Samano v. Sun Oil Co.

• Decision Date: 16 September 1981
• Docket Number: No. B-9969,B-9969
• Citation: 621 S.W.2d 580
• Parties: George SAMANO et al., Petitioners, v. SUN OIL COMPANY et al., Respondents.
• Court: Texas Supreme Court

Page 580

621 S.W.2d 580

George SAMANO et al., Petitioners, v. SUN OIL COMPANY et al., Respondents.

No. B-9969.

Supreme Court of Texas.

Sept. 16, 1981.

Rehearing Denied Oct. 21, 1981.

Head, Kendrick & Head, Hayden W. Head and Michael Kendrick, Jr., Corpus Christi, for petitioners.

Kleberg, Dyer, Redrodd & Weil, Lev Hunt and Clayton J. Hoover, Corpus Christi, for respondents.

POPE, Justice.

George Samano and others (hereafter called Samano), as lessors of an oil and gas lease, sued Sun Oil Company and Tanya Oil Company (hereafter called Sun), as lessees, for a declaratory judgment that the lease had expired; because, during the secondary term, there was neither production nor any drilling or reworking operations for a continuous period of seventy-three days. The question presented by the case is whether a sixty-day limitation period for drilling or reworking operations was applicable to the secondary term of the lease. The trial court granted lessor, Samano, a summary judgment, holding that the lease had terminated. The court of civil appeals, with a divided court, reversed that judgment, 607 S.W.2d 46, holding that the sixty-day requirement in the drilling or reworking clause applied only to operations in progress at the end of the primary term. We reverse the judgment of the court of civil appeals and affirm the judgment of the trial court.

Paragraph 2 of the Samano lease is an early habendum clause which also includes a continuous drilling or reworking clause. Paragraph 2 of the lease provides:

2. Subject to other provisions herein contained, this lease shall remain in force for a term of ten years from this date, called primary term, and as long thereafter as oil, gas or other mineral is produced from said land, or as long thereafter as Lessee shall conduct drilling or re-working operations thereon with no cessation of more than sixty consecutive days until production results, and if production results, so long as any such mineral is produced.

Samano and Sun executed the lease on March 29, 1934, so the ten-year primary term ended March 29, 1944. Production in paying quantities extended the lease beyond the primary term and until May 4, 1977, when production stopped. Sun did nothing to restore production until July 15, a continuous period of seventy-three days. Sun urges that the cessation of drilling or reworking operations for the seventy-three days was a temporary cessation.

This court has held that, absent an express time limitation in the lease for continuous drilling operations, a temporary cessation of production after the primary term does not terminate the estate when the production stops because of some mechanical breakdown in the equipment. Amoco Production Co. v. Braslau, 561 S.W.2d 805 (Tex.1978). That rule was a negative corollary to the rule that a lease terminates upon a cessation of production for an extended period of time after the primary term. Watson v. Rochmill, 137 Tex. 565, 155 S.W.2d 783 (1941). Ours is a question of construing the lease clause, quoted above, to determine whether the express sixty-day time limitation controls this case. See, Woodson Oil Co. v. Pruett, 281 S.W.2d 159 (Tex.Civ.App. San Antonio 1955, writ ref'd n. r. e.); Haby v. Stanolind Oil & Gas Co., 228 F.2d 298 (5th Cir. 1955); 3 H. Williams, Oil and Gas Law § 616.2 (1980).

Standard rules of English show that paragraph 2 was carefully drafted and that its meaning is clear and easily breaks into three parts. These are the three divisions of the clause: ¹

Subject to the other provisions herein contained, this lease

(1)

shall remain in force for a term of ten years from this date, called primary term, (March 29, 1944 was end of term)

(2)

and as long THEREAFTER as oil, gas or other mineral is produced from said land, (May 4, 1977 was last day of production)

(3)

or as long THEREAFTER as Lessee shall conduct drilling or re-working operations thereon with no cessation of more than sixty consecutive days until production results, so long as any such mineral is produced. (July 3, 1977, was the end of the sixty-day period).

Sun and the majority of the court of civil appeals have ignored this division and more particularly, they have ignored the word "thereafter" which was used not once, but twice, each time with a meaning and a reference to what had gone before.

The draftsman stated three distinct things which would prolong the term of the lease. The habendum clause first provided for a ten-year primary term. "Thereafter," meaning "after that," or after the duration of the primary term, the lease would continue in force as long as there was production. We are now into the secondary term, when we reach the third provision. That provision is the continuous drilling or reworking clause, and it looks back upon the two prior habendum provisions, the one for the primary term and the other one for its extension into the secondary term by production. It then states that the duration of the lease can be extended even further. We know this because the second "thereafter" now refers to what has already been stated. It was not until both methods (1) and (2) for extending the life of the lease were stated in the habendum clause that the lease provided for yet a third extension, that is, "thereafter by drilling or reworking operations." An inseparable part of this drilling or reworking clause was that there could be no cessation of drilling or reworking operations for more than sixty days not seventy-three days.

Sun quotes a number of textbooks on English grammar in support of its contention that modifiers are intended to refer to the words closest to them in the sentence. ² That, of course, is the correct rule. It was not observed by the court of civil appeals. The rule concerning modifiers is:

The reader naturally assumes that the parts of a sentence which are placed next to each other are logically related to each other.... The rule which will guide you may be stated in two parts: (1) place all modifiers, whether words, phrases, or clauses, as close as possible to the words they modify; (2) avoid placing these elements near other words they might be taken to modify. ³

Another statement of the rule of grammar is: "Place modifiers so that they will be connected immediately with the words they modify." ⁴ "Thereafter" is an adverbial modifier, but Sun ignores it entirely. The first "thereafter" refers to the primary term clause that is nearest to and is the only thing that has gone before. The second "thereafter" also refers to what has gone before and is nearest. That is the clause which extends the lease by production. The thing that will accomplish the extension of the lease "thereafter" and beyond the production period is drilling or reworking operations with no cessation of more than sixty days. Consistent with good English, the first "thereafter" refers to the extension of the primary term; and the second "thereafter" reasonably refers to both not just one of the prior statements about duration of the lease.

If, as urged by Sun and held by the majority of the court of civil appeals, the clause requiring drilling or reworking within sixty days applies only to operations in progress at the end of the primary term; according to the grammar books, the drilling or reworking clause would have followed next and immediately after the clause stating the ten-year primary term. Instead, consistent with the rules of grammar, the drilling or reworking clause within sixty days is next to and immediately after the part of the habendum clause concerning the secondary period by production. The court of civil appeals erroneously leaps over that clause to apply the second "thereafter" exclusively to the primary term clause.

This court has already decided, and correctly so, that the drilling or reworking clause, including its express limitations by time, applies to operations in progress at the end of the primary term. While rules of good English are not always controlling, under those rules there is stronger reason for holding that the drilling or reworking clause within sixty days applies to the instance of cessation of production during the secondary term, than there is for holding that the clause only applies to the operations in progress at the end of the primary term.

The better, consistent, and more workable rule would be to apply the same rule to both parts of the habendum clause that is, to operations at the end of the primary term and also the cessation of production during the secondary term, both of which immediately are followed by the sixty-day drilling or reworking clause.

This grammatical construction of the compound sentence is also good common sense. All of the drilling or reworking clause must be applied, if it is to be applied at all. This includes the sixty-day limit which is an integral part of that clause. It means that when there is the right to drill or rework, that operation must be done in that stated time. It means that the right to drill or rework was not intended to be within the stated time in one instance but within a reasonable time in the other. The exercise of the right and the time limit to do it are both necessary parts of the whole.

The habendum has two events which maintain the lease in force, the ten-year term and production after that term. Both of those events are also terminating factors. It is not reasonable to hold that the lessor and lessee intended, as Sun says and the court of civil appeals has held, that the two terminating events stated in the habendum clause should be treated differently with respect to the drilling or reworking clause. Sun says that the drilling or reworking clause applies to operations in progress at the end of the primary term, but it is not applicable to the other terminating event, the cessation of production during the secondary term. It says that the sixty-day requirement for drilling or reworking to keep a lease alive applies to operations at the...