Melvin R. Storm Family Partners, L.P. v. Dwight Northcutt, Individually and dba Northcutt Production--Appeal from 42nd District Court of Coleman County

Opinion filed August 2, 2007

Opinion filed August 2, 2007

In The

Eleventh Court of Appeals

__________

   No. 11-05-00402-CV

________

MELVIN R. STORM FAMILY PARTNERS, L.P., Appellant

V.

DWIGHT NORTHCUTT, INDIVIDUALLY AND D/B/A

NORTHCUTT PRODUCTION, Appellee

On Appeal from the 42nd District Court

Coleman County, Texas

Trial Court Cause No. 3778

M E M O R A N D U M O P I N I O N

After a bench trial, the trial court entered judgment that appellant take nothing in its suit to remove a cloud on its title, for negligence, for slander of title, and for trespass. The trial court also held against appellant on its claims for a declaratory judgment and an injunction. We affirm.

 

On September 25, 2003, appellant purchased approximately 1,183 acres of land in Coleman County from the T. Brandt Family Limited Partnership. Appellant filed the deed in Coleman County on September 30, 2003. Appellee claimed to have an oil and gas lease upon 480 acres out of the 1,183-acre tract. Appellee formerly had been operating under an earlier oil and gas lease on that same 480 acres since 2000. However, the lease under which it is claiming for the purposes of this lawsuit is dated November 19, 2002. That lease was entered into as a result of negotiations between appellee and Brandt prior to the time that appellant purchased the property. It is undisputed that the November 2002 lease was not filed for record until February 28, 2005, after appellant had purchased the property.

The trial court found, among other things, that appellant was not a bona fide purchaser for value without notice of appellee=s rights because appellant was put on notice of appellee=s rights under the 2002 lease. Accordingly, the trial court entered a take-nothing judgment against appellant. The trial court awarded attorney=s fees to appellee in the amount of $9,625.

Appellant brings six issues for us to review. First, appellant claims that it never had actual notice of the 2002 lease and that any possession by appellee was not exclusive and unequivocal. Next, appellant argues that the evidence is legally and factually insufficient to constitute constructive notice of any of appellee=s rights. In the third issue, appellant insists that appellee=s possession was consistent with the former lease and that it was a bona fide purchaser of the property. In its fourth and fifth issues, appellant claims that the 2002 lease had expired under its own terms for lack of production. Lastly, appellant asks this court to reverse the award of attorney=s fees because the declaratory judgment request is merely Aincidental to the issue at hand,@ and this is in actuality a title dispute. It further takes the position that appellee did not file a counterclaim for attorney=s fees and is not entitled to the award for attorney=s fees.

We will discuss appellant=s first three issues together.

Appellee had not filed its 2002 lease for record when appellant purchased the property. Tex. Prop. Code Ann. ' 13.001 (Vernon 2004) applies to unrecorded instruments and their effect on interests in real property. If it is not filed for record as required, a conveyance of real property or an interest in real property is void as to a subsequent purchaser for a valuable consideration without notice. Section 13.001(a). The burden of proof on the issue is upon the one claiming to be a bona fide purchaser to show that it acquired the property for value, in good faith, and without notice of any third-party claims. Houston Oil Co. of Tex. v. Hayden, 135 S.W. 1149, 1152 (Tex. 1911). The only one of those issues relevant to this appeal is the notice issue.

 

Notice can be either actual or constructive. Madisonv. Gordon, 39 S.W.3d 604, 606 (Tex. 2001). Actual notice arises from personal information or knowledge, while constructive notice is that notice that the law imputes to one who does not have personal information or knowledge. Id. Constructive notice arising from the rights of a party in possession of property can be equivalent to the constructive notice resulting from the registration of the conveyance of such property. Chicago Title Ins. Co. v. Alford, 3 S.W.3d 164, 169-70 (Tex. App CEastland 1999, pet. denied). A purchaser of property may be charged with notice of the rights of a party in possession of the property. Madison, 39 S.W.3d at 606. The purchaser has a duty to ascertain the rights of parties in possession if that possession is visible, open, exclusive, and unequivocal. Id.; Strong v. Strong, 98 S.W.2d 346, 348-50 (Tex. 1936). And, if it is visible, open, exclusive, and unequivocal, then that possession constitutes constructive notice of the rights under which that property is possessed. Madison, 39 S.W.3d at 607; Alford, 3 S.W.3d at 169.

The trial court entered findings of fact and conclusions of law. We review a trial court=s conclusions of law de novo. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002). The evidence is reviewed in a bench trial by the same standards as in a jury trial. IKB Indus. v. Pro-Line Corp., 938 S.W.2d 440, 445 (Tex. 1997). When we review the legal sufficiency of the evidence, we do so in the light most favorable to the verdict, and we disregard all contrary evidence that could have been disbelieved by a reasonable fact-finder. Ysleta Indep. Sch. Dist. v. Monarrez, 177 S.W.3d 915 (Tex. 2005). We must credit favorable evidence if a reasonable fact-finder could and disregard contrary evidence unless a reasonable fact-finder could not. City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005). We will find that the evidence is legally sufficient if it Awould enable reasonable and fair-minded people to differ in their conclusions.@ See id. at 822. If the evidence falls within the zone of reasonable disagreement, we will not substitute our judgment for that of the fact-finder. Id. Although the reviewing court Amust consider evidence in the light most favorable to the@ findings, Aand indulge every reasonable inference that would support it[,] . . . if the evidence allows of only one inference, neither [the fact-finder] nor the reviewing court may disregard it.@ Id. AThe final test for legal sufficiency must always be whether the evidence at trial would enable reasonable and fair-minded people to@ make the findings Aunder review.@ Id. at 827.

 

A factual sufficiency challenge to issues on which appellant did not bear the burden of proof requires us to Aconsider and weigh all of the evidence.@ Checker Bag Co. v. Washington, 27 S.W.3d 625, 633 (Tex. App.CWaco 2000, pet. denied). We will reverse the Averdict only if it is so contrary to the overwhelming weight of the evidence that the verdict is clearly wrong and unjust.@ Id. However, where the complaining party on appeal had the burden of proof on the issue, we will reverse for factual insufficiency only if, Aconsidering all the evidence, the finding is so contrary to the great weight and preponderance of the evidence as to be manifestly unjust.@ Id. We weigh all the evidence, both supporting and conflicting, and may set the finding aside only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and manifestly unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); Comm=n of Contracts of the Gen. Executive Comm. of the Petroleum Workers Union of the Republic of Mex. v. Arriba, Ltd., 882 S.W.2d 576, 582 (Tex. App.CHouston [1st Dist.] 1994, no writ). In a bench trial, the trial court alone determines the credibility of the witnesses and the weight to be given their testimony, and it may accept or reject all or any part of that testimony. Nordstrom v. Nordstrom, 965 S.W.2d 575, 580-81 (Tex. App.C Houston [1st Dist.] 1997, pet. denied). If, reviewed under these standards, appellee was in visible, open, exclusive, and unequivocal possession of the property made the subject of this suit, then appellant had constructive notice of the rights of appellee under the unrecorded lease.

While appellee did not have exclusive possession of the 1,183 acres, he did have exclusive possession of the 480 acres covered by his unrecorded lease. Persons or entities other than appellee held leases on other parts of the property. But, the record shows that, although many people were in and out of the ranch for the purpose of conducting oil and gas activities, only appellee and those entering by virtue of his lease conducted oil and gas operations on the 480-acre tract.

The testimony shows that there were many different lease signs at various locations on the 1,183 acres. The signs bore the names of many different companies and individuals who were, in various capacities, conducting oil and gas operations on the property. Appellee=s name, along with the designated operator of his lease, was one of those names that appeared on some of the signs that related to the 480 acres. Loy Marshall Storm, an owner and the managing partner of appellant, had seen the signs prior to appellant=s purchase, and appellant introduced pictures of them at trial.

 

Loy and his father, Melvin, examined the property some six or eight times, for Amaybe an hour@ each visit, before appellant purchased it. Loy testified that, although he and his father met appellee on the property during some of those visits to the property, they did not talk to him about anything specific.

William Ross Setzler was the real estate agent who notified appellant that this particular tract of land was for sale. Another broker, Donnie Gene Stegemoller, represented the seller. Loy testified that Setzler was checking out the rights of parties in possession for appellant. Loy had asked him to look into Awhat was out there.@ Appellant had received a commitment for a policy of title insurance, and the policy excluded the rights of parties in possession. As a part of his inquiry, Setzler communicated with the Railroad Commission. The Railroad Commission gave him information regarding appellee, including his telephone number. Setzler also talked to appellee prior to the closing of the sale to appellant. He Abasically determined that [appellee] was involved with some wells there at the house.@

Prior to the date of the closing of the sale to appellant, Terry Brandt, general partner of the entity that sold the property to appellant, sent a facsimile to Stegemoller; Stegemoller in turn sent the facsimile to Setzler. The facsimile was of a document that contained the name ADwight Northcutt,@ gave two telephone numbers for him, and also contained the statement Aoil wells below house.@

During cross-examination, appellee=s lawyer asked Loy whether he had asked any of those who were conducting operations on the property, including appellee, under what oil and gas lease they were operating. He replied that he had not. During that cross-examination, the following exchange occurred:

Q. Did it ever occur to you to ask them under what oil and gas lease they were operating?

A. No.

Q. Did you do that?

A. Did I ask them? No.

Q. Did you ask Mr. Northcutt?

 

A. I don=t know if I did before. I did after closing to get me some information. I couldn=t figure out why he was still out there. You know, there=s so much confusion with the whole deal, there=s no B it=s hard to tell what was going on. And he never provided me any information.

Q. But you knew [appellee] was coming in and out of there on a regular basis before closing operating those oil wells?

A. Yeah, but I didn=t know who for.

Q. But you didn=t ask him before closing?

A. No.[1]

The trial court found that appellant had either actual or constructive notice of the rights of appellee. Under the standards for review of legal and factual sufficiency set out earlier in this opinion, we hold that the evidence legally and factually supports the trial court=s finding that appellant was not a bona fide purchaser because appellee was a person in visible, open, exclusive, and unequivocal possession of the oil and gas interest on the 480 acres at the time that appellant purchased the property and, as such, that appellant had constructive notice of the rights of appellee, was charged with the responsibility of determining those rights, and took its title subject to them.

Appellant argues that it should not be charged with constructive notice for the further reason that appellee=s possession was consistent with the former lease under which appellee operated. We disagree. The rights of appellee, the party in possession, were determined by the 2002 oil and gas lease, and appellant is charged with constructive notice of those rights. Appellant=s first, second, and third issues on appeal are overruled.

Appellant argues in its fourth and fifth issues on appeal that appellee=s oil and gas lease had terminated because there was a cessation of production during the months of April, May, and June 2004. The lease provided for a primary term of ninety days and Aas long thereafter as oil or gas, or either of them is produced from@ the land.

 

Appellant requested that the trial court make findings of fact and conclusions of law. Appellant also sent the trial court proposed findings of fact and conclusions of law. Those proposed findings and conclusions included proposals that there had been no production under the 2002 lease and that it had terminated. By written order, the trial court denied the request to enter the proposed findings of fact and conclusions of law. The trial court concluded that the 2002 lease was a valid and subsisting lease and that the evidence failed to support any theory of recovery that appellant had alleged. The trial court also entered a take-nothing judgment against appellant.

Appellant challenges the legal and factual sufficiency of the evidence. The burden was upon appellant to establish that production had ceased. Skelly Oil Co. v. Archer, 356 S.W.2d 774, 783 (Tex. 1961). In order to do that, appellant had to prove that appellee was not making a profit from the operation of the wells on the lease. Id. Even if the evidence were to establish as a matter of law that appellee was not making a profit, appellant must still show as a matter of law or obtain a finding that finds support in the evidence that a reasonably prudent operator would not have continued to operate the wells on the lease under the circumstances. Id.

Appellant argues that there was no production during April, May, and June 2004. Appellee testified that there was production from the lease but that none of the production was sold during those months. The record reflects that there were heavy rains in the area for those months. At one time, appellee had to get to the wells by boat. Railroad Commission records showed that there was no production for those months. Appellee testified that there had been a mistake in the records and that, actually, there had been production for that period of time. Appellee testified that there was always production for the requisite term and that revenues always exceeded expenses. Appellant argues that not only was there no production in paying quantities but also there was no production in paying quantities or otherwise.

The trial court was presented with conflicting evidence regarding production. As the trier of fact, the trial court may accept all or may reject all or any part of the testimony. Nordstrom, 965 S.W.2d at 580-81. Under the standards of review for legal and factual sufficiency, which we have previously set out in this opinion, the evidence, both legally and factually, supports a finding that there was no cessation of production under the 2002 lease. In view of our holding, we need not discuss appellant=s fifth issue on appeal. Appellant=s fourth and fifth issues on appeal are overruled.

 

In its sixth and final issue, appellant complains that the trial court erred when it awarded attorney=s fees to appellee. It maintains that claims for declaratory relief were merely Aincidental to the issue at hand.@ Then, appellant refers us to Tex. R. Civ. P. 97 and argues that appellee did not file a counterclaim and cannot, therefore, recover attorney=s fees.

This lawsuit was filed by appellant. In it, appellant asked for a declaratory judgment. In a suit involving a declaratory judgment, a trial court may award such reasonable and necessary attorney=s fees as are equitable and just. Tex. Civ. Prac. & Rem. Code Ann. ' 37.009 (Vernon 1997). Whether to award attorney=s fees is an issue committed to the sound discretion of the trial court, and we will not reverse such an award absent an abuse of that discretion. Oake v. Collin County, 692 S.W.2d 454, 455 (Tex. 1985). A trial court abuses its discretion when it acts arbitrarily, unreasonably, or without consideration of guiding principles. Walkerv. Gutierrez, 111 S.W.3d 56, 62 (Tex. 2003). Appellant has not shown that the trial court abused its discretion when it awarded attorney=s fees to appellee. Appellant=s sixth issue on appeal is overruled.

The judgment of the trial court is affirmed.

JIM R. WRIGHT

CHIEF JUSTICE

August 2, 2007

Panel consists of: Wright, C.J.,

McCall, J., and Strange, J.

 

[1]Loy did, before closing, talk to Vernon Hogg, a lessee in possession of the property under an unrecorded grazing lease, in an effort to determine what his rights were concerning the property. Loy discovered from Hogg that he claimed that the lease was not a month-to-month lease as Loy had been told. Hogg made an offer for appellant to take over the grazing; appellant accepted that offer.