Alvord v. Sun Oil Co.

• Decision Date: 28 November 1972
• Docket Number: No. 11974,11974
• Citation: 271 So.2d 561
• Parties: Horace H. ALVORD, III, Plaintiff-Appellee, v. SUN OIL COMPANY et al., Defendants-Appellants-Appellees.
• Court: Court of Appeal of Louisiana — District of US

Page 561

271 So.2d 561

Horace H. ALVORD, III, Plaintiff-Appellee, v. SUN OIL COMPANY et al., Defendants-Appellants-Appellees.

No. 11974.

Court of Appeal of Louisiana, Second Circuit.

Nov. 28, 1972.

En Banc. Rehearing Denied Jan. 9, 1973.

Concurring Opinion Jan, 15, 1973.

Writ Refused March 1, 1973.

Oliver & Wilson by C. McVea Oliver, Monroe, Shuey, Smith & Carlton by John M. Shuey, Shreveport, for defendants-appellants-appellees.

Bethard & Bethard by Henry W. Bethard, III, Coushatta, for plaintiff-appellee.

Before BOLIN, PRICE and HALL, JJ.

BOLIN, Judge.

Plaintiff instituted this action to cancel a series of three oil, gas and mineral leases for failure to pay royalty for the production of oil from land under which he owns a mineral interest. Coupled with this action was a demand for payment of fees to an attorney employed by plaintiff to prosecute the suit. The lower court first sustained a plea of prematurity upon a finding that all leases in question contained a provision requiring lessees be given 60 days notice before cancellation of a lease in the event of cessation of 'operations'. On appeal this court held failure to pay production royalty was not an 'operation' as used in the leases, overruled the plea of prematurity and remanded the case to the lower court for trial on its merits. See Alvord v. Sun Oil Company et al. (La.App.2d Cir. 1971), 251 So.2d 659. Following trial judgment was rendered in favor of plaintiff cancelling the mineral leases, awarding plaintiff $5,000 attorney's fees and fixing the fees of the court-appointed attorney. Defendants appeal and plaintiff answers the appeal seeking an increase in the amount awarded for attorney's fees. We reverse the ruling of the district court, except with regard to the amount awarded the attorney for absentee defendants.

The three leases were executed at various times by plaintiff's ancestors in title and were acquired by R. O . Roy who, together with his children, Robert Roy and Mrs. Corinne Roy Kelly, are the present lessees. For the sake of brevity these defendants will hereinafter be referred to as the Roys.

Plaintiff owns one-half of the minerals under 282.54 acres of land in the Red River-Bull Bayon Field of Red River Parish, which was acquired subject to the Roy lease. Plaintiff's one-half mineral interest is also subject to a mineral royalty of one-thirty-second of the whole owned by Mary Boylston Kyle, Frances C. Atkinson, Joe D . Crichton, John Alston Crichton and Henry Jones Gruy. The above named royalty owners were made party defendants and appeared through an attorney at law appointed to represent them. Medical Research, Inc., which owns a percentage right to production, was also made a defendant. Neither Medical Research nor the above-named royalty owners have appealed.

Also named defendants were Charles T. McCord, Jr., Jack W. Grigsby, Jane H. Grigsby, William T. Murphy, III, Marlin Risinger, Jr., Helen C. Carver d/b/a Anthony Oil Company, Morgan W. Walker and Sun Oil Company, all of said parties deriving their interests from a sub-lease from the Roys to William T. Murphy III, and accordingly are sub-lessees or sub-lessees holding under the Roys.

The Louisiana Department of Conservation issued a fieldwide order affecting the Tuscaloosa sand of the Red River-Bull Bayou Field. The property affected by this litigation was designated as Tract 13. Under the original order Jack W. Grigsby was designated as unit operator. The order was later amended so as to substitute Sun Oil Company as operator instead of Grigsby. Production from the unit consists of oil which was being delivered by the unit operator to the pipelines of a crude oil purchasing company. Benton B. Box, from whom plaintiff acquired his mineral interest, executed a division order to Grigsby authorizing Grigsby to sell his oil. Plaintiff received payment for his proportionate share of the oil sold by Grigsby until February 1, 1969, the date Sun Oil became the operator.

Robert L. Marshall, head of the division order section of Sun Oil Company, testified that when Sun Oil became the unit operator new division orders were 'published'. He explained it was in the best interest of both Sun and the royalty owners to update and make current the names and addresses of those persons entitled to receive payment, together with the correct amount to be received by them. The new division orders were sent to all royalty owners with the instructions to execute and return them to the company. Marshall said it was not company policy to require a mineral owner to sign a new division order as a condition precedent to receiving his royalty payment and if nothing was heard from a division order within at least 90 days payment would be made under the division order acquired by Sun from Grigsby.

Plaintiff testified he received the division order from Sun Oil but neither signed nor returned it. He explained he did not sign it because he thought it was unnecessary. In this connection the evidence is uncontradicted that plaintiff was experienced in the oil and gas business, having done extensive work in the Bull Bayou Field . He was familiar with the original division order under which Grigsby was operating and in fact aided him in securing some of the signatures thereto. In any event, Sun Oil, through oversight or inadvertence, failed to pay plaintiff from and after February 1, 1969. Plaintiff, through his attorney, wrote two letters to Sun Oil Company dated February 4, and February 6, 1970, demanding cancellation of the leases. This was the first notice of any kind Sun Oil had received from plaintiff. Shortly thereafter, Sun Oil made verbal offers as well as an official tender of the amount due, all of which were refused by plaintiff, precipitating this litigation.

The lower court did not assign written reasons for its judgment. Defendants-appellants specify a number of errors:

(1) In failing to sustain an exception of no right of action filed on behalf of numerous defendants based on the lack of privity of contract between plaintiff as a lessor and defendants as sub-lessees, the contention being that if the status of defendants had been as assignees instead of lessees there would have been privity but as sub-lessees no such privity exists. Following this argument to its logical conclusion, it is then contended plaintiff has only a right to sue a sub-lessee or a unit operator for an accounting for money due for oil sold on behalf of a lessor or mineral owners.

(2) In finding there was an active breach of the oil and gas lease obviating the necessity of plaintiff putting defendants in default in order to cancel a lease for the nonpayment of royalties for the production of oil.

Since we conclude there was no active breach of the oil and gas lease, we shall pretermit a discussion of the validity of the exception of no right of action and address ourselves to the second specification, our resolution of which will make unnecessary the consideration of the first error specified above.

In this state the courts have likened the payment of production royalties under an oil and gas lease to rent and have recognized that the Louisiana Civil Code articles applicable to ordinary leases must be applied in certain cases to oil and gas leases. Since no stipulated date is normally provided in an oil and gas lease for the payment of royalties, the jurisprudence is to the effect that failure to pay production royalties for any appreciable length of time without justification amounts to an active breach which terminates the lease without the necessity of putting in default. Melancon v. Texas Company, 230 La. 593, 89 So.2d 135 (1956); Bollinger v. Texas Company, 232 La. 637, 95 So.2d 132 (1957); Bailey v. Meadows (La.App.2d Cir. 1961), 130 So.2d 501 (certiorari denied); Sellers v. Continental Oil Company (La.App.3d Cir. 1968), 168 So.2d 435; Pierce v. Atlantic Refining Company (La.App.3d Cir. 1962), 140 So.2d 19 (certiorari denied); Fontenot v. Sunray Mid-Continent Oil Company (La.App.3d Cir. 1967), 197 So.2d 715 (certiorari denied).

There are cases, however, which hold a lessor is not entitled to cancellation when a satisfactory reason for the delay of nonpayment is shown by the mineral lessee. Broadhead v. Pan American Petroleum Corporation (La.App.3d Cir. 1964), 166 So.2d 329 (writ refused); Fawvor v. United States Oil of Louisiana, Inc. (La.App.3d Cir. 1964), 162 So.2d 602; Hebert v. Sun Oil Company (La.App.3d Cir. 1969), 223 So.2d 897.

Applying the established jurisprudence to the facts of this case, it must be conceded plaintiff/lessor was not paid the amount due him as production royalty under an oil and gas lease for more than one year, which is 'an appreciable length of time'. Therefore the crucial question to be resolved is whether defendants have shown the failure to pay was justified.

Considering the question of whether a mineral lease should be cancelled for failure to pay production royalty to be an important question in the development of our mineral law, we deem it appropriate to comment briefly on each of the cases cited supra in this opinion.

In Melancon v. Texas Company and Bollinger v. Texas Company it was held that coercive conduct on the part of the lessee by withholding royalty payments for a period of 15 and 12 months, respectively, as a method of pressuring the lessor into giving consent to the formation of production units, constituted an active breach of the contract.

In Bailey v. Meadows there was a failure to pay production royalty for approximately 18 months. The excuse offered by the lessee was that this delay was necessary in order to work out a satisfactory agreement with a unit operator, during all of which time oil was being produced and sold from lessor's property . An additional fact taken into consideration in that case was lessee's unquestioned callous inattention to the demands of some of the mineral owners for payment of their production royalties.

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