THE LORD CHANCELLOR: Before I understood the facts. THE LORD BROUGHAM: Exactly; now that I understand what the real facts of the case are, I have no doubt whatever, any more than the Judges of the Court below appear to have had. It would be one of the most extravagant conclusions that could be drawn from the facts in this case, taking all the circumstances into consideration, and the relative position of the parties, if we were to hold that these trustees had ever entertained the least idea of making themselves personally liable; and I will go further and say, or that Mr. Manson himself ever conceived that they had made themselves personally liable. The two letters to which my noble and learned friend referred, the one of Mr. Logan and the other of Mr. Meiklejohn, and the other longer letter respecting that unintelligible charge of libel, or something in the nature of slander against himself, which Mr. Manson ventilates, referring to another person, I forget who, all those letters go in the same direction. My Lords, a case has been referred to, more than once, in the course of this argument, especially on the part of the appellant, I mean that of Cradock v. Piper, before Lord Cottenham, I think. If that case had been at all adopted in any of the decisions of your Lordships' House, I should be very slow to express any doubt which I might have upon it; but if it has never been so adopted or countenanced in decisions here, then I may be permitted to state that I have great doubts respecting the soundness of that decision to the length to which it goes. Interlocutor affirmed with costs. NATIONAL EXCHANGE COMPANY OF GLASGOW v. PETER DREW AND MATHEW DICK (1). (2 Macq. 103-150; S. C. 25 L. T. O. S. 223.) Rigging the market-Fraudulent representation. A tottering Jointstock Company, with a view to raise its shares in the market, represent the concern as most prosperous, and offer money to two of their shareholders to buy further shares, saying: "You shall not be called upon for any contribution till the stock can be sold at a profit." The shares become valueless; the Company sues for repayment of the money advanced. Defence, that the Company had been guilty of fraud: that defence held good. Objection That the fraud was not in the loan, but in the representations which induced the purchase. Answer, by the LORD CHANCELLOR: That the transaction was not properly a loan; by Lord (1) Diss. from, Nicol's Case (1859) 121 R. R. 169 (3 De G. & J. 387). Cited, Barry v. Croskey (1861) 134 R. R. 91 (2 J. & H. 1). Disc. New Brunswick and Canada Rail. Co. v. Conybeare (1862) 131 R. R. 415 (9 MANSON v. BAILLIE. [ *91 ] 1855. Feb. 27. March 1, 2, 5, 9. Lord CRANWORTH, L.C. Lord BROUGHAM. Lord ST. LEONARDS. [103] NATIONAL COMPANY OF r. DREW. [104] [105] BROUGHAM: That he, with difficulty, agreed with the Chancellor; by Lord ST. LEONARDS: That it was a loan, but that the loan and the purchase were one and the same transaction. Objection: That the two shareholders were themselves members of the Company, and, as such, could not complain of a fraud by the Company. Answer by the LORD CHANCELLOR: That by Scotch law, the identity of a shareholder was distinct from that of the Company. Objection That the fraud was a fraud on the Company, not by the Company. Answer by the LORD CHANCELLOR: That the Company, an abstraction, could only act by its directors and managers, and a fraud by them was a fraud by the aggregate body; by Lord BROUGHAM and Lord ST. LEONARDS: That the Company had the benefit of the fraud. Objection: That the representation must not only be false, but known to be false by the party making it. Answer by the LORD CHANCELLOR: That the general interests of society required that representations by directors should bind the entire corporation, although the individuals composing it might be ignorant of the representation and of its falsehood. Fraudulent reports of directors-Effect of their adoption by assembled shareholders. Statement by the LORD CHANCELLOR and by Lord ST. LEONARDS of the legal obligations which arise from adopting a report made by directors to an assembly of shareholders. Pleading in Scotland. Remarks by the Lords on the state of pleading in Scotland. Per Lord BROUGHAM: A pleading ought not to be rhetorical or metaphorical. Cornfoot v. Fowke (1) explained by the LORD CHANCELLOR and commented on by Lords BROUGHAM and ST. LEONARDS. THE summons, dated the 14th August, 1848, was by the National Exchange Company of Glasgow, and by certain persons the individual partners of the said Company, for their own right and interest, and on behalf of and as representing the said Company, and the whole other partners thereof; and it stated that Peter Drew and Mathew Dick, the defenders, having, in or about the month of October, 1847, purchased from one or more parties, holders thereof, 240 shares of the stock of the said Company, the said Company advanced and paid for the defenders' behoof, the purchase-money of the said shares; that the sellers, upon receiving the said purchase-money, signed the transfers in favour of the defenders, and the defenders signed the said transfers on the said 10th day of November, 1847, in token of their acceptance thereof; that the said shares had become unsaleable; that for the said cash advances and payments, and for commission and interest thereon, there was due to the pursuers 6187. 178. 9d. sterling, of which the Company claimed payment. The plea in law of the pursuers stated, "that the defenders being debtors to them in the amount sued for, they ought to be ordained to make payment thereof, with interest and expenses." The defence stated that the National Exchange Company was established for making advances on railway stocks and other securities, and for discounting bills, and carrying on every kind of banking business, and that in order to swell their profits, they afterwards added sharebroking to their other business so that they (1) 55 R. R. 655 (6 M. & W. 358). NATIONAL GLASGOW v. DREW. acted in the double capacity of bankers and sharebrokers, and that one John H. Barlow was appointed manager of the Company in COMPANY OF June, 1845; that the defenders had become joint proprietors of 1,130 shares of the said Company; that at an annual meeting, held on the 17th September, 1846, the shareholders were presented with a report, asserting that the Company's affairs were in a prosperous state, and that the directors had resolved to declare a dividend of 81. 6s. 8d. per cent., which was accordingly paid; that at a second annual meeting, on the 16th September, 1847, a report was submitted representing that there were funds sufficient to pay a dividend of 8 per cent., leaving reserved profits to an amount exceeding 5,500.; that this report was entirely delusive, and the shareholders were kept in entire ignorance of the true state of the Company's affairs, which were represented to be in the most prosperous state when they were actually insolvent; that about the month of October, 1847, before the shareholders were aware of the true condition of the Company's affairs, the defenders were urgently solicited by Mr. Barlow, the manager, to purchase additional shares of the Company's stock; that at that period the shares had begun to fall in the market, and the directors were most anxious to keep them up, as rumours unfavourable to the stability of the concern were beginning to get into circulation; that the manager assured the defenders that the Company would advance the necessary funds for purchasing the shares, and that the stock would be held till it could be sold at a profit, without the defenders being called upon for any contribution in money, the Company being secure by the large amount of stock held upon joint account; that the defenders had relied upon the representations given by the directors in their reports, and the assurances of Mr. Barlow, the manager, who prevailed upon them to accept 240 shares of the stock, in addition to those formerly held by them, upon the footing of the Company advancing the price; that the Company, through their manager, Mr. Barlow, acted as the brokers in purchasing these shares, and paid the price, and the transfers had been taken in favour of the defenders jointly, and were still in the Company's hands; that this transaction was based on gross fraud and misrepresentation; the reports of the directors and the statements of their manager were a tissue of falsehoods, and at the time when the Company undertook to act as brokers for the defenders, and to advance the price of the stock, they concealed the fact that the affairs of the Company were utterly desperate, and that the stock which they professed to purchase was of no value and might entail a serious loss on those who acquired it. The pleas in law of the defenders were: 1. That in the circumstances above statel, the National Exchange R.R.-VOL. CXLIX. 9 [ *106 ] EXCHANGE NATIONAL Company were not entitled to make any claim against the defenders COMPANY OF for the advances said to have been made by them in purchasing the shares of the stock in November, 1847; and, GLASGOW V. DREW. [ *107 ] [*108] 2. That the Company had acted as brokers for the defenders in purchasing the stock, and had prevailed upon them to do so by gross fraud, concealment, and misrepresentation. The LORD ORDINARY (Lord IVORY) by his interlocutor of the 22nd December, 1849, found that no sufficient allegations had been made by the defenders to support their pleas, and he therefore repelled the defence. But the Lords of the First Division, on the 31st May, 1850, recalled the LORD ORDINARY's interlocutor, and remitted the cause in order to have issues prepared. Against this decision of the First Division, the Company appealed to the House of Lords, on the following grounds: In the first place, that the defenders, while they admitted the truth of the pursuer's averments to an extent sufficient to support the conclusions of the action, had not relevantly averred acts sufficient to obviate or repel their legal effect. Secondly, that the defenders had made no allegations in point of fact sufficient to support, as relevant, their pleas in law. Thirdly, because the allegations of the defenders related to the conduct of individuals only, and did not affect the appellants, who constituted the body of the Company; and, Fourthly, because the appellants, having made advances for the respondents, were entitled to recover the amount without regard to the motives which might have caused the respondents to become the purchasers of the shares, the price of which was paid by those advances. Sir Fitzroy Kelly (with whom was Mr. Willes (1)) for the appellants: Fraud is not alleged against the Company in the aggregate. The shares were bought through the medium of the defenders' own brokers. They were not purchased from the Company, but from the shareholders in the course of the public market. The reports alleged to have been deceptive were made not by the Company, but to the Company. The allegations here are vague. They ought to have been specific, so as to go to proof, and admit of being met by the other side: Irving v. Kirkpatrick (2), Wilde v. Gibson (3), Shedden v. Patrick (4). So far as principle is concerned, this case is precisely the same as that of Cornfoot v. Fowke (5), where Mr. Baron ROLFE says, that (1) Now Mr. Justice Willes. (2) 7 Bell, 186. (3) 73 R. R. 191 (1 H L. C. 605). (4) Supra, p. 55. (5) 55 R. R. 655 (6 M. & W. 358). NATIONAL EXCHANGE GLASGOW if an agent makes a representation, it must appear that he knew the representation to be false, before the principal can be affected. COMPANY OF Here, the fraud is alleged to have been by certain directors, but they are not named, so as to enable us to ascertain whether they knew their representation to be false. Where is it stated that Barlow knew that what he said was false? (THE LORD CHANCELLOR (1): In Cornfoot v. Fowke, the plea was that the defendant had been induced to enter into the agreement sued on by the fraud and covin of the plaintiff. The evidence proved nothing to support that plea; for the plaintiff had merely put the house into the hands of an agent to be let at a *stipulated rent. He had neither himself stated, nor authorized the agent to state, anything false or deceptive. The COURT held that the plea was not made out by evidence, which merely showed the agent to have stated (what he believed to be true), namely, that there was no objection attaching to the house. THE LORD BROUGHAM: In Cornfoot's case non constat that the employer had not told the agent and desired him to apprize the purchaser. It was the over zeal of the agent for which the principal was not to suffer.) But we contend that this action can be defeated only by showing that the Company committed the fraud alleged. The action is by the Company. The answer is an alleged fraud, not by the Company, but in fact on the Company. The contract here is a contract of loan. The object is to recover back the money lent. Fraud in this contract is not alleged, but in another contract with which the Company had no concern. The fraud averred is that the agent, Barlow, had induced the defenders to purchase shares. This was done collaterally. The defenders ought to come on those who deceived them. They do not deny the receipt of the money, but they say, "An agent of yours has deluded us into making an imprudent investment." It ought to have been alleged and shown that the Company had been guilty of a fraud. In Dodgson's case (2) it is laid down that although directors fraudulently inducing a person to buy shares may be personally liable to him, yet they cannot be considered as the body of shareholders to commit a fraud. (THE LORD CHANCELLOR: The directors here do not appear to have had authority to act as agents of the Company to sell shares.) They cannot certainly be the agents of the Company to commit a fraud. (1) Lord CRANWORTH. (2) 3 De G. & Sm. 85. DREW. [ *109 ] |