a contract for retransfer, claimed by the mortgagor, or found, in express terms, in the contract of pledge, or mortgage, or inferable from circumstances, this was sufficient ground for implying a contract, by the mortgagor, to indemnify the mortgagee, against liability to the creditors of the company, for debts incurred, while his name remained upon the register of shares, as owner, and a decree was made accordingly.

4. The same learned judge, in the same case, considered, that where the mortgage was made simply as an absolute transfer, subject to redemption, and nothing had passed, binding the mortgagor to take a retransfer to the shares, the mortgagor was not bound to indemnify the mortgagee against debts incurred after the transfer made in the mortgage, and before the mortgage debt was paid off. But it is here maintained, that the mortgagee has not in such case any right, at law, against the mortgagor, as to payments, which he has been compelled to make, while he remained the ostensible owner of the shares, even where a contract for retransfer is shown. But a late English writer upon this subject seems to incline to the opinion that, in such case, an action of trespass on the case might be maintained, against the purchaser of shares, who fails to cause his name to be registered as owner, or to indemnify the seller against liabilities after the sale. And the same principle will apply to the mortgagee, after the debt is paid. But all these refinements must now, we think, be regarded as effectually abrogated, by the virtual abandonment, by the English courts, of the rule laid down in Humble v. Langston, and the recognition of the contrary doctrine.

5

*

5. It has been held, in this country, that, where B. being indebted, transferred shares to his creditors, as security, with the power of sale, and upon condition that the shares should be returned or accounted for, whenever the debt should be paid, the debt being paid off, and an informal power of retransfer given the mortgagee, and subsequently a more formal one, the mortgagees were to be regarded as stockholders, until the actual retransfer of the shares, and as such liable to the creditors of the company, under the charter.

As the case of Humble v. Langston is not in

6 Adderly v. Storm & Bailey, 6 Hill, 624. Bronson, J., argues the liability of the mortgagees to the creditors of the company, while their names remained on the books of the company, as absolute shareholders, on the ground that “they

terms overruled, although it is in principle we think, we here insert the substance of the opinion of the court in Walker v. Bartlett, as showing the present state of the English law on the subject.7

might receive dividends, vote at elections, and enjoy all the rights pertaining to the ownership of the property, and with the privileges they must take the burdens of a stockholder." A query is here started whether a retransfer to the mortgagor of the shares, upon the payment of the debt, might not release the mortgagee. "The assignment, as between the parties to it, would have passed the legal interest in the stock." But are the creditors of the company bound to look beyond the register of shares? Rosevelt v. Brown, 1 Kernan, 148; Worrall v. Judson, 5 Barb. 210; Stanley v. Stanley, 13 Shepley, 191. In Adderly v. Storm, supra it is intimated, that a fraudulent transfer of stock by a solvent owner to an insolvent party, for the purpose of avoiding liability to the creditors of the company, might not avail the party, even at law.

7 46

The case of Wynne v. Price, 3 De G. & S. 310, shows that in equity the plaintiff would be entitled, under the circumstances of the present case, to indemnity; but it was contended for the defendant, that, however the case might be in equity, there was no contract for indemnity to be implied by law; and the case of Humble v. Langston, 7 M. & W. 517, was relied upon as a direct authority against the plaintiff upon this point; and the Court of Common Pleas, in the judgment appealed against, considered that it was bound by that decision, though it was intimated that but for that express decision their own judgment might have been different. It must be admitted that, in principle, no substantial difference can be taken between that case and the present, except this, that in Humble v. Langston, the plaintiff claimed to be indemnified by the defendant against all future calls, even though made after the defendant had himself transferred the shares to other persons; and the Court of Exchequer, at the end of the judgment, observes, that if there were any analogy in principle between the case of Burnett v. Lynch, and that before the court, the defendant's implied promise would only be to indemnify against such calls as should be made while he was beneficially interested, whereas the plaintiff Humble claimed an indemnity against calls made after the defendant had parted with his interest. This, no doubt, is a very important distinction; and though the Court of Exchequer expresses an opinion that there was no contract of indemnity at all, it adverts to the difference between a claim to indemnify during the time the defendant is beneficially interested, and a claim to be indemnified after he has ceased to be interested. The circumstances of the present case are, therefore, distinguishable from those in Humble v. Langston, and it consequently is not so direct an authority against the plaintiff's claim in the present case, as at first sight it might appear to be.

"It seems to us, therefore, that the circumstances of this case bring it directly within the principle upon which Burnett v. Lynch was decided. In the present case, the defendant entered into no express agreement to pay calls or indemnify, but he accepted the only transfer the plaintiff could give, and which invested him with full power to become the registered owner of the shares when

*6. It seems most unquestionable that a trustee may be made liable for assessments or calls upon the shares standing in his name, beyond the amount of the trust property. And the transferee of shares, having taken upon himself the position and attitude of owner, cannot be allowed to excuse himself from responsibility by pleading irregularity in transfers, and it makes no difference in this respect whether he hold as trustee or beneficially.

7. Thus where reserved shares were offered to the shareholders and the executors of such as are deceased, in proportion to the original shares, it was held that executors who accept shares must he pleased. That transfer expressed that the transferee took them subject to the same rules as those under which the plaintiff held them, one of which was, that the registered owner should pay the calls. It could hardly have been the intention of the parties, that if the defendant, for his own benefit, omitted to make a perfect transfer, by registration in the company's books, the plaintiff should still continue to pay the calls; and if that was not the intention, was it not understood between them that the defendant should save the plaintiff harmless from any calls made during the time when he was virtually owner of the shares?

"In Burnett v. Lynch, a lease had been granted to Burnett, in which he covenanted to pay the rent and repair the premises; his executors assigned the lease to Lynch, subject to the performance of the covenant, but without any express covenant or contract by him that he would pay the rent or perform the covenant. The executors were called upon by the landlord, and obliged to pay damages for not repairing, according to the covenant, during the time Lynch was assignee; the executors brought an action on the case against Lynch, founded on a breach of duty in not repairing. In giving judgment for the plaintiffs, Abbott, Ch. J., says, 'It is true, the defendant entered into no express covenant or contract that he would pay the rent or perform the covenants; but he accepted the assignment subject to the performance of the covenants; and we are to consider whether any action will lie against him. If we should hold that no action will lie against him, the consequence will follow, that a man having taken an estate from another, subject to the payment of rent and performance of covenants, and having thereby induced an undertaking in the other that he would pay the rent and perform the covenants, will be allowed to cast that burden upon the other person. Reason and common sense show that that never could be intended.' He then goes on to say, that though an action on the case would lie, there might also be an action of assumpsit.

"With the distinction of circumstances to which we have already adverted between this case and that of Humble v. Langston, we think that the principle upon which the case of Burnett v. Lynch was decided, is directly applicable to the present case, and that the plaintiff is entitled to make the rule absolute to set aside the nonsuit, and enter a verdict upon the first count of the declaration, and so much of the pleas as may be applicable to that count."

8 Hoare ex parte, 2 Johns. & Hem. 229; s. c. 8 Jur. N. S. 713.

be placed upon the list of contributories in their own right, and not in their representative capacity.9

§ 41. 1. All fraudulent practices, either of the shareholders, or directors, resorted to for the purpose of raising the price of shares in the market, where sales have been induced in faith of the truth of such representations, will be relieved against in a court of equity. As where the directors of a joint-stock company, in order

9 Fearnside & Deans Case, Law Rep., 1 Ch. 231.

1 Stainbank v. Fernley, 9 Simons, 556. And in a very recent case, the plaintiff, a director in a bank, who had been such from its organization, who usually attended the meetings, and was actually present and took part in the proceedings of the board of directors when the last dividend was declared, having purchased from the cashier of the institution twenty shares of the capital stock, brought an action to have such contract rescinded, and to recover back the money paid, on the ground of false representations and concealments by the cashier as to the value of the stock and the condition of the bank at the time of the purchase: Held, that the plaintiff was not estopped from setting up his actual ignorance of the condition of the bank at the time of the sale.

That although the purchaser was a director of the bank, having the means of knowledge, he was not in the particular transaction chargeable with notice of the condition of the bank.

That if he was actually ignorant of its condition, the fraudulent vendor would be equally responsible to him for the deceit as to any stranger to the institution.

That it was not a case in which the plaintiff was legally bound to know the truth or falsity of the vendor's representations.

Held, also, that the evidence in such action plainly showing that at the time of the alleged sale and transfer of the stock, on the 29th August, 1857, the bank was, by the application of all the ordinary tests, sound, solvent, and prosperous,

to sell their shares to advantage, represented in their reports, and by their agents, that the affairs of the company were in a very prosperous state, and declared large dividends, at a time when the affairs of the company were greatly embarrassed.

2. A person who had been induced, by these means, to purchase shares of one of the directors, filed a bill against that director, praying to be paid his purchase-money and offering to retransfer the shares; a demurrer for want of equity, and because all the other partners in the transaction ought to have been made parties, was overruled. But where a bill was filed against the public officer of a joint-stock bank, charging a * similar fraud, through the fraudulent representations of the directors, in their reports, as to the prosperous state of the company's affairs, and that the plaintiff had thereby been induced to purchase five hundred shares in the bank, and praying that the sale might be declared void as between him and the company, and that they might be decreed to repay the purchase-money, it was held, that as the litigation was between one member of the partnership and the other members, the public

and the stock worth all that the defendant had represented it to be, the plaintiff could not be allowed to show the contrary by introducing in evidence what purported to be a certified copy of proceedings had in November, 1857, on the petition of certain stockholders for the re-establishment of the bank. Lefever v. Lefever, 30 N. Y. 27.

In the very recent case of Smith v. The Reese River Silver M. Co., Law Rep. 2 Eq. 264; s. c. 2 Jur. N. S. 616 (April, 1866), where a person was induced to take shares in a company on the faith of a statement in the prospectus, as to the nature of the property contracted to be purchased, which statement the promoters had no ground for believing to be true, and which turned out to be untrue, Sir W. Page Wood, V. C., held, he was entitled to an injunction restraining the company from enforcing calls against him, notwithstanding the articles of association to which the prospectus referred would have informed the purchaser that the statement in the prospectus was not justified. The learned judge said: "He is not bound to call at the office for the mere purpose of ascertaining whether the representations are false or not. He was entitled to rely upon the representations made to him as being true to the knowledge of the directors."

But the party who claims to be injured by such fraudulent practices of directors and other agents of corporations must bring his action for relief at the earliest practicable opportunity after having learned the probable fact of such fraudulent practices. Clarke v. Dickson, 1 El. Bl. & El. 148, s. c. 5 Jur. N. S. 1029; Hop & Malt Company in re, Law Rep. 1 Eq. 483. One who purchases upon the facts stated in a prospectus must be held to have notice of facts stated in other documents expressly referred to unless there is special grounds for presuming the contrary. Ib.