Supreme Petroleum, Inc. v. Briggs

• Decision Date: 13 November 1967
• Docket Number: No. 44823,44823
• Citation: 433 P.2d 373,199 Kan. 669
• Parties: SUPREME PETROLEUM, INC., a Corporation, Appellee, v. Dean J. BRIGGS, Appellant.
• Court: Kansas Supreme Court

Page 373

433 P.2d 373

199 Kan. 669

SUPREME PETROLEUM, INC., a Corporation, Appellee, v. Dean J. BRIGGS, Appellant.

No. 44823.

Supreme Court of Kansas.

Nov. 13, 1967.

Rehearing Denied Jan. 5, 1968.

Syllabus by the Court

1. In an action on a promissory note where the answer alleges a defense against the payee who endorses the note without recourse and becomes president and managing director of a corporation which becomes the owner of the note, the applicability of the imputed knowledge rule, exceptions thereto and qualifications thereof, as related to a principal and agent, creates a question of fact.

2. Rules governing the propriety of a summary judgment under the provisions of K.S.A. 60-256 are considered and applied.

A. D. Weiskirch, Wichita, argued the cause and was on the briefs, for appellant.

Wayne Coulson, Wichita, argued the cause, and Homes V. Gooing, and Paul R. Kitch, Witchita, and Jack N. Hays and James M. Sturdivant, Tulsa, Okl., were with him on the briefs, for appellee.

KAUL, Justice.

This is an appeal by defendant (appellant) from a summary judgment in an action to recover $200,000 on a stock subscription contract or in the alternative on a promissory note. The question involved is whether there remained a genuine issue as to any material fact.

The facts as gleaned from the pleadings and developed by depositions and affidavits unfold a narrative of intricate financial maneuvers, the purpose of which may fairly be inferred to have been to inflate or 'puff up' the common stock of a corporation to improve its marketability.

Supreme Petroleum, Inc., plaintiff (appellee), hereafter referred to as plaintiff or Supreme, is successor to the Dean J. Briggs Oil Development, Inc., referred to hereafter as Briggs Oil. In plaintiff's petition it is alleged that Supreme is the same corporation as Briggs Oil, its name having been changed in the manner provided by law.

The filing date of the various pleadings is not shown in the record although required by Rule No. 6(g) (Rules of the Supreme Court, 197 Kan. LXII). Such omission has added to the burden of this court in establishing the chronology of the complex proceedings involved.

A petition was filed, presumably in 1962, in which Supreme pleads two causes of action in the alternative against defendant Briggs. The first cause of action is based on an alleged contract between Briggs and Briggs Oil. Supreme claims there is $200,000 due it from Briggs for the issuance and delivery of 1000 shares of stock in Briggs Oil. In its second cause of action Supreme seeks judgment in the alternative on a $200,000 promissory note of Briggs payable to one Harold P. W. Wright.

Supreme alleges that Dominion Leaseholds Oil Co. Inc., (referred to hereafter as Dominion), became the owner of all of plaintiff's (Briggs Oil-Supreme) outstanding capital and that as a part of the same transaction, Supreme advanced a check for $200,000 to Dominion which advanced a check in like amount to Wright who advanced a check in like amount to Briggs who gave to Wright the promissory note in question in the amount of $200,000 payable April 12, 1962, with interest at the rate of 6% per annum. Supreme further alleges it became the owner and holder of the note by way of endorsements and without recourse from Wright (who became president and managing director of Supreme) through Dominion Inc., of which Wright was also president, then to plaintiff Supreme.

For his answer to Supreme's first cause of action Briggs pleads payment on the contract by his personal check payable to Briggs Oil in the amount of $200,000 and dated April 12, 1960. A copy of the check is attached to the answer. In his answer to Supreme's second cause of action Briggs pleads that the promissory note was made as an accommodation to Wright without consideration, with the understanding and agreement with Wright that the note would not be negotiated and that Wright would not attempt to collect the note. A copy of the alleged agreement is attached to the answer and reads as follows:

'EXHIBIT 'B'

'April 12/60

'I will hold your note in the amount of $200,000.00, not to be deposited. You do not owe me this money, and I will not attempt to collect it.

's/H. P. Wright

'WITNESS: J. Frame.'

Frame was a business associate of Wright and Briggs, and also owned or controlled the Humber Investment Corporation. It appears from the record that Frame, Wright and Briggs concocted the plan of financial intrigue which resulted in this litigation.

Briggs further alleges that Wright agreed to cancel and return the note but has failed do so. This allegation was strikcen from the answer on the motion of Supreme. Briggs claims error in this regard. Supreme argues the allegation was properly stricken because it did not constitute a defense as against Supreme. We believe that at this stage of the litigation the allegation should not have been stricken in view of its connection with other allegation in the answer as to the relationship of Wright to Supreme, which will be discussed in the course of this opinion. Briggs further pleads in his answer as follows:

'Further answering defendant alleges that Harold P. Wright at the time of the subsequent endorsements of said note to the corporations named in plaintiff's petition was an officer and director of said corporations receiving said note by endorsements and said recipient corporations were not purchasers for value of said note in due course and knew of the agreement in writing that Wright had made on April 12, 1960, hereinabove referred to as defendant's Exhibit B.'

In its reply to Briggs' answer Supreme specifically denies that the agreement and understanding between Wright and Briggs as to the collection of the note relates to the note sued upon and attached to the petition.

At this point we pause to note that on the face of Supreme's reply to Briggs's answer a question of fact arises, i.e., did the agreement relate to the note sued upon.

The trial court's order on Supreme's motion to strike was entered on September 30, 1963. Subsequently the reply was filed. Thereafter, it appears that nothing took place in this litigation until pretrial proceedings were commenced on February 26, 1965. During 1965 depositions and affidavits were filed by Supreme and, on June 29, 1966, the trial court sustained Supreme's motion for summary judgment.

Before proceeding to an examination of the propriety of the summary judgment we must note at the outset that as against a motion for summary judgment, pleadings are to be liberally construed in favor of the party against whom the motion is directed. (Price, Administrator v. Holmes, 198 Kan. 100, 422 P.2d 976.)

On the motion for summary judgment, in addition to the pleadings and attached exhibits, several depositions and affidavits, secured by Supreme, were before the trial court. In the deposition of Hugh Hutton, president of the First National Bank of Braman, Oklahoma, the bank ledger sheets of theaccounts of Briggs and Helen B. Briggs, escrow agent, were introduced and pertinent entries explained. The deposition of Briggs disclosed to some extent the perplexing labyrinth of transactions between the parties which brought about this litigation. By the affidavits of C. A. Whitney, Jr. and Gerald Nelson, officials of two other banks, the ledger sheets of the accounts of Briggs Oil and Dominion, respectively, were presented. The account ledgers referred to reflect the deposits and withdrawals of the $200,000 item as it wended its circuitous route. The affidavit (date not shown) of W. S. Wallis, who is identified as president of Supreme when the affidavit was made, sets out the minutes of three meetings of the board of directors of Supreme and several journal entry items from the company's account books. Briggs filed no counter-affidavits, however, in his deposition he was cross-examined at length by his own counsel.

The trial court wrote a memorandum of its decision, pertinent parts of which were set out in the journal entry of judgment.

It appears the trial court based its conclusion as to the first cause of action on the premise that even though Briggs delivered his personal check, dated April 12, 1960, for $200,000 to Briggs Oil it did not constitute a valid payment since it represented $200,000 put into the circuit of transactions by Supreme in the first instance. However, the trial court then goes on to say that Supreme 'now holds a note for $200,000.00 executed by defendant instead of an item on its books for accounts receivable in the amount of $200,000.00.' In conclusion the trial court finds 'Defendant is indebted to the corporation in the amount of Two Hundred Thousand Dollars ($200,000.00), either under the contract, or on the note.' The final conclusion does not appear to be consistent with the findings of the court. If the note has replaced the account receivable item on Supreme's books as found by the trial court, and this is shown by the journal entry items taken from Supreme's ledger submitted in the affidavit of Willis, then summary judgment, if proper in any respect, should have been rendered only on the promissory note. The accounts receivable item with reference to the subscription contract having been removed as intended by the parties by a 'check kiting' arrangement, only the note remains as an asset on the books of Supreme.

At this point it becomes necessary to review further the evidence before the trial court in connection with both causes of action. Briggs owned oil and gas leasehold interests, equipment and other property subject to a mortgage. The properties were located in two counties in Oklahoma. Briggs decided to incorporate for a reason not disclosed. On January 1, 1960, he formed a corporation with himself as sole owner and on January 3, 1960, submitted in writing a proposal to transfer to the newly formed corporation the oil properties mentioned plus $200,000 in cash in return for the issuance to him of 1000...