ERG Resources LLC v. Merlon Texas, Inc. (Tex.App.- Houston [1st Dist.] Oct. 29, 2009)(Jennings) (oil gas and minerals law, no breach of contract, contract for sale, no conversion)

ERG Resources LLC v. Merlon Texas, Inc. (Tex.App.- Houston [1st Dist.] Oct. 29,
2009)(Jennings) (oil gas and minerals law, no breach of c ontract for sale, no conversion claim
where plaintiff no longer owns the minerals, oil)
Because ERG did not have title to the Oil, it cannot rely on section 2.201(b) to
establish a contract for the sale of the Oil from ERG to Merlon. For the same
reason, the Oil was not subject to conversion by Merlon.
AFFIRM TC JUDGMENT: Opinion by Justice Terry Jennings
Before Justices Jennings, Higley and Sharp
01-08-01007-CV ERG Resources. LLC v. Merlon Texas, Inc.
Appeal from 333rd District Court of Harris County
Trial Court Judge: The Honorable Joseph J. Halbach

MEMORANDUM OPINION

Appellant, ERG Resources, LLC ("ERG"), challenges the trial court's summary judgment, rendered
in favor of appellee, Merlon Texas, Inc. ("Merlon"), in ERG's suit for breach of contract and
conversion.

In two issues, ERG contends that the trial court erred in granting Merlon's summary judgment
motion and in denying ERG's summary judgment motion.

We affirm.

Background

In its original petition, ERG alleged that Merlon agreed to purchase oil and gas property owned by
ERG in a document titled "[As]signment and Bill of Sale" (the "Assignment"), which the parties
executed with an effective date of January 1, 2008. ERG asserted that the Assignment, in "express
and unambiguous terms," stated that oil produced before January 1, 2008, and contained in the
storage tanks (the "Oil") on the land subject to the agreement (the "Land"), "was the sole property
of ERG." However, after the effective date of the Assignment, when ERG sent an invoice to Merlon
for the value of the Oil, "Merlon refused to tender the $33,072 owed to ERG." ERG contended that
by refusing to pay the $33,072, Merlon had breached its contract with ERG and committed the tort
of conversion.

ERG attached to its petition the Assignment, which provides,

[ERG] . . . , herein called "Assignor," . . . does hereby grant, convey, sell, assign, and transfer unto
[Merlon] . . . , herein called "Assignee," the following interests:

1. all of Assignor's right, title, and interest in those properties listed on the attached Exhibit "A",
including but not limited to, any mineral interest, leases (whether one or more) or interests created
under contracts, and the lands covered thereunder or any other oil and gas interests applicable to
the interests described in Exhibit "A" hereto, inclusive, without limitation, the properties and/or oil
and gas units located thereon, said interests and lands being located in Liberty County, State of
Texas, together with the rights incident thereto, the personal property thereon, appurtenant
thereto, or used or obtained in connection with said properties and/or oil and gas units; AND for the
same consideration stated hereinabove, Assignor does hereby grant, convey, sell, assign, and
transfer unto Assignee all of Assignor's right, title, and interest in and to the well or wells located
upon the properties and/or oil and gas units, or on lands pooled or unitized with any portion
thereof, or on lands located within any governmental drilling and spacing unit which includes any
portion thereof, together with all casing, leasehold equipment, and personal property in or on or
used in connection with said well or wells, (hereinafter collectively referred to as the "Property");

2. all of Assignor's interest in the production of oil, gas, or other minerals, inclusive of royalties,
overriding royalties, production payments, rights to take royalties in kind, or other interests
attributable to the Property;

3. all of Assignor's interest derived from unit agreements, orders and decisions of state and federal
regulatory authorities establishing units, joint operating agreements, enhanced recovery and
injection agreements, farmout agreements and farmin agreements, options, drilling agreements,
exploration agreements, assignments of operating rights, working interests, subleases and rights
above or below certain footage depths or geological formations, to the extent same is attributable to
the Property;

4. all of Assignor's interest in rights-of-way, easements, servitudes and franchises acquired or used
in connection with operations for the exploration and production of oil, gas or other minerals on or
from the Property, including the rights to permits and licenses of any nature owned, held or
operated in connection with said operations; and

5. To the extent of the interest sold, all of Assignor's right, title and interest in and to the oil, gas of
any kind and nature, other hydrocarbons and other minerals in, on and produced from or allocated
to the leasehold interest sold to the Assignee from and after the Effective Date hereof.

ERG also attached to its petition the invoice, a letter that ERG had sent to Merlon titled "SOUTH
MARTHA FINAL GAUGES Invoice No. SM-2008" and dated January 3, 2008. In the letter, ERG
wrote, "Please remit payment to ERG Resources, L.L.C. for the following crude oil volumes on the
South Martha Field wells sold to Merlon effective 1/1/2008 . . . Total Due ERG $33,072.15."

Merlon filed a general denial and, shortly thereafter, a summary judgment motion, in which it
asserted that "ERG transferred to Merlon not only all the personal property associated with the
Leases, but also all of ERG's rights to production, and all the oil, gas, and other hydrocarbons in
and on the properties, on the Effective Date" and "nowhere in the Assignment is Merlon obligated
to pay ERG for" the Oil. In its reply and cross-motion for summary judgment, ERG asserted that
prior to January 1, 2008, ERG had extracted the Oil and "placed [it] into tanks for storage." ERG
contended that the Oil "became ERG's personal property the moment it was extracted from the
land" and the Assignment did not convey the Oil to Merlon.

The trial court denied ERG's summary judgment motion and granted Merlon's summary judgment
motion.

Standard of Review

To prevail on a summary judgment motion, a movant has the burden of proving that it is entitled to
judgment as a matter of law and that there is no genuine issue of material fact. Tex. R. Civ. P.
166a(c); Cathey v. Booth, 900 S.W.2d 339, 341 (Tex. 1995). When a defendant moves for
summary judgment, it must either (1) disprove at least one essential element of the plaintiff's cause
of action or (2) plead and conclusively establish each essential element of its affirmative defense,
thereby defeating the plaintiff's cause of action. Cathey, 900 S.W.2d at 341; Yazdchi v. Bank One,
Tex., N.A., 177 S.W.3d 399, 404 (Tex. App.--Houston [1st Dist.] 2005, pet. denied). When both
parties move for summary judgment and the trial court grants one motion and denies the other, the
reviewing court should review the summary judgment evidence presented by both sides, determine
all questions presented, and render the judgment that the trial court should have rendered. Tex.
Workers' Comp. Comm'n v. Patient Advocates of Tex., 136 S.W.3d 643, 648 (Tex. 2004).

Summary Judgment

In its first and second issues, ERG argues that the trial court erred in granting Merlon's summary
judgment motion and in denying ERG's summary judgment motion because, under the Assignment,
"ERG retained right, title and interest in the [Oil]," and either the January 3, 2008, invoice created a
contract for the sale of the production requiring Merlon to pay ERG or Merlon converted the Oil for
its own use. ERG alternatively contends that the Assignment is ambiguous, precluding the trial
court from entering summary judgment for either party.

Our primary concern in construing a written contract is to ascertain the true intent of the parties as
expressed in the instrument. Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345
(Tex. 2006); Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005). Usually, the
intent of the parties can be discerned from the instrument itself. ExxonMobil Corp. v. Valence
Operating Co., 174 S.W.3d 303, 312 (Tex. App.--Houston [1st Dist.] 2005, pet. denied). When an
issue regarding the construction of a contract is presented, we must examine and consider the
entire writing in an effort to harmonize and to give effect to all the provisions of the contract so that
none will be rendered meaningless. Seagull Energy E & P, Inc., 207 S.W.3d at 345. Contract terms
will be given their plain, ordinary, and generally accepted meanings unless the contract itself shows
them to be used in a technical or different sense. Valence Operating Co., 164 S.W.3d at 662. A
contract is ambiguous only if its meaning is uncertain or if it is subject to two or more reasonable
interpretations.

Seagull Energy E & P, Inc., 207 S.W.3d at 345; Edascio, L.L.C. v. NextiraOne L.L.C., 264 S.W.3d
786, 796-97 (Tex. App.--Houston [1st Dist.] 2008, pet. denied). If a written contract is worded in
such a way that it can be given a definite or certain legal meaning, then the contract is not
ambiguous. SAS Inst., Inc. v. Breitenfeld, 167 S.W.3d 840, 841 (Tex. 2005). An ambiguity does not
arise simply because the parties advance conflicting interpretations of the contract. Tex. Farm
Bureau Mut. Ins. Co. v. Sturrock, 146 S.W.3d 123, 126 (Tex. 2004). When the parties have entered
into an unambiguous contract, the courts will enforce the intention of the parties as written in the
instrument. Sun Oil Co. (Delaware) v. Madeley, 626 S.W.2d 726, 731 (Tex. 1981).

ERG asserts that, in the Assignment, it "merely conveyed its right, title and interest to oil and gas
severed from the property after January 1, 2008." ERG notes that paragraph 5 of the Assignment
provides that ERG conveyed to Merlon,

. . . all of [ERG's] right, title and interest in and to the oil, gas of any kind and nature, other
hydrocarbons and other minerals in, on and produced from or allocated to the leasehold interest
sold to [Merlon] from and after the Effective Date hereof.

ERG further asserts that paragraph 5 "is the only paragraph that expressly conveys any and all
rights to oil and gas produced from the leasehold" and paragraph 1 of the Assignment only
conveys its interest "derived from leases and other interests created under contract."

However, paragraph 1 expressly conveys ERG's "right, title, and interest in [the Land], . . . inclusive,
without limitation, the properties and/or oil and gas units located thereon, . . . together with . . . the
personal property thereon, appurtenant thereto, or used or obtained in connection with said
properties and/or oil and gas units." (Emphasis added). The parties agree that the Oil, which had
been severed from the Land by production, is personal property. See Humble Oil & Ref. Co. v.
West, 508 S.W.2d 812, 817 (Tex. 1974).

Paragraph 5 expressly conveys "[t]o the extent of the interest sold, all of [ERG's] right, title and
interest in and to the oil, gas of any kind and nature, other hydrocarbons and other minerals in, on
and produced from or allocated to the leasehold interest sold to [Merlon] from and after the
Effective Date." This language is historically used to transfer a mineral estate, that is, the oil, gas,
and other minerals in place, not severed from the ground. Gex v. Tex. Co., 337 S.W.2d 820, 825
(Tex. Civ. App.--Amarillo 1960, writ ref'd n.r.e.) (deed conveying "all the oil, gas and other minerals
on, in or under the described land" was held to be mineral deed, not grant of royalty interest); Bank
One, Tex., Nat'l Ass'n v. Alexander, 910 S.W.2d 530, 532 (Tex. App.--Austin 1995, writ denied)
(citing 1 Howard R. Williams & Charles J. Meyers, Oil and Gas Law § 304.4, at 475 (1994 ed.) ("[a]n
instrument that grants or reserves 'the oil, gas and other minerals in, on and under' or 'in and
under' described land, without further provisions relating to the minerals, creates a mineral
interest")); 1 Ernest E. Smith & Jacqueline L. Weaver, Texas Law of Oil and Gas § 3.5 (1994)
(noting that traditional language used to create mineral fee is reference to "oil, gas, and other
minerals in, on, and under the described land"). Thus, paragraph 5 gives Merlon a mineral
interest--an interest in the oil and gas in place as of the Effective Date of the Assignment.
Paragraph 5 does not conflict with paragraph 1. Paragraph 1 addresses the conveyance of all
kinds of personal property, including the Oil "thereon" the Land, while paragraph 5 addresses the
conveyance of the oil and gas in place.

The plain language of paragraph 1 conveys "personal property thereon . . . used or obtained in
connection with [the Land] and/or oil and gas units." (Emphasis added). The parties agree that the
Oil, which had been severed and stored in the tanks, was personal property. Thus, the Oil was
"personal property thereon" the Land as of the effective date of the assignment and was conveyed
as personal property by paragraph 1 of the Assignment. Accordingly, we hold that ERG, in the
Assignment, unambiguously conveyed its right, title, and interest in the Oil to Merlon.

ERG next argues that ERG and Merlon "formed a valid Article 2 contract with regard to the Oil"
because it sent to Merlon "an invoice confirming the sale [of the Oil] and Merlon failed to object
withing ten (10) days." In support of its argument, ERG relies upon Texas Business and Commerce
Code section 2.201(b), which provides that a contract for the sale of goods is enforceable between
two merchants

if within a reasonable time a writing in confirmation of the contract and sufficient against the sender
is received and the party receiving it has reason to know its contents, it satisfies the requirements .
. . against such party unless written notice of objection to its contents is given within ten days after it
is received.

Tex. Bus. & Com. Code Ann. § 2.201(b) (Vernon 2009).

However, a contract for the sale of goods can only exist when there is a contract or agreement to
pass "title from the seller to the buyer for a price." Id. § 2.106(a) (Vernon 2009). Here, ERG has not
asserted that its invoice confirmed any contract other than the Assignment, which conveyed the Oil
to Merlon for the consideration recited therein. ERG asserts that it measured the volume of the Oil
on January 1, 2008, and then sent Merlon the invoice on January 3, 2008. However, by January 3,
2008, Merlon had already obtained title to the Oil via the Assignment. Because ERG did not have
title to the Oil, it cannot rely on section 2.201(b) to establish a contract for the sale of the Oil from
ERG to Merlon. For the same reason, the Oil was not subject to conversion by Merlon.

Accordingly, we hold that the trial court did not err in granting Merlon's summary judgment motion.
Having held that the trial court did not err in granting Merlon's summary judgment motion, we further
hold that the trial court did not err in denying ERG's cross-motion for summary judgment.

We overrule ERG's first and second issues.

Conclusion

We affirm the judgment of the trial court.

Terry Jennings

Justice

Panel consists of Justices Jennings, Higley, and Sharp.