Smith v. Maya Corporation

• Decision Date: 18 May 1933
• Docket Number: 8 Div. 437.
• Citation: 227 Ala. 6,148 So. 621
• Parties: SMITH v. MAYA CORPORATION.
• Court: Alabama Supreme Court

148 So. 621

227 Ala. 6

SMITH v. MAYA CORPORATION.

8 Div. 437.

Supreme Court of Alabama

May 18, 1933

Appeal from Circuit Court, Marshall County; A. E. Hawkins, Judge.

Bill in equity by W. L. Smith against the Maya Corporation and others, and cross-bill by the named respondent. From a decree overruling a demurrer to the cross-bill, complainant appeals.

Affirmed.

That cross-bill sought cancellation of contract to which it was not party did not render cross-bill demurrable, where cross-bill stated equities and prayed proper relief.

The substance of the original bill is that Smith was, on January 1, 1926, the owner of practically all of the capital stock of certain corporations, made parties respondent, and designated as the "Seven Companies." The Seven Companies were owners of large quantities-some 350,000 acres-of mineral interests in lands situated in the counties of Jackson, De Kalb, Marshall, Cherokee, and Etowah. The title of the Seven Companies to certain of the lands was clear, to others it was good but not clear, to some the title was doubtful, and to others probably substantially defective. At the time it was not known just what land would fall into the several classifications, and this has never been definitely ascertained. On January 1, 1926, complainant and J. S Cullinan (party respondent), after conferences and negotiations, entered into a contract, a copy of which is made exhibit to the bill. By the terms of this exhibit it was agreed that Cullinan should form a corporation, to be known as the Alabama Development Company, or the Maya Corporation known as the holding company for the purpose of purchasing the mineral lands owned by Smith and the Seven Companies. Cullinan agreed to transfer to the holding company all outstanding stock in a Texas and an Arizona corporation, to pay all outstanding indebtedness, to the extent of $447,000 against the Seven Companies by April 10, 1926, and was to receive certain shares of stock, in the holding company. Smith agreed to transfer to the holding company all outstanding stock in the Seven Companies owned or controlled by him, and should receive in return certain shares of stock (two-fifths) in the holding company and in addition a stated price per acre for all mineral land or mineral rights owned by him and the Seven Companies, when and as title to said acreage was approved and the acreage conveyed; abstracting to be done and paid for by Smith. It was further agreed that Smith should have management of the Alabama holdings for a stated period and should receive stated allowances as salary and expenses.

It is further alleged that pursuant to the contract the Maya Corporation was organized, stock in the Seven Companies transferred to it, and stock in the Maya Corporation issued to Smith; that Smith entered upon the management of the Alabama holdings and for a time received the agreed allowances as salary and expenses; that Cullinan paid a part of the indebtedness of the Seven Companies, but has failed and now refuses to pay all such indebtedness; that about November 1, 1926, Cullinan and Coppinger (another of the respondents) represented to complainant that for business reasons it would be prudent for him to resign as president of each of the Seven Companies and for Coppinger to be elected as such; that complainant consented to the suggestion resigned, and Coppinger was elected; that thereafter, in December, 1926, Coppinger and Cullinan caused pretended deeds of conveyance to be executed by the Seven Companies to respondent Cherokee Mining Company, purporting to convey to it all mineral interests which the Seven Companies then or had ever claimed and also included lands to which said companies had never set up claim; that prior to the execution of these deeds no duty had devolved upon complainant, under the contract, of furnishing abstracts of title and no request had been made of him to furnish same. It is averred that it was a violation of the contract for Cullinan to cause said mineral interests to be conveyed to Cherokee Mining Company in which complainant owned only a nominal interest but which was owned practically in toto by Cullinan and Coppinger, instead of to Maya Corporation, in which he owned a substantial interest; that such conveyances were not bona fide sales and purchases, were made for the purpose of defrauding complainant, but said Cherokee Mining Company still holds the deeds so executed and asserts some sort of claim or interest in the mineral rights; that Cherokee Mining Company is a trustee in invitum for the purpose of carrying out the contract between complainant and Cullinan.

Respondent Maya Corporation filed answer and cross-bill, making Smith and others defendants thereto. It is alleged that Smith was the principal stockholder in the Seven Companies, and either he or his family, subject to his control and for his account owned all the stock in each, so that he was in absolute control of each and each had been organized or purchased by Smith, and he was fully cognizant of their titles and affairs; that in the early part of 1926 Smith entered into negotiations with Cullinan, looking to consolidation of the lands claimed by him and the Seven Companies with lands previously acquired by Cullinan, or for the sale thereof or the stock of said companies, representing to Maya Corporation's agent, Cullinan, that he and his corporations owned and could make delivery of mineral lands to the extent of 354,000 acres or more, and that the lands were free and clear of liens except as stated; that in March, 1926, Smith made known to Maya Corporation that the situation confronting his interests was emergent, in that claims or liens against same had matured and must be settled promptly; that Maya Corporation was without information as to the condition of the companies, their assets and acreage and those owned by Smith, or the debts or obligations likely to affect the transfer of a clear title other than as stated by Smith; that on or about March 24, 1926, relying on the representations made by Smith, Maya Corporation agreed with Smith, subject to approval of legalities and closing details by its counsel and representatives, to purchase the Smith holdings, represented by Smith to be not less than 337,000 acres, free and clear except for current taxes and other items stated; that on this basis Maya Corporation agreed to pay to Smith or for his account the amount necessary to take up or discharge the obligations scheduled by him and agreed also to lend him a sum of money, the total aggregating $315,000, which sum Maya Corporation paid to or as directed by Smith on April 10, 1926; that the agreement further contemplated that Smith should receive two shares of preferred stock in Maya Corporation for each hundred acres of land turned in by him or through delivery of his companies to which title would, on abstracting at the cost of Smith, be accepted by Maya Corporation or its representatives, and agree to issue a proportionate amount of common stock to Smith. It is alleged that in April, 1926, Smith caused the transfer of stock in his companies to be made to Maya Corporation and delivered and caused to be delivered to it deeds purporting to convey acreage in excess of the minimum represented by him; that, finding the abstracting would require much time and might interfere with purchases in the area, Maya Corporation, without awaiting the results of the abstracting and relying upon the representations of Smith, caused shares of stock to be tentatively issued to him in the aggregate of 5,000 preferred and 2,000 common. It is further averred that in the fall of 1926 it was ascertained that certain of the lands supposedly turned in by Smith were apparently owned by others, and other differences developed with Smith; that then, for the first time, Maya Corporation was made aware that the facts as stated by Smith as to the obligations of his companies were not true, and as claims against the companies or the management thereof were apparently being inspired by Smith, Maya Corporation caused conveyances to be executed transferring all of the lands in question, so far as owned, to its subsidiary Cherokee Mining Company, all of the...