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XCO Production Company v. Bruce L. Jamison and B.L. Jamison Family Limited Partnership ( 2005 )


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  • Affirmed and Opinion filed May 26, 2005

    Affirmed and Opinion filed May 26, 2005.

     

     

    In The

     

    Fourteenth Court of Appeals

    _______________

     

    NO. 14-03-01198-CV

    _______________

     

    XCO PRODUCTION COMPANY, Appellant

     

    V.

     

    BRUCE L. JAMISON AND

    B.L. JAMISON FAMILY LIMITED PARTNERSHIP, Appellees

    _________________________________________________________________

     

    On Appeal from the 11th District Court

    Harris County, Texas

    Trial Court Cause No. 99‑38725

    _________________________________________________________________

     

    O P I N I O N

    Appellees, Bruce L. Jamison and B.L. Jamison Family Limited Partnership (collectively AJamison@), sued appellant XCO Production Company (AXCO@) for breach of a contract governing Jamison=s purchase of an interest in certain oil and gas properties.  The parties disagree over the interpretation of the contract.  After a jury returned its verdict interpreting the contract in Jamison=s favor, the trial court entered judgment for Jamison.

    In three issues, XCO contends (1) the trial court erred in submitting a jury question regarding interpretation of the contract because it is unambiguous and in XCO=s favor as a matter of law, (2) Jamison=s claim is barred by the four-year statute of limitations, and (3) Jamison=s claim is barred by a contractual statute of limitations.  We agree that the contract is unambiguous as a matter of law, but in Jamison=s favor.  Therefore, we conclude any error in submitting the jury question was harmless because the jury, nonetheless, decided the issue in Jamison=s favor.  We further conclude that XCO failed to prove that Jamison=s breach of contract claim was barred by the four-year statute of limitations or a contractual statute of limitations.  Accordingly, we affirm.

    I.  Background

    XCO is an oil and gas exploration company.  Robert Gray is vice-president and 100% owner of XCO.  In 1991, XCO owned working interests in oil and gas properties in Louisiana.[1]  At that time, Jamison, who was interested in a low-risk investment opportunity that would provide tax advantages and future income, was introduced to Gray by one of Jamison=s friends.

    Jamison and XCO entered into a written AMemorandum of Agreement,@ effective December 13, 1991, whereby Jamison would purchase a portion of XCO=s working interest in several Louisiana properties.  The agreement created a Atax partnership@ between Jamison and XCO.[2]  Under the agreement, Jamison made a $500,000 capital contribution to the partnership, and XCO contributed its working interest in the properties.  The disputed portion of the agreement, paragraph 9, concerns allocation of income and costs among XCO and Jamison as follows:

    9.  Partnership Allocations.  Each item of income, gain, loss or deduction shall be allocated between XCO and JAMISON as follows:

    (a)       First, all [intangible drilling costs] and general and administrative costs paid from December 13, 1991 through December 31, 1992, shall be allocated to JAMISON, provided, however, that no such amounts shall be allocated to Jamison which would cause his fair market value capital account to become negative or increase its negative position;

    (b)       Second, all depreciation with respect to tangibles held by the Tax Partnership or with respect to the Weldon Operating Agreement and allocable to the XCO-JAMISON partnership shall be allocated to JAMISON, provided, however, that such allocations, in the aggregate, shall not cause his fair market value capital account to become negative or increase its negative position;

    (c)       All costs other than those set forth in paragraphs 9.a and 9.b of this Memorandum of Agreement shall be allocated to XCO;

    (d)       30% of the XCO-JAMISON Partnership=s net revenues, after adjustment for the items of cost set forth in paragraphs 9.a, b and c of this Memorandum of Agreement, shall be allocated to JAMISON until such time as he has received $500,000.00 in distributions from the XCO-JAMISON Partnership (APayout@); the balance of the net revenues shall be allocated to XCO during such period.

    (e)       After Payout, Jamison shall receive 1.25% of the net profits of the XCO-Jamison Partnership; the balance of the XCO-JAMISON Partnership=s revenues, and all of its expenses, shall be allocated after Payout to XCO.

    The parties urge different interpretations of paragraph 9, and we will later discuss their interpretations in more detail.  In short, however, XCO claims paragraph 9 allowed XCO to deduct all costs, including lease operating expenses, intangible drilling costs, general and administrative costs, and depreciation, from net revenues to determine Jamison=s payout (30% of net revenues).  In contrast, Jamison claims XCO could allocate to him only the costs listed in subparagraphs (a) and (b) (intangible drilling costs, general and administrative costs, and depreciation); and once $500,000 in costs were allocated to him, he was entitled to 30% of net revenues, without regard to costs, until he recouped his initial $500,000 investment.

    In any event, beginning in 1992, XCO issued accounting statements reflecting that it apparently deducted all costs from net revenues according to its interpretation of the agreement.[3]  Meanwhile, in mid-1992, an unrelated lawsuit involving the properties was filed against XCO in Louisiana.  The Louisiana court ordered that all XCO=s revenues be paid into the registry of the Louisiana court.  The revenues were not released until early 1996.  At that time, XCO told Jamison he would receive no money because costs had greatly exceeded revenues.

    In 1999, Jamison sued XCO for breach of contract alleging that XCO failed to pay monies due and improperly charged costs to him. Jamison also alleged the agreement was ambiguous.  After hearing the evidence, the trial court determined that the agreement was ambiguous and submitted a jury question regarding its meaning.  Specifically, the jury was asked, ADid [XCO] and [Jamison] agree that [Jamison] would be paid 30% of net revenues after Jamison=s $500,000 investment was expended only on costs allocated to Jamison in Paragraph 9(a) and 9(b) of the parties= Memorandum of Agreement?@ The jury answered Ayes,@ thus interpreting the agreement in Jamison=s favor.  The trial court entered judgment awarding Jamison $417,173 plus $111,500 in attorneys= fees and interest.

    II. Interpretation of the Memorandum of Agreement

    In its first issue, XCO contends the trial court erred in submitting the jury question regarding interpretation of the agreement because the contract is unambiguous in XCO=s favor as a matter of law.[4]

    A.        Construction of Contracts

    Whether a contract is ambiguous is a question of law to be decided by examining the contract as a whole in light of the circumstances present when the contract was made.  Universal Health Servs., Inc. v. Renaissance Women=s Group, P.A., 121 S.W.3d 742, 746 (Tex. 2003); Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996).  A contract is not ambiguous if it can be given a certain or definite meaning as a matter of law.  Universal Health Servs., 121 S.W.3d at 746; Columbia Gas Transmission Corp., 940 S.W.2d at 589.  Lack of clarity does not create an ambiguity.  Universal Health Servs., 121 S.W.3d at 746; Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 134 (Tex. 1994).  Further, a contract is not ambiguous simply because the parties advance conflicting interpretations.  Columbia Gas Transmission Corp., 940 S.W.2d at 589; Forbau, 876 S.W.2d at 134.  Rather, a contract is ambiguous if it is subject to two or more reasonable interpretations after one applies the pertinent rules of construction.  Universal Health Servs., 121 S.W.3d at 746; Columbia Gas Transmission Corp., 940 S.W.2d at 589.  If a contract is ambiguous, a fact issue exists on the parties= intent.  Columbia Gas Transmission Corp., 940 S.W.2d at 589.

    Accordingly, to determine whether the agreement is ambiguous, we must decide whether both parties= interpretations are reasonable.  After examining the agreement and the circumstances present when it was made, we conclude that XCO=s construction is not reasonable, but Jamison=s interpretation is reasonable. 

    B.        XCO=s Interpretation

    In support of its argument that only its interpretation is reasonable, XCO points to subparagraph 9(d) which provides, A30% of the XCO-JAMISON Partnership=s net revenues, after adjustment for the items of cost set forth in paragraphs 9.a, b and c . . . shall be allocated to JAMISON . . . .@ (emphasis added). According to XCO, Aafter adjustment@ means Asubtract@; thus, all costs, including the costs set forth in subparagraphs (a), (b), and (c), are to be subtracted from net revenues before determining Jamison=s 30% payout.[5]

    XCO states that, because Jamison purchased a Aworking interest@ in the properties and Aworking interest@ is a cost-bearing interest, all costs had to be deducted from net revenues for Jamison=s interest to be a Aworking interest.@ Further, the court-appointed auditor who examined the agreement in connection with this suit opined in his report that all costs were to be deducted from net revenues to determine Jamison=s payout.  XCO=s interpretation of subparagraph (d), however, creates several conflicts with the rest of paragraph 9.  See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003) (stating that in construing contracts, no single provision taken alone will be given controlling effect; rather, the court must consider the entire contract to harmonize and give effect to all its provisions, so that none will be rendered meaningless).

    First, under XCO=s interpretation, subparagraph (d) conflicts with subparagraphs (a) and (b). Subparagraphs (a) and (b) state that certain costs are to be allocated to Jamison=s capital account.  However, according to XCO, under subparagraph (d), these same costs are to be subtracted from net revenues to determine Jamison=s payout.  Therefore, XCO=s interpretation creates a conflict as to how the costs are to be treated.

    Further, under XCO=s interpretation, subparagraph (d) conflicts with subparagraph (c). Subparagraph (c) provides that all costs other than intangible drilling costs, general and administrative costs, and depreciation are to be allocated to XCO.  But, subtracting these Aother@ costs from net revenues to calculate Jamison=s payout, as urged by XCO, would effectively allocate these costs to Jamison in contravention of subparagraph (c).

    In addition, under XCO=s interpretation, there is no limit on the amount of costs that may be deducted from net revenues to determine Jamison=s payout.  That reasoning, however, conflicts with subparagraphs (a) and (b) which provide that Ano such amounts shall be allocated to Jamison that would cause his fair market value capital account to become negative or increase its negative position.@ Allocating all costs, regardless of amount, to Jamison could cause his capital account ($500,000) to become negative.

    Finally, XCO=s interpretation does not reconcile the use of the term Anet revenues@ in subparagraph (d) with the use of the term Anet profits@ in subparagraph (e).  According to XCO, under subparagraph (d), all costs are to be subtracted from Anet revenues@ to determine Jamison=s payout.  However, under subparagraph (e), after Jamison=s payout reaches $500,000, he then receives 1.25% of Anet profits.@  If Anet revenues@ includes all costs as urged by XCO, then the use of the term Anet profits@ in subparagraph (e) is rendered meaningless.  XCO=s interpretation fails to explain how Jamison=s interest converts from a Anet revenues@ interest to a Anet profits@ interest if all costs are already being deducted from Anet revenues.@

    Consequently, because XCO=s interpretation creates several internal conflicts in paragraph 9, we cannot conclude that XCO=s interpretation is reasonable. 

    C.        Jamison=s Interpretation

    To substantiate his interpretation of paragraph 9, Jamison relies on the testimony of Shelly Cashion, his tax lawyer who drafted the agreement.[6]  Cashion testified the agreement was an Aodd duck@ because it included accounting methodology unique to tax partnerships. According to Cashion, in oil and gas taxation, Aallocate,@ Aadjust,@ Anet revenues,@ and Anet profits@ are terms of art.  Cashion defined these terms as follows:

                AAllocate@:                 means to divide tax items among partners.

    AAdjust@:                     is the consequence of that Aallocation.@ AAdjust@ does not mean Asubtract@ or Adeduct.@  Rather, tax items are Aallocated@ to a partner, and the partner=s capital account is Aadjusted@ to account for that Aallocation.@

    ANet revenues@:         means the cash from oil and gas production minus severance taxes and royalties only. 

    ANet profits@: means Anet revenues@ minus Alease operating expenses,@ which are the operating costs of the business.

     

    Applying these definitions to paragraph 9, Cashion explained that pursuant to subparagraphs (a) and (b), intangible drilling costs, general and administrative expenses, and depreciation are allocated to Jamison=s capital account until his capital account reaches zero.  In other words, Jamison would receive a total allocation of no more that $500,000 in intangible drilling costs, general and administrative expenses, and depreciation.  Pursuant to subparagraph (c), all other costs are allocated to XCO=s capital account.

    Next, Cashion explained the operation of the disputed subparagraph (d).  She testified that the phrase Aafter adjustment for the items of cost set forth in paragraphs 9.a, b and c@ does not mean subtract all the costs outlined in subparagraphs (a), (b), and (c) from net revenues to determine Jamison=s payout.  Rather, the phrase is a Atiming mechanism.@ After these costs are allocated to the respective capital accounts pursuant to subparagraphs (a), (b), and (c) and Jamison=s capital account reaches zero, Jamison receives 30% of net revenues until he has recouped his $500,000 capital contribution.  Thus, Jamison does not receive a percentage of net revenues until his capital account is Achewed up.@ Further, because the term Anet revenues@ is used, Jamison receives 30% of net revenues without regard to costs, including lease operating expenses.  In sum, Awe spent all his money and now we are going to give it back to him -- until he gets in cash $500,000.@

    Cashion then stated that pursuant to subparagraph e., once Jamison has recouped his $500,000, his interest converts to receiving 1.25% of Anet profits,@ which means he is now charged with all costs, including lease operating expenses.

    We conclude that Cashion=s explanation of paragraph 9 is reasonable because her definitions of Aallocate@ and Aadjustment@ resolve any conflicts between the subparagraphs.  Further, Cashion=s distinction between Anet revenues@ and Anet profits@ clarifies the use of Anet revenues@ in subparagraph (d), but not Anet profits@ in subparagraph (e).[7]

    Moreover, Jamison=s interpretation is consistent with the circumstances present when the contract was made. It is undisputed that Jamison made known to Gray from the outset that he wanted a low-risk investment with maximum tax advantages and an opportunity to get his capital back.  In return, Jamison was willing to receive a small percentage in the long-run.  If the parties had agreed that revenues could be reduced by all potential costs before calculating Jamison=s payout, as urged by XCO, Jamison=s investment would not have been low-risk.  Further, Cashion confirmed that the parties= objective was to allocate certain deductions to Jamison and then pay back his investment from revenues.

    The most significant evidence of the circumstances present when the contract was made is a letter from Gray to Jamison outlining XCO=s proposal.  Gray stated that XCO anticipated incurring a certain amount of general and administrative costs and intangible drilling costs in a short time period with respect to the properties.  Gray proposed that Jamison Areimburse@ XCO for these costs.  Gray also proposed that Jamison

    Awould receive a defined percentage of XCO=s monthly production revenues on a preferential basis computed without regard to expense. After [Jamison] had recouped the value of his investment, his interest in the partnership would convert to a >net profits interest= such that he would receive a significantly reduced percentage of the net profits attributable to the partnership.@ 

     

    (Emphasis added).[8]  This proposal is consistent with Jamison=s argument that only certain costs were to be allocated to him; then, he would recoup his investment out of net revenues without regard to costs before his interest converted to a net profits interest.[9]

    Nevertheless, Gray testified that the portion of his proposal offering to return Jamison=s investment Aon a preferential basis computed without regard to expense@ was not embodied in the final agreement.  According to Gray, Cashion and XCO=s tax lawyer advised him that his proposal could not be utilized because it created, in effect, a cost-less interest that would not allow Jamison any tax deductions.

    At trial, however, Cashion clarified her concerns with the initial proposal.  She explained that Gray=s proposal would result in Jamison=s immediately recouping his investment out of net revenues.  Cashion feared the IRS might view such an arrangement as a loan, rather than an investment, and thus disallow any deductions. Therefore, she and XCO=s tax attorney decided to draft the agreement so as to postpone Jamison=s participation in net revenues until his investment had been Achewed up@ through allocation of the costs outlined in subparagraphs (a) and (b).[10]  Therefore, Gray=s proposal that Jamison recoup his investment on a Aon a preferential basis computed without regard to expense@ was embodied in the final agreement.  However, Cashion=s tax concerns were alleviated by modifying the timing for Jamison to recoup his investment.[11]

    In sum, although the agreement is not a model of clarity, we conclude that Jamison=s interpretation is reasonable because it reconciles the subparagraphs of paragraph 9 and is consistent with the circumstances present when the agreement was made.  Because the agreement is subject to only one reasonable interpretation, it is unambiguous as a matter of law.  See Universal Health Servs., Inc., 121 S.W.3d at 746; Columbia Gas Transmission Corp., 940 S.W.2d at 589.  Therefore, the trial court erred in submitting a jury question regarding interpretation of the agreement.  See Transcon. Gas Pipeline Corp. v. Texaco, Inc., 35 S.W.3d 658, 665 (Tex. App.CHouston [1st Dist.] 2000, pet. denied) (stating that a trial court errs when it does not construe an unambiguous provision as a matter of law, and instead, submits the issue to a fact finder).  However, the error was harmless because the jury, nonetheless, interpreted the agreement in Jamison=s favor.  See Tex. R. App. P. 44.1(a)(1). Accordingly, we overrule XCO=s first issue.

    III. Four-Year Statute of Limitations

    In its second issue, XCO contends that Jamison=s breach of contract claim was barred by the four-year statute of limitations.  See Tex. Civ. Prac. & Rem. Code Ann. ' 16.004 (Vernon 2002).  XCO asserts that Jamison=s claim accrued more than four years before he filed suit as a matter of law. XCO also asserts that the trial court erred by submitting a jury question on the discovery rule.[12]  We conclude the trial court erred by submitting a jury question on the discovery rule; however, we hold the error was harmless because XCO did not prove as a matter of law that Jamison=s claim accrued more than four years before he filed suit.

    A.        Jury Question On The Discovery Rule.

    A defendant challenging an adverse finding on limitations must conclusively establish the applicability of the statute of limitations, including the date on which limitations commenced.  See Provident Life & Acc. Ins. Co. v. Knott, 128 S.W.3d 211, 220 (Tex. 2003); Intermedics, Inc. v. Grady, 683 S.W.2d 842, 845 (Tex. App.CHouston [1st Dist.] 1984, writ ref=d n.r.e.); see also Willis v. Donnelly, 118 S.W.3d 10, 28 (Tex. App.CHouston [14 Dist.] 2003, pet. filed) (citing Woods v. William M. Mercer, Inc., 769 S.W.2d 515, 517 (Tex. 1988)).  Generally, when a cause of action accrues is a question of law.  Knott, 128 S.W.3d at 221 (citing Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 351 (Tex. 1990)).


    As a general rule, a cause of action accrues and the statute of limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy.  Id. at 221 (citing Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 514 (Tex. 1998)).  In most cases, a cause of action accrues when a wrongful act causes some legal injury, even if the fact of injury is not discovered until later, and even if all resulting damages have not yet occurred.  Id. (citing S.V. v. R.V., 933 S.W.2d 1, 4 (Tex. 1996)). A breach of contract cause of action accrues when the contract is breached.  Willis, 118 S.W.3d at 28 (citing Stine v. Stewart, 80 S.W.3d 586, 592 (Tex. 2002)).

    When applicable, however, the discovery rule exception to the statute of limitations defers accrual of a cause of action until the plaintiff knows, or by exercising reasonable diligence should know, of the facts giving rise to the claim.  Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734 (Tex. 2001).  The discovery rule is Aa very limited exception to statutes of limitations@ and applies only when the nature of the plaintiff=s injury is both Ainherently undiscoverable@ and Aobjectively verifiable.@ Id.

    XCO contends that the discovery rule was inapplicable here because Jamison=s injury was not Ainherently undiscoverable.@ We agree.  An injury is inherently undiscoverable if it is, by its nature, unlikely to be discovered within the prescribed limitations period despite due diligence.  Id. at 734B35. Whether an injury is inherently undiscoverable is determined on a categorical basis because such an approach Abrings predictability and consistency to the jurisprudence.@  Id. at 735.


    Thus, the question here is whether Jamison=s injury is Athe type of injury that generally is discoverable by the exercise of reasonable diligence.@ See id.  In Wagner & Brown, the court held that some royalty owners= claim against a gas lessee for improper charges resulting in underpayment of royalties was not inherently undiscoverable.  Id. at 737. Although information regarding the charges was unavailable from public sources and the gas lessees misrepresented the charges, there were several sources of information from which royalty owners could discover whether charges were reasonable.  Id. at 735B37. Similarly, under the facts of this case, a claim by a working interest partner against the other partner for improperly charging expenses and failing to pay net revenues cannot be inherently undiscoverable, particularly when the claimant receives extensive information regarding the charges and revenues.  Although we have determined that the discovery rule is not applicable, however, submission of the jury question was harmless.  The discovery rule merely defers accrual of a cause of action until the plaintiff knows, or should know, of facts giving rise to the cause of action.  See id. at 734.  Here, XCO did not conclusively prove that the claim accrued more than four years before Jamison filed suit.[13]

    B.        Accrual Of The Cause of Action

    XCO contends that Jamison=s claim accrued as a matter of law more than four years before Jamison filed suit on July 30, 1999. XCO contends that the breach, if any, of the agreement occurred as early as February 1993, based on accounting statements that XCO sent to Jamison.

    The February 1993 accounting statement indicates that a Aworkover@ expense of $869,700 for the St. Charles Church well was charged against gross revenues before calculating XCO=s net revenues, and hence, Jamison=s share of net revenues.  The result of this improper charge is Anegative@ net revenues, and, thus, no share of net revenues to be paid to Jamison for that month.[14]

    Jamison=s damages expert testified that his $500,000 investment had been Achewed up@ by late 1992. Therefore, under Jamison=s interpretation of the agreement, he should have started to receive his payoutC30% of net revenues, without regard to expensesCby February 1993.[15]  Thus, the February 1993 statement shows XCO proceeded contrary to the agreement because (1) XCO charged Jamison with more than $500,000 in expenses, and (2) XCO subtracted expenses from net revenues to calculate Jamison=s share of net revenues even after his $500,000 investment was Achewed up.@

    Jamison, however, argues that despite the February 1993 statement, XCO=s breach did not occur at that time for several reasons.  Specifically, Jamison argues that (1) XCO did not refuse to pay Jamison=s share of net revenues in February 1993 because the revenues were frozen, (2) the time for performance was extended by XCO=s reassurances while the revenues were frozen, and (3) XCO=s accounting statements contained errors.

    1.         Refusal to Pay Jamison=s Share of Net Revenues

    First, Jamison argues that the breach did not occur in February 1993 because XCO=s revenues had been frozen by order of the Louisiana court.  Jamison contends that XCO could not have refused to pay Jamison=s share of net revenues when it did not even have access to the revenues.

    The February 1993 statement does show that XCO improperly charged expenses against net revenues.  In his petition, Jamison pleads that XCO breached the agreement by, among other actions, A[c]harging expenditures improperly to the account of [Jamison].@ However, Jamison also pleads that XCO breached the agreement by A[f]ailing to pay monies when due.@ Therefore, he does not complain only of the improper charging of expenses.  Rather, the gist of his complaint is that he did not receive his $500,000 payout due to the improper charging of expenses.  Thus, while the February 1993 statement may show that XCO improperly charged expenses against net revenues, the improper charging of expenses did not cause a legal injury at that time because XCO did not have access to the revenues, and, thus, did not refuse to pay Jamison his share.

    2.         XCO=s Reassurances

    In a related argument, Jamison contends that his claim did not accrue in 1993 because the date for performance was expressly or impliedly extended by agreement.  According to Jamison, while the revenues were frozen, XCO reassured Jamison that he would receive his payout when the revenues were released. Specifically, Jamison testified that while the revenues were frozen, he asked Gray periodically about the status of the Louisiana suit.  Gray responded that the suit was going well and Adon=t worry your money is in there.  Once we wrap this up, you=re going to get your money.  You are due your money, your net revenue.@ Jamison also testified that during 1992, he addressed with Gray whether his $500,000 investment was being properly allocated.  Gray responded that XCO=s accounting was a Amess,@ and Awe really don=t know whether it is expended or not expended or whatever, but it doesn=t matter because you=re . . . going to get paid on this anyway because you=re going to get your $500,000.@ Significantly, XCO does not cite any evidence disputing these reassurances.  Further, Jamison testified that when the revenues were released in early 1996, XCO informed him for the first time that he would not receive any share of net revenues because expenses exceeded revenues.

    Jamison cites Willis, in which an employer agreed, among other matters, to transfer stock to an employee when the employer=s revenues reached a certain amount.  118 S.W.3d at 23.  The employee did not receive any of the stock although over the years, revenues exceeded the amount specified in the contract.  Id. at 24B25. After the employee was terminated without receiving the stock, he sued the employer for breach of contract.  Id. at 25.  The employer argued that the claim was barred by limitations because the contract was breached on the date the employer was first required to transfer the stock, which was more than four years before suit was filed.  Id. at 28.  We disagreed.  Id.

    We recognized that even when an exact date of performance is specified in a contract, this provision can be waived by the parties.  Id. (citing Sieber & Calicutt, Inc. v. La Gloria Oil & Gas Co., 66 S.W.3d 340, 347 (Tex. App.CTyler 2001, pet. denied); Intermedics, Inc., 683 S.W.2d at 846; Pickett v. Keene, 47 S.W.3d 67, 77 (Tex. App.CCorpus Christi 2001, pet. dism=d)). Further, an extension of time to perform can be express or implied and does not affect the other provisions of the contract.  Id. (citing Intermedics, 683 S.W.2d at 846).  The evidence indicated that the employer intended to honor the agreement Aat some point.@ Id.  The undisputed evidence showed that each time the employee inquired about the stock ownership, the employer assured him that the employer would comply with the agreement but asked to delay the transfer until his financial condition improved.  Id. at 24B25, 28.  The employee relied on the employer=s assurances and accepted the delays.  Id. at 28.  Thus, there was no clear intent by the employer to repudiate the contract until the employee=s termination.  Id. Consequently, the employee=s cause of action accrued at that time.  See id.

    Similarly, here, despite the February 1993 statement, as well as other statements, indicating XCO was improperly charging expenses against net revenues, XCO reassured Jamison that he would receive his payout when the revenues were released.  Jamison relied on those assurances and accepted the delay.  XCO then repudiated the agreement when the revenues were released in early 1996 and XCO first informed Jamison he would not receive his payout.  Therefore, based on XCO=s reassurances, the evidence does not conclusively establish that the breach occurred in February 1993.

    3.         Accounting Errors

    Finally, Jamison asserts that the breach did not occur in February 1993 because XCO=s accounting statements issued while its revenues were frozen undisputedly contained errors.  Although XCO admitted that it had accounting difficulties while the revenues were frozen, the nature of the accounting errors is not clear.  Gray testified that XCO did not receive statements from the registry of the Louisiana court.  Therefore, reconciling XCO=s records with the registry of the court was difficult, and Awe just had to guess.@

    Gray=s testimony indicates that XCO=s accounting difficulties concerned the amount of its revenues.  If the errors concerned only the amount of XCO=s revenues, the February 1993 statement, nonetheless, reflects that XCO calculated Jamison=s payout contrary to the agreement.  Specifically, the statement reflects that XCO deducted expenses from net revenues to calculate Jamison=s payout, regardless of the amount of revenues.

    In any event, because the nature of the errors is not clear, we cannot conclude that limitations bars Jamison=s suit based on statements that admittedly contained errors.  Further, regardless of the nature of the errors, XCO assured Jamison that the errors would be corrected, and he would receive his payout when the revenues were released.

    Consequently, XCO did not establish as a matter of law that Jamison=s cause of action accrued no later than February 1993.[16]  Therefore, we hold Jamison=s cause of action is not barred by the statute of limitations.  Accordingly, XCO=s second issue is overruled.

    IV. Contractual Statute of Limitations

    In its third issue, XCO contends that Jamison=s breach of contract claim was also barred by a statute of limitations clause. Specifically, the Memorandum of Agreement incorporates the operating agreements for the oil and gas properties. The operating agreements contain the following provision under the section entitled AAccounting Procedures@:

    [A]ll bills and statements rendered to Non-Operators by Operator during any calendar year shall conclusively be presumed to be true and correct after twenty-four (24) months following the end of any such calendar year, unless within the said twenty-four month period a Non-Operator takes written exception thereto and makes claim on Operator for adjustment.

     

    According to XCO, this provision imposed a two-year statute of limitations for Jamison to contest any costs deducted from net revenues during a given year.  We disagree.

    This provision clearly applies to accounting procedures between the operator and the non-operators.  Southhampton Mineral Corporation was the operator for these properties; XCO and other entities were the non-operators.  Jamison purchased a portion of XCO=s non-operator interest in the properties under a separate agreement, and his dispute is with XCO over the terms of that agreement.  Jamison=s dispute is not with Southhampton.  In short, this dispute is not between the operator and a non-operator. Rather, this dispute is between two partners who constitute a non-operator.  Therefore, this provision did not impose a two-year contractual statute of limitations on Jamison with respect to his breach of contract claim against XCO.[17]

    Accordingly, we overrule XCO=s third issue.

    V. Conclusion

    We conclude the contract is unambiguous as a matter of law, but in Jamison=s favor.  Therefore, any error in submitting the complained-of jury question was harmless because the jury, nonetheless, interpreted the agreement in Jamison=s favor.  We further conclude that XCO failed to prove that Jamison=s breach of contract claim was barred by the four-year statute of limitations or a contractual statute of limitations.

    Accordingly, we affirm the judgment of the trial court.

     

    /s/        Eva M. Guzman

    Justice

     

    Judgment rendered and Opinion filed May 26, 2005.

    Panel consists of Chief Justice Hedges and Justices Edelman and Guzman.

     

     


    [1]  Southampton Mineral Corporation was the operator for these properties. 

    [2]  XCO and Jamison were considered partners for federal income taxation purposes only.  They were not considered partners with respect to liabilities and obligations under state law.  Jamison=s tax attorney testified the federal government permits this type of arrangement to stimulate oil and gas investment.

    [3]  As we will later discuss, there is evidence that these statements contained errors.

    [4]  In its brief, XCO frames its first issue in several different ways.  However, the gist of its complaint is that the trial court erred in submitting the jury question because the agreement is unambiguous as a matter of law.  XCO does not challenge the sufficiency of the evidence supporting the jury=s finding.

    [5]  According to XCO, these costs include all lease operating expenses, in addition to intangible drilling costs, general and administrative costs, and depreciation.  Apparently, the lease operating expenses  are at the center of this dispute.  There is evidence that lease operating expenses are the primary type of other costs addressed in subparagraph (c).  Further, XCO deducted large amounts of lease operating expenses from net revenues pursuant to its interpretation of the agreement.

    [6]  XCO contends that Cashion=s testimony, as well as all evidence regarding the parties= intent, is inadmissible parol evidence.  Extrinsic evidence is not admissible to create an ambiguity or vary the terms of an unambiguous agreement; however, when determining whether an agreement is ambiguous, we may examine extrinsic evidence to interpret the terms used by the parties and extrinsic evidence of the circumstances surrounding execution of the agreement.  See Belandran v. Safeco Inc. Co. of Am., 972 S.W.2d 738, 741 (Tex. 1998); Nat=l Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI Indus., Inc., 907 S.W.2d 517, 521 (Tex. 1995); Sun Oil Co. (Del.) v. Madelay, 626 S.W.2d 726, 731 (Tex. 1981).  We note that Jamison also offered the testimony of its expert who reviewed the agreement in connection with this suit.  In addition, XCO offered the report of the court-appointed auditor, who agreed with XCO=s interpretation. However, Cashion was the only expert actually involved in drafting the agreement who testified regarding its meaning and the circumstances present when it was drafted.

    [7]  XCO has not offered any contrary definition for the terms used in the agreement that would make its interpretation reasonable.  In his report, the court-appointed auditor stated that a Anet revenues@ interest is substantially the same as a Anet profits@ interest for purposes of this agreement.  However, if that were the case, there is still no explanation for using the two different terms in subparagraphs (d) and (e).  Further, the auditor stated that his audit was based on Council of Petroleum Accounting Societies (COPAS) principles.  Jamison=s expert testified that COPAS explicitly defines Anet revenues@ as gross proceeds less royalties and severance taxes; and COPAS explicitly defines Anet profits@ as gross proceeds less royalties, severance taxes, and operating expenses.  In fact, later in his report, the auditor seemed to acknowledge that the terms are not the same.  In particular, the auditor later summarizes the partnership=s revenues, costs, and Jamison=s interest.  The auditor has two separate categories entitled: ANet Revenues allocated to Jamison (per paragraph 9d of the Agreement)@ and ANet Profit Interest (per paragraph 9e of the Agreement).@  With respect to the latter category, the auditor notes, A[i]s not applicable until such time that the Net Revenue distribution reaches $500,000.@

    [8]  Gray attached a pro forma projecting production from the properties on a monthly basis and Jamison=s corresponding potential return on his investment.  Gray proposed two alternativesCJamison=s contributing $500,000 or contributing $1 million.  The pro forma shows Jamison=s potential return under both scenarios.  Under both scenarios, Jamison=s return is 30% of net revenues without regard to expenses.

    [9]  Craig Crawford, Jamison=s friend who introduced him to Gray, testified that Gray outlined a general proposal during their initial meetings.  Gray represented that Jamison would be given Apreferential treatment@ on the Afront end@ until he recouped $500,000; Jamison would then receive a smaller residual interest on the Atail end.@  Thus, this oral proposal is consistent with Gray=s written proposal and Jamison=s interpretation of the eventual agreement.

    [10]  XCO=s tax attorney did not testify, and, thus, did not controvert Cashion=s explanation.

    [11]  Cashion also testified regarding two other changes between the proposal and final agreement, as well as a subsequent amendment to the final agreement.  However, these changes and amendment are not pertinent to this dispute.

    [12]  The jury answered Ano@ to the following question: ABefore July 30, 1995, did [Jamison] discover, or in the exercise of reasonable diligence should he have discovered, facts causing him to believe that he had a claim for breach of the Memorandum of Agreement . . . if any?@

    [13]  Although Jamison argues that the discovery rule applies, he also argues that application of the discovery rule was not even necessary because the claim accrued less than four years before he filed suit.

    [14]  As XCO notes, the March 1993 statement reflects that the Aworkover@ expense was carried forward and resulted in Anegative@ net revenues for March as well.  In fact, although XCO specifically cites the February 1993 statement, other accounting statements show that expenses were deducted from net revenues before calculating XCO=s net revenues, and hence, Jamison=s share of net revenues.  However, deducting the expenses did not always result in Anegative@ net revenues as it did in February 1993.

    [15]  Further, according to Jamison=s expert, he should have received the full payout by April 1994 (more than four years before he filed suit).

    [16]  XCO cites only the February 1993 statement to support its statute of limitations defense in its original briefing.  However, XCO also cites the 1992 accounting statements in its post-submission brief.  In particular, XCO argues that the April 1992 statement shows XCO did not allocate expenses and calculate net revenues in accordance with Jamison=s interpretation of the agreement because it deducted expenses from net revenues.  However, Jamison proved that he was not due any share of net revenues during 1992 because his $500,000 would not have been Achewed up@ until the end of that year.  By that time, when he was due a share of net revenues, the revenues had been frozen. Therefore, as we have explained, the evidence does not conclusively prove that the breach did not occur at that time because XCO did not have access to the revenues, and, thus, did not refuse to pay Jamison his share. Further, XCO notes that Jamison received a check for $67,827 in June 1992, which was inconsistent with Jamison=s interpretation of the agreement because his investment had not been Achewed up.@  However, XCO admitted that its 1992 statements also contained errors.  Craig Crawford and Shelly Cashion both contacted XCO=s accountant about the errors and were told that the errors would be corrected when the books closed at the end of the year. Finally, considering that Jamison=s cause of action is based on XCO=s failure to pay him moneys owed, we cannot conclude that a breach occurred when XCO paid him money that was not even owed.

    [17]  On appeal, XCO contends for the first time that the provision applies to accounting disputes between XCO and Jamison because Gray was an officer of both XCO and Southampton, Southampton issued Jamison=s checks, and Southampton sent Jamison accounting statements from the same address as XCO.  We note the accounting statements, which we previously discussed, do say ASouthampton Mineral Corporation@ at the top. Under ASouthampton Mineral Corporation,@ they say AOwner: XCO/Jamison Partnership.@  Therefore, they appear to be Southampton=s statements to the XCO/Jamison Partnership.  However, the statements also appear to calculate Jamison=s interest in the XCO/Jamison partnership.  The Astatute of limitations clause@ in the operating agreements provides that Aall . . . statements rendered to Non-Operators by Operator . . . shall conclusively be presumed to be true and correct@ after a certain time period.   However, considering that this provision governs accounting between the operator and non-operator, it does not  impose a limitations period on Jamison simply because the accounting between XCO and Jamison was included on the accounting statements between Southhampton and the XCO/Jamison partnership.  Further, XCO is attempting to make some type of alter ego argument.  We need not address an alter ego theory because the operating agreements state, and XCO admitted, that Southampton, not XCO, was the operator.