Jordan Drilling Co. v. Starr

McGILL, Jústice.

Appellant Jordan Drilling Company, a partnership composed of Bryan Jordan and Walton Jordan, filed this suit against ap-pellee J. W. Starr to recover on a contract or on- quantum meruit, for drilling an oil well located on a lease in Scurry County owned by Starr, to a depth of approximately 15.84 feet; and also on quantum meruit for drilling out part of the cement which had solidified in- a' 7-inch casing which was run in -the hole. Appellee filed a cross-action against appellant to recover his losses by reason of appellant’s failure to complete the drilling contract. Trial to a jury resulted in answers to special issues submitted upon which the court rendered judgment denying appellant any relief and awarding appellee judgment against appellant on his cross-action in the sum of $4,400.00, appellee having remitted $100.00 of the amount of damages found by the jury. . Appellant has duly perfected its appeal.

Thirteen points of error are presented. In the view we take of the case it will be necessary to discuss only four of them The first point complains of the - .court’s refusal .to instruct the jury peremptorily in favor of appellant on its Cause o-f action for drilling the well to a depth of 1584 feet at the-contract rate of $2.75 per foot; the second of the court’s - refusal to instruct peremptorily in favor of appellant on its cause of action upon quantum meruit for the work done by it in .attempting to drill through the cement in the -7-inch casing; the third and fourth of the court’s failure to render judgment in favor of appellant on such causes of ■ action on the jury’s verdict. We shall discuss these points together.

The following facts were established beyond 'issue: The contract under which the parties acted was in writing it having been prepared by Starr and accepted by Jordan Drilling Company.as evidenced by the signature of “Jordan Drlg. Co., by Bryan Jordan”. We shall hereafter refer to Jordan Drilling Company as “Jordan.” There is a question whether the contract was. ever signed by Starr, but there is no question but that he acted under it and is bound by it the same as though he had signed it. We reproduce the contract:

“Contract Made and Entered -Into By and Between J. W. Starr and Jordan Drilling Company For Drilling On Sun Oil Company Farmout Located in Scurry County, Texas.

“1. Set 400' of 10¾ surface. Pipe and cementing to be furnished by J. W. Starr.

“2. If necessary, approximately 1200' of 8⅝ casing to be furnished, run and pulled at the risk and expense of Jordan Drilling Company. This pipe is to be. mudded in by Halliburton at the expense of J. W. Starr.

“3. Seven inch oil string to be run at an undetermined depth above 1700'; hole not to be more than 3 degrees off vertical. J. W. Starr is to furnish pipe and cement.

“4. Six and one quarter hole to be made, ■drilling in to total depth of approximately 1700'.

“5. This agreement, with conscientious drilling efforts, is a two well contract if the first well justifies drilling the second. 'The second well to start at discretion of 'Starr, date should not be later than 14 August 1947.

“6. This contract is made at $2.75 per ft. to total depth. Day work to begin at ■time shot is run, at the rate of $150.00 per .24-hour day.

“Signed and dated this 22 day of July :1947.

“Accepted:

“Jordan Drlg Co

“Bryan Jordan.”

-Shortly after its acceptance- of the contract Jordan, entered upon the well site with its equipment and proceeded to drill. The -400' of 10¾ surface casing was set by Jordan and cemented by Halliburton Oil Well Cementing Company for Starr. We shall hereafter refer to the Halliburton Oil Well Cementing Company as “Halliburton”. There is no controversy about this feature of the contract, nor about the second provision that Jordan if necessary should furnish, run and pull approximately 1200' of 8⅝ casing to be mudded in by Halliburton at the expense of Starr. When the drill had reached a depth of approximately 1584 ft. Howard Chamlee, who was a geologist and ■ Starr’s brother-in-law and his agent and representative to watch the progress of the well and check the formations, thought he had discovered a stain of oil and decided that the depth had been reached. at which • the 7 inch oil string should be run. The question then a-rose whether the hole was' more than 3 degrees off vertical. Since appellant contends that it was entitled to a peremptory instruction for the 1584 ft. it drilled, at the contract price, ‘ because Starr waived its failure to drill to hole not more than 3 degrees off vertical as specified by the contract, we deem it necessary to reproduce Chamlee’s testimony bearing on this question. He testified on direct examination: “ * * * I asked Bryan if he had run any straight •test and he said he didn’t think so as he had run in a vertical a long time and had some good drillers there 'and I think he said ‘he is carrying a straight hole,’ but I insisted that we run some straight hole tests, which we did. He got some acid bottles out and a steel cylinder he had and we -ran them inside the bailer. The first test we got out I don’t think could be called a complete success but I do think it showed — now, I think it showed some evidence of the shape our hole was in, whether it was straight or not. You read them one a little business— don’t know what it is called — you stick these bottles in a little sleeve and there are angles in there you can read from the etched lines on the bottle. There wasn’t a finely etched line, but it was about a 32nd of an inch wider than it should be. Consequently, you couldn’t read down to the minute'or degree of the angle. You could read within four or five degrees of what the deviation would be on- it. We ran about six of these tests and these tests will show this hole was off anywhere from nine to fifteen degrees. So Mr. Jordan, both Bryan and ‘Son’ Jordan, explained to me. They said they had been using this bailer in another part of the field and there was some lodestone in there and in running the bailer It had become ’magnetized, — and they put a crowbar up there to show it had become magnetized, — and that they thought this was the cause of the deviation and they assured me that it could be one of the causes and they assured me every driller they had on the well was running tight, which means they were taking short strokes, which will not contribute to the hole deviation rather as if you were going down and taking long strokes. So they assured-me they had drilled in this field for many- years and they knew what they were doing and the drillers knew what they were doing, and- from thei-r experience in oil well drilling; this well could not be off more than three degrees. Bryan said, T bet it isn’t off two and a half degrees.’ They assured me it was a suitable hole to go ahead and complete. I -told them I didn’t know and wouldn’t take the responsibility and was going to talk to Mr. Starr. I drove into Colorado City and called Starr on the telephone. I told Johnnie what had taken place and the result of the acid bottle test we had run and told him what Bryan and ‘Son’ had assured me, that they knew .the hole -was straight and it was suitable for running pipe and they didn’t think it was off a degree or half a degree and they knew it was a straight hole and had to be a straight hole. Johnnie interrogated me extensively along ■ that line and I said I had been assured by Bryan and ‘ScftT that the hole was straight * * * ”.

On cross-examination he testified:

“Q. ■ You mentioned -running six acid bottle tests. Was that all the same day? A. Yes.

- “Q. Why did you run six the same day ? A. Because the Jordan Drilling Company said they weren’t satisfactory — the. results we were getting weren’t satisfactory and not a true condition.

“Q. It wasn’t -because the first five weren’t dependable? A. Yes, they said they didn’t show accurate results.

“Q. You weren’t satisfied with what you found out? A. Yes.

“Q. Why did you stop at six? A. They ran out of bottles and acid.

“Q. Were you satisfied with the results of the sixth ? ' A. At the time we quit when the sixth bottle came ' out of the hole, I wasn’t satisfied. Subsequently, the conversation I had with Jordan and after they assured me — I was satisfied.” and

“Q. Is it true you reported to Starr, as you said, the acid bottles showed a material deviation of eight or nine degrees on the telephone and after that he told you to go ahead and set the casing, and you did that, that is true? A. Yes.

“Q. It is true he knew at the time he ordered the seven-inch casing set that the well might have been more .than three degrees off vertical? A. That the well may have been ?

“Q. Yes. A. Yes, that is true.

“Q. As a matter, of fact, did you think it was more than three degrees off at that time? A. I didn’t know, Judge Hawkins.

“Q. You didn’t have any opinion, one way or the other? A. I.had two opinions. Did you ever have two opinions — you think it could have been one way or the other ?

“Q. You thought it could be three degrees or more? A. I thought it was and, no, sir, it could have been more than three degrees.

“Q. That was based on what you had seen from the acid bottle tests? A. Yes.

“Q. Isn’t it true before you told Starr about the well you said to Roberts, ‘It looks pretty crooked to me?’ A. I don’t ■remember saying it but could have.

“Q. As a matter of fact, it did look pretty crooked to you didn’t it? A. After seeing the acid bottles, it did.

“Q. 'It looked to you it was more than' three degrees off vertical? A. From the results of the acid bottles, yes.”

After the 7 inch casing was run Halliburton proceeded to cement it. The written order for this work was signed “J. W.' Starr, by Walton Jordan.” Starr paid for the work. One hundred sacks of cement were mixed with water and put in the casing, and ah attempt was made to force the mixture through the 7 inch casing and up into the hole arotind it by means of a plug inserted ‘in the casing, to which water pressure was applied. When the plug had reached a depth of 250 to 300 feet in the •casing it stuck, the pressure being lost, and Jordan, at the suggestion of Chamlee and Halliburton, used his drill to force the plug to a depth near the end of the casing, which had been pulled until it hung about 35 feet from the bottom of the hole. The •cement on instructions of Chamlee, or with , his approval, was permitted to set for 72 hours, after which it was discovered that from .500 ft. to 575 ft. of cement had solidified in the casing. Jordan proceeded to •drill this cement out of the casing. Both Starr and Chamlee knew he was attempting to do so, and said nothing. After the drilling had' continued for approximately 11 ¾ twenty-four hour days and, from 150 to 400 feet of cement had been removed and much •difficulty had been encountered in drilling it,. Starr advised Jordan that he would not pay for such drilling and, would not pay for any work done unless the hole was completed to 1700 feet, the contract depth.Thereupon Jordan abandoned the project.

A correct summary of the jury findings appears in appellant’s brief, from which we copy:

“1. The well was more than 3 degrees off vertical.

“2. Starr did not know when he ordered' the 7-inch casing; run that the well was .so • off.

“3. Starr had notice when he ordered the 7-inch casing run that well may have been over 3 degrees off vertical.

“4. Defective condition of the 7-inch casing caused the cement to solidify in the casing.

• “fi. ■ Chamlee did not' refuse' permission to Jordan to hail cement out of hole.

“6. Failure of Jordan Drilling Company to drill through the solidified 'cement was not due to defective 7-inch casing: ■

“7. Reasonable value of Jordan’s work in trying to drill through solidified cement was $1500.00.

“8. Jordan Drilling Company did not fail to drill the well in a workmanlike manner.

“9. Failure of Jordan Drilling Co. to drill well in workmanlike, manner did not cause failure to drill through solidified cement.

“10. The-7-inch casing was suitable for purpose intended.

“11. Jordan. Drilling Co. accepted the-7-inch casing as suitable.

“12. Failure of Jordan Drilling Co. to drill through the solidified cement was not due to well being more than three degrees off vertical.

“13. Prior to running of 7-inch casing Walton Jordan assured Chamlee that well was not more than 3 degrees off vertical.

“14. Starr suffered damages by reason of Jordan Drilling Co. failing to complete well in sum of $4500.00.”

As we see it, two controlling questions are presented, (1) Did appellee as a matter of law waive appellant’s failure to drill the hole not more than 3 degrees off vertical, and (2) did appellant as a matter of law waive his excuse for failing to complete the well to the contract depth by attempting to drill the cement out of the casing? The answer to (2) depends on the answer to two other questions — namely (a) under the contract whose duty was it to cement the 7 inch casing (b) if it was Starr’s duty, did the manner in which this was done by Halliburton resulting in from 500 to 575 feet of cement solidifying in the casing constitute a valid excuse for appellant’s failure to complete the contract?

Since the jury found (3) that Starr had notice when he ordered the 7 inch casing run that the well may have been over 3 degrees off vertical, it is unnecessary to determine whether the uncontroverted evidence established this. fact. There .is no contention that this finding is not supported by the evidence. The question is thus presented whether this finding established as a matter of law a waiver by Starr of the contractual. requirement that the hole should not be more than 3° off vertical in view of the jury finding (1) that the well was more than 3° off vertical, and (2) that Starr did not know when he ordered the 7 inch run that the well was so off. We have concluded that the finding (3) did so establish such waiver by Starr. Walton Jordan testified: “Before we ran the seven-inch casing and during the discussion about these graduations on these bottles, I told Mr. Chamlee, ‘Will you accept that hole as it is or do you want us to straighten it up or what do you want us to do about it?’ and he said, ‘I will call Mr. Starr and see if he will accept it as it is or not’, and he left the rig and went to call Starr. That was some time on the afternoon tour and at about two or three o’clock next day, in the morning, he called me back and said ‘Jordan, go ahead and run the pipe. The hole is OK and we will accept it’, * * *

This testimony is uncontroverted, as is Bryan Jordan’s testimony to effect that after the pipe is run and cemented it is impossible to straighten the hole. Starr was called upon to decide whether he would accept the hole, knowing that it may have been more than 3° off vertical, or require it to be straightened. In other words, he was put to an election. He decided that he would accept the hole as it was. He thereby waived the requirement that it be not more than 3° off vertical. Authorities holding that while fraud prevents the running of the Statute of Limitations until it is discovered or by the exercise of reasonable diligence might have been discovered knowledge of facts that would cause a reasonably prudent person to make inquiry which if pursued would lead to a discovery of fraud is in law equivalent to knowledge of the fraud. Glenn v. Steele, Tex.Sup., 61 S.W.2d 810, and Ruebeck v. Hunt, 142 Tex. 167, 176 S.W.2d 738, 150 A.L.R. 775, are analogous. Starr’s knowledge of the fact that the hole may have been more than 3° off vertical, if pursued-, would have led to the discovery that it was more than 3° off vertical as the jury found, in fact, the evidence shows that a test was taken about a month after the work had been abandoned which showed that the hole was 6° off vertical. . Starr could not gamble that the hole was satisfactory for the purpose for which it was intended, and then when difficulties arose rely on a strict performance of the contract after Jordan had changed its position. In other words, he was estopped to set up as a defense the failure of Jordan to drill not more than 3° off vertical. See Caprito v. Grisham-Hunter Corp., Tex.Civ.App., 128 S.W.2d 149, loc. cit. 160 (18-19), Wr. Dis. Judg. Correct.

There is no ambiguity under paragraphs 1 and 2 of the contract as to whose duty it was to cement the 400 feet of 10¾ surface pipe or “mud in’’ the 1200 feet of 8%" pipe. Clearly, under the express terms of the contract, these duties devolved upon Starr. Paragraph 3 of the contract is silent as to who is to do the work of cementing the 7 inch oil string, the only provision being “J: W. Starr is to furnish pipe and cement.” Under such circumstances, the interpretation given by the parties themselves as shown by their acts will be adopted by the court. Williston on Contracts, Vol. II, Sec. 623, p. 1206. The evidence is uncontro-verted that Starr assumed the burden of cementing the 7 inch casing. Halliburton, an expert in this line, who in fact had a monopoly on this type of work because it was the owner of the patent on the plug used for this purpose, was employed to do the cementing, and its services were paid for by Starr. It is true that Jordan assisted in the work of breaking the sacks and mixing the cement, and used his equipment to force the plug through the casing after it had stuck, but this was done at the suggestion if not the direction of Halliburton and Chamlee; also it was Chamlee who decided that the cement should be permitted to stand for 72 hours. The responsibility for the cementing and the manner in which it was done as shown by the conduct of the contracting parties was therefore under the contract that of Starr. This being so, the question next arises whether under the contract Jordan was obligated to drill out from 500 to 575. feet of cement after it had solidified in the casing, due to the cementing of the casing by Halliburton-acting for Starr. The contract is silent as to any such onerous duty on the part of Jordan. Furthermore, there is evidence that it is customary to leave only from 25 to -30 feet and never more than 60 feet of cement in the casing, which could.be drilled out in a matter of hours. If it can be implied that it was customary for the driller to drill this cement out without compensation and this custom can be written into the contract— a point we do not decide — yet there could be no implied obligation on the part of Jordan to drill out such a large quantity of cement. This is clearly Reducible from the opinion in Smith Bros. Drilling Co. v. Klintworth, 195. Okl. 13, 155 P.2d 235. In that case-more than 500 feet of cement solidified .in the casing and the drilling contractor drilled it out and claimed $1,000 as compensation therefor. On conflicting evidence the court held that'it was a jury qúestion whether the drilling company had agreed to drill the, cement out at its own expense. If it had been obligated to do so in the absence of agreement there could have been no such jury question. We therefore conclude that Jordan was under no obligation to drill out the cement in order to complete its contract; also that this obstacle placed, in its way by Starr, through Halliburton, excused Jordan from completing the contract unless he waived such excuse, a question which we shall discuss presently. Mr. Summers, in his invaluable work on Oil & Gas, says: “If after the owner orders drilling stopped he takes charge of the well and damages it so that drilling cannot be continued, the driller is entitled to his compensation.” Vol. 4, Summers Oil and Gas, Perm.Ed., § 685, page 93.

In support of the text he cites Miller v. Brosius, 113 Kan. 652, 216 P. 294, a case very similar to this case, the only substantial difference being that there the owner rendered further drilling to the contract depth impossible, while here he rendered it impossible unless Jordan drilled out the cement in the casing, a duty he was under no obligation to perform. Here, as there, the owner stopped the drilling, and through Halliburton took charge of the well for the purpose of cementing the 7 inch casing. Interference by the owner with performance of the contract by the driller has been held to excuse performance in this State. Hahl v. Deutsch, 42 Tex.Civ.App. 1, 94 S.W. 443; Smith v. Patterson, Tex.Civ.App., 294 S.W. 984, Wr. Dis.

The more difficult question is whether Jordan, by attempting to drill the cement out of the casing, waived his excuse for failure to complete the contract. The general rule is thus stated by Mr. Williston: “The principle is general that wherever a contract not already fully performed on either side is continued in spite of a known excuse, the defense thereupon is lost and the injured party is himself liable if" he subsequently fails to perform, unless the right to retain the excuse is not only asserted but assented to.” Williston on Contracts, Vol. II, sec. 688, p. 1329; Garrett v. Dodson, Tex.Civ.App., 199 S.W. 675, loc. cit. 680, (8-10); where it was held that a building contractor who assented to an architect’s requirement that he tear down and replace certain work because it did not conform to the plans and specifications, thereby waived his right to abandon it, even though the demand of the architect was arbitrary. It was intimated that the contractor, may have been entitled to damages if . the architect’s action was in fact arbitrary. We have concluded that this general rule is inapplicable to the facts of this case. As above indicated, the drilling of 500 feet or more of cement out of the casing was not comprehended by the contract, therefore in drilling the cement Jordan was not continuing performance of the contract, but endeavoring to. remove an obstacle so that it could continue the performance thereof. The rule above stated is applicable only where the party having a valid excuse for nonperformance continues performance of the contract. It has no application where the work done is not comprehended by the contract. Jordan was not put to an election of either standing on an excuse for failure to perform or waiving such excuse until the obstacle placed in its way by Starr which prevented the per formance had" been removed. Jordan’s attempt to remove such obstacle did not operate as an election. Starr’s position was in no way changed by Jordan’s action in attempting to drill out the cement. There is no element of estoppel. We therefore conclude that as a matter of law Jordan did not'waive its excuse for its failure to complete the contract by attempting to drill the cement out of the casing. If we should be-in error in this conclusion and a question of fact was presented as to whether Jordan by its cpnduct evidenced an intention to waive such excuse, and such fact if established would operate as a waiver, yet appellee requested no issue on this question and therefore waived any defense based thereon under Rule 279, Texas Rules of Civil Procedure.

It follows from what we have said that Jordan was entitled to judgment on the jury’s verdict in view of the undisputed evidence. The only findings which we deem material are 3 and 7. Jordan having elected to sue on the contract could recover for the 1584 feet drilled by it at the contract price of $2.75 per foot. Hahl v. Deutsch, supra. The drilling of the cement not being comprehended by the contract, but having been done with the knowledge and acquiescence of ' Starr, Starr impliedly agreed-to pay the reasonable value of such work, which the jury found was $1,500.00. The trial court should have so rendered judgment on the verdict, and that appellee take nothing on his cross-action. Therefore, the judgment of the trial court is reversed and under Rule 434, R.C.P., judgment is here rendered accordingly.

Reversed and rendered.