N. M. Uranium, Inc. v. Moser

• Decision Date: 21 September 1979
• Docket Number: No. 1443,1443
• Citation: 587 S.W.2d 809
• Parties: N. M. URANIUM, INC., and United States Steel Corporation, Appellants, v. Margaret Lyne MOSER et al., Appellees.
• Court: Texas Court of Appeals

Page 809

587 S.W.2d 809

N. M. URANIUM, INC., and United States Steel Corporation, Appellants, v. Margaret Lyne MOSER et al., Appellees.

No. 1443.

Court of Civil Appeals of Texas, Corpus Christi.

Sept. 21, 1979.

Charles G. King, Bracewell & Patterson, Houston, for appellants.

William G. Burnett, Burnett & Burnett, Sinton, for appellees.

OPINION

BISSETT, Justice.

Involved in this appeal is the construction of certain royalty provisions in an amendment to a uranium mining lease. Suit was instituted by N. M. Uranium, Inc., and United States Steel Corporation, hereinafter called "appellants," against Margaret Lyne Moser, individually, and Margaret Lyne Moser and William Barnett Moser, Jr., as independent executors and testamentary trustees of the Estate of Catherine Carol Lyne, hereinafter called "appellees," wherein all parties sought a construction of the questioned royalty provisions in the lease, as amended on April 1, 1975. Prior to trial, the trial court, by a partial summary judgment, ruled that the royalty provisions in question were ambiguous as a matter of law insofar as they pertained to "in-kind" royalties. Trial was to a jury. Only one special issue was submitted to the jury, which inquired:

"Do you find from a preponderance of the evidence that the parties to the April 1, 1975, amendment mutually intended, by the in-kind provisions appearing as the last paragraph of the amendment, that the Mosers could elect to take, as their royalty on uranium produced from the lease by solution mining, one-sixteenth (1/16Th) of the uranium oxide ('yellow cake')?"

The jury answered: "Yes."

Judgment was rendered which decreed that the appellants deliver to the appellees, as royalty, one-sixteenth (1/16Th) of the uranium oxide produced from the uranium ore mined from the leased premises and "stockpiled" as of June 30, 1978, and a similar fractional share, as royalty, processed from and after June 30, 1978. The judgment, which was signed on August 17, 1978, further decreed that the appellees recover from the appellants the sum of $333,780.60, together with both pre-judgment and post-judgment interest thereon. The appellants have appealed.

A mining lease was entered into on April 16, 1969, by and between the appellees, as lessor, and Atlantic-Richfield Company (Arco), as lessee, for the mining and production of uranium and other fissionable materials from certain lands owned by the lessors. The lease was amended on April 1, 1975, by an instrument denominated "Amendment of Mining Lease." It was signed by the appellees, as lessor, and by Arco and the appellants (who had acquired an interest in the 1969 lease), as lessee. Subsequently, and prior to the date of trial, the appellants acquired all of Arco's interest in the subject lease.

The dispute between the parties is in the construction of the royalty provisions in the lease, as amended, for uranium oxide produced from the land covered by the lease by the process known as "solution mining," a process by which wells are drilled into the uranium ore formation and liquids are then injected through those wells into the formation to dissolve the uranium ore. The solution is then extracted from the formation through other wells and is processed in a plant nearby, resulting in the product "uranium oxide."

There is only one real issue in dispute in this case. That issue is whether, as the appellants contend, the amount of uranium oxide the appellees can take as their royalty in kind on the first 450,000 pounds of annual production for five years from January 1, 1975, is limited to the physical equivalent of the $1.50 per pound money royalty set out in paragraph B of the "ROYALTY" section of the 1975 amendment, or whether, as the appellees contend, the concluding paragraph of the amendment gives them the right to take as their royalty a physical 1/16Th of all uranium oxide produced by solution mining during the said five year period.

The pertinent royalty provisions in the 1975 Amendment of Mining Lease read as follows, to-wit:

"ROYALTY

Lessor, whose royalty interest shall never bear costs of production or marketing hereby reserves as royalty sums equal to the following:

B For uranium bearing ores extracted by solution mining the royalty shall be (1/16Th) one-sixteenth of the sales revenue received for the uranium oxide (U 3 O 8) attributable to the production produced and sold from the Leased Premises . . . However, for five (5) years from January 1, 1975, lessor's royalty for the first 450,000 pounds of uranium oxide produced and sold from the Leased Premises during a calendar year will not exceed $1.50 per pound. . . ."

"The following shall apply to the royalties reserved in paragraphs A, B, C and D above:

Any provision herein to the contrary notwithstanding, Lessor, at Lessor's expense, shall have the continuing right and option at any time and from time to time to take Lessor's royalty in kind. Lessor may exercise such option by giving sixty (60) days' advance written notice to Lessee."

By letter dated January 25, 1977, the appellees notified the appellants of their election to take their royalty on uranium produced by solution mining "in kind." They further indicated to the appellants that they regarded this royalty as not being one-sixteenth of the sales revenue received for that uranium subject to a $1.50 per pound limitation for the first 450,000 pounds of uranium oxide produced per year from January 1, 1975, to January 1, 1980, but one-sixteenth of all stockpiled production as well as one-sixteenth of the future production as in-kind royalty.

There are two royalty provisions in the lease amendment here involved. The first is found in paragraph B of the "ROYALTY" section in the amendment, where the royalty reserved is 1/16Th of the sales revenue from production, subject to the limitation that for the first 450,000 pounds of uranium production for any year of the first five years from January 1, 1975, appellees will be paid no more than $1.50 per pound. The second is found in the concluding paragraph of the amendment in question. It requires that the royalty so reserved be paid to appellees in kind upon their election in writing.

Both parties contend that the royalty provisions are unambiguous as a matter of law, and, therefore, it was error for the trial court to rule that an ambiguity existed. We agree.

The appellants say that when the second royalty provision is considered along with the first royalty provision, there is no conflict between the royalty provision set forth in paragraph B of the "ROYALTY" section (the first royalty provision), and the concluding paragraph of the section (the second royalty provision). They argue that the construction is simply that the appellees can take their royalty either in cash or in kind; and, if they elect to take their royalty in kind, as they did here, then their royalty is the physical equivalent of what would have been paid them in money. They argue that until January 1, 1980, the royalty to be paid appellees is $1.50 per pound on the first 450,000 pounds of uranium oxide produced per year, not a physical 1/16Th of production.

The appellees assert that the first royalty provision in the lease, is, in effect, a fee simple realty interest in 1/16Th of the uranium ore in place even though created by language making the royalty payable only in money. They further assert that the second royalty provision requires that their royalty be paid to them in kind when they so elect in writing, and that this provision, upon election, entitles them to 1/16Th of the uranium production in kind without any limitation whatsoever and without regard to sales price.

The appellants attach little significance, if any, to the introductory words "Any provision herein to the contrary notwithstanding," which appear in the first sentence in the concluding paragraph of the royalty amendment. They argue that these words, along with the remainder of the in-kind royalty provision, can be harmonized with the language contained in paragraph B, and that the introductory words do not, as a matter of law, nullify or affect the definition of "royalty" contained in the first sentence of paragraph B or eliminate the $1.50 per pound limitation on the first 450,000 pounds production per year during the five years from and after January 1, 1975.

The appellees attach great significance to such introductory words. They argue that by using those words in the amendment it is conclusively shown that the minds of the parties met on the proposition that the second royalty provision, on its becoming applicable when appellees made an election to take their royalty in kind, should be given full effect and should not be restricted by contrary language, if any, which appears in the first royalty provision. Finally, they contend that the second royalty provision clearly expresses the intent that the lessors would be entitled, upon their election, to receive as royalty 1/16Th of the production, and, therefore, no ambiguity exists; or, if they be wrong, in the alternative, the jury's answer to the issue submitted foreclosed the dispute and the trial court properly rendered judgment for them on the jury's verdict.

In Texas, whether the language of a contract is ambiguous is a question of law for the court. City of Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515, 518 (Tex.Sup.1968); Nixon v. First State Bank of Corpus Christi, 540 S.W.2d 817, 820 (Tex.Civ.App. Corpus Christi), writ ref'd n. r. e., 544 S.W.2d 378 (Tex.Sup.1976). If the contract in issue is unambiguous, its interpretation is part of the court's obligation to interpret and apply the law. Myers v. Gulf Coast Minerals Management Corp., 361 S.W.2d 193 (Tex.Sup.1962).

In construing an agreement the cardinal rule of construction is to ascertain the intention of the parties as expressed in the instrument. Nixon v. First State Bank of Corpus Christi, supra, at page 820 and authorities cited...