Hederman v. George, 30991.
| Decision Date | 23 December 1949 |
| Docket Number | 30991. |
| Citation | 212 P.2d 841,35 Wn.2d 357 |
| Parties | HEDERMAN et al. v. GEORGE. |
| Court | Washington Supreme Court |
Department 1
Arthur H. Hederman and others sued Maxine E. George, as administratrix of the estate of James Eldon George, deceased to make distribution of mining stock in the estate of deceased subject to right of plaintiffs to exercise options to buy the stock given by deceased.
The Superior Court, King County, Chester A. Batchelor, J dismissed the action, and plaintiffs appealed.
The Supreme Court, Schwellenbach, J., affirmed the judgment holding that options were illegal and would not be enforced.
George A. Meagher, Seattle, for appellants.
Little Burgunder & Smith, Seattle, for respondent.
This is an appeal from a judgment dismissing an action seeking to make the distribution of mining stock in the estate of James Eldon George, deceased, subject to the right of the plaintiffs to exercise options to buy, given by the decedent.
James Eldon George and his brother Frank had a lease on some mining property which they were promoting. They met with financial difficulties and Charley Woodis and associates bought them out. The purchasers took an assignment of the lease and incorporated the Gregor Mines, Inc. The corporation was capitalized at $50,000, with five million shares of stock at one cent a share. As part of the transaction the incorporators issued 68,750 shares to each of the George brothers, together with shares issued to other men who had worked in mine for the brothers.
This issue of stock represented 220,000 shares, which were placed in escrow with Mr. Woodis, as trustee, and were not to be released without permission of the state director of licenses.
Six or seven permits to sell treasury stock have been issued to the company by the director of licenses. The first permit was for two cents a share; the next ten cents; some at twenty five cents and some at fifty cents. Before each permit was issued it was necessary that the company represent to the state the number of shares of stock being held in escrow, and in addition, a representative of the department examined the company's books from time to time.
J. E. George, subsequent to the assignment of the lease, being in need of money, obtained $100 from Ross Schmelke, giving him a promissory note for $100 due in three years. On the back of the note was the following:
He obtained $500 from Arthur R. Hederman and, by a similar document, gave him an option for 10,000 shares. He obtained $200 from H. E. Haworth and assigned to him his right to 4000 shares.
Later Mr. George was accidentally killed and his widow was appointed administratrix of his estate. His 68,750 shares were inventoried as part of the assets of the estate. Claims were filed by Schmelke, Hederman and Haworth, claiming the right to exercise their options to purchase, which claims were rejected by the administratrix. This action was then commenced, alleging the above transactions and praying that any distribution of the stock of decedent be made subject to the rights of the plaintiffs to exercise their options, together with any other relief the court might deem right.
The trial court found that James Eldon George, during his lifetime, was the owner of 68,750 shares of stock of Gregor Mines, Inc., which, together with other stock were deposited with the secretary of the company, to be held by him until released by the department of licenses of the state of Washington at the conclusion of the financing of the company; that the stock was escrowed by the department as a condition precedent to the issuance of a permit to the company to sell a designated number of shares of its treasury stock for ten cents a share; that up to the time of trial the mining company had not completed its financing and the department had not released the pooled stock; that the plaintiffs purchased the stock from the deceased for five cents a share; that they knew that the stock was escrowed under directions of the department and was not subject to be sold or transferred until released by the department.
The court concluded that the transactions were in reality sales of promotion stock belonging to J. E. George and were in violation of the Metalliferous Mining Securities Act of the state of Washington. The action of each of the plaintiffs was dismissed and this appeal follows.
The Metalliferous Securities Act is contained in Rem.Rev.Stat.Sup. §§ 5853-31 to 5853-58, inclusive. It provides for the regulation and supervision of the issuance and sale of original issues of metalliferous mining securities, requiring the filing of statutory statements for the protection of the public, requiring licenses of underwriters, agents and salesmen, and defining the powers and duties of the director of licenses. Rem.Rev.Stat. (Sup.) § 5853-37 provides: 'All promotion stock of a company engaged or proposing to engage in the metalliferous mining industry shall, during the period in which any public offering of its treasury stock is being made, be pooled in such manner as may be prescribed by the director of licenses to prevent its sale to the public; but the director of licenses may in his discretion release such pooled stock at any time: Provided, That private sales of treasury stock, without advertising or general solicitation, by bona fide officers of the company to not to exceed twenty-five persons, in which the entire proceeds inure to the benefit of the company, shall not constitute a public offering.'
Rem.Rev.Stat. (Sup.) § 5853-41, provides: 'Every person who shall violate or knowingly aid and abet the violation of this act and every person who fails to perform any act which is herein made his dity...
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