Westerlund v. Black Bear Min. Co.

• Decision Date: 13 January 1913
• Docket Number: 3,807.
• Citation: 203 F. 599
• Parties: WESTERLUND et al. v. BLACK BEAR MINING CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

203 F. 599

WESTERLUND et al. v. BLACK BEAR MINING CO. et al.

No. 3,807.

United States Court of Appeals, Eighth Circuit.

January 13, 1913

Syllabus by the Court

A mining lease for five years of the mines, plant, and machinery of a mining corporation without the approving vote of its stockholders is an incumbrance and voidable by them under the statutes of Colorado, which vest the general power to manage the affairs of the corporation in its board of directors, but declare that they shall not have power to incumber its mines, plant, or principal machinery incident to the production, without the approving vote of the holders of a majority of its shares of stock, and that any mortgaging or incumbering thereof without such consent shall be absolutely void.

The words 'incumber' and 'incumbering,' when used with reference to property or its title, include within their meaning every right or interest in land or real estate which may subsist in third persons to the diminution of the value of the property or its title, but consistent with the passing of the fee by the conveyance of the owner thereof.

If the right or interest of the third person is such that the owner of the servient estate has not so complete an ownership and property in his land or real estate as he would have had if the right or interest spoken of did not exist, his land is in law diminished in value and incumbered.

When a word which has a known legal meaning is used in a statute, it must be assumed that it was used in its legal sense, in the absence of a clear indication of a contrary intent.

The legal presumption is that words and phrases in a statute are used in their usual or customary sense, unless it clearly appears that the Legislature intended to use them in a more restricted or different sense.

'All the words of a statute must have effect rather than that part should perish by construction.'

The federal courts consider themselves bound to adopt and follow the decisions of the highest judicial tribunal of a state interpreting its statutes alone. The decisions of lower courts are argumentative only.

Conclusiveness of judgment between federal and state courts, see notes to Kansas City, Ft. S. & M.R. Co. v. Morgan, 21 C.C.A 478; Union & Planters' Bank of Memphis v. City of Memphis, 49 C.C.A. 468.)

Courts take judicial cognizance of the fact that the word 'void' is used in statutes in the sense of utterly void so as to be incapable of ratification, and also in the sense of voidable by those alone whose rights are infringed without expressed discrimination, so that resort must be had to the rules of construction in many cases to determine in which sense the Legislature intended to use it.

An act or contract declared to be void by statute which is malum in se, or against public policy, is generally utterly void and incapable of ratification.

An act or contract which is neither wrong in itself nor against public policy, which has been declared void by statute for the protection or benefit of a certain party, or class of parties, is voidable only, is capable of ratification by the beneficiary or beneficiaries of the statute, and it may be avoided by him or them alone.

An act or contract of a corporation which is beyond the scope of its corporate powers, which it cannot lawfully do in any way or manner under any circumstances, is void and incapable of ratification by estoppel or otherwise, and the corporation itself may challenge it.

But an act or contract of a corporation which is within its corporate powers, is not wrong in itself, nor against public policy, but is forbidden and declared void by statute for the benefit or protection of a certain party, or class of parties, is voidable only and voidable by the party or parties alone for whose benefit the statute was enacted.

Neither the corporation nor its creditors, nor others claiming under it, had the right to avoid the mining lease in question in this case on the ground that it was executed without the approving vote of the stockholders, because the requirement of that assent was not made for their benefit and they were estopped from enforcing it by the execution of the lease by the corporation. The stockholders alone had the right to enforce that requirement because it was enacted for their benefit and protection alone and they alone had any beneficial interest in its observance.

It is only when stockholders exhibit a bill against their corporation and others, 'founded on rights which may be properly asserted by the corporation,' that they are required to comply with rule 94 in equity. The right of these stockholders to avoid the mining lease on the ground that it was made without a compliance with the statutory requirement of an approving vote of the stockholders could not be properly asserted by the corporation, but could be asserted by the stockholders alone, and rule 94 was inapplicable to their bill or suit in this case.

There is a legal presumption that a cloud or an unlawful incumbrance upon the title to real property inflicts such an injury upon parties who have a lien upon or interest therein and who have the right to the freedom of the title from such a cloud or incumbrance as will invoke the jurisdiction of a court of equity to remove it.

John S Macbeth, of Denver, Colo. (Henry F. May, of Denver, Colo., on the brief), for appellants.

L. F. Twitchell, of Denver, Colo. (Allen & Woy, of Telluride, Colo., and Goudy & Twitchell, of Denver, Colo., on the brief), for appellees.

Before SANBORN and CARLAND, Circuit Judges, and WILLIAM H. MUNGER, District Judge.

SANBORN Circuit Judge.

This is an appeal from a decree which sustained the demurrers to a bill and dismissed a suit brought by four of the stockholders of the defendant the Black Bear Mining Company, a corporation organized under the laws of Colorado, to avoid a mining lease of all the property of that corporation which was alleged to be worth $600,000, and to consist of mining claims and mines in the state of Colorado, on the ground that this lease was made without an approving vote of the holders of a majority of the stock of the corporation, in violation of section 865 of the Revised Statutes of Colorado, 1908. The corporation by the terms of the lease demised and let to the defendant J. B. Bailey all its mines and mining claims, its stamp reduction mill, its tramway, all its buildings, the right to occupy this property, and the right to remove from it any and all the ore therein or thereon, during the term of five years from October 31, 1910, to October 31, 1915, in consideration of the covenants of the lessee to pay certain royalties named in the lease and to do certain acts therein specified. This lease was subsequently assigned by Bailey to the Black Bear Mining Company, another corporation of the state of Colorado, and the other defendant in the suit; but in the discussion of the questions at issue the lease will be treated as though it was still held by Bailey. The Black Bear Mining Company covenanted in the lease that in case it made a sale of the premises the lessee should receive $60,000, or 10 per cent. of the selling price if that was more, and that in the event of such a sale the rights of the lessee to the possession and use of the property and to the extraction of ore therefrom should not cease until the expiration of one year from the date of the lease, nor then unless he had received six months' notice of the sale before it should be made.

The statutes of Colorado under which the Black Bear Mining Company exists contain these provisions:

'The stock, property and concerns of any company organized under the provisions of this act shall be managed by not less than three nor more than nine directors, who shall respectively be stockholders in said company. ' Revised Statutes of Colorado 1908, Sec. 977.

'In all mining companies or corporations hereafter formed, in which the stock is made assessable under the charter or by the laws of this state, the board of directors shall have full and absolute power to levy assessment or assessments, to rescind the same and to declare dividends and to do all other acts which they may deem for the best interest of the stockholders of the company, or corporation, and which they may deem necessary for the proper development of any mine or mines belonging to such company or corporation. ' Section 978.

'The corporate powers shall be exercised by a board of directors or trustees of not less than three nor more than thirteen, who shall respectively be stockholders in said company. * * * The board of directors or trustees of a mining or manufacturing corporation shall not have power to incumber the mines or plant of such corporation, or the principal machinery incident to the production from such mine or plant until the question shall have been submitted at a proper and legal meeting of the stockholders and a majority of all the shares of stock shall have been voted in favor of such proposition; and any mortgaging or incumbering of such property without such consent shall be absolutely void, and the vote upon such proposition shall be entered on the minutes of the corporation. ' Section 865.

It is not denied that the last paragraph of section 865 deprives boards of directors of mining corporations organized under the laws of Colorado, and the corporations themselves, of the power to incumber their property in the absence of approving votes of their stockholders. But counsel for this corporation argue, and the court below held, that this mining lease was not an incumbrance upon the property of this corporation, and hence that it did not fall within the terms of this paragraph of the statute because it was neither a mortgage, nor did it evidence a pledge for...