Naftalis v. Rankin

• Decision Date: 16 September 1976
• Docket Number: No. 4938,4938
• Citation: 542 S.W.2d 893
• Parties: J. M. NAFTALIS et al., Appellants, v. Robert E. RANKIN et al., Appellees.
• Court: Texas Court of Appeals

Page 893

542 S.W.2d 893

J. M. NAFTALIS et al., Appellants, v. Robert E. RANKIN et al., Appellees.

No. 4938.

Court of Civil Appeals of Texas,

Eastland.

Sept. 16, 1976.

Rehearing Denied Nov. 10, 1976.

John P. Camp, Fillmore, Camp & Lee, Fort Worth, for appellants.

Frank L. Jennings, Jennings, Montgomery & Dies, Graham, for appellees.

RALEIGH BROWN, Justice.

Dr. J. M. Naftalis, Dr. R. D. Martin, Gene S. Friedman, and E. F. Lisle sued Robert E. Rankin and the Permian Corporation to (1) impress a constructive trust upon an undivided three-fourths interest in an oil and gas lease upon land situated in Knox County; (2) recover the net income received by Rankin attributable to the undivided three-fourths interest; and (3) recover from the pipeline company, the Permian Corporation, the money held in suspense.

Plaintiffs alleged that they and defendant, Rankin, became partners in a mining partnership in the Melton lease; that Rankin represented to them that he would obtain an adjoining lease, the Orsak lease, for himself and the plaintiffs at a time when they were partners; that Rankin took the Orsak lease on August 21, 1974, in his name to the exclusion of the plaintiffs; that Rankin, as a Fiduciary, breached a duty to the plaintiffs in doing so, and, therefore, a constructive trust should be imposed upon the Orsak lease in favor of plaintiffs.

Rankin denied the existence of a partnership or that he had a fiduciary relationship with the plaintiffs.

After a jury verdict, judgment was entered against the plaintiffs and in favor of Rankin and the Permian Corporation. Dr. Naftalis, Dr. Martin, Friedman and Lisle appeal. We reverse and render in part and reverse and remand in part.

Appellants argue the trial court erred in overruling their motion for judgment and sustaining Rankin's. It is their contention the evidence established and the jury found a breach of fiduciary duty, and that such findings justified the imposition of a constructive trust on the Orsak lease.

In support of this argument, appellants point to the answers to special issues one and three, which are:

'SPECIAL ISSUE NO. 1.

Do you find from a preponderance of the evidence that in the month of August, 1974, Richard D. Martin, Jerome M. Naftalis, Gene S. Friedman, Tooker Lisle, and Robert Rankin were jointly engaged in the business of operating the Melton lease, sharing income and expenses according to their ownership interests in such lease?

Answer 'We do,' or 'We do not.'

ANSWER: We do.'

'SPECIAL ISSUE NO. 3.

Do you find from a preponderance of the evidence that between the time drilling commenced on the Melton lease and August 21, 1974, Robert Rankin represented to any of the plaintiffs that he, Robert Rankin, would obtain the Orsak lease for himself and the plaintiffs?

Answer 'We do' or 'We do not.'

ANSWER: We do.'

Rankin testified that he was a petroleum engineer and had approximately twenty years experience in the oil business. He met Dr. Naftalis and after extended negotiations, the parties entered into a contract to drill one well on the Melton lease. After completion of the well, which was a producer, assignments of an undivided one-sixth interest was made to Friedman, Dr. Martin, and Dr. Naftalis. Rankin retained one-quarter interest and one-quarter was assigned to Lisle. A second well was drilled on the Melton lease and each of the owners contributed their proportional part of the costs. Each shared income and expenses in accordance with his respective interest. This method of operation continued with the income being divided in accordance with the interest owned by each in the Melton lease and the expenses being paid in accordance with the same ratio. Rankin operated the lease, preparing invoices, billing the interest owners, and making bank deposits. From this account, he drew a check for $200 a month as compensation for managing the lease. The parties met from time to time to consider the operation of the Melton lease.

On May 21, 1974, the second well on the Melton lease was completed, at which time a joint bank account with everyone having authority to write checks on it was established. The account was called the 'Melton Lease Account'.

Rankin admitted that one of the maps he used to sell the deal to plaintiffs had circled in red a location of the Orsak lease and had printed next to it the word, 'Location'. Dr. Naftalis testified that after the second well was drilled on the Melton lease, plaintiffs had discussions with Rankin concerning the acquisition of the Orsak lease, and Rankin agreed he would get the Orsak lease for the group when he found Mr. Orsak was in the right mood. Such discussions continued after August 21, 1974, the date Rankin obtained the Orsak lease in his name.

Lisle confirmed the testimony of Dr. Naftalis that Rankin told the group that he would obtain the Orsak lease for all the parties, and in their names.

Each of the other plaintiffs testified that after August 21, 1974, when asked about the Orsak lease, Rankin would tell them that Mr. Orsak was difficult to deal with, for them to leave Orsak alone and that he, Rankin, would get the lease for them.

We must first determine whether a fiduciary relation existed.

The parties jointly considered and discussed the proper development of the Melton lease. Rankin admitted that the parties were jointly engaged in the production of oil from the Melton lease, sharing income and expenses in accordance with their ownership interests. The jury confirmed such facts in answer to the first special issue.

The court in Holcombe v. Lorino, 124 Tex. 446, 79 S.W.2d 307 (1935), stated:

'. . . The general rule with respect to joint adventures is stated in 33 C.J. p. 841, as follows:

'A joint adventure has been aptly defined as a 'special combination of two or more persons, where in some specific venture a profit is jointly sought without any actual partnership or corporate designation."

'The rule is also defined in 25 Texas Jurisprudence, pp. 159 and 160, in the following language: 'It is constituted by a special combination of persons in the nature of a partnership--more particularly, a limited or special partnership--engaged in the joint prosecution of a particular transaction for mutual benefit of profit ."

The Court in Johnson v. Peckham, 132 Tex. 148, 120 S.W.2d 786 (1938), while considering fiduciary obligations said:

'. . . no distinction can be drawn between the duties owing by partners and those owing by joint adventurers. Thompson et al. v. Duncan, Tex.Com.App., 44 S.W.2d 904; Paddock v. Bray, 40 Tex.Civ.App . 226, 88 S.W. 419; Griffin v. Reilly et al., Tex.Civ.App., 275 S.W. 242; Meinhard v. Salmon (249 N.Y. 458, 164 N.E. 545), supra.'

In Fitz-Gerald v. Hull, 150 Tex. 39, 237 S.W.2d 256 (1951), the court stated:

"The relationship between joint adventurers, like that existing between partners, is fiduciary in character, and imposes upon all the participants the obligation of loyalty to the joint concern and of the utmost good faith, fairness, and honesty in their dealings with each other with respect to matters pertaining to the enterprise . This is especially true of those to whom the conduct of the transaction, or the property involved therein, is intrusted. Such a party will be regarded as a trustee and will not be permitted to enjoy and unfair advantage because of his possession or control of the joint property. The mere fact that his is intrusted with the rights of his coadventurers imposes on him the duty of guarding their rights equally with his own, and he is required to account strictly to his coadventurers; and if he is recreant to his trust, any rights they may be denied are recoverable.' 30 Am.Jur. 'Joint Adventurers,' p. 695, Sec. 34.

'Persons engaged in a joint adventure, or about to assume such relationship, owe to each other the utmost good faith and the most scrupulous honesty. Lind v. Webber, 36 Nev. 623, 134 P. 461, 135 P. 139, 141 P. 458, 50 L.R.A., N.S., 1046, Ann.Cas.1916A, 1202."

We hold special issue one established that the parties were engaged in a joint venture and, therefore, a fiduciary relationship existed as to the Melton lease. Fitz-Gerald v. Hull, supra; Maykus v. First City Realty and Financial Corporation, 518 S.W.2d 887 (Tex.Civ.App.-Dallas 1974, no writ).

Rankin argues that if in fact a fiduciary relationship did exist as to the Melton lease, such relationship terminated because of disagreements and controversies that arose between the parties during the drilling of the two wells on the lease. We disagree.

The court in Johnson v. Peckham, supra, said:

'When persons enter into fiduciary relations each consents, as a matter of law, to have his conduct towards the other measured by the standards of the finer loyalties exacted by courts of equity. That is a sound rule and should not be whittled down by exceptions. If the existence of strained relations should be suffered to work an exception, then a designing fiduciary could easily bring about such relations to set the stage for a sharp bargain . . .'

Although strained relations may have existed between the parties, the joint venture had not been terminated prior to August 21, 1974. Therefore, the fiduciary relationship existed at the time Rankin obtained the Orsak lease in his name.

The jury found in special issue three Rankin agreed to obtain the Orsak lease for himself and the plaintiffs after drilling began on the Melton lease and before he obtained the Orsak lease. Appellants urge this finding together with the existence of the fiduciary relationship creates in their favor a constructive trust, and thus avoids the application of the Statute of Frauds, Section 26.01, Tex.Bus. & Com.Code, Ann., and the Texas Trust Act, Art. 7425b--7. We agree.

Our courts apply the rule that for a constructive trust to arise there must be a fiduciary relationship before and apart from the agreement made the basis of the suit. Meadows v. Bierschwale, 516 S .W.2d 125 (Tex.1974); ...