statute: He shall 'proceed to canvass and count the names of certified legal voters on such petition. If he find the same name signed to more than one petition he shall reject both names from the count."" And also that tions in that case were filed November 6, 1916, and on that day the auditor notified the parties interested that he would proceed to canvass the petitions on Wednesday, November 16, 1918. Between the date of filing and the date fixed by the order for canvassing the petitions a number of signers on the pe"The secretary of state is without authority titions filed petitions addressed to the counto inquire into or decide the question of the ty auditor directing him to withdraw their names upon the petitions being the 'signatures names from the recall petitions and not to of legal voters,' in the light of the express pro- count them in making the canvass of the visions of the statute committing that question petitions. Over the objections of appellants, for decision to local certifying officers, and the auditor refused to count the persons who that when a local certifying officer has decided had indicated their purpose to withdraw; that names upon the petition are the signatures of legal voters, and has evidenced that decision by proper certificate in the manner provided by law, his decision is absolutely final so far as the power of the secretary of state to ignore the same is concerned." In other words, the local certifying officers exercise that quasi judicial function of determining the authenticity of all signatures. Under these statutes the secretary of state is given no power to compare signatures. Should he attempt to permit withdrawals and then compare signatures on the withdrawing petitions with the original signatures on the petition, there is opened a wide door for frauds on the part of opponents of the measure. Besides, if he permit withdrawals at any time during the period when he is canvassing the vote he should not arbitrarily close the door for withdrawals at an arbitrary time fixed by him, but should allow the whole time, or 30 days, which he is given for the canvassing and certifying of the petition, and that would lead to endless confusion. The petitions then could never be finally examined until after the expiration of the 30-day period. The law in other respects could not be complied with. The sult might be that the desires of petitioners for very worthy and beneficent measures for submission to the people at the general elections might be frustrated. the result being an insufficient number of signatures left thereon to authorize the calling of a special election. The auditor made a certificate to that effect and notified appellants as the filers of the petition thereof. It was contended in that case that the withdrawal petitions should have been filed before or along with the original petitions, but it was held that by the provisions of the statute the auditor should fix a time at which he would commence the canvass of the petitions, and no delay in the canvass was caused by recognizing the withdrawals filed prior to that time whether filed before or after the filing of the original petition. It will be observed that in that case the auditor, after filing the petition for recall, must fix a time for proceeding to canvass the petitions. Before that date petitions for withdrawal duly filed with the county auditor withdrew certain names which had been signed to the petition. No rights had attached up to that time. In the case at bar, unless the filing of the petitions with the secretary of state be considered as the final act of the petitioners in presenting the proposed legislation, thus preventing any subsequent supplements, adre-ditions, or alterations to the petition, except such as are found by due judicial proceedings as provided in the act, unutterable confusion is bound to arise and the aims of the law would often be frustrated. It is thought by the Attorney General that our decision in Rominger v. Neller, 97 Wash. 693, 167 Pac. 57, sustains the position of respondent. While there is considerable variation among the decisions of the courts as to the correct stage of the proceedings at which this right may be exercised, and the question is In that case we held that electors signing largely influenced by the nature of the propetitions for the recall of a county commis- ceeding and the terms of the statute under sioner had the right to withdraw their names which it is exercised, so far as our examinaprior to the date fixed by the county audi- tion of a great many cases which have passtor for canvassing the names. It was held ed upon the matter shows, even in those in that case, following the Mohr Case, supra, cases which allow the most liberal margin and the great weight of authority, that elec of time for withdrawal, they seem to recogtors voluntarily signing petitions might vol nize that this right to withdraw may not be untarily withdraw therefrom, at least until exercised so as to defeat the jurisdiction aftthe petition had been acted upon. But in er jurisdiction of the body authorized to act that case the law provided that the peti- has been determined; and while the greatest tions should be filed with the county audi- liberality should be shown to voluntary signtor and that he should notify the parties iners on such petitions to voluntarily withdraw terested that he would proceed to canvass at some time before their signatures become the petitions at a time named. The peti- final, we are confident that they should not (227 P.) 10-Advances by telephone company to telechronometer company held "loans" bearing legal interest. be allowed to withdraw their signatures vol- [ 4. Interest Many cases have been cited by both sides Moneys advanced by telephone company to telechronometer company for use in installing and demonstrating telechronometer instruments, carrying on its business, etc., held loans on which legal rate of interest should be allowed, under Rem. Comp. Stat. § 7299, after liquidation and balancing of account. [Ed. Note. For other definitions, see Words and Phrases, First and Second Series, Loan.] Conditional judgment, allowing recovery of money advanced by telephone company to telechronometer company, for installation of telechronometer instruments, conduct of latter's business, etc., from net profits of such business and sale of its stock, to extent determined by its board of trustees, in exercise of discretion in determining amounts payable, without inter MAIN, C. J., and TOLMAN, FULLERTON, ference with proper conduct of business, and and PARKER, JJ., concur. PUGET SOUND TELEPHONE CO. v. TEL- SAME v. TELECHRONOMETER CO. OF (No. 18568.) (Supreme Court of Washington. July 31, 1924.) 1. Action 22-Action on note and open account held equity case. denying receivership, sustained; Rem. Comp. Stat. § 741, giving trial court wide discretion as to appointment of receiver. Department 1. Appeal from Superior Court, King County; Edward C. Mills, Judge. Suits by Puget Sound Telephone Company against Telechronometer Company of America, in which Garrison Babcock and another intervened. From decree rendered, plaintiff and defendant appeal, and named intervener cross-appeals. Modified and affirmed. Williams & Davis, of Everett, and Tanner & Garvin, of Seattle, for appellant. Caldwell & Evans and Raymond D. Ogden, all of Seattle, for respondent and cross-appel Consolidated action on note, which defend-lant. ant alleged was procured by overreaching and deception, for ulterior motive, without intent that it should be valid obligation, and on open account involving long detailed accounting, held equity case. 2. Evidence 434 (12)-Parol evidence as to real transactions between parties held admissible, in action on note and open account. In action on note and open account, wherein answer charged acts of bad faith and overreaching amounting to fraud in transactions with plaintiff and intervener, parol evidence was admissible as to real transactons between parties, though parol evidence rule applies to negotiable instruments. 3. Bills and notes 520-Conclusion that note sued on was not bona fide, held sustained by evidence. Evidence held to sustain trial court's con clusion that note sued on was not bona fide, in that it included contingent items and matters settled between parties long before, and hence was avoidable for fraud, though trial court did not so denominate situation. cated controversy involves two suits. HOLCOMB, J. This exceedingly compli first The was against respondent, the Telechronometer Company of America, a corporation, on a promissory note in the ordinary form. The complaint therein alleges the corporate capacity of appellant and respondent, the execution and delivery of a note for $72,500, setting forth a copy thereof, a credit of $50,000 thereon, and demanded payment of the balance, $22,500, with interest at 8 per cent., and an attorney's fee, provided in the note, of 10 per cent. The second was by the same appellant against the same respondent upon an open account, alleging a balance due thereon from respondent to appellant in the sum of $71,447.68, which, it was alleged, appellant at the special instance and request of respondent, had from time to time advanced to respondent for its use and benefit, in setting up an arrangement for the installation and dem For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes onstration of telechronometer instruments at the Everett exchange of appellant, in carrying on its business, and in payment of labor and for material, supplies, and expenses which it was agreed should be repaid. It is also alleged that respondent is insolvent, has no income, and cannot pay its indebtedness, and that its officers are conducting its business in an extravagant manner, paying exorbitant salaries, borrowing money for that purpose, and issuing notes of the company therefor. Judgment is prayed for the amount of the account, and the appointment of a receiver for respondent. In this action Garrison Babcock intervened, demanding damages in the sum of $500,000, or, in the alternative, the return to him of all stock held by appellant company in the defendant company, and for judgment against the appellant company in the sum of $100,000, and costs and disbursements, and that relief be denied appellant, and that no receiver be appointed at the suit of appellant. The Telechronometer Company of Washington, a corporation, also intervened, demanding an accounting of appellant, and other relief. Several affirmative matters are then set up by respondent, which may be summarized as follows: (1) That the Pacific Telephone & Telegraph Company is the owner of a large amount of the bonds of appellant, and that Winter, as president and owner of appellant, had violated the provisions of a trust deed securing such bonds, in particular by his expenditures in connection with the telechronometer patents; that Winter had caused the $72,500 note and other obligations of appellant and Babcock to be issued for the purpose of deceiving the Pacific Telephone & Telegraph Company, and that, moreover, Winter was attempting to wreck the affairs and business of respondent at the instance of, and upon the demand of, the Pacific Telephone & Telegraph Company. (2) That after his disagreement with the other stockholders, Winter desired to control the Telechronometer Company of America in his own interest, and failing in this, he set out upon his deliberate attempt to wreck the respondent corporation. (3) That at the time Winter and Babcock reacquired the interest of one Keeler in the telechronometer patents, it was agreed by Winter for appellant that appellant would finance respondent corporation "until a state-wide order" of the then Public Service Commission of Washington was obtained, and that this agreement was breached by appellant to the damage of respondent in the sum of $500,000. These allegations of the answer and cross In the action on the note, respondent in its answer, after traversing certain allegations, set up five affirmative defenses: (1) That the note was executed by Garrison Babcock as vice president of the corporation, without authority. (2) That Mr. Winter, president, and almost sole owner of appellant, and also one of the principal stockholders and officers complaint, and the allegations of the comof respondent, had caused the note to be is-plaints in intervention, were put in issue by sued for the purpose of deceiving the officers replies and answers of appellant. The two and stockholders and others interested in cases were consolidated for trial by stipulaappellant, and in particular the Pacific Tele- tion, and the trial lasted some four weeks. phone & Telegraph Company, which was in- A record of, 1,427 pages of testimony, besides terested in the financing of appellant, and 220 exhibits, many of which are very volumithat the note was fictitious and never in-nous, was produced. tended to be, and was not considered a bind- The court disposed of the cases substantialing obligation. (3) That on June 17, 1921, ly as follows: (1) It was found that appelBabcock paid to the appellant for respondent lant had advanced, over and above proper the sum of $20,000, which should have been offsets and credits, the sum of $18,314 to recredited upon the note. (4) That in arriving spondent, but that appellant was only enat the amount of the note there was included titled to payment of this sum from the net the sum of $40,000 of bonds of the plaintiff, profits of respondent's business, and from which were redeemed by it for the sum of profits, if any, received from the sale of its $28,593.34, and that respondent was entitled stock, and "to the extent only as may be deto a credit for the difference, $11,406.66, up- termined by the board of trustees of the deon the note. (5) That respondent is entitled fendant Telechronometer Company of Amerto a credit of $15,000 on account of the pur-ica, in the exercise of the discretion of said chase of stock in respondent in addition to the $50.000 in stock credited by appellant. board in determining what amounts, if any, may be paid upon said balance without interference with the orderly and proper conduct of the defendant company." Appellant was given the right, after two years, to apply to the court to review the action of the board of trustees in refusing to apply the The reply of appellant put in issue the affirmative allegations of respondent's answer. The answer and cross-complaint of respondent in the suit upon the open account comprise 42 pages, exclusive of exhibits. Advances in the sum of $58,269.31 by appellant | profits or proceeds of the stock sales towards to respondent are admitted, but against this it is alleged that appellant purchased $65,000 worth of preferred stock of respondent, leaving a balance owing respondent of $6,730. the payment of the balance due. (2) Interest on the balance was refused. (3) It was adjudged that the appellant had no lien upon the telechronometer patents. (4) The appoint (227 P.) ment of a receiver was refused. (5) The suit | corporation should be organized, and a note for a balance of $22,500, alleged to be due on of $20,000 made to Winter. Keeler undertook the promissory note, was dismissed with prej-to finance the corporation by the sale of its udice. (6) Respondent was awarded costs. preferred stock. Pursuant to this agree(7) The cross-complaint of the Telechronome-ment, the respondent company was incorpoter Company of America was dismissed. (8) rated June 24, 1921, capitalized at $3,000,000 The complaints in intervention of Babcock common stock, and $2,000,000 of preferred and the Telechronometer Company of Wash- stock. After the purchase of the patents by ington were dismissed with prejudice. From this judgment appellant appeals, respondent filed a cross-appeal, and the intervener Babcock filed a cross-appeal. Babcock and Winter, the expenditures in connection with the improvement and testing of the devices, and demonstrating the practicability, were advanced by appellant company, and the items charged to an account on the books of that company known as The The trial judge refused to make definite findings of fact, but at the conclusion of the trial, and while the matters were fresh in "Telechronometer Expenses," No. 803. his mind, pronounced a very logical and com- end towards which Winter and Babcock were prehensive opinion, which, when judgment working was an order of the then Washingwas signed later, he supplemented somewhat. ton Public Service Commission prescribing The facts are so involved and complicated measured rates for all telephone systems of that not even an intelligent summary, within the state, denominated by them as a "statethe proper limits of an opinion, can be at-wide order," thus requiring the telephone tempted here. Appellant relies principally companies to install the telechronometers as for a reversal upon the proposition that the the only practical means of rendering meastrial court permitted parol evidence to vary ured service. or alter the terms of the promissory note. and of a certain other instrument involved in the transaction, known as the "WinterBabcock Proposal." A brief statement of the matter may be made as follows: They procured an order from the then Washington Public Service Commission, sanctioning the complete equipment of the Everett exchange with the telechronometers, some 5,400 being installed, and the TelechronomeBabcock, one of the principal inventors and ter Company of Washington had made a conowners of certain patents in appliances for tract with the Kilbourne & Clark Manufac the purpose of measuring telephone conversa-turing Company for the manufacture of tions, the utility of which is conceded, or not the instruments. In its various activities denied, had had difficulty in financing the it is shown that the appellant company had same so that they could be properly demon- paid out, including the $1,000 paid on the strated commercially. He had previously in terested other persons and concerns in the option to purchase the patents, $9,000, and patents, which were known as the "Beattie-Winter had paid out $27,000, including the Babcock Group" of patents. Winter was the owner of all of the capital stock, and president and general manager of the appellant. In 1919, Winter and Babcock undertook to acquire the telechronometer patents which were then owned by a company in Galion, Ohio. On December 4, 1919, an option for the purchase of the patents was obtained for $25,000. The option was taken in the name of Babcock. Winter agreed to advance $10,000 of the purchase price. Babcock undertook to obtain the remaining $15,000 from parties in Chicago, and it was agreed that the respective interests should be fifty-fifty. The patents were procured from the Galion, Ohio, company, Winter paying $24.000 therefor, and the appellant company, $1.000. Winter and Babcock, desiring to demonstrate the practicability of the devices, conceived that such demonstration could best be made at the exchange of appellant in Everett. To that end some meters were installed and placed in operation in February, 1920. An arrangement was made on June 17, 1921. with one Frank Keeler whereby a 51 per cent. interest in the Beattie-Babcock patents was sold to him by Babcock and Winter for $25,000 cash, and an agreement that a $24,000 paid on the option. The receipt of the $20,000 payment by Winter from Keeler, and the payment of $5,000 to Kilbourne & Clark, reduced Winter's advances to approximately $12,000, while the appellant company's advances remained at $9,000. Keeler failed to perform his undertaking to finance the company, and Winter and Babcock, being dissatisfied with his failure, desired to eliminate him from the company. An action was brought by Babcock against Keeler and his associates, including Winter and one Bristol, charging breach of the contract to finance the company. This suit was compromised by a stipulation of the parties dated September 21, 1921, under which Winter and Babcock assumed Keeler's obligations to respondent, including his unpaid subscriptions to the capital stock, agreed to pay him $15,000 in cash, and to deliver to him $40,000 of the bonds of appellant, with the option to repurchase such bonds at 70 per cent. Keeler in turn relinquished all interest in the corporation. This settlement was consummated, and the $15,000 in cash and the $40,000 in bonds were furnished by appellant, and, meanwhile, appellant had paid an additional $7,500 to Kilbourne & Clark. Appellant there fore contends that the account then stood as under its contract. The installation of the follows: Winter, approximately Less credit Balance Puget Sound Telephone Co. miscellaneous from acquisition of patents to August 1, 1921, approximately... Kilbourne & Clark.. Cash to Keeler...... Bonds delivered to Keeler.... Total $27,000 $12,000 40,000 $72,500 Everett exchange was completed, and the devices put into service December 4, 1921. On March 20, 1922, the order of the department of public works of Washington was obtained, establishing a schedule of measured rates for telephone service at Everett, effective April 1, 1922. Measured rates with ..$10,000 7,500 modifications continued until October 1, 1922, 15,000 when the flat rates formerly in effect were restored by order of the department of public works. (Respondent and Babcock contend that this order was made at the secret instiOn September 22, 1921, the day following gation of Winter.) Much opposition developthe settlement with Keeler, Winter and Bab-ed to the measured rates service, and it soon cock made a formal written proposal to the became apparent that a state-wide order, respondent, which is called the "Winter-Bab- such as was desired, was very improbable of cock Proposal." Under the terms of this pro- attainment. Early in 1922, respondent havposal Winter and Babcock agreed to convey ing failed to obtain sufficient moneys from all their beneficial interest in the patents, the sale of its preferred stock to carry on its and to confirm the assignments theretofore undertaking, Winter, for appellant, announcmade to, but unaccepted by, respondent, in ed that after April 1, 1922, appellant would payment for its entire capital stock upon cer- advance no further funds. tain terms and conditions specified in the pro- however, afterwards advance some $7,500, Appellant did, posal, among which was the assumption of but no advances were made after June 14, the obligation of $72,500 to appellant, to be evidenced by a 90-day promissory note. The common stock of respondent, 30,000 shares, was to be issued to persons designated in the proposal, as follows: 1922. [1] It will be observed that the suit upon the note was resisted upon, among other grounds, the allegations that it was procured by overreaching and deception, and for an ulterior motive, on the part of Winter, in behalf of appellant company, and that it never was intended to be a valid obligation of respondent. The suit upon the open account involved a long detailed accounting between appellant and respondent, including financial transactions between the promoters before the incorporation of respondent. Under all the issues, the consolidated action was essentially an equity case, and apparently so considered by all parties. On September 24, 1921, separate meetings of the stockholders and trustees of respondent company were held, officers elected, and the conditions of the Winter-Babcock Proposal were in all things accepted in return for the patents, which were likewise accepted. The trustees thereupon authorized the president and secretary to carry out all [2] The first action was simply an action things necessary to be done to complete the for the balance due upon a promissory note. transaction on the part of the corporation. The second action was an action upon an Winter, Babcock, and Bristol then directed open account, and under the issues became their attention towards financing the respond- a question of an accounting, and for a reent company, Bristol acting as general coun-ceiver. Neither of the actions was based upsel for respondent, and also for the appel- on the Winter-Babcock proposal. Since, lant company. A. S. Taylor, of Everett, was therefore, neither of the parties was seekemployed by respondent in an executive capacity at a salary of $1,000 a month. He was elected vice president, and began to draw that salary on November 1, 1921, and was still receiving it at the time of trial. He was given $300,000 in stock of the company, and agreed to sell sufficient of the preferred stock to take care of existing obligations, and finance the company to such time as it was expected that a "state-wide order" would be obtained. Taylor testified that he merely un- It is true that we have repeatedly held dertook to interest some of his friends in the that the parol evidence rule applies to negostock of the company. He did sell stock ag- tiable instruments. Post v. Tamm, 91 Wash. gregating $44,000, from the first $25,000 of 504, 158 Pac. 91; Van Tassel v. McGrail, 93 which no money was realized. Kilbourne & Wash. 380, 160 Pac. 1053; Rhodes v. Owens, Clark continued to manufacture instruments 101 Wash. 324, 172 Pac. 241; Moore v. Kil ing to recover upon the Winter-Babcock proposal, it is difficult to understand how the parol evidence rule applies to that instrument, as contended by appellant. In any event, in the action on the account, the answer charges Winter with acts of bad faith and overreaching in all the transactions with Babcock and respondent company, and therefore parol evidence should be admitted as to the real transactions between the parties. |