US SUPREME COURT DECISIONS

Covenants in a contract between individuals who control a corporation, in regard to disposition of its outstanding stock construed in this case to import a personal responsibility on the parties and not on the corporation.

In this case, the cause of action being not on the contract alone, but also upon alleged fraudulent conduct, evidence as to oral declarations of the defendant was admissible to show the misrepresentations alleged as basis for the claim of fraudulent inducement to make the contract and fraudulent use of the property entrusted to the defendant thereunder.

Notice to either of joint contractors is notice to both.

A written paper offered and admitted as evidence of a demand and not objected to as coming too late is not inadmissible because it contains other matter. The proper course for the party objecting is to ask an instruction limiting the effect of the paper to the demand or else to base the objection on its coming too late.

A contract, providing that, in a specified contingency, the interest of the parties surrendering control to the other party shall revest in them in the same proportion and ratio as they held on the making of the contract, was properly construed as contemplating that chanrobles.com-red

Page 233 U. S. 274

the surrendering parties be restored to the same proportionate interest in the property as they held prior to the making of the agreement. In affirming the judgment of the Supreme Court of the Territory of Arizona which has been reduced by remittitur, this Court does not necessarily hold that the rulings of the court below were indubitably correct, and it also takes into consideration Rev.Stat. Arizona 1901, par. 1588, providing in substance that the trial court shall not be reversed for want of form if there is sufficient matter of substance in the record to enable the Supreme Court to decide the case upon the merits, and that excessive damages may be remitted pending the appeal.

This Court is not lightly disposed to disturb the decision of a territorial Supreme Court turning, as it does in this case, largely upon local practice.

13 Ariz. 282 affirmed.

This action was brought by defendants in error against Tevis and McKittrick, two of the plaintiffs in error, in a district court of one of the counties of the then Territory of Arizona. The trial resulted in a verdict and judgment in favor of plaintiffs below for $132,000. On appeal, the supreme court of the territory held that, because of error affecting the amount of the damages, $64,564.63 of the verdict ought to be remitted, and that, upon the filing of a remittitur, judgment should be entered in favor of plaintiffs below for the remaining sum of $67,435.37. 13 Ariz. 120. Both parties filed petitions for a rehearing, with the result that the court adhered to its former view. 13 Ariz. 282. Plaintiffs having filed the remittitur, judgment was entered in their favor for the last-mentioned sum, and the present writ of error was sued out.

The controversy arises out of the following transactions. In the year 1902, plaintiffs and defendants were stockholders in an Arizona corporation known as the Turquoise Copper Mining & Smelting Company, which owned mining properties in Cochise County, Arizona. The stock consisted of 100,000 shares, of the par value of $10 each, of which the Ryans together owned four chanrobles.com-red

Page 233 U. S. 275

sevenths and Tevis and McKittrick owned three sevenths. The Ryans were in control of the board of directors. About $160,000 had been expended towards the development of the mines, and this had been contributed by the respective parties in proportion to their holdings of stock, plaintiffs having contributed about $90,000, defendants about $70,000. One Bryant had secured a judgment and levied execution upon the property of the company, under which the mines had been sold on July 30, 1902, to one McPherson, subject to redemption on or before January 31, 1903. In this situation of affairs, plaintiffs met the defendant McKittrick in Wilcox, Arizona, on November 29, 1902, and, after some negotiation, a written contract was drawn up and by them signed. Defendant Tevis was not present at this meeting, and the agreement was made contingent upon his signing, as he did a few days later. It reads as follows:

"This agreement, made and entered into this 29th day of November, 1902, by and between W. S. Tevis and W. H. McKittrick of Bakersfield, California, parties of the first part, and Jepp Ryan, T.C. Ryan, and E. B. Ryan, of Leavenworth, Kansas, parties of the second part,"

"Witnesseth, that, whereas the parties above mentioned represent all the stock in the Turquoise Copper Mining & Smelting Company, a corporation organized and existing under the laws of the Territory of Arizona, and doing business in Cochise County, Arizona, and"

"Whereas, the parties of the first part now own and control three sevenths of the capital stock of the said corporation, and the parties of the second part four sevenths of the capital stock thereof; and"

"Whereas, the parties of the first part are desirous of securing the controlling interest of the said capital stock of the said corporation, and thereby obtain the full management of the affairs of the said corporation;"

"Now therefore in consideration of, that the capital

Page 233 U. S. 276

stock of the said corporation shall be changed from its original capitalization to one million shares of the par value of one dollar each share, and that 240,000 of said shares of said capital stock shall be placed in the treasury of the said company, to be sold in whole or in part by the said parties of the first part at such price or prices as the board of directors of said corporation may deem advisable, and the moneys received from such sale or sales shall be used as follows: first, to pay off and liquidate a certain judgment held by T. B. McPherson, of Omaha, Nebraska, or his assigns, against the said corporation, in the amount of about $25,532.47 dollars. Second, to use the next $20,000 received from the sale of said stock to develop the claims now owned and controlled by this company; the parties of the second part hereby agree to and with the parties of the first part, that the officers in the said corporation now representing the interest of the parties of the second part shall resign from said office or offices, and allow the parties of the first part to appoint or elect such officers in their place and stead as they may desire, said second parties agree to give the parties of the first part as their interest in the said company, a total of 280,500 shares of the capital stock thereof, and the parties of the second part shall receive as their portion 279,500 shares of capital stock of the said company. That the remaining 200,000 shares shall be divided between the parties hereto in the proportion of 101,000 shares to the first parties, and 99,000 shares to the parties of the second part; said 200,000 shares shall be issued to W. H. McKittrick, as trustee for the parties hereto. All of the parties hereto agree to use their best endeavors to sell as much of the said last-mentioned shares as possible at not less than par value, and the proceeds of any of such sales of said block of stock shall be divided pro rata among the parties hereto, until they have been fully reimbursed for the money they now have expended upon this property,

Page 233 U. S. 277

amounting to about $160,000, when the remaining shares shall be divided equally among them, according to their respective interests, in the ratio aforesaid."

"It is further understood and agreed between the parties hereto that they shall not be allowed to sell any of their individual holdings of stock in this company until the block of 200,000 held in trust for all shall have been sold or apportioned, as above set forth. The parties of the second part shall not be liable for any expense connected with the operation of this company, excepting the expense of selling the stock held in trust for the parties hereto. The parties of the first part shall have a term of two years in which to comply with all the requirements of this contract. Should they fail or refuse to comply with all the agreements and stipulations herein mentioned within the period aforesaid, then this agreement shall become null and void and of no effect, otherwise to remain in full force and effect. Should this contract be annulled by any failure of the parties of the first part to do any and all things herein required of them, then the interest of the second parties shall reinvest in them in the same proportion and ratio as they held and were possessed of at the signing of this agreement."

"It is further understood and agreed by and between the parties hereto that W. S. Tevis, not being present upon the signing hereof, that ten days' time be allowed him in which to sign and ratify the same. Should he fail or refuse to do so within the period above mentioned, then this instrument shall be null and void in respect to all parties hereto. All erasures and changes and interlineations were made prior to the signing of this instrument."

"Witness our hands, the day and year first above mentioned."

In accordance with the agreement, a reorganization of the company was effected, the Ryans resigned as directors, control of the directorate passed to Tevis and McKittrick, chanrobles.com-red

Page 233 U. S. 278

and the capital stock was changed so as to consist of 1,000,000 shares, of the par value of $1 each, which were allotted as prescribed by the contract, viz.:

To Tevis and McKittrick . . . . . 280,500 shares

To the Ryans. . . . . . . . . . . 279,500 "

To McKittrick as trustee. . . . . 200,000 "

Treasury stock. . . . . . . . . . 240,000 "

-------

Total . . . . . . 1,000,000 "

The mines of the company were redeemed from the sheriff's sale with $30,000 loaned for the purpose by Tevis upon the company's note. This note, with others given by the company for the interest upon it, was transferred by Tevis to the Western Company of California, a corporation controlled by him.

The reorganized Turquoise company did not prosper. Defendants sold 32,000 shares of the treasury stock at 25� per share, netting $8,000, and the remaining 208,000 shares at 3/4� per share, netting $1,560. This money was spent in operating the mines and in paying for a diamond drill, for patents, and for attorneys' fees. In May, 1905, the Western Company secured judgment against the company in a California court for the amount of the notes and interest, aggregating $44,078.05, and an action was brought on this judgment in Cochise County, Arizona, resulting on July 20, 1905, in a judgment for $44,549.43. On this same day, McKittrick secured judgment against the company for $9,975 for services as general manager from May, 1903, to June, 1905. The following day (July 21, 1905), execution was levied against the mining properties to satisfy the judgments of McKittrick and the Western Company, and on July 11, 1906, the property was sold by the sheriff to that company. A few days later, defendants, with others, organized the Tejon Mining Company under the laws of Arizona, and two years afterwards the Western Company conveyed the mining properties chanrobles.com-red

Page 233 U. S. 279

formerly of the Turquoise Company to the Tejon Company.

The present action was commenced November 30, 1906, and, after repeated modifications of the pleadings, came on for trial upon a complaint which, besides setting up the above facts, averred that, after two years from the 29th day of November, 1902, had elapsed, and after plaintiffs were informed that defendants had failed to sell the 240,000 shares of the Turquoise Company for sufficient funds to pay the money advanced by them to redeem the property of the company from the sheriff's sale, and before the action of the Western Company against the Turquoise Company was commenced in the California court, to-wit, on February 15, 1905, plaintiffs informed defendants that they desired to be reinvested with their interest in the property of the Turquoise Company, and to be restored to their interest therein the same as before November 29, 1902, and informed defendants that they were then ready, able, and willing to pay defendants four sevenths of the sum of $25,262.60 paid to redeem the property from the sale of July 31, 1902, and that defendants ignored said request. There were allegations of fraudulent conduct, in support of which certain evidence was introduced, but these allegations seem to have been abandoned; at least the trial judge submitted the case to the jury solely upon the ground of a breach of the contract.