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Southwest Metals Co. v. Snedaker

Supreme Court of Arizona

September 28, 1942

SOUTHWEST METALS COMPANY, a Corporation, Appellant,
E. G. SNEDAKER, Appellee

Page 315

APPEAL from an order of the Superior Court of the County of Yavapai. Richard Lamson, Judge. Order set aside and case remanded for new trial.

Messrs. Patterson & McFate, for Appellant.

Messrs. Cornick & Carr, for Appellee.


Page 316

[59 Ariz. 377] LOCKWOOD, C.J.

Southwest Metals Company, defendant, was a corporation organized under the laws of Delaware for the purpose of conducting a general mining and smelting business. The property of the corporation consisted, among other things, of certain mining claims known as the Blue Bell and DeSoto mines. The mining and smelting activities of defendant ceased in 1930 or 1931, and it conducted no active operation subsequent to that time. The last meeting of its board of directors was held on January 31, 1935, at which time Henry R. Lathrop was president, Paul O. Jadwin vice-president, and Clarence A. Hastings secretary-treasurer of the corporation. Defendant failed to pay the state, county and school district taxes assessed against its mining properties for the year 1935 and they were sold to the state of Arizona under treasurer's certificate of purchase at a tax sale on November 12, 1936. On August 18, 1941, this certificate was assigned to E. G. Snedaker, plaintiff herein, upon the payment of the taxes, interest and penalties due under the certificate, and also all taxes for the subsequent years 1936 to 1940, inclusive. Plaintiff brought suit against defendant and others to foreclose the tax lien, and secured judgment.

On February 14, 1930, Sheldon Mining Company, a corporation, became the owner of 1,335,000 shares of defendant's stock, being approximately 90% of the entire outstanding capital stock. The remaining outstanding [59 Ariz. 378] stock was owned by some four hundred stockholders, among them being George M. Colvocoresses.

On September 10, 1936, Sheldon Mining Company sold and delivered the certificates of stock representing its interest in defendant corporation to one Roscoe Hurst. The officers and directors of defendant then resigned in writing, and these resignations were delivered to Hurst, together with the stock books and minute records. At the time of the sale it was agreed by the Sheldon Mining Company and Hurst that he was to pay for and affix the federal revenue transfer stamps on the stock, and that the stock and minute books of defendant were turned over to him so that he could reactivate the corporation and operate or dispose of its remaining property. In 1937 the certificates were sold to a man by the name of Ryall, and later assigned by him to one Petzold, the brother-in-law of Bernard A. Clark. They finally were in some manner transferred to Clark. The federal stock transfer tax was never paid on any of these transfers, nor was the stock transferred on the books of the company. During all of these transactions in regard to the stock Clark was interested in the certificates and the transfers either as owner, part owner, or counsel for the owners of the stock.

Defendant for the year 1936 failed to make any annual report and pay the annual registration fees required by the law of Arizona and also required by the state of Delaware, the domicile of the corporation, failed to make the federal capital stock return and pay the taxes due thereon, and permitted the corporation to be dissolved, in accordance with the laws of the state of Delaware, on April 1, 1939.

Colvocoresses, up to October of 1929, had been the general manager and a director of defendant, owning about 30,000 shares therein. Sometime after 1935 he secured an option on the stock of the Sheldon Mining Company, and it was by virtue of the assignment of this [59 Ariz. 379] option by Colvocroesses that Hurstpurchased the stock. Thereafter, and up to February 25, 1938, Colvocoresses had considerable correspondence with Hurst and Clark in an effort to reactivate and refinance the corporation. On the date last mentioned he wrote to them, giving a detailed analysis of the situation, and stated:

"If neither of you can see your way clear to accept this program, with such modifications as may be agreed upon, then I can only repeat that I must definitely and finally disassociate myself from both of you in this enterprise and thereafter I shall feel entirely free to make use of my data, knowledge and services in any way that I

Page 317

may see fit, and for the benefit of any other parties who may believe that these will have a tangible value."

On December 8, 1939, he wrote to Clark again, offering his services in regard to the matter, and said:

"An adverse conclusion can doubtless be definitely assumed in the event that I fail to hear from you by December 18."

Thereafter he had no further relations or communications with Clark or defendant. Sometime thereafter he interested plaintiff in the idea of purchasing the Blue Bell and DeSoto mining claims under the tax sale, which was carried out as above set forth.

When the suit to foreclose the tax lien was filed, Alfred B. Carr, one of the attorneys for plaintiff, made affidavit as follows:

"That defendant Southwest Metals Company was a corporation duly organized and existing under the laws of the State of Delaware, and was a resident and citizen of Wilmington, State of Delaware, but now is dissolved. That said company is a non-resident of this state, has property or interests in property therein, but has no legally appointed and constituted agent in this state upon whom process may be served." (Italics ours.)

[59 Ariz. 380] Thereafter publication of summons was duly made in the manner provided by statute, but no copy of the summons and complaint was ever addressed to defendant, or any officer or director thereof, and deposited in the United States post office. Shortly after the judgment of foreclosure of the tax lien was rendered, Clark learned of the judgment and came to Arizona to investigate the matter. On December 15, 1941, defendant, through Clark, filed a motion to set aside the judgment for lack of jurisdiction, and one to vacate it, and permit a redemption under section 21-1309, Arizona Code 1939. The motion to set aside the judgment for lack of jurisdiction was based on the claim that at the time service by publication was made defendant had a statutory agent in Arizona upon whom service of process could be had according to law, and that plaintiff knew the post-office address of defendant, its officers and directors, and deliberately and willfully concealed this fact from the court, and failed to mail any of them a copy of summons and complaint as required by law. The motion to vacate and permit redemption was based on the Arizona statute providing for setting aside a judgment within one year when service was obtained by publication, if a meritorious defense was presented. § 21-1309, supar. The motion reads as follows:

"Comes now Southwest Metals Company, a corporation, defendant herein, and in event the motion to vacate judgment for lack of jurisdiction heretofore filed be not granted by the Court, moves the Court for an order vacating said judgment and granting a new trial herein under the provisions of Section 21-1309, Arizona Code Annotated 39, so as to afford the said defendant an opportunity to redeem from the tax sale mentioned in said judgment on the ground that service of summons herein was obtained by publication and that less than one year has expired since the date of said judgment; that the defendant Southwest Metals [59 Ariz. 381] Company, a ...

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