Cherokee Water Co. v. Forderhause ( 1987 )

GRANT, Justice.

Cherokee Water Company appeals from an adverse judgment in which Forder-hause, et al prevailed in a jury trial by obtaining reformation of an option clause contained in a deed. This cause was severed from an original suit for which the opinion is found in 623 S.W.2d 435 (Tex.Civ.App.—Texarkana 1981), and the reversal by the Texas Supreme Court is found in 641 S.W.2d 522 (Tex.1982).

In the original suit, the Supreme Court determined that the language of the deed was not ambiguous and that an oil and gas lease was within the scope of the language providing for a preferential right to purchase. The Supreme Court determined that the use of the word “sale” encompassed what is sometimes referred to as a “lease” of the minerals, because the common oil and gas lease creates a determinable fee and vests the lessee with title to the oil and gas in place.

The language in controversy in the deed is as follows:

Grantee is hereby given the first option to purchase the oil, gas and other minerals herein reserved, at the same price and on the same terms as Grantor has agreed to sell to a third party; such option to be accepted or rejected within five (5) days after Grantee has been furnished with the bona fide offer made by such third party. Failure to exercise such option on one sale, shall not be a waiver to purchasing at any subsequent sale or sales by Grantor.

At the time of the transaction in question, a tract of 59.71 acres in Rusk County was owned jointly by three brothers and their wives, Mr. and Mrs. C.E. “Shot” Rogers, Mr. and Mrs. Paul Rogers, and Mr. and Mrs. J.E. Rogers, who will collectively be referred to as the Rogers brothers (which includes their wives). The appellees are Martha Paul Rogers Forderhause, Mrs. J.E. (Fairy) Rogers, individually and executrix of the estate of J.E. Rogers, deceased, Glenn W. Rogers, and Doris Rogers Walters. Cherokee Water Company, appellant, will be referred to as Cherokee.

In the summer of 1947, Clyde Hall, accompanied by some other men, talked to C.E. “Shot” Rogers about the plan to purchase the land to build a lake. According to the testimony of “Shot” Rogers’s son, the men appealed to “Shot” Rogers to “sell it [the land] on the ground of civic improvements and this sort of thing.” Rogers told them that he was not interested in selling, and that his brothers probably were not interested either.

On August 19, 1947, the three brothers and their wives met G.W. Sharp at “Shot” Rogers’s store in the Stewart community of Rusk County. After a discussion between Sharp and the Rogers brothers, which lasted approximately an hour, the Rogers brothers signed a form deed conveying the property to Clyde H. Hall, trustee.

On February 15, 1949, Hall, as trustee, assigned Cherokee the land which the Rogers brothers had conveyed to Hall as trustee, together with the lands covered by 166 similar deeds. The assignment recites that the lands had been purchased by Clyde H. Hall, trustee, “for the benefit of Cherokee Water Company,” and the assignment is made “without covenants of warranty either expressed (sic) or implied for the reason that this deed purports to convey only the rights, titles, and interests acquired by the said Clyde H. Hall, Trustee, by virtue of the above-described conveyances.”

On June 29, 1950, the Rogers brothers executed an oil and gas lease to Atlantic Refining Company covering the property in question. They did not give Cherokee a first right of refusal, nor did they notify Cherokee of the transaction. Fairy Rogers testified that this was because they did not think they were required to do so. After the expiration of the lease to Atlantic, the Rogers brothers executed an oil and gas lease to E.S. Boase and Neil Woods on December 27,1976. On February 24, 1978, the Rogers brothers were notified by Cherokee’s attorney that Cherokee was entitled to first refusal rights to purchase the minerals on the same terms as the Rogers brothers had elected to sell to a third party, and that the failure of the Rogers brothers to notify Cherokee before leasing to Boase and Woods was in violation of Cherokee’s preemptive rights to purchase the minerals. A suit was then brought by Cherokee against the Rogers brothers for specific performance of the option clause. The Rogers brothers brought a counterclaim for reformation of the deed, and the trial court severed their claim. That severed counterclaim is the case before us at this time.

The case went to the jury on three issues.¹ The jury found that G.W. Sharp was acting for and on behalf of Clyde Hall, trustee, when he secured the agreement of the Rogers brothers to sell the property to the trustee of Cherokee. The jury further found that before the signing of the deed in question, the parties to the deed had made an agreement that the first option clause of the deed would not include leases of oil, gas and other mineral interests. The third finding of the jury was that the failure of the option clause to expressly exclude leases of oil, gas and other minerals was the result of a mutual mistake as to the legal effect of the language used in the first option clause.

Cherokee raises twelve points of error, contending as follows: (1) that the trial court erred in excluding evidence of the Rogers family’s experience in land transactions; (2) that the trial court erred in admitting evidence of Cherokee’s non-exercise of its first refusal option many years after the execution of the deed and by admitting an agreement made in 1977 between Cherokee and Eagle Energy Group concerning the future exercise of the option, because this evidence was irrelevant and was prejudicial; (3) that the trial court erred in not granting Cherokee’s motion for judgment non obstante veredicto and to disregard the answers to the special issues, because Cherokee was a bona fide purchaser for value; (4) that the trial court erred in entering a judgment against them because there was insufficient evidence or no evidence to support the jury’s answer to each of the special issues; (5) that the trial court erred in submitting special issues two and three, because those issues did not correctly submit the elements of mutual mistake which would entitle a party to reformation; (6) that the trial court erred in admitting hearsay evidence. We address these points in the order set forth above.

Cherokee sought to introduce evidence that Fairy Rogers and her husband were experienced in land transactions at the time of the 1947 deed. Cherokee proposed to introduce twenty-three recorded instruments evidencing real estate transactions involving Mr. and Mrs. Rogers. The trial court sustained an objection that these exhibits were not relevant. Cherokee contends that the evidence was relevant on the issue of whether or not there was a mutual mistake in connection with the execution of the deed and that these exhibits would have benefited the jury in weighing the credibility of Fairy Rogers’ testimony. Fairy Rogers had testified that she and her husband had “bought land, sold land and kept minerals and let minerals go.” She had not denied that she and her husband had been involved in land transactions involving minerals. Therefore, the introduction of the deeds of prior transactions was not in the nature of impeachment and was cumulative of the earlier testimony. Thus, we find no error.

Cherokee further contends that the trial court erred in admitting evidence concerning the Eagle Energy Group. In 1977, Ray B. Powers, Jr. was an independent landman in East Texas and was working on behalf of Hunt Oil Company in the Rusk and Gregg County area. He discovered the numerous conveyances to Clyde H. Hall, trustee, which contained the grantee’s first right of refusal in the event the grantor decided to sell the minerals. After terminating his employment with Hunt Oil Company, Powers and his partners (calling themselves Eagle Energy Group) entered into an agreement with Cherokee whereby if Cherokee acquired any leases as a result of its exercise of the preferential right, the working interest would be assigned to Eagle Energy Group, with Cherokee receiving an overriding royalty and bonus. Between 1947 and 1977, before the agreement between Cherokee and Eagle Energy Group, Cherokee had exercised its right of first refusal only on one occasion. Evidence was also introduced that Cherokee was prosecuting this litigation under the Eagle-Cherokee agreement. This evidence does no more than show Cherokee’s interest in obtaining the leases. Cherokee is not involved in mineral development, but by the terms of the transaction with Eagle, Cherokee could obtain benefits including an overriding royalty by obtaining the leases and assigning them to Eagle.

Evidence regarding Cherokee’s failure to exercise its right of the first refusal for thirty years and the role played in this litigation by Eagle Energy Group was admissible to show the entire circumstances involved, including Cherokee’s attitude and understanding of the right of first refusal provision in the contract. As pointed out by the court in State v. Wales, 271 S.W.2d 728 (Tex.Civ.App.—Beaumont 1954, writ ref’d n.r.e.), “Mutual mistake, where a controversy goes to the courts, will not be readily established by the admissions of the parties to be affected by the reformation of a deed or contract. Like a conspiracy a mutual mistake is generally established from facts and circumstances surrounding the parties.” The determination of reformation cases depends upon the facts of each particular case, such as, the nature of the mistake, the action of the parties in dealing with the property after the mistake has occurred and similar matters. Clopton v. Cecil, 234 S.W.2d 251 (Tex.Civ.App.—San Antonio 1950, writ ref’d n.r.e.).

Cherokee also argues that because there was no evidence that Cherokee was not a bona fide purchaser for value, the appellees were not entitled to reformation. The gist of this argument is that there was no evidence that Cherokee purchased the property from Hall with notice of the mistake. An examination of the relationship of Hall to Cherokee is important not only for this issue, but as it relates to other issues which follow. The corporate minutes of Cherokee show that Hall was appointed as an attorney for the corporation. Other minutes in evidence show him to continue in his activities as Cherokee’s attorney in being authorized to file suits to condemn land for building of the lake, and the record also contains the pleadings from some of the suits which he filed as attorney for Cherokee. The record also reflects that he was authorized to sign corporate checks for the purchase of the land for building the lake.

The land from the Rogers brothers was deeded to Hall as trustee. When the land was deeded from Hall to Cherokee, the deed stated that the land “was purchased and acquired for the benefit of Cherokee Water Company.” The deed further states that, “The said Cherokee Water Company, in consideration of this conveyance, assumes and takes over all the obligations imposed upon Clyde H. Hall, Trustee, by virtue of any and all of the above mentioned deeds and agrees to hold him harmless from any cause of action or damages caused by the reason of having taken any of such deeds.”² A demand letter in evidence from Cherokee to Fairy Rogers recognizes her “as a mineral owner of land acquired by Cherokee Water Company through Clyde H. Hall, Trustee.” (Emphasis added.) Clyde Hall’s secretary offered testimony verifying Hall’s work for Cherokee. Also Perry Thompson testified that he was employed by Vernon Clement (an initiator of the Cherokee project) to work with Clyde Hall and Hamp Smead as attorneys for the Water Company for purposes of surveying the land being acquired by Cherokee. He indicated that Hall had a lot of landmen working out of his office acquiring the property and that his crews worked with Hall and the landmen.

The fact that Hall is called a trustee in the deed does not prevent a determination that he was in fact an agent. George G. Bogert & George T. Bogert, Handbook of the Law of Trusts § 16, at 36 (5th ed. 1973), citing Viser v. Bertrand, 16 Ark. 296; Rowe v. Rand, 111 Ind. 206, 12 N.E. 377 (1887). Furthermore, it is possible for the role of trustee and agent to coexist.³ Hall may have held title for Cherokee as its trustee, yet functioned as an agent for Cherokee. The fact that he was employed by Cherokee and that Cherokee, according to the deed, did not intend for him to incur any personal responsibilities to third persons for his acts are indicia of a principal/agency relationship. Furthermore, the specific language in the deed confirms that Cherokee intended to be placed in the same position for all purposes as Hall and specifically excludes any warranty from Hall. Under these circumstances, we find that a conveyance from Hall as Cherokee’s trustee/agent cannot qualify Cherokee as a bona fide purchaser for value free from all equitable claims.⁴

Cherokee contends in seven points that there was insufficient evidence or no evidence to support the jury’s answers to the special issues. In reviewing a “no evidence” point, we consider only the evidence tending to support the finding, viewing it in the light most favorable to the finding, giving effect to all reasonable inferences therefrom, and disregarding all contrary and conflicting evidence. Glover v. Texas General Indemnity Co., 619 S.W.2d 400 (Tex.1981). “Insufficient evidence” points require that we consider and weigh all the evidence. In re King’s Estate, 150 Tex. 662, 244 S.W.2d 660 (1951).

Several of these no evidence and insufficient evidence points hinge upon Sharp’s role in the transaction and the sufficiency of the evidence to establish that Sharp was an agent of Hall (which in turn would make him a subagent of Cherokee since Hall was involved in the purchasing on Cherokee’s behalf). There are a number of Texas cases that indicate that the principal is bound by a mistake between the agent and a third party as to the terms of a contract. State v. Wales, supra; Hutchins v. Birdsong, 258 S.W.2d 218 (Tex.Civ.App.—Texarkana 1953, writ ref'd n.r.e.); Merchants’ & Manufacturers’ Inter-Insurance Alliance v. Hansen, 258 S.W. 257 (Tex.Civ.App.—Dallas 1924, writ dism’d).

As in many cases involving agency, there is no direct testimony as to what authority was delegated to Sharp. There is no written instrument in evidence granting or limiting the authority of Sharp. Mrs. Martha Dickerson, Hall’s secretary at the time of the transaction in question, testified that Sharp was engaged in “doing business for” Hall by “talking to the landowners” whose property was needed for the Lake Cherokee project. The testimony of Perry Thompson, who had been the surveyor for the lake project, indicated that Hall had engaged a number of landmen to assist him in dealing with the numerous landowners, and that each deal has to be worked out individually. There had been no agreement reached with the Rogers brothers prior to Sharp’s visit. Ray Powers, involved with the Eagle Energy Group, testified that one of the ordinary duties of a landman is to negotiate with the landowners.

The general rule is that an agency relationship may not be shown merely by declarations or statements of the alleged agent. McAfee v. Travis Gas Corp., 137 Tex. 314, 153 S.W.2d 442 (1941). However, such testimony can be admitted in order to corroborate other testimony. Car Ltd. v. Smith, 590 S.W.2d 738 (Tex.Civ.App.—Houston [14th Dist.] 1979, writ ref’d n.r.e.).

Agency may be established by circumstances, such as the relation of the parties and their conduct concerning the transaction in controversy. Union Producing Company v. Allen, 297 S.W.2d 867 (Tex.Civ.App.—Beaumont 1957, no writ); Moore v. El Paso Chamber of Commerce, 220 S.W.2d 327 (Tex.Civ.App.—El Paso 1949, writ ref’d n.r.e.); Stripling v. Hoing, 203 S.W.2d 1016 (Tex.Civ.App.—Fort Worth 1947, no writ); Wardlaw v. Pace, 66 S.W.2d 350 (Tex.Civ.App.—Eastland 1933, no writ).

It is undisputed that Sharp was sent out by Hall to secure signatures on the deeds. Hall, and later Cherokee, accepted the executions of the deed which Sharp had obtained through his negotiations. It is a principle of the highest form of justice that a principal will not be permitted to keep and enjoy the benefits arising from a repudiated agency without assuming the burdens imposed by the agency. D. Sullivan & Company v. Ramsey, 155 S.W. 580 (Tex.Civ.App.—San Antonio 1913, no writ). One cannot accept the benefits of his agent’s alleged unauthorized act in procuring a signature to an agreement without at the same time being responsible for the methods used in obtaining the signature. “One cannot blow hot and cold at the same breath.” Attaway v. Ellis, 173 S.W.2d 367 (Tex.Civ.App.—Texarkana 1943, no writ). The record indicates that there was a strong insistence by the Rogers that the instrument not affect their right to lease the minerals. They were induced to sign the document on the basis that their right to lease the minerals would not be affected. Having accepted the benefits under the deed, Cherokee should not be allowed to reject the negotiation of their agent in obtaining these benefits.

Cherokee contends that Sharp had no authority to negotiate the terms of the contract, but rather was sent to solicit signatures on the printed deeds, and that he had neither implied authority nor actual authority to negotiate the terms for entering into any agreements other than those on the printed form.⁵ Certainly the jury could infer that incidental to Sharp’s duties in obtaining signatures from the mineral owners was the duty to explain the nature of the instrument which he sought to get signed. His principal could not have reasonably expected him to remain silent.

Furthermore, in the absence of any showing to the contrary, an agency is presumed to be general. Hearn v. Hanlon-Buchanan, Inc., 179 S.W.2d 364 (Tex.Civ.App.—Fort Worth 1944, writ ref’d w.o.m.); Barker v. Mosby, 118 S.W.2d 946 (Tex.Civ.App.—Austin 1938, writ dism’d); Oliver Farm Equipment Sales Co. v. Martin, 68 S.W.2d 333 (Tex.Civ.App.—El Paso 1934, no writ). An agent’s authority is also presumed to be coextensive with the business entrusted to his care. Jarbe Oil Company v. Birdwell & Son Drilling Co., 335 5.W.2d 394 (Tex.Civ.App.—Eastland 1960, writ ref'd n.r.e.). For Sharp, this was the purchasing of real estate at the lake site.

Cherokee also contends that the doctrine of apparent authority cannot apply to this case, because as a general rule the doctrine has no application to transactions involving real estate. Bugh v. Word, 424 S.W.2d 274 (Tex.Civ.App.—Austin 1968, writ ref’d n.r.e.); Goode v. Westside Developers, Inc., 258 S.W.2d 844 (Tex.Civ.App.—Waco 1953, writ ref’d n.r.e.). The appellees contend that this doctrine applies only to licensed real estate agents. However, the court in Huginnie v. Loyd, 483 S.W.2d 696 (Tex.Civ.App.—Tyler 1972, writ ref’d n.r.e.), held that this rule applies to any agent who is involved in a transaction for the sale or conveyance of land and is not limited to licensed real estate agents or brokers.

The jury in the present case was instructed not only concerning apparent authority, but also as to express or implied actual authority. We have found that the circumstantial evidence is sufficient for a finding of actual and implied authority.⁶ Therefore it is not necessary to address the issue of apparent authority.

We also find that the record contains sufficient evidence that Sharp’s agreement with the Rogers brothers excluded mineral leases and of Sharp’s mistaken belief that the option clause did not refer to mineral leases.⁷

Fairy Rogers testified that she “knew that whenever you leased the land it comes back to you. If you sell it, I mean the lease, it comes back to you. If you sell the land, it is gone.” The testimony explains her concept of the word lease as opposed to a sale of the minerals. Sharp had assured her and the other sellers that this was a proper interpretation. The testimony thus indicates that the negotiation did not occur by using the legal terminology of determinable fee and fee simple absolute in discussing the ownership rights proposed to be purchased, but rather the matter was discussed in layman’s terms. The language of the instrument lends itself to misinterpretation by laymen, who generally do not think of the term sale as encompassing the term lease. It is proper to look to the intentions of the parties at the time of the execution to determine the true agreement.

The statements by Sharp could be construed to be fraudulent if Sharp had been knowledgeable of the falsity of his statements in declaring that leases were not covered by the deed, but the jury determined that Sharp also was mistaken in his interpretation. Sharp’s mistake as an agent is imputed to the principal and he is bound thereby. Merchants’ & Manufacturers’ Inter-Insurance Alliance v. Hansen, supra; North Texas Oil & Refining Company v. Standard Tank Car Company, 249 S.W. 253 (Tex.Civ.App. — San Antonio 1923, writ dism’d).

Cherokee contends that there is no showing that all of the grantors on the deed were mistaken, but we believe this to be a reasonable inference, because all of the Rogers brothers and their wives were at the discussion prior to the execution, and Fairy Rogers’ testimony indicates that she is testifying as to the position of all of the Rogers brothers. Her testimony uses the plural “we” and “ours” in her testimony concerning the statements made to Sharp.

Cherokee contends that the trial court erred in admitting hearsay evidence concerning statements made by G.W. Sharp about the transaction or agreement between the Rogers brothers and Hall. We have determined that the evidence as well as the jury findings indicate that Sharp was an agent acting within the scope of his employment at the time of the negotiations and transactions to which Fairy Rogers testified. Therefore, this testimony is admissible pursuant to Rule 801(e)(2)(D) of the Texas Rules of Evidence which states that

A statement is not hearsay if ... the statement is offered against a party and is ... a statement by his agent or servant concerning a matter within the scope of his agency or employment, made during the existence of the relationship.

Furthermore, the testimony is admissible to show the operative acts constituting the mutual mistake.⁸ The statements were not introduced to show the truth of the matter stated, because the gist of the statements was to the effect that the written document did not cover mineral leases. The plaintiffs were seeking to show that this was not true and therefore was a mutual mistake. This was essentially a part of the offer and acceptance of the contract which constitutes operative facts and not hearsay.⁹ Yellow Freight System Inc. v. North American Cabinet Corp., 670 S.W.2d 387 (Tex.App.—Texarkana 1984, no writ). The agreement as to what the sale included was certainly a part of the terms of the offer and acceptance. The negotiations and the true agreement go to the very essence of the cause of action in this case and are admissible.¹⁰ Olvey v. Jones, 137 Tex. 639, 156 S.W.2d 977 (Tex.Comm’n App.1941, opinion adopted); Pegues v. Dilworth, 134 Tex. 169, 132 S.W.2d 582 (Tex.Comm’n App.1939, opinion adopted).

Furthermore, these statements were admissible to reflect the state of mind of the declarant which could be either non-hearsay or fall within the state of mind exception to show intent. Reserve Life Insurance Co. v. Goodloe, 316 S.W.2d 443 (Tex.Civ.App.—Waco 1958, writ ref’d n.r.e.); Tex.R.Evid. 803(3).

Cherokee complains that special issues two and three did not correctly submit the elements of mutual mistake which would entitle the appellees to reformation of the deed. The elements established by these issues were that an agreement was made, that the option clause contained in the deed would not include mineral leases and that the failure of the deed to expressly exclude mineral leases was the result of a mutual mistake as to the legal effect of the language used.

Texas, as well as most other states, has followed the rule laid down in Bilbie v. Lumley, 2 East 469, 102 Eng.Rep. 448 (1802), which established the doctrine of “ignorantia juris non excusat.” Only the states of Kentucky and Connecticut refused to follow this dogma. Smith, Correcting Mistakes of Law in Texas, 9 Texas L.Rev. 309 (1931).

Because of the legal maxim that ignorance of the law is no excuse, the courts have sometimes arrived at strained interpretations and distinctions when reviewing claims of mistake in an effort to reach a just result.¹¹ In Texas there is a presumption that contracting parties are knowledgeable of the law and contract accordingly. This is a rule applicable to the interpretation of contracts. However in reformation cases, it should make no difference whether the mistake is called a mistake of fact or mistake of law. Brinker v. Wobaco Trust Ltd., 610 S.W.2d 160 (Tex.Civ.App.—Texarkana 1980, writ ref'd n.r.e.); see also 3 A. Corbin, Corbin on Contracts § 616 at 754, § 619 at 769 (1960).¹²

If the parties are mutually mistaken with respect to the legal effect of the language that they have used, the writing should be reformed to reflect the intended effect.¹³ A contract, the making of which is induced by mistake as to the legal effect of the words in which it is expressed, should be rescinded or reformed. 3 A. Corbin, Corbin on Contracts § 619 at 769 (1960).

Texas has created many exceptions to the rule that ignorance of the law is no excuse, e.g., relief is available when the mistake is a mistake as to foreign law, or as to mixed law and fact, or where the mistake is as to private legal rights and not a mistake as to the general rules of law.

In the case of Moore v. Studebaker Bros. Mfg. Co., 136 S.W. 670 (Tex.Civ.App.1911, no writ), the court held that relief would be denied where the plaintiffs case “rests upon his being mistaken only as to the legal effect of the terms employed in the contract, and not the language of the contract itself.” However, in North Texas Oil & Refining Co. v. Standard Tank Car Co., supra, the court held that a party to the contract could show that certain words interpolated into the contract were intended to exempt the stockholders from personal liability, though in legal contemplation the words had no such effect. The court made the following determination:

If the expressions used did not in fact operate to so exempt the shareholders, then the parties were mutually mistaken as to the legal effect thereof, and, this being true, equity will reform the instrument. ...

In the case of State v. Wales, supra, the court held that where both grantors and the agent for the State intended the deeds granting lands to the State for highway purposes should convey an easement only and not a fee simple, there was a mutual mistake of the parties which a court of equity could correct. Other cases of reformation of a written instrument because of a mistake as to the legal meaning of terms used are Miles v. Martin, 159 Tex. 336, 321 S.W.2d 62 (1959); Gammage v. Moore & Moore, 42 Tex 170 (1875); Weaver v. First National Bank of Amarillo, 532 S.W.2d 416 (Tex.Civ.App.—Waco 1976, no writ); Martin v. Snuggs, 302 S.W.2d 676 (Tex.Civ.App.—Fort Worth 1957, writ ref’d n.r.e.); Markum v. Markum, 210 S.W. 835 (Tex.Civ.App.—Amarillo 1919, writ dism’d); Zieschang v. Helmke, 84 S.W. 436 (Tex.Civ.App.1904, no writ). In many other states, equity has provided for reformation for mutual mistakes of law.¹⁴

Cherokee contends that the area of the law allowing reformation for such a mistake is limited to a situation in which the parties reach an agreement and then the wrong words are chosen in drafting that agreement. One of the earlier cases dealing with the distinction for this type of case is Kelley v. Ward, 94 Tex. 289, 60 S.W. 311 (1901). These cases are generally grouped under the label of mistakes in the integration (or mistake of the scrivener), as opposed to the other type of cases under mistakes of law which are labelled mistakes in the inducement.

In the present case, the agent had a standardized agreement which had been drafted prior to the negotiations. We see no reason why the principle of equity allowing reformation should not apply where parties mistakenly enter into a standardized agreement if they are mutually mistaken as to the legal consequences of that agreement, or where there is any material mutual mistake, without regard to type, if all of the surrounding facts and circumstances warrant it.¹⁵

Perhaps the reasoning behind the general requirement of a mistake in integration is expressed in 10 Tex.Jur.3d Cancellation & Reformation § 121 (1980):

Inasmuch as the court is without power to make a contract that the parties did not make, an actual agreement reached prior to the drafting of the instrument involved is essential to reformation.

However, in the situation in the present case, there is ample evidence for the jury to find a meeting of the minds between the Rogers brothers and Cherokee’s agent. The discussion concerning the option rights on the minerals was not a collateral matter, nor was it a matter casually mentioned after the execution of the deed, but testimony indicates that it was a mutual understanding involving an integral part of the written document. The fact that the instrument had been prepared prior to the agreement should not bar reformation. Therefore, we hold that the issues as submitted properly included the element of mutual mistake which would entitle appel-lees to reformation.

The appellees have filed two cross-points complaining of the exclusion of certain testimony objected to and sustained as hearsay.

The mineral owners offered testimony from two witnesses to the fact that Clyde Hall, author of the deed in question, had construed that the option clause did not apply to mineral leases made by the grantors. John Ford, a Kilgore attorney, offered to testify that he had discussed the option language with Hall on several occasions and that he had asked, on behalf of his clients, for a release or waiver of the option in connection with his client’s lease. Ford testified that Hall told him that the provision for the option applies only to the sale of minerals and not to oil and gas leases. The other proposed witness was Martha Dickerson, Hall’s secretary in 1947. The excluded testimony by Dickerson was that “in the years following the Lake Cherokee sales, Clyde Hall was getting some inquiries from people who were needing— they thought they needed releases.” Hall told them that “he wasn’t going to prepare any.” The mineral owners contended the inference from this testimony was that Hall believed that the option provision in the deed did not pertain to leases, and therefore, he saw no need to prepare such releases.

This evidence would be admissible on the issue of mutual mistake to show that Hall (as Cherokee’s agent) took a position inconsistent with Cherokee’s position in the suit. Alston v. Pierson 158 S.W. 1165 (Tex.Civ.App.—Fort Worth 1913, no writ). Rule 801(e)(2) of the Texas Rules of Evidence provides that a statement is not hearsay if it is an admission by a party-opponent. This provision entails, among other situations, a statement offered against a party which had been made by his agent or servant concerning a matter within the scope of his agency or employment and made during the existence of the relationship. The admission exception has been applied to statements made by the agent after the completion of the transaction. St. Louis I.M. & S. Ry. Co. v. Carlisle, 34 Tex.Civ.App. 268, 78 S.W. 553 (1904, no writ); Cooper Grocer Co. v. Britton, 74 S.W. 91 (Tex.Civ.App.1903, no writ). According to the testimony of both of the witnesses, Hall was contacted for the purpose of getting releases or waivers of the option, which indicated that he was still serving Cherokee in regards to the transactions. Parol evidence of conversations which show the beliefs and intentions of parties have long been admissible on the issue of mutual mistake. Smith v. Jones, 192 S.W. 795 (Tex.Civ.App.—Amarillo 1917, writ ref’d). The errors on the cross-points did not affect the outcome of the trial, and thus are harmless.

The judgment of the trial court is affirmed.

1 . The special issues that {vent to the jury are as follows:

SPECIAL ISSUE NO. 1

Do you find that, in securing the agreement of Grantors to sell to Grantee the property described in the Deed in question and in securing the execution and delivery by Grantors of such Deed, G.W. Sharp was acting for and on behalf of Clyde Hall, Trustee, and with actual or apparent authority to negotiate and enter an agreement with Grantors?

Answer "We do” or "We do not.”

ANSWER: _

In connection with Special Issue No. 1, you are instructed that actual authority can be express or implied. Express authority is that authority which is expressly stated in the agreement between the agent and principal. Implied authority is that authority necessary to carry out the acts expressly authorized or reasonably inferred by the agent from the express terms of the agreement.

You are further instructed that apparent authority may arise only from a principal knowingly permitting an agent to hold himself out as having that authority or from the principal's actions which, because they lack ordinary care, clothe the agent with evidence of that authority, thus leading a reasonably prudent person to believe that the agent has the authority he purports to exercise.

If you have answered “We do" to Special Issue No. 1, then proceed to Special Issue No. 2. If you have answered “We do not” to Special Issue No. 1, then do not answer Special Issue No. 2.

SPECIAL ISSUE NO. 2

Do you find that, before the signing of the Deed in question, Grantors and Grantee had made an agreement that the first option clause of such Deed would not include leases of oil, gas and other mineral interests?

Answer "We do" or "We do not."

ANSWER: _

In connection with Special Issue No. 2, you are instructed that, as a matter of law, an oil and gas lease is a sale of interest in land and that a lease for oil, gas and other minerals was, as a matter of law, covered and included in the first option clause of the Deed in question.

If you have answered “We do" to Special Issue No. 2, then proceed to Special Issue No. 3. If you have answered "We do not" to Special Issue No. 2, then do not answer Special Issue No. 3.

SPECIAL ISSUE NO. 3

Do you find that the failure of the first option clause of the deed in question to expressly exclude leases of oil, gas and other mineral interests was the result of a mutual mistake as to the legal effect of the language used in such first option clause?

Answer “We do” or "We do not.”

ANSWER: _

In connection with Special Issue No. 3, you are instructed that "mutual mistake" means a mistake that was common to the parties on both sides of the Deed in question, with all of those parties laboring under the same misconception.

2 . The deed goes on to say, "... so that there shall not be imposed upon said Cherokee Water Company the same obligations that have heretofore been imposed upon Clyde H. Hall, Trustee.” It appears from the context that the word “not” is a typographical error and should be "now.” The exhibit in evidence underlines the “t” in the word "not.”

3 . For example, the general rule is that property purchased by an agent in his own name and with the principal’s money is held by the agent in trust for the principal. 3 TexJur.3d Agency § 119 (1980).

4 . No issue was submitted to the jury concerning the agency relationship of Hall to Cherokee. No point of error is made on the failure to submit this matter to the jury. The appellate courts in Texas have split on whether the existence of an agency relationship is a question of law or a question of fact. Some appellate courts hold that it is a question of law to be determined solely by the trial judge, in light of the relations of the parties under the agreement between them or in view of their acts and conduct. Cain v. Tennessee-Louisiana Oil Co., 382 S.W.2d 794 (Tex.Civ.App.—Tyler 1964), aff’d, 400 S.W.2d 318 (Tex.1966); State v. Keeton Packing Co., 487 S.W.2d 775 (Tex.Civ.App.—Fort Worth 1972, no writ); Somerville v. Smith, 200 S.W.2d 242 (Tex.Civ.App.—Fort Worth 1947, no writ); Daugherty v. Wiles, 207 S.W. 900 (Tex. Comm’n App.1919, opinion adopted); 3 Tex.Jur.3d Agency § 259 (1980). Other courts hold that the question of agency is one of fact. Home v. Charter National Insurance Co., 614 S.W.2d 182 (Tex.Civ.App.—Fort Worth 1981, writ ref'd n.r.e.); American Transfer and Storage Co. v. Reichley, 543 S.W.2d 162 (Tex.Civ.App.—Amarillo 1976, no writ); Foundation Reserve Insurance Co. v. Wesson, 447 S.W.2d 436 (Tex.Civ.App.—Dallas 1969, writ ref'd). (For other cases see 42 West's Texas Digest 2d Principal and Agent § 24 (1984)).

In the present case, the trial court had a right to conclude as a matter of law that Cherokee undertook all obligations and liabilities of Hall involved in the acquisition of the land, because of the specific language in the deed from Hall to Cherokee.

5 . The testimony indicated that the deeds were on printed forms with the blanks already filled in by a typewriter.

6 . An agent has by implication all powers necessary and proper to accomplish the purpose for which the agency was created. Houston Packing Co. v. Spivey, 333 S.W.2d 423 (Tex.Civ.App.1960, no writ). Implied power's are those incidental to powers expressly given to effectuate the purpose of the express powers conferred. First Texas Joint Stock Land Bank v. Holloway, 77 S.W.2d 301 (Tex.Civ.App.—Amarillo 1934, no writ).

7 . Fairy Rogers testified concerning statements made by Sharp prior to the execution of the deed by the Rogers brothers as follows:

Q Now, let me ask you this. Did Mr. Sharp, in your presence, say anything about whether what you’ve just read to the Jury did or did not apply to oil and gas leases?

A He said we could lease it when we wanted to — any time we wanted to to anybody. He said that [referring to the option clause in the lease which she had just read] didn’t apply to it, and we taken it that way because we had a chance to lease several times and we didn’t ask them because we didn’t think we had to ask them.

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Q Did you folks tell Mr. Sharp anything about the sale of minerals, whether or not you intended to sell the minerals?

A Oh, yes. We told him we never aimed to sell them throughout our lifetime. It was ours to keep, never to sell. We didn’t want to sell them to Cherokee Water Company or anybody else. We were just keeping them to lease.

Q All right. What, if anything, did you say about wanting to lease the property? What did you tell Mr. Sharp about that?

A Well, we wanted to lease it, of course. We’d love to lease it.

Q And do I understand that he told you that what you read to the Jury wouldn’t affect that right?

A Right.

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Q After that discussion, did you folks sign your names to this deed?

A Yes, sir.

8 . Because this is an action in reformation, the parol evidence rule does not exclude testimony that shows the mutual mistake which is alleged and that the written agreement does not reflect the true agreement of the parties. State v. Wales, supra; De Flores v. Smith, 236 S.W. 505 (Tex.Civ.App.—San Antonio 1921, writ dism’d).

9 . The definition in Tex.R.Evid. 801(c) seems to have caused some confusion for the dissent: “Matter asserted” includes any matter implied by a statement, if the probative value of the statement as offered flows from declarant’s belief as to the matter.

The Drafters’ Comment offers four examples of hearsay under this definition. One example involves an explicit assertion offered to prove the matter asserted. One example deals with non-verbal assertive conduct. The third example is non-assertive verbal conduct offered for the truth of the matter implied. This is illustrated in the comment by the declarant making the out-of-court statement, "Open the door, Richard.” The statement implies that the declarant believed Richard was in the room. It would be inadmissible to prove Richard was in the room.

The other example used by the drafters is a verbal explicit assertion offered for the truth of the matter implied by the statement. The illustration used is similar to the fact situation in Phoenix Refining Co. v. Walker, 108 S.W.2d 323 (Tex.Civ.App.—Beaumont 1937, writ dism’d). The only known remedy for X disease is medicine Y, and the only known use of medicine Y is to cure X disease. To prove that a person had X disease, the witness testified that the declar-ant doctor had stated that the best medicine for the person was Y. This would be an implication flowing from the declarant’s belief as to the matter, and thus would be inadmissible.

These examples are not applicable to the situation in the present case. Rule 801(c) was not intended to exclude the terms of a contract, when they are at issue in a case, nor does it exclude statements which show intent, when intent is an issue to be resolved.

10 . Such representations are sometimes referred to as res gestae. 3 Tex.Jur.3d Agency § 244 (1980).

11 . An often quoted example of distinguishing between mistakes of fact and mistakes of law originated in Eaglefield v. Marquis of Londonderry, [1876] L.R. 4 Ch.D. 693, 702, as quoted in Smith, Correcting Mistakes of Law in Texas, 9 Texas L.Rev. 309, 318 (1931), which states:

Suppose a man is asked by a tradesman whether he can give credit to a lady and the answer is "you may, she is a single woman of large fortune." It turns out that the man who gave that answer knew that the lady had gone through the ceremony of marriage with a man who was believed to be a married man, and that she had been advised that that marriage ceremony was null and void, though it had not been declared so by any court, and it afterward turned out that they were all mistaken, that the first marriage of the man was void, so that the lady was married. He does not tell the tradesman all these facts, but states that she is single. That is a statement of fact. If he had told him the whole story and all the facts and said "now, you see, the lady is single" that would have been a misrepresentation of law.

12 . Corbin recognizes that the law is not written in shining letters against the sky and that sometimes even the courts do not agree on its application (as was demonstrated in the opinions of the courts in the case from which the case at bar was severed). 3 A. Corbin, Corbin on Contracts, § 616 (1960).

13 . The American Law Institute Restatement of the Law on Contracts no longer makes the distinction of whether a mistake is one of law or one of fact. The section applicable to the present fact situation reads as follows:

Where a writing that evidences or embodies an agreement in whole or in part fails to express the agreement because of a mistake of both parties as to the contents or effect of the writing, the court may at the request of a party reform the writing to express the agreement, except to the extent that rights of third parties such as good faith purchasers for value will be unfairly affected.

Restatement (Second) of Contracts § 155 (1979).

14 . Atchison v. City of Englewood, 568 P.2d 13 (Colo.1977); Kolker v. Gorn, 193 Md. 391, 67 A.2d 258 (1949); Scott v. Grow, 301 Mich. 226, 3 N.W.2d 254 (1942); Dundon v. Balthazar, 114 Vt. 312, 44 A.2d 156 (1945); Weatherford v. Weatherford, 199 Or. 290, 260 P.2d 1097 (1953); Essington v. Buchele, 79 S.D. 544, 115 N.W.2d 129 (1962); Hastem v. Ottosen, 689 P.2d 27 (Utah 1984).

15 . M. Sherman, Mistake-Reformation of Instruments-Equitable Relief is Proper to Correct a Mistake of Law.—Miles v. Martin, 159 Tex. 336, 321 S.W.2d 62 (1959), 37 Texas L.Rev. 918 (1959).