Okmulgee Window Glass Co. v. Frink

STONE, Circuit Judge. This is a suit in equity against the Okmul-gee Window Glass Company, as the alleged successor of the Coffey-ville Window Glass Company, to recover minimum patent royalties under a contract between the Coffeyville Company and appellee, and to have the same “declared to be a lien upon the property and assets of the defendant company at least to the extent of the value of the as,sets conveyed to it by the Coffeyville Window Glass Company, and that it be ordered satisfied out of the property and assets of the said defendant,” and for general relief. Defendant appeals from a decree for $90,560, which was declared to be a lien upon the property and assets of the defendant. The assigned errors pressed upon this coürt are: (a) That the ap-pellee neither pleaded nor proved issue and delivery of licenses as required by the contract, but breached the contract by failing to so issue and deliver them, which was a condition precedent to royalty payments ; (b) that there was no consolidation, merger, or continuation of the two companies; (c) that no personal judgment should have been rendered against appellant; (d) that the dissolution of the Coffeyville Company terminated the contract; and (e) that the assets acquired by appellant from the Coffeyville Company did not exceed the liabilities of that company assumed and theretofore paid by appellant. [1] (a) contract provided for the issuance and delivery, after the payment of $4,500 and “upon the request of the licensee,” of licenses of a form attached to the contract. The contract in another clause provided that appellee should place the licenses in escrow in some bank, designated by him, under instruction for their delivery upon payment of the above sum. Appellee executed the licenses but did not deliver them to the licensee or in escrow. The reasons for this failure to deliver were as follows: There arose some question between the parties to the contract as to whether the date thereof should be altered. During this uncertainly appellee wrote to the president of the Coffeyville Company: “With the exception of filling in the date of the agreement, the licenses are ready for filing at the local bank, and upon receipt of your advices, the proper date will be inserted and papers placed in escrow.” In answer to this the president wrote: “I note that you say with tb^e exception of the date these agreements are ready for filing, at the local bank and upon receipt of our advice the proper date will be inserted and the papers placed in escrow. Nod (now?) I do not [161] see a particle, of harm in changing these dates; but as I stated above, do not want to do so on mv own authority, without first consulting the others, which I will do now right away and if you are still waiting on me wish you would advise and I will try and give you the information now within the next week or ten days.” To this appellee replied: “As to the agreement, I appreciate your position relative to this, and think that your consideration of the same is perfectly proper, and inasmuch as there is no particular hurry as to the change in ,the date of the agreement, this can stand until it is convenient for you to take it up with your colleagues. My only concern relative to it is that it -should be thoroughly understood between ns, so that you would not, through any misunderstanding, anticipate that there was anything irregular in my not having placed in escrow the patent licenses, as is called for by the agreement. However, I am perfectly willing to issue these licenses, eliminating the date, and give them to you at once, should you so desire, but believe that you have sufficient confidence in me, inasmuch as it is but a minor detail at the most, and we can allow the matter to rest until we have another meeting, at which time we can fill in the dates in these licenses (which are already drawn) and I can then hand them to you complete, for so far as the licenses are concerned, the agreement covers all points as to our respective premises and obligations, and the licenses are of no particular value to you, only in the event that you wish to negotiate with other parties for sublicensing the patents, in which event I will undertake to see that you have the proper authority and credentials to enable you to do so for all territory called for in the agreement.” This status seems to have been understood and acquiesced in by the Coffeyville Company. For months afterwards the correspondence of the parties to the contract shows clearly that they regarded the contract in full force. If the issuance and delivery of the licenses was a condition precedent, it was waived. But it may well be doubted whether such importance is, under the contract, to be accorded them. The first paragraph of the agreement states that the appellee “proposes and agrees to issue licenses under the following patents and pending applications” (setting them out by number and description). The second paragraph provides that: “The licensor hereby grants, and the licensee hereby accepts, the exclusive right within the territory of the United States west and south of the Mississippi river and to and including the Pacific Coast, to use the inventions set forth in th,e above identified patents and applications, subject to the terms of this agreement, and licenses under the several patents and applications shall be granted for such territory subject to the conditions set forth herein.” It would seem that the licenses could add nothing to the above positive grant of- use of the inventions. A closely parallel case is American Paper Bag Co. v. Van Nortwick, 52 Fed. 753, 757, 3 C. C. A. 274, decided by the Court of Appeals for the Seventh Circuit; Mr. Justice Harlan participating. This contention of appellant is denied. (b) We have carefully examined the entire evidence, and are convinced that the Coffeyville Company was merged in and absorbed by appellant, which is really nothing more than a continuation of the Coffeyville Company. The arrangement was as follows: The organization by the same individuals of a new company (appellant), with the same amount of capital stock, to be paid for by the assets of the old company (Coffeyville Company), for the sole purpose of continu [162] ing the same character of business with the assets of the old company; a transfer to the appellant of the assets of the old company; assumption of the indebtedness of that company by appellant; exchange of stock, share for share. The legal result of. such transactions is to impose upon appellant liability, up to the value of such assets, to the creditors of the Coffeyville Company. Kansas City S. R. Co. v. Guardian Trust Co., 240 U. S. 166, 36 Sup. Ct. 334, 60 L. Ed. 579, affirming 210 Fed. 696, 127 C. C. A. 184; Northern Pac. R. Co. v. Boyd, 228 U. S. 482, 33 Sup. Ct. 554, 57 L. Ed. 931; Fogg v. Blair, 133 U. S. 534, 541, 10 Sup. Ct. 338, 33 L. Ed. 721; Union Pac. R. Co. v. McAlpine, 129 U. S. 305, 314, 9 Sup. Ct. 286, 32 L. Ed. 673; Railroad v. Howard, 7 Wall. 392, 19 L. Ed. 117; Jennings Neff & Co. v. Ice Co., 128 Tenn. 231, 159 S. W. 1088, 47 L. R. A. (N. S.) 1058. Also see 7 R. C. L. 182, with citations, and extensive notes to 11 L. R. A. (N. S.) 1119, 32 L. R. A. (N. S.) 616, and 47 L. R. A. (N. S.) 1058. [2] (c) Appellant objects to the personal judgment against it, contending that judgment should first have been secured against the Cof-feyville Company, and then after failure of execution the enforcement of an equitable lien might have gone against it. The rule here invoked is not without recognized exceptions. Where the new corporation is in its essence but a continuation of the activities and interests of the old company, which retains simply its franchise as a corporation, thus becoming practically extinct as an active entity, direct recovery is allowable. See Central of Georgia R. Co. v. Paul, 93 Fed. 878, 35 C. C. A. 639; Hibernia Ins. Co. v. Transp. Co. (C. C.) 10 Fed. 596; Id. (C. C.) 13 Fed. 516; Brum v. Merchants’ Mutual Ins. Co. (C. C.) 16 Fed. 140; Harrison v. Union Pac. R. Co. (C. C.) 13 Fed. 522; Altoona v. Richardson, 81 Kan. 717, 106 Pac. 1025, 26 L. R. A. (N. S.) 651; Douglas Printing Co. v. Over, 69 Neb. 320, 95 N. W. 656; Friedenwald Co. v. Tobacco Works, 117 N. C. 544, 23 S. E. 490; Morrison v. Amer. Snuff Co., 79 Miss. 330, 30 South. 723, 89 Am. St. Rep. 598; Howe v. Robinson, 20 Fla. 352, 355. Where it can be thus seen in advance that a judgment against the old company would require the further proceeding against the new company to secure any satisfaction, equity will avoid this useless multiplicity of suits and cir7 cuity of action by permitting a direct proceeding. Central Improvement Co. v. Cambria Steel Co., 210 Fed. 696, 705, 127 C. C. A. 184. Here, however, the old company was legally- dissolved shortly after appellant took over its business and before this suit was brought. Nor could its assets have been followed into the hands of the former stockholders, because it had none to distribute at dissolution aftd the shares in appellant which were to have been given these stockholders have never been issued to them — in fact, appellant has refused to issue them, and is now being sued therefor. To deny a direct suit would be to deny all remedy, and this equity can and will avoid. Curran v. Arkansas, 15 How. 304, 310, 311, 312, 14 L. Ed. 705. [3] (d) Appellant contends that the dissolution of the Coffeyville Company shortly following the merger resulted in the annulment of this contract, in so far as it was executory, and therefore the rule of damages would be such as had accrued up to that time. Such is not [163] the law. Curran v. Arkansas, 15 How. 304, 310, 14 L. Ed. 705; Broughton v. Pensacola, 93 U. S. 266, 268, 23 L. Ed. 896; Shields v. Ohio, 95 U. S. 319, 324, 24 L. Ed. 357. A voluntary dissolution of a solvent corporation gives no relief from liability upon existing contracts and obligations. As to contracts partly or entirely executory, the dissolution is regarded as a. breach, because the corporation has voluntarily incapacitated itself to further perform. The other party to the contract is placed by such act of dissolution in the position oí one to whom further performance of the contract has been definitely and finally refused. He can recover for the resulting damage on the entire contract, executory as well as executed. Bowe v. Minn. Milk Co., 44 Minn. 460, 47 N. W. 151; Griffith v. Blackwater B. & L. Co., 46 W. Va. 56, 61, 33 S. E. 125, 127; Musgrove v. Gray, 123 Ala. 376, 26 South. 643, 82 Am. St. Rep. 124. Also see Schleider v. Dielman, 44 La. Ann. 463, 10 South. 934; Tiffin Glass Co. v. Stoehr, 54 Ohio St. 157, 43 N. E. 279. The assets of the company must satisfy such liabilities before they can be diverted. There can be no doubt here that the proven damage is far in excess of the assets received by the appellant and not already devoted to payment of Coffeyville Company indebtedness. [4] (e) The contention that the assets acquired from the Coffeyville Company were equaled by the debts assumed and heretofore paid, so that there is no surplus to which this debt might attach, is a question of fact. It has required and received a painstaking examination of the entire evidence. The view of the trial court seems to have been determined by the circumstance that the appellant was, after talcing over the assets and assuming the indebtedness, to exchange its capital stock of $100,000 for that of the Coffeyville Company. He takes this as an admission that the value of the net assets was $100,000. In our judgment, the force of this view is broken by the following considerations: In these transactions the stockholders of the one company were the organizers and stockholders of the other. They bought from themselves. There was present none of those considerations which contribute to a fair determination of value. What the parties had in mind was a change from a Kansas corporation, doing business in Kansas, to an Oklahoma corporation, with the same capitalization, doing the same business in Oklahoma. A geographical change in the business made it desirable to make a similar corporate change. Eliminating this factor of capitalization, the record is fairly clear as to the value of these assets with the exception of two items, concerning which there is no helpful information in the evidence. At the time the Coffeyville plant was moved to Okmulgee, the latter city gave a bonus of a building site and $20,000 in notes. Of the notes approximately $10,000 worth have been paid. The balance are probably overdue, and there is no evidence as to what, if any, value they have. There is also a singular absolute silence as to the character of title to the site — upon what, if any, conditions it was given or what value it carries. Because of this uncertainty we have been reluctantly compelled to exclude these two items. Computation of all other items touching the assets acquired from and the liabilities already paid for the Coffeyville Com [164] pany results in assets of $114,689.82,-liabilities of $95,278.96, net assets, $19,410.86. Therefore the case will be’ reversed, with instructions to enter decree for appellee for the sum of $19,410.86 and costs, which judgment shall be a lien upon all of the property and assets of the appellant.