Schwarz v. Lee

287 S.W. 519, 1926 Tex. App. LEXIS 1219
Court of Appeals of Texas·Decided June 26, 1926·No. No. 11605. [fn*]·Published·Cited by 10 cases

Opinion

. CONNER, C. J.

The record discloses that, in the early months of the year 1922, Robert A. Lee, Charles Sherwin, and H. H. Schwarz executed and had recorded three several instruments called declarations ofl trust; to wit, one named General Lee Interests No. 1, dated January 3, 1922, another named General Lee Interests No. 2, dated February 9, 1922, and, finally, one named the General Lee Development Interests, dated April 12, 1922. The first was capitalized for $25,000, the second for $18,000, and the last for $250,000. The sole basis for the capitalization of the General Lee Interests Nos. 1 and 2 were contracts with the owner of lands to assign the same to Lee, Sherwin, and Schwarz as trustees, when paid for, but the record fails to show that such owner was ever paid the stipulated prices or ever made assignments, as contracted for.

The capitalization of the General Lee Development Interests, so far as we can gather *520 from the record, was based on a drilling contract acquired by Sherwin and Schwarz upon some 6,100 acres of-land near Roanoke, Denton county, Tex., the conditions of which were never fully performed.

Robert A. Lee was not an owner of any right in the property of the General Lee Development Interests and he had no pecuniary interest therein, except that o'f a mere employee who was to receive $50 per month as a drawing account and 10 per cent, of the .net profits. Under the terms of his employment, he was to permit the use of his name an all advertising matter and perform such other services as Sherwin and Schwarz should direct, but he was not given any final or absolute control, nor was he the owner or holder of any stock, this having all been issued to Sherwin and Schwarz in accord with an agreement those persons made with Lee and Sherwin and Schwarz, as trustees, the consideration being a transfer of the Denton county drilling contract to said trustees for the General Lee Development Interests.

We next find that, in the latter part of November, 1922, Robert A. Lee, for himself and as trustee of the General Lee Development Interests, joined by N. J. Cary, filed a bill in equity in the District Court of the United States for the Northern District of Texas., seeking an accounting by Sherwin’ and Schwarz and the appointment of a receiver of the properties of the Development Interests. The petition was filed in behalf of the stockholders in the Development Interests as well as the petitioners, and, at great length, complained of Sherwin and Schwarz for failure to drill wells so as to save leases from forfeiture, and of misapplication of money collected in sales of stock, etc. The charges of misconduct and fraud were denied by Sherwin and Schwarz in an-answer consisting of numerous exceptions and general and special denials. This suit in equity was dismissed, however, with'out a trial upon the merits, in consideration of an agreement and bond executed by and in behalf of Sherwin and Schwarz, which lies at the foundation of the action now before this court, as will hereinafter more fully appear.

The contract last mentioned recites the execution of the several declarations of 'trusts hereinbefore described, and that there 'were differences between Robert A. Lee, on 'the one hand, and Charles Sherwin and IT. H. Schwarz, on the other, and that it was thought to be to the interest of those parties and of the stockholders in said trust estates that an ' understanding and agreement be reached, and then it sets forth the terms of the agreement in some 16 separate paragraphs or sections. -In section 4 it was provided that Sherwin and Schwarz were to pay Lee $1,000 in full settlement of his claims and expenses pertaining alone to the General Lee Interests Nos. 1 and 2, and $75 to Lee’s attorney in the suit in equity. A further provision is that Lee was to be paid $25 a week out of the funds of the General Lee Development Interests for his services to that association and $50 per month to secure legal advice. There were other provisions relating to Lee, such as that he alone should first receive all letters addressed to him, sign all letters issued in his name, and other things to be done not thought to be material and which therefore will not be particularly noticed.

Section 16 of the contract reads as follows:

“It is further agreed and understood and provided herein that the «said H. H. Schwarz and Charles Sherwin shall at once enter into a good and sufficient bond, payable at Eort Worth, Tex., either with a surety company of with two or more good and sufficient sureties, payable to General Robert A. Lee, as one of the trustees of General Lee Development Interests, and all other stockholders, present and future, of the General Lee Development Interests, conditioned that said bond may be collected upon by the suit of General Robert A. Lee, or any other stockholder, for the benefit of ail stockholders or other parties at interest, when default is made in any of the conditions and terms of said bond; that said bond shall be payable at Eort Worth, Tex., and conditioned as follows:
“(a) The legal jurisdiction for payment of said bond shall be at Fort Worth, Tex.
“(b) Said bond shall be in the principal sum of $25,000.
“(c) Said principals shall be bound to drill and complete on or before December SI, 1924, at their own expense, eight wells for oil or gas to the depth of the known oil sands of the territory or immediately joining that which is being drilled.
“(d) The leases, on which said wells are to be drilled, Shall exist as long as oil or gas is produced in paying quantities, shall be procured at the expense of the principals herein out of the funds of the General Lee Development Interests, and shall thereafter belong to the General Lee Development Interests.
“(e) That the well now being drilled near Roanoke, in Denton county, Tex., shall be drilled and finished to a depth of 3,500 feet, unless oil or gas in paying quantities is discovered at a lesser depth.
“(f) Said bonds shall be approved by Robert A. Lee before it is binding under this contract.”

Concurrently with tbe execution of tbe agreement, the following bond was executed and approved by Lee, to wit:

“The State of Texas, County of Tarrant.

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