Ramsey Petroleum Corporation v. Davis ( 1938 )

I am of the opinion that the judgment should be affirmed on the theory of abandonment.

1. The rule against change of theory, on which the majority opinion bases its refusal to consider the issue of abandonment, applies fully to the plaintiff in error, but only to a limited extent, if at all, to the defendant in error. First Nat. Bank v. Hinkle (1917) 65 Okla. 62, 162 P. 1092. The rule applying to a defendant in error is that where the judgment is correct upon any theory sustained by the record, it will be affirmed no matter how erroneous the reasons are upon which the judgment was based, or upon which the prevailing party seeks to sustain it. This rule is based upon the harmless error doctrine enjoined upon us by our statutes. Sections 252, 388, and 3206, O. S. 1931 (12 Okla. St. Ann. secs. 78, 636. and 22 Okla. St. Ann. sec. 1068); Douglas v. Douglas (1936) 176 Okla. 378,56 P.2d 362: 2 R. C. L. 189; 4 C. J. 662; 4 C.J.S. 488. This rule is particularly applicable where, as here, the action is one in equity (3 Am. Jur. 367), for equity "always attempts to get at the substance of things, and to ascertain, uphold and enforce rights and duties which spring from the real relations of parties." Robbins v. Warren (1924) 104 Okla. 255,230 P. 929.

It is immaterial that the petition does not specifically allege an intention of the defendant to abandon, since the evidence upon which the theory of abandonment may be sustained was introduced without objection, and largely by defendant's own witnesses, and the pleadings will be considered as amended to conform to the proof. O'Neill v. Harper (1937) 182 Okla. 52,75 P.2d 879. We should, therefore, consider the issue of abandonment.

2. There are certain rules as applied to the law of abandonment of oil and gas leases which are settled in this jurisdiction: First, abandonment does not require an actual physical relinquishment of the premises as applied to the intangible rights created by the oil and gas lease, but is a question of intention. Fox Petroleum Co. v. Booker (1926)123 Okla. 276, 253 P. 33; Hudspeth v. Schmelzer (1938)182 Okla. 416, 77 P.2d 1123. Second, the intention to abandon may be inferred from the acts and conduct of the lessee as well as from express declarations, and an unreasonable delay on the part of the lessee in the further development of the premises, together with the lessee's declaration that further drilling would be unprofitable, is evidence from which the intention to abandon may be inferred. Fox Petroleum Co. v. Booker, supra; Wing v. Edwards (1936) 175 Okla. 642, 54 P.2d 351. Third, there may be abandonment of a portion of an oil and gas lease as well as of the whole lease. Wing v. Edwards, supra; Fox Petroleum Co. v. Booker, supra.

In the petition for rehearing and in the amici curiae briefs, it is argued that there can be no abandonment where there has been no breach of the implied covenant to reasonably develop. But the doctrine of abandonment is not dependent upon the breach of any duty imposed by law; rather it is dependent upon the intention of the lessee as disclosed by the facts and circumstances of the particular case. The two theories are separate and distinct, and should not be, but too often are, confused in the opinions. To follow the argument referred to would be to repudiate entirely the doctrine of abandonment without physical relinquishment.

Here the lease covering 20 acres was executed in 1916 and the primary term expired in 1918. Because of the litigation referred to in the majority opinion the lessee was under no obligation to drill further wells until that litigation terminated in 1923. No well has been drilled on the lease since April, 1925, at which time the second well was drilled on the north ten acres. The defendant acquired the lease in 1931 with full knowledge of the state of development thereon, for at the time it purchased the lease it requested the plaintiffs to confirm the same, which they refused to do. This request must have been on the theory that the plaintiffs had just cause for complaint because of failure to fully develop the lease. This action was commenced in December, 1933, and ten months before its commencement the owner made a demand upon the defendant for further development, but it refused to comply with such demand. Although the lease has been in force now for more than 22 years, with an obligation to fully develop for more than half that time, and the south ten acres has, since 1922, been surrounded on all sides by producing oil wells, resulting in substantial drainage from the ten acres, no well has been drilled thereon and the defendant's excuse for not doing so is that the geological data and the production from the wells on the adjoining land will not justify it in going to the expense of drilling a well on this ten acres.

Under these circumstances and the foregoing authorities, I think we should hold that there has been an abandonment of the lease on the south ten acres. It is inequitable for the defendant to refuse to drill or to surrender so that the owner may secure someone else to drill. If the geological data of the defendant is sufficient to relieve it of the burden of the implied covenant of further development, it does not seem unfair to require it to back up its data by relinquishing the undeveloped portion of the lease and giving the lessor the opportunity to make other arrangements for development. It is because of the injustice in such a situation that we have recognized in this state the law of abandonment. The Supreme Court of Kansas and the Supreme Court of the United States, recognizing the unfairness in a like situation, have decreed cancellation of the undeveloped portion of an oil and gas lease because of breach of an implied covenant to further develop without requiring proof that further development would probably result in a profit to the lessee, and indeed where the proof on the part of the lessee was that further development would not be profitable to it. McCarney v. Freel (1926. Kan.) 246 P. 500: Sauder v. Mid-Co Pet. Corp. (1934) 292 U.S. 272, 54 S.Ct. 671, 93 A. L. R. 454. In none of the cases relied upon by the majority opinion was the time element emphasized, as in the Sauder Case, the Wing Case, and the Fox Petroleum Company Case. See note on this subject in 93 A. L. R. at page 469.

The Sauder opinion was concurred in by Justice Van Devanter, who as a member of the Circuit Court of Appeals wrote the opinion in the Brewster Case, on which the rule contended for in the majority opinion in the instant case is based. Thus, the author of the Brewster decision, as well as the other Justices of the Supreme Court of the United States, saw no conflict between the Brewster decision and the Sauder decision.

But whatever may be the theory assigned, whether it be on the ground of breach of implied covenant, as in the Sauder Case, or on the ground of abandonment, as in the Fox Petroleum Company Case and the Wing Case, a court of equity will not permit the lessee to hold the undeveloped portion of an oil and gas lease, indefinitely and for speculative purposes, for an unreasonable length of time after the primary term has expired. Under such circumstances, it is inequitable for the lessee, by his refusal to develop or to surrender, to prevent the owner from getting full development of his property.

I do not believe the judgment of the trial court has resulted in a miscarriage of justice justifying a reversal under section 3206, O. S. 1931; rather I think the equities are in favor of the judgment of the trial court.

I therefore respectfully dissent to the majority opinion.

I am authorized to say that OSBORN, C. J., and RILEY, J., concur in this opinion.