Riverside Oil & Ref. Co. v. Lynch

Decision Date07 July 1925
Docket NumberCase Number: 13646
Citation243 P. 967,114 Okla. 198,1925 OK 589
PartiesRIVERSIDE OIL & REFINING CO. et al. v. LYNCH et al.
CourtOklahoma Supreme Court
Syllabus

¶0 1. Appeal and Error--Conclusiveness of Findings of Referee.

Under section 559, C. O. S. 1921, where a referee is appointed and makes a report of findings of fact, the report has the effect of a special verdict, and where reasonably supported by the evidence, will not be disturbed on appeal.

2. Corporations--Right of Minority Stockholders to Sue Defaulting Officers.

Minority stockholders may sue defaulting officers in behalf of the corporation to recover property fraudulently appropriated by them, and for the redress of other fraudulent and ultra vires acts.

3. Same--Right of Stockholders to Receivership.

Where, in an action by minority stockholders in behalf of the corporation against its officers, and those in charge of said corporation who had converted its assets to their own use and benefit and had unlawfully issued stock and had intermingled the funds of said corporation with their own in such a way that the exact amount of money on hands belonging to said corporation could not be determined, thereby destroying the value of the stock of the corporation, a court of equity will appoint a receiver of the corporation, because otherwise the rights of the minority stockholders could not be protected.

4. Same--Corporation Not Dissolved by Receivership.

The appointment of a receiver of a corporation in a suit by minority stockholders in behalf of a corporation against the officers does not necessarily result in dissolution of the corporation.

5. Same--Fraudulent Issue of Stock--Cancellation by Court.

Stock in a corporation issued by its officers and directors without consideration, as a gift, is fraudulent and void and should be canceled by a court of equity.

Error from District Court, Oklahoma County; Hal Johnson, Assigned Judge.

Action by S. D. Lynch and others against the Riverside Oil & Refining Company and others. Judgment for plaintiffs, and defendants bring error. Affirmed.

W. R. Banker, C. Guy Cutlip, Moss & Owen, and Stuart, Sharp & Cruce, for plaintiffs in error.

Twyford & Smith, for plaintiff in error Riverside Oil & Refining Company.

J. B. Dudley, for defendants in error.

CLARK, J.

¶1 This action was commenced in the district court of Oklahoma county by the defendants in error, plaintiffs below, against the plaintiffs in error, defendants below. For convenience the parties will be referred to as they appeared in the lower court.

¶2 Plaintiffs, S. D. Lynch, Rudy Copeland, and other corporate stockholders brought suit against the Riverside Oil & Refining Company, as a corporate entity, and Solon W. Smith, O. O. Owens, E. E. Frasher, and G. R. LeFevre, as its officers and directors, and as individuals, B. L. Brookins, J. C. Cananaugh, C. D. Nelson, and L. J. Marks; the alleged right of action being mismanagement of the said Riverside Oil & Refining Company, collusion and fraud in the conduct of corporate affairs by said officers. Numerous transactions relied upon for a cause of action and material to the determination of the instant case are substantially as follows:

¶3 The Riverside Oil & Refining Company is a Delaware corporation with a capital stock of $ 1,000,000 divided into 1,000,000 shares of the par value of one dollar each, and that there is issued an outstanding of authorized capital stock of said company approximately 580,000 shares; that the defendants are stockholders in said company, owning and controlling a majority of this issued outstanding stock; that plaintiffs are stockholders of said company, owning approximately 120,000 shares of its issued stock; and that this suit was brought for them and other stockholders similarly situated, constituting the minority stockholders of said company. That the defendants Solon W. Smith, O. O. Owens, and G. R. LeFevre are duly elected, qualified, and acting directors of said company and its president, vice president, and secretary, respectively. That the defendant E. E. Frasher is duly elected, qualified, and acting treasurer of said company. That at the annual stockholders' meeting of said company held in January, 1919, W. C. Bentley, the plaintiff Rudy Copeland, and the defendant Solon W. Smith were elected directors of said company for the ensuing year and until the election and qualification of their successors; following, the said W. C. Bentley was elected president, the defendant Solon W. Smith vice president, and the plaintiff Rudy Copeland secretary and treasurer. That in February, 1919, following, said W. C. Bentley resigned as director and president of said company, leaving the plaintiff Rudy Copeland and the defendant Solon W. Smith as the directors and officers of said company, and they continued to act as such until the annual stockholders' meeting of said company held on January 3, 1921, at which time defendants Solon W. Smith, O. O. Owens, and G. R. LeFevre were elected as directors and officers of said company, there being no annual stockholders' meeting held in 1920.

¶4 Said defendant company owns and operates, and has since March 1, 1918, owned and operated, an oil and gas mining lease covering 70 acres of land situated on the Cimarron riverbed, Creek county, Okla., known as the Clover Leaf lease, on which there are now, and have been for more than two years, 13 producing oil wells with an average daily production of 150 barrels. That said company owned no other property of any consequence other than said riverbed production, except a note of $ 20,000 secured by a mortgage on the Equality Refinery at Oilton, Okla. That the total production from said riverbed lease from March 1, 1918, to November 30, 1920, was in the sum of $ 424,863.46. Plaintiffs further allege that they do not know, have been unable to ascertain, the exact financial condition of the defendant company, but their best information is that its assets exceed its liabilities, that it is solvent, and that their stock has some real value, but on account of the present and past two years' mismanagement of said company by the said defendants, Owens and Smith, and the fraud and collusion of them and certain other of the defendants herein, said company now is on the verge of and in imminent danger of insolvency, and if the present management is continued for any great length of time, said company will become hopelessly insolvent and the investment of these plaintiffs and other stockholders similarly situated will be entirely lost. That said Smith and Owens have controlled and managed said company and outlined its business policies for the year 1920 and the greater portion of the year 1919, and are now in absolute control and management of said company. That the other defendants herein are subservient to their wishes and desires. That the defendants herein have paid but little, in fact, not exceeding ten cents per share for controlling interest in the defendant company; that they are what might be termed gratuitous stockholders, whereas the plaintiffs herein are actual stockholders, the greater portion of whom paid the par value in cash for their stock. That the manner of acquiring stock by the defendants was as follows: That W. C. Wolfe died January 16, 1919, and at the time of his death was the owner of approximately 142,000 shares of capital stock of the defendant company. Shortly after his death his widow, Gladys Wolfe, through her attorney, the defendant Solon W. Smith, was appointed administratrix of his estate. The administratrix of the Wolfe estate, through the defendant Smith, sold to the defendant Owens 136,000 shares of the Wolfe estate stock for $ 20,000, evidenced by note secured by said stock as collateral. At the same time the defendant Smith, with the knowledge and consent of the defendant Owens, had re-issued to Gladys Wolfe, individually, as the surviving widow of W. C. Wolfe, deceased, 9,500 shares of company stock, which as a matter of fact belonged to and was the property of the Wolfe estate. At the request of Smith said Gladys Wolfe sold to the defendant Owens said 9,500 shares of stock for $ 2,500, evidenced by a note which was afterwards paid. Controversy arose between the defendant Owens and Mrs. Wolfe with reference to the purchase of said stock, in which he claimed, among other things, that he had been misled and deceived by the defendant Smith and on account thereof he declined to pay said note, following which, in the office of the defendant Smith, on Sunday, Mrs. Wolfe was induced to and did settle said note with the defendant Owens for a little less than $ 6,000. And as a result of this transaction the defendant Owens secured 145,500 shares of company stock for less than $ 8,200. Smith further represented to the plaintiff Copeland that the defendant Owens was a personal friend of his; that he was endeavoring to get him to purchase the Wolfe estate stock and become actively interested in the management and affairs of the company, and that he could not do so unless the company secured an interest in a drilling contract of the defendant Brookins covering 37 1/2 acres of land located in the Desdemona, Texas, oil field, known as the Pearson or Crescent lease; that he and Owens had made a personal investigation of the lease covering said acreage and that a well was then on top of the producing sand, and on account of the defendant Brookins' financial condition the company could acquire an undivided one-half interest in said drilling contract for 100,000 shares of its stock and the assumption of one-half of the drilling expenses of the well, which defendant Brookins would guarantee not to exceed $ 20,000; and thereupon urged the plaintiff Copeland as the other director of the defendant company to consent to the purchase of said drilling contract. Relying upon the judgment, representations, and statements of the defendant Smith, Copeland consented to the purchase thereof, and the...

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10 cases
  • State ex rel. Attorney Gen. v. Owens
    • United States
    • Oklahoma Supreme Court
    • 24 Mayo 1927
    ...further alleged that in an opinion of this court filed July 7, 1925, in cause No. 13646, styled "Riverside Oil & Refining Co. et al v. Lynch et al.," 114 Okla. 198, 243 P. 967, Justice J. W. Clark prepared an opinion under the direction and control of Chief Justice George M. Nicholson, who ......
  • Guar. Laundry Co. v. Pulliam
    • United States
    • Oklahoma Supreme Court
    • 3 Febrero 1948
    ...the inherent power of a court of equity to appoint a receiver to preserve the property for stockholders. Riverside Oil & Refg. Co. et al. v. Lynch, 114 Okla. 198, 243 P. 967; Ellis, Trustee, v. Panther Oil & Gas Co., 171 Okla. 552, 43 P.2d 423; Anglo-American Royalties Corp. v. Brentnall, 1......
  • Harris v. Chambers. Dist. Judge
    • United States
    • Oklahoma Supreme Court
    • 22 Junio 1926
    ...of Oklahoma county, Okla., to carry into effect the mandate of this court in cause No. 13646, Riverside Oil & Refining Co., a corporation, et al. v. S. D. Lynch et al., 114 Okla. 198, 243 P. 967. Said case was one brought, originally, in the district court of Oklahoma county by certain mino......
  • Tulsa Torpedo Co. v. Kennedy
    • United States
    • Oklahoma Supreme Court
    • 5 Junio 1928
    ...court was justified in appointing a receiver to determine the rights of minority stockholders. ¶16 In the case of Riverside Oil & Refg. Co. v. Lynch, 114 Okla. 198, 243 P. 967, it was held to be the duty of a court to appoint a receiver for a corporation at the request of stockholders who s......
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