Myers v. Oklahoma Oil & Gas Royalty Co.

Myers prayed for dissolution of the Royalty Company, a "declared" trust, but, of course, his equitable prayer for the greater relief included a petition for the lesser, which may be management of the trust under supervision of the court so that the business venture would be advanced.

The trust was organized in 1922 for business purposes, connected with the production of petroleum and its byproducts. Duration of the trust was sought to be made for 21 years after the death of the last original trustee. The trustees consisted of five individuals. The shareholders, according to the agreement, had only the right to division of profits and property of the trust at and on dissolution of the trust. They had no other legal right to the property, if any, of the trust. An expressed trust such as the one under consideration was and is authorized by section 11820, O. S. 1931, 60 O.S.A. 171, but its duration is expressly limited by section 11821, O. S. 1931, 60 O.S.A. 172, to "a definite period of not to exceed twenty-one (21) years, or to the period of the life or lives of the beneficiary or beneficiaries thereof. . . ." The shareholders are the beneficiaries of a trust and not necessarily the trustees. The twenty-one (21) years duration, first by statute stated, has now elapsed, and though that time had not elapsed when this action was instituted, that fact is not fatal to the cause of action pleaded. The trust was not created according to law. The instrument attempting to create it did not specify a "period of duration thereof within the limitations . . . provided" as required by law. The common-law rule, prevailing in cases of this character, was one against the creature when there was a remoteness of vesting. True the point of view at common law was that of effectiveness of the will or deed. The pessimistic attitude of those courts, when inquiring into the issue of trusts, vel non, is shown by tests whether alienation apart from the trust is at all possible. Bogert on Trusts Trustees, vol. 1, par. 219. The doctrine of cy pres was not applied, but if the period of vesting is overextended, i. e., if to last for life of the beneficiary and ten years, whereas it would have been valid for life of the beneficiary, the chancellor would not lop off the unauthorized period and sustain the trust for life duration, but declare the trust void or at least voidable, allowing the trustee to receive legal title to the res but adjudging that the trustee holds the property as resulting trustee subject to divestiture either by successor to the resulting trustee, by the settlor of the trust or his assigns. (Idem.) The statute of Oklahoma requires limited duration of a trust expressed. At common law the period was not definite, but a reasonable one. (Idem, par. 218.) The remainder of the common-law rule stated applies in this jurisdiction, for in Phillips et al. v. Chambers, Ex'r, et al., 174 Okla. 407, 51 P.2d 303, our very recent view is that, "Perpetuities are condemned by our Constitution. Section 32, art. 11, Okla. Const. The remote vesting of estate and restraint upon alienation thereof beyond limited periods are forbidden by our statutes. Sections 11756, 11758, and 11759, O. S. 1931. Trusts in relation to real property, except as authorized by statute, are forbidden. . . ." According to allegations of the petition there is nothing involved in the purported trust under examination except royalty connected with real property. There are no funds, not so invested or resulting from the investment.

It seems axiomatic that property possessed must of necessity belong to someone. The property under consideration is a royalty right in land. It is either owned by a trust, lawfully created, or its ownership is in those who attempted to grant it to a fictitious being, incapable of ownership by reason of non-existence, or their assigns. An expressed or business trust is in the nature of a corporation. Legally it is either a being created by contract under the law, or it isn't. Whether the instrument purporting to create the trust did so or not is vital to the issue of applicability of rules of law stated in the majority opinion.

The rule stated in 65 C. J. 1095, § 1037, to the effect that ordinarily a stockholder in a business trust cannot cause dissolution and distribution of assets during the trust period, and like rules in 12 C.J.S. 820, Bogert on Trusts and Trustees, § 304, and Oklahoma Fuller's Earth Co. et al. v. Evans et al., 179 Okla. 124, 64 P.2d 899, are beside the query because these rules presuppose lawful existence of trust and trust property. However, in the case last cited, it is said that such trusts are hybrids in nature, savoring of both corporations and partnerships, and that in the partnership aspects courts of equity have power to dissolve them for good cause, shown by shareholders, and in the absence of provision for dissolution contained in the instrument of creation. Herein there is no provision contained in the instrument of creation for dissolution, but to the contrary all provisions therein contained are intended to preserve the status quo.

The good cause here attempted to be shown by the aggrieved shareholder is nonmanagement, which it is urged amounts to mismanagement in view of the purpose of the enterprise being that of business as distinguished from that of an investment, looking toward unearned increments to be derived from the industry of others. Now looking to the phase of the trust that is corporate in its nature, mismanagement constitutes a statutory ground for appointment of a receiver to serve in lieu of a nonmanaging or mismanaging trustee or trustees. Riverside Oil Refining Co. et al. v. Lynch et al., 14 Okla. 198,243 P. 967. But such appointment does not necessarily result in dissolution, though it is a step in that direction, embraced in a general prayer for equitable relief. (Idem.) The allegation of the petition non- or mismanagement is specified to consist of the total absence of dividends, regular meetings of trustees and reports to shareholders, absence of uninvested funds and complete dormancy constituting abandonment of purposes in business and hope in monetary gain. This has been held sufficient either for replacement of trustees or dissolution of such trusts. Burnett v. Smith (Tex. Civ. App.) 240 S.W. 1007; Fletcher's Cyclopedia, Corp., vol. 16, §§ 8066-8081. See, also, 14a C. J., p. 1114, wherein failure of purpose, and 13 Am. Jur., par. 1295, abandonment of purposes by non-use, is recognized as ground for dissolution at suit of a minority stockholder. Cases supporting the rule are plentiful. O'Connor v. Knoxville Hotel Ass'n et al., 93 Tenn. 708, 28 S.W. 308; Decatur Land Company et al. v. Robinson, 184 Ala. 322, 63 So. 522; 12 C.J.S. sec. 11, and Willis v. Chapman et al., 68 Vt. 459, 35 A. 459, 23 years' nonuse, dormancy, or abandonment is ample in time. To such a rule this court is committed by citation with approval of the case of Means et al. v. Lempia Royalties et al. (Tex. Civ. App.) 88 S.W.2d 1080, wherein the remedy was held to be dissolution rather than revocation, withdrawal, and recovery of investment upon the ground of fraud as an inducement ab initio.

The purported trust under consideration did not limit its business purposes to a royalty investment by the instrument attempting to create it, but its purposes herein stated were broad and comprehensive, having to do with most phases of business connected with the oil industry. Having stated its purpose, it should well be bound by the statement.

Under allegations of plaintiff's petition, a reasonable deduction is that no business connected with the development of oil or gas or any petroleum product has been conducted by the purported trust, but that the existing condition will continue. That condition is, as aforesaid, simply that of holding the investment intact.

As tested by a demurrer, plaintiff's petition states a cause of action for equitable relief and the judgment should be reversed.