Texas Co. v. Z. & M. Independent Oil Co.

• Decision Date: 09 July 1946
• Docket Number: Docket 20107.,No. 215,215
• Citation: 156 F.2d 862
• Parties: TEXAS CO. v. Z. & M. INDEPENDENT OIL CO., Inc.
• Court: U.S. Court of Appeals — Second Circuit

156 F.2d 862 (1946)

TEXAS CO. v. Z. & M. INDEPENDENT OIL CO., Inc.

No. 215, Docket 20107.

Circuit Court of Appeals, Second Circuit.

July 9, 1946.

Milbank, Tweed, Hope, Hadley & McCloy, of New York City, and Edward C. Rowe, of Hamilton, N. Y. (John A. Kelly, of New York City, Edward C. Rowe, of Hamilton, N. Y., and L. Reyner Samet and Austen B. McGregor, both of New York City, of counsel), for appellant.

Brown, Hubbard, Felt & Fuller, of Utica, N. Y. (Gay H. Brown, of Utica, N. Y., S. A. L. Morgan, of Amarillo, Tex., Alan H. Colcord, of New York City, and Kenneth W. Fuller, of Utica, N. Y., of counsel), for appellee.

Before L. HAND, SWAN, and PHILLIPS, Circuit Judges.

SWAN, Circuit Judge.

This litigation concerns an option to purchase granted under date of September 20, 1929, by Z. & M. Independent Oil Company, Inc. (hereafter called Z & M), to The Texas Company (hereafter called Texas). Texas gave notice on August 29, 1944 that it elected to exercise the option and thereafter brought the present action for specific performance of the resulting contract. Federal jurisdiction rests on diverse citizenship, Texas being a Delaware corporation and Z & M a New York corporation. The case was tried to the court without a jury and judgment was given for the plaintiff, with a reference to a special master to find the present fair value of the properties covered by the option, that is, the price to be paid for them.

The defendant's appeal raises several questions of law, Z & M contending (1) that the option expired July 13, 1942; (2) that in any event the notice Texas gave on August 29, 1944 was not a proper exercise of the option; (3) that Z & M's stockholders never consented to a sale of its property as required by section 20 of the New York Stock Corporation Law, Consol.Laws, c. 59, and are not estopped from so asserting; (4) that specific performance cannot be had because of lack of mutuality of remedy and because the purchase price was to be fixed by arbitration; (5) that enforcement of the option is harsh and inequitable; and (6) that the court erred in dismissing Z & M's counterclaim.

The district court filed an opinion and made detailed findings of fact. Texas is an old and widely known producer of petroleum products. Z & M is a distributor of petroleum products to dealers and consumers within a large section of central New York. Since its incorporation in 1917 the major portion of the petroleum products distributed by it has been purchased from Texas and sold under Texas trademarks and trade names. Under date of September 20, 1929 the parties entered into two contracts referred to respectively as a "sales contract" and an "option agreement." The sales contract provided in substance that Texas was to supply Z & M's requirements of petroleum products for a period of three years and thereafter until termination of the contract which either party could effect by the giving of 120 days' notice before the end of any yearly period. The price of the products delivered to Z & M was to be based on the seller's "tank wagon market price" in effect at the time of shipment, less certain deductions or discounts favorable to Z & M. The option agreement may be summarized as follows: The consideration is stated to be the signing by Texas of the sales contract and the mutual promises of the parties in the option agreement. By section (1) of the "First" article "Z & M grants to Texas the right and option to purchase the below described property during the time, on the terms and under the conditions hereinafter stated." Section (2) describes the property covered by the option; it includes all the real estate (and leaseholds) with improvements thereon, used by Z & M in connection with its business, and all the facilities and equipment (designated "personalty") owned by Z & M and used by it or its customers in the storage, handling or selling of petroleum products. Section (3) states that the option may be exercised at any time during the term of the sales contract "(or any renewal or other agreement in lieu thereof) after the expiration of the first three years of said term * * *" The option agreement also provided that in the event of the death of Frank Zuber, the president of Z & M, during the first three years of the sales contract, Texas was obligated to exercise the option. Article "Second" provides that the consideration to be paid by Texas shall be such price as the American Appraisal Company shall fix as the fair value thereof or, if the price so fixed be unsatisfactory to either of the parties, such price as may be fixed by negotiation or arbitration. The real estate was to be appraised "on the basis of conservative values as of the time of appraisal or arbitration respectively" and the personalty "on the basis of cost less depreciation and replacement values,"¹ but the value of Z & M's going business, good will, trade-marks or trade names was not to be considered, "it being understood by both parties hereto that suitable and proper compensation for the value of such items has been given by Texas to Z & M in the" sales contract. If Texas appointed an arbitrator, Z & M was to appoint another and the two so selected would select a third arbitrator; but if no arbitrator was appointed by Z & M, the one appointed by Texas should be the sole arbitrator. "The prices fixed by arbitration shall be final and binding on both parties, and the option shall be deemed exercised by Texas at this final price, promptly upon notification to Texas by arbitrators of the fixing thereof." If the option were exercised, Z & M and Mr. Zuber personally were bound not to engage in similar business for ten years within a specified radius of distributing points

Execution of the sales contract and the option agreement was authorized by resolutions of the directors of Z & M on September 18, 1929; and on September 23, 1929 identical resolutions were unanimously adopted at a special meeting of Z & M's stockholders, all of whom were present in person or by proxy.² After the making of the sales contract of September 20, 1929, frequent renewals or modifications thereof were effected by the exchange of letters between the parties which changed the seller's prices, established new rates of discount to Z & M, added new products and named new points of shipment and distribution. On December 27, 1941, Z & M notified Texas that it elected to terminate as of June 30, 1942 the sales contract of September 20, 1929, and all renewals or modifications thereof, as well as the option agreement But as a result of negotiations this attempted cancellation was withdrawn and the sales contract and option agreement were extended to June 30, 1944 and from year to year thereafter, subject to termination by either party by 180 days prior notice, with an express stipulation that Texas should not have the privilege of exercising the option before June 30, 1944, or until the expiration of six months after the cessation of hostilities between the United States and Germany and Japan, but might exercise it "at any time after June 30, 1944, according to the terms and conditions of said option, upon giving 180 days written notice to" Z & M.

In April 1944 all of the stock of Z & M was purchased by the Gulf Oil Corporation. Texas did not learn of this transaction until August 28, 1944. The following day Texas notified Z & M by letter that it exercised the option of September 20, 1929 and demanded a statement of the property covered and of the value of each item thereof. Z & M replied denying the existence of any option agreement. The Gulf Oil Corporation, which knew of the sales contract and option agreement before purchasing the Z & M stock, likewise informed Texas that it repudiated the option agreement and did not consent to such a sale. Thereupon Texas brought the action now before us.

Several of the appellant's contentions are based on section 20 of the Stock Corporation Law of New York. This statute permits a corporation to sell and convey all its property with the consent of two-thirds of its stockholders obtained at a meeting called pursuant to section 45. The appellant argues that the consent of stockholders to the granting of an option is not a consent to a sale or conveyance, and consequently the Z & M stockholders' resolution of September 23, 1929 was "an unnecessary and meaningless act." If this were sound, it...