By the Court
Hoftman, J. The complaint contains the following statements:—
That on the 13th day of August, 1853, the defendant Holmes •entered into a written agreement with the defendants Sackett, Maxwell, Belcher, Osgood, and Samuel Smith, by which he sold to the last-named parties all the estates, mines, fixtures, and property described and set forth in a schedule declared to be annexed.
The consideration for this sale was to be as follows :—Upon the receipt of the leases, described in the schedule, and delivery of the personal property therein mentioned, $60,000 was to be paid. On the 20th day of September ensuing, upon receipt ■of the deeds of all the estates mentioned in the schedule, conveying unquestionable titles (except as to $125,000 encumbrances), the further sum of $91,600 was to be paid, and thirty thousand shares of stock of the Gold Hill Mining Company were also to be delivered to him.
This instrument declares that the-Gold Hill Mining Company was a company proposed to be formed upon the basis of the property therein mentioned. That property was to be divided into, and represented by, 200,000 shares, the par value to be five dollars a share. Fifty thousand shares were to be reserved as a capital by the company, and to provide, for the payment óf the $125,000 before stated.
Holmes, then the owner of the property to be conveyed, consents to sell the whole of it for the price in cash of $151,600, and of stock to be given him in the proposed company of thirty thousand shares, the par or arbitrary value of which was to be five dollars a share, or $150,000. The encumbrances amounted to $125,000.
Taking the value of $150,000 in stock at the nominal amount, the estimate, including encumbrances, was $300,600.
And the complaint alleges that the actual value of the prop[260]*260erty did not exceed $375,000, when wholly unencumbered, and? was not more than $250,000 beyond the encumbrances.
On the 20th day of August, 1853, the defendants Samuel Smith, Osgood, and Holmes executed a certificate of organization under the act of February 7, 1848, for the formation of corporations for mining, mechanical, and chemical purposes, as such act was amended by the statute of.,June 7, 1853. The certificate stated the corporate name, the object, the capital, one-million of dollars, the duration twenty-five years, and the number of shares two hundred thousand. The trustees for the first year were the present defendants, except the defendant Maxwell,
This instrament was acknowledged on the 31st day of August, 1853, and filed in the office of the clerk of the county on the 3d day of September of that year.
On the 31st day of August, 1853, the defendants Sackett, Maxwell, Osgood, Holmes, and S. Smith, executed an instrument by which they assigned to the Gold Hill Mining Company the contract or obligation of Holmes, and agreed to pay Holmes all the money stipulated to be paid to him in such contract, except the $125,000, the amount of the old encumbrances. They also agreed to deliver to Holmes -the thirty thousand shares of the company acknowledged to have been received, and ninety thousand shares to be delivered on or-before the 20th day o£ September ensuing.
On the same 31st day of August, the defendants, acting as a corporation, by the name of the Gold Hill. Mining Company, accepted and agreed to the purchase, upon the terms expressed in the foregoing instrument.
And on the 1st day of September, 1853, Holmes executed an instrument by which he agreed to sell and convey to the Gold Hill Mining Company the property specified. It consists of various leases, steam-engines, pumps, fixtures, &c., with certain parcels of real estate in fee. Ho consideration is expressed in it.
It may here be observed that the counsel of the plaintiff has treated the case as if there had been a company completely organized on the 31st day of August, although the certificate was-not filed until the 1st day of September.
Pausing at this stage of the facts, we find that the company had become vested with the whole of the estate and rights of Holmes and of the five other parties, in the whole property[261]*261Zor this the company was bound to pay one hundred and fifty thousand shares of its stock, taking it subject to $125,000 of old encumbrances. Holmes had the personal engagement of Maxwell, Osgood, Sackett, Belcher, and S. Smith, to' pay him $151,600 in cash, and to deliver him thirty thousand shares of the stock of the company.
Thus the property which was to cost the five parties $151,600 in cash and thirty thousand shares, nominally $150,000, is put into the company at $750,000, nominal value. It is to be paid ’for at that estimate, and by the issue of the stock.
The complaint then states that certificates were then printed .and issued by the defendants, stating that the party named was entitled to the specified .number of shares in the capital stock, ■that such capital consisted of one million of dollars, and the shares were two hundred thousand of five dollars each.
The complaint further states the issuing of shares of stock to the defendants at different periods, and in different amounts, in the aggregate one hundred and forty-five thousand shares. Certificates were also issued to persons other than -the defendants .(except 300 to Sackett), to the amount of nine thousand three .hundred shares. The total issue was therefore 154,600 shares ; 45,400 shares were reserved, and apparently under the provision that fifty thousand shares were to be a capital to provide for the ■encumbrances of $125,000.
The complaint proceeds to state a custom in the city of Mew York, of attaching a skeleton power of attorney to certificates of stock issued by such corporations, enabling a transfer of the right to the stock to be made without an entry on the books ; the knowledge by the defendants of such custom; their attaching such power of attorney to the certificates; and that they knew .and intended that such certificates would thus become easily current and negotiable as evidences of property, and subjects -of traffic from hand to hand, without recourse to the books of the company.
Another allegation of the complaint relates to a public declaration of dividends for two months as out of the profits of the concern, caused to be made and published by the defendants, In order to give a fictitious value to the stock, when they well knew that the company had never received any such profits; .-and as to two of such dividends, it is alleged that a large part [262]*262of such dividends was paid out of money borrowed, or out of the-capital stock.
The complaint then alleges that on the 14th day of April, 1854, by means of such false and-fraudulent practices and statements-of the defendants, it had become 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 therein were of the value of at least five dollars a share, and that such company had earned at least the sum of' $50,000 over expenses; that the certificates issued by the defendants with the power of attorney were in circulation and in course of sale, pledge, and disposition, and were believed by the plaintiff to be true and genuine evidences or representations of' actual interest in a capital of one million of dollars; and so believing, and on the faith and credit of the aforesaid false and fraudulent acts and representations of the defendants, of the-falsity and fraud whereof the plaintiff was ignorant, he did, on the 14th day of April, 1854, purchase of one Richard Schell, then being the holder of one of the original or substituted certificates, an interest in the said capital stock to the extent of one thousand shares, and paid therefor the sum of $3500.
That he received a certificate and power from Schell, which he surrendered to the company, and received in lieu thereof' from the defendants another certificate representing the capital as aforesaid, and that the defendants transferred one thousand shares to him; that the statements and representations were false, and that the interest supposed to have been acquired by him was in fact worthless. That by means of such false, fraudulent, and deceptive practices of the defendants, the said plaintiff-has sustained damage to the amount of $6,000, for which he demands judgment.
Such is the substance of the case made by the plaintiffs. 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 ; 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, pro[263]*263portionate 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 engagementforits 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 amov/nt 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 one thousand shares purchased by the plaintiff? Instead of an interest in five thousand dollars 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 [264]*264false and deceptive representations were made by the defendants, the authors or managers of the scheme; that they were made 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 George the 1st (cap. 18, § 20, 1719), consequent upon the South Sea 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 George the 1st was discussed, admitted, “ that the directors could not be reached by any known law, but he said extraordinary crimes called 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. 1, p. 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 impoten cy attributed to it. I consider that there have always been principles of law, and tribunals adapted and competent, to redress wrongs of this «ature.
The act of George the 1st was annulled in the sixth year of George the 4th (1825). The 19th, 20th, and 21st sections were [265]*265recited 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,” &c.
We may assume that the Parliament thought there was some mode of dealing with such fraudulent practices as the 20th section 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 y. 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. U. 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 y. Sutton, and the rule in Foss y. Harbottle. 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. See also Mozley v. Alston (1 Phill. Ch. R., 790).
I may particularly notice the case of Walburn y. Ingilby. 'It was against director's of an unincorporated joint-stock com[266]*266pany 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 tire plaintiff purchased, at various times from different persons, 2,000 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 injury 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 [267]*267a 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 tome 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 shareholder's, on behalf of themselves and others, to have their subscriptions returned. The case came up on 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., 37; 2 Ib., 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, &c. 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.
[268]*268The 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 tenus, 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 elsé.
Lord Brougham is stated by Mr. Colyer (Coll. on Partn., § 1101) to have disapproved, in the case of Thompson v. Paules, of the series of cases I have cited. I have searched ineffect- •» ually 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. Walburn 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.
[269]*269The second count in that case was sustained by the court, and when analyzed, it presents this case :—That the defendants, and other’s unknown, had formed a company for the purpose of smelting and refining the ores of certain mines in Spain, and divided it into 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 further calls; that such 12,000 shares were actually offered to the prrblic; that the defendant was promoter and managing director; and being such on the day, &c., 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 cmd fraudulent pretences and representation, after the making of the same, wrongfully and fraudulently induced the plaintiff to become the purchaser and bearer of 2,500 of the said 12,000 shares, and that he paid 12s. 6d. for each share; that, in truth, the statement, &c., 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,” &c.
Judgment was given for the plaintiff on this count.
I may observe, that the inducement to pm-chase 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 [270]*270.•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 Rational 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’ & 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 & 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 bé treated as the result of their own deceptive practices.*
[271]*271Grant v. Norway, commented upon by the learned justice, is fully stated by Justice Bosworth and Justice Comstock, in the New Haven Railroad 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. & Eq., 323), the false [272]*272receipt 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 could 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 an 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 [273]*273the 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.
Present, Bosworth, Hoffman, Slosson, Woodruff, and Pierrepont, JJ.