Forderhause v. Cherokee Water Co.

• Decision Date: 25 August 1981
• Docket Number: No. 8890,8890
• Parties: Martha Paul Rogers FORDERHAUSE, et al., Appellants, v. CHEROKEE WATER COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 435

623 S.W.2d 435

Martha Paul Rogers FORDERHAUSE, et al., Appellants, v. CHEROKEE WATER COMPANY, Appellee.

No. 8890.

Court of Civil Appeals of Texas, Texarkana.

Aug. 25, 1981.

Rehearing Denied Oct. 13, 1981.

T. A. Bath, Dean W. Turner, Bath & Turner, Henderson, Ruff P. Wall, Carthage, for appellants.

Alison I. McLemore, Longview, Gordon Wellborn, Henderson, Lloyd Lochridge, John W. Stayton, Jr., McGinnis, Lochridge & Kilgore, Austin, for appellee.

CORNELIUS, Chief Justice.

This litigation involves the validity and enforceability of a preferential right to purchase agreement covering oil, gas and other minerals, and the applicability of such an agreement to an oil and gas lease covering those minerals. The trial court rendered summary judgment for the holder of the preferential right, declaring that the agreement did apply to the execution of an oil and gas lease, and ordering specific performance. The mineral owners' plea for reformation of the agreement was severed and set for trial as a separate cause of action. The mineral owners have appealed.

In 1947, J. E. Rogers and others were the fee owners of a tract of 59.71 acres of land in Rusk County, Texas. Cherokee Water Company planned to build a lake which would inundate the tract. On August 19, 1947, the mineral owners executed a deed to Clyde Hall, Trustee (who later conveyed to Cherokee Water Company), conveying the surface of the 59.71 acre tract, but reserving all of the oil, gas and other minerals. The deed also gave the grantee and his assigns the first option or preferential right to purchase the oil, gas and other minerals should the mineral owners ever desire and agree to sell them. The pertinent provisions of the deed and preferential right to purchase are set out as follows:

"In reference to the reservation of oil, gas and other minerals, it is expressly understood and agreed that the above land is purchased by Grantee for the purpose of forming a Lake and that all or a part of said land will be covered with water that will vary from a few to many feet in depth. This right of Grantee to cover said land with water is superior to the rights of Grantor to use said land to remove said minerals as above set out and the mineral owners shall not, in any manner, subject the Grantee to damages, liabilities or obligations of any kind or character by reason of the construction of said dam and covering said land with water. The rights of Grantor to said minerals shall be the same as if such minerals were conveyed to Grantor after said Lake is created and established. If a well or wells are drilled to remove said minerals, such well or wells shall be so operated and maintained as not to in any manner pollute the Lake water with salt water, hydrocarbons or other foreign matter. If a dike or road is built from the shore line to such well or wells, the same shall be so located as not to interfere with the use of said Lake by Grantee, his successors or assigns, and such dike or road shall not be constructed across said Lake so as to obstruct free and continuous passage of boats going to and from one part of the Lake to another part of such Lake. No act shall be performed by the mineral owner or his successors and assigns that is not necessary in order to remove said minerals.

"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." (Emphasis added.)

The land was subject to an oil and gas lease at the time the deed was executed, and during the succeeding thirty years after the execution of the deed several other leases were executed and production was obtained, but none of the parties attempted to comply with or to enforce the purchase agreement until the mineral owners executed an oil and gas lease to Messrs. Boase and Wood in late 1976. Thereafter, on February 24, 1978, Cherokee Water Company notified Mrs. J. E. Rogers and the other interested parties that it considered that the lease to Boase and Wood constituted a sale of the minerals within the terms of the purchase agreement, and asked for information concerning the terms of the lease so that it could exercise its right to purchase. The mineral owners furnished the information concerning the lease terms, but rejected Cherokee's proposition that it was entitled to a first option to purchase the lease. Cherokee then filed suit for declaratory judgment and specific performance against all parties having title to the minerals or leasehold estates. The mineral owners and other defendants answered raising various defenses. They also filed an alternative plea asserting that if the purchase agreement was construed to apply to the execution of an oil and gas lease, as distinguished from an ordinary sale of the minerals in fee, a mutual mistake had been made in drafting the agreement and it should be reformed to exclude oil and gas leases. Although the landowners raised a number of equitable defenses such as laches, estoppel and the like, both sides moved for summary judgment on purely legal grounds. After severing the mineral owners' plea for reformation, the trial court granted Cherokee's motion for summary judgment.

The mineral owners' first contention on appeal is that the preferential right to purchase agreement is unenforceable because it is in violation of the rule against perpetuities. We disagree.

The public policy of our State recognizes that alienability is a necessary and desirable legal incident to the ownership of property, and consequently restraints on alienation are not favored. This public policy is manifested in Article I, § 26 of the Texas Constitution which prohibits perpetuities. ¹ The rule against perpetuities is that no interest within its scope is valid unless it must vest, if at all, no later than twenty-one years after some life in being at the time of the creation of the interest, plus the normal period of gestation. Clarke v. Clarke, 121 Tex. 165, 46 S.W.2d 658 (1932); 45 Tex.Jur.2d Perpetuities and Restraints, Etc. § 2, at 96. Thus, a grant or interest which may not vest within that period of time, and which operates to take the property out of commerce and restrict its alienation, is void. Brooker v. Brooker, 130 Tex. 27, 106 S.W.2d 247 (1937); Weber v. Texas Co., 83 F.2d 807 (5th Cir. 1936), cert. denied, 299 U.S. 561, 57 S.Ct. 23, 81 L.Ed. 413 (1936).

A preferential right to purchase differs from a standard option in that the latter gives the optionee the right to compel a sale of the property at a stipulated price, whereas the holder of a preferential purchase right has no right to compel a sale or to prevent a sale, but only has the right to be offered the property at a fixed price or at a price offered by a bona fide purchaser if and when the owner decides to sell. Reasoner, Preferential Purchase Rights In Oil And Gas Instruments, 46 Texas L.Rev. 57 (1967).

There are two views in the United States concerning whether a preferential right to purchase is unenforceable because in violation of the rule against perpetuities. One view is that such a right, if unlimited as to time, is violative of the rule and will not be enforced. See Robroy Land Co., Inc. v. Prather, 24 Wash.App. 511, 601 P.2d 992 (1979); Martin v. Prairie Rod and Gun Club, 39 Ill.App.3d 33, 348 N.E.2d 306 (1976); Atchison v. City of Englewood, 170 Colo. 295, 463 P.2d 297 (1969); Melcher v. Camp, 435 P.2d 107 (Okl.1967); Neustadt v. Pearce, 145 Conn. 403, 143 A.2d 437 (1958); Annot., 40 A.L.R.3d 920 (1971). The other view is that the rule against perpetuities is only a means of preventing unreasonable restraints on alienation, and if a preferential right to purchase does not operate to restrain alienation, but only dictates who shall have the first right to acquire property when and if the owner desires to sell it, then the agreement is not within the prohibition. See Foster v. Bullard, 496 S.W.2d 724 (Tex.Civ.App.-Austin 1973, writ ref'd n. r. e.); Sibley v. Hill, 331 S.W.2d 227 (Tex.Civ.App.-El Paso 1960, no writ); Courseview, Inc. v. Phillips Petroleum Co., 258 S.W.2d 391 (Tex.Civ.App.-Galveston 1953, writ ref'd n. r. e.); Weber v. Texas Co., supra. The latter view appears to be the rule in Texas and we will follow it in this case. The purchase right involved here does not constitute an unreasonable restraint on alienation. There is no fixed price. There is no absolute option unlimited as to time. There is only the right, exercisable whenever the owner desires to sell, to purchase the property by meeting any bona fide offer. The holder of the right cannot force or prevent a sale; neither can he fix the price for a sale. In those circumstances there is not such a restraint on alienation as would violate our public policy. Weber v. Texas Co., supra.

We agree, however, with the mineral owners' assertions that it was error to grant summary judgment interpreting the agreement to include leases, and further that the plea for reformation should not have been severed from the remainder of the litigation.

Contractual provisions in deeds, like those in any other contract, are to be interpreted by ascertaining the intent of the parties to the instrument. Garrett v. Dils Company, 157 Tex. 92, 299 S.W.2d 904 (1957); Harris v. Windsor, 156 Tex. 324, 294 S.W.2d 798 (1956); Worley v. Empire Gas & Fuel Co., 129 Tex. 532, 103 S.W.2d 368 (1937). That intention is to be gathered from the language used in the instrument rather than by the subjective intent of the parties, but the words used must be given the usual and normal meaning ascribed to them by ordinary persons in the same or a similar situation. Fox v....