Opinion
No. 4399.
December 29, 1933. Rehearing Denied January 11, 1934.
Appeal from District Court, Gregg County; B. W. Boyd, Judge.
Suit by Burma Oil Gas Company and others against the Arkansas Drilling Company and others. From adverse judgment, defendants appeal.
Affirmed.
Percy Davis owned the seven-eighths oil and gas leasehold interest in and under 3 3/4 acres of the Mary Van Winkle survey in Gregg county, Tex. Lewis Alexander and wife owned the surface and the one-eighth fee royalty. On August 17, 1931, Percy Davis assigned the lease to M. C. Salmon, reserving an overriding royalty of one-eighth as long as the well produced 1,000 barrels per day and a one-sixteenth when and after the well ceases to produce as much as 1,000 barrels per day, which oil well said M. C. Salmon bound himself to drill upon the property. On August 20, 1931, M. C. Salmon assigned to J. A. Economo, T. D. Bennett, and T. A. Fagan, each an undivided one-fourth interest in six-eighths of the leasehold. After the execution of this assignment and on the same date, M. C. Salmon, J. A. Economo, T. D. Bennett, and T. A. Fagan entered into a written partnership agreement duly acknowledged to engage in the oil and gas business under the firm name of Burma Oil Gas Company, by the terms of which instrument each partner contributed his one-fourth undivided interest in the leasehold to the assets of the partnership. J. A. Economo was named secretary-treasurer and empowered to sell and convey any part of the partnership property, and given full and complete power to act for and execute all necessary instruments in behalf of the firm. On September 22, 1931, the Burma Oil Gas Company entered into a drilling contract with the Arkansas Drilling Company to drill an oil well on the lease, for which the partnership agreed to pay the drilling company the sum of $7,000 in cash; $2,000 of which was due when the well was spudded in; $2,000 when it was drilled to a depth of 2,500 feet; $1,000 when it reached 3,500 feet; and $2,000 upon completion of the well. In addition to the cash payments, the drilling company was to receive one-fourth of the oil when and if produced from the land until the proceeds thereof amounted to $5,000. The drilling company began drilling the well. When it was spudded in, the partnership was unable to pay the first payment of $2,000. On October 10, 1931, when the well had reached the approximate depth of 1,000 feet, the partnership was still unable to pay the indebtedness due at that time under the drilling contract, and executed to the drilling company an instrument in form an assignment purporting to convey to the drilling company five-eighths of the leasehold interest. Contemporaneous with the execution of the assignment, the drilling company executed its letter addressed to the partnership, which letter, after identifying said assignment, recites: "This is to advise that upon your payment to us of the sum of $9,000.00, said sum to be paid not later than fifteen days from the date of this letter, we will assign back to you the above-described lease. The above amount may be paid to us in sums along as you can, which will apply on said sum of $9,000.00, but the entire amount of $9,000.00 must be paid not later than fifteen days from the date hereof to make this letter binding."
The drilling company continued drilling the well. On November 5, 1931, the drilling company wrote to the partnership, Burma Oil Gas Company, a letter reciting:
"Referring to our letter to you under date of October 10th, wherein we made promise to you that we would assign the 3 3/4 acre lease in the Mary Van Winkle Survey, Gregg County, Texas, back to you upon your payment to us of certain moneys due us within a period of fifteen days from the date of said letter, which time expired at 12:00 o'clock, midnight, October 25, 1931, without you having paid to us the stipulated amount of money, and we hereby notify you that we are not obligated to you regarding said lease. We consider ourselves in full power and authority of said lease and are now operating same in accordance.
"Yours truly,
"Arkansas Drilling Company
"By E. C. Johnston, Secretary."
The well was completed next day as a producer of oil in commercial quantities. The drilling company operated the lease, sold the oil therefrom, and received payment therefor until January 19, 1932, when M. C. Salmon and T. A. Fagan executed and filed of record an instrument purporting to revoke the power of attorney and authority to act for the partnership of J. A. Economo, the recording of which instrument resulted in tying up the oil runs from the well. On February 13, 1932, M. C. Salmon, T. D. Bennett, J. A. Economo, and T. A. Fagan executed and delivered to the drilling company another assignment purporting to convey all their right, title, and interest in the 3 3/4 acres in controversy. Contemporaneously therewith the drilling company executed and delivered to the Burma Oil Gas Company a letter agreeing to reconvey the property upon the payment of $18,000 within five days.
It appears that M. C. Salmon, at the time he purchased the leasehold in controversy from Percy Davis on August 17, 1931, became indebted to one Carlton Meredith in the sum of $5,000 as a brokerage commission. M. C. Salmon, on September 2, 1931, in payment of his said indebtedness due Carlton Meredith, executed an oil payment assigning to Edna Meredith, wife of Carlton Meredith, one-fourth of seven-eighths of the first oil produced from the leasehold until the proceeds thereof amounted to $5,000. On June 1, 1932, M. C. Salmon conveyed to J. M. Davenport by quitclaim deed all right, title, and interest he owned in the 3 3/4 acres in controversy. On October 13, 1931, J. A. Economo, acting for the partnership firm of Burma Oil Gas Company under the powers given him under the partnership agreement, and to raise money to apply on the drilling contract, assigned to Gus Baker and others undivided interests, totaling one-eighth of the mineral interests, as an overriding royalty. The several owners of this one-eighth overriding royalty interest will be referred to as Gus Baker et al.
This suit was filed by appellees, J. A. Economo, T. D. Bennett, T. A. Fagan, and J. M. Davenport, present members composing the partnership firm of Burma Oil Gas Company, and Gus Baker et al., as plaintiffs, and against Carlton Meredith and wife, Edna Meredith, and the Arkansas Drilling Company, a corporation, as defendants, in the district court of Gregg county, for title and possession of the leasehold mineral interests in and to the 3 3/4 acres of land, and seeking to have declared and treated as a mortgage, the instrument of date October 10, 1931, in form an assignment of five-eighths of the mineral interest in said land by the Burma Oil Gas Company to the Arkansas Drilling Company; and to cancel the instrument of date February 13, 1932, in form an assignment of the entire leasehold by Burma Oil Gas Company to Arkansas Drilling Company alleged to have been executed under duress and without consideration; and to have said alleged mortgage credited with certain payments; and to have canceled the purported $5,000 oil payment assignment executed by M. C. Salmon to Edna Meredith on the ground that it was an attempt by the said M. C. Salmon to bind or convey the partnership property in satisfaction of his private debt.
The case was tried before Hon. B. W. Boyd, judge of 16th judicial district, sitting in the 124th judicial district, and without the intervention of a jury. Judgment was entered decreeing that plaintiff, Burma Oil Gas Company, and the persons composing its present membership, recover the five-eighths undivided interest in the leasehold described; that the plaintiffs, Gus Baker et al., jointly recover a one-eighth interest in the leasehold as an overriding royalty. The court found that the assignment of five-eighths interest by Burma Oil Gas Company to Arkansas Drilling Company of date October 10, 1931, though absolute on its face, was in truth and in fact intended as a mortgage executed to secure the indebtedness due by the Burma Oil Gas Company under its drilling contract to the Arkansas Drilling Company, which indebtedness the court found to be in the sum of $19,392.05, entitled to credits amounting to the sum of $11,247.68, leaving a balance of $8,144.37 due the Arkansas Drilling Company and the court decreed a foreclosure of said mortgage in favor of the Arkansas Drilling Company in satisfaction of its debt; and that the Arkansas Drilling Company have its $5,000 oil payment out of one-fourth of seveneighths of the oil in addition to the above money judgment.
The court further found and decreed that the instrument purporting to be an assignment, executed by the Burma Oil Gas Company of February 13, 1932, conveying to the Arkansas Drilling Company all of said leasehold estate, was without consideration, and was obtained through duress, and the same was canceled, set aside, and held for naught. The court further found that the purported assignment of September 3, 1932, executed by M. C. Salmon assigning to Edna Meredith a $5,000 oil payment out of one-fourth of seveneighths of the oil and gas produced from the property, was executed by said Salmon to Carlton Meredith, husband of Edna Meredith, in satisfaction of an individual debt due by Salmon to Meredith, and that the property so assigned was out of the partnership property of the Burma Oil Gas Company, and the court decreed that the $5,000 oil payment was subordinate to the mortgage lien of the Arkansas Drilling Company and should not be paid until said lien is satisfied, and should then be paid from the proceeds of one-fourth of six-eighths interest in the property, same being the interest owned by M. C. Salmon in the said partnership at the time of the execution of the $5,000 oil payment. The court further found that J. M. Davenport has acquired the interest of M. C. Salmon in the partnership subject to the mortgage held by the Arkansas Drilling Company and subject to the $5,000 oil payment of Edna Meredith.
The defendants, Arkansas Drilling Company and Edna Meredith and husband, Carlton Meredith, duly excepted to the judgment of the court and have perfected their appeal.
Saye, Smead Saye, of Longview, Prentice Wilson and J. W. Hassell, both of Dallas, for appellants.
Machen Davenport, Frank C. O'Brien, and Charles C. Hampton, all of Dallas, for appellees.
Stated in the order of propositions in its brief, the appellant Arkansas Drilling Company, in substance, makes the following contentions:
(1) That the transaction of October 10, 1931, wherein the Burma Oil Gas Company executed its assignment conveying to Arkansas Drilling Company the five-eighths leasehold interest, and the Arkansas Drilling Company executed its letter agreeing to reconvey the property upon payment by Burma Oil Gas Company of $9,000 within fifteen days, was a conditional sale, and the court erred in holding it to be a mortgage;
(2) That the appellees did not discharge the burden of proof to show by clear and satisfactory evidence that the purported conveyance was a mortgage;
(3) That plaintiffs' pleadings failed to state a cause of action against the Arkansas Drilling Company and that it was fundamental error for the court to render judgment thereon entitling plaintiffs to the possession of the property;
(4 5) That appellees' pleadings and the facts were insufficient to authorize the court in holding that the purported assignment of February 13, 1932, by Burma Oil Gas Company to the Arkansas Drilling Company was obtained by duress and without consideration;
(6) That the evidence is insufficient to support the findings of the court that Gus Baker et al., appellees other than the Burma Oil Gas Company, were entitled to a one-eighth overriding royalty superior to the claims of Arkansas Drilling Company and Edna Meredith.
It is not thought that appellants' points 1 and 2, above stated, can be sustained, for the reason that the appellees' testimony, together with the attending facts and circumstances showing that the instrument of October 10, 1931, in form an assignment conveying the five-eighths interest to the Arkansas Drilling Company was intended by the parties as security for the indebtedness evidenced by the drilling contract, is sufficiently clear and satisfactory to support the findings of the court that the instrument was a mortgage. The assignment taken, together with the contemporaneous letter of the Arkansas Drilling Company agreeing to reconvey the lease upon payment of $9,000 within fifteen days, on their face constitute the assignment a conditional conveyance, as contended by appellants. But appellees pleaded that though it was in form a conveyance, it was in truth and in fact a mortgage. It is undisputed in evidence that at the time of the execution of the assignment, the partnership was indebted to the drilling company under the drilling contract in the sum of $2,000 and obligated to pay more as the well progressed; that the drilling company had called upon the members of the partnership to pay the amount then due; and that they were unable to make the payment. Economo and Bennett each testified that Mr. E. C. Johnston of the Arkansas Drilling Company called upon them and demanded payment of the $2,000, or that they give him the assignment as security, which they did to secure the drilling contract indebtedness. Mr. E. C. Johnston for the Arkansas Drilling Company testified that on the occasion of execution of the assignment in question he had demanded of the partnership payment of the amount then due and they told him they did not have the money. And further:
"Q. What happened then? A. I told them (members of the partnership) that I could not go ahead and take all that risk, that I would have to have some kind of security to secure me, that I was going to get the money if I had to go to the expense of putting that casing in there.
"Q. What did they do? A. Well, they gave me the 5/8 assignment.
"Q. At that time you executed to them a letter, did you not? A. Yes, Sir.
"Q. Which has been introduced here? A. Yes, Sir.
"Q. Did you have any other agreement with them except as stated in that assignment and letter, in other words, does that state the agreement? A. Yes, Sir, absolutely."
It further appears from the evidence that the indebtedness due and to become due under the drilling contract was not extinguished by the assignment, but that the Arkansas Drilling Company continued to hold the drilling contract uncanceled, and it has never been returned to the partnership. It further appears, from its letter of November 5, 1931, that the Arkansas Drilling Company did not consider that the indebtedness was extinguished by the execution of the assignment, wherein it said: "Referring to our letter under date of October 10th, wherein we made promise to you that we would assign the 3 3/4 acre lease in the Mary Van Winkle Survey, Gregg County, Texas, back to you upon your payment to us of certain moneys due us. * * *" In Brown v. Hempkins (Tex.Civ.App.) 38 S.W.2d 173, 175, it is said: "The deed from plaintiffs to defendant and his agreement to reconvey upon the terms stipulated show on their face a conditional sale and not a mortgage. * * * To authorize the court to construe such instruments to constitute a mortgage instead of a conditional sale, it devolved upon plaintiffs to show by affirmative testimony that the real intention and agreement of all the parties thereto was that such instruments should constitute a mortgage given as security for a debt and not a conveyance of the property. * * * Where the facts are controverted, the quantum of proof necessary to establish such intention and agreement is a question for the determination of the court or jury trying the case. Knox v. Brown [(Tex.Com.App.) 16 S.W.2d 263], supra." Where the transaction is based upon a pre-existing debt, as in the instant case, the question is: Was the debt canceled by the conveyance? It appears in evidence that it was not canceled. Ruffler v. Womack, 30 Tex. 332. The finding of the trial judge that the assignment in question was executed as a mortgage securing the payment of the indebtedness mentioned, being supported by the evidence, concluded the controverted issue against appellant.
With respect to appellants' third contention, "That the plaintiffs' pleadings fail to state a cause of action against the Arkansas Drilling Company and that it was fundamental error for the court to render judgment thereon," it is not well taken. The pleadings, though consisting in part of conclusions of the pleader, were good as against a general demurrer. Garza v. Kenedy (Tex.Com.App.) 299 S.W. 231. Appellants made no special exceptions, and it does not appear that it called to the attention of the court its general demurrer; hence it will be considered as having been waived, Lipscomb v. Adamson Lbr. Co. (Tex.Civ.App.) 217 S.W. 228; Luse v. Beard (Tex.Civ.App.) 252 S.W. 243; Moore v. Woodson, 44 Tex. Civ. App. 503, 99 S.W. 116. What has been said as to the sufficiency of appellees' pleadings applies to appellants' contentions 3, 4, and 5, and upon examination of the record we find that the judgment of the court is not without support in the evidence; hence appellants' assignments of error are respectfully overruled.
Appellants Edna Meredith and husband, Carlton Meredith, contend that the assignment from Percy Davis to M. C. Salmon conveyed only an equitable title and not the legal title; hence the assignments subsequently passing to Economo, Bennett, and Fagan, and to the partnership firm of Burma Oil Gas Company, and to Gus Baker et al., conveyed only equitable interests by virtue of which the legal title did not pass until completion of the well, November 6, 1931, and that the Edna Meredith oil payment contract having been executed on September 2, 1931, was superior thereto. This contention is based upon the fact that it is recited in the assignment from Percy Davis to M. C. Salmon, August 17, 1931, in consideration therefor Salmon contracts to drill a well upon the property. Appellants claim that this recital of consideration constitutes a condition precedent to the passing of the legal title. It appears to be well settled that such are held to be conditions subsequent, and that the conveyance passes the legal fee title, subject to forfeiture or termination on failure to perform the conditions. Stephens County v. Mid-Kansas Oil Gas Co., 113 Tex. 160, 254 S.W. 290, 29 A.L.R. 566; Caruthers v. Leonard (Tex.Com.App.) 254 S.W. 779; Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 19 S.W.2d 27. In executing the $5,000 oil payment to Edna Meredith, M. C. Salmon did not purport to act for the partnership. It was executed in satisfaction of an individual debt of M. O. Salmon It was partnership property at the time. One partner cannot apply as freed from its partnership character the assets of the partnership to discharge his private debt without the consent of the partners. Goode v. McCartney, 10 Tex. 193; Young v. Read, 25 Tex. Supp. 113; Daugherty v. Haynes (Tex.Civ.App.) 28 S.W. 692. So, Edna Meredith did not acquire any greater rights in the property than Salmon had at the time, and the court correctly held that it was not superior to the rights acquired from the partnership by Arkansas Drilling Company and Gus Baker et al. 47 C.J. p. 799, § 246.
Appellants have made other assignments, all of which we have carefully considered; but finding no error presented they are respectfully overruled.
The judgment of the trial court is affirmed.