Humble Oil & Refining Co. v. Strauss

• Decision Date: 21 June 1922
• Docket Number: (No. 1989.)
• Citation: 243 S.W. 528
• Parties: HUMBLE OIL & REFINING CO. v. STRAUSS et al.
• Court: Texas Court of Appeals

243 S.W. 528

HUMBLE OIL & REFINING CO. v. STRAUSS et al.

(No. 1989.)

Court of Civil Appeals of Texas. Amarillo.

June 21, 1922.

Appeal from District Court, Wichita County; E. W. Napier, Judge.

Action by J. C. Strauss and others against the Humble Oil & Refining Company. Judgment for plaintiffs, and defendant appeals. Reversed and remanded.

E. E. Townes, John C. Townes, Jr., and G. P. Dougherty, all of Houston, and Fitzgerald & Hatchitt, of Wichita Falls, for appellant.

Weldon, McDonald & Cummings, Carrigan, Montgomery, Britain, Morgan & King, and Bullington, Boone, Humphrey & Hoffman, all of Wichita Falls, for appellees.

HUFF, C. J.

This suit was instituted by appellees against appellant for damage occasioned by the failure to use diligence to produce and save oil from under 9.4 acres of land, and in permitting the oil to be drained therefrom by operators on contiguous land or in the surrounding oil fields and delay in drilling wells or a sufficient number, and for the abandonment of production of oil from the land and the wells put down. The action is predicated upon two lease contracts and a contract between appellant and appellees and an assignment of two leases to appellant by appellee. July 27, 1918, N. C. Parsons and wife leased to J. H. Hill 4½ acres of land, giving to him the right of drilling and operating thereon for oil, gas, and other minerals, and the right to lay pipes, etc., to operate any wells that the lessee may bore, and to make merchantable the products therefrom, to have and to hold to the lessee, his successors and assigns, for the term and under the provisions as follows: The exclusive right to make as many attempts if and as the lessee may desire to find oil or gas in paying quantities. The lessee may begin operations within 6 months from date. The lessee has the right of extension for successive periods of 6 months by paying the lessor $50, and, if within 12 months or during any extension period the lessee shall have begun operations in an attempt to find oil, he may do so without making further payments. The lessee may continue with reasonable diligence such attempt as long as he shall wish to do so; also providing for cessation of prospective work and for payment of rents after cessation, the extension periods not to be prolonged beyond 2 years, and, if operations be not begun before the expiration of that period, lease to wholly terminate, with some other provisions relative to work begun before the termination of that period. If during the period oil or gas in paying quantities is found, the lessee has the right to mine and produce so long as any one of the minerals can be produced in paying quantities. The lessee was to pay and deliver to the lessor, free of charge and cost to him, one-eighth of the oil saved. The sixth provision reads:

"If even prior to any discovery of oil on said leased premises and while this agreement shall be in force, there shall be drilled on adjacent property and within two hundred (200) feet of any line of said leased premises a well producing as much as two hundred (200) barrels of oil per day for thirty (30) consecutive days, lessee agrees that lessee will with all reasonable diligence begin and prosecute the drilling of a well on said leased premises in a faithful effort to find and produce oil in paying quantities."

It is provided if the estate of either party is assigned the covenants therein should extend to the assignees and successive assigns; that all conditions and terms should extend to the heirs, etc., and assigns of the parties. The lessee paid $1,000 to the lessor, which was received in full satisfaction of each and every right granted thereby.

On July 27, 1918, Mrs. M. C. Phillips leased to J. H. Hill 4.9 acres. The provision of this latter lease is the same as the one from Parsons, above set out. July 30, 1918, Hill assigned the two above leases to J. C. Strauss and J. L. Art, for the consideration of $5,000. T. C. Scruggs, one of the appellees herein, was equally interested with Strauss and Art in the assignment, and joins in this action as one of the plaintiffs. August 1, 1918, Strauss and Art, for themselves, and also for Scruggs entered into a contract with appellant. The contract reads:

"That for and in consideration of the sum of $5,000.00 cash in hand paid by the party of the second part [the appellant], the parties of the first part [the appellees] have this day assigned to the said party of the second part two certain oil and mineral leases on land situation in Wichita county, Texas [describing the land], and for the further consideration of the agreement hereinafter named the said party of the second part agrees to comply with the terms of said leases and to drill on said blocks of land as in said leases required. If the first well so drilled proves to be dry and nonproductive of oil, then the cost of such well shall be borne by said party of the second part, without any cost or expense whatsoever to said parties of the first part. Should said well, however, prove to be productive of oil in paying quantities, then the entire cost of such well shall be retained by the party of the second part out of the net proceeds of the oil produced and sold from said leases, and, after the cost of such well is fully paid to said party of the second part, then the proceeds of the oil thereafter produced on said leases, or either of them, shall be equally divided between said parties of the first part and said party of the second part. In case said first well shall prove dry and party of the second part shall desire to drill further well or wells on said leases the said first parties agree to pay one-half of the cost of such further drilling, or, failing to do so, shall forfeit all rights to said leases. In case said first well produces oil in paying quantities then the cost of all further drilling and development shall be borne one-half by first parties and one-half by second parties."

The assignment of the two leases by appellees to appellant is dated July 31, 1918, and recites a consideration of $1 and other good and valuable considerations, transferring the two leases and all their right, title, and interest therein, describing the leases and the land, and containing the following clause:

"And we do hereby grant, bargain, sell and convey unto the said Humble Oil & Refining Company all our right, title and interest in and to said land, together with all rights which we own or are entitled to as lessees in the leases above described. Said grantees herein take said leases subject to the terms and conditions thereof."

The contract and assignments are alleged and shown in fact to have been executed contemporaneously and as one transaction. The appellees, in their petition, plead the execution of the several contracts substantially as above set out, and allege that, as a main consideration and inducement to appellees for the assignment of the leases at the time of the execution of the above contract and assignment, the appellant fraudulently represented, if appellees were to assign the leases to it, that it would diligently and in good faith develop said leases for the production of oil, and would develop said leases to the full extent, as it had the equipment, means, and ability to do so; that it stood ready and willing to thoroughly and diligently develop the leases for oil and operate the same and take proper care of the production; that appellees relied upon said representations that it would at once develop the leased premises with diligence to the fullest extent and properly protect said leased premises, and so executed the assignments and contract. In virtue of such representations, which were the main consideration for the contract and assignment that it would fully carry out the provisions of the original lease, and by virtue of the written contract and assignments, the appellant "became bound and promised to at once develop said leased premises in good faith and diligence for oil and gas and not only develop the same but to diligently operate the same and carry out the terms of the original leases expressed and implied."

It is also alleged that between August 1, 1918, and September 1, 1918, a great number of wells were begun to be drilled throughout the town of Burkburnett and the surrounding territory, and hundreds of derricks were erected therein for the purpose of drilling for oil; that the discovery well about the 27th of July, 1918, was on the northeast side of Burkburnett, and the leased premises were on the southwest side of the town, not within the corporate limits; that it became apparent through the month of August that wells would be drilled all over the town and in the surrounding territory on tracts which consisted of small tracts of land, and that on lots three wells would be and were drilled on such lots and four wells at least drilled to the acre, and that, unless parties should at once drill oil wells on their land, the flush production of oil from the pool known as the Burkburnett pool would be exhausted within six months, and, unless oil wells upon the leased premises were drilled with dispatch and diligence, oil underlying the premises would have flush production of oil taken therefrom by operators on adjoining tracts; the Phillips tract of land was immediately adjoining the Parsons tract of land; that many tracts being drilled were small tracts, consisting of not more than 50 by 100 feet, and surrounding the two tracts, all of which was known to appellant but that it failed and refused to begin drilling prior to the 27th of September, 1918, when it began drilling a well on the Phillips tract, which it did not complete until December, 15, 1918; that the well could have been drilled within 15 to 35 days; that the failure to complete the well so begun was the result of negligence and carelessness on the part of appellant; that it was not drilled with due care, and that it should have been...