16 Colo. App. 6 | Colo. Ct. App. | 1901
To properly understand the issues involved and the opinion of this court, it will be necessary to give a somewhat extended statement of the facts, and the importance of the suit justifies it. We shall give only those which are undisputed or are clearly shown by the preponderating weight of the evidence. Several years prior to the occurrences upon which this suit is based, defendants Burns and Doyle, respectively, had located, and were the owners of, the Portland and Bobtail No. 2 lode mining claims, in Cripple Creek mining district. Subsequently, they had executed and delivered to one T. C. Condon, an option to purchase said claims at a stipulated price. In furtherance of this, Condon and his associates, in January, 1894, organized and incorporated the Portland Gold Mining Company, one of the defendants herein. Its capital stock was *$3,000,000, divided into 3,000,000 shares of the par value of $1.00 each. In exchange for the entire capital stock of the company, fully paid, Mr. Condon and his associates transferred to the corporation the option upon the Portland and Bobtail No. 2, together with other options, agreements, leases and contract rights affecting other mining claims in the vicinity. Shortly thereafter, the promoters of the company being unable to perfect the purchase of the two claims mentioned, it was agreed that the owners thereof should convey the properties to the corporation upon the receipt of 834,000 of its shares. This agreement was carried into effect, and cotemporaneously therewith, or very shortly afterwards, Mr. Condon donated to, and turned back into the treasury of the company, 1,000,000 of its shares, to be used in the acquisition of other properties, and possibly also for development. Prior to the
“ This agreement made and entered into this 10th day of April, A. D. 1894, by and between Charles J. Cover, W. L. Fyffe, H. L. Pigg, A. P. Mackey, L. W. England and W. S. Montgomery, parties of the first part, and W. S. Stratton, James F. Burns, John Hainan and James Doyle, parties of the second part.
“ Witnesseth, That the said parties of the first part agree to forthwith convey to the said parties of the second part, the Queen of the Hills lode mining claim, the Hidden Treasure lode mining claim and the Baby Ruth lode mining claim situate in El Paso county, state of Colorado; in consideration whereof said parties of the second part agree to pay to the said parties of the first part for said premises $21,000, in cash, executing notes in the sum of fifteen thousand dollars, due August 1, 1894, and further agree that within five days from the date hereof, they will deliver to said parties of the first part one hundred and fifty thousand shares of the capital stock of the Portland Gold Mining Company, as follows:
“ Charles J. Cover, 26,409 shares; W. L. Fyffe, 26,408 shares; H. L. Pigg, 22,183 shares; A. P. Mackey, 37,500 shares; L. W. England 18,750 shares and W. S. Montgomery 18,750 shares.
“ And said parties of the second part further agree that within five days from the date hereof, they will cause to be conveyed to the Portland Gold Mining Company all the mining claims herein to he conveyed to the parties of the second part; also the Scranton lode mining claim, situated in El Paso county, state of Colorado.”
On the following day, April 17th, a meeting of the directors of the Portland Company was held, at which all were present. At this meeting, there was considered terms upon which these individual defendants should convey the property which they had purchased to the defendant company. The company having nothing which it could give in exchange, except stock, that was the only question which seems to have been considered. Various suggestions were made as to the •price at which the stock should be taken by tbe parties, the highest being that suggested by Mr. Stratton, namely eight cents per share. Mr. Devereux, however, who was not interested in the original purchase, and who, it is claimed, represented the absent stockholders, who were only few in number, finally suggested that if the parties would take the stock at ■ twelve and one half cents per share, it would be satisfactory to him and the other stockholders. This was agreed to, and thereupon, upon motion of Mr. Devereux, a resolution was unanimously adopted, providing for the issuance to the four individual defendants of 704,000 shares of stock in lieu of cash paid for the property purchased by the four individual defendants, as evidenced by the agreement above referred to, together with the Scranton lode and the other individual holdings of Stratton, to which we have also referred; and also the issuance of 150,000 shares of stock, which they had agreed to give to the plaintiff and his associates, in part payment for the property purchased from and conveyed by them. Thereupon, the four defendants conveyed the property to the defendant corporation, and thereafter, and subsequently, the stock provided for in the resolution was issued to them, except that the 150,000 shares of stock to be given to the plaintiff and his associates was issued on April 19th directly to them, instead of being first issued to the four individual defendants and being by them transferred. The plaintiff challenges the legality of so much of this transaction as di
Additional pertinent facts will be referred to during the course of this opinion.
Judgment was for defendants, and plaintiff appeals.
Counsel for plaintiff very properly summarize their objections and their position as follows:
1. That the act complained of was wholly unauthorized and void.
2. That it was fraudulent as to the shareholders of the Portland Gold Mining Company.
8. That if neither of these positions be correct, the plaintiff is still entitled to recover, because they claim the evidence of the individual defendants shows that they bought the company’s assets out of which they made immense profits, and that consequently they must account to the shareholders for all accrued benefits and profits.
The plaintiff acquired the right to maintain this suit on behalf of himself and other shareholders similarly situated solely by reason of the fact that, after previous demand, the corporation itself, failed or refused to institute the suit; The Portland Gold Mining Company, therefore, though nominally a defendant, should be considered and treated as in reality the plaintiff. The plaintiff can have no rights except such as the corporation would have.
In the briefs of counsel on both sides, considerable space is devoted to the discussion of the question as to the relation
The first question which presents itself is that plaintiff seeks to nullify and rescind only a part of the contract. He nowhere asks that the entire contract be rescinded, and that the status quo be restored. He seeks only to have the individual defendants compelled to restore to the corporation the shares of stock which they received in payment for the mining property conveyed, but does not offer to reconvey that portion of the stock which he received, nor that his associates be compelled to restore the portion of stock which they received as a part of the same identical contract and transaction by which the defendants received their stock. It is a well settled principle of law, needing no citation of authorities in its support, that courts of equity will not permit such a course of procedure. The general rule, sustained by all authorities, is, that if a rescission is asked for and granted, it must be of the entire contract, and not of any part thereof, and the relegation of the parties to their original rights in respect to the subject-matter. It would 'seem clear, both in principle and upon authority, that-the plaintiff could not ask the court to sustain that part of the contract only which was beneficial to himself, and repudiate that part which is not so beneficial, and this, too, without requesting that the defendants be restored to their original rights in respect to the property. However objectionable the complaint and proceeding may be in this respect, we prefer to base our decision upon broader ground.
The rule, however, does not go to the extent that all purchases of property or the assets of a corporation by a director or directors are absolutely void, and counsel for plaintiff admit it, when they say, as they do in their brief, that “ the only justification which the courts permit to be urged is that the stockholders, upon the clearest understanding of all the facts, gave their authority for it; or that, upon the same full and complete understanding of all the facts, they ratified it.” It is upon this ground that we prefer to and have no hesitancy in basing our opinion, whatever may be the conflicting views, if there be any conflicting, as to the legal principles to which we have already adverted. On the 17th of April, 1894, when the transaction of purchase and sale or exchange between the individual defendants and the corporation was agreed upon and consummated, there were only four shareholders in the company, aside from the five directors. It is undisputed from the evidence, that when these individual defendants had finally paid off the notes which they had executed for a part of the purchase price of the properties conveyed to the corporation, and received all the shares of stock to which they were entitled under the resolution of April 17th, they notified each one of the shareholders that they might share in this stock, so issued to them for the payment of the purchased properties, in proportion to their holdings of stock in the company, upon the payment by each one of them of the sum of twelve and one half cents per share, being the same amount
The contract being virtually between the body of the stockholders and the four individual directors, as we have held, in whatever aspect it may be viewed, the views which we have expressed are not in conflict, but in entire accord, with the principles laid down in a very recent, able and exhaustive decision of our supreme court. Morgan, Admr., et al. v. King, 27 Colo. 539; 63 Pac. Rep. 416.
It is strenuously insisted by plaintiff, that when the individual defendants purchased the property from him and his associates, they did so as trustees for the Portland Company, and that they held the property in trust for it and its shareholders. We cannot view this in any other light but as a question of fact, and the great weight of the evidence, circumstantial and otherwise, is to the contrary. It is true, the purchasers stated openly that they expected and intended
Plaintiff contends that when he and his associates parted with their title, they parted with it to the defendant corporation, and that they became equitable share owners in the corporation the moment they signed, sealed and delivered the deed. We do not see how such a proposition can be maintained, either on reason or authority. They parted with their title to the individual defendants, the corporation not being a party to it in any sense of the word. Even if it be said that the defendants, by virtue of- the contract of sale executed between them and plaintiff and his associates, bought and became trustees for the corporation so far. as they could so voluntarily constitute themselves, it still could not be successfully contended that the sellers became thereby and thereupon equitable share owners, The reason
There was considerable evidence tending to show a ratification by plaintiff of the act which he now assails, and also of laches on his part which would equitably estop him from maintaining or from recovery in this suit, and counsel argued them with much force. For the reason that the questions which we have already considered are, in our opinion, fully decisive of the case, we do not deem it necessary to discuss these.
It appears to us conclusively that the transaction was without the slightest taint of fraud or wrongdoing; that the act of the four individual defendants and of the entire board of directors was not only for the benefit of The Portland Gold Mining Company, and each stockholder therein, but by this act the company was rescued from its failing fortunes, and enabled thereby to acquire, and make its properties valuable, yielding large profits to its stockholders, which there is every presumption they could not otherwise have received. It appears, too, that whatever doubts there might have been in the first instance, as to the strict legality of the action of the individual defendants, and of the board of directors, were entirely removed by the ratification, consent
For the reasons given, the judgment will be affirmed.
Affirmed.