112 F.2d 663 | 5th Cir. | 1940
The decree appealed from adjudges that Clarence A. Russell holds certain oil interests in seven tracts of land in Hardin County, Texas, as constructive trustee for Republic Production Company (called herein Republic), and that he convey them on payment of what they cost Russell with interest. The bill in equity filed Sept. 17, 1936, charged that Russell- and others had acquired them in a conspiracy to misuse confidential information which Russell possessed as a director and vice-president of Republic in charge of its operations in Hardin County; but a conspiracy was not proved, and the decree against Russell alone rests on the allegations that Russell, entrusted as Republic’s agent with the duty of investigating oil prospects and making recommendations for purchases and for drilling locations, after being forbidden and agreeing not to buy for himself, did in the fall of 1936 buy the oil interests in question in a territory where Republic was buying and was about to do drilling, concealing his purchases until August 5, 1936, at which date Republic had struck oil.
The proof, partly by writings, is clear that since 1928 Russell, who was a geolo
Republic began drilling in December, 1935. Russell, for causes not appearing, severed his connection with Republic March 30, 1936. On April 2 the well was abandoned. A second well also failed in June. Oil was struck in a third well Aug. 2. The next day Russell had Clift convey to him the interests he held and recorded the deeds Aug. 5, 1936.
As an officer of Republic Russell stood in a fiduciary relation to it. 13 Am. Jur., Corporations, § 997; 19 C.J.S., Corporations, § 761. If in violation of his fiduciary duty not to deal for himself in any matter involved in the trust and confidence reposed in him a director acquires an adverse interest or claim, equity will hold him in respect thereto a trustee for the corporation. 13 Am.Jur., Corporations, § 1007, 1014. Russell was also an agent to obtain for his corporation offers to sell desirable oil interests. An agent to buy cannot as against his principal buy for himself the subject of purchase, or any part of it; he will be held a trustee for his principal at the latter’s option. 2 Am.Jur., Agency, § 261; even though the agent uses only his own funds, 3 C.J.S., Agency, § 144c. The complementary principle that an agent to sell may not himself buy, and may at the principal’s option he required to reconvey, is illustrated in Robertson v. Chapman, 152 U.S. 673, 14 S.Ct. 741, 38 L.Ed. 592. Though Russell could not consummate a purchase without the consent of the president, his agency was none the less within the rule. He was bound to get desirable offers for his corporation, and could not without its consent
He argues that Republic was an oil producing company, and authorized in Texas to do only that business, and while it could buy oil lands or oil leases, it could not and did not buy royalties or oil interests in lands which were under production leases already. Republic is a foreign corporation, with a permit to do business in Texas under Revised Statutes, Arts. 1529 and 1302 (37), that is, “To establish and maintain an oil business with authority to contract for the lease and purchase of the right to prospect for, develop and use coal and other minerals, petroleum and gas.” Article 1302(92), Vernon’s Ann. Civ.St. art. 1302(92), relates to “royalty corporations”, formed “to acquire, bring together, hold, dispose of and deal in royalty and other interests in minerals, and to manage, control and exploit said mineral interests, and to collect the revenue arising therefrom.” ■ This latter kind of business was not included in Republic’s permit. The Texas law thus makes a difference between corporations in the oil business and those buying and selling royalties and other mineral interests; but there is no prohibition against the former buying and owning a royalty or other mineral interest if connected with or incidental to its oil business. Compare Sheehan v. Sheehan, Hackley & Co., Tex.Civ. App., 196 S.W. 665, 667. Republic, spending large sums in prospecting in the Hardin County field, and about to sink test wells there, could not only obtain all the leases possible on which to produce oil, but could also buy royalties and other oil interests in the land it had leased, or in land which others had leased, in the effort to obtain the fullest possible returns if its development of the field should succeed. In doing this it would be prosecuting its oil business, trying to realize all possible profit from it, and not buying and selling royalties as a business by itself. Republic would not exceed its powers in buying such mineral interests as are here involved. Whether’it wished to buy such, and had instructed its agent Russell to seek to buy such, is a question of disputed fact on which the trial judge found against Russell. He heard and saw Russell and the president testify, and Russell’s letter of Sept. 21, 1935, admits that Republic was trying to buy interests in Mrs. Kirby’s oil. We approve the finding.
Russell contends that the correspondence in 1933 was intended only to forbid his appearing of record as a purchaser, and that he had so managed as to make embarrassment to Republic impossible; and that if he transgressed the instructions therein the appropriate penalty was dismissal, which he has suffered. The president testifies that the correspondence meant what it said, and there had been no retraction. We think this the truth. While embarrassment to Republic was mentioned, it was not the only thing. The deep reason was that personal interests would take attention that was due the corporation’s business, and might distort judgment as to recommending well' locations. The case of buying property which the corporation wanted was not then specially discussed, but is the very heart of the present case. We think the correspondence established as a term of the agency that Russell should not buy oil interests for himself. Its violation would justify discharge,' but discharge would not nullify the specific remedies that law or equity affords touching the property purchased in violation of duty. Pratt v. Shell Petroleum Corp., 10 Cir., 100 F.2d 833.
In Russell’s behalf it is further urged that Republic, is in laches, or has elected against pursuing the property, because it knew in the fall of 1935 what Russell was doing, and made • no enquiry of him and no demand upon him during the time that by reason of the dry holes drilled the oil interests seemed worthless, and sought their recovery only when they were made very valuable by the oil strike on Aug. 2, 1936. When Russell severed his connection with Republic March 30, 1936, he should have given a full account of his stewardship.' Republic, if it knew of these dealings, ought promptly to have elected whether to claim and pay for the purchases or waive its rights. See Hoyt v. Latham, 143 U.S. 553, 12 S.Ct. 568, 36 L.Ed. 259. If it appeared that Russell was discharged because of these dealings, he would have strong grounds for urging that Republic’s inaction and delay meant an election not to claim the purchases. But there is conflict as to what was known. The president testifies there was only rumor, not knowledge, and the deed record showed nothing. It does not appear why Russell left his employment, or that anything at all was then said about this matter. His purpose to conceal appears
Judgment affirmed.