Gales v. Weldon

• Decision Date: 12 September 1955
• Docket Number: No. 44464,No. 1,44464,1
• Citation: 282 S.W.2d 522
• Parties: C. G. CALES, Appellant, v. D. F. WELDON and K. L. Peters, Respondents
• Court: Missouri Supreme Court

Page 522

282 S.W.2d 522

C. G. CALES, Appellant, v. D. F. WELDON and K. L. Peters, Respondents.

No. 44464.

Supreme Court of Missouri, Division No. 1.

Sept. 12, 1955.

Motion for Rehearing or to Transfer to Court En Banc Denied

Oct. 10, 1955.

C. A. Powell, Dexter, for appellant.

Barrett, Wheatley, Smith & Deacon, Jonesboro, Ark., Limbaugh & Limbaugh, Cape Girardeau, for respondents.

HOLMAN, Commissioner.

Plaintiff C. G. Gales (appellant), by this action, seeks to rescind a purchase by him from defendants (respondents) D. F. Weldon and K. L. Peters, of a one-sixteenth fractional undivided working interest in an oil lease covering six acres of land located in Caddo Parish, Louisiana. He paid $5,200 for this interest. Recovery herein is sought for the amount paid plus interest, attorney fees, and punitive damages in the sum of $10,000. Plaintiff contends that the sale was a violation of 'The Missouri Securities Law' (often referred to as the 'Blue Sky Law'), Sections 409.010 to 409.320, inclusive (unless otherwise indicated all statutory references are to RSMo 1949, V.A.M.S.), it being admitted that the various interests in the lease assigned to plaintiff and others were not registered with the commissioner or supervisor of corporation registration of the State of Missouri. At the close of all the evidence the trial court directed a verdict for defendants. From the ensuing judgment the plaintiff has duly appealed.

The lease involved in this action was obtained in 1951 by one L. A. Norris of Shreveport, Louisiana, a dealer in oil leases. Many producing oil wells were located in the area surrounding the land covered by the lease. The owners reserved a one-eighth royalty. Norris, in consideration of $500 and the reservation of a 'one-sixteenth override,' assigned the lease to defendant Peters. The assignment to Peters conveyed what is known as 'working interests.' It appears that the owners of 'working interests' must pay for the drilling, equipping, and developing of the well while those retaining a 'royalty' or an 'override' are not required to contribute to those expenses.

Defendant Weldon lived in Cape Girardeau, Missouri, and was experienced in drilling wells for water and had drilled some shallow oil wells in Illinois. Peters lived in Jonesboro, Arkansas, and had engaged in oil field activities for many years, although during the period in question he was also employed as a bus driver. He and Weldon had been acquainted for several years. In December 1952 or January 1953, these defendants entered into an oral agreement concerning the drilling of one or more wells upon the leased land. It was known that there were two kinds of sand formation in this area in which oil is found--the Nacitosh at about 900 feet and the Woodbine (producing a better quality oil) at 2200 feet. The defendants estimated that it would require $14,000 to drill and equip a well to the Woodbine formation. The agreement of the defendants did not contemplate that either of them would furnish any of the required capital. It was the obligation of Weldon to sell working interests covering one half of the interest acquired by Peters from Norris for a sufficient sum to cover the cost of the well. Peters agreed to execute assignments to the prospective purchasers and to supervise the drilling of the well and the production of the oil therefrom. The defendants were to divide the remaining one-half interest held by Peters.

Defendant Weldon first talked to Harry Faig of Elk Creek, Missouri, and sought to induce him to furnish the $14,000. He stated he was not able to do so but indicated that he might invest half that amount. Both defendants then contacted Harold Doxtater of Poplar Bluff, Missouri, who purchased a one-eighth interest in the lease for $3,500. They again contacted Faig and took him to see the land. Upon the return trip they stopped at the Peters home in Jonesboro and Faig then decided to purchase a one-fourth interest for $7,000 and gave them a check for that amount.

On January 26, 1953, defendants started drilling the well and it was completed and capped in five or six days. During the period required for drilling and equipping the well, Mr. Faig spent about two weeks at or near the well site observing the operations.

Weldon called on plaintiff at Dexter, Missouri, on February 2, 1953, and attempted to sell him a one-sixteenth interest in the lease for $5,200. Plaintiff stated he was not interested, but later agreed to go with Weldon to look at the well. They made the trip and arrived back home on the morning of February 4, and later that day plaintiff agreed to buy the interest at the price quoted. The money was paid by delivery of a number of checks during the next two days and Weldon gave plaintiff a receipt for the $5,200. Shortly thereafter plaintiff received a certified copy of an assignment of the interest from defendant Peters, it being required that the original be retained in the office of the recorder of Caddo Parish.

Shortly after the sale to plaintiff, defendants sold a one-sixteenth interest to Robert Beffa of St. Louis for $6,000. He was taken to the well site by Weldon and while there agreed to buy the interest and paid Weldon $1,000. The remaining $5,000 was delivered to Weldon when they returned to St. Louis. Early in March, 1953, Peters sold another one-sixteenth interest to Faig for $1,177.30. This sale was arranged over long-distance telephone and the assignment delivered through a bank in St. Louis.

Weldon, during this period, also called upon and attempted to sell various interests in the lease to Carl J. Ringer at Dexter, Missouri, R. Kip Briney at Bloomfield, Missouri, Guy Shackleford at Poplar Bluff, Missouri, and Ivan DeJarnett at Dexter. He also attempted to sell Clinton Shell of Dexter an interest in a lease he proposed to obtain on an adjoining tract of land. In attempting these sales this defendant took with him a bottle of the oil and a sample of the core taken from the well, which he displayed to his prospects. Up to the time of trial, defendants had collected more than $23,000 from their sales, and the cost of drilling the well and equipment therefor was over $17,000. Weldon still had on hand about $4,000 and Peters had the $1,177 collected from the last sale to Faig.

The well was not a success. While it did produce oil, the volume is only about two and one-half barrels a day, and after paying expenses this leaves the investors a very small return on their investment.

Plaintiff wrote the supervisor of corporation registration of Missouri and, upon learning that the assignments or alleged securities were not registered, demanded that defendants return his money. Upon filing this suit he attached to the petition an assignment and a quitclaim deed which he tendered to defendants, each of which purported to reconvey his interest in the lease to Peters.

It is provided in Section 409.030 that 'No securities * * * (except those exempt under Sections 409.040 or 409.050) shall be sold within this state unless such securities shall have been registered by notification or by qualification as herein defined.' The definition of 'securities' in Section 409.020(3) includes any 'fractional undivided interest in oil, gas, or other mineral rights; * * * any certificate, contract, receipt or instrument whatsoever representing or constituting evidence of, or secured by, title to or interest in any oil, gas or mining lease * * *.' Plaintiff bases his right to recover in this action upon the provisions of Section 409.240 which are, in part, as follows: 'Every sale or contract for sale made in violation of any of the provisions of this chapter shall be voidable at the election of the purchaser and the person making such sale or contract for sale and every director, officer or agent of or for such seller who shall have participated or aided in any way in making such sale shall be jointly and severally liable to such purchaser in an action at law in any court of competent jurisdiction upon tender to the seller in person or in open court of the securities sold or of the contract made for the full amount paid by such purchaser, together with all taxable court costs and reasonable attorney's fees in any action or tender under this section; * * *.'

It appears clear that the fractional interest in the lease purchased by plaintiff from the defendants is a 'security' under the plain definition in the statute and therefore, unless exempted by other provisions of Chapter 409, it could not be legally sold in Missouri without registration as provided in said chapter. Securities and Exchange Commission v. C. M. Joiner Leasing Corp., 320 U.S. 344, 64 S.Ct. 120, 88 L.Ed. 88; Commonwealth v. Yaste, 166 Pa.Super. 275, 70 A.2d 685; Paine v. Smith, 114 Cal.App.2d 767, 251 P.2d 18.

No contention is made that this transaction was exempt under the provisions of Section 409.040. However, defendants do argue that this was an isolated transaction and was exempt from the provisions of Chapter 409 by reason of the exemption specified in Section 409.050, as follows: 'Except as herein provided, the provisions of this chapter shall not apply to the sale of any securities in any of the following transactions: * * * (3) In an isolated transaction in which any security is sold, offered for sale, or delivery by the owner thereof, or by his representative for the owner's account such sale or offer for sale, or delivery not being made in the course of repeated and successive transactions of a like character by such owner, or on his account by such representative, and such owner or representative not being the issuer or a promoter of such security; * * *.'

The word 'isolated' is in common usage and has a well-defined meaning. It is universally understood to mean 'placed or standing alone; detached; separated; solitary.' Webster's New International Dictionary (Second Edition). It is the antonym of 'repeated' or 'successive.' In Kneeland v....