Mackey v. Burns

• Citation: 64 P. 485,16 Colo.App. 6
• Parties: MACKEY v. BURNS et al. [1]
• Decision Date: 10 December 1900
• Court: Court of Appeals of Colorado

64 P. 485

16 Colo.App. 6

MACKEY v. BURNS et al. ^[1]

Court of Appeals of Colorado

December 10, 1900

Appeal from district court, El Paso county.

Suit by Alexander P. Mackey against James F. Burns and others to compel them to transfer shares of a corporation back to it for an accounting of dividends, and for an injunction restraining them selling or incumbering the shares, and from receiving dividends thereon. Judgment for defendants. Plaintiff appeals. Affirmed.

L.J. Laws and Daniel Prescott, for appellant.

Thomas, Bryant & Lee (Gunnell & Hamlin and Patterson, Richardson & Hawkins, of counsel), for appellees.

WILSON J.

To properly understand the issues involved and the opinion of this court, it will be necessary to give a somewhat extended statement of the facts, and the importance of the suit justifies it. We shall give only those which are undisputed or are clearly shown by the preponderating weight of the evidence. Several years prior to the occurrences upon which this suit is based, defendants Burns and Doyle, respectively had located, and were the owners of, the Portland and Bobtail No. 2 lode mining claims, in Cripple Creek mining district. Subsequently they had executed and delivered to one T.C Condon an option to purchase said claims at a stipulated price. In furtherance of this, Condon and his associates, in January, 1894, organized and incorporated the Portland Gold-Mining Company, one of the defendants herein. Its capital stock was $3,000,000, divided into 3,000,000 shares of the par value of $1 each. In exchange for the entire capital stock of the company, fully paid, Mr. Condon and his associates transferred to the corporation the option upon the Portland and Bobtail No. 2, together with other options, agreements, leases, and contract rights affecting other mining claims in the vicinity. Shortly thereafter, the promoters of the company being unable to perfect the purchase of the two claims mentioned, it was agreed that the owners thereof should convey the properties to the corporation upon the receipt of 834,000 of its shares. This agreement was carried into effect, and contemporaneously therewith, or very shortly afterwards, Mr. Condon donated to and turned back into the treasury of the company 1,000,000 of its shares, to be used in the acquisition of other properties, and possibly also for development. Prior to the location of the Portland and Bobtail No. 2, other locations had been made, which covered nearly all of the ground embraced within the exterior boundaries of these two claims. Among these were the Anna Lee, Doubtful, Scranton, Queen of the Hills, Vanadium, Hidden Treasure, Captain, and White House. A subsequent conflicting location was the Baby Ruth. The plaintiff owned an interest in the Queen of the Hills, Hidden Treasure, Vanadium, and Baby Ruth. Only about one-sixth of an acre of the Portland mine, in which alone of the two claims mineral had been discovered, was free from conflict with some of the claims mentioned, and at the time of the occurrences hereinafter mentioned the company was enjoined from working this. Between these conflicting claims and the Portland Company a large number of adverse suits--some 15 or 20--were pending in court, besides a large number of other suits asking injunctive and other relief. Early in April, 1894, defendant Stratton, individually and upon his own account, purchased the Scranton claim, one of the principal claims which conflicted with the defendant company, for $30,000, and also, for the sum of $12,000, purchased a lease upon one of the other claims and a segregated portion of the Hidden Treasure claim. At this time the four individual defendants and one Horace K. Devereux constituted the board of directors of the Portland Company. The company was then without a dollar in its treasury, with no credit, and its stock of no market value,--in fact of no value, except a mere speculative one. About this time, also, to further the interests of the company, and assist in relieving it from the difficulties in which it was involved, Mr. Stratton and Mr. Devereux turned into the treasury of the company of their own individual holdings 600,000 shares, to be used with that which had previously been turned in for the purpose of settling the litigation of the company and acquiring conflicting properties. Such was the condition of affairs in April, 1894, when the defendants Burns, Harnan, Doyle, and Stratton entered into negotiations with the plaintiff and his associates, owners of the Queen of the Hills, the Hidden Treasure, the Vanadium, and the Baby Ruth lode claims, for the outright purchase thereof. This culminated in a contract of purchase and sale, and on April 16, 1894, the plaintiff and associate owners of these claims executed and delivered a deed conveying the claims to the four individual defendants. At the same time the following so-called "agreement," in writing, was prepared at the suggestion of plaintiff, and signed by all parties, purchasers and sellers. "This agreement, made and entered into this 10th day of April, A.D.1894, by and between Charles J. Cover, W.L. Fyffe, H.L. Pigg, A.P. Mackey, L.W. England, and W.S. Montgomery, parties of the first part, and W.S. Stratton, James F. Burns, John Harnan, and James Doyle, parties of the second part, witnesseth: That the said parties of the first part agree to forthwith convey to the said parties of the second part the Queen of the Hills lode mining claim, the Hidden Treasure lode mining claim, and the Baby Ruth lode mining claim, situate in El Paso county, state of Colorado; in consideration whereof said parties of the second part agree to pay to the said parties of the first part for said premises said $21,000 in cash, executing notes in the sum of fifteen thousand dollars, due August 1st, 1894, and further agree that within five days from the date hereof they will deliver to said parties of the first part one hundred and fifty thousand shares of the capital stock of the Portland Gold-Mining Company, as follows: Charles J. Cover, 26,409 shares; W.L. Fyffe, 26,408 shares; H.L. Pigg, 22,183 shares; A.P. Mackey, 37,500 shares; L.W. England, 18,750 shares; and W.S. Montgomery, 18,750 shares. And said parties of the second part further agree that within five days from the date hereof they will cause to be conveyed to the Portland Gold-Mining Company all the mining claims herein to be conveyed to the parties of the second part; also the Scranton lode mining claim, situated in El Paso county, state of Colorado." It will be observed that this agreement embraced the Scranton claim, theretofore purchased by Stratton individually, and in which plaintiff and his associates never had any interest. On the following day--April 17th--a meeting of the directors of the Portland Company was held, at which all were present. At this meeting there were considered terms upon which these individual defendants should convey the property which they had purchased to the defendant company. The company having nothing which it could give in exchange except stock, that was the only question which seems to have been considered. Various suggestions were made as to the price at which the stock should be taken by the parties, the highest being that suggested by Mr. Stratton, namely, 8 cents per share. Mr. Devereux, however, who was not interested in the original purchase, and who, it is claimed, represented the absent stockholders, who were only few in number, finally suggested that if the parties would take the stock at 12 1/2 cents per share, it would be satisfactory to him and the other stockholders. This was agreed to, and thereupon, upon motion of Mr. Devereux, a resolution was unanimously adopted providing for the issuance to the four individual defendants of 704,000 shares of stock in lieu of cash paid for the property purchased by the four individual defendants, as evidenced by the agreement above referred to, together with the Scranton lode and the other individual holdings of Stratton, to which we have also referred; and also the issuance of 150,000 shares of stock, which they had agreed to give to the plaintiff and his associates in part payment for the property purchased from and conveyed by them. Thereupon the four defendants conveyed the property to the defendant corporation, and thereafter and subsequently the stock provided for in the resolution was issued to them, except that the 150,000 shares of stock to be given to the plaintiff and his associates were issued on April 19th directly to them, instead of being first issued to the four individual defendants, and being by them transferred. The plaintiff challenges the legality of so much of this transaction as directed the issuance of 704,000 shares to the individual defendants, and brings this suit to compel them to transfer and replace into the treasury of the company all of said shares; also that an account be taken of the amount of dividends which had been paid to the defendants on account of said shares, and to compel the payment to plaintiff of the amount of such dividends that were properly due to him; also asking for a temporary injunction restraining said defendants from selling or disposing of or incumbering the said shares of stock so received by them; and also restraining them from receiving, and the defendant company from paying, any dividends on said 704,000 shares of stock. Additional pertinent facts will be referred to during the course of this opinion. Judgment was for defendants, and plaintiff appeals.

Counsel for plaintiff very properly summarize their objections and their position as follows: (1) That the act complained of was wholly unauthorized and void; (2) that it was fraudulent as to the shareholders of the Portland Gold-Mining Company; (3) that, if...