Originally published by Charles Sartain.
Posted by Charles Sartain
Les Advises the Tigers Not to Buy a Lease in NY
Political actions have consequences. A force majeure clause in New York oil and gas leases does not modify the primary term of the habendum clause and the leases are not extended because of the state ban “moratorium” on hydraulic fracturing.
The force majeure clause:
[I]f and when drilling . . . [is] alleged or interrupted . . . as a result of some order, rule, regulation, requisition or necessity of the government, or as the result of any other cause whatsoever beyond the control of Lessee, the time of such delay or interruption shall not be counted against Lessee, anything in this lease to the contrary notwithstanding.”
No operations were conducted during the primary term and there was no production.
This question was certified to the New York State Court of Appeals: “If [the moratorium was a force majeure event] does the force majeure clause modify the habendum clause and extend the primary terms of the leases?” The state court answered “no”.
The Court’s Reasoning
- The habendum clause did not incorporate the force majeure clause by reference or contain language expressly subjecting it to other lease terms, and the force majeure clause did not specifically refer to the habendum clause.
- Under New York law the force majeure provision did not supersede all other clauses in the leases, only those with which it was in conflict. Because the two clauses were not in conflict, “anything in this lease to the contrary, notwithstanding” alone was insufficient to compel the conclusion that the force majeure clause modifies the primary term.
- Because the clause expressly referred to delay or interruption in drilling or production, it follows that the clause only conflicted with, and therefore modified, the secondary term of the habendum clause.
- The force majeure clause expressly indicated that it dealt with lease termination, not expiration. Thus, the “notwithstanding” language excused lessee’s performance only during the secondary term.
Based on the state court ruling a summary judgment terminating the leases was upheld.
Q and A in Which the Author Interviews Himself
Q: What is the source of this heresy?
A: You’d be surprised. The court referred to several cases from Texas and California for support. A 1975 Texas case construed identical language in just the same way, meaning that someone didn’t update his forms.
Q: Did it have to end this way?
A: Of course not. The lessees argued that “anything in this lease to the contrary notwithstanding” has consistently been held to enforce the clause. Several Texas cases could be relied upon for a contrary result. Being the highest court in New York, they could have decided to follow another approach. Supreme courts are fond of saying they just call ball and strikes. But they also define the strike zone, the distance between the bases, the height of the mound, and just about every other aspect of the game.
Q: What does it mean?
A: Are you asking me, legally or politically? The legal effect is, if the “moratorium” ever ends, many lessees will by paying again for leases they paid for once before. Politically … not my problem, and unless you have leases in New York it’s not yours either.
And this musical commemoration of LSU v. McNeese.
Finally, Les’s failure to stop the lightning is yet another reason to fire him. You-know-who-I’m-talkin’-about would have willed the storms to proceed away from Tiger Stadium … quickly.
Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.
from Texas Bar Today http://ift.tt/1K46ul8
via Abogado Aly Website
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