Neeley v. Intercity Management Corp.

Decision Date10 September 1981
Docket NumberNo. 17967,17967
Citation623 S.W.2d 942
PartiesCharlie NEELEY and Earl Gilbert, Appellant, v. INTERCITY MANAGEMENT CORPORATION et al, Appellees. (1st Dist.)
CourtTexas Court of Appeals

John H. Miller, Jr., Sinton, R. David Legg, Legg & Hart, Houston, for appellant.

Thomas M. Andrews, Ellis, Andrews & Lawrence, Aransas Pass, William G. Burnett, Sinton, Larry Meyers, Brynes, Myers, Adair, Campbell & Sinex, Houston, for appellees.

Before COLEMAN, C. J., and PEDEN and SMITH, JJ.

PEDEN, Justice.

Charlie Neeley and Earl Gilbert appeal from a judgment, based on jury findings, awarding title to the working interest in certain oil, gas, and mineral leases to the plaintiffs, Intercity Management Corporation, John Phillips, George Fadler, Stanley Schlesinger, Arthur R. Taylor, John Schneider, Charles Ellis, and John Backe. The numerous leases at issue are located in the Welder E&F field (San Patricio County), the Slick-Wilcox field (Goliad and DeWitt Counties), and the Dyersdale field (Harris County). The appellants contend that the evidence was legally and factually insufficient to support the jury finding that they did not give valuable consideration for their assignments, that there was no evidence under any theory of recovery to support an award of the entire working interest to the appellees, that there was no jury finding and no conclusive proof that the corporate appellee (Intercity) had superior title out of the parties' common source, Driscoll Production Company, or that there was a valid trust in which the latter company was trustee. One of the bases of the claim of the individual appellees is assignments from the common source of title, while the corporate appellee relies on the validity of the trust in question. The judgment is modified and, as modified, is affirmed.

Mr. Edward Driscoll, acting as president of Driscoll Production Company, was in the business of purchasing and developing oil and gas properties. He would acquire working interests in oil and gas leases, then would sell percentages of them to investors (among whom were the named party plaintiffs and their co-tenants) in return for capital needed to develop the leases. Typically, the investors would sign drilling contracts, lease-purchase agreements, or turnkey workover contracts with Driscoll for the various properties, whereby Driscoll would act as operator and, using funds provided by the investors, would drill test wells or rework unproductive wells. Upon successful completion of a producing property Driscoll Production was to give the investor an absolute assignment of the working interest purchased. In certain cases absolute assignments were made to investors from the outset, but not all of them were recorded. Once Driscoll had completed the agreed drilling and reworking then, in the event production resulted, Driscoll Production Company (DPC) and the investors each would bear a proportionate share of continuing production costs and would receive a proportionate share of the profits.

Driscoll was having marital problems during 1977. Mr. Paul Kratzig, an attorney who represented Driscoll on occasion, knew of these problems and of the unrecorded ownership interests which investors had purchased from DPC. To protect those interests from any claim against DPC by Driscoll's wife, Kratzig suggested that DPC execute and record assignments of the affected leaseholds to Driscoll Production Company, Trustee, (DPC, Trustee) to show that they were being held in trust for the investors. Consequently, on November 21, 1977, DPC assigned to Driscoll Production Company, Trustee, the following percentages of the leasehold estate and working interest in the leases at issue:

1) 98.6% of the Slick-Wilcox field Allen, Poetter, and Riedel leases

2) 98.66% of the Slick-Wilcox field Wood lease in Goliad County

3) 93.22916% of the Welder E&F field leases

4) 92.47393% of the Dyersdale field leases

These assignments were recorded on November 23 and 28 of 1977.

DPC apparently was having financial difficulties during this period, and in the spring of 1978 Kratzig, as Eddie Driscoll's representative, participated in a series of meetings and negotiations with the various working-interest owners. The negotiations appear to have culminated in a settlement agreement among Driscoll, DPC, and the investors whereby Driscoll pledged the properties to satisfy certain debts. This agreement was marked PX-120, but it was not admitted in evidence.

In addition, Driscoll called Mr. Charlie Neeley some time in May of 1978, seeking a loan of $100,000. Driscoll offered to mortgage his home, give Neeley oil leases, production runs, and equipment on the leases, if Neeley would make the loan. Neeley refused but called Earl Gilbert about it, and he and Driscoll went to Gilbert's office to see if something could be worked out.

James L. Hacker, senior vice president of Cullen Center Bank and Trust, testified that Neeley telephoned him on May 16, 1978, and asked him if he would make a $100,000 business loan to Neeley's friend, Driscoll. Neeley told him that Driscoll needed the money that day and said that the bank could have as collateral certain oil and gas properties owned by DPC and Tejano Development Company (Tejano). When Hacker told Neeley that it would take more than one day to check the titles on the properties and get together the legal paperwork for such a loan, Neeley said that he and Earl Gilbert would personally guarantee payment on it, an arrangement that was agreeable to Hacker. Later that day Driscoll signed the promissory note individually and on behalf of DPC and Tejano. Neeley signed a guaranty for 50% of the outstanding indebtedness of DPC and Tejano, and Neeley signed a guaranty for the full amount due on the note. Gilbert did not join in the guaranty because some of the title documents were not as he had expected. After signing the original note in Houston, Driscoll went back to his Corpus Christi office to get signatures on the corporate resolutions Hacker had requested and to pick up some of the oil and gas assignments for Neeley. Hacker had told Neeley that the assignments were no good unless they were recorded, and the bank subsequently handled the recordings for Neeley. On May 22, 1978, Eddie Driscoll assigned to Neeley a life insurance policy in the face amount of $131,815 as collateral for all of Driscoll's indebtedness to Neeley.

Before the $100,000 note matured, Driscoll and DPC conveyed to Intercity any remaining interest that DPC had in the various leases in question here (since he had not paid the investors the funds due them from the producing properties) and in the fall of 1978, DPC, Trustee, conveyed to Intercity the interest previously received from DPC.

Driscoll died on October 5, 1978, and thereafter the court ordered the proceeds of the insurance policy paid to certain trustees, who placed them in a certificate of deposit worth $132,567 on November 8, 1979. The bank made demand on Neeley to pay the note he had guaranteed, and Neeley borrowed $104,896.51 in his own name for that purpose. When the note matured on December 14, Neeley signed a renewal note maturing March 14, 1979, and later again renewed the note, this time to mature June 12, 1979. When the original note was renewed, two things were added: 1) Earl Gilbert's guarantee for $50,524.48, and 2) a letter agreement dated December 14, 1978, in which Neeley agreed to use the life insurance proceeds assigned to him by Driscoll to pay off the note at some time in the future.

Subsequently, Neeley and Gilbert contacted the companies that were buying the oil and gas produced from certain of the subject leases, causing them to suspend payment of the proceeds to the individual investors and to Intercity, and this suit resulted. A partial summary judgment, granted on November 8, 1979, provided that Neeley recover $114,512.03 from the insurance proceeds that had been put into in the CD, plus 103/4% interest per annum from October 11, 1979, until maturity of the certificate, when the trustees in control of the proceeds were to pay such sums to Neeley.

In response to fifteen special issues submitted in the trial on the merits in this case, the jury found that 1) when Neeley and Gilbert obtained the assignments dated May 16, 1978, they did not have notice that the plaintiffs and their co-tenants were claiming an interest in the same properties by virtue of unrecorded lease purchase agreements from DPC, 2) Neeley and Gilbert did not pay a valuable consideration for their assignments from DPC, 3) the assignments to Neeley and Gilbert were intended as mortgages to secure the $100,000 note (this answer subsequently was disregarded by the court as conflicting with the answer to special issue 14), 4) on May 16, 1978, when it made the assignments to Neeley and Gilbert, DPC was indebted to all of the appellees but Intercity, 5) & 6) the jury did not find that the assignments to the defendants were intended to delay, hinder, or defraud any interested person from obtaining that to which he was entitled as a creditor of DPC, 8) the jury found that $1,136,540 was the fair market value of the subject properties at the time the assignments were made to the defendants, 9) the consideration paid by Neeley and Gilbert for their assignments was grossly inadequate in relation to the value of the property assigned, "grossly inadequate" being defined as a consideration which is intrinsically unfair under all of the circumstances, 10) & 11) Neeley and Gilbert wrongfully caused Permian Corporation and Houston Pipe Line Corporation to suspend payments to plaintiffs and their co-tenants for oil and gas produced from the Slick-Wilcox properties, 12) suspending payments for production from the Slick-Wilcox field disrupted Intercity's business operations, 13) $1,300,000 would reasonably compensate Intercity in that regard (a remittitur was subsequently ordered on the...

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