Chapter 7-5 Breach of Contract

• Jurisdiction: United States

7-5 Breach of Contract

7-5:1 Overview

Under Texas law, mineral leases are considered contracts. Therefore, Breach of Contract is a viable cause of action in oil and gas litigation. Courts apply the usual rules of construction when determining the parties' intent, subject to certain mineral-specific rules. A mineral lease creates a contractual relationship as well as an interest in real property. Mineral leases contain covenants, which impose express or implied contractual obligations on the parties, as well as conditions, which determine how long the real property interest will last. The plaintiff's remedy depends on whether the defendant breached a covenant or a condition. Courts favor the creation of covenants in the absence of specific language creating a condition.

7-5:1.1 Related Causes of Action

Rescission, Reformation, Estoppel, Unjust Enrichment, Declaratory Judgment Action, Trespass to Try Title, Breach of Implied Covenant to Further Explore (not recognized in Texas), Breach of Implied Covenant to Market, Breach of Implied Covenant to Protect Against Drainage

MUST READ CASES

Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550, 560 (Tex. 2002)

Rogers v. Ricane Enters., Inc., 772 S.W.2d 76, 79 (Tex. 1989)

7-5:2 Elements

(1) The existence of a valid contract;

• A valid contract must exist.⁹⁷

(2) Performance or tendered performance by the plaintiff;

• The plaintiff must have performed or tendered performance under the contract.⁹⁸

(3) Breach of the contract by the defendant; and

• The defendant must breach the contract.⁹⁹
• Courts apply ordinary rules of construction when ascertaining the meaning of lease provisions, subject to several mineral-specific rules.¹⁰⁰

• A mineral lease is to be strictly construed against the lessee and in favor of the lessor.¹⁰¹
• In construing mineral leases, the habendum clause will control unless properly modified by other provisions.¹⁰²

(4) Damages sustained by the plaintiff as a result of the breach.

• The plaintiff must sustain damages as a result of the defendant's breach.¹⁰³

7-5:3 Damages and Remedies

7-5:3.1 Compensatory Damages

Breach of a covenant does not automatically terminate the estate, but instead subjects the breaching party to liability for monetary damages.¹⁰⁴

• Since forfeitures are not favored, courts are inclined to construe the provisions in a contract as covenants rather than as conditions.¹⁰⁵
• The measure of damages varies depending on the covenant breached.¹⁰⁶

7-5:3.2 Termination of Lease

Breach of a condition results in automatic termination of the leasehold estate upon the happening of stipulated events.¹⁰⁷

• Courts will only construe provisions in a contract as conditions if a lease expressly provides for termination.¹⁰⁸

When damages do not provide adequate relief, the court can conditionally terminate the lease if actual production does not occur within a reasonable time.¹⁰⁹

7-5:3.3 Attorney's Fees

A plaintiff who recovers damages for breach of contract is entitled to attorney's fees.¹¹⁰

7-5:4 Defenses

7-5:4.1 Temporary Cessation Doctrine

Temporary cessation of production in paying quantities does not terminate a lease if the lessee exercises diligent efforts to restore production and there is a reasonable expectation of success within a reasonable period of time.¹¹¹

• What constitutes a reasonable time depends on the facts of each case.¹¹²
• The burden is on the lessee to prove that the

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