Whitson Co. v. Bluff Creek Oil Co.

• Decision Date: 27 June 1956
• Docket Number: No. A-5286,A-5286
• Citation: 293 S.W.2d 488,156 Tex. 139
• Parties: WHITSON COMPANY, Inc., et al., Petitioners, v. BLUFF CREEK OIL COMPANY and R. H. Rucker, Jr., Respondents.
• Court: Texas Supreme Court

Page 488

293 S.W.2d 488

156 Tex. 139

WHITSON COMPANY, Inc., et al., Petitioners, v. BLUFF CREEK OIL COMPANY and R. H. Rucker, Jr., Respondents.

No. A-5286.

Supreme Court of Texas.

June 27, 1956.

Rehearing Denied Oct. 3, 1956.

Hassell & Hassell, Dallas, Stine & Stine, Henrietta, for petitioners.

Robinson, Shipp, Roberton & Barnes, Oklahoma City, Okl., Donald & Donald, T. B. Coffield, Bowie, for respondents.

HICKMAN, Chief Justice.

In the trial court judgment was rendered on the verdict of a jury in favor of Bluff Creek Oil Company and R. H. Rucker, Jr., against Whitson Company, Inc., for $35,000 and $8,000, respectively, for the negligent destruction of an oil well and the resultant loss of the lease upon which the well was drilled. That part of the judgment awarding recovery to Rucker of $8,000 was affirmed by the Court of Civil Appeals, and that part of the judgment in favor of Bluff Creek Oil Company for $35,000 was reversed, and the cause remanded. 278 S.W.2d 339. Both Whitson Company, Inc., hereinafter called Whitson Company, and Bluff Creek Oil Company, hereinafter called Bluff Creek, have filed applications for writs of error, Whitson Company contending that judgment should be rendered in its favor and Bluff Creek contending that the judgment of the trial court should be affirmed.

While there is practically no dispute in the testimony, and only elementary principles of law are involved, still the terms of the contracts forming the basis of the suit are so intricate and unusual that we have experienced difficulty in formulating an understandable statement of the case and are doubtful that we have succeeded in doing so. Our statement will be limited to such facts as are thought to be relevant to the issues presented in the applications.

On January 25, 1949 A. J. Harrell and others executed a mineral lease to R. H. Rucker, Jr., covering 87 acres of land in Montague County, retaining the usual 1/8 royalty. The term of the lease was for one year and as long thereafter as oil or gas or either of them was produced by the lessee. Thereafter, Rucker assigned the lease to Bluff Creek, retaining in himself 1/8 of the production from the lease, free and clear of the cost of drilling and production, the interest retained by him being known in oil circles as a 1/8 overriding royalty. Under the assignment Bluff Creek received an interest of 6/8 of the production. Thereafter, on June 4, 1949, Bluff Creek entered into a contract with White and Webb Drilling Company, by the terms of which the latter agreed to drill a well on the lease to completion, and Bluff Creek assumed certain obligations hereinafter stated. Under that contract drilling was commenced by White and Webb Drilling Company. On June 9, 1949, Bluff Creek and Whitson Company entered into a contract, the terms of which material to this decision were: Whitson Company agreed to assume the obligations of Bluff Creek under its drilling contract with White and Webb, which obligations were to pay the cost of drilling the well, to assign an oil payment to White and Webb, and to deposit $20,000 in a named bank. In consideration Bluff Creek agreed that prior to the completion of the well provided for in the contract it would assign and convey to Whitson Company 'the lease and leasehold interest,' subject to the terms of the drilling contract and to the reservation of the interest of Bluff Creek. The reserved interest was 1/16 of 6/8 of the oil produced from the well, less the sum payable on account of the oil payment to White and Webb. The contract further provided that when the full cost of drilling and completing the well should have been recovered by Whitson Company out of 15/16 of 6/8 of the production, then the full amount of pipe line runs to 6/8 of the production should be paid to Whitson Company 'until it shall have received a further sum equal to the amount theretofore received from the one-sixteenth of six-eights (1/16 of 6/8) by Bluff Creek. When such sum shall have been paid to Whitson Company, the property shall be jointly and equally owned and operated, and income therefrom and expenses of operation shall be borne equally by the parties.'

The contract makes reference to an oil payment to White and Webb Drilling Company, but it appears that Whitson Company purchased that, and no issue regarding same is in the case at this time. On August 31, 1949, in compliance with its obligation in the contract of June 9 'to assign and convey to Whitson Company the lease and leasehold interest,' Bluff Creek executed and delivered to Whitson Company an instrument styled 'Assignment of an Undivided Interest in Oil and Gas Lease.' The assignment recited that it assigned to Whitson Company 'an undivided fifteen-sixteenths (15/16) of six-eighths (6/8) interest in the proceeds from all oil, gas and other minerals * * *.' It provided that Whitson Company should receive that interest until it had been reimbursed for all sums expended in drilling and completing the well and all sums expended in its operation. It further provided that when all those sums had been reimbursed, Whitson Company should be entitled to receive the full 6/8 of the proceeds from the well until it had received a sum equal to that received by Bluff Creek from its overriding royalty of 1/16 of 6/8. When the net runs should thus be equalized, Whitson Company should receive 1/2 of 6/8 of the proceeds of the minerals produced from the premises and the excess interest assigned to Whitson Company 'shall automatically revert to Bluff Creek Oil Company without the necessity of the execution and delivery of additional instruments * * * and the parties hereto shall thereafter own the leasehold estate equally, subject to the overriding royalty interest reserved to R. H. Rucker, Jr.'

Thereafter, on October 13, 1949, Bluff Creek executed an instrument reciting the amount which had been expended by Whitson Company and agreeing that after the recovery thereof, plus operating costs, Whitson Company should receive 'out of fifteen-thirty-seconds of six-eighths (15/32 of 6/8) the additional sum of $18,577, together with one-half of the operating expenses of the lease during the effective period of this assignment.' That instrument contained these provisions:

'It is expressly understood and agreed that payments hereunder shall commence effective immediately upon the payment of the balance of the drilling and operating costs of the Fenoglio well as provided in the assignment heretofore executed, and shall continue until the sum due hereunder shall have paid, without interest.

'The assignment heretofore executed by Bluff Creek to Whitson Company provides for the equalization of payments to the parties respectively, Bluff Creek having reserved 1/16 of 7/8 (sic) as a direct payment to it during the discharge of the obligation for drilling and operating costs, and it is hereby agreed that the equalization of the account and the recovery by Whitson Company of the sums so paid to Bluff Creek shall be deferred until the full and final payment and discharge of the oil payment hereby created.

'Assignor, Bluff Creek Company, reserves the right at any time to reimburse assignee for all sums expended or advanced by it, as hereinabove provided, and thereupon to become vested with an undivided 1/2 interest in the oil and gas leasehold estate.'

That contract is a recognition by Bluff Creek that it and Whitson Company owned equal interest in 6/8 of the lease. To secure Whitson Company in the payment of an additional indebtedness of $18,577 Bluff Creek assigned to it the proceeds from the sale of 15/32 of 6/8 of the...