55 N.J. Eq. 708 | New York Court of Chancery | 1897
The first ground of demurrer is that the bill does not contain any statement that the defendant corporation has become insolvent, or suspended business for want of funds &c., so as to entitle the complainant to a receiver and injunction &c. On the
The second ground of demurrer is that the misrepresentation &c., charged in the bill, as to the financial condition of the com-, pany and its prospects, do not show a case to entitle the. com
These allegations show that the actual condition of the company varies in substantial particulars, and in matters of existing fact then within the knowledge of the defendants, from the representations alleged to have been made by them which induced the complainant to make the purchase of the company’s stock. If true, and on this issue they must be taken to be true, they show that Sinclair and Zimmele, the executive officers of the defendant company and its largest stockholders, being interested to have additional capital put into the company, and knowing its true financial condition, while they were conducting the com
I think the second ground of demurrer cannot be sustained.
The third ground of demurrer is that the misrepresentations of Sinclair and Zimmele were beyond the scope of their power as officers of the company, and cannot bind it.
The complainant’s allegations in this respect charge that Sinclair, who was the secretary and treasurer, and Zimmele, who was the president of the defendant company, by false and fraudulent representations, induced him to purchase from the company twenty shares of its stock; that the company issued this stock to him and received his money, under this contract into which he was thus induced to enter; that he now finds the statements made to him to have been false, and the value of the stock by reason thereof to have been worthless or nearly so, and he therefore tenders a return of the stock, and asks a decree that the company refund the money. He does not seek to make the company respond in damages for the unauthorized false statements of its affairs, but only to restore the money which the company has received by fraud. The contention of the demur-rants amounts to this, that the company may recognize and ratify the acts of its officers whereby it obtained the complainant’s money, but that it has no responsibility for the fraudulent misrepresentations which they made to secure it, because it did not expressly authorize the false statements to be made. This contention has had support, in England, in a number of cases arising on subscriptions to stock, and in Ayres’ Case, 25 Beav. 513, it was declared that misrepresentations by the manager and secretary of a company, by which subscriptions to its stock were obtained, were not chargeable against the company to relieve
The necessary effect of such a declaration is that a corporation may retain the beneficial results of a fraud perpetrated by its officers in the conduct of its business, unless the fraudulent acts are expressly authorized.
In the house of lords, however, the responsibility of a corpo.ration for the fraudulent contrivance of its agents was put upon broader ground. Lord Cranworth declared that the objects of a corporation can only be accomplished through the agency of individuals, and that there could be no doubt that if the agents employed act fraudulently, so that if they had been acting for private employers, the person for whom they were acting would have been affected by their fraud, the same principles must prevail where the principal, under whom the agent acts, is a corporation. Ranger v. Great Western Railroad Co., 5 H. L. Cas. 85.
As to the validity of contracts of subscription for stock of a corporation, obtained by misrepresentations made by its officers, though there has been considerable conflict in the English cases, the true doctrine on this point is declared to be that, where the person who has been deceived institutes a suit to rescind the contract to purchase shares, the misrepresentations are imputable to the company, and the purchaser cannot be held to his contract. Western Bank of Scotland v. Addie, 1 L. R. App. Cas. (Scotch) 145; Oakes v. Turquand, 2 L. R. H. L. Cas. 325.
It is .unquestioned law that a corporation must respond for the acts of its agents in the conduct of its business, which are injurious to others, though they may be wholly unauthorized by the corporation, indeed forbidden by it, as in the cases of railroad train operatives, who, while driving trains, injure passengers or travelers of highways, in breach of the company’s rules, and the many negligence cases which arise in the conduct of the business of railway, steamboat, ferry and other corporations. These acts are done, perhaps, by day laborers, and are not beneficial to the company or in any way ratified or approved by it,
The American cases on the liability of corporations for the frauds of their agents committed while in the conduct of their business, assert a jurisdiction quite as extensive for the correction of such wrongs.
If the corporation has clothed the agent with the power to act in its behalf, and receives and accepts the benefits resulting from his agency, then the parties injured by the fraud may resort for redress to the principal. But it is no answer to say the corporation could not authorize an agent to perpetrate a fraud, because if this were so no corporation could be held liable for any acts of its authorized agents, however great the injury to others. Fogg v. Griffin et al., 2 Allen 6. This liability of the company is stated to attach not on the ground of express authority given by the corporation to its agent to make the statement, but because •the corporation cannot act save through its agents, and as to the particular matter the agent stands in the place of the principal, and whatever he does or says about that matter is the act or saying of the principal. Sharp v. Mayor &c. of New York, 40 Barb. 273. The execution by the corporation of the resulting contract and the retention of its benefits after knowledge of the fraud, is not only a ratification of the contract itself, but also an adoption of the statements of the company’s agents whereby the-■contract was obtained. It is unconscionable that the corporation principal should be permitted to keep the results of a fraud by merely denying the authority of its agents to perpetrate it. Story Eq. Jur. § 193 a.
In the case in hand, whatever may have been the lack of authority of the president, secretary and treasurer of the defend
In this state, in just such a casé, the rule is stated in the broadest terms. If such contracts are induced by fraud, they create no obligation, and the injured party has a right to have them abrogated. Vreeland v. New Jersey Stone Co., 2 Stew. Eq. 189. In that case the fraud by which the subscription was-obtained consisted of a false representation made by a single-director in the presence of other directors, at a directors’ meeting, but upon which no corporate action whatever was taken. The complainant was held to be entitled to have his contract' of subscription abrogated, and a decree for the return of his money not only against the company but also against all the directors who were present, and the court of errors and appeals-(2 Stew. Eq. 651) unanimously approved the decree. The third ground of demurrer cannot be sustained.
The fourth ground of demurrer is that even if the conduct of the business set out in the bill was the cause of loss and financial-
This ground of demurrer seems to be based upon the supposition that the complainant seeks to charge the defendants because they mismanaged the company’s affairs and thereby caused him a loss. I have already shown that the bill, though not free from surplusage, sufficiently indicates that the ground of complaint is that the defendants, by false statements made to him to the effect that the company’s financial condition was of a certain favorable character in details named, induced the complainant to take the company’s stock, and he now asks that this contract be abrogated, and that the definite sum of money he paid for the stock be restored to him. The complainant does not ask any remedy against the defendants Sinclair and Zimmele, because of their mismanagement of the general business of the company, though the bill does set out some acts of the defendants which were alleged to have been to the disadvantage of the company. These allegations are surplusage and do not effect the substantial relief sought by the bill. As no relief is sought because of this conduct, it is of no significance whether it arose from mistakes in judgment, or gross negligence, or willful fraud.
The defendants have all demurred generally to the whole bill. The demurrer must be effective as against the bill in all its parts, or it must be overruled. The bill, taking its well-pleaded allegations to be true, exhibits a ease where the complainant was induced by false representations to purchase shares of stock which he tenders himself to be ready to return, and prays that the defendants who made the false representations, or received and accepted the benefit of them, may be decreed to refund the money. That the complainant also asks relief by specific methods not applicable in the same suit for the enforcement of such decrees, will not deprive him of his rightful remedy. There is in the bill an exhibition of a right to equitable relief and a prayer for a decree accordingly, and a general demurrer will not be sustained because relief may not be given in one or more special modes which-are suggested in the prayer of the bill.. In such
I will advise that the demurrer be overruled, with costs.