Mercantile National Bank at Dallas v. McCullough Tool Co.

250 S.W.2d 870, 1952 Tex. App. LEXIS 1662

• Court: Court of Appeals of Texas
• Decided: July 9, 1952
• Docket: No. 10057
• Status: Published

Opinions

GRAY, Justice.

Appellee has filed a motion to dismiss this appeal and as grounds for dismissal says that the supersedeas bond filed by appellant is not sufficient as an appeal bond because: (1) it contains no obligation to pay the costs on appeal; (2) it is not conditioned in the manner and form required by law to have the effect of an appeal bond, and (3) there is no certificate by the district clerk estimating the costs in the court below and on appeal.

Appellee cites Rule 354 T.R.C.P., which prescribes the requirements for a cost bond on appeal.

The judgment appealed from is for $8,616.20 with interest as six per cent per annum from date, — January 15, 1952, and costs. The costs accrued in the trial court amount to $416.50. The supersedeas bond filed by appellant is for $10,000, and is conditioned as is required by Rule 364(a), T.R.C.P. This bond bears the approval of the district clerk.

Appellant has requested and has been granted leave to file an additional bond. An additional bond for the sum of $900 has been filed and approved. Rule 365, T.R.C.P.

The bonds now on file are sufficient to meet the requirements of Rule 364(a), supra.

Rule 367, T.R.C.P.

Appe'lee’s motion to dismiss the appeal is overruled.

Appellee sued Louis Burns, Mystic Oil Corporation (later called Mystic) and appellant to recover for personal services and materials furnished Mystic on an oil¹ well designated as well No. 5 on the J. Wylie Green lease in Tom Green County. The services and materials were furnished from October 9, 1949, through January 12, 1950, and, as reflected by appellee’s verified account, there was owing to appellee therefor $6,932.90. Appellee also sued to recover an attorney’s fee.

Upon a nonjury trial appellee recovered judgment against Mystic and appellant, jointly and severally, for its debt, an attorney’s fee for $1,250, interest and costs. Only appellant has appealed.

Some time in November, 1949, Mystic, acting by John Shanahan, its president, and Louis Burns, its vice president, began negotiations with appellant for a loan. On December 27, 1949, the loan was consummated and Mystic gave its note to appellant for $278,500 payable in monthly installments of $5,000 each, the first installment to become due January 20, 1950. This note was secured by a deed of trust covering an oil and gas lease on 497.32 acres of land in Tom Green County identified as the J. Wylie Green lease, and which lease was then owned or was being operated by Mystic. The deed of trust included rights then existing or to accrue under the lease and the oil runs. At the time of the execution of the note there were four wells drilled on the lease and the fifth (well 5) was being drilled. There were also accumulated oil runs.

Appellee alleged that a part of the "consideration for the note and deed of trust was a promise by appellant to pay appellee the sum of $6,932.90 then due and to become due for services and materials furnished to Mystic on well 5; that such promise was made and exacted for the benefit of appellee; that appellant failed and refused to complete the disbursement of the loan and withheld approximately $80,000; that appellee had made demand on appellant for the payment of its debt; that payment was refused, and that it was necessary for it to employ an attorney. Appellee further alleged that Mystic was indebted to it at the time of the loan, that it extended credit and increased its credit to Mystic relying solely on the representations and promises of appellant that it was making a loan to Mystic and that a portion of such loan would be paid by appellant to appellee; that appellee relied on the representations and promises of appellant and did forego its right to file its statutory lien. Appellee also alleged that appeflant induced Mystic to repudiate its obligations to appellee and so acted as to create a default by Mystic in its obligation to appellant, and that appellant through an agent and employee went into possession of the oil and gas lease in fraud of the creditors of Mystic, especially appell'ee.

The facts show that prior to the time that Mystic Oil Corporation was formed (early Fall of 1949) the J. Wylie Green lease was operated by Louis Burns and others under an agreement with the holder of the lease; that Burns was indebted to appellant, and that at the time the corporation was formed there had been three wells drilled on the lease and the fourth was being drilled, three of these wells (including number 4) were producers. Mystic took over the Green lease and consummated the loan with appellant as already noted. Appellant proceeded to disburse the loan and paid out the borrowed money to the creditors of Mystic to the extent of approximately $211,360 on January 13, 1950. Included in this amount was a debt of Louis Burns owing to appellant. On April 12, 1950, appellant filed suit on the note and to foreclose its deed of trust lien because of the failure of Mystic to pay the $5,000 installments due. At that time there was in appellant’s possession the undisbursed portion of the loan, which the trial court found was $67,139.49. Also, there were uncollected oil runs which Mr. Pryor, appellant’s vice president, said amounted to approximately $50,000.

During the negotiations for the loan and at the time it was consummated well 5 was being drilled. This fact was known to appellant, and Mystic was then indebted to appellee for services and materials furnished to the extent of $2,300 on that well. The existence of this indebtness was also made known to appellant.

Louis Burns testified, by deposition, that:

“59 What did you propose to the Bank that you would do with the money? A. The $278,000?

“60 Yes? A. Drill wells; that is what they loan money for; clean up our bills and keep drilling wells.

“61 Did they disburse to you the $278,000? A. No; they wanted to disburse the money; they had a man by the name of Holloway, Assistant Vice President, who would disburse this money, and it was agreed to by everyone of us to let him do it.

“62 That was agreeable to let him do the disbursing? A. Yes; as we needed it.

“63 Did you have an agreement with the Bank that this money was to be disbursed to your creditors? A. Yes;- that was what we borrowed it for, to clean up what we owed and drill these wells. We borrowed the money to pay the people we owed and to drill more wells.

“64 Did the Bank agree to that proposition, that they would pay the bills that you owed and advance money for your drilling of other wells? A. That was my understanding.

* * * * * *

“70 Did you furnish the Mercantile National Bank with a list of your creditors? A. .Had an auditor to do that.

“71 Who was that auditor? A. Fred Bryant.

“72 Where does he live? A. In Brady.

“73 Did the make a list of all of your creditors ? A. Yes.

* * * ⅜ * ⅝.

“A Yes; I talked to McCullough Tool Company, but I don’t remember the name of Gray.

“96 But you talked to someone down there about these bills ? A. Yes.

“97 And you told them you were getting a loan from the Mercantile National Bank? A. Yes, sir.

“98 And you told them that as soon as you got the loan, the Bank would pay the bill? A.' Yes, sir.

“1 While ago you were asked with reference to the debts being paid by the Mercantile National Bank at Dallas ; state whether or not they were to be paid out of the loan that you se- ■ cured? A. Yes, that’s right.

“2 It was not debts the Bank was to pay; but to pay your debts for you out of the money you borrowed? A. Yes; if we owed $278,000 in debts, they would pay it.

“3 You agreed with the Bank that they were to use the money from that $278,000 loan to retire your indebtedness ? A. That’s right.

“4 You did not intend to say that the Bank was to pay the indebtedness other than out of your own money that you had borrowed from the Bank? A. That’s right.”

Burns further said that prior to the time the loan was made the oil runs had not been paid because they had been unable to get a division order for the reason that there was an argument with the owner of the Green lease; that appellant would not make the loan without a division order; that before the loan was made a division order was secured and that it was delivered to appellant; that the first time he knew the division order was not “in tact” and that the money had not been sent to appeL lant was after he was sued by appellant and then appellant told them the order had been lost, and that it was then too late to get another.

The note contained the following provision :

“In addition, the undersigned agrees that seventy-five percent (75%) of the oil runs and production accruing to it under its interest in the oil and gas leasehold estate on certain properties situated in Section 195, S. P. R. R. Company, District No. 11, in Tom Green County, Texas, which oil runs and production runs are being assigned to the Mercantile National Bank at Dallas to secure the payment of this note, may be applied by said Bank on the payment of principal and interest due under this note. It is agreed and understood that the monthly installments described in the preceding paragraph of this note are the minimum amounts to be paid and are to be paid unconditionally irrespective of whether or not the oil runs referred to in this paragraph amount to as much as the minimum monthly payment prescribed in the preceding paragraph.

“This note, to the extent of the amount mentioned herein, represents money this day borrowed by the undersigned from Mercantile National Bank at Dallas.”

Fred Bryant testified that James Rankin (a vice president of appellant) and Louis Burns came to his office and requested him to prepare a schedule of Mystic’s debts and forward the schedule to appellant; .that he did so and that appellee was one of the listed creditors.

J. M. Gray, credit manager for appel-lee, testified that he communicated with appellant through Mr. Rankin relative to appellee’s debt, and that Mr. Rankin told him that appellant was paying Mystic’s bills on wells as they were completed as producers. He identified two letters which were introduced in evidence and are:

“Mercantile National Bank at Dallas

Dallas, Texas

“Jas. H. Rankin December 30, 1949

Vice President

“McCullough Tool Company

P. O. Box 2575

Houston, Texas

“Gentlemen:

“In answer to your telegram regarding Mystic Oil Corporation, I wish to advise you that we are in the process of closing a loan on wells 1, 3 and 4, but from the record I looked at today, I think all your bills are on well 5.

“The company hopes to bring this well in within the next fifteen days, and if the well is satisfactory, we will make further disbursements which should include your accounts.

Yours very truly

/s/ Jas H Rankin

Vice President”

“Mercantile National Bank at Dallas

Dallas, Texas

“Jas. H. Rankin February 9, 1950

Vice President

“Mr. J. M. Gray

McCullough Tool Company

P. O. Box 2575

Houston 1, Texas

“Dear Mr. Gray:

“With further reference to our telephone conversation of January 30, I wish to advise that I talked with the superintendent who is drilling the well for Mystic Oil Corporation and he told me it would be the latter part of this week before they would have the well ready for our geologist to make the tests. During the last few days they had some trouble with the pipe leaking and have this straightened out, and this should be a good well.

“The information is furnished you because I know you expected to receive your check by the end of this week.

Yours very truly,

/s/ Jas H Rankin

Vice President.”

Mr. Rankin, after referring to the above letters and his conversation with Gray, testified :

“Q. Did you, in talking about Well No. 5 in your conversation with Mr. Gray, or in your letters, tell him what was the basis of your information ? A. I told him that the Company hoped to bring that well in within the next fifteen days,, and if the well is satisfactory we will make further disbursements, which include their account.”

The trial court filed findings of fact and conclusions of law, and, with other findings, found:

“At the time of the making of this loan it was discussed and agreed upon between Mr.' H. M. Pryor and Mr. J. H. Rankin as officials of the bank and Mr. Louis Burns and Mr. John J. Shan-ahan as officials of the Mystic Oil Corporation that the purpose of making this loan, and a part of the consideration for making it, was that Mystic Oil Corporation had incurred indebtedness in the drilling of well 4, and was incurring expenses in the drilling of well S, and that there would possibly be other wells drilled in which expenses would be incurred; that the Mercantile National Bank at Dallas was to loan to the Mystic Oil Corporation the amount of said note and the bank was to use and disburse the money for the purpose of paying off Mystic Oil Corporation’s creditors who had furnished materials or labor or services of any character in the drilling of said wells with the limitation that before there was any obligation to pay for materials or labor or services in the drilling of any well that it must be a commercial producer, but that if any well drilled on said lease was a commercial producer then the bank would pay the creditors for material, services and labor used in the drilling of any such well, said payments to be made out of the $278,500.00 loan to Mystic Oil Corporation. This agreement to use and disburse the borrowed money for the use and benefit of such creditors was a part of the consideration for the making of said loan.”

The trial court also found that well 5 was a commercial producer, and made further findings favorable to appellee.

Appellant’s nine points are to the effect that the trial court erred in holding it liable to appellee because: The undisputed evidence shows that (1) appellant had no contract with appellee to pay it any amount of money; (2) appellant made no agreement for the benefit or appellee; (4) any agreement made by appellant to advance additional money to appellee or disburse additional loan funds in payment of ap-pellee’s creditors never became effective because of nonoccurrence of conditions precedent; (5) appellant was released from any obligation to make further advances to Mystic or its credit for the payment of its creditors by reason of defaults on the part of Mystic. (3) The overwhelming preponderance of the evidence shows appellant did not make any agreement for the benefit of appellee. (6) Appellant was not liable for more than nominal damages. (7) The statute of frauds is a bar to any action based on the alleged agreement. (8) Appellant was not liable for attorney’s fees. And (9) certain special exceptions should have been sustained and not overruled.

It is a well established .rule of law that a contract entered into by parties for the benefit of a third party is binding and may be enforced by the third party. However for the third party, not named in the contract, to be entitled to enforce it he must show that it was made for his benefit and that he was the party intended to be benefited. United States Fidelity & Guaranty Co. v. Eubanks, 126 Tex. 405, 87 S.W.2d 248; 10 Tex.Jur. Secs. 280-282, pp. 483-486. And where the contract has been accepted by the third party beneficiary it may not be modified or rescinded without his consent. 10 Tex.Jur. Sec. 283, p. 488.

The testimony of Louis Burns shows the contract was made for the benefit of appellee. This testimony is corroborated by that of J. M. Gray, and by that of James Rankin whose testimony shows appellant’s own interpretation of the agreement and, if the meaning of the agreement is uncertain, such interpretation is of great if not controlling weight. James Stewart & Co. v. Law, Tex.Sup., 233 S.W.2d 558, 22 A.L.R.2d 639.

There is evidence to support a finding that appellee not only accepted the contract but relied on it and did not file its statutory lien which it was entitled to file and would have filed hut for appellant’s agreement, and that such forbearance in no wise would affect appellee’s right to participate in the proceeds of the loan to the extent of its debt. The schedule of Mystic’s indebtedness was forwarded to appellant by Fred Bryant on February 2, 1950, prior to the institution of foreclosure proceedings, and at a time when appellant had in its hands undistributed proceeds of the loan far in excess of the amount of money then due. In any event this was at a time Mystic was not in default as to the February installment and when disbursement of the loan had not been completed. Appellant had not, at the time appellee’s account was payable, elected to foreclose the lien because of nonpayment of installments as is shown by the letter of February 9, 1950, supra. Even if it be said that appellee was in no better position to enforce the contract than Mystic, its enforcement was not precluded to appel-lee. In 9 C.J.S., Banks and Banking, § 395, at page 816, it is said:

“A bank must make such application of the proceeds of a loan as is agreed upon in the contract between it and the borrower, and is liable for a failure to do so.”

Appellant appears to defend its refusal of payments to appellee on the ground that well 5 was not a commercial producer. The trial court found that it was.

Appellant had the burden of pleading and proving the defense. Rule 94, T.R.C.P.; McAnally v. Person, Tex.Civ.App., 57 S.W.2d 945; Gieb v. Goebel Brewing Co., Tex.Civ.App., 176 S.W.2d 975, error ref., w. o. m.; 10 Tex.Jur. p. 528, Sec. 305a.

Charles Hickox, who was not a licensed appraisal engineer but who had had twenty-five years experience in the oil. business, who had been for many years production superintendent for Plymouth Oil Company and who was production superintendent for Mystic, said that well 5 was completed as a commercial producer and, by his tests, was producing approximately thirty-■eight barrels of oil per day. The evidence shows that for a while the oil produced from the Green lease was delivered by truck to the Humble Pipe Line Company but later Republic Pipe Line Company "came in on the lease” and the oil was “run” by it. The record does not show the cost of marketing the oil from well 5 nor the price for which it was sold, neither does the record affirmatively show what meaning was attached to the term “commercial producer,” • — however, we think it is sufficiently clear that the term was used to mean that well 5 would produce oil in paying quantities. The trial court found the well produced oil in paying quantities. We think it reasonable to say that Charles Hickox who placed himself in position to know the costs of production and marketing conditions, took these matters in consideration when he said well 5 was a commercial producer. We are in no position to assume he did not.

H. M. Pryor, a vice president of appel-lcnt, said “they” began swabbing well 5 about February- 1, 1950; that the initial flush production was thirty-seven barrels and that he did not know what the production was, “I could not get the records on it.” He further said:

“Q. You have testified that it was not completed and did not go on production? That is, until in May? A. That’s correct.

“Q. Are you still sure about that? A. It was not tested until May.

“Q. You are still sure that it was not completed until in May? A. It was not completed to produce until May.

* • * ⅜ * * *

“A. Well number five was completed — let me change that. Well number five was put on the swab sometime in late January, and the engineer — for some reasons known to themselves, they did not put a pump on it and called us for checking that well; and the pump was put on there — I believe it was March 6th.

* * ⅛ * * *

“Q. Was it produced two months? A. At the end of May it was not producing hardly any.

“Q. By that time you had filed your law suit to foreclose this mortgage hadn’t you? A. I do not have the date we filed the suit.

“Q. April 12th is when you filed the law suit? A. All right.

“Q. What was it producing at that time? A. I don’t know.

“Q. Is it true it was producing 38 barrels and that it continued producing that amount for several months? A. No.

“Q. Well, tell us when it fell off? A. The last was away off; by the end of May the whole lease was away off.

“Q. All of the wells? A. The whole lease- — -well five had dropped—

“Mr. Holloway: Did I understand you to say the lease had dropped off by the end of May? A. Yes.

“Q. Well, is it true the wells were not being operated and serviced properly? A. As far as I could find out— I didn’t know anyone taking care of the lease. I went down there in May and again early in June and Hickox was angry with Burns; he said Burns owed him money and that he had to put up his personal funds to get material, and he had a man by the name of McDonald who had not been paid.

“Q. Is a 38 barrel well a commercial producer? A. Not for sixty thousand dollars.

“Q. Is it a commercial producer? A. I would have to check it daily before I would operate it.”

.His further testimony was to the effect that it was his duty to determine whether appellant should advance funds on well 5, and that well 5 was not a commercial producer.

We attach no significance to what Pryor’s -duties were since the defense was to the effect that before the payment was to be made well S must be a commercial producer.

It does not appear that any time was fixed in which well 5 must have been completed. There are suggestions in the evidence of delays but there is no evidence that such ■delays were not reasonable. We think the question presented was simply whether the well was completed as a commercial producer. 10 Tex.Jur. Sec. 237, p. 413.

Appellant’s points 1, 2, 4 and 5 assert that the evidence in support of the contentions thereby made is undisputed. For this Court to sustain those points it would be necessary for us to say that such evidence is not at variance with the facts as testified to by other witnesses, the circumstances o-f the case and the reasonable inferences to be drawn from such other evidence and circumstances. Ironside v. Ironside, 188 Okl. 267, 108 P.2d 157, 134 A.L.R. 621.

The testimony of Mr. Rankin and Mr. Pryor, both Vice Presidents of appellant, cannot be said to be conclusive. They were interested witnesses and their credibility and the weight to be. given their testimony was for the trial court. Scott v. Gardner, 137 Tex. 628, 156 S.W.2d 513, 141 A.L.R. 50; Flack v. First Nat. Bank of Dalhart, 148 Tex. 495, 226 S.W.2d 623; Head v. Scurr, Tex.Civ.App., 8 S.W.2d 819, error dism. This rule is applicable to the testimony of interested lay witnesses and, also, to testimony given as the opinio;-: of experts. Nass v. Nass, Tex.Sup., 228 S.W.2d 130; Bridwell v. Bernard, Tex.Civ.App., 159 S.W.2d 981, error ref. w. o. m.; Guinn v. Coates, Tex.Civ.App., 67 S.W.2d 621.

Appellant’s point 3 cannot be sustained. The trial court resolved the weight and the credibility of evidence before him and from his estimate of the effect of such evidence he gave probative value to that favorable to appellee. This result reached by the trial court from all the evidence before him (that which was favorable as well as unfavorable to appellee) is controlling here. San Antonio Traction Co. v. Higdon, 58 Tex.Civ.App. 83, 123 S.W. 732, error ref.; Andrews v. Fuller, Tex.Civ.App., 186 S.W. 275.

Appellant says the measure of ap-pellee’s damage is in any event damages for the breach of a contract to lend money. We disagree with this view. Appellee’s cause of action is for compensation for the loss it sustained because of appellant’s refusal to perform the agreement. The alleged agreement placed appellant in the position of one who assumes the payment of a note and made appellant liable for the payment of the debt. 6 Tex.Jur. Sec. 109, p. 729; 13 Tex.Jur. Sec. 15, p. 84. Appel-lee is entitled to be placed in the position it would have been in if appellant had performed its promise, and is entitled to recover in damages the equivalent of its loss. 25 C.J.S., Damages, § 79, p. 585.

The agreement alleged by appellee was an original promise and was not within the statute of frauds. Waggoner v. Herring-Showers Lumber Co., 120 Tex. 605, 40 S.W.2d 1; Bank of Garvin v. Freeman, 107 Tex. 523, 181 S.W. 187; Goldstein v. Union Nat’l Bank, Tex.Civ.App., 216 S.W. 409.

Article 2226, Vernon’s Ann.Civ.Stat, provides:

“Any person having a valid claim against a person or corporation 'for personal services rendered, labor done, material furnished, overcharges on freight or express, lost or damaged freight or express or stock killed or injured, may present the same to such person or corporation or to any duly authorized agent thereof; and if, at the expiration of thirty (30) days thereafter, the claim has not been paid or satisfied, and he should finally obtain judgment for any amount thereof as presented for payment to such person or corporation, he may also recover, in addition to his claim and costs, a reasonable amount -as attorney’s fees, if represented by an attorney.”

Appellee’s claim was for services rendered and materials furnished to Mystic. These were not furnished to appellant. To allow appellee to recover the statutory attorney’s fee against appellant would require a liberal construction of the statute which is penal in nature and must be strictly construed. To claim the benefit of the statute appellee is required to bring himself strictly within its provisions. First Texas Prudential Ins. Co. v. Long, Tex.Com.App., 46 S.W.2d 297. It is our opinion that appellee has not brought itself within the terms of the statute, and that its recovery of an attorney’s fee against appellant cannot be sustained.

Appellant urged special exceptions to specific paragraphs of appellee’s pleadings on the grounds that such paragraphs were vague, indefinite, stated conclusions, and did not inform appellant of the charges made against it. The trial court heard the exceptions but withheld a ruling thereon until the conclusion of the trial and then overruled them.

No abuse of the discretion of the trial court or injury to appellant resulting from his ruling has been shown. The ruling should not be disturbed. Southern Underwriters v. Hodges, Tex.Civ.App., 141 S.W.2d 707, error ref. Further, we think an examination of appellee’s entire pleading and the record refutes any argument that injury resulted to appellant because of the ruling.

That portion of the trial court’s judgment awarding appellee a recovery of $1250 attorney’s fee and interest thereon is reversed and judgment is here rendered denying appellee recovery of attorney’s fees. In all other respects the judgment is affirmed.

Reversed and rendered in part and in part affirmed.