144 Ky. 531
Court of Appeals of Kentucky.
Sept. 26, 1911.
ACTION: Affirmed.

Appeal from Circuit Court, Knox County.
Consolidated actions by John G. Matthews against the Ely Jellico Coal Company and others.
From a judgment for plaintiff, defendants appeal.

About the year 1900 Harrison Hughes, J. D. Faulkner, J. P. Gaddy, and L. F. Stanfill owned several hundred acres of valuable coal land in Ely Hollow, Knox county, Ky. They formed soon after that time what is known as the "Ely Jellico Coal Company," and took stock in it in proportion to their interest in the land; Hughes took about 40 per cent. of the stock, Stanfill about 4, and Faulkner and Gaddy the remainder. They began work to open a mine. Tipples and inclines were built and other necessary work done. The mine was opened and operated for three or four weeks in the fall of 1902, when the company leased it and a portion of the real estate to W. R. Hughes for a 10 per cent. royalty on the coal mined. Shortly before this lease was made, appellee, John G. Matthews, became the owner of Harrison Hughes' stock and took part in the lease to W. R. Hughes. At an annual meeting of the stockholders of the company, after Matthews became the owner of Hughes' stock, J. D. Faulkner was elected president, L. F. Stanfill secretary, and J. D. Faulkner, J. G. Matthews, J. P. Gaddy, and L. D. Stanfill, the wife of L. F. Stanfill, whose name their stock was in, were elected directors, and were holding that position on February 20, 1906, at which time a call meeting was had. The only directors present at this meeting, however, were J. D. Faulkner, W. D. Faulkner, J. P. Gaddy, and L. F. Stanfill, who allowed a claim amounting to $400 presented by J. D. Faulkner for services rendered the company. W. D. Faulkner is a son of J. D. Faulkner. He held only 1 1/4 shares of stock in the company. At another call meeting of the stockholders and directors, when only the same persons as before were present, L. F. Stanfill presented a claim for four years services as secretary, at $25 a month, amounting to $1,200, which was allowed. On March 4, 1907, when the same directors as before were present, and also B. E. Gaddy, a son of J. P. Gaddy, who owned 1 1/4 shares of stock, a claim in favor of J. P. Gaddy for services rendered as general manager of the company for 3 1/2 years at $50 a month was allowed.

About September, 1907, separate actions were brought against J. D. Faulkner and L. F. Stanfill, and in May, 1907, shortly after the allowance was made to Gaddy, an action was brought against him and the other directors, by John G. Matthews. The Ely Jellico Coal Company was made a defendant in each of the actions. The petition in each action alleged that the allowances were made without authority; that they were fraudulent; that they were made by a collusion and scheme to which the three persons receiving the allowances were parties; that the allowances were wrongfully made and with the intention of injuring Matthews. It was also alleged that the persons to whom the allowances were made, before they became unfriendly to Matthews, acted in the positions named without any agreement or contract to the effect they were to be paid for their services; that there was nothing in the articles of incorporation or by- laws which authorized them to make such disposition of the company's funds; that they performed the services without any intention of receiving pay therefor; that the services they rendered were not worth more than $50 each, and did not equal the value of the services rendered the company by J. G. Matthews, which were performed without charge; that the services rendered by the persons named were performed with the sole intention of advancing the interest of the company in which they were stockholders and with no expectation of pay, and such remained their intentions until they became unfriendly with Matthews. Defendants, appellants here, denied all these allegations, and alleged that their services were of greater value than the allowances made, and that Matthews rendered no services of value for which he was not paid. This was denied by reply. These actions were on the docket and in course of preparation when, at a regular quarterly meeting of the board of directors of the company, to wit, January 1, 1909, J. D. Faulkner was allowed an additional sum for services rendered, amounting to $600, and J. P. Gaddy was allowed $750 for services as general manager, and L. F. Stanfill, secretary, was allowed $327.50. All these allowances were for services rendered after the first allowances were made. An amended petition was filed, setting forth these allowances and using, in substance, the same allegations with reference to them as were used in the original petition.

The cases were consolidated, and the lower court found that all the allowances were improperly made, directed the appellants to pay the sums received by them back into the treasury, with interest, and adjudged the costs of the actions against them. The judgment also allowed J. G. Matthews and J. M. Robsion, who had purchased four shares of Matthews' stock while the action was pending, $1,000 with which to pay their attorneys for services rendered in the consolidated actions. Appellants complain strenuously of the lower court's action.

The record is very large, consisting of about 1,500 pages of testimony and 200 pages of briefs, in addition to which we had the help of an oral argument. A great portion of the testimony has no bearing upon the issues involved and should not have been placed in the record. After Matthews purchased Hughes' stock, the company leased to him a considerable portion of the remainder of the property at seven cents per ton royalty, and built a railroad from the Louisville & Nashville Railroad track through Ely Hollow, by Hughes' tipple to a point where Matthews had erected a tipple on the property leased by him. It appears that all the parties interested in the coal mines got along peaceably until the fall of 1905, about the time the railroad was finished, at which time it appears that Matthews and J. P. Gaddy had an estrangement, and very soon after this J. D. Faulkner and his son also became embittered towards Matthews. This was very unfortunate, as the mines were making money; having up to the time of the trial paid over 200 per cent. on the stock, which was worth, at least, $2 for one. The parties to this action seem to be fairly good citizens, but somewhat willful and headstrong. They each gave heed to outside statements and rumors, which caused their estrangements. The most of this record is made up in attempting to show that these estrangements were caused by the wrongs of the other in attempting to defraud the company out of its rights, and that neither party did any work of any consequence or value to the company, and each for himself trying to show that he did a great amount of labor which was of much value to the company. It would be useless to refer to the testimony in detail. It is sufficient to say that each of the parties did valuable labor which redounded to the interest of the company. The lower court determined, however, that this labor was performed without any intention on the part of any of them to charge therefor, and that such continued to be their intention until their estrangements, and we are unwilling to disturb the lower court's finding thereon, as there are many circumstances and much testimony to sustain this view. After the leases to Hughes and Matthews and the completion of the railroad, there could not have been much labor performed by any of the officials. About all they had to do was to receive the monthly royalties and distribute the dividends.

The allowance of $1,000 to appellee's attorneys, to be paid out of the treasury of the company, was not too much for the services they rendered in the lower court and in this court, for, as the testimony and record show, they spent a great deal of time and labor in preparing the case. It is true, a great deal of the record consists of incompetent and irrelevant testimony; but both parties were equally guilty of placing it on the record. They, as individuals, and not the company, should have been compelled to pay for this redundant matter; but no motion was made in the lower court to have this done, and we are unwilling to pass upon the question for the first time here.

For these reasons, the judgment of the lower court is affirmed.

Ky.App. 1911.
139 S.W. 796, 144 Ky. 531


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