Texas Pac. Coal Oil v. Gholson , 1 S.W.2d 649 ( 1927 )

On Appellant's Motion for Rehearing. Appellant's able counsel insists that the majority were wrong in the disposition of this appeal on original hearing, and especially in not holding that the oil and gas lease conveyed a base and limited fee for the first 5 years, such to be determined by (1) failure to find oil or gas under the ground, and (2) the election of the lessee to abandon the lease, and its abandonment. He again cites the cases of Sigler Oil Gas Co. v. W. T. Waggoner Estate, decided by the Amarillo Court of Civil Appeals October 14, 1925 (see 276 S.W. 936), and by the Commission of Appeals on June 9, 1926 (see 284 S.W. 921), and Texas Co. v. Davis,113 Tex. 321, 254 S.W. 304, 255 S.W. 601, by the Supreme Court. In the last-cited case, the Supreme Court held, quoting from the headnotes:

"A grant of the right to go upon land and prospect for oil, gas, and other minerals, and to continue such operations as long as profitable, held not to convey an absolute fee-simple interest in the minerals in place, but a determinable fee conditioned upon the commencement of operations within a given period and a continuance of operations during productivity which terminated upon cessation of such activities by the lessees."

In the last-cited case, the recited consideration was $1, which, of course, is a nominal consideration, and the further agreement, implied or not expressed on the part of the lessee to use reasonable diligence in development of the land. In order to delay forfeiture by the lessor, the lessee had the right to pay to the lessor $10 a year until an oil well was commenced or until shipments from the mine had begun, and it was agreed that the completion of the well should operate as a full liquidation of all rental under this provision during the remainder of the term of the lease. It was further provided that, in case the parties of the second part, the lessees, should bore and discover either oil or other minerals, then the conveyance should be in full force and effect for 25 years from the time of discovery of such oil or other minerals, and as much longer as oil, water, gas, or other minerals can be produced in paying quantities thereon. The lease contained this provision:

"This grant is not intended as a mere franchise, but is intended as a conveyance of the property above described for the purpose herein mentioned, and it is so understood by both parties to this agreement."

There is always an implied promise of diligent efforts on the part of the lessee to develop the land leased for oil or gas, and the Supreme Court, recognizing this implied promise, held as before stated.

As said by the Supreme Court of North Carolina, in Conrad v. Morehead,89 N.C. 35, cited in Texas Co. v. Davis:

"It would be unjust and unreasonable, and contravene the nature and spirit of the lease to allow the lessee to continue to hold his term [?] a considerable length of time, without making any effort at all to mine for gold or other metals. Such a construction of the rights of the parties would enable him to prevent the lessor from getting his tolls under the express covenant to pay the same, and deprive him of all opportunity to work the mine himself, or permit others to do so. The law does not tolerate such practical absurdity, nor will it permit the possibility of such injustice."

In the Waggoner Estate Case, supra, the Sigler Oil Company was the owner, by assignment, of an oil and gas lease on 3,000 acres out of a certain 85.000-acre tract described in a lease agreement between Electra W. Wharton et al. and W. G. Burton. The lessor was the plaintiff in that case, and sought to cancel the lease for failure of the lessee and his assigns to use reasonable diligence in the development of the land for oil and gas. The Commission of Appeals held, reading from the headnotes, as follows:

"In lease of land solely for mining and operation for oil, and chiefly in consideration of royalties, lessee has a determinable fee, ending, and authorizing cancellation, on breach of implied covenant for reasonable diligence in development, though there be no complete abandonment."

After the rendition of the opinion by Section B of the Commission of Appeals, and upon a motion for rehearing on the part of Sigler Oil Company, supported by eminent counsel in the employment of the large oil companies, as stated by counsel for appellant here in his oral argument, the Supreme Court set aside the judgment of the Commission of Appeals and agreed to hear the case itself. Through the courtesy of counsel for appellant, we have had the pleasure of reading the briefs prepared by Judge F. A. Williams, formerly a member of the Supreme Court, and Mr. Charles L. Black, an able member of the Texas bar. These able counsel have illuminated the question involved in the suit before the Supreme Court, and attack vigorously the claimed holding of the Commission of Appeals disregarding the limitation stated in the lease that the duration of the lease depends upon the exercise of reasonable dillgence in the use of the property for mining purposes. It is admitted that:

"When the event stated in the `words of limitation' appearing in the grant happen, the estate instantly ends. A limitation is self-operative in its effect. The happening of the event instantly destroys the estate, and it matters not that the event may happen without the act, volition, intention, wish, or even knowledge of either party. The reinvestiture of the title is by virtue of the language of the instrument, and not by virtue of the acts or even knowledge of the parties. * * * When a determinable fee ends because of the happening of the event named in the limitation, the title immediately reverts to the grantor, even without his knowledge or intention. No additional act on his part is needed to accomplish the reversion; the instrument is self-operative. And when the reversion once takes place, the estate is totally destroyed and can only be recreated by another conveyance; no parol word or act is sufficient."

The counsel cite such authorities as 1 Jones on Real Property Conveyancing, § 628 et seq.; Brewster on Conveyancing, § 174; 1 Washburn on Real Property (6th Ed.) § 167 et seq.; 1 Tiffany on Real Property (2d Ed.) p. 334 et seq.

But we do not believe that the questions involved in the Waggoner Estate Case are involved in the instant case, at least not on this motion for rehearing. The original plaintiff below, W. C. Gholson, leased the property for a substantial down payment, $6,300, and a further yearly rental of $100 an acre, for a total period of 5 years. In the suit filed in the trial court there was no question of a determinable fee, or a base fee, necessarily involved. As the majority see it, the only question involved in the suit of plaintiff below was as to whether the defendant below had promised and agreed, upon a valid consideration, to pay to the plaintiff the agreed yearly compensation for a continuance of the lease. If so, plaintiff was entitled to recovery. Nor do we believe that the lessee could, by reason of his own wrong, preclude the lessor from recovering his rental. In Wills v. Manufacturers' Natural Gas Co.,130 Pa. 222, 18 A. 721, 5 L.R.A. 603, the court said:

"It will be observed, moreover, that the Pennsylvania cases already referred to are all cases in which the forfeiture was set up by the lessor upon the default of the lessee; in none of them did the lessee set up his own default as a cause of forfeiture. No case has been called to our attention, in this or any other state, in England or elsewhere, which recognizes the doctrine that a party may take advantage of his own wrong, or set up his own default to work a forfeiture of his own contract."

See Ray v. Western Pennsylvania Natural Gas. Co., 138 Pa. 576,20 A. 1065, 12 L.R.A. 290, 21 Am. St. Rep. 922, in which the court said:

"The clear purpose of the parties to this lease was to have the lands developed, and the half-yearly payments, and the other sums stipulated, were intended not only to spur the operator, but to compensate Ray for the operator's delay or default. The lessor's hands have been tied for 2 years. We do not know that he lost anything in royalties, or that he suffered by drainage, for the territory might have proved unproductive; but, as the transaction was founded in the hopes that either oil or gas, or both, might be found in paying quantities, it was competent for the parties to contract in advance for the amount of compensation to which, in the event of delay or default in development, the lessor would be entitled. The provision for forfeiture was doubtless inserted in anticipation that the lessee might make default, and become unable to pay, in which event he might put an end to the lessee's pretensions, and seek other means of development. This clause having been inserted as a protection to the lessor, he had the right either to declare the forfeiture or to affirm the continuance of the contract, and, if the lessor did not choose to avail himself of the forfeiture, the lessee cannot set it up as a defense to an action in affirmance of the contract. * * *

"No case has been brought to our notice in which the lessee was allowed to take advantage of his own wrong, or to set up his own default, to work a forfeiture of his own contract."

While we have enjoyed the study of this case, and especially the able argument of the counsel, both oral and in their briefs, yet the majority are not of the opinion that the judgment rendered on original hearing is wrong. We recognize that the principles involved are important, but we do not feel that our conclusion is in conflict with any Supreme Court decisions cited or which we have been able to find.

Therefore the motion for rehearing is overruled.