Modern Exploration, Inc. v. Maddison

• Decision Date: 24 April 1986
• Docket Number: No. 13-85-092-CV,13-85-092-CV
• Citation: 708 S.W.2d 872
• Parties: MODERN EXPLORATION, INC., Appellant, v. Paul Joseph MADDISON, et al., Appellees.
• Court: Texas Court of Appeals

Page 872

708 S.W.2d 872

MODERN EXPLORATION, INC., Appellant, v. Paul Joseph MADDISON, et al., Appellees.

No. 13-85-092-CV.

Court of Appeals of Texas,

Corpus Christi.

April 24, 1986.

Cynthia L. Stagner, Nall, Stagner & Pelley, Sherman, for appellant.

John M. Zukowski, Mark J. Tempest, Campbell, Athey & Zukowski, Houston, for appellees.

Before BENAVIDES, UTTER and SEERDEN, JJ.

OPINION

BENAVIDES, Justice.

Modern Exploration, Inc. and Modern Drilling, Inc., ("Modern") appeal the ruling below terminating part of their oil and gas lease from Paul and Melba Maddison. Modern raises issues involving the sufficiency of the evidence, the construction of the lease, the submission of special issues on damages, and the admissibility of testimony about attorney's fees from an expert witness not listed in response to a discovery question. We reverse and render the judgment in part, modify it in part, and as modified, affirm the remaining portion of the trial court judgment.

Paul Maddison and his wife Melba own a 200-acre tract of land in Gonzales County, Texas. Mr. Maddison contacted Gary Yost to discuss leasing the oil and gas interests to Yost. Yost, who did business as Modern Exploration, Inc., and Modern Drilling, Inc., met with Maddison and Maddison's attorney in September, 1980. After hours of negotiations, the two men drew up a rough draft of the lease. The parties also signed a two-page memorandum, intended only as a summary of the parties' actual agreement, to enable Yost to acquire financial backing for exploratory drilling on the land. The actual, final lease was thirteen pages long and was apparently signed several weeks later. ¹ It contemplated the drilling of more than one (disputed) well on the 200-acre Maddison tract.

Modern drilled the first well on time, and it proved successful. Under the terms of the lease, Modern had 270 days from "the completion of drilling on the first well" to begin drilling a second well, or the lease would terminate as to the acreage not drilled upon. Modern reported to the Railroad Commission that it completed drilling the first well on 1-24-81. Shortly after the first well began producing oil, Mr. Maddison's attorneys notified Modern that they would calculate the 270-day period from 1-24-81.

Modern had not begun drilling the second well 270 days after 1-24-81. On 10-26-81, Maddison claimed the lease had terminated on all but the acreage surrounding the producing well and ordered Modern off the remaining acres. Modern then sued for a declaratory judgment that the lease remained fully in effect. Modern claimed that it did not actually complete drilling the first well until 2-7-81, explaining that the 1-24-81 date was merely the date when the deepest well depth was reached. Modern had then plugged the hole with cement, and drilled through the cement plug on 2-7-81. Using 2-7-81 as the date when it completed drilling the well, Modern claimed it had until 11-4-81 to begin drilling the second well. Thus, Modern argued at trial, Maddison had wrongfully prevented Modern from timely drilling the second well.

The jury returned a verdict generally favorable to the Maddisons, and the trial court entered judgment that the lease had terminated on all but the eighty acres surrounding the first well.

Modern's first two points of error allege that the parties made a mutual mistake (or that Maddison acted fraudulently) by including the term "completion of drilling on the well" in the lease as the 270-day triggering date; Modern contends that the parties actually agreed that the triggering date would be that of the "completion of the well." Since there was no real dispute that the well was completed on 2-11-81 (the date production actually began), Modern argues that Maddison wrongfully prevented Modern from drilling the second well since 270 days from 2-11-81 had not elapsed as of 10-26-81, the date Maddison ordered Modern off the undeveloped acreage.

Modern's first point of error alleges that the trial court erred in overruling its motion for judgment n.o.v. because the evidence was legally insufficient to support the jury's finding that the parties agreed to "completion of drilling" rather than "completion of the well." Modern's second point of error alleges that the court erred in overruling its motion for new trial because the evidence was factually insufficient to support the same finding.

Special Issue No. 1 inquired:

Do you find from a preponderance of the evidence that at the time the lease was executed Modern and the defendants acting by and through Paul Maddison, Sr. had agreed that the second well was to be drilled within 270 days following completion of the first well or that the second well was to be commenced within 270 days following completion of drilling of the first well?

Answer: Completion of the first well or completion of drilling of the first well.

The jury answered, "Completion of drilling of the first well."

In considering a "no evidence" or "insufficient evidence" point of error, we will follow the well-established test set forth in Dyson v. Olin Corp., 692 S.W.2d 456 (Tex.1985); Glover v. Texas General Indemnity Co., 619 S.W.2d 400 (Tex.1981); Garza v. Alviar, 395 S.W.2d 821 (Tex.1965); Allied Finance Co. v. Garza, 626 S.W.2d 120 (Tex.App.--Corpus Christi 1981, writ ref'd n.r.e.); Calvert, No Evidence and Insufficient Evidence Points of Error, 38 Tex.L.Rev. 361 (1960).

The evidence at trial in support of the jury's finding meets both the factual and legal sufficiency tests. The oil and gas lease contains the term "completion of drilling," and Maddison testified that the true agreement of the parties was "completion of drilling" all along:

Q. (By opposing counsel) It is your testimony now that the true agreement was that you had completion of drilling in your mind all the time; is that correct?

A. That is a positive fact.

Maddison's son, who had a one-fourth interest in the total royalty paid under the lease, testified that, when he signed the lease, he understood that Modern was to commence drilling on the second well within 270 days after the completion of drilling on the first well. He stressed that he was aware of the differences between "completion of drilling" and "completion."

Modern's evidence directly conflicted with the Maddisons' testimony that the lease correctly reflected the parties' intent that "completion of drilling" was to be the triggering language. Yost (same as Modern) testified that the parties intended "completion of the well" all along, and Modern introduced into evidence the notes taken by Maddison's attorney during the preliminary negotiations and the two-page memorandum the attorney prepared after these negotiations were over.

Yost was to use the memo to acquire funding to commence drilling on the first well. Although the fourth paragraph of the memorandum of September 23, 1980, provides that the second well "shall be spudded within nine months of the completion of the first well" (not "completion of drilling"), the last paragraph provides:

This is not intended to be a complete synopsis of the lease nor is it intended to set out all the terms of the lease. It is intended to reflect that the parties have agreed upon a form of oil and gas lease which will be signed as soon as it is presented to the parties.

Moreover, Maddison's attorney, who was present during the long negotiation session between Maddison and Yost, testified that he thought the parties had negotiated over the terminology at issue, but that he attached "no artistic meaning" to the difference between the terms at that time.

The jury was free to find that the memo was not an accurate reflection of the parties' agreement. Additionally, the jury issue inquired into the intent of the parties at the time the lease was executed. Even if the memo and the rough draft of the lease conclusively established that the parties once intended to use "completion of the well" in the lease, the parties were free to change their minds prior to their actually signing the lease.

A good deal of confusion appears in the record concerning the two terms "completion of the well" and "completion of drilling." They are often used interchangeably. It was within the province of the jury to decide what the parties' true agreement was, i.e., whether "completion of drilling" was mistakenly or fraudulently included in the lease. Instead, the jury found that the oil and gas lease accurately reflected the parties' intent. We find both legally and factually sufficient evidence to uphold that finding. We accordingly overrule Modern's first and second points of error.

By its third point of error, Modern contends that the trial court erred in not finding that the term "completion of drilling" was ambiguous and then construing it in a manner to prevent the partial cancellation of the lease. Modern has waived this argument, however. Generally, one seeking to establish ambiguity under a written contract must specifically plead such ambiguity and set out the portion claimed to be ambiguous. See generally Entzminger v. Provident Life & Accident Insurance Co., 652 S.W.2d 533, 535 (Tex.App.--Houston [1st Dist.] 1983, no writ); Crozier v. Horne Children Maintenance and Educational Trust, 597 S.W.2d 418, 421 (Tex.Civ.App.--San Antonio 1980, writ ref'd n.r.e.); Skyline Furniture, Inc. v. Gifford, 433 S.W.2d 950, 954 (Tex.Civ.App.--El Paso 1968, no writ). Modern admits in its brief that it did not plead that any ambiguity existed. Even absent waiver, we find the lease term at issue susceptible of only one reasonable meaning and therefore unambiguous. "Completion of drilling" logically imports the time when no further drilling is needed, when oil or gas has been reached and the well is capable of producing--in short, when the well's total depth is reached, not when the operator chooses to perforate the cement plug that he chose to insert into the well. This was the interpretation the trial court adopted....