Alexander v. Phillips Petroleum Co.

• Decision Date: 28 July 1942
• Docket Number: No. 2463-2466.,2463-2466.
• Parties: ALEXANDER v. PHILLIPS PETROLEUM CO. et al. VAN WERT v. SAME. REDA PUMP CO. v. ALEXANDER et al. REDA PUMP CO. v. VAN WERT et al.
• Court: U.S. Court of Appeals — Tenth Circuit

130 F.2d 593 (1942)

ALEXANDER v. PHILLIPS PETROLEUM CO. et al. VAN WERT v. SAME. REDA PUMP CO. v. ALEXANDER et al. REDA PUMP CO. v. VAN WERT et al.

Nos. 2463-2466.

Circuit Court of Appeals, Tenth Circuit.

July 28, 1942.

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Wilbur J. Holleman and Hal F. Rambo, both of Tulsa, Okl. (Edmund Lashley, of Tulsa, Okl., on the briefs), for Clyde Alexander and S. N. Van Wert.

Ray S. Fellows and Villard Martin, both of Tulsa, Okl. (Garrett Logan and Charles R. Fellows, both of Tulsa, Okl., on the briefs), for Reda Pump Co.

Rayburn Foster, of Bartlesville, Okl. (Don Emery, D. E. Hodges, and George L. Sneed, all of Bartlesville, Okl., on the briefs), for Phillips Petroleum Co.

Earl Pruet and Richardson, Shartel, Cochran, Chilson & Pruet, all of Oklahoma City, Okl., for C. C. Brown.

Before PHILLIPS, BRATTON, and HUXMAN, Circuit Judges.

PHILLIPS, Circuit Judge, delivered the opinion of the court.

On June 15, 1926, Armais Arutunoff was the owner of certain United States patents and applications for patent covering electrically-driven submergible pumps. On that date he entered into a written contract with Phillips Petroleum Company.¹ It provided that Phillips should advance not to exceed $25,000 to Arutunoff for the purpose of testing and developing the devices covered by the patents; that Arutunoff should construct and install in oil wells of Phillips two complete pumping units, in accordance with the patents and applications; that the devices should be operated and completely tested; that if, after the installation and testing of such units, Phillips should be satisfied that the patents and applications covered a feasible, practicable, and useful invention, a corporation should be organized under the laws of Delaware for the purpose of developing, manufacturing, and selling devices and appliances covered by the patents and patent applications; that after the organization of such corporation, Arutunoff should assign to it the exclusive rights to the patents and patent applications in the states of Kansas, Oklahoma, Texas, Arkansas, Louisiana, and New Mexico; that 49 per cent of the stock should be issued to Arutunoff and 51 per cent to Phillips; that Phillips should provide the necessary working capital for the corporation not to exceed $225,000; that the corporation should execute and deliver to Phillips its promissory notes covering the amounts advanced as working capital and that such notes should be payable out of 75 per cent of the net profits of the corporation if, as, and when earned.

On January 4, 1927, Arutunoff and Phillips entered into a supplemental contract which permitted Phillips to advance $30,000 to Arutunoff to exercise an option to purchase from A. R. McGuire a one-fourth interest in the patents and patent applications, provided that Phillips should advance $10,000 to Arutunoff to take care of certain personal obligations of the latter, and, in the event the corporation should be formed, that the $10,000 should be charged to the corporation and repaid out of 75 per cent of the net profits of the corporation if, as, and when earned, and gave Phillips 90 days to investigate the title and ownership of the patents and determine whether the corporation should be formed.

Pursuant to such contracts, Phillips advanced to Arutunoff or his order, $75,000.

On November 10, 1927, Phillips organized the Bart Manufacturing Company.² Fifty-one per cent of the stock thereof was issued to Phillips and 49 per cent to Arutunoff. Arutunoff assigned the patents and patent applications to Bart for the states above mentioned. Phillips assigned to Bart all its rights under such contracts. Clyde Alexander, vice president and general manager of Phillips, and Arutunoff were elected president and vice president, respectively, of Bart. Bart constructed a plant in Bartlesville and entered upon the business of manufacturing, selling, and repairing submergible pumps and equipment therefor. Phillips advanced to Bart money, material, supplies, and services of its employees up to April 1, 1930, aggregating $235,000. Bart earned no profits and on March 15, 1930, could not continue operations without obtaining additional working capital. At that point, Phillips was unwilling to make further advancements to Bart, was desirous of securing the return of the advancements it had made to Bart and Arutunoff, and was willing to surrender whatever interest it had in Bart.

On March 15, 1930, a contract was entered into between C. C. Brown, Arutunoff, S. N. Van Wert, and Phillips. It recited the ownership of Bart's stock as follows: Phillips, 510 shares; Arutunoff, 368 shares; Van Wert, 98 shares; I. G. Harmon and Brown, 24 shares. It provided that Brown should organize a Delaware corporation, under the name of Reda Pump Company,³ with a capital stock of 1,000,000 shares of no par value common stock and 110,000 shares of $10 par value preferred stock; that each of the parties to the contract should transfer all of his shares in Bart to Reda, and that Bart, Arutunoff, and Van Wert should execute and deliver to Reda assignments and transfers of all their rights in the patents and patent applications throughout the United States; that Brown should pay Arutunoff the sum of $140,000 in cash; that Arutunoff should receive 6,000 shares of Reda preferred stock and 197,760 shares of Reda common stock; that Van Wert should receive 34,110 shares of Reda common stock; that Harmon should receive 4,680 shares of Reda common stock; that in consideration of the payment of $140,000 by Brown to Arutunoff, there should be issued and delivered to Brown, 14,000 shares of Reda preferred stock and 14,000 shares of Reda common stock; that Brown should endeavor to sell 90,000 shares of Reda preferred stock at a price of not less than $10 per share net to Reda.

It further provided that not less than one-half of the proceeds from sales of preferred stock should be paid to Phillips until Phillips had been fully reimbursed for the net amount of money advanced by it to Bart, with interest at six per cent per annum, plus the sum of $75,000 advanced by Phillips to Arutunoff under the contracts of June 15, 1926, and January 4, 1927; that the remainder of the proceeds of the preferred stock should be deposited in the First National Bank in Bartlesville⁴ to the credit of Reda, to be used by Reda as working capital.

Paragraph 11 thereof provided that 99,450 shares of Reda common stock⁵ should be issued to Brown, endorsed in blank by him, and deposited in the Bank; that if, on or before August 31, 1930, Phillips should not be paid such advances, the challenged shares should be delivered to Phillips and should become the property of Phillips free of any claim of Brown, his assigns or successors in interest, that all of the 90,000 shares of preferred stock remaining unsold on that date should be issued and delivered to Phillips, that Phillips should retain all sums theretofore paid to it from the proceeds of the sale of preferred stock, and that Phillips should either sell such preferred stock and from the proceeds thereof pay to Reda an amount, which, when added to the amounts received by Reda from the sale of preferred stock, would provide it a total working capital of $430,000, or retain such preferred stock and pay to Reda an amount equal to the difference between the amounts already received by it from the sale of preferred stock and the sum of $430,000; and that if, on or before August 31, 1930, Phillips should receive such advances, then all rights of Phillips under the terms of the agreement should terminate and be at an end.

It provided that Phillips should assign to Reda any and all rights which it held under the contracts with Arutunoff of June 15, 1926, and January 4, 1927.

Reda was organized under the laws of Delaware on March 18, 1930. On March 24, 1930, Arutunoff, Alexander, Van Wert, H. E. Koopman, Ray Hamilton, and Brown were elected directors of Reda. The directors elected Brown as president, Harmon as vice president, H. L. McCracken as secretary and assistant treasurer, and S. C. Beesley as treasurer and assistant secretary, of Reda, respectively. At the first meeting of the directors on March 24, 1930, a resolution was passed adopting and ratifying the provisions of the contract of March 15, 1930, and providing specifically that Reda stock should be issued as provided in such contract, and that upon the assignment and delivery by Phillips of the 510 shares of capital stock of Bart and the assignment by Phillips of any rights under such contracts of June 15, 1926, and January 4, 1927, the challenged shares should be issued to Brown, endorsed in blank by him, deposited in the Bank, and held by it, subject to the terms of the agreement of March 15, 1930.

All the stock of Bart and the patents and patent applications were assigned to Reda. $140,000 was paid to Arutunoff.⁶ 350,000 shares common and 20,000 shares preferred stock of Reda were issued to the persons and in the amounts provided for in the contract of March 15, 1930. Certificates for the challenged shares were issued to Brown, endorsed by him in blank, delivered to the Bank, and held by it, subject to the terms of the agreement of March 15, 1930. Reda acquired all the assets of Bart as of April 1, 1930.

Brown executed an agreement by which he agreed to assign to Van Wert 9,000 of the challenged shares if, as, and when the latter should be issued and delivered to Brown as provided in the contract of March 15, 1930. Brown, Alexander, and Koopman executed an agreement under which Brown agreed to assign to Alexander and Koopman 45,225 of the challenged shares if, as, and when they should be issued and delivered as provided in the contract of March 15, 1930, and Alexander and Koopman agreed to assign to Van Wert 7,500 shares therof. Both of the last-mentioned contracts recited that the challenged shares were to be endorsed...