Rubens v. Costello

• Decision Date: 08 December 1952
• Docket Number: No. 5460,5460
• Parties: , Blue Sky L. Rep. P 70,195 RUBENS v. COSTELLO et ux.
• Court: Arizona Supreme Court

Page 306

251 P.2d 306

75 Ariz. 5, Blue Sky L. Rep. P 70,195

RUBENS v. COSTELLO et ux.

No. 5460.

Supreme Court of Arizona.

Dec. 8, 1952.

George F. Macdonald, of Phoenix, for appellant.

George M. Sterling, of Phoenix, for appellees.

UDALL, Chief Justice.

The appellant, Frank S. Rubens, plaintiff below, brought suit against the appellees, Peter Costello and Margaret S. Costello defendants below, to recover on a check made to appellant by Peter Costello, which check for $500 was allegedly given 'in payment of ten participating shares in 98% of all revenue earned from drilling, exploiting or sale of certain oil and gas leases on lands located in Hidalgo County, New Mexico, as shown by that certain 'Beneficial Trust' agreement.' Defendants stopped payment on the check and this suit resulted. From an adverse judgment the plaintiff appeals.

The parties will hereafter be referred to as they appeared in the lower court.

The plaintiff held a license from the corporation commission under the then existing law, the material parts of which are quoted below:

'Opinion and Order

'Application having been made by Frank S. Rubens for a Dealers in Securities Permit to sell and deal in oil and gas leases in the amount of Fifty Thousand ($50,000) Dollars.

'It Appearing That, the applicant has complied with the provisions of Chapter 53, Article 10, Arizona Code Annotated, 1939, and the amendments thereto, along with the provisions of the Opinion from the Attorney General promulgated March 25, 1949; and that detailed information in regard to the applicant is on file in the office of the Arizona Corporation Commission for public inspection and information.

'It is Therefore Ordered, that the application herein be granted and that the said Frank S. Rubens be and he is hereby authorized to sell oil and gas leases in the amount of Fifty Thousand ($50,000) Dollars.'

Shortly after the license was granted at an evening appointment in their home, the plaintiff offered defendants his securities. The security was a 'beneficial trust' instrument signed by George H. Ebsen as trustee, purportedly conveying a fractional interest, expressed in shares, in 98% of the revenue that might accrue from the development of certain oil and gas leases. The leases, issued to plaintiff by the State of New Mexico, at an annual rental of from ten to twenty cents an acre, and assigned by him to Ebsen as trustee, covered 960 acres of state land.

A similar fractional interest, expressed in shares in 50% of the revenue that might accrue from the development of an oil and gas lease on 80 acres of land close to the 960 acres, was purportedly conveyed by an 'Agreement', signed Centex Exploration Co. by Frank S. Rubens, which allegedly was given as a gift to the defendants.

The lower court, sitting without a jury, made no findings of fact as no request therefor was made. The plaintiff, through numerous assignments of error, contends that the defendants failed to substantiate the allegations of their answer that the check was given without legal consideration and that the plaintiff made false and fraudulent representations which induced defendants to issue the check; and further that the plaintiff did sustain the burden of proof and by the preponderance of the evidence was entitled to judgment.

The record in this case shows certain facts to exist that are necessarily decisive of the action, which do not fall within the assignments of error nor the theories upon which the case was tried below. The briefs on appeal follow the theory of the trial. As we held in Munger v. Boardman, 53 Ariz. 271, 88 P.2d 536, and International Life Insurance Co. v. Sorteberg, 70 Ariz. 92, 216 P.2d 702, 706:

'* * * when the record in a case on appeal shows affirmatively that certain facts exist sufficient to determine an issue which though not specifically presented and tried out in the lower court is necessarily decisive of the action, we will consider and determine the appeal upon that issue, notwithstanding it was never formally raised or litigated in the lower court.' International Life Insurance Co. v. Sorteberg, supra.

It is the general rule that appellate court will not consider a question not first raised in the lower court but this court said in the case of Town of South Tucson v. Board of Supervisors, 52 Ariz. 575, 84 P.2d 581, 584, '* * * this is merely a rule of procedure, and not a matter of jurisdiction. * * *'

'One of the exceptions to the rule is questions of a general public nature, affecting the interests of the state at large, and this is particularly true when the question raised for the first time is one of substantive law which is not affected by any dispute as to the facts of the case, for under such circumstances the parties may present the issue as thoroughly in the appellate court as it could have been presented below, without injury to either one.' Town of South Tucson v. Board of Supervisors, supra.

In determining this matter was recognize the question involved as one of a public nature, affecting the interests of the state at large. Substantive law is involved which is not affected by any of the facts in dispute.

Another exception to the rule is that:

'* * * a legal principle, although not suggested by either party at the trial (and we include on appeal) should be adopted in order to finally dispose of a cause on appeal if this impels the speedy enforcement of a right, or redress of a wrong, and, as a correct exposition of the law, is appropriate to the facts involved.'

See 4 C.J.S., Appeal and Error, § 242; Patty v. Salem Flouring Mills Co., 53 Or. 350, 96 P. 1106, 98 P. 521, 100 P. 298.

If for any valid reason the security is void and its sale prohibited, it would constitute an illegal consideration for the check under the provisions of the negotiable instrument law, section 52-141, A.C.A.1939, and plaintiff's title to the check would fail. Therefore, following the above cases and the rules therein, we look at the character of the trust agreement and the rights thereunder, if there be any, without regard to the assignments of error.

For a ready understanding of the discussion following, this instrument is set out below:

'Beneficial Trust

'This Beneficial Trust Agreement, made and entered into this 27th day of July, 1949, by and between George H. Ebsen of San Simon, Arizona, as Trustee, party of the first part, and Peter Costello and Margaret S. Costello, Joint Tenants with Right of Survivorship, Party of the second part:

'Whereas, the party of the first part will hold title to State of New Mexico Oil and Gas Leases, for in behalf of the parties in interest as shown herein being the parties of the second part, covering the following described property located in Hidalgo County, New Mexico:

* * *

* * *

'For and in consideration of the sum of Five Hundred no/100 Dollars ($500.00), and other valuable considerations, the receipt of which is hereby acknowledged, the party of the second part becomes the owner of ten (10) participating share or shares in and to the net ninety-eight (98) percent of all the revenue earned from the drilling, exploiting or sale of the herein mentioned oil and gas leases.

'A two percent (2%) over riding royalty in the herein mentioned oil and gas leases is retained by and become the property of Frank S. Rubens.

'Each participating share is based upon the ratio of One/time hundredth in and to the net ninety-eight percent as shown above.

'Nothing contained herein or in the-participating share or shares, shall be construed as, or become binding upon the parties herein as a partnership nor shall the trustee be held liable for any acts beyond his control, nor shall any of the parties to this agreement become liable or responsible for any debts, obligations, etc., incurred without the written consent of all the parties to this agreement.

'However, each party in interest in the herein Beneficial Trust shall have submitted to them by the trustee in writing at the last known address whatever offer or proposition the trustee will receive. The parties in interest shall have a reasonable time to either reject or accept said offer or proposition, and said rejection or acceptance shall be submitted in writing to the trustee. A majority of the parties in interest shall be the controlling decision and shall become binding upon all of the parties in the Beneficial Trust.

'Upon the death or inability of the trustee to perform in this Beneficial Trust, a successor can and shall be appointed by the majority in interest herein. By majority is meant the majority of the participating share owners in interest of the whole. The participating share or shares are nonassessable.

/s/ George H. Ebsen

George H. Ebsen, Trustee

Party of the First Part

/s/

Peter Costello

Margaret S. Costello

5620 N. 7th St., Phoenix, Arizona

Party of the Second Part'.

It is a fair inference from the evidence as a whole that Mr. Ebsen, party of the first part in the 'Beneficial Trust', was trustee of the naked title only. Apparently he signed these mimeographed instruments in blank for the plaintiff's use in making such sales. Also it is clear that plaintiff was to receive all of the purchase price from the sale of the securities, and nowhere in the evidence is there any obligation shown on the part of the trustee or plaintiff to drill or explore the leased premises.

A reading of the instrument reveals not a simple oil or gas lease or an assignment of such a lease, nor does it reveal only an interest in the revenue that might arise therefrom, such being...