Horner v. Pleasant Creek Mining Corp.

Decision Date10 December 1940
Citation107 P.2d 989,165 Or. 683
PartiesHORNER <I>v.</I> PLEASANT CREEK MINING CORPORATION ET AL.
CourtOregon Supreme Court
                  See 3 Am. Jur. 304
                  13 Am. Jur. 474
                  7 R.C.L. 307
                  18 C.J.S., Corporations, § 496
                  4 C.J.S., Appeal and Error, § 762b.
                

Appeal from Circuit Court, Jackson County.

H.D. NORTON, Judge.

Suit by W.H. Horner against the Pleasant Creek Mining Corporation, E.B. Hanley, Sr., and others, for fraudulent conspiracy of individual defendants to deprive plaintiff of repayment of money advanced to the corporate defendant and to render plaintiff's interest in the corporation valueless. From a decree for plaintiff, defendants appeal.

REVERSED. REHEARING DENIED.

J. Gordon Gose, of Seattle, Washington, and Samuel M. Bowe, of Grants Pass (McMicken, Rupp & Schweppe, of Seatle, Washington, and Niel R. Allen, of Grants Pass, on the brief), for appellants.

A.E. Reames, of Medford, for respondent.

This is a suit by a minority stockholder to whom the corporate defendant had issued written evidence of money advanced in the principal sum of $20,652.34, bearing interest at the rate of seven per cent per annum from its date, February 1, 1939, and by its terms payable "at such times as may be decided by the board of directors" of said corporate defendant, "and payable only out of the surplus funds" of said corporation.

Plaintiff alleges facts upon which he bases a charge of fraudulent conspiracy on the part of the individual defendants in control of said corporate defendant by reason of the fact that said individual defendants jointly comprise the majority stockholders, which alleged conspiracy, plaintiff claims, had and has for its object the exercise on said individual defendants' part of their power as directors in control of said corporate defendant in such a way as to violate the existing contract between plaintiff and said corporation for the repayment to plaintiff of the money so advanced to said corporation; and to coerce plaintiff into sacrificing his interest in said corporation at great financial loss to plaintiff.

Defendants deny the charge that there is or ever was such a conspiracy or fraudulent design upon the part of said individual defendants.

From a decree in favor of plaintiff, defendants appeal.

KELLY, J.

The gravamen of plaintiff's case being his charge of fraudulent, coercive and oppressive conduct on the part of the individual defendants disclosing the existence of a conspiracy to deprive plaintiff of the repayment of money advanced to said corporation and to render his interest in said corporation valueless, it becomes necessary to analyze the facts which have been presented as a basis of plaintiff's charge.

The purpose for which defendant corporation was organized is to conduct mining operations on Pleasant creek in Jackson county, Oregon, upon premises to which plaintiff, the defendants, E.B. Hanley, Sr., and Joe E. Most, and a gentleman, who is not a party hereto, namely, Mr. T.M. Gerety had theretofore secured title.

The first incident we need to note is an agreement evidenced by a writing executed on January 26, 1938, by plaintiff, the individual defendants and Mr. Gerety. Therein defendants Hanley and J.E. Most are known as first parties and plaintiff and Gerety as second parties. We quote from the body of said written memorandum:

"Whereas, the First Parties have procured from James Bruce Murray an Option to purchase all of his mining rights and contracts on property situate on Pleasant Creek, in Jackson County, Oregon; and

Whereas, the Parties hereto desire to acquire and mine said property;

Now, Therefore, It is hereby mutually agreed between the Parties hereto as follows:

That the Parties hereto will either enter into a Partnership for the purpose of mining said property, or will organize a Corporation for said purpose; and that the First Parties shall each own a one-third of said Partnership or Corporation, and the Second Parties will own the remaining one-third thereof;

And it is further agreed that the necessary moneys to be expended in the acquisition of said properties and the mining thereof, shall be paid a one-third thereof by each of the First Parties, and the remaining one-third thereof by the Second Parties.

It is further understood and agreed between the Second Parties that out of the 33 1/3% interest that the Second Parties shall acquire in said Partnership or corporation, 15% of the whole of said Partnership or Corporation shall be the property of T.M. Gerety, and 18 1/3% of the whole of said Partnership or Corporation shall be the property of W.H. Horner."

A partnership was not formed, but a corporation was organized. Plaintiff suggests that this may have been accomplished in order to place the minority stockholders, plaintiff and Gerety, at a disadvantage with respect to the management of the joint enterprise.

The corporation that was organized has an authorized capital of $500 divided into 500 shares of common stock of the par value of $1 each, which stock is owned as follows:

Defendant J.E. Most, 181 1/4 shares; defendant, E.B. Hanley, Sr., 181 1/4 shares; plaintiff W.H. Horner, 100 shares and T.M. Gerety, 37 1/2 shares.

The articles of incorporation were filed on January 12, 1939, with the Secretary of State of the State of Washington. It will be noted that this is almost a year subsequent to the date of the execution of the agreement above set out. The first meeting of the board of directors of said corporation was held on the 20th day of January, 1939. Defendant E.B. Hanley was president and plaintiff W.H. Horner secretary thereof. The other member of the board of directors was defendant J.E. Most.

On February 1, 1939, a special meeting of the board of directors of said defendant corporation was held at which the purchase was authorized of the mining property and equipment, constituting the initial outlay of said corporation, for the aggregate sum of $103,057.74. The value of the respective interests of the stockholders, respectively, from whom said property was thus acquired by said corporation, was as follows:

                  E.B. Hanley ______________________________ $39,717.90
                  J.E. Most ________________________________  35,000.00
                  W.H. Horner ______________________________  20,652.34
                  T.M. Gerety ______________________________   7,687.50
                

Written evidence of indebtedness was executed and delivered by said corporation to each of the foregoing parties respectively in the respective amounts above set out, which written evidence in each instance set forth the same terms and conditions as outlined in the statement of facts concerning the one issued to plaintiff.

Plaintiff alleges, in effect, that these conditions indicate a purpose to oppress plaintiff by placing him at the mercy of the majority stockholders and directors.

We quote from plaintiff's amended complaint:

"The plaintiff further alleges that in the construction of said corporation and in the issuance of the company's notes for such advances, the said defendants Hanley and the said...

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