Case Name: SUN OIL CO. v. RAILROAD COMMISSION et al.
Court: Texas Courts of Civil Appeals
Jurisdiction: Texas
Decision Date: 1933-12-22
Citations: 68 S.W.2d 609
Docket Number: No. 8052
Parties: SUN OIL CO. v. RAILROAD COMMISSION et al.
Judges: 
Reporter: South Western Reporter Second Series
Volume: 68
Pages: 609–622

Head Matter:
SUN OIL CO. v. RAILROAD COMMISSION et al.
No. 8052.
Court of Civil Appeals of Texas. Austin.
Dec. 22, 1933.
Rehearing Denied Feb. 7, 1934.
T. L. Foster and J. W. Timmins, both of Dallas, and Ben H. Powell, Phillip Tocker, and • J. A. Rauhut, all of Austin, for appellant Sun Oil Co.
Jas. V. Allred, Atty. Gen., and Maurice Cheek, Asst. Atty. Gen., for appellee Railroad Commission.
Ramey, Calhoun & Marsh, of Tyler, for ap-pellees H. D. Bennett, Katherine Ryan, and Frank King.

Opinion:
BAUGH, Justice.
This appeal is from an order of the district court of Travis county denying appellant's application for a temporary injunction to restrain the appellees Bennett, Ryan, and Scheultz from drilling three wells on a strip of land in Rusk county, Tex., 33 feet wide and 3,342 feet long, containing 2.59 acres, and to set aside the order of the Railroad Commission granting permits for said wells. Pending a determination of this appeal, this court entered on September 29, 1933, a temporary restraining order, restraining appel-lees from drilling wells Nos. 1 and 3 authorized by the Railroad Commission. This order did not, however, relate to well No. 2, near the center of the tract.
The case arose under thé following pertinent facts: One Rich Lee and wife were former owners of a 240-acre tract in Rusk county, which included the strip in question and the lands to the north and south thereof, all held as one body of land. After their deaths, six of their children partitioned said lands in March, 1921. There was set aside to Malinda Schuler a 42-acre tract south of and adjoining in its entire length the 2.59-acre tract here involved. To Mary V. Flanagan there was set apart this 2.59-acre tract and a 39%-aere track immediately south of and adjoining in its entire length Malinda Schu-ler's 42-acre tract. Thereafter, in August 1921, Mary V. Flanagan conveyed to Malinda Schuler this 2.59-acre tract in exchange for a 2%-acre tract conveyed to her at the same time by Malinda Schuler out of the west end of the latter's 42-acre tract. This exchange gave to Malinda Schuler her 42 acres, including the strip here in controversy, all adjacent and constituting one contiguous body of land, and to Mary V. Flanagan her 42 acres of contiguous lands instead of having same separated by the Malinda Schuler tract as created in the original partition.
A seventh child of Rich and Mary Lee, who was then thought to be dead, and who was not considered in the partition of 1921, appeared in 1931 and claimed his one-seventh interest in all of said lands, and his interest in the Malinda Schuler tract, including the 2.59-acre tract, was acquired by appellant Sun Oil Company, leaving only a six-sevenths interest claimed by appellees. To avoid confusion and for the purposes of the issues here presented, we shall discuss the issues as if Malinda Schuler owned the entire estate in said lands at the time she and her son executed a lease thereon to the Sun Oil Company on July 21, 1930. It may also be noted that a suit is now pending on appeal in the Court of Civil Appeals at Texarkana wherein appellant contends, and which contention was decided against it by the trial court in that case, that its lease from Malinda Schuler and son in fact covers the strip here in controversy. But by written agreement, and to avoid a receivership, it was agreed, among other things, that, pending the outcome of the suit, appellees, subject to appellant's right to protest their application therefor, might drill such wells on said strip of land as the Railroad Commission would grant them permits for. The permits herein attacked were granted to appellees by the Railroad Commission on July 12,1933, without notice to appellant, and without a hearing, and recited that same were granted to protect vested rights under exceptions to rule 37 of the Railroad Commission.
Several contentions are presented on this appeal, but, since we have concluded that one of them disposes of the entire controversy, we shall pretermit a discussion of the others. We are mét at the threshold of the case with the question of whether the owners of the fee to the 42 acres, of which the 2.59-aore strip is a part, and which entire 42-aore tract was capable of development as a unit, under regulations of the Railroad Commission, in such manner as to extract thex-efrom all of the oil to which such owners were entitled, can by their voluntary act subdivide in small tracts said 42 acres so as to require exceptions to rale 37 and permit the drilling of more wells thereon than would otherwise be permitted under the conservation laws of the state and the rules of the Railroad Commission promulgated pursuant thereto; that is, can the owners of a tract of land capable of development as a whole, under the conservation laws of the state and valid xrules of the Railroad Commission, voluntarily divide same into small tracts and thereby create in themselves or in their assignees "vested rights" in such small tracts which would entitle them to more wells thereon than they could have drilled thereon under the law but for such subdivision into small tracts. We have reached the conclusion that they cannot.
Rule 37 was promulgated by the Railroad Commission in 1919, and was in foree at the time the Schulers, under whom appellees claim, acquired title to the land here involved in 1921. Its validity has been upheld by the courts and is not here questioned. Bass v. R. R. Com. (Tex. Civ. App.) 10 S.W. (2d) 589; Danciger Oil & Ref. Co. v. R. R. Com. (Tex. Civ. App.) 49 S.W. (2d) 837, and cases there cited. When first promulgated rule 37 provided for spacing of wells 300 feet apart and 150 feet from the property lines, and for exceptions to protect vested rights. It is now settled that orders of the Railroad Commission, validly issued in accordance with law, and when opei'ating prospectively, are legislative in character and have "the force and effect of an enactment of the Legislature." West Tex. Compress & Warehouse Co. v. Ry. Co. (Tex. Com. App.) 15 S.W. (2d) 558, 560; Missouri-Kansas & T. Ry. Co. v. R. R. Com. (Tex. Civ. App.) 3 S.W.(2d) 489; Railroad Com. v. Uvalde Const. Co. (Tex. Civ. App.) 49 S.W.(2d) 1113; Coleman Gas & Oil Co. v. Santa Anna Gas Co. (Tex. Civ. App.) 58 S.W.(2d) 540. As such, therefore, all parties leasing land for oil and gas subsequent to its promulgation are required to take cognizance of said rule 37. Being a valid order, sustained under the police power of the state, all parties affected by it must contract with reference to this well-recognized mile, and not in violation of it; and contracts, whether by conveyance or lease, covering the subject-matter to which it relates, must be entered into and construed in keeping with its terms. It is not necessary, so far as this controversy is concerned, for us to undertake to define the term "vested rights," nor to attempt to prescribe its limitations. Whatever the conditions under which vested rights may arise, certainly they must arise in conformity with law, and cannot grow out of a violation or an evasion óf it. Any asserted right, therefore, the validity of which must be pi'edicated upon a clear contravention of the terms and provisions of rule 37, cannot become a vested right.
To hold otherwise would be to set at naught the conservation laws of the state. There can be no distinction in principle between the right of the state through its Railx-oad Commission to limit the number of wells to be drilled in a given oil field on a given surface area, spaced at minimum distance from each other and its power to limit and prorate the amount of production from wells legally drilled. And the owners have no more right to contract, whether by lease, drilling contract, conveyance, partition, or otherwise, in such manner as to circumvent the purposes of this order of the commission, and thus acquire a right which, if permitted1 and enforced, would defeat those purposes, than they have to contract for the production from a given well of more oil than their allowable under a proration order of the commission, and by such contract acquire a vested right to do so. If the owner of a tract of land which is capable of development as a whole in such manner as to extract therefrom all the oil he is entitled to under the conservation laws of the state, be permitted, under the guise of vested rights, either to lease same in small tracts, or to lease a portion thereof and reserve unto himself a small strip (and there is no difference in principle) and thus secure one or more wells on each small tract, it is obvious that the conservation laws would be rendered nugatory.
The case here presented clearly illustrates what such a course would lead to. The area here involved is in a proven field where the sands are very porous and the oil very mobile. It is not controverted that a single well in that field will effectively drain ten acres surrounding it. Nor is it controverted that excessive drainage in a concentrated area will result in waste which is prohibited by the Conservation Act. After a full hearing the Railroad Commission determined, and amended its rule 87 accordingly, that wells should be spaced 660 feet apart in that field in order to prevent waste; i. e., one well to approximately 10 acres of land. According to their own rule, therefore, promulgated after an extensive hearing, wells in closer proximity producing equally would tend to create waste. If the three wells on this 2.5&-acre strip, for which the commission granted permits, be drEled, a situation would be created, Which the very rule itself seeks to prevent, calculated to cause waste, a condition which the statute imposes upon them the mandatory duty to prevent. The commission is the duly constituted agency of the state to ascertain what constitutes waste of oil and gas. This it must do after hearings and a careful investigation with reference thereto. And when it has promulgated a general rule, a power expressly delegated to it, after a full and careful consideration of the subject to which such rule relates, as amended rule 37 was, it cannot thereafter even itself arbitrarily grant exceptions thereto which would in effect indubitably destroy the efficacy of the rule itself.
In no event could the Schulers, even under authority of the commission to grant exceptions where legally authorized, as owners of the entire 42-acre tract, legally create a condition by their own voluntary acts which would vest in them or in their assigns any right to such exception, and thus be enabled to do indirectly that which they were forbidden by law to do directly; i. e., procure more weEs on their lands than they were otherwise legally entitled to. Without undertaking to pass upon what facts or circumstances will authorize an exception to rule 37, we do expressly hold that no owner of lands which can be developed as a whole under the conservation laws of the state and the valid rules of the Railroad Commission in force at the time he undertakes to do so can by his voluntary acts divide same into small tracts by severance of the minerals, lease, or otherwise, and thus create in himself, or in any assignee or vendee under him, any vested right to any exception to the conservation rules of the commission which would enable him to circumvent the conservation laws and valid rules of the commission designed to make such laws effective. Such owner, whether of the leasehold, the minerals, or the fee, must contract in consonance with such laws and rules and subject to their provisions. Otherwise he is entitled to no exceptions to, nor relief from, the burdens they impose.
Rights in the individual to the use of his property are subordinate to rights of the state under its police power to regulate, curtail, or even prevent entirely such uses if the public welfare requires it. He can by his voluntary acts obtain no vested right in himself which would defeat or impair the state's proper exercise of that power.
This conclusion renders unnecessary the discussion of the other issues raised. We think the Railroad Commission erroneously granted the permits attacked and that they had no authority to do so under the uncontroverted facts of this case. In passing, and without discussing that issue, we think it is clear, under the statute (article 6036a, Vernon's Ann. Civ. St., Acts 1929, 41st Leg., p. 694, c. 313, § 5), that appellant was entitled to notice and an opportunity to be heard on appellees' application for such permits, which was not accorded it. Magnolia Pet. Co. v. Edgar (Tex. Civ. App.) 62 S.W.(2d) 359; Rabbit Creek Oil Co. v. Shell Pet Corporation, 66 S.W.(2d) 737, decided by this court on November 15, 1933.
Ear the reasons stated, the judgment of the trial court is reversed, and judgment here rendered granting to appellant the injunction prayed for against the appellees pending a trial of this case on its merits, upon appellant executing a proper bond in such sum as may be agreed to by the parties, or in case of faEure to so agree to be fixed by the court, and conditioned as provided by law.
Reversed and rendered, with instructions.