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which may fairly be considered as a representation that matters have already been so arranged that on completion of the issue, the corporate structure can be made to conform with the description given. But the great question in this area has to do with the price. In a sense, no disclosure can be either complete or accurate, since the pon derables and imponderables all combine into one picture, not suscep tible of being accurately reduced to words. The estimate of all the facts, important and unimportant, salient and obscure, demonstrable and otherwise, finds a summation in the banker’s own appraisal of the worth of the security, which is, of course, embodied in the price at which he offers it. Can it be said that the price is a representation of value? If a banker offered stock at $100 per share when in fact it is worth less when appraised by the market standards of the day, has he told a lie with intent to deceive? On this the law is still in the making; but there is some reason to believe that the result will hold the banker to some accountability in this regard. The law has always made a distinction between a sale by one purporting to be an expert in the value of the thing sold and sales made by a mere outsider. Thus, if a passerby finds a jewel and offers it for sale at $1,000 as and for a diamond but claiming no special knowledge of it, he is not held to have represented that he knew its value to be that of the price asked. Tiffany doing the same thing, would probably be dealt with under a different rule; as an expert in jewels, that house offering a jewel for sale as a diamond and for a thousand dollars would impliedly at least represent that they knew it to be a diamond and that its value was in the vicinity of the price asked. A banker is an expert in se curities and presumably an expert in the security offered; falling in this respect more nearly in line with Tiffany than with the bystander. In at least one recent case, it was held that a syndicate who recom mended the purchase of securities at a price on the ground that they were a good investment had in fact made a representation that the securities were fairly worth the price and this proving to be false, gave rise to an action by the buyer. The trouble with this situation of course rests in the difficulty of “worth.” In a violent market, securities may be appraised by the general public as worth far more than the sounder judgment of a quieter time would apprehend. Is the banker to be guided by the standards of a speculatively crazed market, and make the appraisal accordingly? Or must he abide by the better economic judgment of his own expert staff? If the former, he may be consciously taking ad vantage of a temporary phase of folly; if the latter, he will find that a security offered by him at $100 is traded in tomorrow at $150, outsiders
DOI link for which may fairly be considered as a representation that matters have already been so arranged that on completion of the issue, the corporate structure can be made to conform with the description given. But the great question in this area has to do with the price. In a sense, no disclosure can be either complete or accurate, since the pon derables and imponderables all combine into one picture, not suscep tible of being accurately reduced to words. The estimate of all the facts, important and unimportant, salient and obscure, demonstrable and otherwise, finds a summation in the banker’s own appraisal of the worth of the security, which is, of course, embodied in the price at which he offers it. Can it be said that the price is a representation of value? If a banker offered stock at $100 per share when in fact it is worth less when appraised by the market standards of the day, has he told a lie with intent to deceive? On this the law is still in the making; but there is some reason to believe that the result will hold the banker to some accountability in this regard. The law has always made a distinction between a sale by one purporting to be an expert in the value of the thing sold and sales made by a mere outsider. Thus, if a passerby finds a jewel and offers it for sale at $1,000 as and for a diamond but claiming no special knowledge of it, he is not held to have represented that he knew its value to be that of the price asked. Tiffany doing the same thing, would probably be dealt with under a different rule; as an expert in jewels, that house offering a jewel for sale as a diamond and for a thousand dollars would impliedly at least represent that they knew it to be a diamond and that its value was in the vicinity of the price asked. A banker is an expert in se curities and presumably an expert in the security offered; falling in this respect more nearly in line with Tiffany than with the bystander. In at least one recent case, it was held that a syndicate who recom mended the purchase of securities at a price on the ground that they were a good investment had in fact made a representation that the securities were fairly worth the price and this proving to be false, gave rise to an action by the buyer. The trouble with this situation of course rests in the difficulty of “worth.” In a violent market, securities may be appraised by the general public as worth far more than the sounder judgment of a quieter time would apprehend. Is the banker to be guided by the standards of a speculatively crazed market, and make the appraisal accordingly? Or must he abide by the better economic judgment of his own expert staff? If the former, he may be consciously taking ad vantage of a temporary phase of folly; if the latter, he will find that a security offered by him at $100 is traded in tomorrow at $150, outsiders
which may fairly be considered as a representation that matters have already been so arranged that on completion of the issue, the corporate structure can be made to conform with the description given. But the great question in this area has to do with the price. In a sense, no disclosure can be either complete or accurate, since the pon derables and imponderables all combine into one picture, not suscep tible of being accurately reduced to words. The estimate of all the facts, important and unimportant, salient and obscure, demonstrable and otherwise, finds a summation in the banker’s own appraisal of the worth of the security, which is, of course, embodied in the price at which he offers it. Can it be said that the price is a representation of value? If a banker offered stock at $100 per share when in fact it is worth less when appraised by the market standards of the day, has he told a lie with intent to deceive? On this the law is still in the making; but there is some reason to believe that the result will hold the banker to some accountability in this regard. The law has always made a distinction between a sale by one purporting to be an expert in the value of the thing sold and sales made by a mere outsider. Thus, if a passerby finds a jewel and offers it for sale at $1,000 as and for a diamond but claiming no special knowledge of it, he is not held to have represented that he knew its value to be that of the price asked. Tiffany doing the same thing, would probably be dealt with under a different rule; as an expert in jewels, that house offering a jewel for sale as a diamond and for a thousand dollars would impliedly at least represent that they knew it to be a diamond and that its value was in the vicinity of the price asked. A banker is an expert in se curities and presumably an expert in the security offered; falling in this respect more nearly in line with Tiffany than with the bystander. In at least one recent case, it was held that a syndicate who recom mended the purchase of securities at a price on the ground that they were a good investment had in fact made a representation that the securities were fairly worth the price and this proving to be false, gave rise to an action by the buyer. The trouble with this situation of course rests in the difficulty of “worth.” In a violent market, securities may be appraised by the general public as worth far more than the sounder judgment of a quieter time would apprehend. Is the banker to be guided by the standards of a speculatively crazed market, and make the appraisal accordingly? Or must he abide by the better economic judgment of his own expert staff? If the former, he may be consciously taking ad vantage of a temporary phase of folly; if the latter, he will find that a security offered by him at $100 is traded in tomorrow at $150, outsiders
ABSTRACT
We have been dealing with the action of deceit. Unfortunately, this action is made immensely difficult by the requirement that the plaintiff prove the conscious knowledge of falsity on the part of the banker. The law has developed an easier remedy, known as “rescis sion,” the theory of which is that the buyer of securities tenders them back to the seller, and requests his money back. This action, taken over from equity procedure, offers a considerably wider latitude. It is subject to one important limitation: the person seeking redress by this means must actually have bought from the person who circulated the false statement about the security, whereas an action of deceit can be brought by a buyer at second, third or fourth hand. The pur chaser must have bought his securities upon a misrepresentation of fact; and on discovering misrepresentation he must demand that the bargain be called off, and both parties restored to their previous situation. It is enough that the representation be false even though innocent. Further, the concealment or non-disclosure of a material fact permits this action; and it is enough that the buyer acted on the faith of a misrepresentation even though it were made by someone other than the party from whom he bought.
