McDougall v. Hepden

• Decision Date: 25 April 1940
• Docket Number: 27732.
• Parties: McDOUGALL et al. v. HEPDEN.
• Court: Washington Supreme Court

101 P.2d 570

3 Wn.2d 603

McDOUGALL et al. v. HEPDEN.

No. 27732.

Supreme Court of Washington

April 25, 1940

Department 1.

Action for an accounting and for the involuntary dissolution of a corporation by D. A. McDougall and McDougall, Hepden & Boden Incorporated, against James Hepden and Mary E. Hepden individually and, upon substitution as party defendant upon death of James Hepden, as executrix of the estate of James Hepden, deceased, wherein a receiver was appointed and the corporation's business, premises, and good will sold to James Hepden. From judgment denying an accounting and dismissing the action as to Mary E. Hepden independently and as executrix, and ordering dissolution of the corporation, D A. McDougall appeals.

Affirmed.

Appeal from Superior Court, King County; Calvin S Hall, judge.

P. O. D. Vedova and Paul E. Malone, both of Seattle, and W. Ward Fearnside, of Denver, Colo., for appellant.

Lundin & Barto, of Seattle, for respondent.

MILLARD Justice.

D. A. McDougall and James Hepden each owned fifty per cent of the capital stock of McDougall, Hepden and Boden, incorporated, a domestic corporation which maintained a business at 207 First Avenue South, Seattle, for a number of years, consisting of a restaurant, a bar at which the corporation was authorized to sell wine and beer, a card room and an employment agency. It was the practice of the corporation to lend money to loggers for which those borrowers would sign an 'I.O.U.' which was carried by the corporation as cash. At times the men would leave money with the corporation for safe-keeping. In 1928, shortly after McDougall and Hepden became equal owners of the stock of the corporation, one John Boden entered into a contract with them to purchase one-third of their stock on a conditional sale contract. He never made any payments, hence never acquired ownership of any stock, but his name was added to the corporate name and he commenced to work for the corporation with McDougall and Hepden. The business was corporate in form but it was administered in a manner savoring of a partnership. No dividends were paid. The profits were divided whenever they accumulated. Boden was not a stockholder, yet for the nine years he worked with McDougall and Hepden he regularly received one-third of the profits. In 1929 and 1930 the three men divided profits of from $25,000 to $30,000. It was agreed from the beginning that McDougall's work would be confined to the running of the employment part of the corporation, that Hepden would devote himself to keeping the books and that Boden would work as a handy man and fill in wherever help was necessary. Up to August 1, 1936, Hepden kept a journal or day book in which all of the receipts and disbursements of the corporation were entered. At the end of each day McDougall would hand to him the commissions collected for employment services during the day and Hepden would enter them in the day book under a special column entitled 'Employment Receipts.' A bookkeeper was employed to post the ledger from this day book. On August 1, 1936 McDougall was employed by Weyerhaeuser Timber Company to conduct the timber company's employment office. From August 1, 1936, to March 31, 1938, the period for which an accounting is sought, McDougall was employed by the timber company. However, he continued to work evenings with the McDougall, Hepden and Boden Corporation. His interest in the business of his corporation was not restricted to his presence there each evening and often during the day. He employed a Mr. Miller to look after his interests in the corporation. There is testimony that he subsequently employed a Mr. Brown and a Mr. Kehrer for that purpose. From August 1, 1936, when McDougall commenced to work for the Weyerhaeuser Timber Company, the profits of the entire business continued to be equally divided between him, Hepden and Boden as had been the case Before McDougall took over the employment department of the timber company. In December 1937, McDougall became suspicious and consulted counsel respecting the protection of his interests. As a result of that consulation McDougall decided to seek an accounting and to withdraw from the business. In March 1938 McDougall instituted an action alleging he was Vice-President, trustee and manager of McDougall, Hepden and Boden Corporation and that he owned one-half of the capital stock of that corporation. He further alleged that the corporation was insolvent, that the directors were divided, the voting power of the shareholders was equally divided, and that Hepden had appropriated to himself large sums of money. The prayer was that defendant James Hepden be required to account to the corporation for all transactions and business conducted by him from the time the business of the corporation had been conducted by Hepden; that a receiver be appointed for the corporation and that the corporation be dissolved after payment of all just claims and distribution of the remaining assets of the corporation. McDougall made the corporation a party plaintiff with himself instead of a party defendant. A receiver was appointed for the corporation. McDougall put in his claim with the receiver for $400 representing money advanced by him on behalf of the corporation to John Davis & Company for rental of the premises occupied by the corporation. On April 4, 1938, the receiver sold the business and premises and the goodwill to James Hepden for $5,500. The claim of McDougall and all other claims of the creditors of the corporation were paid and the balance remaining in the hands of the receiver after payment of all of the debts of the corporation was disbursed equally to the then owners of all of the stock of the corporation, McDougall and Hepden, each receiving $229.54.

Approximately three months later when McDougall brought on for hearing his purported action for an accounting, he was granted further time in which to permit an accountant to examine the books of the corporation for the purpose of eliciting evidence which would warrant an accounting. The books were, as counsel for McDougall stated, 'in very bad shape, and it was very difficult, as probably Mr. Barto has discovered, to make head or tail of it, but we did the best we could.'

The books disclosed a certain amount of cash on hand at the time of the appointment of the receiver when the fact was, according to the uncontroverted report of the receiver, that there was no cash. The checks introduced in evidence showed two signatures were required to withdraw the money from the bank. There is evidence that the money represented by the checks was spent in paying the bills of the corporation, that Hepden did not keep any books except the daily reports and a day book, that when McDougall went to work for the Weyerhaeuser Timber Company, August 1, 1936, Mr. Boden's daughter also worked on the books; and that deposits were made by Hepden, Boden, and occasionally by McDougall.

It was the theory of counsel for McDougall that, admitting the employment checks amounting to more than $4,000 were deposited in the corporation's account, someone had withdrawn an equal amount of money from the cash box of the corporation. There is no evidence to support that theory, nor is there any evidence in refutation of the testimony of Hepden that the money represented by the checks was expended in payment of the bills against the corporation. McDougall testified that probably six or seven persons had access to the cash register. McDougall removed more than $490 from the employment box in the safe. He admitted he took or borrowed for his own use $310 but could not remember whether it was in checks or cash. He explained that it was only a case of borrowing the money for a few days.

Boden a witness for McDougall, testified that during the ten years he was employed by the corporation he could not say that he ever found any discrepancies in the accounts of Hepden or any items that Hepden had appropriated for himself. McDougall testified that he had had access to the books of the corporation at all times; that there were no sources of information available to a referee who would be making the accounting that were not available or accessible to him or to Mr. Hepden. He thought the books kept by Mr. Beattie, who had been the bookkeeper for ten years, were all right but the only question in his mind was how the checks in excess of $4,000 from the employment came into the business without being entered on the books. Bookkeper Beattie testified that no one...