Hallenborg v. Cobre Grande Copper Company/Opinion of the Court

Both of the lower courts held that the suit had become one for the appointment of a receiver. The supreme court said: 'The purposes for which a receiver is asked are twofold, so far as the record is concerned: First, that he may take charge of the property of the company; second, that he may prosecute its litigation.' [(Ariz.) 74 Pac. 1052.] After some comment the court further observed that the district court was well within the exercise of a sound discretion in refusing to appoint a receiver, and 'that there was not any other relief which the court could properly grant the plaintiffs in this action.' We do not find it necessary to decide whether, if plaintiffs' complaint were true, they would not be entitled to greater relief than the appointment of a receiver. We rest our judgment on the merits. In other words, we think the complaint has not been established.

The complaint charges a conspiracy between Greene and Mitchell, being at the time directors of the Cobre company, to deprive the company of its mines and property, and acquire it for themselves; and that, in pursuance of the conspiracy, they took possession of the company's property. No evidence was offered in the present suit to sustain the charge. Records of suits in which like charges were made cannot be regarded as such. The complaint also charges the contract of December 12, 1900, to be a 'fraudulent and corrupt contract and conspiracy of Greene with Gage and other directors of the Cobre company, to stop the litigation against defendants, and to secure to them the undisputed possession of the mines' from which the Cobre company had been evicted. Both of the lower courts found against the charge. They found that Gage entered into the contract with the knowledge of the directors of the Cobre company, and in good faith, upon the advice of counsel of the futility of further pursuing the litigation against Greene, and in the belief that 'the contract was to the best interest of said company and its stockholders.' It may be admitted that Greene's purpose was to stop the litigation against him, and quiet his possession of the property, but we cannot assume from this that he was guilty of fraud in making the contract of December 12, or that it was part of a conspiracy with the directors of the Cobre company to deprive the company of its property. Therefore any fraud in fact is out of the case.

Plaintiffs, however, contend that the contract is fraudulent on its face, and that it was decided so to be by the supreme court of New York in Hallenborg v. Greene, 66 App. Div. 590, 73 N. Y. Supp. 403. The pleadings are not set out in the report of the case. We may assume, however, that the complaint was, in most part, as that in the case at bar.

The case went to the supreme court on an appeal from an order granting a preliminary injunction and appointing a receiver. It was heard on the complaint and affidavits of the plaintiff. The affidavits of the defendants were, by stipulation, omitted from the record. Upon the showing thus made the court said:

'According to the complaint and affidavits, the Cobre company was not only a solvent corporation, but its assets were exceedingly valuable; and through conspiracy, fraud, and bribery the defendants Greene and Mitchell have obtained the management and control thereof to further their own schemes in hostility to the interests of the other stockholders, and have actually obtained a contract from the Cobre company to transfer to these rival companies, controlled and managed by Greene and Mitchell, all its property and property rights, without even a nominal consideration. This fraudulent contract was being consummated with despatch at the time of the commencement of this action and the granting of the injunction herein. These allegations must be taken as true for the purposes of this appeal, and it is evident that the inevitable consequence will be not only that the stock of the Cobre company, of which the plaintiff is a large holder,-owning one twenty-fifth of the entire stock,-will be rendered worthless, but that there will be no assets with which to pay the claims of creditors, of whom also the plaintiff is one for a substantial amount.

'It needs no refinement of the decisions to show that the cause thus presented is one for equitable cognizance.'

The allegations of the plaintiffs were taken to be true; and, being so taken, the comments of the court may claim justification. In the case at bar the allegations of the complaint, as far as they are passed on, are found to be nutrue. The opinion of the supreme court of New York, therefore, is of no value to plaintiffs' contention.

We are remitted, therefore, to the contract of December 12. What fraudulent element is there in that? It disposed of the shares of the stockholders, and it secured the payment of money to the corporation; it settled controversies which, as far as appears, the company had no means of prosecuting, and which, wherever they were tried, had been decided against the company; and where not decided, in the opinion of the company's attorney, would also be decided against the company. We may assume that the stockholders knew or could estimate the value of the properties. They deposited their stock with Gage to sell,-became, indeed, impatient at his delay. We may assume the price of the stock reflected the value of the properties,-Hallenborg bought his shares at $2.50. He had an option upon all that were in Gage's hands at that price. He let the option lapse, although negotiation was kept up with him from October to December. Gage then turned to Greene, who, it is found, offered to purchase the stock on better terms than anybody else ever offered. And there was no concealment. Gage was urged by the directors of the company and a large majority of the stockholders to make the contract. It was subsequently formally ratified by the directors and by a majority vote of the stockholders, at a stockholders' meeting.

But there were three other elements from which plaintiffs deduce fraud. Gage was given $50,000 as compensation as president of the Cobre company and other services and expenses paid by him; the attorneys of the company were paid $50,000 for legal services, and there was surrendered to Costello the note which he owed the company. There was no secrecy about these items, and it is manifest from the findings and the evidence that they constituted no inducement to the contract. Whether Gage can be compelled to pay to the Cobre company the money received by him, we need not decide. Its receipt by him did not make the whole contract fraudulent. It did not take from the stockholders the power to sell their stock, nor from the directors of the company the power to control the litigation in which the company was involved, to abandon that litigation, or to compromise it. In the exercise of their power they could have done those things directly. It was a matter of form and procedure that it was done in the manner provided by the contract of December 12.

It is deceptive to call or regard the action of the directors as a transfer of the property of the corporation without consideration, or for an inadequate consideration. The company had only a right to purchase the property, the conditions of which it had not fulfilled. It claimed legal excuse, and brought suits against Greene; but that it had legal excuse was disputed, and seems to have been doubted by all who were interested in the property but the plaintiffs. A jury in Texas had decided against the excuse; and the court in Arizona has also done so. That the latter was subsequent to the contract of December 12 does not militate against it as proof of good faith of the settlement.

This view of the merits of the case renders it unnecessary to pass upon the contention of the defendants that a court of equity has no inherent power, in the absence of statutory authority, to appoint a receiver upon the application of a private person, under the circumstances presented by the complaint.

There are assignments of error upon the rulings of the trial court on the admissions of testimony, oral and documentary, which we do not think call for discussion. It is enough to say that they are not well taken.

There is also an assignment of error upon the refusal of the supreme court to make certain findings of fact. We think the findings made substantially cover those proposed; certainly to the extent necessary to the case as we have considered it.

Judgment affirmed.