Davis v. Las Ovas Co., Inc. - 227 U.S. 80 (1913)
U.S. Supreme Court
Davis v. Las Ovas Co., Inc., 227 U.S. 80 (1913)
Davis v. Las Ovas Co., Inc.
Argued December 16, 1912
Decided January 20, 1913
227 U.S. 80
Where the true consideration of a syndicate purchase is concealed, and the property is conveyed at a higher figure in shares of stock to a corporation whose stock is held partly by the members of the syndicate and partly by others and the necessary increase of shares to pay for the property goes to some of the syndicate promoters as a secret profit, the corporation may maintain an action to require those obtaining the shares to surrender them for cancellation.
Fraud in the purchase of property which is to be conveyed to a corporation composed partly of those purchasing the property and partly by others may become operative against the corporation itself and give it a right to maintain an action against some or all of those guilty of the fraud to protect the innocent stockholders who bought in ignorance thereof.
A recovery in such an action is not defeated because the benefits would inure to some of the guilty as well a to the innocent stockholders.
The corporation may sue one or all of those participating in such a fraud, and there is no fatal omission of parties if all are not joined.
Where the fraud on a corporation resulted in the issuing of more stock than would otherwise have been necessary, the proper decree is to compel those who fraudulently obtained the additional stock to surrender it for cancellation.
35 App.D.C. 372 affirmed.
The facts are stated in the opinion.