Sellers v. Continental Oil Co.

• Citation: 168 So.2d 435
• Decision Date: 27 October 1964
• Docket Number: No. 1253,1253
• Parties: J. Nicholas SELLERS et al., Plaintiffs-Appellees, v. CONTINENTAL OIL COMPANY et al., Defendants-Appellants.
• Court: Court of Appeal of Louisiana (US)

Page 435

168 So.2d 435

J. Nicholas SELLERS et al., Plaintiffs-Appellees, v. CONTINENTAL OIL COMPANY et al., Defendants-Appellants.

No. 1253.

Court of Appeal of Louisiana, Third Circuit.

Oct. 27, 1964.

Davidson, Meaux, Onebane & Donohoe, by Lawrence E. Donohoe, Jr., Lafayette, for defendants-appellants.

Broussard & Broussard, by Marcus A. Broussard, Jr., Abbeville, for plaintiffs-appellees.

Liskow & Lewis, by Austin W. Lewis, New Orleans, amici curiae on behalf of defendants-appellants.

Before TATE, FRUGE , HOOD SAVOY and CULPEPPER, JJ.

FRUGE, Judge.

This is a suit brought by four of five lessors seeking cancellation of a mineral lease for reason of nonpayment of royalties. The trial judge, having found in favor of plaintiffs, rendered judgment cancelling the entire lease and awarding plaintiffs attorney's fees in the amount of $2,000. Defendants, Continental Oil Company, as owner of the lease, and Thomas McDermott and Hellenic Oil & Gas Company, as owners of overriding royalty interests, have taken this appeal. Third party defendant John Sellers, a co-lessor who had refused to join in the suit with plaintiffs, has not appealed the judgment.

The facts of this case are not in dispute, a rather lengthy stipulation having been agreed upon by the parties. The following is a condensed version of these facts:

On May 11, 1946, plaintiffs J. Nicholas Sellers, Alphonse J. Sellers, J. Gabriel Sellers and Josephine Sellers, along with their brother John Sellers, a third party defendant in this suit, executed as lessors a mineral lease on a contiguous tract of land in Vermilion Parish Comprised of approximately 121.46 acres. As a result of partial releases by the lessee, the acreage affected by the lease was reduced to two non-contiguous tracts, one of approximately 11.28 acres and the other of approximately 12.218 acres. Through mesne conveyances, the lease was acquired by Continental Oil Company as lessee.

The lease is on a standard form and provides for a royalty of one-eighth payable to the lessors. The lease does not fix a time certain for payment of the lessors' royalty.

All of the acreage affected by the Sellers lease has been included within units established by the Louisiana Department of Conservation, the 12.218 acre tract and the 11.28 acre tract being in separate units. Although no wells were located directly on the Sellers land, there was continuous production from the units in paying quantities from July, 1949, to the time of trial of this suit .

The lessors were paid all royalties to which they were entitled as a result of production from the 11.28 acre tract, as well as all royalties to which they were entitled from all acreage which was subsequently released by the lessee. These payments totaled k9.301.10.

The 12.218 acre tract was included in the unit designated as 'J. N . Sellers Unit for the Third Duhon Sand.' Production from this unit began in October of 1957 and continued until December of 1961. Royalties due plaintiffs from production of this unit were not tendered prior to June 23, 1960, when plaintiffs, through their attorney, demanded a release of the Sellers lease. On July 11, 1960, payment for production attributable. to the 12,218 acre tract was tendered plaintiffs, which tender was refused. The royalty due the co-lessor John Sellers from the 12.218 acre tract was timely paid.

Plaintiffs at no time made formal or informal demand for payment of royalties due them from the 12.218 acre tract. Division orders were mailed to plaintiffs by defendant, Continental Oil Company, in September of 1958 but were neither signed nor returned. Again in April of 1960 division orders were sent to plaintiffs and were neither signed nor returned by them.

Plaintiffs, in seeking cancellation of the mineral lease, have relied on the cases of Melancon v. Texas Company, 230 La. 593, 89 So .2d 135; Bailey v. Meadows, La.App., 130 So.2d 501, 502 (2 Cir.); and Pierce v. Atlantic Refining Company, La.App., 140 So.2d 19. Alternatively, plaintiffs seek cancellation of the lease as it affects only the 12.218 acre tract should the court find that they are not entitled to cancellation of the entire lease.

Defendants urge strongly that factual differences exist in this suit that make the cases of Melancon, Bailey and Pierce inapplicable . Defendants particularly urge that here there was no evidence of bad faith and that defendants would have paid the royalty had it been demanded. Defendants also point out that here there was full payment of royalty to the plaintiffs on all but one producing unit and that here the entire conduct of defendants only amounted to a passive breach of the lease.

We answer these contentions proffered by defendants by referring to our decision in Pierce v. Atlantic Refining Company. There we emphasized the following quotation from the Bailey case:

'We are, therefore, of the opinion that the Melancon and Bollinger cases have enunciated a general rule that failure to pay production royalties under an oil and gas lease, for any appreciable length of time, without justification, amounts to an active breach of such lease which entitles the lessor to a cancellation thereof without the necessity of placing the lessee in formal default.'

No explanation of defendants' failure to pay the lessors' royalties has been presented to this court. Here there was a failure to pay the royalties for a period of thirty-three months; that defendant, Continental Oil Company, knew the royalties were due plaintiffs seems beyond question in view of the fact that they were paying full royalties to John Sellers, one of the co-lessors. We are therefore unable to find that the failure to pay the royalties was justified. We do not view this court's decision in Fawvor v. U. S. Oil of Louisiana, La.App. 3 Cir., 162...