text:
    Mildred Mitchell JONES et vir, Appellants, v. S. H. KILLINGSWORTH et al., Appellees.
    No. 2.
    Court of Civil Appeals of Texas. Tyler.
    May 7, 1964.
    Rehearing Denied June 4, 1964.

      John A. Pace, Edward Kliewer, Jr., Dallas, for appellants.
    Ralph B. Shank, Shank, Irwin & Chester, Dallas, Frank L. McClendon, Ramey, Brelsford, Hull & Flock, Tyler, Prentice Wilson, Dallas, F. Wilbert, Lasater, Sprui-ell, Lowry, Potter, Lasater & Guinn, Murph Wilson, Wilson, Miller, Spivey & Steger, Tyler, for appellees.
   MOORE, Justice.

This suit was instituted by Mildred Mitchell Jones, plaintiff, joined pro forma by her husband, against S. H. Killingsworth and other defendants, selcing a judgment declaring that a certain mineral lease heretofore executed by her, to have terminated at the expiration of its primary term because lessee exceeded his authority in pooling her land in a unit substantially larger than the 40-acre tract provided in the lease; she is also seeking to remove the cloud upon her title by reason of such lease, and for title and possession of the leased premises. In a trial before the court, without a jury, judgment was rendered for the defendants, thereby holding that the lease did not terminate at the expiration of its primary term, to which judgment appellants (plaintiffs) excepted and perfected this appeal.

All material facts of the case were either ■stipulated or agreed to by the parties or sought to be proved by exhibits. It was stipulated that the lease was duly executed by Mildred Mitchell, then a feme sole, on August 16, 1951, to S. S. Long, defendant Killingsworth predecessor in title, for a primary term of ten (10) years; that the lease was in full force and effect on July 12, 1961, on which date defendant Killings-worth, then the owner of the Mitchell-Long lease, entered into a pooling agreement wherein he pooled the land covered by the lease, along with other leases to form the Hunt Oil Company, et al — West Poynor Unit for the production of oil; that based upon the recitations in the leases as to acreage, the defendants believed the area in the pooled unit to contain 150.47 acres; that on July 3, 1961, before commencing drilling operations, defendants made application to drill the well upon the unit, which application supplied all the information required by the Railroad Commission, as well as a plat delineating the boundaries of the proposed 150.47-acre Hunt Oil Company— West Poynor Unit. Based upon the application, the Commission granted a permit to drill the well on July 6, 1961; that the well was drilled within the unit, but not on plaintiffs’ land, and was completed as a producing oil well before the expiration of the primary term of the lease on August 16, 1961, which well has, since said date, continued to produce oil in paying quantities ; that during September and October, 1961, the unit operator, Hunt Oil Company, made an actual survey of the unit on the ground and aLor completion of the survey discovered that the unit actually contained 170.86 acres, rather than 150.47, as recited in the leases; that on November 14, 1961, defendants amended the description of the unit so as to exclude 10.86 acres therefrom, thus leaving 160 acres in the unit; however, none of the appellants’ land was excluded, but was left in the unit as originally pooled. It was stipulated that appellee acted in good faith in pooling the land of appellants under the lease; that appellee was in good faith in making the application to the Railroad Commission for a permit to drill the unit well and at all times acted in good faith in drilling, completing, equipping and producing the unit well.

The controversy involves the question of whether or not paragraph 4 of the lease grants lessee the authority to pool appellants’ land into an oil unit consisting of more than 40 acres.

Paragraph 4 of the lease reads as follows:

“4. Lessee, at its option, is hereby-given the right and power to pool or combine the acreage covered by this lease, or any portion thereof as to oil and gas, or either of them, with other land, lease or leases in the immediate vicinity thereof to the extent, hereinafter stipulated, when in Lessee’s judgment it is necessary or advisable to do so in order properly to develop and operate said leased premises in compliance with the spacing rules of the Railroad Commission of Texas, or other lawful authority, or when to do so would, in the judgment of Lessee, promote the conservation of oil and gas from said premises. Units pooled for oil hereunder shall not substantially exceed 40 acres each in area, and units pooled for gas hereunder shall not substantially exceed in area 640 acres each plus a tolerance of 10% thereof, provided that should governmental authority having jurisdiction prescribe or permit the creation of units larger than those specified, units thereafter created may conform substantially in size with those prescribed by governmental regulations.” (Emphasis supplied.)

The habendum clause in the lease is to be •found in paragraph 2 and reads as follows:

“Subject to the other provisions herein contained, this lease shall be for a term of ten (10) years from this date * * * and as long thereafter as oil * * * is produced from * * * land with which said land is pooled hereunder.”

The pertinent Rules and Regulations of -the Railroad Commission for the Fairway Field at the time the Unit Declaration effecting the pooling was executed and filed provided under Rule 1 that no oil or gas well could be drilled upon a tract or unit ■containing less than 40 acres, and further ■provided:

“The aforementioned distances in the above rule are minimum distances to allow an operator flexibility in locating a well, and the above spacing rule and the other rules to follow are for the purpose of permitting only one well to each eighty (80) acre proration unit.” (Emphasis supplied.)

Rule 2 provides in part as follows:

“The acreage assigned to the individual oil well for the purpose of allocating allowable oil production thereto shall be known as a proration unit. No proration unit shall consist of more than eighty (80) acres except as hereinafter provided, and the two farthermost points in any proration unit shall not be in excess of forty two hundred (4200) feet removed from each other
“Provided, however, that operators may elect to assign tolerance of not more than eighty (80) acres of additional unassigned lease acreage to a well on an eighty (80) acre unit and shall in such event receive allowable credit for not more than one hundred sixty (160) acres.”

Appellees, in connection with their Unit Designation and application for a permit to drill upon the 150.47-acre unit, made the following declaration:

“WHEREAS, the undersigned owners, in order to promote conservation and to comply with the spacing rule adopted by the aforesaid Order, desire to designate a unit for the purpose of drilling for and producing oil from the James Lime formation underlying the unit area hereinafter described.”

The permit issued by the Railroad Commission of Texas dated July 6, 1961, granting appellee a permit to drill upon the Designated Unit, contained the following language.

“Based upon the representations made on the above Form 1 and those made on any plat or plats filed therewith, it is believed that the operation indicated, when carried out at that point which you have represented to be the location of the above designated Well, complies as of the date hereof, with the provisions of the applicable Commission spacing rule, subject to the limitations, if any, set out below. * * * ” (Emphasis supplied.)

Appellants now contend that even though the Railroad Commission granted the permit to drill for oil upon the Designated Unit which contained 150.47 acres, such unit of such size was not “prescribed” by any of the regulations issued by the Commission and since the lessee was only authorized to form a unit that would conform substantially in size to those “prescribed” by the Commission, lessee, in pooling her lands in a unit substantially larger in size than that “prescribed” by the Commission, exceeded his authority and therefore, her land never having been effectively pooled, the lease expired at the end of its primary term.

Appellants contend that the second sentence in paragraph 4 of the lease, in providing that “Units pooled for oil hereunder shall not substantially exceed 40 acres each in area * * *” is clearly referring back to the power to pool granted in the first sentence of paragraph 4, i. e., in order to comply “with the spacing rules of the Railroad Commission of Texas” and the proviso of such second sentence reading as follows:

“ * * * provided that should governmental authority having jurisdiction prescribe or permit the creation of units larger than those specified, units thereafter created may conform substantially in size with those prescribed by governmental regulations” (Emphasis supplied)

can properly only he construed to authorize pooling of appellants’ land into oil units of an area “substantially exceeding 40 acres” when,'to comply with the spacing rulés of the Railroad Commission, the well is required to be located on a larger tract. And since the latter.part of this clause omits the word “permit,” which appears earlier in the proviso, lessee gained no authority to do that which was “permitted” as distinguished from that “prescribed”.

In this connection, appellant cites the following definition of the terms: “Permit” is defined by Webster as follows:

“Permit (L. permittere, permissum, to let through, to allow, permit, fr. per — mittere to let go, send. See per — ; mission.) 1. To allow the act or existence of; to tolerate; to consent to expressly or formally; to grant leave for or the privilege of; as, to permit smoking. 2. To grant (one) license or liberty; to authorize; to give leave; —usually followed by an infinitive; as, to permit him to answer; to permit oneself to become extravagant. Syn. — Let, grant, suffer. See Allow. Ant. — Forbid, prohibit.”

whereas “prescribe” is defined:

“Prescribe (L. praescribere, prae-scriptum, fr. prae before — scribere to write, see scribere.) 2. To lay down authoritatively as a guide, direction or rule of action; to impose as a premp-tory order; to dictate; direct; ordain; as, to prescribe regular hours of study. 3. To keep within limits or bounds; to restrain; to confine. Syn. — Limit, control, order, guide.”

Hence, appellant argues that under paragraph 4 of the lease the lessor granted lessee the power to pool lessor’s land into oil units substantially exceeding 40 acres in size only if “the spacing rules of the Railroad Commission of Texas,” require or order (i. e., prescribe) that an oil well be located on a tract substantially larger than 40 acres.

Appellant further contends that the lease did not grant authority to pool the leased land into proration units, but only grants authority to pool the leased land into units of the size prescribed by the Spacing Rule, i. e., 40 acres, and not haying pooled the appellants’ land in compliance with the provisions thereof, the lease terminated at the expiration of its primary term.

Appellee, on the other hand, contends that the authority conferred by the lease is a broad “sweeping” power, not confined only to units involving spacing provisions but to proration and conservation as well, and that under the terms thereof, he was authorized to form a 160 acre unit, and that the production of oil from any part thereof would prevent termination of appellants’ lease at the end of the primary term.

Appellant presents two points on this appeal wherein it is contended that (1) the trial court erred in holding the lease and the land covered thereby was effectively pooled in accordance with the terms and conditions of the pooling provisions in the lease, and (2) that the trial court erred in holding that the lease is now a valid and subsisting lease.

The outcome of this controversy will depend upon the meaning to be accorded to the language used in paragraph 4 of the lease under consideration. Although the parties seem to agree that there is no ambiguity in the provisions of the lease, their interpretation of the language used therein brings them to exactly opposite conclusions. The fact that the parties have reached opposite conclusions does not in and of itself render the contract ambiguous, and we have concluded that there is no ambiguity. Phillips Petroleum Co. v. Harnly, Tex.Civ.App., 348 S.W.2d 856. The meaning of that section of the contract in dispute must therefore be determined as a matter of law by the language used therein. Lewis v. East Texas Finance Co., 136 Tex. 149, 146 S.W.2d 977; Tower Contracting Co. v. Flores, 157 Tex. 297, 302 S.W.2d 396.

Although no presumption exists in favor of the trial court’s determination of the meaning of the language used in the lease, if there be any question in regard to the sufficiency of the evidence, this court is bound by the well-settled rule that when the appellants contest the trial court’s judgment without requesting findings of fact and conclusions of law, as is the case here, the judgment must be sustained if there is any evidence of probative force to support it on any theory of the case. Highsmith v. Tyler State Bank & Trust Co., Tex.Civ.App., 194 S.W.2d 142; City of Abilene v. Meek, Tex.Civ.App., 311 S.W.2d 654.

In the interpretation of oil and gas leases as in other forms of contracts, it becomes our duty, as best we can, to ascertain the meaning of the contract as an expression of the intention of the parties, each provision of the contract must be accorded its reasonable, natural and probable meaning, when considered in relation to the whole. We cannot seek to find some technical basis for finding an ambiguity when a reasonable interpretation will permit all to prevail. The strict or narrow construction is always subordinate to the rule of reasonable construction. Bouldin v. Gulf Production Co., Tex.Civ.App., 5 S.W.2d 1019; Southwestern Life Ins. Co. v. Houston, Tex.Civ.App., 121 S.W.2d 619.

The problem of determining the authority granted by the lessor to lessee in the pooling provisions of oil and gas leases is not new in the jurisprudence of this state. In the case of Tiller v. Fields, Tex.Civ.App., 301 S.W.2d 185, where the authority of the lessee was in question, the court made the following observation:

“Anticipatory provisions in leases for the commitment by the lessee of such leases to unitization, of necessity must be in general terms. Neither the lessor nor the lessee has any way of knowing at the timé the lease is taken the facts with respect to which it will be necessary for the lessee to apply his power. It is not practicable for the lessee to await.the ascertainment of such facts. He knows from experience that because of the possibility of many changes in ownership of the lessor’s interest as time goes on, it may be difficult to effect an agreement if the right to unitize is not included in the lease itself. Phillips Petroleum Co. v. Peterson, 10 Cir., 218 F.2d 926. The Texas courts, as well as other courts, have recognized these basic facts, and have consistently sustained the basic validity of lease pooling provisions and units formed under their authority. * * * ”

Again in Texaco, Inc. v. Lettermann, Tex.Civ.App., 343 S.W.2d 726, the extent of the authority of the lessee under the pooling provision was questioned and the court held:

“That pooling or unitizing of oil and gas leases is a standard practice in the industry cannot be questioned. It is equally recognized that unitization is often a more feasible method of operation from an engineering and scientific point of view. Unitization can be said to be advantageous to both lessors and lessees. We think these facts lead to the conclusion that in the absence of clear language to the contrary, pooling clauses should not be construed in a narrow or limited sense. The United States Court of Appeals, 10th Circuit, in Phillips Petroleum Co. v. Peterson, 218 F.2d 926, 933 was considering a unitization provision in a mineral lease. In such a situation the court held the relationship between the lessor and lessee was analogous to that between principal and agent and cited Imes v. Globe Oil & Refining Co., 184 Okl. 79, 84 P.2d 1106. The court further held that the pooling clause ‘is in the nature of a power coupled with an interest, and is, therefore, irrevocable.’ Such language, together with the conclusions reached by the courts, indicates the power to pool leases by the lessee should be given broad powers * * *.”

The relationship between lessor and lessee being, in some respect, analogous to that of a principal and agent, such broad powers granted in the pooling provisions of the lease would, of course, likewise be limited by the duty owed by the lessee to exercise a high degree of good faith and loyalty in the furtherance of the interest of the lessor.

We have concluded that the above and foregoing rules and broad principles announced by the courts of this state find application to the legal effect of the pooling provisions in the lease in the case before us.

Turning now to the provisions of paragraph 4 of the lease, and keeping in mind the principles announced in the above' cases, it is obvious that in this case the lessor intended to grant the lessee the power and authority to1 pool her land with other lands. She obviously intended to-grant her lessee the power and authority to-include her lease within a pooled unit.. Being thus authorized to pool and to place the lease in a pooled unit, the question then becomes a question of the extent of the lessee’s authority in formulating the type- and size of the unit. Lessee’s authority to pool to comply with spacing rules of the Railroad Commission of Texas and his. authority to pool when in his judgment such pooling would promote conservation is not in question. According to the agreement of the parties in paragraph 4 of the lease, units pooled for oil could not substantially exceed 40 acres, but recognizing that governmental authority might “prescribe”' certain governmental regulations, lessor agreed that in such event lessee’s authority would then be extended so that he would be-authorized to form a unit which would' conform substantially in size to that “prescribed” by governmental regulations. In determining the extent of lessee’s authority under this provision, we must determine what lessor meant by the use of the word “units” and what lessor meant b}r the term “governmental regulations”. In other words, does the lease by the use of the term “units” limit the lessee’s authority to only “units” formed for the purpose of spacing or does such term have reference generally to both spacing and proration units. Since the lessor granted lessee the authority to pool when in his judgment it was necessary for spacing purposes as well as for conservation purposes, we conclude that the term “units” as used in the lease was intended to give the lessee broad authority to form a “unit” for either purpose. The same question also arises with regard to the meaning of the word “governmental regulations”. In other words, does the term only have reference to spacing regulations or is it a general term referring to both spacing and proration. Not being specific, we must conclude that it generally includes both spacing and proration. Therefore, the conclusion is reached that the lessee was given authority to form units for proration purposes, as well as for spacing purposes. But even so, such authority in sizing is limited to that “prescribed” by governmental regulations. As was pointed out above, the term “prescribe” means, “To lay down authoritatively as a guide, direction or rule of action.”

Turning now to the “prescribed” governmental regulations, we find that the applicable rules and regulations for the Fairway Field, in which appellants’ land is located, as promulgated by order of the Railroad Commission of Texas, laid down authoritatively as a guide, direction or rule of action (1) that the spacing rule for each well was to be a minimum of 40 acres (which is but a re-statement of the statewide spacing rule) ; (2) that only one well would be permitted to each eighty (80) acre proration unit; and (3) that no pro-ration unit should consist of more than 80 acres, provided, however, operators might elect to assign tolerance of not more than eighty (80) acres of additional unassigned lease acreage to a well on an eighty (80) acre unit, in which event the operator would receive allowable credit for not more than one hundred sixty (160) acres.

Lessee was bound and obligated to keep within those rules laid down by governmental authority as a guide, direction or rule of action, otherwise, he would exceed his authority. But, so long as he kept within the “prescribed” rules, he was authorized to form any type of unit “prescribed” or authoritatively laid down as a guide, direction or rule of action by governmental authority.

The regulation grants authority to assign an additional eighty (80) acres of unassigned leases to an 80-acre proration unit for a production unit of 160 acres. In combining appellant’s lease in accordance with this regulation, appellee was acting within the scope of the authority granted by the appellant in authorizing him to do ■ that which was “prescribed” by governmental regulations. Although the unit as originally formed was later determined by a survey on the ground to contain 170.86 acres rather than 150.47 acres as shown by the leases, we believe that it conformed substantially in size to the 160-acre units prescribed by governmental regulations. The act of the lessee in reducing the size of the unit from 170.86 to 160 acres by eliminating the excessive 10.86 acres, in order to make the unit more nearly “conform substantially” in size to that prescribed by governmental regulations, was in the best interest of the lessee and we think was within the scope of authority granted in the lease.

It being undisputed that appellee— Lessee acted in good faith in pooling the leased premises and acted in good faith in forming the unit, applying for the permit, drilling and producing oil upon the unit prior to the expiration of the primary term of the lease, and we having concluded that lessee did not exceed his authority granted him in the lease in the creation of the unit, it follows that the lease did not terminate at the expiration of its primary term, but remained in full force and effect.

The judgment of the trial court is affirmed.


source: Caselaw Access Project

author: COLLINGS, Justice.

license: Public Domain

text:
    J. H. CADE et al., Appellants, v. Myra L. DUDNEY et al., Appellees.
    No. 3889.
    Court of Civil Appeals of Texas. Eastland.
    May 8, 1964.
    Rehearing Denied May 29, 1964.
    Coleman & Whitten, Earl L. Coleman, Denton, for appellants.
    W. H. Frank Barnes, Terrell, for appel-lees.
   COLLINGS, Justice.

'Mrs. Myra L. Dudney and others, heirs of J. W. McKnight, deceased, brought suit against J. H. Cade and others, heirs of Nora C. McKnight, deceased. Plaintiffs alleged that they and defendants were joint owners of a 50.95 acre tract and a 17.06 acre tract of land in Rockwall County, and an interest in minerals in Midland County, Texas, and sought to have the lands partitioned. Defendants admitted that they and plaintiffs were joint owners of the 17.06 acre, tract and the mineral interest but alleged that they, as the heirs of Mrs. McKnight were sole owners of the 50.95 ■acre tract, contending that such tract was the community property of J. W. McKnight and wife Nora C. McKnight; that they acquired it during their marriage by deed from J. O. Wallace and wife on February 21, 1927, or, in the alternative, that there was a commingling of such property with community funds, and because J. W. Me-Knight died first and both he and his said wife died without children.

Plaintiffs alleged that J. O. Wallace never owned the land in dispute; that the title thereto was always, until the time of his death, vested in J. W. McKnight as his separate property; that plaintiffs, as heirs of J. W. McKnight, inherited a interest therein and that his wife, Nora C. McKnight, inherited the other 1/2 interest, which at her death was inherited by the defendants; that said S0.9S acre tract was purchased by McKnight on December 19, 1905, and that he and Nora C. McKnight were married on August 22, 1908; that on December 28, 1926, Mr. McKnight and wife executed a deed purporting to convey the land in dispute to J. O. Wallace, but that the purported deed was void and passed no title to Wallace because the land was at the time the homestead of J. W. McKnight and wife and the deed to Wallace was made for the sole purpose of creating a lien on the homestead, and was in fact a mortgage, rather than a deed; that a loan was procured by the McKnights in connection with the transaction and after the loan was obtained Wallace and his wife, in accordance with a previous agreement, executed an instrument purporting to convey the land back to J. W. McKnight; that the loan was paid off before McKnight’s death in 1955; that McKnight, and his wife who died in 1960, both died intestate; that no children were born to them and none adopted.

The case was tried before the court without a jury. The court found that the transaction between the McKnights and Wallace in 1926, was a simulated sale and that the purported deed to Wallace was void and passed no title. Judgment was entered partitioning the land between plaintiffs and defendants. J. H. Cade and other defendants have appealed in so far as the judgment relates to the disputed 50.95 acre tract.

Appellees present points of error contending that the court erred in holding (1) that the sale of the 50.95 acre tract to Wallace by McKnight and wife was a simulated sale, (2) that the deed from J. W. McKnight and wife to Wallace was void, and (3) erred in holding that said tract was the homestead of J. W. McKnight and wife Nora C. McKnight.

The evidence bearing upon the questions presented and contentions made shows that J. W. McKnight purchased the 50.95 acres of land in 1905 when he was a single man; that he assumed indebtedness then existing against the land and as additional consideration also gave a note to the seller; that in August, 1908, he married Nora C. McKnight, and the indebtedness assumed when he purchased the land was not paid and released until 1923. The evidence further shows that soon after the marriage of J. W. McKnight and Nora C. McKnight they moved on the land in question and used and occupied it until the death of J. W. McKnight in 1955. Nora C. McKnight continued to reside on the land until she died in 1960. Mr. J. O. Wallace testified that he was well acquainted with J. W. McKnight and his wife; that he became acquainted with McKnight in 1903, ’04 or ’05; that he was familiar with the 50.95 acre tract of land and knew that a house was on it; that soon after the marriage of the McKnights they moved on the land and lived on it as their home until their deaths; that no children were born of such marriage. The evidence shows that in December, 1926, J. W. McKnight and wife by a general warranty deed valid on its face, conveyed the tract in question to J. O. Wallace. This deed recited a consideration of $9,171.00, $5,171.00 stated to be paid in cash by J. O. Wallace and $4,000.00 evidenced by a note executed by Wallace and payable on or before January 1, 1928, to J. W. McKnight. Mr. Wallace testified that he remembered this transaction and that he received the deed to the land; that he did not pay any cash consideration as stated in the deed but did sign the note for $4,000.00. He testified that before the execution and delivery of the deed to the land and the $4,-000.00 note he had a conversation with J. W. McKnight in which they discussed the fact that McKnight had some personal debts which he was unable to meet and wanted to get a loan secured by a lien on his land. Mr. Wallace testified that McKnight stated he was unable to accomplish his purpose because the land was his homestead, and he requested Mr. Wallace to help him; that Mr. McKnight said “I will deed this to you and in the deed we will create a lien against the land and then I will hope to get the loan company to take up this lien after which you will deed it back to me.” Mr. Wallace further testified that he knew Mr. McKnight well, knew him to be an honest man and couldn’t see that the transaction requested by McKnight would hurt anybody, so he told Mr. McKnight that if the loan company would pick up the loan that he would help him.

The evidence further shows that thereafter on February IS, 1927, J. W. McKnight sold and transferred the $4,000.00 note executed by Wallace to John Hancock Mutual Life Insurance Company for the sum of $2,500.00 without recourse on J. W. McKnight. The transfer recited the assignment of the note “with a credit thereon of $1,500.00.” On the same day J. O. Wallace and wife executed a new note for $2,500.00 and a deed of trust directly to said insurance company. Then on February 21, 1927, J. O. Wallace and wife executed a deed purporting to convey the land in question to J. W. McKnight. The consideration recited in that deed was $6,000.00 in cash and the assumption of the $2,500.00 note held by John Hancock Mutual Life Insurance Company. Mr. Wallace testified that he never paid any part of the recited consideration to Mr. McKnight when the deed was made to him nor did he ever pay any thing on the $2,500.00 note. He testified that he never claimed any interest in the land; that he received no consideration whatever when he conveyed the land back to McKnight, and that the purpose of the whole transaction was the securing of a loan by McKnight and the creation of a lien on the homestead of J. W. McKnight and wife.

In our opinion appellants’ point contending that the court erred in holding that the 50.95 acre tract in question was the homestead of J. W. McKnight and wife at the time of the execution of the deed to Wallace in 1926 is not well taken. In the case of Wallingford v. Bowen, Tex.Civ.App., 104 S.W.2d 188, a homestead is defined as a place where a family lives, and if not in a city or town consists of not more than 200 acres of land. See also 40 C.J.S. Homesteads § 1, p. 430. We cannot agree with appellants’ contention that the evidence showed no more than mere occupancy of the 50.95 acre tract and that the testimony of Wallace to the effect that said tract was the home of Mr. and Mrs. McKnight was no more than an opinion or conclusion on the part of Wallace. Wallace testified that he was well acquainted with Mr. McKnight before his marriage and knew that when he married Nora C. McKnight they moved on said land; that there was a house on it and it was their home; that they lived thereon until their deaths. The evidence in our opinion amply supports the holding of the court that the land was the homestead of J. W. McKnight and wife and the court did not err in so holding.

We also overrule appellants’ point contending that the court erred in holding that the sale of the land to Wallace by McKnight and wife in 1926 was a simulated sale. Appellants’ contention is that the sale by McKnight to Wallace was a conditional one and not simulated; that the condition was that if Wallace would give him a marketable note and he could sell the note and get the money on it from an innocent purchaser, that Wallace would then deed the land back to McKnight and that he, McKnight, could then repay the note. Certainly the evidence even as interpreted by appellant supports the conclusion that the deed from the McKnights to Wallace was made for the sole purpose of securing a loan by McKnight and of creating a lien on the homestead, and was, in fact, intended as a mortgage rather than a deed. Appellants’ point to the contrary is overruled.

The evidence without question brings the transaction within the provisions of Article 16, Section 50 of the Constitution of the State of Texas, Vernon’s Ann.St., which states:

“ * * * No mortgage, trust deed, or other lien on the homestead shall ever be valid, except for the purchase money therefor, or improvements made thereon, as hereinbefore provided, whether such mortgage, or trust deed, or other lien, shall have been created by the husband alone, or together with his wife; and all pretended sales of the homestead involving any condition of defeasance shall be void.”

It has been uniformly held by the courts of this state that when a purported sale of a homestead is made for the purpose of creating a lien thereon for any purpose other than those provided for by the constitution the purported sale is void and no title passes to the grantee. Contrary to appellants’ contention the court did not err in holding that the deed from McKnight and wife to Wallace in 1926 was void because it was a conveyance made for the sole purpose of creating a lien on their homestead in a manner specifically prohibited by the constitution of this state. Andrews v. Security National Bank of Wichita Falls, 121 Tex. 409, 50 S.W.2d 253, 83 A.L.R. 44; Kearby v. Cox, 211 S.W. 932, (Tex.Com. of App.); Bayless v. Guthrie, (Tex.Com. of App.), 235 S.W. 843; McKelroy v. Hamilton, Tex.Civ.App., 130 S.W.2d 1114.

In appellants’ fifth point it is contended that the court erred in holding that the 50.95 acre tract was the separate property of J. W. McKnight. Appellants contend that the evidence showed that “It was commingled by J. W. McKnight and that J. W. McKnight treated it as the community property of himself and his wife, Nora McKnight.” The evidence shows that This land was acquired by J. W. McKnight in 1905 prior to his marriage. The status of property so far as being separate or community property is fixed by the facts which existed at inception of the title and it was therefore his separate property. MacRae v. MacRae, Tex.Civ.App., 144 S.W.2d 320 (Writ Ref.). The fact that the indebtedness assumed by J. W. McKnight when he purchased the land in 1905 was not paid until 1923 does not show a commingling or constitute the land community property of McKnight and his wife.

We have carefully examined all points urged by appellants and find that they are not well taken.

The judgment is affirmed.


author: DUNAGAN, Chief Justice.

text:
    Raymond D. PAYNE et ux., Appellants, v. CITY OF TYLER, Appellee.
    No. 40.
    Court of Civil Appeals of Texas. Tyler.
    March 19, 1964.
    Rehearing Denied May 7, 1964.
    Second Rehearing Denied June 4, 1964.

      Wm. R. Crocker, Lawrence & Lawrence, Tyler, for appellants.
    Troy Smith, Smith & Smith, Henry L. McGee, Jr., Tyler, for appellee.
   DUNAGAN, Chief Justice.

On September 19, 1960, the City of Tyler, a municipal corporation, possessing the right of eminent domain, filed a condemnation action against the appellants herein for the purpose of acquiring easement rights with respect to a lighting approach to its municipal airport over certain lands owned by the defendants (appellants). Commissioners were appointed and after a hearing was had, an award was made on September 28, 1960, which was filed with the County Judge of Smith County, Texas. On the following day, September 29, 1960, the City of Tyler deposited in the registry of the court the amount of the award and thereupon went into possession of the property The defendants (appellants here) filed objections to the award on October 6, 1960, and withdrew the amount of the award on the 9th day of January, 1961. No citation was ever issued for service on the City of Tyler and no effort was ever made by the appellants to bring this action to trial. On September 19, 1963, two (2) years, eleven (11) months, and thirteen (13) days after appellants filed objections to the award, the City of Tyler filed its motion requesting the court to dismiss the cause for want of prosecution and because of abandonment. The hearing on the motion was held on July 2, 1963, and on the 4th day of October, 1963, an order dismissing such cause was signed by the presiding judge of the County Court at Law of Smith County, Texas.

Appellants have duly perfected their appeal from said judgment and we are called upon to review the action of the trial court.

The trial court, at the request of the appellants, filed findings of fact and conclusions of law.

By appellants’ first point of error they complain that the court erred in dismissing defendants’ cause of action based upon its conclusion that the two-year statute of limitation is applicable to this cause of action.

Appellee, by way of counter-point No. 1, contends that the appellants’ right to recover money in addition to the award made by Condemnation Commissioners and the amount deposited in the registry of the court and thereafter accepted by the appellants, constituted a cause of action for damages to be tried as any other civil action when the objections to the award was filed and the two-year statute of limitations applied.

Appellee’s contention is sustained.

The filing of objections to the Condemnation Commissioners’ award constitutes the institution of the lawsuit to be tried and determined as any other civil cause in court. City of El Paso v. Ward, Tex.Civ.App., 213 S.W.2d 726; Pearson v. State, Tex.Civ.App., 307 S.W.2d 159; Lower Nueces River Water Supply District v. Cartwright, 160 Tex. 239, 328 S.W.2d 752; Article 3266, Rev.Civ.St.Tex., Vernon’s Ann.Civ.St. art. 3266.

The right to recover additional damages if the condemnees had suffered additional damages, accrued when Condemnation Commissioners’ award was filed and the right to recover such additional damages, if any were suffered, is made dependent by virtue of Article 3266, R.C.S.T., upon the condemnees’ filing of objections to the award within ten (10) days after the award was made. So, therefore, it may be said •that the limitation period started to run at the end of ten (10) days after the award was made. In this case, the appellants’ action for additional damages was filed within the ten-day period. However, the filing of such suit did not have the effect of suspending limitation for the reason that there was no citation issued and there was no effort made to bring this case to trial during the time from the filing of the objections until the motion to dismiss the same for want of prosecution and abandonment was heard, which period is almost three years.

The mere filing of a suit does not suspend the running of the statute of limitation against a claim.

In the case of Adams v. Slattery, 156 Tex. 433, 295 S.W.2d 859, our Supreme Court held that the mere filing of a suit in 1940 did not interrupt the running of the statute of limitation against a claim.

In the case of Patrick v. Callan, Tex.Civ.App., 353 S.W.2d 40, the Supreme Court said:

“In order to toll the statute of limitation by the filing of a suit there must be not only a bona fide intention that process be issued and served, but diligence as well.”

The Austin Court of Civil Appeals in January, 1962 (no writ history), in the case of McMullen Oil and Royalty Co. v. Lyssy, 353 S.W.2d 311, said:

“In Texas it has long been held that the mere filing of a petition does not toll the statute of limitations since there must be a bona fide intention that process be issued and served and due diligence must be exercised in both the issuance and service of process.”

Therefore, in this case, since appellants never caused citation to issue and never did anything toward the prosecution of this suit and did not offer any excuse or reason for not prosecuting the suit, limitation was not suspended by the filing of the suit. The findings of fact and conclusions of law made by the trial court, not having been excepted to, or objected to in any manner by the appellants, is conclusive of the fact situation.

Appellants take the position that the two-year statute of limitation does not apply and that the ten-year statute of limitation is the one applicable.

Article 5526, R.C.S.T., insofar as the same concerns the proposition here, reads as follows:

“There shall be commenced and prosecuted within two years after the cause of action shall have accrued, and not afterward, all actions or suits in court of the following description:
“1. Actions of trespass for injury done to the estate or the property of another.
******
“4. Actions for debt where the indebtedness is not evidenced by a contract in writing.”

In the case of J. S. Abercrombie Co. v. Hagen, Tex.Civ.App., 238 S.W.2d 239 (no writ history), the court had before it the question of what statute of limitation controlled where a pipe line company had appropriated an easement on a landowner’s property. In considering the question, the court had before it only the question of when a cause of action accrued where one haying the right of eminent domain had entered upon the land of another and established an easement across it. The court said:

“Our courts have held that, in instances like the one here involved, where recovery of damages for the appropriation of a right-of-way over, or to the land itself, is sought as a permanent injury thereto, the limitation begins to run from the date of the appropriation thereof. Baker v. City of Ft. Worth, 146 Tex. 600, 210 S.W.2d 564, 5 A.L.R.2d 297; Houston Water-Works Company v. Kennedy, 70 Tex. 233, 8 S.W. 36; Stillwell v. City of Ft. Worth, Tex.Civ.App., 162 S.W.2d 1046, affirmed 140 Tex. 560, 169 S.W.2d 486.”

The court also held that the two-year statute (R.C.S.T., Art. 5526, above quoted) was applicable.

The foregoing authorities relate to the taking of property by one having authority to acquire property by eminent domain and where the party has gone into possession through the exercise of eminent domain and hold that the two-year limitation statute is applicable.

The fourth clause of Article 5526 of our Revised Civil Statutes also applies as a limitation condition in this case.

Appellants’ claim against the appellee is one for money and although it is money claimed to be due appellants for the taking of land, it does not involve title for land but simply involves the sole question of how much money appellants were entitled to by virtue of the lawful taking of appellants’ property by the City through the exercise of eminent domain.

The two-year statute of limitation, relating to the recovery for debt, is applicable since there is no contract in writing forming the basis for the action but is simply a right of action created by the statute of our state. In the case of Hodges v. Price, Tex.Civ.App., 163 S.W.2d 868 (ref. for want of merit), the court held that obligations created by statute are subject to the bar of the two-year statute of limitation.

In the case of Cowart v. Russell, 135 Tex. 562, 144 S.W.2d 249, the Commission of Appeals, opinion adopted by the Supreme Court, held that obligations created by statute are subject to the bar of the two-year statute of limitations.

The case of Miller et al. v. Kountze Corporate School District, 54 S.W.2d 344, the Commission of Appeals, in an opinion which was specifically approved by the Supreme Court, held that the words “actions for debt” as used in our limitation statute includes all suits brought to recover money without regard to any technical distinction between debt and damages.

In Texarkana & Ft. Smith Railway Co. v. Houston Gas & Fuel Co., 121 Tex. 594, 51 S.W.2d 284, in answer to certified questions, the Supreme Court, through the Commission of Appeals, held that the term “actions for debt” as used in the limitation statute requiring suits to be brought within four years on written contracts “include all suits brought to recover money for the breach of contract in. writing without regard to the technical distinction between actions and suits, and debts and damages at common law.”

Since appellants filed objections to the award of the Condemnation Commissioners and thereafter accepted the amount of said award deposited into the court for them, the case, according to the statutes and decisions, became a civil suit in the County Court to be tried as any other civil action. As a result of the fact that the land involved has been taken as the law provides and the City has gone into possession of it, as it had the right to do, the prosecution of the case by the appellants in the County Court became one of debt for what appellants claimed to be a difference in the value found by the Condemnation Commissioners and that which they contended to be the proper value. The right to prosecute such suit for such additional compensation, if any they were entitled, exists because the Constitution and statutes of Texas so provide ; therefore, this is simply an action for debt not evidenced by written contract and is barred under the two-year statute of limitation as a result of the failure of appellants to prosecute their action within two years after such cause accrued.

Appellants contend that the ten-year statute of limitation applies in this case because they say it involves the title to land; however, as above cited, the City of Tyler has, through the lawful procedure, acquired the title to the land and has gone into possession thereof and there is no title question involved since the City of Tyler made its acquisition in the manner provided by law.

In the case of Thompson v. Janes, Tex.Civ.App, 245 S.W.2d 718, affirmed by the Supreme Court, 151 Tex. 495, 251 S.W.2d 953, it was said:

“We think reversible error is not presented for the further reason that a condemnation proceeding 'is not a trial of the title to land nor does it involve the recovery of land.’ ” (Citing McInnis v. Brown County Water Improvement District, Tex.Civ.App., 41 S.W.2d 741, 744.)

All the cases cited by appellants in which the ten-year statute of limitation which they claim applies were all cases in which the party having the right to condemn land failed to do so and as a result thereof, the landowner brought suit against the party having the right to condemn, which action resulted in what is known as “inverse condemnation”. “Inverse condemnation” is a situation where one having the power of eminent domain has taken property without the exercise of such power and has not made any payment for the property so taken. By virtue of Article 3269, R.C.S.T., Vernon’s Ann.Civ.St. art. 3269, suits for property, for damages, for injunctions, etc., against a concern having the right of eminent domain may be converted into an inverse condemnation action; but we have no such situation here.

The cases relied on by appellants to support their ten-year statute of limitation contention are distinguishable from the law of this case and we do not think they are applicable to the case at bar.

The appellee in this case acquired its title through the proper exercise of eminent domain and it has paid the consideration; whereas, in the case cited by appellants on the ten-year limitation question, all of the corporations being sued had the right to exercise eminent domain but had failed to do so.

Our disposition of this case on appellants’ point of error No. 1 renders unnecessary a discussion of the remaining point of error presented by appellants.

Based upon the record before us, we are of the opinion that the cause of action was barred by the two-year statute of limitation and the court’s action in dismissing the case was correct.

Judgment affirmed.

ON MOTION FOR REHEARING

In our original opinion we said that our disposition of this case on appellants’ point of error No. 1 renders unnecessary a discussion of the remaining point of error presented by appellants. However, upon considering appellants’ motion for rehearing and hearing oral arguments thereon, we have concluded that appellants’ point of error No. 2 should also be discussed.

Appellants allege in point of error No. 2 that “The court erred in dismissing Defendants’ cause of action based upon its finding of unreasonable delay on the part of Defendants in prosecuting the cause of action.”

The facts material to this point of error are that the appellants, condemnees in the City of Tyler’s eminent domain suit, filed their objections to the Commissioners’ award in the County Court on October 6, 1960, within ten (10) days after the award had been made and filed. Appellants withdrew the amount of the award on the 9th of January, 1961, and never took any other steps or made any effort to bring the City of Tyler to trial on the action resulting by appellants’ filing of objections on October 6, 1960. On September 19, 1963, two (2) years, eleven (11) months and thirteen (13) days after this condemnation proceeding was filed in the County Court and became a court action, the City of Tyler filed a motion requesting the trial court to dismiss the cause because of the fact that appellants had never requested the issuance or service of citation or did anything showing diligence on their part in prosecuting the case. The motion further alleged that the lack of diligence on the part of appellants was such as to conclusively show the case had been abandoned.

The trial court heard the motion with appellants’ attorneys being present and concluded that the cause should be dismissed and entered an order to that effect on October 4, 1963.

The record does not show that this case has ever been set for trial, except at the time the City of Tyler filed its motion to dismiss the cause. None of these findings of fact made in response to appellants’ request for findings of fact and conclusions of law sustain appellants’ point. The trial court made the following findings in paragraph III and IV of his findings of fact.

“III.
“Condemnees never requested that any citation issue in this case and no citation ever issued in this action for service on anyone. No action was taken in this case after the objections to the award was filed until condemnees deposited a jury fee in the case on March 21, 1963; thereafter the case was set for trial, whereupon the CITY OF TYLER filed its Motion to Dismiss the Case because of the failure of the condemnees to have citation issued and served for more than two (2) years after the filing of the objections and because the case had been abandoned.
“IV.
“On the trial on the Motion no excuse or reason was offered to excuse the delay in the prosecution of the case by the condemnees.”

No objections or exceptions were taken to these findings and no request for additional findings was made.

It is an inherent right of the court, existing independently of any statute, to dismiss a suit for failure to prosecute it with due diligence. The exercise of this right is discretionary with the trial court and will not be interfered with unless it clearly appears that the court has abused its discretion. Vol. 20, Tex.Jur.2d, p. 214, Section 33; Routh et al. v. City of San Antonio, Tex.Civ.App., 302 S.W.2d 452; Howeth v. Davenport, Tex.Civ.App., 311 S.W.2d 480; First National Bank of Houston et al. v. Fox et al., 121 Tex. 7, 39 S.W.2d 1085; Bevil v. Johnson, 157 Tex. 621 307 S.W.2d 85.

In the case of Butler v. Express Pub. Co., Tex.Civ.App., 151 S.W.2d 309, where the trial court had dismissed a lawsuit which had been tried and appealed and reversed and after reversal was dismissed by the trial court for the want of prosecution, the court said:

“The record indicates that evidence was heard upon plaintiff’s motion to set aside the order of dismissal, but contains no statement of facts or bills of exception, or other authentic statement showing what that evidence was. This being so the conclusive presumption is, of course, that the evidence, coupled with facts embraced in the records of the trial court, and of which the trial judge could properly take notice * * * was sufficient to warrant the trial judge, in the exercise of a wide discretion in such1 matters, to overrule plaintiff’s motion for reinstatement. That being so, this court has no discretion in the matter, and cannot revise the order of the trial judge.”

In the above case, the court also said that there was no merit in plaintiff’s contention that the court erred in sustaining the defendants’ oral motion to dismiss saying:

“For it is true, as a matter of course, that a trial judge may dismiss a suit for want of prosecution of his own motion or on motion of either party, in whatsoever form presented, oral or otherwise.”

One of the latest cases on the question of abandonment is the case of Denton County v. Brammer, 361 S.W.2d 198, where our Supreme Court held that when a con-demnee objected to findings of a condemnation commission and filed objections to the award, the filing became a cause pending in the County Court of Denton County and such cause so filed should be tried and determined as in other civil causes in the county court. In the Denton County case no citation was issued. Sometime after the filing of the original objections, amended objections were filed, but no citation was issued. The Supreme Court in the course of the opinion said:

“The filing of the original objections in this case vacated the award of the special Commissioners. The condem-nor, Denton County, became the plaintiff and Brammer, the condemnee, became the defendant. Although the con-demnee, Brammer, became the defendant, we construe the statute, Article 3266, supra, to mean that the condem-nee, Brammer, had the burden of causing the issuance of citation and the obtaining of service of such ^citation upon the condemnor, Denton County. While the condemnor, Denton County, as plaintiff, had the burden of proving all the essentials necessary to show a right to condemnation, Fort Worth & D. N. Ry. Co. v. Johnson, 125 Tex. 634, 84 S.W.2d 232, and had the burden of going forward to trial, it was under no legal obligation to do so unless and until it had been served with citation.
‡ sfc * sjt Hi
“Brammer abandoned his objections, and exceptions long before the filing of his amended objections and exceptions to the award, and, therefore, was not entitled to a judicial determination of the matters presented in his objections and exceptions to the special Commissioners’ award. See Flanagan v. Smith, 21 Tex. 493; Ponton v. Bellows, 13 Tex. 254; Gillespie’s Adm’r v. Redmond, 13 Tex. 9; Bogle v. Landa et al., 127 Tex. 317, 94 S.W.2d 154; Ware v. Jones et al., Tex.Com.App, 242 S.W. 1022; Routh v. City of San Antonio, Tex.Civ.App., 302 S.W.2d 452, no writ hist.; Callahan v. Staples, 139 Tex, 8, 161 S.W.2d 489, 491; Bevil v. Johnson, 157 Tex. 621, 307 S.W.2d 85.
“Since the duty devolves upon the condemnee to cause the issuance of citation, it seems logical to say that he must act with reasonable diligence, and, upon failure to so act, the rules announced in the above cases wherein plaintiffs failed to prosecute their suits with reasonable diligence should be applicable in cases where a condemnee fails to cause the service of citation, and the question of his diligence is in issue. Brammer, so far as the citation was concerned, occupied the same status as a cross-plaintiff, and having failed to act with diligence and having failed to offer any explanation for such failure, he abandoned his objections and exceptions as a matter of law. The rule in Callahan v. Staples, supra, applies here. In that case wherein the issue of abandonment was raised, the Court said: ‘Where the defendant in a suit is called to answer and has responded to the call, the duty devolves on the plaintiff to proceed in prosecuting the suit to a conclusion with reasonable diligence, and whenever a delay of an unreasonable duration occurs, such delay, if not sufficiently explained, will raise a conclusive presumption of abandonment of the plaintiff’s suit, * * discontinuance results(Emphasis added.)
“This rule was quoted with approval in Bevil v. Johnson, supra (1957).”

The rule is now well established that where a party to the suit has the duty to proceed with the prosecution of the suit with reasonable diligence, a delay of unreasonable duration, if not sufficiently explained, will raise a conclusive presumption of abandonment and will authorize the trial court to exercise his discretion in dismissing the suit.

In Hinkle v. Thompson, Tex.Civ.App., 195 S.W. 311, error refused, the court had before it a case where a suit was filed on June 10, 1933. A plea of privilege was filed and sustained, and the case ordered transferred to Hardin County, Texas, but the record was not sent to Hardin County until October 19, 1950, a period of one (1) year, three (3) months and twenty-three (23) days after the plea of privilege was sustained. One year, three months and twenty-three days after the case was transferred to Hardin County the defendants filed a motion to have the same dismissed for abandonment. The trial court sustained the motion and dismissed the case. The Court of Civil Appeals held there was nothing in the record to show an abuse of discretion on the part of the trial court in overruling a motion by the plaintiff to set aside the order of dismissal.

In the Hinkle v. Thompson case, the court also cited the case of Ponton v. Bellows, 13 Tex. 254, wherein the delay complained of was about two (2) years and five (5) months. In that case the Supreme Court said:

“It certainly would require very cogent reasons satisfactorily to explain the delay which appears in this case.”

In the case of Reed v. Reed, 158 Tex. 298, 311 S.W.2d 628, Judge Garwood of the Supreme Court held that where a plaintiff had failed for some fifteen months to have citation issued and served in a case he had filed in El Paso County, even though he testified he intended in good faith to get out service in the case and prosecute it to final judgment, the same could be dismissed.

We find no abuse of discretion on the part of the trial court in dismissing this case and appellants’ point of error No. 2 cannot be sustained. Appellants’ motion for rehearing is overruled.


author: TIREY, Justice.

text:
    Thomas H. BELL, Appellant, v. KUYKENDALL INVESTMENT COMPANY et al., Appellees.
    No. 4222.
    Court of Civil Appeals of Texas. Waco.
    May 14, 1964.
    Rehearing Denied June 4, 1964.

      Tuck R. Chapin, Putman & Putman, San Antonio, for appellant.
    Key, Carr & Clark, Evans, Parr, Trout & Jones, Lubbock, for appellees.
   TIREY, Justice.

Plaintiff, Kuykendall Investment Company, a partnership, grounded its cause of action on two promissory notes, negotiable on their face, executed by Thomas H. Bell to the Lubbock Machine & Supply Company, Inc., a corporation, which notes were' secured by chattel mortgages on personal property. Plaintiff sought judgment on the notes and for foreclosure of the mortgage lien. It alleged substantially that it was a purchaser for value before maturity, with recourse. At the close of the evidence the court overruled all motions for instructed verdict and submitted two issues to the jury.They are:

“1. Do you find from a preponder-anee of the evidence that Kuykendall Investment Company knew, at the time it purchased the notes in question, that the tanks covered by the contracts were not in existence ?
“Answer ‘They knew the tanks were not in existence’ or ‘They did not know the tanks were not in existence.’ ”

The jury answered: “They did not know the tanks were not in existence.”

“2. Do you find from a preponderance of the evidence that Lubbock Machine & Supply Company knew, at the time they obtained the notes in question and endorsed them to the Kuykendall Investment Company, that the tanks covered by said notes were not in existence ?
“Answer ‘They knew the tanks were not in existence’ or ‘they did not know the tanks were not in existence.’ ”

The jury answered: “They did not know the tanks were not in existence.”

The court granted plaintiff’s motion for judgment on the verdict and decreed that plaintiff recover against Bell and the Lubbock Machine & Supply Company, Inc., jointly and severally, the sum of $50,666.33. The decree further provided that of the foregoing sum $44,057.68 bear interest at the rate of 10% per annum from June 24, 1963, and that $6,608.65 (said sum being for attorney’s fees) bear interest at the rate of 6% per annum from the date of the judgment. The decree further provided that execution be levied, first, upon the property of Thomas H. Bell, and then upon the property of Lubbock Machine & Supply Co., Inc., until such judgment is satisfied in full. It denied all relief asked by cross-plaintiff, Bell, against cross-defendant, Lubbock Machine & Supply Company, Inc. We affirm the judgment of the trial court.

Plaintiff went to trial on its original petition and its first and second supplemental petitions. Plaintiff alleged that Bell executed and delivered to Lubbock Machine & Supply Company, Inc., his promissory note and chattel mortgage dated March 11, 1961, payable to said machine supply company at Lubbock, Texas, for the sum of $46,800.00, payable in 60 monthly installments of $780.00 each, the first installment being due April 15, 1961, and one installment to be due and payable on the 15th day of each succeeding month thereafter, with final installment to be equal to the deferred balance remaining due; such note provided that all past due installments shall bear interest at the rate of 10% per annum from maturity thereof, and had the usual provisions as to attorney’s fees, providing for 15% additional on principal and interest. The chattel mortgage securing this note described the following property:

“66 - 1000 gallon rebuilt ammonia tanks mounted on and together with four-wheel trailers, * * * ”

and gave their serial numbers.

Plaintiff further alleged that on the 14th day of March, 1961, Lubbock Machine & Supply Co., Inc., duly executed and delivered its assignment and guaranty of the note above described to the plaintiff, in which assignment and guaranty it assigned and set over to the plaintiff, with recourse, all its right, title and interest in and to the note and chattel mortgage and warranted that the mortgage and note were genuine, and that the down payment made by the purchaser, mortgagor, was in cash or its equivalent; that said company unconditionally guaranteed the payment of the indebtedness evidenced by the note, at maturity, or on demand at any time after maturity, waiving demand, protest and notice of nonpayment, and agreed to all extensions, renewals and indulgences given or granted, all without notice to the Lubbock Machine & Supply Co., Inc. Plaintiff further alleged that the note and mortgage was properly filed for record with the county clerk of Reeves County and registered by said clerk in said mortgage records, same having been filed on the 17th day of March, 1961. Plaintiff further alleged that Bell paid to the plaintiff twelve of the installments due on such note, and that defendant failed to pay the installment due on March 15, 1962, and plaintiff has elected to mature said note and declare the entire amount immediately due and payable as authorized under the note and mortgage.

Plaintiff further alleged that on the 12th day of June, 1961, Bell executed and delivered to the Lubbock Machine & Supply Company, Inc., his promissory note and chattel mortgage dated June 12, 1961, whereby he promised to pay to said corporation, or its order, at Lubbock, Texas, or at the option of the holder at Amarillo, Texas, $11,261.40, in 60 monthly installments of $187.69 each, beginning on July \4, 1961, and one installment to be due and payable on the 14th day of each succeeding month thereafter, with final installment to be equal to the deferred balance remaining due, such note providing that all past due installments shall bear interest at the rate of 10% per annum, and providing for accelerated maturity and attorney’s fees of 15% additional on the principal and interest. The chattel mortgage executed contemporaneously with said note described the following personal property:

“14- 1000 gallon NH3 Tanks, mounted on 4-wheel trailers with wheels and tires, * * * ”

giving serial numbers.

Plaintiff further alleged that it acquired this note on the 17th day of June, 1961, from said Lubbock Machine & Supply Co., Inc; it also alleged substantially that it was a purchaser for value, in good faith and before maturity, with recourse, and it asked for appropriate judgment and for foreclosure of its chattel mortgage lien. At the close of the evidence Bell submitted the following special issues:

“1. Do you find from a preponderance of the evidence that Lubbock Machine & Supply Company was authorized by Kuykendall Investment Company to obtain the notes signed by Thomas H. Bell?
“Answer: -YES-No.”

"Which issue was refused by the trial court and Bell excepted.

“2. Do you find from a preponderance of the evidence that Kuykendall Investment Company required Lubbock Machine & Supply Company to obtain a delivery receipt as a condition precedent to accepting notes signed by Thomas H. Bell?
“Answer: -YES-No.”

This issue was refused by the trial court and Bell excepted.

“3. Do you find from a preponderance of the evidence that Kuykendall Investment Company acted in bad faith as that term is herein defined in accepting the notes signed by Thomas H. Bell?
“Answer: -YES-No.
“We, the jury, answer-.
“The term bad faith is defined as follows: You are instructed that the term bad faith as used in this charge means that the person taking the instrument must have had knowledge of such substantial facts and circumstances as to create in his mind that there was a suspicion that there was something wrong with the title of the person from whom he takes it that the instrument itself, that the money represented by such instrument, combined with the intentional disregard of, refusal on the part of the taker of the instrument to learn the facts of the means and the knowledge which he knows are at hand.”

This issue was refused, to which Bell excepted.

“4. Do you find from a preponderance of the evidence that there was such a close relationship in the transactions in question between Billie Sol Estes, Lubbock Machine and Supply Company and Kuykendall Investment Company as to put them all in a position of being parties to the original transactions ?
“Answer: -YES-No.”

This issue was refused, to which Bell excepted. We sustain the court’s action in refusing to give the foregoing issues requested by Bell. Our action in so doing is grounded on the fact that the evidence and the record as a whole show, without dispute, that plaintiff was a purchaser for value of each of these notes before maturity, with recourse, and a holder in due course, and that none of the issues were tendered by the evidence. Sections 56 and 57 of Article 5935, Vernon’s Ann.Tex.St, provide:

“Sec. 56. To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith. “Sec. 57. A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.”

Since we are of the view that the evidence did not tender either of the foregoing issues, and since the record is ample to sustain the jury’s verdict, we are of the view that appellant’s points 1, 2 and 3 complaining of the action of the trial court in refusing to submit the foregoing issues are without merit, and each point is overruled. See American Surety Company of New York v. Fenner, 133 Tex. 37, 125 S.W.2d 258, (Comm.App., opinion adopted). See cases there cited. See also opinion of this court in Uptmor v. Janes, Tex.Civ.App., 210 S.W.2d 235, (n. r. e.).

We think we should say that evidence was tendered to the effect that operating statements made by defendant, Bell, showed his net profit for the year ending November 1, 1958, to be $102,349.87, and that for the year ending November 1, 1959, his net profit was $112,674.03, and for the year ending November 1, 1960, his net profit was $188,439.96. The note for $46,800.-00, which is part of the subject matter of this suit, was dated March 11, 1961, and it was acquired by plaintiff from the payee on March 14, 1961, before maturity, and plaintiff paid the payee the sum of $36,000.00 for such note. The other note for $11,-261.40, which is also part of the subject matter of this suit, was executed by Bell on June 12, 1961, and it was acquired by plaintiff from payee on June 17, 1961, before maturity, for a consideration of $8,-662.50. On the first note Bell made 12 payments of $780.00 each, totaling $9,360.00, and on the last note referred to, Bell made 8 payments of $187.69, totaling $1501.50. Bell made no payments on either note after February, 1962. In this connection we think it is pertinent to state that it is without dispute that Bell made a financial statement on November 1, 1959, showing his net worth to be $735,784.02; that he made another financial statement November 1, 1960, in which he showed his net worth to be $797,509.76. Bell admitted that he knew the foregoing statements were inflated and false when he signed them, and that they were to be used to induce lending institutions to buy his notes. There is no evidence in the record to show that appellee knew the financial statements were false, and it is also without dispute that Kuyken-dall Investment Company purchased the Bell notes in question after examination of Bell’s financial statements and credit references had been answered with favorable comment. It is also true that after Kuy-kendall Investment Company purchased each of the notes in suit that it notified Bell of its purchase of such notes, and Bell did not object to the validity of the notes after being so notified. As above stated, Bell made 12 monthly payments on the big note, and eight monthly payments on the smaller note, which we have heretofore pointed out. We think the foregoing brings defendant, Bell, within the rule announced by this court in J. R. Watkins v. King, Tex.Civ.App., 83 S.W.2d 405, wherein we find the following pronouncement:

“When a party testifies to positive and definite facts which, if true, would defeat his right to recover or conclusively show his liability, and such statements are not subsequently modified or explained by him so as to show that he was mistaken, although testifying in good faith, it has generally been held that he is conclusively bound by his own testimony and cannot successfully complain if he is nonsuited or the court directs a verdict against him.” Points (2, 3) ; citing many cases.

Our Supreme Court reaffirmed this doctrine in Stanolind Oil & Gas Co. v. State, 136 Tex. 5, 145 S.W.2d 569, point 1, (citing many cases), and has not seen fit to change it. See Texas Digest Evidence, ^591, 265(10); also Trial ‘§=141. See also Payne v. First National Bank, 291 S.W. 209, (Comm.App.).

We have given much consideration to the briefs of the parties and to the voluminous statement of facts, and after a careful review of the same we are of the view that Bell, in the trial court and in the court here, is seeking to get us to view this cause in the light of all the facts that were developed about Billie Sol Estes and his activities since March of 1962, which was months after plaintiff acquired the notes. We are certainly not authorized, under the undisputed factual situation, to do so. On the contrary, it was the duty of the trial court, and likewise our duty, to view this cause in the light of the information available to the parties when the Bell notes in suit were executed, delivered and purchased by the Kuykendall Investment Company in 1961. Since it is without dispute, as we understand .the record, that Kuykendall Investment Company purchased each of the foregoing notes in suit for a valuable consideration, before maturity, with recourse, and since each of the notes were negotiable instruments on their face, the appellant’s contentions, under the record here made, are wholly without merit, and we can see no reason for a more detailed discussion of the points raised by appellant because they are in no wise applicable to the controlling factual situation before us. The issues submitted by the court in its charge are, in our view, the only pertinent issues tendered by the evidence, and the jury having answered each of them adversely to appellant, and the evidence being ample to sustain the jury’s verdict, further discussion of appellant’s points, and the cases there cited, would be of no avail. That leads us to say that we have carefully considered each of the other points tendered in appellant’s brief and we find that each is without merit, and each is overruled.

Accordingly, the judgment of the trial court is affirmed.


author: MASSEY, Chief Justice.

text:
    LUCKY HOMES, INC., et al., Appellants, v. TARRANT SAVINGS ASSOCIATION, Appellee.
    No. 16523.
    Court of Civil Appeals of Texas. Fort Worth.
    May 8, 1964.
    Rehearing Denied June 5, 1964.

      McDonald, Sanders, Nichols, Wynn & Ginsburg, and Atwood McDonald, Fort Worth, for appellants.
    Brown, Herman, Scott & Young, and A. J. Bryan, Fort Worth, for appellee.
   MASSEY, Chief Justice.

In connection with the trial of this case we have reached the conclusion that there was error on the part of the trial court in failing and refusing to submit issues of fact to the jury to be resolved as prerequisites to the plaintiff’s right to the judgment it obtained, because the right of the plaintiff to recover on its suit for debt deficiency (following foreclosure and sale of property on which a mortgage had been given as security) could not be said to have been established as a matter of law.

In Casa Monte Company v. Ward, 1961 (Tex.Civ.App., Austin), 342 S.W.2d 812, it is stated, “A prerequisite to the recovery of a deficiency judgment is the establishment of the deficiency by a valid foreclosure sale. Bailey v. Block, 104 Tex. 101, 134 S.W. 323, Sullivan v. Hardin, Tex.Civ.App., Amarillo, 102 S.W.2d 1110.”

This statement of law is correct, and, to us, means that he who seeks to obtain a judgment for any deficiency claimed to remain upon a debt owing him (after he has obtained funds to be credited upon the debt as the result of a sale under foreclosure of property pledged as security upon the debt) is obliged to make out a prima facie case that the foreclosure sale was valid; which prima facie case, unrebutted, establishes the propriety of his suit for deficiency and the proper amount thereof. To us it has the further meaning, however, that if plaintiff’s prima facie case is rebutted by evidence upon the trial, and an issue raised upon the matter of the validity of the foreclosure sale (under defensive pleading of the defendant wherein fact or facts are asserted inconsistent with that essential element of the plaintiff’s cause of action for the deficiency), it becomes the plaintiff’s burden to have submitted to the jury and a favorable finding returned on the issue submitting the rebutting fact, because the rebutting fact constitutes a denial of an element of the plaintiff’s cause of action. See Hodges on Special Issue Submission in Texas, p. 90, “Burden of Proof”, § 32, “Burden in Inferential-Rebuttal Issues”.

In Black v. Burd, 1953 (Tex.Civ.App., Fort Worth), 255 S.W.2d 553, writ ref., n. r. e., Justice Renfro of this Court cited the case of John Hancock Mut. life Ins. Co. v. Howard, 1935 (Tex.Civ.App., Waco), 85 S.W.2d 986, 989, error refused, and remarked, “The above case discusses the rule that where a mortgagee makes an unauthorized sale, he is liable in damages for the value of the land at the time of the sale, less the value of the mortgage debt, and acknowledges the correctness of the rule where title has, by means of illegal sale, passed into the hands of a third party, and particularly if the third party purchased in good faith for value received and without notice (citing cases).” On page 557 of the opinion is further stated, “Where the record shows, as it does here, that the appellant under the pretense of a sale under the power given in the deeds of trust, in satisfaction of the debt has acquired possession of the mortgaged property and appropriated it to his own use and benefit, it would be inequitable to allow him the full amount of his debt without allowing a proper credit for the value of the property so appropriated.”

In this state we use a deed of trust in the nature of a mortgage in transfers of real property. Thereby a lien is retained or given as security, with simultaneous execution of a deed of trust to one who is to hold the office of trustee for the purpose of foreclosure without necessity of resort to litigation. The deed of trust transaction is a conveyance in trust by way of security, subject to a condition of defeasance, or redeemable at any time before the sale of the property. In other words it is a conveyance in trust for the purpose of securing a debt, subject to a condition of defeasance. In connection with any actual execution of the power of sale the person who has given the deed of trust is a cestui que trust of him who acts as trustee thereunder, and the trustee in effecting the sale pursuant to the authority granted in the deed of trust owes to him at least the duty to carry out the authority devolved, in scrupulous honesty, according to law and the provisions of the trust instrument. See Bogert, Trusts & Trustees, p. 226, 227, “Trusts and Other Relationships — Distinctions”, § 29, “Mortgages and trust deeds”; p. 604, "Sales by Trustees”, § 747, “Effect of Wrongful Sale”.

In the instant case the defendants/appellants, Lucky Homes, Inc., et al., owed a debt to plaintiff/appellee, Tarrant Savings Association. Said plaintiff was secured as to the indebtedness by a lien on certain realty and the defendants had given further security in that they were obligated under a deed of trust naming O, W. White as trustee. This instrument provided, in the event of any breach of the covenants and agreements therein, that “on the request of the holder of said note (which request is hereby assumed) said Trustee, or his substitute appointed hereunder, is hereby authorized and empowered to sell as an entirety or in parcels * * * the property hereby conveyed to the highest bidder for cash at the Courthouse door in Fort Worth, Tarrant County, Texas on the day and between the hours prescribed by law, after posting notices of sale for the length of time, in the manner and at the places now provided by law for sale of property under powers contained in deeds of trust, * * Further language of the instrument provided: “It is agreed that the holder of the note hereby secured may at any time or times appoint a successor or substitute trustee in the place of said Trustee * * * by an instrument in writing, and any person so appointed shall have all powers conferred herein upon the Trustee above named, it being understood that said power of substitution may be exercised as frequently and at such times as said holder of said note may desire.”

Further language of the instrument provided : “And Grantors do hereby ratify and confirm any and all acts which the said Trustee or his successor or substitute, may do in the premises by virtue hereof, and expressly stipulate and agree that any and all recitals contained in any deed or deeds executed by the Trustee or substitute trustee under this instrument, shall be conclusively presumed to be true in all courts of law and equity and shall be prima facie proof that all prerequisites to such sale or sales have been regularly performed, and prima facie proof of the regularity of the appointment of said Trustee and of the authority of said Trustee to make said sale, * *

In the trial court the plaintiff made out its prima facie case under its suit for deficiency. In connection with its proof of the propriety and regularity of the foreclosure sale it introduced proof that O. W. White, Trustee named in the instrument, became physically unable to act as such and so certified to the plaintiff, as the owner and holder of the note, and that plaintiff did properly appoint Edwin B. Conley as Substitute Trustee by instrument in writing under date of November 30,1962. Then plaintiff introduced the Deed of Trust and also the deed of the Substitute Trustee to the purchaser at the trustee’s sale. In the latter instrument was recited by Edwin B. Conley, Substitute Trustee: “AND, WHEREAS, Pursuant to said request and to the provisions of said Deed of Trust, I proceeded to sell said property at public auction, at the Court House door, of Tarrant County, Texas, between the hours of ten o’clock A.M. and four o’clock P.M., on Tuesday the 4th day of December A.D. 1962, after having given public notice of the time, place and terms of such sale, as prescribed by the terms of said Deed of Trust, and after first posting written notice thereof for three consecutive weeks prior to the day of sale in three public places in said County, one of which was posted at the Court House door of said County; * * The Substitute Trustee’s deed was executed according to the formalities requisite for transfers of real estate on December 4, 1962.

It is to be noted that there was only a four (4) day’s time interval between the day of the appointment of the Substitute Trustee and the day of the Substitute Trustee’s sale. The deed executed pursuant to said sale contains the recitation that said Substitute Trustee had given “public notice of the time, place and terms of the sale”, and that he, the Substitute Trustee, had posted notices thereof “for three consecutive weeks prior to the day of the sale”, etc. From the language we have quoted from the Deed of Trust instrument it is to be observed that the defendants were bound to the agreement that said recitals in themselves should constitute prima facie proof (as against them) that the prerequisites of the sale had been regularly performed, etc.

The evidence, under and within the defensive pleading of defendants, controverted the recitals of the Substitute Trustee’s deed, and thus raised the issue of the propriety and regularity of his sale. This evidence came from the lips of the Substitute Trustee himself. He testified that he had not posted any written notice of the sale at all, nor did he give any public notice of the time, place and terms of the sale. We have little doubt but that plaintiff could have marshalled evidence to show that the original Trustee, O. W. White, had attended the posting of the necessary notices, given public notice of the time, place and terms of the sale, etc., thus satisfying the requisites of law and of the trust instrument itself. But such fact was not established by the evidence in the case. Even had such proof been introduced we believe that the issue arisen upon the regularity of the sale would have persisted and been a question of fact to be resolved by the jury. As heretofore noted, the trial court did not submit the issues so raised to the jury, but believing them resolved as a matter of law, rendered judgment for the plaintiff.

The defendants have also presented the contention that an issue was raised upon the matter of whether the Substitute Trustee conducted the sale with scrupulous attention to the fiduciary obligation owed them in connection therewith. They did not submit a request for the submission of such an issue, and we do not believe that such would be an inferential-rebuttal issue upon which the plaintiff would carry the burden as an essential element of • its case. Reversible error could not have resulted.

Some comment appears in order in connection with the plaintiff’s/appellee’s counterpoints. In this case it was not incumbent upon the defendants to offer to “do equity” as a prerequisite to obtaining equitable relief, or to tender the balance plaintiff claims to be owing on the debt. Under their pleadings, and under the evidence in the record, the issue existed whether they had already “done equity” in that plaintiff had received more than the balance in question whereby defendants were relieved of any obligation to make further tender. Under defendants’/appellants’ theory of the case the question of the validity of the sale by the Substitute Trustee was not a matter of collateral attack in the sense of a choice of attempting to set the sale aside and regain title to realty or to adjudicate title to realty, rather than to conduct litigation which might cast a cloud on the title thereto in another or others who now purport to be owners. Title to the realty was not the issue in the suit, but rather was the issue related to the matter of unjust enrichment of the plaintiff or to the kindred matter of unjust impoverishment of the defendants. In other words the defendants desire proper credit upon the conceded amount of their debt, which, under law they cite as applicable because of the alleged invalidity of the sale, would be the fair cash market value of the property as of the date the Substitute Trustee conducted the sale.

To emphasize the basis of our holding in this case we think it should be understood that the judgment for plaintiff was erroneous because it did not secure the submission of special issues, upon which findings favorable to it were returned, and therefore did not establish those elements of its case prerequisite to the propriety of judgment being rendered in its favor. Issues of fact were raised, the burden of persuasion upon which was the plaintiff’s. The case was erroneously withdrawn from the jury. Plaintiff was not entitled to judgment as a matter of law.

Reversed and remanded.