State v. Standard

• Decision Date: 22 March 1967
• Docket Number: No. A--11508,A--11508
• Citation: 414 S.W.2d 148
• Court: Texas Supreme Court
• Parties: The STATE of Texas et al., Petitioners, v. B. L. STANDARD et al., Respondents.

Page 148

414 S.W.2d 148

The STATE of Texas et al., Petitioners, v. B. L. STANDARD et al., Respondents.

No. A--11508.

Supreme Court of Texas.

March 22, 1967.

Crawford C. Martin, Atty. Gen., J. Milton Richardson, Asst. Atty. Gen., Austin, for petitioners.

Rutledge & Rutledge, W. J. Rutledge, Jr., Abilene, for respondents.

STEAKLEY, Justice.

This cause concerns later developments in the matter of the oil and gas lease executed and delivered by B. L. Standard to Trace Mining Company which was the subject of our decision in Standard v. Sadler, 383 S.W.2d 391 (Tex.Sup.1964). The trial below was upon summary judgment motions of the parties and that of the respondents was sustained by the trial court. This judgment was affirmed by the court of civil appeals. 401 S.W.2d 363.

The problem is novel and a somewhat lengthy review of the matters culminating in the cause at hand is necessary. The tract of land in question is escheated permanent free school land subsequently resold with the mineral estate reserved in favor of the Permanent Free School Fund. See Article 3281, ¹ which provides that 'All sales of escheated permanent free school lands shall be with a reservation to the State of all the minerals in the land in favor of the Permanent Free School Fund. All sums received from the leasing, mineral developments, or sale of escheated lands shall be deposited in the Permanent School Fund of Texas.' The controversy in Standard v. Sadler was between the Commissioner of the General Land Office, who had executed a prior oil and gas lease of the tract to Humble Oil and Refining Company under which production of oil and gas in paying quantities was thereafter obtained, and B. L. Standard, the owner of the surface estate, who had executed a subsequent oil and gas lease on this same tract in favor of Trace Mining Company. It was there decided that under the Relinquishment Act of 1919 (Acts 36th Leg. 2nd Called Session, ch. 81, p. 249; Arts. 5367--5379) the surface owner is the statutory agent of the State for the negotiation and execution of oil and gas leases on escheated land which had been sold by the State from the Permanent Free School Fund. Our decision was announced on October 7, 1964. The opinion concluded with this statement: 'We assume the Commissioner of the General Land Office will recognize the lease executed by Standard as a valid lease and that he will receive and file the certified copy thereof as required by law. Writ of mandamus will issue only if he refuses to do so.' Motion for rehearing was overruled on November 18, 1964. On this same date the surface owner filed in the office of the County Clerk of Taylor County, Texas, an oil and gas lease instrument identical in all respects, including its date of execution, to the oil and gas lease originally tendered for filing with the Commissioner on March 12, 1964, and which was the subject of our decision in Standard v. Sadler, except for an added paragraph as follows:

'This lease agreement is executed in amendment of and substitution for an oil and gas lease dated February 24, 1964, by and between the same parties, identical in provisions to those stated hereinabove, recorded Volume 735, page 7 of the Deed Records of Taylor County, texas, and covering the same land described above, solely in order to show that said lease was executed contemporaneously with and pursuant to an employment contract between B. L. Standard, the landowner, and Rutledge & Rutledge, attorneys at law, dated February 14, 1964, expressly referred to herein and made a part hereof for all proper purposes.'

We will refer to the first instrument as the original lease and to the second as the amended lease. The original lease previously sought to be filed with the Commissioner of the General Land Office on March 12, 1964, was again tendered to the Commissioner for filing on November 20, 1964, together with the amended lease and the employment contract referred to and made a part of the amended lease.

On December 8, 1964, there was filed in this court on behalf of the Commissioner of the General Land Office an instrument denominated as 'Respondent's Motion to Stay Issuance of Writ of Mandamus,' based upon the subsequently tendered amended lease and employment contract. The motion was overruled on January 20, 1965. It being made known to us that the Commissioner desired to act only under an official writ of mandamus issued by this court pursuant to our judgment in Standard v. Sadler, we issued the writ under date of January 28, 1965, embracing only the original lease; the writ commanded the Commissioner 'to accept and file forthwith the certified copy of an oil and gas lease executed by B. L. Standard and wife, Dorothy M. Standard, to Trace Mining Company, a co-partnership, on the 24th day of February, 1964, and recorded in the Deed Records of Taylor County, Texas, under File No. 3096 on March, 10th, 1964, tendered to you in your official capacity on or about March 11th, 1964 * * *' Upon service of the writ on the Commissioner the file date of the original lease originally tendered for filing on March 12, 1964, and that of the amended lease first tendered to him on November 20, 1964, was shown to be January 28, 1965.

On May 17, 1965, suit was instituted in the name of the State of Texas on behalf of the Permanent Free School Fund against B. L. Standard and wife, and W. J. Rutledge, Jr. W. K. Rutledge, and R. M. Rutledge, individually, and as members of the partnership of Trace Mining Company, and as members of the law firm of Rutledge and Rutledge, Respondents here, and Humble Oil and Refining Company. Multiple relief was sought: the appointment of a receiver to take possession of the mineral estate of the tract of land in controversy; termination of the right of the surface owner, B. L. Standard, to act as agent for the State for the negotiation and execution of oil and gas leases; removal of the oil and gas leases executed by the surface owner, B. L. Standard, as a cloud upon the title to the mineral estate; and an accounting from Humble Oil and Refining Company for the oil and gas produced from the mineral estate. The trial court severed the suit into two causes, one of which is the cause at hand presenting for decision the question of the validity of the instruments executed by Standard in favor of Trace Mining Company, together with the further question of whether or not the acts of Standard terminated his leasing power as the statutory agent of the State.

The basis for cancellation of the two oil and gas lease instruments urged by the State rests in certain provisions of the employment contract made a part of the amended lease by the added paragraph quoted above. As before noted, a copy of this contract was first tendered for filing in the office of the Commissioner with the amended lease on November 20, 1964, and bears the same file date of January 28, 1965. It is an agreement between the surface owner, B. L. Standard, and 'W. J. Rutledge, Jr., W. K. Rutledge, and R. M. Rutledge, individually and as partners in the firm of Rutledge and Rutledge, and/or Trace Mining Company.' The lessee in the two oil and gas lease instruments was Trace Mining Company, a co-partnership. The contract recites the employment of the firm of Rutledge and Rutledge as attorneys and states the further fact that they are the sole partners in Trace Mining Company. Paragraphs 3 and 5 of the employment contract are relevant here and provide:

3. 'Standard agrees that the portion of lease bonus payable to him as the land owner in accordance with the provisions of Article 6367 (5367), V.A.C.S., shall be promptly repaid by him to attorneys as a part of the consideration for legal services rendered to that date hereunder. Attorneys agree that in the event the legal matters in dispute respecting which this contract is executed shall be successfully disposed of so that the oil and gas mining lease executed contemporaneously herewith shall be the sole, valid lease covering the lands described above, if such attorneys (being the sole partners in Trace Mining Company) themselves develop the premises by drilling, Standard shall have the binding and exclusive option, in his sole opinion and discretion, to acquire not more than an undivided one-sixteenth share of the seven-eighths working interest by himself carrying and bearing the exact actual expense incident to development (excepting only the lease bonus theretofore paid) ratably attributable to the Standard interest.'

5. 'The parties hereto agree for themselves and their respective heirs, successors and representatives that Standard shall be paid $500.00 per location liquidated damages for crop damages resulting from drilling the described lands; and the parties agree that if Rutledge and/or Trace Mining Company shall produce oil and/or gas upon the premises and shall have management or operation of the properties, Standard will have the option or 'first refusal' of the job as pumper in such operations.'

It is the position of the State that B. L. Standard as the surface owner and agent of the State had no authority beyond executing and delivering to Trace Mining Company an oil and gas lease with the usual and accepted provisions for bonus, rents and royalties; that the amended lease with its provisions for the additional consideration to be enjoyed by Standard, particularly the option for him to purchase an undivided one-sixteenth share of the seven-eighths working interest, was invalid; that the amendment is so inextricably bound up with the original as to render the entire lease transaction of no force and effect; and that the acts of Standard constituted violations of his fiduciary obligation to the State for which reason it should be held that he is ousted as the statutory leasing agent.

It is Standard's position, as held by the court of civil appeals, that our decision in the previous proceeding was res judicata as to the validity of the lease in both its...