Cotherman v. Oriental Oil Co.

• Decision Date: 08 April 1925
• Docket Number: (No. 2451.)
• Citation: 272 S.W. 616
• Parties: COTHERMAN v. ORIENTAL OIL CO.
• Court: Texas Court of Appeals

Page 616

272 S.W. 616

COTHERMAN v. ORIENTAL OIL CO.

(No. 2451.)

Court of Civil Appeals of Texas. Amarillo.

April 8, 1925.

Rehearing Denied May 6, 1925.

Appeal from District Court, Wichita County; E. W. Napier, Judge.

Action by G. M. Cotherman against the Oriental Oil Company. Judgment for defendant, and plaintiff appeals. Reversed, and cause remanded.

Weeks, Morrow, Francis & Hankerson, of Wichita Falls, for appellant.

T. F. Hunter and E. E. Fischer, both of Wichita Falls, for appellee.

JACKSON, J.

This suit was instituted by G. M. Cotherman, appellant, against the Oriental Oil Company, a corporation, appellee, in the district court of Wichita county, Tex., for the recovery of damages in the sum of $9,000, with interest and costs, for the alleged breach of a written contract entered into between the parties on or about November 1, 1922.

Appellant alleges that he was the owner of the oil and gas lease described in the contract, and complied with all of the terms, obligations, and conditions imposed upon him thereby, and that defendant accepted title, entered into possession of the premises, and begun the drilling of a well under the terms of the contract. He also alleges the conditions and obligations imposed upon appellee by the terms of said contract, and that appellee agreed to drill an oil well on 10 acres of the land described to the maximum depth of 1,850 feet, unless oil or gas in paying quantities was found at a lesser depth; that appellee drilled the well to the approximate depth of 1,775 feet, abandoned all drilling operations, and failed and refused to finish and complete said well to the depth of 1,850 feet, or to oil or gas at a lesser depth, and, notwithstanding appellant's insistence and demands that it comply with the contract, appellee failed and refused to do so, and that, because of such failure, appellant was damaged in the sum of $9,000, which he was to receive in oil, if oil was discovered on said premises, and that, by virtue of the breach of the contract by appellee, appellant also lost title to the oil and gas lease, which reverted to Dee and Bellport, the original owners, as his title was dependent upon the compliance by appellee with the drilling obligations imposed in the contract, all of which was well known to appellee.

Appellant alleges as the measure of damages the $9,000 to be paid in oil under the terms and conditions of the contract, and, in the alternative, the value of the leasehold, which he alleges to be the sum of $9,000.

The contract sued upon was attached to appellant's petition and made a part thereof, and after giving the date as October 20, 1922, identifying appellant as first party, and appellee as second party, provides that, for the consideration stated, and subject to the terms and conditions thereof, first party agrees to transfer, sell, and assign, and second party agrees to purchase and pay for the leasehold estate situated in the county of Archer, and describes the land as the west 10 acres of the north 20 acres of the north 30 acres of the East 60 acres of block 17, and the north 30 acres of the east 80 acres of the west 100 acres of said block. The other terms and provisions of said contract necessary to a determination of the issues presented read as follows:

"Second party agrees to drill a well on the 10-acre tract above described to a maximum depth of 1,850 feet, unless oil or gas in paying quantities is found at a lesser depth. In this connection it is specified that the derrick for said well shall be erected within 8 days from this date, October 28, 1922, as herein provided, and second party shall begin actual drilling of said well within 25 days from this date, 28th day of October, 1922, and shall prosecute the drilling thereof with due diligence until said well is completed as herein provided. It is further specified that by the term "paying well," as heretofore used in this paragraph, if at a depth of more than 1,500 feet, is meant a well which produced 15 barrels or more per day (24 hours), but, at a depth less than 1,500 feet any well producing as much as 5 barrels or more per 24-hour day shall be a paying well.

"It is further specified that second party shall pay all of the cost and expense of every kind and character incidental to the drilling and completing of the aforesaid well, and that said well shall be drilled with rotary tools in a good and workmanlike manner, and in accordance with the best practices and custom prevailing for the kind and character of work to be performed, and in accordance with such rules and regulations, state or federal, as may now be in force or may hereafter be lawfully promulgated.

"It is further specified that second party shall carry necessary workmen's compensation for the protection of employees engaged in the drilling of said well.

"It is further agreed that, for said assignment to the property above described, the first party herein shall be paid the sum of $225 per acre for the 40-acre lease above described, which said $225 per acre shall be paid by second party out of seven-sixteenths of the oil or gas produced from said leasehold estate, after the second party herein has been reimbursed for the actual cost of drilling and completing said well out of the first seven-eighths of the oil or gas produced from said leasehold estate, which cost shall not in any event exceed a maximum of $3 per lineal foot for said first well. It is the intention of the parties herein that the second party shall receive the actual expense incurred in drilling and completing the first well out of the first seven-eighths of the oil or gas produced from said lease, and that such payment shall not in any event exceed $3 per lineal foot for said first well, and that, following payment to second party of such amount, first party herein shall then receive all of seven-sixteenths of the oil or gas from said leasehold estate until he has been paid a total sum of $9,000, and after such payment first party shall have no further interest in said lease or leasehold estate.

"It is further agreed that the first party shall deliver to second party with this contract in escrow with Security National Bank of Wichita Falls, Tex., a valid and bona fide assignment of the leasehold estate above described, to be delivered by said escrow holder to second party upon the completion by second party of a paying oil well as herein described.

"It is further specified that second party shall comply with each and all of the terms and provisions of the original lease contract on said property above described, and, particularly, shall pay to the fee owner the sum of $250 per year for each well, where gas only is found and used or sold off of the premises above described, such payment to be made in advance to the fee owner. It is understood that this is one of the provisions of said original lease contract with which second party agrees to comply. * * *

"It is understood and agreed that the consideration moving to first party herein is securing a producing well on some portion of the lease above described; and in event of second party's failure to commence drilling, or to secure such a producing or paying well as herein provided, then all of the rights acquired hereunder by second party shall revert to first party, who, in such event, shall own and hold the title to said lease and leasehold estate."

Appellee answered by general demurrer, special exceptions, general denial, admitted the execution of the contract, and specially pleaded that plaintiff never at any time owned or held title to the oil and gas lease described in the contract, never paid any consideration therefor, but held the leasehold estate under and by virtue of a contract with the owners, the terms and conditions of which are similar to the one between appellant and appellee, which appellant failed to perform, and could not therefore complain of the failure of appellee to comply with its contract; that, at the time appellee entered into the contract with appellant, it intended in good faith to drill said well to a depth of 1,850 feet, or to oil in paying quantities at a lesser depth, but, on account of a drought, was unable to procure, at other than prohibitive prices, water necessary to be used in drilling the well; that both appellant and appellee were limited by time, and for lack of time, under the terms of their respective contracts, appellee was unable to procure water necessary to drill the additional 75 feet, and it was impossible for it to have complied, to the letter, within the time allowed; that said leasehold estate was situated in dry territory, and that by drilling the well to the depth it did, and by the drilling of wells by others on adjacent and adjoining tracts of land, it had demonstrated to a moral certainty that no oil would have been produced by drilling the additional 75 feet, and therefore appellant suffered no damage; that, at the time appellee abandoned the well, it was below the depth at which oil was produced in that territory, and the formation was such that indicated no oil-producing strata would be encountered if the well had been drilled the additional 75 feet.

Appellee also pleaded that the contract vested only a contingent interest in it, and stipulated for a forfeiture with a liquidating damage intent in providing that, in the event it failed to commence drilling or to secure a producing or paying well, all the rights under said contract should revert to appellant, under which either party could declare a forfeiture, and it having ceased drilling at the depth of 1,775 feet, appellant declared a forfeiture of the contract and estopped himself to seek damages for the failure of appellee to perform.

Appellee also pleaded that it substantially complied with the terms of the contract, and thoroughly tested said oil and gas lease by drilling a sufficient depth to demonstrate that the lease would not produce oil in paying quantities, as...