Lone Star Gas Co. v. McCarthy, 17678

Citation605 S.W.2d 653
Decision Date17 July 1980
Docket NumberNo. 17678,17678
PartiesLONE STAR GAS COMPANY, Appellant, v. Glenn H. McCARTHY et al., Appellee. (1st Dist.)
CourtCourt of Appeals of Texas. Court of Civil Appeals of Texas

Taylor & Norwood, E. R. Norwood, Liberty, for appellant.

Fulbright & Jaworski, M. W. Parse, Jr., Houston, for appellees.


WARREN, Justice.

This is an appeal from a judgment, rendered after a non-jury trial, awarding appellees damages for a breach of contract by appellant and denying appellant recovery on its counterclaim.

The material facts are undisputed. The only question is whether under the gas sales contract appellant was entitled to be reimbursed for gas payments made under a pre-connection "take or pay" provision when it was unable to make up the gas in kind because of the depletion of the gas reservoir.

In the summer of 1972, appellees discovered a gas field in Montgomery and Grimes Counties. An "open flow test" indicated that the discovery was significant and that the reservoir would furnish gas for a long time.

On October 24, 1972, the parties entered into a gas sales contract which contained two "take or pay" provisions pertaining to the periods both before and after the well was connected to the pipeline. Both the "pre-connection" and the "post connection" clauses required that appellant (Buyer) purchase at least 80% of the gas available or pay for that amount. The pre-connection liability to take or pay was to begin 45 days after October 24, 1972. However, the Buyer had the right to "make up" or take, within the following two year period, gas it had paid for, but which it had not taken. The well was connected to the pipeline on June 4, 1973, approximately six months after the obligation to take or pay began.

Appellant began paying for the available gas in December of 1972 and paid each month under the term of the contract until May 1, 1973. It did not pay for the month of May and the first three days in June of 1973. Appellees, as they were required to do under the contract, operated the wells at 100% capacity and appellant took the amount it was obligated to take and also began to take make up gas for the pre-connection payments. In February of 1975, the reservoir was depleted before appellant had made up in kind a quantity equal to its pre-connection payments.

Appellees sued for the sum of $139,905.56, claiming they were entitled to this amount under the pre-connection take or pay clause for the month of May and for the first 3 days of June, 1973. Appellant does not contest the fact that this amount was owed under the term of the contract, but contends that it was "washed out" because appellees owed appellant for gas payments which appellant was unable to recoup in kind.

The portions of the contract pertinent to our decision follow:

The "Take or Pay" Provision

"... Buyer agrees to take gas or pay for it if available and not taken, as outlined in Article IX, commencing forty-five (45) days after the date of the acknowledgment of the official signatory for Buyer on this contract."

Article IX

The "Pre Connection" Paragraph

"If, during the period commencing forty-five (45) days after acknowledgment of the official signatory for Buyer and ending upon the date of the initial pipeline connection as provided in this contract, Buyer shall fail to purchase, if available under the terms of this contract, a quantity of gas equal to eighty percent (80%) of Seller's delivery capacity at the point of delivery and as determined by the initial test of Seller's delivery capacity here-under, then Buyer shall pay Seller for such quantity whether taken or not. Any such payment by Buyer shall be made on or before the 25th day of each calendar month next succeeding Buyer's fiscal month in which such deficiency occurred; provided, however, Buyer shall be entitled to makeup any such deficiency as provided in this Article IX."

The "Post Connection" Paragraph

"In the event Buyer should fail to purchase under this contract during any annual period, or partial annual period, of the term hereof a quantity of gas required to be purchased hereunder subject to and pursuant to the provisions of this contract, then Seller may within four (4) months following the end of such annual period notify Buyer regarding Buyer's failure to purchase the Contract Volume of gas under this contract, accompanying such notice with an itemized statement giving full information with respect to such deficiency and the amount due therefor at the price prevailing under this contract during such annual period, or partial annual period, and Buyer shall within sixty (60) days after receipt of such notice pay Seller the amount due by reason of such deficiency; provided, however, that Buyer shall have the right during the two (2) annual periods following the annual or partial annual period in which such deficiency...

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4 cases
  • SUPERFOS INVESTMENTS v. Firstmiss Fertilizer, Civ. A. No. J91-0568(L).
    • United States
    • U.S. District Court — Southern District of Mississippi
    • 4 Marzo 1993
    ...denied, 497 So.2d 310 (La. 1986) (take-or-pay provisions in the contracts constituted alternative obligations); Lone Star Gas Co. v. McCarthy, 605 S.W.2d 653 (Tex.Civ.App.1980). The contract at issue in the case at bar, however, is not a typical take-or-pay Take-or-pay contracts, which are ......
  • Colorado Interstate Gas Co. v. Hunt Energy
    • United States
    • Court of Appeals of Texas
    • 27 Junio 2000
    ...period such as the situation where the well ceases to be capable of production. Lone Star Gas Company v. Glenn H. McCarthy, 605 S.W.2d 653, 656 (Tex.Civ.App.--Houston [1st Dist.] 1980, writ ref'd n.r.e.). CIG had the right to either take gas or pay for it. CIG voluntarily elected to do neit......
  • Boondoggles Corporation v. Yancey, No. 01-05-00185-CV (Tex. App. 8/3/2006)
    • United States
    • Court of Appeals of Texas
    • 3 Agosto 2006
    ...to substantiate its proffered method, not only legally, but also factually. See, e.g., Lone Star Gas Co. v. McCarthy, 605 S.W.2d 653, 656-57 (Tex. Civ. App.-Houston [1st Dist.] 1980, writ ref'd n.r.e.) (construing meaning of term propounded by appealing party's interpretation under both the......
  • Universal Resources Corp. v. Panhandle Eastern Pipe Line Co.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • 31 Marzo 1987
    ...of the risk that it might not be able to recoup deficiency payments by taking makeup gas. Lone Star Gas Co. v. McCarthy, 605 S.W.2d 653, 656 (Tex.Civ.App.--Houston [1st Dist.] 1980, writ ref'd n.r.e.). Second, Panhandle's alleged insecurity arose from purely subjective evaluations and proje......

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