Costello v. Gleeson

• Citation: 19 Ariz. 532,172 P. 730
• Decision Date: 10 May 1918
• Docket Number: Civil 1531
• Parties: MARY M. COSTELLO, as Executrix of MARTIN COSTELLO, Deceased, Appellant, v. JOHN GLEESON, Appellee
• Court: Arizona Supreme Court

172 P. 730

19 Ariz. 532

MARY M. COSTELLO, as Executrix of MARTIN COSTELLO, Deceased, Appellant, v. JOHN GLEESON, Appellee

Civil No. 1531

Supreme Court of Arizona

May 10, 1918

APPEAL from a judgment of the Superior Court of the county of Cochise. Alfred C. Lockwood, Judge. Reversed and remanded.

Mr Joseph Scott, Mr. Ben Goodrich, and Messrs. Ellinwood & Ross for Appellant.

Mr Eugene S. Ives and Mr. Fred Sutter, for Appellee.

OPINION

McALISTER, J.

This case is before the court a second time upon practically the same pleadings, evidence, and judgment. In the former opinion it was described as:

"An equitable action prosecuted by John Gleeson, appellee, against Mary M. Costello, as executrix of the last will and testament of Martin Costello, deceased, appellant, praying for the dissolution of an alleged partnership, for an accounting, and for an order directing a conveyance to John Gleeson by the said executrix of an undivided one-third interest in the mining claims described in the second amended complaint and alleged to belong to the partnership." 15 Ariz. 280, 138 P. 544.

The judgment, now as then, decrees the existence of a partnership, and adjudges plaintiff, Gleeson, the owner of a one-third interest in the mining claims which are held to be the property of such partnership. From this judgment, together with the order denying defendant's motion for a new trial, an appeal to this court has been prosecuted. The case was tried by the court without a jury, and findings of fact full and complete, together with conclusions of law, were filed. Thirty-two errors, based largely on the findings, have been assigned, but we discuss only those deemed vital and necessary to a correct determination of the issues involved. Inasmuch as the pleadings are practically the same as in the former action, there is no necessity for restating here the respective claims of the parties as they appear in the third amended complaint and the second amended answer upon which the case was tried and is here for review. The executor of Reilly's estate was made a party defendant in this action, but his answer contains only an admission of Reilly's death, and the appointment and qualification of his executor, together with an allegation denying any knowledge or information on the part of the executor relative to the facts alleged in the third amended complaint and submitting any interest or claim which Reilly's estate might have in the partnership to the consideration of the court.

It appears from the findings that in December, 1901, John Gleeson, appellee, one James Reilly, and Martin Costello, decedent of appellant herein, agreed to form a partnership, having for its object the owning, working, and selling of four certain contiguous mining claims, situated in the Turquoise mining district, Cochise county, Arizona, to wit, the San Francisco, Fennard, Batavia, and Mono. By the terms of this agreement it was provided that Gleeson should contribute to the partnership an option which he then held, and on which he had paid $350 in monthly payments of $50 each, to purchase from one Patrick Power, for $20,000, within 18 months from May, 1901, three of the aforesaid mining claims, to-wit, the San Francisco, Fennard, and Batavia, which were valued at $40,000; that Reilly and Costello should contribute the Mono mining claim, which was valued at $20,000, and of which they were then the owners, but, in order that the contributions of the three partners might be equal, it was agreed that Costello and Reilly should pay the $20,000 purchase price called for by Gleeson's option from Patrick Power, less the monthly payments already made by Gleeson.

Two months thereafter, to wit, in February, 1902, at a conference of the three partners, on the suggestion of Reilly, it was decided to extend the scope of the partnership so as to embrace a large number of other mining claims in the Turquoise district, in which, in the opinion of Gleeson, Reilly, and Costello, the mining industry was then looking up. At that time Costello was the owner of over $200,000 in cash, but was indebted to Reilly in the sum of $90,000, and John Gleeson, on that day, became the owner of four promissory notes, aggregating $53,000, secured by a mortgage on certain mines and mining claims of the Copper Belle Mining Company. Gleeson objected at first to Reilly's proposal to extend the scope of the partnership by the purchase of other claims upon the ground that he had not the means to enter upon such an undertaking, whereupon Costello agreed to advance the money for him, provided he would transfer to Costello the said Copper Belle notes as security for Gleeson's contributions, and provided, further, that title to all the claims acquired should be taken in the name of Costello, and so held until Gleeson and Reilly should contribute their share of the purchase price of said claims. In pursuance of this arrangement, Gleeson at that time left said notes with Reilly, representing the partnership, "as security for his obligation to contribute his share of the expenses of the partnership."

It was further agreed that Gleeson, being a man of experience in the mining industry, should contribute his knowledge and experience in acquiring such claims as they might desire; that Reilly, who was an attorney at law should contribute the legal services necessary in the acquisition and disposition of said claims; and that Costello, a man of large means, should advance, without interest, the cash necessary to purchase said claims, subject to reimbursement by Reilly and Gleeson in proportion to their one-third interests. In pursuance of the agreement to extend its scope, the partnership purchased, between 1902 and 1908, a large number of mining claims in the Turquoise district, and took title to same in the name of Costello, who advanced from his personal funds all the money therefor, to wit, about $80,000.

Shortly after the partnership decided to increase its holdings, the Power option, because of the decrease in value of mining property and the depressed condition of the mining industry generally in the Turquoise district, was by mutual agreement abandoned, and payments stopped thereon, under the belief that a second option could be procured later on at a less price; and thereafter, to-wit, on June 6, 1903, an option on the said San Francisco, Fennard, and Batavia mining claims was taken from Patrick Power by the partnership in the name of Costello, which option was thereafter consummated by Costello's paying the purchase price of the said claims.

In August, 1903, Gleeson, Reilly, and Costello formed a corporation, the Costello Copper Company, for the more convenient handling of the mining claims owned by the partnership. It was agreed shortly before this that when the partners were ready to begin active work on the mines, and Gleeson and Reilly had contributed their proportions of the purchase price of the said claims, Costello should deed to the corporation all the mines owned by the partnership, and that John Gleeson should have the management of the affairs of said corporation, at a salary of $250 per month, and be paid $60 per month for the use of his teams and wagons. The Costello Copper Company, however, transacted no business whatever and none of the claims was deeded to it, but Martin Costello paid for all assessment work, taxes, and the expenses of making locations and procuring patents.

Litigation arose over the Copper Belle notes not many months after their receipt by Gleeson, who acting upon the advice of Reilly, transferred them to Martin Costello for the purpose of making more sure their collection, in consideration of the sum of $25,000 and other mining property situated near Tombstone. This transfer, while ostensibly evidencing a sale in fact, was, in reality, a wash sale, not bona fide, and made solely for the purpose of enabling Costello to collect the notes; it having been mutually agreed between Costello and Gleeson that when they were collected Costello should turn the proceeds over to Gleeson, the real owner of the notes.

In September, 1907, Costello granted to L.W. Powell representing the Calumet & Arizona Mining Company, an option to purchase certain of the partnership mining claims for the sum of $150,000, to be paid as follows: $15,000 down, $35,000 on or before September 30, 1908, and $100,000 on or before March 30, 1909. Gleeson had promised Powell, shortly before this, while Costello was in Europe, an option covering this identical property, and on the same terms, except that he required no payment down, whereas Costello demanded a ten per cent initial payment and refused to sign any option which did not contain such provision, whereupon Gleeson, desirous that the sale be consummated, guaranteed said L.W. Powell, representing the Calumet & Arizona Mining Company a repayment of the ten per cent demanded by Costello in case said option was not completed, and, since no payments other than the initial one of $15,000 were made thereon, the option was surrendered and Gleeson forced to return to said company $6,250, but the agreement to return this initial payment was the individual obligation of Gleeson; the other parties having neither consented to it nor ratified it. Gleeson was very active in the negotiations of the said option for the reason that he and one Douglas Gray were interested in an option on which L. W. Powell, representing the Calumet & Arizona Mining Company, had paid them $15,000 and he believed that if the option on the partnership property was taken by the Calumet & Arizona Mining Company also, it would make the consummation of the option he and Gray were interested in more probable, since the properties covered by the respective options were located in the...