Court Opinion

ID: 9671587
Source: CourtListenerOpinion
Date Created: 2023-08-24 03:39:55.7903+00
Date Added: 2024-06-11T18:16:10.957576
License: Public Domain

CALVERT, Chief Justice
(concurring).
Courts try . to solve disputes over the meaning of contracts by giving them the meaning the parties intended them to have. This is as -it should be. But what meaning the parties to a contract intended it to have is often- unclear. Once a dispute arises over meaning, it can hardly be expected that the parties will agree on what meaning was intended. It is for this reason that the courts have built up a system of rules of interpretation and construction to arrive at meaning, ignoring testimony of subjective intent.
“Intention' of the parties” is often guesswork at best. Sometimes the true intention of one or even of both parties 'may be defeated, as when the rule is applied of giving a contract the meaning its plain, clear language implies; irrespective of what the parties may claim it was intended to mean. So, while use of rules of interpretation and construction may not always result in ascertaining the' true intention of parties in using particular language in a contract, their use yet must be better than 'pure guesswork in most cases else they would never have been evolved. Accepting that as á sound premise, I examine the lease contract in this cáse.
THE PRINTED FORM
The original parties to the lease involved in this case used a printed form as a basis for putting their agreement in writing. The form was prepared for use by parties entering into an oil and gas lease; it gránts no interest in other minerals to the lessee. The form was obviously prepared when gas had little or no commercial value. For, while providing for a royalty of one-eighth of production on oil, and royalties on gas “used off the premises” of $100.00 per well per annum on gas produced from gas wells and $50.00 per well per annum on gas produced from oil wells, it contains no express provision for payment of royalty on gas sold.
I suggest that the gas royalty clauses in the printed form are obviously of doubtful *59meaning. It does not solve the doubt entirely to say that the word “used” as there employed does not mean “sold,” and hence that the parties did not intend that the flat-rate royalty there provided cover and include payment to the lessor for gas sold commercially by the lessee. There is still doubt as to the meaning of the phrase “used off the premises.” Does it mean used off of the premises by the lessee? Or does it mean used off of the premises by the lessee or by anyone to -whom title is transferred by sale or otherwise? Quite clearly it could mean either. The breadth of the language, without express limitation to use off of the premises by the lessee, would seem to indicate that the parties intended the phrase to mean the latter. On the other hand, the prevailing practice at the time, of use by lessees of gas produced on one lease for drilling and development purposes on other leases, would seem to indicate that the parties intended the phrase to mean the former.
It does not answer the question to say that since the operative effect of the lease form is to grant absolute title to the gas, the lessee can use, sell, flare or dispose of it as he may please. Of course he can. The question still remains, under what state of facts is he obligated to pay the flat-rate royalty? If he intends to flare all of the gas not used on the premises and does so, he certainly is not obligated to pay the royalty. If he intends to use any or all of the gas off of the premises himself, he is obligated to pay the royalty. But what if he intends to use none of the gas off of the premises himself but intends to, and does, sell it to others who use it off of the premises ? Is he then obligated to pay the flat-rate royalty? Or is the lessor entitled to no royalty? I know of no decided case which has answered these questions, and I do not undertake to answer them here. I pose them only for the purpose of demonstrating that had the parties merely filled in the blank spaces in the printed form, without further change or interlineation, the contractual rights and obligations of the parties with respect to the payment of royalty on gas sold by the lessee and used by others off of the premises would have been so doubtful as to require resolution by application of rules of construction.
CHANGES IN THE PRINTED FORM
The printed form was not merely filled in without further change. In reducing their agreement to writing the parties interlined the words “potash or other minerals” after the words “oil and gas” in the granting clause and the same words after the words “oil or gas” in the term clause, and added the words “and 14 of the net proceeds of potash and other minerals at the mine” at the end of the first royalty clause.
Now, we do not and cannot have evidence of what was said by the parties in the negotiations that led to these changes. We cannot know, therefore, what rights and obligations, differing from those provided in the printed form, the parties really intended to create by their additions and interlineations. On the record before us we can be certain that before concluding their negotiations the parties intended to convert the printed form oil and gas lease into a lease covering minerals other than oil, gas and potash, because that is what they did when they inserted the words “or other minerals” in the granting clause. We can also be certain from the insertion of the word “potash” in the granting, term and first royalty clauses that either the lessee wished to make certain of his right to prospect for, and mine and sell potash, or the lessor wished to make certain of his right to a one-eighth royalty if potash were discovered, mined and sold. Which of the negotiating parties initiated the discussion leading to the specific inclusion of potash in these clauses we do not know. Neither do we know whether the agreement to include potash, specifically, preceded or followed agreement to include “other minerals.” What we do know is that before the parties put their agreement in final written *60form they had negotiated a lease which authorized the lessee to prospect for and mine not just oil and gas, but oil, gas, potash and other minerals, and which required the payment of royalties to the lessor on oil, gas, potash and other minerals. They were then faced with the task of changing the printed form to effectuate their agreement.
The logical place for the parties to have begun making changes in the printed form so that it would conform to their agreement was at the top or in the first part of the instrument; and it is thus reasonable to conclude that they agreed upon the interlinea-tions in the granting -and term clauses before they reached the royalty clauses and agreed upon the addition thereto.
Had they been lawyers, the parties likely would have known that the simplest ways to change the granting clause to convert the printed form into a general mineral lease, if that was their intention, would be to strike the words “oil and gas” and substitute the words “all minerals,” or “the minerals,” or to leave the words “oil and gas” and insert “and other minerals.” Either change would have effected a grant of oil, gas, potash and all other minerals; but then the purpose of specifically naming potash would not have been accomplished. Besides, there was really no sound reason for striking the words “oil and gas” or of omitting potash from the interlineation if the parties intended that the clause grant all minerals. Thus the manner of amending the granting clause chosen by the parties can have little or no significance in determining what the parties intended by their amendment of the royalty provisions. What has been said with respect to amendment of the granting clause applies also to the amendment of the term clause.
Having agreed on the changes to the granting and term clauses in the printed form, it is reasonable to conclude that, in logical sequence, the parties next considered the adequacy of the printed royalty clauses to effectuate their agreement. It would be totally unreasonable to conclude that they considered and dealt with the ■three royalty Clauses separately and as though the others were not in the printed form.
The first royalty clause provided for a percentage royalty on oil only. The second and third clauses provided flat-rate royalties on gas only, and only on gas while being “used off the premises.” There was no provision in any of the three clauses for payment of royalty of any kind on potash, and no provision for royalty of any kind on other minerals mined and “sold.” The parties cured these deficiencies by adding at the end of the first royalty clause “and i/s of the net proceeds of potash and other minerals at the mine.” When they provided for a royalty out of “the net proceeds” they obviously were providing for royalty on “potash and other minerals” which were sold.
CONSTRUCTION OF THE LEASE
The foregoing analysis of the conduct and action of the parties on what seems to' me to be the most reasonable and logical basis brings me to a consideration of the meaning of the lease as finally written and executed by the parties. Since we have no way of knowing what the parties actually intended, we must arrive at their intent, as best we can, by application of standard rules of interpretation and construction.
The ultimate question is, of course, whether the parties intended the words, “other minerals,” used in the first royalty clause, to include gas. I reject the idea advanced by petitioners that we should answer the question by looking to the first royalty clause alone, and I accept the view that it should be answered by considering the entire instrument. Petitioners surely would not contend that we should answer the question by looking only to the first royalty clause if the second royalty clause expressly provided a flat-rate royalty of $100.00 per annum per well on gas produced and sold from gas wells, and the third *61royalty clause expressly provided a flat-rate royalty of $50.00 per annum per well on all gas produced and sold from oil wells. For the reasons given in the opinion prepared by Justice HAMILTON, I also reject the “construction-by-the-parties” and “ejusdem generis” rules, advanced by respondents and adopted by the Court of Civil Appeals, as sound bases for arriving at an answer to the question. I agree that the question should be answered by application of the rule of construction which requires courts to harmonize and thus to give meaning to all apparently conflicting provisions of a contract when this may reasonably be done.
On the face of the lease as finally written and executed by the parties there is a possible conflict between the first royalty clause and the second and third royalty clauses.
I accept as settled law that the words, “other minerals,” include gas. Anderson & Kerr Drilling Co. v. Bruhlmeyer, 134 Tex. 574, 136 S.W.2d 800, 127 A.L.R. 1217. And if the second and third royalty clauses were not in the executed lease, I have not the slightest doubt that we would be in unanimous agreement that respondents would be obligated to pay royalty to petitioners of 14th of the net proceeds of gas sold for use off of the premises.
On the other hand, if the words, “other minerals,” had not been included in the addition to the first royalty clause and the second and third royalty clauses were in the lease, and if all gas produced were sold for use off of the premises, I have no doubt that we would hold that respondents were obligated to pay the flat-rate royalty rather than that respondents were relieved altogether of an obligation to pay gas royalties. That appears to be one of the holdings in Lone Star Gas Co. v. Harris, Tex.Civ.App., 45 S.W.2d 664, 667, writ refused, although, as may be observed from reading the opinion as there reported and the opinion in an earlier appeal in the same case in Tex.Civ.App., 19 S.W.2d 178, that issue was not really a contested one.
In some of the cases cited by respondents the courts have used language indicating that the obligation to pay flat-rate royalties on gas sold for use off of the premises, under royalty clauses substantially the same as the second and third clauses in the instant lease, was clear and unambiguous, but in none of the cases was the obligation a contested one; in each the lessor was seeking royalties in addition to the flat-rate royalties, and the lessee was seeking to limit its obligation to payment of the flat-rate royalties. In Mussellem v. Magnolia Petroleum, 107 Okl. 183, 231 P. 526, the Supreme Court of Oklahoma held that a similar clause was unambiguous in that as a matter of law it did not require the lessee to pay more than the flat-rate royalty for gas sold for use off of the premises. A similar holding was made by the Court of Appeals in Lackey v. Ohio Oil Co., 10th Cir., 138 F.2d 449. But in neither case was it held that the clause in clear and unambiguous language required the lessee to pay the flat-rate royalty on gas sold for use off of the premises, and in each of the cases the court seemed impelled to bolster its holding by resort to the rule of practical construction by the parties.
But whatever may have been the factual background of the cited cases, I cannot agree that the obligation of the lessee under the second and third royalty clauses to pay the flat-rate royalty is plain and clear when the lessee uses none of the gas off of the premises himself but sells it to others who do use it off of the premises. My conviction that we would require payment of the royalty if the question were presented is based upon my belief that the language leaves the obligation doubtful, that the doubt could not be resolved by rules of construction and is therefore ambiguous, and that we would follow the rule of resolving the doubt in favor of the promisee or lessor, as with other ambiguous contracts. Universal C. I. T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 157; Williston on Contracts, Revised Edition, § 621.
*62But we do not have a lease which contains only the first royalty clause with the addition, or which contains only the printed-form second and third royalty clauses. As is pointed out by Justice HAMILTON, we have a lease which in its first royalty clause, as amended, imposes a clear legal obligation to pay royalty of 14th of the net proceeds on gas sold, including gas sold for use by others off of the premises, and which in its second and third royalty clauses does not impose clear legal obligations to pay flat-rate royalties on gas sold for use by others off of the premises but are ambiguous in that respect. I agree that to avoid repugnancy and harmonize the provisions of the lease the second and third royalty clauses should be held to apply only to gas used off of the premises by the lessee and the first royalty clause should be held to apply to gas sold to others for use off of the premises.