Fox v. Thoreson

• Citation: 398 S.W.2d 88
• Decision Date: 05 January 1966
• Docket Number: No. A-10791,A-10791
• Parties: Grady L. FOX et al., Petitioners, v. Julia THORESON, Respondent.
• Court: Supreme Court of Texas

Page 88

398 S.W.2d 88

Grady L. FOX et al., Petitioners, v. Julia THORESON, Respondent.

No. A-10791.

Supreme Court of Texas.

Jan. 5, 1966.

Rehearing Denied Feb. 2, 1966.

Lemon, Close & Atkinson, Perryton, Elliott O. Boe, Fergus Falls, Minn., for Julia Thoreson.

Underwood, Wilson, Sutton, Heare & Berry, Harlow Sprouse, Amarillo, with above firm, for Grady L. Fox and others.

CALVERT, Chief Justice.

The opinion delivered in this case on October 6, 1965, is withdrawn and the following is substituted therefor.

The principal question in this case is whether an oil, gas and mineral lease executed by Julia Thoreson, as lessor, to Grady L. Fox, as lessee, has terminated, or whether, on the contrary, the lease is still in full force and effect.

Suit was by Julia Thoreson, as plaintiff, against Grady L. Fox, Richome Oil & Gas Company, a partnership composed of J. B. Hermann and R. P. Hermann, J. B. Herman and R. P. Hermann, individually, Amarillo National Bank, C. P. Ware, Trustee, and Panhandle Eastern Pipeline Company, as defendants, in trespass to try title to recover title to and possession of a 234.67 acre tract of land in Hansford County, for cancellation of an oil, gas and mineral lease and other related instruments alleged to constitute a cloud on her title, and for certain other relief. Plaintiff's title and right of possession to the surface estate in the land was not genuinely in issue. The basis for the other relief sought by the plaintiff was that the lease in question had terminated as a matter of law. Amarillo National Bank, C. P. Ware, Trustee, and Panhandle Eastern Pipeline Company have gone out of the case on appeal and their pleadings in the trial court need not be noticed. The suit was defended by Fox and Richome Oil & Gas Company, assignee of a one-half interest in the estate created by the lease, on the ground that as a matter of law the lease had not terminated; alternatively, that the plaintiff was estopped to assert that the lease had terminated; and, in any event, that they were entitled to recover expenditures made by them in good faith in drilling and equipping a gas well on the land and in connecting the well to Panhandle Eastern's pipeline, which expenditures they sought to recover by counterclaim.

Issues of estoppel and an issue of good faith improvements were tried to a jury. The jury resolved the estoppel issues against defendants but answered the good faith improvement issue in their favor. As pertinent here, the trial court rendered judgment cancelling the oil, gas and mineral lease, divesting all right, title and interest in the premises out of the defendants, awarding plaintiff a recovery of full title to and possession of the premises, and awarding defendants a recovery of $42,103.54 for improvements made in good faith subject to certain off-sets established by an accounting. The Court of Civil Appeals affirmed the trial court's judgment. 390 S.W.2d 308. We reverse the judgment of the trial court and Court of Civil Appeals and remand the cause to the trial court with instructions.

Whether the lease in question has terminated or is still in force turns on a proper interpretation of its provisions. The lease was executed and delivered on December 13, 1958. Its first two provisions contain the only language having any bearing on its duration. They read:

'1. Lessors, in consideration of Ten Dollars and other valuable consideration ($10.00) in hand paid, and of the royalties herein provided, and of the agreements of lessee herein contained, hereby grants, leases and lets exclusively unto the lessee for the purpose of investigating, exploring, prospecting, drilling and mining for and producing oil, gas and all other minerals, laying pipe lines, building tanks, power stations, telephone lines and other structures thereon to produce, save, take care of, treat, transport, store and own said products, including salt water, and to house his employees, the following described land in Hansford County, Texas, to-wit: (description of land).

'2. This lease is a commencement lease under which the lessee or his assigns are obligated to commence the drilling of a well on the leased premises within one hundred twenty (120) days from the date hereof, said well to be drilled to a depth sufficient to test the Hugoton Field or about 3000 feet. Such well shall be completed within one hundred twenty (120) days after commencement thereof. If such well is not commenced and completed within such time, then this lease shall terminate as to both parties. If however, production is obtained, then this lease will remain in force for as long thereafter as oil, gas, casinghead gas, gasoline or any of term is produced.'

Drilling operations were commenced on the property on March 10, 1959, and a well capable of producing gas in paying quantities was completed on or about April 10, 1959. The well was shut in upon completion and production was not obtained until a pipeline connection was made on September 3, 1960, from which date production continued without cessation to the date of trial and, presumably is still continuing.

All parties are in agreement that the well was timely commenced and completed and that production was not obtained by July 9, 1959, the final day of the 120 day completion period. At this point agreement ends. Plaintiff contends that the lease required production by the end of the completion period or the estate granted by the lease terminated automatically and reverted to her. Defendants contend that the estate granted by the lease did not terminate automatically at the end of the 120-day completion period, and that, therefore, the trial court's judgment cancelling the lease and related instruments is clearly erroneous.

The terms of the lease are most unusual; they do not conform to any pattern we have been able to discover by exhaustive research. The lease contains no habendum clause. It does not grant an estate for a definite term. Defendants suggest that the instrument is a 'no term' lease. We think not. It is a no term lease only in the sense that it does not expressly provide that it is for a definite period of time or in the sense that it does not contain the usual primary term clause found in modern leases. But these are not the characteristice which historically mark the so-called no term lease. Historically, a no term lease is one which does not impose an obligation on a lessee to drill a well or to produce oil or gas or other minerals as a condition to the continued life of the lease indefinitely. The no term lease, in common use in a past era in the oil and gas industry but now all but extinct, usually imposes an obligation to drill a well, but, as observed by the Court of Civil Appeals in this case, permits the lessee to forego that obligation and keep the lease alive indefinitely by the payment of rentals. See The Nature of the Property Interests Created by an Oil and Gas Lease in Texas by A. W. Walker, 7 Texas Law Review 1, 13; 2 Summers, Oil and Gas, Perm. Ed., 191; 2 Kuntz, Oil and Gas, 248; 3 Williams Oil and Gas Law, 4; The Law of Oil and Gas by James A. Veasey, 19 Mich....