James v. Stokes

• Decision Date: 09 May 1924
• Citation: 261 S.W. 868,203 Ky. 127
• Parties: JAMES v. STOKES ET AL.
• Court: Kentucky Court of Appeals

261 S.W. 868

203 Ky. 127

JAMES v. STOKES ET AL.

Court of Appeals of Kentucky.

May 9, 1924

Appeal from Circuit Court, Fayette County.

Action by H. L. James against W. E. D. Stokes and others. Judgment for defendants, and plaintiff appeals. Reversed, with directions.

Hobson & Hobson, E. C. O'Rear, and J. P. Hobson, all of Frankfort, H. L. James, of Elizabethtown, and Bailey D Berry, of Lexington, for appellant.

Maury Kemper, H. E. Ross, Miller & Miller, and Hunt, Northcutt &amp Bush, all of Lexington, for appellees.

THOMAS J.

By this equity action filed in the Fayette circuit court by appellant and plaintiff, H. L. James, against appellees and defendants W. E. D. Stokes and the Mervyn Realty Company, a corporation, plaintiff seeks to hold defendant Stokes liable on an indorsement made by him on a note for $2,500 and on a number of others for $6,570 each, all dated January 5, 1918, and signed by William C. Eakins, and each of them payable "at room 936, No. 149 Broadway, New York City," upon successive dates. The petition also seeks to subject to the payment of the notes a tract of land in Fayette county containing in excess of 379 acres, the title to which was nominally held by the corporate defendant through a deed executed to it by Stokes on December 28, 1917, but which, plaintiff avers in his petition, was fraudulent and was made and executed for the purpose of defrauding the creditors of Stokes, and particularly plaintiff, and was without consideration, and its purpose was to hinder and delay creditors of Stokes in the collection of their debts. The indorsement of Stokes on each note is:

"Accepted and payable at room 936, No. 149 Broadway, New York City, by W. E. D. Stokes [in his writing] as Syndicate Manager."

Stokes was proceeded against by constructive service and he filed no answer in the case nor otherwise entered his appearance, but his codefendant answered and denied the fraudulent conveyance to it of the property sought to be subjected to the debt sued on, and in another paragraph pleaded in substance that Stokes, by the quoted indorsement of the notes, did not intend to nor did he in fact incur any absolute personal liability, but that he thereby incurred only a conditional liability dependent upon his selling certain stock of the Kentucky Producers' & Refiners' Corporation, which had been placed in his hands by the maker of the notes, Eakins, as "Syndicate Manager" for the purpose of sale and with the proceeds to discharge them; and in effect the answer contended, as is also done by counsel on this appeal, that the indorsement contract was that unless Stokes, as syndicate manager, succeeded in selling sufficient stock to pay the notes, he was released from all further liability. Appropriate pleadings made the issues, and a large volume of testimony was taken, including answers made by the corporate defendant to attached interrogatories filed with the petition, and upon final submission the court dismissed the petition, from which judgment plaintiff prosecutes this appeal.

To undertake to treat in this opinion each legal question, direct and collateral, made by the respective parties in this case, or to notice the vast array of cited authorities and point out their applicability or inapplicability to the principles of law involved or argued, would extend this opinion far beyond the correct bounds, as well as render a large portion of it unalloyed dictum. The notes sued on were executed in payment for the transfer of a long list of oil and gas leases owned by plaintiff upon about 125,000 acres of land located in a number of counties in this commonwealth, and which he transferred and assigned pursuant to telegraphic direction from Stokes on October 10, 1917; but the preceding negotiations and contracts leading up to that transfer were largely conducted by Eakins, who represented that he was a member of a syndicate composed of himself, Stokes, and one Crawford, and perhaps one or two others, but which representations, it is perhaps properly insisted, are not competent as against Stokes without further proof of the actual existence of the syndicate. However, we are convinced from the oral testimony given in the case, plus that furnished by various exhibits in the form of letters and telegrams, including some from Stokes himself, that there exists no doubt but that Stokes was a member of a body of individuals, including Eakins and Crawford, who had agreed among themselves to procure oil and gas leases in this commonwealth, and perhaps elsewhere, for the purpose of organizing the Kentucky Producers' & Refiners' Corporation to operate the leases so obtained, and to which company they would be assigned and transferred upon its organization, which was done about the 16th of September, 1917, with a capital stock of $10,000,000, at the back of which and to support the value of which, according to the record, the corporation obtained practically nothing but the leases and wind.

Stokes was at Lexington, Ky. at the meeting in August, 1917, which culminated in the first contract for the sale of about 100,000 acres of the leases by plaintiff to be used in the manner and for the purpose indicated and which contract was signed by only James and Eakins, though Stokes was present during the initial negotiations but had left Lexington, perhaps, before it had been agreed upon, or before it was executed. After that James obtained other leases and entered into a second contract at which time he extended the due dates of the deferred payments for the sale of the first leases, and the second contract was made at a meeting in New York, at which Stokes, Crawford, Eakins, and other participants in the organization of the proposed corporation were present, plaintiff having been called there by Stokes, who entertained him at his palatial quarters for something like 10 days. Had we time and space to insert some of the correspondence appearing in the record, it would most convincingly appear that Stokes was devoting a large part of his time in obtaining the leases as a preliminary step to organizing the corporation and that he consented for the contracts to be made in the name of Eakins, but it is so patent and evident that he was so interested therein as to not require detail discussion. It is true that he declined at the New York meeting to guarantee the payment of the consideration for the contracts made by Eakins for the assignment of the leases, upon the ground that he never executed notes; but according to the testimony of James he did orally promise to see that the leases were paid for, and later at that meeting executed a note jointly with Eakins and others for the first payment, and he was quite active at that time and later in having the due dates for the deferred payments extended for various reasons, among which was that the surplus money of the country was then being invested in Liberty bonds and cash could not be readily obtained with which to make the payments. He was also solicitous to have the leases assigned and transferred according to the terms of the two contracts and, as said, he himself telegraphed James to make the transfer upon the ground that it was necessary to enable the then formed corporation to dispose of its stock. To that telegram James responded that he had made the transfers and delivered the leases to some attorneys in Lexington as directed in the telegram of Stokes, but that he did so with the understanding that he, Stokes, would see to it that the consideration was paid. We think enough has already been stated to make it clearly appear that Stokes was one of the promoters of the corporation and expected to receive large profits from its organization, although he was putting forward Eakins, who he acknowledges was a comparative stranger to him, as the active agent in procuring the leases; but Crawford and other promoters, by letters, telegrams, and meetings, also assisted in the negotiations.

The deferred payments were not made on the days specified, and James was quite active in his efforts to collect them and wrote letters to Eakins, Stokes, and other promoters concerning the matter and suggested the execution of notes, which brought forth a letter from Stokes (November 13, 1917), in which he, for the first time, denied that he was in any wise interested in the leases or their future handling, and he subsequently declared that all of his activities had been performed in an effort to accommodate his friend, Eakins, and to assist him to put over the deal, although at that time there had been set apart to the promoters as a syndicate $5,000,000 of the capital stock of the already organized corporation in payment of the leases which the promoters themselves had not paid for and for which, under the terms of the transfer, the corporation itself was not liable, and which condition was brought about at the direction of Stokes himself, when he directed plaintiff to transfer the leases so as not to create a claim against the corporation and thereby refute a statement made in a published glowing prospectus to the effect that it owed no debts.

Stokes was to have between $1,000,000 and $2,000,000 of the $5,000,000 of stock delivered to the promotors and at the same time, or about then, there was set apart $900,000 of that stock to be sold by Stokes for the purpose of realizing money to pay the indebtedness incurred for the leases from James and from others which had been transferred in like manner. The promoters who were to be benefited by the payment of those debts styled themselves a syndicate with Stokes as its manager. As to the organization and actual existence of that particular syndicate there can be not the slightest doubt, for in 1919 Stokes delivered all or a part of the stock, which he was...