Whitson Co. v. Bluff Creek Oil Co.

• Decision Date: 18 March 1955
• Docket Number: No. 15600,15600
• Citation: 278 S.W.2d 339
• Parties: WHITSON COMPANY, Inc., et al., Appellants, v. BLUFF CREEK OIL COMPANY et al., Appellees.
• Court: Texas Court of Appeals

Page 339

278 S.W.2d 339

WHITSON COMPANY, Inc., et al., Appellants, v. BLUFF CREEK OIL COMPANY et al., Appellees.

No. 15600.

Court of Civil Appeals of Texas, Fort Worth.

March 18, 1955.

Rehearing Denied April 15, 1955.

Stine & Stine, Henrietta, and Hassell & Hassell and J. W. Hassell, Jr., Dallas, for appellants.

Robinson, Shipp, Robertson & Barnes, Okahoma City, Okl., Donald & Donald, and T. B. Coffield, Bowie, for appellees.

MASSEY, Chief Justice.

From a judgment entered in behalf of the owner of an 'overriding' royalty interest in one lease, and in behalf of the owner of the leasehold estate in it and another lease, for damages because of the destruction of the value of the leasehold estate and royalty interest, for conversion of property and equipment from said leases, including in part the restoration of property and in part for the value of property converted, and for injunctive and other relief, the defendants appealed.

Judgment affirmed in part and reversed and remanded in part.

Suit in the court below actually involved several causes of action, some of which did not have as parties plaintiff and defendant the same persons as in others. It is believed that the following explanation would be helpful.

R. H. Rucker, Jr., was an individual who occasionally dealt in oil and gas leases. He was an officer in a corporation called the Bluff Creek Oil Company, which corporation also dealt in oil and gas leases, and operated leases.

L. R. Whitson was an officer of O. W. R. Oil Company, a corporation, which owned and operated oil and gas leases, producing and selling oil and gas. L. R. Whitson, though having no official connection with another similar corporation, the Whitson Company, was personally interested in its welfare. The Whitson Company was primarily owned, operated and managed by the sons of L. R. Whitson, whom he was inclined to aid and guide toward successful and profitable business activities.

There were two parcels of real property in Montague County, Texas, which were under oil and gas leases to the Bluff Creek Oil Company. The first will be hereinafter termed the Fenoglio Lease, and the second, the Nabours Lease. These leases were neighboring, though not adjacent. The Nabours Lease was a full 7/8ths lease, but the Fenoglio Lease was a 6/8ths lease, being burdened with a 1/8 'overriding' royalty interest in R. H. Rucker, Jr., who retained such interest as a part of the compensation for the original transfer by him of the 6/8ths leasehold interest of Bluff Creek Oil Company.

Procedure was begun toward drilling an oil well on each of these leases. Whitson Company became interested in both projects and entered into negotiation of contracts whereby it acquired certain rights to the oil produced, saved and sold from any well or wells on them, and also acquired certain rights in the leasehold estates held by Bluff Creek Oil Company.

The Fenoglio Lease.

Bluff Creek Oil Company and Whitson Company entered into a contract on August 31, 1949, the material provisions of which included the following language:

'Now, Therefore, for and in consideration of the sum of one dollar ($1.00) and other good and valuable considerations, the receipt of which is hereby acknowledged, Bluff Creek Oil Co. does hereby bargain, sell, transfer, and assign and convey unto Whitson Company, Inc., its successors and assigns, an undivided fifteen-sixteenths ( 15/16ths) of six-eighths ( 6/8ths) interest in the proceeds from all oil, gas, casinghead gas and other minerals produced, saved and sold under the terms of the above described oil and gas lease.

'This assignment is made subject to the following terms and conditions:

'1. Assignee * * * shall be entitled to receive fifteen-sixteenths ( 15/16ths) of six-eighths ( 6/8ths) of the proceeds of the oil, gas, casinghead gas and other minerals produced, saved and sold from the above described land until such time as it has been reimbursed, for all sums expended by it in drilling and completing the well now located upon the above described premises, including sums advanced by it for the excess cost of seven-inch casing used in said well, and all sums expended by it in the operation of said well, * * *.

'2. At such time as said Whitson Company, Inc. shall have been reimbursed for all sums expended and advanced by it, as set out in paragraph No. 1, it shall be entitled to receive the full six-eighths ( 6/8ths) of the oil, gas, casinghead gas and other minerals produced, saved and sold from the above described land until it has received a sum equal to the sums received by Bluff Creek Oil Co. from the one-sixteenth ( 1/16th) of six-eighths ( 6/8ths) interest retained by it in this assignment.

'3. When the net returns to the parties hereto have been equalized, as above provided, then and thereafter Whitson Company, Inc. shall be entitled to receive one-half of six-eighths ( 1/2 of 9/8ths) of the oil, gas and other minerals produced, saved and sold from the above described premises, and the excess interest herein assigned to said Whitson Company, Inc. * * * and Bluff Creek Oil Co. shall thereafter be entitled to receive one-half of six-eighths ( 1/2 of 6/8ths) of the oil, gas and other minerals produced, saved and sold from the above described land, and the parties hereto shall thereafter own the leasehold estate in equal one-half ( 1/2) shares, subject to the overriding royalty interest reserved by R. H. Rucker, Jr. * * *.

'4. Assignor, Bluff Creek Oil Co., 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 one-half ( 1/2) interest in the oil and gas leasehold estate, subject to the overriding royalty interest referred to above.

'To Have and To Hold the rights and interests herein assigned unto the said Assignee, its successors and assigns, pursuant to the terms and conditions of the oil and gas lease above described and of the prior assignment hereof.'

Pursuant to this contract, drilling was either begun or completed at Whitson Company's expense, and upon the completion of the well, operations incident to the production of oil were conducted,-the expense of which Whitson Company paid according to the provisions of the contract.

Our view of this transaction between the Bluff Creek Oil Company and Whitson Company in regard to the Fenoglio Lease is that Whitson acquired thereby a right, analogous to that of an option, to acquire an undivided one-half interest in and to the six-eighths title of Bluff Creek Oil Company to the oil and gas in place under the lease, and an undivided one-half interest in and to all the interests Bluff Creek Oil Company might otherwise be considered to own, such as its rights to use the surface in the search for and production of oil, etc. An option passes no title but is an executory contract prescribing conditions upon the occurrence of which an optionee may become entitled to demand passage of title. 37 Tex.Dig., Vendor and Purchaser, k3(4). Of course, in the present instance, by express agreement, title was prescribed to automatically pass upon the performance of the conditions precedent.

Of Couse, whether from the production of the well in question, or from it along with other wells which might have been drilled through Bluff Creek Oil Company's right to do so, under the terms of its leasehold interest acquired from R. H. Rucker, Jr., the Whitson Company had the right to take into its possession all the oil produced and saved, subject to the right to Rucker and the primary royalty owner, and to sell it on the market. It had the right to retain 15/16ths of the amount (which but for the contract and services of Whitson Company under the contract would have belonged to Bluff Creek Oil Company) yielding up to Bluff Creek Oil Company only 1/16th thereof. However, this 15/16ths was to be credited to expense, which-but for the contract-would have been the expense of Bluff Creek Oil Company. But for the unfortunate circumstances hereinafter related, it would have been expected that continued application of the said 15/16ths of such proceeds received from the sale of the oil produced and saved would have eventually made Whitson Company whole. With such done, supplemented by a short period of time during which the Whitson Company would take the entire proceeds (which but for the contract would have gone to Bluff Creek Oil Company) until it was reimbursed further the amount of the cumulative 1/16th payments made to Bluff Creek Oil Company, Whitson Company would have become, in the manner provided, the owner of one-half of the whole interest theretofore owned and possessed by the Bluff Creek Oil Company.

From the date of the contract, by virtue of the fact that Whitson Company assumed certain obligations of Bluff Creek Oil Company, thereby relieving the latter of these obligations, the Bluff Creek Oil Company's leasehold estate and interest became burdened with those rights provided by the contract to belong to Whitson Company until that day contemplated when Whitson Company and Bluff Creek Oil Company would become joint owners of the leasehold estate of the latter in and to the Fenoglio Lease. In other words, it is our opinion that the value of the leasehold estate of Bluff Creek Oil Company at any particular date in the interim period would not be the value of the same in the ordinary case. Rather would such value be the value of the leasehold estate as burdened with the rights of the Whitson Company. Had Bluff Creek Oil Company sold such interest it had during this period, the interest sold would have been subject to Whitson Company's rights, and it goes without saying that a prospective purchaser would have insisted upon a substantial reduction in price, knowing that 15/16ths of the proceeds from the sale of the oil were being kept by the Whitson Company and applied upon its contract with Bluff Creek Oil Company,-and knowing...