Sauder v. Dittmar

• Decision Date: 15 April 1941
• Docket Number: No. 2126,2127.,2126
• Parties: SAUDER v. DITTMAR et al. DITTMAR et al. v. MOORE et al.
• Court: U.S. Court of Appeals — Tenth Circuit

118 F.2d 524 (1941)

SAUDER v. DITTMAR et al. DITTMAR et al. v. MOORE et al.

Nos. 2126, 2127.

Circuit Court of Appeals, Tenth Circuit.

February 27, 1941.

As Amended on Denial of Rehearing April 15, 1941.

COPYRIGHT MATERIAL OMITTED

W. F. Lilleston, of Wichita, Kan. (Jos. G. Carey, of Wichita, Kan., on the brief), for appellant and cross-appellees.

Austin M. Cowan, of Wichita, Kan., and Alfred M. Seddon, of Kansas City, Mo. (John R. James, of Kansas City, Mo., on the brief), for appellees and cross-appellants.

Before BRATTON and MURRAH, Circuit Judges, and KENNAMER, District Judge.

BRATTON, Circuit Judge.

Safeway Lines, Inc., was engaged as a common carrier in the operation of buses between Chicago and New York, and intermediate points. Paul O. Dittmar, a resident of Illinois, and Clarence E. Eldridge, a resident of New York, owned 2,166.66 shares of its stock, each owning 1,083.33 shares; A. E. Greenleaf, H. H. Moore and D. E. Sauder, residents of Kansas, together owned 2,166.66 shares; and that was all of the outstanding stock. On March 23, 1936, Dittmar and Eldridge, as sellers, and Greenleaf, Moore and Sauder, as purchasers, entered into a written contract in which it was provided that the sellers should sell their stock to the purchasers for $150,000, payable $15,000 in cash, and the balance in ten annual installments of $13,500 each, with interest, the first due on April 10, 1937; that all payments of principal and interest should be made to Harris Trust & Savings Bank, of Chicago; that the shares of each of the sellers should be represented by two certificates, one for 500 shares issued in the names of the purchasers or their nominees and duly endorsed in blank, and the other for 583.33 shares, issued in the names of the sellers and likewise endorsed in blank; that all certificates should be deposited in escrow with Harris Trust & Savings Bank, as trustee, with instructions that they should be delivered to the purchasers as soon as the purchase price had been paid in full but in the event of default for thirty days in the payment of any installment of principal or interest the certificates should be delivered on demand to either of the sellers or to any person duly authorized by both of them; that as long as any part of the purchase price remained unpaid the sellers should have a representative on the board of directors of the corporation, and the purchasers should vote their stock for his election; and that the purchasers might at any time pay any unpaid balance, together with accrued interest to that time, and in that event they would also pay to the sellers a further sum equal to any additional state or federal tax or other tax which the sellers were obligated to pay as the result of such prepayment. On the same day the parties entered into a supplemental contract providing that the sellers should waive all obligation on the part of the corporation to repay them advances which they had previously made to it in the approximate aggregate sum of $10,000; and that the sellers should have one director of their choice and the purchasers five of their choice, and all stock should be voted accordingly. And on the following day, the parties executed and the trustee accepted an instrument of escrow conforming to the original contract and providing, among other things, that such escrow agreement might be amended or varied in any respect by Dittmar or C. O. Keller on behalf of the sellers, and by Greenleaf or J. H. Eaton on behalf of the purchasers. The cash payment was made; the stock was transferred on the books of the corporation, 583.33 shares to Dittmar, 583.33 to Eldridge, and 1,000 to Greenleaf; all of such certificates were endorsed in blank and deposited with the trustee as collateral security for the debt due Dittmar and Eldridge; and soon thereafter Moore succeeded Dittmar as president and manager of the corporation but Dittmar continued throughout as a director.

General Improvement Company controlled through ownership of stock Southern Kansas Stage Lines, a common carrier by bus. Greenleaf, Moore and Sauder also owned stock in Southern Kansas. Safeway and Southern Kansas connected and interchanged passengers at Chicago. Safeway became in urgent need of additional cash in its capital structure. General Improvement indicated a willingness to purchase 1,000 shares of Safeway stock at $75 per share provided all stockholders would contribute to the capital $40 per share in cash, aggregating $173,332.80. Greenleaf and Moore were willing to sell stock and make their contribution in cash but Sauder was averse to making his contribution. There was contemporaneous discussion of the problem of common control of Safeway, Southern Kansas, and other like companies, in seeking necessary consent and approval of the Interstate Commerce Commission. Confronted with these circumstances, Moore and Sauder, on or about June 10, entered into an agreement in which Moore transferred to Sauder his stock in Southern Kansas; Sauder transferred to Moore his stock in Safeway, and his interest in the contract and stock in escrow; Moore assumed Sauder's obligation under the contract of March 23; and each severed all connection with the other company.

It was believed that the cash contribution to the capital of Safeway would entail certain income tax liability unless all share holders contributed pro rata. So, Greenleaf and Moore exhibited to Dittmar a copy of a proposed contract between themselves and General Improvement for the sale and purchase of the 1,000 shares, and, by letter dated July 28, requested that Dittmar and Eldridge agree that the 583.33 shares issued in the name of each be withdrawn from escrow, and that new certificates of the same aggregate amount, issued in the names of Greenleaf and Moore and by them endorsed in blank, be substituted in escrow as collateral for the debt due under the original contract. As part of the request, it was provided that an indebtedness in the approximate sum of $15,000 which Safeway and Illinois Safeway Lines, Inc., owed South Suburban Safeway Lines, Inc., should be paid in full on or before September 1; that until the indebtedness due Dittmar and Eldridge under the agreement of March 23 was paid in full proxies running to them, or either of them or their representatives, to vote 1,166.66 shares of stock in Safeway should be executed and delivered from time to time at least ten days prior to the holding of any meeting; that notice of all stockholders' meetings should be sent them at the same time and in the same manner as notices to other stockholders; that in the event notice was not sent them and a meeting was held at which business was transacted, Greenleaf and Moore should upon demand assign, transfer and deliver to Dittmar and Eldridge each one share of stock for the sole purpose of making them stockholders of record; that in case of failure to receive notice of any subsequent meeting of stockholders at which business was transacted, Greenleaf and Moore should pay in full the then unpaid balance of the purchase price of the stock, together with a sum equal to any additional federal income tax which Dittmar and Eldridge might be compelled to pay by reason of such prepayment; that in the event either Greenleaf or Moore should sell, assign or transfer any of his right, title or interest in any of the shares for which Dittmar or Eldridge were entitled to proxies, the contract of sale should be conditioned that the purchaser execute the proxies from time to time; and that Greenleaf and Moore ratified, approved and confirmed all of the terms and provisions of the original contract, except insofar as they were modified by the agreement then executed. Dittmar and Eldridge agreed to the request; and Dittmar and Eaton joined in a written direction to the trustee to deliver the 2,166.66 shares in escrow to the secretary of Safeway in exchange for four certificates representing a like number of shares, two issued in the name of Greenleaf and two in the name of Moore. The certificates were accordingly withdrawn; the new certificates were issued and endorsed in blank; and they were placed in escrow as substitute collateral for the obligation due Dittmar and Eldridge. Greenleaf and Moore paid the installment of principal and interest due in April, 1937. In November, Safeway filed its petition under section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, but was continued in possession of its properties. An operating trustee was appointed in 1939; the debtor was adjudged a bankrupt; and the subsequently appointed trustee sold its assets. Default was made in payment of the installment of principal and interest due Dittmar and Eldridge in April, 1938. The stock of Safeway had no market value at that time.

Dittmar and Eldridge instituted this suit against Greenleaf, Moore and Sauder. They alleged that default had been made in payment of the installment due in 1938; that defendants had repeatedly announced and declared their intention not to pay the installments past due or any of the installments subsequently to mature; that they had repudiated the contract; and that plaintiffs were ready, able and willing to perform all of their obligations under its provisions. Copies of the original and supplemental contracts, of the escrow agreement, and of the letter requesting the substitution of stock in escrow were attached to the complaint; and a copy of the letter directing the trust company to surrender the old shares and accept the new was attached to a bill of particulars. Judgment was sought for the sum of all unpaid installments, with interest. Defendants answered separately. Sauder pleaded that modifications and changes in the original contract, made after Moore assumed his obligation, discharged him of all liability under its terms; and that it had been abandoned as to him.

The court found and concluded that the transfer of the stock from Sauder to Moore was not made at the request or...