Watson v. Rochmill

• Decision Date: 27 October 1939
• Docket Number: No. 1941.,1941.
• Citation: 134 S.W.2d 710
• Parties: WATSON et al. v. ROCHMILL et al.
• Court: Texas Court of Appeals

134 S.W.2d 710

WATSON et al. v. ROCHMILL et al.

No. 1941.

Court of Civil Appeals of Texas. Eastland.

October 27, 1939.

Rehearing Denied December 1, 1939.

Appeal from District Court, Palo Pinto County; Sam M. Russell, Judge.

Suit by Geo. J. Watson and others against Henry Rochmill, the Farmers Mutual Royalty Syndicate, Inc., and others to have an oil and gas lease adjudged terminated under its terms, in which Gordon Jones intervened to establish his title to an interest in an oil royalty. From a judgment for defendants and a judgment for intervener against defendant Royalty Syndicate, plaintiffs and defendant Royalty Syndicate appeal.

Affirmed.

Ritchie & Ritchie, of Mineral Wells, and Lyndsay D. Hawkins, of Breckenridge, for appellants Geo. J. Watson, C. E. Allen, and L. L. Brown.

Slay & Simon, of Fort Worth, for appellant Farmers Mut. Royalty Syndicate, Inc.

J. R. Creighton, of Mineral Wells, for intervener Gordon Jones.

Slay & Simon, of Fort Worth, and W. O. Gross, of Mineral Wells, for appellees Henry Rochmill and F. G. Dubose.

GRISSOM, Justice.

Geo. J. Watson et al., alleging that they and Farmers Mutual Royalty Syndicate, Inc., were the owners of all the minerals in a certain tract of land covered by an oil and gas lease, instituted this suit against Rochmill et al. for the purpose primarily of having a lease owned by Rochmill et al. adjudged to have terminated by virtue of the terms of the lease. The court instructed a verdict for defendants, and, as to a one-fourth royalty interest instructed a verdict for intervener Gordon Jones against the defendant Farmers Mutual Royalty Syndicate, Inc., and rendered judgment accordingly. Plaintiffs and defendant Farmers Mutual Royalty Syndicate, Inc., have appealed.

The facts, stated as briefly as possible, are shown by the undisputed evidence (except where the contrary is indicated) to be substantially as follows:

On May 14, 1925, an oil and gas lease was executed covering the land in controversy by L. C. Slemmons et al. to R. E. Moore et al. The lease contained the following provisions:

"It is agreed that this lease shall remain in force for a term of Three (3) years from May 25, 1925 and as long thereafter as oil or gas, or either of them is produced from said land by the lessee.

"In consideration of the premises the said lessee covenants and agrees:

"1st. To deliver to the credit of lessor, free of cost, in the pipe line to which they may connect their wells, the equal one-eighth part of all oil produced and saved from the leased premises."

The consideration recited was $10 and "the covenants and agreements" contained in the contract. The evidence shows that soon after the execution of this lease a well was drilled to what was supposed to be the top of a paying sand when a casing was ruined and "the hole lost." The rig was then moved a short distance, another well drilled and oil produced. About $60,000 was spent in the development of the lease in question. After production was obtained, a connection with a pipe line was secured and appellee Rochmill acquired the interest of the original lessees. The well produced oil continuously from 1925 until about May 21, 1932. The oil, both the 7/8 ths of the oil belonging to the assignees of the lessees and the 1/8 th of the oil belonging to the royalty owners, was marketed through the Prairie Pipe Line Company until January 1931. At that time the Prairie Pipe Line Company severed its connection with the well and withdrew from that territory. There was no other pipe line in that territory. From January, 1931, to May, 1932, oil produced from the well was transported by trucks and sold to a refinery at Ranger. Said refinery purchased the oil belonging to the lessees and to the owners of the royalty interest. The appellants then owned the royalty, knew that said refinery was buying the oil and that it was being delivered to the refinery by trucks. Appellants, without comment, accepted said method of marketing the oil and accepted the royalty checks from the purchasing refinery. The trucks hauling the oil from the well to the refinery were designated by the Railroad Commission as pipe lines. The well produced about one barrel of oil to 10 barrels of salt water. It was low gravity oil. It was not as readily marketable as uncut oil of high gravity. About May 21, 1932, the refinery at Ranger refused to further take the oil from this lease. The price of oil generally reached an extremely low level, selling in East Texas at 10 cents a barrel. The oil market was almost completely demoralized. No market was available for the kind of oil produced on the lease. If the oil had been sold no profit could have been obtained since the price of hauling the oil from the well to a refinery was equal to or greater than the price of oil. In addition to the general business depression there was a special slump in the oil business. No oil was sold from this lease from May, 1932, to January, 1935, for the reasons above outlined. This condition was evidently considered by Rochmill to be temporary. From May, 1932, to January, 1935, Rochmill (a) employed Burt Slemmons to work on the well and guard the property; (b) Rochmill and his employee, Slemmons, constantly endeavored to procure a market for this oil. They contacted many independent oil men, oil companies, pipe line companies, refineries and the Railroad Commission in an effort to market the oil. No purchasers could be found. (c) Acid tests were made in the well and the well was acidized, a swabbing machine was brought from Ranger and the well was swabbed and cleaned out. A derrick was torn down, rebuilt and placed over the well in question, an engine house built, the tubing was pulled, rods were put in, complete pumping equipment was obtained and put on the well. A market for the oil having been, after diligent effort, finally obtained in January 1935, the production of oil was resumed by use of the pump. (d) Application was made to the Railroad Commission and permission obtained to market the oil by truck to a refinery at Albany. (e) During the period when oil was not sold from the well, none of the personal property or equipment was removed from the lease. On the contrary, pumping equipment and other property was placed on the lease by Rochmill from May 1932 up to and including the day this suit was filed at an expense of about $8,000. (f) Rochmill paid taxes on the leasehold estate and personal property there situated up to and including the years 1932 to 1936. (g) After production of oil was resumed in January 1935, the oil was sold to refineries at Albany, Graham and Jacksboro. The oil was transported from the well to said refineries by truck, Rochmill having made application for and obtained permission to do so from the Railroad Commission. The manner of such sales and transportation was the same as in the prior sales to the refinery at Ranger in 1932, which method was known and acquiesced in by appellants. Said last mentioned refineries paid Rochmill for 7/8 ths of the oil. Operation continued in such manner from January 1935 to April 1937 when appellants instituted this suit and a receiver was appointed. (h) From January 1935 to April 1937, pumping was done both in the daytime and night time and oil was hauled from the well both in daytime and at night time by trucks. (i) During all this time none of appellants took any affirmative action in connection with the property.

Two of the appellants live in Palo Pinto County where the well in question is located. One of them, according to the testimony, owns a ranch within about a mile and one half of the well. Although appellants contend that the lease, by virtue of its own provisions, terminated in May 1932, none of them asked Rochmill for a release, or to remove his personal property from the premises, nor did they do or say anything inconsistent with acquiescence in the actions of Rochmill in his possession, control and operation of said well and lease. None of the appellants rendered any of the property for taxation, or paid any taxes thereon, nor asserted any claim to or exercised any act of dominion over the minerals or personal property left on the lease. Appellants say that they had no knowledge of the fact that oil was being produced 24 hours a day from January 1935 to April 1937. (There is a conflict in the evidence as to whether Slemmons notified Watson of the fact of such production.) Under the instructed verdict, if it should be material whether plaintiffs had knowledge of the resumption of production, we must consider the case upon the theory that they had no such knowledge. It is evident that a very slight investigation, or inquiry, would have resulted in such information being obtained by appellants.

In June, 1938, plaintiffs Geo. J. Watson, C. E. Allen and L. L. Brown, filed their Second Amended Petition complaining of Henry Rochmill individually and as trustee, F. G. DuBose, Texas Pacific Coal & Oil Company, a corporation, Farmers Mutual Royalty Syndicate, Inc., a corporation, and Gordon Jones. Appellants alleged, among other things, the execution of the oil and gas lease; that plaintiffs and defendant Farmers Mutual Royalty Syndicate, Inc., and Gordon Jones "are now the owners of all the minerals underlying the above lands * * *." That by the terms of the lease lessor granted, etc., said property to the lessee for the sole purpose of mining and operating for oil and gas, and the conduct of operations generally in connection therewith, that the lease was for a term of three years from May 25, 1925 and as long thereafter as oil or gas be produced from said land by the lessee. That the lessee drilled an oil well upon the leased premises, that the well produced oil in paying quantities, that said well was the only producer ever drilled on any part of the leased premises; that Rochmill continued the operations of the lease until May 21, 1932, at which time the production ceased. That for sometime prior...