Court Opinion

ID: 5013481
Source: CourtListenerOpinion
Date Created: 2021-10-01 03:12:47.608112+00
Date Added: 2024-06-11T08:17:31.165484
License: Public Domain

McDONALD, Chief Justice.
The purpose of this suit is to impress a constructive trust upon an eighty acre oil lease in Archer County on the theory that a director of a corporation purchased the lease for himself after having been directed to purchase it for the corporation. The corporation has been dissolved since the date of the purchase, and the suit is maintained by the dissolved corporation by and through its officers and directors, by certain stockholders for themselves and all the other stockholders, and by certain other interested parties. The defendants are the director who acquired the lease, two other persons to whom interests in the lease were transferred, and the former president of the corporation. Plaintiffs offer to do equity by paying to defendants, the appellees, such amounts as they have expended in the purchase and development of the lease. Damages are sought in the alternative.
Deep Oil Development Company, the corporation in question, was engaged in the oil producing business at the times material herein. L. F. Cox was its superintendent of production and a director in the company. Cox was also engaged in the oil business on his own account, with the consent and approval of the Deep Oil Development Company. It was Cox’s custom, when he found oil properties for sale that he considered would be desirable properties for Deep Oil to own, to bring such poperties to the attention of the company ■before making any effort to acquire them for himself. Prior to August 29, 1947, Cox learned that a certain eighty acre lease, which we shall refer to as the Wilson lease, could be bought for $32,000, $12,000 in cash and $20,000 payable out of oil. He thought that the lease was a good one, and asked the secretary of the company to call a meeting of the board of directors to consider the matter. Five of the seven member board met in a special meeting on August 29, 1947, Cox recommended the purchase of the lease, and by resolution unanimously adopted, the board authorized the purchase. On the same day Cox obtained from the owner of the lease an oral agreement to sell it to the company on the terms aforesaid.
John W. Thomas was the president and general manager of the company. He was away on a vacation at the time of the board meeting just mentioned, but returned and on September 2nd learned of the plans to buy the Wilson lease. On that day he told Cox that the company would not go through with the deal and said that he would call on the directors to rescind their action of August 29th. Later he told Cox that a majority of the board had agreed with him not to buy the lease. Cox said that he had committed the company to buy it, whereupon Thomas asked Cox why he did not buy it himself. Cox replied that he did not have the money available. Thomas told Cox that he would lend him the $12,000. On September Sth Thomas sent his personal check for $12,000 to the owner of the lease, and transfer of the *315lease was made to Cox. Cox gave Thomas his note for the $12,000.
In the latter part of October Cox sold a half interest in the lease to Thomas’ two children. Thomas represented his children, who were adults, in the purchase from Cox.
In December Cox drilled a producing well on the lease, other wells followed, and the jury found that the lease was worth $750,000 at the time of trial.
Viewing the evidence in the light most favorable to the verdict, it shows that a majority of the stockholders of Deep Oil •had decided, prior to August 29, 1947, that it would be to the best interest of the stockholders to bring an end to the business of the company. They understood that the federal income taxes would be less if they would sell their stock in the corporation than they would be if the corporation should sell its properties and divide the proceeds among the stockholders. With the consent of the majority in interest of the stockholders, although it appears that on advice of counsel they were careful not to take any concerted action in the matter that could be regarded as an act of the corporation, Thomas negotiated with several prospective purchasers. The evidence shows that in all of such negotiations he was undertaking to find a purchaser who would buy the stock of all who wished to sell.
Due to the size and complexity of the business, affairs and properties of the corporation, a thorough estimate of the value of the stock could be made only after an examination of the company’s properties that would involve an expenditure of a considerable amount of time and money. The evidence shows that it was customary in such a situation for the seller to agree not to disturb, at least to any material degree, the capital structure of the company while an appraisal was being made by a prospective purchaser, and Thomas testified that he committed himself to such purchasers not to buy new properties, sell old properties, or otherwise change the capital structure during such period of investigation.
Prior to August 29, 1947, conversations had taken place between Thomas and E. H. Eddleman looking toward a possible purchase of stodc by Eddleman, and before he left on his vacation, several weeks prior to August 29th, Thomas instructed the secretary of the company to make all books and records of the company available for inspection by Eddleman. Thomas testified that he had an understanding with Eddle-man that the capital structure would not be disturbed, etc., and Eddleman, although not agreeing that he and Thomas had such an understanding, testified that such a practice was customary in like situations.
It was because of the understandings just mentioned, Thomas told Cox, that the company would not go through with the purchase of the Wilson lease.
The case was submitted to the jury on 73 special issues. Some of the material findings of the jury are in effect as follows:
(1) It would have been beneficial to the company at all times from August 29th up to the time the first well was finished for the company to have acquired the lease.
(2) Cox did not know, when he acquired the lease from its owner, that the board of directors had not in a board meeting rescinded its action of August 29th, but had sufficient knowledge to put a prudent person on inquiry, which, if pursued with reasonable diligence, would have disclosed such fact.
(3) In September four named directors, including Thomas but excluding Cox, consented as individual directors to rescind the August 29th resolution, but believed at the time that it was to the best interest of the corporation to acquire such lease, and two of the four did not know that Cox would get the lease if the corporation did not take it.
(4) When Cox borrowed the $12,000 from Thomas and agreed to purchase the lease for himself he believed in good faith that he was acquiring good title to the lease.
No issues'were submitted to the jury, nor requested, concerning Thomas’ good faith in the matter, although the jury found that Thomas’ two children believed in good *316faith that they were acquiring good title when they bought an interest in the lease and did not know that Deep Oil was claiming any interest. Nor were any issues submitted or requested inquiring if Cox and Thomas had agreed that Thomas or his children should have an interest in the lease.
After making an exhaustive investigation of the properties, business and affairs of the company, in which attorneys, certified accountants and others were employed, Ed-dleman agreed in October to purchase the stock of all who wished to sell, provided as many as eighty per cent would sell, and on November 19th and 20th completed purchases of 92 per cent of the 400,000 shares of stock at $4.10 per share.
On November 20th a special directors’ meeting was held, which was attended by all of the directors of the company, and by Eddleman, Ford, Gay and Rogers, the latter four of whom were not then officers or directors. Thomas resigned and Eddleman was elected director and president. The other six directors tendered their resignations, but the resignations were not then acted upon and the meeting was postponed to November 25th. At the outset of the November 20th meeting the minutes of the August 29th meeting were read, which included the resolution authorizing the purchase of the Wilson lease.
On November 25th Eddleman and three other directors met. Resignations of all but one of the old directors were accepted, although two of them, Cox, and Coffey the secretary of the company, were reelected as directors. Mr. Humphrey, an old director, remained on the board, his resignation not having been accepted, and Gay, Ford and Rogers were elected as new directors. The new board was thus composed of Ed-dleman, Humphrey, Cox, Coffey, Gay, Ford and Rogers.
The jury also found in substance as follows:
(1)Eddleman had actual knowledge of the August 29th resolution on November 20th, and he failed to notify the defendants of any claims the plaintiffs might have within a reasonable time under all the facts known to him at that time.
(2) Eddleman had sufficient knowledge-to put him on inquiry at the time he bought the stock in the company that the directors had passed the resolution of August 29th and that the company did not have apparent title to the lease.
(3) Eddleman did not within a reasonable time after he bought the stock advise-any of the defendants that Deep Oil might claim the lease or an interest therein.
(4) Humphrey knew prior to November 25th that the lease had not been bought for the company but had been taken in Cox’s name, and prior to November 25th he acquiesced in the company not getting it and’ in Cox getting it.
(5) Ford had conscious knowledge on November 20th that the directors by resolution had directed Cox to purchase the lease for the company, and after he learned such fact acquiesced in the company not getting it and in Cox getting it. After he learned such fact he waited an unreasonable length of time before the claim of the company was asserted to the lease.
(6) Findings similar to those mentioned' in the next preceding paragraph were-made with respect to Eddleman, Gay and Humphrey. It is undisputed that Coffey knew all along that the company did not get the lease and that Cox did.
(7) A majority of the directors, excluding Cox, as directors or trustees of the corporation, delayed filing suit until they determined that the first well drilled by Cox was a producer.
(8) Eddleman, after he discovered the-true facts, delayed advising the other directors until he determined that the first well was a producer; and also delayed' giving any notice to any of the defendants that plaintiffs might claim an interest in the lease until he determined that it was a producer.
(9) When Cox borrowed the $12,000 from Thomas and agreed to take the lease, Thomas told him that the directors-had agreed to rescind the August 29th resolution. Cox relied on such statement and *317had no knowledge that the company was claiming the lease or any part of it.
(10) Prior to August 29th Thomas agreed with prospective purchasers of stock while such purchasers were checking assets and investigating the value of such stock that Thomas would not consent to the company’s disturbing its cash position by sales or purchases of capital assets. In making such agreement he was acting for the benefit of all stockholders who desired to sell their stock. He knew that there were some stockholders who did not want to sell their stock.
(11) The directors who agreed in September to rescind the purchase resolution knew that some of the stockholders did not wish to sell their stock, and agreed to rescind for the benefit of the stockholders who did desire to sell.
Appellants, having been denied a recovery in the trial court, present 104 points of error. In view of what we conceive to be the controlling issues in the case and the proper rulings with respect thereto, we shall not discuss, at -least in detail, a good many of the contentions that are made by the parties in their S00 pages of printed briefs, although we have carefully considered all of them.
It is a familiar rule of equity that a constructive trust may be impressed on property which has been bought by an agent who should have bought the property for his principal. The rule has often been applied in cases where property has been bought by an officer or director of a corporation.
 A constructive trust does not depend on an enforceable agreement to hold property as a trustee, but in the usual case is impressed against the will of the person sought to be held as a trustee. It is a device employed by the courts of equity to get at a wrongdoer. The suit to have such a trust declared is essentially an equitable proceeding. Its purpose is to provide relief against one who “by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or questionable means, or who in any way against equity and good conscience, either has obtained or holds the legal right to property, which he ought not, in equity and good conscience, hold and enjoy.” 54 Am.Jur., page 167.
It is not the strict letter of the law that will determine the rights of the parties. If it were so, the plaintiffs could not recover here because they have neither a conveyance good at law nor an enforceable contract for a conveyance. The conduct of the parties, both plaintiffs and defendants, is to be measured by equitable standards. Integrity and fidelity, fair dealing and good faith, these rather than strict legal obligations, will establish the basis on which the case must be decided. Kinzbach Tool Co., Inc., v. Corbett-Wallace Corporation, 138 Tex. 565, 160 S.W.2d 509.
Appellants argue much about the fact that there was no rescission of the August 29th action of the board in a subsequent board meeting. They discuss at great length the rules pertaining to agreements between officers and directors and the corporations they serve. They say that there was no valid agreement on the part of the corporation to surrender or transfer to Cox its prior right to purchase the lease. They say that the directors had no authority to act to the detriment of the corporation by abandoning a purchase that would have been beneficial to the corporation. They suggest bad faith on the part of Thomas and the directors in wilfully giving up an opportunity to make a profitable deal for the corporation in order that some of the -stockholders might sell their stock. They argue with great insistence that the evidence shows without dispute that there was neither a rescission of the purchase resolution, nor acquiescence in the abandonment of the purchase, nor ratification of Cox’s purchase, by a majority of directors familiar with all the facts.
Much of plaintiffs’ argument appears to be based on the thought -that a trust must be declared unless defendants show a valid, enforceable contract between Cox and the company for a conveyance or release of the company’s rights in the lease, and that in determining whether *318or not there was a valid agreement between the company and Cox, a director, we must apply the general rules of corporation law pertaining to contracts and conveyances between a corporation and one of its directors. The outcome of the suit depends neither on th.ere being a valid agreement on Cox’s part to acquire title and hold it for the corporation, nor on a valid agreement on the part of the corporation to transfer title to Cox. There was no valid agreement of either kind in this case. In fact, there was no agreement, valid or invalid, of such nature. We are not called on to determine the validity of an agreement between Cox and the corporation, but to determine whether there has been on Cox’s part such a breach of fidelity to the corporation, measured by equitable standards and not in terms of legal obligations, as would render it inequitable for defendants to hold and enjoy the property, and likewise to determine whether there ha's been such conduct on the part of the corporation, also to be measured by equitable standards and not in terms of legal obligations, as would render it inequitable for plaintiffs to have and enjoy the property. The general burden of proving a case is on the plaintiffs. The general rule also is that the proof relied on to establish the trust must be clear and satisfactory. 54 Am.Jur., pp. 465-466.
 We will measure neither the acts of the defendants nor those of the plaintiffs by the strict letter of the law, because, as we have said, to do so would usually defeat any effort to erect a constructive trust. At law, as distinguished from equity, the corporation had no prior right; it had no title or interest of any kind, in the Wilson lease simply by virtue of the passage of a resolution authorizing its purchase. To have acquired . title or an interest under the law, the corporation would have to have followed the action of its directors by paying the purchase price and obtaining a conveyance, or entering into a valid contract to convey with the owner of the lease. If the plaintiffs resort to the remedies of equity to assert a right they could not assert under the law, than their own actions must be measured by equitable standards. They may not be relieved of thé effect of the strict letter of the law in order to invoke equitable remedies against the defendants, and yet take cover under the strict letter of the law when their own acts are measured by equitable standards.
Neither formal action of the directors, nor knowledge by them that Cox was going to buy the lease if the company did not, nor anything other than mere inaction, was required on the part of the company to abandon the purchase of the lease. All that the company had to do not to get ■the lease was simply to fail to follow through by paying the purchase price and obtaining a conveyance. The evidence indicates, and common knowledge would tell us the same thing, that in view of developments in the areas near this lease prompt action would have been necessary to acquire the lease from the owner at the price at which it was then available.
Appellants appear to feel that the evidence shows that Thomas and Cox must have planned to divert the purchase from the company to Cox in order that they might make a private'profit out of the deal, ■and they lay especial emphasis on the fact that in the latter part of October a half interest in the lease was transferred to Thomas’ two children. No issues were submitted to the jury concerning, any such plan or conspiracy, and the record does not justify a holding that the undisputed evidence shows such facts as a matter of law.
In some circumstances concealment of actions may constitute a badge of fraud. Here, however, there is ample evidence to show that Cox concealed his purchase from no one. The findings of the jury are that a majority of both the’ old and the new boards knew about it. Cox told Eddleman about the lease even before he brought it to the attention of the directors, and asked Eddleman if he thought it would be a good buy. Later he told Eddleman that he had bought the lease himself. Eddleman testified that “everybody” in Wichita Falls knew that Cox had acquired the lease and was drilling *319on it. In this connection it might be mentioned that Eddleman had had many years’ experience in the oil business, and had practiced law for several years before he entered the oil business, and had long been acquainted with Thomas, Cox, and the Deep Oil Development Company. Cox continued to serve as a director of the company after the stock purchase by Ed-dleman, assisted the new superintendent of production in his duties, and, after he began drilling on the lease, frequently told the new superintendent about the progress on the well. It is true that Eddleman testified that he did not know of the August 29th action of the directors until about the time the well was finished, but there is nothing to show that Cox concealed any of the facts, and the jury found, as above shown, that Eddleman knew about the matter on November 20th, which was the day the directors held a meeting, Eddleman was elected president, and the minutes of the August 29th meeting were read. The jury may have given weight to the fact that the exhaustive investigation of the books, records, properties and business of the company which Eddleman had made before he bought the stock included an examination by an attorney of the minute book of the company.
The failure of the company to acquire this lease, as we interpret the evidence in the light of the findings of the jury, was not due to Cox’s purchase of it, but was due to the fact that Thomas, the president and general manager, and a majority of the directors, even though they acted individually and not in a meeting, decided to and did abandon the purchase. There was not another board meeting until November 20th, and there is no evidence showing any effort on the part of the directors or any of them to follow up the action taken on August 29th, there is no suggestion of anything done to override the decision which Thomas had announced not to buy the lease, and the evidence supports the conclusion that a majority of the directors, together with the president and general manager of the company, intended to abandon the purchase, knew that the purchase had been abandoned, and knew that Cox 'had purchased the lease after the company had failed to go through with the purchase.
So long as the company desired to acquire the lease, it was Cox’s duty under the circumstances not to do anything to frustrate that desire. But the evidence is sufficient to show that he discharged with fidelity every obligation 'he owed the company, and that it was only after it reasonably appeared to him that the company was not going to buy the lease that he acquired it for himself. The language of the opinion in Green v. Hall, Tex. Com. App., 228 S.W. 183, 185, where the court refused to impress a constructive trust, is somewhat applicable to the facts of the case before us: “Because he was director and general manager, the law did not impose upon him the burden to personally undertake to carry out the contract of the company, but only demanded that he exercise ordinary care, and in good faith attempt to carry out the duties imposed by the trust. This the jury found that he did, and after the company’s failure, nothing prevented him from leasing the land.”
The findings of the jury are to effect that the new directors, including Eddleman, who had acquired 92 per cent of the stock, learned of the material facts, but laid claim to the lease only after it was seen that Cox’s well was a producer. Appellants argue that the officers had no lawful right to waive claim to a valuable piece of property, that they could not acquiesce in the alleged fraud except with full knowledge of all the facts, and not then to the detriment of the corporation, and that they could not, under the circumstances, lawfully agree that Cox should have a valuable lease that rightfully belonged to the corporation. Again it must be remembered that neither the plaintiffs nor the defendants are relying on valid legal obligations. The question is whether the facts and circumstances require that legal rights and titles ibe disregarded in order that justice may be done. The company, in the instant case, could have acted only through its officers, directors, and agents. Its conduct, like that of the defendants, must be measured by equitable standards, and not in *320terms of legal obligations that could be enforced in court at law, and the conduct which we necessarily have to consider is the conduct of those persons who had the right to and did represent the corporation in carrying on its business and affairs.
In Russell v. Republic Production Co., 5 Cir., 112 F.2d 663, 666, a case cited by appellants, a trust was declared, but the •court declared that the one seeking to impose the trust, “if it knew of these dealings, ought promptly to have elected whether to claim and pay for the purchases or waive its rights.” As authority for its declaration the court cited Hoyt v. Latham, 143 U.S. 553, 12 S.Ct. 568, 36 L.Ed. 259, where it was said that under the circumstances of the case the plaintiffs were fully informed of the facts or at least were informed enough to put upon them the necessity for further inquiry, and that they should have taken immediate action to claim the property. It was said that the evidence showed on the part of plaintiffs .a desire to wait and see whether the transaction in question would prove to be a successful speculation.
In deciding whether or not a trust should be constructed, we are limited to the facts found by the jury and such other facts as were established by undisputed evidence. Such facts, in our opinion, do not provide a sufficient basis for the construction of a trust. We do not find such wrongdoing on the part of Cox or on the part of Thomas’ two children as would warrant a holding that it would be inequitable, or against good conscience, for them to hold and enjoy the property. It is further our opinion that the conduct of the plaintiffs and those who preceded them in interest was such as to bar them from the recovery sought in this suit. In our opinion it would be inequitable and against good conscience for the plaintiffs, in the face of facts found by the jury, to have and enjoy this property, in the purchase and development of which they risked nothing, and which they came forward to claim only after it was proven to be oil-producing.
Judgment of the trial court is affirmed.