# Presnal v. TLL Energy Corp.

> Court of Appeals of Texas · March 22, 1990 · 788 S.W.2d 123

URL: https://www.frixlaw.com/law-library/cases/5076563

## Case

- **Full name:** James K. PRESNAL and Ruth Presnal, Individually and as Trustees for Forest D. Cook, Carol Ann Lemon, and James K. Presnal, Jr. v. TLL ENERGY CORPORATION
- **Court:** Court of Appeals of Texas
- **Decided:** March 22, 1990
- **Citations:** 788 S.W.2d 123; 1990 WL 31929
- **Precedential status:** Published
- **Opinion:** Dissent by Bass
- **Judges:** Cohen, Bass
- **Cited by:** 6 later opinions in the Frix Law Library

## Citator (automated)

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## Opinion text

SAM BASS, Justice,
dissenting.
I respectfully dissent.
The question of when a stipulated damage provision of a contract should be enforced as liquidated damages, and when enforcement should be denied because it is a penalty provision, was answered in Stewart v. Basey, 150 Tex. 666 , 245 S.W.2d 484 (1952). The Texas Supreme Court held that in order to enforce a liquidated damage clause, the court must find: (1) that the harm caused by the breach is incapable or difficult of estimation; and (2) that the amount of liquidated damages called for is a reasonable forecast of just compensation. The court emphasized that damages, to be enforceable as liquidated damages, must be uncertain and the stipulation must be reasonable. Stewart, 150 Tex. at 670 , 245 *128 S.W.2d at 486 . “The payment promised may be a penalty, though described expressly as liquidated damages, and vice versa.” Stewart, 150 Tex. at 670 , 245 S.W.2d at 486 . In the instant case, the movant urged, and the trial court correctly found, that as a matter of law the second element required to enforce a liquidated damages clause was conclusively established against the nonmovant.
The issue of the enforceability of liquidated damages in any given case is one of law for the court to decide. Lefevere v. Sears, 629 S.W.2d 768, 771 (Tex.Civ.App.—El Paso 1981, no writ); Mayfield v. Hicks, 575 S.W.2d 571, 576 (Tex.Civ.App.—Dallas 1978, writ ref’d n.r.e.); Muller v. Light, 538 S.W.2d 487, 488 (Tex.Civ.App.—Austin 1976, writ ref’d n.r.e.). The inclination of the courts is to construe the amount named as a penalty, and where there is doubt, it will be resolved in favor of a penalty. See Bethel v. Butler Drilling Co., 635 S.W.2d 834, 839 (Tex.App.—Houston [14th Dist.] 1982, writ ref’d n.r.e.). By conclusively establishing one element of the plaintiffs cause of action on the liquidated damages clause against the plaintiff (Presnal), the defendant-movant (TLL) established the affirmative defense of penalty. The burden then shifted to the nonmovant (Presnal) to prove that it was the intention of the parties in making the contract to provide for liquidated damages, and not a penalty. Stewart v. Basey, 241 S.W.2d 353, 356 (Tex.Civ.App. —Austin 1951), aff'd, 150 Tex. 666 , 245 S.W.2d 484 (1952); Sanders Nursery Co. v. J.C. Engelman, Inc., 109 S.W.2d 1131, 1133 (Tex.Civ.App.—San Antonio 1937, writ dism’d).
The summary judgment proof does not show that the provision was actually intended by the parties to constitute an estimate or forecast by them of the damages that actually would be sustained by the Presnals in case of a breach by TLL. There were no negotiations regarding the $75,000 figure. Presnal contends the “liquidated damage” provision was in consideration for the pooling provision included in the second draft of the lease agreement (paragraph 18). However, the original rough draft of the lease, as well as the final lease agreed upon after inclusion of the pooling provision, both contain paragraph 42. The same $75,000 payment was to be made in the event of the failure to drill the first well and the failure to drill a second, if required. By Presnal’s own testimony, if a duty to drill a second well arose, then appellee could either gamble and drill a second well, or appellee “could pay the $75,000.00 and walk.” In addition, Presnal filed two affidavits with the trial court that referred to the liquidated damages provision (paragraph 42) as “the failure to drill penalty in the lease.” (Emphasis added.) Finally, Thomas Lattimer, president and sole shareholder of TLL, stated by affidavit that the second well, if drilled, would have been nonproductive, or at best, no more productive than the first well which netted only $9,000 in royalty. It is clear the parties to the lease did not make a good faith effort to arrive at a genuine pre-estimate of the damages that would flow from any particular breach.
The figure of $75,000 was chosen not as an estimation of any damages to be suffered by the Presnals, but as an amount designed only to induce prompt completion of a second well.
The amount so fixed is not a reasonable forecast of just compensation for the harm that is caused by the breach. Since the correct measure of damages for breach of duty to drill a well is the lost royalty, it was incumbent on the parties to make a reasonable forecast of what royalties would be lost in the event the second well was not drilled, which appellants did not do.
It is a question of law whether paragraph 42 is a valid liquidated damages clause or is a penalty. The question is whether the parties to the lease actually intended the $75,000 figure to be an estimate by them of the damages that would actually be sustained, or whether the figure was meant to secure performance under the lease. It is undisputed that each and every term of the lease was written by James K. Presnal. Because Presnal authored the lease, any ambiguity or doubt arising from the language used is to be *129 construed against him. Bethel v. Butler Drilling Co., 635 S.W.2d at 838 . Additionally, where there is doubt with regard to whether a provision is a true liquidated damage clause or a penalty, it will be resolved in favor of a penalty. Id.
I construe the language employed in the contract to be a penalty as a matter of law.
We should overrule appellants' first nine points of error.
Because I believe we should overrule the first nine points of error, we should also address appellants’ tenth point of error.
Appellants assert in their tenth point of error that the trial court erred in granting TLL’s protective order denying an in camera inspection of defendant’s title examination report of the leased property. On or about May 12, 1988, appellants filed a supplemental request for production, requesting “any and all title opinions or title examinations pertaining to said Presnal lease.” Appellee filed its motion for protective order on the basis that the requested documents were an invasion of appellee’s property rights and were irrelevant to the issue at hand; i.e., whether paragraph 42 of the lease is a liquidated damage clause or a penalty. Texas Rule of Civil Procedure 166b(4) expressly provides that:
When a party seeks to exclude documents from discovery and the basis for objection is undue burden, unnecessary expense, harassment or annoyance, or invasion of personal, constitutional, or property rights, rather than a specific immunity or exemption, it is not necessary for the court to conduct an inspection of the individual documents before ruling on the objection.
TLL did not claim a specific immunity or exemption, but instead alleged irrelevancy and an invasion of property rights. The trial judge acted in conformity with rule 166b(4) and did not abuse her discretion in refusing to conduct an in camera inspection. Hoffman v. Fifth Court of Appeals, 756 S.W.2d 723, 723 (Tex.1988).
Appellants’ tenth point of error should be overruled.
I would, therefore, affirm the judgment of the trial court.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/5076563. Public record. Not legal advice.