Basin Oil Co. of Cal. v. Baash-Ross Tool Co.

• Decision Date: 28 May 1954
• Docket Number: BAASH-ROSS
• Citation: 271 P.2d 122,125 Cal.App.2d 578
• Court: California Court of Appeals Court of Appeals
• Parties: BASIN OIL CO. OF CALIFORNIA. v.TOOL CO. Civ. 19612, 19613.

Page 122

271 P.2d 122

125 Cal.App.2d 578

BASIN OIL CO. OF CALIFORNIA. v. BAASH-ROSS TOOL CO.

Civ. 19612, 19613.

District Court of Appeal, Second District, Division 2, California.

May 28, 1954.

Rehearings Denied June 23, 1954.

Hearing Denied July 21, 1954.

Eugene S. Ives, Los Angeles, for appellant.

Chandler, Wright, Tyler & Ward, Los Angeles, for respondent.

FOX, Justice.

Defendant appeals from two judgments for damages (rendered in separate actions consolidated for trial), resulting from sales of defective suspension plugs to plaintiff. Plaintiff's complaints comprised counts based on breach of express and implied warranties and negligence in the design and manufacture of such plugs. Defendant pleaded as affirmative defenses contributory negligence, plaintiff's failure to mitigate damages, and a limitation of liability clause in its invoices which precluded the recovery of damages.

Plaintiff Basin Oil Co. of California (hereinafter referred to as Basin) is a corporation engaged in the production of oil. Defendant Baash-Ross Tool Company (subsequently denominated Baash-Ross) is a designer and manufacturer of tools used in the petroleum industry. In 1946 Basin commenced drilling 16 oil wells in the city of Inglewood, California, to depths of approximately 10,000 feet. The site of these drilling operations was a high pressure field, with initial gas pressures in excess of 3,000 pounds per square inch. The surface locations of these wells are in proximity to industrial and residential areas of Inglewood.

Prior to and during 1946, Basin had both purchased and rented oil well equipment from Baash-Ross. It had never used any Baash-Ross suspension plugs. Basin had been using a type of double suspension plug in its wellhead equipment known as the Regan plug, which was manufactured by another supplier of oil tools in Southern California. Basin had used these Regan double-suspension plugs in its wells up to a depth of 9,500 feet without even encountering a plug failure. A double suspension plug, which is made up of an inner and outer plug, is an oil tool used in the wellhead of an oil well to suspend the tubing. It consists of a doughnut shaped outer plug tapered on the outside to fit in the tubing head, and on the inside to seat the inner plug. The latter is a smaller tapered plug which is screwed to the top of the tubing and actually suspends the tubing in the well.

Basin is one of several oil production enterprises in which its president, C. G. Willis, has an interest. Cecil Winslow was the drilling superintendent for Basin. His responsibilities included the procurement of wellhead equipment for Basin. Winslow had become acquainted with Glen Johnson, chief engineer for Baash-Ross, and early in 1946 he had engaged in several conferences with Johnson with regard to a rock bit he (Winslow) had invented and which he hoped Baash-Ross might manufacture. During one of these private conferences on about April 10, 1946, a discussion occurred regarding the wellhead equipment Winslow had been using. Johnson asked Winslow why Baash-Ross couldn't sell wellhead equipment to Basin or to other organizations for which Winslow worked. Winslow stated he liked the Regan tubing head and their double suspension plug and did not know that Baash-Ross manufactured such a plug; he also said he thought that Regan had a patent on the double suspension plug. Winslow testified that Johnson told him that there were no patents on the plug and that Baash-Ross 'could make it as good as Regan.' Winslow thereupon replied that he saw no reason 'why I couldn't have Baash-Ross * * * furnish the tubing heads and well head equipment.' Subsequent to this conversation Baash-Ross apparently proceeded to design and manufacture the double suspension plugs which it sold to Basin.

On April 17, 1946, about a week after the meeting last described, Baash-Ross wrote a letter to Basin, addressed to Winslow's attention, in which it quoted a list of prices, in response to a verbal inquiry, for wellhead equipment to be delivered to a well known as Simons No. 1 on the Bandini lease. Among the 11 items listed was '1 special Type K modified Tubing Suspension Plug * * *.' Some time after the receipt of this letter, a Baash-Ross double suspension plug was delivered for use on the well referred to in the letter.

In the fall of 1946, Basin began the drilling of its wells in the Inglewood field, and the Baash-Ross double suspension plugs were delivered and used in those wells at the appropriate stage. C. L. Brain, a field man and salesman for Baash-Ross, kept in constant touch with Winslow about the progress of the drilling operation. As soon as the plugs were required to suspend the tubing in the hole, Brain was notified and the equipment was delivered. Winslow testified that he relied on Johnson's statement that Baash-Ross could design and manufacture double suspension plugs 'as good as Regan.' All of the double plugs used by Basin in the Inglewood field were purchased from Baash-Ross. Three of these plugs failed, causing damage upon which the present actions are founded. Two of these plugs failed during their use by Basin in its wells 5-1 and 1-1 when the inner plug compressed sufficiently to pass through the outer plug, allowing the tubing to drop to the bottom of the 10,000 foot hole. Basin thereupon initiated an action to recover damages, in which it alleged Baash-Ross had breached an express and implied warranty and was guilty of negligence in the design and manufacture of the suspension plugs which Basin had used in wells 5-1 and 1-1. After that case was at issue, another suspension plug sold by Baash-Ross to Basin and used in well 12-1 failed, in that a fracture of the outer plug occurred, which permitted the inner plug with the tubing attached to drop into the hole. Basin filed a second action based upon the same grounds alleged in its prior complaint. Baash-Ross's answer in each case, in addition to certain general denials, pleaded the affirmative defenses of contributory negligence, failure to mitigate damages, and the existence of a written limitation of liability appearing on the Baash-Ross invoices which precluded the recovery of damages. Upon the consolidated trial of the cases, the court found for Basin upon all the issues.

Generally speaking, the wells here involved were approximately 10,000 feet deep. At about 1,000 feet, an 11 3/4 inch casing is inserted and cemented in place. When the well is drilled to its maximum depth, a 7-inch casing is inserted in the 11 3/4 inch casing and the bottom is cemented in at about 9,000 feet. Then a 4 3/4 inch perforated liner is installed at the base of the 7-inch casing through the oil-bearing strata. Sometimes 7-inch casing is used extending to the bottom and is gun perforated to permit the gas and oil to enter. Two and one-half inch external upset tubing, open at the bottom, is suspended through the 7-inch casing by means of the suspension plug. Two and one-half inch tubing is run inside the 4 3/4 inch casing. In flowing wells of the type here involved, the oil and gas is forced into the liner by the formation pressure causing a high pressure inside the casing, which causes the oil and gas to go around the bottom of the tubing and to flow out through the tubing. The pressure outside the tubing is normally much higher than the internal pressure in the tubing. These pressures, as well as the pressure between the surface casing and the 7-inch casing and between the 7-inch casing and the tubing are registered by a gauge in the wellhead assembly. A tubing packer may be used at the bottom of the tubing inside the 7-inch casing to prevent movement of the tube.

The record on appeal includes 13 volumes of testimony, much of it concerned with technical expositions by experts with respect to the manner in which Basin used the plugs and the character of the procedures it employed during its drilling and remedial operations. This evidence will be alluded to in later discussions. A brief chronological summary is first necessary to establish the sequence of events.

The record shows that Basin commenced drilling well 5-1 on December 17, 1947. By March 9, 1948, the maximum depth of 10,326 feet had been reached, whereupon a perforated liner was installed. The next day, a string of 2 1/2 inch tubing had been run into the hole to a depth of 9,540 feet, from which point 2-inch tubing was emplaced to a depth of 10,245 feet. This tubing string was then suspended from the double suspension plug at the head of the well. On March 11, the well came in as a producer, the flow coming through the suspended tubing. Under flowing conditions, the gas pressures were about 2,600 pounds per square inch in the casing and 2,300 to 2,100 pounds per square inch on the tubing. On March 25, 1948, Basin discovered that something was amiss when the gauges indicated that the gas pressures in the tubing and in the casing outside of the tubing had equalized. This condition was discussed by Basin's officers and employees. George Synold, Basin's assistant drilling superintendent, immediately called the matter to the attention of Winslow and Mr. Hall, Basin's production superintendent. These men considered the possibility fo the presence of a hole in the tubing, or that the tubing had parted, or the existence of a leak from the packing between the inner and outer doughnuts. No one suggested the possibility of the inner suspension plug having pulled through the outer; Synold stated he had never heard of such a case. The matter received discussion by other officers of Basin, none of whom suspected that a defective suspension plug might be at fault. Meanwhile, the oil and gas was still flowing from the well. Inasmuch as the well continued to produce, and mindful of the hazards and difficulties that would attend the killing of a well with high gas pressure, in an area surrounded by homes and factories, for the purpose of ascertaining what was wrong,...