Gibson v. Texas Co. , 1922 Tex. App. LEXIS 598 ( 1922 )

Appellant asked and the court refused to give the peremptory instruction:

"You will return a verdict for the plaintiff for the reasonable cost at the time the contract was breached, about April 1, 1920, of drilling to completion a well for gas or oil on the said Mattie M. Gibson land."

It was not error to refuse, it is believed, to give the instruction. By the contract in suit, as it is expressed in writing, the Texas Company obligated itself "to drill the 2,572 acres, more or less, owned by said Mattie M. Gibson, for oil or gas."

Appellant was neither the owner nor the lessor of the land. Appellee did hold a leasehold estate in the land, and was to do the drilling at its own expense and without repayment by appellant. It is clear that the main object of the contract, or the purpose which the parties sought to accomplish, was "to drill" or bore a well or wells on the particular land in the hope of finding oil or gas. The undertaking was merely for exploring purposes. The general statement "to drill the 2,572 acres for oil or gas" could not reasonably be held to have been intended by the parties to obligate the appellee to go on drilling the well or wells to an indefinite depth in the ground until oil or gas was certainly found. That would be construing the contract as a warranty or guaranty on appellee's part that gas or oil would be found on the land. Such construction would not be a fair one; for from the very nature of the subject-matter, which must be considered as a matter of common knowledge, it might be impossible to find oil or gas on the particular land. Therefore it must be presumed that the parties knew and contemplated at the time that, although reasonable and honest effort be made to discover the presence of oil or gas, the endeavor might fail of success, and that the land might not be productive of either oil or gas, and that further drilling might have to be stopped as useless if no oil or gas was found. But the contract does not say that the appellee is at liberty to discontinue operations and abandon further drilling. Nor does the contract state at what depth the appellee shall cease further drilling as useless if oil or gas shall not be found after reasonable and honest effort is made to find it. Nor does the contract state who is to say when appellee shall stop further drilling as useless. Neither does the written contract stipulate, nor can it be implied from the words used, that the exploration or tests made to find oil or gas shall be made to the satisfaction or final approval of either the appellant or the appellee. Therefore neither party can assume to be the arbiter, in virtue of any term of the written contract, of the extent to which the drilling shall proceed and then cease, and the lessee driller be excused from his obligation as fulfilled. The written contract, then, on its face, is indefinite, and is not couched in such terms as express or import a completed legal obligation without any uncertainty as to the subject-matter or extent of the engagement in all its essential terms for performance and fulfillment. The writing is conclusive only so far as it goes; and because it is incomplete on its face the parol evidence rule is not violated by allowing proof, as here done, of an oral agreement or representation on the faith of which the contract was made, made during the negotiations at the time the contract was entered into.

The parol evidence rule permits the party to prove the existence of a valid contemporaneous oral agreement as to any matter on which the written contract is silent and which is not inconsistent with its terms. 2 Greenleaf on Evidence, § 282; 3 Jones on Evidence, § 439; 2 Page on Contracts, § 1197; 6 R.C.L. p. 856; Magnolia Warehouse Storage Co. v. Davis Blackwell (Tex.Civ.App.) 153 S.W. 670; Kelly Plow Co. v. London (Tex.Civ.App.) 125 S.W. 974; Life Ins. Co. v. Ballard (Tex.Civ.App.) 122 S.W. 267; Sherman Oil Cotton Co. v. Dallas Oil Refining Co. (Tex.Civ.App.) 77 S.W. 961. And, looking to the evidence, the parties appear to have orally agreed or consented, during the negotiations, that the depth of the well and the manner of drilling it should be left to the reasonable judgment of the appellee. The appellant testified that he did so. We conclude, then, that in connection with the express agreement contained in the written contract to sink a test well on the land for oil or gas there is the further agreed term of the parties to be considered that the depth of the test well and the manner of drilling it should be left to the reasonable judgment of the Texas Company. Giving the legal effect attaching to the entire contract thus made, the appellee was obligated to drill a test well on the premises for oil or gas to such depth as in its reasonable judgment exercised in good faith would demonstrate and prove, in the absence of finding oil or gas, that the premises were not productive of oil or gas. The law would require that the appellee exercise its reasonable judgment in good faith, under the circumstances, in concluding to discontinue further drilling as useless, if oil or gas be not found. Therefore, under terms of the contract, the appellee had the option to terminate the contract, acting in good faith, when according to its reasonable judgment further drilling became a useless search for oil or gas. The legal right, then, of appellant to complain or disagree about the sufficiency of the depth of the test well would arise only when he had shown that the appellee did not exercise its reasonable judgment in good faith under the circumstances and conditions in evidence, but fraudulently. Appellant's pleading seems to follow this construction and predicate a right of recovery on failure to exercise "good faith" in ceasing further drilling. If the appellee exercised reasonable judgment "in good faith," to be determined from the circumstances, then its obligation was fulfilled and the contract ended.

In this construction we make of the contract, and of the rights and duties of the parties thereunder, the vital question for decision is: Do the facts show, as a matter of law, as insisted by appellant, that the appellee has failed of compliance on its part with the terms of the contract, in that the cessation of operations and the abandonment of further drilling below 2,828 feet was not in good faith on its part? Appellee abandoned further drilling below 2,828 feet, claiming that it had in the utmost good faith and with reasonable care and diligence entered and explored the premises for oil and gas by drilling a test well to a depth to sufficiently demonstrate and prove that the premises were not productive of either oil or gas. The appellant, suing for damages, claims that the appellee "did not in fact in good faith drill the 2,572 acres, and did not in good faith attempt to successfully complete the test well that was partially drilled thereon for gas or oil."

It is ordinarily a question of fact to be determined by the jury in each particular case, and so in this case, whether or not the lessee driller, acting in good faith, exercised reasonable judgment under all the conditions and circumstances in evidence in finally concluding that the premises were not productive of oil or gas as a result of the test made. The lessee, itself doing the drilling, had as much incentive and interest to actually discover oil or gas as the appellant. It had expended a large sum of money in drilling. There is evidence that appellee's superintendent intended "to have drilled deeper," as he says, "had we gotten the drill stem out." But there is also the further evidence tending to show that the well was abandoned finally upon the conclusion that it was "sufficiently deep to have reached this pay in Gibson [the name of the well] if it was there, and we believe there is very little chance of picking up gas that is found near Bethany at around 2,920 feet, as we are so far down on the west dip." Further, it appears, character of the dirt and formations were apparently considered in reaching the conclusion to abandon further drilling as unproductive of oil or gas. All these circumstances tend to show good faith and to make an issue of fact.

Further, we think the court did not err in refusing the peremptory instruction, because the damages mentioned therein were not such, we conclude, as could be legally awarded appellant for the breach of the contract, if it has been breached. The cost and expense "of drilling to completion a well" is not the measure of damages that can legally be applied to a contract of the kind here in suit, especially so under the evidence in this case. The damages sought as compensation cannot be ascertained with reasonable precision. The contract has no stipulation of any specific depth for the test well to be dug, and any precise or specific depth a test well should be drilled is purely speculative or contingent in its nature. Appellant has shown no right or title in the land nor in the well itself. The real object of the contract, as between appellant and appellee, was to search for oil or gas believed to be in the land. Appellant's chief interest and purpose, it appears, in having the well drilled, was that of ascertaining whether an oil field existed in that vicinity. It was an ascertained fact that no oil or gas was struck at the depth of 2,820 feet to which the well was drilled, and consequently no actual present loss or damage in not having an oil field developed was suffered by appellant at that depth. To prosecute the work still further and deeper in the hope of discovering either an oil or gas field is the merest matter of speculation, as a ground for damages. The evidence does not show how deep the well should be drilled to be a compliance with the contract, and neither could it be shown, except by actual discovery, that oil or gas would be found by drilling deeper than was done. To fix damages at the cost of drilling a well to a "reasonably sufficient depth" would require a finding by the jury of what was "a reasonably sufficient depth" to fairly demonstrate whether or not there was oil or gas, which is purely speculative, as grounds for damages. In all the cases, including those cited by appellant, where the recovery of damages for failing to dig the well is placed at the cost and expense of drilling same to the depth contracted for it is where the contract specifically called for a certain depth to which the oil well should be drilled. In the case of North Healtdton Oil Gas Co. v. Skeeley,59 Okla. 128, 158 P. 1180, cited as a typical case by appellant, the contract expressly provided "for a well to a depth of 1,750 feet," and later in writing it was "agreed to drill the well to a further depth of 200 feet." Also in the case of Ardizonne v. Archer (Okla.) 178 P. 263, the depth to which the well was agreed to be drilled was according to the stipulation fixed, and not uncertain. But a claim for damages as compensation is too broad and uncertain of reasonable ascertainment where the covenant, as here, is to dig a test well according to the reasonable judgment of the lessee driller under the conditions encountered in drilling. The rule is general and clear, as laid down In 8 R.C.L. p. 438:

"The damages recoverable in any case must be susceptible of ascertainment with a reasonable degree of certainty, or, as the rule is sometimes stated, must be certain both in their nature and in respect to the cause from which they proceed. Therefore uncertain or speculative damages cannot be recovered either in actions ex contractu or in actions ex delicto."

Accordingly appellant would be legally entitled to recover only the damages he suffered, if any, measured by any definite, ascertained and computable loss, not speculative in character, that has come to him by reason of the breach, if it occurred, of the contract.

In this connection it would facilitate the decision of this case, and as well answer appellee's cross-assignment of errors, to determine the right of appellant to recover the other damages pleaded as occasioned to him by the breach of the contract, if it existed. The next damages pleaded by appellant, being the value of the leases he owned and parted with to appellee as the consideration for the contract of drilling the well, would undoubtedly be the legal measure of damages for the alleged breach of the contract if the evidence had tended to show that appellant himself had a title to or an interest in the leases used and which constituted "the consideration" for the contract. But the evidence does not, we think, so show. He was a trustee, taking the leases under an agreement with the owners to convey the same to oil companies for development. He testified:

"I had actually acquired a large number of leases, approximately 10,000 or 12,000 acres acquired or controlled; but I had gotten those with the distinct understanding that I would take and turn them over to some oil company that I could get to come there and drill. I was not trading in oil leases. I made this block at the request of the Texas Company and held it for them. Prior to the time this contract was made the Texas Company required me to block up this acreage, and I held it for them so that their geologist could look it over. * * * At the time this contract was signed I had leases actually executed and delivered to [about 1,736 acres]. I had the leases and gave them to the Texas Company. I got them for that purpose."

And appellant, as seen, carried out the trust in transferring the legal title placed in him as trustee of the leases to the Texas Company. And then afterwards, it is shown, the beneficial owners of the leased land themselves, with appellant's consent, executed leases direct to the Texas Company. Appellant testified:

"And they [the Texas Company] requested that the leases executed to me be exchanged for leases direct from the owners of the land to the Texas Company, and that was done in every instance."

As the trust had been executed, the trustee had no longer any interest; and, appellant having no inherent or personal right to damages for the value of the leases, he cannot recover for same.

Appellant next pleaded and claimed damages in the value of his interests and holdings in the gas and oil royalties appearing in evidence. This claim is predicated upon the acquisition of leases other than those specified and parted with in the consideration of the contract in suit, subsequent to the making of the contract. Appellant and another person, it appears, together obtained leases north and about two miles from the well in question. These leases, though, were all sold at the time of the alleged breach of the contract. Appellant testified that at the time the well in suit was abandoned "I had no leases at that time except royalties retained in the Gulf leases." In selling the leases to the Gulf Production Company there was retained, appellant says, "to us (mean ing himself and Mr. Furrh) a one twentyfourth royalty. I think we got $2 per acre and a one twenty-fourth royalty." By this evidence appellant had parted with all his estate in the leases except a one twentyfourth royalty. Of course, royalty is only a percentage of the oil after it is found on the particular tract of leased land. Abandonment of the contract in suit worked no forfeiture of the estate in the royalty fixed and retained in these leases of appellant. Therefore, if appellant suffered any injury, it was in the nature of special damages in the lessened market price at which his royalty interest as a property right could be sold or assigned after the breach of the contract in suit. But such loss of lessened market price, if any occurred, which is not proven, is not such damage as the appellee could be held legally liable for in this case. It was no part of the contract in suit that appellant should have the opportunity to go out and buy leases after the contract was signed, and should make profits in reliance on the said contract. The contract in suit was not made for the purpose of enabling appellant to subsequently buy other leases; nor was such mutually contemplated or necessarily contemplated by the parties to said contract. As such damages were not such as may fairly be supposed to have mutually entered into the contemplation of the parties, and were not such as might naturally be expected to follow a violation of the contract itself, the appellant cannot recover therefor. Consequently it appears in the record that appellant has shown himself entitled only to nominal damages, even if there were a breach of the contract.

Appellant next insists that the court erred in submitting the special issues following:

"Did the plaintiff, Barrett Gibson, agree at the time of the making of such contract that the depth of the well and the sufficiency of the tests should be left to the judgment of the Texas Company ?

"Did the defendant drill the well on the Mattie Gibson land to such depth as the defendant in the exercise of its judgment thought was necessary to make reasonable test of said land for oil or gas?"

The evidence was not conflicting, and appellant substantially admitted that he acquiesced and consented to leave the depth of the well and the manner of drilling it to the reasonable judgment of the Texas Company. As before stated, we think the evidence was admissible, and there was no error in giving the instruction. As such agreement became a term of the contract, the appellee, in virtue of such term of agreement, had the right to cease further drilling when in the exercise of its reasonable judgment further drilling in search of oil or gas became a useless endeavor. Therefore the other issue was not affirmatively erroneous. The special charges in this respect asked and refused embodied the same issue in substantially the same language as the issue submitted by the court.

As the contract committed to the reasonable judgment of appellee and made it the arbiter of the extent or depth that the drilling of the test well should proceed in the search for oil or gas and then cease, in the absence of finding oil or gas, as a useless endeavor, its determination of what is reasonable in the way of continued exploration is conclusive, if made honestly and in good faith. The question, then, in the case, made both by the pleading and the evidence, was that of whether or not the appellee, in the circumstances and conditions appearing exercised its judgment in the way of continued drilling or exploration honestly and in good faith. Under article 1985, R.S., this issue must, on appeal, be deemed as found by the trial court; there being evidence to sustain the finding in favor of appellee. The case therefore, on the whole record, must, we conclude, be affirmed.

There are no reversible errors, we think, in the remaining assignments of error, and they are each overruled.