West v. Madansky , 80 Okla. 161 ( 1920 )

I agree with the law and findings of fact as stated in the opinion of the majority, but am unable to agree that the plaintiff is granted the proper relief according to the law and facts as stated. A very brief summary of the facts and pleadings will be necessary to state my position.

The plaintiff filed his petition in the superior court of Tulsa county on the 5th day of August, 1916, alleging that he was the owner of an undivided one-eighth interest in a certain oil and gas lease, and the defendant and other parties were the owners of the balance of the lease, each owning a separate and undivided portion thereof. That the defendant, West, by virtue of a confidential relation existing between plaintiff and defendant, and certain false and fraudulent representations, on the 26th day of April, 1916, obtained an assignment to himself of plaintiff's one-eighth interest in said oil and gas lease. It is also alleged that the defendant obtained the assignment from the owners of other interests in said lease at about the same time and held in his name the purported title to seven-eights of said oil and gas lease. That on the 4th day of May, 1916, the defendant sold and assigned an undivided five-eighths interest in the oil and gas lease to J.R. Cole and C.C. Cole, retaining to himself an undivided two-eighths interest in said oil and gas lease. To the petition was attached the assignment dated May 4, 1916, which contained the following statement:

"The said O.N. West does by these presents sell, convey, set over and assign unto J.R. Cole, Jr., and C.C. Cole in equal proportions all of his right, title and interest in and to a five-eighths undivided interest in and to said oil and gas lease * * * held by the said O.N. West, and the said J.R. Cole, Jr., and the said C.C. Cole, in the following proportions, to wit: The said O.N. West has a two-eighths interest therein. The said J.R. Cole, Jr., owns a three-fourths interest and the said C.C. Cole owns a three-eighths interest."

The petition contained the further allegation:

"The plaintiff avers that this plaintiff is entitled to and is the owner of an undivided one-eighth interest in and to said oil and gas mining lease, and that said one-eighth interest is included in and is a part of the nine thirty-seconds interest now held by the said defendant. The plaintiff avers that if it should be true that said defendant West has disposed of and sold and transferred the undivided one-eighth interest which he fraudulently obtained from this plaintiff as hereinabove set forth, that this plaintiff is entitled to an undivided one-eighth interest in the whole forty acres of land in and to said oil and gas lease out of the aforesaid undivided nine thirty-seconds interest now held by the defendant."

At the time of filing the petition, the plaintiff filed an application for appointment of receiver, and upon notice testimony was taken, and the evidence at said hearing disclosed that West had transferred certain interests in the lease to his brother and that the Coles had transferred a certain interest in the lease to Mr. Rudd, and that all the parties thereto had organized a corporation, known as Cole, Rudd West, Inc., with a capital stock of $5,000, each party assigning the interest he owned in the lease to the corporation for a corresponding amount of the capital stock of the corporation. At this time West had a one-eighth interest in the lease and was to receive one-eighth of the capital stock of the corporation. His brother had a one-eighth interest and he likewise was to receive an undivided one-eighth of the capital stock. The record does not disclose the date of the assignment of the lease to the corporation, but the first meeting of the stockholders was held August 3rd, or two days before the filing of this suit. Plaintiff then filed a supplemental petition setting out said facts, and prayed as follows:

"Wherefore, the plaintiff prays as in his original petition, and further prays that if the court should be of the opinion that said O.N. West now owns a one-eighth interest in said company and not merely in the oil and gas lease, that the plaintiff's interest in said company be placed in the hands of a receiver."

The court, upon application for a receiver, made the following order:

"It is therefore ordered that the Gulf Pipe Line Company shall pay to Cole, Rudd West, Incorporated, all of the proceeds of the oil run from said lease in which the said O.N. West may have been interested prior to the sale of said property to the said Cole, Rudd West, Incorporated, or which the interest of said West by reason of his ownership of stock in said corporation may be entitled to, including such interest in said fund as the plaintiff is claiming until the further order of the court. To so much of the above as directs payment to Cole, Rudd West of any of money for oil plft. excepts.

"It is further ordered that the said West be restrained from transferring, selling, assigning, pledging, or in any manner incumbering his stock in said corporation until such time as the court may hand down its decision in said matter or until a further hearing of said matter."

Thereafter the defendant filed his answer and alleged that he had transferred one-eighth interest in the oil and gas lease to the corporation known as Cole, Rudd West, Incorporated, and he was to receive therefor one-eighth of the capital stock of the said company, but the certificate of stock had not been issued to him. The answer also contained a further defensive matter which it is not necessary for me to mention, as the trial court found against those contentions, and the majority opinion sustains the trial court as to those matters. Thereafter the case was tried to the court, and at the time of the trial the property had been sold by agreement of all parties, and the proceeds of the sale as to the one-eighth interest that West had transferred to the corporation, or the proceeds of the one-eighth of the capital stock, was held by the purchaser by agreement of the parties to await the final determination of this controversy. The statement of the parties concerning this sale appears in the record as follows:

"Judge Dillard: It is understood between counsel, and an agreement made, when the property is sold, the agreement in writing, the agreement to be made in writing, that when the property is sold it shall stand in the place of a supersedeas bond and that neither side will be required to give a supersedeas bond, but the funds will remain as provided in that agreement until the final determination of this suit.

"Judge Williams: The agreement in writing referred to is the selling of this property mentioned to the Gypsy Oil Company, by all the parties, Cole-Rudd-West Corporation."

After hearing the case, the court found that a confidential relation existed between Madansky and West, and that the assignment was obtained by West from Madansky by false and fraudulent misrepresentations and that the one-eighth interest of West passed to the corporation subject to the right Madansky had against said lease and leasehold estate. The court found that the transfer of one-eighth interest held by O.N. West and the one-eighth interest of the lease held by his brother, S.C. West, and assigned to the corporation for one-eighth of the capital stock, was held in trust for Madansky and that Madansky was entitled to recover one-sixth of the said two-eighths of the interest in the lease held by O.N. West and S.C. West. The court further found as to the status of the property as follows:

"It further appearing that the corporation known as Cole, Rudd West, Inc., have sold said oil and gas lease under an agreement executed by both the plaintiff and the defendant as well as the other stockholders in said corporation, by which the funds were to be held pending the final adjudication of this suit, the court finds that said matter under said agreement will remain in statu quo pending the final determination of this cause, and that it is not necessary for either party to give supersedeas bond."

Both sides filed a motion for new trial. Attorneys for West filed motion for a new trial presenting the exact questions that have been decided by this court in the majority opinion against him. Attorneys for Madansky contend that he was entitled to full relief as against West, and entitled to receive one-eighth of the lease, or if the lease had been transferred to the company for one-eighth of the capital stock, he was entitled to receive one-eighth of the capital stock. The trial court, in rendering judgment for Madansky for only one-sixth of two-eighths interest held by West and his brother, did so upon the theory that West held two-eighths of the entire amount of the lease, or capital stock, and West had defrauded plaintiff and five other parties of their interest, and the other five parties who were not parties to the suit would be entitled to recover a one-sixth of the amount held by West and his brother, West being insolvent, and that West should hold the other five-sixths of the two-eighths interest upon the theory that he might respond to the other parties if they should commence suit. The majority opinion holds the trial court committed, error in so doing, and states as follows:

"It is a maxim of equity that the law will not take rights acquired by one who has been vigilant and give the benefit thereof to one who has lost by reason of nonaction."

I agree with this contention. Then, as a matter of law, what relief is Madansky entitled to? The relief Madansky prayed for was the return of his one-eighth interest in the oil and gas lease. The relief the party is entitled to in a suit in equity to rescind a contract is stated in Elliott on Contracts. vol. 3, par. 2460, as follows:

"In a suit in equity to rescind a contract, the court proceeds on the principle that as the transaction ought never to have taken place, the parties are to be placed as far as possible in statu quo, and will require each to restore to the other what he obtained by virtue of the contract."

The same rule was announced by this court in the case of Murray v. Speed et al., 54 Okla. 31, 153 P. 181, as follows:

"Where a court of equity has obtained jurisdiction of the controversy for any purpose, it will retain jurisdiction for the purpose of administering complete relief, and it may for this end determine purely legal rights which otherwise would be beyond its authority."

It was also held in the case of Cook v. Warner, 41 Okla. 781,140 P. 424, as follows:

"A court of equity which has obtained jurisdiction of the controversy on any ground or for any purpose will retain such jurisdiction for the purpose of administering complete relief and doing entire justice with respect to the subject-matter, and to avoid multiplicity of suits."

The same principle was announced in the case of Bruner v. Miller (W. Va.) 52 S.E. 995, as follows:

"On rescinding a contract, the court should, by its decree, put the parties in statu quo, by requiring each to restore to the other what he obtained by virtue of the contract."

The Supreme Court of the United States, in the case of Camp v. Boyd, 229 U.S. 530, 57 L. Ed. 1317, held:

"A court of equity ought to do justice completely and not by halves. As a court of equity should prevent multiplicity of suits, it may, to this end, if obliged to take cognizance of a suit for any purpose, retain it for all purposes, even though required to determine purely legal rights otherwise beyond its authority."

The trial court found that the assignment of the lease was obtained by fraud. This finding is supported by the majority opinion. If we apply the rule announced in the decisions above cited, the court should grant complete relief and place the parties as nearly as possible in statu quo and require each to restore to the other what he obtained by virtue of the contract. The judgment of the trial court, according to the opinion of the majority, should be for Madansky to recover his undivided one-eighth interest in and to the oil and gas lease, unless it can be said that the transfer of the one-eighth interest to the corporation for one-eighth of the capital stock of the corporation would prevent this recovery. If the defendant is unable to restore one-eighth of the lease, he is able to restore what he obtained from the lease to wit, one-eighth of the capital stock. Upon this question the trial court stated as follows:

"I think under the testimony that if the plaintiff is entitled to recover at all it would be from the stock. I don't know about the land, the leasehold itself, as merged into a corporation, but in whatever form it might be found, if plaintiff is entitled to recover, in whatever form it might be found in the hands of the defendant, he would be entitled to take it in that form."

I think the statement of the trial court is in exact accord with the third paragraph of the syllabus of the opinion in this case, which the majority has found to be the law. It is immaterial whether the recovery should be for one-eighth of the lease or one-eighth of the capital stock of the corporation, for the reason during the trial of the case the whole property was sold by agreement of the parties as disclosed by the record heretofore set out. This, in my judgment, makes it unnecessary for the court to determine whether the recovery should be for the lease or for the capital stock, as the parties themselves have eliminated that question by agreeing that the property should be sold and the proceeds of the sale should be held to await the determination of this case. If we give the plaintiff full relief, is he not entitled to the proceeds of the sale of the interest over which the parties were litigating?

I agree with the opinion of the majority, but contend that after finding the property was obtained by fraud, and a trust relation existed between the parties, and announcing the law that a court of equity would grant complete relief, and the further rule that a court of equity would aid the vigilant and not those who slumbered on their rights, the judgment should be for the proceeds of the sale of this one-eighth interest which the parties were litigating over. It does not seem to me that a court of equity properly administers justice where it finds that property has been obtained by false and fraudulent representations between parties and then permits the party who has acquired the property by fraud to retain all of the profits by virtue of said transaction.

For the reasons stated, I dissent from the judgment in the case, but not from the majority opinion, nor the syllabus announced in the opinion. I agree with the majority as to each paragraph of the syllabus announced, but disagree as to the relief granted.

I am authorized to state that Mr. Justice JOHNSON concurs in this dissenting opinion.