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and calling nt Victoria, D. C, Honolulu, Suva, Fiji and Brisbane, are DUE
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From Vancouver anu Victoria, B. C.
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Corporation Notices.
NOTICE.
Special Stockholders' Meeting Oahu
Railway & Land Co.
In pursuance of a written request of
a stockholder owning more than one
lit th of all the stock of tho Company,
a Special Meeting of tEo Stockholders
nf the Oahu Railway & Land Co. Is
I
ailed for Tuesday, June 3, 1902. at
n. to., to bo held at tho office of tho
Company, Stangenwald building, Ho
nolulu. The object of the meeting Is to con
sider a proposed amendment (o tho
Charter of tho Company, a copy of
which has been filed with the Secre
tary. A. W. VAN VALKENIIURO,
Secretary, Oahu Railway & Land Co.
Honolulu, May 28. 1902.
2161-31
NOTICE
OF STOCKHOLDERS'
MEETING
Of the Honolulu Rapid Transit and
Land Company, by Order of L. A.
Thurston, President of the Hono
lulu Rapid Transit and Land Com
pany. Notice Is hereby given to tho Stork-
holders of tho Honolulu Rapid Transit
and Land Company that at 9 o'clo :k
a. m. en the 6th day of June, A. D. 19,i2,
a special meeting of tho stockholders
of said corporation will bo held at .Mo
Assembly Hall of Cactlo & Cooke, Llm
itcd, corner of King and Ilethcl streets,
In the city of Honolulu, Uland of Oaliu,
TetJItory of Hawaii, for tho purpose of
considering the disposition of certain
shares of the capital stock of flic said
corporation, thcretoforo authorized to
bo Issued, and such other business as
may bo brought beforo tho said meet
ing. J. A. GILMA"N,
Secretary Honolulu Rapid Transit and
Land Company.
May 29, 30, 31; Juno 1, 2, 3, 4, 5.
NOTICE TO OWNERS OF RACE
HORSES.
Entries for the races on June 11 and
14 WILL CLOSE on June 3d, at 4 p.
m., with tho secretary, at C. R. Collins'
harness shop, King street, near Fort.
By order
EXECUTIVE COMMITTEE.
, C. L. CUADDE, Secretary. 2159-tf
Business Notices.
NOTICE,
During my absence of about two
months, Dr. C. I Garvin will attend
to my practice.
In all business matters, the Hawaii
an Trust Co. will net for mo under full
power of attorney. C. U. WOOD.
2157-lw
A. C. LOVEKIN,
STOCK AND BOND BROKER,
REAL ESTATE AND INSURANCE.
403 Judd Building:.
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AORANQI JUNE 4
MOANA JULY J
Corporation Notices.
NOTICE
OF STOCKHOLDERS'
MEETING
Of Honolulu Rapid Transit and Land
Company, a Corporation Organized
Under the Laws of the Republic
of Hawaii, now Territory of Ha
waii. Whereas, the President of said cor
poration did on tho 29th day of May,
1902, call a special meeting of tho
stockholders of said corporation to be
held at the time and placo and for the
purposo hereinafter set forth, and di
rected the Secretary oi said corpora
tion to give to the stockholders there
of notice of bald special meeting, which
Bald order of said President Is In writ
ing and on fllo with the Secretary of
said corporaion;
Now, therefore, notice Is hereby giv
en to the stockholders of sntd corpor
ation that at 3 o'clock p. m. on the Gth
day of June, A. D. 1902, a special meet
ing of the stockholders ot Honolulu
Rapid Transit and Land Company will
be held nt the Assembly Hnll of Castle
& Cooke, Limited, corner of King and
Ilcthel streets, In the City of Honolulu,
Island of Oahu, Territory of Hawaii,
for tho purposo of considering tno
proposition to qroate n bonded Inelebt-
edneBS of said Honolulu Rapid Tran
sit and Land Company to tho amount
of one million dollars ((1,000,000), In
gold coin of the United States oi
America, and that if said bonded In
debtedness Is authorized to be created
that it bo represented by tho bonds ot
said corporation, to bear such date as
the Hoard oi Directors may determine,
to be payable twenty-flvo (25) years
after date, with interest nt the rate of
six per cent per annum, payable halt
yearly, said bonds to bo executed and
Issued In such denomination or denom
inations as may bo determined by tho
Hoard of Directors of said corporation,
nnd If so created said bonded Indebted
ness to bo secured by a mortgage or
deed of trust upon all of tho corporato
property and franchises now belonging
to said corporation or which It may
hereafter acquire.
Dy order ot the President
J. A. OILMAN,
Secretary Honolulu Rapid Transit and
Land Company.
L. A. THURSTON,
President Honolulu Rapid Transit and
Land Company.
May 29, 30, 31; Juno 1, 2, 3, 4, 5.
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job Offlr.
Supreme Court Decides
AGAINST
, Kamalo Company Promoters
In the Supremo Court ol tho Territory
of Hawaii,
October 'ierm, 1901.
Harvey It. Hitchcock, Lawrence H.
Dee, Harry L. Evans and Charles
J. Klsnel, on behalf of themselves
and all other stockholders In the
Kamalo Sugar Company, Limited,
vs. Frank Hustace. John J. Hgan.
Frank H. Foster nnd Tho Kamalo
Sugar Company. Limited.
Appeal Irom Circuit Judge, First Cir
cuit. Submitted April 5, 1902.
Decided May 31, 1902.
Vrcar, C. J., Galbralth and Perry, J. J.
A promoter is the fiduciary of tne
corporation ho brings into existence
and of those whom he Induces to buy
Its shares, it Is his duty to make full
and fair disclose of the fnctB to thfl
shareholders or subscribers.
Where promoters organize a corpor
atlon for the purpose ol Felling proper
ty or options they own, and mako r.n
agreement with themselves, as pro
motes or stockholders, for tho coji
pany o buy their property or options,
at n p'ofit, and do not disclose to Mio
shareholders or subscribers, other thin
themselves, the terms of said agree
ment, such failure to disclose. Is ii
fraud nnd the agreement vcid and . i.e.-
nmc.in' of the profit made by tho ro
motors may be recovered. In equity, ut
the stilt of the stockholders, where 'lit
proper officers refuse to act.
Opinion of the Court by Galbralth. J.
The plaintiffs, dissatisfied gtockhoM
ers in the Kamalo Sugar Company.
Limited, filed a. bill In equity against
the defendants lltistnce, Foster nnd
Kgan, as promoters of said contpanv,
to recover for the corporation (35.0m)
In cash and COOO shares ol the capital
stock of the company or Its value of
1120.000 taken by them as secret prof
Its or promoters' fees or compensation
for floating the plantation. A demand
upon the corporation nnd Its officers
to bring the suit and n refusal to do
so Is set out. The other allegations of
the bill and answers arc glvm in de
tail In nnother opinion rendered In thlH
cause on another occasion 113 Haw.
pp. C41 to 648 Inclutlve). It will not
be necessary to repeat them bore;. An
other chapter In the history of fin
case Is written, ante pp. 1, 2, 3, 4.
The principal evidence at the 1 ear
ing was the testimony of the defend
ants and the records made by them.
Tho Circuit Judge made lew Bpeclflo
findings of fact. Tbetc are Important
In the determination of this case, and
we deem It advisable to give a sum
mary of the leading facts established
by the evidence before attempting to
discuss or npply the principles of law
Involved.
Summary of the Fecit.
It was proved that Hustace, Hgan
nnd Foster were the promoters of the
Kamalo Sugar Company, Limited;
that Foster held certain options fur
deeds nnd leases of land en the Island
of Molokal considered desirable as the
basis for terming a sugar plantation:
that he conferred with Hustnco nnd
t-gan anu ine lauer uuucm u uue-uuu
Interest In Foster's holdings on t lit
3d day or April, 1899; that upon snld
day the three defendants entered into
a written contrnct which, after rocltlng
the purchase af the above Interest and
the consideration therefor paid, among
other stipulations contains tho follow
ing: "That the purpose of tho parties
hereto In acquiring said lands, Is tho
formation of a corporation under the
laws or this countiy, to grow sugar
cane therein nnd to erect, mnlntnln
and operate sugar mlllr, nnd to thut
end. said parties ot the second part
(Hustace and Egan) Bhall nt their own
expense, within a reasonable time finm
date hereof duly organize such co-por-atlon
with such capital stock and In
other respects as the parties hereto
(Foster. Hustace and Egan) may mu
tually agree. That all or said lands so
acquired shall upo nthe organization of
said corporation be Bold nnd conveyed
to the same at such price as the par
ties hereto may mutually agree, and
tho difference between the price paid
ror said lands and the price for which
thu same shall bo sold to said corpor
ation shall he divided one-half thereof
to said first party (Foster) and one
half to the said second parties ( Hus
tace and Egan)."
Expansion of Sugar Industry.
It was also established that at this
period In the history of the Teriltory
there was active cxpantlon In the su- by whom does not appear from tbo
gar Industry; that many new plantn- evidence. That the certificate of ac
tions were started; that there waj knowlcdgmcnt attached to the articles
much speculation In the stocks ot
these companies nnd that tho publlo
generally wero eager to buy ami did
buy such stocks with the expectation
of Helling them at n profit; that the
public, Including the plaintiffs, obtain
ed Information of the purpose of thu
defendants to promote a sugar com
pany, from reports in tho local news
papers (who gave out such Informa
tion does not appenr); that straight
way theso defendants wero besieged
nnd solicited by tho plaintiffs (except
Deo) and others eager to buy htock In
tho promised company; that no pros-
pectus wns issued by tho promoters
nor were nny subscription lists or
stock books opened; that when appll
cation was made to one of the defend-
mits for stock ho would make n memo-
randum of tlie name and number of
shares In a pass book or on slips of
paper carried In the pocket; that bo-
fore the corporation was organized
these slips or lists of names were
handed In to Hustace, who allotted
tho stock to the shareholders, deter-
mining who should bo permitted to
buy and the number of shares; that hearing, the amount of money ex
after Hustace had completed the al- pended in promoting the rorporatlon;
lotmcnt ho cnused a printed circular that the only proof given was by the
to be sent to each person to whom he defendant Foster, who showed an ex
hail awarded stock in thu form follow'
I
ng:
"KAMALO SUGAR COMPA.SY.
"Honolulu, April 18'',t.
"Mr
You are hereby notified that a ten
pxr cent assessment on shares
of stock (par value (20 each) In thu
I.A afc Alt t.laanH W rM fin l.fi l44Wt. I
"""" D,,,", ,r"' ,""." ,,",
uwiuit-'i iiuini iiit; in n n hi niv i i"iw-
lie of Hawaii, for thu amount of 1.000,- ttio- paid the McCorrlstnns In consld
ooo dollars. Is now due and payable at U-ratlon lor their land U'.ViOii In rasll
my office, Campbell's Illock, Merchant 'nj om, thousand slmres of paid up
street. If not paid on or before ;
Inst., the sumo will bo transferred to
uther parties.
"Yours respectfully,
"FRANK lirST.U'i:.
" due."
First Stockholders' Meeting.
That afterwards, on the -"til dnv of
April. 1899, tho three defendants held
a meeting nt Hustnee's officii, which
uas Liter denominated. In the m'nute
books of the company, "the first stock
holders' meeting of the Kamalo Sugar
Company. Ltd."; that these minutes.
lifter reciting that these throe defend
iilils were present representing IS.Mmi
shares or the capital stuck out of tho
entire amount of .",o,iirm shales and
that the articles of incorporation of the
company had
lows :
been filed, read ns fob
'.Motion made by Frank lliistuce
nnd seconded by J. J. l'gan that the
corporation ngreus to pay the promo
ters, upon their giving a deed to the
corporation of all their right, title and
interest In the following described
pioperty; nil options now In the name
or hrnnk 11. loster. also in rcc slmplo.fon,nlltH Hustnce. Egan and Foster
the Ahupuaa of Kopuaokolaii. contain- .ii.i unlawfully combine, cnnsnlrn nnd
Ing 1171 Hires and one piece In K.tpua-
lal of tluee acres, more or less, as de-
scribed In tho deed to Ilium from thu
McCorrlstoii brothers, also the assign-
inent of n certain lease for a term of
forty years made by the trustees of
the II. P. Illshop estate to tjlie said pro-
meters, together with all buildings.
Improvements, rights, privileges end
appurtenances therein. Including all
the stock formerly owned by McCor-
rlstiin brothers, viz.. .100 bend moro or
less of cattle. 20 head mole or less or
horses, for the consideration of tn,-
nmi In United States gold coin and tlie
transfer to such parties ns they may
iloscilhe the nmoiint of "uiirt shares of
fully piild up stock of the corporation.
Carried. Thnt these minutes mnke
false recitals In nt least three particu
lars, vl. Ill Tim articles of lin-orpor-
ntlnn of the Kamalo Suga
Company.
Ltd., Iind not been filed on the 20th
day of April. 1899- (2) tlie promoters
did not nt that lime have a deed lor
the Mc CorilHton land; 13) they had
no lease for (lie Illhhiip Estate land,
Thnt on the dny rnlloulug April 21st,
Hustace began to receive responses to
the notice sent the allottees of Lteck
and the payment ol tne first nssess
rucut of lo per centum thereon ami
thut to the parties paying nu Issued re
ceipts In the following forms:
"Kamalo Sugar Compnny, Ltd.
'No
Subscribers Receipt.
"Honolulu. II. 1 1R99.
"Received irom
dollars, lor first as
sessment ot 10 per cent on .... shares
of the capital stock of the Kamalo Su
gar Company, Ltd.. this receipt i. he
surrendered on the delivery ot certtfl.
:ate of stock.
"FRANK HUSTACE.'
Date of Incorporation.
That the first certificates of stock In
the company were Issue" In tlie lutter
part of Mny following. That the ar-
tides nf Incorporation appear to have
been signed on the 2th day of April,
1899. whether they were signed on
thnt day or on tlie Itn day of May Is
disputed from the fact that In the date
line of the articles an erasure appears.
The month as typewritten was erased
and "20th" nnd "April written in with
Ink. When this change was made or
Is dated May Ith. 1899, and the articles
were filed with the Treasurer of the
Territory on the 8th day of May, 1899.
That tho uftidavlt attached to the ar-
tides of incorporation recites that
JameH 1". Morgan Is president of the
Kamalo Sugar Co.. Ltd.. J. J. Kgan
secretary and Frank Hustace treasur
er, and that the subscribers to tho
stock are
James F. Morgan 1,500 shares
Frank Foster 2.000 shares
J.J. Kgan BOO shnres
A. C. Lovokln 100 shnres
Frank Hustace 2,''f Vres
Frank Huslncc, Tr 43.900 shares
and that 10 per cent nf tho capltil
- stock of ono million dollars had been
paid In and tho entire amount sub
scribed for; that this affidavit was I
sworn to by the three officers named1
on the Ith day of M"ay, T&'j'.i. how or
when or by whom these parties weru
elected to the respective offices In Oik
company dues not appear from tho
minutes of the corporation or other cv
Idence. That the defendants were glv-
en an opportunity to show, nt
tho
penditure of MS": that some (70.000
was paid to Hustncc In response to
the notices sent the subscribers on
the first 10 per centum assessment to'
...u . ., , imu auer mis
money was paid to Hustace these dt
fendatits In
finrfillnnr.n nf h. .iu.1, '
' "' ,"' '"'"-
,uon oi .prii .'inn. appropriated ilin.ono
. ........ .. .......
. A M. t . -.. a..a ft M -a
ii.iim 1111 KifirK nnn irnm iniu nmninir
stock: that the remainder of the ensh
itss.riur.l was divided amonu thu do-
. fendnnts as follows: To Foster (1G,-
00 cash nnd one-half of the stock nnd
to Hustace (10,000 cash and one-fourth
in stock and the same to Kgan. That
the promoters did not disc-lose to any
of the allottees of stnc either before
or alter the payment of the first as
sessment tlie amount they Intended to
tiiku as piomoter's fees mid that r.ouo
of the stockholders outside of the III
iiirporntors knew of the amount of tho
pioUt luiiile by the ptonioluis or nuy
lliliiK on tlie subject: Hint the compa
ny Issued ii piospecius III September,
1899. publishing the transactions of
tho promoters; that on May lib, 1S99,
when the affidavit accompanying the
nrt,.,.K ,,f Incorpoiatlnii vas suhscrlb
ed reciting that in per cent of the cap
ital stock had been paid in there had
not been n dollar paid on the 43,900
held h Hustncc- as trustee, except
that paid by the plaintiffs and other
tmbscrlherM.
Finding of Circuit Judge.
The Circuit Judge found thnt the de-
confederate nnd ngreo together to
(..at nnd defraud the stockholders of
.he Kamalo Rticai- Comnanv. Limited.
n Hawaiian corporation, out of tho!
, of (3.,,ono In casli and illitio shares
nr t. ,,nlil up stock of the said Ka-'
main Sugar Company. Limited, as at-
,.K,,, , charged In the plaintiffs' bill
0I1 ,t. ,f Ht." The Judge also
found that the alue of the shares was
U'O nt the time nnd thnt the conve'slon
f t. money and stock was fraudulent
nnd void, nnd iiulcrcd the indney nnd
mock, or Its (-univalent In cash, nald
to tlie clerk of tlie court for the Ka
malo Sugar Company. Limited. Tlie
Judge nlso allotted the nttorneys for
the plaintiffs ii fee of (20.00H for their
services reiuleiecl In snld cause. Thu
defendants appealed. Numerous rea
sons are uigeil for reversal of the de
cree appealed from. -It will not bu
necessary to notice all of these in de
tail. An Immoral Argument.
Much stress Is laid upon the fact
that the time this company was organ
ized wns one of active expansion in
the sugar Industry; that spcciilitlnn
ran riot and prosperity In all ot Its
dellgbtrul luxuriance wns hero; that
the major part of the population ot
the Islands were eager and nuxlnus to
buy sugar stocks; that thu plaintiffs
and others who bought shares In the
Kamalo Sugar Company. Limited, did
s without asking nny questions and
considered It a privilege to have shares
allotted to them; thnt the transaction
was all a gamble and when the excite
ment subsided the plaintiffs discover
ed that they ha tailed to realize on
their exaggerated expectations and by
this suit seek to mold the responsibil
ity of their own folly and to shllt the
burden of their losses to thu defend
snts.
We are not much Impressed with
this argument. It finds as little sup
port In morals as In law. It !a nn
doubt true that at the time In one
tlon there was much reckless specula
tion in corporation shares, but It was
not given out by the defendants and
we assume. In tho absence of proof,
that none of the plaintiffs had nny
reason to believe or did believe that
the Kamalo Sugar Company was or
ganized as a lottery or a gambling en
terprlse. The public who were Invit
ed to buy the shares of this company
had a right to presume that It was pro-
noted as a legitimate enterprise In
whoso management, business fntegrl-
ty, if not ability and prudence, were to
be Important constituent elements.
Counsel havo neglected to cite- any au-
thority supporting tho assumption that
the character of a transaction, wheth
er it is right or wrong, honest or Uta
honest, hwful or unlawful, Is to be de
termined by tho degree of prosperity
existing In the community. We un
derstand thn. In tho law, right and
wronir frond and theft, embezzlement
nnd ncrmrv rr the samo In stinshlns
and In rain. In times of plenty and In
' " -"I ' 'he conduct of those
o- ' ' measured by fix
l"1 ", " y nn" '""" natvH m ""'this rule were applied to the facts of
ed standard wlttrout reference to tha
degree of commercial activity at the
time of their operations.
Important Issue In Case.
The plaintiffs proceed upon tho the
ory that the defendants occupied a po
sition of trust nnd confidence towards
the company nnd tho public that was
invited to buy and did buy the shares
nnd Hint the defendants could not tnke
the money nnd stock without first dis
closing the farts to nnd obtaining the
consent of the stockholders: while the
defendants Insist that the plaintiffs
we're not subscribers but purchasers
of the stock from Hustace; that the
promoters were the original subscrib
ers for the stock and were strangers
and had the right to deal with tho
plaintiffs and all subsequent stockhold
ers and the company at arms length.
The determination of the relation oc
cupied by the defendants towards the
company and the platntlffs is the Im
portant Issue In this case and its dc
termination, as Is conceded by coun
sel. will settle the other Issues In
vnlved.
The rule settled by the English nu
thorltles Is that in order to make a
complete contract to take shares thero
t 6o nn npplPaotl for MiarcSi
8olm,.nt of , to ,h appUcant
and a communication fn him nf tho t. '
. I
inlment. Hnirnrti rnan I. II 1 t'U
r,3:. -,i,.ol-R Ca8p n
Ch.
If
this ease we would be bound to hold
that the offer of the plaintiffs to buy
shares, and the allotment by Hustneo
mil the notice sent prior to April 20th
ci tistltuted a completed contract and
each party receiving such notice was
a lubscrfiier from that date, at least it
the notice was unconditional; If the
tellce was conditional the contrnct be- ( Join It. and the company proves nbor
cume complete on payment of the fl: t the. they will not be allowed. In thu
assessment or earlier if the time ot vlmllni: un of the romnntir. romnensa.
payment was waived or extended. Hi I
tii'ory would explain why Hustace r.f
tc I wauls xubscrlbeil for stock as irus
ti" and make that act consistent and
rl'ow th.it he Intended to stihsci'lvi
and illil MiuWrlbe fin the stock .i
ttusteo
whom h
lor the several persons to
had allotted stock. Tlie Inct
ted stock. Tlie Inct
ay the Hist or any
mm in- urn urn pay cue nisi or any
other assessment on any part of this
43.!h)ii shares held as trustee tends1
NllmiKy , s,,port the theory that1
Isuch was his Intention and purpose at,
that tliiw and negatives the claim now.
made that he was absolute owner of
I the stock and signed as trustee I
through lnacheitenco or on nihlce of
counsel.
Promoter and Corporation.
What relation In general does a pro-,
motcr bear to the corporation ho
brings Into existence and to the share-1
holders whom he Induces to Invest or
whip luiuuiiiraj inM-si in cue iuck ui
thu company.
Cook on Stock and Stcuvkholders,
ejection fill, says, "A promoter Is con
sidered In In was oeeupylng n fiduciary
relationship towards the corporation."
Judge Thompson says, "Although
the promoters of a eorporntion are not
Its agmnts for the purpose of binding it
' their acts and engagements, yet
tiii'y nre Its fiduciaries; they occupy
such a relation of trust nnd confidence
towards the body which they are call
ing Into existence or more properly
speaking tnwnrd those whom thev In
vito to Join them in the Intended en
terprise by becoming members of
such body as requires the same good
t a It Ii on their pait which tlie law ex
nets of the directors of corporations
nnd nil other fiduciaries. They am
tniKlees In u sense which disables
them irom taking to themselves i se
cret pioflt made out of their trust to
Iho detriment of tlie future corpora
tion or its members." Commentaries
on Corporations. Vol. 7. See. 828B.
"Promoters stand In n fiduciary re
lation to thut company which Is their
creature." New Sombrero Phosphate
Co. n. Krlnnger. 5 Ch. Illv. 73. 112:
L. It. 3 App. Cas. 12IS.
"Whether called prospectors, pro
meters, agents, trustees, or any other
name, they unquestionably solicit and
accept trusts from the members of the
company and therefoie became Its
fiduciaries." 10 Am. Law. Rev. p. C72.
The luw of this question ns above
quoted is too null established in the
Jurisprudence of this country and Hog
land to be now successfully contro
verted. Among the many American
cnuits that haw announced and fol
lowed tills view ate the United States
Circuit Court and the Supreme Courts
of California. Missouri. Pennsylvnnln.
New Yoik and Massachusetts."
Chandler vs. Ilacon, 30 Fed. S3S; Rur-
banks vs. Dennis, 101 Cal. 9fi. 98; Si
mons s. Vidian Oil Co.. til Pa. St.
202: Ilrewster vs. Hntch. 122 N. Y.
319. 3W; The South .loplln Land Co.
vs. Case. 101 Mo. 572. 579; llayword
vs. I.leson, T7i Mass. ."In. See also
Clark and Marshall. Private Corpora
lions, See. 110b.
Position Not Tenable.
The defendants admitted they were
promoters of the Kamalo Sugar Com
puny, but insist that on April 20th
they had ceased to be promoters and
had become and then acted as stock
holders and as such had a right to
make the agreement V!th the promo
tors for the payment of the money and
stock In consideration for the options
This position Is not tenible. These
defendants did not cease to he promo
ters, nt least until the corporation, the
artificial person, was bmught into
life. The Kamalo Sugar Comp.uiv.
Limited, wns not a corporation unt'l
utter the articles of Incorporation we!"
filed with the Treasurer of the Terri
tory. May Sth. 1899. iC. I... Sec. 2U.15I.
This filing of the articles was the last
act necessary to breatlTe tlie breath of
- llfo Into this soulless child of their
will. Whether or not tho corporato
existence reverts back to tho signing
of the articles, It Is not necessary to
determine, since it Is clear that tto
defendants could not, at that time ond
under the facts of this case, making a
contract with themselves, divest them
selves of Hie fiduciary relations as
sumed as promoters.
Relation of Defendants.
What duties were Imposed on tho
defendants by the relation they assum
ed and occupied towards the nblnt!ffirT
and tile other 8tockholder'nifvthb
company? The law ts wcdtVtabllsh-,.,
ed that If a trustee agen-or prompt
propose to contract with any p'xfJon
with whom he stands In.ft'l'elatlon of
trust nnd confidence, trio-utmost good
faith Is required. "It Is not cnouglf
that they do not affirmatively misrep
resent; they must not conceal: they
must speak and speak fully to every
material fact known to lliem. or tlm
contract will not he allowed to stand."
Perry on Trusts. Sec. 178.
"Where persons undertake the pro
motion of a company for the purposo
of purchasing certain existing proper
ty, under an agreement with the own
er and proposed vendor of such prop
erty, by which they receive a certain
compensation Tor promoting the com-
nnnt itim- ,-.. i.,.,,..,! n i.iu..
'
to
those whom they Imluco to become
members of the company, "what their
compensation Is to be. Ine conceal
ment of such an agreement Is a fraud
on the company. It amounts to an
agreement, by the vendor, with nn
agent of nn Intended purchaser, to
give him a bribe to betray the Interest
of his principal. If the promoters of
n company conceal such an agree
ment from those whom they Induce to
tlon for their services, either upon or
after the formation of the company."
Thompson's Commentaries ou the law
of corporations. Sec. IJC.
Again in tlie following section the
same distinguished author snys: "Per.
-cms who purchase property and then
organize a ciiiniiniiv to niin-imse Ii from
organize a company to purchase It I
them, stand In a fiduciary posltloi
them, stand 111 a fiduciary position to
wards Rueh company, nnd must faith-
fniu- cim,. t n. ,..,,- u m-,,.
,a' facts relating to tne nronertv.
which would Influence the company In
deciding on the desirability ol pur.
chasing. In such cases the owners of
property who desire to create a com-
puny for thu purpose of purchasing It
from them are bound. If they wish to
make n contract which will stand, to
nominate Independent directors, and
disclose to them the actual facts. Th
principle upon which courts of equity
proceed In these cases Is a very farull
lur one. Tne promoters ol a com pa-
ny. like Its directors. Is deemed to
sustain towards thu members of the
comnpiiy the i elation ot a trustee to
wards bis cestui que trust. This be
ing sci, he will not be permitted to
speculate out of that relation, or to
derive secret advantage from It. He
Is bound to disclose to them fully all
material facts touching his relation to
them. Including the amount which he
Is to get for his sen Ices ns promoter,
usually called 'promotion money'."
Sec. 157.
Acts In Dual Capacity.
'Whether tlie- vendor becomes a pro
moter, he ts concerned in the sale of
the property as vendor: and belne ii
promoter, he Is concerned In its pur-
chnse ns the agent of his compnny. He
acts In n dual -npnclty. Ills duties nro
twofold and conflicting. As vendor he
owes It to himself tu kell as high, and
ns jirnmuter lie owes It to the company
to buy as low, as possible. His per
lormanee of those duties Is frequently
attended with disgraceful perfidy. 11a
is 1 1 in- to himself In securing the high
est price for the property, hut is falsa
to his company by deceiving It as to
the wcutli of Its Intended purchase, and
by lulling Its shareholders tuto unsus
picious reliance that their Interests
will be looked after and guarded eith
er by himself or by corporate officials.
whom he has cither alrendy corrupted
or Intends to circumvent or seduce."
"Cases In which the vendor
Is a promoter and sells to the com
pany at a large undisclosed profit.
are the cases In which the doc
trine that puimutcrs are corporate fidu
ciaries Is applied ultenest nnd with tlm
most Wgnr anil effect." Ifi Am. L. Rev.
p. 073.
The dm trine of the above authori
ties ought to bo recognized as settled
law. Its application to varying tates
of facts, resembling In some Instances
those of this ense. Is Illustrated In tho
following cases:
McKay's case. 2 Ch. I). 1; llaguall
vs. Carlton, ti Ch. I). 371; Kmma Silver
Mining Co. s. (irnnt. It Ch. I). 91S;
Kmma Silver Mining Co. vs. Lewis, 4
('. P. I). 390; Archers' Cabe, I Ch. 322;
Yale C.ns Store Co, vs. Wilcox. 64
Conn. 101; Plaquemines Tropical Fruit
Co. vs. Iluck. 52 N. J. B. ST9; Wood
bury Heights Umd Co. vs.- Londensla
ger. 55 N. .1. :. 78; Chandler vs. Ilacon,
30 V. JS3; Emery vs. Parrott. 107
Mass. 95; Densmore Oil Co, vs. Dens
more. 4 Ph. St. 43; Ilosher vs. Rich
mond and Harrlsburg Land Co.. 89 Va.
i-i.i. ii.li. ii.i; riUBiiurg Mining Co. s.
Sponner. 71 Wis. 307: Ilurbank vs. Den
nis. 101 Cal. 90. 98; South Joplin I.and
Co. vs. Cnse. Ifi4 Sin, 572; Huywnrd vs.
l.ecson. 176 Mnss. 310. 325
Duties of OefendanU.
Applying tlie principles established
by the authorities to the facts or this
case, the conclusion Is Inevitable that
the defendants weie fiduciaries of ths
plaintiffs and the Kamalo Sugar Com
pany. Limited; that the duties impos-
(Continued on page 8.)
V
