Lewis v. Davis

• Decision Date: 22 January 1947
• Docket Number: No. A-995.,A-995.
• Citation: 199 S.W.2d 146
• Parties: LEWIS v. DAVIS.
• Court: Texas Supreme Court

Page 146

199 S.W.2d 146

LEWIS v. DAVIS.

No. A-995.

Supreme Court of Texas.

January 22, 1947.

Error to Court of Civil Appeals of Sixth Supreme Judicial District.

Suit by I. H. Lewis against C. D. Davis to declare the establishment of a partnership for the purpose of engaging in the oil, gas, and mineral business and of dealing in oil and gas leases on royalties and in mineral interests business generally, for partnership accounting, and for other relief. To review a judgment of the Court of Civil Appeals, 195 S.W.2d 771, affirming a judgment of dismissal, plaintiff brings error.

Judgments of the Court of Civil Appeals and of the district court reversed and cause remanded to district court.

E. P. Price, of Tyler, for petitioner.

Lasseter, Spruiell, Lowry, Potter & Lasater and Oran Lowry, all of Tyler, for respondent.

SMEDLEY, Justice.

The Court of Civil Appeals affirmed the judgment of the District Court sustaining a special exception to the petition and dismissing the suit after petitioner, who was plaintiff, declined to amend. 195 S.W. 2d 771.

After introductory allegations, the first paragraph of the petition is as follows:

"That on or about the 1st day of August, 1938, the plaintiff and defendant associated themselves together for the purpose of engaging in the oil, gas and mineral business and for the purpose of acquiring, developing, operating, selling and dealing in oil and gas leases and royalties and mineral interest generally. The said plaintiff and the said defendant in virtue of said association being partners in the ownership of all such leases, royalties and mineral interests acquired by them, or either of them, and in all commissions and other remuneration received by them, or either of them, in such business whether in the nature and form of commissions or otherwise and in whomsoever any such property and interests were taken or remunerations were received the plaintiff owning one-half interest and the defendant owning one-half interest therein."

Other allegations of the petitioner are in substance: There were acquired by the parties oil, gas and mineral leasehold interests and other mineral interests in land in several counties in East Texas. Attached to the petition as Exhibit A is a list of the properties so acquired by the defendant, and as Exhibit B a list of the properties so acquired by the plaintiff. The defendant has acquired other such interests in other properties and has received commissions in the pursuit of the business. Whatever interest was acquired by or in the name of plaintiff or by or in the name of defendant, all such interests were and are jointly owned by plaintiff and defendant, but defendant refuses to recognize plaintiff's interest in the properties, and is threatening and attempting to deprive plaintiff of his interest therein and to appropriate the same and the proceeds and benefits derived therefrom to his own use. Whether the term "partners" is applied to the relation between the parties or not, one-half of the oil, gas and mineral interests, of whatever nature and character, that have been acquired by defendant during the period, was acquired by him in trust for plaintiff. In the alternative plaintiff alleges that he has advanced to defendant $10,000 and has rendered services to defendant of the reasonable value of $5,000. The prayer is that plaintiff have judgment establishing the interests of the parties in the oil, gas and mineral interests and properties acquired either by plaintiff or by defendant during the said period, and impressing a trust in favor of plaintiff for his portion and interest therein, and dissolving the partnership, that the properties and interests be partitioned, and for a full accounting "with respect to said properties and interest." In the alternative plaintiff prays for judgment for the $10,000 advanced as for money had and received and for $5,000 for services rendered.

The exhibits are descriptions of many oil and gas leases and a number of royalty interests, most of them being in Exhibit A, alleged to show the properties acquired by the defendant or in his name.

The exception sustained by the trial court is that the petition is fatally defective because it is not alleged that either the plaintiff or the defendant was a licensed dealer under the Texas Securities Act, Article 600a, Vernon's Annotated Civil Statutes, and that "the alleged agreement would be illegal and unenforceable unless plaintiff alleges that he or defendant was a licensed dealer under the Texas Securities Act at the time of the making of such alleged agreement."

In our opinion the court erred in sustaining the exception and dismissing the suit. Both the trial court and the Court of Civil Appeals seem to have assumed that the parties formed a partnership or other association for the purpose of becoming dealers in securities without registering as such under the terms of the Texas Securities Act. After indulging that assumption, the two courts held that the agreement by which the partnership or association was formed was illegal. The sufficiency of the petition is to be tested by the allegations that it contains or fails to contain. The agreement alleged in the petition is a lawful agreement. There is no allegation that the parties intended to sell or to become dealers in securities without registering under the Securities Act, and no allegation that they in fact did not register. The agreement alleged is simply that they associated themselves together to acquire, operate, develop, sell and deal in oil and gas leases and other mineral interests. It is not to be assumed that they made or intended to make an unlawful agreement, or that in associating themselves together they intended to engage in business without compliance with the laws that regulated the business. On the contrary, if assumptions are to be indulged, we should assume that when the parties formed their association they intended to comply with existing laws applicable to their business, and particularly that they intended to comply with the requirements of the Securities Act in the event they became, in the course of their business, issuers, dealers or salesmen under the terms of the Act.

"A contract to do a thing which cannot be performed without a violation of the law is void." Texas Employers' Ins. Ass'n v. Tabor, Tex.Com.App., 283 S.W. 779, 780. See also 12 Am.Jur. pp. 647, 648, Sec. 153. But where the illegality does not appear on the face of the contract it will not be held void unless the facts showing its illegality are before the court. Mullin v. Nash-El Paso Motor Co., Tex.Civ.App., 250 S.W. 472, application for writ of error refused; 17 C.J.S. Contracts, Sec. 281, p. 670; 12 Am.Jur. p. 744, Sec. 224. When two constructions of a contract are possible, preference will be given to that which does not result in violation of law. Great Northern R. Co. v. Delmar Co., 283 U.S. 686, 51 S.Ct. 579, 75 L.Ed. 1349; 12 Am.Jur. pp. 793, 794, Sec. 251. See also Texas Employers' Ins. Ass'n v. Tabor, Tex.Com.App., 283 S.W. 779. A contract that could have been performed in a legal manner will not be declared void because it may have been performed in an illegal manner. Labbe v. Corbett, 69 Tex. 503, 6 S.W. 808; 12 Am. Jur. p. 647, Sec. 153. According to the foregoing settled rules, the contract by which the parties associated themselves together, as alleged in the petition, must be held valid and not illegal. And there are no allegations showing illegality in the advancements of funds or in the services rendered, for which petitioner sues in the alternative count of his petition.

In view of another trial, and since the question whether recovery should be denied petitioner for failure to comply with requirements of the Securities Act is suggested by the exception and discussed in the briefs, reference will be made to some of the rules that may be applicable to the facts to be developed by further pleading and by evidence.

The petition alleges that the parties formed a partnership, or other association, to acquire, develop, operate and sell oil and gas leases and other mineral interests. There are no allegations that the parties or either of them developed or operated, for oil, gas or other minerals, land held under a lease or any other instrument. In Herren v. Hollingsworth, 140 Tex. 263, 167 S.W.2d 735, Herren, a broker, sued Hollingsworth, a landowner, for compensation for negotiating a contract for drilling an oil and gas well on Hollingsworth's land. It was held under the facts of that case that Herren was not required to allege in his petition that he was duly licensed and registered under the Securities Act.

The petition alleges that both petitioner and respondent acquired oil and gas leases and royalty interests. The primary purpose of petitioner's suit as disclosed by the petition is to establish his ownership of a half interest in the oil and gas leases and other mineral interests acquired in the name of respondent and described in Exhibit A of the petition. As was held in Fowler v. Hults, 138 Tex. 636, 161 S.W.2d 478, the Texas Securities Act was intended to regulate sellers and sales of securities and to protect purchasers against sellers, and does not undertake to regulate purchases or to protect sellers against purchasers. Neither petitioner nor respondent was required to register under the Securities Act as a condition precedent to acquiring oil and gas leases or other mineral interests.

The Securities Act, Acts Regular Session, 44th Legislature, Chapter 100, was amended in 1941 by adding to it Sections 33a and 33b, Acts Regular Session, 47th Legislature, Chapter 363. Section 33a relates to the remedy of the purchaser against the seller. Section 33b provides that no person or company shall bring or maintain an action for the collection of a commission or compensation "For services rendered in the sale or purchase of securities, as that term is herein defined, without alleging...