Marrs and Smith, Partnership v. D.K. Boyd Oil and Gas Company, Inc.--Appeal from 143rd District Court of Loving County

COURT OF APPEALS

EIGHTH DISTRICT OF TEXAS

EL PASO, TEXAS

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MARRS AND SMITH, PARTNERSHIP, ) No. 08-00-00386-CV

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Appellant, ) Appeal from

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v. ) 143rd District Court

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D.K. BOYD OIL AND GAS COMPANY, INC., ) of Loving County, Texas

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Appellee. ) (TC# 00-08-713)

O P I N I O N

Marrs and Smith, Partnership (Marrs) appeals from a summary judgment granted in favor of D.K. Boyd Oil and Gas Company, Inc. (Boyd). We affirm in part and reverse in part.

FACTUAL SUMMARY

This dispute pertains to the ownership of a large tract of land known as the Frying Pan Ranch which consists of approximately 136,000 acres in Andrews, Loving, and Winkler Counties in Texas and Lea County, New Mexico. On December 10, 1996, the Scarborough-Linebery Foundation conveyed the entire surface estate of the ranch and portions of the mineral estate to Boyd by warranty deed. At the same time, Boyd conveyed partial interests in the mineral estate to various parties including Marrs, which is an oil and gas operator on the ranch. It is undisputed that Boyd did not convey the surface estate to Marrs by this deed.

On December 16, 1998, Boyd and Marrs signed the following agreement:

Effective December 10, 1998 for value and services received D. K. BOYD Oil and Gas Co., Inc. at P.O. Box 11351, Midland, Texas 79702, hereinafter referred to as Boyd, agrees to pay Marrs & Smith Partnership at P.O. Box 863, Kermit, Texas, 79745, hereinafter referred to as Smith, One Million Seven Hundred Thousand dollars ($1,700,000.00), hereinafter referred to as the Consideration on or before December 10, 2006. If on or before December 10, 2006 Smith has not yet received from Boyd the consideration Boyd shall convey unto Smith a twenty percent interest in and to the land as reflected in Exhibit A, hereinafter referred to as Subject Lands, attached to and made a part hereof as well as a twenty percent interest in all appurtenances associated with the Subject Lands as of December 10, 1998.

From the effective date hereof until that time Smith has received the consideration Smith shall have the right to claim twenty percent of the annual depreciation of all depreciable items and appurtenances associated with the Subject Lands for purposes of income tax reporting.

The terms and conditions as set forth herein can be altered upon mutual written agreement by both Boyd and Smith.

Rickey Smith is the managing partner and principle of Marrs and Smith Partnership. On January 5, 2000, Boyd sent a letter to Smith alleging that Marrs had not complied with a separate agreement referred to as the Surface Damage Agreement which the parties entered into on December 16, 1998. With the letter, Boyd enclosed audit reports from Cheyenne Land Management Services, Ltd., which had been employed to conduct environmental audits in order to assist Boyd in assessing contamination of the ranch caused by Marrs= oil and gas operations. Boyd suggested a procedure which Marrs should follow for releases of hydrocarbons, contaminating water, and other contaminates and it requested a reclamation work plan. Boyd also claimed certain property which had been abandoned on the ranch by Marrs. Finally, Boyd submitted a bill to Marrs for $132,870 in surface damage consideration and $66,190.10 for the audit work performed by Cheyenne.

Smith responded on behalf of the partnership by letter a few days later. In addition to insisting that the Surface Damage Agreement applied only to future drilling and production, he stated:

We would also at this time like to call your attention to the agreement dated the 16th day of December, 1998. Common law says if a party feels that at sometime during the length of an agreement that one party feels that future actions by the other party may cause this note not be paid, it can be called. We do not feel you will be able to make payment on this note, therefore please remit this payment within 30 days. Amount due $1,700,000.00.

Boyd=s attorneys sent another letter to Marrs on January 28, 2000, demanding that it comply with the Surface Damage Agreement and identifying ten actions which Marrs had to perform in order to avoid litigation. Instead of complying with the demand or replying to the letter, Marrs filed suit on February 9, 2000, seeking reformation of the December 16, 1998 agreement, a declaratory judgment, and damages. Attached to the petition is the agreement dated December 16, 1998 and an Exhibit A.[1]

According to the pleadings, Marrs and Boyd negotiated to purchase the Frying Pan Ranch in 1996 from a third party, and pursuant to an agreement between the parties, Marrs owns an undivided 20 percent interest in the surface estate subject to the December 16, 1998 agreement.[2] Marrs paid cash for its interest in the surface estate while Boyd entered into a promissory note with the Farm Credit Bank of Wichita. The parties agreed that Boyd would take all proceeds received from the surface estate and apply them to the promissory note. Once the balance owed by Boyd had been reduced, Farm Credit Bank would release 20 percent of the surface estate to Smith. Marrs asserted that pursuant to the December 16, 1998 agreement, Boyd had the option of purchasing its undivided 20 percent interest in the surface estate of the Ranch. Marrs claimed that the parties reached this agreement on December 10, 1996 but did not reduce it to writing until December 10, 1998. Based upon these factual allegations, Marrs sought a declaratory judgment that it owns 20 percent of the surface estate subject to Boyd=s option to purchase its interest for $1.7 million on or before December 10, 2006. Thus, Marrs sought to have 20 percent of the surface estate released by Farm Credit Bank of Wichita. Claiming the existence of a mutual mistake, Marrs requested reformation of the agreement to show: (1) the effective date of the agreement as December 10, 1996; (2) conveyance of the 20 percent interest in the surface estate; (3) the agreement for application of the proceeds to the promissory note; and (4) the eventual release of Marrs= interest upon payment of the promissory note. Finally, Marrs sought an accounting of all proceeds received from the surface estate because it believed that Boyd had not properly applied the proceeds to the note. Marrs sought to recover those funds which had not been applied to the note pursuant to the agreement of the parties. Marrs alleged additional causes of action, including wrongful mortgage of the surface estate, breach of fiduciary duties related to the mineral estate, a request for accounting of lease proceeds, and conversion.

Boyd filed a motion for partial summary judgment contending that Marrs owns no interest in the surface estate of the Frying Pan Ranch because the December 16, 1998 agreement does not convey an interest to Marrs and there is no other written conveyance of the property as required by Section 5.021 of the Texas Property Code. Boyd additionally maintained that Marrs could not rely on parol evidence to show other agreements related to the transaction or to explain or vary the terms of the December 16, 1998 agreement. Boyd=s motion was supported by a copy of the deed from the Scarborough-Linebery Foundation conveying the Frying Pan Ranch to Boyd. The summary judgment evidence also included sworn testimony by Smith admitting that there is no deed conveying to Marrs a 20 percent ownership in the surface estate of the Frying Pan Ranch.[3]

In response, Marrs claimed that it sought reformation of the agreement to show that the parties intended to convey a 20 percent interest in the surface estate to Marrs but because of a mutual mistake did not do so. Marrs attached to its response the affidavit of Rickey Smith stating that Marrs owned a 20 percent interest in the property by virtue of an agreement of the parties but they had made a mistake in reducing the agreement to writing. Additionally, Marrs relied on the testimony of Harold Skelton, the accountant for Marrs and Boyd, to show that Marrs has since 1996 reported 20 percent of the depreciation deduction related to the Frying Pan Ranch while Boyd has taken 80 percent of the depreciation deduction. Skelton made these allocations based upon his understanding of the agreement between Marrs and Boyd. Skelton offered his expert opinion that a taxpayer may not properly take a depreciation deduction absent ownership in the property or a long-term leasehold interest. The trial court later sustained Boyd=s objections to Skelton=s testimony and did not consider it as direct evidence on the issue of ownership of the surface estate.[4]

On May 17, 2000, the trial court granted partial summary judgment in favor of Boyd, finding that Marrs does not own any interest in the surface estate and that Boyd has no present obligation to convey any ownership interest prior to December 10, 2006. At Boyd=s request, the trial court entered an order on August 28, 2000, severing into a separate cause of action all claims based upon and related to the surface estate. Marrs perfected its appeal from the partial summary judgment on September 13, 2000. It then filed a third amended petition on September 15, 2000 alleging additional causes of action based upon its purported ownership of the surface estate. On October 10, 2000, the trial court entered a Afinal judgment@ that Marrs take nothing against Boyd, that Marrs does not own any interest in the surface estate, and that Boyd has no present obligation to convey any ownership interest in the surface estate of the Frying Pan Ranch prior to December 10, 2006.

SUMMARY JUDGMENT

In four issues for review, Marrs challenges the granting of summary judgment in favor of Boyd. It complains that the trial court erred in: (1) granting summary judgment on the declaratory judgment action; (2) failing to consider parol evidence related to the mutual mistake and oral agreements; and (3) failing to find that the agreement is ambiguous. Finally, Marrs claims there is a genuine issue of material fact precluding summary judgment with respect to the mutual mistake cause of action.

Standard of Review

The standard for reviewing a summary judgment granted under Texas Rule of Civil Procedure 166a(c) is whether the successful movant at the trial level carried the burden of showing that there is no genuine issue of material fact and that judgment should be granted as a matter of law. Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex. 1991); Duran v. Furr=s Supermarkets, Inc., 921 S.W.2d 778, 784 (Tex.App. El Paso 1996, writ denied). Thus, the question on appeal is not whether the summary judgment proof raises fact issues as to required elements of the movant=s cause or claim, but whether the summary judgment proof establishes, as a matter of law, that there is no genuine issue of material fact as to one or more elements of the movant=s cause or claim. Gibbs v. General Motors Corp., 450 S.W.2d 827, 828 (Tex. 1970); Duran, 921 S.W.2d at 784. In resolving these issues, all evidence favorable to the non movant must be taken as true and all reasonable inferences, including any doubts, must be resolved in the non movant=s favor. Nixon v. Mr. Property Mgmt. Co., Inc., 690 S.W.2d 546, 548 49 (Tex. 1985); Duran, 921 S.W.2d at 784. When the defendant is the movant and submits summary evidence disproving at least one essential element of each of the plaintiff=s causes of action, then summary judgment should be granted. Wyatt v. Longoria, 33 S.W.3d 26, 31 (Tex.App. - El Paso 2000, no pet.).

Reformation Due to Mutual Mistake

In Issues Two and Four, Marrs challenges the granting of summary judgment with respect to its claim of mutual mistake. In order to be entitled to reformation of an agreement, a party must plead either mutual mistake or unilateral mistake accompanied by fraud or other inequitable conduct by the other party. Coronado Transmission Co. v. O=Shea, 703 S.W.2d 731, 735 (Tex.App. Corpus Christi 1985, writ ref=d n.r.e.); Spellman v. American Universal Investment Co., 687 S.W.2d 27, 31 (Tex.App. Corpus Christi 1984, writ ref=d n.r.e.). Here, Marrs has alleged the existence of a mutual mistake. Reformation is available to correct a mutual mistake made in preparing a written instrument so that the instrument reflects the original agreement of the parties. Wallersteinv. Spirt, 8 S.W.3d 774, 781 (Tex.App. -Austin 1999, no pet.), citing Cherokee Water Co. v. Forderhause, 741 S.W.2d 377, 379 (Tex. 1987). Reformation requires two elements: (1) an original agreement and (2) a mutual mistake, made after the original agreement, in reducing the original agreement to writing. Wallerstein, 8 S.W.3d at 781. When mutual mistake is alleged, the task of the court is not to interpret the language contained in the contract, but to determine whether the contract itself is valid. Williams v. Glash, 789 S.W.2d 261, 264 65 (Tex. 1990); Green v. Morris, 43 S.W.3d 604, 607 (Tex.App. -Waco 2001, no pet.). Further, the parol evidence rule does not bar extrinsic proof of mutual mistake. Santos v. Mid Continent Refrigerator Co., 471 S.W.2d 568, 569 (Tex. 1971); Green, 43 S.W.3d at 607.

By its motion for partial summary judgment, Boyd sought to defeat Marrs= claim to ownership in the surface estate of the ranch through its offer of summary judgment evidence establishing that Boyd had never executed any writing, including the December 16, 1998 agreement, which conveys or purports to convey an interest in the ranch to Marrs. However, Boyd did not expressly move for summary judgment on Marrs= claim of mutual mistake and reformation. Therefore, Boyd is not entitled to summary judgment on this claim. See Tex.R.Civ.P. 166a(c). Moreover, Boyd did not offer any evidence to conclusively establish any element of that claim against Marrs. The fact that the December 16, 1998 agreement does not convey an interest to Smith is not dispositive of his claim of mutual mistake. Consequently, Boyd failed to conclusively establish its entitlement to summary judgment with respect to the mutual mistake claim. Issues Two and Four are sustained.

Ambiguity in the Written Conveyance

In Issue Three, Marrs contends that the December 16, 1998 agreement is ambiguous, and therefore, the trial court should not have granted summary judgment without considering parol evidence. By its summary judgment motion, Boyd urged that all of Marrs= claims must fail because it has no interest in the property since there is no written conveyance. Section 5.021 of the Texas Property Code provides:

A conveyance of an estate of inheritance, a freehold, or an estate for more than one year, in land and tenements, must be in writing and must be subscribed and delivered by the conveyor or by the conveyor=s agent authorized in writing.

Tex.Prop.Code Ann. ' 5.021 (Vernon 1984).

There is no longer a requirement, as there was at common law, that a deed or instrument to effect conveyance of real property have all the formal parts of a deed formerly recognized at common law or contain technical words. Green v. Canon, 33 S.W.3d 855, 858 (Tex.App. -Houston [14th Dist.] 2000, pet. denied); Harlan v. Vetter, 732 S.W.2d 390, 392 (Tex.App. -Eastland 1987, writ ref=d n.r.e.). If, from the whole instrument, a grantor and grantee can be ascertained, and if there are operative words or words of grant showing an intention of the grantor to convey title to a real property interest to the grantee, and if the instrument is signed and acknowledged by the grantor, it is a deed which is legally effective as a conveyance. Green, 33 S.W.3d at 858; Harlan, 732 S.W.2d at 392.

The summary judgment evidence conclusively established that the Scarborough-Linebery Foundation conveyed the Frying Pan Ranch to Boyd by warranty deed dated December 10, 1996. It is likewise undisputed that the Scarborough-Linebery Foundation did not convey a 20 percent interest in the surface estate of the Frying Pan Ranch to Marrs. Consequently, Marrs=s claim of ownership rests exclusively on the December 16, 1998 agreement.

The trial court determined that the December 16, 1998 agreement is unambiguous, and consequently, refused to consider any parol evidence as to the parties= intention. Before considering whether the instrument is sufficient to convey the property, we must first decide whether the agreement is ambiguous. A court=s primary goal when construing a deed is to ascertain the true intention of the parties as expressed within the four corners of the instrument. Cherokee Water Co. v. Freeman, 33 S.W.3d 349, 353 (Tex.App. -Texarkana 2000, no pet.), citing Luckel v. White, 819 S.W.2d 459, 461 (Tex. 1991). The Afour corners@ rule requires the court to ascertain the intent of the parties solely from all of the language in the deed. Concord Oil Co. v. Pennzoil Exploration & Production Co., 966 S.W.2d 451, 465 (Tex. 1998); Cherokee Water, 33 S.W.3d at 353. The intent that governs, however, is not the intent that the parties meant but failed to express, but the intent that is expressed. Cherokee Water, 33 S.W.3d at 353; Harlan, 732 S.W.2d at 392. The process of deed construction has been described as three-tiered: (1) the court attempts to ascertain the grantor=s intent by examining the plain language of the deed; (2) the court then applies applicable rules of construction to the deed; and (3) the court considers extrinsic evidence to aid interpretation. Cherokee Water, 33 S.W.3d at 353, citing Laura H. Burney, The Regrettable Rebirth of the Two Grant Doctrine in Texas Deed Construction, 34 S.Tex.L.Rev. 73, 77 78 (1993). The third tier, the admission of extrinsic evidence, is not reached unless the intent of the parties is unclear because the deed is ambiguous. Cherokee Water, 33 S.W.3d at 353, citing Stauffer v. Henderson, 801 S.W.2d 858, 863 (Tex. 1990). The question of ambiguity in a deed, as with other written instruments, is a question of law. Cherokee Water, 33 S.W.3d at 353. A document or deed that can be given a definite or certain legal meaning from the words used is not ambiguous. Stewart Title Guaranty Co. v. Aiello, 941 S.W.2d 68, 74 (Tex. 1997); Cherokee Water, 33 S.W.3d at 353. If the deed language is susceptible to a single meaning, the court will be confined to the writing. Cherokee Water, 33 S.W.3d at 353. If the language may be interpreted in different ways, rules of construction may be used. Id. An instrument is ambiguous only when the application of these rules leaves it unclear which of two reasonable meanings is the correct one. Id. We review de novo a trial court=s determination of a question of law. Barber v. Colorado Independent School District, 901 S.W.2d 447, 450 (Tex. 1995); Cherokee Water, 33 S.W.3d at 353.

The December 16, 1998 agreement does not evidence a present intent on the part of Boyd to convey a 20 percent interest in the surface estate to Marrs. Rather, the agreement contemplates that in the event of Boyd=s failure to pay Marrs $1.7 million dollars by a date certain in the future, Boyd will then be obligated to convey the interest to Marrs. Thus, Boyd has the option to pay the consideration on or before December 10, 2006, or effect a conveyance of the property. Marrs argues that the agreement is ambiguous because it admittedly does not convey a present interest in the property yet it permits Marrs to claim 20 percent of the depreciation deduction. Marrs= ability to claim a deduction for the depreciable assets on the Frying Pan Ranch is irrelevant to its ownership of the surface. As for its contention that it claimed not only a deduction for the depreciable assets but also for the land, it cites no authority for its argument. Consequently, we find no ambiguity. Absent ambiguity, the trial court did not err in failing to consider parol evidence. Issue Three is overruled.

Marrs= Remaining Causes of Action

In Issue One, Marrs contends that the trial court erred in granting summary judgment on its claims for declaratory judgment, promissory estoppel, and breach of contract because these actions do not depend on the validity of the December 16, 1998 agreement as a written conveyance of the property; instead, these actions were alleged as alternative means to establish ownership in the Frying Pan Ranch.

With respect to the declaratory judgment, Marrs sought a declaration that it owned an undivided 20 percent interest in and to the property; that it is entitled to execute agreements related to the surface estate as a co-tenant of the surface estate; and that it has the right to use and occupy the entire surface estate. Because each of the declarations sought is predicated upon an ownership interest in the surface estate, the trial court=s determination that Marrs has no present interest disposed of the declaratory judgment action.

In its breach of contract action, Marrs claims that Boyd breached the agreement to convey a 20 percent interest in the surface estate of the Frying Pan Ranch. The December 16, 1998 agreement reflecting that Boyd would convey a 20 percent interest in the surface estate if $1.7 million were not paid by a future date is entirely contrary to Marrs= claim that the parties had an agreement whereby Boyd would convey to Marrs a present interest in the land on or about December 10, 1996. In response to the motion for summary judgment, Marrs did not produce any evidence of a separate agreement between the parties. Therefore, the trial court did not err in granting summary judgment on this cause of action.

Finally, Marrs complains that the court granted summary judgment on its promissory estoppel claim by which it alleged that Boyd promised to convey the property to it and represented to Marrs that it could take 20 percent of the depreciation deduction. Contending that it had been claiming the deduction since 1996 to its detriment, Marrs sought recovery of all income taxes due, interest, penalties, attorney=s fees, and accountant=s fees incurred in amending its income tax returns. Promissory estoppel is an equitable doctrine which does not create a contract where none existed before, but only prevents a party from insisting upon his strict legal rights when it would be unjust to allow him to enforce them. Vida v. El Paso Employees= Federal Credit Union, 885 S.W.2d 177, 181 (Tex.App. -El Paso 1994, no writ). The function of the doctrine of promissory estoppel is defensive in that it estops a promisor from denying the enforceability of the promise. AMoore@ Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 936 (Tex. 1972); Vida, 885 S.W.2d at 181. The elements of promissory estoppel are: (1) a promise; (2) foreseeability by the promisor that the promisee would rely upon it; and (3) reliance upon the promise to the promisee=s detriment. English v. Fischer, 660 S.W.2d 521, 524 (Tex. 1983); Vida, 885 S.W.2d at 181-82.

The December 16, 1998 agreement established that Boyd made an executory promise to convey a 20 percent interest in the surface estate in the event it failed to pay the consideration on or before the due date of December 10, 2006. This agreement is contrary to Marrs= claim that Boyd conveyed, or promised to convey a present interest in the property in 1996. In its response to the motion for summary judgment, Marrs relied upon the affidavit of Rickey Smith. The relevant portion of the affidavit states as follows:

During 1996, D.K. Boyd Oil and Gas Company, Inc., and Marrs and Smith Partnership, among others, negotiated for the purchase of the surface and mineral interests in the property commonly known as The Frying Pan Ranch. As part of such agreement, Marrs and Smith Partnership owns twenty percent (20%) of the surface estate in and to The Frying Pan Ranch. The effective date of this agreement is December 10, 1996. . . . The agreement attached to Plaintiff=s First Amended Original Petition approximately two (2) years after our original agreement concerning the ownership of The Frying Pan Ranch [sic]. Such agreement drafted by Boyd does not set forth all the terms and conditions of our agreement. The additional terms and conditions of our agreement are set forth in Plaintiff=s First Amended Original Petition.

While there may be a fact issue concerning the existence of an executory promise to convey a present interest in the property, the affidavit fails to address the remaining elements of promissory estoppel. Consequently, the trial court did not err in granting summary judgment as to this claim. Issue One is overruled. Having sustained Issues Two and Four, we reverse only that portion of the trial court=s order granting summary judgment with respect to Marrs= claim of mutual mistake and reformation. Having overruled Issues One and Three, we affirm the remainder of the summary judgment. This cause is remanded for further proceedings pertaining only to Marrs= claim of mutual mistake and reformation.

July 3, 2002

ANN CRAWFORD McCLURE, Justice

Before Panel No. 2

Barajas, C.J., McClure, and Chew, JJ.

(Do Not Publish)

[1] Exhibit A is a document titled ASurface Estate@ and it lists numerous sections of land in Winkler, Andrews, and Loving Counties, Texas, and Lea County, New Mexico. This Exhibit A corresponds exactly to the Exhibit A attached to the warranty deed given to Boyd by the Scarborough-Linebery Foundation. Boyd has steadfastly denied that Exhibit A was actually attached to the December 16, 1998 agreement.

[2] Marrs has not produced a writing evidencing this agreement. In fact, Marrs has also taken the position that this agreement should have been included in the December 16, 1998 agreement but was not due to mutual mistake of the parties.

[3] Marrs objected to this summary judgment evidence because the transcription is uncertified by the court reporter, but the record does not reflect a ruling by the trial court.

[4] Although the trial court did not follow up its oral ruling on the objection to Skelton=s testimony with a written one, the court stated, in granting partial summary judgment, that it had considered the Aproper summary judgment evidence.@ This constitutes an implicit ruling. See Frazier v. Yu, 987 S.W.2d 607, 609 (Tex.App. -Fort Worth 1999, pet. denied)(the existence of written objections and a recitation that the court reviewed all competent evidence, creates an inference that the trial court implicitly sustained objections to summary judgment evidence). Because Marrs has not challenged the trial court=s ruling on appeal, we will not consider Skelton=s testimony in our review of the summary judgment.