Archer County v. Webb

• Decision Date: 22 June 1960
• Docket Number: No. A-7490,A-7490
• Citation: 338 S.W.2d 435,161 Tex. 210
• Parties: ARCHER COUNTY et al., Petitioners, v. C. R. WEBB et al., Respondents.
• Court: Texas Supreme Court

Page 435

338 S.W.2d 435

161 Tex. 210

ARCHER COUNTY et al., Petitioners, v. C. R. WEBB et al., Respondents.

No. A-7490.

Supreme Court of Texas.

June 22, 1960.

Rehearing Denied and Dissenting Opinion Filed Oct. 19, 1960.

Paul O. Wylie, County Atty., Archer City, for Archer County, texas.

Tom Sealy & F. H. Pannilll, Midland, of Stubbeman, McRae, Sealy & Laughlin, Midland, for Fredda Fay Durham, Dorothy Turner Scharbauer & Fred Turner, Jr.

Carl Jones & Joe D. Meroney, Midland, Rayburn L. Foster & Harry D. Turner, Bartlesville, Okl., for Phillips Petroleum Co.

Houston Smith, Ozona, Neill, Blanks, Lewis & Logan, Glenn R. Lewis & Glenn W. Lewis, San Angelo, for C. R. Webb et al.

HICKMAN, Chief Justice.

This is in effect two suits in one. Archer County, Fred Turner, Jr., and Juliette Turner, as trustees for Dorothy Scarbauer, and Fay Durham, hereinafter called petitioners, sued respondents, C. R. Webb and others, trustees of the Shannon West Texas Memorial Hospital and of the Margaret A. Shannon Estate, in trespass to try title and for a declaratory judgment establishing the continued existence of a term royalty interest in League 3, Crockett County, Texas. Phillips Petroleum Company, hereinafter called Phillips, and Fred Turner, Jr., sued the same defendants in trespass to try title and for a declaratory judgment establishing the continued existence of an oil and gas lease covering 202 acres of land in League 3, Crockett County, Texas. The trial court held that the royalty interest of petitioners subsisted to the extent that it pertained to the 202-acre tract under lease to Phillips and Turner. It further held that the lease owned by Phillips and Turner remained in effect. The Court of Civil Appeals affirmed the judgment of the trial court insofar as it held that the oil and gas lease remained in effect, but reversed and rendered that part of the judgment maintaining in effect the royalty interest in the 202 acres, holding that all rights under the royalty deed under which petitioners claimed had reverted to the respondents. , 326 S.W.2d 250.

The somewhat complicated facts are recited in detail in the opinion of the Court of Civil Appeals. We think a brief statement of the facts is sufficient to disclose how the law questions presented here arose. On May 7, 1929, Margaret A. Shannon, owner in fee simple of a league of a land in Crockett County, known as Survey 3, executed a deed to James E. Ferguson, conveying

'* * * an undivided one-half interest in and to all oil and gas royalty that may be produced under oil and gas leases outstanding or to be hereinafter outstanding on the aforesaid lands, or any part thereof, for the full term of fifteen (15) years from this date, or so long as oil or gas shall be produced from said premises, or any part thereof in commercially paying quantities * * *.

'If no commercially paying oil or gas be produced from aforesaid lands within fifteen years, this conveyance to become null and void.'

By mesne conveyances all the interests acquired by Mr. Ferguson under that deed passed to the petitioners herein.

Margaret A. Shannon died testate on December 13, 1931. By her will all of her interest in League 3 passed to respondents as trustees of her estate and of the Shannon West Texas Memorial Hospital. On April 24, 1940, respondents, as lessors executed to R. G. Carr an oil and gas lease covering 202 acres of League 3. The lease was for a primary term of ten years 'and as long thereafter as oil, gas or other mineral is produced from said land hereunder.' The lease provided for payment of shut-in gas will royalty of $50 per well per year where gas from a well producing gas only was not sold or used. Carr assigned his interest under the lease to Phillips, which in turn assigned an interest in 40 acres thereof to Fred Turner, Jr. Delay rentals were paid to respondents sufficient to keep the lease in force until April 24, 1944. Phillips and Turner, however, completed a well on the 40 acres as a potential producer on September 24, 1943. Subsequently, during a period from September 15, 1948, to January 5, 1949, gas from this well was produced and sold, but except during that period no gas has been produced from the well. Since the completion of the well, Phillips and Turner have annually tendered payment of the shut-in gas well royalty provided for in the lease to the respondents, all of which tenders, except one made by Turner in 1943, were refused.

There are two applications for writ of error before us. The application of Archer County and those claiming under it will be considered first. By it we are called upon to review the holding of the Court of Civil Appeals that all of the royalty interest in League 3 had reverted to respondents, the Shannon trustees.

The first question presented is whether the terms of the royalty deed, which provide for the continuation of the grantees' interest after the original 15-year term as long 'as oil or gas shall be produced from said premises, or any part thereof in commercially paying quantities,' have been met. The deed does not define 'production in commercially paying quantities'; in the absence of such definition, and considering the language alone, that expression must be construed as requiring actual production in commercially paying quantities and not merely the completion of a well capable of producing. Garcia v. King, 139 Tex. 578, 164 S.W.2d 509; Freeman v. Magnolia Petroleum Co., 141 Tex. 274, 171 S.W.2d 339; Sellers v. Breidenbach, 300 S.W.2d 178, 179, er. ref. The facts of the case last cited are strikingly similar to those in the instant case, and it was held "Paying production' does not mean the completion of a well capable of producing, it means a well which is actually producing on the significant date.' Applying that rule to the instant case, it must be held that the royalty interest conveyed, considering alone the terms of the deed under which petitioners claim, terminated on May 7, 1944.

We consider next whether the terms of the royalty deed were modified by the execution of the oil and gas lease above mentioned. The primary term of the lease was for ten years 'and as long thereafter as oil, gas or other mineral is produced from said land hereunder.' But the lease provided that 'where gas from a well producing gas only is not sold or used, Lessee may pay as royalty $50.00 per well per year, and upon such payment it will be considered that gas is being produced within the meaning of paragraph 2 hereof.' Petitioners contend that respondents, by executing this lease, effected a modification of the royalty deed so that payment of the shut-in gas well royalty would not only keep the lease in force, but it would also maintain the royalty interest in force.

To our minds, the language of the lease does not either expressly or by implication extend the term of the royalty deed. Under the express provision of the lease, payment of the shut-in gas well royalty is considered 'production' 'within the meaning of paragraph 2 hereof.' Paragraph 2 of the lease prescribes its own duration, and the effect of the provision quoted is merely to extend the term of the lease and not the term of the royalty deed. There is no provision in the royalty deed which would extend its term by the payment of shut-in gas well royalty, and as held in Union Producing Co. v. Scott, D. C., 173 F.Supp. 361, affirmed in 5 Cir., 267 F.2d 469, 470, 'It is the mineral deed, not the lease, which should have contained the provision securing to the term mineral owners the benefits of the shut-in gas well provision.'

Petitioners place much reliance upon the cases of Southland Royalty Co. v. Humble Oil & Refining Co., 151 Tex. 324, 249 S.W.2d 914, and Spradley v. Finley, 157 Tex. 260, 302 S.W.2d 409. There is a clear distinction between those cases and the instant one. In each of those cases all the parties, including the owners of term royalty interests, executed a lease or leases unitizing the premises covered with other premises, the effect of which was to enlarge by agreement the area of the premises covered by the royalty deed from which production could be obtained to continue the term royalty interests in effect.

Our conclusion is that the term of the royalty deed was not extended beyond the fifteen years by the execution of the oil and gas lease.

Petitioners also contend that respondents are estopped to assert that their royalty interest expired by its own terms. They base that contention, as we understand it, upon the proposition that respondents' claim of benefits under the lease to the exclusion of petitioners for whom they acted in a fiduciary capacity in executing the lease is unfair. We can discover no unfairness to the term royalty owners in the execution of the oil and gas lease by respondents. No injustice resulted to them. In fact, the execution of the lease could well have resulted in great benefit to the petitioners. Had the well actually produced oil or gas in commercial quantities, the effect would have been to extend their royalty deed. But petitioners argue that to uphold the execution by the respondents of the type of lease here involved would be to open the door to all kinds of fraud and collusion between lessors and lessees, for the purpose of terminating the interests of term royalty owners. In our view, the holding that the execution of the lease in this case was not a breach of any duty owing to petitioners does not condone any fraudulent act or open the door to fraud.

As noted above, respondents filed an application for writ of error. That application raises the single point that the Court of Civil Appeals erred in affirming the judgment of the trial court that the oil and gas lease executed by respondents to Carr, and subsequently assigned to Phillips and Turner, had been maintained in effect. Their contention is based on these facts: After completing a potentially producing gas well in September, 1943, Phillips and Turner made...