Court Opinion

ID: 6905935
Source: CourtListenerOpinion
Date Created: 2022-07-23 22:00:21.049813+00
Date Added: 2024-06-11T16:06:20.809755
License: Public Domain

Mb. Justice McCamant
delivered the opinion of the court.
1. Error is assigned on the order of the Circuit Court overruling the demurrer to the amended complaint. The demurrer charges multifariousness, insufficiency of facts and failure to bring the suit within the time limited by the Oregon Code. We do not think the complaint multifarious. It alleges a series of fraudulent acts committed by the defendants by virtue of their control of the defendant Columbia Gold Mining Company, hereinafter called the Columbia Company. The allegations with reference to plaintiff’s right to an injunction are properly pleaded in a single count with other allegations. Our conclusions on this branch of the case are in harmony with those of the federal court: Baillie v. Backus, 230 Fed. 711, 716.
On the other grounds set up in the demurrer the amended complaint is more vulnerable to attack. The essence of the amended complaint is a charge that the defendants E. W. Backus Lumber Company, Backus-Brooks Company and E. W. Backus, in the years 1899-1901 inclusive, abstracted from the funds of the Columbia Company $293,746.78 and converted the same to their own use in fraud of plaintiff’s rights as a minority stockholder. Plaintiff claims that these sums should have been distributed as dividends and on that ground claims judgment for five per cent of the above amount, he holding five per cent of the stock of the corporation.
2-4. Unless plaintiff is entitled as of right to the distribution of this sum as a dividend, his complaint is obnoxious to demurrer except that it might be upheld as stating sufficient facts to entitle him to an injunction restraining the defendants from removing the corporate records from the state. The wrongs alleged are *16primarily wrongs done the Columbia Company. Every dollar of the money converted belonged to the Columbia Company. Such injury as plaintiff - sustained was consequential and the right of action for the recovery of the moneys taken is primarily in the Columbia Company: Flynn v. Brooklyn City R. Co., 158 N. Y. 493 (53 N. E. 520, 524); Smith v. Hurd, 12 Met. (53 Mass.) 371 (46 Am. Dec. 690); Ames v. American Telephone & Telegraph Co., 166 Fed. 820. Under our statute the powers vested in the corporation are exercised by the directors: Section 6691, L, O. L. One of these powers is the declaration of dividends. The question of whether dividends shall be declared is ordinarily one of internal management with which the courts will not interfere: Gibbons v. Mahon, 136 U. S. 549, 557-559 (34 L. Ed. 525, 10 Sup. Ct. Rep. 1057). The general rule is that a shareholder cannot acquire title to the corporate property except through a corporate act: United States Radiator Corp. v. State, 208 N. Y. 144 (101 N. E. 783, 786, 46 L. R. A. (N. S.) 585); Hughes v. Oregonian Ry. Co., 11 Or. 158, 160 (2 Pac. 94).
5. It is true that the directors must act honestly and with discretion in the performance of their duties, and this principle applies to their action in the matter of dividends. In a clear case equity will sometimes compel a corporation to declare a dividend: 7 R. C. L. 269; 2 Clark and Marshall on Corporations, 517f, 527b. The amended complaint in this case contains no allegations from which it can be inferred that the board of directors has abused its discretion in withholding dividends. It is not alleged that the corporate enterprise has been abandoned, nor are the capital requirements of the Columbia Company set out. No facts are set up from which we can ascertain the probable expense *17of caring for the property, maintaining it and paying taxes upon it. It is not alleged that the capital stock is intact or that there are funds in the treasury except in a small amount; on the contrary, it is averred that the assets of the corporation have in large part been made away with. It is alleged that plaintiff has paid all debts incurred prior to August 27, 1915, but this allegation falls far short of justifying the conclusion that the funds of the corporation should be distributed in dividends.
The authorities relied on by plaintiff do not support his contention on this branch of the ease. The case of Stevens v. South Devon Company, 9 Hare, 313, 325, 326, involved the issue of preferred stock under express authority of an act of Parliament. A common stockholder sought to restrain the payment of dividends to preferred stockholders. The court held that the question was one of internal management and denied the injunction prayed for. In Brown v. Buffalo etc. R. Co., 27 Hun (N. Y.), 342, a minority stockholder sued the corporation and Miller, its president, alleging the conversion of corporate funds by Miller and the withholding by the corporation of dividends due plaintiff. The court held that:
“Upon the facts alleged in the complaint, the plaintiff may maintain his action against the company alone for fraudulently withholding the plaintiff’s share of the moneys received by it, which ought to have been divided among the stockholders.”
The facts alleged in the complaint are not set out in the opinion. The court cites Prouty v. Michigan Southern etc. R. Co., 1 Hun (N. Y.), 655; this case holds that a preferred stockholder may sue on behalf of himself and all others similarly situated, and recover on proof that there are net profits applicable to *18the payment of dividends. We infer that Brown v. Buffalo etc. R. Co., 27 Hun (N. Y.), 342, was also a case involving the rights of preferred stock.
The case of Robinson v. Smith, 3 Paige (N. Y.), 222, 231 (24 Am. Dec. 212), merely announces the elementary proposition that directors are trustees and liable as such for malfeasance or negligence. Scott v. Eagle Fire Co., 7 Paige (N. Y.), 198, 203, was a suit brought to divert the assets of an insolvent corporation to the payment of dividends. The bill was dismissed, but Chancellor Walwoeth does say in passing:
“On the other hand, should they (the directors) without reasonable cause refuse to divide what is actually surplus profits, the stockholders are not without remedy, if they apply to the proper tribunal, before the corporation has become insolvent.”
This language of the Chancellor is quoted in Pratt v. Pratt, 33 Conn. 446. This last case holds that if there is reasonable ground for withholding a dividend, the discretion of the directors will not be interfered with. Beers v. Bridgeport Company, 42 Conn. 17, 24, was a case in which a dividend had been declared and credited to the respective accounts of the stockholders. A subsequent vote of the board returning the fund to the surplus of the corporation was held nugatory. The court said:
“There can be such a condition of things as will justify a court of equity in compelling' directors to declare a dividend contrary to their judgment.”
In State of Louisiana v. Bank of Louisiana, 6 La. 745, the directors had taken action fixing the surplus of the bank; the court refused to interfere with their discretion in this respect, but did require the distribution in dividends of other funds available for the purpose. These are all the authorities cited by plaintiff *19to sustain this branch of his contention, except Clark and Marshall on Corporations, which we have cited above.
6. We have found a few cases in which stockholders have sued on behalf of themselves and all others similarly situated for the redress of wrongs done the corporation, in which the court has in effect directed a dividend, by requiring the unfaithful majority to pay the minority its aliquot share of moneys taken from the corporate treasury: Brown v. De Young, 167 Ill. 549 (47 N. E. 863, 866); Eaton v. Robinson, 19 R. I. 146 (31 Atl. 1058, 32 Atl. 339, 29 L. R. A. 100); Fougeray v. Cord, 50 N. J. Eq. 185, 198-200 (24 Atl. 499); Davis v. Gemmell, 73 Md. 530, 534 (21 Atl. 712); Crichton v. Webb Press Co., 113 La. 167, 183 (36 South. 926, 104 Am. St. Rep. 500, 67 L. R. A. 76). The doctrine of these cases is applicable only where the court can say that the powers of the directors will be abused to the injury of the complaining stockholders and that the circumstances clearly call for the declaration of a dividend. In the above cases the relief granted was incidental to a recovery in the right of the corporation at the suit of a stockholder.
7. Plaintiff admits in his brief that his suit is not brought in the right of the corporation. Even under the liberal rule announced by this court in Wills v. Nehalem Coal Co., 52 Or. 70, 87-89 (96 Pac. 528), the amended complaint cannot be upheld as stating a cause of suit in the right of the corporation. It does not purport to be brought on behalf of all stockholders similarly situated, nor is the absence of this allegation excused by distinct averment that plaintiff is the only stockholder not concerned in the frauds complained of. The amended complaint does not allege a demand on the board of directors to bring suit in the *20name of the corporation, nor does it sufficiently excuse such failure to demand action by the board. The allegations of the amended complaint on this subject are:
“That the said Columbia Gold Mining Company Las in all matters been controlled by the defendant E. W. Backus, and plaintiff has been unable and is unable to secure any relief from the said Columbia Gold Mining Company on account of the defendants herein owning and controlling ninety-five per cent of the capital stock of said company and having it within their power to completely control the election of officers and the conduct of the business of said company, and are unwilling to, and will not, act in this matter for the beuefit and protection of said Columbia Gold Mining Company and this plaintiff or either thereof. ’ ’
8, 9. The mere fact that directors are elected by the vote of a stockholder against whom suit should be brought, does not raise a presumption that they will refuse to order a suit brought or will conduct such suit eollusively. Under our statute directors are sworn to “faithfully and honestly discharge” their duties: Section 6689, L. O. L. The presumption is that the directors will do their duty. If plaintiff would excuse a failure to make demand on the directors, he should name the directors, show that they themselves are the guilty parties, as in Wills v. Nehalem Coal Co., 52 Or. 70 (96 Pac. 528), and North v. Union S. & L. Assn., 59 Or. 483 (117 Pac. 822), or show such relationship to the guilty parties by blood, marriage or business associations, or such other facts, as justify the conclusion that they will refuse to do their duty. A general statement that the corporation or its hoard of directors is in control of the guilty party will not suffice: Allen v. Wilson, 28 Fed. 677, 678, 679; Squair v. Lookout Mountain Co., 42 Fed. 729, 732; Watson v. U. S. Sugar Refinery Co., 68 Fed. 769, 773 (15 C. C. A. *21662); Hawes v. Oakland, 104 U. S. 450, 460, 461 (26 L. Ed. 827); Dimpfel v. Ohio etc. R. Co., 110 U. S. 209, 211 (28 L. Ed. 121, 3 Sup. Ct. Rep. 573); Taylor v. Holmes, 127 U. S. 489, 492 (32 L. Ed. 179, 8 Sup. Ct. Rep. 1192); Dunphy v. Traveller Newspaper Assn., 146 Mass. 495, 498 (16 N. E. 426); Moore v. Silver Valley Min. Co., 104 N. C. 534, 545 (10 S. E. 679); Alexander v. Searcy, 81 Ga. 536, 549, 550 (8 S. E. 630, 112 Am. St. Rep. 337); Rathbone v. Parkersburg Gas Co., 31 W. Va. 798, 805, 806 (8 S. E. 570); Decatur Mineral Land Co. v. Palm, 113 Ala. 531, 539 (21 South. 315, 59 Am. St. Rep. 140); New Birmingham Iron etc. Co. v. Blevens, 12 Tex. Civ. App. 410, 421 (34 S. W. 828); House v. Cooper, 30 Barb. (N. Y.) 157, 158. If plaintiff has no information as to who the directors are, he should allege acts showing diligence on his part to secure the information and the obstacles interposed by the defendants thereto.
10- The right of a minority stockholder to sue on behalf of the corporation in a proper case is well established, but it is a right liable to abuse by unscrupulous stockholders and it should be jealously guarded by adherence to those limitations which the experience of courts of equity has shown to be necessary. A cause of suit, held by a corporation should ordinarily be asserted by the corporation; if the suit be conducted collusively, a court of equity will always permit intervention by a stockholder to protect his rights and the rights of others similarly situated.
11,12. A suit brought by a stockholder on behalf of a corporation is a suit in personam and relief cannot be granted unless the party against whom the claim is asserted is served or appears. If he is served by publication there must be a seizure by the court of some property belonging to him on which to base the service *22by publication; Bank of Colfax v. Richardson, 34 Or. 518, 524 (54 Pac. 359, 75 Am. St. Rep. 664). Otherwise such attempted service is nugatory. In the present case there was no such seizure. The fund paid into court by plaintiff belonged to the Columbia Company. It is true that the stock of the other defendants is subject to the jurisdiction of the Oregon courts, although the certificates are without the state and are owned by nonresidents; Gamble v. Dawson, 67 Wash. 72 (120 Pac. 1060, Ann. Cas. 1913D, 561). But this stock was not seized or impounded in any manner at the inception of the litigation and the suit involves no property in which the parties charged with fraud were interested within the purview of Section 399, L. O. L. The attempted service by publication was therefore ineffectual and at the time of the trial the court had jurisdiction of none of the defendants except the Columbia Company and Eichardson. For several reasons, therefore, the record did not entitle the Circuit Court to treat this as a suit brought on behalf of the corporation, nor did the court so treat it.
13. The amended complaint is obnoxious to demurrer on another ground. Plaintiff bases his cause of suit on the misappropriation of moneys belonging to the Columbia Company in the years 1899, 1900 and 1901. His suit was brought September 18, 1915. He alleges that the moneys were misappropriated and converted without his knowledge and that the entries in the books of the Columbia Company were made long after the misappropriations. It is alleged that at the time when the suit was brought the defendants, except the Columbia Company, resided in the State of Minnesota. There are no further allegations explanatory of plaintiff’s long delay in bringing suit, except a paragraph which alleges that plaintiff was without power to as*23sert his rights until he had paid for his stock in 1909. The contention advanced in this portion of the complaint is clearly untenable. Plaintiff’s debt for the payment of his stock could have been discharged at any time. He may not have had the money to pay it in full, but his poverty could not prolong the time allowed him within which to sue. Under our form of government there cannot be one law for the rich man and another for the poor.
14, 15. If we understand aright plaintiff’s theory of this case, it is that equity will treat the misappropriation of the funds of the Columbia Company by its majority stockholder as an equitable declaration of a dividend, entitling plaintiff as a minority stockholder to his aliquot share of the moneys misappropriated. An action at law for the recovery of a dividend would have to be brought within six years: Section 6, L. O. L. Equity is disposed to follow the law. If an equitable suit is brought within the time allowed to bring a corresponding action at law, the burden devolves on the defendant to allege and prove laches; if the equitable suit is brought after the expiration of the time allowed to bring the corresponding action at law, plaintiff should explain the delay in his bill: Wills v. Nehalem Coal Co., 52 Or. 70, 91 (96 Pac. 528). Plaintiff does not allege when he acquired the information on which he bases his right to recover. The complaint in this case should allege the impediments to an earlier prosecution of plaintiff’s claim, how he remained in ignorance so long and how and when the matter came to his knowledge: Badger v. Badger, 2 Wall. (U. S.) 87, 95 (17 L. Ed. 836); Weiss v. Bethel, 8 Or. 523, 528; Loomis v. Rosenthal, 34 Or. 585, 601 (57 Pac. 55). Plaintiff cites authorities to the effect that the statute of limitations does not begin to run against a stock*24holder claiming a dividend until the dividend is declared. This principle cannot help plaintiff, because he is obliged to contend that the frauds of those in control of the corporation constitute an equitable declaration of a dividend and these frauds were perpetrated more than six years prior to the bringing of this suit.
16. If plaintiff relies on Section 16, L. O. L., as interpreted in Jamieson v. Potts, 55 Or. 292 (105 Pac. 93, 25 L. R. A. (N. S.) 24), he should aver that the defendant Minnesota corporations have never done business in Oregon, that the individual defendants have continuously resided in Minnesota since the acts complained of have taken place, and he should set up the aggregate time which they have severally spent in Oregon.
17, 18. Plaintiff cites authorities to the effect that a director is a trustee, that a majority stockholder is in some sense a trustee and invokes the rule that the statute of limitations will not run in favor of a trustee of an express trust. These principles are sound, but the latter principle is subject to a limitation which makes it inapplicable to this case; when the trustee repudiates his trust and appropriates the trust property to his owh use, the statute begins to run in his favor: Raymond v. Flavel, 27 Or. 219 234, 235 (40 Pac. 158); Crow v. Crow, 70 Or. 534, 554, 555 (139 Pac. 854). The allegations of the amended complaint are that the defendants converted to their own use large sums of money, taking them from the treasury and investing them in various enterprises in which plaintiff is not interested. This was certainly a disavowal of any trust with reference to these funds.
We are obliged to hold that the Circuit Court erred in overruling the demurrers to the amended complaint.
If the amended complaint were upheld as sufficient and if we could accept plaintiff’s view of the law as *25correct, we would have to accord plaintiff a decree on the pleadings. The answer not only fails to plead affirmatively the waiver by acquiescence and the estoppel on which the defendants chiefly rely, but it admits the most material allegations of the complaint. For example, it is alleged in the fifteenth paragraph of the amended complaint that the defendants Backus, Backus-Brooks Company and E. W. Backus Lumber Company “embezzled, misappropriated, took and converted to their own use” $103,174.50 and $190,572.28. The corresponding allegation in the answer is as follows:
“Said defendant further alleges that if either said defendant Backus, said Backus-Brooks Company or E. W. Backus Lumber Company, or any of tbe other defendants ever wrongfully or. otherwise, illegally or otherwise, fraudulently or otherwise embezzled or misappropriated or took, or converted to their use, or to the use of either of them any moneys or property or effects of said Columbia Gold Mining Company, which they or either of them had no right to take or receive, whether as alleged in the fifteenth subdivision of said complaint or otherwise, said defendant did not realize it nor did said plaintiff ever call it to its attention or make any claim to that effect. ’ ’
Substantial justice clearly requires that this cause be reversed and that the parties have leave to amend to the end that their contentions may be properly passed on. They both have something to amend by.
If we were to stop here this case would shortly be back in this court on a second appeal. In the trial of the issues nearly twenty-five hundred pages of testimony have been taken and the abstracts and briefs aggregate upwards of nine hundred pages of printed matter. In view of the burden of the parties in these proceedings we think we should state our views on the *26controverted questions arising on this record, assuming that by proper amendment of the pleadings the questions really in dispute can be determined and a decree entered in the Circuit Court which will terminate this particular suit.
19, 20. On January 7,1897, plaintiff made a contract with E. W. Backus Lumber Company under which he acquired subsequently the seventy-five shares of stock in the Columbia Company which are the basis of the present suit. Plaintiff contends and the lower court found that on a proper construction of this contract plaintiff was entitled to a five per cent interest in the Columbia Mine after the purchase price due Cable Brothers had been paid in full. We cannot agree with this conclusion. The salient language of the contract is as follows:
‘ ‘ Said Baillie shall have the privilege of purchasing a five per cent interest in the equity now owned by said first party in said Columbia Mine at the agreed price of $5000.”
The testimony shows that the word “equity” was used deliberately and advisedly. At the date of the contract $20,000 had been paid on a total purchase price of $80,000 and some additional money had been spent in improving the property. When the Columbia Company was incorporated a few months later, the parties gave the agreement a practical construction which is significant, if not controlling. The option for the purchase of the mine was assigned to plaintiff and by bim turned over to Columbia Company in payment for the capital stock amounting to $150,000. At the time when the option was so transferred to the Columbia Company, the investment of the E. W. Backus Lumber Company in the enterprise was $33,538.39. After the incorporation of the Columbia Company, *27Baillie -received a certificate for seventy-five shares of its stock, being five per cent of the total issue, and he pledged this stock as collateral security for the unpaid balance of the $5,000, the purchase price thereof. Plaintiff also participated in the execution by the corporation of a mortgage for $60,000 given Cable Brothers to secure the remainder of the purchase price. It was clearly contemplated that the corporation should pay this $60,000. Plaintiff agreed to pay $5,000 for a one-twentieth interest in an equity which had cost E. W. Backus Lumber Company $33,538.39. The contract has been fully executed and it cannot now be reformed, even if the evidence justified a reformation, which it does not. The defendant Backus drove a hard bargain; in dealing with plaintiff he capitalized at $100,000 an asset which had cost his company one third of that sum. It is true that Baillie only took an option and that he was under no obligation to pay the full purchase price unless on investigation he concluded that it was wise to do so. But Baillie had paid on account of the option $1,000, which he had saved out of a small salary and which was his whole capital. If he had failed to complete the purchase he would have forfeited this sum and other moneys paid subsequently thereon.
The record contains other evidence of the bargain-driving characteristics of the defendant Backus. Plaintiff’s salary was $100 a month down to January 1, 1902. During the last three years in which this salary was paid plaintiff, he was managing a business of which the net returns were $106,107.72 per annum. In 1901 the defendant Backus took from the treasury of the Columbia Company $100,000 and replaced it with two notes of Backus-Brooks Co. bearing interest at the rate of four and one half and five per cent, respec*28tively. Backus-Brooks Co. is the same corporation as the E. W. Backus Lumber Company, its name having-been changed in 1899. Its capital stock is $600,000, of which $500,000 belonged in 1901 to the defendant Backus. The two notes so given remained unpaid until 1909, carrying the low interest rates aforesaid for approximately eight years. During all these years the defendant Backus turned a deaf ear to plaintiff’s requests for the declaration of dividends. When a dividend was finally declared in 1909 one of the employees of Backus-Brooks Co., or Backus-Brooks Company, the Maine corporation which succeeded to the business in 1903, charged plaintiff six per cent interest on a balance of about $1,500 still unpaid-on his contract for the purchase of his stock, although the contract called for interest at the rate of eight per cent. Again and again in his testimony the defendant Backus recurs to this incident, complaining bitterly of the failure to exact from plaintiff the last dollar due on his contract.
At the time when the Columbia Mine was purchased the defendant Backus agreed with McIntyre and Lee that they should have twenty per cent of the net profits of the mine in consideration of their services as brokers in effecting the purchase. The defendant Backus gave strict instructions that they were to be kept in ignorance of the condition and output of the mine, and while they were without information on the subject, in 1899, he bought them off for $3,000. Under their agreement they would have been entitled to $26,000 in the year 1899 and nearly $20,000 additional in each of the two following years. In 1899, at a time when the Columbia Company had $41,000 in its treasury, plaintiff wrote the defendant Backus requesting that these moneys be used to pay the balance of the purchase price owing to Cable Brothers on which the Columbia *29Company was paying eight per cent interest. The defendant Backus replied declining so to do and stating that he was considering whether it would not he profitable to default on the purchase money mortgage and permit Cable Brothers to take back the mine. The $41,000 in the treasury had all been taken out of the mine; but the defendant Backus had no appreciation of his moral obligation to use this money in payment of the purchase price or to pay this purchase price at all.
It appears from the testimony that about September 1, 1899, the defendant Backus temporarily displaced plaintiff from his position as manager of the mine and sent him into Idaho. While plaintiff was absent from the mine, the defendant Backus on December 29, 1899, drew a cheek for $64,517.18 on the bank account of the Columbia Company and turned the proceeds of the check into the coffers of Backus-Brooks Co. A part of the money so taken was in reimbursement of advances made the corporation, and these sums were properly repaid by the Columbia Company to the lumber company. The check included the sum of $33,538.39 to which the lumber company had no shadow of right. The defendant Backus undertook to take .from the treasury of the corporation a sum of money equivalent to that invested by the lumber company in the equity used to pay for the capital stock of the Columbia Company. Plaintiff was probably removed from his position and sent out of the state in order that these moneys could be abstracted without his knowledge. The defendant Backus undertakes to defend this act by swearing that plaintiff agreed to it. This testimony is emphatically denied by plaintiff. The testimony shows plaintiff to be a man of intelligence and we cannot believe that he assented to so gross a *30fraud upon himself. The fraud is aggravated by the relations of the parties. The defendant Backus claims to have regarded plaintiff almost as a member of his family; one of the Backus children was named for plaintiff. Plaintiff was a young man thirty years of age, with no assets except his interest in this mine. The defendant Backus was a man of mature years,, the head of a prosperous business. The mine had become a producer under the able management of plaintiff working for a salary pitifully inadequate.
21, 22. Plaintiff claims that he did not appreciate the fraud so perpetrated upon him until he had the books of the Columbia Company experted in the summer of 1915 and we believe his testimony in this regard. We would not hold that he acquiesced in this transaction without clear and cogent proof. So far as the Oregon courts are concerned, the defendant Backus is liable to account for the money so misappropriated unless he can show that he has been in the state of Oregon more than six years since 1899: Section 16, L. O. L., Jamieson v. Potts, 55 Or. 292 (105 Pac. 93, 25 L. R. A. (N. S.) 24). The fund is money had and received to the use of Columbia Company; it is liquidated and Backus-Brooks Co. never at any time had a right to a dollar of it. The case therefore falls without the doctrines of Baker County v. Huntington, 48 Or. 593, 603 (87 Pac. 1036, 89 Pac. 144), and Holtz v. Olds, 84 Or. 567 (164 Pac. 583, 1184). The claim bears interest at the legal rate. The evidence indicates that the money in some form came into the hands of BachusBrooks Company, the Maine corporation, when it succeeded to the business of the lumber company in 1903. The evidence forecloses any contention that this latter corporation could be an innocent purchaser; the defend*31ant Bachus controls its stock and there is no suggestion by any witness that it has any stockholders other than those who held stock in the Minnesota corporation. The evidence of both plaintiff and the defendants shows conclusively that the defendant Backus dominates any enterprise with which he is connected and that he has dominated absolutely the corporations with which we are concerned in this case.
23. Plaintiff’s next ground for complaint is the investment of funds of the Columbia Company in a mining enterprise located in Gunnison County, Colorado, owned by Midland Mining and Milling Company. The books of the Columbia Company show a diversion of its funds to the extent of $36,661.05 in this enterprise. These expenditures were ultra vires, but we think that plaintiff is in no position to take advantage of them. The testimony satisfies us that he assented to the policy of investing the funds of the Columbia Company in outside enterprises. While he was under salary from the Columbia Company he investigated some mines in Idaho and turned in to the Columbia Company his account for traveling expenses. The books of the Columbia Company were kept under plaintiff’s direction, part of the time by Mr. Packwood and the remainder of the time by Mrs. Baillie. They show an account with Midland Mining and Milling Company at all times from 1899 to 1915 and the account was a live one, figuring in every trial balance and subject to change as items were added to it from time to time. It appears on the face of the account that a large block of stock in the Midland Company was held by the Columbia Company. Plaintiff admits, furthermore, that he figured in some negotiations at Denver looking to the sale of the property.
*32These latter remarks are equally applicable to the investment of the funds of the Columbia Company in some Nome properties owned now by Northern Mining and Trading Company. This investment is represented by a large block of stock and a note of date January 2, 1912, for $36,173.25. We think that the evidence shows acquiescence by plaintiff in this diversion of the funds' of the Columbia Company. On this branch of the case the defendants are entitled to prevail: Allen v. Wilson, 28 Fed. 677, 680; Kent v. Quicksilver Mining Co., 78 N. Y. 159, 184; Babcock v. Fanvell, 245 Ill. 14 (91 N. E. 683, 692, 137 Am. St. Rep. 284, 19 Ann. Cas. 74); Stanley v. Luse, 36 Or. 25, 35 (58 Pac. 75).
24, 25. Prior to 1903 it had been determined that the interests of the Columbia Company required it to keep intact a rich body of ore referred to in the testimony as the Bonanza Chute. The defendant Backus-Brooks Company sustained some heavy losses in 1903 and with a view to recouping them the defendant Backus directed the milling of this ore; the money realized was used by Backus-Brooks Company and subsequently accounted for. When a corporation acquires a majority of the stock of another corporation, it assumes the obligation to manage the affairs of the controlled corporation for the benefit of all of the stockholders and not for its own aggrandizement: Hunnewell v. New York Cent. etc. R. Co., 196 Fed. 543, 545. In 1903 the defendant Backus was president of the Columbia Company and one of its directors. It was his duty to conduct the Columbia Company’s affairs with an eye single to the interests of the Columbia Company: Young v. Columbia Land etc. Co., 53 Or. 438, 441 (99 Pac. 936, 101 Pac. 212, 133 Am. St. Rep. 844). The above transaction was a breach of trust.
*3326. From 1899 to the present time the funds of the Columbia Company have been used by the defendant Backus to finance his lumber company. No security has been furnished the Columbia Company and no corporate action has been taken authorizing these loans. The defendant Backus has not asked plaintiff’s leave, but has done as he has seen fit and paid such interest as he elected to pay. Plaintiff knew of these loans and seems to have made no objection to them prior to the bringing of this suit. It does not follow that he is required to permit this method of doing business to continue. In July, 1915, the indebtedness of Backus-Brooks Company to the Columbia Company was $67,560.20. This sum should be returned to the treasury of the Columbia Company.
The evidence shows that on September 18, 1915, the Circuit Court passed an injunction restraining the defendant Richardson from removing the books and papers of the Columbia Company from the State of Oregon. The injunction was served upon him at Baker on the early evening of that day. Prior to the service of the injunction he had packed the records and correspondence into nine boxes and had lodged them with the American Express Company for carriage to Minneapolis. At the time when the injunction was served upon him the shipment was at Baker, as he well knew, and the express company would have returned it to him on compliance with its regulations. He did nothing to stop the shipment, nor did he report the situation to the court or to opposing counsel.
In the trial of the issues involved in this case the minute-book of the Columbia Company was an important piece of evidence. The defendants were notified to produce it and failed to do so. The defendant Backus undertook to account for its absence by testi*34fying to some incident in 1907 when some records of Backus-Brooks Company were lost. Thereafter the defendant Brooks went on the stand and testified that he had seen the book in the custody of Backus-Brooks Company subsequent to the bringing of this suit. He further testified on cross-examination that at the time when he saw the minute-book the defendant Richardson was asking for all the records and papers which could throw any light upon this controversy. Plaintiff proved on rebuttal that the defendant Richardson had admitted when he was at Baker in September, 1915, that the minute-book was in his, Richardson’s, possession. Richardson does not deny this testimony. He conducted the examination of Backus and Brooks in chief and drew out from the latter that a diligent search for the minute-book had been made in the effects of Backus-Brooks Company without avail immediately prior to the taking of the testimony.
The conclusion is inevitable that the defendant Richardson has possession of the minute-book, that he has willfully suppressed it and that he has conspired with the defendants Backus and Brooks to deceive the court as to its whereabouts.
Prior to the trial of this cause, plaintiff sent his father-in-law, Mr. Luther Perkins, from Coffeyville, Kansas, to Minneapolis to make inspection o’f the books of the Columbia Company. Mr. Perkins took with him written authority from plaintiff which was exhibited to the defendants. The inspection' requested was the right of plaintiff under the express provisions of Section 6694, L. O. L. The.inspection was denied with a discourtesy which is aggravated by the circumstance that Mr. Perkins was seventy-two years of age.
Immediately prior to the bringing of this suit plaintiff drew the sum of $14,756.83 from the funds of the *35Columbia Company on deposit with the First National Bank of Baker, put this in the form of certificates of deposit and left the certificates in the registry of the Circuit Court to abide the determination of this suit. The defendant Backus was promptly notified of plaintiff’s action in this regard. Was plaintiff justified in so doing, and what disposition should be made of this fund? Much that we have said in this opinion has looked to the answer to these questions.
27-29. Plaintiff was not guilty of embezzlement and the charge of embezzlement comes with a bad grace from these defendants. We think that plaintiff mistook his remedy. He should have applied for a receivership and on the qualification of the receiver the fund should have been paid to him. The case is free from embarrassment in two respects which often stay the hands of a court in appointing receivers. There are no innocent stockholders whose rights may be prejudiced; Backus-Brooks Company and plaintiff are the only parties beneficially interested in the Columbia Company. The court is not taking over a going business; the record shows that the mine is closed down. The case is one where the control of the corporation is vested in a hard man who has been guilty of several breaches of trust and of much defiance of the law. The corporation has not held annual meetings for the election of directors, as required by Section 6693, L. O. L. It has n9t kept its books in Oregon available for inspection by persons interested, as required by Section 6694, L. 0. L. It denied an application for such inspection by a stockholder who sent his representative to Minnesota for such purpose. Although Section 6689, L. 0. L., requires that a majority of the directors shall be residents of this state, plaintiff is the only Oregonian who has been a director since 1899 *36and the defendant Backus undertook to remove him immediately prior to the bringing of this suit. While plaintiff is in no position to require the defendants to restore to the treasury the moneys lost through the Midland Mining and Milling Company and the Northern Mining and Trading Company, the making of these investments is material as characterizing the management of the Columbia Company. The defendant Backus is a man of ability, intelligence and wide business experience. He knew the impropriety of investing the funds of an Oregon corporation in speculative mining ventures in Colorado and Northwestern Alaska. The defendant Backus is acting under the advice of the defendant Richardson, an attorney whose ethical principles leave much to be desired. We think the fears of plaintiff were well founded. If the fund in the registry of the court had been left on deposit in the Baker bank it would have been withdrawn from the jurisdiction and from the treasury of the corporation. In the absence of judicial action we doubt whether this fund or the $67,560.20 would ever be repaid to the Columbia Company. If paid at all, these moneys would be paid when it was convenient to Backus-Brooks Company to make settlement and not when the Columbia Company needed the funds. On proper allegations plaintiff is entitled to a receivership over the Columbia Company. The certificates of deposit in the registry of the court should be indorsed by plaintiff. If a receiver is appointed within thirty days from the entry of the mandate in this cause, or such further time as may be allowed by the Circuit Court, the certificates should be delivered to him; if no receiver is appointed within the allotted time the certificates should be delivered to the Columbia Company.
*3730. If plaintiff shall elect to amend his complaint and apply for a receivership, he will be proceeding in his own right and not in the right of the Columbia Company. The right of visitation over this Oregon corporation is vested in the courts of Oregon and any stockholder proceeding in his own right may invoke it. His pleading in such case will be his own complaint against the corporation and not the corporation’s complaint against its unfaithful officers. The relief to which plaintiff is entitled can he given him most properly through a receivership.
31, 32. The defendants, Backus, Brooks, Horr and Backus-Brooks Co., having appeared generally for the first time when the decree was entered, should be permitted to answer if they so elect and to offer any additional proof which they may have. The record indicates that they have made their defense in the name of the Columbia Company and that they will probably have nothing further to offer. A mandatory injunction should issue requiring the Columbia Company to return its records to this state and to keep them here for inspection, as required by Section 6694, L. O. L. If the defendants shall fail to make restitution of the moneys taken from the Columbia Company’s treasury, the receiver should be authorized to sue for their recovery. By seizure of the majority stock in the corporation the receiver can probably find a remedy in the Oregon courts. If not, the Minnesota courts will probably entertain his suit: Comstock v. Frederickson, 51 Minn. 350 (53 N. W. 713). Plaintiff is entitled, if he so elects, to have the receiver investigate the properties of Midland Mining and Milling Company and Northern Mining and Trading Company and to advise the court with reference thereto. On proper allegations, after the funds of the Columbia Company have been recov*38ered, the court may determine whether the circumstances entitle plaintiff to a distribution of these funds or any part of them by a dividend.
The disposition of the fund in the registry of the court herein directed can be set up by way of defense to the action at law brought by the Columbia Company against the First National Bank, and an injunction restraining that litigation is unnecessary.
The equities being with plaintiff, he should recover his costs in both courts from the Columbia Company.
The decree is therefore reversed and the cause remanded with directions to sustain the demurrer to the amended complaint with leave to plaintiff to amend, further proceedings to accord with this opinion.
Revebsed and Remanded.
Mb. Justice Bean concurs in the result of this opinion.