Fawvor v. U.S. Oil of La., Inc.

• Decision Date: 24 March 1964
• Docket Number: No. 1085,1085
• Citation: 162 So.2d 602
• Parties: James H. FAWVOR, Jr., et al., Plaintiffs-Appellants, v. U.S. OIL OF LOUISIANA, INC., et al., Defendants-Appellees.
• Court: Court of Appeal of Louisiana — District of US

Page 602

162 So.2d 602

James H. FAWVOR, Jr., et al., Plaintiffs-Appellants, v. U.S. OIL OF LOUISIANA, INC., et al., Defendants-Appellees.

No. 1085.

Court of Appeal of Louisiana, Third Circuit.

March 24, 1964.

Rehearing Denied April 21, 1964.

Jones & Jones, by J. B. Jones, Jr., Cameron, for plaintiffs-appellants.

Plauche & Plauche , by S. W. Plauche , Jr., Lake Charles, Blanchard, Goldstein, Walker & O'Quin, by Leon O'Quin, Shreveport, Hall, Raggio & Farrar, by Thomas C. Hall, and Fred W. Ellis, Lake Charles, for defendants-appellees.

Before FRUGE , SAVOY and CULPEPPER, JJ.

FRUGE , Judge.

This is a suit to cancel a mineral lease on certain land in Cameron Parish.

The facts are not in dispute. Most of them were stipulated as a result of a pretrial conference. They are as follows:

1. Plaintiffs, joined by their father, who was then living, granted an oil, gas and mineral lease on the land to H. C. Reichert on July 27, 1959. The lease, Exhibit 'A' attached to plaintiffs' petition, was on a 'commercial' form, but contained a number of special provisions. The original consideration, or lease bonus, was paid in the sum of $47,471.00 by Charlton H. Lyons, Sr., to whom the land was subleased by instrument dated September 4, 1959, with Reichert retaining certain overriding royalties.

2. The first annual drilling delay rental (about which there is no dispute) was paid to the lessors, on or before July 27, 1960, in the sum of $23,735.00.

3. Others became interested in the lease with Mr. Lyons and, in the latter part of 1960, U.S. Oil acquired an undivided two-thirds working interest therein.

4. Mr. Lyons, who had acquired a title opinion from the firm of Liskow & Lewis under date of August 12, 1959, made a copy thereof available to U.S. Oil, which obtained a drilling permit on March 10, 1961, for a well to be designated as Fawvor No. 1.

5. Fawvor No. 1 was completed as a gas well on August 7, 1961, at a total cost of $432,561.51, and said well was immediately shut in, for lack of a market for gas, as authorized by the lease, particularly paragraph 6 thereof.

6. On April 20, 1961, the Commissioner of Conservation held a hearing, initiated by an application of Forest Oil Corporation, an operator of a well on the lands of D. Y. Doland, adjacent to the Fawvor lands. The application proposed the creation of certain units, with respect to a particular sand, and one of the units proposed would include a portion of the lands covered by the Fawvor lease held by U.S. Oil. U.S. Oil, through Mr. G. E. Gotschall, manager of its New Orleans office, attended the hearing.

7. Effective May 15, 1961, the Commissioner of Conservation issued Order No. 548 unitizing the Ehni-Darling sand in the Doland well and included in a unit a portion of the Fawvor lease.

8. On June 28, 1961, the Commissioner approved a survey of the unit created under Order No. 548, showing that 24.197 acres of the Fawvor lease, in accordance with a survey plat dated June 20, 1961, was included in Unit No. 1 under Order No. 548.

9. On July 21, 1961, a revised plat showed the Fawvor acreage in Unit No. 1 as 26.217, as the prior plat was based on a misconception of a boundary line of the lease.

10. On July 19, 1961, Forest furnished a copy of Order No. 548, with a copy of the first survey plat to the defendants, U.S. Oil and Lyons; on July 25, 1961, Forest sent to Mr. Gotschall of U.S. Oil a copy of the revised plat dated July 21, 1961.

11. On August 9, 1961, James H. Fawvor, Jr., telephoned Mr. Lyons, advising the lease was in default for the lessee's failure to pay a drilling delay rental on or before July 27, 1961; thereafter, there were conferences, correspondence between various representatives of the lessees and the Fawvors and their attorney at that time, Mr. Oliver P. Stockwell, resulting in the continued claim by the Fawvors that the lessees had defaulted for failure to pay the rental on or before July 27, 1961, and the claim by the lessees that they were not in default.

12. On October 13, 1961, pursuant to the lease agreement, a proportionate rental payment of $16.941.65 was deposited to the credit of the Fawvors, within the period of ninety days following the shut-in of Fawvor No. 1, which had been in the process of drilling on July 27, 1961. The Fawvors refused to accept the rental so deposited and have continued to persist in that refusal to the present time.

13. On November 30, 1961, Mr. Fawvor, Sr., acting for the lessors, made a written demand for a release of the lease.

14. On October 11, 1961, Forest Oil Corporation, which had been designated as the operator of the unit in the Commissioner's order, transmitted to the owners of interests in the unit a division order, for approval and execution, setting forth the proportionate interests of the various parties in the production from the Unit No. 1 well, and the amount allocated thereon to U.S. Oil and its associate lessees included one hundred per cent of the interest allocable to the Fawvor land in the unit, including royalties due the Fawvors. U.S. Oil had previously advised Forest, in July, 1961, that it would distribute royalties on the Fawvor land attributable to the Fawvor acreage in the Doland Unit No. 1.

15. On November 6, 1961, U.S. Oil ordered a supplemental abstract of title on the Fawvor land for division order purposes, and the supplemental abstract was delivered shortly thereafter and, on November 13, 1961, was forwarded by Mr. Gotschall to Mr. Joe Louis, an attorney in the U.S. Oil office, with the request that he prepare division orders in connection with payments of royalties and other interests under the Fawvor acreage in the Doland Unit No. 1.

16. On November 7, 1961, Mr. Gotschall wrote to Mr. Fawvor, Sr. in further discussion of the proportionate rental payment that had been made in lieu of the July 27, 1961, rental and, in the postscript of that letter, stated that the Houston office of the company would be forwarding division orders for signatures to cover royalties on production from the Fawvor land included in the Doland Unit No. 1, and asked for the cooperation of the lessors in executing the division orders when received in order that U.S. Oil might be certain that the interests of the Fawvor children were correctly calculated, as a result of certain transfers made by Mr. Fawvor, Sr. to the children as reflected in the original title opinion.

17. On December 6, 1961, Mr. Louis, for U.S. Oil, transmitted separate gas and oil division orders to the Fawvors, the owners of other royalty interests and overriding royalty interests and to the owners of working interests in respect to production from the Fawvor acreage in the Doland Unit No. 1.

18. The Fawvors declined to sign, approve or return the proposed division orders.

19. On January 19, 1962, Mr. Louis, for U.S. Oil, wrote the Fawvors about the division orders previously forwarded on December 6, 1961, stating that U.S. Oil would assume, in the absence of any reply, that the interests credited were correct, and that the accounting department was being instructed to make payment to the Fawvors of the royalty in the Unit No. 1 well as calculated on the division orders.

20. On January 29, 1962, royalty checks were mailed by U.S. Oil to the Fawvors, which were received on or about February 2, 1962, and the said checks have been retained by the Fawvors, but uncashed. Subsequently, monthly royalty checks have been issued, received and retained, but were uncashed.

21. On April 15, 1962, Mr. James H. Fawvor, Sr., the father of the plaintiffs, a named lessor in the lease and plaintiffs' 'guiding hand' (as described by counsel for the plaintiffs), died.

22. On April 23, 1962, the Fawvor children partitioned their lands and changed the ownership of the minerals and royalties, and their attorneys, then Jones & Jones, forwarded a copy of the partition to U.S. Oil for making appropriate changes on its records relating to the lease, and inquired if division orders were desired to be executed to show the change of ownerships.

23. On May 6, 1962, U.S. Oil transmitted division orders in accordance with the change of ownership effected by the partition, and the division orders were received by plaintiffs' attorneys and delivered to Mr. James H. Fawvor, Jr. Said division orders were retained, but were never signed.

24. On June 28, 1962, U.S. Oil deposited with the bank depository named in the lease, for the credit of the plaintiffs, the sum of $22,482.02, as the rental due on or before July 27, 1962, but said rental was refused by the plaintiffs.

25. On September 12, 1962, following some preliminary negotiations, the plaintiffs employed Jones & Jones, attorneys, to obtain the cancellation of the lease and, on September 25, 1962, a formal demand for the cancellation was made by these attorneys; on October 16, 1962, this present suit was filed.

The plaintiffs sued for cancellation of the lease on the following grounds: (1) Failure to timely pay rentals due on the lease contract on or before July 27, 1961, in the sum of $22,525.65; (2) failure to pay production royalties under the lease for an appreciable length of time without justification; (3) unfair treatment of the lessors by one of the co-lessees; and (4) failure to operate upon the premises as a reasonable and prudent operator.

The district judge, in a well reasoned and scholarly opinion, held that there were no grounds for cancellation shown and dismissed plaintiffs' suit. From this judgment plaintiffs appeal.

Failure to pay delay rentals on or before July 27 1961.

The lease provided for termination on July 27, 1960, unless on or before that date the lessee either commenced drilling a well on the land or on acreage pooled therewith or paid a delay rental of $50.00 per acre. Payment of the delay rental would maintain the lessee's rights for one year. The agreement further authorized the lessee to maintain the lease without drilling for successive twelve...