Kendall v. Silver King of Arizona Mining Co.

• Court: Arizona Supreme Court
• Writing for the Court: ROSS, J.
• Citation: Kendall v. Silver King of Arizona Mining Co., 226 P. 540, 26 Ariz. 456 (Ariz. 1924)
• Decision Date: 06 June 1924
• Docket Number: Civil 2164
• Parties: ED KENDALL, Appellant, v. SILVER KING OF ARIZONA MINING COMPANY, a Corporation, and SILVER KING MINES, INC., a Corporation, Appellees

226 P. 540

26 Ariz. 456

ED KENDALL, Appellant, v. SILVER KING OF ARIZONA MINING COMPANY, a Corporation, and SILVER KING MINES, INC., a Corporation, Appellees

Civil No. 2164

Supreme Court of Arizona

June 6, 1924

APPEAL from a judgment of the Superior Court of the County of Maricopa. Joseph S. Jenckes, Judge. Affirmed.

Messrs Jennings & Strouse, for Appellant.

Messrs Alexander & Christy and Mr. Hess Seaman, for Appellees.

OPINION

ROSS, J.

This action is an effort to subject assets in the name of the Silver King Mines, Inc., to the payment of a judgment in favor of appellant, Kendall, against the Silver King of Arizona Mining Company, upon the theory that the managers and stockholders of the latter company caused all of its assets to be transferred to the former without consideration and for the purpose of hindering, defrauding and delaying creditors of the latter.

The Silver King Mines, Inc., demurred to the complaint for insufficiency of facts. The demurrer was sustained, and judgment dismissing the complaint was entered thereon. The appeal is from the order sustaining demurrer and from the judgment of dismissal. The question presented, therefore, is as to whether the complaint states facts sufficient to constitute a cause of action in favor of the plaintiff.

The amended complaint set out, in substance, the following facts That plaintiff is a judgment creditor of the Silver King of Arizona Mining Company in the sum of $20,000 for personal injuries sustained while working for said company in its mines on September 12, 1919, having obtained judgment January 18, 1922; that the Silver King of Arizona Mining Company was organized May 4, 1916, by A. W. Hildebrand, Walter F Ainsworth, John Doe and John Doe, who held the controlling interest in the company, and managed and controlled its business and affairs, elected and controlled its officers and directors; that they on June 6, 1919, caused said company to execute to the Empire Trust Company a mortgage on all of its properties to secure a purported bond issue in the sum of $500,000, and caused to be issued to themselves bonds in the sum of $290,000, without consideration, and for the purpose of enabling themselves to regain title to the said property in case the company should become in its operations indebted; that on July 6, 1920, G. S. Cunningham, assignee of certain claims (amounting to $11,000) against the Silver King of Arizona Mining Company, instituted an action in the superior court of Gila county against said company, the Empire Trust Company, Bertram Electric Company, John Fowle, receiver, and Edward Kendall, the present plaintiff; that said Hildebrand, Ainsworth, and John Does in said action caused the Empire Trust Company to file a cross-complaint foreclosing said mortgage securing the purported bond issue; that cross-complainant obtained judgment for $334,063.54, and decree of foreclosure under which the property of said Silver King of Arizona Mining Company was sold by a special master in chancery to said Walter F. Ainsworth for $250,000, $7,027,79, the actual cost of litigation, being paid in money, and the rest in the bonds of said company; that thereafter sale was confirmed, and a certificate of sale was issued to said Ainsworth, who assigned same to defendant, Silver King Mines, Inc., in consideration of stock in the latter company; that Hildebrand, Ainsworth, and John Does transferred their bond to said Silver Mines, Inc., in exchange for its stock, for the purpose of enabling it to acquire property without the payment of any money except the actual cost of litigation, and for the purpose of hindering, delaying and defrauding creditors, and especially the plaintiff; that said Hildebrand, Ainsworth, and John Does, on September 19, 1921, organized the Silver King Mines, Inc., for the purpose of acquiring the property of the Silver King of Arizona Mining Company, and that the former company is simply a continuation of the latter, with the same stockholders owning and controlling the majority of the shares of stock of each company; that the whole transaction was fictitious and a scheme upon the part of the named officers and stockholders to protect their interests and defraud plaintiff and other creditors.

It is elementary that a demurrer admits the truth of everything well pleaded. For the purpose of deciding the question of the sufficiency of the amended complaint we must therefore assume the truth of the allegations to the effect that the bonds of the old company were issued to Hildebrand and others without consideration and for the purpose of affording them the means of evading and defeating debts incurred by said company in its operation of its mines by using said bonds as evidence of superior equities and interests in the property of said company as against general creditors, when, and if, the necessity should arise.

Assuming that as a settled fact, what was done was in aid of a preconceived purpose, scheme, or plan, and amounted to a mere reincorporation or reorganization of the Silver King of Arizona Mining Company. In such case, under the rule as laid down in Valley Bank v. Malcolm, 23 Ariz 395, 204 P. 207, and Peabody Cons. Copper Co. v. Maier, 20 Ariz. 370, 181 P. 177, the Silver King Mines, Inc., would doubtless be liable for plaintiff's debt. In the former case we quoted from American Ry. Express Co. v....