§ 2550. Wrongful declaration of only small dividend and increase of salaries. Where the acts of corporate officers in declaring only a small dividend and at the same time increasing their salaries was wrongful, and was done for the purpose of inducing a stockholder to sell them his stock for less than it was worth, which he did, such acts are a fraud on the stockholder and he may recover from such officers the damage sustained by him in selling his stock to them.6 60 Such an action is not one by a stockholder for the benefit of all the stockholders but is one by a stockholder individually.61

§ 2551. False representations as to goods sold. In a case decided in Washington, a blasting powder company issued circulars misrepresenting the safety of the powder. One who purchased the powder was injured by a premature explosion of it. The corporation had no general manager. It was held that directors of the company were liable therefor on the theory that they "were presumed to have been actively engaged in managing the affairs of the company" and that "the act of the company in issuing the circular was also in law the personal act of these trustees in so far as such act constituted the wrong, resulting in" the injury.62

§ 2552. Effect of statute requiring report fixing penalty for false report, as fine and imprisonment. In one case it was held that, inasmuch as the statute fixed the penalty for a false report at fine or imprisonment, therefore no other penalty could be enforced and the directors could not be held liable for deceit in making the report.63

§ 2553. Measure of damages. In case of a stockholder who purchases stock in reliance upon a false statement, the measure of damages is the difference between the market value of the stock at the time of purchase and what it would have been worth if the condition of the company had been as represented.64 If a prospectus is published in the name of and under the sanction of the directors, but only the general manager knew of the falsity of the representations therein, the liability of the directors other than the manager,

60 Von Au v. Magenheimer, 126 N. Y. App. Div. 257, 110 N. Y. Supp. 629, aff'd without opinion 196 N. Y. 510, 89 N. E. 1114.

61 Von Au v. Magenheimer, 126 N. Y. App. Div. 257, 110 N. Y. Supp. 629, aff'd without opinion 196 N. Y. 510, 89 N. E. 1114.

62 Marsh v. Usk Hardware Co., 73 Wash. 543, 132 Pac. 241.

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

64 Warfield v. Clark, 118 Iowa 69, 91 N. W. 833.

to a stockholder who purchased stock in reliance thereon, is limited. to compensation for the actual damages resulting from their misconduct, and cannot be extended to a requirement that they return the entire investment as in case of intentional fraud.65

66

§ 2554. Remedies for fraud. Where plaintiff has been induced to become a stockholder by the false representations of officers of the corporation, it is the rule in England that he may sue in equity, and that equity exercises a concurrent jurisdiction in such cases; and this rule has been followed in this country.67 Fraud practiced upon individual shareholders, to induce them to purchase stock, gives a right of action to be asserted by them individually rather than by an action in behalf of all the stockholders.68 If it is claimed that plaintiff purchased stock based on the fraudulent representations of the controlling officer of the corporation, and that the stock was thereafter made worthless by such officer manipulating the assets, the stockholder has at least three remedies, viz.: (1) rescission of the stock subscription and recovery of the money paid for the stock, (2) action ex delicto against the officer for the damages resulting from the fraud, (3) suit in equity in behalf of all the stockholders to charge the officer with the profits fraudulently obtained and for an accounting.6

69

Where all the visible definite assets of a corporation have been sold by the receiver, and further dividends depend wholly upon the contingent result of litigation which, even if successful, would add assets the value of which would be incapable of definite ascertainment, a creditor is not obliged to wait, before suing corporate officers individually for fraud, until the final result of such suits, nor are the damages to be lessened by the amount of such possible further dividends.70

The remedies of a subscriber to or purchaser of capital stock of the corporation, in case of fraud, has already been stated.71

65 Lyon v. James, 97 N. Y. App. Div. 385, 90 N. Y. Supp. 28, aff'd 181 N. Y. 512, 73 N. E. 1126.

66 Hill v. Lane, L. R. 11 Eq. 215; Peek v. Gurney, L. R. 6 H. L. 377.

67 Squiers v. Thompson, 73 N. Y. App. Div. 552, 76 N. Y. Supp. 734, aff'd without opinion in 172 N. Y. 652, 65 N. E. 1122. To same effect,

Kilbourne v. Sunderland, 130 U. S. 505, 32 L. Ed. 1005.

68 Moncur v. Ideal Mfg. Co., 31 Dom. . R. (Can.) 465.

69 Heckendorn v. Romadka, 138 Wis. 416, 120 N. W. 257.

70 Cameron v. First Nat. Bank, Tex. Civ. App., 194 S. W. 469. 71 See §§ 627-629, vol. 2.

72

§ 2555. Infringement. Corporate officers, in a proper case, are liable for infringement of a patent, copyright, or trade-mark or trade name; although, at least so far as patents are concerned, some of the decisions are far from being clear as to exactly what they intend to hold. In some cases, in a suit in equity, it seems to be held that an officer of a corporation cannot be held liable where the corporation is solvent and a decree against it will give adequate relief, where the officer has done nothing except in his official capacity.73 On the other hand, corporate officers who actually participate in the adoption and use by the corporation of an infringing device have been held personally liable.74 And, managing officers who are heavy stockholders and have the entire management of the corporation have been held liable for the infringement of trade-marks where instigated and controlled by them.75 In relation to infringement of patents, a federal court has said that "the general principles determining this liability are in no wise peculiar to the patent law, but are equally applicable to all torts;" and it expressly held that "a director of a corporation, who, as director, by vote or otherwise, specifically commands the subordinate agents of the corporation to engage in the manufacture and sale of an infringing article, is liable individually in an action at law for damages brought by the owner of the patent so infringed. As with other infringers, it is immaterial whether the director knew or was ignorant that the article manufactured and sold did infringe a patent." 76

In any event, the mere fact that one is a director or other officer of the infringing company does not make him personally liable,”

72 Cahoone Barnet Mfg. Co. v. Rubber & Celluloid Harness Co., 45 Fed. 582; National Car-Brake Shoe Co. v. Terre Haute Car & Manufacturing Co., 19 Fed. 514. Contra, Cazier v. MackieLovejoy Mfg. Co., 138 Fed. 654, rev'd on other grounds 157 Fed. 88; United Nickel Co. v. Worthington, 13 Fed. 392.

73 Loomis-Manning Filter Co. V. Manhattan Filter Co., 117 Fed. 325; Bowers v. Atlantic, G. & P. Co., 104 Fed. 887, followed in Farmers' Mfg. Co. v. Spruks Mfg. Co., 119 Fed. 594.

74 Peters v. Union Biscuit Co., 120 Fed. 679, 686; Fauber v. Springfield Drop-Forging Co., 98 Fed. 119.

Corporate officers may be personally

charged with the infringement of trade-marks in transacting the corporate business where they have full power to act in all matters affecting the corporate interests and the directors are practically without voice in the corporate management. Saxlehner v. Eisner, 147 Fed. 189. Compare Brennan & Co. v. Dowagiac Mfg. Co., 162 Fed. 472, where damages reduced to one dollar as to corporate officials who infringed only as officials.

75 Saxlehner v. Eisner, 140 Fed. 938, aff'd 147 Fed. 189.

76 National Cash-Register Co. V. Leland, 94 Fed. 502, 507, 511, where question is discussed at length.

77 Reis v. Rosenfeld, 204 Fed. 282;

especially where the infringement was contrary to his express instructions and without his knowledge.78 However, if individuals organize a corporation for the sole purpose of enabling them as individuals to carry on, in corporate form, a side line or business, in which they could as individuals have the entire management and direction, but in which they would not be responsible beyond their stock, they may be joined with the corporation as defendants in an infringement suit.79

§ 2556. Libel. In like manner, officers of a corporation are personally liable for a libel if they participate in its publication, although merely as officers.80 There is no liability, however, if the officer does not participate in the libel.81 Thus, the president of a corporation is not liable for a libel published in a newspaper owned by the company where he did not personally participate therein.82 However, the general manager of a newspaper who controls its policy is liable for a libel printed therein; 83 and a general manager who knows a libel is to be published but takes no steps to stop it is personally liable.84

It is said by Justice Marshall, in a Wisconsin case, that "the law is well settled that the managing editor of a newspaper is equally liable with the proprietor and publisher for the consequences, in a civil action, for the publication of a libelous article; and this is so whether he knows of the publication or not, for it is his business to know, and mere want of knowledge constitutes no defense." 85 Sub

Hutter v. DeQ. Bottle Stopper Co., 128 Fed. 283.

Directors are not rendered liable by signing a paper agreeing to save harmless from infringement suits purchasers who had previously bought the infringing devices. American Bank Protection Co. v. Electric Protection Co., 181 Fed. 350, 373.

78 Stuart v. Smith, 68 Fed. 189. 79 Crown Cork & Seal Co. of Baltimore City v. Brooklyn Bottle Stopper Co., 172 Fed. 225, 233.

80 Belo v. Fuller, 84 Tex. 450, 31 Am. St. Rep. 75, 19 S. W. 616.

81 The secretary of a corporation cannot be charged with liability for the publication of a libel merely be cause, at the request of the general

manager of the corporation, he permitted the latter to take a memorandum which was in his custody as secretary, and which was, without his consent or knowledge, so used by the general manager as to be made, the basis of the libelous article. Washington Gas Light Co. v. Lansden, 172 U. S. 534, 43 L. Ed. 543.

82 Folwell v. Miller, 145 Fed. 495, 10 L. R. A. (N. S.) 332, 7 Ann. Cas. 455.

83 Danville Press Co. v. Harrison, 99 Ill. App. 244.

84 Keller v. American Bottlers' Pub. Co., 140 N. Y. App. Div. 311, 125 N. Y. Supp. 212.

85 Smith v. Utley, 92 Wis. 133, 35 L. R. A. 620, 65 N. W. 744.

stituting the words "general manager" for "managing editor" this would seem to be the rule as to all corporations, under ordinary cir cumstances. And it was held in a later Wisconsin case that directors of a newspaper who had caused the publication of many violent articles in opposing a street franchise for a street railroad company were liable for a libel in pursuance of such policy, although it was not shown that they counseled or advised the specific libel.86 The rule is stated in the latter case that if it be shown that officers "in any way aided, assisted, or advised its publication or circulation, or that their duties as officers or agents of the concern were of such a character as to charge them with the performance of functions concerning the publication and circulation of the paper, such duties being of such nature that the law implies that such officer or agent knew or ought to have known of the publication, they are liable, and cannot defend on the ground merely that they did not know about the libel until after it was published." 87

§2557. Malicious prosecution. A person cannot escape personal liability for malicious prosecution merely because he acted as an officer of a corporation and not as an individual in his private capacity.88

§ 2558. Negligence. As to liability of agents in general for negligence, there is considerable conflict in the authorities, due to the courts drawing a distinction between acts of nonfeasance and acts of misfeasance or malfeasance.89 There is a sharp conflict in the authorities both as to whether an agent or servant is liable to a third person for nonfeasance, and as to what is nonfeasance within the rule.90 One line of cases holds that there is no liability for nonfeasance; another line of cases repudiates the distinction between nonfeasance and misfeasance and holds agents liable for what is termed nonfeasance as well as misfeasance; and still another line of cases holds the performance of duties negligently, as distinguished from a total failure to perform, to be misfeasance rather than nonfeasance. This is too broad a subject for a thorough consideration in

86 Pfister v. Sentinel Co., 108 Wis. 572, 84 N. W. 887.

87 Pfister v. Sentinel Co., 108 Wis. 572, 84 N. W. 887.

88 Murphy v. Eidlitz, 113 N. Y. App. Div. 659, 99 N. Y. Supp. 950. See also Farmers' Mut. Fire Ins. Ass'n V.

Stewart, 167 Ind. 544, 79 N. E. 490. 89 See generally 1 Mechem, Agency (2nd Ed.), § 1460.

90 See Ward v. Pullman Car Corporation, 131 Ky. 142, 25 L. R. A. (N. S.) 343 with note, 114 S. W. 754.