Guffey Petroleum Co. v. Chaison Townsite , 48 Tex. Civ. App. 555 ( 1908 )

This is a suit by appellee against appellant to recover damages for the alleged failure of appellant to use due diligence in the development of a tract of 5-27/100 acres of oil land belonging to appellee and held by appellant under an oil lease, and for failure to use reasonable care to protect said leased property from drainage by oil wells operated on adjoining tracts of land.

The petition contains two counts. Under the first count damages are claimed for a failure to produce as much as 20,000 barrels of oil per month, from a well known as "Chaison well No. 1," situated on said leased premises, for the year beginning March 1, 1902. This claim is based on a contract dated the 24th of February, 1902, and providing, in substance, that the defendant should take from the well on the land as much as 20,000 barrels per month, or pay to Mrs. Clara Chaison (who then owned the leased block) as much as $400 per month, provided the said well could, by the use of reasonable diligence, be made to produce as much as 20,000 barrels of oil per month during said year. It was alleged that the defendant had negligently allowed said well to sand-up and get out of order, and had negligently failed to make the well produce as much as 20,000 barrels per month during the months of July, August, September and October, 1902, and had failed to pay to the plaintiff, the assignee of Clara Chaison, the said $400 per month for said months, except the sum of $132, and a judgment was demanded for the $1,600 less this $132.

In the second count it is alleged that the defendant's assignor leased this land, along with several other tracts, from Mrs. Clara Chaison and J. M. Hebert, joint owners, in 1900. That thereafter the land had been partitioned, and this block No. 1 of 5-27/100 acres had become the individual property of Mrs. Clara Chaison, and she became entitled to all the royalties accruing from the operation of the same. That the lease contract provided that one-tenth of all the oil produced and saved should be paid to the lessor as royalty. That the defendant entered upon said land, and produced oil, but that it did not drill sufficient wells thereon to fully develop it and make it produce as much oil as it should have been made to produce. That there were numerous wells drilled on lands immediately adjoining this tract, and that these wells drained the oil from under block No. 1, and it was the duty of the defendant to drill offset wells along the line or margin of the said block No. 1, so as to protect the wells from drainage through these adjoining wells. Damages are claimed under this count in the sum of $48,500.

Defendant answered by general demurrer and special exceptions, general denial and several special pleas. Among other special defenses, the defendant pleaded that the plaintiff was not entitled to recover any damages for failure to drill additional wells for the purpose of making the land produce more oil, or for the purpose of protecting the land from drainage by wells on adjacent tracts, prior to March 1, 1903, because, on February 24, 1902, Mrs. Clara Chaison, who was then the owner of this tract, in order to get a larger price than the market value of oil at that time, entered into a written contract with defendant, settling all differences up to date of the contract, and up to March 1, 1902, by agreeing to accept fifteen cents per barrel for all the royalty oil accruing to her up to that date, and agreed that the defendant should not be required to take more than 20,000 barrels of oil per month from the well which was on the land at that time, during the year ending March 1, 1903, and that the defendant would pay her for the one-tenth of said 20,000 barrels per month, twenty cents per barrel, or $400 per month, during said year, provided the said well could, by the use of ordinary diligence, be made to produce that quantity of oil; the defendant claiming that, at the time this contract was made, the market price of oil was less than ten cents per barrel, and that the agreed price of twenty cents per barrel was made in consideration partly of excusing the defendant from further development during said year. The defendant further pleaded the statute of limitations as to part of the demand of plaintiffs.

There was a trial before a jury, which resulted in a verdict, under the first count, for the sum of $860, with interest, and under the second count, for $22,260.

On motion for new trial, the court having announced to plaintiff's attorneys that unless they would remit all of the verdict in excess of $12,000 the motion for new trial would be granted, the plaintiff's counsel filed a remittitur of $11,120, and thereupon the court entered a judgment for the plaintiff for the sum of $12,000 and interest, and overruled the motion for a new trial.

On May 14, 1900, J. M. Hebert and Clara Chaison executed a lease contract to A. F. Lucas. This contract of lease embraced fifty acres more or less, the east end of the John Douthit survey (which fifty acres included both the Chaison block and the Hebert block), and 500 acres, more or less, of the P. Humphries survey. It is executed by J. M. Hebert and Mrs. Clara Chaison as executrix of the estate of Jeff Chaison, deceased. This lease is in the ordinary form of oil land leases, the lessee agreeing to properly develop the land and to give the lessor one-tenth of all the oil taken therefrom. There is no express covenant as to the number of wells which shall be sunk and no express covenant that offset wells shall be sunk to protect the oil from drainage by wells on adjoining property.

On the 13th of April, 1901, Mrs. Clara Chaison, Charles J. Chaison and all the other heirs of Jeff Chaison, deceased, and J. M. Hebert, made a partition as between themselves, and by this instrument the Douthit survey embraced in the lease, is divided, and J. M. Hebert is awarded lots 2 and 4 of 5-27/100 acres each, and Clara Chaison and the heirs of Jeff Chaison, deceased, are awarded lots 1 and 3 of this Douthit tract.

On the 24th of April, 1901, Charles J. Chaison and the other children of Jeff Chaison, deceased, made a partition agreement with Clara Chaison, by which Charles J. Chaison and the other heirs of Jeff Chaison, deceased, released to Clara Chaison all their right, title and interest in block No. 1, containing 5-27/100 acres of the Douthit survey, being the land in controversy. This instrument gives to Clara Chaison, on the 24th of April, 1901, title in severalty to this block, as against the children of Jeff Chaison, deceased.

By these instruments, and prior to and including the 24th of April, 1901, there was a complete partition effected between the joint owners of the land embraced in the original lease, and Mrs. Clara Chaison had become the absolute owner, as against all her co-tenants, of block No. 1 of the Douthit tract.

On the 29th of April, 1901, all of these distributees and the J. M. Guffey Company, a partnership composed of J. M. Guffey, John H. Galey and A. F. Lucas, entered into a contract reciting these partitions, and reciting the different tracts that each party had been awarded, and the J. M. Guffey Company relinquishes and releases from the lease all the premises allotted to the heirs of Jeff Chaison, deceased, being lot 3 of the Douthit survey, and said instrument contains this recital:

"And it is understood that as to the lots owned by Clara Chaison, said lease shall apply in full force and effect, and the said lessee and his assigns thereunder shall pay all royalty to the said Clara Chaison, her heirs and assigns, for any mineral development upon said lot belonging to Clara Chaison under said partition. And it is further understood that said lease applies to the above named lots, which are set aside to J. M. Hebert in said partition, and that he is entitled to all the royalty arising from any mineral development upon his said lots."

Thereafter the appellant acquired the property of the J. M. Guffey Company and became the owner of said lease. Acting under this lease appellant commenced the development of the property in the summer of 1901, and on August —, 1901, completed a well thereon, known as Chaison No. 1. This well was a gusher with a capacity of 5,000 barrels per day. The active development of the field was going on and wells had been sunk during 1901 and the winter of 1902 on the lands adjoining the Chaison property by appellant and other operators in the field. On the 24th day of February, 1902, Hebert No. 2, on the Hebert tract, just south of the Chaison, was in operation. This well was a large producer. Gladys No. 1, another well operated by appellant on a tract adjoining the Chaison, was also a large gusher, having a capacity of 8,000 barrels per day. The Higgins Company had a large gushing well on property north of the Chaison.

Prior to the date last named, Mrs. Chaison had complained at the failure to produce more oil from her land, the amount taken from her land prior to said date being only 71,000 barrels. At this time the facilities for storing and marketing oil were wholly inadequate for taking care of the production of the field and as a consequence the price had declined to not more than ten cents per barrel and the production was curtailed. Under these conditions Mrs. Chaison and appellant entered into a written agreement adjusting the differences between them and providing for the operation of Chaison No. 1, which was the only well then on the property, for the year commencing March 1, 1902. By the terms of this contract appellant agreed to pay Mrs. Chaison 15 cents per barrel for her portion of the oil already taken from the property and to take from the well then on the property not less than 20,000 barrels per month during the year before mentioned, and to pay her for her portion thereof 20 cents per barrel. No change was made by this agreement in the original lease contract other than the modifications that may be implied from the terms of said agreement above set out. There is evidence to sustain a finding that an oil well in this field at the time this contract was made and during the continuance of the gushing period, which lasted until the summer of 1902, would draw oil from surrounding territory for a distance of 300 feet. The wells before mentioned on the Higgins, Gladys and Hebert tracts were in such proximity to the Chaison property as to draw oil therefrom. The well on the Chaison would also draw from the Higgins and Gladys tracts, the radius from which it would draw from said tracts being equal to or greater than that from which said Higgins and Gladys wells would draw from the Chaison tract.

After the execution of the contract of February 24, 1902, other wells were put down on the tracts adjoining the Chaison lease. Only two other wells were put down on this lease, and these were not completed until August, 1903, and February, 1904, respectively. There is evidence tending to show that because of the failure of appellant to drill and operate additional wells on the property in question the amount of oil produced from the lease was much less than it would have been had appellant used reasonable diligence to develop it and protect it from drainage by wells on the adjoining tracts of land.

The evidence sustains the finding of the jury that appellee was damaged in the sum of $860 by the failure of appellant to comply with its agreement to take 20,000 barrels of oil per month from well No. 1 on said property during the year commencing March 1, 1902.

The appellee by purchase from Mrs. Chaison is the owner of the leased property and assignee of her claim for damages for the alleged failure of appellant to comply with its lease contract.

In submitting to the jury the issue as to appellee's right to recover upon the second count in the petition the trial court gave the following instructions:

"In passing on said second count, here is the rule by which you will be guided: Estimate the amount of oil that the defendant, within said dates, could have saved and produced by the exercise of prudent, business-like diligence, compare this with what it did produce and save, and if you find from the evidence that the former exceeds the latter, then the plaintiff would be entitled to a verdict for the amount of the difference, estimated as aforesaid. But you should not include in this estimate of the damage for loss, if any, any shortage or deficiency, resulting from either of the following causes:

"(1) From the operation, or failure to operate diligently, Chaison well No. 1, for plaintiff can have no recovery as respects this well, unless there was some default by defendant, during the months of July, August, September and October, 1902, or some of them, under the terms of said supplemental contract of February 24, 1902; and as respects the same, if plaintiff is entitled to recover at all, it must be under its first count, and not under its second count, and, therefore, you will consider the defaults, if any, of defendant, as respects Chaison well No. 1, only in connection with plaintiff's first count.

"(2) Any losses resulting to plaintiff or Mrs. Chaison, for failure to operate said Chaison well No. 1 with reasonable diligence and business-like prudence, and to its reasonably full capacity. Such losses, if any, can be considered only as a basis of recovery under the instructions given in connection with plaintiff's first count.

"You are further instructed in this connection that if you believe from the evidence that Chaison well No. 1 was not operated with diligence and business-like prudence, but if you further believe that had it been so operated, additional wells, or some of them, should not have been reasonably required, then you are instructed not to charge or estimate against defendant the royalty oil of any such additional well or wells, either for development or for the protection of the lines, as you may believe might have been reasonably dispensed with had Chaison well No. 1 been operated to its reasonably full capacity.

"If you believe from the evidence that had Chaison well No. 1 been operated to its reasonably full capacity, and with reasonable diligence and prudence, and that if so operated, coupled with the other development done by defendant on said Chaison lease, would together have constituted reasonable diligence and protection of said Chaison lease, you should render a verdict in favor of the defendant."

Under appropriate assignments of error appellant complains of these instructions on the ground that they authorize the recovery of damages by appellee for the failure of appellant to develop and produce oil from the leased property during the year commencing March 1, 1902, in excess of the amount required to be produced during said year under the contract of February 24, 1902.

The question raised by these assignments is the controlling question on this appeal. Appellee contends that the contract of February 24, 1902, by its express terms referred only to the operation of well No. 1, and in no way limited or modified the obligation of appellant to use due diligence to develop the property and produce oil therefrom and to this end to put down as many wells as might be necessary for the reasonable development of the property during the year covered by said contract. We do not think the contract of February 24, 1902, can be so construed. It is true the instrument by its terms only refers to the one well, but construed in the light of the conditions surrounding the parties and the subject matter at the time it was entered into, it would be unreasonable to hold that the parties to said contract did not intend by limiting the production of this well to limit the production from the whole of the leased property. At that time there was no other well upon the property, and this well was referred to not for the purpose of distinguishing it from other wells that might be sunk on said property, but as the one source of production for the entire property. This well was capable of producing 150,000 barrels of oil per month and it would be an arbitrary following of the literal meaning of the words of the contract to hold that Mrs. Chaison in agreeing to limit the production of said well to 20,000 barrels per month did not waive her right to require appellant to produce a larger amount from the leased property during the year covered by said contract, provided the conditions under which the contract was made remained the same. Of course, if it became necessary after the execution of this contract in order to protect the lease from drainage by wells on adjoining tracts to take more than 20,000 barrels per month from this well or to sink other wells, said contract did not relieve appellant of such duty, but the charges complained of do not so limit appellant's duty. Under the evidence before them the jury might have found that if other wells had been sunk and operated upon the property during the year from March 1, 1902, to March 1, 1903, a much larger quantity of oil than that actually produced by appellant would have been produced from said property, and the charges complained of authorized them to find damages for this deficit, regardless of whether or not the increased production during said time was necessary in order to reasonably protect the property from drainage by outside wells.

While the original lease contract did not specify the number of wells that appellant should sink upon the property and did not expressly require the sinking of offset wells to protect the land from drainage, from the nature of the contract an implied obligation rested upon appellant to use reasonable diligence and care to develop and protect the property, and this obligation required it to sink as many wells as the exercise of such diligence and care would suggest under the circumstances, but such diligence would not require that additional wells be sunk for the purpose of increasing the production of oil after the lessor had agreed that the amount of production could be limited to less than one-sixth of the amount which the well on the property was capable of producing.

We shall not discuss the remaining assignments of error in detail. Other inaccuracies and omissions in the charge are complained of by appellant, but we do not think when the whole charge is considered that these inaccuracies or omissions misled the jury. As before stated, the measure of appellant's obligation under the lease contract was the use of reasonable diligence and care to develop and protect the property, and such reasonable diligence and care would be that which would be used by an ordinarily prudent person engaged in the same undertaking under like circumstance.

The charge required of appellant the exercise of "business-like diligence," and that it should have acted as a "prudent, businesslike man." While we are not prepared to say that the use of these expressions in the charge were calculated to give the jury an erroneous idea as to the degree of diligence and care required of appellant, their use was unnecessary and any change in the well established definitions of ordinary care has been uniformly condemned by our courts. Harris v. Ohio Oil Co., 48 N.E. Rep., 502; Houston T. C. Ry. Co. v. Smith, 77 Tex. 181.

We think appellant's participation in the partition of the property and its recognition of the several ownership of Mrs. Chaison and Hebert of the respective tracts set apart to them by said partition agreement, changed the character of its holding from that of lessee from the joint owners of the whole tract to lessee from each owner of the respective tracts. It follows from this conclusion that appellant can not be heard to complain of the portion of the charge instructing the jury as to the duty required of appellant to deal fairly with both lessors in the development of the two tracts of land.

The question of the power of appellee under its charter to purchase Mrs. Chaison's claim for damages is not one which can be raised by appellant in this case. The contract between Mrs. Chaison and appellee is an executed one, and if it be ultravires on the part of appellee it is nevertheless binding on Mrs. Chaison, and appellee's right as the owner of the claim to receive any amount that may be due thereon can not be questioned by appellant.

This disposes of all of the questions presented which we deem necessary to discuss.

For the error in the charge before indicated the judgment is reversed and the cause remanded.

ON MOTION FOR REHEARING. After due consideration of appellee's motion for rehearing we have concluded that we erred in reversing the judgment of the trial court in favor of appellee upon the first count in the petition. The petition, as stated in the main opinion, contained two counts, each of which set out a separate and distinct cause of action. Each of these counts were severally submitted to the jury and the verdict states the amount of damages found by the jury upon each count. Neither the motion for a new trial nor any assignment of error complains of the amount found by the jury upon the first count, and the error in the charge which we think requires a reversal of the judgment only affected the cause of action set out in the second count.

While the point was not presented on the submission of the case either by the briefs or by the oral argument of counsel, we considered it before rendering our former opinion, but concluded that inasmuch as the remittitur filed by appellee was general in its terms it applied to the amount found by the jury upon both counts and we could not say what portion of the amount found under the first count was remitted, and therefore could not fix the amount for which the judgment on first count should be affirmed. Upon further consideration, however, we conclude that in view of the fact that no complaint was made in the motion for new trial of the amount found upon the first count, the remittitur, though applying in general terms to the entire verdict, was only intended to apply to the amount found under the second count. The motion for rehearing is therefore granted to the extent that the judgment heretofore rendered reversing the entire judgment will be set aside insofar as it reverses the judgment in favor of appellee for $860 on the first count in the petition, and that portion of the judgment will be affirmed. Upon the other questions raised by the motion we adhere to our former conclusions and the motion, except as above indicated, is overruled.

Affirmed in part and reversed and remanded in part.