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

Opinion filed May 29, 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 January 15, 2015, are
withdrawn. This court’s opinion and judgment dated May 29, 2015, are substituted
therefor. The motion for rehearing filed by Stephen C. Cole and Robert Strack is
granted, and the motion for rehearing filed by Michael McWillie, Wanda Juanita
Phillips, and Delvonne Burke is 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 render judgment
that Appellees take nothing.
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
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(Van Huss’s granddaughter), and one-fourth to Sherry Jackson 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, writ
ref’d); see also In re Morgan Stanley & Co., 293 S.W.3d 182, 193 (Tex. 2009)
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(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
specific issue in this case and stopped short of holding that a deed executed by an
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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 incompetent principal, even
when the principal was competent at the time he appointed the attorney-in-fact to act
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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 benefited 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 against
a voidable deed is subject to a statute of limitations. See CIV. PRAC. & REM.
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§ 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; did not assert
Section 16.069 or avoidance of the statute of limitations, if the deed was voidable,
as an alternative ground in their motion for summary judgment; and did not adduce
evidence at trial on these issues.
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, 517–18 (Tex. 1988); see also Proctor v. White, 172 S.W.3d 649, 652
(Tex. App.—Eastland 2005, no pet.). Furthermore, 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). If a party seeks to avoid limitations, as with
the discovery rule, but fails to plead it and secure findings on its applicability, that
claim is waived. Woods, 769 S.W.2d at 518.
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 or any claim of avoidance of limitations in response to 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 or
avoidance of limitations 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 and, after trial,
adopted that order into the final judgment. Cole and Strack’s first issue on appeal is
sustained.
In their second issue, Cole and Strack assert that, at trial, they proved as a
matter of law that Appellees’ claims are barred by limitations and that Appellees
should take nothing. We agree. At trial, Cole and Strack adduced evidence of the
following: (1) the quitclaim deed was executed on March 21, 1985, and was filed of
record on or about March 29, 1985; (2) Appellees did not file a cross-claim until
January 31, 2011, which was more than four years after the deed was filed; and (3)
Appellees did not plead or adduce evidence to avoid the statute of limitations.
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Having established as a matter of law that the deed was voidable, not void, and
having established as a matter of law that limitations barred Appellees’ claims, Cole
and Strack are entitled to judgment in their favor. See Williams, 61 S.W. at 116–17
(voidable deed with incapacitated principal); see also Ford, 235 S.W.3d at 618
(limitations applies to voidable deed). We sustain Cole and Strack’s second issue.
We reverse the judgment of the trial court, and we render judgment that
Appellees take nothing.
JIM R. WRIGHT
CHIEF JUSTICE
May 29, 2015
Panel consists of: Wright, C.J.,
Willson, J., and Bailey, J.
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