Adam G. Nunez v. The Superior Oil Company

572 F.2d 1119, 60 Oil & Gas Rep. 351, 1978 U.S. App. LEXIS 11205
CourtCourt of Appeals for the Fifth Circuit
DecidedMay 12, 1978
Docket76-3340
StatusPublished
Cited by222 cases

This text of 572 F.2d 1119 (Adam G. Nunez v. The Superior Oil Company) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Adam G. Nunez v. The Superior Oil Company, 572 F.2d 1119, 60 Oil & Gas Rep. 351, 1978 U.S. App. LEXIS 11205 (5th Cir. 1978).

Opinion

ALVIN B. RUBIN, Circuit Judge:

This suit to cancel mineral leases and to obtain damages incurred as a result of their alleged breach was commenced in Louisiana state court, and removed by the defendant, Superior Oil Company, 1 to federal court on the basis of diversity of citizenship. After a careful consideration of Louisiana law, the experienced trial judge rendered a summary judgment for the defendant. While we conclude that the trial court was correct in its analysis of Louisiana law, we reverse the summary judgment and remand because the plaintiff is entitled to a jury trial of a controlling issue. 2

I.

The objective facts are not in dispute. 3 Adam Nunez and his son, Adam G. Nunez, each owned an undivided one-fourth interest in a piece of property leased to Superior for mineral development. On May 2, 1971, the father died and the son began endorsing his father’s royalty checks, with the added notation “by Adam G. Nunez, Administrator, for deposit only to the Estate of Adam Nunez.” Over six months later, on October 21, 1971, K. R. Richardson, a senior clerk at Superior, discovered that the endorsement was executed in a representative capacity, and ordered royalty payments to the father stopped. He wrote the son, who is a lawyer, and asked for various documents relating to the father’s succession. These documents were supplied, and the company’s attorney approved further payments to the administrator of the succession.

Whenever there is any change in the division of the royalty from a lease, it is Superi- or’s policy, in accordance with industry custom, to send an agreement to the royalty owners stating how the royalty is to be divided, and to ask them to sign it. The company recognizes that it is not necessary in many cases that a division order be exe *1122 cuted; it was not considered necessary in this case, but it nonetheless follows the practice of mailing a division order in the hope that the lessees will sign it and thus ratify the proposed new apportionment of royalty. Adam G. Nunez stated at oral argument that he never signs division orders; he sees no advantage to him, as a lessor, in doing so and the company has no right to require it. Accordingly, Superior followed its procedure and sent a royalty division order to Adam G. Nunez, as administrator of his father’s succession, but he neither signed it nor returned it to the company.

On April 6, 1972, Adam G. Nunez sent Superior a copy of a judgment of possession recognizing him as the sole heir of all his father’s property, including the royalty interest, and a letter requesting that payments of his father’s interest be made to him. On June 15, 1972, the company sent him a second royalty division order; this too was neither signed nor returned.

When the company mails a division order, it usually places a copy in its tickler system to remind its employees to check within 30 to 60 days to ensure that royalty payments are resumed even if the division order has not been returned. On this occasion, through oversight, the copy was not placed in the reminder system. Because of this failure, none of the company’s employees became conscious of the fact that the division order had not been returned and that payments had not been resumed. The error was discovered during an internal audit on February 20,1974; as a result, the company sent Nunez the unpaid royalties with interest computed at the rate of seven percent per annum. On March 14,1974, he sent the company a letter demanding acknowledgement of cancellation of the lease. Following the company’s refusal to oblige, this suit was filed. After the case was removed to federal court, the plaintiff demanded a jury trial.

II.

Under Louisiana law, the lessee’s failure to pay production royalties for an appreciable length of time without justification amounts to an active breach which terminates the lease. Wilson v. Sun Oil Co., La.1974, 290 So.2d 844; Bollinger v. Texas Co., 1957, 232 La. 637, 95 So.2d 132; Melancon v. Texas Co., 1956, 230 La. 593, 89 So.2d 135; Alvord v. Sun Oil Co., La.App.1972, 271 So.2d 561; Sellers v. Continental Oil Co., La.App.1964, 168 So.2d 435, aff’d, La. App.1966, 188 So.2d 466; Pierce v. Atlantic Refining Co., La.App.1962, 140 So.2d 19; Bailey v. Meadows, La.App.1961, 130 So.2d 501. However, if the delay in payment was “justified,” the failure to pay promptly is only a passive breach, and the lessor must accord the lessee a chance to remedy the violation. 4 Hibbert v. Mudd, La.1974, 294 So.2d 518; Alvord v. Sun Oil Co., supra; Hebert v. Sun Oil Co., La.App.1969, 223 So.2d 897; Broadhead v. Pan American Petroleum Corp., La.App.1964, 166 So.2d 329; Fawvor v. U. S. Oil of La., Inc., La.App. 1964, 162 So.2d 602.

The principle just stated includes two general terms that require further amplification: what length of time is appreciable, and, under what circumstances is a breach justifiable. The Louisiana cases indicated that each issue must be considered in the context of the unique facts and circumstances of the case in which it arises. Faw-vor, supra. Because Superior concedes that its delay was appreciable, we focus on justifiability. Delay has been considered “justifiable” when the lessor shows that it is due to “adequate reason,” Fontenot v. Sunray Mid-Continent Oil Co., La.App.1967, 197 So.2d 715, or “inadvertence” and “clerical error” in the context of otherwise reasonable conduct. Alvord, supra; Hebert, supra. These terms provide semantic amplification *1123 but insufficient definition for drawing precise lines. Discriminating judgment is required before their conceptual significance yields a decision.

The trial court granted summary judgment on the basis that the delay was attributable to, and “justified” by, the administrative procedures designed to reflect the change in ownership and the subsequent inadvertent error in filing; hence, the delay constituted only a passive breach. The court also concluded that the letter of April 6,1972 did not constitute a demand or “putting in default” because it did not put the defendant on notice that the plaintiff considered the lease terminated. Because Superior had not been put in default for the passive breach, the plaintiff was not entitled to cancellation.

There can be little doubt that the trial court’s factual conclusions were not clearly erroneous; the question is whether the court was correct in rendering summary judgment determining that Superior’s delay was justifiable, or whether that issue required resolution by a jury.

III.

Our appraisal must follow the commandment that summary judgment is appropriate only when no material issues of fact are in dispute. A. M. R. Enterprises, Inc. v. United Postal Savings Assoc., 5 Cir.

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Bluebook (online)
572 F.2d 1119, 60 Oil & Gas Rep. 351, 1978 U.S. App. LEXIS 11205, Counsel Stack Legal Research, https://law.counselstack.com/opinion/adam-g-nunez-v-the-superior-oil-company-ca5-1978.