Probst v. Hughes

• Decision Date: 28 January 1930
• Docket Number: Case Number: 18962
• Citation: 286 P. 875,1930 OK 57,143 Okla. 11
• Parties: PROBST v. HUGHES et al.
• Court: Oklahoma Supreme Court

1930 OK 57

286 P. 875

143 Okla. 11

PROBST v. HUGHES et al.

Case Number: 18962

Supreme Court of Oklahoma

Decided: January 28, 1930

Syllabus

¶0 Oil and Gas--Assignment of Lease with Reservation of Overriding Royalty--New Lease Taken by Assignees Held Charged with Royalty Interest of Assignor.

Where the owner of an oil and gas lease assigns the same to another, in which assignment the assignor reserves an overriding royalty in the lease, and it is conditioned that such reservation shall apply "to all modifications, renewals of such lease, or extensions that the assignee, his successors, or assigns may secure," and that "by the acceptance of this conveyance, the said assignee hereby consents to and agrees to be bound by the aforesaid reservation and to comply fully therewith," the assignee and those in privity with him occupy the position of a trustee toward the assignor, and are held in the utmost good faith in that relation. And where the assignee and his privies render the lease productive of gas so as to continue the same in force beyond the primary term, and thereafter pay the annual gas rental in advance as provided in the lease, and upon cessation in production during the year covered by the paid gas rental the assignee and those in privity with him, without a surrender of the leased premises, secure a new lease upon the same property, such new lease constitutes a renewal or an extension of the original lease within the meaning of the assignment, and is charged with the overriding royalty interest of the assignor.

Commissioners' Opinion, Division No. 1.

Error from District Court, Payne County; Chas. C. Smith, Judge.

Action by George C. Probst against T. J. Hughes et al. Judgment for defendants, and plaintiff appeals. Reversed and remanded, with directions.

Harry L. S. Halley and Geo. A. Hoke, for plaintiff in error.

Wilcox & Swank, for defendants in error.

TEEHEE, C.

¶1 Plaintiff in error, Geo. C. Probst, sued defendants in error, R. C. Jones, T. J. Hughes and Thomas N. Berry, for an accounting of one-sixteenth of the oil, gas, and casinghead gas produced from a certain leasehold accruing from a fixed time. The transactions giving rise to the suit were as follows:

¶2 On April 23, 1918, Julia C. Payne and H. H. Payne, fee owners, made an oil and gas lease on a certain tract of land to W. M. Williams for a term of five years and as long thereafter as oil or gas, or either of them, was produced from the leased premises by the lessee. Among other terms there was a royalty provision of one-eighth of the oil production and $ 300 each year, payable in advance, for the gas from each well where gas only was found while the same was used off the premises.

¶3 On June 25, 1918, the lease was assigned to plaintiff and James B. Morrison. On October 13, 1922, plaintiff and Morrison assigned the lease to defendant Hughes. In that assignment assignors reserved an overriding royalty in the following language, to wit:

"Now, therefore, in consideration of the payment of the sum of $ 1, the receipt of which is hereby acknowledged, the undersigned, George C. Probst and James B. Morrison, do hereby sell, assign, transfer, set over and convey unto T. J. Hughes, his successors and assigns, the above-described lease, reserving however, to themselves free of cost in the pipe lines to which said lease may be connected, a one-eighth share of all the oil or gas and casinghead gas produced from said lands by the said assignee, its successors or assigns, which one-eighth share of such oil and gas and casinghead gas, the assignors herein may at their option, sell at the same price and on the same terms and conditions as the assignee may secure for its share of such oil and gas and casinghead gas. It is specifically understood and agreed that such one-eighth share hereby reserved is not one-eighth of the working interest in said lease after deduction of the one-eighth royalty to the lessor in said lease, but that this one-eighth hereby reserved constitutes such share of the entire gross production from said lands. This reservation shall likewise apply as to all modifications, renewals of such lease, or extensions that the assignee, his successors, or assigns may secure.

"By the acceptance of this conveyance, the said assignee hereby consents to and agrees to be bound by the aforesaid reservation and to comply fully therewith."

¶4 On December 15, 1922, defendant Hughes assigned a seven-thirty-seconds interest therein to defendant Berry. On the same date defendant Hughes assigned a like interest to defendant Jones.

¶5 By appropriate pleadings plaintiff alleged these transactions, and that defendants have produced from the leasehold a large amount of the mineral referred to under the lease, or renewal, modification or extension thereof, and that they have refused and failed to pay plaintiff his one-sixteenth share of the proceeds of the sale of such minerals, the exact amount being to plaintiff unknown, and accordingly prayed judgment in such sum as may constitute his one-sixteenth share thereof.

¶6 Defendants, by separate answers, in effect, admitted the record transactions affecting the title to the property as pleaded by plaintiff. In defense they alleged termination of the lease in accordance with its terms, which was to the effect that there was gas being produced from the leased premises at the end of the primary term on April 23, 1923, which continued the lease in force until about June 1, 1924,

"when the well producing the same ceased to produce any gas whatever and was plugged, and said lease thereon by its terms automatically became terminated and of no further force and effect; that no oil or gas was ever afterwards produced under the terms of said lease or under any extension or modification thereof."

¶7 Replying to the new matter contained in the answers, plaintiff alleged that defendants, on April 23, 1924, paid to the lessor or his assigns the advanced annual rental of $ 300 for the producing gas well which, in effect, extended the lease for a period of one year from that date; that during that period defendants, on October 28, 1924, secured another lease on the premises from the grantees of the lessor which, in effect, was an extension or a renewal of the original lease; that at the time of securing the new lease, defendants, by virtue of plaintiff's assignment to defendant Hughes, occupied the relation of trustee to plaintiff, and thus the new lease was charged with his overriding royalty; that defendants have produced oil and gas from said premises subsequent to the taking of the new lease, and have refused to pay over to plaintiff his one-sixteenth portion of the income derived from the production of such minerals.

¶8 Upon the issues framed by the pleadings, a trial was proceeded with before a jury. At the conclusion of the presentation of the evidence by both parties, the defendants moved for a directed verdict, which was by the court sustained and such verdict returned, and thereupon judgment was rendered for defendants, of which plaintiff complains.

¶9 The question involved in this appeal is whether or not the second lease was brought within the terms of plaintiff's assignment as being a renewal or an extension of the original lease, and thus charged with plaintiff's overriding royalty of a one-sixteenth interest in the oil and gas produced from the leased premises subsequent to the execution of the second lease.

¶10 Plaintiff proceeds on the theory that at the time the second lease was taken by the defendants from the then fee owners of the property, the original lease was still in force and effect by virtue of the payment of the annual rental of $ 300 for the productive gas well notwithstanding that the same ceased in production and was plugged during the annual term, and thus the defendants occupied the relation of trustees to plaintiff, and could not appropriate the property for themselves in the manner as was done, and escape liability for the payment of plaintiff's one-sixteenth overriding royalty interest in the oil and gas produced subsequent to the taking of the second lease.

¶11 Defendants contend that, as the well mentioned ceased in production during the annual term, the lease thereupon automatically terminated, which operated as a termination of plaintiff's overriding royalty, and that as the second lease was entered into subsequent to such termination, it constituted an independent transaction unaffected by plaintiff's claim of an overriding royalty interest therein.

¶12 There is no dispute as to the facts. In the territory of the lease there existed three producing gas sands. In the well on the old lease, the first sand was found at 1,900 feet, which continued productive until sometime during the first annual period for which the first gas rental of $ 300 was paid when it was deepened. The second sand was found at 2,200 feet, and about June 1, 1924, during the second annual rental period, the well went to salt water, at which time defendants contend that the lease then terminated though they afterwards deepened the well but found salt water at 2,600 feet. They thereupon plugged the well. Either during the time of plugging the well, or immediately afterwards, defendants negotiated the second lease. Of defendants' plans in either relation, plaintiff was not informed.

¶13 The new lease was drawn to plaintiff's assignee and his privies, who during the life of the well, had acquired Morrison's one-sixteenth overriding royalty. By letter, about October 28, 1924, the date of the new lease, one of defendants sent the lease to the fee owner in Texas, who executed the same on November 10, 1924. At that time there were several producing gas wells from the shallow sand on three tracts adjoining the leased premises. The new lease was for a primary term of three years, with a renewable six months' development provision after the first year, and a royalty of...