Holmes v. Jewett

• Decision Date: 07 July 1913
• Citation: 134 P. 665,55 Colo. 187
• Parties: HOLMES v. JEWETT et al.
• Court: Colorado Supreme Court

134 P. 665

55 Colo. 187

HOLMES v. JEWETT et al.

Supreme Court of Colorado, En Banc.

July 7, 1913

Appeal from District Court, Park County; M. S. Bailey, Judge.

Action by W. Kennon Jewett and others against George Holmes. Judgment for the plaintiffs, and defendant appeals. Reversed and remanded, with directions to dismiss.

Charles A. Wilkin, of Canon City, and R. D Thompson, of Denver, for appellant.

Henry C. Hall and Lloyd W. Bassett, both of Colorado Springs, for appellees.

GARRIGUES J.

1. The Rome Mining Company, with 500,000 shares of capital stock was incorporated October 8, 1881, in the state of New York for a period of 50 years. October 29, 1881, more than 20 years prior to the bringing of this action, it filed with the Secretary of State of Colorado its articles of incorporation which have never been renewed. It appears its object was mining in Park county, Colo., with New York City and Fairplay, Colo., the principal places for carrying on its business. The company shortly after its organization acquired four mining locations in Park county, upon which it soon exhausted its resources without developing any values. Its mining operations failed, its claims were sold for taxes, and a treasurer's deed therefor executed May 4, 1898, to Morris Gummere. It possessed no other property, and had ceased to hold stockholders' meetings. In April, 1898, George R. Blanchard, who had been a trustee and president of the company since its organization, called a stockholders' meeting to be held at the home office in New York. Pursuant to this call, a stockholders' meeting was held on the 10th and 11th of May. The action taken at this meeting by the stockholders, and the subsequent action of the trustees on the 16th based thereon, gives rise to this litigation.

Plaintiff's father, Hugh Jewett, died March 6, 1898, owning 53,320 shares of the stock of the company, and the right of Kennon Jewett to bring this suit in Colorado on behalf of the corporation is based upon the location of the property in this state and his ownership of this stock acquired through his father's will, and transferred to him by the executors December 16, 1898.

There were represented at the May stockholders' meeting, including the Jewett stock, 262,470 shares, and excluding it, 209,150 shares. Julian W. Robbins, who had married plaintiff's sister, attended this meeting as executor of the Jewett estate for the purpose of representing the Jewett stock. He knew the object of the meeting, and heard the resolution offered to convey the mining claims to Blanchard. He made no objection, but declined to vote the stock, and had the notation of its presence at the meeting, which the secretary made, withdrawn. This course was taken under the advice of the attorney for the Jewett estate. The 209,150 shares remaining after the withdrawal of the Jewett stock were unanimously voted in favor of transferring the property to Blanchard, and the trustees were instructed to deed the claims to him in exchange for a certain contract which he gave the company. Blanchard was promoting the idea of developing the property through a leasing company which, if it found merchantable ore, would pay a royalty to the Blanchard association, of which 10 per cent. was to be given to the Rome Mining Company. In accordance with the stockholders' instructions at this meeting, and to carry out their agreement with Blanchard, four of the trustees met in board meeting May 16, 1898, and directed the treasurer to make and deliver the deed to Blanchard, which was done. It was an open transaction made honestly and in good faith, without the slightest taint of actual fraud, and with no concealment, deception, secrecy, or moral turpitude of any kind whatever. The day Blanchard received the deed, he sent a circular letter to every stockholder, explaining the transaction fully, the plan then in contemplation, and urging them all to join him upon an equal footing in the attempt to further develop the property. This was also further urged by private correspondence and personal conferences. On February 24, 1899, he purchased the tax title from Gummere for $200. From the time Blanchard received the deed from the company, May 17, 1898, up to his death, October 8, 1900, he had expended on the property in cash, $954.17.

This suit was brought in Park county, Colo., against Delia A. Blanchard, his widow, as sole devisee and legatee of George R. Blanchard, Alfred H. Brown, as secretary of the company, and the mining company, all residing and domiciled at New York City. No reason is offered for bringing the case in this state except that the property is located here. Delia A. Blanchard died May 3, 1903, while the suit was pending, and George Holmes, her sole executor, was substituted as defendant. Kennon Jewett, whose domicile was 35 Warren street, New York, but who was then residing temporarily in Colorado Springs, brought this action almost four years after the company's deed to Blanchard. The complaint charges the deed was without consideration; that less than a quorum was present at the stockholders' meeting which elected the trustees and directed them to execute the deed; that the board of seven trustees was not legally elected; that there were only four present at the meeting, including Blanchard, who voted without any right to do so on the proposition, and without him there was less than a quorum of the directors. It prays that Delia A. Blanchard be compelled to reconvey the property to the Rome Mining Company on payment to her of the amount expended thereon by them since the acquisition of the title by her husband. There is not a word in either the complaint or decree about removing a specific cloud, or any cloud, from the title.

The court found that the Rome Mining Company owned and was entitled to the possession of the property; that its deed to Blanchard was without authority or consideration and a fraud on the rights of the stockholders; and that whatever title Blanchard acquired by the deed from Gummere, the owner of the tax title, was held in trust for the company. It set aside the tax deed to Gummere, and ordered that on or before November, 1907, Holmes, as executor, deed the property to the company, and, in default thereof, that the record of a duly certified copy of the decree in the office of the clerk and recorder should vest title in the company.

There is no conflict in the proof. All the material facts are contained in the pleadings and the deposition of Brown, the secretary, taken in New York by the plaintiff under the statute as upon cross-examination, and this court may therefore review and weigh the evidence unhampered by any finding of the trial court. An appeal was taken by George Holmes.

2. This is a stockholder's suit to compel a return to the corporation of the property deeded Blanchard. Ordinarily a stockholder cannot maintain such an action. As a rule, suits to enforce rights belonging to the corporation must be brought in its name and upon the action of the board of directors, and, where a stockholder is permitted to bring such a suit, he acts for the corporation on the equitable ground that the officers who should have brought it in the name of the corporation refuse to act or are violating some trust reposed in them by the stockholders. While the stockholder is the nominal plaintiff, the suit involves only the rights of the corporation, and whatever relief is given is obtained for it and in its name, and, although the stockholder may ultimately benefit by the judgment, the corporation is the party directly interested. Byers v. Rollins, 13 Colo. 22, 21 P. 894; Peck v. Peck, 33 Colo. 421, 80 P. 1063; Mackey v. Burns, 16 Colo.App. 6, 64 P. 485; Starr v. Heald, 28 Okl. 792, 116 P. 188; McCloskey v. Snowden, 212 Pa. 249, 61 A. 796, 108 Am.St.Rep. 867; Smith v. Ferries, 51 P. 710 ^[1]; Kessler v. Ensley, 148 F. 1019, 79 C.C.A. 534.

3. A majority of the court are of the opinion that this suit should be reversed and dismissed for the following reasons:

First, to authorize plaintiff Jewett to maintain this action, he must show that the board of directors refused to bring the suit, and that he has done all in his power to obtain relief through the stockholders, and failed; in other words, it must be shown that relief cannot be obtained through the corporation. Deveny v. Hart Coal Co., 63 W.Va. 650, 60 S.E. 789; Foote v. Cunard M. Co. (C. C.) 17 F. 46; Dimpfell v. Ohio, etc., Ry. Co., 110 U.S. 209, 3 S.Ct. 573, 28 L.Ed. 121; Taylor v. Holmes, 127 U.S. 489, 8 S.Ct. 1192, 32 L.Ed. 179; Beshoar v. Chappell, 6 Colo.App. 323, 40 P. 244; Wenzel v. Brewing Co., 48 S.C. 80, 26 S.E. 1; Dillon v. Lee, 110 Iowa 156, 81 N.W. 245. The evidence fails to show that Jewett made any demand or request upon the corporation to bring this suit, or that he appealed to the stockholders for relief. Instead of that, the bringing of the action seems to have been kept a secret and sprung as a surprise. Plaintiff failed to aid the secretary in calling a stockholders' meeting, and did not attend the two or three which were attempted to be held. He made no request of Mr. or Mrs. Blanchard to reconvey the property to the company, nor upon the corporation or board of directors to bring a suit for its recovery.

Second this suit was not brought with due diligence. The stockholders' meeting which elected directors and instructed them to deed the property to Blanchard was held in May, 1898, and was attended by Robbins, the executor of the Hugh Jewett estate. He refused to vote the Jewett stock at this meeting, thereby preventing a majority of the stock being voted, and yet he heard and knew what was done, and asked to be kept informed of all subsequent proceedings. The directors who were elected at this meeting...