Skelly Oil Co. v. Archer

• Citation: 163 Tex. 336,356 S.W.2d 774
• Decision Date: 29 November 1961
• Docket Number: No. A-7884,A-7884
• Parties: SKELLY OIL COMPANY, Petitioner, v. Gertrude L. ARCHER et al., Respondents.
• Court: Texas Supreme Court

Page 774

356 S.W.2d 774

163 Tex. 336

SKELLY OIL COMPANY, Petitioner, v. Gertrude L. ARCHER et al., Respondents.

No. A-7884.

Supreme Court of Texas.

Nov. 29, 1961.

On Rehearing Feb. 21, 1962.

Concurring Opinion April 4, 1962.

C. L. Swim, Tulsa, Okl., Underwood, Wilson, Sutton, Heare & Berry, Amarillo, for petitioner.

Sanders, Scott, Saunders, Brian & Humphrey, Amarillo, for respondent.

GRIFFIN, Justice.

This action was brought by Mrs. Gertrude Archer et al. against Skelly Oil Company in trespass to try title and, in the alternative, for termination of an oil and gas lease on four and three-fourths sections of land upon which the primary term had ended. The lease was entered into between Mrs. Archer as lessor and Skelly Oil Company as lessee, on August 5, 1943, for a primary term of ten years, and the property described in the lease was in Hansford County, Texas, and covered all of Sections 4, 282, 285 and 292, and the S/2 and NW/4 of Section 284, except 1/2 of the minerals in the SE/4 of Section 284 never owned by the lessor, totaling 3,040 acres more or less. The parties named as plaintiffs below, other than Mrs. Gertrude Archer, acquired their interest by conveyance from Mrs. Archer after the original oil and gas lease was executed.

This is the second appeal of the case. On the first trial motion for summary judgment by Skelly Oil Company was sustained, the effect of which was a holding by the trial court that the lease was valid and in force as to the entire 3,040 acres covered thereby. On appeal from that judgment the case was reversed and remanded for trial on the merits as to the effect of the provisions of the rider attached to the lease contract and with regard to whether the two gas wells situated on the leased acreage were producing in paying quantities. The Court of Civil Appeals' opinion on the former appeal is reported in 314 S.W.2d, at page 655. Application for writ of error to this court was refused, no reversible error, with per curiam opinion reported in 159 Tex. 154, 317 S.W.2d 47.

The oil and gas lease in issue was entered into on a form commonly used in Texas and contained a habendum clause as follows:

'It is agreed that this lease shall remain in force for a term of ten years from date, and as long thereafter after as oil or gas, or either of them, is produced from said land by the lessee.'

Subsequent to the habendum clause is the usual clause providing for payment of 1/8 of production, and following the royalty provision is the annual rental provision providing for the payment of $3,040.00 annual delay rental. Attached to the lease contract, directly over the above-mentioned annual rental payment clause, is a typewritten rider as follows:

'In the event of gas production being obtained on the above 3,040 acre lease, not more than 640 acres shall be held by each well, and annual rentals shall be paid on the balance of the acreage. In the event that a gas well is drilled, the revenue from same shall be equal to, or exceed the amount of the annual rental payments, based on one well to each Section. In no event shall the payments received by the lessor amount to less than $3,040.00 during any 12 months period. This rider and provision shall be controlling over any conflicting provisions contained in the printed form attached hereto and made a part hereof.'

Trial of the action now before this court was to a jury in the District Court of Hansford County, Texas. At the close of the evidence the court held:

'* * * as a matter of law and also by uncontroverted facts as shown by the evidence and the testimony and the Court now finds and holds that the oil and gas lease in question dated August 5, 1943, has terminted as to Section 4, Block 'P' H&GN RR Co. Survey; all of Section 282, Block 2, GH & H RR Co. Survey; and the South half (S/2) and the Northwest Quarter (NW/4) of Section 284, Block 2, GH&H RR Co. Survey, all in Hansford County, Texas, same having terminated at the expiration of the primary term of said lease, to-wit: August 5, 1953, and further, that said oil and gas lease which is recorded in Volume 9, page 286, Lease and Contract Records of Hansford County, Texas, is a valid and subsisting lease covering Section 285, Block 2, GH&H RR Co. Survey, Hansford County, Texas, Same being continued after the primary term of said lease down to the date of trial by virtue of production of gas in paying quantities from said Section 285.' (Emphasis added.)

The above holding left only Section 292 for consideration in the trial. One special issue was submitted to the jury, and this issue inquired if the gas well on Section 292 had failed to produce gas in paying quantities for the three-year period subsequent to the primary term, August 5, 1953, to August 5, 1956, the evidence having been limited by the court to this period. The jury answered that the well had failed to produce in paying quantities. On the basis of the holding by the trial court and the jury verdict, judgment was entered that respondents have title and possession of Sections 4, 282, 292 and the South half (S/2) and the Northwest quarter (NW/4) of Section 284, and that the lease was to continue in full force and effect as to Section 285. Upon appeal by Skelly the trial court's judgment was affirmed. Tex.Civ.App., 334 S.W.2d 855.

There has been no oil discovered or produced on any of the land covered by Skelly's lease. Prior to the expiration of the primary term of the lease a gas well was brought in on Section 285 and another well on Section 292, and both wells were producing gas at the time of the trial.

No complaint is made in this court of the judgment of the trial court and Court of Civil Appeals' holding that Skelly's lease is in full force and effect as to Section 285, Blk. 2, Hansford County, Texas. Therefore, that judgment is here affirmed.

Petitioner Skelly Oil Company seeks to have the lease declared valid and subsisting in its entirety as to all of the four and three-fourths sections described therein.

On the first appeal of this case, and being an appeal by the Archers from the trial court's action in favor of Skelly, the Court of Civil Appeals said that to uphold the summary judgment it must be held as a matter of law that the oil and gas lease, with the rider attached, extended the lease beyond the primary term on all the land described in the lease by virtue of production of gas on Sections 285 and 292 during the primary term. Skelly makes the same contention on this appeal. As to this point, the Court of Civil Appeals on the first appeal reversed and remanded the summary judgment thus overruling the above contention. 314 S.W.2d 655; 159 Tex. 154, 317 S.W.2d 47, wr. ref. N.R.E.

The only significance of our refusal of writ of error, 'no reversible error', on the former appeal, in so far as the construction of the lease is concerned, was to approve the judgment of the Court of Civil Appeals and necessarily, therefore, to reject Skelly's contention that, as a matter of law, production in paying quantities from a single well would extend the life of the entire lease beyond the primary term. Our action did not have the effect of approving the construction placed on the lease by the Court of Civil Appeals.

On retrial of the case-from which this is an appeal-Mrs. Archer pleaded, alternatively, that if the lease with rider attached was ambiguous, all parties intended by attachment of the rider to modify the provisions of the lease so that after the expiration of the primary term each well producing in paying quantities would hold only 640 acres; that is, that as to all sections on which there was not a well producing in paying quantities the lease would terminate. Testimony was offered by the Archers in support of this pleading. At the conclusion of the testimony the Archers filed a motion for an instructed verdict, in the first two paragraphs of which it moved the court to find, as a matter of law, that their construction of the lease was a correct one. The court granted Paragraphs 1 and 2 of such motion, and it was pursuant to that action that the court included in its judgment the finding, hereinabove quoted, 'as a matter of law and also by uncontroverted facts as shown by the evidence and the testimony.' (Emphasis added.)

We have concluded that the attachment of the rider makes the lease ambiguous. Not only is its meaning uncertain and doubtful, thus meeting the test of ambiguity announced in Neece v. A. A. A. Realty Company, 159 Tex. 403, 322 S.W.2d 597, our latest decision on the subject, but it is also subject to more than one reasonable meaning, unresolvable by rules of interpretation, thus meeting the stricter test of ambiguity laid down in Universal C. I. T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154. The primary object of courts in construing written contracts is to arrive at the intention of the parties. The provisions of the rider may be interpreted as modifying the rights and obligations of the parties only during the primary term of the lease. This is the interpretation for which Skelly contends. They may be interpreted as modifying the rights and obligations of the parties throughout the life of the lease. This is the interpretation for which the Archers contend. But if they are interpreted as modifying the rights and obligations of the parties throughout the life of the lease, they may be further interpreted as meaning that after the primary term the entire lease could be kept alive by production from a single well plus the payment of a sufficient sum to equal $3,040, annually. This is the construction originally given by Skelly as is shown by Skelly's annually tendering checks to the amount of $3,040. Any one of these interpretations would be equally reasonable, or unreasonable, as the case may be, and the proper construction therefore becomes a fact question.

The burden was on the Archers, as plaintiffs, to prove their case. They could prove it in either of two ways: by...