Baillie v. Columbia Gold Min. Co.

• Decision Date: 24 July 1917
• Citation: 86 Or. 1,166 P. 965
• Parties: BAILLIE v. COLUMBIA GOLD MINING CO. ET AL.
• Court: Oregon Supreme Court

166 P. 965

86 Or. 1

BAILLIE v. COLUMBIA GOLD MINING CO. ET AL.

Supreme Court of Oregon

July 24, 1917

In Banc.

Appeal from Circuit Court, Baker County; Gustav Anderson, Judge.

Suit by Frank S. Baillie against the Columbia Gold Mining Company Harris Rich ardson, and others. From a decree for plaintiff the named defendants appeal. Reversed, and cause remanded with directions.

This is a suit brought September 18, 1915, by Frank S. Baillie against Columbia Gold Mining Company, an Oregon corporation E. W. Backus Lumber Company and Backus-Brooks Company Minnesota corporations, Harris Richardson, E. W. Backus, William F. Brooks, and R. L. Horr. It is alleged in the amended complaint on which the case was tried that the E. W. Backus Lumber Company is a Minnesota corporation of which the defendant Backus was and is president, the other officers being members of his family; that the defendant Backus-Brooks Company is the successor to the business of E. W. Backus Lumber Company and is under the same control and management; that on August 17, 1896, R. C. Leavitt, acting on behalf of E. W. Backus Lumber Company, secured from Cable Bros. an option for the purchase of some mineral property situate in Baker county, Or., which will be hereinafter referred to as the Columbia Mine; that the option was executed in consideration of the payment of $10,000 in cash. It called for a purchase price of $70,000 additional, payable in installments maturing at intervals between January 1, 1897, and January 1, 1900.

It is alleged that about October 1, 1896, E. W. Backus Lumber Company entered into the possession of the property and commenced the construction of a mill thereon; that the mill was completed about December 25, 1896. An additional $10,000 was paid on account of the purchase price under the option, being the installment due January 1, 1897. It is alleged that Backus, acting on behalf of E. W. Backus Lumber Company, employed plaintiff in September, 1896, to investigate the Columbia Mine and report on the property and its development; that the plaintiff made a trip from Minneapolis to Baker, Or., for such purpose, remained on the property for a considerable period of time, and on January 7, 1897, entered into a contract in writing with E. W. Backus Lumber Company, whereby it was provided that plaintiff should enter into the permanent employ of the company in the management of the Columbia Mine and should have the right to purchase a 5 per cent. interest in the equity therein then owned by the E. W. Backus Lumber Company, for $5,000. Prior to the date of the contract, $1,000 was paid by plaintiff. Payment of this sum was acknowledged in the contract, and the remainder was to be paid by plaintiff with 8 per cent. interest on or before five years from date. It was further provided that, in case a corporation should be organized to take over the property, plaintiff should hold 5 per cent. of its stock, and that this stock should be pledged as collateral security for the payment of the balance of the purchase price. The contract provided that, in case plaintiff's employment should be terminated for any reason, the E. W. Backus Lumber Company should have the privilege of buying back plaintiff's interest in the property by paying him the amount which he had paid on account thereof, with 8 per cent. interest. Plaintiff alleges that he subsequently paid the full amount of said purchase price.

The Columbia Gold Mining Company, an Oregon corporation, was organized on July 31, 1897. Its capital stock consisted of 1,500 shares, each of the par value of $100. Seventy-five shares became the property of plaintiff and were immediately pledged by him to E. W. Backus Lumber Company as security for $3,111.50, the amount remaining at that time unpaid on the purchase price of $5,000. It is averred that, at the time when the Columbia Gold Mining Company was incorporated, E. W. Backus Lumber Company had advanced in the aggregate $33,538.39, in payment of the purchase price of the property or in its development, and that there remained due to Cable Bros. on account of the purchase price the sum of $60,000; that a deed was secured from Cable Bros. and a mortgage given them to secure the sum of $60,000 still unpaid on account of the purchase price. Leavitt assigned the option to plaintiff, and plaintiff in turn assigned the option to Columbia Gold Mining Company, in payment of the stock subscriptions. Two shares of stock were assigned to John L. Rand and J. H. Parker, to qualify them as directors. The original board of directors consisted of R. C. Leavitt and A. E. Horr, of Minneapolis, J. H. Parker, John L. Rand, and plaintiff, of Baker, Or. Leavitt was president; plaintiff, vice president; R. L. Horr, secretary; and A. E. Horr, treasurer.

The amended complaint charges that the mine was not self-supporting until May, 1899, and that the advances of E. W. Backus Lumber Company to May, 1899, aggregated $65,517.18, of which $33,538.39 represented advances prior to the incorporation of the Columbia Gold Mining Company; that in the month of May, 1899, the mine began to produce large sums of money, and that during the remainder of the year 1899 the sum of $130,981.06 over and above the expenses of operation was realized from its operation and remitted to A. E. Horr, treasurer, at Minneapolis; that during this period plaintiff was removed as manager and the resignations of Parker and Rand were secured; that Parker and Rand thereupon assigned the stock which they held to E. W. Backus Lumber Company; and that the defendant Backus sent plaintiff into Idaho to investigate other mineral property. About the beginning of the year 1900, the defendant Backus restored plaintiff to his position of manager of the property.

It is alleged that without the consent or knowledge of plaintiff, and without taking any corporate action thereon, the defendant Backus misappropriated, embezzled, and converted to his own use funds of the corporation aggregating $103,174.50. The complaint thereupon sets up the entries made in the books at the instance of the defendant Backus, covering the funds so alleged to have been misappropriated and converted. It is charged that among the moneys so taken from the corporation was a sum equivalent to the entire investment of the E. W. Backus Lumber Company in the mine; that large sums of money belonging to the Columbia Gold Mining Company were fraudulently loaned by the defendant Backus to the defendant Backus-Brooks Company, which was controlled by the defendant Backus; and that the defendant Backus-Brooks Company paid interest at the rate of 4 1/2 or 5 per cent. on such loans, although Columbia Gold Mining Company was paying interest at the rate of 8 per cent. on moneys owing to Cable Bros. on account of the purchase price of the property.

Plaintiff alleges that during the years 1900 and 1901 there was realized over and above expenses of operation the sum of $190,572.28, which sum was embezzled, misappropriated, and converted by the defendants Backus, Backus-Brooks Company, and E. W. Backus Lumber Company; that these conversions were without the knowledge or consent of plaintiff; that the said defendants pretended to loan the said sums of money to corporations controlled by themselves, in which the Columbia Gold Mining Company had no interest; and that the said moneys were expended on other concerns promoted by the defendant Backus--all of which was done without the knowledge or consent of plaintiff. It is further averred that, notwithstanding the large sum of money which had been realized from the operation of the mine, the defendants refused to declare a dividend until the year 1909, at which time $230,000 was distributed in dividends. It is charged that plaintiff, in order to secure such distribution, was obliged to accept the notes of the defendant Backus for $10,000 in lieu of cash. Plaintiff's note given in payment for stock had been gradually reduced, and the last $1,500, it is alleged, was wiped out at the time when the dividend was declared. Plaintiff avers that until this note was fully paid plaintiff was without authority or power to object to any of the matters of which he complains in this suit. It is further alleged that subsequent to 1909 about $100,000 was distributed in dividends without corporate action, but with the consent of all of the stockholders. Plaintiff retained 5 per cent. thereof, and the defendant Backus received 95 per cent. thereof.

It is alleged that R. C. Leavitt died in 1897, that A. E. Horr died in 1908; that no meetings of the board of directors of the defendant Columbia Gold Mining Company have been held within the knowledge of plaintiff subsequent to the meeting held at the organization of the corporation in 1897; and that plaintiff is ignorant as to whether any board has been elected, or who are assuming to act as directors of the corporation.

The complaint charges that in April, 1915, plaintiff was instructed by the defendant Backus to close down the mine on September 1st; that there was on deposit in the summer of 1915, to the credit of the Columbia Gold Mining Company $15,000 in the First National Bank at Baker, Or.; that plaintiff put $14,756.83 thereof in the form of certificates of deposit in the name of plaintiff, claiming that he was entitled to this sum in view of the large misappropriations of the funds of the corporation which had been made by the defendants holding the majority of its stock. These certificates of deposit were put into the registry of the court at the time when this suit was brought, plaintiff notifying defendants at the time when the money was withdrawn from the bank. It is alleged that thereupon a meeting of the board of directors was held at Minneapolis, and that the defendant...