Leon v. Gulf Production Co. , 35 S.W.2d 1101 ( 1931 )

It had been my preference for the question concerning the proper construction of the contract here involved to be certified to the Supreme Court, and an order to that end was heretofore entered; on the subsequent return of the third member of the court who had then been absent, however, by majority action that was rescinded and the cause was decided here, under the interpretation Justice LANE'S opinion puts upon the instrument.

To that I cannot agree; it seems to me that an anomalous if not grotesque juridical denouement arises when this court solemnly pronounces as one having authority that the parties in making it never intended by the clause "or until lessee is satisfied that oil, gas, sulphur, or other minerals, in paying quantities cannot be produced from said premises," that this lease should remain in force a moment longer than ten years if any one of the enumerated minerals was not at that time actually being produced on the 64 acres, when they themselves as witnesses on this trial, none being parties to nor interested in the suit, all testified that as such contracting parties they meant no such thing; that, on the contrary, they mutually intended and understood that the lease would not terminate at the expiration of the ten-year period, provided the lessee then believed that oil, gas, or sulphur could be produced therefrom in paying quantities, and the rentals were being paid.

Mr. Fisher, the lessor, testified:

"A. Well, my intention when I leased the land was: I leased it to him for $100.00; I did not know how long it would be, just so they paid me the $100.00 a month, whether for fifty years or a hundred."

"Q. Was it discussed with you at the time you executed the contract as to what that hundred dollar clause meant, and that you have just stated was the final outcome of your proposition?"

"Q. Did you all discuss what the clause meant before you signed the lease? A. Yes."

"Q. And just what you have said in your previous answer was what your intention was, which finally developed as a result of that conversation? A. Yes, sir. * * * I distinctly leased them the land for as long as they paid the $100.00, whether they drilled or not. * * *

"The reason that provision was in there that they pay me $100.00 per month until we got royalties that were more than $100.00 per month, is because I picked that and figured that $100.00 would be more than a living for me. I did expect them to drill on the land at some time, and I did expect the royalties to exceed $100.00 per month. It didn't make any difference to my wife and I whether they drilled upon this land or not. Certainly it would have made a difference to me if we could have gotten royalties that amounted to four or five hundred dollars per month. What I mean to say is, when they got ready to drill they could go ahead, and if they wanted to hold it, it was all right with us. Of course I would rather have had a well drilled in on it.

"I did not understand that it was for ten years; I didn't understand it that way. Just like I have told here, I didn't have any specific time."

Mr. Hindman, the acting officer of and alter ego for the lessee petroleum company, testified as to the objective of the same clause:

"As an officer of that company I did have occasion to enter into an oil and gas lease with one Elmer Fisher and wife, Martha Fisher, about the 31st day of January, 1918. That lease was executed in the Fisher home out at Barber's Hill. At the time of its execution there were present Elmer Fisher and his wife, Walter Keeble, myself, and a notary public.

"Q. Answer the question, Mr. Hindman, what was the intention of the parties as to what that provision meant? A. That the lease should remain in force so long as we kept the rentals paid up, or until we were fully satisfied that oil, gas, and sulphur, or other minerals could not be produced on the land."

Obviously such lessors and lessee had a legal right to so contract concerning their own property in the land and the means of exploiting it for minerals, there being no suggestion of any fraud between themselves nor as affecting others, nor any as to the contravention of any public policy or authority, wherefore, it would seem, their mutually legitimate and so unmistakably expressed purpose should be enforced. Corsicana Pet. Co. v. Owens, 110 Tex. 568, 222 S.W. 154.

Especially so, when the undisputed evidence showed: (1) That the lessee and its assigns regularly paid the promised $100 per month either in money or oil to the lessors and their grantee, the appellee here, throughout the whole of the specified ten years from January 31 of 1918 up to January 31 of 1928, and then so tendered the latter the $100 payment for the ensuing month of February of 1928, which it refused to accept; (2) that during that ten years of time such lessee and its assigns made reasonable and bona fide efforts to produce oil on the 64 acres, spending about $100,000 in drilling nine wells thereon, some of which for stated periods produced considerable oil; (3) that there was never a time, from the inception of the lease in 1918 up to and subsequent to the appellee's refusal to accept the proffered continuance of the stipulated $100 monthly payments in February of 1928, that the lessee and its assigns were satisfied that oil, gas, sulphur, or other minerals in paying quantities could not be produced from the land; on the contrary, they still affirmatively believed and asserted on this trial that it could then be so produced.

So that, under these uncontroverted facts, by analogy to the Owens Case, supra, the question simply is whether the terms of the lease are such as to make this ascertained intention of its makers unenforcible.

How it can be that they are so does not readily occur to me. This was not the ordinary form of leases with which mainly, if not exclusively, the authorities cited in support of the majority construction had to do — those called "development" contracts, in which the chief consideration and incentive to the lessors in executing them, there usually being otherwise nothing more than a merely nominal quid pro quo, was the expressly contracted-for development, together with the consequently anticipated royalties in minerals. Whereas, in material differentiation, with these lessors that was a wholly secondary concern, their controlling objective being the very substantial return to them of $100 per month, "more than a living for them," there being at the same time no obligation whatever by them imposed upon the lessee to drill at all, only the privilege to do so being granted, and the land being in strictly "wildcat" territory when the contract was made.

To contend that such a contract in those circumstances providing for its continuance "until the lessee is satisfied" that production in paying quantities cannot be had is too indefinite and uncertain to be given any effect at all, at least when the decision of the arbiter so designated is made in good faith, is to inveigh against the clear current of authority, especially in Texas. 24 A. E. Ency, of Law, page 1236, McDougall v. O'Connell, 72 Wash. 349, 130 P. 362, 131 P. 204; 7 Words and Phrases, First Series, page 6329; 9 C.J. § 115, page 772; G., H. S. A. Ry. Co. v. Henry Dilly, 65 Tex. 685; Kilgore et al. v. Baptist Educational Society, 89 Tex. 465, 35 S.W. 145; Jones v. Gilchrist, 88 Tex. 92, 30 S.W. 442; Kettler Brass Mfg. Co. v. O'Neil,57 Tex. Civ. App. 568, 122 S.W. 900; Martinsburg P. R. Co. v. March, 114 U.S. 549, 5 S. Ct. 1035, 29 L. Ed. 255.

In my view there inheres in it no such uncertainty, nor yet the claimed repugnance to the preceding recitation that the contract shall remain in force as much longer than ten years as minerals are produced in paying quantities, nor the final insistence — made by way of an asserted alternative — that it must, then, contemplate a perpetual continuance; to me, on the contrary, it simply accords two conditional extensions of time after the running-off of the numerically-stated term of ten years, instead of this foregoing and usual one only, in oil lease contracts, to wit, (1) as much longer thereafter as oil is produced in paying quantities, (2) or until lessee is satisfied that it cannot be so produced; in other words, full accord is here expressed with this appraisal of the legal effect of the contract as a whole appearing in the able reply brief for appellant:

"As we read the lease, every provision is given effect on the following construction: It shall last until (1) the lessee gives written notice of an intention to abandon it, and this whether before or after the ten year period, (2) for ten years certain without any obligation to drill or to do anything other than pay rentals (Buie et al. v. Porter et al. [Tex. Civ. App.] 228 S.W. 999, 1002; Aycock v. Reliance Oil Company et al. [Tex. Civ. App.] 210 S.W. 848); (3) after ten years if oil, gas and other minerals are then being produced in paying quantities, and still further (4) until appellee is satisfied that the same cannot be so produced.

"This gives a reasonable construction to every provision in the lease and shows a meaning for it."

No perpetuity nor indeterminate condition is here imported, because the clause in question fixed a time ending with a specific occurrence that was definitely ascertainable — that is, until the lessee should be satisfied that oil, gas, sulphur, or other minerals could not in paying quantities be produced from this land — which privilege, or quest, as I read the authorities, he would be required to exercise not only under reasonable conditions and limitations, but in good faith as well. 24 A. E. Ency. of Law, p. 1236, cited supra.

It is, moreover, both a matter of common knowledge in the business itself and a generally known fact of a public nature, that the courts may take judicial cognizance of, without evidence, that subterranean petroleum oil in the coastal plain of Texas is only found in such individual pools, or detached deposits, as are readily exhaustible.

To pick up this, "or until lessee is satisfied that oil in paying quantities cannot be produced," clause, and hark back with and tie it exclusively to the introductory, detached, and wholly independent right of abandonment there given the lessee — thereby deducing that it was only intended to apply to and limit such particular right, and that within the ten-year period — seems to me clearly untenable, for these among other reasons: (1) It would so disarrange the structural form of the contract laid down by the makers as to possibly import something they explicitly say they did not mean; (2) the right to cancel given to the lessee in the premises or first part of the instrument would apply just as much to the provision in the habendum clause extending the lease on production in paying quantities, as it would to the matter of the lessee being satisfied; (3) this quoted provision as to being satisfied was not only put by its authors after, but was stated as a distinctly disjunctive right to the one attending actual production in paying quantities; (4) as heretofore pointed out, the lease considered from its four corners, since it did not require any development or drilling whatever, reasonably indicates its dominating purpose to have been to make sure of obtaining $100 a month income for the lessors over as long a time as possible, even if that result only should flow to them for 50 or 100 years.

While these individual conclusions, if given their full effect, would require the lease as an entirety to be so construed as on its face giving the lessee the right to continue holding thereunder so long as he paid the rent and in good faith was not satisfied that oil could not be so produced, in much respect for and in deference to the contrary views of both the trial court and the majority of this court, I prefer to and do limit this dissent to the holding that the alternative clause, "or until lessee is satisfied," at least created such an ambiguity in its meaning as was subject to explanation by parol testimony; wherefore, the giving of the peremptory instruction was reversible error.

The other questions I put behind me, upon such considerations as these: This lease by its express terms was assignable, and appellant held the ten acres thereof he claimed regularly down under the original lessee, being therefore in privity of contract and title with it, hence succeeded to whatever rights it would have had therein subsequent to the ten-year period; he sued in trespass to try title to recover the ten-acre leasehold interest, with alternative counts and prayers seeking specific performance, and also asked for general relief; I think his pleading, as against only the general demurrer interposed against it, was sufficient.

Further discussion is deemed unnecessary; in my opinion the judgment should have been reversed, and the cause remanded for a new trial on the facts, at least in so far as concerned the meaning of the contract.