Court Opinion

ID: 9833287
Source: CourtListenerOpinion
Date Created: 2023-09-01 22:35:21.692495+00
Date Added: 2024-06-11T07:44:01.204293
License: Public Domain

On Rehearing.
Appellee’s motion for rehearing has challenged our careful consideration of all questions discussed and particularly the question as to the measure of damages. Undeniably the latter is the most difficult, as well as the most important, question involved. Our conclusions will require some restatement, if not modification, of our views, as expressed in the original opinion, but will not lead to any different disposition of the ease.
There can be no valid contention .that appellants’ pleading does not state a cause of action. It certainly does sufficiently charge the breach of a contract. “If a contract has been broken, and the plaintiff cannot prove that any damage has been caused, he is, nevertheless, entitled to nominal damages.” Williston on Contracts, § 1340. Appellee, however, particularly and by special exception challenged the sufficiency of the pleading to support a claim of damages measured by the cost of drilling the wells. The original opinion sustained the pleading against that criticism.
Damages for breach of contract are something different from damages for tort. The latter are given by way of restoration to the injured party of what he has lost or will lose as the result of another’s wrong; the former are to compensate one party to the contract for the breach by the other by allowing the value to him of such performance. If, in case of breach of contract, the law would do no more than to allow only such damages as would save the plaintiff from loss from having made the contract, that would amount to a refusal of the law to enforce performance of a contract by means of assessing damages. It would result that any party to a contract, even though the other party had fully performed his obligations, could, without the consent of the other, enforce a rescission simply by refusing to perform and by tendering back what had been received and otherwise saving him from loss, not including (but excluding) any loss of advantage from the contract.
Having construed (at least tentatively, or provisionally) the contract obligation under consideration to be a covenant, what was said by the Supreme Court, speaking through Judge Greenwood in T. P. C. & O. Co. v. Barker, 6 S.W.(2d) 1031, relative to how the policy of the law is to be accomplished, is applicable here. It was there.said: “The purpose of the law to give compensation for breach of contract is subserved by allowing the injured party to have the value to him of the contract’s performance.” If the covenant were one to reasonably develop the leased premises or to protect same from drainage, the last-named decision is unquestionably authority for the proposition that the measure of plaintiffs’ damages is the value of rents or royalties that would have been received had the covenants been performed, but were not received because of their breach. Is performance in such a case the same as performance in this case? Performance of the lessee’s obligations dealt with in the Barker Case would consist of reasonable development or reasonable protection of the leased premises. Performance in this case consists of drilling three wells each year. The latter is certain, the former uncertain, being dependent upon factors that in their nature could only become known dtiring progress of the work, and that would, therefore, determine the ultimate nature and extent of the performance. In this case, when a particular year had expired and three wells had not been drilled, there would certainly be a breach of the contract It being certain what constitutes performance, it is equally certain when there is a failure to perform. Not so when performance consists of reasonable development or protection. Just as in the very nature of the case it cannot be known at the time the obligation is incurred of what performance will consist it likewise cannot be known with certainty at any particular stage of the work that performance has or has not been completed. Stated in other words, there is an element of uncertainty in what constitutes performance of a covenant to reasonably develop or protect a lease that is absent in a covenant to drill a well or a specified number of wells to a contemplated depth. How, if at all, does such difference affect the problem of assessing damages? A leases land to B, and as a part of the’ consideration B covenants that in case of the discovery of minerals, he will reasonably develop the leased premises.
The courts have read into the lease itself jrist such obligation, even though unexpressed. Upon breach of such covenant why would not the reasonable cost of doing the required development work, drilling wells, etc., fairly measure the damages to the lessor? Perhaps an all-sufficient answer may be: That at. the time of making the contract it was humanly impossible to even estimate such cost. But, suppose A’s land is without any known mineral value and he contracts *262with B to drill a well on it to a specified depth for a certain cash consideration paid. Upon breach of the contract by B to drill, could be justly complain if A claimed of him, as a measure of bis damages, the reasonable cost of drilling the well? Appellee, we think, would not contend otherwise. Why would the reasonable cost of performance be, at least, not unfair to the defendant as representing the proper amount of compensation due for the breach of bis contract? Is it not because of the certainty that such cost is 'practically the equivalent in value of the thing to be done? It cannot be seriously contended in such ease that no damages would be recoverable except upon pleading and proof that the well would have produced minerals, and the amount and value thereof.
The very purpose of the contract was to ascertain if minerals, in fact, existed. As the result of the breach, A is deprived of any knowledge that they do or do not exist. To require A to show the existence and value of such minerals would obviously result in denying him any relief whatever, or else would subject B to an equally great injustice; viz., the hazard of a jury’s wild guess. Even if the cost of performance represented a much less exact compensation, it would, nevertheless, be necessary to measure the damages by it, because of the absence of any other adequate standard. It may be said in this connection — however, we do not think it correct to say — that the allowance of damages measured by the cost of drilling has for its purpose the enabling of A to drill the well himself. The law is concerned no further than to award to A the monetary equivalent of B’s performance. No doubt a little confusion of thought on this point gives rise to the suggestion that A, by drilling the well, could recover the cost, but otherwise could not. Should A drill the well himself and include the cost in his claim for damages, then that, if allowable, would be on an entirely different theory. The governing principle in such case would be that applicable to expenses incurred in mitigation of damages. A’s duty to drill the well, and the drilling of which might constitute a condition upon which his right to recover the amount of the cost might be made to depend, would involve inquiry into a number of things. For instance, if A were wholly unable to drill, he would certainly be under no duty to do so in order to mitigate B’s damages. On the other hand, if he were amply abie and by fortuitous circumstances could certainly do so at a less cost than B could have drilled, he might be under the duty to do so. But this is merely by the way and not vital to the question under consideration. That A, in the supposed case, may recover back the consideration he has paid B and for expenses incurred in reliance upon the contract, is wholly beside the question. That would be but waiving B’s performance.
Now, let us consider what would be the difference, if any, in the case just supposed, if A, instead of a cash consideration, gave B the lease in consideration for the covenant to drill the well, and to pay certain royalties in the event minerals were discovered. We will say the lease was without value in the absence of any drilling obligations. If performance of the covenant results in the discovery of minerals, it is true that B will profit far more than A. Also, if the minerals exist, B will lose more by the breach of the obligation than will A. But the performance called for by the contract is not discovering or producing minerals; it is the drilling of a well to a specified depth. The advantages that may be expected to flow from the discovery of minerals may constitute the motive inducing the parties to enter into the contract; but certainly no part of either the consideration or obligations of the contract. The cost of such drilling is capable of reasonably accurate estimation at the time the contract is made. Parenthetically, it may be observed that had the covenant been to discover or produce minerals, such estimation of the cost could not have been made. The only difference in the case first supposed and this one is that in the first the consideration paid by A was actual and of known value, while in the second the consideration (the value of the lease) was speculative and potential only; and in the first case, in the event that performance resulted in production, all of it would belong to A, while in the second, only a proportionate part would be his. Do such differences call for the application of different rules? We are unable to see that they do. If B breaches the covenant, it is true that A may not have lost anything, but it is equally true that he is deprived of everything that he contracted for. Whether that something be valuable or valueless he does not know. By his contract he acquired the right to have B do the work necessary to ascertain that fact. The cost of the work was capable of reasonable estimation. Are we then confronted with the alternative of saying that such a covenant is incapable of enforcement and only nominal damages can be recovered, ‘or .else that parties in the position of B are to be made to respond in damages, the amount of which must simply be guessed at by a jury? May not either alternative be avoided and an answer found that will conform to the following principles stated by Professor Williston, viz.:
“ * * * if plaintiff has given valuable consideration for the promise of a performance which would have given him a chance (italics ours) to make a profit, the defendant should not be allowed to deprive him of that performance without compensation unless the difficulty of determining its value is extreme. * * * Though the fact that the plaintiff’s damage is uncertain in *263amount, or even tliat it is uncertain that substantial damage has been caused, should not deprive plaintiff of a right to compensation for the loss of the defendant’s performance which would have given the plaintiff a chance to make profit (italics ours) or avoid damage. Such uncertainty is a reason for applying some other test, if another test is possible for estimating his damages than by letting a jury guess at the value of the plaintiff’s chance or probability by seeking to estimate his probable profits and loss. (Italics ours.) * * * Where a breach of contract involves deprivation of a chance (italics ours) which is valuable in a business sense, a just reluctance will be felt by most courts to deny altogether the recovery of substantial damage.” 3 Williston on Contracts, § 1846.
We have concluded that these principles can be justly applied in cases like the two above supposed, by employment of a legal presumption. That presumption is that the parties, in making the contract, have each sought to give the other value for the other’s undertaking or consideration. Since that value to the plaintiff, in cases like those under consideration, is, in the very nature of things, incapáble of estimation, it will be presumed to be at least as much as the reasonable and readily estimated cost of performance by the defendant, and may be claimed by pleading and proof of such cost. If the damages be less than the amount so presumed, and the defendant becomes possessed of means to make proof of that fact, within the limits which exclude mere conjecture and speculation, then it should be his privilege to do so. We admit we have not been able to find any authority laying down specifically such a rule. Support for it, we think, in principle, is given in 2 Sutherland on Damages (2d Ed.) p. 590, wherein it is said: “We know it to be an established maxim that in assessing damages every reasonable presumption may be made as to the benefit which the other parties might have obtained by the bona fide performance of the agreement.”
A good analogy is found in Southern Surety Co. v. Petrolia Land Co., 252 S. W. 204, by the San Antonio Court of Civil Appeals, speaking through Judge Smith. The suit was upon a bond for $1,000 given to secure compliance with an obligation to drill a well. Defendant claimed that the bond provided a penalty, and not liquidated damages, and that there being no evidence of damages, only nominal damages could be recovered. The court declined to pass on the question of whether the bond provided a penalty or liquidated damages, holding that it was unnecessary to do so, since, if liquidated damages, the judgment was proper, and if a penalty, then the burden of proof was upon the defendant to show that the damages were of such nature as to be clearly ascertainable and were, in fact, substantially less than the amount designated in the bond. In other words, the express obligation of the bond supplied the presumption, in the absence of countervaling evidence to the contrary, that the amount of damages, at least, equalled the amount nominated in the bond. No authority was cited for the holding, possibly because it was considered the principle was too well settled to require it. At any rate, it seems to us to be a rule that would tend to accomplish the ends of justice. If so, then the rule we have suggested would do likewise — differing as it does only in the slightly greater burden of establishing the amount of damages presumed. Such a rule will in no wise contravene the principle that the damages recoverable are such as represent the value to plaintiff, rather than the cost to defendant, of performance;- since, after all, the damages allowed are the value to plaintiff of defendant’s performance, established by a presumption that the. amount thereof is at least as much as the cost of performance by defendant.
It is, perhaps, unnecessary to say that the rule suggested, being in the nature of an exception to a more general rule, or rather a special means of enforcing the general rule, would have no application to any case in which the value to plaintiff of defendant’s performance may be reasonably and fairly estimated. If B covenant with A to erect a costly building on A’s land, designed for a particular purpose, with the agreement that the rents for a period of years shall belong, seven-eighths to B and one-eighth to A, upon breach of the agreement to construct the building) there would arise no occasion to resort to the presumption mentioned, because the rental value of such a building is capable of just approximation.
It remains to consider whether the rule, if proper in' cases like those supposed, may be applied to the facts of the instant case. The case at bar differs from the supposed cases in at least three particulars: (1) the covenant was added to the lease long after the lease was executed and after the discovery of oil and gas; (2) an independent consideration was given for the covenant; (3) the previous discovery of minerals, no doubt, rendered it less uncertain that minerals would be produced by drilling the additional wells, as well as the amount and value thereof. 'Whether or not appellants may be entitled to avail themselves of the presumption, which we have concluded can be done under some circumstances, may not appear from the allegations of the pleading with perhaps sufficient certainty. But, if so, appellee’s special exceptions do not complain of such defect. By one such exception it is contended that the extent and nature of the development required are not alleged, and by another that the pleading fails to show the amount or value of the oil or gas which would have been produced, or that the wells would have produced in paying quan*264tities, or in any amount whatever, etc. By these exceptions it is plain appellee does not challenge appellants’ right to recover damages based upon the cost of drilling the wells, but evidently contenting itself that no such recovery could be made, complains of the sufficiency of the pleading to show facts to support a recovery on any other theory. It follows that, unless we can say for certain that appellants are not entitled to employ the presumption, we must hold that the court erred in sustaining the special exceptions. But we think we may take judicial knowledge that, even in at least some proven oil and gas fields, one or more producing wells afford little or no evidence that another well would produce a given amount, or even produce at all. At any rate we cannot say, as a matter of law, that appellants were not, under their allegations, entitled to rely on the presumption and fix their measure of damages accordingly.
What has been said is not in conflict with the decision in T. P. C. & O. Co. v. Barker, supra. The difference in the cases has already been mentioned. But, notwithstanding such difference, we do not think that the rule for the measure of damages announced in said case necessarily excludes, as an alternative, the employment of the presumption mentioned above, in cases similar to the Barker Case. The test, of course, would be whether or not the reasonable cost of performance (i. e., to reasonably develop or protect from drainage the leased premises) was, at the time of making the contract, within the contemplation of the parties and capable of being proved with reasonable certainty by competent evidence. If the last-named conditions did not exist, there would be no way to establish the presumption, and, of course, it could not be made to operate. But, if such conditions do exist in a given case, we see no reason why the presumption may not be established in that kind of case as well as others. The Barker Case holds that the damages, in a case like that, are not to be restricted to merely nominal damages.
The motion for rehearing is therefore overruled.