Gas Ridge v. Suburban Agricultural Properties

• Decision Date: 13 September 1945
• Docket Number: No. 11232.,11232.
• Citation: 150 F.2d 363
• Parties: GAS RIDGE, Inc., v. SUBURBAN AGRICULTURAL PROPERTIES, Inc.
• Court: U.S. Court of Appeals — Fifth Circuit

150 F.2d 363 (1945)

GAS RIDGE, Inc., v. SUBURBAN AGRICULTURAL PROPERTIES, Inc.

No. 11232.

Circuit Court of Appeals, Fifth Circuit.

July 12, 1945.

Rehearing Denied September 13, 1945.

Arthur H. Bartelt, of Austin, Tex., for appellant.

Knox Miller, of San Antonio, Tex., for appellee.

Before SIBLEY, HUTHESON, and LEE, Circuit Judges.

Rehearing Denied September 13, 1945. See 150 F.2d 1020.

HUTCHESON, Circuit Judge.

While prior but abandoned pleadings¹ had set out in the alternative various claims, the Second Amended Complaint, on which the trial was had, declared on one simple claim, that an oil and gas lease on the described premises² "* * * for the term of five years from Dec. 7, 1920, and as long thereafter as oil or gas is produced from the said lease" had, because of the failure to produce in paying quantities expired, terminated and ceased.

The defense that the lease had not ceased to produce in accordance with its terms was primarily legal, that it was admitted that there was production and that the lease did not require production "in paying quantities"; secondarily factual, that if production in paying quantities was required, the lease had not ceased so to produce.

Other defenses were (1) waiver and estoppel through permitting development and accepting royalties; (2) war restrictions preventing development; (3) changes in the lease contract converting lessee's title from a determinable to an absolute fee. The documents³ relied on as affecting these changes were not proved up and only copies thereof were offered. Plaintiff objected to their admissibility, and they were received subject to the objection.

The trial of the case before the judge without a jury was concluded on May 17, 1944, and the case taken under advisement. On August 28, 1944, appellant filed a motion to reopen the case in order to permit him to introduce as part of the record, O. P. A. regulations providing for subsidy for stripper wells and an affidavit of M. J. Hildebrandt, secretary of the company, as to prices which would have been received for the production from the property if the subsidy had been in effect. On September 25, this motion was overruled, and on a consideration of the whole case, judgment was rendered for complainant, and defendant has appealed.

Of the opinion that Garcia v. King, 139 Tex. 578, 164 S.W.2d 509, 511, had settled it that the continuance of the lease estate required the continuance of production "in paying quantities", he found that the evidence established that for a period of years the lease had not so produced, and that cessation of such production had resulted in the automatic termination of the lease estate.⁴ Of the opinion too that plaintiff had not in fact waived its right to insist, nor estopped itself from claiming,⁵ that the lease had terminated, he so found. As to the claim that the failure of the lease to produce in paying quantities was excused by war, acts of the government, or other force majeure, he was of the opinion that since the lease contained no saving clause but fixed precisely the terms upon which its continuance depended, these constituted no defense.

Upon the defenses that by the documents relied on by defendant the terms of the lease had been changed to give defendant a fee simple title rather than a determinable fee, he was of the opinion; that the documents were not admissible in evidence over the objection that their execution had not been proved; that if admissible, they were not effective to prevent termination of the lease on cessation of production in paying quantities; and that if in error as to this, complainant, holding under Tarrant, an innocent purchaser for value, would not be bound by unrecorded instruments.

We think the district judge was right throughout. The opinion of the Supreme Court in Garcia's case leaves in no doubt; that "production" as used in the lease in question means "production in paying quantities"; that the continuance in force of the lease depended on the continuance of such production; and that when that ceased, the lease automatically terminated. Neither may it be doubted that there was ample evidence to support the finding of the district judge that for some years prior to the trial the lease had not so produced. There was evidence of persons familiar with the lease that it could not be, it had not for some time been, operated except at a loss, evidence of the actual production, the operating expenses and the amounts received from it, and tax statements of defendant filed with the Wisconsin Tax Commission showing that for many years the lease had been operated at a loss. It is true that plaintiff undertook by an analysis of these returns to show that they did not truly reflect that the lease in question was operated at a loss, and that counsel for the defendant testified as one familiar with the property that it had not been so operating but had been breaking even or a little better. But the weight and credibility of all this testimony was for the district judge before whom the case was tried, and it is quite plain that upon this record we cannot say that his findings were clearly erroneous. Indeed, we think that on proper balance the evidence heavily preponderates in favor of the judge's conclusion that the lease had been operating at a loss and that the defendant was holding on to it for the speculation involved in the possibility of a deep test proving up rich deposits in much lower strata.

As to waiver and estoppel, plaintiff did nothing in any way to mislead defendant or even to induce it to develop the property. It only took the meager pittance defendant from time to time sent it, and it seems to be well settled in the law...