Doe v. Northwestern Coal & Transportation Co.

• Decision Date: 21 December 1896
• Docket Number: 2,156.
• Citation: 78 F. 62
• Parties: DOE v. NORTHWESTERN COAL & TRANSPORTATION CO. et al.
• Court: U.S. District Court — District of Oregon

78 F. 62

DOE v. NORTHWESTERN COAL & TRANSPORTATION CO. et al.

No. 2,156.

United States Circuit Court, D. Oregon.

December 21, 1896

R. E Houghton and Wirt Minor, for complainant.

Thomas N. Strong, for defendant Farrell.

Alex. Bernstein, for defendant A. J. Knott.

J. W Whalley, in pro. per.

S. H Gruber, for defendant corporation.

J. N Dolph and W. S. Beebe, for defendant Coulter.

GILBERT Circuit Judge.

The Northwestern Coal & Transportation Company was incorporated under the laws of the state of Oregon in the year 1885, with a capital stock of $72,000, consisting of 720 shares of $100 each. By the by-laws of the corporation the officers thereof consisted of a board of five directors, a president, a vice president, a treasurer, and a secretary. The by-laws provided also for a general superintendent, whose duties were prescribed. By the by-laws neither the president, vice president, treasurer, nor any of the directors were to receive any compensation for their services, and the salaries of the secretary and superintendent were to be fixed by the stockholders at a regular meeting thereof. At the time of the incorporation of the company the salary of the superintendent was fixed at $200 per month, and so remained until December 5, 1887, when the by-laws were rescinded, and new by-laws were adopted, changing the number of the directors from five to four, vacating the offices of vice president and superintendent, and giving the president, in addition to the duties which he had theretofore exercised, the general charge and supervision of all the business of the company. From that time until the commencement of the present suit the defendant Samuel Coulter was the president of the corporation. No mention was then or thereafter made, in any of the meetings of the stockholders or of the directors, of the salary of the president, nor was he allowed or paid any salary until the year 1893. Of date January 7, 1893, the following appears in the records of the directors' meetings:

'Whereupon Mr. Samuel Coulter stated to the board that he had for several years been performing the duties of a superintendent of the company's business, and that he deemed it but just that he be compensated for such services; that the company has paid $200 a month to the former superintendent, but that he would ask that he be allowed only $150 per month.'

Upon this statement two resolutions were adopted, one allowing the president of the company $150 per month as compensation for services as superintendent during the ensuing year, the other allowing him a like sum per month for services during the years 1889, 1890, 1891, 1892. In June, 1892, the defendant Farrell had indorsed a note for Coulter to the amount of $775, and in September, 1893, had signed jointly with him two notes, one for $6,000 and one for $250. On October 7, 1893, at a meeting of the board of directors, at which Samuel Coulter, A. S. Coulter, his son, and W. T. Hume were present, a resolution was unanimously adopted reciting that the company was indebted to Samuel Coulter for services as superintendent for the years 1889, 1890, 1891, 1892, up to October 7, 1893, $8,550, and for moneys advanced to pay wages of employees, supplies, and powder bills, $1,500, and directing the president and secretary to execute and deliver to said Coulter the notes of the corporation for the total amounts so due him. Under the authority of said resolution promissory notes were issued in various sums aggregating the amount so authorized. Among said notes was one for $1,000, which was afterwards indorsed to the defendant J. W. Whalley; and one for $400, which was subsequently assigned to the defendant A. J. Knott. The remainder, amounting to about $7,000, were indorsed to the defendant Farrell. On June 26, 1894, at a meeting of the board of directors, then consisting of Samuel Coulter, president, the defendant Farrell, and Wirt Minor, the defendant Farrell offered a resolution that the question of the validity of all of said notes (the same being then unpaid and due) be submitted to Mr. Joseph Simon for his opinion. Such opinion was accordingly obtained and submitted, sustaining the validity of the notes. Thereupon a resolution was offered that new notes be executed for the amounts due upon said former notes, and that mortgages be made to secure the same. Directors Coulter and Farrell voted in favor of the resolution, and director Minor against it. The new notes, secured by the mortgages upon the company's property, were executed and delivered pursuant to the resolution. The defendant Knott refused to accept the mortgage which was executed in his favor, and he brought an action against the corporation, and obtained judgement by default for the sum of $400, with interest thereon from October 7, 1893, together with costs and attorney's fees.

The complainant's testator, John S. Doe, of San Francisco, Cal., became the owner of 559 of the shares of the stock of said corporation on or about July 5, 1888, and owned the same until the time of his death, in the year 1894. During the same period the defendant Coulter owned 160 of said shares. The object of the present suit is to require the defendant Coulter to account for large sums of money advanced to him for the corporation by the said John S. Doe in his lifetime, and to obtain a decree winding up said corporation, and disposing of the assets thereof, and setting aside as illegal and invalid the said promissory notes and mortgages to the defendants Farrell and Whalley, and the judgment obtained by the defendant Knott.

Upon the issues made in the suit the cause was referred to the examiner of this court to take testimony, and, as a special master, to make and report findings of fact, but not conclusions of law. Exceptions are now made to the findings of fact on behalf of all the parties, and the questions for present determination are: First, which of the exceptions shall be allowed, if any, to the findings of fact? and, second, what are the proper conclusions of law to be deduced from the facts in the case? In determining whether the notes and mortgages in favor of the defendants Farrell, Whalley, and Knott are the valid obligations of the company, the first question to be considered is whether or not the company was justly indebted to the defendant Coulter on account of the salary and the disbursements which were the consideration of its notes to him. It is evident that the change in the by-laws, made in December, 1887, whereby the office of general superintendent was abolished, and the number of the officers of the corporation was reduced, was for the purpose of curtailing the expenses of the corporation, and that it was intended that thereafter the duties of the general superintendent should be discharged partly by the president, but chiefly by certain subordinate employees. The duties of the general superintendent, as defined by the original by-laws, had been--

'To take charge of all the property belonging to the company, to control and direct all labor and interests pertaining to the operation of the company, and, subject to the orders of the board of directors, to make monthly returns to the board of directors of all persons hired or employed at the mine, and of their wages, and a statement of all expenditures accompanying the same, with the necessary vouchers, duplicates of which he shall keep, and to report the general condition of business in his charge.'

The duties of the president, as prescribed by the new by-laws, were as follows:

'The president shall preside at meetings of the directors and stockholders. He shall act as inspector of all elections of directors, and certify who are elected directors. He shall sign all deeds and contracts on behalf of the company, and all certificates of stock of the company. He shall have general charge and supervision over all the business of the company.'

According to his own testimony, it does not appear that from and after the time of the adoption of the new by-laws the president performed the duties which had before been imposed upon the general superintendent, or that he rendered services to the corporation materially different from those which he had rendered before. He was at no time a superintendent of the active operations at the mine. The charge of the mine was intrusted to a local superintendent.

The company had an agent at San Francisco for the purpose of handling such of the product of the mine as should be shipped there. It also had a bookkeeper at Portland, who looked after the accounts, and made collections. The president exercised no supervision of the accounts of the corporation. He testified to his ignorance of the affairs of the company and of its books. He denied that he had received reports from the mine, or that he had made any reports of the condition of the business of the company, either to its stockholders or to its directors; and he testified that he had never examined the books of the corporation, and that he did not know what they contained, and did not know that the company's liability was to the complainant. He was unable to give any satisfactory account of the consideration of the notes which he received from the company. There are many things indicative of his want of good faith in protecting the interests of the company as its president. The special master has found that there was an agreement between him and the complainant's testator to the effect that the former should have a salary of $150 a month, beginning with the year 1889. This finding is, in my judgment, against the weight of the evidence. It is supported solely upon the bare statement of the defendant Coulter that in the year 1889 he had such an understanding by parol with John S. Doe. Coulter's...