Cambridge Oil Co. v. Huggins
| Decision Date | 09 February 1989 |
| Docket Number | No. 13-88-038-CV,13-88-038-CV |
| Citation | 765 S.W.2d 540 |
| Parties | CAMBRIDGE OIL COMPANY, a Texas Corporation, Appellant, v. William O. HUGGINS, III, Trustee for William O. Huggins, III, Judith L. Huggins and Virginia Huggins May, Appellees. |
| Court | Texas Court of Appeals |
J. W. Cooper, Jr., Russell H. McMains, Corpus Christi, George F. Simons, Jr., Houston, Tex., for appellant.
William O. Huggins, III, Durango, Colo., for appellees.
Before NYE, C.J., and SEERDEN and BENAVIDES, JJ.
Cambridge Oil Company appeals a judgment rendered in favor of plaintiff William Huggins, III, as trustee for William Huggins, III, Judith Huggins and Virginia Huggins (Huggins). The judgment ordered recission, termination, and cancellation of a farmout agreement and awarded appellee $100,000.00 for pecuniary loss based upon a jury finding that Cambridge breached a fiduciary duty to Huggins regarding timely payment of royalties and gross negligence. The trial court also awarded plaintiff $1,500,000.00 in punitive damages.
Cambridge asserts in twenty-two points of error that there is a lack of evidence to support a monetary damage recovery, that there is no legal or factual basis for recovery in tort, that the evidence does not support a recission remedy for a non-fraud tort, and that there is no legal or factual basis for cancellation and forfeiture under a contract claim.
The Huggins family sold the acreage in question to Thomas O'Connor in 1983, retaining one-half of the royalty rights in the oil, gas, and minerals. As part of the agreement to sell, Huggins retained the right to all bonus monies if he could find a lessee before August 1983. In 1983, a Texas corporation named GSI, Inc., entered into an oil and gas lease with O'Connor, which covered the acreage in Goliad County. O'Connor held the executive rights. In spring 1985, GSI entered into a farmout agreement with appellant Cambridge Oil Company, the defendant. The farmout agreement contained a continuous development clause which required Cambridge to continue drilling within 120 days from completion of a producing well or the drilling of a dry hole. During the course of the farmout agreement, Cambridge requested and received several extensions of time to fulfill its development obligations. Pursuant to the farmout agreement, as amended, Cambridge completed four producing wells and GSI executed four partial assignments to Cambridge.
In the fall of 1986, Cambridge again sought an extension of time to drill a new well. This amendment, dated September 26, 1986, is the focal point of the controversy in this case. At the time this amendment was requested, Cambridge was six months behind in the payment of royalties. In order for Cambridge to get an additional extension, certain conditions were agreed upon. The September 1986 amendment provided:
You (Cambridge) represent and warrant that you shall in the future disburse all proceeds due us (Huggins and GSI) and the lessors (O'Connors) under the lease which is the subject of the agreement on a continuing, regular, and monthly basis and, in event you do not disburse such proceeds then we shall at our sole option: a) exercise the rights to obtain all proceeds due us from the purchaser; or b) terminate the agreement.
The well that was proposed to be drilled under the extended agreement was never completed, and Cambridge lost its right to drill on any other portion of the property.
Huggins brought suit contending that the September, 1986, amendment to the farmout agreement gave them the right to rescind the entire original farmout agreement and cancel the previously made assignment of interest earned from the original producing wells. Huggins also asserted that the failure to timely pay royalties constituted gross negligence and a breach of fiduciary duty for which they were entitled to damages. He claimed that their relationship with Cambridge was transformed from a relationship of lessor--lessee, farmor--farmee, to a particular fiduciary relationship because Cambridge had promised in writing to handle future royalty payments with more propriety than it had in the past.
It was undisputed that at the time of trial, Cambridge owed no royalties to the Huggins. The jury found that Cambridge breached a fiduciary duty in its dealings with the Huggins. The court defined fiduciary capacity to mean "when the business he transacts, or the money or property which he handles, is not his own or for his own benefit, but for the benefit of another person, as to whom he stands in a relationship implying and necessitating great confidence and trust on the one part and a high degree of good faith on the other part." The jury also found that Cambridge was grossly negligent in its dealings with the Huggins and awarded them $1,500,000.00 in exemplary damages. The jury also found $100,000.00 in actual damages.
Cambridge's argument under points nineteen through twenty-two concern the construction of the September 19, 1986, letter amendment to the farmout agreement. The question specifically is whether the failure to pay royalties due under the farmout agreement terminated the extension agreement of September 1986; or whether the failure to pay royalties cancelled the entire farmout agreement including the previously assigned interest that Cambridge had already earned.
The jury found that the failure to pay royalties caused a termination of the entire farmout agreement. They also found that the failure to pay royalties caused a cancellation of the partial assignments made to Cambridge under the farmout agreement. Cambridge asserts that the September 19, 1986 letter agreement is unambiguous and not subject to attack by parol testimony. All parties agree that there was nothing in the original farmout agreement or in the first two amendments to the farmout agreement that gave GSI, the farmor, the right to inhibit any of Cambridge's rights in the lease that were already earned by production for failure to pay royalties. The issue boils down to whether the phrase "terminate the agreement" creates ambiguity to allow the introduction of parol evidence to vary the terms of the extension agreement.
In construing a written contract, the court should ascertain the true intentions of the parties as expressed in the instrument. R & P Enterprises v. La Guarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex.1980). The trial court should examine and consider the entire writing in an effort to harmonize and give effect to all provisions of the contract so that none will be rendered meaningless. Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983). If a written instrument is so worded that it can be given a certain or definite legal meaning, then it is not ambiguous, and the court will construe the contract as a matter of law. A contract is ambiguous when its meaning is uncertain and doubtful or is reasonably susceptible to more than one meaning. Skelly Oil Co. v. Archer, 356 S.W.2d 774, 778 (Tex.1962). Whether a contract is ambiguous is a question of law for the court to decide by looking at the contract as a whole in light of the circumstances present when the contract was entered. Courts will not declare a forfeiture unless they are compelled to do so by language which can be construed in no other way. Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 530 (Tex.1987).
Paragraph 11 of the original farmout agreement reads, as follows:
Farmee's liability for failure to timely commence the drilling of the initial test well or to diligently pursue the drilling thereof shall be limited to the loss of any rights to be earned under this agreement. The foregoing shall not be construed to preclude or limit any rights Farmor may have, in law or in equity, by virtue of Farmee's negligence or willful misconduct, or for any breach by Farmee of any other obligation under this agreement (including, without limitations, the...
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