author: McKAY, Justice.

text:
    UNITED STATES LEASING CORPORATION, Appellant, v. Patsy Pollock SMITH, Individually & d/b/a Continental Inn, Appellee.
    No. 1040.
    Court of Civil Appeals of Texas, Tyler.
    Aug. 11, 1977.
    Rehearing Denied Oct. 6, 1977.

      William A. Petersen, Jr., Lapin, Totz & Mayer, Houston, for appellant.
    Edmund F. Benchoff, Benchoff & Guidry, Nacogdoches, for appellee.
   McKAY, Justice.

This case involves the question of whether certain terms in a lease of various items of office equipment, including a mailing machine, constituted liquidated damages. Appellant filed suit against appellee seeking to recover amounts allegedly due under the lease in question.

In its original petition appellant alleged that it was entitled to recover “as liquidated damages the rental due for the entire 60-month term of the lease together with the stipulated residual value of the equipment at the end of the term minus all sums previously paid under the lease and any proceeds which Plaintiff might realize from the sale of the equipment,” in addition to the costs of enforcing its rights under the lease, including reasonable attorneys’ fee. Appellee answered by way of general denial, affirmative defenses, including penalty, and a counterclaim for fraud, which was later abandoned. Trial was before the court who rendered judgment that appellant take nothing. The court upon request of appellant made the following Findings of Fact and Conclusions of Law:

“Findings of Fact

“1. The Plaintiff and Defendant, each for a good and valuable consideration, executed the instrument of two pages called Exhibit 1 and attached to the Plaintiff’s Original Petition on file herein, to which reference is here made.

“2. The term of the lease commenced on January 30, 1970, when the equipment was delivered to the Defendant by Plaintiff and accepted by the Defendant.

“3. The Defendant timely paid the first twelve payments specified in the instrument.

“4. The Defendant failed to make the payment provided for January 30,1971, and has failed and refused to pay any payment subsequent to said date.

“5. The agreement was terminated by Plaintiff on some date not disclosed by the evidence on or subsequent to January 30, 1971, and prior to August 25, 1971.

“Conclusions of Law

“1. The Plaintiff asserts as its sole theory of the case a right of recovery under the provisions of the instrument relating to Default, paragraph 21.

“2. The pleadings and proof entitle the Plaintiff to a recovery, if at all, only under the provisions of Paragraph 21.

“3. The provisions of the instrument relating to the recovery sought by Plaintiff are “penalty,” as distinguished from “liquidated damages,” and are not enforceable.

“4. There is no evidence to show the date Plaintiff terminated the agreement, or the amount of rentals, if any, due at the time it was so terminated.

“5. The Plaintiff is not entitled to recover “penalty.”

“6. The evidence failed to show what damages, if any, Plaintiff sustained by loss of rentals past-due at the time of its termination of the agreement.

“7. The evidence fails to show what damages, if any, Plaintiff sustained after its termination of the agreement.

“8. Under the pleadings and the evidence, Plaintiff should take nothing of or against the Defendant.”

Appellant brings eleven points of error. Points one and three complain that the trial court erred in finding that the appellant terminated the lease agreement and in con-eluding that there was no evidence to show the date appellant terminated the agreement. Point two complains of the court’s conclusion that, as a matter of law, the provisions of the lease agreement relating to recovery by appellant are a penalty as distinguished from liquidated damages and not enforceable. Points four, five and six complain of the court’s conclusions that there was no evidence to show (1) the amount of rentals due at the time of termination of the lease agreement, (2) the damages appellant sustained in loss of past-due rentals at the time of termination of the agreement, and (3) what damages appellant sustained on termination of the agreement. Points seven through eleven complain of the court’s conclusion that appellant take nothing from appellee, its failure to find a balance due under the lease agreement of $2,469.52, its failure to find $600.00 due as attorneys’ fee, its failure to award judgment in the amount of $2,469.52 plus attorneys’ fee of $600.00, and its failure to award interest on the balance due under the lease from August, 1971, until paid, plus costs.

The record reveals that on June 11,1969, appellee, doing business as Continental Inn entered into a lease agreement with appellant concerning various pieces of office equipment, the major portion of which was for a mailing machine and an electric printer. The lease provided that appellee was to make 60 monthly payments of $58.75 beginning on January 30, 1970. Appellee made the first twelve payments on the rental contract but made no payments on January 30, 1971 and thereafter because “I never could get the equipment to work properly.” In March 1971, appellee wrote appellant that she was cancelling the lease; that she had asked a representative of appellee to pick up the machine “because it has not performed as the salesman promised”; and suggested that the machinery be picked up immediately. On July 23, 1971, appellant wrote appellee acknowledging receipt of her letter, citing her to a disclaimer of warranty clause in the lease, and suggesting that she contact the supplier of the equipment concerning any repairs; however, this letter insisted “upon the continued payment of the rental as it becomes due.” On August 25,1971, appellant sent a second letter to appellee advising her that it was repossessing the equipment and that “once the equipment has been sold, and the proceeds from the sale applied to the total amount due, we will look to you for payment of any remaining balance.” The record does not reveal the exact date of the threatened repossession.

The provision in the lease which appellant relies on and which the trial court found to be penalty, is Paragraph 21 which provides:

“21. DEFAULT, (a) If Lessee fails to pay when due any rent or other amount required herein to be paid by Lessee, or if Lessee fails to perform any other provision hereof within ten (10) days after Lessor shall have demanded in writing performance thereof, or if for any reason Lessee makes a bulk transfer of furniture, furnishings, fixtures or other equipment or inventory, or if Lessee makes an assignment for the benefit of creditors, whether voluntary or involuntary, or if a petition is filed by or against Lessee under the Bankruptcy Act, or if Lessee has breached any other lease or agreement between Lessee and Lessor; Lessor shall have the right to exercise any one or more of the following remedies:
“(i) Lessor may recover from Lessee all rents and other amounts then due and as they shall thereafter become due hereunder.
“(ii) Lessor may take possession of any or all items of Equipment, wherever same may be located, without demand or notice, without any court order or other process of law and without liability to Lessee for any damages occasioned by such taking of possession. Any such taking of possession shall not constitute a termination of this lease.
“(iii) Lessor may recover from Lessee, with respect to any and all items of Equipment, and with or without repossessing Equipment, the sum of (1) all rent and other amounts due and to become due, less a prepayment credit for rent not yet due at the time of payment or judgment, whichever is earlier, equal to the product of the number of months remaining in the current term of the lease at said time, multiplied by the total rent not yet due at said time, multiplied by two tenths of one per cent (.2%); and (2) the reversionary value of Equipment at the end of the current term which for purposes of this paragraph shall be ten per cent (10%) of the total rent as set forth in paragraph 9 above; provided, however, that upon repossession or surrender of Equipment, Lessor may sell or otherwise dispose of Equipment with or without notice and on public or private bid, and apply the net proceeds thereof (after deducting all expenses, including attorneys’ fees, incurred in connection therewith), to the sum of (1) and (2) above. In the event Lessor is unable to sell or otherwise dispose of Equipment within a reasonable time, Lessor may recover from Lessee an amount not less than the sum of the rent and other amounts as set forth in (1) above and all expenses, including attorneys’ fees, incurred in taking possession of Equipment.
“(iv) As to any item or items of Equipment with respect to which this lease is terminated by Lessor, Lessor may recover from Lessee as to each said item the worth at the time of such termination of the excess, if any, of the amount of rent reserved herein for said item for the balance of the term hereof over the then reasonable rental value of said item for the same period of time.
“(v) Lessor may pursue any other remedy at law or in equity.
“(b) A termination hereunder shall occur only upon written notice by Lessor to Lessee and only with respect to such item or items of Equipment as Lessor specifically elects to terminate in such notice. Except as to such item or items with respect to which there is a termination, this lease shall continue in full force and effect and Lessee shall be obligated to perform all acts and to pay all rent and other amounts required under this lease.
“(c) No right or remedy herein conferred upon or reserved to Lessor is exclusive of any right or remedy herein or by law or equity provided or permitted; but each shall be cumulative of every other right or remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise, and may be enforced concurrently therewith or from time to time.” [Emphasis added.]

The lease also contained in addition to the promise to pay rent various minor covenants dealing with insurance repairs, liens, taxes, etc.

Appellant contends in point two that the trial court erred in holding as a matter of law that the provisions of Paragraph 21 amounted to a penalty and not liquidated damages. The leading case in Texas on the question of liquidated damages versus penalty is that of Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484, 486-487 (1952). In that case, as in the present one, the court was concerned with the provisions of a lease which the lessor could invoke upon a breach of the lease by the lessee. The lease provided in Stewart v. Basey that on the lessee’s breach of any obligation of the contract, including the covenant to pay rent, the lessee would be rendered liable to the lessors, as “liquidated damages” the sum of $150.00 for each and every month of the unexpired term of the lease to become payable upon the exercise of the lessor’s option to terminate the lease. The court adopted the rule of the Restatement of Contracts, Sec. 339. See discussion at 245 S.W.2d 486-487 and also see the decision by this court in Loggins Construction Co. v. Stephen F. Austin State University Board of Regents, 543 S.W.2d 682, 684-686 (1976, writ ref’d n. r. e.), and the cases cited therein. Noting that the provision could be invoked for any breach of the contract, and that the lease included several covenants less important than the one to pay rent, the court held that “since the contract provided the same reparation for the breach of each and every covenant and since it would be unreasonable and a violation of the principle of just compensation to enforce it as to some of them, the provision for stipulated damages should be treated as a penalty.” The logic of the Stewart case has been followed in two other cases involving leases with provisions very similar to the present one. American Lease Plan v. Ben-Kro Corporation, 508 S.W.2d 937, 943 (Tex.Civ.App.—Houston [1st Dist.] 1974, writ ref’d n. r. e); Walter E. Heller & Co. v. Allen, 412 S.W.2d 712, 719 (Tex.Civ.App.-Corpus Christi 1967, writ ref’d n. r. e.).

Appellant relies on the cases of Walter E. Heller & Co. v. B.C.&M., Inc., 543 S.W.2d 696, 698 (Tex.Civ.App.-Houston [1st Dist.] 1976, writ ref’d n. r. e.); Blakeway v. National Credit Corporation, 439 S.W.2d 155, 157-158 (Tex.Civ.App.-Austin 1969, writ ref’d n. r. e.); Blakeway v. General Electric Credit Corporation, 429 S.W.2d 925, 929 (Tex.Civ.App.-Austin 1968, writ ref’d n. r. e.); and Liberty Sign Company v. Newsom, 426 S.W.2d 210 (Tex.1968). The former two cases involved lease provisions similar to the present ones and the courts ruled these “liquidated damages” provisions enforceable; however, in both cases the provisions could be invoked only on the failure to pay rentals and not upon any other defaults. In the latter two the question of “penalty” was not passed on. We believe these cases are distinguishable from the present one.

Paragraph 21 on default provides what may be done by lessor if lessee “fails to pay when due any rent or other amount required herein to be paid by Lessee, or if Lessee fails to perform any other provision hereof within ten (10) days after Lessor shall have demanded in writing performance thereof. . . . ” We do not believe that the breach of paragraph 11 that the equipment be kept at the location specified, or that labels must be affixed to the equipment, or the breach of paragraph 12 that lessee keep the equipment in good repair, or the act of lessee in permitting the equipment to be used by anyone other than lessee or lessee’s employees as provided in paragraph 19 should cause a default under paragraph 21 by which lessor could cause all of the remaining rent on the equipment to become due and payable. Such a result would not be just compensation nor reasonable. The breach of one of the minor provisions above as related to the assessed damages is not reasonable, and, in our opinion, a penalty.

As stated in Stewart v. Basey, supra, quoting Williston on Contracts, Revised Edition, Sec. 779, p. 2192:

“ ‘But as has been seen, the chief, almost the only, means of determining whether the parties in good faith endeavored to assess the damages is afforded by the amount of damages stipulated for, and the nature of the breach upon which the stipulation was agreed to become operative. This is but saying in other words that the reasonableness or unreasonableness of the stipulation is decisive.’ ”

We believe the present case falls under the logic of Stewart v. Basey. The lease in question involved several minor covenants in addition to the covenant to pay rent. Upon the default of any obligation under these covenants, the lessee could be held liable for all of the unpaid rentals, both the past due and future, plus a “reversionary value” of 10% of the total rents, due under the lease less a “prepayment credit” which was not shown to be significant. For the breach of a minor covenant the lessee could be charged with the total rent under the lease while deprived of possession under the lease. Although provision was made for the lessor to sell the equipment and credit the proceeds to the lessee’s account, it was under no obligation to do so. We are of the opinion that the contract in all its provisions is not designed to allow recovery of damages for any breach as just compensation for any loss or damage sustained but, in fact, requires a penalty. Under the present contract the parties have not estimated in advance the amount of damages that follow the principle of just compensation. The same damages may be claimed by appellant for the breach of a trivial or unimportant provision as for the breach of the most important one; in such a case it is obvious that the parties have not adhered to the rule of just compensation. We believe appellant was required to plead and prove its actual damages which it did not do. We hold that the provisions of paragraph 21 of the lease in question are unreasonable and a violation of the principle of just compensation and that the trial court was correct in ruling as a matter of law that such constituted a penalty. Stewart v. Basey, supra. Point two is overruled.

Appellant plead that it had terminated the lease, but attempted in the trial court to contend otherwise. We believe appellant is bound by its pleading. The record also reveals that appellee could not use the equipment because it would not operate, and that appellee notified appellant in March, 1971, to pick it up; but appellant did not do so until August, 1971. Appellee’s testimony indicates she never had use of the equipment while in her possession because it would not operate.

Appellant brought suit below alleging, and has argued in this court, that it is entitled to recovery under the terms of paragraph 21(a)(iii). It did not plead below nor has it argued in this court that it was entitled in the alternative to damages for anticipatory breach or only to collection of past due rentals. Its whole theory of recovery was on the above mentioned provision which we hold to be invalid as a penalty. All other points of error are contingent upon a favorable ruling upon point two which we have found to be without merit. Accordingly, all other points are overruled.

The judgment of the trial court is affirmed.

      . “11. LOCATION; LESSOR’S INSPECTION; LABELS. Equipment shall be . kept at the location specified above . . . and shall not be removed therefrom . . . . If Lessor supplies Lessee with labels stating that Equipment is owned by Lessor, Lessee shall affix and keep same in a prominent place on each item of Equipment.
      “12. REPAIRS; USE; ALTERATIONS. Lessee, at its expense shall keep Equipment in good working condition and repair and furnish all labor, part, mechanisms and devices required therefor. Lessee shall use Equipment in a careful and lawful manner. Lessee shall not make any alterations, additions or improvements to Equipment .
      “13. SURRENDER. . . . Lessee at its expense shall return Equipment in good working condition and repair, by delivering it packed and ready for shipment, to such place or on board such carrier as Lessor may specify.
      “15. INSURANCE. Lessee shall provide, maintain and pay all premiums for (a) insurance against loss, theft, destruction or damage of Equipment . . ., with loss payable to Lessor, and (b) public liability insurance in an amount satisfactory to Lessor, in the joint names of Lessor and Lessee .
      “16. LIENS; TAXES. Lessee shall keep Equipment free and clear of all levies, liens and encumbrances. Lessee shall, in the manner directed by Lessor, (a) make and file all declarations and returns in connection with all charges and taxes (local, state and federal) which may now or hereafter be imposed upon or measured by the ownership, leasing, rental, sale, purchase, possession or use of Equipment . . . and (b) pay all such charges and taxes.
      “18. INDEMNITY. Lessee shall indemnify Lessor against, and hold Lessor harmless from, any and all claims, actions, proceedings, expenses, damages and liabilities, including attorneys’ fees arising in connection with Equipment, including, without limitation, its selection, purchase, manufacture, delivery, possession, use, operation or return, and the recovery of claims under insurance policies on Equipment.
      “19. ASSIGNMENT; OFFSET. . . . Lessee shall not . . . lend Equipment or permit it to be used by anyone other than Lessee or Lessee’s employees . . . .”


source: Caselaw Access Project

author: McCLOUD, Chief Justice.

license: Public Domain

text:
    Thomas Dunn MacMILLAN, Appellant, v. Daniel F. CALLAHAN et al., Appellees.
    No. 5025.
    Court of Civil Appeals of Texas, Eastland.
    Aug. 18, 1977.

      Joanne H. Strauss, Robinson, Hanna, Chappell, Burke & Moore, Inc., Abilene, for appellant.
    C. G. Whitten and Billy John Edwards, Whitten, Sprain, Price, Wagner & Edwards, Abilene, for appellees.
   McCLOUD, Chief Justice.

At issue is the ownership of an undivided 595/1500 royalty interest.

The questions to be discussed involve the inception of title doctrine and the effect of an unprobated will.

Plaintiffs, Daniel F. Callahan, Eugene H. Callahan, Laurance David Jones, and Esther Marilyn Robinson, sued defendants, Thomas Dunn MacMillan, L. S. Kent and his unknown heirs, and the unknown heirs of Esther Dunn Callahan, deceased, seeking judgment quieting title and a declaration that they owned a 595/1500 royalty interest in the following described land in Stephens County, Texas:

The West 60 acres of the Southwest Quarter of Section 18, Lunatic Asylum Lands;
The West 60 acres of the Northwest Quarter of Section 25, Lunatic Asylum Lands;
80 acres being the South Half of the Southeast Quarter of Section 17, Lunatic Asylum Lands.

Plaintiffs alleged that oil and other hydrocarbons have been produced from the described land since 1957, but the purchaser of the production has refused to pay plaintiffs the proceeds from such production because of the claim of defendants.

Attorneys ad litem were appointed to represent the unknown heirs of Esther Dunn Callahan, deceased, and L. S. Kent and his heirs. Thomas Dunn MacMillan appeared and participated in the trial.

Following a nonjury trial, judgment was entered, based upon an agreement between the individual plaintiffs as to their respective ownership, that the royalty interest in question is owned as follows:

(a) Plaintiff, Daniel F. Callahan, ⅛ of 595/1500 royalty interest;
(b) Plaintiff, Eugene H. Callahan, ⅛ of 595/1500 royalty interest;
(c) Plaintiff, Laurance David Jones, ⅛ of 595/1500 royalty interest; and,
(d) Plaintiff, Esther Marilyn Robinson, of 595/1500 royalty interest.

The court found that defendants had no right, title or interest in the 595/1500 royalty interest in question. The court expressly found that such royalty interest was acquired by Dan F. Callahan, deceased, when he was a single man and became his separate property. Thomas Dunn MacMillan has appealed. We affirm in part, reverse and render in part, and reverse and remand in part.

Appellant, MacMillan, contends the 595/1500 royalty interest in issue was the community property of Dan F. Callahan and wife, Esther Dunn Callahan, both deceased, and he is the owner of an undivided V2 of the royalty interest in question because he is the sole heir of Esther Dunn Callahan.

On June 30, 1909, Dan F. Callahan married Ora Haile. Appellees, Daniel F. Callahan and Eugene H. Callahan, were born of the marriage as was Katherine C. Jones, deceased, mother of appellees, Laurance David Jones and Esther Marilyn Robinson. Ora Haile Callahan died on October 20, 1918. Dan F. Callahan then married Esther Dunn on June 9, 1920. No children were born or adopted to the marriage of Dan F. Callahan and Esther Dunn Callahan. Dan F. Callahan died intestate on July 13, 1939, leaving as his survivors his widow, Esther Dunn Callahan, and his three children Daniel F. Callahan, Eugene H. Callahan and Katherine C. Jones. Esther Dunn Callahan died on June 1, 1973, in the state of Louisiana. Appellees assert she died testate, while appellant contends we have no “jurisdiction” to consider her unprobated will. The appellant, Thomas Dunn MacMillan, is the nephew of Esther Dunn Callahan and her only surviving blood relative.

On May 4, 1920, at a time when Dan F. Callahan was a single person, he entered into an agreement with L. S. Kent which provides in part as follows:

“This Agreement, made this 4th day of May A.D. 1920, by and between L. S. Kent, party of the first part, and Dan F. Callahan, party of the second part, Wit-nesseth:
First: For valuable consideration said first party hereby transfers to said second party the undivided one-half interest in and to a certain contract between said first party herein and 0. Curry and Allie Curry, his wife, for all the units representing one-half of the royalty of one-eighth of oil and gas upon the following described lands, to-wit:
(1) The west sixty (60) acres of the Southwest Quarter of Section eighteen (18), Lunatic Asylum Lands;
(2) The west sixty (60) acres of the Northwest Quarter of Section twenty-five (25), Lunatic Asylum Lands;
(3) Eighty (80) acres, being the South Half of the Southeast Quarter of Section seventeen (17), Lunatic Asylum Lands;
All of the above described land being situated in Stephens County, Texas said first party accepts (sic) herefrom the units previously sold by him amounting to the aggregate sum of about Ten Thousand ($10,000.00) Dollars.
Second: All profits arising hereafter from or through the said contract between the said first party and said Curry shall be equally divided between the parties hereto and as the same are made.
Third: Said royalties are divided into seven hundred and fifty equal parts or units at the par value of One Hundred ($100.00) Dollars per unit. All sales hereinafter made by either party shall be divided equally and each party will use their endeavors to bring about sales of a sufficient amount of units to liquidate the amount of contract due said Curry, and as the same are sold reports will be made to each other as to the sales, and an accounting and settlement made accordingly.
After said Curry is paid in full, as per his contract, it is hereby understood and agreed that all remaining units unsold or money received from unsold units in excess of this amount shall be divided equally between both parties.
A copy of said contract between said Kent and said Curry is to be attached hereto as Exhibit ‘A’ and a copy of contract with C. E. Martin and L. S. Kent shall also be attached and made a part of this and will be known as Exhibit ‘B’.”

The exhibits referred to in the contract were not attached to the contract, are not of record in Stephens County, and were not introduced in evidence.

On August 16, 1920, after Dan F. Callahan had married Esther Dunn, 0. Curry and wife, Allie Curry, sold to Dan F. Callahan by an instrument termed a “Certificate” an undivided royalty interest in the tracts of land covered in the agreement between Callahan and Kent. The instrument provides in part:

“CERTIFICATE OF SQUARE DEAL ROYALTY
0. CURRY NO. I
This royalty consists of one sixteenths of all oil saved and delivered free of cost at the well, or into pipe line, and the usual gas and mineral terms on the following described lands, all in Stephens County, Texas.
1st. The west 60 acres of the S.W/á of Sec. 18, Lunatic Asylum Lands,
2nd. The West 60 acres of the N.W-¼ of Sec. 25, Lunatic Asylum Lands,
3rd. 80 acres being the SV2 of the S.E. ¼ of Sec. 17, Lunatic Asylum Lands. This royalty is divided into 750 equal parts, or units, at the par value of $100.00 per unit.
Therefore, on this 16th day of August, 1920 for and in consideration of the sum of $35700.00 I have sold to Dan F. Callahan, Wichita Kansas, Five Hundred Ninety five (595) equal parts or units in the above described royalty.
The undersigned 0. Curry being the owner in fee of above described lands, and having perfect title to same, therefore has a perfect legal right to sell any part or interest, and will defend this title to said Dan F. Callahan his assigns or heirs, forever.”

Both appellees and appellant contend and agree that Dan F. Callahan received an undivided 595/1500 royalty interest under the instrument.

Appellees argue the trial court correctly held that the royalty interest was the separate property of Dan F. Callahan because his title had its inception in the agreement entered into between Kent and Callahan when Dan F. Callahan was a single man. We disagree.

Appellees rely upon the general rule announced in 0. SPEER, MARITAL RIGHTS IN TEXAS § 380 (3rd ed. 1929), which states:

“The status of property acquired during the marriage is determined by the inception of the title. More accurately speaking, the property is acquired when the title had its inception.
This is true because when the title has its inception, a right accrues and this right is property and gives character to its status. Equities may of course arise, but this is another consideration.
When the right to the property originates before the marriage or after its dissolution, it is not community.”

See also: Welder v. Lambert, 91 Tex. 510, 44 S.W. 281 (1898); Creamer v. Briscoe, 141 Tex. 490, 109 S.W. 911 (1908); Evans v. Ingram, 288 S.W. 494 (Tex.Civ.App.-Waco 1926, no writ); MacRae v. MacRae, 144 S.W.2d 320 (Tex.Civ.App.-El Paso 1940, writ ref’d); Allen v. Beard, 165 S.W.2d 913 (Tex.Civ.App.-Texarkana 1942, no writ).

The rule urged by appellees is not applicable. The only evidence touching the inception of title issue is the contract and deed copied above. The deed from O. Curry and wife, conveyed an undivided 595/1500 royalty interest to Dan F. Callahan. Under the agreement between Callahan and Kent, Callahan was to receive something less than ½ of 750/1500 royalty interest. The agreement expressly states that Kent except “units previously sold by him amounting to the aggregate sum of about” $10,000. The interest received by Callahan in the Curry deed was in excess of the interest he was to receive according to the Kent-Callahan contract. The two instruments standing alone, fail to adequately prove that the title to the undivided 595/1500 royalty interest in question had its inception in the contract between Kent and Callahan.

Hutchings v. Commissioner of Internal Revenue Service, 111 F.2d 229 (5th Cir. 1940) cited by appellees is distinguishable. There the evidence clearly showed that the ripened title referred to the prior claim. Not so in the instant case. The Callahan-Kent contract and the Callahan-Curry deed refer to different undivided royalty interests. We think the court erred in finding that the disputed royalty interest was the separate property of Dan F. Callahan.

The trial court also found that any interest owned by Esther Dunn Callahan in the royalty in question, was devised to Katherine C. Jones by and through the will of Esther Dunn Callahan, and that appellees, Laurance David Jones and Esther Marilyn Robinson, were the sole beneficiaries under the will of Katherine C. Jones.

The will of Esther Dunn Callahan, who died June 1,1973, in the state of Louisiana, the place of her domicile, has never been probated. Appellant made no objection when the will was introduced in evidence, but now contends that the court erred in holding that Esther Dunn Callahan did not die intestate as to the royalty interest in question.

The unprobated will of Esther Dunn Callahan is ineffective for the purpose of proving title. Taylor v. Martin’s Estate, 117 Tex. 302, 3 S.W.2d 408 (1928); Milner v. Sims, 171 S.W. 784 (Tex.Civ.App.-Texarkana 1914, no writ); Teague v. Wylie, 110 S.W.2d 941 (Tex.Civ.App.-Fort Worth 1937, no writ). See also Texas Probate Code, Sections 94-104. In Croom v. Little, 42 S.W.2d 490 (Tex.Civ.App.-Beaumont 1931, no writ), an unprobated will was received in evidence without objection. In holding the will was insufficient to vest title, the court said:

“. . . appellee insists that appellant cannot now say that it did not vest title in Versie Wyatt White. A sufficient answer to this contention is to say that the will, as offered and received by the trial court, was admissible in evidence, but, without the support of the judgment of the probate court, was wholly without effect upon the issue of title. As said by Judge Fly in Skov v. Coffin (Tex.Civ.App.-137 S.W. 450, 452) ‘The burden was upon appellee, as the plaintiff in the case, to establish his title, and it was not incumbent upon appellants to make objections that would cause appellee to supply the missing link.’ ”

The court erred in holding that the un-probated will of Esther Dunn Callahan transferred her interest in the royalty to Katherine C. Jones.

The trial court judgment finds and holds that L. S. Kent and the unknown heirs of L. S. Kent have no right, title or interest in the undivided 595/1500 royalty interest in question. We affirm this finding and holding by the trial court.

We have held that the royalty interest was the community property of Dan F. Callahan and wife, Esther Dunn Callahan. We reverse the judgment of the trial court which held the royalty interest was the separate property of Dan F. Callahan. The appellees are the sole heirs at law of Dan F. Callahan, and are the owners of his one-half community interest in the royalty. We hereby render judgment that appellees own the following undivided interests:

(1) Daniel F. Callahan-⅛ of ½ of 59¾500 royalty interest
(2) Eugene H. Callahan - ⅛ of ½ of 59¾500 royalty interest;
(3) Laurance David Jones - ¾⅛ of ½ of 595Asoo royalty interest;
(4) Esther Marilyn Robinson - ⅜⅞ of ½ of 59⅝5&0 royalty interest.

The evidence regarding the ownership of Esther Dunn Callahan’s one-half community interest has not been fully developed, and in the interest of justice we sever the issue of the ownership of her one-half community interest and remand such issue for retrial.

Judgment of the trial court is affirmed in part, reversed and rendered in part, and remanded in part.


author: AKIN, Justice. ROBERTSON, Justice,

text:
    Mrs. Robert O. WILSON, Appellant, v. William A. O’CONNOR, Appellee.
    No. 19188.
    Court of Civil Appeals of Texas, Dallas.
    Aug. 23, 1977.
    Rehearing Denied Sept. 15, 1977.

      J. W. Hassell, Jr., Dallas, for appellant.
    Jeffrey R. Hacker, Dallas, for appellee.
   AKIN, Justice.

This is an appeal by Mrs. Robert 0. Wilson, defendant-landlady, from an adverse judgment rendered against her and in favor of her former tenant, William A. O’Connor, based on Tex.Rev.Civ.Stat.Ann. art. 5236e § 4 (Vernon Supp. 1976-77) after a trial before the court. Plaintiff O’Connor sued Mrs. Wilson for a “bad-faith” failure to return his security deposit. Although the trial court made no finding with respect to “bad faith” on the part of Mrs. Wilson, it nevertheless rendered a judgment against her for treble the amount of the deposit plus $100 and attorney’s fees, as authorized under section 4(a) of article 5236e for the “bad-faith” retention of a security deposit. Because we hold that the trial court erroneously construed this statute, we reverse and remand for a determination of bad faith.

The trial court made the following findings of fact: (1) on or about November 30, 1974, Mrs. Wilson, defendant, and Mr. O’Connor, plaintiff, entered into a lease that extended through November 30, 1975; (2) on December 1, 1975, plaintiff provided defendant with a written notice of his intent to terminate his tenancy on December 30,1975; (3) upon termination on December 30, 1975, plaintiff provided defendant with his forwarding address for return of his security deposit; (4) the defendant left on vacation abroad sometime between December 1 and December 30; (5) she left no one in charge of the apartments in her absence; (6) she did not return until sometime in February 1976; and (7) no refund of the security deposit withheld was made until well after thirty days after plaintiff had vacated the premises.

Acting on these findings, the trial court made the following conclusions of law: (1) that article 5236e requires that the landlord must refund a tenant’s security deposit or provide an itemized list of charges deducted for damages above and beyond ordinary wear and tear within thirty days after a tenant vacates the premises, subject to the tenant providing the landlord with thirty days’ written notice; (2) that article 5236e requires failure to so refund tenant’s security deposit or to itemize deductions within the thirty-day period to be considered prima facie evidence of bad faith; (3) that article 5236e requires or provides for no automatic extension of this thirty-day period for the convenience of the landlord; (4) “Therefore, I have found that the defendant landlord did not act in compliance with . article 5236e . . ., as regards the return of plaintiff’s security deposit. .” [Emphasis added]

The pertinent statutory provisions are:
Sec. 2. (a) Security deposits must be refunded by the landlord to the tenant within 30 days after the tenant surrenders the premises. A tenant shall give advance notice of surrender as may be required by the rental agreement. However, advance notice may not be a condition for refund unless the requirement of advance notice is underlined or printed in conspicuous, bold print in the rental agreement.
Sec. 3. (a) In the event actual cause exists for retaining all or any portion of the security deposit, the landlord shall return to the tenant the balance of the security deposit, if any, together with a written description and itemized list of all deductions. Such deductions shall be limited to damages and charges for which the tenant is legally liable under the rental agreement or as a result of breaching the rental agreement. No security deposit may be retained to cover normal wear and tear as defined in Paragraph (6), Section 1, of this Act. The burden of proving the reasonableness of such damages or charges shall be on the landlord.
Sec. 4. (a) A landlord who in bad faith retains a security deposit in violation of this Act is liable for $100 plus treble the amount of that portion of the deposit which was wrongfully withheld from the tenant, and shall be liable for reasonable attorneys fees in a lawsuit to recover the security deposit.
(b) A landlord who in bad faith fails to provide a written description and itemized list of damages and charges pursuant to the requirements of this Act, forfeits all rights to withhold any portion of the security deposit or to bring suit against the tenant for damages to the premises and is liable to the tenant for reasonable attorneys fees in a lawsuit to recover the security deposit.
(c) In any court action brought by a tenant under this Act, the landlord bears the burden of proving that his retention of the security deposit or any portion thereof was reasonable. In this court action the landlord is not liable for the penalty, treble damages, or attorneys fees referred to in Subsections (a) and (b) of this section unless the landlord is found to have acted in bad faith. Failure to return a security deposit within 30 days or failure to provide a written description and itemization of deductions within 30 days is prima facie evidence and a presumption that the landlord acted in bad faith.

On this appeal, Mrs. Wilson contends that the undisputed evidence established that Mrs. Wilson was not acting in bad faith, that the charges deducted from the deposit were reasonable, and that the trial court’s failure to make a finding of bad faith indicates that the court incorrectly ruled that failure to repay Mr. O’Connor’s deposit within thirty days of termination of the tenancy is bad faith as a matter of law under article 5236e section 4. She does not, however, attack the judgment on the ground that it is against the great weight and preponderance of the evidence.

On the other hand appellee contends that defendant, as a matter of law, acted in bad faith since she did not return the appellee’s deposit within the thirty days required by the statute, and therefore, the statute mandated the imposition of the penalties for wrongfully withholding the deposit in bad faith. Before we may address these contentions, a construction of the statute is necessary.

Article 5236e is a complex measure which requires careful analysis. Basic to a proper interpretation is the distinction between its remedial and punitive features. As a remedial measure, section 2(a) requires security deposits to be refunded within thirty days after the tenant surrenders the premises, but section 3(a) provides that in the event actual cause exists for retaining all or any part of the deposit, the landlord shall return the balance with a written description and itemized list of all deductions, which must be limited to damages and charges for which the tenant is liable, and the burden of proving the reasonableness of such deductions is on the landlord. Thus, the landlord has the right to retain so much of the deposit beyond thirty days as is necessary to cover proper charges and damages if he furnishes an itemized list of deductions, but he has the burden of establishing the reasonableness of such deductions. Although section 2 provides that the deposit shall be refunded within thirty days, it does not state the consequences of failure to make the refund within that period, and neither are such consequences stated elsewhere in the act, except pertaining to a finding of bad faith under section 4(c). Section 3 provides no time within which the statement of deductions shall be furnished, but we construe sections 2 and 3 together as requiring such a statement to be made within thirty days if the landlord retains any part of the deposit for a longer period.

The penalty provisions of the statute are found in section 4. Subdivision (a) provides that for bad-faith retention of the deposit in violation of the act, the landlord “is liable for $100 plus treble the amount of that portion of the deposit which was wrongfully withheld.” This provision necessarily implies that no treble damages are recoverable for withholding that part of the deposit which is reasonably necessary to cover proper deductions, as shown by the itemized list furnished and established by the landlord. No other provision for treble damages is contained in the statute. Section 4(b) provides that a landlord who in bad faith fails to provide an itemized list of damages and charges “forfeits all rights to withhold any portion of the deposit” and his right to sue the tenant for damages. It is significant that this provision does not impose this forfeiture for failure to provide the list within thirty days from surrender of the premises and contains no reference to time. The forfeiture imposed is simply for failure in bad faith to provide the tenant with an itemized list.

Section 4(e) repeats several of the previous provisions. The first sentence substantially restates the last sentence in section 3(a) which is to the effect that the burden of proving reasonableness of the deductions is on the landlord. The second sentence repeats the requirement of bad faith for imposition of the $100 penalty and recovery of treble damages in section 4(a), and for the forfeiture of the deposit and of the right to damages under section 4(b). The last sentence is the principal provision on which the trial court’s judgment here rests:

Failure to return a security deposit within thirty (30) days or failure to provide a written description and itemization of deductions within thirty (30) days is prima facie evidence and a presumption that the landlord acted in bad faith. [Emphasis added]

This provision, as we read it, creates no additional substantive rights or obligations, but only raises a presumption which permits the tenant to establish a prima facie case of bad faith by showing either that the landlord failed to refund the deposit within thirty days or failed to provide the itemized list of deductions within thirty days. It is not clear whether this “presumption” disappears if rebutting evidence is offered, but since the statute uses the term “presumption” and also the term “prima facie evidence,” we construe it as establishing an inference which permits, but does not compel, a fact finding of bad faith, even if rebutting evidence is offered by the landlord. See Coward v. Gateway Nat’l Bank, 525 S.W.2d 857, 859 (Tex.1975). Absent rebutting evidence, of course, the presumption would compel a finding of bad faith.

The crucial question on this appeal is what evidence is required to rebut the presumption of bad faith which arises if it is shown that the landlord did not return the deposit or furnish an itemized list of deductions within thirty days. Does “bad faith” mean simply that he intended not to refund the deposit within thirty days, or does it mean that he intended to deprive the tenant of the refund to which the tenant was entitled? We conclude that in this context “bad faith” implies an intention to deprive the tenant of the refund lawfully due.

This interpretation is supported by Citizens Bridge Co. v. Guerra, 152 Tex. 361, 258 S.W.2d 64, 69-70 (1953), in which the test of “bad faith” was said to be whether the person in question “acted in dishonest disregard” of the rights of the other person concerned. This test is consistent with the definition of the correlative “good faith” as “honesty in fact in the conduct or transaction concerned” in Tex. Bus. & Com.Code Ann. § 1.201(19) (Vernon 1968). A landlord who delays until the thirty-first day to make a refund of the security deposit cannot properly be said to have acted in dishonest disregard of the rights of the tenant unless he knew or had reason to believe that he was not entitled to retain it to recover reasonable charges and damages for which the tenant was liable. Mere retention of the deposit beyond thirty days or failure to furnish the itemized list within thirty days, even though intentional, does not establish the landlord’s dishonest intention as a matter of law, although proof of such action constitutes prima facie evidence of bad faith and casts on the landlord the burden of showing his good faith. If the landlord presents evidence of a reasonable excuse for the delay, then a fact issue is presented on which the landlord has the burden of proof.

Under this interpretation and this record we cannot say that the evidence shows that Mrs. Wilson, as a matter of law, dishonestly intended to deprive Mr. O’Con-nor of his security deposit. Indeed, the contrary appears likely. At best, the evidence is that Mrs. Wilson did not return the deposit within thirty days because of her absence on vacation. When she returned, she inspected the apartment, made deductions for cleaning and repairs, and then refunded the balance to Mr. O’Connor. This evidence tends to rebut the presumption of bad faith and raises at least a fact issue which the trial court failed to resolve. Likewise, the trial court made no findings as to whether these deductions from the security deposit were reasonable and, thus, justified. Neither did the trial court resolve the crucial question of whether Mrs. Wilson intended to retain the deposit dishonestly, knowing that she had no right to do so. Apparently, the trial court erroneously construed the statute to mean, as appellee argues, that Mrs. Wilson acted in bad faith as a matter of law when she did not return the appellee’s deposit within the thirty days set forth in the statute and that, therefore, the penalties of the statute were mandated.

We cannot imply a finding of bad faith pursuant to Tex.R.Civ.P. 299, as the dissent would have us do, since it is apparent that the trial court erred in construing the statute. Rule 299 provides:

Where findings of fact are filed by the trial court they shall form the basis of the judgment upon all grounds of recovery and of defense embraced therein. The judgment may not be supported upon appeal by a presumption of finding upon any ground of recovery or defense, no element of which has been found by the trial court; but where one or more elements thereof have been found by the trial court, omitted unrequested elements, where supported by evidence, will be supplied by presumption in support of the judgment. Refusal of the court to make a finding requested shall be reviewable on appeal. [Emphasis added]

Here appellee does not contend that the judgment should be affirmed on the theory that a fact-finding of bad faith should be presumed under rule 299. Appellee argues, rather, that bad faith is established as a matter of law by appellant’s failure to return the deposit or mail the list within thirty days, regardless of what excuses appellant may have presented for failure to do so. It is apparent to us from the trial court’s findings and conclusions that this contention was accepted as controlling by the trial court and, consequently, that the trial court made no effort to decide the fact issue of whether appellant acted in bad faith in the sense that she dishonestly intended to retain the deposit with knowledge that she had no right to do so.

We do not find that the trial court’s findings and conclusions are in themselves erroneous. We hold, rather, that they are insufficient to support the judgment for treble damages, because they do not include a fact-finding of bad faith and that no such finding can be presumed on this issue because the trial court obviously concluded that bad faith had been established as a matter of law. Where the trial court’s findings of fact and conclusions of law disclose a different basis for its judgment, such as an erroneous interpretation of law, rule 299 does not apply. Burford v. Pounders, 145 Tex. 460, 199 S.W.2d 141, 145 (1947); E. F. Hutton & Co. v. Fox, 518 S.W.2d 849, 855-56 (Tex.Civ.App.—Dallas 1974, writ ref’d n. r. e.); Life & Casualty Ins. Co. v. Martinez, 299 S.W.2d 181, 182 (Tex.Civ.App.—San Antonio 1957, per Pope, J., no writ). Since the findings of fact and conclusions of law show that the trial court erroneously construed the statute to mean that since the deposit was not returned within thirty days, bad faith existed as a matter of law without consideration of whether Mrs. Wilson actually intended to deprive appellee of any part of the deposit to which he was entitled, we conclude that rule 299 is inapplicable. From an examination of the record, we are convinced that this evidence did not enter into the trial court’s findings and conclusions which culminated in its judgment against Mrs. Wilson, and, therefore, the issue was not impliedly passed upon by the trial court. Accordingly, we reverse and remand for a new trial not inconsistent with this opinion.

ROBERTSON, Justice,

dissenting.

I must respectfully dissent. Although I agree with the majority’s basic construction of article 5236e, I do not believe that the record of this case negates implication of a finding of “bad faith” under rule 299 of the Texas Rules of Civil Procedure.

The court’s holding is that the findings of fact and conclusions of law filed by the trial court reflect that its judgment is “obviously” based upon an erroneous construction of article 5236e, namely that imposition of the $100 penalty and treble damages is mandatory when the landlord withholds the deposit longer than thirty days. By this analysis, the court concludes that the issue of bad faith was not considered by the trial court and, thus, cannot be implied under rule 299. I cannot agree.

According to the majority opinion, the alleged “erroneous theory” is shown by the trial court’s findings of fact and conclusions of law. Findings of fact were made, and although they recite particular facts and circumstances, there is no express finding that these preliminary findings reflect “bad faith” on the part of the landlord. Supposedly, implication of this ultimate finding is precluded by the court’s erroneous construction of article 5236e, as manifested by its conclusions of law. These conclusions are:

(1)That article 5236e requires that the landlord must refund a tenant’s security deposit or provide an itemized list of charges deducted for damages above and beyond ordinary wear and tear within thirty days after a tenant vacates the premises, subject to the tenant providing the landlord with thirty days’ written notice;

(2) That article 5236e requires failure to so refund tenant’s security deposit or to itemize deductions within the thirty-day period to be considered prima facie evidence of bad faith;

(3) That article 5236e requires or provides for no automatic extension of this thirty-day period for the convenience of the landlord;

(4) “Therefore, I have found that the defendant landlord . . . did not act in compliance with . . . article 5236e . as regards the return of plaintiff’s security deposit ...”

Although conclusions two, three, and four are heavily emphasized in the majority’s analysis, no amount of emphasis can justify their holding that these findings and conclusions demonstrate that the trial court “obviously” based its judgment upon an erroneous construction of article 5236e. The evidentiary findings are not challenged in this case, and conclusions of law one and two merely paraphrase the language of the statute. Conclusion three is clearly a correct statement of the law, for even the majority recognizes that extensions of the thirty-day period are not “automatic,” but rather are conditioned upon a landlord’s good-faith belief that retention of the deposit was necessary to cover reasonable charges and damages. Finally, conclusion four simply recites that the defendant “did not act in compliance” with the statute and concludes liability without expressing the precise relationship of that liability to the other conclusions. In its opinion, the majority does not specify any error in these conclusions; yet they hold that the trial court “obviously” tried the case on the wrong theory. Although the court states that appellee has argued that the landlord’s retention of the deposit past the thirty days constitutes bad faith as a matter of law, I cannot recall any oral or written argument to that effect. Indeed, appellee’s brief sets forth the very same test of liability as is stated in the majority opinion. Throughout appellee’s brief, he emphasizes that the landlord’s liability rests upon failure to rebut the presumption of bad faith raised by extended retention of the deposit, stating that “under the language of the statute, the landlord must show that his actions were not in bad faith or be subject to the penalties required by the act,” and that [t]he Trial Court correctly held that there is a presumption of bad faith, and that this presumption was not rebutted.” Thus, the majority not only presumes that the trial court based its decision on an “erroneous theory,” but also justifies that presumption by imputing that theory to appellee in the face of directly contrary arguments in his brief.

By failing to specify the errors in this case, the court exercises its discretion in reviewing the findings and conclusions and misinterprets the very authorities it cites to support its departure from the implied-finding rule. At best, these cases can only be cited to support the position that presumption of omitted findings is improper only when the record clearly demonstrates that the trial court rested its judgment on a different basis. See Burford v. Pounders, 145 Tex. 460, 199 S.W.2d 141, 145 (1947) (implied finding would be improper since findings and conclusions disclosed that trial court carefully avoided finding the proffered omission); Stretcher v. Gregg, 542 S.W.2d 954, 958 (Tex.Civ.App.—Texarkana 1976, no writ) (no implied finding of written notice allowed when it was evident from record that trial court’s holding was based upon finding of oral notice); Reid v. Gulf Oil Corp., 323 S.W.2d 107 (Tex.Civ.App.—Beaumont 1959), aff’d, 161 Tex. 51, 337 S.W.2d 267 (1960) (no implied finding when finding would be inconsistent with any correct legal theory of the case); Life & Casualty Ins. Co. v. Martinez, 299 S.W.2d 181, 182 (Tex.Civ.App.—San Antonio 1957, no writ) (implied finding disallowed when the conclusions of law manifested that the case was tried under the wrong legal theory). Finally, in E. F. Hutton & Co., Inc. v. Fox, 518 S.W.2d 849, 855-56 (Tex.Civ.App.—Dallas 1974, writ ref’d n. r. e.), this very court stated:

[R]ule 299 does not authorize us to imply a finding on the correct measure of damages when the record clearly shows that the amount awarded by the court was determined by applying an erroneous measure of damages. [Emphasis added.]

Under these authorities, appellate courts are not authorized to disregard the rule of implied findings under rule 299 unless they can point to specific sections of the record which negate the implication. The majority has not specified any portion of the record which is even arguably erroneous. I can only construe this holding as establishing a new principle of appellate review, namely that when the record raises some suspicion of error, the appellate court may, in its discretion, presume that error has been committed. Error is never presumed, and if the findings of fact and conclusions of law are susceptible to different constructions, they must be construed to support the trial court’s judgment. Brown v. Frontier Theatres, Inc., 369 S.W.2d 299, 301 (Tex.1963); Heard v. City of Dallas, 456 S.W.2d 440, 443 (Tex.Civ.App.—Dallas 1970, writ ref’d n. r. e.); In Interest of Anglin, 542 S.W.2d 927, 930 (Tex.Civ.App.—Dallas 1976, no writ). Although the majority notes that appellee has not urged that we should affirm under rule 299, this statement erroneously assumes that it was appellee’s burden to do so. Rule 299 is one of the various presumptions inherent in the nature of appellate review, and we must make those presumptions in favor of the judgment even if they are not urged. The burden rests upon the complaining party to show affirmatively by the record that error was committed, Englander Co. v. Kennedy, 428 S.W.2d 806 (Tex.1968), and the appellee is not bound to contest the points raised on appeal. Gill v. Willis, 282 S.W.2d 88 (Tex.Civ.App.—Eastland 1955, no writ); Gulf, C. & S. F. Ry. v. Blanchard, 73 S.W. 88 (Tex.Civ.App.—1903, no writ).

Even if the majority’s principle is accepted, the findings and conclusions in this case do not raise any “suspicion” of error. Since none of the trial court’s legal conclusions are erroneous, and the erroneous theory has not been urged here by appellee, the only possible source of “suspicion” is the absence of an express finding of bad faith. The majority concedes that a fact issue was presented on bad faith, and the trial court was empowered to resolve this issue according to its view of the evidence. Since appellant requested the findings from the trial court and did not request additional findings or take exceptions thereto, the facts found by the trial court bind the parties on appeal, Pope v. American Nat’l Ins. Co., 443 S.W.2d 377, 381 (Tex.Civ.App.—Tyler 1969, writ ref’d n. r. e.), and we must presume that any necessary facts not covered by the express findings were found in support of the judgment. Tex.R.Civ.P. 299; Wisdom v. Smith, 146 Tex. 420, 209 S.W.2d 164 (1948); Bednarz v. State, 142 Tex. 138, 176 S.W.2d 562 (1943); Waters v. Yockey, 193 S.W.2d 575, 576 (Tex.Civ.App.—Dallas 1945, no writ). With all deference to the majority, I cannot refuse to recognize this rule by presuming that such a finding was not made.

For these reasons, I am unable to concur in the opinion of the court.


author: OSBORN, Justice.

text:
    Elizabeth G. BROWN, Plaintiff in Error, v. Richard D. BROWN, Defendant in Error.
    No. 6602.
    Court of Civil Appeals of Texas, El Paso.
    Aug. 24, 1977.
    Rehearing Denied Sept. 21, 1977.

      El Paso Legal Assistance Society, Israel Galindo, Susan E. Perry, El Paso, for plaintiff in error.
    Niland & Niland, Jack T. Niland, El Paso, for defendant in error.
   OPINION

OSBORN, Justice.

This is an appeal by Petition for Writ of Error from a judgment changing custody of a minor child and naming the father as managing conservator and the mother as possessory conservator. The judgment is reversed and the case dismissed.

These parties were granted a divorce by the District Court of El Paso County, Colorado, on November 28,1975. Elizabeth was awarded custody of the minor child and Richard was granted rights of reasonable visitation. That decree concludes “IT IS FURTHER ORDERED THAT THIS COURT RETAINS SUCH JURISDICTION OF THIS ACTION AS IS PROVIDED BY LAW.” Prior to the entry of that judgment, Richard had taken the parties’ minor daughter, Patricia Brown, who was born January 27, 1974, and would not disclose her whereabouts to the mother. In June, 1976, he arranged for Elizabeth to come to El Paso, ostensibly to effect a reconciliation. For the first time in nearly a year, she saw her daughter who was living with Richard’s parents. According to her testimony, Richard told her she would never see the child again unless she signed a waiver of citation, an affidavit, and an agreed judgment in order that he might obtain legal custody of their daughter. She said she signed the papers because of the threats made at the time and with the assurance that she could appear at the court hearing. She was never told when the hearing would be held and, according to a recital in the judgment, “did not appear.” She timely perfected her appeal by a Petition for Writ of Error.

Plaintiff’s only point of error in this Court contends that the trial Court erred in changing the custody of the minor child because that Court did not have jurisdiction over the case. In reply, Defendant urges that Elizabeth cannot appeal by writ of error because of her participation in the trial below, and that there was no error in the trial Court’s judgment, jurisdiction having been established.

First, we conclude that Plaintiff is entitled to appeal by writ of error. The signing of a pleading, which constituted an appearance and waiver of citation, was not participation in the trial of the case under Article 2249a, Tex.Rev.Civ.Stat.Ann. Petroleum Casualty Co. v. Garrison, 174 S.W.2d 74 (Tex.Civ.App.—Beaumont 1943, writ ref’d w. o. m.). The judgment itself recites that she “did not appear,” and the record establishes that neither Elizabeth nor any counsel in her behalf attended the hearing. Although her affidavit was filed by Richard’s counsel, that was not her participation in open Court. In Burton v. Home Indemnity Company, 531 S.W.2d 665 (Tex.Civ.App.—El Paso 1975, writ ref’d n. r. e.), relied upon by Defendant, the plaintiff filed his own affidavit in a summary judgment proceeding, which is tantamount to giving his testimony at the hearing. That case is not applicable. And since Plaintiff did not appear, she obviously did not approve the judgment in open Court. In fact, the signature on the judgment does not show that it was made to approve the judgment for any purpose, either as to form or substance. Again, the record reflects the signature was given several days before the hearing in this case. Since she did not appear, did not know what evidence was presented, and did not learn about the hearing until after judgment was entered, Elizabeth is entitled to the added time for appeal as provided for by writ of error. Lawyers Lloyds of Texas v. Webb, 137 Tex. 107, 152 S.W.2d 1096 (1941).

We next consider whether the trial Court had jurisdiction to consider the petition seeking a change in the parent-child relationship. To answer that question, we look to Chapter 11 of the Texas Family Code. Section 11.05 of the Code provides, with exceptions not applicable in this case, that:

“ * * * when a court acquires jurisdiction of a suit affecting the parent-child relationship, that court retains continuing jurisdiction of all matters provided for under this subtitle in connection with the child, and no other court has jurisdiction of a suit affecting the parent-child relationship with regard to that child * * *.”

This provision changed the earlier Court decisions holding that the trial Court’s jurisdiction in child custody cases was not “continuing exclusive jurisdiction.” Boney v. Boney, 458 S.W.2d 907 (Tex.1970); Curtis v. Gibbs, 511 S.W.2d 263 (Tex.1974).

In 1974, the Texas Supreme Court recognized the provision for exclusive “continuing jurisdiction” as provided for in Section 11.05, but held that it did not apply because of the transitional provision of Chapter 11 of the Code. Curtis v. Gibbs, supra. In 1975, the Waco Court of Civil Appeals gave full effect to Section 11.05 and held that “once a court has properly assumed jurisdiction in one of these suits, then all future actions involving the parent-child relationship of the parties must be brought in the court in which the original proceeding was laid.” In re Martinez, 522 S.W.2d 230 (Tex. Civ.App.—Waco 1975, no writ). The Court in that case apparently did not consider the effect of the transitional provision which was applied in the Gibbs case.

In order to solve some of the problems arising from the “continuing jurisdiction” provision of Section 11.05, the Legislature in 1975 added Section 11.071 entitled “Identification of Court of Continuing Jurisdiction.” Under this provision, the petitioner or the Court shall request from the State Department of Public Welfare identification of the Court that last had jurisdiction of the child in a suit affecting the parent-child relationship, unless (1) the petition alleges that no Court has continuing jurisdiction of the child, and the issue is not disputed by the pleadings; or, (2) the petition alleges that the Court in which the suit is filed has acquired and retains continuing jurisdiction and the issue is not disputed by the pleadings.

In our case, the original petition alleged that no other Court has continuing exclusive jurisdiction of this suit. It also alleged that the parties were divorced by the District Court of El Paso County, Colorado, and that said Court awarded custody of the named minor child to Elizabeth Brown. Richard swore that these allegations “are true and correct.” The trial Court made a finding that no other Court has continuing exclusive jurisdiction.

Since Plaintiff filed only a waiver of citation, she obviously did not dispute the allegation that no other Court has continuing jurisdiction. But Section 11.071(a)(1) requires information from the State Department of Public Welfare unless “the issue is not disputed by the pleadings.” We conclude that when Richard alleged that another Court had granted custody of the minor child to the mother, the issue of continuing jurisdiction was raised, and such pleading disputed the prior allegation that no other Court had continuing jurisdiction. Had the original petition alleged that a divorce was granted by a Texas Court and an award of custody made, the trial Court in this case would have known that under Section 11.05 the Court granting the divorce would continue jurisdiction until the child became 18, unless a transfer was made under Section 11.06. Where there is no proof to the contrary, the Court must presume that the law of another state is the same as the law of Texas. Follak v. Brown, 530 S.W.2d 882 (Tex.Civ.App.—Beaumont 1975, writ ref’d n. r. e.). Thus, the foreign Court granting the divorce and awarding custody would have continuing jurisdiction. Under the holding in Follak v. Brown, supra, Section 11.05(a) is extraterritorial in scope. We may not presume that proof was made to the contrary because the Colorado decree, which is a part of the transcript, shows specifically that in accordance with Colorado law, that Court did retain jurisdiction.

Thus, we conclude that Richard’s own pleadings did dispute the allegation of no other Court having continuing jurisdiction. In such instance, it was incumbent upon him or the Court to obtain information from the Department of Public Welfare as to the identity of the Court having continuing jurisdiction, and any order entered in the absence of such information is voidable. Section 11.071(d). Since an erroneous judgment was entered, we sustain the Plaintiff’s Point of Error No. 1 in this direct attack upon that judgment.

To reach any other result would encourage parents to remove children from one state to another in violation of a Court order and permit the obtaining of a custody order based upon a false affidavit as to a Court’s continuing jurisdiction. Such practice has continually been condemned by the Courts of this State. Wicks v. Cox, 146 Tex. 489, 208 S.W.2d 876 (1948); Autry v. Autry, 359 S.W.2d 272 (Tex.Civ.App.—El Paso 1962, no writ).

Having reached this result and sustained the Plaintiff’s point of error, we reverse the judgment of the trial Court and the case is dismissed without prejudice. Section 11.-071(d); In re Martinez, supra.

      . All Section references are to the Texas Family Code.


text:
    Benjamin LORET et al., Relators, v. Judge Earl W. SMITH et al., Respondents.
    No. 6675.
    Court of Civil Appeals of Texas, El Paso.
    Aug. 24, 1977.
    Gloria T. Svanas, Odessa, McCandlish, Lillard, Bauknight, Church & Best, Randolph W. Church, Jr., Fairfax, Va., for rela-' tors.

      Michael D. Atkins, County Atty., Ater & Hirsch, H. Thomas Hirseh, Shafer, Gilliland, Davis, Bunton & McCollum, Fred M. “Mickey” Jones, Odessa, for respondents.
   OPINION

OSBORN, Justice.

This is an original proceeding in which the Relators seek a writ of prohibition against the Presiding Judge and other parties named as Respondents. On March 4, 1977, a partial judgment was entered in Cause No. A-39,372 in the District Court of Ector County, Texas, awarding Benjamin Loret, et al., judgment against Jacqueline Ford in the amount of $80,400.97, plus interest, such judgment being based upon a Maryland judgment. After entry of the judgment, execution was issued by the District Clerk. Apparently, an attempt was made to levy upon the First National Bank of Odessa, Texas, a Respondent herein, as trustee of the Jacqueline Ford Trust No. 1. The Bank then filed in the same cause in which the partial judgment had been entered an “Impleader’s Original Petition” with regard to the funds held by it as trustee and asserting that the beneficiary of the trust had asserted a conflicting claim to those assets. The Relators herein filed a reply to the Petition in Intervention asserting that the pleading was an effort to circumvent a valid and subsisting execution and urging that said petition be denied. By order dated June 24, 1977, the Honorable Earl W. Smith, Judge Presiding, granted the filing of the Interpleader and Relator now seeks from this Court a writ of prohibition commanding the Presiding Judge to cease and desist from interfering with the execution which was issued following the judgment in March, 1977.

Article 1823, Tex.Rev.Civ.Stat.Ann., provides with regard to Courts of Civil Appeals:

“Said courts and the judges thereof may issue writs of mandamus and all other writs necessary to enforce the jurisdiction of said courts.”

In Texas Employers’ Ins. Ass’n v. Kirby, 150 S.W.2d 123 (Tex.Civ.App.—Dallas 1941), the Court pointed out that a “ ‘writ of prohibition is an extraordinary writ, issued by a superior court to an inferior judicial tribunal to prevent the latter from assuming jurisdiction in a matter over which by law it has no control, or from exercising its jurisdiction in a matter of which it has taken cognizance.’ ” The Court in that opinion noted that the Courts of Civil Appeals may not exercise a general supervisory control over District and County Courts, and concluded that on an original application, a Court of Civil Appeals may not issue a writ of prohibition “for the purpose of enforcing the jurisdiction of the District Court, or safeguarding the integrity of its judgment” where the jurisdiction of the Court of Civil Appeals has not been invoked in the matter pending before the District Court. The relief sought in that case was also denied by the Supreme Court of Texas. Texas Employers’ Ins. Ass’n v. Kirby, 137 Tex. 106, 152 S.W.2d 1073 (1941).

The decisions in the Kirby case were followed by the Court in Winfrey v. Chandler, 159 Tex. 220, 318 S.W.2d 59 (1958), where Justice Walker, writing for the Court, said:

“A court which is authorized to issue extraordinary writs to enforce its jurisdiction may not exercise that power in aid of its potential jurisdiction. It is only after that jurisdiction has been invoked in the manner prescribed by law and has thus become active that the court may act to enforce or protect the same. See, Art. 1823, Vernon’s Ann.Tex.Civ.Stat.; Texas Employers Ins. Ass’n v. Kirby, 137 Tex. 106, 152 S.W.2d 1073; Texas Employers Ins. Ass’n v. Kirby, Tex.Civ.App., 150 S.W.2d 123. * * *”

In 1975, the Beaumont Court of Civil Appeals in Guillory v. Davis, 527 S.W.2d 465, denied a petition for writ of prohibition in an original proceeding and said:

“Having examined the record and the authorities, we are of the opinion that this court does not have jurisdiction to entertain the application or to grant the writ, and the application for leave to file is now denied for the reasons to be stated.
“Our appellate jurisdiction has not been invoked in any manner by any party to this proceeding; instead, petitioner seeks to prohibit the presiding judge of the District Court of Montgomery County from further proceeding with the cause now pending in that court by invoking our original jurisdiction.”

Since our appellate jurisdiction has not been invoked in any manner with regard to either the partial judgment entered by the trial Court in March, 1977, or the order entered in June, 1977, granting the filing of the Interpleader, we originally erred in granting the motion for leave to file the Petition for Writ of Prohibition, and that Petition is now denied for want of jurisdiction.


author: HALL, Justice.

text:
    Bob BULLOCK, Comptroller of Public Accounts of the State of Texas, et al., Appellants, v. KING RESOURCES COMPANY, Appellee.
    No. 5763.
    Court of Civil Appeals of Texas, Waco.
    Aug. 25, 1977.
    John L. Hill, Atty. Gen., David M. Kendall, 1st Asst. Atty. Gen., Martha E. Smiley, R. L. Lattimore, Asst. Attys. Gen., Austin, for appellants.
    E. Richard Criss, Jr., Brown, Maroney, Rose, Baker & Barber, Austin, for appellee.
   HALL, Justice.

King Resources Company is a Maine corporation engaged in the oil and gas production business in Texas. It brought this suit against the State Comptroller and other involved officials to recover a deficiency franchise tax assessed against it for the year 1970 which was paid under protest. At issue is the interpretation of the term “net gain” in Article 12.02(l)(d), V.A.T.S. Tax-Gen., and its application to the accounting system used by plaintiff upon which it figured its franchise tax for the year in question. After a hearing without a jury, judgment was rendered awarding plaintiff recovery of the deficiency assessment. Defendants appeal. We affirm.

The pertinent parts of the statute in question provide as follows:

“Art. 12.02 Allocation Formula
“(l)(a) Each corporation liable for payment of a franchise tax shall determine the portion of its entire taxable capital taxable by the State of Texas by multiplying same by an allocation percentage which shall be the percentage relationship which the gross receipts from its business done in Texas bear to the total gross receipts of the corporation from its entire business.
“(d) For the purpose of this Article, the term ‘total gross receipts of the corporation from its entire business’ shall include all of the proceeds of all sales of the corporation’s tangible personal property, all receipts from services, all rentals, all royalties, and all other business receipts, whether within or outside of Texas. Provided, however, that, as to the sale of investments and capital assets, the term ‘total gross receipts of the corporation from its entire business’ shall include only the net gain from such sales.” (Emphasis added).

Since its inception, plaintiff has accounted in its books for its oil and gas properties under an accounting method known as “full-cost accounting system.” This method of accounting for oil and gas properties is used and reflected in plaintiff’s books for any purpose consistent with those records, including financial reports, income tax, and franchise tax purposes. The franchise tax report submitted by the company for 1970, and for all prior years, were made in accordance with this accounting policy for all its oil and gas properties.

Under the method of accounting used by plaintiff, all costs of exploration, acquisition, and development incurred by plaintiff in finding oil and gas reserves in North America (excluding the Canadian Arctic) are capitalized into a full-cost pool. The items capitalized include all costs incurred in finding, leasing, acquiring and carrying these properties, as well as the cost of nonproductive exploration, dry hole costs, certain abandonments, and general and administrative expenses directly related to exploration and development activities such as the expenses of plaintiff’s land and exploration departments. Annually, an average finding and developing cost per unit of reserve is determined by dividing the full-cost pool by plaintiff’s total reserve. This average per-unit cost is used in determining the amortization of the full-cost pool as reserves are produced. Similarly, it is used as a basis for allocating costs when properties are sold.

In the words of plaintiff’s controller, the accounting system used by plaintiff “is based on the premise that the reserves discovered by the Company must bear an allo-cable portion of nonproductive exploration costs, the general costs capitalized into the full-cost pool, and the property’s own direct costs.” It is evident, therefore, that under this system the terms “net gain” or “net loss,” when applied to the proceeds from the sale or disposition of producing oil and gas properties means the gain or loss realized by plaintiff after deducting from the sale proceeds the direct cost of the asset sold and its allocated share of general and nonproductive costs and expenses from the full-cost pool, whether such costs and expenses are directly related or not to the asset sold.

In 1970, plaintiff sold certain developed oil and gas properties located both in and out of Texas for $10,838,822.56. Based on plaintiff’s accounting system, the disposition of these assets was recorded in its 1970 books as follows:

Proceeds of sales of assets (credited to reserve for amortization) $10,838,822.56 $6,327,751.11
Less:
Direct costs of assets sold (credited to full-cost pool and charged to reserve) 4,411,089.58 2,081,253.73
Allocated [per unit] share of nonproductive and general costs(credited to full-cost pool and charged to reserve) 8,853,948.00 6,227,855.00
Loss on disposition (2,425,251.02) (1,981,357.61)

This accounting shows the reduction of the receipts from the sales by costs and expenses not directly related to the properties sold. Under it there was no gain from the sales to be considered under the allocation formula in article 12.02(l)(d) for determining plaintiff’s franchise tax.

On audit of plaintiff’s books, the Comptroller’s position was that the “net gain” referred to in the statute must be calculated by using an “expense” accounting system under which acquisition cost of an asset is not capitalized, but the asset is carried in the capital account in place of the cost amount expended from capital; and when the asset is sold the receipts of sale replace the asset in the capital account. Under this method, only the cost of acquisition and other expenses directly attributable to the asset are deducted from the gross receipts of the sale to determine the net gain on it for franchise tax purposes. Accordingly, the Comptroller disallowed all costs allocated by plaintiff to the sales in question except those directly related to the properties. This, in turn, reflected a gain on the sales and resulted in the deficiency assessment in dispute.

The defendants contended on the trial, as they do here, that the net gain on capital sales referred to in the statutory allocation formula may only be determined by using the direct expense accounting system upon which the Comptroller’s audit was based. They argue that inasmuch as the term “net gain” from the sales of capital assets is arbitrarily incorporated in the definition of “total gross receipts” in the statute, the legislature must have intended that the balance of the proceeds of the sales after deducting the related costs, only, would properly meet the meaning of the term; and that plaintiff’s accounting system is designed to show, and only shows, “whether the worth or financial condition of the corporation as a whole was affected by such sales.”

The statute does not define “net gain” as that term is used in the allocation formula, but the plain meaning of the words “requires that gains and losses be offset against one another in order that a net figure be obtained.” Calvert v. Electro-Science Investors, Inc., 509 S.W.2d 700, 702 (Tex.Civ.App.—Austin 1974, no writ).

Rulings issued by the Comptroller provide that a company’s franchise tax report “shall reflect and the tax shall be computed on the corporation’s financial condition as shown in its books and records of account”; that a recalculation of franchise taxes for prior years based on later adjustments or other changes in the books may not be made unless the adjustments or changes result from actual error in entries; that if the original book entry was made in accordance with generally accepted accounting principles in effect at the time, the entry cannot be considered to be an error; and that a change in accounting methods will not support a contention of erroneous entry.

The evidence shows that the full-cost accounting system used by plaintiff is in accordance with generally accepted accounting principles. It also shows that gains and losses reflected in plaintiff’s books under this system on sales of its oil and gas properties are net gains and losses.

Under the Comptroller’s rulings, plaintiff was bound to report for franchise tax purposes under the full-cost accounting system. It could not resort to another system of accounting to compute a more favorable report.

The full-cost accounting system, used year after year as it is by plaintiff, will necessarily prove equally fair to both taxpayer and State. It satisfies the statute.

Appellants’ points and contentions are overruled.

The judgment is affirmed.

      . On oral submission appellants stipulated that these rulings as set forth in appellee’s brief are correctly stated.