Spellman v. American Universal Investment Co.

687 S.W.2d 27, 84 Oil & Gas Rep. 172, 1984 Tex. App. LEXIS 6864
CourtCourt of Appeals of Texas
DecidedDecember 28, 1984
Docket13-82-329-CV
StatusPublished
Cited by60 cases

This text of 687 S.W.2d 27 (Spellman v. American Universal Investment Co.) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Spellman v. American Universal Investment Co., 687 S.W.2d 27, 84 Oil & Gas Rep. 172, 1984 Tex. App. LEXIS 6864 (Tex. Ct. App. 1984).

Opinions

OPINION

PER CURIAM.

Appellants seek to rescind or reform a Mineral Deed into which they were allegedly induced to enter because of fraudulent misrepresentations made by appellees. Ap-pellees deny wrongdoing and contend that appellants ratified the agreement. The trial court rendered a take-nothing judgment against appellants. We affirm the judgment of the trial court.

In late August of 1978, appellees sought to purchase mineral interests in land from appellants Mrs. Rabel, Mrs. Hurley, and Mrs. Spellman, who testified that they were unknowledgeable in such matters. The negotiations prior to the transaction therefore took place between Mr. Burl Swafford, appellees’ representative, and Mr. Frank Spellman, an independent oil and gas landman and husband of one of the appellants. Mr. Swafford and Mr. Spell-[29]*29man agreed that appellants would sell one half of the minerals they owned. Since appellants owned only 16/28 of the minerals, the total minerals sold was alleged to be 8/28. Approximately two weeks later, Mr. Swafford produced another contract for appellants to sign. Mr. Spellman was out of town; when Mrs. Spellman telephoned him to relate her confusion about the new deal, Mr. Spellman told her to sign the deal he had arranged with Mr. Swaf-ford. On September 12, 1978, appellants signed a contract under the terms of which they conveyed an undivided one-half of the minerals that might be produced from their tract of land. Appellants testified that they thought that they were selling only one-half (8/28) of their interest in the minerals, rather than one-half (14/28) of the entire interest; they learned of their mistake approximately three weeks later. Appellants were left with only 2/28 of the minerals. Mrs. Rabel conveyed her interest to Mrs. Hurley and Mrs. Spellman in October of 1978.

The record contains a document entitled “Rental Division Order with Ratification” which was signed by Mrs. Hurley and Mrs. Spellman in December of 1979; this document stated that appellees owned 14/28 of the minerals, and that Mrs. Hurley and Mrs. Spellman each owned 1/28. It is undisputed that Mrs. Hurley and Mrs. Spell-man also signed a Gas Division Order in April of 1980, and that they received payment for delay rentals from the Rental Division Orders and began receiving checks for royalties. Appellants testified that they did not intend to affirm the transaction by signing the Division Orders; however, the jury found that appellants “executed the subsequent division orders with intent to accept [appellee’s] claim to title to the minerals under the Mineral Deed.”

Appellants first contend that the trial court erred by denying their cause of action for rescission of the Mineral Deed. Appellants argue that appellees’ defense of “ratification” was not established because the signing of Division Orders constitutes ratification only in certain circumstances not present in this case. Appellants specifically argue (1) that because none of the Division Orders referred specifically to the Mineral Deed, the royalties received were attributable to the interest retained by appellants, and that the delay rentals were due them as a matter of right, because they would have received them even if the challenged Mineral Deed had never existed, and (2) that the only evidence of ratification was the signing of the Division Orders and acceptance of delay rentals; thus, there was no evidence that appellants intended to ratify the Mineral Deed. Appellants insist that to hold otherwise would force them to either accept the payments or reject the deed, a dilemma inapposite to true ratification, which operates to prevent a party from setting aside a transaction and accepting the benefits of the transaction.

“The right to rescind a contract may be lost by action and conduct which shows an affirmation or ratification of the contract after knowledge of facts which are grounds for rescission. One who has the right to rescind after acquiring knowledge thereof may exercise that right or retain his rights and benefits under the contract. He cannot have both.” Thus, where parties by their conduct and action recognize contracts as subsisting and binding, they thereby affirm the contracts after acquiring knowledge of the facts which entitled them to rescind. This is the equivalent of a ratification of the contract. Payne v. Baldock, 287 S.W.2d 507 (Tex.Civ.App. — Eastland 1956, writ ref’d n.r.e.).

“Ratification is the adoption or confirmation by a person with knowledge of all material facts of a prior act which did not then legally bind him and which he had the right to repudiate. [Citation omitted.] Ratification occurs when one, induced by fraud to enter into a contract, continues to accept benefits under the contract after he becomes aware of the fraud or if he conducts himself in such a manner as to recognize the contract as binding.... Once a contract has been ratified by the defrauded party ..., the defrauded party waives any right of rescission or damages.” Wise v. [30]*30Pena, 552 S.W.2d 196 (Tex.Civ.App.—Corpus Christi 1977, writ dism’d).

An express ratification is not necessary; any act based on a recognition of the contract as subsisting or any conduct inconsistent with an intention of avoiding it has the effect of waiving the right of rescission. Rosenbaum v. Texas Bldg. & Mort. Co., 140 Tex. 325, 167 S.W.2d 506 (1943); Newsom v. Starkey, 541 S.W.2d 468 (Tex.Civ.App.—Dallas 1976, writ ref’d n.r.e.); Guion v. Guion, 475 S.W.2d 865 (Tex.Civ.App.—Dallas 1971, writ ref’d n.r. e.). Thus, any retention of the beneficial part of the transaction affirms the contract and bars an action for rescission, as a matter of law. Daniel v. Goesl, 161 Tex. 490, 341 S.W.2d 892 (1960); Rosenbaum at 508.

In addition, mental intent or reservation does not affect determination of the question. Oram v. General American Oil Company of Texas, 513 S.W.2d 533 (Tex.1974); Goldring v. Goldring, 523 S.W.2d 749 (Tex.Civ.App.—Fort Worth 1975, writ ref d n.r.e.).

Even if appellants stated that they did not intend to ratify the lease by accepting rental payments, the acceptance of the payments was inconsistent with the intention to avoid the lease. The acceptance of the payments recognized the lease as subsisting and binding; the effect is to waive or abandon any right of rescission or of attack upon the initial invalidity, if any, of the lease. Oram at 534.

Thus, the acceptance of the royalty checks by appellants with knowledge that they were in payment for royalty from the mineral deed, when considered with the fact that they knew of the Division Orders, constituted a ratification of the action of appellees. Yelderman v. McCarthy, 474 S.W.2d 781 (Tex.Civ.App.—Houston [1st Dist.] 1971, writ ref’d n.r.e.); Leopard v. Stanolind Oil & Gas Co., 220 S.W.2d 259 (Tex.Civ.App.—Dallas 1949, writ ref'd n.r. e.). See also Loeffler v. King, 149 Tex. 626, 236 S.W.2d 772

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Bluebook (online)
687 S.W.2d 27, 84 Oil & Gas Rep. 172, 1984 Tex. App. LEXIS 6864, Counsel Stack Legal Research, https://law.counselstack.com/opinion/spellman-v-american-universal-investment-co-texapp-1984.