*1 51 on the presumed is is to be valid and burden an ordinance invalidity. party seeking show See to set aside the ordinance to 247, 1949, Waco, App., City Texas S.W. 2d Reed v. Civ. 233 ref., wr. as follows: * *
“* presumption equally ‘The It well settled legislation; always validity could there favor justifying or restriction exist of facts the classification state of, complained courts it existed.’ v. will assume Nolen * * * 812, Riechman, C., Supreme F. D. 225 819. Court Sproles Binford, 374, v. S. the United States 286 U.S. 52 Ct. 581, 1167, subject L. wherein 76 Ed. Texas statute outright
litigation, transportation persons held falling hire need not be treated as within the same classification regulation. Banton, purpose for the also Packard See v. 264 257, 596; City 44 U.S. Ct. 68 L. Ed. Auto Transit v. S. Co. Worth, App., ref.; of Fort Texas 182 Civ. S.W. writ Bordelon, App., Fletcher 313; v. Texas Civ. 56 S.W. 2d Dallas Dallas, City Taxicab Co. v. Texas Civ. 2d 359.” S.W. Bryant, App., 1947, Also see Beene v. Texas Civ. 201 S.W. history; (6-12), 2d App., 1933, Bordelon, no writ Fletcher v. Texas Civ. ref.; wr. 30A Texas Jur. section 300. dangerous promulgate special I think it is contrary rule general principles special situations, to fit and for respectfully I reason dissent. 13,1960.
Opinion July delivered Corporation
Gulf Oil E. L. Reid. A-7343. March No. Decided 1960. Rehearing July 20, Overruled 1980. (337 267) S.W. 2d Series *2 Clemons, Bailey Lange, Walter C. E. and Fred A. all John petitioner, Houston, Corporation. Oil Gulf Dunn, Orange, L. P. for E. E. Reid S. both L. Reid. opinion delivered Court. Mr. Justice Culver so-called presented is whether question here chief capable payment, tendered “shut-in” capped, was gas only had quantities producing gas timely oil to extend the term made as so primary term. expiration after the Reid, an undivided who owned 1943 E. L. On December Corporation interest, an oil mineral executed Gulf Oil l/8th began years. primary five lease for a term of expiration drilling of well a few including up
term and
to and
continued
January 18, 1949, subsequent
to the end of the
completed.
well,
when the well in
This
was
capped
capable
paying* quantities,
on that
*3
19, 1949,
February
date due to the lack of market facilities. On
gas royalty payment
Reid,
“shut-in”
Gulf tendered the
which
1949,
rejected by
was
pipe
him. On June
contracted
Gulf
gas.
company
purchase
line
for the sale and
On
22, 1949,
gathering
lines had
November
been laid and con-
nected, and
until
thereafter
date of the
trial of this case
produce
paying
the well has
quantities.
continued
seeking
This suit was filed
E. L. Reid
to have the Court
decree that
provisions
the lease terminated under its own
recovery
possession
for the
of title to and
of his undivided
minerals,
accounting.
interest
and for an
and held the mineral
The trial
l/8th
sought,
court denied the relief
lease to be
in full
Appeals
force and effect. The Court of Civil
reversed and
applications
remanded.
well, (2) inasmuch as expressly provided no time was royalty within paid, must be stated condi- being paid per tion per year, by implication well $50.00 royalty the lessee could any at year time within the fol- lowing well; (3) “shut-in” of the that there was actual gas lease; duction of (4) within the terms of the that there was production thereafter a cessation meaning within the para- graph bring of the lease as keep play 5 so 60-day period into cessation- of-production and thus lease alive days for of 60 capped after the well was (5) ceased: privilege lessee had the the “shut-in” any at long kept time so any as lease was alive under provi- 54 correctly Appeals resolved think the sions. Court Civil We against followed petitioner’s The lease contentions.
these issues substantially the usual “unless” form.1 following propositions At the outset we will reiterate development during of oil that have been well established gas as the (1) oil and lease such this An and one we have before law in State. fee the land us created a determinable upon which happening upon of the events which terminates 304; Davis, is Texas v. 113 Texas S.W. it 255 limited. Co. Sigler Co., 601; Waggoner Estate v. Oil T. S.W. W. Barnhill, 27; 2d & Gas Texas 19 S.W. Stanolind Oil Co. Miller, refused; App., error Cox v. Texas 2d Civ. S.W. refused; (2) the word Texas error Civ. is clause of this lease “production” as used in the habendum phrase “production paying quantities.” The equivalent to the tions the working abandonment minate is attempt may Ehen covered mences additional rental of working elapse long after shall the production tions until rental on said donment term, after If a of Lessee payment Paragraph after after 1. —“2. again operations Lessee rentals, drilling rentals, primary cessation “5. “3. dry not provided. the exiration as Lessee’s between date. date next may pay of Five land, operations Subject oil, another any procured, If, * * hole terminate of Lessee does not allow more expiration either quantities 2 hereof; as hereinabove as will be If cessation during term, term, said hereby, on of one well and the commencement be made * * Lessee should mineral of reworking is rights hereinabove of all minerals (5) another expiration or production completed until ensuing commences where drilling dry hole,/ oil, then this lease does completion in a bona fide effort other mineral of on if Lessee either years the other considered [**] of but on shall is sixty so production some sixty not allow more *. until production of operations produced Lessee long from this date or Fifty or other mineral remain in full provided, and abandoned provided, drill a production of land, part (60) reworking from a well additional *4 or provisions or abandonment (60) therefrom should cease from said Dollors term and the commencement commences days of the is obtained.” not more all of Lessee’s shall dry therefrom; then days produced expiration are commences period. on or before on than occurs at hole after operations being not engaged ($50.00) than after land (called herein or producing force and effect without again being prior again during the last sixty thereon, After than is not terminate or from said land the cessation conducted hereunder, sixty of the or resumes contained, resumes obtain per in operations obtained. produced (60) one well and sixty rights sixty on or before said next abandonment being the rental if, the rental (60) of time after if during production, (60) additional (60) on said shall only is not sold term) lease shall this lease produced from the land the Lessee, per days If, within the of this period hereunder, any cause, or days year, at the production, payment remain in effect elapse between the payment date next the commencement date next and as lease shall on or before land reworking the expiration of until of after of the elapse are drilling further drilling primary and successive said shall not expiration any as meaning long allowed production or upon or this lease or tender terminate is herein- dry between or com- primary ensuing ensuing mineral ensuing mineral as opera- or opera- tender or be for there- aban- term, used, hole. such long ter- re- re- of as I
55 only the amount quantities” embraces “paying product profit. aat ability duction, to market also the but 509, 512. 578, King al, 2d 164 S.W. et 139 Texas et al v. Garcia secure the case, object contract was “the As said par- property benefit of development for the mutual during done contemplated this would be It was ties. might add we To this sentence term of the contract.” Thus, phrase, during of the lease term.” “or the extension great may how potential production matter how be no many flared, may there would million cubic feet production have been production paying quantities unless there market; (3) is no available was an available the fact that there produce, market terminates is not an excuse for failure to and the keep other it in force. unless some will Rogers Osborn, 311; v. Texas 261 2d Stanolind S.W. Barnhill, supra; Rochmill, Oil & Gas 565, v. Watson v. 137 Texas Co. Magnolia 783; Co., 2d Freeman v. Petroleum S.W. 339; Waggoner Sigler Texas 171 S.W. 2d T. W. Estate Co., supra; Miller, supra; Clark, Oil Cox v. Texas Holchak v. App. ref.; Breidenbach, Civ. 284 S.W. 2d err. Sellers v. Texas Civ. err. ref. principles recital of these without further elaboration
might well be fallacy sufficient to demonstrate the of Gulf’s in this contention case. court, alia, The trial following findings inter made the (1)
fact: No sold from the well until November 1949, when actual pipe company; deliveries were made line (2) diligent was at all pur- times attempting secure chaser for the expediting from comple- this well and in pipe tion of company’s line connections; facilities (3) marketing from the lease ac- complished within a reasonable time completion well; (4) that royalty payment the “shut-in” was made time; (5) within the lease plaintiff that the had not ratified completion after the estopped well and is not urging from that the lease has terminated. support In of its kept contention that the lease is alive for *5 length a permit reasonable of time to market, lessee a to find Gulf relies on Civ. Company Union Ogden, Oil of California v. Texas ref., 278 S.W. 2d wr. n.r.e. say The Court does in that case that the lessee should have a reasonable time to mar- though ket the even that time beyond would extend the primary defines, however, term. It “a reasonable time” as that gathering avail- lay necessary to lines for the lessee time market, necessary “to the lessee saying it was for that able begin laying such operations for line and continue the forthwith dispatch until the with reasonable operations the lease the In the absence of those reached market.” supports the hold- only terminated. That decision was held ing be Appeals in to the effect our case Court Civil line pipe laying and connections from well to extensions drilling operations. That by are to classified lessee be solely of consisted question negotiations not The of Gulf we do reach. efforts opera- pipe company no line manual with the company pipe line tions were conducted either Gulf or until some time after the 7th contract. June contrary position here.
The authorities hold to Gulf’s thought Clark, supra, as a matter the trial court In Holchak discovery kept “royalty deed” oil the term of law that a after date for alive for reasonable time termination determining produce would purpose of whether not well Appeals reversing, quantities. paying In the Court Civil premises as there was no from held that grant- term, the mineral estate reverted to the at the end Breidenbach, effect the decision in Sellers v. ors. To the same supra. deny provisions in held to this lease have been Just discovery oil, a time a market after so reasonable to find they deny construed time wthin which have been place. pay royalty “shut-in” the “shut-in” has taken explicitly Magnolia, supra, under held in Freeman v. This facts, being practically distinction in Free- similar brought prior had been months man the few large primary the end of the term. Gas was discovered in premises. “shut- quantities but none was used sold off The royalty was not tendered for more than four months after in” lapsed the end of the term. The lease as matter of law, being gas produced premises there from on the last term, having day paid on or before that date. The lease could not be revived attempt four months thereafter. payment in the lease for “shut-in” eventuality,
royalty gas provide just namely, is to where paying quantities, has been discovered in but market lacking. applies equal This rule force claim royalty payment could tendered at time within *6 capped year or “shut-in.” period after the well had one been provide that lease to will not rewrite oil and Courts its life contractual, operate to production, extend actual or will provisions. when it has terminated its “60-day-cease- application seeks to Gulf invoke pro that, in
to-produce
says
did
since the well
clause”
fact
“shut-
subsequently
quantities
duce
in
and was
substantial
Although
capa
in,”
produce.
it therefore ceased
well
having
producing
paying quantities,
ble of
considerable
condensate
flared and an
barrels of
been
undisclosed
number
obtained,
premises.
oif
none was
or used
ever sold
Therefore,
pro
was no
under the authorities cited
there
above
meaning
provisions.
duction
lease
from the well within the
follows,
production,
It
there could
there had
since
production,
60-day
is
not
clause
cessation of
and thus the
petitioner
not
lease or
available to
to extend the term of the
delay
royalty payment.
petitioner
the tender of the
While
urges
point,
discusses a
the mat
number of cases under this
logic,
opinion
ter with
considerable force and
we are of the
question
only
contrary. Actually
is foreclosed to the
supporting
position
relies on
Oil Co.
n.r.e.).
is that of Shell
Goodroe,
(wr.
ref.,
Texas Civ.
provision it means what on to decide the lessee within has abandonment meaning- by Gulf adopt ascribed to the his further course. To To construction. compel unnatural to a strained and would be during term the up, production from the well sum there was no drilling operations; “shut-in” by the of the lease as extended royalty bring or con- con- paid constructive was not so as to about can provisions of lease be production, and the tractual no primary term or a further extension of the strued to furnish timely. this the of in case make tender lessor, Reid, by in his pass points the raised now the We Appeals erred application. He contends that Court Civil remanding that result arrive at in the case for another trial. To paragraph 2 and Appeals reasons that when Civil Court together paragraph provision considered last are expira “If, at the read: latter should be construed to being term, oil, gas is not or other mineral tion of the produced engaged hereby, but lessee is then from the land then covered reworking operations drilling1 operations for
in part hereunder, land this lease shall not terminate some appar long shall so ently said continue.” So Court thought question, passed upon by the trial that a fact lessee, court, capping to whether was raised as or not the well, “drilling operations” prosecuted due by that as to that measured common-law standards and further fully developed. trial court had fact had not been the case diligence in held that the lessee had at all times exercised due provide and that these efforts culminated efforts market obtaining successfully company lay con pipe in line however, gathering efforts, nect its merely lines But these well. negotiations opera consisted of and not in manual light part on the In rules we tions lessee. settled “operations” to include a think the cannot extended be part pur of lessee for a secure search on the market or to accept, must, chaser. If we as we the conclusion that there was production, therefore, and no no cessation of abandonment, necessarily in then this case it that there follows gap completion production, a between the of the well and think, therefore, and the lease terminated. We Court Appeals remanding was in for de Civil error diligence. question termination of fact Reid, point by lessor, The last raised to the effect his judgment favor Appeals render the Court of failed to Civil produced as to of the net value of condensate l/8th credits, by to what lessee. This concerns equity any, for the lessor’s are allowed to the lessee be obtaining expenses portionate part lessee in incurred production. a tenant Lessor’s is that he contention became expired he is common with when his and therefore marketing expenses proportionately liable for maintenance relationship began, from the time that but that he is not to any part drilling operations held for the com- of the costs pletion point place. well in the first not been This passed peals, upon Ap- either the trial court or the Court of Civil point
nor is the briefed here. We therefore concur in court, purposes remand to the trial but of determin- ing question. *8 judgment Appeals of the Court of Civil modified and
as so modified is affirmed.
Opinion delivered March 1960.
Rehearing July 20, overruled 1960.
ON REHEARING Smith, Mr. joined by Hamilton, dissenting Justice Justice rehearing. on motion for Upon further case, consideration of the record in this I respectfully opinion dissent. This court’s should be revised so clearly recognize as to oil, gas, that a in an and mineral is necessarily implied lease purpose continuing for the term of a during temporary delay determinable fee in force for a gas time completion between aof well and com- production getting gas mencement of “on stream” and to allow reasonable time within royalty. which shut-in to My involving research fails comparable to reveal legal factual situations questions and support original the court as opinion. study reflected in our A briefs, transcript, and statement of facts in the case of Free- Magnolia man v. Co., Petroleum 141 Texas legal has convinced me that neither the nor similar facts were in the recognize Freeman case. The failure to dis- tinction between the Freeman present case and the case has led following controlling holding erroneous and by this court present in the original case. In opinion, our we said: deny held in lease have been provisions as the
“Just oil, they discovery so after to find a market a reasonable time deny time within which a reasonable been construed have place. This taken the ‘shut-in’ pay ‘shut-in’ Magnolia, similar supra, under explicitly was held Freeman being facts, only that in Freeman practically the distinction prior to brought a few months discovery had been * * * lapsed a matter lease term. “The end premises gas being produced on law, from the there having term, royalty not day and the last added.) (Emphasis paid that date.” on or before Harring- against D. primarily D. The Freeman case was a suit in oil. Prior and no interest ton who owned an interest Harrington "the Magnolia conveyed well, to the dry gas acres, 10,578 rights dry gas only, includ- and in and under Har- ing the same time suit. At the land involved the Freeman rights Magnolia rington conveyed in the oil all his interest rights casinghead casinghead gas in and under and and Harrington Magnolia rights and All same oil and leases. original by the executed oil and stemmed from the Thereafter, George Mager, Magnolia’s assignor. Freemans August Magnolia Harrington a drill- entered into agreement. agreed Harrington ing test was to drill a It Harrington primarily interested well on the Freeman land. Magnolia discovery production was in- Magnolia oil. re- terested in *9 right inspect supervise any time to well and to at served the same, well, any portion of the from the bot- drilling agreement gas completion. to tom strata its The provided: en- further “If and when an oil show or strata is Magnolia immediately at countered shall be notified and right testing (Emphasis election shall added). said oil show.” have Magnolia agreement exercising points up This that was bring gas production reasonable to oil and into both original the lessees. In for benefit lessors as well as Magnolia right well the event and further drill for oil in had exercise its to take over the Harrington had after discovered Harrington? paying quantities, happened what would have theory, original opinion, Under our Har- advanced rington’s gas rights unreasonably appropri- would have been giving judicial ated fiat and Har- the lessors under without rington royalty. pay time to reasonable shut-in Our Magnolia any rights here denied would have also which were specifically granted 60-day-clause under the oil question lease. This was not in the Freeman before the court Magnolia Harrington simple for the reason that failed 22, 1939, anything the date of discov- do December give ery, question. They rise to such a made that no contention right royalty they pay within a had the shut-in reasonable completed. time time after the well was The “reasonable therefore, nothing in the question,” had do with decision clearly opinion case. in the Freeman case shows Freeman The Magnolia’s that the turned on contention “that decision potential payment vision for the a to declare $50 agreement ‘producing well’ was absolute unconditional lessee, part option.” on the rather than an briefs See — Brewster, Appeals Mr. Civil Freeman case. Justice Court case, that speaking pointed out the court in Freeman clause, pro- paragraph question, 2 of the lease in habendum years that vided April the lease should remain in force for ten from 7, 1930, long oil, gas and so thereafter as or other mineral produced land; from the leased that well in completed 1939; was on December that was claimed any being produced that oil or other mineral was therefrom April 7, 1940, primary ended; Magnolia when the Company April 7, Petroleum 1940; did not on or before $50 Magnolia contending pay- it could make the year ment time within a from December and for rights that reason it royalty tendering was within its in not the shut-in until more than April four months after expiration Thus, Mag- date of the term. it is seen that nothing keep nolia did was, fact, alive. The lease dead when the paid. shut-in Since there was no paid and the shut-in was not before the ex- piration primary term, Magnolia’s the court held rights under the lease had forfeited, and that the lease had nonproduction. terminated for opinion signifiicant Freeman case contains this respondents statement: “If [Magnolia] prevent had wanted to lapsation of the lease for non-production, they easily could have by paying done so fifty dollars on or day before the last though term.” Even principle time was never mentioned or Freeman, discussed in supra, the lan- guage quoted, although *10 above dicta, indicates that the court was opinion period that of approximately three and one- half months between April 7, December
not an unreasonable time within which to roy- the shut-in alty. case, In our where the lessee in rights the exercise of its under the lease obtained January 18, 1949, after expiration paid term and royalty the shut-in days thereafter, reasonably that it be held
within 30 could (60 days), payment period such made within the extension secondary by the term as fixed and therefore within original Certainly, lease ? under terms of the oil and case, long present facts in tendered the shut-in words, before occurrence of a limitational event. In other Freeman, in in was still force. tender was made while lease practically that if Appeals, admits in the his brief Court Civil mining, drilling, Magnolia engaged operations in for had been expira- 7, 1940, reworking April a date of the or of well on primary term, tion of the or had commenced additional reworking thereafter, lease within 60 kept only that the tender would have alive. This can mean case, rights present under of shut-in in the before the occurred, the lease terminated or the limitational event kept the lease alive. Holchak, agree Freeman, respectfully I decline holding authority for the are cases absolute Breidenbach authority cases cannot be has terminated. Such Gulf’s questions presented here were never such where the for cases, especially where in Freeman et al. befor the court the facts were foreign present facts case. The the facts controlling discussed. principals will now be of law here adopted propose is not liberal rule I to have a so-called Virginia rule, entirely keeping but is a rule
Oklahoma West and the terms the lease contract involved with the facts this case. capable agree capping of a that the mere I cannot a quantities is feet)
producing (88,000,000 cubic automatically terminate deter- event which will limitational Admittedly, there is acquired fee under the lease. minable Reid lease which provision expressly written in the lease vided that drilling operations temporary would a cessation of consistent If this court is to be not terminate the lease. Corporation of Midwest Oil announced in the case the law as (1959), should Winsauer, 159 Texas necessarily present case that such say in the now sense, but equity in strictest a matter of implied. It is not is com- implied It recognition covenant. equity of this dictates (gas this in- product knowledge a market for mon dis- production has been stance) can be obtained Where determined. or volume of and the amount covered contract, the any phase performance no time is fixed performed within necessarily imply it is to will law *11 contract implied in a written which is time. That reasonable as much though expressed therein. part of it as it were gas, oil, mineral interpretation and and construction of In the give true intention effect to the leases this court should seek to effort, parties. rules In this we should follow established interpret instruments. See used to contracts and other bilateral 341, 346; Christman, McMahon v. 157 Texas 303 S.W. 2d Adoption opinion], [dissenting reason- Id. 267. construction which is one of the well able avoids forfeiture recognized rules. looking solely by necessarily
The lease must be construed not lease, light all to the habendum clause in the but express implied covenants well as the covenants to read into the lease.
The court’s statement of the nature cause action of Reid’s it is one the court “to have decree lease termin- * * *” provisions ated under its own and the clearly court demonstrate that the decision rendered with- regard important implied out to the all covenant that the lessee shall have reasonable time within which to commence the ac- marketing gas, or, thereof, tual royalty in lieu “shut-in” thereby and commence constructive within showing a reasonable time. There are no facts that Gulf failed prosecution operations in the But, assuming contemplated by parties. temporary drilling operations cessation of operations, constituted cessation of nothing was done for days, except design, prepare, equipment and install negotiate market, for a respectfully it is submitted that rights, privileges, opportunities good afforded a faith lessee (Winsauer case) temporarily who has produce ceased to should good also be extended to the faith temporarily lessee who has drilling operations. ceased good Since Gulf was found to be in using diligence faith and toward placing the end of stream,” well “on cause royalty its lease should merely not be cancelled be- drilling the actual had ceased and the shut-in paid was not until 28 after such cessation. This is especially upon taking true into 60-day consideration the clause contained the lease. The record shows that the shut-in payment was tendered humanly before it possible to have put the well on pipe stream right United’s line had been at line, and well within 60-day period. Since the tender of shut-in is tantamount to production, Gulf was for all intents purposes “on stream” within three weeks Mid- operations. In the case of
temporary cessation of *12 resumed until production Winsauer, supra, was west produc- temporary cessation expired from the 174 had tion. general rule lay impossible an accurate It is to down marketing a within production or
respect to what constitutes ob- so every either been time in case. Whether reasonable tained must be left to the they arise. P. 2d particular cases facts of 351, Co., 240 Kan. and Tate v. Stanolind Oil Gas See expired primary October 465, (1952). In that case the term well, completed well, 24, and a 1947. The first term. primary 15, 1947, expiration of the September Although produce in that it was admitted the well would during actually the well quantities, production had from 1947, appli- 24, made primary September term. On Stanolind ex- a Stanolind cation to the for well allowable. Commission pipe diligence negotiate awith in an contract ercised effort a company. contract, however, until was not executed line January The fixed February the Commission 1948. On pipe line. its connected the well to an allowable and Stanolind prior had position production was Tate took the that since no term, expired primary had expiration the lease to execute was entitled a release. declined and he Stanolind ground a oil valid on the that it was the holder release quiet suit to On Tate filed and lease. December judgment was affirmed title. A in favor of Stanolind agreement Supreme of Kansas. court held that Court contract, parties, their in the lease disclosed embodied production. a intent to time in which to obtain allow reasonable in our The habendum was similar to one contained clause However, primary years. specified It lease. provided remain in force as same clause the lease shall long- them, gas, produced from oil or or either of thereafter as great weight recognized of au- said land. The court thority harmony was in actual with the view that during the extension of term was essential beyond say on to lease term. But the court went fixed obtain, ad- a result would unless lease some such contained indicating right an intent extend the ditional produce case, beyond supra, term. In the Kansas lease, commonly known as the the court found clause in the “drilling clause,” which read: right com-
“If shall well to the lessee have the drill such pletion dispatch, if oil with reasonable paying quantities, them, gas, or either of be found had if well the like effect as force with continue and be in shall men- years herein first completed the term within tioned.” drilling to- clauses The court considered habendum per- interpretation
gether upon applying of all determining the provisions of the contract instead of tinent alone, analysis clause habendum critical held:
“Applying foregoing principles think both the haben- we reasonably may operative. dum and clause made years The first clause fixes term of the lease as ten from *13 may period date. Under it the the that lessee hold lease for merely If, prescribed however, the annual rentals. expires by all he the lease own at the end of its does its terms primary hand, drilling operations
fixed term. the other On completed during a well are primary term and oil or paying quantities, discovered or if a as commenced well during completed such term and thereafter with and dispatch lessee, event, produce in either must oil or a expire subject within reasonable time the lease will and be fair, reasonable, cancellation. This we think is a construc- tion of the two clauses involved.” The court stated it place that was not unmindful
purpose habendum, clause, recognized clause in oil and leases. It was in a case clauses, of irreconcilable conflict between such the habendum ordinarily Where, clause however, would control. the clauses give can be harmonized so as to effect to each of them that should be done. question: The production Was obtained within completion time after ques- of the well? court The answered the tersely stating
tion first the facts: “* * * primary The term ended 1947. well October The completed was primary at a substantial cost about five weeks before Also, prior appellee term ended. a month thereto made application to the Commission for a well allowable. Eleven expiration before the hearing term a was had application on such ap- before the Commission. At that time pellee arrangements advised the Commission of its with Inter- gas. state to take the application The Commission took the under not a decision It did announce before advisement. gas. Appellee promptly refused to take the ended. Interstate term proceeded compel take Interstate Commission agreed February do then so. On it. Interstate connected allowable and Interstate fixed Commission * * * .” pipe line. held: Then * *
“* say dis- not we shall Under these circumstances resolving mar- producing or trict court erred appellee’s keting favor.” time in within reasonable me, proposition that case, supports the The Tate seems does not automatically arbi- fee terminate determinable production. trarily completed the well is absence when par- point that the is also case illustrative Winsauer law present intend and the oil and lease did not ties to arbitrary application require habendum does produc- In that cessation of clause. case we held Winsauer contemplation parties. temporary and within the tion was present that with- is not unreasonable to hold in the It temporary the contem- within plation parties. Winsauer, supra, In the court stated: “Although not ex- deed under consideration does provide pressly because the term will not terminate temporary provision is interruption, we hold that such logical necessarily implied.” presents very It seems *14 argument says implied in when it that a similar clause, “production” present applying In the is the case. habendum requirement. temporary production If does cessation of destroy clause, the determinable fee under the not habendum withholding temporary production why the same under should destroy under the record in case the same determinable fee present the same clause? The court in the has habendum case temporary largely rejected principle on cessation belief drilling1 production since and no or re- that working operations going there no- actual 1949, January 18, on the lease after date, citing- automatically terminated as of that such cases Magnolia Co., 339; 274, Freeman v. 141 Texas S.W. 2d 171 Clark, 399, ref., App., Holchak v. Texas Civ. 284 2d er. S.W. Breidenbach, Sellers v. Texas 2d Civ. 300 S.W. analyzed The er. ref. Freeman has an heretofore been inapplicability pres- effort demonstrate its facts to the in the permanent ent case. There has been no cessation present case, case. Whereas there was no actual paid and shut-in was not nearly until four months after the of the term. end
67 taking into rights parties determined are be The oil, gas, mineral all of clauses consideration parties. lease contains the intention of to ascertain clearly it the intention clauses which parties indicate market which to to allow reasonable time within gas. an presumed parties intended that It is to be that the deliberately thing impossible parties or that the should be done impossible agreement calling condition entered into an performance. or event as a test of performance
“A of the contract construction which renders possible per- adopted, will be rather than one which renders impossible meaningless, formance latter construc- unless the absolutely necessary; tion is matter held significance words, they ordinary how clear the must not given meaning which, applied subject be when matter contract, performance impossible.” C.J.S., will render Contracts, 318, p. section 738. court, Superior This in the case of Portland Gasoline Co. v. Marketing Co., 823, 824, quoted 150 Texas approval Contracts, from Am. Jur. section following: “Agreements interpretation, must receive ac- cording to parties executing intention at the time of them, if language. intention can be ascertained their from In life, sanity transactions of business of end and aim is at presumption, though least a rebuttable one. A reasonable in- terpretation preferred will be to one which is unreasonable. [*] ifc :¡í This opinion court quoted the same from 12 Am. Jur.
794-795, Contracts, following: section agreement should, “An moreover, construed in such a way obligations to make the imposed mutually its terms binding upon negatived by parties, interpretation wholly unless such language pre- used. This rule is based sumption parties instrument, that when make an the intention *15 effectual, is that it nugatory. shall be meaning and not A which sufficiently is definite will be favored. The terms of a contract must, possible, if something to be construed mean rather than nothing at all.” application Another rule which has here is found in 2 Sum- 596-7, mers Oil and Gas and reads as follows: is of acts perform act or series'- duty an a to “Whenever manner, time, law, the by implication and or contract fixed implies fixed, the law performance not is extent and time performed a reasonable within or acts shall be act such therefore, diligence. oil and Where, with reasonable and time, manner, performance and extent of do not state leases protect test, develop and to express implied and duties necessity tested have product, the courts and market the land by time of reasonable performance the standards lessee’s added). diligence.” (Emphasis and reasonable confronting a responsibilities problems and The tremendous discovery beginning not end with the from the do lessee Necessarily, must in this case paying quantities. the lessee to within a time reasonable be accorded marketing complete the arrangements, complete and thus to his to production. object principal of the contract to The development property benefit for the mutual secure of the parties. objective under the strict cannot be attained This given given by court. construction construction obligations disregards express wholly rule mutual of both cannot be carried out benefit lessee obligation implied corresponding a is parties unless actually is allow a time to market lessor royalty. producting by paying shut-in constructive obtain obligation may “Mutuality implied on result from Though parties. its and part a contract on face of one of may party express appear obligatory by on one terms be parties, only, it is it was intention of the manifest express upon party the consideration which one assumed an and obligation, corresponding and that there should be correlative corresponding obligation party, the other such and correla- obligation implied, will held mu- tive be the contract to be tual, party expressly done where the act be bind- —as being ing upon corresponding himself can be done act party.” done allowed the other 10 Texas Jur. Con- tracts, approval quoted Sec. also with of Port- Co., Superior Marketing supra. land Gasoline Co. v. drilling. The commencement of does not mean actual the well preparations being made, It sufficient if drill- are such making clearing delivering equipment location being true, say well site. This that such unreasonable begun good operations, prosecuted which were faith diligence should not held to have ended with cessation *16 only in terminated drilling, held have should be actual but discovery prosecute with fails after the lessee event securing a negotiating by of his a continuation gas by marketing placing parties for both profitable contract nothing time. There within reasonable stream” “on any time define parties intended to lease to indicate might marketed, especially gas when be element within which drilling operations were dili- production resulted from 60-day gently extension clause out under carried Likewise, intention that does not manifest the lease lease. contemporaneously royalty with must be tendered the shut-in the hand, other the liberal terms capping well. On royalty including 60-day clause and the shut-in of the lease recog- apparently contract inserted in the lease clause were nition of the fact that after discovery there would be delays marketing product. such The for shut-in royalty implies recognition by parties within itself mutual- ly interest, Reid, at that a time would be necessary in the event to obtain operational facilities essential to market the stream However, principles holding of commerce. 60-day
reference clause announced in of Stano- Bros., lind v. Newman 157 Texas 305 S.W. 2d never reach the are to followed, they should, and I think we alone, of whether the shut-in necessary impli- clause cation, afforded aGulf reasonable time within which to tender specified royalty payment. A fair and reasonable construc- 60-day drilling tion of the requires commence clause operated period that it to extend the lease for a of 60 from drilling operations. and after lease, the cessation of The there- fore, was paid. payment alive when shut-in The 60-day period. was made well within have, parties Where here, provided as. in the lease for constructive production, lieu actual purpose the ultimate of the lease is served and the parties mutual protected interests of both are by affording a completion reasonable time after of a within which to commence the production. By giv- constructive ing 60-day effect to the drilling clause, period “commence” January 18, between 1949 and the date of tender of the shut-in royalty was not aas matter of law unreasonable time within which to production. commence constructive The trial court was holding. correct in so express provision authorizing an ex- tension reworking- operations, parties shows that the did not intend that the habendum clause literally to be the final word. As was said in the case of Stanolind v. Brothers, supra: Newman merely does not clause “It noted the habendum will be long years and as thereafter
provide five for a term of *17 only primary purport does to make duction continues. Nor it it provisions the lease. Instead subject to other terms provides contained, provisions ‘subject herein to other that * ** long (5) there- shall a term five as this lease be for * * stipula- oil, gas produced or other mineral is as long produc- years and as thereafter as tion a term of five for enlarged by recital is thus both modified and tion continues provisions, required subject is other lease that it is yield provisions affect the dura- and all other which to tion of the lease. It is clear then may kept
that lease primary production or term either force after end provisions.” operation its other present fixed In the case the standard has been days. drilling” clause, being in its as The “commence en- tirety, reads: term, gas
“If, expiration at the oil or other being hereby, produced then mineral is not from the land covered drilling reworking engaged operations lessee is then or but hereunder, operations part of lease shall on some the land this days not terminate lessee does not allow more than 60 elapse the abandonment of one and the commence- between well drilling reworking pro- operations ment of or on another until duction is obtained.” recognize
The court here failed to that whether well is gas to be an oil well is known until the well often not well given completed. inis fact No consideration has been fact that area in this is is well located an associated reservoir. The well was bottomed in sand which entirety developed, however, included and oil. It that particular structurally well was so located none oil penetrated. completed section of that sand was The well was “perforated” in section of reservoir. There was no amandonment, have, there abandonment. Had been an could gone abandonment, within 60 from the of such date back attempted by reworking operations complete into the well and producer as oil it in a zone lower of the “associated reser- having (one voir” free column and in above contact with Gulf, column). lease, a lower oil have elected to under the terms of the could gas well, it did
abandon
not so elect.
but
give
Since there was no such abandonment as to
to Gulf
right
reworking
operations,
to recommence
it
can
and,
ceased,
there-
only
operations
had
be said
those
never
fore,
made even before
the tender of the shut-in
was
expressly
had ceased. Since the
states
further,
and,
by drilling
operations,
is
extended
play
lessee
until the
not come into
since
shut-in clause does
capable
producing in
well
there is a
establishes
lessee,
further,
lessor,
quantities, and,
since
marketing
looking
is
the
but the
toward
drill-
discovered,
rarely
that the
is
true
minerals
and since it
ing operations
production,
and because
result
immediate
provide
hiatus
shut-in
for the
between
clause
marketing,
logical
hold that
duction and
reasonable and
in full
effect at the time the
Reid lease
still
force and
royalty payment
necessarily
im-
shut-in
It
must be
made.
*18
plied that
had a
in which to tender
the lessee
reasonable time
gas
quanti-
the shut-in
was discovered in
Furthermore,
subsequent
ties
to the end of the
term.
capable
gas
producing
paying quantities
of
since well
in
was
January 18,
completed
term,
on
within the extended
gas
brought
and since
forth and reduced to sufficient control
running
purpose
putting
gas
for the
of
from the
the
“on
though
prior
stream” from the lease
marketed
to the ex-
piration
term,
equitably
of the extended
Gulf
entitled to
gas.
a reasonable time within which to
the
of
market
See State
Oklahoma ex rel. Commissioners of
Land
Office v. Carter
Company, Sup.
Okla.,
1086;
Oil
of
P.
Ct.
et al.
McVicker
Horn,
al.,
v.
410;
Sup. Ct., Okla.,
Robinson and Nathan et
P. 2d
Pipe
Panhandle
Company
Isaacson,
Eastern
Line
particular
Cir.
Gulf and Reid. Gulf was at all endeavoring profitable tinent times to make a The contract. witness testified that “I think pipe when we first talked to a line company we had three shut course, wells in. Of this early development stages was in the drilling rig and we had a active in the well, field and as we course, drilled each we try would test it something to determine about the size of the reserve and the value endeavoring assets we were larger to sell and the price reserve the better and the better bargain get.” we would Reid negotiations was advised about the signing of the contract. Reid had inquiry made some as to going when Gulf was. “put production.” the well into Gulf ad- vised Reid and other lessors of the situation to show that “we using diligence doing were everything possible to market the gas as possibly digress well as we could say do it.” I here to that if Reid had cause of action at all it damages was one for and not However, to cancel the lease. he did pursue not elect to course. go witness testified that “as contracts we handled *20 pretty rapidly. I right have been on some now we are that — working still on some contracts working that we have been on period years.” for a of four or five He further testified that he expert was an in contracts, the matter of and that in his opinion period between June 1949 and November 1949 was begin reasonable time within delivery which to of * * * gas. why delay, replied: “Well, When asked he gathering to Pipe Company Line had install Gas United system field of each one system into quite an extensive course, to in order battery and of each tank and into wells quite they a few right way had they and had to secure of do so during that being get and to line in problems able suppose actually, I up very frequently and time I called them get get hurry up and pest myself trying of them I made something But, delivering gas. said, as I us start in and let get the 22nd to until November it took them from June 7th go get and us ahead start shape in facilities and them gas.” Thus, not delivering lease could it is that Gulf’s conclusive diligently a reasonable and within have terminated. Gulf legal prosecute obligation complied with its to not time drilling diligence, operations to market with but general production results from well. The rule is where drilling operator to mar- operations is unable and the lessee lack an available market or ket the pipe on account if, by exercise results line connections forfeiture diligence lessee, part operator, of due equipped within a reasonable time. and a market obtained performance generally applied is or not the test of whether attempt market due care and in lessee has used Gas, gas. pp. and Section 589-590. See Summers Oil Refining Co., App., Texas also Oil & Civ. v. Humble See Guleke history, approval by no writ but cited with 126 S.W. Winsauer, supra; Company v. Union Oil this court Midwest Ogden, v. Texas Civ. 278 S.W. 2d wr. California (This approval by with this court in ref. n.r.e. cited Winsauer, supra, far, rejected by but thus has been Midwest v. cases, present approval case.) Our of these this court together Winsauer, supra, my our in Midwest proposition opinion the facts committed court operations showing and temporary cessation of reasonable dili prevent get “on will gence the well stream” automatic words, In other an oil and lease. we have termination there can be a recognized in other cases that situation where cease, yet may temporarily lease will auto Definitely, temporary we have held ces matically cease. automatically production did not terminate the Mid sation I can see no valid lease. distinction between v. Winsauer west temporary cessation of temporary cessation legal principle is the same. operations. The Both occur dignity they so far equal can have forestall should rences rights forfeiture of automatic valuable prevent an under Clark, like Holchak v. lease. Cases Sellers v. an oil opinion support cited court do not Breidenbach
75' against temporary cessation application militate stated, heretofore operation principle here. As advocated the; this court was not time Freeman case. cases, express provi- supra, In the Holchak and Sellers controlling royalty
sions in the take them out of the deeds in each of the cases are category authority of cases I contend to be support expressed. in a of the views herein Each deed contained
positive, produc- unequivocal statement that in absence grant void, tion on critical date this shall become null conveyed hereby and the minerals shall revert to the said grantor. The not left term those deeds was therefore to rest upon a reasonable construction of the usual clause: habendum parties nothing plain, there were satisfied less than a Holchak, nullifying provision. supra, discovery affirmative was a completed by case. The well was not the critical date. An oil discovery was claimed on the basis aof drill-stem test. Ex- royalty
of the record discloses that the term deed did usually contain the habendum clause found in oil and Instead, provides grant leases. that the shall become null and ” *“* * * * * paying production void in case there is no on the “discovery” date. critical The court stated equivalent is not “production,” discovery and held that by followed continued operations with due did not maintain the term beyond interest in force date fixed in the deed. It is Holchak, supra, true that holding also said that in Bain v. Strance, Texas Civ. ref., n.r.e., wr. diligent effect that followed will royalty interest, maintain the wrong. was dicta and was I can- holding not see how the in the Bain case which was declared dicta in bearing the Holchak could have on our in this case. The writer in the undoubtedly Bain case was think- ing about a factual situation such as we have here in Gulf v. when Reid he said reasonable time within which to market the product Granting must be allowed. this was bad dicta in Bain, Supra, good say I it is dicta when light considered in the the facts in our case. No shut-in well clause is mentioned. In the Breidenbach case two wells completed had been ap- parently at an earlier date and the they court assumed were capable production” “Paying but were shut in on the critical Perhaps they date. were shut earlier, in much lapse with the more than a reasonable time for commencement of actual any event, duction. In express nullifying inwas deed, and, points out, as the court the deed contained no provision. shut-in The Holchak and Breidenbach cases. court in distinguished approved expressly
were but not *22 560, Corp. Texas v. et 159 Oil et al. Winsauer Midwest al. distinguishable from they equally I think are 323 2d 944. S.W. present case. SUMMATION following said herein reduced All that can be holdings: drilling” clause
(1) “commence The construction of the a matter of adopted requires court to hold as this hereinabove royalty payment within was tendered well law that the shut-in secondary event the limitational term and before and, course, alive. at a time when the lease was still occurred the second- (2) royalty If was shut-in not tendered within then the ary term, law, a a which includes as matter of a shut- royalty shutiin clause is construed to mean may royalty time after dis- in be within a reasonable tendered covery such quantities; in having and the shut- Januar duction been obtained royalty having (equivalent payment) within been tendered thereafter, such tender was made within reasonable law; not, as a then the of whether time matter royalty time one shut-in tendered within a reasonable of fact.
(3) question time within which to reasonable the court in shut-in or to market the Freeman, Iiolchak, and Breidenbach cases. reasonably operator prudent declared test as (4) The Koontz, 2d Texas 325 S.W. Clifton Winsauer, supra, principle as announced time Miller, Texas 2d Tate, supra, Cox v. Civ. S.W. doing recognized ref., and in so the record are to be wr. prudent dispute reasonably acted without shows operator obtaining contract to market and in within a “on stream” reasonable time. In putting the present question. fact event, issue on this the evidence court Therefore, of the trial should affirmed. judgment be However, questions have not been determined aas matter if the then, erroneous law, the Court of in view question of reasonable time as to Appeals that both Civil marketing gas, payment shut-in Appeals for further Court of Civil should returned opinion. consideration consistent with 20,1960. July Opinion delivered dissenting. Greenhill,
Mr. Justice Campbell. Company Texas Electric Service v. Seth May 18, 1960. No. Decided A-7608. Rehearing 1960. July 20, Overruled (336 742) Series