(Watch Your Language
& Say What You Mean, Precisely or a Judge Will Tell You What You Meant #10)
While IBM’s Deep Blue beat Gary
Kasparov in their series of chess matches in the late 90’s, in Love v. Beck Energy Corp., 2015-Ohio-1283 (7th
Dist. Ct.
of App., Noble Cty), the “human” wins. However, this outcome provided
little solace to the defendants-appellants, who wanted to “harmonize” the hand
written and word processed provisions in their favor.
The facts in this case were not
in dispute. In 1988, Roy Mason, owner of 196 acres in Jefferson Township entered into three separate
(but identical) oil and gas leases with Beck Energy. The first lease covered 65 acres , the second lease
covered 59 acres
and the third lease covered 72
acres . In December, 2002, the Loves acquired all 196 acres of Mr. Mason’s
land subject to the leases. In December 2011, without first obtaining the
Loves’ permission, Beck Energy assigned part interest in the leases to XTO
Energy; namely, its deep drilling rights. In June 2013, the Loves filed a
complaint against Beck Energy and XTO Energy seeking, among other things, to
have the assignment of the deep drilling rights declared void.
The principal issue of the case
is whether the terms of the contract (lease) required the Loves’ consent for
Beck Energy to partially assign the lease (deep drilling rights) to XTO Energy.
For the answer, we need to first look at the lease itself; particularly the
assignment clauses found in paragraphs 13 and 21.
Paragraph 13, which is typed,
provides that: “The Lessee shall have the
right to assign and transfer the within lease in whole or in part, and Lessor
waives notice of any assignment or transfer of the within lease. “
Paragraph 21 is handwritten and states: The
Lessee agrees not to assign or transfer this lease without Lessor’s consent.
The plaintiffs argued that the
language of paragraph 21 contains a clear restriction on assignment and,
accordingly, controls. The defendants (XTO Energy and Beck Energy) both argued
that paragraphs 13 and 21 must be “harmonized” with each other giving effect to
the letter of the provisions as well as their intent. They asserted that
paragraph 21 limits vs. eliminates paragraph 13. The defendants reasoned that
paragraph 13 allows for partial assignments without consent while paragraph 21
prohibits a full assignment of the lease without consent. “They argued that the
use of ‘this Lease’ in paragraph 21 without a reference to ‘in whole or in
part,’ which is used in paragraph 13, means there is only a prohibition on a
full assignment of the lease.”
After considering the parties’
arguments, the trial court found in the Loves’ favor. Such court concluded that
the handwritten language controlled over the pre-printed language and thus,
consent was needed for any assignments. The trial court further found that the
consent to assign clause was not an unreasonable restraint on alienation, and
that the contract’s 30 day notice of default requirement would have been a vain
act and served no purpose (because the assignment had already occurred, and
could not be cured within such 30 day period). The defendants then appealed the
trial court’s ruling to the 7th District Court of Appeals.
Applying basic rules of contract
construction/interpretation, the appellate court ruled that “the trial court
correctly determined that no portion of the lease could be assigned without the
Loves’ consent.”
This case fits squarely within
our “Watch your language-Say what you mean, precisely, or a judge will tell you
what you meant axiom. In fact, the court’s own words simply restate this
principle: “When the language of a
contract is clear and unambiguous, and not subject to multiple interpretations,
the court will not consider extrinsic evidence, i.e., evidence outside the four
corners of the document, to re-interpret the contract's terms. (Citing Shifrin v. Forest City Enterprises,
Inc., 64 Ohio
St.3d 635, 597 N.E.2d 499 (1992).
Of course the court will be the
trier of fact as to whether or not a contract is “clear and unambiguous.” To assist in reaching its conclusion, the 7th
District Court of Appeals cited numerous cases that have applied a classic yet
seemingly simple rule of construction: “handwritten
prevails over typed or pre-printed terms when there is a conflict between the
two” or the two are inconsistent with each other.
The appellants had no problem
with the classic rule of construction, just the court’s application of the
same. They maintained that the two clauses of the contract (paragraphs 13 and
21) were not in conflict with each other, and that the court should apply a
tandem rule of construction, namely that “when
possible, a court's construction of a contract should attempt to harmonize all
the provisions of the document rather than to produce conflict in them.”
The appellate court labeled XTO
Energy and Beck Energy’s argument that “this Lease” language in paragraph 21
only means the entire lease and thereby harmonizes the two provisions, as
creative, but not dispositive. The court deemed this a failing argument because
“it is unlikely that a reasonable person
reading paragraphs 13 and 21 would read the language in that manner.” In
other words, the court “said what it meant” and declared itself reasonable.
What is the moral of this story?
Watch your language and say what you mean, precisely, or a judge will tell you
what you meant. If the parties truly intended that assignment of partial lease
rights vs. the entire lease was permissible, without notice or consent to the
landowner-landlord, the lease should have clearly stated so, in one provision.
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