Court Opinion

ID: 9653611
Source: CourtListenerOpinion
Date Created: 2023-08-23 17:49:51.318677+00
Date Added: 2024-06-11T18:13:00.336848
License: Public Domain

PRESLAR, Chief Justice,
dissenting.
I respectfully dissent.
This is an appeal from a judgment for the Plaintiffs to recover alleged deficiencies and royalty payments for gas produced under oil and gas leases providing for payment of a designated portion of the “proceeds” of the sale of gas. The trial Court, sitting without a jury, denied recovery for some Plaintiffs (who do not appeal) and allowed recovery by others, and the Defendant appeals that portion of the judgment. I would reverse and render the portion of the judgment appealed from.
Appellees brought this suit alleging that this is a suit for declaratory judgment under the Texas Declaratory Judgment Act to determine the correct computation of royalties due to be paid by Appellant to Appel-lees pursuant to terms of oil and gas leases held by Appellant and made by Appellees. It was pled, and is undisputed, that the lease provision hére involved is the clause “provided that on gas sold at the wells the royalty shall be one-eighth of the amount realized from such sale.” There is no contention but that the gas was sold at the well, and it is also undisputed that the Appellant has fully complied with that clause and has paid each Appellee his share of the proceeds of all gas sold. What, then, is the complaint?
Appellees seek to recover additional money for their gas royalties on the theory that the Appellant has a duty to market the gas at its fair market value and failed to do so; that the fair market value is greater than that for which the Appellant marketed the gas, and that the Appellees are entitled to recover from the Appellant that difference.
On the face of things, Appellees seem to have been wronged for the circumstances under which the gas is produced and sold show that Appellees are being paid far less for their gas than are others. Their leases are pooled (as to which no complaint is made), and the very well from which their gas is produced is owned in varying proportions by different lessees, one of them being Appellees’ lessee, the Defendant/Appellant. These different lessees have contracted to sell their gas at differing prices to four purchasers. Appellees’ lessee has the lowest contract price. Therein lies the rub. Appellees alleged, and the trial Court agreed, that their lessee had an “implied duty” to make a better contract — an implied duty to get the going fair market value. The trial Court made the “going price,” or fair market value to be paid, a monthly determination — a “current” market price. This, despite the fact that the gas was not sold monthly but one time under a long term contract at a fixed price. Appellees do not question Appellant’s right to make such a contract.
By their oil and gas lease to Appellant, Appellees contracted that Appellant was the owner of such gas as it explored for, found and could produce, and that its obligation was to sell the gas and account to Appellees for their share of the sales proceeds. They have accepted and retained those proceeds. Do they now make out a case to excuse or abrogate the express provisions of their contract? They contracted for a share of “the amount realized from such sale.”
It is elementary law that a party who enters into a written contract is bound by its provisions. Pacific Mutual Life Insur*290ance Company v. Westglen Park, Inc., 160 Tex. 1, 325 S.W.2d 113 (1959). Appellees have no pleading of fraud, duress, mutual mistake, invalidity, or any of the other recognized legal reasons to excuse compliance with the provision of their contract providing they shall be paid the amount realized from sale of the gas. Appellees’ legal reason for abrogating that provision of their contract is that the Appellant breached a duty “to act in good faith.” The trial Court found that Appellant breached that duty “in selling gas with respect to which it owes royalty under and pursuant to the terms of the leases described ... at less than the current fair market value thereof, ...”
We do not need to discuss or determine whether the failure “to act in good faith” is sufficient legal excuse to overcome the express contractual terms because it is evident from the record that there is no proof of any such failure to act in good faith. As is seen, the only “proof” is that Appellant sold its gas for less than others sold theirs. Obviously, this is not enough to sustain the judgment. Otherwise, all who have contracted for less than the top price paid by others are in default under their oil and gas lease regardless of reasons for entering such contract other than price. The contract under which the gas is sold contains many and varied terms that must be agreed upon by the contracting parties, and price is only one of such terms of the total contract. There is no showing here that Appellant at the expense of price entered into such terms as amounted to acting in bad faith or “failure to act in good faith.” To the contrary, the evidence is that Appellant was originally bound to sell its gas for 17$ per MCF but was able to renegotiate the contract and get 80$ per MCF for the mutual benefit of it and Appellees.
The Court, in decreeing that Appellant must pay Appellees on the basis of market value determined on a monthly basis in the past and in the future, has made a new contract for the parties; under the oil and gas lease Appellant had the right to sell the gas on long term contracts; in fact, that is the expected and accepted method of sale in the industry. Exxon Corporation v. Middleton, supra. Courts cannot make a new contract for the parties. Maryland Casualty Co. v. Hudgins, 97 Tex. 124, 76 S.W. 745 (1903).
Even if we assume the rest of the judgment is correct, it is still erroneous as to the finding of “the fair market value" of the gas. The trial Court found as a fact that the price paid by one of the four purchasers was “the” market value. The evidence does not sustain such a conclusion. There were four different prices being paid and no evidence that any particular one of the four was the market price. The one witness who testified readily admitted that he was no expert in that field and did not know what the fair market value was. All purchasers of the gas did so under contracts involving far more than price alone. Many elements go into the makeup of fair market value. Those elements are not in evidence in this case.
There is yet another reason why the judgment cannot stand. The parties executed contracts known as “division orders,” which recite that they are binding obligations and which provided that Appellees would be paid for gas based on the proceeds of sale. Even if we assume the trial Court is correct in allowing recovery by Appellees under the oil and gas leases, these division order contracts still present a bar to the recovery. They are binding contracts. Chicago Corp. v. Wall, 156 Tex. 217, 293 S.W.2d 844 (1956); Shell Oil Company v. State, 442 S.W.2d 457 (Tex.Civ.App.—Houston [14th Dist.] 1969, ref’d n. r. e.); Pan American Petroleum Corp. v. Vines, 459 S.W.2d 911 (Tex.Civ.App.—Tyler 1970, writ ref’d n. r. e.); Le Cuno Oil Company v. Smith, supra; Exxon Corporation v. Middleton, supra. Appellees have no pleadings to overcome these division order contracts and under the record here are bound by them. Le Cuno Oil Company v. Smith is directly in point in this case on two points. First, it upholds the validity of division orders as binding contracts. There, it was the royalty owners who sought to enforce the division orders against the lessee; as in our case, the lessee *291was both producer and pipe line operator; the Court upheld the judgment of the trial court allowing recovery based upon provisions of the division orders. The Supreme Court of Texas refused error, n. r. e., and the Supreme Court of the United States denied certiorari. Secondly, the Court in Le Cuno had before it a question of reformation of the division orders for which there were no pleadings. The Court, still speaking through Chief Justice Chaddick, said:
“. . . Had LeCuno pleaded and proved that it was induced to enter into the division orders by the fraud of appel-lees or through mutual mistake, it, of course, would be entitled to a reformation setting out the true agreement of the parties. See 36 Tex.Jur., 773, Sec. 31 and p. 779, Sec. 35.”
Le Cuno was cited in Bankers Life Insurance Company of Nebraska v. Scurlock Oil Company, 447 F.2d 997 (5th Cir.1971), the Court saying:
“[1] It is settled law in Texas that a division order constitutes a contract between the interest owners and the pipeline purchaser. Pan American Petroleum Corp. v. Long, 5th Cir. 1964, 340 F.2d 211; LeCuno Oil Co. v. Smith, 306 S.W.2d 190 (Tex.Civ.App.—Texarkana 1957, writ ref’d n. r. e.), cert. denied, 356 U.S. 974, 78 S.Ct. 1137, 2 L.Ed.2d 1147 (1958); Chicago Corp. v. Wall, 156 Tex. 217, 293 S.W.2d 844 (1956).”
Under Rule 93(j), Tex.R.Civ.P., the issue of lack of consideration would require a verified plea, and that was not done in this case; the argument that the division orders are without consideration is not available to Appellees under the record. Also, there is the statutory presumption that written contracts of this nature import consideration. Unthank v. Rippstein, 386 S.W.2d 134 (Tex.1964); Maykus v. Texas Bank & Trust Company of Dallas, 550 S.W.2d 396 (Tex.Civ.App.—Dallas 1977, no writ); Exxon Corporation v. Middleton, supra. There has been nothing offered in the case before us to overcome that presumption. The division orders in this case, in fact, amount to a ratification of what was done by Appellant under the gas leases. The Appellee who testified in this case stated that when he signed the division order he knew that gas under his interest was being sold under contract to the Pioneer Gas Company, and that these,,matters were shown by a sheet attached to the division orders which the Appellees each signed. If, then, there was any failure of duty or failure to act in good faith in marketing the gas to Pioneer, the Appellees have ratified such conduct and are in no position to complain of it.
That part of the judgment of the trial Court allowing Appellees herein to recover should be reversed and judgment here rendered that they take nothing of the Appellant.