Rogers v. Ricane Enterprises, Inc., C-7109

• Decision Date: 14 June 1989
• Docket Number: No. C-7109,C-7109
• Parties: Lavina ROGERS, et al., Petitioners, v. RICANE ENTERPRISES, INC., et al., Respondents.
• Court: Texas Supreme Court

Page 76

772 S.W.2d 76

Lavina ROGERS, et al., Petitioners, v. RICANE ENTERPRISES, INC., et al., Respondents.

No. C-7109.

Supreme Court of Texas.

June 14, 1989.

Robert P. Baxter, Jr., Joe Bailey Hyden, Dallas, for petitioners.

Walter G. Petty, III, Dallas, Glen M. Boudreaux, Houston, Dennis W. Burrows, Lubbock, Warren G. Tabour, Jr., Levelland, G. Medford Owen, Jr., Midland, Dave Caddell, Abilene, for respondents.

GONZALEZ, Justice.

This is an appeal of a summary judgment in a trespass to try title action involving a partial assignment of an oil and gas lease. Lavina Rogers and others (the Rogers Group), shareholders in the now defunct Western Drilling Company (Western), brought this action against Ricane Enterprises, Inc. and others (the Ricane Group) to recover possession of a working interest under a partial assignment of a larger oil and gas leasehold estate. ¹ The trial court granted the Ricane Group's motion for summary judgment "on the grounds urged." The court of appeals affirmed on the sole ground that Western's title to the partial assignment had automatically terminated due to cessation of use. ² 775 S.W.2d 391. We reverse the judgment of the court of appeals and remand the cause to the trial court for trial on the merits.

On May 31, 1937, Carrie Slaughter Dean, as lessor, entered into an oil and gas lease with P.N. Wiggins, Jr., as lessee, covering approximately 7,893 acres (base lease). The base lease included a habendum clause, which stated that Wiggins was "TO HAVE AND TO HOLD [the 7,893 acres] ... for a term of ten (10) years from [May 31, 1937] ..., hereinafter referred to as the primary term, and as long thereafter as oil and gas ... is produced...." The base lease further provided that if "the leased premises shall be hereinafter owned in the severalty or in separate tracts, the premises, nevertheless, shall be developed as one lease...."

Production was achieved on the base lease within the primary term. Subsequently, Superior Oil Company (Superior) acquired the base lease. On June 1, 1949, Superior assigned a 329.3 acre portion of the base lease on which there was no production to Western. Provisions in the Superior to Western assignment recited that:

THIS ASSIGNMENT IS MADE SUBJECT TO THE FOLLOWING CONDITION AND PROVISION:

1.

All of the right, title, interest and privileges herein conveyed to and conferred upon Western will cease and terminate and shall revert to and revest in Superior, unless within thirty (30) days after the date hereof, Western shall commence the actual drilling for oil and gas upon the above described land and at a location thereon which shall satisfy any then existing offset obligation....

2.

Western shall and hereby does assume and agree to perform and discharge all of the [base] lease obligations, express or implied.... To this end, it is recognized by the parties hereto ... that there now are a number of ... off-set wells which Western shall protect against by the drilling of properly located wells on the above described land, in due and proper time, and subject to all of the applicable provisions of this agreement.

Western immediately drilled and completed the Carrie Dean B No. 1 well, a marginally productive well. This well ceased production some time in July 1961. It was then converted to a salt water disposal well. All parties agree that no additional wells have been drilled by Western or its shareholders on this tract from 1961 to the present.

On August 23, 1960, just prior to the well's cessation of production, E.P. Campbell, the president of Western, signing in his individual capacity, conveyed to the Dakota Company, Inc. "all of [his] right, title and interest ... in [the base lease] ... insofar as said lease covers the ... 329.3 acres...." Through subsequent transactions, an assignment was made to Torreyana Oil Corporation, a member of the Ricane Group, which successfully completed a new producing well on the 329.3 acres in October 1979.

In 1984, the Rogers Group, the shareholders of Western, brought this trespass to try title action against the Ricane Group seeking to recover possession of the working interest on the 329.3 acre tract. The Rogers Group also sought damages for conversion of oil and casinghead gas produced from the property by the Ricane Group.

It is undisputed that the base lease remains in effect due to continuous production on other parts of the base lease. On that basis, the Rogers Group argues that its rights under the 1949 partial assignment also remain in effect regardless of the long period of inactivity because Western satisfied the only condition in the assignment, the commencement of drilling for oil and gas within 30 days of the date of the assignment.

The Ricane Group moved for summary judgment. Among the grounds urged were: (1) automatic termination of rights under the partial assignment; (2) abandonment; (3) laches; and (4) application of the three-year statute of limitations. The trial court granted the motion "on the grounds urged." The court of appeals affirmed the summary judgment solely on the automatic termination theory, holding that Western's working interest in the 329.3 acre tract automatically terminated due to cessation of use. The court of appeals did not reach the other theories. In its application for writ of error to this court, the Rogers Group, in its sole point of error, asserts that the Ricane Group was not entitled to summary judgment because the grounds asserted are either not viable as a matter of law or require the resolution of material fact issues. In determining whether the court of appeals was correct in affirming summary judgment, we will now review the grounds urged by the Ricane Group.

Automatic Termination

As was noted previously, Western drilled and obtained production within thirty days of the assignment from Superior to Western. All parties agree that this satisfied the condition in paragraph 1 of the assignment. The instant dispute centers around the interpretation of paragraph 2 of the assignment. Specifically, the issue is whether paragraph 2 is a condition or a covenant.

The court of appeals determined that paragraph 2 expressly conditioned the partial assignment of the base lease upon Western's performance of the underlying base lease obligations. The court of appeals held that because Western failed to conduct any drilling operations on the 329.3 acre tract for almost 23 years, Western's rights, and therefore the Rogers Group's rights, under the assignment had automatically terminated and had reverted to Superior. We disagree.

In construing paragraph 2 of the assignment, we note that an important distinction exists between a condition and a covenant. See Freeman v. Magnolia Petroleum Co., 141 Tex. 274, 171 S.W.2d 339, 342 (1943); Shuttle Oil Corp. v. Hamon, 477 S.W.2d 701, 704 (Tex.Civ.App.--Beaumont 1972, writ ref'd n.r.e.). The distinction between conditions and covenants lies in the appropriate remedy for their breach. Breach of a condition results in automatic termination of the leasehold estate upon the happening of stipulated events. Breach of a covenant does not automatically terminate the estate, but instead subjects the breaching party to liability for monetary damages, or in extraordinary circumstances, the remedy of a conditional decree of cancellation. W.T. Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 19 S.W.2d 27, 29-31 (1929).

In paragraph 2 of the assignment, Western simply agreed to perform all the obligations of the base lease, express or implied. Since the parties obviously knew how to create a condition in paragraph 1, the dissimilar language in paragraph 2 indicates that the parties intended the latter paragraph to act as a covenant. We hold that paragraph 2 is a covenant, not a condition, and that the court of appeals erroneously read into paragraph 2 a condition on the estate conveyed. Our holding is supported by two general rules of contract and leasehold construction. First, a court should not, under the guise of contract construction, imply "terms in opposition to the express language that the parties themselves have written into the contracts." Dallas Power & Light Co. v. Cleghorn, 623 S.W.2d 310, 311 (Tex.1981). Second, doubts should be resolved in favor of a covenant instead of a condition. See Henshaw v. Texas Natural Resources Found., 147 Tex. 436, 216 S.W.2d 566, 570-71 (1949). The language used by the parties to an oil and gas lease will not be held to impose a special limitation on the grant unless it is clear and precise and so unequivocal that it can reasonably be given no other meaning. Fox v. Thoreson, 398 S.W.2d 88, 92 (Tex.1966). Because we construe paragraph 2 as being a covenant rather than a condition, no automatic termination of Western's rights under the partial assignment occurred. Thus, summary judgment cannot be sustained on that ground.

We will now determine whether any of the other theories advanced by the Ricane Group will support the summary judgment. When a trial court's order granting summary judgment does not specify the ground or...