Pohlman Inv. Co. v. Virginia City Gold Mining Co., 25397.

• Decision Date: 05 November 1935
• Docket Number: 25397.
• Citation: 51 P.2d 363,184 Wash. 273
• Court: Washington Supreme Court
• Parties: POHLMAN INV. CO. v. VIRGINIA CITY GOLD MINING CO.

51 P.2d 363

184 Wash. 273

POHLMAN INV. CO. v. VIRGINIA CITY GOLD MINING CO.

No. 25397.

Supreme Court of Washington

November 5, 1935

Department 1.

Appeal from Superior Court, Spokane County; John A. Frater, Judge.

Suit by the Pohlman Investment Company against the Virginia City Gold Mining Company. Judgment for defendant, and plaintiff appeals.

Affirmed.

O. C Moore and John E. Blair, both of Spokane, for appellant.

Cannon McKevitt & Fraser, of Spokane (Joseph L. Thomas, of Spokane of counsel), for respondent.

GERAGHTY Justice.

This action was brought by the plaintiff against the defendant for the specific performance of a contract for the sale of defendant's treasury stock, and for an accounting and damages in so far as a remedy by specific performance might be found unavailing. After trial of the cause to the court, judgment was entered dismissing the action. The plaintiff appeals.

Mabelle L. Mallette, being the owner of certain patented mining claims in Montana, in July, 1932, through her son, Walter K. Mallette, as her attorney in fact, made an agreement with appellant, Pohlman Investment Company, designated in the agreement as 'Fiscal Agent,' by the terms of which a corporation was to be organized, under the laws of Washington, at the expense of the fiscal agent, with a capital of $200,000 divided into 2,000,000 shares of the par value of 10 cents each. The agreement provided that upon the organization of the corporation Mrs. Mallette would convey the mining claims to the corporation in full payment of its capital stock, and that she would transfer to the treasury of the corporation 600,000 shares for its use in the development of its properties. It was agreed that appellant, as fiscal agent, should have the exclusive sale of the treasury stock and that the corporation should, after its organization, make a contract with the fiscal agent for the sale of the stock on terms specified in the agreement.

Thereafter, the respondent corporation was organized, its capital stock subscribed by Mrs. Mallette, the mining properties conveyed to it in payment of her stock subscription, and the stipulated number of shares transferred to the treasury. The articles of incorporation provided for a board of three trustees. Walter K. Mallette, Edward Pohlman, and Fred W. Calloway were named in the instrument as the first trustees. Mallette became president; Calloway, vice president; and Pohlman, secretary-treasurer. Edward Pohlman was also president of the appellant Pohlman Investment Company, and the owner of 50 per cent. of its capital stock. J. V. Pohlman, a brother of Edward, was vice president and owner of the remainder of its stock, with the exception of 10 shares held by George Pohlman, a third brother. The brothers, Edward and J. V. Pohlman, transacted all the business of the Pohlman Investment Company.

October 7, 1932, in accordance with the terms of the agreement of July 18, the contract upon which this suit is based was executed by the appellant and respondent, and is as follows:

'This contract, made in duplicate this 7th day of October, 1932, by and between Virginia City Gold Mining Company, a Washington corporation, hereinafter called the 'Company', and Pohlman Investment Company, a Washington corporation, hereinafter called the 'Fiscal Agent,' Witnesseth:

'For and in consideration of the mutual promises hereinafter contained it is understood and agreed between the respective parties:

'I. The Board of Trustees of the Company has heretofore authorized the making of the following agreement and option and it is in accordance with said authority that this agreement is made.

'II. The Fiscal Agent, having heretofore been appointed by the Company as Fiscal Agent, and having rendered services to the Company, in its creation, and having agreed to devote its best efforts towards furthering the sale of the Company's shares, in consideration thereof the Company contracts to sell to the Fiscal Agent its treasury shares, as follows:

'Four Hundred Thousand (400,000) shares, to net the Company Five (5) cents per share, payable as follows:

'One Hundred Thousand (100,000) shares on or Before October 18, 1932;

'Three Hundred Thousand (300,000) shares on or Before January 19, 1933;

'Two Hundred Thousand (200,000) shares more on the following basis:

'One Hundred Thousand (100,000) shares to net the Company Six (6) cents per share; and One Hundred Thousand (100,000) shares to net the Company Seven (7) cents per share.

'Payment for the latter two (2) blocks of One Hundred Thousand (100,000) shares each to be completed within one year from July 18, 1932.

'In witness whereof, the parties have attached their names hereto the day and date above mentioned.

'Virginia City Gold Mining Company

'By Walter K. Mallette

'Its President

'Edw. Pohlman

'Its Secretary

'Pohlman Investment Company

'[Seal.] By J. V. Pohlman'

After the organization of the Virginia City Gold Mining Company, the president, Walter K. Mallette, a mining engineer by profession, devoted his attention in the main to the development of the company's property in Montana. The Pohlman Investment Company, as fiscal agent, had charge of the financial affairs of the company and the sale of its treasury stock; the proceeds from this stock being the resources upon which the progress of development depended. The mining company maintained its offices in the suite occupied by the investment company, for which it paid the latter company a monthly rental. The books and records of the mining company were in the possession of Edward Pohlman, the secretary-treasurer.

The sale of treasury stock moved slowly, and Mellette, by letters and telegrams, urged upon the Pohlmans his pressing need of money to carry on necessary work at the mine. The contract provided for the sale of 100,000 shares by October 18, 1932, and 300,000 shares on or Before January 19, 1933. On October 19, 1932, by resolution of the trustees of the mining company, the time for completing the sales was extended 60 days as to the first block of 100,000 shares, and 90 days as to the 300,000 block. On the expiration of the 60-day extension upon the first block, December 18, 1932, the Pohlmans were in default, having sold considerably less than the required number of shares. Mallette continued to urge his need for money, and shortly Before Christmas returned to Spokane. In Spokane he had numerous conversations with the Pohlman brothers in relation to the affairs of his company, and the raising of needed money by the sale of treasury stock.

On January 21, 1933, at a meeting of the trustees of the mining company, Mallette and Pohlman being present, Calloway, the third trustee, having died, a resolution was adopted canceling the agreement with the Pohlman Investment Company. At the meeting a form of letter to be addressed to the investment company notifying it of the cancellation was approved and directed to be served upon that company. Edward Pohlman, president of the investment company, voted for the motion canceling the agreement, and approved the form of notice to his company. Questioned about this meeting, Mr. Pohlman testified:

'Did Mr. Mallette tell you why he wanted a meeting of the directors? A. Yes.

'Q. What did he say he wanted it for? A. To discuss this contract.

'Q. Did he have to have a meeting of the directors to discuss the contract? A. He had to discuss it Before any action could be taken.

'Q. Tell us what took place when you got into that meeting there? A. Mr. Mallette urged me to join him in cancelling this contract.

'Q. What reason did he give? A. He thought it might be for the best interest of the company.

'Q. Did you agree? A. I agreed, yes.'

Mallette testified that at a meeting with Edward and J. V. Pohlman in the Spokane City Club January 19, 1933, the Pohlmans said they would be unable to produce the money required to fulfill their part of the contract, and that it was necessary for the company to do something else; that he suggested that the best arrangement for the corporation would be to allow the sale of the stock to go ahead and allow Crosby to sell all the stock that he could, and he would reserve the right to divide the stock between them, letting each, as agent, sell whatever he could sell until such time as the treasury requirements were completed. That was the arrangement agreed upon at the City Club at the time. In explanation of the reference to Crosby, it appears that after the preliminary agreement of July 18, the Pohlman Investment Company had assigned to J. J. Crosby a one-third interest in the agreement. Crosby was a member of the staff of the investment company and was expected to take active charge of the sale of the mining company's treasury stock. His connection later became unsatisfactory to the Pohlmans, and they sought Mallette's aid in eliminating him from the position. This, Mallette declined to do, taking the position that Crosby was the problem of the Pohlmans, who had assigned to him an interest in the agreement.

In their testimony, both the Pohlmans denied there had been a meeting at the Spokane City Club Before the adoption of the cancellation resolution, and said the three met at the club after the passage of the resolution, at which time J. V. Pohlman expressed his dissatisfaction with what had been done.

January 23, 1933, the two remaining trustees, Mallette and Pohlman held a meeting at which Bliss Moore was elected trustee to fill the vacancy caused by the death of Calloway. At this meeting,...