Case Title: Rosenthal v. Four Corners Oil & Minerals Co.

Citation: 403 P.2d 762

Docket Number: 

State: colorado

Court: Colorado Supreme Court

Date: 1965-05-03T00:00:00Z

Document:
403 P.2d 762 (1965) Joe ROSENTHAL, Plaintiff in Error, v. FOUR CORNERS OIL & MINERALS CO., a corporation, formerly known as Four Corners Uranium Corporation, Defendant in Error. No. 19927. Supreme Court of Colorado, En Banc. May 3, 1965. Rehearing Denied August 3, 1965. *763 Gelt & Grossman, Percy S. Morris, Russell W. Bartels, Denver, for plaintiff in error. McNichols, Nevans & Wallace, Joseph F. Nigro, Denver, for defendant in error. DAY, Justice. This is a companion suit to case No. 19926, decided on April 5, 1965, Colo., 403 P.2d 758. The two cases were consolidated for trial, but separate writs of error were issued out of this court. Plaintiff in error Joe Rosenthal was the plaintiff in the trial court. We will refer to him as Rosenthal. We will refer to the defendant in error as Four Corners. There are others who are not parties to the suit to whom it will be necessary to refer. They are Silver Bell Mining Company, which will be referred to as Silver Bell, and E. H. Sanders, President of both Four Corners and Silver Bell, who will be referred to as Sanders. This suit was instituted by Rosenthal claiming 40,000 shares of Four Corners common capital stock which, it is alleged, he owns and which he claims Four Corners has failed, neglected and refused to deliver to him. On the basis of the stock value of $7.10 per share at the time asserted delivery should have been made to Rosenthal, he claims damages in the amount of $284,000.00 with interest at the rate of 6% per annum from January 31, 1955. At the time Rosenthal contends that he was entitled to the 40,000 shares of stock, and at all times during the transaction upon which his claim is predicated, Rosenthal was a director and officer of Four Corners. Silver Bell had acquired control of Four Corners, and Sanders, the President of Silver Bell, had been elected President of Four Corners. For the facts surrounding the transaction and for the role that the parties played therein, we can do no better than reiterate the findings of the trial court which contain as full a statement as can be made: "Rosenthal contends in his second lawsuit that the company owes him $284,000.00 for stock at $7.10 per share, which he claims was his and which the company refused to deliver to him. In the early summer of 1952, Rosenthal was negotiating for some claims known as the Swenson Claims. At this time, and at all times during which the transactions occurred out of which Rosenthal *764 claims his ownership of the stock is based, Rosenthal was a director and officer of Four Corners. "Here we have a suit in which the plaintiff, who has already received a 10,000-share profit, is seeking to recover the rest of the shares which he claims are due him from the company, all 40,000 of which would be profit to him since he had furnished none of the money for the purchase of the properties. *765 Counsel suggests that the defendant should offer to return the property to Rosenthal if it wishes to retain the 40,000 shares; but the evidence shows Four Corners paid, not 60,000 shares, but 160,000 shares for the properties, and to Silver Bell, not to Rosenthal. To these findings and judgment of the trial court Rosenthal has assigned three points in his summary of argument: In addition it is argued that even if Rosenthal had sold the claims directly to Four Corners, the required standards of disclosure were met; that Four Corners is barred by laches from claiming there was a failure to disclose, and that Four Corners cannot rescind the transaction by which it acquired the Swenson claims and retained its benefits. We hold that the trial court did not err and that its judgment is correct. We now comment on Rosenthal's assignments and arguments in support of our decision. Concerning the propriety of the court in consolidating the two cases for trial, see our opinion in Rosenthal v. Four Corners, No. 19926, Colo., 403 P.2d 758, announced April 5, 1965. II. The Finding Of The Trial Court That The Issue As To The Ownership Of The 40,000 Shares Of Stock Was Settled By Agreement We do not interpret the judgment of the court as being predicated upon accord and satisfaction or upon any agreement by the parties as to the return of 40,000 shares to the treasury. The holding of the court was that Rosenthal did not sustain the burden of proof devolving upon him to show that the transaction was fair and in good faith, and that he made full disclosure to his corporation, Laybourn v. Wrape, 72 Colo. 339, 211 P. 367. The trial court in its holding cited 19 C.J.S. Corporations § 781, pointing out that in order for the transaction between the corporation and the directors to be upheld, "There must be full disclosure of the facts, * * *." Also in 19 C.J.S. Corporations § 783, is the statement of the general rule that "The burden is on the director, officer or agent to show the validity of the contract and the fairness and honesty of his dealings with the corporation, that he has gained no advantage therefrom, and that the corporation has not suffered thereby." (Emphasis supplied.) An analysis of the evidence is that Rosenthal, while an officer of the corporation and with full knowledge that the corporation through Sanders would be interested and would purchase these claims, obtained them in his own name, with money advanced by Sanders to the extent of at least $19,000.00 and with only $1,000.00 of his own money. At a time when Rosenthal had not conveyed the claims to Silver Bell, and at a time when the claims had not yet been conveyed to Rosenthal, a stockholders meeting was held and 160,000 shares of Four Corners was pledged to Silver Bell for purchase of the Swenson claims. The Four Corners stockholders knew that out of the 160,000 shares 60,000 shares were to be paid for the claims, but there was no disclosure that Rosenthal and Sanders were the ones to receive the 60,000 shares, and no disclosure was made that these same claims had been purchased for $20,000.00. It is also significant that Sanders was advised by an attorney that he could not participate in the secret profit of 60,000 shares without full disclosure. Rosenthal was told the same thing. Sanders, therefore, relinquished any claim to the shares except the 10,000 issued to him for reimbursement of the money advanced. If these shares became worth the amount that Rosenthal claims$7.10 per share at the time he demanded delivery and for which he claims damages of $284,000.00 each of them received in excess of $70,000.00 in stock for their efforts in acquiring the claims. Assuming, however, that it may also be said that the court made a finding of an agreement for the return of 40,000 shares to the treasury, the record supports such a finding. The books of the company show that for almost six years after the completion of the transaction Rosenthal as secretary-treasurer had full knowledge of the stock register. The company carried Rosenthal's stockholdings at 15,000 *767 shares. The books also showed that the 40,000 shares had been returned to the treasury; they did not show them in Rosenthal's name or to be held subject to his order. If the books did not correctly show the stock ownership, it seems rather strange that no steps were taken by him as an officer, or by the directors, to have the same corrected over a period of six years. III. Error In Holding That Rosenthal, As A Director, Had A Duty To Disclose He Had Previously Sold His Own Property To Silver Bell, Which, In Turn, Had Sold The Property To Four Corners. The duty of Rosenthal has been discussed under Point 2 above. It is difficult to conceive how this assignment of error can be urged upon this court. In one portion of the brief Rosenthal seems to recognize the law concerning the duty of a director as a fiduciary to his corporation and contends that the records show that there was sufficient disclosure to satisfy this rule. Under this assignment of error, in the face of all of the decisions to the contrary, Rosenthal claims that he had no such duty to his corporation because he was selling to Silver Bell and not to his own corporation. This argument is advanced in the face of the undisputed evidence that he knew and arranged with Sanders that the claims would end up in Four Corners by rerouting and arranging an indirect sale to Silver Bell. The documentary evidence of this is that the 160,000 Four Corners shares were authorized to be issued on August 11, 1952, to purchase the claims. Yet the claims were not conveyed to Rosenthal until August 20, 1952, and he conveyed the claims to Silver Bell on September 17, 1952. The loyalty required of directors as fiduciaries of their corporation are clearly set forth in several decisions of this court, particularly in Kullgren v. Navy Gas and Supply Co., 110 Colo. 454, 135 P.2d 1007, and Hudson v. American Founders Life Ins. Co., 151 Colo. 54, 377 P.2d 391. The argument of Rosenthal that Four Corners cannot keep the benefits of the transaction by retaining the claims but not accepting the burdens deserves but brief comment. The equitable maxim that Rosenthal would invoke here might have bearing in a suit for rescission, but that would be another law suit and not this one. Four Corners paid out 160,000 shares for these claims and, although receiving 40,000 shares back into the treasury, representing the profit to a director who is not entitled thereto, they still paid 120,000 shares for thema very substantial consideration for the claims retained. The judgment of the trial court is affirmed. PRINGLE, C. J., not participating.