Court Opinion

ID: 9776986
Source: CourtListenerOpinion
Date Created: 2023-08-29 19:50:42.733491+00
Date Added: 2024-06-11T07:32:45.813921
License: Public Domain

WALKER, Chief Justice,
dissenting.
I respectfully disagree with the majority’s holding that the four year statute of limitations applies.
Both Koch and Tesoro affirmatively contend that the subject matter in controversy is and should, be governed by Tex.Civ.PRAC. & Rem.Code Ann. §§ 16.003 and 16.004 (Vernon 1986) and Tex.Bus. & Com.Code Ann. § 2.725 (Vernon 1994). Both Koch and Tesoro strongly contend for an application of the 2-year statute of limitations provided under § 16.003(a) which provides:
A person must bring suit, for trespass for injury to the estate or to the property of another, conversion of personal property, taking or detaining the personal property of another, personal injury, forcible entry and detainer, and forcible detainer not later than two years after the day the cause of action accrues.
Appellees, plaintiffs below, sought substantive relief by, through, and under the Texas Natural Resources Code. Since there exists no abundance of case law dealing with this particular legislation, a brief legislative history to be appropriate and helpful.
In 1983, our Texas Legislature enacted Sections 91.401 through 91.405 of the Texas Natural Resources Code. Acts 1983, 68th Leg. p. 966, ch. 228, § 1.
Four bills concerning this topic were introduced: HB 1775, SB 146, and identical bills HB 1266 and SB 731. On April 12,1983, the House Energy Committee considered HB 1775 and HB 1226 together at public hearing. The House Study Group reported on the bill on April 21, 1983. The House Study Group reported arguments for and against the bill, summarizing each of the bills that had been introduced on the subject. When HB 1775 reached the House floor on April 21, 1983, same was amended to include new language for § 91.403(a) and to add § 91.405 (House Journal Report dated April 21,1983). House Bill 1775, as amended, became effective September 1, 1983. This legislation was effective when Tesoro and Koch purchased crude oil under the lease.
Prior to the 1983 enactment, no specific laws protected royalty owners from intentional practices to delay their royalty checks. While it was generally accepted that a great deal of these delays stem from legitimate title problems, it was also recognized that some delays were intentional and should be addressed by the Legislature. It was the admirable intent of our Legislature to compel timely payment of proceeds to royalty interest owners by those persons or entities occupying the status of a “payor.” Tex.Nat.Res. Code Ann. § 91.401(2) (Vernon 1993) defines *869those parties against whom this cause of action may be brought. “Payor” prior to the 1991 amendment meant:
[T]he first purchaser of production of oil or gas from an oil or gas well, but the owner of the right to produce under an oil or gas lease or pooling order is deemed to be the payor if the owner of the right to produce and the first purchaser have entered into arrangements providing that the proceeds derived from the sale of oil or gas have been paid by the first purchaser to the owner who assumes the responsibility of paying those proceeds to the payee, (emphasis added)1
In view of the foregoing statutory definition of the term “payor,” the precise status of Koch and Tesoro in relationship to International and those royalty interest owners must be determined. Without question, Tesoro was a “first purchaser” of oil from International, while Koch, by written agreement with United, was a “second purchaser,” however, this fact does not automatically propel Tesoro and Koch to the status of payor. Why? Because the statute determines in clear language that the owner of the right to produce under an oil or gas lease or pooling order (International/United) is “deemed ” to be the payor where there is an agreement between first purchaser (Koch and Tesoro) and owner of the right to produce (International/United), said owner of the right to produce then assumes the responsibility of paying the payees.
I believe that § 91.401(2) creates unto Koch and Tesoro a no duty posture as to payees unless Koch and Tesoro received notice prior to payment of any particular purchase, that payor, International/United, had not fulfilled its obligation to payees. To state otherwise would require a harsh and undue burden upon first purchasers to investigate and then intervene in contractual matters between the owner of the right to produce oil and gas and its payees.
In view of statutory histoiy, it is clear that our Legislature gave consideration to overall economic utility prior to its enactment of these pertinent statutes. Obviously, our Legislature’s foremost concern was the protection of those royalty interest payees entitled to payment. What address better serves the economic utility of a free-flowing oil industry, than placing the burden to protect payees upon that party most directly in line to do so, i.e., the producer of the well who operates under contract with its lessors.
Even though our Legislature’s concern was the protection of payees, certainly it was not intended that payees be allowed indiscriminate selection of targets. Certainly, the Legislature had a more orderly, fair and just intent. Good faith purchasers of oil and gas from producers, without notice from unpaid payees, should not be imposed with a duty to audit a producer’s contractual performance. Nor should payees be allowed to sit idly by while first purchasers pay the producers the full purchase price, then punish these purchasers for the sins of their non-paying producer.
Koch paid United one hundred percent (100%) of the oil purchase price during its contractual relationship with United. Tesoro did likewise, except for the December 1984 payment when only a very few of the alleged royalty interest owners complained of nonpayment. Furthermore, I believe the majority has cast Koch and Tesoro in the untenable position of becoming grantors of the duty flowing from International to its payees. It was not our Legislature’s intent to confound the oil industry in the State of Texas with such a burdensome and potentially devastating result. Devastating, because if the majority be correct, all first purchasers of oil *870and gas who have paid the owner of the right to produce such oil and gas, must now pay again for each unit purchased. This simply cannot be what our State Legislature had in mind.
In the case before us, Koch paid one hundred percent (100%) of the required purchase price of the oil to International. Tesoro paid one hundred percent (100%) of the required purchase price to International up until Teso-ro received Mr. Thanheiser’s letter of December 18, 1984, at which time Tesoro suspended payment to International on behalf of those royalty interest owners named by letter. The record reflects that Tesoro suspended funds for C.C. Wilber, Betty Wilber, Benny E. Wilber and Walter Van Norman. Tesoro, then in an effort to investigate whether International was in fact making payment to its payees, contacted Mr. Dreyer, to notify him of Mr. Thanheiser’s letter. On January 22, 1985, Dreyer signed a false affidavit stating that he possessed signed division orders from persons who owned royalty interests.
Did Tesoro’s decision to suspend payment to International recast Tesoro’s role to that of payor? I think not. Upon receiving notice to suspend payment for certain named royalty interest owners, Tesoro became trustee for the benefit of those royalty interest owners named.
Having defined the respective roles of Koch and Tesoro as that of innocent and good faith purchasers of oil from International/United, without notice of unpaid royalty interest claims, (excepting the December purchase by Tesoro), which limitation period should apply, i.e., the two year or four year?
Appellees, plaintiffs below, proceeded to trial on their Eighth Amended Petition. The substantive basis of plaintiffs’ claims rests in Sections 91.401-91.406 of the Texas Natural Resources Code. Plaintiffs also sought to perfect a security interest in the proceeds from the sale and purchase of oil through Tex.Bus. & Com.Code Ann. § 9.319 (Vernon 1991). Further, plaintiffs sought the recovery of attorneys fees under Tex.Civ.Prac. & Rem.Code Ann. §§ 37.009 and 38.001 (Vernon 1986).
The Texas Natural Resources Code fails to include any limitations provision, thus we must seek other statutory guidelines. No case law has yet interpreted a limitations question under our Texas Natural Resources Code, thus, for guidance we should focus on Section 16.003(a) of the Texas Civil Practice and Remedies Code which is previously set forth verbatim.
Severed oil becomes personalty and the failure to pay royalty proceeds constitutes a detainment of personal property. I agree with the majority that where the claim for royalty payments is based on contractual rights between the parties, the four year statute of limitations governs. See Dvorken v. Lone Star Industries, Inc., 740 S.W.2d 565 (Tex.App.-Fort Worth 1987, no writ). However, here we have no direct contractual relationship between appellees and Koch or Tesoro. Without comment as to viability or substance, plaintiffs’ claim against Koch and Tesoro are in the nature of a claim for conversion. A conversion of proceeds or a conversion of oil itself after severance from the land would be a conversion of personal property. See Bodin v. Gulf Oil Corp., 707 F.Supp. 875, 877 (E.D.Tex.1988), citing W.B. Johnson Drilling Company v. Lacy, 336 S.W.2d 230, 233 (Tex.Civ.App.-Eastland 1960, no writ). Since plaintiffs seek remuneration against Koch and Tesoro for the value of oil production proceeds already once paid by these purchasers, I view plaintiffs’ claim as that of wrongful exercise of dominion and control over oil. Absent either a contractual duty and obligation or statutory requirement as to Koch and Tesoro, I am compelled to apply the two year statute of limitation period as provided in § 16.003 of the Texas Civil Practice and Remedies Code.
In an effort to overcome limitations problems, plaintiffs urged the trial court to consider the “relation back” doctrine and the “discovery rule.” If the two year limitation period controls, the “relation back” doctrine is of no avail to appellees and the trial court erred in so finding. The “relation back” doctrine allows an amended pleading to relate back to the original pleading in limited circumstances. This doctrine, having its origin in common law, was later enacted as *871Tex.Rev.Civ.Stat.Ann. art. 5539b (now codified as § 16.068 of the Tex.Civ.Prac. & Rem. Code). At common law, an amended petition related back to the filing of the original petition even though new facts were alleged, provided that the cause of action remained the same. Chien v. Chen, 759 S.W.2d 484, 493 (Tex.App. — Austin 1988, no writ). Common law provided four elements in determining whether an amended pleading sets up a different cause of action: 1) Would a recovery had upon the original pleading bar a recovery under the amended pleading? 2) Would the same evidence support both of the pleadings? 3) Is the measure of damages the same in each case? 4) Are the allegations of each, subject to the same defenses? Id. at 493.
Article 5539b expressly provided that an amendment to a pleading shall not be subject to limitations where the amendment is not wholly based on or grows out of a new, distinct or different transaction or occurrence.
The trial court’s use of the “relation back” doctrine to resurrect claims for seventy-five newly added plaintiffs, was error even should a four year limitation period apply. The “relation back” doctrine does not purport to deal with amendments which add parties. Stokes v. Beaumont, Sour Lake, & Western Railway Co., 161 Tex. 240, 339 S.W.2d 877 (1960); Chien, supra, at 493. An amended pleading relates back unless a new party is added. Kirkpatrick v. Harris, 716 S.W.2d 124, 125 (Tex.App.- Dallas 1986, no writ), see also Leeds v. Cooley, 702 S.W.2d 213, 215 (Tex.App.-Houston [1st Dist.] 1985, wilt refd n.r.e.) (tolling occurs when a party defendant is brought into the suit and not when the original pleading is filed). When a plaintiff is added to a suit after the statute of limitations has run, that action is barred as to that new party plaintiff. Baker v. Gulf, C. & S.F. Ry. Co., 184 S.W. 257, 260 (Tex.Civ.App.-Austin 1916, no writ). See also City of Fort Worth v. Zane-Cetti, 29 S.W.2d 958, 961 (Tex.Comm’n App.1930, holding approved).
Regarding applicability of the “discovery rule,” generally speaking, a cause of action accrues at the time when facts come into existence which authorize a claimant to seek a judicial remedy. Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 828 (Tex.1990). A cause of action generally accrues regardless of when a plaintiff learned of an injury. Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 351 (Tex.1990).
The discovery rule is a judicially constructed test which is used to determine when a plaintiffs cause of action accrued. Id. at 351. The discovery rule is applied to situations where a claimant was unable to know of his injury at the time of the actual accrual. Riojas v. Phillips Properties, Inc., 828 S.W.2d 18, 21 (Tex.App.-Corpus Christi 1991, writ denied). When effectively applied, the discovery rule tolls the running of the statute of limitations until the plaintiff discovers, or through the exercise of reasonable care and diligence should discover, the nature of the injury. See Willis v. Maverick, 760 S.W.2d 642 (Tex.1988). The discovery rule has been limited to matters properly characterized as inherently undiscoverable. Rose v. Baker & Botts, 816 S.W.2d 805, 810 (Tex.App.-Houston [1st Dist.] 1991, writ denied).
Texas courts have yet to apply the discovery rale to a case involving non-payment of royalties by a purchaser of oil.
In the case before us, royalty owners were not unaware that Koch and Tesoro purchased oil from International/United. In fact, plaintiffs produced public records from the Railroad Commission which identified Tesoro as the gatherer. Limitations began to ran when the fact of injury is known, not when the alleged wrongdoers are identified. Russell v. Ingersoll-Rand Co., 841 S.W.2d 343, 344 n. 3 (Tex.1992). Our record shows that several persons sent complaint letters to Tesoro indicating their obvious awareness that royalty payments ceased when International received the assignment.
During trial below, B.E. Wilber testified regarding discovery, otherwise, there is legally and factually insufficient evidence to sustain a finding as to the remaining class members. See Greenhaw v. Lubbock County Beverage Ass’n, 721 F.2d 1019, 1029-30 (5th Cir.1983), overruled on other grounds by International Woodworkers v. Champion In*872tern., 790 F.2d 1174 (5th Cir.1986). (Testimony by one class member regarding discovery rule could not be used to support a finding with regard to the class as a whole). The burden of proving the applicability of the discovery rule rested upon the plaintiffs and there is legally and factually insufficient evidence to sustain the trial court’s judgment. See Woods v. William M. Mercer, Inc., 769 S.W.2d 515 (Tex.1988).
Appellees further seek to avoid limitation as to Tesoro by positioning that Tesoro acknowledged a debt by letter dated March 8, 1985. To revive a barred claim by acknowl-edgement of a debt, a plaintiff must prove a promise to pay or an assumption of an obligation which must 1) be in writing; 2) contain an unequivocal acknowledgement of the justness or the existence of the particular obligation or claim; and, 3) express a willingness to honor the obligation or claim. West Texas Gathering Co. v. Exxon Corp., 837 S.W.2d 764, 777-78 (Tex.App.-El Paso 1992), rev’d on other grounds, Exxon Corp. v. West Texas Gathering Co., 868 S.W.2d 299 (Tex.1993). Andrews v. Cohen, 664 S.W.2d 826, 828-29 (Tex.App.Tyler 1984, writ ref'd n.r.e.). Tex.Civ.PRAC. & Rem.Code § 16.065 (Vernon 1986).
Our class plaintiffs failed to identify a written promise or acknowledgement of a debt. The letter addressed to Charles Thanheiser, written prior to class-wide representation, cannot revive claims asserted by all other class members. Plaintiffs failed to prove an unequivocal acknowledgement of the justness of a “debt” owed to any plaintiff. The letter of March 8, 1985, was simply a request that Thanheiser’s client sign a division order verifying ownership interest. Neither did Teso-ro make an unconditional acknowledgement of debt. “If an acknowledgement of the existence of an indebtedness is qualified by a conditional promise to pay, a promise different from the one so expressed will not be implied and the creditor must fulfill the named condition as a prerequisite to the debtor’s liability on the new promise.” Andrews, 664 S.W.2d at 829. For argument purposes, even if the March 8, 1985 letter contained a general acknowledgement of indebtedness, it also contained certain conditions precedent to payment. More specifically it required Mr. Wilber to sign a division order. Mr. Wilber fully understood the import of Tesoro’s beckoning by his statement that “if I executed a division order, the funds they were holding would start being paid, and the other proceeds would be paid.” I view this as an admission by Mr. Wilber of his failure to comply.
Appellees cite Friedman v. Worthy Fabrics, 347 S.W.2d 639 (Tex.Civ.App.-El Paso 1960, no writ). In Friedman, the court dealt with a letter written by a debtor which clearly acknowledged a debt. Such is not the case regarding the letter of March 8, 1985, sent by Tesoro. The sufficiency of an acknowl-edgement of debt is a question of law to be determined by the court. Id. at 640. I would hold that as a matter of law plaintiffs failed to prove the acknowledgement of a debt which would defeat the statute of limitations.
Appellees seek further to delay accrual of limitations by claiming that the Natural Resources Code (statutory notice provision) constitutes a demand which is an integral part of a cause of action or a condition precedent to the right to sue. Appellees cite Foreman v. Graham, 363 S.W.2d 371 (Tex.Civ.App.-Beaumont 1962, no writ), claiming the statute of limitations does not begin to run until plaintiffs sent Tesoro copies of their demand to International on September 4, 1986.
In Foreman, a demand became a condition precedent to the accrual of a cause of action because the debt, based upon unwritten loans, was made for an indefinite period of time and was due only upon expressed demand. Generally, a note without a time for repayment is a demand note and is actionable immediately. “If, however, a demand is an integral part of a cause of action, or a condition precedent to the right to sue, limitations does not begin to run until a demand is made, unless demand is waived or is unreasonably delayed.” Martin v. Ford, 853 S.W.2d 680, 682 (Tex.App.-Texarkana 1993, writ denied).
The statutory notice provision, Section 91.404(a), requires the “payee” to give the “payor” written notice of the failure to make *873a timely payment as “a prerequisite to beginning judicial action against the payor for nonpayment.” It does not delay the accrual of the cause of action because a cause of action must arise prior to judicial action.
Statutory notice requirements as prerequisites to judicial action are reasonable efforts to discourage litigation and to encourage non-litigious settling of disputes. For example, in Hines v. Hash, 843 S.W.2d 464 (Tex.1992), the court dealt with the notice requirement in the Deceptive Trade Practices Act. That notice provision also requires written notice “as a prerequisite to filing a suit seeking damage.” See Tex.Büs. & Com.Code Ann. § 17.505(a) (Vernon Supp.1995). The purpose of this DTPA notice provision is the same as that of the Medical Liability and Insurance Improvement Act (Tex.Rev.Civ.Stat.Ann. art. 4590i § 4.01) (Vernon Supp. Pamph.1995). Failure to give proper notice does not require dismissal of the action but does allow a defendant to seek abatement for requisite notice. Since a defendant can waive notice, it is not an integral part of the cause of action.
Here plaintiffs, appellees, overreach, for if a statutory notice provision became an integral part of a cause of action then a plaintiff could delay indefinitely before sending notice. Clearly, this is not the purpose of the statutory notice provision since it would render any statute of limitations unavailable.
Since one element of plaintiffs’ cause of action to recover against Koch and Tesoro is based in breach of contract theory, it is compelling that I address the viability of this claim as same may relate to the extending of the limitations period from two years to four years.
Plaintiffs’ Eighth Amended Petition alleged that Koch and Tesoro’s actions placed those entities “in default and violation of their express or quasi-contractual obligations.” The trial court found that there was, in fact, “an agreement between Kocb/Tesoro and the plaintiffs in regard to the purchase of oil from the Gephart lease,” and that appellants failed to perform under that “‘agreement’”.
The record before us is conclusive that there was never any agreement or contract, either written or oral, between plaintiffs and Koch or Tesoro. This fact was agreed upon by Mr. Wilber, plaintiffs’ expert witness, Gerald Dupont, and Koch’s trial representative, Steve Wyman.
It is a truism that there can be no breach of a contract unless there was, in fact, a contract to be breached. The trial court’s finding of an existence of a contract was error and precipitated numerous other erroneous findings and conclusions.
When faced with the reality that there was no agreement or expressed contract between plaintiffs and Koch/Tesoro, plaintiffs then redirect their course of argument to the provisions of Tex.Bus. & Com.Code Ann. §§ 2.105 and 2.107 (Vernon 1994), which plaintiffs contend created a contractual obligation running from Koch and Tesoro to the plaintiffs. The trial court determined that, pursuant to § 2.107, appellants’ agreement with the plaintiffs was a contract for the sale of minerals or the like (including oil and gas), and that privity between these first purchasers and plaintiffs was not required to invoke liability under that statute.
Tex.Bus. & Com.Code § 2.107(a) reads, in pertinent part:
A contract for the sale of minerals or the like (including oil and gas) ... is a contract for the sale of goods within this chapter if they are to be severed by the seller but until severance a purported present sale thereof which is not effective as a transfer of an interest in land is effective only as a contract to sell.
This statute was not intended to create a contract where no contract existed. The statute simply declares that an existing contract for the sale of oil and gas, in certain circumstances, is deemed a “contract for the sale of goods” under the code.
Appellees, plaintiffs below, had no pleadings supporting a right of recovery under § 2.107 of the Business and Commerce Code and it was error for the trial court to impose liability upon Koch and Tesoro pursuant to that statute.
*874For reasons stated, I would hold that the two year statute of limitations is applicable to all claims made by all plaintiffs against appellants, Koch and Tesoro. If the two year statute of limitations applies, all claims by all plaintiffs against Koch and Tesoro would be effectively extinguished. This should not, however, affect those funds which were voluntarily held by Tesoro for the benefit of those royalty interest owners named.
I would reverse the judgment of the trial court and render judgment that plaintiffs have and recover nothing from appellants, Koch and Tesoro.

. The 1991 amendment now provides the following:
"Payor” means the party who undertakes to distribute oil and gas proceeds to the payee, whether as the purchaser of the production of oil or gas generating such proceeds or as operator of the well from which such production was obtained or as lessee under the lease on which royalty is due. The payor is the first purchaser of such production of oil or gas from an oil or gas well, unless the owner of the right to produce under an oil or gas lease or pooling order and the first purchaser have entered into arrangements providing that the proceeds derived from the sale of oil or gas are to be paid by the first purchaser to the owner of the right to produce who is thereby deemed to be the payor having the responsibility of paying those proceeds received from the first purchaser to the payee.