Smith v. Fishback, 5414.

• Decision Date: 16 November 1938
• Docket Number: No. 5414.,5414.
• Citation: 123 S.W.2d 771
• Parties: SMITH et al. v. FISHBACK et al.
• Court: Texas Court of Appeals

123 S.W.2d 771

SMITH et al. v. FISHBACK et al.

No. 5414.

Court of Civil Appeals of Texas. Texarkana.

November 16, 1938.

Rehearing Denied December 1, 1938.

Appeal from District Court, Titus County; Claude Hutchings, Judge.

Action by Emma Fishback and others against W. W. Smith, trustee, and others, to rescind certain oil royalty pool contracts. From an adverse judgment, defendants appeal.

Affirmed.

J. A. Ward, of Mt. Pleasant, F. B. Caudle, of Mt. Vernon, Felts, Wheeler & Wheeler, of Austin, and Wm. R. Watkins, of Fort Worth, for appellants.

Bascom Perkins and Sam Williams, both of Mt. Pleasant, Frank Edwards, of Clarksville, Wm. Hodges, of Texarkana, and W. D. Suiter, of Winnsboro, for appellees.

HALL, Justice.

Appellants, other than David S. McCutcheon, and appellees were owners of land in Franklin and Titus Counties in and adjacent to the Talco Oil Field. At various dates during the spring and summer of 1936 appellees and appellants, other than McCutcheon, in severalty conveyed by royalty pool contracts, a part of their oil and gas royalty to W. W. Smith as Trustee for the benefit of a private corporation to be organized in the future by and through the efforts of one David S. McCutcheon who was named in said royalty contracts as party of third part. David S. McCutcheon was to defray all expenses incident to securing the royalty deeds and forming the corporation for which he was to receive 25% of the capital stock of the proposed corporation, and the participating land-owners were to receive the remaining 75% of said stock in the proportion that the royalty acres conveyed by each of them to the Trustee bore to the whole.

Appellees instituted this suit in the District Court of Titus County against appellants to cancel and rescind their royalty pool contracts and for damages alleging as grounds therefor that: "The said David S. McCutcheon and his aforesaid associates and agents represented to each and all of plaintiffs, and promised, guaranteed and insured the plaintiffs, and each of them, that they, plaintiffs, would receive a check, or checks, for dividends within ninety (90) days from the day the first well came in as a producer on any part of the land included in the royalty pool. Said David S. McCutcheon and his aforesaid agents and associates further represented, promised, guaranteed and insured plaintiffs that if they, plaintiffs, and each of them did not receive said checks within the time last above mentioned that each of said plaintiff's royalty contracts would become void, and in such event plaintiffs would be clear of their obligation and their contracts would be returned to plaintiffs. Said David S. McCutcheon, his agents and associates further represented that the first check to be received by each of the plaintiffs would be for the sum of Three Hundred Fifty Dollars ($350.00), based on eighty (80) acres of royalty." That the said David S. McCutcheon and his agents represented "that he had devised a scheme whereby no person, who executed said royalty contract, or participated in the pool agreement, could loose anything and that said scheme was to be a pooling of royalties by plaintiffs among themselves, that by doing so each and all the plaintiffs would be guaranteed a large income for life from dividends derived from said pool, whether the lands of each of the plaintiffs produced oil or not." It was alleged further by appellees that David S. McCutcheon represented to them that certain persons on whose land production of oil had already been secured had joined the contemplated oil pool; that it was fraudulently represented to some of appellees by David S. McCutcheon that all members of the pool were "compelled and required to place in said `royalty pool' at least one-half the royalty on any tract of land which was pooled" and that all participants in said pooling contract had so done. It was alleged further by appellees that David S. McCutcheon and his agents represented that the proposed pool had been approved by the United States Government, and that it was exactly like the pool provided by the United States Government for the Osage Indians. That this Osage Indian pool had made all the Indians of the Osage tribe rich and that if appellees would join in the proposed pool they would also become rich. Appellees alleged further that these statements were false and fraudulently made, that they were material and each of appellees, being ignorant of the true facts, relied on them and were induced thereby to execute the pooling contracts sought to be cancelled.

Appellees also alleged further "that the royalty pool contracts, executed by them and others, as heretofore stated, at the active solicitation and request of the said David S. McCutcheon and his agents and associates, were and are in reality subscriptions to stock in the proposed corporation to be formed as heretofore stated, and the subscriptions of stock had been subscribed by more than twenty-five different subscribers to the capital stock of a Texas corporation to be known as `Talco Royalty Pool, Inc.'"; that said corporation has not been organized, that no charter has been filed by the Secretary of State, and on information and belief appellees alleged that no charter will be filed by the Secretary of State. It is alleged further by appellees that the action of David S. McCutcheon and W. W. Smith, Trustee, in actively soliciting and securing the royalty contracts and mineral deeds constitutes them dealers in securities "in that said parties were securing and did cause to be secured pre-organization subscriptions to the capital stock of the royalty pool corporation to be formed and to be later chartered for more than fifteen subscribers." As defined by the Securities Act of the State of Texas, Article 600a, Vernon's Ann.Civ.St., that neither W. W. Smith, Trustee, nor David S. McCutcheon had a permit from the Secretary of State of Texas as required by the Securities Act to engage in the business of organizing said corporation in the manner alleged. That neither Smith, Trustee, David S. McCutcheon, Cecil McCutcheon, nor C. E. Townsend, agents of said David S. McCutcheon, had a permit from the Secretary of State of Texas as a dealer or salesman to sell securities in this state as required by the Securities Act. That the 25% of the stock in the proposed corporation to be assigned to David S. McCutcheon as compensation for his services in organizing and promoting said corporation was in excess of the amount allowed by law for such purpose; that said royalty pool contracts were without consideration in that the cash consideration recited in same was never paid, and that Smith, Trustee, and David S. McCutcheon and his agents had no authority under the law to perfect said corporation. It is alleged further by appellees that more than six months have elapsed since production was first had on land within the pool and no corporation has been organized, nor have any articles of corporation been presented to appellees for signature. That the failure of Smith, Trustee, David S. McCutcheon and his agents to comply with the provisions of the Security Act of this state renders these royalty pooling contracts void. Attached to appellees' petition were the royalty pool contracts sought to be cancelled and rescinded.

Appellants answered by general demurrer and numerous special exceptions, all of which were overruled by the court, general denial, and specially denied all the allegations in appellees' petition. Appellant David S. McCutcheon answered further alleging that he had expended more than $7000 in connection with the organization of the said pool; that in June 1936, after the discovery of oil on the land in the pool in May 1936, McCutcheon called a meeting of all persons owning interest in said pool, and in said meeting the owners selected an attorney to form a corporation, the expense therefor to be borne by McCutcheon. Thereafter, in July, at least a majority of landowners in said pool met and formed a de facto corporation, elected directors, adopted by-laws, and directed the Trustee to convey the trust property to the corporation. That the charter of the proposed corporation was presented to the Secretary of State who refused to file the same unless the following requirements were met: (1) Information showing that the capital stock was fully paid; (2) attorney's opinion showing that the grantors of the mineral interest to W. W. Smith, Trustee, had good title thereto; and (3) that said corporation apply for an issuer's permit and dealer's license under the Texas Security Act.

Trial was to a jury. At the conclusion of the testimony the court on his own motion discharged the jury and rendered judgment for appellees, cancelling said royalty pool contracts and removing cloud on their title cast by said contracts. No damages were allowed. The case is now properly before us for review.

No error is assigned by appellants to the action of the court in discharging the jury. No findings of fact or conclusions of law were filed by the trial court and none were requested; so, if the judgment of the court below can be affirmed on any theory, it is our duty to do so. Texas Creosoting Co. v. Hartburg Lbr. Co., Tex.Com.App., 12 S.W.2d 169; Adcock v. Shell, Tex.Civ.App., 273 S.W. 900, writ ref.; Boyd v. Keystone Driller Co., Tex. Civ.App., 6 S.W.2d 221, writ ref.; Johnson v. Campbell, Tex.Civ.App., 107 S.W.2d 1111.

Two controlling questions are presented by this appeal; first, Were David S. McCutcheon and his agents, Cecil McCutcheon and C. E. Townsend, guilty of fraud in the procurement of the royalty pool contracts? second, Was it incumbent upon David S. McCutcheon, W. W. Smith, Trustee, Cecil McCutcheon, and C. E. Townsend before beginning the organization of the proposed royalty pool corporation and the exchange of stock therein to the several landowners for interest in their royalty to secure from the Secretary of State an issuer's permit or...