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

215 F. 304 | 6th Cir. | 1914

DENISON, Circuit Judge

(after stating the facts as above). Upon this state of facts, defendant urges that the sale of their steamers by the Cuyahoga Company and the Milwaukee Company, before these companies had elected to rescind the purchase from the defendant, did not give to their vendee, the Commonwealth Company, any power to exercise such an election. Plaintiff insists that each of its assignor companies had been defrauded, and that the right to pursue any appropriate remedy for this fraud passed to it by assignment; defendant concedes this position as to the right to sue for damages for the fraud, but denies it as to the right of rescission, because no right of action to enforce a rescission arose until the election had been made. It is clear that the difficulties in the way of permitting a rescission to be -made by the vendee of a defrauded vendee are considerable, and where the property had been sold by the original vendee at a reduced price because of the damage resulting from the then undiscovered fraud, and where the second vendee sought to rescind without regard to the rights of the first vendee, these difficulties might be insuperable. We find it unnecessary to follow counsel in their exhaustive arguments and study of precedents involving these questions'. The objection to allowing a rescission by a second vendee rests on the affirmance implied from the sale by the first vendee and on the thought that the right of election is a strictly personal right. This objection of course disappears if there has been no transfer from one person to another, but if substantial identity of ownership continues. The facts of the transaction, by which the properties of the Cuyahoga Company and the Milwaukee Company came to the Commonwealth Company and the stockholders of the former exchanged their stock for that of the latter, stamp it as substantially and equitably a matter of merger or successorship in interest, rather than of assignment between strangers. Williams v. American Ass’n (C. C. A. 6) 197 Fed. 500, 118 C. C. A. 1; Bank v. McIntyre, 40 Ohio St. 528; Shadford v. Detroit Ry., 130 Mich. 300, 89 N. W. 960; Church v. Railroad (C. C.) 41 Fed. 564; note, vol. 11, L. R. A. (N. S.) 1125, 1127-1130. The distinction would be, foi some purposes, not at all important, but from the standpoint of the court of equity decreeing rescission, it becomes sufficient. The Cuyahoga Company and the Milwaukee Company afe out of existence, no person interested can ever be called upon to respond to either of them, and the right to exercise an election and demand a rescission must go to their successor corporation.

We do not see any controlling distinction in the fact that other stockholders than the original ones of the Cuyahoga Company and the Milwaukee Company have become beneficially interested in the recovery. The same thing is equally true in the other case, No. 2483, where the recovery will inure for the benefit of all the new as well as all the old stockholders of the Commonwealth Company, and the same thing-is true in regard to any corporation whose stockholders are changing.

The plaintiff, in,,each of these cases, is entitled to relief for the same reasons and to the same extent discussed in the opinion in No. 2483, and corresponding orders will be entered in these two cases.