Opinion ID: 561287
Heading Depth: 1
Heading Rank: 2

Heading: Renewal and Extension Clause

Text: 20 Prior to assignment of the lease from Avatar to Gulf, Avatar assigned a portion of its working interest in the lease to Moyers and Jenkins. The Royalty Assignments from Avatar to Moyers and Jenkins contained a renewal and extension clause: 21 In the event Assignee secures an extension, correction or renewal of any lease subject hereto prior to the termination of such lease ... or ... a new lease covering any or all lands described in the leases subject hereto prior to the termination of such leases or within one (1) year thereafter, then the overriding royalty interest reserved herein shall attach to and burden such extension, renewal or new lease, and Assignee ... shall execute a recordable instrument evidencing the existence and effectiveness of the overriding royalty. 22 The assignment from Avatar to Gulf included a provision making the assignment subject to the terms and provisions contained in that certain assignment of Overriding Royalty Interest ... between Avatar ... and Vernon C. Moyers, Jr., and Steve Jenkins. 23 Moyers and Jenkins advance two claims for damages based on the Royalty Assignments. They first claim that Gulf accepted all of the obligations of the Royalty Assignments by agreeing that the lease assignment was subject to the overriding royalty interests. Gulf allegedly breached its duty under the Royalty Assignments by not granting Moyers and Jenkins overriding royalty interests in the Murexco lease as a new lease on lands described in the leases hereto. They also claim that Gulf breached its duty of good faith by failing to execute recordable instruments evidencing these interests as required by the Royalty Assignments. 24 The purpose of a renewal and extension clause, or anti-washout provision, in a royalty assignment is to protect the interests of the holder of an overriding royalty on the property. See, e.g., Otter Oil Co. v. Exxon Co., U.S.A., 834 F.2d 531, 533 (5th Cir.1987). Unhindered by an anti-washout provision, a lessee could agree with the landowner to allow a current lease to expire and to enter a new lease on the same land unburdened by the overriding royalty interest. These clauses are for the purpose of extending the overriding royalty interest to new leases obtained on the same property by the same lessee. 25 Gulf allowed the Avatar lease to expire and immediately obtained the Murexco lease covering the same land. The Murexco lease was not burdened by the overriding royalty interests of Moyers and Jenkins. Moyers and Jenkins claim that Gulf entered this agreement improperly to eliminate their royalty interests. 26 The problem with their argument is that Gulf was not and is not a party to the Royalty Assignments. Avatar executed the Royalty Assignments before it assigned its lease to Gulf. For Moyers and Jenkins to prevail, they must prove that Gulf assumed Avatar's obligations under the Royalty Assignments. We find no help for Moyers and Jenkins in the language of the Royalty Assignments. The Royalty Assignments addressed only the relationship between Avatar and Moyers and Jenkins. The agreements did not contemplate extending the renewal and extension clause to assignees of Avatar such as Gulf. 27 We also agree with the district court that the language of the assignment from Avatar to Gulf did not make Gulf responsible for Avatar's covenants in the Royalty Assignments. The subject to language of the assignment is critical. It did nothing more than put Gulf on notice of an existing burden on the lease it received from Avatar. It did not graft the renewal and extension clause and accompanying duties into the assignment from Avatar to Gulf. 28 In Louisiana, an overriding royalty interest is considered an appendage to an oil and gas lease. La.Rev.Stat.Ann. Sec. 31:126. Expiration of a lease generally destroys an overriding royalty interest appended to the lease. Fontenot v. Sun Oil Co., 257 La. 642, 243 So.2d 783, 786 (1971); Wier v. Glassell, 216 La. 828, 44 So.2d 882, 888 (1950). When the lease expired at the end of the primary term, the overriding royalty interests of Moyers and Jenkins evidenced by the Royalty Assignments also expired. We will not bind Gulf with obligations and duties that it did not agree to accept. 29 Moyers and Jenkins attempt to resuscitate their interests by arguing that the language of the Royalty Assignments was ambiguous. Since the Royalty Assignments were allegedly ambiguous, they claim that summary judgment was inappropriate. Moyers and Jenkins want the opportunity to introduce parol evidence to prove that the parties intended for the renewal and extension clause to apply to future leases on the property obtained by Gulf. 30 Under Louisiana law, we must interpret a contract to determine the common intent of the parties. La.Civ.Code Ann. art. 2045. When the words of a contract are clear and explicit, we may not look beyond the contract to interpret their meaning. La.Civ.Code Ann. art. 2046. Parol evidence is admissible to clarify the intent of the parties only if the language of the contract is ambiguous. Laspopoulos v. Chaisson, 413 So.2d 248, 250 (La.Ct.App.1982). Whether an ambiguity exists in contractual language is a question of law for the court. Freeman v. Continental Gin Co., 381 F.2d 459, 465 (5th Cir.1967). 31 We agree with Moyers and Jenkins that the Royalty Assignments were not models of clarity. As written, the Royalty Assignments burdened new leases on the same property obtained by Moyers and Jenkins (the assignees) with their overriding royalty interests, and required Moyers and Jenkins to execute a recordable instrument evidencing this interest if Avatar (the assignor) requested them to do so. As the district court concluded, the parties probably reversed the terms assignor and assignee in this portion of the Royalty Assignments. 32 This drafting problem, however, cannot aid Moyers' and Jenkins' argument. Even if the terms assignor and assignee were reversed, the agreement remained a contract between Avatar and Moyers and Jenkins. Nowhere did the Royalty Assignments state or imply that Gulf would assume Avatar's obligations. Had Moyers and Jenkins brought this suit to determine Avatar's obligations under the Royalty Assignments, we might become convinced that parol evidence was necessary to determine the intentions of the parties. But that is not the question presented by this appeal. The issue here is whether the parties intended for Gulf to assume Avatar's obligations under the Royalty Assignment. 33 Moyers and Jenkins cannot persuade us to look beyond the agreements to determine the intent of the parties. Neither the Royalty Assignments nor the assignment from Avatar to Gulf burdened future leases entered into by Gulf with the overriding royalty interest of Moyers and Jenkins. The renewal and extension clause in the Royalty Assignments applied only between Avatar and Moyers and Jenkins. We hold that summary judgment was appropriate because the language of the agreements was clear. As a matter of law, Gulf was not bound by the renewal and extension clause. When the Avatar lease expired, the overriding royalty interests of Moyers and Jenkins expired. Gulf had no duty to grant them royalty interests in the Murexco lease. 34 For the same reasons, Gulf did not breach any duty of good faith by failing to execute recordable instruments granting Moyers and Jenkins overriding royalty interests in the Murexco lease. The duty to execute these instruments was contained in the Royalty Assignments. Since we agree with the district court that the provisions of the Royalty Assignments did not bind Gulf, we reject the claim of Moyers and Jenkins involving the failure to execute these instruments.