Texaco, Inc. v. Melton

• Decision Date: 18 December 1970
• Parties: TEXACO, INC., Appellant, v. Jerry MELTON, Jr., et al., Appellees.
• Court: United States State Supreme Court — District of Kentucky

Page 301

463 S.W.2d 301

TEXACO, INC., Appellant, v. Jerry MELTON, Jr., et al., Appellees.

Court of Appeals of Kentucky.

Dec. 18, 1970.

As Modified on Denial of Rehearing March 12, 1971.

Will Tom Wathen, Wathen & Wesley, Morganfield, for appellant.

J. D. Ruark, Morganfield, for appellees.

STEINFELD, Judge.

Appellant, Texaco, Inc., is the owner of the minerals under the surface of appellees Meltons' 789 acre farm which was formerly a part of Camp Breckinridge in Webster County. Claiming that Texaco had damaged them in using their farm Meltons sued. Pursuant to a jury verdict, judgment was entered for $9,950.00. Texaco appeals. We reverse for a new trial.

Texaco acquired title to the minerals by a deed from the United States dated October 12, 1965, containing the following:

'Grantor does also grant to Grantee, its successors and assigns, the right to use any surface areas of the tracts of land hereinabove described which are reasonably necessary in order to use any and all methods of processes, whether now known or hereafter discovered or developed, to prospect for, explore for, mine, operate, produce, store, and remove the oil, gas, and all other minerals and mineral rights conveyed hereby, provided that the Grantee in the exercise of the rights and privileges granted by this paragraph shall be liable to Grantor or any future owner or owners of the surface areas for actual damages caused thereby to the surface areas, improvements, livestock, and growing crops, and provided further that nothing in this paragraph shall limit or be in derogation of any other rights of the owners of minerals and owners of the surface of lands under the laws of the State of Kentucky.'

It drilled for oil and engaged in related operations until April 20, 1967, when it completed its last well.

On November 16, 1966, the Meltons and Roman Weis obtained title from the United States to the surface for $200 per acre, a total of $156,000. Their deed provided:

'1. Rights of the owner or owners of minerals and mineral rights, including the United States of America, to such use of the surface areas of the property conveyed hereby which is reasonably necessary to prospect, explore, mine, operate, produce, store and remove minerals, provided, however, that the owner or owners of the mineral rights shall be liable to the owner or owners of the surface area for actual damages caused thereby to the surface, improvements, livestock and growing crops. This provision shall not be in derogation of any other rights of the owners of minerals and the surface under the laws of the State of Kentucky. Nothing herein shall constitute or be construed as a waiver of the sovereign immunity and powers of the United States of America as the owner of the reserved coal and mining rights in and under the property hereby conveyed.'

The deeds to Texaco, the Meltons and Weis also provided:

'Grantor also grants to Grantee, its successors and assigns, the nonexclusive right of use of existing roads located within the confines of the Camp Breckinridge Military Reservation, of which the tracts of land herein referred to are a part, for the purpose of ingress and egress. The roads referred to in this paragraph are shown on the map of the Military Reservation annexed hereto as Exhibit A.'

On August 14, 1967, Weis conveyed his undivided interest to Meltons for $78,100. This suit was filed on March 12, 1968, and on July 26, 1968, Weis assigned to Meltons any rights he might have for 'surface and crop damages.'

The trial court ruled that no damages could be recovered in connection with drilling for the original well because it was completed before title was acquired by the Meltons, but that recovery could be had for loss of use of land due to Texaco's operation. After instructing the jury that Texaco '* * * had the right to use surface areas * * * which were reasonably necessary * * *' to extract minerals from the subsurface it permitted the jury to consider '* * * actual damages caused thereby to surface areas, improvements and growing crops by reason of the exercising of the privilege * * *' it had. The verdict read:

'We, the jury, find the damages to be both permanent and temporary and find in the following amounts:

PERMANENT DAMAGES

$179,682.20 Fair Cash Value Before

174,000.00 Fair Cash Value After

5,682.20 Difference

TEMPORARY DAMAGES

$4,267.80

/s/ Fred Creasey

Foreman'

Errors claimed relate to instructions, admission of certain evidence, and the amount of the award. Additionally appellant contends that error was committed '* * * in admitting the Weis assignment after the action (was) commenced' and in the failure of the court to fix '* * * a date of taking.'

Texaco claims that the trial court erred in refusing to instruct the jury on its theory for measuring the permanent damages. It charges that '* * * contractual liability assumed by Texaco limits any claim by the landowners against Texaco for injury done the surface by Texaco to actual damages to those particular areas of land actually occupied and utilized by Texaco.' It terms this the '* * * per acre theory as opposed to the before and after rule * * *'. It concedes that the latter rule is generally applied in tort cases involving permanent damage to land and in condemnation actions. See Blue Diamond Coal Company v. Press Eversole, Ky., 253 S.W.2d 580 (1952) and Com., Dept. of Highways v. Sherrod, Ky., 367 S.W.2d 844 (1963). However, it says that the rule '* * * cannot be invoked * * * where the parties have anticipated the damage and have by contract stipulated to a formula by which the damage may be ascertained.' Cited to support this argument are O'Connor v. Great Lakes Pipe Line Co. (8th Cir.) 63 F.2d 523 (1933); Fulkerson v. Great Lakes Pipe Line Co., 335 Mo. 1058, 75 S.W.2d 844 (1934); Shamblen v. Great Lakes Pipe Line Co., 158 Neb. 752, 64 N.W.2d 728 (1954) and Frankfort Oil Company v. Abrams, 159 Colo. 535, 413 P.2d 190 (1966). The Meltons say that the words in the deeds which Texaco contends are words of limitation were '* * * placed in the deed for the protection of the owner.'

We find no language which we interpret as a formula for measuring the damage. On the other hand we agree that recovery must be limited to 'actual damage' inflicted by Texaco to the 'surface areas, improvements, livestock and growing crops' and for no other. To that extent the O'Connor, Fulkerson, Shamblen and Frankfort Oil Company cases support Texaco's position. However, we find nothing in them which convinces us that the 'before and after rule' announced in United Fuel & Gas Company v. Rowe, Ky., 375 S.W.2d 264 (1964), which is traditional in this state is not the better way of assessing permanent damage such as we have here. We reaffirm that rule and reject the 'per acre' theory.

Texaco had the right to use the surface. Horseshoe Coal Co. v. Fields, 207 Ky. 172, 268 S.W. 1078 (1925); 36 Am.Jur. 402, Mines and Minerals, § 177. Cf. Bailey-Ferguson Coal Co. v. Kennedy, 219 Ky. 819, 294 S.W. 467 (1927). Its rights, privileges and obligations were set out in its deed.

The evidence indicated that in exercising those rights it permanently injured many scattered areas but to attempt to value each of them seems impracticable if not impossible. It appears to us that the proper and most just approach to this difficult problem is to require the appraisers to recognize and consider that Texaco owned the mineral rights and had the privilege of using the surface subject to the obligation of paying for the damage inflicted on the surface owners in the exercise of that privilege. Cf. Davidson v Grigsby, Ky., 451 S.W.2d 632 (1970). The 'before damage' valuation must be the worth of the real estate on the date of the first occurrence of actual damage after the date of deed to Meltons and Weis, but with Texaco's ownership and privilege being recognized. The 'after damage' value likewise must be fixed with full consideration of these same factors. When that is done and the figures stated, the difference will be the depreciation for permanent actual damages. This procedure follows the theory expressed in Com., Dept. of Highways v. Sherrod, supra. Because temporary injury occurred it must be treated separately and eliminated in determining permanent damages and the appraisers must be so restricted. From the testimony we will relate it will be apparent that this course was not followed.

Jerry Melton first testified of the profit which would have been made by planting crops in the areas where Texaco was working and in which it had erected wells and tanks. He also told that timber of the value of $425 was destroyed and that 11 1/4 acres were damaged but that they were repaired for $250 per acre. The court ruled upon objection that this evidence could only be considered to show whether the damage done was temporary or permanent and not for recovery. Melton told what his group had paid for the farm and the costs of improvements. On cross-examination Texaco attempted to show rental value of the acres where production of crops was prohibited but the court ruled it could not do so. The testimony of this witness, in part, revealed that much of the damages claimed was based on inconvenience due to Texaco's activities, as distinguished from negligence, unreasonable use or injury to the property.

Without the order of witnesses being waived and without plaintiffs below having announced the completion of their proof, Texaco introduced its three witnesses. One stated that where wells were located corn could have been produced and that certain income was lost for that reason. He said another six acres were temporarily lost but he did not tell how until later where we find much confusion in his testimony. This witness gave before and after valuations of the farm as a whole. He was not permitted to assess rental value on some areas temporarily lost but did so by avowal.

The next witness for Texaco testified that the existence of wells damaged...