author: STEAKLEY, Justice. GRIFFIN, Justice

text:
    The STATE of Texas et al., Petitioners, v. B. L. STANDARD et al., Respondents.
    No. A-11508.
    Supreme Court of Texas.
    March 22, 1967.
    Crawford C. Martin, Atty. Gen., J. Milton Richardson, Asst. Atty. Gen., Austin, for petitioners.
    Rutledge & Rutledge, W. J. Rutledge, Jr., Abilene, for respondents.
   STEAKLEY, Justice.

This cause concerns later developments in the matter of the oil and gas lease executed and delivered by B. L. Standard to Trace Mining Company which was the subject óf our decision in Standard v. Sadler, 383 S.W.2d 391 (Tex.Sup.1964). The trial below was upon summary judgment motions of the parties and that of the respondents was sustained by the trial court. This judgment was affirmed by the court of civil appeals. 401 S.W.2d 363.

The problem is novel and a somewhat lengthy review of the matters culminating in the cause at hand is necessary. The tract of land in question is escheated permanent free school land subsequently resold with the mineral estate reserved in favor of the Permanent Free School Fund. See Article 3281, which provides that “All sales of escheated permanent free school lands shall be with a reservation to the State of all the minerals in the land in favor of the Permanent Free School Fund. All sums received from the leasing, mineral developments, or sale of escheated lands shall be deposited in the Permanent School Fund of Texas.” The controversy in Standard v. Sadler was between the Commissioner of the General Land Office, who had executed a prior oil and gas lease of the tract to Humble Oil and Refining Company under which production of oil and gas in paying quantities was thereafter obtained, and B. L. Standard, the owner of the surface estate, who had executed a subsequent oil and gas lease on this same tract in favor of Trace Mining Company. It was there decided that under the Relinquishment Act of 1919 (Acts 36th Leg. 2nd Called Session, ch. 81, p. 249; Arts. 5367-5379) the surface owner is the statutory agent of the State for the negotiation and execution of oil and gas leases on escheated land which had been sold by the State from the Permanent Free School Fund. Our decision was announced on October 7, 1964. The opinion concluded with this statement: “We assume the Commissioner of the General Land Office will recognize the lease executed by Standard as a valid lease and that he will receive and file the certified copy thereof as required by law. Writ of mandamus will issue only if he refuses to do so.” Motion for rehearing was overruled on November 18, 1964. On this same date the surface owner filed in the office of the County Clerk of Taylor County, Texas, an oil and gas lease instrument identical in all respects, including its date of execution, to the oil and gas lease originally tendered for filing with the Commissioner on March 12, 1964, and which was the subject of our decision in Standard v. Sadler, except for an added paragraph as follows:

“This lease agreement is executed in amendment of and substitution for an oil and gas lease dated February 24, 1964, by and between the same parties, identical in provisions to those stated hereinabove, recorded Volume 735, page 7 of the Deed Records of Taylor County, Texas, and covering the same land described above, solely in order to show that said lease was executed contemporaneously with and pursuant to an employment contract between B. L. Standard, the landowner, and Rutledge & Rutledge, attorneys at law, dated February 14, 1964, expressly referred to herein and made a part hereof for all proper purposes.”

We will refer to the first instrument as the original lease and to the second as the amended lease. The original lease previously sought to be filed with the Commissioner of the General Land Office on March 12, 1964, was again tendered to the Commissioner for filing on November 20, 1964, together with the amended lease and the employment contract referred to and made a part of the amended lease.

On December 8, 1964, there was filed in this court on behalf of the Commissioner of the General Land Office an instrument denominated as “Respondent’s Motion to Stay Issuance of Writ of Mandamus,” based upon the subsequently tendered amended lease and employment contract. The motion was overruled on January 20, 1965. It being made known to us that the Commissioner desired to act only under an official writ of mandamus issued by this court pursuant to our judgment in Standard v. Sadler, we issued the writ under date of January 28, 1965, embracing only the original lease; the writ commanded the Commissioner “to accept and- file forthwith the certified copy of an oil and gas lease executed by B. L. Standard and wife, Dorothy M. Standard, to Trace Mining Company, a co-partnership, on the 24th day of February, 1964, and recorded in the Deed Records of Taylor County, Texas, under File No. 3096 on March 10th, 1964, tendered to you in your official capacity on or about March 11th, 1964 * * * ” Upon service of the writ on the Commissioner the file date of the original lease originally tendered for filing on March 12, 1964, and that of the amended lease first tendered to him on November 20, 1964, was shown to be January 28, 1965.

On May 17, 1965, suit was instituted in the name of the State of Texas on behalf of the Permanent Free School Fund against B. L. Standard and wife, and W. J. Rutledge, Jr., W. K. Rutledge, and R. M. Rutledge, individually, and as members of the partnership of Trace Mining Company, and as members of the law firm of Rutledge and Rutledge, Respondents here, and Humble Oil and Refining Company. Multiple relief was sought: the appointment of a receiver to take possession of the mineral estate of the tract of land in controversy; termination of the right of the surface owner, B. L. Standard, to act as agent for the State for the negotiation and execution of oil and gas leases; removal of the oil and gas leases executed by the surface owner, B. L. Standard, as a cloud upon the title to the mineral estate; and an accounting from Humble Oil and Refining Company for the oil and gas produced from the mineral estate. The trial court severed the suit into two causes, one of which is the cause at hand presenting for decision the question of the validity of the instruments executed by Standard in favor of Trace Mining Company, together with the further question of whether or not the acts of Standard terminated his leasing power as the statutory agent of the State.

The basis for cancellation of the two oil and gas lease instruments urged by the State rests in certain provisions of the employment contract made a part of the amended lease by the added paragraph quoted above. As before noted, a copy of this contract was first tendered for filing in the office of the Commissioner with the amended lease on November 20, 1964, and bears the same file date of January 28, 1965. It is an agreement between the surface owner, B. L. Standard, and “W. J. Rutledge, Jr., W. K. Rutledge, and R. M. Rutledge, individually and as partners in the firm of Rutledge and Rutledge, and/or Trace Mining Company.” The lessee in the two oil and gas lease instruments was Trace Mining Company, a co-partnership. The contract recites the employment of the firm of Rutledge and Rutledge as attorneys and states the further fact that they are the sole partners in Trace Mining Company. Paragraphs 3 and 5 of the employment contract are relevant here and provide:

3. “Standard agrees that the portion of lease bonus payable to him as the land owner in accordance with the provisions of Article 6367 [5367], V.A.C.S., shall be promptly repaid by him to attorneys as a part of the consideration for legal services rendered to that date hereunder. Attorneys agree that in the event the legal matters in dispute respecting which this contract is executed shall be successfully disposed of so that the oil and gas mining lease executed contemporaneously herewith shall be the sole, valid lease covering the lands described above, if such attorneys (being the sole partners in Trace Mining Company) themselves develop the premises by drilling, Standard shall have the binding and exclusive option, in his sole opinion and discretion, to acquire not more than an undivided one-sixteenth share of the seven-eighths working interest by himself carrying and bearing the exact actual expense incident to development (excepting only the lease bonus theretofore paid) ratably attributable to the Standard interest.”
5. “The parties hereto agree for themselves and their respective heirs, successors and representatives that Standard shall be paid $500.00 per location liquidated damages for crop damages resulting from drilling the described lands; and the parties agree that if Rutledge and/or Trace Mining Company shall produce oil and/or gas upon the premises and shall have management or operation of the properties, Standard will have the option or ‘first refusal’ of the job as pumper in such operations.”

It is the position of the State that B. L. Standard as the surface owner and agent of the State had no authority beyond executing and delivering to Trace Mining Company an oil and gas lease with the usual and accepted provisions for bonus, rents and royalties; that the amended lease with its provisions for the additional consideration to be enjoyed by Standard, particularly the option for him to purchase an undivided one-sixteenth share of the seven-eighths working interest, was invalid; that the amendment is so inextricably bound up with the original as to render the entire lease transaction of no force and effect; and that the acts of Standard constituted violations of his fiduciary obligation to the State for which reason it should be held that he is ousted as the statutory leasing agent.

It is Standard’s position, as held by the court of civil appeals, that our decision in the previous proceeding was res judicata as to the validity of the lease in both its original and amended form; that the remedy of the State, in any event, is not cancellation of the lease but “to demand and recover its part or interest” in the excess consideration flowing to Standard; and that no ground for invalidating the lease is shown in the absence of allegations and proof of “bad faith or fraud” against him.

Standard v. Sadler posed a question of statutory construction requiring us to decide whether the Commissioner of the General Land Office or the surface owner was empowered to act as the leasing agent for the State with respect to this particular tract of land. This was the only issue drawn by the parties. The validity of the original lease between Standard and Trace Mining Company was not otherwise brought into question. The amended lease and employment contract incorporated therein were unknown to the record upon which we rendered decision and final judgment. The later filed and overruled “Motion to Stay Issuance of the Writ of Mandamus” had no adjudicatory effect upon such subsequently disclosed instruments and the agreement of the parties reflected thereby. We need not speculate upon what res judicata or stare decisis effect, if any, our judgment and writ of mandamus in Standard v. Sadler may have had with respect to the original lease, standing alone. As shown by the later acts of the parties, this instrument did not reflect the true lease contract and was never intended by them to be such. The issues now to be resolved arise out of matters whose legal effect could not have been considered or decided in the prior proceeding, and there is no basis for application of the doctrine of res judicata.

This brings us to the question of the validity of the actual lease between Standard and Trace Mining Company as shown by the amended lease and the employment contract. As before noted, the consideration for the oil and gas lease included three benefits flowing only to Standard, the surface owner; they were (1) an option for him to acquire not more than an undivided one-sixteenth share of the seven-eighths working interest by assuming ratable development expenses; (2) an option for the job of pumper in event of successful drilling operations; and (3) a right to receive $500.00 per drilling location as liquidated damages to crops. We hold that the working interest option invalidates the lease and this renders unnecessary a consideration of the legal effect of the pumper job option and the provision for crop damages.

Articles 5367 and 5368 provide:
Article 5367 — “The State hereby constitutes the owner of the soil its agent for the purposes herein named, and in consideration therefor, relinquishes and vests in the owner of the soil an undivided fifteen-sixteenths of all oil and gas which has been undeveloped and the value of the same that may be upon and within the surveyed and unsurveyed public free school land and asylum lands and portions of such surveys sold with a mineral classification or mineral reservation, subject to the terms of this law. The remaining undivided portion of said oil and gas and its value is hereby reserved for the use of and benefit of the public school fund and the several asylum funds.”
Article 5368 — “The owner of said land is hereby authorized to sell or lease to any person, firm or corporation the oil and gas that may be thereon or therein upon such terms and conditions as such owner may deem best, subject only to the provisions hereof, and he may have a second lien thereon to secure the payment of any sum due him. All leases and sales so made shall be assignable. No oil or gas rights shall be sold or leased hereunder for less than ten cents per acre per year plus royalty, and the lessee or purchaser shall in every case pay the State ten cents per acre per year of sales and rentals; and in case of production shall pay the State the undivided óne-sixteenth of the value of the oil and gas reserved herein, and like amounts to the owner of the soil.”

In Texas Co. v. State, 154 Tex. 494, 281 S.W.2d 83 (1955) we held that a conveyance by the surface owner of the mineral estate in fee simple absolute was invalid under the powers granted the surface owner by the Relinquishment Act. We reaffirmed the well-settled rule in this State that public school lands are held in trust for the benefit of all the people of the State and are administered in the sovereign capacity of the State. State v. Magnolia Petroleum Co., 173 S.W.2d 186, 190 (Tex.Civ.App. — San Antonio 1943, writ ref’d w. o. m.) held that a consideration of the entire Relinquishment Act shows an intent that the surface owner should execute “only an ordinary commercial lease, which provides for delay rentals unless and until oil is produced in paying quantities. The surface owner as agent of the State is to have an equal rental and royalty with the State as compensation for his services as such agent and for the damage done to the surface of the land when exploration for or production of oil is begun.” We had previously held in Greene v. Robison, 117 Tex. 516, 8 S.W.2d 655 (1928) that the surface owner is to receive no benefits other than those authorized by Article 5368, the statute fixing only the minimum price with the agent being “authorized to secure the highest price obtainable for the benefit of the fund to which the land belongs; like amounts received by the State to be paid by the purchaser to the owner of the soil.” Id. 8 S.W.2d at 660. Lewis v. Oates, 145 Tex. 77, 195 S.W.2d 123 (1946) held that an attempted conveyance by the surface owner of a right to participate in the bonuses, rentals, and royalties payable under future leases was void and unenforceable under the statute. It was reasoned that such a transaction made future leases less attractive to the State’s agent and thus tended to take away some of the inducement to keeping the land leased. The proposal, it was said, sets at naught the legislative plan for keeping land leased until the discovery of oil or gas.

It is clearly implied in the decisions by this Court construing the Relinquishment Act, if not directly held, that the leasing power, of the surface owner is limited to the execution of an oil and gas lease for bonus, rental and royalty considerations not less than the statutory minimum and consistent with prevailing values. We so hold here. The strict construction of the Act followed in our decisions is in harmony with the well-settled rule recognized in Empire Gas & Fuel Co. v. State, 121 Tex. 138, 47 S.W.2d 265, 272 (1932) that “[L]egis-lative grants of property, rights, or privileges must be construed strictly in favor of the state on grounds of public policy, and whatever is not unequivocally granted in clear and explicit terms is withheld. Any ambiguity or obscurity in the terms of the statute must operate in favor of the state.” No rights can pass unless an oil and gas lease is effected in conformity with the Relinquishment Act. Cf. Caples v. Cole, 129 Tex. 370, 102 S.W.2d 173 (1937). Statutory compliance has not occurred where the surface owner has, as here, contracted for the extraordinary benefit of the working interest option which constitutes a substantial consideration in which the State ■does not participate. Moreover, the State should not be put to the necessity of having to demand, or sue to establish and recover, its share or interest in the benefits flowing from a lease negotiated by its agent. The interest of the State should be readily ascertainable and the proceeds paid into the school fund. The invalidity of the oil and gas lease here under review is thus apparent .and the transaction cannot be stripped of its invalidating features. We cannot write .a new lease for the parties. Cf. State v. Magnolia Petroleum Co., supra.

In our view, however, the facts here alleged and shown were not sufficient to support an ouster of Standard as the •statutory leasing agent for the State. Standard is not charged with bad faith or fraud. His unauthorized acts invalidate the lease in question, but they do not destroy his authority to now negotiate and execute an oil and gas lease conformable to and consistent with the statutory requirements and at the most favorable price obtainable. Greene v. Robison. The only express statutory authority for forfeiture of the leasing authority of the surface owner is that provided by Article 5370, namely, failure to drill an offset well. See Norman v. Giles, 148 Tex. 21, 219 S.W.2d 678 (1949). The statute contemplates a continuing and perpetual agency unless forfeited on this statutory ground or perhaps on equitable grounds not present here such as the fraud of the agent, or his failure or inability to act. See Walker, The Texas Relinquishment Act, in Sw. Legal Foundation 1st Institute on Oil & Gas Law & Tax. 245, 294 (1949).

The judgments of the trial court and of the court of civil appeals are reversed. Judgment is here rendered cancelling in both its original and amended form the oil and gas lease contract executed by B. L. Standard and wife, Dorothy M. Standard, to Trace Mining Company, a co-partnership, dated February 14, 1964 and removing the lease from the records as a cloud upon the title to the mineral estate of the tract of land in question; and denying all other relief sought by the State in this severed cause.

GRIFFIN, SMITH and HAMILTON, JJ., dissent.

GRIFFIN, Justice

(dissenting).

I cannot agree to the majority opinion herein. In my judgment it gives an entirely new meaning to the Relinquishment Act contrary to all previously decided cases. It puts in question the true purpose of the Act and leaves the law in a state of uncertainty and confusion as it existed prior to the decision by the Court of Greene v. Robison, 117 Tex. 516, 8 S.W.2d 655 (1928); Empire Gas & Fuel Co. v. State, 121 Tex. 138, 47 S.W.2d 265 (1938), and every later case construing the Relinquishment Act.

In order to put this case in its proper perspective, I would call attention to the fact that it was disposed of in the courts below on motion by both parties for summary judgment. The judgments below were in favor of Mr. Standard and the other respondents herein. There are no pleadings by the State that either the original lease or the amended lease was entered into in bad faith or as a subterfuge, scheme or conspiracy to avoid paying the State full consideration for its interest in the oil and gas estate. Neither are there any allegations that any of the three provisions referred to by the majority opinion were fraudulently inserted in the lease, or that the State was entitled to receive any part of these considerations.

The basis used by the majority for invalidating these leases is that the option given Mr. Standard to acquire not more than an undivided Visth share of the %ths working interest by assuming ratable development expenses violates the provisions of the Relinquishment Act. In a discussion of this clause I will demonstrate that there is no violation of the statute.

In Mr. Standard’s deposition filed herein is set forth the ef-forts he made to secure a lessee for this 60-acre tract of land. He states that no one would offer any price for a lease or would agree to take a lease on any consideration, because of the claim of the Land Commissioner that he alone had a leasing right and power, and the awarding by the Commissioner of a lease to Humble Oil & Refining Company.

The depositions and affidavits state that there was no effort to conceal anything about the original lease or the amended lease, and all questions would have been answered at all times. Both leases were executed on forms approved by the Land Office and both leases showed that the lessee was “Trace Mining Company, a co-partnership of 324 First National Bank Building, Abilene, Texas.” Art. 5924, Vernon’s Texas Civil Statutes, provides in part that no person or persons shall conduct a business under an assumed name without filing a certificate in the office of the County Clerk of the county where the principal office of such business is located, showing the true owners. Such certificate was on file in the office of the County Clerk of Taylor County in Abilene, Texas, when the original lease was tendered to the Land Commissioner for filing in March of 1964. The filing of the assumed name certificate put the public, including the Commissioner, on notice that Trace Mining Company was an assumed name used by the Rutledge firm of attorneys. Margules d/b/a Southwest Brokerage Company et al. v. Crim et al. (Tex.Civ.App., 1959), 331 S.W.2d 372, 375 (3) ; Cooper Cotton Co. v. First State Bank of O’Donnell et al. (Tex.Civ.App., 1931), 37 S.W.2d 805, 807. The petition for writ of mandamus was brought in behalf of “B. L. Standard and Trace Mining Company, a partnership, all residents of Taylor County, Texas.” In addition to the notice provision of the statute, the address of Mr. W. J. Rutledge, Jr. of Rutledge & Rutledge, attorneys for the relators in the mandamus suit, showed the office of the firm of attorneys as “324 First National Bank Building, Abilene, Texas,” the identical address of Trace Mining Company, a partnership, as shown in the two leases. These facts constituted “notice” to the Land Commissioner sufficient to cause him to make an inquiry as to the members of the partnership of Trace Mining Company, and he is charged with every fact a diligent inquiry would have disclosed. Since the Commissioner had notice of these facts, and if the Commissioner expects to rely on them to invalidate the lease, he should have raised them when the question of the validity of the lease was first determined.

The lease presented to the Commissioner for filing must have been a valid lease for this Court to issue its writ of mandamus. It is true the parties to the mandamus proceeding could not raise any fact issues, but all law issues showing the lease invalid could have and should have been raised. Everything that was known at the time of trial of this cause could have been discovered in the mandamus proceeding had the notice received by the Commissioner been followed as the law requires. If the majority is correct in its decision that the leases are invalid as a matter of law, the State in this cause is prevented by direct es-toppel from again raising the above facts.

All emphasis herein is that of the writer.

The State filed no affidavits controverting the facts stated above and such facts are undisputed, and in this summary judgment action must be taken as true.

If the correct rule is followed in the case at bar a judgment could not be rendered for the State. All the evidence is that this lease was executed in good faith by all the parties; that it was the only lease Mr. Standard could get due to the adverse claims of the State and Humble; and that a lease plus a suit for mandamus in this Court was necessary to overturn the Commissioner’s wrongful usurpation of power. Mr. Standard’s position that he had the right to lease the land for oil and gas development was upheld by our judgment in the mandamus action.

The majority opinion disposes of the plea of res judicata on the ground that the validity of the original lease was not brought into question except in the determination of whether the Land Commissioner or Mr. Standard had the power to lease the 60 acres. In order to be entitled to a determination of this point, it was incumbent upon Standard and Trace to tender a valid lease. The fact that this Court issued its writ of mandamus necessarily means the lease tendered was in all respects valid. It is elementary that this Court cannot mandamus the Commissioner to file an invalid lease. Callahan v. Giles, 137 Tex. 571, 155 S.W.2d 793, 795 (1941); Wortham v. Walker, 133 Tex. 255, 128 S.W.2d 1138, 1151 (1939); American Book Company v. Marrs, 113 Tex. 291, 253 S.W. 817, 818(1) (1922); Lowe and Archer: Injunction and Other Extraordinary Proceedings (1957), § 474, Mandamus Sec. 484, and cases there cited.

The majority opinion also says that the amended lease and the employment contract were unknown to the record upon which this Court rendered its final judgment. There are two answers to this: (1) The effect of the notice of the certificate of assumed name and the corresponding “knowledge” which would have resulted from a diligent inquiry placed these instruments before this Court. (2) In the mandamus action our judgment was not final until we had ordered the writ of mandamus to issue. The relief sought was mandamus to compel the Land Commissioner to file the tendered lease. Until that lease was filed or a mandamus issued, the cause was not at an end. The Commissioner refused to file the lease, and on January 28, 1965 this Court issued its writ of mandamus ordering the lease filed. Until that date there was no order of this Court commanding the Commissioner to file the lease. Our judgment of October 7, 1964 did not order the writ issued, but provided, “writ of mandamus will issue only if he refuse to do so.” In order for relator to have the relief prayed for, a proper showing had to be made to this Court that the officers had refused to act. Additional orders of this Court were necessary before the writ would be issued. In the case at bar, this showing of failure of the Commissioner to file the lease was made by the Commissioner’s “Motion to Stay Issuance of Mandamus” filed in this Court December 8, 1964. The original lease was again tendered for filing on November 18, 1964, along with the amended lease and the employment contract with attorneys Rutledge & Rutledge. In our judgment of October 7, 1964 we recognized the validity of the original lease. The filing of the Commissioner’s motion to stay carried the cause over to the 1965 term. Rule 458, Texas Rules of Civil Procedure. The term of court at which our order was rendered expired December 31, 1965. Our control over the judgment came to an end except upon a suit filed with sufficient and appropriate allegations to set aside such judgment.

After the adjournment of the term at which a judgment is rendered, such judgment can only be set aside or vacated by an original proceeding instituted for that purpose, setting forth equitable grounds sufficient to entitle the party to a rehearing who seeks to set aside such judgment. Federal Royalty Co. v. State, 128 Tex. 324, 98 S.W.2d 993, 996 (1936) ; Arrington v. McDaniel, 119 Tex. 148, 25 S.W.2d 295, 298 (1930) ; Coleman v. Zapp, 105 Tex. 491, 151 S.W. 1040, 1042 (1912) ; Caliva v. Texas Construction Material Co. (Tex.Civ.App., no writ hist., 1964), 380 S.W.2d 641, 644; Hamilton v. Hamilton (Tex.Civ.App., 1956), 292 S.W.2d 674, 676.

No such action has ever been filed, and in the present case no attempt was made to set aside our judgment declaring the original lease to be valid and no allegations were made justifying such action. It is fundamental and requires no citation of authority that once a court has acquired jurisdiction over a cause and has rendered a judgment therein, such judgment is binding on all parties to the original litigation until set aside by proper pleadings and judgment. Because a suit is one for a mandamus does not change this rule.

At the time this Court issued its writ of mandamus, January 28, 1965, there had been filed with the clerk of this Court the original lease, the amended lease and the employment contract. All was then known about these instruments that is now known and used as the basis for the majority opinion declaring both leases void. The Land Commissioner on December 8, 1964, in the instruments filed in connection with his motion to stay issuance of mandamus alleged the provisions of the employment contract and the amended lease as grounds for cancellation of the leases. He alleged that Standard did not get the market value for the Trace Mining Company leases. The Land Commissioner alleged, “It would be an utter absurdity to hold that the Land Commissioner must file an obviously illegal and void instrument, the illegality being shown upon the face of the instrument.” The Land Commissioner recognized that this Court still had jurisdiction of the mandamus proceeding and could change the prior judgment. He alleged, “Said copy [of the original lease] has as yet not been filed, and mandamus has not as yet issued. Hence, the Court still has jurisdiction of the case with reference to such mandamus.” With all those instruments before us and with all the information this Court had or now has in this cause regarding the validity of the leases, we recognized the original lease as valid and ordered it to be filed.

If the majority is now correct in saying the provision regarding the Vieth working interest is null and void as a matter of law, we were mistaken in not so holding in January, 1965. Our decision at that time would be a mistake of law, but our judgment therein should be honored until set aside in a proper proceeding.

The rule of law applicable is that a valid judgment for a plaintiff is conclusive not only as to all defenses raised in the trial and adjudicated, but also as to those defenses which might have been raised consistent with the facts necessary to sustain the judgment. Swilley v. McCain, Tex.Sup., 374 S.W.2d 871, 874 (1964); Ogletree v. Crates, Tex.Sup., 363 S.W.2d 431, 433 (1963); Long v. Martin, 116 Tex. 135, 287 S.W. 494, 495 (1926); Cleveland v. Ward, 116 Tex. 1, 285 S.W. 1063, 1070 (1923).

As to the option contained in the employment contract and incorporated by reference in the amended lease filed for record in the Land Office November 20, 1964, and on which the majority opinion rests its holding that the leases are null and void and should be cancelled, the facts show that the Land Commissioner on his own volition filed this amended lease and the employment agreement January 28, 1965.

The case of Texas Co. v. State, 154 Tex. 494, 281 S.W.2d 83 (1955), cited as authority for its action in the majority opinion, is not in point on the question in our case. In that case the landowner purporting to act as agent for the State under the Relinquishment Act made a deed conveying a fee simple title to all the oil, gas and other minerals in the tract of land involved in the suit. The State filed suit to cancel this conveyance because it conveyed all of the State’s title rather than leasing the oil and gas under an “ordinary” oil and gas lease. This Court held that the owner of the soil had no right under the Relinquishment Act to convey in fee simple the State’s minerals, but only the right to convey by sale or lease. The Court refused to read the Relinquishment Act into that warranty deed because to do so would make a contract for the parties which they had expressly refused to make by providing:

“It is expressly understood and agreed that this instrument is to be construed as a conveyance in fee of all the oil, gas and other minerals in and under the above described tracts of land. * * * ”

The same is true of the case of State v. Magnolia Petroleum Co., 173 S.W.2d 186, 190 (Tex.Civ.App., San Antonio, 1943, writ refused, w. o. m.), cited for the proposition that the surface owner could not convey the State’s mineral estate in fee simple, but only by an ordinary commercial lease, which provides for delay rentals unless and until oil and gas is produced in paying quantities. Clearly, that statement of the court is not the law, for it is recognized that the statute also provides for the State to have a minimum of ¾6th free royalty, and the cases recognize that the landowner may exact a bonus for the lease. The landowner could not execute a lease providing for a bonus under the majority view that State v. Magnolia limits the rights of the landowner. The language quoted by the majority from State v. Magnolia is used to distinguish a deed to a fee simple title from a lease and was not used in the context of defining what constitutes or may constitute a valid lease. The court in that case refused to rewrite the deed for a permanent interest in the minerals to conform to the Relinquishment Act. The reasons given were:

“Let us see what this would require. It would first call for a provision to the effect that the instrument was executed for and in behalf of the State of Texas, and that the Pryors were merely acting as agents. Second, that the State was retaining not a ¾6⅛ mineral interest but a ½6⅛ royalty. Third, that only the gas and oil was sold and not the other minerals. Fourth, that until production was begun the grantee should pay to the State a rental of some amount not less than 10^ per acre per annum. There should also be a provision that failure to pay the rental when due would terminate the lease. It is perfectly obvious that this Court cannot write all these provisions into the mineral deed. It would be to set aside the contract actually made by the parties and for the Court to write quite a different and new contract.”

In the case at bar the instruments are leases and not outright conveyances of a fee simple title in the minerals. Our leases contain all the provisions the court in Magnolia said would have to be written into the deed. The Land Commissioner makes no claim these instruments conveyed the fee simple title. The forms on which our leases were executed were those approved by the Land Office for leasing oil and gas on sold state school lands. The original lease and the amended lease executed by the parties on forms approved by the General Land Office expressly provide that the Relinquishment Act is to control. The provision is as follows: “23. This lease is issued under the provisions of Sub. 3, Chapter 4, Title 86 of the Revised Statutes of the State of Texas, 1925, and the amendments thereto commonly known as the Relinquishment Act, and should there be any provisions herein not in conformity with said Act, the law is recognised and understood to prevail notwithstanding anything in this lease to the contrary.” This only recognizes the rule of law that the Act is read into a lease.

The previous court decisions have been to take out of a lease under the Relinquishment Act anything or any grant of any estate contrary to the provisions of the Act. Acting under these decided cases and using a lease form approved by the General Land Office recognizing such law, these parties set out in each lease the above quoted provision. Even if some of the provisions of the amended lease are beyond the power of the landowner to make and execute, the remedy is not to forfeit and cancel the lease but to eliminate such provisions from the lease and declare them of no force and effect. If this is done, we will have a lease in legal terms which is complete in all respects. Nothing new will have to be inserted or substituted. The majority apparently overlooks this established law and the land office approval thereof and refuses to follow a very fundamental principle of jurisprudence.

Nevels v. Harris, 129 Tex. 190, 102 S.W.2d 1046 (1937) was a usury case. In the deed of trust it was provided: “That ■the intention of the parties being to conform strictly to the Usury Laws now in force, any of the said contracts for interest shall be held to be subject to reduction to the amount allowed under said Usury Laws as now or hereafter construed by the courts having jurisdiction.” (2nd col. p. 1048). Speaking of this provision the Court said: (7-9) “It is the rule that all parts of a contract must be given effect if it is reasonably possible to do so. It is also the rule that men are presumed to have intended to obey the law unless the contrary appears.”

“ *■ * * If this last provision can be given effect, and, as already said, it must be given some effect if it is reasonably possible to do so, it must be held to operate to deny the note holder the right, in any event, to collect usury. In other words, it denies the note holder the right to ■ collect. more than the principal debt and 10 per cent, interest per annum from the time the borrower had the use of the money until he should repay it. This is plain because this clause of the contract expressly states that it is the intention of the parties to conform strictly to the usury laws now in force, and that ‘any of said contracts for interest shall be held to be subject to reduction to the amount allowed under said usury laws,’ etc. (Emphasis ours).” Nevels v. Harris, 102 S.W.2d 1050.

To the same effect see Wallace v. D. H. Scott & Son et al., 133 Tex. 293, 127 S.W.2d 447, 450 (1939).

In Federal Mtg. Co. et al. v. Hawkins et al. (Tex.Civ.App., 1936), 95 S.W.2d 744, a series of notes and a deed of trust were held to be usurious and the Court refused to give effect to a provision that the debtor should not be called upon to pay interest in a sum greater than 10%. The court, in refusing to give effect to this provision said:

“ * * * To us this is tantamount to saying: ‘We are charging usurious interest, but if anything happens, we will apply it on the contract just as if we had charged no more than 10% per annum interest thereon from the beginning.’ We do not believe that any such provision purges the contract of the usury provided for therein.”

This erroneous construction of that clause was overturned by the Supreme Court. In Federal Mtg. Co. v. Davis (Tex.Civ.App., 1937), 100 S.W.2d 717, the Dallas Court construed notes and deed of trust with the same provisions as in the Hawkins case in such a way as to avoid making the contract usurious. The Court said:

“An unlawful intent will not be imputed where a lawful one may just as consistently be imputed. * * * A rule of universal application is that, where a contract is capable of two interpretations, one rendering it void and the other valid, the latter will always be adopted. Texas Employers’ Ins. Ass’n v. Tabor (Tex.Com.App.) 283 S.W. 779; City of Memphis v. Browder (Tex.Com.App.) 12 S.W.2d 160, 161; 6 R.C.L. p. 839, § 229. Gleaned from authorities throughout the country, the general rule is stated in 6 R.C.L. 839, as follows: ‘If a contract is of doubtful meaning, and one construction would make it legal and another illegal, the courts will adopt that construction which will not impute to the parties an intention to violate the law. Presumptions of the law are in favor of the good faith of all parties to a business transaction, and if the language of a contract is fairly susceptible of a construction or explanation which renders it valid and enforcible, according to its terms, such construction will be adopted in preference to one which brands it with illegality, and makes it possible for one to repudiate the performance of his promise while demanding full payment of the consideration to be given therefor.’ Also see the same doctrine announced in the following recent cases: Banker’s Life Co. v. Miller (Tex.Civ.App.) 68 S.W.2d 574, 575; Marble Sav. Bank v. Davis, 124 Tex. 560, 80 S.W.2d 298, 299; Walker v. Temple Trust Co., 124 Tex. 575, 80 S.W.2d 935, 936.”

In Davis v. Federal Mtg. Co., 131 Tex. 46, 111 S.W.2d 1066 (1938), this Court expressly approved and affirmed the Court of Civil Appeals opinion without further writing.

In Fed. Mtg. Co. v. Hawkins, 131 Tex. 56, 111 S.W.2d 1062 (1938), this Court expressly disapproved the Court of Civil Appeals opinion and pointed out that the Dallas Court had correctly decided the Davis case. This Court reversed and rendered for the mortgage Company on the Dallas case as authority.

A check in Shepard’s Southwestern Reporter Citations of the case of Nevel v. Harris, 129 Tex. 190, 102 S.W.2d 1046 (1937), shows that it has never been overruled or even questioned on its decision of this point of law. On the contrary it has been followed in all cases with similar provisions in the instruments construed. In the case of Patrizi v. McAninch, 153 Tex. 389, 269 S.W.2d 343 (1954), the holding, in Nevels v. Harris'on the point at issue whs recognized as the law applicable to contracts with a similar, provision. However, this Court distinguished the provision in the Patrizi case, pointing out that certain paragraphs made the contract violate the AntiTrust Act, and these were indivisible from the rest of the contract. Also, the court pointed out that the Patrizi contract in the face of the contractual provision relied on, provided that the seller, the first party, retained any benefits that might accrue to him if it were held that the royalties were, in part, consideration for the illegal provisions. See also Temple Trust Co. v. Sewell, 133 Tex. 417, 126 S.W2d 943, 947 (1939).

The majority cites Greene v. Robison for the proposition that the landowner is to receive no benefits other than those authorized by Art. 5368. This statement is not a correct interpretation of the law. Art. 5368 does not contain any language authorizing the landowner-agent to secure in appropriate cases a bonus payment for a lease. Therefore, according to the majority opinion he cannot ask for and secure a bonus. A bonus is permitted only by virtue of Court decisions. Under the rule stated by the majority the State is necessarily the loser because the leasing agent is prevented from ever negotiating for benefits not mentioned in the act. Experience teaches that there are cases in which special provisions, not mentioned in the act and not prohibited thereby, are necessary to be inserted in the leases in order to secure production of the State’s minerals.

The Relinquishment Act, which purports to grant to the owner of the soil 1%eths of the oil and gas and reserves a ¼6⅛ to the State, was vigorously attacked in the case of Greene v. Robison, 117 Tex. 516, 8 S. W.2d 655 (1928) and in Empire Gas & Fuel Co. v. State, 121 Tex. 138, 47 S.W.2d 265 (1938). In Greene v. Robison, this Court said:

“We think the act, as it says in article 5367, creates the owner of the soil the state’s agent for the purposes mentioned herein. For the accomplishment of those purposes, said agent is authorized, ‘to sell or lease * * * the oil and gas * * * upon such terms and conditions as such owner may deem best, subject only to the provisions’ of the act. There is no vesting of title or interest in the oil and gas in the owner of the soil. No rights pass to any one until a sale or lease is effected according to the terms of the act. What is sold, the consideration therefor, the provisions inuring to the benefit of the owner of the soil, what are the proceeds of the sale, and their application must all be determined from the act.”

In disposing of the contention that the act was unconstitutional because of the provisions of Art. 5368 authorizing the owner of the soil, as agent for the State, to “sell or lease the oil and gas upon such terms and conditions as such owner may deem best, etc.,” the court said:

“As pointed out, the act provides that the owner of the land, as agent of the state, is authorized to sell or lease the oil and gas ‘upon such terms and conditions as such owner may deem best, subject only to the provisions hereof,’ and that 'no oil or gas rights shall be sold or leased hereunder for less than ten cents per acre per year plus royalty, and the lessee or purchaser shall in every case pay the state ten cents per acre per year of sales and rentals,’ and one-sixteenth of the value of the oil and gas in case of production, and ‘like amounts to the owner of the soil.’ Article 5368.
“We interpret the act to fix a minimum price of 10 cents per acre per annum and the value of one-sixteenth of the gross production free of cost to the state, for which the state is willing to sell the oil and gas, and the agent is authorized to secure the highest price obtainable for the benefit of the fund to which the land belongs: like amounts received by the state to be paid by the purchaser to the owner of the soil. If a bonus is paid, if a larger royalty or other amounts are contracted for, the state and the owner of the soil receive equally in like amounts.
“* * * ■ Therefore the very first words of this Mineral Act of 1919 disclosed that one of the purposes of the act was ‘to promote the active co-operation of the owner of the soil.’ This calls attention to the conditions that made it desirable to secure the co-operation of the owner of the soil. The state had sold the land, the soil with all that goes with it, to the purchaser thereof, and was under obligation to protect him in the use and enjoyment of what it had sold him; and this the state had failed to do.
“The Legislature has brought about this desired result in a lawful manner by requiring the purchaser of the oil and gas to compensate the owner of the soil for the use he makes of the surface, independent of the price he pays for the minerals. He compensates said owner for the inevitable damages of oil exploration and operation. The landowner acquires no estate in the oil and gas. He simply has a right to receive the compensation from the lessee out of the lessee’s production as the statute provides.
“The payments to be made to the owner of the surface ‘in lieu of all damages to the soil’ is a matter of interest primarily to the landowner and the oil operator. It is the oil operator who injures or destroys the owner’s land. But the state is also interested as a sovereign doing justice between its citizens and also as the vendor to the landowner.
“The provision that the payment of the 10 cents per acre per annum and the one-sixteenth of the production shall be ‘in lieu of all damages to the soil’ shows clearly that same was not regarded as a part of the consideration for the sale of the oil and gas.”

In the Empire case the contention was made that the Supreme Court in Greene v. Robison was unwarranted in construing the Relinquishment Act to mean that the State was entitled to recover any part of the bonus, delay rentals, or royalties other than the ¼6⅛ royalty and 10 cents per acre per annum. In overruling this contention the Court again reiterated the holding in Greene v. Robison that the ¾6⅛ royalty and 10 cents per acre per annum was the minimum fixed by the Legislature for which the State was willing to sell the oil and gas, and the landowner was authorized to secure the highest price obtainable to he divided one half to the State and one hdlf to owner. The Court quoted with approval the previous holding, “If a bonus is paid, if a larger royalty or other amounts are contracted for, the state and the owner of the soil receive equally in like amounts.”

This construction of the Relinquishment Act to give the owner of the soil and the State each one half of any bonus, delay rentals or royalties above the minimum was again held in the case of Navarro Oil Co. v. Cross, 139 Tex. 272, 162 S.W.2d 677, 678 (1942). It was there stated that it was claimed that the above holding in Greene v. Robison was dictum. This Court said: “Some have said that holding was dictum. Be that as it may, the question was definitely set at rest by Justice Sharp in Empire Gas & Fuel Co. v. State of Texas, 121 Tex. 138, 47 S.W.2d 265, 272 (1938).” Such construction has been made by every Supreme Court case on the point since Greene v. Robison. The present case is the first to fail to recognize this rule of law and to hold a lease invalid. See also, Cross v. Shell Oil Co., 144 Tex. 78, 188 S.W.2d 375, 377 (1945); Lemar v. Garner, 121 Tex. 502, 50 S.W.2d 769.

The Relinquishment Act sets up a scheme or plan defining the rights of the State and the landowner. It provides in specific language when a lease may be cancelled or forfeited.

Art. 5379 covers payments to the owner of the minimum royalties and rentals, and acceptance of same by the owner shall be in lieu of all damages to the soil. Then follows general provision Arts. 5380-5382, and the latter article gives the State a first lien on the oil and gas produced upon any lease area to secure payment of all “unpaid royalty and other sums that may become due hereunder.”

The Relinquishment Act provided that the agent was authorized to sell or lease the State’s mineral interest “upon such terms and conditions as such owner may deem best, subject only to the provisions hereof” (provisions of Relinquishment Act). Therefore, since the Relinquishment Act does not authorize a forfeiture or cancellation of a lease executed by the landowner for any acts of Standard shown by this record, the original nor amended lease cannot be cancelled or forfeited. The State must sue lessor and lessee for its one half of such additional benefits as it deems are due it. The burden of proof must rest on the State the same as upon any other litigant who brings a suit to cancel or forfeit any instrument.

The majority quotes as authority for its holding a portion of the Court’s opinion in the Empire Gas & Fuel Co. case, to the effect that legislative grants of property must be strictly construed in favor of the State. But the majority neglects to point out that this argument was one made by those seeking to have the Relinquishment Act declared unconstitutional because “the amount given the purchaser by the State for his services” was a pure gift of the State’s property and nothing but a subterfuge for the purpose of evading the plain provisions of the Constitution. This Court had quoted with approval from Greene v. Robison, “If a bonus is paid, if a larger royalty or other amounts are contracted for, the state and the owner of the soil receive equally in like amounts.” The Court then discusses Arts. 5370 and 5371 of the Relinquishment Act providing for a forfeiture of a lease and the case of Hatcher v. State, 125 Tex. 84, 81 S.W.2d 499, 98 A.L.R. 1213, holding certain acts of the Legislature unconstitutional. Then the Court makes the statement quoted in the majority opinion, BUT, the very next statement by the Court is:

“ * * * This act has been carefully considered in the light of the foregoing rule, and there is found no language expressing the intention of the Legislature to give the landowner all of the bonus. Under this rule, if the act is silent as to whom the bonus belongs, then it necessarily would become the property of the state. However, under the fair and reasonable construction given to the expression ‘like amounts to the owner of the soil,’ by the court in Greene v. Robison, we are constrained to hold that the owner of the soil may receive one half of the bonus, and the remaining half is to be received by the state.”

Therefore, when the quotation is considered in its context, it is authority that the provision giving discretion to the landowner to lease the oil and gas rights with the state and the landowner sharing equally in the consideration received is constitutional and was the legislative intent at the time the act was passed.

The Commissioner relies for cancellation of the lease upon four provisions, of these four the option given Standard to purchase a ¾6⅛ interest out of the %ths working interest belonging to lessees is the only contention of the Commissioner sustained by the majority opinion. The leases are not cancelled by virtue of either or all of the other three options given to Standard. I agree that the-leases should not be cancelled by virtue of the option given Standard to have (1) first refusal of the job as pumper; (2) the agreement to pay $500.00 crop damages; and (3) the fact that Mr. Standard paid his attorneys his one half of the bonus as their fee for successfully prosecuting the mandamus action.

In asking for cancellation or forfeiture of the lease, the State complains of the provision in the amended lease that gave Standard the option to buy from Rutledge an undivided ¼6⅛ share of the %ths working interest by making certain payments. The provision in the employment contract and incorporated by reference in the amended lease provides in part as follows:

“ * * * Attorneys agree that in the event the legal matters in dispute respecting which this contract is executed shall be successfully disposed of so that the oil and gas mining lease executed contemporaneously herewith shall be the sole, valid lease covering the lands described above, if such attorneys (being the sole partners in Trace Mining Company) themselves develop the premises by drilling, Standard shall have the binding and exclusive option, in his sole opinion and discretion, to acquire not more than an undivided one-sixteenth share of the seven-eights working interest by himself carrying and bearing the exact actual expense incident to development (excepting only the lease bonus theretofore paid) ratably attributable to the Standard interest.”

This provision covers only a part of the working interest Rutledge received from Standard by virtue of the leases executed by Standard to Trace Mining Company. No part of the working interest belongs to the State, and the State does not seek in its pleadings to recover any part of such ¾6⅛ interest. There can be no question but that Mr. Standard had the right to convey the full working interest to lessee. The Relinquishment Act makes Standard the State’s agent to lease this working interest and it vests such interest in the lessee as his property. There are no pleadings by the State claiming this is royalty or other compensation received by the landowner as additional consideration for the lease of the State’s mineral interest. In Navarro Oil Co. v. Cross, 139 Tex. 272, 162 S.W.2d 677 (1942), the landowner received as part consideration for the lease $10,000.00 overriding royalty payable out of ⅛⅛ of the oil. The State recognized this and although suit was filed for one half the bonus, no part of this overriding royalty was asked for.

The Statute, Art. 5368, after providing for the sale or lease of the State’s mineral interest by the landowner, provides, “All leases and sales so made shall be assignable.” Lemar v. Garner, supra, recognizes this fact as well as that the policy of the State is not to place restraints upon alienation of property. The Land Office form on which this lease was executed also recognizes the validity of assignments of the working interest or a part thereof in these words: “17. If the estate of either party hereto is assigned, and the privilege of assigning in whole or in part is expressly allowed” and other provisions not relevant to our case. In the face of the statute, the cases, the lease provisions, and the pleadings herein on which the State seeks relief, how can it be contended that the State has any right to object to this assignment of a ¼6& out of %ths working interest of the oil and gas?

There is another very compelling legal reason why the leases should not be can-celled. The State accepted its part of the bonus, to-wit, $5.00 per acre at the time the certified copies of the leases and employment contract were filed in the Land Office. The State has kept this consideration and has not offered to return it. In discussing this fundamental legal proposition, this Court in the case of the Texas Company v. State, 154 Tex. 494, 281 S.W.2d 83, 91 (1955) said:

“ * * * Thus it is held that one seeking a cancellation of an instrument, with certain exceptions not pertinent here, must restore the original status; he cannot repudiate the instrument and retain the benefits received thereunder. Gibson v. Lancaster, 90 Tex. 540, 39 S.W. 1078; 7 Tex.Jur., Cancellation of Instruments, § 46, p. 958, et seq. In Black on Rescission and Cancellation, Second Edition, Vol. 3, § 616, p. 1482, it is said: ‘ * * * it is necessary that a party seeking a rescission should offer or tender a restoration to the other and that the court, if appealed to, should be able to accomplish that result by its judgment or decree.’ ”

In Anderson, Clayton & Co. v. State ex rel. Allred, 122 Tex. 530, 62 S.W.2d 107, the court said:

“But the authorities sustain the further rule that, where a state voluntarily files a suit and submits its rights for judicial determination, it will be bound thereby, and the defense will be entitled to plead and prove all matters properly defensive. This includes the right to make any defense by answer or cross-complaint germane to the matter in controversy. Gunter v. Atlantic Coast Line Railroad Co., supra [200 U.S. 273, 26 S.Ct. 252, 50 L.Ed. 477]; Clark v. Barnard, 108 U.S. 436, 2 S.Ct. 878, 27 L.Ed. 780; State v. Kilbum et al., 81 Conn. 9, 69 A. 1028, 129 Am.St.Rep. 205; State v. Zanco’s Heirs, 18 Tex.Civ.App. 127, 44 S.W. 527 (writ of error denied) ; 25 R.C.L. § 46, p. 411.”

See also State v. Stanolind Oil & Gas Co. (Tex.Civ.App., 1945), 190 S.W.2d 510, 512, writ refused.

Judge Neill in the case of State v. Cloudt (Tex.Civ.App., 1904), 84 S.W. 415, writ denied, expressed the doctrine excellently when he said:

“ * * * When a state appears as a party to a suit, she voluntarily casts off the robes of her sovereignty, and stands before the bar of a court of her own creation in the same attitude as an individual litigant; and her rights are determined and fixed by the same principles of law and equity, and a judgment for or against her must be given the same effect as-would have been given it had it been rendered in a case between private individuals.”

The State has not tendered the consideration it received for the leases and therefore cannot have the relief it seeks. The State stands in the same position as any other litigant.

In the case at bar this Court should follow the above fundamental rules and give these leases a construction that would uphold their validity. Especially is this true in the state of the pleadings filed by the Commissioner in this cause. He alleges no bad faith, no fraud, no overreaching, no subterfuge, no conspiracy. He does not allege that any or all of the provisions constituted additional consideration to the Standards and he seeks no recovery of any part thereof. The record is void of any such proof.

I would uphold the leases and affirm the Court of Civil Appeals judgment.

SMITH and HAMILTON, JJ., join in this dissent.

      . The statutory references are as they appear in Vernon’s Annotated Texas Civil Statutes.


source: Caselaw Access Project

author: CALVERT, Chief Justice.

license: Public Domain

text:
    Shirley A. KAUFMAN, Petitioner, v. Louis S. MILLER, Respondent.
    No. A-11730.
    Supreme Court of Texas.
    April 19, 1967.
    John H. Benckenstein, Beaumont,' for petitioner.
    John T. Lindsey, Port Arthur, Payton R. Covington, Lake Charles, La., for respondent.
   CALVERT, Chief Justice.

This is a suit for damages for personal injuries brought by Louis S. Miller, who-will be referred to in this opinion as plaintiff, against Shirley Kaufman, to be referred to as defendant. The suit grew out of a motor vehicle collision on July 15, 1961. The case was submitted to a jury on a number of special issues. Based on the jury’s verdict, the trial court rendered judgment awarding the plaintiff a recovery of $25,000. The court of civil appeals affirmed. 405 S.W.2d 820. We reverse the judgment of the courts below and here render judgment that the plaintiff take nothing.

Defendant argues under her first point of error that as a matter of law the evidence will not support the jury findings that her negligent acts or omissions were proximate causes of the plaintiff’s injuries. In evaluating this argument, it should be stated at the outset that the evidence establishes •conclusively that there was no physical impact with the plaintiff’s body in the collision and that the only injury suffered by him was an injury to his nervous system, diagnosed by his psychiatrist-witness as a “conversion reaction” and “compensation neurosis.” A summary of the relevant evidence, viewed most favorably in support of the verdict, is necessary to put the question of proximate cause in proper perspective.

Between the hours of 2:30 and 3:00 •o’clock, p. m., July 15, 1961, plaintiff was driving through Beaumont, Texas on IH-10, a four-lane divided highway with two lanes for traffic moving westerly and two lanes for traffic moving easterly. Plaintiff was traveling in the south lane of eastbound traffic, returning to Louisiana from Texas City, Texas. He was driving an International 220 truck with an empty tank-trailer which was used to transport gasoline or chemicals. The truck-trailer had an overall length of approximately fifty feet, and it weighed 72,000 pounds when the tank-trailer was full and 25,000 pounds when the tank-trailer was empty.

Pine Street in Beaumont enters IH-10 from the south at a 45° angle, some ten feet west of the west end of a bridge over the Neches River. Plaintiff’s truck was passing the Pine Street entrance when the defendant sought to enter the highway and drove her Plymouth automobile against the rear wheel of the trailer. The force of the collision threw the defendant’s automobile against the bridge railing. The damage to the automobile was insubstantial and no damage was done to the truck. Both vehicles later left the scene of the collision under their own power, and both drivers proceeded to their respective destinations in Louisiana.

Defendant had her mother and her aunt as passengers in her car. Plaintiff saw the car approaching on Pine Street but did not see it as it entered the highway. He did not know it had collided with his trailer. He “heard a little crash” which required him to use some effort to keep the truck under control, but he thought he had hit the curb of the bridge. He looked in his rear view mirror and saw the car against the bridge railing and then knew “that I had either hit her or she hit me.” He stopped his truck some 150 feet from the place of collision and walked back to investigate.

When plaintiff reached the car, he found the three women. He was nervous. Defendant was nervous, excited and “shook up,” but no one appeared to have been injured. Plaintiff discovered that his truck and trailer were undamaged, and he told the defendant he was not hurt. He testified, however, that he got “shocked” and “shook up at the accident.” In his testimony he accounted for his shock thusly: “I didn’t even know that I had hit her, for one thing, and that’s what shook me up — or she hit me. When I went over there she told me that I had run into her and that’s what got me all shook up, then, and shocked.” He sent in an accident report to his employer in which he stated that he had received no injuries in the collision.

“Right after” the collision, the plaintiff began to have spells of nervousness and diz-ziness and blackout spells. He would have dizzy spells when he got nervous, and he would get nervous because he “was scared somebody would run into” him and was afraid he “might hurt somebody.” His dizzy spells did not get “real bad” until about the time he went to see a doctor in May, 1962, some ten months after the collision. By that time, he was having nightmares and spells of nausea. His doctor would not let him go back to driving a truck. He consulted several doctors and was hospitalized for a week. From May, 1962 until the time of the trial in April, 1965, plaintiff had worked at various jobs at a considerable loss of earnings. His dizzy spells were less frequent at the time of trial.

Plaintiff is a son of farmer parents who separated when he was fourteen years old. He received an eighth grade education. He remained on the farm with his father until he was seventeen, at which time he went into the military service where he remained for six years. While in the army, he was a heavy truck driver, and, with study, achieved the equivalent of a tenth grade education. He left the military service in 1955, went to a mechanic’s school for one year and then got a job driving a truck. He worked for various employers in different kinds of employment before he secured work as a truck driver with Herring Tank Lines for whom he was working at the time of the collision on July 15, 1961. He was 31 years of age at the time of trial. He could remember having had only one dizzy spell before the collision and that was on an occasion when he was doing off-shore work and “the heat hit” him.

The plaintiff had been in other accidents prior to the collision, only one of which needs to be noticed. In May, 1959 he had a serious accident. He hit a hole in the highway and broke the left front frame on his truck, causing the truck to jack-knife and turn over and catch fire at a trailer camp. One trailer house burned down and three occupants of it died in the fire. Two or three other trailer houses and a nearby residence and garage burned down. The plaintiff admitted that the accident was a “horrible” one, he suffered a severe shock from it, and he would always remember it; but he testified he recovered from that shock and it had no effect on him during the two years preceding the collision on July 15, 1961.

The testimony of the plaintiff has been set out in considerable detail because it also summarizes the history related by him to his psychiatrist and forms the basis for the opinion of the psychiatrist that plaintiff is suffering from a “conversion reaction” and “compensation neurosis” which were “triggered” by the collision of July 15, 1961.

The psychiatrist spent one hour with the plaintiff. His testimony will be summarized. The plaintiff is a “passive dependent personality” and “has two significant neurotic patterns, one of depression and the other conversion reaction.” His neurosis “had its beginning on the farm” in “a hard, dreary existence,” and the depressive part of the neurosis “was caused by this accident in 1959” when he could have been killed and “realized at the time of the accident that he was facing death.” The witness testified that the 1959 accident left the plaintiff with a feeling of guilt and that the “horrible accident” would be with him “until the day he dies.” It was the professional opinion of the witness that the plaintiff’s condition was such that he was disabled from driving a truck; and it was his positive opinion that the accident of July 15, 1961 “triggered off” the conversion reaction and that the conversion reaction neurosis was the disabling factor.

The psychiatrist-witness explained the various technical terms and neuroses referred to in his testimony and the effect of the neuroses on the behavior of a person, and particularly on the behavior of the plaintiff.

A “passive dependent personality” is “characterized by helplessness, indecisiveness, and a tendency to cling to others * * * These individuals must, at all costs, conceal their energy and aggressive impulses from their own consciousness. * * * These are nice, quiet, gentle people, who would never hurt a fly. For such a person hurting a fly, without intending, and without any way of not inflicting the damage or hurting, is a frightening experience.” It was his opinion that a person with a “passive dependent personality would be more susceptible to developing a conversion reaction.”

The “depressive reaction” neurosis of the plaintiff was related to the accident in 1959. “The effect was that it left him with the realization that he could hurt people”; and “the danger for a person of this personality type is [from fear of] hurting someone else, and not [from fear of] being hurt himself.” The “conversion reaction” neurosis was “triggered off” by the accident of July 15, 1961, the essential quality of which “was the complete absence of awareness that it was happening, and, therefore, the inability to make any attempt to prevent it from happening.” It was “the experience of the danger of this massive vehicle which could kill, and which could cause damage, without knowing about it * * * that * * * triggered the conversion reaction in the man.” The spells of nervousness, dizziness and blackout spells were symptomatic of the conversion reaction neurosis; the dizziness and fainting “in this man serve to prevent overwhelming anxiety.”

A “compensation neurosis,” according to the witness, is “a condition in which the individual seeks relief from inner conflict through some form of external compensation. * * * This is not to be confused with malingering in which the individual deliberately contrives to imitate an illness for the purpose of gaining compensation.” The plaintiff “is seeking relief through court action, and he truly believes that in some way or other this will help him, that he will feel better; and also, as has been observed many, many times, individuals suffering from this condition do feel better after a settlement is reached.”

The witness distinguished a “traumatic neurosis” and a “conversion reaction neurosis.” A traumatic neurosis “is a description .of a neurosis which occurs in direct reaction to an emotionally traumatic experience, and it is- characterized by the sudden incapacitation of a person.” In a conversion reaction neurosis “the pattern of disability develops over a period of time.” Asked, “Would that in any manner mean that this type of condition that this man suffers from is any less severe or less disabling than the traumatic or instant neurosis would have been?” the witness answered: “On the contrary, this type of pattern is more likely to be of a more permanent nature than traumatic neurosis.”

From the evidence here set out, it is apparent that the jury could reasonably have concluded that the plaintiff had suffered a serious and disabling nervous disorder as a direct result of the collision which was caused by the defendant’s negligent acts and omissions, and thus that the evidence supports the jury’s finding of causal relation between the defendant’s negligence and the plaintiff’s injuries. The finding of the cause in fact element of proximate cause is supported by the evidence. But under the law of this State there is a second essential element of proximate cause, i.e., the foreseeability element. Baumler v. Hazelwood, 162 Tex. 361, 347 S.W.2d 560 (1961). The serious question is whether we should hold as a matter of law that the defendant could not reasonably have foreseen that the injuries to the plaintiff’s nervous system would be a natural and probable consequence of her negligent conduct. We do so hold.

The court of civil appeals declined to make the holding, relying entirely on this court’s decisions in Hill v. Kimball, 76 Tex. 210, 13 S.W. 59, 7 L.R.A. 618 (1890); Gulf, C. & S. F. Ry. Co. v. Hayter, 93 Tex. 239, 54 S.W. 944, 47 L.R.A. 325 (1900); Houston Elec. Co. v. Dorsett, 145 Tex. 95, 194 S.W.2d 546 (1946), and Bailey v. American Gen. Ins. Co., 154 Tex. 430, 279 S.W. 2d 315 (1955). The facts in those cases are so dissimilar from the facts here that they do not rule the question in the instant case. In the first three of the cited cases we held only that damages are recoverable for injuries resulting from emotional shock caused by the negligence of another if the injuries are a foreseeable consequence of the negligent conduct, Bailey was a workmen’s compensation case and proof of proximate cause was not essential to a recovery.

Hill v. Kimball, supra, was one of the earliest decisions to recognize a right of recovery for injuries resulting alone from fright or other emotional shock. It has been termed by one writer “A Milepost in the Law.” See Hallen, 12 Texas L.Rev. 1 (1933). In that case the defendant made a violent assault on two Negroes in the presence of the plaintiff, a pregnant woman. She was so frightened by the incident that she had a miscarriage. The court held that the plaintiff’s petition stated a cause of action, but added: “Of course, since there is no intent to injure Mrs. Hill alleged, it will be a question for the jury to determine whether his [the defendant’s] conduct, so far as she was concerned, was negligent or not; that is to say, whether, under the circumstances, and with the lights before him, a reasonable man would have anticipated the danger to her or not.” 13 S.W. 59. In Hayter, the plaintiff suffered a serious nervous affection, known as “traumatic neurasthenia,” from a collision, and from witnessing the imminence of the collision, between two trains, on one of which he was a passenger. The trial court’s charge to the jury permitted recovery for physical injuries proximately resulting from “mental shock.” This court affirmed, and said (54 S.W. 945):

“We conclude that, where a physical injury results from a fright or other mental shock, caused by the wrongful act or omission of another, the injured party is entitled to recover his damages, provided the act or omission is the proximate cause of the injury, and the injury ought, in the light of all the circumstances, to have been foreseen as a natural and probable consequence thereof. In our opinion, as a general rule, these questions should be left to the determination of the jury.”

The nervous disorders suffered by the plaintiff in Dorsett resulted from being narrowly missed by a bus as she was walking across a street with her mother. This court observed in its opinion that it had been stated as a fact in oral argument that the mother was fatally injured by the bus but that this was not shown in the record. We held that the plaintiff’s petition stated a cause of action in the face of an objection that the injury was “too remote and speculative, and not the proximate result of the wrongful act.” In so holding, we reaffirmed the rule announced in Hayter, quoted above, that as a general rule questions of causal relation and foreseeability in such cases should be left to the determination of the jury.

It is generally recognized by writers in the field of tort law, as well as by courts of all jurisdictions, that the right of recovery for injuries from mental shock caused by negligent conduct cannot be an unlimited right; that an unlimited right of recovery would impose undue burdens on persons guilty of nothing more than simple negligence. Accordingly, some courts have imposed arbitrary limitations on the right. The limitations are generally keyed to foreseeability of consequences, whether foreseeability is treated as an element of negligence or an element of proximate cause. Two of the limitations will be noticed.

Courts have been virtually unanimous in recognizing that one who suffers injury from mental shock as a result of an injury or threatened injury to a third person cannot recover damages from the negligent tortfeasor. In Nuckles v. Tennessee Elec. Power Co., 155 Tenn. 611, 299 S.W. 775 (1927), the Supreme Court of Tennessee said: “We are not aware of any considered decision which holds that there can be a recovery for fright or shock because of danger to another or injuries upon another in the presence of the plaintiff, even though the person imperiled or injured was near and dear to the plaintiff.” In that case the mother-plaintiff saw her child run over by a street car, but she was not endangered by the car. In Carey v. Pure Distrib. Corp., 133 Tex. 31, 124 S.W.2d 847 (1939), an unsecurely fastened oil drum fell from a truck and the lid blasted off and hit a man lying on a cot by his house trailer near the highway. His wife, who was inside the house trailer, heard the noise and heard her husband say that his head had been caved in. She ran arid opened the door and saw that her husband was all bloody. Thereafter, she had a miscarriage. We held that .the injury to the husband was reasonably foreseeable by the negligent defendant but that the injury to the wife was not. Prosser states that the reason usually assigned for denying recovery for emotional shock because of fear of injury to a third person “is that the defendant could not reasonably anticipate any harm to the plaintiff, and therefore owes her no duty of care.” See Prosser, The Law of Torts, 352 .(3d ed. 1964). He recognizes that there is no logical reason for permitting recovery by a woman for shock because of fear of injury to herself and denying her recovery for shock because of fear of injury to her child, but states (pp. 353-54):

“It would be an entirely unreasonable burden on all human activity if the defendant who has endangered one man were to be compelled to pay for the lacerated feelings of every other person disturbed by reason of it, including every bystander shocked at an accident, and every distant relative of the person injured, as well as his friends. And obviously the danger of fictitious claims, and the necessity of some guarantee of genuineness, are even greater here than before. It is no doubt such considerations that have made the law extremely cautious.”

For a contra view, see Magruder, Mental and Emotional Disturbance in the Law of Torts, 49 Harv.L.Rev. 1033, at 1037; and for an analysis of the opposing views, see Hallen, Damages for Physical Injuries Resulting from Fright or Shock, 19 Va. L.Rev. 253, at 267-72, and Smith, Relation of Emotions to Injury and Disease, 30 Va. L.Rev. 193, at 235-43. In an article entitled Liability in New York for the Physical Consequences of Emotional Disturbance, 32 Col.L.Rev. 409, at 417-18, Bohlen and Polikoff suggest:

“It may be that a distinction might properly be drawn between those effects of fright or shock which the common experience of the ordinary man recognizes as likely to result therefrom, such as a miscarriage after a severe fright, and those obscure nervous disorders as to which even medical experts may and do disagree.”

Recovery is also generally denied when the plaintiff is unusually or peculiarly susceptible to emotional trauma and that fact is unknown to the negligent tortfeasor. In Haas v. Metz, 78 Ill.App. 46 (1898), the plaintiff sought damages from the defendant because loud and angry talk by the defendant caused the plaintiff to have recurring spells of hysteria. Plaintiff’s doctor testified that she had spells of hysteria before the incident. The court concluded its opinion denying recovery with this language: “We conclude * * * that defendant could not reasonably anticipate that the words she spoke and the tone of voice she used would cause the recurrence of an hysterical malady of whose very existence she was not aware * * Somewhat analogous are the cases which hold that one’s acts are not negligent toward a person with physical defects if the defects are unknown to the actor and his conduct would not have been negligent toward a normal person. See International & G. N. Ry. Co. v. Garcia, 75 Tex. 583, 13 S.W. 223 (1890); 65 C.J.S. Negligence § 12c, p. 590. In an article by Hubert Winston Smith, Relation of Emotions to Injury and Disease, 30 Va.L.Rev. 193 at 256, the author suggests that the same rule should be applied to deny liability for injuries resulting from emotional shock to idiosyncratic persons. Smith states: “As most persons possess average hardihood and resistance, an actor is entitled to expect that a particular person within his sphere of action has normal fortitude unless he has notice to the contrary.” Pros-ser agrees. In commenting on abandonment in other jurisdictions of the requirement of physical impact, Prosser in his Law of Torts, 352 (3d ed. 1964), states:

“There must necessarily be, in its place, some requirement of satisfactory proof, and at least in the absence of knowledge of the plaintiff’s unusual susceptibility, there should be no recovery for hypersensitive mental disturbance where a normal individual would not be affected under the circumstances.”

An opposing view is illustrated by two Wisconsin cases. In Sundquist v. Madison Rys. Co., 197 Wis. 83, 221 N.W. 392 (1928), the plaintiff was allowed to recover for hysterical paralysis caused by fright and shock even though all of the medical witnesses agreed that the fright would not have caused paralysis in a normally healthy person. And in Colla v. Mandella, 1 Wis.2d 594, 85 N.W.2d 345, 64 A.L.R.2d 95 (1957), a negligent defendant was held liable for the death of a man from a heart attack brought about by emotional shock even though the proof showed that unknown to the defendant the man had high blood pressure and a heart condition for which he was being treated by a doctor before the traumatic experience.

We need not approve either of the limitations discussed as an arbitrary limitation on the right of recovery for injuries resulting from emotional shock caused by negligent conduct. Both limitations are present in this case. There are also other factors which when combined with the limitations discussed impel a conclusion as a matter of law that the defendant could not reasonably have foreseen the injuries suffered by the plaintiff as a natural and probable consequence of her negligent conduct.

According to the testimony of his own expert witness, plaintiff’s conversion reaction neurosis is his disabling condition. This developed from a fear, triggered by the collision, that the negligent defendant might have been injured under circumstances in which the plaintiff could not have prevented the injury. In other words, the emotional shock sustained by the plaintiff was not from fear that he might have been injured but from fear that another might have been injured, the other not being an innocent person subjected to injury by a wrongdoer but the wrongdoer herself. The plaintiff was unusually or peculiarly susceptible to a conversion reaction neurosis. We pass over the testimony of the psychiatrist that “a passive dependent personality would be more susceptible to developing a conversion reaction,” but note that the sum total of the witness’ testimony shows conclusively that the depressive reaction neurosis suffered by the plaintiff as a result of his accident experience in May, 1959 made him peculiarly susceptible to the conversion reaction neurosis suffered by him as a result of the trifling collision of July 15, 1961. Moreover, the disabling neurosis did not result from an immediate impact of the negligent conduct and collision on his senses, but from learning of it after it happened and after learning that apparently no one was injured in the collision. Finally, the disabling neurosis, although originating “right after” the collision, was a slowly developing type which did not incapacitate the plaintiff until after the lapse of several months.

We recognize that this field of law is in a developing process, as is the field of psychiatry, and we would be reluctant to hold at this time that any one of the enumerated factors would of and by itself be sufficient to require a judgment denying liability. We are satisfied, however, that public policy is better served by denying liability when all are combined. In dealing with cases of this type on a case by case basis, we will be following a precedent set by the Supreme Court of North Carolina in Williamson v. Bennett, 251 N.C. 498, 112 S.E.2d 48 (1960), in which the facts bear a close similarity to the facts in this case.

Some stress is laid by the parties on the testimony of the psychiatrist that the plaintiff had a compensation neurosis. We have not discussed the problem because of the testimony of the psychiatrist that the conversion reaction neurosis was the disabling neurosis. We are aware of our decision in Hood v. Texas Indem. Ins. Co., 146 Tex. 522, 209 S.W.2d 345 (1948), in which we upheld a recovery of workmen’s compensation benefits during a period of disability caused by compensation neurosis; but we note in passing, without approval or disapproval, that in a casenote in 37 Texas L.Rev. 361, a doctor-writer predicts that a policy of not allowing recovery for compensation neurosis “will probably prevail in tort cases, since the courts are not likely to hold that the negligent actor should, at the time his negligence occurs, foresee the development of a compensation neurosis.”

The judgments of the courts below are reversed and judgment is here rendered that the plaintiff take nothing.

      . Emphasis ours throughout unless otherwise indicated.


author: POPE, Justice.

text:
    YOAKUM INDUSTRIES, INC., Petitioner, v. Robert S. CALVERT et al., Respondent.
    No. A-11573.
    Supreme Court of Texas.
    March 15, 1967.
    Rehearing Denied May 3, 1967.
    Guittard, Henderson, Jones & Lewis, O. F. Jones, III, Victoria, for petitioner.
    Crawford C. Martin, Atty. Gen., Kerns B. Taylor, Asst. Atty. Gen., Don Bishop, Austin, for respondent.
   POPE, Justice.

The question presented in this case is the same as that today decided in Humble Oil & Refining Co. v. Calvert, 414 S.W.2d 172. Both cases were jointly presented to the courts below because the issue is common to both of them. In 1957 Yoakum Industries sold its leather processing and manufacturing business, and since that time all of its income has been from interest and dividends paid by foreign corporations. As in Humble, the Comptroller in 1963 assessed Yoakum Industries with additional taxes which it paid and for which this suit was brought to recover. For the reasons expressed in Humble, the receipts of interest and dividends were from foreign corporations and did not constitute business done in Texas within the meaning of art. 12.02, Title 122a, Vernon’s Ann. Civ. St.

The judgment of the court of civil appeals is reversed and the judgment of the trial court is affirmed.

STEAKLEY, J., not sitting in this case.