Court Opinion

ID: 9768580
Source: CourtListenerOpinion
Date Created: 2023-08-29 06:08:57.428556+00
Date Added: 2024-06-11T15:02:45.075642
License: Public Domain

*149STEAKLEY, Justice.
This cause concerns later developments in the matter of the oil and gas lease executed and delivered by B. L. Standard to Trace Mining Company which was the subject óf our decision in Standard v. Sadler, 383 S.W.2d 391 (Tex.Sup.1964). The trial below was upon summary judgment motions of the parties and that of the respondents was sustained by the trial court. This judgment was affirmed by the court of civil appeals. 401 S.W.2d 363.
The problem is novel and a somewhat lengthy review of the matters culminating in the cause at hand is necessary. The tract of land in question is escheated permanent free school land subsequently resold with the mineral estate reserved in favor of the Permanent Free School Fund. See Article 3281,1 which provides that “All sales of escheated permanent free school lands shall be with a reservation to the State of all the minerals in the land in favor of the Permanent Free School Fund. All sums received from the leasing, mineral developments, or sale of escheated lands shall be deposited in the Permanent School Fund of Texas.” The controversy in Standard v. Sadler was between the Commissioner of the General Land Office, who had executed a prior oil and gas lease of the tract to Humble Oil and Refining Company under which production of oil and gas in paying quantities was thereafter obtained, and B. L. Standard, the owner of the surface estate, who had executed a subsequent oil and gas lease on this same tract in favor of Trace Mining Company. It was there decided that under the Relinquishment Act of 1919 (Acts 36th Leg. 2nd Called Session, ch. 81, p. 249; Arts. 5367-5379) the surface owner is the statutory agent of the State for the negotiation and execution of oil and gas leases on escheated land which had been sold by the State from the Permanent Free School Fund. Our decision was announced on October 7, 1964. The opinion concluded with this statement: “We assume the Commissioner of the General Land Office will recognize the lease executed by Standard as a valid lease and that he will receive and file the certified copy thereof as required by law. Writ of mandamus will issue only if he refuses to do so.” Motion for rehearing was overruled on November 18, 1964. On this same date the surface owner filed in the office of the County Clerk of Taylor County, Texas, an oil and gas lease instrument identical in all respects, including its date of execution, to the oil and gas lease originally tendered for filing with the Commissioner on March 12, 1964, and which was the subject of our decision in Standard v. Sadler, except for an added paragraph as follows:
“This lease agreement is executed in amendment of and substitution for an oil and gas lease dated February 24, 1964, by and between the same parties, identical in provisions to those stated hereinabove, recorded Volume 735, page 7 of the Deed Records of Taylor County, Texas, and covering the same land described above, solely in order to show that said lease was executed contemporaneously with and pursuant to an employment contract between B. L. Standard, the landowner, and Rutledge & Rutledge, attorneys at law, dated February 14, 1964, expressly referred to herein and made a part hereof for all proper purposes.”
We will refer to the first instrument as the original lease and to the second as the amended lease. The original lease previously sought to be filed with the Commissioner of the General Land Office on March 12, 1964, was again tendered to the Commissioner for filing on November 20, 1964, together with the amended lease and the employment contract referred to and made a part of the amended lease.
On December 8, 1964, there was filed in this court on behalf of the Commissioner of the General Land Office an instrument de*150nominated as “Respondent’s Motion to Stay Issuance of Writ of Mandamus,” based upon the subsequently tendered amended lease and employment contract. The motion was overruled on January 20, 1965. It being made known to us that the Commissioner desired to act only under an official writ of mandamus issued by this court pursuant to our judgment in Standard v. Sadler, we issued the writ under date of January 28, 1965, embracing only the original lease; the writ commanded the Commissioner “to accept and- file forthwith the certified copy of an oil and gas lease executed by B. L. Standard and wife, Dorothy M. Standard, to Trace Mining Company, a co-partnership, on the 24th day of February, 1964, and recorded in the Deed Records of Taylor County, Texas, under File No. 3096 on March 10th, 1964, tendered to you in your official capacity on or about March 11th, 1964 * * * ” Upon service of the writ on the Commissioner the file date of the original lease originally tendered for filing on March 12, 1964, and that of the amended lease first tendered to him on November 20, 1964, was shown to be January 28, 1965.
On May 17, 1965, suit was instituted in the name of the State of Texas on behalf of the Permanent Free School Fund against B. L. Standard and wife, and W. J. Rutledge, Jr., W. K. Rutledge, and R. M. Rutledge, individually, and as members of the partnership of Trace Mining Company, and as members of the law firm of Rutledge and Rutledge, Respondents here, and Humble Oil and Refining Company. Multiple relief was sought: the appointment of a receiver to take possession of the mineral estate of the tract of land in controversy; termination of the right of the surface owner, B. L. Standard, to act as agent for the State for the negotiation and execution of oil and gas leases; removal of the oil and gas leases executed by the surface owner, B. L. Standard, as a cloud upon the title to the mineral estate; and an accounting from Humble Oil and Refining Company for the oil and gas produced from the mineral estate. The trial court severed the suit into two causes, one of which is the cause at hand presenting for decision the question of the validity of the instruments executed by Standard in favor of Trace Mining Company, together with the further question of whether or not the acts of Standard terminated his leasing power as the statutory agent of the State.
The basis for cancellation of the two oil and gas lease instruments urged by the State rests in certain provisions of the employment contract made a part of the amended lease by the added paragraph quoted above. As before noted, a copy of this contract was first tendered for filing in the office of the Commissioner with the amended lease on November 20, 1964, and bears the same file date of January 28, 1965. It is an agreement between the surface owner, B. L. Standard, and “W. J. Rutledge, Jr., W. K. Rutledge, and R. M. Rutledge, individually and as partners in the firm of Rutledge and Rutledge, and/or Trace Mining Company.” The lessee in the two oil and gas lease instruments was Trace Mining Company, a co-partnership. The contract recites the employment of the firm of Rutledge and Rutledge as attorneys and states the further fact that they are the sole partners in Trace Mining Company. Paragraphs 3 and 5 of the employment contract are relevant here and provide:
3. “Standard agrees that the portion of lease bonus payable to him as the land owner in accordance with the provisions of Article 6367 [5367], V.A.C.S., shall be promptly repaid by him to attorneys as a part of the consideration for legal services rendered to that date hereunder. Attorneys agree that in the event the legal matters in dispute respecting which this contract is executed shall be successfully disposed of so that the oil and gas mining lease executed contemporaneously herewith shall be the sole, valid lease covering the lands described above, if such attorneys (being the sole partners in *151Trace Mining Company) themselves develop the premises by drilling, Standard shall have the binding and exclusive option, in his sole opinion and discretion, to acquire not more than an undivided one-sixteenth share of the seven-eighths working interest by himself carrying and bearing the exact actual expense incident to development (excepting only the lease bonus theretofore paid) ratably attributable to the Standard interest.”

5. “The parties hereto agree for themselves and their respective heirs, successors and representatives that Standard shall be paid $500.00 per location liquidated damages for crop damages resulting from drilling the described lands; and the parties agree that if Rutledge and/or Trace Mining Company shall produce oil and/or gas upon the premises and shall have management or operation of the properties, Standard will have the option or ‘first refusal’ of the job as pumper in such operations.”
It is the position of the State that B. L. Standard as the surface owner and agent of the State had no authority beyond executing and delivering to Trace Mining Company an oil and gas lease with the usual and accepted provisions for bonus, rents and royalties; that the amended lease with its provisions for the additional consideration to be enjoyed by Standard, particularly the option for him to purchase an undivided one-sixteenth share of the seven-eighths working interest, was invalid; that the amendment is so inextricably bound up with the original as to render the entire lease transaction of no force and effect; and that the acts of Standard constituted violations of his fiduciary obligation to the State for which reason it should be held that he is ousted as the statutory leasing agent.
It is Standard’s position, as held by the court of civil appeals, that our decision in the previous proceeding was res judicata as to the validity of the lease in both its original and amended form; that the remedy of the State, in any event, is not cancellation of the lease but “to demand and recover its part or interest” in the excess consideration flowing to Standard; and that no ground for invalidating the lease is shown in the absence of allegations and proof of “bad faith or fraud” against him.
Standard v. Sadler posed a question of statutory construction requiring us to decide whether the Commissioner of the General Land Office or the surface owner was empowered to act as the leasing agent for the State with respect to this particular tract of land. This was the only issue drawn by the parties. The validity of the original lease between Standard and Trace Mining Company was not otherwise brought into question. The amended lease and employment contract incorporated therein were unknown to the record upon which we rendered decision and final judgment. The later filed and overruled “Motion to Stay Issuance of the Writ of Mandamus” had no adjudicatory effect upon such subsequently disclosed instruments and the agreement of the parties reflected thereby. We need not speculate upon what res judicata or stare decisis effect, if any, our judgment and writ of mandamus in Standard v. Sadler may have had with respect to the original lease, standing alone. As shown by the later acts of the parties, this instrument did not reflect the true lease contract and was never intended by them to be such. The issues now to be resolved arise out of matters whose legal effect could not have been considered or decided in the prior proceeding, and there is no basis for application of the doctrine of res judicata.
This brings us to the question of the validity of the actual lease between Standard and Trace Mining Company as shown by the amended lease and the employment contract. As before noted, the consideration for the oil and gas lease included three benefits flowing only to Standard, the sur*152face owner; they were (1) an option for him to acquire not more than an undivided one-sixteenth share of the seven-eighths working interest by assuming ratable development expenses; (2) an option for the job of pumper in event of successful drilling operations; and (3) a right to receive $500.00 per drilling location as liquidated damages to crops. We hold that the working interest option invalidates the lease and this renders unnecessary a consideration of the legal effect of the pumper job option and the provision for crop damages.
Articles 5367 and 5368 provide:
Article 5367 — “The State hereby constitutes the owner of the soil its agent for the purposes herein named, and in consideration therefor, relinquishes and vests in the owner of the soil an undivided fifteen-sixteenths of all oil and gas which has been undeveloped and the value of the same that may be upon and within the surveyed and unsurveyed public free school land and asylum lands and portions of such surveys sold with a mineral classification or mineral reservation, subject to the terms of this law. The remaining undivided portion of said oil and gas and its value is hereby reserved for the use of and benefit of the public school fund and the several asylum funds.”
Article 5368 — “The owner of said land is hereby authorized to sell or lease to any person, firm or corporation the oil and gas that may be thereon or therein upon such terms and conditions as such owner may deem best, subject only to the provisions hereof, and he may have a second lien thereon to secure the payment of any sum due him. All leases and sales so made shall be assignable. No oil or gas rights shall be sold or leased hereunder for less than ten cents per acre per year plus royalty, and the lessee or purchaser shall in every case pay the State ten cents per acre per year of sales and rentals; and in case of production shall pay the State the undivided óne-sixteenth of the value of the oil and gas reserved herein, and like amounts to the owner of the soil.”
In Texas Co. v. State, 154 Tex. 494, 281 S.W.2d 83 (1955) we held that a conveyance by the surface owner of the mineral estate in fee simple absolute was invalid under the powers granted the surface owner by the Relinquishment Act. We reaffirmed the well-settled rule in this State that public school lands are held in trust for the benefit of all the people of the State and are administered in the sovereign capacity of the State. State v. Magnolia Petroleum Co., 173 S.W.2d 186, 190 (Tex.Civ.App. — San Antonio 1943, writ ref’d w. o. m.) held that a consideration of the entire Relinquishment Act shows an intent that the surface owner should execute “only an ordinary commercial lease, which provides for delay rentals unless and until oil is produced in paying quantities. The surface owner as agent of the State is to have an equal rental and royalty with the State as compensation for his services as such agent and for the damage done to the surface of the land when exploration for or production of oil is begun.” We had previously held in Greene v. Robison, 117 Tex. 516, 8 S.W.2d 655 (1928) that the surface owner is to receive no benefits other than those authorized by Article 5368, the statute fixing only the minimum price with the agent being “authorized to secure the highest price obtainable for the benefit of the fund to which the land belongs; like amounts received by the State to be paid by the purchaser to the owner of the soil.” Id. 8 S.W.2d at 660. Lewis v. Oates, 145 Tex. 77, 195 S.W.2d 123 (1946) held that an attempted conveyance by the surface owner of a right to participate in the bonuses, rentals, and royalties payable under future leases was void and unenforceable under the statute. It was reasoned that such a transaction made future leases less attractive to the State’s agent and thus tended to take away some of the inducement to keeping the land leased. The proposal, it was said, sets at naught the legislative plan for keep*153ing land leased until the discovery of oil or gas.
It is clearly implied in the decisions by this Court construing the Relinquishment Act, if not directly held, that the leasing power, of the surface owner is limited to the execution of an oil and gas lease for bonus, rental and royalty considerations not less than the statutory minimum and consistent with prevailing values. We so hold here. The strict construction of the Act followed in our decisions is in harmony with the well-settled rule recognized in Empire Gas & Fuel Co. v. State, 121 Tex. 138, 47 S.W.2d 265, 272 (1932) that “[L]egis-lative grants of property, rights, or privileges must be construed strictly in favor of the state on grounds of public policy, and whatever is not unequivocally granted in clear and explicit terms is withheld. Any ambiguity or obscurity in the terms of the statute must operate in favor of the state.” No rights can pass unless an oil and gas lease is effected in conformity with the Relinquishment Act. Cf. Caples v. Cole, 129 Tex. 370, 102 S.W.2d 173 (1937). Statutory compliance has not occurred where the surface owner has, as here, contracted for the extraordinary benefit of the working interest option which constitutes a substantial consideration in which the State ■does not participate. Moreover, the State should not be put to the necessity of having to demand, or sue to establish and recover, its share or interest in the benefits flowing from a lease negotiated by its agent. The interest of the State should be readily ascertainable and the proceeds paid into the school fund. The invalidity of the oil and gas lease here under review is thus apparent .and the transaction cannot be stripped of its invalidating features. We cannot write .a new lease for the parties. Cf. State v. Magnolia Petroleum Co., supra.
In our view, however, the facts here alleged and shown were not sufficient to support an ouster of Standard as the •statutory leasing agent for the State. Standard is not charged with bad faith or fraud. His unauthorized acts invalidate the lease in question, but they do not destroy his authority to now negotiate and execute an oil and gas lease conformable to and consistent with the statutory requirements and at the most favorable price obtainable. Greene v. Robison. The only express statutory authority for forfeiture of the leasing authority of the surface owner is that provided by Article 5370, namely, failure to drill an offset well. See Norman v. Giles, 148 Tex. 21, 219 S.W.2d 678 (1949). The statute contemplates a continuing and perpetual agency unless forfeited on this statutory ground or perhaps on equitable grounds not present here such as the fraud of the agent, or his failure or inability to act. See Walker, The Texas Relinquishment Act, in Sw. Legal Foundation 1st Institute on Oil & Gas Law & Tax. 245, 294 (1949).
The judgments of the trial court and of the court of civil appeals are reversed. Judgment is here rendered cancelling in both its original and amended form the oil and gas lease contract executed by B. L. Standard and wife, Dorothy M. Standard, to Trace Mining Company, a co-partnership, dated February 14, 1964 and removing the lease from the records as a cloud upon the title to the mineral estate of the tract of land in question; and denying all other relief sought by the State in this severed cause.
GRIFFIN, SMITH and HAMILTON, JJ., dissent.

. The statutory references are as they appear in Vernon’s Annotated Texas Civil Statutes.