

defendant, she had already parted diction is once taken with all legal title to it. All that

cannot be extended to persons not remained to her, under any theory, parties to the suit, and whose rights was the personal right to sue in

a party to the suit cannot take by equity to have her conveyance set assignment. aside for fraud. Her deed to him Defendant's entire defense is nec

not only conveyed essarily an affirmative attack upon Deed-quit

nothing, but con- complainant's title, under the allega

tained no warranty tions in his cross bill, of a fraud which might eventually carry the practised upon Mrs. Abts, not himtitle to him in case her deed to com- self, which manifestly he could only plainant was later set aside, which assert as an assignee, and upon would reinstate the fee in her as it which,

which, not being assignable, he was before the voidable deed was could not be heard. As he was not given. Her quitclaim does not pur- entitled to file his cross bill on the port to, and cannot, operate to as- ground of a fraud practised upon

conveyance.

given.

claim-effect.

(190 Mich. $78, 157 N. W. 282.) her, the court not only had no juris- The decree of the trial court is diction to grant him affirmative re- reversed, with costs, and a decree lief on his cross bill, but all defense will be entered in this court in favor fell with it, for no other grounds of of complainant, as herein indicated. defense are shown. H follows that in this case, as be

Stone, Ch. J., Kuhn, Ostrander, tween these litigants, complainant is

Bird, Moore, Brooke, and Person,

JJ., concur. entitled to the relief asked, for the reason that defendant acquired no title to the land by his conveyance,

NOTE. and whatever right Mrs. Abts had to the cancelation of her deed to In the reported case (COCHRAN TIMcomplainant on the ground of fraud BER Co. v. FISHER, ante, 9) it is and undue advantage was a person- held that the holder of a conveyance, al right, which she could not assign.! taken with notice of a prior conveyThe record discloses that in con

ance to a third person, cannot defeat nection with an order made by the

the rights of the third person by showtrial court granting a "new trial,” ing that the latter procured his conor further opportunity to take testi

veyance by fraud on the common mony upon a certain matter before final disposition of the case, it was

grantor. The maxim of equity, “He stipulated that the Statute of Limi

who comes into equity must come with tations would not be pleaded in any

clean hands," is available, the court suit which might be commenced by holds, only to a person who has been Mrs. Abts to recover title to this

injured by the inequitable conduct of land. Nothing in this opinion is in- the complainant. The cases discusstended or to be construed as pre- ing and applying the maxim in quesjudging, abridging, or to the preju- tion are collated in the note following dice of her rights in that respect. LANGLEY v. DEVLIN, post, 44.

C. A. CROSS, Appt.,

V.

FARMERS ELEVATOR COMPANY of Dawson, North Dakota, et al.,

Respts.

North Dakota Supreme Court - June 7, 1915.

(31 N. D. 116, 153 N. W. 279.)

Corporation - violation of subscription contract - redress — clean hands.

1. He who comes into a court of equity must come with clean hands, and a promoter of a corporation who has prepared and caused to be circulated a stock subscription form or contract by which some, at least, of the subscribers to the capital stock of a corporation, are made to agree not to purchase more than ten shares of such stock, and who in violation of such form or agreement has himself, before the capital stock of said corporation has been subscribed in full, obtained control of said corporation by obtaining an issue of stock to "dummies," and which stock he has afterwards had assigned to him, cannot come into a court of equity and complain because the directors of such corporation have taken such control from him by the sale of the balance of the capital stock of said corHeadnotes by BRUCE, J.

poration, even though such sale was for the principal purpose of depriving him of such control.

[See note on this question beginning on page 44.]

excessive capitalization com- agreement as to holdings of stock. plaint.

3. The subscribers to the stock of a 2. The policy of the Incorporation Laws of the state of North Dakota is corporation may enter into an agreethat the capital stock of a corporation ment under the terms of which neither shall be fully subscribed as soon as

themselves nor subsequent subscribpossible, and when such capital stock is sold at par, a stockholder has no

ers to the stock will be entitled to and ground for complaint, even though the receive more than the stipulated numadditional money may not be absolute

ber of shares, and this agreement will ly necessary to the existence of the corporation.

be binding on the parties to it, though [See 7 R. C. L. 202–205.]

not on the corporation.

APPEAL by plaintiff from a judgment of the District Court for Kidder County (Nuessle, J.) in favor of defendants in an action brought to have certain shares of the capital stock of defendant corporation canceled and set aside, and to enjoin the directors from selling any more stock, fixing salaries of officers, and declaring dividends. Affirmed. Statement by Bruce, J.:

organized in August, 1909, and exThis is an action which is brought isting under and by virtue of the by the plaintiff, C. A. Cross, for laws of the state of North Dakota, the purpose of obtaining the control with its principal place of business of the defendant elevator company at Dawson, Kidder county, North by having canceled and set aside Dakota; that the purpose and object seventy shares of stock which were of said corporation was to build an issued after he

had obtained elevator, buy and sell grain and the control of such corporation by feed, and to build and operate a the purchase of a majority of its feed mill, and afford a better stock before such later issue, and to market to the farmers residing restrain the board of directors and in the vicinity of Dawson for the the board of directors elect from grain raised by them; that, pursuant selling any more stock, fixing the to such purpose, and to enlist the salaries of the officers and employees interest and secure the co-operation of the corporation, and declaring of a large number of the residents any dividends. The complaint also of that community, the subscribers asks for an accounting from said of stock of said company, at the directors.

time of their subscription thereto, The trial court dismissed the ac- entered into and subscribed an tion on the ground that the plain- agreement in writing which is in tiff, C. A. Cross, did not come into words and figures following: 'We, court with clean hands, and was not the undersigned, do hereby agree to entitled to any relief, but should be purchase the number of shares of left in the position in which the stock in the Farmers Elevator Comcourt found him. The plaintiff has pany, Dawson, North Dakota, which appealed, and a trial de novo is de- appears opposite our signatures, and manded.

hereby contract with the said comThe findings of fact by the trial pany to purchase the stock upon decourt, which, with a few modifica- mand. Said stock to be paid for at tions which will appear later in this the rate of fifty ($50) dollars a opinion, we concur in on this trial share. It is further agreed that no de novo, were as follows: "That the stockholder be allowed to own or Farmers Elevator Company of Daw- vote more than ten shares of stock son, North Dakota, is a corporation in his own name, and that no stock (31 N. D. 116, 153 N. W. 279.) shall be negotiable or sold to any no more could be sold until the party without first being offered to spring of 1913, at which time seventhe said elevator company at its face ty (70) shares of the unissued capivalue, and that no person, firm, or tal stock of said corporation were corporation shall be qualified to pur- sold at par and regularly issued to chase or hold stock in said elevator qualified purchasers, to wit: company unless they are bona fide

Sam Swanson

2 shares residents of Kidder county, North G. M. Magee

2 shares Dakota.' Which agreement was

Frank Eberl

2 shares signed by all the stockholders buy

William Hoeft

1 share Berndt Nelson

1 share ing stock during the first year of

R. M. Bunker

2 shares the corporate existence of such cor- S. E. Kepler

5 shares poration, except said C. A. Cross, Mrs. S. E. Kepler

5 shares who subscribed for one share; that

H. K. Grimm

10 shares M. W. Naylor

10 shares thereafter, when the organization of

M. H. Raymond

10 shares said corporation was complete, said R. E. Young

10 shares agreement was incorporated and John F. Kepler

10 shares adopted as one of the by-laws of said company, and ever since its

“That forty (40) of such shares

were sold before June 7, 1913, anadoption has been and now is in full

nual meeting of the stockholders, at force and effect as such. (2) That

which directors were elected, and the plaintiff, C. A. Cross, was the

thirty of such shares were sold after principal promoter of said corporation and was its secretary and one

such meeting; that each of the pur

chasers of said stock paid to the corof its directors for the first two

poration par value therefor, and years of its existence, and received

they are now, and at all times since one hundred ($100) dollars in cash and two shares of the capital stock been, bona fide stockholders of said

the purchase of said stock have of said company for his services as

corporation, and owners of such such promoter; that said C. A. Cross

stock, and entitled to all the rights drew and circulated the agreement

and benefits of stockholders in corset out in finding No. 1 herein, and

porations of the state of North Dainduced stockholders to sign said kota ; that said stock was issued and agreement and take stock in such

sold according to the statutes of the corporation upon the strength of

state of North Dakota. (4) That said agreement and his representa, at all times since its organization tions that such agreement was valid

said corporation, in order to carry and binding. (3) That the capital

on its business, has had to borrow stock of said corporation was and is

greater or less sums of money, and ten thousand ($10,000) dollars, di

to pay interest thereon; that at times vided into two hundred (200)

it has been necessary to have at shares of the par value of fifty ($50) its command large sums of money, dollars each; that ever since the in

and that the additional capital so corporation of said company its di

secured by said sale of stock could rectors endeavored to sell all the

be used to great advantage by the stock at par, and the unissued stock corporation, though not absolutely of said corporation has at all times

necessary in order to carry out the since its incorporation been for sale purposes of its organization and conat par to qualified purchasers; that duct the business as specified in its during the first year of its corpo- articles of incorporation. (5) That rate existence one hundred and six after its incorporation in the year (106) shares of the capital stock 1909, the corporation built a grain were sold and issued; that there- elevator on the Northern Pa. after, in July, 1911, Edgar Bon and cific right of way at Dawson, North E. L. Bunker were appointed a com- Dakota, at an expense of fifty seven mittee by the directors to dispose of hundred twenty-five ($5,725) dolthe balance of the capital stock, but lars; that at the time said elevator

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was completed the company did not total capital stock invested, of 10 have enough money to pay for same, per cent, after paying all its debts, and was in debt, and was dependent charges, and expenses of conducting upon borrowed capital to conduct its said business, and it further appear

; business; that thereafter plans and ing to the court that for the next specifications were prepared for fiscal year, ending June 30, 1913, a building a feed mill, and estimates large net profit was earned by said therefor received, but on account of corporation after deducting all exlack of money such feed mill has not penses, charges, debts, and obligabeen built; that the money arising tions of said business, together with from the sale of stock sold and is

a sum equal to 15 per cent of the sued in 1913 is the property of the cost of the elevator, as deterioration corporation, and is for the joint ben- of the said elevator building; and efit of all of the stockholders of such that there is now a large surplus corporation. (6) That said elevator available for dividends to be paid building was erected in the fall of stockholders, amounting to approxi1909, and opened for business on or mately $2,900. (7) That the plainabout October 1st of that year, and tiff, Č. A. Cross, knew that unishas ever since been and now is used sued stock was for sale at par at all and employed by said corporation in times, and has not at any time exits business of buying and selling pressed his intention or desire to grain. That said company has, ever purchase any of the unissued stock since the opening of said elevator, of such corporation, or demanded or conducted an ordinary elevator busi- offered to pay for any part thereof; ness for profit, by purchasing and that the said Cross had due opporselling grain in the open market, tunity to purchase such unissued and has transacted a large volume stock, but refused so to do. (8) of business, and such business has That at the stockholders' meeting of been profitable to said corporation said corporation, held in July, 1912, and the stockholders thereof, it hav- a resolution was introduced, passed, ing been shown to the court that and adopted to the effect that four for the first year's business, embrac- of the seven directors elected at that ing the period from the opening of meeting should hold office and serve said elevator in the fall of 1909 to for a term of two years, and three June 30, 1910, adopted by said com- for a term of one year, and that the pany as the end of its first fiscal board of directors should designate year, a dividend of 22 per cent was which members should serve for two earned, and such dividend was the

years and which members for one net profit from the conduct of said

year; that the board of directors business for such period, after pay- thereafter at their meeting held on ing all expenses, charges, and obli- January 30, 1913, designated George gations in and about the conduct of Magee, William Hoeft, Frank Eberl, said business. And it further ap- and Sam Swanson as directors to pearing to the court that during the hold office for a term of two years, next fiscal year, ending on June 30th, and John C. Taylor, Henry Al1911, which was a period of poor

breacht, and R. A. Haase as directcrops and small business in that lo- ors to hold office for a term of one cality, the said defendant corpora- year; but through the neglect and tion paid all its obligations, charges, oversight of the secretary of such and expenses in full, and, after surn- meeting no record was made of such ming up its business for said period, resolution. That a meeting of the had a small deficit, to wit, about stockholders was held June 7, 1913, $27; and it having been further which was the regular annual meetshown that for the next fiscal year, ing of the stockholders of such corending June 30th, 1912, the said cor- poration, lawfully and properly poration earned and paid to its called; that C. A. Cross participated stockholders a net dividend on the in such meeting, and was afforded

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