Case ID: wash_140/html/0596-01.html
Source: Caselaw Access Project
Author: {"author": "Main, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

[No. 19784.
    Department Two.
    October 25, 1926.]
    A. W. Haynes et al., Appellants, v. Central Business Property Company et al., Respondents, W. H. Matthews et al., Interveners.
    
    
       Corporations (12) — Organization—Attacking Validity. A unit holder in an alleged common law trust cannot maintain an action for the appointment of a receiver on the ground that the trust is illegally exercising the powers of a corporation; since the state alone can complain thereof.
    
       Fbaud (11) — Actions—Waiver of Right. A person who acquires in the open market a unit in a common law trust long after the fraud was committed cannot question the validity of the original transaction.
    
       Fraud (11-1) — Actions—Defenses. Fraud in the transfer of property in trust and the sale of units in the unitization cannot be claimed by a unit holder acquiring his interests after the alleged fraud was committed, where there were no fiduciary relations with the purchaser and it did not act as agent of the unit holders.
    
      
       Corporations (193) — Actions—Capacity to Sue and Be Sued. A corporation does not cease to exist by reasons of being bankrupt and having its name stricken from the records in the secretary of state’s office, where it has the right to be reinstated, and can be sued, although, under Rem. Comp. Stat., § 3842, it cannot maintain an action.
    
       Receivers (11) — Appointment—Defenses. The violation of a trust deed by the payment of an unauthorized commission for managing the property, does not form the basis for the appointment of a receiver in a suit brought by a unit holder; since he can recover at law the amount due him on his unit.
    Appeal from a judgment of the superior court for Spokane county, Witt, J., entered September 25, 1925, dismissing an action for the appointment of a receiver, after a hearing to the court.
    Affirmed.
    
      Merritt <& Curtiss and C. C. Lantry, for appellants.
    
      Bon F. Kiser, Graves, Kiser & Graves, Banson, Lowe & Banson, Hamblen .& Gilbert, and Lund & Bodds, for respondent Central Business Property Company.
    
      Wakefield & Witherspoon {Harry T. Bavenport, of counsel), for respondent Union Trust Company of Spokane.
    
      
      Reported in 249 Pac. 1057.
    
   Main, J.

— By this action, the plaintiff sought the appointment of a receiver for, and the sale of, a business property. The trial to the court without a jury resulted in a judgment of dismissal, from which the plaintiff appeals.

Some years ago, the Trustee Company, a corporation, was the owner of five properties in the city of Spokane, referred to respectively as the Wolverton Building, the Hyde Building, the Eagle Building, the Temple Court Building, and the Empire State Building. That company transferred these properties to the Union Trust Company, a corporation, in trust. The present action involves the Wolverton Building only, but a like suit was brought as to each of the other properties.

The trust deeds in each case provided for the creation of units which would be sold by an instrument in the nature of an investment bond. After the properties were transferred to the Union Trust Company, the Trustee Company sold bonds or units covering each property. The units were of the par value of one thousand dollars. The amount of the unitization of the buildings was as follows: Wolverton two hundred fifty thousand dollars; Hyde, six hundred thousand dollars ; Eagle, three hundred thousand dollars; Temple Court, four hundred ninety-one thousand two hundred dollars; and Empire State, four hundred forty-three thousand nine hundred dollars. There was a provision by which these bonds could be divided into ten equal parts and sold in that manner.

One-tenth of a unit in the Wolverton Building was purchased by N. J. Dolph, the certificate for which recites that it was issued on the first day of June, 1915. On March 12, 1925, Dolph assigned this one-tenth of a unit of the par value of one hundred dollars to the appellant A. W. Haynes. The appellant also acquired one-tenth of a unit in each of the other properties, with the exception of one, and in that one he acquired two-tenths, making him in all six hundred dollars worth of units out of a total unitization on the five buildings of two million eighty-five thousand one hundred dollars. After acquiring one-tenth of a unit in the Wolverton Building, he brought the present action and, as stated, brought separate like actions with reference to each of the other properties. No other unit holder has joined with him in the action. It will be assumed for the purposes of this case only, but expressly not decided, that the appellant can stand as the representative of a class.

The appellant’s first position is that the association of unit holders as created by the trust deeds is a common law trust and illegal. There are two reasons why this position cannot be sustained, the first of which is that, if a common law trust exists and is assuming to exercise the powers and functions of a corporation, the state is the only one that can complain. Frost v. Puget Soumd Realty Associates, 57 Wash. 629, 107 Pac. 1029. In the case of State ex rel, Range v. Hinkle, 126 Wash. 581, 219 Pac. 41, the state resisted the application of the relator for a certificate entitling it to do business as a common law trust, and in State ex rel. Colvin v. Paine, 137 Wash. 566, 243 Pac. 2, 247 Pac. 476, the action was brought on behalf of the state.

The other reason why the appellant cannot complain is that, having acquired in the open market, years after the fraud is alleged to have been committed, by assignment one-tenth of a unit, he cannot now question the validity of the original transaction. In Washington Co-operative Egg & Poultry Ass’n v. Taylor, 122 Wash. 466, 210 Pac. 806, it was held that, in an action upon a contract, the defendant was not entitled to show that, at the time the contract was entered into, the capital stock of the corporation which was bringing the action had not been subscribed and paid for as required by statute, because, having made a contract with the plaintiff, he was in no position to contend that it was not entitled to engage in business. It is true that that case was with reference to a corporation, but there is no reason why the same rule should not apply in the present case.

The second contention is that there was fraud in the transfer of the property in trust and the sale of the units in that the unitization was greater than the cost of the properties to the Trustee Company. At the time the transfer was made to the Union Trust Company, the Trustee Company was then the owner. The units or bonds were subsequently sold. At the time of the transfer, there was no fiduciary relation existing in the particular unit holder and the Trustee Company. At the time it purchased the buildings, it did not act as the agent of the unit holders. In addition to this, the appellant acquired his one-tenth of a unit by assignment from Dolph years after the fraud is alleged to have been committed. He had no transaction with the Trustee Company, and in the transfer of the bond or unit there is no attempt to assign to the appellant any action that Dolph may have had on account of fraud.

The third contention is that the Central Business Property Company, which company was in possession of the properties and managing the same at the time the actions were brought, was not the lawful successor to the Trustee Company and had no right to the possession and management of the properties. This contention is based upon the assumption that the Trustee Company had ceased to exist. There was a clause in the trust deeds by which it was provided that the properties must be sold “as an entirety in one lot or parcel prior to the termination of the existence of The Trustee Company, but not more than one year prior thereto.” The Trustee Company in February, 1918, was adjudged a bankrupt. On July 1, 1921, its name was stricken from the records in the office of the secretary of state for failure to pay annual license fees. It is by reason of the bankruptcy and the striking of the name of the corporation from the records in the office of the secretary of state that the appellant claims that the Trustee Company has ceased to exist and the time has arrived when under the trust deed the properties must be sold. Even though the corporation had become bankrupt and its name stricken from tbe records in the secretary of state’s office, it bad not ceased to exist as a corporation. In State ex rel. Bowen v. Superior Court, 135 Wash. 315, 237 Pac. 722, it was said:

“Under tbe present statute, there is no such thing as a dissolution of tbe corporation by tbe secretary of state. "While tbe name of tbe relator has been stricken, it still has tbe right to be reinstated. Unquestionably, under § 3842, Bern. Comp. Stat., tbe relator would not be permitted to maintain an action, but there is no reason why it may not be sued and defend. So long as it may reinstate itself, it is not dead, but its powers are merely circumscribed.”

Tbe last ground upon which tbe appellant relies for relief is that tbe trust has been violated in putting tbe Central Business Property Company in possession of tbe properties and allowing it three per cent of tbe gross income for its services as manager. Tbe trust deed provided that tbe registered owners of not less than sixty-seven per cent of the units at any time outstanding might at their option remove tbe Trustee Company and appoint a successor. In appointing tbe Central Business Property Company as tbe manager of tbe properties, this provision of tbe deed was complied with, more than sixty-seven per cent of tbe registered owners of units in each budding authorizing tbe transfer of management. It is said, however, that there is no provision in tbe trust deed authorizing tbe payment of the three per cent of tbe gross income for management. Tbe Trustee Company, under tbe deeds, was not to receive any compensation. Whether tbe required percentage of tbe unit holders, after authorizing a change of management, could further provide for compensation when sucb is not mentioned in tbe trust deed it is not necessary here to determine, because if the trust deed in this respect was violated, it would not furnish the basis for the appointment of a receiver and a sale of the properties at the instance of the appellant. If he is entitled on his bond or unit to more than he has been paid, he has a right of action at law to recover the same. In the concurring opinion in Frost v. Puget Sound Realty Associates, supra, it was said:

“Conceding, but not deciding, that the company wrongfully paid commissions out of the subscribers’ money, it does not appear that any other wrong was done the bondholders. For. this the subscriber would have his remedy at law and, if so entitled, could recover without the aid of a receivership. Receivers of going concerns should not be appointed at the instance of a minority of stock or bondholders, unless it clearly appears that the rights of all parties will be best served by such procedure.”

It is clear that the appellant has no right to force a ■receivership and sale of the properties involved which might and probably would result in great damage and loss to the other unit holders.

The judgment will be affirmed.

Tolman, C. J., Mitchell, Parker, and Mackintosh, JJ., concur.