Hitzelberger v. Samedan Oil Corp.

• Decision Date: 25 June 1997
• Docket Number: No. 10-96-020-CV,10-96-020-CV
• Citation: 948 S.W.2d 497
• Parties: Robert HITZELBERGER, Appellant, v. SAMEDAN OIL CORPORATION, et al., Appellees.
• Court: Texas Court of Appeals

Page 497

948 S.W.2d 497

Robert HITZELBERGER, Appellant, v. SAMEDAN OIL CORPORATION, et al., Appellees.

No. 10-96-020-CV.

Court of Appeals of Texas Waco.

June 25, 1997.

Rehearing Overruled July 23, 1997.

Glenn Sodd, Ron Edmondson, Dawson, Sodd, Moe, Jacobson & Beard, P.C., Corsicana, for appellant.

Jack K. Smith, Russell & Associates, Corsicana, Scott Patrick Stolley, John H. Martin, Greg W. Curry, Thompson & Knight, Dallas, for appellees.

Before DAVIS, C.J., and CUMMINGS and VANCE, JJ.

OPINION

DAVIS, Chief Justice.

This case concerns the construction of an oil and gas lease and a unit agreement. Robert Hitzelberger sued Samedan Oil Corp., et al. (collectively "Samedan") for a declaration that his lease terminated due to the late payment of royalties and for other relief. After a bench trial based entirely upon submitted documents, the trial court found in Samedan's favor and declared the lease to be in effect. From this decision Hitzelberger now appeals. Because the trial court erred as a matter of law in finding that Hitzelberger's lease did not terminate, we reverse and render in part and reverse and remand in part.

In 1990, NCNB Texas National Bank signed an oil and gas lease with Massad Oil Company covering tracts of land in Navarro County. Through intervening conveyances Hitzelberger became the successor to NCNB, while Samedan succeeded Massad Oil. Samedan, wanting to expand its area of development, asked Hitzelberger to sign a unit agreement to pool his tracts with other surrounding tracts to form the South Kerens Unit. Hitzelberger agreed to sign if the royalty provisions in his lease survived the unit agreement. Samedan accepted this condition and altered its unit agreement in an attempt to satisfy Hitzelberger's request. Subsequently, Samedan developed a producing well within the unit, but not located on Hitzelberger's land. The first sale of oil from this well occurred on June 12, 1992. Samedan paid an initial royalty to Hitzelberger 120 days later on October 10, 1992. After timely making two monthly royalty payments, Samedan failed to make the monthly royalty payments due in January and February of 1993 in accordance with the royalty provisions of Hitzelberger's lease. ¹ Thereafter, Hitzelberger notified Samedan that the lease terminated because of the late payment of royalties. Samedan refused to release the lease; whereupon, Hitzelberger brought this action. After a bench trial, the court made the following conclusions of law:

1. The lease is unambiguous.

2. The unit agreement is unambiguous.

3. The primary term of the lease was three years from May 2, 1990, the date of execution of the lease.

4. Samedan made timely payment of royalties for production.

5. If Samedan failed to make timely payments of royalties for production during the primary term of the lease, then that failure to pay royalties does not cause the lease to terminate.

6. In the alternative, Samedan's failure to make timely payments of royalties for production does not cause termination of the lease during the term of the unit agreement.

7. The lease has not terminated, and remains in full force and effect.

8. Samedan did not commit fraud.

Based on these conclusions, the trial court decided the lease had not terminated because: (1) under the lease's habendum clause, the lease cannot terminate during the primary term, even if the royalty payments were late; (2) the unit agreement amended the lease, so that the lease cannot terminate for late royalty payments during the term of the unit agreement; or (3) Samedan timely paid the initial royalty by tendering payment within 120 days of the first production from the "leased premises"--a well under Hitzelberger's tracts.

Initially, we address the appropriate standard of review to be applied in reviewing a bench trial. A trial court's findings of fact are reviewed for factual sufficiency of the evidence under the same legal standards as applied to review jury verdicts for factual sufficiency of the evidence. Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex.1996). In this review, we must weigh all of the evidence in the record. Id. Findings may be overturned only if they are so against the great weight and preponderance of the evidence as to be clearly wrong and unjust. Id. We review the trial court's conclusions of law de novo as legal questions. Piazza v. City of Granger, 909 S.W.2d 529, 532 (Tex.App.--Austin 1995, no writ); Kirkwood v. City of Corsicana, 871 S.W.2d 544, 546 (Tex.App.--Waco 1994, no writ). We will follow a trial court's conclusion of law unless it is erroneous as a matter of law. Piazza, 909 S.W.2d at 532; Westech Eng. v. Clearwater Constructors, 835 S.W.2d 190, 196 (Tex.App.--Austin 1992, no writ). Even an incorrect conclusion of law will be followed if the controlling findings of fact support a correct legal theory. Id.

Hitzelberger's first point of error alleging the trial court erred by entering judgment for Samedan, instead of him, is supported by multiple sub-points. Some of these sub-points include: (1) the course of dealings and the parties' own interpretation showed that both parties understood the withholding of royalty payments would terminate the lease; (2) the lease treated production from anywhere in the unit as "production from the leased premises," and required termination for the late payment of a royalty from a well anywhere in the unit; (3) the unit agreement treated production from anywhere in the unit as "production from the leased premises," and the unit agreement changes made by Samedan preserved the royalty provisions of Hitzelberger's lease; and (4) the "initial royalty payment" was actually made, thus subsequent payments were due monthly without regard to the well location within the unit. Hitzelberger's second point of error attacks the trial court's conclusion that Samedan made timely payment of royalties. This point of error also attacks the court's findings that (1) the production from the unit in October 1992 did not constitute production from Hitzelberger's "leased premises," (2) the first production from Hitzelberger's "leased premises" occurred on December 28, 1992, and (3) within 120 days Samedan timely tendered a royalty check for the December production. In his ninth point of error, Hitzelberger argues the trial court erred when it concluded that late royalty payments during the primary term do not cause the lease to terminate. Hitzelberger's tenth point of error complains of the trial court's alternative finding that Samedan's failure to make timely royalty payments does not cause termination of the lease during the term of the unit agreement. Additionally, Hitzelberger argues in his eighth point that if the lease and unit agreement are not interpreted as he claims, then their meaning is at least ambiguous.

An oil and gas lease is a contract and must be interpreted as a contract. TSB Exco v. E.N. Smith, III Energy Corp., 818 S.W.2d 417, 421 (Tex.App.--Texarkana 1991, no writ). Whether a contract is ambiguous is a question of law for the court to decide. Friendswood Development Co. v. McDade + Co., 926 S.W.2d 280, 282 (Tex.1996); Coker v. Coker, 650 S.W.2d 391, 394 (Tex.1983). This determination is made by looking at the contract as a whole in light of the circumstances present when the parties entered the contract. Id. If a contract is worded in such a manner that it can be given a definite or certain legal meaning, then it is not ambiguous. Friendswood Development Co., 926 S.W.2d at 282; Coker, 650 S.W.2d at 393; R & P Enterprises v. LaGuarta, Gavrel &amp Kirk, 596 S.W.2d 517, 519 (Tex.1980). On the other hand, a contract is ambiguous when its meaning is uncertain and doubtful or it is reasonably susceptible to more than one meaning. Coker, 650 S.W.2d at 393; R & P Enterprises, 596 S.W.2d at 519. If there is no ambiguity, the construction of a written instrument is a question of law for the court. Westwind Exploration v. Homestate Sav. Ass'n., 696 S.W.2d 378, 381 (Tex.1985); Coker, 650 S.W.2d at 393.

As with any contract, the ultimate goal in interpreting a lease is to determine the parties' intent. Sun Oil Co. (Delaware) v. Madeley, 626 S.W.2d 726, 727-28 (Tex.1981); Kiewit Texas Min. Co. v. Inglish, 865 S.W.2d 240, 244 (Tex.App.--Waco 1993, writ denied). When construing a lease to seek the intention of the parties, we consider all the provisions of the lease and by harmonizing, if possible, those provisions which appear to conflict by using the applicable rules of construction. Ogden v. Dickinson State Bank, 662 S.W.2d 330, 332 (Tex.1983); Coker, 650 S.W.2d at 393. However, no single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole lease. Coker, 650 S.W.2d at 393. Because the parties to a lease intend every provision to have some effect, we will not strike down any portion unless there is an irreconcilable conflict. Ogden, 662 S.W.2d at 332. We also give terms their plain, ordinary, and generally accepted meaning unless the lease shows that the parties used them in a technical or different sense. Western Reserve Life Ins. Co. v. Meadows, 152 Tex. 559, 261 S.W.2d 554, 557 (1953). If after applying the established rules of construction, a lease remains reasonably susceptible to more than one meaning, extraneous evidence is admissible to determine the true meaning of the lease. R & P Enterprises, 596 S.W.2d at 519. Otherwise, we will enforce an unambiguous lease as written; and, in the ordinary case, the writing alone will be deemed to express the intention of the parties. Sun Oil Co., 626 S.W.2d at 728.

This lease construction dispute regards how Hitzelberger's lease interacts with the unit agreement. The habendum clause in Paragraph 2 of Hitzelberger's lease provides:

Subject to the other provisions hereof, this lease shall be for a term of Three years from this date (called "Primary Term") and as long thereafter as oil and gas, or either of...