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Daily Mines Company, a Corp. v. Catalina Consolidated Copper Company, a Corp.

Supreme Court of Arizona

April 6, 1942

DAILY MINES COMPANY, a Corporation, Appellant,

APPEAL from a judgment of the Superior Court of the County of Pima. Wm. G. Hall, Judge. Judgment affirmed.

Mr. Tom K. Richey, and Messrs. Baker & Whitney, for Appellant.

Messrs. Conner & Jones for Appellee.


[59 Ariz. 150] LOCKWOOD, C.J.

Jack Martin brought suit against Daily Mines Company, a corporation, to recover on a note for $1,500, dated November 13, 1937, executed by it in favor of Catalina Consolidated Copper Company, and by the latter assigned to Martin. Daily Mines Company answered, and asked that the Catalina Consolidated Copper Company be brought in as a third-party defendant, and then, in a third-party complaint, set up two defenses to the note. The first was that

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Martin was not an innocent holder for value, and the second was that the note was usurious, and in the complaint it asked to recover from the Catalina Consolidated Copper Company some $23,000, which it claimed had been paid usuriously to the latter upon the note, and that the note be cancelled. Hereafter we shall refer to the Daily Mines Company as plaintiff and to the Catalina Consolidated Copper Company as defendant, as the issue on the whole case is really between them.

Defendant moved to dismiss the third-party complaint, and the motion was granted, with ten days leave to plaintiff to amend. After amendment a motion to dismiss the amended complaint was made. The [59 Ariz. 151] court considered that the motion was well taken, but offered leave to plaintiff to amend again. The latter, however, preferred to stand upon its complaint, and the motion was granted. Thereafter the case came before us in the usual manner.

The question is whether the amended complaint stated a cause of action against defendant. It is too long to set forth in full, and we state its substance in chronological narrative form, quoting directly only as necessary.

Plaintiff owned some sixteen patented mining claims in Pima county, which had been more or less developed as a mine, while one Meade Clyne had taken an option and lease on fifteen patented mining claims and four unpatented millsites belonging to the Phelps Dodge Corporation, and adjoining plaintiff's property, by the terms of which he was entitled to mine and ship ores from the optioned claims, upon paying to the owner a royalty of 10% of the net metal value of the bullion produced. Plaintiff and Clyne desired to operate the respective properties together as a unit, and, therefore, on April 28, 1937, entered into an agreement, the substance of which was that Clyne was to organize a corporation and assign to that corporations his option upon the Phelps Dodge property, in return for 80,000 shares of the capital stock of the corporation. He also agreed to lend to the corporation such sum, not exceeding $36,000, as was needed as preliminary working capital for the equipping of the mill to handle the ores of the two properties. This loan was to be without interest up to April 1, 1938, but thereafter to bear interest at 6% per annum. It was also to be repaid to Clyne before any dividends or profits should be distributed by the corporation. Plaintiff agreed to convey to the corporation to be organized its sixteen mining claims, upon certain conditions. Clyne, or the corporation to be organized, was to enter upon the claims [59 Ariz. 152] of plaintiff, and operate the same, constructing a mill for the treatment of ores from both groups of claims. The agreement then provided as follows:

"... The party of the second part, until said corporation to be organized has been organized and qualified to do business, and thereafter said corporation to be organized, shall retain as his own or as its own, without the payment of any royalty to the party of the first part, all of the proceeds of any ores taken from the claims of the party of the first part incidental to the running of any tunnels for development purposes on the claims of the party of the first part. If any stoping be done on the claims of the party of the first part, then the party of the second part or said corporation to be organized, as the case may be, shall retain all of the proceeds thereof save and except that 10% of the net metal value thereof shall be deposited in escrow with Southern Arizona Bank & Trust Company, Tucson, Arizona,..."

This 10% was to become the property of defendant if, as and when plaintiff's claims were conveyed to it; if the agreement was cancelled by plaintiff, it was to belong to the latter. Until defendant secured title to all the claims, plaintiff was to receive 20% of the net profits of the joint adventure after Clyne's advance was repaid. If and when title to the Phelps Dodge properties and the properties of plaintiff were conveyed to defendant, plaintiff was to receive 20,000 shares of defendant's stock, and thereafter any profits from the operation of defendant were to go, 20% to plaintiff and 80% to Clyne, being their proportions of the shares of stock of defendant. It was further provided that if the Phelps Dodge option was not exercised, plaintiff should retain its property, plus the 10% escrow funds aforesaid, while defendant should have the right to remove the mill and equipment used for the mining operations. There were a number of other conditions of the agreement, but these are the essential ones. Summed up, if the whole deal was [59 Ariz. 153] finally consummated, plaintiff got 20% and Clyne 80%, after Clyne was repaid his advance. If it fell through before title to the properties passed to defendant, plaintiff got 10% of the value of

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the ore stoped from its properties, plus 20% of any net profit of the adventure, after repayment of Clyne's advances, to that time, and defendant, which would then mean Clyne, got everything else. The corporation provided for was duly organized, being ...

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