Jackson v. Texas Co.

• Decision Date: 25 March 1935
• Docket Number: No. 1068.,1068.
• Parties: JACKSON v. TEXAS CO.
• Court: U.S. Court of Appeals — Tenth Circuit

75 F.2d 549 (1935)

JACKSON v. TEXAS CO.

No. 1068.

Circuit Court of Appeals, Tenth Circuit.

February 2, 1935.

Rehearing Denied March 25, 1935.

Garrett Logan, of Tulsa, Okl. (Villard Martin and Geo. S. Ramsey, both of Tulsa, Okl., on the brief), for appellant.

B. W. Griffith, of Tulsa, Okl. (J. H. Hill, John R. Ramsey, and Sol H. Kauffman, all of Tulsa, Okl., on the brief), for appellee.

Before LEWIS and PHILLIPS, Circuit Judges, and JOHNSON, District Judge.

JOHNSON, District Judge.

This suit commenced in the state court was removed to the court below on the ground of diversity of citizenship. The court below sustained the general demurrer of the defendant, the Texas Company, a Delaware corporation, appellee here, to the complaint, and plaintiff, appellant here, electing to stand upon her complaint, judgment was entered dismissing the action. Appellant thereupon appealed the case to this court. The ruling of the trial court on the demurrer is the sole question for review by this court.

The facts in the case, as alleged in the complaint and admitted by the demurrer, are the following: The Texas Company, a Texas corporation, by a deed dated June 21, 1920, a copy of which is attached to the complaint, conveyed to appellant the N. 2 of S. E. 4 and S. W. 4 of S. E. 4 of section 7, township 18 north, range 9 east, situated in Creek county, Okl., with other lands. On April 19, 1927, the Texas Company, a Texas corporation, conveyed to the appellee, the Texas Company, a Delaware corporation, all its assets including all its right, title, claim, and interest in the lands conveyed to appellant by the deed dated June 21, 1920. At the time of the conveyance of the lands described to appellee, the Texas corporation was the owner of an oil and gas lease upon the following described premises: the W. 2 of W. 2 of N. W. 4 of S. W. 4 of section 8, township 18 north, range 9 east, Creek county, state of Oklahoma, which lands are adjacent to and immediately east of the lands conveyed to appellant. This lease was conveyed to appellee, the Delaware corporation, with the other lands and property conveyed to it by the Texas corporation, on April 19, 1927. A copy of this deed is attached to the complaint and made a part thereof. At some time unknown to appellant the appellee, the Delaware corporation, or its predecessor, the Texas corporation, drilled and equipped an oil and gas well on the leased premises above described at a location offsetting the east line of appellant's lands above described, at a cost not to exceed $4,000. This well has produced many thousand barrels of oil. Because of its proximity, it has drained crude oil from under her land of the value of not less than $200,000, and, if continued, will drain oil from under her land of the value of $100,000. Appellant has made repeated demands upon appellee to drill an offset well on her land to protect against and prevent this drainage. Appellee has refused to drill such offset well itself and has also refused to permit appellant to do so. In her complaint appellant claims a one-eighth interest in the oil drained and to be drained from under her land and prays judgment for the sum of $37,500 as damages.

The deed to appellant from the Texas corporation, dated June 21, 1920, contains the following provisions:

"But is is expressly understood and agreed that there is reserved and excepted from, and not included in, this conveyance, the oil, gas, coal, sulphur and other minerals of any character, whatsoever, that may be on, in or under the aforesaid described land, together with the right of ingress and egress thereon, in perpetuity, and with the full right and privilege of grantor, its successors and assigns, to the use of so much of the surface of said tract of land as may be reasonably necessary to build and erect thereon works and appliances to facilitate the development, exploration and operation for the removal of such minerals. And it is further covenanted and agreed, which agreement shall be a covenant running with the land, that the possession of the surface of the heretofore described premises by the grantee, her agents, lessees, heirs, administrators or assigns, shall not be held or construed to be adverse to the grantor, its successors or assigns, insofar as such possession may effect the mineral reservation and right of operation set forth in this instrument.

"It is agreed that while party of the first part, its successors and assigns, shall never be under any obligation to develop said land for minerals, should it, its successors or assigns, at any time hereafter produce minerals in paying quantities, it agrees to pay to party of the second part, her heirs or assigns, a royalty of one-eighth (1/8) of the oil and gas or other minerals produced and saved from the above described land."

Counsel for appellant open their argument in their brief with this statement: "The sole question presented, argued and decided in the trial court, and the sole question to be presented to this court, in our view of the case, is this: Is there, in the deed from the Texas Company to Pearl B. Jackson, an implied covenant on the part of the grantor to protect the premises from drainage?"

In the development of their argument counsel assimilate the provisions of the deed above quoted to the provisions of oil and gas leases, particularly in respect of implied covenants in such leases to drill off-set wells to prevent drainage by wells upon adjacent property. They state their proposition in this way: "When the Texas Company inserted in its deed an express covenant that it should `never be under any obligation to develop said land for minerals,' it destroyed the possibility of the existence of any implied covenant on its part to well develop — drill up — the property if oil or gas were discovered. But that express covenant in no wise affected its obligation to protect the premises from drainage. Such covenant is independent of, is separate and distinct from, and covers a subject-matter other than that embraced in, the covenant to develop. The express covenant as to development and the implied covenant as to protection from drainage are not conflicting and may and do exist together. One does not destroy the other."

In support of this proposition they cite and rely upon: Denker v. Mid-Continent Petroleum Corporation (C. C. A.) 56 F.(2d) 725, 84 A. L. R. 756; Orr v. Comar Oil Company (C. C. A.) 46 F.(2d) 59; Pelham Petroleum Co. v. North, 78 Okl. 39, 188 P. 1069; Fox Pet. Co. v. Booker, 123 Okl. 276, 253 P. 33.

Counsel for appellee in their opening statement in their brief say: "This matter being before the court on appeal by the plaintiff from an order of the United States District Court for the Northern District of Oklahoma sustaining the demurrer of the defendant to the plaintiff's petition, we are fortunate in that no questions of fact are here presented. The matter resolves itself into a question of law involving the construction of a deed which we think is determinative of the case."

Following this opening statement counsel for appellee say:

"On or about the 21st day of June, 1920, The Texas Company (a corporation of Texas, and the predecessor of the present defendant), sold and conveyed the surface rights in and to the North Half of the Southeast Quarter and the Southwest Quarter of the Southeast quarter of Section 7, Township 18 North, Range 9 East, in Creek County, Oklahoma (and other lands not involved in this litigation), to the plaintiff, Pearl B. Jackson. This conveyance was made in the form of a deed of that date which expressly reserved and excepted from such conveyance `the oil, gas, coal, sulphur and other minerals of any character whatsoever,' and which deed also expressly reserved to said The Texas Company, its successors and assigns, the right of ingress and egress and the right to the use of so much of the surface as might be reasonably necessary to explore for and carry on its operations for the mining and removal of such minerals.

"If the deed had stopped here there could have been no contention under any theory that the plaintiff was entitled to any rights in or benefits from the minerals in and under said land, either actual or contingent. The parties to this deed provided, however, that under a certain contingency the plaintiff should be entitled to receive one-eighth of the oil, gas or other minerals that might be produced and saved from said land. In the very breath that this contingency was provided for, however, the parties expressly agreed that said The Texas Company, its successors and assigns, should never be under any obligation to develop said land for minerals. In other words, it was expressly provided, as a part of the consideration of said conveyance by The Texas Company to the plaintiff, that it should at all times be left entirely optional with said The Texas Company as to whether it would develop said land for minerals, and the parties expressly relieved it from any obligation so to do; but it was provided that if it did in fact develop said land for minerals, and any of such minerals were produced, then that the plaintiff should be entitled to receive a certain percentage thereof."

"This is not the case of a conveyance of the mineral rights by the plaintiff to The Texas Company, and of the reservation by her of a royalty interest in land impliedly to be developed; it is not the case of an oil and gas lease from plaintiff to The Texas Company, with implied covenant for development; it is the case of a conveyance of the surface rights to plaintiff accompanied by a potential or possible interest in royalties strictly contingent upon The Texas Company's actual development of the premises, and by an instrument that not only did not create implied covenants for development but which expressly negatived any such obligation on the part of The Texas Company. The Texas Company evidently, from the terms of this deed, intended to reserve full...