Fitz-Gerald v. Hull

*59 Mr. Justice Smedley,

dissenting.

I respectfully dissent from the opinion of the majority, because I am convinced that respondents’ suit, as made by the evidence offered by them, seeks to establish by parol evidence an express trust in relation to real estate, which is forbidden by Section 7 of the Texas Trust Act, Chapter 148, Acts Regular Session 48th Legislature, Vernon’s Annotated Civil Statutes, Article 7425b-l-48.

The oral agreement upon which respondents Hull and Green rely and which they seek to enforce is, according to their testimony, this: It was agreed by the petitioner Fitz-Gerald on the one hand and respondents Hull and Green on the other that petitioner should procure for himself and respondents from the landowner Coble an oil and gas lease on seven tracts of land in Hockley County, the lease to be owned in undivided interests, one-half by petitioner Fitz-Gerald and one-half by respondents Hull and Green together, that the obligations of the contract should be in like proportions and that the lease should be taken in the names of the three, Fitz-Gerald, Hull and Green. The basis of respondents’ suit is that petitioner breached the oral agreement by taking the lease in his own name and by declining to recognize respondents as owners of interests in it.

A principal fault in the majority opinion is that it avoids the prohibition of Section 7 of the Texas Trust Act by holding that the greement is not one for the creation of an express trust and follows that conclusion by the further conclusion that by reason of petitioner’s breach of the parol agreement a constructive trust in respondents’ favor will be implied. The first of these conclusions rests upon the testimony of respondents that the title to the leases was agreed to be taken in the name of all three of the parties. The opinion concedes that if the agreement had been that petitioner should procure the lease for the three parties, taking title in his own name, it would have been an agreement for an express trust and not enforceable. The case is turned by the majority on that very narrow distinction, about which more will be said.

But the opinion in holding that the oral agreement as testified to by respondents was not an agreement for or creating an express trust is contrary to our decisions. In Sachs v. Goldberg, 159 S. W. 92 , application for writ of error refused, the agreement alleged, and to which the plaintiff testified, was that a lot should be purchased for the benefit of the plaintiff and the defendant, and that title should be taken in the names *60 of the plaintiff and the defendant as joint owners. The defendant bought the property and took the title in his own name. The court held, in an opinion by Chief Justice Pleasants, that the oral agreement created “an express trust” in favor of the plaintiff.

In McBride v. Briggs, 199 S. W. 341 , the plaintiff and the defendant orally agreed to buy town lots and that title should be taken jointly. The defendant, in violation of the agreement, took title in his own name and the court held that the evidence established a trust in the plaintiff’s favor. In so holding and discussing a question of limitation the court described the trust as an “express trust”.

In Brotherton v. Weathersby, 73 Texas 471 , 11 S. W. 505 , there was testimony tending to prove that two parties agreed to buy a land certificate and locate it for the benefit of both, and the title was taken and the certificate was located in the name of one of them. The court, in discussing an objection to the trial court’s charge, said: “If there was an agreement to buy the certificate and locate the land for the benefit of both, and if W. W. Brotherton paid his half of the purchase, then an express or direct trust was created.” (Emphasis added.) The court directed attention to the fact that our statute of frauds did not require that “such trusts” should be evidenced by writing, and that it was well settled that they might be established in our courts by parol. See also Roach v. Crume, 41 S. W. 86 .

The agreement in Gardner v. Randell, 70 Texas 453 , 7 S. W. 781 , was that Gardner should purchase an improved lot for himself and Randell, each to pay one-half of the purchase money and to hold equal interests in the property, and it was further agreed that Randell should have ninety days in which to pay Gardner his part of the purchase money advanced by Gardner. When Gardner bought and paid for the lot he took the title in his own name. It was held that the agreement was not a contract for the sale of land, and hence was not required by our statute of frauds to be in writing, but that by the express parol agreement a trust was created, since the provision of the English statute which prohibited parol trusts had not been incorporated in our laws.

Gardner v. Randell has frequently been cited as holding that an express trust is created by an oral agreement for the joint acquisition of land. See the authorities above cited and Johnston v. Johnston, 204 S. W. 469 and MacDonald v. Sanders, 207 S. W. 2d 155 .

*61 The argument, if valid, that it was unnecessary in the cases above cited to classify the trusts as express trusts, does not deprive those cases of their value as precedents. The statements in the opinions describing the trusts as express trusts were deliberately made and approved by judges who were not given to careless thinking or to loose expression. It may well have been that a full disclosure of the facts in the cases would have shown the want of proof of equities sufficient to support the implication of a constructive trust.

Reference has been made to the holding in the majority opinion that there is no express trust in the instant case because a part of the oral agreement, as shown by respondents’ testimony, was that title should be taken in the name of the three parties to the agreement, with the statement or the clear implication in the opinion that but for this part of the agreement it would have been an agreement for an express trust. This is not a reasonable distinction. In each instance the substance of the oral agreement is that the defendant will acquire the property for the benefit of himself and the other parties. Assuming the validity of such agreements, when the defendant acquires the property he holds it for himself and for the other parties. All have the beneficial interests, whether the agreement is that the conveyance shall run in the names of all of the parties or that it shall run in the name of the defendant only. When the defendant denies the ownership or beneficial ownership of the other parties, he has breached the oral agreement as fully in the one instance as in the other. In both instances a trust for the benefit of the other parties could be decreed only by making proof of the oral agreement, and this is the very evil that Section 7 of the Texas Trust Act was intended to cure. Under the ruling made in the majority opinion, the prohibition of the statute could always be evaded by the inclusion in the testimony, as a part of the oral agreement, of a statement that title was agreed to be taken in the names of all of the parties to the agreement.

The opinion of the majority quotes portions of the text of American Jurisprudence which relate primarily, if not wholly, to cases in which there is a fiduciary relationship between the parties. The quoted text is not applicable to the instant case, in which there is no evidence of such a relationship. The opinion makes no reference to the part of the text which deals with the very question in this case. It is as follows:

“Agreement to Purchase for Another. — The general rule is that where the statute of frauds requires trusts to be created *62 or evidenced by writing, an oral agreement or promise to purchase land for another’s benefit cannot be enforced as an express trust, at least where the promisee at the time of the agreement or promise had no interest in the land and furnished no portion of the purchase price. The rule is applicable to an agreement to purchase for the joint benefit of the purchaser and another, and to an agreement to purchase property and thereafter convey to another an interest therein, or to divide it with another. In the absence, however, of any requirement in the statute of frauds that an express trust be created or evidenced by writing, an oral agreement to buy land for another, for the joint acquisition of lands, or to convey to another an interest in, or to divide, lands to be acquired may be given effect as an express trust, although there is authority to the effect that agreements to acquire title to land and turn it over to another, or divide it with another, are merely contracts for the sale of land, and not contracts creating trusts, and so are unenforceable.” 54 Am. Jur., p. 59 , Sec. 48.

Section 7 of the Texas Trust Act is in substance the same as Section 7 of the English Statute of Frauds, and we have in Section 7 of our Trust Act the same requirement as that of the English Statute of Frauds and of the statutes of many other states that trusts affecting lands must be created or evidenced by writing. The instant case falls within the first part of the above quotation from American Jurisprudence, which announces the general rule to be, where there is such a statute, that an oral agreement to purchase land for the joint benefit of the purchaser and another cannot be enforced.

The elaborate note in 42 A. L. R., pp. 10-126, entitled “Oral Promise to Buy Land for Another” contains on page 63 the following statement of the general rule, with citation of many authorities:

“Ordinarily, oral agreements to join in the purchase of land do not give one party any enforceable right to claim the benefit of the purchase by the other. Viewed as agreements to transfer an interest in the land to be acquired, they are clearly within the Statute of Frauds; nor can they be given effect as a promise to hold for the benefit of another, save in those jurisdictions where express trusts need not be evidenced by writing. Except in those jurisdictions, therefore, the complainant cannot obtain relief unless he can establish a resulting trust, growing out of the use of his money in making the purchase, or a constructive trust, based upon the fraud of the defendant in procuring the title, or the abuse of some confidential *63 relationship. The mere breach of the agreement that the complainant may share in the benefit of the purchase is not fraud in obtaining the title, and so will not give rise to a constructive trust.”

On the same page, 63 of 42 A. L. R, the rule in Texas, according to the decisions made prior to the enactment of the Texas Trust Statute, is thus stated, with citation of the Texas cases:

“But in Texas and West Virginia it has been held that an oral agreement between two or more persons for the joint acquisition of land is not a contract for the sale of land within the Statute of Frauds, but one creating a trust, and hence enforceable where the local Statute of Frauds does not require trusts to be evidenced by writing.”

It is clearly shown by the foregoing quotations that an oral agreement of two or more persons for the joint acquisition of land is one creating an express trust, and that the enforcement of such an agreement is forbidden by our statute, Section 7 of the Trust Act.

The opinion of the majority is erroneous for the further reason that there is no proof in the statement of facts of such equities in respondents’ favor as would warrant the use of the constructive trust to award respondents an interest in the realty. The principal and primary use of the constructive trust is as a remedy to restore to the plaintiff property of which he has been deprived. This is so generally true that the constructive trust is treated by the American Law Institute in the Restatement of the Law of Restitution rather than in the Restatement of the Law of Trusts. “In most cases where a constructive trust is imposed the result is to restore to the plaintiff property of which he has been unjustly deprived and to take from the defendant property the retention of which by him would result in a corresponding unjust enrichment of the defendant; in other words the effect is to prevent a loss to the plaintiff and a corresponding gain to the defendant, and to put each of them in the position in which he was before the defendant acquired the property.” Restatement of the Law of Restitution, Subdiv. d., Sec. 160, Ch. 9, p. 643. The constructive trust is imposed to prevent the unjust enrichment of one at the expense of another, and for the purpose of restoring the status quo. See Scott on Trusts, Vol. 1, Sec. 44, p. 251, and see Corbin on Contracts, Vol. 2, Sec. 401, pp. 372-373, where the author says: “Courts *64 of equity used the device of a constructive trust, generally to compel such restitution, but sometimes to enforce the express promise of the defendant. When consciously used for the latter purpose, it may seem to involve a judicial disregard of the express words of the statute; but when used to compel restitution only it is within the express words of the statutory exception, and refusal of relief would be in disregard of the statute.” Scott says: “Dean Pound has spoken of the use of the constructive trust as affording ‘specific restitution of a received benefit in order to prevent unjust enrichment.’ ” Scott on Trusts, Vol. 2, Sec. 462.1, p. 2316.

This suit is not one for restitution. Respondents were not the owners of the land involved herein or of any interest in the minerals in the land. Their testimony shows that they paid no part of the consideration for the oil and gas lease and made no payment for expenses of drilling and equipping the wells, and had no part in the financing of the wells. Petitioner did not drill or cause any of the 31 wells to be drilled by the use of his own funds, but he performed or caused to be performed the obligations of the lease and obtained the development of the property to the extent of 31 producing wells through contracts that he made with Thompson, Carr and Forster and Stanolind Oil Purchasing Company. Most of the funds for drilling and equipping the wells, in the total amount of a million dollars, was obtained from the company last named on notes executed by petitioner Fitz-Gerald, Thompson, Carr and Forster, and secured by deed of trust conveying the leasehold estate. Most of the wells were drilled after November 23, 1947, at which time respondents were told by petitioner that they had no interest in the property. Respondents stood by for 14 months before this suit was filed and saw the drilling and completion of the producing wells by the expenditure of the funds procured by the notes executed by petitioner, Thompson, Carr and Forster, and they now assert ownership of an undivided one-fourth interest in the property, alleging a willingness to take it subject to the deed of trust and to the rights of Thompson, Carr, Forster and the Stanolind Oil Purchasing Company. They offer to become liable on the notes and deed of trust executed to Stanolind Oil Purchasing Company and on the operating agreement with Thompson, Carr and Forster, although of course they could not make themselves in this suit parties to those instruments, the Stanolind Company and Thompson, Carr and Forster not being parties herein, and their offer could not in any way relieve netitioner or Thompson, Carr and Forster of the obligations which they have incurred.

*65 The foregoing facts, established by the testimony of respondents and the instruments in evidence, negative the existence of equities in respondents’ favor that would justify the use of the constructive trust; and they reveal that the suit is in substance nothing more than one for the specific performance of an oral agreement in relation to real property. In other words, the facts in evidence reduce the suit to one merely for the enforcement by parol evidence of a trust in relation to real property, and the case comes directly and literally within the prohibition of Section 7 of the Texas Trust Act.

The texts that have been cited recognize that in certain defined exceptional cases a constructive trust may be implied, even though it will result in enforcing an oral trust contrary to the express words of the statute. It may be implied under certain circumstances to compel restitution. See Corbin on Contracts, Vol. 2, Sec. 401, pp. 372-373. The instant case, as has been said, is not one for restitution.

Another exception is that a constructive trust may be used as a remedy where the promissor has procured by actual fraud the transfer of land to him. Scott on Trusts, Vol. 1, Sec. 44, p. 250; Corbin on Contracts, Vol. 2, Sec. 401, p. 373; Restatement of the Law of Restitution, Ch. 10, Sec. 182, p. 730; Note 42 A. L. R. pp. 10, 63. The breach of the oral promise is not fraud in obtaining the title and so will not give rise to a constructive trust. Corbin on Contracts, Vol. 2, Sec. 401, pp. 373, 375, and cases cited; Note 42 A. L. R. pp. 10, 16, 63. If it were so regarded the statute prohibiting parol trusts would be of no effect. In this case there is no evidence tending to prove that petitioner procured the lease by fraud or that he was in any way guilty of fraud. Respondents’ testimony is evidence that he breached the parol agreement.

Another exception permits, under proper circumstances, the use of the constructive trust as a remedy in cases where there is an existing fiduciary relationship and property is acquired in violation of the duty as a fiduciary. The use of the constructive trust in such cases is permitted, even though in its effect it contravenes the statute which prohibits parol trusts. Mills v. Gray, 147 Texas 33, 40 , 210 S. W. 2d 985 ; Thompson v. Corbin, 137 S. W. 2d 157 ; Scott on Trusts, Vol. 1, Sec. 44, p. 250, Sec. 44.2, p. 253, Vol. 3, Sec. 462, p. 2314; Corbin on Contracts, Vol. 2, Sec. 401, pp. 377-378; Restatement of the Law of Restitution, Ch. 10, Sec. 182, pp. 730-731; Restatement of the Law of Trusts, Vol. 2, Ch. 12, Sec. 439, pp. 1341-1342. The fiduciary relation *66 ships to which the exception applies are such as executor and heir or devisee, guardian and ward, principal and agent, attorney and client, parent and child, partnership, joint adventure. Acquaintance or friendship is not such a relationship. Elbert v. Waples-Platter Company, 156 S. W. 2d 146, 150 ; Rubin v. Midlinsky, 321 Ill. 436 , 152 N. E. 217 ; 65 C. J. Sec. 228, p. 482. Without setting out the testimony, it is sufficient to state that according to the evidence in the record petitioner Fitz-Gerald and respondens Hull and Green were acquaintances and friends, not intimate friends, that no fiduciary relationship existed, and that they were men of about equal age, education and business experience.

It is urged by respondents that there was a fiduciary relationship because the oral agreement was that the leased premises would be developed and operated as a joint adventure. But there was no existing fiduciary relationship. There was merely an oral agreement that the parties would engage in a joint adventure if and when the lease was acquired. As said in Kaiser v. Newsom, 108 S. W. 2d 755, 758 ; “The principle discussed last above applies only after the relation has been created, either by acts of the parties or by decree of court, and cannot be relied upon pending a negotiation, which, if culminated, will create the fiduciary relation.”

The opinion of the majority assumes the existence of a joint venture and a fiduciary relationship between petitioner and respondents beginning at the time when the oral agreement for the acquisition of the lease was made. The record lends no support to that assumption, for the oral agreement to which respondents testified contemplated and intended that the parties would engage in a joint venture in the development and operation of the lease in the event that and after the lease was acquired. The facts of this case bring it within the rule announced in the quotations set out above from 54 American Jurisprudence, page 59, Section 48, and 42 A. L. R., page 63.

The majority opinion relies primarily on MacDonald v. Follett, 142 Texas 616 , 180 S. W. 2d 334 , to support the conclusion that a constructive trust may be imposed upon the realty involved herein because of a fiduciary relationship between the petitioner and respondent. That decision, by reason of a decided difference between the facts of the two cases, is not applicable to the instant case.

That case held that the evidence raised an issue of fact as *67 to the existence at the time renewal oil and gas leases were procured in 1937 and again in 1938 of a relation of trust and confidence between MacDonald and Follett. The testimony disclosed that as early as 1932 MacDonald and Follett entered into an agreement for the acquisition by them together and personally of undivided interests in overriding royalties under oil and gas leases to be negotiated for MacDonald’s oil company and Follett’s clients, the landowners, named Mueller. Leases on the land were first procured pursuant to this agreement in 1934 and out of them a 1/32 overriding royalty was at the same time conveyed by the lessee to Follett, who conveyed a one-half interest in that royalty to MacDonald. The land belonged to Follett’s clients and, as pointed out in the court’s opinion, MacDonald’s interest was obtained only through his dealings with Follett. The court in its opinion refers to the ownership of the overriding royalties and the relation between MacDonald and Follett in their ownership as a “status existing”.

With that status existing and with the leases about to expire in 1937, it was, according to Follett’s testimony, agreed between him and MacDonald that the two would work together so that all parties would be protected by renewal of the leases and the renewal of the overriding royalties under the leases, and Follett suggested that MacDonald talk to the lessees about a renewal and try to get a fair price for the Muellers, the landowners, and communicate the offer to him, Follett, so that he could submit it to the Muellers. According to Follett’s testimony, Macdonald, without Follett’s knowledge, went to Iowa and negotiated with the Muellers and procured the renewal of the leases with assignment of the overriding royalties to MacDonald, but never conveyed any interest in the overriding royalties to Follett. In the same way other renewal leases were procured by MacDonald in 1938 before the expiration of the 1937 leases, and a 1/32 overriding royalty under the new leases was retained by MacDonald.

The foregoing statement of the facts and evidence is sufficient without extended comment, to show the vast difference between that case and this case. There the parties over a period of several years were engaged in negotiations and agreements for procuring and renewing oil and gas leases to be executed on the Mueller land, in order that they might acquire and own together overriding royalties under the leases. They engaged in negotiations, agreements and correspondence in carrying out their plans, and together owned the overriding royalties under the leases for several years before MacDonald procured the *68 execution of the renewal leases and the assignment of the overriding royalties under them. There was an existing close association and a relationship of confidence, according to FoIIett’s testimony. In the instant case, as has been said, there was no proof of a pre-existing confidential relationship between petitioner and respondents. The evidence is that they were acquaintances and friends, not intimate friends, and that they were of equal age, education and business experience. In the instant case there was no “existing status” in relation to the property at the time when the oral agreement was made, and this is not a case in which one cotenant or joint owner procured for himself the renewal of a right or interest which he and his associates then jointly owned.

The case made by the evidence in the record comes within no recognized exception permitting the use of the constructive trust to avoid the statutory prohibition of parol trusts. The case is a striking example of what the statute, Section 7 of the Texas Trust Act, was intended to prevent, that is, the subjecting of land titles to attack and change by unaided testimony to an oral agreement, and thus destroying the security of titles. In this case, there having been an instructed verdict, the Court correctly assumes the truth of respondents’ testimony that the oral agreement was made, and then the majority of the Court, induced apparently by its belief that petitioner ought to perform the oral agreement, resorts to the constructive trust to compel him to do so. But this use of the constructive trust in effect nullifies the statute when the Court is under the duty to give effect to it. If under the facts of this case the prohibition of the statute can be avoided, then it is difficult to conceive of any case in which effect can be given to that part of the statute, and if the opinion of the majority stands, the law of this state with respect to parol trusts in realty will be substantially the same as it was before the enactment of the Texas Trust Act.

Other contentions, not without merit, are presented in the application for writ of error, but they are not discussed because I am convinced that the case is governed by the proviso of Section 7 of the Trust Act.

The judgment of the Court of Civil Appeals should be reversed and the judgment of the District Court affirmed.

Opinion delivered February 14, 1951.

Rehearing overruled April 4, 1951.