Henderson v. Plymouth Oil Co. , 16 Del. Ch. 347 ( 1928 )

This action was instituted in the Court of Chancery by minority stockholders of the Plymouth Oil Company, a Delaware corporation, on behalf of said company, to compel the surrender to, and cancellation by, said company of 700,000 shares of the common capital stock of the company alleged to have been fraudulently and illegally acquired by the promoters of the company, as a secret profit in the promotion and organization of the company, and acquisition of its properties. The company is a nominal party, the complainants allege, for the reason that a majority of the directors are promoters who have been made defendants in the action.

The complaint is, that certain of the individual defendants, designated as promoters of the Plymouth Oil Company, derived a secret and unlawful profit from the transfer to the corporation of its properties, which profit is alleged to be represented by the stock sought to be cancelled.

The assignments of error are twelve in number, the first one being that the court erred in entering a decree dismissing the plaintiffs' bill of complaint. The others mean, when taken together, that the Chancellor erred in not sustaining plaintiffs' various contentions.

The company was organized to take over and develop certain oil leases and permits in Texas.

The original bill was filed on July 9, 1925, and a temporary restraining order was awarded. After argument, and after other stockholders had intervened in the suits, the Chancellor, on December 9, 1925 (131 A. 165), refused to award an injunction and discharged the restraining order. On January 28, 1926, the plaintiffs filed an amended bill, and the cause was heard by the Chancellor upon oral testimony of witnesses, beginning September 14, 1926, and continuing to September 29, 1926. On January 27, 1927 (December 27, 1926, 136 A. 140), the Chancellor entered a decree dismissing the bill of complaint, and from such decree the complainants prosecute this appeal.

The facts of the case are not only voluminous and complicated, but difficult to state in condensed form so as to make the issues clear.

There are, however, many relevant facts that are undisputed and they may be briefly stated as follows:

Frank T. Pickrell and certain associates, of El Paso, Texas, were the owners of oil and gas leases and permits, covering some 431,000 acres of State University lands in Reagan County, Texas.

In May, 1923, a well was completed on one of the permits, known as Santa Rita No. 1 well. It was many miles from any other oil development. At the time this well was completed there were two other wells in process of development, and approximately $200,000 had been spent on the property.

Pickrell and his associates were in pressing need for additional working capital to drill more wells, and thus validate certain permits which would expire in July, 1924. Pickrell tried to sell an interest in the properties to various large oil companies, but without success. It involved the payment of $200,000 to himself and his associates to reimburse them for their expenditure in drilling the first well, and an agreement on the part of the purchaser to complete the drilling of other wells at an estimated expenditure of $200,000. It involved the retention by Pickrell and his associates of a quarter interest in the properties.

In September, 1923, Pickrell appeared in Pittsburgh and endeavored to interest some people known as the Benedum or Benedum; Trees group, in his proposition.

That group embraces virtually all of the defendants with the exception of Davenport

and Laing. The result was that a tentative proposition was made to Pickrell which was reduced to letter form.

The letter reads:

"September 11, 1923.

"Mr. Frank T. Pickrell, El Paso, Texas — Dear Sir: Confirming our tentative arrangement with you today in regard to your holdings in Began county, Texas, I am satisfied that our people would be willing to favorably entertain a proposition to take over section two in block two along with wells thereon, with additional three sections, all four of which are held on ten years' lease, and an additional twelve sections adjacent to or surrounding this lease, along the following lines:

"We to organize a company in which you and your associates are to receive a one-quarter interest, and our people to reimburse you for actual expenses on within described properties to date not to exceed $200,000. We will also assume the expenses and completion of the two wells now drilling, and in addition four other wells to be located at points to be agreed upon.

"All of which to be subject to our decision after examination by our geologist now on the ground and whom we will instruct to make careful examination at once and forward recommendations at the earliest possible moment.

"In the event we close a trade for the properties described above our people will agree to finance the entire proposition.

"Yours truly,

About the same time the Benedum group instructed Hennen, a geologist, who was then in Texas, to get in touch with Pickrell on his return and make an examination of the property. This Hennen did, spending about eight days in the examination. He then received a telegram instructing him to bring Pickrell to Pittsburgh to close a contract. They arrived on October 5, 1923, and Hennen at once reported to his associates. Pickrell went first to a hotel, and later met Cowell, Smith, Hennen, Holliday. Adams. Stearns. Farquhar, and probably others, at the Benedum-Trees' office, where a conference was had. The essentials of the contract were agreed upon, and an attorney was delegated to prepare the agreement. This was ready by the next morning when copies of the draft were given to Pickrell's attorney who had arrived in the night. The contract was executed on October 8, 1923, though bearing date to October 3, when the agreement was made.

By this contract Pickrell, on behalf of himself and those associated with him in the ownership of the properties in question, agreed to sell and convey to Stearns, in whose name the contract was made as representing the Benedum group, "he lease on the four sections containing the Santa Rita well. with permits on the surrounding twelve sections selected by Hennen, in all 10.240 acres with the well and certain equipment, for the following considerations:

(a) The sum of $200,000, one-fourth in cash, and the remainder in three equal payments at 30, 60, and 90 days. Also an additional sum sufficient to refund to Pickrell the amounts expended in the drilling of the two uncompleted wells.

(b) One-fourth of the capital stock of a corporation (Big Lake Oil Company) to be organized by the promoters, to take over the properties, with the right to Pickrell to designate two of the seven directors.

(c) Completion by Stearns of the two wells then drilling, and the drilling within a stipulated time of four additional wells, the location of which was to be approved by Pickrell, and so located that if they proved to be producing wells, they would validate certain other permits retained by Pickrell and his associates.

The capitalization of the Big Lake Corporation, of which Pickrell and his associates were to receive one-fourth and Stearns three-fourths, was to be $2,000,000 (later changed on the request of Pickrell to $4,000,000). The title to said lease and permits was to be vested in the Big Lake Company.

Pickrell required and obtained what were, apparently, adequate guaranties for the full performance of the contract on the part of Stearns. The written contract of guaranty was signed by Benedum, Farquhar, Cowell and Smith.

Following the signing of the contract Pickrell, accompanied by Stearns, returned to Texas to prepare for closing the transaction by delivery of title on November 5, in accordance with the terms of the contract. In the meantime, Pickrell's constituents also ratified the contract. Some difficulties in securing proper title to the permits caused delay in closing the contract until November 16, to which time the date for closing was extended with the assent of the guarantors.

On November 16, 1923, title papers were delivered and possession of the property was given to the representatives of the Plymouth Oil Company. Check and notes for the cash consideration were delivered to Pickrell, and one-fourth of the stock of the Big Lake Company at the same time.

At the organization meeting of the directors of Big Lake Oil Company on October 22, 1923, Stearns proposed to sell to the corporation his rights under the Pickrell contract, and further to perform the obligations to pay the money considerations moving to Pickrell thereunder, and to drill the wells therein provided for, all in consideration of 400,000 shares of the capital stock of said corporation, of the par value of $10 each, of which three-fourths should be issued to Stearns or his nominees and one-fourth to Pickrell or his nominees. This proposition was accepted on the same date and the stock was agreed to be issued accordingly.

Stearns and his associates also organized the Plymouth Oil Company, and at a meeting of its directors on October 23, 192.3, pursuant to a proposition in writing submitted by

Stearns to the directors the day before, it was agreed that Stearns should assign and convey to the Plymouth Oil Company the $3,000,000 of stock of the Big Lake Oil Company, together with certain oil and gas rights on lands in Pecos and Upton Counties, Texas, for the following consideration:

(1) 150,000 shares of the preferred stock of the Plymouth Oil Company, par value $5 per share, and 900,000 shares of the common stock of said company, par value $5. This left unissued only 150,000 shares of common stock, and no preferred stock, of the authorized capital of the Plymouth Company; it being intended to reserve this amount of common stock for conversion of the preferred stock outstanding, in accordance with a conversion privilege which the preferred stock carried.

(2) Assumption by the Plymouth Company of Stearns' obligation to pay to Pickrell the $200,000 money consideration and the cost of the two uncompleted wells commenced by Pickrell, and the obligation to drill the four additional wells; the Plymouth Company to indemnify and save Stearns harmless from his obligations under the above contract with Pickrell (192a).

At the same meeting, and after the above-mentioned offer by Stearns had been made, Stearns further offered, in order to raise working capital for the company, to transfer to a trustee to be named by the Plymouth Oil Company, to be held in its treasury, 150, 000 shares of the preferred stock, said stock to be sold out of the treasury, or out of the hands of the company's nominated trustee.

This offer was also accepted on October 23, 1923, and Farquhar, treasurer of the company, was designated as trustee to receive and hold said stock for the company, and to be sold at such price as the directors of the company should fix. The board of directors did in fact fix $3 per share.

At the same meeting, a resolution was adopted by the directors of the Plymouth Oil Company adjudging the properties and rights offered by Stearns to be of the value of $5,250,000 and authorizing the issuance to Stearns or his nominees of 150,000 shares of preferred stock and 900,000 shares of common stock of a par value of $5,250,000 therefor.

It is not denied, indeed it is admitted by the defendants, that Stearns was one of the promoters, their nominee, although he does not appear in the organization of either Big Lake or Plymouth Oil Company, as identified with the promoters of those companies. He characterized himself as a "vehicle" for the transfer of the property. Before the execution of the contract with Pickrell the corporate organization of both Big Lake and Plymouth had been agreed upon by the promoters, and the amount of stock of each company, as well as how the stock of the latter company should be acquired. It had also been agreed that the preferred stock for Plymouth should be of a par value of $750, 000 divided into 150,000 shares of a par value of $5 each, and that this stock should, along with the common stock consisting of 900,000 shares, be issued for the property represented by three-fourths of Big Lake stock.

Before the execution of the Pickrell contract, one or more of the promoters had solicited subscriptions for said preferred stock, and two persons so solicited, but not complainants, did in fact subscribe before the sale to the company, and paid for the stock on the day of the sale.

While the value of the properties acquired by the Plymouth Company from the promoters was a controverted point in the case, it was undisputed that, by the time of the trial, they had become immensely valuable. The complainants contend that the properties were "wild cat" when sold to the company for all its capital stock and were practically of no value. The defendants say that the oil, which made the properties valuable, was all in the ground at the time of the sale, and they were inherently as valuable then as now. The Chancellor found as a fact that the properties exclusive of those in Pecos and Upton Counties, Texas, were worth, at the time of the sale to the company, several times the value of all the stock issued therefor. The testimony on the point is conflicting.

The Plymouth stock was not actually delivered to the promoters until some time in November.

Respecting the facts that are material to the real issues in the case, there is not much controversy, but upon many that seem to be immaterial there is much controversy. The complainants contend: That at the time of the purported sale of the properties to the promoters Pickrell had not full title thereto. That he and his associates were trustees for a large number of certificate holders as to thirteen of the sixteen sections on which the lease and permits were to be transferred. As to the other three sections, they were trustees for the Texon Oil Land Company. That at the time Pickrell was without authority from his cotrustees and had no power of attorney from the Texon Oil Land Company.

As to the Upton and Pecos county properties, rights in which furnished a part of the consideration for the issuance of the stock to the promoters, the complainants contend that Stearns did not own or control them. The complainants do not deny, but really concede, that whatever may have been the infirmities of title in the beginning, the, company acquired full title soon thereafter and became the legal owner of all the properties that Stearns undertook to convey and for which the capital stock of the company was issued. It does not appear that the title or right of possession and use was ever questioned.

It is claimed by the plaintiffs, and is uncontradicted, that prior to the making of the contract with Pickrell, the promoters had done everything toward the actual formation and launching of Plymouth Oil Company which could be done, short of organizing and filing the certificate of incorporation. It had been agreed who would be (he officers and directors of both Big Lake and Plymouth.

The plaintiffs further claim that in the early summer of 1924 when it was demonstrated by drilling that the properties were no longer "wild cat," certain purchasers of stock in West Virginia began to inquire as to the amount of total stock outstanding, and that Davenport, the earliest subscriber for preferred stock, and a director of the company from October 23, 1923, learned in June, 1924, for the first time, the true amount of stock issued to the promoters and outstanding, and protested against the promoters taking such a large per cent. of the capital stock as their profit; that shortly thereafter some of these purchasers of preferred stock were given additional common stock; that the four original complainants did not know of this until the annual stockholders' meeting in June, 1925, and immediately protested and insisted upon the redress of the wrong that had been done; and that their position in the corporation should be made to accord with the representations made to them as to the outstanding capital stock. The defendants do not deny that additional common stock was given to certain West Virginia subscribers, but they do deny that any of the promoters represented to any person that the total issue of common stock was only 200,000 shares when it was in fact 900.000 shares. It is claimed by the plaintiffs that such representation was made by at least two of the promoters, and for the purpose of getting subscriptions to preferred stock which they had been directed to sell.

The plaintiffs claim that the Stearns-Pickrell contract was in violation of the law of Texas, and also claim that the promoters were acting as agents for the Plymouth Oil Company when they secured the properties in question from Pickrell.

Other facts and contentions will appear in the opinion, and do more fully appear in the first opinion of the Chancellor.

The plaintiffs' argument on the question of agency is, in substance, this:

1. When the promoters, through Stearns who was admittedly acting for them, secured the Pickrell rights, not one of them had any thought of paying a dollar of his own money for them.

2. It was clearly understood by the promoters and Pickrell, not only that a company would be formed to take over and develop the properties, but that they would be paid for from the stock of the company the promoters would organize.

3. That the purchase of the property, the formation of the company, and payment for the property by the company to Pickrell was one contemporaneous thought in the minds of the promoters and Pickrell at the time the promoters secured, by contract, the Pickrell rights.

4. That the organization of the Big Lake Company, and the transfer to it of the Pickrell rights, had no purpose or effect other than to secure to Pickrell a one-fourth interest in the rights he sold, relieve him of any expense in the drilling of other wells, and make it appear that the properties were sold to the Big Lake Company and not the Plymouth Company to which the Big Lake stock was transferred, the Plymouth being the holding company and the real company in the minds of the promoters when they made their agreement on October 5 or 8. The plaintiffs insist that the Big Lake Company may be entirely disregarded in determining the fiduciary relation existing between promoters and the Plymouth Company.

5. All the. promoters were witnesses in the case and none of them testified that the Pickrell properties were not bought for a company the promoters would organize.

Finally, the plaintiffs say, in support of their claim of agency, that before the Pickrell rights were secured, an effort was actually made by the promoters, and successfully made, by one or more of them to obtain subscriptions to the preferred stock of the Plymouth Company from the sale of which the money should be realized that would pay Pickrell for his properties.

The defendants, in answering the foregoing argument, do not deny, for the most part, the allegations of fact, but do strenuously oppose the construction placed by the plaintiffs on the Pickrell-Stearns agreement dated October 5, 1923. They insist that the acquisition of the properties by the individual promoters (through the contract made in Stearns' name) was not a purchase for and on behalf of the Plymouth Oil Company, and that, therefore, the so-called "fiduciary" doctrine does not apply.

The defendants say the Texas law regulating the grouping of oil leases before validation furnished no obstacle to the performance by Pickrell of his contract for he did perform it.

The defendants base their case mainly on these grounds:

First. (a) The Chancellor has found, as a fact, that the promoters, the Stearns group, were not agents, but acquired the properties for themselves, and were, therefore, in the position of owner vendor in dealing with the company. It ought not to be said that the mere having an intent to form a corporation stamps the promoters as beneficiaries. It is the duty of the court to view the entire transaction from its four corners and from all the facts determine whether the purchase was made in good faith as an owner or

merely as a conduit to the intended corporation. This, it is contended, the Chancellor has done, and found that no fiduciary relation existed between promoters and company. This finding it is claimed should be accepted by the Court.

(b) The authorities do not establish that under the circumstances of this case a "fiduciary" relationship existed.

(c) When the promoter's obligation is examined it is clear that no basis for liability on the fiduciary theory exists in this case. Many cases, the defendants say, must be distinguished. First, those cases where some of the stock was sold to the promoters at a fair valuation of the property turned in, and the remainder of the stock was sold to outsiders as an original issue. Second, those cases where some of the stock was issued to the promoters for property which had been overvalued, and where the remaining stock was issued to outsiders at a fair value, and as an original issue. It is claimed that the present case is like none of these and the cases do not apply.

Second. That the sale made by Stearns to the Plymouth Oil Company was conspicuously fair; the properties conveyed were fully worth $5,250,000, the par value of the stock received for them.

Third. That the corporation issued all the stock for the properties and, with full knowledge of the facts, gave its consent to any profit which may have been made. Subsequent purchasers of treasury stock cannot assert a right of action through it.

Fourth. That the full disclosure of the promotion transaction on the corporate records is a complete bar to the relief sought.

Fifth. That the alleged misrepresentations of two of the promoters respecting the total amount of common stock, outstanding, if made, would constitute no ground for relief in this suit It is urged that "these allegations if supported by proof, clearly deal with a wrong alleged to have been done to the appellants individually, and not with an injury to the corporation through the extortion of an alleged secret profit by the promoters; and if the plaintiffs have any right of action based on such alleged misrepresentations it is individual and not corporate;" the transaction is not one of which the corporation may complain.

Finally, the defendants insist that cancellation of the stock of the promoters would do a great injustice in this case.

The plaintiffs challenge the correctness of all of defendants' points or contentions, and specifically claim that the preferred stock purchased by complainants was not treasury stock, but stock of original issue. They further claim that the equities of the case are with the complainants, and that the granting of the relief sought would not work an injustice to the defendants.

We have stated, as concisely as possible, but sufficiently, correctly and fairly, we think, the facts and contentions that were before the Chancellor, and are now before this Court on appeal from his decree.

PENNEWILL, C. J., delivering the opinion of the majority of the Court:

In the course of this opinion, we shall treat Stearns as the promoters, for he was merely their representative, and shall treat the conveyance of the promoters' property to the Big Lake Company as a conveyance to the Plymouth Company, which was at all times the real company in the minds of the promoters.

The case of the plaintiffs is based very largely upon the following proposition of fact and law:

"The promoter defendants were acting as agents of the Plymouth Oil Company in the acquisition of their properties and are not entitled to secret profits."

[1] It is claimed that at the time of the making of the Pickrell contract the defendants stood in the relation of agents for the corporation intended to be formed by them, and they could therefore take no secret profits in the transaction. This is a fundamental contention in their case, and its correctness is conceded if warranted by the facts.

In his opinion, the Chancellor says (136 A. 141):

"If the promoters were under fiduciary obligations to a proposed corporation at the moment they acquired properties, or rights to property which the corporation is to take over, and the circumstances are such as to show that they were acting in the capacity, actual or quasi, of agents purchasing for and on behalf of the proposed corporation, then considerable and very respectable authorities hold that the rules obtain which are applicable to the dealings of an agent for his principal. The promoters in such case are bound to account according to the settled principles of law attaching to that relationship. Among these principles is the familiar one that any profit or personal advantage gained by the agent at the expense of the transaction which he puts through in behalf of his principal belongs to the principal, no matter how profitable for the principal the transaction, even after subtracting from it the agent's gain, may in point of fact prove to be. This is the rule which the complainants contend for as governing this case."

This quotation from the opinion of the Chancellor states clearly and correctly a well-settled principle of law and we know of no authorities to the contrary. The defendants do not question the principle, but deny its application to the facts of the case.

The Chancellor decided that there was nothing in the facts warranting the view that the Stearns transaction with Pickrell was on behalf of the future corporation. Stearns was a purchaser in his own right and under personal obligation to carry out his contract, and the fact that be, when he became

purchaser on October 5, 1023, intended to form a corporation to purchase these rights cannot alone serve to convert his purchase into one made on behalf of the future corporation. Stearns was bound to eventually "close" the contract as agreed, regardless of whether a corporation was ever formed. The important thing in this connection is that Stearns when he made his agreement with Pickrell was irrevocably committed to the cash obligation.

He was personally bound and continued so to be to the end. Pickrell had Stearns' notes endorsed by certain of his associates. When many of these endorsements were made, not much risk of loss to the endorsers was incurred, but there is the fact of their existence which cannot be overlooked. Stearns might have changed his mind and concluded not to sell the property to the company. He and his associates were at liberty to do as they pleased with the property. They could have held it as individuals, or sold it to a corporation either of their own creation or already existing.

We have taken only a few extracts from the Chancellor's opinion, but they are sufficient to show his conclusions on the question of agency, and the reasons therefor.

After all, the important consideration in this connection is, not so much what Stearns and his associates did, or the legal effect of the contract, but what was their real intent when they bought the Pickrell rights.

Many authorities were cited on this question, but they are not very helpful because whether promoters buy property for the company must be ascertained from the evidence in each case. Therefore, the question whether the promoters in this case were agents of the company when they bought the property subsequently transferred to the company must depend on the facts and circumstances of this particular case.

Having found that the promoters bought the Pickrell property for themselves and not for the company, and having also found that the property transferred to the company was fairly worth the stock issued therefor, the Chancellor treated such finding as decisive of the case, and deemed it unnecessary in his final opinion to express an opinion on certain other questions argued at length.

But the complainants insist that even if the promoters were not agents of the company when they secured the Pickrell property, a fiduciary relation nevertheless existed between them and the company they organized, and to which they sold their property. It would have been different, they say, if the property had been transferred to a company, not controlled by the promoters but independent, and dealing at arm's length with the promoters. But it is otherwise if the promoters are on both sides of the transaction.

The complainants base their contention on certain American and English cases, and particularly the reasoning in the case of Old Dominion Copper Mining Smelting Co. v. Bigelow, 203 Mass. 159, 89 N.E. 193, 40 L.R.A. (N.S.) 314, in which the court said:

"It is now established without exception that a promoter stands in a fiduciary relation to the corporation in which he is interested, and that he is charged with all the duties of good faith which attach to other trusts. In this respect he is held to the high standards which bind directors and other persons occupying fiduciary relations. That the promoter stands in the relation of a fiduciary to the corporation which he organizes seems to be conceded in Old Dominion Copper Mining Smelting Co. v. Lewisohn, 210 U.S. 206 [28 S. Ct. 634, 52 L. Ed. 1025]. The questions to be answered are, whether this rule is applicable, and if it is, whether the plaintiff is in a position to assert its claim."

In the Bigelow and Lewisohn Cases the facts were the same.

The promoters were not acting for the company when they bought their properties, nevertheless, it was held in the Bigelow Case, as it had been in other cases in this country and England, that promoters sustain a fiduciary relation to the company they organize and control when they sell their property to such company.

The defendants insist that promoters do not owe a fiduciary duty to a company composed entirely of themselves, and that when a corporation is legally organized by promoters to take over their property at a fair valuation, its corporate acts are binding, including the purchase of the property; and that no one, especially one who is not a stockholder at the time, has a right to complain.

But the theory of the cases referred to seems to be, that if, at the time the property is bought by the promoters, or when the company is organized and the property taken over, it was the intention of the promoters to issue stock and sell a part of it to the public, there was a fiduciary relation on the part of the promoters which made it their duty to fully inform future purchasers of stock of the profits made by the promoters in the sale of their property to the company. And not only so, but that such uninformed stockholders may at any time maintain an action, in the name and behalf of the company, against the promoters, either for the rescission of their contract, recovery of damages measured by the profits received, or the cancellation of the promoters' stock. The position of the complainants seems to be, that the drastic relief prayed for in this case may be granted even though the company, as such, has not been deceived, has sustained no injury, and has purchased the property of the promoters with full knowledge of all the facts, and there was no profit secret from the company.

It would seem more logical and reasonable to hold, that if the company, composed of promoters, bought the promoters' property with full knowledge of all the facts, no outside stockholder being then interested, and

if one or more of the promoters concealed from, or misrepresented to, some future stockholders the profits the promoters received, the remedy of such stockholders, if any they have, would be individual and not in the name of the company that has sustained no injury from overvaluation or misrepresentation.

But, we are not required, in the present case, to approve or disapprove the doctrine of the Bigelow Case, and others to the same effect.

The one basic fact that distinguishes the instant case from others in which the fiduciary rule was held to apply is this:

The property sold by the promoters to the company was fairly worth the par value of all the stock that was given for it. It was not so in the Bigelow Case and in most of the others relied on by the complainants. There was in them overvaluation, and that was the fraudulent act charged against the promoters. According to such cases the breach of trust is committed when the promoters sell to the company their property at an excessive price.

Another distinguishing fact is that in the case before the Court all the capital stock was given to the promoters for their property, and there was no intention on the part of the promoters, or the company, to issue other stock, as in the Bigelow Case.

In that case rescission was refused, and we are convinced that under the facts of the present case the Massachusetts Court would have denied the complainant any relief. And even as the facts were, that Court was not unanimous in its decision. Chief Justice Knowlton, and two other Judges, three out of seven, dissented from the opinion of the majority, and approved the law as laid down in the Lewisohn Case, which is not in accord with the principal holding in the Bigelow Case.

In speaking of the Lewisohn Case, Justice Rugg, in deciding the Bigelow Case, said:

"With great respect to the decision, * * * we are constrained to adhere to the law as laid down in the earlier cases in this Commonwealth," — thereby showing that the Court was influenced to some extent by the rule of stare decisis.

But even that case cannot be regarded as authority against the defendants here because the material facts are so different.

We quote from Justice Rugg's opinion:

"That the promoter stands in the relation of a fiduciary to the corporation which he organizes seems to be conceded in Old Dominion Copper Mining Smelting Co. v. Lewisohn, 210 U.S. 206, 28 S. Ct. 634,52 L. Ed. 1026; Id. (0. C. A), 148 F. 1020. The questions to be answered are, whether this rule is applicable, and if it is, whether the plaintiff [the company] is in a position to assert its claim. Notwithstanding this fiduciary relation the promoter may sell property to the company which he is promoting.

But in order that the contract may be absolutely binding he must pursue one of four courses: [Courses A and B the defendant admitted were not followed.] (C) He may procure a ratification of the contract after disclosing its circumstances by vote of the stockholders of the completely established corporation; (D) He may be himself the real subscriber of all the shares of the capital stock contemplated as a part of the promotion scheme."

The Court held that course D had not been followed, because —

"the defendant and his associate were subscribers for only one hundred and thirty thousand shares out of a total of one hundred and fifty thousand, and in the light most favorable to them they held all the shares which had been issued at the time of the ratification. * * *

"A review of the authorities seems to demonstrate that there is a liability of the promoter to the corporation when further original subscribers to capital stock contemplated as an essential part of the scheme of promoters came in after the transaction complained of, even though that transaction is known to all the then stockholders, that is to say, to the promoters and their representatives. * * *

"It has been decided that where persons own the entire authorized capital stock of the company and take it in payment for the conveyance of their property at a grossly exaggerated price, nobody can be heard to complain."

But the Court said:

"The distinction is clear between cases of that class and those like the present, where the promoters took for themselves a large number of shares of stock without adequate consideration and without disclosure to the detriment of the corporation and all its future shareholders, at the same time planning that there should be immediate public subscriptions. It is one thing to take all the shares of a corporation in payment for physical property conveyed. * * * But it is a very different thing to take 130000/150000 of capital stock of a corporation whose assets consist of the same physical property, and in addition $500,000 in money subscribed by others. * * *

"The wrong is not done when the innocent public subscribes, but when the sale was made to the corporation at a grossly exaggerated price with secret profit. The occasion for complaining of this wrong comes when the promoters issue to the public the balance of the stock in order to provide the money necessary to set the corporation on its feet and to give thereby the contemplated value to the stock taken by themselves in payment for their mines. The exemption of the promoter from liability to the corporation for a sale without disclosure when he takes the entire issue of capital stock is an exemption to the general rule imposing upon him the liabilities of a trustee."

We have quoted enough to show how greatly the Bigelow Case differs from the present one, and that it is not an authority against the defendants.

In the Lewisohn Case, which involved the same facts as the Bigelow Case, the Court reached a different conclusion, holding that

the plaintiff could not recover at all. The Court said:

"The ground of the petitioner's case is that Lewisohn, the deceased, and (me Bigelow, as promoters, informed the petitioner that they might sell certain properties to it at a profit; that they made their sale while they owned all the stock issued, but in contemplation of a large further issue to the public without disclosure of their profit."

After the sales were consummated, "to raise working capital, it was voted to offer the remaining 20,000 shares to the public at par, and they were taken by subscribers who did not know of the profit made by Bigelow and Lewisohn and the Syndicate."

The suit was brought to rescind the sale, or recover damages.

The Court continued:

"The difficulty that meets the petitioner at the outset is that it has assented to the transaction with the full knowledge of the facts;" and the court held that it was not "competent * * * for Judges * * * to establish that a corporation shall not be bound by its assent in a transaction of this kind, when the parties contemplate an invitation to the public to come in and join as original subscribers for any portion of the shares. * * *

"It is difficult, without inventing new and qualifying established doctrines, to go behind the fact that the corporation remains one and the same after once it really exists. When, as here, after it really exists, it consents, we at least shall require stronger equities than are shown by this bill to allow it to renew its claim at a later date because its internal constitution has changed."

The Federal Court distinguished the leading English case, Erlanger v. New Sombrero Phosphate Co., 3 App. Cas. 1218, relied on in the Bigelow Case, by saying:

"There never was a moment when the company had assented with knowledge of the facts."

And it may be said, that in most of the cases cited by the complainants the stock offered to the public was clearly stock of original issue, the promoters' property was turned over to the company at an excessive valuation, or the company assented in ignorance of the facts.

According to the Lewisohn Case, and. others, it makes no difference that all the stock has not been issued if the corporation is legally organized and consents to the transaction with full knowledge of the facts. We are not required, in the present case to go so far, because all the stock was taken by the promoters in exchange for their property, and there was no intention of issuing any more original stock.

But the complainants say the reasoning referred to in the Bigelow and Lewisohn Cases, and others like them, should not control the instant case because in those there was no question of agency involved, the promoters did not buy the property for the company they organized. That is true, but we can see no difference in principle, in respect to the fiduciary relation, between those cases and the cases at bar where the company had knowledge of the profits the promoters received, and with full knowledge of the entire transaction consented thereto. True, the company was organized entirely by the promoters. They were the only persons interested at the time, except possibly two others who had been solicited to buy stock but who are not complaining. The entire board of directors, who were promoters, were fully advised of the purchase of the property turned over to the company, the profit that was made and how it would be paid. The company, being legally organized, approved all the promoters had done and carried out the contract they had made with Pickrell. Under the Lewisohn Case clearly the corporate action was legal and binding. There is no fact in the case more fully shown than this: The company, when it took over the promoters' property, and agreed to pay for it, had received no injury at the hands of the promoters, either from overvaluation of the property transferred, or because of any misrepresentation or concealment respecting it. Another fact, tending at least to rebut intentional concealment or misrepresentation by the promoters, is that the minutes of the company showed the Stearns-Pickrell contract, the profits made by the promoters, the total amount of stock issued to the promoters for their property, and other material facts.

[2] While admitting that such facts are shown by the evidence, the complainants insist that the promoters were not absolved from their fiduciary obligation to the company because in dealing with the company they were dealing with themselves, and were on both sides of the transaction; it would be . otherwise if the transaction had been between the promoters and an independent company, not controlled by them. But the Court are of the opinion, and the authorities sustain it, that the promoters had a right to organize the company and to make a profit in the sale to the company of the property they had bought, even though they had secured it for the company, provided it was worth the stock given for it, and provided also they disclosed the profit they would make, and the company, with full knowledge of all the facts, consented before the rights of the complainants intervened. In such case there was no secret or undisclosed profit.

[3] We are not dealing with the right that a future stockholder might have, to maintain an action against a promoter for misrepresentation made for the purpose of securing a stock subscription, but are dealing with the question whether a stockholder who bought his stock after the transaction between the company and promoters was fully completed can maintain a suit in the name and behalf of the company for the cancellation of the

promoters' stock. Under the facts of this case we are of the opinion that such an action cannot be maintained.

The Chancellor, in his final opinion, said (136 A. 141):

"As I view the case, it is not necessary for me to discuss the question of the right of future stockholders contemplated by promoters of the corporation to be brought into its membership to call the promoters to an account for so-called profits made by the promoters in connection with a sale by them to it at a time when the corporation was composed entirely of themselves and was in their complete control. I say this because I shall assume for the purpose of this case that the point of view of the complainants * * * and interveners, though they came into the corporation after the Stearns-Plymouth contract was entered into, have such standing in equity as entitles them to maintain their bill in behalf of the corporation if on the facts a good cause of action is otherwise shown."

The Chancellor did not decide that the complainants had a right to maintain an action in behalf of the company. In his view of the case it was unnecessary to express an opinion on that point.

He did, however, in an opinion given at an earlier stage of the case when refusing the issuance of a preliminary injunction say (131 A. 175):

"For the reasons, above given it therefore appears that the complainants and all interveners with them as holders of preferred stock are in the situation of those who hold stock which was lawfully issued to the promoters and are as effectively precluded from any complaint, if there be a ground for any, as the promoters would be from whom they derive their title. This in itself constitutes a sufficient ground for a discharge of the present rule. The feature of the promotion stock as issued for lawful value which strips it of all semblance of being in reality stock of original issue, while serving thus to foreclose the complainants from complaining, at the same time serves also in another aspect of the case in a yet more emphatic way to render it highly inequitable to grant the relief of cancellation which the bill seeks. This aspect of the matter will, however, be reserved for final discussion."

The Chancellor, in this opinion, reviewed and analyzed so thoroughly the authorities relied on by the plaintiffs, and showed so clearly their inapplicability to the facts of the case before him, that we deem it unnecessary to repeat the labor.

The authorities that are supposed to have some application to the present case have been reviewed, not only by the Chancellor in one or the other of his two opinions, but have also been reviewed in the Bigelow Case at great length, and to some extent in the Lewisohn Case. Perhaps every reason that has been given, every argument that has been made for the adoption of the one doctrine or the other has been presented in these cases, and when carefully considered we have all that can be said on either side of the main proposition involved therein. Some state courts have chosen to follow the Bigelow Case, but we think many more courts, and authoritative law writers, have adopted the rule of the Lewisohn Case. In this connection may be mentioned the thought expressed by Chief Justice Knowlton in his dissenting opinion in the Bigelow Case:

"In addition to the deference that a unanimous opinion of the Justices of the Supreme Court of the United States should receive in any other court, it is for me a very important consideration that, upon questions which will often be litigated in the Federal tribunals by reason of the diverse citizenship of the parties, the law sought to be the same in the state courts as in the Federal courts. It would be unfortunate if, in this large class of cases, the rights of a suitor should depend upon whether he is finally held subject to the jurisdiction of a Federal court or to that of a state court."

In refusing to grant the relief asked for this court is not required to disapprove the law laid down in many of the cases upon which the plaintiffs rely because the facts are essentially different. We have seen no case possessing all the elements of this one where a court has granted such relief.

In this case no outside or uninformed person was solicited by any promoter to buy stock other than that which has been given to the promoters in part payment for their property; if any complaining stockholder sustained an injury in the purchase of his stock it was on account of misrepresentation or intentional concealment of promoters' profits by some promoter after the transaction between the promoters and company was completed. In such circumstances it is impossible to see how the company was injured, and it is hardly conceivable that the present action in the name and behalf of the company could be sustained, or that a court of equity would grant the drastic relief prayed for — the cancellation of the promoters' stock — when the property they gave for their stock cannot be restored to them, and they can receive no compensation for their services which made the stock of the company of great value.

The case of the plaintiffs is based largely, and necessarily, upon the alleged fact that it was contemplated by the promoters that subsequent purchasers of stock should be solicited for the purpose of securing the money needed for working capital, and that there is no authority that forbids these subsequent stockholders to complain in the name of the company of the taking of a secret profit by the promoters. We think that such a complaint is forbidden by the Lewisohn Case and many others that follow it. But while the promoters did contemplate the sale of preferred stock to outsiders for the purpose of raising working capital, they contemplated at the same time, and all the time, the issuance

to themselves of the entire capital stock, including the preferred, in payment for their property. And in pursuance of such purpose the entire capital was given to them by the company after it was formed. The stock contemplated to be sold to outsiders was not, therefore, stock of original issue, but stock that the promoters would rake in part payment for their property. It was such stock that was sold by the promoters to outsiders.

The defendants claim that the English cases upon which the plaintiffs so much rely are inapplicable to the present case because of the English company's act. The distinction may be sound, but we prefer to base the inapplicability of such cases, and all others cited by the plaintiffs, on this ground, viz.:

That the essential facts are different from those of the instant case.

In all of the cases referred to there was either overvaluation of the property turned over to the company, the entire capital stock was not given to the promoters for their property, there was a future issue of stock contemplated, or stock of original issue was sold to the public at an unfair price or without disclosure of promoters' profits.

In other words, there was some fraudulent act on the part of the promoters either of misrepresentation or intentional concealment that tainted their transaction with the company and made them liable in some way to the company.

In this case there was no fraud perpetrated on the company as such, and it is not claimed there was.

We have seen no authority which holds, that the company is injured, and that there can be, on its application, a cancellation of the stock of promoters who have organized a company composed entirely of themselves, and transferred to it their property at a fair valuation for the company's entire capital stock, the company having complete knowledge of all the facts, and no complaining or innocent stockholder being interested at the time. Davenport and Laing were not such stockholders and it is not claimed there were any others.

[4] We think the only debatable point in the case is, whether the preferred stock that was sold to the outsiders was stock of original issue within the meaning of the law. The mere fact; that the preferred stock was given to the promoters in part payment for their property, and immediately transferred hack to the company, did not necessarily divest the stock of the character of original issue when sold to outsiders if the transaction was a mere trick or species of jugglery to relieve the promoters from any liability.

If the stock given to the promoters for a lawful consideration, had been sold by them to outside persons, certainly the corporation could not complain, and the purchasers would be in no better position than the ones from whom they bought. There is practically no dissent even in the Bigelow Case from the principle stated by Enrich in his work on the Law of Promoters, at paragraph 120:

"It is now established by an almost unbroken line of decisions, that if the promoters themselves take the entire share capital of the corporation and then sell the shares to outside parties, there is no fraud upon the corporation, and no basis of complaint by it, no matter what profits the promoters may derive from the transaction. * * *

"If there is any fraud in subsequent sale of shares the cause of action arising therefrom is personal to the purchasers. The matter is between these purchasers and their vendor, and no cause of action results to the corporation therefrom."

The only question is the application of this principle to the facts of the present case.

There can be no doubt that the corporation had the right to issue all its capital stock to the promoters for their property, which was worth the par value of all the stock. The company did by formal resolution accept the property and direct the issuance of the entire capital therefor. The promoters were, therefore, the owners of the stock and the company the owner of the property. The promoters could have sold the preferred stock which they owned to outside parties had they chosen to do so, and donated the proceeds, instead of the stock, to the company. There can be no doubt of this, and we do not understand it is denied. The promoters knew perfectly well that working capital would have to be provided in some way; it was of vital importance to them that it should be provided, and there did not seem to be any way available except the sale of some of their stock, and preferable preferred stock. Instead of selling it themselves they concluded to have the company sell it, and so provided by the medium of a trustee. It seems to have been a very reasonable method because, presumably, it could be sold better by the company than by individual owners. Of course, we do not know what was the promoters' real thought and undisclosed intent, but what evidence is there that shows they intended to make it appear that the stock was their stock when it was in fact original stock? There may be a suspicion, but there is nothing in the record which shows, or tends to show, that such was the real intent. The one thing, more than any other, that has caused some courts to believe that promoters had such purpose was the fact that there was an unfair valuation placed on the property given for the stock. That fraudulent act so tainted the entire transaction that the court was perhaps warranted in concluding that the turning back of the stock for the company to sell was a mere pretense or subterfuge. There is nothing to warrant such a conclusion in the present case. A fact which strongly tends to show that the preferred stock sold to outsiders was

not stock of original Issue is this: It was sold for $3 per share when its par value was $5 per share. The former value was placed upon it after it had been given to the promoters and turned back to the company for sale.

It is unnecessary to further elaborate the point. The Chancellor, in his first opinion, discussed it at considerable length and showed the inapplicability of the few cases cited by the complainants. There is no evidence that shows, or tends to show, that the principle stated by Ehrich in the text above quoted is not applicable to the facts of this case. The promoters owned the stock, its sale by the company was the same in effect as if sold by the promoters themselves, and the company has no right to complain.

It may be helpful to restate briefly, although at the risk of slight repetition, the facts upon which the plaintiffs mainly rely:

The promoters, before they bought the Pickrell property, contemplated the organization of a company and the sale of stock therein to outsiders to raise working capital. Farquhar, one of the promoters, sold preferred stock to outsiders, representing to them that the entire issue of common stock was only 200,000 shares, when it was in fact 900,000 shares. Farquhar, Hallanan and Hennen, all promoters, solicited outsiders to subscribe to preferred stock prior to October 23, 1923, when the sale by the promoters to the company was made.

The offer of the promoters, through Stearns, to sell their property to the Plymouth Company (quoting from plaintiffs' original brief) — "was accepted by Plymouth October 23, 123, the minutes of that date showing a resolution by the directors adjudging the properties and rights offered by Stearns to be of the value of $5,250,000 and authorizing the issuance to Stearns or his nominees of 150,000 shares of preferred stock and 900,000 shares of common stock of a par value of $5,250,000 therefor. Stearns agreed to turn back for the use of the company to provide working capital, the 150, 000 shares of preferred stock to be received by him, and executed an agreement October 25, 1923, with Farquhar, one of the promoters, and Plymouth, whereby that stock was to be turned over to Farquhar as trustee and sold by Plymouth at such price as its directors should fix. The directors did in fact fix $3 per share."

Such are the facts upon which the plaintiffs must rely.

But there were no subscriptions by outsiders for Plymouth stock until October 20, 1923, when Davenport and Laing subscribed for 16,667 shares and paid $50,000 for them October 23, 1923. They are not complainants, but defendants. None of the plaintiffs subscribed until November 2, 1923, when Lockhart subscribed and paid $3,000 for 1,000 shares of preferred stock. Before that time, the stock that the promoters received had been issued to them. After November 2, others subscribed who are complainants. So that on October 23, 1923, there were no stock-holders other than the promoters, with the possible exception of Davenport and Laing. They bought their stock on October 23, 1923, the day the contract was made between Stearns, representing the promoters, and the Plymouth Oil Company, but it does not appear whether before or after the making of the contract. It does not then affirmatively appear that there were any stockholders, other than the promoters, when said contract was made.

In this connection we may mention these significant facts: Davenport, while not one of the promoters, was very closely connected with them before the organization of the company. He lived in Charlestown, West Virginia, where his friend Laing also lived. After being solicited by Hallanan, one of the promoters, to become interested in the Plymouth Oil Company as a stockholder, he went to Pittsburgh on October 16, 1923, to look the situation over, and became convinced that the proposition was a good one, mainly because of his confidence in the judgment of Hennen, geologist, whom he knew, the reports of Hagan, another geologist, and the known production of a well that had been brought in, and had held up in production for several months, and this indicated that it was drawing from a large pool of oil, and he thought one of the major pools of the continent had been discovered. In Pittsburgh, he met and conferred with a number of the promoters, and concluded to invest $25,000 in the preferred stock of the company if his friend Laing would do the same. Each of them did invest that amount, and each was to receive, and did receive, as a bonus, common shares in equal number with the preferred.

Davenport consented to become a director of the Plymouth Company and was elected at the organization meeting in October, but did not attend any meeting prior to August of 1924. Subsequently, Laing was made a director. Presumably, Davenport was cognizant of all the promoters did leading up to the company's organization, and that. Laing was also, through his friend; but. Davenport testified he did not know how much common stock was outstanding until July, 1924, and then wrote to Farquhar that he never heard of promoters taking such a large profit, but had heard of their taking 50 per cent., or something to that effect.

Davenport also testified that:

"Mr. Farquhar came down to Charleston. The disturbance down there did not grow out of the amount of common stock that had been issued, it grew out of the fact that in selling the stock some men bought preferred but got no common stock, and some men bought preferred and got common stock, and some got more than others."

According to Davenport's testimony, Farquhar came down and made up a list of

men who had not received common stock, and gave them so much common stock each.

And so it appears that Davenport and Laing, who are the only outside persons who are claimed to have become stockholders before the transaction between the promoters and the company was completed, were very close to the promoters and had knowledge apparently of everything except the profit they made. They knew they made some profit and objected only to the amount. And the trouble with the Charleston subscribers, according to Davenport's testimony, was caused mainly by their failure to receive the common stock bonus, or as much as others received.

If the material facts in the case are interpreted as favorably to the plaintiffs as possible, we are unable to see how their suit can be maintained even under the authorities cited.

We have said that the property taken over by the company was worth the stock issued for it, and cannot believe this fact is seriously controverted by the plaintiffs. But they have argued the contrary at considerable length. It would unduly and unnecessarily prolong this opinion to analyze the testimony of the many witnesses on this point. It is for the most part opinion evidence and conflicting, but preponderates in favor of the defendants. There are, however, two facts bearing on the question of value that are undisputed:

(1) The property was, at the time of the trial before the Chancellor, immensely valuable. It was worth probably as much as $40, 000,000. This was only two or three years after the purchase, and all that had been done to add to its value was drilling of wells and development. All the materials that made the property of known value later were present in the ground when purchased by the company. Inherently it was as valuable then as later.

(2) The value of the property when turned over to the company was a question of fact.

[5] The Chancellor saw and heard the witnesses, who were examined orally before him, and had better opportunity than this

Court has of determining the credit and weight that should be given their testimony. Under the circumstances, we are of the opinion that the finding of this fact by the Chancellor should have much weight with the Court.

[6, 7] But this action being on appeal, which brings up the entire record, including the testimony, the finding will not be regarded as conclusive unless there was evidence that supported the finding. We are of the opinion, not only that there was such evidence, but that it preponderated in favor of the defendants, and clearly warranted the Chancellor's finding. The directors valued the Property at $5,250,000, and the resolution of valuation was adopted after a careful investigation by skilled and competent men extending over a period ofseveral weeks. There was testimony that it was then worth $12,000,000. Based on the reports of very capable geologists and the production of the first well brought in, Davenport thought one of the major pools of the continent had been discovered.

[8] We have not before adverted to the equities of the case because the law, if applicable, must control. But the decision of a Court of Equity is to be based, so far as may be, on the equities, and for that reason it may not be amiss to say they are in favor of the defendants.

By reason of the good judgment, foresight, initiative and efforts of the promoters the Plymouth Oil Company became the owner of properties that are admittedly of immense value to its stockholders. The promoters have made the stock of the complainants exceedingly desirable, and without any effort or risk on their part. The complainants say it was their money that furnished the working capital and caused the success of the company. They did not furnish all the working capital or even the half of it, and besides they bought their stock at a time when the success of the company was assured and their investments safe.

In addition to the questions already considered there were others raised and argued which should be noticed, although they do not seem to be material to the real issues in the case.

They tend to confuse if not obscure the real issues. They have no perceptible bearing on the alleged fiduciary relation and we do not understand it is claimed they have.

They are, as the Chancellor observed, as to some of them, but incidents to the main transaction. For instance, the circumstances that the promoters did not receive their stock until November 16th, by which time so-called innocent stockholders had come into the corporation. This fact can have no significance because it is well known that stock is usually received some time after the purchase. While the delivery of the stock was delayed, the company had, by formal resolution, adopted October 23, directed its issuance and delivery in payment for the promoters' property. The stock was then owned by the promoters and their property by the company.

Equally immaterial to any issue in the case is the alleged fact that the contract the promoters made with Pickrell was in violation of the Texas law. The important thing is, that notwithstanding the Texas law, the contract was made, its validity was never questioned until the trial of this case and in pursuance of its obligation Pickrell delivered to the promoters at a later date possession of all the property he purported to sell and was legally bound to deliver. We do not

think the complainants place any insistence on this point.

Another circumstance the complainants advert to as material is that the time for "closing" the contract was at some date in November subsequent to the formation of the Plymouth Oil Company and the purchase of preferred stock by some of the plaintiffs. As the Chanceller said (136 A. 143):

"By this term ``closing' is meant the actual physical deliveries provided for by the Stearns-Pickrell contract. * * * The postponement [of deliveries] was made necessary simply because of certain necessities connected with the clearance of titles. The deferring of the so-called 'closing' date was a mere incident to the transaction between Stearns and Pickrell."

Stearns, who represented the promoters, was legally bound to close the contract and did so.

It is further contended by the complainants that Stearns had, under his contract with Pickrell, no property rights, but only an option to purchase, which he induced the corporation to exercise. But the contract that Stearns had with Pickrell was legal and binding. It conferred certain definite rights and imposed certain definite obligations; it bound Pickrell to convey the property and he carried out his agreement.

Pickrell owned some interest in the property he purported to convey, and controlled the whole with the consent of the other owners. Even if his title was not complete, he eventually delivered the property with good title thereto. The Plymouth Company, to which the Pickrell property was transferred, obtained actual possession, and its right of possession has never been questioned so far as we know.

While the complainants may not have much confidence in the points we have just considered they do not seem to lay much stress on the fact that the Pecos and Upton County properties, the purported sale of which constituted a part of the consideration for the stock the promoters received, were not owned by Stearns at the time he undertook to convey them to the Plymouth Company. As to them, he had no title whatever, and the company received none until November 29, 1923, by which time some of the complainants had become stockholders of the company. Because of this it is contended that the promoters were not permitted to make a profit in the sale of such properties. The Chancellor disposes of this contention by saying that Stearns undertook to convey said properties, and whether he had any title or not, he was firmly bound by this contract to deliver title and did so about a month afterwards. But there is another ground upon which the contention may be disposed of, viz.: It is not shown that the promoters made any profit out of this transaction. It does not appear what part of the stock, they received for all the properties was paid for the Pecos and Upton County properties, and it would be impossible for the Court to separate them. If it be necessary, in order to charge the promoters with the unlawful retention of profits in the sale of the Pecos and Upton County properties, to show what those profits were, clearly the burden is on the complainants who make the charge. The one important fact that does appear from the record is that the Pickrell properties, represented by the Big Lake stock, were worth more than all the stock issued for the whole.

It being impossible to tell from anything in the record what profits, if any, the promoters made in the sale of the Pecos and Upton County properties, it would be impossible for the Court to say what proportion of their stock should, be cancelled if, under the law, there should be cancellation in case the profits were known.

There is testimony by one witness, Hennen, that, in his opinion, these properties were worth $25 per acre, making for the whole $300,000, but this does not prove what profit was made by the promoters at the expense of the company, or what part of the stock consideration given for all the properties was given for those particular properties.

For the reasons stated, the decree of the Chancellor will be affirmed.

RICE, J., because of illness did not sit in this case.