First National Bank v. Multnomah Lumber & Box Co.

COSHOW, J. This case presents questions of fact nearly altogether. There is but little controversy or difference of opinion about the law involved. There are over 2,000 pages of typewritten testimony, 387 pages of abstract of record, a large dry-goods box filled with exhibits, and about 900 pages of printed briefs besides the printed testimony relied upon by plaintiffs and the typewritten testimony presented by appellants as proving their contentions. This statement suffices to show that it is not practicable to analyze in an opinion the evidence and present in detail the reasons for finding the facts as we do. Such an opinion would require altogether too much space and would be of no benefit to the profession generally. We do not feel justified in taking either the time or the space to go into detail about the evidence, analyze the testimony and express all our reasons for reaching the conclusion as to the facts. Our efforts will be confined to a general statement of our findings on the questions presented by defendants Bell and H. B. & A. Logging Company, who are the appellants. — 617 — First, was there a conspiracy between plaintiffs and defendants Douty and Multnomah Lumber & Box Company? "We think not. In considering this question it is necessary to have in mind the situation of the parties at the time Douty assumed charge and management of the affairs of the H. B. & A. Logging Company. At that time defendants Bell and H. B. & A. Logging Company were indebted to plaintiff in the sum of over $100,000. Plaintiff had already placed in charge of the affairs of the H. B. & A. Logging Company its own employee, Weiss. Defendant Bell had made a vigorous protest and, for the purpose of persuading plaintiff to rescind this action and permit Bell to continue the management of his own affairs and the affairs of his corporations, sent for his long-time friend and some-time business associate, defendant Douty. The latter, at the request of defendant Bell, interviewed vice-president Wyld, who refused to rescind the bank’s action of placing Weiss in charge of the affairs of the H. B. & A. Logging Company. During the interview, however, Wyld, in behalf of the bank, did agree to permit Douty to take charge of the affairs of that corporation instead of Weiss, providing that Douty would guarantee the payment of the notes owing by defendants Bell and H. B. & A. Logging Company. As a result of this conference the contract of May 20, 1920, hereinabove set out in full, was entered into. On assuming charge of the affairs of the H. B. & A. Logging Company, defendant Douty executed his notes in favor of the First National Bank for the full amount of the indebtedness of defendants Bell and H. B. & A. Logging Company to that bank. Defendant Douty executed nineteen notes for $5,000 — 618 — each and an additional note for five thousand and some odd dollars. It would he extraordinary for one who was conspiring with another to overreach and deprive a third party of his property to become personally obligated , to pay the indebtedness of the third party to the other as defendant Douty did for Bell in favor of the First National Bank in this case. That conduct indicates almost anything rather than a conspiracy between plaintiff and defendant Douty against defendant Bell. Before the bank would rescind its action in placing Weiss in charge of defendant H. B. & A. Logging Company’s affairs and permit defendant Douty to have charge of its affairs, it required defendant Douty to become personally liable for the indebtedness of defendants Bell and H. B. & A. Logging Company to plaintiff. In addition to guaranteeing the payment of the notes of defendant Bell and his logging company, defendant Douty borrowed from said bank some $70,000 to enable him to operate said logging company, and in addition to that advanced through his company, Multnomah Lumber & Box Company, a large sum of money. Plaintiff might be accused of being harsh in its demands, both upon plaintiff Bell and his friend Douty, but there is no evidence in our opinion indicating a conspiracy between the plaintiff bank and Douty against defendant Bell. The evidence relied upon by defendant Bell to establish the conspiracy, so far as it relates to the statements of plaintiff’s officers and defendant Douty, is denied unconditionally by them. They also deny any conspiracy between them. Defendant testifies constantly that his sole object in taking charge of the affairs of Bell was to help him, if possible, and that Ms only reason for undertaking that task was — 619 — Ms friendsMp for defendant Bell and the close intimate relation between his logging interests and' those of defendant Bell. The evidence indicates very clearly that np to the time tMs suit was instituted Douty had become a very heavy creditor of defendant Bell and may lose a very large sum of money. In consequence thereof, there is nothing in the record brought to our attention or which we have found which indicates that plaintiff was trying to do anything other than collect from defendant Bell and Ms logging company the amounts it and other companies represented by Bell owed the bank. There was a written agreement entered into by plaintiff as well as defendant Bell and his co-defendant logging company at the time Bell took over the Kalama company wherein the subscribing parties to that agreement agreed to postpone for two years any litigation instituted to collect from the Kalama company. The conduct of the bank in placing Weiss in charge of defendant Bell’s affairs may be, to a degree, a breach of the spirit of that agreement, but Douty in no way participated in that breach. The action of plaintiff bank in taking over the affars of defendant H. B. & A. Logging Company resulted from the audit made by plaintiff’s accountant. That audit revealed that defendant Bell, instead of making $500 per day out of his logging operations was actually losing. It also revealed that his property was rapidly depreciating and Ms timber rapidly disappearing. TMs accountant recommended to the bank that it take the action it did. We do not find any warrant in the pledge given the bank by the H. B. & A. Logging Company for this action on the part of the bank. It could, however, under its pledge, have sold all the capital stock of the H. B. & A. Logging Company — 620 — because its capital stock had been pledged to the bank by defendant Bell. Defendant Bell probably could have prevented the bank from taking over the management of the affairs of defendant H. B. & A. Logging Company, but he did not attempt to do that by litigation. It probably was inadvisable to do it at that time. But Bell, having acquiesced, or rather having procured a different arrangement voluntarily and entered into an agreement with defendant Douty, to which agreement plaintiff bank was not a party, he cannot now be heard to say that he was coerced or compelled to enter into such an arrangement by duress. He could have stood upon his legal rights and doubtless would have done so but for the fact that from his then viewpoint he would fare better by entering into the arrangement he did than to have his affairs in litigaton. Conceding, but not holding, that the bank was harsh in its method of collecting the amount due it from defendant H. B. & A. Logging Company, yet it was within its legal rights. Defendant Bell was no more laboring under legal duress than is any other debtor who is unable to meet his obligations when his creditor is unwilling to further postpone liquidation. We find that there was no conspiracy. Did the defendant Douty sustain the relation of agent to plaintiff? We think not. We think that Douty was no more the agent of the plaintiff bank than Bell would have been if he had undertaken to liquidate his indebtedness by conducting’ his own affairs. The bank had required of Douty that he guarantee the payment of all of Bell’s notes. That requirement on the part of plaintiff indicates very clearly that it was not placing Douty in charge of those affairs as its representative. The bank was — 621 — interested in the manner in which Douty should conduct the affairs of the defendant H. B. & A. Logging Company because the manner of conducting those affairs in a large measure would determine whether plaintiff would be paid its indebtedness, and, if so, when. The bank, made it clear in its letters to Bell that it would insist on his indebtedness being paid. Bell believed he could pay that indebtedness by operating his plant. Evidently defendant Douty believed that that end could be accomplished in that manner. For that reason he undertook the management of the affairs. It is very evident that the bank had serious doubts about it or it would not have exacted from Douty such drastic terms as to require him to become personally liable for the large indebtedness of defendant Bell in the creation of which Douty had nothing to do. Douty was neither legally nor morally obligated to pay any part of Bell’s indebtedness to plaintiff. Yet plaintiff, before it would release its hold upon the property through its agent Weiss, exacted from the party, whom Bell appealed to, the very severe terms of becoming personally liable for that indebtedness. The fact that the bank insisted upon Douty, after he went into the management of the H. B. & A. Logging Company, conducting those affairs in a certain way, does not prove that Douty was the agent of the bank, but rather that Douty, as well as Bell, so far as the affairs of the EL B. & A. Logging Company were concerned, was under compulsion because of his large indebtedness to plaintiff to give heed to plaintiff’s demands. The only way either Douty or Bell could have prevented the bank from exercising a large degree of authority over the affairs of defendant H. B. & A. Logging Company would have been to have stood strictly — 622 — upon their legal rights. Doubtless, they both believed to have done so would have been worse for Bell than the course they followed. Did the bank interfere and intermeddle with the planner in which defendant Douty discharged his trust under the agreement of May, 1920? We think not in a legal sense. This question has already been largely answered in the preceding paragraph. The interference, such as it was, was the stand taken by the bank in which it determined to liquidate the indebtedness. As we before said, the bank’s conduct may have been harsh, but it had a right to insist upon the payment of the debts defendants owed it. There has been no evidence pointed out to us wherein the bank did other than to threaten to do what it had a legal right to do. Every debtor who has property that may be seized to compel him to pay his debts acts, more or less, under duress in a sense when he is compelled to pay his debt by a forced sale of his property. Such, however, is not legal duress as long as the creditor acts strictly within his legal rights. A creditor has a right to say to his debtor: “You must pay me. If you do not pay me I will take the necessary legal steps to force you to pay me.” If the indebtedness is secured by a mortgage the creditor has a right to say: “I will foreclose that mortgage or I will take your property and subject it to the payment of your indebtedness to me.” That, in effect, is what plaintiff did to defendant Bell when he said he would put a man in charge of defendant’s property whether he wanted it to or not. It may be that plaintiff could not have done just that thing in that way but he could have sold defendant Bell’s stock in the H. B. & A. Logging Company and thereby deprived Bell of all — 623 — of Ms stock. It could then have foreclosed its lien on the real property and other property belonging to Bell or his corporation situated in the state of Washington and sold it at forced sale. Defendant Bell realized that for the bank to have proceeded in that manner would have meant his absolute ruin financially. He preferred, doubtless, to proceed as he did proceed. The court cannot serve as controller of the morals of litigants as long as they keep within their legal rights. A court of equity in such matters must follow the law. We find that none of the acts of plaintiff bank constituted an illegal interference or intermeddling with the affairs of defendant H. B. & A. Logging Company and defendant Douty’s management thereof as trustee. In this connection it must be kept in mind that either plaintiff or defendant Security Savings and Trust Company held title to all the real property of defendants Bell and Ms said logging company as security for said indebtedness. Plaintiff could have foreclosed its lien on said property which would have stopped the operations of defendant logging company sooner than they were stopped by defendant Douty. Did the plaintiff become liable to account for the reasonable value of the property sold by defendant Douty as trustee because it accepted the proceeds of such sale with knowledge of the contents of the agreement between said Douty, Bell, H. B. & A. Logging Company and John K. Kollo ek? We think not. Defendant Douty was not under the control of the bank to any greater extent than a debtor is under the control of his creditor when the debtor is forced to liquidate. Plaintiff was endeavoring to collect the amount owing to it by defendants Bell and H. B. & A. Logging Company. Plaintiff, in — 624 — order to accommodate its debtors, permitted their trustee, said Douty, to operate its debtors’ plant. To that end it advanced $70,000 to cover the expenses of such operation. Plaintiff had caused the affairs of defendant EL B. & A. Logging Company to be examined into and as a result believed said logging company to be insolvent or in danger of insolvency. For that reason it placed a Mr. Weiss in charge of the business affairs of said logging company. At the earnest request of defendant Bell Mr. Weiss was withdrawn and Mr. Douty permitted, so far as the bank was concerned, to take over the affairs of said logging company. The agreement under which said Douty took charge of those affairs specified, among other things, that said Douty should “forthwith pay to the First National bank of Portland, Oregon, all indebtedness due and owing to said bank from the party of the first part (H. B. & A. Logging company), which sum including accrued interest, shall not exceed $110,000 in promissory notes executed and delivered by said party of the third part, (F. A. Douty) maturing at the rate of fifty-five hundred dollars ($5,500) per month, commencing in June, 1920, with interest at such rate as may be charge^ by the bank from time to time. “That any and all capital stock of the party of the first part now held by said First National bank, shall, upon such payment, be forthwith transferred and assigned so as to vest full voting power to the party of the third part, to be held by him with such voting power, until all moneys advanced by him or any of the corporations in which he is interested in the payment of the indebtedness of the parties of the first and second parts (R. C. Bell) to said First National bank or other obligations elsewhere. * * ” It thus appears from the contract under which defendant Douty was operating that he was required — 625 — to pay the indebtedness of defendant Bell and Ms corporation, said logging company. He conld not pay said indebtedness by operating tbe plant. After operating it about two years Douty lost money rather than made money. Tbe timber wMcb was accessible to tbe railroad bad been practically exhausted. Douty bad been compelled to pay money for timber accessible to tbe railroad and which defendant logging company bad under contract of purchase in order to continue operations as long as be did. In order to continue operations it would have been necessary to have extended tbe railroad from a mile to three miles. Tbe extension would have been expensive because in a rough country. Neither defendant Bell nor bis said logging company bad any funds. Douty as trustee was under no obligations, legal or moral, to advance money for tbe purpose of extending tbe railroad and purchasing additional timber. While defendant Douty bad reduced tbe indebtedness of defendant Bell and bis said logging company to the First National Bank, be bad done so by substituting himself and Ms company, tbe Multnomah Lumber & Box Company, as creditors. He could not pay tbe indebtedness of said defendant Bell and bis said logging company without selling tbe corpus of tbe trust. Under such circumstances we think tbe authorities are generally agreed that a trustee is authorized to sell tbe body or principal of tbe property held under trust. It is argued that tbe property was not conveyed or transferred to defendant Douty, but by tbe terms of that agreement, upon payment of tbe indebtedness to tbe bank, all of tbe corporate stock of said logging company was to be assigned and trans — 626 — ferred by tbe bank to Douty as trustee. He bad been required by tbe terms of tbe trust agreement to pay tbe indebtedness wbicb it was impossible for bim to pay without a sale of tbe property owned by defendants Bell and bis said logging company, tbe trustors: Brown v. Brown, 7 Or. 285; Crown Co. v. Cohn, 88 Or. 642 (172 Pac. 804); 5 C. J. 1218, §§ 332, 333; 2 Perry on Trusts (6 ed.), 1264, 1269, §§ 764-766. In said section 766, tbe author says: “Any words wbicb show an intention to create such power, or any form of instrument wbicb imposes duties upon a trustee that be cannot perform without a sale, will necessarily create a power of sale in tbe trustee. Thus an assignment in trust to pay debts will necessarily imply a power of sale, though none is given in words. “Even though no express power of sale is contained in an instrument creating a trust, such a power will be implied when necessary in order to carry out tbe purpose of tbe trust and tbe duties imposed upon tbe trustee, or where it is apparent from tbe whole instrument that tbe settler intended that all or a part of tbe property should be sold. Thus, a power of sale will be implied from tbe power and duty to pay debts. * * (39 Cyc. 351. See also extended notes to First Baptist Church v. American Board of Commissioners, Ann. Cas. 1916D, 404, said note beginning in page 410.)” 28 Ency. of Law (2 ed.), 1002, paragraph (C); Robinson v. Robinson, 105 Me. 68 (72 Atl. 883, 32 L. R. A. (N. S.) 675), and note beginning in page 676. “A power of sale need not be conferred on a trustee in direct or express terms, but may be implied from tbe purposes of tbe trust. Generally speaking, whenever a trustee is directed to do something, tbe doing of wbicb cannot be accomplished otherwise than by a sale, then a power to sell is implied, and — 627 — many courts refuse to imply the power unless there is a necessity for the sale arising out of the powers conferred. (26 R. C. L. 1285, § 136.)” The purpose of placing the management and the property of the H. B. & A. Logging Company was the payment of its debts. Defendant Douty had demonstrated by his experience that those debts could not be paid by operating the plant of said logging company. It became necessary, therefore, by the terms of the trust agreement, to sell the property because payment of the settlers’ debts was the very purpose of conferring the trust. The trust agreement was entered into for the purpose of enabling defendants Bell and his said logging company to carry on their business through their chosen trustee, defendant Douty, and for the benefit of said defendant Bell and his said logging company’s creditors. The only creditors named are the plaintiff bank and defendant Douty. But defendant Douty, as trustee, is authorized to pay the debts owing to his corporation or any corporation in which he has an interest, as well as any other creditors of defendant Bell or his said logging company. The law is well settled and very general that in such cases the trustee must conduct the affairs of the settler for the benefit of the creditors: 2 Perry on Trusts (6 ed.), 952, et seq., §§ 585, 588, 589, 591. As clearly showing that the intent of the trust agreement was to pay the debts of defendants Bell and his logging company to plaintiff, the following correspondence, which led up to that agreement, is cited: — 628 — “Mr. E. C. Bell, President, “H. B. & A. Logging Company, “Corbett Building, City. “Dear Sir: By this means we take pleasure in introducing to you Mr. Edward Weiss, who in accordance with the agreement between us, will take full charge of the H. B. & A. Logging company. “It will be necessary that the II. B. & A. Logging company pass a resolution giving authority to Mr. Weiss to transact all business on behalf of the company, including the countersigning of checks. It is understood that no disbursements will be made without Mr. Weiss’s consent and signature, and that all moneys due when collected will also pass through his hands. Asking your cooperation, “Yours very truly, “E. A. Wyld, Vice-president. “Mr. Edward Weiss, “Portland, Oregon. “Dear Sir: Confirming our conversation of Saturday last and the understanding between us, be good enough to take charge of the operations of the H. B. & A. Logging company, situated at Gray’s Eiver, Wash., on the following terms: “1st. Salary of $500 per month, to be paid you subject to thirty days notice by either party. “2d. Provided the indebtedness of the EL B. & A. Logging company to the First National bank, which at date amounts to $102,955.81 with an indirect liability on endorsement of $60,358.94, is entirely liquidated within one year, a bonus of five thousand dollars ($5,000) will be paid you in addition. “It is understood that you will assume entire control, that no moneys will be disbursed without your signature, all checks will be countersigned by you and that all moneys received will pass through your hands. “Yours very truly, “E. A. Wyld, Vice-president.” — 629 — Following these two letters is a letter from defendant Bell to C. F. Adams, copy of which appears in the statement hereinabove. It may be and probably is a fact that because plaintiff bank did not accede to defendant Bell’s wishes that defendant Bell entered into the contract with defendant Douty which constitutes the trust agreement, but, as we have before stated, plaintiff bank was within its rights in insisting that the amount owed it by defendant Bell and his said logging company be paid. Defendant Bell evidently preferred to make his own arrangement about a trustee rather than to have the bank select a man to have charge of his affairs. He made the election and cannot complain because the bank exercised its right to insist that the trustee chosen by defendant Bell should so conduct his affairs as to pay the bank the amount owing to it. Before defendant Douty sold any of the trust property he addressed the following letter to defendant Bell: “Mr. E. C. Bell, “589 Sixth street, Portland, Ore. “Dear Sir: If we are able to continue logging at present rate, we should be through with all the available timber on the present constructed road by May 1st, at the latest. There is no suitable timber in that locality to which further extension of the road can be made. We understand there is about 75,000,000 feet of timber on that side of Gray’s Eiver that can be reached by building about three miles of track from the H. B. & A. main line, from the place the grade starts. “So far as we are concerned, we do not want to continue the operation by being required to make additional purchases and expenditures in construction. Ton, of course, understand that a large por — 630 — tion of the equipment is getting old, and the upkeep of it is enormous, so that for continued logging operation it would be necessary to make considerable increased expenditures in new equipment. Tbe banks are now making a complete audit of the H. B. & A. company’s books, showing tbe transactions from tbe time we started operating tbe camp, and they also advise us that they are going to have an appraisement made of tbe equipment as well as tbe remaining timber and logs on band, in order that they may know just bow much of tbeir indebtedness will be liquidated from tbe timber and logs and what portion of tbe equipment will bave to be sold to liquidate tbe balance of tbeir claim. “After this audit and appraisal has been completed, we will endeavor to get a copy of same, so you can go over it in detail, if you care to. We bave expected for some time to be able to furnish this to you, but they bave delayed tbe work for over 60 days. Tbe audit and timber on band will show quite a sum of money still due them after tbe marketing of all tbe timber, so we know tbeir plan is to either junk tbe equipment under tbeir mortgage or sell it to someone wanting to continue there. In fact, they want tbe matter closed up, and are not inclined to permit it to run longer than June 1. They bave advised us to this effect. “We thought it best to call your attention to this matter at this time in order that you might have an opportunity to try and reorganize in some way to get your operation into tbe 75,000,000 tract. “There are a number of eastern people coming to tbe coast now, looking for logging operations, and it might be possible to make some deal whereby tbe key to tbe situation there would be an inducement for someone to go in and in that way get more out of tbe equipment and construction than could be realized from a junk standpoint. “You, of course, understand that we bave been required to advance a large sum of money ourselves, as tbe bank was not inclined to do so, and we are — 631 — very anxious that some effort should be made to induce someone to take the outfit and extend it into the above tract of timber. As far as we are concerned, we are shifting our logging operations to Lincoln county, where we can get plenty of spruce, and, of course, are not interested in the Gray’s river situation, because there is very little spruce there. “This matter of trying to interest someone in the future operation should be given immediate attention and not wait until the audit and appraisal is completed, as that probably will not be finished much before the time the timber is logged. We sug- gest that you call the writer on the phone and make an appointment to discuss this matter, and oblige, “Yours very truly, “H. B. & A. Logging Co., “F. A. Douty, Treasurer.” To this letter Bell made no response. It occurs to us that Bell should have been sufficiently interested in the conduct of his own affairs to have responded to this letter rather than to- have permitted his trustee to proceed without defendant Bell’s aid, assistance and counsel. Bell is not put in a good light, to say the least, by his refusal to interest himself in finding a way to so manage his affairs as to pay his creditors. Complaint is also made because defendant Douty did not forthwith pay the indebtedness of defendant H. B. & A. Logging Company as mentioned in said trust agreement. The trust agreement also prescribes that said indebtedness should be paid with the notes of defendant Douty. Appellants argue that the payment of the notes of defendant H. B. & A. Logging Company was a condition precedent to the operation of the trust. The trust agreement prescribes that said notes should be paid in monthly installments of $5,500 each. It thus — 632 — clearly appears that the parties did not contemplate that the notes of Douty should be accepted by the bank in absolute payment of the trusters’ indebtedness to the bank. Taking the trust agreement as a whole we think the intention of the parties was to satisfy the bank by defendant Douty becoming personally liable for the indebtedness of defendant Bell and his logging company and that such indebtedness should be paid in monthly installments of $5,500 each. The word “payment” as used in the trust agreement must be construed broadly as meaning the assumption of that indebtedness by defendant Douty and not the absolute cancellation of the indebtedness of defendant Bell and his logging company. It is also urged that the trust agreement was violated in this, that the Multnomah Lumber & Box Company advanced large sums of money and was substituted to a large extent as trustee instead of defendant Douty. It is quite evident that it was in the minds of the parties to the agreement that some of the corporations under the control of defendant Douty should be utilized in operating the business of defendant H. B. & A. Logging Company. The agreement itself specifies “that any and all of the capital stock of the party of the first part now held by said First National Bank shall, upon .such payment, be forthwith transferred and assigned so as to vest full voting power to the party of the third part to be held by him with such voting power until all moneys advanced by him or any of the corporations in which he is interested m the payment of the indebtedness of the parties of the first and second parts to said First National bcmh or other obligations elsewhere.” — 633 — Was the plaintiff bank a party to the said trust agreement? We think not in the sense in which appellants claim it was a party. As hereinabove stated the bank was interested in the execution of the trust confided in defendant Douty by defendant Bell and his said logging company. Plaintiff was a beneficiary under that trust agreement. It was the duty of defendant Douty so to conduct his trust in accordance with the agreement that his trusters’ debts should be paid to the bank. The fact that the bank insisted on the execution of the trust and received the proceeds of the sale of the property does not make it in any sense liable for an accounting to the settlors nor for mismanagement by the trustee. The law requiring a strict account by a trustee is universal: Wells v. Wood, ante, p. 38 (263 Pac. 51). Defendant Douty, as trustee of his co-defendants Bell and said logging company, must account for his conduct of the affairs of his trusters. The attorneys for defendants Bell and his said logging company specifically requested the Circuit Court to postpone the accounting to which they are entitled until the other issues in the suit shall have been determined. Notwithstanding that fact, they complain in their brief because an accounting was not fully made in this proceeding. We cannot entertain that complaint at this time because defendant Bell and his said logging company are estopped from so doing by their specific request that such accounting be postponed. We repeat that to examine and discuss all of the questions raised by appellants would occupy too much space and time. We have considered all of the questions raised, carefully examined all of the evi — 634 — dence advanced to support appellants’ contentions and thoroughly studied the authorities submitted. We find no error in the record and the decree is affirmed. Affirmed. Belt, J., absent. Rossman, J., took no part in the decision of this case.