*1 Petitioner, COURSEVIEW, Incorporated, PETROLEUM
PHILLIPS COMPANY,
Respondent.
No. A-6286.
Supreme Court of Texas.
Dec. 1957. Rehearing
On Motion for March 1958.
Rehearing April 30, Denied *3 days
would have 20 thereafter within par- elect to from the acquiring ty specified fractional therein. to this action are Course- view, Incorporated, Compa- Mid-Coast Oil ny, Phillips Company, Petroleum and oth- ers whose names material. Course- view, claiming to have succeeded to the 7 paragraph *4 contract, brought against Phillips suit require a purchases disclosure of made in designated specif- area and to enforce ic performance right acquire of its an Bradley, Andrews, Kurth, & Campbell interest therein. At the of the conclusion and Andrews, Drury R. F. L. and James trial, evidence on judge the first the district Houston, Dilworth, Course- for W. James decided that necessary Mid-Coast was a view, Inc. party and declared a mistrial. Turner, Plarry Bar- D. L. Foster and R. joinder After the par of Mid-Coast as a and H. tlesville, Okl., E. R. K. Batten ty defendant, developed the suit into a con Elkins, Brown, & Searls Vinson, Weems troversy between Courseview and Mid- Plouston, Morrow, for Tarlton ownership Coast over the Beaty pur of the Co. Petroleum rights, chase and between Courseview and Phillips as to right specific former’s Plouston, Arterbury Wren, Woodul, & performance respect thereof with to var Oil Co. for Mid-Coast properties. ious theOn second trial there
was a directed verdict that Courseview take
nothing, but
WALKER,
the Court
.Appeals
of Civil
re
Justice.
versed and remanded the cause for a new
controversy
over the
This is a
trial. Courseview, Inc.,
Petro
purchase option rights
and enforcement of
Co.,
leum
258
(wr.
S.W.2d 391
N.R.E.).
ref.
in 1939 Amos
under a
executed
Company, Inc.,
Following
Bor-
remand,
&
Victor H.
L.
again
case was
Company. By
tried
sodi,
Phillips Petroleum
jury,
submitted to the
and judg-
contract, Beaty and Borso- ment
again
the terms of
entered that Courseview
oil,
thirty-five
take
assigned
nothing.
some
di
Appeals
Court
Civil
covering approxi-
gas and mineral
concluded that Courseview is entitled to no
3,000
mately
against
acres of land
Brazoria
relief
Phillips, but remanded the
County
Bayou
as the
cause
known
Chocolate
entry
trial court for the
Prospect,
reserving
judgment
tO' themselves one-
establishing Courseview’s owner-
ship
profits
purchase
fourth of the net
derived
of the
rights involved in the
operation
development
from the
of the
suit.
205 discovered, perhaps is accurate It more is the fraud time as say might have of trust diligence of a relation the existence of reasonable exercise trans the rule arm’s-length change confidence In an does not been discovered. is diligence discovering exercise the fraud party must action the defrauded required application own protection of his does ordinary care for the affect the Edsall, knowledge the rule. Tex.Civ. charged with See Edsall v. interests and is ; App., (wr. E.) discover N. R. all would have been 238 S.W.2d ref. facts which 285 similarly Visart, prudent person Bangs First Tex. reasonably State Bank of v. ed a writ) ; Civ.App., (no reason failure to exercise 259 28 Tex. situated. And a S.W. 987 73, con diligence Actions, p. mere Limitation of 162. able is not excused Sec. Jur. By relations, honesty integrity fiduciary into entering fidence in the have, Sipper, Tex. party. consent as other v. 137 a matter of law Sherman 85, 319, 263; Mathis their 152 A.L.R. conduct the standards S.W.2d 137 measured Stockdick, Tex.Civ.App., loyalties the finer courts v. 189 S.W.2d exacted 110, equity. Peckham, James, Tex. (wr. ref).; 106 83 Tex. See 132 v. v. Bass Johnson 148, 786, 18 120 720. The S.W. 336. S.W.2d 120 A.L.R. fiduciary relationship is therefore one hand, de-, does On the other limitation the circumstances to be considered begin not a trustee run favor of termining might fraud have been whether against the until the latter has notice cestui discovered of reasonable exercise trust, repudiation of a there is diligence. may excuse defrauded duty investigate no at least until party taking from action that be knowledge cestui has of facts sufficient required arm’s-length in an transaction or Trust, inquiry. Slay excite Burnett See v. making prompt searching as in 377; 143 Tex. 187 S.W.2d Moore v. vestigation expected. might otherwise be Ass’n, Tex.Civ.App. Building Waco 19 In legal duty some situations there is no ref.). Money coming 45 (wr. S.W. use means for discovering available public into held the hands officials be fraud, this is such We are a case. paid over in accordance with law prepared say* however, not that one in usually deemed be held trust within relationship a of trust and confidence rule. See Limitations of always justified neg as matter of law C.J.S. 179, p. Actions accordingly It has § lecting precaution every something until oc been held negligence com suspicions. curs to arouse his defalca-, missioners in failing to discover tions a county official can invoked be Each case must rest on own facts, after such commissioners had knowl and the in this record case establishes edge put person of facts conclusively Beaty’s that would have failure discover ordinary prudence inquiry. Hogan years more fraud than four before suit Hidalgo Tex.Civ.App., County, S.W.2d due to filed lack dili (no writ); County, part. Powell v. Archer gence on its The sources from which *9 Tex.Civ.App., ref.). 198 (wr. S.W. 1037 might the information have been obtained Some of our files, intermediate courts ex (1) have its own (2) Phillips, were: pressed relationship the that a view (3) public when the The records. evidence shows exists, of trust and confidence the defraud experienced that Farnsworth was an busi party ed duty under no engaged to means been use ness executive had in the twenty business for years. to discover fraud he oil more than until has notice of put agreements person executed, At time ordinary that would were facts of prudence they inquiry. prepared on knew that had been Dodds, See Atkins he or Phillips Tex.Civ.App., the direction (wr. 121 1010 under of S.W.2d Dis. affected Dean, company’s agr.); Dean v. his valuable oil Tex.Civ.App., prop 214 writ). (no erty. glancing After at 505 them and S.W. noting 206 filed, suit jury was has found to tract Bookout that one covered its. contrary. was- that was there that Overley other tract and in-, had, clause, Phillips successors first learned that profit-sharing converting year the Steig title In that override, land. he asked terest into an profits owners con- put the. of net agreements whether the rest of tract who had not to over- converted an as the on the same basis riding royalty employed an accountant agreement was assured version Phillips’ pur- audit books and records. The further
they signed without He did. then chase of Copies Overley tracts Bookout and examining the documents. light came to at in the of this audit and Beaty’s files course agreements held in two were Burch, evidently reported was who then The subsequent execution. to their all times owned the twenty-six interest now held Courseview. months and suit was filed ten promptly Phillips Burch he agree- days years notified after the more than four elected to an land interest in the ments executed. were and in ac- anything else that had been quired in the agree- area covered parties and relationship of ment. representations as found fraudulent failure undoubtedly jury excused jury Beaty’s found officers agreements Beaty’s of read officers put were on inquiry of and in the exercise They were at execution. the time their diligence reasonable have should discovered rely statements upon Steig’s entitled prior May 28, 1946, had diligence want charged cannot he with bought the two tracts land. Information verify he them. failing what told regarding some these have might matters them to no reason for then be There would been public obtained from the records they copies became unless examine the perhaps by Phillips. inquiry view In suffi fact or circumstance aware of some relationship Phil- inquiry. cient excite lips’ obligation contractual give notice purchases area, Bedty designated in the question whether On the charged diligence cannot be with lack of inquiry, we are concerned put failing to examine the records make in- knowledge to its which came facts quiry until knowledge it had transpired Nothing prior May some fact that should have aroused ills any this date that could have caused before suspicions. Farnsworth learned as earlyj suspect conver immediately to one prop- as 1939 that was purchasing rep than as were otherwise sion erty Bayou Field, in the Chocolate but he is, however, an by Steig. resented There bought any did not know that it had been might have by which it other channel by paragraph area smaller covered Knowl of the fraud. led a discovery Since ex- contract. had bought Bookout edge had give pur- pressly contracted notice of provoke naturally would tracts area, designated chases in the noti why Beaty not been inquiry as to had rely entitled to on the until there circum purchases. Under such fied was some reason it to believe agree stances, regarding true facts Phillips might comply obliga- with its brought light ultimately be ments purchases The fact that tions thereunder. proper diligence. by the exercise vicinity made had been would not *10 Beaty’s anyone position suspect to evidence in Phillips attention cause calls Phillips up would not live to that the con- might fact have trier of from which required give the if did tract and notice and Gorman Farnsworth that concluded acquired any property was in purchase and when the Bookout of know of area. years specified before than four more Overley tracts by- None of the information received notice purchases in accordance in Beaty prior 28, 1946, provisions tend May would to contract and any way inves- suspicion cause arouse and its successors first knew of them tigation prudence person ordinary March, in of Beaty’s 1949. We have held that similarly of situated as to either effect failure any to learn of them not was due the 1945 agreements conversion or the ac- lack diligence. Phillips of given could have quisition property required in the area covered thereby compelled notice and therefore, hold, contract. We an twenty days election within thereafter. Beaty’s failure to either discover Instead silent, of doing this it remained Phillips’ designat- fraud or purchases optionee in did purchases not learn of the ed was dili- area not want due until fourteen months before filed. suit was gence, and that of ac- Courseview’s cause The expected latter could not be to make an tion for reformation of the 1945conversion election until it knew that had four-year not barred acquired property, and the cause of statute. specific action for performance did not arise option before hold, was exercised. We cause argues that the therefore, that such action is not barred specific performance of action arose Toledo, the statute of & limitations. See P. acquired when the Bookout and Brown, W. R. R. v. 31 N.E.2d Ill. tracts in 1943 barred and therefore is 767; Roberts, Hall 58 Hun 12 N.Y.S. four-year We do statute of limitations. contract, agree. not Under the terms of the acquire party either free mineral It is unnecessary to consider Course- royalty titles in its own interests and fee point, view’s fifth question which raises a name, with its own and for its own funds proof burden passed upon not expressly benefit, subject other only right to the by the Appeals. Court of Civil The remain- party participate do therein if it elected to points ing require a construction of the 1939 stipulated acquir party so. It was that the types property to determine the specified ing any property in area subject purchase rights. By notify party writing, the other in terms, rights apply “any such royalty days twenty the latter would have there or mineral interest or fee title” thereafter after in which whether writing to elect in purchased by party either within the purchase an interest therein designated area. It stipulated was also provided in The the contract. instrument acquired all leases thereafter Beaty in the option, simply continuing offer- creates an purchased area would be only for and with which would become a bilateral contract by Phillips. funds furnished The Court of accepted by optionee sale when Appeals Civil concluded that and its agreed the manner and within the time successors right would have no parties. It follows that by Phillips, duty convey an interest no and the do not contend otherwise. royalties party overriding until the other its election the same. made Phillips acquired In 1945 certain plaintiff is not a case in which the This interests lands within performance pre- delayed the has some area, designated and Courseview claims upon which liminary right act sue an interest therein. dependent power and which he had the to At the acquisition time Phillips was perform. agreed the owner of the leasehold estate out of period its successors would have a royalties the overriding question twenty days after written notice from had been argues carved. pur option. in which to exercise the chase of these interests simply com give jury found that did not pleted estate,. leasehold *11 this subject contract While the is therefore purchases are and that such struction, the entirely. possible that have it is We purchase rights. subject or “any royalty or interest char- words mineral royalty interests of concludedthat convey somewhat a fee title” were used to contract. acter are covered language meaning. By different limitation without parties agreed The pur- parties may make have intended to interest mineral any royalty or kind or fee rights applicable any interest chase rights. subject to be would read- A title in minerals. either or carved royalty is Although overriding an they were ing discloses that of the contract interest, nevertheless it working out of dealing primarily and mineral in minerals an is also royalty and type of is one in surface interests and were not interested reading of a From minerals. in the purpose in principal Their estates such. intended parties plain that the contract ob- making own rights reciprocal to create paragraph 7 development held then tain of the minerals share except respect to the fractional with pros- acquired by them in the thereafter property purchase in might which each en- pect of the area. From a consideration of one right acquired by other. instrument, they in- tire did not we believe specified acquire share party purchase rights apply to a tend for the by the purchased royalty interest mineral or acquired apart any in- surface estate right from the different to be no other was terest in the minerals. were situation event the of the latter Paragraph contract re 7 of the over- purchased the Beaty had If reversed. quires optionee, option in the event the controversy, ifor riding royalties here exercised, speci pay party the other 'time at a Phillips acquired the same had prop fied fractional share of the cost of estate, leasehold own the when it did not erty. In its Bookout of the right' clearly would have party the other tracts, Overley acquired in.each in think We therein. purchase an interest stance the fee title for a consideration Beaty to for have intended must covered both the surface and mineral es royalty was right when the the same have provides for tates. no method (cid:127) acquiring the by Phillips after purchased allocating the cost between the two estates argues that estate. leasehold acquired under these circumstances. We performance' specific the cause of action conclusion, therefore, led royalties is overriding respect with option rights extend the surface estate do statute, have foiir-year we barred acquired roy when with thus mineral question discussion disposed in our of this alty interest or fee title in the tract of same Overley Bookout and tracts. of the land, does not contend other wise. point final attacks the Courseview’s Appeals that the Court of Civil
holding of judgment: (1) The trial will enter court only' purchase by surface establishing Courseview’s subject to Andrau 40-acre tract is not Beaty purchase option rights as directed option rights granted opinion con the 1939 concluding paragraph specified' Appeals, argues (2) grant- that the Civil tract. It Court of they dealing of the 1945 interests were with reformation ing the exact Courseview ap specific per- plainly agreed conversion purchase, (1) royalties, (2) min in accord- ply things: to three formance of interests, contract, (3) then of the 1939 fee titles. ance terms eral says acquire tracts the Bookout did a fee title interests tract and that the the Andrau and the surface che Phillips in tract of 108.8 acres out applicable be rights are should 1, Hooper and Wade Sur- No. of Section enforced.
209 questions must our but on some of the judgment views respects the vey. In all other court. appealed guidance be of the trial for stated court, far it is in so as the district will appeal on from, The costs is correct. argues Phillips that since leases Phillips Mid- equally between be divided Overley assigned Bookout tracts were Coast. contract, it to it paragraph of the 1939 Ap- under the terms of the Civil entitled the Court of judgment to acquire cause tract hold an undivided remanding the peals reversing and n af- is interest each of these tracts entry mineral in judgment trial court for intermedi- free and clear of the firmed, but the instructions posi- by paragraph to this created It takes the are conform ate court modified may tion now that Courseview opinion. ¡4 Bookout tract J4 tract, Overley latter of the Ys part.
CULVER, J., %2 in dissents acquired Phillips subject having been CULVER, Justice (dissenting in part). a persons n nonparticipating who are not royalty outstanding in this suit. Appeals reviewing provisions Court of Civil agree I After all the wit, jury, findings contract, opinion is our that Courseview it would possession purchase one-eighth facts was in all the entitled upon person ordinarily prudent title, put an ac- have estate which diligently, pursued, quired inquiry if each of tracts. .would the two May 28, discovery, prior to led to the have requests us instruct Courseview did ter- as written a require court to file trial respect to purchase rights with minate disclosing any purchases, verified statement tracts, to ex- Beaty failed the two Bookout, Overley other than discover the diligence to reasonable ercise Thompson royalty, in tracts and the Andrau would agreeement effect of the legal paragraph specified con area reasonable so the exercise of done have requiring such An order disclosure tract. supported the evidence. diligence, court in entered trial part. dissent in I therefore through attorneys wrote Courseview accept signed a that it would letter Rehearing. Motion for On responsible official of the com latter
pany filing would not insist WALKER, of a statement. It went on verified Justice. however, say, prej that this was without opinion judg- directed that Our right to udice to its sworn disclosures and Courseview, granting ment be entered it accounting full event was success relief, specific performance among other Phillips thereupon ful in furnish this suit. an interest of its stating aed letter that it had not Overley certain Bookout and tracts and designated mineral interest in the area overriding royalty interests referred except the Bookout and tracts and Thompson royalty. In as conveyed by theretofore rehearing, motions for their to Burch. Courseview then advised for the time a raise first number Courseview accepted as letter was questions regarding interest which compliance with substantial the order of acquire latter is entitled these pur the trial court “serve properties duty former’s to account and the pose completed.” until after trial production A detailed therefrom. dis- expressly accepted Since Courseview cussion of all their contentions would serve opinion, purposes lengthen letter sufficient for the purpose except to no *13 suit, assignment'of insist position is present in no Beáty Phil- lips proceeding. in this and does purchase rights further disclosure not affect the trial under power of the 7 of the contract or the right paragraph to seek and the Its action the same in another interest to order court Courseview is entitled acquire suit or prejudiced are not Overly the Bookout and tracts. correspondence money paid mentioned above. and its successors by virtue royalty of their of such requested instruct the trial We are also will charged not be to Courseview in the require to account court accounting Phillips. all latter’s share for the Courseview Bookout production income from the Courseview’s motion for is rehearing Thompson Overley granted tracts and to the extent that the court trial Phil- acquired by directed, each was from the time is in addition to the instructions cause lips. insists that since the set out The latter original opinion, require our specific performance for did of action to account to for the Courseview exercised, option until was latter’s share of production, arise all income and from right accounting to an should date revenues derived from or credited to the time. Bookout Thomp- tracts and the son royalty from was the date each ac- not a case in which the This quired by Phillips. respects, In all other optionor has had the use of or received the the several rehearing motions for filed optioned property income from the at herein are overruled. optionee had no to or time when pur option simply his failed to exercise fiduciary were in a
chase. Here the produced
relationship min has when, period during from
erals the land default,
through Phillips’ own they
its successors not even know that did acquire an were entitled to interest PITTMAN, Petitioner, W. E. Under the terms the 1939 contract. circumstances, chargeable equity trustee held as a constructive Ray BALADEZ, Respondent. Beaty’s production share and other No. A-6530. property income and revenues Supreme Court of for the benefit latter in event Texas. option option was When exercised. March 26, 1958. agreement was bi converted under a Rehearing April 30, Denied sale, therefore, contract of lateral Course- accounting view became entitled production of all and income from share respective properties from and after acquired by Phillips. each date It should royalty, which be noted accepted by n profits in lieu of net
under the 1939 contract which was Midcoast, purchased plays part
later no accounting between repre-
Courseview. This original' consideration for the
sents the