author: HARVEY, P. J. CURETON, C. J.

text:
    CASWELL v. LLANO OIL CO. et al.
    No. 1400-5583.
    Commission of Appeals of Texas, Section A.
    March 4, 1931.
    Bean & Klett, of Lubbock, for appellant. Bryan, Stone, Wade & Agerton, J. H. Trickey, and B. G. Mansell, all of Eort Worth, for appellees.
   HARVEY, P. J.

The Court of Civil Appeals for the Seventh District has submitted the following certificate containing certified questions:

“In this suit the plaintiff, W. T. Caswell, sued the defendants Llano Oil Co., a private corporation, G. E. Lockhart and H. H. Patterson in the District Court to obtain a judgment to confirm and validate his title in the leasehold estate to the mineral rights on and under sections Nos. 17 and 24 in Block A-8, situated in Gaines County, Texas, and to cancel certain instruments under which the Llano Oil Co. claims title to said minerals.
“The plaintiff alleges that about October 1,1924, G. E. Lockhart was the owner of said lands and executed and delivered to Otto Stolley as trustee for the use and benefit of Hugo Erzkus, beneficiary, two deeds of trust, one against each of said sections. That each deed of trust was given to secure the payment of four vendor’s lien notes of even date therewith, each in the sum of $522.93, with interest thereon payable annually at the rate of eight per cent per annum. That each of said notes was executed by G. E. Lockhart and delivered and made payable to Hugo Erzkus on or before five years from their date and the notes and deeds of trust provided that failure to pay any of said notes when due, or the interest and taxes as required by said notes and said deeds of trust, authorized the holder of said notes, at his option, to declare all of said notes due and 'foreclose his liens. But each deed of trust also stipulated that a separate lien was created against each quarter section of said land, which lien secured the payment of one only of said notes.
“That about May 20, 1925, G. E. Lockhart and his wife Lou Lockhart, executed and delivered to the defendant H. H. Patterson an oil and gas lease on said lands for a period of ten years at an annual rental of $252.00. That about March 22, 1926, H. H. Patterson sold and transferred said oil and gas lease to-the defendant Llano Oil Co. and that all of said defendants are asserting claims to the mineral rights on said land by reason of such instruments, adverse to the title and claim of the plaintiff.
“That about January S, 1927, after default was made as stipulated in said notes and deeds of trust, the holder of the notes exercised his option and declared all of them due and foreclosed his deeds of trust liens. That the trustee Otto Stolley refused to act and the beneficiary appointed A. L. Duff as substitute trustee, who after advertising the sale of the land as required by the deeds of trust, and the law, on February 1, 1927, sold the land to Otto Stolley and conveyed it to him by a trustee’s deed, and the oil and gas lease theretofore made by G. B. Lockhart to H. H. Patterson and the transfer thereof by H. H. Patterson to the defendant Llano Oil Company, were cancelled and terminated.
~ “That about Feb. 21,1927, Otto Stolley conveyed said lands to G. E. Lockhart and on May 19th thereafter G. E. Lockhart, for a valuable consideration, executed and delivered to the plaintiff an oil and gas lease upon said lands for a period of five years. That plaintiff has kept in force said lease by the payment of the rentals and the performance of all the requirements therein and is the owner and holder of a valid, superior and subsisting oil and gas lease, in writing, for value, in good faith, without notice or knowledge, actual or constructive, of any of the adverse claims asserted by the defendants.
“The defendant H. H. Patterson answered by general demurrer and general denial.
“The defendant Uano Oil Company answered by general demurrer and general denial and pleaded specially that the defendant G. E. Lockhart was the owner of and in possession of the lands involved in this controversy on May 20, 1925, on which date he and his wife executed and delivered to H. H. Patterson a mineral lease granting to the lessee the privilege of entering upon said lands, prospecting for and removing therefrom .all the minerals and mineral products thereon, which lease contained the ■ various stipulations incident to oil and gas leases, and which included the following provision:
“ ‘Lessor (meaning lessors) hereby warrants and agrees to defend the title to the lands herein described, and agrees that the lessee shall have the right at any time to redeem for lessor by payment, any mortgages, taxes or other liens upon the above described lands in the event of default of payment by lessor and to be subrogated to the rights of the holder thereof.’
“‘That on June 18,1&25, said lease was filed for record with the County Clerk of Gaines County, Texas, and duly and promptly recorded in the deed records of said county.
“That on March 22, 1926, H. H. Patterson, for a valuable consideration, by a proper ¡transfer, assigned and conveyed to the Llano .Oil Company the above described lease and all rights thereunder, which transfer was duly filed for record and promptly recorded on April 3,1926, in the deed records of Gaines County, Texas.
“That the Llano Oil Company performed •all of the requirements of said lease, and paid ,to the defendant G. E. Lockhart all the rentals as stipulated in the lease on or before their due date, which rentals were accepted, retained and appropriated by him.
j “That if on the date of the mineral lease to H. H. Patterson Hugo Erzkus held a deed of trust against the two sections of land and if, as alleged, the defendant G. E. Lockhart defaulted in the payment of the obligations secured by such deeds of trust, and if, in compliance with the terms thereof a substitute trustee. was appointed and advertised and sold the land to Otto Stolley, and if all of said things were done in good faith and not for the purpose of invalidating the mineral lease held and owned by the Llano Oil Company; it nevertheless alleges that its mineral lease is valid for the reason that whatever title to said lands that were acquired by Otto Stolley under the sale and trustees deed to him, he thereafter sold and conveyed by deed to the defendant G. E. Lockhart, which deed vested in said Lock-hart title to said land subject to the mineral lease of this defendant and the said Lock-hart, under the facts stated, is and was instantly on delivery to him of the deed from Stolley to said lands, and ever since has been estopped from denying the title of the Llano Oil Co., because G. E. Lockhart had warranted the title acquired by this defendant against the deeds of trust to Hugo Erzkus and every other person whomsoever.
“That the plaintiff obtained and accepted his alleged lease with actual and constructive notice of the title of the Llano Oil Company and such lease vested in him no rights inconsistent with those held by the Llano Oil Company under the lease to H. H. Patterson.
“The Llano Oil, Company, on sufficient pleading, asked for judgment against the plaintiff and the defendant ■ G. E. Lockhart removing the cloud from its title to the minerals in said sections of land, which existed by reason of the lease from Lockhart to the plaintiff.
“The defendant G. E. Lockhart, in answer to the cross action of the Llano Oil Company, filed a general demurrer and general denial.
“The record discloses that on October 1, 1924, Hugo Erzkus and wife executed tó G. E. Lockhart eight warranty deeds, each conveying a quarter section of land, consisting of 160 acres, and all' together conveying the two sections of land herein involved. That said deeds each retained a vendor’s lien to secure the payment of one note for $522.93, executed by Q. E. Lockhart and payable to Hugo Erzkus in part payment of the particular quarter section conveyed, and that each of said deeds were duly recorded in the deed records of Gaines County, Texas. That simultaneously with the execution and delivery of said deeds, G. E. Lockhart executed the two deeds of trust to Otto Stolley, trustee, which deeds of trust described separately the four quarters of sections 17 and 24 respectively, and which deeds of trust also stipulated that a separate lien was created against each quarter section to secure the payment of one only of said notes, said deeds of trust being recorded in the deeds of trust records of Gaines County, Texas, on Dec. 30, 1924. That said deeds of trust provided.that failure to pay all the taxes for any year on any of said tracts or failure to pay the school land interest on any of said tracts on or before the 1st day of November of each year it was due, should mature the note given for such' tract at the option of the holder of such note. That if from any cause whatever the trustee refused to act or became disqualified, the holder of the notes should have the power to appoint a substitute, in writing, who should have the same powers as were delegated to the trustee. That all recitals in deeds made under said- deeds of trust should be received in all courts as full and sufficient proof of the acts having been performed and the facts as therein recited and that from the execution of the deed under said deeds of trust, it should be presumed that all the prerequisites had been performed in compliance therewith.
“That on January 3, 1927, Hugo Erzkus, by an instrument in writing, appointed as substitute trustee in the deeds of trust A. L. Duff, reciting in said instrument that he was the owner and holder of said notes and that default had beén made in the payment of the state and county taxes due on the land for the year 1925 and payment of school land interest due for the year 1926 and he elected to declare all of said notes due and matured and had requested Otto Stolley to enforce said trust, which he had refused to do.
“That by trustee’s deed dated Feb. 21, 1927, and recorded in the deed records of Gaines County, Texas, on April 14, 1927, A. L. Duff, as substitute ■ trustee, conveyed the lands sold under said deeds of trust, to Otto Stolley. That the trustee’s deed recited that Otto Stolley had refused to execute the trust, after being required so .to do, and that Hugo Erzkus, on the 3rd day of January, 1927, appointed in writing A. L. Duff as substitute trustee and that the substitute trustee, having been required by Hugo Erzkus to sell the lands and premises, and the said G. E. Lock-hart having failed and refused to pay said notes or any part thereof, and after notice of sale having been published for three consecutive weeks, the first publication appearing twenty days before the date of sale, and said notice having been duly posted twenty days before the date of sale, etc.
“That by deed dated Feb. 21, 1927, and recorded April 14, 1927, Otto Stolley conveyed to G. E. Lockhart said two sections of land.-
“That on May 19, 1927, G. E. Lockhart, as lessor, sold to W. T. Caswell, as lessee, for a consideration of $1280.00, the mineral rights to said two sections of land for a period of five years.
“That on May 20, 1925, G. E.' Lockhart and wife, as lessors, by the usual and ordinary form of a mineral leasg, sold and transferred to -H. H. Patterson, as lessee, -the minerals in, upon and under said two sections of land, which lease, among other things, provides that: ■
“ ‘Lessor hereby warrants and agrees to defend the title to the land herein described and agrees that lessee shall have the right at any time to redeem for lessor by payment, any mortgages, taxes or other liens on the above described land in the event of default of payment by lessor and to be subrogated to the rights of the holder thereof.’
“That this lease contract was filed with the County Clerk and duly recorded in the deed records of Gaines County, Texas, on June 18, 1925.
“That on March 22, 1926, H. H. Patterson and wife conveyed all of their right, title and interest in the mineral rights in and upon said lands to the Llano Oil Company, for a valuable consideration, which transfer and assignment was filed and duly recorded in the deed records of Gaines County, Texas, on April 3, 1926.
“That Otto Stolley testified by deposition that in resigning as trustee and buying the land at the trustees sale and reselling it to G. E. Lockhart, he was acting at the request of Hugo Erzkus.
“It was agreed by the parties that W. T. Caswell acquired the lease in controversy from G. E. Lockhart and paid $1280.00 therefor without actual notice of the mineral lease that Lockhart had made to H. H. Patterson or the transfer of said lease from H. H. Patterson to the Llano Oil Company. That plaintiff has kept the rentals in this lease paid and otherwise performed the requirements thereof. That the Llano Oil Company and Patterson have paid to Lockhart, and that he has accepted and retained the full rentals accruing under the lease from him to H. H. Patterson. That Otto Stolley, who purchased the land at trustees sale and conveyed it to G. E. Lockhart, is the same Otto . Stolley named as trustee in the deeds of trust.
“On a trial before the Court without the intervention of a jury, the plaintiff was denied a recovery against the defendants and the Llano Oil Company was given judgment against the plaintiff and the defendant Lock-, hart confirming the validity of its oil and gas lease to said property.
“The plaintiff contends that in as much as the record shows without dispute that he paid value for his lease without actual notice of the lease from G. E. Lockhart to H. H. Patterson or the transfer thereof by H. H. Patterson to the Llano Oil Company, and that both of said instruments were terminated, and cancelled by the trustees sale, such in-1 struments did not constitute a part of and! were not in his chain of title and he was not charged with constructive notice thereof and was therefore an innocent purchaser and entitled to recover.
“In support of this contention, he relies, on Breen v. Morehead, 126 S. W. 650 (Court of Civil Appeals); Id., 104 Tex. 254, 136 S., W. 1047, Ann. Cas. 1914A, 1285 (Supreme Court); White v. McGregor, 92 Tex. 556, 50 S. W. 564, 71 Am. St. Rep. 875; Anderson v. Parmer, 189 S. W. 508 (Court of Civil Appeals —writ denied); Builders’ Sash & Door Co. v. Joyner, 182 N. C. 518, 109 S. E. 259, 25 A. L. R. 81; Bingham v. Kirkland, 34 N. J. Eq. 229, 234; Tiedeman on Real Property, § 515; Tiffany on Real Property, Vol. 1, § 476, p. 1080; 2 Pom. Eq. Jur. p. 1133, § 658.
“The defendants contend that plaintiff was charged with constructive notice by the record of the lease from G. E. Lockhart to I-I. PI. Patterson and the transfer thereof' to the Llano Oil Company and that in as much as the lease from Lockhart to Patterson contained a general warranty of title, that such covenant of general warranty passed the subsequent title acquired by Lockhart from Otto Stolley, who purchased at the trustees sale, to the Llano Oil Company.
“To sustain this contention, the defendants rely on Robinson v. Douthit, 64 Tex. 101; Baldwin v. Root, 90 Tex. 546, 40 S. W. 3; Leonard v. Benfford Lumber Co., 110 Tex. 83, 216 S. W. 382; Williams v. Cook et al. (Tex. Com. App.) 282 S. W. 574.
“The defendants also contend that the testimony without contradiction shows that Otto Stolley did not refuse to act as trustee, but resigned at the request of the holder of the notes and that the substitute trustee sold the two sections of land as a whole and that the notices of the sale, according to the recitations in the trustee’s deed, were not for the length of time required by law; and hence the doctrine of innocent purchaser for value is not available to the plaintiff in support of his claim to the mineral estate in the land against the prior rights of the defendants.
“To support this contention, the defendants rely on Bracken v. Bounds, 96 Tex. 200, 71 S. W. 547; Bemis v. Williams, 32 Tex. Civ. App. 393, 74 S. W. 332; Davis v. Hughes, 38 Tex. Civ. App. 473, 85 S. W. 1161; Beamer v. Stewart (Tex. Civ. App.) 236 S. W. 795 ; Clark V. Richardson (Tex. Civ. App.) 247 S. W. 347.
“To this contention the plaintiff replies 'that the trustee’s deed recites that the mortgagor was duly notified of the sale and the deeds of trust provide all recitals in the deed executed under such sale shall be received in all courts of law and equity as full and sufficient proof of the acts having been performed and relies on Southland Lumber Co. v. Boyd (Tex. Com. App.) 244 S. W. 119, and also urges that such contention can not be raised in a collateral attack, such as this is, 'but must be alleged in a proceeding in a direct attack to set the sale aside and cites, in support of his position, Walker v. Taylor (Tex. Civ. App.) 142 S. W. 31; Radford v. Shaw (Tex. Civ. App.) 9 S.W.(2d) 419.
“This Court is unable to agree upon the issues presented by this certificate. We therefore certify to Your Honors the following questions:
■ “(1) Was the plaintiff charged with constructive notice of the title of the Llano Oil Company by the record of the lease from Lockhart to Patterson and the transfer of such leasehold rights by Patterson to the Llano Oil Company?
“(2) Did the warranty given by G. E. Lockhart in the lease to H. H. Patterson defeat the title of plaintiff under this record?
“(3) Was the sale by the substitute trustee void?”

It is established in this state that “when one conveys land by warranty of title, or in such manner as to be estopped to dispute the title of his grantee, a title subsequently acquired to that land by the grantor will pass eo instante to his warrantee, binding both the warrantor and his heirs and subsequent purchasers from either.” Baldwin v. Root, 99 Tex. 553, 40 S. W. 3, 6. It is also 'settled that the registration of such instrument of conveyance affects subsequent purchasers under the grantor with constructive notice of the instrument (Robinson v. Douthit, 64 Tex. 101; Leonard v. Benfford Lumber Co., 110 Tex. 83, 216 S. W. 382); provided the title, which is acquired by the grantor after the instrument is executed, originated prior to the execution of said instrument (Breen v. Morehead, 104 Tex. 254, 136 S. W. 1047, Ann. Cas. 1914A, 1285; Williams v. Cook [Tex. Com. App.] 282 S. W. 574).'

It appears from the certificate that the ■title to the two sections of land in controversy, which was acquired by Lockhart from Stolley, originated some time prior to the execution by Lockhart of the mineral lease to Patterson. This lease, containing as it does a covenant of warranty of title, was duly of record when Caswell purchased from Lock-hart, and Caswéll was thereby affected with constructive notice of tide rights of the Llano Oil Company in the land, as assignee of Patterson.

We recommend that the first and second certified questions be answered in the affirmative. This renders the third certified question immaterial.

CURETON, C. J.

The opinion of the Commission of Appeals answering the certified questions is adopted, and ordered certified.


source: Caselaw Access Project

license: Public Domain

text:
    SOUTHERN SURETY CO. et al. v. AMERICAN CONST. CO. et al.
    No. 1386-5564.
    Commission of Appeals of Texas, Section A.
    March 4, 1931.
    King, Battaile & Dutton and Fouts, American, Patterson & Moore, all of Houston, for plaintiffs in error.

      King, Wood & Morrow, J. E. Price, and Wm. E. Loose, all of Houston, for defendants in error.
   HARVEY, P. J.

This is a suit brought by the American Construction Company against Oswald J. Las-sig and his surety, 'the Southern Surety Company, on a surety bond.

The construction company was the contractor for the construction of the Herman Hospital in Houston. On July 26, 1923, the company sublet to Lassig a portion of the work, consisting of the supplying of stone for the construction of the building; and the construction company and Lassig entered into the' contract which is involved in this suit. A bond was given to the construction company by Lassig, as principal, and the Southern Surety Company, as surety. The condition of the bond reads: “Now, therefore, the condition of the foregoing obligation is such that if the said principal shall well and truly indemnify and save harmless the said obligee from any pecuniary loss resulting from the breach of any of the terms, covenants and conditions of said contract on the part of said principal to be performed, then this obligation shall be void; otherwise to remain in full force and effect in law.”

Under the contract secured by this bond, Lassig was bound to supply the construction company with approximately 10,000 cubic feet of finished and carved stone. The stone was required to be delivered on the building site, within 160 working days from the date of the contract, at the rate of not less than 2,000 cubic feet per month, beginning August 1, 1923. The contract between Lassig and the construction company provided for certain advancements of money to be made by the company to Lassig in order to enable him to carry on the work. These advancements were duly made by the company as called for by the contract: The contract' also required Lassig to furnish certain setting drawings and models to be used by him in doing the work. ' He procured the construction company to prepare these setting drawings and models for him. The construction company sues herein for the amount of said advancements and the value of the setting drawings and models,- and also for stipulated damages for delay in performance of the work. Las-sig, in his answer to the suit, set up a cross-action against the construction company for damages alleged to have been suffered by him as a result of alleged wrongful acts of the construction company in wantonly condemning and rejecting a large quantity of stone in November and December of 1923, which Lassig had finished and prepared for delivery. These alleged wrongful acts of the construction company are also set up as a defense to the company’s suit. The- Southern Surety Company entered various defenses against liability under the bond, which will be noticed further on. The case was tried to a jury, and upon their verdict on special issues, and the independent fact findings of the trial court, that court rendered judgment that the construction company take nothing, and that Lassig recover damages on his cross-action, in an amount stated in the judgment. The Court of Civil Appeals [20 S.W.(2d) 797] reversed this latter' part of the judgment and remanded the cause for a retrial of Lassig’s cross-action. The latter court also reformed that part of the judgment which denied a recovery by the construction company, so as to allow a recovery by that company against Lassig, of the amount of the said advancements and the value of the setting drawings and models, and, as so reformed, the judgment of the trial court respecting the construction company’s suit was affirmed. In so far as the trial court’s judgment was in favor of the Southern Surety Company, it was reversed by the Court of Civil Appeals, and the cause, as between the surety company and the construction company, was remanded. ' These two companies, respectively, applied for writ of error, and both applications were granted.

Article 4 of the Lassig contract provides as follows: “Should the sub-contractor (Las-sig) at any time * * * fail in the performance of any of the terms, stipulations and ’ agreements obligatory upon said subcontractor, contained in this 'agreement, then in such event, at the option of the contractor (the Construction Company), if such failure be continued four days after notice in writing to the subcontractor, or anyone representing it on the work, such notice stating the nature of the violation of the contract, the contractor (the Construction Company) may proceed thereupon to complete the work, under the terms of said contract, at the cost and expense of the said sub-contractor, or, at the option of the contractor, the work may be re-sublet at the cost and expense of said subcontractor. ⅜ * * ”

Lassig failed to supply the stone at the rate of 2,000 cubic feet per month, and, while he was in default in this respect, the Construction Company, on November 19, 1923, wrote and delivered a letter to Lassig and delivered a copy thereof to the Southern Surety Company. In this letter the construction company gave notice of Lassig’s default, and declared that the construction company “had elected to proceed to supply the stone for the Herman Hospital, which under your contract of July 26, 1923, you agree to furnish. * * * The work will be completed at your cost and expense. We will either supply the stone ourselves or resublet the contract, as to us may, under all the circumstances, seem most advantageous.”

Upon receiving this letter, Lassig immediately appealed to the construction company to allow him to continue work under the contract in an effort to supply the required amount of stone. The construction company allowed him to do this, and thereafter he supplied a small quantity of stone in November; about 200 cubic feet in December; about 53 cubic feet in January; and none thereafter. The total quantity of stone supplied by Las-sig under the contract was 1,442.6 cubic feet. On February 15, 1924, which was some 10 clays before 160 working clays from the date of the contract had elapsed, the construction company wrote another letter to Lassig, a copy of which was delivered to the Southern Surety Company. The body of this letter reads as follows:

“This is to serve formal notice to you that under terms of our contract with you dated July 26th, 1923, wherein you were to furnish the cut stone for Hermann Hospital building which we have under contract with the Trustees of Hermann Estate, is now cancelled because of your failure and default in the carrying out of the terms of the contract, you having failed to supply the stone at the time and in the quantities required by the contract.
“We gave you notice of the cancellation of this contract on November 19th, 1923, but since that time we accepted and paid you for a small amount of material which you had on hand and in the course of manufacture for the purpose of showing you every consideration possible. The work will be completed at your cost and expense as provided in the contract.”

The construction company thereupon proceeded, on the same day, to enter into a contract with the Bedford-Carthage Company by which the latter became bound to supply and did subsequently supply the remainder of the designated quantity of stone called for by the Lassig contract, at about the same cost as if Lassig had completed his contract.

The surety company contends that it was released from its engagement as surety because of a change in the terms of the Las-sig contract in this: After the Lassig contract was made, and the surety bond was given, the construction company, with Las-sig’s consent, made progress payments to the latter, while he was going forward with the work, in amounts less than stipulated in the contract. This did not effect a change in the surety company’s engagement or in any wise modify its terms. Tire action of Lassig and the construction company in this respect affected only the portion of the earned sums which, under the stipulation in question, was due and payable to Lassig. As to such portion, the latter could require payment or not, as he chose. It was no concern of the surety company that Lassig accepted payments of less amounts than said company had agreed should be made to him.

The surety company claims that the notice which was given by the construction company, in November of 1923, to the effect that the latter company had elected to complete the Lassig contract, constituted an election which could not be recalled without the surety’s consent; and that, because the construction company allowed Lassig to proceed thereafter in the performance of the work, a new contract between the two arose, and that the surety company' stands released from the suretyship contract. The notice did not, in our opinion, constitute an irrevocable election. It was but a step towards the taking-over of the work for the purpose of completing it, but the construction company proceeded no further in that direction at that time. Lassig was allowed to proceed further with the prosecution of the work. The construction company thus waived, as it had the right to do, its declared purpose to take over the work at that time, and complete it under the provisions of article 4 of the contract. The bare fact of this waiver did not work a release of the surety. Smith v. Molleson, 148 N. T. 241, 42 N. E. 669.

The surety company further contends that the construction company’s suit is based on the theory that the latter company, in taking over the work in pursuance of its letter to Lassig of date February 15, 1924, did so under the terms of the Lassig contract, and therefore was required to complete the work there called for. In this the surety company is correct. The language of said letter clearly shows an election on the part of the construction company to stand on the contract, and to assume the power granted by the provisions of article 4 of the contract, rather than to treat performance of the contract as ended on account of breach of the contract by Lassig. In the opening sentence of the letter it is said: “Under tHe terms of our contract with you ⅜ ⅜ * is now cancelled.” There are no other terms of the contract than those contained in article 4, to which this language could relate. On the other hand, it is not to be supposed, under the circumstances shown, that the company meant to rescind the contract in its entirety and thus absolve the several parties of all liability. ' The letter, taken as a whole, including the concluding sentence thereof which reads “The work will be completed at your cost and expense as provided in the contract,” shows with reasonable clearness that the purpose of the company was to go forward with the contract and complete the work under the authority conferred on the company by the provisions of article 4 of the contract;

The surety company contends that, because the stone called for by the Bedford-Carthage Contract, and. supplied by that company, was not “Duval Texas Limestone from Travis County, Texas," such a change was effected in respect to the surety company’s engagement as released the company. By the terms of the Lassig contract, he (Lassig) was hound to furnish, under the direction of the supervising architect, and to his satisfaction, the specified quantity of “Duval Texas Limestone from Travis County, Texas.” Said contract further provides that: “It is understood that the subcontractor (Lassig) expects to procure the stone required under this contract from his stone quarry in Travis County, near McNeill, Travis County, Texas,” etc. The stone called for by the Bedford-Carthage contract, and which was furnished by that company for the completion of the building, was limestone from a quarry at Cedar Park, in Williamson county, Tex., which quarry was located about fifteen miles from Lassig’s quarry. The stone from the Cedar Park quarry is shown to have been in all material respects the same as that from the Lassig quarry at McNeill. Both were taken from the same strata, and were of the same character and quality. The stone from the Cedar Park quarry 'met the approval of the supervising architect as fulfilling the requirements of the Lassig contract. The provisions of article 4, interpreted in the light of the circumstances of the case, reasonably contemplate the procuring of the stone, by the sublessee or the construction company, from some quarry other than Lassig’s. The contention of the surety company, in this particular, is without merit.

The Lassig contract differed from the Bed-ford-Carthage contract in the following particulars: (1) Under the first contract, Las-sig had the privilege of making the required carvings after the stone was put in place in the building during the construction of the building; whereas this privilege was not allowed to the Bedford-Carthage Company, under the second contract. (2) The first contract provided for semimonthly progress payments of 85 per cent, of the earned sum; the second contract called for monthly progress payments of 67½ per cent, of the earned sum. (3) The first contract required the stone to be delivered within a period of 160 working days, in monthly installments of not less than 2,000 cubic feet; the second contract provided for deliveries to b‘e made “as fast as possible, final delivery in about four months from date” of the second contract.

The Southern Surety Company contends that, because the first contract in the particulars just mentioned was not followed under the second contract, the surety company stands released from the bond sued on. This calls for a consideration of the question as to whether or not liability under the bond was conditioned upon these provisions of the first contract being followed m resubletting the uncompleted portion of the work under article 4 of the contract. There is no provision in the surety bond, or in other portions of the contract than article 4, which so prescribes. Such a condition, if found at all, must be found in the language of article 4 itself, which has been quoted. It is not thought that the language of said article, when construed in the light of the whole contract, fairly implies a purpose to impose this condition. It appears with reasonable certainty, when the language of the article is so construed, that the (‘work” contemplated by the parties, and with respect to which they framed this article, was the supplying of the finished and carved stone comprehended by the contract. It was this “work” which the construction company was authorized to complete or cause to be completed. The uncompleted portion of this “work” was completed by the Bedford-Carthage Company. With reference to the completion of the work, the diligence of the latter company and of the construction company is unquestioned. The surety company relies, for support of its contention in this respect, on a line of decisions which includes U. S. v. Axman, 234 U. S. 36, 34 S. Ct. 736, 58 L. Ed. 1198; American Bonding Company v. United States (C. C. A.) 167 F. 910, and similar cases, in which the question of liability under a contractual provision similar to article 4 of the Lassig contract was involved. But a distinguishing feature of controlling importance, which is common to those cases, is the fact that the work done by the second contractor differed in substantial respects from the work to which the first contractor was bound.

We now take up the contention of the construction company. That company contends that, under the terms of the Lassig contract, it is entitled to recover stipulated damages in the sum of $50 per day for every day, prior to the taking over of the work by the company, that Lassig was in default in supplying stone at the rate of 2,000 cubic feet per month. The provisions of the contract upon which this claim is based read as follows: “Subject to the provisions hereof, this subcontractor (Lassig) shall deliver all of said stone upon the building within one hundred and sixty working days from the date hereof, and beginning with the first day of August, 1923, this sub-contractor shall begin the delivery of said stone on said building site at the rate of not less than 2000 cubic feet per month, that is, the first 2000 cubic feet are to be delivered on or before September 1, 1923. It is agreed that subject to the provisions hereof, that should this sub-contractor fail to complete the work, either the delivery on the building site or/and the carving herein contracted for, within the time required by'this contract, and time being of the essence of the contract, this sub-contractor shall pay to the contractor (the Construction Company) Fifty ($50.00) Dollars per day as liquidated damages, and not as a penalty, for each and every day the work shall remain uncompleted after the time herein fixed for the completion of same.” W,e have concluded that the meaning of this language, does not comprehend, as an event giving rise to stipulated damages', the failure to make the deliveries in monthly installments, as prescribed.' It fairly appears from the language of the provision that the parties, in providing for stipulated damages, were treating as a composite whole the various deliveries of stone which Lassig was required to make. Delay beyond the specified time, in bringing this composite whole to completion, was the only event, in respect to the delivery of the stone on the building site, which was regarded by the parties as giving rise to damages in the sum stipulated. This brings up the question as to whether or not the taking over of the work by the construction company, before the specified time for its completion arrived, renders the provision for stipulated damages inapplicable.-

If the default of Lassig in meeting his obligations was not brought about by the wrongful acts of the construction company, as Las-sig alleges, then the latter company, because of Lassig’s default, rightfully took over the work and had it completed under the contract. The work having been completed under the contract, no reason is perceived why Lassig and his surety should not remain bound for stipulated damages for such delay, beyond the specified time, as proximately resulted from Lassig’s default, unmixed with "any default on the part of the construction company or of the Bedford-Oarthage Company, in respect of the completion of the work. This liability comes fairly within the purview of the stipulation under consideration, and of the terms of the surety bond.

The question arises as to the proper disposition of the case. The Court of Civil Appeals correctly reversed- the judgment of the trial court in the respects it did; but in so far as the judgment of the Court of Civil xlppeals, in effect, precludes the construction company from a recovery of stipulated damages on account of delay, it is erroneous. The ends of justice will be better subserved, however, if the whole case be retried. We therefore recommend that the judgment of the trial court, and that of the Court of Civil Appeals, be reversed in all respects, and that the cause be remanded.

CURETON, C. J.

Judgments of the district court and Court of Civil Appeals are both reversed, and the cause remanded to the district court, as recommended by the Commission of Appeals.

We approve the holdings of the Commission of Appeals on the questions discussed in its opinion.


author: SHORT, P. J. OURETON, C. J.

text:
    LEONARD et al. v. PRATER et al.
    No. 1186-5520.
    Commission of Appeals of Texas, Section B.
    March 4, 1931.

      A; L. Kirkpatrick, of Brownwood, Paul V. Harrell, of Cross Plains, and Samuels, Poster, Brown & McGee and Ireland Hampton, all of Port Worth, for plaintiffs in error.
    Woodruff & Holloway, of Brownwood, for defendants in error.
   SHORT, P. J.

The defendants in error instituted this suit against the plaintiffs in error, upon whom personal service was had, and against others, two of whom filed disclaimers, and the remainder were served with citation by publication, based upon an alleged express promise to pay $5,000, and also to secure the cañ-cellation, executed by them, of a certain oil and gas léase on 200 acres of land.

The case was tried by the court without the aid of a jury, and a judgment was rendered in favor of the defendants in error against the plaintiffs in error for the sum of $5,000, and also for the cancellation of. the lease against all the parties, except 10 acres in a square, in the center of which is a gas well, which had been drilled by the owners of the lease, and which was producing gas in merchantable quantities, and decreeing a foreclosure of a lien on these 10 acres, including the gas well and all personal property located thereon. The plaintiffs in error excepted to' this judgment, gave notice of appeal therefrom, and perfected their appeal to the Court of Civil Appeals at Austin, where, upon a hearing of the case, the judgment was affirmed. 18 S.W.(2d) 681.

■ While the Court of Civil Appeals, in its opinion, made rather a full statement of the pleadings and the testimony, it appears to us necessary that we make another one; the facts material to the questions of law involved being without dispute.

The oil and gas lease was dated May 8, 1922, the lessee being C. A. Leonard. This lease, among other things, had this recitation: “The said lessee, C. A. Leonard, hereby specially agrees to pay to lessors herein, out of the first oil produced on said lease Pive Thousand Dollars, except that the expenses of operating the lease shall be deducted before lessors shall receive said Pive Thousand' Dollars in oil.” In the instrument the lessee agreed to drill one well on the west 112 acres, and provided: “That in the event the first well drilled on the above described land .is a ¡producer of oil or gas, in paying quantities, that he will, within 90 days, after bringing in said first well, commence the drilling of a well on the east 88 acres of said 200 acres of above described land.” The lease provided ,a term of three and one-half months from its date and as long thereafter as oil or gas is produced from said land in paying quantities. tThe lease further provided a royalty of “⅛ of the gross production of oil from the lease” and provided for the payment of royalty on gas from wells producing gas only, to be “⅛ net proceeds.”

On August 22, 1922, another agreement of the parties wás made extending the time within which the development should be begun and completed. This additional agreement provided that the contingent bonus for the lease, of $5,000, was to be payable out of “oil or gas, instead of just oil.”

The lessee, Leonard, assigned to T. W. Johnson, one of the plaintiffs in error, ⅛2 °f ⅞ interest in the leasehold rights of Leonard in the west 100 acres of the lease in question, in which it was provided that Johnson was not to be to any expense of drilling the first well, and was to have an option to participate or to refuse to participate in drilling wells other than well No. 1 on the west 100 acres of the lease. The consideration for this assignment was that Johnson -would “furnish at his. own expense for the drilling of said iirst well, the services of a competent tool dresser.” No other well was ever begun on said 100 acres.

On August 21, 1922, Leonard assigned to John Morse, another plaintiff in error, a ⅛ of % • interest in the 100 acres assigned to Johnson, which is identical in its terms except that it is for the consideration of $1,000 and that Morse would furnish the services of a competent driller to complete well No. 1.

On September 8, 1922, Leonard assigned to Geo. Y. Kelly, another one of the plaintiffs in error, a ⅛2 of ⅞ interest in the leasehold on the same 100 acres, the terms of the agreement being identical with the other assignments, the consideration recited being $10 in money and the obligation of Kelly to furnish for the drilling of well No. 1 the services of a competent tool dresser.

On September 16, 1922, Leonard assigned to J. H. Shackelford, another plaintiff in error, an undivided “¼6 of ⅞ interest in and to the oil and gas or other minerals produced from said first well,” which is shown to be located on the west 100 acres, the consideration recited being the payment of $10 and the obligation of Shackelford to furnish one competent standard rig and to keep the rig in repair until the completion of the well and repossess himself of the rig in the event the well should prove to be a dry hole. This assignment also gave Shackelford the option to furnish a rig, or rigs, for any other wells that might be drilled on the 200 acres, for a like interest in each and every well.

On August 22, 1922, Leonard assigned to Tom Bryant, who is not one of the plaintiffs in error, an undivided ¾0 of ⅞ interest in the entire leasehold, taken by Leonard, in which it was provided that Bryant should be at no expense in the drilling of the first well, but should bear his proportional part in the expenses of the carrying and storing of the oil and looking after the lease, and further providing that if the first well should be a producer, in paying quantities, the drilling of additional wells should be mutually agreed upon by both parties. This instrument also provided that: “The interest hereby conveyed is not in any way subject to the payment of a certain $5000.00 claim recited in said original lease,” the consideration being that Bryant should furnish for the use of the drilling of the first well the casing and the fuel. It further provided that if the well should prove to be a nonproducer that Bryant should be entitled to repossess himself of the casing without cost to him.

On November 22, 1922, Bryant assigned to T. B. Slick, one of the plaintiffs in error “a ¾⅞ interest in and to the lease on the above described 200 acres of land,” and further recites that this assignment was intended to cover all the claims, rights, and privileges assigned to Bryant by Leonard, together with all personal property used or obtained in connection therewith.

Well No. 1 was completed and resulted in producing gas .only in marketable quantities. Well No. 2 was drilled by Leonard and associates on the east 88 acres of land to a depth exceeding 2,000 feet, when it was completed as a dry hole; the casing was pulled, the well was plugged, and the derrick and rig taken away. No drilling has since been done of the lease.

The court, in its finding of fact, stated that the value of the gross production of gas from well No. 1 was $4,066, of which, as a royalty, the defendants in' error had received, from time to time, $575; that the operators had expended $591.67 for “labor and supplies for the purpose of equipping, connecting and operating the well for production, saving and marketing the gas.”

The witness Bryant, for the plaintiff in error, among other things, testified: “If the adjoining offsets, or necessary development or operation of that lease would justify it, I would be in a position to drill as many wells on there as would be justifiable. * * * I don’t think there is any necessity for further development on that lease at this time, nor at any time since the second well was drilled. * * * The proceeds of the sale of gas have never been sufficient to defray the cost of drilling another well. * * * I would estimate that there are oil or gas wells, production, as near as a quarter mile to a half mile of this two hundred acre lease. There is a dry hole between the closest producing oil well and the Prater lease.” This witness also testified that the gas well did not produce gas in sufficient quantities and of sufficient value to pay a profit upon the sum of money which had been expended in drilling and equipping it, and that more than $20,000 had heen spent in developing the 200 acres under the lease by Leonard and his associates. The petition of the defendants in error contains this allegation: “That the proceeds from the production from said gas well * ⅜ * are not and have never heen sufficient to defray the cost of further development of said lease.” The petition also contains this allegation: “That because of the failure of defendants to comply with the implied covenants in said leas.e to develop the same with reasonable diligence after the discovery of gas in paying quantities, and because of the abandonment of said lease and its further development by defendants, they and each and all of them, have prevented plaintiffs from receiving the consideration for said lease payable out of oil or gas, and they have thereby become liable, jointly and severally, to pay to plaintiffs the said sum of $6000.00 recited as a part of the consideration for the execution and delivery of said lease.”

Among other findings of fact, the trial court found that the defendants in error had completed the two test wells, for which the lease provided, but had done nothing further on said lease and had failed to use reasonable diligence to develop the lease premises as they were required to do in the event oil or gas should be discovered in paying quantities, and that the defendants in error had abandoned the lease with the exception of a gas well and 10 acres around it, the 10 acres to be in a square.

The first assignment of error challenges the correctness of the judgment of the Court of Civil Appeals in rendering judgment for $5,-000 against the plaintiffs in error, making the following statement with reference thereto:

“(a) Said judgment is not supported by any competent evidence in the record.
“(b) Said judgment is wholly contrary to all of the evidence in the record.
“(e) Said decree, insofar as the same awards a money judgment, is not based on any pleaded fact.
“(d) Said decree awarding such money judgment was based on the erroneous assumption of law that said provision for the payment of the first oil or gas produced from said lease to equal in value $5000 had the ' effect to deny to the lessee, C. A. Leonard, the honest and fair exercise of his discretion ■ as to the business prudence concerning drilling wells on said lease, other than the first and second wells by him agreed to be drilled.
“(e) Said decree, insofar as the same awards a money judgment against certain of the plaintiffs in error, was a manifest, apparent and prominent error in that the same was entered and affirmed in total disregard of the specific contractual limitations of liability contained in the respective written conveyances of interests by the lessee, O. A. Leonard, to T. W. Johnson, John Morse, Geo. V. Kelly, Joe H. Shackelford, T. B. Slick, as grantee of Tom Bryant, which conveyances of interest were introduced in evidence by the plaintiffs in the trial court, for the reason: that, said conveyances affirmatively disclose that no one of said named plaintiffs in error assumed any liability for the drilling of any well on said lease other than the first well on said lease; further for the reason that said conveyances do affirmatively provide that the said respective grantees should not be bound or obligated to contribute to the drilling of any well on said lease, other than the first well; which well had been completed as a small producer of gas in quantities marketable but not profitable.”

The defendants in error,, in their petition, prayed that they have judgment against the plaintiffs in error, jointly and severally, for $6,000. They based this prayer upon allegations in their petition and the proof introduced in support thereof, to the effect that in addition to the ⅛ royalty, of the production they were to receive from the gas well, they were also to have $5,000 as the proceeds of the first gas produced in said well. The testimony shows that the first lease contract only provided that this $5,000 bonus should be paid out of oil produced. The amendment to this first lease, beyond extending the time within which operations might be begun and completed, only added the words “or gas” so as to make this provision, with reference to the bonus, read, “oil or gas” in place of just “oil.” So the only legal question involved is whether, according to the terms of the first lease, the parties contemplated that this $5,000 bonus should be paid out of the first oil produced, after deducting the expense of “operating the well,” or whether it meant that the $5,000 bonus should be paid, after deducting the expense of “operating the lease,” which necessarily included all expenses incident to the development of the oil or gas under said land. That this was the intention of the parties to the original contract is evidenced by the fact that the royalty on the gas produced was tendered by the operators and received by the lessors as the same became due. Moreover, the instruments introduced in evidence by the defendants in error, mention of which we have heretofore made, all show that the parties who became interested in the enterprise with O. A. Leonard, the original lessee, each and all furnished to Leonard either money, material, or labor to complete the gas well, which was located on the west 100 acres of the 200 acre leasehold, all indicating that each of these assignees contemplated reimbursement for their respective outlays from the production of the well then being drilled on this 100-acre tract, which afterwards was brought in as a gas well. It 5s not reasonable to conclude that having knowledge of the bonus provision in the original contract, they would have furnished what they did for the purpose they did, had they contemplated that they were not to receive reimbursement for their outlays until the defendants in error had received, in addition to the' ⅛ royalty out of the first proceeds of this well, $6,000, as the defendants in error now claim was the intention of .the parties to the original contract. It is a matter of common knowledge that the customary compensation to lessors, paid by lessees, under conditions similar to those existing at the time the original contract was executed, is ⅛ of the gross production as royalty. This ⅛ the defendants regularly accepted as the same accrued, without indicating, at the time the same was accepted, that in addition to this ⅛ royalty they were entitled to all of the remainder of the production of the well until that remainder should amount in value to $5,000. It would reasonably appear from all of the testimony that the defendants in error and C. A. Leonard, who is one of the original defendants served with citation by publication, agreed that in addition to the ⅛ royalty, which the defendants were to have as their customary compensation, they were also to receive a bonus of $5,000, to be paid in oil or gas out of the remaining % portion when O. A. Leonard, and those who might become interested with him, had been compensated for their respective outlays, which had been necessary to be expended in producing the oil or the gas or, in other words, “in operating the lease.” The word “lease” in this phrase evidently was contemplated by the parties to mean the 200 acres of land and the rights and obligations of O. A. Leonard under the lease contract. It could not reasonably have meant something that did not, in fact, exist at the time, but did, in fact refer to that which had an actual existence, which was the subject-matter of the contract, and a possible contingency which might happen in the future, by reason of the carrying out, by Leonard, of his agreement with the defendants in error. Had the defendants in error made a lease contract with O. A. Leonard to take possession of a farm and to operate it with the understanding that Leonard should pay ⅛ of the gross products of the farm for his right to operate it, during the specified time, and in addition thereto Leonard should pay a bonus of $5,000 to the defendants in error, after deducting the expense of operating the lease on the farm, we would have a contract meaning exactly, so far as the bonus is concerned, what this contract evidently means, which is that the defendants in error were entitled 'to a bonus of $5000 from O. A. Leonard and his associates, in addition to the ⅛ royalty after Leonard and his associates, had received from the production of any well what had been expended in drilling the well.

In an effort to support the allegations on this particular subject, contained in their amended answer, the plaintiffs in error offered testimony, by a witness shown to be competent, to the effect that the drilling of an oil and gas well was considered a part of the operating expenses of the lease by the lessors and lessees occupying the position which the defendants in error and Leonard occupied at the time the original lease was executed. This testimony, upon objection, was excluded on the ground that the same was an effort to vary the terms of a written contract by parol testimony. Had there been any ambiguity in this language, containing this phrase (“the expense of operating the lease”), this testimony would clearly have been admissible, and since the trial court construed the phrase to mean the same as “the expense of operating the well” it would seem that the testimony should have been admitted. However, we see no ambiguity in the phrase “the expense of operating the lease,” but think the objection was not well taken on the ground we have mentioned, since the testimony would not have varied the terms of a ^written contract, but on the contrary it would have been in harmony with the written language.

Even though this phrase, “expense of operating the lease,” should be construed to mean what the defendants in error claim it does mean, when the instruments executed by O. A. Leonard to the several plaintiffs in error here, each and all of which were introduced by the defendants in error, are construed, it is apparent that none of these, plaintiffs in error are personally liable to the defendants in error for any part of this bonus, under the allegations of the petition. It is true there is some testimony that some of the plaintiffs in error had been paid from the ⅞ interest retained, but this testimony does not support the judgment for the reason that there is no allegation in the petition which would permit a recovery, as for conversion. The suit is based upon an alleged express promise by Leonard, and through him by the plaintiffs in error, as Leonard’s assignees, to pay defendants in error the sum of $5,000. No such promise was established to have been made by any of the .plaintiffs in error, and the personal judgment against them, jointly and severally, for $5,000, is not supported by any legal testimony, but this portion of the judgment is wholly contrary to all of the evidence in the record, and is not based on anything alleged in the petition. We therefore sustain this assignment.

The proposition in support of the third assignment, which we also sustain, is as follows:

“Abandonment oí an oil or gas lease partially developed, and in actual possession oí tbe lessee, insofar as is necessary' for operations, and who is actually producing oil or gas in marketable quantities, in tbe absence of a showing of a draining of tbe lease by surrounding wells, or of other facts constituting fraud or unfairness to tbe bolder of tbe fee, cannot, under tbe facts in tbe record, be judicially decreed to exist, as against tbe un-controverted testimony of the operator that tbe lease has not been abandoned-; that there is no intention to abandon the lease, and that the lease has potential value which be is able to develop, if, as and when such development is deemed a prudent business undertaking.”

This states a correct proposition of law, as applicable to the facts in this case, where it appears that -the plaintiffs in error as lessees are in actual possession of tbe premises, conducting tbe operations of tbe well with due diligence, which is actually producing gas In marketable quantities, and where there is no danger of -the gas being drained therefrom by surrounding wells, and there is no element of fraud or unfairness to the holder of the fee, all of which is shown, without dispute, to be the situation here. It is further shown that the operators h'ad expended more than $20,000 on the lease; that the' gross income had, in five years, been approximately $4,066; that dry holes had been drilled on adjoining leases on four sides of the lease in question; that the area was not beyond the possibility of production in paying quantities; and that when this was reasonably demonstrated to be the situation, the plaintiffs in error ’were prepared to drill additional wells on this lease at any time, as other development would justify the. expenditure of more money in further exploring it for oil or gas.

The contract with C. A. Leonard, ■made by defendants in error, operated to invest him with the title to all the oil and gas in place on the 200 acres, or to his assigns, such portion thereof as Leonard might assign, subject, of course, to the conditions in each assignment and to the rights of defendants in error. Leonard and his associates acquired a determinable fee which would be lost only on cessation of the use of the land for the purposes of oil and gas exploration, development, and production. This fee does not survive abandonment, but the fact of abandonment is a necessary corollary to the cessation of the lessee’s rights. The lessees have an implied obligation to use reasonable diligence in operating the lease to accomplish the ends sought by the parties, and this implied obligation is a covenant, the usual remedy for a breach of which is an action for damages, though, under extraordinary circumstances, which do not appear in this case, in so far as they relate to the plaintiffs in error, a court of equity would entertain an action to cancel the lease in whole or in part. The implied obligation of Leonard and of those holding under him, after drilling the two wells, for which express provision is made in the contract, both of which he drilled in accordance with the terms of the contract, to reasonably develop the land for oil and gas, was not a limitation of the estate granted to Leonard, but was a mere covenant, which precluded a forfeiture of the lease by reason of a failure of Leonard or his assigns to reasonably develop' the land for oil and gas. These principles of law are fully discussed and clearly enunciated by the Supreme Court, speaking through Justice Greenwood, in W. T. Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 19 S.W.(2d) 27, in consequence of which we do not deem a further discussion by us to be necessary.

The plaintiffs in error might be liable, under proper allegation and proof,' to pay the defendants in error damages for failure to use reasonable diligence in developing whatever part of the 200 acres of land originally leased to C. A. Leonard, which they had obligated themselves to develop; but in this suit the defendants in error have not sought to make the plaintiffs in error liable for such damages. In fact, any judgment rendered by a court of competent jurisdiction in this ease could not be pleaded as res adjudicata in another suit, properly brought with necessary allegations, to recover damages by the defendants in error against the plaintiffs in error, supported, of course, by testimony. It is sufficient for us to say that under the allegations of the petition and the uncontro-verted facts introduced, the defendants in error failed to show that they had any cause of action, such as is alleged in the petition against the plaintiffs in error, either to recover ⅛ judgment for money, or the canceling of the lease executed by defendants in error to 0. A. Leonard.

However, it appears, without dispute, that these plaintiffs in error do not claim any rights originally acquired by G. A. Leonara in all the 200 acres described in the lease acquired by Leonard from the defendants in error, save and except in the event that they should exercise the right of option to do so. Since the testimony does not definitely determine whether these plaintiffs in error have exercised such option, so as to give them the rights which 0. A. Leonard acquired as to all the land, nor in the event it should be found they had not exercised said options, the same being several in their nature, does the testimony show, with sufficient certainty, what portion of the 200 acres on which they had acquired from 0. A. Leonard any rights of him as lessees, we are of the opinion that because of this situation, as well as because of the other errors discussed, the judgments of the Court of Civil Appeals and of the district court should be reversed and the case remanded to the district court.

The original defendants in this case were jointly sued and were held to be jointly liable in the judgment rendered in the trial court; hence we are under the necessity to treat the judgment appealed from as an entirety. Where a reversal is required as to one party, it will reverse the judgment as a whole. Article 2211, R. S. 1925; Ferguson v. Dickinson (Tex. Civ. App.) 138 S. W. 221; Southwestern Telegraph & Telephone Co. v. Long (Tex. Civ. App.) 183 S. W. 421.

We therefore recommend that the judgments of the Court of Civil Appeals and of the district court he reversed, and that the case be remanded to the district court.

OURETON, C. J.

Judgments of the district court and Court of Civil Appeals are both reversed, and cause remanded, as recommended by the Commission of Appeals.

We approve the holdings of the Commission of Appeals on the questions discussed in its opinion.


author: SHORT, P. J. CURETON, C. J.

text:
    SWINK v. CITY OF DALLAS et al.
    No. 1203-5557.
    Commission of Appeals of Texas, Section B.
    March 4, 1931.

      Clint & Eades, of Dallas, for plaintiff in error.
    J. J. Collins, City Atty., and H. P. Kucera, A. A. Long, and W. Hughes Knight, Asst. City Attys., all of , Dallas, for defendants in error.
   SHORT, P. J.

The plaintiff in error, Rebecca Z. Swink, on the 4th day of December, 1924, filed this suit in the Fourty-Fourth judicial district court of Dallas county against the city of Dallas, the county of Dallas, the board of education of the city of Dallas, and E. W. Morten, to recover an acre of land, part of the site of what is known as the Cedar Lawn school, located, since the year 1888, within the limits of the independent school district in charge of and operated by the city of Dallas, through the proper officials. Upon a .trial of the case to a jury the court instructed a verdict against the plaintiff in error, and, upon appeal to the Court of Civil Appeals at Dallas, that judgment was affirmed on the ground that, as a matter of law, the plaintiff in error’s cause of action was barred under the four years’ statute of limitation at the time the suit was filed. 19 S.W.(2d) 601. Upon a consideration of the application for the writ of error, the Supreme Court granted it, making this notation: “We are inclined to think the evidence raised the issue of limitation.”

.The matters of law presented in the application for the writ of error do not present any question of pleading, though there were many special exceptions urged to the petition by the city of Dallas, and what we shall say in this opinion is upon the assumption that the plaintiff in error stated a cause of action in her petition, which is quite lengthy. One of the purposes of the petition was to set aside a certain warranty deed executed by the plaintiff in error to the city of Dallas on September 26, 1918, more than six years before the suit was filed. So long as this deed remains uncanceled, the city of Dallas was the apparent owner of the property involved, since the deed evidenced an unqualified conveyance of the property by the plaintiff in error to the city of Dallas for the consideration of $1,000, shown to have been actually paid. If the conclusion reached by the Court of Civil Appeals, in its opinion, is correct, which is to the effect that the statute of limitation of four years (Rev. St. 1925, art. 5529) began to run against the grantor, and in favor of the grantee, immediately upon the execution and delivery of the conveyance, then all other questions involved in the case are necessarily eliminated. We will discuss this question first.

On October 28, 1879, G. M. Swink, the husband of the plaintiff in error, conveyed to R. É. Burk, county judge of Dallas county, Tex., and his successors in office, a one-acre tract of land to be used for school purposes, in which there is incorporated the following provision: “In the event that the above described land should cease to be used for school purposes then this conveyance to be void and the land, with the improvements thereon, to revert back to the said G. M. Swink.”

On October 15, 1879, 'John J. Eakins and wife conveyed to the same grantee an acre of land adjoining the tract conveyed by Swink. This conveyance was also for school purposes and contained a reversion-ary clause. These f;wo tracts constituted and were afterwards used as what was after-wards known as the Cedar Lawn school prpperty, by the county, for public school purposes for several years. In the month of April, 1888, certain territory, including the Cedar Lawn school property, was annexed to the city of Dallas by ordinance, but the county of Dallas did not execute to the city of Dallas any conveyance of its rights, acquired by virtue of the previous deeds made by G. M. Swink and by John J. Eakins and wife. After the annexation of the territory to the city of Dallas this property was used by the city for general public school purposes until the close of the school term, immediately before the institution of this suit. A few weeks before the institution of this suit there appeared in a newspaper, published at Dallas, a statement that the Cedar Lajsna school property had been sold to E. W. Morten for $50,000, and that the pupils had been transferred to other schools. The petition of the plaintiff in error, among other things, alleged an abandonment of the property, under discussion, for school purposes and a reversion to her of the title, under the provisions of the deed executed by G. M. Swink, who had died in 1905, leaving a will in which the plaintiff in error was named as sole beneficiary and made independent executrix. The plaintiff in error also alleged, among other things, that the execution and delivery of the deed, dated September 26, 1918, by her to the city of Dallas, for the consideration of $1,000, had been procured from her by the city of Dallas while she was mentally incapable of understanding the transaction involved, and by means of false representations and for a grossly inadequate consideration. The petition alleged that the plaintiff in error was, at the time, more than eighty years of age, feeble in mind -and body, wholly without business experience of any kind, ignorant of the value of the property in question, and of her rights therein, or the title thereto, and that she did not learn the facts in the case, showing the falsity of the representations, and the character of her rights in the property, until a short time before the institution of the suit. Among other things the city of Dallas, in its answer, interposed, as a defense, the bar of the statute of limitation of four years, more than that length of time having elapsed from the execution of the deed sought to be canceled, and the filing of this suit. The Court of Civil Appeals held that the trial court was correct, under the testimony, in instructing the jury to find a verdict against the plaintiff in error, doubtless upon the theory that it was the duty of the plaintiff in error, under all the facts and circumstances, to have instituted the suit within the four-year period, and, in order to intelligently discuss this question, it is essential that we consider the testimony introduced by the plaintiff in error in its most favorable light, and then to determine whether this testimony, thus -construed, is sufficient to present an issue of fact, which the plaintiff in error had the right to have ascertained by the jury, under proper instructions.

The law presumes every party to a legal contract to have had sufficient mental capacity to understand his legal rights with reference to the transaction involved, and, to overcome this legal presumption, the burden of proof rests upon the party asserting to the contrary to establish it by a preponderance of the evidence, and, if there shall not be sufficient legal evidence introduced to present an issue of fact on this subject, there is no duty resting upon the trial court to submit an issue to the jury for its finding. '' However, where there has been sufficient testimony introduced on this subject to present an issue of fact, in favor of the plaintiff, and the defendant interposes to this cause of action a plea that the cause of action is barred by the statute of limitation of four years, the burden of proof rests upon him to establish this defense by a preponderance of the evidence on this subject. The allegations of the petition, among other things, are to the effect that the city of Dallas, by its authorized agents, induced the plaintiff in error to execute the deed by making material false representations, and that at the time the deed was executed by her the plaintiff in error was mentally incapable of understanding what she was doing and the legal consequences of her acts, and, further, that this mental incapacity of the plaintiff in error continued until the suit was brought. Assuming the truth thereof, these allegations presénted a legal cause of action, in existence at the time the suit was filed, for the reason that, under the allegations, the statute of limitations did not begin to run until the plaintiff in error had been sufficiently mentally restored to be charged with the duty of discovering the apparent true import of her deed of conveyance, as well as of discovering the falsity of the material representations made to her at the time she executed the deed. Limitation against a suit to secure relief from a deed procured by fraud begins to run when the fraud becomes known, and knowledge of the fact which would induce, by a prudent person, inquiry which would lead to the discovery of fraud is in law a knowledge of the fraud. But according to the allegations of the plaintiff in error’s petition, until a brief period; of a few weeks had elapsed previous to the filing of the suit, she did not have the mental capacity of a prudent person when there devolved upon her the duty to make inquiry, which would have led to the discovery of the fraud. So the real question involved is whether these allegations made in the plaintiff in error’s petition are supported by any substantial testimony viewed in its most favorable light. If the plaintiff in error, in the opinion of the jury, supported by testimony, did not occupy the position of an ordinarily prudent person from the time the deed was executed, until immediately before the suit was filed, and should further find that the deed was procured by fraud of a material nature, supported by sufficient testimony, these two facts would be sufficient to entitle the plaintiff in error to a cancellation of the deed, and as we have seen, if the deed should be canceled, the defendant in error the city of Dallas would be deprived of a lint of its chain of title to the land involved, upon the theory that the deed sought to be canceled was necessary to support its claim of title.

The record discloses that, at the time the plaintiff in error executed the deed, which is sought to be cancelled, and for several years previous thereto, as well as several years thereafter, the plaintiff in error was living in a state of extreme seclusion, taking no part in any domestic o'r business affairs, mentally incapable of appreciating the import of current events, being under the necessity of receiving constant attention, in order to supply her necessary wants, associating with no one except the members of her immediate family, and being content to let the world and its business go by unnoticed, when the duly authorized agents of the city of Dallas began to make visits to her, with the evident purpose of securing the execution and delivery of the deed, which they finally accomplished, telling her that she had no interest in the property in fact, but that they were willing to give her a little something for the instrument they wanted her to sign. This instrument, when finally executed and delivered, turned out to be a regular conveyance of the land, with general warranties of title, which instrument was evidently prepared by the agents of the city of Dallas and was acknowleged before the assistant attorney representing the city. In other words, the whole transaction furnishes evidence of the asserted fact that it was the creature of a carefully considered enterprise originating with trained selected officials of this corporation from beginning to end, and that what the plaintiff in error had to do with it was not the result of any independent act on her part, but that what she did was the result of suggestions made by these agents, or, if not entirely iby these agents, then by suggestions made by some members of her family, none of whom had any interest in the property involved. We think these allegations are sufficiently supported by the testimony to have justified a jury in finding the facts to be as claimed by the plaintiff in error.

The testimony introduced by the plaintiff in error, in support of her material allegations, is quite lengthy, and we only embrace in this opinion a few extracts therefrom to indicate the general nature of it. The son-in-law, J. T. Buckenham, in whose home the plaintiff had lived since the death of her husband, testified in part as follows: “There has been no time since the death of G. M. Swink that Mrs. Swink has not lived with me. * * * My wjfe an(j j have been taking care of her, doing the best we could. During the year 1918 she was very weak and had to have a doctor very frequently; her mind was very weak and at times she was prostrated. * ⅜ * Since I have known Mrs. Swink, from the beginning, she has never been a business woman; she has never had any business to transact. * * * During the last fifteen years her memory has been very bad. * ⅜ * She cannot remember the day’s transaction; she will get up and ask us why we are not going to Sunday School and we will tell her this is not; Sunday, and in a few minutes she will ask the same question over. ⅜ * * He, Mr. Ethridge, (the City’s agent who procured the deed) came to me and asked me if I thought it was all right if she would do this. ⅜ * * She did not know any better, she would have doné it for nothing if he had asked it in the right way, she did not know what she was doing. * * * I had nothing first or last to do with that transaction (speaking of the execution of the deed by the plaintiff in error).

“Another married daughter, with whom the plaintiff in error did not live, Mrs. Irene Swink Henry, who seemed to have written the note signed by her mother, addressed to the city authorities, stating that she would execute a deed to the property for $1,000, among other things, testified: “My mother and I were living on Hickory Street when this note was written and Mrs. Buckenham was not at her home. * * * I never heard up to 1924 about the City having ceased to use that property for school purposes. * * * I read something in the Dallas News about this Cedar Lawn school and the pupils leaving it. • * * It was after we read about the sale in the papers when this suit was brought. * * * ”

The- daughter, with whom Mrs. Swink lived, Mrs. J. T. Buckenham, among other things testified: “My mother was 90 years old July 13, last year. * * * Since the death of my father my mother has lived in our home. * * ⅝ In 1918 she was over 80 years of age. * * * I don’t know what produced the bad condition or complaint she was suffering from. * * * My mother did not attend to things in the home. * * * While she was living there Mr. Ethridge and Mr. Balonz called at our home to see her in connection with the Cedar Lawn school property.- * * * Mr. Ethridge was con-neeted with the City School Board. * ⅜ * He stated there was a cloud over the title ' of the school property. * ⅜ * They want- ' ed my mother’s signature. * * * They offered her $200.00 for it. * * ' * My mother did not accept his offer of $200.00. ⅞ * * They then just went away and 'went and talked to my husband about it. ⅜ ⅜ ⅞ Mr. Ethridge did come back to see my mother later and just always said the same thing. * * :,! They came there and visited my mother, just she and I were present, and they made this offer and told us about this school property they were trying to clear up the title to all property and this one had a slight cloud or flaw, as he expressed it, over it, just a cloud over the title and that could be easily remedied if my mother 'would give her signature to it. * * * On the second visit by Mr. Etjiridge, in connection with- the whole matter, they just came like they did the first time, and found out we did not take the proposition they offered first, then offered a little bit more, $300.00 and then $500.00 and then that was just about all; they just left; it up to her to decide whether she would take that or not and she did not take it. * * * Then there was not anything said about it for a long, long time, several months, and then she was offered $1,000.00 for it and she accepted that offer and received the money. * * * Very often, in my mother’s condition, she could not be left alone and my sister would come and spend the day and that would be my day away from home. * * * We never could leave her alone. * ⅜ ⅜ At that time she was in feeble health physically. Right now she is better able to be up more than she was then. * * * At that time she was confined to her room and most always to her bed. * ⅜ * gbe gets around better now than she did at that time.”

After stating that her mental condition rendered her incapable of transacting business at the time the deed was executed, this witness continued: “At the time she was ill her mind was in this state; she would say there was somebody at the foot of her bed, or something like that, and she would hear dogs or something outside and be disturbed over that; so nervous that we would have to call a physician to give her Something to quiet her.”

Again, speaking of the transaction involved in her signature to the deed, this witness said: “Whether she signed it did not make much difference, only they would like to have it. ⅞ * » . xt was school property. * ⅞ ⅞ It was given for that. * * ⅜ They talked to her about it and about how my father had given it, told her they would like to have her to do it, and offered to pay her for her signature, the way I understand it.”

The testimony of the plaintiff herself, who was introduced as a witness, in a general way, corroborated the testimony we have quoted, as to her mental condition, though, of course, several years had elapsed from the date the deed was executed until this testimony was given.

The testimony introduced in the case also further shows that the school authorities discussed the condition of the title to this property at great length and on various occasions, and, with one exception, it was the general opinion that, in order for the city to acquire a good title to it, it was necessary to get an absolute conveyance, such as they did get from the plaintiff in error, from those holding the reversionary interest to the two acres, these persons being the plaintiff in error, and the owners of the reversionary interest in the other acre, which had been conveyed by Eakins and wife, under similar conditions, and that, in pursuance of these general discussions, a man by the name of Ethridge was empowered and directed to procure an absolute conveyance from the plaintiff in error. This he did under the circumstances which we have heretofore stated, in a general way. Pom-eroy’s Equity J. P. 4 Ed. Yol. 2, §§ 947 and 963; Black on Rescission and Cancellation of Instruments, Vol. 1, §§ 248-262-264 and 265; McEaddin v. Vincent, 21 Tex. 47.

While the facts are altogether different; the principles of law involved in McEaddin v. Vincent, supra, applied in that case, are applicable in this. In McEaddin v. Vincent, the charge of the presiding judge, Peter W. Gray, one’ of the ablest judges, that Texas has produced, is set out in full on pages 53 and 54. This charge was expressly approved by another very eminent jurist as judge of the Supreme Court, O. M. Roberts. Under that charge the jury were instructed to find the validity or invalidity of the two contracts involved in the litigation. We commend the charge in McEaddin v. Vincent to the favorable consideration of the district judge upon another trial of the case, in giving to the jury the legal guide by which they should determine the issues involved in this particular matter.

We therefore conclude that the Court of Civil Appeals was in error in affirming the judgment of the trial court on the ground that it did and that the trial judge should have submitted the issues presented by the testimony, with reference to the cancellation of the deed of September 26, 1918, and the statute of limitation of four years.

In view of another trial of the case, we think it proper to say that what the agent of the city of Dallas may have said to the plaintiff in error, as to the future intentions of the city of Dallas to continue to use the property for school purposes, could not be material to any issue in the case. The city of Dallas would not be bound by any such declarations of the agent made in 1918, in determining what action it would take at a future time. Moreover, the future promise, or the declaration of future intentions, can never be made the basis for relief against fraud, unless it be further shown that the party making the promises, or stating the intentions, was authorized to do so, and, furthermore, that he had no intention at the time the promises or statements were made to do as he promised or stated he would, or intended to do. However, the testimony shows that the property was worth in the neighborhood of $25,000, and that the plaintiff in error only received $1,000, and, while mere inadequacy of price is not a legal ground for setting aside a sale of property, yet, where there has been a great inadequacy of price shown, the courts have .been willing to set aside a deed where there has also been shown slight evidence of fraudulent acts. In other words, the courts have indicated a disposition to give relief to a party against whom fraud has been perpetrated, where the party defrauded has been deprived of substantial rights, the benefit of which has been received by the party guilty of' the' fraud. In this case it is likely, if the plaintiff in error had been left alone in her seclusion, this deed would never have been executed for the reason that the plaintiff in error would never have had mental ability or individual inclination to have sought out the agents of the city of Dallas, and to have procured from it this $1,000, in consideration of the execution and delivery of the deed, which in fact was executed and delivered.

The defendant in error also interposed the defense of limitation under the five and ten year statute (Rev. St. 1925, arts. 5509, 5510). The testimony shows, without dispute, that the Cedar Lawn school property was carried on the oficial plat of the city of Dallas as property belonging to the city “for school purposes only.” The testimony further shows that this property was used, for such purposes only, by the city during all the time it was in possession of it. The testimony further shows that it came into possession of this property by virtue of an ordinance, annexing, for school purposes, territory in which the property was located. There is no testimony in the case even tending to show that the city of Dallas ever asserted absolute ownership of the property, but, on the contrary, it is affirmatively shown that the city of Dallas took possession of this property, under and by virtue of the deed executed and delivered by G. M. Swink to the county judge of Dallas county and his successors in office, and no notice was ever given to G. M. Swink, or any one repre-' senting him, that the city had repudiated its action in accepting the property under this deed, and, until notice of such repudiation is .shown to have been given, the statute of limitation would not begin to run. So we conclude that the only issue of fact, relating to the question of limitation, presented by the testimony, must be determined under the statute of limitation of four years.

There is a contention made by the city of Dallas that, since G. M. Swink is dead and the reversionary clause in the deed does not, in so many words, embrace his heirs or assigns, this reversionary interest died with G. M. Swink. This instrument, executed by G. M. Swink, clearly indicates his intention to give to the county judge of Dallas county, and his successors in office, for school purposes only, this property, and that this gift should continue in existence only, and during the time that the property should be used for school purposes. The language used is not in the nature of a condition subsequent, but is a limitation upon the title actually intended to be conveyed. The property was given by Swink and was received by the county of Dallas for a specific purpose, the statement being explicit that the deed should be.void in the event that the property should cease to be used for school purposes. The county of Dallas accepted the property, and it and its successors are under the obligation to continue to use it for school purposes so long as it shall assert any right thereto. It would be an act of bad faith to abandon the property for school purposes and attempt to retain possession of it, according to the evident intention of the parties, as expressed in the deed of G. M. Swink to the county of Dallas. That intention is further evidenced by the fact that the county of Dallas immediately commenced to use the property for school purposes, and that it and its successors in office continuously used it for a period of forty years, without any change, and that such change, which has been made in the use of the property, does not unqualifiedly show that the property is not now being used for school purposes. The deed does not define the kind of school that must be maintained on the property. It merely says that the property must be used for school purposes.

Upon another trial of the case the testimony on the subject of actual abandonment may be different, but until there is testimony, which will justify the jury in concluding that the city of Dallas has actually abandoned the property for school purposes, the trial court would not be authorized to submit any issue on that subject. Stewart v. Blain (Tex. Civ. App.) 159 S. W. 928; Campbell v. City of Kansas, 102 Mo. 326, 13 S. W. 897, 10 L. R. A. 593. Had the city of Dallas consummated its intention to sell'the property to E. W. Morten, by the execution and delivery of a deed to him, coupled with the acceptance of said deed, there would be no question of fact to be submitted to the jury on this subject. On the contrary, if the record should disclose : that the city of Dallas had withdrawn said property from its use for school purposes of any character, but had continued to retain possession of it, under circumstances tending to show that it had not finally abandoned the property for school purposes, there might he a question of fact for the jury to determine on this subject, but, as we view the record, the city of Dallas is still using the property for school purposes, though its use for'school pur-, poses has been somewhat curtailed. So long as the city of Dallas sees lit to use the property for school purposes, in good faith and in its own way, we do not think the question of abandonment is presented. Evidently this suit would not have been instituted, to recover the possession of the property, had the city of Dallas not attempted to sell it to E. W. Morten, clearly indicating that the plaintiff in error had, in so far as she had the ability to comprehend what her husband had done, construed the deed of her husband to mean that she was not entitled to the possession of the property so long as it was used for school purposes. Equally clear is the construction placed upon the de'ed of (J. M. Swink, by the city of Dallas, that the latter was entitled to the use of this property only so long as it was used for school purposes. All the parties to the transaction having placed this construction upon the deed of 6. M. Swink, it is the duty of the courts to give the same meaning to it, which all the parties have given to it.

We therefore recommend that the judgments of the Court of Civil Appeals and of the trial court be reversed and the cause remanded.

CURETON, C. J.

Judgments of the district court and Court of Civil Appeals are both reversed, and cause remanded, as recommended by the Commission of Appeals.

We approve the holdings of the Commission of Appeals on the questions discussed in its opinion.