This was an action of debt, brought in the Circuit court of law for the county of Henrico and the city of Richmond, by the United States Mining Company, against Crump and Liggon. It was one of twenty-eight actions brought by the same plaintiffs against certain subscribers to the stock of the company, for arrears due upon their stock. All the cases turned upon the same questions, and were submitted to the same jury.
On the trial of the causes the plaintiffs introduced in evidence an act of the General Assembly of Virginia for the incorporation of the United States Mining Company, and then offered in evidence a minute book purporting to be a minute book of the company, for *Page 354 the purpose of proving the existence of the corporation. To this evidence the defendants objected, upon the ground that it was not competent until it was shewn by the subscription list of stockholders, that the persons who assembled on the 16th of August 1834, (the day when according to the minute book the company was organized,) were stockholders authorized to associate and act as such; and they called for the production of such list. Whereupon the plaintiffs offered to prove by J. J. Chew, that shortly after the passage of the act of incorporation, the company had an office or place of business, where the business to carry on which they were incorporated, was carried on; and that the affairs of the company had been managed by directors who were chosen from time to time. That he was himself a subscriber, and had paid after the organization of the company, a portion of his subscription as called for from time to time; and that he had sold out his stock to a person who had fully paid up to the company the instalments due upon it. That he had transferred said stock in the office of the company on the books of the company. And that the various books purporting to be the books of the company, including the minute book aforesaid, were kept in the handwriting of Richard B. Maury, who was the recognized, notorious secretary of the company from the time it purported in said books to have been organized, and his appointment as secretary, until the death of said Maury. The plaintiffs by their counsel stated also, that they proposed to follow up the evidence of Chew, in further proof of the organization of the company, by evidence that each and all of the present defendants recognized the company as an existing corporation, by entering into the contracts with the said corporation upon which the present actions were brought. Whereupon the defendants moved to exclude the testimony of Chew, upon the ground that such *Page 355 testimony was not competent in the absence of the subscription book, which being written evidence of the fact that the persons who claimed the right to act as a corporation, were subscribers to stock, could not be dispensed with, unless shewn to be lost or destroyed, by any parol proof of the fact which such subscription list would establish. But the Court overruled the motion, and admitted the testimony; and the defendants excepted.
In the further progress of the cause, the plaintiffs offered in evidence the prospectus of a sale of the stock of the company signed by William Jackson the president, and the contract annexed thereto, on which this action is founded, and proved the signatures of the defendants to the contract by which they each subscribed for the number of shares annexed to his name. They also introduced a printed report of the president and directors giving a description of the property and of the condition and prospects of the company, which was referred to in the prospectus. They also introduced copies of the certificates of stock issued by the company to the defendants, and offered evidence to prove that the defendants had received a dividend of five per cent. upon the amount of forty dollars a share paid in by them for their stock. And they introduced certain proceedings of the defendants, by which they expressed their determination to pay no requisitions which should be made upon them on account of their stock. And the plaintiffs then rested their case. Whereupon the defendants called a witness, John H. Eustace, whose name appears first upon the list of subscribers mentioned above, who stated that the signature of his name was not in his handwriting, and that he had no recollection of having given any person authority to make it for him; though he has no doubt he did: but that he had never paid anything for the stock standing against his name, nor had he been called upon to pay *Page 356 anything for it. The defendants then called a witness, James B. Cowles, who proved that his signature to the subscription list aforesaid was genuine. That the book which contained the prospectus and list, was in the hands of James Williams, who came to the city of Richmond as the agent of the plaintiffs to sell their stock, and presented the said prospectus and subscription list, but did not shew him, and he did not ask for, the printed report before referred to, and induced the witness to subscribe for stock, which he did without reading the prospectus. And then the defendants offered to prove by the witness Cowles, that Williams at the time of procuring the subscriptions to the said stock from the witness and the defendants, and for the purpose of inducing him and them to subscribe for and purchase the stock, made representations to them in addition to those contained in the report and prospectus, as to the description, condition and value of the gold mine, upon the faith of which, he and the defendants became subscribers for the stock, as shewn by the list aforesaid; which representations were false and fraudulent: And for the purpose of getting such proof, asked the witness to state what representations were made to him and the defendants, as aforesaid, by Williams touching the value and description of the mine and condition of the company. But the plaintiffs objected to the question and any answer thereto, upon the ground that it was not competent for the defendants to give evidence of any representations by said Williams, because they insisted he was a limited agent, whose authority was defined by the prospectus aforesaid and the printed report referred to in it. The Court sustained the objection, and excluded the evidence; and the defendants again excepted.
After the introduction of the evidence mentioned in the previous exceptions, the defendants proposed to prove by the witness Cowles, that when Williams made *Page 357 the representations referred to in the preceding bill of exceptions, William Jackson the then president of the company, whose name was signed to the prospectus, was present and assented to them; and also proposed to prove that the same representations were made sometimes by Williams in the presence of Jackson, and sometimes by Jackson himself, to other subscribers for stock, who are defendants in these causes. The witness did not identify Jackson very confidently, though he expressed the belief that the person who was with Williams was the same with William Jackson the president of the company, who was then in court, and was pointed out to the witness. The counsel for the defendants then asked the witness to state what the representations were which were made as aforesaid by Williams and assented to by Jackson. But the plaintiffs by their counsel moved the Court to exclude all evidence of any such statements or representations made in the presence of or by William Jackson the president of the company, which were not contained in the written prospectus and the report therein referred to, upon the ground that the said prospectus and report contained the only representations of the value of the mine and stock, and the condition of the company, which could be given in evidence in the cause, based upon any representations of Jackson or Williams. The Court sustained the motion and excluded the evidence; and the defendants again excepted.
It appears that an act for the incorporation of the United States Mining Company was passed in January 1834. This act constituted John L. Marye and four other persons by name, and such other persons as should be thereafter associated with them, a corporation for the purpose of mining. These five named gentlemen owned a tract of land on which the mining was expected to be carried on. Their proposals for the disposition of stock were, that the land should be put in as a part of the *Page 358 capital stock of the company, at 150,000 dollars; in payment of which they were to receive 40 dollars a share, on each share subscribed for by others than themselves, until the proceeds with their own subscription, which was to be for five hundred shares in the first instance, should make the sum of 150,000 dollars. It was first intended that the capital stock should be 300,000 dollars; of which the original proprietors were to take 500 shares, and the rest be sold out to other persons; but it was afterwards agreed to reduce it to 180,000 dollars. Of this sum the original proprietors subscribed for five hundred shares, equal to 50,000 dollars, and other persons subscribed for five hundred and nineteen shares, equal to 51,900 dollars: The proprietors then, to make up the capital stock, subscribed for the remaining seven hundred and eighty-one shares; and the company was organized, and proceeded to business.
At the annual meeting of the company held about the 17th of August 1836, a committee made a report in which they "earnestly recommend that the mine should be further developed and worked on a scale commensurate with the immense treasures it contained;" and to obtain the means thus to enlarge the operations of the company, they recommend a sale of the capital stock to the amount of 70,000 dollars; and advise that it shall be sold at a premium of 10 dollars a share.
In accordance with the recommendation of the committee the stockholders, on the 17th of August, adopted a resolution authorizing the board of directors to create six hundred and eighty-nine shares of additional stock, upon such terms as they might deem most expedient; and that they should cause books for the sale of the same to be opened when and where they might think proper. On the 14th of September the board of directors adopted a resolution in which it was recited, that the *Page 359 original proprietors had proposed to surrender to the company a part of the stock received by them in payment for the mine, not exceeding 781 shares, provided the company would issue new scrip for a like number of shares to such subscribers as are content to pay therefor to the proprietors 40 dollars per share, and to the company 60 dollars per share. And it was declared that the proposition met the approval of the directors; and directions were given for carrying it into execution. Some time after the stock had been subscribed for by the defendants, these proceedings of the directors were approved and ratified by the stockholders.
In pursuance of the resolutions aforesaid the prospectus referred to in the second bill of exceptions was prepared, in which it was stated that the company holding in reserve 781 shares of the original stock of the company, propose to sell the same on the following terms and conditions, viz: The terms were then stated, and it was added that the mines were in full and successful operation, having three veins of valuable ore, one of which was then working at the depth of eighty feet, c. And for a full description of the mine, buildings, machinery, c. reference was made to the last report of the president and directors of the company. To this prospectus was attached a subscription paper, upon which the defendants in these cases made their subscriptions. These are the papers referred to in the foregoing exceptions, and which were in the hands of Williams, the agent of the company, when he was in Richmond soliciting subscriptions to the stock.
In addition to the written evidence much parol testimony was offered by both parties, on the one part to prove that a fraud had been practised upon them in the sale of the stock, and on the other to repel and disprove the imputation; but only such a statement of the proofs is given as will shew the nature of the claim and of the defence, and the relevancy of the instructions given or *Page 360 refused by the Court. In 1837 the mine proved to be unprofitable and was abandoned.
After all the evidence had been introduced the defendants by their counsel, moved the Court to instruct the jury as follows:
1st. "If from the evidence the jury shall believe that the United States Mining Company, either by forfeiture of its charter or by failure to appoint the proper officers and nonuser, has ceased to be a legal corporation, this suit cannot be maintained, and a verdict must be rendered for the defendants."
2d. "That the stockholders of the United States Mining Company in general meeting, only, and not the board of directors, had authority to create new stock, and if they shall believe that the stockholders in general meeting authorized a sale of new stock, and the defendants afterwards, in Richmond made their subscription for stock; and after that subscription without the assent of a general meeting of the stockholders, and without the assent of the defendants, the board of directors purchased old stock from the original proprietors, and did not create new stock according to the authority and resolution of the stockholders, and have not created any, the plaintiffs are not entitled to recover."
But the Court refused to give the first instruction, upon the ground, that whether the supposed acts of forfeiture, the failure to appoint officers, or other acts of nonuser, did exist or not, they could not be enquired into collaterally in this case, for the purpose of affecting the right of the plaintiffs to maintain their suit, unless there was evidence to shew that the charter had been ascertained to be forfeited, or the corporation to be dissolved, by the sentence of a Court in which those matters had been decided.
And the Court refused to give the second instruction without the following qualification, which was insisted on by the plaintiffs, viz: *Page 361
"But if the jury believe that after the order of the stockholders authorizing the board of directors to create new stock, the board agreed with the original proprietors, that the latter should surrender a portion of the original stock for the use of the company, and to be sold by the company as original stock instead of creating new stock; and the said original stock was thereupon offered for sale and subscribed for by the defendants; and that the contract thus made was executed by the subscribers receiving the scrip for the stock purchased by them, and that they have claimed the benefit of said contract by receiving dividends on said stock purchased by them, and that the stockholders at a subsequent; meeting approved and ratified the act of the board, then the plaintiffs are not precluded from recovering by reason of the stock sold to them being original or old stock substituted as aforesaid, instead of creating new stock."
To the opinion of the Court refusing the instructions asked, and giving the addition to the second, the defendants excepted.
The defendants further moved the Court to instruct the jury:
1st. That if the representations contained in the prospectus and report, as part thereof, are false as to any material fact, constituting an inducement or motive to the subscription for stock by the defendants, by which they have been misled to their injury, and in which the defendants are presumed to have trusted to the plaintiffs, and not to have relied on their own judgment, then the contract founded on such representations is void, and cannot be enforced, whether the plaintiffs knew the representations to be false at the time they were made or not; and whether made with a fraudulent intent or not.
2d. That the suppression from the prospectus of any fact within the knowledge of the plaintiffs materially *Page 362 affecting the value of the thing to be sold, and inconsistent with the statements in the prospectus, vitiates the contract as fully as the false affirmation of any material facts, if the defendants be injured thereby.
The Court gave these instructions, and the plaintiffs excepted.
The plaintiffs then moved the Court for the following instruction, viz:
"That if the jury believe from the evidence that all the representations made by the plaintiffs in the prospectus and report, as to the description, condition and prospects of the mine, before and at the time of the sale, were in every material particular substantially true as represented, and that the plaintiffs at the time believed, and were justified by the facts known at the time, in believing, the ore and mine as valuable as they represented it to be, then that the right of the plaintiffs to recover in this case is not impaired or affected by any proof that the mine and ore did not, when subsequently developed and opened to a greater depth, prove to be as valuable as in the opinion of the plaintiffs so expressed and believed, it was supposed to be; and thus failed to be as productive and valuable as was anticipated at the time of the sale of the stock to the defendants."
This instruction the Court refused to give, but at the instance of the defendants' counsel gave the following in lieu thereof, viz:
"If the jury shall be satisfied that the representations contained in the prospectus and the report, as part thereof, were true at the time they were made as to all the material facts constituting an inducement or motive to the defendants to subscribe for the stock, and as to which the defendants are presumed to have trusted to the plaintiffs, and not to have relied on their own judgments, and that no fact within the knowledge of the plaintiffs materially affecting the value of the thing sold *Page 363 was suppressed to the injury of the defendants, the subsequent failure of the mine in value and productiveness, and disappointment of the expectations and anticipations of the parties, does not impair the right of the plaintiffs to recover: And the subsequent failure of the mine can be relied on by the defendants, only as evidence to affect, so far as it may, the question whether the representations were true at the time they were made."
To the refusal of the Court to give the instruction asked for by them the plaintiffs excepted.
There was a verdict for the plaintiffs for 600 dollars, with interest, whereupon the defendants asked the Court for a new trial, on the ground that the verdict was contrary to evidence; but the Court overruled the motion, and gave a judgment for the plaintiffs according to the verdict; and the defendants excepted. Upon the application of the defendants this Court awarded a supersedeas to the judgment. The question presented by the second bill of exceptions taken at the trial is, whether the Circuit court erred in rejecting the evidence offered by the defendants in these actions for the purpose of proving that the contract upon which the actions are founded was procured, from them respectively by false and fraudulent representations made to them at the time, as to the description, condition and value of the subject, by Williams the agent of the plaintiffs. And the question must be considered upon the hypothesis, that the defendants were able and ready to prove such false and fraudulent representations so made at that time. The first step in the order of such proof was of necessity evidence of the declarations and conduct of the agent at the time the contract was entered into; and the decision of the Court excluding the representations so made by him, assumes the proposition, that though the contract in question was so fraudulently procured from the defendants, it is nevertheless obligatory upon them.
It cannot be doubted that where a contract is made between parties acting for themselves as principals, and in an action founded upon it, the defence is that the contract was procured by the false and fraudulent representations of the party seeking to enforce it, his conduct and declarations at the time are parts of the res gestæ, and essential elements of the defence. If therefore the decision of the Court below can be sustained, it must be upon the ground of a distinction, applicable to these cases, between the effect of such a fraud when perpetrated by a principal, and its effect when perpetrated by an agent. *Page 368
The question whether an agent has transcended the authority conferred on him by his principal in making a contract, usually arises where the other party is seeking to enforce it, and the agent's want of authority is relied upon by the principal as matter of defence against the performance of the contract on his part. But in the present cases, the principals demand the performance of the contract by the other parties, and of course recognize the authority of their agent to procure it, but deny that they can be affected by the alleged false and fraudulent representations employed by him for that purpose. This denial rests upon the alleged ground that Williams was an agent of limited powers, restricted by his principals from making any representations true or false on the subject of the contract, and made the mere medium for communicating to purchasers the terms of sale proposed by his principals, and their own representations of the description, condition and value of the property.
But the admissibility of evidence to prove the procurement of a contract by the fraudulent practices of an agent does not turn upon the extent or the limitations of his authority; for if so, then as the principal may in most cases recognize and confirm the authority of the agent, the consequences of his misconduct would be visited, not upon the person whose confidence enabled him to commit the fraud, but upon its innocent victim. The fraudulent conduct of the agent in procuring a contract may be an abuse of his known authority, or it may be accomplished by means of the suppression or concealment of the limitations upon it; and in neither case can his principal give validity to the contract by repudiating the fraudulent practices employed to obtain it.
That a person professing to act as agent for another does so wholly without authority, or transcends the authority actually conferred upon him by his principal, *Page 369 is no reason for enforcing the contract against the other party when obtained from him by false and fraudulent representations. In the words of a judicious writer: "Contracts made for the benefit of another, but without his privity or consent, may be rejected or affirmed at his election. But by making the election to affirm it he adopts that which is detrimental, as well as that which is for his benefit. And in seeking to enforce contracts entered into by agents, the principal is subject to have them impeached by any conduct of his agent which would have that effect if proceeding from himself. Every species of fraud, misrepresentation or concealment, therefore, in the agent, affects the principal's right to recover." Paley Agency, 324-5.
That an agent to sell is restricted in the delegation of his authority by his principal from making any representations on the subject of the contract, whether true or false, has. it is true, a bearing upon the obligatory force of the contract; but it is as a question of fact, and not as a question of law. It may be used in evidence as tending to prove that the representations of the agent, though false and fraudulent, had not the effect of deceiving the purchaser. But this presupposes that the restraint upon the authority of the agent was known to the purchaser; and whether he knew it, and the effect of such knowledge in preventing him from being deluded, deceived and defrauded, are also questions of fact for the consideration of the jury.
It is difficult to conceive a case of an action founded upon a contract of sale, to which the defence is that it was obtained by fraud, in which the acts and declarations whether of the principal seeking to enforce the contract, or of his agent through whose intervention it was procured, occurring at the time of making it as part of the resgestæ, are inadmissible evidence. Such a defence does not present a naked question of law for *Page 370 the decision of the Court; but a mixed question of law and fact for the consideration of the jury, with the aid of such instructions as the Court may give in regard to the principles of law applicable to the facts that may be proved to the satisfaction of the jury.
The bill of exceptions shews nothing to render these cases an exception to the general rule of evidence just mentioned. It appears therefrom that the contract in question consisted of a written prospectus on the part of the plaintiffs, in the form of a subscription paper, to be signed by the purchasers, for the sale of a number of shares of reserved stock of their Gold Mining company, upon the terms and conditions therein prescribed, representing the mines to be in full and successful operation, with several particulars of description and recommendation, and referring to the last report of the president and directors of the company for a full description of the mine, buildings, machinery, c., which subscription paper was signed by the defendants and others. The plaintiffs also gave in evidence a report of the president and directors of the company to the stockholders, containing a detailed and favourable description and statement of the condition of the mining property, and of the operations, resources and prospects of the company, as being the report referred to in the prospectus; but it does not appear that it was shewn to the defendants, or was called for by them; or that the prospectus itself was read to or by them, except so far as it may be inferred from their having subscribed it. It farther appears that Williams was an agent of the company for effecting the contemplated sales of the stock upon the terms and conditions prescribed in the prospectus; but the extent or limitations of his authority do not appear, except so far as may be inferred from the facts above mentioned, and the recognition of his agency by the act of the company in seeking to enforce the contract in question. Upon this state *Page 371 of facts, the defendants offered to prove that Williams, at the time of procuring the subscriptions of stock from them, and for the purpose of inducing them to subscribe for and purchase the same, made representations, in addition to those contained in the prospectus and report therein referred to, as to the description, condition and value of the gold mine, upon the faith of which the defendants became subscribers for said stock; which representations were false and fraudulent; and for the purpose of getting such proof, asked a witness to state what representations were made to the defendants as aforesaid, touching the value and description of the mine and condition of the company: whereupon the counsel for the plaintiffs objected to the question and any answer thereto, upon the ground that it was incompetent for the defendants to give evidence of any representations by said Williams, because they insisted that he was a limited agent, whose authority was defined by the said prospectus and the report of the president and directors therein referred to.
We are of opinion, for reasons above suggested, that the Circuit court erred in rejecting the evidence so offered by the defendants, upon the ground urged on the part of the plaintiffs, and if the propriety of its rejection on any other ground could be considered by this Court, as to which we express no opinion, none such appears from the bill of exceptions. The evidence relied on by the plaintiffs as proving acquiescence in and recognition of the contract on the part of the defendants, was proper for the consideration of the jury, in connection with all the circumstances of the case, and the principles of law applicable thereto; but could not be used by way of estoppel, for the purpose of excluding the evidence of fraud offered by the defendants.
The Court is further of opinion, that the Circuit court did not err in the rejection of the declarations of Jackson, the president of the company, as stated in the *Page 372 third bill of exceptions, upon the assumption made by that Court, that he was identified as the person who made them; inasmuch as it does not appear that he acted as the authorized agent of the company for the purpose of making sales of the stock above mentioned.
And the Court is farther of opinion, that there is no error in the several decisions of the Circuit court, rejecting proposed instructions, nor in the actual instructions given, as set forth in the several bills of exception in relation thereto.
The Court therefore, without considering whether the bill of exceptions to the refusal of the Circuit court to grant a new trial, was properly taken, is of opinion that the judgments must be reversed for the error of that Court in rejecting the evidence offered of the declarations of Williams, as stated in the second bill of exceptions.
Judgments reversed, with costs to the plaintiffs in error, verdict set aside, and new trial directed. *Page 373