Chavelle v. Washington Trust Co.

• Decision Date: 04 October 1915
• Docket Number: 2512.
• Parties: CHAVELLE v. WASHINGTON TRUST CO. WASHINGTON TRUST CO. v. WASHINGTON STEEL & BOLT CO.
• Court: U.S. Court of Appeals — Ninth Circuit

226 F. 400

CHAVELLE v. WASHINGTON TRUST CO.

WASHINGTON TRUST CO. v. WASHINGTON STEEL & BOLT CO.

No. 2512.

United States Court of Appeals, Ninth Circuit.

October 4, 1915

Amendment of Judgment, November 1, 1915.

The Washington Steel & Bolt Company, a corporation of the state of Washington, had in active operation a factory for manufacturing bolts of various kinds, located at Edmonds Snohomish county, Wash. For the purpose of adding to its plant and increasing its capacity, among other purposes, it on the 1st day of September, 1908, executed to the Washington Trust Company, a corporation of the same state, as trustee, a trust deed or mortgage covering its real and personal property, to secure an issue of $200,000 of bonds, which deed recited, among other things, the objects and purposes of the corporation, the insufficiency of its plant to supply the demands for its manufactured products, the advisability and necessity of borrowing money for its needs, its legal authority to do so, and the resolution adopted by its board of directors authorizing the making and issuing of 'its first mortgage coupon bonds of the total issue of two hundred thousand ($200,000) dollars divided into five hundred (500) bonds of one hundred ($100) dollars each, two hundred (200) bonds of five hundred ($500) dollars each, and fifty (50) bonds of one thousand ($1,000) dollars each, all payable at the office of the trustee in Spokane, Washington, on the 1st day of September, 1918, in gold coin of the United States of the present standard of weight and fineness, bearing interest at the rate of eight (8%) per centum per annum from the date of issue or sale thereof, payable semi-annually in like gold coin on the first day of March and September, in each and every year thereafter, until said principal is fully paid according to the tenor of the coupons thereto annexed, without deduction for any tax or taxes that the Washington Steel & Bolt Company may be required to pay or to retain from said principal or interest, by any present or future laws of the United States of America, or of the state of Washington; said bonds being numbered consecutively from one (1) to and including the number seven hundred and fifty (750).'

The mortgage prescribed the form of the bonds by which the mortgagor, among other things, 'acknowledges itself indebted to the bearer of this bond, or if this bond be registered to the registered holder thereof in the sum of one thousand ($1,000) dollars (or five hundred ($500) dollars or one hundred ($100) dollars as the case may be), which it hereby promises and agrees to pay in United States gold coin of the present standard of weight and fineness, on the first day of September, 1918, at the office of the Washington Trust Company, trustee, in the city of Spokane, county of Spokane, state of Washington, with interest thereon from the date of issue or sale thereof until paid at the rate of eight (8%) per centum per annum payable semiannually in like gold coin on the first day of March and September in each year on the presentation and surrender of the coupons annexed hereto, as they severally become due; all payments upon this bond, both of the principal and interest shall be made without deduction for any tax or taxes that said Washington Steel & Bolt Company may be required to pay or to retain therefrom by any present or future laws of the United States of America, or of the state of Washington, said Washington Steel & Bolt Company hereby covenanting and agreeing to pay any and all such tax or taxes,' and each bond also recited, among other things, that the bond 'is one of a series of seven hundred and fifty (750) bonds all of the same tenor and date, numbered consecutively from one (1) to and including the number seven hundred and fifty (750), ' and that the bond 'may pass by delivery but may be registered as to the number hereof, upon the transfer book of the trustee at its office, and after such registration duly certified hereon by the trustee this bond shall be transferred only on said books, unless transfer be to bearer, when it shall again be transferred by delivery subsequent to registration in like manner. This bond shall not become obligatory until it shall have become authenticated by the certificate of the trustee indorsed hereon.'

One of the provisions of the trust deed or mortgage is as follows:

'It is also mutually understood and agreed that as a further condition running with this indenture that any bond or bonds issued under or secured by this indenture shall not be sold or disposed of directly or indirectly at a greater discount than five (5%) per cent. thereof, that is to say, said bond or bonds shall not be sold or disposed of for less than ninety-five (95) cents on the dollar, of the par or face value of said bonds.'

The instrument was duly recorded in the county where the property covered by it is situated and in which the office of the company was located.

Prior to the execution of the trust deed, one A. McPhaden, who was the president of the Steel & Bolt Company and who owned a large majority of its stock, had advanced the company $21,128.80, and one A. G. Pike, who was its secretary and treasurer, had advanced it $2,693.85. Each of them was a director of the company. On the day that the trust deed was executed, the board of directors passed a resolution reciting a former resolution of the board adopted June 13, 1908, authorizing the execution of the trust deed and providing for the issuance and placing on the market of $75,000 in amount of the bonds authorized, immediately upon the execution of the trust deed, and providing for the issuance and placing on the market of the remaining $125,000 in amount of the bonds at such future time as the trustees should deem best for the interests of the company, and providing that 'a commission of five per cent. of the face value of the bonds of said company be allowed to any agent, officer or trustee of the company purchasing or selling any of said bonds of said company,' and providing that 'the accounts of A. McPhaden and A. G. Pike for money loaned to the Washington Steel & Bolt Company to date be settled by giving them bonds of the Washington Steel & Bolt Company, allowing them a discount of five per cent. on said bonds, and a commission of five per cent. for selling the same and authorizing the trustee to issue to them bonds of said company in proportion to the amount of the claims due each, as shown by the books of the company.'

On the day the trust deed or mortgage was executed, to wit, September 1, 1908, there was presented to the trust company by the secretary of the Steel & Bolt Company these certificates: 'To the Washington Trust Company: This is to certify, that according to the books of the Washington Steel & Bolt Company, A. McPhaden up to the first day of September, 1908, has a credit of $21,128.80, and that according to a resolution passed by the trustees of the said Washington Steel & Bolt Company on the first day of September, 1908, said A. McPhaden is to be paid in the bonds of said company, allowing the agent's commission of five per cent. and the discount of five per cent.; which said discount and commission would give him a credit of $23,241.68, and on payment to you of $58.32 in cash, you are authorized and instructed to issue to said A. McPhaden 20 bonds of denomination of $1,000 each, six bonds of $500 each, and 3 bonds of $100 each, making a total cash value of $23,300.

'Dated this first day of September, 1908.

'Washington Steel & Bolt Company,

'(Signed) By A. G. Pike, Secretary and Treasurer.'

'To the Washington Trust Co.: This is to certify, that according to the books of the Washington Steel & Bolt Co., A. G. Pike, up to the first day of September, 1908, has a credit of $2,693.85, and that according to a resolution passed by the trustees of the said Washington Steel & Bolt Company, on the first day of September, 1908, said A. G. Pike is to be paid in the bonds of said company, allowing the agent's commission of five per cent. and the discount of five per cent.; which said discount and commission would give him a credit of $2,963.23, and you are authorized and instructed to issue to said A. G. Pike four (4) bonds of the denomination of $500.00 each, and nine (9) bonds of $100.00 each, making a total cash value of $2,900.00, and leaving him a credit balance of $63.23 on the books of said company.

'Dated this first day of September, 1908.

'Washington Steel & Bolt Co.,

'(Signed) By A. S. Pike, Secretary and Treasurer.

'(Signed) H. R. Beeson, Accountant.'

In accordance with the above-mentioned resolution and certificates, bonds of the company were issued to McPhaden to the amount of $23,300, and to Pike to the amount of $2,900, in payment of the money theretofore, respectively, advanced by them to it.

McPhaden continued to advance money to the company, and from time to time additional bonds to the amount of $11,200 were issued to him therefor at 90 cents on the dollar, making $34,500 of bonds so issued to McPhaden. Subsequently the Steel & Bolt Company borrowed $20,000 from the Spokane branch of the Bank of Montreal; $10,000 on May 1, 1909, $5,000 May 11, 1909, $2,500 June 16, 1909, and $2,500 July 28, 1909. That money was borrowed upon notes made by McPhaden and Pike payable to the Steel & Bolt Company and indorsed by the latter; and as collateral security therefor McPhaden delivered to the bank $20,000 of the bonds issued to him, and Pike delivered to it the $2,900 of bonds that had been issued to him. Of McPhaden's remaining $14,200 of the bonds he sold for value $2,500 to one C. F. chapin, $2,000 to one Meta McElroy, $2,600 to one Thomas Burley, and $7,000 to one J. H. Osborne.

The minutes of the board of...