KEEPING UP WITH...

Finality Only Takes 120 Years: King Ranch, Inc., et al. v William Warren Chapman, III et al.

By ANN D. ZEIGLER

"Seeking to avoid an 1883 agreed judgment, [William Chapman’s heirs] have filed a bill of review and a trespass to try title action. For
the reasons set forth below, we reject their claims.”
The Texas Supreme Court has succinctly summarized 150 years of ownership disputes over the King Ranch’s 15,449.4 acres, in this detailed review of Texas adverse possession, extrinsic fraud and evidence law. The Court also addresses allegations that in the 1880’s the Chapman family’s attorney betrayed his clients for the benefit of his other client, Richard King, and that in the 1990’s another lawyer representing the King defendants had a concealed attorney-client relationship with one of the Chapman plaintiffs. You may also observe citations to more nineteenth-century cases than in the entire rest of the Supreme Court’s output this year.
After the original patent from the State of Texas granting the Rincon de Santa Gertrudis to the heirs of Juan Mendiola, the land passed to Captain Richard King. After various conveyances by King between 1853 and 1856, he and Major William Warren Chapman each owned a one-half undivided interest in the property and were joint owners of a promissory note related to another conveyance. Twenty years after Chapman’s 1859 death, his widow sued King in trespass to try title, in Cause No. 1279 in the 25th district court of Nueces County. In his defense in that court, King asserted, inter alia, that even if payment on the promissory note had failed, King owned the Rincon (by then, the King Ranch) by adverse possession. Mrs. Chapman died while Cause No. 1279 was pending and her executor pursued the litigation. None of the Chapman heirs was ever made a party to the suit.
Cause No. 1279 was settled by an agreed judgment on April 7, 1883. The judgment states that the Chapman Estate was entitled to one-half of the Rincon, but that by agreement the Chapman Estate would accept $5,811.75 from King, plus title to an unrelated 240-acre tract. While the case was pending, one of the Chapmans’ lawyers was also representing King on other matters.
Fast forward to 1995. A group of 20 Chapman heirs sued 200 parties related to the ownership of the Rincon/King Ranch, seeking a bill of review to set aside the 1883 agreed judgment and in the alternative a trespass to try title action. After grappling with the many sources of speculation about the agreed judgment and the contents of probate court files from the nineteenth century, the Supreme Court concluded that the Chapman heirs had not presented credible evidence of extrinsic fraud in the entry of the judgment. In addition, they had not overcome the original defense brought by King in Cause No. 1279—adverse possession by the King family to the exclusion of the Chapman heirs for more than 120 years, and most certainly since the entry of the agreed judgment by which the Chapman heirs accepted cash for their interest in the land.
“Instead, we conclude that ‘[t]ime, which buries in obscurity all human transactions, has achieved its accustomed effects upon this.’ Prevost v Gratz, 19 U.S. (6 Wheat.) 131, 133, (1821). In this case, the Chapman heirs have cobbled together a series of interesting historical tidbits and Texas folklore in an effort to regain title to one-half of the Rincon—an interest they claim is worth a substantial sum. Viewed separately, each of these tidbits fails to provide evidence of King’s extrinsic fraud, and aggregated, they fare no better. While anything more than a scintilla of evidence is legally sufficient to survive a no-evidence summary judgment motion, ‘some suspicion linked to other suspicion produces only more suspicion, which is not the same as some evidence’ (citation omitted).”
2003 WL 22025017, 46 Tex. Sup. Ct. J. 1093, Tex., Aug 28, 2003.

Ann Zeigler is a bankruptcy lawyer at Hughes, Watters & Askanase, LLP and is the “Keeping Up With” Associate Editor of The Houston Lawyer.

Texas Law on Rural Homesteads Explained Perry v. Dearing

By FRED A. SIMPSON

Texas law on rural homesteads was explained and applied by the Fifth Circuit in Perry v. Dearing, No. 02-50448, ___ F.3d ___ (5th Cir. 2003), Sept. 4, 2003.
Texas law allows up to 200 rural acres of land to be exempt from a bankruptcy estate if the property is used for the purpose of a rural home. The homestead designation precludes property from forced sale in order to meet the bankrupt’s debts, unless the debt is purchase money, taxes, or improvements to the property, and the homestead rights may be lost only through death, abandonment or alienation. Homesteads are favored under Texas law which Texas courts liberally construe to protect family homes where heads of households may pursue their “calling” or “business.” See Wynne v. Hudson, 17 S. W. (Tex. 1896).
When Perry filed for Chapter 7 bankruptcy in 2000, his principal obligor, a judgment creditor, challenged Perry’s rural homestead exemption. Perry claimed his exemption on two contiguous parcels of land near Del Rio, a total of 85 acres. The smaller parcel, principally devoted to a commercial trailer park, was the site of Perry’s residence. The larger parcel contained recreational facilities for the trailer park, and a sewage treatment plant.
Perry acquired the land in 1980, conveying the smaller parcel by deed to his wholly-owned corporation in 1985. That corporation failed in 1993 but was never dissolved. Therefore, at the time of the bankruptcy, fee simple was still in the corporate name. When Perry asserted his homestead exemption for the full 85 acres, the judgment creditor objected on grounds that Perry was not the true owner of the smaller parcel. Perry responded by arguing the sale to the corporation was a sham or a “pretended sale.” The bankruptcy court, after several rulings, concluded that conveyance to the corporation was valid and that only the 1.34 acres on which the Perry residence actually stood could be excluded from the bankruptcy estate because of Perry’s “beneficial interest” in that part of the property. The bankruptcy judge also inferred from the Property Code and the Constitution that a business could not be conducted on a rural homestead. That inference came from the fact that, contrary to the language that describes urban homesteads (10 acres maximum), provisions of the statute and the Constitution conspicuously do not include the phrase “used for the purposes of an [urban] home or as both a[n urban] home and a place to exercise a calling or business.”
On review, the district court reversed the bankruptcy court on grounds that, (1) Perry’s conveyance of the property to his corporation lacked consideration, and (2) Texas permits a business to be conducted on a rural homestead. The Fifth Circuit generally favored the existence of Perry’s rural homestead but reversed the district court and remanded the case to the lower courts for further fact finding.
Perry had the initial burden to establish his homestead status with evidence of both overt acts of homestead usage and the intent to claim the land as his homestead. Perry succeeded in that, according to the Fifth Circuit, which noted that the burden was thereby shifted to the objecting creditor. The creditor defeated the homestead presumption by showing Perry’s bona fide conveyance in exchange for the stock of his corporation, regardless of his continued occupancy. The only way there could have been a pretended sale under the Texas Constitution was if Perry could have reclaimed title to the property after paying off its encumbrances. The fact that the corporation was not formally dissolved added to the futility of Perry’s arguments that the property transfer to his corporation was a sham.
However, the Fifth Circuit found that Perry had a possessory interest in the smaller parcel, and that Perry was a tenant-at-will with a limited homestead interest. Perry was therefore protected from all creditors except the true property owner, or someone with better title than Perry. Perry’s limited possessory interest allowed the Fifth Circuit to find the potential for a valid homestead. As for business use of the property, the court found that a business element has historically been embedded within the definition of a rural homestead due to the agrarian nature of Texas rural society during the 1800’s when homestead exemptions were written into the Texas Constitution. However, the Texas Supreme Court has never reviewed a case where a rural resident claims a rural homestead exemption for property he also uses in part for non-agricultural business purposes (such as a trailer park).
The Fifth Circuit remanded the case for two purposes, first to have the lower courts determine (a) whether Perry used the property for purposes inconsistent with that of a rural homestead, and (b) whether Perry intended the trailer park rentals to be of such permanency that Perry had abandoned his homestead interests.

Fred A. Simpson practices with the law firm of Jackson Walker L.L.P. He is a member of The Houston Lawyer editorial board.

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