ment. The same contention was made in Hinkley v. Sac Oil & Pipe Line Company,78 and the Southern Building & Loan Association case was cited. The Supreme Court of Iowa said, "We are confident that, had the court (in the Southern Building and Loan Association case) undertaken to state its reasons for such a conclusion, a different result would have been reached. At any rate the current of authority is that the general rule to the effect that parol representations are not admissible to vary the terms of a written agreement has no application to those representations which amount to a fraud on the part of the company, were made at the time of subscribing, and were the inducements by which the subscribers were obtained.79 This is for the very satisfactory reason that the parol evidence is not introduced to vary or contradict the written application or contract, but to show that none such was even properly made."

The apparent effect of a subscription agreement cannot be defeated by proof of oral representations as to its legal effect and as to the liability of the subscriber thereunder, nor by proof of parol promises that the obligations thereof would not be enforced against the particular subscriber, nor by proof that collateral promises made at the time of the subscription and as an inducement thereof, were not performed.80 The agreement

78. 132 Iowa 396, 407, 107 N. W. 629, 633, 119 Am. St. R. 564.

79. Citing First National Bank v. Hurford, 29 Iowa 579; Davis v. Dumont, 37 Iowa 47; Rives v. Montgomery Plank Road Co., 30 Ala. 92; Martin v. Railway, 8 Fla. 370, 73 Am. Dec. 713; Miller v. Wild Cat Gravel Road Co., 57 Ind. 241; Kennebec & P. R. R. Co. v. Waters, 34 Me. 366; Water Valley Mfg. Co. v. Seaman, 53 Miss. 655; Piscataqua Ferry Co. v. Jones, 39 N. H. 491; Vreeland v. New Jersey Stone Co.,

29 N. J. Eq. 188, (affirmed, 29 N. J. Eq. 651); Custar v. Titusville G. & W. Co., 63 Pa. 381; Blodgett v. Morrill, 20 Vt. 509.

80. Alabama.-Smith V. Tallassee, etc., Plank Road Co., 30 Ala. 650, 667.

Arkansas.-Mississippi, etc., R. R. Co. v. Cross, 20 Ark. 443, 454.

Illinois. Jewell V. Rock River Paper Co., 101 Ill. 57, 68.

Kentucky.-Wight v. Shelby R. R. Co., 16 B. Mon. (Ky.) 4, 63 Am. Dec.

may, however, be avoided by proof that the subscription was procured by false representations in regard to the substance of the shares to be received thereunder.8

CHAPTER XIV.

OF THE MEASURE OF RECOVERY.

Section 264. Measure of recovery in case of unlawful sale of promoter's

property to corporation.

265. In action for accounting for profits.

266. The same subject.-Allowance as compensation for services.

267. Unlawful commissions, bribes, etc.

268. Measure of recovery upon rescission.

269. Measure of damages in case of false representations.

270. Measure of value of shares.

271. Measure of value of bonds.

272. Value of property sold to corporation.

273. The same subject.-Market value the standard.

274. The same subject.-Proof of value.

275. Measure of value of property paid for by subsequent issue

of mortgage bonds.

276. Measure of recovery in minority stockholders' suits.

277. Measure of damages in action for fraud in sale of shares.

§ 264. Measure of recovery in case of unlawful sale of promoter's property to corporation.

The sum to be recovered by the corporation in case of the unlawful sale to it of the promoter's own property, depends upon the circumstances of the case; that is whether the promoter acquired the property before he became such and is to be considered as having made an unlawful sale of his own property to the corporation, or whether he acquired the property after he entered upon the fiduciary relation of promoter to the corporation and should have made the purchase for its benefit.1

1. Central Trust Co. V. East Tennessee Land Co., 116 Fed. Rep.

743, 748; Old Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 202,

If the property sold to the corporation belonged to the promoter before he entered upon the fiduciary relation, the corporation is not entitled to the benefit of his purchase, and the limit of its recovery, unless upon a rescission of its purchase, is the difference between the price it paid for the property and its fair market value at the time.2

If the promoter, on the other hand, acquired the property sold to the corporation at a time when he had already entered upon the relation of promoter to the corporation, he was bound, on account of the fiduciary nature of that relation, to make the purchase for the benefit of the corporation. The corporation is therefore entitled to the benefit of the promoter's purchase, and may recover from him the difference between the price that he paid for the property and the sum which he received for it.3

89 N. E. 193, 40 L. R. A. N. S. 314; same v. same, 188 Mass. 315, 321, 74 N. E. 653, 108 Am. St. Rep. 479; Parker v. Nickerson, 137 Mass. 487, 497; Bigelow v. Old Dominion Copper, etc., Co., 74 N. J. Eq. 457, 504, 71 Atl. 153; In re Cape Breton Co., L. R. 29 Ch. Div. 795, 805, affirmed, sub. nom. Bentinck v. Fenn, L. R. 12 App. Cas. 652.

See also cases cited, ante, § 161. The statement in the case first cited that the company is entitled to the benefit of the promoter's purchase, if he purchased the property in contemplation of its organization, is contrary to the weight of authority. See ante, § 16.

As to the measure of damages in general in an action by the corporation against its promoters, see note to Lomita Land & Water Co. v. Robinson, 18 L. R. A. N. S. 11311132.

As to when property will be

deemed to have been acquired by the promoter before he entered upon the fiduciary relation, and when it will be deemed to have been acquired thereafter, see ante, §§ 104108, 15-18.

2. See cases cited under note 1, also Hayden v. Green, 66 Kan. 204, 71 Pac. 236, and Bentinck v. Fenn, L. R. 12 App. Cas. 652, 658-659.

Cf. In re Leeds & Hanley Theatres of Varieties, 1902, 2 Ch. Div. 809.

If the property is fairly worth the price paid by the corporation, the recovery would be limited to nominal damages. See Bentinck v. Fenn, L. R. 12 App. Cas. 652, 659, 661, 662, affirming, In re Cape Breton Co., L. R. 29 Ch. D. 795, L. R. 26 Ch. D. 221, cited in Milwaukee Cold Storage Co. v. Dexter, 99 Wis. 214, 230, 74 N. W. 976, 40 L. R. A. 837, 842.

3. See cases cited under note 1;

The corporation may also recover the difference between the price paid the promoter for the property and its cost to him, if the promoter, though he actually acquired the property before he entered upon the relation of promoter to the corporation, represented to the corporation, or to its subscribers, that he acted for it in making the original purchase, or that he was turning the property in to it at cost, or if he concealed his interest in the property and lead the company to believe that it was purchasing the property from his vendor.1

5

An action for the difference between the price paid for the property by the promoter, and the amount received by him from the corporation is, when open to the corporation, generally more satisfactory and, as far as the damage is concerned, easier of proof than an action for fraud and deceit for the recovery of the difference between the price paid for the property and the fair value thereof. The form of action first mentioned is, therefore, when maintainable, generally preferred. It may, however, happen that the difference between the price paid for the property by the corporation and the fair market value thereof exceeds the promoter's profit on the resale, and there seems to be no reason why the corporation should not, although the promoter acquired the property after he had entered upon the fiduciary relation, be allowed, if it so desires, to sue the promoter for damages for fraud and deceit."

§ 265. In action for accounting for profits.

A somewhat complicated situation arose in Tyrrell v. Bank of London. One, Read, having obtained a contract for the pur

also Exter v. Sawyer, 146 Mo. 302, 326, 47 S. W. 951, 957.

4. See ante, §§ 108, 162.

5. The burden is upon the corporation claiming damages, to prove, not only that damage was in

fact suffered by it, but also the amount of such damage. Bentinck v. Fenn, L. R. 12 App. Cas. 652, 659, 667-668.

6. See ante, §§ 171, 161.

7. 10 H. L. Cas. 26, 45-48, 50, 57-60, 11 Eng. Rep. 934.