Guardian Trust Co. v. Brothers

59 S.W.2d 343, 1933 Tex. App. LEXIS 579

• Court: Court of Appeals of Texas
• Decided: April 7, 1933
• Docket: No. 1088
• Status: Published

Opinions

HICKMAN, Chief Justice.

On June 29, 1926, appellants Guardian Trust Company and Mrs. Ella M. Corbett, joined by her husband, W. C. Corbett, executed an oil and gas lease covering 120 acres of land in Eastland county to L. F. Brothers, of which the following is all that is material to a decision of this case:

“That Guardian Trust Company, a Texas corporation domiciled in Houston, Texas, and Mrs. Ella M. Corbett, joined pro forma by her husband W. C. Corbett, both of Brazoria County, Texas (said above named parties being hereinafter referred to as ‘Lessors’), in consideration of the covenants and agreements hereinafter specified, .do hereby lease unto L. F. Brothers of the post office of Desdemona, Texas, (hereinafter called ‘Lessee’) the following described land. * * *

“The purpose of this lease is such that so long as it remains in force the Lessee shall have the exclusive right to prospect and drill on said land for oil, gas, and other minerals and remove the same therefrom; to erect and maintain thereon and remove therefrom all necessary or proper structures and equipment, including the right to pull easing from abandoned wells; and to install and maintain thereon and remove therefrom all tanks and other means of storage, and all pipes and other means of transportation; with full right of ingress and egress at all times for any of said purposes. And subject to the, royalties hereinafter reserved, all of the oil and gas in and under said land is hereby granted and conveyed to Lessee. * * *

“Lessee binds and obligates himself to commence a well for oil and gas on said land within sixty (60) days from the date of this lease, and to prosecute operations thereafter on said well with due diligence, in a faithful effort to discover and produce oil or gas in paying quantities, said well to be drilled to the general depth of the Desdemona sand, estimated to be about 2800 feet in the part of the field where said leased land is located, unless oil or gas in paying quantities be found and produced at a lesser depth.

“Should said first well be completed as a dry hole, the Lessee shall, nevertheless, have the right to continue efforts to discover and produce oil in paying quantities and may drill as many other wells as he pleases, (provided that until the discovery and production of oil in paying quantities not more than sixty (60) days elapses between the completion or abandonment of one well and the commencement of operations on another), and provided all such operations are conducted with reasonable diligence when begun; but if, prior to the production of oil or gas in paying quantities, more than sixty days should elapse after the completion or abandonment of one well before the commencement of another well, or if operations once begun on any well should not be conducted with reasonable diligence, this lease shall thereupon terminate, and the mineral estate hereby granted shall revert to Lessors.

“If oil or gas should be found and produced in paying quantities from said first or any subsequent well drilled on said land in accordance with the provisions hereof, then this lease shall remain in fqrce and effect so long as oil, gas, or other minerals are produced from said land in paying quantities, or so long as Lessee is engaged in good faith and with reasonable diligence in drilling operations on said land, or in endeavoring to bring back wells to production.

“Having discovered oil or gas in paying quantities, the Lessee shall thereafter be obligated to proceed with due diligence to the reasonable development of said leased premises ; and if at any time during the life of this lease there should 'be brought in On adjoining land a well producing fifty barrels of oil or more for thirty consecutive days, or a well producing gas in paying quantities, Lessee shall thereupon with reasonable diligence begin and prosecute the drilling of an offset well on the leased land in a faithful effort to reach the strata from which the well on said adjoining tract is producing, and to obtain a producing well on the land hereby leased, offsetting said well on adjoining tract.”

Brothers did not perform any of the covenants therein contained, but wholly breached the same. Appellants instituted this suit against him for damages for breach of the covenant to drill a well on the land covered by the lease.; A plea of intervention was filed' by James A. Baker, Edwin B. Parker, H. M. Garwood, Jesse Andress, C. R. Wharton, C. L. Carter, W. H. Walne, and J. H. Tallichet, the then members of the law firm of Baker, Botts, Parker & Garwood, of Houston, alleging that they were the real and true beneficial owners of an undivided two-thirds interest in the tract of land covered by the lease; that Mrs. Ella M. Corbett and her husband, W. C. Cor-bett, were the owners of the other undivided one-third interest; and that the legal title to the interest of the interveners stood in the name of Guardian Trust Company for convenience. In their plea they ratified and confirmed the lease contract, adopted the suit as their own action, and prayed that it proceed in the name of Guardian Trust Company the same as if it had been originally instituted in the name of the interveners.

It is not necessary to give a detailed statement of appellants’ pleadings for they have clearly and fairly interpreted them in their brief in this terse language: “The rdal question for decision, so far as plaintiffs’ right to recover under their pleadings is concerned, is as follows: Was the reasonable cost of drilling the well the correct measure of damages for breach of the contract? If it was not, the plaintiffs, under their pleadings, were not entitled to recover. If it was, then judgment should have been in their favor for the sum of $S,000.00, the agreed cost of drilling the well contemplated by the contract.”

The case went to trial before the court without a jury and in its development appellants offered the following evidence: (1) The lease; (2) a written agreement signed by attorneys that the actual cash value or cost of drilling the well in question as contemplated by the'contract sued upon, at the time that same was to be drilled on the land in question, would have been $8,000; and (3) an agreement in open court that Brothers never commenced the drilling of a well within sixty days after the date of the contract and has never drilled a well on the land in question, : and that the lease involved in the suit was ,prepared by the firm of Baker, Botts, Parker ⅛ Garwood, interveners. No other evidence was offered by appellants.

Appellee offered evidence designed to show that the lease had no market value at the date the contract was made, and that drilling would not have resulted in the discovery of oil or gas in paying quantities. We do not find it necessary to evaluate appellee’s evidence, as it is not to control in the disposition of the case.

After appellee rested, appellants introduced in rebuttal certain correspondence passing between the parties, and the case was submitted to the court. Upon this evidence judgment was rendered that the plaintiffs take nothing, and this appeal followed.

As stated by appellants in their brief, if the cost of drilling an oil well at the time appellee breached his contract is not the correct measure of their damages, then the judgment was properly rendered against them, for they neither pleaded nor proved any other damages. In determining this question it is necessary to keep in mind the universally recognized rule that, for breach of contract the injured party is entitled to have the value to him of its performance, and, in awarding compensatory damages, he should be put as near as possible .in the same position as that in which he would have been put by performance. The rule is stated in 17 C. J. § 168, pages 848, 849, in this language: “But a plaintiff is not to be put in a better position by a recovery of damages for the breach of a contract than he would have been in if there had been perf ormance.”

Our Supreme Court, speaking through Justice Greenwood, in Texas Pacific Coal & Oil Company v. Barker, 117 Tex. 418, 6 S.W.(2d) 1031, 1037, 60 A. L. R. 936, states the same thought in this language: “The purpose of the law to give compensation for breach of contract is subserved by allowing the injured party to have the value to him of the contract’s performance.”

If this well-established and fundamentally sound rule is to be applied to a contract for the drilling of an oil well, then the question arises, would $8,000 have been the value to appellants of performance, or, stated differently, would the payment to appellants of $S,000 put them in the same position that they would have been put had the well been drilled? The answer to that question is not difficult. The true and ultimate purpose of all parties to the lease was “the mutually profitable production of oil, gas, or other valuable mineral.” Texas Co. v. Davis, 113 Tex. 321, 264 S. W. 304, 308, 255 S. W. 601. No other value to appellants than the value of the royalty was contemplated. The land was situated in an oil field and three wells had been drilled on this very tract a few years before this lease was executed. The royalty was one-eighth of the oil and a like proportion of the proceeds of the sale of gas. Its value might have been substantially more than $8,000 and it might have been substantially less. The only way to put appellants in the position they would have been put by performance would be to award them damages measured by the value of their royalty. The burden was upon them to establish that value, but they offered no evidence thereof. There is no more reason to fix that value at $8,000 than there is to fix it at $10,000 or $2,-000. To do so would be to hold that the measure of damages for the breach of a contract is not the value of performance to the obligee, but -is the cost of performance to the obligor.

Suppose these appellants had been the owners of a vacant lot in the town of Desdemona, near which the land covered by this lease is situated, and had entered into a contract with appellee, under the terms of which appellee agreed to erect a building thereon according to certain specifications and to pay appellants one-eighth of the gross revenues to be derived from renting the building, and that the contract had provided that appellee should have the right to remove the building at the expiration of the lease, placing the land in as good condition as it was before the lease was given. Then suppose that appellee had failed-to erect the building. Would it be seriously contended that appellant’s measure of damages for the breach of that contract would be what it would have cost to erect the building? We think not. The loss or injury actually sustained by the obligee, rather than the cost of performance by the obligor, is the proper measure of damages for the breach of a contract. When that well-established rule is departed from, compensatory damages become either punitive' damages, because too much, or inadequate damages, because too little, and the fundamental purpose of compensatory damages is lost sight of.

We can see no just reason for departing from the well-established rule of law for measuring damages simply because the contract relates to the sinking of an oil well. The fact that the nature of the contract is such as to render it impossible to ascertain with mathematical accuracy the exact amount of the damages suffered by the lessor should not operate to change the rule. The parties knew that difficulty inhered in the subject about which they were contracting, but chose not to stipulate for liquidated damages. This question is fully discussed in Texas Pacific Coal & Oil Co. v. Barker, supra. See, also, 13 Tex. Jur., pages 78, 79.

In Restatement of the Law of Contracts by the American Law Institute, vol. 1, p. 576, § 346, the following illustration is given of the application of the general rule for measuring damages: “A contracts with B to sink an oil well on A’s own land adjacent to the land of B, for development and exploration purposes. Other exploration wells prove that there is no oil in that region; and A breaks his promise to sink the well. B can get judgment for only nominal damages, not the cost of sinking the well.”

We are unable to distinguish the instant case from' the case of Texas Pacific Coal & Oil Co. v. Barker, supra. In the latter ease ’the lessee covenanted: (a) To begin the actual drilling of a well within thirty days; (b) to prosecute the drilling with reasonable diligence; (c) to give due protection against offset wells; (d) to dedicate at least one string of tools to the development of the tract; and (e) to keep said string of tools operating until the tract was developed or until it had been determined the tract was unworthy of further tests. In the instant ease the appellee covenanted: (a) To commence the drilling of a well within sixty days; (b> to prosecute operations with due diligence; (c) having discovered oil and gas in paying quantities, to proceed with due diligence to the reasonable development of the premises; and (d) to protect the property from drainage by drilling offset wells.

The tract of land covered by the lease in the instant case was within the Desdemona oil ñeld. Several years prior to the making of this contract three wells had actually been drilled upon this tract, two of them resulting in dry holes and one in a small producer. There were wells drilled on adjacent tracts, some of them being dry and others producers. With the aid of the information obtained from drilling in this field and the history of the wells, experts could doubtless have given very valuable testimony as to the probable production from this tract. /There is no reason to believe that expert testimony would have bee’n any more reliable and accurate in estimating the lessors’ damages in the Barker Oase than in the instant case. In the opinion in the former case, after quoting from many decisions holding that the best evidence of which the subject will admit is reasonaable, and that expert witnesses acquainted with the field -could testify with reasonable ’ accuracy as to the loss in oil and gas production suffered by the lessor by the lessee’s failure to perform his contract, the rule for measuring the damages is announced in -this plain language: “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 produce oil or gas -or from loss of same by drainage.” ,

We are aware that there are cases which hold that the measure of damages contended for by appellants is the correct rule. Some of these cases involved contracts where the obligee would own the entire completed well and others involved facts similar to those in the instant case. This court announced that as the proper rule in the cases of Mitchell, Jones & May v. Dabney (Tex. Civ. App.) 294 S. W. 243, 245, and Texas Pacific Coal & Oil Co. v. Stuard (Tex. Civ. App.) 7 S.W.(2d) 878, 881. It made the same announcement in the original opinion in Curry v. Texas Company (Tex. Civ. App.) 18 S.W.(2d) 256, but modified it to some extent in the opinion on rehearing. Writ of error was granted in that ease but the litigants agreed on a compromise and had the appeal dismissed. Since the writer of this opinion also wrote the opinion of this court in the Stuard Case, he feels that he can take some liberties therewith. That opinion did not apply or follow the rule there announced, but, on the contrary, applied and followed the rule stated therein in this language: “The sole purpose of actual damages is compensation. Appellees are not entitled to damages 'by virtue of appellant’s breach of the contract greater in amount than the money they would have received had it not been ■breached.”

But, without discussing the different cases in which this question was involved, we think we can assert with confidence that the Supreme Court of this state has never indicated its adoption of the rule relied upon by appellants.

. The attorneys disagree as to the principle ;of the holding in the case of Gwynn v. Wisdom, 119 Tex. 320, 30 S.W.(2d) 298. Without undertaking to analyze the principle underlying the final decision in that case, we think it can be said that it lends no sanction to the rule that the cost of performance by the ob-ligor is the measure of the damages suffered by the obligee.

It is our conclusion that appellants neither pleaded nor proved any damages suffered by them on account of appellee’s Breach of his ■covenant, and since no complaint is made of the failure of the trial court to award them nominal damages, the judgment of that court is affirmed.