Franklin v. Havalena Min. Co.

• Decision Date: 29 June 1914
• Docket Number: Civil 1390
• Citation: 16 Ariz. 200,141 P. 727
• Parties: O. K. FRANKLIN, Appellant, v. HAVALENA MINING COMPANY, a Corporation, J. WELLS SMITH, W. A. O'CONNOR, I. BURGOON, R. R. EARHART and E. D. MILLER, Appellees
• Court: Arizona Supreme Court

141 P. 727

16 Ariz. 200

O. K. FRANKLIN, Appellant, v. HAVALENA MINING COMPANY, a Corporation, J. WELLS SMITH, W. A. O'CONNOR, I. BURGOON, R. R. EARHART and E. D. MILLER, Appellees

Civil No. 1390

Supreme Court of Arizona

June 29, 1914

APPEAL from a judgment of the Superior Court of the County of Santa Cruz. Carl G. Krook, Judge. Reversed and remanded.

STATEMENT OF FACTS BY THE COURT.

We adopt appellant's statement of the facts as being full and correct:

"This is an action brought by a stockholder of a corporation, on behalf of himself and all other stockholders, to right certain wrongs to the corporation; the corporation itself and its directors, having refused to sue. Demurrers to the complaint were filed, which demurrers were sustained on the ground that plaintiff 'had nowhere in his complaint offered to do equity.' Plaintiff refused to amend. Judgment was rendered against him, dismissing his complaint on the ground that 'there is no equity therein,' and for costs. From this judgment the plaintiff appeals to this court.

"The allegations of the complaint are briefly as follows: That, at all the times mentioned therein, plaintiff was a stockholder of Havalena Mining Company, a corporation, which company owned the Santa Nino, and five other mines described in the complaint. That on August 5, 1912, F. O. Stow, George D Gross, and I. Burgoon, attempting to act as president manager, and secretary, respectively, of said company, did without authority of the board of directors or stockholders and without any authority whatsoever, unlawfully execute and deliver to James Culley, Joseph Brown, and T. Vastine a certain instrument, denominated a lease and bond, in the words and figures following, to wit:

"'Mowry, Arizona, August 5, 1912.

"'Havalena Mining Company, party of the first part, and Joseph Brown, James Culley and T. Vastine, party of the second part. The party of the first part agrees to lease and bond the following named claims situated in Patagonia mining district, Santa Cruz county, state of Arizona: Santa Nino mining claim, Santa Nino Number One, Santa Nino Number Two, Santa Nino Number Three, Santa Nino Number Five, and the Side Issue mining claim, to the party of the second part, the party of the second part to pay ten thousand dollars lawful money of the United States in three payments, the first payment August 5, 1913, the second payment August 5, 1914, the third payment August 5, 1915. The party of the second part agrees to pay 10% of net smelter returns, to apply on said payments as they become due, the first payment ($2,000) two thousand dollars August 5, 1913, the second payment of ($4,000) four thousand dollars August 5, 1914, the third payment August 5, 1915, the balance of ($4,000) four thousand dollars, the party of the first part to put deeds in the First National Bank of Nogales, Arizona; the party of the second part to deposit the payments in the First National Bank of Nogales, Arizona. The party of the second part agrees to file affidavit of assessment work on or before November 15th, 1912, on or before July 1st, 1913, on or before July 1st, 1914.

"'President Havalena Mining Company,

"'F. O. Stow.

"'Manager Havalena Mining Company,

"'GEO. D. GROSS.

"'JOSEPH BROWN.

"'JAMES CULLEY.

"'ALAN VASTINE.

"'I. BURGOON, [Seal]

"'Secy. Havalena Mining Company.'

"That thereafter, and on the 27th day of September, 1912, T. Vastine assigned to defendant J. Wells Smith a one-fourth interest in said lease and bond; and on October 15, 1912, Culley, Brown, and Vastine assigned to George D. Gross an undivided one-fourth interest therein. That some time prior to January 6, 1913, Culley, Vastine, Brown, and Gross assigned all their interest therein to defendant J. Wells Smith, and ever since said J. Wells Smith has been and is the sole owner of the lease and bond. That Culley, Brown and Vastine entered into possession of the mines, claiming their right so to do under said lease and bond until J. Wells Smith became an owner of an interest in the lease and bond, when he joined them in the possession thereof. That thereafter, and some time prior to January 6, 1913, the said J. Wells Smith, as the sole owner of the lease and bond, took exclusive possession of the mines, and now is in possession thereof, extracting ores therefrom and applying the same to his own use and benefit. That the action of Stow, Gross and Burgoon in executing the lease and bond was without any authority from the corporation, was without authority from the board of directors or the stockholders, and without any authority whatsoever, and their said act is absolutely null and void, and in no way binding upon the said defendant corporation."

"That on November 11, 1912, the board of directors of said corporation, at a meeting duly held on said day, did disaffirm, disapprove and did refuse to ratify, recognize or confirm the action of said Stow, Gross and Burgoon in executing said lease and bond, and did disavow, disaffirm and disapprove of the same; and that on the same day, at a duly called meeting of the stockholders of said company, the stockholders did likewise disapprove, disaffirm and disavow the same.

"that thereafter, and in the same month of November, the said corporation did bring suit before the superior court of Santa Cruz county, Arizona, against said J. Wells Smith, Culley, Brown and Gross, by filing complaint, wherein the above matters and things were set forth and alleged, and wherein said company did seek to have said lease and bond declared to be utterly void and of no effect, and not binding upon it, and did seek 'to obtain an injunction restraining said defendants from withholding possession of said mining claims from it, said corporation, and from in any manner working the same or extracting or selling ores therefrom."

"That while said suit was pending, said J. Wells Smith did purchase, or otherwise acquire, all the interest of his co-owners, Culley, Brown, Gross and Vastine, in said lease and bond; and did also, after said suit was brought, purchase more than a majority of the issued and outstanding shares of the capital stock of said corporation, for the purpose of controlling the board of directors of said corporation so as to have said suit dismissed and said lease and bond ratified and that, having obtained such control, he caused the said suit to be dismissed.

"That the sum of $10,000, being the purchase price set forth in said lease and bond, was grossly inadequate as the bonding price of said property. That other responsible parties, at the time said lease and bond were executed, were, and since have been, willing to take a lease and bond thereon at a price in excess of $100,000, and on more advantageous terms to the corporation and stockholders. That said Smith knew that responsible parties were willing to take a lease and bond thereon at a price in excess of $100,000, but said Smith, for the purpose of defrauding the stockholders of the corporation, and for the purpose of acquiring himself the title to said mining claims at a price far less than the value thereof, did purchase, for a comparatively small sum of money, more than a majority of the issued shares of stock, and then, at the stockholders' meeting on the 6th day of January, 1913, by his own vote, as the holder of more than a majority of said stock, did cause a resolution to be adopted ratifying said lease and bond, and directing said suit to be dismissed; and did also, at said meeting, cause a board of directors to be elected who were under his control and subservient to his interest (the resolutions as offered and the vote thereon being fully set forth in the complaint). That said resolution would not have been adopted but for the vote of said Smith. That thereafter, and on said 6th day of January, 1913, the board of directors so elected by said Smith did hold a meeting, said Smith being himself then one of the directors and present at the meeting, whereat the said directors, at the request and direction of said Smith, and being under his control and influence, did adopt a resolution ordering the dismissal of the said suit, aforesaid. That the action of the said board of directors was a fraud upon the stockholders, and was done at the instance and request of said Smith so that he might acquire said property at less than one-tenth of its value, and deprive the other stockholders of their rights therein. That thereafter said Smith did cause said case to be dismissed.

"That said defendant Smith is now in possession of said mining claims, claiming his possession and right of possession under said lease and bond. That he is working said mines and extracting ore therefrom, and that, unless enjoined, he will continue to work the same and extract ore therefrom, and keep possession thereof under said lease and bond.

"That said defendant Smith still owns the majority of the issued stock, has absolute control of the corporation and directors, and that it is necessary to have a receiver appointed to take possession of all the property and assets of the corporation, and to sell the same under direction of the court. That prior to the commencement of the suit plaintiff made demand upon the corporation and directors, requesting them to bring suit to have said lease and bond annulled and to prevent said Smith from operating said mines, extracting ore therefrom, and from claiming any interest therein. That the corporation and directors have refused to bring such suit.

"Wherefore plaintiff prays: (1) That the lease and bond be declared null and void; (2) that defendant Smith, and all persons claiming under him, be enjoined from claiming any rights under said lease and bond, and that the same be canceled; (3) that defendant Smith, and all persons...