Bentley v. Zelma Oil Co.

• Decision Date: 17 June 1919
• Docket Number: Case Number: 9060
• Citation: 184 P. 131,76 Okla. 116,1919 OK 180
• Parties: BENTLEY et al. v. ZELMA OIL CO. et al.
• Court: Oklahoma Supreme Court

1919 OK 180

184 P. 131

76 Okla. 116

BENTLEY et al. v. ZELMA OIL CO. et al.

Case Number: 9060

Supreme Court of Oklahoma

Decided: June 17, 1919

Syllabus

¶0 1. Corporations--Officers--Corporate Property--Personal Advantage.

Directors and officers of a corporation, having the management of its corporate affairs, occupy the position of trustees of the welfare of the company, and guardians of the interests of the stockholders, and will not be permitted by a court of equity to violate such trust, by selling or purchasing the corporate property to their own personal advantage and to the detriment of their cestuis que trust.

2. Same.

The law is averse to sale of corporate property to directors and officers intrusted with the making of such sales, and courts of equity look with suspicion upon them, and will sustain them only upon clear proof of good faith and adequacy of consideration.

3. Same--Contracts--Interlocking Directorates.

A contract between two corporations, effected by votes of directors common to both, is presumptively invalid, and can only be sustained by an affirmative showing of fairness and good faith.

4. Same--Vacation of Sale of Property.

Where the president of a corporation makes a sale of corporate property, either real or personal, in violation of the by-laws of the company, or in violation of a resolution adopted by the board of directors, and such sale is for an inadequate consideration, it will be set aside in an action by dissenting stockholders, where the board of directors refuse to bring suit.

5. Same.

A conveyance of an interest in an oil and gas lease on land is a conveyance affecting real estate, within the provisions of our statutes, and where the instrument of such conveyance is not under the seal of the corporation, nor attested by the secretary thereof, as required by section 1187, Rev. Laws 1910, and is not acknowledged in substantial compliance with section 1188, such conveyance is invalid, and subsequent purchasers are charged with notice of its invalidity, and such conveyance may be set aside by dissenting stockholders defrauded thereby, where the directors refuse to bring suit.

6. Corporations--Fictitious Stock--Constitutional Law.

Under section 39, art. 9, of the Constitution of Oklahoma, as construed in Lee v. Cameron, 67 Okla. , 169 P. 17, all stock of a corporation issued as fully paid up, when in fact the par value of such stock has not been paid into the corporation in money or money's worth, is fictitious and void.

7. Same--Voting Fictitious Stock--Sales--Validity.

Stock which is fictitious and void under section 39, art. 9, of the Constitution, cannot be counted and voted against stock for which the par value in cash, or its equivalent, has been paid, in order to obtain a majority in voting on a proposition to sell the property of the corporation, and a sale authorized by a majority composed of such stock may be set aside by dissenting holders of valid stock.

8. Appeal and Error--Presenting Questions in Trial Court--Champertous Contract.

The question whether a contract of employment between plaintiffs and their attorney is champertous cannot be raised for the first time here.

9. Corporations--Fraudulent Sale to Another Corporation--Fraud--Innocent Purchasers.

Where one corporation has made a fraudulent sale of its property to another corporation, and the stockholders of the "one corporation" bring an action to set aside such fraudulent sale, in such case the stockholders of the "other corporation," who have purchased their stock before the property of the "one corporation" was purchased, are not innocent purchasers.

10. Same--Oil Lease--Accounting for Expenditures and Profits.

It appearing that the officers of the Zelma Company made a fraudulent sale of a lease to the Nemo Company, and that afterwards the Nemo Company expended money in developing such lease, but it appearing that in the meantime certain amounts of profits which rightfully belonged to the Zelma Company had been received and appropriated by the Nemo Company, in such case a proper accounting should be had, and the rights of the parties determined thereby.

11. Same--Suit by Dissenting Stockholders to Cancel Fraudulent Conveyance.

Where the officers and directors of a corporation refuse to bring suit to cancel conveyances of corporate property, fraudulently made by such officers and directors, dissenting stockholders in such case may maintain an action for the cancellation of such conveyance.

Error from District Court, Tulsa County; Conn Linn, Judge.

Suit by W. C. Bentley and others against the Zelma Oil Company, the Almez Oil Company, the Nemo Oil Company, and H. B. Houghton, president of such corporations and trustee for some one or more of them. Judgment for defendants, and plaintiffs bring error. Reversed, with instructions to order a proper accounting by defendant Zelma Oil Company, and to render judgment in accordance with conclusions of opinion.

Solon W. Smith, McGuire & Devereux, and Ames, Chambers, Lowe & Richardson, for plaintiffs in error.

Everest, Vaught & Brewer and Everest & Campbell, for defendant in error Zelma Oil Company.

Cottingham & Hayes, Poe & Lundy, and Ringolsky & Friedman, for defendant in error Nemo Oil Company.

HARRISON, J.

¶1 W. C. Bentley and 13 other minority stockholders of the Zelma Oil Company brought this suit against the Zelma Oil Company, the Almez Oil Company, the Nemo Oil Company, separate corporations, and H. B. Houghton, president and manager of all of said corporations, and trustee for some one or more of same; the object of the suit being to cancel a certain well-drilling contract and certain assignments of an oil and gas lease, for fraud. The well-drilling contract was made between H. B. Houghton, as president of the Zelma Oil Company. and one Max Moore; the assignments in question being of a lease belonging to the Zelma Oil Company, and assigned by George Houghton, as vice president of the Zelma Oil Company, to H. B. Houghton, trustee, thence by H. B. Houghton to the Almez Oil Company, and thence by H. B. Houghton to the Nemo Oil Company--the Nemo Oil Company claiming said lease at the time this suit was brought.

¶2 The primary grounds for the suit were fraud; the primary purpose was the cancellation of the instruments in question; hence the right to cancellation depended upon the evidence of fraud. The transactions out of which the case grew and upon which plaintiffs relied for evidence of fraud were as follows:

¶3 Prior to June 3, 1913, there was a scope of territory, near the town of Newcastle, in McClain county, which was worthless for oil and gas purposes, and designated as "wildcat" territory, and upon which oil and gas leases were obtainable for comparatively nothing, viz., $ 1 each, notary and recording fees. On June 3, 1913, H. B. Houghton, his brother, George Houghton, W. M. Sawyers, and J. M. Hamilton organized the Zelma Oil Company, capital stock $ 50,000, shares $ 1 each. On the next day, June 4th, said parties, being the directors named in the articles of incorporation, held a directors' meeting, at which by-laws were adopted and the following persons unanimously elected, viz: H. B. Houghton, president; George Houghton, vice president; and W. M. Sawyers, secretary. The articles of incorporation provided for four directors; but they adopted by-laws providing for only three, and then elected five, viz.: H. B. Houghton, George Houghton, W. M. Sawyers, J. M. Hamilton, and J. E. Wright.

¶4 Now it developed that these directors had come into possession of a number of leases in said "wild-cat" territory, and on June 10th they held another meeting, at which it was concluded unanimously that it was to the best interest of the Zelma Oil Company to own all these "wild-cat" leases, whereupon it was resolved unanimously that the Zelma Oil Company purchase said "wild-cat" leases from said directors and issue to them 26,000 shares of its stock as fully paid up and non-assessable. Said resolution being substantially followed out, they thus became majority stockholders without paying any money for their stock--it appearing from the record that these same directors caused themselves to be reimbursed by the Zelma Oil Company for all the expense they had incurred in procuring said "wild-cat" leases, viz.: $ 1 each, notary and recording fees; also their hotel bills, traveling expenses, etc., while so engaged. Having thus acquired a controlling interest, these directors resolved that the company should borrow $ 3,000 with which to begin drilling. This being done, they unanimously recognized the necessity of at once starting a stock-selling campaign, which they did, selling to yeomen, artisans, clerks, stenographers, etc., in various counties of the state at $ 1 a share, par value, cash.

¶5 But, while this class of subscribers, among whom were plaintiffs herein and 41 others, were required to and did pay the par value in cash for all the stock they purchased, about 4,257 shares, there were others to whom stock was sold at much better figures. H. L. Houghton, a brother of President Houghton and Vice President Houghton, was issued 3,000 shares for $ 1,000, G. R. Witmer, a friend of the brother of President Houghton and Vice President Houghton, was issued 4,000 shares for $ 1,750, Mrs. H. L. Houghton, wife of the brother of President Houghton and Vice President Houghton, was issued 100 shares, Mrs. George Houghton, wife of Vice President Houghton, and Mrs. A. H. Hanson, were each issued 100 shares, and Mrs. H. B. Houghton, wife of President Houghton, was issued 500 shares, making in all 800 shares, for which nothing was paid.

¶6 On June 20, 1913, President Houghton and Vice President Houghton, assuming to act for the Zelma Oil Company, entered into a contract with the original lessors of McClain county, whereby all of said wild-cat leases were purchased over again; that is to say, the Zelma Oil Company, through its directors, first bought said wild-cat leases from the...