Kincaid v. Gulf Oil Corp.

• Decision Date: 20 June 1984
• Docket Number: No. 04-82-00218-CV,04-82-00218-CV
• Citation: 675 S.W.2d 250
• Parties: E.D. KINCAID, Jr., et al., Appellants, v. GULF OIL CORPORATION, et al., Appellees.
• Court: Texas Court of Appeals

Page 250

675 S.W.2d 250

E.D. KINCAID, Jr., et al., Appellants, v. GULF OIL CORPORATION, et al., Appellees.

No. 04-82-00218-CV.

Court of Appeals of Texas San Antonio.

June 20, 1984.

Rehearing Denied July 20, 1984.

J. Ken Nunley, Dodson, Nunley & Taylor, Hondo, Earl A. Brown, Jr., Houston, for appellants.

James P. Ray, Lawrence E. Glenn, Houston, William Robert Anderson, Jr., Corpus Christi, for appellees.

Before ESQUIVEL, CANTU and REEVES, JJ.

OPINION

CANTU, Justice.

This is an action filed by appellants, as lessors of an oil and gas lease covering 25,866.79 acres of land located in Zavala and Uvalde Counties seeking declaratory relief against appellees, lessees and assignees of interests in said lease, based upon appellant's belief that delay rentals had not been timely paid as required by the lease. Appellees are Gulf Oil Corporation, Omega Minerals, Inc., Major Petroleum Corporation, and CRB Oil & Gas, Inc. The case was tried to the District Court of Uvalde, Texas, on an agreed statement of evidence.

The facts which give rise to this appeal may be summarized as follows. On March 1, 1974, Gulf Oil Corporation (Gulf) entered into two separate leases. The leases both covered Kincaid lands. The first lease covered 25,814.19 acres and was designated by Gulf as internal lease number 212112. The following parties were named as lessors in the lease: E.D. Kincaid, Jr. and William Alex Kincaid, Independent Executors and Testamentary Trustees under the Last Will and Testament of Frank T. Kincaid, Jewel Armstrong Kincaid, widow of Frank T. Kincaid, Jewel Frances Garwood and husband, Roy H. Garwood, Jr., and Elizabeth Ann Maner and husband, James Ray Maner. This lease, for purposes of the opinion, will hereinafter be referred to as the F.T. Kincaid Lease. The second lease covered 25,866.79 acres and was designated by Gulf as internal lease number 212111. The following parties were lessors in the lease: E.D. Kincaid, Jr. and William Alex Kincaid, Individually and as Independent Executors under the Last Will and Testament of E.D. Kincaid, Deceased, and Mrs. Adaline Kincaid, Individually and as President of A.V.K. Ranch Company, Inc. This lease, for purposes of the opinion, will hereinafter be referred to as the E.D. Kincaid Lease. It is the E.D. Kincaid lease which is the subject matter of this appeal.

The aforementioned leases are identical in all respects with the exception of the named lessors and the tract or property descriptions. Both E.D. Kincaid, Jr. and William Alex Kincaid are named as Lessors under both leases; however, in each lease they are acting in somewhat different capacities. Although E.D. Kincaid, Jr. and William Alex Kincaid act in the stated capacities for each estate, the estates are maintained separately and independently of each other. Moreover, the leases cover contiguous tracts of land in Zavala and Uvalde Counties, Texas.

Both the E.D. Kincaid Estate lease and the F.T. Kincaid Estate lease contained an "unless" type clause as well as other provisions dealing with erroneous payment of delay rentals. Significantly, both leases contain the following language: Paragraph 2 provides that:

2. Subject to the other provisions herein contained, this lease shall be for a term of five (5) years from the date hereof (hereinafter called "primary term") and as long thereafter as oil or gas is produced in paying quantities from said land or land with which said land is pooled or unitized hereunder.

Paragraph 5 provides:

5. If oil or gas is not being produced from the leased premises or on acreage with which the leased premises are pooled or unitized, on the first anniversary date of this lease, this lease shall then terminate as to both parties unless on or before such anniversary date Lessee shall pay or tender (or shall make a bona fide attempt to pay or tender, as hereinafter stated) to Lessors or to the credit of Lessors in the First State Bank of Uvalde at Uvalde, Texas (which bank and its successors are Lessors' agent and shall continue as the depository for all rentals and other payments payable thereunder regardless of changes in ownership of said land or the rentals or other payments) the sum of $25,866.79 ¹ (herein called rentals), which shall cover the privilege of deferring commencement of production of oil or gas for a period of twelve (12) months. In like manner and upon like payments or tenders annually, this lease may be maintained in force and effect without the production of oil or gas from the lands covered hereby for successive periods of twelve (12) months each during the primary term. The payment or tender of rental under this paragraph and of royalty under paragraph 3 on any gas well from which gas in [sic] not being sold or used and the minimum royalty called for in paragraph 8 may be made by the check or draft of Lessee mailed or delivered to the parties entitled thereto or to said bank on or before the date of payment. If such bank (or any successor bank) should fail, liquidate or be succeeded by another bank, or for any reason fail or refuse to accept rental, the rental-paying date for any year shall be extended until the expiration of thirty (30) days after Lessors shall deliver to Lessee a proper recordable instrument naming another bank as agent to receive such payments or tenders. If Lessee shall, on or before any anniversary date, make a bona fide attempt to pay or deposit rental to a Lessor entitled thereto according to Lessee's records or to a Lessor who, prior to such attempted payment or deposit, has given Lessee notice, in accordance with subsequent provisions of this lease, of his right to receive rental, and if such payment or deposit shall be ineffective or erroneous in any regard, Lessee shall be unconditionally obligated to pay to such Lessor the rental properly payable for the rental period involved, and this lease shall not terminate but shall be maintained in the same manner as if such erroneous or ineffective rental payment or deposit had been properly made, provided that the erroneous or ineffective rental payment or deposit be corrected within thirty (30) days after receipt by Lessee of written notice from such Lessor of such error accompanied by such instruments as are necessary to enable Lessee to make proper payment. [Emphasis added.]

The leases further provide:

Except as otherwise specifically provided herein, the breach by Lessee of any obligation arising hereunder shall not work a forfeiture or termination of this lease nor cause a termination or reversion of the estate created hereby nor be grounds for cancellation hereof in whole or in part; and in the event Lessors consider that operations are not at any time being conducted in compliance with this lease, Lessors shall notify Lessee in writing of the facts relied upon as constituting a breach hereof, and Lessee, if in default, shall have sixty (60) days after receipt of such notice in which to commence the compliance with the obligations imposed by this lease as to which such notice is required. [Emphasis added.]

It is noteworthy that both leases provide (1) that First State Bank of Uvalde is the depository bank for payment of delay rentals (2) that delay rentals are due and payable on or before March 1 of each year of the lease term; and (3) that delay rentals are $1.00 per acre. Moreover, it is important to note that the two leases were prepared by an attorney hired by appellants.

From 1975 through 1978, Gulf paid annual delay rental payments under both leases by checks payable to the First State Bank of Uvalde (the Bank). Attached to these checks were credit allocation instructions.

On May 30, 1979, Gulf entered into a letter agreement with Major Petroleum Corporation (Major) covering 15,000 acres which was subsequently assigned to Omega Minerals, Inc. (Omega). CRB Oil & Gas, Inc. eventually acquired all of Omega's interest under this letter agreement. In 1979, pursuant to the terms of the leases, Gulf exercised its option to extend the primary term under the leases for five years.

In January, 1980, Gulf made the decision to pay the delay rental due on the F.T. Kincaid lease and to hold payment of the rental due on the E.D. Kincaid lease. The decision to delay payment was based on conversations between Gulf and Omega that drilling operations were being undertaken which might eliminate the delay rental obligations under the E.D. Kincaid lease.

In February, 1980, a check payable to the First State Bank of Uvalde in the amount of $25,815.19 for the delay rental obligation on the F.T. Kincaid lease was issued by Gulf and received by the Bank for the heirs of the F.T. Kincaid Estate. The lessors under the F.T. Kincaid lease were credited for the payment. E.D. Kincaid, Jr., William Alex Kincaid, E.D. Kincaid, III and Warren Neill, Vice President of Operations of the Bank, were all aware of the delay rental payment on the F.T. Kincaid lease. Thereafter, several inquiries were made by E.D. Kincaid, Jr. and William Alex Kincaid as to whether the delay rental under the E.D. Kincaid lease had been received by the Bank.

On February 29, 1980, Gulf was informed that drilling operations under the E.D. Kincaid lease had ceased. Consequently, Gulf's legal department made the decision to pay the delay rental on the E.D. Kincaid lease on or before March 1, 1980. It was decided that Omega would make the delay rental payment on behalf of Gulf because Omega's agent was closer to Uvalde. Moreover, it was uncertain whether Gulf's bank had the facilities to wire transfer any monies after banking hours or on weekends and holidays. ²

Thereafter, Rosamond Whitehead, an Omega employee, was instructed to issue two checks; one in the amount of $25,815.19 ³ and the other in the amount of $25,867.79. She also received instructions to rent a plane, fly to Uvalde, take the checks to the Bank and inform the Bank that she was making the payment on Gulf's behalf. In preparing the checkstubs and the delay...