Virginia C. Mining, Milling & Smelting Co. v. Clayton

• Decision Date: 11 July 1921
• Docket Number: No. 21721.,21721.
• Citation: 233 S.W. 215
• Court: Missouri Supreme Court
• Parties: VIRGINIA C. MINING, MILLING & SMELTING CO. v. CLAYTON.

233 S.W. 215

VIRGINIA C. MINING, MILLING & SMELTING CO. v. CLAYTON.

No. 21721.

Supreme Court of Missouri, Division No. 1.

July 11, 1921.

Rehearing Denied July 23, 1921.

Appeal from St. Louis Circuit Court; J. Hugo Grimm, Judge.

Bill by the Virginia C. Mining, Milling & Smelting Company against James W. Clayton. From judgment dismissing the bill, both parties appeal. Judgment affirmed.

Sturdevant & Sturdevant, of St. Louis, for appellant.

Marion C. Early, of St. Louis, for respondent.

George H. Williams, of St. Louis, amicus curiæ.

GRAVES, J.

Action in equity, the particulars of which will more fully appear from an outline of the facts. Upon the completion of the issues in the lower court, Hon. Charles W. Bates was appointed as referee. Such referee took and reported the evidence, together with his findings of fact and conclusions of law. Both parties filed exceptions to the report of the referee, but the trial court overruled such exceptions, and entered judgment against plaintiff dismissing its said bill in equity, and adjudging against it the costs of the proceedings. Both sides moved for a new trial, and, these motions being overruled, both sides appealed. The points of difference had best be left to the opinion. Pleadings and facts can well be outlined together.

In the fall of 1905, Gonzales and two other Mexicans owned what is known as the Hidalgo mine, in the state of Chihuahua, Mexico. These owners had given Clayton (defendant herein) an option to sell the same for them. Clayton interested one Phil Chew of St. Louis, Mo., who sent Thomas B. Rains to Mexico as his agent. On or about November 1. 1905, Rains, then in Mexico, as agent for Chew, paid $5,000 in Mexican money to hold the option, and to apply upon the purchase price, if the sale was consummated. The contract was taken in the name of Rains, acting for Chew as aforesaid.

In December Chew and certain associates organized the plaintiff company under the laws of Arizona. The purpose was to have such company take over the Mexico property. Clayton was made one of the incorporators, or was mentioned as such, although it appears that he had no knowledge of the fact at the time. It appears that Rains (agent of Chew) had an understanding that Clayton was to have $10,000 in Mexican money by way of commission on the sale of the property, and in addition to have one-eighth of the stock of the company organized to take over the property. The $10,000 commission was to be paid in three installments, just as the purchase price was to be paid. This price was $50,000 in Mexican coin. The original directors in plaintiff's company, as named in the article of association, were Chew, Clayton, Rains, Harris, and Straat. The actual incorporators were Chew, Rains, and Harris. After the organization of plaintiff corporation a resolution was passed authorizing and directing the purchase of the Hidalgo Mine from Rains, in return for the issuance to Rains of all the $1,250,000 share of stock, except four qualifying shares. In January following Straat and Harris resigned from the directorate, and Candy and Stevens took their place, Chew, Rains, Candy, and Stevens then went to Mexico, where they were advised that it would be better to organize a Mexican corporation to take and hold the title to the mine. Accordingly a Mexican corporation, named Virginia C. Mining, Milling & Smelting Co., of Chihuahua, was organized with a capital stock of $10,000 Mexican money, said stock being divided into 10 shares of $1,000 each.

The incorporators were Chew, Rains, Clayton, Stevens, and Candy. Chew was made president, Rains, vice president, and treasurer, Clayton, second vice president, and Candy comisario. It seems that there are two kinds of corporation stock in Mexico, i. e., registered stock, which can only be transferred and registered on the books of the company, and the other so made that title would pass by mere delivery. The stock in this Mexican corporation was of the latter character.

Upon the organization of the Mexico corporation, the Hidalgo mines were transferred to it for $50,000 Mexican money, payable one-third in cash, and the remainder in two equal annual payments, due in one and two years. If payments were not made there was a forfeiture under the deed. The 10 shares of stock were turned over to Chew, who held them in St. Louis, Mo. These 10 shares, with the knowledge of all parties, were to be the basis for the capitalization of the plaintiff company, and the plaintiff company was to operate the mine, which it did for a time out of money obtained by the sale of plaintiff's stock, and it was further understood that the mine was to be paid for out of sale of plaintiff's stock. Plaintiff's stock was of the par value of $1 per share, and there were 1,250,000 shares. The first payment was made in cash, and the second payment was duly met, but when the time for the third arrived there was trouble getting the money. The panic of 1907 was on at that time. After sundry efforts it devolved upon Clayton to further finance the plaintiff. This he would not do without having delivered to him 6 of the 10 shares of the Mexican corporation. Clayton wanted the title so that he could control it, in the event he had to take the property for the money he was to advance, and he wanted this title in Mexico, and not elsewhere. He demanded that 6 of the 10 shares of the Mexican company, then held by plaintiff company, be turned over to Dale Bros. at Chihuahua, Mexico. Finally Chew sent the 0 shares to Rains, who was there for the purpose of arranging for the loan from Clayton, and Rains, as the vice president and treasurer of the Mexican corporation, executed and delivered to Clayton the note of said Mexican corporation for $24,378.65, Mexican money, due July 14, 1908, and this note was secured by the deposit with Dale Bros. (whose company was the Chihuahua Investment Company) of the 6 shares of stock, with the understanding that if the note was not paid after one extension of 6 months the stock was to be delivered to Clayton and become his property. The note was not paid at its maturity, nor after two 6 months' periods had elapsed. Clayton paid the remainder upon the property, and the balance due himself on commission, which aggregated the face of the note aforesaid. During this time Chew was president and Rains was vice president and general manager of plaintiff company. In fact the two were in control of both companies, having the same name but organized in different territory. The pledge of the Mexican corporation stock had not been specifically authorized by the board of directors of plaintiff, although Chew, Rains and Clayton were on that hoard, and of course knew all the facts.

Whilst plaintiff was the operator of the mine up to about January, 1910, the venture had not proven profitable. Chew died in March, 1909, and was succeeded by L. Vaugn Clark, but Clark left St. Louis, and seems to have had little to do with the company. In June, 1909, it was discovered by the Board of Directors that Chew had pledged these 6 shares of stock in the Mexican company to Clayton, and that he had sold large quantities of stock, some of which had not been accounted for by him to the company; at least, the corporation claimed some $18,000 due from Chew.

Drifting backward a little, it appears that after two 6 months' extension periods had expired, and the Clayton note remained unpaid, Dale Bros. turned over the 6 shares of stock in the Mexican corporation to Clayton. Clayton, as vice president, then called a meeting of the stockholders of the Mexican corporation for January, 1910, and gave notice thereof. At the meeting, Clayton, who had transferred some of his shares to apparent friends, was elected president, and the Mexican corporation took over the operation of the mine, under the supervision of Clayton. It might well be here noted that by due action of plaintiff's board of directors the other 4 shares were pledged to secure funds with which to pay up debts owing by the mine, under the operation thereof by plaintiff, and these shares ultimately turned up in the hands of Rains.

Under the management of the Mexican corporation the property seems to have reached a paying basis, and dividends were declared and paid. The referee finds, and the evidence tends to show, that Clayton in good faith thought himself to be the owner of the 6 shares of stock, and further, that all the active persons upon the board of directors of plaintiff company treated him as owner; that the said board were fully advised of the pledge in June, 1909, and authorized a repledge, which was not carried out. His ownership was not questioned until some time in 1913, when, by his efforts, the property has been put upon a dividend paying basis, and had of course advanced in value. The prayer of plaintiff's petition reads:

"Wherefore, the premises considered, plaintiff prays for an order restraining and enjoining the defendant from selling, hypothecating, or in any other manner making way with the 6 acciones, and from selling, transporting, or in any manner disposing of, pledging, or converting to his own use the said ores and products of said mines, or from interfering with plaintiff's control and management of said mines pending this action; and that defendant be restrained and enjoined from holding or attempting to hold any meeting of stockholders of said Mexico corporation by virtue of his possession and claim of ownership of said 6 acciones and from voting, causing or permitting same to be voted while thus in his possession and control at any meeting or attempted meeting of said Mexico corporation, pending the final termination hereof; that defendant be required to answer herein and state fully the amount of money received by him from said mines as aforesaid, or from any source which would be subject under the orders of this court to be applied to the discharge of such indebtedness, and to state any balance still...