Court Opinion

ID: 6233709
Source: CourtListenerOpinion
Date Created: 2022-02-17 20:27:42.558894+00
Date Added: 2024-06-11T08:57:58.047628
License: Public Domain

The opinion of the court was delivered, January 3d 1870, by
Agnew, J. —
In Crossman v. Penrose Ferry Bridge Co., 2 Casey 69, it was said by Justice Knox that a subscription to capital stock, induced by the fraudulent representations or statements of an agent appointed to obtain subscriptions, may be avoided by the subscriber. And in Coil v. Pittsburg Female College, 4 Wright 439, it was held that representations by agents of the college, that enough had been and would be subscribed, before the subscriptions for scholarships would be collected, to pay off the entire indebtedness of the college, and make the scholarships worth the notes given for them, are to be treated as expressions of opinion only, no fraud being alleged; from which it might be inferred that fraud being alleged, the falsehood of the representations would invalidate the subscription. On the other hand, it was held in Bank of U. S. v. Dunn, 6 Peters 51; Bank of Metropolis v. Jones, 8 Peters 12, and Stewart v. Huntingdon Bank, 11 S. & R. 267, that the declarations and assurances of the officers of a bank, that an endorser or other party would incur no responsibility by his endorsement or signature, are unauthorized and not binding on the bank without authority from the directors. In Hackney v. Allegheny County Mutual Ins. Co., 4 Barr 185, it was decided that the false and unauthorized representations of an agent to receive applications for insurance and the premium for a mutual insurance company, whereby the assured became a member of the company, are not admissible as a defence to an action on the premium note; nor are the similar representations of the president to the agent at the time of his appointment. The representations there were that the company was not taking risks in Pittsburg or other large cities. As it turned out, the company was broken up by its numerous risks taken in Pittsburg before the great fire of 1845.
*386The law as to the acts of an agent of a corporation is thus stated in Angelí & Ames on Corporations, p. 249. “ The representations, declarations and admissions of the agent of a corporation stand on the same footing with those of an individual. To bind the principal they must be within the scope of the authority confided to the agent, and must accompany the act or contract which he is authorized to make.” The principle of the cases would seem to be this, that where representations made by an agent to obtain subscriptions, are a part of a scheme of fraud participated in by the officers authorized to manage its affairs; or where they are such as the agent may reasonably be presumed, by the subscriber, to have the authority of the corporation to make them, his representations may be given in evidence to show the fraud by means of which the subscription was procured. But when there is no reasonable presumption of authority, and no actual authority to make them, the corporation should not be prejudiced by the unauthorized acts of the agent. Hence, when the representation of the agent is contrary to the interests and duty of the corporation, as that be will release or has authority to release the subscription he is taking, it is not a reasonable presumption that he has such authority, and a subscriber on such terms would be particeps eriminis, and held to all the responsibilities of a bon& fide subscriber. This is the very point decided in Robinson v. The Railroad Co., 8 Casey 334. On the other hand, a subscription to be paid in blacksmith work, acquiesced in by the commissioner taking the subscription, was held to be recoverable only on this condition: McConahy v. Turnpike Co., 1 Penna. 426. Tested by these principles the first assignment of error cannot be supported. The offer was not to show a scheme of fraud on the part of the company to procure worthless subscriptions of stock in order to inveigle others; but it was merely to prove the ■agreement of the president that the subscriber should not be called on for payment of his subscription, as itself the evidence of fraud upon bond, fide subscribers. Offered in connection with the participation of the directors, the act of the president might be a link in the chain of fraud to be proved ; but, offered as itself the evidence of the fraud, it was not competent without showing or offering to show that the company, through its managing officers, were privy to the fraud. The president of himself had no authority to release subscriptions, and it would be unreasonable to suppose he had, as it was contrary to the interest and duty of the company.
But the second offer comes up more nearly to the line, and depends on the meaning to be attributed to the language of the offer. The offer was to show by a previous subscriber, for six shares, that he was induced by the president to change his subscription to twenty-six shares, on receiving from the president a release in writing from the payment of twenty shares, for the pur*387pose of showing fraud by means of fictitious subscriptions. Whose release was meant ? The president’s or' the company’s ? If the former, it was unauthorized without proof of authority, and this offer went no farther than the first. If the company’s release, then it was a fraud on boná fide subscribers. It seems to us we must understand that it was the company’s release that was meant. Nothing less would exempt the subscriber from payment of the twenty shares, and make the stock “ fictitious ” in the language of the offer. We must take it, therefore, that the release of the company was the kind meant by the offer, and in that view the court below erred in rejecting the offer to prove the fraud of the company. A subscription to stock is a contract between the subscriber and the company, governed by the same rules of honesty and fairness in its enforcement, that apply to ordinary contracts: Railroad Co. v. Byers, 8 Casey 22; Railroad Co. v. Graham, 12 Casey 77.
We think there was error also in taking from the jury the decision of the fact whether the meeting of October 18th was in 1865 or 1866. The entry bore date in 1866, and if this was a mistake, it was for the jury to find it.
We are of opinion, also, that the interest of five per cent, a month on the subscription payable after a failure for thirty days to pay the calls is a penalty, and not merely interest, in the ordinary sense of the term. It is called interest in the act, but its obvious purpose, and the amount (being at the rate of sixty per cent, per annum) is for the enforcement of payment by way of a penalty. The act says as much as that the company may enforce payment either by forfeiture of the stock itself, or by a penalty of five per cent, a month for delay.
Judgment reversed, and a venire de novo awarded.