Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/98

 § 104.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VI. When pro- moters lia- ble to sub- cribers for deposits. scriber can bring an action in law for deceit, 1 and may have a right in equity to have his subscription cancelled, 2 provided by such cancellation the rights of other and innocent persons are not infringed. Promoters may also be responsible to sub- scribers for the misrepresentations of their fellow-promoters, if the relationship of agency or partnership existed between the promoters ; or if they had acted in a way to justify subscribers in inferring the existence between them of either of these rela- tionships. 3 § 104. That, upon the failure of the scheme of incorporation, subscribers may recover back from the promoters de- posits paid on subscribing for shares in the contem- plated corporation, is a proposition which is not always true. In such a case the rights of the sub- scriber who has paid the deposit depend on the intention and meaning of the parties to the scheme, as expressed in the sub- scription-agreement and viewed in the light of surrounding circumstances. 4 If, judging of the matter in this way, it ap- pears to have been the intention that the deposits should be applied to the furtherance of the scheme, then, although the scheme proved abortive, the moneys will have been applied to the purpose for which they were presumably destined ; 5 and the subscribers can recover back only such moneys as either have not been expended and so remain in the hands of the promoters, or such as have been spent by the promoters after all reasonable hope for the success of the undertaking had passed away, and under such circumstances as to imply wilful mismanagement or fraud on their part. 6 But fraud on the part of the promoters 1 Paddock v. Fletcher, 42 Vt. 389; Gerhard v. Bates, 2 El. & B. 476. See Twycross v. Grant, 2 C. P. Div. 469. 2 Kent v. Freehold Land Co., L. R. 4 Eq. 588. An innocent misrepre- sentation, in order to release the sub- scriber, must extend to the funda- mental nature of the enterprise. Kennedy v. Panama, etc., Mail Co., L. R. 2 Q. B. 580. False statements in the prospectus issued by promoters release the subscriber. Metr. C. Crs' Ass'n in re, [1892] 3 Ch. 1; Land Co. v. Haupt, 90 Va. 533. 78 3 Hornblower v. Crandall, 7 Mo. App. 220; afFd 78 Mo. 581. For the liability of promoters for false state- ments iu the prospectus, see § 77 and note. 4 See Moore v. Garwood, 4 Ex. 681. 6 Garwood v. Ede, 1 Ex. 264; Clements v. Todd, 1 Ex. 286; Jones v. Harrison, 2 Ex. 52; Willey v. Par- ratt, 3 Ex. 209. e Watts y. Salter, 10 C. B. 477. See Ship v. Crosskill, L. R. 10 Eq. 73; and compare Vane v. Cobbold, 1 Ex. 798; Watson v. Charlemont, 10 Q. B. 856.