Case Name: Cross, Plaintiff and Respondent, v. Sackett, et. al., Defendants and Appellants; Ward, Plaintiff and Respondent, v. The same Defendants and Appellants
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1858-03-27
Citations: 2 Bosw. 617
Docket Number: 
Parties: Cross, Plaintiff and Respondent, v. Sackett, et. al., Defendants and Appellants. Ward, Plaintiff and Respondent, v. The same Defendants and Appellants.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 15
Pages: 617–660

Head Matter:
Cross, Plaintiff and Respondent, v. Sackett, et. al., Defendants and Appellants. Ward, Plaintiff and Respondent, v. The same Defendants and Appellants.
1. When, in an action of tort for a false and fraudulent representation, the complaint avers, that the defendants, by means which it minutely details, were “ fraudulently and illegally intending, and contriving to dispose of” property, (which purported to be shares of the capital stock of a company duly incorporated, and called “ The Gold Hill Mining Company,”) “ at a false and fictitious value, for their own benefit, as individuals; and to cause it to be generally believed, that the said company possessed capital, or had property to the amount of one million of dollars in all. . . “ and that shares or interests in said capital were of great value, and a means of profitable traffic and of safe investment; and that, “by means of the aforesaid false and fraudulent acts, practices, deceits, statements, and representations of the said defendants, it had come to be generally believed in the City of Hew York, and was believed by the plaintiff, that the said Gold Hill Mining Company was, in fact, possessed of property of at least one million of dollars in value; and that shares and interests in such capital were of the value of, at least, five dollars per share, (the par value of each share,) and that the said company had, since the organization thereof, earned, over and above its expenses, at least, the sum of $50,000;” . . . "and so believing, and on the faith and credit of the aforesaid false and fraudulent acts, practices, and representations of the said defendants; of the falsity and fraud whereof the said plaintiff was ignorant; the said plaintiff did, on the 14th of April, 1854,” purchase certificates of said stock, to the extent of 1000 shares, and paid $3500 therefor, and that the interest acquired by the plaintiff thereby, was worthless; and “ that by means of said ihlse, fraudulent, and deceptive acts, practices, and representations of the said defendants, the said plaintiff has sustained damage to the amount of $6000, for which sum, with the costs of this action, he demands judgment.” Such a complaint is, in substance, a good and sufficient pleading, although it does not allege, that the plaintiff purchased of the defendants, or by reason of any immediate communication between him and them, in relation to such purchase.
2. There is, in substance, no difference between an averment, that by means of certain specified frauds of the defendants, (which are charged to have been practiced with intent to defraud the public generally,) the plaintiff was induced to make, and did make, a particular purchase; and an averment, that the defendants, by means of the same frauds, induced the plaintiff to make such purchase.
3. The averment, in either form, connects the fraud and damage as cause and effect, with sufficient certainty, to comply with all the essentials of a complaint good in substance.
4. -What evidence will be sufficient to warrant the conclusion, that th-e defendants intended, by the means charged, and did, in fact, thereby fraudulently induce the plaintiff to purchase a thousand shares of such stock, is a question which does not arise on a demurrer to the complaint.
5. The fraud of the defendants and the injury to the plaintiff being, by the complaint, clearly connected, as cause and effect, and as the demurrer admits all the material allegations of the complaint to be true, it follows, that on a demurrer to such a complaint, the plaintiff is entitled to judgment.
“ There is no wrong or fraud which the directors of a joint-stock company, incorporated or otherwise, can commit, which cannot be redressed by appropriate and adequate remedies.” (Per Hofeman, J.)
" When a party projects, and publicly promulgates the scheme -of'a joint-stock company; when he causes the usual books to be opened, and allows, or causes the inscription of the name of a person as an owner of an interest to a definite amount and value therein, which is false within his own knowledge; when he embodies such false statements in a certificate of this right, directly issued, and of the same effect as if signed by himself; when he accompanies that certificate by a written power, authorizing a transfer at large by the party to whom he has given the certificate; when that representation induces an innocent person to advance his money;—the defendant’s own individual act has created the privity of contract which the cases referred to, (in the Opinion of Hoffman, J.,) appear to demand ; and he must be held responsible to any one who has been deceived.” (Per Hoffman, J.)
(Before Bosworth, Hoffman, Slosson, Woodruff and Pierrepont, J. J.)
Heard, February 27 ;
decided, March 27, 1858.
These two actions come before the Court, on an appeal by the defendants in each action, from an order made therein, overruling their demurrer to the plaintiff’s complaint. The order, in each action, was made at a Special Term held by Mr. Justice Duer, on the 27th of April, 1857.
The two appeals were argued together. The allegations in the complaint of Ward, are the same in substance, and are generally in the same words, as those in the complaint of Cross, excepting the difference in the name of the plaintiff as purchaser, and the dates and amounts of his purchases.
The defendants in each action, are Amos M. Sackett, Moses L. Holmes, John D. Maxwell, Henry W. Belcher, Franklin Osgood, Samuel Smith, Isaac H. Smith, and Nathaniel H. Wolfe.
The complaint of Cross alleges, that on the 13th of August, 1853, the defendant Holmes entered into a written agreement as the party of the first part thereto, with all the other defendants, except Wolfe and I. H. Smith, as the parties of the second part; and that it was delivered and accepted, and sets forth a copy of it, and avers, that no schedules were in fact attached to it.
By the terms of that agreement, Holmes “ doth sell” to the said parties of the second part, “ all the estates, mines, fixtures, and property described and set forth in the annexed schedule;” and said parties of the second part “ agree to pay said Holmes, on receipt to them or their assigns, of the leases described in said annexed schedule, and delivering of the personal property therein mentioned,” $60,000; and on the 20th of September, 1853, “ upon receipt of deeds of all the estates mentioned in said schedule” conveying a perfect title thereto (save incumbrances thereon, to the amount of $125,000, to be created by Holmes in favor of, and be made payable to the original owners in four and six months, which the said parties of the second part were to assume and pay) to deliver forthwith to Holmes 30,000 “shares of the stock of The Gold Hill Mining Company, (a company to be formed on the basis of the property hereinbefore mentioned,) which property is to be divided and represented by” 200,000 shares, par value five dollars; 50,000 “of which is to be reserved by the new company as a capital, and to provide for the payment of the $125,000 due, as before stated.”
The complaint then avers, “ that on or about, and not later than the 31st of August, 1853,” all the parties named in the aforesaid agreement “ made and signed an instrument in writing, (with no schedules attached thereto,) in these words, namely;” and sets forth a copy of it.
By its terms, in consideration of 60,000 shares of the stock of The Gold Hull Mining Company, the receipt of which it acknowledges, and the further number of 90,000 additional shares to be delivered on or before the 20th of September, 1853, they “ assign and make over to the said Gold Hill Mining Company the annexed obligation and contract of Moses L. Holmes,” and agree to pay him all sums which by said contract they had stipulated to pay him, “ excepting the $125,000 which is allowed to encumber the property before mentioned in said schedule annexed.” They also thereby further agree to pay and deliver to Holmes the 30,00Q shares of the said company’s stock, “ therein stated to be due to him,” and authorize the company “ to do in the premises all acts or things” which they could do, had they not assigned the said contract.
The complaint then proceeds thus:—
“ But the plaintiff alleges, that at the time of the making and signing of the said instrument, there was not in existence any body corporate, or other association existing under the name of The Gold Hill Mining Company, other than as is next hereinafter stated, and, therefore, the plaintiff alleges and charges that the said instrument last above set forth was inoperative and void, and intended only to cover the fraudulent and illegal designs of the defendants hereinafter stated.
“ That on the same thirty-first day of August, all the said defendants in this action, not being members of, nor composing any body corporate by the name of The Gold Hill Mining Company, jointly used and assumed the name of The Gold Hill Mining Company, and professing to act as a body corporate duly created and existing, did, at a meeting in the City of New York, at which they were all present, jointly assent to, and adopt a resolution in these words, namely:—
‘ Resolved, That the Gold Hill Mining Company will accept the proposition made to them by A. M. Sackett and others, purchasers of the Gold Hill mines, per contract of Moses L. Holmes, for the sale of the same to the Gold Hill Mining Company, and pay said A. M. Sackett and others, as therein demanded.’
“ That on the first day of September, in the same year, the defendant, Moses L. Holmes, made and signed an instrument in writing, of which, and the whole of which, the following is a copy;—
'1 do this day agree to sell and convey to the Gold Hill Mining Company, the following property, to wit:’
(This agreement is copied at length into the complaint, and contains twelve several specifications or descriptions of property, embracing the fee of several parcels of land, comprising in all, between 500 and 600 acres; leases of various other parcels of land, steam engines, pumps, Chilian mills, smiths’ shops, tools, horses, feed, rock-troves, whims, etc., etc., the location of which is not stated, except that one tract of eighty-eight acres is described as being 1 one mile north-east of Gold Hill.’)
The complaint then avers, “ that the actual value of the property in said instruments mentioned, did not exceed the sum of $875,000 when wholly unincumbered, and over the incumbrances thereon, did not exceed the sum of $250,000; and that a large portion thereof consisted only of leases or a right to use certain lands for a limited time for mining purposes.
“ That notwithstanding the said pretended contracts, the said defendants have never acquired the title to the lands therein mentioned, nor any part thereof, as an association, or corporation, or otherwise, and that the title to said lands then was, and now is, in some person unknown to the plaintiff, as trustee thereof, who holds the same as security for the payment of the incumbrances thereon.
“ That on the same first day of September, the said defendants in this action, not being members of, nor composing any body corporate, nor being otherwise authorized by law, fraudulently and illegally contriving and intending to cause it to be generally believed that they constituted a body politic and corporate, duly created and existing, and thereby to make great gains and unlawful profits in the carrying out of the said pretended contracts, and the disposal of said property, and jointly assuming the name of The Gold Hill Mining Company, did, without authority of law, fraudulently design, engrave, and print, and mutually deliver to each other certain papers, commonly called certificates of stock, to the purport and effect that the said The Gold Hill Mining Company was a corporation organized under the general law of the State of Hew York (meaning an act of the legislature of the State of Hew York, entitled “an act to authorize the formation of corporations for mining, mechanical, and chemical purposes,” passed Feb. 17,1848, and the several acts amendatory thereof); that the capital of such company consisted of 200,000 shares of $5 each, and that the respective parties in such certificates mentioned, were respectively entitled to some interest in said capital stock; but not stating or purporting that such stock consisted of property purchased by said company, or that said certificates were issued in payment for such property; that one such certificate, purporting and stating that the said Amos M. Saclcett was interested in said pretended capital, to the extent of 6000 shares thereof, was issued and delivered to, and received by the defendant, Amos M. Saekett;” that a like certificate for 6000 shares was so issued to, and received by said Henry W. Belcher; that a like certificate for 12,000 shares, was so issued to, and received by said Moses L. Holmes; that a like certificate for 6000 shares was so issued to, and received by said John D. Maxwell; that four other like certificates for 10,000 shares in the aggregate were so issued to, and received by said Samuel Smith; and that a like certificate for 15,000 shares was so issued to, and received by said Franklin Osgood.
The complaint then proceeds as follows: “ That in fact the said certificates, and each and every of the same, were false, fraudulent, and deceptive; inasmuch as there was no association or body corporate, organized or created under the general law aforesaid, by the name of The Gold Hill Mining Company, and inasmuch as the said The Gold Hill Mining Company had not, in fact, any capital consisting as in said certificate stated, nor any other capital; and the said persons, in said certificates respectively mentioned, had not the respective interests in any such capital as are in such certificates respectively stated and averred; and inasmuch as the said property pretended to be purchased as aforesaid, was of no greater value to said corporation than the sum of $250, 000, and was incapable of being divided into 60,000 shares, of $5 each, being the number of shares thereof falsely purporting to be represented by said certificates of stock; all which matters above stated, the said defendants in this action then well knew. That on or about, and not before, the third day of September, in the same year, the said defendants, Moses L. Holmes, Samuel Smith, and Franklin Osgood, caused to be filed in the office of the Clerk of the City and County of New York, a certificate duly acknowledged by them on the 31st day of August, 1853, of which, and of the whole of which, a copy follows in these words:
1 The subscribers, being desirous to become a body corporate in fact and in name, under, and in accordance with the law of the State of New York, passed February 7, 1848, entitled an Act to authorize the formation of corporations for manufacturing, mining, mechanical, and chemical purposes, as amended June 7, 1853, do hereby make, sign, and acknowledge this certificate as and for our certificate of incorporation, as required by section 1 of the aforesaid act.
‘ The corporate name of this company shall be The G-old Hill Mining Company.
1 The object for which the company shall be formed shall be for mining and manufacturing purposes. The amount of the capital stock shall be one million dollars.
1 The term of the company’s existence shall be twenty-five years. The number of shares of which the stock shall consist shall be two hundred thousand.
1 The number and names of the trustees who shall manage the affairs of the company the first year, or until others are duly elected, shall be as follows: Henry W. Belcher, A. M. Sackett, Moses L. Holmes, Samuel Smith, Isaac H. Smith, Nathaniel H. Wolfe, and Franklin Osgood.
1 The operations of the company shall be carried on in the City, County, and State of New York, and in Rowan-County, in the State of North Carolina. 1 Samuel Smith,
‘New York, August 30,1853. ‘ Franklin Osgood,
‘ M. L. Holmes.’
“ Whereby, as the said plaintiff is advised and believes, the said defendants, Samuel Smith, Franklin Osgood, and Moses L. Holmes, did become, on the said third day of September, and not before, in fact and in name, a body corporate, and as such entitled then to use, for the first time, the aforesaid name of ‘ The Gold Hill Mining Company and that immediately thereafter the others of said defendants in this action became, and were, associated with them in the management, direction, and control of the affairs and business of said corporation, and assisted at, and joined in, the commission of the several fraudulent acts and representations hereinafter set forth.
“ That no payment whatever in cash to the capital stock of said corporation was made, or subscribed for, or promised, or agreed to be made or subscribed for by any person or persons whomsoever ; that the only cash ever received by the defendants or by said corporation, by way of contribution to the capital of said corporation, consisted in the sums hereinafter alleged to have been received upon the fraudulent issue of certificates of stock, and that no conveyance of the said lands above mentioned was ever made by said defendants, or by any other person, to said corporation ; but that the said defendants, well knowing the premises, but fraudulently and illegally intending and contriving to dispose of the said property at a false and fictitious value, for their own benefit as individuals, and to cause it to be generally believed that the said company possessed capital, or had property to the amount of one million dollars in all, and that the several parties in said certificates, named as aforesaid, had contributed, in cash, to the capital of said company the sum of three hundred thousand dollars in all, did authorize, direct, and assist the said Amos M. Saekett, John D. Maxwell, Franklin Osgood, Samuel Smith, Moses L. Holmes, and Henry W. Belcher to hold said certificates, and the pretended shares falsely purporting to be represented thereby, as a payment for said property under color of a pretended sale thereof to said corporation, and upon no other consideration whatever, and for their own sole benefit as individuals, and as being true in fact, and as truly representing the extent and value of the respective interests of the said parties in the said pretended property of said company; and the said Amos M. Saekett, John D. Maxwell, Moses L. Holmes, Franklin Osgood, and Henry W. Belcher
did thereupon, by and with, the knowledge, consent, and assistance of others of the said defendants, fraudulently put in circulation, sell, pledge, and dispose of the certificates so fraudulently issued and delivered to them as aforesaid, and the pretended shares and interests purporting to be represented thereby, to sundry persons whom the said plaintiff is unable more particularly to specify, but who, as he charges, are well known to the said defendants, and that for their own sole benefit, and' without paying to said corporation therefor any sum of money whatsoever.
“ That the said defendants,.fraudulently and illegally intending and contriving, as aforesaid, and also contriving and intending to cause it to be believed that the said Samuel Smith had contributed, in cash, to the capital of said corporation the further sum of twenty thousand dollars, did also, in the name of said corporation, and under color of its corporate character and privileges, but in violation of its corporate rights and duties, but under color of the pretended obligation-of said pretended contracts, and upon no other consideration whatever, fraudulently and illegally make and deliver to the said Samuel Smith, for his own use, on or about the ninth day of September, eighteen hundred and fifty-three, one other certificate of stock, purporting and representing that said corporation was duly organized under said general law, and that the capital thereof consisted of two hundred thousand shares, five dollars each, and that the said Samuel Smith was interested in such pretended capital stock, to the extent of four thousand shares thereof, and not purporting or stating that said certificate was issued for property purchased by said corporation; which last-mentioned certificate was sold, pledged, or otherwise disposed of by the said Samuel Smith, for his own sole use and benefit, and without the payment, to said company therefor, of any sum of money whatsoever.”
(Then follow allegations similar in all respects to the last preceding ones, as to the issuing and delivering to the said.Amos M. Sackett, Henry W. Belcher, Moses L. Holmes, Franklin Osgood, John D. Maxwell, and Samuel Smith, of sundry other certificates of shares of said stock, amounting in all to eighty-six thousand shares.)
The complaint then proceeds as follows:—■
“ Which last-mentioned certificates and the pretended shares or interests purporting to be represented thereby, were delivered to and sold, pledged, and otherwise disposed of by the last-mentioned defendants for their own benefit, and without paying to said corporation therefor any sum of money whatsoever. That, on or about the seventh day of September, aforesaid, the said defendants, illegally contriving and intending as aforesaid, and further contriving and intending to cause it to be believed that the said corporation had received as a cash payment towards its capital, the sum of twenty-five hundred dollars, illegally and fraudulently made and issued to one Francis Skiddy, for his own use, a certain other certificate not issued in lieu of any certificate theretofore issued, purporting and representing, that the said Francis Skiddy was interested in the said pretended capital stock, to the extent of five hundred shares thereof, and that such capital consisted of two hundred thousand shares, five dollars each; .but the plaintiff alleges, that the only consideration or value received by the defendants or paid into the capital of said company, on the issue of said, certificate, was the sum of twelve hundred and fifty dollars.”
(Here follow allegations, in like terms, as to the issuing, on the 28th of January, 1854, $o John Peters, of certificate No. 664, for 2000 shares; to E. Sprague, of certificate No. 665, for 1000 shares; to J. C. Beach, of certificate No. 666, for 1000 shares; to James Lees, of certificate No. 667, for 1500 shares; to Francis Skiddy, another certificate, No. 668, for 500 shares; to J. B. Thompson, of certificate No. 669, for 1700 shares; to Amos M. Saekett, of certificate No. 670, for 300 shares; to R. W. Trundy, of certificate No. 671, for 500 shares; to Rufus Story, certificate No. 672, for 300 shares; and on the 9th of February, 1854, to Silas Ludlum, certificate No. 701, for 100 shares; to J. D. Fish, certificate No. 702, for 100 shares; and on the 18th of February, 1854, to Thomas Burridge, certificate No. 726, for 100 shares.)
. The complaint then proceeds thus:—
“ Whereas, in truth, and in fact, and the defendants well knew, that no one of the said parties named in said certificates issued on the said twenty-eighth day of January, and on the ninth and eighteenth days of February, 1854, had paid, or promised, or agreed to pay, in cash, or otherwise, into the capital of said cor poration, more than the sum of three dollars for each share of said pretended capital, purporting to be represented by said certificates respectively; and each of said certificates was an original certificate, not issued in lieu of any other certificate theretofore • issued, and then surrendered; and each of said certificates stated, and represented, that the said, ‘ The Gold Hill Minipg Company’ had been duly organized under said general law, with, a capital of two hundred thousand shares, at five dollars each.
“And the plaintiff alleges that no certificates-of stock were issued by the said defendants, prior to the 14th day of April, 1854, upon any other consideration to them, or said company, or for any other stock than as is above stated, nor, except the surrender of some of the said certificates.
“And the plaintiff further shows, that it is the usage and custom of corporations organized under the said general law, and doing business in the City of New York, to attach to, or endorse upon certificates of stock issued by them, a skeleton form of a power of attorney, for the purpose of enabling the persons to whom such certificates are issued, and their successors in interest, to transfer the same, and the interest and share of such persons, and their successors, respectively, in the capital stock of such companies, with facility, and without entering every such transfer upon the books of such companies, or otherwise notifying such companies of such transfers; and that it is also the usage and custom of persons to whom such certificates are issued, and who are named in the body of such certificates, to execute such form of power of attorney in due form, but without inserting therein the name of any attorney, or any transferee; but upon transfer of such share and interest, to deliver the original certificate received by such person or persons to the transferee or successor in interest of such person, with such skeleton form, executed as aforesaid, and with authority to insert, in such form, the name of such attorney and transferee, as such transferee himself may designate; by means of which usage and custom, shares and interests in corporations created by virtue of said law, are sold, pledged, and otherwise disposed of, from hand to hand, with great facility, and, for that reason, are much sought after, for the purposes of lawful traffic and investment, and have an enhanced value: that the said defendants, at the several times of issuing and delivering the said certificates, as aforesaid, well knew the said usage and custom, and caused to be appended to each of said certificates a skeleton power of attorney, in the words following, namely: 1 Know all men by these presents, that do hereby appoint attorney irrevocable for
to sell and transfer to the whole, or
any .part of the above-named shares, with power, one or more attorneys under to appoint for that purpose. Witness
hand and seal, this day of 18 . In
presence of:’ and that in so issuing and delivering the said certificates, with'such forms attached, the said defendants knew, and intended that such certificates, and the shares or interests purporting to be represented or evidenced thereby, would become, and be easily current and negotiable as evidences of property, and subjects of traffic from hand to hand, without inquiry, or opportunity to examine the books or affairs of the said ‘ The Cold Hill Mining Company.’
“And further, the plaintiff alleges that the said defendants, well knowing the premises, and fraudulently and illegally contriving and intending to give a fictitious value to the said certificates, and to cause it to be generally believed that they possessed the said capital of one million dollars, and that shares or interests in' said capital were of great value, and a means of profitable traffic, and of safe investment, did, from time to time, publish and declare, in newspapers published in said City of Kew York, that the persons interested in said capital were entitled to dividends of money out of the profits of said company’s business, and, in particular,-on the second day of Kovember, eighteen hundred and fifty-three, did cause it to be notified and announced to the public at large, that the directors of said company had, on the said day, declared a dividend of two per cent, from the business of the first two months, ending on the twelfth day of said Kovember, which dividend was payable on the twenty-fifth day of the same month; and, in accordance with such notification, did, on the twenty-sixth day of Kovember, eighteen hundred and fifty-three, pay, in cash, to sundry persons interested in said stock, as a pretended dividend out of the earnings of said company, the sum of fifteen thousand and fifty dollars; whereas, in truth, and in fact, the defendants well knew, and so the plaintiff alleges, that the said company had not earned or received, as profits, the said sum, so paid out for dividends on its business, during the said two months.
“And, further, that on or about the fourth day of January, eighteen hundred and fifty-four, the said defendants, illegally and fraudulently intending, and contriving, as aforesaid, did cause it to be publicly notified and announced in the City of New York, that the diréctors of the said company had declared a dividend of two per cent, from the business of the two months, ending on the twelfth day of said month of January, and payable on the first day of February then next; and, in accordance with such notification, did, on or about the said first day of February, eighteen hundred and fifty-four, pay, in cash, to sundry persons interested in said stock, as a.pretended dividend out of the earnings of said company, the sum of fifteen thousand and fifty dollars ; whereas, in truth, and in fact, the defendants well knew, and so the plaintiff alleges, that the said company had not earned, or received, as profits on its business during the said two months, the said sum so paid out; and a large part of the said sum was, in fact, paid out of the capital stock thereof, or by the use of money borrowed for that purpose: that, on or about the twenty-second day of March, eighteen hundred and fifty-four, the said defendants caused it to be notified and announced to the public at large, that the directors of said company had, on th^t day, declared a dividend of two per cent, from the business of the two months ending on the twelfth day of said month, and payable on the first day of April then next; and, in accordance with such notification, did, on the said'first day of April, pay, in cash, to sundry persons interested in said stock, the sum of fifteen thousand nine hundred and sixty dollars, as a pretended dividend out of the earnings of said company; whereas, the defendants well knew, and, so the plaintiff alleges, that, in fact, the said company had not earned, or received, as profits on its business, the said sum so paid out; and a large part of the said sum was paid out of the capital of said company, or out of money borrowed for that purpose.
“ And the plaintiff further shows, that on the fourteenth day of April, 1854, by means of the aforesaid false and fraudulent acts, practices, statements, and representations of the said defendants, it had come to be generally believed in the City of Kew York, and was believed by the plaintiff, that the said 1 The Gold Hill Mining Company’ was in fact possessed of property of at least one million dollars in value, and that shares and interests in such capital were of the value of at least five dollars per share, and that the said company had, since the organization thereof, earned over and above its expenses at least the sum of fifty thousand dollars; and the said certificates, so issued by the said defendants as aforesaid, or other certificates of like tenor and effect, which had been issued by the defendants upon the surrender to them of some of the said original certificates, were, with such skeleton powers of attorney as aforesaid, in circulation and in course of sale, pledge, and other disposition, in the City of Kew York, and were believed by the public generally, and by the plaintiff in particular, to be true and genuine evidences or representatives of actual interests in an existing capital to the amount of one million of dollars; and, so believing, and on the faith and credit of the aforesaid false and fraudulent acts, practices, and representations of the said defendants, of the 'falsity and fraud whereof the said plaintiff was ignorant, the said plaintiff did, on the aforesaid 14th day of April, 1854, purchase of one Richard Schell, then being the holder of one of the aforesaid original or substituted certificates, an interest in the said capital stock to the extent of one thousand shares thereof, and paid therefor the sum of thirty-five hundred dollars, which the said plaintiff then verily believed to be less than the actual value of the interest so purchased by him, and received from said Schell the said certificate so held by him, with such power of attorney in blank, but duly signed, and executed, and thereto attached; which certificate the plaintiff thereupon surrendered to the said ‘ The Gold Hill Mining Company,’ and received from the defendants in lieu thereof as a true and genuine evidence and representative of the plaintiff’s supposed interest in said pretended capital, one other certificate numbered 856, dated April 14, 1854, purporting and representing that the said ‘ The Gold Hill Mining Company’ was duly organized as aforesaid, with a capital of two hundred thousand shares, five dollars each, and that said plaintiff was interested in such pretended capital to the extent of one thousand shares thereof, and the said defendants transferred one thousand shares of said capital to the plaintiff, whereas, in fact, the said statements and representations contained in said certificate held by said Schell were false, fraudulent, and deceptive, and neither said Schell nor his predecessor in interest had contributed to the capital of said company the sum of five thousand dollars, either in cash or other property, and the interest supposed and pretended to have been acquired by the plaintiff was in fact worthless. That, by means of said false, fraudulent, and deceptive acts, practices, and representations of "the said defendants, the said plaintiff has sustained damage to the amount of six thousand dollars, for which sum, with the costs of this action, he demands judgment.”
The defendants, in each action, demurred to the complaint, on the ground that it did not state facts sufficient too constitute a cause of action. The demurrer stated, in nine several specifications, the defects imputed to the complaint, and relied upon as rendering it insufficient as a pleading. These defects are included among those assigned in the points of the appellants, as grounds, for reversing the orders appealed from.
The demurrers, having been overruled at Special Term, from the orders overruling them the present appeals were made.
Platt, Gerard and Buckley, and C. O'Conor, for defendants, the appellants.
I. If the defendants obtained stock from the company without paying for it, or violated good faith, or committed a breach of trust in their dealings with the company, or in their sales to the company, the remedy is an action by the company, in its corporate name and capacity. If they unlawfully misapplied any funds of the company in the payment of dividends not properly declared, a similar action is the appropriate remedy. (Robinson v. Smith, 3d Paige, 232.)
II. The only way in which an individual stock-holder can invoke the aid of a court, in reference to injuries thus affecting the interests of a corporation, is by an action on behalf of himself, and all other injured stock-holders, charging the present officers or managers of the company with complicity in the wrong, or showing their refusal or neglect to redress it by suit. Such an action would necessarily seek an account, and the corporation itself would be a necessary party to it. The complaint now before the Court does not contain the essentials of such a case. 1. Such a case would come under the head of equity, and would be triable by the Court. 2. It would require a very special judgment rectifying, in conformity with the calls of justice, all the complicated mischiefs which such a state of things necessarily induces. These mischiefs usually affect the various persons connected with the company in very different degrees: 3. The present is a simple, common law action for damages to a particular individual for an alleged injury. Nothing but his pecuniary claim to compensation for his own supposed individual loss and injury is presented, and the action is consequently triable by jury. (Robinson v. Smith, 3 Paige, 233. Cunningham v. Pell, 5 Paige, 612.) Laying out of view all the objections which might be made for indefmiteness and vagueness of statement, and also every objection for the want of any particular allegation which could be supplied, the complaint may be treated as intending to charge, that the defendants fraudulently got up a mere bubble corporation, employed puffers to give its stock a high character by maps, pictures, writings, and speeches; that they were thereby enabled to palm off worthless shares upon Richard Schell, or some of his predecessors, in the line of purchase; and that, whilst the public mind remained under the influence of a delusion thus created, the plaintiff, participating in the general opinion, purchased from Schell. Such a state of facts would not entitle the plaintiff to maintain an action. 1. Such bubbles are not novelties in trade, legislation, or juridical science. They are abundantly exemplified in the histories of France and of England, between the years 1715 and 1722. (Encycl. Britannica, “John Law;” Lempriere’s Biography, “John Law;” 3d Encycl. Britannica, 746, Edinburgh ed., 1797, Article “Bubbles;” Westminster Review, vol. 46, p. 36.) 2. The pretence of these schemes was “ for carrying on some useful branch of. trade, manufacture, machinery, or the like. To this end, proposals were made out, showing the advantages to be derived from the undertaking, and inviting persons to be engaged in it. The sums necessary to manage the affair, together with the profit expected from it, were divided into shares, or subscriptions, to be purchased by any disposed to adventure therein.” (See same page of Encycl. last cited.) The evil was, that some of the first subscribers sold their “ subscriptions at a great profit, whereby the last buyers were losers.” (7 Cobbett’s English Parliamentary History, 658-9. See same book, p. 651 to 912.) 3. The common law contained no principles which would "make the getter-up of such a company responsible to a remote purchaser with whom he had no dealing, and whose act in purchasing he in no wise directly procured. Consequently, in the South Sea case, the British Parliament, by an arbitrary stretch of power, confiscated the estates of the managers to make good the losses of the company. (Cobbett’s Parl. His., 856, 834, 832; Id., Note to p. 827; 7 Geo. I., ch. 27; 7 Geo. I., ch. 32, second statute.) 4. The practices of the South Sea managers had given rise to an immense multitude of similar schemes, some account of which may be seen in 7 Cobbett’s Parliamentary History, page 655, and onward in a note. (See also note to page 662.) And, because the common law afforded no remedy to the remote purchaser, an Act was passed in 1719, giving an action in such cases. This statute never was in force in this State, nor was any like statute ever adopted here. (7 Stat. at Large, p. 308 sec. 20.) 5. The existence of the statute last referred to, and the total absence of any judicial precedent for the maintenance of a civil action at common law by a remote purchaser in such a case, conclusively establish the negative above asserted at the close of this point. (36 Eng. L. & Eq. R. 273 ; 19 Johns. 226; 18 Vermont, 126.)
III. The cases in which an action was sustained for an injury suffered by one not aimed at by the tort feasor, afford no analogy in support of the notion above combatted in the second point. 1. The Squib case (Scott v. Shepherd, 2 Wm. Bl. 892; 2 Smith’s Leading Cases, 210) involved little else in its discussion than the question of form, whether the action should be case or trespass. In point of principle, it proves no more than that he who sets a destructive physical agent in motion, is responsible to the party who suffers an injury from its action, notwithstanding the intervening agency of other persons in directing or modifying its course. 2. The case of the loaded gun placed in the hands of a young and inexperienced girl (Dixon v. Bell, 5 M. & Selw. 198); the case of a horse and cart negligently left unattended in the highway (Lynch v. IIurdin, 1 Ad. & Ellis, N. S. 29; 5 Car. & P.
190); and the case of the poisonous drug labelled with the name of a simple and harmless medicine (Thomas v. Winchester, 2 Seld. 411), are all exemplifications of the rule that civil responsibility attaches to him, who, having the mastery and control of a destructive physical agent, either wantonly and mischievously, or by neglect, places it or leaves it in such a condition that, in the usual and natural course of things, its action may work an injury to others, and injury, in fact, ensues to their persons or property. Perhaps this principle was never denied in any case; for nothing is decided in any of these cases except the negative of an irrational distinction attempted to be set up, i. e., that the active intervention of a third person necessarily shifted the responsibility to the latter. (1) The main principle of these cases is involved in the old and familiar rule, that he who keeps a dog accustomed to bite mankind, etc., is responsible for all the mischiefs done by him. (Brown v. Giles, 1 C. & Payne, 118, note a; 11 Com. Law R.; Com. Dig. Action on Case for Negligence; A. 5 and notes; 5 C. & Payne, 1, 190; 24 Com. Law.) (2) It was probably involved in the cases arising under the atrocious English practice of setting spring guns, to kill or grievously wound trespassers. These cases were unjustly decided. (Ilott v. Wilks, 3 B. & Ald. 304; 5th Com. Law; Sidney Smith’s Works, 154; Id. Edinburgh Review, for 1821, vol. 35, pp. 123, 410.) (3) The notion which these cases repudiate, is singularly absurd. Every one would say so, if a man were to place a basket of poisoned victuals on the highway, and a poor man having found and given it to his children, one of them should sue the trap-setter for damages. Surely, in Van Bracklin v. Fonda, (12 John. 468,) the plaintiff’s servants, who ate the unwholesome provisions sold by the defendant to their master the plaintiff, had a right of action. (4) Indeed, there is no distinction between the compulsory or unwitting co-operation of a responsible individual, and the agency of inanimate matter, as a gun, etc. And so the Supreme Court held in the case, where a boy, terrified by the axe-in-hand pursuit of the defendant, ran against the faucet of plaintiff’s wine-cask, and, knocking it off, spilt the contents. (Vandenbergh v. Truax, 4 Denio, 464.) (5) Langridge v. Levy, (2 Mee. & W. 519,) was decided against the defendant. It may well be doubted whether the decision should not have been the same way, independently of any contract be tween the gunmaker and the father, that the gun was to be for the use of the son, who was plaintiff. The principle is above adverted to. It may also be doubted, whether the same principle should not have been applied in favor of the plaintiff, in the case of the ill-constructed naphtha lamp. (Longmeid and Wife v. Holliday, 6 Eng. L. & Eq. 565.) (6) The case of the driver’s action against the builder of his master’s stage-coach, seems over the line. To sustain such an action, might be carrying liability for ulterior consequences to an unreasonable and inconvenient length. (Winterbottom v. Wright, 10 M. & W. 109.) 3. The balloon case (Guille v. Swan, 19 John. 383) rests on a principle which has not the remotest relation to the case supposed in Point II. There the defendant was considered as having requested the crowd who caused the damage to do the act from which the damage resulted. (1 Denio, 534; 4 Denio, 467; Com. Dig. Action on Case for misfeasance, A. 7, 9 East. 277. 4. The case of Allen v. Addington, (7 Wend. 9; 11 Wend. 374,) and the case of an open letter of recommendation falsely and fraudulently issued recommending a servant, rest on the distinct ground, that the defendant authorized and intended as against somebody the precise injurious deceit, which was the subject of the action, the actor therein being quoad hoc his agent. But if Allen who sold Baker on Addington’s recommendation had pinned Addington’s recommendatory letter to Baker’s note for the purpose of giving it credit, and on the strength thereof had obtained a discount of the note, the discounting bank could not have sued Addington for fraud. 5. The proposition, that he who commits a deceit upon A, is responsible for every injury which may result to third persons from dealing with A, who in such latter dealing are misled by the instrument which deceived A, has no countenance in the authorities, and would be a most dangerous and mischievous extension of the supposed principle of the Squib case. (1) Gerhard v. Bates, (2 Ellis & Blackburn, 476,) was decided on demurrer, and the declaration contained averments of direct action against the plaintiff by the defendant. (2) The reasoning of the Court in that case, and in the case above cited from 6 Eng. L. & Eq. 565, confirm the proposition in this division 5.
IV. The mere circumstance that an. act is criminal, does not render the perpetrator liable for consequences more remotely re- suiting from the act, than if it was merely wrongful. If Judge' Gardiner intended to affirm the contrary in 2 Selden, 411, he erred. 1. In order to sustain an action for a special injury sustained by reason of a criminal act, the injury “ must not only be peculiar to the plaintiff, but a direct and immediate consequence of the act.” The rule is the same as to wrongful acts not criminal. (18 Ver. R. 126, 3d point.) 2. So far from the criminal nature of the act being an element in aid of a special action on the case, it is, in some sense, an impediment; for where such an act produces a general injury, of the same nature, to the whole people, or to all of a particular class, or to all circumstanced as the plaintiff is, the rule is that no action will lie. And this to prevent multiplicity of suits, and for the very reason that the act is criminal, and is provided, as such, with a remedy appropriate by the law to redressing it, i. e. indictment. (Butler v. Kent, 19 John. 226; Com. Dig. Action B. 2; Id. Action on case for nuisance, C; 18 Vermont R. 125, second point.) (1) The action of the crime itself may create a civil responsibility of the criminal to any one whom it injures. (2) And this, on the same principles as the rule that the action of a destructive agent created and put in a way to do harm, involves like responsibility. (Coleman v. Riches, 29 Law and Eq. R. 323, 326, per Williams, J.) But if A forges a bond and sells it to B, who afterward sells it to C, the latter cannot maintain an action against A, either for the forgery or the sale.
V. That every wrong or injury shall be remediable by action, against anybody and everybody, who, mediately or immediately, by negligence, or any breach of law, or any moral wrong, in any degree contributed to produce it, is a proposition not to be maintained on authority or reason. Ubi jus ibi est remedium cannot receive so free and latitudinarian a translation, even under the Code. (Com. Dig. Action B, 7; Smith v. Lewis, 3 Johns. R. 169; Grove v. Brandenburg, 7 Blackford, 234; Cunningham v. Brown, 18 Vermont, 126; Revis v. Smith, 36 Eng L. and Eq. 273.)
VI. The injury complained of by the defendant, in the aspect of his case, above suggested by the second Point, is, that he did not receive the contemplated' benefit of a bargain. Essentially, and according to the substance of the thing, his claim has its foundation in contract. If B. Schell kept his contract, there could be no injury; and it is a settled rule, that the election of remedies given to a party injured by deceit in a contract, to bring an action sounding in tort, or on the contract, shall not enlarge or vary his right. 1. A sale is a contract executed. (Fletcher v. Peck, 6 Cranch, 136-7; 17 Johns. 215; 11 Peters, 573.) 2. There was, on the part of R. Schell, an implied, if not an express, warranty, that the stock sold was real, and not fictitious, and that it had been paid up in full. (Williams v. Matthews, 3 Cow. 252 ; Herrick v. Whitney, 15 Johns. 240; Furniss v. Ferguson, 15 New York R. 440, 576.) 3. The right to sue in tort, or on the contract, in such cases, is a mere choice of remedies. 4. By adopting a form ex delicto, the plaintiff cannot involve a party who could not have been charged ex contractu. (Jennings v. Rundall, 8 T. R. 357; Green v. Greenbank, 4 Eng. Com. Law R., 375; S. C. 2 Marshall’s R. 485; 1 Southard, 87; 1 Levin, 247; Com. Dig. Action on the case B, 5, last case; Fairhurst v. Liverpool Loan Ass. 26 Eng. L. and Eq. R. 393; Price v. Hewett, 18 Eng. L. and Eq. 524; Vasse v. Smith, 1 Am. Leading Cases, 261, 4th ed.)
VII. In fact, the complaint, rightly understood, contains no allegations of fraud or illegality. 1. The complaint does not show or allege, that the defendants, or the certificates suppressed or concealed any fact which the defendants ought to have disclosed, or the said certificates ought to have contained, or which the plaintiff could not have found out, on the slightest inquiry, at the office of the company. The contents of the certificate delivered to the plaintiff are set forth in the complaint. The theory of the complaint is, that the certificates represented on their faces, that the capital of the company amounted to a million of dollars, and had been paid in cash, and that the defendants, if they are to be the parties who are to be responsible for the issue of them, should have stated that the certificates were issued on the purchase of the property by the company. 2. The answer is, firstly, that the certificate itself does not pretend to state that any money has been paid in; it merely states the number of shares of which the company is composed, and what is the nominal par of those shares; it is a mere statement of what would be found in the certificate of organization ; which the law makes a matter of record, and which the plaintiff could have inspected. (1 R. S. 4th ed. p. 1215, § 19; Id. 1220 § 43; 5 Hill, 303.)
There is no averment of application or inquiry, as to its capital, or basis of formation.
Secondly. The plaintiff misconstrues the certificate; the nature and extent of the interest required by the purchaser thereunder is simply that, as holder, he becomes entitled to the proportion of all the assets of the concern, which the number of his shares bears to the whole amount of shares composing the aggregate capital.
A certificate of stock is a mere designation of the interest of the holder in the corporate fund, and does not purport to give him any money, or representative of money whatever, and the very nature of a mining company repels the idea that the capital consists in money. (Angel & Ames on Corp., §§ 556, 550.)
The term “ capital stock ” does not import or convey the idea of money exclusively; it means, in the eyes of the law, whatever is the basis, for conducting the business of the company. (Mutual Ins. Co. of Buffalo, v. The Supervisors of Erie, 4 Comstock, 445.) And thirdly. We remark that, on the plaintiff’s own showing, all the stock issued to the defendants, and which they were concerned in selling, was issued on the faith of a contract of sale entered into by them with the Gold Hill Company, with the provisions of which the company can, of course, compel them to comply. The purchase was authorized by law, (Laws of 1853, p. 705) in a way in which this was made, and the stock so issued is to be declared and taken to be what the certificate represented—namely, full paid up stock. 3. The declaration of dividends unconnected with any affirmation as to the condition or prospects of the company, is no representation at all. The use of the terms in that connection, fraudulently and illegally contriving, etc., do not import fraud, unless the facts amount to it. The declaration of an unearned dividend makes the parties responsible to the creditors of this concern, but not to its stockholders. There is an end of their liability. The language of the allegations, in reference to the dividends, is very general, and would apply even to a mere clerical or other mistake in the calculation of the profit and loss of the company, even to the. extent of a thousandth part of two per cent, of the dividend declared, as the complaint does not allege that no profit was made, or dividend earned, but only that the exact amount declared was not earned. This might have been the result of mistake, or error in judgment, or valuation in property.
VIII. There is a misjoinder of causes of action; those affecting and relating only to the organization of the company, (with which the defendants, Wolfe and Isaac H. Smith had nothing to do) are united with claims arising subsequent to the organization of the company, when they, for the first time, appeared on the stage. It is plain, that the causes of action in the complaint set forth, from their very nature, cannot affect all the parties to the action, under the provision of section 167 of the Code. (Wells v. Jewett, 11 How. S. T. R. 134.)
IX. The orders appealed‘from should be reversed.
Daniel Lord and F. N. Bangs, for the respondents.
The cause of action and the frame of the complaint, in each case, is based to a large extent on the idea that the defendants have been guilty of misrepresentations and fraud, by which the plaintiff has sustained injury; in other words, the action is in the nature of an action on the case for deceit and conspiracy.
The complaint contains, in substance, every allegation necessary to sustain such an action.
I. The complaint states, and states sufficiently, a loss and injury to the plaintiff. The loss consisted in his parting with money for that which was in fact worthless and of no value. He paid $3500 as the intrinsic value of an interest of a precise and specified extent in a capital of an incorporated company. The money so paid was lost to him, because the interest supposed to be purchased had no intrinsic value, or, if it existed at all, had never existed to the extent specified. This is a sufficient allegation of loss or damage. (See Pontifex v. Bignold, 3 Manning & Granger, 63.)
II. The means by which he was induced to make this purchase were affirmations and assertions made by the defendants respecting, not the value of the property purchased, but a fact upon which its value depended, viz.: its productiveness. The defendants declared, and published to the community at large, that the capital in which an interest was purchased by the plaintiff, had actually produced an income at different times and to different amounts. That these affirmations operated on the plaintiff’s mind as an inducement to his making the purchase, is stated. That they were false, is stated.
III. The complaint sufficiently connects the injury sustained by the plaintiff with the acts of the defendants, when it states, that the acts of the defendants were committed with a fraudulent intent, and induced the plaintiff to do that which was prejudicial to himself.." .
Whether they were actually intended to produce that effect on him in particular, is not material. It is sufficient if there is an intention to defraud, without any selection in the mind of the author of the fraud of any particular victim, or if, intending to injure one, he defrauds another. (Williams v. Wood, 14 Wendell, 130; Addington v. Allen, 11 Wendell, 374.) The complaint sufficiently alleges a fraudulent intent. It alleges, that they intended to get the public at large to believe various things which were not true .—to give a false credit to the certificates which they issued. Then they intended to deceive; for deception consists in inducing an erroneous belief or opinion in respect to a matter of fact. And defrauding, in a legal sense, is inducing another to act to hi's own prejudice by means of deceptive acts, the benefit of the deceiver not being essential to the idea of defrauding. (Merritt v. White, 3 Selden, 355.) And as to the technical form of averring such an intent, see Zabriskie v. Smith, (3 Kernan, 322.) Knowledge of the falsity of the various acts of fraud and untruth is averred.
ÍY. In the present case, the acts charged upon the defendants are, that they created a certain species of property designed to become, and elaborately adapted by them to become, articles of traffic and objects of investment, viz.: transferable shares in the capital stock of an incorporated company. That they communicated to agents, selected by themselves, viz. the public newspapers, for the purpose of being further disseminated to the public, information, which it was plain to them, and is obvious to the Court, must have-operated to create, an erroneous opinion, or belief, or impression respecting the value and advantages of that species of property, and which was so intended. It is to be observed that they were not fulfilling any duty to any particular class of persons, or any duty which they owed to the community at large, in giving this information. It was a matter of choice to do it or not. It is, therefore, to be discriminated from a case arising on a contract, or a private or particular duty, where, it may be conceded, the remedy would be confined to the very party in whose favor the contract is to be performed, or the duty discharged. It is the naked case of a fraudulent act, in its tendency injurious to an indefinite number of persons, or to some indefinite person, out of a large number, done voluntarily without any obligation to make any statement, or do any act in relation to the subject of the statement made or the thing done. The defendants were not bound to communicate to the public any information on the subject in question; but if they assumed to do it, they were bound to do it honestly, and the violation of that duty was a wrong to all deceived by it. This is not a new idea. At common law, the circulation of a false report, likely to enhance the value of public stock, was an indictable offence. (Rex v. De Beranger, 3 Maule & Selwyn, 67.) And it is an indictable offence under our Revised Statutes. (R. S. Part 4, chap. 1, title 4, § 8.)
V. If an act of fraud, committed with an intention to deceive, or committed under circumstances where it must necessarily and certainly produce deception, and followed in the ordinary and foreknown course of events, by pecuniary damage to a stranger, is not a ground of action, then it is singularly discriminated from cases of negligence, violence, and even from that which, but for its consequences, would be innocence itself—all which are punished when, and because, they inflict injury upon a party standing at a remote distance from the original wrongdoer, and connected with him only through the agency of other persons, who are the immediate instruments by which the injury is inflicted.
Such are the following cases:—
(Thomas v. Winchester, 2 Seld. 397.) This was a case of representations, made negligently, but not fraudulently. (It is stated, in this case, that one of the Judges concurred, on the ground that the act complained of was a misdemeanor by statute. But see the opinion of Ruggles, C. J., at p. 409. The judgment proceeded, not on the ground of the criminality of the act, but on the ground of its injurious tendency, and the probability of its leading to damage.) (Scott v. Shepherd, 2 Bl. 89; Guille v. Swan, 19 John. 381.) And that in respect to the range of responsibility, fraud stands upon the same footing as other wrongful acts. (Lobdell v. Baker, 1 Met. 193; Benton v. Pratt, 2 Wend. 385; Addington
v. Allen, 11 Wend. 374; Williams v. Wood, 14 Wend. 130; Gerhard v. Bates, 20 Law & Eq. R. 129; Taylor v. Ashton, 11 Mees. & W. 601; Mayne v. Griswold, 3 Sandf. 474.)
If, in the present case, the representations complained of had been endorsed on the back of the certificates issued by the defendants, with the purpose and intent of enhancing their value, could it be doubted that the principles adjudged in Thomas v. Winchester, were strictly applicable? But the representations were addressed to the same community to whom the certificates were issued, and were reiterated with great frequency and boldness. They accompanied the certificates into the world, and characterized them while they remained there, and were intended to deceive every one who should see and act upon them.
VI. The plaintiff may be met with an argument founded, or supposed to be founded, on the case of the Mechanics’ Bank v. The New Haven Railroad Co., (3 Kern. 600.) It is not intended to insist upon a proposition at variance with this decision in any case to which it is applicable. It is not applicable to this. This is not an action against the corporation on any assumed contract. It is an action against individuals for a private injury, resulting from a public wrong. Grant that a certificate of stock is not negotiable in any such sense as that a purchaser has greater rights in the capital purporting to be represented than his vendor had ; it does not follow that he has no rights against the parties who have induced him to make the purchase. Does it follow, from the failure of the bank to recover against the railroad company, that they could not have recovered against Schuyler or Kyle ? Kor is it intended to insist upon any such doctrine as the learned counsel for the defendants may style “ negotiable fraud.” It is not contended that fraud is negotiable, or that a right of action for a fraud is merchandise. It is only insisted that a distinct cause of action arose in the plaintiff’s favor when he was induced by false representations to affix an erroneous estimate of value to a species of property which the law authorized him to buy, and, in accordance with the intentions of the defendants, recognized as legitimate articles of trade and means for investment.
VII. If the aforegoing considerations tend to sustain the order appealed from, then it derives additional support from other parts of the complaint, not yet adverted to. The complaint shows that the whole scheme of the defendants was a wrong, contrived to injure and defraud indefinitely, and that such was its consequence. 1. The original law under which the corporation was organized (Laws of 1848, c. 40, § 14) provided that nothing but money should be considered as payment of capital stock. The amendatory Act (Laws of 1853, chap. 333) authorized property other than money to be received as a contribution to the capital. 2. The defendants, knowing that their capital was to consist largely of property other than money, suppressed that fact in the public document by which they acquired their corporate character. They stated their capital as consisting of so much money. 3. Under the provisions of the statute, and the terms of the certificate filed, a certificate of stock issued by the defendants, was nothing less than a receipt for so much money. It was not a conveyance, nor an evidence of debt, but a muniment of title, a voucher issued for the purpose of representing the interest of the holder in the company’s capital, and his right to a participation in its management and profits. It was literally the statement of a fact. 4. If the amount represented by the certificates actually exceeded the amount upon payment of which they were issued, then they were false representations in every legal and popular sense. 5. The legal right of the holder of a certificate as against the corporation and its property and profits depends, not on the terms of the certificate, but on the circumstances and consideration under and for which it was issued. (Mechanics' Bank v. New Haven Railroad Co., 3 Kern. 600.) 6. A party contributing one dollar, a share being of the par value of two dollars, is not entitled to a certificate, nor an interest for one share, nor to participate to that extent in the company’s property or profits, if other parties hold certificates for which there has been paid to the company more than one dollar per share. 7. The vendee of any such certificate, and of the interest which it purports to represent, would be deceived if, relying on the certificate, he were induced to believe that he would participate equally with all other parties in the company’s property and profits. He would be defrauded if he were induced to pay money under the influence of such a belief. 8. If the certificate purchased by the plaintiff, and afterwards re-issued to him by defendants, was one of the certificates mentioned, as issued to Skiddy, Peters, etc., then the plaintiff did not acquire the interest repre sented by the certificates, for the reason that he was not entitled to participate equally or proportionately with the parties to whom certificates were issued, which are alleged to have been issued to the defendants, if the latter certificates were properly issued. 9. If the latter certificates were not properly issued, and the plaintiff purchased one of them, then he was not, entitled to participate equally or proportionately with the other class of stockholders. 10. If the certificate purchased by the plaintiff was the representative of an actual interest acquired by the payment of money, and the money so paid constituted the company’s sole capital, then the issue of the certificates in payment for property, was an act of fraud tending to create an erroneous belief in the mind of the plaintiff respecting the nature, amount, and extent of the company’s capital in which he was purchasing an interest. 11. We have then these elements in this case, without reference to the false declaration of dividends:—
A wrongful and fraudulent issue of false certificates for the purpose of public traffic and investment. A reliance by the plaintiff on the statements contained in those certificates, and the formation of an erroneous belief founded on those statements. The fact that the plaintiff did not acquire such an interest as the certificates falsely purported to represent, and such as he supposed he purchased. The fact that the interest purchased, and the certificate which represented it, was absolutely worthless. If it is asked in what its worthlessness, which is after all a negative quality, consisted, it may be answered, that it was worthless because the plaintiff could not honestly sell it, or because its want of value was ascertained by all who would otherwise be likely to purchase it, or because it only exposed the plaintiff to additional liabilities on the very ground that he was a stockholder. These are all items of damage, which the Court may judicially notice as implied in the term worthlessness. They are all matters of public law. (See General Manufacturing Law of 1848, § 10, 18; Laws of 1855, c. 298, p. 512.) It is submitted, that a sufficient cause of action exists.
■ VIII. It nowhere appears on the complaint, that the injuries alleged to have been sustained by the plaintiff, were common to every stockholder.
IX. There is no misjoinder of causes of action. The acts com plained of were all similar in their character, committed by the same parties, and combined to cause the injury alleged.
X. If the recovery in this case were to subject the corporation to any payment, it would be entitled to be made a party. . There is nothing, in the case, however, rendering its presence as a party necessary.

Opinion:
Bosworth, J.
The gist of the complaint is, that the defendants, by the means detailed, were " fraudulently and illegally intending and contriving to dispose of the said property at a false and fictitious value, for their own benefit, as individuals, and to cause it to be generally believed, that the said company possessed capital, or had property to the amount of $1,000,000 in all,"
" and that shares or interests in said capital were of great value, and a means of profitable traffic and of safe investment,". . . . and that " by means of the aforesaid false and fraudulent acts, practices, deceits, statements and representations of the said defendants, it had come to be generally believed in the City of New York, and was believed by the plaintiff, that the said Gold Hill Mining Company was, in fact, possessed of property of at least $1,000,000 in value, and that shares and interests in such capital were of the value of at least $5 per share, and that the said company had, since the organization thereof, earned over and above its expenses, at least, the sum of $50,000," etc.. . and so believing, and on the faith and credit of the aforesaid false and fraudulent acts, practices, and representations of the said defendants, of the falsity and fraud whereof the said plaintiff was ignorant, the said plaintiff did on the aforesaid 14th of April, 1854," purchase certificates of said stock to the extent of 1000 shares, and paid $3500 therefor, and the interest acquired by the plaintiff was worthless. " That by means of said false, fraudulent, and deceptive acts, practices, and representations of the said defendants, said plaintiff has sustained damage to the amount of $6000, for which sum, with the costs of this action, he demands judgment."
It is an obvious principle, that a fraud practised by the defendants on the plaintiff and producing damage, will give to the plaintiff a right of action. This principle is not denied. But it is denied, that the allegations of fact, contained in the complaint, bring this case within its operation.
It is, in substance, alleged, as we construe the complaint, that the defendants designed, by the fraudulent acts enumerated, to deceive the public generally, and induce a general belief that a purchase of the stock would be a safe investment, and that by such means they did fraudulently produce this general belief, and caused the plaintiff to believe it, and that, by these fraudulent acts, they induced the plaintiff to purchase.
There is, in substance, no difference between an averment, that by means of certain specified frauds of the defendants, the plaintiff was induced to and did purchase, and an averment that the defendants, by means of the same frauds, induced the plaintiff to buy the same stock.
In Gerhard v. Bates, (20 Eng. Law and Eq. R. 136, S. C. 2 Ellis & Bl. 476,) the averment, by which it was held that the wrong and the. loss were concatenated as cause, and effect, was in these words, viz.: "that the defendants, by means of the said false, fraudulent, and deceitful representations, wrongfully and fraudulently induced the plaintiff to become the purchaser and bearer of 2500 of the said 12,000 shares, at 12s. 6d. a share, etc."
It was not, in terms, alleged, that the defendant made any of the fraudulent representations to the plaintiff, directly, or had any communication with him, in respect to such purchase, before it was made.
We think, that an allegation that, "by means of the said false, fraudulent, and deceitful representations of the said defendants, the plaintiff was wrongfully and fraudulently induced to become the purchaser and bearer of 2500 of the said 12,000 shares, at 12s. 6d. a share, etc.," would not mean less, or be less effective on a general demurrer to a complaint or declaration, than an allegation in the form of that contained in the declaration in Gerhard v. Bates.
The complaint before us is, that the defendants practised certain frauds to induce the public generally to believe certain things, that by means of these frauds of the defendants, the public generally, and -the plaintiff in particular, did believe these things; and that so believing and relying on these things being as the defendants had fraudulently represented, and because they had represented them to be so, the plaintiff bought, and that by means of these frauds of the defendants, the plaintiff has sustained damage.
This, as it seems to us, is saying that the defendants, by the frauds enumerated, have fraudulently induced the plaintiff to purchase stock, and that by such fraud they have subjected him to damage.
The complaint details the artifices employed to deceive, and connects the fraud of the defendants and the damage to the plaintiff, as cause and effect.
Although the Code does not give a right of action upon any given state of facts which would not create one before it was enacted, still no artificial or technical phraseology need be employed in stating the facts claimed to constitute a cause of action. There are now no rules by which the sufficiency of a pleading is to be determined, except those presented by the Code itself, § 140. A complaint, to be sufficient, must contain a concise statement of facts, constituting a cause of action, § 142. Whether those stated constitute one, is to be determined by applying to them established principles of law. In construing a pleading, for the purpose of determining its effect, its allegations must be liberally, and not technically, construed, and must be construed with a view to substantial justice between the parties, § 159.
The publicly advertised fact, repeated from time to time, that' the shareholders were entitled to dividends of money out of the profits of the said company's business, and some other acts enumerated in the complaint, as having been done by the defendants, were continuing representations to the public, and amounted to representations to any and every person, who might be thereby induced to purchase shares, if so advertised with intent to deceive and defraud the public generally.
When a bubble company is formed with the fraudulent intent of its managers, to induce a general belief that its stock is of, at least, its par value, and that, in prosecuting the business for which it was professedly organized, it is making money, and so much money as to enable the shareholders to declare successive dividends out of the profits every two months, and this fraud is prac tised to give to the stock a market value, and to induce the public generally to seek it and purchase it as an investment—and the fraud is successful, and produces the results contemplated and in tended; every person who, by means of such frauds, is induced to purchase, and is thereby subjected to a loss, is defrauded by such managers and by their fraudulent acts. Such are admitted, by the demurrer, to be the facts of the case; whether the plaintiff could establish them, if the allegations of the complaint were put at issue, is not a question before us. The privity between the managers and every such purchaser is, in such a case, in judgment of law, as actual and as direct, as between a person giving, fraudulently, a general recommendation of the trustworthiness of a particular person, and the individual to whom it may be shown, relying on its truth, may give credit to the person so recommended, and be defrauded and injured thereby.
In the case last supposed, there can be no doubt of the liability of the person fraudulently recommending the one who obtained credit.
It is urged, that the Squib case, Scott v. Shepherd, (2 Wm. Bl. 892,) and the case of the loaded gun placed in the hands of a young and inexperienced girl, (Dixon v. Bell, 5 M. and S. 198,) and the case of labelling poisonous drugs with the name of a harmless medicine, (Thomas v. Winchester, 2 Seld. 411,) and some others, cited on the argument, are exemplifications of the rule, that liability attaches to him who, having the control of a destructive physical agent, either mischievously or by neglect, places or leaves it in such a condition, that, in the usual and natural course of things, its action may work an injury to others, and injury, in fact, ensues to their persons or property. In those cases, it is true, the physical agent acted directly upon the person or property of another, and produced inj ury. But, in giving existence to the immediate action which caused the injury, the person, held liable, did not participate. All he did was complete, before such immediate action commenced; and in some of the cases, an interval occurred after his direct action, and its effects were at an end, before the action of others, which directly produced the injury, was commenced.
In the present case, although there is no physical agent which has directly inj ured the plaintiff by its action, yet the means, charged to have been employed by the defendants to defraud, are alleged to have been designed to be, and were, as it is averred, continually exerting an influence upon those whom they were intended to deceive; and their persuasive power to defraud continued to operate, until they had resulted in fraudulently inducing the plaintiff to buy the stock, and part with his money.
The defendants, according to the allegations of the complaint, employed these frauds to produce this result—a result anticipated, according to the usuál and natural course of things, if the frauds should not be detected before their natural and intended effects had been realized.
Some of the alleged acts of fraud are stated to have been performed before the company was organized, and, as to two of the defendants, it is not charged that they originally participated in them; but it is averred, that all the defendants, after all of them co-operated in the frauds stated to have been subsequently practiced, did so " well knowing the premisesand, of course, continued the use of the means previously perfected, as part of the scheme to deceive, with a knowledge of their fraudulent character, and with a view to defraud the public generally.
We admit that it cannot be law, that a person who deceives A by some instrument, and by it intends to deceive only him, can be made liable to every person who is injured from dealing with A, by being misled by the instrument which deceived A, and was made to deceive him alone.
But, when an instrument is made to deceive the public generally, and is adapted, as well as intended, to deceive some portion of the public, and as well one person as another, and is used as it was designed it should be, and fraudulently induces some one to act to his prejudice, by acting in the mode it was intended to influence them to act who might be deceived by it; the person who made the instrument, and caused it to be thus fraudulently used, is liable to the person who has been defrauded by it. In such a case, the person injured has been-subjected to damage by his fraudulent acts, and the fraudulent wrong-doer is liable for the consequences.
We concede that, in order to make the defendants liable to the plaintiffs, enough must be stated in the complaint to show that the defendants caused the damage to the plaintiff of which he complains. If enough is not stated to amount, in substance, to that, the complaint does not contain facts sufficient to constitute a cause of action. But, in the view which we take of the allegations of the complaint, the wrong and the loss are set forth as cause and effect; and it is sufficiently alleged, in substance, that the defendants practiced the frauds complained of, and, by their frauds, induced the plaintiff to purchase the shares in question.
What evidence the plaintiff must give to establish the case made by the complaint, on its material allegations being put at issue, is not a question before us.
We do not intend to intimate any opinion upon, that point, nor upon the effect, as evidence, of any of the documents set forth in the complaint, in support of such issues; but affirm the order appealed from, on the ground, that, assuming all the allegations stated in the complaint to be true, it is alleged, in substance, that the defendants have fraudulently induced the plaintiff to purchase 1000 shares of the stock in question to his damage; for the recovery of which damage, this action is brought.
I understand that all the Judges who heard the argument, concur with me in affirming the order, solely on this ground, except my brother Hoffman, who has considered some additional propositions, and has stated, in the elaborate opinion he has prepared, the conclusions at which he has arrived.
In Ward v. Sackett, et al., the order appealed from must be affirmed, on the same grounds as that in Gross v. Sackett, et al.
Hoffman, J.—
(The opinion, which is reported entire in Abb.
Pr. R. vol. 6, p. 259, after stating, summarily, the allegations of the complaint, reads as follows, viz.):—My first subject of inquiry shall be, What did the certificates, issued by the defendants in their corporate name, purport to represent? what, under the statute of organization, ought they by law to have represented l and what was the truth in relation to such representations ?
The representation on the certificate, with its attendant power, was, that the party named in it was entitled to an interest, proportionate to the whole stock, in a money capital, or in property equivalent substantially to a money capital, of one million of dollars. This is the statement made and uttered by the defendants with an implied engagement for its truth upon these instruments.
And this is precisely what, under their charter, they were allowed and directed to represent; and they could only comply with the acts of the legislature, when such was the representation, and when it was true.
Section 14 of the Act of 1848, (Laws of 1848, '54, § 14) declared, that " nothing but money should be considered as payment of any part of the capital stock." The act of 1853, (Laws of 1853, 705,) provided " that the trustees may purchase mines, manufactories, and other property necessary for their business, and issue stock to the amount of the value thereof in payment therefor, and the stock so issued shall be taken as full stock." It is to be reported, not as cash paid into the company, but according to the fact.
We accede to the proposition of the counsel of the plaintiff, that the legislature, in substituting mines and other property for the money capital before prescribed, intended and declared, that such property should have an actual value reasonably proportionate to the stock issued to pay for it. Nothing else is consistent with the honest purposes of such an association, and nothing else can have been the legislative will.
But what did these certificates, in truth, represent? What, for example, was the fact, as the complaint states it, as to the certificate for 1000 shares, purchased by the plaintiff? Instead of an interest in $5000 of money once contributed and presumed to exist in some form of value, or in mines and property of an equal or substantially equal value, he got what he alleges to be wholly worthless, and which, upon any calculation upon the statements made, must be of greatly inferior value.
We are bound to assume the allegations of this complaint to be true, in all their reasonable and legal import; and if so, a case is presented of the formation of a bubble company, contrived for purposes of private emolument, its authors and managers fraudulently publishing statements tending to produce the belief that the stock was, at least, of its par value; that its business had warranted successive dividends from profits; that these false and deceptive representations were made by the defendants, the authors or managers of the scheme; that they were in such an apparent form of negotiability, as, from the custom of business, was peculiarly calculated to delude and to injure; and that a delusion and injury has actually been produced, and fallen upon the plaintiff, in consequence of such acts.
We may here observe, that some of the acts of fraud are stated to have been performed before the company was organized: and as to two of the defendants, it is not said that they originally participated in them. But as to the frauds stated to have been subsequently practised, it is averred that all the defendants acted together, and did so, well knowing the premises. This is sufficient to render them responsible by the adoption, as the others are by their performance, of the acts.
The learned counsel of the defendants has pressed upon us the proposition, that such a suit as this has been unknown through all periods of the law, except when it was warranted by the statute of Geo. I. (cap. 18, § 20,1719), consequent upon the South Séa Bubble. He insists " that because the common law afforded no remedy to the remote purchaser, this statute was passed, giving in the 20th section an action for damages."
He has called our attention to the history of those gigantic frauds, which have acquired an immortality of pre-eminence among the destructive projects of the visionary or the designing, the Mississippi and South Sea schemes. A member of Parliament, when the Act of Geo. I. was discussed, admitted " that the directors could not be reached by any known law; but, he said, extraordinary crimes call for extraordinary remedies. The Roman lawgivers had not foreseen the possibility of a parricide; but as soon as the first monster appeared, they found a law. The sack and the Tiber was his doom." (Lord Mahon's History, vol. i. 280.)
But I cannot believe, that either the argument of the learned counsel, or the declamation of the rhetorician of the House of Commons, is sufficient to stamp the law of England with the impotency attributed to it. I consider that there have always been principles of law, and tribunals adapted and competent, to redress wrongs of this nature.
The Act of Geo. I. was annulled in the 6th year of Geo. IV. (1825.) The 19th, 20th, and 21st sections were recited and repealed, with this declaration: " And whereas it is expedient that so much of the above act as is above set forth should be repealed, and that the said undertakings, attempts, practices, and acts should be adjudged and dealt with according to the common law, notwithstanding such act. Therefore, etc."
We may assume that the Parliament thought there was some mode of dealing with such fraudulent practices as the 20th sec tion of the Act had aimed at, according to the doctrines of the common law, and through some of the methods of redress it had supplied.
In The Charitable Corporation v. Sutton, (2 Atk. 401, 1742,) Lord Hardwicke announced as an unquestionable principle, that a court of chancery could give relief against all who are constituted expressly, or by operation of law, trustees or agents, to parties injured by their acts. It is true, the corporation itself there sued the managers for a defalcation.
In the case of Hayes v. Morgan, (April, 1857,) I had occasion to consider the following authorities:—(Hitchens v. Congreve, 4 Russ. 562 ; Walburn v. Ingilby, 1 Mylne & K. 61; Foss v. Harbottle, 2 Hare, 461; Dodge v. Woolsey, 18 How. H. S. R. 33; Benson v. Heathcum, 1 Y. & Coll. Ch. Cas. 326; and Robinson v. Smith, 3 Paige, 222.)
The law which may be gathered from these cases is, that there is no wrong or fraud, which directors of a joint-stock company, incorporated or otherwise, can commit, which cannot be redressed by appropriate and adequate remedies. The first mode is, when the company, in its corporate name, seeks to set aside the fraud, to reclaim abstracted property, or prevent a corporate loss. Such was the case of the Corporation v. Sutton, and the rule in Foss v. Harbotlle. The next mode is, when shareholders bring an action for the same object, unitedly,, or in the form which the Court of Chancery permits, of a bill by one or more on behalf of themselves and all others, having a common interest. This right exists under various circumstances. It clearly exists when the directors or agents, whose deeds or omissions are impeached, do themselves control the company, and impede the assertion of a right in its own name. (Mozley v. Alston, 1 Phill. Ch. R. 790.)
I may particularly notice the case of Walburn v. Ingilby. It was against directors of an unincorporated joint-stock company by a holder of shares. The company was for working mines in Peru. The advertisement was of a capital of £1,000,000 in 20,000 shares of £50 each. The defendants were the original directors, and still continue to be such. The bill stated various acts by which the property of the company was abstracted and appropriated to the defendants. It also set forth that the plaintiff purchased, at various times from different persons, 2000 shares, and was the holder thereof.' The bill was sustained in every point raised against it, except for not stating the manner in which the plaintiff had acquired title to shares purchased from others. The bill showed that no transfer was valid without the approval of the board. This was held to be a condition precedent and to be stated. It was framed to get back money for the general fund.
But another question, and closer to the present, arises when an individual claims redress in his own name, and solely on his own account, for a fraud practised by a trustee or director of an association from which he has suffered loss; when, although his claim is founded precisely upon the same facts and relations as many others, yet, as his inj ury and loss is disconnected and peculiar, he seeks to assert his right alone.
The old case of Colt v. Woollaston, (2 P. Wms. 154,) is an example of this character. The plaintiff sought by his bill to be repaid two sums of money advanced to the defendants as managers and projectors of a bubble called The Land Security and Oil Patent, for the purpose of extracting oil out of radishes. There were two plaintiffs, and they purchased six shares each. The company was to have a capital of £100,000. The shares to be 5000, at £20 each. Woollaston bought an estate for £31,800, which was under mortgage for £28,000, and he was to be paid £57,200 out of the fund. It was represented by the defendants to be a most advantageous project. The Master of the Rolls said:—" This is an imposition, to propose the surplus of the value of an estate (which cost but £31,800), after £85,000 charged upon it—more than double its value—as a security to the contributors who laid out their money upon this project; it is giving them moonshine instead of any thing real."
" It is no objection that the parties have their remedy at law, and may bring an action for money had and received; for in case of fraud, a court of equity has a concurrent jurisdiction with a court of law." The decree was for payment of the money paid, interest, and costs.
In Green v. Barrett, (1 Sim. 45,) the plaintiff was a shareholder, and the defendants were directors of a company, called the Imperial Distillery Company. His bill was to recover a deposit of £100, which he had paid upon twenty shares allotted to him. His communications were with the secretary and bankers of the company. But a circular or prospectus had been issued by the directors, on which he much relied. The nature of the bill is thus stated by the vice-chancellor:—" The prospectus of this undertaking was published, not with any intention to establish a company on the principles there stated, but as a snare to persons who might unwarily become subscribers, and for the purpose of enabling the directors to make a profit by the sale of shares which they thought fit to assume to themselves. It appears to me the case is governed by that of Colt v. Woollaston, and upon that authority I overrule the demurrer."
In Jones v. Garcia Del Rio, (1 Turner & R. 297), where the bill proceeded upon similar grounds of fraud, three persons filed it as shareholders, on behalf of themselves and others, to have their subscriptions returned. The case came up on an injunction, and a motion to dissolve it after answer. The answer set up that many of the shareholders, who were in the same situation as the plaintiffs, were content to abide by the contracts.
The lord-chancellor said, that the plaintiffs, if they had any demand at all, had each a demand at law, and each a several demand in equity; that they could not file a bill in behalf of themselves and the other holders of scrip : as they were unable to do that, they could not, having three distinct demands, file one bill.
In Blain v. Agar, (1 Sim. 87; 2 id. 289,) the bill was by five persons, on behalf of themselves and numerous other parties to an indenture, by which a large number of shares had been assigned to the five. It was in trust, with a power of attorney to sue, obviously to avoid the difficulty of making all parties. The allegations were of a deceptive prospectus, caused to be printed and published by the directors, and other acts of fraud, in misapplying the deposit money, etc. The bill also showed that some of the original shareholders had transferred their shares to others; and some of the former, with the latter, united in the assignment to the plaintiffs.
The vice-chancellor overruled a demurrer for want of equity, but sustained one ore terms for want of parties, holding that the assignors must be on the record.
The bill was then amended, and the assignment was left out, and naming three other shareholders as parties, stating that they held some of the shares by the original purchase, and some by transfers made to them by other shareholders.
A general demurrer was taken for want of equity, and one taken ore terms, for want of parties.
The vice-chancellor (Shadwell) held that this was a case of fraud which a court of equity could relieve as well as a court of law, and cited and approved of Colt v. Woollaston. He held that the plaintiffs, in their capacity as original shareholders, could sustain the bill, but not as purchasers from prior purchasers. An objection, for want of-parties, was overruled, the bill stating that the plaintiffs did not know the names of. the other shareholders.
When we consider the arguments of counsel (Mr. Sugden), it will appear that the objection was on the ground that the case could not proceed without the assignors of the scrip assigned being brought in, and upon nothing else.
Lord Brougham is stated by Mr. Colyer, (Col. on Part. § 1101,) to have disapproved, in the case of Thompson v. Paules, of the series of cases I have cited. I have searched ineffectually for this decision. It may well have been placed upon the ground, that this simple case, even of a fraud thus presented, was not proper for a court of chancery, when the remedy was perfect at law.
It must have been upon this ground, or some ground which does not extend to a denial of any redress in any court. This is clear from his other decisions. Walhurn v. Ingilby was before him, and would have been sustained by him, as I consider, but for the technical objections before noticed.
And, in the National Exchange Company v. Drew, (House of Lords, 32 Eng. L. & Eq. 4,) he stated, in the clearest terms, that a deception by a company, through its directors, by representing shares to be worth £100, which were known not to be worth over £50, gave the right of action, on the ground of a false representation, against all who made it.
The case at common law of Gerhard v. Bates, (20 Eng. L. & Eq. 130,) has been much criticised by counsel.
The second count in that case was sustained by the court, and, when analyzed, it presents this case:—That the defendants, and others unknown, had formed a company for the purpose of smelt ing and refining the ores of certain mines in Spain, and divided it ipto 96,000 shares of £1 each, out of which 12,000 shares were to be appropriated to the public at 12s. 6d. each, free from farther calls; that such 12,000 shares were actually offered to the public; that the defendant was promoter and managing director; and, being such on the day, etc., intending to defraud, deceive, and injure the public, and to cause it to be publicly advertised and represented that the company was likely to be a safe and profitable undertaking, and also to deceive the public who might become purchasers of the said 12,000 shares, and to induce them to become such purchasers, falsely, fraudulently, and deceitfully procured, and caused it to be publicly made known and advertised, in and by a certain prospectus issued by the defendant as such director, that the promoters did not hesitate to guarantee to the bearers of the 12,000 shares a minimum dividend of 33 per cent, payable half yearly, to remain in force until the 12s. 6d. per share should be paid. That the defendant, by means of such false and fraudulent pretences and representation, after the making of the same, wrongfully and fraudulently induced the plaintiff to become the purchaser and bearer of 2500 of the said 12,000 shares, and that he paid 12s. 6d. for each share; that, in truth, the statement, etc., was false.
Lord Campbell said that had the declaration been, that the defendants delivered the prospectus to the plaintiff, containing the false representation, there could be no question in the case. If the plaintiff had only averred further, that having seen the prospectus, he was induced to purchase the shares, objection might be made that a connection did not sufficiently appear between the act of the plaintiff and the act of the defendant; but the count goes on to aver " that the defendant, by means of the said false and fraudulent representations, wrongfully and fraudulently induced the plaintiff to become the purchaser and bearer," etc.
Judgment was given for the plaintiff on this count.
I may observe, that the inducement to purchase, was a false representation of the defendant. By means of that, the plaintiff was deceived, and that false representation was contained in a prospectus issued by the defendant, but, as his lordship impliedly admits, not delivered to the plaintiff by the defendant. It appears to me this means simply, that the fact of a prospectus issued by the defendant, inducing the plaintiff to purchase, and being false and fraudulent, was enough.
In the course of the argument, Justice Coleridge said:—" It is a continuing representation to the public, and amounts to a representation to whomsoever shall hold shares."
See, also, The National Exchange Company v. Drew, in the House of Lords, (32 Eng. L. & Eq. 10.)
The proposition of the defendant's counsel, that the action can only exist, if at all, in favor of one to whom the false and fraudulent statement has been directly made, and his reasoning to support it, is similar to that of Justice Selden, in the Farmers' and Mechanics' Bank v. The Butchers' and Drovers' Bank, (Court of Appeals, December, 1857. ) He cites the cases of Grant v. Norway, (10 Com. B. R. 665;) Coleman v. Riches, (29 Eng. L. & Eq. 323,) and The Mechanics' Bank v. The New York and New Haven Railroad Co., (3 Kern. 599.) He says: "they are plainly distinguishable from the case before the Court. In neither of these cases was the document upon which the question arose, negotiable. It was sought there to make the principal responsible for a false representation of the agent—not responsible to the person to whom the representation was made, but to one with whom the agent had no dealings, and to whom he had made no representation."
But a great distinction exists between the present case and that of the Hew Haven Railroad Company, or that of the Farmers' and Mechanics' Bank, connected with the question of a transferred responsibility. In each of these cases the directors of the companies were wholly innocent; they were themselves the victims of a misplaced confidence. But here the instrument sent forth by the directors is framed by themselves: if it was false, the falsehood is their own, and the imposition it produces must be treated as the result of their own deceptive practices.
Grant v. Norway, commented upon by the learned Justice, is fully stated by Justice Bosworth and Justice Comstock, in the Hew Haven R. R. case. There, the immediate holder of a bill of lading had no right of action, the goods not being put on board the vessel. The master, as agent of the owners, had not conferred any right of action upon the party to whom he gave the false bill of lading.
So, in Coleman v. Riches, (29 Eng. L. and Eq. 323,) the false receipt was given by- Bond, the agent of the defendant, to Lewis, and Lewis obtained money on it from the plaintiff. It was a receipt given by the keeper of the defendant's wharf, when the goods had not been received; and the plaintiff was defeated.
It is true Williams, Justice, said : Suppose Riches himself had given the fraudulent receipt, would that have constituted a representation by Riches to Coleman ?
This seems to me the nearest approach to the proposition, that the false representation of the principal himself to one party who tiould support an action, is unavailing in favor of another to whom that party has transferred fully the subject-matter of the action, in respect to which the representation was made.
But, as I understand the opinion of the Court, this suggestion is contradicted. The Court say: There was no evidence from which it could be inferred, as between Coleman and Riches, (plaintiff and defendant,) that Riches agreed to give the vendee of corn vouchers of the delivery on which the vendee should act. Had there been such ah agreement, it would have made the case very different, because Riches then would have undertaken to deliver vouchers to Coleman, and to employ proper persons to give such vouchers to him. But there is no evidence of any thing of the kind.
At any rate, I have come to the conclusion, that when a party projects and publicly promulgates the scheme of a joint-stock company; when he causes the usual books to be opened, and allows or causes the inscription of a person as an owner of an interest to a definite amount and value therein which is false within his own knowledge; when he embodies such false-statements in a certificate of this right, directly issued, and of the same effect as if signed by himself; when he accompanies that certificate by a written power, authorizing a transfer at large, by the party to whom he has given the certificate; when that representation induces an innocent person to advance his money: the defendant's own individual act has created the privity of contract which the cases referred to appear to demand, and he must be held responsible to any one who has been deceived.
The representation was publicly addressed by the defendants to all; was intended to influence all who should become apprised of it; did exercise an influence upon the plaintiff, one of the mass addressed: that influence has resulted in his damage; and the fact embodied in the representation must be treated, for the present, as untrue, and as meant to deceive.
We all agree that the order should be affirmed, with costs.
Order affirmed accordingly.
16 if. Y. Eep. 126.