Hodgkiss v. Northland Petroleum Consolidated

This action was brought to quiet title to a tract of land in Glacier county. On June 28, 1921, plaintiff and his wife executed an oil and gas lease to the defendant trust. The lease was in the usual form and was to continue for five years, with the right to further prolong its existence by the payment each year of $1 as rental unless commercial production was encountered before that time. The lease recited $1 as the consideration and reserved to the grantors 12 1/2 per cent. of the oil and gas produced and saved from the land. At the same time the plaintiff and his wife executed a mineral deed granting a one-quarter interest "in and to all of the oil, gas and other minerals in the lands" described in the complaint. On demand of Hodgkiss in the year 1931 the lease was released of record.

The complaint was in the usual short form in an action to quiet title. The answer denied all of the allegations found in the complaint, except the allegations with reference to the trust, which were admitted, and admitted that the defendants claimed title to one-fourth of all the oil and gas and minerals in the lands involved. Defendants affirmatively alleged their claim of paramount title under the mineral deed, laches, and estoppel, and that the action is barred by the provisions of section 9015, Revised Codes.

Reply was filed to all of the affirmative defenses, alleging that the deed was void in that the grantee named was neither a natural nor artificial person, and therefore no grantee. It is further alleged that the deed was void "because it was not given for value or any consideration whatever, and that at the time the said lease and mineral deed were made and executed, it was agreed and understood by and between the said parties that the defendants would at once proceed to explore and drill either on the land herein described or on some other lands on which the defendants held oil and gas leases and that continuous development would be had and taken to the end that the said defendants would validate their leases and do all that would be necessary to secure to the members of the defendants association property rights in said leases that might thereafter become of value."

It is then alleged that the defendants failed to validate the oil and gas lease and never validated, directly or indirectly, any oil and gas leases by them received; that the oil and gas lease and the mineral deed were part of the same transaction, and that plaintiff believed the release of the oil and gas lease operated as a cancellation of the mineral deed; that the defendants obtained the mineral deed under the misrepresentation of the facts alleged, which we have either summarized or quoted at length; that all of the oil and gas leases obtained by the defendants were canceled by them or have been barred by the lapse of time. It is further alleged that the mineral deed is void "for the reason that it was acquired by fraud and misrepresentation as theretofore alleged"; that the defendants have released certain deeds and assignments of royalty identical with the mineral deed, and that these releases were made without consideration and without the consent of the beneficial owners of units in the defendant association or trust.

The cause was tried before the court without a jury. The trial court made special findings of fact, all of which are in favor of the defendants and against the plaintiff. Judgment was entered in conformity with the findings. The appeal is from the judgment. Error is assigned in the making of numerous of the findings of fact and one of the conclusions of law, and also in the making and entering of the judgment.

The court by its findings found that the mineral deed was good and valid and had been given for a good consideration. This finding and many others are challenged by specifications of error, but we think it unnecessary to notice the other specifications, as all of counsel's argument is directed in the main to this one finding, and in view of our conclusion it is unnecessary to discuss the other specifications.

It is first contended that the mineral deed was void in that[1, 2] the grantee was a fictitious person and therefore incapable of taking title to real estate. The only grantee named was the "Northland Petroleum Consolidated." Plaintiff, as an exhibit to his reply, set forth an agreement or declaration of trust between certain parties, wherein they adopted or designated the name of the grantee in the mineral deed as the name of this trust created by the agreement and declaration. Trustees were appointed under the trust agreement, but their names do not appear in this conveyance.

The rule with reference to contracts so far as individuals are concerned, entering into agreements under an assumed name, is very well stated in 19 R.C.L. 1333, as follows: "Again, a contract or obligation may be entered into by a person by any name he may choose to assume. All that the law looks to is the identity of the individual, and, when that is ascertained and clearly established, the act will be binding on him and on others." This rule appears to be universal and is illustrated by the note setting forth many cases in L.R.A. 1915D (n.s.) 983. We concede the rule that a conveyance to a fictitious person is void for want of proper parties. Where, however, a contract is made with an identified individual under an assumed name, all are bound by the contract. This distinction was recognized in the case of Scanlan v. Grimmer, 71 Minn. 351, 74 N.W. 146, 70 Am. St. Rep. 326, and Wilson v. White, 84 Cal. 239, 24 P. 114, wherein many authorities holding in accord with this view are reviewed at length. There appears to be no dissent among the adjudicated cases from this rule. It would appear to follow logically that if an individual may contract under an assumed name, no sound reason exists why a group should not likewise so enter into contracts. In Sears on Trust Estates Business Companies, second edition, 374, it is said: "Strictly speaking, it may be said that a trust cannot adopt a name. It has no power to do anything implying either volition or dissent. It is merely property with a characteristic attached to or inhering in it. But trustees, who represent it, are individuals sui juris, and they may adopt a name or names for transacting business, executing contracts, or suing and being sued." (See, also, Pease v.Pease, 35 Conn. 131, 148, 95 Am. Dec. 225; Carlisle v.People's Bank, 122 Ala. 446, 26 So. 115.) A deed is sufficient if the grantee can be identified by extrinsic evidence. (York v. Stone, 178 Wash. 280, 34 P.2d 911.) The trustees of the defendant trust were all parties to the trust agreement. They were identified persons. Accordingly, we hold that the mineral deed was not void for want of a proper grantee.

Next it is urged that the deed was either without[3-6] consideration or that the consideration for it failed. The defendants offered the deed in evidence. The deed was in writing, and therefore presumptive evidence of a consideration. (Sec. 7512, Rev. Codes.) The burden of showing a want of consideration sufficient to support an instrument lies with the party seeking to invalidate or avoid it (sec. 7513; Lee v.Laughery, 55 Mont. 238, 175 P. 873; Bielenberg v.Higgins, 85 Mont. 69, 277 P. 636), and that presumption, if uncontradicted, is satisfactory. (Dackich v. Barich, 37 Mont. 490,97 P. 931.)

This rule is not changed when applied to the facts of this case by reason of the provisions of section 7895, Revised Codes, relating to transactions between trustees and beneficiaries. That section by its express terms applies after the relation of trustee and beneficiary has been created. Here the transactions under consideration were those whereby the relation of trustee and beneficiary was created.

The rule is that inadequacy of consideration, standing alone, is not a sufficient ground for refusing to enforce an agreement. (Pederson v. Thoeny, 88 Mont. 569, 295 P. 250.)

The plaintiff testified that he received nothing for the execution of the oil and gas lease and the mineral deed. In his testimony, however, he later admitted that it was agreed at the time of their execution that he was to receive a certificate of interest of one unit in the trust. He also admitted receiving a memorandum stating that he was entitled to receive such a unit. He admitted that he had never made demand for the certificate of interest or unit, and that it was offered to him at the time he secured the release when he refused to accept it; it was also tendered to him in court. Evidence also appears in the record that the certificate was offered to him at an earlier date. The declaration of trust discloses that one thousand units might be issued at a par value of $100. The record is silent as to how many of these units or certificates of interest were ever issued.

It apparently was the theory of the pleader in the reply filed by plaintiff that the major consideration for these documents was the prospecting and development of the lands on which the defendants had oil and gas leases. It was recited in the declaration of trust at that time that the trust owned numerous other tracts of land under assignments of leases either in whole or in part, and that therefore, by reason of their failure to develop, the consideration for the lease and mineral deed failed.

Many authorities fail to recognize a distinction between want of consideration and failure of consideration; this court, however, has recognized the distinction. (Sommer v. Wigen,103 Mont. 327, 62 P.2d 333.) Treating the pleading on behalf of plaintiff in his reply as a sufficient plea of failure of consideration, let us examine the proof to see whether the allegations of the reply were sustained. The plaintiff testified that the negotiations were conducted preliminary to the signing of the oil and gas lease and the mineral deed by one Hall, an agent of the trust or trustees. In response to an inquiry as to what statements were made by Hall before the signing of the instrument, plaintiff replied: "Mr. Hall said they are going to drill wells and develop the land and see if there is oil and gas on the land; that if they did not do so in five years, those leases would become null and void." Again, in response to a similar inquiry, he testified: "Mr. Hall said that the company agreed to drill wells; if they did not drill wells in five years leases would be no account and they went out of effect in five years time." This is the only testimony offered tending to prove what was referred to in the reply as an understanding or agreement for prospecting and development of the leased land. This proof falls short of showing any such understanding or agreement. After this proof had been offered, plaintiff sought, on direct examination of the witness Frisbee, who was the secretary of the trust, to elicit the fact that no development of the land had been performed by the defendants. Objection was interposed and sustained upon the ground that under the then present state of the proof, it was incompetent, irrelevant, and immaterial. Until plaintiff first established the agreement which he alleged in his reply, the court very properly, in the exercise of its discretion in controlling the order of proof, sustained the objection. No testimony was offered as to the value of the unit or certificate of interest other than plaintiff's assertion that he did not think it had any value. He did not undertake to say, however, that the unit was not what he bargained for. There is no failure of consideration when one has received that which he intended to buy, although the thing bought should prove to be worthless. (Simeon v. Klenze, 66 Mont. 341, 213 P. 440.)

It is suggested that the unit or certificate of interest was practically worthless without development. Courts, however, must[7] enforce contracts as made, not make new ones for the parties, no matter how unreasonable the terms may appear. (StoryGold Dredging Co. v. Wilson, 99 Mont. 347, 42 P.2d 1003.) When plaintiff failed to prove his alleged agreement as set forth in his reply, he failed to sustain his pleading of failure of consideration, and when it appeared from the proof that the defendant at all times recognized his right to the unit in that it was attempted to be delivered to him — in fact, tendered to him — plaintiff failed to sustain his plea of want of consideration. The burden was not on the defendants to show that the unit had some value. The burden was on the plaintiff to show that there was no consideration.

It is suggested that the proof discloses that plaintiff was[8] defrauded. The only pleading of fraud was the bald statement that defendants made certain fraudulent misrepresentations. These misrepresentations referred to in the reply consist of the alleged understanding and agreement with reference to the prospecting and development of the land leased by the defendant trust. Plaintiff by his averments specifically refers to them. These representations or statements were not of existing facts, but were, according to the allegation, promises. Under subdivision 4 of section 7480, Revised Codes, a promise of such a character, in order to be actionable as fraudulent, must be made without any intention of performing it. The pleading failed to disclose that the promise, if made as alleged, was made without such intention, and no attempt was made to prove what the defendants intended. Speaking of a similar condition in pleadings and proof, under the same subdivision of the statute, this court in the case of Howe v. Messimer, 84 Mont. 304, 275 P. 281,283, said: "The allegations of the complaint and the testimony of the defendant go no further than to charge that the promise was not performed. Defendant was not, therefore, entitled to go to the jury on this defense of fraud. (International Harvester Co. v. Merry, 60 Mont. 498, 199 P. 704; Cuckovich v.Buckovich, 82 Mont. 1, 264 P. 930.)" Accordingly, both the pleading and the proof were wholly lacking to sustain a finding of fraud.

Also it is contended that the lease and mineral deed come[9] within the purview of the provisions of section 7533, Revised Codes, reading as follows: "Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together." This court has many times said that when contracts come within the provisions of this section, they are to be construed together. Plaintiff argues that when the lease was canceled, the mineral deed was in effect released; but if we concede that the statute is applicable, how fares the plaintiff? The mineral deed contains the statement that it is made subject to the lease in question. It also provides, however, that "in the event that the said above lease for any reason becomes cancelled or forfeited then and in that event" the interests of the respective parties are to be three-fourths to the plaintiff and one-fourth to the defendants in the oil, gas, and mineral, and they as well as all future rentals shall be thus owned. To adopt the construction contended for would be to eliminate these provisions entirely. The purpose of the construction of contracts is to give effect to the mutual intention of the parties (sec. 7527, Rev. Codes), and the language of a contract is to govern its interpretation if the language is clear and explicit (sec. 7529). The language of the mineral deed clearly and unmistakably reveals the intention that the deed was not to become void if the lease became canceled or forfeited. This contention is therefore without merit.

It is suggested that the defendants in this case are without[10] right to hold property by reason of the provisions of section 18 of Article XV of the Constitution. It is said that trusts of this character come within those provisions and are, therefore, subject to all of the statutory provisions relating to the organization and management of corporations. Some judicial authority tends to support this view. It is noteworthy that this constitutional provision has not been carried forward into our statutes. Among the authorities supporting this view is the case of Reilly v. Clyne, 27 Ariz. 432, 234 P. 35, 40 A.L.R. 1005. The constitutional provision there is identical with our own, but the Arizona statutes contain the same statutory provision as found in their Constitution. The Kansas court, in the case of Home Lumber Co. v. Hopkins, 107 Kan. 153,190 P. 601, 10 A.L.R. 879, adopted the view in support of this contention, as did the Washington court in the case of State exrel. Range v. Hinkle, 125 Wash. 581, 219 P. 41. In both of these cases, however, the court was construing the constitutional provision together with a statute commonly classified or referred to as the "Blue Sky Law." The Washington court again, in a later case, arrived at the same conclusion in the case of State exrel. Colvin v. Paine, 137 Wash. 566, 243 P. 2, 247 P. 476, 46 A.L.R. 165, which was a quo warranto proceeding. That court, in the still later case of Haynes v. Central Business PropertyCo., 140 Wash. 596, 249 P. 1057, said that, even in the light of these decisions, no one could assert that a common-law trust was illegal or complain of its assuming the exercise of corporate powers except the state, and observed that in both of these cases the state was an adverse party asserting the invalidity of the trust or association. All of these decisions overlook the fact that the constitutional provision by its own terms declares that the word "corporation" shall have a certain meaning as applied to the Article of the Constitution in which it is found. Many courts from other jurisdictions having an identical constitutional provision have noted this distinction and said that the provisions of the Constitution apply no further than the Article to which it refers. They declare that the constitutional definition of a "corporation" does not extend to every statutory provision relative to corporations. (Spotswood v. Morris,12 Idaho, 360, 85 P. 1094, 6 L.R.A. (n.s.) 665; State v.Cosgrove, 36 Idaho, 278, 210 P. 393; Attorney General v.McVichie, 138 Mich. 387, 101 N.W. 552; Whitney Realty Co. v.Secretary of State, 220 Mich. 234, 189 N.W. 1007; People v.Coleman, (Sup.) 5 N.Y. Supp. 394; Strawberry Hill Land Corp. v. Starbuck, 124 Va. 71, 97 S.E. 362; Great Southern etc.Hotel Co. v. Jones, 177 U.S. 449, 20 Sup. Ct. 690,44 L. Ed. 842.)

If the framers of our Constitution had desired to have this definition extended beyond the scope of the Article to which it expressly refers, they could have done so by apt language. This they did not do. To say that because of this constitutional provision the trust here involved became a corporation in one breath, and in the next to say that it is not a corporation since it failed to comply with certain statutory provisions is not logical, to say the least. Accordingly, we hold the trust valid as against this contention.

It is urged in one of the dissenting opinions that certain of[11] the provisions of the declaration of trust violate the statute prohibiting restraints on the power of alienation. (Secs. 6705, 6706, 6732 and 6733, Rev. Codes.) Under the terms of that document the trustees have the absolute power of alienation of all of the property of the trust at any time in their discretion. Although the trust might continue for the lives of the trustees and twenty years thereafter, at all times the absolute power of alienation resided in the trustees. If the rule against perpetuities obtains in this state, some questions of this character might arise, as the rule against perpetuities is directed towards the prevention of the vesting of estates at remote periods of time; but it is distinguished from statutes such as those in question prohibiting the suspension of the power of alienation for a prescribed period. (In re Murphy's Estate, 99 Mont. 114,43 P.2d 233.) In jurisdictions where the rule against perpetuities prevails, trusts of this character are held not to violate the rule. (Hart v. Seymour, 147 Ill. 598,35 N.E. 246; Howe v. Morse, 174 Mass. 491, 55 N.E. 213; Baker v.Stern, 194 Wis. 233, 216 N.W. 147, 58 A.L.R. 462.)

Again it is said in one of the dissenting opinions that the[12, 13] conveyance to the trust by the plaintiff was void, as this property was not described in the declaration of trust. The property was accurately described in the conveyance to the trust. This conclusion is based on an attempted construction of sections 6783, 6784 and 6787. The construction, however, ignores section 7884, which declares the method by which voluntary trusts may be created. This section provides that it is subject to the provisions of section 6784. Hence all of the statutes must be construed together. These statutes for many years existed in identical form in California and were so construed by the courts of that state (Lynch v. Rooney, 112 Cal. 279, 44 P. 565), where an express trust was declared by a letter which contained no description of the land involved. All of the conditions of a trust need not be expressed in a single document. (Root v.Kuhn, 51 Cal. App. 600, 197 P. 150.) These decisions are in accord with the current of authority under similar statutes. (Smith v. Hainline, (Mo. Sup.) 253 S.W. 1049; Ketcham v.Miller, (Mo. Sup.) 37 S.W.2d 635; Willig v. Friedberg,108 N.J. Eq., 17, 153 A. 535, 536; Shive v. Hayes,132 Kan. 137, 294 P. 935.)

One of the dissenting members of the court condemns the transaction because the trustees did not comply with sections 4026 et seq., Revised Codes, commonly called the "Blue Sky Law." Whether they did or not cannot be determined from an examination of the pleadings, evidence, briefs, or arguments of counsel, outside of the record. In fact, no one other than this member of the court has assumed to state anything relative to the facts relating to compliance with this particular statute. The presumption is that the law has been obeyed. (Sec. 10606, subd. 33, Rev. Codes.) The purpose of the statute is to prevent the sale of "blue sky" to the public, not to authorize courts to assume facts and thereby determine the rights of litigants by merely gazing into the "blue sky."

Upon the state of the record before us, the trial court correctly held that the mineral deed was valid and given for a consideration. It is therefore unnecessary to discuss the other specifications of error. Judgment affirmed.

ASSOCIATE JUSTICES STEWART and ANGSTMAN concur.