1. The evidence examined and held, that the misrepresentations of fact alleged to have been made by the agent of the defendants in selling stock of the defendant corporation to the complainants, were in fact made and that the defendant who negotiated the sale was the agent of the other defendants.
2. The principal cannot escape responsibility for the misrepresentations of the agent of its agent if it accepts and retains the fruits of those misrepresentations. Mechanics Trust Co. v. Reid, 117 N.J. Eq. 472, followed.
3. Complainants had the right to rescind the contract of purchase of the defendant company's stock because of the fraudulent misrepresentations actually made by the agent (as has been herein determined) even though the agent had not been authorized to make them.
4. The defense that the complainant is estopped or precluded from setting up the fraudulent misrepresentations made by the agent because of the statement incorporated in the printed form of purchase agreement signed by the complainant to the effect that "the purchase of these shares is based solely on the information contained in the printed circular issued by you" (one of the defendants) "and dated January , 1933," is not maintainable in the law courts, and much less in a court of equity. It appears by the proofs that there was never any printed circular bearing any date in January and it is admitted by the agent who negotiated the sale of the defendant company's stock that he did not show, and in fact refused to show, to the complainants the circular which he did have in his possession.
5. Consideration of the proofs in this case clearly shows that the representation that all the money received by the defendant company from the sale of the common stock was to be used for the purchase of tax liens, except that after two hundred and seventy thousand shares were sold $243,900 of preferred stock was to be redeemed, was untrue and that the agent who actually negotiated the sale of the stock to the complainants was authorized to make the misrepresentation not only by the defendant Ramos who employed him, but by the defendant company itself who had engaged Ramos to sell the stock to the public.
6. The fact that a notation in the balance sheet of the company appearing upon the fourth page of a certain prospectus issued by it, was inconsistent with a representation clearly made on the first pages of the prospectus to the effect that the proceeds of the issue of common stock were to be used entirely and exclusively in financing the purchase of tax lien certificates and to retire outstanding preferred stock after the sale of two hundred and seventy thousand shares of the new issue of common stock, is entirely insufficient as a defense to the present suit for the following reasons: (1) the representations in the first pages of the prospectus were complete in themselves and an ordinary person without special training in legal or financial affairs would have been entirely justified in relying and acting upon the statements therein, without reading the balance sheet on the fourth page; (2) an ordinary person might read the entire circular without realizing that the notation on the fourth page of the prospectus was inconsistent with the apparent meaning of the statements on the first pages, and if the circular as a whole be deemed ambiguous the responsibility for such ambiguity and the results thereof, rests upon the defendant company; and (3) the complainants did not read or know of the notation on the fourth page of the prospectus.
7. The defenses that the complainants ratified the purchase of the stock after knowledge on their part of the fact of the misrepresentations, and that they failed to rescind within a reasonable time after discovery of the misrepresentations, are affirmative defenses and must be established by the weight of the evidence. Neither one is so established; the weight of the evidence is to the contrary.
8. Reasonable promptness in acting to rescind a contract of purchase after discovery of misrepresentations leading to the purchase, is a matter depending upon the circumstances of a particular case. Complainants acted with reasonable promptness in the instant case.
9. The argument that the agent of the defendants, before the actual purchase of the stock by the complainants, suggested to, or asked them, to go to the office of the defendant company to talk with the officers there, and that this was not done, is no defense to this suit brought to set aside the purchase of the defendant corporation's stock on the ground of misrepresentations.
10. Complainants having tendered back the stock, they are, under the facts of this case, entitled to a decree for rescission, i.e., to a decree for the purchase price of the stock, with interest, in exchange for the return of the stock and the dividends paid thereon, with interest, and the decree will carry costs and counsel fee.
11. Although the record shows no service of process on the defendant agent nor answer filed by him, it does show that he subsequently appeared in the cause by the same solicitors as the defendant company, which amounts to a general appearance, and that he testified fully as a witness and thereby fully presented any and all defenses on his own behalf.
PER CURIAM.
The pleadings and proofs in this case have been carefully examined. The conclusions of the vice-chancellor are abundantly supported by the evidence adduced.
The decree is affirmed.
For affirmance — THE CHIEF-JUSTICE, LLOYD, CASE, BODINE, DONGES, HEHER, PERSKIE, HETFIELD, DEAR, WELLS, WOLFSKEIL, RAFFERTY, JJ. 12.
For reversal — None.