This аppeal from an order dismissing the plaintiffs’ suit turns on the nature of an action of trespass to try title and the characteristics of an oil payment in relation to the indispensability of payees as parties plaintiff in a suit by the mineral lessee for trespass to try title to the leasehold. In this case the joinder of absent payees as indispensable parties would oust the court of jurisdiction based on diversity of citizenship. We hold that the owner of an oil payment is not an indispensable party plaintiff in an action of trespass to try title.
I.
The dispute is over conflicting claims to the minerals under twelve acres of land in Montague County, Texas, on which a producing well is located.
Standard Oil of Texas, a Delaware corporation, and New Idria Mining and Chemical Company, a Nevada corporation, brought a diversity action in the usual form of a Texas suit for trespass to try title. 1 The plaintiffs allege that they are the owners of % of the oil, gas, and other minerals underlying the twelve acres in question; that this land is part of a larger tract in the East % of Block 1, League 12, Calhoun County School Lands, Montague County, Texas. They say that on August 29, 1956 they were in possession of the tract and engaged in drilling for oil when the defendants, J. W. Marshall and others, unlawfully entered upon the land, dispossessed the plaintiffs, and drilled a producing well. The plaintiffs ask for a judgment recognizing their title and possession. They ask also for an accounting for the oil produced, valued at $75,000 up to the time of the suit, and for damages for the conversion of the oil extracted.
The defendants claim the same twelve acres under a separate title in which the land in dispute is described as part of a tract situated in Block 6, Upper League 12, Calhoun County School Lands, Montague County, Texas.
Some time before April 27, 1956, Standard Oil of Texas obtained an oil and gas lease covering the land described as part of Block No. 1 Calhoun County School Land, Montague, Texas. Standard conveyed to C. L. Lloyd and L. F. Pitts, reserving an interest in the leasehold. April 27, 1956 Lloyd and Pitts assigned their lease to T. F. Vanderlaan. The assignment provided that besides a nominal consideration of ten dollars, Lloyd and Pitts were to receive two oil payments of $1,800,000 and $1,200,000, payable out of a fractional interest in the production reserved by the assignors. 2 *49 When the oil payments reached the agreed amount, the reserved interest was to “terminate and * * * revert to and vest in Assignee, his heirs and assigns, without further instrument or conveyance.” Vanderlaan assigned to Beaver Petroleum Corporation, subject to the rеservations in the previous assignment. Beaver assigned to New Idria, subject to reservations in favor of Lloyd and Pitts and subject also to a “production payment interest” in the amount of $140,250 owned by Marvin Hayutin.
The defendants moved to dismiss the suit for lack of jurisdiction, basing their motion on Rule 19(a), Federal Rules of Civil Procedure, 28 U.S.C.A. 3 They con *50 tend that Lloyd, Pitts, and Hayutin are indispensable parties since they own oil payments carved out of the leasehold. Lloyd and Pitts are citizens of Texas. Hayutin’s residence was not known at the time suit was filed.
Standard and New Idria argue that as owners of undivided interests in the oil and gas underlying the tract they have the right to sue in trespass to try title without joining Lloyd and Pitts or other owners of interests in the minerals or interests in the land. They assert that owners of oil payments would not even be proper parties to the suit because, under the law of Texas, they lack the possessory interest necessary to maintain a suit for trespass to try title.
If the plaintiffs are in a dilemma, caught between the indispensability of the payees as parties, on the one horn, and the necessity of complete diversity of citizenship, on the other horn, the suit was properly dismissed. 4
II.
The action of trespass to try title was introduced in Texas by the Act of February 5, 1840 “to abolish the senseless fictions of the English common law [action of ejectment]”. 5 The action is purely statutory. 6 The proceeding accords a legal, as distinguished from an equitable remedy. 7 It is not to be confused with a suit to quiet title or a suit to establish an interest in an oil and gas lease or a suit in equity for an injunction to restrain a defendant from trespassing. 8
Two fundamental characteristics of the action of trespass to try title are important in this case.
First, although the suit is to try title, the proceeding is a possessory action 9 for recovery of land possessed by a trespasser. “To maintain the action there should be a present legal right to possession with such title as renders the possession lawful. * * * The petition of рlaintiff is required by the rules of court to state that he was in possession of the premises or entitled to possession thereof, which allegation must be proved. A right of possession is thus made an essential to the cause of action in trespass to try title.” 10 If the plaintiff shows possession, his own or a predecessor in title, prior to defendant’s possession, and a regular chain of title connecting himself with such possession, the plaintiff establishes a prima facie title. 11 If the plaintiff’s right of possession has not accrued at the time of trial, the action is premature. 12
Second, it is settled in Texas that an owner of an undivided interest in land may bring suit in trеspass to try title without joining the other part owners. “Proof of title to an undivided interest in a tract or survey will support
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a recovery of the entire parcel as against a stranger to the title. It follows that an action of trespass to try title may be maintained by one of several cotenants. Thus, as against a trespasser, the entire premises may be recovered by one who has taken a conveyance of a fractional interest in the property.”
13
“A tenant in common may maintain an action to recover the whole of the land from one having no title.” Turnbow v. Richardson, Tex.Civ.App.1941,
This Court has applied these principles on several occasions in diversity suits. In Murphy v. Sun Oil Company, 5 Cir., 1936,
“As to the first point, the want of necessary parties, it is plain that appellant has overlooked the fact that this action is not in equity to remove cloud, but is at law to try title. In such an action one coten-ant can sue for and recover title to the whole tract for the benefit of himself and his contenant, as against one having no title, and it is settled law in Texas that a lessor and lessee in an oil and gas lease are cotenants.”
See McComb v. McCormack, 5 Cir., 1947,
In Humphrey v. Stanolind Oil & Gas Company, 5 Cir., 1956,
“[Appellee] concedes that the rule in Texas and in the Federal Court is that persons claiming an individual interest in land may sue and be sued without joining others so claiming. It nevertheless, without citation of authority or, as we think, any sound reason, contends here that Rule 19(b) authorized the action taken. It does not in its motion allege, it does not claim here, or if it does, it does not point to any reason for so claiming, that the defendants it seeks to have made parties are such persons as ‘ought to be parties if complete relief is to be accorded between those already parties’.
“It is apparently laboring under the impression that, for action under the rule, allegations merely that it would be desirable or useful to have as many claimants in the suit as possible * * *
“We cannot agree with this view.” See Mackintosh v. Marks’ Estate, 5 Cir., 1955,
Defendants distinguish the Murphy case on the ground that the absent party was a lessor whose % interest would not be affected by litigation involving the %, leasehold. We observe, however, that a lessor is a cotenant with the lessee,, claims through the same chain of title, and shares in the risk of adverse litigation affecting title and possession. Defendants distinguish Humphrey v. Stan-olind on several grounds: (1) that the *52 absent parties had no such interest as the oil payees in the instant case, but were merely lessors having no interest in the leasehold (as in Murphy); (2) that the opinion is based on Rule 19(b), not on Rule 19(a), the rule invoked in this case.
Defendants rely principally on Keegan v. Humble Oil & Refining Co., 5 Cir., 1946,
“We prefer, however, to rest our decision on the absence of the owners of the overriding royalty interest. This is an interest carved out of the lessees’ share of the oil as distinguished from the owners’ share. Wright v. Brush, 10 Cir.,115 F.2d 265 . Their interests are so bound up with Humble Oil & Refining Company [the defendant], that the relief prayed for in the bill divesting Humble of its leasehold would deprive them of their right to share in the oil produced. These parties have no reversionary interest separable from their right to receive a portion of the oil produced. A decree depriving them of such interest without being heard could not be legally made, since no court can make a direct adjudication on rights of parties not before it. Gregory v. Stetson,133 U.S. 579 ,10 S.Ct. 422 ,33 L.Ed. 792 .
“The absent defendant Sperry [the owner of an overriding royalty, resident of Washington, D. C.] and others similarly situated were indispensable parties. Cf. Associated Oil Company v. Miller, 5 Cir.,269 F. 16 ; Vincent Oil Co. v. Gulf Refining Co., 5 Cir.,195 F. 434 ; Roos v. Texas Company, 2 Cir., [1927,]23 F.2d 171 ; Veal v. Thomason,138 Tex. 341 ,159 S.W.2d 472 .”
The Keegan case would be on all fours with this case, if the same principles that apply to absent parties defendant apply also to absent parties plaintiffs. The same principles do not necessarily apply. 14 Under Texas law, a single plaintiff may bring an action of trespass to try title without joining his lessоr, eotenant, surface owner, lienholder, mortgagee, or warrantor in title. All of these absent but interested parties have an ownership or direct interest in the land itself or in minerals treated as land. They are just as bound up with a judgment affecting a lessee’s possession and opportunity to produce oil as the holder of the working interest. They too are affected adversely by .litigation wiping out the working interest. Nevertheless, they are not necessary parties plaintiff in a statutory action limited to issues of the plaintiff’s right to possession and chain of title. In such an action as trespass to try title there is more reason for *53 dispensing with an absent owner of an oil payment than there is for dispensing with other absent owners of interests in land, since the payee has no right to possession and therefore no standing to bring the suit in the first place.
III.
Walker, a leading authority, defines an oil payment as a royalty interest:
“[A] promise by the owner of the working interest under an oil and gas lease to deliver a fractional interest of the production of any or all of the minerals covered by the lease to the payee, or to pay him the monetary value thereof, until the payee has realized a certain sum from such deliveries or payments.”
Tennant v. Dunn, 1937,
Walker states that:
“Applying the analogy that has been made between royalties and rents or profits issuing out of land it would seem that the interest should be regai*ded simply as an incorporeal hereditament, and since the interest may possibly endure throughout the entire life of the determinable fee leasehold estate, it would be a determinable fee corporeal interest. Manifestly, no present possessory interest is created in the payee, nor can it ever ripen into an interest entitling the payee to possession of the land or of the mineral estate in the future for, so long as the lease continues, the payor-lessee has the right to exclusive possession, and if the leasehold estate terminates the oil payment interest expires with it. This is true even where the oil payment provision expressly undertakes to grant or reserve title to a portion of the minerals.”
An oil payment is like an overriding royalty.
15
It is carved out of the lessee’s share of the oil, the working interest, as distinguished from the lessor’s royalty interest. It differs from an overriding royalty only in that it is of limited duration; it expires when the payee receives a fixеd amount for his interest. Frost v. Standard Oil Company of Kansas, Tex.Civ.App.,
“The same reasoning there employed to determine that a royalty interest is land for the purpose of taxation will likewise determine it to be land for the purpose of fixing the venue of a suit for its recovery, or for damages thereto. And, if this be true of a royalty interest in minerals, it must be equally true оf an overriding royalty in minerals. For, though an overriding royalty is carved out of the working interest of a lease, the owner of the overriding royalty stands in the same relation to the operator of the lease, as regards the right to receive some fractional portion of the oil and gas produced and saved, as does the owner of a royalty interest.” [107 S.W.2d 1039 .]
In Knight v. Chicago Corporation, supra [
“We think the terms undivided interest, overriding royalties and oil payments have certain well defined . meanings in Texas. All three types of interest are carved out of and constitute а part of the working interest created by an oil and gas lease. An overriding royalty is a certain percentage of the working interest which as between the lessee and the assignee is not charged with the cost of development or production. The oil payment is similar to the overriding royalty, except that the interest of the assignee ceases upon his receiving a certain amount of money or value out of oil or gas produced from a certain percentage of the working interest. The interest commonly spoken of as an ‘undivided interest’ is an undivided percentage of the working interest, which differs from the оil payment or the overriding royalty in that it is chargeable with its pro tanto share of the cost of development and production.”
An undivided interest, an overriding royalty, and an oil payment are all interests in the land carved out of the working interest and therefore inevitably affected by the lessee’s possession of the land and exploitation of such possession to produce oil and gas. Still, the owners of these incorporeal hereditaments have no possessory interest. For tax purposes, the sale of an oil payment is not the sale of a capital asset, but is merely the sale of the right to ordinary future income. Commissioner of Internal Revenue v. P. G. Lake, Inc., 1958,
The oil payment payee has; no right to drill, no right to the surface,, no claim to the possession essential, under Texas law, for an action of trespass, to try title. Under Texas law, as we see it, Lloyd, Pitts, and Hayutin, as payees, would have no standing in court to bring; the suit brought in this case.
IV.
The payees’ lack of a possessoryinterest is a major factor in this case.. It is not conclusive, however, in determining whether, under the federal’ rules,
16
they have “an interest of such a. nature that a final decree cannot be-made without affecting that interest, or-leaving the controversy in such a condition that its final termination may be-wholly inconsistent with equity and good:
*55
conscience”. Shields v. Barrow,
In determining what parties must he before the Court, Moore states that two matters deserve consideration:
“What type of legal interest in the property is asserted, and what type of relief is demanded. Where the interest is distinct and the relief sought does not go beyond the protection of that interest, only the parties immediately involved are indispensable, and the fact that other parties may have like interests is immaterial. For example, one tenant in common may sue in ejectment in order to recover his aliquot portion of the land without joining the other tenants in common.” Moore, 3 Federal Practice, Sec. 1909, 2158.
Here, the plaintiffs seek to recover for themselves as lessees. These interests, entitling the plaintiffs to possession of the land and the right (and obligation) to engage in drilling operations, are separate and distinct from ownership of an oil payment that gives the payee no right to enter on the land to drill for oil and gas. Moreover, although as in any case the effect of a judgment may spread in widening circles, the relief sought is the protection only of the plaintiff’s possession (and title) as against the defendant’s.
In Petroleum Producers Company v. Reed, 1940,
This action is not to attack or sustain the validity of an oil and gas lease. 18 The validity of the plaintiff’s leases is not аt issue. They are involved only as muniments of title, as in Murphy v. Sun Oil Co. A judgment in favor of the defendants would not have the effect of cancelling the lease.
A judgment adverse to the appellants will transfer their interests only. “The judgment in said cause [for action of trespass to try title] that plaintiff take nothing”, the court said in Permian Oil Co. v. Smith, 1934,
“Petitioners complain of the form of this judgment. We cannot perceive how they have been injured thereby. By their pleadings they put in issue only the title to the % leasehold interest conveyed by them in the lease charged with the oil payment in their favor. The decree that they take nothing merely vests in the lessee and those holding valid interests under it that particular leasehold estate. Petitioners’ right to the oil payment and royalties have not been impaired by the judgment.”
If this were a suit of an equitable nature, such as a suit to cancel a lease, the defendant could urge that all persons claiming under that lease, such as overriding royalty owners and owners of oil payments, are indispensable parties. Thus, Veal v. Thomason,
In final analysis, the application of Rule 19(a) depends on the Court putting the controversy in such a posture that its final termination will be consistent with good conscience. If a case may be decided without prejudice to the rights of absent parties “a court of equity will strain hard to reach that result” rather than dismiss the suit for lack of diversity. Bourdieu v. Pacific Western Oil Co.,
“(1) Where federal jurisdiction rests on diversity of citizenship the diversity must be complete, and to see whether it is, all parties will be aligned as plaintiffs or defendants according to their real interests; (2) A court cannot adjudicate the rights of persons who are not parties before it; they will be brought in if possible and if they will not destroy diversity. (3) If diversity will be thereby destroyed the court will not require them to be brought in, but will enquire if there is any relief it can properly give without them; if there is, it will give it without prejudice to the rights of the absent; if none can be given the suit will be dismissed. In the latter event the dismissal is not for want of federal jurisdiction, but for lack of indispensable parties. See Federal Rules of Civil Procedure No. 19, 28 U.S.C.A.”
See also Mackintosh v. Marks’ Estate, 5 Cir., 1955,
Whatever the indispensability of owners of oil payments in some proceedings, it seems to us that the joinder of the payees as parties plaintiff is not *57 required in order to accord relief between the present plaintiffs and the defendants on the issues raised by an action of trespass to try title: recovery of possession by the plaintiffs showing previous possession and prior title.
If the final decree is favorable to the plaintiffs, any benefits in terms of oil production will inure to the payee. If the decree is unfavorable, the payees are not bound by a decree in a suit to which they are not parties. It is true that the payees, having no reversionary interest, may be adversely affected. However, the burden of the covenant runs with the land; the assignee of the lease becomes obligated to perform the covenant by the privity of the estate established by the assignment even without express assumption. Similarly, the effect of a judgment for the defendants would be to transfer to them such title as the plaintiffs had; burdened, therefore, with the interests of the payees in the oil payments, to the extent such interests are valid and effective. If the payees should file suit for an accounting for their intеrest in the production, that suit could be defeated, as can this one, by the defendants showing that their claim of title is superior to the plaintiff’s chain of title. If the defendants wish to avoid multiple litigation, they may file a cross-complaint, naming as cross-defendants all persons who claim under plaintiffs’ title. Rule 735, Texas Rules of Civil Procedure, expressly permits the holder of a non-possessory interest to be joined in an action of trespass to try title.
From a practical point of view, multiple litigation in a situation of this kind may be less of a burden than imposing on the royalty market, characterized by highly subdivided overriding royalties, the burden of joining all owners of fractional interests in oil payments and overriding royalties when аn action is brought to recover possession and try title. Weighing the conflicting elements, we hold that the interests of justice are best served by holding that a single owner of an interest in land, claiming possession to the whole or a part of the leasehold, may bring suit for trespass to try title, without the necessity of joining, as parties plaintiff, the owners of oil payments having only a nonposses-sory incorporeal interest in the land.
Reversed and remanded.
Notes
. Art. 7364, Tex.Rev.Civ.Stat, et seq.; Rule 783, Tex.Rules of Civ.Proc.
. “Assignors hereby reserve and except unto themselves, their heirs and assigns, *49 an undivided forty-five (45%) per cent of the interest of Assignors (which ‘interest of Assignors’ is as to each lease the ‘Seller’s net working interest’ in thе production as set forth as to each such lease in Exhibits ‘A’ through ‘J’ attached hereto and made a part hereof) in the oil, gas and other minerals in and under and that may bo produced and saved, from and after 7:00 A.M. February 1, 1958, from the lands and premises described in Exhibits ‘A’ through ‘J’, inclusive, including any extensions or renewals acquired by or for Assignee, in whole or in part, covering the said lands and premises, until Assignors shall have received from said interests, and not otherwise, oil, gas, and other minerals equal to when calculated at the market price when produced, less all gross production, pipe line, severance and ad valorem taxes, One Million Eight Hundred Thousand Dollars (§1,800,000.00), herein called ‘primary’ amount, plus an amount herein called ‘secondary’ amount equal to five (5%) per cent, per annum on the outstanding balances of the primary amount. Such secondary amount shall be computed monthly, and all receipts allocated to the interests hereinabove set out shall be applied first to the reduction of said secondary amount and then to credit on the primary amount. Assigns hereby further reserve and except unto themselves, their heirs and assigns, an undivided ten (10%) per cent of the interest of Assignors (which ‘interest of Assignors’ is as to ep.eh lease the ‘Seller’s net working interest’ in the production as set forth as to each such in Lease in Exhibits ‘A’ through ‘J’ attached hereto and made a part hereof) in the oil, gas and other minerals in and under and that may be produced and saved, from and after 7:00 o’clock A.M. February 1, 1956, from the lands and premises described in Exhibits ‘A’ through ‘J’, inclusive, including any extensions or renewals acquired by or for Assignee, in whole or in part, covering said lands and premises until Assignors shall have received from said interests, and not otherwise, oil, gas and other minerals equal to when calculated as the marked price when produced, less all gross production, pipe line, severance and ad valorem taxes, One Million Two Hundred Thousand Dollars ($1,200,-000.00), herein called primary amount, plus an amount herein called ‘secondary’ amount equal to five (5%) per cent per annum on the outstanding balances of the primary amount. Such secondary amount shall be computed monthly, and all receipts allocated to the interests hereinabove set out shall be applied first to the reduction of said secondary amount and then to credit on the primary amount. Upon the payment, satisfaction and liquidation of the larger production payment of One Million Eight Hundred Thousand Dollars (§1,800,000.00) net, the unpaid balances, if any, of the smaller prоduction payment of One Million Two Hundred Thousand Dollars (§1,200,000.00) net shall be payable out of fifty-five (55%) per cent of the interest of Assignors rather than ten (10%) per cent.’’
. Subdivisions (a) and (b) of Rule 19, F.R.G.P. provide “(a) Necessary Joinder. Subject to the provisions of Rule 23 and of subdivision (b) of this rule, persons having a joint interest shall be made parties and be joined on the same side as plaintiffs or defendants. When a person who should join as a plaintiff refuses to do so, he may be made a defendant or, in proper cases, an involuntary plaintiff, (b) Effect of Failure to Join. When persons who are not indispensable, but who ought to be parties if complete relief is to be accorded between those already parties, have not been made parties and are subject to the jurisdiction of the court as to both service of process and venue and can bo made parties without depriving the court of jurisdiction of the parties before it, the court shall order them summoned to appear in the action. The court in its discretion may proceed in the action without malting such persons parties, if its jurisdiction over them as to either service of process or venue can be acquired only by their consent or voluntary appearance or if, though they arе subject to its jurisdiction, their joinder would deprive the court of jurisdiction *50 of the parties before it; but the judgment rendered therein does not affect the rights or liabilities of absent persons.”
. Rule 19(a); Webster v. Fall, 1924,
. 41-A Tex.Jur. 515. See McGrady v. Clary, Tex.Civ.App.1923,
. Permian Oil Co. v. Smith, Tex.Civ.App. 1932,
. Billups v. Gallant, Tex.Civ.App.1931,
. 41-A Tex.Jur. Sec. 4.
. Tanner v. Imle, Tex.Civ.App.1923,
. 41-A Tex.Jur. Sec. 19. Stokes v. Riley, 1902,
. Lewis v. Dainwood, Tex.Civ.App.1939,
. Engelbrecht v. Ross, Tex.Civ.App.1947,
. 41-A Tex.Jur. Sec. 23. Dahlberg v. Holden, 1951,
. The briefs in the Keegan ease recognized this distinction between the indispensability of a plaintiff and a defendant. Keegan makes the point: the defendant does not “challenge * * * his [Keegan’s] right,
as the sole plaintiff,
to maintain this character of suit against an alleged trespasser without title”. But, Keegan continues, “it may as well be recognized at the outset that he has such right”, citing Steddum v. Kirby Hum-ber Co.,
. “It should be borne in mind that the owner of a mere royalty interest has no present or prospective possession interest in the land; that lie owns no part of the minerals (as such) in place; that he does not become a cotenant in the mineral estate; that he cannot, therefore, demand or be forced into an involuntary partition of the mineral fee estate; and that his interest is merely a present vested incorporeal interest in the land.” Jones, Non-Participating Royalty, 26 Tex.L.Rеv. 569 (1948).
. But see Comment, Multiparty Litigation in the Federal Courts, 71 Harv.L.Rev. 874, 996 (1958) and Ragan v. Merchants Transfer & Warehouse Co.,
. The classic definition of indispensable parties is that in Shields v. Barrow, 1855,
. See Calcote v. Texas Pacific Coal & Oil Co., 5 Cir., 1946,
. See Dedman, Indispensable Parties in Pooling Cases, 9 S.W.L.J. 27 (1955) and Mastorson, Indispensable Parties in Oil and Gas Litigation, 6th Ann.Inst. on Oil and Gas Law and Taxation, 139 (Southwestern Legal Foundation 1955).