Clifton v. Tomb

• Decision Date: 18 October 1927
• Docket Number: No. 2582,2625.,2582
• Citation: 21 F.2d 893
• Parties: CLIFTON et al. v. TOMB (two cases).
• Court: U.S. Court of Appeals — Fourth Circuit

21 F.2d 893 (1927)

CLIFTON et al. v. TOMB (two cases).

Nos. 2582, 2625.

Circuit Court of Appeals, Fourth Circuit.

October 18, 1927.

Ashton File, of Beckley, W. Va. (File, Goldsmith & Scherer, of Beckley, W. Va., on the brief), for appellants and plaintiffs in error.

Russell S. Ritz, of Bluefield, W. Va., for appellee and defendant in error.

Before NORTHCOTT, Circuit Judge, and SOPER and ERNEST F. COCHRAN, District Judges.

ERNEST F. COCHRAN, District Judge.

These two cases concerned the same transactions between the same parties and were heard together in this court, and may be disposed of in one opinion, though a separate discussion of some of the questions involved may be to some extent necessary. In No. 2582, a bill in equity was brought by the appellee, M. H. Tomb, against J. B. Clifton and Raven Red Ash Coal Company, a corporation, the appellants in this court. In No. 2625, an action at law was brought by the same plaintiff, M. H. Tomb, against the same defendants, and in this case the defendants below are the plaintiffs in error here. For convenience, the parties will be referred to as they appeared in the court below, namely, M. H. Tomb as plaintiff, and J. B. Clifton and Raven Red Ash Coal Company as the defendants, and the cases will be referred to as the equity case and the law case, respectively. In the transactions involved in the two cases, there were two corporations concerned, of the same name: Raven Red Ash Coal Company, a corporation of Virginia, and Raven Red Ash Coal Company, a corporation of West Virginia, and they will be spoken of as the Virginia corporation and the West Virginia corporation.

In the law case and also in the equity case, the West Virginia corporation interposed a counterclaim on certain notes given by the plaintiff, Tomb, for stock subscription. The counterclaims are identical, being based upon the same notes for the same stock subscription.

Inasmuch as this court has reached the conclusion, upon the merits of the case, that the plaintiff is not entitled to recover either in the law or in the equity case, and that the West Virginia corporation is entitled to recover against the plaintiff on its counterclaim, it is perhaps of no importance to the defendants whether the equity case should be considered or not, or whether the West Virginia corporation should recover on its counterclaim in the law case or in the equity case. But as in the equity case there is involved an important question of practice, we deem it advisable to consider the equity case and first decide the questions presented in that case.

In the equity case, the plaintiff, Tomb, filed his original bill against the defendant Clifton and the Virginia corporation on April 27, 1925. It would appear from the record that this bill was filed against the Virginia corporation for the reason that the plaintiff was not aware at that time of the organization of the West Virginia corporation. The original bill alleged in substance, a contract between the plaintiff and the defendant Clifton, whereby the plaintiff was to receive $20,000 of the capital stock of the corporation in consideration of his having turned over and sold to Clifton and the corporation a certain option or the right to purchase all of the capital stock of the Virginia corporation, and prayed for specific performance by the defendants of this agreement. On May 16, 1925, Clifton and the Virginia corporation filed separate answers to this bill. On May 28, 1925, the plaintiff gave notice of a motion to take the deposition of D. C. Yates on June 8, 1925; and the deposition was taken at Middlebourne, W. Va., on June 10, 1925, and filed in the cause.

On June 26, 1925, the following proceedings were had in the equity case: (1) The defendants moved to dismiss the original bill, which was resisted by the plaintiff, and the motion was overruled by the court. (2) Thereupon the plaintiff moved to dismiss the case as to the Virginia corporation, which motion was granted and the case dismissed as to that defendant. (3) Thereupon the plaintiff tendered and asked leave to file an amended bill, to which the defendants objected; but the court overruled the objection and permitted the amended bill to be filed. (4) Thereupon the defendant Clifton moved to dismiss this (first) amended bill, which motion the court refused. (5) Thereupon the defendant Clifton asked leave to file his answer to the first amended bill, which answer was filed and to which answer the plaintiff replied generally. (6) Thereupon the plaintiff moved to transfer the case to the law side of the court, which was opposed by the defendant Clifton, and the motion was thereupon overruled by the court.

The first amended bill (in which Clifton was the sole defendant) set forth, in substance, the sale by the plaintiff to Clifton of the option for the purchase of all of the capital stock of the Virginia corporation, for which it was alleged Clifton agreed to pay $20,000, and that afterwards he had agreed that, instead of paying plaintiff $20,000, he would deliver to him that amount of stock of the West Virginia corporation which he expected to organize. The first amended bill also alleged that in that transaction Clifton did not represent any person or corporation as being the purchaser of the option, and that all of the agreements and understandings which the defendant Clifton had with the plaintiff were made by Clifton on his own account, and that neither of the corporations (that is, neither the Virginia nor the West Virginia corporation) ever agreed to issue the plaintiff any of its capital stock in consideration of turning over the option to Clifton, and that the defendant Clifton had agreed on his own account, and not as the representative of any corporation, to give the plaintiff, in lieu of $20,000 in money, $20,000 in stock in the company. The bill alleged a breach of this contract, and prayed that the defendant Clifton be required to perform his agreement or that a decretal judgment be entered against him for the value of the stock.

On July 23, 1925, the plaintiff moved for leave to file a second amended bill, which motion was granted. The second amended bill made the West Virginia corporation a new party defendant, and process was duly served upon that corporation. The second amended bill alleged, in substance, that the plaintiff had become the owner of the option for the purchase of all of the capital stock of the Virginia corporation, and that Clifton had become the purchaser of this option from plaintiff, agreeing to pay for it the sum of $20,000, and that the option was thereupon turned over to Clifton, who purchased all of the stock of the Virginia corporation for himself and his associates, and that, after purchasing it, Clifton proposed to give the plaintiff, instead of $20,000 in cash, $20,000 of the capital stock of the proposed corporation, namely, the West Virginia corporation, to which the plaintiff agreed, and that the plaintiff executed certain notes to the West Virginia corporation for his stock, but it was with the understanding and agreement on the part of Clifton that it was a matter of form, and that the plaintiff would never have to pay those notes. The bill also alleged that Clifton and the West Virginia corporation by means of the option had acquired all the stock and property of the Virginia corporation. The bill alleged the refusal of Clifton and the West Virginia corporation to comply with the agreement, and prayed that the notes should be canceled, and that he be given a decretal judgment against the defendants for the value of the stock.

On October 1, 1925, Clifton and the West Virginia corporation filed separate answers to the second amended bill, and in its answer the West Virginia corporation set up as a counterclaim against the plaintiff the notes of plaintiff for the stock subscription. The plaintiff never filed any reply to this counterclaim.

On July 24, 1925, the plaintiff brought his action at law against Clifton and the West Virginia corporation. The action was in assumpsit, and set forth that the original agreement was made by the defendants with the plaintiff for the purchase of the option for the sum of $20,000, and that the substituted agreement, whereby the option was to be paid for in 200 shares of the par value of $100 each, of the capital stock of the West Virginia corporation, was made with him by both defendants, that the defendants had refused to pay the same, and that plaintiff had been damaged in the sum of $30,000, for which he demanded judgment.

On June 15, 1926, in the equity case, the following proceedings were had: The plaintiff moved to dismiss his bill in equity without prejudice to his rights to maintain his action at law then pending against the same defendants, and also moved to dismiss the counterclaim, and the West Virginia corporation moved for a decree in its favor against the plaintiff on its counterclaim. The court refused the motion of the West Virginia corporation for a decree on its counterclaim, and, over the objection of defendants, granted the plaintiff's motion and dismissed the bill in equity, and the counterclaim of the West Virginia corporation, without prejudice, however, to the right of the plaintiff to maintain the action at law then pending, and without prejudice also to the right of the West Virginia corporation to assert its counterclaim in that action.

In the law case, on June 23, 1926, Clifton and the West Virginia corporation were allowed to file a joint plea of non assumpsit, and the West Virginia corporation was also allowed to file its counterclaim against the plaintiff on the notes for the stock subscription referred to. The West Virginia corporation also filed a special plea of estoppel, setting forth in substance that the plaintiff, in his first amended bill in the equity case, had solemnly plead that his agreement was solely with Clifton and that neither the West Virginia corporation nor the...