Sapulpa Petroleum Co. v. McCray

• Decision Date: 14 March 1925
• Docket Number: No. 6777,6778.,6777
• Citation: 4 F.2d 645
• Parties: SAPULPA PETROLEUM CO. et al. v. McCRAY (two cases).
• Court: U.S. Court of Appeals — Eighth Circuit

4 F.2d 645 (1925)

SAPULPA PETROLEUM CO. et al. v. McCRAY (two cases).^*

Nos. 6777, 6778.

Circuit Court of Appeals, Eighth Circuit.

March 14, 1925.

J. P. O'Meara, of Tulsa, Okl. (M. H. Silverman, of Tulsa, Okl., on the brief), for appellants.

F. E. Riddle, of Tulsa, Okl. (Stuart, Sharp & Cruce, of Oklahoma City, Okl., and H. O. Bland, of Tulsa, Okl., on the brief), for appellee.

Before SANBORN and KENYON, Circuit Judges, and BOOTH, District Judge.

SANBORN, Circuit Judge.

This is a suit in equity by W. S. McCray against the Sapulpa Petroleum Company, a corporation, Bates B. Burnett, B. C. Burnett, Anderson T. Herd, and Cushing Petroleum Company, a corporation, for a temporary and permanent injunction against the interference by the defendants with McCray's possession of two leasehold estates owned by the Sapulpa Company, known as the Susan Cedar lease on the northeast quarter of the northeast quarter of section 25, township 19 north, range 7 east, and the Noah Timothy lease, hereafter called the two leases, against the enforcement by the defendants of that part of the decree of the district court of Creek county, Okl., in the suit of McCray against the Sapulpa Petroleum Company, G. W. Wills, receiver of the property of that company, Bates B. Burnett, and B. C. Burnett, filed September 16, 1922, and affirmed by the Supreme Court of the state of Oklahoma September 25, 1923 (McCray v. Sapulpa Petroleum Co., 102 Okl. 108, 226 P. 875), whereby that court adjudged that the Sapulpa Company was, prior to the commencement of that suit and at the date of that decree, the owner of the two leases, that McCray had no interest therein at the beginning of the suit or at the time of the decree, and that the title of the Sapulpa Company was by that decree quieted in that company against McCray and all parties claiming under him. When that suit was brought, McCray was in possession of the two leases, and one of the objects of this suit is to keep him in possession against the execution of that decree of the state court, and to establish and foreclose an alleged equitable lien in favor of McCray for $155,000 and interest upon the two leases, their proceeds, and other producing leases of the Sapulpa Company.

In the present suit McCray applied to the court below for an interlocutory injunction. His application was opposed by the defendants. The parties to this suit presented and examined their witnesses upon the question of the granting of the injunction in open court, stipulated many of the facts, and tried the question whether or not the interlocutory injunction should be issued as on a final hearing in equity. After the hearing and due consideration the court below issued an interlocutory injunction, whereby it forbade the defendants from interfering with the possession or operation by McCray of the two leases, from collecting any of the moneys or funds they had produced subsequent to September 16, 1922, the date on which the decree in the state court was rendered, and from selling or disposing of any of the 200,000 shares of the preferred stock of the Cushing Petroleum Company, of the par value of $5 per share. The defendants have appealed from this order. Their counsel insist that the evidence does not sustain the claim of McCray upon the decisive issues of fact in the case, that he is estopped from maintaining this suit by his former suit and decree therein, and that his suit is barred by the statute of limitations. These facts are admitted or established beyond dispute:

The two defendants, the Cushing Company and Anderson T. Herd, have no interest in this suit; they are mere nominal parties; the Cushing Company has no property of any real value, and Herd is in bankruptcy. In July, 1919, the Sapulpa Company owned seven oil and gas leases, which were producing oil. McCray, Bates B. Burnett, and B. C. Burnett each owned one-third of the shares of stock of this corporation. The property of the Sapulpa Company was worth from $450,000 to $600,000. McCray alleged in his complaint in this case, and it is nowhere denied, that on June 11, 1924, when he brought this suit, the assets of the Sapulpa Company and the assets of the Cushing Company taken together had all been dissipated, except the two leases involved in the former suit, and that they were not worth more than $60,000 or $70,000. In July, 1919, the three owners of the stock of the Sapulpa Company conceived the plan of organizing a new corporation, which should issue a much larger amount of capital stock and debenture notes to the amount of $600,000. Accordingly they went to New York and on August 15, 1919, made a written agreement with Anderson T. Herd, broker and promoter, that he should organize a corporation with a capital stock of $6,000,000, consisting of 1,000,000 shares of common stock and 200,000 shares of preferred stock, each of a par value of $5 per share; that such corporation should issue and sell debenture notes or bonds to the amount of $600,000; that this new corporation should provide that the 200,000 shares of preferred stock should be retired by applying to their retirement every 30 days 60 per cent. of the gross working interest run of the oil coming from the leases of the Sapulpa Company, and that corporation did subsequently so provide by inserting this provision in each of its certificates of shares of stock; that the three owners of the stock of the Sapulpa Company should assign and deliver to the new company all their stock in the Sapulpa Company, and receive and retain in lieu thereof the 200,000 shares of the preferred stock and 300,000 shares of the common stock of the new company, while the other 700,000 shares of the common stock should be used by Herd, the promoter; that the new company should receive 80 per cent. of the face value of the debenture notes that Herd should sell; that the difference between that amount and the par value of such notes should also go to Mr. Herd; and that on September 15, 1919, the three owners of the stock of the Sapulpa Company should assign, transfer, and deliver their shares to the treasurer of the new company. This agreement was signed by W. S. McCray, by the Sapulpa Petroleum Company (by W. S. McCray as president), by the two Burnetts, and by Herd. Pursuant to its terms, the new company, the Cushing Petroleum Company, was duly organized. The three owners of the stock of the Sapulpa Company assigned and transferred their stock according to the agreement, and each of them became entitled thereby to $333,334 par value of the preferred stock and his proportion of the common stock of the Cushing Company.

On September 25, 1919, W. S. McCray made a written agreement with O. S. Kelly, of Kansas City, Mo., which was drawn by Mr. O'Meara, the attorney of the Sapulpa Company, wherein McCray recited that he was the owner of $333,334 of the preferred stock and his proportion of the common stock of the Cushing Company, and whereby, in consideration of $225,000, of which $25,000 had been paid and the balance should be paid in 30 days, he sold, assigned, and transferred to Kelly all of said preferred stock and all interest of every kind he might own or hold in the Sapulpa Company or in any of its property. Time was made the essence of that contract, and it provided that, if the balance of the purchase price was not paid in 30 days, no further liability of either party should exist. On October 25, 1919, McCray made a written agreement with Kelly, drawn by O'Meara, that the time of payment specified in the agreement was modified as follows: "$50,000 cash in hand, $50,000 December 1, 1919, and the remaining $100,000 on or before January 5, 1920" — McCray to have 6 per cent. interest on deferred payments. Herd, the promoter, and Del Mass, his associate, caused McCray to be paid under this agreement $75,000, and nothing more was paid upon it. McCray declared the contract at an end. Herd and Del Mass insisted that they had title to the stock described in it, and simply owed McCray the balance due, $150,000. B. C. Burnett tried to negotiate a settlement between them. In the course of this negotiation he consented to the possession of the two leases by McCray as security for the performance of the agreement of settlement that he hoped to make if that agreement should be made, and McCray took possession of the two leases on April 9, 1920, and has since retained and operated them. The negotiation, however, utterly failed, and no settlement was made. There is no evidence in this case that the Sapulpa Company, or the Cushing Company, or Bates B. Burnett ever authorized, made, or ratified the act of B. C. Burnett relating to the possession and operation of the two leases by McCray. Some time after the contract with Kelly was made and the agreement of settlement failed, the certificates for the shares of McCray in the stock of the Cushing Company were reissued to Bates B. Burnett to secure the payment by Herd to him of $150,000 which Herd owed to him and to the Cushing Company.

Debenture notes or bonds of the Cushing Company to the amount of several hundred thousand dollars were issued and sold by Herd, and the Cushing Company, secured the payment of these bonds by its pledge of all of the stock of the Sapulpa Company The bonds were not paid, and that pledge was foreclosed, and all the stock of the Sapulpa Company was sold under the foreclosure to one Hawse for about $10,000, and the stock of the Cushing Company became worthless.

We turn from these indisputable facts to the conflicting testimony upon the issue of fact that counsel seem to deem decisive in this case. McCray testified that in the negotiations prior to September 25, 1919, the date of his written contract of sale to Kelly, he agreed to sell, and Bates B. Burnett, B. C. Burnett, and Anderson T. Herd agreed to buy and pay for, his stock in the Cushing Company; that their agreement so to do was a condition of his entering into the reorganized company; that his...