PROSPECTUS. A prospectus of an in tended company ought not to omit actual and material facts, or to conceal facts ma terial to be known, the misrepresentation or concealment of which may improperly influence the mind of the reader ; for if he is thereby deceived into becoming an al lottee of shares and suffers loss he may pro ceed against those who have misled him. The proper purpose of a prospectus of an in tended company is held to be only to invite persons to become original shareholders or allottees of shares in the company. When it has performed this office, it is exhausted; Peek v. Gurney, L. R. 6 H. L. 377; but a purchaser of shares from an original allottee may maintain an action for misrepresenta tions contained in a prospectus, if he can show that it was intended by those issuing It to be, and was, communicated to him prior to his purchase of shares; [1896] 1 Q. B. 372; such an intention may be inferred if the prospectus was circulated after all its shares had been allotted, particularly if they were taken up by the promoters themselves. See [1892] 3 Ch. 566; 17 Ch. D. 467.
The doctrine of Peek v. Gurney is consid ered by Judge Thompson (Corp. § 1471) as "destitute of any foundation in reason and opposed to the common opinions of justice and business morality." It is not followed in this country, where it is held that it is sufficient if the prospectus was issued to influence the public, and the plaintiff saw it and was induced thereby to purchase shares; id.
A prospectus set forth that a tramway company had the right to use steam power as well as horses; the directors believed the statement to be true, but it was not; it was held that the officers of the company were not liable for deceit; Derry v. Peek, L. R. 14 App. Cas. 337. This decision was overruled in England by an act of 1890.
If a. director of a company knowingly issues or sanctions the circulation of a false prospectus, containing untrue statements of material facts tending to deceive the com munity, and to induce the public to buy the stock in the market, he is responsible to those who are injured thereby ; Morgan v. Skiddy, 62 N. Y. 319.
A letter intended to be used to promote the sale of bonds of a trust company is a representation to all persons to whom it is shown; Nash v. Ins. & Trust Co., 159 Mass.
437, 34 N. E. 625.
A prospectus is admissible in evidence in an action at law by a company against its promoters for secret profits; Simons v. Min. Co., 61 Pa. 202, 100 Am. Dec. 628. See Thomp. Liab. of Off. 309.
A .statement in a prospectus of the pur pose for which money is wanted, is a ma terial statement of fact, and if untrue may be ground for an action of deceit; 29 Ch. Div. 459.
A prospectus of a new company, so far as it alleges facts concerning the position and prospects of the undertaking, is a rep resentation to all persons who may apply for shares therein, but not to subsequent transferees of shares; L. R. 6 H. L. 377; but it may be as to the latter, if actively used to induce the purchase of shares; [1896] I Q. B. 372; Poll. Torts 284. The material question as to a prospectus is, "Was there or was there not misrepresentation hr point of fact?" id.
By the Companies (Consolidation) Act 1908, every prospectus must contain particu lars respecting the memorandum of associa tion, the shares, the directors, the subscrib ers to the memorandum of association, the vendors to the company, payments in respect to preliminary expenses and disbursements and the dates and parties to material con tracts. Parties cannot contract themselves out of the act ; [1906] 75 L. J. C. 450; [1906] 2 Ch. 129; if a prospectus contains untrue statements, or material omissions, any sub scriber for shares may avoid his contract and the court will not enquire into the exact importance which he attached to each sepa rate statement; [1906] A. C. 24; but see [1910] 1 Ch. 630. He also has an action of deceit against every director or promoter, or person named in the prospectus as about to become a director, or who has authorized the issue of the prospectus. The defendant will not be liable if be had reasonable ground to believe that the statement was true, or that it was a correct statement Cron!' a public official document, or from the report of an expert whom he had reason able ground to believe was competent; Od gers, C. L. 1401.
See Alger, Promoters ; DECEIT; MISREMBE