Walker v. Southwest Mines Development Co.

• Decision Date: 08 July 1938
• Docket Number: Civil 3900
• Citation: 52 Ariz. 403,81 P.2d 90
• Parties: RALPH H. WALKER, Appellant, v. SOUTHWEST MINES DEVELOPMENT COMPANY, a Corporation; ARIZONA CONSOLIDATED MINING COMPANY, a Corporation; GENERAL SECURITIES COMPANY, a Corporation; W. A. NICKERSON, E. F. YOUNG, F. A. REID, CLAUD B. ANDREWS, FRED FORD, L. B. LeBEL; THE ROYAL AMERICAN CORPORATION, a Corporation; R. O. BARRETT, L. K. LINK, E. C. LOCKLEAR and MARK BRADLEY, Receiver, Appellees
• Court: Arizona Supreme Court

81 P.2d 90

52 Ariz. 403

RALPH H. WALKER, Appellant, v. SOUTHWEST MINES DEVELOPMENT COMPANY, a Corporation; ARIZONA CONSOLIDATED MINING COMPANY, a Corporation; GENERAL SECURITIES COMPANY, a Corporation; W. A. NICKERSON, E. F. YOUNG, F. A. REID, CLAUD B. ANDREWS, FRED FORD, L. B. LeBEL; THE ROYAL AMERICAN CORPORATION, a Corporation; R. O. BARRETT, L. K. LINK, E. C. LOCKLEAR and MARK BRADLEY, Receiver, Appellees

Civil No. 3900

Supreme Court of Arizona

July 8, 1938

APPEAL from a judgment of the Superior Court of the County of Yavapai. Henry C. Kelly, Judge. Judgment affirmed.

Mr. F C. Struckmeyer, Mr. J. Bolivar Sumter, Mr. James E. Flynn and Mr. F. C. Struckmeyer, Jr., for appellant.

Messrs O'Sullivan & Morgan, for appellees.

OPINION

McALISTER, C.J.

This is an appeal from judgments rendered in two cases consolidated for trial in the superior court. The first was a minority stockholders' suit brought by Ralph H. Walker on behalf of the Southwest Mines Development Company, a corporation, himself and all other stockholders therein similarly situated, its purpose being to have the court set aside certain conveyances executed by that company to the Arizona Consolidated Mining Company and to restore the property thus conveyed to the Southwest Company. The second was an action by the assignee of the mortgagee to foreclose certain real and chattel mortgages executed by the Arizona Consolidated Mining Company on the property conveyed to it by the Southwest Mines Development Company, in which Walker, the plaintiff in the first action, intervened. The judgment in each case was against him and he has appealed from both.

The record is voluminous but the following statement discloses the facts necessary to a proper disposition of the appeal. The Southwest Mines Development Company, hereafter referred to as the Southwest, was organized in 1923 by W. A. Nickerson and E. F. Young with a capitalization of 750,000 shares of the par value of one dollar each, and according to its articles of incorporation the general nature of the business to be transacted by it was to acquire, exchange, sell or otherwise dispose of, mortgage and deal in mines, mining claims, mineral lands, coal lands, oil lands, water and water rights and other property, both personal and real, and to operate and develop the same; to purchase or otherwise acquire, erect, operate and sell milling, smelting and other ore reduction works, railways and tramways to lead from the company's principal works;

"to own, purchase, or otherwise acquire and to sell, hypothecate and otherwise deal in shares and securities issued by itself or other corporations, persons or co-partnerships, and to cancel and re-issue its own shares and to vote shares of other corporations;... and in general to do and perform such acts and things and transact such business, not inconsistent with the law, in any part of the world, as the Board of Directors may deem to the advantage of the corporation."

In 1929 these articles were amended in such a way as to provide for a capitalization of 2,000,000 shares of the par value of one dollar each. From the date of its organization W. A. Nickerson had been the president of its board of directors and from 1929 E. F. Young, his sister-in-law, its secretary, and these two officers owned more than two-thirds of its outstanding stock of 1,000,000 shares, the remainder belonging to about one hundred stockholders in and out of the state, the plaintiff and intervener, Ralph H. Walker, of Phoenix, Arizona, being the owner of 12,000 shares. The five persons named by the original articles of incorporation as the board of directors never changed, though following their amendment neither Walker nor the other two, H. V. Young and Albert Oechsler, ever attended its meetings which were of an informal character, or took any part in its deliberations. Nickerson and Young, the secretary, conducted its affairs, the company being in reality the alter ego of the former.

Among its articles of incorporation was this:

"Article X

"This corporation shall have power, at any time, to sell, transfer and dispose of its assets, upon the written consent of the owners of two-thirds of the capital stock then outstanding."

In 1929 the Southwest became the owner of the mining property involved in this action, which is situated in Yavapai county, Arizona, and consists of four patented and thirty unpatented mining claims and four mill sites, together with the machinery, buildings and equipment of every kind located thereon. The value of this property does not appear, but according to the complaint it amounted to several hundred thousand dollars, though in 1932 the Southwest was unable to meet its obligations, Nickerson having written the stockholders that year that the company was about to lose its property, and the minutes of the board of directors under date of June 6, 1932, disclose that the "president stated that this company was confronted with serious financial conditions and that some plan of reorganization or the incorporation of a new company must be worked out."

Three months later, or on September 14th, Nickerson and Young, its president and secretary respectively, incorporation the Arizona Consolidated Mining Company, referred to hereafter as the Arizona Company, with a capital structure similar in all respects to that of the Southwest, a certificate for 10,000 shares being issued to Nickerson at that time. No further action, however, was taken by it that year, but the financial difficulties of the Southwest did not end with the close of 1932; they continued into the next year. The Arizona Power Company secured a judgment against it for $2,073.23 in September, 1933, and was about to sell its property thereunder, and $4,700 in wages were due one Albert Oechsler for nearly four years' work. Faced with this situation, it conveyed to the Arizona Company by a deed dated August 1, 1933, and executed by Young, the secretary, on August 30th and by Nickerson, its president, on December 11, 1933, all its real, and by appropriate instruments, all its personal property, and accepted in exchange therefor approximately one million shares of the Arizona Company's stock, to-wit, 990,000 shares. No one of its stockholders or directors had any knowledge of the transfer or took any part in the negotiations leading to it, other than Nickerson and Young who were also president and secretary, respectively, of the Arizona Company, and who, with Albert Oechsler, an employee of the Southwest, formed its board of directors, and as such took possession of the property conveyed to it by the Southwest.

Before the instruments of conveyance were executed, however, and late in November, 1933, Nickerson went to Los Angeles and sought a loan of $15,000 from the defendants, General Securities Company and the Royal American Corporation, both of that city, and as an inducement to them to advance it informed them that the Arizona Company owned all the property conveyed to it by the Southwest and that this amount would enable him to put the mine in production and constitute a safe loan. As a result of these representations the defendant, Fred Ford, president of the General Securities Company, came to Arizona to look over the property and on December 15, 1933, after he had investigated it, that corporation loaned the Arizona Company $15,000 and took its note for that sum secured by a first mortgage on the property transferred to it by the Southwest.

Four days later, or on December 19, 1933, the Royal American Corporation, the owner of most of the stock of the General Securities Company, purchased a five per cent. interest in and to all the minerals in the mining claims conveyed to the 'Arizona Company by the Southwest for $1,500 which together with the proceeds of the $15,000 loan, were used by the Arizona Company in satisfying the Arizona Power Company's judgment and in purchasing an engine and other equipment for the use of the property. The Arizona Company operated the property from then until April 20, 1934, through Nickerson, during which period it borrowed through him from the Royal American Corporation an additional $1,250, which was also used for the benefit of property, but after that date it carried on operations for some months under a board of five members composed of F. A. Reid, Claud B. Andrews, Fred Ford, L. B. LeBel and W. A. Nickerson. These men superseded the old board made up of Nickerson, Young and Oechsler, on April 20, 1934, the change in membership having come about as a result of an agreement entered into that day between Reid and the Southwest, which so far as pertinent here, provided as follows: First, the Southwest agreed to sell and Reid to buy 940,000 shares of the Arizona Company's stock then owned by the Southwest for thirty cents a share, or $282,000, the last payment to be made at the end of three years, and that the profits to be derived from the sale of this stock by Reid should be divided among four persons, the Southwest and the Royal American Corporation each to receive twenty per cent.; second, it required the Southwest, the owner of practically all the outstanding stock of the Arizona Company, to bring about the resignation of the directors of the latter corporation, except Nickerson, and cause the four persons just mentioned to be elected to that position, and these three, Reid, Nickerson and Andrews, to be chosen president, vice-president and secretary-treasurer, respectively; third it obligated Reid, in case it was, in the opinion of the board of directors of the Arizona Company, necessary to have additional funds for increased operations, to loan or cause to be loaned to that corporation a sum not in excess of...