Compton v. Perkins

• Decision Date: 31 July 1933
• Citation: 144 Or. 346,24 P.2d 670
• Parties: COMPTON v. PERKINS et al.
• Court: Oregon Supreme Court

24 P.2d 670

144 Or. 346

COMPTON v. PERKINS et al.

Supreme Court of Oregon

July 31, 1933

Rehearing Denied Sept. 12, 1933.

En Banc.

Appeal from Circuit Court, Douglas County; J. W. Hamilton, Judge.

Suit by Ray B. Compton, as trustee in bankruptcy of the estate of the Roseburg Oil & Gas Company, bankrupt, against J. W. Perkins Carrie B. Perkins, and others. Decree for plaintiff, and defendants named appeal.

Affirmed.

This is an appeal from a decree of the circuit court, entered in a suit brought by the plaintiff, as trustee of the estate of the Roseburg Oil & Gas Company, a bankrupt, to enforce the liability of its stockholders for payments of the par value of their stock. The appellants are J. W. Perkins, and his wife, Carrie B. Perkins, who are the transferees of J. C Edsall, a subscriber for 40,000 shares of stock. The decree of the circuit court was in favor of the plaintiff.

KELLY and BELT, JJ., dissenting.

Dexter Rice, of Roseburg (Rice & Orcutt, of Roseburg, on the brief) for appellants.

Carl E Wimberly and M. L. Hallmark, both of Roseburg (Ralph A. Coan, of Portland, on the brief), for respondent.

ROSSMAN Justice.

A narrative of the facts will enable us to state in a better manner our disposition of the assignments of error. The complaint names as defendants twenty-four individuals, but since only two of them, J. W. Perkins and Carrie B. Perkins, have appealed, we shall, for convenience, refer to them as the defendants.

J. W. Perkins came to Roseburg in 1909 where he engaged in the investment business. Some years previously he had lived in the state of Indiana, where, according to his testimony, he acquired information about the operation of oil wells. Upon locating in Roseburg, he displayed interest in the possibility of discovering oil in the surrounding territory. Companies organized for the exploration for oil, with which he was associated, failed. In April of 1923, John C. Edsall, whom some of the witnesses described as a geologist and mining engineer, called upon Perkins and convinced him that he was a competent oil man. Since Edsall was without financial resources, Perkins assured him, at the conclusion of the conversation, that he would help him financially if he (Edsall) undertook to locate an oil structure in the vicinity of Roseburg. Following their conversation, Edsall made some trips in the surrounding region, and about the middle of April, 1923, reported to Perkins that he had found an oil structure. The two then visited the purported oil field to which the witnesses referred as the North Deer Creek field, located about seven or eight miles east of Roseburg. In one of their conversations, the two men, according to Perkins, agreed that they would make the oil venture a joint undertaking; that is, Edsall would contribute his knowledge as a geologist and locate some one who would finance the corporation which they would create, and Perkins would supply Edsall with needed living expenses and obtain the leases on the land when the oil structure had been located. They further agreed that each should share equally in the profits of the venture, including an even division of corporate stock issued in consideration of rights conveyed by them to the corporation. After Edsall had discovered the so-called North Deer Creek field, Perkins obtained leases upon virtually all of the 5,000 acres comprising the field and also upon another tract of 3,000 acres known as the Stewart-Jones field, which Edsall also believed promised the production of oil. In doing so he visited the landowners, accompanied by a notary public. The notary's services, he claimed, cost him $5 per day, and he also paid to the landowner $1 cash consideration for the lease. As a witness, he estimated that he had sustained an expense of $1,000 to $1,500 in financing Edsall and in procuring the leases. He, however, displayed no canceled checks, no receipts, and testified that he had made no entries in any books. According to Perkins, Edsall, pursuant to his agreement to find some one who would finance the development of the property, produced one O. F. Dillman, whom Perkins described as an experienced oil man. He was without funds and apparently was a stock salesman. July 25, 1923, Perkins, Edsall, Dillman, and two others organized the Roseburg Oil & Gas Company. The articles provided that its capital stock should consist of 125,000 shares of a par value of $1 each. The corporate records show that on that day Dillman and Edsall each subscribed for 40,000 shares of stock, and Perkins for 100 shares. Three other individuals, one of whom was the attorney employed by the incorporators, subscribed for a total of 500 shares. Upon the same day, Dillman, Edsall, Perkins, and two others were elected directors, and then all five cast their ballots in favor of a resolution which recited that Perkins, Dillman, and Edsall had obtained the aforementioned leases, and: "Whereas, the said J. W. Perkins, O. F. Dillman and J. C. Edsall have offered to assign, transfer and set over to this company all of said leases, the same leases now standing in the name of J. W. Perkins, as lessee, and the makers of the leases and the number of acres covered by each lease being as follows: ***

"The consideration for said leases to be 80,000 shares of the capital stock of this corporation fully paid and the performing of the covenants hereinafter set out in the form of assignments herein and made a part of this resolution, and

"Whereas, the said J. W. Perkins, O. F. Dillman and J. C. Edsall have offered to reassign to this company 50,000 shares of the capital stock of this company to be sold and the proceeds thereof used in the purchase of machinery, sinking of wells and developing of the property covered by said leases,

"Now, therefore, be it resolved by the Board of Directors of this company at its regular meeting held in the city of Portland, Oregon, that the offer of said J. W. Perkins, O. F. Dillman and J. C. Edsall be accepted."

The resolution directed that the instrument accepting the leases should provide that the corporation should discharge all of the covenants of the leases, "and further agrees *** (3) to pay on or before the last day of each month one-sixteenth part or share to Julian W. Perkins, the assignor herein, and one-sixteenth part or share to John C. Edsall, of Roseburg, Oregon, of all oil and gas produced and saved from said premises during the preceding month by delivering the said oil and gas into pipe lines for their credit at the prevailing prices for said oil or gas at that time, and ***"

The resolution also recited:

"Be it further resolved, that it is the judgment of this Board of Directors that the said oil and gas leases are of the fair and reasonable value of $80,000.00 or approximately $10.00 per acre, and we find that sum to be the reasonable value thereof.

"And be it further resolved, that the president of this corporation be, and he is hereby, authorized to receive from the said O. F. Dillman and J. C. Edsall 50,000 shares of the capital stock of this company which the said parties have heretofore offered to surrender to this company, and the president is authorized to place the said 50,000 shares of the capital stock of this company on the market to raise money for buying machinery and for developing purposes on said property. ***"

After Perkins had assigned the leases to the corporation, the latter undertook the drilling of a well, but after reaching a depth of 200 feet abandoned the undertaking without having discovered oil or gas. Still later, after the corporation had been adjudged a bankrupt, claims filed against it to the extent of $8,802.49 received the approval of the referee in bankruptcy. The total receipts of the trustee in bankruptcy amount to $1,146.63.

The uncontradicted testimony shows that no oil or gas in commercial quantities has been discovered in this state. The plaintiff testified that, although not a geologist, "I am well acquainted with everything done in regard to oil in Douglas County," and that he has "had as much to do with them (oil leases) as anyone in this territory." Based upon his experience, his examination of this land, and "statements made to me by men who have more experience than I, and also upon reports of experts of the highest standing," he believed that the leases, on July 25, 1923, were without value. The report to which he referred was received in evidence without objection and is before us. It is entitled "Geologic Atlas" and consists of a report upon a geological survey of the land surrounding Roseburg, made by a geologist in the employ of the Department of the Interior, whose qualifications the defendants concede. W. F. Kernin, a resident of Roseburg, who had obtained oil leases in Douglas county, testified that oil leases in the year 1923 possessed no market value. Sam Foster, a witness for the defendants, testified that he had had twenty years' experience in the procuring, purchase and sale of oil leases almost entirely in other states. He testified that "there is a great deal of difference" between the value of an oil lease upon ground in a proven field and upon ground in an unproven field, but that a lease upon land in an unproven field was worth $2 an acre, and that, if a competent geologist reported the discovery of an oil structure in such a field, the leases would be worth $10 an acre. Although he was unfamiliar with Edsall's report, and had never seen these lands, he expressed the opinion that the leases were worth $10 an acre. C. A. Lillisburg, a real estate broker, who was a witness for the defendants, testified that some oil leases upon a 30-acre tract in the vicinity of what is known as Leeper Dome had sold for $8 an acre, and leases upon another tract...