West v. Madansky

This was an action to cancel an assignment of an oil and gas lease, or rather an assignment of a one-eighth interest in a certain lease, the grounds being that the assignment was obtained through fraud.

Max Madansky, plaintiff below, owned a one-eighth interest in an oil and gas lease on a certain tract of land in Tulsa county, viz., the S.W. 1/4 of sec. 36, twp. 18 N., R. 12 E.

There were seven other parties., each of whom owned a one-eighth interest in said lease, among whom was O.N. West, defendant below, who, volunteering to act for all the interest-holders, represented to Madansky that the lease could be disposed of to a better advantage and for a better price by selling it all together; that if each of the interest-owners would assign his one-eighth interest to him and place such assignment in escrow in a bank, he would find a buyer and would assign the entire interest to such buyer. He further represented to Madansky that all the other interest-owners were willing to make such an assignment to him and would do so, and that when he found a buyer he would assign his interest, together with the interests of the other seven, to such buyer. He made several visits to Madansky for the purpose of obtaining Madansky's assignment, and of inducing Madansky to make the assignment, and in the course of such visits and in the course of the several conversations between him and Madansky he referred especially to certain wells that were being drilled some distance from their lease, and to the fact that one of said wells was only an 80-barrel well, and the other comparatively a dry hole, and that, therefore, their lease was not valuable and that he would be unable to get a good price for it; and upon such representations as to the depreciated value of the lease, and upon the representations that he and all the other parties were going to put in their interests and assign them all together, and thereby get a better price than by selling singly, Madansky was induced to and did assign his one-eighth interest to West, upon condition that if West found a purchaser for the entire lease, he, Madansky, should receive not less than $400 for his interest. Upon such understanding and agreement, Madansky made an assignment of his interest to West, and West placed same in escrow in a bank, with authority to assign same to a purchaser who was willing to pay not less than $400 for Madansky's interest.

Within a few days thereafter, West made a sale of six of the one-eighth interests in said lease to J.R. and C.C. Cole, and thereafter Madansky received $400 for his one-eighth interest.

It developed later that West received $4,000 and an agreement to drill a well on the land, in consideration for the interests he transferred to the Coles.

It developed, also, that West had not transferred the entire interest in the lease to the Coles, as he had led Madansky to believe he would do, but had transferred only six of the one-eighth interests, and had not transferred his own interest, nor the interest of one Phillips, who had not gone into the agreement, and at this time had not assigned his interest to West.

It also developed that a well, known as the Boesche well, had been brought in with a daily production of 800 barrels; that said well was only a quarter of a mile and 200 feet from the line of the lease in question; that West had nearer reported to Madansky nor said anything to Madansky about the Boesche well, but he had emphasized to Madansky the fact of the other two wells, one being only an 80-barrel well and the other comparatively a dry hole, both of which were some distance further away than the Boesche well.

The assignment from Madansky to West was made on the 26th day of April, the Boesche well was brought in on the 29th day of April, and about the 3rd or 4th of May, West made a sale to the Coles of six of the one-eighth interests, as above stated, receiving in consideration therefor $4,000. Upon learning these facts, Madansky brought suit against West for the cancellation of the assignment which he had made to West. The suit was filed August 5, 1916.

In the meantime a well had been brought in on the lease in question, daily production about 400 barrels at the time suit was brought and something over 200 barrels at the time the case was tried in January, 1917.

The cause was submitted to the court and judgment rendered in favor of the plaintiff, Madansky. The court held that there was sufficient evidence of fraud to warrant the cancellation of the assignments, but concluded that as Madansky's interest had been assigned by West to the Coles and subsequently by the Coles to the corporation known as Cole, Rudd West, the identity of West's interest had become lost and merged in the corporation, and that the cancellation of the assignment would not afford the relief to which Madansky was entitled. But as West had assigned his one-eighth interest in the lease to the corporation, taking in consideration therefor a certain number of shares of capital stock, the court rendered judgment in favor of Madansky for the capital stock owned by West in the corporation, not, however, for the full amount of what Madansky's one-eighth interest bore to the capital stock owned by West, but taking the view that each of the five other owners of a one-eighth interest had likewise been defrauded and that each was entitled to his proportionate share, if he should bring suit against West, rendered judgment decreeing Madansky only a one-sixth interest in the capital stock owned by West, reserving the other five-sixths interest for the other five leaseholders, in case they should see fit to bring suit.

From the judgment rendered, West appealed to this court, contending that the court erred in rendering judgment in favor of Madansky for any amount; also contending that Madansky's remedy was by an action for damages for deceit against defendant and by garnishment against the corporation after suit for damages was filed.

Madansky appealed also, and filed cross-petition in error, contending that the court erred in holding back any of West's stock for the five other interest-holders who were not parties to the suit, nor claimed any interest in the judgment, and that as Madansky had shown himself entitled to judgment, he was entitled to judgment for such portion of West's capital stock as West had received for a one-eighth interest in the lease instead of judgment for only a one-sixth portion of same.

The first proposition argued by West is that Madansky alleged two distinct and inconsistent causes of action, and that the court erred in overruling his motion to require Madansky to elect as to which cause of action he relied upon.

If in fact there were two distinct causes of action, inconsistent with each other, then the proper proceeding would have been by demurrer on the ground of misjoinder, and not by motion to elect. See Rev. Laws 1910, secs. 4740, 4741, and 4742. Also, C., O. G. R. Co. v. Burgess, 21 Okla. 653,97 P. 270, wherein it was held that misjoinder of causes of action should be raised by demurrer; and also Oates v. Freeman,57 Okla. 449, 157 P. 74, wherein it is held that misjoinder of causes of action is properly attacked by demurrer, and not by motion to require plaintiff to elect, and that the defect is deemed to have been waived unless attacked by demurrer.

But we do not concede that plaintiff's statement of facts constituted two separate and inconsistent causes of action, and therefore cannot sustain the contention that there was a misjoinder.

West's contention in this regard is based upon the following: Madansky first filed his petition alleging that the assignment of his one-eighth interest to West had been obtained by fraud and that West had assigned it to the Coles, and that the Coles owned the entire lease, including the one-eighth interest formerly owned by West, and the one-eighth interest formerly owned by Madansky, wherefore he prayed for cancellation of the assignment of his interest to West and that he be decreed a one-eighth interest in the lease as then owned by the Coles.

West contends that this statement of facts and prayer for relief constituted one complete cause of action. And such contention is correct; the allegations in the first petition stated sufficient evidence of fraud to entitle him to a concellation of the assignment. But after Madansky had filed his petition as above stated, he moved for a receiver to take charge of the lease, and at the hearing for a receiver it developed that after acquiring the six one-eighth interests from West, the Coles organized a corporation under the name of Cole, Rudd West, and assigned the entire six one-eighths interests to the corporation.

It developed also that neither the Coles nor the corporation had notice of the fraud perpetrated upon Madansky, hence were deemed innocent purchasers.

It developed also that after the corporation was formed West transferred his individual one-eighth interest in the lease to the corporation direct, and received therefor a one-eighth interest in the capital stock of the corporation. These facts having been brought out at the hearing for receiver, Madansky sought to amend his petition to conform to such facts, and did so amend, and prayed that if the court found that West did own a one-eighth interest in the lease, he should be given judgment against West for the amount of capital stock owned by West.

But West contends that the foregoing amendment constituted a cause of action separate and distinct from, and inconsistent with, the cause of action originally stated in his petition, and that therefore the court should have required him to elect which cause of action he relied upon; that is, whether he relied upon his first cause of action for relief by a cancellation of the assignment, or whether he relied upon the latter cause of action and for relief by a judgment for West's portion of the capital stock in the corporation.

We cannot agree that the fact that Madansky's allegations of fraud were sufficient to entitle him to a cancellation of the assignment, if it developed from the evidence that West still owned a one-eighth interest in the lease, and that the amendment asked the court for judgment against West for the amount of capital stock owned by West, constituted two separate causes of action.

Madansky relied upon the same acts of fraud both in his petition and in his amendment, and upon the same acts of fraud he asked for a cancellation, if West still owned an interest in the lease, but if West did not own an interest in the lease but owned a like interest in the capital stock then he asked judgment for the capital stock.

Section 4644, Rev. Laws 1910, defines an action as follows:

"An action is an ordinary proceeding in a court of justice by which a party prosecutes another party for the enforcement or protection of a right, the redress or prevention of a wrong, or the punishment of a public offense."

Sections 4734, 4735, 4736, 4737, and 4738 very plainly provide what pleadings are necessary, what the pleading should contain in order to constitute a cause of action, and what causes of action may be joined in the same petition.

The terms "cause of action," "subject of action," "object of action," etc., and what constitutes a "cause of action," and when different "causes of action," may be united in the same petition, are clearly and fully discussed in Scarborough v. Smith, 18 Kan. 399, and in Stone v. Case, 34 Okla. 5,124 P. 960.

Under the above authorities there were not two causes of action, and therefore no misjoinder. Madansky had but one grievance to complain of, one wrong that had been perpetrated upon him, one right that he had been deprived of by reason of the wrong perpetrated upon him, viz., the right to a full enjoyment of his interest in the lease and to all of the proceeds from the sale of same. When he was deprived of this right, a wrong was perpetrated upon him. The wrong done to his right, the infringement upon his right, constituted in law "a subject of action." The wrong done to hisright, the infringement upon his right, and the relief to which he was entitled, either in law or equity, constituted in law his "cause of action."

There was but one wrong committed and one wrong complained of, which was that he had been defrauded out of his interest in the lease; therefore there were not two causes of action. The fact that this wrong was of such a nature that the court in the exercise of its equity powers could grant relief if it found under the facts that West still owned a one-eighth interest in the lease, or the fact that such wrong was of such a nature that a court of law would grant proper relief if it developed from the evidence that West did not own a one-eighth interest in the lease but merely a proportionate interest in the capital stock, did not make two separate causes of action. His grounds for relief, either in law or equity, grew out of the one infringement upon his rights, and whether the court would grant equitable relief or relief under the law depended upon the facts disclosed by the evidence. If the evidence had disclosed that West still owned a one-eighth interest in the lease, then the court would have granted equitable relief by canceling the instruments of assignment and restoring him to his interest in the lease; but as the evidence disclosed that West had sold his interest in the lease to the corporation, thereby losing its identity, then the court in the exercise of its powers as a court of law could grant such relief as the facts warranted.

Section 4650, Rev. Laws 1910, provides:

"The distinction between actions at law and suits in equity, and the forms of all such actions and suits, heretofore existing, are abolished; and in their place there shall be, hereafter, but one form of action, which shall be called a civil action."

This section, construed in the light of sections 4644 and 4738, makes it clear that the one court, endowed alike with the powers of a chancellor and a court of law, has power to grant relief upon a statement of facts which constitutes a single wrong, and if the wrong be such as under the evidence the court can grant relief equitably, it will do so, and if it be such that relief is afforded under the law, then the same court will grant it in the same action.

Even under the procedure in courts of equity in states where distinctions between courts of law and courts of equity are maintained, where a court of equity properly acquires jurisdiction over the subject-matter and the parties, it retains jurisdiction until complete relief is granted according to the facts in the case.

"If a court of equity obtains jurisdiction of a suit for the purpose of granting some distinctively equitable relief, such, for example, as the specific performance of a contract, or the rescission or cancellation of some instrument, and it appears from facts disclosed on the hearing, but not known to the plaintiff when he brought his suit, that the special relief prayed for has become impracticable and the plaintiff is entitled to the only alternative relief possible of damages, the court then may, and generally will, instead of compelling the plaintiff to incur the double expense and trouble of an action at law, retain the cause, decide all the issues involved, and decree the payment of more compensatory damages." 1 Pom. Equity (3rd Ed.) 342.

Again, on page 354, Id., in discussing the effect of the reformed statutes of pleading, that is, the adoption of the statutes of Code pleading and powers given therein, the author says:

'"That system of procedure, by combining the actions at law and suits in equity into one 'civil action,' by permitting the union of legal and equitable primary rights, and interests, and causes of action in the one judicial proceeding, and the granting of legal and equitable remedies in the one judgment, and by the substitution of many equity rules concerning the prosecution of suits in place of the arbitrary rules of the law regulating the conduct of actions, has greatly enlarged the operation and increased the efficiency of the general doctrine under discussion. Wherever the true spirit of the reformed procedure has been accepted and followed, the courts not only permit legal and equitable causes of action to be joined, and legal and equitable remedies to be prayed for and obtained, but will grant purely legal reliefs of possession, compensatory damages, pecuniary recoveries, and the like, in addition to or in place of the specific equitable reliefs demanded in a great variety of cases which would not have come within the scope of the general principle as it was regarded and acted upon by the original equity jurisdiction, and in which, thereafter, a court of equity would have refrained from exercising such a jurisdiction."

Also Murray v. Speed, 54 Okla. 31, 153 P. 181; 1 C. J. 616; Elliott on Contracts, 2461."

Therefore the court had power to grant such relief as, under the facts, the parties were entitled to receive. The facts clearly show a trust relationship between West and the other interest-holders, including Madansky.

West's representations to Madansky that all of the other interest-holders had agreed to and would assign their interests to him, and that he could dispose of the entire lease to a better advantage and for a better price to each interest-holder by selling it all together in one sale than by selling such interest separately, and that he would put his interest in with the rest and dispose of all together in one sale, were the inducements which moved Madansky to place his interest in West's hands, and being moved by such inducements to do so, he executed an assignment of his one-eighth interest to West, trusting in West to do as he had promised to do, dispose of the entire lease and all interests therein in one transaction. This placing of his interest in West's hands for disposal, trusting in West to dispose of same at the best price obtainable, and West's acceptance of same under said conditions created a relationship between West and Madansky which the law denominates fiduciary, and it enjoins upon the trustee in such case the duty to act toward those whose interests he holds in trust with the utmost honesty and good faith. Thomas v. Thomas,27 Okla. 784, 109 P. 825; Perry on Trusts (4th Ed.) sec. 177, vol. 1; 2 Pom. Equity (3rd Ed.) secs. 956 and 957; Story's Equity Juris. (13th Ed.) sec. 248; Allen v. Jackson (Ill.) 13 N.E. 840; Hayne v. Herman (Cal.) 32 P. 171; Ewing v. Ewing,33 Okla. 414, 126 P. 811; Harraway v. Harraway (Ala.) 34 So. 836; Thomas v. Whitney (Ill.) 57 N.E. 808; Tennant v. Dunlop (Va. App.) 33 S.E. 620; 30 Cyc. 557, and authorities cited.

And where West, after promising to sell the eight interests all together, sold only six of them for $4,000, withholding his own one-eighth interest and Phillip's one-eighth interest, Madansky was entitled to one-sixth of the $4,000.

The evidence is too meager and indefinite as to the extent of Madansky's damages and as to the exact interest individually owned by West to sustain the judgment against West for one-eighth of the capital stock of the corporation, and the court erred in so holding. The court erred also in reserving or holding back five-sixths of the judgment for those who had not brought suit and claimed no rights in the premises nor any interest in the judgment. So far as the record discloses, the other five interest-holders who assigned to West were not complaining. So far as the record discloses they were not defrauded, or, if defrauded, had been reimbursed or compensated. Had these other interest-holders come into court and shown that they had been defrauded and asked for relief, and it had developed that West had no other property than the capital stock which he had received for a one-eighth interest in the lease, it would then have been proper for the court to protect the interests of the parties alike; but as these parties had not brought suit, had made no complaint, and so far as the court knew had not been defrauded, and Madansky having brought suit and prosecuted same with diligence, and shown himself entitled to judgment, then he was entitled to such judgment as would compensate him for his losses. "Equity aids the vigilant, not those who slumber on their rights." 16 Cyc. 140; Burnham v. Hickman (Mo.) 51 S.W. 680; McNary v. Southworth, 58 Ill. 473; Dell School v. Pierce (N.C.)79 S.E. 687.

The judgment of the trial court is therefore modified and judgment herein rendered in favor of defendant in error, Madansky, against plaintiff in error, O.N. West, for one-sixth of $4,000, less the $400 already received by Madansky, with interest thereon at the rate of 6 per cent. per annum from date of sale by West to Cole until paid, and for costs of suit, and it is so ordered, modified, and rendered.

RAINEY, C. J., and KANE, PITCHFORD, JOHNSON, McNEILL, HIGGINS, and BAILEY, JJ., concur; RAMSEY, J., not participating.