Pierce Fordyce Oil Ass'n v. Woodrum

188 S.W. 245, 1916 Tex. App. LEXIS 867

• Court: Court of Appeals of Texas
• Decided: January 8, 1916
• Docket: No. 8299.
• Status: Published

Opinions

BUCK, J.

Suit was brought by appellee, as plaintiff, against appellant, as defendant, filed January 21, 1915, to recover the sum of $509.50 with interest, from January 8, 1914, alleged to be one-half of the six months’ rental due by virtue of an oil and gas lease contract entered into between plaintiff and J. E. Head and W. M. Snyder, on January 8, 1914. An undivided one-half interest in said lease had been transferred by the said Snyder on January 15, 1914, to one L. S. Kempher, and by Kempher transferred on March 6, 1914, to H. Clay Pierce, trustee for defendant. It was sought to hold defendant liable as the assignee of said lease. Defendant answered by general demurrer, and by denying certain paragraphs, of the plaintiff’s petition, and specially answered that the contract on which plaintiff sought to recover was unilateral and void, and that it had not assumed any obligations under said contract, or agreed to become liable for the debts or obligations mentioned in said contract, and that it was not in any way liable on the same because said contract was within the Statute of frauds, and the defendant had made no agreement or obligation to answer for the default of the said Head or Snyder. The case was tried before the court without the aid of a jury, and judgment rendered for plaintiff in the amount sued for, to wit, $509.50, from which judgment the defendant appeals. Findings of fact and conclusions of law filed by the court.

The contract entered into by and between P. W. Woodrum, party of the first part, and J. E. Head and W. M. Snyder, parties of the second part, is as follows, omitting parts purely formal and the description of the lands involved, amounting to 2,038 acres, the rights covering one-half of which were later assigned by Snyder to Kempher and by the latter to the trustee acting for the appellant, said contract being signed by parties thereto and duly acknowledged by Woodrum:

“That the lessor, in consideration of the sum of one dollar to him in hand paid by the lessees, the receipt of which is hereby acknowledged, as well as in consideration of the covenants and agreements hereinafter contained on the part of the lessees, does hereby grant, sell, convey and lease unto the said lessees all the oil and gas in and under the following described tracts of land, and the possession thereof for the purpose of entering upon and operating thereon and removing therefrom said oil and gas, with the right to use sufficient water, gas and oil from the premises to operate said property; with the right of ingress and egress at all times for such purposes, and all rights and privileges necessary for such operations. Also the right to remove at any time all property pipes and improvements placed thereon or erected in or upon said land by the lessees, and also the right of subdividing or transferring all or any part of the rights hereinafter conveyed and the premises hereinafter described. * * *

“To have and to hold the same for the term of one year from this date and as much longer thereafter as oil or gas is found thereon and produced therefrom in paying quantities.

“The lessees agreed to deliver to the lessor in tanks or pipe lines, free of charge, one-eighth (%) part of all the oil produced and saved from said land. If gas is found in paying quantities, the lessees agree to pay the lessor therefor one-eighth (%) of all the net profits which may be derived from the sale of gas while the same is being sold off of said premises.

“If gas is found in paying quantities the lessor shall have, free of cost, sufficient gas to light and heat one dwelling house upon said land, the same to be taken at the well and at the lessor’s risk and expense, and provided there is sufficient production of gas on said premises over and above the amount necessary for the operation of said premises.

“The lessees agree to place all pipe lines below plow depth whenever requested by the lessor, and to pay lessor for all damages done to growing crops while said property is being operated.

“Lessees agree to begin operations for the drilling of a well upon the above-described premises within six months from the date hereof, or thereafter to pay to the lessor the sum of fifty cent per acre for one six months’ extension of the time for beginning such operations, said payment to be made in advance, and such payment to be made six months from this date, unless operations for a well have been begun at said time. Said payment to be accepted as a rental and complete remuneration to lessor for a delay of six months in beginning said operations.

“The lessees agree that if oil or gas is found in paying quantities in the first well bored on this lease, that they will then begin operations for drilling a second well on said land within sixty days after the completion of the first well.

“The lessees further agree that in the event that oil is produced in quantities of one hundred (100) barrels per day or more for ten consecutive days from either of the wells above referred to after the completion of the same, that then the said lessees will pay to the lessor an additional amount in cash of ten thousand dollars ($10,-000), payable from twenty per cent, of the net production of oil from said land as the same is sold, such payments to continue until the full amount of ten thousand dollars is paid, and such payments shall not affect the right of the lessor to his one-eighth interest of the oil produced.

“It is further agreed that in the event any well drilled by the lessees on the above-described land should prove to be valuable as a water well and not produce oil or gas in paying quantities, then the lessor shall have the right to have said well and to use the same for water purposes by paying to the lessees a reasonable secondhand price for the casing in said well.

“If the lessees shall fail in any material way to comply with the terms of this lease, then the same shall at once be terminated at the option of the lessor.

“The above-described premises are situated in what is known as a territory which has been undeveloped for oil or gas, therefore, it is thoroughly understood that the sum of money above provided for as a rental shall be accepted in lieu of developments, and no forfeiture will be claimed under this lease until the end of the term hereof, unless there is a failure upon the part of the lessee to pay said rentals as above stipulated.

“In consideration of the money paid at the delivery hereof, lessee acquires and has the right and option to surrender this grant at any time upon the payment of one dollar, and all amounts, then due hereunder, and thereafter be released and discharged from all payments, obligations and covenants herein contained, whereupon this grant shall become null and void; or to continue the same in full force and effect by making the stipulated payments which lessor hereby binds himself to accept when tendered.

“In the event lessees surrendered this lease as above provided, they hereby bind themselves to surrender to lessor a deed of surrender of this lease, duly authenticated for record, and the depositing in the post office of said deed of surrender and a check for one dollar, payable to the lessor and all amounts then due hereunder, together with the notice of such surrender, shall be accepted as a full and legal surrender of this grant, and shall terminate this lease add all obligations hereunder.

“Post office address of lessor is Seymour, Texas.

“All convenants and agreements herein set forth between the parties hereto shall extend to their respective heirs, legal representatives and assigns.”

In the transfer of his one-half interest in the rights and privileges conveyed under the original instrument to Kempher, said Snyder was joined by his wife, and the acknowledgments of Kempher, Head, and Mrs. Snyder were taken, and it was specially provided in said assignment or conveyance that:

' “All covenants and agreements herein set forth between the parties hereto shall extend to their respective heirs, legal representatives and assigns.”

The transfer of date March 6, 1914, from Kempher to H. Olay Pierce, trustee, was

duly signed and acknowledged by Kempher, and, omitting formal parts, is as follows:

“That for and in consideration of the sum of two thousand dollars ($2,000.00) to me in hand paid, the receipt whereof is hereby acknowledged, and for other and more valuable consideration, receipt whereof is also acknowledged, I have this day sold, assigned, transferred and delivered, and do by these presents sell, assign, transfer and deliver to H. Clay Pierce, trustee, all of my right, title and interest in all of the oil and gas lands covered by and described in the contract entered into between myself and W. H. Snyder and Lorena Snyder, his wife, and J. E. Head, executed on the 15th day of January 1914, the original of which is hereto attached and made a part of this indenture, together with all of my right, title and interest in the said contract, and in witness whereof I have hereto set my hand on the day and year first above written.”

It was agreed by counsel representing both parties that in the last mentioned and quoted transfer, H. Clay Pierce, trustee, was acting as trustee for the appellant, and that a one-half interest in said oil and gas lease belongs to appellant by virtue* of said transfer.

“It was further admitted upon the trial that no operations for the drilling of a well on the land described in the plaintiff’s petition and in the oil and gas lease had ever been begun, and that neither the lessees nor their assigns had ever paid the plaintiff anything, or offered to pay him anything, for the six months’ extension provided for in the contract, and that the said ground had not been surrendered, and [defendant] had made no offer to surrender same, and that no deed of surrender had been executed, and that the one dollar provided for in the lease in order to surrender same had not been paid.”

Appellant, by its three assignments, raises really but two questions:

First. That the court erred in failing to sustain defendant’s general demurrer because, as stated in its proposition under the first assignment:

“Where a vendor who sells the oil and gas in place in certain land sues the assignee of the purchaser of said oil and gas in and under said land for specific performance of the purchaser’s contract, agreeing to drill a well on the land within a certain time, or, in the alternative, to pay the vendor a certain sum of money, and the petition fails to allege that the assignee agreed to perform the terms and stipulations of the purchaser’s contract and assume the obligations thereof, it fails to state a cause of action against the defendant assignee.”

It is claimed tinder the contract set out that it was intended to be a conveyance of a part of the land, the estate in fee, and that a subsequent vendee who did not specially assume the convenants and obligations recited in the original instrument of conveyance would not be bound thereby, but would only take title subject thereto.

Second. That the contract is unilateral, and therefore void, inasmuch, as stated in the proposition under the second assignment:

■ “Where the consideration paid for an oil and gas lease is one dollar and an agreement to drill for oil or pay a stipulated sum in lieu of development, and the lease provides that the lessee may, by the payment at any time to the lessor of a nominal sum, be released of all payments, obligations, and covenants contained therein, in the absence of development, such contract is unilateral an<3 void for want of mutuality, and terminable at the will of either party.”

[1] Of course, if either question raised should he decided favorably to the appellant; the judgment of the trial court must be reversed and, as the evidence seems to have been fully developed, here rendered for appellant. Therefore we will direct our attention, .first, to the question as to whether, by the terms of the contract, and instrument of conveyance between Woodrum of the first part and Head and Snyder of 'the second part, there was intended to be, and was in fact, a conveyance of an interest in the fee subject to defeasance by a condition subsequent, in which .case an assignee who did not specially agree to assume the burdens and obligations therein contained would not be bound. If it should be held to be a mere lease contract, then the assignee who accepted the assignment of the rights and privileges granted under the lease would be burdened with the obligations and covenants running with the land.

This question is one concerning which there is some contrariety of opinion, and even in our own state there seems to be ample authority to sustain the conclusion that a contract of this nature is not a conveyance of title to any part of the real estate, but a mere rental contract. But in the case of Texas Company v. Daugherty (Sup.) 176 S. W. 717, a suit was brought by the appellant company to enjoin the tax collector and others of Wichita county from enforcing the collection of county and state taxes, which had been assessed against the company upon certain oil leases which said company held in said county, and the' Supreme Court, in a very exhaustive opinion by present Chief Justice Phillips, held that a similar lease was not intended as a mere franchise or rental contract, but as a conveyance of the property and privileges mentioned, and was a present grant of title in fee in the oil and gas in the ground. In this opinion the authorities, both" in this state and in other jurisdictions, are collected and collated, including some of the cases by the Supreme Court, as well as those by the Courts of Civil Appeals, which have been understood by the profession as holding that oil and gas in place are not susceptible of grant, and the conveyance creates no property interest in the land, but only a bare right or privilege to go on the land and mine for such minerals and reduce them to possession. In the course of the opinion, Judge Phillips uses the following language:

“A fee may pass by deed upon a condition subsequent to the same extent as though the condition did not exist, subject to the contingency of being defeated according to the condition, and here, if any property was conveyed, there was a present grant but liable to be defeated by the grantee’s failure to perform the requirement in respect to beginning operations for the drilling of a well for oil or gas, or, in lieu thereof, making the quarterly payment provided. The grant amounted, to a defeasible title in fee to the oil and gas in the ground, if oil and: gas in place are capable of ownership and conveyance.

“This brings us to the consideration of the latter question, and the contention of the plaintiff in error that these substances are incapable of ownership as property until severed or extracted from the ground, and that therefore these instruments conferred upon' it no-more than a mere use of the surface of the ground and the right to take them from it, amounting only to a privilege belonging to the land and taxable as a part of it against the-owner of the fee, but vesting it with the title to no property whatever. * * ■ * It is no-longer doubted that oil and gas within the-ground are minerals. They have peculiar attributes not common to other minerals because of their fugutive nature or vagrant habit — the disposition to wander or percolate, and the possibility of their escape from beneath one-part of the surface of the earth to another. Nevertheless, they are to be classed as minerals” (citing a number of cases). “In place, they lie within the strata of the earth, and necessarily are a part of the realty. Being a part of the realty while in place, it would seem to logically follow that, whenever they are conveyed while in that condition or possessing that status, a conveyance of an interest in the realty results. It is generally conceded that, for the purpose of ownership and conveyance of' solid minerals, the earth may be divided horizontally as well as vertically, and that title to-the surface may rest in one person and title to-the strata beneath the surface containing such minerals in another. Because of the fugitive nature of oil and gas, some courts, emphasizing the doctrine that they are incapable of absolute ownership until captured and reduced to possession and analogizing their ownership to-that of things ferse naturae, have made a distinction between their conveyance while in place and that of other minerals, holding that it created no interest in the realty. But it is difficult to perceive a substantial ground for the-distinction. A purchaser of them within the ground assumes the hazard of their absence through the possibility of their escape from beneath the particular tract of land, and, off course, if they are not discovered, the conveyance is of no effect, just as the purchaser of' solid mineral within the ground incurs the risk of its absence, and therefore a futile venture. But let it be supposed that they have not escaped, and are in repose within the strata beneath the particular tract and capable of possession by appropriation from it. There they clearly constitute a part of the realty. Is the-possibility of their escape to render them while in place incapable of conveyance, or is their-ownership while in that condition, with the exclusive right to take them from the land, anything less than ownership of an interest in the land? Conceding that they are fluent in their-nature and may depart from the land before brought into absolute possession, will it be denied that, so long as they have not departed, they are a part of the land? Or when conveyed in their natural state, and they are in fact beneath the particular tract, that their grant amounts to an interest in the land?The opposing argument is founded entirely upon their peculiar property, and therefore the risk of their escape. But how does that possibility alter the character of the property interest which they constitute while in place beneath the land? The argument ignores the equal possibility of their presence, and that the parties, have contracted upon the latter assumption; that, if they are in place beneath the tract,, they are essentially a part of the realty, and their grant, therefore, while in that condition, if effectual at all, is a grant of an interest in the .realty. In other words, the question, it. ■seems to us, reduces itself to this: If the oil and gas, the subject of the conveyance, are in fact not beneath or within the land, and are therefore not capable of being reduced to possession, the conveyance is of no effect. But, if they have not departed and are beneath it, they are there as a part of the realty; and their •conveyance while in place, if the instrument be given any effect, is consequently the convey■ance of an interest in the realty.”

In the recent case of Guffey v. Smith et al., 237 U. S. 120, 35 Sup. Ct. 532, 59 L. Ed. 866, involving the construction of a lease very similar to the one under consideration, Mr. Justice Yan Devanter of the United States ■Supreme Court says:

“It is settled by the decisions of the Supreme ■Court of Illinois that an oil and gas lease, like that of the complainants, passes to the lessee, his heirs and assigns, a present vested right— ‘a freehold interest’ — in the premises; that this interest is taxable as real property” (citing a number of authorities).

Therefore, restraining the temptation to go more into detail and to present some of the leading authorities pro and con, we Will content ourselves with stating that it seems from these two cases, both of commanding authority, that a lease contract, using terms similar or to the effect of those used in the instant case, conveys a title in fee of a freehold interest in the land. If we are correct in this conclusion, it follows that the assignee who has not assumed any of the obligations or covenants of the original instrument or conveyance is not bound thereby, and that the judgment of the trial court holding the appellant so bound must be reversed.

If we are correct in our conclusion as to the first question raised, it becomes unnecessary for us to pass upon the issue as to whether or not the contract presented is unilateral and void. We are cited by appellant, among other authorities, to the case of Owens et al. v. Corsicana Petroleum Co., by the Amarillo court, 169 S. W. 192, holding that a contract almost identical in verbiage was unilateral in its nature. While we recognize the ability with which Justice Hall of that court has discussed the questions involved in the cited case in his opinion, yet the authority of the conclusion reached is somewhat weakened by the fact that the Supreme Court has granted a writ of error, with the following notation:

“Granted; we are of the opinion that the holding that the lease contract was void because unilateral was erroneous. It appears to have been supported By a valuable consideration paid, though it be regarded as a contract for an option and as unilateral in character. A contract to give an option is valid if supported by an independent consideration. We think it questionable, however, whether a contract by which the opposite party agrees to do a definite thing within a limited period, or in lieu of it, to pay a = specified amount, can be regarded as unilateral.”

It would seem from this notation that the Supreme Court seriously questioned the correctness of the ruling of the Court of Civil Appeals for the Seventh District on the question now under consideration. In line with the apparent trend of opinion of our own Supreme Court may be cited the case of Pittsburg Vitrified Pav. & Bldg. Brick Co. v. Bailey, by the Kansas Supreme Court, 76 Kan. 42, 90 Pac. 803, 12 L. R. A. (N. S.) 745, and other eases in 6 Ruling Case Law, p. 687, § 94, under note 5. The text above cited uses this language:

“An option, supported by a consideration, furnishes another illustration of a contract which is valid notwithstanding the lack of mutuality. It is no objection to the validity of the contract that the holder of the option is under no obligation to exercise it.”

In the Kansas case, supra, the court, in holding that a contract very similar in terms to the one under discussion was not subject to the vice of lacking in mutuality says:

“It- is urged there is no mutuality in this contract, that it is unilateral. It is well said in 9 Cyc. 334: ‘Where there is an agreement founded on a consideration, it is not invalid for want of mutuality because one party has an option and the other has not; or, in other words, because it is obligatory on one and optional on the other. So want of mutuality cannot be set up as a defense by the party who has received the benefit simply because it was left optional with the other as to whether he would enforce his right.’ See Pennsylvania -Go. v. Dolan, 6 Ind. App. 109, 32 N. E. 802, 51 Am. St. Rep. 289. Under the conditions of the contract, as construed and acted upon by the parties thereto, the company paid $1 and became obligated to pay $40 per annum rental from the day of its execution until such time as they should complete a well or surrender the lease. It exercised its option by paying the rent for two successive years and the lessors acquiesced in the partial performance of the contract by accepting. The lessors will not, therefore, be heard to say, when the three years’ rent is tendered, that the contract is unilateral and revocable by them because the company might have then exercised its option to surrender the lease. The consideration is not only valuable, but it is adequate. Although this decision is not based thereon, the writer is of the opinion that the $1 consideration, admitted to have been received, in the absence of fraud or bad faith, is sufficient to sustain this contract. Supporting a contract almost identical in this respect with the one here, it is held in Allegheny Oil Co. v. Snyder, 106 Fed. 764 [45 C. C. A. 604], that the lease constitutes an entire contract, and that the consideration recited, being $1, supports not only the grant of the two years’ term, but, as well, the privilege of extending the time for drilling by paying the stipulated price therefor. To much the same effect, see Gas Co. v. Eckert, 70 Ohio St. 127, 71 N. E. 281; Bouvier’s Dictionary, 406; '6 Am. Encyc. of Law, 694,- 696.”

Further, it might be noted with effect that in the instant ease neither the original grantees nor their subsequent assignees have elected to exercise their right of cancellation, nor have they performed, or offered to perform, the three things which it was specified they should perform in the event of cancellation, to wit, the payment of all accrued rental, payment of $1, and the execution and delivery of a surrender deed. Therefore it can hardly be said with justice that the grantee under the lease was not bound to comply with the agreements to sink a well and otherwise develop the land for oil and gas, but had the right at any time to cancel the obligation and to exercise a right of rescission. For in the exercise of such right he must comply with the stipulations above mentioned.

But we do not deem it necessary to decide the question as to whether the contract under consideration was void because unilateral, though, for the reasons and upon the authorities mentioned, we are inclined to the opinion that it is not, and do not here decide the same, but we base our judgment upon the first question discussed, to wit, that the instrument in question constituted and evidenced a conveyance of an interest in realty, and that the assignee who has not assumed the obligations and covenants therein contained does not become bound thereby.

For the reasons given, the judgment of the trial court is hereby reversed, and judgment is here rendered for appellant.

DUNKLIN, J., disqualified and not sitting.

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