If, however, such a question should arise in a private firm, and a stranger should be induced to join the concern on the fraudulent misrepresentation of a partner, it is evident that no liability would attach to the firm in consequence, because the partner could have no implied powers to make such misrepresentations. Before liability could attach to the firm, it would be necessary to show that they had either made the misrepresentations as a body, or had somehow or other authorized one of their number to do so.

companies.

In companies of larger membership with transferable shares, Joint-stock each partner or shareholder is entitled to dispose of his interest in favour of whomsoever he will; and as the matter is personal to himself, whatever misrepresentations he makes will bind himself only (a). These larger associations are, however, managed by boards of directors; and a very important question has arisen, whether untrue representations made by any or all of such directors which have had the effect of inducing strangers to take shares in the concern, shall render the company liable.

of inquiry.

The real question in cases of this kind is, whether the parties Real subject by whom the misrepresentations were made actually represented the company in so doing; or, in other words, whether they held agency, express or implied, to get shares disposed of.

When it is for the benefit of the company, or in the course of its ordinary business, to obtain shares disposed of, the company will be liable to such persons as purchase on the misrepresentations of those to whom it has committed the management.

When acts of tion in line of

misrepresenta

business.

In the case of The National Exchange Co. of Glasgow v. Drew, National Exchange Coma partner of the company, which combined the business of bankers pany v. Drew. and sharebrokers, purchased additional shares of the company's stock, the price of which was advanced to him as a loan by the company. The company having sued the purchaser for the sum so advanced, he stated in defence that he had been induced to enter into the transaction by fraudulent misrepresentations of the position of the concern given him by the directors in their reports, and upon the urgent solicitations of the company's manager, who, at the date of the transaction in which the company had acted as brokers, was fully aware that the company was insolvent, and that the shares were value(a) See Lothian v. Carron Iron Co., 1864, 2 Macph. 556; Keith v. Smart, 1832, 10 S. 514.

R

less. The defence was sustained, on the ground that the directors and manager, when they made the fraudulent misrepresentations which induced the defender to purchase the additional shares, were acting within their implied agency, and represented the company.

The peculiarity in this case was, that the misrepresentations made were in reality made to the company, and the party deceived thereby was one of its own members. Nevertheless, Lord St Leonards said: 'I consider representations by the directors of a company as representations by the company, although representations made to the company' (a).

Graham v. The North British Bank (b) was a case of a similar kind. Here it was averred, that the holders of certain shares in a banking company being unable to meet its demands, the company agreed that they would endeavour to procure responsible persons to purchase them; and that with this view the company made fraudulent representations as to the value of the shares, and thereby induced the pursuer to become a purchaser. The conclusion of the action directed against the bank was for reduction of the transfers made in favour of the pursuer. It was pleaded in defence, that the granters of the transfers were not called as defenders. But the Court held that the action was relevantly laid against the company itself, inasmuch as the bank was the party by whom the false representations had been made (c).

pany

In The National Exchange Co. v. Drew and Dick (d), a comhad been established for the purpose of lending money, more particularly on the security of shares or stock, either of itself or of other companies; and for carrying on other branches of business, such as agency or brokerage. It had therefore an interest in promoting sales of its stock, not only as its profit consisted in lending money to parties who wished to deal in this manner, but because it obtained commission as well as ordinary interest upon the monies so advanced, and participated in the brokerage of the transaction. The defenders were led into the purchase of shares and taking a corresponding loan through written statements made by the

(a) 1850, 12 D. 950; aff. 1855, 18 D. (House of Lords) 6, and 2 Macq. 103. (b) 1850, 12 D. 907. See also Jardine's Trs.v. Carron Co., 1864, 2 Macph. 1101.

(c) See also the case of Brown v. Syme, 1834, 12 S. 536. (d) 1860, 23 D. 1.

directors in their report to the company, and also through misrepresentations made by the manager of the company. In charging the jury, the Lord President laid it down as law, that, in making these statements, both the directors and the manager were acting as agents of the company and in the line of its business, and that the company was accordingly bound thereby (a).

line of com

But, on the other hand, representations of a false or fraudulent When not in description made by directors or other office-bearers of a company pany business. in relation to matters in which they do not represent the company, or beyond the scope of their agency, will not bind the company.

Commercial

Company.

In Allan v. Wright and the Glasgow Commercial Exchange Allan v. Company (b), a person purchased shares from the representatives Exchange of a partner. Soon after the directors resigned, and a committee was appointed to wind up the affairs of the company, who made a call for contribution on all the shareholders. The pursuer brought an action of reduction of the transfer of the shares in his favour, on the ground that he had been induced to enter the company through fraudulent representations by the directors as to the property of the company, while in point of fact they knew that the loss already incurred was so great as, in terms of the company contract, to amount to a dissolution of the concern. But it was clear that, neither in terms of the contract nor from the nature of the business, was it ever contemplated that the directors were to endeavour to get shares disposed of; and it was not alleged that the partners had either authorized them to make the statements in question, or that they had in any way adopted them. The statements were, in fact, made to the company, and were not only not made for its benefit, but in opposition to its interests, and apparently to screen the directors themselves. In these circumstances it was held that the representations of the directors did not bind the company. The case of Inglis v. Lumsden (c) is also instructive, as containing a good exposition of the same principle.

and special

The representations of a special officer, such as a law-agent, Law-agents will not bind the company, except in a matter within his sphere officers.

(a) See the English cases of Ranger v. Great Western Ra. Co., 5 House of Lords Cases 72; Brockwell's case, 4 Drew. 205; Bell's case, 22 Beav. 35;

Ayre's case, 25 Beav. 513; Gerhard's
case, 2 Ell. and Bl. 476.

(b) 1853, 15 D. 725.
(c) 1859, 21 D. 192.

Burnes v. Pennel.

Representations bind only when

issued for the purposes for which they

were made.

of agency, and when they are made by him on behalf of the

company.

This is well illustrated by the case of Forth Marine Insurance Co. v. Burnes (a). Here the directors of a company had issued and published reports to the shareholders,-reports which were calculated to lead to an erroneous impression as to the prosperous state of its affairs. Dividends were likewise paid which were unwarrantable. The law-agent of the company being applied to by Burnes, he gave him to understand that its affairs were in a highly prosperous condition, and in evidence of this statement laid before him a copy of the directors' report. Upon this Burnes was induced to purchase shares, not from the company, but from one of its members who was unable to pay certain calls made upon him. Upon these he paid the balance of the instalments due. Additional calls having now been made, Burnes refused payment on the ground that he had been deceived by the false reports of the directors, and the equally false representations of the law-agent. The Court, however, refused to sustain the defence, and on appeal the House of Lords affirmed the judgment (b). Here it was evidently no part of the business of a law-agent to induce the public to take shares in the company, or to make representations as to the state of its affairs (c). The same principle is still more clearly enforced and explained in the Lord President's (M'Neill) charge to the jury in the National Exchange Company of Glasgow v. Drew and Dick (d), already referred to. There his Lordship laid it down, that the representations of an individual director of a joint-stock company, not at the time acting in his official character, are not those of the company; and, in like manner, that the representations even of the manager, made not in the discharge of his duty as manager, but as a private individual, do not bind the company.

Representations made by officials will only bind the company when issued for the purpose for which they were actually used. Thus reports by directors, intended only for the shareholders, will not be held as misrepresentations made by the company if they

(a) 1848, 10 D. 689.

(b) July 16, 1849, 6 Bell 541, 21 Jur. 540.

(c) See also the English case of

Bigge, 5 E. Jur. N. S. 7; Worth's case, 4 Drew 529.

(d) 1860, 23 D. 1.

should afterwards fall into the hands of members of the public, and induce them to become shareholders, unless after they have been submitted to the shareholders they have been in some way adopted by them, or circulated by those who are officially entitled to bind the company (a). If regard, however, be had to the judgment in the House of Lords in the case of the National Exchange Company v. Drew, 1855 (b), it will be seen that very little will be held to make reports by directors the accredited representations of the company. It must also be observed, that mistakes on the part of the direc- Innocent. tors in making reports on the state of the company affairs, unless these amount to intentional fraud, will not be held to be such misrepresentations on the part of the company as would vitiate and annul contracts entered into with them (c).

mistakes.

results.

Upon the whole, therefore, it should seem that the following Practical rules may be considered as settled in relation to the question of the liability of companies for the fraudulent representations of their directors or other officials.

1. Such representations will be held to be those of the company, when they have been made by officials in relation to matters within the sphere of their authority to represent the company, as established either by the letter of their instructions, or plainly deducible therefrom, by the nature of the company business, or by any other facts and circumstances which lead a jury to this conclusion.

2. They will also bind the company, when, after being made, they have been adopted and ratified by the shareholders.

3. They will not bind the company when made by officials in relation to matters beyond the sphere of their agency, express or implied, and never when in the character of private individuals.

4. No reports made by officials will bind the company, except when used for the purposes for which they were intended.

the courts.

It may be observed, however, in conclusion, that from a laud- Tendency of able desire to ensure the safety of the public, the tendency of the tribunals seems to be to impute liability to companies for the acts

(a) Forth and Marine Insurance Company v. Burnes, 1848, 10 D. 689, aff. 1849, 6 Bell 541, 21 Jur. 540; Allan v. Wright, 1853, 1859, 15 D.

725.

(b) 18 D. 7, and 2 Macq. 103.

(c) National Ex. Co. v. Drew, 1860, 23 D. 1. See also, on this subject generally, the late case of Graham v. Western Bank, 1864, 2 Macph. 559, where all the authorities are quoted and fully discussed.