¶1In this action the plaintiffs, as minority shareholders- in the Tillinghast Tire Association, complain of certain acts of that association which they claim are illegal and in violation of their rights. This association is a joint stock company which came into being under a declaration of trust made by Theodore A. Dodge, one of the defendants. It appears that he was the owner of certain patents in which other persons also were beneficially interested. In order to-carry on business with the patents and to have an organization for that purpose, as well as to define and secure the rights of all, the declaration of trust was made by Dodge as trustee, and the Tilling-hast Tire Association was formed with Dodge as president. -In the declaration of trust it was provided that the legal title- to the patents and to all the property which the association might have, should be in the trustee in trust for the association and that the latter should be • the equitable owner of the property. The association issued 4,000 shares of stock, of which ninety per cent was divided among the then members of the association according to their respective interests, and the remaining ten per cent it was agreed should beheld as treasury shares. The plaintiffs are and were at all times *25mentioned in the. complaint, the owners of 522 shares of the capital stock of the association.
¶2The complaint alleges that the Single Tube Automobile Bicycle Tire Company was organized under the laws of New Jersey, by the defendant Dodge and others for the purpose of gaining control of the assets and property of the Tillinghast Tire Association; that a Boston company owned 450 shares of the Tillinghast Association, and, being unable to meet its obligations to that association, surrendered to it the 450 shares in discharge of its indebtedness; that these shares so surrendered were surreptitiously sold to the defendant Brown in contravention of the declaration, of trust made by Dodge; that, with these 450 shares of stock reissued to Brown, Dodge obtained the control of a legal majority of the capital stock of the Tillinghast association, and, availing himself of this control, transferred the property and assets of the association to the New Jersey corporation; that this latter company has a nominal capital of $1,000;000 and had no property or assets of any kind at the time of its organization nor has it since had except such as was obtained by the acquisition of the assets and property of the Tillinghast Tire Association so transferred to it. Further, it is alleged that of the $1,000,000 of stock of the New Jersey company an improper disposition was made, and $150,000 of stock thereof was transferred and delivered to persons unknown to plaintiffs.
¶3Without referring more at length to the allegations of this voluminous complaint, we think that enough has been stated to show that the plaintiffs, as against Dodge, who was their trustee, are entitled to an accounting. Such allegations, if true, show that he violated ' his trust in transferring trust property in the manner and for the consideration set forth to a corporation in which he had become interested as a stockholder, and which he and others had organized for the very purpose of gaining control of the assets and property of the Tillinghast Association, the legal title to which was given to him in trust, and in which assets and property the plaintiffs had an equitable or beneficial interest to the extent of the shares which they held in that association. We think, therefore, that the complaint states facts sufficient to show that the plaintiffs are beneficiaries under the trust agreement, by virtue of which Dodge became *26trustee; and that with respect to his management of tlie trust and the trust property practically upon allegations that he has illegally transferred such property, to another corporation which he together ■with others had formed and. in which he was interested—they are entitled to an accounting from him for which, among their other prayers for relief, they asked.
¶4With respect to the demurrers interposed by the other defendants which were sustained by the interlocutory judgment, we think it is unnecessary for us to add to the opinion of the learned judge at Special Term,
¶5*27should be affirmed with costs to such defendants. As to the defendant Dodge, as trustee, however, we think that the judgment should be reversed, with costs to the appellants, but with leave to him to withdraw his démurrer and answer upon payment of costs in this court and in the court below.
¶6Yah Bbunt, P. J., Ingbaham and McLaughlin, JJ., concurred.
¶7*28As to defendant Dodge, as-trustee, judgment reversed, with costs to appellants, but with leave to defendant Dodge to withdraw demurrer and answer on payment of costs in this court and in the court below. As to the other defendants, judgment affirmed, with costs.
¶8The following is. the. opinion of the Special Term:
¶9Lawrence, J.:
¶10Three separate demurrers have been interposed to the complaint in this action, one by the defendant Theodore A. Dodge, as trustee and president of the Tilling-hast Tire Association; another by the Single Tube Automobile and Bicycle .Tire Company, and a third by the defendant Cyrus P. Brown. All of the demurrants demur on the ground that the complaint does not state facts sufficient to constitute a cause of action; that several causes of action have been improperly united, and that there has been a misjoinder of parties plaintiff because all the sharehold' ers of the Tillinghast Tire Association have not been made parties plaintiff. ■ The Single Tube Automobile and Bicycle Tire Company also demurs on the ground that the court has no jurisdiction, but this ground has not been insisted on in the briefs submitted. If the 450 shares which were turned over by the Boston Woven Hose and Rubber Company to the Tillinghast Tire Association are to be regarded as treasury shares, a sufficient causé of action may be stated in the complaint. In the declaration of trust executed by Theodore A. Dodge it is provided that the said association shall be the equitable owner of all the patents and property aforesaid and "of the beneficial results and products of said property and business before named held in trust by me, which shall be, and by the agreement of all the parties in interest hereby are, divided into 4.000 shares, which shall be known as of the par value of §100 each, of which 4,000 shares ten per centum, or 400 shares, shall be kept in the hands of the trustee as treasury shares, and the rest, viz., 3,600 shares, shall be divided among the members constituting said association at the present date, according to their several and respective interests, as the same may appear. ‘ ‘ The treasury shares shall be retained by the trustee until the executive committee shall decide to sell the same, and they shall be sold only to prct vide money essential to carry on the business of the association. They shall then be sold to the highest bidder twenty days after notices shall have been mailed to all the shareholders that such shares or a part of them are to be thus sold and asking for bids thereon. Certificates showing how many of said shares he is entitled to shall be issued to each' member of said association, which certificates, and the interest they represent, shall be transferable by assignment in writing upon the certificate and surrender of the same to the trustee; whereupon he shall *27issue a new certificate or certificates according to the interests oí the parties. The trustee shall keep a record oí all certificates issued and of all certificates surrendered, which shall be at all times open to the inspection of any member of the association; and none but those appearing in the record to be the holders of certificates shall be entitled lo dividends or to vote at any meeting of the shareholders.” Under the terms of that declaration there were, therefore, but 4Ó0 treasury shares, and it is only as to the sale of treasury shares as such that the provisions of the 3d article of -the declaration above quoted apply. It is not alleged in the complaint that the 450 shares which were paid in by the Boston Woven Hose and Rubber Company to the Tillinghast Tire Association in payment of the indebtedness of the former to the latter company thereby became treasury shares within the meaning of that term' as used in the declaration of trust, nor could they Lave been part of the original 400 shares which were reserved for the treasury out of the total 4,000 shares. It is alleged in the complaint that the transaction between the two companies worked a cancellation of the 450 shares which were transferred, and that thereby the capital stock of the Tillinghast Tire Association became reduced to the extent of §45,000. There is no direct allegation that such was the intention in point of fact, and the statement is, therefore, a mere conclusion that such was the legal effect of the transaction. It has been held by the Court of Appeals that in the absence of a prohibition by statute a corporation may. purchase its own stock, hold it unextinguished and reissue it, and that it is simply a question of intention whether such a purchase operates to diminish the capital; that it may have that effect at the option of the corporation, and an inference that such effect is intended may be drawn from circumstances. (City Bank of Columbus v. Bruce, 17 N. Y. 507.) There seems to be no reason why the same principle should not obtain in the case of a joint stock association. (People ex rel. Platt v. Wemple, 117 N. Y. 147.) It is not averred in the complaint that the Tillinghast Association in receiving the 450 shares from the Boston company intended thereby to reduce its capital shares by deducting that number from the 3,600 shares, which, under the terms of the declaration, were to be divided among the members of the association and kept distinct from the 400 shares retained as treasury shares. In the absence of such an allegation, and in the absence of an allegation that such was the intention of the executive committee, to whose general management and direction the business of the association was committed, it cannot fairly be assumed that such a reduction in the working shares of the association was intended. (See declaration, ¶ ¶ 4, 5.) *28The averment in the complaint that the effect of the transaction between the two companies was to cause a cancellation of the shares is, as already-stated, a conclusion of law, not a statement of fact, and cannot be so regarded in disposing of this case. Fraud, of course, upsets everything, but in order to -effect that result a complaint by which it is sought to set aside transactions as fraudulent must allege the facts which it.is claimed constitute the fraud and not mere conclusions. In this complaint it is alleged that the defendant Dodge and the said other persons unknown to the plaintiff, confederating, conspiring and colluding together for the purpose of controlling and using the patent rights of the said Tillinghast Tire Association, and to turn it over to a corporation to be practically controlled by them, did first cause the defendant Dodge to sell the 450 shares turned .in by the Boston Woven Hose and Rubber Company to the said George P. Brown upon the pretense that the sale of said shares “was to provide money'essential for carrying on the business of the association, and that by means of this pretended and illegal -sale the said defendant Dodge and the other persons unknown to plaintiff
¶11Sio.