author: ARCHER, Chief Justice.

text:
    Max GOCHMAN, Appellant, v. W. Guy DRAPER et al., Appellees.
    No. 11282.
    Court of Civil Appeals of Texas. Austin.
    April 7, 1965.
    Rehearing Denied April 28, 1965.

      Maverick, Tynan & Gochman, San Antonio, Black & Stayton, Austin, for appellant.
    Skelton, Bowmer, Courtney & Burleson, Temple, for appellees.
   ARCHER, Chief Justice.

Appellant, Max Gochman, filed his suit to establish an equitable title to a leasehold estate as a tenant whose alleged right of first refusal to purchase the leasehold has been violated. Alternatively, appellant sought damages.

W. Guy Draper, W. Glenn Morgan and J. F. Clawson, appellees, defendants in the district court, answered with a plea of not guilty, various special exceptions, a general denial, various pleas of estoppel, recognition, waiver, laches, abandonment and ratification, and by a denial that appellant’s right of first refusal was violated. Alternatively, appellees sought recovery for their expenditures in managing and maintaining the property. On July 16, 1964, judgment was entered that appellant take nothing by his suit and that appellees go hence with their costs.

At appellant’s request findings of fact and conclusions of law were made, and on further request additional fact findings were made.

The appeal is founded on six points and are to the effect that the court erred in holding that appellant’s rights were extinguished by failure to timely act, that appellant had actual knowledge of the date of foreclosure sale, and neglected and failed to purchase the property after December 6, 1960, and negotiated with appellees after such date for an allowance for repairs, and in basing its judgment upon pleas of es-toppel, waiver or ratification because such defenses are not applicable and not supported by the evidence. The property in question is a leasehold estate originally owned by one Jack Baxter, covering 1.18 acres located at 4101 Interregional Highway in the City of Austin, Travis County, Texas. This leasehold estate will be referred to hereinafter as “the property.”

The trial court made the following fact findings:

“FINDINGS OF FACT
“1. On June 20, 1959, JACK W. BAXTER, as Lessor, entered into a lease agreement with the Plaintiff, MAX GOCHMAN, as Lessee, covering 8835 square feet of 1.18 acres of land involved in this case, being all of said 1.18 acres of land except the portion thereof leased by the said BAXTER to one CECIL C. GLASS. The lease between BAXTER and the Plaintiff contained the following clause:
“ ‘Lessor does hereby give and grant unto Lessee a first refusal to purchase the interest of the Lessor in and to the above described 1.18 acres of land or any part thereof in the event the Lessor during the initial term of this lease desires to sell or dispose of his interest in and to the same.’
“Said lease was recorded in Vol. 2138, Page 315, Deed Records, Travis County, Texas. The Plaintiff entered into possession of the leased premises shortly after the lease was executed and has remained in possession thereof up to and including the date of the trial and is in possession at the present time. He is not and has not been in possession of the portion of the 1.18 acres leased to CECIL C. GLASS.
“2. On November 5, 1959, the Lessor, JACK W. BAXTER, borrowed $15,000.00 from the FIRST NATIONAL BANK OF TEMPLE, signing a note therefor, and executed a written assignment of the rents from the Plaintiff’s lease to secure the payment of such note. Said assignment was recorded in Vol. 2138, Page 305, on January 22, 1960 of the Deed Records of Travis County, Texas.
“On January 29, 1960, the Lessor, JACK W. BAXTER, borrowed the sum of $15,000.00 from the AUSTIN NATIONAL BANK at Austin, Texas, signing a note therefor, and at the same time executed and delivered a deed of trust on the 1.18 acres of land (including both the part leased to the Plaintiff as well as the part leased to CECIL C. GLASS). Such deed of trust contained a provision as follows:
“ ‘This conveyance is made subject to written subleases from grantor (BAXTER) to sublessees (GOCH-MAN and GLASS) who are now in possession of the improvements located upon the real property above described and to that certain assignment of rents to First National Bank of Temple, Texas, dated November 9, 1959, recorded in Book 2138, Page 305 of the Deed Records of Travis County, Texas.’
“Said deed of trust was recorded in the Deed of Trust Records of Travis County, Texas on February 2, 1960 in Vol. 2150, page 403.
“3. The $15,000.00 note given by BAXTER to the AUSTIN NATIONAL BANK and the lien securing the same was sold and transferred by the AUSTIN NATIONAL BANK by written assignment to W. GLENN MORGAN, TRUSTEE on October 21, 1960, for the sum of $15,000.00. Such written transfer being filed of record on October 21, 1960 and recorded in Vol. 2242, Page 514 of Deed Records of Travis County, Texas. That W. GLENN MORGAN, in purchasing said note and lien, was acting as Trustee for himself and for W. GUY DRAPER and J. F. CLAWSON, all of whom are the Defendants in this case.
“4. The Plaintiff had actual knowledge of the existence of the note and deed of trust given by BAXTER to the AUSTIN NATIONAL BANK and that the said BAXTER had disappeared and his whereabouts were unknown.
“5. Because of the default in the payment of the note to the AUSTIN NATIONAL BANK, W. GLENN MORGAN, TRUSTEE, called upon WILLIAM R. COURTNEY, Substitute Trustee, in the deed of trust, to sell the property in accordance with the provisions of the deed of trust. Such Substitute Trustee duly posted notices as required by the deed of trust and by the laws of Texas and on December 6, 1960, sold all of JACK W. BAXTER’S leasehold estate in and to said 1.18 acres of land involved in this lawsuit to Defendants, W. GUY DRAPER, W. GLENN MORGAN and J. F. CLAWSON, for the sum of $15,000.00 in cash and executed and delivered to such Defendants a substitute trustee’s deed, which was filed in the Deed Records of Travis County, Texas, on December 6, 1960 and recorded in Vol. 2251, Page 324 thereof.
“6. Plaintiff received no actual notice of the foreclosure sale on or before December 6, 1960. He did not attend said sale and learned of it only after it had been held.
“7. At the time they acquired their interest in the property, and at the time of the foreclosure sale, the Defendants had both actual and constructive notice of the right of first refusal provided in the lease from Baxter to Plaintiff.
“8. At no time before, during or after the foreclosure sale on December 6, 1960 did the Defendants or any of them expressly offer to the Plaintiff an opportunity to buy the leasehold interest, or to match an amount bid at the foreclosure sale for the purchase of the interest subsequently conveyed by the trustee.
“9. That the Plaintiff had actual knowledge in December of 1960 that the Defendants had acquired the leasehold interest of JACK W. BAXTER in said 1.18 acres of land, which actual knowledge was received by the Plaintiff from the Defendant, CLAWSON, who told the Plaintiff of the foreclosure sale, and from the Witness, SASSER, an insurance agent, who told the Plaintiff of the new owners or landlords and who sent insurance policy endorsements to the Plaintiff showing the names of the Defendants as successors to BAXTER as owners of the property.
“10. That after December 6, 1960, the date of the foreclosure sale, the Plaintiff did more than pay rent to the Defendants. He settled the matter of repairs with them and received an allowance from them for such repairs of $723.12, representing repairs which the Plaintiff had made to the premises and for which he claimed reimbursement from his lessor. That he further bargained and negotiated with the Defendants to obtain the part of the BAXTER leasehold area leased to CECIL C. GLASS and which was not previously leased to the Plaintiff by BAXTER.
“11. That on February 15,1961, Defendants purchased the $15,000.00 note that BAXTER had given to FIRST NATIONAL BANK OF TEMPLE and the assignment of rents securing the same for the sum of $9,673.83 all of which is shown by a written assignment from said Bank to the Defendants dated February 15, 1961.
“12. That on February 15, 1961, the Defendants borrowed $27,500.00 from FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF AUSTIN and gave a deed of trust on the leasehold estate on the 1.18 acres of land involved in this case to secure the payment of such note, which note was given for the purpose of refinancing the $15,000.00 the Defendants had paid to the AUSTIN NATIONAL BANK for the note above described and the $9,-673.83 they had paid to the FIRST NATIONAL BANK OF TEMPLE for the note described above and $1,-394.29 for City and School taxes, loan expenses, attorney fees, title policies and other expenses. That said deed of trust lien is presently outstanding against this property.
“13. That the Plaintiff for the first time on or about January 2, 1962, made claim to the property involved in this case and gave notice to the Defendants that he wanted to exercise the right of refusal contained in the lease to purchase the property. This suit was filed on January 19, 1962 by the Plaintiff against the Defendants. The Plaintiff tendered $15,000.00 to the Defendants on May 11, 1962, and during the trial he tendered $15,000.00 and the costs of the sale. These offers were refused by the Defendants.”

The following requested findings of fact were adopted by the district court insofar as they are consistent with findings previously made:

“1. On many occasions prior to December 6,1960, defendant Clawson contacted the plaintiff and conferred with him about various problems concerning the property, and on all occasions advised plaintiff that he was a vice president of the First National Bank of Temple and that he was acting for the bank which had interest in the property under its assignment of rents from Baxter.
“2. In December of 1961, the plaintiff received from defendants a form approving his purchase of the Glass lease and this form was signed by defendants as owners of the property. Immediately after seeing this form the plaintiff began asserting his right of first refusal.
“3. In the summer of 1960 plaintiff offered to purchase Baxter’s interest in the lease for $50,000.00.
“5. The plaintiff never stated to anyone at anytime that he was waiving his right of first refusal and would not exercise it in connection with the purchase of the property by defendants.
“6. Defendants never asked the plaintiff whether he was going to exercise his right of first refusal in connection with their purchase of the property.
“12. At the time plaintiff entered into the lease with Baxter he specifically demanded that the right of first refusal be included in the lease and this provision was a result of express bargaining and negotiation between plaintiff and Baxter.”

There is some conflict in the testimony relating to the conversation at the December 10, 1960, meeting between appellant, appellee Clawson and witness Sterling Sasser, the latter being appellees’ agent.

Appellees’ counsel questioned appellant at length about the conversation at this time. Some of this testimony follows:

“Q. Well now, you remember on December 10, 1960, after the foreclosure, that Mr. Sasser and Mr. Clawson came to your place of business, do you not?
“A. Yes, sir.
“Q. And you remember that they told you that Mr. Clawson and his associates now own that property. Don’t you remember that?
“A. No, sir; never said anything about owning the property. Said that they were charged, or he had the property, or something like that. They never used the word ‘they bought’ the property or they owned the property. That is why it never struck me that there was any sale.
“Q. Do you remember that Mr. Sasser told you that you now had a landlord here that you could deal with on settling all these bills?
“A. Well, they were not the landlord as far as I was concerned anyway, because my rent was assigned to them, so I just took it for granted that they were going on the same way, and maybe the man was going to come down and give me extra service.
* * * * * *
“Q. All right now, when Mr. Claw-son and Mr. Sasser came to see you on December 10th, didn’t Mr. Clawson agree to deduct those items from your rent?
“A. Well, I dealt mostly with Mr. Sasser, and if he agreed to it, it was all right with me, because I knew he was supposed to get the balance of the money after expenses were taken off, such as paying for the land lease, and so on, and taxes.
“Q. Didn’t Mr. Clawson agree to those deductions on that occasion?
“A. Yes, he agreed to it.
“Q. And you did get the deductions from your rent?
“A. That is right.
“Q. And the amount was seven hundred and twenty-three dollars and twelve cents, was it not?
“A. I don’t remember the exact amount.
“Q. Approximately, as best you remember ?
“A. Approximately, yes.
“Q. And now, on that occasion I believe you said a moment ago they told you, they now had the property, is that right — or words to that effect?
“A. They said that he is now in charge, or something like that.
"Q. What?
“A. He is now in charge of the property, or something like that. In other words, whichever word he used — I cannot remember, but they didn’t impress me as if he bought the property or owned the property.
“Q. Well, did you think he was talking for himself, or for the bank that he represented?
“A. For the bank.
“Q. And you thought the bank * * *
“A. The only way I knew him was through the bank.
“Q. You thought from their conversation that the bank had acquired the property, is that what you thought ?
"A. I thought that they were still in charge, the same as they had been, or being he was gone, they might have taken full charge to collect the rent. I didn’t know what authority that Mr. Baxter gave it.”

Appellant testified that the first time he knew that appellees were claiming title to the property by virtue of the foreclosure or otherwise was when, after negotiating a purchase of the Cecil Glass lease, he saw appellees’ names on the form for landlord’s approval.

Appellee Clawson was vice president of the First National Bank of Temple and when he first became interested in the property it was as a representative of that bank, which held an assignment of rents under the lease and a delinquent note from Baxter. Clawson and Gochman had “several” conversations about the property prior to December 10, 1960, and Clawson always “told him that you were interested in the property because of this delinquency the bank had” and “advised him that you were an officer and representative of the bank.”

Clawson testified that on December 10, 1960, “Mr. Gochman inquired as to how we had acquired title to the property, and I advised him that we had bought the property in under a foreclosure of the Austin National Deed of Trust.”

Witness Sasser accompanied Clawson to appellant’s office at the time but “couldn’t be specific” about whether Gochman was advised of the foreclosure. Sasser confirmed that on many prior occasions Claw-son had discussed the property with appellant and on all such occasions was openly representing the bank and protecting its interest in the assignment of rents. At one place in his testimony Sasser stated that on December 10, 1960, he told appellant, “ ‘Now we have got somebody who has control of the property’ or something like that,” but he later modified his testimony to a statement that he told appellant that “we now had a landlord and that Mr. Clawson represented the new landlord in this case.”

Sasser also displayed a “general change endorsement” on certain insurance policies issued on the property, upon which the name of the owners of the property is changed to appellees. Sasser testified that he sent a copy of this form to appellant, but could not corroborate this with a cover letter. He had no memory “about sending the particular endorsement,” and could not say whether he mailed or delivered it to appellant.

Appellant testified unequivocally that he did not receive the form and never saw ap-pellees’ names on any document showing ownership of the property until December 12, 1961.

In December of 1961, when appellant says he first learned of the foreclosure, he immediately took action, cancelled all negotiations with Glass and this suit was filed on January 19, 1962.

Appellees’ attitude regarding the rights of appellant under the “first refusal” provision of his lease are stated by Mr. Claw-son as follows:

“Q. Did Mr. Gochman ever tell you that he was not going to insist on his right of first refusal?
“A. He certainly has not.
“Q. Did the subject of that right ever come up between you all at any time?
“A. I don’t think so, no, sir.
“Q. Until this dispute?
“A. No, I have always assumed he still had a right of first refusal. If we ever decided to dispose of it, I think we would have to offer it to Mr. Gochman.”

The trial court made the following conclusions of law:

“CONCLUSIONS OF LAW
“1. The provision in the lease from Baxter to Plaintiff quoted under the first finding of fact was valid and binding upon the parties to that lease and their successors; therefore, on December 6, 1960, Plaintiff was entitled to be given the opportunity to meet any price offered for the Baxter leasehold interest, and thereby to acquire said interest.
“2. At the time of the Substitute Trustee’s sale, the Plaintiff was entitled to actual notice of the sale and the opportunity to be present in person or by an agent to meet any high bid.
“3. After the foreclosure and sale on December 6, 1960, the Plaintiff had an equitable right or interest whereby he could have paid to the Defendants the amount which they had bid and paid to the trustee, and thereby Plaintiff would have acquired the interest conveyed by said trustee.
“4. Plaintiff could not retain the aforesaid equitable right and interest indefinitely after receiving knowledge of the sale in December, 1960, inasmuch as he enjoyed nothing more than a right of refusal or to meet a certain price for the leasehold interest. He was required to assert this right and tender the purchase money within a reasonable time. However, he waited from December, 1960 until January, 1962, to declare his desire to purchase and he waited until May 11, 1962 to tender the purchase price. As a matter of law and equity, Plaintiff’s failure to act for such a long period of time amounted to a refusal on his part to buy the leasehold interest, extinguishing his equitable interest.
“5. The Plaintiff was guilty of laches in waiting so long to assert his right of first refusal and to make a tender of the purchase price.
“6. The Plaintiff recognized the title of the Defendants to the property, and recognized them to be his landlord by his course of conduct over the long period of time after he had actual knowledge of the foreclosure sale, and prior to any declaration of intent to purchase the leasehold interest.
“7. Defendants are entitled to judgment that Plaintiff take nothing by his suit, and that the cost be adjudged against the Plaintiff.”

It is our opinion that appellant by virtue of the “first refusal” provision in his lease has a valuable, valid, enforceable contractual right which accrued when the foreclosure sale was made and which he has not lost by waiver, abandonment, es-toppel or laches.

The phrase “first refusal” has acquired a well understood meaning in the business world which is that the owner of 'such right must be given the opportunity to buy the subject property on the terms offered by any bona fide purchaser. King v. Dalton Motors Inc., 260 Minn. 124, 109 N.W.2d 51, 1961; Barling v. Horn, 296 S.W.2d 94, S.Ct.Mo., 1956; Brenner v. Duncan, 318 Mich. 1, 27 N.W.2d 320, 1947; Jurgensen v. Morris, 194 App.Div. 92, 185 N.Y.S. 386; Tamura v. De Iuliis, 203 Or. 619, 281 P.2d 469, 1955; Nelson v. Reisner, 51 Cal.2d 161, 331 P.2d 17, 1958.

The fact that the sale of the property was through a foreclosure proceedings under a deed of trust executed by Baxter, the Lessor who made the sub-lease containing the “first refusal” provision, does not, in our opinion, adversely affect the interest conferred on appellant by such provision and does not prevent such sale from being a sale within the meaning of the words “desires to sell” as used in the “first refusal” provision of the sub-lease.

Baxter voluntarily executed the deed of trust on the leasehold which was foreclosed. He “desired” to do this, or he would not have done so. He also “desired” that it include the right to sell on his default. It would be inconceivable to hold that Baxter could extinguish the valuable right of “first refusal” conveyed by him to appellant by the simple device of borrowing money on the property and permitting it to be sold on his default.

In Price v. Town of Ruston, 171 La. 985, 132 So. 653, 1931, a similar situation was presented. In that case the owner of property contracted with an Elks Lodge for the Lodge to build a third story on a building located on the owner’s property. The contract stated that in the event the Elks should desire to sell the owner would be given the option and preference of purchasing at the price of the sale. After executing the contract, the Elks borrowed money securing a loan with a mortgage on the property. They failed to meet payment on the mortgage and the property was foreclosed and sold at a sheriff’s sale for $3100.-00 to the Town of Ruston. The heirs of the original owner then offered the $3100.-00, which was refused. The court held that the heirs of the owner were entitled to the property upon payment of the $3100.00 because the situation was exactly the same as though the sale was voluntary. The court in that case construed the expression “in the event the party of the second part desires to sell” as contemplating any sale, “whether willingly or because of financial inability to hold the property.”

There is no problem of notice here. The sub-lease to appellant was of record. Appellant was in possession of the property. The deed of trust under which the sale to appellees was made was expressly subject to appellant’s lease.

It is indisputable that a purchaser from a lessor who has given lessee a right of first refusal to buy takes the property subject to that right and lessee must be granted the opportunity to purchase at the price transferred. Moreno v. Blinn, 81 Cal.App.2d 852, 185 P.2d 332, 1947; Denco, Inc. v. Belk, 109 So.2d 201, Ct.App.Fla., 1959; Tinkler v. Devine, 159 Kan. 308, 154 P.2d 119, 1944; Driebe v. Ft. Penn Realty Co., 331 Pa. 314, 200 A. 62, 117 A.L.R. 1091, 1944; Casto v. Cook, 91 W.Va. 209, 112 S.E. 502, 1922.

There remains to be considered only the question of laches, waiver, estoppel or abandonment by appellant. It is our opinion that none of these defenses to appellant’s right to a “first refusal” exists.

In the first place, appellant has never been offered the right of a “first refusal.”

He has never been told by appellees that they would convey him the property upon the payment of its cost to them. Just as importantly, appellant has never been told by appellees what the cost to them was and he does not now know, accurately, what the cost of such property was.

The burden was on appellees to offer appellant a “first refusal,” and, of course, to disclose the amount required for him to be substituted as the purchaser. Until appellant was apprised of these matters, he was under no duty to act. Cortese v. Connors, 1 N.Y.2d 265, 152 N.Y.S.2d 265, 135 N.E.2d 28, 1956; Westpark, Inc. v. Seaton Land Co., 225 Md. 433, 171 A.2d 736, 1961; Brenner v. Duncan, 318 Mich. 1, 27 N.W.2d 320, 1947; Gutch v. Meccia, 142 N.J.Eq. 430, 60 A.2d 649, 1948; Thompson on Real Property, 1959 Replacement, Vol. 3, Sec. 1151, p. 374.

In Westpark, Inc. v. Seaton Land Co., supra, the Court stated: “From the nature of the right of refusal in this case, West-park was under no obligation to make an offer to the Cooks, but was entitled to rely upon the Cooks’ contractual obligation to afford it an opportunity to meet any acceptable offer made by another.” 171 A.2d at 744.

No opportunity of this character has been afforded appellant and it is our opinion that until such opportunity is afforded him that he was under no duty to act in reference thereto. He was, of course, obligated not to so conduct himself as to mislead appellees to their injury.

It is undisputed that appellees were not misled by anything that appellant said or did for the reason that they relied exclusively on their conviction that appellant had no right of refusal under the circumstances.

The injury which appellees claimed to have sustained are these:

“ * * * making valuable improvements to the property, paying all expenses in connection with this operation, keeping the property up, executing lease agreements with other people, paying delinquent City, State and School taxes, paying claims of third parties for improvements to the property, making many trips to Austin to look after the premises, managing the property, collecting rents and paying obligations due on the property. They bought the note of FIRST NATIONAL BANK OF TEMPLE and paid cash for it. They negotiated and arranged the FIRST FEDERAL loan in Austin, paying out expenses of a title policy, attorney fees, closing costs and other items. (Brief of appellees, pp. 35-36)”

The loan from First Federal of Austin was, according to the undisputed finding of the District Court, simply a “refinancing of the $15,000.00 the Defendants had paid to the AUSTIN NATIONAL BANK for the note above described and the $9,673.83 they had paid to the FIRST NATIONAL BANK OF TEMPLE for the note described above and $1,394.29 for City and School taxes, loan expenses, attorney fees, title policies and other expenses.”

Appellees have become personally liable on the First Federal loan and this is a contingent detriment. This, however, as well as the other expenditures made by ap-pellees does not evidence such a detrimental change of position as to bar appellant from relief for the reason that their personal liability and expenditures made by them will be discharged and reimbursed by compliance with the judgment to be rendered herein. The rule which we apply is stated in Culver v. Pickens, 142 Tex. 87, 176 S.W.2d 167, as follows:

“In Ross’ Estate v. Abrams, Tex.Civ.App., 239 S.W. 705, 709, Chief Justice Fly quoted with approval from Pomeroy on Equity, Vol. 5, Sec. 1442, as follows:
“ ‘ “Laches, in legal significance, is not mere delay but delay that works a disadvantage to another. So long as parties are in the same condition, it matters little whether one presses a right promptly or slowly, within the limits allowed by law; but when knowing his rights, he takes no steps to enforce them until the condition of the other party has, in good faith, become so changed that he cannot be restored to his former state, if the right be then enforced, delay becomes inequitable, and operates as estoppel against the assertion of the right.” ’
“The petition before us does not reveal any change of conditions or circumstances which would render it inequitable, as a matter of law, to permit petitioners to assert their cause of action. It is alleged that respondents paid for the properties upon which it is sought to establish a constructive trust, not with their own money, but with money belonging to the estate of the deceased, and there is no allegation that they have ever spent any of their own money in operating these properties other than that produced by the properties themselves. There is no allegation that rights of third parties have intervened. In short, we can perceive no equitable reason for denying petitioners the right to prosecute their suit. The elements of estoppel do not appear.”

The condition of our judgment will be that appellees be restored to their former state.

We reverse and remand this cause with the following instructions:

Grant appellant relief in the nature of specific performance, bearing in mind appellant’s offer to do equity by making ap-pellees whole in all respects. When this is accomplished, a conveyance from appellees to appellant conveying to appellant all of appellees’ right, title and interest in the property should be directed and accomplished in the judgment.

In adjusting equities between the parties, appellees should be charged with the rents received from the time of the trustee’s sale and appellant should be charged interest at the rate of 6% per annum on the purchase price from such date, also appellant should be similarly charged on all other sums expended by ap-pellees on the property from the date of such expenditures.

Appellant must discharge or satisfactorily protect appellees from any personal liability which they may be under in respect to this property.

The judgment of the trial court is reversed and this cause is remanded for further proceedings in accordance with this opinion.

Reversed and remanded with instructions.


source: Caselaw Access Project

author: COLEMAN, Justice.

license: Public Domain

text:
    Dovie H. WALLING, a feme sole, Appellant, v. Lorece B. HUBBARD et al., Appellees.
    No. 14459.
    Court of Civil Appeals of Texas. Houston.
    March 4, 1965.
    On Motions for Rehearing April 1, 1965.
    Second Rehearing Denied April 29, 1965.

      W. J. Knight, Houston, for appellant.
    Ted Kirchheimer, Houston, for appellees.
   COLEMAN, Justice.

This is a suit for accounting brought by Dovie H. Walling, one of the residuary legatees under the will of T. B. Hubbard, against Lorece B. Hubbard, individually and as independent executrix of the estate of Gilvie Hubbard. Gilvie Hubbard was the other residuary legatee under the will of T. B. Hubbard and was the independent executor of his estate. By stipulation the appellant restricted her claim for an accounting to sums retained by Gilvie Hubbard as executor’s commissions. The estate was distributed prior to trial by an agreement whereby both parties retained their rights to an accounting.

The principal questions presented by this appeal concern the right of an executor to the statutory S % commission on oil and gas royalties received by the executor by reason of an oil lease executed by the testator and whether or not the executor was entitled to retain from the funds of the estate a reasonable compensation for his services in supervising the operation of the business ventures of the estate, as required by the will, prior to obtaining a court order setting the amount of such compensation.

T. B. Hubbard died May 4, 1935. At the time of his death he owned a tract of land in Brazoria County, Texas, on which he was conducting a dairy business; unimproved acreage in Harris County; improved property in the City of Houston; a drug store; certain real estate in Oklahoma; cattle; personal property, and other assets. He was also engaged in the business of buying brewery mash and selling it as cattle feed. The inheritance tax report shows assets (after deduction of the balance owing on notes secured by mortgages on real estate) of $58,667.33 and debts of $12,289.-39. The mortgage debt was approximately $21,000.00. Before receipt of certain insurance proceeds there was some $1200.00 in cash. By his will he directed Gilvie Hubbard as independent executor without bond to carry on his business (except the drug store). His first bequest was to Mrs. Zona Hensarling of $150.00 per month “out of the revenues” of the estate. He then bequeathed and devised to his brother and sister, Gilvie Hubbard and Dovie H. Walling, share and share alike, all of his property and further provided that their mother “is to be taken care of.” There was no provision in the will relating to compensation for the executor. The will provided that his insurance was to go to his brother and sister. The inventory does not list the insurance as an asset of the estate, but it is listed in the affidavit for inheritance tax appraisement. The proceeds of three policies of insurance totaling, after the deduction of loans and premiums, the sum of $17,115.34, were paid to the executor and used to pay debts.

Gilvie Hubbard qualified as executor on May 21, 1935, and continued to serve until his death on January 29, 1959. Since the estate had not been distributed prior to his death, the executor had. made no final accounting to Mrs. Walling and she had not requested him to do so. The executor did not keep books and records showing receipts and disbursements other than from the mash business and dairy business. The mash business was discontinued January 1, 1954, and the dairy business in November, 1953.

Prior to January 1, 1944, the executor did not retain any commissions on money received by the estate or money expended by him for the estate. Beginning in 1944 he transferred into his personal account from estate funds annually a sum roughly equivalent to ten percent of the annual income of the estate from the rents, royalties, net income from the dairy and mash business and other farm operations. (These figures were obtained from income tax returns since no books were kept by the executor showing the commissions which he charged.) The executor retained as commissions from the funds of the estate the total sum of $77,727.-09. The parties stipulated to the various sums of money received by the executor amounting to the total sum of $840,761.02, and to the items which he paid out of the funds of the estate in the course of administration in the total sum of $203,367.99.

Partial distributions of the funds and properties of the estate were made by the executor from time to time, and at the time of his death there was sufficient cash belonging to the estate in estate accounts to equalize distributions between the executor and his sister including the commissions claimed to have been improperly retained. In answer to issues submitted, the jury found that a reasonable compensation for the services performed by the executor in managing the various businesses was the sum of $250.00 per month. The trial court disallowed commissions on cash received and paid out in conducting the businesses, allowed a claim for accounting expense and the extra compensation for managing the businesses and entered a judgment in favor of the executor in the sum of $15,356.62. On motion for new trial the court required a remittitur of $14,062.50, being one-half of the amount found by the jury to be the value of the services rendered by the executor in operating the businesses, resulting in a final judgment in favor of the executor for $1,294.12. All costs, including a fee of $1,000.00 to the guardian ad litem of a minor defendant, were taxed against the appellant.

During the administration the executor collected $593,020.09 by 'reason of the production of oil and gas from lands of the estate under the terms of a mineral lease executed by the testator. Appellant contends that the trial court erred in crediting the executor’s account with 5% of this amount as a statutory commission for the reason that such royalties were not money received in the course of administration as contemplated by former Article 3689, R.C.S., as amended, or Sec. 241 of the Probate Code, V.A.T.S. (Acts 1955, 54th Leg. Ch. 55, p. 88, Sec. 241).

Appellant relies on Spofford v. Minor, 13 Tex.Civ.App. 534, 36 S.W. 771, 1896, writ ref., wherein the court says:

“The right to commissions is only given for receiving and ‘paying away’ money in the ‘course of administration.’ It does not arise, in the first instance, from the mere receipt of the estate, nor, in the second, from delivering it to the heirs or legatees as such. The administration of the property, as intended in article 2190, takes place between its receipt by the administrator and its delivery to those entitled ultimately to receive it from him.”

In Veal v. Thomason, 138 Tex. 341, 159 S.W.2d 472, the court said:

“We think it is settled by the decisions of this Court and of this State that a contract affecting land in this State, granting or reserving mineral royalty in such land, constitutes such royalty real property. * * * It is also settled by our decisions that mineral royalty affecting land in this State, granted or reserved, ‘and however payable — whether in the specific product (in oil) or in money measured by the value of the product,’ is an interest in the land covered by the contract.”

As we understand it, it is appellant’s position that since the royalty interest reserved in the lease constitutes realty and is part of the corpus of the estate, when the royalties are paid in cash on production they are paid without the exercise of any power by the executor, and he merely receives in the form of cash the equivalent of the oil and gas in place. It is her position that the oil and gas in place, as well as the production therefrom and the proceeds thereof, constitute the corpus of the estate, and that when the proceeds were received by the executor in cash, he was receiving for the first time the corpus of the estate.

We do not agree with this reasoning. The oil royalties did not constitute “cash on hand” at the time of the death of the testator. On his death the executor came into constructive possession of that part of the oil and gas in place, which had been reserved in the lease. On beginning production the lessee could have delivered the oil to the executor at the well; he could have purchased the oil on his own account; or, he could have delivered the oil into the pipeline to which the well was connected to the credit of the lessor. While the lessee had a right to purchase, there could be no sale until the right was exercised. The oil, in fact, was delivered into the pipeline, and was sold for the account of the lessor. This asset of the estate was converted into cash which was paid to the executor in the course of administration. The executor is entitled to a commission on the cash received where assets of the estate are sold. Cooper v. Schwalbe, Tex.Civ.App., 238 S.W.2d 581, writ ref.; Nations v. Ulmer, Tex.Civ.App., 139 S.W.2d 352, writ dism., judg. cor.; Simpson v. Goggin, Tex.Civ.App., 5 S.W.2d 610, writ ref.

There appears to be no necessity that the sale be made by the executor so long as he receives the proceeds in cash. Simpson v. Goggin, Tex.Civ.App., supra; Huddleston v. Kempner, 87 Tex. 372, 28 S.W. 936.

Appellant contends that the allowance of commissions on the sale of various tracts of real estate was erroneous because the bequest to Mrs. Zona Hensarling of $150.00 per month out of the revenues of the estate constituted a charge against the entire estate, including the real estate. Art. 3690, R.C.S. 1925, provided that no commission could be allowed for receiving money realized from the sale of property “to satisfy debts against the property” and the paying out of the proceeds in satisfaction of the debt, except as to the excess of the purchase price over the amount of the debt. It is her contention that the statute contemplates, in addition to debts secured by liens on the property sold, all general charges against the property, and requires that all such debts and charges be deducted before the sum can be ascertained on which a commission can be claimed.

In Cooper v. Schwalbe, Tex.Civ.App., 238 S.W.2d 581, writ ref., the court held that a claim filed for federal income taxes constituted a lien against all of the land in the estate and since the land was sold to pay the taxes, the claim of the administrator for a commission on the proceeds of the sale should be rejected on the portion of the purchase price required for the payment of the taxes.

The case of Haldeman v. Openheimer, 103 Tex. 275, 126 S.W. 566, in construing a will creating certain cash legacies and leaving the remainder to testator’s wife for her sole use and benefit during her life, and the balance remaining at the time of her death to trustees, held that the cash legacies were a charge upon the entire estate, real and personal.

Reasoning from these cases appellánt says that the legacy to Mrs. Hensarling constituted a charge upon the entire estate and that the record reflects that the money received from the sale of real property never exceeded the unpaid legacy.

Haldeman v. Openheimer, supra, quotes the following passage from Harris v. Fly, 7 Paige (N.Y.) 425:

“ ‘Personal estate is the primary fund for the payment of debts and legacies. If the testator therefore gives a legacy without specifying who shall pay it, or out of what fund it shall be paid, the legal presumption is that he intended it should be paid out of his personal estate only; and if that is not sufficient the legacy fails. So if he directs his executors to pay a legacy without giving to them any other fund than the personal estate out of which they can pay it. But where the real estate is devised to the person who by the will is directed to pay the legacy, it has frequently been decided that such legacy is an equitable charge upon the real estate so devised, although the devisee is also the executor, or is the residuary legatee of the personal estate; unless there is something in the will itself to indicate a contrary intention on the part of the testator.’ ”

In this case it is specified that the bequest to Mrs. Hensarling shall be paid out of the revenues of the estate. The fund out of which the bequest is to be paid is specified. This language indicates that the bequest was not intended to be an equitable charge on the real estate. Additionally, there is no evidence that the real estate was sold for the purpose of satisfying debts against the property within the meaning of Art. 3690, R.C.S. 1925.

Appellant urges that the trial court erred in allowing commissions on the money paid to the State of Texas in satisfaction of the gross production tax on oil and gas, for the reason that the tax was paid by the purchaser from the proceeds of the sales and that the money used to pay the tax was never received by the executor or paid out by him. By virtue of Title 122-A, Taxation-General, Vol. 20A, V.A.T.S., Article 4.03, the tax on oil produced is a tax on the owner of the royalty interest, as well as the owners of the working interest, measured by the volume of oil produced. The first purchaser of the oil is charged with the duty of deducting the amount of the tax from the proceeds of the sale due the royalty owner and of remitting it to the State. In the event oil is produced, but not sold, the royalty owner is responsible for paying the tax on his share of the production. If the purchaser fails to pay the tax, even though he withholds the amount due from the royalty owner’s share of the proceeds from production, the royalty owner is liable for the tax.

In Huddleston v. Kempner, 87 Tex. 372, 28 S.W. 936, the Supreme Court of Texas held that where real estate belonging to an estate was sold by reason of the foreclosure of a mortgage, and the mortgagee was the purchaser for a sum less than the debt secured, since the administrator was not required to deliver his deed without the payment to him in cash of the amount bid, he could tender his deed conditioned on the payment to him of the commission. The Court said: “ * * * It would be a narrow construction of the statute to hold that, because he did not demand its delivery (the purchase price), therefore in law he did not receive nor pay out that for which he was responsible as received and paid out. * * * ”

We think this case is distinguishable on the ground that the executor did not have the right to demand that the purchaser pay him for the gross value of the oil received without deduction of the tax. The executor did not “actually” receive the money used to pay the tax;, nor can the amount of the taxes be considered as a sum which he paid out in cash in the course of the administration of the estate. Gross production taxes were paid in the total sum of $26,395.70. Commissions were allowed on this sum as cash actually received and as cash paid out. The trial court improperly allowed commissions in the sum of $2,-639.58 by reason of these items.

The trial court also allowed the statutory commission on the sum of $1,343.-96 paid by the executor for the support of Mrs. Zona High. While the will provided that Mrs. Zona High “1=. to be taken care of,” no speeihe bequest was made to her. We think it unnecessary to determine the effect of this provision. If Mrs. High is a legatee, payments made on her account would constitute payment to a legatee as such, and no commission would be due to the executor. If the executor was under no legal obligation to make payments to Mrs. High, he exceeded his authority in making the payments and no commission was earned. Terrill v. Terrill, Tex.Civ.App., 189 S.W.2d 877, error ref. The commission erroneously allowed the executor on this item amounts to $67.20.

The executor was allowed his commission on the sum of $10,700.51 paid to Doyle Hubbard for accountant’s fees. The testimony shows that $9,678.51 of that sum was charged against the business revenues in the income tax returns. Financial statements prepared by Mr. Hubbard in evidence reflect items related to the oil operations, rental income, etc. The statutory commissions are not allowed on expenditures made by an executor, which pertain primarily to the operation of a business. Dwyer v. Kaltayer, 68 Tex. 554, 5 S.W. 75. It is apparent that much of the accountant’s work was rendered necessary by the fact that the businesses were being carried on by the executor. No commission should have been allowed on this expenditure. The sum of $483.93 was improperly credited to the executor as commission by reason of this error.

An item of $408.17 was charged as expense against the farming operation and a commission was allowed on that sum. In the absence of evidence to the contrary, the fact that the executor charged the expense against the farm income would constitute an admission that the expenditure was made in the operation of the business. The sum of $20.41, therefore, was improperly allowed as commissions to the executor.

Commissions were properly allowed on the cash paid in settlement of federal income taxes which were assessed against the estate, as well as sums paid for repairs and improvements on properties belonging to the estate.

State inheritance taxes in the sum of $814.54 were paid by the executor and a commission was allowed on that sum. This tax is imposed on the right to receive or succeed to the possession or enjoyment of property. It was a charge against each share or interest in the estate and against the legatees or devisees. Norton v. Jones, Tex.Civ.App., 210 S.W.2d 820, writ ref.

The inheritance tax laws in effect in 1935 provided a method by which the county judge should determine the amount of inheritance tax, after which it became his duty to certify the amount of the tax to the executor and to the legatees or devisees, and further provided that the tax should be a lien on the property until paid. Acts 1923, 38th Leg. 2d C.S., p. 63, ch. 29 Sec. 16-a.

Section 21-b of the Act last cited (formerly codified as Art. 7132, V.A.C.S.), provided: '“All taxes received under this law by any executor, administrator or trustee, shall be paid by him to the tax collector * * *."

There is in evidence the order of the County Judge of Harris County dated December 5, 1935, fixing the inheritance tax against the share of the estate bequeathed to Gilvie Hubbard and Dovie de La Mar at $407.27 each. The order further authorized and directed the executor to pay such sums to the County Tax Collector and to charge the sums paid to the respective shares “as taxed herein.”

Since the statute contemplates that the amount of the tax should or could be paid by the legatees to the executor and by him to the County Tax Collector, and since in this case the same result was reached, the payment cannot be considered beyond the power and duty of the executor and the commission was properly allowed.

After the death of the executor, Lorece B. Hubbard, his wife, was appointed executrix of the estate of Gilvie Hubbard. No administration with will annexed was taken out on the estate of T. B. Hubbard, since the only parties interested in the estate partitioned it by agreement subject to this suit for accounting. Neither party had authority to act for the estate of T. B. Hubbard, or to create liabilities against it. McClellan v. Mangrum, 38 Tex.Civ.App. 193, 75 S.W. 840. This estate, therefore, was not liable for the fees of the accountants employed by Mrs. Hubbard to prepare an accounting of the estate of T. B. Hubbard. There is no evidence that Mrs. Walling agreed to pay any part of this expense. It is the duty of an executor to maintain books of account showing all income of the estate being administered, as well as all items of expense paid out on behalf of the estate. The evidence shows that the fees of the accountants in the sum of $2,525.00 were increased, and that most of the work of the accountants was caused by the fact that the executor, Gilvie Hubbard, failed to maintain proper books of account for the estate. Under the circumstances, the trial court erred in allowing appellee to recover one-half of the fee paid to the accountants. While the procedure provided by Sec. 386 of the Probate Code might have been followed in partitioning the property owned jointly by the estate of Gilvie Hubbard and Mrs. Walling, it was not followed; therefore, Sec. 387 of the Probate Code has no application to the expenses incurred in making a voluntary partition or in this action for accounting.

The final points of error relate to the claim asserted on behalf of the executor for extra compensation for his services in operating the businesses previously carried on by T. B. Hubbard.

An independent executor has authority to do those things without a court order that an ordinary executor can do under court order. Rowland v. Moore, 141 Tex. 469, 174 S.W.2d 248. The will of T. B. Hubbard directed that his farm related business be continued by his executor. Since few business ventures could be operated with success under the handicap of paying to the executor five per cent of all items of cash income and five per cent of all cash expenditures, no commission can be earned on the receipts and expenditures of such business ventures, but to compensate the executor the courts can allow the executor a reasonable fee. Dwyer v. Kaltayer, 68 Tex. 554, 5 S.W. 75; James v. Craighead, Tex.Civ.App., 69 S.W. 241; Dallas Tailor’s Supply Co. v. Goen, Tex.Civ.App., 25 S.W.2d 224, writ ref.

The trial court submitted to the jury special issues inquiring whether the executor rendered services beneficial to the estate in operating the businesses and what sum per month would be reasonable compensation for such services. Appellant contends that the trial court should also have submitted the question as to whether the services rendered by the executor were of such character, or rendered under such circumstances, as to constitute unusual or extraordinary services for the performance of which compensation might be allowed the executor under the law. Complaint was also made concerning the form of the issues submitted. Appellant also contends that there was no evidence of probative force to show the value of the services and that the answer was so grossly excessive as to show that the jury was prompted by passion, prejudice or some other improper motive. It is also contended that the executor’s claim for special compensation was improperly allowed because it was barred by limitations.

By Section 241 of the Probate Code the probate court is authorized to allow reasonable compensation to an executor for managing a business belonging to the estate. This section was enacted some four years prior to the death of the executor, but before its enactment the courts had authorized such allowances in thp exercise of equitable powers.

Appellant makes the assumption that the executor charged and retained a commission of 10% on all cash received by him for the estate, and that, therefore, the amount in excess of 5% was illegally retained in spite of the fact that he was clearly entitled to retain the statutory percentage of cash paid out as well as the statutory commissions which accrued prior to 1944. While the evidence shows that the amounts charged by the executor as commissions closely approximated 10% of the cash received, this circumstance is not of controlling importance.

The independent executor has the same responsibilities and duties with reference to the estate as does the executor under the direction of the probate court. Roy v. Whitaker, 92 Tex. 346, 48 S.W. 892. He is entitled to pay claims against the estate out of funds of the estate without court authorization in all situations where an ordinary executor could pay them after securing a court order. Lang v. Shell Petroleum Corporation, 138 Tex. 399, 159 S.W.2d 478. We see no reason to except from this rule claims against the estate owned by the executor, whether incurred before or after the death of the testator. Prior to the adoption of the Probate Code, the probate court had no jurisdiction to approve the final account of an independent executor or to allow a personal claim in his favor against the estate which accrued during his tenure as executor, unless filed in connection with a suit for partition or settlement of the estate. Rowland v. Moore, 141 Tex. 469, 174 S.W.2d 248. When claims against the estate are denied by the independent executor, suit may be instituted upon such claim as in other civil cases. Kopplin v. Ewald, Tex.Civ.App., 70 S.W.2d 608. We think it does not follow that the executor must sue himself in District Court to establish his personal claim against the estate. He may allow his own claim in the exercise of the discretion confided in him by the testator. If a subsequent action for accounting is brought against him by those entitled to the estate, he must justify his action in allowing himself compensation for carrying on a business, and the reasonableness of the amount allowed, just as he must justify any other item which he might claim as an expense of administration.

Under this view of the law, we are unable to determine from the evidence that the executor retained in any year compensation in excess of the statutory commissions due him for that and preceding years, plus the amount determined by the court to be a reasonable compensation for the services of the executor in conducting the business of the estate. No penalty interest, therefore, can be assessed against the executor.

Since the adoption of the Probate Code the county court has had jurisdiction to “act on applications” from independent executors, for reasonable compensation for services in managing a business of the estate. Gilvie Hubbard had ceased to operate the businesses of the estate prior to the effective date of the Probate Code. This provision of the Code would have no application to this case.

Appellant has invoked the power of the District Court to settle the account of Gilvie Hubbard as executor of the estate of T. B. Hubbard. It is well settled that in suits to settle the accounts of a deceased administrator or executor the District Court performs the function of the Probate Court in the settlement of a final account, and can review the various annual accounts, which do not have the force of a final judgment. Anderson v. Armstrong, 132 Tex. 122, 120 S.W.2d 444. In such cases the District Court has the right to adjust all allowances to and charges against its administrator, and statutes of limitation have been held inapplicable because the entire matter is in the hands of the Probate Court. The same result should follow in the case of an independent executor. Roy v. Whitaker, 92 Tex. 346, 48 S.W. 892; Smith v. Belding, Tex.Com.App., 237 S.W. 246; Legler v. Legler, Tex.Civ.App., 189 S.W.2d 505, writ ref., w. m.

In determining the reasonableness of compensation to be allowed an executor for operating a business after the services have been performed, there appears to be no necessity for determining a monthly salary as was done in this case. The total amount to be allowed is the ultimate issue. The work was performed each month although the time required might vary slightly from month to month. There was sufficient evidence to support the answers made by the jury to the issues on compensation. While we do not approve the form of the Special Issue No. 2, we do not think the Court fell into such error as was calculated to cause the rendition of an improper judgment.

The other points of error urged by appellant have been carefully considered and are not thought to present reversible error.

Appellee complains of the action of the trial court in disregarding jury findings to the effect that it was necessary to employ the services of an attorney, after the death of Gilvie Hubbard, to partition the estate of T. B. Hubbard and that the reasonable and proper charge for such services was the sum of $4,330.00. There was no understanding, in connection with the agreement partitioning the estate of T. B. Hubbard, that appellant would pay any part of the fees of the attorneys employed by appellee. The evidence shows that the lawyers performing the services understood that they were employed by Mrs. Hubbard and were not representing Mrs. Walling. Since their interests were adverse, the lawyers could not have represented both parties properly. They could not have been representing the estate of T. B. Hubbard since no one was authorized to act as administrator of that estate. Section 387 of the Probate Code was not applicable since this was not a proceeding, authorized by Section 386, in the County Court to partition assets between the estate of Gilvie Hubbard and Mrs. Walling. The action complained of was not error.

The trial court denied the executor commissions on certain funds received by him in cash in connection with the farming operations and also on certain money paid out for taxes and insurance premiums on farm lands and buildings. All of these items properly were included as income or expense in the business operations of the estate, and the trial court properly refused to allow commissions on those items. Dwyer v. Kaltayer, 68 Tex. 554, 5 S.W. 75.

By its verdict the jury found that the sum of $250.00 per month was a reasonable compensation to Gilvie Hubbard for the services rendered in operating the businesses belonging to the estate. The trial court required a remittitur of $14,062.50, finding that the jury’s answer to this issue was excessive. Appellee has assigned this action as error as permitted by Rule 328, T.R.C.P. In Flanigan v. Carswell, 159 Tex. 598, 324 S.W.2d 835, the court said"

“ * * * [W]here the trial judge has ordered a party to remit a portion of the jury verdict as a condition for overruling a motion for new trial, the Court of Civil Appeals, in passing upon such action under Rule 328, supra, should allow the trial court’s action to stand unless it be of the opinion that the remittitur ordered by the trial court, when considered in the light of the whole record, would render the order of remittitur manifestly unjust. * * ” From a consideration of the record as a whole, we cannot say that the remittitur ordered by the trial court is manifestly unjust.

The judgment entered by the trial court improperly allowed the executor commissions in a total amount of $3,211.12 and improperly charged appellant with accountant’s fees in the sum of $1,262.50. The judgment is reversed and judgment is here rendered in favor of appellant and against appellees in the sum of $3,179.50. Costs in the trial court and in this Court are taxed against appellees.

Reversed and rendered.

On Motions for Rehearing

In our original opinion we held that certain items of income and expense were incurred in the business operations of the estate and that the trial court properly refused to allow commissions .on such items, relying on Dwyer v. Kaltayer, 68 Tex. 554, 5 S.W. 75. On re-examining this question we have determined that we were in error. In the case cited above the Supreme Court allowed a commission on the money realized from the sale of the goods on hand at the testator’s death. It determined that the executor should receive a reasonable allowance for the time and labor bestowed by him upon the business, rather than a commission “upon the purchase and sale of new goods”. The court did not discuss the type of income and expense with which we are concerned here.

We are of the opinion that the proper rule to be applied is to deny commissions on income arising out of the business and an expense reasonably incurred in the production of such revenue, provided the income would not have been realized, or the expense incurred, in the absence of such business operation.

Appellee specifically complains of the refusal on the part of the trial court to allow commissions on the following items:

MONIES RECEIVED DURING THE COURSE OF ADMINISTRATION

1. Land Lease rental $12,463.23

2. Rent from tenant house on farm 4,412.00

3. Monies received from Agriculture Adjustment Bureau 1,470.13

4. Farm rent on Oklahoma Property 1,447.19

MONIES PAID OUT DURING THE COURSE OF ADMINISTRATION

1. Taxes, 1271 Ac., Brazoria County 106.32

2. Taxes, 240 Ac., McClain County, Oklahoma 26.27

3. Property taxes paid County, State and School, Brazoria County 17,011.10

4. Taxes on Farm and Dairy 7,567.08

5. Insurance premiums on Farm building 1,818.83

The executor carried on certain business operations previously conducted by the testator. The revenues listed above, with the possible exception of the money received from the Agriculture Adjustment Bureau, apparently are not revenues derived from either of these business enterprises. None of the items of expense appear to have been made necessary by the operation of the business enterprises. There is no evidence in the record explaining any of these items, either of expense or revenue. It was stipulated that the money was received, or paid out, in the course of administering the estate. The fact that some of the items under general accounting principles would be considered in determining profit or loss is not a controlling factor. A commission of $2316.10 should have been allowed.

The appellees’ motion for rehearing is granted in part and the judgment previously entered by this Court is modified so that the judgment rendered against appellees will be in the sum of $863.40 instead of $3,179.50. In all other respects the motion is overruled.

Appellant’s motion for rehearing is overruled.

Appellant’s motion for rehearing overruled; appellees’ motion for rehearing granted in part; former judgment vacated, set aside and annulled; corrected judgment rendered and entered and opinion on motions for rehearing filed April 1, 1965.


author: WILLIAMS, Justice.

text:
    D. S. ROSEBOROUGH, Appellant, v. V. P. PHILLIPS, Appellee.
    No. 16471.
    Court of Civil Appeals of Texas. Dallas.
    March 5, 1965.

      L. A. Bedford, Jr., Dallas, for appellant.
    Esir Tobolowsky, Dallas, for appellee.
   WILLIAMS, Justice.

V. P. Phillips brought this suit against Volneys’ Inc., a corporation, V. B. Phillips, Johnny Walker, D. S. Roseborough and L. R. Bright, on two promissory notes and to establish and foreclose a lien on certain real property. One promissory note, dated June 28, 1961, in the sum of $2,000 was executed by defendant Volneys’ Inc. The individual defendants, by a separate written guarantee, assumed personal liability in the event of nonpayment by Volneys’ Inc. The other promissory note was in the principal sum of $1,465.65 and was executed by all of the defendants. All of the defendants, with the exception of the defendant Rosebor-ough, defaulted and judgment was rendered against them from which no appeal was taken. Defendant Roseborough answered, setting forth various defenses, including an allegation to the effect that there was a verbal agreement whereby he would not be held personally liable on the note for $1,-465.65.

At the conclusion of a nonjury trial defendant Roseborough filed a motion for judgment based upon the proposition that plaintiff had neither pled nor proved notice of dishonor of the note for $2,000. Such motion was overruled and the court proceeded to render judgment against defendant Roseborough for the principal amount of the notes in question, together with interest and attorneys’ fees as therein provided, but denied plaintiff’s prayer for foreclosure of lien. Roseborough appeals, contending in two points of error that the trial court erred in rendering judgment against him on the two notes because (1) there are no pleadings or evidence that notice of dishonor was given him in connection with the $2,000 note; and (2) that as to the note for $1,465.65 there was an agreement to the effect that Roseborough was not to be held personally liable thereon. Both points are found to be without merit and are overruled.

Appellant’s first point relating to failure of appellee to either plead or prove notice of dishonor, as provided by Vernon’s Ann.Civ.St. Art. 5938, § 89, Texas Negotiable Instruments Act, demands a study of the note and collateral agreement to properly determine the legal status of appellant. The note, dated June 28, 1961, in the principal sum of $2,000, and representing cash advanced by appellee to Volneys’ Inc., is regular on its face and signed “Volneys’ Inc., Dallas, Texas, Volney B. Phillips (President).” On the reverse side of the note is found the following:

“It is specially agreed and understood that this obligation is to be paid by Volneys’ Inc. in monthly payments, in the amount of Fifty Five Dollars per month, until the said amount is paid in full, providing the last payment shall be in the amount of Seventy Five Dollars, and all shall be paid within 36 months from the date hereof. Such payments are to be made on or before the 15th day of each month.
It is specially agreed and understood that this obligation is to be paid by Volneys’ Inc. But in the event the said Corporation for any reason fails to perform this obligation, or any part thereof then the following named and undersigned Directors shall be individually liable thereon:
V. B. Phillips, ./s/ V. B. Phillips.
Johnny Walker, /s/ Johnny Walker.
D. S. Roseborough, /s,/ D. S. Roseborough.
Bennie King, /s/ Bennie King.
L. R. Bright, /s/ L. R. Bright ”

It is evident from the reading of this instrument that it is a separate and collateral agreement by appellant, and the other directors of the corporation, whereby they, and each of them, guarantee the payment of the note in the event the same is not paid by Volneys’ Inc. Thus appellant Rose-borough, and the other signers of the collateral agreement, became guarantors and not indorsers in the sense of that term under Negotiable Instruments Law. Hughes v. Straus-Frank Co., Tex.Civ.App., 127 S.W.2d 582, affirmed Supreme Court, 138 Tex. 50, 156 S.W.2d 519; Smith v. Montgomery, 3 Tex. 199; Wood v. Canfield Paper Co., 117 Tex. 399, 5 S.W.2d 748; Shropshire v. Smith, Tex.Civ.App., 37 S.W. 174; 21 Tex.Jur., p. 135, et seq.

That appellant Roseborough was, indeed, a guarantor was admitted and stipulated by counsel for appellant in open court wherein he said: “The defendant is a guarantor, certainly under the note of, if he is to be considered anything, he is to be considered a guarantor on the note given June the 28th, which says that at that time they guarantee payment of that note.” Being a guarantor, and not an indorser, was it encumbent upon appellee to allege and prove notice of dishonor of the note in question to appellant as required by Art. 5938, § 89, Negotiable Instruments Act of Texas? We think not.

Since appellant’s liability is contingent upon the separate and collateral agreement, constituting him a guarantor as contra-distinguished from that of indorser, the provisions of the Negotiable Instruments Law relating to notice of dishonor to an indorser are not applicable. As stated by Justice Looney of this court in Commerce Securities Corp. v. Congleton, Tex.Civ.App., 8 S.W.2d 803, wr. dism.:

“The difference between the status of an indorser and that of a guarantor is that the indorser is entitled to have demand made upon the principal at maturity, and to receive notice of default in payment, unless this is expressly waived, but a guarantor is not entitled to have demand made for payment, nor notice of default, unless expressly provided for. Walcott v. Carpenter, 63 Tex.Civ.App. 108, 132 S.W. 981; Childs on Suretyship and Guaranty, p. 11, § 14; Daniel on Negotiable Instruments (4th Ed.) vol. 2, p. 787, § 1754.”

Even if it could be said, arguendo, appellant Roseborough occupied the status of indorser, and not as guarantor, and therefore entitled to notice of dishonor under the Texas Negotiable Instruments Act, we think that the record in this case abundantly demonstrates that such notice of dishonor was given to him prior to the institution of this suit. Art. 5938, § 96, Texas Negotiable Instruments Act, provides that the notice of dishonor may be given either in writing or orally. Appellee Phillips testified that upon failure of Volneys’ Inc. to pay the note in question he brought up the subject of nonpayment in several directors’ meetings at which appellant Roseborough was present. He said that on each of these occasions he demanded his money and was told by Roseborough that the debt was just and that he, Roseborough, was willing to pay the same when the others would agree to pay. This, in our opinion, constitutes ample notice of dishonor to Rose-borough. As to the pleadings, appellee did not plead notice of dishonor nor did appellant Roseborough specially except to such failure nor did he plead such failure as an affirmative defense under Rule 94, Texas Rules of Civil Procedure. The testimony concerning notice of dishonor was introduced without objection. Any possible defect of pleading was waived.

Since no findings of fact or conclusions of law were requested or filed it is presumed that the trial judge made appropriate findings to support the judgment rendered. We find ample evidence to support the implied findings of the trial court.

By his second point appellant contends that, as to the note for $1,465.65, the undisputed evidence showed that appellee accepted the note with intention not to hold appellant liable thereon. This point is without merit for several reasons. In the first place, the evidence is far from being undisputed on this question. At one point in Phillips’ testimony he vaguely indicated that he “didn’t particularly bind them on that,” apparently referring to the note in question. However, at several other points during his testimony he positively and unequivocally stated that he expected the men that signed the note to pay the money. In this state of the record the trial judge was perfectly justified in making the implied finding against appellant’s contention. Moreover, the negotiable instrument sued upon was clear and express in its terms. An unconditional written instrument cannot be varied or contradicted by parol agreements or by representations of the payee that the maker would not be held liable according to the tenor of the instrument. Dean et al. v. Allied Oil Co., Tex.Civ.App., 261 S.W.2d 900, err. dism.; Mitcham v. London, Tex.Civ.App., 110 S.W.2d 140; Cooper Co. v. Smith, Tex.Civ.App., 126 S.W.2d 518; Crumpler v. Humphries, Tex.Civ.App., 218 S.W.2d 215; Dewey v. C. I. T. Corp., Tex.Civ.App., 374 S.W.2d 298; Johnson v. Packaging Corp. of America, Tex.Civ.App., 375 S.W.2d 780; Steve Lynn Motor Co., Inc. v. Pavelka, Tex.Civ.App., 371 S.W.2d 928; 9 Tex.Jur. 2, p. 323, § 294; Kane v. Union State Bank et al., Tex.Civ.App., 384 S.W.2d 358; Snowden v. Franklin Nat’l Bank of Long Island, 338 F.2d 995 (5th Circuit).

Our Supreme Court, in Kuper v. Schmidt, 161 Tex. 189, 338 S.W.2d 948, pointed out the distinction between a parol condition affecting delivery of a negotiable instrument and one affecting its payment. As therein pointed out, by the express terms of the Negotiable Instruments Act, delivery upon a condition or for a special purpose only may always be shown as between the immediate parties. On the other hand, a parol condition or agreement relating to payment of a delivered instrument is not enforceable .if it operates to add to, take away from or vary the terms of the written agreement. Helmke v. Prasifka, Tex.Civ.App., 17 S.W.2d 463, wr. ref.; Shepherd v. Woodson Lumber Co., Tex.Civ.App., 63 S.W.2d 581.

We have carefully reviewed this entire record and find no reversible error reflected therein. Accordingly, the judgment of the trial court is affirmed.

Affirmed.

      . Bennie King is shown to be deceased and is not a party to this suit.


author: WILSON, Justice.

text:
    GUNNELLS SAND COMPANY et al., Appellants, v. William WILHITE, Appellee.
    No. 4337.
    Court of Civil Appeals of Texas. Waco.
    March 18, 1965.
    Rehearing Denied April 8, 1965.

      Talbert, Giessel, Cutherell, Barnett & Stone, Houston, for appellants.
    Brown, Kronzer, Abraham, Watkins & Steely, Houston, for appellee.
   WILSON, Justice.

Defendants, owner and driver of a truck, ask reversal of an adverse judgment on a jury verdict in a personal injury action arising from a collision of the truck with a car owned by plaintiff, driven by another. Defendants’ points are that they are entitled to judgment because the undisputed evidence shows the negligence of plaintiff’s driver, found by the jury to be a proximate cause, is imputed to plaintiff who was riding in the front seat of his own car, because the driver was plaintiff’s agent and they were engaged in a joint venture at the time of the collision. They complain of the overruling of motion for judgment on the verdict.

Plaintiff takes no issue with defendants’ major premise that the evidence shows agency and joint venture. He answers that these matters are not a basis for a defendants’ judgment because they were not pleaded by defendants, and were not tried by implied consent.

Defendants’ pleading, besides a general denial and allegations of emergency and unavoidable accident, was: “The incident complained of in plaintiff’s petition was caused by negligence and carelessness on the part of the plaintiff and the driver of the plaintiff’s vehicle, and this was the sole cause.” Plaintiff objected to evidence and made clear, emphatic and repeated objections to the charge on the grounds there was neither pleading of joint enterprise nor other pleaded basis for imputation to plaintiff of-the driver’s conduct.

Rule 45, Texas Rules of Civil Procedure, requires a defendant’s pleading to consist “of a statement in plain and concise language” of his “grounds of defense”, and provides that they shall be so construed as to do substantial justice. “Fair notice” by the allegations as a whole is the test for sufficiency of evidentiary pleading or conclusions excepted to. Rule 67 provides issues not raised by pleading may be tried by implied consent as if pleaded, and provides for amendment to cause pleadings to conform to evidence. Rule 94 requires that any matter “constituting an avoidance or affirmative defense” be “set forth affirmatively”. Rules 67, 277 and 279 restrict jury issues to those raised by affirmative written pleadings.

Texas early rejected the English system of pleading and adopted that of the Roman, or civil law as modified by Spanish and Mexican practice. From the Act of 1836, enacted by the first Congress of the Republic, through the Practice Act of 1846 and to the adoption of the present Rules, the general design and policy of the Texas system of pleading has been to require parties to “set forth in plain and intelligible manner the facts upon which they rely.” Townes, Texas Pleading (2d ed.) pp. 71, 74, 84, 86; Fowler v. Poor, Dallam 401, 403; Coles v. Kelsey, 2 Tex. 542. As to pleadings under this system, said Justice Wheeler in Underwood v. Parrott, 2 Tex. 168, 179, if a party “must apprise the court orally of the facts intended to be relied on before he can insist upon the introduction of his evidence, why not put them in writing upon the record, not only for the information of the court, but to apprise the opposite party of the proofs he must be prepared to meet? This would seem more consistent with fairness and justice than to permit a party to assume mentally the basis of his proofs.”

Rule 94, above, is derived from Rule 8(c), Federal Rules of Civil Procedure, unchanged. The latter Rule was construed and applied in Roth v. Swanson, 8 Cir., 1944, 145 F.2d 262, where defendant alleged, as here, that the sole cause of a collision was the negligence of the driver of the car occupied by the person injured. On appeal from an adverse jury verdict defendant urged, as here, that the collision was due to the driver’s negligence, and that his negligence as their agent was imputable to plaintiff, who owned the car. The argument was based on an arrangement between two families to use alternately cars used in going to church services. The court held that “under the pleadings this question was not in the case. See Rule 8(c), Federal Rules of Civil Procedure.”

In Lewis v. Hatton, 86 Tex. 533, 26 S.W. 50, it was pleaded that a tort was committed by a party to the suit, but the court admitted evidence it was committed by another person, his agent, a deputy. Chief Justice Stayton said the pleading “informed defendants that plaintiff based his action on their personal acts, and gave no intimation whatever of intention to hold either of them responsible for acts done by another person, for whose conduct they or either of them were responsible”. This, it was held, was required to be alleged. “The object of pleading is to apprise the court and the opposite party of the facts”, and “a party ought not to be permitted to prove what he has not averred.”

Although the enumerated Rules have simplified and liberalized Texas pleading, this essential has not been abandoned. A pleading that an act was committed by a party will not support admission over objection of evidence it was done by another for whose conduct the party is charged to be responsible; and in our opinion that holding governs the unpleaded grounds of defense that the driver’s negligence is imputable to plaintiff by reason of agency and their engaging in a joint venture. Gause-Ware Funeral Home v. McGinley (Tex.Civ.App., 1931), 41 S.W.2d 433, 434, writ ref.; Wittkower v. Dallas Ry. & Terminal Co., Tex.Civ.App., 73 S.W.2d 867, 871, writ ref.; Miller v. Pettigrew, Tex.Civ.App., 10 S.W.2d 168, 169, syls. 3 and 6; Gem Jewelry Company of Beaumont, Inc. v. Nolte, Tex.Civ.App., 335 S.W.2d 766, 769, writ ref., n. r. e. See Reid v. Associated Employers Lloyds, Tex.Civ.App., 164 S.W.2d 584, 585, writ ref.; Salley v. Black, Sivalls & Bryson, Tex.Civ.App., 225 S.W.2d 426, 428, per Norvell, writ dism.; Thannisch Chevrolet Co. v. Kline, Tex.Civ.App., 134 S.W.2d 433, 435; Terrell v. Cockrell, Tex.Civ.App., 286 S.W.2d 950, writ ref. n. r. e.; 4 A.L.R.2d 292; 59 A.L.R.2d 273; 7 Tex.L.Rev. 344; 7 Tex.Jur.2d Sec. 310, p. 695; 2 McDonald, Texas Practice, Sec. 6.15, p. 566; Sec. 7.34, p. 673; 48 C.J.S. Joint Adventures § 16, p. 873. Contra: Bewley Mills v. Tinkle, Tex.Civ.App., 268 S.W. 966, no writ; Freeman v. Texas Bread Co., Tex.Civ.App., 111 S.W.2d 307, no writ, and cases cited. Affirmed.


text:
    Duncan G. ALLEN, Appellant, v. W. L. WINNER et al., Appellees.
    No. 14486.
    Court of Civil Appeals of Texas. Houston.
    April 1, 1965.
    Rehearing Denied April 29, 1965.
    Collins, Moore & Putnam, Fred. A. Collins, Houston, for appellant.
    Donald Peters, Rudy M. Groom, Houston, for appellees.
   COLEMAN, Justice.

This is a suit to enjoin the use of certain premises for business purposes in violation of a covenant restricting the use of the premises to residential purposes only.

The suit was tried before the court without a jury. The trial court entered a judgment enjoining use of the premises for business purposes. Findings of fact and conclusions of law fully supporting the judgment were filed and this appeal resulted.

In October, 1958, appellant purchased a house and lot located at 5901 Beechnut Street in the City of Houston, Texas, and being Lot 5, Block 4, Braeburn Terrace, Section 2. He immediately began using the property as an office and has continued such use to the present time. He made no alterations to the exterior of the building and no substantial changes to the interior. He was engaged in appraisal work, designing and evaluating designs of industrial buildings, and real estate brokerage. At times he had as many as ten clerical employees. He had two telephone lines and several listings in the telephone directory. Very few of his clients called at his office. For several months in 1959 Allen occupied a room in the house as his residence. There was no outward indication that the property was being used for purposes other than residential.

On April 10, 1963, appellant purchased an adjoining house and lot known as 5905 Beechnut, which he began using as additional office space. Thereafter, he put shell in the area between and in front of the houses for use as a parking area, and permitted his son to erect a large business sign in front of 5905 Beechnut.

Since 1960 a neighborhood civic club interested in enforcing the restrictive covenants in the subdivision has had some information indicating that the 5901 Beechnut property was being used for business purposes and letters of inquiry were sent to appellant in 1961, 1962 and 1963 concerning his use of the property. He did not reply to these letters. Appellees testified that they did not know of the business use until 1963, although one of them testified that he previously had heard that a real estate operation was being conducted from the premises. The evidence indicated that there were only one or two other business operations in Section 2 and that these were not readily apparent and were unknown to appellees prior to the institution of this suit.

Appellant does not deny that he is using the property for business purposes. He also admits that he had knowledge of the covenants at the time he purchased the property. He relied as a defense to this suit on pleas of waiver, laches and estoppel. He also has raised for the first time the question of limitations, but since he did not plead the statutes of limitation, that defense is not available to him. Travis County v. Matthews, Tex.Civ.App., 235 S.W.2d 691, ref., n. r. e.

There is no evidence of substantial violations of the restrictions in Section 2 of Braeburn Terrace other than the violation by appellant. There is, therefore, no evidence of acquiescence in violations by others necessary to sustain the defensive plea of waiver. Stewart v. Welsh, 142 Tex. 314, 178 S.W.2d 506; Cowling v. Colligan, 158 Tex. 458, 312 S.W.2d 943.

The trial court properly could have found from the testimony that some, if not all, of the appellees were unaware of the nature of appellant’s use of the property until after April, 1963. This suit was filed January 8, 1964.

It is well settled that the utmost diligence is not required in asserting one’s rights against another who has invaded them deliberately with full knowledge of the facts. Davis v. Hinton, Tex.Civ.App., 374 S.W.2d 723, ref., n. r. e.; Arrington v. Cleveland, Tex.Civ.App., 242 S.W.2d 400, writ ref.

The burden of proof to establish the defenses of laches and estoppel was on appellant. A vital element in both of these defenses is injury or damage caused to the violator by reason of apparent acquiescence in prior violations of the restrictions. Ar-rington v. Cleveland, supra.

Appellant contends that he purchased the adjacent property because of the acquiescence of the other property owners in his use of 5901 Beechnut for business purposes, and that this constitutes the requisite injury. There is no testimony that a financial loss was sustained by reason of this purchase. Neither house has been converted to a special purpose. No substantial funds have been expended in improvements to the property. The evidence does not establish as a matter of law that appellees acquiesced in the use of 5901 Beechnut for business purposes prior to the purchase of 5905 Beechnut. There could be no acquiescence in the absence of knowledge of the business use.

Even if it should be considered that ap-pellees knew that some business activity was conducted at 5901 Beechnut, it was not readily apparent and did not damage appellees. The trial court might well have considered the violation trivial prior to the time the large parking area was shelled and the business sign was erected. The delay in filing suit after the business activity was thus advertised was not unreasonable and caused appellant no damage.

Appellant also contends that there was no general plan or scheme of restrictions limiting this subdivision to residential purposes only and that there was no evidence that all lots in Braeburn Terrace, Section 2, were subjected to restrictions.

It is apparent that the developers of Braeburn Terrace, Section 2, recorded restrictive covenants on the various blocks as they were developed. The material provisions of these covenants are the same and evidence a general plan or scheme for the development of the subdivision. The fact that some lots were not restricted would not vitiate the general plan. Goodstein et al. v. Huffman et al., 222 S.W.2d 259, error ref.; Hooper v. Lottman, Tex.Civ.App., 171 S.W. 270; Scaling v. Sutton, et al., Tex.Civ.App., 167 S.W.2d 275, ref., w. o. m.

The judgment of the trial court is affirmed.


text:
    Gerald F. STONE, Appellant, v. Wesley Howard PITTS et al., Appellees.
    No. 4322.
    Court of Civil Appeals of Texas. Waco.
    March 18, 1965.

      Herbert Finkelstein, Plouston, for appellant.
    Aubrey H. Poole, Houston, for appel-lees.
   WILSON, Justice.

Appellant Stone appeals from a take-nothing judgment in his suit as assignee against appellees on a $1500 mechanic’s lien note in which he sought foreclosure of the lien. We reverse and remand.

Defendant Wesley Pitts’ trial pleading contained no general denial, but pleaded failure of consideration generally; that Stone “had sufficient knowledge thereof to put him on notice to investigate”; and was not a holder in due course as he had alleged. B. H. Pitts and wife pleaded they owned the land described in the formal mechanic’s lien contract when it was signed by their son, Wesley Pitts, and that no liens were filed for record before their deed to the property from Wesley Pitts was so filed.

The following table gives the chronological sequence of events settled by the record:

Deed from Wesley to B. H. Pitts executed 1958, but unrecorded.
Note and formal mechanic’s lien contract to the contractor, Real, describing the same property, executed by Wesley Pitts February 17, 1960, but unrecorded.
B. H. Pitts received actual notice of Real’s mechanic’s lien contract and work thereunder during period February 17-20, 1960.
Real received actual notice of unrecorded deed to B. H. Pitts during period February 17-20, 1960.
Deed from Wesley to B. H. Pitts recorded February 23, 1960.
Assignment of note and lien from Real to Stone executed March 18, 1960.
Mechanic’s lien recorded March 18, 1960.
Assignment to Stone filed for record March 23, 1960.

It does not appear that Stone had any notice of Pitts’ unrecorded deed. There is no showing as to the value of any improvements made at the time Real actually acquired notice of the unrecorded deed.

To issues submitted the jury found that Stone purchased the note from Real “before March 25, 1960” for $500. (The significance of the March 25 date is not suggested). Issue 4 was: “Do you find from a preponderance of the evidence that at the time he purchased the note in question Stone did not have actual knowledge of any defect in such note, nor did he have knowledge of such facts that his action in taking such instrument amounted to bad faith?” The jury answered, “He did have such knowledge.” The term “defect in such note” was defined as meaning that the original holder of the note obtained same by unlawful means or for an illegal consideration. By “bad faith”, it was charged, “is meant an act done in dishonest disregard for the rights of others or with a wilful disregard of and refusal to learn the facts when available.”

There are no objections to the charge. The significance of, or basis for the fourth finding is not explained by the pleadings, the evidence, the judgment or the briefs. The parties indicate the issue was intended to determine whether Stone was a holder in due course under Art. 5935, Vernon’s Ann. Civ.St., Secs. 52-59. Appellant Stone does say he “claimed to be a holder in due course, but the jury’s finding in response to Special Issue No. 4 effectively prevents him from being a holder in due course.” He says, “This finding is not challenged.” The court overruled Stone’s motion to disregard findings as immaterial, and overruled his motion for judgment on the verdict. Defendants’ motion for judgment on the verdict was granted.

We confess inability to comprehend the theory on which the case was tried, or the position of the parties in the briefs. Stone says he is entitled to recover the full amount of the note in the absence, of an established pleaded defense. Insofar as this contention would apply to Wesley Pitts., the maker of the note, had the case been tried under an applicable theory, we agree. His sole pleaded defense of failure of consideration was not submitted or requested. No issue necessarily referable to it was submitted. Whether or not Stone was a holder in due course is immaterial as to Wesley Pitts in the absence of an established infirmity or defect. Failure of consideration was not established as a matter of law. It was waived, Rule 279, Texas Rules of Civil Procedure, and reversal is required. Since judgment against plaintiff was erroneous, since the case was tried on an erroneous theory (See Continental Nat. Bank of Fort Worth v. Conner, 147 Tex. 218, 214 S.W.2d 928, 933), and since the case has not been fully developed, the judgment as to Wesley Pitts is reversed and the cause is remanded. Hicks v. Matthews, 153 Tex. 177, 266 S.W.2d 846.

As to B. H. Pitts the judgment must also be reversed. Stone’s rights are those of Real, his assignor. Since he admits he is not a good faith holder he can recover and enforce a lien against B. H. Pitts only to the extent Real could have done. Continental Nat. Bank of Fort Worth v. Conner, 147 Tex. 218, 214 S.W.2d 928, 933, syl. 13. Real was entitled to a constitutional lien under Art. 16, Sec. 37 Texas Constitution, Vernon’s Ann.St. for labor done and material furnished without notice of the unrecorded deed. Art. 6627, V.A. C.S. This Ken is independent of the formal mechanic’s lien contract or its recordation. Trammell v. Mount, 68 Tex. 210, 4 S.W. 377. But Real was not a good-faith lienholder as to B. H. Pitts, of course, beyond the time he acquired notice of the latter’s rights. Smith v. Good, Tex.Civ.App., 119 S.W.2d 593, 594, syl. 4, writ ref.; Johnson v. Masterson, Tex.Civ.App., 193 S.W. 201, writ ref. See Von Hutchins v. Pope, Tex.Civ.App., 351 S.W.2d 642, writ, ref. n. r. e.; Lyday v. Federal Land Bank of Houston, Tex.Civ.App., 103 S.W.2d 441, writ dism.; 49 Tex.Jur.2d Sec. 147, pp. 491, 492.

The facts to which it is necessary to apply these rules are not available for rendition of judgment. They are not established by undisputed evidence or the verdict.

As a claimant under Real in the latter’s status as a mortgagee under the formal mechanic’s lien contract, the burden of proof was on the assignee Stone to establish that the contractor, Real, took the mortgage without notice of the unrecorded deed. As assignee of Real’s constitutional lien, however, Stone was in Real’s position of a creditor under Art. 6627, V.A.C.S., and the burden of proof was upon B. H. Pitts as holder of an unrecorded deed to show Real’s notice. Turner v. Cochran, 94 Tex. 480, 61 S.W. 923, 925; McDonald v. Powell Lumber Co., Tex.Civ.App., 243 S.W.2d 192, 195, writ ref.; Ives v. Culton, Tex.Com.App., 229 S.W. 321. See Hill v. The Praetorians, Tex.Civ.App., 219 S.W.2d 564, 567, syl. 6, writ ref. n. r. e.

B. H. Pitts failed to show by the undisputed evidence or to plead when Real had notice, and no issue referable to the defense was submitted or requested. The defense is not available or established under the record. Rules 67, 279, T.R.C.P.

Stone did show, however, that Real did some work and furnished some material under contract. He thus established a pleaded constitutional lien, even though he failed to discharge his burden to recover on the mortgage. The amount and extent, however, is unknown and unproved. It is undisputed that Real had actual notice of the unrecorded deed before he finished the work. The value of the improvements completed before notice is not shown. It is consequently impossible to render judgment, and the cause as to B. H. Pitts is reversed and remanded.