Rugger v. Mt. Hood Elec. Co.

• Decision Date: 28 March 1933
• Citation: 143 Or. 193,20 P.2d 412
• Parties: RUGGER et al. v. MT. HOOD ELECTRIC CO. [*]
• Court: Oregon Supreme Court

20 P.2d 412

143 Or. 193

RUGGER et al. v. MT. HOOD ELECTRIC CO. ^[*]

Supreme Court of Oregon

March 28, 1933

Department 2.

Appeal from Circuit Court, Multnomah County; Robert Tucker, Judge.

Suit by Ed Rugger and others, preferred stockholders, against the Mt Hood Electric Company to enjoin the payment of certain alleged claims of officers and directors of the defendant corporation for compensation, and for the appointment of a receiver to collect the alleged balance due on stock issued by the defendant corporation in payment for property transferred to it at an asserted gross overvaluation, or for the cancellation of certificates of such stock. From a decree in favor of defendant, plaintiffs appeal.

Reversed and remanded.

P.J. Gallagher, of Portland (Cecelia P. Gallagher of Portland, on the brief), for appellants.

William D. Bennett and Howard E. Green, both of Portland, for respondent.

BAILEY Justice.

On May 19, 1928, articles of incorporation of Mt. Hood Electric Company were filed with the corporation commissioner of this state. The capital stock was divided into 500 shares of common and 20 shares of preferred, of the par value of $100 per share, and 480 shares of stock of no par value. On May 31, 1928, when the first meeting of the stockholders was held, the following number of shares had been subscribed for John S. Shute, 8 shares of common and 20 shares of preferred stock; J. W. Myers, 380 shares of common and 20 shares of stock of no par value; and one share each of common stock was subscribed for by two other individuals.

At this meeting of the stockholders a resolution was passed providing for a board of seven directors, which provision was incorporated in the by-laws, and the four stockholders above mentioned were elected as members of the board, leaving three vacancies. Another resolution was adopted, authorizing the filing of supplementary articles of incorporation increasing the preferred stock from 20 shares to 250 shares of the par value of $100 a share, and reducing the stock of no par value from 480 shares to 250 shares. The original articles of incorporation provided that the amount of capital which was required to be paid in, either in cash or property at its fair cash value, before the corporation could begin doing business, should be $10,000, and the supplementary articles of incorporation, authorized at this meeting, reduced that amount from $10,000 to $1,000. The directors were also authorized to fix the price at which the stock of no par value could be sold by the corporation, but at not less that $25 per share. Thereafter, and on or about July 31, 1928, supplementary articles of incorporation were filed making the changes authorized at the first meeting of the stockholders.

The principal object of this corporation appears to have been to take over, complete, and operate a partly constructed electric transmission and distributing system from the east boundary of the town of Sandy to Rhododendron and adjacent territory, occupied largely by summer homes. J. W. Myers was the moving spirit in the organization of the company and in the subsequent development of the transmission and distributing system. Prior to the incorporation of the defendant company, he and others had been interested in the Loop Electric Corporation, which had commenced the construction of a transmission and distribution system, the one involved herein, from Sandy east along the Mt. Hood highway, had purchased and set in the ground most of the poles from Sandy to Alder Creek, a distance of about nine miles, and had procured and distributed additional poles along the proposed line east of Alder Creek.

In carrying out its program, the Loop Electric Corporation had borrowed from one Roy Keagy the sum of $2,700, and, upon failure to pay the same, action was brought by Keagy against the Loop Electric Corporation. The property of that company was attached, sold on execution, and purchased by Keagy for the sum of $250.

Prior to or about the time of the incorporation of the defendant company, J. W. Myers had entered into negotiations with Keagy for the purchase of the property which the latter had acquired on execution sale. An understanding was had between the two to the effect that Myers would organize a corporation and would transfer to Keagy 20 shares of preferred and 34 shares of common stock in that corporation in payment for this property.

On or about June 1, 1928, John S. Shute, pursuant to an agreement he had with Myers, began to advance money to the defendant corporation for the completion of the electric system to Alder Creek and, according to Shute's testimony, did advance in all the sum of $3,319, but the record fails to disclose how much of that amount was advanced by Shute before August 1, 1928. By that date the line from Sandy to Alder Creek had been completed, with funds furnished by Shute for that express purpose, and was furnishing service to a few patrons, not to exceed ten in all.

On the last-mentioned date at a meeting of the board of directors of the defendant corporation Myers offered to transfer to the corporation the property acquired by Keagy on execution sale, the services of his own attorney for two years and certain contracts, in full payment for the $40,000 worth of stock subscribed for by himself, his offer being as follows:

"I hereby offer the property listed below belonging to me and located on the Mt. Hood Loop highway in Clackamas county, Oregon, and being an electric line partly constructed and partly not constructed under a franchise issued by the state highway board of the state of Oregon; the property thus referred to is covered by the list referred to and marked Exhibit A, and I offer same to your company for the amount of stock subscribed to by me, both common and no-par.

"And included with said offer and to accompany same and be transferred to your company should this proposal be accepted is all machinery, tools, equipment and materials now upon the ground and used in the erection of the line now in process of construction; the same to be sold to you as a going concern and also all property being free and unencumbered, and of the reasonable value of $40,000."

Exhibit A referred to in the foregoing is as follows:

"All light and power poles, standing and down, with all braces and cross arms thereon or on the ground; all easements and easement papers, instruments and rights; all books and papers, records, stationery and reports; orders of the public service commission, if any right of way contracts; and all tools and machinery; all wire and wires, braces, ropes, etc., franchises and permits to build granted by the state highway commission of the state of Oregon, under which said line is erected; together with renewal rights incident to same, and especially a permit to construct, operate and maintain a power pole line on and along the right of way of Mt. Hood Electric Co. granted by the Oregon state highway commission January 5, 1925, and accepted and approved by the former Loop Electric Power Company, December 27, 1927, and which was assigned to the Loop Electric Company heretofore and bought up at public sale by Roy H. Keagy, of Portland, Oregon;

"All contracts with customers now being served with electric current and all contracts for current and power; all moneys due or accruing, or growing due from customers for current or otherwise; all accounts due and owing and all moneys on hand, if any;

"Also, I offer to accompany this offer the services of my attorney for a period of two years beginning with the 1st of January, 1928, to be rendered this company without further compensation in the way of money from the company.

"(The above line is erected and in operation from Sandy to Alder Creek on the Mt. Hood Loop highway, at present. All wire for current transmission and for guy wires and guy poles is erected and in place and all in full operation between the points above mentioned.)"

This offer was accepted by the board of directors, consisting of four members, including J. W. Myers, who was to receive 380 shares of common and 20 shares of no par stock for the property offered by him to the corporation; John S. Shute, who was to receive from Myers 90 shares out of the 380 shares of common stock issued to the latter; the personal attorney and brother-in-law of Myers, who was to receive 50 shares of common stock for his services from January 1, 1928, to December 31, 1929; and a fourth director, who subscribed for one share of stock, to qualify as a director in order to constitute a quorum of the board of directors.

After accepting the proposition of Myers and at the same meeting a resolution was adopted that the corporation procure from the corporation commissioner of the state of Oregon a permit to sell $10,000 worth of preferred stock of the defendant company. On August 9, 1928, the corporation commissioner granted authority to the corporation to sell that amount of its preferred stock before August 1, 1929, which license does not appear to have been renewed or extended beyond the original time limit, nor does there appear any permission to dispose of the stock sold in excess of the $10,000 specified in the permit. When the amended complaint was filed, there was outstanding $17,100 of preferred stock, of which amount plaintiffs were the owners of 153 shares. According to the testimony, 26 shares of preferred stock were issued by the corporation to Shute, for money advanced by him to complete the line to Alder Creek, and 20 shares of preferred stock were issued to Myers pursuant to a resolution of the board of directors adopted August 16, 1928, in exchange for his 20 shares of no par value stock, and by him transferred to Keagy. 125 shares, therefore, were...