Alger v. Brighter Days Mining Corporation, a Corp.

• Decision Date: 25 June 1945
• Docket Number: Civil 4695
• Citation: 63 Ariz. 135,160 P.2d 346
• Parties: MARY JANE ALGER, Surviving Wife of S.W. Alger, Deceased, CARL C. KATLEMAN and MAURICE KATLEMAN, Appellants, v. BRIGHTER DAYS MINING CORPORATION, a Corporation, SAMOA GOLD MINES CORPORATION, a Corporation, GEORGE M. MITCHELL, Jr., WILLIAM HEMINGWAY, JOHN T. MacEVOY, and HERMAN BERGER, Appellees
• Court: Arizona Supreme Court

160 P.2d 346

63 Ariz. 135

MARY JANE ALGER, Surviving Wife of S.W. Alger, Deceased, CARL C. KATLEMAN and MAURICE KATLEMAN, Appellants, v. BRIGHTER DAYS MINING CORPORATION, a Corporation, SAMOA GOLD MINES CORPORATION, a Corporation, GEORGE M. MITCHELL, Jr., WILLIAM HEMINGWAY, JOHN T. MacEVOY, and HERMAN BERGER, Appellees

Civil No. 4695

Supreme Court of Arizona

June 25, 1945

APPEAL from a judgment of the Superior Court of the County of Mohave. J. W. Faulkner, Judge.

Judgment affirmed.

Mr Carl D. Hammond, for Appellants.

Mr Nicholas Martini, of Passaic, New Jersey, and Mr. Charles P Elmer, of Kingman, Arizona, for Appellee Brighter Days Mining Corporation.

Mr. Charles P. Elmer, for Appellees George M. Mitchell, Jr., and William Hemingway.

Morgan, J. Stanford, C. J., and LaPrade, J., concur.

OPINION

Morgan, J.

Plaintiffs were stockholders in Samoa Gold Mines Corporation. They brought this action on behalf of the corporation and its stockholders. The individual defendants constituted the board of directors of the Samoa Corporation. Defendants Mitchell, Hemingway and MacEvoy organized and were directors and officers of the Brighter Days Corporation. Both corporate defendants are Delaware corporations and were qualified to transact business in Arizona. They will be referred to as Samoa and Brighter Days respectively. The former corporation was organized about the year 1931, acquired and was until 1938 the legal owner of and in possession of three patented and seven unpatented mining claims in Mohave County. During the year 1937, in a lien proceeding instituted by the plaintiff Alger, all of the property of Samoa was bought in by him at sheriff's sale. On February 9, 1938, he assigned his sheriff's certificate of sale to Tarr, McComb and Ware Commercial Company at Kingman. This concern was a creditor of Samoa and entitled to redeem from the Alger sale. The sheriff's deed was delivered to the Commercial Company which then became the legal owner of the property. It executed and delivered to Samoa an option providing for monthly payments beginning March 21, 1938, with eight per cent interest per annum on unpaid balances. Only one payment was made by Samoa, that of March 21st. The Commercial Company gave notice of forfeiture which became effective not later than July 13, 1938.

The corporation was without funds to either take up the option or to continue with the development of the mining property. It owed $ 7,500 to the Schroeder Trust Company of New York. The directors, the individual defendants, informally got together and agreed that under the circumstances it would be well to form a new corporation to take over the property. All of the stockholders in the old company who had paid cash, or its equivalent, for stock, were to be taken care of in the new company. Pursuant to this agreement, arrangements were made whereby one Allen J. Benz, Jr., a New Jersey lawyer, purchased the property from the Commercial Company, taking title in his name by deed executed July 19, 1938. During that month the defendants Mitchell, Hemingway and MacEvoy caused to be organized Brighter Days, its corporate structure being the same as Samoa, 1,500,000 shares, par value one dollar per share. On October 4, 1938, Benz deeded the property to Brighter Days for a consideration of 1,000,000 shares. The final disposition of this stock was not disclosed. Part of the issue, the amount not shown, was assigned to Mitchell, Hemingway and MacEvoy, who were at that time respectively president, vice president and secretary of that concern and a majority of the board of directors. The company sold a considerable amount of stock, took possession of all of the property, and began operations thereon which apparently continued up to the time when this action was instituted. Some stock in the new company was issued to stockholders of the old corporation. The charter of Samoa was forfeited for nonpayment of taxes or fees by the state of Delaware about April 1, 1938.

The object of the action was to declare the deed to the Brighter Days to be void, and the defendant Samoa to be the owner of the property with the right to possession thereof. Damages were sought against Brighter Days and against defendants Mitchell, Hemingway and MacEvoy for the gross value of ores removed from the property, less certain credits.

After hearing the evidence, the trial court filed a written opinion and made rather elaborate findings of fact. The findings substantially covered the foregoing facts. Further additional findings were made by the court as follows:

The defendant Berger was instrumental in having the action commenced. He learned of the organization of Brighter Days in August, 1938, and knew at all times what was being done with respect to Samoa and Brighter Days. The minority stockholders including plaintiffs, were under no disability and were in possession of the facts. Plaintiffs stood by and refrained for more than three years before any legal action was commenced by them during which period large sums of money had been expended upon the property by Brighter Days, and numerous persons had purchased stock in the new company.

The court's conclusions of law were that plaintiffs were entitled to maintain a stockholders' action and that action could be maintained regardless of the fact that Samoa had lost its charter; that on or after July 13, 1938, Samoa had no legal or equitable interest in the property or at the time the deed therefor was made by the Commercial Company to Benz; since there was no showing of fraud in allowing the option from the Commercial Company to expire, the directors of the company had the right to purchase the property formerly owned by it, and the property was not impressed with a new trust in favor of the stockholders of the old company; the burden was on plaintiffs to prove their allegations of fraud which they had failed to do; the plaintiffs and the old stockholders are guilty of laches in having failed to assert their rights promptly and are estopped from maintaining the action.

On these findings and conclusions, judgment was entered on behalf of the defendants and against the plaintiffs, denying the prayer of their complaint. From the judgment and from the order denying motion for new trial, plaintiffs prosecute this appeal. Alger having died, his wife was substituted in his place.

Plaintiffs have presented twenty-eight assignments of error, supporting them with numerous propositions. It would serve no useful purpose either to recite the assignments or the propositions. Briefly, plaintiffs take the position that inasmuch as the directors of the corporation stand in a fiduciary relation both to it and its stockholders, they cannot take advantage of such relationship for their own benefit. Any individual gain and profit they may make in connection with the property entrusted to their care will be viewed with jealousy and their actions set aside on slight grounds. The law is well settled as to this, and we have so held. Monterey Water Co. v. Voorhees, 45 Ariz. 338, 43 P.2d 196; Phoenix Title & Trust Co. v. Alamos Land Co., 24 Ariz. 499, 211 P. 570; Dragoon Marble & Min. Co. v. McNeish, 28 Ariz. 96, 235 P. 401; Garrett v. Reid-Cashion Land & Cattle Co., 34 Ariz. 245, 270 P. 1044.

Plaintiffs also urge that the burden of proof was on the individual directors with respect to the fairness of the transaction challenged by plaintiffs. This is also the law. Garrett v. Reid-Cashion Land & Cattle Co., supra; Starkweather v. Conner, 44 Ariz. 369, 38 P.2d 311.

Plaintiffs' position is that the evidence established that Mitchell, Hemingway and MacEvoy were guilty of fraud; first, because they acquired for themselves stock in the new corporation for the Samoa property; second, their failure to appear at the trial or to give testimony pertaining to the transaction, with which they alone were familiar, raises a presumption of fraud. Under such circumstances, when directors, at the expense of the stockholders, secure profits from a manipulation of the corporate property, and further fail to produce evidence which is peculiarly within their knowledge as to the transaction, fraud will be presumed. 37 C. J. S., Fraud, p. 401, § 95. We think this is good law if such are the facts. We have also held that where one is possessed of information pertaining to a transaction, which he fails to produce, presumptions will be indulged against him. Starkweather v. Conner, supra; Southwest Cotton Co. v. Ryan, 22 Ariz. 520, 199 P. 124.

The findings and conclusions of the trial court with respect to estoppel and laches are contested. Plaintiffs' contentions as to these will be discussed in due course.

It is our view that the various principles to which we have alluded have no application to the facts in this case. Samoa was, as we see it, if not insolvent at least in failing circumstances. It could not meet its obligations. Its property had been sold out in judicial proceedings. The company had no funds to redeem. The directors endeavored to save the property by securing an option from the Commercial Company which held the legal title. One payment of $ 200 was actually made on March 21, 1938. Default was made on April 21, and continued. Notice of forfeiture was given by the Commercial Company. The trial court found that the contract was terminated not later than July 13, 1938. The evidence and the law justifies this finding. The option provided that upon thirty days' notice the contract could be terminated unless default was cured within such period. The invocation of section 71-126, Arizona Code Annotated 1939, allowing additional periods before forfeiture may be enforced, even if applicable, is of no comfort to plaintiffs. The default occurred on April 21. The...