Tennant v. Dunn

• Decision Date: 24 November 1937
• Docket Number: No. 1703-6961.,1703-6961.
• Citation: 110 S.W.2d 53
• Parties: TENNANT v. DUNN et al.
• Court: Texas Supreme Court

110 S.W.2d 53

TENNANT v. DUNN et al.

No. 1703-6961.

Commission of Appeals of Texas, Section B.

November 24, 1937.

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

Suit against the Indian State Oil Company of Dallas, wherein Roger L. Tennant was appointed receiver of the defendant, and wherein Mrs. Emma Louisa Dunn and husband intervened. To review a judgment of the Court of Civil Appeals [82 S.W.(2d) 728], reversing the trial court's judgment and rendering a judgment in favor of the interveners, the receiver brings error.

Judgment reformed and, as reformed, affirmed.

J. C. Muse, Jr., of Dallas, for plaintiff in error.

Fred J. Dudley, of Dallas, for defendants in error.

SMEDLEY, Commissioner.

Plaintiff in error Roger L. Tennant was appointed by a district court of Dallas county and qualified as receiver of the property of Indian State Oil Company, a joint stock association. The property consisted in the main of oil and gas leases or interests in oil and gas leases, one of such interests being an undivided one-half in the oil and gas leasehold estate in a 5½-acre tract of land out of the Juan Ximines survey in Rusk county. The association prior to the receivership proceedings had sold and assigned many undivided interests or units in its properties; the assignments providing that the association should complete the drilling of wells without expense to the assignees and should have charge of the development and operation, and that in the event of production of oil or gas in paying quantities the proceeds from the sale of oil or gas produced, after the payment of expenses of operation, should be disbursed monthly to the assignees in accordance with their interests.

Plaintiff in error Mrs. Dunn acquired several of such units. She became by two assignments, one made June 18, 1931, and the other August 18, 1931, the owner of a 14/2000 interest or unit in the 5½-acre leasehold estate above described. On June 18, 1931, the association for a consideration of $5,000 paid, and which was used in the development of its property, executed and delivered to Mrs. Dunn another instrument in the form of an assignment, which is the subject of the controversy herein, and is as follows:

"Whereas, on the 12th day of September A. D. 1930, a certain oil and gas lease was made and entered into by and between Columbus Redwine and wife, Minnie Redwine and H. L. Williford, covering the following described land in the County of Rusk, Texas, to-wit:

"Five and one-half (5½) acres of an eight and two-thirds (8 2/3) acre tract, same being a part of the east one-third (1/3) of the North one-half (1/2) of the Lum-Taliaferro 52.6 acre tract of the Juan Ximines Survey in Rusk County, Texas, said lease being recorded in the office of the County Clerk of said County in Book Number 152, Page 11 of the Deed Records of said County;

"And, whereas, seven sixteenths (7/16) of said lease and all rights thereunder or incident thereto, are now owned and held by the Indian State Oil Company of Texas.

"Now, therefore, for and in consideration of the sum of Five Thousand Dollars ($5,000) in cash paid by Mrs. Emma Louise Dunn out of her own separate funds, the receipt of which is hereby acknowledged, the Indian State Oil Company of Texas, a joint stock company, the present owner of seven sixteenths of said lease and all rights thereunder or incident thereto, does hereby bargain, sell, transfer, assign and convey all the right, title and interest of the original lessee and present owner in and to said lease and all rights thereunder insofar as it covers and only covers Twenty Five thousand dollars ($25,000) worth of oil at the market price thereof at Joinerville, Texas, out of and from five forty-eighths (5/48) of Seven Eighths (7/8) of the oil produced from said well shall be delivered at such market price, free of any charges and/or expenses of production or operations of said property to Mrs. Emma Louise Dunn of Ennis, Texas, her heirs, successors and assigns, as her own separate property for her separate use and benefit.

"And, for the same consideration, the undersigned, for itself, its successors and assigns does covenant with said assignee, her heirs, successors and assigns that it, the said Indian State Oil Company of Texas, is the lawful owner of seven sixteenths (7/16) of said lease and the rights and interests thereunder; that the undersigned has good right and authority to sell and convey the same and the said rights and interests are free and clear from all liens and encumbrances and that all rentals and royalties thereunder have been duly paid.

"In witness whereof, said Indian State Oil Company of Texas has caused this instrument to be signed by its duly authorized President to execute same, this the 18th day of June A. D. 1931.

                "[Seal.]         Indian State Oil Company
                                      of Texas
                               "By
                               "(Signed) J. W. Sappington
                                             "President
                  "Attest: R. G. Pender, Secretary."
                

This instrument, duly acknowledged, was filed for record on June 25, 1931, and recorded in the deed records of Rusk county. At that time one well was in process of drilling or completion on the 5½-acre tract. Before the receiver took charge of the property on December 2, 1931, this well had been completed to the extent that it produced a small quantity of oil. The receiver fully completed the well (known thereafter as Tennant well No. 1) by tubing and otherwise equipping it for operation, and has received as proceeds of oil produced and sold therefrom to October 1, 1934, the total sum of $35,552.24. Under order of the district court the receiver drilled a second well on the 5½-acre tract, and has received as proceeds of the oil produced from it the total sum of $14,889.02. The Court of Civil Appeals found that $3,240.35 represents 5/48 of 7/8 of the proceeds received by the receiver from the oil produced and sold from well No. 1, and that he had on hand, when the case was tried in district court, more than sufficient money to make payment of such sum to Mrs. Dunn. This finding is not questioned by plaintiff in error either in the motion for rehearing filed in the Court of Civil Appeals or in the application, for writ of error.

Mrs. Dunn, after being cited in the receivership proceeding, filed a petition in intervention (in which her attorney, to whom she had assigned an interest, joined), asserting her ownership under the instrument above set out of 5/48 of 7/8 of the oil produced and to be produced from well No. 1, and prayed that her ownership of such interest be determined, and that the receiver be directed to pay her 5/48 of 7/8 of the proceeds already received and thereafter received by him from oil produced and sold from the well. After report of a master in chancery, to whom the intervention was referred, the district court found that the instrument by which the 5/48 of 7/8 interest was assigned to Mrs. Dunn conveyed no interest in the oil in place or in the oil produced, but evidenced merely an obligation to pay the sum of $25,000 out of the proceeds of the sale of oil, that the recording of such instrument in the deed records was not constructive notice, and that Mrs. Dunn's claim was an unsecured claim inferior to costs accruing in the administration and operation of the receivership, inferior to all lien and secured claims, and also inferior to the rights of unsecured creditors who sold material, performed labor, or rendered service to the association. Judgment was rendered that the receiver pay to Mrs. Dunn and her attorney the sum of $25,000 out of 5/48 of 7/8 of the proceeds of the sale of all oil produced from well No. 1 after all costs of administration and operation of the receivership had been paid, and after all secured and lien claims and all claims of unsecured creditors had been paid in full.

The Court of Civil Appeals concluded that the instrument conveyed to Mrs. Dunn 5/48 of 7/8 of the oil and gas in place, reversed the judgment of the trial court, and rendered judgment directing the receiver to pay to Mrs. Dunn and her attorney $3,240.35, representing the interest of Mrs. Dunn in the proceeds of the oil which had been sold from well No. 1, and also to pay 5/48 of 7/8 of the proceeds of all oil produced and sold from well No. 1 until the receivership ends or until Mrs. Dunn has received her interest of $25,000. 82 S.W.2d 728.

We do not agree with the conclusion expressed by the Court of Civil Appeals that the instrument under construction is a conveyance of part of the oil in place. It does not purport to convey oil in place, and it gives the assignee or the grantee no dominion over the oil before production and no right to enter upon the land to produce it. The ultimate right of Mrs. Dunn, the assignee or grantee, is the right to a certain quantity of the oil after it is produced from the well, the same to be delivered to her free of any charges for production or operation.

It does not follow, however, that the instrument does not create an interest in land or that it evidences merely a debt to be paid out of oil produced. The oil and gas lease operated to invest the lessee with a determinable fee in the oil and gas in place. Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 517, 19 S.W.2d 27; Sheffield v. Hogg, 124 Tex. 290, 297, 77 S.W.2d 1021, 80 S.W.2d 741. The instrument above set out under which Mrs. Dunn claims follows the form ordinarily used by a lessee in assigning or conveying an interest in the leasehold estate. It is not a promise to pay money. It is not a contract for the sale and delivery of oil as personalty after production, but it undertakes to invest the assignee, and we think it does invest her, presently with a right or interest in what the assignor owned. By its terms it assigns and conveys "all the right, title and interest of the original lessee and present owner in and to the lease and all rights thereunder in so far as...