Stewart Oil Company v. Bryant

• Decision Date: 08 May 1922
• Docket Number: 347
• Citation: 243 S.W. 811,153 Ark. 432
• Parties: STEWART OIL COMPANY v. BRYANT
• Court: Arkansas Supreme Court

243 S.W. 811

153 Ark. 432

STEWART OIL COMPANY v. BRYANT

No. 347

Supreme Court of Arkansas

May 8, 1922

Appeal from Union Chancery Court; J. Y. Stevens, Chancellor reversed.

Dcree reversed and cause remanded.

Marsh & Marlin, Jones & Head and Powell & Smead, for appellants.

Appellees having kept silent and permitted the organization of the corporation, the sale of stock to innocent parties, and the rights of others to intervene are now estopped from asserting any claim other than that of stockholders, or the right to have their money, with interest, returned to them. 131 Ark 77; 2 Pom. Eq. Jur. § 804; 99 Ark. 260; 16 Cyc. 679; 64 Ark. 627; 147 Ark. 555; 21 C. J. p. 1216; § 221; 91 Ark 141; 35 Ark. 377; 76 Ark. 67; 42 Ark. 473; 97 Ark. 588; 27 Ark. 371; 38 Ark. 419; 81 Ark. 269; 86 Ark. 284; 106 Ark 568; 102 Ark. 146; 98 Ark. 581; 14 C. J. 630, § 920.

Appellees have not met the burden of proof to establish a resulting trust. 11 Ark. 82; 127 Ark. 302; 101 Ark. 451; 105 Ark. 318; 79 Ark. 425; 71 Ark. 373; 75 Ark. 451; 3 Pom. Eq. Jur. § 1040; 1 Perry on Trusts, § 139; 111 Ark. 45; 118 Ark. 146; 104 Ark. 303; 89 Ark. 182; 71 Ark. 277; 76 Ark. 14.

The corporation was an innocent purchaser of the lease. Sec. 1504, C. & M. Dig.

Patterson & Rector, for appellees.

A chancellor's findings of fact will not be disturbed upon appeal unless against the clear preponderance of the evidence. 132 Ark. 402; 136 Ark. 624; 129 Ark. 120; 138 Ark. 403.

The established facts show that the original transaction created a resulting trust. 40 Ark. 62; 64 Ark. 155; Tiffany on Law of Real Estate (2nd Ed.) p. 397, 402-3; 30 Ark. 230; 89 Ark. 168; 118 Ark. 146; 137 Ark. 14; 132 Ark. 402; 147 Ark. 555; 109 Cal. 481; 17 Wall. 44; 138 U.S. 591; 147 Mass. 326; 23 N.J.Eq. 13; 184 Mass. 145; 141 Ill. 604; 106 Ill. 384; 107 Iowa 333; 103 Tenn. 324; 103 Mass. 484; 79 Ala. 351; 132 Ind. 58; 2 A. & E. Ann. Cas. 664, and note.

Appellant was not a bona fide purchaser for value of the lease. 79 Ark. 273; 78 Ark. 501; 77 Ark. 172; 107 Ark. 232; 118 Ark. 192; 14 C. J. 264; 14 A. C. J. 482, et seq.

Appellant did not succeed to the rights of the plaintiffs as tenants in common in the lease, because (1) it had no subscription from plaintiffs for its stock. Fletcher Law of Corporations, vol. 6, sec. 3952; 137 Minn. 213; 1 Thompson (2nd ed.) sec. 545 et seq.; 14 C. J., sec. 920; (2) the terms of offer were not complied with, and no contract resulting in membership in a corporation ever existed; 94 Ark. 354; Cook on Corp. (6th ed.) sec. 194; 10 Cyc. 405; (3) appellees are not barred by any act amounting to an equitable estoppel or ratification of the unauthorized conversion of their property; 44 Ark. 48; 101 Ark. 398; 27 R. C. L. 730; 147 U.S. 133; Ann. Cases 1914-A, 39; 65 A.D. 314; 120 S.W. 1065; 87 S.W. 740.

Appellant cannot successfully plead estoppel. 55 Ark. 423; 91 Ark. 141; 96 Ark. 609; 89 Ark. 19; 63 Ark. 289, etc.

WOOD J. MCCULLOCH, C. J., dissenting.

OPINION

WOOD, J.

This action was instituted by the appellees (hereafter called plaintiffs) against the appellants (hereafter called defendants) to cancel the assignment by M. G. Wade, trustee, to the Stewart Oil Company, of a lease to forty acres of land in the oil and gas region near El Dorado, in Union County, Arkansas, and to cancel a certain drilling contract entered into with one J. W. Clark, and for an accounting, etc.

On the 31st day of January, 1921, W. J. Ward, party of the first part, representing himself and other owners of the lease of the land in controversy, entered into an escrow agreement with John A. Cobb, H. F. Stewart and B. A. Hancock, parties of the second part. The agreement specified that the sum of $ 8,000 was to be placed in the bank together with the lease of the land in controversy and the assignment thereof. M. G. Wade was named as trustee in the lease. When the title to the lease was approved by the attorney of the parties of the second part, the escrow agent was to deliver to the party of the first part the $ 8,000, and to the parties of the second part the lease and assignment.

Gill Bros. and A. G. Griffin, real estate brokers at El Dorado, had an option on the lease. The Stewart Oil Company, a domestic corporation, (hereafter called corporation) was incorporated on the 7th of February, 1921, for the purpose of acquiring leases and royalties and drilling and maintaining wells for the production of oil and gas, etc. On the 10th of February, 1921, the owners of the land in controversy, for the consideration of $ 9,000, executed an oil and gas lease thereof to M. G. Wade, trustee. On the 21st of March, 1921, M. G. Wade, trustee, for the consideration of $ 1 executed an assignment of the lease to the corporation. On the 23rd of March, 1921, the corporation entered into a drilling contract with J. W. Clark, by which it conveyed to him a two-thirds interest in the lease in consideration that he drill at his own expense all wells necessary to properly develop the land for oil and gas production, and in case of production from any wells in excess of one hundred barrels he was to deliver one-third thereof to the corporation, and if the production was less than one hundred barrels then the corporation was to bear its proportion of the expense of operating the wells.

In their complaint against the corporation and Wade and Clark, the plaintiffs challenged the assignment of the lease from Wade to the corporation. They alleged that as trustee he had no authority to assign the lease, and that the corporation had no authority to execute the drilling contract with Clark; that the corporation and Clark knew at the time of the execution and delivery of the assignment and the drilling contract that Wade held the legal title for the benefit of the plaintiffs and others who were subscribers to a fund in the sum of $ 11,000 to be raised for the purpose of purchasing the lease and defraying such expenses as might be necessary in developing the same.

They alleged, among other things, that Stewart, who promoted the project for purchasing the lease, solicited their subscription to a fund of $ 11,000, which he represented would be the amount necessary to purchase the lease and pay the commission of the brokers of $ 1,000, and defraying such other expenses as might be necessary to take over and develop the property; that the plaintiffs subscribed to this fund with the understanding that they should have an undivided interest in the lease in proportion that the amounts subscribed by them respectively bore to the sum of $ 11,000, and that Wade held legal title as trustee for them. They alleged that Stewart and others who were promoting the project organized a corporation with a capitalization of $ 50,000; that Stewart persuaded Wade, the trustee, in fraud of the rights of plaintiffs, to execute an assignment of the lease to the corporation, and the corporation in turn executed the drilling contract to Clark, both of which instruments were clouds on their title.

The corporation and M. G. Wade in a joint answer admitted that Wade, acting as trustee for plaintiffs and other parties, procured the oil and gas lease, and assigned the same to the corporation; that Stewart and others organized the corporation as alleged, and admitted the execution and delivery of the drilling contract to Clark on March 23, as alleged. They denied all the other allegations of the complaint, and set up that the funds were necessary to purchase the lease, and were subscribed with the understanding that the title should be taken in the name of the trustee, and that as soon as the title was obtained a corporation or syndicate was to be organized based upon the acreage contained in the lease; that certificates of shares of stock in the corporation were to be sold for the purpose of developing the property; that, pursuant to this plan, Stewart and his associates approached the plaintiffs and others and explained to them fully the purpose of the promoters as above outlined in procuring the lease, and that the plaintiffs made their subscriptions with the understanding that the corporation or syndicate would be organized in which the shares of stock or certificates would be sold for the purpose of raising funds with which to develop the property for oil and gas and to defray the expense incident thereto; that, after sufficient subscriptions had been obtained to purchase the property and notice to all subscribers given, the corporation was organized pursuant to the above plan; that a majority in value of the subscribers to the original fund of $ 11,000 were present and took part in the organization of the corporation; that there were issued to the original subscribers to the stock of the corporation the number of shares of stock corresponding at par value to the amount of money they had actually subscribed to the original $ 11,000, which they accepted with full knowledge of all the facts and circumstances concerning the issuance thereof, and kept and retained the same; that they permitted Clark, under the contract, to expend large sums of money in developing the property, and never complained until Clark had proceeded with his drilling to a depth where he had reached pay sand and at about the time two other wells on adjoining property had been brought in as large producers. Not until then did the plaintiffs attempt to return the stock to the corporation and repudiate its right to hold the lease and to make the drilling contract with Clark. The defendants alleged that this conduct on the part of the plaintiffs should estop them from obtaining the relief for which they prayed.

Clark in a separate answer, adopted the allegations of the answer of the corporation and Wade, and set up his drilling contract with the...