Arkansas River Land, Town & Canal Co. v. Farmer's Loan & Trust Co.

• Decision Date: 24 December 1889
• Citation: 22 P. 954,13 Colo. 587
• Parties: ARKANSAS RIVER LAND, TOWN & CANAL Co. et al.. v. FARMERS' LOAN & TRUST CO. et al.
• Court: Colorado Supreme Court

22 P. 954

13 Colo. 587

ARKANSAS RIVER LAND, TOWN & CANAL Co. et al.. v. FARMERS' LOAN & TRUST CO. et al.

Supreme Court of Colorado

December 24, 1889

Commissioners' decision. Error to district court, Arapahoe county.

L. C. Rockwell, for plaintiffs in error.

J P. Brockway, for defendants in error.

PATTISON C.

It appears from the record in this case that in the month of December, 1883, the individual plaintiffs above named set on foot an enterprise, the object of which was the construction and maintenance of an irrigating canal in the valley of the Arkansas river, the acquisition and sale of lands, and other kindred purposes. About the time mentioned the parties named or some of them, went to the county of Bent, located and made a preliminary survey of a portion of the line of the proposed canal. The object of this step appears to have been to provide data for a description of the location of the canal, to be inserted into the articles of incorporation of the company the formation of which they then contemplated. On December 15, 1883, they caused a body corporate to be created and organized, the object of which was the prosecution of the enterprise mentioned. The certificate of incorporation provided that the capital stock of the company should be $300,000, divided into 3,000 shares of $100 each, and that the affairs of the company should be managed by three directors. The plaintiffs Abbott, Minnis, and P. O. Gaynor were named as such directors for the first year. December 29, 1883, the directors named met and organized by the election of P. O. Gaynor as president, Minnis as secretary, and Abbott as treasurer. At this meeting each of these persons subscribed for one share of the capital stock of the company. The purpose of the subscription seems to have been to qualify the subscribers to act as officers of the company. Whether these parties, or either of them, actually paid their subscription is left in doubt. John W. Gaynor testified that at the time of the subscription $100 was paid by each subscriber, but that some part of the money so paid was returned to them in payment of expenses incurred before the organization of the company. This, however, is not very material, as it will appear hereafter that the entire capital stock was issued to these parties and others pursuant to the provisions of a contract between the company and the defendant Haskell. Haskell is the real party in interest, and will be spoken of hereafter as the defendant. January 29, 1884, at a meeting of the directors and all the stockholders of the company, the articles of incorporation were amended by increasing the capital stock from $300,000 to $1,000,000, and by increasing the number of directors from three to six. The new directors named were J. W. Gaynor, one of the plaintiffs, John S Perkey, and Henry D. Perkey.

January 31, 1884, at a meeting of all the stockholders, an issue of bonds to the amount of $300,000 was authorized, payment of which was to be secured by a mortgage or trust-deed upon all the property the company then had, or which it might thereafter acquire. This action was adopted and ratified on the same day by the board of directors. After the organization of the body corporate, as above recited, the complainants and their associates began to take steps to obtain money for the prosecution of the enterprise. It appears that none of them were men of property. They therefore sought to interest others in the project. In February, 1884, with this end in view, all of the plaintiffs and their associates in the enterprise began negotiating with the defendant Haskell to secure funds to build the canal. The negotiations resulted in a contract, made and executed March 1, 1884, between the corporation and Haskell. The provisions of the contract necessary for the discussion of the case will be recited hereafter.

It appears that the defendant, before undertaking to provide the capital required, deemed it necessary to obtain absolute control of the affairs of the company. The contract was so drawn as to practically suspend the operation of the provisions of the statute defining the rights of stockholders, and providing for the election of officers, for the period of two years from its date. In the preamble of the contract, among other recitals, the following appears: 'The said canal company, desiring to borrow the sum of $200,000, upon the conditions and security and for the considerations hereinafter named, hereby agrees with the said Haskell and his associates or assigns, as inducements and as security for the agreement, to loan, or procure to be loaned, on the conditions hereinafter named, the sum of $200,000, or, in lieu thereof, the construction of, or the procurement of the construction of, the canal company's canal, and carrying on the other business of the company at a total cost not in excess of said sum of $200,000; and to secure the payment to said Haskell and his associates or assigns of said sums, whether loaned or expended on said account, the said canal company will and hereby agrees.' This recital is explanatory of the end sought to be attained by the contract. The first undertaking on the part of the company is as follows: ' First. To issue $500,000 of its capital stock, and, on the signing of this agreement, deliver the same to said O. L. Haskell or his associates or assigns, as his or their separate interest in the capital stock of the company, and which said interest of $500,000, in stock of said company, is not taken, or so as aforesaid issued, in the nature of a security, but to be the separate property of said Haskell, his associates or assigns, in consideration of the premises.'

Under this provision of the contract one-half of the capital stock of the company was to be issued to the defendant, and become his property, without any consideration whatever. The purpose of the provision is manifest. It was to enable him to control the affairs of the company during the life of the contract. This purpose is again apparent in the second provision of the contract, which reads as follows: 'Said O. L. Haskell his associates or assigns, on the signing of this agreement, being a one-half owner of all the capital stock of this company, shall have the right to name three of the six directors of this company, and, if the directors are increased, one-half thereof; and to that end the said canal company hereby agrees to cause, by resignation of members of its present board, such vacancies as will admit of such selection of said three directors as said Haskell may name, and such resignation and election shall take place on signing of this agreement.' By the fourth paragraph the company agrees as follows: 'The said canal company hereby agrees that upon signing of this agreement, or thereafter, on the request of said Haskell, his associates or assigns, it will deliver to said O. L. Haskell, his associates or assigns, its first mortgage bonds in the sum of $300,000, to be held by him or them as security for said sum of $200,000, or in lieu thereof, all the things to be done and performed as herein provided; and said bonds, when so delivered, may be used as follows,' etc. The provision made for the disposition of the bonds need not be stated. The defendant, among other things, undertook and agreed as follows: 'In consideration of the security herein provided to be given and held and used and sold by said O. L. Haskell, his associates or assigns, the said O. L. Haskell, his associates or assigns, hereby agrees to furnish the capital to construct the canal, and otherwise carry out the object of the company, or cause the said work to be done, in the sum or total cost of the gross amount of $200,000, and the money is to be provided or the work paid for as hereinbefore provided, at the times hereinafter stated, to-wit: * * * Eighth. The necessary amount to construct 22 miles of the canal from the head-gates. * * * The sum required for this purpose was estimated at $27,097.10. Ninth. The necessary amount to pay the first payment on the state land sought to be purchased, and not in excess of $3,375. Tenth. And said several sums of money, namely, $30,472.10 shall be furnished or said work paid for as herein provided within three months from the date hereof, and sufficient money advanced or paid on the work from time to time as will be required to make the enterprise progress advantageously, not inconsistent with the terms of this agreement.' By the thirteenth provision of the contract it was provided that the defendant might at any time prior to December 15, 1885, terminate the contract upon certain conditions named in its provisions, but it was expressly provided that the contract could not be terminated until the work provided for by the eighth, ninth, and tenth provisions, above recited, had been completed. By the fifteenth provision disposition is made of all the capital stock of the company. It reads as follows: 'It is further agreed that on the signing of this agreement all of the stock of the company shall be issued and delivered to the persons hereinafter named, viz.: $500,000 of said stock to O. L. Haskell, his associates or assigns; $100,000 of said stock to P. O. Gaynor; $100,000 of said stock to J. W. Gaynor; $100,000 of said stock to J. C. Abbott, $100,000 of said stock to J. F. Minnis; $100,000 of said stock to H. D. Perkey. The said $500,000 of stock to be issued to O. L. Haskell, his associates or assigns, shall be issued full paid, in consideration of the things in this contract mentioned. The said $500,000 of the stock to be issued to said P. O. Gaynor, J. W. Gaynor, J. C. Abbott, J. F. Minnis, and H. D. Perkey shall be issued full paid, in consideration of work, labor, money expended and paid, and for other valuable and...