The San Francisco call. [volume] (San Francisco [Calif.]) 1895-1913, 1895-12-10


would result in great loss 10 the mining company.
The board OF directors of the mining company
thereupon passed resolution instructing the pre- 81
dent and secretary thereof to sign supplemental
agreement with the mill company, fixing the price
for the transportation and milling Of ores as fol-
lows viz:
For all ores yielding less than $40 per ton, So per
ton; for all ores yielding more than $l6 per ton
and less than $40 per 81 per ton; Tor all
yielding more than $40 per ton and less than $50
per ton SO per on; tor all ores yielding more than
$50 per ton, SO per ton Such supplement al agree
ment executed December "a. 1886, by both
corporations and has not since been altered. On
October 2, 1889. the agreement OF December 23
1888. modified by that of December "a, 1886
wes by an agreement executed by both corpora
tons, continued in force for three years from Jan
uary 3. 1889.
enc original complaint was filed December A.
1891. In the last amended complaint, which was
fied September A. 1895, at the close of the trial. IL
is alleg that from the time OF the incorporation
OF the mining company until the death of Mr..
Floo l, he and Defendant Mackay owned and con-
irolied majority of the shares of the mining COM
pany's StocN and named and controlled its sue
cessive boards of directors; and that since
death OF Mr. Flood in February, 1889, Mr.. Mackay
has owned and ooltrol ed majority of the
stock and has uned and controlled said
boarls and that SAID boards were ALWAYS con-
trolled by and always acted in subservency said
Mackay and Flood during the latter's lifetime and
were thereafter controlled by and acted in sub
serviency TO said Mackay that Mackay and
Flood, having obtained control OF the board OF d.
rec torS formed conspiracy to cheat and defraud
the mining COMPANY, and as one of the devices
adopted by them IN conjunction with Jones, pro-
cured the mining company to enter into the agree
- s,
thas il was agreed at the lime between Mackay,
Jones and Flood that Mackay and Flood should
participate to the extent of two-thirds in all the
profits OF milling ores uncer that agreement; that
The sum of So per ton for milling said
cessive, and tha' 81 per ton would have been
liberal compensation therefor; that ever since De
cember "a, 1886 the milling company fraudulently
charged and paid an average sum OF ST per ton
for all ores which averaged over of the pulp as
say, whereas 81 per ton would have been liberal
compensation therefor; that between January l,
1886, and December !, 1891, 1895 tons were
lnI fl.ara
about S2,2O4 1873, which enured 10 the profit of
Mackay, Jones and Flood before the death OF the
latter, and since that time to the profit of Mackay
and Jones; that, as further profit TO the mill
company ana Its said stockholders, the ores were
milled and crushed in very superficial manner,
SO mat an unusually small percentage or the
precious metals was extracted therefrom and
returned TO the mining company; that less than
20 per returned for more than l 20 tons
OF ore mllled by the mill company; that by reason
OF such imperfect milling, the shines, taings and
resdues which were unlawfully appropriated by
the mill company, worth, in the aggregate,
the sum of 2,500.0U0: that Mackay and FLOOD
fraudulently concealed from the other stockholders
of the mining company the fact that they owned
majority of its capita. stock and controlled its az
fairs and directors, and also concealed from them
the fact that Flood and Mackay in conjunction with
Jones owned all or ne arly all the capita! STOCK or
the mill company, aIid that by reason OF the con
tro by MacKay OF he directors of the mining
company, ii would be useless to request them 10
institute legal proceedings on Its behalf against
Mackay, Jones and the mill company.
The defendants in their respective answers deny
all the allegations OF conspiracy and WrongdoII'g
with which they are charged in the complaint.
They deny that Flood and Mackay, or either of
them, owned majority of the stock
OF the mining company or named or con
trolled anv of lis directors They allege that be-
tween January l, 1886, ana December l. 1891, no:
more than 7l2UO0 tons OF ore OF the mining com
pany were crushed OF which 10000 were milled
by Jones and the balance, $4,000. by the mill
company. They deny that there has been any
overcharge Tor milling the Oras, and alege that the
prices charged therefor were reasonable. They
allege that during the whole period between Janu-
airy !, 1885, and December ], 1891, there were
only four months in which the average yield OF the
milled less than 10 per cent of the
pulp to Wit october, 1887. when the average
per cent was 69.3l, and June. 1890, October 1890,
and November 1891, when The average percent
ages respectively. were 6S.49, 65.63 and 6S.S1;
that during the whole of SAID period between Janu-
ary, 1886, and December. 1891, the average yield
was over 70 per cent of the pulp assay. in numer-
Gus instances over 80 per cent. and in num-
Der of instances over 80 per cent that while, owing
to unintentional causes not superinduced by the
mill company and which could not be avoided, the
average of the returns was during the four months
mentioned, slightly below 20 per cent OF the pulp
assay; the average was MADE up IN succeeding
months; and that it has always been the custom
since mills were erected on the ComStock
lode, where the mines OF the mining company are
situated, for the milling companies TO retain for
their own use the shines, tailings and residues,
after the milling of ores in a proper and honest
manner.
Plaintiff seeks relief upon the theory of con-
spiracv between Flood and Maekay TO defrau1 the
mining company, and dereliction of duty upon
the part of the directors by which Jones, Flood and
Mackay were enabled te succe >sfuly carry out the
conspiracy. II Is claimed on the part of plaintiff
that the evidence shows that Flood and Mackay
owned and controlled majority OF the STOCK of
the mii.ing company and elected directors who
were entirely subSeTvient to their will; and that
any CONTRACT between the directors on the one hand
and Flood and Mackay on the other was virtually
contract made by Flood and Mackay with them
selves. Even assuming that FlooI and Mackay
election OF directors L do not think that con-
tract which the directors, acting on behalf OF the
corporation, made with Flood and MacSay could
be properly termed contract which the directors
made with themselves.
The mandate OF the law is that director
other trustee shall not in the matter of his trust
for his benefit. This rule does not forbid
director from entering into q contract with stock
holder whether owning a majority or les number
of shares. If such ontract is, for any reason in
valid, 1t is not so because the directors made con-
tract with themselves. If the stockholders. by
whose votes the directors obtained their Office,
should use their Influence to acquire unfair adj
vantage over the corporation, account of equity
would set aside the transaction, not because the
directors make a contract with themselves but be-
cause il was tainted with fraud. If contract be-
tween the directors and stockhoder is fair and
free from fraud, it is entitled to the same pro-
lection from the courts as contract between
other parties.
do not consider the question of the ownership
by FLOOD and Mackay of a majority OF the stock n
controlling one in the case; but as il has been dis
cussed BY counsel at some length it is proper that
l should express my views upon il, AT The cleo
ton of directors held in October 1886 107 ,209
shares stood in the name of George Grant Trustee
proxy for these shares given by Grant to FISH,
the president Of the mining COMPANY. Grant
an employee of the Nevada Bank, Of which Flood
Included in these shares 80, 309 shares which
had been purchased from the company by Maurice
Dore. There is no evidence that the purchase was
for the benefit of Flood or Mackay. Grant testi-
fled that it an everyday practice for people TO
ask him indorSe certificates IN the Of
George Grant, trustee. and that stock put in
his name trustee by many persons for the
son that his signature was well known and
good delivery in all the stock boards Of the United
States.
There was at times some stock standing in the
name of III. +. Bigelow trustee, and some in the
name of George Frier, trustee. Bigelow and Frier
and Flood. Neither OF them had any personal in
in the stock in their names, and both testi
fed that they did not know for whom they held
the stock trustees In January, 1887 dividend
was paid 10 Food on ga 100 shares standing in the
name OF either George Grant partly in the
name of Grant and partly in that of Havens. There
is no evidence that Flood and Mackay together
ever owned more than ~, 100 shares. Mr.. Mackay
testified that dividends upon all stock owned by
him were paid TO Mr.. Flood, but that each owned
his stock separately.
There is no evidence that Mr.. Flood ever took
part In the election OF the directors of the mining
as to the name TO be inserted in the cles OF in
corporation when the consolidation took place, but
1t does not appear that he afterward interfered in
any election that there ever any contest for
the Office of director Mr.. Mackay absent
from the State most of the time and took no part
personally in any election. Most of the stock of
the company stood in the names of various stock
brokers' as trustees and Immediately before every
election Mr.. Havehs, the secretary, procured from
them proxies TO Mr.. Fish, the president. These
proxies were given to Mr.. Ravens out of friend