be liable for damages for fraud and deceit as long as they acted in good faith.20

§ 288. Liability of vendor for commission to be paid to

A secret agreement between the owners of property to be sold to the corporation and the promoter, by which they agree to pay him a commission upon the sale, is contrary to public policy and not enforceable at the suit of the promoter.21 The corporation may, however, if it discovers the agreement before the commission is paid, compel the vendors to pay the amount thereof directly to it.22 This solution is, from every point of view, just and fair.

Compelling the vendors to pay to the corporation the commission agreed to be paid to the promoter works no hardship upon them. They were willing to part with their property at the price demanded of the corporation, less the commission agreed to be paid to the promoter. They are no worse off by being made to pay the commission to the corporation instead, and there is no reason why they should be allowed to benefit by their refusal to carry out their unlawful agreement with the promoter.

§ 289. The same subject.-Effect of compromise between vendor and promoter.

The fact that the vendor after the sale to the corporation had been consummated compromised, at a smaller sum than originally agreed upon, the promoter's claim for commissions on the sale, is not a bar to the corporation's claim against the vendor for the balance of the agreed commission. The corporation's claim against the vendor having accrued before the compromise with the promoter, its rights against the vendor cannot be affected by an agreement to which it was not a party.23

§ 290. The same subject.—Liability of vendor after full payment to promoter.

A question less free from difficulty arises in regard to the vendor's liability to the corporation after the unlawful commission has actually been paid to the promoter. As the payment of the commission agreed to be paid to the promoter can be enforced only at the suit of the corporation, a payment thereof to the promoter should, if strict logic is to be applied, have no bearing upon

23. Grant v. Gold Exploration & Development Synd., 1900, 1 Q. B. D. 233. See also § 290. It was, in the case just cited, further held that the circumstance that the corporation had, on learning the facts, com

pelled the promoter to surrender to it the sum received by him from the vendor, did not constitute an adoption of the compromise such as to bar its rights to collect the balance of the commission from the vendor.

the vendor's liability to the corporation.24 Some cases, however, seem to indicate that the promoter is, after he has collected his unlawful commission, primarily liable to the corporation, and that the vendor is only secondarily liable as a sort of surety for the promoter.

In Tyrrell v. Bank of London,25 one Read wishing to sell certain property to a bank then in process of organization, of which one Tyrrell was the solicitor, agreed in case of a sale to give Tyrrell one-half of the profits of the transaction. The bank was organized, the transaction consummated, and his share of the profits paid to Tyrrell. Upon discovery of the facts the bank brought suit against Tyrrell and Read. Judgment was given against Tyrrell, but the bill was dismissed as against Read. The lord chancellor said that "as Read was a party implicated in the violation of trust, committed by Tyrrell, I should have been better pleased if Read had been retained in the character of a surety for the fulfilment of Tyrrell's obligation." This dictum was expressly approved by Lord Chelmsford.

24. See Hambleton v. Rhind, 84 Md. 456, 36 Atl. 597, 40 L. R. A. 216; Kuntz v. Tonnele, 80 N. J. Eq. 373, 84 Atl. 624; Lands Allotment Co. v. Broad, 13 Rep. 699, 2 Manson's Bkcy. Cas. 470; Grant v. Gold Exploration & Development Synd., 1900, 1 Q. B. D. 233, 250, 251, 254.

It is held in Emery v. Parrott, 107 Mass. 95, that the agent of the vendor who divides his commission with the agent of the purchasers, is liable with the latter jointly and severally for the entire amount of the commissions divided between them.

Compare, however, Ebling V. Nekarda, (148 N. Y. App. Div. 193, 132 Supp. 309, affirmed, 210 N. Y. 566, 104 N. E. 1129, motion for re

argument denied, 210 N. Y. 611, 104 N. E. 1129), where the trial court found that one Pressberger who had sold certain real estate to the corporation, had agreed with its promoters to pay to them $14,000 out of the purchase price paid by the corporation, and that of this sum, $7,385 had been paid to the promoters, and $6,615 remained in Pressberger's hands. A judgment against Pressberger for the sum of $6,615 was reversed on the ground that the burden was upon the plaintiff to show that this money remained in Pressberger's possession, and that this burden had not been sustained.

25. 10 H. L. Cas. 26, 47, 53, 11 Eng. Rep. 934.

In Lindsay Petroleum Co. v. Hurd,26 one Kemp being the owner of a certain lot, and one Farewell the owner of two other lots, Farewell made a colorable transfer of his lots to Kemp, who gave to one Hurd a month's option to purchase the three lots at the expressed price of $13,750.00. The lots were then conveyed at the option price to the plaintiff company of which Hurd was the promoter. The true price paid by Hurd was the sum of $10,000, the price expressed in the agreement being a nominal price inserted in furtherance of a collusive scheme to enable Hurd to make a profit out of the transaction. Upon the discovery of this fraud and of the falsity of certain other representations, suit was brought, and the vice chancellor decreed the rescission of the purchase. An appeal was taken to the Court of Error and Appeal in Ontario which reversed the decree of the Chancery Court on the ground that a rescission was barred by laches.

Mr. Justice Gwynne said that the company was "still entitled to a decree against Hurd to make good to the company the $3,750 which he, in breach of trust, made out of the plaintiffs ** and the other defendants should be decreed to reinstate that amount in default of the plaintiff's being able to collect it of Hurd; this is the utmost extent to which the decree should, in my opinion, go, and this is the decree which Tyrrell v. Bank of London 27 in appeal, warrants. The decree should be primarily against Hurd, who was alone guilty of a breach of trust, which is a fraud different in its character from that committed by the other defendants. All the purposes of justice are, as it appears to me, obtained by decreeing the party guilty of that breach of trust to restore the fruits of his fraud. And in case he should be unable, by decreeing the other defendants to do so for him." 28

26. L. R. 5 P. C. 221.

27. See supra.

28. It is stated at p. 236 that an order was made directing that Hurd and Kemp "should forthwith pay,

and in default of their so paying, that Farewell should pay unto the present appellants . . . . the sum of $3,750, being the difference between the actual and the nominal price

§ 291. Responsibility of vendor of property for false representations of promoter made upon the sale of corporate shares.

While a sale to the corporation may be set aside if brought about by the fraud of the promoter, the sale of property to the corporation is not ordinarily so directly connected with the sale of the corporate shares, that the vendor of the property can be made responsible for the fraudulent representations of the promoter entering into the subsequent sale of the company's shares. In Wiser v. Lawler,29 the defendants were the owners of certain mines known as the "Hillside Group" which they agreed to sell to one Warner at $450,000, of which $20,000 was paid in cash. A deed was executed and deposited in escrow to be delivered upon payment of the full purchase price. Warner then organized a corporation, to which were assigned, the rights under the escrow agreement and certain properties. Prospectuses were issued which, in addition to exaggerated and delusive statements, set forth in substance that the corporation held title to the Hillside Group. Upon the discovery of the fraud an action was brought demanding judgment that the defendants be estopped from disputing the title of the company to the Hillside Group, that they be made to account for the proceeds of all the ore taken from the mines, or,

of the said lands, etc." This does not seem to be in accord with the opinion of Mr. Justice Gwynne, at p. 235, and it is difficult to understand why Kemp should have been made liable in the first instance and Farewell as his surety. It is probable that there is a clerical error, and that it was intended that Hurd only should be liable in the first instance, and the others as sureties. The judgment of the Court of Error and Appeal in Ontario was

reversed by the Privy Council, (see pp. 239-246) on the ground that the right of rescission had not been lost by laches, and that the company was still entitled to a rescission unless it had, by dissolution, disabled itself from making the necessary reconveyance. The judgment of the Court of Error and Appeal as to the secondary liability of the vendors does not seem to have been disturbed.

29. 189 U. S. 260, 47 L. Ed. 802, 23 Sup. Ct. 624.