« PreviousContinue »
of the directors, and I have no doubt that Mixer was induced by fraud to take his shares. I think, however, that it was a fraud on the part of the directors which cannot be attributed to the company."
These, being cases of rescission, are, it is true, explainable on the ground of laches and change of position, or participation in the profits of the corporation or company. In Dodgson's Case the shares were purchased in 1846, and the claim to be relieved was not made until in 1849, though the plaintiff had received no dividends. In Bernard's Case the complainant had received dividends on his shares for several years. In Mixer's Case the Lord Chancellor said: "Supposing it to have been a fraud on the part of the company, I do not think that the appellant is now entitled to avail himself of it and rescind the contract.1 It is a settled rule that a contract obtained by fraud is not void, but that the party defrauded has a right to avoid it if he does so while matters can be replaced in their former position. In each case we must look to see whether the contract has been acted upon. If it has been acted upon by the party defrauded, so that others who are interested cannot be restored to their former rights, the contract cannot be rescinded, and nothing remains to the party defrauded but a reparation in damages." See also Nicol's Case,2 where, apart from considerations of the above character (which prevented recovery), the Lord Chancellor and Lord Justice Turner were at variance as to whether the company could be chargeable with the misrepresentations of the directors in the course of the business.3
However, these cases clearly establish the principle that a party to a joint-stock company, or other association, can neither maintain a bill in equity against the company to be relieved from liability, nor defend an action on his subscription, by alleging the false representations of the company or its agents, unless, first, he repudiates the contract promptly before the rights and interests of others have been affected by his action; or unless, secondly, all the other members of the company interested united in the false statements. As to this last point, see the suggestion of Bruce,
i See Parbury's Case, 8 De Gex & S. 43. J 8 Be Gex & J. 387.
» See further, Parbury's Case, 3 De Gex & S. 43; Bell's Case, 22 Beav. 35; Roll's Case, ib. 53; Barnes v. Pennell, 2 H. L. Cas. 49"; Deposit Life Assur. Co. y. Ayscough, 6 El. & B. 761; Barrett's Case, 3 De Gex, J. & S. 30.
V. C.: "If it were established that the only other persons interested in these affairs were the persons who made the alleged misrepresentations, the case might be different." Parburifs Case.
The first qualification deserves a passing notice. BelVs Case 1 illustrates it. There the objects of the company, into membership of which the plaintiff had been drawn by false representations of the directors, had at the time totally failed, and the company had become insolvent, and practically at an end; and it was held that the plaintiff was not liable as a contributory. The Master of the Rolls observed that the doctrine of Parbury's Case was this: that where certain persons set on foot a project, and by fraudulent representations induce others to become shareholders, and incur liabilities, there, as between those who are equally innocent shareholders, all are liable to contribute towards payment of the debts of the concern. Their rights lay against those who had made the misrepresentations. But no authority could be found making parties liable to contribute in cases such as this. See also At/re's Case,2 where, through false statements, a person having taken shares in a company insolvent at the time, and, upon discovering the fact, having repudiated his shares, was held not to be a contributory.
But if the person claiming relief purchased his shares from a third person, and not from the company, he will be bound to contribute, though he were induced to make the purchase by the false representations of the company. (Nor in such case, clearly, would he have a right of action for deceit against the company.8) And this would doubtless be true, though the vendor of the shares were also guilty of fraudulent representations, unless the vendee had repudiated and rescinded the sale.4
The opinion of the Court of Chancery (with the exception of that of the Vice-Chancellor in BrockwelVs Case, supra, which, as has been stated, was overruled) is uniform in these cases that the company or corporation cannot be made liable to an action for the unauthorized fraudulent representations of its agents; and that the latter are not authorized by their mere position to make false statements concerning the condition of their principals. Of
l 22 Beav. 35. '25 Beav. 518.
* Peck v. Gurney, 43 Law J. Ch. 19, in the House of Lords. See Ayre's Cast, supra; Duranty't Case, 26 Beav. 268. « Ibid.
course, if the company subsequently ratify the misrepresentations at a meeting of the shareholders, the fraud -will then be fixed on them;1 but even then the party defrauded will not be able to escape liability to contribute in winding up if the rights of others, innocent persons, have intervened or been affected by his action, or if he have participated in any benefits of the concern. His remedy is by an action of deceit against the agent, or the company, or both. It is worthy of notice, also, that in one of the above cases (Mixer's Case) the ruling that the company are not liable for the false representations made by its agents without express authority was made in appeal in chancery; which gives the decision the same authority as the decisions of the Exchequer Chamber at law.
The decision of the Vice-Chancellor in BrockwelVs Case was based principally upon language of the Lord Chancellor and of Lord St. Leonards in National Exchange Co. v. Drew? That was a Scotch case, — an action to recover the amount of a loan. The facts, in short, were that the defendants had been induced by the false representations of the plaintiff's manager to buy shares in the plaintiff's enterprise upon a loan of money by the plaintiffs for the purpose; the object being to bolster and raise up the shares of the company in the market. The shares became valueless; and the company sued to recover the amount of the loan. Judgment was given for the defendants.
Although this case contains expressions to the effect that such companies are bound by the false representations of their agents, made in the course of their business, it is to be observed, as stated by Lord Brougham and Lord St. Leonards, that the company had the benefit of the fraud of their manager. It appears, also, that the defendants had acted upon a report made to the shareholders at a regular meeting; and, as Lord St. Leonards said, the first act that takes place at such meetings is, that, if there is not a rejection of the report, there is an adoption of it. And the representation was, therefore, the company's; and though the shareholders were ignorant of its untruth, it was a matter within their own peculiar knowledge, and not within that of the defendants. So that, on the principle of cases referred to
1 Nicol's Case, supra; New Brunswick Ry. v. Conybeare, 9 H. L. Cas. 711.
in the note to Pasley v. Freeman,1 the company might well be chargeable with fraud.8
Besides, this was an action of contract; and it may be doubted if, in such cases, the defence of fraud is to have the same force as in an action by the defendant for the fraud. It is often true that innocent misrepresentations are sufficient to defeat a recovery in contract; but, to maintain an action of deceit, the false statement must have been made with knowledge.s So, too, a concealment of material facts will defeat an action upon a contract; but nothing short of an active misrepresentation, it is held, will support an action for deceit.4
New Brunswick Railway Co. v. Conyleare6 was a suit for the rescission of a contract for the purchase of shares, on the ground of fraud in the defendants' agent. It was held that the facts were not sufficient to sustain the bill; but Lord Cranworth takes occasion to allude to the distinction between actions of this kind and actions of deceit. Referring to his opinion in Ranger v. Great Western Railway Co.,6 he said: "My lords, to that opinion I entirely adhere; and I think it would have been applicable in this case, if it had been proved that there had been a fraudulent representation or concealment by the directors in order to induce Mr. Conybeare to purchase, not shares in the market (that is a very different thing), but shares belonging to the company, namety, forfeited shares, if the directors, or the secretary acting for them, had fraudulently represented something to him which was untrue, I then adhered to the opinion which I had expressed in the former cases, that the company would have been bound by that fraud.7 But the principle cannot be carried to the wild length that I have heard suggested, namely, that you can bring an action against the company upon the ground of deceit because the directors have done an act which might render them liable to such an action. That I take not to be the law of the land, nor do I believe that it would be the law of the land if the directors were the agents of
Leading Cases in Tort.
2 See also New Brunswick Railway Co., 9 H. L. Cas. 711, 725.
3 See Western Bank v. Addie, Law R. 1 H. L. Scotch, 145, 158, 167; New Brunswick Railway Co. v. Conybeare, 9 H. L. Cas. 711, 740.
* Peck v. Gurney, 43 Law J. Ch. 19. See a further distinction near the end of this article.
* 9 H. L. Cas. 711. • 5 H. L. Cas. 72, infra.
1 This sentence is somewhat obscure, but it is correctly quoted from the Report.
some person, not a company. The fraud must be a fraud that is either personal on the part of the individual making it, or some fraud which another person has impliedly authorized him to be guilty of."
The case of Ranger v. Great Western Railway Co., to which his lordship referred, was a similar suit for rescission, in which the allegations of fraud failed. The opinion there expressed (to which, in New Brunswick Railway Co. v. Conybeare, he says he adheres) was to the effect that, if an incorporated company, acting by an agent, induces a person to enter into a contract for the benefit of the company, that company can no more repudiate the fraudulent action of the agent than an individual could.
It thus appears that there was little ground upon which to support the decision of Vice-Chancellor Kiudersley in BrockwelVs Case,
Cornfoot v. Fowke,1 though constantly cited in these cases, is in point only in its dicta. Besides being an action of contract, the misrepresentations alleged in defence were false to the knowledge of the principal, but not to the knowledge of the agent. It was held (Lord Abinger, C.B., dissenting) that the plea of fraud was not supported. There was nothing to show that the principal had caused the agent to make the untrue statement, or that he knew that any misrepresentation had been made. And, therefore, according to the majority of the court, fraud could not be imputed to him.
There are many other cases of contract in which this subject is considered; but their application to actions of deceit, as has been suggested, is doubtful, and they will not be further pursued.2
In 1867 the precise case of the liability of a principal in an action in tort for representations of an agent, false to the knowledge of the latter, but not to that of the former, arose simultaneously in the Exchequer Chamber and in the House of Lords; and, each court proceeding independently of the other, the former held the principal liable, and the latter held the contrary.8 But the cases are not necessarily in conflict.
In Barwick v. English Joint-Stock Bank, the facts, in brief,
l 6 Meet. & W. 358. 2 See Wilde v. Gibson, 1 H. L. Cas. 605.
• Barwick v. English Joint-Stock Bank, Law R. 2 Ex. 259; Western Bank v. Addie, Law R. 1 H. L. Scotch, 145.