Paine v. Smith

114 Cal.App.2d 767 (1952) 251 P.2d 18 CHARLES F. PAINE et al., Plaintiffs and Appellants,

v.

EVERETT O. SMITH et al., Defendants and Appellants.

Docket No. 19259. Court of Appeals of California, Second District, Division One.

December 17, 1952. Andrew J. Copp, Jr., and H. Dexter McKay for Plaintiffs and Appellants.

Roy C. Kaiser for Defendants and Appellants.

DRAPEAU, J.

The parties to this action entered into a written agreement whereby defendants, parties of the first part in the agreement, conveyed to plaintiffs, parties of the [768] second part, 10 per cent from the net recovery of oil from producing wells on property in which defendants owned a leasehold interest, 33 1/3 per cent of the net recovery from the first new well drilled on said property, and 2 per cent from all additional wells drilled thereon.

As consideration for this conveyance plaintiffs granted (in the same writing) to defendants improved real property in the city of Los Angeles.

The trial court found that the agreement as it applied to defendants was a conveyance of a security as defined in section 25008 of the Corporations Code; that it had been issued without the permit by the Commissioner of Corporations required by law, and was therefore void and valueless; that the deed of the real property from plaintiffs to defendants had therefore been secured by fraud, to the damage of plaintiffs in the sum of $12,000.

Defendants appeal from the judgment which followed the findings, upon the ground that the agreement was not a security as defined by our Corporations Code.

Plaintiffs appeal from that part of the judgment which does not include the wives of defendants, Everett O. Smith and J.E. Mitchell.

[1] Defendants' appeal may be summarily disposed of: "It is settled that the transfer of a landowner's royalty interest (in oil) is the transfer of a security." (Morello v. Metzenbaum, 25 Cal.2d 494 [154 P.2d 670]; and see cases there cited.)