O'Dell v. Grubstake Inv. , 38 S.W.2d 151 ( 1931 )

On Motion for Rehearing. In 1919 appellants and others organized a so-called "common-law trust" for the purpose of engaging in the oil business. By the terms of this trust agreement the complete and exclusive control and management of the business was vested in three trustees and their successors in that office, so that the individual shareholders were denied any voice in such management and control. The whole structure of the agreement was built upon and permeated with the stipulation that in no event should the individual shareholders in the trust become liable for the debts or acts of the trustees in behalf of the association, and that in no event should the association assume the character of a partnership, or be regarded as a partnership for any purpose. Since the organization of the association and the execution of the trust agreement, however, it has been definitely decided by the courts of this state that as to third parties a trust agreement of this character constitutes a partnership, in which the shareholders are in fact individually liable for the debts and acts of the association and its trustees. The trust agreement here in question has been so construed by this court (Stephenson v. Kirkham, 297 S.W. 265, writ denied), as well as by the trial court.

This suit was instituted by some of the shareholders in the association, to require an accounting from the trustees, for dissolution and winding up the affairs of the association, and the appointment of a receiver of the properties of the association to accomplish the end sought. This relief was denied in toto, and Ira O'Dell and other complaining shareholders have appealed.

The record of this litigation discloses bitter discord between some of the partners in the concern, as well as distrust of the managing trustee, which a jury in a former trial found to be well founded. The record also shows that a large number of suits are pending against the association, and that the association owes numerous debts, although the trial court found it had "adjusted the large claims against it, and that no liquidated claim is pressing it at this time."

The trial court further found that "it was generally understood by the shareholders * * * and also represented to some of them by the promoters that there would be no personal liability attached to them as such shareholders," but that "there is no testimony that any shareholder was actuated or induced by said representations to become members of said association."

It is perfectly obvious that all the shareholders executed the trust agreement in the mistaken and controlling belief that the stipulation against the creation of partnership relations or of individual liability of the shareholders for the debts or acts of the association or of the trustees in its behalf would be valid in law, and would effectuate such exemption. The law has intervened to eliminate that stipulation from the contract, under the remaining provisions of which, if enforceable, the managing trustee may proceed at will during the next eight years to bind all the shareholders, individually, and as unwilling partners, to personal liability for any debt he may see fit to incur, or any act he may perform, in the name of the association. Such a contingency was never contemplated by the parties, whose minds never met in agreement upon the contract as now construed by the courts and insisted upon by appellee, whereby the parties are deprived of the very protection in consideration of which they entered into the agreement actually made. The law having thus emasculated the contract, nullified material and controlling provisions which permeate the entire agreement, destroyed the consideration moving the parties to execute it, and rendered its remaining provisions palpably unconscionable, equity should intervene to terminate the agreement in its entirety and relieve the parties of the unconscionable burdens imposed upon them by the remaining provisions. We conclude that the record presents a case entitling appellants to cancellation of the contract, dissolution of the partnership created by the contract, to an accounting from the trustees, and to a receiver for the purpose of winding up the affairs of the association.

Appellants' motion for rehearing is granted, and the judgment will be reversed, and the cause remanded for further proceedings in consonance with this opinion.