Howard v. Hughes

• Decision Date: 06 September 1940
• Docket Number: No. 63.,63.
• Citation: 293 N.W. 740,294 Mich. 533
• Parties: HOWARD et al. v. HUGHES et al.
• Court: Michigan Supreme Court

294 Mich. 533

293 N.W. 740

HOWARD et al.

v.HUGHES et al.

No. 63.

Supreme Court of Michigan.

Sept. 6, 1940.

Suit by Neil Howard, Anna Howard, and the Crown Development Company, against J. P. Hughes, doing business under the assumed name of the Texagan Oil & Gas Company and another, to cancel an oil and gas lease. From the decree, the Crown Development Company appeals.

Affirmed.Appeal from Circuit Court, Kent County, in Chancery; Cornelius Hoffius, Judge.

Argued before the Entire Bench.

Starr & Starr, of Grand Rapids (James H. McLaughlin, of Grand Rapids, of counsel), and Steketee & Steketee, of Grand Rapids, for Crown Development Co., plaintiff and appellant.

Seth R. Bidwell, of Grand Rapids, for defendants and appellees.

CHANDLER, Justice.

Plaintiffs, Neil and Anna Howard, are the owners of 12 acres of land in Walker Township in Kent County. On May 25, 1939, they leased this land to defendant J. P. Hughes, doing business as the Texagan Oil and Gas Company, for a nominal sum under the commonly accepted form of oil and gas lease. The following clause was typed in the lease: ‘This lease must have a well started within 30 days of the completion of the well now being drilled in Section 31.’

It is conceded that this provision referred to a well being drilled by the Voorhies Company, called the Powers well.

On July 15, 1939, the Howards gave a second oil and gas lease covering the same property to Harvey Vander Laan. This so-called ‘top’ lease provided for commencement of operations within 90 days. Lessee Vander Laan knew of the former lease to Hughes and in the lease he agreed to bear all expense of litigation in defense of any action commenced against the Howards because of the prior lease.

Vander Laan assigned his lease to plaintiff, Crown Development Company, on August 21, 1939, and this suit was started on August 23, 1939.

The parties to this action had no control over the progress of the Powers well. The date of its completion was used as an arbitrary standard from which a period of 30 days was to be measured within which the Howard well was to be commenced.

The contractors developing the Powers well ceased drilling about June 3rd, and then the usual acid treatments were employed in an attempt to induce the oil to flow. Various treatments and pumping operations continued until about July 10th in an effort to make it a producing well. Finally, the contractor decided he had a dry hole and commenced plugging operations which were completed on July 24, 1939.

On July 19, 1939, there was filed with the Conservation Commission a notice of intention to abandon the Powers well. This notice states that it was completed on July 19, 1939, and that plugging operations were commenced. On August 9, 1939, the log of oil, gas or test well was filed. This must be filed, according to the rules of the Commission, within 30 days after the ‘first completion’ of the well. The log shows that the drilling on the Powers well was finished on June 3, 1939.

On July 10, 1939, a well on neighboring property called the Cummings well came in as a producer. This gave the Howard property more potential value as oil land.

Defendant Hughes applied to the Conservation Commission for a drilling permit for the Howard land on July 18th, and on July 25th, and had a survey made on the latter date. The permit to drill was issued July 26th and the drilling contractor moved his rig on the land on July 27th. Actual drilling began on August 5, 1939, and continued steadily after that.

On August 24, 1939, defendant Hughes was served with a summons in this case. At that time, the drilling had reached a depth of 625 feet and approximately $2,500 had been spent by the Texagan Company in drilling the hole. The suit sought to restrain further operations by Hughes and the Texagan Company and to cancel the lease given by the Howards to Hughes, representing the Texagan Company.

After hearing the testimony of the parties and of the oil men and experts who were called by each side, the trial court found that the Howard well was commenced within 30 days after the completion of the Powers well, and entered a decree upholding the lease of the Texagan Oil and Gas Company, dismissing the bill of complaint and dissolving the temporary injunction. The Crown Development Company takes a general appeal from that decree.

The primary question to be determined is: When was the Powers well ‘completed’?

Appellants contend that the Powers well was completed prior to June 7, 1939, when it was drilled in. Appellees contend that the well was not completed until it was determined by good oil field practice whether it was a producing well or a dry hole.

There is a conflict in the testimony as to the intention of the parties in inserting the 30-day provision in the lease.

Mr. and Mrs. Howard testified that they wanted a well right away and that they understood that the term ‘completion of well’ as used in the lease referring to the Powers well should mean ‘drilled in’.

On the other hand, Hughes testified that it was understood and agreed that the Texagan Company would commence drilling on the Howard land within 30 days if the Powers well came in as a producer, but that if the Powers well was a dry hold he would have a year in which to commence drilling operations.

This claim was denied by the Howards, but in this connection we must note the clause in the lease which provided: ‘It is agreed that this lease shall remain in force for a term of one year from this date, and as long thereafter as oil or gas or either of them is produced from said land by the lessee.’ The provision tends to support the contention of Mr. Hughes.

It is also difficult to justify the Howards' position in insisting that they understood the Texagan Company would commence within 30 days after the Powers well was ‘drilled in’ because they wanted a ‘short term lease’ and wanted a well ‘right away’ in view of the fact that the top lease given to Vander Laan and assigned to appellant provided for the...