Homer S. Head v. A. A. Wollmann, Jr., A. A. Wollmann, Jr. v. Homer S. Head

272 F.2d 298

• Court: Court of Appeals for the Fifth Circuit
• Decided: January 21, 1960
• Docket: 17581
• Status: Published

Opinions

RIVES, Chief Judge.

This action was brought by the appel-lee, Wollmann, against the appellant, Head, and also against one Adler Edmis-ton upon a promissory note in the principal amount of $50,000 signed “Adler Edmiston, Trustee.” The complaint alleged that in executing and delivering the note, Edmiston acted on his own behalf and as agent for Head and also for one Gordon B. Butterfield, who was not sued. The ease was tried to the court without a jury. At the conclusion of the evidence, the plaintiff, with leave of the court, filed an amended complaint to conform to the evidence.¹ The amended complaint counted on the promissory note and also on certain written instruments or agreements executed contemporaneously with the note.

The district court filed a memorandum opinion incorporating its findings of fact and conclusions of law, and entered judgment against Edmiston,

“ * * * in the sum of Fifty Thousand Dollars ($50,000.00) together with interest thereon at the rate of two per cent (2%) per an-num from March 10, 1953 until the date of this judgment, plus ten per cent (10%) of the total amount due as attorneys’ fees, together with interest upon the entire sum from the date of this judgment at the rate of six per cent (6%) per annum,”

and against Head, “in the sum of Fifty Thousand Dollars ($50,000.00), together with interest thereon at the rate of six per cent (G%) per annum from the date of this judgment.” It was further provided that the total recovery against both defendants should not exceed the amount of the judgment rendered against Edmiston.

Head alone appealed. Wollmann cross-appealed, but only insofar as the judgment against Head failed to award Woll-mann “interest on the sum of Fifty Thousand Dollars ($50,000.00) at the rate of two per cent (2%) per annum from March 10, 1953 until the date of the judgment, plus ten per cent (10%) of the total amount due as attorneys’ fees.”

Wollmann was a dentist by profession, who lived in Huron, South Dakota. He had known Butterfield, a Montana resident, for many years and had engaged with Butterfield in previous ventures seeking the discovery and production of oil and gas. Edmiston and Head were citizens of Houston, Texas, who also prospected for and promoted the production of oil and gas.

Butterfield and Edmiston owned a one-eighth overriding royalty interest in a large acreage in San Patricio County, Texas, leased to D and E Drilling Company. That Company had completed a producing well on a part of that acreage and had drilled a second well on another part to almost the same depth when it had decided to plug the second well. It had set cement in the surface pipe and had the well half plugged and the rig torn halfway down when Edmiston induced a Mr. James L. Minahan, a consulting geological engineer of Fort Worth, Texas, to go with him to check “the Schlumberger electrical log services core analysis” with respect to this second well.

On March 6 or 7th, 1953, Minahan gave his opinion that there was a fifty-fifty chance of completing the well as a producing well. D and E was unwilling to spend further money on the well, and the lease on that part of the acreage would terminate shortly unless further efforts were made to bring the well into production. D and E offered to assign the lease to Edmiston, reserving a fractional three-fourths working interest in itself, if Edmiston would secure the funds necessary and proceed with cleaning and testing operations with a view to securing production. Wolf Drilling Company, which had drilled the well, estimated that $50,000 would be enough to attempt to complete the well as a producer. To keep from losing the rig, Edmiston arranged for the drillers to wait at an expense of $600 a day. Ed-miston and Butterfield offered interests in the venture to Minahan and to Head. The four (Edmiston, Butterfield, Mina-han, and Head) had several discussions among themselves about raising the necessary $50,000, and Butterfield suggested that he would contact Dr. Woll-mann and attempt to secure the funds from him.

Dr. Wollmann and his wife were then at a health resort in Mineral Wells, Texas, and Butterfield met Wollmann there at the Baker Hotel.² After they had discussed the venture, Butterfield wrote by pen and ink on hotel stationery a letter proposal (hereafter referred to as Plaintiff’s Exhibit No. 1) as follows:

“Dear Doctor Wollmann:

“Following is understanding of our agreement concerning the participation in completion of the well at Corpus Christi: It is estimated there will be a total cost of $50,-000.00 to complete this well and put the oil and gas in the tanks for oil and lines for delivery of the gas.

“You agree to advance this $50,-000.00. We, in turn, agree to do all necessary work in connection with completion of the well, as set-out, and to furnish all necessary casing, tubing, cementing, lines, tanks, etc. We further agree to give you a note of even date in amount of $50,000.00, bearing interest at two per cent, due in Nine months, said note to be signed by each, G. B. Butterfield, Adler Edmis-ton, Homer S. Head, Sr. and James Minahan, Sr.

“We further agree that a full 75% of all oil and gas returns will credit toward payment of this note.

“It is further agreed between us that when this note is paid in full, an assignment will be made to you of Thirty-seven and one-half per cent (37-1/2%) in the working interest in this lease. It is understood that there is a one-eighth (1/8) land owners royalty and a one-eighth overriding royalty outstanding against this lease, making it a Seventy-five per cent (75%) lease.

“Sincerely,

“Gordon B. Butterfield”

The next day, Dr. Wollmann, accompanied by his wife, drove to Fort Worth to talk with Mr. Minahan. Minahan testified that he made it clear to Dr. Woll-mann there in Fort Worth that he was no longer personally interested in the transaction “because I wouldn’t put my money in it.”

The following day, March 9, Dr. Woll-mann, still accompanied by his wife, drove to Houston. Mr. Edmiston met them at the hotel clerk’s desk as they registered and made arrangements for Dr. Wollmann to discuss the matter on the following day at Mr. Head’s office in the Gulf Building in Houston.

At that meeting on March 10, Mr. Edmiston first handed to Dr. Wollmann a note from Mr. Head (hereafter referred to as Plaintiff’s Exhibit No. 2) as follows:

“Homer S. Head — Oil Operator “Gulf Building

“Houston 2, Texas, March 9, 1953

“Dear Dr. Wollman (sic),

“It is my understanding that Gordon Butterfield, A. Edmiston, you and I are all agreeable on a deal in San Patricio County, Texas, and that you have a note for $50,000.00 to be signed by Butterfield, Edmis-ton and myself.

“I have to leave town and set on a well in Eastland County, Texas. This letter will give you authority to close any deal with Mr. Edmiston and I will sign the note with Messrs. Edmiston and Butterfield at any time.

“Yours very truly,

“Homer S. Head

“Homer S. Head

“/es

“P.S. I think this is a-1 deal sorry it was necessary for me to leave town — I hope to see you soon.

“Homer.”

Dr. Wollmann testified that he showed Mr. Edmiston the letter proposal which he had received from Edmiston (Plaintiff’s Exhibit No. 1), and that he used that as a guide in arriving at an agreement. Edmiston testified that he never did see that letter proposal. In any event, Dr. Wollmann and Mr. Edmiston, witliout the benefit of legal advice, undertook to reach an agreement, which Mr. Head’s secretary typed, as follows (Plaintiff’s Exhibit No. 3):

“State of Texas

“County of Harris

“This memorandum of agreement entered into this tenth day of March, 1953, by and between Adler Edmiston, Trustee for Gordon B. Butterfield, Homer S. Head, and Adler Edmiston, Harris County, Texas, known as the First Party and Dr. A. A. Wollmann, Jr., of Huron, South Dakota, known as the Second Party Witnesseth:

“First Party has this day taken over a well drilled for oil or gas in San Patricio County, Texas, on a block of land consisting of approximately 409 acres described as follows :

*****

“Said well was drilled by the Drilling and Exploration Company of Houston, Texas to a depth of 9636/ and Schlumberger well log run on said well shows several sands that should be tested for production. First Party has made a deal with Drilling & Exploration Company to take over said well and start immediately to wash down and drill out plug and set casing to a depth of 9500', cement same and make production tests; trying to make a producer out of same.

“The Drilling & Exploration Company has assigned A. Edmiston, as Trustee for the above mentioned parties and himself, a lease covering the above described 409.25 acres subject to the following conditions to-wit:

“A. Edmiston is to pay all bills, casing, tanks, Schlumbergers and drilling operations to complete said well with the understanding that the above lease now owned by Drilling & Exploration Company is only a 3/4 lease and said lease is now being assigned to A. Edmiston, Trustee, as follows:

“A. Edmiston, Trustee, is supposed to receive all oil royalties and payments from said well until the cost of completing said well has been reimbursed to A. Edmiston, Trustee. In that event, the Drilling & Exploration Company shall own a 1/4 Working Interest of the 3/4 Lease now assigned to A. Edmis-ton, Trustee.

“First Party agrees that all oil, pipe line runs, and checks received from production of said well will be paid to First Party (as Trustee), until First Party has received $50,-000.00. The First Party has this date executed a promissory note payable in nine months from date at the rate of 2% interest to Second Party to reimburse him for the money advanced for the completion of the above described well. All monies received from production by First Party shall be paid to Second Party as received to apply on said note until $50,000.00 has been paid and when said well has produced enough money to reimburse Second Party $50,000.00, the balance of the 3/4 of 3/4 interest shall be divided equally as follows:

“1/2 to Dr. A. A. Wollmann and 1/2 equally to Homer S. Head, Gordon B. Butterfield and A. Edmiston.

“A. Edmiston, Trustee, hereby agrees to execute all papers properly as above specified. Second Party has nothing to do with the drilling of the above described well and is not liable for any damages which may occur from said well. A. Ed-miston, Trustee, shall have the control of all operations of said well.

“Witness the Execution Hereof this the 10th day of March, 1953.

“Adler Edmiston

“Adler Edmiston

“(Seal)

“The State of Texas

“County of Harris

“Before Me, the undersigned authority, on this day personally appeared Adler Edmiston, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed.

“Given under my hand and seal of office this the 10th day of March, 1953.

“Eleanor C. Sanders

“Eleanor C. Sanders

“Notary Public, Plarris County, Texas

“My Commission expires 6-1-53”

At the same time, a promissory note and a letter (Plaintiff’s Exhibits Nos. 4 and 5) were prepared and delivered to Dr. Wollmann, as follows:

“50,000.00 March 10, 1953 194... Nine months after date, for value received I promise to pay to the order of Dr. A. A. Wollmann Jr. Fifty thousand and no/100........ Dollars at Huron, South Dakota

“With interest after date at the rate of 2 per cent per annum and if not paid at maturity and collected by an attorney or by legal proceedings, an additional sum of ten per cent on the amount of this note as attorney’s fees.

“Due Nov. 10, 1953

“/s/ Adler Edmiston

“Adler Edmiston, Trustee”

“Dr. A. A. Wollmann, Jr.,

“Huron, South Dakota.

“Dear Dr. Wollman (sic):

“This letter will' give Mr. Gordon B. Butterfield of Billings, Montana, the authority to issue 25,000 shares of Wymotex Oil Company of Billings, Montana, stock which is owned by Mr. Butterfield and me and which is to be placed in escrow in a bank to be named by you to satisfy the $50,000.00 furnished us in San Patricio County, Texas.

“Yours very truly,

“Adler Edmiston

“Adler Edmiston

“/es

“cc: Gordon Butterfield”

Dr. Wollmann then delivered to Mr. Edmiston his check for $50,000.

Dr. Wollmann further testified:

“Q. Now, Dr. Wollman (sic), what happened in connection with this transaction after you paid over the $50,000.00, and received these documents from Mr. Edmiston? A. The next day or so, we drove to Corpus Christi, down to where the well was being drilled.

“Q. And what occurred there, if anything? A. We met Mr. Edmis-ton, and we were there several days, and to (sic) the meantime, Mr. Head came down. We were going back and forth to the well.

“Q. All right. A. While they were drilling.

“Q. Did you have any conversation with Mr. Head about the financial aspects of this matter? A. I did.

“Q. Can you tell us in your own words just what happened at that time? A. I asked him to sign the note, and he told me that I didn’t have the proper papers.

“Q. Was that the only reply he gave to you at that time? A. That’s right.

“Q. Did he ever say that he wouldn’t sign the note? A. No.

“Q. Did you press him about his signing something at that time ? A. No, I didn’t have the proper papers, so I didn’t.”

Mr. Head testified that he simply declined to sign the note, and that Dr. Wollmann had nothing more to say at the time. In connection with this conflict, the examination of Mr. Head by the district judge, quoted in the margin,³ may be revealing.

The well eventually proved to be a dry hole and was finally plugged about January 23, 1955, and the equipment above the ground was then sold.

The respective factual contentions of the parties and the findings of the district court are thus stated in the memorandum opinion [176 F.Supp. 566]:

“It is the plaintiff’s testimony, and theory, that under the agreement he was to be repaid, if the venture was unsuccessful, by the two defendants and Butterfield, and that the note evidences that obligation. He contends further that the Wymotex stock was security, to which he might look for satisfaction of the note, if Edmiston, Head and Butter-field otherwise were unable to pay it.

“In addition to such support as this theory may find in the written instruments, Butterfield corroborates the plaintiff’s testimony in every particular. He readily, almost eagerly, admits his own liability, and that of the two defendants. In this respect it is noted that But-terfield was not made a party-defendant here; that he and the plaintiff were friends and successful co-adventurers in other matters long before this controversy arose; and, that Butterfield is a recent bankrupt.

“Head and Edmiston testify that the agreement was not as stated above, or as the written instruments would tend to show. It is their testimony that Wollman (sic) was to risk his capital, and they their time and skill in undertaking to make the well produce; and that in the event of failure all were to lose, and that there was to be no repayment. Their testimony is to the effect that the note was never intended to constitute a personal obligation on their part, but was no more than a memorandum of the amount which Wollmann advanced, and to which he was entitled to recoupment from the first oil produced. They explain the Wymotex letter as an alternative defense, in that if Wollman (sic) was to be repaid in case of failure, he was to look only to the 25,000 shares above mentioned. This stock was then jointly owned by Edmiston and Butterfield, and had a value of some $2 a share. Since that time, its value has decreased to an extent that it now has little, if any, market value. During the trial, Edmiston indicated his willingness to surrender his share of such stock to Woll-man (sic), which he contends would satisfy the obligation.

“I find the facts to be in accordance with the plaintiff’s theory and testimony. I find that it was the understanding of all parties that Wollman (sic) was to be repaid in the event the well was a failure, and that the note was intended to, and did, evidence this obligation. I find further that the block of Wymotex stock was intended simply to secure the payment of the obligation, but was not intended to be the sole source to which plaintiff might look for such satisfaction.”

The district court entered judgment against Edmiston for the amount with interest and attorneys’ fees due under the promissory note. As to Head, however, the court held:

“The plaintiff may not recover against Head as a maker of the note, by reason of the terms of Article 5932, § 18, Vernon’s Annotated Civil Statutes of this State. I find, however, that Head intended to, and by his letter of March 9, 1953 (Ex. 2) did, in writing, authorize Edmis-ton, as his agent, to deal with Woll-man (sic) and to bind him (Head) upon any contract so arrived at. I find that Edmiston was authorized to, and did, act as agent for Head, as well as on his own behalf, in executing the ‘Memorandum of Agreement’ (Ex. 3), and that Head is bound thereby. I find further that the ‘Memorandum of Agreement’ did no more than reduce to writing the oral understanding previously arrived at between the parties, and to which Head had assented on or before March 9, 1953.

“I find that Edmiston, Head and Butterfield were not acting as partners in this venture (as contended by plaintiff), and I find that Head did not intend to authorize Edmiston to execute the promissory note (as distinguished from the written contract) as Head’s agent. It was contemplated by all concerned that Head and Butterfield would sign individually, and on their own behalf, and that the three would constitute joint makers. While the statute cited above would prevent recovery against Head as maker of the note, it does not prevent recovery for breach of the initial contractual obligation, or for breach of his written promise to sign the note as maker. Head’s liability in this respect is clear.1

“ * * * Had Head and Butter-field joined in execution of the note, the three would have been liable jointly and severally, and the plaintiff might have sought his recovery in full against any or all.2 Hence, Edmiston, who did sign, has not suffered. Clearly the escrow provision was intended purely as a means of affording the plaintiff additional security. * * *

“1. 6 Tex.Jurs., Bills & Notes, § 36 and § 116; 10 C.J.S. Bills and Notes § 516; Kelley v. Audra Lodge, Tex.Civ.App.1915, 176 S.W. 784; Wood v. Key, Tex.Civ.App.1923, 256 S.W. 314.

“2. Beitel v. Beitel, Tex.Civ.App.1937, 109 S.W.2d 345; Watkin Music Co. v. Basham, 1908, 48 Tex.Civ.App. 505, 106 S.W. 734; Kuykendall v. Coulter, 1894, 7 Tex.Civ.App. 399, 26 S.W. 748.”

Accordingly, the court rendered judgment against Head only for the principal sum of $50,000 with interest from the date of the judgment.

It will be noted from the last sentence of the quoted holdings that the district court had no doubt that the Wymotex stock was simply put up as collateral to secure the payment of the obligation.

“The holder of a secured note is not required by Texas law to exhaust his security before enforcing the note against the original maker, but may proceed to judgment without reference to the security, whether the same is in the form of a pledge of collaterals or a mortgage on real or personal property.” 6 Tex.Jur., § 222, p. 881.

The appellant emphasizes the meaning of the word “satisfy” in the letter (Plaintiff’s Exhibit No. 5) by which the 25,000 shares of stock were “to be placed in a bank to be named by you to satisfy the $50,000.00 furnished us * * (Emphasis supplied.) ⁴ The word “satisfy" would be entitled to more weight if it had been used by a lawyer skilled in the use of language of precise legal significance. It is questionable whether the word was originally chosen even by the two nonlawyers, Wollmann and Edmis-ton. Mr. Head’s secretary testified that they did not dictate the letter to her, “Mr. Edmiston just gave me a general outline of what he wanted, and I typed the letter.” It is a fair inference that the word “satisfy” was initially the choice of the stenographer.

While the secretary and Edmiston testified to the most definite understanding that the stock was to be accepted by Dr. Wollmann in lieu of the money, Dr. Wollmann testified that he and Edmiston talked about the stock being put up simply as collateral. Dr. Wollmann further testified that he attached little importance to the stock, and had not comprehended the provision that it was to be placed in escrow. Actually, that never was done. After the well proved to be a dry hole, Edmiston went to South Dakota and offered Dr. Wollmann not 25,000 shares as specified in the letter, but 50,000 shares of the stock. Dr. Wollmann refused, and testified: “I asked for my $50,000.00 instead.” We agree with the finding that the stock was intended simply as collateral security. If we disagreed, nevertheless recognizing the superior advantage enjoyed by the district court, which saw and heard the witnesses and observed their demeanor on the stand, we could not set aside the finding as clearly erroneous. Rule 52(a), Federal Rules of Civil Procedure.

Judges JONES and RIVES are in agreement down to this point. Judge JONES would simply affirm the judgment of the district court for reasons stated in a separate concurring opinion. Judge RIVES would go further and, for reasons stated in a separate opinion, would increase the judgment against Head so as to include interest and attorneys’ fees. However, in order to reach a decision, Judge RIVES concurs with Judge JONES that the judgment be

Affirmed.

1 . See Rule 15(b), Federal Rules of Civil Procedure, 28 U.S.C.A.

2 . Mr. Head happened also to be at the same hotel in Mineral Wells on another business matter, and he and Dr. Woll-mann met socially, but had no discussion about this particular transaction.

3 . Examination by the Oourt:

“Q. You never talked to Wollman (sic) about this trade at all until after it had been entered into or signed up on the 10th of March; is that true, sir? A. No, that’s true.

“Q. Your only information as to what the trade was to be came from Ed-miston or Butterfield? A. That’s correct.

“Q. I see. So you wrote this letter to Wollman (sic), where you set out in substance that you would sign the note and that you thought you all were in agreement. At the time you wrote that letter, you had before you only the information that Edmiston or Butterfield had given you? A. That’s correct.

“Q. Now, what information did they give you about the part that a promissory note would play in this picture? A. Your Honor, may 1 say something?

“Q. Just answer my question, please, sir. A. O.K. See, on the 9th Mr. Edmiston asked — came in there and said that the only thing I was to — they was to put up this Wymotex stock.

“Q. And you would not have to put in any money, I know that. What part did they tell you a promissory note was going to play in this picture? A. They didn’t tell me anything, what part it was going to play.

“Q. Well, what did they say about a promissory note? A. They didn’t say anything about a promissory note. Only he just asked me about this thing, that— the way this — the reason I asked this, I want to say something here—

“Q. Well, now, who first mentioned a promissory note to you? A. Mr. Ed-miston.

“Q. In connection with this transaction, please, sir? A. Mr. Edmiston.

“Q. And when was that, please, sir? A. On the 9th.

“Q. And what did he tell you about it? A. He said that until Mr. — the deal was that Mr. Wollman (sic), Dr. Wollman (sic) was going to take the stock, Wymotex stock, and when that promissory note — in other words, the note wasn’t involved in the thing at all, it didn’t mean a thing; when that letter, when Dr. Wollman (sic) accepted the letter for the stock, that was it.

“Q. Now you are telling me what Ed-miston told you on or about the 9th of March, before you left Houston and before the trade was signed on the 10th? A. That’s correct.

“Q. If I understand you, sir. A. That’s correct.

“Q. And Edmiston told you that all there was to it was to be the stock which he and Butterfield were to put up, and I believe you said when Wollman (sic) took that letter, that was it? A. That was it, yes, sir.

“Q. What I have asked you was, what did Edmiston say to you about a promissory note on the 9th of March? A. He asked me to — to sign this note, due to the fact that the rig was going to be moved off, that Keet Lewis and I guess Grey Wolf Drilling were. They was handling that deal, Judge; I didn’t know anything about the deal. It wasn’t my deal.

“Q. What did Mr. Edmiston tell you about a promissory note on the 9th of March, and why you were to sign one or why anybody else was to sign one, please, sir? A. Well, I asked that same question, and why I signed the note, I don’t know whether I made myself clear or not — •

“Q. I didn’t ask you why you signed it. What did Edmiston say to you about a promissory note on the 9th of March? A. All right; ho said that Dr. Wollman (sic) was going to put up stock — X mean they were going to put up stock to Dr. Wollman (sic), see, and this note was— the note — the stock was in lieu of the note.

“In other words, when the note — he accepted the stock, the note had no value whatsoever. Or never did have any value.

“Q. Edmiston told you that he, Edmis-ton, and Butterfield were going to put up stock? A. That’s correct.

“Q. You weren’t to put up any stock? A. No, sir.

“Q. Of any kind? A. No, sir.

“Q. But you were to sign the note? A. Till they completed their deal. They said they was — the doctor was coming down here and was going to accept the stock for the $«50,000.00.

“Q. What was the necessity of yonr signing the note? A. I don’t know, Your Honor.

“Q. If you were to have no personal liability and you were not to put up any stock? A. My liability — ■

“Q. You are a business man, I am sure, Mr. Head. A. Yes, sir.

“Q. Why would you sign a note for $50,000.00, if you weren’t to incur any liability or if you weren’t to put up any collateral? A. The only liability that I ineurred was to go down there and look after the well.

“Q. That is not my question. I said why would you sign the note, if your understanding was that you were never to have any personal liability, and were not to furnish any of the collateral, and if your only contribution to the venture was to be your time and effort? A. That question, I asked that same question, Your Honor.

“Q. Well, you can answer it for me now; we have got the other way around. I am asking you, why did you do it? Why would you do it? A. Well, it was-stupidity on my part, if you want to put it that way.”

4 . Appellant argues that, at the time of the transaction in Head’s office, the value of the Wymotex stock was sufficient to satisfy the debt, and draws that inference from the district court’s finding that the stock then “had a value of some $2 a share.” That finding is not necessary to support the judgment entered by the court. Actually, it seems to us clearly erroneous, for we find in the record no definite evidence of the value of the stock on March 10, 1953, but do find evidence strongly indicating that its then value was nowhere near $2 per share. The evidence of that stock’s , value may be summarized as follows: During the latter part of 1952 and the first part of 1953, a Mr. Feland in Houston offered $75,000 for 100,000 shares which would, be 75 cents per share; in October 1954, it was worth 68 cents per share, and in October 1956, 38 cents per share. Sometime in 1956, Mr. Feland offered $75,000 for 300,000 shares, which would be 25 cents per share.