Opinion
No. 11-09-00348-CV
Opinion filed April 15, 2011.
On Appeal from the 385th District Court, Midland County, Texas, Trial Court Cause No. CV 46609.
Panel consists of: WRIGHT, C.J., McCALL, J., and STRANGE, J.
OPINION
Raven Resources, LLC sued Legacy Reserves Operating, LP and sought, among other things, a declaratory judgment in a dispute over the sale and purchase of various oil and gas properties and interests. Raven was the seller. Legacy, the purchaser, filed a counterclaim for declaratory relief and for money damages based upon indemnity obligations and post-closing adjustments. The trial court granted a partial summary judgment in favor of Legacy, denied a partial summary judgment sought by Raven, and entered a take-nothing judgment against Raven. The trial court severed the counterclaims brought by Legacy, and the judgment from which this appeal is taken is a final one. We reverse and render in part and reverse and remand in part.
Among other related business pursuits, Raven buys and sells various oil and gas wells and leases. At the time that this transaction began between Raven and Legacy, Michael L. Lee was employed by Raven; he assisted in the evaluation of properties that Raven was interested in purchasing or selling. Lee was Raven's primary contact in the negotiations with Legacy for the purchase and sale of the property that is involved in this lawsuit.
Raven was interested in selling, and Legacy was interested in buying, certain oil and gas related properties. After extended negotiations between Lee and Legacy, Legacy forwarded a draft of an agreement to Raven. The draft was not signed by Legacy, was dated June 22, 2007, and contained the word "DRAFT." The draft agreement did not contain any detail describing the properties to be conveyed. The purchase price to be paid by Legacy, as stated in the draft agreement, was $26,626,000. David Stewart, on behalf of Raven, as its sole managing member, signed the draft agreement and returned it to Legacy. After having performed its due diligence and after continued negotiations with Lee, Legacy determined that there were certain adjustments that needed to be made in the detail and extent of the property interests and other matters, including price, before it would complete the transaction.
In a subsequent agreement dated July 11, 2007, Legacy made those changes and reduced the purchase price accordingly to $20,300,000. The July 11 agreement also provided that Legacy would pay 5% of the $20,300,000 purchase price as earnest money. Legacy sent the July 11 agreement to Lee. However, Lee did not tell Stewart about the changes and the subsequent agreement but, instead, forged Stewart's name and returned it to Legacy. The summary judgment evidence shows that Lee had no authority to sign documents on behalf of Raven or to bind Raven to any agreement; that authority was held only by David Stewart, Raven's sole managing member. Raven does not claim that Legacy knew about the forgery. On July 13, 2007, Legacy paid the 5% earnest money payment to Raven.
On July 31, 2007, Stewart signed a "Certificate" wherein he certified that he was Raven's managing member "well prior to the July 11, 2007 execution of [the] Purchase and Sale Agreement." Stewart also certified that he served as Raven's managing member "through the date of the sale contemplated thereby." Additionally, among other things, he certified that he had been duly authorized and directed "to execute the above-described Agreement and to close the sale contemplated thereby."
The parties closed the transaction by mail. By thirty-five "assignments and bills of sale" dated August 3, 2007, Raven purported to transfer to Legacy the various interests and properties set out in the July 11 document. The assignments specifically incorporated the terms of the July 11 agreement. Also on August 3, 2007, Legacy transferred $18,925,000.03, the balance due under the specific terms of the July 11 agreement, into Raven's bank account. Raven used the money to pay debts and partners. Some three weeks after Raven executed the assignments, and after it had paid debts and partners, Raven discovered that the amount deposited into its bank account by Legacy was $6,326,000 less than the $26,626,000 purchase price set out in the June 22 draft.
Raven subsequently filed this lawsuit against Legacy and sought, among other things, a declaration that the July 11 agreement was forged and was therefore void. It also sought rescission of each of the assignments as well as damages under a theory of unjust enrichment. Legacy sought a declaration that, even if the July 11 agreement was forged, the July 11 agreement was nevertheless valid because Raven had ratified it. Legacy also filed certain monetary counterclaims against Raven, but those were severed from the issues involved in this appeal.
Raven filed a motion for partial summary judgment in which it sought, among other things, a declaration that the July 11 agreement was void. Legacy also filed a motion for partial summary judgment in which it sought a declaration that the July 11 agreement was valid. The trial court denied the motion filed by Raven, but it granted the motion filed by Legacy and entered a take-nothing judgment against Raven on the claims that Raven had made. The trial court did not state the reasons for its ruling.
On appeal, Raven claims that the trial court erred when it granted Legacy's motion for partial summary judgment because the July 11 agreement was forged and therefore void as a matter of law, because Raven did not adopt or ratify the July 11 agreement, because incorporation of the July 11 agreement into the assignments did not render it valid, because it was not estopped from denying that it ratified the July 11 agreement or that it was incorporated into the assignments, and because it was entitled to relief on its claim for unjust enrichment.
Legacy takes the position that the July 11 agreement was properly incorporated into each of the assignments and that Raven had, additionally, by its actions, ratified that agreement. Legacy reasons, therefore, that the trial court was correct when it granted Legacy's motion for partial summary judgment and denied Raven's motion for partial summary judgment.
Both of the motions for partial summary judgment were traditional ones. TEX. R. CIV. P. 166a(c). We review the trial court's summary judgment de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). A trial court must grant a traditional motion for summary judgment if the moving party establishes that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law. Rule 166a(c); Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex. 1991). In order for a defendant to be entitled to summary judgment against the plaintiff's claims, it must either disprove an element of each of the plaintff's causes of action or establish an affirmative defense as a matter of law. Am. Tobacco Co. v. Grinnell, 951 S.W.2d 420, 425 (Tex. 1997); Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997).
Once the movant establishes a right to summary judgment, the nonmovant must come forward with evidence or law that precludes summary judgment. City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678-79 (Tex. 1979). When reviewing a traditional summary judgment, the appellate court considers all the evidence and takes as true evidence favorable to the nonmovant. Am. Tobacco Co., 951 S.W.2d at 425; Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). The appellate court "must consider whether reasonable and fair-minded jurors could differ in their conclusions in light of all of the evidence presented" and may not ignore "undisputed evidence in the record that cannot be disregarded." Goodyear Tire Rubber Co. v. Mayes, 236 S.W.3d 754, 755, 757 (Tex. 2007).
When both parties move for summary judgment on the same issues and the trial court grants one motion and denies the other, we consider the summary judgment evidence presented by both sides and determine all questions presented. If we determine that the trial court erred, we must render the judgment that the trial court should have rendered. Valence Operating, 164 S.W.3d at 661. When a trial court does not specify the grounds it relied upon to grant the summary judgment, we must affirm the summary judgment if any of the grounds stated in the motion for summary judgment are meritorious. FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 873 (Tex. 2000).
The summary judgment evidence shows that the July 11 agreement was forged. Because it was forged, the agreement was void. Garcia v. Garza, 311 S.W.3d 28, 44 (Tex. App.-San Antonio 2010 pet. denied); Bellaire Kirkpatrick Joint Venture v. Loots, 826 S.W.2d 205, 210 (Tex. App.-Fort Worth 1992, writ denied).
In Commonwealth Land Title Ins. Co. v. Nelson, 889 S.W.2d 312 (Tex. App.-Houston [14th Dist.] 1994, writ denied), the court referred to the following definition of "void" from Black's Law Dictionary:
Null; ineffectual; nugatory; having no legal force or binding effect; unable, in law, to support the purpose for which it was intended [citation omitted]. An instrument or transaction which is wholly ineffective, inoperative, and incapable of ratification and which thus has no force or effect so that nothing can cure it [citation omitted].
889 S.W.2d at 318 (quoting BLACK'S LAW DICTIONARY 1573 (6th ed. 1990)). If a contract is void ab initio, it is a nullity from its inception and is of no effect. Nelson, 889 S.W.2d at 318 (citing BLACK'S at 1574). If a contract is not void, but is merely voidable, it is voided only if a party proves a right to avoid the contract and elects to do so. Lawrence v. CDB Servs., Inc., 44 S.W.3d 544, 555-56 (Tex. 2001); Swain v. Wiley Coll., 74 S.W.3d 143, 146 (Tex. App.-Texarkana 2002, no pet.). On the other hand, a forged instrument is void from the outset as though it did not exist. Morris v. Wells Fargo Bank, N.A., No. 05-09-01013-CV, 2011 WL 667978, at *4 (Tex. App.-Dallas Feb. 25, 2011, no pet. h.); Nelson, 889 S.W.2d at 318.
Legacy argues that, even if the July 11 instrument was forged and therefore void, Raven ratified it. It has long been the law that, while a voidable contract can be ratified, a void contract cannot. Pure Oil Co. v. Swindall, 58 S.W.2d 7, 11 (Tex. Comm'n App. 1933, holding approved); see also Neal v. Pickett, 280 S.W. 748, 750 (Tex. Comm'n App. 1926, holding approved/judgm't adopted) ("Forgery presents an instance where the owner of the land, or his privies, are wholly absent, and the noneffect is lacking ab initio; there is no possible ground for implications, supplementary consent, waiver, estoppel, etc., to supply operative force."); Bellaire, 826 S.W.2d at 210 ("Because a forged deed is void ab initio, it is not subject to being revived by mere ratification."); 1st Coppell Bank v. Smith, 742 S.W.2d 454, 460 (Tex. App — Dallas 1987, no writ) (ratification will not make a forged deed valid); Gaynier v. Ginsberg, 715 S.W.2d 749, 756-57 (Tex. App.-Dallas 1986, writ ref'd n.r.e.) (ratification, estoppel, and waiver not sufficient to give validity to forged deed).
It is true that, in some opinions in which forged instruments are addressed, the term "ratification" is used. However, in those cases, that term is used in a manner quite different than the manner in which the term is used when describing the doctrine of ratification as it applies to voidable instruments. For instance, if a party who has been induced by fraud to enter into a voidable agreement engages in conduct that recognizes the agreement as subsisting and binding after the party has become aware of the fraud, the party thereby ratifies the agreement and waives any right of rescission; an express ratification is not necessary. Rosenbaum v. Tex. Bldg. Mortg. Co., 167 S.W.2d 506, 508 (Tex. 1943); Barker v. Roelke, 105 S.W.3d 75 (Tex. App.-Eastland 2003, pet. denied).
But, the appropriate concept applicable to instances that involve forged instruments is one involving the principles of "adoption" as opposed to the principles involved in the ratification of a voidable instrument. When a person's name has been forged to a document, that person may expressly adopt that void instrument as his or her own. In Pena v. Frost Nat'l Bank, 119 S.W.2d 612 ((Tex. Civ. App.-San Antonio 1938, writ ref'd), cited by Legacy, the claim was made that a partition deed was forged. The court held that the person whose name was forged "duly acknowledged the execution of the partition deed in the manner and before an authority provided by law, and in such case, even though he may not himself have actually signed his name to it, but some other person did — even though his signature was forged to it — nevertheless, by duly acknowledging the execution of it in the manner and form provided by law he adopted and made the contract his own; so that he was bound thereby." Pena, 119 S.W.2d at 617. When he formally acknowledged the document, he adopted it as his own. Id.
Legacy also cites us to Mondragon v. Mondragon, 257 S.W. 215 (Tex. 1923). There, Martiniano asked his brother, Juan, to sign Martiniano's name to an instrument either conveying or contracting to convey real property to Juan; he did. The court held that the instrument was effective because Martiniano adopted it as his own. "A signature made by a rubber stamp, typewriter, or printing, or by another without authority and in the absence of the grantor, or even when forged, may be adopted, and the instrument to which it is signed become[s] binding." Mondragon, 257 S.W. at 216.
Bell v. Sharif-Munir-Davidson Dev. Corp., 738 S.W.2d 326 (Tex. App.-Dallas 1987, writ denied), is also relied upon by Legacy. The court there recognized the adoption rule: "[E]ven a forged deed may be adopted by the grantor when the grantor subsequently acknowledges the deed." Bell, 738 S.W.2d at 330.
Humble Oil Ref. Co. v. Clark, 87 S.W.2d 471 (Tex. 1935), also cited by Legacy, was a suit to cancel an oil and gas lease. An oil and gas lease originally obtained from Clark and others was void. After Humble acquired the lease from the original lessee, it discovered errors in field note calls in the original lease. It also discovered the invalidity of the original lease as to Clark. Humble prepared new leases that were essentially upon the same terms as the original one, except in the naming of the parties, correction of the field notes, and the recitation of consideration. Clark signed this new lease on September 12, 1930, at a time when she had attained majority. However, the lease contained these words: "This agreement made this 25th day of April, 1928," the date of the original lease. Humble Oil, 87 S.W.2d at 472. In upholding the subsequent lease, the court did not give validity to the original lease, which was void, but instead said:
The new instrument contains terms that, of themselves, are sufficient in law to effect a conveyance of the leasehold estate at the time the instrument was executed, regardless of the date of the instrument. The fact that the new instrument contains the same terms as those contained in the old instrument, which was void, does not alter the fact that such terms became and are now terms of the new instrument. This being the case, the new instrument, duly executed as it was, effected a transfer to the Humble Company of the leasehold estate in the undivided interest of [Clark] in the land, regardless of the fact that the prior instrument is and was void.
Id. at 474.
Legacy also refers this court to Kunkel v. Kunkel, 515 S.W.2d 941 ((Tex. Civ. App.-Amarillo 1974, writ ref'd n.r.e.). There, a husband executed a deed to homestead property. Although his wife's name was in the deed and contained a signature line for her, she did not sign it. The deed contained a vendor's lien to secure various notes. Later, the wife signed and acknowledged various releases of the vendor's lien. The releases contained references to the deed. The court noted that "a purported conveyance of the homestead property by the husband without the joinder of his wife is merely inoperative so long as the property continues to be the homestead, or until the homestead is abandoned, or until the deed is ratified in accordance with law as the grantors have the right to do. It is now well established that a deed, inoperative to divest the wife of her homestead interest because of her non-joinder, is subject to ratification." Kunkel, 515 S.W.2d at 948.
First, we note that, in Kunkel, the court did not hold that the deed was void but that it was inoperative, or voidable, until, among other things, the wife ratified it. The court defined ratification as "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, but which, by the ratification, is given retroactive effect as if originally performed by him." Id. "[R]atification requires neither a re-execution of the conveyance nor an instrument executed in terms that in themselves would constitute a present conveyance, but ratification requires only an instrument executed in formal recognition of the validity of the conveyance to which it refers." Id. There was an express ratification; this type of ratification is not the type of ratification urged by Legacy.
In further support of its ratification argument, Legacy also relies upon Barker, 105 S.W.3d 75; Missouri Pacific Railroad Co. v. Lely Dev. Corp., 86 S.W.3d 787 (Tex. App.-Austin 2002, pet. dism'd); Stable Energy, L.P. v. Newberry, 999 S.W.2d 538 (Tex. App.-Austin 1999, pet. denied); Fowler v. Resolution Trust Corp., 855 S.W.2d 31 (Tex. App.-El Paso 1993, no writ); and Wetzel v. Sullivan, King Sabom, P.C., 745 S.W.2d 78 (Tex. App.-Houston [1st Dist.] 1988, no writ). We would point out that each of these cases involves voidable instruments, not ones that are void.
Similarly, those cases discussed by Legacy, as well as by Raven, that involve the principle that a party who signs an instrument is charged with knowledge of its contents, including documents incorporated by reference, do not address void agreements. See, e.g., In re Int'l Profit Ass'ns, Inc., 286 S.W.3d 921, 923 (Tex. 2009) ("A party who signs a document is presumed to know its contents," including "documents specifically incorporated by reference."). Furthermore, when an instrument is void, it is as though it never existed; therefore, a reference to it is, in effect, a reference to nothing. Nelson, 889 S.W.2d at 318.
We do not address the remedy of rescission because the summary judgment evidence shows that the July 11 agreement was void from the outset and that, therefore, there was, in effect, no agreement to rescind.
We acknowledge those cases that hold that even unsigned papers may be incorporated into an agreement by reference. See, e.g., Owen v. Hendricks, 433 S.W.2d 164, 166 (Tex. 1968) (unsigned paper may be incorporated by reference in the paper signed by the person sought to be charged). However, those cases do not involve the incorporation of forged instruments.
It is clear from the cases discussed that there must be some express adoption of a void, forged agreement (as opposed to a voidable one) by the party whose name has been forged to it before it is binding upon that party. The summary judgment evidence shows that Raven never so expressly adopted the forged July 11 agreement as its own. The trial court erred when it entered summary judgment that the July 11 agreement was valid so as to bind Raven.
As we have noted, the assignments incorporated the July 11 agreement. The assignments contain the following provision:
This Assignment is made subject to the Purchase and Sale Agreement dated July 11, 2007, between Assignor and Assignee, the provisions of which are incorporated herein and survive the execution and delivery hereof in accordance with their terms.
The incorporation of the void July 11 agreement will not void the assignments. Nelson, 889 S.W.2d at 318. However, because the assignments specifically are made subject to the terms of that agreement, they are not complete in and of themselves in the absence of those terms.
For all of the reasons stated, we sustain Raven's Issue 1(a). Legacy's counterclaims are not before this court. In view of our holding on Issue 1(a), we need not discuss the remaining issues.
We reverse the judgment of the trial court and render judgment that the July 11 agreement is void. In the interest of justice, we remand any issues regarding the repayment of the funds advanced by Legacy, as well as any issues regarding any consideration received by Legacy from or related to the properties and interests involved in this appeal. See TEX. R. APP. P. 43.3 (appellate court to render judgment trial court should have rendered, but may remand if necessary for further proceedings or in the interest of justice).