McIntyre v. Ajax Mining Co.

• Decision Date: 16 October 1899
• Court: Utah Supreme Court
• Parties: SAMUEL McINTYRE, APPELLANT v. THE AJAX MINING COMPANY, RESPONDENT

60 P. 552

20 Utah 323

SAMUEL McINTYRE, APPELLANT v. THE AJAX MINING COMPANY, RESPONDENT

Supreme Court of Utah

October 16, 1899

Appeal from the Third District Court, Salt Lake County, Hon. Ogden Hiles, Judge.

Action to recover a certain sum on an assigned claim alleged as preferred before certain other indebtedness. From a judgment for defendants, plaintiff appealed.

Affirmed.

Messrs Brown & Henderson, P. J. Daly, Esq., and Messrs. Moyle, Zane & Costigan, for appellant.

While it is unquestionably true that pools and combinations between stockholders may be made for the purpose of electing a board of directors that will carry out a particular policy in the conduct of the affairs of the company and that such combination is legal, yet when there is such a combination that combination is charged with the utmost good faith to the minority stockholders, and the combination itself assumes all the liabilities and responsibilities pertaining to the corporation itself, for they have assumed its management and control and each member in it is charged with all the duties liabilities and disabilities that would pertain to a director of the company, or that pertains to the company itself. Miner v. Bell Ice Company. 93 Mich. 97, S.C. 17 Law R. 412.

Although stockholders are not partners, nor strictly tenants in common of the corporate property, having an interest and power of legal control in exact proportion to their respective amounts of stock. The corporation itself holds its property as a trust fund for the stockholders who have a joint interest in all its property and effects, and the relation between it and its several members is, for all practical purposes, that of trustee and cestui que trust. Peabody v. Flint, 6 Allen, 52, 56; Hardy v. Land Co., L. R. 7 ch. App. 427; Stevens v. Railroad Co., 29 Vt. 550.

When several persons have a common interest in property, equity will not allow one to appropriate it exclusively to himself, or to impair its value to the others. Community of interest involves mutual obligations. Persons occupying this relation towards each other are under an obligation to make the property or fund productive of the most that can be obtained from it for all who are interested in it; and those who seek to make profit out of it at the expense of those whose rights in it are the same as their own are unfaithful to the relation they have assumed, and are guilty, at least, of constructive fraud. Jackson v. Ludling, 21 Wall. 616, 622; Story Eq. Sec. 323.

The measure of duty, care, fidelity and disability, pertaining to directors, pertains also to the pool or combination controlling the stock. Oil Co. v. Marbury, 91 U.S. 587.

As to the right of the plaintiff to maintain this suit it is shown that he made every effort possible to get the directors to bring the action and they refused. Under such circumstances a stockholder has the right to bring the action in the right of the company making the company a party defendant. Hawes v. Oakland, 104 U.S. 450; Thompson on Corporations, Sec. 4479.

But where the defendants are stockholders or members of a pool or combination controlling the majority of the stock and they are charged with fraud the action may be brought in the right of the corporation by a stockholder making the company a defendant without any demand. Miner v Ice Co., supra, and cases there cited.

Messrs. King, Burton & King, Messrs. Dey & Street, and Messrs. Powers, Straup & Lippman, for respondents.

Under the repeated decisions of this court, the decision of the trial court must be affirmed.

The case was regularly tried before a court of chancery and facts were clearly and fully found upon every issue.

Under such circumstances "The appellate court will not disturb such findings unless they are so manifestly erroneous as to demonstrate some oversight or mistake which materially affects the substantial rights of the appellant." McKay v. Farr, 15 Utah 261; Stahn v. Hall, 10 Utah 400; Mining Co. v. Haws, 7 Utah 515; Dooly Block v. Transit Co., 9 Utah 31; Whitesides v. Green, 13 Utah 341.

Surmise, suspicion, misstatements of facts, and extravagant unsupported cries of fraud and collusion, surely cannot avail against the defendant in this case, and constitute no basis for the interference of a court of equity. Fraud cannot be presumed from mere suspicious circumstances. Ensign v. Fisher, 14 Utah 477.

BASKIN, J. BARTCH, C. J. and MINER, J., concur.

OPINION

BASKIN, J.

The plaintiff who is the appellant, in his complaint alleges, as a second cause of action that "on February 1st, 1895, one Frank Salisbury sold and conveyed to defendant an undivided half interest in the Champlain No. 2, and Fraction Mining claims, for the sum of $ 17,000, which sum defendant agreed to pay Salisbury. That on May 1st, 1895, for a valuable consideration, Salisbury sold and assigned his said claim for said amount to one H. M. Ryan; that on or about September 6th, 1895, Ryan, for a valuable consideration sold and transferred to plaintiff $ 6,010 of the said $ 17,000 claim, and defendant was immediately informed of the assignment and transfer, and accepted the same, and promised and agreed to pay it."

The answer "admits that Salisbury sold and attempted to convey the property mentioned, and promised to give a perfect title, but failed to carry out said agreement and to convey the property so agreed. Denies that the defendant agreed to pay Salisbury $ 17,000, or any amount, but admits that it promised to pay him, on condition that the title to said property was clear and free from all incumbrances; that the title was perfect and that no suit or controversy affected it, and also that said amount nor any part of it should be paid until certain debts and obligations, aggregating a large amount, should be paid off and discharged, which said conditions, it alleges have not been complied with. Admits that Ryan sold and assigned $ 6,010 of the claim, but alleges that in the transaction McIntyre acted as the agent of the defendant and holds the said claim in behalf of the defendant.

The answer further alleges that certain misrepresentations were made by said Salisbury with reference to the property, upon which defendant relied. Also alleges that certain expenses incurred in attempting to perfect the title would have to be first deducted from the amount due. That plaintiff was fully aware of the outstanding claims prior to the purchase and knew that before any sum or amount could be paid, various sums, aggregating $ 60,000.00 would have to be first paid by the defendant. That these claims have not been paid, but a large portion of them is due and defendant is as yet unable to pay and discharge them. That there is a contract, which was known to the plaintiff, by the terms of which $ 5,000 of the said $ 17,000 was to be preferred over and above the remaining $ 12,000, and the said $ 5,000 was to bear interest at the rate of eight per cent. And the remaining $ 12,000, to be treated as security for the payment of the said $ 5,000, so preferred, together with interest. That the interest was to be deducted from the $ 12,000, and that before the claim of plaintiff should be paid it would be subject to the interest thus advanced paid upon the said $ 5,000, and would not be due in any event until the $ 5,000 was first paid and discharged."

At the close of plaintiff's testimony the defendant moved for a non-suit upon the following grounds:

"First: That the evidence shows that the claim was not to be paid until it was paid out of the proceeds from sales of ore from the Ajax Mining Company's property; and it has not been shown that any profits have been derived whatsoever from sales of ore out of the Ajax Mining Company's property.

Second: That the claim was not to be paid until other claims aggregating a large sum had been paid, and that it is not shown that these claims have been paid.

Third: That the claim was expressly made subject to the prior payment to Frank Salisbury of $ 5,000, and interest thereon at the rate of eight per cent. per annum, out of the first moneys that became due on the total claim of $ 17,000 as shown by the minutes of May 6th, 1895, and it is not shown that Salisbury has ever received his $ 5,000.

Fourth: It is shown by the evidence that this was a secondary claim provided for in a certain trust deed; that these claims had been protected by reason of assessment that the stockholders had been compelled to pay. A motion seconded by the plaintiff was carried, reciting that the stockholders had been compelled to pay large sums for the purpose of protecting this claim and that the amount so paid by them pursuant to assessment so levied should be refunded before payments were made to the holders of said secondary claims; and that the trust deed states expressly that his was a secondary claim, and amongst the last group of claims that were to be recognized in said trust deed; and it is not shown that these assessments have been refunded. Mr. McIntrye is bound absolutely by this resolution which he seconded himself, and which was the action of the corporation and of the directors, and in the faith of which the assessments were paid." The motion, so far as it relates to the second cause of action, was sustained, and an order was entered dismissing the same. From this order the plaintiff appealed.

In support of the order the respondent insists that the allegations of the complaint, hereinbefore mentioned, "sets forth an express agreement to pay the sum sued for, and that the evidence conclusively establishes a conditional promise to pay when certain defined precedent conditions were fulfilled."

The evidence shows that the said Frank Salisbury, and certain other parties, being desirous of forming a...