Humble Oil & Refining Co. v. Atwood

• Decision Date: 31 October 1951
• Docket Number: No. A-3126,A-3126
• Citation: 244 S.W.2d 637,150 Tex. 617
• Parties: HUMBLE OIL & REFINING CO. et al. v. ATWOOD et al.
• Court: Texas Supreme Court

Page 637

244 S.W.2d 637

150 Tex. 617

HUMBLE OIL & REFINING CO. et al. v. ATWOOD et al.

No. A-3126.

Supreme Court of Texas.

Oct. 31, 1951.

Rehearing Denied Jan. 16, 1952.

Rex G. Baker, R. E. Seagler, Felix A. Raymer and M. P. Pearson, all of Houston, Leroy G. Denman, Jr., and Robert Lee Bobbitt, Jr., San Antonio, S. L. Gill, Roger F. Robinson and S. P. Nielson, all of Raymondville, Jones, Hardie, Grambling & Howell, El Paso, for petitioners-respondents, Humble Oil & Refining Company et al.

Thomas Hart Fisher, Chicago, Illinois, Black & Stayton (Charles L. Black and John W. Stayton), of Austin, Cix, Wagner, Adams & Wilson, of Brownsville, for respondents-petitioners, Edwin K. Atwood and Alice B. Atwood.

WILSON, Justice.

The parties will be identified as in the trial court where the Atwoods were plaintiffs and the defendants were the Humble Oil & Refining Company, the King Ranch, a corporation, and various members of the King and Kleberg families.

The principal question is: Can an oil and gas lease be adjudicated to be both a mortgage and a grant of minerals under a line of cases begining with Stamper v. Johnson, 3 Tex. 1, and continuing through Bradshaw v. McDonald, 147 Tex. 455, 216 S.W.2d 972? The answer is 'No.'

We reach this question as a result of long and involved litigation between the Atwoods and other heirs who jointly inherited the King Ranch. This ranch was administered for a period under a trust established by an ancestor of all parties. Becoming dissatisfied with the administration of the trust, the Atwoods filed and prosecuted to judgment three suits in the U. S. District Court for the Southern District of Texas, styled, respectively: Atwood v. Kleberg, Equity Action No. 74, Main Case and Ancillary, on appeal 163 F.2d 108; Atwood v. Kleberg, Equity Action No. 102; and Atwood v. Kleberg Equity Action No. 101, on appeal 133 F.2d 69, on rehearing 135 F.2d 452. That portion of this Federal litigation material to this case consisted of an attack upon oil and gas leases executed by the trustees. In the Federal litigation it was determined that the minerals had not been severed prior to the creation of the trust; that the trustees had authority to execute the oil and gas leases; that the leases as executed did not violate the trustees' duty to the cestui que trust; and that the oil and gas leases involved here were valid.

Following these adverse decisions, the Atwoods brought this suit in the Texas courts seeking: (1) an adjudication that the oil and gas lease on that portion of the ranch partitioned to them is a mortgage, and for redemption; (2) cancellation of the oil and gas lease 'because extending 18 1/2 years and longer beyond the end of a limited ten-year trust form;' (3) reformation; (4) an accounting; (5) damages; (6) and general relief. The King Ranch corporation and other defendants joined Humble in resisting the attacks.

Both sides plead res adjudicata and estoppel by reason of the Federal litigation and both vigorously argue that Moore v. Snowball, 98 Tex. 16, 81 S.W. 5, 66 L.R.A. 745, supports their contention. On Item (1), plaintiffs contend that the debt was not finally paid until after the judgments in the Federal cases, so that the case at bar neither could nor should have been urged in that litigation. The trial court severed the issues of res adjudicata and estoppel and upon them rendered judgment for defendant that plaintiffs take nothing.

In the case at bar the Court of Civil Appeals held, 239 S.W.2d 412:

(a) That in the Federal litigation plaintiffs sought to have the leases declared invalid for a number of reasons, all of which were determined against them;

(b) that in the case at bar plaintiffs do not seek to have the leases declared invalid but instead seek to have them declared valid as mortgages;

(c) that the cause of action asserted in the case at bar could not and should not have been raised in the Federal litigation because an action to redeem from a mortgage may not be brought prior to the satisfaction of the obligation, which did not occur until after the termination of the Federal litigation.

(d) that the issue of mortgage vel non was not determined for either party in the Federal litigation.

(e) that the judgment of the trial court should be reversed and the cause remanded for trial on the issue of mortgage.

Items (2) and (3) above were determined against plaintiffs in Atwood v. Kleberg, 133 F.2d 69, and we do not pass upon them other than to hold that they were there decided. Since we have determined that no cause of action is asserted in Item (1), plaintiffs are not entitled to either damages or general relief under Items (5) and (6).

Upon Item (1) we do not reach Moore v. Snowball, supra. Defendants contend that the Federal courts have three times adjudicated the leases under attack here to be valid mineral leases and an instrument cannot be at the same time both a lease and a mortgage. Plaintiffs reply that: 'This argument ignores the fact that, while a given conveyance may be a lease in truth and in fact, yet it may also have been executed as security for a debt and for that reason in equity 'be treated as a mortgage."

Clearly such an attack as that alleged in Item (1) is barred by the parol evidence rule unless the attack comes within the exception that a deed absolute may be proved to have been intended to serve as security for a debt and adjudicated to be a mortgage.

In Bradshaw v. McDonald, supra (147 Tex. 455, 216 S.W.2d 974), is found the statement that 'the rule allowing an absolute deed to be proved a mortgage * * * relates to that one type of document and to that sole purpose.' Plaintiffs contend, to the contrary, that this exception to the parol evidence rule should operate upon any estate in land, should not be limited to a deed of the entire fee, and governs the case at bar, citing Stephens v. Sherrod, 6 Tex. 294; De Bruhl v. Maas, 54 Tex. 464; Nugent v. Riley, 1 Metc. 117, 42 Mass. 117; Lanfair v. Lanfair, 18 Pick. 229, 35 Mass. 299; Barnett v. Williams, 101 S.W. 1191, 31 Ky.Law Rep. 255; Johnson v. Hataway, 155 Ala. 516, 46 So. 760; Mostyn v. Lancaster, 23 Ch.D. 583. These citations require an analysis of the basic elements of a mortgage in Texas and its legal effect.

The early common law recognized two kinds of landed securities. Blackstone in Sec. III of Chap. X (of Estates Upon Condition) p. 156, identifies these as '* * * vivum vadium, or living pledge; and mortuum vadium, dead pledge, or mortgage.' He defines a mortgage as a grant of fee upon condition of repayment of a debt and this has come down as the traditional language used in most mortgage forms.

Originally, possession passed by livery of seizin to the mortgagee. And back of this lies one of the historical reasons for the use of language of grant in a mortgage. Because the distinction between interest and usury was a slow growth, the emergency of the concept of a return upon money capital (as distinguished from land) brought on an intense conflict between the ecclesiastical and common law courts. During a long period any return upon a loan might be declared usury, the parties to it caught in the friction between the common law and the ecclesiastical jurisdictions, and the unfortunate creditor subjected to fine, imprisonment, ransom at the King's pleasure, and exposure on the 'pillaire, to their open rebuke and shame.' So the creditors sought refuge in the feudal tenures and secured a return upon their loans in the form of rents and profits accompanying the right of possession. As the concept of usury changed and the law recognized interest as 'toothless' usury, ¹ and as Chancery developed the equity of redemption, possession remained with the mortgagor, but the form of the conveyance continued in general use, and often plagues the courts to this day. Osborne, On Mortgages, Sec. 5.

Because the mortuum vadium was a use of legal machinery to accomplish a purpose for which it had not been designed, many harsh results flowed from it, for '* * * the common law knew of no better way to treat debtors than to make them live up to their bargains, * * *.' Thomas, On Mortgages, p. 6. To the common law judges, thoroughly drilled in the formal discipline of Traditional Logic, the law often became an exercise in logic. Walled in by the rigidity of their syllogisms, they were untouched by the currents of empirical thought which turned Chancery towards the Civil Law. The result is described by Coote in his On Mortgages, Chap. I, (ii), p. 4. 'Thus mortgages stood at common law, and it is difficult to conceive, if the Courts of Law had been so inclined (which it does not seem they were), on what principle they could have proceeded in giving the debtor relief. The forfeiture was complete; the mortgagee, by the default of the mortgagor, had become the absolute owner of the estate; it could not be divested from him without a reconveyance, and there remained no remedy short of an actual legislative enactment, without disturbing the settled landmarks of property.'

To remedy this situation, Chancery evolved the equity of redemption by holding that although '* * * they could not alter the legal effect of the forfeiture at common law, they operated on the conscience of the mortgagee, and, acting in personam, they declared it unreasonable that he should retain for his own benefit what was intended as a mere security; and they adjudged * * * that the mortgagor had an equity to redeem on payment * * * notwithstanding the forfeiture at law. * * * The judges of common law strenuously opposed the introduction of this novelty; and though ultimately defeated by the increasing power of equity, they nevertheless in their own Courts still adhered to the rigid doctrine of forfeiture, * * *.' Coote, On Mortgages, Chap. II, (iii) pp. 12, 13. See also Osborne, On Mortgages, Sec. 1, p. 6.

There followed a period of confusion caused by jealousy between the Courts of Law and Equity. '* * * For a...