Walker-Lucas-Hudson Oil Company v. Hudson

Hart, J., (after stating the facts). It appears from the record that Hudson secured an oil and gas lease from J. R. McCaldin to 4.571 acres of land in proved territory in the El Dorado gas and oil field on the 15th day of April, 1921. On the same day Hudson entered into a written agreement with appellant and two other oil companies to transfer said oil and gas lease to them for the price he had agreed to pay McCaldin. Appellant was to receive a one-fourth interest in said oil and gas lease; and the two other corporations the remainder of it. Appellant was a corporation organized for the purpose of acquiring and operating oil and gas leases and Hudson was the treasurer and a director in said corporation. Upon the failure of appellant to pay the purchase price required of it 'by the terms of the contract, Hudson demanded that its interest in the lease should he transferred and assigned to him. This was done on the 30th day of April, 1921. This brings us to a consideration of the question of whether this contract was void or voidable. This court has held that while such contracts are only voidable, they are more closely scrutinized than ordinary contracts, and that the burden is upon those claiming under them to prove that they are made in good faith and fair to the corporation. Hence the burden was upon Hudson to show the fairness to the corporation of the transfer of the lease to him and the transfer is illegal only where it is unfair or fraudulent. Ward v. McPherson, 87 Ark. 521; American Mortgage Co. v. Williams, 103 Ark. 484; and Nedry v. Vale, 109 Ark. 584. In addition ¡to this, it may be stated that under the terms of the contract of April 15, 1921, Hudson became the trustee for appellant and the two other companies securing an interest in the lease on the 4.571 acres in the proved territory. In this connection it may be stated that this trust was put to an end, or at least repudiated, by the agreement of April 30, 1921, whereby Hudson, by a contract secured appellant’s interest in said lease. The present suit was not commenced until March 31, 1923, and it is the contention of Hudson that appellant is barred by laches. In this connection it may be stated that laches is not applicable against an express trust so long as the trust continues; but the repudiation of the trust entitles the complainants to immediate relief and opens the door to the defense of laches. Patterson v. Hewitt, 195 U. S. 309. The principle is recognized that time may become of the essence of a contract for the sale or lease of real property, not only by the express agreement of the parties, but from the very nature of the property itself. This principle is especially applicable where the property is of such a character that it will likely undergo sudden, frequent, or great fluctuations in value. In respect to mineral property of all kinds the parties interested must be vigilant and active in asserting their rights. Waterman v. Banks, 144 U. S. 395. There is no hard and fast rule as to what constitutes a reasonable time within which the interested parties must act after the facts come to their knowledge. Each case must be governed by its own circumstances, depending upon the situation of the parties, the extent of their knowledge, or means of information, great changes in values, the want of probable grounds for the imputation of intentional fraud, the absence of any reasonable hindrance to the assertion of the alleged rights and the like. Hammond v. Hopkins, 143 U. S. 224, and Hoyt v. Latham, 143 U. S. 553. It is well settled that when the question of laches is in issue the plaintiff is chargeable with such knowledge as he might have obtained upon inquiry, provided the facts already known to him were such as to put the duty of inquiry upon a man of ordinary intelligence. Johnston v. Standard Mining Co., 148 U. S. 360. In Twin-Lick Oil Company v. Marbury, 91 U. S. 587, it is said that the right of a corporation to avoid the sale of its property by reason of’the fiduciary relations of the purchaser must be exercised within a reasonable time after the facts connected therewith are made known, or can by due diligence be ascertained, and that the determination of what constitutes a reasonable time must be arrived at by a consideration of all the elements which affect that question. Aill of the cases above cited recognize that the time within which the interested parties must act in the case of mineral lodes and gas and oil leases is much shorter than ordinary cases, because in the development of such property, courage and energy are required, and the courts look with disfavor upon the claims of those who have lain idle while awaiting the results of such development. It has been repeatedly pointed out that mining property is subject to sudden and . enormous decreases as well as increases in value. Considerable amounts of money are necessary to develop such property, and those claiming an interest in it cannot sit by and say nothing if a. loss arises and at the same time assert their rights if the venture should prove to be a profitable one. This principle has been uniformly recognized and.applied by this court according to the facts of each case. Gibson v. Herriott, 55 Ark. 85; Norfleet v. Hampson, 137 Ark. 600; Stewart Oil Co. v. Bryant, 153 Ark. 432, and Cartier v. Hengstler, 166 Ark. 303. Tested by the rules above announced, we do ■ not think that appellant was entitled to recover on account of its delay in bringing the suit. It does not appear that Walker, Lucas or Williams had any money upon which to operate, and they were largely dependent upon Hudson for financial backing in promoting the business of the corporation. They were unable to sell stock in it by the mere ownership of leases in undeveloped territory. Hudson found out that the corporation might acquire an interest in 4.571 acres in proved territory. After consultation with his associates it was decided that Hudson should put up the money to acquire an interest in the lease and that the corporation should reimburse Mm. It was thought that this could be done by the proceeds of the sale of the stock. Their expectations in the'sale of the stock did not materialize, and the corporation was unable to make the payments required by the terms of the lease under which they acquired the one-fourth interest. Hudson was not willing to put up the money himself and let the corporation receive the gain, if any. Hence he demanded that the interest of the corporation in the lease be transferred to him. There is nothing to indicate fraud in this transaction. Hudson knew that the corporation had no assets except .the leases in proved territory and the small amount of money which he and another associate had put up. Under these circumstances it was natural that he should not he willing to put up the money and let the lease remain as an asset of the corporation. In other words, he desired that if he alone took the risk he should reap all the gain which might he derived from the venture. It is true that by the very terms of the contract itself he was a trustee for appellant. But, as we have already seen, the contract was not absolutely void, and his action in' requiring the corporation to assign the lease to him was at least a repudiation of the trust. His associates in the corporation waited for two years before asserting their rights in the premises. In the meantime Hudson had made a contract with the corporation whereby it was to drill a well for him, and he advanced it certain money to carry out this contract. After the well, became a producing one, Hudson accounted to the corporation for its share of the oil produced by the well. The chief stockholders of appellant were promoters of the corporation and associates of Hudson, and from the beginning they had knowledge of the successive steps taken by the corporation and by Hudson himself to find oil upon the land in question. Hudson expended considerable money in drilling’ the well, and it required much energy to carry on the enterprise. . ' His associates now claim that he dominated them in the matter, and that because of the lack of funds they had to, make a contract relinquishing the rights of the corporation in the lease on the proved territory to Hudson. Conceding this to be true, they should have acted promptly to assert their rights in the courts and have .sought to.have avoided the contract on the ground that it was procured by fraud or duress before Hudson had expended so much time, energy and money in developing the land. They have given no excuse whatever for their delay, and we think that it would be inequitable to allow them to maintain this action. With regard to the other stockholders the case is not so clear; but we think they too are guilty of laches under the circumstances. Most of them visited El Dorado near where the leased land was situated after they bought their stock in 1921. They saw Hudson and the other officers of the corporation and talked with them. The records of the corporation were open for their inspection. As soon as Hudson secured the contract whereby the corporation assigned its interest in the lease to him, he had the records of the corporation to reflect that fact. There was no concealment of any act by him. ¡When they discovered oil, he 'began to account for the royalties to the corporation and the stockholders in turn received their share of it; This course continued for a year or more before the present controversy arose and this suit was instituted. Under these circumstances the stockholders were put upon notice of facts, which, if pursued by them, would have led to complete knowledge of the whole transaction. This court is in accord with the Supreme Court of the United States in holding that whatever puts a party on inquiry amounts to notice where the inquiry becomes a duty and would lead to knowledge of the requisite facts by the exercise of ordinary diligence and understanding. Waller v. Danby, 145 Ark. 306. The result of our views is that the decree of the chancellor was correct, and it will therefore be affirmed.