Tegarden v. Big Star Zinc Co.

• Decision Date: 07 March 1903
• Citation: 72 S.W. 989,71 Ark. 277
• Parties: TEGARDEN v. BIG STAR ZINC COMPANY
• Court: Arkansas Supreme Court

72 S.W. 989

71 Ark. 277

TEGARDEN v. BIG STAR ZINC COMPANY

Supreme Court of Arkansas

March 7, 1903

Appeal from Marion Circuit Court in Chancery, ELBRIDGE G. MITCHELL Judge.

Affirmed.

Decree affirmed.

S. W Woods and J. C. Floyd for appellants.

Fraud is never presumed, but must be proved. 11 Ark. 378; 38 Ark 419; 17 Ark. 151; 20 Ark. 216; Beach, Mod. Eq. Jur §§ 71-2; 10 Bush (Ky.), 519. Notice to a director of a corporation is notice to the corporation. 1 Pet. 309; 4 Paige, Ch. 127. As is also notice to an agent. 1 Mor. Private Corp. §§ 229, 540; 36 Am. Dec. 186; 8 F. 1. Any facts that may come to the knowledge of an agent of a corporation sufficient to put a prudent person on notice are sufficient to charge the corporation. 23 Ark. 744; 32 Ark. 251; 58 Ark. 84, 446; 49 Ark. 336; 52 Ark. 11.

W. F. Pace and Frank Pace, for appellees.

If at the time of the purchase the parties occupy a fiduciary relation to the future company, they can make no profit out of the purchase and sale. 1 Beach, Mod. Eq. Jur. § 134; 2 Cook, Corp. § 651; 107 F. 340; 52 L. R. A. 724; 1 L. R. A. 664; 148 N.Y. 471.

OPINION

BATTLE, J.

On the 5th day of February, 1900, Tegarden Bros. commenced a suit in equity in the Marion circuit court against the Big Star Zinc Company, H. M. Bardeen, and Merle McFarland, and alleged in their complaint therein substantially as follows: That they are a firm composed of W. S. Tegarden, R. B. Tegarden and B. F. Tegarden, formed for the purpose of doing a general real estate and mining business in Marion county, in this state. That the Big Star Zinc Company is a corporation organized under the laws of the state of Connecticut, and is doing business in the state of Arkansas. That, on or about the 4th day of October, 1897, H. M. Bardeen, being the owner of the possessory right to certain mineral lands in Marion county, authorized them, Tegarden Brothers, to sell the same for $ 2,000, and agreed to pay them for selling all for which they sold the same above that amount. That hereafter Merle McFarland, representing that he could be of assistance in making a sale, proposed to aid them, provided they would divide the profits with him; that plaintiffs accepted the proposition; and that afterwards they, plaintiffs and McFarland, sold the lands to the defendants, Big Star Zinc Company, at and for the price of $ 5,000, of which $ 3,000 was to be paid in cash, and the remainder of $ 2,000 one year after day of sale. That the $ 3,000 were paid, and the Big Star Zinc Company executed to Bardeen its note for the $ 2,000, and six per cent. per annum interest thereon, due and payable one year after the 4th day of April, 1898. That it was agreed by and between the plaintiffs and the defendants Bardeen and McFarland that the purchase money should be divided as follows: $ 2,500 to be paid to Bardeen and $ 2,500 to be equally divided between the plaintiffs and McFarland. That plaintiffs have received $ 500, and a balance of $ 750 and interest remains due and unpaid, and was included in the note executed by Big Star Zinc Company to Bardeen. That the defendants, on the 28th of November, 1898, conspired to cheat and defraud them out of the $ 750, and that, in furtherance of their conspiracy, the defendants Bardeen and McFarland surrendered the note to the Big Star Zinc Company, well knowing that plaintiffs owed $ 750 of the note and interest thereon, and that the same had not been paid. That they were a lien on the lands sold for the payment of the amount due them; and they asked for a judgment for that amount, and that the lands be sold to pay the same.

Defendants Bardeen and McFarland failed to answer the complaint. Defendant Big Star Zinc Company answered, and admitted the purchase of the lands from Bardeen and the execution of the note; alleged that they had paid the purchase money, and denied all the other allegations in plaintiffs' complaint.

Upon a hearing of the cause the court dismissed the complaint as to the Big Star Zinc Company, because there was no equity in it, and rendered judgment in favor of the company for costs; and the plaintiffs appealed.

The facts in the case are, substantially, as follows: In the spring of 1896 defendant Bardeen authorized the appellants, Tegarden Bros., to sell certain mineral lands. In the summer of the same year they (appellants) agreed with the defendant McFarland that, if he would assist them in selling the land, they would divide with him the commission received for selling. In the fall of 1896 appellants received a letter from McFarland, saying that he was about to organize a company for the purpose of purchasing the land. He failed in this undertaking. After this, in the spring or summer of 1897, they received another letter from him, saying that he was about to organize a company in the east to purchase. In the latter part of September, 1897, he informed the appellants that he had formed the company. He then saw Bardeen, who agreed to give him the privilege of purchasing the land at the price of $ 2,000, and, for a specified consideration, gave him six months in which to make the purchase. Thereafter, on or about the 6th of October, 1897, McFarland and Bardeen entered into a contract in writing by which Bardeen, for a valuable consideration, agreed that McFarland should have the option of purchasing the land at any time within six months at the price of $ 5,000. This contract was made with the consent of Tegarden Brothers, but they were not named in it. It was first intended that the option should be given to the Big Star Zinc Company, but its organization was not then complete, and McFarland was substituted.

Outside of the written contract, it was understood and agreed, by and between Bardeen, on one part, and McFarland and Tegarden Brothers, on the other part, that $ 2,000 of the $ 5,000 should be paid to Bardeen for the land, and the remainder should be paid as commissions for selling. Five thousand dollars were named in the written contract as the purchase price, so that persons buying from McFarland and appellants would not know what was paid them for commissions.

After this the organization of the Big Star Zinc Company was completed under the laws of the state of Connecticut. In the progress of its formation McFarland represented to each member that the said lands were valuable, and could be purchased for $ 5,000, and nothing less, and that, if he sold the same, he was to receive ten per cent. commissions for selling. When fully organized, the company, he being a member, authorized him to purchase the lands for it at the price of $ 5,000, which he did. It paid $ 3,000 in cash, and executed its note to Bardeen and McFarland for the other $ 2,000, which were deposited in a bank at Yellville, in this state. The purchase not having been made within the six months, Bardeen demanded $ 2,500, instead of $ 2,000, as his portion of the purchase money, which was conceded. Accordingly $ 2,000 of the money paid were retained by Bardeen, and $ 500 were paid to McFarland, and the same amount was received by Tegarden Brothers, and it was agreed that $ 500 of the $ 2,000 for which the note was given were the property of Bardeen, and that the remainder belonged to McFarland and Tegarden Brothers in equal parts, making $ 750 the portion of Tegarden Brothers.

The Bank delivered the note to the Big Star Zinc Company, it being authorized to do...