Chalmette Petroleum Corp. v. Chalmette Oil Dist. Co., 10936.

• Decision Date: 15 August 1944
• Docket Number: No. 10936.,10936.
• Citation: 143 F.2d 826
• Parties: CHALMETTE PETROLEUM CORPORATION v. CHALMETTE OIL DISTRIBUTING CO., Inc.
• Court: U.S. Court of Appeals — Fifth Circuit

143 F.2d 826 (1944)

CHALMETTE PETROLEUM CORPORATION v. CHALMETTE OIL DISTRIBUTING CO., Inc.

No. 10936.

Circuit Court of Appeals, Fifth Circuit.

July 11, 1944.

Rehearing Denied August 15, 1944.

Monte M. Lemann, of New Orleans, La., for appellant.

Percy S. Benedict and Ed. J. de Verges, both of New Orleans, La., for appellee.

Before SIBLEY, HOLMES and McCORD, Circuit Judges.

SIBLEY, Circuit Judge.

The appeal is from a decree specifically enforcing an option to buy an oil and gasolene distributing plant in New Orleans, which option was contained in a lease of the plant made in 1939 by appellant to appellee. The sole error specified is that on the evidence the decree should have been otherwise.

The petition, filed in a State court and removed to the district court, sets forth a series of three leases of the distributing plant, the first in 1934, the second a renewal in 1936, and the third in 1939 on a larger rental. Each of them contained an option to the lessee to buy the plant for $50,000 during the term. On June 15, 1940, appellee by a tender of the $50,000 put the appellant in formal default, and thereafter sued for specific performance. Appellant by answer admitted the leases and the offer to exercise the option, but alleged the leases were procured by the recommendation and advice of D. B. Williams, at the time Vice-President and General Manager of appellant, and of R. P. Batson, its Secretary-Treasurer, who, unknown to appellant, had an interest in the lessee corporation and shared in its earnings and profits. On this single ground the lease agreements were sought to be set aside, and an account was prayed from appellee for all earnings and profits made through and by reason of the leases. This defense was the only issue of fact presented by the pleadings.

By interrogatories addressed to appellant, appellee proved its tender and some minor matters, and rested. Appellant thereupon issued subpoenas duces tecum for numerous corporate and bank records, and took the deposition, as of an adversary party, of George P. Gillette, the President of appellee. Gillette testified that he originally subscribed for and always owned all the stock in appellee company, and that neither Williams nor Batson had at any time any interest in the company or its earnings and profits. Appellant then had not only the general burden of proving its defense, but also the task of overcoming the sworn testimony of Gillette. It sought to do this, during a period of months, by circumstantial evidence tending to show that Gillette was unable to raise the $10,000 of the original capitalization, had obtained $2,500 of it by a loan made by one Carter to Williams, afterwards assumed by Batson, but finally paid off by Gillette, as Gillette testified and bank records tended to show. Another circumstance was that Gillette at first testified that he obtained another $2,500 by borrowing on his life insurance, but it was shown that only about $900 was so obtained, a banker friend testifying that he loaned the difference in addition to a $1,500 loan made by his bank. While the name of Williams or Batson nowhere appeared on appellee's corporate records, or any of the checks drawn against its bank accounts, as testified by auditors who examined them, there was a long series of checks for $200 each regularly issued to Gillette and charged to "salaries", which he deposited in bank to his personal credit; while others for $400, $500 and $600 were charged to "special account", and cashed by him. Gillette testified that the currency thus received by him from the business was in the nature of profits and was placed in a safe at his home, and then used to make investments and for other purposes. The total of these cashed checks was nearly $60,000. Batson's bank account showed many deposits of currency, twenty-five of them on the same days that Gillette had cashed checks, and seven for the exact amount for which Gillette had cashed a check. Gillette testified he had paid Batson no money, and these were mere coincidences, and that Batson would know whence his cash came. There was other evidence which might show cash dealings between Gillette and Williams and Batson. Williams in the fall of 1939 had been asked to resign on account of some crookedness in the business of appellant with which he was charged. Soon afterwards Batson had retired on account of age. Williams was present at court during the trial, but appellant refused to put him on the witness stand, being unwilling to vouch for his credibility. Batson was living in New York, appellant not knowing where, but Gillette offering to furnish his address. Appellee, insisting the burden of proof was on appellant, did not offer as a witness either Williams or Batson.

Another feature of the evidence was the attempt by appellant to show that in urging the directors to make both the first and last leases, Williams and Batson, who alone had full knowledge of the business, had wilfully misrepresented the amount of profits appellant had been making by operating this distributing plant, so as to make it appear a losing business, and exaggerated the savings in overhead to be made by leasing it. This was not pleaded as a fraud invalidating the leases, and the evidence was objected to for that reason, but the court admitted it. It had some relevance to the pleaded issue as affording an argument that Williams and Batson would have had no reason to run down the plant falsely unless they were interested in the lease. We...