Court Opinion

ID: 9858648
Source: CourtListenerOpinion
Date Created: 2023-09-24 16:34:23.520441+00
Date Added: 2024-06-11T09:55:22.767205
License: Public Domain

WALLACE, Justice,
dissenting.
I respectfully dissent. While I agree with the Court’s holding that the description contained in Paragraph 5 of the November 15 Letter Agreement is sufficient to satisfy the Statute of Frauds as to sections 19, 23, and 24,1 do not agree with the holding that Gulf and Superior were on notice, as a matter of law, of the equitable claim of Westland.
Notice, in law, is of two kinds, actual and constructive. Courts in the past have confused the distinct meaning of the two types of notice by using these terms “constructive” and “actual” notice interchangeably. Many courts have not even distinguished between the two terms, but have merely stated a party was on notice. However, there are distinctions between types of notice which should be recognized and followed.
Constructive notice is implied by law, from duly recorded instruments or from the possession of land. Sickles v. White, 66 Tex. 178, 17 S.W. 543 (1886). The letter agreement before us was not recorded, therefore, we are not dealing with constructive notice.
Actual notice can be of two kinds, express and implied. Hexter v. Pratt, 10 S.W.2d 692 (Tex.Comm.App.1928). As this Court and other courts have previously stated, actual notice is a question of fact. O’Ferral v. Coolidge, 149 Tex. 61, 228 S.W.2d 146 (1950); Flack v. First National Bank of Dalhart, 148 Tex. 495, 226 S.W.2d 628 (1950); Nelson v. Bridge, 39 Tex.Civ.App. 283, 87 S.W. 885 (1905, writ ref’d); Buckalew v. Butcher-Arthur Inc., 214 S.W.2d 184 (Tex.Civ.App.—Beaumont 1948, writ ref’d n.r.e.); Portman v. Eamhart, 343 S.W.2d 294 (Tex.Civ.App. — Dallas 1960, writ ref’d n.r.e.); Exxon v. Raetzer, 553 S.W.2d 842 (Tex.Civ.App.—Corpus Christi 1976, writ *912ref’d n.r.e.); 58 Am.Jur.2d, Notice, § 5 (1971).
Express actual notice is express knowledge of a fact. Woodward v. Ortiz, 150 Tex. 75, 237 S.W.2d 286 (1951). Both parties admit that Gulf and Superior had no actual knowledge of the area of mutual interest clause; therefore, we are left with implied actual notice, if there is any notice at all.
Implied actual notice is an inference of fact. Exxon v. Raetzer, supra. This Court in Flack, supra, 226 S.W.2d at 632, stated the rule to be “one who has knowledge of such facts as would cause a prudent man to make further inquiry, is chargeable with notice of the facts, which by use of ordinary intelligence, he would have ascertained.”
It is helpful to begin with the assignment through which Gulf and Superior gained title and work backward to see exactly what Gulf and Superior knew or should have known. To begin with, Gulf and Superior received an assignment dated May 22, 1973, from Mobil Oil of 60% of its interest in sections 19, 23, 24, 26 & 31, and 100% of its interest in section 25. This assignment was expressly made subject to the March 1, 1968 operating agreement. Gulf and Superior received this assignment by drilling a well on section 25 and earning the acreage pursuant to farmout agreements from Mobil, Chambers/Kennedy (C&K), and others. The operating agreement contains two possible references to the November 15 Letter Agreement. Paragraph 31B states:
... (i)n the event of any conflict between this contract and the Farmout Letter Agreement dated August 4, 1966, between Mobil Oil Corporation and West-land Oil Development, as amended by Letter dated August 29,1966 and November 11, 1966 and a Letter Agreement between Chambers & Kennedy and West-land Oil Development Corporation and L. C. Kung dated November 15, 1966, then such prior agreements shall prevail over this Agreement.
Paragraph 31C states the following:
Exhibit A lists all of the parties, and their ... interests .... Such interests are specifically subject to all terms, conditions, and reservations set forth in that Farmout Agreement Letter dated August 4, 1966 between Mobil Oil Corporation and Westland Development Corporation as amended and that certain assignment dated March 7, 1968 from Mobil to C. Fred Chambers and W. D. Kennedy and Union Texas Petroleum.
It is the letter agreement dated November 15, 1966 between Westland/Kung and Chambers/Kennedy which contains the area of mutual interest clause which Westland contends Gulf and Superior are on notice of and therefore bound by.
This Court in Flack, supra, 226 S.W.2d at 631, stated that the duty of inquiry extends only to matters which are fairly suggested by the facts really known. In Texas Co. v. Dunlap, 41 S.W.2d 42 (Tex.Comm’n App. 1931, judgment adopted); Guevara v. Guevara, 280 S.W. 736 (Tex.Comm’n App.1926, judgment adopted); Tuggle v. Cooke, 277 S.W.2d 729 (Tex.Civ.App.—Fort Worth 1955, writ ref’d n.r.e.); and W. T. Carter & Bro. v. Davis, 88 S.W.2d 596 (Tex.Civ. App.—Beaumont 1935, writ dism’d); cited by the majority, the references were to vendor’s liens and prior deeds. A deed and a vendor’s lien definitely suggest matters involving title. An operating agreement and a “conflict between an operating agreement and a letter agreement” do not necessarily suggest a title matter. As pointed out by the Court of Appeals, the function of an operating agreement is to explain in detail the operation between the various interests in the development of a tract for economical production of the minerals, not to establish interests of any kind. Therefore, a reference to any conflict with an operating agreement might well have alerted a reasonably diligent purchaser to check the letter agreement if he was concerned with the operations, not for title reasons. Nor does paragraph 31B in any way suggest that the letter agreement between C&K and West-land involves title. The reference in 31C does not even refer to the November 15, *913Letter Agreement between Westland and C&K, unless one assumes the words “as amended,” refers to it. However, “as amended,” just as logically refers only to the actual amendments to the farmout between Mobil and Westland of August 29, 1966, and November 11, 1966. The letter agreement between Westland and C&K is not an amendment to the agreement between Mobil and Westland, but a new agreement between different parties.
Additionally, where circumstances claimed to be sufficient to charge a person with notice may just as reasonably be referred to some other matter, such circumstances have been held not sufficient to charge him with notice. Houston Oil Co. of Texas v. Griggs, 181 S.W. 833, 838 (Tex.Civ. App.—Beaumont 1916) affirmed in 213 S.W. 261 (Tex.Comm.App.1919, judgment adopted); Exxon Corp. v. Raetzer, supra. We do not have to decide that question, since this case is before us on summary judgment. Ordinarly, summary judgment will not be awarded where the issue is inherently one for a jury, such as the exercise of judgment. 4 McDonald, Texas Civil Practice, “Judgments” Sec. 17.2612 at 177 (rev. 1971). Actual notice is normally a question of fact, it will only become a question of law when there is no room for ordinary minds to differ as to the proper conclusion to be drawn from the evidence. O’Ferral v. Coolidge, supra.
I am not willing to hold that as a matter of law, Gulf and Superior were on notice of an equitable right expressed in an unrecorded farmout agreement between Westland/Kung and Chambers/Kennedy, ambiguously referred to in an operating agreement between Chambers/Kennedy and Union Texas Petroleum, which was expressly referred to in the assignment from Mobil to Gulf and Superior. That is a question of fact, raised by the summary judgment proof and properly reserved for the trier of fact.
The majority opinion fails to mention the rules regarding actual notice. It instead states that the rule concerning references made in documents appearing in one’s chain of title, is that a purchaser is bound by every recital, reference, and reservation contained in or fairly disclosed by any instrument which forms an essential link in the chain of title under which he claims. Therefore, the majority concludes that Gulf and Superior were on notice as a matter of law of the contents of the operating agreement, and on notice as a matter of law of the contents of the November 15 letter agreement. Even if the rule recited by the majority were the only applicable rule, I would still not conclude that Gulf and Superior were on notice, as a matter of law, of the contents of the November 15 letter agreement.
I would agree that under the rule and the cases cited by the majority, Gulf and Superior would be on notice of the contents of the March 1, 1968 operating agreement. The May 22,1973 assignment from Mobil to Gulf and Superior is within Gulf and Superior’s chain of title, and it expressly refers to the operating agreement. Therefore, it falls directly within the rule cited by the majority. However, the March 1, 1968 operating agreement does not contain the clause under which Westland asserts its equitable rights. Nor is there any clause in the operating agreement which sets out Westland’s rights. Nor is the operating agreement within Gulf and Superior’s chain of title. Therefore, the rule cited by the majority does not apply to a reference to another instrument contained in the operating agreement.
It is this extra step from the March 1, 1968 operating agreement to the November 15 letter agreement which I do not believe the case authority supports. While much of the language contained in the cases cited by the majority is broad enough to cover the step from the operating agreement to the letter agreement, I do not think the facts of those cases would allow such an extension of the rule.
In every case cited by the majority, the instrument which contains the equitable right is referred to in an instrument in the purchaser’s chain of title. Furthermore, the instrument referred to somehow direct*914ly suggests outstanding rights, such as deeds and vendor’s liens, namely: Wessels v. Rio Bravo Oil Co., 250 S.W.2d 668 (Tex. Civ.App.—Eastland 1952, writ refd) — deed within purchaser’s chain of title referred to an unrecorded prior contract and further stated, “excepting and reserving herefrom all the exceptions and reservations contained in the said instrument so made by the said Railway Company”; Williams v. Harris County Houston Navigation District, 128 Tex. 411, 99 S.W.2d 276 (1936)—purchaser’s deed referred directly to another deed which was within its chain of title, that deed contained covenants regarding the execution of releases which the court held the purchaser was bound by; Texas Co. v. Dunlap, supra, deed within the purchaser’s chain of title reserved a vendor’s lien, and purchaser was charged with notice that a lien existed against said land; Guevara v. Guevara, supra, — purchaser’s deed recited the existence of a purchase money note and retention of a vendor’s lien; the court imputed knowledge of the contents of that note to the purchaser; Tuggle v. Cooke, supra,—reference in deed in purchaser’s chain of title to an interest in 50 acres being conveyed or had been conveyed by another deed, purchaser was bound by that conveyance; Abercrombie v. Bright, 271 S.W.2d 734 (Tex.Civ.App.—Eastland 1954, writ ref’d n.r.e.) — reference in deeds in purchaser’s chain of title stated that they were subject to a former conveyance of 11 acres; Loomis v. Cobb, 159 S.W. 305 (Tex. Civ.App.—El Paso 1913, writ ref’d) — original deed from the town of San Elizario to the original grantee, which was in the purchaser’s chain of title, recited that it was executed by virtue of authority and in accordance with an ordinance of the town council. The deed also stated that the ordinance was for surveying, adjusting, and providing for the division and granting of the unappropriated lands. Purchaser was held to be bound by the provisions of the ordinance; W. T. Carter & Bro. v. Davis, supra, — recorded deed referred to another recorded deed, both deeds were links in Carter & Bro.’s chain of title, therefore the reservation of the mineral estate in the first deed was notice to Carter & Bro. that it was only acquiring the surface estate.
I would not extend the rule cited in these eases, to the facts of this case. I would hold that a question of fact remains for the trier of fact to decide and, therefore, would remand the cause to the trial court on the issue of notice.
SPEARS, J., joins in this dissent.