Henderson v. Scott Oil & Refining Co.

• Decision Date: 16 June 1923
• Docket Number: (No. 10321.)<SMALL><SUP>*</SUP></SMALL&gt
• Citation: 258 S.W. 1082
• Court: Texas Court of Appeals
• Parties: HENDERSON et al. v. SCOTT OIL & REFINING CO. et al.

258 S.W. 1082

HENDERSON et al. v. SCOTT OIL & REFINING CO. et al.

(No. 10321.)^*

Court of Civil Appeals of Texas. Fort Worth.

June 16, 1923.

Rehearing Denied January 5, 1924.

Appeal from District Court, Stephens County; W. R. Ely, Judge.

Action by the Scott Oil & Refining Company and others against W. W. Henderson and others. Judgment for plaintiffs, and defendants appeal. Reversed and remanded.

J. W. Crudgington, of Amarillo, Leaverton & Hardy, of Breckenridge, and Theodore Mack, of Fort Worth, for appellants.

Chas. H. Clark, T. Edgar Johnson, and C. H. Fulwiler, all of Breckenridge, for appellees.

CONNER, C. J.

This is an appeal from a judgment in favor of the Scott Oil & Refining Company against W. W. Henderson and Paul P. Scott for the sum of $104,916 as the value of that number of shares of stock of the said association alleged to have been wrongfully converted by said Henderson and Scott.

As we view the case on appeal, there are two controlling questions. They are: (1) Whether the court erred in overruling appellants' plea of abatement; and (2) whether appellants were liable at all upon the ground upon which the judgment is based.

In substance and briefly stated, the facts as presented in the record, material to the questions stated, are that appellants Henderson and Scott were the owners of certain oil and gas leases, and desiring to develop them they entered into negotiations with one George L. Kistler, an expert driller. The negotiations culminated in written contracts, articles of association, and by-laws that will hereinafter be referred to more particularly. The original contract was executed on February 20, 1920, by the terms of which Henderson and Scott agreed to transfer to an association to be known as the Scott Oil & Refining Company some six several parcels of land, each owning three parcels, and all of which were particularly described in the agreement. The values of these leases were not stated. The original agreement provided that "George L. Kistler shall have a one-third equal interest in the above-described properties, furnishing all tools necessary for the drilling of well No. 1" on a designated tract of land; "said Kistler to furnish all labor necessary for the drilling of the well above described to a depth of 3,500 feet, unless oil in paying quantities is produced at a lesser depth."

The agreement further recited that said Kistler "in the event that no oil is produced in paying quantities on well No. 1 on the Vance lease, the said Kistler is to be reimbursed in cash by Scott Oil & Refining Company for the drilling of such well, said reimbursement to be charged up to his interest in the Scott Oil & Refining Company."

It was further provided that in event the first well was a producing one "all of the tools used in the drilling of said well are to become the property of said Scott & Refining Company," and that "in the event that well No. 1 is a dry hole, then the said Kistler is to take his tools off of the Max Vance lease and drill well No. 2, * * * to be drilled under the same terms and conditions as well No. 1."

It was further agreed that "the firm of T. Edgar Johnson and Charles H. Clark, attorneys at law at Breckenridge, Tex., shall be and are hereby selected to represent as legal advisers the Scott Oil & Refining Company, and in lieu of such services rendered and to be rendered by said T. Edgar Johnson and Charles H. Clark they are to receive 2,000 shares of the stock in the Scott Oil & Refining Company." This agreement was signed and acknowledged by the parties on February 20, 1920.

On March 15, 1920, after the execution of the foregoing agreement, articles of association, by-laws, and a declaration of trust were made out and duly signed by the five persons heretofore named, to wit, Henderson, Scott, Kistler, Clark, and Johnson. In the instruments referred to it was recited that the parties named had been duly appointed trustees of the association to hold office until their successors should be elected by the majority of the stockholders, and it was further recited that such trustees should hold all the property of the association "as joint tenants and not as tenants in common, in trust for the benefit of all shareholders in proportion to the number of shares held by each in said company." It was further provided that the shareholders should have no legal right to the trust property or to call for a partition of the trust property and dissolution of the trust; but the shares were to be "personal property," carrying the right of division of the profits, and to a division of the principal and profits in event of a dissolution of the association as provided for.

It was further provided that the death, insolvency, or bankruptcy of a shareholder or a transfer of his interest should not operate as a dissolution of the company or trust, or have any effect upon the company or its mode of business. The declaration of trust further declared that the "trustees shall, by a vote of the majority of the board, have full power and authority to conduct the business and the affairs of the company." The trustees were expressly given power to execute contracts in the company's name or in the name of the trustees; to purchase, lease, or otherwise acquire property, make repairs, extensions, and additions which they might deem necessary; to convey any part of the property of the company; to borrow money on the credit of the company, secure the same by mortgage or deed of trust on such terms as they might deem proper; and, "generally, to do all things which in their judgment are necessary and prudent in the management and conduct of the business of the company."

Other statements of the facts shown by the record will be made in disposing of the second question that we have thought to be controlling, but that which we have already stated we think will be sufficient as an introduction to our conclusion upon the first question.

In our opinion, the court erred in failing to sustain the appellants' plea in abatement. In other words, as we view the record, the plaintiffs in the suit failed to show the proper authority therefor. It is quite clear, we think, that the association was not a corporation, and we agree with appellees that as instituted it was not a Massachusetts trust. See McCamey v. Hollister Oil Co. (Tex. Civ. App.) 241 S. W. 689, where the subject is elaborately discussed. Nor was it a partnership either general, or a limited one under chapter 1, title 102, of our Revised Statutes. On the contrary, it is evident that it was intended as an "unincorporated jointstock company," as designated in chapter 2 of title of the statutes already referred to. Indeed, the articles of association and declaration of trust so designate the company, as well as contain provisions which clearly differentiate the association from an incorporated body or a partnership as generally understood. It follows, we think, that the appellee association is without legal existence, entity, or authority, except such as is given it by our statutes and by the terms of the agreement between the parties. It is provided in said chapter of title 102, article 6149, that such companies "may sue or be sued in any court of this state having jurisdiction of the subject-matter in its company or distinguishing name." But the status or powers of such association are not otherwise given. We can therefore look only to the terms of the agreements between the parties to ascertain its powers. By reference to those agreements it is plainly provided that a majority of the trustees have the full authority, control, and management of the business of the association. The record before us discloses that three of the trustees, to wit, a majority, are made defendants. Neither stockholder or trustee is made a plaintiff. In the very nature of the subject, as it seems to us, the question of whether the association should institute and prosecute litigation that might be long continued and expensive is one of serious import, calling for intelligent and careful consideration, and hence, at least by implication, included within the powers vested in the trustees of the appellee association. Some person or association of persons must be called upon to determine the advisability of such litigation, and those persons, under the agreements before us, were the appellants. It is true that a stockholder, or stockholders, under the allegations of the petition, might, in their own name and in the name of the association, sue the majority trustee, as done in this case, under allegations of a breach of the trust. See 7 R. C. L. p. 311; Ackermann v. Ackermann Schuetzen Verein (Tex. Civ. App.) 60 S. W. 366; Cowles v. Glass (Tex. Civ. App.) 30 S. W. 293, and other authorities that might be cited. But we know of no case, and none has been cited, where an unknown and unnamed person or persons are authorized to use the name of an unincorporated association — a legal fiction only — in a suit instituted not only without the authority and consent of the controlling and managing trustees, but against them. It is true that to the petition in this case there is signed the names of T. Edgar Johnson and Chas. H. Clark and C. H. Fulwiler, but the names are signed as "attorneys for plaintiffs," and not as trustees or stockholders. In other words, in their own name and in their own interest they seek no recovery or appear as parties litigant, and we therefore finally conclude on this branch of the appeal that the court should have sustained the plea in abatement, as alleged by appellants.

In the consideration of the further question of whether appellants were shown to...