882 F.3d 574
5th Cir.2018Background
- FWP leased mineral rights to Dale Resources (predecessor to Chesapeake) in 2005 and executed a Surface Use Agreement (SUA) governing surface operations.
- Paragraph 17 of the SUA required the Working Interest Owner to pay the Surface Owner a per-square-foot payment on a specified "Damage Payment Date," with a price reduction if eight wells were completed.
- The SUA stated its terms were "covenants running with land" and binding on successors.
- In 2007, before the Damage Payment Date, FWP sold the surface estate to Chesapeake Land Company (a related entity), reserving minerals; parties executed a Master Amendment that deleted many surface restrictions but reiterated that SUA terms were covenants running with the land and included a non-merger clause.
- FWP sued in 2014 seeking the Paragraph 17 payment (~$2.5M); after settlement of other claims, cross-motions for summary judgment addressed whether Paragraph 17 ran with the land and whether the Master Amendment made it unenforceable.
- The district court granted summary judgment for Chesapeake, holding Paragraph 17 was a covenant running with the land (and alternatively that the Master Amendment made it indefinite); the Fifth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Paragraph 17's payment provision is a covenant that "runs with the land" (touches and concerns) | Paragraph 17 is a personal benefit—deferred payment for the lease; does not affect the land itself | The provision affects how lessee uses surface (incentivizes minimizing occupied area), thus affects land value and use | Held: Benefit touches and concerns the land; runs with the surface estate |
| Whether the parties intended Paragraph 17 to run with the land | FWP: Paragraph 17 was a "beneficial personal covenant," not intended to bind successors | Chesapeake: SUA and Master Amendment expressly state terms are covenants running with the land and bind successors | Held: Intent is unambiguous in the SUA and Master Amendment; parol evidence inadmissible to contradict |
| Whether parol evidence (affidavit) can show contrary intent | FWP: Affidavit shows original intent that Paragraph 17 was personal | Chesapeake: Parol evidence barred because contract language is unambiguous | Held: Parol evidence excluded; court relies on written instruments showing intent |
| Effect of conveyance of surface to Chesapeake Land Co. on FWP's right to payment | FWP: Sale did not forfeit right to payment under Paragraph 17 | Chesapeake: Sale conveyed the surface and thus the benefit of the covenant passed with the land to buyer | Held: FWP forfeited right to payment when it sold the surface; covenant benefit transferred to surface purchaser |
Key Cases Cited
- Johnson v. World All. Fin. Corp., 830 F.3d 192 (5th Cir.) (standard of review for summary judgment)
- Clardy Mfg. Co. v. Marine Midland Bus. Loans Inc., 88 F.3d 347 (5th Cir. 1996) (contract interpretation is a legal question reviewed de novo)
- Inwood N. Homeowners’ Ass’n, Inc. v. Harris, 736 S.W.2d 632 (Tex. 1987) (elements for covenant running with the land)
- Westland Oil Dev. Corp. v. Gulf Oil Corp., 637 S.W.2d 903 (Tex. 1982) (tests for when a covenant touches and concerns land)
- In re El Paso Refinery, LP, 302 F.3d 343 (5th Cir.) (distinction between personal covenants and covenants running with the land)