text:
    WEST TEXAS DISTRICT BAPTIST ASSOCIATION, Appellant, v. PILGRIM REST BAPTIST CHURCH, Appellee.
    No. 16430.
    Court of Civil Appeals of Texas. Fort Worth.
    May 31, 1963.
    Rehearing Denied June 28, 1963.
    W. J. Durham and E. Brice Cunningham, Dallas, for appellant.
    Donald C. Bubar and Melvin F. Adler, Fort Worth, for appellee.
   MASSEY, Chief Justice.

Judgment in the trial court, purportedly in favor of a group of defendants upon a cross-action, was one by which title and possession to certain realty in Tarrant County, Texas were awarded to said defendants conditioned upon their payment — within thirty days after judgment became final — a certain sum found to be owing by the defendants to the original plaintiff.

Judgment is reversed and the cause remanded for another trial.

West Texas District Baptist Association, a religious corporation, brought suit as plaintiff against Pilgrim Rest Baptist Church, an unincorporated religious association, and against P. J. Hillary and others, its trustees. For convenience the plaintiff will hereinafter be referred to as the Association, and Pilgrim Rest Baptist Church as the Church. When occasion necessitates reference to action taken by agents or trustees of either the Association or the Church, it will in most instances be referred to as though it was action by one of the two principals.

In 1949 the realty in question, two lots within a subdivision, belonged to Mrs. Brown and others. Pursuant to arrangement between the Association and the Church, the former entered into a sales and purchase contract with Mrs. Brown et al., whereby possession was delivered over to the Church upon the Association’s entry into the contract of purchase with the owners. Consideration was agreed to be the sum of $2,500.00, which the Association obligated itself to pay upon the following terms: $100.00 down in cash, to be followed by payments of $60.00 in the first day of April, September and December in each year until the full amount of the purchase price was paid, interest at 8% per annum on the unpaid balance to become a part of each payment, with the Association obligating itself for the payment of taxes and assessments, if any. Promptly thereafter the Church, in possession, erected improvements on the premises.

In the pleadings of the Association, when it instituted suit against the Church, no reference is made to the aforementioned transaction of 1949 other than that it purchased the title under the sales contract, nor of any other circumstance prior to April 30, 1955, when it received a warranty deed to the property from its former owners. The Church, on the other hand, said a great deal about this. It alleged that the entry of the Association into the contract of purchase and sale in 1949 was performed pursuant to the following: That the Association, through its trustees and officers, approached the Church and its members and officers with the proposition that it would contract to buy a site selected by the latter; would pay the contract price; would ultimately take the deed to the property in both the name of the Association and the Church; and that when the Church repaid or reimbursed the Association the funds advanced it would convey over to the Church full legal title. Further: That in reliance thereupon and induced thereby the Church spent over $330.00 in cash and its members invested labor in the erection of a building on the premises; established a building fund with the objective of erecting a much better building and by April 30, 1955 said fund amounted to $1,100.97; that it undertook to arrange for the financing of the better building through the investment of the $1,100.97 to secure the erection of a building which would require more than that amount, whereupon it discovered that financing made it requisite that the former owners, Brown et ah, have title divested out of them; and that in order to accomplish the objective further negotiations and agreements were entered into with the Association as the result of which title was divested out of the former owners by paying off the balance owing.

Adverting to the pleadings of the Association, it is noted that it says that it acquired full title under warranty deed of April 30, 1955; that thereafter, on or about May 12, 1955, it entered into a verbal agreement with the Church substantially to the effect that it would permit the members and officers of the Church to use and occupy the land for church purposes, and to place improvements thereon, conditioned upon the Church keeping up payments on notes made for erection of the improvements, and further conditioned upon the Church maintaining membership in the Association, complying with its rules and regulations, and making periodic contributions to the Association as required by its rules. However, if the Church breached its agreement in any respect the rights or privileges granted to the Church could be terminated by the Association.

Continuing, the Association alleged a breach on the part of the Church, its election to terminate the rights or privileges granted to the Church, notice thereof given and demand made for possession of the property, the Church’s refusal to yield possession, and the necessity for and resulting suit. The Association prayed for judgment declaring that the verbal contract (of May 12, 1955) was terminated, judgment removing clouds from its title to the property and quieting title; judgment for its possession and declaration that the Church had no right of possession, title, interest, claim or equity in and to the title, and for divestment. Additional relief was also prayed for but it is not material to our discussion.

We advert once again to the pleadings of the Church, as related to the transaction resulting in the Association receiving the warranty deed to the property on April 30, 1955.

To be inferred from the allegations was that the Association repeated and confirmed the promises the Church alleged the Association made in 1949, as result of which the contract of purchase and sale was made. It was affirmatively alleged that the Church “advanced” $1,100.00 from its building fund to be used by the Association in paying the balance of the consideration due to be paid on the contract with the former owners in order to cause them to divest themselves of title by delivery of a deed to the property; and that the Association took the title in its own name (the Church not having been named as a grantee). Matters were alleged relative to the negotiation of contract with the builder who erected a new church building on the premises; the mechanics of the placing of a mechanics’ lien on the property; the execution of deeds of trust in which the Association joined; matters involved pursuant to the bankruptcy of the builder who erected the church building and the “working out” of the complications of the situation whereby the lien on the premises ultimately belonged to an investment company, and the retirement of the indebtedness and release of lien; and matters reflecting the confusion in any accounting concerning the question of what the Church had paid on the indebtedness and original investment of the Association, and what the Association had paid thereon. It was also alleged that improvements in addition to those of the contractor who had built the new church building had been placed thereon by the Church.

We consider the prayer in the pleadings of the Church to be of great importance. The Church sought, in the event it might be determined upon the trial that the Association held full title and that the Church should be dispossessed, an order which would permit it to remove the improvements it had placed on the lots. Primarily, however, it sought an accounting so that the trial court could determine the exact amount it should pay to the Association to reimburse it the funds invested by it in the property, and requested that the court fix a time within which the Church might cause the payment thereof to the Association “as consideration for a deed to the property”.

In our view it was neither expressly nor impliedly a part of the Church’s prayer for relief that a constructive trust be impressed upon the property in question, that the deed showing legal title in the Association was in fact or effect a mortgage securing an indebtedness of the Church and entitling it to delivery of the title, nor that it be awarded title to the property or that a title claimed by it be quieted.

Under the theory of the case as presented by the pleadings of the Association, it held not only full legal title, but the equitable title to the property, and that it was entitled to have possession thereof upon a finding that the agreement under which the Church held the same was as the Association alleged, coupled with a finding that the Church had breached its agreement thereunder. In this connection we take occasion at this stage of the opinion to say that we believe a fact issue was raised under the evidence upon the matter of what the agreement consisted, although there would be no doubt that there had been a breach thereof by the Church in the event the agreement was as alleged by the Association, and that fact would be resolved as a matter of law. We also take occasion at this stage of the opinion to remark upon the fact that the case made by the Association, under its pleadings, was not submitted to the jury, although no complaint because of this was made and preserved and presented as a point of error on appeal. Had the Church’s pleadings done no more than join issue with the Association on the case it alleged, we believe that issues of fact would exist, the resolving of which would control the entry of judgment.

Under the theory of the case as presented by the affirmative pleadings of the Church, it is apparent that relief is sought which would have a certain analogy to a case where the defendant pleads in confession and avoidance. In this we refer to the relief for which the Church prayed in the event the judgment was for the Association in quieting its title and awarding possession, to-wit: the right to remove the improvements placed thereon and a time designated within which to effect the removal. The extent of other relief sought is not made clear. The Church did seek an accounting under the theory that its representations as to the gist of the two agreements with the Association were correct as a matter of law (although we believe a question of fact was raised), and assumed that the Association would readily deliver a “deed” to the property upon a tender thereof made in behalf of the Church.

The special issues submitted to the jury were in two groups. One group related to the transaction in 1949, the other to the transaction in 1955. On the first group the jury made findings to the effect that the initial agreement of the parties included that of the Association that when the Church repaid to it its investment made in connection with the contract of purchase and sale it would convey the lots to the Church; that said agreement on the part of the Association was made to induce the Church to use the premises for church purposes and to make improvements thereon, which were material inducements upon which the Church relied and was induced to install the improvements. On the second group the jury made findings to the effect that prior and incident to the Church’s agreement and delivery of the $1,100.00 plus agreement to make payment on the indebtedness resulting from the erection of the larger church building on the premises, the Association represented that it would later convey the property to the Church upon its payment of the balance owing to retire the debt claim of third parties and reimbursement of the balance of the Association’s investment in the property; that said agreement on the part of the Association was made to induce the Church to enter into the agreement and was a material inducement upon which it relied.

The judgment, purportedly upon the verdict, declared that the Church was entitled to have a decree vesting title to the property as against the Association, provided that if within thirty days after judgment became final (by which it was pointed out that the court meant the mandate of the appellate court in the event of affirmance on appeal) the Church should pay the Association or cause it to be paid the sum of $2,-877.50; — but that if the Church failed to make said payment then the Association was entitled to judgment for title and possession of the property. The judgment does not describe the property, and we believe this was error, although not necessarily fatal.

It seems to us that the only theory under which the judgment was rendered was that it was one by which a cloud was removed from the Church’s title. If so, it was reversible error to enter the same in behalf of the Church because it did not pray for such affirmative relief. White v. Cooksey, 1923 (Tex.Civ.App., Beaumont), 253 S.W. 548, writ dism.; 34 Tex.Jur. p. 837, “Quieting Title”, § 24, “Relief Generally”. For that reason the judgment cannot be affirmed and must be reversed. Additionally, no jury finding supports the judgment entered, aside from any question of pleading.

It seems to us that it would be proper to say that from the whole record the affirmative case of the Church was tried upon an erroneous theory and was not fully developed. The Association would have no right to judgment in the case, even should we disregard the somewhat questionable right of the Church to assert a cause of action under its pleadings, because of the absence of findings of fact upon which such a judgment would depend.

In view of the necessity of retrial we deem it in order to direct counsel to authorities in addition to those they discuss in the briefs as follows: On the matter of the Statute of Frauds: Hooks v. Bridgewater, 1921, 111 Tex. 122, 229 S.W. 1114, 15 A.L.R. 216; Upson v. Fitzgerald, 1937, 129 Tex. 211, 103 S.W.2d 147; 26 Tex.Jur. 2d p. 154, “Frauds, Statute of”, § 4, “Effect of statute on trusts” (20A Tex.Jur. p. 270, § 5). On the matter of constructive trusts: Restatement of the Law, Restitution, Part II, § 160 et seq. under “Constructive Trusts and Analogous Equitable Remedies”; 39 Tex.Jur.2d p. 25, “Mortgages and Trust Deeds”, § 13, “(Deed Absolute as Mortgage) — In General”, et seq. (29 Tex.Jur. p. 799, § 11, et seq.); 42 Tex.Jur. p. 649, “Trusts”, § 45, “(Constructive Trusts) — Nature and Characteristics”, et seq.; Gaines v. Hamman, 1962, Tex., 358 S.W.2d 557, and the discussions and authorities in both the majority and dissenting opinions.

Judgment is reversed and the cause remanded for another trial.


source: Caselaw Access Project

author: PHILLIPS, Justice.

license: Public Domain

text:
    RAILROAD COMMISSION of Texas et al., Appellants, v. ALUMINUM COMPANY OF AMERICA et al., Appellees.
    No. 11098.
    Court of Civil Appeals of Texas. Austin.
    May 29, 1963.
    Rehearing Denied June 26, 1963.

      Waggoner Carr, Atty. Gen., Joseph Trim-ble and Linward Shivers, Asst. Attys. Gen., Austin, Wm. H. Darden, Corpus Christi, Hart & Hart, Austin, William E. York, McAllen, Harry S. Pollard, Austin, Lee Jones, Jr., San Antonio, Miller B. Walker, Jr., Nick C. Nichols, Charles F. Cockrell, Jr., and Levert J. Able, Houston, Wallace H. Scott, Jr., and Houghton Brownlee, Jr., Austin, for appellants.
    Vinson, Elkins, Weems & Searls, James E. Allison, Jr., Houston, Clark, Thomas, Harris, Denius & Winters, James H. Kea-hey, Austin, Charles F. Heidrick, Edwin M. Cage, Dallas, for appellees.
   PHILLIPS, Justice.

This is an appeal from the judgment of the District Court setting aside an order of the Railroad Commission of Texas dated April 24, 1961 allocating the allowable production of gas and oil in the Appling Field, in Calhoun and Jackson Counties, Texas, and enjoining the Railroad Commission and its members from enforcing the order.

The order under attack, prorates gas on a yi per well, ⅜ acreage basis and the oil on a SO percent well, SO percent acreage basis.

The suit was filed in April of 1961 by the Aluminum Company of America, Crown Central Petroleum Corporation and Carl E. Siegesmund against the Railroad Commission of Texas and its members.

Later in April, 1961, Sun Oil Company intervened adopting for all practical purposes the allegations in the petition filed by the plaintiffs.

Thereafter petitions in intervention were filed on behalf of the following persons who aligned themselves with the Railroad Commission in defense of the above mentioned order: Tex-Star Oil and Gas Corporation, Coastal States Gas Producing Company, Claire Benz-Stoddard, Woods Exploration and Producing Company, Inc., David Davidson, Karankawa Producing Company, Na-vidad Oil Corporation, Yuhl Oil and Gas Company, Ernestine B. Foyles, Audrey Kjorlaug, Thelma V. Bass, Trustee, Mrs. Nora L. Krueger, Charles L. Krueger, Don Culwell, Mrs. Opal B. Williams, Allen Lester, Rosemary Lester, Clifford B. Reneger, John Alexander, Individually and as Trustee, Robert L. Alexander, Thomas P. Alexander, Judd Alexander, J. E. Alexander, and Dr. G. J. Hayes, Southeastern Pipe Line Company, Joe Blalack and Herbert L. Dillon, Jr.

Plaintiffs filed a motion to strike the intervention of the Southeastern Pipe Line Company which was granted.

Plaintiffs filed a motion to strike defendants’ and intervenors’ pleas of laches, waiver, estoppel and limitation.

The defendants and defendant-interve-nors filed a motion for summary judgment urging, principally, that as a matter of law the plaintiffs and Sun Oil Company were barred by unreasonable delay, laches and estoppel from seeking to cancel the allocation formula of the Railroad Commission.

The case came to trial in September of 1962 whereupon the court overruled the motion for summary judgment of the defendants and defendant-intervenors, granted the motion of the plaintiffs to strike defendants’ and defendant-intervenors’ pleas of laches, waiver, estoppel and limitation, to which order the Railroad Commission and defendant-intervenors excepted.

The court also, over the objection of the Railroad Commission and defendant-inter-venors, entered an order refusing a trial by jury.

The court then proceeded to hear evidence from September 12, 1962, until October 1, 1962. Thereafter on October 9, 1962, the court entered judgment that the order of the Railroad Commission was without substantial evidence, should be declared null and void and enjoined the Commission from enforcing it. The Railroad Commission and certain defendant-intervenors have appealed to this Court.

We hold that the judgment of the trial court is correct.

The parties will be designated here as they were in the Trial Court.

Plaintiffs contend that the defendant-in-tervenors own ½ of 1% of the acreage in the field which amounts to some 25 acres. That in spite of such a small percentage of ownership they are allowed by the order under attack to produce 20% of the gas and condensate. That the plaintiffs own more than 90% of the acreage in the field which consists of approximately 4000 acres. That if the order here attacked continues through the life of the field, defendant-intervenors and other owners of town lot wells will produce in the future gas and condensate having a present value of more than $8,800,-000 from beneath plaintiffs’ leases in the 9 gas reservoirs in Fault Segment “A”, in which both large tract and small tract wells were completed at the time of the Commission’s order. That the 57 town lot or small tract wells belonging to defendant-inter-venors have been confiscating enormous quantities of gas and condensate from plaintiffs’ wells and that such confiscation will continue until the field is exhausted unless this Court holds that the Commission’s order of April 24, 1961 is invalid and the Commission is instructed to write an order which will be fair and just and protect the correlative rights of the owners and operators in the field.

Plaintiffs cite the case of Atlantic Refining Company v. Railroad Commission, often referred to as the Normanna Case, 162 Tex. 274, 346 S.W.2d 801 (1961) for the proposition that:

“The responsibility rests with the Commission to devise some rule of proration which will conserve the gas in the field in question and at the same time be fair and just to all parties without depriving any of them of his property.”

In the Normanna Case, referred to above, the Court struck down a ½-⅜ gas proration formula where the facts disclosed that the owner of a .3 acre tract was draining a substantial amount of gas from the adjoining tracts under the abovementioned formula. The Court said:

“Viewing all the facts in the light of the substantial evidence rule, we think the ½-⅜ proration formula is an unreasonable basis upon which to prorate the gas production from this reservoir. It does not come close to compelling ratable production; neither does it afford each producer in the field an opportunity to produce his fair share of the gas from the reservoir.”

The same result was reached in Halbouty v. Railroad Commission, Tex., 357 S.W.2d 364.

We hold that the case at bar is controlled by the decisions in the Normanna and Halbouty cases.

The order before this Court through its proration formula allows the defendant-intervenors and other small tract operators to confiscate unreasonable quantities of minerals underlying the adjoining land of the plaintiffs, is not supported by substantial evidence and is void. Hawkins v. Texas Company, 146 Tex. 511, 209 S.W.2d 338.

The Appling Field was discovered in 1953. The field consists of an extremely complicated multi-zone reservoir principally producing gas with a few relatively unimportant oil reservoirs interspersed in the field. Because these various zones which are separated vertically are broken into separate fault blocks or segments, there are thirty-eight separately prorated gas reservoirs and fourteen separately prorated oil reservoirs in this field. The field operated under statewide rules (25% of open flow potential, regardless of the size of the tract) until June of 1956, when the first special field rules were made applicable to the Middle Kopnicky Sand, Fault Segments A, B and C. The Middle Kopnicky Sand is the deepest producing zone and by far the thickest and most prolific producer and contains more than 80% of the field’s gas and condensate reserves. The remaining nine field sands are progressively higher than and overlie the producing area of the Middle Kopnicky Sand. These sands are thinner and less prolific, but all are blanket sands within Fault Segment “A”.

Besides the major fault which limits Fault Segment “A” on the East in all reservoirs here involved, there are numerous smaller faults crossing Fault Segment “A” of sufficient size to separate the upper sands into separate fault segments or reservoirs but these faults are not of sufficient magnitude to separate the Middle Kopnicky Sand into separate reservoirs. There are 13 such fault segments within Fault Segment “A”. The April 24, 1961, order here under attack, promulgated rules for 52 oil and gas reservoirs, of which 38 are Fault Segment “A”.

Four wells were drilled in 1956 on small tracts in the Port Alto and Karankawa Beach townsite areas. In 1956 plaintiffs sought field rules and urged the Commission to adopt a proration formula on the basis of 100% acreage, that is, that each landowner be allowed to produce only those reserves underlying his land. The Commission denied this request and imposed instead a ½-⅜ gas allocation formula. Thereafter the rules promulgated by the Commission in the various reservoirs contained allocation formulas on the basis of ½-⅜ for gas and 50-50 for oil.

Following the original four wells drilled on the small tracts in 1956, more wells were drilled on town lots in the succeeding years, most of these being multiple completions. After 19 such wells had been drilled plaintiff Aluminum Company of America and others asked for field rules allowing a ½-⅜ and 50-50 allocation formula for the first completion; however, they also sought a 100% acreage allocation formula for any subsequent completions in other reservoirs. At a hearing held in March of 1960, plaintiffs made this request of the Commission suggesting that such a formula would protect the correlative rights of the large tract owners and operators as well as those of the small tract owners and operators. Plaintiff Sun has consistently maintained that the field should be prorated on a 100% acreage basis. A total of 38 small tract wells have been drilled since plaintiffs first complained of the blanket application of the proration formula under attack making 57 small tract completions in all.

Plaintiffs own approximately 3702 of the 4288 productive acres in the Middle Kopnicky “A” and as of January 1961, had 22 completions therein. At the same time intervenor-defendants and others had 30 completions in the Middle Kopnicky “A” on town lots with a total assigned acreage of 24 acres. Most of these wells are multiple completed, that is, completed in more than one reservoir.

Following the abovementioned hearing in March of 1960, the Commission considered the matter for almost a year. In February 1961, the Commission’s Chief Engineer advised the plaintiffs that the Commission at a formal conference had adopted the field rules containing the allocation formula here under attack. Since the field rules had already gone into effect, plaintiffs filed this suit on April 3, 1961. On April 24, 1961, the Commission issued the formal order here under attack.

A summary of the evidence plaintiffs adduced at the trial is as follows: Under the allocation formula before this Court the average per acre allowable of small tracts is 55 times the average per acre allowable for large tracts and ranges from 43 times as much per acre in the Middle Kopnicky Sand to 154 times in Fault Segment 5 Lower 7600’ sand. This discrimination in favor of small tracts over large tracts exists in each of the nine reservoirs. In the nine reservoirs, the defendant-intervenors and other small tract operators own 0.6645% of the total gas in place, yet they are allowed to produce 19.-5667% of the gas withdrawn, or 29 times their share of reserves. In every case, more than 96% of the town lot production will be drained from others and in all but one reservoir, more than 80% of the town lot production will be drained from the plaintiffs. In the Middle Kopnicky “A” sand alone, containing more than 80% of the field gas and condensate reserves, 96.-05% of the town lot (defendant-intervenors and others) production will be drained from others, 84.44% will be drained from plaintiffs. That the value of the drainage from plaintiffs will be in the neighborhood of $9,000,000 for the life of the field if the present allocation formula is allowed to stand.

The evidence presented by the plaintiffs before the Trial Court as to the damage they have already sustained by virtue of the allocation formula in question and the damage that they will sustain in the future if the formula is sustained is largely uncon-tradicted.

Defendant-intervenors and the Railroad Commission defend the order and the allocation formula therein on the theory of laches, waiver and estoppel in that plaintiffs are barred from attacking the allocation formula of the order in question by virtue of the fact that since the first field rules were promulgated in 1956, plaintiffs have at the various hearings held either proposed a formula such as the one before this Court, or acquiesced in it. That the court erred in refusing the Commission and other defendants a jury trial because the evidence raises issues of fact relating to the defenses of unreasonable delay, laches and estoppel. That there were no fair offers on the part of plaintiffs to pool or unitize. That the order before this Court is reasonably supported by substantial evidence. That the Trial Court erred in sustaining plaintiffs’ motion to strike a plea of the four year statute of limitations.

A further defense of the order is based on the contention that while the Railroad Commission has no power to enforce the antitrust laws of the State of Texas, it has the right to consider a statutory expression of the policy of the State as respects antitrust violations. That the Commission, by promulgating the allocation formula here under attack, prevents the furtherance of a conspiracy by the plaintiffs to restrict production and eliminate the competition of the small tract operators.

It is also contended that the Trial Court erred in striking the intervention of the Southeastern Pipe Line Company because this intervenor owned a pipe line that had been constructed for the sole purpose of enabling the small tract operators to produce and sell the gas from their wells.

The evidence presented by defendants in support of their theory of waiver, laches and estoppel was the introduction of some eight orders of the Railroad Commission from the time that the first hearing was held in 1956 through an order dated March 1, 1960. All of these orders which were in effect special field rules dealing with the various producing segments of the Appling Field contained a ½-⅜, 50-50 allocation formula.

Defendants further presented evidence from the various hearings held to the effect that plaintiffs either proposed or acquiesced in said formula.

At a hearing held February 27, 1957, with reference to the adoption of field rules for the Upper Kopnicky Gas Sand defendants contend that the attorney for the Aluminum Company of America stated to the Commission that he would recommend the above-mentioned formula which would be in keeping with the Middle Kopnicky Gas Sand rules previously adopted. This attorney was quoted as saying:

“Anyway, we believe that the rules we have recommended are fair and equitable and they will not require the drilling of any unnecessary wells.”

Defendants further contend that at a hearing held on July 9, 1957, with reference to the adoption of field rules for the Brough-ton Sand, Fault Segment No. 6, the attorney for Aluminum Company of America recommended to the Railroad Commission that field rules be adopted which would be the same rules as those in effect for the Appling (Upper Kopnicky Gas) Field and recommended the abovementioned allocation formula.

That at a hearing held February 18, 1958, relating to four other separate reservoirs in the field, the attorney for Crown Central Petroleum Corporation recommended that as to these reservoirs the Commission adopt the same allocation formula previously adopted for application to other reservoirs. In this connection he said:

“While Crown Central is and has been generally in favor of 100% acreage allocation formula, in view of the fact that the Commission has set a precedent in numerous fault segments and in numerous reservoirs in the Appling Field, we will recommend that that precedent be followed, and that a ⅜ aerea ge-Jdj per well allocation formula be adopted.”

It is contended that at this same hearing the representative of the Aluminum Company in effect concurred with the recommendation made by Crown Central Petroleum Corporation:

“The Aluminum Company of America has interests in various leases within the limits of the scope of this hearing and is in agreement with Crown Central Petroleum Corporation’s request. We favor an allocation formula based on 100% acreage, but in line with all the previous rules which the Commission has adopted in this area, and since the Railroad Commission has set this pattern, we will abide with the ½ per well-,⅜ acreage allocation formula.”

Defendants point out that with the exception of the order of January 30, 1961, there were no motions for rehearing on the abovementioned orders and no other appeals to the courts have been taken for any of the allocation orders of the Railroad Commission concerning the Appling Field.

Defendants contend further that beginning in 1959, the plaintiffs started attacking the drilling permits granted by the Railroad Commission for wells upon town lots or other small tracts. The basis for such attacks was that the Railroad Commission included in the permits the clause granting multiple completion authority which permitted the completion of each well in all of the separate reservoirs penetrated by the well, which were found to be productive. In such suits the allocation formulas were not attacked; on the contrary, the petitions in some rule 37 cases, after referring to the orders of the Commission adopting field rules, including the allocation formulas for gas and oil production affirmatively alleged that the orders of the Railroad Commission were valid and binding insofar as they regulated the production of oil and gas.

Defendants also presented evidence to the effect that they were unable to reach any pooling agreements with the plaintiffs herein.

In their arguments before this Court, defendants contend that the following language from the Normanna Case is not mere dictum but that the Court had a situation such as this in mind when they wrote:

“ * * * where producers have acquiesced in and have failed to complain of the Commission’s proration orders for a long period, during which time other operators have expended vast sums in exploration and drilling operations, such producers should not be heard to complain.”

Our attention is called to the equitable doctrine of estoppel in pais as defined in 22 Tex.Jur.2d, Estoppel, Section 4, at page 664:

“Equitable estoppel is the effect of the voluntary conduct of a party whereby he is absolutely precluded, both at law and in equity from asserting the rights that might perhaps have otherwise existed, either of property, of contract, or of remedy, as against another person who has, in good faith, relied on that conduct, and has been led thereby to change his position for the worse, and who on his part acquires some conesponding right either of property, of contract or of remedy.”

We do not believe that the defendants herein can bring themselves under the equitable cloak that they attempt to spread over themselves for several reasons. In the first place they cannot show the proper damages. They have not shown under the definition of estoppel to have been led to change their positions for the worse. There is no showing that anyone who drilled a well prior to the attack on the order in question has lost money. The history of the Appling Field as shown above is not the history of an old field but that of a relatively new, complex and developing field with not only new horizons and segments being brought in from time to time but an ever changing density of wells in respect to the ratios between large and small tracts. In this ever changing situation we are not asked to balance any equities where parties have been damaged in reliance on well established rules, agreed to or acquiesced in by all concerned and debatable in respect to their fairness, but we are asked to “freeze” an order of the Commission that has not only allowed the small tract operators to produce more than their fair share of the oil or gas that originally underlay their tracts, but would continue to allow them to so produce for the life of the field.

We are, in effect, being asked to do by indirection that which we would not have the authority under the law to do directly. Art. 6008, 6049c, Vernon’s Civil Statutes.

In the second place, the defendants had no right under the very nature of the orders attacked to rely on them as bringing into effect some “vesting” of rights, immutable and unchangeable. Chenoweth v. Railroad Commission, Tex.Civ.App., 184 S.W.2d 711, writ ref., w. m. In this connection see Railroad Commission of Texas v. Shell Oil Company, 369 S.W.2d 363 handed down by this Court the same day as this opinion for a distinction with respect to estoppel in Rule 37 cases.

Commenting on the authority of the Commission as respects the conservation statutes, this Court in Railroad Commission v. Humble Oil and Refining Company, Tex.Civ.App., 193 S.W.2d 824, writ ref., n. r. e., stated:

“The Commission’s power to regulate oil production in the interest both of conservation and of protecting correlative rights is a continuing one, and its proration orders are subject to change, modification or amendment at any time, upon due notice and hearing, either upon the Commission’s own motion or upon application of an interested party. This principle is now so well established as to require no citation of authority.”

In Magnolia Petroleum Company v. New Process Production Company, 129 Tex. 617, 104 S.W.2d 1106, the Court said:

“If conditions change, rights change, and the governing statutes place the matter of ascertaining such rights and determining the facts relating thereto in the first instance under the jurisdiction of the Railroad Commission.”

In this connection, see a recent opinion of this Court in Railroad Commission of Texas v. Phillips, Tex.Civ.App., 364 S.W.2d 408, no writ history.

For the reasons discussed above we also overrule defendant-intervenors’ contention that this suit is barred by the four year statute of limitations. Art. 5529, V.C.S. See this Court’s opinion in Galveston Chamber of Commerce v. Railroad Commission, Tex.Civ.App., 137 S.W. 737, reversed on other grounds, 105 Tex. 101, 145 S.W. 573.

We hold that the Trial Court had the validity of a particular order before it which is to be tested under the substantial evidence rule, that such test is a matter of law, that the Trial Court found this specific order to be confiscatory and properly held it invalid. Gulf Land Company v. Atlantic Refining Co., 134 Tex. 59, 131 S.W.2d 73, The Normanna Case cited above, Halbouty v. Railroad Commission, Tex., 357 S.W.2d 364.

There were no facts to be determined by a jury. The facts that the defendants rely on in an attempt to show estoppel are not materially controverted. In any event, the court heard them out and had a jury been impaneled, it would have been proper for the court to take the case from the jury and rule as he did.

There is conflicting evidence as to pooling offers. We hold that in this case such evidence is immaterial as proof for the validity or invalidity of this particular order. Here the question of pooling could only relate to access to the minerals involved. We do not have the question of access but that of a fair allocation of existing production. See the recent opinion of Claire Benz-Stoddard v. Aluminum Company of America, Tex., 368 S.W.2d 94.

In its second amended petition in intervention Intervenor Woods Exploration and Producing Company, Inc. alleged that the Railroad Commission of Texas cottld take into consideration, the anti-trust laws of Texas, Title 126, Vernon’s Civil Statutes, in writing an order, and that the proration order under attack here was in the public interest and prevented plaintiffs from conspiring to fix production in the fields. It was further alleged that Section 19 of Article 6049e of the Conservation Acts states that nothing in the conservation laws shall affect or impair the anti-trust Acts of Texas. Aluminum Company of America excepted to this portion of Intervenor’s pleadings, stating:

“ * * * the sole issue in this case is whether the April 24, 1961, order is confiscatory. If it is confiscatory, then it cannot be sustained as necessary to encourage competition under either the State of Federal Anti-Trust Laws.”

The Trial Court sustained this exception.

We hold that the ruling of the Trial Court was correct. See Eastern Railroad President’s Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464, which established the rule that a combination to influence governmental action does not violate the anti-trust laws.

It is not necessary here for us to pass on the question of the Railroad Commission’s authority to consider the anti-trust laws when writing an order. We hold that the anti-trust Act has no bearing on the validity of the order before us.

Defendants contend that the court erred in striking down the proration order because, and here they list some 26 segments or reservoirs of the Appling Field, there was no evidence that there was any drainage of gas from the properties of the plaintiffs and Sun in any of these reservoirs or that the plaintiffs or Sun have been deprived of a fair chance to recover the equivalent of the gas in place in any of these reservoirs. We cannot sustain this contention. If part of the order is invalid, the entire order must fall. Railroad Commission v. Rowan Oil Company, 152 Tex. 439, 259 S.W.2d 173.

It is further contended that the Trial Court erred in entering judgment for plaintiffs and Sun in cancelling the order in question and in not limiting the judgment to the application of the Commission’s pro-ration formula to the production of gas from one completion in a single reservoir in each well because the plaintiffs in the hearing before the Railroad Commission attacked the formula only insofar as it applied to multiple completions and did not attack it as it applied to one completion in each separate reservoir in each well.

This argument was raised in the Halbouty case cited above and was rejected. The court pointed out that proceedings before the Railroad Commission are informal and their validity will not be tested by the technical rules of pleading and practice that obtain in court trials; and the fact that one formula is proposed before the Commission does not foreclose one’s right to complain of a formula which they consider inequitable and confiscatory of their property nor does it limit the Commission solely of either accepting or rejecting the proposed formula in toto.

We have considered the assignments of error as to the admission of plaintiffs’ Exhibit No. 75 allegedly containing hearsay testimony and also the failure of the court to allow the intervention of Southeastern Pipeline Company. In view of the extensive development of this case in the Trial Court, if these assignments constitute error, it was not such error as would require the reversal of the judgment. Rule 434, Texas Rules of Civil Procedure.

The judgment of the Trial Court is affirmed.

Affirmed.

      . The proration formula for the Commission’s order of April 24, 1961 is as follows:
      “RULE 4: The daily total field oil allowable, as fixed by the Commission after deductions have been made for marginal wells, high gas-oil ratio wells and wells which are incapable of producing tlieir allowables as determined hereby, shall be distributed among the remaining producing wells in the field on the following basis:
      “(a) The daily acreage allowable for each well, after said deductions have been made shall be that proportion of fifty (50) per cent of the daily field allowable which the acreage assigned to the well bears to the remaining acreage assigned to all the wells in the field.
      “(b) The daily per well allowable for each well, after said deductions have been made shall be determined by dividing fifty (50) per cent of the total field daily allowable by the number of producing wells in the field.
      “(c) The total daily oil allowable for each well shall be the sum of its per well and acreage allowables.
      “RULE 5: The daily allowable production of gas from individual wells completed in a non-associated gas reservoir of the subject field shall be determined by allocating the allowable production after deductions have been made for wells which are incapable of producing their gas allowables, among the individual wells in the following manner:
      “(a) Two-thirds (⅜) of the allowed gas production from a non-associated gas reservoir shall be allocated to the individual wells completed therein in that proportion that the acreage assigned to each such well bears to the sum of the acreage in the reservoir.
      “(b) One-third (⅜) of the allowed gas production from a non-associated gas reservoir shall be allocated equally among the individual wells completed therein.
      “(c) The total daily non-associated gas allowable for each well shall be the sum of its acreage and per well allowables.”

      . Not all defendants appealed. Appellants include: Coastal States Gas Producing Co.; Claire Benz-Stoddard; Karankawa Producing Company; Navidad Oil Corporation; Edgar B. Yuhl, dba Yubl Oil and Gas Co.; Ernestine B. Eoyles; Audrey Kjorlaug; Tbelma V. Bass, Trustee; Mrs. Nora L. Krueger; Charles L. Krueger; Don Culwell; Mrs. Opal B. Williams; Allen and Rosemary Lester; Clifford B. Renegar; John Alexander, Ind. and as Trustee; Robert L. Alexander; Thomas P. Alexander; J. E. Alexander; Dr. G. J. Hayes; Tex-Star Oil and Gas Corporation; H. L. Dillon, Jr.; Woods Exploration and Producing Co., Inc.; Southeastern Pipeline Co.; Railroad Commission of Texas.


author: FRASER, Justice.

text:
    John C. LUCCOUS, Sr. and John C. Luccous, Jr., Appellants, v. J. C. KINLEY CO., Appellee.
    No. 5616.
    Court of Civil Appeals of Texas. El Paso.
    May 22, 1963.
    Rehearing Denied June 19, 1963.

      Lynch & Chappell, Vann Culp, Midland, for appellants.
    Stubbeman, McRae, Sealy & Laughlin, W. B. Browder, Jr., Charles Tighe, Midland, for appellee.
   FRASER, Justice.

This is an appeal from a temporary injunction order entered by a district judge. The temporary injunction enjoined appellant herein from using, renting or leasing any sand-line cutter tools secured from ap-pellee, or tools copied or made substantially in accordance with such tools. The tools in question are sometimes referred to as sand-line cutters, wire-line-cutters, cutters, cutting guns and cutting tools.

The petition containing the prayer for the temporary injunction was filed by ap-pellee, J. C. Kinley, an individual doing business as J. C. Kinley Co., against Luc-cous Service & Equipment Co., a Texas corporation; John C. Luccous, Senior; John C. Luccous, Junior; and J. D. White-side. John C. Luccous, Senior and John C. Luccous, Junior, are appellants in this court.

Some years after a patent had been issued covering the tools in question, Luccous Service & Equipment Co. entered into a written contract with M. M. Kinley, the inventor, wherein Kinley granted a license to use his patented wire-line-cutters and patented lift device. Certain wire-line-cutting and other tools were secured by Luc-cous Service & Equipment Co. from M. M. Kinley Company under and by virtue of the said licensing contract. Later on, the patents expired; but subsequently a patent was issued on the lifting device. January 1960, some four years after the initiation of the licensing agreement, M. M. Kinley Company was sold to appellee, J. C. Kinley. In April of 1961 John C. Luccous, Senior sold the stock in Luccous Service & Equipment Co. to J. D. Whiteside, who became and is now the owner and president of Luc-cous Service & Equipment Co. Appellee maintains that after the sale of the company to Mr. Whiteside, John C. Luccous, Senior, commenced making sand line cutting tools that were as exact copies of the Kinley tools as possible, and that he admitted that he got his information from looking at and dealing with the Kinley tool.

Appellants maintain that the injunction was wrongfully issued, and present seven points of error for our consideration. We shall deal with appellants’ first point with some particularity, as it is divided into four sections and involves what we believe to be some of the decisive matters of this lawsuit.

Appellants claim that appellee has no property rights in the copied tools because appellee cannot show or establish a situation of unfair competition or violation of trade secrecy. Further, appellants claim there is no evidence of any confidential relationship having ever existed between appellants and appellee, and no unfair competition or patent infringement is involved.

We believe the law has been fairly well enunciated with respect to this matter, the various cases holding that one who has a secret formula, process or device has a property right therein which will be protected against those who attempt to apply the secret to their own use through breach or violation of a confidence or confidential relationship. Brown v. Fowler, Tex.Civ.App., 316 S.W.2d 111 (N.R.E.) A Federal court has held that while others may legitimately copy or imitate a trade secret, such may not be done by one who obtained the knowledge by virtue of a confidential relationship. Sandlin v. Johnson, 8 Cir., 141 F.2d 660. The Supreme Court of this state has said that “Injunctive relief is not based upon the patent but the circumstance that the petitioner gained knowledge of such device (the invention) at a time prior to its being patented through an abuse of a confidential relationship.” This decision goes on to say that it considers the better rule to be that which permits the injunction to extend beyond the term of the patent. Hyde Corporation v. Huffines, 158 Tex. 566, 314 S.W.2d 763 (Tex.S.Ct.). This case and others came about because many litigants urged that once a device was patented its secret construction, working or processes necessarily became public property. We think a case in point is K & G Oil Tool & Service Co. v G & G Fishing Tool Service, 314 S.W.2d 782 (Tex.S.Ct.). Our Supreme Court in this case upheld an injunction restraining defendant from wrongfully copying, making and using a fishing tool devised by plaintiff (by fishing tool, of course, is meant a tool used in the oil industry). The court said:

“ * * * The K & G tool was successful and hence the owners of the device and manufacturing processes should be protected * * * against those who * * * are attempting to deprive them of such advantages by a breach of confidence and a failure to abide by their contractual obligation.”

We think the clear intent of these cases is to protect the inventor or owner of a secret process or device from competition by one who obtained the secrets through a confidential relationship, and we think the courts have made it clear that while the public may copy the device or formula, such privilege is properly denied to one who obtained the information through a confidential relationship. Also, we believe that the courts have definitely established that one may have a protectible property right in a device or tool similar to the one with which we are here concerned.

We believe that the very nature of the licensing agreement or contract, entered into between the original parties, established such a confidential type of relationship as is contemplated by the above-cited cases and others that speak on this matter. There were two patents originally issued, and then a later patent was issued on the lifting device. On the basis of the evidence before the trial court, we think he was justified in holding that there was a trade secret involved here, and that it came into the possession of appellants by virtue of a confidential relationship. This being true, the copying of the tool and use of same would constitute, we believe, unfair competition. Other cases have spoken on the matter, especially where the subject of a patent has been brought up. In Welex Jet Services, Inc. v. Owen, 325 S.W.2d 856 (Fort Worth Tex.Civ.App.) the court, in sustaining an injunction, stated that the matter of a patent was not such a public disclosure as would destroy the secret nature of the process, nor was there any restraint of trade involved, but rather the matter constituted a violation of a fiduciary relationship to the detriment of the inventor. The Federal court, in Franke v. Wiltschek, 2 Cir., 209 F.2d 493, said:

“It matters not that defendants could have gained their knowledge from a study of the expired patent and plaintiffs’ publicly marketed product. The fact is that they did not. Instead they gained it from plaintiffs via their confidential relationship, and in so doing incurred a duty not to use it to plaintiffs’ detriment. This duty they have breached.” (Emphasis ours).

These cases cited above, we believe, further articulate the law with reference to this subject and, as the Colorado court stated in Julius Hyman & Co. v. Velsicol Corp., 123 Colo. 563, 233 P.2d 977:

“They (appellants) now seek to appropriate these trade secrets to their own use and profit by a violation of their contractual agreements and a betrayal of the confidence reposed in them by plaintiff. This they may not do; such conduct is abhorrent to our conception of ordinary honesty.”

Appellee here claims that this is an action of bad faith because of a breach of a confidential relationship, and — we think, successfully — maintains that the cases above hold that the law will not allow one to enjoy a breach of confidence to the detriment of those who confided in him.

Appellants also maintain that there is not sufficient pleading and proof that appellee has suffered or will suffer damage. We think there is sufficient evidence that Mr. Luccous had copied the tool and was using it in competition with the appellee. In summation of this point, then, we believe the record here discloses that appellants, and Mr. Luccous in particular, gained their knowledge and the use of the tools by virtue of a licensing agreement constituting a confidential relationship; that the tools and the method of their use constituted a trade secret, and that — therefore —the trial court, with the broad powers vested in him, was correct in granting the temporary injunction restraining appellants from using, renting or leasing any of the tools secured from appellee, or tools copied or made substantially in accordance with such tools. Frequent reference has been made to this court’s holding, in Furrs Inc. v. United Specialty Advertising Co., 338 S.W.2d 762. We do not think that this case has any particular application here, as there it was a salesman unsuccessfully attempting to make a deal with a potential customer, involving a bonus card that was being and had been issued by the thousands. There was no confidential relationship ever established in this case because no deal was ever entered into, nor do we believe that the device offered was in any sense a trade secret.

Also, we do not find any merit in appellants’ arguments relating to the jurisdiction of the State district court, as this is clearly a contractual controversy not involving any patent infringement.

Appellants’ Points 2 and 3 argue that there is no evidence that appellant John C. Luccous, Senior, was using, renting or leasing such tools, and that any such finding is against the overwhelming weight and preponderance of the evidence. We believe there is sufficient evidence present, as it appears in the record that Mr. Luccous, Senior had rented the copied tool to persons on several occasions, and Mr. J. D. Whiteside testified that he had rented the sand line cutter from Mr. Luccous eight or nine times. We believe that there was enough evidence to support the broad discretion accorded to the trial judge in a matter of this type.

Appellants’ fourth and fifth points argue that appellee failed to show that it did not have adequate remedy at law, or that it might suffer irreparable injury. We do not think that merit exists in these two points for the very reason that it would be difficult to estimate the damages at law, and competition and copy would certainly damage appellee if not restrained. We feel that it has been established in Texas that trade secrets may be protected by injunction and that injunction will lie to protect the owner or inventor of any formula, patent or device, which gives such owner or inventor an advantage over competition. 31 Tex.Jur.2d 156, Injunctions, § 75. We think the legal phase is well stated in the case of Vann v. Toby, 260 S.W.2d 114 (Dallas Tex.Civ.App.), wherein the court says:

“One who invents or discovers a secret process of manufacture, whether a proper subject for patent or not, has not an exclusive right to it as against the public, or against those who in good faith acquire knowledge of it, yet he has a property in it which a court of chancery will protect against one who in violation of contract and breach of confidence undertakes to apply it to his own use, or to disclose it to third persons.”

(Also, Hyde Corp. v. Huffines, supra; and K & G Oil Tool & Service Co. v. G & G Fishing Tool Service, supra.)

We believe these cases show that when appellee makes showing, as he has here, of probable injury resulting from breach of confidence or trust, that the broad discretionary powers of the trial judge permit and authorize him to issue the injunction as was done here.

Appellants’ sixth point claims that appellee has failed to show any “status quo”' or the necessity of maintaining same. We do not think this point has sufficient merit to warrant either reversal or long discussion. Cases above cited have pointed out that injunctive relief may be employed where one breaches his confidential relationship in order to unfairly use a trade secret. The court, in Incinomode, Inc. v. Research Products Manufacturing Co., Tex.Civ.App., 332 S.W.2d 805, said:

“An injunction will lie to restrain the manufacture and sale of mechanisms embodying trade secrets disclosed in the course of contractual relations between the parties.”

We do not think that these cases are those where the “status quo” is the main issue, but rather that injunction will issue to prevent loss and damage.

Appellant’s seventh point states that “the District Court clearly abused its discretion by the issuance of the injunction against Appellant because Appellee, J. C. Kinley Company, has no privity or legal rights under the contract upon which he predicates his entire claim of right.” We do not believe there is merit in this point, as the record discloses that all parties apparently acted under the belief that the agreement was in force, at least until February 22, 1962, and the agreement itself stated that it would continue until the expiration of certain patents, one of which was still in effect. It is also clear that the intent of the parties was correctly interpreted and found by the trial court, wherein he found that it had not terminated prior to February 21, 1962 and that all parties to the various transfers and sales had contemplated the continuation of the licensing agreement. In any event Mr. Luccous, Senior was the one who had entered into the licensing agreement, and was the one who was leasing or renting copies of the tool, which copies he himself had made.

We have considered the many cases cited and discussed by appellants in their original brief, but we do not believe that any of these cases is decisive of or contradictory to our holding. We will not enter into a detailed discussion of these cases, as they are so well set forth in appellants’ brief that such would be unnecessary; and, to our minds, the various holdings are clearly enunciated in such briefs.

For the reasons set forth above, appellants’ first seven points and their subdivisions are all overruled.

We pass now to the brief filed for appellant J. C. Luccous, Junior. Points 8 and 9 thereof, allege that the court abused its discretion in issuing the injunction because there was no evidence that J. C. Luc-cous, Junior was using, renting or leasing any such tools, and any findings to such effect would be against the overwhelming weight and preponderance of the evidence. We believe these points to be without merit, as the record discloses that J. C. Luccous, Junior was in the sand line cutting business and that he was using “Kinley’s” tools. This evidence and the verified pleadings justified the court, under his broad powers and discretion, in issuing the temporary injunction, especially since we have here an unsworn general denial.

In a supplementary brief appellants argue that there was no trade secret involved here because the tools had been patented, one of the patents had expired, and the tools had been freely advertised. In support of their position appellants attempt to distinguish the case of Welex Jet Services, Inc. v. Owen (supra) on the ground that the trade secrets involved were used in the process of using the property, and appellants further claim that the matter of “trade secret” was not a matter of appeal. We have read this case and cannot agree that there is such a clear-cut distinction as would make the case inapplicable to the case before us. As we have stated above, we believe the record establishes that appellee invented and was using a mechanical device for use in the oil field, and that such invention and the method of using it constituted a trade secret which was obtained by virtue of a fiduciary or confidential relationship between appellants and appellee. Therefore, we hold that the trial court was well within the confines of his broad discretionary powers in issuing the injunction here in controversy. In so holding we of course reject the assumption that the patenting of a process or the expiration of a patent destroys the obligation of one who obtains a trade secret by virtue of a confidential relationship, said obligation being not to use such confidential knowledge to the detriment of the other party.

Appellants’ points are accordingly all overruled, and the decision of the trial court affirmed.


author: HUGHES, Justice.

text:
    Robert S. CALVERT, Comptroller of Public Accounts of the State of Texas, Appellant, v. HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 58, Appellee.
    No. 11073.
    Court of Civil Appeals of Texas. Austin.
    June 5, 1963.
    Rehearing Denied June 26, 1963.
    Waggoner Carr, Atty. Gen., J. H. Broad-hurst, Asst. Atty. Gen., Austin, for appellant.
    Burford, Ryburn & Ford, Spencer C. Relyea III, Dallas, for appellee.
   HUGHES, Justice.

This suit was brought by Harris County Water Control and Improvement District No. 58, Appellee, against Robert S. Calvert, Comptroller of Public Accounts of Texas for the purpose of obtaining a judgment declaring whether or not the District “is legally liable to pay, and Comptroller is legally authorized to demand, collect and receive from District an occupation tax levied by Acts 1959, 56th Leg. 3rd Cd.Sess., p. 187, Ch. 1, (Art. 11.03, Ch. 11, Title 122A, Taxation-General, Vol. 20A, Vernon’s Ann.Civ.St.) on gross receipts of the District for water sold to its customers on and after January 1, 1957.

The District alleged that the Comptroller was “attempting to assess and collect an occupational tax on its gross receipts within the City of Houston and in doing so is acting wrongfully, without legal authority and without authority of law. * * * ”

In view of the nature of the suit and the allegations made by appellee, above noticed, we overrule the contention made by the Comptroller that this is a suit against the State of Texas, brought without legislative consent. Cobb v. Harrington, 144 Tex. 360, 190 S.W.2d 709, 172 A.L.R. 837.

The case was tried principally on stipulations, the pertinent provisions of which we quote or state.

Harris County Water Control and Improvement District No. 58 is a governmental agency and body politic of the State of Texas. It was organized December 15, 1955, by order of the State Board of Water Engineers under authority of Article 16, Sec. 59 of the Constitution of Texas, Vernon’s Ann.St., and Arts. 7880-1 through Arts. 7880-147Z1, Ch. 3A, Title 128, Vol. 21, V.T.C.S.

The corporate boundaries of the District embrace 704 acres of land, outside of, but adjacent to the city limits of Baytown in Harris County. This District, within its geographic boundaries, conducted the business of producing and selling water through its own separate system to residential homes therein located.

The so-called North Houston System is a water system located twenty-two miles from the nearest boundary of the Harris County Water Control and Improvement District. The North Houston system was privately and formerly owned by Charles E. McArthur of Kansas City, Missouri, C. F. Alexander of Fort Worth, Texas, and Hilding F. Henrickson of Chicago, Illinois. This system was located outside of, but adjacent to the City of Houston in Harris County. It produced and sold water to residents of the surrounding community, but not in the City of Houston.

After the City of Houston had commenced proceedings to annex a substantial portion (%o) of the privately owned North Houston Water System, including its wells and production facilities, its owners formed a corporation, the Lone Star Water Company, for the purpose of taking title to the North Houston System.

In accordance with the terms of a “Gift Proposal”, which proposal is not in the record, the owners of the North Houston System on December 19, 1956, conveyed it to the Lone Star Company in consideration of a promissory note in the sum of $1,250,-000.00 executed by Lone Star and payable to the three former owners of the North Houston System, and secured by a deed of trust on the property conveyed. The rate of interest this note bears is not shown.

On December 28, 1956, the Lone Star Water Company conveyed the North Houston System to Appellee District, subject to the indebtedness of $1,250,000.00 owing the three former owners and the deed of trust securing it.

The City of Houston annexed substantially all of the North Houston System, above described, on December 31, 1956.

The following quotations are taken from the stipulation:

“The Gift Proposal, and all transactions incident thereto, was conditioned upon rulings by the Treasury Department of the United States that: (1) the proposed operations of the Water System would be exempt from tax, (2) that the interest on installment obligations of Lone Star Water Co., representing the purchase price to be paid by Lone Star Water Co. to the individuals for the Water System in question, would be exempt from tax, and (3) that the individual owners would be required to report as capital gain only that proportion of such installment payments actually received each year, which the gross profit, realized or to be realized when payment was completed, would hear to the total contract price pursuant to Section 453 of the-Internal Revenue Code.
“5.
“The District on September 18, 1956 by instrument identified herein as Exhibit 4, made its request for ruling to the Commissioner of Internal Revenue, Washington, D. C.
“6.
“Such request was based, among other authorities, on the decision by the United States Court of Appeals for the Eighth Circuit in Keokuk & Hamilton Bridge, Inc. v. Commissioner of Internal Revenue, 180 F.2d 58.
“7.
“By letter dated December 21, 1956, identified herein as Exhibit 5, addressed to Mr. Bert L. Klooster, attorney for the District, the office of Commissioner of Internal Revenue, in reply to such request, ruled favorably to the District and to the individual owners, regarding the tax exemptions and other matters contained in such Request.
“8.
“Pursuant to the provisions of Sec. 2 of the said Gift Proposal, C. F. Alexander, Charles E. McArthur and Hilding F. Henrickson, the former owners of the water system in question, entered into an agreement with Jerry H. Birdwell, Sr., Trustee, dated December 21, 1956, designated as Trust Agreement and Declaration of Trust, identified' herein as Exhibit 6 and also as Exhibit A attached to said Gift Proposal.
“9.
“Pursuant to Sec. 2 of said Gift Proposal all of the capital stock of Lone Star Water Co. has been contributed by C. F. Alexander, Charles E. McArthur and Hilding F. Henricksen to Jerry H. Birdwell, Sr., Trustee, who holds such stock for the use and benefit of the District under the terms of said Trust Agreement and Declaration of Trust.
“10.
“After receiving such favorable tax rulings, the water properties in question were duly transferred in accordance with the terms of the Gift Proposal to Lone Star Water Co. by the individual owners, and by Lone Star Water Co. to. the District as more fully set out and described under stipulation 3.
“11.
“The water system in question since its acquisition by the District has been owned and operated by the District, pursuant to the provisions of Sec. 4 of the Gift Proposal and in accordance with the terms of an Operating Agreement dated December 26, 1956 between Lone Star Water Co. and the District, herein identified as Exhibit 7, and further identified as Exhibit B attached to the said Gift Proposal.”

There is no evidence that similar assurances of tax immunity was procured by appellee from the State Comptroller or any authorized official of the State of Texas.

We quote further from the stipulation:

“The North Houston System is an independent operation and not dependent on the District nor is the District dependent on the North Houston System for Water, pipe lines or other properties or facilities. It is agreed, however, that there are certain services which are common to both the District and the North Houston System, such as reading meters and certain repair and maintenance work performed by the same employees of the District. No water is delivered from the District to the North Houston System nor is any water furnished by the North Houston system to the District, nor is it anticipated that this will ever be done.
“The North Houston System is a complete unit within itself. It has its own source of water, its own pipe line grid system and all other facilities necessary to conduct the business of furnishing water to its customers.”

The various Exhibits introduced in evidence, some of which are referred to in the stipulations copied above, are not in the record and our knowledge of their contents is limited to a summary of them made by counsel upon their admittance. We do not quote summaries of Exhibits relating to the tax problem with the United States as we do not consider such matter of any relevance here. We do quote the following Exhibit summary:

“We offer Exhibit No. 6, also identified as such in the Stipulations, which is a true and correct copy of the Trust Agreement and Declaration of Trust, dated December 21, 1956, by and between the individual owners and Mr. Jerry H. Birdwell, Sr., Trustee, to which Mr. Ford has referred in his opening statement to the Court, and which provides in substance that all of the stock of the Lone Star Water Company would be held in trust by Mr. Birdwell for the use and benefit of District No. 58 or for such other municipal organization or corporation or for the State of Texas in the event that District No. 58 ceased to own it.”

The Trustee, Mr. Birdwell, testified. His business, he stated, was primarily municipal bonds, that he was associated with Ditmar & Company, an investment banking firm; that he was employed by the Appellee District as its fiscal agent and financial advisor at the time the District was created. He stated that at present the District had outstanding about $1,110,000.00 in bonds; that since taking over the North Houston system, the District had received from it $18,-000.00 for each of the years, 1957, 1958 and 1959; $8,625.00 in 1960, in 1961, $4,500.00, and would receive about the same amount in 1962. Mr. Birdwell testified that most of these revenues went to the interest and sinking fund for its bonds,, and that but for such revenue the bonds could not have been issued.

The only other witness testifying was attorney, Mr. Sam P. Burford. In substance, his testimony was that private water companies which he represented, including the North Houston System, were unable to compete with municipal water companies when such private companies were annexed to a city, because of taxes; hence sale of private companies under these circumstances became necessary.

With reference to the North Houston System, he did not know what its annual revenues were, nor what portion of them was being used to pay the note in favor of its three original owners, but that the schedule of such payments was set out in one of the “instruments,” presumably referring to some Exhibit not before us.

By sworn motion of appellant, filed April 23, 1963,, we were advised that, “On November 29, 1962, during the pendency of the appeal of this case, the City Council of the City of Baytown, Texas, a home rule municipal corporation, passed and enacted its Ordinance No. 627-A, a copy of which is attached hereto as Exhibit A, and thereby annexed unto itself an area of land which included the entire geographic area of Harris County Water Control and Improvement District No. 58, and pursuant to Article 1182c-1, V.A.T.S., and pursuant to Section 7 of said ordinance, the Appellee, Harris County Water Control and Improvement District No. 58, was abolished and the City of Baytown, Texas, is and became the successor to Harris County Water Control and Improvement District No. 58. By such action and by operation of the statute aforesaid, all of the assets and properties of such District were taken over by the City of Baytown and it assumed all debts, liabilities and obligations of such District. By such action and by operation of said statute, the City of Baytown, Texas, took over control of, and jurisdiction over, the said District, and abolished same, immediately, and as such successor became substituted for, and owns and controls the said District, and all of its interests in this litigation.”

The purpose of this motion was to question the authority of attorneys for appellee to further appear in its behalf.

Appellee filed a sworn reply to this motion in which the following appears:

“Now come Harris County Eastex Oaks Water & Sewer District (hereinafter called ‘Eastex District’) which was as of November 29, 1962, and is now the successor of Appellee, Harris County Water Control & Improvement District No. 58 (hereinafter referred to as ‘District 58’) and, as such, is substitute beneficiary, owner and operator of the water distributing properties referred to in this record as the ‘North Houston System; * *

The answer then describes the manner in which the North Houston System was transferred to Appellee District, stating that the instruments effectuating such transfer while not in the record were introduced in evidence and “are available for inspection and use” by this Court. With respect to the Deed of Trust executed in favor of Trustee Birdwell by the former private owners of the North Houston System,, the motion states:

“McArthur et al also transferred all the stock of Lone Star Water Co. to Jerry H. Birdwell, Sr., as trustee for District 58, as beneficiary, or for any other public body which should succeed to the ownership of the North Houston System, under a Declaration of Trust providing, in order to exclude any possibility that title to the system would ever revert to McArthur et al (which possibility would adversely affect the tax advantages of the arrangement) that if at any time legal counsel for the trustee should render an opinion that District 58 had no power to own and operate the system, the title to such system should revert to Lone Star Water Co. and then revest in such other public body as the trustee should appoint.

The answer then denies that the City of Baytown annexed all of the territory of Appellee District, and denies that such City succeeded to all of the assets and liabilities of such District, or that it became the successor of such District for any purpose. We quote further from appellee’s answer:

“Appellees would point out that the only part of District 58 annexed by the city of Baytown was land within its corporate boundaries consisting of some 750 acres which were adjacent to the municipal limits of the city of Bay-town. The water properties known as the North Houston System properties, which are the subject of this litigation, are located some seventeen miles distant from the corporate boundaries of the city of Baytown and District 58. The North Houston System is contiguous to the municipal boundaries of the city of Houston; in fact,, nine tenths of the North Houston System properties have been incorporated within the municipal limits of the city of Houston.
“The original Deed of Trust securing the Notes of the McArthur interests, and the Declaration of Trust under which the stock of Lone Star Water Company was transferred to Jerry H. Birdwell, Sr., as Trustee, provided that, in the event legal counsel for the Trustee should render an opinion that District 58 had no power to own and operate the North Houston System, the title to such System would revert to Lone Star Water Company and vest in such other public body as the Trustee should appoint. This eventuality has now taken place in consequence of the Annexation Ordinance of the City of Baytown. Attached to this reply, in a separate Exhibit Volume, are copies of the following documents:
“(1) Appointment by Jerry H. Birdwell, Sr., Trustee, of Messrs. Chapman & Cutler of Chicago as Counsel (dated December 12, 1962) ;
“(2) Opinion of Messrs. Chapman & Cutler to the effect that District 58 may not legally own or operate the system because of the abolishment of the District, (dated December 12, 1962);
“(3) Appointment by Jerry H. Birdwell, Sr., Trustee, of Harris County Eastex Oaks Water and Sewer District as substitute beneficiary under the original Declaration of Trust (dated December 12, 1962) ;
“(4) Acceptance by Eastex District as substitute beneficiary of the ‘North Houston System Properties’ and approval by Lone Star Water Co. (dated December 12, 1962) ; and
“(5) Deed (dated January 11, 1963) conveying the North Houston System Properties by Lone Star Water Co. to Harris County Eastex Oaks Water & Sewer District effective November 29, 1962, the date on which Baytown annexed and abolished District 58.
From these documents it' appears that Eastex District, and not the City of Bavtown, is the present owner and operator of the North Houston System properties, and, moreover, that Eastex District, .rather than the city of Bay-town, is the proper successor of District 58 before this court.”

On May 24, 1963, appellee filed a motion herein to substitute Harris County Eastex Oaks Water and Sewer District as appellee herein, wherein the following new facts are stated:

“On May 8, 1963, in Cause No. 532,-167, in the District Court of Harris County, Texas, 151st Judicial District, styled Harris County Eastex Oaks Water and Sewer District, Successors to Harris County Water Control and Improvement District No. 58 v. City of Houston, judgment was entered ordering the First City National Bank of Houston, Texas, to pay over to Harris County Eastex Oaks Water and Sewer District, as substitute beneficiary of and the present owner and operator of the North Houston System properties, the sums of $279,572.48, held by the bank in escrow pursuant to an order of the Court dated April 18, 1960, and $42,475.87, on deposit in the bank in four working capital accounts in the name of Harris County Water Control and Improvement District No. 58. This order further recites that such funds are to be turned over to the Eastex District free and clear of any and all right, title, claim or interest of the City of Baytown, the City of Houston, or the customers of the North Houston System properties from whom these funds were collected and escrowed. Of the $279,572.48 held in escrow, the Court found that $35,250.00 should be paid to the City of Baytown in discharge of operating expenses to and owing District No. 58 on November 29, 1962. Such sum was paid to the City of Bay-town in accordance with the terms of said judgment. In consideration of the payment of said sum, the City of Baytown released and quitclaimed all of its interest in the North Houston System properties to the Harris County Eastex Oaks Water and Sewer District.”

The tax which the Comptroller seeks authority to collect here is imposed by Art. 11.03, Title 122A, Taxation-General, V.A.C.S., from which we quote the pertinent part:

“(1) Each individual, company, corporation, or association owning-, operating, managing or controlling any gas, electric light, electric power, or water works, or water and light plant, located within any incorporated town or city in this State, and used for local sale and distribution in said town or city, and charging for such gas, electric lights, electric power, or water, shall * * * pay to the Treasurer of this State an occupation tax * * *. Nothing herein shall apply to any such gas, electric light, power or water works, or water and light plant, within this State, owned and operated by any city or town, nor to any county or water improvement or conservation district.”

The last sentence of the above quotation is relied upon by appellee to exempt it from the payment of taxes here involved. It also seeks an exempt status under the following Texas constitutional and statutory provisions :

Art. VIII, Sec. I, Tex.Const., which provides, in part, that, “All property in this State, whether owned by natural persons or corporations, other than municipal, shall be taxed * * *. It [Legislature] may also impose occupation taxes, both upon natural persons and upon corporations, other than municipal * *

Art. VIII, Sec. 2, of the Texas Constitution, which provides, in part, that the “ * * * legislature may, by general laws, exempt from taxation public property used for public purposes * * *.”

Art. 7150, V.A.C.S., which provides, in part, that “The following property shall be exempt from taxation, towit: * * *. 4. All property, whether real or personal, belonging exclusively to this State, or any political subdivision thereof * *

No one could, or does deny, that appellee is a political subdivision of this State. Art. XVI, Sec. 59, Tex.Const.

The question presented is, as we view it, whether or not the property of the North Houston System is property “belonging exclusively” to appellee, under Art. 7150, or whether or not it is property “owned and operated” by it under Art. 11.03, Title 122A.

This very question was presented but not decided in Harris County Water Control & Improvement District No. 58 v. City of Houston, 357 S.W.2d 789, writ ref., n. r. e., Houston Civil Appeals. The appellant there is the appellee here. The Court in that case, under the identical facts before us, held that the City of Houston had authority to regulate the rates of the North Houston System after its partial annexation to the City of Houston as to customers served within the City.

We do not know the exact legal reason the Court based this holding on but we quote from that opinion because of its persuasiveness upon us in reaching the conclusion made by us in this case. First, we take advantage of that Court’s summary of certain statutory powers which appellee there and here invokes:

“Article 7880-48, relied on by the District, provides in substance that the District shall have full power to construct all plants, works and improvements necessary to the purpose for which it is organized and incident thereto. It also provides the District may construct works and improvements for the purpose of supplying water for municipal uses, domestic use, power and commercial purposes and all other beneficial uses. Section 125 of the same article, in dealing with the right of eminent domain, authorizes the acquisition of land for construction of plants for purposes for which the District was formed. Such land may be either within or without the District. It also authorizes the District to contract for the use of its waters, power or other facilities or service within or without the District. Section 106 of said article gives the Board of Directors the right to fix rates to be charged by the District. So does Sec. 3a.”

The Court then made these observations:

“We are of the view, however, that the statutes do not authorize the District to roam at large throughout the State and distribute water wherever it wishes without regard to limitations placed on it by statute. We are of the view that considering all of the provisions of Article 7880, V.A.T.S., there are some limitations imposed.
“Article 7880, Sec. 4, in effect contemplates and provides for geographical limits. It provides a district may include the area of any county or counties or a part thereof including towns, villages and municipal corporations. Further the lands in a district need not be contiguous but if they are not, each segregated area must cast a majority vote before it may be included in the district. Section 10 provides that a majority in number of owners of title to the land and of the value of the land to be included in a district must sign the petition for a district. Section 11 requires that the petition designate the boundaries of the district. Sections 75, 75a, 75b and 75c all deal with addition of land to a district by making such land a part of the district. Section 138 authorizes the sale of surplus waters to others, but it is expressly stated it is the duty of the district to protect the lands within the district with an adequate supply of water for the purpose for which it was organized. Too, it was to protect the supply of water for municipal purposes within the district.
“[4] The effect of these statutory enactments, when considered as a whole, is not to authorize a water control and improvement district to do as appellant District here has done. It has acquired a water distribution system 22 miles outside its boundaries and the water distributed is from a source wholly outside its boundaries, and there is no use of such water within its boundaries. In other words, it is a completely autonomous system. We should note for the sake of accuracy that the District receives at least a $1500.00 per month operating fee. We do not think this legally material here. While appellant District stresses the authority conferred by statute to sell water inside or outside its limits and to exercise the right of eminent domain within or without its limits, we do not feel such authorizes the situation we have before us. * * * We have a case where the source of the water is wholly unconnected with the limits of the district and distribution is in an area wholly unconnected with and outside the limits of the district. This act by appellant is beyond its authority and ultra vires.”

The Court found fault with the manner in which the City of Houston enacted the rate ordinance before it but it expressly held that “the City does have jurisdiction * * * to fix the rates to be charged by the District for water served its customers in the City.”

It seems to us that if appellee actually and legally owned the North Houston System it would continue to have statutory authority to regulate water .rates until divested of that authority in a lawful manner.

It is to be noted that Art. 1182c-1, V.A.C.S., regulating the annexation of all or parts of water control and improvement or supply districts by cities and towns was not in effect when the City of Houston partially annexed properties of the North Houston System which the District here claims to own. See Acts 1957 Leg., p. 348, Ch. 161. Section 1 of this Act provides, in part, that, “Such cities shall succeed to the powers, duties, assets, and obligations of such district or districts in the manner and to the extent hereinafter provided.” Section 2 of the Act provides, in part, that in case all the territory within a district is annexed the City shall “take over all properties and assets.” In case less than all the territory of the district is annexed, contracts between the district and the city are authorized.

We cite these provisions of the law as demonstrating the disposition which now must be made of the assets of a water district upon its dissolution by annexation by a city or town.

The effect of the instruments involved in this case respecting the North Houston System is that neither the City of Houston, in which the system is now principally located, nor the District (appellee), nor the City of Baytown, which annexed the Appellee District, has or had any control over the disposition of the properties of the North Houston System. This control was vested in a trustee created by private individuals, and for their benefit.

In Legion Clubhouse v. City of Madison, 248 Wis. 380, 21 N.W.2d 668, the Supreme Court of Wisconsin stated: “‘Taxation is the rule, and exemption the exception.’ * * * The word ‘owned’ as found and used in our exemption statutes is to be taken and understood to be used, in its ordinary sense, calling for proprietorship of the title to the property, not a mere privilege or right to use it.”

Under the documents before us, it is clear that Appellee District had the right, or rather duty, to use or operate the properties of the North Houston System, and for this it was paid a “fee.” This arrangement is contrary to the conception of ownership. An owner operates his property to pay its expenses, debts and in the hope of reaping a profit.

We believe the judgment of the District Court of Harris County (May 8, 1963, described above) is proof of non-ownership by appellee of the North Houston System. Of the $321,000.00 held in escrow as funds accruing from the operation of this System the Appellee District received $35,250.00 as “operating expensesthe City of Baytown received nothing; the City of Houston received nothing; resident customers of the System received nothing; the remainder was awarded Harris County Eastex Oaks Water and Sewer District.

We are not informed about the value of the North Houston System, nor the reasonableness of the price which the three private owners received from their own corporation, in the form of a note, for the “sale” of this property. Certainly this transaction was not at “arm’s length.” Hence, we cannot say that this plan, if effective, is a fool proof scheme by which all the profit from the North Houston System could be enjoyed, in perpetuity, by the owners, their heirs and assigns of the note against it, tax free. We can say that such could be the case.

It is our opinion that appellee is not and was not the owner of the North Houston System within the meaning of the tax exemption provisions of our Constitution and statutes above cited.

We wish to emphasize the complete separation of the North Houston System from the Appellee District, both physically and in their legal structures. Each unit is complete within itself. Each has its own water supply, its own distribution system; neither furnishes water to the other, nor does either use the facilities of the other. The Appellee District has no governmental authority which it may exercise over persons, or property in the North Houston System. It may not tax the property in the area served by the North Houston System, nor may the residents in such area hold office in the District or vote in elections held by the District.

To hold, under the facts of this case, that the North Houston System is public property used for public purposes would in our opinion, pervert the meaning of these phrases. We cannot so hold.

The judgment of the Trial Court is reversed and judgment is here rendered declaring appellee liable fo.r payment of taxes imposed by Art. 11.03, Ch. 11, Title 122A, Taxation-General, Vol. 20A, V.A.C.S., subsequent to its enactment, and for taxes imposed under such statute as it read prior to its amendment in 1959, on water sold through the North Houston System.

Reversed and rendered.

      . Art. 4411, V.A.C.S. prohibits the Attorney General from making any admission in suits in which the State is a party, prejudicial to the State. Hence, the stipulations herein as to ownership may not be used to impeach this finding, or legal conclusion, which we make from, the evidence.