Gilbert v. Seatco Mfg. Co.

• Decision Date: 11 December 1899
• Citation: 98 F. 208
• Parties: GILBERT v. SEATCO MFG. CO. et al.
• Court: United States Circuit Court, District of Washington

98 F. 208

GILBERT v. SEATCO MFG. CO. et al.

United States Circuit Court, D. Washington, Western Division.

December 11, 1899

In the month of August, 1888, the Seatco Manufacturing Company, a corporation, was the owner of a sawmill and other property constituting a lumbering plant, and a large stock of manufactured lumber and sawlogs, situated at Bucoda, in Thurston county, Washington Territory; and about that time a written agreement was made and entered into between the owners of the stock of said corporation, as parties of the first part, and J. B. Garland and Francis Rotch, as parties of the second part, whereby the first party agreed to sell to the second party all of said stock, for a price which was fixed upon the basis of the value of all the property owned by the corporation on the 1st day of September, 1888, and which, when the property was inventoried, was ascertained to amount in the aggregate to $127,000. It was further agreed that the party of the second part should have credit for part of the purchase price, to wit, $50,000, which was to be paid in three equal installments, in 6, 9, and 18 months, and said first party was to retain all of the stock as collateral security for said deferred payments, with authority, in case there should be a default in making said payments, to sell the stock, or sufficient of it to pay the whole of said purchase price, and to account to the second party for any excess. It was further agreed that said first party should pay all the debts of the corporation, and liabilities existing on the 1st day of September, 1888, and said second party should pay all the expenses of operating the mill, and receive all the profits therefrom, after said date, and should keep the mill and property insured for a specified amount, for the benefit of the first party, until the stock should be fully paid for. Under this agreement, Garland and Rotch took possession and assumed the management of the sawmill, but, being disappointed in their expectations as to the market for lumber during the first six months, they were unable to realize from the sale of lumber any part of the amount of the payment on their contract which came due in March, 1889; and to avoid a forfeiture of their contract, and loss of the large amount which they had paid on account of it, Mr. Rotch appealed to his relatives for a loan of $17,000 to make that payment. Thirteen thousand dollars of the amount required was advanced by the plaintiff, who is the grandfather of Mr. Rotch; and for said $13,000 Garland and Rotch gave to the plaintiff two promissory notes,--one for the sum of $8,000, and the other for $5,000,-- bearing interest at the rate of 6 per cent. per annum. The plaintiff was fully informed as to the purpose for which the money was required, and the terms of the contract above mentioned before making the loan; and the individual notes of Garland and Rotch were given, pursuant to his directions. The correspondence between Mr. Rotch and the plaintiff introduced in evidence, shows that the plaintiff was informed of the operations of Garland and Rotch in connection with the sawmill during the summer of 1889; that they were enthusiastic in the expectation of doing a large and profitable business, and were anxious to make large investments in the purchase of timber lands. And, when the second payment on account of said contract for the purchase of the mill company's stock was about due, the plaintiff made a further advance to Garland and Rotch by a draft payable to their order for $17,500, which Mr. Rotch, in a letter to plaintiff dated October 7, 1889, stated would be applied to make said payment, with accrued interest. A promissory note, signed by the Seatco Manufacturing Company by Garland as president, and Rotch as secretary of the company, was given to the plaintiff for said $17,500. There is no evidence tending to prove that the stock had prior to that time been transferred to Garland and Rotch, or that they had been elected president and secretary, respectively, of the company. On the contrary, the evidence shows that the business of the company was conducted in an irregular manner. No corporate meetings were ever held, and no records were kept. Garland and Rotch merely assumed the full control and management of the company's business, and acted as president and secretary and managers, until the year 1894, when Mr. Garland died; and from that time Mr. Rotch assumed the office of president and sole manager, and controlled the business of the company. The whole of the $30,500 advanced by the plaintiff was actually used by Garland and Rotch to meet the payments due for the stock of the company under their contract for its purchase, and the vendors of the stock used the money which was paid to them by Garland and Rotch in paying up the debts of the corporation which existed prior to September 1, 1888. The interest on the three promissory notes above mentioned was paid to the plaintiff up to some time in the year 1893. In February, 1894, a promissory note for $780, signed by the Seatco Manufacturing Company, per Francis Rotch, secretary, was given to the plaintiff on account of accrued interest on the two notes for $8,000 and $5,000; and on October 15, 1894, a note for $1,050, signed in the same manner, was given to the plaintiff on account of accrued interest on the note for $17,500. No payments have ever been made on account of the principal. During all the time of the transactions involved in this suit, the plaintiff has resided at Gilbertsville, in the state of New York; and in the fall of 1894 he received a visit at his home from Mr. Rotch, who was then on a mission to raise a large sum of money by an issue of bonds of the defendant corporation; and upon representations then made by Mr. Rotch that the company was in urgent need of money, and upon assurance given by Mr. Rotch that, if successful in his scheme of floating bonds of the company, the entire amount of money which had been theretofore loaned by the plaintiff in the manner aforesaid, with accrued interest, would be repaid out of the money received from such issue of bonds, and that, if unsuccessful in raising money in that manner, the defendant corporation would nevertheless repay the said loans within a short time, and would give the plaintiff security therefor, the plaintiff was induced to, and did, make further advances to Mr. Rotch of various sums, amounting in the aggregate to $6,200. The defendant company, having become insolvent, was placed in the hands of a receiver by an order of the superior court of the state of Washington for the county of Thurston. Thereafter the plaintiff presented to the receiver his claim as a creditor of the defendant corporation for the entire amount, with accrued interest, due upon the four promissory notes above mentioned, and also for the several amounts advanced in the year 1894, which claim was allowed by the receiver for the money loaned in the year 1894, but was rejected, and the liability of the defendant corporation was denied, as to all the indebtedness upon said four promissory notes; and this suit was thereupon brought against the defendant corporation and its receiver to recover the several amounts due upon said notes. The evidence shows that the plaintiff was not credited upon the books of the company with any part of the money which he advanced on the several notes, and there is no evidence tending to prove that the company, by any corporate act, ever assumed an obligation to pay said notes, other than the oral testimony to the effect that Mr. Rotch assumed authority to make the promises above mentioned, and that the company received the $6,200 advanced upon the faith of said promises. In December, 1894, a paper purporting to be a statement of account between the plaintiff and the defendant company, showing credits for loans of $17,500 and $13,000 in favor of the plaintiff, was sent to the plaintiff in response to a request which he made to Mr. Rotch for a statement of his account with the company. But this paper is unsigned. ...