"On August 24, 1892, G. W. Carroll, G. W. O'Brien, Emma E. John, J. F. Lanier, and Patillo Higgins were the joint owners of 2,700 acres of land in the Veatch survey in Jefferson county, Texas. The owners, believing it to be rich in oil, gas, and other minerals, and that its resources could best be developed by a corporation, secured a charter under the general laws of Texas under the corporate name of the Gladys City Oil, Gas & Manufacturing Company. (For convenience it will hereinafter be called the `Gladys Company.') Its authorized capital was $200,000, the shares being of the par value of $100 each. The original incorporators were the owners of the land above named, and the land constituted its entire capital. Each of the incorporators owned an interest in the corporation equal to their interest in the land. Mrs. Emma E. John owned practically a one-eighth interest. The land was conveyed by the owners to the corporation. Some of the stock was retained in the treasury, but none of it was ever sold. Mrs. John died on the ____ day of ____, 1895, and her children, Alfred and Irma John, minors, became the owners of her shares. Mrs. Starke, prior to the institution of this suit, duly qualified as the guardian of their estate. By its charter its corporate purposes were recited to be `the erection of buildings, and the accumulation and loan of funds for the purchase and sale of real property in the city of Gladys and its suburbs, and the transaction of a manufacturing and mining business.' The Gladys Company never attempted to exercise the power of erecting buildings and the accumulation and loan of funds for the purchase and sale of real estate in Gladys City and its suburbs or elsewhere. No such town or city was in existence, the land was not within two miles of any town or city, and they renounced such power, and never undertook to exercise any corporate power but that of mining. This they elected to exercise by a distinct agreement among the incorporators. It is averred that the other powers above named were inconsistent, and could not have been lawfully conferred. The incorporators were named in the charter as directors for the first year. They thereafter organized, and began to bore for oil on the land in question, but their efforts were futile. Carroll, O'Brien, and Patillo Higgins were directors of the corporation continuously until September 11, 1901. Mrs. E. E. John was a director until her death, in 1895. Her interest in the corporation descended at her death to her two children before named, and Mrs. Starke, upon her appointment as their
guardian in 1895, became a director in her stead. Then follow allegations of the subsequent appointment of other directors, and it is averred that by-laws were enacted prescribing notice of directors' meetings and the manner of service, the manner of holding called meetings, providing, among other things, that no business shall be transacted at any called meeting of the board except such as is specified in the call; and it is averred that the defendants had notice of these by-laws. On October 20, 1892, the board of directors enacted a by-law forever reserving to the Gladys Company all mineral, oil, and gas rights in and under the lots belonging to the company, and it is averred that this by-law has never been repealed. It is also alleged that Lucas and his assigns knew the lease was executed under the circumstances alleged, and of the existence of the above by-law; that on the 20th of June, 1899, G. W. Carroll, G. W. O'Brien, and C. T. Heisig, three of the directors at that date, acting without a director's meeting, and without authority from the board or stockholders, executed in behalf of the Gladys Company to one A. F. Lucas a lease for one year empowering said Lucas to enter upon a part of the land of the company and prospect for oil and other minerals; that the land included in this lease practically covered all the oil and mineral lands on the property of the Gladys Company; that this was well known to Lucas and Patillo Higgins, a director of the Gladys Company at the time, and Higgins was interested in the lease; that of this contract petitioner had no notice; this contract gave Lucas the option within one year to buy the land thus leased for $33,150; that this contract was wholly without consideration. We do not set out more fully the alleged connection of Higgins with this lease, because, as will hereinbefore appear, it becomes immaterial. This lease and option is alleged to be void because ultra vires, made without authority of the directory or stockholders, and because Higgins, as one of the directors, had a private interest in the lease.
"It is further averred that under this lease Lucas entered upon the leased land (which amounted to about 600 acres), began to sink a well, and thereby satisfied himself that it was very rich in petroleum oil; that he then believed the mineral deposits extended under the entire Veatch and Humphrey surveys; that, knowing that his lease was void, he fraudulently concealed his discoveries, and suggested to the directors Carroll and O'Brien that the oil was in small quantities, and of inferior quality, and he could not afford to go further without a lease of their entire holdings for a long period of time; that he thereby fraudulently induced Carroll and O'Brien on the 27th of February, 1900, to execute in the name of the Gladys Company a twenty-year lease on the holdings of the company in the Veatch survey, less amounts previously sold, for a royalty of ten per cent. of the product which might accrue in the course of the development. This lease is assailed also as not having been made either by authority of the board of directors or of the stockholders and as ultra vires. That thereafter, on the 18th of September, 1900, Carroll, G. W. O'Brien, and Chenault O'Brien, assuming to act respectively as president, vice president, and secretary of the company, substituted for the lease of February 27, 1900, another twenty-year lease, with like stipulations; that this lease was procured by Lucas, aided by Carroll, because Carroll had obligated himself to make up to Higgins a certain interest which Higgins claimed as against Lucas in the lease of 1899, and Lucas and Carroll acted in furtherance of their private interest to avoid their obligations to Higgins, and to this end all former leases were canceled and abandoned. This lease is assailed upon the same grounds as the former lease, and upon the further ground that Carroll was acting in his own interest, and not in the interest of the Gladys Company, of which he was a director.
"The lease last mentioned is the last in the series of transactions complained of. By its terms, in consideration of a royalty of ten per cent. of the product to be turned over to the Gladys Company, A. F. Lucas and his assigns are to have the right and they obligate themselves to diligently explore and develop the mineral resources of the leased land for a period of twenty years from February 27, 1900. The usual privilege to use the surface for machinery and buildings for the lease purpose is accorded, and the right is further given the lessee to acquire in fee simple a small part of the land for the establishment of a refinery. A preference right of renewal is also given at the expiration of the lease. The surface rights are reserved to the Gladys Company. Lucas assigned this lease to the J. M. Guffey Company, a partnership, which thereafter assigned it to the J. M. Guffey Petroleum Company, a corporation. Under this lease nine wells had been bored at the date of the trial, 2,000,000 barrels of oil had been produced, and other wells were being sunk. There is no complaint that the Gladys Company has not received its full royalty under...
