(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.