Oil Fields Corporation v. Dashko

• Decision Date: 11 April 1927
• Docket Number: 346
• Parties: OIL FIELDS CORPORATION v. DASHKO
• Court: Arkansas Supreme Court

294 S.W. 25

173 Ark. 533

OIL FIELDS CORPORATION v. DASHKO

No. 346

Supreme Court of Arkansas

April 11, 1927

Appeal from Ouachita Chancery Court, Second Division; George M LeCroy, Chancellor; affirmed.

Decree affirmed.

Albert L. Wilson, for appellant.

Powell Smead & Knox, for Dashko; Mahony, Yocum & Saye, for Southern Crude Oil Purchasing Co., appellee.

OPINION

WOOD, J.

This appeal is by the Oil Fields Corporation, hereafter called appellant, against John S. Dashko, T. P. Novick, Olga Novick Anna B. Ingalls, G. W. Ferguson, Laura Ferguson, E. C. Alley Granville Alley, John Alley, as Alley & Son, and the Southern Crude Oil Purchasing Company (hereafter called purchasing company). The question to be determined is whether or not the appellant is the owner of an oil and gas lease covering the east half of the southwest quarter of the northwest quarter of section 34, township 15 south, range 15 west, Ouachita County, Arkansas, and the oil and gas produced therefrom since October 12, 1923.

The appellant claims to be the owner of the oil and gas lease by assignment from John S. Dashko, as trustee of the Business Men's Royalty Association. The assignment was executed and delivered October 12, 1923, and was filed for record with the clerk of the circuit court and ex-officio recorder of Ouachita County, Arkansas, July 24, 1924, at 5 o'clock P. M., and was duly recorded in his office in book 45, page 121. The purchasing company claimed to be the owner of the lease and the production thereof since May 8, 1925, under a conveyance executed that day by T. P. Novick to the purchasing company. On April 22, 1922, John S. Dashko organized a common-law trust under the name of the Business Men's Royalty Association, hereafter called royalty association. John S. Dashko is designated in the trust instrument as the trustee of the estate. The trust instrument was recorded in Union County, Arkansas, May 8, 1922, but was not recorded in Ouachita County, where the land in controversy is situated. Three similar trusts were also organized with other parties designated as trustees. The trust instruments consist of 21 articles. The purpose of these trusts is similar, and it is defined in article 8 of the instrument under which the royalty association was created as follows:

"The purpose of this trust shall be to hold the above and foregoing described oil and gas lease and any other oil and gas leases or property, real and personal, that may be acquired by this trust estate, and further to do all the necessary and incidental things for the operation, maintenance and development of such properties, consisting of the following acts: (2) To drill for, produce, refine and market petroleum and its products, and natural gas. (b) To buy, sell, lease, exchange and barter oil and gas leases, royalties and mineral rights. (c) To buy, sell and barter crude and refined oil and petroleum products. (d) To buy, sell and barter and exchange chattels and personal property of every kind and character, necessary and incident, remote or proximate, for the effective execution and accomplishment of the purposes above mentioned. (e) To buy, sell, trade and exchange real estate and chattels real necessary and incident to the above and foregoing purposes, and by these articles the trustee is authorized and empowered to do any act and thing authorized by law, in order to promote, effect and procure the purposes of this trust, as herein enumerated."

The money with which the property was acquired for the trust estate was raised by soliciting the public to invest therein in amounts of $ 10, and multiples thereof, paid to the trustee, and, as evidence of such investment, the trustee issued certificates to the beneficiaries showing the amount of the investment in the trust estate. The sum of $ 1,789,223.75 was invested by the public in this manner in the four trusts. They were all operated from the same office in El Dorado from May 8, 1922, until October 12, 1923, at which time they were legally merged into the Oil Fields Corporation, the appellant, which had been previously organized for that purpose.

Article 16 of the trust instrument provides that all conveyances to the trustee of the estate shall read in the name of Business Men's Royalty Association, in the name of the trustee therefor, and all conveyances from such trustee shall read "Business Men's Royalty Association," by the trustee therefor, and likewise all written instruments pertaining to this trust shall be so executed. Almost unlimited power is given to the trustee. He had the sole management and control of the entire trust estate, having the power to sell or pledge the same and to distribute the proceeds derived from its operation among the beneficiaries in a manner wholly within his discretion. He received such compensation for his services as trustee at such times as, in his discretion, he elected to receive, and was to be reimbursed for any expenses incurred by him in the conduct of his duties as trustee of the estate. In addition to such reasonable compensation as he might elect to award himself, the instrument also provides that the trustee shall be entitled to 10 per cent. of all the profit made from the sale of any lease or leases, or of the profits made from the production of any oil well or wells which may be brought in during the life of this estate. There is a further provision in the trust instrument to the effect that the purpose of the articles was to create an express and active trust, the management and execution of which was wholly within the discretion of the trustee, without voice and control by any cestui que trust whomsoever, but it is also expressed that there was a fiduciary relation created and existing by virtue of the articles; that the beneficiaries were non-associated with the trustee and with each other. There was a provision also to the effect that, if any article of the trust should be declared invalid, such adjudication should not affect the rest of the trust declaration, nor should any construction be placed upon the instrument which should curtail the right of the trustee to manage the trust estate independent of the beneficiaries.

On May 16, 1922, T. C. Joyce executed an oil and gas lease to M. P. Morton, trustee, covering the property in controversy. On August 12, 1922, Morton, trustee, assigned the oil and gas lease to John S. Dashko, in his individual capacity. This assignment was duly recorded on August 18, 1922. On November 15, 1923, Dashko executed an assignment of the lease in controversy to T. P. Novick, his brother-in-law. This assignment was filed for record on March 7, 1924. On May 12, 1925, Novick executed an assignment of the lease to the purchasing company, which instrument was filed for record at 3:45 P. M. of that day.

The merger instrument signed by John S. Dashko, trustee of the royalty association, for the consideration therein named, conveyed unto the Oil Fields Corporation "all of the property and assets of every kind and description of the trust estate, including oil and gas leases and the equipment, wherever situated, and all funds on hand, oil in storage, and all sums due or to become due and payable to the said John S. Dashko, as trustee of the said trust estate, and hereby agrees to execute all necessary assignments and conveyances to convey all the said property unto the said Oil Fields Corporation in exchange for a sufficient amount of its capital stock, at par, to equal the par value of the beneficial certificates, known as trustee's certificates, now issued and outstanding." On October 20, 1923, John S. Dashko, in compliance with the merger instrument, executed two specific assignments, in one of which he conveyed to the appellant all the property of the royalty association situated in Ouachita County, Arkansas, and in the other all the property situated in Union County, Arkansas. But in neither of these is the property in controversy mentioned or described. No property is conveyed in these specific assignments as belonging to the royalty association except a royalty interest, or an overriding royalty interest. One of these assignments was filed for record on November 6, 1923, and the other on November 8, 1923.

Out of this voluminous record of more than twelve hundred pages we deem it unnecessary, and it would unduly extend this opinion, to set forth in detail either the pleadings or the testimony. Suffice it to say it is only necessary to discuss and decide two issues presented by the record. First, was John S. Dashko the owner of the oil and gas lease in controversy at the time the same was assigned to the purchasing company? Second, if, as between the appellant and Dashko, the appellant, in equity, was the owner of the property in controversy at the time of the assignment thereof to the purchasing company, nevertheless was the purchasing company an innocent purchaser thereof?

1. Was Dashko the owner of the property in controversy? We have set forth the essential provisions of the trust instrument under which the appellant deraigns title. Even if the trust instrument should be construed as not to prohibit Dashko from acquiring gas and oil leases in his individual capacity while he was conducting the business of the trust, still we are convinced that a preponderance of the evidence shows that he acquired the property in controversy for the royalty association of which he was the trustee. But, while the trust instrument does not in express terms prohibit Dashko, as an individual, from doing the things set forth in article 8 nevertheless it occurs to us that the instrument should be construed as prohibiting him from doing any of the things therein specified on his individual account and for his individual advantage and profit. An...