suant to the directions of the promoters, or that the agent, while apparently the agent of the company, was actually appointed to further the interests of the promoters, and that the latter were the actual principals in respect to the particular matter complained of.20

§ 205. Reliance upon false statements.

A subscriber must, in order to base an action upon the misrepresentations of the promoters, prove that he relied upon the truth of their statements and that his subscription was, to some extent at least, induced thereby.21 If the subscription was entered in

reliance upon the misstatement of the promoters, it is immaterial that the subscriber was also influenced by other circumstances. It is sufficient, to give rise to an action, that the false statement was one, though not the sole, inducement to the making of the subscription.22

It is not necessary that the subscriber point out the precise statements in the prospectus which induced him to subscribe for shares. "It is an old expedient, and seldom successful," said Halsbury, L. C., in Arnison v. Smith,23 " to cross-examine a person who has read a prospectus, and ask him as to each particular statement what influence it had on his mind, and how far it determined him to enter into the contract. This is quite fallacious, it assumes that a person who reads a prospectus and determines to take shares on the faith of it can appropriate among the different

Note to Cottrill v. Krum, 18 Am. St. Rep. 549, 561, and see note to Fear v. Bartlett, 33 L. R. A. 721, 730.

The same rule applies to a creditor claiming damages for fraudulent representations. Priest v. White, 89 Mo. 609, 1 S. W. 361.

22. Federal.-Hindman V. First Natl. Bk., 112 Fed. Rep. 931, 945, 50 C. C. A. 623, 57 L. R. A. 108.

Connecticut.-Scholfield Gear & Pulley Co. v. Scholfield, 71 Conn. 1, 17, 40 Atl. 1046.

Peek, L. R. 14 App. Cas. 337; Lindsay Petroleum Co. v. Hurd, L. R. 5 P. C. 221; In re London & Leeds Bank, 56 L. J. Ch. N. S. 321, 56 L. T. N. S. 115, 35 W. R. 344; Arnison v. Smith, L. R. 41 Ch. Div. 348, 359360; Moore v. Burke, 4 F. & F. 258, 288; Knox v. Hayman, 67 L. T. N. S. 137; Western Bank of Scotland v. Addie, L. R. 1 Sc. & Div. App. Cas. 145, 158, (citing Nicol's Case, 3 DeG. & J. 387, 420).

See note to Cottrill v. Krum, 18 Am. St. Rep. 549, 559, and note to Fear v. Bartlett, 33 L. R. A. 721, 732.

23. L. R. 41 Ch. Div. 348, 369. See also Aaron's Reefs v. Twiss, 1896, App. Cas. 273, 280; Drincqbier v. Wood, 1899, 1 Ch. Div. 393, 404; Calthorpe v. Trechmann, 1906, App. Cas. 24, 75 L. J. Ch. N. S. 90, 94 L. T. N. S. 68, 22 Times Law Rep. 149. Cf. Hallows v. Fernie,

parts of it the effect produced by the whole. This can rarely be done even at the time, and for a shareholder thus to analyze his mental impressions after an interval of several years, so as to say which representation in particular induced him to take shares is a thing all but impossible. A person reading the prospectus looks at it as a whole, he thinks the undertaking is a fine commercial speculation, he sees good names attached to it, he observes other points which he thinks favorable, and on the whole he forms his conclusion. You cannot weigh the elements by ounces. It was said, and I think justly, by Sir G. Jessel in Smith v. Chadwick,24 that if the Court sees on the face of the statement that it is of such a nature as would induce a person to enter into the contract, or would tend to induce him to do so, or that it would be a part of the inducement to enter into the contract, the inference is, if he entered into the contract, that he acted on the inducement so held out, unless it is shewn that he knew the facts, or that he avowedly did not rely on the statement whether he knew the facts or not."

An action cannot be based upon a false statement in, or an omission from, a part of the prospectus which the plaintiff did not read,25 nor in general upon a prospectus which was not received by the plaintiff until after he had applied for his shares.26 An action may be based upon a misrepresentation made after the plaintiff had applied for shares, if he was by the misrepresentation

L. R. 3 Ch. App. 467, 476–477; Derry v. Peek, L. R. 14 App. Cas. 337, 344.

24. L. R. 20 Ch. Div. 27, 44, 46 L. T. N. S. 702, affirmed, L. R. 9 App. Cas. 187, 196, 5 Am. & Eng. Corp. Cas. 23. See also Capel & Co. v. Sim's Ships Composition Co., 57 L. J. Ch. N. S. 713, 714; Lawrence's Case, L. R. 2 Ch. App. 412, 422; Nash v. Calthorpe, 1905, 2 Ch. Div. 237, 249, and cases cited.

25. Baty v. Keswick, 85 L. T. N. S. 18, W. N. 1901, 167.

26. Bartol v. Walton & Whann Co., 92 Fed. Rep. 13, 17; Negley v. Hagerstown, etc., Co., 86 Md. 692, 39 Atl. 506; Duryea v. Zimmerman, 143 N. Y. App. Div. 60, 127 Supp. 664; Reed v. Gold, 102 Va. 37, 45 S. E. 868; Smith v. Chadwick, L. R. 20 Ch. Div. 27, 40, 62, 68, 46 L. T. N. S. 702, affirmed, L. R. 9 App.

induced to refrain from withdrawing his subscription.27 The fact that a prospectus was not seen by the plaintiff is immaterial if statements therein contained were repeated to him and he entered his subscription in reliance thereon.28

In Arnison v. Smith,29 an action was based upon certain untrue statements contained in the prospectus and it was claimed by the defendants that the effect of the false statement was done away with by a later circular in which the facts were correctly stated. The court held that the circular did not have this effect even as to those subscribers who had received the circular before they had paid the entire subscription price, but reserved opinion as to what would have been the result had the circular stated in so many words that there had been a misrepresentation in the prospectus and that the allottees might, if they wished, have their instalments returned.

A subscriber must, in order to maintain his action upon the misrepresentations of the promoters, show that he believed the statements made to him, and acted in reliance thereon. If he does not accept the statements of the promoters, but makes his own examination, and takes the shares as a result of such examination, and not in reliance upon the promoters' representations, he has no right of action against the promoters.30

Cas. 187, 197, 5 Am. & Eng. Corp.
Cas. 23.

27. Hall v. Grayson County Natl. Bank, 36 Tex. Civ. App. 317, 330, 81 S. W. 762, 769. Cf. Smith v. Chadwick, L. R. 20 Ch. Div. 27, 40, 46 L. T. N. S. 702, affirmed, L. R. 9 App. Cas. 187, 5 Am. & Eng. Corp. Cas. 23.

28. See ante, §§ 202, 204.

29. L. R. 41 Ch. Div. 348, 370373.

30. Stratton's Independence, Ltd., v. Dines, 126 Fed. Rep. 968, 977978, and cases cited, affirmed, 135

Fed. Rep. 449, 68 C. C. A. 161, petition for writ of certiorari denied, 197 U. S. 623, 25 Sup. Ct. 800, 49 L. Ed. 911; Attwood v. Small, 6 Cl. & F. 232, cited in Aberaman Ironworks v. Wickens, L. R. 5 Eq. 485. And see post, § 253.

Cf. Smith v. Land & House Property Corporation, L. R. 28 Ch. Div. 7.

Cf. also Foley v. Holtry, 43 Neb. 133, 61 N. W. 120, where the plaintiff's inquiries were wholly ineffectual, the party of whom he inquired having also been deceived by the

In Wakeman v. Dalley,31 the plaintiff based his action upon a representation appearing on the face of a printed business card of an insurance company. It appeared that he had made inquiries in relation to the subject matter of such representation at the office of the company. This, it was held, showed that he did not rely upon the card, and a judgment in his favor was reversed.

It was held in Cuba Colony Co. v. Kirby 32 that though the plaintiff at first doubted the truth of the promoters' statements, he could still hold them responsible as he was induced by them to resolve his doubts in their favor, and to act upon the faith of their statements.

It is not necessary that the subscriber show that he relied upon the absolute correctness of the representations made. Though he discounted the representations he may still have been deceived thereby, and he is, if that is so, entitled to recover.33

§ 206. The same subject.-Agreement not to rely on representations.

A stipulation of the subscriber that he does not rely upon the representations of the promoters, but takes the shares at his own risk, might bar his right to relief in case of an innocent misstatement,34 but would not save the promoters from liability for a deliberate fraud.35

§ 207. Knowledge of falsity of representations.

The House of Lords in Derry v. Peek 36 established the rule

report upon which the plaintiff

based his suit.

31. 51 N. Y. 27, 10 Am. Rep. 551. 32. 149 Mich. 453, 458, 112 N. W. 1133, 1135.

33. Byers Bros. v. Maxwell, (Tex.), 73 S. W. 437.

34. Smith v. Chadwick, L. R. 20 Ch. Div. 27, 44-45, 46 L. T. N. S. 702, (affirmed, L. R. 9 App. Cas. 187, 5

Am. & Eng. Corp. Cas. 23), citing
Brownlie v. Campbell, L. R. 5 App.
Cas. 925. See ante, §§ 113, 132.

35. Pearson & Son, Ltd., v. Dublin Corporation, 1907, App. Cas. 351, 365, and cases cited. See ante, §§ 113, 132.

36. L. R. 14 App. Cas. 337, reversing, Peek v. Derry, L. R. 37 Ch. Div. 541; see also Glasier v. Rolls,