Olmstead v. McCleary

• Decision Date: 11 February 1924
• Docket Number: 18286.
• Citation: 128 Wash. 406,223 P. 15
• Court: Washington Supreme Court
• Parties: OLMSTEAD et al. v. McCLEARY.

223 P. 15

128 Wash. 406

OLMSTEAD et al. v. McCLEARY.

No. 18286.

Supreme Court of Washington, En Banc.

February 11, 1924

Appeal from Superior Court, Grays Harbor County; Reynolds, Judge.

Action by Julia K. Olmstead and others against Henry McCleary. From judgment rendered, both parties appeal. Reversed, with directions.

Pemberton J., dissenting.

W. H. Abel, of Montesano, M. F. Gose, of Olympia and E. S. Avey, of Elma, for appellants.

Charles H. Paul, Riddell & Brackett, Peter & Powell, and Alfred J Schweppe, all of Seattle, for respondent.

TOLMAN J.

Both parties to this action have appealed from the judgment below and for convenience they will be referred to throughout as plaintiffs and defendant, except as reference to some individual plaintiff may be necessary.

John W. Olmstead was an employee of the Henry McCleary Company, a corporation, engaged in the lumber and timber business, and in 1901 or 1902, by the investment of accumulations, amounting to some $1,200, and perhaps by his earnings in part, he acquired certain stock in that company. Thereafter about 1906 the Henry McCleary Timber Company was incorporated and succeeded the Henry McCleary Company. Olmstead became the owner of 119 1/8 shares of the stock of the par value of $11,912.50 out of its total capital of $250,000. The remainder of the capital stock was owned by Henry McCleary, 983 13/16 shares; George Osgood a like amount; William McCleary 298 1/8 shares; and the remainder in small amounts by others who were mostly employees of the company.

Olmstead died intestate in 1908, leaving surviving him his wife and three minor children. His estate consisted of this stock, an automobile, afterwards appraised at $350, a small amount due him from the company as salary, and $1,000 in life insurance, which was probably payable to the widow, and no part of the estate proper; at any rate this $1,000 was collected by the widow and deposited with the Henry McCleary Timber Company and thereafter drawn upon as she had need for funds for the maintenance of the family.

In 1910, nearly a year and a half after Mr. Olmstead's death, on petition of the widow, Julia K. Olmstead, Henry McCleary was appointed administrator of the estate, duly qualified, and in August of that year he, jointly with Julia K. Olmstead, petitioned the court which had jurisdiction of the estate for an order for the sale of this stock. The petition sets out:

'That the entire estate, so far as known, consists of 119 1/8 shares of stock in the Henry McCleary Timber Company, which has been appraised at the sum of $23,825, and one Reo automobile, which has been appraised at the sum of $350; that said shares of stock constitute a minority interest and no dividends have ever been declared, and it is not the policy of the company to declare dividends; that the petitioners believe it to be for the best interests of the estate and the heirs that said personal property be sold at either public or private sale as the court may consider best, and that the proceeds of the sale be invested in some income producing property; that there are no funds on hand wherewith to pay the expenses of administration, and it will be necessary to reduce part of the personalty to cash in any event.'

A hearing was had and an order made directing the stock to be sold at public auction on 10 days' notice. The notice was duly given, and the stock sold to William McCleary at $200 per share, which was its appraised value. The sale was reported as being for cash, and was by the court confirmed on September 17, 1910. It appears that the actual steps taken to complete the sale were the indorsement and surrender by the administrator of the Olmstead stock certificate to William McCleary, the charging of the purchase price to William McCleary on the books of the Henry McCleary Timber Company, and a corresponding credit being made on those books to Henry McCleary, administrator. This is explained by the uncontradicted evidence that the business of the Henry McClearly Timber Company was carried on at a place remote from banking facilities, and that it customarily acted as a banker for its officers and employees and perhaps others in the community, so that, except for the amount involved, the transaction was in no way unusual. In October following the sale the administrator and Julia K. Olmstead jointly petitioned the court for an allowance of $100 per month, to be paid from the proceeds of the sale, to the widow for the support of herself and minor children, dating from the death of Mr. Olmstead, and on October 22, 1910, an order for the payment of such allowance was made.

In January, 1911, the widow again petitioned the court for a partial distribution of the estate, again setting up the sale and its results, and in March, 1912, the administrator made his final report, due notice was given, a guardian ad litem for the minors was appointed, and after the hearing a decree of final distribution was entered in the probate proceedings on April 6, 1912.

Mr. McCleary did not then, however, distribute the funds to the widow and children, but continued, as before, to hold the money, act as their man of business, send to the widow $100 per month, which he claims represented the interest at 6 per cent. per annum on the credit still shown by the books of the Henry McCleary Timber Company, until to the payment to the widow of considerable sums which she asked for to invest in a home the credit was so reduced that the interest thereon aggregated but $80 per month, and that sum was thereafter remitted to her monthly. This continued until January, 1920, when, the minor son Clifton E. Olmstead having asked for certain advances, it is claimed that discovery was then for the first time made that the stock had been sold. Mrs. Olmstead denies any knowledge or recollection of any of the proceedings for the sale of the stock, the contents of the several petitions signed by her, or the disbursement of the proceeds of the sale, and the plaintiffs all assert that up to that time they fully believed that they were still the owners of the stock and had been receiving only its earnings. Needless to say the stock has greatly appreciated in value since the death of Mr. Olmstead. The corporation has been a prosperous one. Its statement made May 1, 1910, about the time of the initiation of the probate proceedings, shows a surplus of $211,973.62, though its assets were largely nonliquid in character, for the most part being in plant, equipment, and timber holdings, while at the time of the trial below Mr. McCleary testified that the stock was worth about $1,000 per share, and the judgment of the trial court is based on that figure.

There are many other facts and details involved, some of which will be mentioned as we proceed, and all of which are ascertainable from the record, whether here mentioned or not, have been considered.

The amended complaint, upon which the case was tried, charges both actual and constructive fraud on the part of the defendant in carrying through a pretended and colorable sale of the stock for his own benefit and purposes without the knowledge or consent of those beneficially interested. The trial court found there was no actual fraud, but that there was constructive fraud, chiefly in that the stock was paid for by bookkeeping entries, and that actual cash did not pass from hand to hand.

One of the minor children having died, the two remaining children succeeded to his interest, and the them each was granted judgment for $27,731.16, the aggregate of the two being the value of one-half of the stock at $1,000 per share. Julia K. Olmstead, the widow, was denied relief, upon the ground that by her subsequent acts she had ratified the sale. Clifton E. Olmstead was still a minor when the suit was brought, and was represented throughout by Julia K. Olmstead, his guardian, but he became of age a few days before the final decree was entered, and the judgment in his favor is therein set forth in these words:

'It is further ordered, adjudged, and decreed that the plaintiff Julia K. Olmstead, as guardian of the estate of Clifton E. Olmstead a minor, and Clifton E. Olmstead, who since the institution of this suit has become of age, jointly have and recover of and against the defendant, Henry McCleary, a judgment in the sum of $27,731.16.'

The first question to be considered is raised by a motion on behalf of the plaintiffs to dismiss the defendant's appeal, first, because of the supposed insufficiency of the notice of appeal, and, second, because of the supposed insufficiency of the appeal bond.

The notice of appeal is entitled as is the complaint and all papers filed subsequently in the cause, does not name Clifton E. Olmstead individually as a plaintiff, and refers to him only by naming as one of the plaintiffs 'Julia K. Olmstead as guardian of the estate of Clifton E. Olmstead, a minor,' and proceeds: 'To the plaintiffs above named.' The point raised is that Clifton E. Olmstead, on attaining the age of 21 years, was entitled to assume control of all of his property and property rights, which fact was recognized in making the judgment run in his favor jointly with the guardian, and that therefore the notice of appeal is ineffectual, unless served on him. The question as to the sufficiency of the appeal bond is a similar one. The bond runs in favor of Julia K. Olmstead as guardian, etc., and does not in terms run to Clifton E. Olmstead as an individual.

The statute, Rem. Comp. Stat. § 1719, does not specify the form...