Fallis v. Julian Petroleum Co. , 108 Cal. App. 559 ( 1930 )

I concur in the judgment but deem it proper to set forth my views therefor.

The third cause of action in particular alleges that the leased premises were in proven oil territory; that the drilling of a well to the required depth of 5,200 feet in a workmanlike and careful manner and with due diligence would have resulted in the production of oil and gas in large quantities; that by reason of the negligent failure to drill to the depth mentioned the property was drained of its oil and its gas pressure reduced by wells on adjacent and surrounding property; that by reason thereof plaintiffs have been damaged in the sum of $67,500. There is also an allegation that the defendants well knew that "highly prolific oil and gas producing sands underlay said property" at the time of the execution of the lease and prior to the assignment to the defendant. The last averment is tantamount to an allegation that the parties had in contemplation the possibility of the property being drained of its mineral substance by the surrounding wells, or at least it is readily amendable to state that ultimate fact. I do not find the California authorities relied upon by respondents to be in point. Concededly they establish the rule of law that in similar instances liquidated damages are permissible on account of the extreme difficulty of fixing damages arising from the breach of such a contract. The language of Parkinson v. Langdon,36 Cal.App. 80 [171 P. 710], indicates, however, that the difficulty of measuring the damages does not of necessity mean that he who is wronged by the breach of a solemn obligation shall be remediless. It is there said: "The line of distinction between profits which are remote, consequential, or not within the contemplation of the parties, and those which are proximate and absolute and certain, and within the contemplation of the parties, `seems to rest in the question whether they are to arise directly out of the contract in question or its subject matter, and to constitute the immediate fruits of the contract, or whether they are to result from collateral engagements or enterprises. Where the profit to be made was the inducement to the contract, such profit is the measure of damages. So a recovery may be had for the loss of profits which are the direct and immediate fruits of the contract itself. Such profits are not to be regarded as consequential, remote, or speculative in character, but are regarded as part and parcel of the contract itself, entering into and constituting a portion of its very elements, something stipulated for, and the right to the enjoyment of which is just as clear and plain as to the fulfillment of any other stipulation'. (Id.) The foregoing is about as satisfactory an explanation of the philosophy of the rule as we can find in the books and, it seems to us, furnishes a safe guide to a solution of the question here. The contract plainly shows that the land was to be planted to a specific crop and none other. Both parties understood this and contracted with reference to that understanding. Plaintiff's compensation was to be measured by an agreed percentum of this specific crop and not otherwise. Given land suitable for growing beans; condition of soil, climate, moisture, etc., favorable to the production of a profitable crop, and nothing supervening to prevent such result except the failure of the contracting party to do what his contract required of him, it seems to us, we have a clear case where the loss to the lessor `is such as might naturally be expected to follow from the breach', and that he would be entitled to the `profits which would ordinarily and naturally, and in the usual course of things have been derived from performance', and furnishes an instance where `the loss flows directly and naturally from the breach of the contract itself', and is recoverable, since the loss is `naturally incident to the contract and may be fairly supposed to have been within the contemplation of the parties when it was made'." To the same general effect reference may be had to Sanford v. EastRiverside Irr. Dist., 101 Cal. 275 [35 P. 865], and Meer v.Cerati, 53 Cal.App. 497 [200 P. 501].

I am convinced that the court should have permitted the plaintiffs to make proof, if such they could, of the allegation that they had been damaged by the draining of their property by surrounding wells. A few quotations from persuasive authorities in other jurisdictions will indicate the reasons I entertain for such opinion. In Blair v. Creek Oil Gas Co., 148 Ark. 301 [19 A.L.R. 430, 230 S.W. 286], we find two pertinent expressions of the court as follows:

"The record shows that drilling wells is very expensive and is only undertaken where the lessee has a large area of acreage in a block. It is a matter of common knowledge that the landowner is not equipped with machinery for drilling and could not purchase such machinery on short notice, if able to do so. Hence when he leases his land to another with the exclusive right to drill for oil and gas on it for a stipulated period of time, there is an implied covenant on the part of the lessee to protect the land at least from wells drilled by him on adjoining property which will necessarily draw the gas from the lessor's land. If there had been no lease on his land, the lessor could have had all the time during which the wells were drilled on adjoining land to have arranged for the drilling of an offset well on his land and in case a producing well was brought in on the adjoining land which would draw the gas off his own land. Of course, if he failed to make such an arrangement, the loss would fall upon himself. In case, however, he has leased his land to another and has given the lessee the exclusive right to drill on his land for gas, it is obvious that the mere right of forfeiture in case the lessee would not drill a protection well would not afford him adequate relief. . . .

"It appears from the record that expert witnesses acquainted with the gas field may testify with reasonable accuracy as to the number of wells which should have been drilled on the leased land for protection from drainage. Such witnesses might also testify with reasonable accuracy as to the quantity of gas obtained from the wells. They did say that the sand in which the gas was found was sufficiently porous that a well would draw from underneath the ground gas for a distance of a quarter of a mile in all directions. The record in the case also shows that the three wells operated by appellee on the adjacent tract will in due course of time draw all the gas from underneath the land of appellants. The lessee under the facts disclosed by the record is liable to the lessors for their proportionate share of the gas taken by the wells drilled so near their boundary lines as to draw off the gas underneath their land. There is no reason why it cannot be ascertained with reasonable certainty what quantity and quality of gas has been and will be taken from appellants' land through the wells drilled and operated by appellee on the adjoining land. Culbertson v. Iola Portland Cement Co.,87 Kan. 529 [125 P. 81, Ann. Cas. 1914A, 610]." And on rehearing it was also said:

"From the evidence already taken it would seem that the gas-producing on the leased premises and the land adjacent thereto is of uniform character, and that expert witnesses can with a reasonable amount of certainty tell the amount of gas that will be drawn from the leased premises by the wells dug near the boundary line by the lessee on the adjacent premises. When the amount of gas that will be drawn from the leased premises is ascertained, the amount of damages to be recovered can be readily fixed by the royalty that the lessor was to receive."

In Daughetee v. Ohio Oil Co., 263 Ill. 518 [105 N.E. 308, 310], in which case the plaintiff sought to recover damages for the breach of a covenant requiring the lessee to drill additional wells after the the first one had proved the territory, the opinion reads in part as follows:

"Plaintiff in error contends that, even if a right of action exists, no recovery can be had because the damages are uncertain, remote and speculative. This point is preserved by an exception to the refusal of the trial court to hold as law a proposition embodying plaintiff in error's view upon this point. It is undoubtedly the law that, where speculation or conjecture must be resorted to for the purpose of determining whether the injury results from the wrongful act charged or from some other cause, then the law denies the injured party his action for damages. This is only another way of stating the familiar rule that damages must be the proximate result of the injury complained of. This rule was announced by this court in Indianapolis, B. W.Ry. Co. v. Birney, 71 Ill. 391, which is relied on by plaintiff in error in support of this contention. The right of recovery being assumed, plaintiff in error cannot escape liability because the damages are difficult of exact ascertainment. The nature of the inquiry here is such that it is practically impossible to ascertain with mathematical certainty the exact amount of defendant in error's damages. This, however, affords no answer to a cause of action resulting from the breach of contract or a duty imposed by law. The unliquidated damages growing either out of breach of contract or the commission of a tort are seldom susceptible of exact measurement. If such exactness were required, the law of damages would be of little practical value. The rule is that while the law will not permit witnesses to speculate or conjecture as to possible or probable damages, still the best evidence of which the subject will admit is receivable, and this is often nothing better than the opinion of well-informed persons upon the subject under investigation. Chamberlayne on Evidence, sec. 2332. Plaintiff in error does not contend that the court allowed improper and irrelevant evidence to be introduced in regard to the damages."

In Culbertson v. Iola Portland Cement Co., 87 Kan. 529 [Ann. Cas. 1914A, 610, 125 P. 81], we read: "Since the number of wells to be drilled on the land was not specified, there was an implied obligation on appellants to fully develop the land and put down as many wells as were necessary to secure to appellee his proportionate share of the pool of gas. Kleppner v.Lemon, 176 Pa. 502 [35 A. 109]; Thornton on Oil and Gas, sec. 91. According to the findings, appellants failed to develop the land in such a way as to give appellee his proportionate share of the gas produced from the pool, and that to have done so would have required the sinking of at least another well. Having failed in this respect, the appellee is entitled to recover his share of the gas actually taken from his land, without regard to which side of the line the wells through which it was taken were sunk. The quantity so taken appears to have been fairly well established by the evidence. In Howerton v. Kansas Natural GasCo., 82 Kan. 367, 369 [34 L.R.A. (N.S.) 46, 108 P. 813, 814], it was said that: `No reason is seen why witnesses of experience, acquainted with the gas field, may not testify with reasonable accuracy as to the number of wells which should have been drilled on the leased land, both for protection from drainage by neighboring leaseholds, and to obtain the gas underneath the land'." And lastly, I quote from Wheeland et al. v. FredoniaGas Co., 92 Kan. 50 [139 P. 1010], as follows:

"This action was brought for failure to develop the land, a trial was had, and evidence was produced. Under these conditions it was impossible for the appellees, there being no further development of the land, to prove the actual amount of damages they had suffered. The nature of the case is such that it is impossible to tell what a well will develop until it is sunk, and yet experts in oil territory are able to furnish reasonably accurate estimates of what a certain territory will produce, estimating from producing wells in the locality. This the appellants did in this case. The appellee demurred to their evidence, and the court sustained the demurrer. There was evidence tending to show that the one well was not sufficient development to protect the land from the gas being drawn from it by wells on adjacent lands.

"The plaintiff in this action followed the procedure indicated by these decisions and offered the only evidence possible to establish a claim for damages, to-wit, the opinions of experts. To say that the evidence in this case did not furnish a reasonable basis for estimating damages is to override the reasoning of all these cases. All the business of leasing lands for development is based upon the opinions of men engaged in the business as to the value of the tracts leased for that purpose, and it is competent evidence; although it is impossible thereby in a particular case to show the exact amount of damage which has been suffered, it is sufficient to enable a jury to estimate the damages and to find accordingly."

Likewise the case of Julian Petroleum Corp. v. CourtneyPetroleum Co., 22 Fed. (2d) 360, supports the view I entertain.

Works, P.J., concurred.