Nunez v. Superior Oil Co.
| Decision Date | 13 January 1976 |
| Docket Number | Civ. A. No. 74-514. |
| Parties | Adam G. NUNEZ v. SUPERIOR OIL COMPANY. |
| Court | U.S. District Court — Western District of Louisiana |
Joseph E. Bass, Fred C. Selby, Max M. Morris, Adam G. Nunez, Lake Charles, La., for plaintiff.
Robert T. Jorden, Liskow & Lewis, Lafayette, La., Ward R. Jones, The Superior Oil Co., Houston, Tex., for defendant.
RULING
Plaintiff, Adam G. Nunez, brought this suit to cancel certain oil, gas and mineral leases in the Fourteenth Judicial District Court for Cameron Parish, Louisiana. Defendant removed the case to this court on the basis of diversity of citizenship, pursuant to 28 U.S.C. § 1441. Both parties have filed cross motions for summary judgment.
The pertinent facts have been stipulated in the pretrial stipulation. Briefly stated, they are that prior to 1971 Adam Nunez and his son, Adam G. Nunez, each owned an undivided one-fourth interest in a certain piece of property of which defendant, Sun Oil Company, was lessee of oil, gas and mineral rights. On May 2, 1971 Adam Nunez died and thereafter his succession was opened with Adam G. Nunez as administrator. For a period of time after the death of Adam Nunez, Sun Oil Company continued making royalty payments for his one-fourth interest.
Around October 20, 1971, Mr. K. R. Richardson of Sun Oil Company, noticed that an earlier royalty check sent to Adam Nunez was endorsed by Adam G. Nunez as administrator of the estate of Adam Nunez. Upon making this discovery, Mr. Richardson ordered the royalty payments to Adam Nunez stopped and sent Adam G. Nunez a request for proof of death, letters of administration and other documents relating to the succession of Adam Nunez. These documents were sent to Sun Oil Company, and on the basis of these documents the Company's attorney approved payment of Adam Nunez's interest to the administration of his succession. New royalty division orders were sent to Adam G. Nunez as administrator of his father's succession, but were never returned by him to the company.
Eventually, the succession of Adam Nunez was closed and Adam G. Nunez, as sole heir, was placed in possession of his father's property, including the royalty interest at question herein. A copy of this judgment of possession and a letter requesting that further payments of Adam Nunez's interest be paid to Adam G. Nunez, as heir, were sent to the company on April 6, 1972. On June 15, 1972, the company sent a further royalty division order to Adam G. Nunez for his signature, but again this division order was not signed or returned to the company.
Nothing further was done by either party, and no royalty payments for the share originally owned by Adam Nunez were made until February 20, 1974. Sometime prior to that date, the company discovered, through an internal audit, that no royalty payments had been made for the interest at issue, and on February 20 sent Adam G. Nunez a check for $8,642.69 representing the major part of the unpaid royalties. Two other checks were sent as part payment of the withheld royalties, one on March 6, 1974 for $105.37 and one on March 20, 1974 for $17.56. On March 14, 1974 Adam G. Nunez sent the company a letter demanding acknowledgment of cancellation of the lease, which the company refused to acknowledge. Following further correspondence, this suit was filed.
Plaintiff claims the company's failure to make royalty payments amounted to an active breach of the contract, thereby cancelling the lease without necessity of plaintiff formally putting defendant in default. Alternatively, he claims that if a formal default notice was required, his letter to the company of April 6, 1972 constitutes such notice. The company, while admitting its failure to make the payments was a breach of the agreement, argues the breach was through clerical error, therefore, a passive breach, and required a formal putting in default before cancellation would be appropriate. The company argues that the April 6, 1972 letter did not constitute a default notice, and that the March 14, 1974 letter, coming after the company discovered and endeavored to correct the error, came too late to be a default notice.
The company claims clerical error occurred at the time the June 15, 1972 division order was sent to Adam G. Nunez. The affidavit of Mr. Richardson establishes that ordinarily when a division order is sent out, a copy is placed in a tickler system for a follow-up check. Mr. Richardson alleges that this was not done in this case. Had the copy been placed in the follow-up system, a check would have been made within 30 to 60 days to see if the order had been returned by the lessor. In any event, whether the order had been returned or not, royalty payments would ordinarily be resumed at this time. In this case, however, since there was no copy of this order in the tickler system, there was nothing to bring to the attention of the company the fact that payments were not being made. It is also important to note in this regard that Adam G. Nunez did nothing to bring this to the company's attention from April 6, 1972 until payments were resumed in February of 1974.
Louisiana law is clear that failure to pay production royalties for an appreciable length of time without justification amounts to an active breach which terminates the lease without necessity of putting in default. Wilson v. Sun Oil Co., 262 La. 1164, 266 So.2d 446 (1974); Bollinger v. Texas Co., 232 La. 637, 95 So.2d 132 (1957); Melancon v. Texas Co., 230 La. 593, 89 So.2d 135 (1956); Alvord v. Sun Oil Co., 271 So.2d 561 (La.App. 2nd Cir. 1972); Bailey v. Meadows, 130 So.2d 501 (La.App. 2nd Cir. 1961); Sellers v. Continental Oil Co., 168 So.2d 435 (La.App. 3rd Cir. 1968); Pierce v. Atlantic Refining Co., 140 So.2d 19 (La.App. 3rd Cir. 1962).
The jurisprudence is equally clear, however, that where delay in payment is justified, there has been only a passive breach, requiring a putting in default as a prerequisite to cancellation. Hibbert v. Mudd, 294 So.2d 518 (La.1974); Alvord v. Sun Oil Co., supra; Hebert v. Sun Oil Co., 223 So.2d 897 (La.App. 3rd Cir. 1969). In considering whether a failure to pay is justified, a court must consider each case on its own facts and circumstances. Fawvor v. U. S. Oil Co. of Louisiana, 162 So.2d 602 (La.App. 3rd Cir. 1964).
We find that the original stopping of royalty payments by the company in October 1971 was justified. Mr. Richardson noticed at that time that an earlier royalty check to Adam Nunez was endorsed by Adam G. Nunez as administrator of the succession of Adam Nunez. This certainly gave him reason to...
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