Bevering v. Smith

• Court: Texas Court of Appeals
• Writing for the Court: Buck
• Citation: Bevering v. Smith, 241 S.W. 224 (Tex. App. 1922)
• Decision Date: 08 April 1922
• Docket Number: (No. 9933.)
• Parties: BEVERING et al. v. SMITH et al.

241 S.W. 224

BEVERING et al. v. SMITH et al.

(No. 9933.)

Court of Civil Appeals of Texas. Fort Worth.

April 8, 1922.

Appeal from District Court, Clay County; John P. Marrs, Special Judge.

Action by A. H. Bevering and others against J. Fred Smith and others. From a judgment for defendants, plaintiffs appeal. Judgment reversed and rendered.

Carrigan Montgomery, Britain & Morgan, of Wichita Falls, and Wantland & Dickey, of Henrietta, for appellants.

R. E. Taylor, of Fort Worth, and Kay, Akin & Kenley, of Wichita Falls, for appellees.

BUCK, J.

A. H. Bevering and M. L. Hooker, hereinafter styled appellants, sued J. Fred Smith, Harry Pennington, and Ross Corlett, hereinafter styled appellees, on a joint and several promissory note, executed by appellees on July 10, 1919, in the sum of $26,037.35. It was alleged that said note was long past due and had not been paid, except $1,500 thereon. Appellees answered by a general demurrer, a general denial, and specially pleaded that the appellants and the appellees agreed among themselves to promote, organize, and have incorporated, under the laws of the state, a company for the purpose of prospecting, "wild-catting," exploiting and developing oil and kindred minerals in the state of Texas; that said company should be incorporated for $150,000, with the capital stock divided into 1,500 shares of the par value of $100 each; that, after the procuring of the charter, said company would then sell a large part of the shares of the stock to the public in general, and from the proceeds of the sale thereof the appellants and appellees would pay promotion fees, expenses, and with the remainder prospect for oil on lands in Clay county, Tex.; that, on February 21, 1919, the application for said charter was approved and the charter issued in the name of Industrial Oil Company, with an authorized capital stock of $150,000, divided as proposed; that A. H. Bevering was elected president of the corporation and has since said time continuously acted as president thereof; that, on April 8, 1919, the appellants represented to the appellees that it was necessary, for the further promotion and proper carrying on of the business of said company, that the appellees execute their joint promissory note for $25,860, payable on June 15, 1919, and that they did execute said note and delivered it to the appellants.

They further pleaded that it was further agreed that said note would be paid out of the net proceeds of the first sales of the capital stock of said corporation, and that the appellees would not have to pay the same personally or be personally liable thereon; that, subsequently, on July 10, 1919, the appellants represented to the appellees that it was necessary for them to issue another note in renewal of first-described note, and they did so execute their note in an amount to cover the principal and accrued interest; that this last-named note was the one sued on. They further pleaded that nothing further was done towards financing or doing any business under said corporation, and that said promotion and formation and organization of said corporation was in violation of the laws of the state of Texas, in that the appellants owned leases in Clay county, which they and the appellees agreed were reasonably worth $43,100, and that these leases were valued by the appellants and appellees at $150,000, and were the only property or funds furnished by any one towards the capital stock of the corporation; that said valuation of the leases at $150,000 was a fraud upon the state of Texas and the public generally, and that the Secretary of State's reliance on the truth of said valuation induced him to issue the charter; that the excess valuation of the leases was fraudulent, and affected the whole transaction as between the appellants and appellees; that hence appellees were not liable on the note executed in the alleged furtherance of this fraudulent scheme. It was further alleged that said note was an accommodation note and without consideration, and that the appellees had never received any stock in the corporation, and had received nothing for said note so executed. The appellants filed a supplemental petition, among other things containing a general denial of the allegations of the answers of the appellees.

The cause was tried before the court without a jury, and the court entered judgment for the defendants, and the plaintiffs have appealed.

The trial court filed findings of fact and conclusions of law, and, without attempting to set out the same in full, we will give the substance thereof. The court found:

(1) That, in the month of January, 1919, during the oil boom in and around Wichita county, the appellants were the owners of 702 acres of oil leases in Clay county, which they desired to sell or have bored for oil and gas. That there were several wells being bored for oil and gas in the vicinity of their holdings. That the appellees were all oil men and drilling contractors, with more or less experience in drilling oil and gas wells, and that it was agreed, between appellants and appellees, that they should organize and have incorporated a company with a capital stock of $150,000, and that said 702 acres of the leases belonging to appellant should be conveyed by them to the company, and that they would value the same at $150,000. That they did so, although they all knew that the valuation given in the application for the charter was grossly excessive. That the Secretary of State relied on the truth of such valuation.

(2) That attached to said application for charter was an affidavit signed and sworn to by the parties to this suit, which shows that each of them had subscribed for and paid $30,000 towards the capital stock of the corporation, and that said subscriptions were paid by conveying to the company 702 acres of oil and gas leases, alleged to be worth $150,000. That appellants and appellees were elected directors of said corporation, and that the directors subsequently elected A. H. Bevering president, Harry Pennington vice president, and Ross Corlett secretary and treasurer.

(3) That all of the stock certificates were signed in blank by the president and left in the stock book, and were to be filled in and delivered to the subscribers as they called for them, or to be filled in and delivered to any other person who might purchase them. That any of the subscribers could have secured their stock certificates at any time, by calling upon the secretary for them, but none called for their certificates except some outside purchasers, who bought stock in the company to the amount of $2,800, but, when it was found that the promoters could not sell sufficient stock to develop the lands and complete the plans of the company, the money so paid by these outside purchasers was returned to them, and the certificates of stock were delivered by the purchasers to the company. That neither the corporation nor any of the promoters ever made any attempt to comply with what is known as the "Blue Sky Law," in Texas, and that none of the promoters seemed to know anything about such law. That all of the promoters acted as officers and agents of such corporation and as stockholders thereof. That, on April 8, 1919, the promoters held a meeting to discuss the affairs of the company and found that very little of the stock had been sold and that, since the appellants were carrying all of the risk incident to the corporation, it would be right and proper that the appellees should execute and deliver to the appellants their promissory note for three-fifths of the $43,100, the agreed value of the leases conveyed to the company by appellants, and that appellees did so execute their note for $25,860, and that the note sued on in this case was a renewal of the first note mentioned. That said note was not an accommodation note and was not made on any agreed condition, but that the same was a promise on the part of the appellees to pay the appellants the amount of money therein specified, and that the same was in payment for their respective shares or interest in said company. That said note had never been paid, except the $1,500 credited thereon, as shown in appellants' petition.

(4) That no agreement of understanding between the parties was made that the certificates for shares or interest in the capital stock of said corporation were not to be executed or delivered until the note given to the appellants by appellees was paid, but that the appellees could have secured their certificates of stock at any time by applying for same. That the appellees participated in the corporation as shareholders and directors, with the full knowledge and consent of the appellants. That the developments, in the neighborhood where said land was located, during the spring and summer of 1919 showed that the land was not oil and gas bearing and that the leases became of little or no value, and that, some time subsequently to July, 1919, the entire project was abandoned, but that said oil and gas leases were never retransferred to A. H. Bevering or M. L. Hooker. That, on account of the failure to pay the franchise tax, the charter of said corporation was forfeited on July 2, 1920.

(5) That nothing was paid for the capital stock of said corporation, except the conveyance of the oil and gas leases on the 702 acres of land hereinbefore referred to. That...