Cox v. Davison, s. A-10612

Citation397 S.W.2d 200
Decision Date20 October 1965
Docket NumberA-10613,Nos. A-10612,s. A-10612
PartiesElizabeth L. COX and Jake L. Hamon, Petitioners, v. Leland DAVISON et al., Respondents. Jake L. HAMON et al. v. Leland DAVISON et al.
CourtSupreme Court of Texas

Stubbeman, McRae, Sealy & Laughlin, W. B. Browder, Jr., Midland, for petitioners.

Frank C. Ashby, Garland Casebier, Midland, for respondents.

NORVELL, Justice.

The Texas rule is that a cotenant who produces minerals from common property without having secured the consent of his cotenants is accountable to them on the basis of the value of the minerals taken less the necessary and reasonable cost of producing and marketing the same. Burnham v. Hardy Oil Co., 147 S.W. 330 (Tex.Civ.App., 1912), affirmed, 108 Tex. 555, 195 S.W. 1139 (1917); Stroud v. Guffey, 3 S.W.2d 592 (Tex.Civ.App., 1927), affirmed, 16 S.W.2d 527, 64 A.L.R. 730 (Tex.Sup., 1929); White v. Smyth, 214 S.W.2d 953 (Tex.Civ.App., 1947), affirmed, 147 Tex. 272, 214 S.W.2d 967, 5 A.L.R.2d 1348 (1948); Davis v. Atlantic Oil Producing Co., 87 F.2d 75 (5th Cir. 1936). The controlling question in this case is whether under the facts here presented interest charges are a part of the necessary and reasonable cost of producing and marketing.

Leland Davison and others, respondents here, are the producing cotenants. The petitioners, Elizabeth L. Cox and Jake L. Hamon are the nonconsenting cotenants. Judgments in two cases (Nos. 6269 and 6270 on the District Court's docket) were rendered by the trial court in favor of Leland Davison and his associates. These judgments were affirmed by the Court of Civil Appeals in one opinion as the legal questions in both cases were identical. 385 S.W.2d 864.

It was stipulated that respondents, Leland Davison and those allied with him owned 28/32 of 13/16 leasehold working interest in and to the four quarter sections involved in the two suits under lease from others than petitioners; that petitioners Elizabeth L. Cox and Jake L. Hamon owned 3/32 of all oil, gas and other minerals in and under the that may be produced from said four tracts; that the Cox-Hamon interest was not under lease; that respondents desired to develop the tracts by drilling thereon, but petitioners refused to join in the proposed program, whereupon respondents at their own expense drilled wells upon the premises and completed the same as producers. By this stipulation the dispute was reduced to one involving interest charges. As stated by the Court of Civil Appeals, the only question presented for decision is whether respondents in an accounting with petitioners, the nonconsenting cotenants were entitled to a credit claim of six per cent interest on petitioners' proportionate part of the money advanced by respondents to pay for producing and selling the minerals from the lands held by the parties as tenants in common.

We are unable to agree with the holdings of the trial court and the Court of Civil Appeals. Interest is an incident of debt and is not payable in the absence of an obligation binding one person to pay money to another. Barker v. Torrey, 69 Tex. 7, 4 S.W. 646 (1887); Maryland Casualty Co. v. Lee, 165 S.W.2d 135, (Tex.Civ.App., 1942, wr. ref.). The obligation may be expressly set forth in a contract or it may be implied in law. Where one cotenant decides to develop a common property, the law raises no obligation binding a nonjoining cotenant to pay a part of the costs of development. However, when mineral property is developed by one cotenant and as a result thereof he acquires minerals which at one time underlay the common property, the problem of accounting to the nonconsenting cotenant arises. Cases dealing with debts or obligations implied by law are not directly applicable. In Shaw & Estes v. Texas Consolidated Oils, 299 S.W.2d 307 (Tex.Civ.App.1957, ref. n. r. e.) the distinction between circumstances wherein a cotenant may be bound by the doctrine of implied obligation and situations in which he may not was discussed. Following Stephenson v. Luttrell, 107 Tex. 320, 179 S.W. 260 (1915), the Court of Civil Appeals in an opinion by Mr. Justice Gannon said:

(W)ith reference to money necessarily and beneficially spent, the (Supreme Court in Stephenson v. Luttrell) continues: '* * * the principle of contribution has no element of speculation in it. In cases of this kind it is implied that the person seeking contribution had authority from his cotenant to expend the money that was actually spent. It is the same as if he had been actually instructed by his cotenant to expend that much money for him in improving the lot. This much is implied by law.' Because the principle is so well known, it is unnecessary to cite authority for the proposition that a cotenant incurring speculative expense in connection with exploration and development of oil, gas, and mineral properties is not entitled to a personal judgment against his cotenant for reimbursement, but only to be reimbursed out of production if and when production results.'

Both the trial court and the Court of Civil Appeals recognized that Cox and Hamon owed no debt or personal obligation to respondents. As there is no debt or enforceable personal obligation, it follows that a claim for interest as such cannot be supported. Under our view of the case it would be immaterial whether respondents actually borrowed money and paid interest thereon in order to prosecute their drilling operations. 1 We perceive no good reason when accountability is the problem at hand, why a distinction should be made between an operator who borrows money to hire a drilling rig and one who pays such rental charges out of his own funds.

We realize that in equitable accounting between cotenants, it is not essential that legal concepts be technically or strictly construed. Ordinarily, money will make money and it is probable that had the producing cotenants put their money to work in some other business undertaking, they probably would have realized some returns therefrom. Arguments may be and have been marshalled to support the equitable claim of the producer. It is he who takes the risk and, if successful, he usually produces financial gain for both himself and his cotenants. However, there is something to be said for the nonjoining cotenant. Actual production of minerals is not the only way by which benefits may be obtained from the ownership of mineral interests in land. Drilling may and often does condemn property for mineral purposes. A tenant in common as the owner of property is legally entitled to make such use of it as he sees fit, subject to those qualifications necessarily imposed by society for the promotion of the public good and those dictated by the qualities of the property and the characteristics of its ownership. The right of one cotenant to appropriate the property of another is sanctioned only because the mineral estate is such that necessarily the rights of one contenant must be interfered with if another cotenant is to be permitted to exercise those rights properly belonging to him. As between the producing cotenant and the non-joining cotenant a balance of equities has been struck. The rule of accountability is the proportionate market value of the product less the proportionate necessary and reasonable costs of producing and marketing. This measure in its present form does not include interest and we decline to rewrite the formula.

In both cases, the judgments of the trial court and the Court of Civil Appeals are reversed and judgments here rendered that respondents take nothing.

On Motion for Rehearing

NORVELL, Justice.

The respondents in their motion for rehearing say that our original opinion tends to leave the impression that the rule announced therein is one of long standing, whereas this case is actually one of first impression. Particular emphasis is laid upon the statement that the 'measure (of accountability) in its present form does not include interest and we decline to rewrite the formula'. It is urged that this Court has never held that interest is not a recoverable cost of production and consequently it would not be a rewriting of the formula to now say that interest is a recoverable cost of production.

To allow interest as a part of the production costs would constitute a variance from the established formula to the extent of going contrary to the general rule that interest will not be allowed in the absence of an obligation to pay money owed by the person sought to be held upon an interest charge. This is the rule supported by the Texas cases. Of course the essential obligation to pay may be either expressed or implied by law. The argument urged here and accepted by the Court of Civil Appeals, as evidenced by the cases cited in its opinion, is that under the factual situation presented by the record, the law has in effect implied an obligation binding the non-consenting cotenants to pay interest charges to the operating cotenant. But, here the obligation runs the other way. The operating cotenant has taken and sold petroleum products belonging to the non-consenting cotenant. However, because of the peculiar legal relationship existing between the parties,-they being cotenants of oil producing property, the usual rule of conversion is not applied. The problem is one of accounting and we have held that in accounting the operating cotenant is entitled to a credit for his necessary and reasonable cost of producing and marketing the same. This, of course, does not mean that the non-consenting cotenant owed an obligation of any kind to the operating cotenant. This case is not analogous to one involving the payment of taxes or the discharge of any other legal obligation owed by the non-consenting cotenant. No implied obligation can arise upon the theory that the operating cotenant has with the consent or upon the implied request of petitioners, expended money for the mutual benefit of the estate held in common by the...

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