Carter v. Curlew Creamery Co., Inc.

• Decision Date: 10 February 1943
• Docket Number: 28816.
• Citation: 134 P.2d 66,16 Wn.2d 476
• Court: Washington Supreme Court
• Parties: CARTER v. CURLEW CREAMERY CO., Inc., et al.

134 P.2d 66

16 Wn.2d 476

CARTER v. CURLEW CREAMERY CO., Inc., et al.

No. 28816.

Supreme Court of Washington

February 10, 1943

Department 1.

Action by Ira Carter against the Curlew Creamery Company, Inc., John P. Helphrey, and John P. Helphrey, James M. Helphrey, and Frances M. Snook, partners, doing business as the Curlew Creamery Company, to obtain a decree vacating purported dissolution of the corporation, vacating purported cancellation of plaintiff's stock in the corporation requiring defendants to restore plaintiff's stock on books of company in plaintiff's name, cancelling purported transfer of corporation's assets to partnership, requiring restoration to corporation of property so attempted to be transferred, and demanding an accounting in favor of corporation for all disposition made of any of the corporation's property by the partnership or any of its members, wherein the defendants filed a cross-complaint to foreclose stock pledged by the plaintiff. While the action was pending Ira Carter died, and Edna Elizabeth Carter was appointed executrix of the estate of Ira Carter, deceased and was substituted as plaintiff in the action. From a judgment dismissing the action, the plaintiff appeals.

Judgment affirmed in part and modified in part.

Appeal from Superior Court, Spokane County; Fred H. Witt, judge.

Williams & Cooney, of Spokane, for appellant.

Wilmot W. Garvin, R. W. Nuzum, and Howard Frissell, all of Spokane for respondents.

JEFFERS, Justice.

This action was brought by Ira Carter against Curlew Creamery Company, Inc., a corporation (hereinafter referred to as the corporation), John P. Helphrey, and John P. Helphrey, James M. Helphrey and Frances M. Snook, partners, doing business as Curlew Creamery Company, to obtain a decree vacating the purported dissolution of the corporation, vacating the purported cancellation of plaintiff's stock in the corporation, requiring defendants to restore plaintiff's stock on the books of the company in plaintiff's name canceling the purported transfer of the assets of the corporation to the partnership, requiring the restoration to the corporation of the property so attempted to be transferred and demanding an accounting in favor of the corporation for all disposition made of any of the corporation's property by the partnership or any of its members, and such other relief as plaintiff may be entitled to.

While the action was pending, Ira Cater died, and Edna Elizabeth Carter, his widow, was appointed executrix of his estate and substituted as plaintiff in the action.

The second amended answer and cross-complaint of defendants admits and denies certain allegations of the amended complaint, and alleges affirmatively that for many years prior to 1922, Ira Carter was manager of the corporation, and by virtue of his policies and acts of mismanagement, the corporation became practically insolvent, and it was necessary that additional cash be put into the business to prevent involuntary dissolution; that in consideration of John P. Helphrey advancing additional funds, as requested by Carter, for the benefit of Ira Carter and the corporation, these two men, who at that time owned equally all the common and voting stock of the corporation, entered into a written agreement, on September 22, 1922, by virtue of which Ira Carter and the corporation were declared to be indebted to Helphrey in excess of six thousand dollars, and two hundred shares of stock owned by Carter were pledged to Helphrey as collateral for the payment of such debt; that the debt has never been paid, and the pledge is still in existence.

It is further alleged that in conformity with the pledge agreement, Ira Carter delivered to Helphrey possession of the stock, and authorized Helphrey to vote the stock at any stockholders' or directors' meeting; that Carter was personally present at all such meetings from September 22, 1922, until in the year 1935, and John Helphrey voted the Carter stock at each and every one of such meetings; and that Ira Carter and the present plaintiff are now estopped to deny the suthorization of Helphrey to vote the stock.

Defendants further alleged that at the time of passing the resolution to dissolve, the corporation was indebted to Helphrey in the sum of $17,233.30; that Helphrey was the owner of 332 shares of the preferred stock, with delinquent dividends on the same in the sum of $19,068; and that Frances Snook was the owner of thirty-two shares of the preferred stock, all of such stock being of the par value of one hundred dollars a share and the delinquent dividend thereon.

By way of cross-complaint, defendant John Helphrey alleged that by virtue of the advancements made, Ira Carter and the corporation are indebted to Helphrey in excess of six thousand dollars, and that it is necessary that the pledged stock be foreclosed, notice given and a sale of Carter's stock had, the proceeds of such sale to be applied on such indebtedness.

The cause came on for trial Before the court, which at the end of plaintiff's case sustained a challenge to the sufficiency of the evidence, and entered judgment dismissing the action. From this judgment, plaintiff has appealed.

The theory of the trial court in this case is shown by the court's oral opinion, which states in part as follows:

'It is my opinion and judgment that this action was commenced by Mr. Carter for the purpose of testing the alleged dissolution of this corporation. The action was brought in behalf of the corporation and in behalf of all the stockholders for the benefit of the corporation. It is alleged that the dissolution was unlawful, illegal, and that the property distributed to the three beneficiaries was unlawfully distributed, and, in fact, the property is still the property of the corporation, and it is sought to have the property reinstated.

'Now, the private business dealings between Mr. Helphrey and Mr. Carter are not in issue in this litigation, that is, only incidentally in so far as it is necessary to investigate that transaction in order to determine whether the dissolution of this corporation was legal; in fact, an action involving their private affairs could not be joined with this action. The court has no power to determine their private rights in this kind of a proceeding and is not passing upon at this time the pledge or any of the rights of the parties growing out of the pledge.

'It is my opinion that the dissolution of this corporation was a valid dissolution and I need go no further in sustaining the motion to dismiss and challenge the sufficiency of the evidence. In doing so, I do not pass upon the validity of Mrs. Carter's rights to proceed against Mr. Helphrey as executrix or administratrix of this estate to bring into that estate any property rights which she claims or that she alleges the estate is being unlawfully deprived of by Mr. Helphrey. She can do that in a separate proceeding, but for this proceeding I think the challenge should be granted.'

From the above statement and the judgment entered, which was a judgment of dismissal, reserving to the parties any rights arising out of the pledge agreement, it is apparent that the only question determined by the court was that the dissolution of the corporation was a valid proceeding, and that is the main question for determination here.

Curlew Creamery Company was incorporated about 1906, for the purpose of engaging in the ereamery business, with its place of business at Curlew, Washington. In 1914, John P. Helphrey and Ira Carter, who since about 1907 had been employed by Mr. Helphrey as a butter maker, became the owners of all the common stock of the corporation, each owning two hundred shares. In 1920, the corporation opened a plant at Chewelah, and in 1922 a plant was opened in Spokane. Since about 1925, the station at Curlew has been merely a cream station.

The corporate affairs, at least up to about 1929, when Frances Snook became connected with the company, were conducted by Mr. Carter and Mr. Helphrey as sole owners, with Mr. Carter being actively in charge of the business, Mr. Helphrey having a mercantile business of his own at Curlew which he was operating. Mr. Helphrey was president, and Mr. Carter vicepresident, secretary and treasurer of the company during these years. Mr. Helphrey seems to have been the one who advanced money when it was needed by the corporation, and in 1922 both Mr. Carter and the corporation had become indebted to Mr. Helphrey in a substantial sum for advances made to keep the corporation going.

On September 22, 1922, the written agreement above referred to was entered into between Mr. Carter as first party, and Mr Helphrey as second party. This contract recited the indebtedness owing by first party to second party, and that the corporation was in financial difficulty and must borrow money either from second party or upon the corporation's negotiable paper endorsed by second party. By the terms of this agreement, first party assigned and pledged to second party his two hundred shares of the common stock. The contract further provided that the condition of the assignment and pledge was such that if Ira Carter should pay to second party the sum of $6,800, according to the terms of a promissory note executed by Carter and payable to Helphrey on or Before September 22, 1924, with interest, and if Ira Carter or the corporation should pay to second party any and all sums which he had loaned or might thereafter advance to the corporation, and should save second party free and harmless of and from any loss, liability or damage by reason of any and all endorsements he had made or might make for the benefit of the corporation upon its negotiable notes, bonds, bills of exchange, checks or...