Cosden Oil Co. v. Scarborough
United States Court of Appeals for the Fifth Circuit
55 F.2d 634 (1932)
- Written by Abby Roughton, JD
Facts
W. F. Scarborough (plaintiff) leased 10,254 acres of land for oil, gas, and mineral development. The lease had a 10-year primary term and provided for the payment of delay rentals during the primary term until production started. The lease was expressly binding on future assignees and provided that an assignee’s separate payment of rentals on the assigned portion would be sufficient to keep the assigned lease alive. Before production started, Scarborough’s lessee assigned 400 acres of the land to Cosden Oil Company (Cosden) (defendant). Scarborough believed that Cosden would start drilling by October 1928. However, by October 1929, Cosden had not drilled. Scarborough sued Cosden, asserting that Cosden was in default of the implied covenant to pursue oil-and-gas development with reasonable diligence on the assigned 400 acres. Cosden asserted in response that (1) Cosden’s assigned portion of the lease was part of the whole lease and imposed no separate development obligation on Cosden, and (2) even if Cosden did have a separate development obligation, no prudent operator with the interests of both the lessor and lessee in mind would drill on the land under the conditions at the time. The trial court decreed that Cosden was in default of the implied covenant and ordered Cosden to drill at least one well to avoid cancellation of the lease. Cosden appealed.
Rule of Law
Issue
Holding and Reasoning (Hutcheson, C.J.)
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