company's shares and does not in general extend to those who subsequently purchase shares in the open market. The office of the prospectus is to obtain subscribers and not to effect a subsequent resale of the shares. Those who, relying upon statements made in the prospectus, purchase shares otherwise than by original subscription are not within the class intended to be influenced thereby and cannot maintain an action thereon."

If, however, it can be shown that a prospectus was issued, not merely for the purpose of inducing the readers to take shares from the company by subscription, but for the further purpose of inducing the purchase of shares in the open market, the parties responsible for the publication of the prospectus may be held liable in damages to all who purchased shares in reliance thereon.

6

It has been held that a prospectus purporting on its face to be a mere invitation to the public to subscribe for the bonds of the corporation, may be made the basis of an action by one who was induced to purchase shares if it can be shown that the prospectus was in fact circulated for the purpose of creating a demand for the shares."

5. Cheney v. Dickinson, 172 Fed. Rep. 109, 96 C. C. A. 314, 28 L. R. A. N. S. 359, and cases cited; Hindman v. First Natl. Bk., 112 Fed. Rep. 931, 50 C. C. A. 623, 57 L. R. A. 108; Greene v. Mercantile Trust Co., 60 N. Y. Misc. 189, 111 Supp. 802, and cases cited, affirmed, 128 N. Y. App. Div. 914, 112 Supp. 1131; Peek v. Gurney, L. R. 6 H. L. 377. (Distinguished in Andrews v. Mockford, 1896, 1 Q. B. D. 372, 383); Ex parte Worth, 4 Drewry 529.

Cf. Mabey v. Adams, 3 Bosw. (N. Y.) 346, 353, and see Hindman v. First Natl. Bk., 98 Fed. Rep. 562, 569, 39 C. C. A. 1, 48 L. R. A. 210.

6. Hindman v. First Natl. Bk.,

112 Fed. Rep. 931, 50 C. C. A. 623, 57 L. R. A. 108; Greene v. Mercantile Trust Co., 60 N. Y. Misc. 189, 111 Supp. 802, affirmed, 128 N. Y. App. Div. 914, 112 Supp. 1131; Reusens v. Gerard, 160 N. Y. App. Div. 625, 146 Supp. 86; Cross v. Sackett, 2 Bosw. (N. Y.) 617, 649, 6 Abb. Pr. 247, 16 How. Pr. 62; Cazeaux v. Mali, 25 Barb. (N. Y.) 578; Andrews v. Mockford, 1896, 1 Q. B. D. 372, (distinguishing Peek v. Gurney, L. R. 6 H. L. 377); Scott v. Dixon, 29 L. J. Exch. N. S. 62.

7. Greene v. Mercantile Trust Co., 60 N. Y. Misc. 189, 111 Supp. 802, affirmed, 128 N. Y. App. Div. 914, 112 Supp. 1131.

It has been held that a misstatement in a certificate required by law to be filed as a prerequisite to legal incorporation, or as a condition of doing business in a particular state, does not render the parties responsible for the certificate liable to those who purchase the company's bonds or shares on the faith thereof. There are, however, dicta to the contrary. The promoters are certainly liable to any persons whom they refer to such certificate for information as to the matters therein set forth, and to all persons intended to be influenced by the certificate.10

In Bedford v. Bagshaw,11 the promoters had, for the purpose of listing the shares of their company on the stock exchange, falsely certified that two-thirds of the scrip had been paid upon, and the plaintiff, knowing that the rules of the stock exchange required such certificate, and relying upon the fact that the shares had been listed, purchased them upon the assumption that two-thirds of the scrip must have been paid upon. The court held the defendants liable to the plaintiff for false representations, but the decision was subsequently overruled.12

An action for fraud and deceit might well be based upon a false statement in a certificate filed with the stock exchange, if it could be shown that the purpose of listing the shares was to create the impression that the requirements of the stock exchange had been complied with, and to induce the purchase of shares upon that assumption.

13

§ 202. Indirect misrepresentations.

If the complainant is a member of the class intended to be influenced by a false statement, the manner of the publication thereof is not material. It is not necessary that the representation complained of be made to the plaintiff directly. If the promoters misrepresent the facts intending their misrepresentations to be circulated and thus to induce subscriptions for the company's shares, they become liable to all persons who are, by the circulation of their false statements, induced to subscribe.14

11. 29 L. J. Exch. N. S. 59, 4 H. & N. 538.

12. Peek v. Gurney, L. R. 6 H. L. 377, 396-397.

13. Queen v. Aspinall, L. R. 2 Q. B. D. 48, where a conviction for criminal conspiracy was sustained.

14. Iowa.-Hunter v. French League Safety Cure Co., 96 Iowa 573, 65 N. W. 828.

Massachusetts.-Nash v. Minne

sota Title Ins. & Trust Co., 159 Mass. 437, 442, 34 N. E. 625.

Minnesota.-Chubbuck V. Cleveland, 37 Minn. 466, 35 N. W. 362, 5 Am. St. Rep. 864.

Missouri.-Watson v. Crandall, 7 Mo. App. 233, affirmed, 78 Mo. 583; Whiting v. Crandall, 78 Mo. 593.

New York.-Eaton, etc., Co. v. Avery, 83 N. Y. 31, 38 Am. St. Rep. 389; Cazeaux v. Mali, 25 Barb. (N. Y.) 578, 583.

§ 203. Liability to brokers.

In Pollak v. Dodge Manufacturing Co.,15 the plaintiff alleged that he was by the false representations of the defendant, made to the public generally "in order to attract investors and to induce persons to become interested in the sale of the stock," induced to undertake the sale of the defendant's stock and to devote a large part of his time and energy to that end, and had "practically " succeeded in effecting the sale of a large amount of stock, and that he was by reason of the falsity of such representations prevented from selling such stock. A demurrer to the complaint was sustained on the ground that it was not alleged that the representations were made to induce brokers or others to sell the shares; that is that the complaint did not show that the plaintiff was one of the class whom the representations complained of were intended to deceive. If the plaintiff had shown an express employment to sell the shares he might have sued on the contract, on the theory that the defendant had prevented performance. 16 Had the plaintiff brought himself within the class intended to be influenced by the misrepresentations of the defendant, his action would have been properly brought for fraud and deceit.17

§ 204. Liability of promoter for representations of his agents. The promoter is obviously liable for any misrepresentations made by his agents pursuant to his direction or suggestion.

See note to Cottrill v. Krum, 18 Am. St. Rep. 549, 562.

And see ante, § 200.

The promoter would presumably not be liable to those who acted upon a repetition of his representations if he actually did not intend his representations to be repeated. See note to Wells v. Cook, 88 Am. Dec. 436, 442. See also ante, § 200. A subscriber may rescind his sub

scription if made in reliance upon misrepresentations made to others in his presence. Southern States F. & C. Ins. Co. v. Cromartie, 181 Ala. 295, 61 So. 907.

15. 78 N. Y. Misc. 350, 138 Supp. 429.

16. Locke v. Wilson, 135 Mich. 593, 98 N. W. 400, 10 Det. Leg. News 900.

17. Lenkeit v. Mitchell, 55 N. Y. Misc. 395, 106 Supp. 549.

If the promoter misrepresents or conceals the facts from his agent and the agent procures subscriptions by a repetition thereof, the promoter is responsible, and liable in damages if the other necessary elements of fraud exist.18

A question less free from doubt arises, when the agent of the promoter procures subscriptions by means of false and fraudulent representations made without the knowledge or authority of his principal. The principal is, by the weight of authority, responsible for the false representations of his agent, though the representations be made without the knowledge or connivance and even contrary to the express instructions of the principal.19

If the agent by whom the misrepresentations are made, is the agent, not of the promoters, but of the company, the promoters are not liable for his acts though they as directors appointed him, unless it can be shown that the misrepresentations were made pur

18. Walker V. Anglo-American Mortgage & Trust Co., 72 Hun (N. Y.) 334, 341, 55 St. Rep. 54, 25 Supp. 432, and see National Exchange Co. v. Drew, 32 Eng. Law & Eq. 1, 14, et seq. And see ante, § 202.

19. Federal.-Alger v. Anderson, 78 Fed. Rep. 729, 735-736, and cases cited.

Missouri.-Hornblower V. Crandall, 7 Mo. App. 220, affirmed, 78 Mo. 581.

New York.-Downey v. Finucane, 205 N. Y. 251, 259, 98 N. E. 391, 40 L. R. A. N. S. 307; Miller v. Barber, 66 N. Y. 558, 567; Getty v. Devlin, 54 N. Y. 403, 414; Sandford V. Handy, 23 Wend. 260.

Wisconsin.-Hoyer v. Ludington, 100 Wis. 441, 445, 76 N. W. 348, and cases cited; Godfrey v. Schneck, 105 Wis. 568, 571, 81 N. W. 656; Law v. Grant, 37 Wis. 548.

United Kingdom and Colonies.— Houldsworth v. City of Glasgow Bank, L. R. 5 App. Cas. 317, 326, 338-339; Wilson v. Hotchkiss, 2 Ont. L. R. 261, 271, and cases cited, affirmed, sub nom. Milburn v. Wilson, 31 Can. S. C. 481. See review of cases in Lloyd v. Grace, Smith & Co., 1912, App. Cas. 716.

See Clark & Skyles on Agency, §§ 507-510, Mechem on Agency, (2nd ed.), § 1984, et seq.; Tiffany on Agency, §§ 64-66. See also cases cited in succeeding note.

The agent is himself personally responsible. Clark & Skyles on Agency, § 597, Mechem on Agency, (2nd ed.), § 1458; Tiffany on Agency, 96, and see ante, § 190, note.

Unless he makes the representations without knowledge of their falsity. Maine v. Midland Inv. Co., 132 Iowa 272, 280, 109 N. W. 801.