
    Charles Lehman-Charley, Respondent, v. John R. Bartlett and Others, Appellants, Impleaded with Walter L. Hill and Edward R. Peet, Defendants.
    First Department,
    December 30, 1909.
    Corporation — subscription to stock—prospectus—justifiable assumption — misrepresentation—rescission of purchase—recovery of money — liability of directors — lien on land.
    Where one purchases preferred stock in a cold storage company in good faith relying on a prospectus, issued by the promoters who were also directors, which stated that the company had purchased at the net cost of $550,000 a piece of land, the title of which was insured; that the cost of building and necessary expenses would be $1,300,000; that it was planned to raise the amount by . the issue of a-$1,000,000 mortgage and the sale of $850,000 of preferred stock, the purchasers to be given common stock as a bonus, and that a limited " amount of preferred stock was still to be sold, when in fact at the time the plaintifE bought the stock all the company owned was an option to purchase the land, which, had' been assigned to it by one of the promoters, and on which had been paid but §35,000, and all the authorized common stock of the company had been issued to the assignor in payment "of his option, and the land was heavily mortgaged, which facts were known to the promoters who issued the circular, the purchaser is entitled, by reason of the misrepresentation, to rescind his contract and recover the money paid for the stock from the corporation. In case of a deficiency, he is entitled to recover from the individual defendants who were responsible for the circular whatever" damages he sustained by reason of the fraud.
    The fact that the defendant corporation after plaintiff’s purchase of stock acquired title to the property and so made the statements in the circular true, is immaterial when the action is to rescind the purchase on the ground that the statements which induced it were false and fraudulent when made.
    A director of a corporation who knowingly issues or sanctions the circulation of . a false prospectus containing untrue statements of material facts, the natural tendency of which is to deceive the public and induce it to purchase the stock, is responsible to those injured thereby.
    Although plaintiff is entitled to recover any deficiency on his judgment from those responsible for the issuance of the circular, he is not entitled to a lien on the land to the extent of his judgment where it appears that there are other preferred stockholders in the same position as he who are not parties to the action.
    Scott, J., dissented, with opinion.
    Appeal by the defendants, John B. Bartlett and others, from a judgment of the Supreme Court in favor of the plaintiff against said defendants, entered in the office of the clerk of the county of Mew York on the 16th day of March, 1909, upon the decision of the court rendered after a trial at the Mew York Special Term, except in so far as said judgment dismisses the complaint as to the defendant Edward B. Peet.
    
      William G. Peokham, for the appellants Tubby and De Selding.'
    • Gould <& Wilkie, for the appellants Bartlett and Beade-Duane Cold Storage Company.
    
      Howard Taylor, for the respondent.
   Ingraham, J.:

The action was brought to rescind a purchase of stock of the j Beade-Duane Cold Storage Company, defendant, and to recover from the defendants the amount paid for the stock, based upon fraudulent statements in a circular alleged to have been issued by the defendants and upon which the plaintiff relied in - making the purchase. The complaint alleges that on or about September 14,

' 1906, the individual defendants, being then directors of the defendant corporation, prepared for general circulation, and with the intent that it should be distributed among the public, a certain pro- ■ spectus or circular purporting to be issued by them and containing representations that11 the Company has purchased the block of land bounded by West, Duane, Washington and Beade Streets, in the Borough of Manhattan, Hew York City, 270x70 feet, containing about 18,900 square feet. The title to the property is insured by the Title Guarantee and Trust Company of Hew York. * * * Het cost of land $550,000,” and that there was offered for sale a limited amount of the preferred stock of the company at par, together with a bonus of common stock;' that this circular was sent by the defendant Bartlett to one Gustave Bives in Paris, France, with a letter stating that he- had organized the corporation; that he inclosed copies of a circular describing its business location and earning ■ power, and offering Mr. Bives the ..privilege to subscribe $5,000 or $10,000, or more, for himself and liis friends under the conditions named in the circular letter; that the company was legally and well organized, and that everything connected with the business as stated was true, and the figures given were safe and conservative; that a copy of this circular and letter was given by Bives to the plaintiff, wdio believed the statements contained in said ' circular and letter and relied tliéreon, and was thereby induced to and did on October 1, 1906, pay-to Bartlett $20,000 in acceptance of the offer of 200 shares of the preferred stock of the company at par, with an equal amount of common stock as a'bonus; that shortly thereafter the plaintiff received through Bives certificates of stock in the defendant company amounting to $20,000 par value preferred stock and $20,000 par value common stock ; that the statements contained ip the said prospectus and in the said letter were false; that the company at the time had not purchased any land at all and'had not paid $550,000 or any other sum for the same-; that Qtlie title to its property had not béen insured by the Title Guarantee and Trust Company of Hew York or any other company or ^person ; that after the defendant's had received from the plaintiff the $20,000 ■ and $5,000 from Bives they purchased in the name of the defendant company an equity of redemption in the block of land subject to a mortgage of $454,000 ; with the usual charge of scienter and offer to return the stock and disaffirming the purchase. The answer seems to admit the purchase of the stock by the plaintiff, but denies the other material allegations of the complaint.

"Upon the trial the court found that in August, 1906, the defendants Bartlett, De Selding and Tubby, together with one Hill, prepared and issued for general circulation, with the intent that it should be distributed among the investing public for the purpose of inviting subscriptions and raising money, a certain circular bearing their names which contained representations that the defendant corporation had purchased a certain block of land in the borough of Manhattan, thereafter described; that the title thereto had been insured by a title company, and that the land had cost the company net $550,000 ; that upon this land the company proposed to erect a cold storage building and conduct a cold storage business thereon; that the circular further stated that a limited amount of the company’s preferred stock was offered at par, with a bonus of an equal amount of paid-up common stock, and subscriptions thereunder were invited at once; that these circulars were sent to Paris and one of them reached the plaintiff; that he believed the representations therein contained and set forth to be true and in reliance thereon and in good faith, in ignorance of the true facts, he paid on September 29, 1906, $20,000 to the defendant corporation and received in exchange 200 shares of preferred stock and 200 shares of common stock of -/ said company ; that the defendants Bartlett, De Selding, Hill, Tubby and the corporation knew when the circular was prepared or sent out or at the time when the plaintiff subscribed for the stock and paid his money that the company had not at these times acquired the title and the land had not cost the eonrpany net $550,000 or any other sum; that after the plaintiff’s money was received it was used by the defendants with other sums in purchasing, in October, 1906, the block of land in question, title being taken in the name of the defendant company ; that the contract price for this block of land was $550,000, and it was purchased subject to mortgages of $454,000, the difference being paid in cash; that said equity of redemption, together with some small amount of rentals accruing therefrom, is the only asset which the company has or | ever has had since the property was purchased; that the plaintiff was deceived and injured by the defendants, except Peet, through the false representations set forth in the circular. And as a conclusion of law that the defendants Bartlett, De Selding, Tubby and the corporation defrauded the plaintiff, causing him thereby to pay out $20,000 on September 29, 1906. And judgment was directed that the sale to the plaintiff of the 20Ó shares of preferred .stock and 200 shares of common stock of the company be rescinded and declared null and void; that' the defendant, corporation repay to the plaintiff the sum of $20,000, with interest; that plaintiff be declared to have a lien on the right, title and interest of the defendant corporation in the ju'emises; allowing.the plaintiff to apply at the foot of the judgment for the appointment of a receiver of the real property and for an order directing its sale, and out- of the pro* needs of such sale the receiver was to pay to the plaintiff $23,523.51, and that the defendants Bartlett, De Selding arid Tubby pay the amount of any deficiency that should arise upon the sale. Judgment was entered in accordance with this decision.

The .court also found at the request of the defendants that on March 14, 1906, the defendant Bartlett made a contract with one Boche for the purchase of. the premises in question for the sum of $550,000, payable $10 on- the signing of the contract; $24,990 on or before April 13, 1906; $175,000 on or before July 12, 1906; and $350,000 to be secured by a purchase-money mortgage upon the property, the deed to be delivered on July 12, 1906; that on July 12, 1906, the defendant Bartlett and the owner of the property entered' into a supplemental agreement extending the time for the completion of the contract to September 10,1906, and that the time to com píete the contract was further extended until October 10,1906; that prior to July 12,1906, Bartlett had paid to the vendor $25,010 on account of this purchase; that on June 8, 1906, the defendant corporation was organized and on June 11, 1906, Bartlett conveyed to the company his interest in the contract between himself and the. owner of the property; that subsequently the vendor agreed that he would convey the property to the corporation on the payment of $100,000 in cash instead of $200,000, as required by the first agreement, and on October 8, 1906, this $100,000 cash was paid and the deed delivered; that the property was conveyed subject to a mortgage of $271,000, and Bartlett, to whom the property was conveyed, executed, a second mortgage for $183,000, and on the same day Bartlett conveyed the property to the company subject to those mortgages; that at the same time the Lawyers’ Title Insurance Company insured the title to the property; that the plaintiff relying upon the prospectus and circular understood it to aver that the defendant' company had paid the full price of $550,000 for the land described and that it held the land free and clear.

Upon the trial plaintiff testified that he was shown this circular, of which a copy was introduced in evidence, by Hives in Paris, and also a letter from Bartlett to Hives; that he believed what was stated in the letter and circular to be true and relied on the same in making the purchase; that he relied particularly upon the statement in the circular that the company had purchased the land and that the net cost of the land was $550,000 ; that they then owned the property and had already .purchased it ;• that they prbposed to raise $1,000,000 by a first mortgage on the. land; that plaintiff knew it was impossible to raise $1,000,000 by first mortgage on the laud if the land was not purchased or if there was any other mortgage on it; that plaintiff understood that the corporation had purchased the property, owned it, and had paid for it the sum of $550,000. Mr. Hoche, the owner of the property who conveyed it to the corporation, testified that on March fourteenth he made a contract to sell the property to Bartlett and received $10 on account of the purchase price ; on March thirtieth he received $7,000 ; on April thirteenth he received $5,000; on March thirtieth he received a promissory note for $8,000, which was met at maturity; on April thirteenth he received a note for the balance of the first $25,000 to be paid on account of the property which was paid on June fifteenth by the defendant corporation; on July twelfth he received $15,000 more from the defendant corporation ; on October eighth he received a check for $60,000 from the defendant corporation, and then conveyed, the property to Bartlett, who subsequently conveyed it to the defendant corporation; he had executed an agreement to convey the property to Bartlett, by which he agreed to convey the property on July 12, 1906, upon the payment of $25,000 in cash before the 13th of April, 1906, which had been paid, and $175,000 in cash before July twelfth, when the deed was to be delivered. So far as appears at the time of the making and sending of this circular to the plaintiff this defendant corporation had no assets except this contract upon which it had been paid $25,000. The' contract with Bochó for the purchase of this real property ujion which had been paid $25,000 and upon which a payment of $275,000 was required to be made before, the 10th of September, 1906, had been assigned to the defendant, and for an assignment of this contract it had issued to the defendant Bartlett common stock of the par value of $1,500,000 and preferred stock to the value of $75,000. This being the situation, the officers and directors of this company prepared the circular which was sent to the plaintiff and upon the faith of which he made this investment in the stock of the company. The printed date upon this circular was August 1, 1906, but in the copy sent to the plaintiff that was stricken out and September fourteenth written in. The circular recited that the defendant corporation was organized under the laws of the State of New York with an authorized' capital stock of $2,500,000, of which $1,000,000 was six per cent preferred stock and $1,500,000 common stock. When this circular was issued by defendant the whole amount of the common stock and $75,000 par value of the preferred stock had been issued to Bartlett for the contract to purchase the real property for $550,000 upon which had been paid $25,000. The company, therefore, had no common stock to give tpvay to subscribers to the preferred stock except such as Bartlett contributed. The circular then says: “ The company has purchased the block of land bounded by West, Duane,. Washington and Beade Streets, in the Borough of Manhattan, New York City, 270x70 feet, containing about 18,900 square feet. The title to the property is insured' by the Title .Guarantee, and Trust Company of New York.” The business which the defendant corporation proposed to 'eng-age in was stated. It was .also stated that on this block of land would be erected a steel frame structure of fourteen stories and basement containing the necessary machinery, equipment and insulation to furnish cold storage in the upper stories and ’ •basement. ■ Under the head of Cost ” the circular said: Net cost of land, $550,000. The cost of the building, fully equipped and ready for business, including carrying charges during period of construction, will not exceed $1,200,000; office, legal, organization and administration expenses, including working capital — $100,000. [total] $1,850,000. Of this amount it is planned to raise by first mortgage — $1,000,000. And from the sale of preferred stock at pah—$850,000. [total] $1,850,000. The common stock will be distributed in part to subscribers to the preferred stock under the plan outlined below, and the remainder to' Mr. Bartlett and associates in payment for their interest in the property and in the various contracts, leases and agreements made by them and for the organization and development of the business.” And the circular then said : “ A limited amount of the preferred stock of this company is offered at par " with an equal amount of paid up common stock as a bonus.” And it was signed by the corporation, “ J. B. . Bartlett, President.”

From this circular the plaintiff swears that he was given to understand that the company had purchased this property at a net cost of $550,000 and owned the property free from incumbrances, the cost of which had been defrayed from the sale of the preferred stock, and that the company still had a limited amount of preferred stock for sale which was offered him at par, 200 shares of which he purchased sf or which he paid $20,000.

I think, taking this circular as a whole, that the plaintiff was jus- . tified in this assumption. In the first place there is a marked distinction in the circular between what has been done and what the company contemplated doing. The land had been purchased, the title had been insured by a title insurance company, and it was proposed to erect a building upon this land. The net cost of the land was stated to be $550,000. I think any one reading such a statement would be justified in assuming that the defendant company had paid that cost of $550,000 and owned the land, title to which had been insured by a title insurance company. Assuming that it had been the intention of these defendants to make a full and frank disclosure of the situation at the" time this circular was sent to the plaintiff it would have been as follows : We have a contract to purchase this block of land for $550,000, upon which $25,000 has been paid and the balance we are required to pay by taking the property subject to a mortgage of $275,000, giving back a purchase-money mortgage for $183,000 and the balance to be paid in cash on or' before October 10, 1906. To purchase this contract upon which $25,000 has been paid we have issued our stock to the par. ' value of $1,575,000. Would not that have been an entirely ' different statement from that contained in the circular ? In the first place the net cost of the property to the corporation would be, when it acquired title, $1,525,000 in stock of the company and $525,000 to be paid when the deed was delivered; In the second place the company had nothing but a contract to purchase upon which $25,000 of the $550,000 had been paid instead of the property, at the net cost of $550,000. It is quite true that the circular nowhere expressly states that the company had acquired title ' to the property or that it paid this net cost of $550,000 ; but I think the circular was drawn with the expectation that those facts would be assumed to exist and that any one reading the circular, especially those not familiar with the methods adopted by promoters of these corporations, would fairly assume that it was intended to convey to them the information that the company had purchased this property and had .paid the net cost of $550,000 in acquiring title to it. And this conclusion would be confirmed by the statement that a limited amount of this preferred stock was offered for sale. There is nothing. at all inconsistent with this conclusion in the statement as to the means by which the money necessary to enable the company to prosecute its business was to be secured. It was stated that of this amount it was planned to raise by first mortgage _ $1,000,000 and from the sale of the preferred stock at par $850,000. This, it seems to me, was a statement of the securities of the corporation from the sale of which the cost of the land that had been acquired, and how the cost of a building which the company proposed to erect, and the expenses including working capital was to be secured. And the circular then .said that the common stock would be distributed in part to subscribers to the preferred stock, when in fact all the common stock had been issued to Bartlett for his interest in the contract. I think on its face that this circular was most misleading and was contrived to induce subscriptions to , the preferred stock, and it was intended to and did convey’ the impression that the company had acquired the land at a net cost of $550,000, and that the company offered a limited amount of preferred stock for the purpose of providing for the necessary expenses in erecting the building and carrying out the scheme outlined.

Bartlett was.not one of the original incorporators of the company although it would appear that he was the one that had originally devised the scheme. After the company was incorporated the directors named in the certificate of inporporation met on June 11, 1906. The defendant De Selding was then elected treasurer and a Mr. Peet secretary. At that meeting Peck resigned as president and Bartlett was elected president of the company and director in place of Peck. De Selding then resigned as treasurer and Bartlett was made treasurer as well as president. At the end of that meeting the directors were Bartlett, De Selding, Peet, Hill and Tubby. Bartlett testified that he originally drafted the circular some time in July and submitted it to the directors and afterwards to the counsel for the company; that corrections were then made in the draft by the defendants and Bartlett together; and finally after this correction by the defendants it was printed. This all took place in July. The defendant De Selding, besides being a director, was in actual charge of the property as agent for the collection of rents. Bartlett received this $20,000 from the plaintiff through Bives of Paris, and paid it to the defendant corporation; there had been subscriptions to the preferred stock of the company aggregating $31,500 during June and July. Hone of the individual defendants denied the testimony of Bartlett as to their connection with this circular, and I think it clear that they are all responsible for its terms and the representations made. The fact that although these representations may be said to be untrue at the time they were made, the subsequent acquisition of title by the defendant made them true would not help the defendant in this case, for tlie action is to rescind the purchase on the ground that the statements which induced it were false and.fraudulent when made. It maybe that if the action was to recover for damages for fraudulent misrepresentations there would be some foundation for the claim that the subsequent acquisition of the property would reduce the.plaintiff’s damages ; but upon the discovery of the fraud the plaintiff had a right to rescind the purchase of the stock and get back his money, and if the circular contained fraudulent misrepresentations as to the condition of the company at the time it was issued and received by the plaintiff, the plaintiff clearly had the right to rescind the contract and recover his money. It is settled in this State that a director who knowingly issues or sanctions the. circulation of a false prospectus containing untrue statements of material facts, the natural . tendency of which is to deceive and mislead' the community and induce the public to purchase the stock, is responsible to those who are injured thereby. (Morgan v. Skiddy, 62 N. Y. 319 Brackett v. Griswold, 112 id. 454; Coursey v. Morton, 132 id. 556 Lambert v. Elmendorf, 124 App. Div. 758.)

There was one question which was not raised by the defendants which suggested itself to me, and that is as to whether the allegations of the complaint entitled plaintiff to any more than a rescission of the contract of sale and a recovery back of the amount that lie paid.. The.complaint sets out the false representations and rescission and demands the recovery from the defendants of the amount that was paid. The judgment directed is that the defendant-corporation which has received the money repay the plaintiff what he paid for the. stock; plaintiff to have alien upon the land for the. amount, and the other defendants aré • held liable for any deficiency. The plaintiff being justified in rescinding the purchase of the stock was entitled to recover from the defendant corporation the money that he had paid, He was also entitled to recover from tlie individual defendants who were responsible for the circular any damage that he sustained in consequence of this fraud. This, I think, was the' extent to which the judgment should go. .Both the corporation to which the money had. been paid and the individual defendants whose false representations induced the purchase of the stock and the payment of the money by the plaintiff to the corporation could be joined in one action, the individual defendants to be liable for the amount that the plaintiff had paid to the corporation. (Mack v. Latta, 178 E. Y. 525.) I do not think, however, that the plaintiff is entitled to a lien upon the real property for the amount of the recovery. It-is undisputed that other preferred stock was sold and it would seem that all the money that went to make the last payments made on account of the purchase of the property was the proceeds of the sale of preferred stock. The other holders of preferred stock who furnished the balance of the money necessary to acquire title to the property are not parties to the action and their right to participate' in the amount that this property is worth over and above the mortgages should not be destroyed without giving them an opportunity to be heard.

We think, therefore that the judgment appealed from should be modified by directing a canceilatio'n of the purchase of stock by the plaintiff; a judgment against the defendant corporation and the individual defendants for the amount due to the plaintiff with interest, with costs against all the defendants, and the judgment as so modified is affirmed, with costs to the plaintiff.

Patterson, P. J., Laug-hlin and Claeke, JJ., concurred; Scott, J., dissented.

Scott, J. (dissenting):

This action is brought by the plaintiff to rescind a subscription of $20,000 to the preferred stock of the defendant corporation, and to recover the amount Of such subscription from the corporation and the individual defendants, who were its directors and who signed a prospectus which induced plaintiff to subscribe, and which he now says contained fraudulent misrepresentations. The complaint asks and the judgment has awarded plaintiff a lien on the property of the company for the amount of his subscription. We are all agreed that he is not entitled to such a lien, and the case, therefore, resolves itself into one for the recovery of damages for false representations. The individual defendants organized the defendant corporation for the purpose of erecting and maintaining a cold storage warehouse in the city of blew York. The defendant Bartlett was the active promoter of the enterprise, the defendant De Selding being a real estate agent, and the defendant Tubby an architect. The defendant Bartlett having found a plot of land which he deemed suitable made a contract to purchase it from the owner, one Roche, for the sum of $550,000. This contract was executed on March 14,. 1906, and provided that title should pass on July 12, 1906, $200,000 to be paid in cash and the balance, $350,000, to remain on . bond and mortgage. The defendant corporation was incorporated .on June 8, 1906, and on June 11, 1906, Bartlett assigned to it his contract with Roche, and all his interest in the property. On July 12, 1906, the time for closing title was extended to September 10, 1906, and Roche promised to further extend it if necessary. Roche also agreed to a reduction of the amount to be paid in cash. Finally title was passed on October 8, 1906, $60,000 being paid in cash, and the balance by the assumption of a mortgage then on the property, and the placing thereon of a further mortgage. Bartlett himself took the deed of the property and executed the bond and mortgage, and simultaneously conveyed .title by deed to the defendant corporation. Boche held a policy of title insurance issued by the Lawyers’ Title Insurance Company, and defendant corporation upon acquiring the property procured a like policy.

In July, 1906, the prospectus which the plaintiff considers fraudulent was prepared and issued. ‘ A copy of it found its way to Paris and came into plaintiff’s hands, and he, on September 29,1906, cabled $20,000 to Bartlett as a subscription to the proposed stock. Bartlett paid it over to the defendant corporation, and it formed a part of the $60,000 paid to Boche on the delivery of the deed by him. Since this is simply an action for false pretenses it may not be amiss to keep clearly in mind the essential- elements of such an action. They are nowhere better stated than by Judge, Andrews in Brackett v. Griswold (112 N. Y. 454): “ The essential constituents of such an action have been understood from the time such actions were first maintained. They are tersely stated by Church, Ch. J., i\\ Arthur v. Griswold [55 N. Y. 400], viz.: 6 Bepresentation, falsity,-scienter - deception and injury.’- There must have been a false representation, •known to be such, made by the defendant, calculated and intended to influence the plaintiff, and which came to his knowledge, and in reliance upon which he, in good faith, parted with property or incurred the obligation which occasioned the injury of which he complains.”

The prospectus of which plaintiff complains stated the organization of the defendant company with an authorized capital stock of $2,500,000, of- which. $1,000,000 is six per Cent cumulative preferred ' stock, and $1,500,000 common stock. Then follows the statement which the plaintiff characterizes as false and of which he complains, as follows: “The company has purchased the block of land bounded by West, Duane, Washington and Beade Streets, in the Borough of Manhattan, New York City, 270x70 feet, containing about 18,900 square feet.” The- fact is that when this prospectus was issued and when plaintiff saw it, the company had acquired and held a valid, enforcible contract of purchase of the lot described. The sole foundation for the judgment appealed from is .that it .is inaccurate to say that a company or person has purchased.a piece of land, when in fact he or .it has only entered into a contract for its acquisition, but has not yet actually taken title. Such a construction is contrary to the common use of the word “ purchase,” and is contrary to its definition by the lexicographers. The plaintiff indeed goes even further and insists that the statement that the company had “purchased” the land is equivalent'to a statement that it had not only actually acquired title, but had paid the whole purchase price in cash, By no possible construction can the word be given so restricted a meaning when used with reference to the purchase of real estate. As words are used in common parlance a statement that the company had “ purchased ” the land was fully justified by proof that it held an enforcible contract for its acquisition, which in fact ripened into complete ownership a few days after plaintiff’s subscription had been received. If the only question was that the word “purchase” was prematurely and inaccurately used it would be immaterial in view of the company’s subsequent acquisition of the title. The plaintiff’s insistanee that the prospectus represented that the property had been wholly paid for, if sustained by the language, would be material. On this subject we are referred to another part of the prospectus, which it is claimed supports the plaintiff’s contention in this regard, but which, to my mind, completely refutes it. The part referred to is headed “ Cost,” "and gives an estimate of the cost of the proposed warehouse, and of the manner in which .that cost is to be met. It reads as follows :

“¡Net cost of land................................ . $550,000
“The.cost of the building, fully equipped and ready for business, including carrying charges during
period of construction, will not exceed........... . 1,200,000
“ Office, legal, organization and administration
expenses, including working capital.............. 100,000
$1,850,000
“ Of this amount it is planned to raise by
first mortgage.. ^.................... $1,000,000
“ And from the sale of preferred stock at
par.............................. 850,000
$1,850,000
“ The common stock will be distributed in part to subscribers .to the preferred stock, under the plan outlined below, and the remainder to Mr.- Bartlett and assoeiáfces in payment for their interest in the property and in the various contracts, leases and agreements made by them and for the organization and development of the business.”

An examination of this statement should have shown to any one that the land had not- been paid for, but that it, with the building, were to be paid for in part by a $1,000,000 mortgage, and in part by the sale of preferred stock. The amount of preferred stock to be sold at par plus the proposed mortgage exactly equaled the estimated cost of the building including the price of the land. Much stress is laid upon the use of the word net with reference to the cost of the land. It seems to be argued that “net’’means “ cash,” and should be read as a representation that the land had been paid for in cash. I am unable to see any foundation for such a contention. The meaning of the word “net ” in such conjunction is perfectly clear. It means the total or complete cost. To read it as a representation that the whole cost had already been paid, and that none, of tlie money derived from stock subscriptions was to be devoted to payment for the land, would be wholly inconsistent with the detailed statement of estimated cost and the proposed method of raising the necessary money! - In my opinion the statement that the company had “purchased” the property was not false, and if it was it was immaterial, because the result was the same as if it had actually acquired title to the property when plaintiff subscribed. The plaintiff got exactly what the prospectus promised him except that the hopeful anticipation of the consummation of a profitable venture failed of realization. - '

In my opinion the judgment should be reversed.

Judgment modified as stated in opinion; and as modified affirmed, with costs to plaintiff. Settle order on notice.  