right to release a single member, subject to the rights of creditors.1

§ 572. Wrongs of others will not release.-No abuse of authority by the managers, or violation of its franchises, or departure from the objects and purposes for which it was formed, has the effect of releasing a member from his obligations and liabilities.2 In each case of this kind, a court of equity provides for the injured party the means of prevention or redress. Such wrongs do not constitute any defence to the corporation's demand for assessments.3

1 Infra, § 583.

2 As for instance the issuance of shares in excess of the amount authorized by its by-laws and charter. Cartwright v. Dickinson, 88 Tenn. 476; 12 S. W. .1030.

3 Miss. & R. R. Co. v. Cross, 20 Ark. 443; Hannibal Plank Road Co. v. Manifee, 25 Mo. 547. It is immaterial whether the wrong consists in ultra vires acts, or in dealings of the managers with other members calculated to injure and defraud a part. It is well settled that collusive agreements to release or cancel the shares of some of the members does not release others and constitutes no defence to calls and assessments. Bish v. Bradford, 17 Ind. 490; Morgan County v. Thomas, 76 Ill. 120, 141; Four Mile V. R. Co. v. Bailey, 18 O. St. 208; Chetlain v. Republic Ins. Co., 86 Ill. 220. It is otherwise, however, where there are no creditors, and the cancellation was made on account of an abandonment of the corporate undertaking. McCully v. Pittsburgh, & E. R. Co., 32 Pa. St. 25; County of Crawford v. Same, Id. 141. Nor will a promise of secret advantages avail the subscriber when sued on his subscription.

The subscriber has his remedy in equity to have the contemplated fraudulent acts injoined, or if already consummated, to have them set aside and an accounting from the wrongdoers, but must perform his own contract with the corporation. Anderson v. New Castle & R. R. R. Co., 12 Ind. 376; Jewitt v. Valley R. Co., 44 O. St. 601; Agr. C. Ins. Co. v. Fitzgerald, 15 Jur. 489; Memphis Br. R. R. Co. v. Sullivan, 57 Ga. 240; Hall v. Selma, R. R. Co., 6 Ala. 74; Conn. & C. R. R. Co. v. Bailey, 24 Vt. 465; Jewell v. Rock, R. Co., 101 Ill. 57; Galena & S. W. R. Co. v. Ennor, 116 Ill. 55; 4 N. E. 762; Thompson v. Reno Sav. B'k 19 Nev. 103, 171, 242, 291, 293; 7 P. 68, 870; 9 P. 121, 882, 883. If, however, the other subscriptions were fictitious or fraudulent from their inception or from any cause not enforceable and still necessary to make up the requisite capital to be obtained before beginning business, the remaining subscribers would have a right to object that a condition precedent upon which they subscribed had not been performed by the corporation. See N. Y. Exch. Co. v. Dewolf, 32 N. Y. 270; Berry v. Yates, 24 Barb. 199; Nickerson v. English, 142 Mass. 267; 8 N. E. 45. But it is no defence after valid subscriptions have been obtained and the

§ 573. Avoidance of contract for fraud.-Contracts of membership induced by fraud on the part of agents of the corporation are voidable on the same principles and to the same extent and subject to the same limitations as other contracts. Whatever will be held to amount to fraud in a contract of sale of land or merchandise, or of a partnership interest, will, when proven in proper time and manner, avail a member as a defence to an action for assessments, dues, or calls on his contract of membership, or justify a rescission of it.1 The fraud which enters into and vitiates the contract of membership, extends to and renders voidable all liens and mortgages, created to secure the pecuniary liability thereby incurred by the intended member.2

The American cases afford but few illustrations of

corporation has embarked in business that the corporation has irregularly forfeited the stock of other subscribers or compromised with them; Dorman v. Jacksonville & A. P. R. Co., 7 Fla. 265; nor that others have failed to pay the percentage required by statute. Swartout v. Mich. Air Line R. R. Co., 24 Mich. 389.

1 Central R. R. Co. of Venezuela v. Kisch, L. R. 2 H. L. 99; McDermot v. Harrison, 9 N. Y. S. 184; 56 Hun, 640, Infra; Defendant sold plaintiff 28 shares of corporate stock, representing to him that the capital stock was all paid up. The evidence showed that when the company was formed only 60 per cent. was paid in on the stock, and that afterwards, before plaintiff purchased his shares, profits amounting to 40 per cent. on the capital stock were allowed to remain in the business as undivided profits, which thus made the shares worth their full face value. Defendant admitted that he made the representation, and claimed that it was true. The jury found a verdict of $400 damages for plaintiff. Held, not sufficient evidence to warrant the submission of the case to the jury. Kryger v. Andrews (Mich.), 35 N. W. 245. Although the attempted organization of a company was invalid, an action for money had and received cannot be maintained by one stockholder against others for money paid by him for stock for which he was induced to subscribe by the alleged fraud of one of them, when it appears that such stockholders were equally bona fide holders with himself, and equally victims of the fraud, and this is true though the stockholders. be held liable as partners. Perry v. Hale, 143 Mass. 540; 10 N. E. 174.

2 Where one was induced by false and fraudulent representations of the agents of a railroad company as to its financial condition to subscribe for its stock, to execute a note to the company secured by mortgage, it was held that the fraud constituted a good defence to the collection of the note even in the hands of one to whom it was assigned after maturity. Melady v. Keen, 89 Ill. 395.

the statements which, being false and constituting the inducement to a subscription, will authorize a rescission or sustain an action for damages on the ground of fraud; but in England, many adjudications on the subject are found. The circumstances and history of the transaction are to be considered in connection with the false representation in determining whether or not the party was induced by fraud to sign the subscription paper. It is sufficient if he relied partly upon the false statement.2

The right to avoid subscriptions and have instruments connected therewith cancelled on account of fraudulent practices and inducements exists in favor of a municipal or private corporation as well as of natural persons.3

1 The following representations falsely made have been held sufficient to give a right of action. That a certain amount of stock had been subscribed for; Ross v. Estates Inv. Co., L. R. 3 Ch. 682; Henderson v. Lacon, L. R. 5 Eq. 249; Arnison v. Smith, 59 L. T. Rep. 627; that certain property had been purchased; Reese River Silver M. Co. v. Smith, L. R. 4 H. L. 64; Waldo v. Chicago, St. P. & F. D. L. R. R. Co., 14 Wis. 575; that a government guaranty had been obtained; Kisch v. Cent. R. Co., 34 L. J. (Ch.) 545; that the corporate property is incumbered; McClellan v. Scott, 24 Wis. 81; Water Val. Mfg. Co. v. Seaman, 53 Miss. 655; that the corporation is solvent and prosperous; Bell's Case, 22 Beav. 35; Melady v. Keen, 89 Ill. 395; Western Bank of Scotland v. Addie, L. R. 1 Sc. App. Cas. 145; that the directors have subscribed for stock; Henderson v. Lacon, L. R. 5 Eq. Cas. 249; that certain individuals are directors; Blake's Case, 34 Beav. 639; Ministers' Case, 14 W. R. 957; that the business undertaken is of a certain character; Blackburn's Case, 3 Drew, 409; that work on the enterprise has reached a certain stage of completion; Upton v. Hansbaugh, 3 Biss. 417; Re Cachor Co., 36 L. J. 490; Ship v. Crerskill, L. R. 10 Eq. Cas. 73; that a certain price had been paid for property a large part of which went to the promoters; Capel v. Sims, etc., Co., 58 L. T. Rep. 1888; that steam could be used where only horse power was allowed; Peek v. Deny, 59 L. T. Rep. 78; that the objects of the enterprise set forth in the contract of subscription were of a certain nature, the subscriber not being able to read the contract; West v. Crawfordsville & A. T. Co., 19 Ind. 242.

2 Edgington v. Fitzmaurice, L. R. 29 Ch. D. 459; Nicolls' Case, 3 De G. & J. 429.

3 Where a law authorizes a county to take stock in a railroad company which subscribed for shares on the supposition that individual subscriptions had been already obtained which was not in fact the case, the bonds of the county issued and given in payment. were ordered to be returned and cancelled. Mercer Co. v. Pittsburgh, etc., R. R. Co., 27 Pa. St. 389.

§ 574. Must have been the inducement for the contract. — False expressions of opinion as to matters equally within the knowledge of both parties, for instance, in regard to the time required to do a given thing, mere matters of speculation, as of the value of stock or the future prospects of the corporate enterprise, or the advantage of the connection and interest of persons of financial ability and influence, will seldom entitle a party to whom they were made to a cancellation of a contract. In such matters, one person is presumed to be as capable of forming an opinion as another, and it will be presumed that they were not the inducement, or if so, each party attached to them his own independent measure of importance. importance. As where it is represented falsely that certain of the subscribers, neighbors and friends had agreed to take stock,' that a road will be built and equipped in a certain way, the statement being made by the soliciting agent, or as to future purposes and prospects. But a false statement as to the amount of bonds previously issued by the company, is ground for avoiding a subscription thereby induced.+

3

The party must have been imposed upon in matters wherein it was negligence on his part not to have informed himself; for the law will not in this matter, any more than in any other, save a party from his own want of diligence.5

1 Haskell v. Worthington, 94 Mo. 560; 7 S. W. 481.

2 Bell v. A. P. & L. R. Co., 76 Ga. 754.

3 Armstrong v. Karshner (Ohio), 24 N. E. 897.

+ Weems v. F. M. & G. R. Co. (Ga.), 11 S. E. 503; Oregon Cent. R. R. Co. v. Scoggin, 3 Oregon, 161; Schæffer v. Missouri Home Ins. Co., 46 Mo. 248; Hughes v. Antietam Mfg. Co., 34 Md. 316.

5 French v. Fitch, 67 Mich. 492; 35 N. W. 258; Hallows v. Fernie, L. R. 3 Ch. 477; Jennings v. Broughton, 22 L. J. Ch. 585. A representation that the profits of a building and loan association would be shared equally by all the members cannot be held untruthful where it appears that all the profits of a particular series of stock were accumulated until that series became par, when all stockholders in that series were entitled to the par value of their stock, bor

§ 575. Must have been made by party having at least apparent authority to make them.-The fraudulent representations must have been made by an agent who had authority, or at least apparent authority, to transact the particular business in the transaction of which they were made.1 It has been held, accordingly, that commissioners appointed under a statute to obtain subscriptions have no authority to make any representations, except as to the powers expressly conferred upon them, and that their fraudulent representations as to other matters furnish no ground for releasing one who has thereby been induced to take stock in the contemplated enterprise.2

But if the directors or managers of a company issue a prospectus containing false statements in regard to the financial condition and affairs of the company, it is bound by them, for their position implies thorough and peculiar knowledge of these matters and general authority to represent it. And the company is bound for

rowers being credited with such amount, and others being paid cash. Winget v. Quincy Bldg. & Homestead Ass'n, 128 Ill. 67; 21 N. E. 12.

Upon a purchase of shares of stock in an association which was in legal effect merely a partnership, the vendor represented that the association was an incorporated company. Held, that such a representation, although untrue in fact, was not a misrepresentation of matters of substance, in the absence of any inquiries on the part of the purchaser concerning the character of the corporation, and was not a sufficient ground for decreeing a rescission of the purchase. Curtiss v. Hurd, 30 F. 729.

1 Custer v. Titusville Gas Co., 63 Pa. St. 381; First Nat. B'k v. Hurford, 29 Ia. 579; Goodrich v. Reynolds, 31 Ill. 490; Ayres' Case, 25 Beavan, 513; Nichols, Case, 3 De G. & J. 387; Western B'k v. Addie, L. R. 1 H. R. Sc. 145; Smith v. Tallahassee P. R. Co., 30 Ala. 650; Rives v. Montgomery, etc., P. R. Co., 30 Ala. 92.

2 Rutz v. Esler, etc., Mfg. Co., 3 Bradw. 83.

And in another case where the law agent of the company had made false representations in regard to its financial condition, by which a party was induced to subscribe, it was held that inasmuch as the making them was wholly outside the agent's authority, the purchaser had no right to rely upon them and was bound by his subscription. Burns v. Pennell, 2 H. L. Cas. 497.

3 Ayres Case, 25 Beav. 513; Smith v. Reese River Co., L. R. 2 Eq. 264; Ex parte Worth, 4 Dr. 529.