property only in case it is needed in the construction, can be enforced only in case it is so needed.1 These decisions have not denied that such contracts were ultra vires, while holding them not illegal. Such contracts have been enforced under color of indemnification for injury to property or to the franchises of rival companies, instead of regarding them as bribes for the procurement of favor. And there are cases, even, where, although by reason of the abandonment of the enterprise, no injury was ever sustained, the contracts to quiet opposition have been enforced. A later case, however, says of the leading cases cited in support of the above doctrine, and other similar cases following them, that although distinguishable from the case at bar, they were unsupported in principle. And where the price for property was so grossly excessive as to be patently a bribe the contract was declared ultra vires and specific performance denied. An existing company may contract to purchase land for construction after it obtains an act enabling it to build a new line, and whether the land is needed or not the contract may be enforced. In America there has been but little litigation involving the validity of contracts to quiet opposition. In New Hampshire 1 Gage v. Newmarket Ry. Co., 18 Q. B. 457; Preston v. Liverpool &c. Ry. Co., 5 H. L. Cas. 605; Scottish N. E. Ry. Co. v. Stewart, 3 Macq. 382. 2 Even when the land-owner, whose opposition has been bought off, is a member of parliament, unless it may be shown that the payment was made for the purpose of influencing his vote. Preston v. Liverpool &c. Ry. Co., 5 H. L. Cas. 605; Edwards v. Grand Junction Ry. Co., 1 Mylne & C. 650; Stanley v. Chester &c. Ry. Co., 3 Mylne & C. 773; Simpson v. Howden, 9 Clark & F. 61; Shrewsbury v. N. Staffordshire Ry. Co., 35 L. J. Ch. 156; Petre v. Eastern Counties Ry. Co., 1 Nic. H. & C. 462; Eastern Counties Ry. Co. v. Hawkes, 5 H. L. Cas. 331. 3 Gage v. Newmarket Ry. Co., 18 Q B. 457; Porcher v. Gardner, 8 Brand v. Crowley, 6 Ex. 522; Shrewsbury & B. Ry. Co. v. London & N. W. Ry. Co., 3 Macn. & G. 70; Hawkes v. Eastern Counties Ry. Co., 3 De Gex & S. 314. 5 Caledonian &c. Ry. Co. v. Trustees, 2 Macq. 391; s. c. 39 Law R. Eq. 28. 6 Preston v. Liverpool &c. Ry. Co., 5 H. L. Cas. 605. 7 Eastern Counties Ry. Co. :. Hawkes, 5 H. L. Cas. 331; Taylor v. Chichester &c. Ry. Co., L. R. 4 H. L. 628. Such a contract may be enforced after the compulsory powers of the company have terminated, as it is already in equity the owner of the land. Webb v. Liverpool &c. Ry. Co., 5 H. L. Cas. 605. the rule has been laid down that a contract, by which indemnity is guarantied to a property holder, who merely for the protection of his private interest is opposing the bill in the legislature, is valid and may be enforced, unless it be shown that the legislature was misled and thereby induced to pass the act, when otherwise it would not have done so.1 270. Promoters' liability on failure of scheme. If persons set a scheme afoot and assume to be its promoters, all expenses incurred before the scheme is in actual operation must be borne by them in the first instance and not by those who advance them money on the faith of its going on.2 Those who purchase shares in a company which never goes on, have paid their money upon a consideration which has failed, and may recover it at law, or in equity, as money had and received. Where an attempted organization of a steamship company does not become a corporation de jure and can not legally issue stock, the issue of stock by it will not alone make the directors liable for a fraudulent conspiracy to issue worthless stock. Nor can an intent to deceive be inferred from this circumstance and the fact that the nominal capital largely exceeds the actual. But the promoters are not personally liable if the money has been honestly applied to the expenses of promotion with the consent or acquiescence of the subscriber. If not so applied, however, the whole amount paid in to the promoters may be recovered back from any of them. Recovery must be in equity if there is an 1 Beach on Railways, § 20; Law v. Connecticut & P. Ry. Co., 46 N. H. 284; s. c. 45 N. H. 370. 2 Nockells v. Crosby, (1825) 3 Barn. & C. 814, 823; Wallstab v. Spottiswoode, (1846) 15 Mees. & W. 501, 516. Vollans v. Fletcher, 1 Ex. 20; Williams v. Salmond, 2 Kay & J. 463; Chaplin v. Clarke, 4 Ex. 402. 6 Nelson v. Luling, (1875) 62 N. Y. 645. 7 Garwood v. Ede, 17 L. J. Ex. 29; 1 Ex. 264; Clement v. Todd, 1 Ex. Nockells v. Crosby, (1825) 3 Barn. 268; Watts v. Salter, 10 C. B. 476; & C. 814, 823. Aldham v. Brown, 7 El. & B. 164; 4 Grand Trunk R. Co. v. Brodie, 9 Londesborough v. Mowatt, 23 L. J. Hare, 822. 5 Ashpitel v. Sercombe, 5 Ex. 147; Ward v. Londesborough, 12 C. B. 254; Colt v. Woolaston, 2 P. Wms. 153; Williams v. Page, 24 Beav. 654; Q. B. 38. 177; s. c. 4 El. & B. 1; In re 8 Wallstab v. Spottiswoode, 15 account to be taken and the bill may be brought in the name and on behalf of all the depositors. Otherwise he can maintain an action only in his own name,' unless fraud is alleged.' Although his name appears upon the prospectus as chairman, a promoter who was not a party to the proceedings resulting in applications for shares, can not be held liable." Where suit is brought for the breach of a contract with the promoters, by the members composing the projected corporation, plaintiffs are not limited to the damages they themselves have suffered, independently of their membership of the association, but may recover damages suffered by the new organization in being unable to carry on a profitable business on account of defendants' failure to perform the contract. Where a corporation is in every respect duly organized except that its articles are not filed in the secretary of State's office, which the law requires to be done, enacting that the corporate existence shall date from such filing, a note signed by the directors as such will bind them personally and not the corporation. The managers of an association supposed by its members to have been duly incorporated, in pursuance of authority given by their associates, made expenditures and incurred liabilities on behalf of the supposed corporation. But owing to failure to file the necessary certificate it had never become a corporation and therefore the managing members became personally liable to pay all debts. And it was held that their associates were bound to share the loss with them in proportion to the stock subscribed, even though such stock had been fully paid up or double liability had been paid as in corporations.? § 271. Liability of directors and promoters for false prospectuses The English Act of 1890.-A recent English statute to be cited as the "Directors Liability Act of 1890," Mees. & W. 501; Moore v. Garwood, 3 Cridland v. De Mauley, 1 De Gex 19 L. J. Ex. 15; Ashpitel v. Ser- & S. 459. combe, 19 L. J. Ex. 82. Apperly v. Page, 1 Phill. Ch. 779; 46. S. C. 16 L. J. Ch. 100. 2 Ship v. Crosskill, 10 Eq. Cas. Abr. 73; Stewart v. Austin, 3 Eq. Cas. Abr. 299; Denton v. Macniel, 2 Eq. Cas. Abr. 352; Mosely v. Cressey's Co., 1 Eq. Cas. Abr. 405. 4 Burnside v. Doyrall, 19 L. J. Ex. 5 Abbott v. Hapgood, (Mass. 1890) 22 N. E. Rep. 907. 6 Hurt v. Salisbury, (1874) 55 Mo. 310. 7 Richardson v. Pitts, (1879) 71 Mo 128. amends the law relating to the liability of directors and others for statements in prospectuses and other documents soliciting applications for shares or debentures. This act is construed as one with the Companies Acts of 1862 to 1890.1 Its provisions are that where after the passing of this act a prospectus or notice invites persons to subscribe for shares in or debentures or debenture stock of a company, every person who is a director of the company at the time of the issue of the prospectus or notice, and every person who, having authorized such naming of him, is named in the prospectus or notice as a director of the company or as having agreed to become a director of the company either immediately or after an interval of time, and every promoter of the company, and every person who has authorized the issue of the prospectus or notice, shall be liable to pay compensation to all persons who shall subscribe for any shares, debentures, or debenture stock on the faith of such prospectus or notice for the loss or damage they may have sustained by reason of any untrue statement in the prospectus or notice, or in any report or memorandum appearing on the face thereof, or by reference incorporated therein or issued therewith, unless it is proved (a) With respect to every such untrue statement not purporting to be made on the authority of an expert,3 or of a public official document or statement, that he had reasonable ground to believe, and did, up to the time of the allotment of the shares, debentures, or debenture stock, as the case may be, believe that the statement was true; and (b) With respect to every such untrue statement purporting to be a statement by or contained in what purports to be a copy of or extract from a report or valuation of an engineer, valuer, accountant, or other expert, that it fairly represented the statement made by such engineer, valuer, accountant, or other expert, I Directors Liability Act of 1890, 53 & 54 Vic. ch. 64, §§ 1 and 2. 2"A promoter in this section means a promoter who was a party to the preparation of the prospectus or notice, or of the portion thereof containing such untrue statement, but shall not include any person by reason of his acting in a professional capacity for persons engaged in procuring the formation of the company." Directors Liability Act of 1890, 53 & 54 Vic. ch. 64, § 3, subsec. 2. 3"In this section the word 'expert' includes any person whose profession gives authority to a statement made by him." Directors Liability Act of 1890, § 3, subsec. 4. or was a correct and fair copy of or extract from the report of valuation. Provided always, that notwithstanding that such untrue statement fairly represented the statement made by such engineer, valuer, accountant, or other expert, or was a correct and fair copy of an extract from the report or valuation, such director, person named, promoter, or other person, who authorized the issue of the prospectus or notice as aforesaid, shall be liable to pay compensation as aforesaid if it be proved that he had no reasonable ground to believe that the person making the statement, report or valuation was competent to make it; and (c) With respect to every such untrue statement purporting to be a statement made by an official person or contained in what purports to be a copy of or extract from a public official document, that it was a correct and fair representation of such statement or copy of or extract from such document; - Or unless it is proved that having consented to become a director of the company he withdrew his consent before the issue of the prospectus or notice, and that the prospectus or notice was issued without his authority or consent, or that the prospectus or notice was issued without his knowledge or consent, and that on becoming aware of its issue he forthwith gave reasonable public notice that it was so issued without his knowledge or consent, or that after the issue of such prospectus or notice and before allotment thereunder, he, on becoming aware of any untrue statement therein, withdrew his consent thereto, and caused reasonable public notice of such withdrawal, and of the reason therefor, to be given. Where any company existing at the passing of this act, which has issued shares or debentures, shall be desirous of obtaining further capital by subscriptions for shares or debentures, and for that purpose shall issue a prospectus or notice, no director of such company shall be liable in respect of any statement therein, unless he shall have authorized the issue of such prospectus or notice, or have adopted or ratified the same. Where any such pros pectus or notice as aforesaid contains the name of a person as a director of a company, or as having agreed to become a director thereof, and such person has not consented to become a director, or has withdrawn his consent before the issue of such prospectus or notice, and has not authorized or consented 1 Directors Liability Act of 1890, 53 & 54 Vic. ch. 64, § 3. |