The opinion
Blake, J.
(dissenting) — My divergence with the majority commences at the quotation from the memorandum opinion of the trial judge. With the facts theretofore stated and the drastic rules of law applicable thereto clearly in mind, I cannot accept the conclusions of the trial judge adopted here as the majority opinion.
Unless there was some peculiar reason for calling the Canfield loan, I do not think E. W. Scripps fulfilled his obligation to exercise good faith toward the pledgee, since he did not call the loans of Mrs. Scripps and other employees. The loans were all of the same character. They were all in the same class. His only
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reason for singling out the Canfield loans and calling them was that the margin between the amount of the loans and the value of the stocks was so little as to make the investment unsafe. This reason, however, was based upon the book value of the stocks, which was never used as a transfer or trading value in the many sales of stock referred to in the record. Under all methods of valuation theretofore used, Canfield’s stocks were worth at least three times as much as the amount for which they were pledged.
Without undertaking to arrive at the actual valuation of Canfield’s holdings, we can determine the factor of safety of the loan by making a brief reference to the value of Star Publishing Company stock. Canfield owned 177 shares of that stock. The evidence showed recent transactions in that stock on the basis of three thousand dollars per share. H. B. R. Briggs, who for some years was assistant chairman of the board, testified that Star stock was worth $28,050 per share. By the rule of three, which was adopted as the basis valuation by Mrs. Scripps, Canfield and Sanders in their contract of October 22,1921, the Star stock was worth that much at least. In that agreement, the rule of three is described as follows:
“Three times Annual Receipts from Circulation and Advertising.
“Circulation at $20 per name (yearly average paid circulation as shown by the monthly statements.)
. “Twenty times annual ‘Net Profit’ (not the ‘Statement Profit’) as now calculated in the regular monthly statements known as the Comparative Statements— sample attached.
‘ ‘ Total of these three items is then divided by three. ’ ’
On any basis of calculation, other than book value, the Canfield holdings in the Star alone were worth $350,000 to $400,000.
At the time of the trial, the reserve fund investments
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amounted to approximately $1,200,000. On the theory upon which Mrs. Scripps and Canfield had been borrowing from the reserve fund, Canfield’s interest therein was almost, if not quite, equal to the amount of his indebtedness.
If the real reason for calling the Canfield loan was that the margin between the' security and the indebtedness was so small as to render the loan a bad investment for treasury reserve funds, there was more reason to call at least one other loan. At the time the Canfield loan was called, Briggs was a borrower of reserve funds in excess of the value of the stocks held by Scripps as trustee to secure the loan. And the valuation was not computed upon the book value of Brig’gs’ stocks. The valuation in this instance was computed on the cost of the stocks to Briggs, plus six per cent interest from date acquired. This method of valuation was devised to secure employees the return of principal, with a fair rate of interest, on their investments in stocks of the Scripps corporations. As we have seen, however, the sales were made to employees on the basis of real value of the stocks, and not on book values. On this basis of value, Briggs’ collateral did not equal his loan, yet Scripps did not call it.
I stated that no call had been made on Mrs. Scripps. Respondents contend that her note was paid. This is how it was paid: Although no express trust was created by the will of James Gr. Scripps, it appears Mrs. Scripps was impressed by the idea that the stocks she inherited from her husband were held by her in trust for her children. This idea, however, did not take form in action until about the time the Canfield loan was called. A corporation was then formed, called the Scripps Newspapers, Incorporated. The capital stock consisted of two thousand shares; five hundred shares being issued to each of Mrs. Scripps*
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four children. Then all of Mrs. Scripps’ stocks were transferred to Scripps Newspapers, Incorporated.
The consideration for the transfer was the assumption of Mrs. Scripps’ indebtedness of three hundred thousand dollars to the reserve fund. This indebtedness of Mrs. Scripps, which, with interest, now amounted to $316,847.06, was paid in the following manner: E. W. Scripps, as treasurer, drew a check for $316,847.06, payable to Scripps Newspapers, Incorporated. Then, as treasurer of Scripps Newspapers, Incorporated, he indorsed the check back to himself, as treasurer. He thereupon relinquished to Mrs. Scripps, as paid, her three hundred thousand dollar note, and took a note from Scripps Newspapers, Incorporated, for $316,847.06, to secure which he and his brother deposited with himself, as trustee, one thousand shares of stock of Scripps Newspapers, Incorporated.
The theory of the transaction, as I understand it, is this: By issuing the cheek to Scripps Newspapers, Incorporated, E. W. Scripps, as treasurer, loaned that company $316,847.06 of treasury reserve funds. When, as treasurer of Scripps Newspapers, Incorporated, he indorsed the check to himself as treasurer, Scripps Newspapers, Incorporated, thereby paid the debt evidenced by Mrs. Scripps ’ three hundred thousand dollar note. What actually transpired was that the obligation of Scripps Newspapers, Incorporated, was substituted for the obligation of Mrs. Scripps, and the status of the treasury fund remained exactly the same, except that the $316,847.06 of treasury reserve funds was loaned to the Scripps children, instead of Mrs. Scripps. The security for the loan consisted indirectly of the same stocks as secured the loan when evidenced by Mrs. Scripps’ note of three hundred thousand dollars.
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This transaction occurred December 15, 1932, after notice given of the intended sale of Canfield’s stocks. As we have just seen, $16,817.06 interest was then unpaid on Mrs. Scripps’ note. Contrast this with the condition of the Canfield loans. At that time, interest was in default on Canfield’s obligations in a comparatively small sum, for Ann Murphy, after she was appointed special administratrix by the superior court of King county, collected the dividends on Canfield’s stock and turned them over to E. "W. Scripps, to be applied to interest on Canfield’s obligations. The interest charges on the Canfield obligations for 1932 amounted to $15,201.37, while dividends on his stock for the same period amounted to $15,601.
My reading of this record has convinced me that Mr. Scripps, in calling the Canfield loans, was not motivated by any thought concerning the welfare of the corporations or minority stockholders. On the contrary, it is apparent that his purpose was to freeze out the Canfield heirs and acquire their stock for himself and the members of his family, for the amount of the Canfield indebtedness, which,' as we have seen, is not more than a third or fourth of the actual value of the stock. It seems to me the chancellor’s conscience is singularly dulled when a court of equity permits the consummation of such a transaction.