Tennessee-Louisiana Oil Company v. Cain

400 S.W.2d 318, 24 Oil & Gas Rep. 159, 9 Tex. Sup. Ct. J. 205, 1966 Tex. LEXIS 281

• Court: Texas Supreme Court
• Decided: January 26, 1966
• Docket: A-10449
• Status: Published

Opinions

SMITH, Justice.

Tennessee-Louisiana Oil Company, hereinafter designated as plaintiff, filed this suit against Dixon Cain-, hereinafter referred to as defendant, for breach of fiduciary duty. Trial was to a jury, and judgment was entered on the verdict in favor of plaintiff against the defendant for $57,750.00. The Court of Civil Appeals re-versen and remanded the cause to the trial court for a new trial. 382 S.W.2d 794. We affirm the judgment of the Court of Civil Appeals.

Plaintiff alleges that on January 14, 1960, plaintiff and Tennessee Gas Transmission Company, on the one hand, and Fifteen Oil Company, of which Dixon Cain was President, on the other hand, entered into a “Plan of Reorganization” whereby Fifteen Oil Company agreed to transfer substantially all of its assets to plaintiff in exchange for 477,092 shares of .$5.00 par value common stock of the Tennessee Gas Transmission Company. The Plan of Reorganization was amended on March 24, 1960, and finally consummated, and all transfers were made in accordance with the Plan on May 15, 1960.

Plaintiff’s position throughout has been that the defendant, in consideration of the sum of $57,500.00 paid with its consent by Fifteen Oil Company, agreed that he would not be retained in the employ of plaintiff, but did agree to remain available in a retained advisory capacity. The written agreement executed on May 2, 1962, reads' as follows:

“With reference to the Plan of Reorganization entered into on January 14, 1960 and amended on March 24, 1960, between Fifteen Oil Company, Tennessee Gas Transmission Company and you, each of the undersigned (1) does hereby acknowledge receipt of payment by Fifteen Oil Company, as severance pay, of an amount equal to one and one-half (1½) times his current annual compensation; and (ii) does hereby agree that he will be available to you in a retained adyisory capacity for a period of six (6) months from and after May 2, 1960, in order that there will be no abrupt change in management and in order that you may avail yourself of his special knowledge concerning the affairs and properties of Fifteen Oil Company.”

The plaintiff contends that by virtue of the terms of this agreement, the defendant, during the six (6) month period provided in the agreement, was, in effect, the agent of plaintiff and “had as to the Tennessee Louisiana Oil Company the undivided duty of fidelity and loyalty which an agent owes to his principal and which an employee owes to his employer, and it was in order to attempt to insure that Mr. Cain would not use his special knowledge of the properties and affairs of Fifteen in violation of and contrary to the interests of the former Fifteen Company stockholders and the Tennessee-Louisiana Oil Company that the Tennessee-Louisiana Oil Company was willing to consent to the payment of this very large sum of money ¹ to Dixon H. Cain.”

The plaintiff further contends specifically that the defendant breached the duty of a fiduciary when he wrote a letter on October 19, 1960, to plaintiff and the Phillips Petroleum Company² demanding further development of the Martinez Lease, one of the properties included in the Plan of Reorganization and conveyed to plaintiff by Fifteen Oil Company. The letter was written by the defendant, in behalf of his father, J. W. Cain, an owner for many years of 25% of the minerals in and under the Martinez property. Copies of the letter were sent to other lessors interested in the Martinez Lease. In substance this letter reminded the plaintiff that a well had been drilled on the Callery Unit off-setting the Martinez Lease and that, under the terms of the Martinez Lease, the plaintiff was obligated to develop or reassign the lease.

It is the action of the defendant in writing this letter which the plaintiff contends violated the terms of the letter agreement of May 2, 1960, wherein the defendant agreed to hold himself available to the plaintiff “in a retained advisory capacity for a period of six (6) months from and after May 2, 1960, in order that there will be no abrupt change in management” and in order that the plaintiff “may avail yourself [itself] of his special knowledge concerning the affairs and properties of Fifteen Oil Company[Emphasis added.] The plaintiff makes the additional contention that the writing of this letter violated and was contrary to the representations and warranties contained in the “Plan of Reorganization” and a “Certificate” executed by Fifteen Oil Company on May 2, 1960. Although both instruments were executed by Fifteen Oil Company and the representations and warranties contained therein were those of Fifteen Oil Company, plaintiff alleged that the warranties contained in the “Plan of Reorganization” were the representations of Dixon H. Cain, the defendant.

The defendant Cain has taken the position from the inception of this case that the plaintiff’s acquisition of the Fifteen Company was after long drawn out arm’s length negotiations; that the record establishes as a matter of law that there was no fiduciary relationship between the plaintiff and defendant and that he breached no fiduciary obligation owing to plaintiff for the reason that under the undisputed evidence the defendant’s only duty to plaintiff was the contractual duty to remain available in an advisory capacity and that neither the writing of the letter nor any other act on his part constituted a breach of his duty to the plaintiff.

The record clearly reflects an arm’s length transaction. The evidence is undisputed that Dixon Cain was approached by Mr. Smallwood, a Dallas investment banker, in June, 1958, with an invitation to have dinner with two officers, Graham and Symonds, of the Tennessee Gas Transmission Company. The invitation was accepted and at the meeting Cain was told by Symonds that “Tennessee wanted Fifteen’s properties and * * * wanted me to work for them and would I present it to my Board of Directors. * * * ” In July or August, 1958, Cain did present this proposition to Fifteen’s Board, but it was turned down. Cain notified Graham by letter that their offer had been refused and asked Graham “if [Tennessee] was going to continue to be interested in [Fifteen] and continue to buy stock in [Fifteen]” in the face of the fact that Fifteen did not desire to sell to Tennessee. Graham assured him that they would not be interested in acquiring any other stock. However, Tennessee continued to acquire stock in Fifteen through Mr. Smallwood in Dallas so that, by July, 1959, Tennessee owned over 20'% of Fifteen (263,000 shares). Tennessee, by its letter to Smallwood in February, 1957, urged Smallwood to continue purchasing Fifteen common stock and assured Small-wood against loss in the event Tennessee later decided not to purchase the stock. Thereafter, Cain and other officers of Fifteen proceeded to negotiate with Tennessee through Graham and others as to the details of a sale of Fifteen to Tennessee, and the sale was consummated in May, 1960.

At the close of plaintiff’s evidence the defendant presented to the court a motion for an instructed verdict. The motion urged the court to instruct the jury to return a verdict in favor of the defendant, or in the alternative, to withdraw the case from the jury and to render judgment in his favor on the ground that there was no evidence of a fiduciary relationship between the plaintiff and defendant, and further, “[bjecause the evidence is without dispute that no part of the sum of $57,750 for which the plaintiff sues in this case came from the plaintiff to this defendant or that the giving of such sum to this defendant by Fifteen Oil Company cost the plaintiff in this case or its predecessors in interest any amount of money, and that by the giving of the same to this defendant Fifteen Oil Company and its Board of Directors discharged an obligation to this defendant which they in the exercise of their discretion as directors of said company felt this defendant to be entitled.”

The plaintiff, at the close of all of the evidence moved for an instructed verdict on the ground that:

“[a]s a matter of law, by virtue of the terms of the Plan of Reorganization of Fifteen Oil Company (hereinafter “Fifteen”) dated January 14, 1960 and the letter agreement of Tennessee and Dixon Cain dated May 2, 1960, Dixon Cain, for the period of six months following May 2, 1960, became an agent of, a consultant and adviser to Tennessee in order that there would be no abrupt change in management and in order that Tennessee might avail itself of his special knowledge of the business affairs and properties of Fifteen. Further, as a matter of law, by virtue of the relationship created thereby for such period of time, Dixon Cain owed Tennessee the fiduciary duty and loyalty which an agent owes the corporation.”

Both motions were overruled and the court submitted seven special issues to the jury. Those issues and the answers thereto read as follows:

“SPECIAL ISSUE NO. 1: Do you find from * * * the evidence that by virtue of the Plan of Reorganization of Fifteen Oil Company and the Letter Agreement of May 2, 1960, between Dixon Cain and Tennessee Louisiana Oil Company, Dixon Cain agreed to act for Tennessee Louisiana Oil Company to the extent of remaining available in a retained advisory capacity for a period of six months from and after May 2, 1960, in order that there would be no abrupt change in management and in order that Tennessee might avail itself of his special knowledge concerning the affairs and properties of Fifteen Oil Company?

“Answer: We do.

“SPECIAL ISSUE NO. 2: Do you find from * * * the evidence that during the six month period in which he had agreed to be available to Tennessee-Louisiana Oil Company in a retained advisory capacity with respect to the properties of Fifteen Oil Company, Dixon H. Cain took action in connection with one of such properties which action was adverse to and against the interest of Tennessee-Louisiana Oil Company and in said property?

“Answer: We do.

“SPECIAL ISSUE NO. 3: What sum of money, if any, would fairly and reasonably compensate Tennessee-Louisiana Oil Company for the damages, if any, which resulted from such action on the part of Dixon H. Cain, if any you have found ?

“Answer: $60,000.00.

“SPECIAL ISSUE NO. 4: From a preponderance of the evidence state the extent, if any, to which Dixon Cain benefited or profited from such action, if any you have found?

“Answer: $45,000.00.

“SPECIAL ISSUE NO. 5: Do you find from * * * the evidence that the sum of $57,750.00 was paid to defendant, Dixon H. Cain by Fifteen Oil Company ?

“Answer: We do.

“SPECIAL ISSUE NO. 6: Do you find from * * * the evidence that the release of the Martinez lease was proximately caused by the failure of the employees of Tennessee Louisiana Oil Company to proceed with the decision made to obtain an extension of such lease and a farm-out agreement?

“Answer: We do.

“SPECIAL ISSUE NO. 7: Do you find from * * * the evidence that the release of the Martinez lease was proximately caused by the failure of the executives of Tennessee Louisiana Oil Company to make any decision with respect to obtaining an extension of the lease, a farm-out agreement, or the drilling of a test well ?

“Answer: We do not.”

Plaintiff filed its motion for judgment based upon “the pleadings, the evidence, the findings of the jury to special issues numbers 1 through 4, individually and collectively, and the law applicable thereto,” In its motion for judgment, the plaintiff contended that the answers to special issues 5 and 6 were immaterial to every “cause of action asserted herein, and such findings afford no basis for an entry of any judgment for the defendant, they are of no force and effect and should be disregarded.”

Defendant’s motion for judgment alleged as grounds therefor the following:

* *

“(1) By its answer to Special Issue No. 6 submitted by the Court to the jury, the jury found that the release of the lease in question was proximately caused by the failure of the employees of Tennessee-Louisiana Oil Company to proceed with the decision made to obtain an extension of such lease and a farmout agreement; such failure is in no way attributable to this defendant and the jury has not in response to any special issue found that any damages sustained by the plaintiff or the release of the lease in question was occasioned by any action of this defendant.

“ * ⅝ ⅜

“(3) In the alternative, this defendant moves the Court to set aside and hold for naught the answer of the jury to Special Issue No. 1, in answer to which the jury found that this defendant had by virtue of this plan of reorganization of Fifteen Oil Company and the Letter Agreement of May 2, 1960 between Dixon Cain and Tennessee-Louisiana Oil Company, agreed to act for Tennessee-Louisiana Oil Company because the same is entirely unsupported by the evidence, and upon setting aside such answer of the jury to enter judgment herein in accordance with this defendant’s motion for instructed verdict filed at the close of the plaintiff’s case.

“WHEREFORE, premises considered, this defendant prays the Court to enter judgment herein that Tennessee-Louisiana Oil Company have and take nothing of and from this defendant, or, in the alternative, that the Court set aside the finding of the jury in response to Special Issue No. 1 and thereafter render judgment herein in favor of this defendant and that plaintiff take nothing against him, together with such other and further relief, both general and special, at law and in equity, to which he may show himself justly entitled.”

The Court granted plaintiff’s motion and overruled that of the defendant. Thereupon, judgment was entered in favor of plaintiff “against the defendant, Dixon H. Cain, in the amount of Fifty-seven Thousand Seven Hundred Fifty Dollars ($57,-750), with interest thereon at the legal rate from the date of entry of this judgment.”

On appeal to the Court of Civil Appeals the defendant presented points of error, which if sustained, would have required the Court of Civil Appeals to reverse the judgment of the trial court and render judgment that the plaintiff recover nothing against the defendant. However, the Court of Civil Appeals of the Twelfth Supreme Judicial District of Texas, at Tyler, to which Court the cause was transferred by this Court upon the equalization of the dockets of the several Courts of Civil Appeals, reversed the judgment of the trial court and remanded the cause to that court for a new trial.

The defendant’s three points in the Court of Civil Appeals attacked the judgment of the trial court upon the grounds that (1) the Court erred in submitting over timely and proper objection, issue No. 1, because such issue called upon the jury to determine issues of law rather than of fact, in that, it asked the jury to interpret the meaning of the documents mentioned in the special issue; (2) the only agreement between the defendant and the plaintiff was that the defendant was to remain in a retained advisory capacity, as stated in the letter agreement of May 2, 1960, and that there was no evidence that the defendant agreed to act for the plaintiff in any other capacity; and (3) “the Court erred in submitting to the jury, over timely and proper objection of the appellant, special issue No. 2, * * * to which the jury answered, ‘we do,’ because there is no evidence that appellant, Dixon H. Cain, took any position with respect to the property therein inquired about except to assert the position of his father for whom appellant acted as attorney in fact.”

The facts in this case are undisputed. There is no dispute concerning the signing of the various instruments mentioned in the submitted issues. When the writ of error was granted, this Court was of the tentative view that the trial court entered a proper judgment in this case, and that the Court of Civil Appeals erred, as asserted by the plaintiff in its application for the writ, “in reversing the judgment of the trial court because the evidence established conclusively and as a matter of law that the written instruments governing the relationship between the parties created a duty of loyalty on the part of Cain. The submission of special issue” Nó. 1 was thus immaterial and did not cause the rendition of an improper judgment.”

The defendant, in this Court, presents a counter point stating that:

“[t]he record establishes as a matter of law that there was no fiduciary relationship between respondent and petitioner and that respondent breached no fiduciary obligation owing to petitioner because under the undisputed evidence respondent’s only duty to petitioner was the contractual duty to remain available in an advisory capacity and respondent has in no way breached that duty. Therefore, petitioner cannot complain of the judgment of the Court of Civil Appeals because, if it had decided the issues here involved as a matter of law, it would have been compelled to reverse and render for the respondent.”

After a careful consideration of the record, including oral arguments and the briefs of the parties, we have concluded to sustain the defendant’s contention. A fiduciary relationship existed between the parties with respect to any transaction where information or advice was imparted or requested under the terms of the letter agreement, but Cain was under no duty to refrain from acting adversely to Tennessee’s interest in other and wholly unrelated matters. Admittedly, the defendant owed a duty to act within the framework of the agreement of May 2, 1960. We construe the retained advisory letter as having obligated the defendant to give the plaintiff information about Fifteen’s former business if and when asked by the plaintiff. The only evidence in the record that plaintiff requested advice is found in the testimony of the defendant. He testified that he was called on by some of the officials of the plaintiff for information in regard to Fifteen’s exploration operations in the Dominican Republic. In response to 'the request, the defendant went to the office of Mr. Cowan and Mr. Harvin and told them what he knew about the controversy between Fifteen and “some of the other parties to the operation.” It appears that this matter was in litigation. There is no contention that the defendant failed to fully give good faith disclosure of his knowledge of the problem.

Under the record, the defendant’s agreement to act in an advisory capacity cannot be extended so as to prohibit the defendant from engaging in other business enterprises, nor can it be enlarged upon to the extent of qualifying him as an agent for the plaintiff in its business operations after the merger of Fifteen with the plaintiff organization. Certainly, there is nothing in the advisory capacity letter which in any way obligates the defendant to advise the plaintiff of its legal obligations under the Martinez Lease. The defendant did not obligate himself to refrain from reminding the plaintiff of its legal obligation to his father and the other lessors of the Martinez 4000-acre lease. There is no language in the “Plan of Reorganization” or the “Certificate” executed by Fifteen which legally binds the defendant under the representations and warranties contained in the instruments. The representations and warranties in the instruments were those of Fifteen and not the defendant. Bogert on Trusts has vividly drawn the contrast between an ordinary contractual duty, and a fiduciary duty. Bogert says in regard to a situation such as this that:

“ * * * A fiduciary relation is one in which the law demands of one party an unusually high standard of ethical or moral conduct with reference to another. * * * The ethics of ordinary business relations, where parties oppose each other at arm’s length, do not apply to the trust. On account of the intimate nature of the relationship, the great control of the trustee over the property of the beneficiary, the origin of the institution in the court of equity and other reasons, the trustee is expected to show more than ordinary candor, consideration, and probity in his dealings with the beneficiary.” [Emphasis added.] Bogert, Trust and Trustees, § 1, at 3 (1951).

The plaintiff candidly admits that it has been unable to find a precise precedent in the sense of a case construing an agreement identical to the one here in issue. The plaintiff, however, cites, as analogous, such cases as Bradstreet Company v. Gill, 72 Tex. 115, 9 S.W. 753, 2 L.R.A. 405 (1888) ; Barnsdall Oil Company v. Willis, 152 F.2d 824 (5th Cir. 1946); Johnson v. Peckham, 132 Tex. 148, 120 S.W.2d 786, 120 A.L.R. 720 (1938); and Patterson v. Getz, 166 Or. 245, 111 P.2d 842, 846 (1941). A close reading of these cases convinces us that the facts in each support the rule announced.

However, these cases are readily distinguishable from the present case. The facts in each established a fiduciary relationship which had been breached. There are no facts in the present case which would authorize applying the rule announced in the cases relied upon by the plaintiff. We cannot agree that the defendant’s status was that of an agent, as defined by this Court in the case of Boyd v. Eikenberry, 132 Tex. 408, 122 S.W.2d 1045, 1047 (1939):

“[A]n agent is one who undertakes to transact some business, or to manage some affair for another, by the authority and on account of * * * it.”

The defendant agreed to act in an advisory capacity. The word “advisory” means: “counseling, suggesting, or advising, but not imperative or conclusive.” Black’s Law Dictionary (Fourth Edition). The verb “advise” means: “To give an opinion or counsel, or recommend a plan or course of action.” Black’s,, supra. The Webster’s New International Dictionary (Second Edition, 1961) defines “advisory” as “having or exercising power to advise; pertinent to or containing advice; acting under, or subj ect to, advice. * * * ” and “advise” as “to give advice to; to recommend (a course of action) to; to counsel; warn. * * * To give information or notice to; to apprise; inform. * * *” All of the evidence shows that the defendant acted in accordance with his agreement.

As heretofore stated, the Court of Civil Appeals reversed and remanded the cause to the trial court for trial generally, rather than reversing the judgment of the trial court and rendering judgment for the defendant. Since the defendant filed no application for writ of error, this Court is without jurisdiction to grant him any relief from the judgment of the Court of Civil Appeals. See Vanover v. Henwood, 138 Tex. 348, 150 S.W.2d 785 (1941); Calvert, Some Problems of Supreme Court Review, 21 Tex.Bar Jour. 75. Therefore, we have no alternative but to affirm the judgment of the Court of Civil Appeals. It is so ordered. All costs are adjudged against the plaintiff.

CALVERT, C. J., and GRIFFIN, GREENHILL and POPE, JJ., dissenting.

1 . The plaintiff’s consent to the payment of the sum of $57,500.00 as severance pay to the defendant is embodied in Article 15.1 of the Plan of Reorganization, reading as follows:

“15.1 Mfteen has indicated to Company that it will not be requested to offer employment to Messrs. Dixon H. Cain, John T. Lochridge, and Harry H. Hudson in the event that the exchange contemplated hereby is consummated, and that in the event of such consummation, these gentlemen will resign their respective positions with Fifteen immediately prior to the effectuation of the exchange and will receive ■ from Fifteen as severance pay, one and one-half times their current annual compensation, Tennessee consents to the payment of such severance payments to Messrs. Cain, Lochridge and Hudson from the cash on hand of Fifteen at Closing Date. In consideration of such severance payments to Messrs. Cain, Lochridge and Hudson, Fifteen obligates itself to obtain from them, letter of agreement directed to Company to be delivered to Company at Closing Date that they and each of them, will be available to Company in a retained advisory capacity for a period of six (6) months from and after the date of the exchange contemplated hereby in order that there will be no abrupt change in management and in order that Company may avail itself of their special knowledge concerning the affairs and properties of Fifteen.”

The severance pay was authorized by the Board of Directors of Fifteen Oil Company, and actually paid by Fifteen. The plaintiff paid $57,500.00 less for the properties of Fifteen.

2 . Phillips was a joint lessee of the Martinez Lease.