Holmes v. McKnight, 6

• Decision Date: 05 December 1963
• Docket Number: No. 6,6
• Citation: 373 S.W.2d 541
• Parties: Christian R. HOLMES and William L. Dugger, Appellants, v. Albert D. McKNIGHT et al., Appellees.
• Court: Texas Court of Appeals

Page 541

373 S.W.2d 541

Christian R. HOLMES and William L. Dugger, Appellants, v. Albert D. McKNIGHT et al., Appellees.

No. 6.

Court of Civil Appeals of Texas, Corpus Christi.

Dec. 5, 1963.

E. G. Hall, of Strickland, Wilkins, Hall & Mills, Mission, for appellants.

L. C. McLean, of Kelley, Looney, McLean & Littleton, Cecil Edwards, Edinburg, R. M. Bounds, McAllen, W. H. McDonald, Pharr, for appellees.

SHARPE, Justice.

This is an appeal from a summary judgment rendered in favor of appellees, Albert D. McKnight and others, hereafter 'McKnight', against appellants, William L. Dugger and Christian R. Holmes, hereafter 'Dugger and Holmes', and from the refusal of the trial court to grant the motion for summary judgment of Dugger and Holmes. In the trial court, McKnight, his wife, and others claiming under him, that is, William H. McDonald, R. M. Bounds and Hazel Edwards were plaintiffs, and Dugger and Holmes were defendants.

McKnight brought this suit to establish ownership in certain overruling royalties and for collection of payments due him under an instrument dated September 19, 1959, hereafter referred to as the 'extension agreement'. The parties filed crossmotions for summary judgment, and the trial court sustained that of appellees and denied that of appellants. The judgment recites that there is no genuine issue of material fact, and this is conceded, to be true by all parties on this appeal.

The judgment of the trial court allowed recovery to each appellee of an undivided interest in certain overriding royalties and for payments accruing to December 31, 1962, amounting to $5,108.07, plus interest.

We have concluded that the case was properly decided and the judgment should be affirmed.

All parties agree that the case turns upon the meaning of said extension agreement of September 19, 1959. Appellants contend that they had a right to terminate it in accordance with one of its provisions, and appellees say that the agreement is still in full force and effect. The instrument dated September 19, 1959, omitting detailed property descriptions and minor formal provisions not material to this appeal is set put below. ¹

Appellants' first point is that the trial court erred in sustaining McKnight's motion for summary judgment and in denying that of Dugger and Holmes, because McKnight's right to receive the sums in question had automatically terminated in accordance with the express written agreement of the parties. Appellants' second point is that the trial court erred in rendering judgment because, as a matter of law, Dugger and Holmes were not estopped nor had they waived their right to claim automatic termination of the obligation sued upon by McKnight.

Appellees contend that the trial court properly sustained their motion and urge nine counterpoints in support of their position, in substance, as follows: (1) Paragraph (a) of the agreement is an unconditional conveyance of royalties to appellees; (2) the alleged defense of forfeiture is not available to appellants; (3) when the instrument is construed as a whole, it defeats appellants' contention that the agreement is subject to forfeiture at the instance of appellants; (4) a forfeiture under the facts disclosed by the record in this case would be contrary to equity and good conscience; (5) appellants cannot plead and rely on their own failure to perform as a release of their obligation to perform; (6) a forfeiture by appellants would be contrary to the intent of the parties; (7) appellants are estopped under the facts to declare forfeiture; (8) appellants waived any right, if any such right ever existed, to declare the agreement forfeited; and (9) no construction of the agreement could be placed on it which requires the return of the consideration paid by appellants to secure its execution and delivery.

The record shows, and it is conceded by all parties, that there is production in paying quantities of oil and gas not only from the well on the Citriana Tract, but also from another well, known as the 'Evans' well, located on one of the properties described in Exhibit 'A' of the extension agreement, and that there has been a default by appellants in payment of overriding royalty to appellees for a period of six continuous months.

The controverting affidavit of William L. Dugger, Jr., attached to appellants' answer to appellees motion for summary judgment, reflects the factual background of the case as follows: That the original lease with McKnight provided that his land should be unitized with other adjacent lands, but it developed that the McKnight leasehold could not be so unitized; the agreement of September 19, 1959, was entered into in order to perpetuate the McKnight lease without the necessity for drilling on the property covered by it; by the late fall and winter of 1959, field rules were instituted covering the McKnight lease, and another company successfully obtained an injunction against fracturing procedures in wells in the immediate vicinity, all of which made it economically unfeasible to drill the McKnight property; because of such factors, the engineers of Dugger and Holmes recommended that the McKnight lease be terminated and no sums were paid to perpetuate the same from and after the month of October, 1959; Dugger and Holmes received notice of the claim of W. H. MocDonald by copy of letter dated December 12, 1959; the suit between McDonald and McKnight did not terminate until January 29, 1962; on March 17, 1962, after appellee McDonald made inquiry as to payment of royalties, Holmes and Dugger caused a release to be filed, having determined long before to allow the McKnight lease to terminate by non-payment of sums required to perpetuate same; the release was intended to become effective as of the expiration of six months from the date of payment of last royalty; had any of the appellees requested advice as to whether Holmes and Dugger would elect to continue the McKnight lease in force, Holmes and Dugger 'would have acquainted them with our intentions in the matter.'

The affidavit of L. C. McLean, attached to appellees' amended motion for summary judgment shows, in part, the following: He conducted the negotiations for appellees in connection with the agreement of September 19, 1959; prior to the execution of said agreement, he wrote a letter to appellants' attorneys on August 5, 1959, in which he suggested certain changes and confirmation of the understanding and in which he commented concerning Exhibit 'A' of the contract (which had been sent to him by a representative of Dugger and Holmes by letter of July 27, 1959); he also requested that Dugger and Holmes confirm that Exhibit 'A' included all of their interests in the area, regardless of in whose name the same might be held; by letter of November 7, 1959, Dugger and Holmes furnished him a map of the City of Pharr containing markings as to certain leases and stating their intention as to the participation of McKnight in leases then held or to be acquired in the area.

The record further contains a series of letters during the period of time from December 12, 1959, to April 27, 1962, concerning demand for payment of royalties by William H. McDonald, who acquired his interest by conveyance from the McKnights. Letters from Dugger and Holmes and their representatives written during the month of January, 1960, reflect that they decided to withhold payments of royalty under the extension agreement of September 19, 1959, until such time as they were furnished with a joint instruction from the McKnights and McDonald concerning their respective royalty interests or a judgment of a court fixing the same. Such letters were consistent with recognition of the obligation to pay such overriding royalties so long as Dugger and Holmes could be certain that such payments were made to the right persons. There was nothing in such correspondence which would lead anyone to believe that Dugger and Holmes either had terminated, or intended to terminate, the McKnight lease or the extension agreement of September 19, 1959. McDonald and McKnight litigated their differences and a certified copy of the final judgment of February 27, 1962, fixing their interests, was furnished to the attorney for Dugger and Holmes. On March 17, 1962, McDonald made inquiry of Dugger and Holmes as to payments to him, and by letter of April 27, 1962 from an attorney for Dugger and Holmes was advised, along with the McKnights, that a release of the McKnight lease, delivered to him by Dugger and Holmes, had been recorded. Said release was dated March 20, 1960, was acknowledged on April 9, 1962, and was recorded on April 27, 1962, or thereafter.

Analysis of the extension agreement dated September 19, 1959, reflects the following: The contract includes twelve material paragraphs, the first five of which are 'recital' provisions. The following seven paragraphs contain 'agreement' provisions. The recital provisions set out the execution of the original lease; that appellants had acquired leases on the Citriana Tract and other lands lying to the north and east of it, described in Exhibit 'A' of the contract; that production of oil and gas had been obtained on the Citriana Tract, and an additional well was to be drilled on the lands included in Exhibit 'A'; that 'Holmes and Dugger are desirous of perpetuating the McKnight lease without presently drilling on it.' The agreement provisions set out that the original McKnight lease shall be extended and perpetuated beyond its termination date (which would have been July 14, 1960), and in Paragraph 1 there is an unconditional promise by Holmes and Dugger to make payments to the McKnights for 'so long as oil, gas or other minerals are produced in paying quantities from the 'Citriana Tract', or from any of the lands described in Exhibit 'A'.' Immediately following Paragraph 1, there is a paragraph designated (a) which contains an unconditional conveyance and assignment to appellees...