Court Opinion

ID: 5015764
Source: CourtListenerOpinion
Date Created: 2021-10-01 03:29:26.461683+00
Date Added: 2024-06-11T08:17:35.936032
License: Public Domain

I respectfully dissent because, in my opinion, there is nothing in the transactions between the Bank and the Tool Company nor in the transactions between the Bank and Mystic to create liability of the Bank for Mystic's debt to the Tool Company.
 The Bank and the Tool Company
James M. Gray, Credit Manager of McCullough Tool Company, testified that in October, 1949, the company began selling to Mystic Oil Corporation. At that time he wrote 'One of our usual credit inquiries, a stereotyped form letter' to appellant, Mercantile National Bank of Dallas.
This inquiry was not answered by the Bank up to November 29, 1949, when Mr. Gray again wrote the Bank concerning *Page 879 
Mystic and its Vice President, Mr. Burns, from which letter I quote:
 "Fearing that our letter to you of October 27, may have gone astray in the mails, we are writing again to request the benefit of your experience and information pertaining to the above.
 "Mr. Burns is identified we understand with the Mystic Oil Corporation of Brady, Texas, which opened an account with us in October 1949 and which has settled the initial transaction promptly. From the meager information thus far obtained, we feel that Mr. Burns is a responsible business man, but for the completion of our confidential records we would greatly appreciate whatever you can add as to his character and financial responsibility as we wish to be in a position to serve this mutual customer's interest fully."
This letter was answered by the Bank on November 19, 1949, as follows:
 "McCullough Tool Company P. O. Box 2575 Houston, Texas
 "Attention Mr. J. M. Gray
 "Gentlemen:
 "Your letter of November 11th has not been answered because we have been trying to get some information regarding the Mystic Oil Corporation of Brady, Texas, which we understand is owned by a Mr. Shanahan and Mr. Louis Burns. The information we have now is that they have several wells an they have requested us to send our geologist out to make a report on the wells as they desire to make a loan in connection with the properties. Mr. Louis Burns of Brady, Texas, has been doing business with us for a number of years, having been in the machinery business, and we have loaned him on a secured basis and he has a contingent liability on a number of notes where he has sold machinery and we are carrying the notes. Just as soon as we are in a position to give you additional information on the Mystic Oil Company, we shall be happy to do so.
 "Yours very truly, /s/ James H. Rankin Vice President."
Credit Manager, Mr. Gray, diligently pursued the Bank further as shown by his following testimony:
 "Q. Now, subsequent to that time, (November 19) did you have any telephone conversations with Mr. Rankin? A. Yes; I did.
 "Q. Do you now remember what date you had the first telephone conversation with him? A. It seems to me that it was during December sometime-sometime in December of 1949.1
 "Q. Will you tell the court the gist of that conversation? A. The gist of it was that the Mercantile National Bank was taking a deed of trust on the various properties of the Mystic Oil Corporation to cover all of the wells producing or would be producing, and contemplated making advances to the Mystic Oil Corporation for the payment of their bills and obligations incurred in connection with their Tom Green County oil development.
 "Q. Was that the J. Wiley Green lease? A. Yes; the Green Number Five was the well that we were interested in; and I understood from that conversation they included that well the same as the others.
 "Q. Subsequent to that telephone conversation and before the 30th of December, did you have another occasion to communicate with Mr. Rankin? A. I did.
 "Q. Did you send him a telegram? A. I did."
The telegram referred to was dated December 28, 1949, and reads:
 "Mystic Oil Corporation owes us $2,300, our limit unless arrangements to finance through your bank are materializing *Page 880
 satisfactory. Please write us in confidence. McCullough Tool Company, J. M. Gray."
The Bank did not reply to this telegram immediately but Credit Manager, Mr. Gray, was not to be shaken. He telephoned the Bank and according to him his conversation with Mr. Rankin was:
 "Well, he told me that the deed of trust-I believe he told me the deed of trust had been executed and that everything was going along satisfactorily and that a number of the bills on complete wells had been paid; that the Mercantile National Bank was paying these bills as the wells were completed as producers."
On December 30th, the Bank did answer the telegram by a letter set out on page 7 of the majority opinion (250 S.W.2d 874) I repeat, for emphasis, the concluding paragraph of that letter:
 "The company hopes to bring this well in within the next fifteen days, and if the well is satisfactory, we will make further disbursements which should include you accounts."
Subsequent to December 30, Mr. Gray testified that he had telephone conversations with Mr. Rankin on January 16, 1950, January 23, and January 30, all initiated by Mr. Gray.
Before these conversations occurred Mystic's account with the Tool Company was complete as the last item charged thereto was dated '1-12-50.'
The substance of the conversations on the 16th and 23rd was that well No. 5 had been reported a good producer and 'that it looked like everything would work out satisfactorily and that we would get our money.'
The conversation of the 30th was, as reported by Mr. Gray:
 "When I talked to him, he said they had looked through their files and did not seem to have copies of all of our bills, and he wanted all our bills sent in so they would be sure and have them; he told me to send them in and we would get our money."
Mr. Gray sent the Bank the bills mentioned but received no response thereto from the Bank.
On February 9, 1950, the Bank wrote the letter set out on page 7 of the majority opinion.
The above is the sum and substance of all transactions between the Bank and appellee.
To me, these transactions mean this and no more: Mr. Gray is a very aggressive and persistent Credit Manager. Mr. Rankin is a very courteous and accommodating Bank official.
My conclusion is that these transactions form no basis for liability of the Bank for Mystic's bad account with the Tool Company.
 The Bank and Mystic
In considering the transactions between Mystic and the Bank, it should be borne in mind that the only concern which the Tool Company has in these matters is to establish, if it can, an enforceable contract on the part of the Bank to pay Mystic's debt to it.
Since it is not contended that the Bank executed a written contract to pay Mystic's debt to the Tool Company, the evidence must show not only that the Bank agreed to pay the debt but that in so doing the Bank agreed to pay its own debt, otherwise the promise is within the Statute of Frauds. Spann v. Cochran Ewing, 63 Tex. 240.
In addition to the evidence referred to in the majority opinion I desire to quote the uncontradicted testimony of Mr. H. M. Pryor, Senior Vice President of the Bank, who was in active charge of the loan to Mystic, explaining the amount for which the note was made.
 "Well that goes back to about December 20th when Mystic Oil Corporation was applying for an oil production loan; at that time they did not have a pump for Well number four, and before we could determine how much we would loan them on one, three, and four, it was necessary to advance four thousand dollars for that pump and well number four was put *Page 881
 on production, and we were not able to check number four until some time along in January; so we could not determine how much we would loan on one, three, and four, Shanahan was in Texas at the time; he is a resident of Massachusetts, and he wanted to go home, and he asked that we write the loan for a total of what they estimated would be necessary for wells one, three, four, and five; so he asked that we make it enough for the full amount, so he would not be involved with another note and another trip down here."
Mr. Shanahan was Mystic's President and the only officer who executed the note in its behalf.
Both Mr. Rankin and Mr. Pryor denied that either of them or the Bank ever made an agreement to pay Mystic's debt to the Tool Company.
The record shows that the $211,360.51 disbursed by the Bank on January 13, 1950, was done so upon written instructions from Mystic. The manner of accomplishing this disbursement was by placing such amount of money to the credit of Mystic and issuing cashier's checks against such account.
Mystic never did instruct the Bank to pay the Tool Company.
The full face of the note was never deposited to Mystic's account or paid to it or for its benefit. There never was any of Mystic's money in the Bank out of which the Tool Company's debt could be paid.
If the Bank has breached its contract to lend Mystic the face amount of the note that is a matter between Mystic and the Bank and with which the Tool Company and this Court has no concern.
In arriving at the full and true meaning of the transaction between Mystic and the Bank these rules of law are applicable and must be considered:
 "Parties are presumed to contract for themselves. It follows that a contract will not be construed as having been made for the benefit of a third person unless it clearly appears that such was the intention of the contracting parties.' Citizens National Bank in Abilene v. Texas Pacific Railway Co., 136 Tex. 333, 150 S.W.2d 1003, 1006.
 "One claiming to be a third party beneficiary under a contract alleged to have been made for his benefit cannot recover thereon merely because he will be incidentally benefited by its performance. He must be a party to the consideration or the contract must have been entered into for his benefit, 13 C.J. 709, sec. 817, and he must accept it as made and must succeed or fail upon its terms.' Price v. Lee, Tex.Civ.App., 119 S.W.2d 673, 675 (Waco, writ denied.)
 "An incidental beneficiary acquires by virtue of the promise no right against the promisor or the promisee.' Restatement of the Law of Contracts, Sec. 147, which gives the following illustration on page 155:
 "B promises A for sufficient consideration to pay whatever debts A may incur in a certain undertaking. A incurs in the undertaking debts to C, D and E. If, on a fair interpretation of B's promise, the amount of the debts is to be paid by B to C, D and E, they are creditor beneficiaries; if the money is to be paid to A in order that he may be provided with money to pay C, D and E, they are at most incidental beneficiaries."
In have no difficulty in concluding that, under this record, the Tool Company was at most, an incidental beneficiary.
The Bank made a loan to Mystic for a purpose. This purpose was to enable Mystic to pay its debts and drill other wells. The amount of the loan was large and, in the exercise of caution and prudence, the Bank made the disbursements itself rather than turn the money over to Mystic for distribution. The money was disbursed by the Bank in accordance with written instructions from Mystic.
There is no evidence which I can find which even suggests that the Bank assumed *Page 882 
payment of the Tool Company debt or that the Bank made such debt its own.
A fair interpretation of the agreement between the Bank and Mystic is that the primary motive of the Bank was to make a good loan and the primary motive of Mystic was to stay in the oil business. Benefits conferred by this agreement upon creditors of Mystic were derivative only and did not make them 'creditor beneficiaries.' Williston on Contracts, Vol. 11, Sec. 402, p. 1157.
There is yet another matter which, in my opinion, precludes recovery by the Tool Company.
Assuming that the Tool Company was a third party creditor beneficiary then it must accept the contract as made. This contract was, at the most, that the Bank would pay the cost of drilling well No. 5 only in the event that it was satisfactory to the Bank or was a 'commercial producer.'
It is obvious that the well was not satisfactory to the Bank because it refused to pay for its drilling.
Was the well a 'commercial producer'?
The trial court found 'that before there was any obligation (on the part of the Bank) to pay for materials or labor or services in the drilling of any well that it must be a commercial producer. * * *'
The lower court further found that the Bank had on hand more than sixty-seven thousand dollars which was to be used in paying expenses in connection with well No. 5, 'provided well 5 was a commercial producer, that is, produced oil in paying quantities.'
The court's definition of a 'commercial producer' is plucket out of thin air. There is no evidence to authorize the court's definition.
The court found that well No. 5 was brought in for 38 barrels per day and that it was a commercial producer, 'that is, that it would produce oil in paying quantities.'
The majority say that the record does not 'affirmatively show what meaning was attached to the term 'commercial producer,' however, we think it is sufficiently clear that the term was used to mean that well No. 5 would produce oil in paying quantities.'
 "The words 'paying quantities' as used in an oil and gas lease have received judicial construction and application. They mean that the oil and gas discovered must be sufficient to pay the lessee a profit, though small, over operating and marketing expenses. If the well does this, it is producing in 'paying quantities," though it may never repay the cost of drilling.' 31A Tex.Jur. p. 242-3.
It is simply incredible to me that the Bank or any sane person would make an agreement to lend the cost of drilling a well on condition only that the well would pay the cost of producing the oil but without regard to the cost of drilling it. At any rate there is no evidence that the Bank made such an agreement.
The record is far from satisfactory concerning the potential of well No. 5. The record does show that it came in for 38 barrels per day; that production fell off sharply within a very short time and that by the end of May Well No. 5 was 'away off' and was producing 'hardly and.'
The cost of drilling well No. 5 was 'well over $90,000.00.'
A 'commercial producer' in the sense used by the parties herein must have meant a well which with reasonable probability would produce enough oil to pay within a reasonable time the entire cost of drilling and operating the well.
I also disagree with the majority holding that the burden of proof was on appellant to prove that well 5 was not a commercial producer. The burden of proof was on appellee to prove that it was entitled to recover under the terms of the contract made between the Bank and Mystic. Appellee concedes that one of the conditions of this contract was that well 5 be a 'commercial producer.' It was therefore its duty to establish this as a fact. This the Tool Company wholly failed to do.
I would reverse.
1 The call was made by Mr. Gray. *Page 883