The answers in the present case do not aver what is here required to be proved, to make the corporation liable for any supposed wrong on the part of Carnan.
V. The fact that from May, when the true amount of the Vincennes stock must have been known by the Jeffersonville stockholders, to the middle of August, no complaint was made on that account, is conclusive evidence that the defendants did not consider themselves injured by that fact.
The evidence is explicit and clear, that in April, 1850, Ryan made out a statement, truly showing the condition of the company, and that it had some $25,000 or $26,000 of surplus on hand, and of course showed that there was no $40,000 of Eastern exchange. It also showed the amount of stock, because it was the same statement shown to Savitz and Hughs in August, and Savitz swears that he then noticed that the whole stock of the company amounted to only $97,000. Now, it appears that Carnan took this statement to Jeffersonville in May, 1850, and there showed it. He states that he never showed any other statement to them there; the stockholders then knew that $75,000 had not been subscribed at Vincennes. He swears he told them that he was sorry that they had taken $67,000, because it was a good deal more than had been taken at Vincennes, and he proposed to go and increase the stock at the latter place. But the Jeffersonville subscribers objected, because they wanted the smallest possible amount of stock to spread the anticipated dividend over. They then knew the facts as well as they ever did, and did not object, as they would have done, if they had thought themselves injured by the smallness of the Vincennes subscription. Not even a hint of complaint escaped the Jeffersonville subscribers until the middle of August, and then no formal objection made, nor for a very long time. They would not have been thus silent, if they had been really wronged.
III. But further, admitting the charge of fraud to be proven, and that defendants relied on the representations, the defendants cannot protect themselves by it. It is too late.
When a party has the right to rescind, repudiate, on the ground of fraud, 'he must do so at once, on discovering the fraud.'
2 Parsons Cont., 278.
At the earliest moment after he has knowledge of the fraud.
Masson v. Burt, 1 Denio, 69.
2 Parsons Cont, 278, note S.
Any delay is a waiver, and mere lapse of time may be conclusive.
2 Parsons Cont., 279.
The party must act promptly, and rescind in toto.
Wheaton v. Baker, 14 Bart., 594.
Mann v. Worral, 16 Bart., 221.
But these men had the statement, called paper Z, on 4th May, 1850, and yet, up to the 4th June, increased their subscriptions $10,500, as appears by the dates of the securities, bill, and answers; and these men had the report of their committee, and the statement called W, in August or September, 1850-full knowledge of all the facts. And yet, between the 28th of September and 4th of October, these men, and amongst them Cullom, on his own stock, renewed their securities on 225 shares and $22,500. This whole defence is an afterthought.
IV. If these defendants might set up this fraud against the company, or their co-stockholders, they cannot set it up against the creditors of the company.
Suppose A, by fraud, induces B to become his partner in the firm of A & Co.; that A, in the name of A & Co., purchases goods for the firm on credit, and that, before payment is made, or even due, B discovers the fraud, and immediately rescinds for the sufficient fraud, what will be the effect on the sellers of the goods, creditors of the firm?
In such case, who will suffer? Nay, who should suffer? The rule is, that when one of two innocent parties must suffer by the fraud of a third party, he of the two who afforded the means, or gave the credit, must bear the loss.
Story on Agency, sec. 127, pp. 142, 143, and note 1.
Story's Eq. Jur., secs. 384, 385, 386, 387, 388.
Hiorns v. Holtom, 13 Eng. L. and E., 596.
So long as a man is a partner or a stockholder, however innocently, as relates to third and also innocent parties, he should suffer the consequences.
These men represented two-thirds of the capital; they had their names in the firm as stockholders, directors, officers.
Only some of the arguments of the counsel for the appellees can be given, and those are selected which are replies to the arguments upon the other side.