Butler Bros. Development Co. v. Butler

• Decision Date: 04 January 1941
• Docket Number: 8076.
• Citation: 108 P.2d 1041,111 Mont. 329
• Parties: BUTLER BROS. DEVELOPMENT CO. v. BUTLER et al. (BUTLER et al., Interveners).
• Court: Montana Supreme Court

108 P.2d 1041

111 Mont. 329

BUTLER BROS. DEVELOPMENT CO. v. BUTLER et al. (BUTLER et al., Interveners).

No. 8076.

Supreme Court of Montana

January 4, 1941

Appeal from Sixth District Court, Gallatin County; Benjamin E. Berg Judge.

Action by the Butler Brothers Development Company against Julius W Butler and others to foreclose a trust deed given to secure a note, wherein F. O. Butler and others were brought in as interveners by court order and the named defendant filed a cross-complaint against interveners. From an adverse judgment, the named defendant appeals.

Affirmed.

E. F Bunker, of Bozeman, and C. E. Carlson, Jr., and Chas. E. Carlson, Sr., both of Minneapolis, Minn., for appellant.

W. S. Hartman, of Bozeman, R. D. Corette, of Butte, and J. M. Stotesbury, of Bozeman, for respondent.

ANGSTMAN Justice.

Plaintiff brought this action to foreclose a trust deed given to secure a promissory note in the sum of $62,158.38 executed by defendant Julius W. Butler on October 16, 1934, and payable to the order of the bearer. The complaint is in the usual form. Defendant Julius W. Butler answered, admitting the execution of the note and trust deed, but alleging that as a part of the agreement there was executed at the same time a written agreement between him, his brother, Paul, and his father, F. O. Butler, who dominated and controlled plaintiff corporation, which by its terms imposed obligations upon F. O. Butler as the alter ego of plaintiff which have not been fulfilled and, hence, that the note and trust deed were given without consideration. The reply to the answer was in effect a general denial.

The court ordered F. O. Butler, Paul Butler and Butler Company, formerly the J. W. Butler Paper Company, to be brought in as parties, whom we shall hereafter call the interveners. They filed a reply to the answer of Julius Butler, which may be termed a general denial. Julius Butler then filed a cross-complaint against the interveners charging them with fraud and conspiracy to injure his credit and to deprive him of his property and asking for damages. To the cross-complaint interveners filed an answer denying most of the material allegations. To this answer Julius Butler filed reply. Defendant Julius Butler demanded a jury trial. His demand was denied and the cause was tried to the court sitting without a jury.

The court found the issues in favor of plaintiff and interveners and against the defendant Julius Butler and entered judgment foreclosing the trust deed from which judgment he appealed. A fair résumé of the facts shown in evidence is portrayed by the court's findings, which were as follows:

That the intervener, Butler Company, a corporation, is the successor of the J. W. Butler Paper Company, which latter company and its business was organized and founded by the father of intervener, F. O. Butler, and from whom Julius inherited three and one-third per cent of the stock of the J. W. Butler Paper Company, and upon its reorganization Julius became the owner of three and one-third per cent of the preferred and twenty-four per cent of the common stock of the Butler Company.

That the Butler Company, and its predecessor, was a family concern; its stock, except a very few qualifying shares, owned by F. O. Butler, his brother, Fred Butler, Julius and Paul, all four of whom were directors of the company, F. O. Butler being its president and Julius its secretary. That the plaintiff in this case is a corporation organized by F. O. Butler, who is its president and who owns over eighty per cent of its stock.

After the death of J. W. Butler, the father of F. O. Butler, F. O. Butler devoted his entire time, energies and abilities to the business and affairs of the company, which business he ardently desired should pass on to his sons, Paul and Julius, as their grandfather wished and hoped, upon his retirement.

"In 1928, Julius and Paul, together with one Cunningham, became interested in the organization of what they called the 'Frontier Preserve,' which was a scheme for acquiring control of several hundred thousand acres of land in the mountains of Gallatin and Madison Counties, devoted to the preservation of wild life, where the game might be saved from the hunter, and affording pleasure and education to the citizens of the land. And to carry out this scheme, Julius, Paul and Cunningham organized a corporation which they called the Rising Sun Ranches. The Frontier Preserve scheme was afterwards abandoned, but in the activities with reference to it, Julius incurred an indebtedness approximating one hundred thousand dollars, and the three stockholders in Rising Sun Ranches, who are also its directors, failed to file the annual report of corporations required by the statute and so became liable for the debts of the company, and Julius was in straightened financial circumstances. He borrowed twenty-five thousand dollars from the Northern Trust Company of Chicago, and pledged his stock in the Paper Company as security therefor. He sought a loan or loans in unnamed amount from his father, brother and the Paper Company, of which he was secretary and one of the directors, but was refused those loans. Finally, in June, 1931, he disposed of his stock in the Paper Company to Paul, under the terms of a writing of June 23, 1931," which is as follows:

"23, June, 1931.

From: Mr. Paul Butler

To: Mr. Julius W. Butler

Subject: Paper Business Stocks

This letter to you forms your exclusive option to repurchase from me the paper business stock which I have bought from you and fully paid for, providing following provisions and agreements are carried out:

(a) I am to be fully cleared without further cost to me, to be evidenced by documents satisfactory to me, of any liability or indebtedness whatsoever to you personally, Mr. M. S. Cunningham or to the Rising Sun Ranches, including any creditors of the Rising Sun Ranches, or of yours, M. S. Cunningham's or mine, arising out of activities of the Rising Sun Ranches and kindred ranch activities thereto; also including any obligations of the aforementioned on purchase of land in connection with your ranch activities.

(b) I and Mr. M. S. Cunningham are to endorse over to you our stock in the Rising Sun Ranches, and if you succeed eventually in making what you would consider a satisfactory return from these activities, you will recognize my assistance rendered to a greater extent and before that of Mr. M. S. Cunningham by some form of cash payment or settlement with me, it being understood and agreed however that there is no compulsion on your part of thus recognizing either of us.

(c) It is also agreed that you will save me from any future liability in connection with these ranch or land activities.

(d) It is furthermore understood and agreed that if you exercise this option, you shall pay for the stock in cash, purchase price to be monies that I have paid you and which total as of this date $130,000.00, to which shall further be added any other payments that I may make to you from time to time, plus any interest charges, expenses or other obligations which may accrue to me as a result of the payments thus far made or advances I may make after this date or other liabilities and expenses which may be incurred by me in extending you financial assistance on your ranch activities, it being understood and agreed that should you exercise your option, it will be done having fully met the provisions of this agreement, and your repurchase under the above provisions will be for all but one share of the common stock, this one share remaining my property in consideration of my extending financial assistance, also to give me a larger holding and ownership in the business.

(e) It is also understood and agreed that upon repurchase as above provided for, the repurchase should be made under a form of trust or other form of holding that I would deem to be to the best interest of the business, it also being understood and agreed that my block of stock would be placed in a relatively similar form with respect to our respective future personal estates.

(f) It is also understood and agreed that I am in no wise to be held responsible for keeping intact the stock I purchase from you at its present book or face value or saving it from retirement or other disposition, such as might be decided upon by the control of the stockholders or of the directors.

(g) This option expires December 1st, 1931.

(h) If I secure extension of time on liabilities entailed, I will extend this option for a similar period of time.

Paul Butler

Julius W. Butler,"

"which writing appears upon its face to be an absolute sale of the stock to Paul for $145,000.00, but which Julius now claims was a loan. Paul paid for the stock $130,000.00 in cash cancelled the indebtedness of Julius to him and procured the cancellation of an indebtedness of Julius to the Paper Company of fifteen thousand dollars, Julius receiving as a result of this transaction $145,000.00. Paul hypothecated the stock with the Paper Company to secure his note for that sum, $145,000.00, and for it obtained the $130,000.00 in cash paid Julius. Later Julius claimed that he should have received more money for the transaction, and these claims developed into wide differences of opinion between himself and Paul, in which F. O. Butler became involved. Julius was persistent in his claims and threatened litigation, charged both his brother and father with bad faith, but finally the parties got together and as alleged in the cross-complaint Julius 'did settle his demands, rights, claims and causes of action against F. O. Butler and Paul by the following contract at said times made and entered into between them, which said contract it was agreed and covenanted...