Three original Rife Machines have been found. Find out how they really worked by reading:
The Rife Machine Report
|Some of the Beam Ray Corporation members|
Hoyland versus Beam Ray Corporation
Page 3 of 3
Transcribed from the original 1939 Beam Ray Trial
This is the complete transcribed manuscript of the 1939 Beam Ray Trial where Philip Hoyland tried, by court action, to gain complete control of Dr. Royal Raymond Rife’s machine and frequencies. Until now only parts of it have been available to read unless you were willing to read it from Bertrand Comparets (Dr. Rife’s attorney) original transcript on this site. Now it will be easier for anyone to read in this new transcribed format.
2000. Sapiro: what was that interest?
2001. Hutchinson: all I can state is hearsay.
2002. Sapiro: did he say that these gifts were to enable you to give Aero courses to the youth of San Diego etc.?
2003. Hutchinson: yes.
2004. Sapiro: how many students did you have at that time?
2005. Hutchinson: at that time we didn't have any.
2006. Sapiro: I will show you the books; will you look in them and see if you can find out how much the company received for tuition?
2007. Judge Kelley: I want this ledger that Mr. Hutchinson says is his personal property to be left in the hands of the court, but not entered as evidence.
2008. Hutchinson: (after looking through books) I don't find any record of any payments of tuition. These books start with the organization of the Rife Ray machine.
2009. Sapiro: the book I hold in my hands starts much sooner. Will you look at page 11 of Exhibit 38 for identification? Can you tell at what time and in what amount Mr. Bertol made you a loan?
2010. Hutchinson: July 26th 1937 for $300.
2011. Sapiro: have you ever paid him? Did you ever pay him?
2012. Hutchinson: no.
2013. Sapiro: was he on the list of persons who were to receive stock in Beam Ray Corporation?
2014. Hutchinson: yes.
2015. Judge Kelley: Judge Kelley (after looking at the book in question) calling your attention to page 1, Mr. Hutchinson, these entries are not in your handwriting, is that right?
2016. Hutchinson: that's right.
2017. Judge Kelley: you did not supervise these entries and they had nothing to do with Beam Ray?
2018. Hutchinson: that's right.
2019. Judge Kelley: do you know who wrote the items on page 1?
2020. Hutchinson: No, I can't say.
2021. Judge Kelley: were any of these items made under your supervision?
2022. Hutchinson: it looks to me as if it's been copied from something else; it looks like a copy of my personal ledger.
2023. Judge Kelley do you know how this book got into the possession of Mr. Edwards?
2024. Hutchinson: no.
2025. Judge Kelley: have you ever seen this book before?
2026. Hutchinson: no.
2027. Judge Kelley: is that a true copy of your accounts?
2028. Hutchinson: I would say it reflects the accounts that I owe.
2029. Judge Kelley: you received how much money from Winters?
2030. Hutchinson: $5500.
2031. Judge Kelley: did you know Mr. Winter before the first of these loans was made?
2032. Hutchinson: yes.
2033. Judge Kelley: how long had you known him prior to that time?
2034. Hutchinson: I don't recall, about a year at the most.
2035. Judge Kelley: had you been in any business with him?
2036. Hutchinson: no.
2037. Judge Kelley: it was more a social matter, was it casual or close?
2038. Hutchinson: it was not social, but it was close.
2039. Judge Kelley: in what way were you associated, through clubs or anything like that?
2040. Hutchinson: I knew him in a business way.
2041. Judge Kelley: did you know him well enough to call him by his first name?
2042. Hutchinson: yes.
2043. Judge Kelley: did you give him any security for these loans, or did he ask for any?
2044. Hutchinson: no.
2045. Judge Kelley: did you sign anything, any promissory notes.
2046. Hutchinson: no.
2047. Judge Kelley: how much were you worth when you borrowed this money, what were your assets, give yourself all the best of it?
2048. Hutchinson: the liquid assets were nothing; the ownership in rights would run into money, many thousands of dollars. I owned an interest in an item called "No fog"; it was used by Amelia Earhart in San Francisco for the purpose of fighting fog. I also had the assurance of an interest in Beam Ray.
2049. Judge Kelley: in writing?
2050. Hutchinson: no.
2051. Judge Kelley: what else did you own?
2052. Hutchinson: I had an ownership in a device for lowering airplanes by parachute, I own stock in that.
2053. Judge Kelley: how much stock did you own in that?
2054. Hutchinson: I think about seven or $8000 worth.
2055. Judge Kelley: did this stock have any market value?
2056. Hutchinson: no.
2057. Judge Kelley: did you tell Winters what your assets were?
2058. Hutchinson: he knew.
2059. Judge Kelley: do you mean to say you went to this man and borrowed $5500 without a scratch of the pen, or any agreement between you?
2060. Hutchinson: yes, he gave me the money in cash.
2061. Judge Kelley: did you tell him when you would pay it back?
2062. Hutchinson: no.
2063. Judge Kelley: what did you want the money for?
2064. Hutchinson: to go back East and get additional rights in the Aero Corporation.
2065. Judge Kelley: did you give him to understand that he would have an interest in what you were acquiring?
2066. Hutchinson: I don't believe I did.
2067. Judge Kelley: are you sure about that?
2068. Hutchinson: I can't say, it's too long ago.
2069. Judge Kelley: when you saw to it that Mr. Winters got shares of stock in Beam Ray Corporation you had in mind that you owed him money didn't you?
2070. Hutchinson: no.
2071. Judge Kelley: were you attempting to pay your debts in any instance, when you made these transfers of stock in Beam Ray?
2072. Hutchinson: no, I still owe the money.
2073. Judge Kelley: and these people gave it to you, without any security?
2074. Hutchinson that's right.
2075. Judge Kelley: and some people say money is tight!
2076. Sapiro: just what did you mean when you said that you considered this money you got from Winters a gift?
2077. Hutchinson: because that was our understanding.
2078. Sapiro: aren't these pages that I show you written in your own handwriting?
2079. Hutchinson: they are.
2080. Sapiro: then of course, you have seen that book before, although you just testified that you hadn't?
2081. Hutchinson: I hadn't gone that far in it.
2082. Sapiro: you received some money from Reynolds on May 7th 1938, didn't you?
2083. Hutchinson: yes I think it was about that date.
2084. Sapiro: you accepted this check?
2085. Hutchinson: I did, under protest.
2086. Sapiro: when did you deposit that check?
2087. Hutchinson: I think about the next day.
2088. Sapiro: may I show you the deposit slips and then let you fresh your memory, they show the depositing of the $500 represented by the Reynolds check.
2089. Comparet: Comparet objected and was sustained and Sapiro went about it in another way.
2090. Sapiro: what date did you receive $500 from Edwards?
2091. Hutchinson: about one week after that.
2092. Sapiro: will you look at the book and show when that amount of money was credited to the Corporation?
2093. Hutchinson: that book don't mean anything to me.
2094. Sapiro: I'm showing you the account of Edwards in the Book of Beam Ray Corporation?
2095. Hutchinson: if my memory is correct, the two deposit slips you showed me are the transfers from Edwards account.
2096. Sapiro: look in the bank book for the record of that deposit?
2097. Hutchinson: it wasn't deposited, I used it.
2098. Sapiro: Sapiro then showed him a book in which Hutchinson’s name had been written over Edwards.
2099. Hutchinson: I don't set up these books, I am not sure they are accurate.
2100. Sapiro: when you took Reynolds check did he get any receipt for it?
2101. Hutchinson: no.
2102. Sapiro: did Edwards get a receipt?
2103. Hutchinson: no, not that I recall. (Ditto Bernstein, ditto C. W. Ernstein).
2104. Sapiro: did you put into this book the item of $500 which is the money from Reynolds?
2105. Hutchinson: no.
2106. Sapiro: that money was taken from these people early in May of 1938. There was a meeting of the board of directors on May 11th 1938. Will you look at the minutes of that meeting and tell me if there is anything stated in there about your receiving these monies?
2107. Comparet: Comparet objected and was sustained.
2108. Sapiro: (showing the minute book) did you report the taking of these checks to the directors at that meeting?
2109. Hutchinson: I did not.
2110. Sapiro: there was another meeting of the directors on May 25th; did you report it at that time?
2111. Hutchinson: (after studying minutes) it isn't in there if I did.
2112. Sapiro: Sapiro named dates of later meetings of June and July. Did you report it then?
2113. Hutchinson: no.
2114. Sapiro: when did you finally report it?
2115. Hutchinson: I think it was at the first of meeting after the return from the East, sometime in August.
2116. Sapiro: you were present at a meeting on July 12th ; it is so recorded in the minutes, would you believe the minutes?
2117. Hutchinson: certainly I was there.
2118. Sapiro: Sapiro then showed that Hutchinson was present at all meetings and signed the minutes. At the August 12th meeting you received authority to issue some notes for these amounts?
2119. Hutchinson: that's right.
2120. Sapiro: did you present these notes to the various people yourself?
2121. Hutchinson: no.
2122. Sapiro: did you at any time ask for a return of the receipt from Edwards in place of the note?
2123. Hutchinson: the paper returned from Edwards was not a receipt.
2124. Sapiro: what was it?
2125. Hutchinson: a letter addressed to Edwards stating that I was the owner of so many shares of stock impounded by Fickerson and that this stock could not be transferred or sold without the permission of the Corporation Commissioner.
2126. Judge Kelley: was anything said about money that you got from him?
2127. Hutchinson: no.
2128. Judge Kelley: did you propose to leave it out of the letter?
2129. Hutchinson: no Sir.
Court adjourned for the day.
Friday, June 30th.
2130. Comparet: Comparet informed the court that he was anxious to finish the suit this day as judge Kelley would be absent for the month of July. Also that if the fight went on there would be nothing left to fight over. He said that the innocent stockholders had to suffer through the actions of Hoyland and Hutchinson. He said further that if Hutchinson was guilty of any criminal action as regards stock manipulation that was a matter for the district attorney.
2131. Judge Kelley: declared that he wanted to know just which of the stockholders were innocent?
2132. Sapiro: Sapiro said that he thought he was entitled to complete the case.
2133. Judge Kelley: said, that it certainly would be completed and that Sapiro would be given every opportunity to cross-examine the witness fully.
Hutchinson then took the stand.
Sapiro started the cross-examination.
2134. Sapiro: you have just stated that while you have not given a receipt to Reynolds and other people you had given a letter?
2135. Hutchinson: that's right.
2136. Sapiro: was that same letter given to all of them?
2137. Hutchinson: yes.
2138. Sapiro: will you please repeat the contents of that letter?
2139. Hutchinson: as near as I can remember, it stated that it was impounded with a representative of the Corporation Commission a certain number of shares of stock in my name and that these would be given to them as a gift, if and when the permission of the Corporation Commissioner was secured.
2140. Sapiro: have you got these letters?
2141. Hutchinson: no.
2142. Sapiro: do these letters make any mention of the fact that you received money from these people?
2143. Hutchinson: not that I remember.
2144. Sapiro: did it mention the number of shares?
2145. Hutchinson: yes.
2146. Sapiro: was the number computed at the value of the stock?
2147. Hutchinson: yes.
2148. Sapiro: who signed these notes?
2149. Hutchinson: I did.
2150. Sapiro: then they did not have any signed by the Corporation from the date when they gave you the money in May until August?
2151. Hutchinson: nothing that I recall.
2152. Judge Kelley: I understand that these shares were gifts yet it seems that with regard to the Ernsteins the number of shares were proportionate to the amount of money they put in, was that accidental?
2153. Hutchinson: I would say that it was.
2154. Sapiro: do you have in mind what Mr. Reynolds had on his check where it was endorsed and said for 50 shares of stock?
2155. Hutchinson: I do.
2156. Sapiro: now regarding application number 6, do you recall what that is?
2157. Hutchinson: no I do not.
2158. Sapiro: that's my mistake. It's exhibit DD, in this application how many shares are allotted to Mr. Winter?
2159. Hutchinson: 500.
2160. Sapiro: and he had paid you $5500?
2161. Hutchinson: no $6250. He made me a loan.
2162. Sapiro: well, it went to you personally?
2163. Hutchinson: I received it personally.
2164. Sapiro: did you put any of it in the treasurer of the Corporation?
2165. Hutchinson: only indirectly.
2166. Sapiro: have you put it in indirectly?
2167. Hutchinson: I was doing work for the organization, traveling around the country trying to arrange for the courses.
2168. Sapiro: at the time Winters gave you the money did the Corporation own any courses?
2169. Hutchinson: no.
2170. Sapiro: no contract was turned over to the Corporation until the first of June 1937, is that correct?
2171. Hutchinson: I can't say until I see the contract.
2172. Sapiro: out of your own memory you can't say that?
2173. Hutchinson: no.
2174. Sapiro: just when did the directors authorize you to keep the $500 you held out?
2175. Hutchinson: well it was sometime prior to accepting the money, sometime prior to May, as individuals.
2176. Sapiro: I mean the directors as a board and you know very well what I mean?
2177. Hutchinson: officially at the August meeting, I should say.
2178. Sapiro: you said that they said that was to enable you to entertain the British?
2179. Hutchinson: yes.
2180. Sapiro: but the British had already left the country one or two months ago, when did you leave for your vacation?
2181. Hutchinson: sometime toward the middle of June.
2182. Sapiro: but they left before you did, didn't they?
2183. Hutchinson: oh, they went visiting around.
2184. Sapiro: you knew they were not here where you could entertain them?
2185. Hutchinson: that's right.
2186. Sapiro: when did you get your note?
2187. Hutchinson: I think that was the note that was approved by the Board of Directors.
2188. Sapiro: who drew up the application you have before you?
2189. Hutchinson: Mr. Fickerson.
2190. Sapiro: under instructions from you?
2191. Hutchinson: no, at the request of Mr. Glenn.
2192. Sapiro: did you give him the data?
2193. Hutchinson: part of it.
2194. Sapiro: you mentioned Mr. Henderson, who acts as Vice President, so you allocated some stock to his wife for this reason?
2195. Hutchinson: no, that was not the reason.
2196. Sapiro: you said that you could not get any lessons from the Virginia Aero Corporation and you had to drop it?
2197. Hutchinson: no, we got them from the other series.
2198. Sapiro: you say that you didn't testify that you didn't drop these Virginia lessons?
2199. Hutchinson: I said that we dropped trying to get the course.
2200. Sapiro: you never got any Virginia fees for lessons did you?
2201. Hutchinson: we received some signed contracts and some deposits which were either all returned or waived.
2202. Sapiro: you spoke of money advanced by you to Mr. Fickerson, weren't you to be paid from tuition fees when received?
2203. Hutchinson: I don't remember that.
2204. Sapiro: according to the little book the Finch loan was made to whom?
2205. Hutchinson: Mr. Cullen.
2206. Sapiro: was that the item as I read it (marked here $437.27 cash. C. R. H., Initials) a loan made by Finch $500, is that correct?
2207. Hutchinson: yes with this explanation, I had endorsed the note and assumed the obligation.
2208. Sapiro: why was the note made to Cullen and not to you?
2209. Hutchinson: because I was in Kansas City waiting for Cullen to join me to go back to Virginia to try and secure the additional territory we wanted and some money was needed for personal expenses, money that he had for the trip, he paid part of the bills.
2210. Sapiro: how much did you get of this money?
2211. Hutchinson: none.
2212. Sapiro: so that where it says that in the book that's not correct?
2213. Hutchinson: I didn't set up that item in the books, I did not receive cash. I accepted in its place the responsibility of the obligation.
2214. Sapiro: you testified regarding that transaction on the Belger stock, in connection with that I show you a letter addressed to Mr. Van Wort and I ask you if that is your signature on that letter?
2215. Hutchinson: yes.
2216. Sapiro: what interest in the stock had you conveyed to Mr. Belger, or rather, you had made an agreement to give certain stock to Belger?
2217. Hutchinson: I did.
2218. Sapiro: did you know that Mr. Belger was selling that stock to Mr. Van Wort?
2219. Hutchinson: no, he was transferring subject to the conditions under which it had been given to him, any rights that he might have had.
2220. Sapiro: I show you this letter, is that your signature?
2221. Hutchinson: yes.
2222. Sapiro: in this letter there is a portion signed by Hutchinson. I now show you a check payable to you in the amount of $20 endorsed by you, signed by Van Wort, have you seen that before?
2223. Hutchinson: yes.
2224. Sapiro: to the court, we are showing the court that Hutchinson did get some money through those transactions. Now Mr. Hutchinson would you look at the application to transfer stock that mentions Mr. Van Wort. How many shares to be transferred by you?
2225. Hutchinson: 20.
2226. Sapiro: did Mr. Van Wort lend you any money after that?
2227. Hutchinson: no.
2228. Sapiro: did he lend any to the United Polytechnique Institute?
2229. Hutchinson: I don't think so.
2230. Sapiro: I show you a receipt received Van Wort, $200 United Polytechnique Institute San Diego California, January 28th, 1937, signed by C. R. Hutchinson, is that your signature?
2231. Hutchinson: yes.
2232. Sapiro: isn't that date wrong, shouldn't it be 1938?
2233. Hutchinson: it has been changed.
2234. Sapiro: Sapiro then showed a check made out to Hutchinson for $200 signed by Van Wort and endorsed by Hutchinson. Yesterday morning you said you made a mistake in your affidavit, when did you find this out?
2235. Hutchinson: when my attention was called to the minutes of the June 1st meeting.
2236. Sapiro: who did this and when?
2237. Hutchinson: I am not sure but I believe Mr. Comparet did, after reading parts of the original complaint.
2238. Sapiro: when did this happen?
2239. Hutchinson: sometime after I had filed my affidavit.
2240. Sapiro: when?
2241. Hutchinson: between the date of the filing and the time Mr. Olmstead, Cullen, Fickerson and myself went to Mr. Comparet’s office to see the minutes in trying to find out what had caused the error.
2242. Sapiro: are you sure that it wasn't after the testimony of Mr. Olmstead?
2243. Hutchinson: positive.
2244. Sapiro: what was your mistake?
2245. Hutchinson: when I said that the minutes were absolutely correct. The first error was the mention of the time of the stock holders meeting on June 1st, together with the statement of the prepared minutes, of the August meeting in Fresno.
2246. Sapiro: was one of the errors that, all of the pages were wrong?
2247. Hutchinson: what do you mean?
2248. Sapiro: never mind. You stated that Beth Willman was at the meeting of June 1st, was that an error?
2249. Hutchinson: she was present of course.
2250. Sapiro: then Olmstead was wrong; he said that she wasn't there. Look in the book please, and see if there is any record of the presence of Mrs. Willman?
2251. Hutchinson: after looking in the book, there is nothing in the minutes.
2252. Sapiro: you signed the minutes didn't you?
2253. Hutchinson: yes.
2254. Sapiro: and you never noticed these errors until it became an issue in the court room?
2255. Hutchinson: I never thought of it.
2256. Sapiro: you heard them read in Fresno and heard that there were vital mistakes in them?
2257. Hutchinson: it was the content of the minutes themselves as near as I could remember them. I didn't go back and figure out any of these meetings or try to remember how they were held.
2258. Sapiro: wouldn’t you have noticed the presence of Miss. Willman at the second meeting if she had really been elected at the first?
2259. Hutchinson: not necessarily.
2260. Sapiro: as secretary you were responsible for the minutes?
2261. Hutchinson: yes.
2262. Sapiro: then shouldn't you have done that; shouldn't you have seen that they were right?
2263. Hutchinson: not necessarily.
2264. Sapiro: who read the minutes of the Fresno meeting?
2265. Hutchinson: Mr. Olmstead.
2266. Sapiro: yet you signed the minutes saying that Mrs. Willman read them, didn't you ever suggest that they correct these minutes?
2267. Hutchinson: I didn't notice the difference.
2268. Sapiro: you knew that that meeting of June 1st was a matter concerning this case when you made your affidavit?
2269. Hutchinson: yes.
2270. Sapiro: you spoke of the costs that had been advanced in the amount of $1500?
2271. Hutchinson: estimated.
2272. Sapiro: there is an item in the minutes about $1500 owed to the United Aero School Incorporated. Was that for organization?
2273. Hutchinson: that was for an agreement of the group that were going to take it over to assume any obligation to that amount that might be presented.
2274. Sapiro: you had already set up Aero School in Nevada?
2275. Hutchinson: right.
2276. Sapiro: did Mr. Van Wort pay over $1000 into that and also Mr. Henderson?
2277. Hutchinson: yes, we needed money for advertising etc.
2278. Sapiro: United Aero School was owned merely by you personally wasn't it?
2279. Hutchinson: yes.
2280. Sapiro: did you draw money out of this account for yourself personally?
2281. Hutchinson: no, for the organization.
Morning recess called.
Friday, June 30th, 1939 Hutchinson on the stand.
2282. Sapiro: it was about February of 1938 that you had your Aero Schools Incorporated in Nevada?
2283. Hutchinson: that's right.
2284. Sapiro: at that time the United Polytechnique Institute was carrying on its books assets to the amount of $5100?
2285. Hutchinson: I can't say what the amount was at that time.
2286. Sapiro: (showing record book which contained pay revealing value of contracts at $49,970) were these the contracts with the Virginia Aero school?
2287. Hutchinson: yes.
2288. Sapiro: when these were Beam Ray's did you change your listing of assets?
2289. Hutchinson: the contract was never abandoned.
2290. Sapiro: (after reading from record of application to Corporation commission stating that the Corporation was no longer enrolling students and that Hutchinson was resigning from the company to tend to other business). Doesn't that indicate that there must have been an abandonment of the Aero School venture?
2291. Hutchinson: not necessarily.
2292. Sapiro: you say that Cullen told you about the Rife machine and wanted you to take it over and you refused. What is the approximate date of that first refusal?
2293. Hutchinson: sometime between the 1st and the 15th.
2294. Sapiro: then you went to the laboratory a week later and again refused, when would that be?
2295. Hutchinson: I would say around the 6th or the 7th.
2296. Sapiro: and then you went again with a larger group and refused again, when was that?
2297. Hutchinson: that was about the 15th or 16th.
2298. Sapiro: Then you finally yielded between the 16th and the 30th, is that correct?
2299. Hutchinson: somewhere about that time.
2300. Sapiro: and then Dr. Rife and Hoyland signed an assignment to you on April 30th, is that correct?
2301. Hutchinson: right.
2302. Sapiro: what time did the British get there?
2303. Hutchinson: about the 23rd of May.
2304. Sapiro: you stated that it was important to operate very fast because the British were coming and speed was essential and it was therefore necessary to get together with the Corporation. First you suggested a new Corporation and later because quick action was necessary you made an arrangement under which they were to get some contract done, 30% to go to Rife, Couche was to get something, and Hoyland also. You said that there was a discussion ending with Rife getting $6000, Hoyland $6000 and Couche $3000, what did Couche get?
2305. Hutchinson: nothing, he was supposed to get it but he didn't.
2306. Sapiro: was he supposed to get anything out of the American company?
2307. Hutchinson: he was supposed to get something in accordance to the division agreed upon between Rife, Hoyland and himself.
2308. Sapiro: how did you know that?
2309. Hutchinson: because they told me so themselves.
2310. Sapiro: what was the next step in reference to your connection with the company?
2311. Hutchinson: well, we called a series of conferences in which Hoyland and I were acting principals and Mr. Henderson, Cullen and Mrs. Willman sat in. It finally came to a contract in June of 1938.
2312. Sapiro: the owners then came to an agreement with United Polytechnique Institute?
2313. Hutchinson: yes, after they had come to an agreement among themselves.
2314. Sapiro: you were a part owner since the 15th?
2315. Hutchinson: yes.
2316. Sapiro: there have been no disposition of the rights of the owners between April 30th and June 1st?
2317. Hutchinson: no, except by mutual understanding.
2318. Sapiro: is this part of the affidavit which was signed by you February 20th, 1939?
2319. Hutchinson: yes.
2320. Sapiro: does it say that Cullen had been given an option to arrange for the manufacturing and distribution of the machines and that Cullen on May 2nd gave to the Corporation these rights under his contract for manufacturing and distribution and that said defendant Corporation accepted these rights, is that true?
2321. Hutchinson: before I answer I will look at the minutes of the meeting.
2322. Sapiro: we are not asking about the minutes we are asking if the statement in the affidavit is true?
2323. Hutchinson: (after reading it). To the best of my belief it is true with the exception that it should be owner instead of owners.
2324. Sapiro: do you think that one owner could give this option?
2325. Hutchinson: at the time that Mr. Rife spoke of this to Mr. Cullen, in my presence, he was the sole owner.
2326. Sapiro: about three days before that Dr. Rife had given you and Hoyland an interest in the machine hadn’t he?
2327. Hutchinson: yes.
2328. Sapiro: so on April 1st Rife gave an oral promise to Cullen. Mr. Rife denied on the stand that he ever gave this option to Cullen?
2329. Hutchinson: I heard him say it.
2330. Sapiro: you wrote out the first form of the assignment that Rife and Hoyland signed later?
2331. Hutchinson: I did not.
2332. Sapiro: you read it didn't you?
2333. Hutchinson: yes.
2334. Sapiro: you didn't mention the fact that you had heard Rife give this oral promise to Cullen?
2335. Hutchinson: no.
2336. Sapiro: you were present at one meeting of the board of directors of United Polytechnique Institute on May 2nd 1938 and you signed the minutes as present?
2337. Hutchinson: yes.
2338. Sapiro: who was the chairman of that meeting?
2339. Hutchinson: I was.
2340. Sapiro: I will read a portion of the minutes, "The chairman then advised that a proposition had been stated by Cullen that he held an option on the Beam Ray machines and wanted to give the Corporation the rights to this option in the further payment for his stock in the Corporation. A vote of thanks and acceptance was extended to Cullen." You pronounced these minutes correct didn’t you?
2341. Hutchinson: yes.
2342. Sapiro: didn't Mr. Cullen state at that meeting that he had an option with Hoyland and Rife and Hutchinson?
2343. Hutchinson: yes.
2344. Sapiro: did you correct him and tell him that he only had an option with Rife?
2345. Hutchinson: no.
2346. Sapiro: did you just casually deceive the directors?
2347. Hutchinson: I didn't deceive them at all.
2348. Judge Kelley: well which is true?
2349. Hutchinson: both, your honor.
2350. Sapiro: but at that time you had a written agreement with these men under which you would have the right to deal with the Corporation?
2351. Hutchinson: yes.
2352. Sapiro: you knew that you had that in writing and that no one else had it?
2353. Hutchinson: yes.
2354. Sapiro: yet you told the board of directors that Cullen had this right, while all the time you knew only you had the right, is that correct?
2355. Hutchinson: it would seem so.
2356. Sapiro: what was the agreement?
2357. Hutchinson: what agreement?
2358. Sapiro: the one that Cullen was turning over to you?
2359. Hutchinson: he agreed to release the statement of Dr. Rife's that he could have the option.
2360. Sapiro: he gave it up then?
2361. Hutchinson: he agreed to give it up to the Corporation in lieu of a contract we had.
2362. Sapiro: the Corporation didn't have a contract with the owners then. (Sapiro then read from the minutes regarding Cullen's release of the option). Wasn't this record of the minutes prepared much later than the date stated?
2363. Hutchinson: no.
2364. Sapiro: you were present at a meeting on May 11th, 1938?
2365. Hutchinson: yes.
2366. Sapiro: were you Chairman of the meeting?
2367. Hutchinson: I was.
2368. Sapiro: then quoted from the minutes to the effect that the Secretary said that Hutchinson had negotiated a valuable contract with the owners of the Rife Ray for the Corporation to lease the machines. Is that correct?
2369. Hutchinson: yes.
2370. Sapiro: what did you do about the Cullen meeting?
2371. Hutchinson: nothing, apparently.
2372. Sapiro: well, he gave over his option in return for any additional payment, for the issuance of stock, what did you do about that?
2373. Hutchinson: my thought was that Cullen had given us this right and I was instructed to get a written contract with the owners.
2374. Sapiro: instructed by Cullen?
2375. Hutchinson: I don't remember.
2376. Sapiro: what did Cullen say were the terms of his option from Rife, Hoyland and Hutchinson?
2377. Hutchinson: he didn't mention the terms.
2378. Sapiro: did you advise the board of directors what the terms of that option were?
2379. Hutchinson: only indefinitely, that he had the right we took over.
2380. Sapiro: you didn't state any terms.
2381. Hutchinson: no.
2382. Sapiro: did you know what the value of that right was?
2383. Hutchinson: no, I still don't.
Afternoon session June 30th, 1939.
Hutchinson on the stand.
2384. Sapiro: you testified that you went to New York with Hoyland where you dealt with Dr. Gonin?
2385. Hutchinson: I did.
2386. Sapiro: you likewise identified a letter from the British containing complaints and you testified that these things were gone over with Gonin?
2387. Hutchinson: that's right.
2388. Sapiro: after that you executed two contracts with Dr. Gonin, are these papers I show you here copies of those contracts?
2389. Hutchinson: they are.
2390. Sapiro: these were reached after consideration of the complaints?
2391. Hutchinson: yes.
2392. Sapiro: do these contracts mention frequencies?
2393. Hutchinson: no Sir.
2394. Sapiro: did Dr. Gonin insist upon putting into the agreement anything regarding frequencies?
2395. Hutchinson: no Sir.
2396. Sapiro: did he pay you $700 and odd dollars in payment of balance due on British laboratory machines and in addition did he give you checks totaling $10,000 which was overdue and later on was that check canceled and did he substitute another check?
2397. Hutchinson: yes.
2398. Sapiro: who prepared the minutes of the meeting of August 28th, 1938?
2399. Hutchinson: they were prepared in Fickerson's home in Los Angeles after a conversation between Cullen, Mrs. Willman, myself and Fickerson.
2400. Sapiro: and you signed them?
2401. Hutchinson: I did.
2402. Sapiro: contained in those minutes there is a resolution by Olmstead in 10 parts, some of them are as follows, that the board make a demand upon Rife, Hoyland, and Hutchinson for full and complete information concerning design and frequencies of Rife Ray machine and that they take action to ensure the secrecy of the frequencies?
2403. Hutchinson: I recall that.
2404. Sapiro: Hoyland was not present at that meeting?
2405. Hutchinson: no.
2406. Sapiro: you were?
2407. Hutchinson: yes.
2408. Sapiro: you were present at the next meeting as general manager?
2409. Hutchinson: I don't think I was. I am not sure.
2410. Sapiro: what did you do to carry out that resolution; did you ever make a demand upon Rife for the frequencies?
2411. Hutchinson: I didn't.
2412. Sapiro: you said that he had them and 40 more that he did not reveal?
2413. Hutchinson: he only said he had them.
2414. Sapiro: we credit Dr. Rife's word here. You signed one of these contracts in New York as agent for the owners?
2415. Hutchinson: that's correct.
2416. Sapiro: did you show the contract to Dr. Rife when you returned?
2417. Hutchinson: yes Sir.
2418. Sapiro: did he approve of it?
2419. Hutchinson: he didn't object.
2420. Judge Kelley: what did he say when you showed it to him?
2421. Hutchinson: he didn't say anything, he just nodded his head.
2422. Sapiro: when did you show it to him?
2423. Hutchinson: about the first week in September.
2424. Sapiro: did you ever tell him what you had done about approving what Cullen had done?
2425. Hutchinson: no.
2426. Sapiro: the agreement said that the two shall have the right to overrule you in the decision; didn't you tell them of each decision as you made it?
2427. Hutchinson: I don't think I did.
2428. Sapiro: I'll show you minutes of the meeting of December 6th, in which you make a motion to make Hoyland technical advisor. At any time after he was separated from the Corporation did you demand the frequencies from Dr. Rife?
2429. Hutchinson: I asked him to teach them to someone so that we could correctly care for the machines that were now outstanding.
2430. Sapiro: did he give them to the Corporation?
2431. Hutchinson: not to my knowledge.
2432. Sapiro: how much did you get from the British contracts as a whole?
2433. Hutchinson: about $2960, in percent of payments and royalties of $200 on the four machines.
2434. Sapiro: did you get other royalties as one of the owners?
2435. Hutchinson: yes, $50 a machine.
2436. Sapiro: then how many other loans or other acquisitions were there made which you received from May 1938 to November?
2437. Hutchinson: I wouldn't be able to answer that without checking up.
2438. Sapiro: what has been your occupation?
2439. Hutchinson: for the past four or five years I have been trying to get the Aero School in operation.
2440. Sapiro: as a promoter?
2441. Hutchinson: it's always promotional until it's in operation.
2442. Sapiro: what did you do before this?
2443. Hutchinson: in 1936 I spent my time trying to get under way waiting for correspondence from the East, making a trip east to get the proper contracts for the school.
2444. Sapiro: your work in the last four or five years has been primarily promotional?
2445. Hutchinson: yes.
2446. Sapiro: that's all.
Comparet took the witness.
2447. Comparet: I call your attention to the $200 receipt given to Mr. Van Wort which was dated January 28th, 1937 and the $200 check from Mr. Glenn. Do these two represent one and same transaction?
2448. Hutchinson: I think they are different.
2449. Comparet: the receipt then was not given for the check or money paid when the check was cashed?
2450. Hutchinson: it was not.
2451. Comparet: here is plaintiffs Exhibit 25, a letter sent from the Beam Ray Corporation to the British October 4th, 1938, and which begins with a paragraph, "At least certain letters seemed to have been sent to them on certain dates". Was the matter of these letters discussed with Gonin in New York?
2452. Hutchinson: there were a good many letters or lack of letters discussed, mainly to the effect that we promised to do things and to send information which we didn't do.
2453. Comparet: that's all.
2454. Judge Kelley: you say that these people who put out the money, Ernsteins and others, did not receive a receipt, but a form letter? How many of these letters in all did you issue?
2455. Hutchinson: 5.
2456. Judge Kelley: were these letters uniform in content?
2457. Hutchinson: yes, one was copied from the other.
2458. Judge Kelley: was the form suggested by an attorney or did you consult the lawyer about them at all?
2459. Hutchinson: no.
2460. Judge Kelley: will you tell me your best recollection of the form of the several letters?
2461. Hutchinson: I am the holder of blank number of shares in United Polytechnique Institute, a California Corporation. This stock is impounded by order of state corporation commission, state of California with Mr. Fickerson; if and when it is approved by the Corporation commissioner I will order the transfer to you of blank shares of stock as a personal gift from me, etc.
2462. Judge Kelley: now you have left blank the amount of stock that you own and the amount to be conveyed, were the blanks filled in, in each letter, and you signed the letter and was each letter delivered to the address of these people following the payments of money to you?
2463. Hutchinson: I can't say.
2464. Judge Kelley: you did not deliver any of these letters before you got the money?
2465. Hutchinson: I don't think so.
2466. Judge Kelley: did you give any other documents to each of these parties or any memorandum?
2467. Hutchinson: not at that time, no.
2468. Judge Kelley: later these four letters were surrendered to you?
2469. Hutchinson: they were surrendered to the office, to the stenographer.
2470. Judge Kelley: when they were delivered to the office who received them and into whose hands did they come?
2471. Hutchinson: all I have is hearsay. They were delivered there and put into the files of the office
2472. Judge Kelley: have you ever looked for them?
2473. Hutchinson: no.
2474. Judge Kelley: did you ever see them in the files?
2475. Hutchinson: yes, about three weeks after they were delivered.
2476. Judge Kelley: were they delivered there on demand of anyone, I mean did they come to the office because of a telephone call or letter?
2477. Hutchinson: I was away, all I have is hearsay.
2478. Judge Kelley: did you ever hear anyone say that they were not in the files?
2479. Hutchinson: no.
2480. Judge Kelley: did the Corporation Commissioner ask for them when he investigated?
2481. Hutchinson: as far as I know he has made no official investigation.
2482. Judge Kelley: as far as you know they are still in the files?
2483. Hutchinson: yes.
2484. Judge Kelley: have you been questioned about them by the Corporation Commissioner?
2485. Hutchinson: no Sir.
2486. Judge Kelley: have you read the Corporation Securities Act?
2487. Hutchinson: no Sir.
2488. Judge Kelley: were you advised by any lawyer in this transaction?
2489. Hutchinson: no.
2490. Judge Kelley: did you ever make a statement to anyone that while you could not sell them stock you could give it away?
2491. Hutchinson: I said that it could be sold, but that I could make an application to the Corporation commission for a transfer.
2492. Judge Kelley: were you told by anyone that you could take money from people on the representation that they in some event might get some stock. And when you took the money from the Ernsteins and Reynolds you represented to each of them that when and if it was permitted certain stock would be assigned to them? Were you told by anyone that you could do that?
2493. Hutchinson: no.
2494. Judge Kelley: you had no legal advice on it, but weren't you consulting some attorney as you went along with this transaction?
2495. Hutchinson: not in regard to this. I was in a position where speed was necessary, the British were coming. We had to have money from somebody to build the machines. My personal opinion was that as none of the stock had been divided that each was given something for what he did and that what had been awarded to me I could turn over to anyone who would assist me or the group in making a success of the organization.
2496. Judge Kelley: Mr. Olmstead testified that this stock was assigned to you to be held by you and transferred by you to those who might render service to the Corporation?
2497. Hutchinson: that was not my understanding of it.
2498. Judge Kelley: did you understand that this stock was issued to you to be used for the good of the organization?
2499. Hutchinson: no.
2500. Judge Kelley: you thought you could use it as you wished, subject to escrow restrictions?
2501. Hutchinson: yes.
2502. Judge Kelley: why were you impelled to give this stock away to these people?
2503. Hutchinson: I felt that I would receive my share or more from the royalties if the machine was marketed properly and that the others deserved it for what they were doing and if there had been a success with the English group I would be more than repaid and I wanted to get back to the school.
2504. Sapiro: the receipt which was shown to you was actually signed by you on January 28th, 1938, was it not?
2505. Hutchinson: I can't say, Mr. Van Wort said he gave me cash.
2506. Sapiro: what was the other $200 for?
2507. Hutchinson: I think that was advance money that he was putting up for attorney’s fees for forming the Nevada Corporation.
2508. Sapiro: and he made it payable to you?
2509. Hutchinson: there was no one else to make it payable to.
2510. Sapiro: why did you form a Corporation in Nevada?
2511. Hutchinson: on advice of our attorney.
2512. Sapiro: did you tell Mr. Van Wort that you were doing it so that you could get the stock issued to certain people in Nevada where you couldn't get it done in California?
2513. Hutchinson: no.
2514. Judge Kelley: during all the time that you were issuing these letters to the parties that had given you the money you were general manager of the Corporation, weren't you?
2515. Hutchinson: yes Sir.
Hutchinson was excused and Fickerson took the stand.
Fickerson was identified as an attorney of the law in Los Angeles and had been an attorney for 25 years and was deputy Commissioner of Corporation, four years.
2516. Comparet: did you have anything to do with the working of the draft of the initial Corporation Securities Act?
2517. Fickerson: (Fickerson's answer was rather involved, but it brought out the fact that he had helped in this work).
2518. Comparet: when the Aero Reserve School, Western division, was first incorporated did you have anything to do with it?
2519. Fickerson: I supervised the incorporation of the company and prepared the bylaws.
2520. Comparet: I show you the permit for the sale and issuance of three shares of this stock, to Cullen, Olmstead and Hutchinson for cash. Did you prepare the application for that permit?
2521. Fickerson: I did.
2522. Comparet: do you know if the three shares thus called for were issued?
2523. Fickerson: I can't say that they were.
2524. Comparet: I call your attention to the meetings of the stockholders and directors of Aero Reserve School, held June 1st, 1937 in Los Angeles, whose office was it?
2525. Fickerson: my own.
2526. Comparet: were such meetings held there, that particular day and were you present?
2527. Fickerson: yes.
2528. Comparet: how many meetings were held on that day?
2529. Fickerson: three, the directors meeting was held first, then the stockholders meeting was held and then a second directors meeting.
2530. Comparet: what was done at the first directors meeting?
2531. Fickerson: two contracts which had been executed between Aero Reserve School and Cullen were presented together with an offer from Cullen to transfer or assign these two contracts to the Corporation in exchange for all unissued shares of stock, 4997 shares. The offer was made, read and accepted by a resolution which was adopted. Olmstead and Hutchinson were to get this stock along with Cullen.
2532. Comparet: did that acceptance of contracts and resolutions to ask permission to issue stock take place prior to the shareholders meeting?
2533. Fickerson: it was the first thing that was done when the officers of the Corporation arrived at my office.
2534. Comparet: now I show you an application for a supplemental permit, who prepared it?
2535. Fickerson: I had it prepared before the directors and stockholders arrived at my office.
2536. Comparet: when did they sign that application?
2537. Fickerson: within an hour of the time they arrived at my office.
2538. Comparet: was it prior to the shareholders meeting at which an increase of the board of directors was made?
2539. Fickerson: it was.
2540. Comparet: I call your attention to the application and ask you to look it over, is there anything in there which further clears this in your memory?
2541. Sapiro: objected and was denied.
2542. Comparet: look at the paragraph beginning on page one, with names and addresses of officers, Cullen, Olmstead and Hutchinson, then the paragraph includes, "The board of directors is to be increased from 3 to 9 members, but before this is done their names will be submitted, etc."
2543. Sapiro: objected and was sustained.
2544. Comparet: Comparet again questioned. Where did you get the information you put in there?
2545. Fickerson: from Hutchinson in the later part of May. He gave me information concerning what he wanted to have done as to the meetings to be held in my offices on June 1st, 1937.
2546. Comparet: did you send in to the Corporation Commissioner, the original of the application for a supplemental permit?
2547. Fickerson: I did.
2548. Comparet: I show you here a carbon copy of the letter, you signed it?
2549. Fickerson: I did.
2550. Comparet: the names of six new members of the board are given in this letter with their addresses, after that, what next took place?
2551. Fickerson: the stockholders meeting took place.
2552. Comparet: and after that what?
2553. Fickerson: a directors meeting was held.
2554. Comparet: what was done then?
2555. Fickerson: three persons were voted to replace (didn't get what was muttered).
2556. Judge Kelley: are you reading from the minutes?
2557. Fickerson: yes, but I recollect it perfectly.
2558. Judge Kelley: but why go by the minutes?
2559. Comparet: we are trying to show that the minutes are not correct.
2560. Judge Kelley: you prepared the minutes before the meeting?
2561. Fickerson: yes, your honor, I only expected one meeting.
2562. Comparet: I call your attention to the following page; you will note the difference in the typewriting on the two pages?
2563. Fickerson: these minutes on page 23 were not written in my office or on my typewriter. They were written later, not on that day.
2564. Comparet: going back to the minutes of the stockholders meeting, on the last page, notice the last sentence on that page, "No further business coming before the meeting, it was adjourned."?
2565. Fickerson: that sentence was not typed in my office.
2566. Sapiro: I move for the exclusion of the testimony in the difference of typewriters. You say that Mr. Hutchinson spoke to you and told you what to prepare for these minutes, so that you knew there would be an increase in the board of directors and at the same time you knew that there would be a meeting to take the stock for the three?
2567. Fickerson: yes I knew that.
2568. Sapiro: you prepared the minutes for a meeting of the directors at 11 and for a meeting of the stockholders at 10?
2569. Fickerson: the information that I had was that a meeting was to be held for the purpose of having stock gotten from Cullen and for increasing the number of directors from 3 to 9 but the names of the new directors were not given to me.
2570. Sapiro: I asked you if you prepared these with stockholders at 10 and directors at 11?
2571. Fickerson: no.
2572. Sapiro: that's the way it is in the book.
2573. Fickerson: if I ever knew anything about the Corporation I wouldn't do it, my dictation to my stenographer was that the directors meeting should be held at 10 and that the stockholders at 11. I didn't know any new members were to be added to the board of directors, except for Mr. Willman. I advised them to put a new caption here showing that there were two separate meetings and that the time should be corrected. I never noticed that there was this mistake until I read the complaint. Mr. Comparet asked me to explain it but I could not do so, except that there had been a mistake made by my stenographer.
2574. Sapiro: you said that that application was signed after the first directors meeting?
2575. Fickerson: yes.
2576. Sapiro: weren't you called in to pull them out of this hole because they were in a position that makes it look as if you made a mistake?
2577. Comparet: Comparet objected and was sustained.
2578. Sapiro: is the issue of stock invalid if this transaction was carried through as it is set forth in the minutes?
2579. Comparet: Comparet objected and was sustained.
2580. Judge Kelley: what is motivating your testimony Mr. Fickerson?
2581. Fickerson: to show clearly how this mistake was made.
2582. Sapiro: where were the minutes of the meeting of the stockholders signed?
2583. Fickerson: I don't know, not in my office.
2584. Sapiro: if they were not signed in your office then Mr. Olmstead testified wrongly?
2585. Comparet: Comparet objected and was sustained.
Afternoon recess called.
After the recess Comparet addressed the court.
2586. Comparet: the defense will rest, as I do not see any point in prolonging this, we could keep going for another week.
2587. Sapiro: I would like to put Mr. Van Wort on the stand?
2588. Judge Kelley: go ahead.
Mr. Van Wort takes the stand.
2589. Sapiro: please don't think I am yelling at the witness. He is quite deaf. Give your name and address. Did you know Hutchinson before August 1937?
2590. Van Wort: no Sir.
2591. Sapiro: I show you a receipt, will you state to the court when you got it from Mr. Hutchinson?
2592. Van Wort: I received it from Mrs. Willman on January 28th, 1938 and not in 1937.
2593. Sapiro: did you know Hutchinson in January 1937?
2594. Van Wort: no.
2595. Sapiro: at the time you got the receipt had you turned over $200 to Hutchinson?
2596. Van Wort: I had.
Comparet takes the witness.
2597. Comparet: the $200 that you gave and for which you got a receipt was that in cash?
2598. Van Wort: yes.
2599. Comparet: then this check is for a different item?
2600. Van Wort: yes.
2601. Comparet: you didn't ask for a receipt for the check?
2602. Van Wort: no, the check itself was a receipt.
Van Wort excused.
2603. Judge Kelley: do you think you can finish the argument before five?
2604. Sapiro: I don't think so. It will be an argument of fact as well as law; I couldn't finish my argument before five.
2605. Judge Kelley: this Department will be dark for a month and I will be busy for a month. It will be impossible to hear you further until the month of August so that we will have to continue this meeting until the 7th of August.
2606. Comparet: then asked to have it put off until 14th August and this was agreed upon.
2607. Judge Kelley: I want to hear counsel marshal the evidence and I want to know the effect upon a court of equity upon a Corporation acting through its agents and these agents acting in a manner that is inequitable. And I want to hear what your views are as to the importance of the assets of the Corporation. I want to know what you think what this Corporation owns. It doesn’t seem to me at the moment, that it owns anything. It doesn't seem to have a claim on Dr. Rife. Who owns the 40 or more frequencies that Dr. Rife has. What has the Corporation other than the license to manufacture these machines and what is the value of that license, if any. Frankly, the court believes that Mr. Hoyland could have given the British group more of what they asked for and that he showed too great a reluctance to give them this information. On the other hand the court is inclined to believe that when money was gained by Hutchinson and when he issued these letters to the people who put that money up he was issuing securities and selling interests in certain stock in escrow and collecting money for them. What effect did that have on the issue here if he was violating the Corporation Securities Act? The important objective of the act is to protect any money in the possession of the victims, not so much with the issuance of stock. It seems to the court that if a representative of the Corporation goes out and gives a promise of delivery of stock for money and if the Corporation acting through its general manager has come into a court of equity without clean hands and the plaintiff has done the same, what should the court do. But primarily the question of the innocent people who put their money up and stand to lose it comes first. I want these people protected at any event. People have come here before the court who were without guilt and who parted with their money thinking they were to have an interest in an instrument of great value. I don't know whether it has value or not. It appears to be something that cannot be patented. The assignment was made to the Corporation but that means nothing because the instrument is not subject to patent. Perhaps it was a valuable assignment in spite of that. I want your views on it. I am not personally impressed with Mr. Hutchinson or Mr. Hoyland but I am impressed with the victims who have put up their money and got nothing for it. I will be inclined to protect them in any way that I can. Now, if you can convince me that I am wrong in anything that I have said my opinions are subject to change.
2608. .Comparet: I think we understand the issues.
Monday, August 14th, 1939.
2609. Judge Kelley: I would like counsel to pay attention to the evidence that has been produced and I would also like to be reminded of the facts of the case. (This is a summing up by M.B. of this particular part).
2610. Sapiro: brought out the fact that Hutchinson dominated the Corporation. That he spoke frequently of how often he did this and that, it was obviously a Hutchinson promotion from the start. Olmstead's testimony bore this out and showed also that Olmstead paid no attention to the affairs of the Corporation. Sapiro then made an issue of the meetings of June 1st 1937 when Cullen offered to sell out his course for practically all the stock of the Corporation. After having done this they elected their new director. If the meetings were held improperly as they seem to have been everything that took place was invalid. He referred to the fact that the markings in the book implied that the order of the pages were fixed deliberately to make it look as if the meetings took place properly. “They tried to prove that the meetings took place in proper order by putting Olmstead on the stand and they hope in this way to validate the applications for the issuance of stock." No word was found of the meeting having been split but the typewritten changes that occur on the last page. (Narrative again) Sapiro referred to Olmstead's testimony pointing out that when Sapiro showed him his affidavit saying that he had carefully read the minutes and that they were correct, he then denied that the minutes were correct. He changed his statement under oath because he saw that his stock was invalidated. Fickerson's testimony disagreed with Olmstead in many respects. Hutchinson then said on the stand that he examined the minutes and that they were correct. No, he said that in his affidavit but he changed his statement on the stand just as Olmstead did. At the Fresno meeting the defendants say that they approved all the minutes as they were read at that meeting. They therefore knew that the meetings came in a different order than that showing in the minutes. This it would seem should discredit the witness. Sapiro wondered why Cullen and Mrs. Willman did not appear to testify. He considered that the court should rule that the meetings took place as the minutes state. He pointed out that Hutchinson's very strange manipulations of stock in regard to the Nevada Corporation and the Aero School courses should be considered and that Hutchinson had taken most of the stock for himself and had sold it to various people even though the Corporation had abandoned the idea of carrying on the courses. Later the Corporation set about to get control of the Rife Ray machine. Hutchinson fixed himself firmly in contract with Hoyland and Rife and with the British and used his defunct Corporation in the negotiations. Hutchinson then set about to get money. He had been borrowing from people, to use his own phrase, and as the book showed. He got in touch with Edwards, Reynolds and Ernstein's and sold them some stock using all his tricks as a promoter. (His own testimony proved that all this work was in the capacity of a promoter) and knowing what is in the law he told Viola Ernstein (and I believe she was completely innocent as was her father) that he could not sell her the stock but that he could give it to her. She gave him $500 and he gave her a receipt. Later he said he could not find a receipt but when your honor quizzed him about it he quoted it perfectly, almost word for word. This action of Hutchinson of taking the money before the stock was released from the Corporation Commissioner was criminal. Reynolds gave him a check which says, "Received 500 shares of stock United Polytechnique Institute etc.," and was signed by Hutchinson. Hutchinson disregarded the law in reference to these three people.(It is my contention that this money should be returned to them by Hutchinson.) I call your attention to the fact that no mention is ever made at the meetings that followed that Hutchinson got this money from these people. Later at this meeting of August 12th these transactions are referred to as loans. Then Hutchinson asked for receipts saying that they could not receive the stock until they surrendered them. In return for the receipts thus surrendered he gave them notes, they all thought that they were buying stocks. Hutchinson's action was a criminal violation of the Corporation Security Act, which was designed to protect the innocent victims of such transactions. I think the very slickness of the manner in which he did all his manipulations proved him a criminal and that he knew what he was doing. Hutchinson held out the money he got from Edwards in May and in August he gave a note for it. We say that the Corporation had no right to issue these notes to these people to protect Hutchinson who had done a crooked piece of work. Edwards knows the law. He knew about the things that Hutchinson was trying to do and I think he may have been in pari delicto with Hutchinson. Reynolds is naïve. I think he was in good faith. I think that only Edwards may have been a guilty party to the transactions. That is for your honor to decide. Fickerson's fixed everything up for them by ratifying all the criminal actions. Stock that had been considered privately owned by Hutchinson, Cullen and Olmstead became a matter of Corporation business. You have a whole series of transactions with Hutchinson showing that he collected money here and there in exchange for these gifts of stock. Beth Willman was getting a salary for her services to the Corporation but she gets over 700 shares of this stock. The records do not show that Ernstein, Reynolds and Edwards paid for their shares. It says merely that they receive the stock for services rendered to the Corporation. The money changed hands in every case long before the stock moved into the Corporation. When you asked them what services they had rendered none could recall any. It is quite obvious that all of this was one complete fraud. That Hutchinson sold stock in this corporation and received a lot of money. Some of which was put into the Corporation but most of which Hutchinson kept. They all failed to tell the truth about the transaction which nullified the application. The plaintiff did not know that all this was criminal action until I so advised him. We alleged that the books are very irregular particularly as regards to the Nevada Corporation and the Aero Reserve School assets. The complaint tells that Hoyland served notice on the board of directors that all of the transactions, stock issues etc. were illegal. And that the contracts were improper. Nothing was done. Hoyland told them that they must change the British contract. He says that he did what was required to do for the British and that the British contracts say nothing about frequencies. We showed in court Hoyland's letters to the British telling of what he had sent the British, but they were not paying the money they owed. They kept complaining, it was a stall to delay the payments. At the meeting in New York of Hoyland, Hutchinson and the British two new agreements were made with no reference to the frequencies but with all items concerning the financial side of the question. Quite obviously the British were satisfied since they paid what was in arrears and put up $10,000 more. Soon they were $5000 overdue and so they started to yell again and to kick about Hoyland. As a stockholder Hoyland tried to get the Corporation to take steps against the British who were still trying to get out of paying out what they owed. There was certainly cause for them to revise the contracts with the British.
Sapiro summing up.
2611. Sapiro: the directors of the Corporation did nothing in accordance with the plaintiff's demand and hence this action. We think that this shows that the directors failed to take the proper action to protect the Corporation. We therefore ask that the 4779 shares of Corporation stock be declared void and that all activities of the Corporation be declared void. Also, the notes to Edwards, Reynolds and Ernsteins. That an examination of all the accounts of the Corporation take place. That a receiver be appointed to collect amounts from Hutchinson. That permits be considered to decide which are valid. That the owners of the Rife Ray machine be considered to eliminate Hutchinson as owner and that Hoyland and Rife as owners make a new arrangement with the British. That the Ernestines become creditors of the Corporation, also Reynolds and Edwards if the court thinks this is fair. That it be decided who has exclusive rights to the Rife Ray machine.
Sapiro then cited a number of cases and read law applying to this case. He pointed out that by law Hutchinson was guilty of a felony in acting against the requirements of the Corporation Securities Act.
2612. Judge Kelley: interrupted to say that he thought the law had been violated flagrantly by Hutchinson.
2613. Sapiro: Then outlined the numerous frauds done by Hutchinson. That where stock has been issued without a proper permit it becomes null and void and where the parties who took part in the transactions without knowing illegal should be provided for.
2614. Judge Kelley: wanted to know what kind of relief could be offered them?
2615. Sapiro: said that the receiver would decide that.
2616. Judge Kelley: asked if Sapiro held the Corporation responsible for Hutchinson's criminal actions?
2617. Sapiro: said, yes decidedly. Sapiro said that he would answer Judge Kelley's direct questions as to what are the assets of the Corporation.
2618. Judge Kelley: well what are the assets?
2619. Sapiro: outstanding contracts for machines out on lease, also rights to collect funds from Hutchinson.
2620. Judge Kelley: would the Corporation collect anything from Hutchinson?
2621. Sapiro: yes certainly.
2622. Comparet: well, Hutchinson has nothing.
2623. Sapiro: if it is possible to collect from him it should be done. To continue with the assets leaving aside the question of the void contract if we thought that it conveyed rights they could not be exclusive ones. But there are certain rights undoubtedly. The prestige of the machine would be valuable. I don't know what rights actually exist but the contract between the owners and Beam Ray must be straightened out. There is tremendous confusion in this contract; your biggest assets here are Dr. Rife's name and experience. The receiver would have to make new arrangements with Dr. Rife and I think Dr. Rife would be glad to do this. I think also that the knowledge of the frequencies must not be divided.
2624. Judge Kelley: I wonder if Dr. Rife retained any rights in this contract?
2625. Sapiro: I don't think he did.
Sapiro still summing up.
2626. Sapiro: Dr. Rife, Hoyland, the British and men working at the factory all know the frequencies and could use them on other instruments. Your Honor asks how I interpret Hoyland's position. He is a stockholder of the Corporation. He was their technical advisor; he is an owner of the machine. He brings this action as a stockholder. Even if he had been at fault there was no misconduct on his part as a stockholder. Hoyland had nothing to do with Hutchinson's improper stock transactions. I doubt if he could have given any more information to the British than he did give. The board could have certainly made him give it. The fact that the British were completely silent during the New York meetings as regarding frequencies proves that he did what he could do for the British. He might have given more information; I don't know all that he knows. I think that the value of a going contract with Rife's name attached to it can be made important. I think that Hutchinson’s actions are a criminal infraction of the Corporation Security Act and that the Corporation is definitely guilty along with Hutchinson and that all the things done regarding that application for transfer of stock are done equally by the Corporation. I think the meeting of June 1st is completely void as the actions authorizing this meeting were illegal and therefore void. I don't believe that all the people who bought this stock are innocent; Edwards knew or should have known better. It is difficult for me to believe that he could have been deceived. Reynolds and the Ernsteins I think are totally without guilt and were taken in completely by Hutchinson. I think Mr. Henderson and Mrs. Henderson are in a good class, they put some money into the Aero Schools, but they were interested in the Beam Ray machine and I think they deserve some consideration. Winters should also get consideration although he said it was just a gamble with him. I think he was persuaded to say this being rather fearful to talk in his defense. I think a wise receiver should adjust all of this though he would find it hard to get hold of any money. He might get an issue of stock that would be legal.
2627. Judge Kelley: has the court the power to declare certain victims as preferred stockholders?
2628. Sapiro: yes, I think too, the stock in regards to the owners is void and a new arrangement should be made of the shares held by the owners. I think Mr. Hutchinson should be out entirely as he did many criminal things and that he has no place in the organization at all. He has exploited everybody.
2629. Judge Kelley: you are expecting a lot of work from the receiver.
2630. Sapiro: yes, because I believe there is a great deal of profit to be got from the wise handling of this machine and of Dr. Rife's name. Sapiro finished on this note to the effect that the receiver should be appointed to clear up the mess and that Hutchinson is the villain of the piece and should be kicked out entirely.
Comparet sums up.
2631. Comparet: Comparet in his summing up for the Corporation drew diagrams on the black board by which he showed that Beam Ray had $5000 in stock. Three shares were sold for $10 each to Olmstead, Hutchinson and Cullen. Then you have a later transfer split up into three large blocks. Then you have the last transfer by which the large blocks were split up among the numerous stockholders. When a man is dangling over an abyss it makes no difference whether you cut the rope above him or below him. Mr. Hoyland says that the transfer to him was void and incapable of ratification and he therefore cuts the rope and lets himself drop. And to make it a cleaner cut he cuts it again for good measure, thus and says he is not a stockholder. He has one more connection with the Corporation because there are three owners of an invention who have a contract with the Corporation. Mr. Hoyland says that this contract is void so he cuts that last connection with the Corporation. Upon that basis he assumes to direct the course of the Corporation and says that there shall be a receiver appointed taking it out of the hands of the remaining valid stockholders and that it shall be run according to his ideas. He never paid anything for the stock which he claims is void. He was paid for his technical advice on a basis of commissions.
2632. Judge Kelley: is one who accepts shares through a transfer that is illegal enabled to bring such an action as this?
2633. Comparet: he is not. (This was argued back and forth by Comparet and Sapiro, the decision seemed to be a draw for the time being).
2634. Judge Kelley: wanted to know what was the status of Hoyland. They could not agree upon this.
2635. Comparet: pointed out that Hoyland was not fleeced out of anything and that he admits as much, but that if the transactions had been fraudulent only the Ernsteins, Reynolds or Edwards would have the right to sue since they gave their money and got nothing in return.
2636. Judge Kelley: what would be their form of action against the Corporation?
2637. Comparet: I am not sure.
2638. Judge Kelley: they want to get the Corporation out of the hands of the swindlers.
2639. Comparet: Hoyland is not in the position of the others and he is not bringing this action on their behalf. His position is adverse to theirs. They have filed affidavits saying they are against his action. The only thing he ever gave the Corporation is that contract that he says is void. We have here a particular type of action, a representative suit, but it is important to note who is represented. Hoyland must represent the Corporation as he does not represent the other stockholders. Comparet then cited cases similar to Hoyland verses Beam Ray suit.
2640. Judge Kelley: isn't the Corporation injured when agents acting for the Corporation issue stock with an improper permit?
2641. Comparet: it depends upon the circumstances. Where every existing shareholder consents to the issuance of stock the Corporation is not then considered to be injured. I think it should be kept in mind this adverse position of Hoyland on one side and all the others on another. I said at the first that Hoyland's desire is to break up the Corporation.
2642. Judge Kelley: I still am waiting to find out whether a de facto stockholder can bring such an action. If he has not the right why do we go on with the action?
2643. Comparet: then read from some other cases and Sapiro contradicted him.
2644. Judge Kelley: can one holding void stock proceed against the Corporation and ask for a removal of the officers of the company?
2645. Comparet: there seems to be nothing very definite along these lines in the law.
Court adjourned until Tuesday.
Tuesday, August 15th, 1939. Morning session.
2646. Comparet: we have one fundamental point to consider first. Whether a man who by his own position in the case is not a stockholder, never has been and never could be, is able to maintain this action.
2647. Judge Kelley: why cannot the innocent victims maintain such an action?
2648. Comparet: their remedy would be a different thing. They would then be creditors, if the thing is so void that they can't be stockholders their only remedy would be bankruptcy.
2649. Judge Kelley: it seems the victims do not want the thing finished. It appears they want to kick out the directors who swindled them and name other directors and keep the thing alive. Arguments followed along former lines by Comparet and Sapiro. Judge Kelley said that he was determined to settle the point of Hoyland's right to bring the action.
2650. Sapiro: maintains that Hoyland was not bringing the action just for himself but for the benefit of the Corporation. He merely sets the machinery of the court in motion. He opens the door to the court of equity. It becomes a representative action in the name of the stockholders who don't know how to protect themselves, for those who won't do so and for the Corporation as a unit.
2651. Comparet: produced legal evidence that a person holding shares of stock that are void is not a stockholder and therefore cannot sue the Corporation.
2652. Judge Kelley: declared that the stock that was issued was upon its face valid though the Corporation Commissioner had not permitted it and that the persons who received the stock that was issued without fraud took it in good faith. It seems that we must determine the right of Hoyland to proceed, it being contended by the defendant that the stock issued to him, if void, gives him no right to maintain this action. Under section 310 of the civil code, if that contention is true then the innocent victims of fraudulent transfers of stock and the victims of illegal issue is voided because it was not issued in accordance with the Corporation Securities Act, though apparently valid, could not avail themselves of the remedial provisions of section 310. It would seem unfair and unjust to deprive such victims of such rights as they might otherwise have under section 310. Because of the very fraud and the illegality of a transaction by which they have been victimized it is not enough to say that they have another remedy. The law gives to shareholders certain rights in addition to all other rights and victims should not be deprived. Other rights might not be sufficient to protect them. If they are innocent and some directors or officers of the Corporation are dishonest the innocent victims should not by reason thereof be deprived of any part of their rights, whether or not there are other remedies. There is a provision for such an action as is here brought. He then quoted a statute saying that the directors could be removed in case of fraud etc. and could be disbarred permanently. A fraudulent or dishonest director whose fraud or dishonesty has made the stock void should not be protected. Unquestionably, the innocent victim of an illegal transfer of stock is a de facto shareholder, although it may appear that the stock is void. A statute is remedial, it can't be denied. All innocent shareholders have the fullest rights to proceed under number 310, because of a violation of the Corporation Securities Act by an officer or officers of a Corporation unless that very fraud which they attacked also excludes them from the remedy. I cannot conceive it to be a principle of equity that a stockholder within the definition as I have now announced it is under the circumstances which I have indicated. A Corporation can act only through its agents, the agents only produce the dynamic consequences of the Corporation and it can hardly be conceived that a Corporation could be more greatly injured and its very rights to existence impaired to a greater extent than by the dishonesty of its agents. That therefore an innocent party holding a share of stock valid upon its face essays to condemn that fraud and proceeds to remove these officers. It would seem to the court that he or they should have the right to the fullest extent. The court will hold at this time that the word shareholder includes an innocent transfer of shares of stock valid on their face.
2653. Comparet: the only persons who are in the positions of innocent victims are those whom the action seeks to remove. The only ones who put a copper cent into the company are Edwards, Reynolds, and the Ernsteins, who are the directors. If the stock were for some reason voided merely the remedy would be simple. But if the thing is beyond "of reviving" what then?
2654. Judge Kelley: I am presuming that the plaintiff is appearing on behalf of the Corporation.
2655. Comparet: I made this statement that Hoyland's desire is to wreck the Corporation and I think he has proved this. We start out with a Corporation undertaking the business of manufacturing and distribution of Rife Ray machines. From the beginning Hoyland was in the place of business of the company. He saw all that went on. He says that certain directors stated that the purpose of the company was to put over a course of aviation. The statement was simply a matter of personal opinion. We come to the matter of the validity, or invalidity of the stock. We have in the first place the valid issue of three shares. Because the three shares remained with Olmstead, Hutchinson and Cullen. We have the June transaction here, that's the point in which the question comes up whether the number of directors was increased and the vacancies left unfilled and then the resolution passed for application to issue additional shares, or whether the original board of directors before the increase voted the increase. I think it should be noted in this that the Corporations internal difficulties are due to action taken without legal guidance. But at this particular time they had the service of Mr. Fickerson. And he would not permit it to go astray upon a point so easily recognizable as that. The application for a supplemental permit shows that the increase of the board of directors was something yet to be done. It was so simple to do it the right way; nothing could be gained by doing it the other way. It seems reasonable to assume that it was done as Mr. Fickerson says it was. He would not be a party to such misrepresentation.
2656. Judge Kelley: he may have been misadvised.
2657. Comparet: but this all took place in his office. The meeting was held there. He guided them through the action. The increase was made for the sole purpose of getting a quorum for the meetings.
2658. Judge Kelley: do you consider that this stock was issued validly?
2659. Comparet: yes, there are two things to consider, the transfer and the issue. The issue was entirely valid.
2660. Judge Kelley: do you consider that these three hold the stock as agents of the Corporation?
2661. Comparet: that was the testimony of Olmstead and we have against it the testimony of Hutchinson.
2662. Judge Kelley: frankly, I prefer the testimony of Mr. Olmstead.
2663. Comparet: I can well appreciate that position.
2664. Judge Kelley: in what way with the innocent investors be prejudiced by the appointment of a receiver?
2665. Comparet: in many ways. This company faces a $50,000 lawsuit. I can't see how they can hope to win against the British. The Corporation agent Hoyland caused this suit to be brought. The British were duped into signing a new contract and they parted with $15000. Hoyland says the receivers should negotiate a new contract with the British. The British will have nothing to do with any group in which Hoyland figures.
2666. Sapiro: then called upon Comparet to prove this.
2667. Judge Kelley: are these people on the board capable of carrying on the business of the Corporation?
2668. Comparet: if they were left alone, certainly. Hoyland has decided that he would like to compete with this company by his own activities and he will ask the British to pay much more for an exclusive license which he claims they do not have.
2669. Judge Kelley: were the receiver an honest man and skillful, do you think that could be accomplished by Hoyland?
2670. Comparet: what can a receiver do? We have a company that is just about broke. I have no doubt, that in his closing argument Mr. Sapiro will say that he will lend the company the money necessary to carry it on.
2671. Sapiro: objected violently.
2672. Judge Kelley: laughed and said he thought that was a good suggestion. Where would the receiver get his compensation?
2673. Comparet: I wonder! The Corporation has some machines set up. Mr. Sapiro has said that the only assets that the Corporation has is the use of Dr. Rife's name, but Hoyland has said that the design and the frequencies of the machine itself is not that of a Rife Ray machine and that the machine is in fact different. The company must have these machines junked, must draw up new designs according to Dr. Rife's ideas, must have Dr. Rife OK these designs etc. I don't think that Dr. Rife would permit Hoyland to do this.
2674. Sapiro: objected volubly.
2675. Comparet: the board of directors cannot be changed just because the fly in the ointment doesn't happen to like them. The British situation resulted from Hoyland's actions and his failure to cooperate with them.
2676. Judge Kelley: if the directors are just going to go to sleep and let Hutchinson or Hoyland run things how far can they be expected to carry on the business of the company satisfactorily?
2677. Comparet: where had these innocent victims been guilty of a fraud?
2678. Judge Kelley: I think they should all have prosecuted Hutchinson. Does he owe money to the Corporation? The suit should be vigorously pressed.
2679. Comparet: I agree, but where the money will come from that I don't know.
2680. Judge Kelley: maybe Mr. Sapiro will put it up. We don't often get a rich Los Angeles attorney down here. Well, it isn't enough to have the board of directors honest. They must have ability. Take bank officials. Their responsibilities are tremendous. They have a great deal to consider and so have the directors of this organization. They must act, they must be dynamic. What have they done?
2681. Comparet: the Corporation is broke. They're going to have to secure permission from the Corporation Commissioner to finance themselves by some sale of stock for cash. It will take enough money to carry them through the activities that will put the real Rife Ray machines on the market. We will have to get a new engineer and start all over again.
2682. Judge Kelley: would anyone invest in a Corporation about to be sued by the British group?
2683. Comparet: worst of all, would they invest in a Corporation that was in receivership? As regards to the British suit we filed a cross complaint naming Hoyland as defendant. If the British can make any case against the Corporation we can make a case against Hoyland. I have told the British this; if they succeed in getting a judgment against us we will assign to them our judgment against Hoyland.
2684. Sapiro: this is conniving of the weirdest kind I have ever heard about, it's outrageous.
2685. Comparet: not at all, we say that the debt to the British shall be paid by the one who did the wrong. If they don't get a judgment against us they won't get one against Hoyland. If that's conspiracy Mr. Sapiro you make the most of it. (Sapiro was indicating this was all a conspiracy). Now Mr. Hoyland is the only one who felt that he was free to license other corporations. He knew that Beam Ray was getting an exclusive license; everyone else testified that he knew it. If there are to be any number of licenses handed out we might as well close up shop. Mr. Hoyland waited until it suited him to decide that the license was not exclusive. Dr. Rife is not going to be a party to a fraud and if the machines we sell are not the true Rife machines they are a fraud.
2686. Judge Kelley: how long will the directors carry on these plans you have outlined?
2687. Comparet: we are ready to go as fast as we can. Comparet called upon Mr. Williams who said that as far as he knows 85% of the directors have agreed to follow Comparet’s advice.
2688. Judge Kelley: however, seem to feel that the 15% was a definite consideration. Do they all now appreciate the fact that a promoter is not a lawyer?
2689. Comparet: they have had an expensive lesson.
2690. Judge Kelley: most of these people seemed to think that a promoter is a very clever man.
2691. Comparet: there are one or two other things that rate a reply. I cannot take time to go into detail unless you want to take another day?
2692. Judge Kelley: I would like to finish this today. I want to know what will be the consequences to the innocent investors?
2693. Comparet: we have those who put their money into the thing in order to make these machines according to Hoyland's design. These machines with which we are now stuck, because we can't use them. I think that Edwards, Reynolds and the Ernsteins are most entitled to protection. I want to call the court’s attention to the fact that this application for transfer of stock is also signed by Hoyland. He deserves any discredit, if there is any, along with the others. The directors were not guilty of any mismanagement. They put up their money and their work and in spite of Hutchinson and Hoyland had gone on as best they could. They have put the machines out, but these machines are not what we claim they are. Hoyland is not in a position of an innocent victim. He paid no money into the company. He was paid for his work. If a receivership is appointed we are finished. We can take care of the suit with the British. If the British win from us they will have to try to collect from Hoyland. By refusing to pay him his royalties as one of the owners of the machine, the one who did the damage can only be reached indirectly through the Corporation. Our people can't be harmed through the British suit since they can't collect any other way, they will have to talk turkey with us. We have now the evidence of Mr. Olmstead as a clear guide to us in any steps that may be necessary to recover such stock as should go back there. We can return to the Corporation treasury the shares that belong there. I think we can secure from the Corporation Commissioner the return of these shares for which nothing of value was paid.
2694. Sapiro: I think the validity of this June meeting should be discussed.
2695. Judge Kelley: it seems it was most irregular.
2696. Sapiro: I don't think there was any meeting. And the whole stock arrangement is void.
2697. Comparet: produced papers proving that the application was dated June 1st.
2698. Sapiro: I think that all of them realized that their affidavits were wrong. They realized the falsity of the June meeting and so they worked up a new story. All their testimony was contrary to their affidavits. The cross-examination proved that.
2699. Judge Kelley: I think the whole thing is corrupt and polluted by the actions of Hutchinson. I believe that there are directors who are honest, but who know nothing about the organization or its running. Can they carry it on without the burden of a receiver?
2700. Sapiro: I think they are not the proper persons to develop this machine. They've all known for months how things were going. They are decent men who as a group do not act. The Corporation needs somebody who will act. This lack of activity might destroy the Corporation entirely. They all were paralyzed. Dr. Rife said that he knew there were changes made in this machine and that they were not changes that would make any difference (were not fundamental changes). Dr. Rife is a genius but he didn't know how to put the machines in a form that could be used in offices of doctors. These machines are perfectly good; they are just the same as the Couche machine and the one that gave Mrs. Henderson such relief. The receiver should renegotiate contracts that will stand up and won't be exploiting innocent stockholders. We need a really good businessman in here. The Ernsteins should be paid off first, then Reynolds, then Edwards. I think we have assets in spite of Mr. Comparet's sneering remarks about the machines we have. A receiver could collect what money is owed on these machines or he could recoup the machines and resell them. Then make a new contract with the owners of Beam Ray leaving Hutchinson out. Then make a new contract with the British. If they knew that it would be brought out that we know they were merely stalling for time when they talk so much about frequencies, they would compromise. The British are very clever at that, they can always have a Munich. Mr. Comparet says everyone is against Hoyland, but they accuse Hutchinson of fraud also. Edwards, Reynolds and the Ernstein’s testified in such a way that they actually took sides with Hoyland. Hoyland doesn't ask for a judgment for himself, he wants the Corporation to carry on properly. He hasn't a ghost of a chance if these people continue to run things. I think the contracts and the stock issued in fraud must be handled somehow by the court.
2701. Judge Kelley: can the Corporation Commissioner validate the void document?
2702. Sapiro: no.
2703. Judge Kelley: can he authorize the issuance of stock to these people in lieu of the void stock they hold?
2704. Sapiro: I think they might arrange some method under which through a new application a stock arrangement can be worked out and a new contract might be worked out. These victims might prefer to be creditors. But for myself I would prefer to be a stockholder. It would rest with them. All of this would be worked out by a receiver, but I don't believe it could be done by the present directors. The receiver would have to arrange new contracts between the owners and the Corporation. The court should declare void all the agreements made, all stock issued etc. The court should indicate what should be done about Hutchinson. It is some question now as to who are the legal directors, they were not elected by legal stock, but they are all the de facto board. The directors should be put in control of the voting power of the Corporation. Outstanding contracts should be canceled by law, ditto the void stock.
2705. Comparet: the directors are now in control of the voting power.
2706. Judge Kelley: it seems that they were illegally elected. I have expressed my views on Hutchinson heretofore. I don't quite know whether he did this deliberately or not. He may have believed that he had thought out a plan to escape its effect by taking money from people on a promise of delivering stock. There are always some people who think they can beat the law or circumvent it. It is hard to conceive that anyone would be so ignorant as to believe that he could get away from the effect of the Corporations Securities Act, by so doing. But he may be just that ignorant, in which case he certainly knew the object of the law and what it was invented for. It is apparent that Hutchinson was acting in violation of the law. Since I made some remarks as to my views of Hutchinson it has been reported to me that Mr. Van Wort has stated that Mr. Hutchinson came to him after this action was started and offered him a consideration for withholding certain checks and receipts which Mr. Van Wort later produced in court. If that is true it exposes fully Mr. Hutchinson as having a low impression of the law. I want this matter reported to the District Attorney's office. And it is my wish that the proper procedure should be taken against Mr. Hutchinson. We have here an instrument designed by Dr. Rife, who seems to have no idea of business and not much regard for money or property. He is the type of an inventor who seeks to discover something that will benefit humanity, thoughtless of his own interests. He gave me the impression on the witness stand that he didn't care much what the financial transactions were. He may have produced an instrument of great value to the world. The court is not called upon to pass on the merits of this machine. But the people here before the court, have great confidence in its powers both curative and money making. Now as to Mr. Hoyland I am not persuaded that he wholly ignored his own interest. I think he could have been more diligent in responding to the complaints of the British and his showing all of the correspondence that he received. I am not at all sure that he is without blame. I am not convinced of his blameless character in these transactions as to find that he is in court with that degree of manually cleanliness then the court insists upon. He stands alone and opposed to the directors of the Corporation. The court has confidence in their honesty and integrity, including Mr. Edwards. I have had occasion to have frequent contact with him. He is not a suspicious man, his mind works slowly. I believe he had confidence in Hutchinson. A layman cannot understand things like the Corporation Securities Act. He had confidence in this machine. He evidently had confidence in the setup of the Corporation. He even tried to sell some of these instruments. He is not a business man or a lawyer. I think all of these people thought they could take a short cut and do without the services of a lawyer to keep things going right. People think lawyers make their money easily, just grabbing off big fees and doing no work. People who tell others that they know as much as a lawyer are always saying that they are going to make millions without incurring much expense. They need good advice and they didn't have it. I think the directors are honest, but are they guilty of willful gross misuse of authority? They did not fully understand the burdens and responsibilities of directors. They needed most of all a wise, careful, cautious counsel.
Now should a receiver be appointed? It's customary to let the machinery function as it may under the law. There is often more harm done by receiverships than good. They are all expensive. I could name a receiver who I think has sound business ability and integrity, but such a man is expensive. He would have to be compensated for his time. If there's any possibility of the present directors working out a solution of the problem under careful legal guidance, I would favor that method in spite of all the irregularities. They were all mistakes as far as these people who invested money are concerned. There were criminal agencies at work. I cannot exonerate Hutchinson and apparently these directors haven’t very much confidence in Mr. Hoyland. There is no doubt that a minority of stockholders may protect themselves against the fraudulent majority. If the directors persist in gross indiscretion equity could interfere at once and take the meetings out of the hands of the directors. It isn't that picture I get. I see them stumbling around trying to make good, being victimized. I think if it were presented to the Corporation Commissioner in the light in which the court sees it a solution could be worked out without too great an expense. These people are not on any blacklist. The court is inclined to refuse to appoint a receiver and to throw the matter back in the hands of the directors. It may be that this enterprise is doomed. There is this lawsuit against them. No one likes to put money into an organization that is in litigation and without assets unless it's some foolish lawyer [Judge Kelley is making reference to Sapiro]. That, I think, is the main object of the complaint. The main desire of the complaint is denied. Now we have to do with the validity of contracts and other things. I am ready to hear the councils if they wish me to dispose of other issues.
2707. Comparet: what about the exclusive license?
2708. Judge Kelley: I think the Beam Ray has an exclusive license. It was a mutual mistake that it was not so drawn in the contract.
2709. Sapiro: does your honor believe that the stock is valid stock and therefore the contract is good? I think the law on that is quite clear.
2710. Judge Kelley: what do you think about that Mr. Comparet?
2711. Comparet: I don't think the stock is void. The stock in the hands of those who paid for it should be allowed to stand, also Dr. Rife's and perhaps Hoyland’s.
2712. Judge Kelley: I am denying that the plaintiff has clean hands. I am denying him the relief he demands because I don't believe he was above trying to get an advantage for himself in every transaction.
2713. Sapiro: there was a false statement in the application and therefore the stock must be void and the contract is void in itself.
2714. Judge Kelley: the Corporation Commissioner can work this out.
2715. Sapiro: these cases cannot be revalidated by the Corporation Commissioner.
2716. Judge Kelley: he can do it, if he is properly approached. I am holding that the man who asked relief here is not in Equity with clean hands and I again say I'll not give him relief. All of these points are so closely interconnected that I won't consider them differently. There are innocent people here and I'm going to protect them if I have to go to the extreme limits of Equity. All of these things can be handled properly through the Corporation Commissioner. The accounts should be considered.
2717. Sapiro: considering the rest of what is happening we will waive that, it would be foolish to ask for an accounting.
2718. Judge Kelley: the plaintiff will not be allowed counsel fees. Each side will bear its own costs. The contract is to be reformed as the court indicated. I think that is all.
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