C.R. Jones v. Dale B. Clem, Bobby Clem and Ricky Clem, D/B/A B. R. & D. Farms

Opinion filed March 29, 2012

In The

Eleventh Court of Appeals
__________

No. 11-10-00123-CV
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C.R. JONES, Appellant

V.

DALE B. CLEM, BOBBY CLEM AND RICKY CLEM,
D/B/A B. R. & D. FARMS, Appellees

On Appeal from the 42nd District Court

Coleman County, Texas

Trial Court Cause No. 4602

MEMORANDUM OPINION

Dale B. Clem, Bobby Clem and Ricky Clem, d/b/a B. R. & D. Farms, sued C.R. Jones
and Norma L. Smith to recover for production royalties that should have been paid to them in
connection with their mineral interest in a twenty-acre tract of land in Coleman County. The
trial court granted appellees’ motion for a directed verdict against Jones and Smith and entered
judgment against them both. Jones has perfected an appeal from that judgment. Smith did not
perfect an appeal. We affirm.
 Background Facts
J.A. (Adrian) Evans and his wife, Leola Evans, owned the mineral interest in a twenty-
acre tract of land in Coleman County. The mineral interest was subject to an oil and gas lease.
During bankruptcy proceedings filed by J.A. and Leola, the trustee in bankruptcy sold the
interest to appellees and delivered a quitclaim deed to them dated December 28, 1990. The
quitclaim deed was recorded in the Coleman County Clerk’s office on January 11, 1991.
Ricky Clem testified that, except for recording the quitclaim deed, the appellees did not
notify anyone that they had purchased the interest. Nevertheless, in January or February 1991,
appellees began to receive royalty payments from the purchaser, Western Gas. They continued
receiving payments through 1999, and then the payments stopped.
Ricky also testified that, when the payments stopped, the appellees assumed that the
production had ceased and the well had been shut down.
Jones testified that the lease was assigned to him in September 2002 and that his
predecessor subsequently sent him what Smith called a division order. Adrian Evans was shown
as the owner of a 0.1250000 royalty interest. When he sent out the first checks after he took over
the lease, Jones mailed a royalty check to Adrian; it went to Smith, Adrian’s daughter.1 Smith
informed Jones that Adrian was deceased and that she was the executor as well as the sole
beneficiary of Adrian’s estate. Smith told Jones to send her the royalty checks. Jones did not
recall what documentation Smith sent him, but after he received it, he began sending the royalty
checks to her that eventually totaled over $40,800.
In June 2008, appellees learned that they were being sued for unpaid taxes on the
property interest. Appellees went to the tax office in Coleman County, and it was then that they
were told that the well was still producing and that they owed taxes on the interest. Appellees
paid those taxes. Subsequently, appellees located the well. The lease had been transferred
several times before eventually being transferred to Jones. Appellees did not know Jones, but
after some investigation, they were able to locate him.
Appellees explained to Jones that they had previously received royalty payments and
showed Jones the documentation of their ownership. Jones showed appellees a list that showed
the payments that he had made to Smith. Jones did not pay appellees any of the payments that he
had paid out to Smith.

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Smith is also Dale’s and Ricky’s maternal aunt; Adrian Evans was their maternal grandfather.

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 Appellees filed a lawsuit against Jones and Smith. Ultimately, the trial court granted
appellees’ motion for directed verdict and entered judgment against Jones for the sum of
$27,169.38 and against Smith for $11,376.15. The trial court also granted judgment in favor of
Jones against Smith in the amount of $27,169.38. The trial court denied Jones’s motion for
directed verdict.
Issues on Appeal
Jones presents us with a single issue on appeal. That single issue, “Did the trial court err
in rendering judgment for Plaintiff/Appellee against Defendant/Appellant Jones,” contains four
subparts, three of which deal, in one way or another, with the appellees’ failure to furnish title
documents to Jones. The final subpart addresses sufficiency of the evidence to support the
directed verdict in favor of appellees.
Standard of Review
In reviewing a trial court’s directed verdict, the appellate court examines the evidence in
the light most favorable to the person suffering an adverse judgment and decides whether there is
any evidence of probative value to raise an issue of material fact on the question presented.
Exxon Corp. v. Emerald Oil & Gas Co., L.C., 348 S.W.3d 194, 217 (Tex. 2011). If the appellate
court finds that there is any evidence of probative value that raises a material fact issue, then the
judgment must be reversed and the case remanded for the jury’s determination of that issue.
Szczepanik v. First S. Trust Co., 883 S.W.2d 648, 649 (Tex. 1994); White v. Sw. Bell Tel. Co.,
651 S.W.2d 260, 262 (Tex. 1983); Collora v. Navarro, 574 S.W.2d 65, 68 (Tex. 1978).
Discusson
Jones argues that the trial court erred because the appellees were required by Paragraph 7
of the lease to provide him with notice of any change in ownership of the property or of the right
to rentals or royalties. He contends that they should have taken nothing because the lease terms
provided him an affirmative defense to being charged with constructive notice of a duty to pay
royalties to the appellees. Our analysis of this issue requires us to interpret Paragraph 7 of the
lease. When a contract is not ambiguous, the construction of the written instrument is a question
of law for the court. See Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983); City of Pinehurst v.
Spooner Addition Water Co., 432 S.W.2d 515, 518 (Tex. 1968); Myers v. Gulf Coast Minerals
Mgmt. Corp., 361 S.W.2d 193, 196 (Tex. 1962). We review the trial court’s legal conclusions de
novo. See Barber v. Colorado Indep. Sch. Dist., 901 S.W.2d 447, 450 (Tex. 1995). We give

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terms their plain, ordinary, and generally accepted meaning unless the instrument shows that the
parties used them in a technical or different sense. W. Reserve Life Ins. Co. v. Meadows, 261
S.W.2d 554, 557 (Tex. 1953). This court will enforce the unambiguous document as written.
Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726, 728 (Tex. 1981).
Paragraph 7 of the lease agreement unambiguously states:
The rights of either party hereunder may be assigned in whole or in part
and the provisions hereof shall extend to the heirs, executors, administrators,
successors and assigns, but no change or division in ownership of the land, rentals
or royalties, however accomplished, shall operate to enlarge the obligations or
diminish the rights of lessee. No such change or division in the ownership of the
land, rentals or royalties shall be binding upon lessee for any purpose until such
person acquiring any interest has furnished lessee with the instrument or
instruments, or certified copies thereof, constituting his chain of title from the
original lessor.

Change in ownership clauses that relieve a lessee from liability for the mispayment of
royalty or delay rentals, when the mispayment is caused by a change in ownership and no notice
is given to the lessee of such change, have been upheld and enforced. Cassity v. Smith, 193
S.W.2d 991 (Tex. Civ. App.—Texarkana 1946, writ ref’d). Where such a provision is included
in the lease, the lessee is not charged with constructive notice from the record of a subsequent
transfer by the lessor. Brandt v. Roxana Petroleum Corporation, 29 F.2d 980 (5th Cir. 1929);
Jackson v. United Producers’ Pipe Line Co., 33 S.W.2d 540 (Tex. Civ. App.—Fort Worth 1930,
writ ref’d).
Appellees concede that Western Gas, the lessee at the time that appellees took ownership
of the royalty interest, could have invoked this provision to “act as though no such instruments
ha[d] been executed” until it was served with written notice thereof. Jackson, 33 S.W.2d at 544.
However, Western Gas apparently waived this right when it somehow learned that appellees had
purchased the royalty interest and began paying them the royalties, even though appellees had
given no formal notice.
Appellees argue that Jones was not entitled to notice under Paragraph 7 because it
applies only when there has been a “change or division” in the ownership of the land during the
lease term, and there has been none since Jones took over the lease. We agree. There was no
change of ownership during Jones’s tenure as lessee. To the contrary, the appellees were the
owners of the royalty interest at the time Jones took the lease and at all times since. Appellees’

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ownership was a matter of public record when Jones acquired the lease; appellees’ deed was
recorded in the Coleman County Clerk’s office. Jones does not dispute this fact. Appellees were
already in the chain of title when Jones took the lease, and their ownership is something that
would have been easily discoverable by searching the county clerk’s records or by obtaining a
title opinion. As appellees have pointed out, this is something that Jones had a statutory duty to
do in order to provide notice to the payees of the existence of a new payor. TEX. NAT. RES.
CODE ANN. § 91.407 (West 2011).
To read the lease provision as Jones asks us to do would be contrary to the policies
underlying the doctrine of constructive notice. That doctrine is applied when a person knows
where to find the relevant information, and had a duty to find that information, but failed to seek
it out. See Little v. Smith, 943 S.W.2d 414, 421 (Tex. 1997). Under the facts of this case, we
find, as a matter of law, that Jones did not establish that Paragraph 7 of the lease constituted an
affirmative defense to the appellees’ claims. Subparts A, B, and C of Jones’s issue are overruled.
In subpart D of Jones’s issue, he argues that there was no evidentiary support in the
record upon which the trial court could base its directed verdict. Alternatively, Jones argues that
the directed verdict was so against the great weight and preponderance of the evidence as to be
unjust. We note that Jones’s alternative argument addresses factual sufficiency, which has no
place in the review of a directed verdict. We will address Jones’s argument using the standard of
review previously set out in this opinion. We must examine the record in the light most
favorable to Jones and determine whether there is any evidence of probative force that raises a
material fact issue. See Exxon, 348 S.W.3d at 217.
The undisputed evidence is that the appellees did not personally furnish any documents to
any lessee until 2008, when they showed Jones the documents reflecting that they had purchased
the interest in late 1990. However, the deed to their interest was on file with the county clerk
when Jones took the leasehold interest from Gene Worthington in 2002; it had been on file since
1991, shortly after the appellees purchased the interest. The filing of a deed is notice to all
persons. Alkas v. United Sav. Ass’n of Tex., Inc., 672 S.W.2d 852, 856 (Tex. App.—Corpus
Christi 1984, writ ref’d n.r.e.); First Sav. & Loan Ass’n of El Paso v. Avila, 538 S.W.2d 846, 849
(Tex. Civ. App.—El Paso 1976, writ ref’d n.r.e.). It is a conclusive presumption of law that the
proper and legal recording of a deed in the county where the land lies is constructive notice of
the recorded deed’s existence. White v. McGregor, 50 S.W. 564 (Tex. 1899); Quarles v. Hardin,

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249 S.W. 459, 462 (Tex. Comm’n App. 1923, judgm’t adopted). The doctrine of constructive
notice creates an irrebuttable presumption of actual notice of certain matters. See HECI
Exploration Co. v. Neel, 982 S.W.2d 881, 887 (Tex. 1998); Noble Mortgage & Invs., LLC v.
D & M Vision Invs., LLC, 340 S.W.3d 65, 76 (Tex. App.—Houston [1st Dist.] 2011, no pet.).
Jones was charged with constructive notice of appellees’ right to be paid royalties. His
reliance on the purported “division of interest” or “division order” document was misplaced.
First, the document contained a disclaimer, on its face, of any warranty that it was correct or
reflected record title to the lease. Second, in order to rely upon a division order, Jones had the
obligation to submit it to the payees for signature. TEX. NAT. RES. CODE ANN. § 91.402(c)(1)
(West 2011). The document relied upon by Jones was not signed by any party and was, thus, not
a division order at all. TEX. NAT. RES. CODE ANN. § 91.401(3) (West 2011) (“‘Division order’
means an agreement signed by the payee directing the distribution of proceeds . . . .”). The facts
established as a matter of law that Jones had constructive notice of appellees’ interest.
Considering the evidence in the light most favorable to Jones, we hold that there was no
probative evidence raising an issue of material fact and that the trial court did not err in directing
a verdict in favor of appellees. Subpart D of Jones’s issue is overruled.
The judgment of the trial court is affirmed.

PER CURIAM

March 29, 2012
Panel consists of: Wright, C.J.,
McCall, J., and Kalenak, J.

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