Attalla Iron Ore Co. v. Virginia Iron, Coal & Coke Co.

• Decision Date: 05 December 1903
• Parties: ATTALLA IRON ORE CO. v. VIRGINIA IRON, COAL & COKE CO.
• Court: Tennessee Supreme Court

77 S.W. 774

111 Tenn. 527

ATTALLA IRON ORE CO. v. VIRGINIA IRON, COAL & COKE CO.

Supreme Court of Tennessee.

December 5, 1903

Appeal from Chancery Court, Hamilton County; T. M. McConnell Chancellor.

Suit by the Attalla Iron Ore Company against the Virginia Iron, Coal & Coke Company. From a decree dismissing the bill, plaintiff appeals. Affirmed.

Chambliss & Chambliss and Snodgrass & Latimore, for complainant. Curtin & Shelton and Jos. L. Kelley, for defendant.

BEARD C.J.

The complainant is a corporation operating an iron ore mine in the state of Alabama, while the defendant is a chartered company with iron furnaces in the state of Tennessee and elsewhere.

The present bill was filed by complainant to recover damages from the defendant corporation, which it alleges are sustained from the breach of a contract claimed to have been entered into between the two corporations on the 9th of October 1899, by which the complainant bound itself to deliver to the defendant 100,000 tons of iron ore of a certain degree of metallic richness at the rate of 4,000 or 5,000 tons a month f. o. b. at Attalla, Ala., to be paid for by the defendant at the fixed rate of $1.25 per ton on the 20th of each month for all the deliveries of the preceding month. It is alleged in the bill that, after receiving 20,000 tons of iron ore under the provisions of the contract, the defendant attempted to repudiate it by a formal vote of its directors on the 10th of June, 1900, since which time it has declined to regard it as a binding obligation, and has declined to receive the remaining 80,000 tons of iron ore which complainant was entitled to deliver and receive the stipulated pay therefor. The damages claimed for this breach amounted to $40,000 without interest.

An answer and cross-bill were filed by the defendant corporation, in which a denial was made of any liability on the alleged contract, among other grounds, because it was made by certain officers of the defendant, to whom was delegated the duty of managing its affairs in the interest of its stockholders and creditors, and who, in disregard of this duty, and without the knowledge or consent of their principal, organized, with one Bueck, the complainant corporation, with the purpose of making the contract in question and of selling iron ore to the defendant at a large pecuniary profit to themselves. It was also averred that immediately upon acquiring knowledge of this agreement or alleged contract, it was disaffirmed by the defendant, and notice of such action was at once communicated to the complainant.

In the cross-bill the defendant asked for a dismissal of the original bill and for a decree annulling the contract set up therein.

Upon the trial of the case the bill of complainant was dismissed and relief was granted in accordance with the prayer of the cross-bill. This decree has been affirmed by the Court of Chancery Appeals, and the cause is now before us for review. The facts bearing on this controversy, as found by that court, are that in the year 1899 the defendant owned and controlled a number of iron furnaces in this and other states, and in view of the demand for iron products made efforts to secure sufficiency of iron ore to keep their furnaces running. With this view George L. Carter, president, and M. D. Chapman, vice president, of the defendant corporation, who had been placed in control of the operations of these furnaces, opened negotiations with one Bueck looking to the purchase by him for their corporation of 200,000 tons of iron ore. Under authority received from them, Bueck made a canvass of the iron ore producing territory, and found as available for furnishing the crude product desirable property lying at Attalla, Ala., upon which he took an option, upon the assumption, from his previous negotiations with the parties named, that the defendant company would pay for ore $1.25 per ton. After securing this option, he visited Bristol, in this state, where the headquarters of this corporation seemed to be, and induced Carter and Chapman to become interested with him; and it was there and then agreed between these parties that a corporation should be organized by the three to own and control the Attalla property, and that the defendant corporation should take iron ore from it. The result was the chartering of the complainant company, its capitalization at $100,000, and the conveyance to it of the property.

In other words, summing up the transaction, it is found as a fact by the Court of Chancery Appeals "that when the Attalla mining property was taken under this option it was understood and agreed between these parties that the complainant corporation should be organized; that Carter and Chapman should be interested in it, and should in fact control a majority of its stock; and that the contract sued on in this case should be made, and the profits resulting from the sale of the ore thereunder be divided between Carter, Chapman, and Bueck in proportion to their respective interests."

As significant of doubt in the minds of these parties as to whether such a transaction would bear scrutiny, and, as we think, with the evident purpose of concealing the identification of Carter and Chapman with it, the whole of the capital stock of this new company was issued to Bueck, who caused $30,000 to be placed in the name of the father-in-law of Carter, but for the latter's use, and $30,000 was delivered to Chapman.

It is further disclosed that in these preliminary negotiations Carter and Chapman proposed to commit the defendant company to an obligation to take from the new corporation 200,000 tons of iron ore at $1.25 per ton; but when they came subsequently to reduce the agreement to writing, for some undisclosed reason the amount was limited to 100,000 tons.

This was all done without the knowledge of the board of directors of the company. Disclosure of the circumstances under which this transaction took place and the interest in it of the parties to whom had been committed the management of the interests of the defendant was made months afterwards, and...