quired the property in question at some time before the commencement of the fiduciary relation. That the sale may, in such case, be rescinded if the promoters' interest in the transaction is not disclosed, is established by an unbroken line of authorities.50 It has in fact sometimes been doubted that any other remedy is in such case open to the corporation.51 If it appears that the promoters acquired the property sold to the corporation at a time when they were already subject to the fiduciary relation, an action for an accounting for secret profits is generally a more satisfactory remedy and a rescission is rarely resorted to. There seems, however, to be no sound reason why the corporation should not, if it so desires, be allowed to rescind its purchase.52 V. Alabama.-Moore v. Warrior Coal & Land Co., 178 Ala. 234, 59 So. 219, Am. & Eng. Ann. Cas., 1915, B. 173. Maryland.-Urner Sollenberger, 89 Md. 316, 331, 43 Atl. 810. Massachusetts.-Old Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 328–329, 74 N. E. 653, 108 Am. St. Rep. 479; same v. same, 203 Mass. 159, 201-202, 89 N. E. 193, 40 L. R. A. N. S. 314. Missouri.-Brooker v. William H. Thompson Trust Co., 254 Mo. 125, 157-158, 162 S. W. 187, 195. Oregon.-Stanley v. Luse, 36 Or. 25, 58 Pac. 75. Wisconsin.-Hebgen V. Koefiler, 97 Wis. 313, 72 N. W. 745. United Kingdom and Colonies.Erlanger v. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65, affirming, New Sombrero Phosphate Co. v. Erlanger, L. R. 5 Ch. Div. 73, 25 W. R. 436; Bentinck v. Fenn, L. R. 12 App. Cas. 652, 658, affirming, In re Cape Breton Co., L. R. 29 Ch. Div. 795, affirming, L. R. 26 Ch. Div. 221; In re Ambrose Lake Tin & Copper Mining Co., L. R. 14 Ch. Div. 390, 394; Ladywell Mining Co. v. Brookes, L. R. 35 Ch. Div. 400, 17 Am. & Eng. Corp. Cas. 22, affirming, L. R. 34 Ch. Div. 398; In re Hess Manufacturing Co., 23 Can. S. C. 644. 51. See post, § 171. 52. California.-Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 45, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1122. Maine.-Camden Land Co. V. Lewis, 101 Me. 78, 95, 63 Atl. 523, 530. Missouri.-St. Louis & Utah Silver Mining Co. v. Jackson, 5 Central Law Journal 317. Ohio.-Second National Bank v. Greenville Screw-Point Steel Fence It must, however, to sustain the action of rescission, be made to appear that the promoters were at some time the owners of the property and the vendors on the sale to the corporation. It has been held that if the promoters acquired their secret profit by means of an option, and never owned or pretended to own the property which was conveyed to the corporation directly by the original vendor, no action for the rescission of the company's purchase will lie against the promoters.' 53 § 168. The same subject.-Rescission of entire transaction. If several properties are sold to the corporation as a part of the same transaction, it is not necessary, in order to render the entire transaction voidable, that the non-disclosure of the promoters should extend to all the parcels. If there is fraud in the sale of a single parcel, the whole transaction, being incapable of severance, is tainted by the fraud and voidable at the election of the corporation.54 If a number of parcels are sold to the corporation in a single transaction, it cannot rescind as to one parcel, without rescinding the entire transaction.55 The purchase of the corporation may be rescinded if any single promoter is personally interested in the transaction. The fact that there are other promoters not interested in the property sold to the corporation, or that some of the vendors of the property were not promoters of the company, is immaterial.56 Post Co., 23 Ohio C. C. 274, 281. Oregon.-Johnson V. Sheridan Lumber Co., 51 Or. 35, 93 Pac. 470. Virginia.-Jordan v. Annex Corporation, 109 Va. 625, 64 S. E. 1050, 17 Am. & Eng. Ann. Cas. 267. Wisconsin.-Limited Investment Association v. Glendale Investment Association, 99 Wis. 54, 74 N. W. 633. United Kingdom and Colonies.In re Olympia, Ltd., 1898, 2 Ch. Div. 153, 168-170, affirmed, sub nom. Gluckstein v. Barnes, 1900, App. Cas. 240. 53. Maxwell v. McWilliams, 145 Ill. App. 155, 167-168. 54. Stanley v. Luse, 36 Or. 25, 37, 58 Pac. 75, 79. 55. Omnium Electric Palaces Lim. v. Baines, 1914, 1 Ch. Div. 332, 82 L. J. Ch. N. S. 519, 109 L. T. N. S. 206. 56. In re Cape Breton Co., L. R. 29 Ch. Div. 795, affirming, L. R. 26 § 169. The same subject.-Methods of effecting rescission. If the fraud is not discovered until after the transaction has been consummated the corporation may either bring an action in equity for a rescission, offering in its complaint to reconvey the property sold to it, or else give notice of rescission, tender a reconveyance, and bring a suit at law for the recovery of the purchase price.57 If the fraud of the promoters is discovered before the transaction has been consummated, the remedy of the corporation is to refuse to take title, and to bring suit against the vendors for such part of the consideration as has already been paid.58 170. The same subject.-Restoration of status quo. A corporation wishing to rescind its purchase because of a fraud committed by its promoters, must restore, or offer to restore, to the vendors the property received upon the purchase.59 The fact that this is difficult, or even impossible, does not affect the question Ch. Div. 221, affirmed, sub nom. Bentinck v. Fenn, L. R. 12 App. Cas. 652. 57. See post, §§ 194, 241. 58. Cortes Co. v. Thannhauser, 45 Fed. Rep. 730; Munson v. Syracuse, Geneva & Corning Railroad Co., 103 N. Y. 58, 8 N. E. 355, 29 Am. & Eng. R. R. Cas. 377; Jordan v. Annex Corporation, 109 Va. 625, 64 S. E. 1050, 17 Am. & Eng. Ann. Cas. 267. A minority stockholder may sue to prevent the consummation of the transaction. Insurance Press V. Montauk Wire Co., 103 N. Y. App. Div. 472, 475, 93 Supp. 134. 59. Federal Life Ins. Co. v. Griffin, 173 Ill. App. 5, 17. Getty v. Devlin, 54 N. Y. 403, 414415; Barr v. N. Y. L. E. & W. R. R. Co., 125 N. Y. 263, 272, 26 N. E. 145, 34 St. Rep. 743. Ladywell Mining Co. v. Brookes, L. R. 35 Ch. Div. 400, 17 Am. & Eng. Corp. Cas. 22, affirming, L. R. 34 Ch. Div. 398, 409, 411, 412; The Great Luxembourg Ry. Co. v. Magnay, 25 Beav. 586; Erlanger v. New Sombrero Phosphate Co., L. R. 3 App. Cas. 1218, 1278, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65; In re Cape Breton Co., L. R. 26 Ch. Div. 221, 228, affirmed, L. R. 29 Ch. Div. 795, affirmed, sub nom. Bentinck v. Fenn, L. R. 12 App. Cas. 652; In re Leeds & Hanley Theatres of Varieties, 1902, 2 Ch. Div. 809, unless the restoration of the status quo is prevented by the act of the wrong-doer himself.60 In Phosphate Sewage Co. v. Hartmont,1 the property sold to 826; Lagunas Nitrate Co. v. Lagunas Syndicate, 1899, 2 Ch. Div. 392, 433, 463, (but see dissenting opinion of Rigby, L. J. 456, et seq.); In re Hess Manufacturing Co., 23 Can. S. C. 644, 663-664. In Federal Life Ins. Co. v. Griffin, 173 Ill. App. 5, 21, where the promoter sued in equity for moneys due him under a contract with the corporation which the latter had failed to rescind, the court limited his recovery to the reasonable value of the rights which he had transferred to the corporation. Where it is sought to hold parties other than the vendors jointly liable with them, (see post, § 304), the offer of a conveyance should be made to all parties whom the corporation seeks to hold liable. See Lindsay Petroleum Co. v. Hurd, L. R. 5 P. C. 221, 231. As to accounting for interim profits derived by the corporation from the operation of the property, see American Shipbuilding Co. v. Commonwealth S. S. Co., 215 Fed. Rep. 296, 131 C. C. A. 596; Lindsay Petroleum Co. v. Hurd, L. R. 5 P. C. 221, 240; Lagunas Nitrate Co. v. Lagunas Syndicate, 1899, 2 Ch. Div. 392, 460, et seq., (dissenting opinion of Rigby, L. J.) As to making an allowance for use and occupation, see Finck v. Canadaway Fertilizer Co., 152 N. Y. App. Div. 391, 395-396, 136 Supp. 914, modified and affirmed, 208 N. Y. 607, 102 N. E. 1102. Where the subject matter of the purchase was ships to be manufactured for the corporation, a redelivery of the completed ships was held to sufficiently place the defendant in statu quo. Commonwealth S. S. Co. v. American Shipbuilding Co., 197 Fed. Rep. 780, 787, same v. same, 197 Fed. Rep. 797, 814, affirmed, 215 Fed. Rep. 296, 131 C. C. A. 596. See also post, § 240. For cases dealing with the question of restoration of the former status as a condition of rescission, see 24 Am. & Eng. Enyc. (2nd Ed.), 620, et seq. See also editorial, N. Y. Law Journal, June 15, 1912. 60. Getty v. Devlin, 54 N. Y. 403, 415; Ladywell Mining Co. V. Brookes, L. R. 34 Ch. Div. 398, 411, affirmed, L. R. 35 Ch. Div. 400, 17 Am. & Eng. Corp. Cas. 22. See The Great Luxembourg Ry. Co. v. Magnay, 25 Beav. 586, 596–597. See post, § 240. A trifling change in the condition of the property may no doubt be disregarded. Alger v. Anderson, 78. Fed. Rep. 729. And see Finck v. Canadaway Fertilizer Co., 152 N. Y. App. Div. 391, 136 Supp. 914, modified and affirmed, 208 N. Y. 607, 102 N. E. 1102. 61. L. R. 5 Ch. Div. 394, 446, 454, 455, 46 L. J. Ch. 661. the corporation consisted of a concession which had before its conveyance to the corporation become subject to forfeiture, this fact being concealed from the vendee. The concession was afterwards, by reason of the facts existing at the time of the purchase, declared forfeited. It was held that the corporation could maintain a suit for the recovery of the purchase price though restoration had become impossible. In Ashmead v. Colby,62 the corporation duly tendered a reconveyance. The defendants failed to accept the reconveyance, and the property was afterward sold on an execution issued against the corporation. A reconveyance had thus become impossible. The corporation was, however, permitted to recover the purchase price paid by it, deducting the fair value of the land. In Ladywell Mining Co. v. Brookes,63 the corporation had purchased a leasehold interest in a lead mine. The corporation, without notifying the vendors of its intention to proceed against them for a rescission, allowed the landlord to take judgment by default in an action to recover possession of the property. It was held that a reconveyance having become impossible, the corporation could not sue the vendors for the recovery of the purchase price. In Jordan v. Annex Corporation,64 the court refused to permit the rescission of the purchase of a lease after two-thirds of the demised term had expired. § 171. Action for fraud and deceit. A question which should be, but is not, entirely free from doubt, is that of the right of a corporation to sue its promoters in an action at law for the damages suffered by reason of the fraudulent sale to it of the promoters' own property; that is, the right of 62. 26 Conn. 287. 63. L. R. 34 Ch. Div. 398, 410411, affirmed, L. R. 35 Ch. Div. 400, 17 Am. & Eng. Corp. Cas. 22, cited In re Hess Manufacturing Co., 23 64. 109 Va. 625, 64 S. E. 1050, 17 Am. & Eng. Ann. Cas. 267. |