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Home > Journals > Michigan Law Review > MLR > Volume 38 > Issue 7 (1940)

 

Abstract

Plaintiff, purchaser of stock in Condor Pictures, Inc., brought an action against the officers of the corporation and the auditors who certified the registration statement, to recover damages under section II of the Securities Act of 1933. The action was founded upon misrepresentations and omissions in the registration statement, concerning a lease made by Condor Pictures, Inc., which the auditors failed to set up as a contingent liability. The defendants at the time of the suit stipulated that the stock had no market value, but the plaintiff did not offer any evidence of the actual value of the stock beyond a showing that the corporation was adjudicated insolvent for purposes of reorganization under the Bankruptcy Act at the time suit was instituted, and that an auditor's summary of the books showed that the corporation had been losing money during a certain period of time. The issuer's .final amended statement was registered in February, 1937, the plaintiff alleging discovery in May, 1938, but failing to prove on trial why the discovery was not made sooner. Held, in no event may the auditors be held, for at the time of their certification of the books the lease had not yet been executed and consequently could not have been discovered by them and thus in the certified audit there was no omission to state a material fact required to be stated therein; the officers of the corporation are not liable because: (1) no damages were shown, as the plaintiffs failed to show the actual value of the stock at the time of suit, (2) even if damages had been proved the action would have been barred by the limitations of section 13 of the act. Shonts v. Hirliman, (D. C. Cal. 1939) 28 F. Supp. 478.

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