dissenting.
I think that the decree of the Circuit Court of Appeals should be affirmed. I concur in the view that the promoters of Duquesne Gas Corporation took an unconscionable profit which they reaped at the expense of a credulous and avid purchasing public. This fact, however much it may invite animadversion, ought not to induce the courts to disregard settled principles in an effort to deprive the respondents of the fruits of their scheme.
An examination of the pleadings and the facts found leads me to the conclusion that the receiver of the corporation is without standing to recover from the promoters.
The bill recites in somewhat different sequence the facts which are set out in the opinion of the court. It does not state that the properties were not worth the amount in bonds, stocks, and cash which the Duquesne corporation paid for them. It fails to allege any fraudulent misrepresentation on the part of the respondents to purchasers of bonds or stock of the corporation. The allegation is made that Furlaud & Company, Inc. was, in the sale of the securities, a house of issue, meaning, of course, that it purchased the securities and resold them for its own account. Although the facts pleaded demonstrate that for some time after the organization of the Duquesne Corporation and the issuance of its bonds and stock Furlaud & Company, Inc., by itself and its subsidiaries, was the owner of every share of stock and every bond issued and outstanding, the bill asseverates, first, that the profit obtained on the sales of securities was a secret profit for which Furlaud and associates are accountable to the receiver and, secondly, that they stood in a fiduciary relation to Duquesne and “ caused all the pro*169ceeds of the sale of the bonds and notes in excess of $2,937,989, plus legitimate expenses, to be diverted from the Duquesne Corporation for whose use and benefit the proceeds of the sale of said bonds and notes were intended and defendants Furlaud and Reuter fraudulently misappropriated said' moneys to their own use.” The last assertion is the nearest approach to an allegation of agency or trust for or on behalf of the corporation. The prayer is for an accounting by the defendants of the moneys received by them, apparently on the theory that such moneys were received as agents for the corporation. On its face the pleading is self-contradictory. If what the defendants took constituted promoters’ profits the bill discloses that these were not secret profits taken to the disadvantage of innocent stockholders who had been brought into the corporation. Furlaud & Company and the other defendants were on both sides of the transaction and cannot be said to have deceived themselves as stockholders and bondholders and, upon familiar principles, those who took title to stock or bonds through them cannot assert rights higher than theirs. If, on the other hand, Furlaud & Company was a house of issue, dealing on its own account, it cannot have been an agent of Duquesne for the sale of bonds and stock.
The District Court denied a motion to make the pleading more specific and certain and the cause went to trial on the bill and answers. The proofs disclosed in detail the mechanics of the transaction whereby the promoters, at an expenditure of something in excess of $3,000,000, acquired $4,000,000 par value of first mortgage bonds, $1,000,000 of secured notes, and 675,000 shares of no-par common stock. Evidence was offered to prove that, at the date of the transfer, the property acquired was worth not to exceed $2,700,000. The defendants objected to this evidence on the ground that it was unsupported by any allegation in the bill. The court, nevertheless, received the proof and relied upon it for certain conclusions. *170There was also evidence that in the bond circulars issued by the defendants as a house of issue, and by a syndicate of bankers formed by the defendants to sell the securities to the public, these statements were made: that the properties had been appraised at something over $7,000,000 and that the bonds and notes were issued by the corporation “ in connection with the acquisition of properties and to provide cash for developments, extensions and other corporate purposes.” The proofs conclusively show, and it is not disputed, that Furlaud & Company, upon its individual credit and that of its subsidiary, the Kingston Corporation, obtained the funds with which to make settlement for the bonds, notes, and stock with the Duquesne Corporation and reimbursed themselves for these loans out of moneys paid by brokers in the purchase of the securities.
It is quite true that Furlaud & Company, Inc. had, prior to receipt of the bonds, notes and stock, arranged for the sale of the bulk of the bonds to brokerage houses when, if, and as issued. This, however, is not an uncommon method of dealing and in itself is insignificant so far as the fairness or unfairness of the transaction goes.
In its final analysis the situation comes, as the District Court indicated, to this: that Furlaud & Company, Inc. advanced the purchase money for the gas properties, contributed $364,500 to Duquesne as working capital and in return received the securities. The court added that if without the circuity here resorted to Furlaud & Company, Inc. had thus bought the securities direct at ,an inordinately low price they could have done with them as they pleased. It held that they could not do with them as they pleased because of the method of settlement with the corporation to which they resorted. There is no specific finding by the District Court of fraud or misrepresentation on the part of Furlaud & Company, Inc., in the sale of the bonds. What is said is that the circulars misrepre*171sented the facts. There is no finding that any present bondholder relied on any misrepresentation. Although it is insisted that Duquesne was insolvent from the moment of the settlement with Furlaud & Company, Inc. there is no finding to that effect. The District Court held that the promoters stood in a fiduciary relation to the corporation. It made no finding that the purchasers of bonds and notes were induced to purchase by misrepresentation; made no finding of loss or damage to such purchasers; made no finding that the purchasers understood Furlaud & Company, Inc. were acting as agents for Duquesne in the sale of its securities; but reached the conclusion, without any evidence to support it, that those who purchased bonds and notes from the promoters understood that the money which they paid in the purchase of the securities was to go in solido into the treasury of Duquesne. A moment’s reflection will show that this could not have been the case. The very circulars which were issued, and on which the bonds were sold, showed that they were not being sold for par and that commissions were being paid for their sale. It is quite evident from the circulars that these commissions were not being paid by Duquesne but by the brokers who were selling the bonds as principals.
Upon principle, and upon authority, the corporation had no cause of action in the circumstances against the promoters ,and the receiver’s rights could rise no higher.
First. The District Court held, and the Circuit Court of Appeals concurred, that the promoters were not answerable in respect of the no par value common stock issued to them and thereafter sold by them. This Court reverses the holding and makes them liable to account for all they received for the stock. This is in the teeth of Old Dominion Copper Co. v. Lewisohn, 210 U. S. 206. There, as here, stock was issued for property. The claim was that the property was worth vastly less than the par of *172the stock issued for it. Additional shares were later subscribed for by the public. This Court, in a unanimous opinion, speaking by Mr. Justice Holmes, held that any wrong which had been done to the innocent subscribers could not be redressed in an action by the corporation. Here we have a much stronger case, for all the stock was subscribed for and taken by the promoters. There were no innocent subscribers. In such a situation the courts with practical unanimity hold that the corporation has no right of action.1
Second. On its face the transaction under investigation amounted to this and nothing more: The promoters paid themselves an exorbitant price in bonds, notes, stock, and cash for property which they turned over to the corporation they had promoted. The bonds and notes thus acquired they sold in the open market and as principals. If in such sale they misrepresented the value of the security they are liable to those whom they deceived. This is not denied. It was stated at the bar that numerous actions had been brought against them on this basis. Although purporting to be purchasers of securities and sellers of the same in turn for their own account, they are now converted into trustees for the corporation which corporation they were in essence at the time of the transaction and which corporation had, therefore, full and complete knowledge of every factor in the transaction. This again is in the teeth of Old Dominion Copper Co. v. Lewisohn, supra.
In support of its holding the court cites Dickerman v. Northern Trust Co., 176 U. S. 181; Brewster v. Hatch, 122 N. Y. 349; 25 N. E. 505; Erlanger v. New Sombrero Phosphate Co., 3 App. Cas. 1218; Gluckstein v. Barnes [1900] A. C. 240; and Yeiser v. United States Board & *173Paper Co., 107 Fed. 340. An examination of the opinion in the Old Dominion Copper Company case will show that it was there said the relevant observations in the Dicker-man case were obiter and could not control the ease in hand; that the New Sombrero Phosphate case and the Gluckstein case were distinguishable, as was the Yeiser case, the latter on the ground that the transaction was carried through after innocent subscribers had paid for stock; and that Blum v. Whitney, 185 N. Y. 232; 77 N. E. 1159, (a later case than the New York case relied upon by the majority) was properly cited in support of this court’s decision. The facts just stated clearly indicate that the decision now made in effect overrules the Old Dominion case. The so called fiduciary relation of promoters may be availed of by the corporation only in virtue of the equity of innocent stockholders defrauded by the promoters’ scheme. So holds the Old Dominion case, and so hold many authorities which are in accord. It is said that the right of the corporation to pursue the promoters depends upon the circumstances under which the stockholders gave their consent to the transaction involved in the promoters’ scheme. Nothing is disclosed in the opinion of the court to differentiate this case from the Old Dominion case save that, as asserted, but not found below, the transaction caused insolvency to the Duquesne Corporation and the suit is here brought by a receiver.
Third. It is of course true that a receiver represents creditors and stockholders; but the proposition is true only in the sense that what he recovers as assets of his corporation is dedicated first to the payment of creditors and afterwards to the liquidation of outstanding shares. It has never been doubted that his right of action for a fraud committed upon the corporation by a third person is no greater than and no different from that available to the corporation. It is a novel doctrine that, if individual creditors have at the date of the receivership their own *174causes of action against third parties for fraud or misrepresentation, upon the appointment of a receiver these causes of action are assigned in law to the receiver. We know of no authority for such a proposition and none is cited in the opinion of the court. Courts which have considered the question have decided against the right of a receiver to maintain a suit such as this one.2
The opinion goes further, and holds not only that these individual causes of action may be grouped in the receiver, but that he as assignee is not subject to the rules as to allegation and proof by which the bondholder would be bound in an action for fraud, misrepresentation or deceit. This is to confuse separate causes of action fundamentally differing both in their substance and in their incidents. Any amount recovered by the receiver in this action will go into the corporate treasury and be distributed theréfrom to the creditors of the corporation. It appears from the record that the bondholders have brought a foreclosure suit upon their mortgage. They will in that action first avail themselves of the security pledged under the mortgage. They will become general creditors as to any amount by which their security is deficient. The record does not inform us how many such general creditors,— sellers of merchandise, lenders on unsecured paper, or employees and the like, — there are. Certainly these have no equity and no vestige of claim against the promoters arising out of the promotion of the Duquesne Corporation. And yet a recovery here will inure to their benefit as well as to that of the bondholders. If, as is said, the receiver represents the bondholders, shall the obtaining of a decree in this action operate as res judicata in the other actions brought by bondholders and now pending? The opinion *175does not answer the question. It seems clear that a suit by the receiver must be in the right of the corporation, and that the most he can claim is what the corporation could claim, namely, a derivative right of suit based upon fraud perpetrated upon innocent shareholders who were such at the time of the consummation of the scheme. Upon the facts pleaded and proved there can be no such derivative right in this case.
Fourth. We are told that the action may be maintained by the petitioner in virtue of the fact that the transaction was forbidden by a provision of the Constitution of Pennsylvania, and a statute passed to implement it, voiding all fictitious increases of capital stock or indebtedness of corporations and forbidding the issuance of stocks or bonds except for work and labor done or money or property actually received. The point was apparently not made or considered below. It cannot avail the petitioner.
The constitutional' provision is not self-executing.3 There is nothing in the law of Pennsylvania justifying a suit by a receiver in circumstances such as here disclosed to recover for the corporation alleged illicit profits; and the Supreme Court of the Commonwealth has clearly indicated that such a bill will not lie by the corporation to recover for promoters’ profits or alleged fraud in issuing stock at an overvaluation for property where, as here, all the stockholders approved the transaction.4
As we have above pointed out, the receiver’s rights can in no way differ from those of the corporation. This *176Court ought not to create a trusteeship upon an assumption of a State policy which is not recognized by the courts of the State.
The decree of the Circuit Court of Appeals should be affirmed.
Mr. Justice McReynolds, Mr. Justice Sutherland, and Mr. Justice Butler concur in this opinion.See the authorities collected in the annotation to Hays v. The Georgian, Inc. (280 Mass. 10; 181 N. E. 765) 85 A. L. R. 1263-1265.
Tompkins v. Sperry, Jones & Co., 96 Md. 560; 54 Atl. 254; Bostwick v. Young, 118 App. Div. 490, 496; 103 N. Y. S. 607, affirmed 194 N. Y. 516; 87 N. E. 1115; Young v. Stevenson, 180 Ill. 608; 54 N. E. 562.
Yetter v. Delaware Valley R. Co., 206 Pa. 485; 56 Atl. 57; Grange National Bank v. Collman, 306 Pa. 200; 159 Atl. 26.
Spangler Brewing Co. v. McHenry, 242 Pa. 522, 529; 89 Atl. 665. See also Wood v. Corry Water-Works Co., 44 Fed. 146 (U. S. C. C. W. D. Pa.). In contrast, see McElhenny’s Appeal, 61 Pa. 188; Densmore Oil Co. v. Densmore, 64 Pa. 43; Bailey v. Pittsburg & Connellsville Co., 69 Pa. 334, where there were innocent subscribers for shares, who were ignorant of the profits taken by the promoters.