Lane v. Urbahn

SMITH, J. On February 24, 1919, Albert Urbahn and another exe'cuted to the Rio Grande Oil & Gas Company an oil and gas lease upon a body of land, comprising about 53,000 acres, situated in Webb county. A second lease, in confirmation of the first, was executed! by the parties on May 22, 1919. On May 26, 1921, Urbahn brought suit to cancel •the lease, or for damages in lieu of cancellation, upon the grounds that the same had been procured through the' fraudulent representations of the lessee, and the lessee had failed in its obligation to develop the land for oil and gas. A trial before the court, and •without a jury, resulted in a judgment canceling the lease. The lease in controversy was for a term of five years, and as long thereafter as oil or gas, or either of them, is produced in paying quantities; the recited consideration being $5,314, which it is conceded was paid in cash at the time the contract was executed. Among other provisions in the lease contract were the following stipulations: “If no well be commenced on said land on or ■before the 24th day of February, 1920, this lease shall terminate as to both parties, unless the lessee on or before that date shall pay or tender to the lessor, or to the lessor’s credit in the Milmo National Bank at Laredo, Tex., or its successors, which shall continue as the depository regardless of changes in the ownership of said land, the sum of $3,321.25, which shall operate as a rental and cover the privilege of deferring the commencement of a well for 3 months from said date. In like manner and upon like payments or tenders the commencement of a well may be further deferred for a like period of the same number of months successively. And it is understood and agreed that the consideration first recited herein, the •down ■ payment, covers not only the privileges granted to the date when said first rental is payable as aforesaid, but also the lessee’s option of extending that period as aforesaid, and .any and all other rights conferred. “Should the first well drilled on the above-described land be a dry hole, then, and in that •event, if a second well is not commenced on said land within 12 months from the expiration ■of the last rental period which rental has been .paid this lease shall terminate as to both parties, unless the lessee on or before the expiration of said 12 months shall resume the payment of rentals in the same amount and in the same manner as hereinbefore provided. And it is agreed that upon the resumption of the payment of rentals, as above provided, that the last preceding paragraph hereof, governing -the payment of rentals and the effect thereof, •shall continue in force just as though there had been no interruption in the rental payments. “If the estate of either party hereto is assigned, and the privilege of assigning in whole or in part is expressly allowed, the covenants hereof shall extend to their heirs, executors, administrators, successors, or assigns. “Lessee and his assigns agree to use all reasonable efforts known to or practiced by competent oil producers to commence a well on the land herein within six months from the date hereof. “But it is expressly stipulated and understood that the lessee herein guarantees on the part of its assigns the full and faithful com-' pliance of all the covenants and obligations imposed on the original lessee herein.” It was alleged by Urbahn that it was his intention to lease the land in controversy only to persons or corporations desiring and financially able to develop the oil and gas resources of the land, and who would not, after procuring the lease, peddle it out in smaller portions by assignment to others; that Lane, with whom Urbahn dealt, knew these facts when he negotiated the lease, but in spite of this knowledge falsely represented to Urbahn that the appellant company was solely owned by individuals who had in a wide experience in the oil and gas business acquired large wealth, which was available to them for the purpose of developing this property ; and that if the lease was secured they would in fact develop it, and “did not intend to acquire such contract for peddling purposes.” The court found that the three individuals to whom Lane referred were worth $100,000, $125,000, and $100,000, respectively, which they had earned principally in the oil and gas business, but that they were not men of “large wealth,” as represented, and did not provide the company with sufficient funds to properly develop the land, and that the lease was taken by them for speculative purposes through the sale of subleases at a large profit. It will be necessary to discuss and dispose of these representations and findings separately, which will now be done. The representation first alleged was that the oil company was owned by men of large wealth which they had accumulated in the oil and gas business, and had sufficient means to enable them to develop the property sought to be leased, and would so develop it. The court found these allegations to be true, and the representations to be false. To say that any one is possessed of “large wealth” is an indefinite declaration, the meaning of which must be ascertained, not by the application of any general rule, but from the status of the particular individual, the relation he bears to the facts and circumstances inducing the declaration, and the particular undertaking contemplated by the parties to and from whom the declaration is made. “Large wealth” is peculiarly a relative term. In Wall Street it may mean many millions; [1072] in “Main Street” it may' mean a very few thousands. If used in connection with large industrial projects it may.mean hundreds of thousands, or even millions; whereas, if it is used in connection with a small mercantile operation it could very easily comprehend only a few thousands — depending in each case upon the nature and magnitude of the project in mind. Here the parties had in mind the primary purpose of ascertaining if oil or gas underlay the lands in controversy, and the meaning of the term “large wealth” must be determined by the nature and extent of that undertaking. If the parties contemplated sinking a large number of wells upon the land, thus exploring the whole of the tract, regardless of whether either operation resulted in the discovery of oil or gas, then of course the project involved-the expenditure of hundreds of thousands of dollars. But if the undertaking involved the sinking of one or two wells, which, if dry, would result in an abandonment of the project at the option of the lessee, then a very much less amount would 'be required for the test. If the first plan was in the minds of the parties, then the use of the phrase “large wealth” must have meant a sum of money amply sufficient to finance the undertaking, but if the second plan was the one in mind, then the meaning of the term should be tested by the financial requirements of the smaller undertaking. The purpose of the parties, and the significance to be given the term “large wealth,” must be determined, then, by the conduct of the parties in relation to the transaction. The oral declarations, promises, agreements, and negotiations of the parties prior to the execution of the contract, even if they could be given an effect at variance with the written agreement, were not sufficiently definite to afford a basis of a clear or fixed understanding. We are relegated, then, to the written agreement to ascertain the purposes of the parties. If that agreement did not express such purposes, or if the latter cannot be clearly implied therefrom, thfen the question would be one for court or jury to determine from all the Other facts and circumstances in evidence. But an examination of the written contract will disclose that it did in terms express the obligations of the lessee in the undertaking, and, 'that being true, we need not go behind that contract, even if authorized to do so, in order to ascertain what those obligations are. In the first place, the lessees were required, not to drill wells in every portion, or in any particular portions, of the land, but they were required to drill only one well at a time, and the obligation to drill even one well could be deferred from time to time by the payment of a fixed rental. The highest estimate of the probable cost of completing the initial well under this contract was $100,-000. The probable relative cost of subsequent wells was not shown. The initial well had been sunk to a depth of 1,600 feet, at a cost of $65,000. It was shown that a very large proportion of the expense was incurred in preparation for the beginning of the well, which was far distant from railroads, at a point without water or other practical facilities. It does not affirmatively appear, but may be assumed from common knowledge, that in event of drilling other wells in the vicinity, much of the cost incident to the initial well would be eliminated. But the record warrants the inference that several wells could be completed by the use of the wealth the court found the operators possessed. The undertaking assumed by the company owned and operated by these individuals was, as stated, to drill, or pay rentals in lieu of drilling, according to their judgment in the premises. Under the terms of the contract they could abandon the project by failing to drill or pay rentals, but so long as they did either in accordaiice with the contract provisions, the contract remained in force. If they chose to drill, they possessed the wealth which would enable them to dó so; if they chose to pay rentals in lieu of drilling as they had the right to do as long as the minerals were not jeopardized by drainage into offset wells, they had sufficient means to do so throughout the lease period. It does not stand to reason that the parties contemplated that the operators would continue to spend large sums of money in further explorations, in event the first wells proved to be dry holes. The land was in “wild cat” territory, 75 miles removed from producing wells, and it will not be assumed that the operators would drill any considerable number of successive dry holes, or continue to pay heavy rentals after the territory would be thus disproven. Of course, if the first well, or the first few wells, should be paying producers, the proceeds therefrom would automatically finance further development. But it is obvious from -the provisions of the contract, as well as from the oral testimony, that the purpose in the minds of lessor and lessee was to test the land for oil and gas, by drilling one well at a time, as expressly provided, and that the initial undertaking contemplated was the drilling of only such wells as were necessary to prove or disprove the territory embraced in the lease. The truth or falsity of the representation of Lane that his associates were men of “large wealth” must be tested by its relation to the undertaking the parties had in mind, and when that is done it cannot be said as a matter of law or fact that this representation meant that the operators were financially worth more than $325,000, which the court found they possessed. At most, the representation was vague and indefinite, and in order to impute fraud to the maker of it the evidence should be clear, and the disparity between it and the actual condition shown to be definite and substantial. Certainly no [1073] suela case is presented here, and the conclusion of the court that the representation complained of was false is not only without Support in the record, hut is contradicted by the finding that the parties were worth as much as $325,000. For the same reasons, the finding of the court that the representation, that the proposed operators did not have sufficient funds to finance the development contemplated, was false and fraudulently made, is contradicted by the record as well as by the finding mentioned. The remaining representation which was alleged to be false, and upon the falsity of which appellee sought rescission, is that the proposed lessees “did not intend to acquire such contract for peddling purposes,” to quote the language of the petition. It was alleged that this allegation was false, “in that [the lessees] were acquiring said lease from the plaintiff for the purpose of peddling and assigning leases, .and thereby reaping large rewards for themselves.” The finding of the court corresponding most nearly to these allegations .was that the person negotiating the lease for the company represented that he and his associates “did not intend to, and would not sublet any of said lands to persons for any purpose other than good-faith development of said lands for oil and gas and to persons who were financially able to do so.” There is a variance between the language of the court’s finding and the allegations in the petition, as will be readily seen, and appellants complain of this variance, insisting that it is material and that the allegation and finding do not co-ordinate, and neither supports the other. Tretermitting- a discussion or decision of this point, we will say that we do not think the fraudulent representation alleged will support an action for rescission in this case, for the reason- that it was expressly stipulated in the written contract that the lessees had the right to assign the lease, “in whole or in part.” There is no contention that this provision was inserted in the contract by reason of any fraud, accident, or mistake, and thus it stands as an affirmative, voluntary expression of the will of both parties, and is of equal dignity with every other provision in the instrument. If, before entering into the written contract, the parties had any agreement or understanding giving, regulating or withholding the right of the lessees to assign the lease, such agreement or understanding is presumed to have been merged into the stipulations relating thereto and embraced in the written instrument, which thus became the full and final expression of the parties with referencé to that particular subject, and this expression cannot be abrogated or modified except by a reformation of the instrument upon allegations and proof that it was incorporated therein'through fraud, accident, or mistake. If the contract had been silent upon the ques-■ tion of assignment, or if the provision relating thereto had been ambiguous, then upon proper pleading it is possible that the real intention of the parties could have bee» shown by parol testimony and given effect But here the .provision for assignment is plain and unambiguous, and clearly .provides that the lease may be assigned, either in whole or in part. It will be presumed that if the parties desired any further modification of the right to assign, they would have incorporated it into the provision deliberately written upon the particular subject, and to which they will be held in the absence of a showing that that provision was insertbd through some fraud, accident, or mistake. In its conclusions of law, the court below also found that the lessees and subles-sees failed to “mine and operate for oil and gas on the land in controversy in good faith or with ordinary diligence,” and held by reason of this default the lessor was entitled to a cancellation of the lease. Appellants contend, and appellee in effect concedes; that the findings of fact do not warrant the cancellation upon this ground. -The contract expressly provided that if the lessees failed to begin drilling a well on or before February 20, 1920, the lease should terminate, unless the lessee paid the stipulated rehtal; but in no other contingency was a forfeiture expressly provided for. The evidence showed, and the court found, that the lessee began drilling a well within the time stipulated, thus avoiding the only forfeiture expressly provided for. The obligation of the lessee to diligently and in good faith fully develop the land was implied, but not expressed. It is now settled in this state that where a lease contract of this nature expressly fixes conditions upon which the contract may be canceled, or avoided, the default of the lessee in the performance of an implied obligation does not warrant cancellation, but merely an action for damages; or, where the default is persisted in, it will, under some circumstances, warrant cancellation on the theory of abandonment. This contingency is not presented in this case, however. Grubb v. McAfee, 109 Tex. 527, 212 S. W. 464. The judgment is reversed, and the cause remanded.