the corporation to hold the promoters liable, not for the profits made by them, but for the damage caused to it by the fraud-not for the difference between the cost of the property to the promoters and the price at which it was sold to the corporation, but for the difference between the cost of the property to the corporation and its actual market value at the time of the sale. This question is, if the circumstances are such that the promoters may be compelled to account for their profits in the transaction, of no great moment, as the action for an accounting is generally more satisfactory and easier of proof, though it might sometimes hapthat the recovery in an action for damages would exceed the recovery upon an accounting for promoters' profits.65 The right to maintain an action for damages is of importance, if the property sold to the corporation was owned by the promoters before they entered upon the fiduciary relation. An action for an accounting for secret profits does not in such case lie,66 and the rescission of the purchase is after the lapse of even a short period of time generally inadvisable and often impossible.

pen

Some of the earlier English cases seem to hold that if the promoters acquired the property sold to the corporation before they became subject to the fiduciary relation, the only remedy open to the corporation is the rescission of its purchase, it being said that to allow the company to take the property, not at the price fixed by its vendor, but at its fair market value, amounts to making a new bargain for the parties.67 The reasoning of these cases is

65. In re Leeds & Hanley Theatres of Varieties, 1902, 2 Ch. Div. 809, 814.

66. See ante, § 161. An accounting for profits may under some circumstances be had. See ante, 8

162.

67. In re Ambrose Lake Tin & Copper Mining Co., L. R. 14 Ch. Div. 390, 398; Ladywell Mining Co. v.

Brookes, L. R. 35 Ch. Div. 400, 408, 17 Am. & Eng. Corp. Cas. 22, affirming, L. R. 34 Ch. Div. 398, and see dictum in Re Hess Manufacturing Co., 23 Can. S. C. 644, 665. Cf. Dupont v. Tilden, 42 Fed. Rep. 87.

The Ladywell Mining Company cases rely upon In re Cape Breton Company, L. R. 29 Ch. Div. 795, affirming, L. R. 26 Ch. Div. 221, 229,

not at all satisfactory. The same argument could with equal force, be applied to any case in which a vendee, having been induced by the fraud of his vendor to purchase property, sues the vendor for damages for fraud and deceit and by a recovery in such action in effect reduces the price paid for the property.68

It has sometimes been stated that the corporation can maintain an action for fraud and deceit if a rescission has become impossible or impracticable, the implication being that the action for damages would otherwise not lie.69

The rule sustained by the weight of authority is that a sale of the promoter's property to the corporation, without a proper disclosure of his personal interest in the transaction, constitutes a violation of the duties which flow from the fiduciary relation, and that the corporation may sue the promoter for the damages suffered by reason of his deceit, the measure of such damages being

234. In that case Cotton, L. J., said (p. 805), that the company could not collect damages, as the property had no definite market value. Fry, L. J., concurred on the ground that the transaction complained of had been ratified by the company, while Bowen, L. J., dissented on the ground that a proper case for damages had been made out. The House of Lords when affirming the case, (sub nom. Bentinck v. Fenn, L. R. 12 App. Cas. 652), disapproved of the opinions below, and affirmed on the ground that there was no evidence of nondisclosure, and no proof that the purchase price exceeded the market value, clearly intimating that an action for damages for fraud and deceit would lie in a proper See In re Olympia, Ltd., 1898, 2 Ch. Div. 153, 178-179, (affirmed,

case.

sub nom. Gluckstein v. Barnes, 1900 App. Cas. 240).

Care must be taken not to be misled by the statement sometimes made that a rescission is, if the promoters owned the property before they entered upon the fiduciary relation, the sole remedy in equity, the action for damages for fraud and deceit being generally an action at law. See Tyrrell v. Bank of London, 10 H. L. Cas. 26, 52-53, 11 Eng. Rep. 934, but see post, § 193.

68. See In re Olympia, Ltd., 1898, 2 Ch. Div. 153, 179, affirmed, sub nom. Gluckstein v. Barnes, 1900 App. Cas. 240.

69. In re Ambrose Lake Tin & Copper Mining Company, L. R. 14 Ch. Div. 390, 394, and see Omnium Electric Palaces Lim. v. Baines, 1914, 1 Ch. Div. 332, 343-344, 82 L. J. Ch. N. S. 519, 524, 109 L. T. N. S.

the difference between the price the corporation paid for the property, and the actual value thereof.70

§ 172. Election of remedies.

As shown in the preceding sections of this chapter, the corporation may, in case of the unlawful sale to it of the promoters' own property, rescind its purchase and recover the purchase price paid by it, or sue the promoters for the difference between the price paid for the property and the actual value thereof, or in a proper case compel the promoters to account for the profits gained by them in the transaction. These remedies being open to the corporation, it may in its discretion elect which of them to pursue.

206. See also Hayward v. Leeson, 176 Mass. 310, 321, 57 N. E. 656, 49 L. R. A. 725, and Old Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 329, 74 N. E. 653, 108 Am. St. Rep. 479.

70. Federal.-Central Trust Co. v. East Tennessee Land Co., 116 Fed. Rep. 743, 748; Dickerman v. Northern Trust Co., 176 U. S. 181, 204, 20 Sup. Ct. 311, 319, 44 L. Ed. 423.

Alabama.-Moore V. Warrior Coal & Land Co., 178 Ala. 234, 59 So. 219, Am. & Eng. Ann. Cas., 1915, B. 173.

Land &

California.-Lomita Water Co. v. Robinson, 154 Cal. 36, 45, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1122; Ex-Mission Land & Water Co. v. Flash, 97 Cal. 610, 626, 32 Pac. 600, 604, citing Morawetz on Corporations, § 546.

Kansas.-Hayden v. Green, 66 Kan. 204, 71 Pac. 236.

Massachusetts.-Old Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 202, 89 N. E. 193, 40 L. R. A. N. S. 314; same v. same, 188

71

Mass. 315, 328-329, 74 N. E. 653, 108 Am. St. Rep. 479.

Missouri.-Brooker v. William H. Thompson Trust Co., 254 Mo. 125, 158, 162 S. W. 187, 195.

United Kingdom and Colonies.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 Leeds & Hanley Theatres of Varieties, 1902, 2 Ch. Div. 809, 825-827; Bentinck v. Fenn, L. R. 12 App. Cas. 652.

And see the statement in Pittsburg Mining Co. v. Spooner, 74 Wis. 307, 320, 42 N. W. 259, 262, 17 Am. St. Rep. 149, 24 Am. & Eng. Corp. Cas. 1, where the court perhaps loses sight of the distinction between the case where the promoter sells his own property to the company, and the case where he may be deemed to have made the original purchase as trustee for the company.

The election of the corporation once made is binding upon it. Having disaffirmed the contract it cannot afterwards resort to a remedy based upon an affirmance, and if it has with knowledge of the facts affirmed its purchase, it cannot afterwards proceed upon a disaffirmance.72

§ 173. The same subject.—No right of election in promoter. Promoters guilty of making an unlawful sale of their own property to the corporation have not, upon discovery of the facts, an election to pay the damages of the corporation or make good their representations, and thereby avoid a rescission of their sale.73

In Ex-Mission Land & Water Co. v. Flash,74 the court at the suit of the corporation cancelled a mortgage taken by the promoters as part of their unlawful profits. The promoters claimed that the proper relief to be granted the corporation was the rescission of the entire transaction. The court said that the remedy

204, 20 Sup. Ct. 311, 44 L. Ed. 423, citing Morawetz on Private Corporations, §§ 291, 294, 546.

California.-Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 45, 97 Pac. 10, 18 L. R. A. N. S. 1106, 1122; Burbank v. Dennis, 101 Cal. 90, 102, 35 Pac. 444, 448; ExMission Land & Water Co. v. Flash, 97 Cal. 610, 626, 32 Pac. 600, 604, citing Morawetz on Corporations, § 546.

Massachusetts.-Old Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 328-329, 74 N. E. 653, 108 Am. St. Rep. 479.

Ohio.-Second National Bank v. Greenville Screw-Point Steel Fence Post Co., 23 Ohio C. C. 274, 281.

Oregon.-Wills v. Nehalem Coal Co., 52 Or. 70, 86, 96 Pac. 528, 534, quoting from note to Pittsburg

Mining Co. v. Spooner, 17 Am. St.
Rep. 149.

Virginia.-Jordan v. Annex Corporation, 109 Va. 625, 64 S. E. 1050, 17 Am. & Eng. Ann. Cas. 267.

Wisconsin.-Hebgen V. Koeffler, 97 Wis. 313, 320, 72 N. W. 745, 747, following Franey v. Warner, 96 Wis. 222, 71 N. W. 81, 85; Pittsburg Mining Co. v. Spooner, 74 Wis. 307, 42 N. W. 259, 17 Am. St. Rep. 149, 24 Am. & Eng. Corp. Cas. 1.

72. Limited Investment Ass'n v. Glendale Investment Ass'n, 99 Wis. 54, 58, 74 N. W. 633, 634. And see post, §§ 252, 257.

73. Lagunas Nitrate Co. v. Lagunas Syndicate, 1899, 2 Ch. Div. 392, 417. Cf. Pulsford v. Richards, 17 Beav. 87, 95.

74. 97 Cal. 610, 636, 32 Pac. 600, 607.

of rescission was not exclusive, that the promoters may not have been financially able to repay the entire purchase price, and that they would have been in a more favorable position to maintain their contention had they made a tender of the necessary sum, intimating, somewhat vaguely it is true, that the promoters might, by offering a return of the purchase moneys, have confined the company to a rescission of the purchase.

It would seem on principle that the election of remedies should rest entirely with the corporation, and that the promoters should be made to respond to whatever appropriate relief may be asked by it.

§ 174. Remedies of the corporation where promoter receives secret commission or other benefit.

If the promoter's profit is made, not by selling his own property to the corporation, nor by purchasing property for himself individually and re-selling it to the corporation, at an advance, but by means of a secret commission received from persons selling property to the corporation, the corporation may upon discovering the facts compel the promoter to account to it for the amount of the commission so received by him.75

75. Federal.-Chandler v. Bacon, 30 Fed. Rep. 538.

Connecticut.-Yale Gas Stove Co. v. Wilcox, 64 Conn. 101, 121-122, 125-128, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. Cas. 647.

Iowa.-The Telegraph v. Loetscher, 127 Iowa 383, 101 N. W. 773, 4 A. & E. Ann. Cas. 667.

Massachusetts.-Emery V. Parrott, 107 Mass. 95, 100, 104; Hayward v. Leeson, 176 Mass. 310, 322, 57 N. E. 656, 49 L. R. A. 725. United Kingdom and Colonies.Bagnall v. Carlton, L. R. 6 Ch. Div.

371; Emma Silver Mining Co. v. Lewis, L. R. 4 C. P. D. 396, 408409; Lydney & Wigpool Iron Ore Co. v. Bird, L. R. 33 Ch. Div. 85, 94; Whaley Bridge Calico Printing Co. v. Green, L. R. 5 Q. B. D. 109, 112, 28 W. R. 351; Phosphate Sewage Co. v. Hartmont, L. R. 5 Ch. Div. 394, 441-442, 457, 46 L. J. Ch. 661; In re Hess Manufacturing Co., 23 Can. S. C. 644, 659.

The dictum in Second National Bank V. Greenville Screw-Point Steel Fence Post Co., 23 Ohio C. C. 274, 280, probably intends nothing to the contrary.