Electric Management & Engineering Corp. v. UNITED P. & L. CORP.

• Citation: 19 F.2d 311
• Decision Date: 21 April 1927
• Docket Number: No. 7424.,7424.
• Parties: ELECTRIC MANAGEMENT & ENGINEERING CORPORATION v. UNITED POWER & LIGHT CORPORATION (OF KANSAS) et al.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

19 F.2d 311 (1927)

ELECTRIC MANAGEMENT & ENGINEERING CORPORATION v. UNITED POWER & LIGHT CORPORATION (OF KANSAS) et al.

No. 7424.

Circuit Court of Appeals, Eighth Circuit.

April 21, 1927.

Raymond F. Rice, of Lawrence, Kan., and Lee Bond, of Leavenworth, Kan. (Walter G. Thiele, of Lawrence, Kan., on the brief), for appellant.

Thomas F. Doran, of Topeka, Kan., and Arthur Hurd, of Abilene, Kan. (Clayton E. Kline, of Topeka, Kan., C. E. Rugh, of Abilene, Kan., T. M. Lillard, Bruce Hurd, and O. B. Eidson, all of Topeka, Kan., and Herbert Haase and Charles Le Roy Brown, both of Chicago, Ill., on the brief), for appellees.

Before STONE and VAN VALKENBURGH, Circuit Judges, and SYMES, District Judge.

VAN VALKENBURGH, Circuit Judge.

Appellant is a Delaware corporation, authorized to acquire, own, hold, maintain, operate, and manage electric light and power, gas, water, and ice plants, and street and interurban railway systems including the power to purchase, acquire, own, hold, and sell the stocks and securities of corporations engaged in the operation of such plants and systems. The appellee, United Power & Light Corporation, is a Kansas corporation, having its principal office in the city of Abilene, Kan. It owns, controls, and operates numerous plants, systems, and properties in the state of Kansas for the manufacture and distribution of gas, electricity for light, heat, and power for the manufacture of ice, for the distribution of water, and for the operation of street and interurban railways. Of the individual appellees, C. L. Brown is alleged to be the president, R. J. Long, the vice president and general manager, and J. H. Agee, the secretary and general counsel, for said appellee corporation. Appellees G. A. Rogers and C. G. Johnson are alleged to be stockholders and directors thereof. The above-named individual appellees are further alleged to be the owners of 77 per cent. of the issued and outstanding common capital stock of said United Power & Light Corporation.

November 12, 1925, the said R. J. Long and J. H. Agee, named as acting for themselves and in behalf of all other common stockholders of the United Power & Light Corporation, entered into an agreement with appellant whereby, in consideration of mutual promises, covenants, and agreements therein contained, and the sum of $10, and other good and valuable considerations paid, the receipt whereof was acknowledged, they agreed to sell and appellee agreed to buy 22,153½ shares, or not less than 97 per cent. thereof, of the common capital stock of the United Power & Light Corporation, subject to the conditions, covenants, and representations thereinafter set forth. The purchase price was to be determined by either of two options: (a) The sellers should have the right to demand and receive the sum of $80 per share for as much stock as they might decide to sell for cash; or (b) the sellers should have the right to demand and receive for each share of stock delivered to the purchaser $62.75 per share in cash and one share of preferred stock of $50 par value. This preferred stock was to be issued by a holding company, to be incorporated in either the state of Delaware or Maine, which holding company was to own all the common shares of said United Power & Light Corporation, to be delivered under said agreement. This agreement or contract contained the following provision:

"3. The purchaser agrees at the earliest date possible to cause to be made a legal, engineering, and auditing examination of the status and properties and books of the said United Power & Light Corporation of Kansas, and to verify the representations herein made, and in the event that either said legal, engineering, or auditing report be considered unsatisfactory by the purchaser (in its sole discretion) the purchaser shall have the right to withdraw from this contract, and shall be under no obligations hereunder, and this contract shall be deemed to be null and void."

The representations referred to were numbered from A to L, inclusive, and dealt with the financial condition of appellee corporation, the conduct of its business during the period contemplated by the contract, certain limitations upon the sale of stock, and numerous other provisions unnecessary to be stated in detail. It was further provided that:

"In making the examinations and audits hereinbefore provided for, the sellers agree to furnish for the inspection of the representatives of the purchasers all records, books, accounts, contracts, franchises, abstracts of title, and other papers of the corporation, and to assist in every way in facilitating the examination herein contemplated. The engineers or other representatives of the purchaser shall have free access to power plants, building, and structures of the corporation, and the sellers agree to provide means of transportation in making the inspection of its properties."

Finally the agreement provided that the purchaser should notify the seller, on or before December 23, 1925, of its willingness to complete the purchase of stock therein provided for, or of its election to withdraw from the contract, as provided for in paragraph 3; that, should the purchaser notify the seller that it desired to complete the purchase of the said shares of stock, the date of closing should be January 6, 1926, unless an earlier date should be designated by the purchaser.

Thereafter appellant notified appellees that it was sending its agents and representatives to make such inspection, examinations, and investigations as were provided by the terms of said agreement. It is alleged that appellees refused to allow appellant, or any of its agents, officers, or employees, to examine any of the books, records, or accounts of appellee corporation, or to make any examinations, investigations, or audits of any of the affairs of said corporation, and notified appellant that they considered themselves no longer bound by the terms of the agreement of November 12, 1925, aforesaid. Thereupon appellant filed its bill of complaint in the United States District Court for the District of Kansas, praying for specific performance of said contract according to its terms, and incidentally, as a preliminary thereto, that appellees be compelled to permit the examinations, investigations, and audits demanded, and to do and perform all and every act and deed incumbent upon them under the terms of said contract. To this bill appellees interposed motions to dismiss, which were sustained. From the order and decree dismissing the bill, this appeal is brought.

Appellees urge a number of grounds upon which they rely to sustain the order and decree of the trial court. We deem it sufficient to consider but three:

(1) The alleged contract is void and unenforceable, because of want of consideration moving from appellant to appellees.

(2) The alleged contract is void and unenforceable, because lacking in mutuality of obligation.

(3) The alleged contract is unenforceable, because lacking in mutuality of remedy.

The ground principally urged in support of points 1 and 3 is that "under the terms of the alleged contract appellant reserved and possessed absolute power to withdraw from the contract at its sole discretion or will, and thus escape performance, which the court was, under the contract, without power to compel in favor of appellees against appellant."

1. The defense of want of consideration must be ruled against appellees. The sum of $10, the receipt whereof was duly acknowledged, though nominal, was sufficient to support the contract and every stipulation favorable to the buyer, including the option to withdraw in its discretion. Brewster v. Lanyon Zinc Co. (C. C. A. 8) 140 F. 801, 807; Davis v. Wells, 104 U. S. 159, 168, 26 L. Ed. 686; Allegheny Oil Co. v. Snyder (C. C. A. 6) 106 F. 764, 767; Brown et al. v. Fowler et al., 65 Ohio St. 507, 525, 63 N. E. 76; Gas Co. v. Eckert, 70 Ohio St. 127, 135, 71 N. E. 281.

2. Nor can the contract be held void because of want of mutuality of obligation. The rule is thus stated: "When there is an agreement founded on a consideration, it is not invalid for want of mutuality because one party has an option, while the other has not, or, in other words, because it is obligatory on one and optional with the other." 9 Cyc. p. 334; Conley Camera Co. v. Multiscope & Film Co. (C. C. A. 8) 216 F. 892, 896.

The foregoing rule applies where there is a valuable consideration paid by one party to another for the privilege of doing a certain thing. It is otherwise when the sole consideration is a promise for a promise, and the things to be done or the goods to be furnished are uncertain, indefinite, and optional with the party seeking to enforce the contract. Conley Camera Co. v. Multiscope & Film Co., supra; Cold Blast Transp. Co. v. Kansas City Bolt & Nut Co. (C. C. A. 8) 114 F. 77, 57 L. R. A. 696; City & County of Denver v. Stenger (C. C. A. 8) 277 F. 865.

3. But such contracts, although good at law when conforming to the rule above stated, are not favored by, and will not always be enforced in, equity. 9 Cyc. 334; 36 Cyc. 622. The specific performance of contracts is not a matter of absolute right in the party demanding it, but the application is addressed to the sound discretion of the court, and will be granted or denied according to the circumstances of the individual case. 36 Cyc. 548. The denial must not, of course, be arbitrary. 11 Michie's Encyc. U. S. Sup. Ct. Rep. 16; Shubert v. Woodward (C. C. A. 8) 167 F. 47.

The general rule is that specific performance of a contract will not be enforced by a court in favor of a party to it against whom the court has no power effectually to compel its performance, and who remains free to refuse performance. Shubert v. Woodward, supra; Mutual Life Ins. Co. et al. v. Stephens, 214 N. Y. 488, 108 N. E. 856, L. R. A. 1917C, 809; Ryan v. McLane, 91 Md. 175, 46 A. 340, 50 L. R. A. 501, 80 Am. St. Rep. 438; Williston on Contracts, vol....