proposition is that one who holds another out to the world as a competent and proper agent to manage his business is responsible for the agent's conduct in the course of business, and is bound to make good all losses resulting to others from his misconduct in and about such business. And if in the course of negotiations pertaining to his employment he makes misrepresentations whereby another is misled to his injury, the principal whether a natural person or a corporation is liable for reparation though ignorant of the transaction. But the principal may repudiate a contract induced by fraud of his agent at any time before the other party has altered his condition by reason of the fraud or suffered loss from it.1

Since the very object of an agency is to enable the agent to transact business on behalf of and in the stead of his principal, it is obvious that where the fraudulent act was not done or the representations made on behalf of the corporation with the object of drawing it into a contractual relation with the defrauded party, it is not responsible.

To enable the principal to escape liability for the fraud of his agent he must repudiate the contract in toto. He cannot, while affirming the agent's authority, to make a contract induced by fraud, dispute the false representation made in procuring it.2

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The true reason of the principal's liability in such cases results from an estoppel. Where the principal has clothed his agent with power to do an act upon the existence of some extrinsic fact necessarily and peculiarly within the knowledge of the agent, and of the existence of which the act of executing the power is itself a representation, a third party dealing with such

1 Bennett v. Judson, 21 N. Y. 238.

2 Crump v. U. S. Mining Co., 7 Gratt. 352.

agent in entire good faith, pursuant to the apparent power, may rely upon the representation, and the principal is estopped from denying its truth to his prejudice." 1

For though the fact be extrinsic, the agent could not make it available and effective but for his agency.

§ 938. When intent will be immaterial.-It is immaterial whether the representation was known to be false or was made with fraudulent or innocent intent, if it amounted to a guaranty and the party to whom it was made relied upon it.'

§ 939. Personal liability for fraudulent representations. -The mere fact of being directors and stockholders is not in itself sufficient to make them liable for the frauds and misrepresentations of business managers of a corporation. Such managers are prima facie agents of the corporation and not of the directors. In order to charge the latter some knowledge, acquiescence or participation in the fraudulent acts must be proven. The mere

publication of the name of a party as director of a corporation and the mere fact that he is a stockholder are not sufficient to authorize a verdict against him for a fraud perpetrated by other directors and agents of the corporation.3

1 New York & New Haven R. R. Co. v. Schuyler, 34 N. Y. per Davis, J. The cashier of a bank proposed to sell plaintiff a bill of exchange; and he, relying upon a statement in the letter containing the offer to the effect that the bill was perfectly safe, accepted the offer. The bill proved uncollectible and the bill having been endorsed to him without recourse he sued the bank for the money paid for the bill, and it was held that the representation amounted to a guaranty that the bill was collectible and that the bank was liable. Sturgis v. Bank of Circleville, 11 Ohio St. 153. So if the cashier of a bank assures a surety on a note held by it that the note has been paid whereby he is induced to give up securities, such representation is a good defence to an action by the bank against the surety in the note. Cacheco Nat. Bank v. Haskell, 51 N. H.

3 Bigelow on Fraud, 368; Arthur v. Griswold, 55 N. Y. 400.

Still, if the stockholders or the directors having control of the business adopt or seek to enforce a contract entered into by their authorized agent, they cannot repudiate the fraudulent representation which was in whole or in part the inducement of or was immediately connected with the contract. Of course the directors are personally liable for their own fraudulent mismanagement or for participation in or connivance at that of other agents, but their fraudulent acts may render the corporation also liable.2

The following rule was laid down in a case where it was sought to charge a director personally for misrepresentations in statements and reports published by him concerning the financial condition of an insurance corporation that an action founded upon deceit and fraud could not be maintained in the absence of proof that the defendant believed, or had reason to believe, at the time he had made the representations, that they were false, or that he assumed or intended to convey the impression that he had actual knowledge of the truth though well aware that he had no such knowledge.3

1 Ex parte Ginger, 5 Irish Ch. 174.

2 Watts. App., 78 Penn. St. 370. The directors of a bank are personally liable to a depositor for damages by reason of the insolvency of the corporation, when he is induced to deposit solely by the false representations of its solvency, made by such directors, whether these were made with the intent to defraud or not, where the directors, by the use of ordinary care, might have known their falsity. Seale v. Baker, 70 Tex. 283; 7 S. W. 742. Having heard a rumor that a bank was not sound, one of its correspondents told its president that he had deposits in the bank, and wanted to know its financial condition. The president replied that there was no question of the ability of the bank to meet all liabilities, and the correspondent was thereby induced to continue his deposits, which were lost by reason of the insolvency of the bank. Held that, though the representation was not made with intent to deceive, the president was personally liable, if, by the exercise of ordinary diligence, he could have known that his statement was not true. The right of the correspondent to rely on the representation is clear, and it was error to submit the question to the jury. Giddings v. Baker (Tex.), 16 S. W. 33.

3 Mayer v. Amidon, 45 N. Y. 169. See also, Oberlander v. Speiss, Ib. 175;

If, however, a director makes or concurs in making or publishing representations which are in fact false, recklessly and without inquiry or care as to their truth or falsity, he is liable the same as if that falsity were known to him. For a positive assertion of fact is by plain implication an assertion of knowledge concerning such fact; and if the party has no knowledge about it he has asserted for true what he knew to be false.1

The false representations need not be made to any particular person in order to render the directors liable. If made publicly, either directly or indirectly through innocent agents, the natural tendency and result being to deceive any and all who happen to see or hear them repeated, the directors or other agents will be held to have intended the natural consequences of their act and to respond in damages to any one who is thereby deceived to his injury.2

§ 940. False statements in prospectuses. In regard to the intent with which the false statement was made in a prospectus it is generally necessary that the party making it shall know its falsity. But where made recklessly to induce subscriptions without knowledge of their truth or falsity, the fraudulent intent will be inferred. The last rule is justly applied in cases of false and misleading statements made in prospectuses and otherwise by directors and managers to whom the

Wakeman v. Dalley, 51 N. Y. 27; Arthur v. Griswold, 55 Id. 400; Fusz v. Spaunhurst, 67 Mo. 256.

1 Evans v. Edmunds, 13 Com. B. 777, 786, Beatty v. Ebory, L. R. 7 H. L. 102; Haycroft v. Creasy, 2 East, 92; Taylor v. Ashton, 11 M. & W. 401; Labdell v. Baker, 1 Met. 193, 201; Bennett v. Judson, 21 N. Y. 138; Thomas v. McCann, 4 B. Mon. 602; Woodruff v. Gome, 27 Ind. 4; Stone v. Cowell, 29 Mich. 359; Converse v. Blumrich, 14 Mich. 109; Eaton v. Wirme, 20 Mich. 156; Foard v. McComb, 12 Bush, 723. It was held no defense for the director to an action that he made the statements upon the information of others. He should have so stated when he made them. Fischer v. Mellen, 103 Mass. 503.

* Salmon v. Richardson, 30 Conn. 360.

public are entitled to attribute knowledge of the real condition of affairs.1

But the false representations must have been made concerning matters peculiarly within their knowledge. If made upon matters of which the public are presumed to take notice, they do not justify an avoidance of the subscription or an action for damages. For the same reason false representations with reference to the provisions of the charter or articles of association, where devices are not resorted to to prevent examination and inquiry, and no unfair advantage is taken of the situation of the parties or as to the legal effect of the contract, furnish no ground for relief."

But when false representations are made as to the plans and intentions of the corporation in matters directly affecting a party's interests, and where, from the nature and on account of the position held by the person making them, the party is not guilty of negligence in relying upon them, and is induced by them to enter into a contract, whatever its nature, he may avoid it for fraud.3

1 Smith v. Reese River, Co., L. R. 2 Eq. 268, 269, 4 H. L. 64; Glamorganshire Iron, etc., Co. v. Irvine, 4 F. & F. 947, 955. But see Salem Mill Dam Co. v. Ropes Pick. 137; Goodrich v. Reynolds, 31 Ill. 490; Nelson v. Luling, 36 N. Y. Super Ct. 544; Coll v. Pittsburgh Female College, 40 Pa. St. 439; City Bank v. Bartlett, 71 Ga. 797, 808.

2 Parker v. Thomas, 19 Ind. 213; New Albany, etc., R. R. Co. v. Fields, 10 Ind. 189; Ellison v. Mobile, etc., R. Co., 36 Miss. 522.

3 When at a meeting of citizens to consider the question of granting the right of way to a railroad company, its agents made speeches in which they promised to construct crossings, bridges and depots for the benefit of land owners who should grant rights of way to the company, on the faith of which promises defendant in error deeded to it the right of way, it was held admissible to put in evidence the refusal of the company to keep these promises as a ground for cancellation of the deed for fraud. Atlanta, etc., R. R. Co. v. Hodnett, 36 Ga. 669; Or. Cent. R. Co. v. Scoggin, 3 Or. 161; Compare Bish v. Bradford, 17 Ind. 490, 493; Hardy v. Merriweather, 14 Ind. 203; Walker v. Mobile, etc., R. R. Co., 34 Miss. 245; Brownlee v. Ohio, etc., R. R. Co., 18 Ind. 68; Selma, etc., R. R. Co. v. Anderson, 51 Miss. 829; Coil v. Pittsburgh Female College, 40 Pa. St.