Stephen C. Cole and Robert Strack v. Michael McWillie, Wanda Juanita Phillips, and Delvonne Burke ( 2015 )

Opinion filed January 15, 2015
In The
Eleventh Court of Appeals
__________
No. 11-12-00265-CV
__________
STEPHEN C. COLE AND
ROBERT STRACK, Appellants
V.
MICHAEL MCWILLIE, WANDA
JUANITA PHILLIPS, AND
DELVONNE BURKE, Appellees
On Appeal from the 238th Judicial District Court
Midland County, Texas
Trial Court Cause No. CV47686
OPINION
This court’s former opinion and judgment dated August 29, 2014, are
withdrawn. This court’s opinion and judgment dated January 15, 2015, are
substituted therefor. The motion for rehearing filed by Stephen C. Cole and Robert
Strack is denied, and the motion for rehearing filed by Michael McWillie, Wanda
Juanita Phillips, and Delvonne Burke is also denied.
The dispositive issue in this case is whether a deed is void or voidable when
it is executed by an attorney-in-fact who is acting on behalf of one who was
competent at the time of the execution of the power of attorney, but who was
incompetent at the time of the execution of the deed. The trial court determined
that such a conveyance was void as a matter of law. We reverse and remand.
This case concerns the ownership of an undivided 35/640 nonparticipating
royalty interest (the NPRI) in a tract of land located in Andrews and Martin
Counties. The summary judgment evidence shows that Rosa Van Huss was the
owner and common source of title to the NPRI. The NPRI is subject to and
covered by an oil and gas lease in which the lessor reserved a one-fifth (1/5)
royalty.
Van Huss executed a power of attorney in favor of her daughter, Wanda
Juanita Phillips, on April 1, 1980. The parties agree that Van Huss was competent
at the time she executed the power of attorney. The power of attorney was not
durable as provided for in Section 36A of the Texas Probate Code. Section 36A
was in effect at the time of the execution of the power of attorney. Although Van
Huss was never adjudicated to be incompetent, the parties do not dispute that she
became mentally incompetent in June 1982 and remained so until her death in
1986.
In 1985, Phillips executed a quitclaim deed with respect to the NPRI. She
executed the conveyance in her capacity as Van Huss’s attorney-in-fact. In that
conveyance, Phillips conveyed all of Van Huss’s interest in the NPRI to Stephen
C. Cole and Robert Strack.
Van Huss died on June 11, 1986, leaving a Last Will and Testament. The
will was admitted to probate as a Muniment of Title. In the will, Van Huss
provided that her estate was to be distributed one-half to Phillips, one-fourth to
Delvonne Burke (Van Huss’s granddaughter), and one-fourth to Sherry Jackson
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a/k/a Schiara Reindollar (Van Huss’s granddaughter). Therefore, Phillips, Burke,
and Reindollar acquired all of Van Huss’s interest in the NPRI upon her death.
They subsequently executed a number of assignments of the interest to Phillips’s
son, Michael McWillie.
Henry Resources, L.L.C. held certain proceeds related to the NPRI. Because
it was uncertain as to the ownership of the proceeds, Henry Resources filed an
interpleader action in 2010. In an agreed partial order, the trial court ordered that
the proceeds held by Henry Resources were to be deposited into the registry of the
court. Henry Resources complied with the order, and the trial court dismissed it
from the lawsuit.
Phillips, Burke, and McWillie (Appellees) later filed a motion for partial
summary judgment in which they sought a declaration from the trial court that the
deed executed by Phillips in her capacity as Van Huss’s attorney-in-fact was void
as a matter of law. Cole and Strack responded that the deed was voidable, not
void, and that the statute of limitations had expired on any suit to avoid the deed.
After a hearing, the trial court granted the motion for partial summary judgment
and concluded that the deed was void; the trial court determined that, because Van
Huss was incompetent when Phillips executed the deed, Phillips lacked the
authority to transact business on behalf of Van Huss at that time.
At a bench trial, the parties entered into stipulations of fact relating to the
chain of title and other matters. After the trial, the trial court entered its final
judgment. In that judgment, the trial court incorporated the previous order
granting partial summary judgment, rendered judgment that the deed was void and
that title was held by Appellees, awarded the proceeds of production to Appellees,
denied the requests for attorneys’ fees, and denied all relief requested by Cole and
Strack. This appeal followed.
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We review de novo an order granting summary judgment. Travelers Ins.
Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010). When reviewing a summary
judgment, we take as true all evidence favorable to the nonmovant, and we indulge
every reasonable inference and resolve any doubts in the nonmovant’s favor.
Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003).
The party moving for summary judgment has the burden of showing that there is
no genuine issue of material fact and that it is entitled to judgment as a matter of
law. TEX. R. CIV. P. 166a(c); Haase v. Glazner, 62 S.W.3d 795, 797 (Tex. 2001).
The parties agree that the ultimate issue in this case is whether the deed was
void as a matter of law, or simply voidable. Because a voidable contract continues
in effect until active steps are taken to disaffirm the contract and because a void
contract is wholly ineffective from the outset, the distinction is significant. Mo.
Pac. Ry. Co. v. Brazil, 10 S.W. 403, 406 (Tex. 1888); Country Cupboard, Inc. v.
Texstar Corp., 570 S.W.2d 70, 74 (Tex. Civ. App.—Dallas 1978, writ ref’d n.r.e.).
The right to disaffirm a contract survives the death of the incompetent person and
descends to her heirs or her personal representative. See Bennett v. Ramos, 252
S.W.2d 442, 448–49 (Tex. 1952); Fuller v. Middleton, 453 S.W.2d 372, 375 (Tex.
Civ. App.—Fort Worth 1970, writ ref’d n.r.e.). Additionally, the right to disaffirm
is subject to a four-year statute of limitations. TEX. CIV. PRAC. & REM. CODE ANN.
§ 16.051 (West 2008); see also Ford v. Exxon Mobil Chem. Co., 235 S.W.3d 615,
618 (Tex. 2007); Slaughter v. Qualls, 162 S.W.2d 671, 674 (Tex. 1942). In this
case, Cole and Strack claim that, if this court holds that the deed was voidable,
rather than void, the statute of limitations on Appellees’ right to disaffirm the deed
has expired.
It is settled law in Texas that a contract executed by a person who lacks
mental capacity is voidable, not void. Williams v. Sapieha, 61 S.W. 115, 116 (Tex.
1901); Neill v. Pure Oil Co., 101 S.W.2d 402, 404 (Tex. Civ. App.—Dallas 1937,
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writ ref’d); see also In re Morgan Stanley & Co., 293 S.W.3d 182, 193 (Tex. 2009)
(Hecht, J., dissenting) (“The rule in Texas and most other jurisdictions is that the
contract [of a party who lacked mental capacity] exists and can be ratified or
avoided.”). In Williams, a landowner executed a power of attorney by which he
authorized his attorney-in-fact to sell land and to execute a deed on the
landowner’s behalf. The landowner lacked the mental capacity to manage his
affairs at the time that he executed the power of attorney. Id. Thereafter, the
attorney-in-fact executed a deed to the property on the incompetent landowner’s
behalf. The validity of that deed became the subject of a subsequent lawsuit. Id.
The Williams court likened the deed of an insane person to that of an infant. It
held that the power of attorney executed by the incompetent landowner, as well as
the deed executed by the incompetent landowner’s attorney-in-fact pursuant to that
power of attorney, was not void but, rather, was voidable. Id. The court reasoned,
“We can see no difference in principle between the act of making a deed which
passes the title and making an instrument which authorizes another person to do
the same thing.” Id.
Cole and Strack, in turn, rely on Williams to argue that, when a principal
becomes incompetent after having executed a valid power of attorney, any
subsequent action of the attorney-in-fact on the principal’s behalf is voidable as
well. Cole and Strack suggest that the subsequent action amounts to action taken
by the incompetent principal. Therefore, they argue that Williams is controlling in
this case and that the deed executed by Phillips as attorney-in-fact for Van Huss is
not void but, instead, is voidable.
Appellees frame their response under principles of agency law. They argue
that the actions of a purported agent who lacks authority to bind the principal are
void as to the principal. According to Appellees, an agent has no authority to bind
his principal upon the principal’s incapacity unless he has been authorized to do so
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pursuant to former Section 36A of the Probate Code or its progeny. 1 Thus, their
argument goes, when a principal becomes incompetent and his power of attorney
lacks the specific language from Section 36A that is required to establish a durable
power of attorney, any subsequent action by the agent on the principal’s behalf is
void as a matter of law.
Agency is a consensual relationship between two parties where one, the
agent, acts on behalf of the other, the principal, subject to the principal’s control.
Bhalli v. Methodist Hosp., 896 S.W.2d 207, 210 (Tex. App.—Houston [1st Dist.]
1995, writ denied); Lone Star Partners v. NationsBank Corp., 893 S.W.2d 593
(Tex. App.—Texarkana 1994, writ denied); Herschbach v. City of Corpus Christi,
883 S.W.2d 720 (Tex. App.—Corpus Christi 1994, writ denied). For an agency
relationship to exist, there must be both a meeting of the minds between the parties
and some act constituting the appointment of an agent. Lone Star Partners, 893
S.W.2d at 600.
The appointment of an attorney-in-fact creates an agency relationship.
Dernick Res., Inc. v. Wilstein, 312 S.W.3d 864, 877 (Tex. App.—Houston [1st
Dist.] 2009, no pet.); Smith v. Lanier, 998 S.W.2d 324, 334 (Tex. App.—Austin
1999, pet. denied). Under the common law, the agency authority created in a
power of attorney existed only when the principal was capable of acting on his or
her own behalf and terminated upon the death or incapacity of the principal.
Comerica Bank-Texas v. Tex. Commerce Bank Nat’l Ass’n, 2 S.W.3d 723, 725
(Tex. App.—Texarkana 1999, pet. denied) (citing Harrington v. Bailey, 351
S.W.2d 946, 948 (Tex. Civ. App.—Waco 1961, no writ)).
1
See Act of May 5, 1971, 62nd Leg., R.S., ch. 173, § 3, 1971 Tex. Gen. Laws 967, 971, amended
by Act of May 29, 1989, 71st Leg., R.S., ch. 404, § 1, 1989 Tex. Gen. Laws 1550, repealed by Act of
April 15, 1993, 73rd Leg., R.S., ch. 49, § 2, 1993 Tex. Gen. Laws 102, 112 (current version at TEX. EST.
CODE ANN. §§ 751.002, 751.051 (West 2014)). Although Section 36A has been amended and repealed, it
remains in effect for powers of attorney executed prior to its amendment and repeal.
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In 1971, the legislature enacted Section 36A of the Probate Code,
establishing durable powers of attorney. At the time Van Huss executed the power
of attorney, Section 36A provided in relevant part:
When a principal designates another his attorney in fact or
agent by power of attorney in writing and the writing contains the
words “this power of attorney shall not terminate on disability of the
principal” or similar words showing the intent of the principal that the
power shall not terminate on his disability, then the powers of the
attorney in fact or agent shall be exercisable by him on behalf of the
principal notwithstanding later disability or incompetence of the
principal.
This was the first codification of a law that gave a principal the ability to provide
specifically that a power of attorney would not terminate upon the disability of the
principal. See Comerica Bank-Texas, 2 S.W.3d at 726.
However, we disagree with Appellees’ assertion that a power of attorney
automatically terminates upon the disability of the principal in the absence of a
durable power of attorney executed in accordance with Section 36A. To the
contrary, we interpret Section 36A to merely provide a method for a principal to
enable his attorney-in-fact to continue to act on the principal’s behalf subsequent to
the incapacity of the principal, regardless of whether that incapacity is temporary
or permanent. We do not interpret Section 36A to establish that, in the absence of
the durable-power-of-attorney language, any deed executed by an attorney-in-fact
subsequent to the principal’s incapacitation is rendered void as a matter of law.
See Campbell v. U.S., 657 F.2d 1174, 1177–78 (Ct. Cl. 1981) (interpreting former
TEX. PROB. CODE § 36A as providing a method for a principal to enable a durable
power of attorney rather than providing that, without such language, the power
immediately terminates upon the incapacity of the principal).
In the cases relied upon by Appellees, the courts address an agent’s authority
to act on behalf of an incapacitated principal, but those courts did not address the
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specific issue in this case and stopped short of holding that a deed executed by an
attorney-in-fact on behalf of an incompetent principal is void as a matter of law.
See Comerica Bank-Texas, 2 S.W.3d at 725–26 (addressing validity of power of
attorney that contained Section 36A language); Jensen v. Kisro, 547 S.W.2d 65,
66–67 (Tex. Civ. App.—Houston [1st Dist.] 1977, no writ) (addressing effect of
temporary incapacity on agency relationship); Harrington v. Bailey, 351 S.W.2d
946, 948 (Tex. Civ. App.—Waco 1961, no writ) (addressing effect of gift by agent
following legal declaration of principal’s incapacitation); Scroggins v. Meredith,
131 S.W.2d 195, 195 (Tex. Civ. App.—Beaumont 1939, no writ) (deed—executed
by attorney-in-fact after power of attorney had been revoked by marriage—
considered void); Wall v. Lubbock, 118 S.W. 886, 888 (Austin 1908, writ ref’d)
(deed—executed by agent after principal’s death—considered void).
We believe that Williams is controlling in this case. As we stated above,
Williams provides the settled rule that a deed executed by a person who lacks the
capacity to do so is voidable as a matter of law, not void. See Williams, 61 S.W. at
116.
An important principle of agency law is that one who authorizes another to
act for him acts as if he himself had personally acted. “To this extent, both the
principal and the agent are only one person; thus, a [deed] executed by an agent for
and with that authority from his principal is as if executed by the principal
himself.” Lucas v. Whiteley, 550 S.W.2d 767, 769 (Tex. Civ. App.—Amarillo
1977, writ ref’d n.r.e.) (citing Julian Petroleum Corp. v. Egger, 15 S.W.2d 36, 39
(Tex. Civ. App.—Fort Worth 1928, writ ref’d)). Given this relationship between
an agent and principal, we believe that the proper approach in this case is to import
the principal’s lack of capacity to the agent who acts on the principal’s behalf.
Thus, an attorney-in-fact who was appointed in a power of attorney that did not
contain the language of Section 36A and who executes a deed on behalf of an
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incompetent principal, even when the principal was competent at the time he
appointed the attorney-in-fact to act on his behalf, creates an effective and valid
deed that is voidable at the election of the principal or the principal’s estate.
Appellees’ argument likens a principal’s incapacity to a principal’s death;
the law is clear that an agent’s authority to bind his principal terminates upon the
principal’s death. See Cleveland v. Williams, 29 Tex. 204, 213 (1867);
Crawford v. Morris, 228 S.W.2d 364, 366 (Tex. Civ. App.—Eastland 1950, writ
ref’d n.r.e.). But this approach is contrary to the approach in Williams, where the
Texas Supreme Court analogized the incapacity of a principal to the incapacity of a
minor. See Williams, 61 S.W. at 116–17. When a contract is executed on behalf of
an incapacitated person—whether by infancy or by mental incompetence—the
party in danger of unfair disadvantage in the transaction is, in fact, the
incapacitated party. The party who transacts with the incapacitated party suffers
no potential detriment in the bargaining process. The protections offered by our
laws should benefit the incapacitated party by allowing him to disavow the
contract upon his return to sufficient capacity. This benefit extends to the heirs of
a deceased principal or the guardian of a permanently incapacitated principal. In
such a case, the benefitted party can secure the advantage of a good bargain by
ratifying the contract or he can relieve himself of a bad bargain by electing to
disavow the agreement. To hold such an agreement void as a matter of law would
deprive the disadvantaged party of the benefit of an advantageous contract.
Furthermore, our conclusion best comports with the need to facilitate the
resolution of title disputes in a reasonable amount of time. If deeds executed by
attorneys-in-fact on behalf of incompetent principals were considered void as a
matter of law, a claimant could seek to invalidate a deed many years after its
execution. Such is the case here, where Appellees have sought to invalidate the
deed approximately twenty-five years after its execution. To the contrary, a claim
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against a voidable deed is subject to a statute of limitations. See CIV. PRAC. &
REM. § 16.051; see also Ford, 235 S.W.3d at 618. Given these considerations, in
addition to the precedent set forth in Williams, we hold that the deed at issue in this
case was voidable at the option of the incompetent principal, rather than void as a
matter of law.
Appellees argue that, even if we hold that the deed at issue was voidable, the
statute of limitations does not operate to bar the counterclaims made by Appellees.
To support this contention, Appellees rely on Section 16.069 of the Texas Civil
Practice and Remedies Code. CIV. PRAC. & REM. § 16.069 (WEST 2008). Cole and
Strack respond that Section 16.069 cannot be used to revive Appellees’ claim to
disaffirm the deed. Cole and Strack also claim that Appellees have waived this
argument on appeal because Appellees did not specifically plead Section 16.069 as
grounds for avoiding the affirmative defense of statute of limitations and because
Appellees did not assert Section 16.069 as an alternative ground in their motion for
summary judgment.
Section 16.069(a) provides: “If a counterclaim or cross claim arises out of
the same transaction or occurrence that is the basis of an action, a party to the
action may file the counterclaim or cross claim even though as a separate action it
would be barred by limitation on the date the party’s answer is required.” In such a
case, “[t]he counterclaim or cross claim must be filed not later than the 30th day
after the date on which the party’s answer is required.” Id. § 16.069(b).
However, a party seeking to avail itself of a rule in avoidance of a statute of
limitations must affirmatively plead its theory of avoidance in its original petition
or a supplemental petition. TEX. R. CIV. P. 94; Woods v. William M. Mercer, Inc.,
769 S.W.2d 515, 518 (Tex. 1988); see also Proctor v. White, 172 S.W.3d 649, 652
(Tex. App.—Eastland 2005, no pet.). Moreover, a party seeking summary
judgment must include in its motion the specific grounds on which relief is
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requested. See TEX. R. CIV. P. 166a(c). An appellate court may not affirm a
summary judgment on grounds not expressly set out in the motion for summary
judgment. State Farm Lloyds v. Page, 315 S.W.3d 525, 532 (Tex. 2010); Stiles v.
Resolution Trust Corp., 867 S.W.2d 24, 26 (Tex. 1993).
After the interpleader was filed in this case, Cole and Strack filed their
original cross-claim against Appellees on January 6, 2011. In that cross-claim,
they sought a declaration from the trial court regarding title to the NPRI based on
the legal determination of the viability of the deed. They also asserted the
affirmative defense of the four-year statute of limitations. Appellees timely filed a
counterclaim in which they requested that the trial court declare the deed void and
confirm their title to the NPRI. We have found no instance in the trial court in
which Appellees asserted Section 16.069 as grounds for avoiding Cole and
Strack’s affirmative defense of statute of limitations. All of Appellees’ claims
rested on the trial court’s determination that the deed was void. Accordingly,
Appellees did not preserve for appeal their argument that Section 16.069 precludes
the application of the statute of limitations.
Having determined that the deed was voidable, rather than void, and that the
period of limitations to disaffirm the deed has elapsed, we hold that the trial court
erred when it entered summary judgment in favor of Appellees. Cole and Strack’s
first issue on appeal is sustained.
In their second issue, Cole and Strack essentially ask us to hold, as a matter
of law, that Appellees’ claims are barred by limitations. However, the trial court
held that the deed was void and did not reach the statute of limitations issue;
therefore, we are not able to address it in this appeal. In addition to the reasons
previously stated in this opinion, we overrule Cole and Strack’s second issue on
appeal for the reason that the trial court did not rule on the statute of limitations
issue and nothing in relation to its application is presented for our review.
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We reverse the judgment of the trial court, and we remand to the trial court
for proceedings consistent with this opinion, including a determination of the
effect, if any, of the statute of limitations upon Appellees’ claims.
JIM R. WRIGHT
CHIEF JUSTICE
January 15, 2015
Panel consists of: Wright, C.J.,
Willson, J., and Bailey, J.
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