Bay City Lumber Co. v. Anderson
| Decision Date | 02 April 1941 |
| Docket Number | 28243. |
| Citation | 111 P.2d 771,8 Wn.2d 191 |
| Parties | BAY CITY LUMBER CO. v. ANDERSON et al. |
| Court | Washington Supreme Court |
Department 2.
Action by the Bay City Lumber Company against S. M. Anderson, Jr. and others, to recover secret profits allegedly made in corporate transactions. From a judgment for plaintiff defendants appeal.
Reversed and remanded, with instructions.
Appeal from Superior Court, Grays Harbor County; William E. Campbell, judge.
Rummens & Griffin, of Seattle, for appellants.
L. B. Donley and Gladys Phillips, both of Aberdeen, for respondent.
This is an appeal by defendants S. M. Anderson, Sr., S. M. Anderson, Jr., and wife, from a judgment entered by the superior court for Grays Harbor county, in favor of plaintiff, Bay City Lumber Company.
The complaint alleged that during the years 1927, 1928 and 1929, while S. M. Anderson, Sr., was president and general manager of plaintiff company, and S. M. Anderson, Jr., his son, was assistant manager, defendants, in their official capacity, entered into a contract for the production and sale of fuel wood produced at the mill, for the consideration and at the rate of twenty dollars per day of eight hours' fuel wood production, and ten dollars per night of eight hours' fuel wood production, and exacted and collected a secret bonus from the purchaser of the fuel of five dollars per shift of eight hours, which defendants received and converted to their own use, in the sum of $5,270.79, between May 6, 1927, and February 6, 1929. It was further alleged that, to conceal their acquisitions and appropriations, checks were made monthly by the purchaser of the fuel to S. M. Anderson, Jr., and kept from the knowledge of plaintiff, and that plaintiff had no knowledge of such transactions until about six months Before this action was instituted, which was February 21, 1939.
Defendants by their answer denied generally the allegations of the complaint, purporting to charge them with illegal acts, and alleged affirmatively that if defendants, or either of them, were ever indebted to plaintiff, as alleged in the complaint, the statute of limitations has long since run and is a bar to any action.
Bay City Lumber Company was incorporated in 1912, and has been in the business of manufacturing lumber, in Aberdeen, since that time. The stock was held, one-third by Polson Logging Company, and two-thirds by the Anderson and Middleton families. S. M. Anderson, Sr., was president and general manager of the company, from its incorporation in 1912, up to 1935. During the period last above mentioned, the mill was almost entirely under the management of the Andersons.
The five trustees of plaintiff company, from 1912 to 1930, were S. M. Anderson, Sr., H. N. Anderson, G. E. Anderson (brothers), Alex Polson and A. W. Middleton. In 1930, S. M. Anderson, Jr., replaced A. W. Middleton, and H. N. Anderson, Jr., replaced H. N. Anderson. In 1931, the trustees were the same as in 1930, and in 1932, F. A. Polson replaced his father, Alex Polson, on the board, and in 1935, became president of the company, which position he has since occupied.
S. M. Anderson, Jr., went to work for the company about 1919, and in 1920 became assistant to his father. In 1935, when his father ceased to be president of the company, he became general manager, in which position he continued until about February, 1939, when he was discharged by F. A. Polson, the then president of the company.
While certain sections of the by-laws were read into the record, it nowhere appears what officers were named in the articles of incorporation or the by-laws, or what their duties were.
The corporation held annual meetings, and kept a minute book, but very little appears therefrom, so far as this record shows, the book not being Before us, but only reference made thereto. In so far as this record shows, in all the years S. M. Anderson, Sr., was president and general manager, the books contain just one reference to salary, and that was a record made in 1918, when the salary of the manager was fixed at eight hundred dollars a month.
It appears beyond question that during the time S. M. Anderson, Sr., was president and manager of plaintiff company, he and his brothers were the operating heads of the company, and that Alex Polson, representing the Polson interest, and A. W. Middleton did not interfere with this operation in any way; that about the only time they participated in the affairs of the company was at the annual meetings, when they met to collect their dividends and elect officers. The company was prosperous during the period S. M. Anderson, Sr., was in control of its affairs. In 1927, the company made a net profit of $155,485.26, based on a gross of $2,324,211.53; in 1928, a net profit of $165,261.21, based on a gross of $2,135,988.43; in 1929, a net profit of $226,715.21, based on a gross of $2,420,583.03. Between January 21, 1917, and January 13, 1931, dividends in the sum of $730,000 were declared.
It further appears that through the years S. M. Anderson, Sr., was president and manager, he fixed salaries and paid bonuses, and his actions in this regard were not questioned.
Prior to 1927, plaintiff company had a contract with Aberdeen Fuel Company, in regard to the fuel wood produced by the mill. Concerning the situation existing at the mill relative to fuel wood, S. M. Anderson, Sr., testified as follows:
Mr. Anderson further testified that Sam, Jr., informed him that he had made an arrangement with Grays Harbor Fuel Company, and what the arrangement was, and that the deal was talked over with his brothers Before it was finally made. After being so instructed by his father, Sam, Jr., took the matter up with Mr. Phipps, one of the partners operating the Grays Harbor Fuel Company, and a deal was made, after Phipps and Anderson, Jr., had gone over the mill and agreed to some changes, the cost of such changes to be borne equally by the mill and the fuel company. The fuel company agreed to pay forty dollars a day for the wood fuel from the plant. It appears from the testimony of Anderson, Sr. and Jr., that for his services in procuring this agreement, S. M. Anderson, Jr., was to receive five dollars a shift, or ten dollars a day, as additional salary or a bonus.
It appears without contradiction that this agreement with the fuel company was of considerable benefit to the mill, in that the fuel company took care of the wood fuel in such a way that the mill did not have to close down, which was worth a hundred dollars a day to the mill.
From 1926 to 1936, one R. L. Manuell was accountant and bookkeeper of plaintiff company, and had active charge of all the books and files. Beginning with May 6, 1927, and each month thereafter, to and including February 6, 1929, Mr. Manuell wrote a letter on company stationery to the fuel company. The letters are practically the same, except for amounts and certain deductions contained therein. The letter of May 6, 1927, is as follows:
'Grays Harbor Fuel Co.
'Aberdeen, Wash.
'Bay City Lumber Company.
'By'
Mr. Manuell testified he signed all of these letters and prepared two invoices to accompany each letter, one showing the hour basis for the amount due the company, and the other showing the hour basis at the rate of five dollars per day shift and five dollars per night shift, for the amount due S. M. Anderson, Jr. Carbon copies of the above letters and invoices marked plaintiff's exhibits D & Z, inclusive (with the exception of exhibit E, which is a ledger sheet), were introduced by plaintiff. The exhibits were shown to have been in the regular files of plaintiff corporation from the time they were written to the time this suit was instituted, and accessible to the trustees and officers of the company.
On receipt of the above letters, the fuel company mailed two checks to plaintiff, one payable to the company and one payable to S. M. Anderson, Jr. These checks were sent in the same envelope, and were received by Mr. Manuell, who deposited the company check in the bank of the company, and turned the other check over to S. M. Anderson, Jr., who would endorse the same and give it to the timekeeper to deposit for him. The S. M. Anderson, Jr., check did not go through the books of the company, and no record was made of the wood transaction, other than as indicated by the above letters and invoices and a letter confirming the agreement with the fuel company under date of April 2, 1927, a copy of which remained in the files of the company until 1937 or 1938. While this letter did not set out the way the payments were to be made by the fuel company, it did...
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