Rankin v. Naftalis

• Decision Date: 05 October 1977
• Docket Number: No. B-6447,B-6447
• Citation: 557 S.W.2d 940
• Court: Texas Supreme Court
• Parties: Robert E. RANKIN, Petitioner, v. J. M. NAFTALIS et al., Respondents.

Page 940

557 S.W.2d 940

Robert E. RANKIN, Petitioner, v. J. M. NAFTALIS et al., Respondents.

No. B-6447.

Supreme Court of Texas.

Oct. 5, 1977.

Rehearing Denied Nov. 16, 1977.

Jennings, Montgomery, Dies & Turner, Frank L. Jennings, Graham, for petitioner.

Fillmore & Camp, John P. Camp, Fort Worth, for respondents.

POPE, Justice.

Dr. J. M. Naftalis, Dr. R. D. Martin, Gene S. Friedman, and E. F. Lisle filed suit against Robert E. Rankin seeking to impress a constructive trust upon an oil and gas lease that he took in his name. The defendant, Rankin, pleaded in defense, that plaintiffs' claim was barred by the Statute of Frauds, the Statute of Conveyances, and the Texas Trust Act. Rankin also defended on the grounds that plaintiffs were estopped to assert their claim in equity. After a jury trial, the court rendered judgment that the plaintiffs take nothing, but the court of civil appeals with one justice dissenting, reversed the judgment. 542 S.W.2d 893. We reverse the judgment of the court of civil appeals and affirm the trial court's judgment that plaintiffs take nothing.

The defendant, Rankin, in March, 1973, acquired what is called the Melton oil and gas lease to a quarter section of land in Knox County. He needed funds to develop the lease, so he contacted and explained to each of the plaintiffs the prospects for a well on the lease. Naftalis and the other plaintiffs had their own attorney prepare contracts so each of the plaintiffs could separately contract with the defendant, Rankin. Each contract obligated Rankin to assign to each of the plaintiffs a fractional interest in the Melton lease and required each assignee to pay a stated sum into an escrow account at a bank in Dallas. The funds were to be paid and were paid to Rankin when he drilled the well on the Melton lease to a depth of one thousand nine hundred fifty feet. The assignments in the working interest of the Melton lease were: one-sixth to Dr. Naftalis, one-sixth to Dr. Martin, one-sixth to Gene Friedman, and one-fourth to Lisle. Rankin retained the remaining one-fourth interest.

Each contract designated Rankin as the drilling contractor and gave Rankin control of the drilling, development, operations, marketing, accounting, and the execution of division orders. The contracts provided that upon completion of a commercial well, the assignees would pay Rankin an additional pro rata part of eight thousand dollars to complete the well, and Rankin agreed to pay any additional costs. The contracts described the Melton lease and dealt with that lease only.

In May, 1974, the first well on the Melton lease was completed as a producer, though not a good one. After the first well was drilled, Rankin told one or more of the plaintiffs that he would obtain the Orsak lease for all of the same parties. A second well was also drilled on the Melton lease in May. The parties shared their proportionate costs for operating and equipping that well, but disputes arose concerning the expenses and the use of the first Melton well as early as July, 1974. Up to the early part of 1975, the parties held meetings and paid the bills arising out of the operation of the Melton lease from a bank account, called the "Melton Lease Account." Each party had authority to write checks to pay the expenses. The income from the well was paid directly to each of the parties according to their ownership in the lease. The plaintiffs testified that Rankin told them, even after he had obtained the Orsak lease in his own name, that he had not been able to obtain it.

On August 21, 1974, defendant Rankin purchased the William Orsak lease with his own funds, and he filed the lease for record on October 4, 1974. The claim to the constructive trust is that Rankin, before the Melton lease agreements were executed, and while the Melton wells were being drilled, told one or more of the plaintiffs that he was trying to acquire the Orsak lease and that he would take the lease in the names of all the participants in the Melton lease. There was no discussion about the amount that the plaintiffs would contribute to the drilling or completion of a well on the Orsak lease. That lease would have to be drilled to a different horizon and into a different sand from the Melton lease.

On April 24, 1975, defendant Rankin began drilling operations on the Orsak lease. Naftalis and the other plaintiffs learned about the activity and consulted an attorney two days later. They did not at that time, however, assert any claim in the Orsak lease. On May 20, 1975, Naftalis and the other plaintiffs filed a suit for the partition of the Melton lease, but they still made no claim to the Orsak lease. In their suit concerning the Melton lease, they also asked for damages, so the trial court on June 27, 1975, severed the partition and the damage actions into separate causes. The District Court of Knox County appointed a receiver with orders to sell the Melton lease at a public sale, and on July 1, 1975, Naftalis and the other assignees bought the Melton lease at the public sale. The damage or accounting suit was pending at the time the present action was tried.

During the early part of May, 1975, Rankin successfully completed the Orsak well as a producer. It was after the well was completed and after Naftalis and the plaintiffs learned from investigating the records of the Railroad Commission that it was a producing well, that they filed this action on July 14, 1975, and for the first time asserted a constructive trust in three-fourths of the Orsak lease and well.

Naftalis and the other plaintiffs rely upon the jury answers to three special issues as a basis for judgment; defendants rely upon a number of other issues to support the judgment that plaintiffs take nothing. The findings which plaintiffs believe support a judgment for their claim to a constructive trust are that (1) during August, 1974, the plaintiffs and defendant were jointly engaged in the business of operating the Melton lease, sharing income and expenses according to their ownership interests; (3) between the time drilling commenced on the Melton lease and August 21, 1974, Robert Rankin represented to . . . the plaintiffs that he would obtain the Orsak lease for himself and the plaintiffs; and (7) the defendant Rankin failed to inform Tooker Lisle (a plaintiff) before August 21, 1974, of his intention to acquire the Orsak lease.

Defendant Rankin relies upon the jury's refusal to find that (4) the relationship of the parties on August 21, 1974, justified plaintiffs in believing that defendant Rankin would act in the mutual interest of the plaintiffs and the defendant; (5) defendant Rankin in acquiring the Orsak lease for himself amounted to an abuse of the relationship; (6) defendant's failure to inform the plaintiffs before August 21, 1974, of his intention to acquire the Orsak lease for himself amounted to an abuse of the relationship inquired about in (4) above. Defendant Rankin also relies upon the jury's findings on the estoppel issues that (13) plaintiffs knew that defendant Rankin had obtained the Orsak lease for himself prior to his commencement of drilling operations on that lease; (14) the plaintiffs remained silent until after Rankin had completed a producing well on the lease; (15) Rankin relied upon plaintiffs' silence in conducting the drilling operations; and (16) but for Rankin's reliance upon plaintiffs' silence, he would not have conducted the drilling operations.

We need to narrow the issues in this case. This is not a case in which the plaintiffs have charged the defendant with actual fraud. Meadows v. Bierschwale, 516 S.W.2d 125, 129 (Tex.1974). The case is not one in which the alleged trust concerned or the trustee reacquired the original property that was covered by a confidential arrangement as was the case in Omohundro v. Matthews, 161 Tex. 367, 341 S.W.2d 401 (1960); Mills v. Gray, 147 Tex. 33, 210 S.W.2d 985 (1948); MacDonald v. Follett, 142 Tex. 616, 180 S.W.2d 334 (1944), and Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, 62 A.L.R. 1 (1928). It is not a case in which the original contract embraced the general business for the continued acquisition of mineral lands as was the case of Huffington v. Upchurch, 532 S.W.2d 576 (Tex.1976). The jury found that Rankin did not acquire the Orsak lease upon the basis of information he received in drilling the Melton lease. Smith v. Bolin, 153 Tex. 486, 271 S.W.2d 93 (1954). The parties reduced their contract to writing and limited the venture to the described Melton lease. The plaintiffs still rely upon the contracts by their independent suit, and they must show in this case that the written contracts actually extended to and reached properties that the contracts excluded.

The Texas Legislature on successive occasions from the early days of the Republic has expressed its intent that contracts concerning lands must not, as Lord Coke expressed it, "be left to slippery memory" but must be reduced to writing. The purposes served by and the reasons for the Statute of Frauds, Tex.Rev.Civ.Stat.Ann. art. 3995, and the Texas Trust Act, Tex.Rev.Civ.Stat.Ann. art. 7425b-7, are reiterated in Consolidated Gas & Equipment Co. v. Thompson, 405 S.W.2d 333 (Tex.1966), and earlier by Pope v. Garrett, 147 Tex. 18, 211 S.W.2d 559, 562 (1948). In 1840, the Texas Congress adopted the Statute of Frauds, ¹ and the Statute of Conveyances. ² Before 1943, the law allowed some margin in the enforcement of express oral trusts; ³ but in 1943 the Texas Trust Act terminated that liberality by the enactment of article 7425b-7. ⁴ In 1945, the legislature redefined a trust in such a way as to exclude resulting or constructive trusts from the prohibitions of the Trust Act. Tex.Rev.Civ.Stat.Ann. art. 7425b-2.

A constructive trust escapes the unquestioned general rule that land titles must not rest in parol, but to do so, there must be strict proof of a prior confidential relationship and unfair conduct...