Western Securities Co. v. Silver King Consol. Mining Co. of Utah

• Decision Date: 17 July 1920
• Docket Number: 3491
• Court: Utah Supreme Court
• Parties: WESTERN SECURITIES CO. v. SILVER KING CONSOL. MINING CO. OF UTAH et al

192 P. 664

57 Utah 88

WESTERN SECURITIES CO. v. SILVER KING CONSOL. MINING CO. OF UTAH et al

No. 3491

Supreme Court of Utah

July 17, 1920

On Application for Rehearing October 11, 1920.

Appeal from District Court, Third District, Salt Lake County; Wm. H Bramel, Judge.

Action by the Western Securities Company against the Silver King Consolidated Mining Company of Utah and others. Judgment for the plaintiff against the named defendant and one other, and the named defendant appeals, and plaintiff files a cross-appeal.

REVERSED, and REMANDED with directions.

Howat Marshall, Macmillan & Crow, of Salt Lake City, for appellant.

Walton & Walton and Dey, Hoppaugh & Mark, all of Salt Lake City, for respondent.

FRICK J. CORFMAN, C. J., and WEBER, GIDEON, and THURMAN, JJ., concur.

OPINION

FRICK, J.

The plaintiff, a corporation, hereinafter called respondent, commenced this action against the Silver King Consolidated Mining Company of Utah and against Solon Spiro, John Pingree, Charles E. Kaiser, and L. R. Eccles, all of whom were, at the times referred to in the complaint, directors of said mining company. Judgment was entered against the mining company, and, in case it fails to pay the same, judgment was also entered against the defendant Pingree. L. R. Eccles and Charles E. Kaiser were not served with process and did not appear in the action. Eccles, however, testified as a witness for the plaintiff. The case thus proceeded against the company, Spiro, and Pingree only.

The mining company, hereinafter styled appellant, appeals from the judgment, and respondent has filed a cross-appeal.

The action was commenced June 16, 1917, to require appellant and the other defendants as directors of the appellant to account for the alleged conversion of certain mining stock and for certain dividends paid thereon and for general relief. The pleadings are too voluminous to be stated even in condensed form. It must suffice to state here that the transactions involved, so far as necessary, will hereinafter be referred to, and all of which are fully set forth in the complaint and in the several answers thereto.

The findings of fact are also very voluminous, and we shall refer to such parts only as are deemed essential to an understanding of the questions decided.

The evidence is likewise of immense volume, and in most instances we can do no more than merely state our conclusions therefrom.

The findings of the court, in substance, are: That in February, 1914, one H. P. Clark was indebted to the appellant in the sum of $ 50,000, and that he, on the 20th day of that month, executed and delivered to it five promissory notes of $ 10,000 each, whereby he promised to pay said sum of $ 50,000 on September 1, 1914, with interest at the rate of six per cent.; that to secure the payment of said notes Clark also delivered to appellant 29,089 shares of the capital stock of appellant, together with some other stock which is not in issue here, and no further reference will be made thereto. Said promissory notes contain certain provisions to which, with a certain agreement which was delivered with said notes, more particular reference will be made hereinafter. The court also found that at the date said notes and agreement were delivered the market price of said 29,089 shares of stock "was from $ 1.45 to $ 1.57 1/2 per share"; that thereafter, during the month of March, 1914, the market price of said stock advanced so that in small quantities some sold at $ 1.77 1/2 and $ 1.80, and thereafter, up to the month of July, 1914, the same was sold in small lots for a still higher price; that immediately upon the receipt of said 29,089 shares of stock the appellant caused the same to be transferred on its books from the name of said Clark to the name of John Pingree as trustee, the same to be held as security for the payment of said notes; that on the 20th day of March, 1914, the board of directors of the appellant passed a resolution appointing a committee of three members of said board to request said Clark to deposit with said board additional security for the payment of said notes. The request to said Clark reads as follows:

"You are hereby notified and requested by this committee, in behalf of the company, to furnish to the company, within five days after this notice and request, such additional security as shall be satisfactory to, and approved by, the company. This request is made in accordance with the terms of the notes, and a copy, thereof is also addressed to you at your home address in Salt Lake City."

The court further found that no additional security was furnished, and that on the 1st day of April, 1914, a dividend of ten cents per share was declared on the capital stock of appellant, including said 29,089 shares, which dividend on said 29,089 shares was credited as part payment of the principal of said $ 50,000 indebtedness; that on May 4, 1914 one F. C. Ehman "made a written offer to the defendant corporation through the said John Pingree, its treasurer, of $ 50,000 for 29,000 shares of said" stock good for ten day; that thereafter, on May 26, 1914, said Ehman made a bid of $ 1.60 per share for said 29,089 shares of stock; that on May 27, 1914, the defendant Solon Spiro, who was the president of appellant, on its behalf advised said Clark by letter that an offer of $ 1.60 per share had been made for said 29,089 shares of stock, and that the offer would be accepted unless the five notes were paid "by the 5th day of June, 1914"; that on June 15, 1914, Solon Spiro, on behalf of appellant, "telegraphed to Ehman that if he would renew his offer [of $ 1.60 per share] it would receive immediate attention"; that on the following day said Ehman made a renewal of his offer of May 26th by wire, good for ten days; that on June 17, 1914, the board of directors (except L. R. Eccles, who was not present) passed a resolution accepting the bid of said Ehman of $ 1.60 per share for said 29,089 shares, and authorized the president, Solon Spiro, "to deliver said shares to said Ehman upon payment of the purchase price thereof," and directed the treasurer to indorse the amount of the purchase price on said notes, "and notified Mr. Clark of the action taken"; that on June 17, 1914, appellant "drew a sight draft on said Ehman at Chicago, Ill., for $ 46,542.40," and deposited the same with the stock certificates representing said 29,089 shares of stock in the Merchants' Bank of Salt Lake City; that the appellant "received credit on its deposit account with said bank for the amount of said draft, but said credit was expressly made subject to payment of the draft, and that said draft was not paid until the 14th day of July, 1914, at which time the said stock certificates were delivered"; that on June 17, 1914, the appellant canceled the certificates issued to said Pingree, as trustee, and caused 29,089 shares of stock to be transferred on its books to said Ehman; that on June 18, 1914, appellant notified said Clark that said 29,089 shares of stock had been sold at $ 1.60 per share, and that the proceeds thereof had been credited on said notes; that on June 10, 1914, and before said stock was sold to said Ehman, a dividend of ten cents per share was declared on the capital stock of appellant, including the said 29,089 shares, which, by the terms of the resolution declaring the dividend, was made "payable to the stockholders of record on June 20, 1914"; that said dividend was paid on July 1, 1914, to the stockholders of appellant, and the ten cents per share of said 29,089 shares was paid to said Ehman; that "on July 8, 1914, the said L. R. Eccles borrowed from the defendant corporation [appellant] through said John Pingree, its treasurer, and G. W. Browning, its secretary, $ 45,000" which money was transmitted to said Ehman "for the purpose of being used in the payment of the defendant corporation's sight draft on said Ehman; that the said L. R. Eccles and said John Pingree knew of the said purpose and use of the said loan of $ 45,000, and were interested with the said Ehman in the purchase of said stock;" that the purported transaction between appellant and said Ehman "did not constitute a sale of said 29,089 shares * * * of stock," and said "purported sale was not made in good faith by the" appellant, and "said purported price was not the highest price reasonably obtainable" for said 29,089 shares of stock. The court also found that said 29,089 shares of stock were sold by said L. R. Eccles and said Ehman, and stated the dates when, the numbers of shares sold on each date, and the prices for which the shares were sold, and found that the total amount that was realized by Eccles and Ehman amounted to $ 60,233.32 exclusive of brokers' commissions. The findings also show that all of said 29,089 shares of stock, except 2,000 shares, which were sold October 31, 1914, for $ 1.50 per share, were sold from June 14, 1915, to and including October 30, 1915. All stock sold in 1915 was sold at a price slightly in excess of $ 2 per share. During the year 1914, however, the price of the stock fluctuated so that at times it sold for considerably less than $ 1.50 per share. There is also a finding that from October 1, 1914, up to and including April 1, 1918, dividends were declared and paid on the capital stock of appellant, including said 29,089 shares, amounting to $ 1.70 per share. The court also found that on July 21 (should be July 9), 1914, the respondent by letter notified the appellant that it repudiated the sale of said 29,089 shares of stock. That letter will be referred to again hereinafter. The court further found that the appellant was not prejudiced by plaintiff's delay in commencing this action, and exonerated the president of appellant, Solon Spiro, from...