Norris v. Cox

On Rehearing. At a former day of this term, upon motion of appellants, we entered an order reversing judgment in this case and remanding it to the lower Court. The order was based upon the belief that the evidence of Fred G. Reed and J. H. Dwire denying that the deed as originally executed contained exemptions from oil payments, and the further evidence of Cleo Sheiler that the physical condition of the deed of March 8, 1934, indicated changes in the arrangement of the pages and perhaps substitution of pages. A number of motions for rehearing have been filed, the case has been argued, and we have reexamined the grounds upon which we acted. In our former opinion we overlooked the fact that not all the defendants in whose favor the verdict was instructed possessed interests identical in their origin with all the other defendants, and that some of them did not depend upon the deed or assignment dated March 8, 1934, which is under attack.

At the risk of tedious repetition, we shall amplify the statement of the case heretofore made. The original opinion gave an accurate general picture of the case. As stated therein, all rights of appellants are subject to and stem from the assignment of the Gulf Production Company to William A. Stone dated September 30, 1932. By the terms of that instrument the Gulf Production Company, subject to the terms thereof, assigned to William A. Stone the oil and gas rights owned by it under twenty-one mineral leases, except that as to what was described as the Etta Terrell lease (of which more will be said hereinafter) what was known as the Second Tract thereof was not included in the assignment, and it expressly related only to the First and Third Tracts of said lease.

As heretofore stated, the Gulf Production Company retained for itself 25 percent of the net value of the production from the leases assigned. The assignment provided that Stone might organize a corporation to exercise the rights resulting from the assignment. He organized the Stonleigh Oil and Gas Company, and the interests assigned by the Gulf Production Company constituted the entire capital of said last named corporation. It was therefore essential that the development work necessary to hold the leases be financed through the disposal of interests arising by virtue of the assignment, since the corporation had no cash capital of its own.

Among other methods resorted to, the Stonleigh Oil and Gas Company assigned to Dr. F. A. Norris and others certain interests in the leases. The contract of assignment is too lengthy to be reproduced, but as we have construed it, it effected an assignment of undivided interests in the net profits, if any, resulting from the operation of the properties. The rights created by these assignments were subject to the rights of the Gulf Production Company as was stated in the assignment executed by it. Possession of the properties and the right and duty of operating them were to remain in the Stonleigh Oil and Gas Company, though it might name a substitute, and it was the duty of this Company to account annually to the assignees of the class of appellants in this case for their proportionate share of the earnings of the venture. These assignees were not entitled to possession of the real property and they never went into possession. Their rights were confined to a percentage of net profits. The Company was not liable for mistakes of judgment. It was required only to exercise good faith and refrain from fraudulent conduct towards its assignees.

Stonleigh Oil and Gas Company drilled two wells, but up to March 8, 1934, had failed to produce oil or gas in paying quantities. Appellants object to our finding of fact to this effect. However, we think it is justified by the evidence and by appellants' pleading. In their fifth amended original petition, upon which they went to trial, while relating the occurrences preceding the execution of the conveyance from Stonleigh Oil and Gas Company to Rupert Cox which is the subject of attack, they allege "that thereafter and before the discovery of oil and/or gas in paying quantities * * * the Stonleigh Oil and Gas Company, acting through said Stone, but not by plaintiffs, entered into a contract with Rupert Cox on or about February 28th, 1934."

During the month of February, 1934, the situation, from the point of view of Stone (who was the beneficial owner of practically all, if not all, of the stock of the Stonleigh Oil and Gas Company) and that of the corporation itself, was very precarious. There was no production. The time was approaching when the leases might be subject to forfeiture, and the implied obligation to develop which all owed to the original lessors could only be discharged by assistance from some other source. It is not made to appear by the evidence that appellants, or any of them, were able to finance future drilling, or willing to do so. Their individual investments were small and it would be reasonable to suppose that they would not desire to hazard large sums of money upon the development of an unproven area.

An interest of 12 1/2 percent had been assigned to B. H. Jenkins to secure the payment of a debt for $10,000 owed him by the Corporation. W. J. Howard held a five percent interest which did not contain the reservations that appeared in appellants' assignment. As part payment to John F. Camp, a drilling contractor, for drilling the first well, the Company had assigned to the said Camp a twenty-five percent undivided interest in the entire block, a six percent undivided interest in the entire block, and the entirety of 177.8 acres of the Maurer lease, in respect to which also he had received from the Gulf Production Company an assignment of its reserved interest. From the sale of undivided interests such as were owned by appellants, the Company had received $11,442.00 in cash. It had paid Camp $11, 262.64 as part costs of drilling one of the wells. It rented a rig from George Pace and began drilling on the Zimmer lease in August, 1933. It encountered a show of oil, and the Utilities Natural Gas Company, which had advanced $10,000, to which reference is hereinafter made, increased its advance by $2500 and furnished casing to test the well. Between the time of discovery and the making of the test, Camp sold his twenty-eight percent undivided interest in the block to Plummer Oil Corporation for $22,000 cash and an oil payment of $195,580 to be paid out of one-fourth of twenty-eight percent of all oil produced from the block. The second well was abandoned in November, 1933, after it blew out and ruined the hole and the rig. As part of the situation confronting the Corporation in February, 1934, as a result of a settlement made with Pace, Stonleigh Oil and Gas Company was indebted to him in the sum of $21,000, to be paid out of three-eighths of forty-one/forty-eighths of the oil and gas produced from the block. Its entire indebtedness amounted to $27,417.64. This included a salary claim of Reed's and a claim of $4784.56 of Stone's, which included cash advanced and unpaid salary. An attack is made upon the salary item on the ground that it was voted in June, 1933, to operate retroactively.

January, 1934, Stonleigh employed Rupert Cox, a defendant herein, as a broker to sell the block. The contract was extended by various writings to February 17,1934. According to the testimony of Mr. Cox, he approached seven or eight different prospects and did considerable traveling at his own expense, but was unable to make a sale. After the expiration of the Cox brokerage contract, Stone suggested to Cox that he take the block to prevent the leases from expiring. After some negotiations the assignment of March 8, 1934, was executed by Stone, Reed, Creviston and J. H. Dwire, being all of the stockholders of the Stonleigh Oil and Gas Company, by E. M. Haley, F. H. Sheffield, and by the Company, acting as agent and attorney in fact for other persons whose names were not stated in the body of the instrument, but were stated below. By this instrument eighteen of the twenty-one leases were assigned to Cox. It was recited that the conveyance was intended to include a sixty-seven percent interest in the leases. The consideration was recited to be ten dollars to each of the assignors and an oil payment of $486,280 to be paid the sellers as their interests appeared out of the sixty-seven percent of forty-one/forty-eighths of the oil and gas produced and saved from the property. The oil payment was allocated against the several leases on an acreage basis. Certain leases specifically named were exempt, and the reason given by appellees was that this would enable Cox to secure from Plummer Oil Corporation a transfer of the twenty-eight percent undivided interest which extended over the entire block, and from Camp a transfer and release of the $195,580 oil payment which was to be paid out of one-fourth of twenty-eight percent of all oil produced from the block, and, lastly, to secure the immediate drilling of wells by offering "clear leases" for that purpose. The first $21,000 of the oil payment was to be paid direct to George Pace. The deed was questioned because it did not carry in the body of the instrument the names of those assignees for whom the Stonleigh Company purported to act as attorney in fact. Hence the instrument of April 10, 1934, executed by the Corporation carrying words of conveyance ratifying and confirming the original instrument. A third instrument was executed for the purpose of expressing in dollars and cents the oil payments reserved as against the particular tracts.

The original opinion states briefly the nature of the suit. It relates only to six of the leases, the others having expired before the suit was brought. In addition to pleading in trespass to try title, appellants, as plaintiffs, pleaded in a separate count that the reservation of powers (which will be adverted to later) was void as being repugnant to the grant, a restriction on alienation, as tending to create a perpetuity, as a violation of the Blue Sky Law, Vernon's Ann.Civ.St. art. 579 et seq., and as part of a plan and conspiracy between Gulf and other defendants to defraud plaintiffs and the public; that the transfer was void because executed without a resolution of the Stonleigh Oil and Gas Company board of directors; that there was forgery by substitution of pages; that the corporation made a gift of appellants' interests, there being no consideration; that the instrument created an option; that the corporation had ceased doing business and was insolvent; and that it was secured by the wrongful payment to Stone of $700.

As stated in the original opinion, the pleadings are lengthy and numerous.

Appellants urge with great earnestness that the trial Judge was disqualified The alleged ground of disqualification was that Rupert Cox was associated with a son of the Judge in certain business ventures, in which these properties were not involved, but that an adverse judgment against Cox would result detrimentally to the business ventures in which Cox and a son of the Judge were associated. The Judge's son was not interested in the property in controversy and the verdict would in no wise affect his interests. Our State Constitution (Vernon's Ann.St.Const. art. 5, § 11) specifies the conditions which shall disqualify a judge from sitting. He is forbidden to sit in any case wherein he may be interested, or where either of the parties may be connected with him either by affinity or consanguinity within a degree as prescribed by law, or where he shall have been counsel in the case. Article 15 of the Revised Civil Statutes fixes the third degree as the disqualifying degree of relationship. Our Supreme Court has held that the disqualifications specified in the Constitution are exclusive of all others. Galveston H. Inv. Co. v. Grymes, 94 Tex. 609, 63 S.W. 860,64 S.W. 778; Love v. Wilcox, 119 Tex. 256, 28 S.W.2d 515, 70 A.L.R. 1484. The trial Judge was not disqualified, and the assignments based upon that theory are overruled.

We shall now treat of several motions for rehearing filed by litigants whose rights do not depend upon the validity of the contract of March 8, 1934.

The first of these is that of La Jita Corporation. The property that appellants seek to recover from La Jita Corporation was no part of the twenty-one leases assigned by Gulf Production Company to William A. Stone. This Corporation does not claim under or by virtue of the transfer and assignment from the Stonleigh Oil and Gas Company to Rupert Cox. From the record it appears that Mrs. Etta Terrell, a widow, granted to J. Nye Ryman the oil rights in 820 acres of land described as being in three tracts. Ryman assigned this lease to the Gulf Production Company; but when the Gulf Production Company assigned twenty-one oil and gas leases to William A. Stone on September 30, 1932, it did not include what was described as the "Second Tract." A portion of the Etta Terrell lease conveyed by that assignment was described as follows: "From Etta Terrell, as Lessor, to J. Nye Ryman, dated August 29, 1928, insofar as it covers and relates to the first and third tracts described therein, said tracts being out of the R. Manchola Grant, said lease being recorded in Vol. 124, page 106, Deed Records, Victoria County, Texas."

The property claimed by La Jita Corporation, and which appellants seek to recover, is a part of what is described as the Second Tract. November 21, 1932, Mrs. Terrell executed a new or top lease to William A. Stone, again describing said 820 acres of land as First Tract, Second Tract and Third Tract. On October 26, 1933, Stone, joined by Stonleigh Oil and Gas Company, assigned to the Gulf Production Company every right created by the renewal or top lease "insofar as same affects and relates to the" Second Tract (describing same). No interest in this top lease was ever assigned by Stone to Stonleigh Oil and Gas Company. It was therefore not included in the assignments to Dr. Norris and other appellants and they never acquired any title therein. The record now discloses that the northwest fifty acres of the northeast 100 acres of the Second Tract were vested in La Jita Corporation; while the southeast 50 acres of the northeast 100 acres of said tract were assigned to and are now vested in Plummer Oil Corporation and the remaining 105 acres of the Second Tract are owned by Gulf Production Company. Since no part of the Second Tract and no interest therein was ever conveyed or assigned to any of appellants, it follows that the trial Court did not err in rendering judgment in favor of said last named defendants as to said portions of said Second Tract.

As respects the interests of Gulf Production Company our attention is called to the fact that while the twenty-one leases were originally owned outright by Gulf Production Company, it now has oil payments on but three. Two of these three are likewise burdened with oil payments in favor of appellants by virtue of the assignment made by Rupert Cox. Appellants do not question Gulf's right to payment on the three leases in question, but in their additional argument filed November 5, 1938, expressly admit that the Gulf is entitled to these payments, and that appellants made no adverse claim with respect thereto. Accordingly the order of reversal should be set aside as to the Gulf Production Company and the judgment should be affirmed insofar as it affects its interests in said three leases and 105 acres of the Second Tract of the Etta Terrell lease, which, as heretofore stated, was never assigned to Stone and was never a part of the Stonleigh block.

The claim of the Utilities Natural Gas Company is also different in character from those of other litigants in this case. John F. Camp, a drilling contractor, drilled a well for the Stonleigh Corporation, which well was begun on March 3, 1933, and completed May 19, 1933, and which produced some gas. As part payment for drilling the well Camp, on April 4, 1933, received an assignment of twenty-five percent undivided interest in the lease and also on April 27, 1933, received from Stonleigh Company an assignment of six percent undivided interest. August 14, 1933, Stonleigh Oil and Gas Company, Camp, Frank H. Sheffield and the Stonleigh Company, as attorney in fact, entered into a contract with Utilities Natural Gas Company by which the latter agreed to purchase certain gas to be produced from the Colletto block of leases. The essence of the contract was that the parties named sold to Utilities Natural Gas Company the dry natural gas which might be produced from the leases composing the Colletto block, and the Gas Company agreed to take the gas and paid in advance the sum of $10,000, with the stipulation that said sum should be used in developing and exploring the block for oil and gas. The Gas Company was to pay three cents per thousand cubic feet for gas delivered. All of this took place before the assignment from the Stonleigh Company to Cox, and in view of the powers reserved in the assignments of interests to appellants, there can be no question as to that Company's right to make the assignment to the Gas Company. Therefore, insofar as the judgment of the trial Court affects the rights of the Utilities Natural Gas Company under its contract, it should not be disturbed.

We now come to a consideration of the attack made by the original plaintiffs and by their co-plaintiff, Stonleigh Oil and Gas Company, upon the assignment of March 8, 1934, and the other ratifying and supplementary instruments referring to the same. For a full understanding of the issues made upon these questions and which are to be determined now, it is necessary to bear in mind the powers reserved to Stonleigh Oil and Gas Company in its assignments of undivided interests to plaintiffs. Those that are pertinent to the present discussion are as follows:

"1. To sell and dispose of the interest in said oil, gas and mineral leases or any one or more of them, and/or part or parts of such leases and/or undivided interest therein, hereinbefore assigned unto the said Assignee, for such consideration, whether for all cash or all credit, or part cash and part credit, or part cash or credit and part from such proportionate part of the oil produced from said property as Assignor may deem advisable, and for such other consideration and upon such terms and conditions as Assignor may deem advisable; however, Assignor is not authorized, in making any such sale, to create or fix any liability against Assignee except to warrant title to the property right so sold as against Assignee and any person or persons, firms, or corporations claiming by, through or under Assignee, and no further. Assignor is hereby authorized to execute, acknowledge and deliver such written instruments as may be deemed necessary or advisable to carry out the foregoing powers so vested in it.

"2. To sell and dispose of the interest here conveyed unto Assignee and/or that may hereafter accrue to Assignee by reason thereof in the oil, gas and other minerals produced from the tracts of land covered by the leases hereinbefore mentioned, or any one or more of them, or part or parts of such leases, or undivided interest therein, for such consideration as Assignor may deem advisable, whether it be for cash or credit, or part cash and part credit, or such other consideration as Assignor may deem advisable."

A great portion of the briefs and motions of appellants are devoted to a discussion of two propositions advanced by appellants: (1) That the conveyances or assignments of interest by Stonleigh Oil and Gas Company to Cox, exceeded the reserved powers, and (2) that the fact that the names of plaintiffs were added as grantors or assignors signing by and through the Stonleigh Oil and Gas Company constituted forgery.

One but needs read the provisions with respect to the powers to be exercised by the Stonleigh Oil and Gas Company, acting with its best judgment, to determine that there is no merit in the first objection to the deed.

As to the issue of forgery raised by appellants: The instrument does not purport to be signed in person by the various grantors who are appellants. It is plain from its face that the names were typewritten at the instance of the Company, and the Company purported to act as the agent or attorney in fact for the appellants. The so-called affidavit of forgery of the attorney for appellants is in the following language:

"(a) That the alleged instrument of March 8th, 1934, purporting to be signed by the plaintiffs and purporting to convey the lands in controversy to the defendant Rupert Cox, is as to the plaintiffs a forgery, and they did not sign the same nor authorize the signing of their names thereto. * *

"(c) That the party or parties purporting to sign plaintiffs' names thereto had no authority so to do."

Since the instrument itself did not purport to bear the actual signatures of the plaintiffs, the most that can be said for Mr. Cooke's affidavit is that it is a denial of authority upon the part of plaintiffs to sign for appellants. The clause in the assignment to plaintiffs reading: "Assignor is hereby authorized to execute, acknowledge and deliver such written instruments as may be deemed necessary or advisable to carry out the foregoing powers so vested in it," is a complete answer to both charges. Within itself it carries the grant of authority to execute the instrument. The instrument itself purports to be executed by Assignees through Assignor. There is, therefore, no merit in these contentions of appeliants. Simms v. State, 116 Tex. Crim. 97, 32 S.W.2d 852, and cases therein cited.

We come now to the affidavit of forgery filed in behalf of Stonleigh Oil and Gas Company. That affidavit was also limited in its scope. It was signed by Fred G. Reed. The entire attack is directed against pages 2, 3 and 4 of the contract of assignment from Stonleigh Oil and Gas Company to Cox, dated March 8, 1934. It does not deny that the purported makers of said contract signed the same. By necessary implication it admits that all parts of said contract except such variations or changes as are alleged to be upon pages 2, 3 and 4 are genuine. It does not state what the variations or changes were or how the proffered contract differed from the contract as Reed claims that it was originally written, unless such contention is contained in the following clause of the affidavit, "there having been no exemptions or exceptions of leases from oil payments in the contract authorized and executed by cross-plaintiff." The affidavit bears internal evidence of its own inaccuracy in respect to this vital matter of exemptions, in that it impliedly admits the correctness of all portions of the contract except pages 2, 3 and 4. The original contract was sent to this Court, and we have it before us. Upon the first page the consideration is stated to be "Four Hundred eighty-six thousand, two hundred and eighty dollars ($486,280.00) to be paid by grantee herein or his assigns to Sellers (as their interests appear) out of one-eighth of sixty-seven percent of forty-one/forty-eighths of the oil and/or gas, if, as and when produced and saved from the hereinafter described properties, (save and except that on and from certain properties described below there shall be no oil payments)." The very last words on the first page are, "Provided, however, that the following leases or parts of leases and lands thereunder are not subject to such oil payment, and in calculating the acreage basis the following tracts of." The sentence is completed on page two. The exempted leases are described in paragraphs I, II, III and IV upon page two of said assignment. The last page of said assignment, which is admittedly genuine, contains a statement of the conditions upon which the conveyance is made and has a vendor's lien clause in the following language: "But it is expressly agreed and stipulated that a vendor's lien is retained (except on land and leases described in I, II, III, IV and V above) to secure the payment of said Four hundred eighty-six thousand two hundred and eighty dollars ($486,280.00) oil and gas payment according to the terms hereof."

This last page is numbered five. It is plain, therefore, from the admittedly genuine portions of the instrument to which the affidavit of forgery is sought to be applied, that the affidavit does not state the facts, and that the witnesses who testified, and upon whose testimony it is sought to raise a jury issue as to the presence of exemptions, do not state the facts. The admittedly genuine portions of the written instrument are conclusive that the instrument itself in paragraphs I, II, III and IV did contain a list of exempted leases. These witnesses are attempting by parol to vary the terms of a written instrument. However, the question becomes academic in view of certain other proceedings.

We find among the papers sent to us, and which were introduced in evidence, the following:

(1) Written ratification of the assignment of March 8, 1934, signed by Stonleigh Oil and Gas Company by William A. Stone, President, as agent and attorney in fact for the various holders of interests. This instrument, dated and acknowledged April 10, 1934, was attested by Fred G. Reed, Secretary, who likewise made the so-called affidavit of forgery.

(2) An amendment of the assignment of March 8, 1934, bearing the signatures of Stonleigh Oil and Gas Company by William A. Stone, President, attested by its Secretary, Fred G. Reed, and signed individually by William A. Stone, Fred G. Reed, C. G. Creviston, J. H. Dwire, Frank H. Sheffield and E. M. Haley, and signed by the Company as agent and attorney in fact for the various holders of units of interests.

This amendment, which was dated and acknowledged April 11, 1934, provided that instead of allocating the payments to the various leases on an acreage basis, they should be allocated in a fixed sum. An itemization of the allocations is contained in the instrument, and it is upon this allocation that defendants claiming under Cox stand. This instrument was signed by all of the directors and stockholders of the Stonleigh Oil and Gas Company, and concludes that Company and the other makers of the instrument upon the question of the validity of the assignment of March 8, 1934. It was not necessary insofar as the Company was concerned that a formal meeting of the directors should authorize this action, since all of the directors and stockholders joined in the instrument. It was held by our Supreme Court in Aransas Pass Harbor Co. v. Manning, 94 Tex. 558,63 S.W. 627, that "In the absence of creditors, the consent of directors and stockholders to a conveyance by the president of a corporation of its property was authorized, without any action by the directors as a board." The court recognized that there was a conflict in the decisions of the courts upon the question involved. The various theories are discussed at considerable length and the court answered affirmatively the question, "It not appearing that there were any creditors whose interests could be affected, could the consent of all the directors and all the stockholders to the conveyance give authority to make it, there being no `corporate action,' — that is to say, no action by the directors as a board?"

At the time the assignment was executed on March 8, 1934,, the Company had an equitable interest in twelve and one-half percent of its original interest, the legal title being vested in B. H. Jenkins to secure the payment of a debt. Prior to trial the legal title was reinvested in the Company, and in the pending suit it sought to make this title the basis for relief prayed against defendants. It and J. H. Dwire are concluded by these actions of the stockholders and board of directors, regardless of whether the original resolution authorized the transaction to be so consummated.

In their fifth amended original petition plaintiffs pray for title and possession of their alleged undivided interests in the leases. They also pray for judgment for damages against all defendants, for the removal of clouds cast by the alleged illegal reservations in the conveyances to them and by the conveyance to Cox and in all other conveyances thereunder, and for general and special relief.

We think there is no evidence upon which the court could properly base a judgment granting the relief prayed. The judgment of the Corporation was to be exclusive, and it was liable only in the event of a practice of fraud. Is there any evidence of fraud? Appellants criticize very severely the agreement by Cox to compromise the claim of Stone in the amount of $700, and stigmatize this payment as a bribe. The services of Stone to the Corporation lasted for a number of months after the action of the board of directors in voting a salary. This action of the board indicated its judgment that he should be compensated for his services. He had a claim that at least was debatable as to its merits. It cannot, therefore, be said that there was evidence of bad faith in compromising this claim. There is no evidence that Stonleigh Oil and Gas Company, or any of its stockholders, profited by the assignment to Cox further than that there was a compromise of the claims of those who were insisting upon being paid salaries. In each case the amount was small. It is fair to suppose that could the properties have been profitably handled the compensation of these persons would have been much larger. There is a total want of evidence of any opportunity to dispose of the properties in such a way as to benefit appellants more than they will be benefited by the contract with Cox. The entire deal with Cox is consistent with an honest desire upon the part of Stone to salvage as much as possible for appellants out of their investments. The whole scheme was highly speculative in the beginning. It is not contended in the pleadings that it was otherwise represented to appellants, or that they made their investments in ignorance of the hazards of the undertaking. There is no evidence that had Stone called upon them they could or would have operated the properties. Nor is there evidence that the various assignees who received exempt leases would have been willing to enter into the plan had they not received these advantages. It appears from the evidence that about two-thirds of the indebtedness of $27,000 had been paid at the time of trial. We cannot say that the unit holders will not receive more than they invested. Nor can we say from the evidence that Stone could have accomplished more than he did for those to whom he owed an obligation, nor that he did not make what appeared to him the best arrangement possible under the circumstances. He could not impose terms upon those from whom he sought aid. He was confronted "by a condition — not a theory." Had the leases expired or had the Gulf Production Company been compelled to take them over to protect them, appellants would have received nothing. Stone was "begging" succor. He could not be a "chooser." There is no evidence that he did not make the best trade possible.

The opinion upon the former motions for rehearing is withdrawn, and the order granting the motions and judgment of reversal and remand are set aside. All motions for rehearing by appellants are overruled. Appellees' motions for rehearing are granted, and the judgment of the District Court is affirmed.