Weightman v. Hadley

This action was for rescission of a sale of an interest in an oil lease and corporate stock to George H. Hadley; for a money judgment against Hadley, and to establish interests in oil leases under an alleged joint venture.

The judgment from which defendant Hadley appeals awards plaintiff: (1) $4,995.92 as one-half of a bonus received by Hadley for an oil and gas sublease under the “Richardson” lease in which plaintiff had a one-half interest; Hadley does not question this award; (2) $58,106.41 as bonus, and royalties already received and those to be received by Hadley under a sublease to Richfield of a one-third interest in the “Stone” lease, which interest, it was claimed, was procured from plaintiff through Hadley’s fraud, and subsequently sublet to Richfield; (3) $20,400 as the proceeds of a sale by Hadley of and a dividend on certain stock in Norris Oil Company which it was claimed was procured from plaintiff through fraud on the part of Hadley and held by him under a constructive trust; (4) a one-third interest in an oil and gas sublease from Norris Oil Company to Hadley of a 40-acre parcel, which interest it was claimed came to plaintiff as her share under an alleged joint venture agreement; and (5) a 7% per cent interest in a nonexistent lease of 8,000 acres of the “Russell Ranch” in the Cuyama Valley.

There were two other transactions which were not pleaded by plaintiff or defendant but on account of which the court found and decreed plaintiff was entitled to an interest in certain leases. The first of these was the basis of award number 5 above mentioned. It related to the Russell 8,000-acre lease. As previously stated, plaintiff had alleged that she was given 3,000 shares of stock in Norris Oil Company for her interest in this lease. During the trial she produced, under circumstances hereinafter related, a writing assigning to her a 7% per cent interest out of Hadley’s 37% per cent of the proceeds and profits that might be derived by Hadley from a contract with one Frank for development of the Russell property. This writing was dated April 17, 1944.

The second transaction was the basis of the number 4 award first mentioned. On or about April 10, 1948, Norris Oil Company executed to Hadley a sublease of 40 acres of the Russell Ranch, reserving a 14 per cent royalty to the sub-lessor. (Although this lease was not issued until that date, there was evidence that prior to December 16, 1947, Norris Oil Company had promised Hadley such a sublease.)

Thus, on December 16, 1947, plaintiff owned a one-quarter interest in the Richardson lease. She did not sell this in

On December 16, 1947, Hadley purchased from plaintiff her one-third interest in the Stone lease and her 4,500 shares of Norris stock for $3,000 of which $1,800 was the price of the stock at 40 cents per share, and plaintiff executed an instrument reading: “Dec. 16-47 For good and valuable consideration I hereby assign and transfer my forty five hundred shares of Norris Oil Co. stock and all my right title and interest in and to the Stone property and any other interest that I may have in the Norris lease;, to Mr. George H. Hadley. Accepted Evelyn Weightman. For the above agree to pay Mrs. Evelyn Weightman $3000. on demand. G. H. Hadley.” Plaintiff delivered the 4,500 shares of stock to Hadley. Upon the following day Hadley mailed plaintiff a check for $2,700, retaining, with plaintiff’s consent, $300 to be used in acquiring oil acreage near Santa Maria. Plaintiff alleged that this sale of her stock and other interests was induced by certain fraudulent representations of Hadley. She sought rescission of this transaction and other relief which will be considered in detail as we proceed.

Before we go further it is necessary to relate certain additional facts as to occurrences subsequent to Hadley’s purchase of plaintiff’s interests. On December 16, 1947, two men, Henderson and Carpenter, were and for some time had been purchasing stock in Norris Oil Company from various owners. Hadley was assisting them in making these purchases, and had told them of several people, including plaintiff, who owned stock. On November 8,1947, he sold Henderson and Carpenter 15,000 shares of Norris stock for which he was paid at that time $3,750. On December 17, 1947, he sold them the additional 4,500 shares of stock which he had received from plaintiff and was paid on that date $5,250. In the same transaction he also sold and transferred to Henderson and Carpenter a one-third interest in the Stone lease. Of the ■purchase price $2,250 represented an additional amount paid for Hadley’s 15,000 shares of stock at 40 cents a share, $3,750 of which had previously been paid, $1,800 was the purchase price of the 4,500 shares of stock Hadley had received from

We can proceed more understandably by taking up separately the several provisions of the judgment, the findings upon which they rest and the evidence pertaining thereto. We shall take up later the questions of fraud, rescission and laches. We shall assume, merely for present purposes, that plaintiff established a case of fraud, that it was not necessary for her to rescind prior to filing the complaint (she gave no notice of rescission and made no offer to restore), and that she was not guilty of laches. It is also immaterial to the matters presently to be discussed whether the parties were in a joint venture. We shall consider first:

The Richardson Lease

Hadley sublet this property to Richfield for a net bonus of $9,991.84. It was not drilled on and there were no royalties. Plaintiff was awarded $4,995.92 as one-half of the bonus. Defendant does not question this provision of the judgment.

The Stone Lease

On or about June 17, 1948, Hadley executed a sublease to Richfield of his one-third interest in the Stone lease, reserving a l/48th royalty. He received $25,468.33 in bonuses for the sublease. To the time of trial royalties of $32,638.08 had been paid into court by Richfield. Plaintiff had judgment for these amounts and all further royalties to be paid by Richfield.

The theory of this award was that Hadley procured plaintiff’s interest in the lease through fraud, that he held her interest as a constructive trustee and was accountable for everything he had received from it. This theory finds a basis in a finding the court made as follows: “. . . prior to December 16,1947, said Hadley had actually sold a one-third interest in the Stone Lease to one Carpenter and one Henderson, and a one-third interest in the Stone Lease to one Lubking, et al.; that on December 16,1947, said Hadley had no further interest in the Stone lease left to sell.” There was no evidence that

“Whebeas, the said lease and two-thirds of all rights thereunder or incident thereto are now held by G. H. Hadley of record.

“Now Thebefobe, for and in consideration of Ten ($10.00) Dollars, and other good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned, present owner of the above mentioned interest does hereby bargain, sell, transfer, assign and convey to Scott Caepenteb, and Maubice Hendebson, one-thibd (%) interest, of said G. H. Hadley, or 33% interest, of all of said 100 interest, of said G. H. Hadley, undivided Two-Third interest in the above mentioned lease.” (Emphasis added.) It is beyond question that Hadley leased his own one-third interest to Richfield and that plaintiff has no claim upon either the bonus or the royalties.

Upon a rescission plaintiff would have been entitled to the return of the interest in the lease or what Hadley had received for it, if he had sold it. She received the exact amount for which it was sold. There was no evidence whatever that it was worth more. Plaintiff claimed Hadley had not sold it but the proof was to the contrary. Of course it was not claimed that he sold it at a profit or in bad faith. Neither was it claimed that he sold his one-third interest previously owned after he purchased plaintiff’s interest.

Plaintiff’s Stock in Norris Oil Company

Plaintiff was given judgment for $18,000, as the amount Hadley received for 6,000 shares of Norris stock July 9, 1948, when he sold 30,000 shares at $3.00 per share, and also judgment for $2,400, being the amount of a cash dividend on 6,000 shares declared after December 16, 1947. The findings contain the following: “Said Hadley holds as a constructive trustee . . . the sum of $18000.00 representing the proceeds

The conclusion that Hadley held 6,000 shares in trust for plaintiff is not based upon any finding. The court found that Hadley agreed to give plaintiff 3,000 shares; after that agreement was made and before the certificate for 4,500 shares of stock was delivered to her a stock dividend of 50 per cent was declared by Norris; thereafter, when plaintiff requested something to show for the promised stock Hadley said he would give her an additional 1,500 shares or a certificate for 4,500 shares instead of 3,000 shares, and a few days later delivered her such a certificate. The court did not find that Hadley ever agreed to give plaintiff more than 4,500 shares. Defendant claims that the additional 1,500 shares represented only the stock dividend on 3,000 shares and that there was no evidence and no finding that he promised to give plaintiff more than this. The point is well taken. Moreover, even if the court had found that plaintiff had been promised 6,000 shares there would have been no evidence to support the finding. When defendant delivered a certificate for 4,500 shares plaintiff accepted it without question. When she sold the shares it was by writing which read: “For good and valuable consideration I hereby assign and transfer my forty-five hundred shares of Norris Oil Company stock” etc. In her original complaint and in her second amended complaint she alleged that defendant promised to give and did give her 4,500 shares of stock. She did not allege that he promised her 6,000 shares of stock, although in her second amended complaint she alleged that he holds as constructive trustee “such of the 6,000 shares of stock of Norris Oil Company as may now be registered in the name of said defendant Hadley, or any nominee or nominees for said defendant Hadley, or the highest market value thereof during the period between December 16, 1947, and the date of disposal by said defendant Hadley of his stock, on or about July 9, 1948, which is $3.00 per share, plus interest thereon at the rate of 6% per annum from the date of disposal thereof, together with any and all additional shares of stock so registered to which plaintiff may be entitled by reason of stock dividends or increased issuance of shares thereon, or the proceeds derived therefrom by sale thereof, or otherwise.” But, most significant of all, is the fact that

When Hadley sold the stock to Carpenter and Henderson he delivered them the identical certificate he had received from plaintiff. They paid him 40 cents per share and he paid plaintiff the same price. She waited for her money until Hadley had made the sale.

Plaintiff sued for the proceeds of the sale of the stock. She knew it had been sold December 17, 1947, but she also knew that it -was sold for 40 cents per share and that Hadley had paid her the same price. In her complaint she ignored this sale for the obvious reason that Hadley had paid her the full proceeds, or all she could rightfully claim. Without any allegation as to whether Hadley had sold the stock, she alleged, as a mere conclusion, that he was a constructive trustee as to 6,000 shares, or the proceeds of a sale of some stock in July, 1948. Uncertain and incomplete as her complaint was, it was an election to seek the proceeds of a sale, even if she alleged a false date of the sale. Consistently with this election she proved Hadley had sold 6,000 shares for $3.00 per share. We do not see how plaintiff could, by evasion of the unquestioned facts, justly lay claim to more than she had already received. These was no fraud, mistake or deception in the sale to Carpenter and Henderson. Insofar as it bears upon the extent of Hadley’s liability it was a separate transaction from plaintiff’s sale to Hadley and constituted the consent of a beneficiary that her trustee might sell trust property at an agreed price. It was a top price for the stock at that time. We are aware of no principle of law or equity under which a beneficiary who has consented to a sale of trust property by one holding it as either a voluntary or involuntary trustee for an agreed price, and its full value at the time, would be allowed to recover a greater amount for which the trustee might sell like property of his own at a much later date. This was not an action at law for conversion of the stock. When plaintiff sued in equity for the proceeds of a sale of the property she elected her remedy. The rules of damages for conversion were inapplicable. (Clapp v. Vatcher, 9 Cal.App. 462 , 467 [ 99 P. 549 ].)

Damages and restitution are alternative remedies and an election to pursue one is a bar to invoking the other (Alder v. Drudis, 30 Cal.2d 372 , 383 [ 182 P.2d 195 ]).

Plaintiff demanded restitution and that is what the judgment purports to award her, but it rests upon a false founds

"Ordinarily the benefit to the one and the loss to the other are co-extensive, and the result of the remedies given under the rules stated in the Restatement of this Subject is to compel the one to surrender the benefit which he has received and thereby to make restitution to the other for the loss which he has suffered. ’ ’ (Rest., Restitution, § 1, comment d.) We think there could be no more appropriate case than the present one for holding that a trustee of a constructive trust who sells trust property with the knowledge and consent of the beneficiary, and for its full value, is accountable only for the sum received. It is axiomatic that a beneficiary who consents to an act or omission on the prirt of a trustee may not hold the trustee liable for any resulting loss. (Rest., Trusts, § 216, p. 609.) Where there is no deceit or misunderstanding with respect to the act or omission to which the beneficiary consents, the effect of the consent should be the same in the case of a constructive trust as in an express trust.

The trial court should have found that Hadley, if regarded as trustee of a constructive trust, was not accountable to plaintiff for more than he had received in the sale to Carpenter and Henderson. The award of $20,400, or any part of it, may not stand.

The 40-acre Sublease prom Norris

It was decreed that plaintiff was the 'owner of a one-third interest in this sublease. She was awarded $1,666.60 as one-third of the bonus received by Hadley for a sublease to Rich-field. The property was not drilled and there were no royalties. There was no evidence of any agreement that plaintiff should have any specific interest in this lease or that the lease was ever discussed by the parties. The interest was awarded plaintiff upon the basis of findings that when plaintiff advanced Hadley the first amount, $250, the parties, by oral agreement, entered into a limited joint venture under which plaintiff would have an interest in oil and gas leases and interests to

We find no evidence in the record to support the finding that the parties entered into a joint venture in which plaintiff would have a one-third interest. Plaintiff’s former husband, W. E. Ramsey, and W. R. Ramsey, had been interested in highly speculative oil ventures in the Cuyama Valley. This valley, which lies across mountainous territory west of the old fields of Maricopa and adjacent fields, had long been regarded by oil authorities as barren of oil and gas. 'A few wildcat operators, including Hadley and the Ramseys, had obtained leases and conducted small and ineffectual exploratory operations. Hadley and associates had drilled two wells to the Santa Margarita sand in which they found oil sand in combination with salt water. The wells were failures, as were other wells which both prior and subsequent to the Hadley wells were drilled to the Santa Margarita sand. Hadley spent about seven years in his efforts to get oil in the valley, promoting small amounts of capital for that purpose, expending all the money he could get his hands upon and devoting much labor to his various efforts. Plaintiff was familiar with these conditions but was willing to advance small sums of money to assist Hadley in his efforts. Although it was understood that she would have some interest in leases that Hadley might secure there was no agreement that she should have a one-third interest or any other definite interest in all the leases. In the light of the uneontradieted evidence their oral agreement can only be construed as one under which they would agree from time to time as to the leases in which plaintiff would have an interest and as to the extent of her several interests. Further than advancing Hadley sums aggregating $850 plaintiff had nothing to do with the efforts to obtain leases. There was no agreement as to the total amount she

It is immaterial what name is given the relationship between plaintiff and defendant. The question is what interest was plaintiff to have in leases and the proceeds of leases. There was no evidence of an agreement for a uniform interest in all leases. The interests were agreed upon in each separate transaction and in no two transactions were they in the same proportions. If it be granted that the original agreement contained the elements of a joint venture and that the parties might have acquired and retained leases which would have been the property of the joint venture, it is clear from the

The 7% Per Cent Interest in the Russell 8,000-acre Pease

We have heretofore set out the substance of the agreement relating to this interest. Actually Hadley had a 37% per cent interest in an agreement with one Prank, to whom Agee had assigned the Russell lease in consideration for his agreement to drill a well. He did not drill the well and reassigned the lease to Agee, who in turn assigned it to Norris Oil Company.

Plaintiff did not plead this agreement nor allege that she had or ever had had an interest in the Russell lease by virtue of the agreement. She alleged that Hadley acquired a lease from Russell October 20, 1945, as a part of the joint venture. The lease of that date was from Russell to Norris Oil Company. The lease that was in existence at the time of the alleged joint venture agreement had been acquired June 28, 1943, and had been assigned to Prank, January 4, 1944. She also alleged that the 3,000 shares of Norris stock were issued to her for her interest in the Russell lease. According to her complaint she no longer had an interest in that lease. That was the state of the pleadings upon which the parties

It was error to decree that plaintiff has an interest in the original 8,000-acre lease by virtue of the April 17,1944, assignment.

The Issues of Fraud, Rescission and Laches

Defendant vigorously challenges the finding that he was guilty of misrepresentation; he says the essence of the alleged misrepresentation was that a well about to be brought in by Norris Oil Company on the Russell property was “wet” and that the cores showed salt water which had ruined two wells previously drilled on the same structure, and he insists that his representation was true—that the well came in 20 per cent salt water, soon went to 80 per cent water, and was a failure. It is true that the well was a failure in the Santa Margarita sand, the only one that was then known to exist. He urges as further defenses that plaintiff did not give notice of rescission and that although she knew January 1, 1948, that the well had been brought in and believed Hadley had

The briefs discuss these questions at length. It would greatly enlarge this opinion and serve no purpose to decide them.

If fraud were established plaintiff would be entitled to no more than she had already received. She had been paid all that Hadley received for the 4,500 shares of stock and the third interest in the Stone lease. There was no evidence that she had any interest in the Norris lease. Whatever conclusions we might reach upon the issues of fraud, rescission and laches would not add to or detract from the results of our decision.

It is unnecessary to discuss other defenses urged by the defendant.

The judgment is reversed.

Wood (Parker), J., and Vallée, J., concurred."

A petition for a rehearing was denied October 29, 1952, and respondent’s petition for a hearing by the Supreme Court was denied December 4, 1952. Carter, J., was of the opinion that the petition should be granted.