14 F.2d 64 (5th Cir. 1926), 4756, Conn v. Roos

Docket Nº:4756.
Citation:14 F.2d 64
Party Name:CONN et al. v. ROOS et al. [1]
Case Date:July 24, 1926
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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14 F.2d 64 (5th Cir. 1926)

CONN et al.


ROOS et al. 1

No. 4756.

United States Court of Appeals, Fifth Circuit.

July 24, 1926

Appeal from the District Court of the United States for the Western District of Texas; Duval West, Judge.

Separate suits by S. J. Conn, trustee in bankruptcy of the estate of E. O. Burton, bankrupt, and by E. O. Burton, against Edward Roos and others. Decree for defendants, and plaintiffs appeal. Affirmed.

Edward Roos holds the legal title to a three-eighths interest in a very valuable oil lease of land in Vera Cruz, Mexico, referred to in the record as the 'Obando lease.' E. O. Burton filed a bill in equity to establish his claim to one-half of Roos' interest in that lease, and for an accounting of oil that had been produced therefrom.

The claim of interest asserted was based upon an averment in the bill that Burton and Roos entered into a contract whereby they agreed that they would become equally interested in any oil lease of land in Mexico that might be secured by Roos. A similar bill was later filed by Conn, Burton's trustee in bankruptcy. Roos answered and denied the existence of the contract alleged and that Burton or his trustee had any interest in the lease.

On the issue thus raised, the District Judge heard the witnesses. In April, 1921, at the conclusion of all the evidence, he announced his decision in favor of Roos, and in July, 1925, entered a final decree dismissing both bills of complaint. The entry of the final decree was delayed because of other issues, not material here, that were brought into the case by several petitions of intervention.

The principal contention of Burton and his trustee in bankruptcy in support of their appeal is that the decree of the District Judge is contrary to the great weight of the evidence. In this connection the further contention is made that the District Judge did not consider the weight of the evidence upon the vital question whether Burton and Roos entered into a contract for equal interests in any leases of land in Mexico that might be secured by Roos, but that the decree entered appears from an oral opinion of the District Judge to have been based solely on the admitted fact that Roos was in Mexico on the date fixed by Burton's testimony as the date on which they entered into and Roos signed the alleged contract at San Antonio, Tex. It becomes necessary to consider the evidence and the oral opinion of the District Judge, in order to determine whether in our opinion these contentions are well founded.

On April 19, 1915, at San Antonio, Roos obtained from Victor Obando an option to purchase for $8,000 an oil lease of land in Vera Cruz, Mexico. Obando acquired the lease from the owners of the lands in March and April, 1914. Roos exercised his option, but, at his request, Obando, on May 10, 1915, assigned the lease to R. E. Brooks, who was acting on behalf of the Texas Company.

The land covered by the lease is situated between two well-known oil fields, which, at the time the lease was assigned by Obando, had already been developed and were producing oil in large quantities. Brooks paid $10,000 for the assignment to him, of which Obando received $8,000 and Roos $2,000, and on the same day acknowledged by letter that Roos would be entitled to half of the net profits that might be derived from the lease. At the same time Brooks also lent $10,000 to Roos, accepted his note for that amount, payable one year from date, and stated in his letter that, upon payment of interest, the note would be extended from year to year until a test was made for oil, and until oil was produced in paying quantities, or the lease abandoned. Brooks signed and tendered to Roos for his signature and acceptance a formal contract, which provided that Roos should receive half of the net profits. Roos was not satisfied with the contract because, as he says, it did not secure to him an equal interest in the lease as distinguished from the net profits, and contained no obligation on the part of Brooks or the Texas Company for the prompt drilling of wells and development of the lease. In 1916 Roos employed the law firm of Lane, Wolters & Story to represent him in an effort to have his rights, in accordance with his contentions, defined

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by contract, and agreed to allow to them as their fee one-fourth of his half interest.

After negotiations, and in Feburary, 1917, a contract was entered into between Brooks and Roos which recited that the beneficial interests in the lease were held, one-half by Brooks, three-eighths by Roos, and one-eighth by Lane, Wolters & Story. That contract provided for the development of the lease with due diligence, and contained a clause to the effect that no assignment, other than by Brooks to the company he represented, of any interest by any of the parties should be made except after such interest had been offered to the other parties interested in the contract and they had failed to purchase. On July 2, 1917, Roos borrowed an additional $5,000 from Brooks, and executed a note payable one year after date for approximately $17,000, which included the $10,000 previously borrowed and accrued interest. This note was secured by a mortgage on Roos' interest in the lease. Strangely enough, the terms of the mortgage are not disclosed by the record; but, as the note was payable on a definite date, Roos became fearful that, unless it should be paid when due, he might, through foreclosure proceedings, lose his interest in the lease. He complained to Jacob F. Wolters, one of the surviving members of the firm of Lane, Wolters & Story, who represented him in the preparation of the note and mortgage, because the $10,000 originally borrowed on the lease was included in the note, and insisted, but without success, that Wolters endeavor to procure from Brooks an acknowledgement that $10,000 of the amount secured by the mortgage would not be demanded until after wells had been drilled and oil produced, or the lease abandoned, in accordance with Brooks' letter of May 10, 1915. It is apparent that Roos also entertained the belief, though subsequent events proved it to be unfounded, That brooks and the Texas Company were not in good faith undertaking to produce oil, but were deliberately delaying their operations for the purpose of foreclosing the mortgage and acquiring his interest in the lease. The first well drilled was finished in December, 1917, and was dry. The drilling of the second well was begun about April, 1918, and it was apparent to Roos that it would not be completed by July 2, 1918, at which time his note would be due. However, he was not required to pay his indebtedness until after the second well, which proved to be a very valuable one, came in about the 1st of December, 1918.

On March 1, 1921, the net profits derived from the lease amounted to upwards of $2,900,000.

During the year 1913, and for some years prior thereto, Burton and Roos lived in San Antonio. They were intimate friends, and had offices in the same building. Each was separately interested in buying and selling oil leases. Burton and one A. H. Danforth were partners in the real estate business, and owned land in at least two counties in Texas. Roos and Danforth had been partners in running a theater, but by the year 1912 that partnership had become unsuccessful, and a number of judgments, aggregating about $6,000, had been obtained against it. Some of these judgments had been recorded in counties in which the firm of Burton & Danforth owned land. Burton and Roos had a conference about May 2, 1913, as a result of which Roos contributed $1,000 and Burton the balance necessary to pay off the judgments. Burton took assignments of the judgments and released the property of Danforth in the counties in which the partnership of Burton & Danforth owned land. In addition to the judgments against them, Roos & Danforth owed $2,750 on a note, held at the time of the above-mentioned conference by the West Texas Bank, which Danforth had either signed or indorsed in the name of Burton & Danforth, and which was afterwards paid by Roos. In 1916 Burton released Roos, on the latter's demand, of all liability on the judgments, and Roos in turn surrendered the $2,750 note to Burton. Between December of 1917 and December of 1918 a number of letters passed between Burton in Houston and Roos in San Antonio. That correspondence relates to the subject of protecting the lease against foreclosure, and discloses that Burton reported that he had found a man who would lend the amount necessary to pay off the mortgage, and later, at the request of Roos, that he had procured from Wolters, one of the surviving members of the firm of Lane, Wolters & Story, some of Roos' papers bearing upon his controversy with Brooks over the maturity of the original loan of $10,000. In one of his letters Burton reported that he had interviewed Mr. Vinson, an attorney, with the view of employing him to represent Roos, and stated: 'Have told them (Vinson and his partner) that I could not bind you-- only bring it to a point where they could deal direct with you.'

Roos replied: 'Since you decided to take our matter to a lawyer, or lawyers, I am glad that Wm. A. Vinson has been selected as one. * * * To understand about the $10,000 note of May, 1915, you must first see my letter of June 1915, to Brooks, and his reply. Jake (Wolters) has these, but I do not know just how to get them, and I do not want it known that there are any others interested, until I can go over the whole matter with Vinson and Carlton and you.'

A week later Roos wrote, 'I hope you understood my last letter, which was written so that it could be shown to Vinson, if you so desired-- it backed up whatever you might have said about your interest.'

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