Davis v. Harrison

• Court: Washington Supreme Court
• Writing for the Court: SIMPSON, Justice.
• Citation: Davis v. Harrison, 167 P.2d 1015, 25 Wn.2d 1 (Wash. 1946)
• Decision Date: 11 April 1946
• Docket Number: 29694.
• Parties: DAVIS et al. v. HARRISON et al.

167 P.2d 1015

25 Wn.2d 1

DAVIS et al. v. HARRISON et al.

No. 29694.

Supreme Court of Washington.

April 11, 1946

Department 1.

Action by R. T. Davis, Jr., and others against C. L. Harrison and others for purpose of securing an accounting of certain transactions between defendant C. L. Harrison and Alaska Pacific Mines, Inc., and to obtain determination that shares of stock held by individual defendants was the property of Alaska Pacific Consolidated Mining Company, and for money judgment. From a decree dismissing the action, the plaintiffs appeal.

Affirmed.

Appeal from Superior Court, King County; Howard M Findley, judge.

DuPuis & Ferguson and George D. Lantz, all of Seattle, for appellants.

Edward M. Hay, David O. Hamlin, and Eggerman, Rosling & Williams all of Seattle, for respondents.

SIMPSON Justice.

Plaintiffs as stockholders of Alaska Pacific Mines, Inc., and its successor, Alaska Pacific Consolidated Mining Co., instituted this action for the purpose of securing an accounting of certain transactions between defendant C. L. Harrison and that above named corporation, Alaska Pacific Mines, Inc. that all shares of stock in the corporations held by the individual defendants be adjudged to be the property of Alaska Pacific Consolidated Mining Co.; and for a judgment against the individual defendants for the value of stock irregularly secured by them, together with a money judgment for sums alleged to have been wrongfully obtained.

The complaint, among other things, alleged that plaintiff Davis was and had been a stockholder in Alaska Pacific Mines, Inc., since February 25, 1936, and in Alaska Pacific Consolidated Mining Co. since its merger with Alaska Pacific Mines, Inc., on January 26, 1938; that plaintiff Naramore was and had been a stockholder in Alaska Pacific Mines, Inc., and its successor, since January 26, 1938; that C. L. Harrison from the date of incorporation of Alaska Pacific Mines, Inc., to the date of its merger with Alaska Pacific Consolidated Mining Co., was a director and president of the first mentioned corporation, and thereafter was president of the Alaska Pacific Consolidated Mining Co. until September, 1943. It was further alleged that Madeliene M. Harrison, wife of C. L. Harrison, was the holder of 101,500 shares of the Alaska Pacific Consolidated Mining Co. and received the stock from C. L. Harrison without consideration. It was further alleged that Clay C. Harrison, and W. R. Harrison, sons of C. L. Harrison, owned respectively 37,165 and 39,500 shares of stock in the Alaska Pacific Consolidated Mining Company without having paid any consideration therefor. It was also alleged that C. L. Harrison was in sole charge of the company's issuance of stock certificates, the keeping of the books of the company, and the management of the office of the company in Seattle; that in addition thereto he dominated the board of directors consisting of himself and two other persons; that during most of the period from the date of incorporation of the first-named corporation, the secretary of the company was in Alaska and C. L. Harrison induced him to leave blank certificates of stock, and that the secretary's signature affixed to certain stock, was at all times in the possession of C. L. Harrison. Another allegation was that defendant C. L. Harrison wrongfully and unlawfully made and executed blank certificates to himself without consideration; that the dates on which the shares were issued, the stock certificate numbers, and the number of shares are as follows:

No. of No. of Date Cert. Shares ------------- ------ ------ March 4, 1936 154 35,000 Aug. 21, 1936 252 15,000 Aug. 21, 1936 253 2,500 May 5, 1937 363 20,316 Dec. 16, 1937 494 655 Dec. 22, 1937 517 2,000

An additional allegation was to the effect that C. L. Harrison during the year 1937 as an individual borrowed money from August Buschmann and issued 55,000 shares of stock to Buschmann as security.

The individual defendants answered the complaint by general denial and several affirmative defenses. The affirmative defenses alleged approval and confirmation by the corporations of all the acts of C. L. Harrison; that the action had not been commenced within the time limited by law; that the transactions mentioned in plaintiffs' complaint had at all times been fully disclosed by the books and records of the companies, and had been available to all share-holders for their inspection; further, that the shares of stock transferred to the defendants had been for a valuable consideration.

At the conclusion of the trial the court entered its decree dismissing the action. Plaintiffs appealed. The assignment of error is worded as follows:

'The Court erred in rendering its oral decision against plaintiffs, in dismissing the action, in denying plaintiffs' motion for judgment notwithstanding the decision or for a new trial, and in entering its decree dismissing the action.'

We shall for the most part refer to Alaska Pacific Consolidated Mining Co. as A.P.C. and to Alaska Pacific Mines, Inc., as A.P.M.

We deem it necessary to state at some length the facts relating to the two corporations and the activities of their officers. For many years prior to 1934, the date of the incorporation of A.P.M., respondent C. L. Harrison and George H. Thomas, conducted business under an agreement whereby Thomas prospected claims and investigated mining properties which were of speculative value. Harrison purchased leases, options, and contracts on properties which were recommended by Thomas with a view to selling or leasing them to other individuals who might desire to engage in mining operations. The working agreement made between Harrison and Thomas provided that the proceeds of the various ventures were to be equally divided after Harrison had been reimbursed for his expenditures. During the year 1934, W. W. Stoll was introduced into the enterprise and in company with Harrison and Thomas formed the corporation known as Alaska Pacific Mines, Inc. The total authorized capital stock of the corporation was five thousand dollars divided into five hundred thousand shares of a par value of one cent each. In 1935 the capital stock was raised to ten thousand dollars divided into one million shares.

Under an agreement made in 1934, Thomas comtinued his work in the field, and Stoll worked in the company office as secretary. Harrison received a one-half interest in the enterprise and Thomas and Stoll a one-quarter interest each. Two hundred and eighty-five thousand shares, less a qualifying share to each of the others, and one hundred and fifty shares to Neva Appleton, were issued to C. L. Harrison. One-half of the stock issued to Harrison was held in trust for Thomas and Stoll who were at liberty to dispose of their portion as they desired. This procedure was adopted because of the insolvency of Thomas and Stoll. The consideration of the stock issued to Harrison which he owned individually was the transfer to the company of a lease-hold of the Gold Cord Development Company.

In 1934 Thomas acquired several claims, among which was one in Alaska, known as the Gray Eagle. The claims in realty belonged to the corporation, but were carried in the name of C. L. Harrison because A.P.M. was not qualified to do business in Alaska. The following year the directors agreed with J. M. McDonald, who represented a Canadian corporation, Bralorne Company, that McDonald should receive five percent of the total outstanding stock of A.P.M. if he obtained the service of Bralorne Company to develop the Gray Eagle claim. At a special meeting of the board of directors, held September 30, 1935, it was resolved that in return for the transfer by C. L. Harrison of an undivided three-fourths interest in the Gray Eagle lode claim, there was to be issued to him thirty-five thousand shares of stock, and payment in the sum of one thousand four hundred and fifty dollars. It was orally agreed that 35,000 shares should be set aside for the purpose of paying McDonald. The money was paid to Harrison for his expenses in acquiring the property. The 35,000 shares were issued to C. L. Harrison March 4, 1936 by certificate 154, signed by Stoll. July 8, 1936, the Bralorne Company abandoned the project and as a result none of the stock was issued to McDonald. In May, 1937, there was issued for Stoll's benefit 14,684 shares which came from certificate 154. The remainder was reissued to C. L. Harrison under certificate 363. In 1936 it was decided that A.P.M. would engaged in mining operations. From that time until 1944 Stoll was the manager of the mine. The money to carry on the business was secured by C. L. Harrison in Seattle by various means, one of which was designated the 1936 Gold Loan. Under the provisions of that loan, each lender was to be repaid out of twenty per cent of the gold production of the mine, and as an inducement to loan the money, was permitted to buy five shares at one cent per share for every dollar loaned. In July, 1936, Harrison raised six thousand dollars on a gold loan, half of which he advanced. The loan was not authorized by the directors, but August 21, 1936 certificates 252 and 253 for 17,500 shares were issued to Harrison who paid therefor one cent per share. A like loan was made in 1937 which was approved by the board of directors. Certificate 494, dated December 16, 1937 to C. L. Harrison for 655 shares was issued by resolution of the directors as a carry-over from the 1936 gold loan of $218.75 which was credited to C. L. Harrison's account. Certificate 517 for 2,000 shares, dated December 22, 1937 was issued to Harrison for accommodations he had made from his own stock to secure a loan from Auguest Buschmann. This was done by resolution of the directors.

It appears that...