De Benavides v. Warren

• Decision Date: 25 April 1984
• Docket Number: No. 04-82-00405-CV,04-82-00405-CV
• Citation: 674 S.W.2d 353
• Parties: Rosa Vela De BENAVIDES, et al., Appellants, v. Lynne A. WARREN, et al., Appellees.
• Court: Texas Court of Appeals

Page 353

674 S.W.2d 353

Rosa Vela De BENAVIDES, et al., Appellants, v. Lynne A. WARREN, et al., Appellees.

No. 04-82-00405-CV.

Court of Appeals of Texas San Antonio.

April 25, 1984.

Rehearing Denied May 23, 1984.

Lawrence A. Mann, Mann, Dickinson & Saldana, Laredo, for appellants.

James L. Drought, Brite, Drought, Bobbitt & Halter, W.W. Fowlkes, San Antonio, for appellees.

Before CADENA, C.J., and BUTTS and DIAL, JJ.

OPINION

BUTTS, Justice.

Plaintiffs, Rosa Vela De Benavides, Carlos Y. Benavides, Alfonso N. Benavides, Arturo T. Benavides, Beatriz S. Benavides, Carlos Y. Benavides, Jr., Individually and as Trustee, and Arturo N. Benavides, Individually and as Trustee, sued for a declaratory judgment in this oil and gas case to determine whether term royalties had terminated. Defendants, Lynne A. Warren, Wendy A. Warren, Andrea R. Warren, Arthur Lykes Sentz, James N.L. Sentz, Patricia Sentz Sharpsteen, and Virginia G. Moriarty, all descendants of A.M. Sentz, countersued for an accounting, asking that a constructive trust be imposed upon royalty payments claimed by defendants to belong to them. Edwin L. Cox, the other defendant, an oil leasehold operator of lands involved in this suit, did not appeal the judgment that royalty payments, held in suspension by him since 1979, be paid to the named descendants of A.M. Sentz in their proportionate shares. The trial court rendered a declaratory judgment in favor of the defendants granting their counterclaim and prejudgment interest. The plaintiffs appeal. We affirm.

Plaintiffs include Rosa Vela De Benavides, the original grantor of the royalty deed, dated March 19, 1923, to A.M. Sentz. She is predecessor in title to the other plaintiffs. She executed the subject royalty conveyance which granted a 1/16th non-participating royalty interest in oil, gas and other minerals produced from more than 10,000 acres of land in several tracts spanning three south Texas counties. The royalty deed provided in part:

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... This sale and assignment is made for the full period of ten years from the date hereof, unless during said period oil, gas or other minerals are produced and saved from said land and premises, in paying quantities, in which event this sale and assignment is to continue so long as said oil, gas and other minerals are produced in paying quantities; and is made subject to all oil and gas leases now on said premises, or which may hereafter be made by me on said premises ... and does not in any way impair my right to make any lease, or leases which I may execute thereon. I do hereby bind myself, my heirs, executors and administrators to warrant and forever defend, all and singular the said title unto A.M. Sentz, his heirs and assigns.

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The grant created a royalty interest, that interest terminating unless minerals were produced in paying quantities during the ten year period, the royalty interest continuing so long as such production existed. It was a non-participating interest, and the plaintiffs retained the executive right to execute mineral leases. See Upshaw v. Norsworthy, 267 S.W.2d 566 (Tex.Civ.App.--Eastland 1954, writ ref'd n.r.e.); H. WILLIAMS & C. MEYER, OIL AND GAS LAW § 338 (rev. 1983). It is undisputed that minerals were produced in paying quantities during the primary term.

Plaintiffs bring seven points of error, five of them attacking the findings of fact as not supported by legally and factually sufficient evidence, and also attacking certain holdings (conclusions of law). The last two points address the propriety of the award of royalty payments to defendants and the award of prejudgment interest.

REVIEW OF FINDINGS OF FACT

Findings of fact have the same force and effect as jury answers to special issues and are treated with the same dignity on appellate review. 4 R. McDONALD, TEXAS CIVIL PRACTICE § 16.05 (1971). Unchallenged findings are binding on appeal. Whitten v. Alling & Cory Co., 526 S.W.2d 245, 248 (Tex.Civ.App.--Tyler 1975, writ ref'd).

In arriving at its findings, the trial court may accept or reject any or all of the testimony of a witness. Electro-Hydraulics Corp. of America v. Special Equipment Engineers, Inc., 411 S.W.2d 382, 387 (Tex.Civ.App.--Waco 1967, writ ref'd n.r.e.).

Under a "no evidence" challenge to the finding, the appellate court considers only the evidence, and reasonable inferences therefrom, tending to support the finding and disregards all evidence and inferences to the contrary. Ray v. Farmers' State Bank of Hart, 576 S.W.2d 607, 609 (Tex.1979). Where there is at least some evidence of probative force to support the finding under a "no evidence" attack, it is binding. Id. at 609-610.

When a finding is attacked as not being supported by factually sufficient evidence, the appellate court must consider all of the evidence. Garza v. Alviar, 395 S.W.2d 821, 823 (Tex.1965). The finding will be upheld unless it is so against the great weight and preponderance of the evidence as to be clearly and manifestly wrong. In re Kings Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (1951); Houston Natural Gas Corp. v. Pearce, 311 S.W.2d 899, 903 (Tex.Civ.App.--Houston 1958, writ ref'd n.r.e.).

Plaintiffs first challenge three findings of fact as legally and factually insufficient:

Findings of Fact

7. Plaintiffs did not prove any cessation of production from each and every tract included in the Royalty Deed at any time.

8. No production of oil and gas from the lands included in the Royalty Deed or lands pooled or unitized therewith, was shown to have been in less than paying quantities.

20. In December of 1971, Mayfield commenced the Mayfield B-1 well, which was completed and which produced gas, on February 10, 1972.

At the bench trial the parties stipulated:

The plaintiffs and defendants with reference to the Deed of March 19, 1923, which is the subject of this lawsuit, [stipulate] that the only period of time, from the date of the deed to the present, during which plaintiffs contend that there was a cessation of production in paying quantities from land covered by the Deed, was between December 31, 1970 and July, 1972.

Thus, the plaintiffs sought a declaratory judgment that production in paying quantities had ceased, thereby nullifying the royalty deed, the period of cessation occurring after December 31, 1970. The burden clearly rested on plaintiffs to show cessation of production on all the land within the royalty deed.

Plaintiff's proof centered on cessation of production of the Rowden B-5 well on survey 459 in Webb County. The evidence showed plaintiffs executed an oil and gas lease with W.F. Houser in 1939 on surveys 459 and 659. Rowden had obtained the leasehold interest on 459 and farmed out to Cox; Rowden B-5 produced seven barrels in March, 1972, and none in April; the well had produced for more than 30 years. Production from the well recommenced in October, 1980.

"Paying quantities" means that the oil and gas is marketable. Holchak v. Clark, 284 S.W.2d 399, 401 (Tex.Civ.App.--San Antonio 1955, writ ref'd). See Clark v. Holchak, 152 Tex. 26, 254 S.W.2d 101 (1953). The discovered oil and gas must be sufficient to pay the lessee a profit, though small, over operating and marketing expenses. Cox v. Miller, 184 S.W.2d 323, 327 (Tex.Civ.App.--Eastland 1944, writ ref'd). It has been stated that paying quantities for a royalty interest means any production. 2 H. WILLIAMS & C. MEYERS, OIL AND GAS LAW § 334.7 (rev. 1983).

Earlier in September, 1971, Rowden executed a farmout agreement with Cox, which resulted in the Cox 1 well, off the Sentz C survey but on Benavides property. Cox No. 2, on the subject royalty tract, was a dry hole, but Cox continued operations and drilled Cox No. 3 on survey 459, commencing production in June, 1972. The evidence thus demonstrates no mineral production from Sentz C survey 459 was obtained for a period of approximately two months. Plaintiffs argue this was cessation which would void the royalty deed. We do not agree.

A cessation of production sufficient to terminate a term royalty interest must be a permanent cessation of production. In Amoco Production Co. v. Braslau, 561 S.W.2d 805, 809 (Tex.1978) the Supreme Court quoted with approval this statement in Midwest Oil Corp. v. Winsauer, 159 Tex. 560, 323 S.W.2d 944, 946 (Tex.1959):

Although the royalty deed ... does not expressly provide that the term royalty will not terminate because of temporary interruptions, we hold that such a provision is necessarily implied.

323 S.W.2d at 946.

Cox was the operator drilling all three Cox wells; work on Cox 1 and 2 wells began before production from Rowden B-5 ceased. The record reflects the diligent efforts of the operator to restore production in the zone. We do not perceive Midwest Oil Co. v. Winsauer as limiting the cause of temporary cessation to mechanical break-downs at the well site or court litigation, the causes of temporary cessation in that case. Nor does Stuart v. Pundt, 338 S.W.2d 167 (Tex.Civ.App.--San Antonio 1960, writ ref'd), limit the circumstances to which the doctrine of temporary cessation may apply. In the present case, as in Amoco, the operator, when Cox 2 failed to produce, promptly moved over and obtained production from the same land in the same sand.

COX 3

The Cox 1 is located on survey 659. Preserving for himself an overriding royalty, Rowden farmed out his Benavides lease to Cox, involving parts of 459 and 659. Cox 1 is, however, off the Sentz C royalty tract but on Benavides property. Production commenced on January 20, 1972. Productive oil sand was discovered at about 5550 feet. Cox 2, dug on survey 659, on the subject Sentz C royalty tract and in the same "sand," was a dry hole. Cox 3, located on survey 459, also on the royalty tract, began production in June, 1972. ¹

The question is whether the lapse of time from the cessation of production of the Rowden B-5 and the commencement of production of the Cox 3 constitutes a permanent...