206 P. 855 | Or. | 1922
This is a suit by the plaintiffs Grady and Hall, representing themselves to be owners respectively of a one-fourth and a one-eighth interest in the capital stock of the Klamath Flume & Mining Company, and suing for the benefit of themselves
Speaking generally, in addition to what is already noted the complaint says that in February, 1902, the corporation was the owner of the three tracts and on that date the defendant as president, and another, acting as secretary of the corporation, conveyed all of the property to one T. J. Nolton as trustee for the stockholders of the company and afterwards the defendant caused Nolton, trustee, to convey the property to the defendant under like trust, without any consideration therefor having been paid; and that subsequently on May 6, 1911, the defendant and his wife without the knowledge or authority of the plaintiffs sold the property to one Burbank, of San Francisco, California, for $17,000 in cash, which the defendant retains and for which he fails and refuses to account to the plaintiffs or either of them. The plaintiffs claim that there is due from the defendant to Grady $4,250 and to Hall $2,125, together with interest from May 6, 1911.
The complaint is challenged in material particulars. As to the trusteeship, the answer admits that the property was conveyed to Nolton in trust and that the defendant took title from Nolton in trust, but as trustee for the corporation and not for the stockholders as the complaint alleges. It is also admitted that the defendant sold the property to Burbank and
After traversing the answer in certain material particulars the reply alleges that about January 27, 1897, Grady, McArdle and Nolton each owned a one-fourth interest in the Williams Point mine, and the plaintiff Hall a one-eighth interest; that Day was desirous of acquiring an interest in the claim, which was valued at $10,000, but that he insisted upon having a controlling interest and agreed that if the other owners would transfer to him a sufficient amount of their stock, he would finance and develop the mine, paying the balance of the purchase price of the property, which was then unpaid, and that he would acquire two other properties described in his answer and convey them to the corporation. The plaintiffs then say that under these circumstances an agreement in writing was entered into between the defendant on one hand and McArdle, Nolton, Grady and Hall on the other, the parties to the contract constituting all the stockholders of the corporation, which contract provided for the development of the mine. It is pleaded according to its legal effect, in the reply, but for convenience is here set down in full:
“This agreement, made and entered into at Portland, Oregon, this 7th day of January, A. D. 1897, by and between I. N. Day, party of the first part, and L. D. McArdle, T. J. Nolton, H. C. Grady, W. L. Boise and John IT. Hall, parties of the second part,
“Witnesseth: That whereas all of said parties hereto are stockholders in the corporation formed on the 27th day of January, A. D. 1897, for the purpose of developing placer mines in Northern California, known as the Klamath Plume & Mining Company, and
“Whereas the party of the first part owns and controls the majority of the capital stock of said cor*347 poration, and that by virtue of the laws of the State of California the said I. N. Day would be empowered to develop said mines belonging to said corporation and to hold a lien on the shares of stock and interests in said mines belonging to the said parties of the second part, in repayment to him of the expense incurred in such development, and to foreclose their interests in said corporation and mines, and
“Whereas, it is now proposed by the said I. N. Day, party of the first part, to advance a sufficient amount of money for the building of flumes, water ditches, saw mills, buildings, sluice boxes, and other necessary apparatus for the working of the mine,
“It is, therefore, mutually agreed by and between parties hereto and especially upon the part of I. N. Day, that he will not create or claim any lien upon said mines or property connected therewith, or upon the shares of stock or interests of the said parties of the second part for any sum or sums of money that he may advance in the development of said mines, or take advantage of the laws of the State of California for that purpose.
“And it is further mutually agreed by and between the parties hereto, that said parties of the second part, save and except T. J. Nolton, will pay to the said party of the first part their proportionate share as their interest may appear of costs of the development of said mine so long as they are financially able so to do, but a failure on their part to pay all their said proportionate share shall not give said party of the first part a right of action against them to recover the remainder, nor give him the right to file any lien or claim against their said shares of stock, or upon said mines.
“And it is further agreed that when said mine is in working operation, the proceeds thereof, if any there be, shall be applied,
“1st. To the payment of the running expenses in the operation of said mine;
“2nd. To reimburse the said I. N. Day for the moneys advanced by him in the development of said mine over and above his just proportion thereof;
*348 “3rd. To the repayment of each and every one of the said parties hereto, except T. J. Nolton, in proportion as their interest may appear, the amount of money advanced by them for the development of said mine;
“4th. To the repayment of the purchase price of said mines to the parties hereto,-except T. J. Nolton, in proportion to the amount of money advanced by them for said purpose.
“5th. That after all of said payments have been made out of the proceeds of said mine, the remaining proceeds, if any there be arising from the operation of said mine, shall be divided among the stockholders of said corporation in proportion' to their respective interests.
“In witness whereof, we have hereunto set our hands and seals this 27th day of January, A. D. 1897.
“I. N. Day.
“John H. Hall.
“H. C. Grady.
“L. D. McArdle.
“W. L. Boise.
“T. J. Nolton.
“In presence of:
tc_
a_j 9
It may be said in passing that, as conceded by all parties; the defendant Day was the owner, under the new arrangement, of forty-nine of the eighty shares into which the capital stock was divided, and W. L. Boise was the owner of one share, but that the same really belonged to Day. Under these circumstances the fifty shares will be treated as exclusively the property of Day. The plaintiffs say in their reply that in pursuance of the contract Day acquired the two properties known as the Sunny side claim and the Hendrickson claim, caused them to be transferred to the corporation and afterwards proceeded to develop the mine but failed to carry out the undertaking; and
The principal question in dispute is substantially this: The' plaintiffs claim that the expenses incurred by the defendant in his attempt to bring water into the mine and to develop the property were by agreement of the parties to be liquidated by the proceeds of the development of the mine and not from the corpus of the mine itself, while the defendant claims that those expenses, amounting as he says to $18,000 and upwards, were a direct charge against the corporation and a proper counterclaim against the $17,000 purchase price which he received from Burbank.
There is some controversy about whether the contract already quoted was executed or not. The corporation as time progressed fell into innocuous desuetude, and the defendant testifies that it was dissolved. It is without dispute that no shares of stock were issued. McArdle was for a long time secretary of the concern but claims to have turned over all the books and papers to the defendant, to whom Mc-Ardle sold his interest, and who, it is conceded, owned a majority of the stock. Notice was served upon the defendant to produce the original contract, but he was unable to do so and a copy thereof was produced and early in the hearing was offered and read in evidence without objection. Later on in the testimony the defendant, while not denying explicitly that
The agreements of the defendant in that instrument are purely negative, to the effect that he will not create or claim any lien upon the mines or property connected therewith, or upon the shares of stock or interest of the other parties for any sum of money that he may advance in the development of the mine. As to the agreement by the other parties except Nolton that they will pay their proportionate share of the cost of developing the mine so long as they are financially able to do so, we note that it is expressly stipulated that a failure on their part to pay all their proportion shall not give Day a right of action against them to recover the remainder, or any right to file a claim or lien against their stock or upon the mine. Taking these two conditions together, the legal effect of the contract is that they had an option of joining with Day in the development of the mine, but that they could not be compelled to do so. It is manifest that the intention of the parties was that Day should finance the mine and from the proceeds thereof he should first pay the running expenses; second, reimburse himself for the development expenses; third, reimburse the other parties except Nolton for their expenses in the development; and next, pay to all except Nolton what they had advanced towards the purchase price. If these things had been accomplished up to that point, the remainder of the net proceeds would have been so much profit out of the operation of the mine. The exception of Nolton
The defendant contends that he was duped in the first place by MeArdle and Grady in their representation that the mine would cost $10,000. The testimony shows, however, that Nolton had an option to buy the mine for $5,000 from some heirs of a former owner who lived in Kentucky, and that his realization of the option depended upon the settlement of the estate of the former owner then deceased. At this stage MeArdle became interested in the mine and contracted to buy it from Nolton on perfection of his title, paying him a small amount of earnest money.' MeArdle returned to his home in Portland after an inspection of the mine and in conversation with Grady, his next-door neighbor, the latter became interested and acquired a one-fourth interest in Mc-Ardle’s- share, which he had obtained from Nolton, that is to say, one fourth of the nine tenths of the mine which Nolton conveyed to MeArdle. After-wards MeArdle sold to the plaintiff Hall a one-eighth interest on the basis of $10,000 valuation, for which Hall paid MeArdle $1,250. About this time, whether before Hall acquired his interest or afterwards is not clear or material, Day became interested in the proposition from representations made by MeArdle respecting the Williams Point mine. He went upon the ground and made personal examination of the same, securing specimens of the gold, and agreed to buy an interest therein on the basis of the $10,000 valuation. Subsequently the corporation was formed.
Day had already acquired twenty-two eightieths of the Williams Point mine, on a basis of $10,000 for the whole mine. This would amount to $2,750. Under the new arrangement, involving the surrender of a portion of the holdings of the other parties to the transaction, he acquired an additional block of twenty-eight eightieths, amounting to $3,500, which while not equal in value to the amount of money he claims he paid for the two mines, is a sufficient consideration to support his transfer of those properties to the concern, amalgamating them with the Williams Point mine.
The element of fraud intimated in the answer is not sufficiently stated as a matter of pleading, in that it is not averred that Grady and McArdle knew their statements about the availability of water to be false, or that Day relied thereon.
Moreover, having made personal examination of the situation for himself, Day comes within the rule of the similar case of Wimer v. Smith, 22 Or. 469, to the effect that a party seeking relief on the ground of fraud perpetrated upon him by means of false
As McArdle acquired the Williams Point mine independently of Day and before approaching the latter on the subject, he had the right to raise the price of the mine and sell to Day as dearly as he could. He owed no fiduciary duty to Day and they dealt at arm’s-length on personal examination which Day made of the property. That McArdle and Grady sold the Williams Point mine at a profit sufficient to pay their proportion of the new venture involved in the organization of the corporation cannot vitiate the transaction. As the event indicates, Day may have paid too dearly for his venture, but the case does not present features upon which any relief in that respect can be granted him.
Still further, after he acquired a majority of the stock under the new arrangement, he chose to develop the mine but pledged himself to look solely to the profits resulting from the development, to reimburse himself for the expenses incurred. He expressly renounced any lien or claim upon the mine itself or upon his associates in the corporation. He allowed them what was really an option to participate in the work' of developing the mine; but it was only in legal effect an option, because he divested himself of any right to compel them to contribute.
Under the circumstances of the substantial abandonment of the corporation it cannot matter whether he took the title hi trust for the corporation or for its stockholders. The result is the same. In the ultimate winding up of any corporation the net proceeds of its property go to the stockholders in proportion to their holdings.
All the claim Day makes in this case against the fund, aside from taxes, is based upon his expenses incurred under the arrangement already quoted, in developing the mine. He alleges that he has expended $250 and more for taxes. How much more is not stated. The evidence shows the expenditure of at least that amount. This was for the benefit of the property itself and is a proper charge to be deducted from the $17,000 which he received from Burbank as the purchase price of the three mining tracts. The other charges must be excluded from the calculation for reasons already stated.
On the Other hand, the agreement quoted does not bind Day to any degree of development of the mine or to bring water upon the claims. The practical construction of that contract is that Day had the option of experimenting with the mine and making it pay for the expense, also the purchase price, and make a profit if he could but not under compulsion.
Interest cannot be allowed^ in this case: Sargent v. American Bank & Trust Co., 80 Or. 16 (154 Pac. 759, 156 Pac. 431).
A decree will be entered against Day and in favor of the plaintiff Grady for $1,675 and in favor of the plaintiff Hall for $1,256.25. The decree of the Circuit Court is modified accordingly.
Modified. Rehearing Denied.