in a corporation, that the latter would take care of the note and pay the interest, and that when it had earned sufficient funds the note would be returned to the maker, and the stock issued to him for the use of his name on the note, First Nat. Bank v. Hizer (1926) 189 Wis. 359, 207 N. W. 688. (The court regarded the party making the representation as not in any way authorized to act for the corporation, but also said that the statement was not the representation of an existing fact, or even a promise to do something in the future, but was only a prophecy by the representor as to what the company would do, and was not a statement upon which fraud could be predicated, or on which the subscriber had a right to rely.)

It was held in Federal Agency Invest. Co. v. Holm (1927) 123 Kan. 82, 254 Pac. 391, that the representation was not one of past or existing facts, and could not constitute a basis for a fraud, where the representation was that shares of stock in an insurance company, subscribed for by an applicant for insurance, would be paid within five years from dividends accruing from the policies.

Promises of future dividends, inducing subscription to corporate stock, constituted the basis of the fraudulent representations relied on in Roark v. Prideaux (1926) - Tex. Civ. App. 284 S. W. 624, affirmed in (1927) Tex., 291 S. W. 868, a case arising under a Texas statute, which is set out under IX. infra.

In Merchants' Wholesale Grocery Co. v. Forsythe (1923) 198 Ky. 334, 248 S. W. 869, it was held that a plea of fraud and misrepresentation was not sufficient, which was based on the ground that the purchaser (a retailer) of stock of a corporation engaged in a wholesale grocery business was induced to take the stock on the representations of the sales agent of the company that, if he desired to purchase goods from it, it would sell the same to him at a cheaper price than he could buy like goods from other wholesale concerns, that he could purchase groceries from the corporation on credit to the amount of his stock subscription, and that if he desired to pay his account by a transfer of the stock back to the corporation, he had the privilege of doing so.

In Van Vechten v. Smith (1882) 59 Iowa, 173, 13 N. W. 94, it was held not

a defense to an action on a note given for a subscription to corporate stock by one who at the time he subscribed for the stock was appointed the agent of the company, that the agreement was that the note was to be paid from the agent's commission, and not otherwise, the court holding merely, in this connection, that parol evidence of such an agreement could not be shown, as it contravened the written contract. It is here assumed, apparently, that violation of this promise would not constitute fraud, the court stating in another connection the rule that a mere failure to perform an agreement never constitutes fraud.

And in State Bank v. Mentzer (1904) 125 Iowa, 101, 100 N. W. 69, it was held that representations to subscribers of stock that notes executed for the stock would be paid from the profits arising from the business before the notes matured, and that in any event they would not be transferred, and ample time would be given for their payment, were merely expressions of opinion, or representations as to a future contingency, and could not form the basis of a charge of fraud.

It was held, also, in State Bank v. Gates (1901) 114 Iowa, 323, 86 N. W. 311, that fraud, inducing the purchase of stock in a corporation, could not be predicated on representations that the notes would be held by the corporation, and that it would not sell, transfer, or negotiate them to third parties, that the subscriber would not be called upon to pay the notes except out of the profits and dividends declared on the stock, that certain things would be done by the corporation in the way of hedge fencing (the corporation being the owner of a patented apparatus for planting and managing hedge fences), that the hedge fence to be planted would grow and make a good fence in three or four years, from which large profits would accrue, there being no evidence, other than the nonfulfilment of the representations, that the scheme was a fraudulent one.

In Bucher v. Federal Baseball Club (1917) 130 Md. 635, 101 Atl. 534, it was held that representations and assurances on the part of the secretary of a baseball club, made to induce one to sign a subscription for a certain amount of the preferred stock of the organization, to the effect that no liability would be thereby incurred by the subscriber, and that the only ob

plied as to prospective profits from investment in mining stock.81

ject of the subscription was to "tide" the club over the first game of the season, after which it would have enough money for its needs, the subscriber signing the paper without reading it, and in reliance on the secretary's statement as to the purpose for which it was to be used, was not such fraud as would avoid liability on the subscription. It was said: "The trial court ruled in effect that the testimony thus proffered was immaterial and without probative force upon the issue of fraud to which it was directed. With this view we fully agree. By the appellant's admission that he understood the paper he signed was to be used for the purpose of raising money, and that he personally wrote after his signature the amount of his subscription, it is settled beyond question that he was not misled as to the fact and measure of the liability he was thereby assuming. In view of his conceded knowledge as to the object for which his signature was being obtained, he is not entitled to impeach for fraud the obligation into which he entered, merely because he did not read the paper and was assured that the corporation to which he was lending his credit would realize enough money from its operations to repay the loan he was thus aiding it to procure. The statement by the secretary of the baseball club that its gate receipts would be sufficient to meet its requirements, and thus relieve the appellant of any liability on account of his signature, was not a representation of an existing fact, but only an expression of opinion or expectation upon which he was not justified in placing reliance, and which is an insufficient basis for a charge of fraud and deception."

Civ. App.

It was held in Houghton v. American Trust & Sav. Bank (1923) Tex. 247 S. W. 904, that a promise made by the payee of a note, given for shares of stock in a corporation, that in the event the shares were not sold before the maturity of the note, he (the payee) would pay off and discharge the note, this agreement being made before the execution or delivery of the note, did not constitute a fraud, and could not prevail against the written agreement evidenced by the note as an unconditional promise to pay.

There are authorities even supporting the doctrine that fraud may not be

Among other cases which turn on the parol evidence rule and do not discuss the present subject, see Bergman v. Evans (1916) 92 Wash. 158, 158 Pac. 961, Ann. Cas. 1918C, 848, in which it was held that evidence was inadmissible of an agreement that subscribers to corporate stock should not be required to pay any more than the sums already paid, since this would vary the terms of the written subscription contract. See note 135, infra.

Without discussion of the question, the court in Planters' Bank & T. Co. v. Felton (1924) 188 N. C. 384, 124 S. E. 849, held that for the purpose of showing fraudulent intent, evidence was admissible, in an action on notes given for the purchase price of corporate stock, that, as an inducement to purchase the stock, the sales agents represented to the purchaser that he would never have to pay for the stock except from dividends therefrom, and that the dividends would fully care for and pay off the purchase price.

In Steven v. Combination Fountain Co. (1923) 231 Ill. App. 360, in which it was contended that a subscriber to corporate stock could not recover for deceit, for the reason that the fraud was but a breach of contract by the defendant to pay and to return to him his note given for the stock, and to save him harmless thereon, the court held that the claim was not based on a breach of the contract, but on the injury caused by misrepresentations of past or existing facts, as to the financial condition of the corporation. 81 See note 84, infra.

Ordinarily fraud may not be predicated on

predictions made to purchaser of mining stock as to future operations and prospective profits, Crosby v. Emerson (1906) 74 C. C. A. 45, 142 Fed. 713;

-representation inducing the purchase of mining stock, to the effect that the stock would pay immense dividends, and would bear a certain rate of interest, Wegerer v. Jordan (1909) 10 Cal. App. 362, 101 Pac. 1066;

-representations, inducing ene to transfer property for stock in a mining company, that the mines were rich with silver, and would pay a dividend of from 20 to 100 per cent, and that there was enough silver ore on the dump at the mine to pay the par value

predicated, in cases of this class, on promises relating to the future, although there is no intention of performance.82 But according to the weight of authority, which finds illustration in this class of cases, if the representations and promises inducing

of the stock, Crocker v. Manley (1896) 164 III. 282, 56 Am. St. Rep. 196, 45 N. E. 577, 18 Mor. Min. Rep. 485, the court stating that these allegations were mere matter of opinion, and, whether false or true, did not form a basis upon which to rescind the contract;

- representations inducing purchase of stock in a mining company, which consisted in "puffing" the mining claims, or making glowing predictions as to how such claims would "pan out," Burwash v. Ballou (1907) 230 II. 34, 15 L.R.A. (N.S.) 409, 82 N. E. 355;

-promise by seller to purchaser of mining stock that the former would reimburse the latter out of his own property for any loss which might be sustained in case the representations proved untrue, Eckman V. Webb (1904) 116 Ill. App. 467;

- representations as to future earnings and financial value of a mine or stock of a mining company, Press v. Hair (1907) 133 Ill. App. 528;

- representations, inducing purchase of stock in mining company, that the stock would soon become very valuable, and that dividends would be paid, Kimmel v. Eastern Coal & Min. Co. (1924) 97 W. Va. 154, 124 S. E. 661;

-representation,

inducing purchase of mining stock, that it was impossible for the purchaser to lose upon her investment, and that the mine would pay dividends in the near future, Warner v. Benjamin (1895) 89 Wis. 290, 62 N. W. 179.

82 In Lowry Nat. Bank v. Hazard (1909) 223 Pa. 520, 72 Atl. 889, where the false representations, relied on as a defense in an action on a note given for corporate stock, were held to be mere promises as to the future, on which fraud could not be predicated, the court said that, so far as appeared, the promisor might have intended at the time he made the promises to carry out in good faith every representation he made, but that, whether he did or not, they were not representations of existing facts, but promises to be ful

the subscription are made without intention of performance, and for the purpose of misleading the subscriber, who relies on them to his injury, the same may constitute a basis for fraud.83 It has been held that, if there is no intention of performance, fraud filled in the future in regard to the business of the corporation, the stock of which was transferred to the defendant as consideration for the notes given.

In Missouri Loan & T. Co. v. Federal Trust Co. (1913) 175 Mo. App. 646, 158 S. W. 111, where a loan and investment company subscribed for shares of stock in a trust company, relying on representations of the latter that it would furnish the former such money as it desired, at a certain rate of interest, to loan on real estate, it was held that the subscription contract could not be canceled and the amount paid on the stock recovered, on the grounds of fraud and deceit, even though the trust company did not perform the promise, and at the time it made it did not intend to do so, but made such representations and promises as a device to induce the making of the subscription, and not in good faith. The court regarded the authority of Younger v. Hoge (1908) 211 Mo. 444, 18 L.R.A. (N.S.) 94, 111 S. W. 20, as controlling, although indicating that its own view would have been otherwise.

It was held in Meixner v. Western Live Stock Ins. Co. (1916) 203 Ill. App. 523 (abstract), that if an agent for the sale of stock of a corporation made a sale thereof on his promise to resell it within a certain time for the first purchaser's benefit, which he did not do, there was no such false representation as would furnish ground for an action of fraud by such purchaser, to recover money paid on the purchase, even though the agent did not intend, when he made the promise, to keep it.

83 Thus, if there is no intention of performance, fraud may be predicated

on

- promises by seller of corporate stock to repurchase it within a year at a certain price, and to extend the time for payment if purchaser did not have funds for payment on the due date, Lentz v. Landers (1919) 21 Ariz. 117, 185 Pac. 821;

representation, made to induce one to subscribe for corporate stock, that the representor intended forth

with to organize, or cause to be organized, a corporation with a certain capital stock, for the purpose of taking over and conducting a designated business, Schaeffer v. Rush (1912) 118 Minn. 174, 136 N. W. 754;

sub

-representation, inducing scription to stock of a grain company, that the corporation would, within a certain time, build a new and improved grain elevator, enabling subscribing patrons to obtain a price for grain above the local market price, that the stock would "carry itself," and that the subscriber would never be called upon to pay the note given for the subscription, except from dividends on the stock, Farmers' Co-op. Grain Co. v. Startzer (1924) 112 Neb. 19, 198 N. W. 170;

- promise to hold notes given for subscription to corporate stock until the maker of the note sold a certain farm, and to return the notes on failure to sell the farm, White v. Fisheries Products Co. (1923) 185 N. C. 68, 116 S. E. 169;

representation to maker of note given for stock subscription that she would never have to pay the note, and that it would be held until a designated date, when certain stock in the company would be offered for sale to discharge the note, Planters Bank & T. Co. v. Yelverton (1923) 185 N. C. 314, 117 S. E. 299.

Where the jury might have found from the evidence that at the time a promise to resell corporate stock, inducing a stock subscription, was made, the promisor had no intention whatever of performing the promise to resell the stock, which was of little or no value, it was held in Faust v. Parker (1927) Iowa, -, 213 N. W. 794, that a verdict directed for the promisors was erroneous, in an action by the purchaser for damages for fraud, and that the case should have been submitted to the jury.

A representation by a packing company, made to one engaged in the cattle business as an inducement for him to purchase stock in the company, that it would establish a packing plant and stockyard at a certain place, nearer to his farm than any similar enterprise then existing in the state, amounting to an assurance that the company had a settled and fixed purpose to do so, and financial ability, at the time the representations were made, to install

and equip the same,- -was held in California Credit & Collection Corp. v. Carpenter (1926) Cal. App. 246

Pac. 126, to constitute fraud which would be a defense to an action on notes given for the purchase price of stock in the company. A somewhat similar case is California Credit & Collection Corp. v. Goodin (1926) — Cal. App., 246 Pac. 121.

In Ayres v. French (1874) 41 Conn. 142, it was held that actionable fraud was charged by allegations that the defendant, in order to induce the plaintiff to give up his claim against à corporation and take stock in lieu thereof, informed the plaintiff that he would indorse his paper without further compensation, and without security, intending at the same time not to do so, but to demand security in order to compel the plaintiff to put the stock into his hands, and intending further to appropriate the stock to his own use.

And the proposition that if one with intent to deceive makes representations as to future prospects of a corporation, which he does not in good faith believe, in order to induce another to purchase stock, and the latter does so, relying upon the opinion of the person making such representations, a cause of action arises for fraud if the same are false, is supported by Moran v. Holmes Mfg. Co. (1923) 99 Conn. 180, 121 Atl. 346, although in this case it was found that the representations were made in good faith, and so were not actionable.

In City Nat. Bank v. Mason (1922) 192 Iowa, 1048, 186 N. W. 30, where the alleged false representations, inducing the purchase of stock, were that the company was going to erect, or that it was its intention and purpose to erect, a manufacturing plant at a certain place with the proceeds of the capital stock of the company, the court said that to constitute fraud, as charged, it must be established by a preponderance of the evidence, not only that the alleged misrepresentation or statement was made, but also that, at the very time of its making, the representor knew that it was false, and that in fact there was no intention or purpose to erect a manufacturing plant as represented.

It was held in Electric Hammer Corp. v. Deddens (1924) 206 Ky. 232, 267 S. W. 207, that if a sales agent, to

induce the purchase of stock in a corporation, represented to the purchaser that the company would be marketing a certain machine within a few months, when the company had no purpose to do so, and the agent knew this fact and did not expect the company to perform his promise to market the machine within such time, the purchaser might avoid the contract of sale on the ground of such false representations.

In holding that a contract for stock in a proposed insurance company would be canceled on the ground of fraud of the soliciting agent in procuring the contract, consisting in representations that the company would take the subscriber's note for a portion of the stock and would renew the same, the court in General Bonding & C. Ins. Co. v. Mount (1916) - Tex. Civ. App. —, 183 S. W. 783, said: "Does the evidence in this case warrant the finding of fraud in making such representations to induce the contract? The facts in this case show that Wright had no authority to make such representation, and that he then knew he had no such right, and also knew that the proposed corporation could not legally give the defendant in error such a privilege as he represented would be granted, and, thus knowing, he made the representations testified to by Mount. These representations were made to induce the contract, and by reason of which he secured the contract. His statement that he had such authority was a statement of a then purported existent fact, which in fact was untrue, and it was calculated to deceive, and did deceive. We believe the trial court was justified in finding from the facts that the representations were fraudulently made to induce the contract, and hence correctly canceled the subscription contract and decreed a recovery for the money so obtained.

We recognize the rule to be ordinarily that a promise to perform an act in the future, although made as a representation to induce the other to enter into a contract, will not amount to fraud in legal contemplation, although afterwards the promise, without any excuse, is broken; but if the promise was made with the design of cheating or deceiving the party sought to be bound by the contract, and the one so representing had no intention of performing. or knew that his prin

cipal or himself would not perform, or be bound thereby, this fact, coupled with the further fact that the contract was so obtained, and the refusal of the promisor to perform, will be sufficient to rescind the contract."

In an action to recover the balance due on a subscription for stock in a plank-road company, it was held in Rives v. Montgomery South Pl. Road Co. (1857) 30 Ala. 92, that the defendant should be permitted to show that his subscription was procured by false and fraudulent representations of the president and a director of the company, made to him before he subscribed, and inducing the subscription, to the effect that the road would be so located as to pass through his plantation, thereby greatly enhancing its value, whereas the road did not in fact pass within 5 miles of the plantation. Regarding this case the court, in Montgomery Southern R. Co. v. Matthews (1884) 77 Ala. 357, 54 Am. Rep. 60, said that it merely held that the representation was legal evidence,—a predicate for further testimony,—and not that it was sufficient of itself to avoid the subscription.

In Matteson v. Weaver (1924) 229 Mich. 495, 201 N. W. 473, the court considered, on the question of fraud, statements made by a sales agent, inducing subscription to corporate stock, that the agent intended to put a large amount of money into the enterprise, and that the subscriber would not be called upon to pay his notes, as they would simply be used as collateral, and that the dividends, before they were due, would more than pay them -these statements, although promissory in character, being regarded as part of a scheme to defraud, and not made in good faith. In this instance there were also misrepresentations of existing fact.

The doctrine that if the representations and promises are known by the party making them to be false, and are made for the purpose, and have the effect, of inducing the other party to act, the representations are actionable, even though partaking of the nature of opinion and of a promissory character, was applied in Texas Co-op. Invest. Co. v. Clark (1919) Tex. Civ. App. —, 216 S. W. 220, modified on other grounds in (1922) Tex. 239 S. W. 198, in holding, in an action to recover money paid for stock in