Donald M. Shannon, Et Ux. and Douglas L. Shannon v. Paul Peyton Barbee D/B/A Barbee & Company ( 2008 )

IN THE

TENTH COURT OF APPEALS

 

No. 10-06-00414-CV

Donald M. Shannon, et ux.

and Douglas L. Shannon,

                                                                                    Appellants

 v.

Paul Peyton Barbee

d/b/a Barbee & Company,

                                                                                    Appellee

From the 12th District Court

Leon County, Texas

Trial Court No. 0-05-238

MEMORANDUM  Opinion

Florence Shannon and Appellants Don, Andrea, and Doug Shannon sued Appellee Paul Barbee for a declaratory judgment that the Shannons’ oil and gas lease was void because Barbee’s drafts in payment for the lease had not been timely paid.  Barbee counterclaimed for declaratory judgment, asserting that the lease was valid because the Shannons had extended the time to pay the drafts when a cloud on the Shannons’ title had to be cleared up. 

The trial court directed a verdict against Florence on her claim because she did not appear at trial (and she has not appealed).  A jury found that the parties had formed an agreement and that Barbee had not breached the agreement.  The trial court entered a judgment declaring the lease effective and awarded Barbee $19,900 in attorney’s fees.  Asserting three issues, Don, Andrea, and Doug Shannon appeal.  We will affirm.

Background

The Shannons together owned approximately 1,300 acres in Leon County.  They had previously leased the land’s mineral estate, and because they were dissatisfied with the current lease offer, they contacted Barbee, whom Andrea knew, for advice.  Barbee met with Don and Doug Shannon and, upon seeing the current offer, made a better offer.  Upon getting Florence’s approval, on December 22, 2004, all of the Shannons signed the December 18 lease and conveyed their mineral interests to Barbee.

In exchange, Barbee delivered three drafts to the Shannons (one to Don and Andrea, one to Doug, and one to Florence), each in the amount $70,261.00.  Each draft was endorsed and placed for collection with Normangee State Bank (the Bank) on December 24.  Each draft stated that it was drawn to pay for the lease and was conditioned on the approval of the lease and approval of title to the lease not later than thirty banking days after arrival of the draft at the collecting bank.  Each draft further provided:

The drawer, payee and endorsers hereof, and the grantors of the lease described hereon, do hereby constitute and appoint the collecting bank escrow agent to hold this draft for the time above specified subject alone to acceptance of payment hereof by the drawer, within said time, and without any right of the drawer, payee or endorser hereof, or said grantors, to recall or demand return of this draft prior to the expiration of the above specified time, and there shall be no liability whatsoever on the collecting bank for refusal to return the same prior to such expiration.

In the event this draft is not paid within said time, the collecting bank shall return the same to forwarding bank and no liability for payment or otherwise shall be attached to any of the parties hereto.

            A drill site title opinion revealed that the Shannon owned only seven-ninths of the leased acreage (two cousins apparently owned two-ninths), so Barbee asked the Shannons to extend the time to pay the drafts.  According to a teller and the president of Normangee State Bank, Don and Doug went there on February 10, 2005 and extended the payment time on the drafts for thirty days.  The extension was documented by the teller on the collection department’s slip for Florence’s draft.

Thereafter, according to the bank and Barbee, the Shannons extended the drafts three more times (on March 10, March 23, and April 25). Barbee posits that the financial situations of Don and Doug—along with the unresolved title issue—explain these extensions.  The Shannons’ first attempt to resolve the title issue failed (the cousins refused to sign a warranty deed that was prepared by the Shannons’ attorney and that conveyed the cousins’ interests to the Shannons).  Also, Doug had used his draft as collateral for a loan from the Bank; he testified:  “I was very interested in seeing the drafts paid off so that I could settle my financial distress”; he had a “great need . . . to see the draft paid off;” and “I needed the money desperately.”  Doug admitted to telling the Bank president that there was an alleged title problem on the lease because the Bank needed an explanation why the draft had not been paid.  Additionally, Capital Farm Credit (CFC) held a lien on Don’s mineral interests for a loan to him.  In a February 18 letter, CFC agreed to subordinate its lien provided that it received a recorded copy of the lease and a $100 subordination fee.  Barbee paid that fee for Don.

            In early May, the Shannons hired another attorney who prepared a trustee’s mineral deed (Don and Doug were trustees of a testamentary trust that held the two-ninths interest for the cousins) that acknowledged the title issue and conveyed to themselves individually the two-ninths interest.  On May 2, Barbee drove with Don and Doug to the county clerk’s office to have the trustee’s mineral deed recorded.  While there they ran into attorney William C. Rice, Jr., who ultimately became the Shannons’ trial attorney in this case.  According to Barbee, when the Shannons explained to Rice why they were there and that they had entered into a lease with Barbee, Rice said that he had put a “consortium” together and told the Shannons that they should have “gone in” with his group.  Rice asked, “Why don’t you guys come in with me?”

            According to the Bank, on May 4, the Shannons extended the drafts again for the fifth and final time for thirty days.  Also, according to the Bank’s president, Frost National Bank (Barbee’s bank) called each time the drafts were extended to confirm the extensions.  Don and Doug Shannon testified that while they went to Bank on several occasions relating to the drafts, it was only to see if they had been paid.  They denied ever telling the Bank that they were extending Barbee’s time to pay the drafts.

            On May 5, after receiving a copy of the trustee’s mineral deed, Encana Oil and Gas (USA), Inc. purchased the lease from Barbee, and Barbee assigned it to Encana on May 11.  After receiving payment from Encana, Barbee had Frost National Bank issue three cashier’s checks in the amount of $70,261.00 (the amount of each draft) and made payable to Normangee State Bank, which received and endorsed the cashier’s checks.  At Rice’s insistence, the Bank returned the cashier’s checks to Frost, which in turn returned them.  The Bank then gave them to Rice.

Standing

            In their first issue, the Shannons complain that the trial court lacked subject-matter jurisdiction over the declaratory judgment suit because (1) Barbee, who had assigned the lease to Encana, lacked standing as there was no justiciable controversy between the Shannons and Barbee; and (2) Encana was not a party to the suit.  In their motion for new trial, which the trial court denied, the Shannons raised their standing issue for the first time.

The general test for standing requires that there be a real controversy between the parties that will be actually determined by the judicial declaration sought.  Texas Ass’n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 446 (Tex. 1993).  Standing is a component of subject-matter jurisdiction, which we consider under the same standard by which we review subject-matter jurisdiction generally.  Id. at 445-46.  A party has standing if he has a justiciable interest in the suit or a personal stake in the controversy. See Nootsie, Ltd. v. Williamson County Appraisal Dist., 925 S.W.2d 659, 661 (Tex. 1996); Tex. Ass’n of Bus., 852 S.W.2d at 444.  Standing may be also raised for the first time on appeal.  See Austin Nursing Center, Inc. v. Lovato, 171 S.W.3d 845, 849 (Tex. 2005).  Standing presents a question of law that we review de novo.  Coons-Andersen v. Andersen, 104 S.W.3d 630, 634 (Tex. App.—Dallas 2003, no pet.).

The Shannons primarily rely on a 1990 decision stating generally (and in a different context) that a lease assignee is a necessary party.  Smith v. Shar-Alan Oil Co., 799 S.W.2d 368, 374 (Tex. App.—Waco 1990, writ denied); see also Tex. Civ. Prac. & Rem. Code Ann. § 37.006(a) (Vernon 1997) (“When declaratory relief is sought, all persons who have or claim any interest that would be affected by the declaration must be made parties.  A declaration does not prejudice the rights of a person not a party to the proceeding.”); Tex. R. Civ. P. 39.  But we agree with Barbee that, by suing him, the Shannons are precluded from claiming that Barbee lacks standing.  See State & County Mut. Fire Ins. Co. v. Walker, 228 S.W.3d 404, 412 (Tex. App.—Fort Worth 2007, no pet.); see also Spruiell v. Lincoln Ins. Co., 1998 WL 174722, at *1 (Tex. App.—Amarillo April 13, 1998, pet. denied) (not designated for publication) (“In determining Spruiell’s standing, it is important to note that Lincoln named Spruiell as a party defendant in its declaratory judgment suit.  By suing Spruiell, Lincoln gave him standing to contest the judgment on appeal and, under the doctrine of invited error, Lincoln is now precluded from claiming that Spruiell lacks standing to challenge the judgment.”).  Also, the absence of Encana as a party did not deprive the trial court of subject-matter jurisdiction.  See Brooks v. Northglen Ass’n, 141 S.W.3d 158, 162-63 (Tex. 2004); Wilchester West Concerned Homeowners LDEF, Inc. v. Wilchester West Fund, Inc., 177 S.W.3d 552, 558-60 (Tex. App.—Houston [1st Dist.] 2005, pet. denied).

Moreover, it is undisputed that the ownership of the funds represented by the cashier’s checks remains in dispute, and that controversy gives Barbee standing and is a justiciable controversy between the parties.  We overrule the first issue.

Charge Issues and Sufficiency of the Evidence

The Shannons’ second issue raises three sub-issues:  (a) the evidence is legally and factually insufficient to show that the drafts were timely paid or extended to satisfy the lease’s condition precedent; (b) the alleged oral extensions violate the statute of frauds as a matter of law; and (c) the evidence is legally and factually insufficient to show that the Shannons accepted Barbee’s tender of payment.

We have discussed the relationship between the language in a draft such as the language in this case and an oil and gas lease; in a case where the draft to pay for an oil and gas lease provided, “On approval of lease or mineral deed described hereon, and on approval of title to same by drawee not later than 15 banking days after arrival of this draft at collecting bank,” we stated:

A contemporaneously exchanged draft and deed must be construed together.   Puckett v. Hoover, 146 Tex. 1, 202 S.W.2d 209, 211 (1947).  However, the draft and deed do not always create a binding bilateral contract immediately.  The formation of a contract may be contingent on a condition precedent.  Perry v. Little, 377 S.W.2d 765, 769 (Tex. Civ. App.—Tyler 1964, writ ref’d n.r.e.).  When a promise is subject to a condition precedent, there can be no breach of contract until such condition or contingency is performed or occurs.  Id.  A condition precedent may also be waived, and the waiver of a condition precedent may be inferred from the conduct of a party.  Sun Exploration & Prod.  Co. v. Benton, 728 S.W.2d 35, 37 (Tex. 1987).

The Texas Supreme Court found that the provision “15 days after sight and upon approval of title” on the face of a draft made approval of title a condition precedent to formation of a contract. Id.  Broughton contends that the “approval of title” language on the Boudreaux draft likewise constitutes a condition precedent.  We agree.  As in the Sun Exploration case, the draft effectively protected Broughton from paying for the property if it disapproved the title.  Thus, at the time of the exchange of the draft and the deed between Broughton and the Boudreauxs, there was no binding contract.

Broughton Assocs. Joint Venture v. Boudreaux, 70 S.W.3d 324, 326, 328 (Tex. App.—Waco 2002, no pet.).

The provisions on the drafts in this case plainly contained conditions precedent to the formation of an oil and gas lease.  Those conditions precedent were thirty banking days for (1) approval of the lease and the Shannons’ title to the mineral interests conveyed in the lease and (2) payment on the drafts.  Having thoroughly reviewed the record, we find that the material facts in this case are largely undisputed.  At oral argument the parties agreed with us that the only material fact in dispute—and thus the only controlling issue on the merits—is whether the Shannons extended the time period (thirty banking days) in which the conditions precedent were to be performed.

On the parties’ declaratory judgment claims on the validity of the oil and gas lease, the trial court submitted breach-of-contract questions in broad form to the jury:

QUESTION NO. 1

            Did the Shannons and Paul Peyton Barbee agree to be bound by all the terms and conditions recited in the Oil and Gas Lease dated December 18, 2004?

            In deciding whether the Shannons and Paul Peyton Barbee reached an agreement, you may consider what they said and did in light of the surrounding circumstances, including any earlier course of dealing.  You may not consider the parties’ unexpressed thoughts or intentions.

Answer “Yes” or “No”

Answer:       YES     

QUESTION NO. 2

            Did Paul Peyton Barbee fail to comply with the Oil and Gas Lease dated December 18, 2004?

            You are instructed that compliance with an agreement must occur within a reasonable time under the circumstances unless the parties agreed the compliance must occur within a specified time and the parties intended compliance within such time to be an essential part of the agreement.

In determining whether the parties intended time of compliance to be an essential part of the agreement, you may consider the nature and the purpose of the agreement and the facts and circumstances surrounding its making.

Answer “Yes” or “No”

Answer:       NO     

            Question 3 asked if the Shannons failed to comply with the lease and was conditioned on a “yes” answer to Question 2; the jury thus did not answer it.

The Shannons tendered a series of special-issue type questions.  During the informal charge conference, the trial court referred to them as “narrow-form” and said that they were “not appropriate.”  In the formal charge conference, the trial court asked the parties for objections, and the Shannons’ attorney stated, “None.”  “Objections must be made before the charge is read to the jury.”  Frost Crushed Stone Co. v. Odell Gear Constr. Co., 110 S.W.3d 41, 47 (Tex. App.—Waco 2002, no pet.).  We therefore must agree with Barbee that the Shannons have not preserved any charge complaints for appeal.[1] See Tex. R. Civ. P. 274; cf. Bluestar Energy, Inc. v. Murphy, 205 S.W.3d 96, 101 (Tex. App.—Eastland 2006, pet. denied).  Thus, we will not review the Shannons’ issues relating to their unpled and unsubmitted affirmative defenses.  We will review their complaints that the evidence is legally and factually insufficient to show that the drafts were timely paid or extended to satisfy the lease’s condition precedent because we believe that whether the time period to pay the drafts was extended was subsumed into Questions 1 and 2.[2]

            Barbee, the Bank teller, and the Bank president all gave clear and compelling testimony about the Shannons’ oral extensions of the time period to pay the drafts, and the Shannons’ conduct matched the occurrence of the extensions.  The Bank’s records evidence the extensions.  The evidence plainly was legally sufficient, and the Shannons’ remarkable testimony that they did not extend the time period, standing alone, does not justify our finding that it is contrary to the overwhelming weight of the evidence

On the Shannons’ claim that the evidence is legally and factually insufficient to show acceptance of Barbee’s tender of payment, it is true that the Shannons refused to accept the cashier’s checks from his bank (Frost).  But Barbee had until June 4, 2005 to pay the drafts, and it is undisputed that those checks arrived at Normangee State Bank, the collecting bank on the drafts, a day or two after May 16, and the Bank accepted and endorsed them.  According to the language on the drafts, Barbee and the Shannons appointed the Bank “escrow agent to hold this draft for the time above specified subject alone to acceptance of payment hereof by the drawer, within said time, and without any right of the drawer, payee or endorser hereof, or said grantors, to recall or demand return of this draft prior to the expiration of the above specified time.”  We agree with Barbee that the Shannons could not have refused to accept Barbee’s timely tender of payment.  We overrule the Shannons’ second issue.

The Shannons’ third issue asserts that the trial court abused its discretion by submitting the declaratory judgment action to the jury as a breach of contract action.  As we held above, they did not preserve their charge complaints for appeal.  This complaint should have been made at the charge conference before the charge was read to the jury. Otherwise, as we stated above, we believe that the controlling issue relating to whether the drafts were timely paid or extended to satisfy the lease’s condition precedent was subsumed into the inartfully worded Questions 1 and 2 because the draft’s condition precedent language must be construed along with the lease.  Our review of the record, including the informal and formal charge conferences and closing arguments, leaves no doubt that the trial court and the parties understood that Questions 1 and 2 involved whether the condition precedent was satisfied.  We overrule issue three.

Conclusion

Having overruled all of the Shannons’ issues, we affirm the trial court’s judgment.

BILL VANCE

Justice

Before Chief Justice Gray,

            Justice Vance, and

            Justice Reyna

(Chief Justice Gray concurs in only the judgment which affirms the trial court’s judgment.  A separate opinion will not be issued.)

Affirmed

Opinion delivered and filed March 26, 2008

[CV06]

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[1]               Even if the Shannons preserved their charge complaints for appeal, none of their tendered questions on the merits involved a controlling issue on which there was a factual dispute.  At least one question involved an affirmative defense (statute of frauds) that the Shannons had not pled but that they now claim was tried by consent.  However, the Shannons did not assert at the charge conference that their affirmative defenses were tried by consent.  In any event, the Shannons point to no law that the statute of frauds applies to the alleged extensions, while several cases hold that an agreement or consent to an extension of time for payment may be oral.  See, e.g., C & G Coin Meter Supply Corp. v. First Nat’l Bank, 413 S.W.2d 151, 154 (Tex. Civ. App.—Eastland 1967, writ ref’d n.r.e.); Mizell Constr. Co. & Truck Line, Inc. v. Mack Trucks, Inc., 345 S.W.2d 835, 837-38 (Tex. Civ. App.—Houston 1961, no writ); see also Frost Crushed Stone Co. v. Odell Gear Constr. Co., 110 S.W.3d 41, 47 (Tex. App.—Waco 2002, no pet.) (discussing use of promissory estoppel to bar application of statute of frauds and allow enforcement of otherwise unenforceable oral promise).  Also, Barbee’s payment of Don’s $100 subordination fee could be consideration for one or more of the extensions.

[2]               In reviewing the legal sufficiency of the evidence, we view the evidence in the light most favorable to the verdict, crediting favorable evidence if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not.  City of Keller v. Wilson, 168 S.W.3d 802, 807, 822 (Tex. 2005).  There is legally insufficient evidence or “no evidence” of a vital fact when (a) there is a complete absence of evidence of a vital fact; (b) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (c) the evidence offered to prove a vital fact is no more than a mere scintilla; or (d) the evidence conclusively establishes the opposite of the vital fact.  Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997).

In a factual sufficiency review, we consider and weigh all of the evidence, not just the evidence that supports the verdict.  Maritime Overseas Corp. v. Ellis, 971 S.W.2d 402, 406-07 (Tex. 1998); Checker Bag Co. v. Washington, 27 S.W.3d 625, 633 (Tex. App.—Waco 2000, pet. denied).  We will set aside the finding only if it is so contrary to the overwhelming weight of the evidence that the finding is clearly wrong and unjust.  Ellis, 971 S.W.2d at 407.  Reversal can occur because the finding was based on weak or insufficient evidence or because the proponent's proof, although adequate if taken alone, is overwhelmed by the opponent's contrary proof.  Checker Bag, 27 S.W.3d at 633.