## Facts

- Clara Odessa Martin (lessor) executed a 1973 “unless” oil-and-gas lease on a 202-acre tract in Coleman County, Texas, to Mary Linn Elliott.
- The lease required timely annual delay-rental payments to keep the lease in force during the primary term; the first annual delay rental was due in November 1974 and was not timely paid.
- Elliott assigned the lease to Master Drillers, Inc.; Gulf States Energy Corp. had a separate agreement with Master Drillers to acquire a one-half interest in acreage associated with assignments under the Elliott lease.
- In January 1975, Gulf States tendered payment directly to Martin accompanied by a letter/check explicitly labeled “lease rental” under the existing lease; Martin accepted the payment.
- In May 1975, Thompson purchased Master Drillers’ lease rights at an IRS auction and later conveyed a one-half interest to Brannon.
- In July 1975, Martin executed a new oil-and-gas lease on the same tract to Gulf States, and Gulf States drilled and produced under that later lease.
- Thompson and Brannon asserted that the original lease remained in force (and thus controlled), because Martin’s acceptance of the January 1975 payment labeled as delay rental waived any termination.
- At trial, the court admitted testimony that the January 1975 payment, though labeled “lease rental,” was intended as a bonus for a new lease to Gulf States; judgment was entered for Gulf States and Martin and affirmed on appeal.

## Issues

1. Whether Martin’s acceptance of the late January 1975 payment labeled “lease rental” waived termination and revived the existing “unless” lease.
2. Whether parol evidence was admissible to recharacterize an unambiguous written “lease rental” payment as a bonus for a new lease.
3. Whether Gulf States could avoid the parol evidence rule by claiming it was a “stranger” to the written instruments.

## Decision

- The Supreme Court of Texas reversed the judgment for Gulf States and remanded.
- The court held that Martin’s acceptance of the late payment expressly designated as “lease rental” revived the existing lease as though it had not terminated.
- The court held the letter and check were contractual and unambiguous; parol evidence could not contradict their “lease rental” designation by claiming the payment was a bonus for a new lease.
- The court rejected Gulf States’ “stranger” argument because Gulf States’ interest and claims were closely connected to the transaction and the leasehold chain it sought to affect.
- The case was remanded for further proceedings, including resolution of remaining equitable matters such as accounting for production, costs, and expenses.

## Legal Principles

- An “unless” oil-and-gas lease terminates automatically upon failure to timely pay delay rentals, but the lessor may waive termination by accepting a late payment treated as rental under the existing lease.
- A letter and check tendering payment and unambiguously designating it as “lease rental” are contractual instruments whose terms may not be altered, varied, or contradicted by parol evidence absent a recognized exception (e.g., fraud, accident, or mutual mistake).
- A party sufficiently connected to and claiming rights affected by the written instruments is not a “stranger” for purposes of avoiding application of the parol evidence rule.
- When a lessor accepts a late payment explicitly treated as delay rental on an existing lease, the lessor cannot later grant a new lease inconsistent with the revived prior leasehold, subject to equitable adjustment on remand.

## Conclusion

The court held that the lessor’s acceptance of a late, clearly labeled delay-rental payment revived the existing lease and that oral testimony could not recharacterize the unambiguous payment documents as consideration for a new lease; the case was remanded to address remaining equitable accounting issues arising from Gulf States’ subsequent drilling and production.


Brannon v. Gulf States Energy Corp., 562 S.W.2d 219 (Tex. 1977)