Emery, Y. C.
The case, as presented on the hearing, involves a large amount of detail in the proofs, but so far as relates to the ultimate equitable rights of the complainant and defendant, the case is one, as it seems to me, which must be determined by the application of fundamental principles of law relating to the consolidation of corporations. The act under which the consolidation was effected prescribes (P. L. of 1888 p. 7Jp § 1 subd. 1) that the agreement of consolidation shall provide the manner of converting the capital stock of each of the constituent companies into the new corporation; and as to the nature and effect of the agreement, expressly prescribes (section 1, subdivision 2) that the agreement “ shall be deemed and taken to be the agreement and act of consolidation of the companies.” The agreement is, therefore, the fundamental law of the new or consolidated company and of all of its stockholders who receive stock under it, and is the fundamental law in the same manner, and with the same effect, as the charter or original certificate of a corporation on its organization. No material or vital change in the terms of consolidation, as expressed in the agreement, can be made by any portion of the shareholders in their own interest, without the unanimous consent of all stockholders, and the general rule must also be that, the company itself, the result and creature of the agreement of consolidation, cannot be estopped either legally or equitably from enforcing, as against all of its stockholders, the terms of the fundamental agreement.
[299]*299In the present case the secret agreement between Perrine and Wilson provided in effect for other terms of consolidation in favor of the holders of City railway shares, than those expressly prescribed in the articles. In these articles the exchange was declared to be made on the basis of 14+ new shares to one City share. By the secret agreement, the owner of the City railway shares was to receive in addition, from the consolidated company, the entire cost of the purchase of these City railway shares, and this additional amount was to be secured by a pledge of the first mortgage bonds of the company. The materiality of this change in the terms of converting the City company stock is' manifest. On the face of the articles, the profit of the consolidation was apparently altogether in the ownership of the City stock, which was the only stock increased or “ watered,” and the profit on the consolidation apparently was the increase in par value of the consolidated stock over the par value of the City stock,or the amount paid for the City stock. But if the consolidated company, in addition, was to pay the holders of the City stock the cost of purchasing this stock and secure payment of this cost by lien on the property of the consolidated company, then the .City stockholder received a large additional bonus on the conversion of his stock, and this bonus was made a lien on the property prior to all of the stock. Such a vital point in the terms of consolidation, as the payment by the consolidated company of the purchase-money of the stock of one of the constituent companies to the owners of this stock could not be binding or valid against the consolidated company, unless it was expressed in the articles, and so far as relates to the necessity for express provision in the articles, I am inclined to think that, under the circumstances of this case, it is immaterial whether the repayment for advances for 'the purchase of the City stock is to be taken as made to Wilson as the owner of the City,stock or to him as a creditor of the Trenton company, for the amount advanced to it to enable it to become the owner. For although, by the act relating to consolidation, the new company is liable for all of the debts of the old companies, any debt which the Trenton company, before the consolidation, owed for advances to purchase [300]*300the City stock as its stock, would be discharged, so far as the Trenton company and the consolidated company were concerned, by the agreement itself, providing that for this City stock, so held by it, the Trenton company should receive fourteen shares to one. If in addition the consolidated company should be obliged to pay to the Trenton company, or for its benefit, the debt of the Trenton company incurred in purchasing the City stock exchanged, it is evident that this would, as between the Trenton company and the consolidated company, be a payment in excess of the amount fixed by the articles. If Wilson had not, by his participation in the consolidated agreement, as director of the Trenton and consolidated companies, fixed the terms of conversion of the stock of the City company, and if he had in fact advanced money to the Trenton company, which it had used for the purchase, simply for its benefit and not for Wilson’s, the debt might perhaps (so far as Wilson was concerned) have remained, notwithstanding the consolidation, as a debt due from the Trenton company, and therefore a liability of the consolidated company. But inasmuch as the treatment of these advances for purchasing the City stock as a debt due from the Trenton company to Wilson, would be to effect, so far as the consolidated company is concerned, and as between it and the Trenton company, a vital and material change in the articles of consolidation, which Wilson himself participated in making, my present view on this point is that, in view of the failure of the articles to expressly provide that these advances for purchasing the stock of one of the constituent companies were to be paid to the owners of the stock, such payment from the funds of the company is a violation of the fundamental articles of consolidation even if paid as a debt of the Trenton company. But it is not necessary to decide this point, for as a matter of fact I find that the purchase was not made for the Trenton Horse Railroad Company, nor up to the time of the consolidation was it so treated by either Perrine or Wilson.
The agreements of March, 1893, are individual agreements for the purchase for their individual benefit only; some provisions for sharing the bonds of the company with the two other [301]*301principal owners of the Trenton company are inserted, but no provision is made for the remaining owners of the Trenton stock, and the entire stock of the consolidated company is apportioned between Perrine and Wilson, and the provision which gave the other principal owners of the Trenton company shares of the stock was stricken out by the parties at Wilson’s express request. Wilson’s present statements that the purchase was made for the Trenton company are so shaken by his affidavits to the contrary, .and by his actions up to the time of consolidation, and indeed up to the time of filing the amended answer in this suit, that they cannot be accepted as giving the true nature of the transaction as understood between him and Perrine, in reference to this point, or as overcoming the force of their written agreement, which is consistent with all the actions of both parties under it. The entry in the Trenton company’s books, crediting Wilson with $7,500 advanced on May 1st, 1891, is the only circumstance tending to show, although only indirectly, that the Trenton company claimed some interest to this extent in the purchase, but it would in my judgment be exaggerating the effect of this entry to consider it, either alone or in connection with Wilson’s evidence, as establishing ownership of the entire city stock on the part of the Trenton company, or as establish- • ing an indebtedness by this company to Wilson for the $122,400 paid by him to French for stock which was delivered, not to the company but to Perrine and then to him, in strict accordance with their written agreement. The entry in the books of the Trenton company is explainable, as it seems to me, on other grounds and on the view that the advance by Wilson of this $7,500 on account of the $135,000 fixed in the agreement, not being made directly to French, but through the Trenton company, the entry was properly credited on its books as between the Trenton company and Wilson, to show that of the $25,000 advanced on May 1st, 1891, to complete the purchase, Wilson had advanced $7,500. This, so far as Wilson was concerned, was advanced as part of the $135,000 under the agreement. Whether for this $7,500 Wilson is to be considered as still a creditor of the Trenton company, after the consolidation, will be [302]*302considered hereafter. After the consolidation, Perrine, it is true, treated the advances of Wilson as a debt of the consolidated company, not only by the entries he directed on its books, but also by his letters to Wilson and to the Central Trust Company, and Wilson also so treated them. But these entries on the books of the consolidated company, made in the private interest of Wilson and himself, stating that the advances were a debt of the Trenton company, are not sufficient to create the indebtedness in favor of Wilson, if it did not in fact previously exist. These entries and the acts of Perrine as president and sole manager in control of the affairs of the consolidated company, so far as these transactions with Wilson are concerned, manifest that this method of treating the advances as a debt of the Trenton company was the method devised by Perrine for carrying out the terms of his agreement with Wilson for repayment, the consideration of which was, to Perrine, that he should receive about eight thousand four hundred shares of complainant’s stock without the payment of any money. None of the other directors of the complainant knew of the agreement while these entries on its books were made, nor do any of them, except Stokes, who was in Wilson’s employ, seem to have in fact known of any of the entries in complainant’s books relating to the advances by Wilson to the Trenton company, or to have known of the note in question and its payment until after it was paid.
The directors permitted Perrine to manage the whole affairs of the company, without supervision or control, and while it is true that they might, therefore, perhaps bind the company, as to third persons, by their acquiescence in Perrine’s acts, yet such acquiescence cannot be treated, by Perrine or Wilson, as authority fron the company for their misappropriations of its funds to their own benefit, or as authority for making admissions as to the existence of indebtedness on the part of the complainant to either Wilson or Perrine for a claim of this character.
On the whole case I fail to find any evidence sufficient to establish, as against the complainant and in favor of Wilson or Perrine, that the advances made by Wilson for the purchase of the stock were advances to the Trenton company, or were, pre[303]*303vious to or at the time of the agreement of consolidation, so treated by either of them. In reference to the question of treating these advances as a debt of the Trenton company, another consideration of great weight is urged by complainant’s counsel. If these advances were, in fact, a debt of the Trenton company, then it must be because the latter company was the real owner of the City company stock, and it must have been such owner in fact at the time of the consolidation. In the absence of any provision previous to consolidation, by which this stock, of the City company, so belonging to the Trenton company, was prevented from passing to the consolidated company, the act relating to consolidation ipso facto, on the filing of the agreement, vested in the consolidated company all the existing property, franchises and rights of the Trenton company. It is claimed, and apparently with much reason, that this would include the Trenton company’s interest as owner, of the City stock. But, so far as relates to this branch of the case relating to the real purchasers of the City stock and the payment of advances therefor, I dispose of it without expressing an opinion upon this point, and hold, first, that the purchases were not made by Wilson for the use of the Trenton company, but for the use of himself and Perrine, under their agreements, and secondly, that the repayment to Wilson from the funds of the consolidated company of the amount he had advanced for purchasing the stock, was in violation of the articles of consolidation relating to the terms of converting the stock of the City company.
Complainant’s counsel insist that the agreements between Perrine and Wilson are in themselves fraudulent and void, but the validity of the agreements as between the parties is not necessarily involved in this suit- by the consolidated company, which has the right to stand on the terms fixed by the agreement of consolidation, irrespective of the private agreements of stockholders, whether these are valid or not as between the parties thereto. I make no decision, therefore, upon this point.
This withdrawal of the company’s funds by Wilson for payment of his advances to purchase the City stock, being, therefore, in violation of the agreement for consolidation, the company [304]*304is entitled to recover the amount withdrawn for this purpose, unless the defences set up by way of equities are such as to deprive the company of the right to enforce the terms of consolidation against Wilson.
The first equity relied on is that the complainant is now the owner of the City railway property which was transferred to it, •and that defendant advanced his money to purchase the City stock on the faith of the agreement for reimbursement, and without this agreement would not have made the purchase. As against Perrine, who made this agreement, this equity may, perhaps, be valid. In Knoop v. Bohmrich, 4 Dick. Ch. Rep. 82, there was alleged to be a private agreement between the complainant and another stockholder before the organization of a corporation, that the property of the latter should be taken in payment of his stock at a valuation.which, as against the corporation itself, was excessive. Vice-Chancellor Van Eleet said (at p. 84) that though the corporation might not be bound by the contract, the complainant would, in equity, be bound by the preliminary contract, to the extent of depriving him of the right to maintain an action in equity on behalf of the company to compel the stockholder to pay for his stock in a different manner. But the vital question in the present case is whether this equity of the defendant, if it exist, is an equity with which complainant is chargeable by reason of its ownership of the City road. And the insuperable obstacle, as it seems to me, in the way of imposing any such equity on the present complainant, is that the entire terms upon which complainant was to receive the conveyance of the City road, and the payments it was to make for this conveyance, were fixed by the articles of consolidation which were agreed to by defendant. This consideration was, as fixed by these articles, the issuing of shares of its stock in exchange for the City stock at the proportion specified. And it is clear, I think, that these terms thus expressly fixed by fundamental articles, covered the entire subject of the transfer of the City road to complainant and payment therefor, and must exclude and prevent the addition of further payments in consideration of the conveyance.
[305]*305As against the complainant corporation, who has paid the full price stipulated by the articles for the City road and for the City stock, I can see no basis upon which the defendant can have any equity to require it to pay an additional sum'. The defendant, after consolidation on the basis adopted, certainly could not, as plaintiff or complainant, have compelled the company to pay any additional price to reimburse him for his advances; nor can I see how the fact that he has obtained the amount of the advances from the company in violation of the articles can have the effect of imposing an equity on the complainant to ‘ pay this additional price. This ease does not, in this respect, come within the class of cases cited by defendant’s counsel, where, on the repudiation of an illegal or void contract by a complainant who is a party to the illegal contract, the complainant is obliged to restore the consideration or make other equitable compensation for benefits received. The question here is whether a complainant having paid the full price stipulated by a valid contract, must pay more, or allow defendant to take more from its funds, under a secret agreement, to which complainant was no party and by which it cannot be bound. Nothing less than the unanimous consent of the complainant’s stockholders to the withdrawal of its funds for this purpose, would, as it seems to me, be sufficient to authorize it and to operate as a defense to the recovery in equity. Nor am I now prepared to say that even such unanimous consent of those who are stockholders at one particular time, would be sufficient to estop the corporation itself forever. The withdrawal here was in violation of the fundamental articles, and I am inclined to think that the only way in which it could become permanently effective as against the corporation was by an amendment to the articles, by unanimous consent. But this question is not involved as to the withdrawal, for no knowledge of this secret agreement between Perrine and Wilson on the part of any of the other stockholders or directors is shown, nor any consent on their part to the withdrawal of the funds of the company for that purpose. The fact that Stokes, the director who was in Wilson’s employ, knew of the entries on complainant’s books in which the note was carried as a debt of the consolidated [306]*306company, and that the other directors might have seen these entries, does not estop these directors or the company through them, for, even if they are to be charged with knowledge of these entries, the fact that the .entries, which were made by Perrine’s direction for his and Wilson’s benefit, did not disclose the real character of the debt, but were made in such manner as to indicate a bona fide debt of the consolidated company, and the absence of actual knowledge on their part of the origin and nature of this debt, prevent the creation of an estoppel against them or the company by reason of allowing the payments. 2 8'pell. Prov. Corp. § 6S6, and cases cited. But whether the directors were personally estopped as stockholders or not, by reason of allowing or not preventing these payments on the note, the corporation itself is not estopped from insisting on its full rights under the consolidation agreement, unless all of the stockholders are estopped. The corporation, in an action of this character, represents the right of every stockholder, and if there is any stockholder who has the right to call upon the corporation to enforce this corporate right, even though it be against all the other stockholders combined, the corporation itself must certainly have the right to bring the action on its own behalf. It is here the corporate right which is to be enforced, either by the action of the corporate authorities, or, if they refuse, then by the individual stockholders prosecuting a corporate right for the benefit of the corporation itself. Inasmuch, therefore, as the defendant has failed to show an estoppel or acquiescence by all of the complainant’s stockholders in the withdrawal of these moneys by him, and with knowledge on their part of the substantial character of the debt for which they were withdrawn, I am obliged to hold that there is no equity, as against the complainant, which estops it from setting up that the full price to be paid for the City road was the price fixed by the articles, or which estops it from recovering the amount, in addition to this price, which has been taken from its funds by defendant.
The second equity or defence set up against the recovery is, that this suit is practically controlled by Perrine and is really brought for his benefit, and is, therefore, substantially a pro[307]*307ceeding by which he is enabled to get the full benefit of Wilson’s' advances, while repudiating his own express agreement that they should be repaid, and his own official acts as president in procuring the payment from the company’s funds.
As to the bonafides of the transfer of the stock, the allegation of the answer is, that by the agreement for sale of the stock, the terms upon which the traction company were to become the owners of the Perrine stock, were to depend upon the result of this suit, which was to be brought at once. The agreement and the other evidence relating to the purchase, which I have stated above, and which appear affirmatively to be the only agreements between Perrine and the traction company on the subject, show, in my judgment, that these allegations of the answer are not sustained, but that the purchase of the stock is bona fide, and that the suit is not in fact controlled by Perrine, or prosecuted for his benefit. In this position of affairs as to the purchase of the Perrine stock and payment therefor, it does not seem to me that there is any basis of equity for depriving the’complainant of its right to recover its funds improperly taken by defendant, by reason of the relation of Perrine to this .suit. The remaining equity set up by defendant is his right to have equitable terms imposed as a condition of the decree for complainant.
These terms sought to be imposed as the equitable condition of recovery are, that Woodruff and the traction company should thereupon transfer to the defendant the stock of the consolidated company, representing and issued in lieu of the stock of the City company purchased by the defendant’s money. This original City stock was purchased principally, but not entirely, by the use of defendant’s money, and he advanced about $130,000 of the entire $160,000 and over required for the purchase. To raise the balance, over $30,000, the Trenton company contributed cash and its obligations, a large part of which have been satisfied by complainant. Defendant held the stock nominally as collateral, perhaps as purchaser or owner, and when he surrendered the stock, defendant seems to have supposed in good faith that the bonds of complainant which he had taken as collateral were valid and effectual securities in his hands for the purpose of securing repayment [308]*308of his advances. If these bonds are held to have been improperly-deposited for this purpose, and the defendant is obliged to restore the proceeds thereof applied to the payment of his advances, it is strongly and very forcibly urged by counsel for defendant that the decree for recovery should go only on the condition of restoring the City railway stock to defendant. As against the persons chargeable with the creation of the situation which gives rise to the equity, and chargeable with the duty of returning the stock, this equity might be enforceable, but the obstacle to imposing the performance of this equity on the complainant is insurmountable. The complainant is not in any way responsible, either equitably or legally, for the position in which defendant finds himself, by reason of carrying out the secret agreement between Perrine and himself, to take from its funds the advances made to purchase the stock of the constituent company, nor is it responsible for Perrine’s retention or control of the stock issued in exchange of the collateral City stock. The equity to a return of the shares, either absolutely or as security for the advances, if it exists, is an equity in favor of Wilson against Perrine and his assignees of the stock, and is the result of Wilson’s dealings with Perrine in carrying out a private agreement for consolidation, which was, so far as these advances were concerned, in violation of the actual consolidation agreement adopted and filed. The company, as above stated, is legally and equitably entitled to have the consolidation agreement, which is its only agreement on the point now in issue, carried out. And the enforcement of these provisions of this fundamental agreement as to the terms of converting stock, can neither be changed directly by allowing defendant to retain money taken in violation of them, nor indirectly, by refusing their enforcement except upon the terms of enforcing also an equity which defendant has or may have against Perrine, by reason of their joint violation of the articles, and Perrine’s alleged inequitable appropriation, as between him and defendant, of the shares issued by the company and received by Perrine for himself and Wilson or for Wilson, as the full purchase-price which complainant was to pay under- the articles.
The complainant having issued the City stock in strict pursu[309]*309anee of the provisions of the consolidation, has- obviously no longer the power to control the delivery of this stock, whether in Perrine’s hands or otherwise, and to hamper its right to recover funds withdrawn by a director by a condition precedent, that it should return stock rightfully issued, so far as the complainant is concerned, seems to be an inequitable rather than an equitable condition, and it should not therefore be imposed. No such terms, of course, could practically be imposed in a suit to which Perrine and his assignees were not parties, but the real force and bearing of this contention as to terms is, that in view of the entire equities between the parties to the suit, disclosed by the entire proofs in the case, no equitable decree can be made in complainant’s favor except upon these terms, and inasmuch as these terms can only be imposed in a suit to which all these persons are made parties, the complainant, therefore, as is urged, is entitled to no decree at all in the present suit, but must file a bill making all these other parties defendants, in order that the equities of all parties in the entire ease may be reached. I have, therefore, considered the imposition of equitable terms in this view, and hold that, so far as the complainant is concerned, there is, on the whole case, no equitable obligation on its part to return this stock to Wilson, which can or should be enforced by way of imposition of terms or otherwise; and that as between complainant and Wilson, the whole equities of the case, so far as relates to the return of Wilson’s advances, are fully disposed of without any adjudication as to Wilson’s equities arising, by reason of such recovery, upon Perrine’s ownership of the disputed stock or its proceeds. No principle relating to the consolidation of corporations is to be more strictly and inflexibly applied than the rule that secret agreements for terms of consolidation, other than those prescribed by the agreement of consolidation, cannot be enforced against the company, directly or indirectly, for the benefit of any portion of the stockholders. Any relaxation of the rule would, as if seems to me, tend directly to make the consolidation of companies convenient instruments of fraud. The defendant, therefore, must account to the complainant for its funds withdrawn to pay the $130,000, to the extent that this note [310]*310represented or was based upon the consideration of moneys advanced by defendant for the purchase of the City stock. . This will include the $122,400 directly advanced by defendant to French, and which was, in the view taken above, no liability o,f the consolidated company.
As to the $7,500 advanced by Wilson to the Trenton Horse Railroad Company, he became by this advance of cash to that company prima facie a creditor to that amount, entitled to be repaid by it or by complainant, as any other Trenton company’s creditors would be. This money so advanced by Wilson to the Trenton company was, however, used by Perrine, its president, with Wilson’s consent, to assist in paying the balance of the purchase-money on the City stock, and the precise question as to the status of Wilson to the Trenton company, in reference to this advance, is whether the subsequent use by the Trenton company of the money advanced by Wilson to it, for Wilson’s benefit in part, by paying it on stock of which he was the owner or in which he had an interest, is sufficient to disentitle Wilson to recover the advance as a debt due to him from the Trenton company, and from the complainant as his successor, for which he was entitled to be paid from the company’s funds.
My opinion is that Wilson is not to be treated as a creditor for this advance of $7,500, even though he was so credited in the Trenton company’s books, for the reason that the Trenton company seems to have advanced at least this amount of money from its own funds for the purchase of the City stock, and all of this stock was subsequently delivered to defendant, who held this stock for the reimbursement of all his advances, including the $7,500. It appears, therefore, that the Trenton company has discharged its liability to defendant for the- $7,500 by using it for the purpose for which it was advanced, and by giving defendant the entire benefit of the sum advanced. In other words, the advance to the Trenton company by Wilson is to be treated as an advance for a special purpose which has been fulfilled by the Trenton company for Wilson’s benefit, and the advance, therefore, cannot be recovered.
As to the $2,000 advanced in August, 1891, this was an [311]*311ordinary debt of the Trenton company d ue for operating expenses^ and was payable by complainant as any other debt of the Trenton company. The $1,900 payment made in November, 1891, by complainant to defendant, should be applied to this indebtedness, and for the balance defendant should be allowed on- the account.
Complainant may give notice of motion to settle decree, and on this motion I will hear and dispose of any remaining questions as to the account which are left in dispute.