its validity. See Thatcher v. West River Nat. Bank, 19 Mich. 196; Polhemus v. Ann Arbor Sav. Bank, 27 Mich. 44; Cristy v. Campau, 107 Mich. 172; Monument Nat. Bank v. Globe Works, 101 Mass. 57; Bird v. Daggett, 97 Mass. 494.

A careful review of all the authorities (and the case has been fully briefed by all the parties in interest) leads us to the conclusion that not only the notes given for the merchandise in excess of $500, but likewise the notes given as accommodation paper, are valid obligations of the defunct partnership association, limited, in the hands of their present bona fide holders. It should not be overlooked that it is the appellant's contention that this paper was absolutely prohibited by section 6083, above quoted, and further that it bore upon its face evidence of its infirmity, in that it was signed by one manager only. We are of the opinion that neither position is well taken. The exception in section 6083, above quoted, distinctly authorized the making of such paper under certain conditions, and we think the long course of dealing of the association through Mr. Armstrong with the public, without protest from the other managers or stockholders, and with the knowledge of the managers, was sufficient to lead those who dealt with the implement company to believe that the necessary statutory authority had been given. Indeed, it is apparent from the supplemental record that the appellant itself from February, 1903, to April, 1905, held as evidence of its claim a note signed by one manager alone. Having reached the foregoing conclusions, it is unnecessary to determine whether or not the appellant can prosecute on its own behalf as a creditor. We think that the proper course for a creditor to pursue in such a case is to move the court for an order directing the receiver to contest the allowance of the alleged illegal claims.

Inasmuch as the receiver apparently of its own motion instituted the inquiry as to the validity of the various claims presented, the costs of appeal, including the print

ing of the briefs of all claimants, will be paid from the fund in the hands of the receiver.

The order appealed from is affirmed, and the record remanded.

BLAIR, C. J., and GRANT, OSTRANDER, and MOORE, JJ., concurred.

HAMILTON v. AMERICAN HULLED BEAN CO.

FRAUD-FALSE REPRESENTATIONS - SUBSCRIPTION TO CORPORATE STOCK-RESCISSION.

Complainants subscribed for $6,000 of preferred stock in defendant company upon the representation of defendant Fuller that $3,000,000 of the stock of the company had been issued as fully paid by the transfer of his United States and Canadian patents covering a certain process for hulling beans; and that $2,000,000 of stock remained in the treasury, of which $500,000 was preferred stock. Defendant Fuller in fact retained $11,500 of the preferred stock for his Canadian patents, in addition to the $3,000,000 of common stock which had been so issued. Held, that the representations were fraudulent and that the complainants were injured to the extent of the stock so retained, and entitled to rescind their subscriptions.1 GRANT and MOORE, JJ., dissenting.

Appeal from Barry; Davis, J., presiding. Submitted June 3, 1908. (Docket No. 1.) Reargued February 8, 1909. Decided May 26, 1909.

1 As to rescission of stock subscription for fraud or misrepresentation, see note to Fear v. Bartlett (Md.), 33 L. R. A. 721.

156 MICH.-89.

Bill by James L. Hamilton and Henry T. Heald against the American Hulled Bean Company, Limited, and Charles D. Fuller to set aside the sale of corporate stock on the ground of fraud. From a decree dismissing the bill, complainants appeal. Reversed, and decree entered for complainants.

Henry T. Heald (William P. Belden, of counsel), for complainants.

Harry C. Howard (Colgrove & Potter, of counsel), for defendant Fuller.

BLAIR, C. J. This case was before the court on demurrer to the bill of complaint and the demurrer overruled at a previous term. Hamilton v. Hulled Bean Co., 143 Mich. 277. The allegations of the bill of complaint and the nature of the case are sufficiently stated in the opinion filed therein. Both defendants have answered, proofs have been taken in open court, a decree entered dismissing the bill of complaint without any indication of the grounds therefor, and complainants appeal to this court.

Defendant Fuller resides in Kalamazoo, and the American Hulled Bean Company, Limited, was located at Battle Creek. On March 12, 1901, two patents were issued by the United States to Fuller covering a process for hulling beans and preparing the products for food. He sold these patents to D. L. Merrill, Abram C. Wisner, Neal S. Phelps, and Martin V. Barker for $100,000 in cash and notes. Afterwards Fuller bought back a one-fifth interest in these patents for himself and brother for $20,000, and became associated with the others. On June 19, 1901, these parties organized a partnership association known as the American Hulled Bean Company, Limited. By the amended articles filed August 28, 1901, the capital stock of the company was fixed at $5,000,000, of which $3,000,000 was paid in by the incorporators by the assignment of

these patents. The remaining $2,000,000 of the stock was kept in the treasury, and it was agreed and provided that $500,000 of this treasury stock should be made preferred stock, and that the balance of $1,500,000, together with the $3,000,000 of stock issued for the patents, should all be deemed common stock. On the 28th day of August, 1901, the following agreement was executed by the parties:

"Agreement made this 28th day of August, 1901, by and between David L. Merrill, Neal S. Phelps, Abram C. Wisner, and Martin V. Barker, all of Battle Creek, Michigan, parties of the first part, and Charles D. Fuller and Frank D. Fuller, parties of the second part.

"For a gcod and valuable consideration to the parties of the first part in hand paid, the receipt whereof is hereby acknowledged and confessed, and the said first parties being each and every of them members of the board of managers of the American Hulled Bean Company, Limited, of Battle Creek, Michigan, they do hereby agree to and with the said second parties that they, as members of the board of managers of said American Hulled Bean Company, Limited, will vote as such managers that the said Charles D. Fuller shall have out of the treasury stock of said company the exclusive right to sell and dispose of one hundred and fifty thousand dollars, par value, of preferred stock, each share of preferred stock to be accompanied by one share of common stock, at not less than fifty cents for one dollar of preferred accompanied by one dollar of common stock; all over and above said sum shall belong to the said Fuller, and the balance shall be by him paid into the treasury of said company, but it is understood that he shall be under no obligation to sell said stock; the exclusive right is given to him to sell and dispose of such amount if he chooses to exercise it for five months from date only. Second party agrees to commence the sale of said stock within ten days, and devote all of his available time to the sale thereof.

"The said first parties do further agree that as such managers they will also vote that in consideration of the assistance that has been rendered by the said Charles D. Fuller, that the said Frank D. Fuller shall be employed the first year as the manager of said company, and that his salary shall be five thousand dollars.

"In witness whereof the parties hereto have hereunto

set their hands and seals the day and year first above

"MARTIN V. BARKER.

[Seal.

"CHARLES D. FULLER. [Seal. "FRANK D. FULLER." [Seal.ĺ

On October 22, 1901, but under date of September 4th, the following action was taken and entered in the record as part of the record of a meeting of the board of managers:

"It was moved and seconded that one hundred and ⚫ fifty thousand dollars ($150,000) of the preferred stock and one hundred and fifty thousand dollars ($150,000) of the common stock of this company be sold to Charles D. Fuller, and issued to him or such persons as he may direct for the sum of seventy-five thousand dollars ($75,000) in cash and the assignment by said Charles D. Fuller to this company of all rights in the Canadian patents now pending, or which may be applied for hereafter on bean-hulling machinery, the process of hulling beans and everything else pertaining thereto, which he may invent or which may be secured by said Charles D. Fuller. Carried unanimously."

The record of the company of October 30, 1901, is, in part, as follows:

"Present, the full board. The following letter from Charles D. Fuller was read:

"To the AMERICAN HULLED BEAN Co., Limited.

"Gentlemen: I have sold eight hundred and fifty (850) shares of preferred stock of your company, amounting to eighty-five thousand dollars ($85,000), being part of the preferred stock of one hundred and fifty thousand dollars ($150,000) that was voted to me by resolution of your board of managers September 4th, 1901. The sale of this stock has been made at par to the following persons, each of whom has purchased the number of shares of preferred stock set opposite his name. * * * You will apply seventy-five thousand dollars ($75,000) of the proceeds of this sale on the cash payment which I was required to make by the terms of said resolution, and the balance you will return to me.