Texas Pacific Coal & Oil Co. v. Barker (6 S.W.2d 1031, 1928)

GREENWOOD, J.

Defendants in error Mrs. Suda Barker, M. H. Pickering, and W. M. Pickering sued plaintiffs in error Texas Pacific Coal & Oil Company and 31 others to recover from tlie Coal & Oil Company $100,-000 in damages, and for specific performance of a contract for the mineral development of a tract of 112 acres of land. The petition on which the judgment was sought is so vague that a full statement thereof is necessary. The petition alleged, that, since December 31, 1919, the defendants in error Mrs. Suda Barker, M. H. Pickering, and W. M. Pickering, together with Bascom Morton, Leona Morton, H. B. Lane,L. O. Harlow, R. L. Gat-tis, Mary Boland, F. S. Boland, W. T. Gat-tis, Earl Gattis, B. P. Cozart, J. H. D. Fleming, W. P. Ledbetter, J. F. Ledbetter, C. A. Gattis, Will Slatton, W. T. Rutherford, J. M. Slatton, J. C. Galloway, Mrs. M. O. Jobe, Marvin Brown, L. G. Haslip, Mrs. Maggie O. Foat, A. L. Styles, R. H. Clem, W. L. Mansfield, J. B. Reed, C. A. Donovan, Mattie Hodges, Dallas Hodges, O. E. Cooper, and the Four Square Investment Company were “joint owners in fee simple of the mineral right of” a described 112-acre tract of land; that on December 31, 1919, all parties to the suit, except plaintiff in error, “did make, execute, and deliver a certain contract to the defendant Texas Pacific Coal & Oil Company with reference to the operation and development of said above 112-aere tract of land for oil and gas purposes — the said defendant Texas Pacific Coal & Oil Company, having a lease upon said 112 acres of land, together with a lease upon 16 acres” off the south half of three certain tracts of land, which embraced said 112 acres as their north half, “said 16 acres being a strip of land 37 varas wide and 2,324 varas long, running the long way east and west off of the north side' of the south half of the hereinbefore described three tracts of land”; that the plaintiff in error “agreed that, if both tracts of land should be thrown together, and be treated as constituting only one tract of land consisting of 128 acres, the said Texas Pacific Coal & Oil Company would agree immediately to test and develop said 128 acres of land for oil and gas purposes”; and thereupon the parties to the suit other than the Texas Pacific Coal & Oil Company did enter into a contract with said company on December 31, 1919, to that end, one of the provisions of such contract being:

“As a further consideration for the execution of this merger agreement, the Texas Pacific Coal & Oil Company hereby agrees that within 30 days from the date of the delivery of this merger agreement to W. J. Oxford, General Attorney for the Texas Pacific Coal & Oil Company, duly executed by all parties hereto that it will begin actual drilling of a well for oil and gas on some portion of said merged premises and will prosecute said drilling with reasonable diligence until oil or gas is obtained in paying quantities or until such depth has been reach as should obtain oil or gas in the Ranger field, taking into consideration the depth of other producing wells in said section of the county. And it further agrees that it will give due protection to said merged tracts of land against all offset wells drilled on adjacent property near enough to require an offset on these merged tracts, and it further agrees that it will dedicate at least one string of tools to the development of said merged tracts, and will keep the same operating until the said tract of land is developed, or until sufficient proofs have been made on said tract of land as to convince the said lessee that other portions of it are dry and unworthy of further tests.”

It was further alleged that plaintiff in error drilled a paying well on said merged tract of land which has produced 3,000,000 cubic feet of gas per day since the- day of -, in the year 1920; that after drilling said well, plaintiff in error moved away its drilling equipment and tools, and since failed and refused to further dirill or test the land, or to permit any other person to drill or test the land, notwithstanding the oil and gas in the land was being drained away by numerous, specified wells within short distances of the land — all in violation of the express and implied covenants of the lease binding plaintiff in error to fully develop the oil and gas in said premises and to protect the minerals on said premises from, drainage from nearby wells on adjacent lands — that all other parties sued, save plaintiff in error, “were madp parties hereto because of said defendants owning some royalty interest in said merged tract of land, but in this connection plaintiffs say that their interests and the interests of defendants are divisible and separated, and these plaintiffs are not suing for damages on. behalf of said other defendants, but merely made said defendants parties in order that delay might not be had in the trial of this suit by the defendants claiming that they are neeessáry parties, and in this connection plaintiffs say that this is a suit merely for damages for and on behalf of the plaintiffs as to their particular interests in said merged tracts of land and for failure to properly develop and protect same”; that “the, plaintiff Mrs. Suda Barker owns an undivided —- interest in and to the minerals lying in and under said merged tracts of land; that the plaintiff W. M. Pickering is the owner of an undivided-interest in and to the minerals lying in and under said merged tracts of land; that the plaintiff M. H. Pickering is the owner of an undivided-interest in and to the minerals lying in and under said merged tracts of land, all of said interests being subject to the oil and gas lease owned and held by the Texas Pacific Goal & Oil Company.”

The prayer of the petition was for judgment against plaintiff in error for “the sum of $100,000 as damages because of said defendant Texas Pacific Coal & Oil Company’s failure to develop and operate said premises for oil and gas purposes and for failure to prevent the drainage of plaintiffs’ land as aforesaid up to tbe trial of this cause; and plaintiffs further pray that, upon final hearing hereof, said defendant be decreed and required to specifically perform its covenant, contract, and agreement to drill offset wells upon plaintiffs’ premises; that it be required by order and decrees of this court to at once begin drilling of such wells offsetting the well on the T. E. Davis tract; the two wells on the Gates Oil Company 25-acre tract; and one well on the Tex-Rickard Oil Company 22%-aere tract; and one well on the W. W. Crab tract, and for the drilling of such other and further wells as the court in its discretion may adjudge that said defendant should be in equity and good conscience bound to drill in order to perform its obligations to diligently develop said tract of land, and for general and special relief at law or in equity.”

Plaintiff in error specially excepted to this petition upon the ground that it failed to state a cause of action for damages for failure to properly develop the oil and gas on the 112 acres, in that the petition “fails, with any degree of certainty to allege the extent and nature of the development required,” kand in that the petition “fails to allege with any particularity the drainage of oil and gas from said premises, or the amount thereof and its value.”

Further answering, plaintiff in error filed a general denial, a plea of not guilty, and a special plea averring that on March 13, 1917, one W. T. Barker and wife, Suda Barker, executed and delivered to plaintiff in error an oil and gas lease on the 112 acres of land for a period of seven years from its date, which lease provided for an annual rental of $1 per acre per annum, less royalties, and an oil royalty of one-eighth of the oil produced and saved, and a gas royalty of 10 per cent, of the market price at the wells of gas sold; that in September, 1918, Leona Martin and Bas-com Martin executed and delivered to plaintiff in error an oil and gas lease on an adjacent 16 acres of land, which lease provided for an annual rental of $4.50 per acre per annum, less royalties, and an oil royalty of one-eighth of the oil produced, and a gas royalty of 10 per cent, of the market price of gas sold; that on April 12, 1920, there was delivered to plaintiff in error by W. T. Barker, Suda Barker, Leona Martin, and Bascom Martin and other interested parties a contract of merger of said two tracts of land, and of said lease, whereby the tracts were merged for development and royalty purposes, and whereby it was provided, among other things, that plaintiff in error would, within 30 days, commence the drilling óf A well on said merged premises, and would diligently prosecute such drilling until the well was completed, and that it would dedicate to said merged premises one string of standard tools until the land was fully developed or until' sufficient proof had been made on said tracts of land as to convince plaintiff in error that the other portions were dry and unworthy of tests; that plaintiff in error had drilled a well and discovered gas, and that from its own drilling and from other drilling on adjacent territory plaintiff in error “was and is of the opinion that the said premises are dry and unworthy of further tests”; and that plaintiff in error has paid all annual rentals and gas royalties promised in the leases.

The exceptions of plaintiff, in error were overruled. The case was tried before a jury, and a verdict and judgment were rendered against plaintiff in error for $60,000 damages, and a decree for specific performance was entered requiring plaintiff in error to drill five additional wells on the merged tracts. On appeal, this judgment and decree were affirmed. (Tex. Civ. App.) 252 S. W. 809.

The special exceptions should have been sustained which challenged the sufficiency of the petition in so far as damages were sought for plaintiff in error’s failure to drill wells either to offset producers on adjacent lands or to secure further oil and gas production from the leased premises.

Looking at the averments of both the petition and answer, the pleading is silent as to the specific fraction of oil and gas to which any plaintiff was to become entitled under the contracts sued upon. The pleading is silent with respect to the amount or value of oil or gas drained from the premises through wells on adjacent tracts, and with respect to the amount or value of oil or gas which would have been produced by plaintiff in error in the exercise of ordinary diligence. In the absence of such averments, no cause of action was stated for the recovery of damages by the plaintiffs in any amount.

The rule which permits a lessor- to recover damages for a lessee’s breach of covenant to protect or develop oil or gas land rests on the assumption that it can be shown with reasonable certainty that the lessor has been deprived of the value of his portion of at least a certain quantity of oil or gas, worth a certain amount, which the lessee would have produced had he -exercised proper diligence. Summers’ Oil and Gas, § 139, p. 449.

In Blair v. Clear Creek Oil Company, 148 Ark. 301, 311, 230 S. W. 289, 290 (19 A. L. R. 430), the court said:

“The lessee under the facts disclosed by the record is liable .to the lessors for their proportionate share of the gas taken by the wells drilled so near their boundary lines as to draw off the gas underneath their land. There is no reason why it cannot be ascertained with reasonable certainty what quantity and quality of gas has been and will be taken from appellants’ land through the wells drilled and operated by appellee on the adjoining land. Culbertson v. Iola Portland Cement Co., 87 Kan. 529, 125 P. 81, Ann. Cas. 1914A, 610. * * * Because the nature of the inquiry makes it practically impossible to ascertain with certainty the exact amount of the lessor’s damage is no reason why the lessor should not have an action for damages for the breach of the implied covenant. It is true the law does not permit a witness to speculate or conjecture as to probable damages; yet experienced persons who are acquainted with the gas-bearing conditions of the lands in the locality of the leased premises can give an opinion as to the amount of gas drawn off the premises and lost by the failure of the lessee to comply with its implied covenant. The rule is that, while the law will not permit witnesses to speculate or conjecture as to possible or probable damages, still the best evidence of which the subject will admit is reasonable, and there is often nothing better than the opinion of well-informed persons upon the subject under investigation. 3 Chamber-layne on Modern Evidence, §§ 2381-2332, and St. L., I. M. & S. Ry. Co. v. Brooksher, 86 Ark. 91, 109 S. W. 1169. Erom the evidence already taken it would seem that the gas producing on the leased premises and the land adjacent thereto is of uniform character, and that expert witnesses can with a reasonable amount of certainty tell the amount of gas that will be drawn from the leased premises by the wells dug near the boundary line by the lessee on the adjacent premises. When the amount of gas that will be drawn from the leased premises is ascertained, the amount of damages to be recovered can be readily fixed by the royalty that the lessor was to receive.”

The vendor of one Sherman Culbertson gave a gas lease on a tract of land in consideration of $50 annually for each well on the land from which gas was produced and for the further consideration of one-eighth of all money received from the sale of gas. Such vendor having assigned his rights to Culbertson, the latter sued the Iola Portland Cement Company and another who had acquired the rights of the original lessee for damages for failure to pay for gas produced, and also for failure to pay for gas taken from the premises through wells drilled on adjoining lands. The petition averred that two producing gas wells were developed on the leased premises, and that, while Culbertson could not state the amount of gas taken from the land, yet that, by means of the two producing wells, and by means of drainage from wells on adjacent tracts, the defendants had taken each day more than 3,000,000 cubic feet of gas worth 3 cents per thousand cubic feet. In affirming a judgment in favor of Culbertson for damages in the sum of $2,252.47, the Supreme Court of Kansas said:

‘‘Nor is there any reason why appellee was not entitled to show the quantity of gas taken from his land through wells drilled on adjoining lands. It was reasonably well established that there was a pool of gas under appellee’s land which extended under adjoining lands on which appellants had wells that were being operated. It is clear that the taking of gas from these wells would drain that underlying the land of appellee. * * * According to the findings appellants failed to develop the land in such a way as to give appellee his* proportionate share of the gas produced from the pool, and that to have done so would have required the sinking of at least another well. Having failed in this respect the appellee is entitled to recover his share of the gas actually taken from his land without regard to which side of the line the wells through which it was taken were sunk. The quantity so taken appears to have been fairly well established by the evidence. In Howerton v. Gas Co., 82 Kan. 367, 108 P. 813 [34 L. R. A. (N. S.) 46], it was said: ‘No reason is shown why witnesses of experience, acquainted with the gas field, may not testify with reasonable accuracy as to the number of wells which should-have been drilled on the leased land, both for protection from drainage by neighboring leaseholders and to obtain the gas underneath the land.’ Nor is there any reason why witnesses could not as well testify with reasonable accuracy as to the quantity of gas obtained from the wells.” Culbertson v. Cement Co., 87 Kan. 534, 535, 125 P. 81, 83 (Ann. Cas. 1914A, 610).

The amount and value of oil or gas production, obtained or obtainable through reasonable diligence, must be definitely alleged,'and must be proven with reasonable certainty before damages may be allowed for breach of an express or implied covenant to continue the production of oil or gas, whether such damages result from failure to pro-, duce oil or gas or from loss of same by drainage.

Macon v. Trowbridge, 38 Colo. 335, 87 P. 1148, was a case where damages were sought for failure to produce ore, as required by the mining contract. In that case, the court said:

“The failure, therefore, of the lessee to work and develop the property as provided rendered him liable for such damages as the appellants could show they suffered by reason of such failure. The amount of such recovery, if any, would depend upon the amount of ore that could have been mined, if reasonable diligence had been exercised, and its value.”

The Court of Appeals of New York, in an opinion by Justice Peckham, which has been quoted approvingly by the Supreme Court of the United States, gave the reason for not permitting a defendant to escape liability for the breach of covenants like those here involved because of difficulties necessarily encountered by a plaintiff in proving his damages. In Justice Peckham’s opinion it is said:

“In using the words ‘uncertain, speculative and contingent,’ for the purpose of excluding that kind of damage, it is not meant to assert that the loss sustained must be proved1 with the certainty of a mathematical demonstration to have been the necessary result of the breach of covenant by defendant. The plaintiff is not bound to sho.w to a certainty that .excludes the possibility of doubt that the loss to him resulted from the action of the defendant in violating his agreement. In many cases such proof cannot be given and yet there might be a reasonable certainty founded upon inferences legitimately and properly dedueible from the evidence that the plaintiff’s loss was not only in fact occasioned by the defendant’s violation of his covenant, but that such loss was the natural and proximate result of such violation. Certainty to reasonable intent is necessary, and the meaning of that language is that the loss or damage must be so far removed from speculation or doubt as to create in the minds of intelligent and reasonable men the. belief that it was most likely to follow from the breach of the contract and was a probable and direct result thereof. Such a result would be regarded as having been within the contemplation of the parties and as being the natural accompaniment and the proximate result of the violation of the contract. * * * The proof may sometimes be rather difficult upon the question whether the damage was the just or proximate result of the breach of the covenant. In such case it does not come with very good grace from the defendant to insist upon the most specific and certain proof as to the cause and amount of the damage when he has himself been guilty of a most inexcusable violation of the covenants which were inserted for the very purpose of preventing the result which has come about.” U. S. T. Co. v. O’Brien, 143 N. Y. 288, 38 N. E. 267; Hetzel v. B. & O. Railroad, 169 U. S. 38, 18 S. Ct. 255, 42 L. Ed. 648.

However, the fact that the plaintiff is relieved in cases of this character from making his proof with mathematical certainty does not relieve him from averring the facts on which his right to recover is grounded. The Supreme Court of West Virginia held in Todd v. Light & Heat Company, 90 W. Va. 45, 110 S. E. 448, that allegations were altogether too general and indefinite to warrant recovery of damages or to warrant the cancellation of a lease where no facts were averred, “except that the tract of land containing 124 acres lies within a gas producing section, is surrounded "by producing wells owned by the Manufacturers’ Light & Heat Company, has been drilled to the extent of only one welt and would be further drilled by another company, if permitted by the operator.”

The defect in the petition under consideration is not in failing to plead a measure for plaintiffs’ damages. The defect arises from the omission of allegations of facts essential to the statement of a cause of action for damages. The petition avers nothing on which to ground the prayer for $109,000 damages, save that the plaintiffs were parties to a contract which required the protection and development by plaintiff in error of certain oil and gas deposits in which plaintiffs had undefined and unstated interests; that such development had been withheld; and that large, unstated amounts of the gas and oil, of unstated values, had been lost through drainage from wells on adjacent lands.

The language of the contract lends no support to plaintiff in error’s contention that it was under no obligation to protect the leased premises from drainage through wells previously drilled on adjacent tracts. It is manifest that the fact that producing wells were already in existence on adjacent lands furnished an emergent necessity for requiring plaintiff in error to expressly obligate itself “to give due protection to said merged tracts of land against all offset wells drilled on adjacent property near enough to require an offset on these merged tracts.” -The single test determining whether plaintiff in error was obligated to sink an offset well was whether reasonable care required such offset in view of conditions at and after the date of the contract.

In so far as the contract expressed-the obligation of plaintiff in error to develop gas or oil, upon discovery of same in paying quantities, such obligation embraced; First, the duty to give “due protection” against wells on adjacent property near enough to re-' quire offset wells; and, second, the duty to keep at least one string of tools in operation until the land was developed, provided drilling might be discontinued upon suffieieait proofs toeing made on the merged, tracts to convince plaintiff in error that the untested portions of such tracts were dry and unworthy of further tests. Until proofs had been made on the untested area and had convinced plaintiff in error of the unproductive character of same, there could be no discontinuance of operations by plaintiff in error, regardless of its good faith, without breach of the express covenant for continuous drilling operations. The contract being silent as to the care with which such operations should be carried on, the law required same to be conducted with reasonable care; that is, with ordinary care. With the contract requiring “due protection” against drainage, as well as requiring the continuance of drilling operations until full development of the minerals, and with the contract silent as to how such protection was to be given, as it was silent as to how continued drilling operations were to toe conducted, the law exacted of plaintiff in error in both particulars the same ordinary care. As accurately enunciated by Summers:

“Whenever a duty to perform an act or series of acts is fixed by contract or implication of law, and the time, manner, and extent of performance is not fixed, the law implies that such, act or acts shall be performed within a reasonable time and with reasonable diligence. Where, therefore, oil and gas leases do not state the time, manner, and extent of performance of express and implied duties to test, develop, and protect the land and market the pr.oduct, the courts have of necessity tested the lessee’s performance by the standards of reasonable time and reasonable diligence.” Summers’ Oil & Gas, § 132, p. 424.

The Supreme Court of Texas has never approved the view, prevailing in some jurisdictions, that the lessee’s judgment, exercised in good faith, is conclusive on whether the lessee has performed the obligations, expressed or implied in the usual oil or gas lease, relative to oil or gas production' and protection. In Grubb v. McAfee, 109 Tex. 531, 212 S. W. 465, the conclusion of the Commission of Appeals was declared to be correct “that the law implied the obligation from defendant in error to eweroise reasonable