New England Oil Refining Co. v. Wiltsee, 1753.

• Decision Date: 06 January 1925
• Docket Number: No. 1753.,1753.
• Citation: 3 F.2d 424
• Parties: NEW ENGLAND OIL REFINING CO. et al. v. WILTSEE et al.
• Court: U.S. Court of Appeals — First Circuit

3 F.2d 424 (1925)

NEW ENGLAND OIL REFINING CO. et al. v. WILTSEE et al.

No. 1753.

Circuit Court of Appeals, First Circuit.

January 6, 1925.

Robert G. Dodge, of Boston, Mass., for appellants.

Sherman L. Whipple, of Boston, Mass. (William Gates, Jr., and Frederick Foster, both of Boston, Mass., on the brief), for appellees.

Before BINGHAM and JOHNSON, Circuit Judges, and HALE, District Judge.

HALE, District Judge.

This case arises under equity proceedings in the United States District Court for the District of Massachusetts, in No. 1747, Henry S. Parker v. New England Oil Corporation.

On July 14, 1922, the bill in equity was filed. The respondent the New England Oil Corporation appeared and admitted that it was unable to pay its creditors. On July 20th receivers were appointed. Proceedings then rested until January 8, 1923, when a decree was entered fixing January 24, 1923, as the limit of time for proof of claims. On January 9, 1923, a "noteholders' committee" of six appeared, in order to take all steps possible to protect the interests of the noteholders. This committee obtained leave to intervene in the suit. Soon after, they presented a plan for acquisition of assets and distribution of securities under a "Plan for Readjustment and Reorganization." On February 17, their "Modified Plan of Reorganization" was filed, and a decree entered authorizing the receivers to participate in the same. On February 26, 1923, Ernest Wiltsee appeared, obtained permission to intervene, and filed his claim. The committee of noteholders appeared in opposition to the claim. In the meantime, the New England Oil Refining Company had been organized, apparently as a reorganization, by the noteholders' committee. Hearing upon the Wiltsee claim was had in the District Court, late in May, 1923. On June 27, 1923, a decree was filed by the District Court, Judge Anderson sitting, allowing the claim for $176,000. An appeal was taken from this decree by the noteholders' committee and the New England Oil Refining Company. Upon this appeal the case is now before us.

Wiltsee's claim is briefly stated by his counsel to be substantially: That the defendant the New England Oil Corporation was organized in pursuance of an arrangement between himself and a firm known as Cochrane, Harper & Co., to develop a joint enterprise, after organization, and agreed to issue and deliver "vendors' shares," so called, representing promotors' profits; 90 per cent. of such shares to go to Cochrane, Harper & Co. for financing the enterprise, and 10 per cent. to go to Wiltsee for bringing in the properties which were the basis of the enterprise; that the corporation failed to deliver Wiltsee's shares to him; and therefore he has a claim against the corporation for their value at the date when the shares should have been delivered.

The appellants say, in substance, that their contentions — set forth fully in their assignment of errors — may be summarily stated as follows:

(1) The District Court erred in ruling that the New England Oil Corporation was under an obligation to issue a part of its shares to Wiltsee, and that, not having done so, the latter has a provable claim in the receivership proceedings.

(2) Even if a claim against the New England Oil Corporation existed, the District Court erred in fixing its amount.

Under the first contention, the appellants urge that Wiltsee's claim, if any, was against Cochrane, Harper & Co., and not against the corporation; furthermore, that the District Court erred in the construction which it placed upon the term "vendors' shares."

The proofs show that in 1919 the claimant, Ernest Wiltsee, had been a mining engineer for some 30 years, and had large experience in connection with mining, oil, and kindred properties; that he was familiar with conditions and methods of doing such business in Central and South America; that he knew the Spanish language and was acquainted with the characteristics of the peoples in those countries, and with the best way to negotiate with them; that Cochrane, Harper & Co., called the firm, were bankers interested in bringing out and organizing oil companies; they maintained offices in New York and Boston; Wiltsee had dealt with them prior to January, 1920, in connection with securing oil contracts for them in Mexico; prior to January, 1920, Wiltsee had expressed to the firm his belief that the Mexican oil fields would soon become exhausted, and that he thought it would be a good thing to investigate new oil fields in South America, where he believed large holdings could be acquired at small cost; that there were very good opportunities in Venezuela and Colombia, possibly also in Ecuador; he brought to the firm's attention certain South American properties controlled by one Restrepo and associates, as a result of which the firm entered into an arrangement which contemplated the organization of a corporation by the firm to exploit the properties and a division of promoters' stock in the proportion of three-fourths to the firm and one-fourth to Restrepo and his associates; the firm requested Wiltsee to visit South America, not only to examine the Restrepo properties but to find and investigate other properties.

Before Wiltsee set out for South America, he and the firm entered into a certain agreement. With reference to what each party was to do under the agreement so made, the District Court has found these facts: "It was his (Wiltsee's) part to find, examine and negotiate for the properties, out of the exploitation of which all the parties expected to reap large rewards. It was the part of Cochrane, Harper & Co. to obtain money from the investing public and to provide and control the legal and financial machinery necessary for the development of the enterprise. But Wiltsee was much more than a hired engineer; he was a participant in the risks and in the expected profits of the enterprise. Cochrane, Harper & Co. were the chief or managing promotors. Wiltsee so treated them. He expected them to create, and for a time to control, the corporation through which their common interests were to be worked out. * * *"

"It is clear that the bankers expected to get from the investing public all their cash disbursement made in connection with the acquisition of the properties, the development thereof, or the purchase and installation of machinery and other necessary appliances. It is also clear that the `vendors' shares' were intended to represent most of the prospective profits of the enterprise."

Wiltsee remained in South America from January to June, 1920. While there, he examined properties, negotiated for concessions, and dealt with other matters relating to the promotion of the company; brought to the enterprise ten properties, which, from time to time, were transferred to the defendant corporation. These properties are found by the District Court to have "formed the chief basis of such hope of prosperity as the defendant corporation now has."

Was the New England Oil Company under any obligation to issue any shares of its stock to Wiltsee? Plainly it was not under such duty if the appellants are correct in saying that the contract was the contract of the firm alone, and not one which the parties contemplated that the corporation, when organized, should carry out.

The proofs show that the South American oil fields were the discovery of Wiltsee, who asked the firm, as bankers, to assist him in financing the venture. We are satisfied that the corporation was created for the purpose of developing this enterprise. From the uncontradicted testimony of Wiltsee, and from the other proofs, we are persuaded that the agreement was intended to be that the firm should see that a corporation was organized as a means of issuing what were called "vendors' shares," such shares to be divided by the corporation...