Katz v. New England Fuel Oil Co.

• Decision Date: 06 May 1938
• Citation: 199 A. 274
• Parties: KATZ et al. v. NEW ENGLAND FUEL OIL CO. et al.
• Court: Maine Supreme Court

199 A. 274

KATZ et al.

v. NEW ENGLAND FUEL OIL CO. et al.

Supreme Judicial Court of Maine.

May 6, 1938.

Appeal from Supreme Judicial Court, Cumberland County, in Equity.

A stockholder's derivative suit in equity to protect corporate property and interests by Moe I. Katz and others against the New-England Fuel Oil Company and another. From an adverse decree, plaintiffs appeal.

Appeal dismissed and decree affirmed.

Argued before DUNN, C. J., and STURGIS, BARNES, HUDSON, and MANSER, JJ.

Robinson & Richardson, of Portland, and Bernard Hershkopf, of New York City, for appellants. Walace Hawkins, of Dallas, Tex., and Freeman & Freeman and Verrill, Hale, Booth & Ives, all of Portland, for appellees.

DUNN, Chief Justice.

This case was here previously. In the decision at that time, plaintiffs' appeal was dismissed, but without prejudice, for prematurity, Katz et al. v. New England Fuel Oil Company et al., 135 Me. 379, 197 A. 401.

The cause is now presented on a completed record, inclusive of the answer of the New England Fuel Oil Corporation, a Nevada incorporation, the acts of whose officers have allegedly operated adversely to the interests of the organization and its stockholders. Wells v. Dane, 101 Me. 67, 63 A. 324.

To authorize a corporation stockholder to sue in his own behalf, or, as here, for himself and others similarly situated who may choose to join, the default of directors invested with the general management of the business of the corporation must be clear. Hersey v. Veazie, 24 Me. 9, 41 Am.Dec. 364; Ulmer v. Real-Estate Company, 93 Me. 324, 45 A. 40; Trask v. Chase, 107 Me. 137, 77 A. 698; Hyams v. Old Dominion Company, 113 Me. 294, 93 A. 747, L.R.A.1915D, 1128; Bates Street Shirt Company v. Waite, 130 Me. 352, 156 A. 293.

The plaintiffs allege that application by them to the directors of their corporation, to institute action in its own name, for the recovery of what counsel term undelivered royalty oil, was refused, and that any further reasonable effort within the corporation would, because of the hostile domination of majority stockholders, be thwarted.

The demurrer of the defendant New England Fuel Oil Company, a state of Maine corporation (it filed, also, plea and answer), admits, for the purpose of considering the integrity of the bill, the truth of all factual allegations which, in sufficiency of pleading, the bill avers. Bailey v. Merchants' Insurance Company, 110 Me. 348, 86 A. 328. The demurrer, in which there was joinder, tests the face of the bill, or any exhibit, in point of law. 10 R.C.L. 464. If a bill, as presented, does not manifest occasion for the interference of a court of equity, it may be dismissed on demurrer. Story, Equity Pleading, 660; Reed v. Johnson, 24 Me. 322; Masters v. Van Wart, 125 Me. 402, 134 A. 539.

The other defendant, New England Fuel Oil Corporation, answered. Its answer, while setting up, so insistence is, a complete defense to the bill, essentially acquiesces in the demurrer filed by the first named defendant.

The appeal opens the whole case for rehearing. Emery v. Bradley, 88 Me. 357, 360, 34 A. 167; Wood v. White, 123 Me. 139, 122 A. 177. Upon the appeal, this court must determine the correctness of the decree below. Masters v. Van Wart, supra.

In 1916, and prior thereto, the New England Fuel Oil Company, defendant, was drilling for petroleum in the Republic of Mexico. The company had certain lands and leaseholds, with appertaining rights, and was carrying on generally the business of producing and distributing petroleum and its products. It wanted to sell its holdings, and the Magnolia Petroleum Company, a Texas joint-stock association, wished to buy, on agreed terms, subject to the confirmation of titles, and conditioned on the coming in of wells.

The ruling purpose of an agreement dated February 25, 1916, between the company and the association, was to pass, from the one to the other, ownership of the Mexican properties and their appurtenant easements and servitudes, for a consideration, partially cash, partially a promise to deliver, from operations, proportionate quantities of oil.

The situation was complicated by apprehension that legal title to the lands and subsoil deposits might not, because of disturbed conditions in Mexico, be directly conveyed; first obtaining permission from the government would probably be necessary.

The agreement recited, contingent on the title, and the demonstration out of the ground of results worth the price, that, in the stead of deeds or other instruments there could, to effect purpose, be assignment to the Magnolia Petroleum Company, or to a trustee for it, of the whole, or of at least 75 per centum of the outstanding shares of the capital stock of the New England Fuel Oil Company, the Maine entity.

Provision was made, too, for the forming of a third corporation, to acquire the shares, and succeed to the agreement rights, of the Maine company.

Termination of the existence of the Maine company was not, however, contemplated. On the contrary, this company should continue to be and maintain its corporate identity, and, on being afforded financial backing by the Texas association, remain a worker in the oil fields.

Titles were approved; oil prospecting was satisfactory.

Shortly after, the new corporation, the New England Fuel Oil Company of Massachusetts, had been formed. It had acquired, not the entire issue, but enough shares of the capital stock of the Maine company; these had been turned over, through the intervention of a trustee, to the Texas concern.

A second written agreement, of date June 20, 1916, which, as in the instance of the first, was not under seal, was entered into; all three organizations, Maine, Texas, and Massachusetts, to designate them by the states of their respective creations, were parties.

"Whereas," a word grammatically and logically tantamount to the words "considering that" or "being the case that," introduced three prefatory statements. Then, relative to present inquiry, were paragraphs as follows:

"Article I. Magnolia agrees with Massachusetts Company and with Fuel Company to put the Fuel Company in funds, whenever and as soon as the same may be required, to perform the obligations to be by it performed hereunder, and guarantees to Massachusetts Company the punctual performance by Fuel Company of all its obligations hereunder, and waives all notice and other rights of a guarantor and agrees with Massachusetts Company to perform all the obligations of Fuel Company hereunder if Fuel Company does not, to the end that Massachusetts Company may enforce its rights hereunder either against Fuel Company or Magnolia, either jointly or severally."

"Article II. Fuel Company agrees with Massachusetts Company to carry out its contract with Magnolia hereinbefore mentioned and to do all things incumbent upon it to be done in order to enable Magnolia to pay the royalties, to be paid hereunder, whether in cash or in oil, and further to enable Magnolia to perform all its obligations hereunder."

"Article III. As provided in Article II of the Preliminary Agreement, Magnolia agrees with the Massachusetts Company to pay to the Massachusetts Company the royalties and consideration hereinafter stated, subject to abatement, however, where so stated, in the proportion which the stock in Fuel Company not transferred and delivered or caused to be transferred and delivered by the Massachusetts Company to Magnolia or to a Trustee as hereinafter set forth, by April 1, 1918, bears to the entire present authorized stock of the Fuel Company."

(Article II, of recital in...