Hudepohl v. Liberty Hill Consolidated Mining & Water Co.

California Supreme Court Sep 20, 1889 No. No. 12570Published

Before: Paterson, Works

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Holding. The court held that a contract for working a mine on shares is not a lease of real estate and therefore does not require stockholder ratification under the statute of 1880. Consequently, a promissory note issued for the proceeds owed under such a contract is supported by valid consideration.

Issues

Whether a contract to work a mine on shares constitutes a lease of real estate requiring stockholder ratification under the statute of 1880.
Whether the promissory note was supported by valid consideration.
Whether the court could consider evidence of a director's potential conflict of interest not raised in the pleadings.

Disposition. affirmed

Quotations verified verbatim against the opinion

“Such a contract does not create the relation of landlord and tenant, but fixes a rule of compensation for services rendered.”

“So construing this agreement, it was not within the prohibition of the statute of 1880 above referred to.”

Synopsis

Landlord and Tenant—Lease — Employment upon Shares. —An agreement by a mining company, in the form of a lease for one year, giving to the lessee one half of the gross proceeds of the mine as a return for working the same in an energetic manner, and bearing all expenses, except necessary improvements, which are to be furnished by the lessor, does not create the relation of landlord and tenant, but is an agreement for working the mine on shares, and the parties become tenants in common of the products of the mine when taken out.

Id.—Corporation—Act of 1880 — Ratification of Lease by Stockholders— Note of Corporation. — Such an agreement is not within the prohibition of the act of 1880 forbidding the directors of a corporation to make a lease of the corporate property, unless ratified by two thirds of the stockholders; and a note given by the corporation to the party working the mine for his share of the proceeds is valid, and may be enforced against the corporation.

Note of Corporation — Vote of Director—Surrender of Private Note to Director — Rinding. —A finding outside of any issue made in the pleadings, that a note from a director of the corporation defendant to the plaintiff was subsequently surrendered to him without consideration by the plaintiff, after the director had voted for the note in suit, does not establish that the transaction was connected with his action as such director.

Opinion — Works

Works, J. Action on a promissory note. Answer, want of consideration. Trial and judgment for the plaintiff. The defendant appeals on the judgment roll.

The court found that the defendant, being a corporation, entered into the following contract with the plaintiff and one Buckman, through its superintendent: —

“ Know all men by these presents, that I, S. Wheeler, superintendent of the Liberty Hill Consolidated Mining and Water Company, for and on behalf of said company, have leased, and by these presents do lease, to C. Hudepohl and B. S. Buckman, for the term of one year from the date hereof, the right and privilege to work and mine the ground at or near Little York, in Nevada County, California, known as the Empire and Manzanita claims, on the following terms and conditions, to wit: The said Liberty Hill Company to make all the improvements necessary for commencing and carrying on the work of mining. Said improvements to consist of putting in flumes and under-currents in Scott’s Ravine, and a short piece of flume in the big tunnel emptying into said ravine; to furnish sufficient iron pipe and hydraulic machines, and all the water in what is known as the Lower Bear River Ditch, in consideration for which the said Hudepohl and Buckman are to work and mine the said ground in an energetic and workman-like manner, bearing all expenses for the same, and to have and receive one half of all the gross products thereof, including leases of cuts, tunnels, flumes, and bed-rock, which they may have run through and over during the existence of this lease. The other half of such gross products to be paid over to the said Liberty Hill company immediately on cleanups, or leases or sales being made. Prior to each and every clean-up being made, the superintendent of the Liberty Hill company shall be notified thereof in time to be present if he chooses, and he shall have the custody of all the bullion and the other products until a division be declared.

[557]“ In witness whereof I have hereunto subscribed the name of the corporation, this October 10, 1881.”

That said agreement was never ratified by the stockholders of the company; that the plaintiff and Buckman worked the mines described in the contract, and delivered the bullion to said Wheeler, who deposited it with the bankers, and drew on them during the lease to pay the expenses of the mining, including the wages of plaintiff and Buckman and their hired help; that when they ceased work there remained in the hands of said superintendent $3,422.01 of their one half of the proceeds of the mines taken out by them, and that the note sued on was given for that sum of money, instead of delivering to them the money or bullion itself; that the president and secretary of the defendant were authorized, by a resolution of the board of directors of the defendant, to execute the note; that the said board of directors consisted of five members; that one was absent, one voted against the resolution, and three in favor of it; that one of the directors who voted for the resolution was indebted to the plaintiff in the sum of five hundred. dollars on a promissory note, and shortly after the resolution was passed the plaintiff surrendered said note to said director without consideration.

Hudepohl v. Liberty Hill Consolidated Mining & Water Co.

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Synopsis

Opinion — Works

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Concurrence — Paterson

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