$1,500. At that time neither the officers of the company nor Schneck knew of the further profit made by Whaley, Hinners and Meyers. The company upon discovering this profit offered to rescind the transaction. The plaintiff, being threatened with suit, took up a mortgage upon the land evidently made by him before the sale, and sought to foreclose it. The defendant corporation and Schneck then asked for a rescission of the sale, and a discharge from liability on the mortgage. The court said that the theory of the defendants was that the division of the profits between Meyers and the promoters was in effect a bribe, and that Meyers being the plaintiff's agent the latter must be held responsible; that there was, however, no evidence that the plaintiff had any actual knowledge of Meyers' plans, or shared in any way in the profits; that the agency of Meyers contemplated the securing of a purchaser for the land; that any fraud or misrepresentation made by the agent in the scope of his agency would be binding on the principal, but that the mere authority to sell did not contemplate the organization of a corporation to purchase; that the agent's acts were not done in the interest of his employer nor for his profit, but were distinctly personal and primarily to the agent's own advantage; that they were not in legal contemplation the acts of the principal and that the principal could not be bound thereby.

In Forest Land Company v. Bjorkquist, the defendant being the owner of certain premises gave to one Myers the privilege of selling the property at such a price that Bjorkquist should receive $30,000 net. Myers thereupon caused the plaintiff company to be incorporated and to purchase the property at a price of $32,000, the defendant giving a deed to the company reciting a consideration of $32,000 and Myers retaining $2,000 in the stock of the company as his commission. The corporation brought an action to set aside its purchase, and for incidental

8. Citing Law v. Grant, 37 Wis. 548. As to this question see ante,

§ 204.

9. 110 Wis. 547, 86 N. W. 183.

relief. The court after stating that an owner of property who aids the promoter in secretly perpetrating a fraud and receives a portion of the profits is accountable to the corporation, said that Bjorkquist employed Myers simply to find a purchaser; that Bjorkquist first ascertained that a corporation was to be the purchaser a few days prior to the date of the deed; that Bjorkquist did not stand in any fiduciary relation to the plaintiff or to the subscribers for its capital stock, and owed neither to it nor to them any duty to refrain from making a sale under the circumstances stated; that the mere authority of Myers to find a purchaser of the land did not contemplate the organization of a corporation to effectuate the purchase, and that Myers' acts in assisting in the formation of the corporation were, in the absence of evidence showing that Bjorkquist had knowledge of Myers' plans or shared in his profits, outside of the real or apparent scope of the authority given by Bjorkquist and not binding upon him, citing Godfrey v. Schneck, supra.

§ 287. Responsibility of vendor assisting promoter in obtaining secret profit.

While, as shown in the preceding section, a sale to the corporation cannot be set aside as against innocent vendors, because of a secret profit taken by the promoter, the vendors may be held responsible if the promoter's profit was obtained with their aid or connivance. If the vendors pay the promoter a secret commission, or, in order to enable him to secure a secret profit, state an exaggerated consideration in their deed or give him a receipt for a sum larger than that actually paid, the vendors become parties to the promoter's fraud, and the corporation may, at its election, rescind its purchase 10 or hold the vendors jointly liable with the

10. Commonwealth S. S. Co. v. American Shipbuilding Co., 197 Fed. Rep. 780; same v. same, 197 Fed. Rep. 797, affirmed, 215 Fed. Rep. 296,

131 C. C. A. 596; Finck v. Canada-
way Fertilizer Co., 152 N. Y. App.
Div. 391, 136 Supp. 914, modified and
affirmed, 208 N. Y. 607, 102 N. E.

promoter in an action for damages 11 or in an action for the recovery of the promoter's profit.12 It is, in such case, immaterial that the vendors received no direct benefit from the promoter's fraud.13

In Emery v. Parrott,14 the agent of the vendor entered into an agreement with the promoter of the vendee corporation to

divide with the promoter the commissions upon the sale. The court held that though the agent of the vendor did not, as such, stand in any fiduciary relation to the purchasing corporation, he knew the position of the promoter and by his agreement became a partner with the latter, and that the two were jointly and severally liable not only for the one-half of the commission paid to the promoter, but for the entire commission received by the agent of the vendor.

In

Before the vendors can be held liable for assisting the promoter to obtain an unlawful profit, their intent to so assist the promoter must be shown.15 If the promoter acted as agent of the vendors on the sale to the corporation and they paid him his commission in ignorance of the fact that he had become one of the promoters of the vendee company, they cannot be held liable to the corporation as parties to the promoter's fraud.16 South Missouri Pine Lumber Co. v. Crommer,17 the defendants William Crommer and William F. Crommer, the owners of certain property, were in financial straits, and being anxious to dispose of their property, authorized the defendant Newhouse to sell it for $21,000, agreeing to pay him, as his commission on the sale, the sum of $500 and whatever he could obtain above $21,000. Newhouse interested one Ewart and others who organized the plaintiff company to take over the property. They purchased the property at a price of $37,500-of which $5,000 was paid in cash, $13,000 in notes, $3,000 by assuming a mortgage on the premises, and the balance by giving in trade certain real estate belonging to Ewart-and resold it to the company for $50,000. The company

15. South Missouri Pine Lumber Co. v. Crommer, 202 Mo. 504, 101 S. W. 22; Forest Land Co. v. Bjorkquist, 110 Wis. 547, 86 N. W. 183.

16. Heckman's Estate, 172 Pa. 185, 33 Atl. 552, and see Lands Allotment Co. v. Broad, 13 Rep. 699, 2 Manson's Bkpy. Cas. 470. This may

be the explanation of the decision in Forest Land Co. v. Bjorkquist, 110 Wis. 547, 86 N. W. 183, (ante, § 286), where the court did not discuss the fact that the vendor had paid a commission of $2,000 to the promoter.

17. 202 Mo. 504, 101 S. W. 22.

on learning that the property given by Ewart in trade to the Crommers was not worth nearly the sum at which it was put in, and that the Crommers only received $21,000 of the purchase price, brought suit against Newhouse and the Crommers, claiming that they, by raising the price from $21,000 to $37,500, had aided Ewart in the perpetration of a fraud upon the company, and were jointly liable with him. It appeared that the only price ever made by the Crommers and Newhouse to the promoters of the plaintiff corporation, was $37,500, and the court said that though the property put in by Ewart was not worth the price at which it was taken by the vendors, Newhouse, to whom this property was to go as his commission, was not particular at what price it was valued in the trade; that fraud and collusion will not be presumed, but must be proved, and that there was not sufficient evidence to connect the Crommers and Newhouse-the vendors and their agent-with the fraud of Ewart the pro

moter.

Though the vendors do not, at the time that they agree with the promoter to pay him a commission, know of his relation to the corporation, they become liable to the corporation for the amount of such commission if they pay it after they have learned of the relationship between the promoter and the corporation.18

The corporation may, perhaps, rescind its purchase, or recover the amount of the promoter's commission from its vendors if they, knowing their agent to be a promoter of the corporation, pay him a commission on the sale in the belief that the matter has been disclosed to the corporation, for the vendors could in such case, readily avoid all risk by themselves disclosing the facts to the corporation.19 The vendors could not, however, very well

18. Grant v. Gold Exploration & Development Synd., 1900, 1 Q. B. D. 233, 240, 253.

As to the nature of such liability,

see post, § 290.

19. Grant v. Gold Exploration & Development Synd., 1900, 1 Q. B. D. 233, 248-250, 253, and cases cited.