a certain later date;84 also, that one who induces the purchase of corporate stock by promising the purchaser a salaried position with the corporation, knowing that the purchaser will not be accepted for the position, and not intending that his representations will be made good, is guilty of actionable fraud.85 If the scheme is merely one to defraud, or if the person making the representations has no reasonable

investment company on the ground of false and fraudulent representations, that evidence was admissible that the sales agent represented that the stock would pay enormous dividends, that the subscriber would be able to borrow from the company all the money she might require at a rate not exceeding 6 per cent interest, with the stock as security, that he (the agent) would guarantee 10 per cent on the stock at the start, and that as soon as the company began business its stock would pay 100 per cent dividends, and he would guarantee that it would pay this dividend, or better.

84 Lovell v. Dotson (1924) 128 Wash. 669, 223 Pac. 1061. See in this connection, note 81, supra.

85 Holmes V. Wilkes (1915) 130 Minn. 170, 153 N. W. 308.

86 It was held in Murray v. Tolman (1896) 162 Ill. 417, 44 N. E. 748, that fraud warranting rescission of a contract of subscription for corporate stock was shown, where the organization of the corporation was by the president of a bank, as a fraudulent device to cover the charging of usurious interest and to insure the safe collection of loans, and such president, knowing that the representations were false, represented to a borrower from the bank, as an inducement to him to subscribe to the stock, that it was worth 50 per cent more than its par value, and would pay an annual dividend of 25 per cent, and that he would, at any time the subscriber tired of the bargain, repurchase the stock; such president and organizer of the company knowing that his representation as to its objects, purposes, and charter powers were false, and that the subscriber was ignorant of the fact, and relied upon h statements and representations, and reposed confidence in him. Under these circumstances the court regarded the promise to repurchase the stock as proper for

86

ground for believing, in view of the existing financial condition of the corporation, that its future earnings will be as represented, the situation may be such as to give rise to an action for fraud, especially if he represents that he is in intimate contact with the corporation, and because of his familiarity with its business is in a position to predict the future value of the stock.87

consideration. See this case also under note 44, supra.

A statement, inducing subscription to corporate stock that the stock would earn 30 per cent dividends, was held actionable, in Pioneer Tractor Co. v. Peebles (1913) 6 Sask. L. R. 339, 15 D. L. R. 275, as a false statement of fact, that is, a false statement of the opinion of the person making it,where at the time the financial condition of the company was such that there could be no possibility of its earning such profit, and the person making the statement had no reasonable grounds on which to base it, and could not have believed it to be true, but made the statement falsely and fraudulently, in order to induce the subscription. Appeal dismissed in (1914) 7 Sask. L. R. 322, 18 D. L. R. 477.

It was held in Gerhard v. Bates (1853) 2 El. & Bl. 476, 118 Eng. Reprint, 845, that an action for deceit would lie, where the defendant, knowing that a company which he was promoting was a "bubble company," and that no dividends would ever be paid on the shares, in order to induce the plaintiff to purchase shares, fraudulently pretended to guarantee that a minimum annual dividend of 33 per cent would be paid.

87 See IV. supra, as to rule generally, where parties are on unequal footing.

In RUSSELL V. INDUSTRIAL TRANSP. CO. (reported herewith) ante, 1, it was held that if agents, in soliciting stock subscriptions, represented that they were in intimate connection with the corporation, and, because of their familiarity with its business, knew the value of its stock, and that in about two weeks the stock would be worth 25 per cent more than the subscriber was paying for the same, and that it would return an annual dividend of 8 per cent from the earnings, when the agents knew that these representa

The representations may be so connected with statements of fact, existing or past, that they constitute more tions were false, cancelation of the subscription could not be avoided on the ground that the representations were only matters of opinion, on which fraud could not be predicated.

It was held in French v. Ryan (1895) 104 Mich. 625, 62 N. W. 1016, that while representations as to the probable earnings of an enterprise were not necessarily fraudulent, as they might be mere expressions of opinion made in good faith, and in such a case could not be made the basis of recovery, yet if they were made in bad faith, by one who was possessed of superior knowledge respecting such matters, with a design to deceive and mislead, the party making them must respond in damages.

88 Generally, as to promises blended or associated with misrepresentations of fact, see V. supra.

Where one was induced to purchase stock in an insurance company which was not at the time completely organized, under a representation by the sales agent that he would be appointed medical director when the company was organized, and that he might pay for the stock out of the salary paid him by the company, the agent representing that the matter had already been arranged and that the appointment would follow, it was held in Lynch v. Des Moines Life Finance Co. (1921) 192 Iowa, 117, 182 N. W. 213, that the statement was more than a mere expression of opinion, or of a prediction as to the future, amounting to a representation of an existing fact on which the subscriber had a right to rely, and was sufficient, if it proved false, to avoid the subscription liability.

In Buckman v. Bankers' Mortg. Co. (1924) Mo. App. —, 263 S. W. 1046, it was held that representations, inducing the purchase of stock in a corporation, that the seller knew where he could place the stock at a specified advanced price in a certain place, with a group of men who would buy it as soon as it was all sold, was not merely the expression of an opinion, but a statement of an existing fact, the truth and materiality of which were questions of fact for the trial court on the question of fraud.

In Sioux City Tire & Mfg. Co. v. Harris (1922) Iowa, —, 190 N. W. 142,

than a mere opinion regarding the future, and may be a sufficient basis for fraud.88

it was held that a subscriber to corporate stock could recover damages in a sum representing the cash payment made at the time of the transaction, as the evidence showed false and fraudulent representations and statements made by the agent of the corporation to the subscriber, inducing the purchase of stock, to the effect that the company had been and was paying large dividends on its stock, that the same was selling at a high price on the market, that the subscriber was only required to pay 25 per cent on her subscription, and could give her note for that amount, and that, as to the balance, she would never have to pay any money, as the dividends on the stock would pay for the same, and that at the end of three years the dividends would pay the remaining 75 per cent. The court said that statements concerning the future earnings or dividends, made with the intention that the same should be believed as facts, constitute representations of facts, and are not mere opinions. But it is not clear to what extent the predictions of future earnings constituted the ground of the decision.

In Mack Mfg. Co. v. Oeding (1922) Tex. Civ. App. 244 S. W. 156, where the alleged false representations, inducing the purchase of stock, were to the effect that the company would shortly declare, and was making arrangements so to do, a stock dividend of 100 per cent, and also a 20 per cent cash dividend, the benefit of which the subscriber would obtain in the event he purchased the stock, and that the company would agree to sell for the purchaser half of the stock which he was then solicited to purchase, at double the price he was to pay therefor, the court said that if the purchaser was induced by these representations to enter into the purchase, as he would not have otherwise done, and if they were made for the purpose of inducing him to make a contract, with knowledge on the part of the promisor that arrangements had not been made as to stock and cash dividends, and that the company would not undertake to sell half of the stock then purchased, at twice the price paid therefor, as alleged, then the representations could not be said to have been

The fact that there was no corporation in existence, but that it was only in process of formation or promotion, has been a factor in one or two cases, affecting the decision.89

It may be noted, without attempting to cover these points, that the representations must relate to matters material to the transaction, and not to immaterial, as being mere "glittering promises" on the part of the company to do something in the future; but they must be held to be material representations and promises, inducing the purchaser to act and perpetrating a fraud on him, authorizing him to rescind the contract.

It was held in Madison Trust Co. v. Stahlman (1915) 134 Tenn. 402, 183 S. W. 1012, that the representations were not mere expressions of opinion and predictions, on which fraud could not be predicated, where they consisted of statements regarding the existing value of stock, inducing a purchaser to renew his note given therefor, and not to sell or dispose of the stock, whereas the company was in the hands of financial crooks and was being rapidly bankrupted.

A false representation by a seller of bonds that there were no other bonds of that issue on the market, and that they were shortly to be retired at an advanced price, was held in Veil v. Thompson (1914) 150 N. Y. Supp. 659, to be a representation of material facts, warranting recovery of damages for misrepresentation, and not merely a statement of opinion.

And it was held in Martin v. Veana Food Co. (1908) 153 Mich. 282, 116 N. W. 978, that alleged misrepresentations, inducing the purchase of corporate stock, were not mere expressions of opinion on which fraud could not be predicated, where they were to the effect that there was a constantly increasing demand for the product of the company, that there was a plant which had cost a certain sum, that the experimental stage had long since been passed and the basis of assured success well laid, and that the company had an output of a certain amount per hour which would show a specified net profit on the investement.

In American Cotton Co. v. Collier (1902) 30 Tex. Civ. App. 105, 69 S. W. 1021, in which the grantor of a cotton gin plant and land connected therewith sought cancelation of convey

matters of collateral inducement only,90 and that the subscription may be on a condition precedent or subsequent, incorporated in the contract itself, the nonfulfilment of which would be a bar to an action thereon.91

A statement made by a purchaser of stock that he is desirous of purchasing all of the stock in the company

ances of the same, made in consideration of stock in a proposed ginning company, the court took the view that the alleged representations should be regarded as statements of fact, if made as such to induce the grantor to enter into the contract in question, where they related to the quality and capacity of new presses for baling cotton, the marketable quality of the cotton to be pressed by the new system, the saving to be made in the reduction of freight rates, and the passing of the experimental stage in the process of pressing cotton by this new method.

89 Fox v. Allensville, C. S. & V. Turnp. Co. (1874) 46 Ind. 31, supra. And in Shick v. Citizens' Enterprise Co. (1895) 15 Ind. App. 329, 57 Am. St. Rep. 230, 44 N. E. 48, where the alleged false representations were with reference to the objects and purposes of a proposed corporation to which the subscription sued on was made, the court said that the alleged false representation did not relate to any existing fact; and that, if it was such as a preliminary subscriber had a right to rely on, it constituted no defense; that there was no corporation in existence when the defendant signed the subscription contract, and the company could not, prior to its incorporation, make false and fraudulent representations, through agents or otherwise, as to the purpose of its organization.

90 The decision in American Bldg. & L. Asso. v. Bear (1896) 48 Neb. 455, 67 N. W. 500, where there were alleged false representations, inducing subscription to stock of a corporation, that the affairs were to be supervised by an advisory board, consisting of a large number of eminent citizens, is based on the ground that the representations relied upon were, at most, relative to matters of collateral inducement only, and did not afford ground for rescission of the subscription contract.

91 See, for example, Parker v. Thomas (1862) 19 Ind. 213, 81 Am. Dec. 385.

does not amount to a statement that he intends to buy all of the stock, so as to serve as a basis of an action for deceit for false representation of intention.92

g. Railroad aid; subscriptions to railroad stock or bonds; location or continuance of road, etc.

The general question of a railroad company's nonperformance of an executory promise as ground for cancelation or rescission of a deed to it is treated in another annotation.93

The ordinary rule that fraud may not be predicated on unfulfilled prom

92 Schrafft v. Fidelity Trust Co. (1906) 73 N. J. L. 57, 62 Atl. 933.

93 See annotation in 13 A.L.R. 566. 94 As to representations regarding construction of railroads, depots, etc., inducing purchase of realty, see VII. c, supra.

The general rule that ordinarily fraud may not be predicated on unfulfilled promises or statements as to future events has been applied, or, at least recognized as applicable, with regard to―

- promises and representations as to proposed railroad, inducing subscription to stock of company, Sawyer v. Prickett (1873) 19 Wall. (U. S.) 146, 22 L. ed. 105;

-promises in prospectus inducing purchase of railway bonds, Banque Franco-Egyptienne v. Brown (1888; C. C.) 34 Fed. 162;

- representations as to location and time of completion of railroad, inducing stock subscription, Montgomery Southern R. Co. v. Matthews (1884) 77 Ala. 357, 54 Am. Rep. 60;

declarations made in public speeches by agent of a railway company, inducing subscriptions to its stock, as to the proposed location of the road, such declarations not being incorporated in the contract of subscription, and a compliance therewith by the corporation not being made a condition precedent to the payment of assessments on the stock, Mississippi, O. & R. River R. Co. v. Cross (1859) 20 Ark. 443;

-statement as to location and time of completion of railroad, inducing subscription to its stock, Jefferson v. Hewitt (1892) 95 Cal. 535, 30 Pac. 772;

-representation inducing subscription to stock of a railway com

ises or statements as to future events has been applied in various cases where the promises or representations induced subscriptions to the stock of railroad companies, the purchase of railway bonds, or grants or subscriptions in aid of railroad companies. Such representations as to the location. or continuance of the road, the time of its completion, location of depots, etc., unless made a part of the written contract, are ordinarily regarded merely as statements of opinion, and not actionable, although they prove to be untrue.94 But if the representations pany, that the railway would be located on a certain route, Kent County R. Co. v. Wilson (1875) 5 Houst. (Del.) 49; Chattanooga, R. & C. R. Co. v. Warthen (1896) 98 Ga. 599, 25 S. E. 988; Eakright v. Logansport & N. I. R. Co. (1859) 13 Ind. 404 (the court saying that these promises were mere expressions of opinion upon which the subscriber had no right to rely, and that, as the subscription was absolute on its face, verbal proof of the facts alleged should not be allowed to bar the action on the subscription. The case is followed in Carlisle v. Evansville, I. & C. S. L. R. Co. (1859) 13 Ind. 477); - representation inducing subscription to stock of railroad company, that the road would be located through, or at most within a half mile of, a certain town, whereas it was in fact located 2 miles from the town, Evansville, I. & C. S. L. R. Co. v. Posey (1859) 12 Ind. 363;

- representations to induce subscription to stock in railway company that the road would be economically built, that the stock would be a good investment and would pay dividends, Weston v. Columbus Southern R. Co. (1892) 90 Ga. 289, 15 So. 773;

representations by agent of railway company inducing one to subscribe to its stock, that the subscriber would not be called on to pay the subscription until the road was laid out and worked on in a certain county; the court saying that these were nothing more than expressions of opinion, and, although intended to deceive the subscriber, were not, in point of law, adequate to that purpose, because the instrument which the subscriber signed authorized the company to collect assessments at any time after a certain amount of capital stock was sub

scribed, Clem v. Newcastle & D. R. Co. (1857) 9 Ind. 488, 68 Am. Dec. 653.

-statement as to purpose to which instalments, when collected, were to be applied, inducing subscriptions to stock of railway company, New Albany & S. R. Co. v. Fields (1858) 10 Ind. 187;

-representations made by soliciting agents to induce subscription to stock of railroad company, with regard to the ultimate value of the stock, Vawter v. Ohio & M. R. Co. (1860) 14 Ind. 174;

-representations inducing inducing subscription to railway stock, that the company had stock enough subscribed to complete the road, and that it would do so in two years, Hardy v. Merriweather (1860) 14 Ind. 203;

verbal representations and promises to induce subscription to railway stock, that a branch line would be constructed to a certain place, McAllister v. Indianapolis & C. R. Co. (1860) 15 Ind. 11;

- representations made to induce subscriptions to stock in railway company, that the road would be completed within a certain time, and all real estate along its line would be greatly augmented in value; that the company had all the means necessary for completing the road and did not need to call upon the people near the line for subscriptions, but desired that they should subscribe a sufficient amount to show that they were friendly to the enterprise, Bish v. Bradford (1861) 17 Ind. 490;

-

representation made by a solicitor of stock in a railway company, that there was then a sufficient amount of solvent stock subscribed to insure the speedy completion of the road within two years, that the means of the company were ample, and that it would complete the road within that time, Brownlee v. Ohio, I. & I. R. Co. (1862) 18 Ind. 68;

-representations inducing subscription to railway stock, as to the time for completion of the road and as to the dividends the stock would pay, also as to the use to be made of the proceeds in a particular county, Parker v. Thomas (1862) 19 Ind. 213, 81 Am. Dec. 385;

verbal promise and agreement of railroad company that it would construct and complete its line of railroad to a certain point within a specified

time, inducing one to make written subscription in aid of the railroad, the writing expressly stating that the sum mentioned therein should be payable a year after the road was completed to another point, Blair v. Buttolph (1887) 72 Iowa, 31, 33 N. W. 349 (the court applied the doctrine that when, by the express terms of the written agreement, a particular condition is made the consideration for the undertaking, it is not competent to contradict or vary its terms by parol evidence, and held that the alleged false representations related to a matter distinct from the subject-matter of the contract);

-representation inducing subscription of stock to a railway company, that the Federal government had donated to the company a large quantity of land from the sales of which a certain amount would be realized, which, together with other means, would enable the company to complete the railroad within a specified time; that the stockholders would receive large dividends, and would not have to pay more than one half the amount of the stock, Walker v. Mobile & O. R. Co. (1857) 34 Miss. 245;

representation as to the time within which a railroad would be completed, inducing conveyance to the corporation in consideration of stock in the company issued to the grantor, Francis v. New York & B. Elev. R. Co. (1885) 17 Abb. N. C. (N. Y.) 1 (trial court opinion) reversed on other grounds in (1888) 108 N. Y. 93, 15 N. E. 192;

representation inducing subscription to stock in railway company, that it intended to build the line of road between certain termini named in the articles of incorporation, it not being alleged that there was no bona fide intention so to construct the road when these representations were made, Armstrong v. Karshner (1890) 47 Ohio St. 276, 24 N. E. 897;

-expressions of opinion inducing execution of note as bonus in aid of railroad construction, that the road would be operated by a certain railroad corporation, Guthrie & W. R. Co. v. Rhodes (1907) 19 Okla. 21, 21 L.R.A. (N.S.) 490, 91 Pac. 1119;

representations by agent of railway company, inducing subscription to its stock, that the road would be completed to a specified point by a certain time, the manner in which the state