Floor v. Johnson

• Decision Date: 04 November 1948
• Docket Number: 7141
• Citation: 114 Utah 313,199 P.2d 547
• Court: Utah Supreme Court
• Parties: FLOOR v. JOHNSON, et al

199 P.2d 547

114 Utah 313

FLOOR v. JOHNSON, et al

No. 7141

Supreme Court of Utah

November 4, 1948

Appeal from District Court, Third District, Salt Lake County Clarence E. Baker, Judge.

Suit in equity for cancellation of shares of stock by Nick Floor, on behalf of himself and all other stockholders of New Quincy Mining Company similarly situated, against M. B. Johnson and others. From the decree, the defendants appeal.

Affirmed.

McKay Burton & White, Richard S. Johnson, and Hugh J. Hintze, all of Salt Lake City, for appellants.

Critchlow & Critchlow, Jensen & Richards, and E C. Jensen, all of Salt Lake City, for respondent.

Pratt, Justice. Wade, J., concurs. McDonough, C. J., and Latimer, J., concur in the result. Wolfe, Justice (concurring).

OPINION

Pratt, Justice.

This is a suit in equity, commenced February 2, 1946, in which the plaintiff Nick Floor, on behalf of himself and all other stockholders of the New Quincy Mining Company similarly situated, sought to have cancelled and set aside some 200,000 shares of New Quincy Mining Company stock alleged to have been fraudulently issued for voting purposes; to enjoin future voting or sale thereof and to have certain named individuals declared elected as directors of the New Quincy Mining Company, in place of those sued as defendants, whose election was founded upon a majority vote computed with the 200,000 shares in issue.

The action as originally commenced was only against M. B. Johnson, S. B. Tuttle, New Quincy Mining Company, a corporation, and J. C. Johnson, individually and as trustee. Thereafter by amendment the other defendants were included, together with that part of the prayer pertaining to the election of officers.

The evidence discloses that in recent years the New Quincy Mining Company stockholders have been more or less divided into two groups. One group, headed and allegedly controlled by M. B. Johnson, has been in control of the Corporation for a number of years. S. B. Tuttle, a member of this group, has been President of the Company for several years. M. B. Johnson has served as director and also is Secretary and Treasurer. In addition, M. B. Johnson also has served as general manager of the Company. For convenience, we shall call this group the Johnson group.

The other group, headed by Nick Floor, hereafter called the Floor group, has heretofore been unable to muster a sufficiently large vote to oust the Johnson group from office. For two years preceding 1946 at the regular elections sufficient stock was not represented at the meetings to hold a vote, and for this reason the incumbent Johnson group continued to control the Company. Nick Floor having become dissatisfied with the directors' actions was active during all this time in the solicitation of proxies, in an effort to oust the Johnson group. At a special stockholders' meeting in July, 1945, he had amassed 409,815 votes, either by personal representation or by proxy, out of a then total stock issue of 914,881 shares, falling only slightly short of a majority. During 1945 he renewed his efforts and as indicated by the tally sheets at the election meeting held January 22, 1946, had present 483,376 votes, represented either personally or by proxy.

At the January 22nd meeting in 1946, the total outstanding shares had been increased however, and the Johnson group had present, either personally or by proxy, 620,207 votes, which included the 200,000 shares in question. The Johnson group directors on the basis of such majority of votes declared themselves elected.

The Floor group contends that votes representing 200,000 shares of stock should not have been included for reasons hereafter stated, and that without the 200,000 votes the Floor group had a majority present, which majority would, if the 200,000 shares had not been counted, have elected them to office. Proceeding on this theory the Floor group thereafter took and filed oaths of office and declared themselves elected as directors and proceeded to organize their board of directors.

Now as to the transactions involving the increase of 200,000 shares of stock: On January 12, 1946, just 10 days before the election, at a board of directors' (Johnson group) meeting it was proposed that 200,000 shares of capital treasury stock be sold to F. F. Hintze and the Empire Canyon Mining Company of which Hintze was president, at ten cents per share. No formal action was taken at that time. On January 19, 1946, final drafts of the agreements were considered and authorized by the directors (the Johnson group) of the New Quincy Mining Company. The contracts dated January 10, 1946, and as finally entered into though not identical in wording are in substance the same, the difference being such as was made necessary by the fact that Mr. Hintze was to pay a cash down payment, while the Empire Canyon Mining Company was to transfer property as a down payment. We quote the latter contract:

"Stock Sale Agreement

"This Agreement entered into this 10th day of January, 1946, by and between NEW QUINCY MINING COMPANY, Party of the First Part, and Empire Canyon Mining Company, Party of the Second Part,

WITNESSETH:

"Whereas the party of the first part has among its assets 100,000 shares of Treasury stock, and

"Whereas, the party of the second part has submitted to said corporation an offer for said stock in the sum of $ 10,000.00, being at ten cents per share, and said purchase price to be paid in the amounts and at the times hereinafter set forth, and

"Whereas, the said party of the first part desires to provide a fund from which it may redeem 38 acres of mining ground in Wasatch County, Utah, as provided by the terms of that certain agreement between the party of the first part and the Park Utah Mining Company, or in the event said redemption is not made with these funds, then said money is to be disposed of as the Board of Directors of the party of the first part shall direct, and this agreement and sale of stock having been authorized by a resolution passed and signed by more than four members of the Board of Directors of the party of the first part, --

"Now, Therefore, the party of the second part hereby agrees to purchase, the party of the first part agrees to sell 100,000 shares of Treasury stock for the sum of Ten Thousand Dollars ($ 10,000.00) upon the following terms and conditions, to wit:

"1. The party of the second part agrees to pay the sum of Five Thousand Dollars ($ 5,000.00) upon the execution of this contract, the receipt of which is hereby acknowledged, by the transfer to the said Trustee for the benefit of the party of the first part of a duly executed bill of sale conveying title to the party of the first part to all of the equipment of the party of the second part now located upon the premises leased from the party of the first part by the party of the second part, said property being generally: compressors, motors, cables, controls, valves, hoist, harnesses, etc., and it being hereby agreed by the said parties that the sum of $ 5,000.00 is the fair and reasonable value of said equipment installed on the premises. Thereafter, party of the second part shall pay and apply a sum equal to the difference between the per cent required to be paid by said party of the second part under and by virtue of the lease, or modification thereof, which party of the second part now has with party of the first part, and a sum representing 50% of the net smelter returns from ore shipped under and by virtue of said lease. It is understood and provided that the said percentages of the net smelter returns shall be paid immediately upon receipt of payment from the smelter by party of the second part, these payments to continue until the balance has been paid in full.

"2. Immediately upon the execution of this contract, and payment of the $ 5,000.00 as herein provided, the party of the first part hereby agrees to issue and deliver two certificates of stock for 50,000 shares each, representing said 100,000 shares of Treasury stock, to J. C. JOHNSON, as Trustee, said stock to be issued in the name of the trustee and to be held by the said trustee, until the balance of the purchase price as herein provided shall have been paid, and upon the payment in full of the purchase price as herein provided, said shares of stock are to be endorsed and delivered to the party of the second part, it being understood and provided that J. C. Johnson said trustee, shall at all times and until the balance of the purchase price herein is paid, have the full voting right for said stock, and which right shall continue as aforesaid until this contract is by its terms terminated, it being understood and agreed that the stock herein issued to the trustee is upon delivery of bill of sale for down-payment herein provided and by the terms of this agreement paid for, and is entitled to be voted in all corporate affairs of the said party of the first part. It being further understood that the party of the second part herein may assign its right, title and interest in this contract and the stock herein provided to other parties to complete this contract, and that the trustee herein may accept for this purpose such other or substitute parties to complete the contract.

"3. All funds herein provided are to be paid, including the down-payment to J. C. Johnson, as trustee, who shall keep and retain said funds in trust to be paid to party of first part or its assigns as directed by the Board of Directors of the party of the first part, it being understood herein that it is the desire of the party of the first part to create a fund to redeem said mining land as herein described, and said trustee shall hold the said funds for that purpose unless the Board of Directors of the party of...