Danciger Oil & Refining Co. of Texas v. Powell

• Court: Texas Supreme Court
• Writing for the Court: Alexander
• Citation: Danciger Oil & Refining Co. of Texas v. Powell, 154 S.W.2d 632, 137 Tex. 484, 137 A.L.R. 408 (Tex. 1941)
• Decision Date: 23 July 1941
• Docket Number: No. 7689.,7689.
• Parties: DANCIGER OIL & REFINING CO. OF TEXAS et al. v. POWELL et al.

154 S.W.2d 632

DANCIGER OIL & REFINING CO. OF TEXAS et al. v. POWELL et al.

No. 7689.

Supreme Court of Texas.

July 23, 1941.

Error from Court of Civil Appeals of Second Supreme Judicial District.

Action by Clarence Powell and others against the Danciger Oil & Refining Company of Texas and others, for damages for failure diligently to develop oil and gas lands. To review a judgment reversing judgment for defendants and remanding the cause, 134 S.W.2d 493, the defendants bring error.

Judgment of the Court of Civil Appeals reversed and judgment of trial court affirmed.

Charles L. Morgan and W. C. Hock, both of Fort Worth, Ringolski, Boatright & Jacobs, of Kansas City, Mo., Morgan, Culton, Morgan & Britain and D. H. Culton, all of Amarillo, and Black, Graves & Stayton and Charles L. Black, all of Austin, for plaintiffs in error.

Hardwicke & Cheek, of Fort Worth, for defendants in error.

ALEXANDER, Chief Justice.

This suit was brought by Clarence Powell and wife against Danciger Oil & Refining Company of Texas and others for damages for failure to develop a certain tract of land for oil and gas mining purposes after oil had been discovered thereon. The only material question to be determined is whether or not, under the contract between the parties, there was an implied covenant to so develop the property.

In 1919, G. N. Powell and wife sold a section of land including the land in question to one Eldridge, and reserved and retained an undivided 7/8 interest in and to the minerals, oil, etc., under the land, with the understanding that 1/8 of such minerals, including the oil and gas, when mined should be delivered to Eldridge free of cost. On July 24, 1929, Powell and wife executed and delivered to Danciger Oil & Refining Company an assignment of their 7/8 interest in the minerals in two quarter sections of said land. Said assignment recited the fact that the land had previously been sold to Eldridge and the conditions of such sale. The remainder of the assignment was as follows:

"Whereas, the said G. N. Powell and wife, Sarah Powell, are now the owners of the mineral interest reserved in said deed as aforesaid, and they have now sold to the Danciger Oil & Refining Company of Texas, a corporation, the undivided seven-eighths (7/8) interest in the oil, gas and casinghead gas reserved and retained in said deed, with the reservations hereinafter made, insofar as the same are in and under the following described two tracts of land situated in Gray County, Texas, to-wit: (Description of land); the said G. N. Powell and wife having heretofore conveyed the Northwest Quarter and Southeast Quarter of said section to the said Danciger Oil & Refining Company of Texas, by virtue of conveyance dated the 22 day of March 1929, recorded in Volume 38, Page 95, of the Deed Records of Gray County, Texas, to which reference is hereby made for all purposes:

"Now, Therefore, Know All Men by These Presents:

"That we, G. N. Powell and wife, Sarah Powell, for and in consideration of the sum of Fifty Thousand ($50,000.00) Dollars to us cash in hand paid by the Danciger Oil & Refining Company of Texas, a corporation, the receipt of which is hereby acknowledged and in further consideration of the sum of Fifty Thousand ($50,000.00) Dollars to be paid as follows:

"Out of oil, gas and casinghead gas that may be produced, saved and sold from the interest of grantee in said section 28, the sum of Seven Thousand One Hundred Forty-two and 86/100 ($7,142.86) Dollars, sixty days after the date hereof, and not later than on September 23, 1929;

"And the payment of an additional sum of Seven Thousand One Hundred Forty-two and 86/100 ($7,142.86) Dollars on the 23rd day of each month thereafter until the full amount of said Fifty Thousand ($50,000.00) Dollars has been paid;

"Said payments to be made out of all the oil, gas and casinghead gas owned by grantee in said Section 28, and Pipe Line Companies running said oil, gas and casinghead gas are hereby authorized and directed to make said monthly payments direct to grantors herein; provided, however, that said pipe line companies are only to deduct from the amount due the amount of said monthly payments as they accrue, and any balance which may have accrued at the time such monthly payments become due shall be delivered to the grantee, its successors and assigns. In this connection it is understood and agreed that should the oil, gas, and casinghead gas prove insufficient to make the monthly payments as aforesaid, same shall be made in cash, it being the intention of all parties that said payments shall be made on said dates in any event.

"And in further consideration of the covenants and agreements hereinafter set forth to be kept and performed by the grantee, have granted, sold and conveyed, and by these presents do grant, sell and convey unto the Danciger Oil & Refining Company of Texas, a corporation, an undivided seven-eighths (7/8) interest in and to all of the oil, gas and casinghead gas found or to be found under or within the lines or area of the Northeast Quarter and the Southwest Quarter of said Section 28, Block B-2 surveyed for the benefit of the Public Free School Fund of Texas by virtue of Certificate 15/3165, issued to the H. & G. N. RR Co., containing 320 acres of land, more or less, situated in Gray County, Texas, with such reasonable use of the surface ground as may be necessary to win, work and carry away such oil, gas and casinghead gas, with the right at any time to prospect for and develop such oil, gas and casinghead gas, subject only to the limitations and covenants hereinafter set forth.

"To Have and to Hold the same unto Danciger Oil & Refining Company of Texas, its successors and assigns.

"As a part of the consideration for the conveyance, Danciger Oil & Refining Company of Texas, covenants and agrees as follows:

"1. That if oil be produced and saved from the land last above described, it will deliver to the said J. M. Eldridge, his heirs and assigns, one-eighth of all the oil produced, saved and sold from said land, the same to be delivered at the wells or to the credit of J. M. Eldridge, his heirs and assigns, in the pipe line to which the wells may be connected, free of cost to them; and if any gas be produced from said land and sold or used off the premises or in the manufacture of gasoline, including casinghead gas, that it will pay or cause to be paid to the said J. M. Eldridge, his heirs and assigns, the one-eighth of the market value at the well of the gas or casinghead gas so sold, used or saved, provided that if and when the grantee shall sell gas at the wells the royalty interest of said Eldridge, his heirs, and assigns, thereon shall be one-eighth (1/8) of the amount realized from such sale.

"2. There is expressly excepted and reserved to the grantors, herein, their heirs and assigns, an overriding one-eighth interest in and to all of the oil, gas, and casinghead gas in and under and that may be produced from land in the lines and area of the above described land, being the Northeast quarter and southwest quarter of said section 28 above described and the grantee, Danciger Oil & Refining Company of Texas, hereby covenants and agrees as follows:

"(1) To permit the delivery to the credit of said grantors, free of cost in the pipe line to which it may connect its wells, the equal one-eighth (1/8) part of all oil produced, saved and sold from the above described premises;

"(2) To permit the payment to the grantors one-eighth (1/8) of the net proceeds derived from the sale of gas delivered to the pipe line for the gas from each well where gas only is found while the same is being used off the premises;

"(3) To permit the payment to grantors for gas produced from any oil well, one-eighth (1/8) of the net proceeds derived from the sale of gas delivered to the pipe line for the time during which such gas shall be used; provided, however, that in the event grantee should use such casinghead gas itself for the manufacture of gasoline or other purposes, then to pay grantors on the basis of one-eighth of the customary and prevailing price paid by other casinghead plants in the oil field surrounding said premises.

"3. It is further understood and agreed by the grantors and grantee that grantee shall make reasonable provisions in the way of storage tanks to take care of flush production, and to connect the well or wells with such storage tanks, and if said storage tanks shall prove insufficient to take care of the...