Knight v. Chicago Corporation

• Decision Date: 13 June 1945
• Docket Number: No. A-425.,A-425.
• Citation: 188 S.W.2d 564
• Parties: KNIGHT et al. v. CHICAGO CORPORATION et al.
• Court: Texas Supreme Court

Page 564

188 S.W.2d 564

KNIGHT et al. v. CHICAGO CORPORATION et al.

No. A-425.

Supreme Court of Texas.

June 13, 1945.

Rehearing Denied July 18, 1945.

Error to Court of Civil Appeals of Fourth Supreme Judicial District.

Action by Mrs. Addie Knight and others against Chicago Corporation and others. Judgment for defendant was affirmed by the Court of Civil Appeals, 183 S.W.2d 666, and plaintiffs bring error.

Judgments of the Court of Civil Appeals and of the District Court affirmed.

Neel, King & Rachal, Hal F. Rachal, and C.B. Neel, all of Corpus Christi, and Dan Moody and J.B. Robertson, both of Austin, for petitioners.

Vinson, Elkins, Weems & Francis and Tarlton Morrow, all of Houston, for respondent First Nat. Bank of Chicago and Republic Supply Co.

Small, Arney & Small, of Austin, and Tarlton & Koch and Walter R. Koch, all of Corpus Christi, for respondent Richardson Petroleum Co.

HICKMAN, Commissioner.

The petitioners brought this suit in the form of an action in trespass to try title for a decree that a certain oil, gas and mineral lease executed by them as lessors, to Richardson Petroleum Company, as lessee, had terminated. The lease was dated October 7, 1940, and covered a tract of 320 acres in Nueces county. Simultaneously with the execution of the lease the lessee conveyed to lessors an oil payment out of the leased premises in the amount of $32,000 payable out of 1/32 of 7/8 of the production. At the termination of petitioners' testimony the court peremptorily instructed the jury to return a verdict in favor of respondents and judgment was rendered on the verdict returned in obedience to the instruction. The Court of Civil Appeals affirmed the case. 183 S.W.2d 666.

Prior to the filing of this suit the lessee drilled five producing oil wells on the leased premises. After four of these wells were drilled the lessee entered into a pooling agreement with The Chicago Corporation for the purpose of developing the natural gas resources and putting into effect a gas recycling program. Petitioners refused to join in such a program and brought this suit to declare a termination of the lease on the ground that the instruments executed by the lessee, hereinafter to be more fully noticed, constituted a violation of a provision of paragraph 8 of the lease against attempted assignments of undivided interests therein. Paragraph 8, as underscored by us for emphasis, reads as follows:

"8. The rights of either party hereto may be assigned in whole or in part, and the provisions hereof shall extend to the heirs, successors and assigns, but no change or division in ownership of the land, rentals or royalties, however accomplished, shall operate to enlarge the obligations or diminish the rights of Lessee; provided, however, that the Lessee, its successors or assigns, shall not make any assignments of undivided interests, overriding royalties or oil payments without the written consent of the Lessors, save and except assignments to banks and oil well supply companies for the purpose of obtaining money, supplies and equipment to operate and develop the leased premises. And provided further that the Lessee herein shall not assign said acreage in tracts of less than eighty (80) acres, which said 80-acre tracts shall constitute a minimum basis for assignment. In the event Lessee, its successors or assigns, should attempt to assign any undivided interests, overriding royalty or oil payments without the written consent of the Lessors, other than assignments to banks and oil field companies for the procurement of money, supplies and equipment for the operation and development of the leased premises, or should attempt to assign any tract or tracts of less than 80 acres, this lease shall ipso facto terminate as to the interest so assigned, as well as all of the remaining interest owned by the person or corporation making such assignment. In the event of any assignment or assignments of rights or privileges or interests under this lease, Lessee agrees to mail within sixty (60) days after the execution and delivery of any such assignments, one copy of each of such assignments to all of the lessors named herein, or their assigns, at their post office addresses and failing so to do, said assignment or assignments shall not be binding upon Lessors or their assigns."

In the latter part of 1942 the lessee, Richardson Petroleum Company, and The Chicago Corporation, of which it is alleged the lessee is the alter ego, formed a block or unit of leases including petitioners' 320-acre tract for the purpose of developing the natural gas resources thereof. To carry this program into effect two instruments were executed by them. The first was a gas processing and sales agreement between the lessees of various tracts in the unit and The Chicago Corporation. It provided that "it is understood and agreed that it will be necessary to secure the execution of the contract set forth in Exhibit `A' by the various royalty owners who own royalty rights in the unitized area." The other instrument is the one referred to as Exhibit "A" and denominated a unitization agreement. It was to be executed by the lessors and lessees of the various tracts included within the pool as well as other owners of gas royalties therein. Petitioners declined to execute this instrument.

The parties had as their object the pooling of all of the leases in the area, but, if not, to pool as many thereof as possible, it being stipulated that The Chicago Corporation was not bound unless as many as sixty per cent of the royalty and mineral owners having title to sixty per cent interest in the leases executed the unit contract. Under the agreements a gas recycling plant was to be established by The Chicago Corporation and provisions were made with reference to the sale of natural gasoline, condensates and other products to be stripped from the gas. It provided for the method of stripping such products from the gas and for the return of the gas to the reservoir. Division of proceeds of the sale of the products, as between the various lessors and royalty owners, was primarily upon an acreage basis. The contracts related alone to the natural gas underlying the lands involved and not to oil or other minerals. They became effective in February, 1943, when the requisite number of operators and lessors had executed one or more of the counterparts of the agreements. The project is now in operation; gas is being processed and recycling is taking place, but no gas wells or input wells have been drilled on petitioners' land, neither has any of the equipment used in the recycling or processing operations been located thereon.

By this action petitioners seek to recover the leasehold estate, together with five producing oil wells of great value, not because their property has been damaged or they have suffered any pecuniary loss, but because they claim that paragraph 8 imposed a special limitation upon the estate and that their lessee violated a provision thereof by attempting to assign undivided interests therein, which automatically terminated the estate. Disclaimers have been filed and the status quo restored, but under the theory of law upon which petitioners rely that is of no moment. If ...