## Facts

- Texas mineral lessors (the Flowers) leased gas-producing properties to Diamond Shamrock Corporation (Shamrock) under leases requiring royalties based on “market value” for gas sold off the premises.
- In 1965, Shamrock committed gas from the leased properties to a 20-year intrastate sales contract at a fixed price.
- Shamrock calculated and paid royalties using the lower contract price rather than the higher prevailing market value.
- Shamrock paid monthly royalties by checks stating they were “in full settlement of the account stated,” directing payees to return the check and state differences if the amount was not correct.
- In February 1974, Shamrock offered to amend the leases to a proceeds-based royalty formula tied to Shamrock’s contract receipts.
- In July 1974, the Flowers refused the amendment, asserted entitlement to market-value royalties, and demanded payment of deficiencies going forward; Shamrock responded it would continue paying “in accordance with the lease provisions.”
- The Flowers nonetheless continued to endorse and cash the monthly checks through February 1977.
- The Flowers sued to recover underpaid royalties (the difference between market value and contract price) beginning in December 1973.

## Issues

1. Whether endorsing and cashing royalty checks containing “full settlement” language established an accord and satisfaction under Texas law as a matter of law.
2. Whether the Natural Gas Policy Act (NGPA) barred additional royalty recovery where paying it would exceed the maximum lawful intrastate gas price.
3. Whether Shamrock could deduct Texas severance taxes from additional royalties owed for a limited period.

## Decision

- Affirmed in part, reversed in part, and remanded.
- Reversed the judgment notwithstanding the verdict (JNOV) on accord and satisfaction; the jury could find no bona fide dispute existed when the checks were cashed, defeating an essential element of accord and satisfaction under Texas law.
- Affirmed the JNOV limiting recovery under the NGPA where additional royalties would effectively require payment above federally permitted intrastate price ceilings.
- Remanded for determination of (a) additional royalties due for periods not barred by the NGPA and (b) the proper severance-tax deduction, if any, for the interim period where additional royalties were recoverable.

## Legal Principles

- Under Texas law, accord and satisfaction requires, among other elements, a bona fide dispute or unliquidated claim at the time the alleged compromise payment is tendered and accepted.
- Boilerplate “payment in full” or “full settlement” language on routinely issued checks does not, by itself, establish accord and satisfaction as a matter of law; whether the required dispute existed may be a jury question.
- Federal intrastate gas price ceilings under the NGPA can limit state-law royalty recovery when the economic effect of an award would exceed the federally authorized maximum price.
- When additional royalties are awarded, the allowance and calculation of severance-tax deductions may require factual and contractual determinations on remand.

## Conclusion

The court held that routine endorsement of royalty checks with “full settlement” legends did not conclusively bar market-value royalty claims absent a bona fide dispute at the time of payment, but it also enforced the NGPA’s intrastate price ceilings to limit recovery and sent severance-tax and damage calculations back to the district court.


Flowers v. Diamond Shamrock Corp., 693 F.2d 1146 (5th Cir. 1982)