Gas-Ice Corp. v. Newbern

• Court: Oregon Supreme Court
• Writing for the Court: Before O'CONNELL; TONGUE
• Citation: Gas-Ice Corp. v. Newbern, 501 P.2d 1288, 263 Or. 227, 95 Or.Adv.Sh. 1422 (Or. 1972)
• Decision Date: 19 October 1972
• Docket Number: GAS-ICE
• Parties: , 56 A.L.R.3d 1078 CORPORATION, a Washington corporation, Appellant, v. R. B. NEWBERN, individually and as executor of the estate of Lula P. Newbern, Respondent.

Page 1288

501 P.2d 1288

263 Or. 227, 56 A.L.R.3d 1078

GAS-ICE CORPORATION, a Washington corporation, Appellant, v. R. B. NEWBERN, individually and as executor of the estate of Lula P. Newbern, Respondent.

Supreme Court of Oregon.

Argued and Submitted July 5, 1972.

Decided Oct. 19, 1972.

Kenneth M. Novack, Portland, argued the cause for appellant. With him on the briefs were Rives, Bonyhadi & Hall, and Bruce M. Hall, Portland.

Nels Peterson, Portland, argued the cause for respondent. With him on the brief were Jack H. Cairns, Portland, and Peterson, Chaivoe & Peterson, Portland.

Before O'CONNELL, C.J., and McALLISTER, DENECKE, HOLMAN, TONGUE and HOWELL, JJ.

TONGUE, Justice.

This is a suit by a corporation against its former president, both individually and as the executor of the estate of his deceased wife, alleging that he violated his fiduciary duty by making profits and receiving other benefits in various transactions with the corporation, and demanding an accounting. Plaintiff appeals from those portions of the decree which denied most, but not all, of such relief.

Plaintiff contends that the trial court erred as follows: (1) In not determining that the so-called 'Phillips contract' was acquired by defendant and sold to plaintiff in breach of his fiduciary duty; (2) In not determining that the so-called 'tank farm' was acquired by defendant and leased to plaintiff in breach of that duty; (3) In not cancelling the so-called 'Seattle lease' by plaintiff of a warehouse owned by defendant and ordering the return of allegedly excessive rentals received by defendant; and (4) In not determining that defendant is liable to plaintiff for the cash value of two life insurance policies allegedly 'expropriated' by him.

The plaintiff corporation is a Washington corporation in which the majority of the outstanding stock was formerly owned by the family of defendant, who was its former president and the principal developer of its business. After the sale of defendant's stock to a newly formed holding corporation this suit was filed by the plaintiff corporation alleging irregularities relating to transactions which took place during the years while Mr. Newbern was its president. The trial judge found in favor of defendant with respect to the transactions involved in these assignments of error upon the grounds, among others, that under the facts and circumstances of this case there was no breach of fiduciary duty and that most of such transactions were ratified by the board of trustees of the corporation. ¹

This being a de novo appeal in a suit in equity we have reviewed the entire record, including over 2,300 pages of testimony and voluminous exhibits, and agree with the oral findings and the conclusions of the trial judge in denying the relief demanded by plaintiff on the first three of these assignments of error.

The remaining assignment of error, however, is more difficult.

Facts, contentions and findings relating to insurance policies.

In 1938 the corporation issued bonds to raise needed capital funds. To make the purchase of these bonds more attractive, and out of concern over what might happen if Mr. Newbern should die, it was suggested that $50,000 in life insurance be taken out on his life, naming the corporation as beneficiary. Two policies, each for $25,000, were then applied for by and issued to Mr. Newbern, and the first premiums were paid by him. These policies both provided that the beneficiary could be changed without notice to the designated beneficiary. In 1940 and 1942 these two policies were converted from term to straight life policies, but the beneficiary was not changed.

Most, if not all, of the remaining premiums on the policies, however, were paid by the corporation, totaling more than $50,000. ² The corporation was not reimbursed by Mr. Newbern for these premium payments. The books of the corporation did not show these payments as business expense. Neither were these policies, listed on its books as corporate assets, at least since 1955. There was evidence, however, that Mr. Newbern had given instructions not to do so. There was also evidence that for tax purposes the premium payments were reported as an asset purchase by the corporation. On the other hand, Mr. Newbern did not report these premium payments by the corporation as income to him.

In subsequent years these policies were borrowed upon by Mr. Newbern to provide funds for use by the corporation. They were also later assigned to the Small Business Administration as security for a loan by it to the corporation.

In early 1968, after the SBA loan had been paid and after negotiations were under way for the sale of defendant's stock, Mr. Newbern changed the beneficiary of these policies to his wife and took them with him when he later left the corporation. He testified, however, that before the stock purchase was completed he informed the representative of the purchasers of his intention to do so.

Defendant Newbern contends that he was at all times the owner of these policies, with the right to make a change of the beneficiary, and that the payment of premiums by the corporation was in consideration for the use of the policies by the corporation in the financing of its operations. Defendant also says, without reference to the record, that 'his conduct with respect to the policies was open and above board and certainly known to the Board of Trustees.'

Plaintiff denies that its trustees had knowledge of, much less authorized or approved of any such understanding. Defendant has not called attention to any reference in the minute book and records of the corporation which shows the authorization or approval by the trustees of any such understanding and we have found none.

At the time of trial plaintiff's position was not entirely clear. Thus, while never abandoning the contention, as alleged in its complaint, that the policies were assets of the corporation, with a cash value of over $32,000, the principal thrust of plaintiff's contentions on trial was that, in any event, and even if the policies belonged to Mr. Newbern, rather than to the corporation, it had paid premiums totaling over $50,000 and was entitled to repayment of that entire sum.

After considering these contentions by the parties, the trial court found, in effect, that the insurance policies belonged to defendant Newbern and were not assets of the corporation. The trial court also found, however, that payment of the premiums by the corporation constituted a loan or advance to Mr. Newbern for which he was indebted to the corporation to the extent that such a debt was not barred by the three year Washington statute of limitatiions. (Rev.Code Wash.Ann. § 4.16.080) Accordingly, the trial court entered a judgment in favor of plaintiff for $1,968.50, representing the premiums paid by the corporation within that three year period, on April 1, 1967, with interest from that date. Mr. Newbern apparently paid the subsequent premiums. As previously stated, that decree also denied all other claims by plaintiff except for the cancellation as of May 1, 1970, of the lease to the so-called 'tank farm.'

Plaintiff then appealed from that decree, except for its provisions canceling the lease and entering judgment for $1,968.50 for the 1967 life insurance policy premiums. No cross-appeal was filed by defendant and he paid into court the amount of that judgment. Plaintiff accepted that payment and signed a 'partical satisfaction of judgment,' with a notation purporting to do so 'without prejudice to that portion of the decree being appealed.'

Defendant contends that acceptance of the payment of that judgment 'precludes appellant from any further recovery,' particularly on the matter of the insurance policies, upon the ground that a litigant cannot accept the benefits of a judgment and also appeal from it, citing Anderson v. Anderson, 232 Or. 160, 374 P.2d 479 (1962), among other cases.

The acceptance of payment of the partial judgment did not bar plaintiff's appeal under the facts of this case.

We previously denied defendant's motion to dismiss this entire appeal on this ground, as well as defendant's further motion to dismiss that portion of the appeal relating to the insurance policies. ³

Whatever may have been the law on this subject when Anderson was decided by this court in 1962, that law was clarified, if not changed, by the decision of this court in Hofer v. Hofer, 244 Or. 88, 415 P.2d 753 (1966), in an opinion by Justice Lusk in which it was held that the acceptance of benefits does not always bar an appeal and (at p. 93, 415 P.2d at p. 756) that:

'The rule that the acceptance of benefits to which the appellant would be entitled in every view of the case * * * does not constitute a waiver of the right of appeal * * * applies * * * where the appellate court is without power to render a decision less favorable to the appellant.'

In Hofer this court also distinguished several previous decisions on this subject (including most of those now cited by defendant) and stated (at p. 93, 415 P.2d 753) that Anderson was 'wrongly decided.'

In the present case, defendant did not cross-appeal. Therefore, on de novo review, this court may not render a judgment or decree more favorable to him and less favorable to plaintiff than was the decree entered below. Hofer v. Hofer, Supra 244 Or. at 92, 415 P.2d 753. See also Taylor v. Pearl, PicKell, 244 Or. 81, 86, 415 P.2d 757 (1966). Thus, defendant would have remained liable for the amount of that judgment and decree, whatever the outcome of...