Omohundro v. Matthews

• Decision Date: 05 October 1960
• Docket Number: No. A-7115,A-7115
• Citation: 341 S.W.2d 401,161 Tex. 367
• Parties: E. G. OMOHUNDRO, Petitioner, v. Frank D. MATTHEWS, Jr., et al., Respondents.
• Court: Texas Supreme Court

Page 401

341 S.W.2d 401

161 Tex. 367

E. G. OMOHUNDRO, Petitioner, v. Frank D. MATTHEWS, Jr., et al., Respondents.

No. A-7115.

Supreme Court of Texas.

Oct. 5, 1960.

Rehearing Denied Dec. 31, 1960.

B. F. Whitworth, Jasper, Fulbright, Crooker, Freeman, Bates & Jaworski and W. H. Vaughan, Jr., of above firm, houston, for petitioner.

Ernest S. Fellbaum and Lloyd N. Matthews, Houston, Hart & Hart, Austin, for respondents.

GREENHILL, Justice.

Frank D. Matthews, Jr., and Ray James Thompson, Jr., brought suit against E. G. Omohundro to recover an undivided 1/3rd interest each in a 1/16th overriding royalty interest which Omohundro acquired from Slick Oil Corporation. The trial court decreed that a constructive trust existed in favor of Matthews and Thompson to the interests they claimed. The Court of Civil Appeals has affirmed that judgment. Tex.Civ.App., 317 S.W.2d 771. We here affirm those judgments.

The record shows that Omohundro learned of the possibility of obtaining an assignment (commonly called a 'farmout') from Humble Oil and Refining Company of oil and gas leases in Jasper County in return for a promise of drilling operations. He contacted Matthews and Thompson in April, 1955, and inquired whether they thought the area sufficiently prospective to merit the acquisition of such interests. Matthews and Thompson were geologists who had been associated with Omohundro in previous transactions. Upon investigation of data available to them, they decided the area was promising. There is testimony that the three men orally agreed to use their efforts to obtain exploration and development of leases and to divide the profits equally.

Humble, at Omohundro's request, agreed in a letter of May 13, 1955, to assign rights in several oil and gas leases in the area to Omohundro. Humble reserved rights not important here. One of such leases was the N. B. Hughes lease. It was upon this property that the principal operations were conducted. The parties hereto then undertook to find a person who would conduct drilling operations or finance the drilling of a well.

Thompson found such a person in Mr. Frank Sharp. Thompson introduced him to Omohundro. Sharp agreed to drill a well on the Hughes lease. The leases were tentatively assigned to Sharp with an overriding royalty of 1/16th being reserved in Omohundro's name.

In June of 1955, Omohundro acknowledged the interest of Frank Matthews and Ray Thompson in a letter which read:

'Dear Ray, This letter is written evidence of the fact that you and Frank each own one third interest, and that I own a remaining third interest in the overriding royalty that is reserved to me under the terms of my letter to Frank W. Sharp under date of June 10, 1955. This letter and agreement thereunder were made under the terms of letter agreement of Humble letter to me under date of May 13, 1955. At the proper time, I will make the necessary assignments to each of you upon your request.'

Matthews and Thompson alleged in their petition that, 'Pursuant to the wishes of Sharp and the agreement between the Plaintiffs and Defendant (Omohundro), the respective interests of the parties (in the Sharp transaction) were taken in the name of the Defendant (Omohundro), and the well drilled was known as the Omohundro Hughes No. 1 well.'

The Sharp well was dry and was abandoned in July of 1955. Thereafter, Omohundro, Thompson and Matthews sought others who would explore the land. This time it was Matthews who procured a driller. He met with Mr. J. P. Owen who agreed to pay $5,000 for an assignment of the leases, to drill a well at his own expense, and to allow the reservation of a 1/16th overriding royalty in Omohundro's name. Omohundro took no part in these original negotiations.

Matthews called Omohundro who was then in New York. When the matter was explained to him by Matthews, he approved of the transaction. The $5,000 was paid by Owen to Matthews who, after paying Omohundro for his expenses, agreed to divide the balance three ways. Matthews testified that the three purchased other royalty in the area with the money, 'as we had always agreed to split up the profit from getting wells drilled on that area.' That royalty is not involved here, but it is relevant that Matthews actually purchased it and paid for it by his check, but had the royalty placed in Omohundro's name 'to keep the group together and to show good faith.'

The pleadings of Matthews and Thompson again alleged that the Humble leases had been conditionally assigned to Owen 'and the partners retained a 1/16th override * * *' and that the interests of the plaintiffs and defendant were taken 'in the name of E. G. Omohundro in accordance with the original agreement between the parties hereto.'

On December 14, 1955, Omohundro executed a written assignment to Matthews' and to Thompson's assignee of a 1/3rd interest each in the reserved overriding royalty and in the reversionary interest in the Owen transaction and acknowledging that such royalty and reversionary interest were owned equally by the three of them.

It was Omohundro's contention that this ended his association with Matthews and Thompson, but the jury found otherwise. It found that the agreement was not terminated by mutual consent on December 14, 1955, and was in existence on March 23, 1956.

The Owen well was dry and was abandoned on December 28, 1955. Since the Sharp and Owen wells were nonproductive, interest in the area declined substantially. All of Humble's leases in this part of the farmout area were allowed to lapse, with Omohundro's consent, as their delay rental dates were reached. The Hughes lease was due to expire on March 24, 1956.

Earlier in March of 1956, prior to the expiration of Humble's lease on the Hughes tract, Omohundro and Slick Oil Corporation (hereafter called Slick) agreed that Omohundro would obtain leases in the area for Slick in return for an overriding 1/16th royalty which Omohundro was to receive. Later Slick decided to use its own landmen to obtain the leases. Omohundro agreed to assist them.

On March 24, 1956, Humble, with Omohundro's consent, allowed its Hughes lease to expire. On March 28, 1956, four days later, Slick secured a lease on the Hughes and other tracts which had been contained in the farmout assignment from Humble to Omohundro in its letter of May 13, 1955. In assisting Slick, Omohundro used information he had obtained in his association with Matthews and Thompson. He used in negotiating with Slick a copy of a well-log of the Sharp well which he borrowed from Thompson. Neither Thompson nor Matthews were informed of the negotiations between Omohundro and Slick.

On June 28, 1956, Slick transferred a 1/16th overriding interest in these tracts to Omohundro. Matthews and Thompson point out that since they knew nothing of the Slick transaction until it was consummated, there could have been no agreement between them and Omohundro as to whose name such interest would be taken in. Matthews and Thompson claim in this suit that they are each entitled to a one-third of the interests thus acquired by Omohundro from Slick. Their pleadings allege, among other things, the joint venture, breach of confindential relationship, use of knowledge obtained in the joint venture to obtain a private advantage, and that the consideration paid by Omohundro for the 1/16th overriding royalty from Slick was the knowledge acquired from the joint enterprise which was the property of the joint enterprise.

The jury found, among other things, that Omohundro, Matthews and Thompson entered an agreement in April, 1955, to use their joint efforts to obtain development of the area described in the Humble farmout letter, and to share all profits and benefits equally; that they did not enter into a series of separate agreements; that the agreement was not solely to share equally in the overriding royalty interests reserved in the Sharp or Owen wells; that such agreement was to extend for such length of time as any of the parties owned interests in the Humble farmout leases; that the agreement between the parties had not been terminated by mutual agreement, had not been performed, and was in force on December 14, 1955, and on March 23, 1956; that the purpose of the joint efforts had not been fully completed when the Owen well was found to be dry and abandoned; that Omohundro allowed the Hughes lease to Humble to expire by nonpayment of rentals in order to comply with his agreement wich Slick; that Omohundro used information and materials acquired in his activities with Matthews and Thompson to induce Slick to make the deal with him; and that Omohundro failed to give a full account to Matthews and Thompson of his negotiations with Slick until after March 23, 1956.

The Texas Trust Act, as applicable here, provides in § 7 that a trust in relation to, or consisting of, real property shall be invalid unless created, established or declared by a written instrument. ¹ The Act in § 2 defines a trust as follows:

"Trust' for the purpose of this Act means an express trust only, and does not include (1) resulting or constructive trusts * * *.'

The Act does not define the terms express, resulting, or constructive trusts. It does provide in § 7 that express trusts may be created in six specified ways, none of which particularly fits the facts of this case.

We shall assume, however, that under the pleadings of Matthews and Thompson that an express trust was created when the parties allowed the leases (the Sharp and Owen transactions) to be placed in Omohundro's name 'pursuant to their agreement.' The question then arises whether that ends the matter under the Texas Trust Act which says oral express trusts shall be invalid. That Act also says that it does not apply to constructive or resulting trusts. A constructive trust is not inhibited by it. There is nothing in the Act which restricts or limits the meaning of 'constructive trusts' under the law as they had previously been...