Baillie v. Columbia Gold Min. Co.

• Decision Date: 16 October 1917
• Parties: BAILLIE v. COLUMBIA GOLD MINING CO. RICHARDSON v. BACKUS et al.
• Court: Oregon Supreme Court

167 P. 1167

86 Or. 1

BAILLIE v. COLUMBIA GOLD MINING CO. RICHARDSON v. BACKUS et al.

Supreme Court of Oregon

October 16, 1917

In Banc.

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

On rehearing. Denied.

For former opinion, see 166 P. 965.

Harris Richardson, of St. Paul, Minn., and M.D. Clifford of Baker, for appellants.

James H. Nichols, Smith & Smith, and John L. Rand, all of Baker for respondent.

McCAMANT J.

As requested by plaintiff's petition for a rehearing, we have read again plaintiff's briefs. We have also re-read large portions of the testimony and many of the exhibits. We have re-examined the amended complaint on which the case was tried, and have tested it by the rule laid down in Olds v. Cary, 13 Or. 362, 10 P. 786, and Oregon & California R.R. Co. v. Jackson County, 38 Or. 589, 597, 64 P. 307, 65 P. 369. This pleading is fatally defective even under the liberal rule of construction prescribed by these authorities. The case is not one of a defective statement of a good cause of suit, but of a failure to state a cause of suit. As pointed out in the first opinion, the amended complaint omits a number of essential allegations.

It is contended that the Columbia Company is in no position to raise the questions of laches and the statute of limitations. If the suit is to be treated as one brought in the right of the Columbia Company to recover for it moneys abstracted from its treasury, this contention is sound. These defenses can be waived, and they are deemed waived unless asserted by the litigant entitled to assert them. Davis v. Davis, 20 Or. 78, 84, 25 P. 140; Creason v. Douglas County, 167 P. 796, decided October 9, 1917. The parties entitled to assert or waive these defenses, in the case supposed, would be the defendant Backus and the others charged with the frauds relied on.

In his petition for a rehearing plaintiff repudiates the suggestion that this suit is brought in the right of the Columbia Company. He construes his suit as an equitable demand on the corporation for his share of the fund which should have been distributed as a dividend. In this view of the case the Columbia Company is the adverse party and is entitled, at its election, to insist on its defenses of laches and the statute of limitations.

The amended complaint wholly fails to state facts showing that plaintiff is entitled to declare his own dividend, or to have the court require the corporation so to do. The authority chiefly relied on is Fougeray v. Cord, 50 N.J.Eq. 185, 24 A. 499. This was a suit brought by a minority stockholder in the right of a corporation. He showed that its assets consisted wholly of profits in which he was entitled to participate. It clearly appeared that the failure to declare dividends was due to the fraudulent design of the directors to deprive plaintiff of his share of the profits. The purposes for which the corporation was organized had been for the most part subserved, and the defendants had transferred its assets fraudulently to a new corporation in whose name they were transacting business. The assets consisted of town lots, bills receivable, and liquid securities, all of which were readly divisible. Plaintiff secured personal service on the defendants and the decree provided for a receiver who should divide the assets equally among the stockholders. It affirmatively appeared that there were no creditors and that the corporation no longer required any capital.

In the amended complaint in the instant case it does not appear that the corporate enterprise has been subserved or abandoned there are no allegations from which the capital requirements of the company can be inferred; and plaintiff does not show that the directors are abusing their discretion in withholding dividends. The rule of law applicable is correctly stated in 4 Thompson on Corporations (2d Ed.) § 4509:

"As a general rule, the officers of a corporation are the sole judges of the propriety of declaring dividends; but when directors use their powers illegally, wantonly, or oppressively, a court of equity, at the instance of a minority stockholder, will interfere to prevent such misconduct. Thus a minority stockholder may compel the declaration of dividends where he clearly shows that the directors are guilty of fraud or bad faith in accumulating a large surplus and refusing to pay dividends."

The rule is also illustrated by the following cases: Hiscock v. Lacy, 9 Misc.Rep. 578, 30 N.Y.Supp. 860, 872, 873; Boardman v. Lake Shore Co., 84 N.Y. 157; Morey v. Fish Bros. Co., 108 Wis. 520, 529, 84 N.W. 862. The first of these cases is valuable as showing the care which should be exercised in this class of litigation. The record showed a conspiracy to prevent the declaration of a dividend by absorbing profits and by concealing the extent of the assets through fraudulent charges on the books. The court carefully investigated the financial condition of the corporation and conservatively determined the fund which plaintiffs were entitled to have distributed in a dividend. By amendment of his pleadings and by further proof plaintiff may bring himself within the operation of these authorities which he cites, but in the present state of the record neither his allegations nor his proofs entitle him to relief in the form of dividends.

Plaintiff asks us to disregard what he calls "the corporate fiction," and cites 2 Cook on Corporations (5th Ed.), § 663, First National Bank v. Trebein, 59 Ohio St 316, 52 N.E. 834, and Bennett v. Minott, 28 Or. 339, 347, 39 P. 997, 44 P. 288. These authorities hold that where a corporation is organized for a fraudulent or unlawful purpose, and where the rights of innocent parties are not involved, equity will disregard the corporate fiction. The Ohio and Oregon cases had to do with the organization of corporations by insolvent debtors, who transferred assets to the corporations in fraud of their creditors. The Ohio court treated the fraudulent conveyance as an assignment for the benefit of creditors as required by an Ohio statute. This court treated the fraudulent conveyance as void at the instance of creditors of the grantor, and subjected the property to the payment of the grantor's debts.

The Columbia Company was organized for a lawful purpose. From July, 1897, to September, 1915, it was engaged in the conduct of a lawful business. Plaintiff participated in its organization and during all those years served it as director and salaried employé. He made reports from year to year on behalf of the corporation to the corporation commissioner. In the ninth paragraph of his amended complaint plaintiff alleges the corporate existence of the Columbia Company; he sues as the owner of 75 shares of its capital stock. Plaintiff has received considerable sums of money as dividends on his stock. He is in no position to contend that this corporation is a fiction, nor can this court so hold.

Plaintiff finds fault with our holding that his attempted service by publication was ineffectual. It was not intended by the former opinion to announce the rule that there can be no service by publication without a prior attachment on which to base it. The seizure or control of the res which will justify such substituted service may be by bill in equity. Hawkins v. Doe, 60 Or. 437, 439, 440, 119 P. 754, Ann.Cas. 1914A, 765; State v. First National Bank, 61 Or. 551, 555, 123 P. 712, Ann.Cas.1914B, 153. But all the authorities hold that such service cannot be made unless the court, at the time when the substituted service is invoked, has possession of some property belonging to the defendant so to be served. If this were a suit to establish and foreclose a lien on the majority stock of the Columbia Company and Backus-Brooks Company, the Maine corporation which beneficially owns the majority stock, were a party to the suit, a service by publication could be had on said defendant, and if it failed to appear a decree with reference to the stock could be passed. Jellenik v. Huron Copper Mining Co., 177 U.S. 1, 20 Sup.Ct. 559, 563, 44 L.Ed. 647. But the mine and the fund of $14,756.83 paid into court were the property of the Columbia Company. Neither at law nor in equity did they belong to the defendants on whom service by publication was undertaken to be had. Such attempted service was ineffectual and nugatory.

It is asserted in plaintiff's petition that when this suit was brought there was no ground for the appointment of a receiver. We have no disposition to force a receivership on these parties unless plaintiff elects to ask for it, but for the sake of clarifying our previous opinion we answer the suggestion of plaintiff. We are cited to a line of authority to the effect that equity has no jurisdiction to dissolve a corporation unless such jurisdiction is conferred by statute and that a receivership which would be equivalent to a dissolution will not be granted. The receivership suggested in our previous opinion would not dissolve the Columbia Company. It is within the general powers of a court of equity to grant a receivership over a corporation where, through such receivership, the relief of a minority stockholder can be best worked out. Smith on Receiverships, § 225c, p. 359; 2 Machen on Modern Law of Corporations, § 1161, p. 958; Miner v. Belle Isle Co., 93 Mich. 97, 112, 53 N.W. 218, 17 L.R.A. 412; State v. District Court, 15 Mont. 324, 333-339, 39 P. 316, 27 L.R.A. 392, 48 Am.St.Rep. 682. The right is to be exercised sparingly and with great caution, to the end that the innocent be not made to suffer with or for the guilty. Columbia Co. v. Washed Bar Co. (C.C.) 136 F. 710, 712; Bauer v. Haggerty, 42 Wash. 313, 84 P. 871; Ponca Mill Co. v. Mikesell, 55 Neb. 98, 101, 75 N.W. 46. But where there are no...