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THE

LAW OF PROMOTERS

A TREATISE

ON

THE LAW OF PROMOTERS OF PRIVATE CORPORATIONS, COVERING THE RIGHTS AND LIABILITIES OF PROMOTERS, AND ALSO THE RIGHTS AND LIABILITIES OF THE CORPORA

TION AND THE SUBSCRIBERS FOR AND PURCHASERS

OF ITS SHARES, THE RIGHTS AND LIABILITIES OF
PERSONS SELLING PROPERTY TO THE CORPO-
RATION, AND THE RIGHTS AND LIABILI-

TIES OF ALL OTHER PERSONS AS AF-
FECTED BY THE ACTS OR OMIS-
SIONS OF THE

PROMOTERS.

By MANFRED W. EHRICH

Of the New York Bar. =

MB

ALBANY, N. Y.

MATTHEW BENDER & COMPANY,

INCORPORATED

COPYRIGHT, 1916,

BY MANFRED W. EHRICH

233048

PREFACE

Practically all large business enterprises are, at the present day, organized in corporate form. The transactions involved in the formation of these corporations are often intricate and of great magnitude. Yet their organization is in the main the work of promoters-persons who have no official connection with the future corporation and who occupy toward it a very indefinite, and in some respects an anomalous, relation. The questions of law which arise from the acts and omissions of these promoters are difficult and complicated, and call for more intensive consideration than can well be accorded them in any general work on corporations. No work on promoters' law has been published since 1898, and in the eighteen years that have elapsed many interesting cases have been decided. That there is need for a reconsideration of the subject there can be no doubt.

Among the more important matters covered by the present book are agreements for the promotion of corporations, their validity, interpretation and enforcement; contracts made by the promoters on behalf of the projected corporation, the personal liability of the promoters thereon, the circumstances under which they become binding upon the corporation, and the power of the promoters or the corporation to enforce such contracts; the promoters' right to compensation and to reimbursement for expenses; the question of promoters' profits and the circumstances which render them lawful or unlawful-a matter which, under the decisions, depends not so much upon the fair dealing of the promoters as upon the astuteness of their attorneys-; the remedies of a corporation complaining of its promoters, and the defenses

of the promoters to its suits; false representations made by promoters, and the resulting liability to the corporation, to the subscribers, and to other persons, and the defenses of the promoters to suits based on such representations; the criminal liability of promoters; the rights and liabilities of persons selling property to the corporation as affected by the acts of the promoters; the relations of the promoters inter se; the rights and liabilities of promoters reorganizing or consolidating existing corporations; and the rights and liabilities to be adjusted when a projected corporaton proves abortive. These, together with many incidental questions, are the subject matter of this book.

It has been my aim to write for the busy lawyer as well as for the academic student of the law. I have endeavored to state the underlying principles upon which the cases of promoters' law depend, and to analyze the puzzling decisions in such manner that their purport may readily be appreciated. What the practicing lawyer seeks is, however, not so much a case which establishes some broad principle, as a case which applies that principle to a situation such as the one he has in hand. Whenever I have met a case which applies an established principle to a question of promoters' law, or applies some principle of promoters' law to a striking state of facts, I have noted and indexed it in such manner that it may be quickly found. I have in my examination of the numerous lengthy opinions that have been written in promoters' cases found many statements, perhaps of no interest from an academic point of view, but yet of great value to the lawyer whose case involves the particular point. Such, for example, are statements as to the evidence admissible on a particular question, as to the inferences that may be drawn from a given state of facts, as to matters of pleading, practice, burden of proof, jurisdiction, and as to many other incidental matters which, while establishing no new principle and, perhaps, involving a sufficiently obvious point, are nevertheless the very kind of precedent which it is most diffi

cult to find in case of need. All such statements I have taken pains to note and index.

I wish to express my appreciation of the helpful assistance received from Mr. Bertram F. Shipman of the New York bar and Mr. Paul J. Bickel now of the Cleveland bar.

MANFRED W. EHRICH.

Dated, New York, April 15, 1916.

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