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mere negligence, and that it is necessary, therefore, that they shall have known that the representations were false. But in other jurisdictions they are liable, without any actual fraudulent intent, if they made the representations recklessly and without any knowledge as to their truth or falsity, or if, although they may have believed them to be true, they ought to have known, and by the exercise of the ordinary care and diligence which it was their duty to use might have known, that they were false." 19 This rule as stated is not strictly correct. It is true that some of the decisions seem to require knowledge of the falsity in order to make officers liable,20 and hold that there is no liability if the representation, although false, was made in good faith and in the honest belief of its truth; and that other decisions go further and hold officers liable if they had knowledge "or ought to have known" of the falsity of the statements.21

19 See 3 Clark & Marshall, Corporations, 745.

20 Iowa. Warfield v. Clark, 118 Iowa 69, 91 N. W. 833. Compare Hubbard v. Weare, 79 Iowa 678, 44 N. W. 915.

Missouri. Utley v. Hill, 155 Mo. 232, 49 L. R. A. 323, 78 Am. St. Rep. 569, 55 S. W. 1091.

New Jersey Cowley v. Smyth, 46 N. J. L. 380, 50 Am. Rep. 432.

New York. Kountze v. Kennedy, 147 N. Y. 124, 29 L. R. A. 360, 49 Am. St. Rep. 651, 41 N. E. 414. But see Taylor v. Thomas, 124 N. Y. App. Div. 53. 108 N. Y. Supp. 454.

Ohio. Mason v. Moore, 73 Ohio St. 275, 4 L. R. A. (N. S.) 597, 4 Ann. Cas. 240, 76 N. E. 932.

England. Derry v. Peek, 14 App. Cas. 337; Weir v. Bell, 3 Exch. Div. 238.

A director of a corporation is not liable for representations, false in fact, but not known by him to be so, made in a published statement or circular of the company, on which his name appears as one of a number of directors. Wakeman v. Dalley, 51 N. Y. 27, 10 Am. Rep. 551.

If the statement as to the condition of the corporation, given by officers to a prospective purchaser of stock,

is secured from the company's bookkeeper and an expert accountant, there is no actionable deceit in the absence of any actual fraudulent intent. Worthington v. Herrmann, 89 N. Y. App. Div. 627, 88 N. Y. Supp. 76, aff'd 180 N. Y. 559, 73 N. E. 1134.

Necessity for under National Bank Act, see Thomas v. Taylor, 224 U. S. 73, 56 L. Ed. 673, and also § 2471, supra.

21 United States. See Chesbrough v. Woodworth, 221 Fed. 912, as to admissibility and sufficiency of evidence.

California. Macdonald v. De Fremery, 168 Cal. 189, 142 Pac. 73.

Michigan. Smalley v. McGraw, 148 Mich. 384, 112 N. W. 915, 111 N. W. 1093.

Nebraska. Gerner v. Mosher, 58 Neb. 135, 46 L. R. A. 244, 78 N. W. 384. See also Stuart v. Bank of Staplehurst, 57 Neb. 569, 78 N. W.

298.

North Carolina. Houston v. Thornton, 122 N. C. 365, 65 Am. St. Rep. 699, 29 S. E. 827; Solomon v. Bates, 118 N. C. 311, 54 Am. St. Rep. 725, 24 S. E. 478; Tate v. Bates, 118 N. C. 287, 54 Am. St. Rep. 719, 24 S. E. 482; Hauser v. Tate, 85 N. C. 81, 39 Am. Rep. 689. Texas.

Kinkler v. Junica, 84 Tex.

These statements, however, are not necessarily conflicting, although they may so appear on their face. In other words, a decision that an officer must have knowledge of the falsity may mean that he must have either actual or implied knowledge, i. e., that he need not have actual knowledge if he ought to have known of the falsity; and there is no doubt that in all jurisdictions misrepresentation is actionable although not known to be false by the officer sought to be held liable, where the representation is made recklessly without knowing whether

116, 19 S. W. 359; Seale v. Baker, 70 Tex. 283, 8 Am. St. Rep. 592, 7 S. W. 742; Collins v. Chipman, 41 Tex. Civ. App. 563, 95 S. W. 666.

In Texas, the directors of a bank are personally liable, at the suit of a depositor, for damages sustained by reason of the insolvency of the corporation, where the depositor was induced to place or leave his money in the bank solely by false representations of solvency made to the public by the directors, who ought to have known, and by the use of the ordinary care and diligence which it was their duty to use might have known, that such representations were false, and that they are so liable, whether the representations were made with intent to defraud or not. Seale v. Baker, 70 Tex. 283, 8 Am. St. Rep. 592, 7 S. W. 742.

Under ordinary circumstances, directors are chargeable with notice of false statements in annual statements of the corporation made to obtain credit, although not shown to have had actual notice, especially where the falsity consists in including as assets accounts which were outlawed or were against bankrupts or were otherwise uncollectible and which by general commercial custom should not be included in a financial statement as assets. Cameron v. First Nat. Bank, Tex. Civ. App. 194 S. W. 469.

"Whatever may be the rule in other jurisdictions, we think it is well settled by the decisions of our Su

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In a North Carolina case it was held that the directors of a corporation are liable in tort to a person injured by being induced to purchase stock therein by false published statements as to the financial condition of the corporation, although they may not have participated in or known of the statements, if the publication thereof was the result of their negligence and inattention in the management of the corporation. Houston v. Thornton, 122 N. C. 365, 65 Am. St. Rep. 699, 29 S. F. 827. And see Solomon v. Bates, 118 N. C. 311, 54 Am. St. Rep. 725, 24, S. E. 478; Tate v. Bates, 118 N. C. 287, 54 Am. St. Rep. 719.

A director who becomes such with knowledge of the insolvency of the corporation at its inception, in order to facilitate sales of stock because of his wealth and business success, is personally liable for the damages sustained by one purchasing stock in reliance on false statements, circulars and reports as to the financial condition of the company, which would have been known of by the director had he exercised due care as director. Childs v. White, 158 N. Y. App. Div. 1, 142 N. Y. Supp. 732.

the statement was true or false, and not caring what the fact might be. In some cases, the officer is held liable where he knew the statements to be false, or where, "the facts being susceptible of knowledge, he represented as of his own knowledge that they were true, when in fact he had no such knowledge." 22 In other cases, it seems to be held that knowledge will be conclusively imputed to the officers.2 23 Fraudulent intent may, in some cases, be inferred from the falsity of the statements contained in a prospectus.24

It is said in an Iowa case, where this question is ably discussed at some length, that the officers "will be presumed to have known that which it was their duty to know," and "before making representations as to the condition of the company as inducements to take stock therein or extend credit thereto, it is their duty to use reasonable diligence to know that the representations are true, and they will be presumed to have used such diligence, and to possess the knowledge which its exercise would bring to them." 25 In a later case in that state, where the secretary of an insurance company was sought to be held liable to one who purchased on reliance upon a report signed by the secretary, the court gave an instruction stating that defendant was charged with knowledge of the true condition of the company, and if the statement was false, knowledge of the falsity should be imputed to defendant. The Supreme Court, in disapproving of the instruction, said: "This action is founded on active and conscious misrepresentation as to the condition of the company, and can only be sustained by proof of intentional fraud. It cannot be predicated on negligence, however gross [citing cases]. And for this reason testimony that the defendant was acting under the advice of counsel and of the auditor of state was competent and material, as was also his own testimony as to his intent."' 26 In Missouri, the president of a corporation executed a mortgage and signed bonds, as

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president. The mortgage recited that the corporation had title to the land mortgaged when in fact it had none. He had no actual knowledge as to the title to the lands, and merely glanced at the mortgage when he executed it, without reading it. It was held that nevertheless he was personally liable to bondholders sustaining loss in purchasing bonds relying in part on the statement in the mortgage as to the title to the mortgaged property.27 In Ohio, where action was brought by a purchaser of stock in a national bank against the directors of such bank alleging damage by reason of the fact that he had purchased in reliance on the statements of the bank, alleged to have been false, as to its resources and liabilities, made to the Comptroller of the Currency, the report having been attested by the directors and having been published as directed by the statute, the following charge to the jury was sustained: "It must appear by a preponderance of the evidence, that at the time of the attesting and publication of said report, that the directors so attesting this report, or who assented to and directed the publication of the same, did so knowing the report to be false, or, under such circumstances as will warrant the jury in finding by a preponderance of the evidence, that such directors, by the exercise of ordinary care and prudence would have known that said report was false in some one or more of the particulars set forth in the petition." In that case, it was held that there must be proof of intentional fraud or else of want of ordinary care.28 It was held that the secretary of a corporation who acts solely for the company in selling corporate stock is not personally liable for false representations to the purchaser that the corporation was legally organized, where he had not personal knowledge of the defect in the corporate organization.29

"The tendency of the courts, both in this country and in England," it is said, "is to hold promoters and directors of companies to a very strict accountability for the accuracy of their representations, made with a view to inducing strangers to the enterprise to invest therein, and to refuse to extend immunity for false state

27 Lynch v. Southern Mining, Land & Lumber Co., 135 Mo. App. 672, 117 S. W. 624.

28 Mason v. Moore, 73 Ohio St. 275, 4 L. R. A. (N. S.) 597, 4 Ann. Cas. 240, 76 N. E. 932.

29 "It appears affirmatively that at the time he had no personal knowledge of the defect in the corporate

organization. This being true he could not have acted with mala fides. Under such circumstances an agent who professes to act only for a disclosed principal is not personally liable although it shall be made to appear that his representations were in fact untrue." Maine v. Midland Inv. Co., 132 Iowa 272, 109 N. W. 801.

ments because the person making them believed them to be true, if in fact they were false." 30

§ 2547. Liability as dependent on participation of officer sought to be held liable. Closely akin to the question of knowledge and intent, referred to in the preceding section, is the question of liability for fraud as dependent upon the participation therein of the officer sought to be held liable. Of course, if the false representations are made directly by a particular officer, no difficulty is experienced in determining his liability in ordinary cases. Thus, the secretary of a corporation is personally liable to the purchaser of stock in the corporation for false representations as to the condition of the company, relied upon by the purchaser to his injury.31 So where the president and treasurer of a corporation knowingly made false statements for public circulation as to the payment of cash dividends, and authorized brokers to falsely state to prospective purchasers that net earnings were more than one per cent. per month, one purchasing stock in reliance thereon and who is injured thereby may recover damages of such officers in an action of deceit.32 And an agent selling stock of a corporation is liable for fraudulent representations in making the sale.33 It is not necessary that directors, sought to be held liable, personally make false representations to plaintiff, but it is sufficient that they approve thereof.34 Generally it may be said that if directors even sanction false statements, prospectuses, reports, or certificates, they are liable. It is settled in New York, it is said, "that a director who knowingly issues or sanctions the circulation of a false prospectus containing untrue statements of material facts, the natural tendency of which is to deceive and mislead the community and induce the public to purchase the stock, is responsible to those who are injured thereby." So in Texas it is held that directors who have sanctioned the long-continued method of borrowing money for the company on the faith of yearly financial statements, are responsible for the truth of the statements so sanctioned

30 Bystrom v. Villard, 175 N. Y. App. Div. 433, 162 N. Y. Supp. 100.

31 Maine v. Midland Inv. Co., 132 Iowa 272, 109 N. W. 801; Warfield v. Clark, 118 Iowa 69, 91 N. W. 833.

Rule applied to reports made by officers of insurance companies. Warfield v. Clark, 118 Iowa 69, 91 N. W. 833.

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32 Keeler v. Dunham, 114 N. Y. App. Div. 94, 99 N. Y. Supp. 669.

33 Wentworth v. Moore, 71 Wash. 396, 128 Pac. 634.

34 Myerhoff v. Tinslar, 175 Ill. App. 29, 43.

35 Charles Lehman-Charley v. Bartlett, 135 N. Y. App. Div. 674, 120 N. Y. Supp. 501.

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