they do not contain anything incompatible with the prospectus. [Ex parte Briggs, 1 Eq. 483; Central Venezuela Ry. Co. v. Kisch, 2 H. L. 99.]

A statement in the prospectus that no further calls are contemplated does not affect the power of the company to make further calls, and affords no defence to an action for those calls. [Accidental Insurance Co. v. Davis, 15 L. T. 182.]

Delay is no answer to an action against directors and promoters personally for deceit. [Peek v. Gurney, 13 Eq. 79; 6 H. L. 377.]

In most cases of unsuccessful companies there are to be found allottees anxious to obtain rescission of their contracts in order to avoid further liability, who attempt to repudiate their shares, generally on insufficient and often even on imaginary grounds.

To such cases the words of Turner, L.J., in Jennings v. Broughton [5 D. M. & G. 140] well apply. "And, finally, though I think that although it is the undoubted duty of this Court to relieve persons who have been deceived by false representations, it is equally the duty of this Court to be careful that in its anxiety to correct frauds it does not enable persons who have joined with others in speculations to convert their speculations into certainties at the expense of those with whom they have joined."

AS TO CONTRACTS IN A PROSPECTUS.

By sect. 38 of the Companies Act, 1867, it is enacted: "Every prospectus of a company and every notice inviting persons to subscribe for shares in any joint stock company shall specify the dates and the names of the parties to any contract entered into by the company or the promoters, directors, or trustees thereof, before the issue of such prospectus or notice, whether subject to adoption by the directors or the company, or otherwise; and any prospectus or notice not specifying the same shall be deemed fraudulent on the

part of the promoters, directors, and officers of the company knowingly issuing the same, as regards any person taking shares in the company on the faith of such prospectus unless he shall have had notice of such contract."

This section applies only to a share prospectus, and does not apply, therefore, to prospectuses inviting subscriptions for bonds or debentures of a company. [Cornell v. Hay, 8 C. P. 328.]

The non-disclosure of a contract in a share prospectus does not entitle the allottee to rescission of his contract, but gives him a remedy against the offending promoters, directors, and officers of the company personally for any loss he may have sustained. [Gover's Case, 20 Eq. 114; 1 Ch. D. 182.]

In an action for deceit founded on a fraudulent prospectus it has been laid down by Campbell, L.C., that the proper mode of measuring the damages is to ascertain the difference between the purchase-money and what would have been a fair price to be paid for the shares in the circumstances of the company at the time of purchase. [Davidson v. Tulloch, 1 Macq. 783.]

It is now a well recognised principle that in an action of this description the plaintiff can only recover the difference between the value represented and the real value at the time he bought. [Arkwright v. Newbold, 17 Ch. D. 311.]

If by the fraud an allottee has lost the full amount of his shares, he is entitled to recover all the money he has paid. [Twycross v. Grant, 2 C. P. D. 469.]

"The term 'promoter' involves the idea of exertion for the purpose of getting up and starting a company (or what is called 'floating it'), and also the idea of some duty towards the company imposed by or arising from the position which the so-called promoter assumes towards it." [Lindley, J., Emma Mining Co. v. Lewis, 4 C. P. D. 396.]

A promoter is one who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose. [Twycross v. Grant 2 C. P. D. 159.]

A promoter occupies a fiduciary position towards the company and has duties towards it even before the company comes into existence. [Bagnall v. Carlton, 6 Ch. D. 371; New Sombrero Co. v. Erlanger, 3 App. Cas. 1218.]

Thus where a promoter agreed with the vendors to the company that he should receive a secret profit out of the purchase moneys, he was held liable to refund all sums so received by him. As he occupied a fiduciary position towards the company this debt amounted to a breach of trust and was not barred by his bankruptcy. [Emma Silver Mining Co. v. Grant, 50 L. J. Ch. 449.]

So also where promoters purchased a property for £1000 and resold it to a company, the directors of which were mere nominees, having no option of forming a separate judgment, for £4500, it was held that the promoters occupied a fiduciary position to the shareholders, and therefore the transaction was three years afterwards set aside and the promoters ordered to repay to the company jointly and severally all profits they had received. [Plympton Mining Co. v. Wilkins, 1882, W. N.

p. 66.] The "issue" of a prospectus means "the making the prospectus public after its adoption, with a view to inviting persons to take shares and become members of the company." [Twycross v. Grant.]

66

Knowingly issue," means intentionally issuing a prospectus without inserting the contracts which are by sect. 38 of the Act of 1867, required to be specified, even although they are omitted under the bonâ fide belief that it is unnecessary to specify them. [Twycross v. Grant, 2 C. P. D. 469.]

The words of the section "any contract entered into" ought to be held to extend to every contract made with a person who afterwards becomes a promoter or director, provided the company have become entitled to the benefit of the contract, or have become liable to perform the provisions of the contract before the prospectus was issued. [Mellish, L.J., Gover's Case, 1 Ch. D. 191.]

It is difficult to place a limitation upon the words of the section and define absolutely how far sub-contracts must be specified in a prospectus.

All contracts would appear to be within the section which would directly or indirectly affect the affairs of the company when formed and the knowledge of which might reasonably be expected to influence an applicant for shares. [Twycross v. Grant, 2 C. P. D. 469.]

Thus where the profit for the promoter is added to the purchase money of a business the disposal of such profit must be specified in the prospectus. But a recent case tends to show that a very fine distinction on this point may be drawn. [Arkwright v. Newbold, 17 Ch. D. 311.]

In Sullivan v. Mitcalfe [5 C. P. D. 455] a patent had been sold to a company for £56,000, though out of this sum the vendors retained only £2000, the remaining £54,000 being by a series of sub-contracts paid to the promoters. It was held that these contracts should have been specified in the prospectus.

There is no necessity to give the details of the different contracts. The section is satisfied if they are clearly specified in the prospectus, and it is usual to mention some place where they can be inspected by any intending investor.

In cases where a company is formed to carry on a going concern it is often found impracticable and always dangerous to attempt to satisfy the section. It is therefore usual to insert in the prospectus a clause to the effect that subscribers must be taken to have waived compliance with this section.

In the absence of decided cases as to what sub-contracts must be specified, it is always prudent to insert in the prospectus a clause relating to the minor contracts for printing, advertising, clerks, offices, and the like.

The following is suggested as a form :

day of

"As the vendors [and promoters] have been carrying on the business since the last contracts are current and other engagements have necessarily been entered into in

connection therewith: they cannot, however, be fully specified in this prospectus. The vendors and promoters have also entered into engagements with solicitors, brokers, advertising agents, printers, and others, none of which impose on the company any liability beyond the obligations contained in the before-mentioned contract for preliminary expenses; and have also entered into engagements on behalf of the company with secretary and clerks, and for offices in the ordinary course of business. Applicants for shares must be taken to have waived further particulars and to have received the notice required by sect. 38 of the Companies Act, 1867, in respect of all contracts referred to in this paragraph."

AS TO ABORTIVE COMPANIES.

Most prospectuses contain a statement to the effect that if no allotment of shares takes place the deposit made on application will be returned in full.

In Moseley v. Cressey's Co. [1 Eq. 405] where several deposits were made but no allotment ever took place, it was held that this statement did not bind moneys, consisting mainly of these deposits standing in a bank to the credit of the company, with a trust or lien in favour of the depositors as against creditors of the company.

But in the case of an abortive company where the deposit was returnable in full it was held that the managing committee had no right to expend any portion of the deposits they received in the payment of preliminary expenses in the absence of a contract. [Walstab v. Spottiswoode, 15 M. & W. 501; Nockels v. Crosby, 3 B. & Cr. 814 ]

Many companies issue prospectuses and receive applications for shares prior to incorporation. It is therefore very material to consider the position and liability of promoters, provisional committees, and others, for the preliminary expenses. This has been clearly defined by Parke, B., in his judgment in Bright v. Hutton. [3 H. L. 341.]