Mercer-Lincoln Pine Knob Oil Co. v. Payne
| Decision Date | 27 January 1925 |
| Citation | 206 Ky. 848 |
| Parties | Mercer-Lincoln Pine Knob Oil Company v. Payne, et al. Same v. Cora T. Ruhr, now Ronan. |
| Court | Kentucky Court of Appeals |
Appeals from Fayette Circuit Court.
C. C. RANKIN for appellants.
A. M. BAKER, J. A. EDGE, and TAYLOR N. HOUSE for appellee.
These two appeals on the same record will be disposed of in one opinion.
Previous to March, 1919, D. P. Weeks had taken oil leases on a large acreage in the vicinity of Stanford, Kentucky, and in March, 1919, he organized the Pine Knob Oil and Gas Company as a corporation, with a capital stock of $100,000.00. He transferred to it the oil leases and it issued to him in return therefor $50,000.00 of its stock. It made an arrangement with Bradley and Kemper by which they were made the agents of the company to sell the stock. In May Bradley and Kemper sold Kate S. Payne $1,500.00 of the stock and to Cora T. Ruhr the same amount. About this time another corporation was organized at Harrodsburg, Kentucky, known as the Mercer-Lincoln Oil Company. It owned a considerable amount of leases in Mercer and Lincoln counties. In June, 1919, these two corporations decided to consolidate, the terms being that each stockholder in the original corporations could have the same shares of stock in the consolidated corporation, known as the Mercer-Lincoln Knob Oil Company. The required notices of the consolidation were given and on July 19th it was finally consummated. Mrs. Payne and Mrs. Ruhr received notice of the proposed consolidation and Mrs. Payne accepted stock in the new corporation. Early in August the corporation thus created decided to consolidate with the McKenzie Oil Company of Lexington, Kentucky. Notice of this proposed consolidation was duly given and on September 4th the consolidation was completed. The name of the consolidated company was the Mercer-Lincoln Pine Knob Oil Company. On October 3, 1919, Mrs. Payne and Mrs. Ruhr filed these suits in equity against the Pine Knob Oil and Gas Company and the Mercer-Lincoln Pine Knob Oil Company and D. P. Weeks seeking a rescission, alleging that they had been induced to purchase this stock by the fraudulent representations that the Pine Knob Oil Company had one well producing 150 barrels of oil per day and other producing wells, and that the plaintiffs did not learn of the fraud until about the first of August.
The issues were made up; an amended petition was filed seeking a receivership for the companies. The receiver was appointed and on final hearing a judgment was rendered in favor of the plaintiffs against the Pine Knob Oil Company and the Mercer-Lincoln Pine Knob Oil Company. Separate appeals are prosecuted but by consent they are heard together on one record.
The record discloses that the Pine Knob Oil and Gas Company was insolvent from the beginning and that the Mercer-Lincoln Pine Knob Oil Company and the McKenzie Oil Company were both insolvent at the time of the consolidation referred to. Nothing of consequence has come into the hands of the receiver as the assets of these companies. The proof also shows that the plaintiffs subscribed for the stock upon the representations that the Pine Knob Oil and Gas Company had one well producing 150 barrels per day and other producing wells and that these representations were untrue; the company in fact had nothing of value. But it is earnestly insisted that as the plaintiff did not complain or bring suit until October 3rd, and that this was after the two consolidations above referred to had been made, they are without remedy.
The authorities are clear that in a case of this sort the defrauded stockholder must act promptly. In Ky. Mutual, &c., Co. v. Schaefer, 120 Ky. 230, the court thus stated the rule:
"Where there has been a failure to exercise care to discover the fraud, and the rights of innocent parties will suffer, then he whose...
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