Kelly v. Fourth of July Min. Co.

• Decision Date: 05 July 1898
• Citation: 53 P. 959,21 Mont. 291
• Parties: KELLY v. FOURTH OF JULY MIN. CO. et al.
• Court: Montana Supreme Court

53 P. 959

21 Mont. 291

KELLY v. FOURTH OF JULY MIN. CO. et al.

Supreme Court of Montana

July 5, 1898

Appeal from district court, Lewis and Clarke county; Horace R. Buck Judge.

Suit by Charles Kelly against the Fourth of July Mining Company Joseph K. Clark, and others. There was a judgment for plaintiff against Joseph K. Clark, and from the judgment and an order denying a new trial he appeals. Affirmed.

The Fourth of July Mining Company, a mining corporation, was organized under the laws of Montana (chapter 25, div. 5 Comp. St. 1887) on December 19, 1889. Its capital stock named in the articles of incorporation was $7,500,000, consisting of 750,000 shares of $10 each. The articles of incorporation were signed by J.K. Pardee, S.T. Hauser, E. Zimmerman, W.F Sanders, T.H. Kleinschmidt, J.K. Clark, and L. Teuscher. These same persons were named in the articles as trustees, and became the trustees of the corporation, which was immediately perfected in its organization by the election of the defendant J.K. Clark as president, S.T. Hauser as vice president, T.H. Kleinschmidt as treasurer, C.B. Garrett as secretary, and J.K. Pardee as manager. The complaint of plaintiff (respondent here), after averring the facts as hereinbefore set forth in relation to the incorporation and organization of the corporation, then alleges that the trustees of said company, for the purpose of fraudulently relieving all persons who had theretofore subscribed for stock, or who might thereafter by any means become owners of stock in the said company, from any personal liability by reason of such subscription or ownership, did on December 19, 1889, cause to be spread upon the records of the meeting of the trustees a resolution to the effect that J.K. Pardee appeared before the meeting, and offered to convey a seven-eighths interest of the Fourth of July Mine to the corporation, in consideration of 750,000 shares of the stock of said corporation, and that the proposition was accepted. It is averred that, upon the acceptance of said proposition, the said Pardee transferred to the corporation a seven-eighths interest in said mine, and the trustees thereupon directed that the company deliver to T.H. Kleinschmidt, trustee for J.K. Pardee, by agreement with the said trustees, all of the capital stock of said company, to wit, 750,000 shares, to be by said Kleinschmidt distributed as the said Pardee should direct; that the seven-eighths interest in the mine conveyed by Pardee to the corporation was not of greater value than $75,000, and that each and all of the trustees knew at the time of the conveyance of the same that it was of no greater value than $75,000, but that, in violation of their duty, the trustees fraudulently, and with intent to relieve such persons as had subscribed for stock of said company, or who might thereafter subscribe, or who might become owners of stock, from any personal liability by reason of such subscription or ownership, accepted the conveyance from Pardee in full payment for 750,000 shares of stock issued as aforesaid; that the corporation was organized to purchase the said seven-eighths interest from Pardee, and that for such purpose the defendants Kleinschmidt, Seligman, Clark, Phelps, and the other parties named as trustees, together with others, associated themselves to organize the said mining company, and to acquire the said property under the mutual agreement that the corporation should be organized with a capital stock of $7,500,000 in shares of $10 each, and that all of the stock should be, as it afterwards was, transferred to said Pardee in exchange for the seven-eighths interest in the mine, each of the persons associating themselves agreeing to take from Pardee, after the stock should be issued to him, a certain number of shares of the stock at the rate of 25 cents per share; that each and all of such persons, at the time they associated themselves together, well knew that the said seven-eighths interestin the said mine was not worth to exceed $75,000, and that $7,500,000 was a sum grossly and fraudulently in excess of the true value of the mine, and that the said agreement to so issue the stock to the said Pardee was entered into between the said persons so associating themselves with the fraudulent intent of relieving themselves from any personal liability by reason of their becoming the owners of any of said stock upon the pretense that the same had been fully paid for; that each of the defendants became the owner of certain shares of the capital stock of the company, defendant Clark being at the time of the commencement of this action the owner of 173,800 shares, and that each of the defendants acquired his stock with the full knowledge of the fact that the same had been originally issued to Pardee upon a gross and fraudulent overvaluation of the property transferred in exchange for the same, and that the said property so transferred was of a value not to exceed $75,000, by reason of which plaintiff averred that all of said stock so held by the defendants is unpaid stock, except in the proportion which $75,000 bears to $7,500,000. The plaintiff then avers that on June 28, 1894, he recovered a judgment against the Forth of July Mining Company in the sum of $15,600 and costs, for damages on account of personal injuries plaintiff received while in the service of the defendant company and under contract with it; that execution was duly issued upon said judgment, but that the same was returned wholly unsatisfied; and that the Fourth of July Mining Company is wholly insolvent. The plaintiff demanded judgment that the amount due and unpaid upon the stock of said mining company held or owned by defendants may be determined by the court, and that they and each of them be adjudged to be indebted there onto the said mining company upon each share of stock held or owned in the amount of the face value thereof, to wit, $10, less such proportion of the sum of $10 as $75,000 bears to $7,500,000; that they and each of them be required to pay into court such sum as may be so found due; and, that out of the sum so paid, plaintiff be paid the amount of his judgment against the corporation, with interest and costs. The defendant Clark denied the allegations of the complaint in relation to the fraudulent intent and purposes alleged in plaintiff's complaint pertaining to the organization and purposes of the organization of the corporation, and set forth affirmatively "that at the first meeting of the board of directors of the company a proposition, similar to the one referred to in the complaint, was made to the directors; that said proposition was referred to a committee of three members of the said board of directors, to investigate said proposition and report thereon to said board of trustees; that the committee reported that the property offered for sale was worth the consideration asked therefor, and that it was for the best interest of said corporation to accept such proposition and purchase said property; and that thereafter defendant Clark, relying on the report of said committee, and in good faith believing the same, and with no intention at that time of buying any stock in said company, and without having agreed to buy any thereof, voted to accept such proposition. Clark further states that he never bought or agreed to by any stock in said corporation until long after the stock had been issued in payment of the same, and that he never did by any stock except such as was purchased by him in open market, and that all such stock was on its face declared to be fully paid. Defendant's answer also sets forth the fact that on the 19th day of December, 1889, the Fourth of July property so bought by the company was of the reasonable value of $7,500,000." The defendant Clark, for a separate defense, also alleged that the injury which the plaintiff herein suffered, and for which he recovered the judgment mentioned in the complaint herein, was received by him more than three years before the commencement of this action, and that allof the stock which he ever bought or owned in said defendant company was so bought more than four years prior to the commencement of this action. The defendants Seligman and the Fourth of July Mining Company filed a separate answer, setting forth substantially what the answer of defendant Clark contained in relation to the denials of fraud alleged in plaintiff's complaint. The plaintiff replied to defendant Clark's answer, denying Clark's belief in the report of the committee in relation to the value of the mine, or that he acted thereon in good faith, denying that defendant Clark never agreed to buy stock in the corporation until long after the stock had been issued in payment for the mine, and denying that all or any of the rest of the stock ever bought or owned by defendant was bought by him from a prior purchaser, who had bought the same in open market. The replication to the other answer is substantially the same as the last. The case was tried to a jury. Separate findings were returned. The court adopted all the findings of the jury except two. Conclusions of law were made by the court, rendering J.K. Clark liable for the claim of plaintiff. Judgment was ordered accordingly in plaintiff's favor, against Clark, but in favor of defendants Kleinschmidt and Seligman. Defendant Clark moved for a new trial, which was denied. He appeals to this court from the judgment and the order denying his motion for a new trial.

Corbett & Welcome, Thos. C. Bach, and Wm. H. De Witt, for appellant.

C.B. Nolan and T.J. Walsh, for respondent.

HUNT J. (after stating the facts).

Appellant's counsel, in their opening brief, declare they find difficulty in telling whether the respondent's action was brought upon the theory that defe...