Schildberg Rock Products Co. v. Brooks

• Decision Date: 08 February 1966
• Docket Number: No. 51933,51933
• Citation: 140 N.W.2d 132,258 Iowa 759
• Parties: SCHILDBERG ROCK PRODUCTS CO., Inc., Appellee, v. William R. BROOKS and Leslie H. Kinsel, Jr., Appellants.
• Court: Iowa Supreme Court

Page 132

140 N.W.2d 132

258 Iowa 759

SCHILDBERG ROCK PRODUCTS CO., Inc., Appellee, v. William R. BROOKS and Leslie H. Kinsel, Jr., Appellants.

No. 51933.

Supreme Court of Iowa.

Feb. 8, 1966.

Hess, Peters & Sulhoff, Council Bluffs, for appellants.

Smith, Peterson, Beckman & Willson, Council Bluffs, and Swift, Brown & Schaetzle, Des Moines, for appellee.

GARFIELD, Chief Justice.

This is an action in equity by Schildberg Rock Products Co., Inc., formerly Missouri Valley Limeston Co., Inc., to require defendants Brooks and Kinsel, former officers and directors of the corporation, to assign a mineral lease on land obtained by them in alleged breach of their fiduciary duty toward the corporation. Trial to the court resulted in decree as prayed from which defendants have appealed.

Our review, is de novo. Rule 334, Rules of Civil Procedure. However, especially when considering the credibility of witnesses, we give weight to the fact findings of the trial court but we are not bound by them. Authorities for this are unnecessary. Rule 344(f)7, R.C.P.

Missouri Valley Limestone Co., Inc. (herein called Missouri Valley or the company) was engaged in quarrying stone in southwest Iowa, primarily in seven counties. Most of the quarries were on lands leased to Missouri Valley, some on lands it owned. When a quarry was depleted the company would move to another location, preferably one nearby. Some employees under the supervision of Floyd Lewellyn spent most of their time prospecting for new quarries to which operations could be moved when need therefor arose. Leases on land found to have stone deposits that could be profitably mined were then sought or the land was purchased.

One quarry that had been worked extensively was the Snakert quarry near Crescent. North of it were lands of DeWaele on which the company held two leases. Further north was land of Claar, within one and a half miles of the Snakert quarry, in the same area. On October 18, 1963, defendants obtained from Mr. and Mrs. Claar the lease for the quarrying of limestone which the trial court ordered defendants to assign to plaintiff upon its reimbursing them for the $500 they paid the Claars as down payment on the lease.

Herman Snater was president and owned about 92 percent of the stock of Missouri Valley. He had had some 32 years experience in prospecting for and removing limestone deposits in southwest Iowa. Defendant Brooks became associated with the company in November 1957 as office manager. In 1959 or 1960 he acquired 31 or 32 shares of stock--all the stock not owned by Snater--and was elected director and secretary-treasurer.

Defendant Kinsel was employed by Remo, Inc., which was associated with Missouri Valley, in March 1961. Remo was engaged in road construction. In March 1963 he became a director and operations manager of Missouri Valley. There is inconclusive evidence he also held the title of vice-president. As indicated, Kinsel was never a stockholder in Missouri Valley.

Defendants continued as officers and directors from the time each was elected until he formally resigned, effective October 22, 1963, on that day or the day before. In the meantime, on September 30, 1963, defendant Brooks and Snater each granted Schildberg Construction Company, Inc. a written option to purchase his stock in Missouri Valley for $1750 per share. Schildberg exercised this option on October 14. The option agreement provided that if it were exercised the seller would resign as officer and director at the request of the buyer on or before the closing date, October 28, 1963. Defendant Brooks' resignation complied with this provision. After Schildberg's purchase of the stock was consummated the corporate name was changed from Missouri Valley to Schildberg Rock Products Co., Inc.

As might be expected, until Snater also resigned as president and director he directed the prospecting and mining operations of the company and solicited and negotiated leases on quarry sites. He was familiar with the Claar land and directed Lewellyn to drill some at holes in it. This was done early in 1963 and some samples--'core drillings'--were sent to the state highway commission to be tested. Results of the tests were returned to the company on May 20, 1963.

Defendant Brooks first learned of the Claar property, probably from Snater, shortly after Lewellyn and his crew were prospecting there in the spring of 1963. When the company received the results of the tests Brooks saw them. Brooks says that when Snater saw these reports he 'appeared to lose interest in the thing.' Brooks' impression was this was because the reports showed the full ledge of stone would not make 'P. C.' (Portland Cement) aggregate, we assume for road building.

Snater testifies he recalls no conversation, act or record that would indicate the company was not interested in the Claar property; more drilling would be required to determine the character of the ledge of stone there; he fully intended to do it in the fall when the company completed a highway paving job and a bulldozer was available; Lewellyn had told him Claar was willing to lease his property and Snater saw no need for haste. He also says that in negotiating for sale of the stock to the Schildbergs he definitely mentioned the drilling done on the Claar land, told them it was a good potential and suggested they follow through.

Defendant Brooks told Snater 'we would not want a competitor to have the Claar lease' and says it is his impression Snater agreed with him and that it was generally conceded the Claar property was feasible as a limestone quarry and Missouri Valley would not want a competitor there.

Snater testifies the core drillings from the Claar land showed the quality of stone there was about like that in the Snakert quarry; there was ample bottom land on which the dirt above the stone (overburden) could be deposited; good limestone deposits are scarce in southwest Iowa. These facts seem not to be disputed. It may be noted Snater has no apparent financial interest in the outcome of the case.

Claar first met defendant Brooks a month or two before the lease was signed when he went to the company office in Council Bluffs in an unsuccessful attempt to see the report on the samples taken from his land. As Claar went to leave, Brooks came out on the porch and they talked a little longer. Before the lease in question was signed defendants made four or five visits to the Claar home at intervals of five to ten days to discuss the matter. Defendants first introduced themselves to Claar as working for Missouri Valley and said they were interested in obtaining a lease on his property. According to Brooks they said the lease was to be for themselves or a company they planned to organize. Claar testifies he doesn't think defendants specifically told him who they were obtaining the lease for, that they showed him the drilling reports on his farm and he merely glanced at them.

During the negotiations with Claar, Brooks looked at the courthouse records for the location of the property. However, Brooks says he thinks he got from Claar the description used in the lease. (The description also appears in the report of the tests the company received from the highway commission which Brooks saw.) Brooks testifies he prepared the draft from which the lease was finally typed by a company secretary, using as guides part of a company lease and, primarily, a lease used by a paving contractor.

Before the lease was signed one or both defendants asked Lewellyn (in charge of the prospecting crew) about the feasibility of developing the Claar property and the value of a lease on it. Brooks' impression was that Lewellyn's opinion was favorable. All Brooks' knowledge about the Claar land before the lease was signed was obtained from Snater, Lewellyn and the report on the samples.

Snater did not know defendants were negotiating with Claar for a lease. Indeed the only fair inference is that defendants did not inform anyone connected with the company, except perhaps the secretary-typist, or with Schildberg of the negotiations. Two Schildbergs talked to Claar about a lease soon after their purchase of the corporate stock was closed and he told them the lease had already been made. It is also true that defendants were unaware of negotiations between Snater and Schildberg for sale of the corporate stock until about September 30, 1963, when Snater and Brooks granted the stock options.

One fact defendants evidently think important is that on August 21, 1963, the company sold at auction a substantial amount of its equipment, including some used in stripping. Within a week afterwards defendants approached Snater about purchasing his stock in Missouri Valley. Brooks says Snater appeared receptive but no price was ever agreed upon and no sale made.

On the evidece we have summarized the trial court found as facts that defendants were acting officers and directors of Missouri Valley on October 18, 1963, when they obtained the mineral lease from Claar; the company had explored for limestone and drilled testholes in the area and on the Claar land; defendants learned these facts and the results of the drilling from being officers and directors of the company; in their initial contracts with Claar they represented they were working for Missouri Valley; defendants paid $500 for execution of the lease.

As conclusions of law the court held that when the lease was executed and during the negotiations leading to it defendants as officers and directors of plaintiff corporation were in a fiduciary relationship with it; the opportunity to enter into the lease came from their being officers and directors; the opportunity was of the type the corporation was engaged in, was financially able to undertake and would have an interest in; by retaining the opportunity personally the self-interest of defendants was in conflict with plaintiff corporation and it is entitled to the benefits...