Court Opinion

ID: 9761312
Source: CourtListenerOpinion
Date Created: 2023-08-29 01:38:21.964461+00
Date Added: 2024-06-11T07:29:22.037354
License: Public Domain

GRIFFIN, Justice
(dissenting).
Being of the opinion that a fiduciary relationship was established between Cain and Tennessee-Louisiana Oil Company, I cannot agree with the majority opinion, and file this dissent.
All emphasis herein supplied, when not otherwise stated is that of the writer of this opinion.
The Plan of Reorganization entered into between Fifteen Oil Company and Tennessee-Louisiana Oil Company provided in Art. 1.1 that Fifteen agrees to transfer to Company (Tennessee-Louisiana Oil Company) all of its assets and properties save and except Fifteen’s corporate charter, by-laws, stock books and corporate seal and the sum of $5,000.00 in exchange for common stock of Tennessee Gas Transmission Company.
By Art. 4.2 of the Plan of Reorganization, Fifteen covenanted that it would cause Fifteen Oil Company to be liquidated and dissolved as promptly as possible after the closing date of the trade, and that after such dissolution, the company and Tennessee Gas Transmission Company should have all rights to the corporate name.
Cain, as president of Fifteen, warranted and covenanted in the Plan of Reorganization as follows: Art. 3.6, “ * * * Fifteen’s officers and directors do not now know nor do they have any basis for knowledge of, nor do they have any reason to anticipate, any litigation or other event or circumstance capable of producing consequences materially adverse to Fifteen except as provided for in Article 5 hereof.” Art. 5 of the Plan provided that all claims, contingencies and liabilities of Fifteen had been set forth in a schedule attached to the Plan, plus ordinary business operating expenses. The schedule attached showed nothing which would disturb Tennessee-Louisiana’s title to the Martinez Lease.
Art. 3.10 of the Plan stated that all of Fifteen’s leases, producing and non-producing, were in full force and effect and Fifteen had peaceable possession of the lands covered by the leases; that Fifteen was not in default in the performance of any of the terms and conditions of any such lease; [and] that "Fifteen has no reason to anticipate the termination of any such leases.”
Art. 3.11 provides in part: “At closing date, Fifteen shall deliver to Company a certificate executed by its president on its behalf to the effect that to the best of the knowledge and belief of Fifteen’s officers and directors, the oil and gas reserve information set forth in Exhibit H to the Memorandum was true and correct and *327constituted all of the pertinent information then available having a material bearing upon the oil and gas reserves of Fifteen, and that there is no fact or circumstances which would have a significant adverse effect upon the oil and gas reserves of Fifteen * * * which fact or circumstance has not been made known to, or information forming the basis therefor made available to the proper authorized representative of the Company.”
Art. 7.4 (conditions precedent to closing of trade) provides:
“7.4 None of the representations and warranties contained in Article 3 and the covenants contained in Section 4.1 (a) through (g) and the condition set forth in Section 6.3 of this Agreement shall be incorrect, untrue or breached in any material respect at Closing Date.”
Art. 7.5 (conditions precedent to closing of trade) provides:
“ * * * and the certificate of Fifteen’s president and treasurer that to the best of the knowledge and belief of Fifteen’s officers and directors, the oil and gas reserve information furnished to Company by Fifteen in the form of a Reserve Report as referred to in Section 3.11 hereof, was true and correct, and constituted all of the pertinent information then available having a material bearing upon the oil and gas reserves of Fifteen, and that there is no fact or circumstance which would have a significant adverse effect upon the oil and gas reserves of Fifteen or upon the reserve estimates in such Reserve Report delivered to Company and which fact or circumstance has not been made known to or information forming the basis therefor made available to the proper authorized representatives of Company.”
A brief résumé of the facts will be helpful in determining whether or not Cain occupied a fiduciary relationship to Tennessee with regard to the Martinez Lease as would require Cain’s conduct to be judged by the standards applied by courts of equity.
The Martinez Lease had been owned and operated from 1936 to 1956 by Mikton Oil Company, which was owned by Fifteen stockholders. During this time Cain was a director of Mikton. J. W. Cain, the father of Dixon H. Cain, had owned 25% of the minerals in the Martinez Lease since 1936. In 1957 Dixon H. Cain commenced handling his father’s affairs.
In 1956 Fifteen acquired the assets of Mikton, which included the Martinez Lease. Dixon H. Cain was president of Fifteen from 1956 until the sale of Fifteen to Tennessee in 1960. By the Plan of Reorganization whereby Tennessee purchased Fifteen, including the Martinez Lease and all of Fifteen’s cash assets, Fifteen acting through Dixon H. Cain as its president, and other authorized officers, made various representations and warranties to Tennessee. Dixon Cain et al. represented and warranted to Tennessee that they did not know or have any basis for knowledge or any reason to anticipate any litigation or other event or circumstance capable of producing consequences materially adverse to Fifteen; that at the time of closing the trade, all of Fifteen’s leases were in full force and effect; that Fifteen was in peaceful possession of its lands and not in default in performance of any of the terms and conditions of its leases; and that Fifteen had no reason to anticipate the termination of any such leases.
On May 2, 1960, the date the transaction was closed, Dixon H. Cain, as president of Fifteen, joined by Fifteen’s corporate secretary, executed a certificate in which it was stated “there is no fact or circumstance which would have a significant adverse effect upon the oil and gas reserves of Fifteen * * * and which fact or circumstance has not been made known to or information forming the basis thereof made available to the proper authorized representative of Company.” This was in keeping with Art. 3.11 as above set out.
*328Under the plan of reorganization Tennessee was not employing Dixon H. Cain and two other officers of Fifteen. Although Tennessee was entitled to all the cash assets of Fifteen, under the plan of reorganization, it made an agreement as to payment by Fifteen of one and one-half years’ severance pay to Dixon H. Cain and two other officers of Fifteen. Tennessee consented to this payment by Fifteen of severance pay “immediately prior to the effectuation of the exchange” from the cash of Fifteen on hand at closing date. This consent was as follows:
“In consideration of such severance payments to Messrs. Cain (et al) Fifteen obligates itself to obtain from them, letter agreement directed to Company to be delivered to Company at closing date that they and each of them will be available to Company in a retained advisory capacity for a period of six (6) months from and after the date of the exchange contemplated hereby in order that there will be no abrupt change in management and in order that Company may avail itself of their special knowledge covering the affairs and properties of Fifteen.”
On May 2, 1960, the closing date, Dixon H. Cain signed a letter agreement addressed to Tennessee which referred to the plan of reorganization whereby he acknowledged receipt of payment by Fifteen of an amount equal to one and one-half times his current annual compensation. (Cain’s severance pay was $57,500.00). This letter states that Cain “does hereby agree that he will be available to you (Tennessee) in a retained advisory capacity for a period of six (6) months from and after May 2, 1960, in order that there will be no abrupt change in management and in order that you may avail yourself of his special knowledge concerning the affairs and properties of Fifteen Oil Company.”
Tennessee in this Court contends that this letter agreement and the facts and circumstances surrounding its execution caused a “fiduciary” or “confidential” relation to come into being as between Dixon H. Cain and Tennessee. Under this relation it is claimed Cain’s conduct must be judged by high equitable standards and not by the standards required in dealings between ordinary parties. Kinzbach Tool Co., Inc. v. Corbett-Wallace Corporation, 138 Tex. 565, 160 S.W.2d 509, 514 (1942); Johnson v. Peckham, 132 Tex. 148, 120 S.W.2d 786 (1938).
“A fiduciary relation, however, is not limited to cases of trustee and cestui que trust, guardian and ward, attorney and client, or other recognized legal relations, but it exists in all cases in which influence has been acquired and abused, in which confidence has been reposed and betrayed. The origin of the confidence is immaterial. It may be moral, social, domestic, or merely personal.” Higgins v. Chicago Title & Trust Co., 312 Ill. 11, 143 N.E. 482 (1924).
“The expression ‘fiduciary relation’ is one of broad meaning, including both technical fiduciary relations and those informal relations which exist whenever one man trusts and relies upon another.” Reeves v. Crum, 97 Okl. 293, 225 P. 177 (1924).
“The term ‘fiduciary’ is derived from the civil law. It is impossible to give a definition of the term that is comprehensive enough to cover all cases. Generally speaking, it applies to any person who occupies a position of peculiar confidence towards another. It refers to integrity and fidelity. It contemplates fair dealing and good faith, rather than legal obligation, as the basis of the transaction. The term includes those informal relations which exist whenever one party trusts and relies upon another, as well as technical fiduciary relations.” (Citing many authorities.) Kinzbach Tool Co., Inc. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509, 512-513 (1942).
See also: 36A C.J.S. 381 et seq.
*329On October 19, 1960, and within the six-months period embraced in the letter agreement, Dixon H. Cain, purporting to represent his father, J. W. Cain, and twenty other lessors, wrote a letter to Tennessee in which he said, among other things:
“During the past ten years, you and your predecessors have not, to my knowledge, conducted any drilling operations, either exploratory or developmental, upon this property. * * * ”
It will be remembered that the predecessors in title to the Martinez Lease were Dixon H. Cain’s companies up to May 2, 1960, when Tennessee acquired title to the Martinez Lease in reliance upon Cain’s representations and warranties contained in the plan of reorganization and also in the certificate signed by Cain May 2, 1960, and which were inducements to Tennessee to complete the purchase of Fifteen. Also, Cain had represented and warranted that Fifteen held peaceful possession of the leases and mineral interest sold to Tennessee and that he knew of no reason or claim that would affect the title to the properties conveyed. In order to get the $57,500.00 severance pay, Cain had signed the letter agreement whereby Tennessee retained Cain in an advisory capacity for six months in order to avail itself of his special knowledge of the properties of Fifteen.
Cain says that this letter was written only in behalf of his father, J. W. Cain, but in this letter calling on Tennessee to drill to 15,000 feet or surrender the Martinez Lease, he says: “This letter is written on behalf of the lessors as a demand for development or reassignment of the lease as provided by its own terms and cannot be otherwise construed.” Cain chose the language of the letter and cannot avoid it. Cain also sent copies of his letter to the twenty other lessors owning mineral interests in the Martinez Lease. Cain testified that when he sent this letter and the copies he was aware that he was taking a position against the interests of Tennessee.
In Louisiana the law requires a lessee of minerals to continue with development of a lease, or release the undeveloped part.
As a result of this letter, Tennessee lost all of the interest in the Martinez Lease purchased from Fifteen except 40 acres surrounding each producing well. Until Cain wrote his letter, none of the lessors or mineral interest owners in the Martinez tract had made any complaint or demand on Tennessee.
Within six months after the letter was written and Tennessee had released the Martinez Lease, Cain became the owner of the J. W. Cain interest and had sold minerals in excess of $40,000.00.
A recitation of Cain’s conduct after he had agreed in return for the $57,500.00 to be available in an advisory capacity and to hold his special knowledge of Fifteen’s leases available to Tennessee, demonstrates that such conduct was in direct violation of his agreement and of the duty he owed to Tennessee, and did not constitute a compliance with the duty he owed to Tennessee for fair dealing and good faith toward Tennessee and which the law required of him.
The meaning and effect of this letter agreement and of Dixon H. Cain’s subsequent conduct is to be decided as a matter of law. However, the trial court submitted the following Special Issue No. One:
“Do you find from a preponderance of the evidence that by virtue of the Flan of Reorganization of Fifteen Oil Company and the Letter Agreement of May 2, 1960, between Dixon Cain and Tennessee Louisiana Oil Company, Dixon Cain agreed to act for Tennessee Louisiana Oil Company to the extent of remaining available in a retained advisory capacity for a period of six months from and after May 2, 1960, in order that there would be no abrupt change in management and in order that Tennessee might avail itself of his special knowledge concern*330ing the affairs -and properties of Fifteen Oil Company ?”
The jury answered this issue, “We do.” Under the facts of this case an affirmative answer was established as a matter of law. The jury answered this issue in the only way it could have answered. Dixon H. Cain has contended throughout this litigation that the trial court erred in submitting this issue, because it submitted a question of law.
Having held that Dixon H. Cain, as a matter of law, occupied a relation to Tennessee which prevented him from acting adversely to Tennessee’s interest with regard to the Martinez and other leases, Special Issue No. One, and the jury’s answer thereto became immaterial. Ramm v. Ramm, Tex.Civ.App., 1956, 294 S.W.2d 174, writ refused, n. r. e.; American Mutual Liability Ins. Co. v. Parker, 144 Tex. 453, 191 S.W. 2d 844, 848 (1946); American Casualty & Life Co. v. Mason, Tex.Civ.App., 1951, 244 S.W.2d 691, writ refused, n. r. e.
I next come to Cain’s contention that Tennessee should have no recovery against him because Tennessee has not been damaged in that (1) it did not pay the $5/,-500.00 severance pay, but same was paid by Fifteen; (2) that Tennessee’s loss of the Martinez Lease was the result of the Louisiana law and Tennessee’s decision not to further develop the lease, therefore, Cain was guilty of no wrong in writing the letter of October 19, 1960; (3) that Cain only agreed to be available to Tennessee for its consultation with regard to Fifteen’s properties, and Tennessee never called on Cain for information regarding the Martinez Lease; (4) that Tennessee should not have restitution of the $57,500.00, because to do so would unjustly enrich Tennessee; (5) that Tennessee could not recover any damages for loss of the Martinez Lease because it was lost as a matter of law and Cain’s letter was not the cause of Tennessee’s loss; and (6) Cain contends that there was animosity between him and Tennessee and they dealt at arm’s length, therefore, he owed no duty to Tennessee.
In answer to (1) above, it is true that Tennessee permitted Fifteen to pay out of its cash this sum to Cain and the purchase price paid was reduced by a like amount, but it is also true that Fifteen had contracted to deliver all of its cash except $5,000.00 to Tennessee, and it was necessary for Tennessee to consent to the use of the $57,500.00 by Fifteen in paying the severance payment to Cain. Cain recognized this when he, as president of Fifteen, signed the plan of reorganization and again when he signed and delivered the letter agreement of May 2, 1960, as a condition precedent to being paid the $57,500.00. He cannot now be heard to contest Tennessee’s right to secure damages or restitution for Cain’s violation of the letter agreement. See also statutes and authorities set out in the first part of this opinion regarding corporate mergers etc.
As to the restitution and damages features of this cause — (4) and (5) — Tennessee had sued for either restitution or damages. In answer to an issue inquiring of the jury “what sum of money would reasonably compensate Tennessee-Louisiana Oil Company for the damages which resulted from” Cain’s action adverse to Tennessee during the six months Cain had agreed to serve in a retained advisory capacity, the jury found $60,000.00. In its motion for judgment, Tennessee remitted $2500.00 of this amount and asked for judgment for $57,500.00 damages, which was granted by the trial court.
“It is worthy of notice that a tort may involve acts which also constitute a breach of contract, and that the same facts will sustain either an action ex delicto or ex contractu, so that an action ex delicto will lie, notwithstanding the act complained of would also be ground for an action ex contractu. Under this rule, it has been held that accompanying every contract there is a common-law duty to perform with *331care, skill, reasonable expedience, and faithfulness the thing agreed to he done, and the negligent failure to observe any of these conditions is a tort, as well as a breach of contract. Under such circumstances, the general rule is that the plaintiff may elect which to pursue.” 52 Am Jur. § 27.
“The word ‘restitution’ was used in the earlier common law to denote the return or restoration of a specific thing or condition. In modern legal usage, its meaning has frequently been extended to include not only the restoration or giving back of something to its rightful owner, but also compensation, reimbursement, indemnification or reparation for benefits derived from, or for loss or injury caused to another.” 46 Am.Jur. § 99.
The court in Kinzbach Tool Co., Inc. v. Corbett-Wallace Corporation, 138 Tex. 565, 160 S.W.2d 509, 514 (1942) provides an answer to Cain’s contention that Tennessee should not recover because it suffered no loss, when the court said:
“It is beside the point for either Turner or Corbett to say that Kinz-bach suffered no damages because it received full value for what it has paid and agreed to pay. A fiduciary cannot say to the one to whom he bears such relationship: You have sustained no. loss by my misconduct in receiving a commission from a party opposite to you, and therefore you are without remedy. It would be a dangerous precedent for us to say that unless some affirmative loss can be shown, the person who has violated his fiduciary relationship with another may hold on to any secret gain or benefit he may have thereby acquired. * * * ”
Contention (2) above is answered by the fact that prior to Cain’s letter no lessor of the Martinez Lease had made any complaint as to Tennessee’s title not being valid, nor was seeking a forfeiture of the lease. Tennessee had owned this lease a little over five months, but Cain had known all the details for more than fifteen years. In addition, he had represented to Tennessee that its title to Martinez was good. Having agreed to serve as advisor to Tennessee, Cain cannot be heard to say there was no wrong in putting in motion a chain of circumstances resulting in Tennessee’s loss of the Martinez Lease.
Contention (3) is answered by the fact that Cain having written the letter seeking cancellation, it logically follows he could not thereafter be a faithful or trusted ad-visor of Tennessee so as to protect Tennessee’s interest in this lease.
(6) As to dealing at arm’s length with Tennessee, the record will support a finding that the sale negotiations were carried on at arm’s length, but having arrived at a result leading to the. consummation of the sale, and Cain having accepted Tennessee’s terms under which the |57,500.00 was paid to him, he was not dealing at arm's length as to the retained advisory capacity. He had superior knowledge of Fifteen’s properties sold to Tennessee, and with regard to these properties he owed Tennessee the duty to take no action adverse to its interests.
“When persons enter into fiduciary relations each consents, as a matter of law, to have his conduct towards the other measured by the standards of the finer loyalties exacted by courts of equity. That is a sound rule and should not be whittled down by exceptions. If the existence of strained relations should be suffered to work an exception, then a designing fiduciary could easily bring about such relations to set the stage for a sharp bargain. * * * ” Johnson v. Peckham, 132 Tex. 148, 120 S.W-2d 786 (1938).
“One occupying a fiduciary relationship to another must measure his conduct by high equitable standards, and not by the standards required in dealings between ordinary parties.” (Citing authorities) Kinzbach Tool Co., Inc. v. Corbett-Wallace Corpora*332tion, 160 S.W.2d 509. Cain claims there was animosity between him and Tennessee which would prevent any fiduciary or confidential relationship coming into existence. The record fails to show any animosity up to closing of the trade. It shows that after the first attempt to make a trade with Tennessee failed, many of Fifteen’s stockholders were dissatisfied that its officers had not closed a deal with Tennessee and insisted that the negotiations be reopened and a deal closed. It was partly in answer to this demand that further negotiations were begun which resulted in the final merger.
I would reverse the judgment of the Court of Civil Appeals and affirm the judgment of the trial court.
CALVERT, C. J., and GREENHILL and POPE, JJ-, join in this dissent.