Mathews v. Sun Oil Co.

• Decision Date: 21 February 1968
• Docket Number: No. B--145,B--145
• Citation: 425 S.W.2d 330
• Parties: Virgil MATHEWS et al., Petitioners, v. SUN OIL COMPANY et al., Respondents.
• Court: Texas Supreme Court

Page 330

425 S.W.2d 330

Virgil MATHEWS et al., Petitioners, v. SUN OIL COMPANY et al., Respondents.

No. B--145.

Supreme Court of Texas.

Feb. 21, 1968.

Rehearing Denied March 27, 1968.

Sanders, Scott, Saunders, Brian & Humphrey, C. J. Humphrey, Amarillo, for petitioners.

Lynn Adams, Oklahoma City, Okl., C. F. Heidrick, E. M. Cage, J. C. Peurifoy, Jackson, Walker, Winstead, Cantwell & Miller, and A. W. Walker, Jr., Dallas, Underwood, Wilson, Sutton, Heare & Berry, H. A. Berry, Amarillo, for respondents.

NORVELL, Justice.

Petitioners, Virgil Mathews ¹ and wife, Elsie May Mathews, J. W. Sanders, E. T. Scott Trust ² and the Willie Belle Sanders Trust ³, brought suit against Sun Oil Company and Kerr-McGee Oil Industries, Inc., seeking a decree that an oil, gas and mineral lease dated March 8, 1957, executed by Virgil Mathews and wife to Kerr-McGee had terminated and was no longer effective insofar as Section 4, Block M--22, Texas Central Railway Company Survey, Hutchinson County, Texas, was concerned. The trial court rendered summary judgment for respondents. Rule 166--A, Texas Rules of Civil Procedure. The Court of Civil Appeals affirmed. 411 S.W.2d 561. We affirm the judgments of the courts below.

The lease of March 8, 1957 ⁴ was for a primary term of five years and covered both Section 4, above described, and a contiguous tract, namely, Section 13, C.L. & C. Co. Survey, Hutchinson County, Texas. At the time of trial, the lease which had been obtained by Sun under a farmout from Kerr-McGee was in its secondary term and being held by production from Section 13. Immediately after the execution of the lease, the title to the royalty interests in Section 4 were held as follows:

1/16--by Virgil and Elsie May Mathews

7/256--by J. W. Sanders

7/256--by Sanders Trust

1/128--by Scott Trust

The interests of J. W. Sanders, the Sanders Trust and the Scott Trust were non-participating royalty interests. The leasing powers or the executive rights were vested in Mathews.

Mathews also held the executive rights to Section 13 and 1/16 royalty interest therein. The remaining 1/16 royalty interest was non-participating and was held by the successors in interest to R. Niles Graham and Margaret Graham Crusemann. Such successors are not parties to this suit.

The controlling question relates to the legal effect of Mathews' action in combining two tracts in one lease when the holders of non-participating royalty interests in such tracts were not identical.

Petitioners contend that both courts below erred in holding as a matter of law from the uncontroverted facts that the oil and gas lease of March 8, 1957 was valid and subsisting as to their respective interests in Section 4 as the primary term of such lease had expired and there was an absence of drilling upon or production from said section. The validity of this contention is the sole issue in the case. The petitioners' arguments are presented primarily from the position of the holders of the non-participating royalty interests. Their situation is different from that of Mathews as above indicated, and if they cannot recover, it seems clear that Mathews cannot recover. We shall, therefore, discuss the case from the standpoint of the non-participating royalty owners, namely, J. W. Sanders, the Sanders Trust and the Scott Trust.

Petitioners rely heavily upon Brown v. Smith, 141 Tex. 425, 174 S.W.2d 43 (1943), wherein it was said that in a situation bearing some similarity to the one now before us that:

'In many respects the burdens and obligations of petitioners under the lease tendered by respondents would be the same as they would be under two separate leases, one affecting the 20-acre tract and the other affecting the 42.75-acre tract.'

The suit was one for specific performance brought by the sellers of an oil and gas lease against the purchasers thereof for specific performance. The purchasers' defense was that sellers did not tender the title that purchasers had contracted to buy. The sellers were Ector Smith and Floyd Smith and their respective wives. The lease which they tendered to the purchasers contained the following clause:

"Of the acreage above described, the said Floyd Smith and wife, Bertha Smith, own twenty (20) acres and the said Ector Smith and wife, Ada Smith, own 42.75 acres, and it is understood and agreed as between Lessors, that the rents and royalties hereinafter stipulated to be paid on said 62.75 acre tract are to be pooled and shared by said Lessors in proportion to acreage owned."

However, it appeared that Floyd Smith deraigned title to the 20-acre tract from Mrs. C. B. Lee who retained a 1/32 royalty interest, but no leasing rights to the tract. Mrs. Lee did not join in the lease. This Court held that Brown had no power or authority to pool Mrs. Lee's royalty interest with those of other persons holding royalty interests in the 20-acre and 42.75-acre tracts involved because:

'The language used, by which Mrs. Lee reserved to herself the one-thirty-second royalty interest in all of the 20 acres conveyed, with provision that the royalty be delivered to her as is usual where oil, gas or other minerals are produced and saved, negatives the existence of an intention to confer upon her grantee the power or authority to convey or in any way dispose of any part of the royalty interest which she reserved.'

In Minchen v. Fields, 162 Tex. 73, 345 S.W.2d 282 (1961), this Court reiterated the rule stated in the Brown case. It was said:

'We agree with the Court of Civil Appeals that the act of Fields (the holder of the leasing power) in executing one lease covering the 802.6 acres did not unitize or pool all the mineral interests in said land. Brown v. Smith, 1943, 141 Tex. 425, 174 S.W.2d 43; Nugent v. Freeman, Tex.Civ.App.1957, 306 S.W.2d 167, wr. ref. n.r.e.'

The Court then quoted with approval the following statement from the opinion of the Court of Civil Appeals (330 S.W.2d 683, 1. c. 687):

'(T)he reason of the rule is that where mere executive rights are conferred or reserved, there is no intention evidenced to vest authority to convey a royalty interest reserved or the royalty interest attributable to the minerals leased and to hold that such holder can unitize or pool the interest would allow him to convey such royalty interest because a unitization of the royalty and minerals under different tracts effects a cross-conveyance to the owners of minerals under the various tracts of royalty or minerals so that they all own undivided interests under the unitized tract in the proportion their contribution bears to the unitized tract. Veal v. Thomason, 138 Tex. 341, 159 S.W.2d 472; Brown v. Smith, supra.'

No pooling problem is here involved; nor is it contended that the lease was invalid when executed; nor that such lease should be cancelled in whole or in part because the operator thereof has failed to reasonably develop the mineral potentials of the lands under the lease; ⁵ e.g. W. T. Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 19 S.W.2d 27, 1. c. 29 (1929); nor is it asserted that Mathews has breached a duty which he as the holder of the executive rights owed to the holders of the non-participating royalty interests; e.g. Schlittler v. Smith, 128 Tex. 628, 101 S.W.2d 543 (1937). It is simply argued that Brown v. Smith by analogy supports the proposition that the lease should be considered as two leases, one covering Section 13 and one covering Section 4, and that no production having been obtained from Section 4, the lease as to that tract has terminated.

Because a lease will be considered as two leases for certain purposes, it does not follow that a single lease will be considered as two leases for all purposes whenever two or more tracts of land and diverse royalty interests are involved. It is a rule of general application that in the absence of anything in the lease to indicate a contrary intent, production on one tract will operate to perpetuate the lease as to all tracts described therein and covered thereby. Orive v. Sun Oil Co., 346 S.W.2d 383 (Tex.Civ.App.1961, writ ref'd), and authorities cited therein.

The lease here involved contained the following pertinent clauses:

'1. Lessor, in consideration of Fifteen Thousand Seven Hundred Twenty and no/100 Dollars ($15,720.00) in hand paid, of the royalties herein provided, and of the agreements of Lessee herein contained, hereby grants, leases and lets exclusively unto Lessee * * * the following described land in the County of Hutchinson, State of Texas to wit:

'All of Section 13, D.L. & C. Co. Survey, Hutchinson County, Texas, containing 244 acres, more or less:

'All of Section 4, Block M--22, Texas Central RR Co. Survey, Hutchinson County, Texas, containing 542 acres, more or less.

'For the purpose of calculating the rental payments for which provision hereinafter is made, said land shall be treated as comprising 786 acres, whether it actually comprises more or less.

'2. Subject to the other provisions herein contained, this lease shall be for a term of five years from Nov. 9, 1957 (called 'Primary term') and as long thereafter as oil, gas, or other mineral is produced from the land hereinabove described.'

The lease expressly provides that it shall remain in force as long as oil, gas or other mineral is being produced from the land (Sections 4 and 13) therein described. In arguing for a contrary construction, petitioners do not rely upon the wording of the lease but upon the title situation relating to the non-participating royalty interests. The holder of the executive rights has the power to lease the premises for the production of oil, gas, or other minerals. Quite obviously, he would not be authorized to make a contract binding upon the non-participating royalty owners which would prevent, hamper or stifle production to the prejudice of such owners, and while he may lease and thus vest title to a working interest under such lease, he may not convey the reserved royalty interest.

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