CARAWAY, J.
This case involves a large oil and gas lease affecting 1805.34 acres in the southern part of Caddo Parish. The lessors and lessee entered into an 18-month extension agreement in 2007, months prior to the announcement of the Haynesville Shale discovery. The extension of the 3-year primary term of the lease from 3 years to 4½ years occurred at a time when a large portion of the lease was already developed by production in units for depths above the Haynesville Shale with only 168.95 acres of the lease experiencing no production activities in 2007 as the original primary term
The Plaintiffs,
The ownership of two of the Plaintiffs, Peironnet and Franklin, comprising a two-thirds interest in the property, was managed by Regions Bank, whose representative acted on their behalf in the negotiations for the Lease. Prestige, which is an independent landman group, acquired the Lease on behalf of Matador Resources Company ("Matador"). On September 24, 2004, Prestige assigned the Lease to Matador.
The various tracts of the Lease extended into eight governmental sections of land. During the primary term of the Lease, Matador successfully explored and developed the Cotton Valley formation in five of the eight sections. The Cotton Valley formation was unitized by the Office of Conservation for sectional units, and the unit orders for the field reveal that the formation is described as extending generally to depths of approximately 10,300 feet.
Therefore, in the late spring of 2007 as the Lease approached the end of its primary term, the producing Cotton Valley wells were providing production royalties to Plaintiffs for their acreage in the five units. Yet, the Plaintiffs' tracts in three other nearby sections, Section 35, Township 15 North, Range 12 West, and Sections 31 and 29 in Township 15 North, Range 11 West (hereinafter "Sections 35, 31 and 29" respectively), were not yet developed by a Cotton Valley well in a unit for each of those sections. Matador desired to explore those undeveloped Cotton Valley units, but the operation of the Pugh
The Lease contains the typical habendum clause providing that at the end of the primary term on June 22, 2007, the Lease shall extend and be maintained "for so long thereafter as oil and/or gas is produced in paying quantities from the leased premises, or land pooled therewith as herein permitted." Nevertheless, modifying this extended term of the habendum clause and providing for lease division after the primary term, the Pugh clause (paragraph 7) of the Lease provides, in pertinent part, as follows:
Additionally, with the Pugh clause definition of "continuous drilling operations" employing the term "actual drilling operations," an additional definition of "actual drilling operations" is provided in paragraph 8 of the Lease, as follows:
In May 2007, Matador began negotiations with Plaintiffs to extend the Lease beyond the primary term of June 22, 2007. At that time, the undeveloped Lease acreage in Sections 35, 31 and 29 would possibly be affected by the division of the Lease described in the Pugh clause, causing Matador to lose its lease rights for those sections. Furthermore, upon the occurrence of the condition triggering the Pugh clause, the undeveloped depths below the Cotton Valley formation in the producing sectional units (hereinafter the "Deep Rights") would be released from the coverage of the Lease in accordance with subsection (d) of the Pugh clause.
The development facts which ultimately occurred for those three sections in 2007 were as follows:
Additionally, following the completion of the Peironnet 29 Well in August 2007, the record shows that no well was spudded affecting any part of the entire 1805.34 acres of the Lease premises for a period of over 90 days. The next well following the completion of the Peironnet 29 Well was the Bradway 24 Well in Section 24, Township 14 North, Range 12 West, a Cotton Valley unit well affecting a portion of the Lease acreage. The Bradway 24 Well was spudded on November 16, 2007.
In May 2007, as negotiations were to begin, Kevin Donahue, a land manager at Matador, contacted Mac Guarino, the owner of Prestige and Coastal Land Services, Inc.,
In early May 2007, Mouton called John Moore, Regions' employee and agent for Peironnet and Franklin for the management of their property interests. Mouton testified that he told Moore that he "was extending a lease, the primary term of a lease for one year which contained 1805.34 acres." Mouton also called Marceaux, the unrepresented lessor, and discussed an extension of the Lease. According to Moore, Mouton called and stated that "the Matador leases were expiring and they — he needed to extend the 168.95 acres." While Mouton testified that he told Plaintiffs that he wanted to extend the entire lease, he admitted that he never specifically discussed the Deep Rights in the producing
Moore testified that he was initially offered a bonus amount of $33.34 per acre for the 168.95 Acres. Since the original bonus amount in 2004 was for $100 per acre for a three-year term and the initial proposed extension was for one year, Mouton testified that he interpreted the initial offer as one-third of the initial $100 per acre bonus paid in 2004.
After these initial contacts, Moore and Marceaux each received a follow-up letter dated May 15, 2007, from Mouton. The caption of both letters read:
The letters first identified the Lease reciting its coverage of "1805.34 acres." Thereafter, the following offer was extended:
(hereinafter referred to collectively as "the May 15 Letter").
As indicated, each of the letters from Mouton contained a written lease amendment (hereinafter the "Extension Agreement"). These forms which Mouton provided in May were in all respects identical to the instrument which was ultimately executed by Plaintiffs in August 2007, with the exception that the time for the extension was finally negotiated as 18 months instead of one year. Thus, the Extension Agreement, as first revealed in May and later executed in August, provided for an 18-month extension as follows:
Due to Mouton's low offer of $33 per acre, Moore and Marceaux turned down this initial offer without reading the attached proposed form for the Extension Agreement. Yet, they stated that they read the letter and understood it to mean that Matador was seeking to extend only the 168.95 Acres in the nonproductive sections.
Upon request from Moore, Mouton sent Moore a letter on June 11, 2007, that contained a plat of the acreage that Matador desired to extend. The plat had previously been provided to Marceaux. Aside from the additional inclusion of Section 29 in the description of the sections, this letter contained the same caption as previously contained in the May 15 Letter. The plat had Sections 31 and 35 color-coded in a brownish-red color, and Section 29 color-coded in a blue, "indicat[ing] it would probably be spudded in time."
In addition, the letter to Moore stated as follows:
Based on the plat, the letters, and representations from Mouton, the Plaintiffs testified that they believed that Matador was only seeking an extension of the primary term for the 168.95 nonproductive acres. Nevertheless, on cross-examination, Moore was confronted with the language of the Extension Agreement which indicates that the extension was for the entire Lease for 18 months. He was asked about the implication from the proposed written form, with its reference to the "full description of the lands covered" by the Lease, that the extension included the "entire 1805 acres, all acres, all depths," to which Moore replied:
As previously indicated, Mouton testified that he told Moore that he wanted to extend the Lease for all acreage, while admitting that the proposed extension's effect on the Deep Rights was not specifically discussed. As attempted impeachment of that testimony, Plaintiffs introduced a copy of a June 13, 2007, email from Moore to Mouton stating that he would be out of town. On the copy, Mouton wrote that he "told [Moore] that well is spudded in 29 and only dealing with 168 acres." Nevertheless, Mouton was removed from the lease negotiations due to the failure to have obtained an extension by the end of the primary term of the Lease.
According to Moore, Donahue (the Matador land manager) was the next person to contact him regarding an extension of the lease. Moore testified that:
While Donahue initially made the same $33.34 per acre bonus for the 168.95 Acres, he eventually increased the amount to $75 per acre. Kevin Donhaue's deposition testimony was introduced at trial. That testimony did not mention the details of any conversations or negotiations with Moore. Additionally, Donahue left Matador on June 28, 2007, before the extension was executed.
On August 22, 2007, Guarino sent Moore another offer and the written form for the Extension Agreement. The caption of this letter was stated as follows:
The letter stated that an amendment was attached for review and execution "which will serve to extend the primary term under the Cynthia Fry Peironnet, et al. lease dated June 22, 2004 for an additional eighteen (18) month period. Also enclosed are checks made payable to Cynthia Fry
Since he had last communicated with Donahue, Moore testified that he called Guarino to make sure that the terms were the same. Guarino's recollection was that he called Moore. Nevertheless, Guarino testified that he never talked to Marceaux. According to Moore's testimony, Guarino
Guarino testified that he told Moore that he did "have authority to go ahead and pay [him] $75 an acre for the acreage outside of the existing production." Nevertheless, both Moore and Guarino testified that they did not discuss the Deep Rights.
As the Extension Agreement was executed in August 2007, the following is therefore a summary of the acting parties' intentions for its scope. Marceaux stated that "[she] understood that we were going to be signing a lease extension for 168.95 acres to allow — to give them extra time to put in a well ... on Sections 31 and 35." Moore testified that:
In contrast, Guarino stated that his intent was to "extend the whole lease," an intention he thought was clear through the written form of the Extension Agreement which he and Prestige had drafted. On August 23, 2007, Moore express mailed the executed Extension Agreement back to Guarino. Moore's reply stated that "enclosed is the executed Amendment of Oil and Gas Lease which extends the primary term under the Cynthia Fry Peironnet et al lease dated June 22, 2004 for an additional eighteen (18) months."
The question of the Extension Agreement's effect on the Deep Rights came into focus with the announcements in early 2008 regarding the discovery of the productive potential of the Haynesville Shale formation in south Caddo Parish. As will be reviewed in further detail below, by early 2008, the Deep Rights to the remaining 1636.39 acres would have dropped from the coverage of the Lease if the Extension Agreement was limited to only the
After receiving notice of Matador's intent to create seven units in order to drill to the Haynesville Shale, Franklin and Peironnet filed suit against Matador on May 15, 2008, which claimed error in the Extension Agreement, damages, and attorney's fees. Peironnet and Franklin sought to reform the Extension Agreement to affect only Sections 31 and 35 based upon the alleged mutual intent of the parties or ambiguity in the Extension Agreement. Claims of mutual and unilateral error were asserted. The alternative relief sought that the Extension Agreement be rescinded for failure of cause or fraud, and unjust enrichment.
On June 6, 2008, after the lis pendens was filed, Matador assigned its rights in the Lease below the Cotton Valley formations to Chesapeake Louisiana, LP (hereinafter "Chesapeake"). Thereafter in July and August 2008, Peironnet, Franklin, Comegys, and Marceaux granted to Petrohawk Properties, L.P. (hereinafter "Petrohawk"), oil and gas leases over their 1805.34 acres.
Comegys filed a petition of intervention on August 21, 2008, asserting claims against both Matador and Chesapeake. On December 3, 2008, Peironnet and Franklin filed an amended and supplemental petition, adding Marceaux as an additional plaintiff and Chesapeake and Prestige as additional defendants.
In 2009, Matador filed motions for partial summary judgment. It requested that certain causes of action and issues be dismissed. A motion also sought to establish that the Extension Agreement as written is unambiguous. Chesapeake and Prestige ultimately joined Matador in the motion for partial summary judgment. In response, the Plaintiffs also filed a motion for partial summary judgment regarding reformation of the lease extension. Prior to the hearing on these motions, Comegys settled her lawsuit with the defendants.
The hearing on the partial summary judgment motions was held on September 8, 2009. At this hearing, the trial court granted the defendants' motions dismissing certain causes of action or issues asserted by the Plaintiffs, including ambiguity of the Extension Agreement and unilateral error. The only issues that the
On November 25, 2009, Petrohawk intervened in the suit, requesting declaratory relief for the recognition of its leases from Plaintiffs and Comegys. Essentially, Petrohawk argued that it has an interest in seeking a rescission and/or reformation of the Lease and the Extension Agreement based upon its lease rights.
Through various other hearings, the trial court further limited the scope of the trial. In granting a motion for partial summary judgment, the trial court held that according to the 90-day continuous operations clause in the Pugh clause, the Lease "was maintained in its entirety until November 6, 2007-90 days after the completion of the Peironnet 29 No. 1 Well by Matador." In addition, the trial court ruled that Petrohawk did not have the right to assert Comegys' previously asserted cause of action for reformation of the Extension Agreement.
Due to the extensive record and possibility for confusion, the trial court separated the trial into three separate phases. In phase one, the jury addressed whether mutual error or fraud existed so that the Extension Agreement might be reformed and rescinded. The second phase involved the Plaintiffs and Petrohawk's alternative claim that the Lease expired on or after December 22, 2008, due to Chesapeake's failure to conduct continuous drilling operations. Finally, if the jury found in Plaintiffs' favor, phase three would adjudicate the Plaintiffs' claims for monetary damages.
The 5-day jury trial began in September 2010. In addition to the above evidence of the parties' negotiations, Plaintiffs presented expert testimony concerning the practice and custom of the per-acre bonus calculations for leasing and the extension of leases. After presentation of the Plaintiffs' case, the parties stipulated that the Plaintiffs did not adequately prove fraud and the jury was charged only regarding the claim of mutual error. In a single interrogatory, the jury decided that "mutual error requiring the lease extension be reformed to 168.95 acres" had not been proven.
After a hearing on December 13, 2010, for the second phase of the case, the trial court held that production activity involving the Haynesville Shale served to extend the Lease beyond the end of the extended primary term of December 22, 2008. Thus, the trial court ruled that the Lease was still valid and effective as to all acreage and depths.
The Plaintiffs and Petrohawk now present assignments of error asserting:
Additionally, Petrohawk asserts error in the trial court's granting of the partial summary judgment dismissing its claim under its lease with Comegys.
Initially, however, consideration should be given to some of the basic aspects of the Lease which governed the parties' contractual relationship leading up to the disputed Extension Agreement. These include: (1) the Lease bonus and the primary term, and (2) the effect of the Pugh clause upon the lessee's rights after the
The bonus for a mineral lease is defined in the Mineral Code as the "money or other property given for the execution of a mineral lease." La. R.S. 31:213(1). An early ruling of this court states that the bonus is "[t]he usual consideration which a lessee gives for the privilege of exploring for oil on the property." Nelson v. Roy, 1 La.App. 654 (La.App. 2d Cir.1925). The lessee's privilege for exploring during the primary term, however, imports no obligation on the lessee for drilling activities affecting the lease. The Mineral Code in Article 115 sets a maximum of 10 years in which the mineral lease may be effective without drilling or production activities by the lessee. La. R.S. 31:115. This respite period or term without the requirement for drilling or production activity is the primary term of the mineral lease. See Official Comment, La. R.S. 31:124.
The parties' Lease in this case was labeled "Paid-Up Oil and Gas Lease." Thus, its three-year primary term was a fully paid time period in which the lessee could choose at its option to conduct operations. Additionally, there was no requirement for the lessee to pay money in the form of delay rentals during the three years. See La. R.S. 31:213(4).
In this light, the bonus of the Lease for securing this paid-up privilege and option period for the three years was calculated and paid on the basis of the entire 1805.34 acres. Importantly, however, when the Extension Agreement restated and extended those three years to a "Four (4) years and six (6) months" primary term, the calculation of the monetary payment was made on a different acreage basis. We view that payment in 2007 as a type of bonus payment. Even though the payment was not made for the initial execution of the Lease, it was given in exchange for additional time for Matador to have the privilege and option to conduct operations without the constraints of the conditions for operations imposed by the habendum clause and the Pugh clause which would operate after the end of the new 4½ year primary term. The question in this case is whether the additional time given to Matador was intended, like the original primary term, to allow the same respite from meeting those conditions for operations during the extended 18 months, or to allow something different.
Second, just as the parties debated to the trial court in advance of trial the interpretation of the Pugh clause and its "continuous drilling operations" concept,
In the Mineral Code, the Pugh clause is discussed in the Official Comment to Article 114. La. R.S. 31:114 and Official Comment. Article 114 provides the principle that operations on any portion of the lease "or on land unitized therewith" will maintain the lease "as to the entirety of the land burdened" by the lease. Hunter Co. v. Shell Oil Co., 211 La. 893, 31 So.2d 10 (1947). Nevertheless, this broad principle can be contractually changed in various manners by the inclusion in the lease of a Pugh clause. "Not all such clauses are identical." Will-Drill Resources, Inc. v. Huggs Inc., 32,179 (La.App.2d Cir.8/18/99), 738 So.2d 1196, 1199, writ denied, 99-2957 (La.12/17/99), 751 So.2d 885. "The main purpose of a Pugh clause is to protect the landowner-lessor from the anomaly of having the entire property held under lease by production from a very small portion." Id. at 1200. More particularly for the present case, this purpose may extend to ensure that the lessee will also diligently explore all depths underlying the lease premises. In such a case, the division of the lease occurs and only the developed depths are maintained under the lease with the other depths released by the Pugh clause. See Sandefer Oil & Gas, Inc. v. Duhon, 961 F.2d 1207 (5th Cir.1992).
The contractual release of lease acreage outside of an active unit with operations otherwise sufficient to maintain the entire lease is referred to as a vertical Pugh clause. The contractual release of depths lying below the producing depths of a well affecting the lease is referred to as a horizontal Pugh clause. It is undisputed that the Lease in this case contained both vertical and horizontal release provisions.
The horizontal and vertical Pugh clause provisions in a lease therefore ensure the lessor that upon the occurrence of defined contractual events related to the lack of development operations by the lessee, certain undeveloped lease acreage and depths will no longer be affected by the lease. In the absence of such lease division and release, the lessor's remedy to free the undeveloped portions of a lease requires his assertion and proof that the lessee has failed to reasonably explore and develop those portions as a reasonably prudent operator. See La. R.S. 31:122 and Official Comments. The cost and difficulties of such litigation for the lessor stand in sharp contrast to the automatic contractual release of the undeveloped portions of the lease gained by the inclusion of the Pugh clause. See Ferrara v. Questar Exploration and Prod. Co., 46,357 (La.App.2d Cir.6/29/11), 70 So.3d 974, writ denied, 11-1926 (La.11/14/11), 75 So.3d 943; Noel v. Amoco Prod. Co., 826 F.Supp. 1000 (W.D.La.1993). This shows the significant value of the Pugh clause for the lessor.
In the May 15 Letter, Mouton's statement that the "Lease will expire on June 22, 2007 as to all acreage situated outside the currently producing units" was recognition that the Pugh clause of the Lease prompted Matador's need for an Extension Agreement. As it turned out, however, the possibility for the drilling for the Peironnet 29 Well, which was also discussed in the letter, did in fact occur before the end of the primary term of June 22. Therefore, from our interpretation of the Pugh clause and its "continuous drilling operations" provision, the Lease in its entirety remained in force and effect through the drilling of the Peironnet 29 Well and for 90 days after its completion as a producer on August 6, 2007. With this ruling, we agree with the trial court's pretrial partial summary judgment concerning the effect of
Despite the maintenance of the entirety of the Lease for all depths and acreage which its Peironnet 29 Well ensured, Matador persisted in efforts from June through August for the Extension Agreement. The stated reason in the May 15 Letter for Matador's need for the extension was because it would "need more time under the lease for us to develop your acreage in Sections 31 and 35." This pressing need did in fact occur as the lease acreage in those sections and all other areas of the Lease were no longer affected by continuous drilling operations after November 6, when the Pugh Clause Event occurred.
Thus, on the effective date of the Extension Agreement on August 22, 2007, 16 days after the completion of the Peironnet 29 Well, Matador was under the 90-day time constraint imposed by the Pugh clause to commence further operations for the maintenance of the entirety of its lease rights by November 6. On the other hand, from the Plaintiffs' perspective for their designs for the benefits of the Pugh clause, upon the Pugh Clause Event, Plaintiffs would receive the contractual release of all lease rights in Sections 31 and 35 and all of the Deep Rights. The parties' negotiations and their disputed meeting of the minds for the scope of the Extension Agreement accordingly are framed for consideration in this context.
Four assignments of error by Plaintiffs and Petrohawk can be grouped for consideration of the vice of consent issue addressed by the jury in this reformation action. They are:
On the issue of ambiguity in the parties' contract, Plaintiffs argue that the trial court erred in accepting the defendants' "four corners" argument and granting a partial summary judgment on the issue of ambiguity. This ruling allowed Matador's counsel in his opening statement to the jury to state the following without objection, while referring to the one-page Extension Agreement:
Nevertheless, when the actual jury charge was given, the following statements were made and the jury was not informed that the Extension Agreement was unambiguous:
The trial court's partial summary judgment in this case must be viewed as "dispositive of a particular issue" under La. C.C.P. art. 966(E). The determination of whether the language of a contract is clear or ambiguous is a question of law. Stephenson v. Petrohawk Properties, L.P., 45,296 (La.App.2d Cir.6/2/10), 37 So.3d 1145. Summary judgment is appropriate for such decision regarding the law. The trial court's ruling was a partial ruling on the "issue" of ambiguity, as opposed to a dismissal of one of Plaintiffs' causes of action. Nevertheless, when that decided issue of law was most needed in this case for the charge to the jury, the jury was left on its own to choose "whether the language... seems clear ... or ambiguous."
The issue of ambiguity was necessary as a pretrial decision by the court for the ultimate determination of whether the jury would be charged to decide either (1) a case of interpretation of the contract's language under Civil Code Articles 2048, et seq., if the written contract is ambiguous, or (2) a case of reformation of the written contract under Article 1848, La. C.C. art. 1848, if the written contract is unambiguous. While we agree with the trial court's ruling that the one-page Extension Agreement, as written, was unambiguous, the lack of a jury charge reflecting the trial court's ruling on ambiguity clouded the overall charge on the claim for reformation of the instrument for alleviation of any vice of consent.
The Extension Agreement was a conveyance made under private signature granting an incorporeal immovable, i.e. the extended mineral lease rights. Louisiana writing requirements for transactions affecting immovables governed the parties' contract, and the written act serves as full proof of the parties' transfer. La. C.C. art. 1839. Article 1839 further shows that the instrument had effect against third persons upon its registry. See also La. C.C. art. 3338. The trial court's ruling on the issue of ambiguity within the instrument's "four corners" was therefore required under this law for immovable property transfers, as an important first "issue" in this case.
Appellants persist on appeal in their assertions of the ambiguity of the instrument, pointing to its lack of any property description for the 1805.34 acres and its expression of "TEN DOLLARS ($10.00) together with other good and valuable consideration" (hereinafter "$10 and OVC"). First, the well established rule of our law of registry is that an instrument affecting an immovable may state the requisite description of the immovable by reference to another recorded act containing the complete description. Nitro Energy, L.L.C. v. Nelson Energy, Inc., 45,201 (La. App.2d Cir.4/14/10), 34 So.3d 524. While that rule specifically concerns the sufficiency of notice to third parties for identifying the immovable property affected by the transfer, such sufficiency or clarity also governs between the parties to the act. Here, the parties' previously recorded Lease contained a proper description of the 1805.34 acres. Therefore, the Extension Agreement's reference to the Lease for the "full description of the lands covered thereby," makes clear and unambiguous the 18-month extension of the primary term for all lease acreage.
Enforcement of the parties' contract from proof within the "four corners" of the writing under Civil Code Article 1839 is not however without exception. The exception follows in the same chapter of the Civil Code as Article 1848, which provides:
La. C.C. art. 1848. "This article deals with the situation where a party to a written contract is trying to prove that the contract exists but differently from the way it was written." Frank v. Motwani, 513 So.2d 1170, 1172 (La.1987). Thus, even though the written act affecting the immovable is unambiguous and its contents generally should not be varied or negated but applied as written, the exception occurs when a party to the instrument: (1) asserts that a vice of consent caused the written act to improperly reflect the mutual intent of the parties, and (2) offers evidence deemed by the court to be sufficient in its quality so that "in the interest of justice," the modification of the written act is allowed, giving effect only to the portion of the parties' agreement unaffected by a vice of consent.
The gatekeeper role of the trial court under Article 1848 arguably supersedes the former jurisprudential use of a "clear and convincing" evidentiary standard for a reformation action employed prior to the revision of the parol evidence rule. Cf. Talbot v. Talbot, 03-0814 (La.12/12/03), 864 So.2d 590 (where the court considered the application of a clear and convincing burden of persuasion in the absence of a statutory directive). The testimonial assertions may not be the mere subjective whims expressed by parol evidence of a party wishing to withdraw from his written act, as the trial court is given the discretion to admit or refuse evidence depending upon its quality.
The Plaintiffs' next assignment of error concerns the trial court's ruling which prevented the jury's consideration of so-called unilateral error. The partial pretrial judgment on the one hand dismissed the issue of "unilateral error." On the other hand, it denied defendants' motion to dismiss the issue of "mutual error."
The Civil Code's chapter on "Vices of Consent" for conventional obligations addresses, in Section 1, "Error" that vitiates consent to the contract. La. C.C. arts. 1948, et seq. The two primary articles on error provide as follows:
As can be seen, our civilian provisions on "error" do not utilize the terms "unilateral error" or "mutual error," and nowhere in the Civil Code is any distinction between the two expressly addressed.
As a result of the trial court's ruling, the jury was not instructed with the only codal provision defining error, Article 1949. This article was viewed by the trial court as applicable to "unilateral error," which its ruling excluded. With so-called "mutual error" missing from the codal section on error for vices of consent, the issue of error in this reformation action was presented without any codal guidance to the jury as follows:
From the official Revision Comments of Article 1949, the Civil Code's provisions on "cause," and the commentary of Professor Litvinoff given before and after the Code's 1984 Revision, we find that error can result in the annulment of a contract, or its partial rescission in a reformation action,
In such cases of mutual error, the error might be said to consist of a wrong belief shared by both parties. Litvinoff — Vices of Consent, supra at 34. With such mutual mistake, the cause of each of the reciprocal obligations of the parties is in error and the contract is a nullity.
The 1984 revision of the 27 articles on error in the Civil Code of 1870 resulted in the inclusion in the Civil Code of only the two articles quoted above, Articles 1949 and 1950. Referring to former Civil Code Article 1826, Professor Litvinoff explained new Article 1949 as follows:
Litvinoff — Vices of Consent, supra at 48. That presiding rule is now Article 1949, for all Louisiana cases where error is claimed to have legal significance, including a reformation action.
The operation of this prevailing and singular codal definition of error under Article 1949 is notably not without mutual mistake on the part of both parties to the bilateral exchange. While only one party's reason or cause for the contract is wrongly expressed in his consent to the contract, that error alone will not allow for rescission of the contract unless the other party can be said to be responsible for his knowledge, actual or constructive, of the mistaken reason of the first party. While not the same as mutual mistake affecting the cause of both parties' obligations, the sharing of mistake addressed in Article 1949 makes neither party innocent of the
Turning to the actual pleadings of Plaintiffs, while we see the legal conclusion of "mutual error" in the petition and amended petition, we do not find assertions of direct evidence of the so-called mutual error. There are no fact allegations that the parties explained to themselves in their negotiations and shared agreement, or mutual erroneous consent, that the Deep Rights would be excluded from their contract. Likewise, there is no allegation that Matador intended the written acreage description in the Extension Agreement to apply only to the 168.95 Acres. There is no allegation of written correspondence by Matador expressing that it did not desire the inclusion of the Deep Rights in the extension. Instead, the allegations were that the parties never discussed in shared negotiations whether the Deep Rights would be extended and that their only mutual intent expressed in such discussions and written exchanges concerned the extension of the Lease as to the 168.95 Acres. Most significantly, the Plaintiffs alleged that Matador and Prestige "were aware" that Plaintiffs held mistaken beliefs regarding the depths held by the existing production and the effect of the Extension Agreement on the Deep Rights.
With these allegations, we find that the trial court's partial summary judgment ruling improperly excluded the fundamental measure of error in the Civil Code provided under Article 1949. As a result, as seen from the above quoted jury charge, Plaintiffs were placed under the more onerous burden of proving that Matador and the Plaintiffs together "did not agree" with the 1805.34-acre description as written into the Extension Agreement and that their mutual mistake in using that wrong property description conflicted with their common "cause" to limit the extension to the 168.95 Acres. In contrast, the burden of proof under Article 1949 requires only that Matador should have known that Plaintiffs' cause or reason for granting the additional lease rights was limited to the 168.95 Acres. Such test for actionable "error" within these disputed facts went unaddressed by the jury.
In summary, the reformation action addressed under Article 1848 requires a showing of a "vice of consent," which the article does not limit to "mutual error." Revision Comment (d) of Article 1949 shows that "as an alternative" to total rescission, reformation of the written contract affected in part by error under Article 1949 is the remedy to carry out the common intent of the parties. The comment therefore ties Article 1848's rule for the reformation of a written act to the "vice of consent" of error addressed by Article 1949.
In Nicholas v. Allstate Ins. Co., 99-2522 (La.8/31/00), 765 So.2d 1017, the Louisiana Supreme Court addressed the issue of an erroneous jury charge as follows:
Id. at 1023. See also, Wooley v. Lucksinger, 09-0571, 09-0584, 09-0585, 09-0586 (La.4/1/11), 61 So.3d 507.
In this case, the jury charge did not inform the jury that even though the Extension Agreement unambiguously extended the lease rights for 1805.34 acres, including the Deep Rights, the written contract could be reformed or varied to correct a vice of consent proven under Article 1949. Neither the Civil Code's definition of cause for one's contract under Article 1967, nor Article 1949's measure of error affecting a party's cause for the contract was given to the jury for application in considering the alleged vice of consent in this case. We find that this erroneous charge without the substance of Articles 1967 and 1949 misled the jury concerning the proper law for this reformation action. This prevented the jury from properly dispensing justice. We will therefore address the facts from the record de novo for Plaintiffs' appeal of the judgment.
Considering the evidence for Plaintiffs' reformation claim and the alleged vice of consent of error, we initially return to the language of the Extension Agreement. By merely making reference to the recorded Lease "for a full description of the lands covered," there is no specific expression in the written act that "1805.34 acres" were affected by the extension. The same is true with the abbreviated expression of Matador's payment of $10 and OVC. While we have rejected Plaintiffs' legal argument concerning ambiguity of the Extension Agreement, these valid shorthand expressions do leave room for error. In other words, the written act does not state: "This extension grants lease rights to 1805.34 acres for all depths and formations for the bonus of $12,671.25 calculated on 168.95 acres times $75 per acre." This lack of complete specificity of the substance of the transaction within the written act is a factor that weighs in Plaintiffs' favor for their claim of error.
Second, we find that the extension of the primary term for the 1805.34 acres by the Extension Agreement was overly broad in its coverage, even from Matador's perspective for its reason or cause for the contract. After the end of the primary term and the completion of the Peironnet 29 Well, Matador was under the 90-day time constraint imposed by the Pugh clause which would likely cause the loss of its lease rights in Sections 31 and 35 and the Deep Rights. Matador was not under any
Third, the important policy concerning Louisiana's requirement for written transactions affecting immovables means that the quality of the extrinsic evidence offered under Article 1848 to vary the written contract be more than the mere parol attack by the subjective and self-serving expressions of the complaining party. Here, Plaintiffs challenged the written contract with other significant written expressions from Matador through its agents and other objective evidence. The Deep Rights under the active Cotton Valley units as defined herein have no connection with the 168.95 Acres. Plaintiffs' attack on the scope of the Extension Agreement rests significantly on the following written statements from Matador's correspondence referencing only the 168.95 Acres:
Thus, Matador's directing the focus upon the "renewal" or extension of the 168.95 Acres alone in this correspondence is evidence that Matador should have known that Plaintiffs' reason for extending the lease rights could be limited mistakenly to the 168.95 Acres.
Fourth, the evidence is undisputed that in all the exchanges between the parties leading up to the execution of the Extension Agreement, there were no discussions between them concerning the Deep Rights, the fact that the Deep Rights would also no longer be affected by the Lease upon the occurrence of the Pugh Clause Event, or Matador's desire to "renew" the Deep Rights by the execution of the Extension Agreement. Such void in the negotiations does not mean that Matador did not have cause or reason to obtain extension of the Deep Rights. Matador's agents who dealt with Plaintiffs in 2007 undisputedly asserted their knowledge of that cause for the contract. Nevertheless, despite the broad expression of the "full description of lands" in the Extension Agreement which made the extension applicable as written to the entire Lease, express negotiations concerning the Deep Rights did not occur.
Under Articles 1949 and 1950, the Plaintiffs' "cause" of the contract which allegedly was affected by error concerned "a substantial quality of that thing" which they conveyed in 2007 to Matador. The thing is
In this context and from the above review of the facts, we find (1) that the cause for Plaintiffs' obligation granting extended lease rights to Matador was to receive payment on a per acre basis and was limited to their rights in the 168.95 Acres; and (2) that Matador should have known that Plaintiffs' conveyance of lease rights was intended to be limited to the 168.95 Acres so that Plaintiffs were in error in their execution of the 1805.34-acre Extension Agreement.
The principal evidence supporting both conclusions rests on objective evidence originating directly with Matador. Its written correspondence did not state that expiration of the Lease rights after the primary term would occur "as to all acreage situated outside of the currently producing units"
Accordingly, we reverse the judgment insofar as it determined that the Deep Rights were extended by the Extension Agreement and remained subject to the Lease and owned by Chesapeake as a result of its assignment from Matador. The Extension Agreement is hereby reformed to include only Plaintiffs' rights in the 168.95 Acres in Sections 31 and 35. The Lease has expired as to the Deep Rights for the remaining 1636.39 acres.
We further declare that Matador's extended primary term of the Lease regarding the 168.95 Acres shall remain in effect following the finality of this judgment for 220 days. This period represents the time between the filing of Plaintiffs' suit on May 15, 2008, and the end of the extended term on December 22, 2008. Plaintiffs' suit, in which they prayed for total rescission of the Extension Agreement for fraud, and their top leases granted and recorded in favor of Petrohawk in October 2008 represented a disturbance of Matador's lease rights in the 168.95 Acres, which we now remedy with this ruling. Smith v. Kennon, 188 La. 101, 175 So. 763 (1937).
In Petrohawk's separate assignment of error, it contests the trial court's grant of a partial summary judgment dismissing its claim for lease rights to the one-sixth interest of Comegys. Comegys executed the Extension Agreement in the same document with her co-owners. However, after she had intervened in the suit in August 2008, she compromised her dispute with Matador and Chesapeake over the alleged error in the Extension Agreement, and in October 2009, her claims against them were dismissed from this suit with prejudice. Only after her dismissal did Petrohawk intervene in the suit in November 2009 reasserting Comegys' claim for error and reformation.
The critical events summarized chronologically are as follows:
• May 15, 2008 Filing of Lis Pendens Notice of Suit
• August 1, 2008 Filing in Conveyance Records of Matador's assignment to
Chesapeake of the Deep Rights
• August 13, 2008 Comegys' Oil and Gas Lease to Petrohawk of the Deep Rights
(Lease recorded October 15, 2008)
• August 21, 2008 Comegys' intervention in suit
• October 13, 2009 Judgment of Dismissal with prejudice of Comegys' claim against
Matador and Chesapeake based upon parties' settlement
• November 25, 2009 Petrohawk's intervention in suit asserting rights under Comegys'
lease
Chesapeake argues that Comegys' settlement and dismissal of her claims for error and the reformation of the Extension Agreement represent the withdrawal of her personal action for the partial and relative nullity of the act. Chesapeake asserts that Civil Code Article 2031 makes Comegys' claim for the relative nullity of the act her exclusive personal action, which prevents Petrohawk's assertion of the error between Comegys and Matador, the parties to the original instrument. Article 2031 provides as follows:
La. C.C. art. 2031. According to Chesapeake, since Comegys withdrew her claim of error that vitiated her consent with Matador in the extension of the Lease to the Deep Rights, Petrohawk may not reassert that claim for relative nullity.
As an additional consideration for the resolution of this issue, the relationship between the reformation action and the Louisiana public records doctrine, or law of registry, must be examined. We have ruled above that, as written, the Extension Agreement unambiguously extended the primary term of the entire Lease. Thus, Comegys' act in signing the Extension Agreement likewise became a recorded clear conveyance of her rights to Matador. A third party viewing the public records could see that this written act established an 18-month extension granting rights in the immovable to Matador. La. C.C. art. 3338. As we have addressed it under Civil Code Articles 1839 and 1848, the reformation action is allowable between the parties to the instrument to reform its terms so long as the rights of third parties have not
Upon the filing of suit by Comegys' co-owners in May 2008, the notice of lis pendens gave recorded notice to third parties, such as Chesapeake, that the Extension Agreement was in dispute. As a party to the Extension Agreement, Comegys later aligned herself in the suit with the claims of the co-owners to reform the act. Like the other Plaintiffs, Comegys' claim was that, despite the unambiguous written conveyance to Matador of an extended mineral lease affecting the Deep Rights, her error or vice of consent required reformation. The recorded lis pendens gave notice to third parties that the error or vice of consent between the lessors and Matador was subject to resolution in this suit at the time Chesapeake recorded its assignment from Matador of Comegys' lease rights in August 2008. Thus, the acquisition of the lease rights by Chesapeake as a third party to the Extension Agreement was also subject to Comegys' dispute with Matador by virtue of the notice of lis pendens.
In October 2009, the situation changed when Comegys was no longer a party to the suit, as the result of the judgment of her dismissal with prejudice. Therefore, the notice of the lis pendens in the public records ended insofar as the rights of Comegys in the litigation were no longer in dispute. At that time, Petrohawk was not a party to the suit seeking to vindicate its rights in the immovable property because of Comegys' error regarding the Extension Agreement, and it cannot assert that the lis pendens in October 2009 prevented Chesapeake's recorded rights obtained from Matador in 2008 from finding protection under the public records doctrine.
With this ruling we need not address whether Petrohawk's real right under its top lease with Comegys was subject to the exercise of an exclusive personal right of Comegys to bring the action for a relative nullity under Article 2031.
Accordingly, the trial court's partial summary judgment recognizing Chesapeake's lease rights derived from Comegys' undivided one-sixth interest is affirmed.
For the foregoing reasons, the judgment in favor of appellees is reversed in part insofar as it declared that the Lease remained in force and effect for the Deep Rights below the producing Cotton Valley production for the 1636.39 acres in Sections 23, 24, 25, 26 and 36 of Township 15 North, Range 12 West and Section 29, Township 15 North, Range 11 West, following the Pugh Clause Event. It is hereby adjudged and decreed that the Lease shall continue in full force and effect for 220 days following the finality of this judgment for Plaintiffs' lands in Section 31, Township 15 North, Range 11 West and Section 35, Township 15 North, Range 12 West at which time the extended primary term of the Lease for said land shall end.
The trial court's "Judgment on Motion for Partial Summary Judgment Related to Claims of Pamela Jeter Comegys" signed on April 15, 2010, in favor of Chesapeake Louisiana, LP, et al. and against Petrohawk Properties, L.P., is hereby affirmed.
The case is remanded to the trial court for the remaining issues concerning Plaintiffs' damage claims, and any other matters reserved by the parties in advance of the jury trial.
Costs of appeal are assessed to Appellees.
