




02-11-093-CV





















COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
 



 
 
NO. 02-11-00093-CV
 
 



EOG Resources, Inc.


 


APPELLANT AND
  APPELLEE




 
V.
 




James R. Hurt, Jr.


 


APPELLEE AND
  APPELLANT



 
 
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FROM THE 355th
District Court OF Hood COUNTY
----------
OPINION
----------
I.  Introduction
          Appellant
and Cross-Appellee EOG Resources, Inc. appeals from an adverse judgment in
favor of Appellee and Cross-Appellant James R. Hurt, Jr.  Hurt appeals a postverdict
ruling by the trial court.  As to EOG’s appeal, we will reverse and render.  As
to Hurt’s appeal, we will affirm.
II.  Factual and Procedural Background
          EOG
is an oil and gas exploration and development company.  Standard Investment
Company (SIC) is a Texas corporation whose owners include John E. Houston and
Molly D. Houston.
          In
August 2004, EOG, as lessee, and SIC, as lessor, entered into an oil and gas lease
agreement in which SIC granted EOG the right to “explore[], drill[], and
construct[] roads and structures thereon to produce, save, care for, treat and
transport oil, gas and liquid hydrocarbons” from a tract of land covering over
11,000 acres in Hood and Erath Counties known as the Houston Ranch.  In
addition to royalties and other matters, the oil and gas lease addressed in
detail “Surface Use Restrictions [and] Damages.”
          Hurt
was in the ranching business for thirty-five to forty years.  In January 2005,
he entered into an agreement with SIC to lease grassland on the Houston Ranch
for purposes of grazing cattle.[1]  The lease began on
February 1, 2005, and expired in January 2006.  This was the first time
that Hurt had grazed cattle on the Houston Ranch, and he had no other leases or
contracts with SIC prior to January 2005.
          In
July 2006, Hurt executed another agreement to lease grassland on the Houston Ranch.
 The lease identified the “LESSOR” as “Molly Houston (in care of Jim Howard . . ),”
and it expired by its terms on June 31, 2007.
          In
early January 2008 at the Houston Ranch, Hurt received a shipment of cattle owned
by John Bill Oman.[2]  Hurt grazed Oman’s
cattle over the next few months before moving 327 head of cattle to the Houston
Ranch’s Northwest Trailer pasture on June 21, 2008.  Hurt had checked the condition
of the Northwest Trailer pasture’s perimeter fence about three weeks to a month
before moving the cattle there, but he did not check the fence on or about June 21,
2008.  On June 27, 2008, Hurt retrieved Oman’s cattle from the pasture and
shipped 293 head of cattle—thirty-four less than he had transferred into the pasture
on June 21, 2008.  Hurt searched the pasture for the cattle but only discovered
that parts of between 100 and 200 feet of a portion of the perimeter fence were
damaged or down.  The section of damaged fence was located approximately 250
feet from the edge of the Houston Ranch Number 22-H well site.  Outlaw
Enterprises, a contractor hired by EOG, had performed work at the 22-H well
site from June 16, 2008 to June 18, 2008.
          On
July 8, 2008, Hurt contacted Marco Herrera, a project coordinator for a company
that performed work on the Houston Ranch, and notified him about the damaged
fence at the 22-H well site.[3]  Hurt and Herrera met
J.D. Fish, an EOG foreman, at the well site that same day to view the fence, and
EOG repaired the fence the following two days, on July 9 and 10, 2008.[4]
 According to Herrera and Fish, Hurt did not say anything about lost or missing
cattle at the July 8, 2008 meeting.  Hurt eventually recovered all but ten
or eleven head of Oman’s cattle, and he demanded that EOG compensate him for
ten head of cattle at a total of $7,250 because, according to Hurt, EOG was responsible
for the damage to the fence near the 22-H well site.  EOG never compensated Hurt
for the lost cattle.
          In
March 2009, Hurt sued EOG for breach of the 2004 oil and gas lease agreement, alleging
that he was a third-party beneficiary under the lease agreement.[5]
 At the jury trial, the trial court denied EOG’s motions for a directed verdict
on Hurt’s breach of contract claim, and the jury awarded Hurt (1) $7,250
for damages caused by EOG’s failure to comply with the oil and gas lease
agreement and (2) $25,000 in attorneys’ fees.  After the jury returned its
verdict, Hurt orally requested a ruling that EOG’s breach of the oil and gas
lease agreement resulted in an ipso facto termination of the lease
agreement, but the trial court denied the request.  EOG filed a motion for new
trial and a motion for judgment notwithstanding the verdict and, alternatively,
a motion to modify, correct, or reform the judgment.  All were denied.  These
appeals followed.
III.  Hurt’s Breach
of Contract Claim
          In
its first issue, EOG argues that “[t]he trial court erred in holding that Hurt
is a third-party beneficiary” of the oil and gas lease agreement.  EOG contested
Hurt’s status as a third-party beneficiary in its motions for a directed
verdict on Hurt’s breach of contract claim and in its motion for judgment
notwithstanding the verdict as to the jury’s finding that EOG failed to comply
with the oil and gas lease agreement.  We therefore construe EOG’s argument as
challenging the trial court’s rulings denying EOG’s motions contesting Hurt’s
breach of contract claim on the basis of his status as a third-party
beneficiary.
          A
directed verdict is proper when the evidence conclusively establishes the right
of the movant to judgment as a matter of law.  See Prudential Ins. Co. of
Am. v. Fin. Review Servs., Inc., 29 S.W.3d 74, 77 (Tex. 2000); Farlow v.
Harris Methodist Fort Worth Hosp., 284 S.W.3d 903, 919 (Tex. App.—Fort
Worth 2009, pet. denied).  A trial court may disregard a jury verdict and
render judgment notwithstanding the verdict if a directed verdict would have
been proper.  See Tex. R. Civ. P. 301; Tiller v. McLure, 121
S.W.3d 709, 713 (Tex. 2003); Fort Bend Cnty. Drainage Dist. v. Sbrusch,
818 S.W.2d 392, 394 (Tex. 1991).
          Hurt
was neither a party to nor an assignee of the oil and gas lease agreement
between EOG and SIC.  Therefore, he could maintain an action to enforce the oil
and gas lease agreement only if he was a third-party beneficiary of the lease agreement. 
See MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647,
650–51 (Tex. 1999) (“We agree with MCI that TU is not a third-party beneficiary
of the contract between MCI and MoPac; therefore, it cannot maintain an action
to enforce the contract.”); Allan v. Nersesova, 307 S.W.3d 564, 571
(Tex. App.—Dallas 2010, no pet.).
          It
is well settled that third-party beneficiary claims succeed or fail according
to the provisions of the contract upon which suit is brought.  Union Pac.
R.R. Co. v. Novus Int’l, Inc., 113 S.W.3d 418, 421 (Tex. App.—Houston [1st
Dist.] 2003, pet. denied).  When, as here, a contract is unambiguous, the
construction of the written instrument is a question of law for the court.  MCI,
995 S.W.2d at 650.  When interpreting a contract, we must examine the entire
agreement and give effect to all of its provisions.  Id. at 652.
          The
law governing third-party beneficiaries is “relatively settled.”  Basic
Capital Mgmt., Inc. v. Dynex Commercial, Inc., 348 S.W.3d 894, 899 (Tex.
2011).  A third party may recover on a contract made between other parties if
the parties (1) intended to secure a benefit to that third party and (2) entered
into the contract directly for the third party’s benefit.  In re Palm
Harbor Homes, Inc., 195 S.W.3d 672, 677 (Tex. 2006); Stine v. Stewart,
80 S.W.3d 586, 589 (Tex. 2002).  A third party does not have the right to
enforce a contract if it received only an incidental benefit, and a court will
not create a third-party beneficiary contract by implication.  Stine, 80
S.W.3d at 589; MCI, 995 S.W.2d at 651.  An agreement must clearly and
fully express an intent to confer a direct benefit on the third party.  Stine,
80 S.W.3d at 589.  Therefore, a party is presumed to contract only for its own
benefit, and any intent to benefit a third party must be clearly apparent and
will not be presumed.  MCI, 995 S.W.2d at 651; see Tawes v.
Barnes, 340 S.W.3d 419, 425 (Tex. 2011).  Any doubt concerning intent
should be resolved against the third party.  Tawes, 340 S.W.3d at 425; MCI,
995 S.W.2d at 651.
          To
qualify as an intended third-party beneficiary, a party must show that she is
either a “donee” or “creditor” beneficiary of the contract.[6] 
Stine, 80 S.W.3d at 589.  A creditor beneficiary is a third person to
whom the contract promisee owes a debt, contractual obligation, or other
legally enforceable commitment.  See MCI, 995 S.W.2d at 651.
          Here,
the oil and gas lease agreement was “made and entered into” between only SIC
and EOG.  SIC holds executive rights “for the leasing of the oil, gas and other
related hydrocarbons in and under” the Houston Ranch, and EOG is an oil and gas
exploration and development company.  In exchange for royalties paid by EOG to
SIC, EOG acquired the right to explore and develop oil, gas, and other hydrocarbons
on the Houston Ranch.  The numerous obligations set out in the lease agreement
run between SIC and EOG.  Hurt acknowledged at trial that he had not contracted
with either EOG or SIC nor did either EOG or SIC owe him the performance of any
duty or obligation prior to EOG’s and SIC’s execution of the August 2004 oil
and gas lease agreement.  An examination of the entire lease agreement confirms
that neither EOG nor SIC intended to confer any benefit upon Hurt when they
executed the lease agreement; instead, EOG and SIC sought to benefit themselves
by entering into the lease agreement.
          Hurt
argues that the oil and gas lease agreement does confer a benefit upon him
because he is a person identified as a “Lessor’s tenant” in sections 13(d) and 13(f)
of the lease agreement.  Section 13 of the oil and gas lease agreement is
entitled “Surface Use Restrictions; Damages.”  Section 13(d) states in relevant
part as follows:
          (d)     Lessee
will not cut or go over any fence or fences of Lessor, or Lessor’s tenant,
at any time or in connection with any operations of the Land without first
obtaining Lessor’s and Lessor’s tenant[’]s, expressed
consent thereto in writing. . . .  Lessee agrees to pay to Lessor
the replacement cost for any livestock lost or killed as a result of Lessee’s
operations upon the Land or Lessee’s entry or exit from the Land.  [Emphasis
added.]
Section
13(f) states in relevant part as follows:
          (f)      Lessee
shall at all times use reasonable care in all of the Lessee’s operations on the
premises of Lessor to prevent injury or damage to the cattle, livestock,
buildings or other property of Lessor or Lessor’s tenant situated on the
surface of said Land, . . . and Lessee shall pay Lessor and Lessor’s
tenants for all actual damages . . . to the Land,
crops, buildings, livestock, fences, tanks, water wells, and without
limitation, all other property of Lessor situated on the surface of the Land
resulting from [Lessee’s] operations on the Land.[[7]] 
[Emphasis added.]
          Hurt
is not a “Lessor’s tenant” under section 13(d) or 13(f) of the oil and gas
lease agreement because his agreement with SIC to lease grassland on the
Houston Ranch expired by its own terms in January 2006.  Hurt opined at trial
that his agreement with SIC was “renewed” in July 2006 when he executed another
agreement to lease grassland on the Houston Ranch, but this subsequent
agreement was executed by Molly Houston (in care of Jim Howard), not SIC.[8] 
Although Molly is identified as one of SIC’s owners in the oil and gas lease
agreement between EOG and SIC, there is no evidence that Molly signed the July
2006 agreement with Hurt in a representative capacity for SIC.  See Morrow
v. LaRue, 544 S.W.2d 842, 844 (Tex. Civ. App.—Dallas 1976, no writ) (“If
the contract shows on its face that the individual . . . signed
in a representative capacity, then it is established that the ‘person’ who
contracted was the corporation rather than the individual.”).  There is also no
allegation or evidence that Molly and Hurt modified their agreement to make
Hurt a grassland lessee of SIC instead of Molly.  See Arthur J. Gallagher
& Co. v. Dietrich, 270 S.W.3d 695, 701–02 (Tex. App.—Dallas 2008, no
pet.) (reasoning that contract modification is an affirmative defense and must
satisfy traditional requirements of a contract—a meeting of the minds supported
by consideration).
          Even
if Hurt is somehow a “Lessor’s tenant” under the oil and gas lease agreement,
which he is not, he would still not be entitled to enforce the oil and gas
lease agreement against EOG because he confirmed at trial that his claims
against EOG involved only “lost” cattle and that he had no evidence of “injury”
or “damage” to the ten cattle for which he was seeking compensation. 
Therefore, section 13(d) of the oil and gas lease agreement, which addresses
lost livestock, not section 13(f), which addresses injured or damaged
livestock, would cover Hurt’s claims.  But section 13(d) requires EOG to pay
replacement costs for lost livestock to only the “Lessor,” not the “Lessor’s
tenant.”  Consequently, the unambiguous oil and gas lease agreement would not
allow Hurt to enforce the agreement against EOG.
          Allan
v. Nersesova is particularly instructive.  307 S.W.3d at 571–73. 
There, the court of appeals held that Allan, a condominium owner who sustained
damage to her unit, was an intended third-party beneficiary entitled to enforce
an agreement (the declaration, bylaws, rules and regulations for the
condominiums) between the owners’ association and Koraev, the owner of the
condominium unit above Allan whose tenant caused the damage to her unit.  Id.
at 568–69, 571.  The agreement imposed a duty on Koraev to follow the
agreement’s requirements for the “benefit of . . . any person
acquiring or owning an interest in the property,” which included Allan.  Id.
at 572.  Thus, “[t]he contract between the Association and Koraev ‘clearly and
fully express[ed] an intent to confer a direct benefit to’ Allan and others
owning an interest in the property.”  Id.  The agreement also provided
that “[f]ailure to comply with any [bylaws, rules, and regulations] shall be
grounds for an action to recover sums due, for damages . . .,
and for reimbursement of all attorney’s fees incurred in connection therewith, which
action shall be maintainable . . . in a proper case, by
an aggrieved owner.”  Id.  (emphasis added).  Thus, the agreement
“gave authority to Allan as an aggrieved owner to bring an action against
Koraev for his failure to follow the” agreement.  Id.
          Unlike
in Allan, in which Allan was an “aggrieved owner” entitled to “bring an
action” against Koraev, in this case, Hurt is not a “Lessor’s tenant” under the
oil and gas lease agreement, and section 13(d) addressing “lost” cattle does
not permit Hurt to enforce the lease agreement against EOG.
          We
make one additional observation regarding Hurt’s “Lessor’s tenant” argument. 
As mentioned, SIC held the executive right to lease and develop minerals on the
Houston Ranch.  The executive right is an interest in property, one of several
essential attributes of a severed mineral estate.  Altman v. Blake, 712
S.W.2d 117, 118 (Tex. 1986); see Lesley v. Veterans Land Bd. of State,
No. 09-0306, 2011 WL 3796568, at *1 n.1, *5 (Tex. Aug. 26, 2011).  It is
well settled that a grant of mineral interests by the fee owner creates two
separate and distinct estates:  a surface estate and a mineral
estate.  Acker v. Guinn, 464 S.W.2d 348, 352 (Tex. 1971).  In the
absence of evidence demonstrating otherwise, an owner of an executive right
would not be capable of granting a right to lease the surface for grazing
purposes, that being the domain of the surface title owner.  Here, the evidence
shows only that SIC held the executive right to lease minerals on the Houston
Ranch.  There is no evidence that SIC possessed the legal capacity to grant a
grazing lease to Hurt—a use of the surface that is distinct from the mineral
interests covered by SIC’s executive right.[9]
          Hurt
argues that “[t]he fact that [EOG] will be forced by the Paid-Up Oil and Gas
Lease to pay for or replace fencing it destroys or otherwise damages makes the
fencing provision a direct benefit from [EOG] to [him] also.”  However, EOG’s
obligation to repair damaged fences on the Houston Ranch is merely an
incidental benefit to Hurt resulting from his presence grazing cattle on the
Houston Ranch.
          We
conclude and hold that, as a matter of law, Hurt is not a third-party creditor
beneficiary of the oil and gas lease agreement between EOG and SIC.  Therefore,
he is unable to maintain an action against EOG to enforce the oil and gas lease
agreement.  See MCI, 995 S.W.2d at 650–51.  The trial court should have
sustained one of EOG’s multiple challenges to Hurt’s status as a third-party
beneficiary.  We sustain this part of EOG’s first issue, and we need not
address EOG’s remaining arguments and issues.  See Tex. R. App. P. 47.1.
IV.  Termination
of Oil and Gas Lease Agreement
          In
his sole issue, Hurt argues that the trial court “abused its discretion when it
failed to find the Paid Up Oil and Gas Lease on the I.T. Houston Ranch did not
terminate under the specific terms stated in the Lease.”  He contends that
“there was sufficient evidence of a breach which constituted a ‘Lease
Violation’ under the Lease without remediation and the Lease should have
terminated ‘ipso facto’ as negotiated by the Parties to the Lease.”
          Section
18 of the oil and gas lease agreement addresses “Lease Violation[s]” and
provides in relevant part as follows:
          Lessee
shall strictly comply with all provisions of this lease, and the failure by
Lessee to strictly comply with each and every provision of this lease shall be
a breach of such terms and a violation of the lease (a “Lease Violation”).  In
the event of a Lease Violation, Lessee shall take all necessary actions to
remedy the Lease Violation and bring Lessee back into compliance with the
lease.  In the event Lessee fails to immediately cure or remediate the Lease
Violation, the following provisions shall apply:
 
          (a)     Lessor
shall provide Lessee with written notice of any Lease Violation. . . .
 
                   . . . .
          (c)     For
Lease Violations which pose an immediate threat to people or livestock, Lessee
shall have five (5) business day[s] after the date of the notice to
respond to Lessor and commence a remediation plan.
 
                   . . . .
          (e)     For
delays under paragraph (c), where there is an immediate threat to people or
livestock, the fine shall commence the sixth (6th) day after the
effective date of the notice and shall be $500.00 per day for each day of delay
for days seven (7) through ten (10), $1,000.00 per day for days eleven (11)
through sixteen (16), and $2,500.00 per day for each day thereafter.  If a
remediation plan has not been agreed or commenced at the expiration of twenty
(20) days from the effective date of notice, all of Lessee’s right, title and
interest in the lease, shall ipso facto terminate . . . . 
[Emphasis added.]
          The
following exchange occurred after the trial court announced the jury’s
verdict and released the jury from service:
          THE COURT:   All
right.  [Hurt’s counsel], prepare a proposed judgment, please, sir.
 
          [Hurt’s
counsel]:    Your Honor, at this time, I would like to request an instruction
from the Court as to whether the breach and the failure to cure in the
appropriate time period resulted in a termination of the lease ipso facto.
 
THE COURT:   It did not.
[Hurt’s
counsel]:    I’ll prepare the judgment accordingly, sir.
          Hurt’s
argument is unpersuasive for several reasons.  First and foremost, Hurt cannot
enforce section 18 of the oil and gas lease agreement against EOG because he is
not a third-party beneficiary of the lease agreement.
          Further,
even if Hurt could enforce the lease agreement, unless the evidence
conclusively proved that the lease agreement terminated under the provisions of
section 18, Hurt waived this issue because he did not request a jury question
on this issue.  See Tex. R. Civ. P. 279 (“Upon appeal all independent
grounds of recovery or of defense not conclusively established under the
evidence and no element of which is submitted or requested are waived.”); Akin
v. Dahl, 661 S.W.2d 911, 913 (Tex. 1983), cert. denied, 466 U.S. 938
(1984).  The provision in section 18(e) addressing ipso facto termination
of the oil and gas lease agreement applies only if the lessee “fails to
immediately cure or remediate the Lease Violation.”  [Emphasis added.]  Fish
testified that, although he did not think EOG was responsible for the damage to
the fence, he caused the fence to be repaired the following two days after he
met Herrera and Hurt at the 22-H well site.  Thus, there is evidence that EOG
immediately cured the alleged section 13(d) lease violation—damaging a fence—by
repairing the fence, rendering inapplicable section 18(e)’s ipso facto
termination provision.  Moreover, even if there was evidence that EOG failed to
immediately cure the lease violation, there is no evidence that SIC gave EOG
written notice of a lease violation as required by section 18(a).  In the
absence of written notice, the timetables in section 18(e) cannot run.  Because
the evidence did not conclusively prove that the oil and gas lease agreement
terminated ipso facto under the provisions of section 18, Hurt waived
this issue for appellate review.  See Tex. R. Civ. P. 279.  Accordingly,
we overrule Hurt’s only issue.
V.  Conclusion
          Having
overruled Hurt’s only issue, we affirm the trial court’s postverdict ruling
denying Hurt’s requested relief.  Having sustained a dispositive part of EOG’s
first issue, we reverse the trial court’s judgment in favor of Hurt and render
judgment that he take nothing on his breach of contract claim and his claim for
attorney’s fees.[10]
 
 
BILL MEIER
JUSTICE
 
PANEL: 
LIVINGSTON, C.J.; MEIER
and GABRIEL, JJ.
 
DELIVERED:  December 15, 2011




[1]According to Hurt, grazing
cattle includes the following:  “[S]omeone furnishes the cattle,
someone furnishes the grass and the care, and the owner of the cattle pays a
grazing fee, normally per head per month.”


[2]Hurt had grazed cattle
owned by Oman on “many occasions.”


[3]Hurt testified that he
contacted EOG on or about June 28, 2008.


[4]Fish opined that the fence
had been “run into and run over” by some kind of machinery.


[5]At one point, Hurt
asserted a claim against EOG for negligence, but he amended his pleadings to
assert only claims sounding in contract.  In his live pleading, Hurt alleged in
part that he was entitled to enforce the lease agreement against EOG as a
third-party creditor beneficiary and because he was an assignee or successor in
interest of SIC.


[6]Hurt does not contend that
he is a third-party donee beneficiary under the oil and gas lease agreement.


[7]Somewhat similar to
paragraph 13(f), paragraph 13(m) addresses “death of or injury
to . . . Lessor’s tenant’s livestock.”


[8]Even this agreement
expired by its own terms on June 31, 2007, before the June 2008 events
forming the basis of Hurt’s claims occurred, but the parties to that agreement
apparently continued to operate under it.  See Sieber & Calicutt, Inc.
v. La Gloria Oil & Gas Co., 66 S.W.3d 340, 347 (Tex. App.—Tyler 2001,
pet. denied) (reasoning that contract was still in effect when employee died
because parties had continued to operate under contract after it had expressly
expired).


[9]Indeed, regarding “issues
dealing with the surface estate of the Land,” the oil and gas lease agreement
between EOG and SIC appointed I.T. Houston, IV “as its agent with full
authority to make such elections, approvals and consents on behalf of” SIC.


[10]Hurt recovered attorney’s
fees in connection with his breach of contract claim.  See Marine Creek
Partners, Ltd. v. Caldwell, 926 S.W.2d 793, 796 (Tex. App.—Fort Worth 1996,
no writ) (rendering judgment against plaintiff on claim for attorney’s fees
recovered in connection with third-party beneficiary, breach of contract
claim).


