Indian Territory Illuminating Oil Co. v. Rosamond

• Decision Date: 23 December 1941
• Docket Number: 29363.
• Citation: 120 P.2d 349,190 Okla. 46,1941 OK 410
• Parties: INDIAN TERRITORY ILLUMINATING OIL CO. v. ROSAMOND.
• Court: Oklahoma Supreme Court

120 P.2d 349

190 Okla. 46, 1941 OK 410

INDIAN TERRITORY ILLUMINATING OIL CO. v. ROSAMOND.

No. 29363.

Supreme Court of Oklahoma

December 23, 1941

Syllabus by the Court.

1. The right of action for breach of a continuing covenant accrues from day to day as long as the breach continues.

2. The fact that a portion of a claim on account of such continuing breach is barred by the statute of limitations will not prevent a recovery for the part which has not become barred at the time suit is filed.

3. The owner of a producing oil and gas lease owes to owners of mineral interests in the leased premises the continuing duty of protecting such leased premises from drainage by surrounding wells, and upon failure of the lessee to perform this duty a cause of action for damages accrues from day to day so long as the failure continues, and is not barred by the statutes of limitations, but damages may be recovered only for loss sustained during the five year period next preceding the filing of the action.

4. An action for damages for the breach of an implied covenant of an oil and gas lease is an action on a written contract, the implied covenant being as much a part of the lease as if written therein. The statute of limitations governing the bringing of such an action is the five year statute subdivision one of section 101, O.S.1931, 12 Okl.St.Ann. § 95, subd. 1, and not the three year statute, subdivision two of said section.

5. Evidence of damage from drainage of oil producing land by defendant's failure to drill thereon to protect it from adjoining wells examined, and held sufficient to require submission of the question of defendant's liability to the jury.

6. In computing the amount plaintiff is entitled to recover as damages for failure to drill a well upon his land to prevent the draining of oil therefrom by offset wells upon adjoining tracts in which he owns an interest, the amount of drained oil received by him by virtue of his interest in the offset wells should be deducted from the amount found to have been drained from his land by such offset wells.

7. In estimating the probable production of a well which plaintiff contends should have been drilled at a specified location on his land to prevent drainage by producing wells upon adjoining tracts, only the production of wells offsetting such undrilled location should be considered. Where no separate record of each producing well on such adjoining leases has been kept, but the oil from all the wells on each lease has been run into common tankage, the production of the well offsetting the undrilled location on plaintiff's land may not be determined by dividing the total production of the lease on which such well is located, by the number of wells thereon, but differences in producing formations thickness of sand, volume of initial production, and other factors bearing upon the amount of probable production of such well should be considered.

Appeal from District Court, Pottawatomie County; J. Knox Byrum Judge.

Action by Louie F. Rosamond against Indian Territory Illuminating Oil Company for breach of obligation of oil and gas lease. Judgment for plaintiff, and defendant appeals.

Reversed for new trial.

RILEY and DAVISON, JJ., dissenting.

W. P. McGinnis and Fred M. Carter, both of Bartlesville, Donald Prentice, of Tulsa, C. E. Bailey, Samuel H. Riggs, and Robert R. McCracken, all of Bartlesville, Archibald Bonds, of Oklahoma City, and Anglin & Stevenson, of Holdenville, for plaintiff in error.

Park Wyatt and Byron Lamun, both of Shawnee, for defendant in error.

Alvin Richards, J. H. Hill, John R. Ramsey, M. D. Kirk, Wm. M. Fleetwood, Jr., Ray S. Fellows, Y. P. Broome, and T. W. Francis, all of Tulsa, and R. B. F. Hummer, Hayes McCoy, and R. O. Mason, all of Bartlesville, amici curiae.

HURST Justice.

This is an action by Louie F. Rosamond, plaintiff, against Indian Territory Illuminating Oil Company, defendant, to recover damages resulting from the failure of defendant to protect from drainage by offset wells an eighty acre tract of land in which plaintiff owned a one-eighth interest in the oil and gas. Defendant was the owner of the oil and gas lease on the tract. From a verdict and judgment for plaintiff in the sum of $2,995, defendant appeals.

Plaintiff claimed that oil was being drained from under the eighty acre tract by three offset wells on adjoining lands, one north of the northeast corner of the tract, one east of the northeast corner, and one diagonally north and east of the northeast corner. He contended that under the implied covenant of the oil and gas lease of defendant it was the duty of defendant to drill a well in the northeast ten acres of the eighty acre tract, which would offset the wells above mentioned and protect the tract from drainage thereby, and sought damages for drainage resulting from defendant's failure to drill such well. The three wells which he contends drain the oil from under his land were drilled in 1928 and 1929. In 1929 defendant drilled a well in the southeast corner of the eighty acre tract which, with a well in the northeast corner, would have protected the tract from the surrounding wells. After the drilling of the well in the southeast corner plaintiff and his co-owners in the mineral interests under the tract requested that a well be drilled in the northeast corner, but this was not done. Plaintiff's co-owners then brought an action for damages for failure to drill in the northeast corner of the land, which action was settled in October, 1934, by defendant paying such co-owners the sum of $8,000 and assigning to them the oil and gas lease, excepting the southeast ten acres on which the well drilled by defendant was located. Plaintiff was not a party to the action or settlement, and after the settlement was made he again demanded that the well be drilled or damages paid him for drainage but all negotiations failed, and this action was filed on August 2, 1937.

Defendant argues six propositions: (1) That the action was barred by the statute of limitations; (2) that plaintiff failed to prove that a well drilled in the northeast corner of the land at or shortly after the well was drilled in the southeast corner would have been a paying well; (3) refusal of the trial court to sustain its demurrer to the evidence, and in refusing to give its requested instructions Nos. 1, 2 and 4; (4) error in the rejection and admission of evidence; (5) error in giving the jury instructions Nos. 3, 4, 5, 7, 9 and 10; and (6) error in overruling its motion for new trial and rendering judgment against it. These contentions will be considered in order.

1. Defendant argues that as the wells of which plaintiff complains were drilled in 1929, plaintiff's cause of action arose at that time, and that, having failed to file it within five years from that time, it was barred by the first subdivision of section 101, O.S.1931, 12 O.S.A. 95, the five year limitation statute on written contracts. Many authorities are cited holding that a cause of action arises, and that the limitation statute begins to run, at the time when the plaintiff could first maintain his action, or upon the defendant's first breach of its duty to him. Plaintiff says that the obligation to protect the land from drainage continued during the entire term of the lease, and that he could wait until the time of complete performance, or at least until defendant, on October 4, 1934, disabled itself from further performing by assigning the lease, and then sue for and recover damages for all drainage previously sustained. He relies upon 13 C.J. 651, 655, 17 C.J.S., Contracts, § 472, and Ross v. Tabor, 53 Cal.App. 605, 200 P. 971, Union Sugar Co. v. Hollister Estate Co., 3 Cal.2d 740, 47 P.2d 273, and Benton v. Roberts, 35 Ga.App. 749, 134 S.E. 846.

We are of the opinion, and hold, that plaintiff's right to maintain the action is not barred by the statute of limitations. The implied covenant of the lease, that the lessee will protect the land from drainage by adjoining wells so long as the drilling of a protection well or wells will, in the judgment of a reasonably prudent operator, be a profitable undertaking, is a continuing covenant, the obligation resting upon the lessee during the existence of the lease, or as long as his ownership thereof continues. Plaintiff was not required to treat defendant's failure to drill the well in 1929 as a complete breach of the lease, and bring an action for the cancellation and forfeiture thereof. Obviously he could not then bring his action for damages which he might suffer during the future life of the lease, for such damages would be contingent, speculative, and wholly incapable of ascertainment. See 37 C.J. 852; 34 Am.Jur. 111. The implied covenant being a continuing covenant, the right to maintain an action for its breach continues so long as the breach continues and plaintiff is damaged thereby.

2. Since we hold that the entire cause of action is not barred the next question presented is what is the applicable statute of limitations? And since the cause must be retried, it is our duty to determine this question for the guidance of the trial court. The rule is that a breach of a continuing covenant gives rise to a cause of action each day the breach continues, and any claim for breach back of the statutory period within which the action may be brought is barred. 34 Am.Jur. 111; Merrill, Covenants Implied in Oil & Gas Leases, 2nd Ed., section 208; Wood, Limitations (2nd Ed.) section 187d6; 37 C.J. 852; Powell v. Danciger Oil & Ref. Co., Tex.Civ.App., 134 S.W.2d 493; Sinclair O. & G. Co. v. Bryan, Tex.Civ.App., 291 S.W. 692; Aetna Life Ins. Co. v. Langston, 189 Ark. 1067, 76 S.W.2d 50; Carnegie Realty Co v. Carolina, C. & O. Ry. Co., 136...