Sautbine v. Keller

1966 OK 209, 423 P.2d 447

• Court: Supreme Court of Oklahoma
• Decided: October 25, 1966
• Docket: 40719
• Status: Published

Opinions

BERRY, Justice.

This appeal involves the correctness of the trial court’s judgment quieting the plaintiffs’ title to an undivided one-half mineral interest under 1240 acres of land in Dewey County, Oklahoma.. Originally separate actions were filed by three different plaintiffs but, since each involved the identical facts and issues, they were consolidated for hearing, determination and appeal.

Prior to the transactions culminating in this appeal, all the land involved was owned by one Ralls who, joined by his wife, had mortgaged the land to the Fidelity Land & Credit Company. This mortgage was assigned to the Federal Life Insurance Company, herein called “Federal”, one of the defendants in error in this appeal. On June 27, 1926, the Ralls conveyed the land to Lyn R. Sautbine, subject to Federal’s mortgage. By mineral deed recorded July 30, 1926, Sautbine conveyed an undivided one-half mineral interest to Willis G. Sautbine, Inc., which we shall refer to as the defendant. Thereafter Sautbine sold and conveyed the land to one Merrill, subject to the mortgage and excepting the prior mineral grant.

This defendant had been incorporated in Oklahoma on January 13, 1925, and was organized for the stated purpose, among others, of buying and acquiring oil and gas leases and engaging in development and production of oil, gas and other minerals. The incorporators were L. J. Milburn, C. D. Sautbine and Willis G. Sautbine, who owned 98% of the corporate stock. The in-corporators became the directors with Willis G. Sautbine as president and C. D. Saut-bine as secretary-treasurer. The corporation was active until' December 15, 1930, when the corporation charter was canceled for non-payment of license fees.

On May 26, 1927, Federal filed Case No. 2218 in Dewey County seeking foreclosure of the Ralls’ mortgage. The petition named Lyn R. Sautbine and Willis G. Sautbine individually as parties defendant, but the corporation was not mentioned at any point in the proceeding's. Summons issued and was served and returned against Willis G. Sautbine personally, and service by publication was had upon Lyn R. Sautbine. No service of process was sought or attempted against the corporate defendant. Upon advice of their attorney the Sautbines individually disclaimed any interest in the property under foreclosure.

The case culminated in a judgment foreclosing the mortgage and purportedly confirming the fee title in Federal. Pursuant to an order of sale in the foreclosure decree a sheriff’s sale was had, and on July 31, 1928, the trial court entered order confirming such sale. Thereafter a sheriff’s deed was executed to Federal, which was recorded August 13, 1928. Federal then conveyed by warranty deeds to Charles O. Oakes and Jesse M. Keller, who then reconveyed one-fourth of the mineral interest back to Federal. The plaintiffs in each of the mentioned actions derived their interests from Oakes and Keller and no issue was raised concerning plaintiffs’ ownership, other than the Sautbine mineral interest.

The petition deraigned plaintiff’s title as noted, and alleged the foreclosure proceedings canceled the mineral interest of the corporate defendant; that under the sheriff’s deed, based upon the foreclosure, plaintiffs had held open, notorious, continuous and exclusive possession of the land since August 10, 1938, and that their title was valid as against any claim by defendants, and asked judgment quieting their title.

By answer defendants Sautbine alleged matters above recited upon which their claim to the mineral interest was based; affirmatively alleged W. B. Sautbine, Inc. was not a party to the foreclosure action; denied plaintiffs’ claim of ownership of one-half the minerals by reason of mortgage foreclosure, or by adverse possession; asked that defendants be adjudged owners and to have title to their mineral interest quieted as against plaintiffs.

An amended petition was filed and Federal was brought into the case and placed upon notice to defend the warranty of title for benefit of plaintiffs. Plaintiffs also sued Federal for damages for breach of warranty but such issues are not involved herein. Federal then answered admitting matters asserted in the petition, pleaded its own ownership of one-fourth of the minerals and alleged any mineral interest claimed by the corporate defendant had been foreclosed and canceled in the foreclosure proceeding because: (1) the corporate defendant was the alter ego of Willis Sautbine as an individual and a conduit for his business affairs; (2) the defendant was merely Sautbine’s agent in the transaction; (3) the qualifying stock was held for his benefit and Sautbine was the sole owner of the corporation and acted as an agent in filing the disclaimer; the judgment rendered against Sautbine in the foreclosure suit was binding on the corporate defendant; (4) being the sole shareholder and corporate president, summons upon Sautbine was notice to the corporation and he also had personal knowledge which constituted notice to the corporation; (5) corporate defendant’s failure to assert any interest for a long period estopped corporation from claiming interest since plaintiffs had relied thereon; (6) defendant was guilty of laches for failure to assert its interest after notice; defendant was barred from claiming any interest because of plaintiffs’ adverse possession.

Plaintiffs’ reply and answer to defendants’ cross-petition asserted the above mentioned defenses against defendants, and also alleged Sautbine, individually, was the real party in interest in the foreclosure action, which judgment rendered against him personally likewise foreclosed the corporate defendant. Defendants replied denying that the corporate defendant was Saut-bine’s alter ego, or that laches or statute of limitations applied.

The issues were tried to the court, who took the matter under advisement upon briefs submitted by the parties. Thereafter the court entered judgment generally for plaintiffs, quieting their title to an entire fee simple estate in the land, except for the undivided one-fourth mineral interest originally retained by Federal. Motion for new trial was overruled and defendants perfected this appeal.

The trial court’s judgment, here presented for review, simply was a general finding for plaintiffs, quieting their title as against defendants’ claim of ownership of the undivided mineral interest. Being a general finding, the judgment does not disclose the theory upon which trial court predicated his conclusions. Examination of the record, including the trial court’s remarks during trial, reflects that plaintiffs principally relied upon the theory, advanced in the first instance by Federal, that the interests of Sautbine, individually, and the corporate defendant were so closely related that the defendant was only his alter ego. Thus defendant was precluded from asserting any interest in the land since his individual disclaimer filed in the foreclosure action must be considered as that of the corporation. Upon this basis plaintiffs argue that this is an equity case wherein the judgment cannot be disturbed unless against the clear weight of the evidence, and that there was competent evidence upon which to base the conclusion that defendant was Sautbine’s alter ego. Parenthetically, we note plaintiffs’ declaration that they do not rely upon the theory of estoppel by judgment as a bar, so that this matter requires no consideration.

Concededly, we adhere to the rule that a trial court’s judgment will not be reversed unless against the clear weight of the evidence. This rule, however, necessarily can apply only where it does not run counter to recognized principles of equity.

It is axiomatic that equity follows the law, and this maxim is as potent as the •clean hands doctrine. The maxim is strictly applied when the rights of the parties are •clearly defined and fixed by law. 30 C.J.S. Equity § 103. In Cantrell v. Marshall, 200 Okl. 573, 197 P.2d 990, syllabus 3 follows this principle:

“Where the rights of parties are clearly defined and established by law, equity has no power to change or unsettle those rights, but in all such instances the maxim ‘Equity follows the law’ is applicable.”

Although equity may be invoked to protect an existing right, it is unavailable to create a right where none exists. Welch v. Montgomery, 201 Okl. 289, 205 P.2d 288, 9 A.L.R.2d 294. Equity cannot be invoked when its aid becomes necessary through a party’s own fault, and hence cannot assist plaintiffs to escape from circumstances created by fault of their privies. Thus* where the rights of parties are clearly defined by law equity has no power to change or unsettle such rights. The rights of the parties in this action were fixed by law. Despite the claim the judgment is not against the clear weight of the evidence, the rights of the parties were fixed, and the trial court’s findings cannot stand against the equitable principles noted.

Plaintiffs acknowledge the general rule, expressed in Garrett v. Downing, 185 Okl. 77, 90 P.2d 636, that even a family corporation is a separate and distinct legal entity from its shareholders. Also see Butterick Co., Inc. v. Molen, 198 Okl. 92, 175 P.2d 311. However, they assert that this rule is qualified in certain types of cases to the extent that acts of an individual shareholder may become the act of the corporation, and the distinction between the corporation and the principal shareholder will be disregarded. Further, the doctrine of alter ego does not apply solely to instances where the corporate existence is used to do wrong, perpetrate fraud, or commit a crime. Rather this doctrine has been amplified to allow application not only for fraud or wrong, but also in cases where the facts require the court to disregard separate existence of the corporation and shareholders in order to protect rights of third persons and accomplish justice. Mid-Continent Life Ins. Co. v. Goforth, 193 Okl. 314, 143 P.2d 154; Buckner v. Dillard, 184 Okl. , 89 P.2d 326. Upon this premise plaintiffs enumerate several points, derived from their interpretation of the evidence, and insist such matters demonstrate the defendant corporation was a sham and a conduit through which Sautbine individually conducted investments in oil properties. Both the Goforth case, supra, and Wallace v. Tulsa Yellow Cab, etc., Co., 178 Okl. 15, 61 P.2d 645, are clearly distinguishable from the present case and not controlling.

Brief review of evidentiary matters reflects absence of any proper basis for application of the equitable doctrine herein. There was no evidence to support the conclusion the defendant corporation “either was organized or at any time acted to defraud anyone, or to enable Sautbine to evade or defeat any honest obligation. The presumed need for applying the equitable doctrine to protect third persons and “accomplish justice” is not persuasive. Plaintiffs failed to show they had any rights in the mineral interest or that it would further justice to vest them with such an interest, when neither they nor their grantor (Federal) ever had any muniment of title to the minerals involved.

There was no showing of inequitable or illegal conduct on Sautbine’s part. The corporate defendant came into being in 1925, more than a year before conveyance of the mineral interest by Lyn R. Sautbine, consideration for which came from corporate funds. The mineral deed had been a matter of public record a considerable time before Federal filed the foreclosure action. The trial court’s remarks indicated a belief that filing of the disclaimer was prompted by an inequitable motive. Plaintiffs’ argument infers Sautbine owed Federal, plaintiff in the foreclosure action, some duty of calling attention to the fact that record title to this mineral interest was vested in defendant. Federal was bound by the facts disclosed by the record. Hillers v. Local Fed. Savings & Loan Ass’n, 204 Okl. 615, 232 P.2d 626. So long as Sautbine did no affirmative act to mislead or deceive’ Federal he had no obligation to apprise them of a matter of record, which it was their own duty to ascertain. Bean v. Harris, 93 Okl. 10, 219 P. 300. To constitute estoppel by silence requires not only opportunity to speak, but also an obligation to speak. Sarkeys v. Russell, Okl., 309 P.2d 723. There is no sound reason for holding Sautbine’s filing of a disclaimer, upon advice of his attorney, should be deemed to have been the act of, and binding upon, the corporation. Neither Sautbine nor the corporation took any affirmative action that misled plaintiffs, and particularly Federal, into changing position to their detriment.

The second proposition advanced by plaintiffs in support of the judgment states:

“THERE WAS SUFFICIENT EVI- . DENCE FOR THE TRIAL COURT TO CONCLUDE THAT PLAINTIFFS IN ERROR WERE BARRED BY LACHES FROM ASSERTING AN INTEREST IN TPIE PROPERTY INVOLVED HEREIN.”

It is urged that because Sautbine, president of the corporation, was served in the foreclosure suit and had notice of an action which “affected” the mineral interest owned by the defendant, this constituted notice to defendants, in view of the facts in the case: (1) filing disclaimer; (2) assertion of no claim for approximately 30 years; (3) plaintiffs’ repeated sale of oil and gas leases. Upon these facts plaintiffs say defendants slept upon their rights and misled innocent purchasers for value, and thus assert that the doctrine of laches must be invoked in bar of defendants’ claim.

Numerous authorities are presented to the effect that an individual’s notice or knowledge of facts may be imputed to the corporation. These authorities are insufficient to support plaintiffs’ theory that the corporate defendant and the successors thereo, are precluded from claiming this mineral interest because Sautbine was a party to and cognizant of the foreclosure action. This argument must fail because predicated upon the invalid assumption that the foreclosure judgment affected the mineral interest of a record owner not made a party to that action. No notice or knowledge, absent fraud or wrongful conduct, acquired by Sautbine was sufficient to cure the failure to bring the corporate defendant into the action as a proper defendant, or to vest the trial court with jurisdiction to subject the corporation’s interest to the foreclosure judgment. The judgment which purportedly accomplished this was void upon its face as to the corporate defendant. This rule has been recognized and consistently applied by this Court. Deruy v. Noah, 199 Okl. 230, 185 P.2d 189; Noble v. Kahn, 206 Okl. 13, 240 P.2d 757, 35 A.L.R.2d 124; Viersen v. Boettcher, Okl., 387 P.2d 133. We are of the opinion the conclusion in Viersen, supra, resolved the issues therein raised contrary to plaintiffs’ arguments. In that case, in determining questions involving a similar fact situation, we said:

“It is well settled that when a real estate mortgage is foreclosed by action, and the owner of an interest in the property is not made a party defendant, the interest of such owner is not foreclosed. Rives v. Stanford, 188 Okl. 108, 106 P.2d 1101. The same rule is applicable where the separate interest consists of a severed mineral interest. Deruy v. Noah, 199 Okl. 230, 185 P.2d 189.

“Since defendants herein, claimants under the trustee’s sale, were not parties to subsequent mortgage foreclosure proceedings and sheriff’s sale, we hold that their severed mineral interest was not foreclosed thereby, and that plaintiffs herein, claimants under the sheriff’s sale, acquired no interest therein.”

Plaintiffs also contend there was sufficient evidence to support the finding that title to the severed minerals was acquired by adverse possession. Plaintiffs admit that possession of the surface does not constitute adverse possession against an owner of severed mineral interests. However, they argue this is not an unvarying rule and that the court could conclude that defendants were barred from asserting their interest under 12 O.S.1961, § 93(3). Upon the premise that notice to Sautbine was notice to the corporate defendant and because plaintiffs went into possession in 1928, they assert that prior cases involving prescriptive title to severed mineral interests under tax deed proceedings are analogous and should control.

Among numerous cases plaintiffs cite Fletcher v. Twyford, Okl., 267 P.2d 554, and Gooding v. Edwards, Okl., 290 P.2d 408. In the Edwards case we held that prescriptive title to severed minerals could be acquired by holding possession under a certificate tax deed adversely to the owner. Both above cited cases involved tax sale certificates. Since those cases were decided, we have held that tax sale certificates neither constitute a muniment of title, nor entitle the holder thereof to possession of the land. Allis-Chalmers Mfg. Co. v. George, Okl., 369 P.2d 625. And, it should be noted our holding in Edwards, supra, recently has been explained and expressly overruled in Walker v. Hoffman, Okl., 405 P.2d 57.

Other decisions cited in support of the claim that a prescriptive title can be acquired against an owner of severed minerals involved cases where possession was taken under resale tax deeds. In these cases a different situation appears. In these cases we held the resale tax deed vests an absolute, fee simple title in the holder, even as agaimt the owner of severed minerals, and possession thereunder for the prescribed period bars any claim by the prior mineral owner. Jenkins v. Fredericks, 208 Okl. 583, 257 P.2d 1058.

A claim of title based upon a resale tax deed is notice to the world that the owner in possession thereunder claims a new and absolute fee simple title. This is not true in the case of title derived from an execution sale based upon a mortgage foreclosure. A surface owner cannot acquire prescriptive title to severed minerals based solely upon occupancy of the surface. Deruy v. Noah, supra. The purchaser from one whose title has been acquired by judicial decree is chargeable with notice of all defects apparent upon the face of the record in the proceedings wherein such decree was rendered. Noble v. Kahn, 206 Okl. 13, 240 P.2d 757, 35 A.L.R.2d 119.

It is unnecessary to elaborate this discussion. The sale involved in this appeal was an execution sale. In Walden-Page Memorial Hospital v. Bentsen, Okl., 370 P.2d 5, syllabus 1 declares that a sale of real estate under an order of sale issued in a mortgage foreclosure is an execution sale, as to which 12 O.S.1961, § 93(1) applies. Thus section 93 (3) cannot be considered as the applicable statute of limitation.

The judgment of the trial court is reversed and the cause is remanded to the district court with directions" to vacate the judgment rendered, and to enter judgment quieting defendants’ title to the mineral interest involved.

HALLEY; C. J., and DAVISON, WILLIAMS, HODGES and LAVENDER, JJ., concur. JACKSON, V. C. J., and BLACKBIRD and IRWIN, JJ., dissent.