Title Ins. & Trust Co. v. Northwestern Long-Distance Telephone Co.

• Decision Date: 21 May 1918
• Citation: 88 Or. 666,173 P. 251
• Parties: TITLE INS. & TRUST CO. v. NORTHWESTERN LONG-DISTANCE TELEPHONE CO. (HOME TELEPHONE & TELEGRAPH CO. OF PORTLAND ET AL., INTERVENERS.
• Court: Oregon Supreme Court

173 P. 251

88 Or. 666

TITLE INS. & TRUST CO. v. NORTHWESTERN LONG-DISTANCE TELEPHONE CO. (HOME TELEPHONE & TELEGRAPH CO. OF PORTLAND ET AL., INTERVENERS.

Supreme Court of Oregon

May 21, 1918

In Banc.

Appeal from Circuit Court, Multnomah County; W. N. Gatens, Judge.

Suit by the Title Insurance & Trust Company against the Northwestern Long-Distance Telephone Company, in which the Home Telephone & Telegraph Company, of Portland, Or., Charles E. Sumner, and John B. Coffey, as receiver of the Northwestern Long-Distance Telephone Company, intervened. From the judgment, plaintiff appeals. Affirmed in part, reversed in part.

The plaintiff, Title Insurance & Trust Company, the Northwestern Long-Distance Telephone Company, and the National Securities Company are all corporations organized and existing under the laws of California, with their home offices at Los Angeles in that state. The Home Telephone & Telegraph Company is an Oregon corporation, whose principal place of business is in Portland. The Home Telephone Company of Puget Sound is a Washington corporation, with headquarters at Tacoma. For brevity of expression, the plaintiff will be designated as the Title Company; the Northwestern Long-Distance Telephone Company, the Northwestern Company; the Home Telephone &amp Telegraph Company of Portland, the Portland Company; and the Home Telephone Company of Puget Sound, the Washington Company.

On March 15, 1906, the Northwestern Company issued its bonds in the sum of $1,500,000, in various denominations, to run for 30 years, with interest at 5 per cent. per annum, payable semiannually, according to coupons attached thereto providing substantially, among other things that, if default should be made in payment of the interest, the whole sum might become due and payable under certain conditions, to be more fully stated. To secure those obligations the Northwestern Company executed and delivered to the Title Company a trust deed conveying to the latter, in trust for the holders of the bonds, the property of the former described as--

"all and singular the real and personal property, franchises rights, privileges, telephone and telegraph lines, extensions, branches, additions, poles, wires, cross-arms, insulators, conduits, cables, batteries, switchboards, electric apparatus and appliances, and all tools, implements, material, machinery, and all other property of every kind and nature and wherever the same may be situate, now owned or belonging to the party of the first part, or which shall or may hereafter belong to, be owned or acquired by, the party of the first part during the life of said bonds, or any of them, together with all and singular the tenements, hereditaments, and appurtenances thereto belonging or in any wise pertaining, and the reversion and reversions, remainder and remainders, rents, issues, and profits thereof."

Various procedures for declaring a default in performance of the conditions of the trust deed are specified therein, but the one relied upon in this suit is substantially that, in case default should be made in payment of the interest upon the bonds, and should continue for a period of six months, the trustee, being thereunto requested in writing by the holders of the majority in par value of the bonds then outstanding, should foreclose the trust deed by suit culminating in a sale of the property, from the proceeds of which should be discharged the sums due upon the principal and interest of the bonds, the taxes and other assessments, as well as compensation for the services of the trustee "in such amount as shall by the court be deemed just," the overplus, if any, to be paid to the Northwestern Company, its successors or assigns. Claiming that default had been made in the payment of interest, and that it had been properly instructed so to do, the Title Company instituted this suit November 28, 1911, in the circuit court for Multnomah county, to foreclose the trust deed, claiming $10,000 as an attorney fee, and a like amount as a fee for its own services. The Northwestern Company itself filed an answer prepared by the counsel for the plaintiff admitting all the allegations of the complaint, excepting only the amount claimed for attorney's fees and trustee's fees, and averring that the sum of $5,000 in each instance was sufficient to be allowed for those purposes.

Later on, alleging himself to be the owner and holder of 950 shares of the capital stock of the Northwestern Company of the par value of $95,000, and of $800 face value of its bonds, besides a judgment of $5,000 against it upon which execution had been issued and returned unsatisfied, Charles E. Sumner intervened by leave of the court, and put in an answer and cross-complaint stating sundry instances of misconduct of the directors of the Northwestern Company resulting, as he claims, in a depletion of its treasury and the happening of the default upon which this suit is based. On his prayer the court appointed a receiver of all the property, assets, franchises, rights and privileges, including business and good will, of the defendant the Northwestern Long-Distance Telephone Company, of every kind, nature, and description, situate in the state of Oregon, empowering him to institute all necessary actions, suits, and proceedings to obtain possession thereof, and to collect and recover any debt or demand due to the Northwestern Company from any person or corporation, wheresoever they might reside, and to take any proper or necessary action to prevent the foreclosure of the mortgage in the instant suit. In due time the receiver filed an amended answer challenging the complaint in material particulars, and affirmatively stating, in substance, that the directorates of the plaintiff, the Title Company, the Northwestern Company, and the National Securities Company were controlled by and in the interest of certain persons named; and that, by means of these interlocking boards, various transactions were carried on, in dealing with the stock and securities of the Northwestern Company, to the financial detriment of the latter and to their gain, resulting in the company's failure to meet its interest charges, and bringing about the default upon which the suit is based.

Among other things, the receiver alleged that by the laws of the state of California, where these last-named corporations have their domicile, the directors of such institutions are forbidden to contract any debts beyond the subscribed capital of the concern they represent, under penalty of becoming personally liable in their individual capacity, jointly and severally, to the creditors of the corporation to the amount of the debt contracted, without relief from any statute of limitations. The existence of such a law is admitted by all parties, and it is contended by the receiver in his answer, in substance, that the directors of the Northwestern Company caused an issue of its bonds in excess of its subscribed capital stock in an amount exceeding $750,000, and manipulated its affairs with a veiw of protecting themselves in their malfeasance, and in so doing wrecked the company. Reduced to its lowest terms, this is the essence of an exceedingly prolix and complicated answer filed by the receiver. This new matter was traversed by the reply. The Portland Company intervened, setting up a contract with the Northwestern Company for interchange of telephone service, and prayed that whatever decree was made the agreement should be protected. It seems that no particular opposition was made to that prayer, although that cross-bill in intervention was dismissed by the final decree, together with the cross-complaint of Charles E. Sumner.

It came out in testimony that, as a result of investments made by the Northwestern Company through its directors in securities of the Portland Company and the Washington Company, there had been collected and placed in the hands of the Title Company in Los Angeles upwards of $80,000 in cash and $57,500 par value bonds of the Portland Company, and that after this suit was commenced in Oregon a proceeding was instituted in the superior court at Los Angeles to partition and distribute that money and those bonds among the parties claiming them. The theory of that suit was that the money and bonds mentioned constituted the avails of property for which the unlawful surplus of bonds in the sum of $750,000 had been issued in excess of the subscribed stock of the Northwestern Company, and that, the parties who procured this wrongful issue having returned it to the Northwestern Company for cancellation, they were entitled to the property for which the issue had been exchanged. The plaintiff here was made party to that suit, and consented to a decree distributing the property there in question. It is stated in the receiver's application to the circuit court of Multnomah county that the money and bonds involved in the Los Angeles suit were in custody of the Title Company in that city. No charge is made in the pleadings of the receiver that the Title Company had converted that property to its own use. The circuit court of Multnomah county decreed a foreclosure of the trust deed described in the complaint, directing the application of the proceeds of sale to the payment of the legitimate $750,000 of the Northwestern Company's bonds, being one-half of the original $1,500,000 mentioned in the trust deed, gave a personal judgment against the Title Company for $131,354.39, omitted all allowance for attorney's fees or compensation for it as trustee, and ordered a sale of the property for the satisfaction of the decree. The Title Company alone appealed, no other party making any question as to the correctness of the determination of the circuit court.

Alfred A. Hampson, of Portland (Fenton,...