Smith v. Liddell

• Decision Date: 01 May 1963
• Docket Number: No. A-8794,A-8794
• Parties: T. M. SMITH, Petitioner, v. Frank A. LIDDELL et al., Respondent.
• Court: Texas Supreme Court

Page 662

367 S.W.2d 662

T. M. SMITH, Petitioner, v. Frank A. LIDDELL et al., Respondent.

No. A-8794.

Supreme Court of Texas.

May 1, 1963.

Rehearing Denied May 29, 1963.

Davis, Kee & Thomas, Angleton, for petitioner.

Liddell, Austin, Dawson & Huggins, Charles R. Vickery, Jr., Walter Morgan, Houston, for respondent.

SMITH, Justice.

On June 19, 1956, the respondents, Frank A. Liddell and The National Bank of Commerce, filed this suit against the petitioner, T. M. Smith and the Humble Oil and Refining Company, seeking to establish ownership of royalty in certain lands situated in Brazoria County, Texas.

The case was tried by the court before a jury, and special issues were submitted. The court received the verdict of the jury, but found that the jury findings were of no legal significance. Judgment was rendered for Smith. The Court of Civil Appeals reversed said judgment, and the case was remanded to the trial court with instructions to render judgment for Liddell. Tex.Civ.App., 351 S.W.2d 335. Throughout this opinion we designate the petitioner as Smith and the respondents as Liddell. The issues to be decided are drawn between Liddell and Smith. Humble is not an adversary party to this appeal.

The pertinent facts are these: On August 30, 1933, Smith owned undivided interests in many tracts of land located in numerous surveys in Brazoria and Matagorda County, Texas. Two of these tracts are involved in this law suit. One is a tract of 152.11 acres and the other is a tract of 71.446 acres. These tracts, as shown below, were later included in an oil and gas lease to Humble. On the date last above mentioned, Smith was indebted to several banks, including the respondent, The National Bank of Commerce. In order to secure the payment of his indebtedness to his creditors, Smith conveyed an undivided 1/4 interest in and to the oil, gas and other minerals in some of the tracts he owned to H. B. Finch, trustee. Included in this conveyance from Smith to Finch was an undivided 1/4 interest in the 152.11 acres, but such conveyance did not describe or convey any interest in the 71.446 acres out of the Daniel McNeel and Gray and Moore surveys situated in Brazoria County. In this trust deed Smith expressly reserved all executive rights. The trust was terminated as evidenced by a written termination agreement dated March 14, 1941, between P. C. Rehrauer, successor trustee, to H. B. Finch and Smith. The trust deed and the termination agreement were introduced in evidence.

On December 30, 1933, Smith joined with various of his relatives, who owned undivided interests in the Daniel McNeel and Gray and Moore surveys, in the execution of the Humble lease. This lease covered and included 1845.5 acres. Out of the 1845.5 acres, the lessors owned 1604.875 acres of which the 71.446 acres as well as the tract of 152.11 acres described in the Finch deed are a part.

Many of the issues that were considered to be controlling in the trial court and in the Court of Civil Appeals now become immaterial in view of the disposition we make of the case. Our decision determines the basic question which has been within the framework of the contentions of the parties from the date of the filing of Liddell's first amended original petition in this case. Prior to the filing of this amended original petition Liddell had sought a reformation of the trust deed to Finch on the theory that the 71.446 acres was not described and included within the terms of the trust deed because of mutual mistake.

The pleadings upon which the case proceeded to trial abandoned the reformation theory; and, as stated by Liddell in his brief in the Court of Civil Appeals, it was asserted that Liddell sought to establish his 'title to the Humble Lease royalty created by an oil and gas lease from appellee (Smith) and others to Humble dated December 23, 1933; the lessors owned and leased only 1604.875 acres out of the 1845.5 acres described by metes and bounds in the lease. In this suit, appellants (Liddell) placed in issue only royalty under the Humble Lease, and appellants (Liddell) do not seek to recover the mineral fee as distinguished from this specific Humble Lease royalty.'

Liddell contends that the disputed royalty was created by the execution and delivery of the Humble lease, and that this royalty relates solely to the lease and will terminate when the lease terminates. The provision of the Humble Lease, upon which Liddell must rely, reads as follows:

'Since, however, T. M. Smith, under date of August 30th, 1933, conveyed to H. B. Finch, Trustee, one-fourth (1/4) of all the minerals owned by him under the land covered by this lease, * * * lessee is hereby especially directed by the said T. M. Smith to pay to the said H. B. Finch, Trustee, one-fourth (1/4) of all royalties apportioned above herein to the said T. M. Smith and one-fourth (1/4) of all delay rentals due the said T. M. Smith, subject to a possible repurchase of said mineral interest by the said T. M. Smith under the option given in said deed of conveyance to repurchase same within (5) years * * *.' (Emphasis added)

Liddell contends that this is a contractual provision that H. B. Finch, trustee, shall receive 1/4 of all royalties, rentals and bonuses apportioned to T. M. Smith and attributable to his interest in the 1604.875 acres.

Liddell further contends that a 'Lease Amendment' dated February 15, 1938, and describing the same 1845.5 acres that are described in the original Humble lease is an express agreement for a division of royalties. This contention is based on the language of the following clause in the 'Lease Amendment' which was not contained in the original lease:

'5. It is further agreed and specified that the royalties payable under said lease dated December 23, 1933, as amended by this instrument on all production from said pooled acreage shall be as follows, to-wit: * * *

'T. M. Smith-31304/422160 of 1/8

'P. C. Rehrauer, Trustee-15652/422160 of 1/8

provided, however, 15652/422160 of 1/8 out of the royalties allotted to T. M. Smith shall be paid to Ethel Pugsley * * *.'

Liddell further contends that a 'Correction Deed' dated July 14, 1938, executed and delivered by P. C. Rehrauer, successor trustee, Ethel Pugsley and her husband, Cornelius Pugsley, to Smith was, in effect, a partition agreement allocating 1/4 of 45956/422160 (11739/422160) to Rehrauer, successor trustee, and 3/4 of 45956/422160 (35217/422160) to Liddell.

Liddell asserts that his claimed percentage of Rehrauer royalty has been established not only through the oil and gas lease, the lease amendment and the correction deed, but in addition thereto, through certain transfer orders executed in May, 1941, and September, 1942, and also through a royalty deed, dated March 31, 1958, executed by Rehrauer, trustee, to The National Bank of Commerce and Frank A. Liddell.

In the trial of this case Smith sought reformation of the 'Correction Deed' on the ground of mutual mistake; and, alternatively, Smith pleaded that Liddell was estopped, as a matter of law, to enforce such agreement. The issues of mutual mistake and estoppel are two of the issues which are unnecessary for us to decide. In other words, it is unnecessary for us to decide whether or not the royalty agreement contained in the 'Correction Deed' should have allotted to Rehrauer only '1/4 of the royalties produced from 152.11 acres out of the Humble lease land rather than 11739/422160 of 1/8 of production.'

The question we have to decide is not, as claimed by Liddell, whether Smith is entitled to reduce the royalty provision of the 'Correction Deed' from 11739/422160 of 1/8 to 1/4 of 1/8 of the oil and gas produced by Humble from 152.11 acres. The question thus stated assumes that the terms of the instruments upon which Liddell relies...