Court Opinion

ID: 9774548
Source: CourtListenerOpinion
Date Created: 2023-08-29 18:23:58.090392+00
Date Added: 2024-06-11T07:32:10.058319
License: Public Domain

*806DISSENTING OPINION
HAMILTON, Justice.
I respectfully dissent.
I think the question as to whether or not the August 17, 1959, lease was a renewal1 of the 1948 lease should be determined as of the time and under the circumstances existing at the time the lessors and the petitioners, Sunac Petroleum Corporation et al., entered into the new lease.
It is uncontradicted that all parties, the lessors and petitioners, as well as the respondent, treated said 1948 lease as being in force and effect at all times up until it was effectively canceled by virtue of the new lease executed by the lessors and petitioners. Although lessors had raised a question as to the validity of the lease, the lessors and petitioners chose not to have that question determined, but instead entered into a new lease to take the place of the questionable lease. At that time the question of law as to whether the old lease had expired under its own terms was one that had not been decided by this Court or any other court in this jurisdiction or any other jurisdiction. Furthermore, even if it be determined that the old lease expired under its own terms, there may have been a question of fact as to whether the lessors would be estopped to claim that the old lease had expired by having permitted the expenditure by petitioners of vast sums of money in drilling a well on the land in question and in operating said lease for more than a year without any complaint from lessors.
Instead of having these questions determined by a court of law, the lessors and petitioners settled their differences by entering into this new lease. Petitioners, without ever giving up possession of the premises, continued its operation just as it had been doing. When you add to this fact situation the fact that petitioners admitted that the new lease was a renewal of the old lease, by paying to respondent the override provided for in his assignment, for several months under the new lease, there is ample evidence to sustain the trial court’s finding that the new lease was in fact a renewal of the old lease. For this reason I would affirm the judgments of the trial court and the Court of Civil Appeals.
However, if the proper disposition of this case requires that the question of the effect of the completion of an oil well on a consolidated gas unit after the expiration of the primary term of the lease involved be resolved, and consequently the question of whether or not the 1948 lease in fact remained in force until the effective date of the new lease be resolved, then it is respectfully submitted that, under the facts of this case, the said 1948 lease did in fact remain in force.
The 1948 lease authorized the lessee to combine the 160 acres with other lands as to the gas leasehold estate. Two days before the primary term of the original lease expired, Sunac placed the 160-acre lease in a unit with other lands and commenced drilling operations. These operations were on the land within the unit but were off the land included within the original 160-acre lease. As a consequence of the lease and the gas unit, Sunac needed to complete a well that produced gas in order to hold the lease by production. If it did so, it complied with the terms of the original lease. Instead of a gas producer, however, the well was completed as a producing oil well on June 11, 1958.
Completion of the producing oil well did not continue the lease in force, but Sunac on June 24 commenced the drilling of another well that was located on the original *807160-acre tract. It did this by authorization of this provision of the original oil and gas lease:
“If, prior to discovery of oil or gas on said land, lessee should drill a dry hole or holes thereon, or if after discovery of oil or gas the production thereof should cease from any cause, this lease shall not terminate if lessee commences additional drilling or reworking operations within sixty days thereafter or (if it be within the primary term) commences or resumes the payment or tender of rentals on or before the rental paying date next ensuing after the expiration of three months from date of completion of dry hole or cessation of production. * * * ”
The second drilling operation resulted in a producing oil well on July 29, 1958.
The quoted provision was construed in Stanolind Oil and Gas Company v. Newman Brothers Drilling Company, 157 Tex. 489, 305 S.W.2d 169 (1957). We held in that case that a lessee, who prior to discovery of oil or gas, and within the primary term, commences drilling which results in a dry hole, may, within sixty days commence additional drilling. In the Newman case the additional drilling operations resulted in production, and we held that the lease did not expire. The Court of Civil Appeals in this case held that the production of oil on the lands which required the production of gas only was the completion of a producing well rather than a “dry hole” and there was no authorization for drilling the second well to keep the lease alive. With this I disagree.
The majority has held that the production of oil was not production which would hold the gas-only unit and hence it would not hold the original lease. The majority, however, holds that the completion of the oil well prevented the well from being a “dry hole”. Hence we have the majority holding that under the terms of the lease, the same well may be classified as a producer for some purposes but as a nonproducer for others. It is a non producer, says the majority, and will not hold the lease. But it is not a dry hole because it is a producer. It is inconsistent to say that the production of oil does not keep the lease alive but to say that the production of oil keeps the completed well from being a dry hole. Consistency as well as the meaning of the lease compels the construction that the production of oil on a gas-only unit was not production and because it was not production it was a dry hole.
The pooling provision of the original lease equates non production with a dry hole. The provision concludes with this sentence:
“The commencement of a well, or the completion of a well to production, on any portion of an operating unit shall have the same effect under the terms of this lease as if a well were commenced, or completed on the land embraced by this lease.” (Emphasis added.)
If, as the majority holds, the completion of the oil well was not production under the lease and particularly the pooling provision it had to be a dry hole. Because it was a dry hole, the Newman case applies, and additional drilling was timely commenced which resulted in production of an oil well. The lease did not lapse.
Even though the Court has held that the 1948 lease had expired of its own terms prior to the execution of the new lease, nevertheless the new lease was a renewal of the 1948 lease in view of the position of trust and confidence and fiduciary relationship established between the parties by virtue of the language in the assignment. All that is necessary in order to clearly establish that a fiduciary relationship existed between petitioners and respondent is to note, in the light of the many authorities on such point, that respondent’s overriding royalty interest expressly was reserved under the lease of April 17, 1948, or any extensions or renewals thereof, and the relative positions of petitioners, as the work*808ing interest owners, and respondent, as an overriding royalty interest owner.
There are many authorities directly holding that the creation of an overriding royalty interest or production payment by exception and reservation in an assignment of a designated lease, or any extensions or renewals of such lease, creates, in and of itself, a fiduciary relationship between the assignor (overriding royalty interest owner or production payment interest owner) and the assignee (working interest owner) and their respective successors in interest, irrespective of whether any confidential or personal relationship in fact exists between such parties. Howell v. Cooperative Refinery Association, 176 Kan. 572, 271 P.2d 271, (1954); Thornburgh v. Cole, 201 Okl. 609, 207 P.2d 1096, (1949); Probst v. Hughes, 143 Okl. 11, 286 P. 875, (1930); 24 Am.Jur. 590, Gas and Oil, Sec. 82; Summers Oil & Gas, Permanent Edition, Sec. 554, pp. 635-639. Such principle is set forth in the Probst case, in Am.Jur., and in Summers Oil & Gas, respectively, in the following language:
Probst case, 286 P. 875, at page 878:
“It is thus to be seen that a trusteeship may arise by virtue of any relationship of the parties in which it may be said that the one occupying the position of trustee is in duty bound to act in the utmost good faith for the benefit of the other. We think that relation here existed. Under the terms of plaintiffs assignment, defendants were under the obligation to exercise the utmost good faith to secure a renewal or an extension of the lease if they desired to continue to further prospect the property for oil or gas, as was the case under the facts disclosed by this record.” (Emphasis added.)
Since the opinion in the Probst case discloses that no confidential or personal relationship existed between the parties and that there were no unusual terms or provisions in the instrument of assignment, but that said instrument of assignment provided to the effect that the overriding royalty interest there created was applicable to any leases in extension or renewal of the assigned lease, the fiduciary relationship which the court found to exist could have arisen only from the relative positions of the parties and the “extension or renewal” provisions of the instrument of assignment.
24 Am.Jur. 590, Gas & Oil, Sec. 82:
“Relationship Arising from Transfers. —While the transfer of a lease does not ordinarily create any confidential relationship between the parties, this is not, of course, always the case. The terms of the conveyance may be such as to impose upon the assignee or sublessee the duty of protecting the interests of the assignor or sublessor; and, whenever they are of such character, he must comply with the general rules that govern the conduct of persons occupying a trust status, and any effort on his part to procure from the lessor rights antagonistic to those of the assignor will be defeated. Thus, when an assignment expressly provides that any extension or renewal of the lease shall he subject to the overriding royalty therein agreed upon, the courts will regard a new lease procured by the assignee as an extension or renewal of the old one and charge it with the royalty so reserved, even though it was not granted until production under the former lease had come to an end. * * * ” (Emphasis added.)
Summers Oil & Gas, Permanent Edition, Sec. 554, pp. 634-639:
“While the right to overriding royalty, or a sum of money paid out of production on oil or gas, created in the assignment, does not survive the termination of the assigned lease, yet in a number of cases the assignor has claimed that the assignee, by permitting the lease to expire, or by surrender thereof, and the taking of a second lease from the lessor, has violated a relation of trust and con*809fidence, and that the assignor should be entitled to such overriding royalty or money out of production under the renewal lease. The mere assignment of an oil and gas lease created no such fiduciary relation. If it is created, it must be by the terms of the assignment. In a number of cases the courts have held that the provisions of the assignment did not create a fiduciary relation between the parties so that the assignor would be entitled to the payment of overriding royalties or to the sums out of oil or gas produced under a second lease taken by the assignee. But where the assignment of a lease expressly provided that the reservation of an overriding royalty should apply to extensions, renewals or modifications of the lease that the assignee or his successors might secure, it was held that such provision created a relation of trust and confidence between the assignor and his assignees permitting the assignor to payment of the overriding royalty reserved in the assignment out of oil or gas produced under the second lease.” (Emphasis added.)
Moreover, there are a number of authorities holding that the respective positions of an assignor-overriding royalty interest owner and an assignee-working interest owner creates a fiduciary relationship between said parties, and their respective successors in interest, merely from the relative positions of said parties, irrespective of whether or not there is any confidential or personal relationship between said parties and irrespective of whether the assignment creating the overriding royalty interest expressly provided to the effect that such interest will be applicable to renewal or extension leases. Rees v. Briscoe, 315 P.2d 758 (1957); Oldland v. Gray, 179 F.2d 408 (Cir.Ct.App. 10th, 1950, cert, den., 339 U.S. 948, 70 S.Ct. 803, 94 L.Ed. 1362) ; Kennedy v. Seaboard Oil Company of Delaware, 99 F.Supp. 730 (U.S.D.Ct., Cal., 1951).
An excellent example of the imposition by the law of such fiduciary relationship between parties to oil and gas transactions, merely by reason of the relative positions of such parties and irrespective of the existence of any confidential or personal relationship between such parties, is the long judicially recognized duty imposed upon the owner of the leasing power to exercise such power in such manner as to constitute the utmost good faith toward a nonparticipating royalty owner whose interest is subject to such leasing power.
Schlitter v. Smith, 128 Tex. 628, 101 S.W. 2d 543, (1937), involved a deed to land wherein the grantor reserved “an undivided one-half interest in and to the royalty rights on all of oil and gas and other minerals in, on and under or that may be produced from the land herein conveyed.” The court held that the grantor was entitled to receive one-half of such royalty as may be reserved in any oil, gas or mineral lease which may be executed by the grantee. It said: “We think that self-interest on the part of the grantee may be trusted to protect the grantor as to the amount of royalty reserved. Of course, there should be the utmost fair dealing on the part of the grantee in this regard.”
Further, as reflected by the above authorities, the law applicable to oil and gas transactions goes beyond the traditional fiduciary concept and imposes a fiduciary relationship between the parties to an assignment of an oil and gas lease, in which assignment the assignor excepts and reserves an overriding royalty interest in the production under the assigned lease or any extensions or renewals thereof, merely by reason of the “extension or renewal” provisions of such assignment, irrespective of,, and in the complete absence of, any confidential or personal relationship between such parties.
There are no cases to be found in this jurisdiction or in any other jurisdiction, holding a lease taken by the assignee, or by the assignee’s successors in interest, after the expiration of the assigned lease and *810covering the same land as the assigned lease, not to be in extension or renewal of the assigned lease, and therefore not burdened with the excepted and reserved interest, where the instrument of assignment creating the excepted and reserved interest expressly provided to the effect that the excepted and reserved interest was to be applicable to leases in extension or renewal of the assigned lease. Despite the Court’s reliance upon them, neither the case of Thomas v. Warner-Quinland Company of Texas, 65 S.W.2d 321 (Tex.Civ.App. 1933, error ref.) nor the case of Wagner v. Sheets & Walton Drilling Company, 359 S.W.2d 543, (Tex.Civ.App.1962, error ref., n. r. e.) are such cases.
In the Thomas case certain leases were assigned, the assignor excepting and reserving a production payment interest in production from the assigned premises, but which exception and reservation made no reference whatsoever to the excepted and reserved interest being applicable to leases in extension or renewal of the assigned leases; the assignment provided that the assignee was to commence three wells oh the premises covered by the assigned leases in such time as to complete same within the terms of the assigned leases, or any extensions that might be procured, one of which wells was to be commenced by a specifically designated date, such drilling obligations, however, to be fully discharged when and if assignee re-assigned to assignor, at least ninety (90) days before the expiration of the assigned leases, or any renewals thereof; the assignment further provided that, when and if assignee had drilled said three wells, all of the assigned leases would vest in assignee unconditionally, which provision was entitled to, and was given by the court, particular significance by reason of the fact that such provisions had been inserted by pen into the otherwise typewritten assignment. Therefore, it easily is perceived that, under the express terms of the assignment in the Thomas case, the only words contained in the assignment pertaining to extension or renewal of the assigned leases were confined to, and were applicable only to, the portion of the assignment delineating the time within which the assignee was required to drill the three wells, or to re-assign to assignor the assigned leases, and that, under the express terms of the assignment, such words pertaining to extension or renewal of the assigned leases were not made applicable to the excepted and reserved interest. Moreover, in the Thomas case the assignee had drilled the three wells, in compliance with assignee’s drilling obligations under the assignment, prior to the time that assignee procured the new lease referred to in said case, and said case turned on such fact; the court determined that, in view of the provision inserted into the assignment by pen, referred to above, the assignor had no further interest in the assigned leases after the assignee had complied with the referenced drilling obligations, except insofar as concerned the excepted and reserved interest under only the assigned lease, which holding was in conformity with the provisions of the particular instrument of assignment involved.
As concerns the Wagner case, there is no indication whatsoever in the opinion that the assignment there involved contained any provisions to the effect that the excepted and reserved interest was to be applicable to leases in extension or renewal of the assigned lease, and therefore the facts of that case are distinguishable on a material point from the facts of the instant case, and said case does not in any wise support petitioners’ position in the instant case.
The comment on the Wagner case immediately above set forth is equally applicable to the case of Brannan v. Sohio Petroleum Company, 260 F.2d 621 (Cir.Ct. App. 10th, 1958) since the assignment there involved did not contain any provisions to the effect that the excepted and reserved interest was to be applicable to leases in extension or renewal of the assigned lease.
The Court says that the cases relied upon by respondent are distinguishable from the *811instant case in that the assignee was not interest was to be applicable to leases in force and was given the right to surrender the lease without the consent of respondent by this provision:
“There shall be no obligation, express or implied, on the part of Assignee, its successors or assigns, to keep said lease in force by payment of rentals or drilling or development operations and As-signee shall have the right to surrender all or any part of such leased acreage without the consent of Assignor.”
In its holding the Court says: “We construe the ‘renewal or extension’ provisions together with the provision set out as relieving the lessee from the duty to perpetuate the lease, and thus the overriding royalty.” The Court seems to be saying that since this provision in the assignment relieves the assignee of any duty to perpetuate the lease that the “renewal or extension” provision means nothing. Upon examining the lease here it is found that this provision does not relieve the lessee (assignee) of any duty therein imposed. The lease did not require any development to be made, it did not require any rentals to be paid. It merely provided that if one or the other did not take place the lease would terminate. Furthermore, the lease provided:
“Lessee may, at any time prior to or after the discovery and production of minerals on the land or on acreage pooled therewith, execute and deliver to Lessor or place of record a release or releases of any portion or portions of the lands and be relieved of all requirements hereof as to the land surrendered, and, if during the primary terms, the rental shall be reduced proportionately, according to acreage.”
I agree with the Court that Sunac was under no duty to develop the land or to continue the lease in force. The lease imposed no such duty. The above quoted provision in the assignment merely reiterates that fact. I also agree that Sunac had the right to surrender the lease or any part thereof, even though the lease is held by production. The above quoted clause merely reiterates that right. The provision relieves Sunac of no duty imposed by the lease, and gives them no rights not granted by the lease. Consequently, it is difficult to understand by what reasoning the Court can say that such provision destroys the relationship of trust and confidence created by the “renewal or extension” provision contained in the assignment. The Court does not cite any cases in support of such conclusion, nor have I been able to find any such cases.
By reason of the peculiar circumstances existing at the time the new lease was taken, it is submitted that they in themselves create a relationship of trust and confidence between the parties. When the question of invalidity of the lease was raised by the lessors to Sunac, Parkes’ rights were involved just as were Sunac’s. If Sunac had stood its ground and suffered a lawsuit, Parkes would have been an indispensable party defendant. Parkes had just as much right to settle with the lessors as did Sunac, but Parkes had no opportunity to settle. Sunac went behind his back and sold him out by taking a new lease and thereby releasing the old one. This sort of conduct should not be allowed to cut Parkes out.
It is respectfully submitted that for the reasons and under the authorities indicated above there existed between petitioners and respondent a fiduciary relationship not only by reason of the “extension and renewal” provision, but by reason of the peculiar circumstances existing at the time the new lease was taken. Such new lease constituted a renewal of the old one irrespective of whether or not the latter lease in fact terminated prior to the effective date of the former lease.
I would affirm the judgments of the Court of Civil Appeals and the trial court.
SMITH and POPE, JJ., join in this dissent.

I. The assignment provided, “Assignor hereby reserves unto himself, his successors, heirs and assigns as a perpetual overriding royalty ⅜ * * ¾6 of ⅞ of all the oil, gas and/or casinghead gas, if, only, as and when produced, saved and sold from the premises covered by this lease, or any extensions or renewals thereof * * (Emphasis added.)