# Appendix — Lively Exploration Co. v. Valero Transmission Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_0931%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1990 - **Citation:** 493 U.S. 1065 ## Text a h | Supreme Court, US. FILE D 89-935, DEC ivoire ; AE ETRE A SACS = t . TN aOR S a's 6 - NO. IN THE Supreme Court of the Mnited States OCTOBER TERM, 1989 LIVELY EXPLORATION COMPANY, ET AL., Appellants V. VALERO TRANSMISSION COMPANY, Appellee On Appeal From The Court of Appeals For The Fourth Supreme Judicial District of Texas APPENDIX TO THE JURISDICTIONAL STATEMENT JESSE P. LUTON, JR. ScoTT, DouGLass & LUTON 4300 NCNB Center 700 Louisiana Street Houston, Texas 77002 (713) 228-6337 Counsel for Appellants December 7, 1989 Alpha Law Brief Co., Inc.— 8748 Westpark — Houston, Texas 77003 — 789-2000 7 Y»> INDEX APPENDIX TO THE JURISDICTIONAL STATEMENT OPINIONS AND ORDERS Lively Exploration Co. v. Valero Transmission Co., Appeal No. 04-87-00380-CV (Tex. App.—San Antonio, March 31, 1988, withdrawn May 18, 1988) ..................0:. Lively Exploration Co. v. Valero Transmission Co., 751 S.W.2d 649 (Tex. App.—San Antonio 1988, writ denied) Order of the Supreme Court of Texas Denying Lively Exploration Company's Application for Writ of Error, pe Er era rr reine Be, Taam seas, ae Order of the Supreme Court of Texas Overruling Lively Exploration Company’s Motion for Rehearing of the Application for Writ of Error, September 13, 1988 ..... JUDGMENT APPEALED FROM Judgment of the San Antonio Court of Appeals in Lively Exploration Co. v. Valero Transmission Co., Appeal No. Deeeen-w, ee BE, BOO ok cca lec See wass cleo es NOTICE OF APPEAL Notice of Appeal to the Supreme Court of United States, filed with the Texas Supreme Court and the Texas Court of Appeals, September 25, 1989 ..................... BRIEFS IN TEXAS COURT OF APPEALS AND TEXAS SUPPREME COURT Lively’s Motion for Rehearing in Texas Court of Appeals, eS re nr re rr ree Lively’s Application for Writ of Error to the Texas Supreme Sen Ge Ti SOE sea eos sd na W ou swe ed tet ee ses Lively’s Motion for Rehearing by the Texas Supreme Court, ee NE ee I ten nae et aee sakes as ae kan na'a as Page ~ ho 34 36 38 40 71 Il Page STATUTES AND RULES Natural Gas_Policy Act of 1938, 15 U.S.C. $$ 717-717w ti. ) errr rerrrr re rey ps re AR 137 Natural Gas Policy Act of 1978, 15 U.S.C. §§ 3301-3432 COBB) occ cnn nuance co uusuasl cnueeeey eee 169 28 USC. 81287 6 occs ccs ckcnSuess sheleee yn eee 285 Railroad Commission of Texas Gas Market Demand Rule, 16 Tex. Admin. Code §§ 3.30 and 3.34 ............006- 286 Tex. RB. Anp. P. 1388. .5 cick 6 cn ee eeee 304 l COURT OF APPEALS FOURTH SUPREME JUDICIAL DISTRICT OF TEXAS SAN ANTONIO OPINION Appeal No. 04-87-00380-CV LIVELY EXPLORATION COMPANY, ET AL.., Appellants v. VALERO TRANSMISSION COMPANY, Appellee Appeal from the 112th District Court of Sutton County Trial Court No. 2,930 Honorable Bob Parks, Judge Presiding Opinion by: Alfonso Chapa, Associate Justice Sitting: Carlos C. Cadena, Chief Justice, Concur in Result. Blair Reeves, Associate Justice, Concur in Result. Alfonso Chapa, Associate Justice. Delivered and filed: March 31, 1988. AFFIRMED This is an appeal of part of a final judgment following a jury trial. The judgment arose from a suit filed by appellant Lively Exploration Company (Lively) against appellee Valero Transmission Company (Valero) for a breach of a gas purchase contract. Lively alleged that 2 Valero breached its obligations under the contract by failing to take delivery of and pay for the Daily Contract Quantity of natural gas during certain contract years or pay for such Daily Contract Quantity of natural gas, whether taken or not. In accordance with the findings of the jury, among other things, the judgment ordered that Lively take nothing on its claim for breach of the take-or- pay provisions of the contract. It is this part of the judg- ment which is sought to be reversed by this avpeal. We affirm. The issues before us are: 1) whether the court erred in admitting evidence of the Railroad Commission’s Gas Market Demand Rule; 2) whether the court erred in including an instruction on the Gas Market Demand Rule; 3) whether the court erred in its definition of the term “deliverability”; 4) whether the court’s instructions to Special Issue No. 2 were prejudicial comments on the weight of the evidence; 5) whether the court erred in conditionally submitting Special Issue No. 3; 6) whether there was no evidence to support the jury findings on the breach of contract; 7) whether there was insufficient evidence to support the jury findings on the breach of contract; and 8) whether the jury findings on the breach of contract were against the great weight and preponderance of the credible evidence. 3 In the first two points of error, Lively contends that the trial court erred in admitting evidence of the Texas Rail- road Commission’s Gas Market Demand Rule and then including the said rule in the charge. Although Lively does not contend the evidence is irrelevant or immaterial, it argues that “the gas market demand rule does not affect the rights and obligations of the parties to the contract by relieving Valero of its obligation to pay for this mini- mum quantity of gas provided by the contract.” Lively alleged that Valero breached that part of the contract which had a “take-or-pay” provision: 5.3. Subject to the other provisions hereof, Buyer agrees to purchase and pay for (or, if Buyer's per- formance hereunder is not excused by other pro- visions of this agreement, pay for, if available, whether taken or not) during the days of each contract year of the term hereof a Daily Contract Quantity of gas from Seller's Lands and Leases in the Contract Area equal to ninety percent (90%) of Seller's daily Deliverability of gas hereunder... . The obligations of Valero under the “take-or-pay” pro- vision of the contract are clearly controlled by the “Daily Contract Quantity” and the “Deliverability” of the gas. Under Article I of the contract and entitled “Defini- tions” we find the following: (e) The term “Daily Contract Quantity” means the quantity of gas per day, averaged over each con- tract year, which Buyer is required to take from Seller hereunder at the point of delivery specified in this Agreement. (j) The term “Deliverability” means that quantity of gas which Seller has available for delivery from 4 the Lands and Leases to Buyer during each day, in conformity with the requirements of this Agreement, at a constant rate of flow, whem Seller’s wells and facilities are not produced in excess of their maxi- mum efficient rate of flow, but not exceeding the maximum (including overproduction) rate of flow permitted by the laws, rules and regulations of the Railroad Commission of Texas or other govern- mental regulatory agency having jurisdiction. Buyer agrees to make nominations, or to cooperate with Seller in the making of nominations, for well allow- ables (to be fixed or permitted by rules, regulations or orders of the Texas Railroad Commission) suffi- cient to cover the daily quantities which from time to time Buyer is entitled and elects to take hereunder up to the maximum quantity which in accordance with good engineering and gas production practice can be produced from Seller's wells in the field. (Emphasis added) Further, the contract includes a clause subjecting the agreement as follows: ¢ AGREEMENT SUBJECT TO LAWS 13.1 This Agreement is made subject to all valid applicable federal and state laws or city ordinances, and to the orders, rules and regulations of any duly constituted federal or state regulatory body or author- ity having jurisdiction. Evidence is admissible if it is “relevant and material; it must tend to prove or disprove some issue in the case.” Dallas Railway & Terminal Company v. Oehler, 156 Tex. 488, 296 S.W.2d 757, 759 (1956); Sims v. Dempsey- -Tegler & Company, Inc., 487 S.W.2d 824, 827-28 (Tex. Civ, App.—San Antonio 1972, no writ). It is uncontra- dicted that the Texas Railroad Commission has regula- 5 tory jurisdiction over drilling, production, transportation, and use of natural gas in Texas. It is also uncontradicted that the Gas Market Demand Rule which was applicable to Lively and Valero, was promulgated by the Texas Railroad Commission as a tool to avoid “waste” by deter- mining the overall quantity of natural gas which should _be produced in Texas in a given month and to assure fairness in the proration between the different producers. Thus, the rule was relevant and material towards the issue of the quantity of gas which Lively had available for delivery, or in terms of the contract, Lively’s “daily Deliverability of gas.” Since the application of the Gas Market Demand Rule tended to disprove that there was a breach of the “take- or-pay” provision, it was admissible. Dallas Railway & Terminal Company v. Oehler, 296 S.W.2d at 759. Next, Lively does not contend that the application of the Gas Market Demand Rule to Lively and Valero in the charge was erroneous, but that the charge should not have included the rule because it did not relieve Valero of its contractual obligation. Lively apparently views the inclusion of the Gas Market Demand Rule in the evidence and charge as evidence of and instructions about an im- permissible affirmative defense of Valero. However, the real issue here is whether the rule was relevant and material to prove or disprove that there was a breach of the “take-or-pay” provision of the contract as alleged by Lively. Having concluded that the Rule was relevant and material, we fai! to see how its inclusion in the charge was harmful error. The first two points are overruled. In the next two points of error, Lively complains of the court’s definition of “Deliverability.” 6 An appellant cannot complain that the court has adopted his definition in the charge. MacF adden Publica- tions v. Wilson, 121 S.W.2d 430, 433 (Tex. Civ. App.— El Paso 1938, writ ref'd). A party may not complain of error for the first time on appeal, State v. Lackey, 576 S.W.2d 685, 688-89 (Tex. Civ. App.—San Antonio 1979, writ ref'd n.r.e.) and an objection to an instruction must be specific and clearly pointed out, or it is waived. South- western Bell Telephone Co. v. Ramsey, 542 S.W.2d 466, 467 (Tex. Civ. App.—Tyler 1976, writ ref’d n.r.e.). The record reflects that the definition of “Deliver- ability” in the charge was the same one submitted by Lively. Further, although Lively made a general objec- tion to Special Issue No. 2, no specific or clear objection was leveled at the definition of “Deliverability,” which was identical to the one submitted to the court by Lively and also found in the contract. The points of error are overruled. Lively next complains that the instructions to Special Issue No. 2 were prejudicial comments on the weight of the evidence. We disagree. An impermissible comment on the weight of the evi- dence occurs, when after examining the entire charge, it is determined that the judge assumed the truth of a material controverted fact, or exaggerates, minimizes, or withdraws some pertinent evidence from the jury’s con- sideration. The comment must also be one that probably caused the rendition of an improper judgment. Alvarez v. Missouri-Kansas-Texas Railroad Co., 683 $.W.2d 375, 377 (Tex. 1984); Hirdler v. Boyd, 702 S.W.2d 727, 730 (Tex. App.—San Antonio 1985, writ ref'd n.r.e.). Incidental comments are permissibie when necessary or proper as part of an explanatory instruction or definition. 7 Board of Regents of North Texas State University v. Denton Construction Co., 652 S.W.2d $88, 595 (Tex. App.—Fort Worth 1983, writ ref'd n.t.e.); Hirdler v. Boyd, 702 S.W.2d 730. The first instructions that Lively complains of are: The term market demand means that amount of gas needed for current consumption. You are instructed that the production, transpor- tation, or use of gas in a manner, in an amount, or under conditions which constitute waste is un- lawful and is prohibited. You are instructed that the term “waste” includes the production of gas in excess of transportation or market facilities or reasonable market demand for the type of gas produced. Although Lively does not contend the instructions are an inaccurate statement of the law, it contends the instruc- tions were irrelevant. Lively however, fails to explain how the instructions probably caused the rendition of an improper judgment. The instructions complained of are relevant in explain- ing the basis of the Gas Market Demand Rule which we have already concluded was relevant and material. We hold that the instructions were relevant, not a com- ment on the weight of the evidence, and did not cause the rendition of an improper judgment. The next instruction to Special Issue No. 2 which Lively complains of is: You are instructed that the Contract provides that subject to its other provisions, Valero shall have the right to purchase such quantity of gas per day as 8 Valero may from day to day elect to purchase up to the total quantity per day which the wells are cap- able of producing when produced at their respective maximum efficient rates of flow, in Lively’s sole judgment reasonably exercised, or at. their respective allowable rates of flow under applicable orders, rules, regulations or laws, whichever is the lesser rate of flow. Lively asserts that the instruction was unnecessary, constituted a comment on the weight of the evidence, and caused the rendition of an improper judgment. It is uncontradicted that the instruction tracked Article V, $5.2 of the contract which had been received in evidence. But Lively contends that an unnecessary in- struction may amount to a reversible error, and cites First International Bank in San Antonio v. Roper Corp.., 686 S.W.2d 602 (Tex. 1985) and Lemos v. Montez. 680 S.W.2d 798 (Tex. 1984). However, both of these cases involve causes of action Whose issues and instruc- tions are specifically set out in the Texas Pattern Jury Charges which were approved with vigor by the Supreme Court. In Lemos, the Supreme Court rejected any addi- tions to the correct definition of unavoidable accident in the Pattern Jury Charge stating: This Court has not indicated to the bench and bar that the definition should be embellished with the addendum. Lemos v. Montez, 680 S.W.2d at 801. In First International Bank of San Antonio, the Su- preme Court again rejected any additions to the Texas Pattern Jury Charge special issue and instructions on design defects by stating: 9 We explicitly approved the Texas Pattern Jury Charges special issue and instruction on design de- fect, but again stated that additional instructions which single out balancing factors are improper and comments on the case. First International Bank in San Antonio v. Roper Corp.., 686 S.W.2d at 604. This case however, does not involve approved issues and instructions of the Texas Pattern Jury Charges and must be viewed accordingly. Lively complains that this unnecessary instruction diverted the attention of the jury from the central issue. In deciding whether this instruc- tion was unnecessary and probably caused a rendition of an improper judgment, we must consider the charge as a whole. Alvarez v. Missouri-Kansas-Texas Railroad Co., 683 S.W.2d at 377; Hirdler v. Boyd, 702 S.W.2d at 730. We note that the instruction complained of is only one of a number of exp!aiatory instructions generally tracking those parts of the contract which the judge felt were necessary to aid the jury in answering Special Issue No. 2. Lively contends that the initial language of the instruction could hove misled the jury away from the real obligations of Valero under the “take-or-pay” provision. To see clearly what adverse effect, if any, this particular instruction had on Special Issue No. 2, we must view the entire set of instructions as set out in the charge: SPECIAL ISSUE NO. 2 Do you find that Valero failed to take or pay for an amount of gas equal to the Daily Contract Quan- tity (DCQ)? (Answer “yes” or “no”.) Answer 10. 10 INSTRUCTION NO. 2 You are instructed that the total quantity of gas which Valero was obligated, if not excused under the Contract, to take and pay for, or pay for if not taken, for each of the Contract Years, is that volume of gas equal to the Daily Contract Quantity in effect during the Contract Year multiplied by the number of days during the Contract Year for which such Daily Contract Quantity was in effect. You are instructed that the term “Daily Contract Quantity” is defined by the Contract to be that quantity of gas equal to ninety percent (90%) of Lively’s daily Deliverability under the Contract. You are instructed that the Contract provides that subject to its other provisions, Valero shall have the right to purchase such quantity of gas per day as Valero may from day to day elect to purchase up to the total quantity per day which the wells are capable of producing when produced at their respec- tive maximum efficient rates of flow, in Lively’s sole judgment reasonably exercised, or at their respective allowable rates of flow under applicable orders, rules, regulations or laws, whichever is the lesser rate of flow. You are also instructed that Lively’s daily “De- liverability” is defined by the Contract to be that quantity of gas which Lively had available for delivery from the Lands and Leases to Valero during each day in conformity with the requirements of the Contract, at a constant rate of flow, when Lively’s wells were not produced in excess of their maximum efficient rate of flow, but not in excess of the maxi- mum (including overproduction) rate of flow per- mitted by the laws, rules and regulations of the Railroad Commission of Texas or other governmental regulatory agency having jurisdiction. 11 The term market demand means that amount of gas needed for current consumption. You are instructed that in the production, trans- portation, or use of gas in a manner, in an amount, or under conditions which constitute waste is un- lawful and is prohibited. You are instructed that the term “waste” includes the production of gas in excess of transportation or market facilities or reasonable market demand for the type of gas produced. You are instructed that the word “ratably” means proportionately. Under the Gas Market Demand Rule Valero shall nominate on Form T-3 a total quantity of gas equal to its downstream market demand plus shrinkage, line loss, plant fuel, and compressor use. Valero shall ratably apportion its actual take from all gas wells connected to its system so that takes from various gas producing properties shall be made without discrimination in favor of one producer or person as against another in the same fieid and without unjust or unreasonable discrimination between fields. You are instructed that under the Gas Market Demand Rule, Lively is required to submit the following information to the Railroad Commission: (1) Form P-4 Producer’s Certificate of Compli- ance (on which the gatherer, the first pur- chaser, and the initial nominator shall be named). (2) Form G-10 Gas Well Status Report (semi- annually unless otherwise required by special field rules). (3) Form G-7 Producer’s Forecast (monthly as required by Statewide Rule 30 and in ac- cordance with instructions on Form G-7). 12 Lively shall forecast a total quantity of gas not to exceed the amount of gas Lively ex- pects to consume plus the amount of gas Lively expects to deliver to Valero as indi- cated by information provided by Valero pursuant to the Market Demand -Rule. We readily note that the instruction complained of was not unduly stressed, and is found in the middle of nu- merous instructions. The instruction complained of speaks of “rights to purchase” of Valero and not of “obligations” of Valero which is the basis of this cause of action. Further, the very first instruction of the series sets out clearly that portion of the contract which Lively asserts has been breached and which clearly sets out the “obli- gations” of Valero. Considering the entire set of instruc- tions of Special Issue No. 2 and the entire charge, we hold that the complained of instruction was not a comment on the weight of the evidence, and probably did not ccuse the rendition of an improper judgment. The point of error is overruled. Lively next contends the court erred in conditionaliy submitting Special Issue No. 3. The complaint is based on the contention that Special Issue No. 2 was merely an evidentiary issue and the controlling issue was Special Issue No. 3. We disagree. We note with interest Lively’s statement in its brief under the title “Preliminary Statement”: Lively alleged that Valero breached it’s obligations under the contract by failing to take delivery of and pay for the Daily Contract Quantity of natural gas . or pay for such Daily Contract Quantity of natural gas, whether taken or not... . 13 Thus, Lively admits that whether Valero failed to take and pay or just failed to pay the Daily Contract Quantity of gas was critical to their cause of action. Special Issue Nos. 2 and 3 with the conditional instruc- tion read: SPECIAL ISSUE NO. 2 Do you find that Valero failed to take or pay for an amount of gas equal to the Daily Contract Quantity (DCQ)? Answer Special Issue No. 3 only if you answered Special Issue No. 2 “yes,” otherwise go to Special Issue No. 4. . SPECIAL ISSUE NO. 3 What sum of money, if any, if paid now in cash, do you find to be due and owing to Lively under the Contract? Where the court submits the controlling issues raised by the pleadings and the evidence, the case shall not be reversed because of the failure to submit other various phases or different shades of the same issue. TEx. R. Civ. P. 279; Holmes v. J.C. Penney Co., 382 S.W.2d 472, 473 (Tex. 1964). The court here fairly submitted Special Issue No. 2, which was the controlling issue, and properly conditionally submitted Special Issue No. 3, which was the damage issue. The point of error is overruled. In the last three points of error, Lively contends there is no evidence or insufficient evidence to support the jury’s answer to Special Issue No. 2, and that the jury’s answer to Special Issue No. 2 was against the great weight and preponderance of the evidence. Lively, after conceding 14 that the evidence of the Gas Market Demand Rule sup- ports the jury finding in Special Issue No. 2, contends it has no probative value as a matter of law because the Gas Market Demand Rule does not abrogate Valero’s obligations under the contract. Therefore, Lively would have us ignore this evidence. We disagree. A no evidence point is a question of law and we can consider only that evidence and the reasonable inference therefrom which viewed in its most favorable light sup- port the jury finding and we must reject all evidence or reasonable inferences to the contrary. Glover v. Texas General Indemnity Co., 619 S.W.2d 400, 401 (Tex. 1981); McClure v. Allied Stores of Texas, Inc., 608 S.W.2d 901, 904 (Tex. 1980). In determining the suffi- ciency of the evidence “the court of appeals must consider and weigh all the evidence, and should set aside the ver- dict only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust.” Cain v. Bain, 709 §.W.2d 175, 176 (Tex. 1986); Pool v. Ford Motor Co., 715 S.W.2d 629 (Tex. 1986). However, we must always remain cognizant that it is for the jury to judge the credibility of the witnesses, to assign the weight to be given their testimony, and to resolve any conflicts or inconsistencies in the evidence. Town & Country Mobile Homes, Inc. v. Bilyeu, 694 S.W.2d 651, 656 (Tex. App.—-Fort Worth 1985, no writ); Precision Homes, Inc. v. Cooper, 671 S.W.2d 924, 929 (Tex. App.—Houston [14th Dist.] 1984, writ ref’d n.r.e.). Therefore, in deter- mining the sufficiency of the evidence, appellate courts must recognize from the verdict of the jury what the jury, in their discretion, chose to believe. In so doing, we must accept the jury’s resolution of any conflicts or inconsis- tencies in the evidence and not attempt to substitute our 15 judgment for theirs. Pool v. Ford Motor Co., 715 S.W.2d at 634. The record reflects extensive testimony pertaining to the Gas Market Demand Rule and its direct effect upon the “Daily Contract Quantity” and “Deliverability” clauses of the contract. The testimony disclosed essentially that the rule was promulgated by the Texas Railroad Commis- sion, who had regulatory jurisdiction over the critical aspects of the contract, and that Valero purchased from Lively the maximum “Daily Contract Quantity” of gas which was legally “Deliverable” by Lively under the dic- tates of the Gas Market Demand Rule. Lively attempted to establish that “Deliverability” under the contract was strictly based on G-10 volumes and that the Gas Market Demand Rule had no application to Valero’s obligations under the contract. The jury verdict clearly reveals that the jury chose to believe Valero’s theory and that there was no breach of the “take-or-pay” clause as alleged by Lively. Considering all the evidence under the appropriate standards of re- view, we cannot conclude that the verdict “is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust.” Cain v. Bain, 709 S.W.2d at 176. The last points of error are overruled. The judgment of the trial court is affirmed. /s/ ALFONSO CHAPA, Associate Justice PUBLISH. 16 LIVELY EXPLORATION COMPANY, et al., Appellants, . - VALERO TRANSMISSION COMPANY, Appellee. No. 04-87-00380-CV. Court of Appeals of Texas, San Antonio. May 18, 1988. Writ of Error June 16, 1988. Natural gas producer sued purchaser for amounts alleg- edly due under “take-or-pay” provisions of contract. Fol- lowing jury trial before the 112th District Court, Sutton County, Bob Parks, J., judgment was entered, inter alia, ordering that producer take nothing on its claim for breach of contract provision. Producer appealed. The Court of Appeals, Chapa, J., held that: (1) Texas Rail- road Commission’s gas market demand rule was materia! and relevant to issues and thus was properly admitted into evidence and included in jury charge; (2) court’s instruc- tions with respect to controlling special issue, in which jury was asked whether purchaser failed to take or pay for amount of gas equal to its contract obligations, were not prejudicial comments on weight of evidence; (3) court did not err in conditionally submitting special jury issue on damages; and (4) jury findings were sufficient under no evidence or insufficiency of evidence tests. Affirmed. 17 Jesse P. Luton, Jr., James P. Pennington, Scott, Doug- lass & Luton, Houston, Frank Douglass, Christopher Fuller, Scott, Douglass & Luton, Austin, for appellants. J. Clifford Gunter, Carrin F. Patman, Laura B. Herring, Gregory C. King, Bracewell & Patterson, Houston, for appellee. Before CADENA, C.J. and REEVES and CHAPA, JJ. ON APPELLANT’S MOTION FOR REHEARING CHAPA, Justice. Appellant’s motion for rehearing is denied, however, the opinion of this Court dated March 31, 1988, is with- drawn, and the following opinion is substituted. This is an appeal of part of a final judgment following a jury trial. The judgment arose from a suit filed by appel- lant Lively Exploration Company (Lively) against ap- pellee Valero Transmission Company (Valero) for breach of a gas purchase contract. Lively alleged that Valero breached its obligations under the contract by failing to take delivery of and pay for the Daily Contract Quantity of natural gas during certain contract years or pay for such Daily Contract Quantity of natural gas, whether taken or not. In accordance with the findings of the jury, among other things, the judgment ordered that Lively take nothing on its claim for breach of the take-or-pay provi- sions of the contract. It is this part of the judgment which is sought to be reversed by this appeal. We affirm. The issues before us are: 1) whether the court erred in admitting evidence of the Railroad Commission’s Gas Market Demand Rule; 18 2) whether the court erred in including an instruction on the Gas Market Demand Rule; 3) whether the court erred in its definition of the term “deliverability”; 4) whether the court’s instructions to Special Issue No. 2 were prejudicial comments on the weight of the evidence; 5) whether the court erred in conditionally submitting Special Issue No. 3; 6) whether there was no evidence to support the jury findings on the breach of contract; 7) whether there was insufficient evidence to support the jury findings on the breach of contract; and 8) whether the jury findings on the breach of contract were against the great weight and preponderance of the credible evidence. In the first two points of error, Lively contends that the trial court erred in admitting evidence of the Texas Rail- road Commission’s Gas Market Demand Rule and then including the said rule in the charge. Although Lively does not contend the evidence is irrelevant or immaterial, it argues that “the gas market demand rule does not affect the rights and obligations of the parties to the contract by relieving Valero of its obligation to pay for this mini- mum quantity of gas provided by the contract.” Lively alleged that Valero breached that part of the contract which had a “take-or-pay” provision: 5.3 Subject to the other provisions hereof, Buyer agrees to purchase and pay for (or, if Buyer’s per- formance hereunder is not excused by other provi- 19 sions of this agreement, pay for, if available, whether taken or not) during the days of each contract year of the term hereof a Daily Contract Quantity of gas from Seller’s Lands and Leases in the Contract Area equal to ninety percent (90% ) of Seller's daily De- liberability of gas hereunder. .. . The obligations of Valero under the “take-or-pay” pro- vision of the contract are clearly controlled by the “Daily Contract Quantity” and the “Deliverability” of the gas. Under Article I of the contract and entitled “Defini- tions” we find the following: (e) The term “Daily Contract Quantity” means the quantity of gas per day, averaged over each con- tract year, which Buyer is required to take from Seller hereunder at the point of delivery specified in this Agreement. (j) The term “Deliverability” means that quantity of gas which Seller has available for delivery from the Lands and Leases to Buyer during each day, in conformity with the requirements of this Agreement, at a constant rate of flow, when Seller’s wells and facilities are not produced in excess of their maxi- mum efficient rate of flow, but not exceeding the maximum (including overproduction) rate of flow permitted by the laws, rules and regulations of the Railroad Commission of Texas or other governmental regulatory agency having jurisdiction. Buyer agrees to make nominations, or to cooperate with Seller in the making of nominations, for well allowables (to be fixed or permitted by rules, regulations or orders of the Texas Railroad Commission) sufficient to cover the daily quantities which from time to time Buyer is entitled and elects to take hereunder up to the maximum quantity which in accordance with good engineering and gas production practice can be 20 produced from Seller’s wells in the field. (Emphasis added ) Further. the contract includes a clause subjecting the agreement as follows: AGREEMENT SUBJECT TO LAWS 13.1 This Agreement is made subject to all valid applicable federal and state laws or city ordinances, and to the orders, rules and regulations of any duly constituted federal or state regulatory body or author- ity having jurisdiction. Evidence is admissible if it is “relevant and material; it must tend to prove or disprove some issue in the case.” Dallas Railway & Terminal Company v. Oehler, 156 Tex. 488, 296 S.W. 757, 759 (1956); Sims v. Dempsey-Tegler & Company, Inc., 487 S.W.2d 824, 827-28 (Tex. Civ. App.—San Antonio 1972. no writ). It is uncontradicted that the Texas Railroad Commission has regulatory jurisdiction over drilling, production, trans- portation, and use of natural gas in Texas. It is also un- contradicted that the Gas Market Demand Rule which was applicable to Lively and Valero, was promulgated by the Texas Railroad Commission as a tool to avoid “waste” by determining the overall quantity of natural gas which should be produced in Texas in a given month and to assure fairness in the proration between the different pro- ducers. Thus, the rule was relevant and material towards the issue of the quantity of gas which Lively had available for delivery, or in terms of the contract, Lively’s “daily Deliverability of gas.” Since the application of the Gas Market Demand Rule tended to disprove that there was a breach of the “take- 21 or-pay” provision, it was admissible. Dallas Railway & Terminal Company v. Oehler, 296 S.W.2d at 759. Next, Lively does not contend that the application of the Gas Market Demand Rule to Lively and Valero in the charge was erroneous, but that the charge should not have included the rule because it did not relieve Va- lero of its contractual obligation. However, the real issue here is whether the rule was relevant and material to prove or disprove that there was a breach of the “take-or- pay” provision of the contract as alleged by Lively. Hav- ing concluded that the rule was relevant and material, we fail to see how its inclusion in the charge was harmful error. The first two points are overruled. In the next two points of error, Lively complains of the court’s definition of “Deliverability.” An appellant cannot complain that the court has adopted his definition in the charge. MacFadden Publica- tions v. Wilson, 121 S.W.2d 430, 433 (Tex. Civ. App. —El Paso 1938, writ ref'd). A party may not complain of error for the first time on appeal, State v. Lackey, 576 S.W.2d 685, 688-89 (Tex. Civ. App.—San Antonio 1979, writ ref'd n.r.e.) and an objection to an instruction must be specific and clearly pointed out, or it is waived. Southwestern Bell Telephone Co. v. Ramsey, 542 S.W.2d 466, 467 (Tex. Civ. App.—Tyler 1976, writ ref'd n.r.e.). The record reflects that the definition of “Deliver- ability” in the charge was the same one submitted by Lively. Further, although Lively made a general objec- tion to Special Issue No. 2, no specific or clear objection was leveled at the definition of “Deliverability” which was identical to the one submitted to the court by Lively aa and also found in the contract. The points of error are overruled. Lively next complains that the instructions to Special Issue No. 2 were prejudicial comments on the weight of the evidence. We disagree. An impermissible comment on the weight of the evidence occurs, when after examining the entire charge, it is determined that the judge assumed the truth of a material controverted fact, or exaggerates, minimizes, or withdraws some pertinent evidence from the jury’s consideration. The comment must also be one that prob- ably caused the rendition of an improper judgment. Alvarez v. Missouri-Kansas-Texas Railroad Co., 683 S.W. 2d 375, 377 (Tex. 1984); Hirdler v. Boyd, 702 S.W.2d 727, 730 (Tex. App.—San Antonio 1985, writ ref’d n.r.e.). Incidental comments are permissible when neces- sary or proper as part of an explanatory instruction or definition. Board of Regents of North Texas State Uni- versity v. Denton Construction Co., 652 S.W.2d 588, 595 (Tex. App.—Fort Worth 1983, writ ref'd n.r.e.); Hirdler v. Boyd, 702 S.W.2d at 730. The first instructions that Lively complains of are: The term market demand means that amount of gas needed for current consumption. You are instructed that the production, transpor- tation, or use of gas in a manner, in an amount, or under conditions which constitute waste is unlawful and is prohibited. You are instructed that the term “waste” includes the production of gas in excess of transportation or market facilities or reasonable market demand for the type of gas produced. 23 Although Lively does not contend the instructions are an inaccurate statement of the law, it contends the in- structions were irrelevant. Lively however, fails to explain how the instructions probably caused the rendition of an improper judgment. The instructions complained of are relevant in explain- ing the basis of the Gas Market Demand Rule which we have already concluded was relevant and material. We hold that the instructions were relevant, not a comment on the weight of the evidence, and did not cause the rendition of an improper judgment. The next instruction to Special Issue No. 2 which Lively complains of is: You are instructed that the Coniract provides that subject to its other provisions, Valero shall have the right to purchase such quantity of gas per day as Valero may from day to day elect to purchase up to the total quantity per day which the wells are capable of producing when produced at their respec- tive maximum efficient rates of flow, in Lively’s sole judgment reasonably exercised, or at their respective allowable rates of fiow under applicable orders, rules, regulations or laws, whichever is the lesser rate of flow. Lively asserts that the instruction was unnecessary, constituted a comment on the weight of the evidence, and caused the rendition of an improper judgment. It is uncontradicted that the instruction tracked Article V, § 5.2 of the contract which had been received in evi- dence. But Lively contends that an unnecessary instruc- tion may amount to a reversible error, and cites First International Bank in San Antonio v. Roper Corp., 686 24 S.W.2d 602 (Tex. 1985) and Lemos v. Montez, 680 S.W.2d 798 (Tex. 1984). However, both of these cases involve causes of action whose issues and instructions are specifically set out in the Texas Pattern Jury Charges which were approved with vigor by the Supreme Court. In Lemos, the Supreme Court rejected any additions to the correct definition of unavoidable accident in the Pattern Jury Charge stating: This Court has not indicated to the bench and bar that the definition should be embellished with the addendum. Lemos v. Montez, 680 S.W.2d at 801. In First International Bank of San Antonio, the Su- preme Court again rejected any additions to the Texas Pattern Jury Charge special issue and instructions on design defects by stating: We explicitly approved the Texas Pattern Jury Charges special issue and instruction on design de- fect, but again stated that additional instructions which single out balancing factors are improper and comments on the case. First International Bank in San Antonio v. Roper Corp., 686 S.W.2d at 604. This case however, does not involve approved issues and instructions of the Texas Pattern Jury Charges and must be viewed accordingly. Lively complains that this unnecessary instriction diverted the attention of the jury from the central issue. In deciding whether this instruction was unnecessary and probably caused a rendition of an improper judgment, we must consider the charge as a > 25 whole. Alvarez v. Missouri-Kansas-Texas Railroad Co.., 683 S.W.2d at 377; Hirdler v. Boyd, 702 S.W.2d at 730. We note that the instruction complained of is only one of a number of explanatory instructions generally tracking those parts of the contract which the judge felt were necessary to aid the jury in answering Special Issue No. 2. Lively contends that the initial language of the instruc- tion could have misled the jury away from the real obli- gations of Valero under the “take-or-pay” provision. To see clearly what adverse effect, if any, this particular instruction had on Special Issue No. 2, we must view the entire set of instructions as set out in the charge: SPECIAL ISSUE NO. 2 Do you find that Valero failed to take or pay for an amount of gas equal to the Daily Contract Quan- tity (DCQ)? (Answer “yes” or “no”.) Answer no. INSTRUCTION NO. 2 You are instructed that the total quantity of gas which Valero was obligated, if not excused under the Contract, to take and pay for. or pay for if not taken, for each of the Contract Years, is that volume of gas equal to the Daily Contract Quantity in effect during the Contract Year multiplied by the number of days during the Contract Year for which such Daily Contract Quantity was in effect. You are instructed that the term “Daily Contract Quantity” is defined by the Contract to be that quan- tity of gas equal to ninety percent (90% ) of Lively’s daily Deliverability under the Contract. 26 You are instructed that the Contract provides that subject to its other provisions, Valero shall have the right to purchase such quantity of -gas per day as Valero may from day to day elect to purchase up to the total quantity per day which the wells are capable of producing when produced at their respec- tive maximum efficient rates of flow, in Lively’s sole judgment reasonably exercised, or at their respective allowable rates of flow under applicable orders, rules, regulations or Jaws, whichever is the lesser rate of flow. You are also instructed that Lively’s daily “Deliver- ability” is defined by the Contract to be that quantity of gas which Lively had available for delivery from the Lands and Leases to Valero during each day in conformity with the requirements of the Contract, at a constant rate of flow, when Lively’s wells were not produced in excess of their maximum efficient rate of flow, but not in excess of the maximum (including overproduction) rate of flow permitted by the laws, rules and regulations of the Railroad Commission of Texas or other governmental regula- tory agency having jurisdiction. The term market demand means that amount of gas needed for current consumption. You are instructed that in the production, trans- portation, or use of gas in a manner, in an amount, or under conditions which constitute waste is un- lawful and is prohibited. You are instructed that the term “waste” includes the production of gas in excess of transportation or market facilities or reasonable market demand for the type of gas produced. You are instructed that the word “ratably” means proportionately. Under the Gas Market Demand Rule Valero shall nominate on Form T-3 a total 27 quantity of gas equal to its downstream market de- mand plus shrinkage, line loss, plant fuel, and com- pressor use. Valero shall ratably apportion its actual take from all gas wells connected to its system so that takes from various gas producing properties shall be made without discrimination in favor of one pro- ducer or person as against another in the same field and without unjust or unreasonable discrimination between fields. You are instructed that under the Gas Market Demand Rule, Lively is required to submit the fol- lowing information to the Railroad Commission: (1) Form P-4 Producer’s Certificate of Compliance (on which the gatherer, the first purchaser, and the initial nominator shall be named). (2) Form G-10 Gas Well Status Report (semi-annu- ally unless otherwise required by special field rules). (3) Form G-7 Producer’s Forecast (monthly as re- quired _by Statewide Rule 30 and in accordance with instructions on Form G-7). Lively shall forecast a total quantity of gas not to exceed the amount of gas Lively expects to consume plus the amount of gas Lively expects to deliver to Valero as indicated by information provided by Vaiero pursuant to the Market Demand Rule. We readily note that the instruction complained of was not unduly stressed, and is found in the middle of numer- ous instructions. The instruction complained of speaks of “rights to purchase” of Valero and not of “obligations” of Valero which is the basis of this cause of action. Further, the very first instruction of the series sets out clearly that portion of the contract which Lively asserts has been breached and which clearly sets out the “obli- 28 gations” of Valero. Considering the entire set of instruc- tions of Special Issue No. 2 and the entire charge, we hold that the complained of instruction was not a com- ment on the weight of the evidence, and probably did not cause the rendition of an improper judgment. The point of error is overruled. Lively next contends the court erred in conditionally submitting Special Issue No. 3. The complaint is based on the contention that Special Issue No. 2 was merely an evidentiary issue and the controlling issue was Special Issue No. 3. We disagree. We note with interest Lively’s statement in its brief under the title “Preliminary Statement”: Lively alleged that Valero breached it’s obligations under the contract by failing to take delivery of and pay for the Daily Contract Quantity of natural gas . or pay for such Daily Contract Quantity of natural gas, whether taken or not... . Thus, Lively admits that whether Valero failed to take and pay or just failed to pay the Daily Contract Quantity of gas was critical to their cause of action. Special Issue Nos. 2 and 3 with the conditional in- struction read: SPECIAL ISSUE NO. 2 Do you find that Valero failed to take or pay for an amount of gas equal to the Daily Contract Quan- - tity (DCQ)? Answer Special Issuc No. 3 only if you answered Special Issue No. 2 “yes,” otherwise go to Special Issue No. 4. - 29 SPECIAL ISSUE NO. 3 What sum of money, if any, if paid now in cash, do you find to be due and owing to Lively under the Contract? Where the court submits the controlling issues raised by the pleadings and the evidence, the case shall not be reversed because of the failure to submit other various phases or different shades of the same issue. Tex. R. Civ. P. 279: Holmes v. J.C. Penney Co., 382 S.W.2d 472, 473 (Tex. 1964). The court here fairly submitted Speciai Issue No. 2, which was the controlling issue, and properly conditionally submitted Special Issue No. 3, which was the damage issue. The point of error is overruled. In the last three points of error, Lively contends there is no evidence or insufficient evidence to support the jury’s answer to Special Issue No. 2, and that the jury’s answer to Special Issue No. 2 was against the great weight and preponderance of the evidence. Lively, after conceding that the evidence of the Gas Market Demand Rule sup- ports the jury finding in Special Issue No. 2, contends it has no probative value as a matter of law because the Gas Market Demand Rule does not abrogate Valero’s obligations under the contract. Therefore, Lively would have us ignore this evidence. We disagree. A no evidence point is a question of law and we can consider only that evidence and the reasonable inference there from which viewed in its most favor- able light support the jury finding and we must reject all evidence or reasonable inferences to the contrary. Glover v. Texas General Indemnity Co., 619 $.W.2d 400, 401 (Tex. 1981); McClure v. Allied Stores of Texas, Inc., 30 608 S.W.2d 901, 904 (Tex. 1980). In determining the sufficiency of the evidence “the court of appeals must - consider and weigh all the evidence, and should set aside the verdict only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust.” Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); Pool v. Ford Motor Co., 715 S.W.2d 629 (Tex. 1986). How- ever, we must always remain cognizant that it is for the jury to judge the credibility of the witnesses, to assign the weight to be given their testimony, and to resolve any conflicts or inconsistencies in the evidence. Town & Country Mobile Homes, Inc. v. Bilyeu, 694 S.W.2d 651, 656 (Tex. App.—Fort Worth 1985, no writ); Precision Homes, Inc. v. Cooper, 671 S.W.2d 924, 929 (Tex. App. —Houston [14th Dist.] 1984. writ refd n.r.e.). There- fore, in determining the sufficiency of the evidence, ap- pellate courts must recognize from the verdict of the jury what the jury, in their discretion, chose to believe. In so doing, we must accept the jury’s resolution of any conflicts Or inconsistencies in the evidence and not attempt to substitute our judgment for theirs. Pool v. Ford Motor Co., 715 S.W.2d at 634. The record reflects extensive testimony pertaining to the Gas Market Demand Rule end its direct effect upon the “Daily Contract Quantity” and “Deliverability” clauses of the contract. The testimony disclosed essentially that the rule was promulgated by the Texas Railroad Com- mission, who had regulatory jurisdiction over the critical aspects of the contract, and that Valero purchased from Lively the maximum “Doaily Contract Quantity” of gas which was legally “Deliverable” by Lively under the dic- tates of the Gas Market Demand Rule. Lively attempted to establish that “Deliverability” under the contract was 31 strictly based on G-10 volumes and that the Gas Market Demand Rule had no application to Valero’s obligations under the contract. The jury verdict clearly reveals that the jury chose to believe Valero’s theory and that there was no breach of the “take-or-pay” clause as alleged by Lively. Consider- ing all the evidence under the appropriate standards of review, we cannot conclude that the verdict “is so con-- trary to the overwhelming weight of the evidence as to be clearly wrong and unjust.” Cain v. Bain, 709 S.W.2d at 176. The last points of error are overruled. The judgment of the trial court is affirmed. 32 SUPREME COURT OF TEXAS P. O. Box 12248 Supreme Court Building Austin, Texas 78711 John T. Adams, Clerk june 7, 1989 Mr. Jesse P. Luton, Jr. Scott, Douglass & Luton 4300 RepublicBank Center 700 Louisiana Houston TX 77002 Mr. Jaines P. Pennington Scott, Douglass & Luton 4300 RepublicBank Center 700 Louisiana Street Houston TX 77002 Mr. Frank Douglass Mr. Steve Selby Scott, Douglass, & Luton First City Bank Bldg., 12th Floor Austin TX 78701 Mr. Christopher Fuller Scott, Douglass & Luton Twelfth Floor First Cit) Bank Building Austin 1 X 78701 Mr. J. Clifford Gunter, III Bracewell & Patterson 2900 Pennzoil Place South Tower Houston TX 77002 Ms. Carrin F. Patman Bracewell & Patterson 2900 Pennzoil Place South Tower Houston TX 77002 Ms. Laura B. Herring Bracewell & Patterson 2900 South Tower Pennzoil Place Houston TX 77002 Mr. Gregory C. King Bracewell & Patterson 2900 South Tower Pennzoil Place Houston. TX 77002 RE: Case No. C-7676 STYLE: LIVELY EXPLORATION COMPANY ET AL. v. VALERO TRANSMISSION COMPANY Dear Counsel: Today, the Supreme Court of Texas denied the above referenced application for writ of error with the notation, Writ Denied. Respectfully yours, John T. Adams, Clerk By /s/ BLANCA E. MORIN Deputy 34 SUPREME COURT OF TEXAS P. O. Box 12248 Supreme Court Building Austin, Texas 78711 John T. Adams, Clerk September 13, 1989 Mr. Jesse P. Luton, Jr. Scott, Douglass & Luton 4300 NCNB Center 700 Louisiana Houston TX 77002 Mr. James P. Pennington Scott, Douglass & Luton 4300 NCNB Center 700 Louisiana Street Houston TX 77002 Mr. Frank Douglass Mr. Steve Selby Scott, Douglass, & Luton First City Bank Bldg., 12th Floor Austin TX 78701 Mr. Christopher Fuller Scott, Douglass & Luton First City Bank Bldg., 12th Floor Austin TX 78701 Mr. J. Clifford Gunier, Hl Bracewell & Patterson 2900 Pennzoil Place South Tower Houston TX 77002 Ms. Carrin F. Patman Bracewell & Patterson 2900 Pennzoil Place South Tower Houston TX 77002 35 Ms. Laura B. Herring Bracewell & Patterson 2900 South Tower Pennzoil Place Houston TX 77002 Mr. Gregory C. King Bracewell & Patterson 2900 South Tower Pennzoil Place Houston TX 77002 RE: Case No. C-7676 STYLE: LIVELY EXPLORATION COMPANY ET AL. v. VALERO TRANSMISSION COMPANY Dear Counsel: Today, the Supreme Court of Texas overruled petitioner's motion for rehearing of the application for writ of error in the above styled case. Respectfully yours, John T. Adams, Clerk By /s/ BLANCA E. MORIN Deputy 36 COURT OF APPEALS FOURTH SUPREME JUDICIAL DISTRICT OF TEXAS SAN ANTONIO JUDGMENT Appeal No. 04-87-00380-CV LIVELY EXPLORATION COMPANY, ET AL., Appellants V. VALERO TRANSMISSION COMPANY, Appellee Appeal from the 112th District Court of Sutton County Trial Court No. 2,930 Honorable Bob Parks, Judge Presiding JUDGMENT After hearing this cause and examining the record, the Court finds that the court below committed no reversible error. It is therefore ORDERED that the judgment be AFFIRMED. It is further ORDERED that Appepllants LIVELY EXPLORATION COMPANY, LEA ROY ALDWELL, INDIVIDUALLY, LEA ROY ALDWELL, WINNIE LEA McPHERSON AND MARJORY REBA JOHAN- SEN, AS TESTAMENTARY TRUSTEES UNDER THE WILL OF GEORGE L. ALDWELL, DECEASED, JON A. SONNEN, J. HOWARD MARSHALL, ED FAR- RELL, ELIZABETH STANDISH, THE DESANA COR- 37 PORATION, JESSEE L. DALLY, CHESTER H. KEN- LEY, CAROLYN H. JOSEPH, INDEPENDENT EX- ECUTRIX OF THE ESTATE OF GIFFORD E. JO- SEPH, DECEASED, H.B. LIVELY, B. JACKSON BAN- DY, ROBERT L. BANKS, THEO B. BEAN, WILLIAM R. GIFFORD, CHARLIE GILL, JR., HENRY GUN-- DERS AND WIFE, ELAINE GUNDERS, KENNETH L. HEWITT, KALLMAN NASHNER, FRANK PACE, JR., MARTIN B. SERETEAN, RAY B. VAUGHTERS AND THEODORE L. WILKINSON, pay all costs of appeal, and the cash deposit filed with the District Clerk in lieu of cost bond be used for and subjected to such costs and this decision be certified to the trial court. Entered this 31st day of March, 1988. 38 In the Court of Appeals for the Fourth Supreme Judicial District of Texas San Antonio, Texas APPEAL NO. 04-87-00380-CV LIVELY EXPLORATION COMPANY, ET AL, Appellants, V. VALERO TRANSMISSION COMPANY, Appellee. NOTICE OF APPEAL TO THE SUPREME COURT OF THE UNITED STATES Notice is hereby given that Lively Exploration Com- pany, Lea Roy Aldwell, Individually, Lea Roy Aldwell, Winnie Lea McPherson and Marjory Reba Johansen, as Testamentary Trustees under the Will of George L. Aldwell, Deceased, Jon A. Sonnen, J. Howard Marshall, Ed Farrell, Elizabeth Standish, The Desana Corporation, Jessee L. Dally, Chester H. Kenley, Carolyn H. Joseph, Independent Executrix of the Estate of Gifford E. Joseph, Deceased, H. B. Lively, B. Jackson Bandy, Robert L. Banks, Theo B. Bean, William R. Gifford, Charlie Gill, Jr., Henry Gunders and wife, Elaine Gunders, Kenneth L. Hewitt, Kallman Nashner, Frank Pace, Jr., Martin B. Seretean, Ray B. Vaughters and Theodore L. Wilkinson, the appellants above-named, hereby appeal to the Supreme Court of the United States from the final judgment of the Court of Appeals for the Fourth Supreme Judicial District of Texas, San Antonio, Texas, affirming the judgment of the trial court, entered in this action on May 18, 1988. 39 This appeal is taken pursuant to 28 U.S.C, § 1257(2). SCOTT, DOUGLASS & LUTON By: /s/ JESSE P. LUTON, JR. Jesse P. Luton, Jr. State Bar No. 12708000 James P. Pennington State Bar No. 15758520 4300 NCNB Center 700 Louisiana Street Houston, Texas 77002 (713) 228-6337 Frank Douglass State Bar No. 06049000 1200 First City Bank Building Austin, Texas 78701 (512) 476-6337 Attorneys for Appeliants CERTIFICATE OF SERVICE I hereby certify that the above and foregoing Notice of Appeal to the Supreme Court of the United States was served on the appellee by certified mail, return receipt requested, by depositing it in a United States post office or mailbox, with first-class postage prepaid, on the 22nd day of September, 1989, addressed as follows: J. Clifford Gunter, III Bracewell & Patterson 2900 South Tower Pennzoil Place Houston, Texas 77002-2781 /s/ JESSE P. LUTON, JR. Jesse P. Luton, Jr. 40 APPEAL NO. 04-87-00380-CV IN THE COURT OF APPEALS FOR THE FOURTH SUPREME JUDICIAL DISTRICT OF TEXAS SAN ANTONIO, TEXAS LIVELY EXPLORATION COMPANY, ET AL., Appellants, V. VALERO TRANSMISSION COMPANY, Appellee. Appeal from the District Court of Sutton County, Texas, 112th Judicial District APPELLANTS’ MOTION FOR REHEARING April 12, 1988 SCOTT, DOUGLASS & LUTON Frank Douglass Christopher Fuller 1200 First City Bank Building Austin, Texas 78701 (512) 476-6337 Jesse P. Luton, Jr. James P. Pennington 4300 RepublicBank Center Houston, Texas 77002 (713) 228-6337 Attorneys for Appellants 41 APPEAL NO. 04-87-00380-CV IN THE COURT OF APPEALS FOR THE FOURTH SUPREME JUDICIAL DISTRICT OF TEXAS SAN ANTONIO, TEXAS LIVELY EXPLORATION COMPANY, ET AL., - Appellants, V. VALERO TRANSMISSION COMPANY, Appellee. Appeal from the District Court of Sutton County, Texas, 112th Judicial District APPELLANTS’ MOTION FOR REHEARING TO THE COURT OF APPEALS: ‘Lively Exploration Company, Lea Roy Aldwell, Indi- vidually, Lea Roy Aldwell, Winnie Lea McPherson and Marjory Reba Johansen, as Testamentary Trustees under the Will of George L. Aldwell, Deceased, Jon A. Sonnen, J. Howard Marshall, Ed Farrell, Elizabeth Standish, The Desana Corporation, Jessee L. Dally, Chester H. Kenley, Carolyn H. Joseph, Independent Executrix of the Estate of Gifford E. Joseph, Deceased, H.B. Lively, B. Jackson Bandy, Robert L. Banks, Theo B. Bean, William R. Gifford, Charlie Gill, Jr., Henry Gunders and wife, Elaine Gunders, Kenneth L. Hewitt, Kallman Nashner, Frank Pace, Jr., Martin B. Seretean, Ray B. Vaughters, and 42 Theodore L. Wilkinson (collectively referred to as “Live- ly” or “Appellants”) make this motion for a rehearing of the decision of the Court rendered on March 31, 1988, and show: I. 1. Point of Error: The Court erred in holding that the obligations of Valero under the “take-or-pay” provision of the contract are controlled by the defi- nitions of “Daily Contract Quantity” and “Deliver- ability” set forth in Article I of the contract. 2. Point of Error: The Court erred in holding that Article XIII, € 13.1 of the contract provides a basis for the application of the Gas Market Demand Rule in determining the obligations of Valero under the “take-or-pay” provision of the contract. 3. Point of Error: The Court erred in holding that the Gas Market Demand Rule was relevant and material towards the issue of the quantity of gas which Lively had available for delivery, or in terms of the contract, Lively’s “daily Deliverability of gas.” 4. Point of Error: The Court erred in holding that the application of the Gas Market Demand Rule tended to disprove that there was a breach of the “take-or-pay” provision of the contract. 5. Point of Error: The Court erred in holding that Lively does not contend that the application of the Gas Market Demand Rule to Lively and Valero in the charge was erroneous. 6. Point of Error: The Court erred in holding that the Gas Market Demand Rule was relevant and 43 material to prove or disprove that there was a breach of the “take-or-pay” provision of the contract as alleged by Lively. 7. Point of Error: The Court erred in holding that the inclusion of the Gas Market Demand Rule in the charge was not harmful error. 8. Point of Error: The Court erred in overruling Appellants’ Points of Error One and Two. Argument and Authorities These points of Error 1-8 will be argued together, since all of them relate to the application of the Texas Gas Market Demand Rule to the obligations of Valero to take or pay for gas under the contract between Lively and Valero which is the subject of this appeal. The Court’s opinion bases its rulings involved in the above points of error and its application of the Gas Market Demand Rule to the obligations of Valero under the “take-or-pay” provision of the contract on (1) the general definitions of “Daily Contract Quantity” and “Deliverability” as set forth in Article I of the contract and (2) the clause in Article XIII, € 13.1 making the contract “subject to all valid applicable federal and state laws or city ordinances, aid to the orders, rules anc regulations of any duly constituted federal or state regu- latory body or authority having jurisdiction.” By giving controlling effect to the general definitions of “Daily Contract Quantity” and “Deliverability” in Article I and the general regulatory clause in Article XIII, 4 13.1, the Court ignores, gives no effect to, and writes out of the contract the “take-or-pay” provision in 44 Article V, €5.3 of the contract. That portion of the contract, which is the only part of the contract dealing with Valero’s “take-or-pay” obligations, expressly states what “Daily Contract Quantity” shall mean for “take-or- pay” purposes and how “Sellers’ Deliverability shall be determined” for “take-or-pay” purposes under the contract. it states that for “take-or-pay” purposes “Daily Contract Quantity” shall be “equal to ninety percent (90%) of Sellers’ daily Deliverability of gas hereunder.” It then states that “Sellers’ Deliverability shall be determined and established by Buyer by testing the actual ability of Sellers’ wells to deliver into Buyer's facilities at the point of delivery.”* It is Appellants’ position that the trial court and this Court should have held as a matter of law that this “take- or-pay” provision is complete in itself and binding upon the parties to the contract and that Valero has an obliga- tion to pay for the minimum quantity of gas expressly provided for therein if not taken by Valero for any reason, including the Gas Market Demand Rule. The error com- mitted by the trial court and this Court was in permitting that clear and unambiguous prov... of the contract to be construed by the jury and including in the instructions to the jury with respect to that issue definitions and other matters pertaining to the Gas Market Demand Rule and Railroad Commission regulatory authority. The trial court’s actions caused the jury to believe that it could only answer Special Issue 2 “No” and that to do otherwise would violate the law. Other courts, and even the Railroad Commission itself, have recognized that the Gas Market Demand Rule does * Emphasis added throughout. 45 not affect contractual rights and obligations between parties such as “take-or-pay” provisions. The most recent Texas appellate decision recognizing this involved Valero. Valero Transmission Co. v. Mitchell Energy Corp., 743 S.W.2d 658 (Tex. App.—Houston [Ist Dist.] 1987, no writ). The contract there, like the one here, contained “minimum purchase and take requirements,” a force majeure clause, and a provision comparable to Article XIII, € 13.1 in this contract. 7d. at 660. There, as here, Valero failed to take the minimum quantities of gas re- quired by the contract and sought to defend its breach of the contract by relying on the Gas Market Demand Rule. Valero’s attorneys there, who also are Valero’s attorneys in this case, argued there, as they did here, that Valero “has taken gas under the contract in accordance with its market demand and that any contractual re- quirement that it purchase additional amounts would constitute a violation of Texas law.” Jd. at 661. Valero’s attorneys also argued there, as they did here, that “there was no market demand for the gas” because the contract price was too high in relation to the market, that the gas would have to be sold by Valero at a price of over $4 per unit, and that “there is no existing market for $4 gas.” Id. They argued, as they did in this case, “that any contractual requirement that it [Valero] take and pay for gas in excess of its market demand violates the law.” Id. = The Houston Court of Appeals flatly rejected Valero’s arguments on the grounds that (1) “the Railroad Com- mission has no authority to abrogate contract rights,” (2) the Railroad Commission’s rules do not “purport to affect contract rights,” (3) “Valero has not proven that complying with the contract would violate the 46 law,” and (4) the force majeure clause did not relieve Valero of the obligation to perform under the contract because “a sudden or significant change in price, or the fact that one of the parties may gain or lose during a particular period of the contract, is not sufficient to constitute an extraordinary, unforeseeable event that would excuse performance under the force majeure clause.” Jd. at 662-664. Citing this Court’s opinion in Alamo Clay Products, Inc. v. Gunn Tile Co., 597 S.W.2d 388 (Tex. Civ. App.—San Antonio 1980, writ ref‘d n.r.e.), the Court stated: An economic downturn in the market for a product is not such an unforeseeable occurrence that would justify application of the force majeure provision, and a contractual obligation cannot be avoided simply because performance has become more eco- nomically burdensome than a party anticipated. /d. at 663. Lively here seeks only what Mitchell Energy sought there—to require Valero to comply with its contractual obligations. However, here Lively is not seeking to re- guire Valero to take and pay for a minimum quantity of gas as required in the “take-or-pay” provision of the contract. Valero’s alternative pay obligation in this contract clearly is not violative of any law or the Gas Market Demand Rule, because it does not require pro- duction but payment in lieu of production. Resources Investment Corp. v. Enron Corp., 669 F.Supp. 1038, 1041 (D. Colo. 1987): Kaiser-Francis Oil Co. v. Pro- ducers’ Gas Co., No. 83-C-400-B (N.D. Okla. June 19, 1985) (Appendix to Brief for Appellants at A42); International Minerals & Chemical Corp. v. Llano, Inc., 770 F.2d 879 (10th Cir. 1985). 47 This Court's opiaion ignores, gives no effect to, and writes out of the contract the “take-or-pay” provision in Article V, € 5.3. This is a key provision of the contract. as Mr. Lively testified that he would not have executed the contract if that provision had not been included (S.F. 121). In ignoring the “take-or-pay” provision of the contract, this Court has violated long-established rules of construction as fellows: (1) (2) (3) parties to an instrument intend every clause to have some effect and purpose and in some measure to evidence their agreement, and _ this purpose should not be thwarted — Woods y. Sims, 154 Tex. 59, 273 S.W.2d 617, 620 (1954): Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515 (Tex. 1968); Reynolds v. Me- Cullough, 739 S.W.2d 424, 428 (Tex. App.— San Antonio 1987, no writ); Restatement of the Law of Contracts § 230 (1932): a contract should be construed in a manner which gives effect to all of its provisions — Coker vy. Coker, 650 S.W.2d 391 (Tex. 1983); Universal C.1.T. Corp. v. Daniel, 150 Tex. 513. 243 S.W. 2d 154 (1951); Sun Oil Co. vy. Burns, 125 Tex. 549, 84 $.W.2d 442 (1935): Williams v. J & C Royalty Co., 254 $.W.2d 178 (Tex. Civ. App.— San Antonio 1952, writ ref’d); courts should avoid the adoption of a construc- tion of a contract which would render meaning- less any provision of that contract—LaGuarta. Gavrel & Kirk, Inc., 596 SW.2d 517 (Tex. 1980); Mattison, Inc. v. W.F. Larson, Inc., 529 48 S.W.2d 271 (Tex. Civ. App.—Amarillo 1975, writ ref'd n.r.e.): and (4) if clauses in a contract are in apparent conflict. they should be reconciled by a reasonable inter- . pretation, “that is, such a construction as_ will make the agreement fair, customary, and such as prudent businessmen would naturally execute” — Stone v. Robinson, 180 S.W. 135, 136 (Tex. Civ. App.—Amarillo 1915, writ ref'd). This court has adopted a construction of the contract in the light of a rule that was adopted by the Railroad Commission several years after the contract was entered into. The Court bases its action in part upon a general regulatory clause (Article XIII, @ 13.1) that appears in every natural gas contract. The Court's hoiding in that respect would eliminate “take-or-pay” liability under all natural gas contracts. The Court’s opinion renders meaningless and gives no effect to the “take-or-pay” provision of the contract. It places a legal stamp of approval on Valero’s manipulation of its nominations and takes of gas under the contract in a manner that was clearly never intended by the parties and completely relieves Valero of any liability under the “take-or-pay” provision of the contract. No other ccurt has ever held that the “take-or-pay” provision in a natural ges contract is not to be given effect because of the Texas Gas Market Demand Rule. This Court’s holding not only is contrary to the clear and unambiguous language of the “take-or-pay” pro- vision of the contract but also is a direct contradiction of the history of the Texas Gas Market Demand Rule 49 and the Railroad Commission’s stated intent that the Gas Market Demand Rule “shail not affect existing contractual rights and obligations between parties.” (12 Tex. Reg. 536 (1987); Brief for Appellants at 12-14.) Further, this Court’s action nullifies a provision that has been recognized as a standard provision in gas contracts for over thirty years and has been upheld by the courts consistently as being conscionable and fair and as prop- ~ erly apportioning the risks between the buyer and seller of gas. 4 H. Williams & C. Meyers, Oil & Gas Law §$ 724.5 (1983); Universal Resources Corp. v. Panhandle Eastern Pipeline Co., 813 F.2d 77 (Sth Cir. 1987). II. 9. Point of Error: The Court erred in holding that the trial court properly submitted to the jury Special Issue No. 2 and Instruction No. 2 containing the definition of the term “Deliverability” from Article I(j) of the contract. 10. Point of Error: The Court erred in holding that Lively waived their objection to Special Issue No. 2 and Instruction No. 2 containing the definition of “Deliverability” from Article I(j) of the contract. 11. The Court erred in holding that the instructions to Special Issue No. 2 were relevant, were not a com- ment on the weight of the evidence, and did not cause the rendition of an improper judgment. 12. The Court erred in holding that considering the entire set of instructions to Special Issue No. 2 and the entire charge, the instruction contained in the third paragraph of the instruction to Special Issue 50 No. 2 was not a comment on the weight of the evidence and probably did not cause the rendition of an improper judgment. 13. The Court erred in overruling Appellants’ Points of Error Three, Four, and Five. Argument and Authorities These points of error will be argued together, as they all relate to the trial court’s submission of. and_ this Court’s opinion with respect to, Special Issue No. 2 and Instruction No. 2 to the extent not discussed under I above. Plaintiff made extensive objections to Special Issue No. 2 and Instruction No. 2 in the triai court. Those objections were: (1) the issue should not be submitted because it was not a controlling issue and its submission deprived plaintiff of the unconditional submission of the controlling Special Issue No. 3; (2) the inclusion of the language of Article V. © 5.2 of the contract in Instruction No. 2 was an error because there had been no evidence presented to warrant iis submission and it could serve only to mislead and confuse the jury by leading the jury to believe that it relates to Valero’s minimum take under the contract and possibly lead to an erroneous verdict on Special Issue No. 2 and possibly also on Special Issue No. 3; (3) the part of the in- struction pertaining to waste was error because there was no evidence to warrant the submission of these instructions pertaining to waste and they could only mislead and confuse the jury and possibly result in an erroneous verdict; (4) these instructions were mean- ingless abstract statements of the law without reference 51 to or connection with any evidence oy issue in this case; (5) the instruction with respect to Valero’s ob- ligation under the Gas Market Demand Rule was an error because there was na evidence in the trial of the case that the Gas Market Demand Rule has affected any issue being presented to the jury for determination: (6) the Gas Market Demand Rule should have no bearing on the determination of the issue the jury was being asked to answer, and its inclusion in any form in the instruction could serve only to mislead and confuse the jury and possibly result in an erroneous verdict: (7) the instructions concerning the Gas Market De- mand Rule are meaningless abstract statements of law without any reference to or connection with any issue in this case; and (8) there was no evidence that com- pliance with the Gas Market Demand Rule in any way affected Valero’s ability to perform its obligations under the contract and particularly its pay obligation under the “take-or-pay” clause (S.F. 1675-1681). Just as the Court felt it was necessary to look at the entire Instruction No. 2 to determine whether it or any part thereof had an adverse effect on the jury, the Court should consider Plaintiffs’ entire objections to Special Issue No. 2 and Instruction No. 2 to determine their sufficiency on the question of waiver. Appellants re spectfully submit that when viewed in their entirety the extensive objections were sufficient and that there was no waiver that would preclude the consideration by this Court of the points of error contained in the Brief for Appellants and this motion. The fundamental error was in the trial court’s sub- mission of Special Issue No. 2 and Instruction No. 2. 52 That issue and instruction should not have been sub- mitted for the reasons objected to by Appellants in the trial court. The trial court’s submission totally confused and mislead the jury by causing them to believe that Valero was not required to take or pay for more gas under the contract than its market demand and that if the jury answered Special Issue No. 2 “Yes” it would itself be causing a violation of the law. Therefore, Special Issue No. 2 and Instruction No. 2, with all of their implications, ramifications, and meanings, confused and mislead the jury and resulted in an erroneous verdict and judgment. The trial court’s submission of Special Issue No. 2 and Instruction No. 2 tainted the entire submission to the jury. The erroneous and superfluous instructions_ to the jury concerning the Gas Market Demand Rule, waste, ratable take, maximum rate of flow permitted by the Railroad Commission, and information to be supplied the Railroad Commission (1) confused and misled the jury by causing them to believe that because of the Gas Market Demand Rule there could be no liability of Valero to Lively under the contract; (2) constituted an impermissible comment that tilted or nudged the jury in favor of Valero, in violation of the Supreme Court’s holding in Lemos v. Montez, 680 S.W.2d 798, 801 (Tex. 1984): and (3) improperly shifted to the jury the determination of a question of law as to the applicability and effect, if any, of the Gas Market De- mand Rule on the “take-or-pay” obligation of Valero under the contract. “It is fundamental that only issues of fact should be submitted to the jury,” and an instruction which shifts 53 to the jury the determination of a legal issue that should have been determined by the trial court is improper and requires reversal. See Knutson v. Ripson, 346 §.W.2d 424, 426 (Tex. Civ. App.—Amarillo 1961), aff'd 163 Tex. 312, 354 S.W.2d 575 (1962); Foerster v. Peoples, 362 S.W.2d 918 (Tex. Civ. App.—-Amarillo 1962, no writ): Barton v. Davis, 441 S.W.2d 299, 301 (Tex. Civ. App.— El Paso |969, writ ref’d n.r.e.); Emmord’s Inc. v. Ober- miller, 526 S.W.2d 562, 566 (Tex. Civ. App.—Corpus Christi 1975, writ ref’d n.r.e.). As discussed in I above, as a matter of law the Gas Market Demand Rule does not affect private contract rights. The trial court’s failure to so hold, its further action in submitting this legal question to the jury for determination, and its action in confusing and misleading the jury by the contents of, and the undue emphasis of matters in, Instruction No. 2 resulted in the rendition of an improper judgment, which should be set aside. III. 15. Point of Error: The Court erred in holding that the trial court fairly submitted Special Issue No. 2, which was the controlling issue, and properly conditionally submitted Special Issue No. 3, which was the dam- age issue. 16. Point of Error: The Court erred in overruling Appel- lants’ Point of Error Six. Argument and Authorities As heretofore discussed, the submission of Special Issue No. 2 and Instruction No. 2 was improper for various reasons and confused and misled the jury. As a result of 54 the jury's answer to Special Issue No, 2, the jury was never given the opportunity to determine whether any money was owing to Lively by Valero under the “take-or- pay” provision of the contract. That was the ultimate and controlling issue to be determined by the jury with respect to Valero’s take-or-pay liability. The trial court should not have submitted Speci2l Issue No. 2 but should have submitted only Special Issue No. 3: What sum of money, if any, if paid now in cash, do you find to be due and owing under the Contract? The submission of that ultimate and controlling issue would have permitted the jury to consider in deciding that issue all proper evidentiary issues and matters, in- cluding whether Valero had failed to take or pay for the Daily Contract Quantity under the contract. The trial court’s conditional submission of the ultimate and con- trolling issue in the case, predicated on a response to an evidentiary issue which should not have been submitted, deprived Lively of its right to have the ultimate and con- trolling issue with respect to one of its grounds for recovery determined by the jury. Blanton v. E. & L Trans- port Co., 146 Tex. 377, 207 S.W.2d 368 (1948); Mont- gomery v. Gay, 212 S.W.2d 941 (Tex. Civ. App.—Fort Worth 1948, no writ); 3 R. McDonald, Texas Civil Prac- tice in District and County Courts §§ 12.16.1 and 12.16. 2(b) (rev. 1983). In effect, Lively’s entire take-or-pay cause of action was conditionally submitted. The conditional submission of Special Issue No. 3 was extremely prejudicial to Lively, constituted harmful error, and led to the rendition of an improper judgment. a 18. 19. 20. ai. 22. 55 IV. Point of Error: The Court erred in holding that Lively conceded that the evidence of the Gas Market Demand Rule supports the jury finding in Special Issue No. 2. Point of Error: The Court erred in holding that there was evidence to support the jury’s finding on take- or-pay liability. Point of Error: The Court erred in holding that legally incorrect evidence can be relied upon to sup- port the jury’s finding on take-or-pay liability. Point of Error: The Court erred in not holding that the jury’s finding on take-or-pay liability was against the great weight and preponderance of the evidence. Point of Error: The Court erred in overruling Appel- lants’ Points of Error Seven, Eight, and Nine. Point of Error: The Court erred. in affirming the judgment of the trial court. Argument and Authorities These points of error will be argued together; as they ail involve the consideration of the evidence with respect to the central issue in this case—Valero’s take-or-pay liability. The evidence presented by both parties in the trial court conclusively established that Valero failed to take or pay for a quantity of gas equal to the Daily Contract Quantity. Under the clear and unambiguous terms of the contract, the Daily Contract Quantity “was equal to ninety per- cent (90%) of Seller’s daily Deliverability hereunder,” 56 and “Sellers Deliverability shall be determined and estab- lished by Buyer by testing the actual ability of Sellers’ wells to deliver into Buyer's facilities at the points of delivery.” (Article V, € 5.3). The only evidence presented to show that Valero failed to take or pay for the Daily Contract Quantity was based entirély on Valero’s invalid argument that as a result of the Gas Market Demand Rule Valero had no liability under the “take-or-pay” provision of the contract (S.F 1449). However, Valero itself recognized that there 1s nothing in the Gas Market Demand Rule that prevents Valero from paying for a deficiency when a deficiency exists by operation of the “take-or-pay” provision (S.F 840). Contrary to the Court's statement, Lively did not con- cede “that the evidence of the Gas Market Demand Rule supports the jury finding in Special Issue No. 2.” Instead, it was and is Lively’s position that there was no evidence to support tiat finding and that the Gas Market Demand Rule has no legal effect upon Valero’s obligation to pay Lively for the minimum quantity it was obligated to take or pay for under the contract. That is an alternative obligation which is not affected or excused by the Gas Market Demand Rule. Valero’s position with respect to the Gas Market De- mand Rule is incorrect as a matter of law because (1) it is contrary te the clear and unambiguous language in the “take-or-pay” provision of the contract and (2) it is based upon the contention that the Gas Market Demand Rule abrogates Valero’s obligations under the contract to take or pay for a minimum quantity of gas each Con- tract Year. When, as here, the Court is barred by rules 57 of law from giving weight to the only evidence offered to prove a vital fact, a “no evidence” point of error must be sustained. Royal Indemnity Co. v. Little Joe’s Catfish Inn, Inc., 636 S.W.2d 530, 531 (Tex. App.—San Antonio 1982. no writ); R. Calvert, “No Evidence” and “Insuffi- cient Evidence” Points of Error, 38 Tex. L. Rev. 361. 363-365 (1960). ¥. 23. Point of Error: The Court's action in applying the Texas Gas Market Demand Rule so as to relieve Valero of its take-or-pay obligations and liability under the contract is invalid because the Texas Gas Market Demand Rule as applied by the Court is pre-empted by the Natural Gas Policy Act. 24. Point of Error: The Court’s action in applying the Texas Gas Market Demand Rule so as to relieve Valero of its take-or-pay obligations and liability under the contract is invalid because the Texas Gas Market Demand Rule as applied by the Court violates the Commerce Clause of the United States Constitution. Argument and Authorities The Court’s action in applying the Texas Gas Market Demand Rule so as to relieve Valero of its take-or-pay obligaiions and liability under the contract is invalid be- cause the Texas Gas Market Demand Rule as applied by the Court is pre-empted by the Natural Gas Policy Act of 1978 (“NGPA”), 15 U.S.C. §§ 3301 et seg., and violates the Commerce Clause of the United States Con- stitution, U.S. Const. art. I, § 8, cl. 3. 58 In 1978, Congress passed the NGPA, which “has been justly described as ‘a comprehensive statute to govern future natural gas regulation.” Public Service Commis- sion of the State of New York v. Mid-Louisiana Gas Co., 463 U.S. 319 (1983). As stated by the United States Supreme Court in Transcontinental Gas Pipe Lie Corp. v. State Oil and Gas Board of Mississippi, 474 U.S. 409 (1986) (“Transco”): [T]he NGPA reflects a congressional belief that a new system of natural gas pricing was needed to balance supply and demand. See S Rep No. 95-436, at 10. The new federal role is to “overse[e] a national market price regulatory scheme.” Haase, 16 Houston L Rev, at 1079; see S Rep No. 95-436, at 21 (NGPA implements “a new commodity value pricing ap- proach”). The NGPA therefore does not constitute a federal retreat from a comprehensive gas policy. Indeed. The NGPA in some respects expanded fed- eral control, since it granted FERC jurisdiction over the intrastate market for the first time. See the Act’s $$ 311 and 312, 15 USC §§ 3371 and 3372 [15 USCS §§ 3371 and 3372]. In Transco, the Supreme Court held that a ratable take order requiring gas purchasers to purchase gas without discrimination in favor of one producer against anuther in the same source of supply is pre-empted by the Natural Gas Act and the NGPA. In view of that holding, the Court stated that “we need not reach the question of whether, absent federal occupation of the field, Missis- sippi’s action would nevertheless run afoul of the Com- merce Clause.” Jd. at 425. The Court said that “Missis- sippi’s action directly undermines Congress’ determination that the supply, the demand and the price of high-cost 59 gas be determined by market forces.” Jd. at 422. The Court stated further: In light of the NGPA’s unification of the interstate and intrastate markets, the contention that Congress meant to permit the States to impose inconsistent regulations is especially unavailing. Second, Mis- sissippi’s order would have the effect of increasing the ultimate price to consumers. Take-or-pay pro- visions are standard industrywide. See Pierce, 68 Va L Rev, at 77-78; H R Rep No. 98-814, pp 23-25. 133-134 (1984). Pipelines are already committed to purchase gas in excess of market demand. Mis- sissippi’s rule will require Transco to take delivery of noncontract gas; this will lead Transco not to take delivery of contract gas elsewhere, thus trigger- ing take-or-pay provisions. Id. at 423. The Court thus recognized the validity of take-or-pay provisions of gas contracts where pipelines are committed to purchase gas in excess of market de- mand. Following the Supreme Court's holding in Transco, the United States District Court, Southern District of Texas, Houston Division, in McGoldrick Oil Company, et al v. United Gas Pipe Line Company, Civil Action No. H-84-4971, by order of September 17, 1987, a copy of which is attached hereto as Appendix A, held: The Texas Gas Market Demand Rule, governing ratable production, is preempted under Trans-conti- nental Gas Pipeline Corp. v. State Oil and Gas Board of Mississippi, ___U.S.____, 106 S. Ct. 709 (1986). Although states may regulate the produc- tion of natural resources in order to achieve a state- wide public benefit, such as conservation, the Texas 60 rule is relied on by United solely to free itself of a contractual obligation. If the rule were enforced to free pipelines of their obligations under take-or- pay contracts, its effect would be contrary to the public interest sought to be served by the federal regulation: gas prices would remain high in spite of an oversupply. In a Memorandum on Denial of Modification of the above order, a copy of which is attached hereto as Appendix B, that Court stated as follows: United Gas Pipe Line’s motion to modify the order of September 17, 1987, will be denied. The September order modified an earlier June memoran- dum, making it consistent with Transcontinental Gas Pipe Line Corporation v. State Oil and Gas Board of Mississippi, ius See a Gh. Te (1986). Had United wanted to limit its takes of gas under its contract with McGoldrick during periods when gas was in surplus supply, it could have negotiated a market out clause. The contract was drafted by sophisticated attorneys for clients with substantial experience in gas production and marketing. A/llega- tions that United in good faith believed that the contract's incorporation of the Texas Gas Market Demand Rule was to work as a substitute for a market out clause which could be invoked when the price and demand for gas dropped are dis- ingenuous. United signed a contract for mandatory minimum purchases of gas during a time of inflated gas prices, gambling that the economy would remain favorable to suppliers. Even if United lacked the capacity immediately to take and rese!l McGoldrick’s gas, it was not commercially impracticable for United to pay for the gas, as it was contractually obligated to do. 61 The court’s September order did not invalidate _ the Texas ratable production scheme. As Transco has instructed, the statute remains enforceable to achieve certain state goals such as preservation of resources, protection of correlative rights, and waste prevention. Congress’ intent to move towaid a less- regulated national gas market cannot be interpreted aS an invitation to the states to impose additional regulations. Transco at 717. The Texas Gas Market Demand Rule, as applied to purchasers such as United, is preempted. 106 S. Ct. at 718. In ANR Pipeline Co. v. Corporation Commission of Oklahoma, 643 F.Supp. 419 (W.D. Okla. 1986), the Court held the Oklahoma statute and the Oklahoma Corporation Commission Rule 1-305 to be “unconstitu- tional! as applied to the plaintifjs” in that case. Id. at 424. That statute and rule, like the Texas Gas Market De- mand Rule, provided for ratable purchases of gas by pipelines from a common source of supply on a system- wide basis and established a priority schedule for the purchase of gas when production exceeded that pur- chasers market demand. In Schneidelwind v. ANR Pipeline Co., 56 U.S.L.W. 4249 (U.S. March 22, 1988), the United States Supreme Court held that a Michigan statute “regulates in a field the NGA has occupied to the exclusion of state law, and that it is therefore preempted.” /d. at 4251. The statute required a public utility exercising or claiming the right to transport natural gas for public use to obtain approval from the Michigan Public Service Com- mission before issuing long term securities. Referring to the “comprehensive scheme of federal regulation” in the Natural Gas Act, the Court stated that “while the NGA 62 does not expressly grant FERC preissuance authority over the securities of natural gas companies, FERC achieves the regulatory ends of such review with regard to rates and facilities through the exercise of its express regulatory responsibilities.” Jd. at 4254. In view of its conclusion that the Michigan statute “is pre-empted by the NGA,” the Court stated that “we need not decide whether. absent federal occupation of the field, Act 144 violates the Commerce Clause. See Transcontinental Gas Pipe Line Corp. v. State Oil and Gas Bd. of Mississippi, 474 U.S. 409, 425, (1986).” Id. at 4254. While these cases involved interstate pipelines, no valid reason exists for distinguishing between interstate and intrastate pipelines insofar as the holdings of these cases are concerned. As recognized in Transco, the NGPA resulted in “unification of the interstate and intrastate markets,” and now there is a “national natural gas mar- ket.” 474 U.S. at 423-424. That this is the case is further evidenced by the fact that Section 105 of the NGPA covers “sales under existing intrastate contracts.” The authority given by the NGPA to FERC to regu- late the price of “all first sales of natural gas irrespective of its interstate or intrastate character” was upheld in State of Oklahoma v. Federal Energy Regulatory Com- mission, 661 F.2d 832 (10th Cir. 1981), cert. denied, 457 U.S. 1105 (1982). The Court there held that “the enactment of the NGPA is a constitutionally acceptable exercise of Congress’ Commerce Clause power.” 661 F.2d at 838. The basis of the Court’s holding, among other things, was that Congress may regulate wholly intrastate activities which have “a substantial economic effect on interstate commerce or when the intrastate activity is necessary to effectuate the interstate regu!a- 63 tion”; “Congress had a rational basis for determining that the unregulated intrastate market imposed a burden on interstate commerce”; and “Congress may pre-empt state conservation regulations which interfere with or burden interstate commerce.” /d. at 834-835. In considering the validity of state ratable take rules such as the Texas Gas Market Demand Ruie, there is no longer any valid reason for differentiating between inter- State and intrastate pipelines. Both pipelines purchase from the same producers, the same fields, and even the same wells, and the maximum price of the first sales to them is regulated by FERC irrespective of the destination of the gas. Therefore, the Texas Gas Market Demand Rule as applied by this Court is not only pre-empted by the NGPA but also runs afoul of and violates the Com- merce Clause of the United States Constitution. Even if, as Valero contends, the definition of “Deliver- ability” in Article I1(j) of the contract can be construed as limiting Valero’s takes of gas to its market demand under the Texas Gas Market Demand Rule, that portion of the agreement would be unenforceable here since during the Contract Years in question the Gas Market Demand Rule as so applied is pre-empted by the NGPA and violates the Commerce Clause. “Parties, by contract. cannot impair the validity of a law, nor control or limit the provisions of statute.” McFarland v. Haby, 589 S.W. 2d 521, 524 (Tex. Civ. App.—Austin 1979. writ ref'd n.r.e.); Gorman v. Gause, 565 $.W.2d 855 (Tex. Comm'n App. 1933, judgmt adopted). For all of the reasons set forth herein, Appellants respectfully submit that this Court erred in affirming the judgment of the trial court. 64 WHEREFORE, Appellants request that Appellants’ motion for rehearing be granted and that Appellants have the relief prayed for in the Prayer for Relief set forth in the Brief for Appellants filed herein. Respectfully submitted, SCOTT, DOUGLASS & LUTON By: /s/ JESSE P. LUTON, JR. Jesse P. Luton, Jr. State Bar No. 12708000 James P. Pennington State Bar No. 15758520 4300 RepublicBank Center 700 Louisiana Street Houston, Texas 77002 (713) 228-6337 Frank Douglass State Bar No. 06049000 Christopher Fuller State Bar No. 07353050 | 1200 First City Bank Building Austin, Texas 78701 | (512) 476-6337 | Attorneys for Appellants | | 65 CERTIFICATE OF SERVICE I hereby certify that the above and foregoing Appel- lants’ Motion for Rehearing was served on the Appellee or its attorney by delivery of a true copy by certified mail, return receipt requested, by depositing it, postpaid, in an official depository under the care and custody of the United States Postal Service on the 12th day of April, 1988, enclosed in a wrapper addressed as follows: J. Clifford Gunter, ITT Carrin F. Patman Laura B. Herring Gregory B. King Bracewell & Patterson 2900 South Tower Pennzoil Place Houston, Texas 77002 /s/ JESSE P. LUTON, JR. Jesse P. Luton, Jr. 66 APPENDIX A UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION CIVIL ACTION NO. H-84-4971 McGOLDRICK OIL COMPANY, et al., Plaintiffs, V. UNITED GAS PIPE LINE COMPANY, Defendant. ORDER McGoldrick’s motion for reconsideration is denied in part and granted in part. 1. The Texas Gas Market Demand Rule, governing ratable production, is preempted under Transcontinental Gas Pipeline Corp. v. State Oil and Gas Board of Mis- sissippi, U.S.____, 106 S. Ct. 709 (1986). Although states may regulate the production of natural resources in order to achieve a state-wide public benefit, such as conservation, the Texas rule is relied on by United solely to free itself of a contractual obligation. If the rule were enforced to free pipelines of their obligations under take- or-pay contracts, its effect would be contrary to the public interest sought to be served by the federal regu- lation: gas prices would remain high in spite of an oversupply. The Texas ratable production rule conflicts with the Natural Gas Policy Act objective of securing fair prices 67 for consumers. Just as Mississippi’s action in Transco undermined Congress’s determination that the supply, the demand, and the price of high-cost gas be determined by market forces, the Texas regulation could have the identi- cal effect of distorting the market by decreasing the supply of gas. 2. United’s affirmative defenses of physical and legal impossibility, commercial impracticability, lack of mutual assent, mistake, and penalty are not viable. Performance has not been made impossible, just unprofitable. Substantial frustration and commercial impracticality have not excused performance under take-or-pay clauses where the parties are knowledgeable bargain- ing entities. The negotiating parties are expected to have an awareness of market conditions as change- able rather than stable an the experience with regula- tory agencies so that prospective regulation is as- sumed, Forest Oil Corp. v. El Paso Natural Gas Co., No. 86- 1948-W (W.D. Okla., May 6, 1987). Challenger Min- erals, Inc. v. Southern Natural Gas Co., No. 84-C-357-E (N.D. Okla., Sept. 9, 1986); Forest Oil Corp. v. El Paso Natural Gas Co., No. 86-1948-W (W.D. Okla., May 6, 1987); Northern Indiana Pub. Serv. Carbon County Coal, 799 F.2d 265 (7th Cir. 1986); Coquina Oil Corporation v. Transwestern Pipeline Company, No. 86-562-M (D. N.M., Sept. 19, 1986); Universal Res. Corp. v. Panhandle E. Pipe Line Co., 813 F.2d 77 (Sth Cir. 1987). 3. McGoldrick’s antitrust claims in Counts I and IT of the amended complaint allege the same facts and a viola- tion of the same statute; the only difference is the nature 68 of the alleged injury. Because summary judgment was based on a finding that there was no refusal to deal, both claims fail. 4. McGoldrick’s motion for a judgment under Rule 54(b) is granted. Signed on September 17, 1987, at Houston, Texas. By: /s/ LYNN N. HUGHES Lynn N. Hughes United States District Judge 69 APPENDIX B UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION CIVIL ACTION NO. H-84-4971 McGOLDRICK OIL COMPANY, et al., Plaintiffs, V. UNITED GAS PIPE LINE COMPANY, Defendant, MEMORANDUM ON DENIAL OF MODiFICATION United Gas Pipe Line’s motion to modify the order of September 17, 1987, will be denied. The September order modified an earlier June Memorandum, making it con- sistent with Transcontinental Gas Pipe Line Corporation v. State Oil and Gas Board of Mississippi, _-U.S.____, 106 S. Ct. 709 (1986). Had United wanted to limit its takes of gas under its contract with McGoldrick during periods when gas was in surplus supply, :t could have negotiated a market out clause. The contract was drafted by sophisticated attor- neys for clients with substantial experience in gas produc- tion and marketing. Allegations that United in good faith believed that the xontract’s incorporation of the Texas Gas Market Demand Rule was to work as a substitute for a market out clause which could be invoked when the price and demand for gas dropped are disingenuous. 70 United signed a contract for mandatory minimum pur- chases of gas during a time of inflated gas prices, gambl- ing that the economy would remain favorable to suppliers. Even if United lacked the capacity immediately to take and resell McGoldrick’s gas, it was not commercially impracticable for United to pay for the gas, as it was con- tractually obligated to do. The court’s September order did not invalidate the Texas ratable production scheme. As Transco has instructed, the statute remains enforceable to achieve certain state goals such as preservation of re- sources, protection of correlative rights, and waste pre- vention. Congress’ intent to move toward a less-regulated national gas market cannot be interpreted as an invitation to the states to impose additional regulations. Transco at 717. The Texas Gas Market Demand Rule, as applied to purchasers such as United, is preempted. 106 S. Ct. at 718. United’s claim that by compelling it to pay for gas which it cannot take, the cost of gas to consumers will go up, is at odds with simple economics; when a commodity is in abundant supply, absent artificial controls, it can be purchased by consumers at a lower price. Higher con- Sumer prices may ultimately occur when the oil industry revives and suppliers pass on to their customers the costs of their unfavorable contracts with producers. This effect may not, however, be invoked to vitiate an arms length, long-term supply contract; indeed, no supply contract would survive a price change. Every error of judgment in supply contracts raises the cost of the commodity to customers, Signed on December 9th, 1987, at Houston, Texas. By: /s/ LYNN N. HUGHES Lynn N. Hughes United States District Judge 71 NO. C-7676 IN THE SUPREME COURT OF TEXAS AUSTIN, TEXAS LIVELY EXPLORATION COMPANY, ET AL., Petitioners Vv. VALERO TRANSMISSION COMPANY, Respondent. PETITIONERS’ APPLICATION FOR WRIT OF ERROR Scott, Douglass & Luton Frank Douglass Christopher Fuller 1200 First City Bank Building Austin, Texas 78701 (512) 476-6337 Jesse P. Luton, Jr. James P. Pennington 4300 RepublicBank Center 700 Louisiana Street Houston, Texas 77002 (713) 228-6337 Attorneys for Petitioners June 15, 1988 72 COMPLETE LiST OF THE PARTIES Pursuant to Rule 131(a) of the Texas Rules of Ap- pellate Procedure, a complete list of the names of all parties follows: : Petitioners: Lively Exploration Company, Lea Roy Aldwell, Individually, Lea Roy Aldwell, Winnie Lea McPherson and Marjory Reba Johansen, as Testamentary Trustees under the Will of George L. Aldwell, Deceased, Jon A. Sonnen, J. Howard Marshall, Ed Farrell, Elizabeth Standish, The Desana Corporation, Jessee L. Dally, Chester H. Kenley, Carolyn H. Joseph, Independent Executrix of the Estate of Gifford E. Joseph, Deceased, H. B. Lively, B. Jack- son Bandy, Robert L. Banks, Theo B. Bean, William R. Gifford, Charlie Gill, Jr., Henry Gunders and wife, Elaine Gunders, Kenneth L. Hewitt, Kallman Nashner, Frank Pace, Jr., Martin B, Seretean, Ray B. Vaughters, and Theodore L. Wilkinson. Respondent: Valero Transmission Company. 73 NO. C-7676 IN THE SUPREME COURT OF TEXAS AUSTIN, TEXAS LIVELY EXPLORATION COMPANY, ET AL., Petitioners, V. VALERO TRANSMISSION COMPANY, Respondent. PETITIONERS’ APPLICATION FOR WRIT OF ERROR To The Supreme Court of Texas: Lively Exploration Company, Lea Roy Aldwell, Indi- vidually, Lea Roy Aldwell, Winnie Lea McPherson and Marjory Reba Johansen, as Testamentary Trustees under the Will of George L. Aldwell, Deceased, Jon A. Sonnen, J. Howard Marshall, Ed Farrell, Elizabeth Standish, The Desana Corporation, Jessee L. Dally, Chester H. Kenley, Carolyn H. Joseph, Independent Executrix of the Estate of Gifford E. Joseph, Deceased, H. B. Lively, B. Jackson Bandy, Robert L. Banks, Theo B. Bean, William R. Gif- ford, Charlie Gill, Jr., Henry Gunders and wife, Elaine Gunders, Kenneth L. Hewitt, Kallman Nashner, Frank Pace, Jr., Martin B. Seretean, Ray B. Vaughters, and Theodore L. Wilkinson (collectively referred to as 74 “Lively” or “Petitioners”), Appellants in Cause No. 04-87-00380-CV in the Court of Appeals for the Fourth Supreme Judicial District of Texas, San Antonio, Texas (plaintiffs in the district court), respectfully submit their application for writ of error to correct errors of law com- mitted by the Court of Appeals in affirming the judgment for Respondent, Valero Transmission Company (“Val- ero” or “Respondent”), Appellee below (defendant in the district court). STATEMENT OF THE CASE This is a case in which Lively, a gas producer-seller, sued for recovery of damages from Valero, an intra- State gas pipeline-purchaser, for breach of the take- or-pay provision and the pricing provision of a gas purchase contract. The case was tried before a jury, and on the basis of the jury’s answers to the special issues the Trial Court entered judgment that Lively take nothing on their claim for breach of the take-or-pay provision of the contract, awarding Lively $1,204,778.60 on the pric- ing claim and $500,000.00 for attorneys’ fees. Lively appealed that part of the Trial Court’s judgment ordering that they take nothing on their claim for breach of the take-or-pay provision of the contract. The opinion of the Court of Appeals on Appellants’ motion for rehearing,’ Lively Exploration Company, et al. v. Valero Transmission Company, _._S.W.2d___._ (Tex. App.—San Antonio 1988), correctly states the nature and result of the case. 1. The Court of Appeals denied Appellants’ motion for rehearing deleting only one sentence in the original opinion which had no effect on the Court's ruling. Therefore, Appellants did not, and were not required to, file a second motion for rehearing under Tex. R. App. P. 100(d). 75 STATEMENT OF JURISDICTION The Supreme Court has jurisdiction of this case under Tex. Gov't Cope ANN. § 22.001(a)(6) (Vernor 1988). POINTS OF ERROR POINT 1. The Court of Appeals erred in holding that the Texas Gas Market Demand Rule applies in determining the obligations of Valero under the take- or-pay provision of the contract. POINT 2. The Court of Appeals erred in holding that the Texas Gas Market Demand Rule was relevant and material to prove or disprove that there was a breach of the “take-or-pay” provision of the contract as alleged by Lively. [Points 1 and 2 are germane to: Plaintiffs’ Origi- nal Petition (Tr. 3-7); Plaintiffs’ Second Amended Original Petition (Tr. 35-40); Defendant’s Fourth Amended Original Answer, € 11-14 (Tr. 48-50); Judg- ment (Tr. 118-211); Points of Error 1-6, Appellants’ Motion for Rehearing.] POINT 3. The Court of Appeals erred in holding that the inclusion of the Texas Gas Market Demand Rule in the charge to the jury was not harmful error. [Germane to: Special Issue No. 2 (Tr. 145-146); Plaintiffs’ Motion for Judgment and for Partial New Trial, © 7 (Tr. 160-163); Point of Error 7, Appellants’ Motion for Rehearing. ] 76 POINT 4. The Court of Appeals erred in holding that the obligations of Valero under the take-or-pay provision of the contract are controlled by the defi- nitions of “Daily Contract Quantity” and “Deliver- ability” set forth in Article I of the contract. {[Germane to: Special Issue No. 2 (Tr. 145-146); Point of Error 1, Appellants’ Motion for Rehearing.| POINT 5. The Court of Appeals erred in holding that the Trial Court properly submitted to the jury Special Issue No. 2 and Instruction No. 2 containing ihe definition of “Deliverability” from Article I(j) of the contract. {[Germane to: Special Issue No. 2 (Tr. 145-146); Point of Error 9, Appellants’ Motion for Rehearing.] POINT 6. The Court of Appeals erred in holding that Lively waived their objection to Special Issue No. 2 and Instruction No. 2 containing the definition of “Deliverability” from Article I(j) of the contract. {Germane to: Special Issue No. 2 (Tr. 145-146): Point of Error 10, Appellants’ Motion for Rehearing.) POINT 7. The Court of Appeals erred in holding that the instructions to Special Issue No. 2 were relevant, were not a comment on the weight of the evidence, and did not cause the rendition of an improper judg- ment. [Germane to: Special Issue No. 2 (Tr. 145-146); Piaintiffs’ Motion for Judgment and Partial New Trial, €7 (Tr. 160-163): Points of Error 11 and 12, Ap pellants’ Motion for Rehearing. } 77 POINT 8. The Court of Appeals erred in holding that the Trial Court fairly submitted Special Issue No. 2, which was the controlling issue, and properly conditionally submitted Special Issue No. 3, which was the damage issue. [Germane to: Special Issues No. 2 and 3 (Tr. 145- 147); Plaintiffs’ Motion for Judgment and Partial New Trial, © 7 (Tr. 160-163); Point of Error 15, Appe!lants’ Motion for Rehearing.] POINT 9. The Court of Appeals erred in holding that Lively conceded that the evidence of the Gas Market Demand Rule supports the jury finding in Special Issue No. 2. {Germane to: Point of Error 17, Appellants’ Mo- tion for Rehearing. ] Point 10. The Court of Appeals erred in holding that there was evidence to support the jury's finding on take-or-pay liability. {[Germane to: Plaintiffs’ Motion for Judgment and Partial New Trial, © 7 (Tr. 160-163); Point of Error 18, Appellants’ Motion for Rehearing. ] POINT 11. The Court of Appeals erred in holding that legally incorrect evidence can be relied upon to support the jury’s finding on take-or-pay liability. {Germane to: Point of Error 19, Appellants’ Mo- tion for Rehearing. } POINT 12. The Court of Appeals’ action in apply- ing the Texas Gas Market Demand Rule so as to 78 relieve Valero of its take-or-pay obligations and liability under the contract is invalid, because the Texas Gas Market Demand Rule as applied by the Court of Appeals is pre-empted by the Natural Gas Policy Act. [Germane to: Point of Error 23, Appellants’ Mo- tion for Rehearing. ] POINT 13. The Court of Appeals’ action in apply- ing the Texas Gas Market Demand Rule so as to relieve Valero of its take-or-pay obligations and li- ability under the contract is invalid, because the Texas Gas Market Demand Rule as applied by the Court of Appeals violates the Commerce Clause of the United States Constitution. [Germane to: Point of Error 24, Appellants’ Mo- tion for Rehearing. | \ FACT STATEMENT This is a general fact statement germane to all points. The contract in question (P. Ex. 1, S.F. 115) was entered into in 1973 between Lively and Valero’s pre- decessor, Lo-Vaca Gathering Company. It grants to Valero the exclusive right and the obligation to purchase all of Lively’s gas from the Contract Area for a period of 20 years. The contract provides that Valero will, for each Contract Year, either (1) take delivery of and pay for the Daily Contract Quantity of natural gas or (2) pay for the Daily Contract Quantity of natural gas, whether taken or not. The Daily Contract Quantity is defined as a quantity of gas equai to ninety percent (90% ) of Lively’s 79 daily deliverability of gas averaged over the Contract Year. The quantity of gas to be purchased by Valero taken or not. The Daily Contract Quantity is defined as a each Contract Year is determined by multiplying the Daily Contract Quantity by the number of days during the Contract Year during which Valero’s performance was not excused by the contract. Article V, € 5.3, of the contract provides in pertinent part as follows: Subject to the other provisions hereof, Buyer agrees to purchase and pay for (or, if Buyer’s per- formance hereunder is not excused by other provi- sions of this Agreement, pay for, if available, whe- ther taken or not) during the days of each contract year of the term hereof a Daily Contract Quantity of gas from Sellers’ Lands and Leases in the Contract Area equal to ninety percent (90%) of Sellers’ daily Deliverability of gas hereunder. Upon request by Buyer or Seller, Sellers’ Deliverability shall be deter- mined and established by Buyer by testing the actual ability of Sellers’ wells to deliver into Buyer's facili- ties at the points of delivery; provided, however, neither Seller nor Buyer shall request such Deliver- ability test more often than once in any ninety (90) day period. Such Deliverability tests shall be made after a stabilized rate of flow has been achieved against such pressure as is required to deliver into Buyer’s facilities at the operating pressure at the points of delivery at the time of the test... .” This provision in the contract is commonly known in the oil and gas industry as a “take or pay” clause. Mr. Lively testified that he would not have executed the con- tract if this provision had not been included (S.F. 121). 2. Emphasis added throughout except where indicated otherwise. 80 The contract also contains a general definition of the term “deliverability” which differs from the specific use of that term in the take-or-pay provision quoted above. Article I(j) of the contract defines the term “deliver- ability” as: [T]hat quantity of gas which Seller has available for delivery from the Lands and Leases to Buyer during each day, in conformity with the requirements of this Agreement, at a constant rate of flow, when Seller’s wells and facilities are not produced in excess of their maximum efficient rate of flow, but not exceed- ing the maximum (including overproduction) rate of flow permitted by the laws, rules and regulations of the Railroad Commission of Texas or other gov- ernmental regulatory agency having jurisdiction. Buyer agrees to make nominations, or to cooperate with Seller in the making of nominations. for well allowables (to be fixed or permitted by rules, regula- tions or orders of the Texas Railroad Commission) sufficient to cover the daily quantities which from time to time Buyer is entitled and elects to take hereunder up to the maximum quantity which in accordance with good engineering and gas produc- tion practice can be produced from Seller’s welis in the fields. Beginning with the 1982 Contract Year (June 1, 1982 - May 31, 1983), and continuing through the 1985 Contract Year, Valero failed to either take and pay or simply pay for the minimum quantity of gas as required by the contract. Pursuant to Article VIII, © 8.2, of the contract, Lively calculated the amount due from Valero under the take-or- pay provision to be $21,.264,689.30 (P. Ex. 51: S.F. 398). 81 Article VIII, € 8.2, provides: If Buyer shall fail in any contract year of the term hereof to take the quantity of gas that Buyer is obligated to take hereunder, then Seller shall, within sixty (60) days after such contract year render a bill to Buyer based upon the weighted average price, including tax reimbursement, in effect hereunder during the contract year in which such deficiency occurred, computed on the volumes de- livered during the year and at the price, including tax reimbursement, applicable to such volumes at the time of delivery thereof. If Buyer agrees with such statement, Buyer will make payment to Seller for the amount of such statement within sixty (60) days after receiving Seller’s statement. In computing the amount due Seller for any deficiency in takes by Buyer occurring during any contract year. there shall be deducted from such deficiencies the follow- ing quantities: (a)_The total of the quantities which Buyer re- quested, up to 111% of the Daily Contract Quantity, and which Seller failed to deliver for any reason on any day or days during such contract year; and, (b) The total of the quantities of gas which Buyer was unable to take or failed to take on any day or days during such contract year by reason of force majeure; and, (c) The total of the quantities of gas by which there was a deficiency in Seller’s allowable for the wells covered hereby below the Daily Contract Quantity on any day or days during such year, ex- cluding any portion of such deficiency which is caused by, or is a result of, Buyer’s failure to nomi- nate to the Texas Railroad Commission to purchase a quantity of gas equal to the Daily Contract Quantity; and 82 (d) The total of the quantities of gas which Buyer refuses to take on any day or days during such year by reason of Seller’s failure to meet any of the quality specifications or pressure requirements provided hereunder. In asserting that it had no liability to Lively under the take-or-pay provision of the contract, Valero relied upon evidence that it took the amount of gas under the con- tract that it was authorized to take under the Gas Mar- ket Demand Rule of the Railroad Commission of Texas (S.F. 675-699, 1306-1377; D. Exs. 7, 78, 91; Tr. 45-50). The amount of gas Valero took under its contract with Lively was determined by Valero’s market demand for gas as reflected in its monthly nominations for gas filed by Valero with the Railroad Commission (D. Exs. 62- 62M). The Trial Court submitted Lively’s take-or-pay claim by way of two special issues to the jury. Special Issue No. 2 inquired whether “Valero failed to take or pay for an amount of gas equal to the Daily Contract Quan- tity (DCQ)” (Tr.145). Special Issue No. 3, concerning the amount of money that Valero owed to Lively for its failure to take or pay under the contract, was con- ditionally submitted by the Trial Court upon an affirma- tive finding being made by the jury to Special Issue No. 2 (Tr. 147). Since the jury answered Special Issue No. 2 in the negative, it did not answer Special Issue No. 3. On the basis of the jury’s answer to Special Issue No. 2, the Trial Court entered judgment against Lively on its take-or-pay claim. Other special issues were submitted to the jury, and the part of the judgment incorporating the jury’s findings on them was not appealed. 83 The Court of Appeals, in affirming the Trial Court’s judgment, relied upon the general definition of “Deliver- ability” contained in Article I(j) of the contract and upon the government regulation clause in Article XIII, € 13.1, making the agreement “subject to all valid ap- plicable federal and state laws . . . and to the orders, rules and regulations of any federal or state regulatory body or authority having jurisdiction.” (Court of Ap- peals’ Opinion, pp. 3-4). Plaintiffs’ Exhibits 38-41 vividly show how Valero has manipulated its nominations of, and requests for, gas by comparing the quantities requested by Valero with the Daily Contract Quantities under the contract. During the period June 1, 1982- May 31, 1986, the quantities requested by Valero were progressively reduced. During the 1985 Contract Year, the quantities requested by Valero averaged less than 1000 Mcf per day for 4 months and were virtually zero for 6 months, while the Daily Contract Quantity for that same period was 7080 Mcf per day. SUMMARY OF ARGUMENT This case should be reversed and judgment rendered that Valero is liable to Lively for its failure to pay for the Daily Contract Quantity under the contract for the Contract Years 1982, 1983, 1984, and 1985, and the case should be remanded for a new trial as to the amount owed to Lively by Valero. The Trial Court and the Court of Appeals erred in failing to hold as a matter of law that Valero is not relieved of liability under the take-or-pay provision of the contract by the application of the Texas Gas Market 84 Demand Rule and in permitting the jury to pass upon this legal question. In so doing, the Court of Appeals ignored established rules of construction of contracts and in effect read out of the contract the important take-or-pay provision. The courts below also erred in submitting, or approv- ing the submission of, instructions to the jury in connec- tion with Special Issue No. 2 which contained an im- proper definition of “Deliverability” for use in deter- mining take-or-pay liability and were improper comments on the weight of the evidence which caused the rendition of an improper judgment. Error was committed in sub- mitting Special Issue No. 2, which was not the controlling issue, and in conditionally submitting Special Issue No. 3, the controlling issue. Further, there was no evidence to support the jury’s finding on take-or-pay liability, since the only evidence was legally incorrect. The Court of Appeals’ application of the Gas Market Demand Rule is invalid, because the Rule as applied by the Court is pre-empted by the Natural Gas Policy Act and violates the Commerce Clause of the United States Constitution. ARGUMENT AND AUTHORITIES POINTS OF ERROR 1-4. IN SUMMARY: THE COURT OF APPEALS ERRED IN HOLDING THAT THE TEXAS GAS MARKET DEMAND RULE AP- PLIED SO AS TO RELIEVE VALERO OF ANY TAKE-OR-PAY LIABILITY UNDER THE CON- TRACT. The effect of the judgment and the Court of Appeals’ opinion is to hold that because of the Texas Gas Market 85 Demand Rule Valero has no liability to Lively under the take-or-pay provision of the contract. This is contrary to the clear and unambiguous provisions of the contract and the applicable rules of construction and has the effect of reading the take-or-pay provision out of the contract. This is the first time a Texas court has made such a holding, and its ramifications are for reaching and will have a severe, adverse effect on gas producers in this state. Article V, € 5.3, of the contract contains the take-or- pay provision relied upon by Lively in this case. Valero seeks to avoid its obligations under that provision by asserting that the Railroad Commission Gas Market De- mand Rule abrogates the take-or-pay provision by limit- ing Valero’s obligation to take gas to its market demand and consequently relieves Valero of its obligation to pay for the Daily Contract Quantity when not taken. It is Petitioners’ position that as a matter of law the Gas Market Demand Rule does not affect the rights and obligations of the parties to this contract by relieving Valero of its obligation to pay for the minimum quantity of gas provided by the contract. Take-or-pay provisions have been recognized as stand- ard provisions in gas purchase agreements since the early 1950’s. 4 H. WILLIAMS & C. Meyers, O1L & Gas Law § 724.5 (1983). Courts have consistently held that such provis [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_0931%3A2. Public record. Not legal advice.