Melancon v. Texas Co.

• Decision Date: 07 May 1956
• Docket Number: No. 42688,42688
• Parties: Arthur MELANCON v. The TEXAS COMPANY et al.
• Court: Louisiana Supreme Court

Page 135

89 So.2d 135

230 La. 593

Arthur MELANCON v. The TEXAS COMPANY et al.

No. 42688.

Supreme Court of Louisiana.

May 7, 1956.

Rehearing Denied June 11, 1956.

Richard S. Lake, Liskow & Lewis, Charles C. Gremillion, Lake Charles, for defendant-appellant.

Joseph M. Rault, Jr., Kalford K. Miazza, Terriberry, Young, Rault & Carroll, New

Orleans, Miazza & Drury, New Orleans, of counsel for plaintiff-appellee.

FOURNET, Chief Justice.

This is a suit to cancel an oil, gas and mineral lease executed by the landowner plaintiff, Arthur Melancon, and now held by the defendant, The Texes Company, affecting a 120 acre tract of land situated in Lafourche Parish; ¹ and this appeal is from a judgment ordering the cancellation.

The undisputed facts in the record show that the lease was granted by the plaintiff on July 20, 1944, for a primary term of 5 years, with a $600 bonus or cash consideration, to G. L. Paret, who within a few days assigned same to the defendant, The Texas Company; and by agreement between the plaintiff and that Company on February 27, 1948, for an additional consideration or bonus of $600, the lease was extended for an additional primary term of 5 years. It contained the usual clause for the termination of the lease unless drilling was commenced on or before 12 months such termination by paying annual delay such termination by paying annual delay rentals of $5 per acre, and the usual one-eighth royalty clause in case of production of oil or gas in paying quantities; and in case gas is not sold or used, the lessee was granted the privilege of paying a $100 royalty per well per year as 'shut-in royalty.'

The delay rentals were paid up to and including those due on July 20, 1951, thereby maintaining the contract in effect for another year. In the fall of 1951 The Texas Company, availing itself of a provision in the lease, ² executed a unit declaration, recorded on October 20, 1951, to cover a unitized area of 40 acres, comprising a portion of the property of plaintiff, of Donald Bollinger, the owner of adjoining land, and of others. A well commenced on the unit on October 27, 1951, and situated on Bollinger's land, was finally abandoned as unproductive on March 24, 1952. ³ On the 19th of the following month The Texas Company executed and recorded a second unit declaration covering a different forty acre tract but again comprising portions of the lands of plaintiff and of Donald Bollinger. On May 10, 1952, operations for the drilling of a well were begun on Bollinger's property in that unit; the well, known as Donald Bollinger Unit Six Number One well, following tests in which it was found to be productive of gas and distillate in Southcoast No. 2 and Southcoast No. 3 Sands, was completed in the latter sand on August 7, 1952. On September 8, 1952, the well was opened for the production of gas and distillate by delivery of gas into the gas fuel line of The Texas Company, then being used to supply rig fuel to various operators in the vicinity. The gas and distillate produced were sold by The Texas Company to others and, in some instances, to itself; but during this entire period no payment was made or tendered for royalties from the production and sale of the gas and distillate, either to plaintiff or to those to whom plaintiff and sold fractional mineral and royalty interests, of which sales the defendant had been advised. However, after the production of gas and distillate, as above stated, on various intermittent dates between September 8 and October 31, 1952, the well was temporarily shut in and the defendant Company, on November 4, 1952, did forward to the plaintiff its check for $75, representing three-fourths of the stipulated 'shut-in gas royalty' of $100 per well per year--the plaintiff at that time having disposed of mineral interests totaling one-fourth; ⁴ and again on August 6, 1953, the Company forwarded another 'shut-in gas royalty' check for $50 to cover plaintiff's remaining fractional interest. ⁵ Those checks were received by plaintiff but were not cashed.

At conferences between the plaintiff and officials of The Texas Company in October, 1952, and March, 1953, on which occasions the Company was seeking to have the property owners, including the plaintifff, agree to a larger unit than the area of 40 acres stipulated in the lease contract, the plaintiff not only refused to agree to a revision of the unit but at those times showed dissatisfaction with the treatment he had received at the hands of the company. ⁶ It was not until November 18, 1953, and after the plaintiff, through his attorney by letter dated November 10, 1953, formally notifying the defendant that because of various failures on its part to discharge its obligations as lessee, including non-payment of accrued royalties, that the lease had been cancelled, and requested execution of a formal surrender of the lease in accordance with LSA-R.S. 30:102, that for the first time the amount due plaintiff from the sale of gas and distillate used or sold by The Texas Company, for the period extending from July 31, 1952, through October, 1953, was tendered to plaintiff; but the checks were promptly returned. Royalties were tendered monthly thereafter, but were refused. This suit followed on May 11, 1954.

In the plaintiff's petition, after recitation of the foregoing facts, the plaintiff requested a judicial cancellation of the lease on several grounds, pleaded in the alternative and substantially as follows: (a) failure to pay delay rentals on July 20, 1952; (b) failure to pay a shut-in gas payment within a reasonable time from the completion of the well; (c) inadequacy and invalidity of the shut-in gas clause of the lease providing for payment of $100 per year per well, and the failure to pay delay rentals on July 20, 1953; (d) lack of authority to maintain the lease of plaintiff by a shut-in gas and distillate well not located on his land, though within the same unit; (e) invalidity of unit declaration because executed after expiration of primary term of Bollinger's lease; (f) failure to produce said well for a period in excess of 90 consecutive days without the payment of delay rentals or prosecution of further reworking or drilling operations; (g) lack of authority of the defendant to treat the well as a 'shut-in' gas well when there was a demand for gas in the vicinity, and failure of the Company to adequately market said gas; (h) failure to pay or tender production royalties from the sale of gas or distillate, from date of initial production, despite repeated oral and written demands by the plaintiff, until the lease had been declared forfeited; (i) failure to reasonably and prudently develop the lease. The prayer was for cancellation of the lease and for attorney's fees in the sum of $20,000, under LSA-R.S. 30:102.

For answer the defendant, The Texas Company, generally denied all legal grounds for cancellation of the lease, and in substance its position may be stated to be that under the contracts of lease with the landowners, it had a right to declare the 40 acre units; that its drilling operations within the units followed by production within the last unit sufficed to maintain all leases within the unit including that of the plaintiff; consequently, it was not necessary to tender delay rentals on either July 20, 1952, or July 20, 1953, because drilling operations were being conducted at that time; nor was it necessary to tender shut-in gas royalties, as was done in November, 1952, and August, 1953, since the lease was being maintained by production; that there was no ready or acceptable market for the gas, though negotiations were commenced with various gas pipe line companies which enabled the company at a later date--after this suit was filed--to conclude a contract for sale of the gas at a much higher price than was obtainable before; the company denied that demand had been made for payment of production royalties prior to November, 1953, or that it had refused to pay--the excuse for not paying being that negotiations were being carried on with the plaintiff and other lessors in the field for revision of the units so as to develop the area on 160 acre spacing, and that royalties which had accrued were being withheld pending the result of such negotiations.

On these issues the trial judge heard the case on the merits, took the matter under advisement, and rendered a well considered opinion in which, after detailing the several grounds urged by the plaintiff for the cancellation of the lease, singled out those problems relating (a) to the payment of royalties on shut-in gas wells and (b) to the payment of production royalties, and observing that the well could not be both a shut-in well and a producing well, concluded from the facts of the case that 'Bollinger Unit 6 Number 1 well was a producing well.' He thereupon proceeded to decide the case from that viewpoint, and after an analysis of the evidence he rejected the defense that there had never been a refusal on the part of the Company to pay royalties, finding as a fact that 'While there has been no such declaration in words, there has been its equivalent in deeds.' He also found no merit in the defense that a forfeiture would be warranted only if there were a refusal to pay following formal damand, and after expressing doubt of the requirement of a formal demand he said that if such were required, the evidence showed that the plaintiff himself had made oral demand at least three times, without success, and he concluded that, the contract being silent concerning a specific date for payment, the failure of the defendant Company to pay royalties within a reasonable time in accordance to custom of the trade amounted to a failure of consideration. The judge finally concluded 'that the non-payment of royalties by the defendant was not the result of negligence or inadvertence, but a studied and purposeful nonfeasance designed and intended to pressure the...