Case Name: JUSTISS-MEARS OIL COMPANY, Inc. v. C. B. PENNINGTON
Court: Louisiana Court of Appeal
Jurisdiction: Louisiana
Decision Date: 1961-06-30
Citations: 132 So. 2d 700
Docket Number: No. 5351
Parties: JUSTISS-MEARS OIL COMPANY, Inc. v. C. B. PENNINGTON.
Judges: Before ELLIS, LOTTINGER, JONES, HERGET and LANDRY, JJ.
Reporter: Southern Reporter, Second Series
Volume: 132
Pages: 700–715

Head Matter:
JUSTISS-MEARS OIL COMPANY, Inc. v. C. B. PENNINGTON.
No. 5351.
Court of Appeal of Louisiana. First Circuit.
June 30, 1961.
Rehearing Denied Sept. 25, 1961.
Certiorari Denied Nov. 6, 1961.
Roland Kizer of Kizer, Heaton, Craig & Cangelosi, Fred G. Benton, Sr., of Benton & Moseley, Baton Rouge, for appellant.
L. W. Richey of Gaharan & Richey, Jena, for appellee.
Before ELLIS, LOTTINGER, JONES, HERGET and LANDRY, JJ.

Opinion:
LANDRY, Judge.
Plaintiff herein, Justiss-Mears Oil Company, Inc., an oil well drilling contractor, instituted this action against defendant, C. B. Pennington, to recover the balance of $32,850.12 allegedly due by defendant on a writtten contract pursuant to which plaintiff undertook to drill a "wildcat" oil well in consideration of defendant's agreement to pay the sum of $35,500 for said service.
For written reasons assigned, the learned trial court rendered judgment in favor of plaintiff contractor in the sum of $32,850.12, with legal interest thereon from September 6, 1957, until paid, and all costs. The amount of the judgment rendered below represents the contract price less a credit due defendant owner in the sum of $2,-649.88 conceded by plaintiff to be owing for a Schlumberger test charged to defendant but admittedly owed by plaintiff. From the adverse judgment below, defendant has. taken this appeal. Plaintiff has answered the appeal praying for damages for a frivolous appeal.
Plaintiff's petition alleged that pursuant to an instrument dated August 13, 1957, plaintiff and defendant entered into a drilling contract (a copy of which is annexed' to and made part of plaintiff's petition) wherein plaintiff agreed to drill an oil well! to be known as No. One Howell well, located in Section 60, Township 2 South, Range 1 West, East Feliciana Parish, for the agreed price of $35,500. The petition-further relates that drilling operations were-actually commenced August 9, 1957, and-completed in accordance with the contract and to the contract depth on September 3,. 1957. Finally, it is asserted defendant refused to pay the contract price despite plaintiff's performance of all requirements-of the agreement.
Defendant answered admitting execution, of the contract and defended his declination, to pay the agreed price on the ground the well was not completed as agreed. The pertinent articles of defendant's answer read as follows:
"4.
"For answer to paragraph 4 of plaintiff's petition defendant admits that pe-tioner commenced drilling operations on August 9, 1957, but defendant denies that petitioner completed the well in accordance with the contract or to the contract depth.
"5.
"For answer to paragraph 5 of plaintiff's petition defendant denies that petitioner performed all of the obligations required of it by the contract, and alleges that for this reason defendant has refused to pay the agreed contract price.
"6.
"Further answering said petition defendant shows that plaintiff violated the provisions of the drilling contract in the particulars which will be shown upon the trial of this case, and for this reason defendant has refused to make the payment demanded of him, and with respect to which defendant reserves his right to hereafter claim damages in an appropriate proceeding."
The material facts and circumstances generating this lawsuit are not in serious dispute between the contending litigants.
In the early months of 1957, defendant, a lease broker and oil speculator, obtained mineral leases on several thousand acres of land situated in East Feliciana Parish, a principal consideration for which was his unconditional obligation to commence, before August 10, 1957, operations for the -drilling of a test well to a depth of 9,000 feet. About the first of August, 1957, defendant employed plaintiff to drill the well -defendant had obligated himself to bore, the agreement between said parties being reduced to writing on a more or less standard printed drilling contract form in general use in the oil industry. The contract provides that the well shall be drilled to a depth of 9,000 feet and would be a "slim hole test" which, to those experienced in the trade, simply means the hole was to be smaller than the usual or ordinary hole sunk in the search for oil and therefore somewhat less expensive than a well of customary bore.
The entire disagreement between plaintiff and defendant arises from the following provisions appearing in the contract:
"10. Drilling Methods and Practices :

"10.6 Contractor agrees to drill the well in such a manner that its deviation from vertical shall at no time exceed the deviation limits specified in Par. 3 of Exhibit 'A', and shall make vertical deviation surveys without cost to Owner at least once every five hundred (500) feet with standard instruments and equipment acceptable to Owner. When the hole is found to be more than the permissible degrees off vertical, Contractor, if requested by Owner, shall cement off and redrill or otherwise straighten the hole to the satisfaction of Owner. Owner reserves the right to survey the hole with his own equipment at any time and at any depth during the course of the drilling operations, but the time required for such surveys shall be paid for at the applicable day work rate. Cementing off and redrilling or straightening any hole drilled on footage basis with more than permitted deviation shall be at the Contractor's expense. The time required to cement off and redrill or straighten any hole drilled on day work basis shall be paid for by the Owner at the applicable day work rate.
"11. Completion Tests and Installation of Well Connections:
"11.1 Contractor agrees, when making a completion test of the well, to run tubing and to swab the well at the request of Owner, with swabbing equipment furnished by Owner, for a length of time sufficient to make certain that the hole is free of drilling mud or water or both. Regardless of depth, Contractor, at applicable day work rate, shall continue the work of swabbing or hold Contractor's rig while pumping or flowing tests are being made, for such length of time as Owner may deem it necessary for completion of the well in accordance with his wishes; or, if requested by Owner to do so, Contractor shall plug and abandon the well, at the applicable day work rate.
*
"14. Reports to Be Furnished by Contractor:
"14.1 Contractor shall keep and furnish to Owner a daily drilling report on forms provided by Owner or in the manner designated by Owner. This report shall be open to inspection by Owner at all times.
‡ ‡ ‡ *
"14.3 Contractor shall keep an accurate log of the well, giving depth and thickness of each formation from the surface of the ground to the bottom of the hole, and will attach one typed copy of the well log to the final bill when it is presented to Owner for payment."
During the course of drilling the well and when a depth of approximately 4,300 feet was reached, an unfortunate and tragic accident occurred on the rig as a result of which defendant's son, who was checking the well as defendant's agent, representative and business associate, was fatally injured. Plaintiff thereupon requested defendant to advise whether defendant desired to abandon the well or complete the hole and was directed by deféndant to proceed to contract depth. The well was then completed without further incident. During the drilling process defendant employed an independent mud logging crew to analyze mud samples as the well was being drilled from depths of approximately 4,000 feet to hole bottom at 9,000 feet. In addition to keeping the mud logging crew at the well site for the last 5,000 feet of drilling it also appears that during the drilling process defendant dispatched a petroleum engineer to the well on at least two occasions. When the well was completed plaintiff notified defendant contract depth had been attained and defendant immediately dispatched a petroleum engineer, Blackwell, and a Geologist, Kilbourne, to examine and test the well to determine whether or not it was a producer. Defendant's geologist and engineer spent over 12 hours on the well site conducting all usual and customary tests and examinations ordinarily taken in evaluation of a well after completion. An ele.ctric log showing the depth of the well, (but admittedly not the degree of deviation) as well as the formations penetrated, was run by a sub-contractor engaged by defendant for the purpose.
It is undisputed defendant's experts were denied no information concerning the well, nor were they refused opportunity or facilities to make any tests they desired. On the contrary, defendant freely acknowledges his representatives were not hindered or impeded in their examination but rather that they were granted every courtesy, consideration and assistance by plaintiff's employees.
Upon completion of their scientific analysis of the hole, Blackwell and Kilbourne informed defendant the well was non-productive and, pursuant to instructions from defendant, directed plaintiff to abandon the well which plaintiff did by plugging the hole with cement and removing the drilling rig assembly.
On September 6, 1957, plaintiff billed defendant for the contract price of $35,-500 but admittedly did not attach a copy of the well log thereto as provided for in paragraph or section 14.3 of the contract. Subsequently, plaintiff remitted statements on the first of each month until institution of this suit on September 6, 1958. Defendant neither responded to said communications nor paid the amount for which he was billed. However, in January, 1958, defendant contacted C. A. 'McCartney, plaintiff's Secretary-Treasurer, requesting a conference to discuss possible settlement of the tort claim defendant believed he had because of the accidental death of his son. During this conference, which was held on an undisclosed date in January, 1958, defendant ignored McCartney's request for payment of the amount due un der the drilling contract but expressed no dissatisfaction or displeasure with the manner in which plaintiff had performed its part of the drilling agreement. Instead, defendant suggested a method of settlement of the tort claim whereunder the amount due therefor would be paid by plaintiff's liability insurer to plaintiff who would receive said funds and devote same to the drilling of additional wells for defendant. When defendant was advised that the tort claim was a separate and distinct matter which defendant would have to settle with plaintiff's insurer, defendant became adamant and virtually declined further discussion of the matter. In this connection the record reflects defendant resented the presence of plaintiff's attorney during this conference and further that defendant felt somewhat inhibited in that he was not represented by counsel on this occasion. Following the aforesaid conference, plaintiff and defendant maintained contact relative to the matter by way of correspondence and telephone communication. Plaintiff supplemented its monthly statements with letters requesting payment and defendant responded by frequent solicitation of information which he desired in connection with his continued investigation of the facts and circumstances surrounding the fatal accident to his son, which information he apparently desired for use in filing suit against plaintiff and plaintiff's insurer to recover for the death of his said son. Defendant readily concedes that in none of these discussions or negotiations did he express or indicate the slightest dissatisfaction, objection or complaint to the manner in which plaintiff performed the drilling contract. To this point, defendant's entire demeanor and reaction created the clear and unmistakable impression that his failure to pay the agreed price was not based upon any alleged dereliction on plaintiff's part but solely on his belief the claim against plaintiff and plaintiff's insurer for the death of his son greatly exceeded the amount due plaintiff by defendant for the drilling of the well and the difference should be settled in the manner desired by defendant.
Defendant concedes that in August, 1958, he became aware of plaintiff's intention to file suit for the balance due under the drilling contract and upon so learning contacted McCartney and requested that plaintiff refrain from institution of suit. Defendant also acknowledges that during this discussion he advised McCartney that he, defendant, believed the issue between the parties was more than the contract price the reference being to the unsettled tort claim. Meanwhile, defendant received from his geologist a written report of the latter's findings and scientific appraisal of the well, sold a one-quarter interest in the leases preserved by the drilling of the well in question and retained the leases to the next delay rental date at which time he permitted the leases to expire. During this entire period defendant conceded he lodged no objection or complaint with plaintiff respecting the drilling of the well in question.
The pertinent portion of defendant's answer clearly indicates a general denial in the vaguest of terms excepting the sole allegation the well was not drilled to contract depth. On November 14, 1958, approximately fourteen months after completion of the well, defendant took the testimony of certain drillers employed by plaintiff on the well in connection with the tort action which had been filed to recover for the death of defendant's son. Said depositions revealed nothing of significance respecting the procedure which had been followed in the course of the drilling operations. On this same occasion defendant's deposition was also taken and in response to the request of counsel for plaintiff that he enumerate the contract violations attributed to plaintiff, defendant read a lengthy prepared statement which indicated he had carefully scrutinized each and every paragraph of the drilling contract with the view of discovering possible violations thereof. Even at this juncture, defendant's replies reveal that he had no concrete evidence upon which to found an accusation of breach of faith by plaintiff.
Subsequently, in March, 1959, at the request of defendant's attorney, defendant was furnished copies of the daily drilling reports called for in Paragraph or Section 14.1 of the contract. Defendant's examination of these reports revealed, for the first time, that the results of the. deviation tests called for in Paragraph 10.6 (known in the oil industry as a "Toteo") were not entered on the daily drilling report. In effect defendant's entire position is predicated upon plaintiff's failure to record the results of such deviation tests in the daily drilling reports coupled with plaintiff's failure to furnish copies of said daily drilling reports and failure to accompany the initial statement by a copy of the well log as required by the contract.
Defendant contends there are two different kinds of drilling contracts or agreement. He asserts there is the ordinary contract by which the driller furnishes material, labor and equipment for a stated price per day under which circumstances the owner retains full control and supervision of the well and the contractor is only responsible for carrying out the orders and directives of the owner as to the method and depth of drilling. On the other hand, he argues the contract involved herein is known as a "turnkey contract" or one in which, for a specified contract price, the driller assumes absolute control of the work agreeing and obligating himself, without qualification, to drill a well to a certain depth and within a certain tolerated deviation. In the case of a contract of the character involved herein, esteemed counsel maintains the owner has no control over the work and can only look to the contractor to strictly comply with the provisions of the agreement. From this premise counsel argues that, in such circumstances, it is incumbent upon the contractor to allege and prove strict and absolute compliance with each and every contract term and provision. In this connection, counsel contends that since the contractor has agreed to produce a certain result, defendant is not obligated for the contract price until and unless plaintiff establishes the contract has been fulfilled to the letter.
It is significant to note that defendant does not contend deviation exceeds three degrees of vertical or that the well was not drilled to a depth of 9,000 feet or that he has sustained loss or damage as a result of plaintiff's default in performance of a contract provision. In substance defendant alleges merely that since plaintiff's employees did not enter the results of the Toteo tests on the daily drilling reports and also neglected to enter certain other information thereon, defendant suspects that the required number of deviation or Toteo tests may not have been performed as required. From the foregoing premise it is reasoned that if the Totcos were not run the hole may be excessively deviated, that it may be less than 9,000 feet in depth since a deviated hole 9,000 feet in length is not necessarily 9,000 feet below the surface and that if either condition exists he may have sustained damage as a result thereof. In this same connection, defendant contends the well was drilled primarily as an exploratory well to gather subsurface geological data for correlation and evaluation with other available data covering the area, therefore, it is essential that he know whether the exact contract depth was reached within the degree of deviation specified. We note, however, the record unquestionably reflects the well was a "wildcat well" drilled primarily in search of oil and not principally for the purpose of obtaining geological information.
Stated simply, plaintiff's position is that it contracted to drill the well to a stated depth and within a certain degree of deviation for the contract price of $35,500. Plaintiff further maintains it did, in fact, drill the well according to the contract terms and specifications, tendered the well to defendant who accepted same without objection, complaint, protest or criticism, tested it in accordance with approved, acceptable scientific principles, concluded i* was non-productive and ordered it aban doned as a dry hole. Plaintiff further maintains that proof that the well was drilled and accepted without objection, protest or complaint (which facts are conceded by defendant) constituted plaintiff's entire burden of proof.
As a general rule, a party suing to recover on a commutative contract must allege and prove performance of his agreement. LSA-C.C. 1913, Merritt v. Harang, La.App., 198 So. 386. However, the jurisprudence of this state is settled to the effect that upon substantial completion of a work, the contractor is entitled to the value thereof as constructed, the remedy of the owner, in the event of defects or imperfections therein, being the right to seek a diminution in the price to the extent of the loss or damage sustained by virtue of the contractor's failure to perform the work as agreed. McLemore v. Hemler, 4 La. App. 388; Merrill v. Harang, La.App., 198 So. 386; Cairy v. Randolph, 6 La.Ann. 202; Reimann Construction Co., Inc. v. Upton, La.App., 178 So. 528; Jack v. Henry, La.App., 128 So.2d 62.
There is also that line of jurisprudence which holds that unqualified acceptance of a work without objection, protest or complaint respecting the manner of its performance, bars or estops the owner from recovery of damages resulting from or the 'cost of repairing certain defects therein.
We note that in P. Oliver & Son v. Board of Com'rs of Lake Charles Harbor & Terminal Dist., 177 La. 157, 148 So. 12, (a case which involved a dispute arising before acceptance), the Supreme Court held an owner was estopped to place a contractor in default for failure of certain pilings in view of a contractual provision for inspection by defendant's inspectors.
In Delambre v. Williams, 36 La.Ann. 330, it was held that acceptance without objection estopped the owner from claiming damages for non-fulfillment of a provision regarding the cost of materials employed on a project.
Precedent also establishes that acceptance with the understanding that certain defects will be remedied does not bar recovery for the cost of remedying such defects. Costanza v. Cannata, 214 La. 29, 36 So.2d 627, Jack v. Henry, La.App., 128 So.2d 62. Authority also exists for the proposition that acceptance of a contract without objection or complaint bars recovery by the owner of the cost of repairing patent defects or imperfections discoverable upon reasonable inspection. Delambre v. Williams, supra, Mitchell v. Curell, 11 La. 252, A. M. Blodgett Construction Co. v. Cheney Lumber Co., 129 La. 1057, 57 So. 369, Jack v. Henry, supra.
The rule with respect to patent defects or defects discoverable upon reasonable inspection does not apply to latent defects or those not discoverable upon ordinary inspection, neither does it apply with respect to defects becoming manifest subsequent to acceptance. Svendson v. American Indemnity Co., La.App., 76 So.2d 737, Seminary v. Blair, La.App., 52 So.2d 877, Jack v. Henry, supra.
On the'issue of burden of proof which appears squarely presented in the case at bar, it appears the jurisprudence is established to the effect that where the owner admits the contract and the fixing of the price for the entire work but seeks to escape liability for payment of all or any portion of the contract because of alleged defects in the work or the contractor's failure to complete the work according to contract plans, terms or specifications, the owner bears the burden of proving the defects complained of. Merrill v. Harang, La.App., 198 So. 386; Annan v. Woods, 158 La. 663, 104 So. 491; A. M. Blodgett Construction Co. v. Cheney Lumber Co., Ltd., 129 La. 1057, 57 So. 369; Borne v. Hardin, 15 La.App. 286, 131 So. 472. The effect of acceptance upon the burden of proof as enunciated in the hereinabove cited authorities of this state appear to be in accord with the general rule on the subject matter stated in 17 C.J.S. Verbo Contracts, § 590, b, (1), p. 1231 as follows:
"The burden of proving acceptance is on the party asserting it. An acceptance or a voluntary use of the subject matter of the contract will be evidence, although not conclusive evidence, of performance or of a waiver; but, if such acceptance or use is in ignorance of any deficiency of performance, it will not be held to be a waiver. Under such circumstances, however, the burden of showing defective performance rests on the party alleging it."
Granting defendant's unqualified acceptance constituted a waiver of only his right to recover the cost of rectifying defects discoverable on reasonable inspection, the rule regarding hidden or latent defects as well as those which become manifest only after acceptance has no application to the case at bar for the reason defendant (in an obvious attempt to escape the burden of proof) has most carefully refrained from alleging a specific breach or failure on the part of plaintiff with respect to the manner in which the drilling of the well was required to be performed under the contract provisions. We also note defendant's failure to allege or prove the slightest damage or loss because of dereliction in duty on the part of plaintiff herein. The gravamen of defendant's present complaint is not that he has been damaged but rather that he may have been damaged and further that he is not presently in a position to determine whether he has or has not in fact sustained loss because of plaintiff's failure to keep certain records required by the contract.
The testimony of plaintiff's witnesses creates the inference that the disputed Tot-eo tests were run although the testimony of at least one driller employed on the well casts some doubt on this score. It appears from the record that it is customary in the industry to keep the records of such tests in what is known as a Toteo Box which is maintained on each rig and discard them after completion and testing of the well since they are thereafter of no value irrespective of whether the well is productive or dry. Both parties recognize it is now impossible to determine whether the well did in fact reach the contract depth within the degree of deviation called for. It is also conceded that whereas the results of Toteo tests made during drilling operations are customarily accepted as accurate they are not necessarily so because the authenticity of their reflections may be affected by the condition of the equipment used and the skill of the driller who conducts the tests. The record also establishes that upon completion of a well the only positive and absolutely accurate method by which true deviation may be determined is to run a directional survey thereon. It is acknowledged that neither plaintiff nor defendant conducted a directional survey of the well in question although by custom in the trade, as well as under the provisions of his contract, defendant clearly had the right to make a directional survey if he so desired.
It further appears from the testimony of defendant's geologist and engineer that, in accordance with approved, acceptable procedure they presumed the hole to be "straight" because the statutory law of this state on the subject matter so requires. They further testified they did not examine the Toteo discs in the instant case as they had no reason to suspect excessive deviation. They assumed the hole to be within the tolerated deviation figure because deviation is rarely checked except in unusual instances where it is known to be a factor such as where a well is drilled near a lease line and there is danger of encroachment upon property outside the lease or where a well is intentionally directionally drilled and a specified deviation is contemplated and desired. Both Blackwell and Kilbourne freely admitted they were given every opportunity to test the well in whatever manner they wished and that they did in fact test it to their complete satisfaction. Both stated, however, there was, under the curcumstances, no way of positively determining exact depth and deviation. Their testimony is likewise clear to the effect that whereas they could not tell that the hole was in fact straight they had no reason to suspect it was not so.
That defendant received substantial benefits from the well is amply demonstrated by his own testimony. He acknowledges the drilling operation fulfilled a contractual obligation on his part but for the performance of which he would have forfeited mineral leases covering large tracts of land. Defendant further admits that, following completion of the well in question, he sold a portion of the leases thus preserved receiving a substantial sum therefor. The record leaves not the slightest doubt defendant realized considerable financial gain and return as a result of plaintiff's performance and obtained virtually all benefits anticipated therefrom except that the well proved to be a dry hole instead of yielding oil in paying quantities which latter result plaintiff did not guarantee under the drilling contract.
Granting plaintiff has not affirmatively established completion of the well as agreed and further that plaintiff failed to furnish defendant daily drilling reports and neglected to attach a copy of the well log to the bill submitted to defendant on completion as required by the contract, it does not necessarily follow that the well was' not completed in accordance with the contract terms and specifications.
Defendant's unconditional and unqualified acceptance of the well without objection, protest or complaint unquestionably lulled plaintiff into believing defendant was satisfied with the result and would pay the contract price agreed upon. This appears especially true in view of the uncontradicted evidence to the effect that upon completion of the well, defendant's geologist and petroleum engineer spent at least 12 hours in examining and testing the well aided by plaintiff's employees who admittedly assisted and cooperated with defendant's representatives in every respect and accorded them every possible opportunity to conduct whatever tests they deemed necessary or advisable in defendant's interest. In this regard the evidence further shows that plaintiff did not plug the well until after defendant's experts conducted complete and exhaustive scientific examination and evaluation thereof and were instructed by defendant to inform plaintiff to plug the well and remove the drilling rig. Had any protest, objection or complaint been lodged by defendant or his representatives before or upon completion of the final appraisal of the well or had plaintiff been given any reason to believe or suspect defendant would dispute the manner of performance, plaintiff would have been placed on guard and could have conducted tests of it own to determine whether defendant's complaints were well founded. More specifically, had defendant disputed the degree of deviation as he now seeks to do plaintiff could have run a directional survey to settle such dispute beyond question. Defendant's unconditional acceptance having prompted the circumstances which renders proof impossible (namely the cementing of the well upon defendant's direction), it is not seemly that defendant call upon plaintiff to produce such proof.
Under the clear and express provisions of the contract defendant had the unqualified right to survey the hole at any time either during the drilling process or after completion. He freely concedes he did not do so and explains his failure in this regard by stating that since the contract was a turnkey job he relied exclusively upon plaintiff's contractual obligation to achieve a specified result. His position in this regard is, however, clearly without merit for reasons hereinabove set forth.
It seems reasonably clear from defendant's own testimony his refusal to pay the contract price was purely an afterthought which occurred long subsequent to his acceptance of the well and receipt of benefits arising therefrom. It appears equally clear his decision in this regard was prompted by his resentment of plaintiff's refusal to settle the unrelated, outstanding tort claim for the death of defendant's son in the manner suggested and desired by defendant.
We believe the instant case comes squarely within the rule that acknowledgment by an owner of his execution of a contract for an agreed price and subsequent unconditional and unqualified acceptance of the work tendered him by the contractor as completed in accordance with the terms of the agreement, imposes upon such owner the onus of proof of an alleged breach thereof. The foregoing rule is peculiarly applicable to the facts and circumstances of the case at bar considering defendant was specifically given the right, privilege and opportunity to inspect the well at any time and did, in fact, conduct a detailed examination thereof before ordering same abandoned. Defendant's decision to abandon the well and his authorization of plaintiff's action in plugging the hole (in accordance with usual practice in the industry) is solely responsible for the fact that the disputed issue is presently impossible of resolution one way or the other. Under such circumstances defendant, being incapable of discharging the burden of proof resting upon him, may not prevail herein.
Considering this matter involves a complex and perplexing legal issue we do not deem defendant's appeal frivolous and, therefore,-reject plaintiff's demand for damages as for a frivolous appeal.
Judgment affirmed.