Krafve v. O'Keeffe

753 S.W.2d 220, 103 Oil & Gas Rep. 633, 1988 Tex. App. LEXIS 2249, 1988 WL 60330

• Court: Court of Appeals of Texas
• Decided: May 31, 1988
• Docket: No. 12-86-00218-CV
• Status: Published

Opinions

SUMMERS, Chief Justice.

Upon consideration of appellants’ motion for rehearing, we withdraw our original opinion delivered in this cause on December 18, 1987, and substitute therefor the following.

Plaintiff/appellee Robert M. O’Keeffe (O’Keeffe) brought suit against defendants/appellants William C. Krafve (Krafve), Orbit Ventures, Inc. (Orbit), and DAR Oil and Gas, Inc. (DAR), seeking declaratory and injunctive relief for enforcement of an “Agreed Judgment” entered in a prior case between the parties. The central issue in the instant suit is whether “payout,” as that term was used in the Agreed Judgment, had occurred, so that O’Keeffe was entitled to conveyance of a one-half interest in certain mineral properties owned by Orbit and placed in escrow for conveyance to O’Keeffe pending occurrence of “payout.” The agreement defined “payout” as the time “when the amount of production revenue attributable to O’Keeffe’s interest shall equal O’Keeffe’s pro rata share of the corporation’s outstanding liabilities as of November 30, 1981, plus the sum of all ordinary, necessary and reasonable expenses incurred by the corporation in producing the income during the period beginning November 30, 1981, and ending with the date of the in-kind distribution.” After a bench trial, the court rendered judgment adopting O’Keeffe’s construction of the “payout” formula. We affirm.

The business relationship which led to the current controversy began in 1978 when appellant Krafve became associated with appellee O’Keeffe in a predecessor company to the appellant Orbit. After two corporate restructurings, Orbit came into existence with O’Keeffe and Krafve each owning fifty percent of the stock.¹

Orbit’s operations were essentially limited to a working interest in two separate oil and gas properties owned by Orbit, one being in the Divide Field in Montana and the other in the Southwest Talco Field in Texas. Orbit was the operator of the Divide Field under a standard operating agreement with the other working interest owners. A dispute arose between the two shareholders concerning control of Orbit’s operations. During the pendency of a resulting lawsuit, O’Keeffe and Krafve reached the Agreed Judgment. That agreement provided for the transfer of all of O’Keeffe’s stock to Krafve in exchange for a pro rata in-kind conveyance of all oil and gas properties held by Orbit as of a certain date to O’Keeffe. The parties were to execute that transaction upon the occurrence of what was termed “payout.”

Approximately one year after the Agreed Judgment was entered, O’Keeffe brought the current action, concerning the proper computation of “payout” under the formula in the Agreed Judgment. Specifically, the dispute is whether the “ordinary, necessary and reasonable expenses” language in the formula included all general expenses incurred by Orbit as an ongoing corporation, as contended by Krafve, or only those expenses of production from the two oil properties which were the subject of the Agreed Judgment as asserted by O’Keeffe.

Appellants bring three points of error. In their first two points, they contend that the trial court erred in rendering judgment for O’Keeffe in that (first) “payout” as defined in the Agreed Judgment had not occurred when suit was filed and (second) the phrase “all ordinary, necessary, and reasonable expenses incurred by the corporation in producing the income” included all expenses incurred by Orbit as an ongoing corporation as opposed to only the production expenses of the oil properties at issue. In their third point, appellants challenge the legal and factual sufficiency of the evidence to support the trial court’s construction of the “expenses” phrase in the “payout” formula.

In the interpretation of written contracts the primary concern of courts is to ascertain and give effect to the intentions of the parties as expressed in the instrument. R & P Enterprises v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex.1980). Both parties agree that the agreement as a whole and the phrase in question specifically are unambiguous.² Accordingly, the intent of the parties must be determined as a matter of law by the court from the plain language of the agreement. Allison v. National Union Fire Insurance Company, 734 S.W.2d 645, 646 (Tex.1987); Parks v. Frankfurt, 476 S.W.2d 717, 723 (Tex.Civ.App.—Beaumont 1972, writ ref’d n.r.e.). To achieve this object the court will examine and consider the entire agreement so that none of the provisions will be rendered meaningless. R & P Enterprises, 586 S.W.2d at 519.

The crux of the controversy centers upon the proper construction to be given the “expenses” phrase in the payout formula set forth in the agreement. This phrase reads “all ordinary, necessary, and reasonable expenses incurred by the corporation in producing the income.” (Emphasis added.)

At trial, O’Keeffe called a highly qualified expert in oil and gas practices who testified that “based on the description of payout contained in the agreed judgment,” O’Keeffe’s interest paid out in “the period of July 1984;” that in making this calculation he interpreted the phrase “ordinary, necessary and reasonable expenses necessary to produce the income” as limited to the expenses directly attributable to the production of revenue from the properties. This interpretation of the “expenses” phrase supports the construction asserted by appellee O’Keeffe and subsequently adopted by the trial court. Assuming, ar-guendo, that the appellants’ view that this language was intended to include all general corporate expenses and not merely production expenses is correct, then the final words of limitation of that phrase would be at the very least surplusage and arguably even in direct conflict with such an interpretation. If that had been the intended meaning, the drafter could simply have referred unqualifiedly to “expenses of the corporation.” This court cannot disregard as surplusage the succeeding words of limitation “in producing the income,” but rather must give those words effect. Williams v. J and C Royalty Co., 254 S.W.2d 178 (Tex.Civ.App.—San Antonio 1952, writ ref'd).

The “payout” formula, considered in its entirety, also supports the trial court’s finding that the expense clause refers to production expenses rather than all corporate expenses. The wording “the income” obviously refers to the “production revenue” from which these expenses are to be subtracted in the formula. It logically follows that “production expenses,” rather than all corporation expenses, are to be subtracted from “production revenue” in calculating “pay out.”

The appellants, in asserting that the trial court should instead have adopted their broader interpretation, rely heavily upon the presence of the word “all” as in “all ... expenses.” This argument is without merit. The word “all” in no way grammatically alters the meaning of the phrase. If that word were to be excised, the class of expenses defined would be no more inclusive or exclusive. The applicable expenses would still be limited to expenses incurred “in producing the income.” Since “all” adds no meaning, it constitutes true sur-plusage. Fortner v. Johnson, 404 S.W.2d 892 (Tex.Civ.App.—Fort Worth 1966, writ ref’d n.r.e.).

We conclude that the trial court properly interpreted the “expense” phrase in the payout formula to include only those expenses directly attributable to the production of revenue from the Divide and Southwest Talco properties. We further hold that the trial court correctly found that O’Keeffe’s pro rata interests in the properties were paid out in July of 1984. His third point asserting legal and factual insufficiency of the evidence is inapplicable since construction of the unambiguous written agreement is a question of law for the court. Appellants’ three points of error are overruled.

The judgment of the trial court is affirmed.

1 . Krafve’s interest was actually held in the name of a small family-owned corporation (DAR Oil & Gas, Inc.).

2 . The mere fact that the parties urge different interpretations does not in and of itself render the contract ambiguous. Jones v. Killingsworth, 379 S.W.2d 362, 367 (Tex.Civ.App.—Tyler 1964), rev’d on other grounds, 403 S.W.2d 325 (Tex.1965). Ambiguity is an issue that must be raised by the pleadings. Covered Bridge Condominium Assoc., Inc. v. Chambliss, 705 S.W.2d 211, 214 (Tex.App.—Houston [14th Dist.] 1985, writ ref'd n.r.e.); Pickering v. First Pyramid Life Ins. Co. of America, 491 S.W.2d 184, 185 (Tex.Civ.App.—Beaumont 1973, writ ref d n.r.e.). In this case no ambiguity was pleaded nor was a question of any ambiguity assigned as error in this court. Our dissenting colleague would reverse the judgment and remand the cause for a new trial because the trial court’s construction of the agreed judgment has insufficient support in the record; but he candidly concedes that the evidence is also insufficient to support the contrary construction argued by appellant. In effect, he finds the agreed judgment ambiguous and that because the question of ambiguity was not raised in the trial court, insufficient evidence was adduced to support the interpretation advanced by either party. This is tantamount to a finding that the agreed judgment is ambiguous and that the cause should be retried on that theory, a conclusion we are not permitted to reach absent properly assigned or fundamental error. Cent. Educ. Agency v. Burke, 711 S.W.2d 7, 8 (Tex.1986) (administrative appeal did not raise issue upon which court of appeals reversed); Gulf Consol Int'l, Inc. v. Murphy, 658 S.W.2d 565, 566 (Tex.1983) (reversal on basis of portion of case not appealed unauthorized); see also Cox v. Johnson, 638 S.W.2d 867, 868 (Tex.1982) (fundamental error exists only where record shows on its face a lack of jurisdiction or that the public interest is directly and adversely affected).