Old Dominion Copper Mining Co. v.

Lewisohn
Holmes J.
1907
210 US 206
Doctrine
Fiduciary relationship of promoter with corporation
Summary
Promoters defrauded corp through a contract of sale. This was done with other syndicate members who were incorporators of
the company. After the fraudulent acts, the promoters sold shares to the public. The public, when they bought the shares had no
knowledge of these acts. When they finally found out, they filed this case for rescission of the fraudulent contract of sale. The
Court held that the plaintiff corp does not have a legal right for damages or rescission, as first, the corporation, or 13/15 of
shareholders assented to the sale, the plaintiffs filing this case in behalf of the corp only held 2/15 shares of the company. Second,
it would be unjust for them to recover as all shareholders would then recover, including the 13/15 shareholders.
Facts

Lewisohn and Bigolow formed petitioner corporation

o Fradulent Goal/Scheme: to sell certain properties to the corporation at a profit

L&B, as promoters, obtained options from real estate sellers

L & B, IN THEIR PERSONAL CAPACITY, BOUGHT THE REAL PROPERTY AS AFORESAID.

They then formed a syndicate to carry out their plan and started plaintiff corporation, Old Dominion Copper Mining
Co (ODCMC).

A day after incorporation, they increased their stocks up to 150,000 shares for 25 USD each.

Lewisohn entered into a contract of sale of the real property to plaintiff corporate at an unreasonable profit.
o Baltimore corporation (corp owned by L&B) offered to sell substantially all its property for 100,000 shares
of the plaintiff corp
o Lewisohn sold to plaintiff corp a real property it acquired, for a consideration of 30,000 shares of the
plaintiff. (This also included rights to mine in the real property)
o Hence, there was a profit of 130,000 shares

The remaining 20,000 shares (150k-130k) was offered to the public and they were taken by subscribers who did not
know of the profit made by Bigelow and Lewisohn and the syndicate.

The 130,000 shares was issued to the sellers after the sale of shares to the public.

All shareholders eventually found out about the scheme so they, as a corp, filed this case against the estate of
Lewison (he died) for the rescission of the sale for the unreasonable selling price the corporation paid, or in the
alternative, for damages.

Plaintiff corp allege that:

o The value of the Baltimore property was way less than the amount the plaintiff corp was made to pay.
(100,000 shares= 2,500,000 USD)
o The value of the other property sold for 30,000 shares, or 750,000 was also way less than that amount.
o Taken altogether, these acts are outside the realm of fiduciary duties of the promoters L& B as their
obligation of good faith remains up until the last incorporators, or rather, referring to the public
shareholders who bought the remaining 20,000 shares w/o knowledge of the profit of the promoters and
the syndicate.
Issues/Ratio

1)

WON plaintiff is entitled to damages because of the lessthan honest relations of respondent? (NO)
a. It has assented to the transaction with full knowledge of the facts
i. when the 130,000 shares was issued to the sellers, there were already subscribers to the 20,000
shares that the public took.
b. At the time the contract of sale was entered into, before shares were sold to the public there was no
wrong done as it was the right of the original incorporators to buy property.
c. It is wrong for the new shareholders (those who bought the 20,000 shares) to allege that a new
corporation was formed by their purchase of shares. It must be noted that a corporation does not change
its identity by adding a cubit to its stature. The nominal capital of the corporation was the same when the
contract was made and after the public had subscribed.
d. IF GIVEN THE OPPORTUNITY TO RECOVER, it would be unjust because, from the 150k shares of the corp,
only 20k of those, or 2/15 were innocent purchasers while 130k or 13/15 were with knowledge of the
sale. If the award is granted, then all shareholders would benefit, and a bigger share would even go to the
shareholders who knew of the fraudulent transaction.

Holding
Decision appealed from AFFIRMED
by Carla Cucueco [Corpo | Quevedo]