Case Name: CONTINENTAL SUPPLY CO. v. ADAMS et al.
Court: Texas Courts of Civil Appeals
Jurisdiction: Texas
Decision Date: 1925-01-17
Citations: 272 S.W. 325
Docket Number: No. 10901
Parties: CONTINENTAL SUPPLY CO. v. ADAMS et al.
Judges: DUNKLIN, J., absent and not sitting.
Reporter: South Western Reporter
Volume: 272
Pages: 325–339

Head Matter:
CONTINENTAL SUPPLY CO. v. ADAMS et al.
(No. 10901.)
(Court of Civil Appeals of Texas. Fort Worth.
Jan. 17, 1925.
Rehearing Granted April 4, 1925. Rehearing Denied, May 2, 1925.)
1. Appeal and error &wkey;>9l7(l)~Allegations of fact in petition to which general demurrer sustained taken as true.
As against general demurrer to plaintiff’s petition, which was sustained by trial court, all allegations of fact contained in such petition must be taken as true.
2. Joint-stock companies and business trusts &wkey;>l5(1) — Provisions in declaration of trust organizing syndicate, as to liability of members not binding on third parties.
As between parties to a declaration of trust by which a syndicate was organized, provisions in such declaration as to liabilities of members thereof are binding, but as to a creditor of such syndicate, who was not a party to the declaration, such provisions were not binding on him.
3. Joint-stock companies and business trusts <&wkey;>!5(l) — Recording of declaration of trust creating syndicate held not constructive notice to creditor of its contents.
There being no statute requiring recordation of a declaration of trust creating a syndicate, filing of such declaration in deed records of county was not constructive notice to a creditor of such syndicate of its contents.
4. Joint-stock companies and business trusts &wkey;>l5(1) — Term “trustees” in declaration of trust creating syndicate held ineffective as against creditor of syndicate not bound by declaration.
The use of -the term “trustees” in a declaration of trust creating a syndicate did not change the true relation of persons designated as such, nor fix their legal status as trustees instead of as partners, as against a creditor of the syndicate, who was in no sense a party to the declaration nor bound by its terms, especially where debt was incurred in name of syndicate as members specifically directed should be done.
5. Joint adventures —Member of syndicate individually liable for debts.
A member of a syndicate is individually liable for its debts.
6. Joint-stock companies and business trusts ■&wkey;l5(l) — Massachusetts trust usually joint-stock association, members of which are liable on judgment rendered against association where citation served on such members.
' A Massachusetts trust is usually nothing more nor less than a joint-stock association, which under Rev. St. art. 6149, is given authority to sue and be sued in its company name, and, under article 6153, judgment rendered against the association is equally binding on individual property of members served with citation.
7. Joint-stock companies and business trusts <&wkey;l5(1> — Members of syndicate created under declaration of trust held! individually liable for its debts.
Members of syndicate, doing business under a declaration of trust for purpose of drilling oil wells, under which all members, including trustees, were -entitled to certain proportion of profits, and were likewise to participate in losses, and which to all outward appearances was either a corporation, or limited partnership, or joint-stock company, held individually liable to creditors, not parties to declaration of trust, and not bound thereby, for debts incurred by syndicate, especially in view of Acts 37th Leg. (1921), c. 73, §§ 1, 3 (Vernon’s Ann. Civ. St. Supp. 1922, arts. 5950y2, 5950y2b), and section 6 (Vernon’s Ann. Pen. Code Supp. 1922, art. 1007c), and Acts 38th Leg. 2d Called Sess. .c. 52.
Buck, J., dissenting.
Appeal from District Court, Stephens County; C. O. Hamlin, Judge.
Action by the Continental Supply Company against 6. T. Adams and others. Judgment for defendants, and plaintiff appeals.
Reversed and remanded.
Hawkins, Hawkins & David, of Breckenridge, for appellant.
John W. Mackey, of Breakenridge, and E. E. Ritchie, for appellees.

Opinion:
BUCK, J.
The Continental Supply Company filed suit for debt against G. T. Adams, W. R. Powers, and Mrs. Cynthia Creagh, and othel- parties subsequently dismissed. Plaintiff's petition alleged that the defendants associated .themselves together in an organization known as the Man O' War Oil Syndicate, • and that each member of said association received certificates issued by the duly authorized agents of the association indicating their respective membership therein; that said association was organized under a so-called declaration of trust, which was on file in the deed records of Stephens county, referring to volume and page of the record, "and a certified copy of said declaration of trust is hereto attached and marked Exhibit A, and hereto referred to for all necessary purposes." It was further pleaded that the members of the association had appointed certain named persons as "their trustees and agents, with power to manage the business of the members of the said organization known as the Man O' War Oil Syndicate; that, said defendants having become members of said organization, and under and by virtue of the said declaration of trust" the defendants jointly and severally constituted the said named trustees the agents of each of them in the management of the affairs of the association.
It was alleged that theretofore on May 12, 1921, while the defendants were members of the said association, aúd S. S. Shelby, one of the named trustees, doing business under the name of the Black Hawk Drilling Company, and H. L. Hendrick, the defendants became indebted to plaintiff on account of certain well supplies furnished by plaintiff to the defendants and used by them in the drilling of a well, and that in settlement of said open account the Man O' War Oil Syndicate and the Black Hawk Drilling Company, both as principals, executed and delivered to plaintiff their promissory note, in the principal sum of $2,085.88, payable in 60 days after date, etc.; that H. L. Hend-rick duly guaranteed the payment of said note by indorsing his name thereon. It was further alleged that when said note became due, payment was refused, and said note was protested. It was further alleged that the Man O' War Oil Syndicate, and the trustees thereof, were notoriously insolvent, as was also I-I. L. Hendrick and S. S. Shelby, and the residences of the persons named unknown.
In the alternative, plaintiff pleaded:
"Haintiff further alleges, in the alternative, that if it be mistaken in its allegation that the defendants became parties oj; the said organization known as the Man O' War Oil Syndicate, and if the defendants were not principals with said agents acting as above alleged, then and in that event the defendants, and each of them, were partners doing business under the said trade name of Man O' War Oil Syndicate and that the said S. S. Shelby acted as their duly authorized agent ip executing said note herein sued upon and that the said defendants, and each of them, are jointly and severally liable to plaintiff for the payment of the full amount of said note together with interest thereon."
The declaration of trust attached to the petition, and asked to be considered therewith, is signed by the four named trustees, to wit, L. B. Lucius, W. D. Lucius, S. S. Shelby, and S.' M. Trent. It provides that Mrs. Belle Lucius, otherwise known as L. B. Lucius, is the owner of a leasehold interest in a 40-acre tract of land in Stephens county; that by the deed of assignment to her there was conveyed a thirteen-sixteenths interest in all the oil, gas, and other minerals in and under said tract, reserving to the grantors three-sixteenths of such oil, gas, and other minerals. It was further provided that Mrs. Belle or L. B. Lucius conveyed and assigned to the trustees, including herself, all her right, interest, and title to said leasehold interest; that the named persons do declare themselves as trustees of the association to be formed, to be known as the Man O' War Oil Syndicate, and that they should "own, hold and administer the said property and the said trust in the manner and for the prirposes thereinafter stated." The declaration of trust provided that the trustees in their collective capacity should be known as the Man O' War Oil Syndicate, and in said name they should hold, manage, control, and operate the wells to be drilled on the 20 acres; that said trustees should cause to be drilled two wells on the tract, and the output of said wells should be run into pipe lines, and after the payment of the three-sixteenths royalty to thé owner of the lease, 25 per cent, of the remainder should be reserved by the trustees for the purpose of paying the expenses of development and operation, and 75 per cent, should belong to the purchasers and owners of unit certificates; that there were to be 1.500 units of par value of $100 each, and each unit holder should be entitled to one-fifteenth hundredth of the said 75 per cent, of the oil and gas produced on the tract, evidently after the royalty had been paid. It was further provided that:
"The trustees, by the issuance of the said certificates, shall not undertake nor bind themselves nor their successors nor assigns to deliver to the holders of such certificates any specific amount of oil. gas, or other minerals, or to pay any specific amount of money or other thing of value, nor to pay any dividends; but the said certificates shall only represent a conveyance or assignment by the said trustees of a certain proportion of such oil, gas, or other minerals as may be produced and marketed from the said 20 acres of land, as set out in paragraph 6 hereof. And there shall be no liability against the said trustees, or any or either of them, or any of the unit or certificate holders, by reason of a failure to produce oil or gas from the said tract of land; it being understood that by the issuance of the said certificates the said trustees only bind themselves that they are the owners and holders of thirteen-sixteenths of the oil, gas, and other minerals in, under,, and upon the said land; that th'ey will in good faith drill or cause to be drilled at least two wells thereon for the production of oil, gas, and other minerals, as herein provided; that the proportion of such products, whether much or little, as represented by the said units or certificates, shall be delivered in the pipe line for the respective owners and holders thereof; and that the said trustees will not issue in excess of 1,500 units of $100 each against the said 75 per cent, of the gross product of the wells to be drilled on said land."
It was further provided that, in the event of the death of, or total disability of, one of said trustees, all of the rights, powers, and duties originally conferred upon the four should vest absolutely in the survivors, and all vacancies should be filled by the remaining trustees. It was specially provided that:
"The trust hereby created shall not be considered in any sense as either a copartnership or a joint-stock association, nor shall the certificates to be issued by the trustees hereunder be considered or treated as shares of stock, nor as entitling the holders thereof to any profits or dividends out of the funds of said trust, but the same are and intended to be absolute conveyances of a definite and fixed proportion of such oil, gas, and other minerals which *may be produced from the said tract of land, whether same be much or little."
It was further provided in the declaration that after the two wells stipulated should be drilled, and after the issuance and delivery of the certificates of units of stock therein provided, the trustees might at their discretion terminate the trust, and evidence their intention so to do by filing and recording their declarations to that effect in the office of the county clerk of Stephens county.
The defendants filed, on November 7, 1922, an unverified answer consisting of a general demurrer and a general denial. On April 9, 1923, they filed their first amended answer, duly verified, in which they especially denied that either of them had authorized the named trust to act as their agents to conduct the business of the Man O' War Oil Syndicate for them, or that they had executed or signed the note sued on, or that same was signed by any person authorized so to do for them, and especially denied a partnership with any of the trustees, and with any of the other defendants named, or with the Black Hawk Drilling Company, or the Man O' War Oil Syndicate, and denied that they had ever authorized such persons or associations to do any business or to bind them in any way. On January 4, 1923, defendants filed their motion for a continuance, and on January 6th said motion was sustained. On March 9th defendants demanded and .were granted a jury, and on April 9, 1923, were granted leave to file their amended answer, and a second continuance was granted them. On June 11, 1923, a third application by defendants for continuance was overruled. On September 28, 1923, plaintiff dismissed its suit as to defendants other than the defendants heretofore named, and sustained the general demurrer of defendants Adams and Powers, and, plaintiff declining to amend, the court rendered judgment that plaintiff take nothing as to defendant Mrs. Cynthia Creagh. Plaintiff has appealed.
The main complaint on this appeal is that the trial court failed and refused to.grant plaintiff below an interlocutory judgment foreclosing any right of the defendants to make any defense to said note, and granting plaintiff's recovery contingent only upon its compliance with the duty to prove the material averments of its petition. This motion for judgment was filed March 9, 1923. The only answer at that time filed consisted of a general demurrer and á general, denial, unverified. On the same day on which the motion was made and overruled, the defendants demanded a jury, and the same was granted. The record does not disclose whether the demand for a jury was made before the motion for judgment was filed or not. If the affirmance of the court's action in overruling the motion for judgment depended on the demand for a jury being made and granted prior to the filing of a motion, it might be contended that we should presume in favor of the judgment that the demand for the jury had been made and granted before the motion for a judgment had been filed' or presented to the court. But we are inclined to think that it was immaterial as to whether the demand for a jury was made or the motion for judgment was presented first. We think that the. petition of plaintiff, taken as a whole, viewed in connection with the declaration of trust attached thereto and made a part thereof, shows that plaintiff's cause of action, if any, against defendants, appellees here, is,based on the theory that defendants, as purchasers of certificates of units of stock in the Man O' War Oil Syndicate became partners with each other and with the other stockholders, including the trustees of said association. As will be noted, the holders of such certificates had no part in the .election of the trustees, nor any part in the management of the affiairs of the association. By the terms of the articles of the" declaration of trust, the trustees appointed themselves, and said articles especially provided that, in case of a vacancy in the designated trustees, the survivors only had authority to fill such vacancy. Apparently the stockholders were without any authority in the management of the affairs of the organization. The only right that the owners of the units of the stock had was to demand that they be given their due portion of the oil after it had been extracted from the ground and was in the pipe lines, and to receive pay therefor.
In Fisheries Co. v. McCoy, 202 S. W. 343, the Court of Civil Appeals at San Antonio followed the Massachusetts test and held that the association was a partnership because of the declaration of trust; the stockholders reserving the right "to transact other business at the annual meetings than the election of trustees." A writ of error was granted in this case, but we have not found that the Supreme Court has decided the case.
In McCamey v. Hollister, 241 S. W. 689, this court held that the shareholders were liable, because they had the right (1) to hold annual meetings; (2) to instruct the trustees; (3) to audit the books; and (4) to amend the declaration of trust. The majority in that case held that under our laws the pure Massachusetts trust with immunity to its shareholders was impossible, the writer dissenting. The Supreme Court has not yet decided that case. In Oil Lease & Royalty Co. v. Beeler (Tex. Civ. App.) 217 S. W. 1054, Geiselman v. Anderson (Tex. Civ. App.) 242 S. W. 800, Howe v. Wichita Bank (Tex. Civ. App.) 242 S. W. 1095, Morehead v. Greenville Bank (Tex. Civ. App.) 243 S. W. 546, Hardee v. Adams Oil Ass'n (Tex. Civ. App.) 254 S. W. 602, Webster v. Utopia Confectionery (Tex. Civ. App.) 254 S. W. 123, the associations were all held not to be pure Massachusetts trusts, by reason of the fact that shareholders had a part in the management of the business of the association or in the election of the trustees. See West Side Oil Co. v. McDorman (Tex. Civ. App.) 244 S. W. 167; Bingham v. Graham (Tex. Civ. App.) 220 S. W. 105; Davis v. Hudgins (Tex. Civ. App.) 225 S. W. 73; Nini v. Cravens & Cage (Tex. Civ. App.) 253 S. W. 582.
In Wells v. Mackay Telegraph Co., 239 S. W. 1001, the Galveston Court of Civil Appeals held that the shareholders were jointly and severally liable for the debts incurred by the trustees in the conduct of the business of the association. This case has gone as far as any other Texas case, including McCamey v. Hollister Oil Co., supra, in holding the shareholders liable for the debts of the association, and even in this case the grounds for the holding are stated as follows:
"In the instant case the purpose for which the trust was created was conducting a business for the profit of the shareholders, the buying, selling, and developing of oil lands and the refining of oil. Any profits made in carrying pn this business would come to the shareholders in the form of dividends upon or in the increased value of their shares. It seems to us that this character of a trading concern for' profit comes within the purview of our statute, which declares that 'any unincorporated joint-stock company or association' doing business in this state may be sued without making the individual stockholders parties," etc.
In the case of Phœnix Oil Co. v. McLarren, 244 S. W. 830, this court held, in effect, that the organization there involved was "a pure trust," and not a partnership, because "the trustees have the absolute control and management of the company's business and affairs, without reservation of such right in the shareholders; such shareholders have no authority in themselves to remove the trustees', or to elect successors."
In our opinion, the petition does not allege a state of facts which would make the defendants helow liable for the payment of the note sued on, and therefore the judgment of the trial court is in all things affirmed.
DUNKLIN, J., absent and not sitting.
(@=»For other oases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes
<i&wkey;For other oases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes