Patterson v. Portland Smelting & Refining Works

• Decision Date: 20 March 1899
• Citation: 35 Or. 96,56 P. 407
• Parties: PATTERSON et al. v. PORTLAND SMELTING & REFINING WORKS et al.
• Court: Oregon Supreme Court

56 P. 407

35 Or. 96

PATTERSON et al. v. PORTLAND SMELTING & REFINING WORKS et al.

Supreme Court of Oregon

March 20, 1899

Appeal from circuit court, Multnomah county; L.B. Stearns, Judge.

Suit by T. Patterson, James Lotan, and Julius Ordway against the Portland Smelting & Refining Works and John Kiernan, trustee. From a decree for defendants, plaintiffs appeal. Affirmed.

This is a suit to set aside a sale of the real property of an insolvent corporation to a director thereof. The transcript shows that the Portland Smelting & Refining Works, a corporation, being in need of funds to carry on the business in which it was engaged, 21 of its stockholders, including the plaintiffs, on February 8, 1892, in consideration of the corporation pledging to them its property as security therefor, executed to it their several promissory notes aggregating $100,000, which it indorsed to the Bank of British Columbia as collateral security for such of its overdrafts as the bank might honor. That the business of smelting ores having been operated at a loss, and the corporation being indebted on account of said overdrafts, its stockholders, at a meeting thereof held February 24, 1894 having determined to wind up its affairs, adopted, inter alia, the following declaration: "Resolved, further that the board of directors be, and they hereby are authorized to make sale of the corporate property, and reduce its other assets to money, on the best terms procurable, and at the earliest practicable date, and from the proceeds of sale and other assets to satisfy the indebtedness of the corporation, distributing the overplus, if any, among the stockholders in proportion to their holdings of stock; and since the persons who now fill the office of directors have heretofore, along with other stockholders, assumed large liabilities on behalf of said corporation, and in order to save themselves from loss said directors and stockholders may be compelled to look to the corporate property for redress and may alone, or in connection with others, be compelled to buy said property, or some part of it, if no other purchaser can be found, it is hereby resolved that said property be advertised by said directors at such time as in their judgment will be likely to produce the best results, for sale at public auction, in the same manner and for the same length of time as is required for the sale of real property on execution by the laws of this state, and that upon such sale any directors and stockholders may become purchasers of said property, provided they are the highest bidders; but if any outside purchaser for said property at private sale can be found at any time at a price satisfactory to the directors, and in their judgment it shall be expedient to sell to such purchaser rather than to hold the property for such public sale, then, and in that event, said directors are authorized to make sale to such purchaser at such price, and on such terms, as in their discretion they may determine."

Thereafter the bank, desiring to obtain a settlement of its account for the money advanced to the corporation on the faith of the collateral securities which the latter had assigned to it, demanded payment thereof from the makers of said notes, in pursuance of which the sum of $38,892.36, including the principal so advanced and interest thereon, together with the sum of $268, expenses incurred by the bank in the case of Patterson v. Bank, 26 Or. 509, 38 P. 817, was paid or secured to it between July 26, 1894, and October 15th of that year, by the following named makers of said notes, to wit: Honeyman, De Hart & Co., Charles Hegele, T. Wolff, J. McCraken, J. Kiernan, J.W. Cook, E.G. Harvey, W.W. Spaulding, K.A.J. McKenzie, and R.B. Knapp. The board of directors of the Smelting & Refining Works, being unable to effect a private sale of the corporate property, resolved, at a meeting held November 17, 1894, that it was not advisable to further delay the execution of the stockholders' resolution; and thereupon directed the president and secretary to make a sale of said property, and apply the proceeds arising therefrom in satisfaction of the corporate debts, and requested the bank to assign, to those who had discharged the obligations of the corporation, the notes of those who had not participated therein. In pursuance of the directors' resolution, J. McCraken, president, and Edward G. Harvey, secretary, of said corporation, published in the Weekly Oregonian a notice to the effect that the Portland Smelting & Refining Works, describing it by metes and bounds, together with the tenements, hereditaments, and appurtenances thereunto belonging, or in any wise appertaining, would be sold in front of the door of the court house in Multnomah county on Monday, January 21, 1895, at the hour of 11 o'clock in the forenoon, to the highest bidder for cash. At the time so appointed, the premises were sold for the sum of $9,550 to J. Kiernan, in trust for the persons above named, who had discharged the indebtedness to the bank, and at a meeting of the board of directors, held February 19, 1895, said sale was confirmed, and thereafter a deed of said property was executed to the purchasers.

The plaintiffs, T. Patterson, James Lotan, and Julius Ordway, who had joined the 18 other stockholders in executing promissory notes as collateral security for the corporation, but who had not participated in discharging the obligation thereby incurred, instituted this suit, alleging the facts, in substance, as hereinbefore stated, and that the directors of the corporation, in pursuance of a fraudulent design and with intent to injure the other stockholders who had become joint sureties by executing said notes, made no reasonable effort to sell said property at private sale or public auction; that the advertisement thereof was inadequate and insufficient to give reasonable notice; that it omitted to describe the machinery, tools, and other personal property, thereby enabling the purchasers to acquire said property at much less than its real value; and that if the sale be set aside, and a receiver appointed to take charge of said property, he could resell the same for a sufficient sum to pay all the debts of the corporation.

The defendant John Kiernan, denying the material allegations of the complaint, avers that he holds the legal title to said property in trust for the makers of said notes who paid the debt of the corporation; that the notes of those who had not contributed to the payment thereof had been assigned to him; and that, if the plaintiffs would pay their proportion of said debt, he would share with them all profit which might be realized in any manner from said property.

The reply having but in issue the allegations of new matter contained in the answer, a trial was had, and from the evidence taken thereat the court found, in addition to the facts hereinbefore stated, that the property of the Smelting & Refining Works was not, on the day of the sale thereof, worth the sum of $40,000, nor could it have been sold for a greater sum than was bidden therefor; that the board of directors of said corporation acted fairly; and that Kiernan, and the persons for whom he held the legal title to said property, acted openly, and for the best interests of the corporation, and all who were concerned therein, and was obliged to purchase said property in default of any other buyers; and thereupon dismissed the suit, from which decree plaintiffs appeal.

E.W. Bingham, for appellants.

L.B. Cox, for respondents.

MOORE, J. (after stating the facts).

It is contended by plaintiffs' counsel that the directors made no reasonable effort to secure a purchaser of the corporate property at private sale, and that the notice of the public sale, as published by their agents, failed to state the character of the property to be disposed of; that the tract of land upon which the smelter was erected contained 16 1/2 acres, but the notice of sale imparted no information of its area; that the property had a frontage of 393 feet on the ship channel of the Willamette river, a convenient wharf extending thereunto, and a tramway 1,000 feet in length leading from the wharf to the works, of which the notice of sale made no mention; that the plant was equipped with costly roasters, furnaces, smoke flues, and stacks, portable and stationary engines, pumps, fans, a donkey engine, large track scales, assaying implements, besides a lot of machinery that had not been set up, much of which was portable, and could have been profitably used elsewhere, but no reference to...