On Motion for Rehearing. The appellees insist that we erred in not holding as a matter of law that the oil and gas lease involved in this controversy was valid as against the minor appellants.
In the original briefs, the appellees insist that the rights of a surviving partner are practically the same as the rights of a community survivor with reference to disposing of property and winding up the affairs, and they cite numerous cases, amongst them Clemmons v. McDowell (Tex.Civ.App.) 5 S.W.2d 224; Id. (Tex.Com.App.) 12 S.W.2d 955. We still adhere to the rules announced in the Clemmons Case, but they have no application to the case before us as made by the appellants' pleading and evidence. Appellants have no quarrel with those cases holding that a community survivor or a surviving partner has the right to dispose of property to pay debts, but they do insist that neither would have the right to take possession of the property and continue the business for private gain to the exclusion of those entitled to have it distributed.
In the case of Spencer et al. v. Pettit et al., 17 S.W.2d 1102, affirmed by the Supreme Court, 34 S.W.2d 798, this court held that, upon the death of the wife, if the father takes possession of all the community property and carries on the business as it had been previously conducted before the death of his wife, buying other property, selling and exchanging the original property, executing notes, without ever accounting to his children for their interests inherited from their mother, he becomes a constructive trustee; that no burden rests upon the children to trace the community property into other property acquired by the father in his business transactions. The rule is further announced therein that it is the duty of the community survivor to wind up the affairs of the estate with reasonable dispatch, and a failure to do so renders him liable; that his vendees cannot under such circumstances defeat the claims of minor children upon the ground that they were bona fide purchasers of the property from the constructive trustee. The rules announced in that case apply with peculiar force to the instant case. C. L. Dial did not dispose of any property of any consequence nor take any action toward paying the debts of the estate until after eight months from the death of J. C. Dial. As surviving partner, he was trustee to wind up the affairs of the partnership within a reasonable *Page 182 time. After the expiration of a reasonable time, he became, according to the Spencer v. Pettit Case, a constructive trustee of the children's interest in the partnership property. The general rule is that the surviving partner can make no contract in the name of the old partnership. Neither can he execute any new notes or renew old ones. The lease under which appellees claim purports to be the act of Dial Bros., a firm composed of C. L. and J. C. Dial, by C. L. Dial. The lease recites that J. C. Dial is dead. This alone would prevent the appellees from claiming as bona fide purchasers, but, aside from this the record shows that they knew they were leasing lands, the property of a former partnership of which one member had been dead for more than eight months. They knew as a matter of law that there was no such firm as Dial Bros.
As said in White v. Tudor, 24 Tex. 639, 76 Am.Dec. 126:
"It is clear from the evidence, that the note sued on was executed by Ashworth, after the dissolution of the firm of S. A. White Co. The law seems to be clearly settled, that after the dissolution of a partnership, one of the partners cannot impose new obligations upon the firm, or vary the form or character of those already existing. (3 Kent's Com. 72.) It is also held, that one partner cannot, after the dissolution of the partnership, endorse a note in the name of the firm, even to pay a prior debt of the firm. (Humphries v. Chastain, 5 Ga. 166 [48 Am.Dec. 247].) It is also held, and may be regarded as settled, that a general authority to one partner, upon a dissolution, to settle the business of the firm, does not authorize him to give a note in the name of the firm, for a firm debt, or to renew one given before the dissolution."
In Lubbock Grain Coal Co. v. Ferguson (Tex.Civ.App.) 227 S.W. 539,541, it is said:
"It is settled in this state the general authority one party may have upon dissolution to settle the business of the firm does not authorize him to give a note in the firm name for pre-existing firm debts or to renew a partnership debt then existing" — citing numerous Texas cases.
The appellees knew that Dial Bros., as a firm, had been engaged in the cattle business, using the lands in question for grazing purposes. Upon the death of one member of the firm, it is extremely doubtful whether the surviving partner could execute an oil lease upon all of the pasture land; thus entering into a business altogether different and foreign to that of ranching. If he had authority to so deal with the lands belonging to the dissolved partnership, he might have taken the livestock, moved to some town, and gone into the livery stable business with the horses or started a dairy with the milk cows.
In Crawford v. Austin (Tex.Civ.App.) 293 S.W. 275, 279, it is said:
"As between themselves, neither partner has any power whatever to act for or bind the other after dissolution. This is elementary. And, as regards third persons, the dissolution works an absolute revocation of all implied authority in either of the partners to bind the others to new contracts or obligations, or to create a new cause binding the firm. * * * And this is true even where the consideration is the debt of the firm, and although the act is one which otherwise would have been within the scope of partnership business."
Instead of holding as a matter of law that the lease was valid as against the children, we strongly incline to the opinion that as a matter of law it is void and ineffective, even though it had been executed by C. L. Dial as surviving partner within a reasonable time. But whether he acted within a reasonable time is an issue of fact which the court should have submitted to the jury, and, in the absence of a finding upon that issue, this court would not be authorized to hold either way.
The fact that Mrs. Gertrude Dial joined in the execution of the lease adds nothing to its validity as against her children. Neither she nor the children had any voice in winding up the partnership affairs.
Before the lease can be held to be valid, it must further be shown that its execution was a necessary part of the winding up of the partnership business, and the burden would be upon C. L. Dial and those who claim under him to establish these facts, as we understand the rules announced in the Spencer v. Pettit Case, supra. To the same effect is Moody v. Butler, 63 Tex. 210; Roy v. Whitaker, 92 Tex. 346, 48 S.W. 892,49 S.W. 367; Waterman L. S. Co. v. Robins (Tex.Civ.App.)159 S.W. 360.
The appellees next insist that this court erred in refusing to hold as a matter of law that the deed involved in this controversy is a valid conveyance as against the appellants, because, as asserted, it was shown that there were numerous partnership debts still unpaid, many of which had not been renewed; that the partnership affairs had not been wound up when the deed was executed. It is not denied that C. L. Dial had the right to sell even the real estate belonging to the partnership for the purpose of paying partnership debts if this was done within a reasonable time, but appellants raise the issue that four years is not a reasonable time, and that his failure to act within such time renders him a constructive trustee. They further insist that the debts which it is claimed Dial sold the land to satisfy and pay off were not the debts of the old *Page 183 firm of Dial Bros., but were new debts contracted by C. L. Dial, his father W. H. Dial, and Gertrude Dial. He certainly would not have the right to sell partnership land to pay anything but valid partnership debts, so this was an issue which should have been submitted to the jury, and this court would have erred in holding as a matter of law either way with reference to the deed.
Appellees' contention is that there was no money to pay partnership debts, that the cattle belonging to the partnership had to be fed, and there was no money with which to buy feed, and further that to have sold the cattle would have resulted in sacrificing them. Each of these contentions is sharply contested, and neither this court nor the trial court has the right to pass upon them.
The appellees insist that these issues might have been pertinent if this suit were a suit between C. L. Dial as surviving partner and the heirs and legal representatives of the deceased partner for an accounting, but that such issue is wholly immaterial as between the minor plaintiffs and appellees. As heretofore said, the issue of bona fide purchaser is not in this case. The appellees knew that the land had been owned by the partnership which had been dissolved by the death of one of the partners. The record discloses further that they knew the deceased partner had died testate; that he left minor children surviving him. They therefore occupy no more favorable position than did the Spencers in the Pettit Case.
We do not assent to the statement that the uncontroverted evidence shows that C. L. Dial did, in fact, proceed with due diligence in winding up the affairs of the partnership up to the time of the execution of said lease, and the record does not sustain any such assertion. The same condition exists with reference to his use of diligence prior to the execution of the deed more than four years after the death of J. C. Dial. As stated in the original opinion, notwithstanding repeated assertions to the contrary in the motion, there is evidence tending to show that the partnership business was carried on for about four years after the death of J. C. Dial, and there is other evidence which tends to show that C. L. Dial, W. H. Dial, and Mrs. Gertrude A. Dial attempted to form a new partnership in the ranch business, using as the assets of the new firm the land and personal property of the original firm. This they would clearly have no authority to do. Several canceled notes were introduced in evidence which tended to prove that C. L. Dial had attempted to conduct the affairs of the original firm after the death of his brother.
With reference to all of these matters, the contentions are urged purely from the appellees' standpoint, and the motion does not fairly quote either the opinion of this court or the record in relation thereto.
The contention is, on the part of appellants, that the consideration for the lease and the deed is so inadequate as to amount to fraud, that the rights acquired under such instruments were worth several millions of dollars, and, if this contention is true, it certainly would materially affect the validity of appellees' title.
While there may not have been any testimony excluded which directly tended to show that C. L. Dial had not been diligent in executing the trust imposed upon him as surviving partner, the record is replete with evidence from which the jury might have concluded that he was negligent. He sold none of the cattle to amount to anything for several months, and it is a matter of common knowledge that there is a market for cattle every day in the year, and the same may be truthfully said of real estate and of grazing privileges. He seeks to justify his failure to dispose of the cattle because he claims they had the itch. His testimony upon this point is contradicted by a disinterested witness.
His further testimony is:
"I did not keep any books at that time relative to any sale that I was making and I did not keep any books relative to any expenditures — moneys being expended or disbursed by me at that time. I depended entirely upon my memory, so far as the status and condition of this business is concerned, and on the loans and through the bank. * * * After his (J. C. Dial's) death, I did not assume full control of all assets, cattle, land, and the conduct of the cattle business embracing the assets of the Dial partnership. W. H. Dial and Gertrude A. Dial had control in that connection. * * * I wouldn't have any means of refreshing my recollection as to what cattle I sold in 1919. I might have sold some cows or steers but I don't remember whether it was 1919 or 1920. I do not remember whether the cow and steer trade that I spoke of here with Roy Williams was in 1920 or 1921. * * * I kept no books of expenses for cake, men hired, grass lease and all the incidental expenses and I am unable to tell the Court and jury what was the average of the ranch expenses from year to year for those things. Some winters were worse than others and I don't know what the expenses were."
He was interrogated with reference to a great number of transactions evidenced by notes, mortgages, and other written data, and almost without exception his statement was that he did not remember and could not give any definite idea with reference to any of the transactions. On cross-examination he said:
"At the time I gave my depositions in this case I did not have the records before me that have been exhibited to me this morning. *Page 184 They are the only records that I know of existing. I turned them over to them about three years ago when they had this other settlement. Turned them over to Mrs. Gertrude Dial's attorneys."
It will be seen from the foregoing excerpts that he did not keep a set of books; that he made no entry in any book or other permanent record of either his expenses or of the sales or purchases of cattle; that he depended entirely upon his recollection and such data in the way of canceled notes and checks as came to him from the various banks with which he transacted business. The jury might have found that this was not such a degree of diligence which the volume of business and the amount of assets intrusted to him demanded that a man of reasonable prudence and business ability would have used. Such a finding would have been tantamount to a finding of negligence and a want of diligence on his part. Of course, if we accept the unsupported statement made in the motion that "the uncontradicted evidence shows" that, at the time the lease was executed, there were many outstanding, unpaid, and unrenewed debts owing by the firm of Dial Bros., there might be some merit in several of the contentions, but the uncontradicted evidence does not show any such thing. It does show notes, many of them executed long after the death of J. C. Dial. Whether these could be charged to the partnership was a sharply contested question.
The appellees attacked the holding of this court that "the testimony tends strongly to show that the children's interest in the land has not been properly safeguarded in the various transactions which it is claimed has resulted in divesting them of title." Having reviewed the record in connection with the motion, we say that it not only tends to show, but conclusively shows, that their interests have not been properly safeguarded. A judgment was entered in which they were not represented by a guardian ad litem or any one else whom a court of equity would recognize as a proper representative. Appellees insist that this statement "clearly reflects upon the ability and diligence, if not the good faith and integrity, of the mother of these children." Also upon their uncle and their grandfather, two district judges, a county judge, and two lawyers. The statement was not made with the intention of reflecting upon any one's honor or ability. It is sustained by the facts, and, if the facts make any such reflection, they will just have to reflect. We did not make the facts. This court has not charged, as counsel for movants well know, that any of the parties have been guilty of moral turpitude, and it is to be regretted when reputable lawyers, in an attempt to file a meritorious motion, must resort to such charges as we have just discussed. As we understand the law of this case, Mrs. Dial had no interest whatever when the Hutchinson county suit was filed, and yet she recovered one-half of the amount paid by appellees. No one has charged either her or her attorneys with moral turpitude in relation thereto. The most that can be said is, if we are correct, there has been a mistake of law as to the relative rights of the parties, for which appellees' counsel are partially responsible.
So far as the consideration for the deed is concerned, the recital of the consideration therein contained is sufficient to show that the land was not sold entirely for the payment of partnership debts. We have discussed this matter fully in the original opinion, and deem it unnecessary to go further into it.
Whether the firm indebtedness at the time of the death of J. C. Dial was $150,000, $100,000, or less, as is contended by appellant, is another sharply contested question which should be submitted to a jury, and we erred in stating in the original opinion that the partnership owed other debts amounting to the sum of $100,000 secured by mortgages on the cattle. Because C. L. Dial was negligent in not keeping a record of these transactions and a proper set of books, it is difficult to tell what the indebtedness was at the time of J. C. Dial's death. If, in acquiring the property or any interest therein, the appellees, as part of the consideration, paid, or assumed to pay, any debts not properly chargeable to the firm, then clearly there has been a failure of consideration to that extent, and the children's interest would not be affected thereby. It is true that C. L. Dial testified that all of the firm debts had not been paid, and he included amongst them a debt to himself in the sum of about $10,000 for cattle originally put into the partnership and his salary for his services in operating the ranch at the rate of $75 per month for a period of four years. The eighteenth proposition in appellants' original brief is that the trial court erred in allowing the witness C. L. Dial to testify, over the timely objections of appellants, that he had an agreement with his brother, J. C. Dial, that he was to draw $75 per month for running the ranch, and that his wife kept house and cooked for the men, and that he had never been paid therefor. We think, under R.S. art. 3716, this testimony was inadmissible. Rascoe v. Walker-Smith Co., 98 Tex. 565, 86 S.W. 728, 729; Lumpkin v. Montgomery (Tex.Civ.App.) 25 S.W. 661.
It is asserted in the motion that "C. L. Dial did not testify that he kept no books or accounts showing any of the transactions, either for or against the firm of Dial Brothers, That he trusted to his memory," We have quoted literally from his testimony above, in which he says that he did not keep *Page 185 any books and that he depended entirely upon his memory.
Another one of the several unfair and incorrect statements contained in the motion is that this court erred in holding that the minor plaintiffs had, under the terms of the will, a vested remainder. We made no such holding. There is not a syllable in the opinion which can be so construed. We held that under the terms of the will there was a contingent remainder. We further held that the will gave Mrs. Gertrude Dial no power to dispose of the corpus of the property. The express recital is that she is to control and manage the property. Power to manage and control does not authorize an executor to sell and convey. In addition to the case of Blanton v. Mayes, 58 Tex. 422, cited in the original opinion, the same rule is announced in Kennedy v. Pearson (Tex.Civ.App.) 109 S.W. 280; Wells v. Petree, 39 Tex. 429; Anderson v. Stockdale, 62 Tex. 54. This is also the rule in other jurisdictions. Thompson on Construction of Wills, § 591. The office of independent executor carries with it, and necessarily implies, power to sell and dispose of the devised estate, independent of any action by the probate court. It is difficult to understand how an executor who is at the same time a life tenant, with no power express or implied to sell or dispose of the property, can be an independent executor.
It is further contended that we erred in holding that, because C. L. Dial and his wife and Mrs. Gertrude A. Dial were joint warrantors in the lease and deed, and the fact that no partition was made between Mrs. Dial and her children, the district court of Hutchinson county was without jurisdiction to decree either the validity or invalidity of the deed or lease.
In its essence, the Hutchinson county suit was a proceeding in equity. In 21 C.J. 258, § 253, the rule is correctly stated as follows:
"It is a general rule of equity pleading that, all persons who are materially interested in the event of the suit or in the subject-matter, however numerous, should be made parties, either as plaintiffs or as defendants. This rule is everywhere recognized and it is stated in more or less similar terms in almost every case wherein the subject of parties in equity has been under discussion. In code practice the rule remains the same. The reason for the rule is found in the principle of public policy enforced in courts of equity that a decree should finally and completely determine the rights which all persons have in the subject-matter decided so that the parties may safely obey and act upon the decree and a multiplicity of suits or a circuity of proceedings may be avoided. To this end it is necessary to bring all the parties before the court as otherwise their interests will not be concluded, for as a general rule no binding decree can be rendered against a person who is not a party to the suit."
A further statement of the rule may be found on page 273, § 276, Id., and on page 280. In 9 C.J. 1225, § 126, the rule as it obtains in suits for cancellation and rescission is also stated. The rule in Texas is specifically stated in 47 C.J. 91, § 182, citing more than a dozen Texas cases. We find a further statement of the rule in 7 Tex.Jur. 972, §§ 54, 55, with numerous citations of authorities. See, also, 4 R.C.L. 517; Black on Rescission Cancellation, §§ 552, 639. 657; 1 Pomeroy's Eq. Jur. (4th Ed.) 114.
As we understand the issues in the Hutchinson county case and the effect of the holding in the authorities just referred to, C. L. Dial and his wife, as well as Mrs. Gertrude Dial, were necessary and indispensable parties, without which the judgment is not voidable but void. The fact that the judgment entered was by consent when the children were not represented by any one legally authorized to represent them merely emphasizes the invalidity of such judgment.
Movants say: "This court evidently inadvertently did not copy the judgment entry as it actually appears from the record. The part of the judgment entry referred to by the court as copied in the opinion of the court is as follows: `This day court is in session by consent of all the parties.' The judgment as it actually appears in the record reads as follows: `This day court in session by consent of all the parties, came on to be heard, etc.'" Reference to the record shows that the word "is" should not be in our quotation, but what difference does it make unless counsel desire to be extremely hypercritical. This court judicially knows that the consent judgment was not rendered at a regular term, because we must take judicial notice of the terms fixed by statute for holding district courts. The necessary inference is that the judgment was rendered at an agreed term, since it does not appear that the proceeding was had at a term specially called or during the extension of a regular term. Since the judgment was rendered by consent, and necessarily at a term held by consent of the parties, the rights of the children, who could not consent to the special proceeding, are in no way affected by such a judgment, if their mother's interest was adverse to theirs, and we think it was.
The movants say that this court in its opinion held that all of the orders and proceedings under authority of which Mrs. Dial Bled the Hutchinson county case were valid proceedings and still subsisting. We did not hold any such thing. What we did say was that the orders of a probate court made *Page 186 within the scope of its powers were presumptively valid, and could not be collaterally attacked, unless the record affirmatively showed that there had been an unauthorized exercise of jurisdiction in the particular case. We were of the opinion that the probate proceedings did not, upon their face, show a want of authority in Mrs. Dial to enter into the consent judgment, but we have again reviewed the record, and we find that, in the application in which she asked for permission to enter into a compromise judgment, she asserts that she owns a one-half interest of the money to be realized through the consent judgment. As heretofore stated, we think she had disposed of all her interest before this judgment was ever entered, and, when it appeared to the probate court that she was claiming a half interest in what might be obtained through the compromise, her adverse interest then appeared, and the court should not have authorized her to make the settlement. We therefore reform the original opinion to the extent of holding that the application and all of the orders made in pursuance thereof show the invalidity of the whole proceedings upon its face. Since the proceedings upon their face are void, the judgment of the district court based thereon is for such further reason void.
Movants further say that, because we have held that the trial court should on another trial instruct the jury that neither the lease, the deed, nor the judgment was binding as against the minor plaintiffs, then this court should either reverse and render the cause or direct the trial court to instruct a verdict for the minor plaintiffs on another trial if the same evidence developed. If the evidence upon another trial with reference to the lease, deed, and judgment is the same as is now reflected by the record, we think the court should instruct the jury that they are invalid. We do not know whether the case has been fully developed or not, but, if the records showed that it had, and the testimony was uncontradicted, as to the extent of the children's recovery in land, royalties, etc., we would not hesitate to reverse and render it here, but, in the condition in which the record reaches us, we are not authorized to do so. As held in the case of Spencer v. Pettit, supra, the burden is upon C. L. Dial and those claiming under him to make a full and fair disclosure of the condition of the estate and the partnership business while under his management and control. It would appear from the record that he was a constructive trustee, and, since the matters inquired about are peculiarly and solely within his knowledge, the appellants had the right to lead him while he was on the witness stand.
We find no other ground in the motion which has not heretofore been fully discussed, and it is overruled.
The appellants have filed a motion calling our attention to some inadvertent statements with reference to the record and requesting further findings in some particulars, and in response to the motion we have corrected our former statements and passed upon the matters requested in what has been heretofore said. In all other matters both motions are overruled.
On Second Motions For Rehearing. By permission of the court, the appellees have filed a supplemental motion for rehearing, which has been duly considered, and is in all things overruled.
Permission has been given the appellants also to file a second motion for rehearing. In this motion it is contended that we erred in not holding that C. L. Dial as surviving partner had no power to execute a valid oil and gas lease covering the lands belonging to the partnership prior to the death of J. C. Dial, and insisting that the trial court committed fundamental error in not holding that the surviving partner, C. L. Dial, had no right or power, as a matter of law, to execute the particular oil and gas lease involved in this controversy and that the purported lease is not binding upon the interest of the minor appellants in the lands involved.
It is agreed that the lands formerly belonging to the partnership of Dial Bros. devoted to ranching purposes are the lands involved in this suit. The lease which was executed contains the following recitals:
"That the said lessor, for and in consideration of the sum of ten dollars cash in hand paid, receipt, of which is hereby acknowledged, and of the covenants and agreements hereinafter contained on the part of the lessee to be paid, kept and performed, has granted, demised, leased and let, and by these presents does demise, lease and let unto the said lessee, for the sole and only purpose of mining and operating for oil and gas, and laying pipe lines, and building tanks, power stations and structures thereon, to produce, save and take care of said products, all that certain tract, of land situated in the County of Hutchinson, State of Texas, described as follows, to-wit: [Here follows description of land as described in plain tiffs' petition, aggregating 11,044 acres.]
"It is agreed that this lease shall remain in force for a term of five years from this date and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee.
"In consideration of the premises the said lessee covenants and agrees:
"1st. To deliver to the credit of the lessor, free of cost in the pipe lines to which he may connect his wells, the equal one-eighth part of all oil produced and saved from the leased premises. *Page 187
"2nd. To pay to the lessor one-eighth of gas for the gas from each well where gas only is found and marketed, while the same is being used off the premises, and lessor shall have gas free of cost from any such well for all stoves and inside lights in the principal dwelling house on said land during said time by making his own connections with the well at his risk and expense.
"3rd. To pay lessor for gas produced from any well and used off the premises at the rate of _______ dollars per year, for the time during which time such gas shall be used, said payments to be made each three months in advance.
"If no well be commenced on said land, or other lands leased by the lessee in this prospective oil field, on or before the 30th day of November, 1920, and finished on or before the 30th day of November, 1921, this lease shall terminate as to both parties unless the lessee, or or before six months from this date shall pay to the lessor, or to his credit in the National Bank of Commerce at Amarillo, Texas, or its successors, the sum of $2761.00, which bank shall continue as the depository regardless of change in ownership of said land, which shall operate as a rental to cover the privilege of the commencement of a well for twelve months from this date. In like manner and upon like payments or tenders the commencement of a well may be further deferred for like periods of same number of months successively. And it is understood and agreed that the first consideration recited herein, the down payment, covers not only the privilege granted to the date when said first rental is payable as aforesaid, but also the lessee's option of extending that period as aforesaid, and any and all other rights conferred.
"Should the first well drilled on the above described land be a dry hole, then, and in that event, if a second well is not commenced on said land within twelve months from the expiration of the last rental period for which rental has been paid this lease shall terminate as to both parties, unless the lessee on or before the expiration of said twelve months shall resume the payment of rentals in the same amount and in the manner as hereinbefore provided, and it is agreed that upon the resumption of the payments of rentals as above provided that the last preceding paragraph hereof governing the payment of rentals and the effect thereof, shall continue in force as though there had been no interruption in the rental payments.
"If said lessor owns a less interest in the above described land than the entire and undivided fee simple estate therein, then the royalties and rentals herein provided shall be paid the lessor only in the proportion which his interest bears to the whole and undivided fee."
The contention of appellants with reference to the lease is that, even if it had been made by one authorized to execute it, it is not a sale of the real estate or of any interest therein in the sense that a surviving partner is authorized by law to sell real estate. That a surviving partner has the right, and, indeed, it is his duty, to convert the assets of the firm, including real estate, into cash for the payment of debts and wind up its affairs, has heretofore been discussed and is settled by the authorities. 2 Rowley, Modern Law of Partnership, 837, § 626, 849, § 631. The rule is equally well settled that the surviving partner cannot sell real estate except when necessary to pay the debts of the dissolved firm or in settlement of partnership affairs. The law contemplates that all sales of the assets of the dissolved firm by a surviving partner, as well as other sales made by trustees, shall be made for cash. The surviving partner is, by construction of law, a trustee holding the assets of the firm in trust for the purpose of paying firm debts and settling and winding up the partnership affairs.
It is said in 1 Perry on Trusts, § 221:
"In order that one may claim protection as a bona fide purchaser, the money must have been actually paid and the conveyance taken before notice is received of the trust. If the money is secured but not paid, notice of the trust will convert the purchaser into a trustee and so if the money is paid but the conveyance is not executed, the weight of authority is that notice of the trust will destroy the protection of the purchaser."
This is especially true with reference to constructive trustees. It is contended that the appellees paid no consideration for the lease at the time of its execution; that, unless there is a necessity to sell for the payment of debts, the surviving partner is not authorized to sell firm lands; that, if he needs money to pay firm debts, he cannot sell on credit or for deferred payments, even if the deferred payments are rendered secure and certain. It must be admitted that the lease, according to the stipulations above set out, is an "unless lease." In an "unless lease" the real consideration is exploration and development of the leasehold for oil, gas, and other minerals. In Texas Co. v. Davis,113 Tex. 321, 254 S.W. 304, 306, 255 S.W. 601, the Supreme Court said:
"The grant was plainly for the purpose of securing a test of the land [for oil and gas], which, if successful, was to result in the mining and marketing of valuable minerals, for the joint profit of grantors and grantee, their heirs or assigns."
Also: "The vital consideration for the grant was royalties on mineral production."
And: "Testing was merely preliminary to *Page 188 production, which was the real aim and end of all parties."
It will be observed that appellees, under the lease, had the option of either drilling at any time within five years or the payment of the annual rentals or abandoning the lease. Under an "unless lease," the lessee is neither bound to drill a well nor pay the rentals, and C. L. Dial, as lessor, could not compel the appellees, during the five years, to drill a well, nor could he compel them to pay the annual rentals in the event of their failure to drill, because they had a right to abandon the lease. The $10 paid at the time of the execution of the lease is the only sum which could really be called a consideration aside from development and testing. The annual payment of 25 cents per acre per year cannot be held to be a consideration for the lease, but, as expressed in the lease, it was the consideration, the payment of which enabled the lessee to postpone drilling from year to year during the primary term of five years, and, as stated in the lease, "shall operate as a rental to cover the privilege of [deferring] the commencement of a well for twelve months from this day," and further states, "the first consideration recited herein, the down payment, covers not only the privilege granted to the date when said first rental is payable as aforesaid, but also the lessee's option of extending that period as aforesaid and any and all other rights conferred." Since the lease specifically states the purpose and intent of the parties in the annual payment of $2,761, we are not authorized to construe such payment as any part of the real consideration for the instrument. Under its terms, the appellees, as lessees, could, at their option, by paying annually 25 cents per acre, postpone development for five years, and then refuse to drill and let the lease lapse. If it should be held that C. L. Dial was a constructive trustee under the rules announced in the Spencer v. Pettit Case, then the lease as to the minor appellants herein is an absolute nullity. If the tendency or the effect of such an instrument, executed under such circumstances, is to perpetrate a wrong upon the appellants, equity will condemn the transaction without regard to what has been done by the lessee.
As said in 13 C.J. 415, § 348:
"Contracts, the object or tendency of which is to constitute a fraud or breach of trust or breach of duty on the part of one who stands in a fiduciary or confidential relation, are illegal and void as constituting or tending to constitute a fraud on third persons. While it is often said that such agreements are against public policy because it is the policy of the law to secure fidelity in the discharge of their duties by all persons holding such positions of trust and confidence, yet it is more accurate to say that such agreements tending to cause unfaithful conduct by fiduciaries are illegal because they are, in effect, agreements to wrong or defraud the persons whose interests the fiduciaries have in charge."
As we construe the contract, the $10 down payment which C. L. Dial says he received when the lease was executed was the only cash consideration ever paid. The remainder of the consideration was the anticipated royalties to be received if the lessees decided to drill. Since, under the terms of the lease, they were not bound to drill, the tendency of the contract was to deprive the children of their prospective interest in royalties pending the option of appellees for five years, with the possibility of a forfeiture of the lease at the end of that period. The 25 cents per acre being paid for the privilege of postponing development, not being a part of the consideration, according to the express terms of the instrument, does not, in our opinion, add anything to the validity of the instrument.
After a careful consideration of the lease and its terms, we have concluded that it is utterly void in so far as it affects the rights of the minor plaintiffs, and, because it was executed without adequate consideration by one who may be held a constructive trustee. It conveyed none of the interest of the minor appellants to the appellees. Thus Texas Oil Gas, pp. 66, 67, §§ 44, 45; Stephenson v. Stitz (Tex.Civ.App.) 235 S.W. 271; Summers Oil Gas, 346, § 109, 339 § 107; Weiss v. Claborn (Tex.Civ.App.) 219 S.W. 884, 885; Ford v. Cochran (Tex.Civ.App.) 223 S.W. 1041; Texas Co. v. Curry (Tex.Civ.App.)229 S.W. 643; Robinson v. Jacobs, 113 Tex. 231, 254 S.W. 309; Caruthers v. Leonard (Tex.Com.App.) 254 S.W. 779.
From the above authorities and a consideration of the lease, we have concluded that C. L. Dial, as surviving partner, had no authority to execute the lease in question, and that it is ineffective to convey any interest of the minor appellants in the land involved in this suit. To this extent, appellants' second motion for rehearing is sustained.
On Appellees' Second Supplemental Motion for Rehearing. The appellees have filed still another motion for rehearing, and we find it necessary to consider only the first ground, in which it is insisted that we erred in finding that the only cash consideration paid C. L. Dial, the surviving partner, for the oil and gas lease, was $10, and that the real consideration for said lease was the agreement to explore and develop the leasehold estate, The appellees assert that this finding is contrary to the uncontradicted evidence, which shows that a cash *Page 189 consideration of $2,751 was paid by the lessee for said lease.
The $2,751, which is, in fact, 25 cents an acre per annum, is, according to the terms of the contract, the consideration paid by the lessees for the privilege of deferring the sinking of a well for each twelve months, and the written contract so provides. It is true that with reference to thus sum C. L. Dial testified:
"Mr. Durham (the original lessee) paid $2,750.00 a year for that lease. That is, 25¢ an acre. Maybe it was $2,751.00 instead of $2,750.00. He paid that original consideration at the time we first gave him the lease. * * * That lease provides for the payment of 25¢ an acre as rental each year and the rental was paid a year from the time the lease was executed and they gave us credit for it here in the bank — gave Dial Brothers credit for it in the bank. The rental was paid at the end of the second year, but at the end of the third year it (the land) was sold, I think. This 25¢ an acre that I received on the rental was applied on our notes and they gave us credit for it, that is, gave Dial Brothers credit on our note. They may have paid the rental for three years, 1919, 20 and 21. They paid it every time it was due."
It will be seen that Dial says that the $2,750 was part of the original consideration, but that is merely his opinion. The construction of the contract, where no mistake is alleged or shown, is the prerogative of the court and not the witness.
The other contentions contained in the motion are overruled.