Cherokee Water Co. v. Forderhause

• Citation: 727 S.W.2d 605
• Decision Date: 10 February 1987
• Docket Number: No. 9502,9502
• Parties: CHEROKEE WATER COMPANY, Appellant, v. Martha Paul Rogers FORDERHAUSE, et al., Appellees.
• Court: Court of Appeals of Texas

Page 605

727 S.W.2d 605

CHEROKEE WATER COMPANY, Appellant, v. Martha Paul Rogers FORDERHAUSE, et al., Appellees.

No. 9502.

Court of Appeals of Texas,

Texarkana.

Feb. 10, 1987.

Rehearing Denied March 4, 1987.

John W. Stayton, Jr., McGinnis, Lochridge & Kilgore, Austin, Gordon Wellborn, Wellborn, Houston, Adkison, Mann & Sadler, Henderson, for appellant.

T.A. Bath, Bath, Turner & Barber, Henderson, D.L. Case, Jackson, Walker, Winstead, Cantwell & Miller, Dallas, for appellees.

GRANT, Justice.

Cherokee Water Company appeals from an adverse judgment in which Forderhause, et al prevailed in a jury trial by obtaining reformation of an option clause contained in a deed. This cause was severed from an original suit for which the opinion is found in 623 S.W.2d 435 (Tex.Civ.App.--Texarkana 1981), and the reversal by the Texas Supreme Court is found in 641 S.W.2d 522 (Tex.1982).

In the original suit, the Supreme Court determined that the language of the deed was not ambiguous and that an oil and gas lease was within the scope of the language providing for a preferential right to purchase. The Supreme Court determined that the use of the word "sale" encompassed what is sometimes referred to as a "lease" of the minerals, because the common oil and gas lease creates a determinable fee and vests the lessee with title to the oil and gas in place.

The language in controversy in the deed is as follows:

Grantee is hereby given the first option to purchase the oil, gas and other minerals herein reserved, at the same price and on the same terms as Grantor has agreed to sell to a third party; such option to be accepted or rejected within five (5) days after Grantee has been furnished with the bona fide offer made by such third party. Failure to exercise such option on one sale, shall not be a waiver to purchasing at any subsequent sale or sales by Grantor.

At the time of the transaction in question, a tract of 59.71 acres in Rusk County was owned jointly by three brothers and their wives, Mr. and Mrs. C.E. "Shot" Rogers, Mr. and Mrs. Paul Rogers, and Mr. and Mrs. J.E. Rogers, who will collectively be referred to as the Rogers brothers (which includes their wives). The appellees are Martha Paul Rogers Forderhause, Mrs. J.E. (Fairy) Rogers, individually and executrix of the estate of J.E. Rogers, deceased, Glenn W. Rogers, and Doris Rogers Walters. Cherokee Water Company, appellant, will be referred to as Cherokee.

In the summer of 1947, Clyde Hall, accompanied by some other men, talked to C.E. "Shot" Rogers about the plan to purchase the land to build a lake. According to the testimony of "Shot" Rogers's son, the men appealed to "Shot" Rogers to "sell it [the land] on the ground of civic improvements and this sort of thing." Rogers told them that he was not interested in selling, and that his brothers probably were not interested either.

On August 19, 1947, the three brothers and their wives met G.W. Sharp at "Shot" Rogers's store in the Stewart community of Rusk County. After a discussion between Sharp and the Rogers brothers, which lasted approximately an hour, the Rogers brothers signed a form deed conveying the property to Clyde H. Hall, trustee.

On February 15, 1949, Hall, as trustee, assigned Cherokee the land which the Rogers brothers had conveyed to Hall as trustee, together with the lands covered by 166 similar deeds. The assignment recites that the lands had been purchased by Clyde H. Hall, trustee, "for the benefit of Cherokee Water Company," and the assignment is made "without covenants of warranty either expressed (sic) or implied for the reason that this deed purports to convey only the rights, titles, and interests acquired by the said Clyde H. Hall, Trustee, by virtue of the above-described conveyances."

On June 29, 1950, the Rogers brothers executed an oil and gas lease to Atlantic Refining Company covering the property in question. They did not give Cherokee a first right of refusal, nor did they notify Cherokee of the transaction. Fairy Rogers testified that this was because they did not think they were required to do so. After the expiration of the lease to Atlantic, the Rogers brothers executed an oil and gas lease to E.S. Boase and Neil Woods on December 27, 1976. On February 24, 1978, the Rogers brothers were notified by Cherokee's attorney that Cherokee was entitled to first refusal rights to purchase the minerals on the same terms as the Rogers brothers had elected to sell to a third party, and that the failure of the Rogers brothers to notify Cherokee before leasing to Boase and Woods was in violation of Cherokee's preemptive rights to purchase the minerals. A suit was then brought by Cherokee against the Rogers brothers for specific performance of the option clause. The Rogers brothers brought a counterclaim for reformation of the deed, and the trial court severed their claim. That severed counterclaim is the case before us at this time.

The case went to the jury on three issues. ¹ The jury found that G.W. Sharp Cherokee raises twelve points of error, contending as follows: (1) that the trial court erred in excluding evidence of the Rogers family's experience in land transactions; (2) that the trial court erred in admitting evidence of Cherokee's non-exercise of its first refusal option many years after the execution of the deed and by admitting an agreement made in 1977 between Cherokee and Eagle Energy Group concerning the future exercise of the option, because this evidence was irrelevant and was prejudicial; (3) that the trial court erred in not granting Cherokee's motion for judgment non obstante veredicto and to disregard the answers to the special issues, because Cherokee was a bona fide purchaser for value; (4) that the trial court erred in entering a judgment against them because there was insufficient evidence or no evidence to support the jury's answer to each of the special issues; (5) that the trial court erred in submitting special issues two and three, because those issues did not correctly submit the elements of mutual mistake which would entitle a party to reformation; (6) that the trial court erred in admitting hearsay evidence. We address these points in the order set forth above.

was acting for and on behalf of Clyde Hall, trustee, when he secured the agreement of the Rogers brothers to sell the property to the trustee of Cherokee. The jury further found that before the signing of the deed in question, the parties to the deed had made an agreement that the first option clause of the deed would not include leases of oil, gas and other mineral interests. The third finding of the jury was that the failure of the option clause to expressly exclude leases of oil, gas and other minerals was the result of a mutual mistake as to the legal effect of the language used in the first option clause.

Cherokee sought to introduce evidence that Fairy Rogers and her husband were experienced in land transactions at the time of the 1947 deed. Cherokee proposed to introduce twenty-three recorded instruments evidencing real estate transactions involving Mr. and Mrs. Rogers. The trial court sustained an objection that these exhibits were not relevant. Cherokee contends that the evidence was relevant on the issue of whether or not there was a mutual mistake in connection with the execution of the deed and that these exhibits would have benefited the jury in weighing the credibility of Fairy Rogers' testimony. Fairy Rogers had testified that she and her husband had "bought land, sold land and kept minerals and let minerals go." She had not denied that she and her husband had been involved in land transactions involving minerals. Therefore, the introduction of the deeds of prior transactions was not in the nature of impeachment and was cumulative of the earlier testimony. Thus, we find no error.

Cherokee further contends that the trial court erred in admitting evidence concerning the Eagle Energy Group. In 1977, Ray B. Powers, Jr. was an independent landman in East Texas and was working on behalf of Hunt Oil Company in the Rusk and Gregg County area. He discovered the numerous conveyances to Clyde H. Hall, trustee, which contained the grantee's first right of refusal in the event the grantor decided to sell the minerals. After terminating his employment with Hunt Oil Company, Powers and his partners (calling themselves Eagle Energy Group) entered into an agreement with Cherokee whereby if Cherokee acquired any leases as a result of its exercise of the preferential right, the working interest would be assigned to Eagle Energy Group, with Cherokee receiving an overriding royalty and bonus. Between 1947 and 1977, before the agreement between Cherokee and Eagle Energy Group, Cherokee had exercised its right of first refusal only on one occasion. Evidence was also introduced that Cherokee was prosecuting this litigation under the Eagle-Cherokee agreement. This evidence does no more than show Cherokee's interest in obtaining the leases. Cherokee is not involved in mineral development, but by the terms of the transaction with Eagle, Cherokee could obtain benefits including an overriding royalty by obtaining the leases and assigning them to Eagle.

Evidence regarding Cherokee's failure to exercise its right of the first refusal for thirty years and the role played in this litigation by Eagle Energy Group was admissible to show the entire circumstances involved, including Cherokee's attitude and understanding of the right of first refusal provision in the contract. As pointed out by the court in State v. Wales, 271 S.W.2d 728 (Tex.Civ.App.--Beaumont 1954, writ ref'd n.r.e.), "Mutual mistake, where a controversy goes to the courts, will not be readily established by the admissions of the parties to be affected by the reformation of a deed or contract. Like a conspiracy a mutual mistake is generally established from facts and circumstances surrounding the parties." The determination of reformation...