author: BRADY, Commissioner.

text:
    W. CRAWFORD SMITH, INC., d/b/a Smith Funeral Home, Plaintiff-Respondent, v. Lloyd A. WATKINS, James McCauley, Susan McCauley and Wendell Carl Carson, Defendants, Lloyd A. Watkins, Defendant-Appellant, James McCauley, Susan McCauley and Wendell Carl Carson, Defendants-Respondents.
    No. 32769.
    St. Louis Court of Appeals. Missouri.
    Jan. 16, 1968.
    Rehearing Denied Feb. 20, 1968.

      Harold W. Barrick, New London, for defendant-appellant.
    Carstarphen, Harvey & Wasinger, Hannibal, for plaintiff-respondent.
   BRADY, Commissioner.

The issue in this case is whether there was sufficient evidence upon which the jury could have found a novation releasing the defendant Watkins from liability to plaintiff. The trial court held the evidence was insufficient and directed a verdict in favor of plaintiff against Watkins. It also directed verdicts in favor of the defendants McCauley and sustained a motion to dismiss as to Carson.

Plaintiff brought this action to recover the amount of $1,715.60 due it as a result of goods sold and services rendered in connection with the funeral of Lucille Watkins, defendant Watkins’ wife. Named as other defendants were the deceased’s daughter and son-in-law, Susan and James McCauley, and Wendell Carson, deceased’s son. Defendant Watkins’ answer alleged an agreement between himself and James McCauley whereby the latter was to pay for the items and services for which plaintiff sought recovery; plaintiff accepted this agreement; James McCauley executed an acknowledgment of his indebtedness to plaintiff and issued his check payable to plaintiff for such goods and services; plaintiff accepted the check in payment thereof; and that, as a result, the defendant Watkins was not indebted to plaintiff. It requires no citation of authority to substantiate our duty to review the evidence in the light most favorable to the defendant Watkins, giving him the benefit of all favorable inferences to be reasonably drawn therefrom.

Mrs. Watkins died on February 18, 1966. Mr. Watkins, with other relatives, went to plaintiff’s place of business and selected the goods and arranged for the services that constitute the basis of plaintiff’s claim. Mr. Smith, an employee of plaintiff, testified Watkins told him the day before the funeral “ * * * the children were going to pay the bill. That all insurance was payable to them and all the money went to them, and they were to pay the bill, and I told Mr. Watkins that it would be up to him to make those arrangements with them, and he said ‘they will be here very shortly and we will go into the office and they will take care of it.’ ” On that same day all the parties were present in plaintiff’s office and plaintiff presented an itemized list of the goods and services that made up its bill. This bill had a place upon it for the signature of the one approving the bill and any others who may approve it. The following appears thereon: “Approved by /s/ James McCauley”. There is no dispute as to McCauley signing such a statement. There is a place below the signature for an address which was left blank, and immediately following that the statement reads: “Others Approving Above” and there are signature lines provided. No other signature appears thereon. Mr. Watkins was not asked to sign the statement although he and all the other parties were present. On the day of the funeral a check in the amount of $1,684.00 was delivered to plaintiff by James McCauley. This amount was for payment in full less a discount awarded. A receipted copy of the bill was delivered to James McCauley. In the evening of that same day McCauley called one of plaintiff’s officers and informed him he was stopping payment on the check. The next day plaintiff inquired of its attorney as to what action it should take and on this same day the check was returned to it from the bank. On February 23rd, two days later, McCauley wrote a letter to Mr. Watkins’ attorney in which he said: “Dear Sir: Lloyd & I had an arrangement where by I would pay funeral expenses occurred at Smith Funeral Home. Due to his action in connection with Mrs. Watkins personal effects & furniture, I have been advised not to pay any portion of this. The bill is $1715.00. This is more than the material value of the effects & furniture. If he will allow Susan to have these effects as Mrs. Watkins wished, I will pay funeral expenses. Approach him with this matter & if things can be worked out, let us know. James McCauley, Box 47, High Ridge, Mo.” In the meantime plaintiff’s officers had had several conversations with Mr. Watkins about this matter stating that if it was not paid by McCauley they were looking to him for payment. On March 3rd plaintiff wrote to Mr. Watkins stating: “ * * * Today we wrote a letter to your son-in-law asking for payment of the funeral expenses of Mrs. Lucille Watkins by March 20, 1966, which is the date the account is due and payable. We also informed him we would not enter into any personal matters connected with the family. We also told him that if he did not agree and make payment of this account that he must get together with you and inform us as to when it would be paid. Lloyd, we are hopeing (sic) that this will take care of the matter, and we hope that we do not have to ask for a court decision on the matter. * * * Crawford Smith.” Other than this letter plaintiff made no demand on Mr. Watkins for payment. Mr. Mc-Cauley did not pay plaintiff or release his stop order on his check and this action followed.

It is too elemental to require citation of authority that if reasonable minds could differ as to the evidence and reasonably believe a version of the evidence which establishes the elements of defendant’s theory, the trial court was not authorized to direct a verdict.

Inherent in defendant Watkins’ contention a novation was effected in this case is his acceptance of the plaintiff’s position that as the deceased’s husband defendant was liable for her funeral expenses. There is no doubt that this was the rule at common law (see Kent v. Knight, 231 Mo.App. 235, 98 S.W.2d 318) and as it is the theory under which the parties tried this case we need not deal further with that matter. We must treat the question of the sufficiency of the pleading to raise the issue of novation in somewhat the same light. Novation is an affirmative defense which must be specially pleaded either expressly or by unequivocal implication from the allegations of the pleading. 66 C.J.S. Novation § 25. In the instant case the plaintiff does not contend the allegations of defendant’s answer are insufficient to raise the issue of novation. It is obvious from the transcript and from the briefs before this court plaintiff clearly understood defendant’s position as to the existence of a novation and that this was the issue tried. Accordingly, we will not comment further upon the pleading aspects of this appeal except to note that even if the parties had not joined issue upon the question of novation in the trial court the allegations of defendant’s answer would seem sufficient to raise that matter.

Some general principles regarding “novation” applicable to the issues presented by this appeal will be helpful if kept in mind. “ ‘Novation’ may be broadly defined as a substitution of a new contract or obligation for an old one which is thereby extinguished. More specifically, it is the substitution by mutual agreement of one debtor or of one creditor for another, whereby the old debt is extinguished, or the substitution of a new debt or obligation for an existing one, which is thereby extinguished.” 66 C.J.S. Novation § 1. See also 39 Am. Jur., Novation, § 2. It is obvious from the factual situation of the instant case the no-vation here, if it exists at all, involves the substitution of debtors. This form of no-vation is effected whenever a creditor agrees to release and extinguish his claim against a debtor and to accept in lieu thereof the promise of a third person to discharge the obligation. Oddo v. Associated Wholesale Grocers, Inc., Mo.App., 387 S.W.2d 169, l. c. [5]172; 66 C.J.S. Novation § 18b; 39 Am.Jur., Novation, § 18. “ * * * In such case, the new debtor, in consideration of the discharge of the original debtor, contracts a new obligation in favor of the creditor.” Leckie v. Bennett, 160 Mo.App. 145, 141 S.W. 706, l. c. [8, 9]711. The controlling element in determining whether a novation has been accomplished is the intention of the parties. Wolfson v. Baltimore Bank of Kansas City, Mo.App., 157 S.W.2d 560; 66 C.J.S. Novation § 18e (1).

A novation is never presumed. Hutcheson & Co. v. Providence-Washington Ins. Co. of Providence, R.I., Mo.App., 341 S.W.2d 142. The burden of proof rests upon him who asserts there has been a no-vation. He may bear this burden either by direct evidence or circumstantially by proof of facts from which the intention to effect such an agreement may be reasonably implied. 66 C.J.S. Novation § 26d. Assent to and acceptance of the novation may be implied from the facts and circumstances attending the transaction as well as the conduct of the parties thereafter. Leckie v. Bennett, supra, 141 S.W. l. c. [10] 711; Wolfson v. Baltimore Bank of Kansas City, supra. Whether it was the intention of the parties to effect a novation is ordinarily a question for the jury unless the terms of the agreement of the parties are so clear and unequivocal that it may be ruled as a matter of law by the court. 66 C.J.S. Novation § 27.

There is no dispute between the parties as to the essentials required before a novation can be held to have occurred. The parties agree the elements are as stated above. The dispute is whether there was any evidence from which the jury, had it been allowed to consider this cause, could have found these elements present. Plaintiff contends there was none, and that a no-vation could not occur in the instant case as the check was not paid. We must rule the first contention against plaintiff. The evidence was all the defendants went to plaintiff’s placo of business and made the selections necessary for the funeral; plaintiff was informed that others than the defendant Watkins were to pay the bill; after being so informed and while Watkins and all the defendants were present plaintiff presented a bill for its goods and services to the defendant James McCauley who signed the bill signifying his approval; although the defendant Watkins was present he was not asked by plaintiff’s officer to sign or approve the bill; thereafter a check for the full amount due less the discount awarded was delivered by James McCauley to plaintiff who accepted it; and two days later McCauley wrote a letter to Watkins’ attorney in which he acknowledged that he and Watkins had an arrangement whereby Mc-Cauley would pay the funeral expenses. This constitutes evidence which, if believed by the jury, would support a finding it was the intention of the parties that Watkins was to be relieved of his primary obligation to pay for the funeral; that this obligation was to be assumed by James McCauley; and that plaintiff accepted the substitution of McCauley for Watkins as its debtor. The intention of the parties at the time of the transaction is the controlling factor and that intention may be determined from the facts and circumstances of the transaction and the conduct of the parties at the time of the transaction and thereafter. Leckie v. Bennett, supra; Wolfson v. Baltimore Bank of Kansas City, supra; 66 C.J.S. Novation § 18e (1). The issue is whether or not the intention of the parties was to effect a no-vation by the substitution of McCauley for Watkins as plaintiff’s debtor. Watkins relies upon the facts stated above as constituting evidence from which the jury could find there was such an intention. Plaintiff’s position is there was no such intention. The issue is essentially one of fact and should have been submitted to the jury.

Neither can we agree with plaintiff’s contention that the check must have been paid in order for a novation to exist. The pertinent point in time, under the facts of this case, is when the parties were gathered in plaintiff’s office and McCauley signed the bill. The question is: What was the intention of the parties at that time ? If it was the intention Watkins should be discharged of any obligation to plaintiff who would thereafter look to McCauley, then a novation occurred and it is not affected by what happened thereafter; i. e., that Mc-Cauley did not comply with the terms of his obligation to plaintiff and pay the check. Plaintiff in its brief states that if we so hold then “ * * * any debtor could defeat his just debt by getting a ‘no good’ to say: ‘It is arranged that I will pay your debt’, and then never pay it.” That is neither the law nor the factual situation which should have been presented to the jury in the instant case. To the hypothesis stated by plaintiff must be added the provision that the creditor then accepts the promise (in this case a check) of the “no good”, and discharges the original debtor. If he does so the fact that he has accepted a promise which may later prove uncollectible or has agreed to look to a person for payment who may later refuse to pay does not relieve the creditor from his agreement to accept the new debtor. Whether or not a novation has been effected in a particular transaction involving orders on third persons is discussed in 66 C.J.S. Novation § 18f (1), where it is said that where an obligation is discharged by the acceptance of an order or a draft on a third person a novation results.

It follows from what has been held above the trial court erred when it directed a verdict against the defendant Watkins. The judgment entered by the trial court in favor of plaintiff and against the defendant Watkins is reversed and the cause remanded to the trial court for new trial.

PER CURIAM.

The foregoing opinion by BRADY, C, is adopted as the opinion of this court. The judgment is reversed and the cause remanded to the trial court for new trial.

ANDERSON, P. J., and RUDDY and WOLFE, JJ., concur.


source: Caselaw Access Project

author: WILLIAMS, Chief Justice.

license: Public Domain

text:
    COMMONWEALTH of Kentucky, DEPARTMENT OF REVENUE, and Kentucky Board of Tax Appeals, Appellants, v. AMERICAN NATIONAL BANK, Executor of the Estate of Walter J. Binder, Deceased, and Helen L. Binder, Widow of Walter J. Binder, Deceased, Appellees.
    Court of Appeals of Kentucky.
    March 8, 1968.
    William S. Riley, Asst. Atry. Gen., Noiris A. Harmon, Dept, of Revenue, Frankfort, for appellants.
    William O. Bertelsman, Bertelsman & Bertelsman, Newport, for appellees.
   WILLIAMS, Chief Justice.

Following the death of Walter J. Binder, the Kentucky Department of Revenue assessed for inheritance tax purposes the present value of a pension which became payable to Mrs. Binder upon the death of her husband under the terms of an employment contract that had existed between Binder and the Western Paper Goods Company. The Kentucky Board of Tax Appeals upheld the assessment, but upon appeal to the Campbell Circuit Court the assessment was held invalid. The Department and the Board have appealed.

The question in issue is whether the property represented by the pension passed to the widow by a transfer intended to take effect in possession and enjoyment at or after death within the meaning of KRS 140.010 and 140.020.

Mr. Binder had been an executive of the Western Paper Goods Company for a number of years. In March 1959 he entered into a contract with the company under which he agreed to continue to perform certain services for the company for five more years, and be paid a specified compensation. The contract provided for certain retirement benefits for Binder, and included this additional provision:

“That if Binder dies at any time after the execution of this agreement, and if at the time of his death he has performed all of the terms and provisions of this agreement required by him to be performed, and in the event that his present wife shall survive him as his widow, the Company will pay to her during her widowhood the sum of $625.00 per month upon the last business day of each month.”

It will be noted that the widow’s benefit was confined to Binder’s “present wife.” Under the agreement he did not reserve any right to change the recipient of the benefit or to revoke the benefit.

Binder performed his obligations under the contract until July 14, 1959, when he died, thus precipitating the payment of the widow’s pension, the taxability of which is here in issue.

As we view the situation, Binder simply purchased an annuity for his wife (dependent upon her surviving him) with part of the value of his services. The property that passed from him was a part of the value of his services, and it passed from him irrevocably as the services were performed. He could not control, use, enjoy, possess, recapture or in any way divert that property from its dedicated purpose. He retained no incident of ownership in that property. Accordingly, the property did not pass from him at, after, or by reason of death; his death had no bearing on the passing of the property from him.

It is true that the property (converted or transferred into pension payments) did not come into Mrs. Binder’s possession or enjoyment until Binder’s death. However, as we interpret the inheritance tax law, this alone is not enough to create a tax liability.

The general rule appears to be that the mere fact that the beneficiary does not come into possession or enjoyment until the death of the transferor is not alone enough to impose tax liability; some incident of ownership of the transferor must also leave him at death. The tax law contemplates a shifting from the transferor to the beneficiary at or after death. See 28 Am.Jur., Inheritance, Estate, and Gift Taxes, secs. 160 to 162, pp. 117 to 122.

A few states, notably Connecticut and New Jersey, take a contrary view, holding that a transfer is taxable if the beneficiary’s possession or enjoyment did not arise until the death of the transferor, without regard to whether the transferor prior to death had parted with all incidents of ownership. See 28 Am.Jur., Inheritance, Estate, and Gift Taxes, sec. 162, pp. 121, 122.

While no Kentucky case has specifically taken sides on this question, the decision in Dumesnil v. Reeves, 283 Ky. 563, 142 S.W.2d 132, in principle constituted an acceptance of the general rule.

In the exhaustive annotation in 73 A.L.R.2d 158 to 234, dealing with inheritance tax liabilities in respect to life insurance benefits, annuities and pensions, the majority and minority views in interpretation of the “possession or enjoyment” clause are reflected. Accordingly, as indicated by the annotation, the general holding is that a transfer in the form of a life insurance benefit, annuity, or pension is not taxable unless the decedent had retained some form of control or some incident of ownership, such as the right to change the beneficiary.

The appellant tax authorities place great reliance upon Dolak v. Sullivan, 145 Conn. 497, 144 A.2d 312. However, as pointed out hereinbefore, Connecticut follows the minority view on the interpretation of the “possession or enjoyment” clause, which view is reflected in the ruling in the Dolak case on the specific question of pension taxability.

We choose to adhere to the majority view on the interpretation of the “possession or enjoyment” clause. As a matter of fact, we think such interpretation is made inescapable by the language of KRS 140.020(1), with respect to retention by the transferor either of possession, enjoyment or income, or of the power to designate the recipient of the property or income. Accordingly, since in the instant case all possession, enjoyment and control had left the decedent before death, the pension was not taxable.

The judgment is affirmed.

All concur.


author: PALMORE, Judge.

text:
    Steve ALLEN, Appellant, v. COMMONWEALTH of Kentucky, DEPARTMENT OF HIGHWAYS et al., Appellees.
    Court of Appeals of Kentucky.
    March 8, 1968.
    John Frith Stewart, Louisville, for appellant.
    Robert Matthews, Atty. Gen., H. C. Smith, Robert Rieckhoff, Frankfort, Dept, of Highways, Robert A. Becht, Louisville, for appellees.
   PALMORE, Judge.

The appellant and cross-appellee, Steve Allen, has been employed since 1951 by the Department of Highways as a light equipment operator. He drives a truck, and because of the nature of the Department’s work.he is exposed to gasoline fumes more than an ordinary truck driver would be. One example of such exposure is that his track gets tar on it and he is required frequently to use gasoline to clean it off. In 1960 it was determined by a hematologist that as the result of this exposure he had developed an occupational disease which, for the sake of simplicity, we shall call lead poisoning. Efforts to secure a transfer or reassignment to another job at a comparable rate of pay which would not entail similar exposure proved unsuccessful, so he has remained on the same job despite the physician’s recommendation that he find work that will not expose him to gasoline fumes. This proceeding arises out of his claim for workmen’s compensation and medical expenses, filed in 1965, at which time the proof shows that from a medical standpoint he was (and is) totally and permanently disabled from performing any work that will bring him substantially in contact with the fumes of gasoline or other substances containing lead. In other words, it appears that he cannot continue in his present job without serious danger to his life.

The board found that Allen is affected by an occupational disease, and to some extent disabled as the latter word is commonly understood, but rej ected his claim as premature for the sole reason that in view of this court’s construction of the word “disability” as it is used in KRS 342.316, the occupational disease statute, he cannot have a compensable claim for any period of time in which he has continued and continues to work full-time for the same employer. See, for example, Mary Helen Coal Corporation v. Chitwood, Ky., 351 S.W.2d 167 (1961); Bethlehem Mines Corporation v. Davis, Ky., 368 S.W.2d 176 (1963); Stevens Elkhorn Coal Company v. Tibbs, Ky., 374 S.W.2d 504 (1964); Alva Coal Company v. Trosper, Ky., 375 S.W.2d 406 (1964); and American Radiator & Standard Sanitary Corporation v. Gerth, Ky., 375 S.W.2d 817 (1964).

Allen’s appeal to the circuit court, KRS 342.285, resulted in a judgment affirming the disallowance of compensation but reversing as to the disallowance of medical expenses and remanding the proceeding to the board with directions to determine such expenses and make an award under KRS 342.020. Both sides now appeal to this court. KRS 342.290.

The rule exemplified by the line of cases cited above is, essentially, that so long as a man actually continues, despite an occupational disease, to satisfy the requirements of his work it can hardly be found that he cannot do it. Whatever may be his physical ailment, it becomes a “disability” only when in fact it results in a cessation or curtailment of performance. In this respect, the existence of disability is determined by an objective standard which we have held to be conclusive. From the standpoint of legal policy, this position protects the workman against the pitfalls of the notice and limitation sections of KRS 342.316 and at the same time gives reasonable regard to the ultimate object of workmen’s compensation, which is to offset loss of earnings.

It is true that Mary Helen Coal Corporation v. Chitwood, Ky., 351 S.W.2d 167 (1961), and the later decisions adhering to it were all cases involving the timeliness of notice or the running of limitations, but they are premised on the theory that a com-pensable claim under KRS 342.316 does not exist while the employe continues to work fulltime for the same employer.

Peabody Coal Company v. Taulbee, Ky., 294 S.W.2d 925 (1956), could be distinguished on the basis that although Taulbee stayed on the job at full pay he had to have the help of his fellow-employes in order to do the work. That, however, would be inconsistent with Stevens Elkhorn Company v. Tibbs, Ky., 374 S.W.2d 504 (1964), in which the circumstances were the same. The net effect of the Chitwood case, as it has been construed to date, is that Taulbee has been overruled.

During the pendency of this proceeding before the board, the Department moved for leave to file a “Special Answer” setting up various defenses such as claimant’s failure to file a claim within one year after discovering his condition, non-compen-sability of the occupational disease in question, and claimant’s continued employment. The motion was overruled in view of an administrative regulation of the board requiring that any “affirmative special defense” be filed at least five days before the date set for hearing. Allen contends that in spite of overruling the motion the board nevertheless denied his claim on the basis of a special defense, to-wit, that because of his continued employment the claim was premature. The answer to this argument .is that a special defense was unnecessary. The burden of proving disability was on the claimant, and the effect of our decisions defining “disability” is that by reason of his continued employment at full time and full' pay he did not prove it. Cf. Adkins v. International Harvester Co., Ky., 286 S.W.2d 528, 529 (1956).

Allen has had heavy medical expenses in combatting the ravages of his disease. He requires frequent hospitalization (during vacations and off-days) and numerous blood transfusions. All of this has resulted from his work. It would be an utter travesty to hold that he cannot be compensated for it, and we find nothing in the statute to demand such a conclusion. KRS 342.020(1) provides that aside from any other compensation payable under Chapter 342 “the employer shall furnish for the cure and relief from the effects of an injury or occupational disease, such medical, surgical and hospital treatment * * * as may reasonably be required at the time of the injury and thereafter during disability, or as may be required for the cure and treatment of an occupational disease/’ not exceeding the maximum limit. (Emphasis added.)

The judgment is affirmed on both the appeal and cross-appeal.

All concur except that OSBORNE, J., does not concur in the allowance of medical expenses.


author: NORVELL, Justice. SMITH, Justice.

text:
    Virgil MATHEWS et al., Petitioners, v. SUN OIL COMPANY et al., Respondents.
    No. B-145.
    Supreme Court of Texas.
    Feb. 21, 1968.
    Rehearing Denied March 27, 1968.
    Sanders, Scott, Saunders, Brian & Humphrey, C. J. Humphrey, Amarillo, for petitioners.
    Lynn Adams, Oklahoma City, Okl., C. F. Heidrick, E. M. Cage, J. C. Peurifoy, Jackson, Walker, Winstead, Cantwell & Miller, and A. W. Walker, Jr., Dallas, Underwood, Wilson, Sutton, Heare & Berry, H. A. Berry, Amarillo, for respondents.
   NORVELL, Justice.

Petitioners, Virgil Mathews and wife, Elsie May Mathews, J. W. Sanders, E. T. Scott Trust and the Willie Belle Sanders Trust, brought suit against Sun Oil Company and Kerr-McGee Oil Industries, Inc., seeking a decree that an oil, gas and mineral lease dated March 8, 1957, executed by Virgil Mathews and wife to Kerr-McGee had terminated and was no longer effective insofar as Section 4, Block M-22, Texas Central Railway Company Survey, Hutchinson County, Texas, was concerned. The trial court rendered summary judgment for respondents. Rule 166-A, Texas Rules of Civil Procedure. The Court of Civil Appeals affirmed. 411 S.W.2d 561. We affirm the judgments of the courts below.

The lease of March 8, 1957 was for a primary term of five years and covered both Section 4, above described, and a contiguous tract, namely, Section 13, C. L. & C. Co. Survey, Hutchinson County, Texas. At the time of trial, the lease which had been obtained by Sun under a farmout from Kerr-McGee was in its secondary term and being held by production from Section 13. Immediately after the execution of the lease, the title to the royalty interests in Section 4 were held as follows:

Vie — by Virgil and Elsie May Mathews
⅞56 — by J. W. Sanders
⅞56 — by Sanders Trust
⅛28 — by Scott Trust

The interests of J. W. Sanders, the Sanders Trust and the Scott Trust were nonparticipating royalty interests. The leasing powers or the executive rights were vested in Mathews.

Mathews also held the executive rights to Section 13 and a ¾e royalty interest therein. The remaining ½6 royalty interest was non-participating and was held by the successors in interest to R. Niles Graham and Margaret Graham Crusemann. Such successors are not parties to this suit.

The controlling question relates to the legal effect of Mathews’ action in combining two tracts in one lease when the holders of non-participating royalty interests in such tracts were not identical.

Petitioners contend that both courts below erred in holding as a matter of law from the uncontroverted facts that the oil and gas lease of March 8, 1957 was valid and subsisting as to their respective interests in Section 4 as the primary term of such lease had expired and there was an absence of drilling upon or production from said section. The validity of this contention is the sole issue in the case. The petitioners’ arguments are presented primarily from the position of the holders of the non-participating royalty interests. Their situation is different from that of Mathews as above indicated, and if they cannot recover, it seems clear that Mathews cannot recover. We shall, therefore, discuss the case from the standpoint of the non-participating royalty owners, namely, J. W. Sanders, the Sanders Trust and the Scott Trust.

Petitioners rely heavily upon Brown v. Smith, 141 Tex. 425, 174 S.W.2d 43 (1943), wherein it was said that in a situation bearing some similarity to the one now before us that:

“In many respects the burdens and obligations of petitioners under the lease tendered by respondents would be the same as they would be under two separate leases, one affecting the 20-acre tract and the other affecting the 42.75-acre tract.”

The suit was one for specific performance brought by the sellers of an oil and gas lease against the purchasers thereof for specific performance. The purchasers’ defense was that sellers did not tender the title that purchasers had contracted to buy. The sellers were Ector Smith and Floyd Smith and their respective wives. The lease which they tendered to the purchasers contained the following clause:

“ ‘Of the acreage above described, the said Floyd Smith and wife, Bertha Smith, own twenty (20) acres and the said Ector Smith and wife, Ada Smith, own 42.75 acres, and it is understood and agreed as between Lessors, that the rents and royalties hereinafter stipulated to be paid on said 62.75 acre tract are to be pooled and shared by said Lessors in proportion to acreage owned.’ ”

However, it appeared that Floyd Smith deraigned title to the 20-acre tract from Mrs. C. B. Lee who retained a ⅜2 royalty interest, but no leasing rights to the tract. Mrs. Lee did not join in the lease. This Court held that Brown had no power or authority to pool Mrs. Lee’s royalty interest with those of other persons holding royalty interests in the 20-acre and 42.75-acre tracts involved because:

“The language used, by which Mrs. Lee reserved to herself the one-thirty-second royalty interest in all of the 20 acres conveyed, with provision that the royalty be delivered to her as is usual where oil, gas or other minerals are produced and saved, negatives the existence of an intention to confer upon her grantee the power or authority to convey or in any way dispose of any part of the royalty interest which she reserved.”

In Minchen v. Fields, 162 Tex. 73, 345 S.W.2d 282 (1961), this Court reiterated the rule stated in the Brown case. It was said:

“We agree with the Court of Civil Appeals that the act of Fields (the holder of the leasing power) in executing one lease covering the 802.6 acres did not unitize or pool all the mineral interests in said land. Brown v. Smith, 1943, 141 Tex. 425, 174 S.W.2d 43; Nugent v. Freeman, Tex.Civ.App.1957, 306 S.W.2d 167, wr. ref. n. r. e.”

The Court then quoted with approval the following statement from the opinion of the Court of Civil Appeals (330 S.W.2d 683, l. c. 687):

“[T]he reason of the rule is that where mere executive rights are conferred or reserved, there is no intention evidenced to vest authority to convey a royalty interest reserved or the royalty interest attributable to the minerals leased and to hold that such holder can unitize or pool the interest would allow him to convey such royalty interest because a uniti-zation of the royalty and minerals under different tracts effects a cross-conveyance to the owners of minerals under the various tracts of royalty or minerals so that they all own undivided interests under the unitized tract in the proportion their contribution bears to the unitized tract. Veal v. Thomason, 138 Tex. 341, 159 S.W.2d 472; Brown v. Smith, supra.”

No pooling problem is here involved; nor is it contended that the lease was invalid when executed; nor that such lease should be cancelled in whole or in part because the operator thereof has failed to reasonably develop the mineral potentials of the lands under the lease; e. g. W. T. Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 19 S.W.2d 27, l. c. 29 (1929); nor is it asserted that Mathews has breached a duty which he as the holder of the executive rights owed to the holders of the nonparticipating royalty interests; e. g. Schlittler v. Smith, 128 Tex. 628, 101 S.W.2d 543 (1937). It is simply argued that Brown v. Smith by analogy supports the proposition that the lease should be considered as two leases, one covering Section 13 and one covering Section 4, and that no production having been obtained from Section 4, the lease as to that tract has terminated.

Because a lease will be considered as two leases for certain purposes, it does not follow that a single lease will be considered as two leases for all purposes whenever two or more tracts of land and diverse royalty interests are involved. It is a rule of general application that in the absence of anything in the lease to indicate a contrary intent, production on one tract will operate to perpetuate the lease as to all tracts described therein and covered thereby. Orive v. Sun Oil Co., 346 S.W.2d 383 (Tex.Civ.App.1961, writ ref’d), and authorities cited therein.

The lease here involved contained the following pertinent clauses:

“1. Lessor, in consideration of Fifteen Thousand Seven Hundred Twenty and no/100 Dollars ($15,720.00) in hand paid, of the royalties herein provided, and of the agreements of Lessee herein contained, hereby grants, leases and lets exclusively unto Lessee * * * the following described land in the County of Hutchinson, State of Texas to wit:
“All of Section 13, D. L. & C. Co. Survey, Hutchinson County, Texas, containing 244 acres, more or less:
“All of Section 4, Block M-22, Texas Central RR Co. Survey, Hutchinson County, Texas, containing 542 acres, more or less.
“For the purpose of calculating the rental payments for which provision hereinafter is made, said land shall be treated as comprising 786 acres, whether it actually comprises more or less.
“2. Subject to the other provisions herein contained, this lease shall be for a term of five years from Nov. 9, 1957 (called ‘Primary term’) and as long thereafter as oil, gas, or other mineral is produced from the land hereinabove described.”

The lease expressly provides that it shall remain in force as long as oil, gas or other mineral is being produced from the land (Sections 4 and 13) therein described. In arguing for a contrary construction, petitioners do not rely upon the wording of the lease but upon the title situation relating to the non-participating royalty interests. The holder of the executive rights has the power to lease the premises for the production of oil, gas, or other minerals. Quite obviously, he would not be authorized to make a contract binding upon the non-participating royalty owners which would prevent, hamper or stifle production to the prejudice of such owners, and while he may lease and thus vest title to a working interest under such lease, he may not convey the reserved royalty interest.

The distinction between the inclusion of two tracts in one lease by the holder of a leasing power and the pooling of royalty interests is that the execution of a lease is an authorized act, while pooling and the cross-conveying of royalty interests is an unauthorized act. In order to sustain petitioners’ position that Section 4 is no longer under the lease, it would be necessary to disregard the plain wording of the habendum clause, and a court would have to do something far more radical than raising or recognizing an implied covenant or something of a similar nature. It would be necessary to rewrite the habendum clause in an authorized lease and transform it into an entirely different contractual obligation. We are constrained to hold that a situation is not here presented which requires that we treat the Kerr-McGee lease as two separate leases insofar as the habendum clause is concerned.

Petitioners’ points are overruled and the judgments of the courts below are affirmed.

GRIFFIN, J., notes his dissent.

Dissenting opinion by SMITH, J.

DISSENTING OPINION

SMITH, Justice.

I respectfully dissent.

Although this cause went off on summary judgment, the fact remains that the suit was filed by Mathews, the Scott Trust, J. W. Sanders and the Sanders Trust against Sun Oil Company and Kerr-McGee Oil Industries, Inc. seeking a court declaration that the oil and gas lease terminated insofar as Section 4 was concerned at the end of the primary term. Mathews filed a separate motion for summary judgment still seeking a declaration by the court that the lease had terminated. Likewise, the Scott Trust, J. W. Sanders and the Sanders Trust, in addition to their petition for a judgment declaring the lease terminated on November 9, 1962, as to Section 4, moved for summary judgment declaring the lease terminated, “because the pleadings, depositions, and admissions on file together with affidavit attached, show that there is no genuine issue as to any material fact.” Kerr-McGee and Sun Oil Company in their motion for summary judgment pray that the oil and gas lease be held to be in full force and effect even though no production was obtained from Section 4. Therefore, I deal with this cause as though it is one seeking a declaratory judgment.

Contrary to what is said in the majority opinion, the record as made in the trial court does not restrict the controlling issue in this case to the legal effect of Mathews’ action in combining two tracts in one lease. The petitioners’ contention in the court of civil appeals was to the effect that the respondents, Kerr-McGee et al., used the one lease method as a vehicle to effect a pooling or communitization of the royalty ownership of petitioners in Section 4 with the royalty ownership in Section 13, thereby accomplishing what they had failed to accomplish when the non-participating royalty owners in Section 13 rejected a proposal to unitize.

The Questions To Be Decided

One of the principal questions for decision is: Does the owner of the executive rights have the power to execute a lease which would be binding upon the owners of non-participating royalty interests after the expiration of the primary term even though no drilling operations were begun and no production was obtained from the only tract in which they own an interest ? The second question is: Are those plaintiffs who owned non-participating royalty interests in Section 4, which interests were never conveyed to the owner of the executive rights, estop-ped to assert their right to have the oil and gas lease terminated merely because of the warranty provision in the lease which was executed by the owner of the executive rights only ? In other words: Are such non-participating royalty owners estopped from claiming that paying production from Section 13 does not continue the lease in full force and effect after the expiration of the primary term as to Section 4? The third question is: Does the evidence show as a matter of law that the oil and gas lease was executed by Mathews, the holder of executive rights, and accepted by Kerr-McGee, the original lessee, in violation of a fiduciary duty owed to the non-participating royalty owners, and, if so, is Kerr-McGee entitled to the defense of estoppel as against the holder of the executive rights so far as his interest in Section 4 is concerned? In other words: Will the nonparticipating royalty interest owners be able to obtain full relief if the lease is declared terminated only as to their interest and left in effect as between Mathews and Kerr-McGee? The fourth question is: Does the evidence show as a matter of law that Kerr-McGee knowingly participated in the execution of an oil and gas lease which by its terms violated the duty owed the nonparticipating royalty owners by the holder of the executive rights to perform his duties and exercise his power and authority as the holder of the executive rights in a manner reflecting the utmost fair dealing?

These are the controlling questions relating to the legal effect of the action of Mathews and Kerr-McGee in executing an oil and gas lease in such a manner as to burden indefinitely the interest of the Scott Trust et al. solely as a result of production secured upon lands in which the Scott Trust et al. had no title, and, therefore, would not be entitled to share in such production. The legal consequences of combining two separate titles in one lease is not to be determined by Mathews’ actions alone, but by the actions of both Mathews, the holder of the executive rights, and Kerr-McGee, the original lessee.

It is my position that this record shows as a matter of law that Mathews has violated the duty owed the Scott Trust et al. to use utmost fair dealing in the exercise of the executive power with which he has been invested, and that Kerr-McGee knowingly participated in such violation of duty. Kerr-McGee was just as much a party to the breach of the duty of utmost fair dealing as was Mathews. As I will point out later, the oil and gas lease so far as Section 4 is concerned contains provisions which support an action for termination of the lease, whether the action is brought before or after the expiration of the primary term. It has been said that the law on the subject of executive rights in connection with non-executive interests is still in the formative stage and that it will be some time before it is fully developed. See Jones, 15th Oil & Gas Inst. 35 (Sw. Legal Fdn. 1964). This Court, in my opinion, has an opportunity to declare the law which shall govern the disposition to be made of the controlling issues presented in this case.

The Scott Trust

In disposing of the issues involved, this dissent will deal specifically with the title held by the Scott Trust in Section 4. The views herein expressed as to the Scott Trust interest apply with equal force to the interests owned by J. W. Sanders and the Sanders Trust. A special warranty deed, dated March 10, 1949, recites that J. W. Sanders et ux. conveyed to the Scott Trust a ‘%8th non-participating oil, gas and other mineral royalty interest in and to * * * surveys * * * four (4) in Block M—22, TC Ry. Co., Hutchinson County, Texas.” This is the same tract sometimes referred to in the record and briefs as Section 4. It should be noted here that the oil and gas lease contract between Mathews and Kerr-McGee was not executed until March 8, 1957. The lease was for a primary term of 5 years. The record is undisputed that the Scott Trust owned no interest in Section 13, the other tract described in the Mathews-Kerr-McGee Lease. Also, the non-participating royalty owners in Section 13 owned no interest in Section 4. The oil and gas lease involved was prepared by Kerr-McGee. The lease contained several clauses which afford a basis for the conclusion herein expressed that Kerr-McGee knowingly participated in violating the duty owed by Mathews to the non-participating royalty owners to use utmost fair dealing in exercising the executive powers vested in him. Some of the clauses were these: First. The lease describes two separate and distinct chains of title. On March 8, 1957, the date the lease was executed, Mathews owned the surface and minerals of the two sections of land leased, save and except for a ¾6 non-participating royalty interest. The nonparticipating royalty interest was owned as follows:

In all of Section 13, the non-participating royalty interest, consisting of a Vis royalty, was owned by R. Niles Graham and Margaret Graham Cruseman. In all of Section 4, the non-participating royalty interest was owned by the Scott Trust, J. W. Sanders and the Sanders Trust. Mathews acquired his executive powers under two separate and distinct titles and there is no provision in either chain of title which gave Mathews the authority or power to combine the titles in one lease. Kerr-McGee was under no legal obligation to accept a lease describing both titles. Kerr-McGee, when it secured the execution of the lease by Mathews on March 8, 1957, was charged with constructive notice of the recitations of all instruments in Mathews’ two chains of title. Paragraph 12 of the oil and gas lease prepared by Kerr-McGee and executed by Mathews provides: “offsetting shall never be required to protect one portion of the leased premises against drainage through a well or wells on another portion of the leased premises.” Paragraph 6 of the lease grants the right to the lessee to consolidate the lands covered hereby, or any portions thereof, with other lands, etc. Paragraph 7 provides that a well drilled “on any portion of the consolidated tract, regardless of where located thereon, shall be deemed to have been drilled under the terms of this lease on lands covered hereby * *

It is my contention that the interest owned by the Scott Trust on March 8, 1957, the date of the oil and gas lease, and since that time, is an interest in realty, and Kerr-McGee took the lease with full knowledge of the division of realty ownership. Furthermore, Kerr-McGee voluntarily acquired the lease charged with knowledge of the law of the “utmost fair dealing” the holder of the executive rights owes to non-participating royalty owners. There can be no question but that the authorities of this and other jurisdictions hold that an interest such as owned by the Scott Trust is an interest in land. See Brown v. Smith, 141 Tex. 425, 174 S.W.2d 43 (1943); State v. Quintana Petroleum Co., 134 Tex. 179, 133 S.W.2d 112, 134 S.W.2d 1016, 128 A.L.R. 843 (1940); Tennant v. Dunn, 130 Tex. 285, 110 S.W.2d 53 (1937); Sheffield v. Hogg, 124 Tex. 290, 77 S.W.2d 1021, 80 S.W.2d 741 (1934); Sheppard v. Stanolind Oil & Gas Co., 125 S.W.2d 643 (Tex.Civ.App.—1939, writ ref’d); Hardwicke, “Problems Arising Out of Royalty Clauses in Oil and Gas Leases in Texas,” 29 Texas L.Rev. 790, 791 (1951). If this were not so, why has this Court held in such cases as Minchen v. Fields, 162 Tex. 73, 345 S.W.2d 282 (1961) and Veal v. Thomason, 138 Tex. 341, 159 S.W.2d 472 (1942) that pooling effects a cross-conveyance among the owners of the minerals under the various tracts of royalty or minerals in a pool, and that pooling on the part of the holder of the executive rights cannot be binding upon the non-participating royalty owner in the absence of his consent. This record reveals that Kerr-McGee was well aware of this rule as shown by the following undisputed facts: On November 7, 1962, two days prior to the termination of the primary term, Sun Oil Company under a farm-out agreement with Kerr-McGee, commenced the drilling of a well for oil and gas on Section 13. The well was completed as a dual gas well capable of producing gas with condensate on February 6, 1963, but was not placed on actual production until June 28, 1963. On November 7, 1962, the same date the drilling operations were begun, Sun Oil Company sought to obtain an agreement between the owners of the nonparticipating royalty interest in Sections 13 and 4 in order to create a gas production unit. All of the non-participating royalty owners in Section 4 agreed to pool; however, all of the non-participating royalty owners in Section 13, refused. Thus, the attempted pooling agreement failed. Sun’s letter to Sanders wherein it refers to such refusal says that “the fact that the well was located on their tract gave them a blind spot which we were unable to clear up for them.” The record reflects that the Scott Trust, J. W. Sanders and the Sanders Trust were willing to pool their non-participating royalty interest as to gas with Graham et al. “so as to create a 704-acre unit. In creating the unit, the east 93 acres of Section 4 and Section 13 jointly, they being north and south of each other, would be eliminated from the pooling so that Section 13 and Section 4 would have pro rata acreage according to the acreage of each in the 704-acre unit. Brown [Sun’s representative] agreed that any consideration, including overrides given the Grahams, would be given pro rata to Sanders, Scott and Saunders [meaning Sanders Trust] for the execution of the pooling agreement.”

This is a proper case where the fiduciary standard of conduct on the part of the holder of the executive rights should be applied. See Jones, 15th Oil & Gas Inst. 35 (Sw. Legal Fdn. 1964). In Schlittler v. Smith, 128 Tex. 628, 101 S.W.2d 543 (1937), this Court said: “We think that self-interest on the part of the grantee may be trusted to protect the grantor as to the amount of royalty reserved. Of course, there should be the utmost fair dealing on the part of the grantee.” Eminent authorities on oil and gas have written on this subject, such as Jones, as heretofore mentioned, Kuntz in 1 Kuntz, The Law of Oil and Gas 353, and A. W. Walker in Walker, “Developments in the Law of Oil and Gas in Texas During the War Years—A Résumé,” 25 Texas L.Rev. 1 (1946). Walker, in this article, discussed the cases of Brown v. Smith, supra, and Schlittler v. Smith, supra, and made this significant comment:

“Indeed it would seem that a type of agency is involved, and that a serious question might even be raised as to the scope 'of authority of such agent to execute a lease under which, by virtue of the wording of the habendum clause, the outstanding royalty interest might be burdened indefinitely as a result of production secured upon other lands in which the royalty owner would not be entitled to share. In any event, it would seem that lessees would not desire to accept such a lease, but, on the contrary, would insist either that the non-participating royalty owner join in the execution of the lease with appropriate pooling provisions, or that a separate lease be executed on that part of the land covered by the nonparticipating royalty interest.” 25 Texas L.Rev. at 18. (Emphasis added.)

The rule which should govern has been stated to be that an agent is a fiduciary with respect to the matters within the scope of his agency. The very relation implies that the principal has reposed some trust or confidence in the agent, and the agent or employee is bound to the exercise of the utmost good faith, loyalty, and honesty toward his principal or employer. The fiduciary relationship existing between an agent and his principal has been compared to that which arises upon the creation of a trust, and the rule requiring an agent to act within the utmost good faith and loyalty toward his principal or employer applies regardless of whether the agency is one coupled with an interest, or the compensation given the agent is small or nominal, or that it is a gratuitious agency. See Le Cuno Oil Co. v. Smith, 306 S.W.2d 190 (Tex.Civ.App.—1957, writ ref’d, n. r. e.); Williams, “The Fiduciary Principle in the Law of Oil & Gas,” 13th Oil & Gas Inst. 201 (Sw. Legal Fdn. 1962). This Court should hold that where it has been conclusively shown that the holder of the executive rights has violated the duty he owed the non-participating royalty owner in executing the lease, and the lessee has knowingly participated in the violation thereof, the oil and gas lease should be terminated. »Under this rule, I would terminate the lease insofar as Section 4 is concerned as to all parties. To hold otherwise would be highly prejudicial to the Scott Trust, J. W. Sanders and the Sanders Trust.

Kerr-McGee and Sun Oil Company say that since the oil and gas lease contains a warranty of “full fee simple title to all lands therein described, and plaintiffs, Virgil Mathews and wife, Elsie May Mathews, warranted and agreed to defend said title,” all of the parties are estopped to deny that Mathews had the “power and authority to lease said lands on the terms and conditions set out in said lease.” Since the lease was not executed by the holders of the nonparticipating royalty owners, the warranty clause (the Court uses — habendum clause) in the lease cannot be used as a ground of estoppel against them. Estoppel is no defense against the non-participating royalty owners. Equally so, estoppel is no defense against Mathews since Kerr-McGee knowingly participated in violating the rights of the non-participating royalty owners.

It has been argued that the non-participating royalty owners have not attacked the lease by adverse action against Mathews. This was not necessary since apparently Mathews recognized that he violated his duty toward the non-participating royalty owners when, on September 10, 1964, he executed a quitclaim deed to the Scott Trust et al., conveying all of his “right, title and interest in the oil gas and other minerals in and under and that may be produced from Section 4, Block M-22, T. C. Ry. Co. Survey, Hutchinson County, Texas * * *.’’

Respondents seem to argue that the lease should not be terminated for an additional reason. The contention is made that on September 17, 1964, Sun Oil Company, the holder of the farm-out rights covering Sections 13 and 4, drilled a well to completion on a tract of land lying east of Sec. 4, and would have drilled on Section 4 but for this law suit. The fact that Sun drilled to completion a well on a section of land not described in the Mathews lease cannot be effective as a bar to petitioners’ right to cancel the lease involved here. The drilling of the well on the section to the east of Section 4 was proved by an affidavit attached to respondents’ motion for summary judgment. The affiant, A. N. Tyler, an employee of Sun Oil Company, stated:

“Following the completion on or about September 17, 1964, of the R. H. Furr Mathews well No. 2 located in Section 2, Block M-22, T. C. RR Company Survey, * *- * which section adjoins said Section 4 on the East, our district geologist, Mr. Paul H. Horn, recommended on October 28, 1964, the drilling of the Virgil Mathews well No. 2. This location was approved for drilling at a point 1250 feet from the East line and 1600 feet from the North line of Section 4, Block M-22, T. C. RR Company Survey, Hutchinson County, Texas. Before the location could be finally processed, we were advised on November 10, 1964, by our legal department that no additional operations should be undertaken on Section 4 without their prior approval because we had been served with a petition in a law suit filed by our lessors asserting that Sun Oil Company no longer had a valid lease on Section 4. We would have drilled the Virgil Mathews well No. 2 in said Section 4 had it not been for the lessors filing this suit and we would now drill such well were it not for this suit.”

This procedure should not be used to determine the rights of the parties to this law suit. Their rights should be determined under the provisions of the oil and gas lease covering Sections 13 and 4. The allegation that Sun would have drilled on Section 4 had it not been for this law suit cannot be of any value when it is realized that the contract between Mathews and Kerr-McGee does not require Kerr-McGee or Sun to drill on Section 4. The contract expressly provides that offsetting shall never be required to protect one portion of the leased premises against drainage. The contract further provides, as above indicated, that a well drilled on any portion of a consolidated tract (well drilled on 13) shall be deemed to have been drilled (on 4) under the terms of this lease. This above mentioned affidavit leaves the inference that the non-participating royalty owners by bringing this suit to cancel the lease as to Section 4 had a selfish or sinister motive in filing the suit. In fact, the Court is convicting them of such motives without a trial.

The judgments of the courts below should be reversed and judgment here rendered unless it can be said that the case was tried on the wrong theory. I do not believe that any fact issue remains for the trier of the facts. The respondents did not plead laches, but conceivably such an issue could be raised.

      . Virgil Mathews died during the penden-cy of this suit and Elsie May Mathews, Stephen Mathews and Freeman Barkley, independent executrix and independent executors of the estate of Virgil Mathews, were substituted as parties plaintiff.

      . The trustees of the Scott Trust are Zula Scott, E. T. Scott, Jr. and John William Scott.

      . The trustee of the Sanders Trust is Howard F. Sanders.

      . This was a top lease. Kerr-McGee had secured a prior lease from Mathews dated November 9, 1949 for a primary term of eight years.

      . An affidavit executed by A. N. Tyler, division development geologist for Sun, states that a well location on Section 4 had been approved but drilling was not commenced because of the filing of the present suit in which the plaintiffs asserted the invalidity of the Kerr-McGee lease insofar as Section 4 was concerned.


author: CALVERT, Chief Justice.

text:
    Josephine SEAMAN, Petitioner, v. Margaret SEAMAN, Respondent.
    No. B-427.
    Supreme Court of Texas.
    March 6, 1968.
    Rehearing Denied April 3, 1968.

      W. G. Perkin, Pharr, for petitioner.
    Rankin, Kern, Martinez & Van Wie, Stonewall Van Wie, III, McAllen, for respondent.
   CALVERT, Chief Justice.

This is a suit on a promissory note brought by Margaret Seaman in her own right and as the sole heir of her deceased husband, Jonathan Seaman. The defendant is Josephine Seaman individually and in her capacity as independent executrix of the estate of her deceased husband, Irving Seaman, Jonathan’s brother. The case was tried without a jury and the trial court entered judgment for the plaintiff. Findings of fact and conclusions of law were neither requested nor filed. The court of civil appeals affirmed, 417 S.W.2d 86. We affirm.

Sometime in 1950, 1951, or 1952, Josephine and Irving Seaman signed a printed form promissory note for $10,000 payable to Margaret and Jonathan Seaman. The record reflects that the transaction was primarily one between the brothers. The consideration for the note was money lent by Jonathan to Irving and used by him in purchasing the motel in Pharr, Texas, which he and Josephine were managing. Jonathan died July 5, 1963. Irving died June 26, 1964. This suit was filed October 26, 1964.

The note was a demand note, but it was left incomplete at two places where dates were ultimately typed into formal blanks at Jonathan’s request during his last illness in 1963. The -evidence is conflicting whether a number of other formal blanks were also left incomplete, but the implied findings of the trial court are that they were not and there is evidence to support the findings. The date, “May 6, 1963,” was typed into both blanks, one for the date of the instrument and the other the date from which interest would accrue.

Plaintiff’s original petition was simply a suit on the note as it appeared in its completed form. Defendant’s answer included a plea of limitations, asserting that the note was a demand note from the date it was made and that no authority had been given to fill up the blanks. The answer also included a plea of discharge by virtue of a material alteration of the note. Because the transaction was entered into before the effective date of the Texas Uniform Commercial Code, the issues presented are governed by the Texas Negotiable Instruments Act, Articles 5932-5948. See 2 Tex.Laws 1965, ch. 721 § 10-101, at 179.

Under the Negotiable Instruments Act, the filling up of a formal blank in a note does not constitute a material alteration and does not avoid the instrument within the meaning of Article 5939 §§ 124 and 125. The effect of filling up the formal blanks in a note is governed by Article 5932 § 14. The seeming conflict between filling up formal blanks and material alteration, i. e., between Article 5932 § 14 and Article 5939 §§ 124 and 125, was resolved in Republic National Bank of Dallas v. Strealy, 163 Tex. 36, 350 S.W.2d 914 (1961). See also Britton, Bills and Notes § 282, at 662 (2d ed. 1961).

Section 14 provided:

“Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. * * * In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time.” (Emphasis added.)

The statute provided a conclusive presumption in favor of a holder in due course that any filling up of incompleted blanks had been done in accordance with authority and within a reasonable time. It provided a rebuttable presumption in favor of any other holder that the instrument had been filled up in accordance with authority. Since the note was incomplete when the plaintiff and her husband took it, and she does not have the status of a holder in due course and is not entitled to the conclusive presumption in favor of the validity of the note as completed, she had the burden of proving that the note was filled up in accordance with authority. She had the burden of proving, in addition, that it was filled up within a reasonable time. The trial court impliedly found these facts in her favor. When findings of fact and conclusions of law are not requested or filed, the judgment of the trial court must be affirmed if it can be upheld on any legal theory that finds support in the evidence. Bishop v. Bishop, 359 S.W.2d 869, 871 (Tex.Sup.1962).

A copy of the Seaman note is in evidence showing it to be complete. Under the provisions of Section 14, the note in its completed form is prima facie evidence, and created a rebuttable presumption, that it was filled up in accordance with authority. The implied finding that Jonathan acted within his authority when he directed the filling up of the note in 1963 is thus supported by evidence. While lower courts may find in particular cases that a note does not support a finding by a preponderance of the evidence, i. e., that it is not sufficient evidence to support a fact finding, we are not at liberty to hold in light of the statute that a completed note is no evidence, just as a trial court would not be authorized to instruct a verdict or enter a judgment notwithstanding the verdict on the issue of authority when a completed note is in evidence. Our holding in this regard is controlled by the statute. which makes the completed note itself prima facie evidence that it was completed in accordance with authority.

The other fact which the plaintiff is required to show is that Jonathan acted within a reasonable time. The implied finding of the trial court is that the time was reasonable. The evidence viewed most favorably in support of the judgment indicates that at least ten years passed after the note was made before Jonathan directed that it be filled up with the date, May 6, 1963. It must be admitted that the evidence supporting the finding that less than eleven and more than ten years was a reasonable time is not strong, but we think it amounts to some evidence of probative force. The note grew out of a transaction between the brothers and their wives in which money was lent for the sole purpose of assisting Irving, apparently the less pe-cunious brother, in his effort to purchase a motel to be his business. The note bore no interest prior to the time it was dated in 1963. The plaintiff testified that Jonathan, shortly before his death, had directed her to collect the note after he died. While it is strongly disputed, the plaintiff also testified that, even after Jonathan’s death Irving asked her not to press him for payment. The record reflects that as long as the brothers lived, their relationship was close and cordial. Article 5948, § 193 provides that “In determining what.is a ‘reasonable time’ or an ‘unreasonable time,’ regard is to be had to the nature of the instrument, the usage of trade or business (if any) with respect to such instruments, and the facts of the particular case.” We find that under such circumstances the period of delay in filling in the dates was not unreasonable as a matter of law, and that the implied finding of the trial court is supported by some evidence.

Defendant objected to the opening testimony of Margaret offered to prove the authenticity of the note. The nature of the objection was that Article 3716, commonly referred to as the dead man’s statute, barred any testimony from Margaret about her transactions with Jonathan or Irving. The objection was waived when the defendant subsequently called Margaret as a witness and examined her with respect to additional facts and events which had occurred both between her and Jonathan and between her and Irving concerning the note, its collection, and the filling up of the blanks. Chandler v. Welborn, 156 Tex. 312, 294 S.W.2d 801 (1956). See generally Walker, The Dead Man’s Statute, 27 Tex. B.J. 315 (1964).

Petitioner contends that the suit was barred by the four-year statute of limitation. We have found that there is evidence to support the implied findings that Jonathan was within his authority when he completed the note and that he did so within a reasonable time. The period of limitation began to run on May 3, 1963, the date of the completed note. Suit was filed October 20, 1965, well within the four-year period provided by Article 5527.

The judgment of the court of civil appeals is affirmed.

      . Article references are to Vernon’s Texas Civil Statutes Ann.


author: STEAKLEY, Justice.

text:
    Neal H. BARBEE, Petitioner, v. N. Jay ROGERS and S. J. Rogers d/b/a Texas State Optical, Respondents.
    No. B-515.
    Supreme Court of Texas.
    Feb. 28, 1968.

      Paul Regnier, Houston, Orgain, Bell & Tucker, Lawrence L. Germer and Howell Cobb, Beaumont, for petitioner.
    King, Sharfstein & Rienstra, John D. Rienstra, Jr., Beaumont, for respondents.
   STEAKLEY, Justice.

Petitioner sued N. Jay Rogers and S. J. Rogers, doing business as Texas State Optical, Respondents, and Texas State Optical, Inc., for damages. He alleged that he purchased contact lenses from them which were improperly fitted and that he was given improper prescriptions and instructions for their use. He further alleged that such acts constituted negligence; also, that the defendants represented to him that the lenses would be suitable for his use and benefit and not injurious but they were harmful and injurious and as such constituted a breach of warranty. The case was tried to a jury and judgment was rendered against Respondents upon findings later noticed. A take-nothing judgment was rendered in favor of the defendant, Texas State Optical, Inc., and no complaint of this action is here. The Court of Civil Appeals reversed the judgment of the trial court against Respondents and rendered judgment that Petitioner take nothing against them. 417 S.W.2d 750. We affirm.

The jury found favorably to Petitioner that he sustained an injury to the cornea of his eye following the prescription, fitting and sale to him of contact lenses furnished by Respondents; and that the lenses were not reasonably fit for use upon the surface of his eyes which caused or contributed to his injury. The jury found favorably to Respondents that they did not fail to fulfill representations that the lenses would not be injurious to Petitioner’s eyes; and that although the lenses did not properly fit the natural curvature of Petitioner’s eyes, which failure was negligence, such was not the proximate cause of his injury. The jury also found that Petitioner was negligent in failing to keep the lenses clean but that such was not a proximate cause of his injury; and that Petitioner did not fail to follow the wearing instructions given him by Respondents. The jury assessed Petitioner’s damages in the sum of $10,000.

Petitioner attacks the holding of the intermediate court upon three points of error, the full text of which is copied in the footnote. These points assert in substance that the court erred in holding that Respondents were not liable upon the theory of strict liability in tort or for breach of a contractual implied warranty of fitness; and that the court erred in recognizing a professional relationship between Petitioner and Respondents. The main thrust of Petitioner’s argument is that “This is a products liability case” in which liability “on breach of an implied warranty of fitness” is supported under our holding in McKisson v. Sales Affiliates, Inc., 416 S.W.2d 787 (Tex.Sup.1967), by the jury findings that (a) the contact lenses were not reasonably fit for use upon the surface of plaintiff’s eyes; (b) the contact lenses caused injury or damage to the tissues of his eyes; and (c) such failure of the lenses to be reasonably fit was the proximate cause of the injuries. Petitioner says,. “The simple fact is that defendant manufactured and sold an unfit product, contact lenses, to the plaintiff and breached the warranty of fitness imposed by public policy.” Petitioner also argues under his second point that the traditional common law contractual warranty of fitness applies. The jury found, however, that Respondents did not fail to fulfill representations that the lenses would not be injurious to the eyes of the Petitioner, and we agree with Respondents that the issues found favorably to Petitioner did not submit the theory of an implied contractual warranty. Moreover, Petitioner assumes in this portion of his argument that Respondents were also the manufacturer of the contact lenses; e. g., “this is a perfect exposition of the ‘consumer reliance upon the integrity of the manufacturer’ stated in Shamrock Fuel and Oil Sales Co., Inc., v. Tunks,” 416 S.W.2d 779 (Tex.Sup.1967). But the evidence establishes that the contact lenses were manufactured by Texas State Optical, Inc., a separate corporate entity, in whose favor a take-nothing judgment was entered by the trial court, and there is no claim that the corporate entity of the manufacturer should be disregarded. The question is thus narrowed to whether the doctrine of strict liability, which is tortious and not contractual, will be extended to the prescription, fitting and sale of contact lenses under the circumstances here shown.

Respondent, Dr. N. Jay Rogers, testified that he and his brother are licensed optometrists and compose a partnership operating eighty-four offices throughout Texas. They employ approximately one hundred twenty-five licensed optometrists and promote the sale of contact lenses by newspaper, television and radio advertisements. The contact lenses are sold for the same price regardless of the difficulty or the simplicity of the eye problems and the number of subsequent examinations which may be required. The charge is made for the product and not for the time of the optometrist. Respondents warrant to those responding to their advertisements of contact lenses that they will be properly cared for and fitted, subject to the qualification of care and use in accordance with specific instructions.

Petitioner’s eyes were examined by a licensed optometrist in one of the offices of Respondents in May, 1959, and contact lenses were prescribed and subsequently fitted for him. They were unsatisfactory to Petitioner, and there followed a series of examinations and corrections by optometrists in the employ of Respondents at offices of Respondents in the Houston area. Petitioner testified that he suffered pain and discomfort when he wore the lenses and that he ceased using them approximately sixteen months later. He subsequently moved to California where he was examined by Dr. Robert E. Christensen, a medical doctor of Ophthalmology. Dr. Christensen testified by deposition that it was his opinion that the contact lenses worn by Petitioner were of a flatter curve than the corneal curve; that he found unusual scarring in Petitioner’s eyes and that “it would be logical to relate the corneal scars to the contact lenses.” A contact lens manufacturer, Jack R. Case, testified that “in checking the lenses on Mr. Barbee we found that the lenses, in our opinion, would be too large and too thick.”

Article 4552 defines the practice of optometry as follows:

“The practice of optometry is defined to be the employment of objective or subjective means, without the use of drugs, for the purp'ose of ascertaining and measuring the powers of vision of the human eye, and fitting lenses or prisms to correct or remedy any defect or abnormal condition of vision. Nothing herein shall be construed to permit optometrists to treat the eyes for any defect whatsoever in any manner nor to administer nor to prescribe any drug or physical treatment whatsoever, unless such optometrist is a regularly licensed physician or surgeon under the laws of this State. Nothing herein shall be construed to prevent selling ready-to-wear spectacles or eye glasses as merchandise at retail, nor to prevent simple repair jobs.”

Article 4565d provides that “the fitting of contact lenses shall be done only under the direct supervision of a licensed physician or licensed optometrist * * Article 4566 provides that the Act shall not apply to persons who sell spectacles and eye-glasses as merchandise, these being defined in Article 4565e as meaning “merchants who do not practice optometry, or offer to practice optometry, but who sell spectacles or eye-glasses as merchandise ⅜ ⅜ ⅜ **

The licensed optometrist, such as Respondents and their employees, is thus enjoined by statute from treatment of the eyes and from the administration or prescription of drugs. The service he renders is the prescription and fitting of corrective devices for visual defects. It is shown by the evidence that the optometrist performs this service by means of mechanical instruments in the use of which he has special training. These instruments are designed to disclose the nature and extent of the eye defect, together with the type of lens required for correction. In brief they are described in the testimony as a retinoscope, which objectively measures the accuracy of vision, i. e., whether a person is farsighted or nearsighted or has an astigmatism; a phoro-optometer, which measures the error of refraction; an ophthalmoscope, by which the structure of the eye is examined and its tissues observed; and a keratometer, which measures the corneal curve, i. e., the actual curve of the front of the eye. It further appears from the evidence that there are two methods of fitting contact lenses, and there is no way to predetermine whether a particular contact lens curve or size will be easily adapted to the patient or can ever be adapted to him. The acts of prescription and fitting are described as an art with many variables and call for an exercise of judgment by the practitioner.

It is apparent that the activities of Respondents fall between those ordinarily associated with the practice of a profession and those characteristic of a merchandising concern. A professional relationship is present in the facts that contact lenses are prescribed and fitted by a licensed optometrist after examination of the eyes and in the exercise of his judgment. A merchandising relationship is suggested by the multiple offices of Respondents throughout the State; by their advertising and sales techniques designed to promote the sale of contact lenses at a predetermined and advertised price; and by their standardization of procedures and methods. Petitioner argues that the latter in effect destroys the statutory distinction between the professional act of fitting lenses or prisms to correct or remedy visual defects and the merchandising act of selling corrective eye devices. Respondents, on the other hand, point to this statutory distinction as making clear that the licensed optometrist is not considered a mere merchant.

In McKisson v. Sales Affiliates, Inc., supra, we extended the rule of strict liability applicable to foodstuffs for human consumption, Decker and Sons, Inc. v. Capps, 139 Tex. 609, 164 S.W.2d 828, 142 A.L.R. 1479 (1942), to defective products which cause physical harm to persons. In so doing, we adopted the rule of the Torts Restatement. It is to be noted that the jury findings here closely parallel those in Mc-Kisson. In our opinion, however, and we so hold, the rule of strict liability is inapplicable. Respondents and the licensed optometrists in their employ exercise skill and judgment in the examination, prescription and fitting process whereby it is sought to remedy visual abnormalities by the use of curved lenses or prisms. The failure here is not attributable to the product itself, i. e., the contact lenses, but to the professional and statutorily authorized act of “measuring the powers of vision” of Petitioner’s eyes and “fitting lenses * * * to correct or remedy * * * [his] defect or abnormal condition of vision.” This is not the act of one selling a “product in a defective condition unreasonably dangerous to the user” in the terms of the Torts Restatement. It is the act of one deemed in law to have the competence to remedy a visual defect by furnishing particularly prescribed contact lenses. Apart, then, from Respondents way of practicing optometry, the fact remains that the contact lenses sold to Petitioner were designed in the light of his particular physical requirements and to meet his particular needs. Presumably, and insofar as this record shows, they were not in existence when Petitioner sought the services of Respondents. They were not a finished product offered to the general public in regular channels of trade. The considerations supporting the rule of strict liability are not present. Petitioner cites no case authority for so extending the rule, and we have found none in our research. In addition to the disqualifying factor of the professional relationship, Petitioner’s claim for application of the rule is not premised on any defect in the lenses as such, nor was it contemplated that Petitioner would use them without changes or adjustments to fit his needs. The miscarriage, if such there was, rests in the professional acts of Respondents and not in the commodity they prescribed, fitted and sold. As to this, the jury found that the negligence of Respondents in failing to properly fit the natural curvature of Petitioner’s eyes was not the proximate cause of his injury.

The judgment of the Court of Civil Appeals is affirmed.

      . “FIRST POINT OF ERROR. The Court of Civil Appeals erred in holding that the Defendant Partnership Texas State Optical, as a matter of law, was not liable to plaintiff Barbee upon breach of implied warranty of fitness, based upon public policy (strict liability in tort), where the contact lenses that it manufactured and furnished plaintiff were not reasonably fit for the use intended upon the surface of plaintiff’s eyes, proximately causing injury and damage to plaintiff’s eyes and vision, and in ignoring the jury verdict so finding.
      “SECOND POINT OF ERROR. The Court of Civil Appeals erred in holding as a matter of law, that Texas State Optical was not liable to plaintiff for breach of its contractual implied warranty of fitness of the contact lenses it sold to him; and in ignoring the jury’s findings thereon found for the plaintiff.
      “THIRD POINT OP ERROR. The Court of Civil Appeals erred in holding that plaintiff’s purchase of contact lenses from defendant Texas State Optical, (a partnership with 84 outlets, employing ‘approximately’ 125 licensed optometrists) was governed by a doctrine, announced by the Court as similar to a physician-patient relationship, actionable only in the event of provable negligence.”

      . The references are to the statutes as they appear in Vernon’s Annotated Texas Civil Statutes.

      . Restatement (Second) of Torts, § 402A (1964) :
      “(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if
      “(a) the seller is engaged in the business of selling such a product, and
      “(b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.
      “(2) The rule stated in Subsection (1) applies although
      “(a) the seller has exercised all possible care in the preparation and sale of his product, and
      “(b) the user or consumer has not bought the product from or entered into any contractual relation with the seller.”