Old Republic Ins. Co., Inc. v. Fuller

• Decision Date: 26 March 1996
• Docket Number: No. 06-95-00071-CV,06-95-00071-CV
• Citation: 919 S.W.2d 726
• Parties: OLD REPUBLIC INSURANCE COMPANY, INC., Appellant, v. Elvirn FULLER, Appellee.
• Court: Texas Court of Appeals

Page 726

919 S.W.2d 726

OLD REPUBLIC INSURANCE COMPANY, INC., Appellant, v. Elvirn FULLER, Appellee.

No. 06-95-00071-CV.

Court of Appeals of Texas Texarkana.

Argued Jan. 30, 1996.

Decided Feb. 23, 1996.

Rehearing Overruled March 26, 1996.

John R. Mercy, Christy P. Paddock, Atchley, Russell, Waldrop & Hlavinka, Texarkana, for appellant.

Lynn S. Patton, Patton, Nix, & Young, Longview, for appellee.

Before CORNELIUS, C.J., and BLEIL and GRANT, JJ.

OPINION

BLEIL, Justice.

Old Republic Insurance Company appeals a judgment setting aside a compromise settlement agreement of a worker's compensation claim filed by Elvirn Fuller. The company contends that the trial court's conclusion that Fuller did not ratify the agreement was incorrect as a matter of law, or in the alternative, was against the great weight and preponderance of the evidence. Because we conclude that Fuller ratified the settlement agreement, we reverse the judgment and render judgment that Fuller take nothing.

Elvirn Fuller injured his back on July 11, 1990, when he fell through a drain cover while working as an employee at Pilgrim's Pride Corporation. As a result of his injuries, Fuller missed one week of work, for which he received $189.00 in worker's compensation benefits. When he returned to work the following week, Pilgrim's Pride reassigned him to light duty to accommodate his injury. He worked in this new position for almost three years, until a supervisor asked him to fill in performing a more strenuous job for an employee who was absent. While doing so, Fuller reinjured his back. Due to the pain arising out of this second incident, Fuller was unable to report to work after February 16, 1993.

Fuller then retained an attorney, John T. Burton, to pursue a worker's compensation claim. On October 6, 1993, Burton informed Fuller by letter that Old Republic had offered to settle the claim for a lump-sum payment of $30,000.00. In the letter, Burton recommended that Fuller accept the offer. Fuller then went to Burton's office and told Burton that he would not agree to the settlement because he believed the claim was worth more. Burton told Fuller that in that case, the claim would have to go to trial and Fuller would have to wait for any potential recovery. Fuller said that he was willing to do so.

On December 5, Fuller received in the mail a copy of a compromise settlement agreement of his claim. The copy showed that a settlement of $30,000.00 had been approved by the Texas Workers' Compensation Commission on November 15, 1993. The settlement also granted Fuller three years' unlimited medical treatment under the direction of Dr. Troyce Williams. Burton's signature was on the form, and in the space marked "signature of claimant," Fuller's name was signed, with the initials "J.B." directly under it. The form was also signed by Sheila Littleton, an adjustor with Crawford & Company, administrator for Old Republic.

Fuller telephoned Littleton to inquire about the form he had received. Littleton told him that he should contact his attorney. Fuller repeatedly attempted to contact Burton, but was unable to reach him. Eventually, he found out that Burton's office had closed. In January 1994, Fuller learned that Old Republic had issued a settlement check made jointly payable to him and Burton and that Burton had endorsed and cashed the check at NationsBank in Tyler.

After retaining another attorney, Fuller contacted NationsBank in an attempt to obtain the check proceeds it had paid Burton. NationsBank agreed to pay Fuller $22,500.00, representing his share of the settlement, in exchange for Fuller releasing NationsBank of any further liability in connection with payment of the check. The remaining $7,500.00 represented Burton's attorney's fee. On May 13, 1994, Fuller signed the requested release, completed an affidavit stating that the original check bore a forged endorsement of his name, and received payment from NationsBank. Fuller then spent the entire amount of this payment, primarily to satisfy debts he had incurred since leaving work.

Sometime during 1994, Fuller began receiving medical treatment at Old Republic's expense under the direction of Dr. Troyce Williams, as provided by the settlement agreement. Prior to that time, Fuller had been receiving treatment from a chiropractor rather than a physician.

On September 30, 1994, Fuller, represented by a third attorney, filed the present action to set aside the compromise settlement agreement. In a bench trial, the court found that Fuller neither consented to nor ratified the agreement, and ordered that it be set aside.

Old Republic concedes that Fuller was not informed of, and did not consent to, Burton's settlement of his claim. The company contends, however, that Fuller ratified the settlement by his conduct after he became aware of the agreement and challenges the trial court's conclusion of law to the contrary.

When specific findings of fact and conclusions of law are filed and a statement of facts is before this court, we review the legal conclusions drawn from the facts found to determine their correctness. Mercer v. Bludworth, 715 S.W.2d 693, 697 (Tex.App.--Houston [1st Dist.] 1986, writ ref'd n.r.e.), overruled on other grounds, Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 894 (Tex.1991). The question of ratification of a contract may be determined as a matter of law if the pertinent evidence is uncontroverted or uncontrovertible. Sawyer v. Pierce, 580 S.W.2d 117, 123 (Tex.Civ.App.--Corpus Christi 1979, writ ref'd n.r.e.).

A compromise settlement agreement is a contract, and its construction is governed by the legal principles applicable to contracts generally. Stevens v. Snyder, 874 S.W.2d 241, 243 (Tex.App.--Dallas 1994, writ denied); In re J.T.H., 630 S.W.2d 473, 476 (Tex.App.--San Antonio 1982, no writ). If a person who has fraudulently been made a party to a contract continues to receive benefits under the contract after he becomes aware of the fraud, or if he otherwise conducts himself in such a manner as to recognize the contract as subsisting and binding, he thereby affirms the contract and waives his right of rescission. Daniel v. Goesl, 161 Tex. 490, 341 S.W.2d 892, 895 (1960); Rosenbaum v. Texas Bldg. & Mortgage Co., 140 Tex. 325, 167 S.W.2d 506, 508 (1943); Spangler v. Jones, 797 S.W.2d 125, 131 (Tex.App.--Dallas 1990, writ denied). An express ratification is not necessary; any act based upon a recognition of the contract as subsisting or any conduct inconsistent with an intention of avoiding it has the effect of waiving the right of rescission. Rosenbaum, 167 S.W.2d at 508.

The critical factor in determining whether a principal has ratified an unauthorized act by his agent is the principal's knowledge of the facts of the prior transaction and his actions in light of such knowledge. ¹ Land Title Co. v. F.M. Stigler, Inc., 609 S.W.2d 754, 756 (Tex.1980). Ratification can occur if the party, at the time of his allegedly ratifying acts, has knowledge of all material facts pertaining to the prior fraudulent transaction. Rourke v. Garza, 530 S.W.2d 794, 805 (Tex.1975); Vessels v. Anschutz Corp., 823 S.W.2d 762, 764 (Tex.App.--Texarkana 1992, writ denied); Sawyer, 580 S.W.2d at 122. In contrast, a party's lack of knowledge concerning the law is irrelevant to the issue of ratification, unless such a mistake of law causes a mistake of material fact. See Davis v. Nueces Valley Irrigation Co., 103 Tex. 243, 126 S.W. 4, 7 (1910); RESTATEMENT (SECOND) OF AGENCY § 91 cmt. d (1958).

Old Republic argues on appeal, and offered evidence at trial, that when Fuller contacted the company after learning that his claim had been settled, he did not complain of the fact that the settlement had been reached, but only that he had not received any money from it. Old Republic thus maintains that Fuller ratified the settlement agreement by failing to object to it at that time. Fuller, however, testified at trial and contradicted this account, and it was thus not incorrect as a matter of law, nor against the great weight and preponderance of the evidence, for the court to conclude that Fuller did not ratify the settlement by his communications with Old Republic. See Raw Hide Oil & Gas, Inc. v. Maxus Exploration Co., 766 S.W.2d 264, 275-76 (Tex.App.--Amarillo 1988, writ denied).

Although the evidence at trial was thus conflicting with regard to Fuller's statements once he learned that his claim had been settled, there was no dispute among the parties concerning his conduct thereafter. Fuller retained an attorney to help recover his share of the completed settlement. He then received the money and spent it. He also began receiving medical treatment according to the terms of the settlement agreement. Throughout this entire course of conduct, Fuller was aware of Burton's fraudulent execution of the settlement agreement. By electing to receive the benefits of the agreement, with full knowledge of its fraudulent nature, Fuller ratified the settlement and forfeited his right to object to it. See Rosenbaum, 167 S.W.2d at 508; Sawyer, 580 S.W.2d at 122-23. The trial court's conclusion to the contrary was incorrect.

We reverse the trial court's judgment and render judgment that Fuller take nothing by virtue of this suit.

GRANT, Justice, concurring.

I fully concur with the majority opinion that a mistake of law is not grounds for avoiding a ratification. As the court held in Davis v. Nueces Valley Irrigation Co., a ratification, made with full knowledge of the material facts, is sufficient, without reference to knowledge or lack of knowledge of the law. 103 Tex. 243, 126 S.W. 4 (1910). ² There are some exceptions to that general rule, but none are applicable here.

As set forth in RESTATEMENT (SECOND) OF AGENCY § 91 (1958):

Knowledge of the legal effect of the affirmance [ratification] is not material; nor is knowledge of the legal effect of facts material, except where a mistake of law...