Wilson v. Sun Oil Co., 52764

• Decision Date: 20 August 1973
• Docket Number: No. 52764,52764
• Citation: 290 So.2d 844
• Parties: Dan McDonald WILSON et al. v. SUN OIL COMPANY et al.
• Court: Louisiana Supreme Court

Page 844

290 So.2d 844

Dan McDonald WILSON et al. v. SUN OIL COMPANY et al.

No. 52764.

Supreme Court of Louisiana.

Aug. 20, 1973.

Rehearing Feb. 18, 1974.

Ashton L. Stewart, Laycock, Stewart & Preis, Baton Rouge, for plaintiff-applicants.

Liskow & Lewis, by Austin W. Lewis, George C. Schoenberger, Jr., Thomas D. Hardeman, New Orleans and Lafayette, Dudley L. Guilbeau, Houston, Tex., Louis G. Shushan, New Orleans, E. Leland Richardson, Dale, Owen, Richardson, Taylor & Mathews, Baton Rouge, for defendants-respondents.

MARCUS, Justice.

Plaintiffs sued for cancellation of an oil, gas and mineral lease for the failure of the lessees to pay production royalties for an appreciable length of time without a justifiable excuse. The trial court dismissed plaintiff's suit and the Court of Appeal affirmed. ¹ We granted a writ of review. ²

Plaintiffs, Mrs. Bevelle Nabers Crane, curatrix of the interdict, Mrs. Nannie Sue Wilson Nabers, and Dan McDonald Wilson, each own an undivided one-half interest in a tract of land located in the Southwest Quarter of Section 33, Township 6 South, Range 8 East, in Pointe Coupee Parish. In 1961, they leased the minerals to Lewis Gottlieb. The land was described in the lease as containing 75 acres; however, the lease was later amended to read 75.39 acres. This lease will be referred to as the 'Gottlieb' lease. Subsequently, Gottlieb assigned the lease to Sun Oil Company and Marine Properties, Inc., and he purchased an overriding royalty interest. Sun Oil Company is the operator of the lease and, for convenience, we will refer to defendants collectively as 'Sun.'

All of the property affected by the Gottlieb lease was placed in a drilling unit by the Commissioner of Conservation by order effective December 1, 1966. The unit was designated as Sand Unit K. Sun commenced operations on this unit, and a well was successfully completed as an oil producer on June 22, 1967.

A copy of the survey plat of Sand Unit K, showing that the Gottlieb lease contained only 70.77 acres, was sent by Sun to the attorney for the plaintiffs in April of 1967. Thereafter, on July 28, 1967, Sun mailed to plaintiffs division orders showing their interest in Sand Unit K. These division orders were never signed by plaintiffs or returned to Sun. No complaint was made by plaintiffs to Sun as to their correctness or as to the correctness of the survey.

On August 31, 1967, two months and nine days after production, Sun mailed to plaintiffs checks covering their share of royalties on the unit production based on 70.77 acres. A second check was sent on September 25, 1967. The royalty payment to Mrs. Crane combined in a single check the royalties due her on production from Sand Unit K, both under the Gottlieb lease on the Southwest Quarter of Section 33 and under another lease on the Northwest Quarter of Section 33, hereinafter referred to as the 'Proctor' lease. At this time, Mrs. Crane was involved in litigation with Sun on the Proctor lease in which she was seeking cancellation of that lease for nonproduction. ³

These two checks were held by the plaintiff, Mrs. Crane or her attorney, until October 23, 1967. By letter of this date, the two checks were returned to Sun with the complaint that they appeared to combine royalty payments from both leases. Mrs. Crane took the position that her acceptance of such payment might jeopardize her then pending lawsuit for cancellation of the Proctor lease. In a separate letter of October 23rd, cancellation was demanded on the ground that royalties had not been paid as required by the lease. Sun thereupon issued separate royalty checks payable to Mrs. Crane dated October 27, 1967. In the transmittal letter accompanying these checks, Sun unconditionally offered plaintiff, Mrs. Crane, the right to cash the Gottlieb lease royalty checks without prejudice to her position in the litigation involving the Proctor lease.

On November 7, 1967, Mrs. Crane returned the Gottlieb royalty lease checks previously paid to her, stating that the Gottlieb lease had already been actively breached by the deliberate failure to pay the royalties due thereunder. The demand for cancellation made in the October 23rd letter was renewed. The November 7th letter raised for the first time the acreage dispute as to payment of royalties based on 70.77 acres rather than the 75.39 acres recited in the lease agreement.

The plaintiff, Wilson, made a similar demand for cancellation of the lease on November 20, 1967.

On July 3, 1968, plaintiffs filed this suit seeking cancellation of the Gottlieb lease. Thereafter, plaintiffs ascertained that Gottlieb had purchased an overriding royalty interest and by letter dated July 19, 1968, demand was made upon Gottlieb for cancellation. The plaintiffs then amended their petition on August 3, 1968 to include Gottlieb as a party defendant.

Plaintiffs contend that Sun actively breached the lease by: (1) tendering royalty payments based on only 70.77 acres, whereas the lease provided for payment on 75.39 acres; (2) tendering checks with the stipulation written thereon that acceptance of payment would constitute full payment, ⁴ thus making applicable the doctrine of accord and satisfaction; and (3) making such improper tender for a period of thirteen months. Plaintiffs contend that payment under these circumstances constituted a failure to pay production royalties for an appreciable length of time without justification, which amounted to an active breach of the lease. They further contend that, under R.S. 30:105 and 106, Sun was required to pay royalties to plaintiffs on all 75.39 acres, as set forth in the lease.

Defendants resist the demand for cancellation, contending that there was no active breach of the lease in that: (1) initial royalty payment was made on August 31, 1967, some two months and nine days after production or, at most, four months after production when separate checks covering the Gottlieb lease royalties were sent to Mrs. Crane; (2) the period of improper tender could only be considered up to their receipt of plaintiffs' letters of October 23, November 7 and November 20 of 1967, demanding cancellation of the lease; and (3) Sun had tendered royalty payments based upon its survey and had no knowledge of any acreage dispute until receipt of Mrs. Crane's letter of November 7, 1967, in which she demanded cancellation of the lease. Accordingly, defendants contend that, if there were in fact a breach under these circumstances, it was, at most, passive, requiring plaintiffs to place them in default prior to demand for cancellation; therefore, since plaintiffs never put them in default, this suit for cancellation should be dismissed.

In order to decide the merits of plaintiffs' claim for cancellation of this mineral lease, we must first determine whether defendants breached the lease contract and, if so, whether it was an active breach or a passive one, requiring the putting in default.

It is clear that, if there is an active violation of the obligations of a lease, no formal demand or putting in default is necessary. Article 1932 Civil Code. When the breach is a passive one, a putting in default is required. Article 1933 Civil Code.

Our jurisprudence has developed the rule that failure to pay production royalties under an oil and gas lease for any appreciable length of time without justification amounts to an active breach of such lease which entitles the lessor to a cancellation thereof without the necessity of placing the lessee in formal default. Bollinger v. Texas Company, 232 La. 637, 95 So.2d 132 (1957); Melancon v. Texas Company, 230 La. 593, 89 So.2d 135 1956); Fontenot v. Sunray Mid-Continent Oil Company, 197 So.2d 715 (La.App.1967), cert. den.; Sellers v. Continental Oil Company, 168 So.2d 435 (La.App.1964); Pierce v. Atlantic Refining Company, 140 So.2d 19 (La.App.1962), cert. den.; Bailey v. Meadows, 130 So.2d 501 (La.App.1961), cert. den.

However, in cases where the failure to pay production royalties is justified under the facts and circumstances, the breach is considered passive, requiring a putting in default. Broadhead v. Pan American Petroleum Corporation, 166 So.2d 329 (La.App.1964), cert. den.; Fawvor v. United States Oil of Louisiana, Inc., 162 So.2d 602 (La.App.1964), cert. den. See also Alvord v. Sun Oil Company, 271 So.2d 561 (La.App.1972) and Hebert v. Sun Oil Company, 223 So.2d 897 (La.App.1969).

Under the facts and circumstances of this case, we cannot say that there was an unreasonable delay without justification on the part of Sun for its failure to pay production royalties on 75.39 acres. Rather, the breach was passive necessitating the placing of Sun in formal default as a prerequisite to cancellation of the lease. The cases relied upon by plaintiffs in which there was an active breach of a lease are inapposite. ⁵

It should first be observed that this proceeding is one solely for the cancellation of a mineral lease. All parties concede that evidence introduced on the acreage issue was for the purpose of this litigation only. Consequently, it is unnecessary for us to determine the merits of the acreage dispute at this time.

Conceding a position most favorable to plaintiffs, i.e., that the payment of royalties on 70.77 acres was incorrect, this did not amount to an active breach under the facts and circumstances of this case. At most, this was a passive breach, which we will hereinafter demonstrate, requiring demand and a putting in default.

As previously stated, initial royalty payment was made on August 31, 1967, some two months and nine days after first production. A second check was sent on September 25, 1967. These checks were retained by Mrs. Crane or her attorney until October 23rd, at which time they were returned with the only complaint that the royalty payments on the Gottlieb and Proctor leases were combined instead of being separate. Promptly, Sun returned separate checks on October 27th. In any event, there was...