Case Name: CHEVRON U.S.A., INC., et al., v. STATE of Mississippi, et al.
Court: Mississippi Supreme Court
Jurisdiction: Mississippi
Decision Date: 1991-04-03
Citations: 578 So. 2d 644
Docket Number: No. 07-CA-58036
Parties: CHEVRON U.S.A., INC., et al., v. STATE of Mississippi, et al.
Judges: ROY NOBLE LEE, C.J., HAWKINS and DAN M. LEE, P.JJ., concur.
Reporter: Southern Reporter, Second Series
Volume: 578
Pages: 644–666

Head Matter:
CHEVRON U.S.A., INC., et al., v. STATE of Mississippi, et al.
No. 07-CA-58036.
Supreme Court of Mississippi.
April 3, 1991.
Martha W. Gerald, Walker L. Watters, Gerald & Brand, Jackson, C. Denton Gibbes Jr., Gibbes Graves Mullins Bullock & Ferris, Laurel, for appellant.
Edwin Lloyd Pittman, Atty. Gen., elected Supreme Court Justice January 3, 1989; Mike C. Moore, Atty. Gen., W.O. Dillard, Robert E. Sanders, Asst. Attys. Gen., Jackson, Terry L. Caves, Leonard B. Caves, Caves & Caves, Laurel, for appellee.
Otis Johnson, Jr., Heidelberg & Woodliff, Jackson, for amicus curiae.

Opinion:
ON PETITION FOR REHEARING
SULLIVAN, Justice,
for the Court:
On Petition for Rehearing the original opinions are withdrawn and these opinions substituted therefor.
Chevron U.S.A., Inc., et al, have appealed from a decree of the Chancery Court of the Second Judicial District of Jones County finding Chevron had no right under a 1957 oil and gas lease to explore, over 25 years later, for oil and gas in other areas and horizons of the leased property than the producing reservoir on the sixteenth section land under the lease. The State and county school board have cross-appealed, contending that the entire oil and gas lease was ineffective and void after 25 years from the date of execution, under § 211 of our Constitution.
FACTS
In January, 1957, the Board of Supervisors of Jones County advertised for bids to lease Section 16, Township 9 North, Range 11 West for oil, gas and mineral development. After compliance with Section 6600, Code 1942, the Board, with the approval of the County Superintendent of Education, executed an oil and gas lease to W.H. Potts on February 4, 1957. The county received a bonus of slightly more than $22,500 for executing the lease.
Potts assigned the lease to the predecessor corporation of Chevron U.S.A., which in turn assigned a portion of its interest to other parties, all hereinafter designated as "Chevron."
In accordance with the terms of the lease and Section 6600 of the 1942 Mississippi Code, annual delay rentals of $643.00 were paid to the Jones County Superintendent of Education for the years 1958, 1959 and 1960. On or about December 12, 1960, Chevron commenced drilling the Board of Supervisors No. 2, Well No. 1 (2-1 Well) on the NW lk of Section 16. The Board of Supervisors 2-1 Well was completed in February, 1961, as a producing oil well. Since the completion of the Board of Supervisors 2-1 Well, Chevron, or its co-owners, have drilled eight other wells on the leasehold, including one "dry hole." There has been continuous operation or production from at least one of the wells on the property since the completion of the 2-1 Well. Cumulative production from the eight producing wells on the property approximated 1.5 million barrels of oil and 400,000 million cubic feet (mcf) of gas at the time of the trial, and there were seven producing oil wells on this section.
Miss.Code Ann. § 11-17-29 (1972), authorizes suits in chancery court to confirm and quiet title. Miss.Code Ann. § 29-3-103 (Supp.1984), authorizes lessees to confirm and quiet sixteenth section leases, or extensions thereof, naming the superintendent of education of the district where the lease is created as defendant. Under the authority of these sections, Chevron, on July 30, 1984, filed a bill of complaint in the Chancery Court of the Second Judicial District of Jones County to confirm and quiet the interest conveyed to Potts under the 1957 oil and gas lease, and naming the State of Mississippi and the Jones County Superintendent of Education as defendants.
In response to this action, the defendants answered and counter-claimed, pleading that the lease, under the provisions of § 211 of the Mississippi Constitution, expired on February 4, 1982, and asked for an accounting.
At trial in February, 1985, Chevron offered evidence that their development had been prudent, and that their manner of extraction was best suited for obtaining a maximum recovery of the oil and gas reserves from the discovered reservoir. They also presented evidence of their plan, if their leasehold interest should be confirmed, to drill new, deeper wells to another formation several thousand feet lower than the 12,000 feet reservoir supplying the producing wells. These were called the "Smackover" and "Lower Cotton Valley" formations.
' In a well-reasoned and thoroughly-researched opinion, the chancellor recited the history and developments of the law as pertaining to leases of sixteenth section lands. He held that the 25-year limitation of § 211 of our Constitution had no application to an oil or gas lease.
He confirmed Chevron's right to continue its operations to extract oil and gas from the producing reservoir. He held that, "[S]uch an interpretation provides for the orderly development of oil, gas and mineral leases which development inures directly to the benefit of the schools of the state." He also held that the state was estopped from contesting the validity of the lease as to Chevron's right to continue its operations to recover the maximum amount of oil and gas from the producing reservoir. Finally, he held that Chevron could not retain indefinitely all undeveloped areas of the lease and thereby cancelled the oil, gas and mineral lease as to all non-producing areas and horizons.
From this judgment, Chevron has appealed the chancellor's cancellation of the lease as to all non-producing horizons and areas; the State has cross-appealed, contending that § 211 applies to all leases and did not authorize the extension of the lease beyond 25 years, and that the chancellor erred in holding that § 211 had no application to an oil and gas lease.
In attempting to resolve a conflict between the Constitution and the general practice of oil, gas and mineral leasing, the chancellor resorted to equity. In so doing he has given priority to economic possibilities over constitutional reality. The ruling of the chancery court should be affirmed on appeal and reversed on cross-appeal.
§ 211 OF THE CONSTITUTION OF MISSISSIPPI
The crux of this conflict is positioned between the economic realities of modern oil and gas leasing and the constitutional realities of § 211 of the Mississippi Constitution. At the time that the subject lease was entered on February 4, 1957, Art. 8, § 211 of the Constitution of the State of Mississippi, in pertinent part, provided:
The Legislature shall enact such laws as may be necessary to ascertain the true condition of the title to the sixteenth section lands in this state . and shall provide that the sixteenth section lands reserved for the support of township schools, except as hereinafter provided, shall not be sold nor shall they be leased for a longer term than ten (10) years for lands situated outside municipalities . for a gross sum; . but the Legislature may provide for the lease of any said lands for a term not exceeding twenty-five (25) years for a ground rental, payable annually. (Emphasis supplied).
In 1961, § 211 was amended to authorize the Legislature to sell sixteenth section lands for industrial development thereon. Subsequently, in 1986, this section was amended to provide that sixteenth section lands could be leased for a period not to exceed ninety-nine years. The Legislature was also authorized to provide that "forest and agricultural lands" could be leased for a term not exceeding twenty-five years, and "all other classifications of such lands" could be leased for a period not exceeding forty years, for a "ground rental, payable annually."
A review of our jurisprudence indicates that this Court has viewed § 211 as a constitutional limitation on the length of sixteenth section land leases. In Smith v. McCullen, 195 Miss. 34, 80, 13 So.2d 319, 324 (1943), this Court said:
Section 211 of the Mississippi Constitution of 1890 requires, in effect, that the legislature shall enact such laws as may be necessary to obtain revenues from the sixteenth section lands, or lands granted in lieu thereof, reserved for the support of the township schools, by leasing the same under certain limitations therein prescribed. (Emphasis supplied).
In Pace v. State ex rel. Rice, 191 Miss. 780, 800, 4 So.2d 270, 275 (1941), this Court observed:
the previous decisions of this court, holding that the title of the timber on these sixteenth sections of land did not pass to the ninety-nine year lessee (although not reserved by the terms of the lease) should be sufficient authority to sustain the view that the state still owns the minerals to be found beneath the surface.
We continued:
At most the lessee could only be prevented from asserting rights under such a lease after the expiration of the constitutional limitation of twenty-five years.
191 Miss, at 809, 4 So.2d at 279.
Section 211 provides parameters which clearly limit the term of a sixteenth section land lease and indicates that the State is committed to limiting the length of a sixteenth section lease. "[I]t is not for the courts to question the wisdom of any constitutional declaration of public policy by the legislative body." Durham v. Durham, 227 Miss. 76, 84-85, 85 So.2d 807, 809 (1956).
CONSTITUTIONAL REALITIES VS. ECONOMIC REALITIES
The constitutional limitations of § 211 conflict with the established practice in oil, gas and mineral leasing. In the normal scheme of oil and gas leasing, the mineral lessee will negotiate for a primary term. (In the subject lease, this term was for six years.) During the primary term, the lessee has the right to explore and develop the leased land. After the expiration of the primary term, oil, gas and mineral leases commonly provide that the lease shall re main in force as long as oil, gas or minerals are produced or so long as the lessee is engaged in actual drilling operations. Should the production of oil or gas be obtained, this "secondary term" allows the lessee to maintain the lease for as long as economically practical. The economic realities (and the hit and miss nature of oil and gas exploration in general) dictate that to maximize profits, the mineral lessee must be allowed to maintain the lease for an indefinite period of time. This is where the economic realities of oil, gas and mineral leases of sixteenth section land conflict with the constitutional reality of § 211.
In balancing this conflict, the chancellor, in effect, applied § 211 to all non-producing areas but shielded the producing areas from this constitutional limitation. In a very well-written and thoroughly-researched opinion, the chancery court held that:
As to all non-producing areas and horizons, the oil, gas and mineral lease is hereby cancelled and set aside.
As to all existing drills and/or production units as designated by the State Oil & Gas Board and the producing zones included therein, the lease remains in full force and effect so long as the oil, gas and other minerals are produced in accordance with law.
In its judgment, the chancery court confirmed title in favor of Chevron:
as to all areas which have been included in drilling or production units presently designated by the State Oil and Gas Board; and that such lease shall remain in full force and effect according to its terms down to and including the deepest producing zone included therein; Plaintiffs and their assigns shall have all the rights to produce from and operate those areas and horizons as are granted under the terms of the subject lease, as to all surface facilities, roads or pipelines on the remainder of this Sixteenth Section, which were constructed under the terms of the subject lease, Plaintiffs and their assigns shall have the right to continue to utilize and maintain such facilities under the terms of the subject lease for as long as operations continue on all or any part of the lands set forth in Paragraph 1 above;
The subject Oil, Gas and Mineral Lease is hereby cancelled and set aside as to all areas which are not included in drilling or producing units presently designated by the State Oil & Gas Board and as to all horizons below the deepest producing interval in those areas which have been included in drilling or producing units.
The opinion indicates that the learned chancellor was well aware of the established practice and economic realities of oil, gas and mineral leasing. It is equally obvious that the chancellor used general principles of equity in an effort to cushion the perceived severity of a constitutional and economic collision.
Unfortunately, the charted course avoided conflict only by navigating true to equity and steering clear of the Constitution. By embracing Solomon and ignoring our Constitution, the chancellor committed lese majeste. It is well settled that the Constitution of Mississippi is the supreme law of our state. It "is the highest known law. No act prohibited by it can be given effectuality and validity." McGowan v. State, 184 Miss. 96, 105, 185 So. 826, 829 (1939). See also, Barker v. State, 241 So.2d 355, 358 (Miss.1970). It is superior to all legislation, to the legislature, to the judiciary, (including chancery courts), and to equity itself. The Constitution's superiority and its vital role in the judicial decision making process is underscored by the oath taken by the judges of the several courts of this state. Art. 6, § 155 of the Mississippi Constitution provides, in part:
I will administer justice without respect to persons, and do equal right to the poor and to the rich, and that I will faithfully and impartially discharge and perform all the duties incumbent upon me . according to the best of my ability and understanding, agreeably to the Constitution of the United States and the Constitution and laws of the state of Mississippi.
The Mississippi Constitution, like that of the United States, is the supreme law with in the range of its authority. It is an expression of the will of people by whom it was passed and by whom it can only be altered. Obviously, as "the highest known law," the Constitution of Mississippi transcends the Solomonic concepts of fairness and equity on which the chancery court's decision was based.
A basic tenet of constitutional law is that only the people of a state are vested with the power of amendment and this power is plenary. This Court, in recognizing this tenet, has stated that the Constitution:
should not be changed, expanded or extended beyond its settled intent and meaning by any court to meet daily changes in the mores, manners, habits, or thinking of the people. The power to alter is the power to erase. Such changes should be made by those authorized so to do by the instrument itself— the people.
State v. Hall, 187 So.2d 861, 863 (Miss.1966). See 16 C.J.S. Constitutional Law § 5 (1984).
The chancellor's decision was tantamount to a constitutional amendment devoid of the people's concurrence. See Newell v. State, 308 So.2d 71, 77 (Miss.1975); Grantham v. Denke, 359 So.2d 785, 787 (Ala.1978); 16 C.J.S. Constitutional Law § 3 (1984).
Another basic tenet of constitutional construction is that it is not permissible to disobey, or to construe into nothingness, a provision of a constitution merely because it may appear to work injustice, or lead to harsh or obnoxious consequences or invidious or unmerited discriminations. Even less weight should be attached to the argument that the constitutional construction will result in mere inconvenience. H. Black, Handbook of American Constitutional Law § 64 at 86 (1927); Talbott v. Thomas, 286 Ky. 786, 151 S.W.2d 1 (1941); 16 C.J.S., Constitutional Law § 22 (1984). The force of a constitutional provision should not be rendered ineffectual merely because one disagrees with it. See U.S. v. Indianola Municipal Separate School Dist., 410 F.2d 626 (5th Cir.1969), cert. denied, 396 U.S. 1011, 90 S.Ct. 571, 24 L.Ed.2d 503 (1970); 16 C.J.S. Constitutional Law § 3 (1984).
"[Expediency has no application in interpreting constitutions, nor does public clam- or, majority, desire, or apparent need...." 16 C.J.S. Constitutional Law § 18 at 67 (1984); See, Stepp v. State, 202 Miss. 725, 32 So.2d 447 (1947), suggestion of error overruled, 202 Miss. 725, 33 So.2d 307 (1948); City of Jackson v. Deposit Guaranty Bank & Trust Co., 160 Miss. 752, 133 So. 195 (1931).
The judiciary of this state is subservient to the Mississippi Constitution. Perhaps the most fundamental concept of constitutional superiority is that constitutional rights cannot be created by statutes or rules, nor can they be abolished by executive or judicial action. See Clark v. Board of Education of Little Rock Sch. Dist., 374 F.2d 569, 570 (8th Cir.1967); 16 C.J.S. Constitutional Law § 3,172 (1984).
Constitutional realities dictate that when the subject lease was entered, sixteenth section lands could not be leased for a period to exceed twenty-five years. Constitutional realities also dictate that should this limitation be too onerous a burden, it is ultimately up to the people of Mississippi, not the judiciary, to amend the Constitution to redress the harsh consequences.
It is obvious that Section 211 limits sixteenth section land leases (including mineral leases) to a maximum term of twenty-five years. It is equally clear that the chancellor's remedy took into account the business realities of Section 211 as applied to mineral leases and attempted to redress these perceived hardships with equitable principles. Unfortunately, the judiciary's responsibility is to interpret the law, not institute economic policy. Should these perceived economic hardships of Section 211 be real, the onus is upon the legislature to redress such economic inadequacies. Most importantly, Article 15, § 273 of the Mississippi Constitution provides the exclusive means for amendment. Such power is ultimately reserved to the people.
Finally, § 29-3-63 of the Mississippi Code, which provides the holder of a lease of sixteenth section land with a prior right, exclusive of all other persons, to re-lease or extend an existing lease, certainly diminishes the perceived harsh consequences which might result from the enforcement of § 211 against all oil, gas and mineral leases of sixteenth section land.
HILL V. THOMPSON
The recent case of Hill v. Thompson, 564 So.2d 1 (Miss.1989), concerned sixteenth section commercial property in downtown Forest, Mississippi. In 1960, the lot was leased for a one-time payment of $7.50 for a ninety-nine year term and had been used for years as a gasoline and service station. Mr. Thompson, who had purchased the leasehold interest at a 1985 foreclosure sale, filed suit for confirmation of his title to a leasehold interest of the Sixteenth Section School Trust land. The chancery court confirmed title in Mr. Thompson. Even though there was full compliance by the lessee with § 211 and the statutes, under the authority of § 95 of the Mississippi Constitution, this Court reversed the judgment of the lower court and voided Mr. Thompson's lease, holding that the consideration given to lease the land was so inadequate as to amount to a donation, in violation of constitutional prohibitions.
In voiding Mr. Thompson's lease for inadequate consideration, the Court upheld the rule of constitutional construction that a constitutional provision should be enforced even though such enforcement leads "to harsh or obnoxious consequences."
Had this Court upheld the chancellor's determination that Chevron's lease may exceed the twenty-five year constitutional limit as to existing drilling and/or production units merely because "[s]uch an interpretation provides for the orderly development of oil, gas and mineral leases," we would be creating an exception to this rule of constitutional construction. The exception would have read: "Constitutional provisions will be enforced by this Court as long as the enforcement imposes no harsh or obnoxious consequences on large oil companies."
Just as this Court found that Mr. Thompson was on constructive notice that the consideration paid by his predecessor in title was grossly inadequate, Chevron was also on notice that its lease expired after twenty-five years. Further, we are without knowledge of whether the consideration paid by Chevron for this lease was sufficient to avoid the ire of § 95.
There can be no doubt that in a clash between economic realities and constitutional realities, the Constitution prevails. As such, the chancellor's decision, while well written and thoroughly researched, which favored the economic realities, is reversed and remanded for a determination and accounting consistent with this opinion.
THE PETITION FOR REHEARING IS GRANTED. THE ORIGINAL OPINIONS IN THIS CASE ARE WITHDRAWN AND THESE OPINIONS ARE SUBSTITUTED THEREFOR.
AFFIRMED ON DIRECT APPEAL. REVERSED ON CROSS-APPEAL. REMANDED FOR A DETERMINATION AND ACCOUNTING CONSISTENT WITH THIS OPINION.
ROY NOBLE LEE, C.J., HAWKINS and DAN M. LEE, P.JJ., concur.
ROBERTSON and PRATHER, JJ., dissent.
PITTMAN and BANKS, JJ., not participating.
McRAE, J., not participating according to Supreme Court Internal Rules.