Ferguson v. Crawford

Hart, J. (after stating the facts) The undisputed facts are that all the parties to this suit were members of a voluntary unincorporated association known as the Caudle-English Oil Company, which owned an oil lease of 80 acres in the State of Oklahoma and also a set of drilling tools. On the 2nd day of July, 1915, by a written resolution duly spread upon the records of the association, J. A. Ferguson, George H. Pettigrew and T. L. Hart were elected trustees of the association with full power to take charge of and dispose of all the property of the association. They accepted and at once took charge of' the property of the association as trustees. In a short time Hart sold his interest to' Ferguson and did not take any further part in the affairs of the association. Ferguson and Pettigrew continued to act as trustees. This brings us to a consideration of their duties and responsibilities as such trustees to the members of the association. The officers of a voluntary unincorporated association are bound to act for the promotion of the common interest of all the members, and they are individually liable to their associates for a breach of trust in the conduct of the affairs of the society. 5 C. J., 1351, and Wrightington on Unincorporated Associations', § 44. Accordingly the dealings of a trustee with the trust property are narrowly scrutinized by courts of equity, and in particular it is an inflexible rule in equity that a trustee to sell for others cannot either, directly or indirectly, reap a profit for himself, but will be compelled to account therefor at the suit of the other members. McNeil v. Gates, 41 Ark. 264. The obligation of good faith on the part of the trustee towards the beneficiary and the rule that he cannot make a secret profit at the expense of his beneficiary is recognized by counsel for appellants, but he contends that it has no application under the facts presented by the record. The contention of counsel for appellants is that the trustees resigned nearly a year before they made the sale of their interest to Dr. Skelton, and for lb at reason owed no duties whatever to appellees and might act towards them as strangers. Until the relation was terminated by some unequivocal act on their part, the trustees were bound to act for the promotion of the common interest and could not secretly deal with the property of the association for their own benefit. Of course it is equally true that if they had resigned as trustees and had announced that fact to the other members, they would have been at liberty to deal with them as strangers and to have sold their interest without consultation with the other members and without their knowledge. Here is where the record shows a direct and irreconcilable conflict in the testimony. Jas. A. Ferguson, A. L. Ferguson, and Greorge A. Pettigrew were all witnesses for appellants. According to their testimony, Jas. A. Ferguson was over seventy-eight years of age and became very feeble in body. He worried a good deal over the affairs of the association and desired to sell its property in the early part of 1916. A. L. Ferguson went to Oklahoma with his father to help him sell the property. A compan}*- which had a nearby lease agreed to pay them $6,000 for the interest of all the members of the association. They advised the other members to accept the offer. The other members refused to accept the offer, and the trustees-thereupon notified them that they would no longer act as trustees for the association and would thereafter deal with their individual shares as they saw fit. The Fergusons and Pettigrew had acquired a ten-sixteenths interest in the property of the association at the time they sold to Skelton oh the 19th day of April, 1917. Their letters show and they admit that they tried after the sale to Skelton to purchase the interest of their associates at a less amount than offered by Skelton, but this they claimed they had a right to do because they were no longer acting in the capacity of trustees for the association and had a right to deal with the members as strangers. On the other hand, appellees, J. L. McConnell, -S. W. Caudle and Elza Davies each testified that he had never been asked to sell his interest on a basis of $12,500 for the whole lease, and that he would have done so if he had had such an opportunity. Each testified that he received a letter or other communication from the trustees after the sale by them to Skelton offering him a less amount for his interest; that he did not know, at the time, of the sale to Skelton. Each of them also testified that the trustees had never notified him that they had ceased to act as such. Dr. W. T. Gabbert, one of the appellees, testified that he was a member of the association, and that he had never had an opportunity to sell his interest in the association after the sale to Skelton, and that he would have sold his interest on a basis of $12,500 for the entire holding. He stated further that he was never informed by either of the Fergusons or George H. Pettigrew that they, or either of them, had ceased to act ¡as trustees. All the parties to this lawsuit seemed to have been friends as well as business associates in the beginning. There is nothing in the record tending to show that appellants formed the design of defrauding appellees out of their interest in the property of the association, but, by the well-established rule applicable to the duties and liabilities of trustees, all the profits made by them in dealing with the property of the association must inure to the benefit of the members, and the trustees must account therefor. Hence the decision must turn upon the point of whether appellants had ceased to act as trustees when the sale was made. As before stated, there is a direct conflict in the testimony between appellants and appellees as to whether the trustees had ceased to act as such at the time they sold their interest to Dr. Skelton in April, 1917. The chancellor found in favor of appellees on this point, and there is nothing in the record which would justify us in reversing that finding as being against the weight of the evidence. Under the settled rules of this court, findings of fact made by a chancellor are binding upon us on appeal unless they are against the clear preponderance of the evidence. Ferguson and Pettigrew, according to the findings of the chancellor, continued to be trustees of the association at the time they sold their interest to Skelton. Their contract with Skelton provided for the sale of the entire holding at $12,500. Hence, under the principles of equity above announced, they must account to their associates for the profits they would have made on tliis basis. Tliis, together with the sale of the personal property of the association, would have made appellants liable to appellees in the sum found due by the chancellor, and the decree against the trustees should be affirmed. It does'not follow, however, that there should be an affirmance of the decree against A. L. Ferguson. He was never a trustee of the association and never acted as such. He was the business’associate of his father, and on account of this and his filial affection, he tried to help his father sell the property of the association in 1916. The members of the association refused the offer which the trustees had received, and this ended the matter, in so far as A. L. Ferguson was concerned. It is true he participated in the sale to Dr. Skelton in April, 1917, but he was not a trustee and had a right to sell his own interest in the property. He had a right to deal with his own interest in the property as he saw fit and cannot be held accountable as trustee because he saw fit to do so. Upon the cross-appeal of appellees but little need be said. The trustees made a full and fair accounting of their dealings with the personal property of the association, and the finding of the chancellor on the accounting between the trustees and the other members of the association is correct. As above stated, there was no actual fraud on the part of the trustees. The whole transaction involved in this lawsuit resulted from a misunderstanding as to whether the trustees had ceased to act as such at the time they sold their interest to Dr. Skelton. We are of the opinion that the finding of the chancellor upon the accounting is correct, and do not deem it necessary to prolong this opinion! by setting out and discussing the various items of the account and our reasons for holding the account to be correct. No useful purpose could be served by such a course. The result of our views is that the decree against A. L. Ferguson must be reversed and the cause of action against him will be dismissed. The decree in favor of appellants against A. L. Ferguson, as executor of the estate of J. A. Ferguson, deceased, and George H. Pettigrew will be affirmed. It is so ordered.