Sirtex Oil Industries, Inc. v. Erigan

• Decision Date: 01 June 1966
• Docket Number: No. A--11088,A--11088
• Citation: 403 S.W.2d 784
• Parties: SIRTEX OIL INDUSTRIES, INC., Petitioner, v. Thelma ERIGAN et al., Respondents.
• Court: Texas Supreme Court

Page 784

403 S.W.2d 784

SIRTEX OIL INDUSTRIES, INC., Petitioner, v. Thelma ERIGAN et al., Respondents.

No. A--11088.

Supreme Court of Texas.

June 1, 1966.

Pepos S. Dounson, San Antonio, for petitioner.

John A. Waller, Jr., and Ralph Graham, Corpus Christi, for respondents.

NORVELL, Justice.

The respondents, Thelma Erigan, a widow, Armeen Norah Erigan Stone and husband, Charles C. Stone, brought suit against Sirtex Oil Industries, Inc. alleging that they were the owners of the West one-third of Lot No. 40 of the H. B. Sheppard Farm Lots subdivision of lands in Nueces County, Texas, and entitled to possession thereof. They alleged that N. Erigan and wife, Myrtle Erigan, ¹ had executed an oil and gas mining lease covering said West one-third of Lot No. 40 to Shasta Drilling Company on December 22, 1932, and thereafter on June 17, 1949, N. Erigan and Armeen Erigan executed a surface lease covering the premises to Renwar Oil Corporation. The legal controversy involved in this suit relates to this surface lease. The Erigan plaintiffs conceded that the oil and gas mining lease is in force and effect, but alleged that the surface lease had terminated and that Sirtex was in effect a trespasser upon plaintiffs' lands. The trial court directed a verdict for Sirtex. The Court of Civil Appeals reversed this judgment and remanded the case for another trial. 393 S.W.2d 836. For the reasons hereinafter set out, we affirm the judgment of the Court of Civil Appeals.

In 1949, Renwar Oil Corporation acquired the ownership of the Shasta Drilling Company lease from which production had been obtained. Renwar desired to make a more extensive use of the surface of the land than was permitted by the oil and gas lease for the purpose of maintaining field offices, warehouses, pipe racks and supply yards for the storing of materials to be used on the Erigan, the Quiroz and perhaps other leases. Renwar thereupon secured the surface lease above mentioned. On August 6, 1962, petitioner Sirtex Oil Industries, Inc. secured an assignment of the Erigan oil and gas mining lease from Tenneco Oil Company, the successor in interest of Renwar Oil Corporation. This assignment included a conveyance of all the assignor's interest in all leasehold equipment and personal property situated on and belonging to the operation of the leasehold premises. Edgar P. Bates, the executive president of Sirtex, testified that on the date of the assignment from Tenneco, Sirtex took over 'all operations that were with the Erigan property'. It appears, however, that Sirtex was under the impression that the oil and gas lease covered Tenneco's surface operations on the Erigan tract as Bates did not know of the 1949 surface lease until the receipt of a letter from the Erigan attorney dated January 22, 1963, in which it was stated that Sirtex had no right to use such property for a supply yard, a salt water disposal pit or as a location for compressor facilities. In effect, the position taken by the Erigan attorney was that the surface lease had expired and was no longer in existence.

The Erigan-Renwar surface lease provided that:

'It is expressly agreed that the term of this lease shall run concurrently and be coextensive with the life of said oil and gas mining lease, and this surface lease shall be deemed to have terminated when such oil and gas lease terminates under its own terms and limitations, unless Lessee herein elects to terminate this surface lease at an earlier date, which it is granted the express right to do. This lease is effective as of and from January 1, 1947. Contemporaneously with the execution of this lease Lessee has paid to us, the undersigned Lessors, the sum of $1,800.00 in cash, the receipt of which is hereby acknowledged, such payment in full consideration for this surface lease for the years of 1947, 1948 and 1949, the annual rental for this surface lease being the sum of $600.00 per year. Likewise, and on or before January 1, 1950, and on or before January 1st of each succeeding year which Lessee desires to keep this surface lease in full force and effect, Lessee shall pay to Lessors, jointly, the sum of $600.00 which will be full consideration for this lease for the ensuing year. * * *'

The rent due under the surface lease was paid for the years 1949 to 1962, inclusive, but the rent for 1963 was not tendered on or before January 1 of that year. After January 22, a further tender would not have been necessary because of the Erigan position that the lease had expired.

As we see it, there was no 'election' in this case. The lease states that the term thereof shall be coextensive with the life of the oil and gas mining lease, 'unless Lessee herein elects to terminate this surface lease at an earlier date, which it is granted the express right to do'. This clause, except for an incidental reference to an election to abandon the premises in connection with the rental clause, is the only provision relating to an election. In the lease, the term 'elect' is obviously used in its common ordinary sense. It is a synonym of 'choose'. Webster's Third New International Dictionary. See also, Funk and Wagnalls, Standard Handbook of Synonyms, p. 121. The term 'election' carries with it the connotation of a voluntary choice between two available courses.

The lease does not say how the election to terminate shall be exercised. It does not say that the failure to pay rent promptly on or before January 1, shall be equivalent to an election to terminate. On would suppose from the brief wording of the lease contract that the election or choice to terminate the lease would be exercised by a simple notice to the lessor. No such notice was ever given by Sirtex, but on the contrary, if 'election' be the same as a voluntary choice, then the evidence is conclusive that Sirtex never elected or chose to move its yards, pipe racks and other equipment and supplies off the Erigan property.

We do not construe the lease as providing for a series of yearly options but as having a term of definite duration. The lease states that 'the term of this lease shall run concurrently and be coextensive with the life of said (Shasta) oil and gas mining lease. . . . unless Lessee herein elects to terminate this surface lease at an earlier date, which he is granted the express right to do'. Sirtex did not elect or choose to terminate the lease, so if it is to be terminated at some date prior to expiration of the Shasta oil and gas mining lease, some clause other than that rroviding for an election must serve as a basis therefor. This brings us to a consideration of the rental clause contained in the lease which recites the payment of rentals for the years 1947, 1948 and 1949 and continues:

'Likewise, and on or before January 1, 1950, and on or before January 1st. of each succeeding year which Lessee desires to keep this surface lease in full force and effect, Lessee shall pay to Lessors, jointly the sum of $600.00 which will be full consideration for this lease for the ensuing year, but in the event Lessee should make one of such annual rental payments and thereafter elect to abandon the premises during the year for which it has paid rental, nevertheless Lessors shall not be obligated to make restitution of any part of such unearned annual rental.'

The Erigan respondents urge that the provision for the payment of rent on or before January 1 should be construed as a condition. They rely primarily upon the phrase, 'each succeeding year which Lessee desires to keep the surface lease in full force and effect'. The issue thus presented is close. In our opinion, however, this phrase taken in connection with the balance of the instrument providing for a term of years limited only by the time of expiration of the Shasta oil and gas lease, does not require that a condition or limitation be acknowledged. In all probability, it was placed therein in recognition of the lessee's undoubted right to terminate the lease by its voluntary choice and election. No voluntary choice to terminate the lease was exercised. The rental clause may well be construed as a covenant to pay rent and nothing more.

Because of their harshness in operation, conditions are not favorites of the law. In the early case of Johnson v. Gurley, 52 Tex. 222 (1879), this Court discussed the nature of covenants, conditions and conditional limitations and announced the rule:

'In case of doubt as to the true construction of a clause in a lease, it should be held to be a covenant, and not a condition or limitation, as the law does not favor forfeitures.'

The same view was expressed in Henshaw v. Texas Natural Resources Foundation, 147 Tex. 436, 216 S.W.2d 566 (1949), wherein it was said:

'Since forfeitures are not favored, courts are inclined to construe the provisions in a contract as covenants rather than as conditions. If the terms of a contract are fairly susceptible of an interpretation which will prevent a forfeiture, they will be...