Commonwealth S. S. Co. v. American Shipbuilding Co.

Citations

• 197 F. 797
• 10 Ohio Law Rep. 427
• 1912 U.S. Dist. LEXIS 1492

Syllabus

<p>Corporations (§ 448*) — Contracts by Promoters — Assumption by Corporation — Right of Rescission for Fraud.</p> <p>Certain persons, after obtaining an option for the construction of a steamship by a shipbuilding company for a price named, issued a prospectus inviting subscriptions to the stock of a corporation to be formed for owning and operating the vessel, and on securing a sufficient number of subscriptions made a contract for the vessel as trustees, which they turned over to the corporation on its organization. Held, that they were promoters and occupied a fiduciary relation to the corporation both before and after its organization, and in the matter of the contract were trustees for the corporation and not for the stock subscribers individually, and that where they were in coni rol of the corporation when the contract was assumed and made a personal profit out of the transaction by receiving a secret commission from the shipbuilding company, of which the other stockholders had no knowledge, the fraud was one affecting the corporation, and the latter, on its discovery, had a right of action to rescind the contract with the shipbuilding company, which paid the commission with full knowledge of the situation and in accordance with an agreement made when the original option was given.</p> <p>[Ed. Note. — For other eases, see Corporations, Cent. Dig. §§ 1709, 1789-1792; Dec. Dig. § 448.*</p> <p>Acts of corporators and promoters, see notes to Yeiser v. United States Board & Paper Co., 46 C. O. A. 576; El Cajon Portland Cement Co. v. Robert F. Wentz Engineering Co., 92 C. C. A. 450.]</p>