McCurdy v. Spokane Western Power & Traction Co.

• Decision Date: 15 September 1933
• Docket Number: 24494.
• Citation: 24 P.2d 1075,174 Wash. 470
• Court: Washington Supreme Court
• Parties: McCURDY et al. v. SPOKANE WESTERN POWER & TRACTION CO. et al.

24 P.2d 1075

174 Wash. 470

McCURDY et al. v. SPOKANE WESTERN POWER & TRACTION CO. et al.

No. 24494.

Supreme Court of Washington

September 15, 1933

Department 2.

Appeal from Superior Court, Spokane County; Bruce Blake, Judge pro tempore.

Action by Sarah M. McCurdy and others against the Spokane Western Power & Traction Company and others. From a judgment in favor of the plaintiffs, the defendants appeal.

Reversed with instructions.

John Blair, of Spokane, for appellants.

Cannon McKevitt & Fraser, of Spokane, Dilley & Dilley, of Grand Rapids, Mich., and Fred M. Williams, of Spokane, for respondents.

STEINERT, Justice.

Plaintiffs brought this action (1) to set aside the transfer of corporate stock formerly owned and held by them, alleging in their complaint that the transfer was effected through the conspiracy of certain officers of a corporation to defraud plaintiffs of their proportionate interests in the corporate assets represented by the stock: (2) to have a receiver appointed for the corporation; and (3) to compel an accounting of the funds derived from the sale of the corporate assets. The cause was tried Before the court without a jury, resulting in a judgment for the plaintiffs from which the defendants have appealed.

The transactions complained of, and alleged to have been the outgrowth of a conspiracy, cover a period of about twenty-three years; that is, from 1906 to 1929. A diffusive mass of details was presented to the trial court by the evidence on both sides. The story as a whole is told in a statement of facts of over a thousand pages, augmented by two hundred and eighty-two exhibits consisting of depositions affidavits, corporate records, contracts, conveyances, court proceedings, files of correspondence, accountants' computations, and miscellaneous instruments. Our statement of the case and our discussion of the issues must necessarily be within a more restricted limit than that encompassed by the briefs.

There are three distinct periods under which the essential facts of the case classify themselves. They are as follows: (1) From the time of the organization of Spokane Western Power &amp Traction Company, a corporation, in 1906 to the organization of Spokane Valley Power Company, a corporation, in 1913; (2) from the time of the organization of the latter company in 1913 to and including the year 1918; and (3) from the end of 1918 to the commencement of this action in 1929.

The two principal characters connected with the early history of these transactions were H. S. Stoolfire and Scott E. McCurdy, both of whom are now dead. These two men were friends and business associates. The litigation is now waged between the members of the McCurdy family, on the one side, and the widow of Mr. Stoolfire and executrix of his estate, together with some of his former associates in the projects hereinafter mentioned, on the other side.

Spokane Western Power & Traction Company, which will hereinafter be referred to as 'the traction company,' was organized as a corporation on February 24, 1906. The objects for which it was formed included, among other things, the location, construction, acquisition, operation, and disposal of water rights and power, plants for generating electricity, railroads, and all kinds of real estate. Mr. Stoolfire was one of the five original trustees of the company. At a meeting held June 1, 1906, Mr. McCurdy was made a trustee, and at the same meeting Mr. McCurdy and Mr. Stoolfire were elected vice president and secretary, respectively.

On July 17, 1906, Mr. McCurdy made an offer to transfer to the traction company certain rights, franchises, and properties of Spokane Valley Railroad Corporation, of which he was then president, and also certain lands, water rights, and privileges owned by him in connection therewith, for a consideration of 22,495 shares of common stock of the traction company. This offer was accepted, and deeds conveying the property were executed. The property thus conveyed has an important bearing upon the subsequent dispute with which we are here concerned, inasmuch as it included certain flowage rights, a railroad, and railroad right of way and also a smelter, to which we will later refer. These properties had, in the minds of the parties, great value. But such value, whatever it was, was almost entirely speculative, dependent upon the expectant ability of Mr. Stoolfire either to develop them or else to dispose of them to parties who might be desirous of obtaining them because of their strategic importance and prospective value. The record does not satisfactorily disclose how Mr. Stoolfire acquired his stock in the traction company, but for the purposes of this case we are assuming that he did not pay for it in cash, but rather in services rendered by him to that company. The record does disclose, however, that as early as May 11, 1908, Mr. Stoolfire held 15,401 shares, and that Mr. McCurdy's stock had been reduced to 14,495 shares, making in all 29,896 shares of the total issued capital stock of 30,000 shares. From that time on their relative stock holdings remained unchanged.

Going back now a step, in point of time, it appears that shortly after its organization the traction company had, on September 29, 1906, borrowed from one D. P. Jenkins the sum of $53,077, evidencing the loan by the company's note due in one year from date, and bearing interest at the rate of 8 per cent. per annum. The note was secured by a mortgage covering about four hundred acres of land along the banks of the Spokane river, together with all appurtenances thereto, the same being property which Mr. McCurdy had originally conveyed, or caused to be conveyed, to the traction company. On September 19, 1907, ten days prior to the maturity of the Jenkins note, Mr. McCurdy, who at that time, and thereafter until his death, resided in Grand Rapids, Mich., met Mr. Stoolfire at Chicago, Ill., and there entered into an option agreement with Mr. Stoolfire with reference to the McCurdy stock. Because of its important bearing upon the issues in this case, we quote the agreement here in full:

'S. E. McCurdy, of Grand Rapids, Michigan, the first party, contracts and agrees with H. S. Stoolfire, of Spokane, Washington, the second party, as follows, to-wit:

'Whereas, the first party is the owner of and agrees to option and sell to the second party and his associates, about 13,000 shares or all of his holdings in stock in the Spokane Western Power & Traction Company, except 1,000 shares reserved to himself and

'Whereas, the said company has a mortgage indebtedness on its property situated in Spokane County, State of Washington, of about $53,000, dated on Sept., 29th, 1906, payable one year after date and bearing 8 per cent interest, and the second party and his associates have agreed and shall advance money on account and towards the payment of the said mortgage, the said mortgage to be assigned and continued in force in favor of the second party and his associates contributing towards its payment.

'That for and on consideration of One Dollar and mutual considerations, the first party agrees to sell and transfer to the second party and his associates all of the said 13,000 shares of said stock at the rate of $3.02-1/2 per share at any time in the future while the said second party and his associates shall be required or find it necessary to carry or provide for the payment of the said mortgage, or so long as the second party and his associates shall finance or carry all, or any part thereof, and during such time as the said mortgage remains unpaid or any part thereof in the hands of the second party or his assigns and associates the said price and option shall continue in his and their favor.

'It is further agreed and understood that the second party stands in the relation of a trustee towards all parties contributing towards the payment and purchase of the said mortgage as to all or any part thereof.

'Dated at Chicago, Illinois, this 19th day of September, 1907.

'S. E. McCurdy

'H. S. Stoolfire

'We, the undersigned, as beneficiaries, under a certain contract made by and between said S.E. McCurdy and F. O. Adams, under the date of on or about Sept., 21st, 1906, do hereby consent and agree to the above and foregoing stipulations and accept the terms and conditions thereof, as a supplement to the said original contract of September 21st, 1906.

'H. S. Stoolfire,

'F. O. Adams

'By H. S. Stoolfire His Attorney In Fact.'

It will be observed that it was the intent of the parties, as appears from the option agreement, that Mr. Stoolfire and his associates were to advance moneys on account and towards the payment of the mortgage; that the mortgage was to be assigned and continued in force as security to Mr. Stoolfire and his associates for such advances; and that Mr. Stoolfire should stand as trustee for those who contributed with him in such advances.

Now it is conceded by all parties that from the time of the organization of the traction company and throughout the first period of these transactions, that is, down to about August 8, 1913, Mr. Stoolfire was the active, controlling, and, we might say, the dominating personality of the traction company and its affairs. Mr. McCurdy was in Michigan, and, having full confidence in Mr. Stoolfire's ability and integrity was disposed to leave the entire matter, including his own interests, to the latter's management and care. Correspondence between the two men reveals the fact that Mr. McCurdy was perfectly willing to, and did, give full rein to Mr. Stoolfire to proceed with all phases of the venture and enterprise as he saw fit and according to his best judgment. Under this arrangement, harmonious in every respect, Mr. Stoolfire devoted practically his...