Fear v. Bartlett

Citations

• 81 Md. 435
• 33 L.R.A. 721
• 32 A. 322
• 1895 Md. LEXIS 83

Syllabus

<p>Corporations — Subscription to Capital Stock obtained by Fraud — Right of Subscriber to avoid the same before the Insolvency of the Company — Ratification of Subscription — Contract to be Performed in another State.</p> <p>If a party is induced to subscribe for shares of the stock of a corporation, upon the faith of certain representations contained in a prospectus-issued by the company, which representations are false, and within a reasonable time after the discovery of the fraud, and before the insolvency of the company, he notifies the company that he repudiates the contract, these facts constitute a valid defence to an action to recover the subscription.</p> <p>The subscriber to the stock is released in such case because he has exercised his right to avoid a contract obtained by fraud. The subsequent insolvency of the corporation does not make him liable on such a contract, and the equities of the creditors of the company are not superior to his own.</p> <p>Quaere : Whether the subscriber could repudiate a subscription obtained by the fraud of the corporation after its insolvency, when he had no opportunity of becoming aware of the fraud prior thereto.</p> <p>The doctrine that unpaid subscriptions to the capital stock of a corporation are a trust fund for the benefit of its creditors, does not apply so as to prevent a defrauded shareholder from rescinding his contract before proceedings in insolvency have been instituted against the company, or what is regarded in law as an act of insolvency committed.</p> <p>Defendant’s contract of subscription was made in July, 1890. Two months thereafter, upon discovering the alleged fraud, he repudiated the subscription. A year afterwards defendant paid to a director of the company one thousand dollars, “in order to save what he had already paid,” but at the same time declared that he did not intend to make any further payment on his subscription. Defendant was unable to read or write. Held, that under these circumstances