482 F.2d 1093 (5th Cir. 1973), 72-2707, Nor-Tex Agencies, Inc. v. Jones

Docket Nº:72-2707.
Citation:482 F.2d 1093
Party Name:NOR-TEX AGENCIES, INC., and W. E. Riley, Plaintiffs-Appellees, v. Richard M. JONES, Defendant-Appellant, Charles Owen and Continental National Bank of Fort Worth, Defendants-Appellees.
Case Date:July 26, 1973
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 1093

482 F.2d 1093 (5th Cir. 1973)

NOR-TEX AGENCIES, INC., and W. E. Riley, Plaintiffs-Appellees,


Richard M. JONES, Defendant-Appellant, Charles Owen and Continental National Bank of Fort Worth, Defendants-Appellees.

No. 72-2707.

United States Court of Appeals, Fifth Circuit.

July 26, 1973

Rehearing Denied Oct. 11, 1973.

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Clyde M. Marshall, Jr., Fort Worth, Tex., for defendant-appellant.

Henry W. Simon, John W. Hughes, Fort Worth, Tex., for Nor-tex & Riley.

Terry W. Gardner, Thomas H. Law, Fort Worth, Tex., for Owen.

Ogden K. Shannon, Jr., Fort Worth, Tex., for Continental National Bank.

Before AINSWORTH, GODBOLD and CLARK, Circuit Judges.

AINSWORTH, Circuit Judge:

The district court found the transactions here to involve securities sold through material misrepresentations, in violation of the anti-fraud provisions of federal securities laws, and ultimately awarded relief on various claims by plaintiff Nor-Tex Agencies, Inc. against defendant Richard M. Jones, by plaintiff W. E. Riley against defendants Jones and Charles Owen, and by cross-claimant Owen against defendant Jones, subject to rights of the Continental National Bank of Fort Worth as holder of notes issued by the claimants.

The facts, stated chronologically, begin in April 1967 when Jones approached Owen with the idea of purchasing a 420-acre tract of land in Bexar County, Texas, from Robert Maddox at a price of $260,000. Of interest to Owen were Jones's representations concerning oil and gravel deposits on the property. Owen and Jones together with another potential buyer, James Williford, looked at the property on April 23, 1967, and on this occasion Jones reaffirmed that the purchase price from Maddox was $260,000. On April 28, 1967, Jones told Owen that Maddox would hold the offer open another thirty days if they put up a total of $21,000 for an option. On May 1, 1967, Owen wrote a check to Jones for $14,000, representing his and Williford's share of the price for the option,

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and on the same day Jones wrote and mailed to Owen a letter confirming the terms of their verbal agreement. When Williford was unable to arrange financing for his share of the purchase price, Jones suggested that Owen and Jones go ahead on a "fifty-fifty" basis. On May 31, 1967, Owen gave Jones a check for $36,333.33 and a promissory note for $79,666.67, which with Owen's earlier check for $14,000 amounted to a total investment for Owen of $130,000. Jones and his wife took title to the property and then conveyed to Owen an undivided one-half interest in the surface, an undivided one-half interest in the mineral estate subject to an existing oil and gas lease covering the south 200 acres, and an undivided one-half interest in the existing lease entitling the owners to share a one-sixth royalty.

During the negotiations Jones warned Owen not to contact Maddox directly, because Jones had a special deal which could be ruined if Owen intervened. Furthermore, Jones said he made a sacrifice to enter the deal himself, because his wife had to sell her fur coat and Cadillac in order for Jones to raise his half of the money. However, when a deposition was taken in connection with this case on January 5, 1970, Owen learned that Jones actually purchased the property from Maddox for $125,000 instead of the $260,000 represented to Owen.

In July of 1968 Jones met Riley and interested him in the Bexar County property. Jones subsequently telephoned Riley and arranged another meeting. At this next meeting Jones told Riley of plans to develop the oil resources with his "partner" Owen, and that Riley could have one third of their interest in the 420-acre tract for $100,000. A few days later Jones, Owen and Riley traveled in a private airplane to inspect the property. In addition to giving Riley a brochure outlining tax and financial prospects, Jones further assured Riley that his investment could be recovered within two years. Jones said he would purchase the outstanding production lease within six months and that there was a contract offer pending which would pay them $25,000 per year for gravel. Riley, during the return flight, gave his verbal commitment to invest, and Riley eventually paid Jones and Owen $56,222.22 cash and gave a promissory note for $43,777.78. Later, the outstanding lease was not acquired and the return for all three parties on the Bexar County property was negligible.

During the same airplane flight above referred to, Jones also discussed with Riley the possibility of embarking on a program of acquiring working interests in oil leases on other property. As worked out later, the basic plan was for a corporation, Nor-Tex, controlled by Riley to put up the money for drilling the wells. Jones itemized the cost of each well at about $32,000 for a complete well and $10,000 for a dry well. In return Nor-Tex would get 75 per cent of the working interest in the mineral lease, Jones would retain 25 per cent of the working interest, and Nor-Tex would reassign 25 per cent of the working interest to Jones after Nor-Tex received all of its money back for the drilling expenses. Jones assured Riley that the wells would not be "wildcats," but rather holes in a "proven area," so that they could count on production of the maximum allowable twenty barrels per day for each well and sell the oil at $2 per barrel.

In September of 1968 Riley in his capacity as president of Nor-Tex signed the first agreements with Jones relating to wells to be drilled on what were called the Turner and Harris leases. To enable Jones to get started with the drilling, Nor-Tex borrowed money with Riley's personal guarantee and made several $50,000 advances to Jones.

Instead of $32,000, the cost to Jones of drilling a complete well was substantially less than that amount. Furthermore, several of the holes drilled were dry, and Jones's cost was substantially

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less than the $10,000 Nor-Tex agreed to pay.

Based on Jones's glowing reports, Riley decided sometime in December that Nor-Tex should go ahead with more commitments. Jones suggested they purchase two producing wells on the socalled Styles lease and drill three more wells. Riley closed the transaction on January 9, 1969 for Nor-Tex by agreeing to pay $20,000 for 75 per cent of the working interest in the two producing wells and to pay the usual price for Jones to drill additional wells. What Jones did not tell Riley was that Jones had acquired the Styles lease in early December for only $5,500.

Riley made a final commitment in February of 1969 for Nor-Tex to purchase 75 per cent of the working interest in ten producing wells on the Glenwood lease at a price of $110,000 and for Nor-Tex to pay Jones the usual price...

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