Cain v. Tennessee-Louisiana Oil Co.

• Decision Date: 24 September 1964
• Docket Number: No. 59,TENNESSEE-LOUISIANA,59
• Citation: 382 S.W.2d 794
• Parties: Dixon H. CAIN, Appellant, v.OIL COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 794

382 S.W.2d 794

Dixon H. CAIN, Appellant, v. TENNESSEE-LOUISIANA OIL COMPANY, Appellee.

No. 59.

Court of Civil Appeals of Texas, Tyler.

Sept. 24, 1964.

Rehearing Denied Oct. 15, 1964.

Harry M. Reasoner and Leroy Jeffers. Vinson, Elkins, Weems & Searls, Houston, for appellant.

William C. Harvin and finis E. Cowan, Baker, Botts, Shepherd & Coates, Houston, for appellee.

MOORE, Justice.

Appellee, Tennessee-Louisiana Oil Company, a corporation, brought this suit against Appellant, Dixon H. Cain, seeking a recovery upon a breach of contract, praying for restitution of the sum of $57,750.00, theretofore paid him, and in the alternative, for damages in the sum and amount of $150,000.00

Prior to the development of this controversy, Appellant Dixon H. Cain was the president of Fifteen Oil Company, a corporation engaged in drilling and producing oil and gas with some of its properties being situated in the State of Louisiana. In June, 1958, Appellee, through the officials of its parent corporation, Tennessee Gas Transmission Company, sought to acquire the assets of Fifteen Oil Company through direct negotiations with Appellant, Dixon H. Cain, its president. Being unsuccessful, Tennessee Gas Transmission Company, through its stockbroker, then acquired more than 20% of the stock of Fifteen on the open market, without the knowledge of Fifteen. Thereafter, in May, 1960, Fifteen agreed to the sale of its assets to Appellee. Under the terms of the agreement, Fifteen agreed to sell all of its assets to Tennessee-Louisiana Oil Company in exchange for a certain amount of shares of stock of Tennessee Gas Transmission Company. Immediately prior to the consummation of the transaction, the Board of Directors of Fifteen Oil Company, granted severance pay to three of its officers in an amount equal to one and one-half (1 1/2) years' salary. Cain's severance pay was set at $57,750.00, being one and one-half (1 1/2) times his yearly salary. Upon being advised of this action by the Board of Directors of Fifteen, Tennessee made no objection, but according to Cain's testimony reduced the consideration to be paid Fifteen by reducing an equivalent amount of shares of stock from that theretofore offered, and further required that Appellant, Dixon H. Cain, and the other two officers, to execute what they termed as a 'retained advisory letter.' The letter was as follows:

'May 2, 1960

'Tennessee Louisiana Oil Co.

P. O. Box 2511

Houston, Texas

'Dear Sirs:

'With reference to the Plan of Reorganization entered into on January 14, 1960 and amended on March 24, 1960, between Fifteen Oil Company, Tennessee Gas Transmission Company and you, each of the undersigned (i) does hereby acknowledge receipt of payment by Fifteen Oil Company, as severance pay, of an amount equal to one and one-half (1 1/2) times his current annual compensation; and (ii) does hereby agree that he will be available to you in a retained advisory capacity for a period of six (6) months from and after May 2, 1960, in order that there will be no abrupt change in management and in order that you may avail yourself of his special knowledge concerning the affairs and properties of Fifteen Oil Company.

'Yours very truly,

Dixon H. Cain

John T. Lockridge

Harry H. Hudson'

Among the numerous assets transferred by Fifteen to Tennessee was a 50% interest in a mineral lease upon a four thousand (4,000) acre tract of land known as the Martinez Lease. Appellant's father, J. W. Cain, owned one-fourth (1/4) of the minerals under the lease, having owned same since 1936.

The mineral lease covering the Martinez four thousand (4,000) acre tract, which Appellee, Tennessee, thus acquired, was originally executed on May 25, 1933, and contained the following provision:

'After discovering any mineral in paying quantities on the land, grantee may maintain his rights in effect for so long as he pleases by proceeding with reasonable diligence to develop the land; however, the only penalty for grantee's failure so to develop shall be the loss of his rights; and grantee may, if he so elects, at any time after discovering any mineral in paying quantities on the land, surrender any part thereof, when after none of the provisions hereof shall be effective as to the surrendered part, but grantee may continue to hold the unsurrendered part by complying with the provisions hereof as to the unsurrendered part.'

On October 19, 1960, approximately twenty-one (21) days before the expiration of the six-month period in which Appellant agreed to remain available in a 'retained advisory capacity,' he wrote a letter as attorney-infact in behalf of his father, J. W. Cain, addressed to Tennessee-Louisiana Oil Company, in which he advised them of the provisions of the lease hereinabove quoted, and further advised them as follows:

'During the past ten years, you and your predecessors have not, to my knowledge, conducted any drilling operations, either exploratory or developmental, upon this property, although numerous wells in both categories have been drilled and completed offsetting these lands. Most recently, the F. A. Callery Unit No. 4 Well was successfully completed in May, 1960, as a gascondensate well in the Rousseau Field, offsetting the Martinez Lease to the north, and it is my understanding that, although you paid 20 per cent of the cost of this well, you have agreed with the offset operators of the well that less than 10 acres of the Martinez Lease should be included in the producing unit. This 10 acres represents about 6 per cent of the Number 4 Unit and about two-tenths of one per cent of the Martinez Lease.

'Additionally, you have allowed production from the Martinez Lease to decline such that only two wells are still productive. During September, 1960, oil production from the lease averaged less than 75 barrels per day, gas production less than 27 MCF per day.

'You are hereby notified that you have not complied with the terms of the subject lease in developing the land and you are asked to proceed immediately and without further delay to fully develop such land and protect it from drainage; or, in the alternative, to reassign the land to its rightful owners subject to your reservation of 20 acres around each well still producing at the time of reassignment.

'This letter is written on behalf of the lessors as a demand for development or reassignment of the lease as provided by its own terms and cannot be otherwise construed. Unless such additional development as evidenced by commencement of actual drilling of at least a 15,000' test will have begun on the Martinez Lease on or before sixty (60) days from the date of this letter, your rights under the subject lease will be considered surrendered by their own terms subject only to the reservation of acreage around such wells still producing at the time of surrender of your rights.

'Yours very truly,

Dixon H. Cain

Agent and Attorney-in-Fact for J. W. Cain'

A copy of this letter was then sent to some twenty (20) other owners of a mineral interest in the Martinez Tract. Presumably, as a result of this letter, at least one of the other owners, who owned a one-half (1/2) interest in the tract, demanded the surrender of the lease for failure to develop.

After declining to either develop the lease by drilling, or to attempt a re-negotiation of the leases, the management of Tennessee finally decided to voluntarily surrender all leases except forty (40) acres surrounding each of the producing wells. Shortly after releasing the mineral lease, Cain's father by two conveyances, conveyed all of his interest to his son, Dixon H. Cain, Appellant, who thereafter leased the acreage for oil and gas purposes for the sum of 45,000.00.

Thereupon, this suit was then brought by Tennessee against the Appellant, Dixon H. Cain, for restitution of his severance pay, and in the alternative for damages for breach of contract. Upon trial before a jury, seven (7) Special Issues were submitted to the jury, but only three (3) of the issues are deemed pertinent to this appeal. The issues, together with the jury's verdict thereon, are as follows:

'SPE...