W. T. Waggoner Estate v. Sigler Oil Co.

• Decision Date: 28 June 1929
• Docket Number: (No. 4523.)
• Citation: 19 S.W.2d 27
• Parties: W. T. WAGGONER ESTATE v. SIGLER OIL CO.
• Court: Texas Supreme Court

Page 27

19 S.W.2d 27

W. T. WAGGONER ESTATE v. SIGLER OIL CO.

(No. 4523.)

Supreme Court of Texas.

June 28, 1929.

Error to Court of Civil Appeals of Seventh Supreme Judicial District.

Action by W. T. Waggoner Estate against the Sigler Oil Company. Judgment therein was reversed, and the cause remanded by the Court of Civil Appeals (276 S. W. 936), and plaintiff brings error. Judgment of the Court of Civil Appeals affirmed, and case remanded for a new trial.

Berry, Stokes & Killough, of Vernon, and Thompson, Barwise, Wharton & Hiner and F. B. Walker, all of Fort Worth, for plaintiff in error.

Bullington, Boone & Humphrey and John B. King, all of Wichita Falls, Bonner & Storey and Cecil Storey, all of Vernon, Chas. L. Black, of Austin, H. O. Head, of Sherman, and Kennerly, Williams, Lee, Hill & Sears, of Houston, for defendant in error.

Williams, Neethe & Williams, of Galveston, and A. H. Carrigan, A. H. Britain, J. T. Montgomery, S. A. L. Morgan, Bert King and Wm. N. Bonner, all of Wichita Falls, amici curiæ.

GREENWOOD, J.

Plaintiff in error, the W. T. Waggoner Estate, brought this suit against defendant in error, Sigler Oil Company, to forfeit or cancel a conveyance of oil and gas in a certain 3,000 acres of land in Wilbarger county.

On January 27, 1919, W. T. Waggoner and others, by a writing duly executed, for a consideration of $100,000 and stated covenants and agreements, leased 85,000 acres of land in the counties of Wilbarger and Baylor, including said 3,000 acres tract, to W. G. Burton, "for the sole and only purpose of mining and operating for oil and gas, and of laying pipe lines and of building tanks, power stations and structures thereon to produce, save and take care of said products." The writing called a lease stipulated for an annual rental of $100,000, payable in advance on the 27th day of each January during the life of the lease, "provided each producing well shall hold 2,000 acres in a square, said well to be the center, and said 2,000 acres shall be released as to further annual rental." It was expressly provided that the lease should remain in force for a term of five years from date, and as long thereafter as oil or gas or either of them was produced from the land by the lessee; and it was further provided that, if no well was commenced on the land on or before the 1st day of June, 1919, the lease should terminate as to both parties; reasonable time being allowed for unavoidable delays. The lessors were to receive the equal one-eighth part of all oil and gas produced and saved from the leased premises. The estate of either party under the contract was declared to be assignable in whole or in part, and the assignee of the lessee as to only a part of the leased lands was to continue payments of no more than his proportionate part of rentals. Defendant in error, Sigler Oil Company, had acquired all rights under this writing formerly held by Burton in the 3,000 acres of land, and plaintiff in error, the W. T. Waggoner Estate, had likewise succeeded to the rights of the lessors in the 85,000 acres.

Plaintiff in error instituted this suit January 29, 1924, averring that the Sigler Oil Company had lost all rights and interests in and to the oil and gas in the 3,000 acres: (1) By abandonment of such rights and interests; (2) by failure and refusal to use the 3,000 acres for the purposes of the lease; and (3) by failure and refusal to proceed with reasonable diligence in the performance of the company's obligations to explore and develop and market the oil and gas.

Defendant in error, Sigler Oil Company, answered by pleading a general denial, and specially that it had fully performed its obligations by drilling certain wells for oil and gas, including two wells which produced oil in paying quantities, and from which plaintiff in error had received, and was receiving, royalties, and that defendant in error was entitled, in any event, to hold its rights in the oil and gas in 2,000 acres, with a producing well at its center.

Answering special issues, the jury found: First, that the Sigler Oil Company and its predecessors in title prior to January 29, 1924, failed to use reasonable diligence in the development for oil of the 3,000 acres of land; second, that the Sigler Oil Company, prior to January 29, 1924, breached its duty to carry out the essential purposes of the lease through reasonable development of the land; and, third, that the Sigler Oil Company did not, prior to January 29, 1924, abandon its duty of carrying out the essential purposes of the lease.

On these findings the district court refused to cancel the lease, but decreed a kind of limited specific performance, requiring the drilling of not less than eight wells, at the rate of one each six months, and adjudged that failure to comply with the decree should result in the forfeiture of the lease.

The Court of Civil Appeals construed the stipulation for each producing well to hold 2,000 acres without payment of future rentals as discharging the lessee, or his assigns, from any further obligation for mineral exploration or development of each 2,000 acres containing a producing well at its center, brought in by the lessee or his assigns, at least for the fixed term of five years. The Court of Civil Appeals decided that, in the absence of abandonment of its rights by the Sigler Oil Company, plaintiff in error had no remedy for any breach of duty to reasonably explore and develop the oil and gas other than an action for damages or for specific performance. Accordingly, the Court of Civil Appeals reversed the judgment of the district court, and remanded the cause for a new trial. 276 S. W. 936.

The Commission of Appeals concluded that on the jury's findings the judgment of the district court and of the Court of Civil Appeals should both be reversed, and that judgment should be rendered for plaintiff in error, divesting the Sigler Oil Company of all interests in the 3,000 acres, save as to 10 acres, including the two producing wells. The conclusion that the Sigler Oil Company be allowed to hold the 10 acres was grounded on a concession in plaintiff in error's pleadings. The Supreme Court entered a judgment in line with the commission's conclusions. This judgment followed the commission's interpretation of previous opinions of the court as holding that a lessee's failure to prosecute with reasonable diligence the essential purposes of a contract for the production of oil and gas terminated the lessee's title, aside from his intent to abandon his contract or rights. 284 S. W. 921, 926. On motion for rehearing, the case was withdrawn from the commission, and has been argued by eminent counsel.

The following propositions must be regarded as settled by repeated decisions of the Supreme Court:

First. Such a writing as that here called a lease operated to invest the party called lessee and his assigns with title to oil and gas in place. Texas Co. v. Daugherty, 107 Tex. 226, 176 S. W. 717, L. R. A. 1917F, 989; Stephens County v. Mid-Kansas Oil & Gas Co., 113 Tex. 160, 254 S. W. 290, 29 A. L. R. 566; Humphreys-Mexia Co. v. Gammon, 113 Tex. 255, 254 S. W. 296, 29 A. L. R. 607.

Second. The estate acquired by the so-called lessee and his assigns was a determinable fee, which was lost on cessation of the use of the land for purposes of oil and gas exploration, development, and production, Stephens County v. Mid-Kansas Oil & Gas Co., 113 Tex. 173, 254 S. W. 290, 29 A. L. R. 566; Texas Co. v. Davis, 113 Tex. 331, 254 S. W. 304, 255 S. W. 601; Munsey v. Marnet Oil & Gas Co., 113 Tex. 220, 254 S. W. 311; Robinson v. Jacobs, 113 Tex. 239, 254 S. W. 309; Thomason v. Ham, 113 Tex. 246, 254 S. W. 316.

Third. The estate of the lessee or of his assigns did not survive abandonment. Grubb v. McAfee, 109 Tex. 530, 212 S. W. 464; Munsey v. Marnet Oil & Gas Co., 113 Tex. 219, 254 S. W. 311; Thomason v. Ham, 113 Tex. 246, 254 S. W. 316.

Fourth. Where a mining lease provided for oil or gas royalties, and failed to define the lessee's duty as regards development after discovery of paying oil or gas, the law implied the obligation from the lessee to continue the development and production of oil or gas with reasonable diligence. Benavides v. Hunt, 79 Tex. 396, 15 S. W. 396; Grubb v. McAfee, 109 Tex. 530, 531, 212 S. W. 464; T. P. Coal & Oil Co. v. Barker (Tex. Sup.) 6 S.W.(2d) 1035, 1036; Freeport Sulphur Co. v. American Sulphur Royalty Co. (Tex. Sup.) 6 S.W.(2d) 1042, 1043.

Fifth. Breach of the lessee's implied obligation for reasonable mineral operations will not authorize the forfeiture of the lease as for breach of condition subsequent; such obligation being a covenant. Grubb v. McAfee, 109 Tex. 530, 212 S. W. 464; Texas Co. v. Davis, 113 Tex. 335, 254 S. W. 304, 255 S. W. 601.

Sixth. The usual remedy for breach of the lessee's implied covenant for reasonable development of oil and gas is an action for damages, though, under extraordinary circumstances—where there can be no other adequate relief—a court of equity will entertain an action to cancel the lease in whole or in part. T. P. Coal & Oil Co. v. Barker (Tex. Sup.) 6 S.W.(2d) 1035; Freeport Sulphur Co. v. American Sulphur Royalty Co. (Tex. Sup.) 6 S.W.(2d) 1045; Grubb v. McAfee, 109 Tex. 534, 535, 212 S. W. 464.

Analyzing and applying the principles underlying the foregoing propositions and decisions, we are satisfied that, notwithstanding the stipulation that each producing well brought in under the lease on the 85,000 acres should hold 2,000 acres in a square without payment of future rentals, still the Sigler Oil Company, as the assignee of the original lessee, was under an implied obligation, after the drilling of the two paying wells, to continue with reasonable diligence, during the five-year term as well as thereafter, the work of exploration for, and production of, the oil and gas in the 3,000 acres.

Mr. Summers shows by authorities cited that the rule is almost universally accepted...