Lloyd's Estate v. Mullen Tractor & Equipment Co.

• Decision Date: 27 October 1941
• Docket Number: 34696.
• Court: Mississippi Supreme Court
• Parties: LLOYD'S ESTATE et al. v. MULLEN TRACTOR & EQUIPMENT CO.

4 So.2d 282

192 Miss. 62

LLOYD'S ESTATE et al. v. MULLEN TRACTOR & EQUIPMENT CO.

No. 34696.

Supreme Court of Mississippi

October 27, 1941

Gordon & Gordon, of Liberty, for appellant.

Green & Green, of Jackson, and J. S. Atkinson, of Shreveport La., amici curiae.

Fred A. Anderson, Jr., of Gloster, for appellee.

McGEHEE Justice.

This appeal is from a final decree wherein the court below cancelled an oil and gas lease as a cloud upon the appellee's title to approximately 2,000 acres of land in Amite County, Mississippi, and assigned as grounds therefor (1) that it is a perpetual lease, contrary to the public policy of the State of Mississippi, (2) that it is in violation of Section 2117, Code of 1930, (3) that the lessee his heirs and assigns, had violated an implied covenant to develop the property for oil and gas within a reasonable time, and (4) that such lease is so ambiguous in its nature and so contradictory in its scope, that the same is void.

The lease was executed in favor of D. C. Lloyd on the 11th day of August, 1925, by the then owners of the land, Isaac, Mary and J. W. Fryman, for a consideration of $1 and "other valuable considerations", receipt of which is acknowledged, and the record shows that this lease contract was duly placed of record during that same year. Thereafter the title of the land itself passed from the Frymans through mesne conveyances to the appellee, Mullen Tractor and Equipment Company, the intervening conveyances reciting in each instance that the land was being sold "subject to a certain oil and gas lease"; and the conveyance to the immediate predecessor in title of the appellee recited that "This deed of conveyance is subject to a certain oil, gas and mineral lease heretofore sold and conveyed to D. C. Lloyd, with the understanding, however, that any royalty retained by the grantors in said oil and gas lease or owned by the grantor herein is hereby conveyed to the grantee," and the deed of conveyance of the land to the appellee, dated February 9, 1934, recites that it was likewise executed subject to such lease.

The granting clause of the lease recites that the lessor "hereby grants, bargains and sells all the oil and gas in and under the land hereinafter described, and grants, demises, leases and lets said land, itself, unto the lessee, his successors and assigns" for the purpose of operating for and producing oil and gas thereon, and the lease provides for the necessary rights of way and other privileges incident to or convenient for the proper development of the land for oil and gas; also that the rights and privileges granted unto the lessee, its successors and assigns, are granted "for the term of five years from the date hereof, and as much longer as oil, gas or either of them shall be produced from said lands by the lessee in paying quantities."

It is then provided in the second paragraph of the lease that: "If no well is commenced on said land on or before the 11th day of August, 1930, this lease shall terminate as to both parties, unless the lessee, on or before that date, shall pay or tender the lessor the sum of $100.00 in the manner hereinafter provided, which payment or tender shall operate as a rental for twelve months from and after the date last above stated, and the same shall also cover the right and privilege in the lessee to defer the commencing of said well during said period of months. In like manner and upon like payments or tenders the commencement of a well may be further deferred for like periods of the same number of months successively." And it is further recited therein that the down payment received from the lessee "is a good, valid and substantial consideration and sufficient in all respects to support each and every covenant contained herein, including specifically the option granted the lessee to extend this lease from time to time during the term thereof upon the payment or tender of the rentals hereinbefore provided for." It is then agreed that the lessee will immediately offset all paying oil or gas wells drilled on land adjoining this tract, and that "no implied covenants regarding the measure of diligence to be exercised by the lessee in the drilling of said land during the original five-year term hereof shall be read into this lease, it being the express agreement of the parties that the provisions of this paragraph set forth the exclusive conditions under which the lessee shall hold this lease for said original term of five years." The paragraph referred to also reserves unto the lessor a one-eighth royalty in the oil and gas.

The lease contract, or any interest therein, or any portion of the acreage of the land involved, are made assignable by the terms of the instrument itself. In fact, the original lessee, D. C. Lloyd, did assign certain undivided interests in the same to different persons, who are appellants herein along with the estate of D. C. Lloyd, deceased.

The lease was filed as an exhibit to the bill of complaint, and the demurrer of the defendants thereto having been overruled, the case proceeded to the final decree upon the record as made by the several conveyances constituting the chain of title and which duly appeared of record at the time the appellee obtained its title to the land, and also upon an agreed statement of facts showing that no actual operation of any nature looking toward the discovery of oil and gas on the land has been conducted; that no well has been drilled in search of oil and gas on this land, or within a radius of ten miles thereof during the life of the lease; and that no producing oil, gas, or other mineral wells have been discovered within a radius of fifty miles of said tract of land. Hence, the duty to offset any well on adjoining land, as required by the lease, is not alleged to have been violated, and is not therefore involved in the case.

It was also agreed upon the trial that all rental provided for in the lease had been paid in accordance with the terms of the lease, and it appears from the record, and is conceded in the briefs of counsel, that the appellee, Mullen Tractor and Equipment Company, has received and accepted the annual rental of $100 to extend the term of the lease, which was paid in advance each year from August 11, 1934, when it acquired title to the land, to August 11, 1939, inclusive, the payment of such annual rental from August 11, 1930, to August 11, 1933, inclusive having been received and accepted by the appellee's predecessors in title; and that therefore when this suit was filed on December 7, 1939, to cancel the said oil and gas lease, the complainant had received and accepted the annual rental for the year beginning August 11, 1939, and ending August 30, 1940.

It is contended by the appellee, however, that its acceptance of these annual rentals during the period aforesaid was in ignorance of the covenants and agreements in the said lease contained, and that hence it should not be bound thereby. This position of the appellee is manifestly untenable, since the lease duly appeared of record at the time the land was purchased by it, and the title to the land was accepted subject to the terms and provisions of such lease.

But we are not content to rest our decision of this case on the question alone of whether the suit was prematurely brought or as to whether the complainant is now estopped to deny the right of the lessee to further renewals of the lease. In view of the great number of oil and gas leases now in force throughout the state, the validity of which may depend upon the considerations on which the decree here appealed from was predicated, we deem it both expedient and proper at this time, when the oil and gas industry in this state is still in its infancy and precedents are few wherein these considerations have been involved in the construction of contracts of this specific nature, that we should determine the validity of this particular lease in the light of those questions which are urged as grounds for its alleged invalidity.

In Am.Juris., Vol. 32, para. 967, p. 812, the rule as to the validity of leases providing for perpetual renewals is stated as follows: "Although there is some contrary authority, the generally accepted view is that a provision clearly giving the lessee and his assigns the right to perpetual renewals is valid in the absence of some statutory prohibition, and will be enforced by the courts, although such a provision in a lease is not favored by the courts and a lease will be construed as not making such a provision unless it does so clearly. It has been generally held that a provision in a lease for perpetual renewal is not violative either of the rule against perpetuities or of statutes limiting the period during which the absolute power of alienation may be suspended. The reason for this is that the covenant to renew may be taken as part of the lessee's present interest. It is obvious that a perpetual lease, or a lease containing a covenant for perpetual renewal, is not a restraint or limitation upon the power of alienation of the fee, for there are at all times persons in being who by joining can convey the fee. However, a special statute against perpetuities which provides in effect that any disposition of real estate is void where the right of alienation is restrained beyond the period of the life of the owner and twenty-one years and fractions thereof, renders void a lease giving the lessee, his heirs, assigns, executors, and administrators the right to extend it from year to year."

Applying this rule in the instant case, the lease contract in question clearly gives the lessee and his assigns the right to perpetual renewals, and there is no statutory prohibition against the making of such a lease. There is no restraint or...