Court Opinion

ID: 9832262
Source: CourtListenerOpinion
Date Created: 2023-09-01 21:46:18.543588+00
Date Added: 2024-06-11T07:43:44.924880
License: Public Domain

On Motion for Rehearing.
We have the following comments to make regarding the matters assigned as error in the City’s motion for rehearing:
(1) In various paragraphs of the motion, perhaps most directly in paragraph 28, the point is made that equitable relief against a contract, for mutual mistake of law by the parties to that contract, does not run *991against a municipal corporation, the powers whereof are specified in the law and open to all men, even 'though it may run between private individuals.
In paragraphs 42 and 46, inclusive, and in paragraph 47, the City refers to a statement in our original opinion, that “it is always the business of one who deals with the city to ascertain what agreements city officers can, and cannot make, and be governed accordingly.” This statement is then applied to various holdings made in our original opinion, and on this basis the City says that we erred in granting “any relief herein based upon the purported right of rescission.” The point made seems to be that the language quoted is inconsistent with a decree granting Moore a rescission because of a mistake of law regarding the City’s powers.
We think our judgment good against both arguments.
The principles which support equitable relief between private individuals against their contracts, for mutual mistake of law, can be applied here between Moore and the City upon precisely the same grounds that the City is held liable for torts. For the torts of city officers which are incidental to the exercise of corporate, as distinguished from governmental powers, the City is liable in damages. The liability rests upon the common law; in effect the city is treated as a private corporation and the city’s officers are treated as agents. City of Galveston v. Posnainsky, 62 Tex. 118, 50 Am.Rep. 517; Bauguss v. City of Atlanta, 74 Tex. 629, 12 S.W. 750; White v. City of San Antonio, 94 Tex. 313, 60 S.W. 426; City of Amarillo v. Ware, 120 Tex. 456, 40 S.W.2d 57. So may the City and the City’s officers be treated in determining whether rescission shall be granted Moore and whether the City shall be required to repay the purchase price of the royalty to Moore. The operation of the airport was a corporate and not a governmental function. Christopher v. City of El Paso, Tex.Civ.App., 98 S.W. 2d 394. And the sale of the royalty to Moore involved the exercise of a corporate, and not a governmental power. No matter how closely related in point of time, the exercise of the City’s power to abandon a part of the airport and the exercise of the City’s power to sell its property are distinct and separate matters; and Moore’s transaction with the City was nothing but a purchase and sale of the City’s property.
Nor do we see any inconsistency between such a holding and our statement that “it is always the business of one who deals with the city to ascertain what agreements City officers can, and can not make, and be governed accordingly.” It is also the business of individuals to know the law when they come to make contracts, yet equity sometimes grants relief against these contracts for the parties’ mutual mistake of law, and the relief has not been thought to be inconsistent with the obligation.
The existence and extent of the City’s powers are matters of law, and mistaken views of these powers, by city officers and by individuals who deal with the City, are inevitable. It seems very often to be true that the mistake prevents any contract being made; the transaction is generally void and the question of rescission does not appear because a contract is a prerequisite to any right of rescission. As said of the ultra vires contract before the court in Causeway Inv. Co. v. Nass, 131 Tex. 12, 111 S.W.2d 703, at page 704 (1-2): “It could not be rescinded because there was nothing to rescind.” Now we have referred to decisions in our original opinion which establish enforcible rights against the city in favor of the individual who attempted to make certain contracts with the city; we have listed judgments awarding the individual property which he had delivered to the city under a void contract of sale, judgments decreeing him the rental value of said property while used by the city, and a judgment awarding him money deposited by him with the city. To these authorities we add the decision in Southwestern Lloyds v. City of Wheeler, 130 Tex. 492, 109 S.W.2d 739 (Court of Civil Appeals’ opinion reported, City of Wheeler v. Southwestern Lloyds, 81 S.W.2d 188) holding the city liable for the reasonable value of sanitary equipment sold and delivered to the city under a contract, void be*992•cause not supported by a tax levied to pay future installments of the purchase price. It seems that the courts were attempting as best they could to restore the individual to the position he occupied before he entered into the transaction; and this is suggestive because the parties, at least roughly, occupied a position like that which they would have occupied upon a decree of simple rescission. The case before us differs from all these cases because the transaction here was not void. Moore got a royalty, but this royalty was covered up with a “dedication” to the bond purpose which made his position speculative beyond the degree contracted for by him. To deny him rescission is, in effect, to enforce against him a contract which the parties did not make, and therefore it is proper to set the ■contract aside. The City having acted in its corporate capacity in selling the royalty to him. Having done so, it is then proper for the court to do precisely what the courts have done in the cases just referred to, namely, restore him his property, his money. Viewing the matter broadly, we think our judgment is but a logical extension of the City’s unquestioned liability to return property delivered to it under a void contract of purchase and sale.
This result should give the City no ground for complaint. The judgment imposes no contract upon the City which the City could not make nor does it occasion the City any loss; all we have done is to set aside a contract which operated upon the parties in a way they did not contemplate, and to then restore them to the status quo ante.
(2) In paragraphs 1 and 14 of the motion, to which paragraphs 13 and 18 seem related, the City assigns error to our conclusion that if the City’s lease to Landry had been void, Moore’s deed would have vested him with title to two interests, namely, an interest in the City’s lease royalties and an interest in the City’s possibility of reverter which would have automatically expanded into a l/16th royalty when the lease terminated.
Our statements regarding the way and manner in which Moore’s deed would have operated upon the City’s various interests under a valid lease to Landry were based upon two propositions: (a) The City’s possibility of reverter was not limited to the lessee’s working interest but extended throughout the City’s fee in the minerals and underlay the royalties reserved to the City in the lease; and (b) the City’s possibility of reverter was equivalent to the sum total of all rights, powers and interests granted the lessee; it was a composite interest, as is a determinable fee or a fee simple, and included a reverter to every right, power and interest granted the lessee; therefore the City, not being compelled to convey all or nothing, could convey a royalty out of the reverter in fee, just as the fee owner can convey a royalty out of the minerals before a lease.
The first of the propositions just mentioned — that the possibility of reverter ran throughout the mineral fee of the lessor and underlay the lessor’s royalties — was based upon what seemed to be a common recognition in this state of the lessor’s lease royalties as amounting to a distinct and identifiable interest in land — which necessarily expired with the lease. See: Hoffman v. Magnolia Petroleum Co., Tex.Com. App., 273 S.W. 828; Richardson v. Hart, Tex.Sup., 185 S.W.2d 563, 564. The integrated character of this interest, or combination of interests, is indicated by the following statement, taken from Richardson v. Hart, referring to a conveyance of a fractional part of the minerals in place, subject to a lease but including a fractional part of the lease royalty: “It is clear, we think, that the instrument conveyed two separate and distinct estates in the land. The first was a permanent interest in the minerals in place which was to subsist during and beyond the life of the existing lease. The other was the royalty to be due and payable under the lease.” And it has been held that the interest conveyed under a conveyance of a lease royalty terminated with the lease. Curlee v. Anderson, Tex.Civ.App., 235 S.W. 622.
In Tennant v. Dunn, 130 Tex. 285, 110 S. W.2d 53, at page 57 (followed in McLean v. State, Tex.Civ.App., 181 S.W.2d 725), lessor’s royalties were-described as profits, in the following language: “The gif# of *993the opinion in Sheffield v. Hogg [124 Tex. 290, 77 S.W.2d 1021] is that oil and gas royalties, whether payable in kind or in money, and whether arising from the ordinary lease of land in which the lessor owns the minerals, or from a lease made under the Relinquishment Act, should be adjudged to be present interests in land rather than mere rights in personalty at some uncertain date, because they are profits arising out of land, and, further, because such classification, which accords with the practice in the oil and gas industry, furnishes a stability highly important, if not essential, to the structure of that business.”
If the royalties reserved by a lessor are profits, these profits expire when the lease expires. The lessor no longer owns a profit; he owns again the estate vested in him when he leased the land, and it seems more reasonable to say that the lessor reacquired his full estate by way of reversion instead of by a combination of ways, namely, a reversion of the lessee’s interest, which merges with the profit, that is, the lease royalty, to produce the estate owned before the lease was made.
Nevertheless, the following statement from Murphy v. Dilworth, 137 Tex. 32, 151 S.W.2d 1004, at page 1006, indicates that the lessor’s royalty is something more than a profit, and that is might be, instead, equivalent to ownership of minerals in place subject to a right vested in the lessee to buy, sell, or deliver the royalty minerals when produced: “The outstanding lease had the effect of placing the title in the lessee to 7/8 of the minerals for the purpose of exploration and development, but subject to reversion upon termination of the lease; and of retaining in the lessor the title to 1/8 of the minerals with the possibility of reversion of the remaining 7/8 interest. Sheffield v. Hogg * *
Jf the language just quoted from Murphy v. Dilworth is applied literally, there seems to be no obvious reason why a simple conveyance of the lease royalty would not vest title in fee to a fractional interest in the minerals in place, as distinguished from an interest which would expire with the lease and as distinguished from a pure royalty such as the court had before them in Schlittler v. Smith, 128 Tex. 628, 101 S.W.2d 543. Yet we have seen no decision from a court of this state so holding, and we are not persuaded that Murphy v. Dil-worth was intended to have this effect. The quotation made above from Richardson v. Hart indicates the contrary. Furthermore, if lessor really owns 1/8 of the minerals in place under a royalty reservation of 1/8, and a possibility of reverter under the remaining 7/8 of the minerals, it is hard to see why a conveyance in fee of, say, 1/24 of the minerals in place would not be taken in full out of said 1/8 royalty. For it seems logical to say that conveyance of minerals should be charged against minerals and not against reverter, a different kind of estate. Yet in Theo Oil Co. v. Thomas, Tex.Civ.App., 108 S.W.2d 555 (cited and apparently followed in Murphy v. Dilworth) the court held that the grantee of a 1/24 fee interest in the minerals in place took title to only a 1/24 of the 1/8 royalty reserved by his grantor in a lease outstanding when his deed was executed and delivered, that is, to a 1/192 royalty in the tract. (And this was the holding of the court in Richardson v. Hart, Tex.Sup., 185 S.W.2d 563, supra.) Thus the court charged the grantee’s 1/24 mineral fee against both the grantor’s possibility of reverter and his royalty; and grantee necessarily got 1/24 of the reverter as he did 1/24 of the royalty. The decision implies that royalty and reverter had to be combined to make out the 1/24 fee, and this combination, from the difference (under any theory) in the types of interests involved, seems to us to further imply that the royalty and reverter were needed to make up the estate granted in the minerals, as distinguished from the fraction of the minerals conveyed. Thus the judgments in Theo Oil Co. v. Thomas, Richardson v. Hart, and perhaps in Murphy v. Dilworth as well seems to support our conclusion that the lessor’s lease royalties do not constitute a true ownership of minerals in place, but something else, which is incidental to and which terminates with the lease.
At any rate, regardless of what lies beneath the lease royalties reserved by *994the lessor, and regardless of the process whereby the estate owned by the lessor when he made the lease gets back to him when the lease terminates, we are still of the opinion that said royalties, at least under the ordinary mining lease used in this State, either are in fact or else include in fact interests in land which are incidental to the lease and which expire with the lease. We are accordingly still of the opinion that Moore and the City were mistaken regarding the property interests available for transfer by the City. It is unnecessary for us to express any opinion regarding the way in which the City’s royalty deed would have operated upon the City’s interests under a valid lease to effectually vest Moore with title to a perpetual royalty; and we withdraw the statements in our opinion that this deed would have conveyed to Moore an interest in the City’s possibility of reverter under a valid lease.
Our remarks concerning the operation of Moore’s royalty deed upon interests remaining in the City under a valid lease were made primarily, to describe fully the nature of the mistake the parties made. On this record Moore’s principal injury, or at least what we regard as sufficient injury, resulted from his royalty being covered up with the socalled “dedication” of the airport tract to the purpose of the bonds which paid for it. Moore’s enjoyment of his royalty was not only subject to the contingencies incidental to royalty in privately owned lands; because of the “dedication”, it was also subject to the contingency of the City’s abandoning the airport. Thus Moore could not rely upon the lease-right owner’s self interest persuading that owner to lease the land eventually nor could he rely upon any possible implication of a right to compel said owner to lease the land. As we said in our original opinion: “The royalty (Moore) got was burdened with a dedication which made enjoyment thereof contingent beyond the degree contracted for and subjected him to a speculation of such a nature as to make what he got different in quality and kind from what he bought.” As we view the matter, Moore suffered material harm regardless of whether he and the City made a mistake about the interests available for transfer by the City, although that mistake certainly contributed to the injury he suffered.
For the reasons just stated, if for no other, it is of no significance that the City’s lease to Landry has expired.
We adhere to our holding, and to the reasoning on which that holding is based, that the City’s deed vested Moore with title to a royalty, subject to the contingencies noted in our original opinion. A general, potential power of conveyance by the City existed under the charter provision and the City’s fee simple ownership alleged by Moore. See generally: Adams v. Dignowity, 8 Tex.Civ.App. 201, 28 S.W. 373, at pages 379, 380; Abbott v. City of Galveston, 97 Tex. 474, 79 S.W. 1064. This power, at least when construed with the power to lease granted by Art. 1267, R.S. 1925, included the potential power to convey a mineral interest in lands which the City was not forbidden to lease by that statute. At the time of the transaction between Moore and the City, Chapter 83j Acts of the 41st Legislature, 1st called Sess., Vernon’s Ann.Civ.St. art. 1269h, authorizing cities to acquire airports, was in force as originally enacted; it contained no provision which might be construed as a limitation upon the City’s power to convey. On this basis, and having in mind the decision in Town of Refugio v. Strauch, Tex.Com.App., 29 S.W.2d 1041, we have not been able to perceive any reason why the deed to Moore, or why a mineral lease or any other conveyance of any other interest in the airport should be defeated except by reason of the following matters: (1) The land represents the proceeds of bonds voted for a specific purpose and therefore can not be devoted to another use which is inconsistent in fact with use for the bond purpose, until the court can say that the use of the land for that purpose had been abandoned (and we see no reason why the city would have to evacuate the airport to make out an abandonment in fact), and (2) the City can not agree, either expressly or by necessary implication, to abandon use of the land for the bond purpose at a future time. In the case of an airport, a mineral lease of the airport tract presupposes operations which *995will interfere with use of the land for an airport and is accordingly invalid because it necessarily implies that, sooner or later, the City will abandon use of the land for the bond purpose at the will of the lessee. A conveyance of any other interest in the airport, other than a royalty, might be invalid for substantially the same reason. We refer, of course, to conveyances and leases, made before and not after or coincidental with, an abandonment of the airport or a segregated part thereof.
But outstanding ownership of a royalty in the airport can not interfere with the City’s use of the land for an airport because the City, and not the royalty owner, determines when use of the land shall be abandoned and when a lease shall be made. Perhaps, as we have said in our original opinion, there will be circumstances when a court, at the prayer of a royalty owner, will compel the owner of the lease right to make a lease; but if these circumstances ever arise, the court will act under some principle of equity jurisprudence and not under some rule of land law. And a court of equity would not grant relief which would divert the proceeds of the airport bonds from the purpose of those bonds, nor would that court, in effect, require the City to exercise the discretion to abandon the airport.
Private ownership of royalty can not tend, in any appreciable degree, to impel the misuse or abandonment of the airport— that result might be brought about by the possibility of profit to the City from a lease by the City, but Moore’s outstanding royalty would lessen the value of a lease by the City and might actually have some tendency to delay an abandonment of the airport. Moore, as any other private owner, might attempt to persuade the City to lease the land; but if the possibility of City officers being persuaded to act erroneously destroys a power, the City would have no powers.
It seems to us that we would have to hold that the City’s deed to Moore was against public policy to wholly defeat it; and the Legislature, by enacting Art. 1267, has laid down exactly the opposite as the public policy of this State. For the leases authorized by that statute are conveyances of mineral interests to private individuals; and under the reasoning stated in our original opinion, we think it is necessarily tó be implied that the City had a right to convey the royalty to Moore subject, always, to the contingencies noted in said opinion.
(3) We are satisfied with our disposition of other matters referred to in the motion for rehearing.
The motion for rehearing is accordingly overruled.