Horbach v. Coyle

• Citation: 2 F.2d 702
• Decision Date: 12 September 1924
• Docket Number: No. 6222.,6222.
• Parties: HORBACH v. COYLE et al.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

2 F.2d 702 (1924)

HORBACH v. COYLE et al.

No. 6222.

Circuit Court of Appeals, Eighth Circuit.

September 12, 1924.

H. W. Morrow, of Omaha, Neb. (Lyman O. Perley, of Omaha, Neb., on the brief), for plaintiff in error.

David A. Fitch, of Omaha, Neb., and A. G. C. Bierer, of Guthrie, Okl. (Gurley, Fitch & West, of Omaha, Neb., and Dale & Bierer, of Guthrie, Okl., on the brief), for defendants in error.

Before LEWIS, Circuit Judge, and SYMES and PHILLIPS, District Judges.

PHILLIPS, District Judge.

Ed J. Coyle, Harry Jones, M. E. Shreeve, and J. G. Taylor brought this action against Paul W. Horbach upon a written contract to recover the sum of $15,766 and accrued interest. The parties will be referred to as plaintiffs and defendant, respectively, as they appeared in the lower court.

The plaintiffs Coyle, Jones, and Shreeve, and three associates, at the time of the making of the contract sued on, were officers and directors of the Oklamade Oil & Gas Company, an Oklahoma corporation, hereinafter called Oklamade Company. Plaintiff Taylor was manager of the Oklamade Company's refinery. Defendant and eight associates were the officers and directors of the Mid-State Producing & Refining Company, an Oklahoma corporation, hereinafter called Mid-State Company.

On October 18, 1918, defendant and his associates and the plaintiffs executed the contract sued upon.

This contract, after naming the parties and reciting the consideration, in part read as follows:

"That the parties of the first part defendant and his associates do hereby sell, transfer and assign unto Harry Jones 5,903 shares of stock in the Mid-State Producing & Refining Company, unto E. J. Coyle 6,825 shares of stock in the Mid-State Producing & Refining Company, and unto J. C. Taylor 150 and M. E. Shreeve 2,888 shares of stock in the Mid-State Producing & Refining Company, and to pay to each of the parties of the second part in addition to such transfer of stock the sum of $1 per share for the respective number of shares so transferred and assigned to each of the parties of the second part.

"The parties of the second part plaintiffs in consideration of the above promises and agreement have sold, transferred and assigned unto the parties of the first part 15,766 shares of stock in the Oklamade Oil & Gas Company, which said stock so issued by the Oklamade Oil & Gas Company, a corporation, individually to the various parties of the first part has been assigned by the respective parties of the first part in blank and in case of fulfillment of this contract as hereinafter provided the parties of the first part or either of them or any person designated by them shall have full power and authority to either cancel such assignment in blank or to fill out such blank assignment as they see fit and necessary.

"The above described stock in the Mid-State Producing & Refining Company is assigned in blank by the parties of the first part and in case of a failure to fulfill this contract as is hereinafter contemplated the parties of the first part or either of them shall have full power and authority to cancel such assignment and in case of the fulfillment of this contract as hereinafter provided the parties of the second part shall have full power and authority to fill in such blank assignment."

It further provided that the shares of stock above mentioned in each of the two companies should be deposited with the National Bank of Claremore, Claremore, Oklahoma, as escrow agent; that defendant and his associates would on or before December 15, 1918, pay to the bank $5,254, and thereupon the bank would deliver to them 5,254 shares of the Oklamade Company stock; that the defendant and his associates would on or before February 15, 1919, pay to the bank $5,254, and thereupon the bank would deliver to them $5,254 shares of the Oklamade Company stock; and that the defendant and his associates would on or before April 15, 1919, pay to the bank $5,258, and thereupon the bank would deliver to them 5,258 shares of the Oklamade Company stock.

The defendant in his answer set up substantially the following as a defense: That in the fall of 1918 the Mid-State Company was desirous of acquiring the property and assets and particularly the refinery of the Oklamade Company; that the directors of the two companies entered into a verbal contract whereby it was agreed that the total number of shares of stock in the Oklamade Company issued and outstanding was 250,000; that the plaintiffs and their associates would induce the stockholders of the Oklamade Company to transfer 126,000 shares of Oklamade Company stock to defendant and his associates; that in the Oklamade Company stock so to be transferred there should be included 36,032 shares belonging to the plaintiffs and their associates; that the defendant and his associates would pay the plaintiffs and their associates for their shares of stock a bonus of $1 per share; that the plaintiffs and their associates would keep secret from the general stockholders of the Oklamade Company the payment of such bonus and would induce such stockholders to believe that plaintiffs and their associates were exchanging their shares on the same basis as the general stockholders; that the Mid-State Company would issue to such stockholders in lieu of the Oklamade Company stock an equal number of shares of the Mid-State Company stock; that when a majority of the stock in the Oklamade Company had been transferred to defendant and his associates the plaintiffs and their associates would resign, one at a time, as officers and directors of the Oklamade Company, and assist in electing the defendant and his associates as the officers and directors of the Oklamade Company; that thereupon the property and assets of the Oklamade Company should be transferred to the Mid-State Company without further consideration except that the Mid-State Company would assume and pay the debts of the Oklamade Company; that after this general scheme had been agreed upon 5,266 shares of the Oklamade Company's stock belonging to the plaintiffs and their associates were exchanged with the defendant and his associates for an equal number of shares of Mid-State Company stock and defendant and his associates paid plaintiffs and their associates $1 per share for each share of Oklamade Company stock so exchanged, and two written contracts were entered into, one between defendant and his associates and the three associates of plaintiffs, and one between defendant and his associates and the plaintiffs, for the transfer of 30,766 shares of stock belonging to the plaintiffs and their associates to the defendant and his associates and the transfer of an equivalent number of shares of the Mid-State Company stock to the plaintiffs and their associates and the payment to plaintiffs and their associates in addition thereto the sum of $1 per share for each share of stock in the Mid-State Company so to be transferred; that one of the written contracts is the contract here sued upon; and that said written contracts only evidenced a part and parcel of the general scheme and agreement and were entered into for the purpose of carrying out the same.

The answer further alleged false and fraudulent representations upon the part of the plaintiffs and their associates as an inducement to the contract.

The theory of the defense was threefold: First, that the transfer of the shares of the Oklamade Company to the defendant and his associates violated section 41 of article 9 of the Oklahoma Constitution, and sections 11030, 11025, 11036, Comp. St. Okl. 1921, and therefore the contract sued upon was illegal; second, that the agreement on the part of plaintiffs and their associates to secure the transfer to defendant and his associates of sufficient shares of the Oklamade Company to vest in the latter a controlling interest in the Oklamade Company, to conceal from the general stockholders that the plaintiffs and their associates were receiving for their Oklamade Company stock in addition to the Mid-State Company stock $1 per share bonus, and to resign as officers and directors of the Oklamade Company and elect the officers and directors of the Mid-State Company also the officers and directors of the Oklamade Company, so that the latter might consummate a transfer of the property and assets of the Oklamade Company to the Mid-State Company without consideration, was a fraud agreed to be perpetrated upon the general stockholders, both as against the stockholders who exchanged their stock share for share and those who made no exchange and consequently were left as stockholders in a corporation devoid of assets, and was a violation of the duties they owed as officers and directors of the Oklamade Company to the general stockholders of that company; third, that the contract was induced by false and fraudulent representations.

At the trial the defendant offered to prove these alleged defenses, but upon objection the trial court refused to permit any evidence, except that tending to prove the third defense of false and fraudulent representations, and after the evidence was closed the court held that the latter defense had not been established and directed a verdict.

Counsel for plaintiffs contend that the first alleged defense set up by defendant is not well taken for the reason that under the Constitution and statute law of Oklahoma a merger of the Oklamade Company and the Mid-State Company could lawfully be effected by exchanging the stock of the Mid-State Company for the stock of the Oklamade Company and transferring the property, assets and franchises of the Oklamade Company to the Mid-State Company. They rely upon the case of Collinsville National Bank v. Esau (Okl. Sup.) 176 P. 514. If the verbal agreement alleged in the answer had been made with the full knowledge of the stockholders of the Oklamade Company and all of its stockholders had exchanged their stock for Mid-State Company stock or at least had been...