Cowden v. Broderick & Calvert

• Decision Date: 06 April 1938
• Docket Number: No. 7348.,7348.
• Citation: 114 S.W.2d 1166
• Parties: COWDEN v. BRODERICK & CALVERT, Inc., et al.
• Court: Texas Supreme Court

Page 1166

114 S.W.2d 1166

COWDEN v. BRODERICK & CALVERT, Inc., et al.

No. 7348.

Supreme Court of Texas.

April 6, 1938.

Error to Court of Civil Appeals of Eighth Supreme Judicial District.

Action by Elliott F. Cowden against Broderick & Calvert, Inc., and others, for the termination of an oil and gas lease or for damages on account of failure to develop land for oil and gas with reasonable diligence. From a judgment of Court of Civil Appeals, 108 S.W.2d 562, reversing the judgment of district court dismissing the action, plaintiff brings error.

Affirmed.

Whitaker & Perkins, of Midland, and Bryan, Stone, Wade & Agerton and Oliver W. Fannin, all of Fort Worth, for plaintiff in error.

Slay & Simon, of Fort Worth, Stubbeman, McRae & Sealy and Frank Stubbeman, all of Midland, and A. W. Walker, Jr., of Austin, for defendants in error.

SMEDLEY, Commissioner.

Plaintiff in error in his suit against defendants in error seeks judgment for the termination of an oil and gas lease in so far as it affects 160 acres of land in Ector county and, in alternative counts, for damages on account of failure to develop the land for oil and gas with reasonable diligence or in good faith. General demurrer to the petition was sustained by the trial court and the suit dismissed. The Court of Civil Appeals reversed the trial court's judgment and remanded the cause, holding that one of the counts of the petition stated a cause of action for recovery of damages. 108 S.W.2d 562. Plaintiff in error, Cowden, the owner of 2,429.5 acres of land in Ector county, and O. C. Harper executed on June 23, 1933, a written contract whereby Cowden agreed to execute and did execute to Harper an oil and gas lease of even date with the contract and covering said land and placed the lease with a copy of the contract in escrow in a bank to be delivered to Harper upon his performance of the covenants and agreements that the contract provided should be performed by him "as consideration for and in payment for the said lease." Such covenants and agreements were in substance that Harper would at his own cost and expense drill a well for oil and gas at some location on a section numbered 25 included in the lease, actual drilling to be begun on or before August 1, 1933, and the well drilled with diligence to a depth of 4,500 feet or until oil or gas in commercially paying quantities should be produced or until sulphur water in the "Big Lime" should be reached. The contract provided that upon the completion of the well, either as a producer or as a nonproducer, the oil and gas lease should be delivered to Harper.

It is alleged in the petition that defendants in error as assignees of Harper acquired all of his rights under the contract and under the lease in and to a certain 160 acres of the said section 25 and in due time drilled, completed, and equipped a well on the 160-acre tract; that the well was completed on October, 25, 1933, as a commercial producer of oil and has since that time continued to produce an average of about 60 barrels of oil per day, which has been sold at an average price of 75 cents per barrel; and that upon the completion of the well the lease was delivered to Harper and his assigns by the escrow agent.

The oil and gas lease is in an often used form and contains no unusual provision except that relating to development and hereinafter quoted. It is dated June 23, 1933, requires the payment of the usual one-eighth royalties, and remains in force "for a term of five years from this date and as long thereafter as oil, gas or casinghead gas, or either of them, is produced from said land by lessee in commercial quantities." The privilege of assigning the lease as to part or parts of the land is given. It is an "unless" lease, containing the following paragraphs with respect to commencing a well or paying delay rentals:

"If no well be commenced on said land on or before the 23rd day of June, 1934, this lease shall terminate as to both parties, unless the lessee on or before that date shall pay or tender to the lessor, or to the lessor's credit in the First National Bank at Midland, Texas, or its successors, which shall continue as the depository, regardless of changes in the ownership of said land, the sum of Twelve Hundred Fourteen & 75/100 ($1214.75) Dollars, which shall operate as rental and cover the privilege of deferring the commencement of a well for twelve months from said date. In like manner and upon like payments or tenders the commencement of a well may be further deferred for like periods of the same number of months successively. And it is understood and agreed that the consideration first recited herein, the down payment, covers not only the privilege granted to the date when said first rental is payable as aforesaid, but also the lessee's option of extending that period as aforesaid, and any and all other rights conferred.

"Should the first well drilled on the above described land be a dry hole, then and in that event, if a second well is not commenced on said land, before the next ensuing date for the payment of rentals thereafter, this lease shall terminate as to both parties, unless the lessee on or before such next ensuing date for the payments of rentals shall resume the payments of rentals in the same amount and in the same manner as hereinbefore provided. And it is agreed that upon the resumption of the payments of rentals, as above provided, that the last preceding paragraph hereof, governing the payment of rentals and the effect thereof, shall continue in force just as though there had been no interruption in the rental payments."

The provisions of the lease as to offset wells and development generally are:

"In the event of production on adjoining land, the lessee agrees to drill proper and necessary offsets along property lines; lessor agrees that all other development shall be at the discretion of the lessee."

The first count of the petition, in addition to the allegations as to the drilling and completion of a producing oil well on the 160-acre tract and the delivery of the lease, states the substance of the contract and of the lease, making attached copies of them parts of the petition as if copied therein, and alleges further that after the delivery of the lease its provisions and stipulations alone constituted and evidenced the mutual rights and obligations of the lessor on the one hand and of the lessee and his assigns on the other; that one of the obligations devolving upon the lessee and his assigns, in so far as the lease applies to the 160-acre tract, was either to commence a well on or before June 23, 1934, on some portion of the 2,429.5 acres covered by the lease or on or before said date to pay or tender to the lessor one year's delay rental in the sum of 50 cents per acre; that no well, provided for in the lease itself, was commenced on any part of the land covered by the lease on or before June 23, 1934, and defendants did not pay or tender to plaintiff 50 cents per acre delay rental on their 160 acres; and that the lease as to the said 160 acres terminated.

The contention of plaintiff in error is, as stated in his brief, that "the drilling of the well under the terms of the escrow agreement or contract was the bonus or consideration paid for the oil and gas lease, and that the drilling of same did not relieve the defendants from drilling another well or paying delay rentals in order to keep the lease from terminating according to its terms."

Defendants in error take the position that the drilling and completion of the well as a paying producer before June 23, 1934, constituted a compliance with the terms of the lease as to the commencing of a well or the paying of delay rentals on or before June 23, 1934, and prevented termination on that date, although the well was drilled, as required by the escrow contract, before the lease was delivered to the lessee.

Looking to the language of the lease and the facts alleged as to the drilling of the well, we find that the contingency upon the happening of which the estate may come to an end before the regular end of the term is thus stated: "If no well be commenced on said lease on or before the 23rd day of June, 1934, this lease shall terminate as to both parties unless the lessee on or before that date shall pay or tender" the stipulated rental; that no rentals were paid but that a well was in fact commenced on the land by the assignees of the lessee and completed as a paying producer on October 25, 1933. The lease does not provide that the well must be commenced at any exact time or that it must be commenced after the lease is delivered out of escrow, or that the well to be drilled to prevent termination on June 23, 1934, must be a second well or a well in addition to that required by the escrow contract. Thus it appears that there was a literal compliance with the above-quoted terms of the lease.

Plaintiff in error insists that the escrow contract was a preliminary sales agreement which made the drilling of the well the bonus...