(Note: The following written as a tentative opinion of the Court is, while unchanged as to the language or subject matter, to be understood, of course, as expressing the individual views of the writer).
In an injunction suit by Albert Adkisson et al. against Brazos River Conservation and Reclamation District (hereinafter referred to as the District), the defendant brought a cross action as provided in Revised Statutes 1925, Art. 3269, Vernon's Ann.Civ.St. art. 3269, for condemnation of properties against the plaintiffs as separate owners of different tracts of land. Severances were decreed with the result that one action was between the District and Albert Adkisson, the former seeking condemnation, to the extent of an easement therein, of a certain oil and gas leasehold estate of Adkisson in 487 acres of land. Upon a non-jury trial the Court awarded condemnation as prayed with damages in the sum of $94,080.17, together with legal interest from date of judgment.
The District has appealed.
The principal question to be decided may, we think, be fairly and sufficiently stated as follows: In the proper exercise of a power of eminent domain, whereby condemnation is sought of an easement in land consisting only of oil and gas in place in the ground and/or such rights as are conveyed from lessor to lessee in an ordinary oil and gas lease, under which oil is being produced through means, in part of casing in wells, tanks, flow lines, power house, engines, etc., the use of which will be destroyed, should the value of the property to be condemned be ascertained by including such casing in wells, tanks, flow lines, power house, engines, etc., or should these elements be excluded.
This question, it is believed, would involve little difficulty but for the anomalies which, under decisions of the courts of this state, exist as to the nature of the interests and rights evidenced by an ordinary oil and gas lease. Under these decisions an oil and gas lease, almost regardless of its wording, evidences a conveyance, not of an incorporeal right or interest in land, but of land itself — a corporeal thing — consisting only of oil and gas in place under the ground. The nature of the estate in such minerals ranges in character from the highest — fee simple — down to the lowest estate, perhaps; but usually is a determinable fee — a freehold estate of inheritance. The owner of land, who in form conveys the oil or gas to another, without conditions or limitations conveys a fee simple estate in part of his land, thereby *Page 303 segregating such part from the land not conveyed, with the result that the grantor (or his heirs or assigns) thereafter owns the land, except the oil and gas, as a fee simple estate (if that was what it was before), and the grantee (lessee or his heirs or assigns) owns the oil and gas as a fee simple estate. Humphreys-Mexia Co. v. Gammon,113 Tex. 247, 254 S.W. 296, 29 A.L.R. 607. Aside from the easement thereby imposed upon the land not conveyed, which if not expressed, the law would, nevertheless, imply (3 Tiffany on Real Property, § 761; Evans v. Ropte, 128 Tex. 75, 96 S.W.2d 973), an owner of land who conveys to another the oil and gas in the land vests in his grantee, according to such decisions, a fee simple estate in land, precisely the same as if he conveyed, for example, a particular quarter section out of a section of land.
But calling two utterly dissimilar things the same does not make them the same as in this instance the judicial history of this state amply attests. The proposition that an oil and gas lease conveys corporeal real property, governed by the general rules and principles relating to freehold estates in land is a fiction. It is a fiction because it is impossible to apply to it the rules and principles, which from time immemorial have been applicable to determinable fee estates in land as corporeal property. The reason for the recognition of such fiction was the erroneous assumption that unless such a lease is held to convey land, as contradistinguished from incorporeal rights and interests in land, the rights and interests conveyed, however valuable, would escape taxation against the lessee, and, therefore, either escape taxation altogether, or the burden of its taxation would be imposed upon the lessor-owner of the land and not the owner of the lease. Such assumption, if not expressed, is clearly implied in the two leading cases of Texas Company v. Daugherty, 107 Tex. 226, 176 S.W. 717, L.R.A. 1917F, 989, and Stephens County v. Mid-Kansas Oil Gas Co., 113 Tex. 160,254 S.W. 290, 29 A.L.R. 566, as we shall endeavor to show.
Was the assumption erroneous? In our opinion the Supreme Court, speaking through the same great lawyer who wrote the opinion in the Mid-Kansas case has, in logically necessary effect, subsequently so decided, as also we shall presently attempt to demonstrate.
But before doing so, in support of the statement that the proposition referred to as a fiction is truly such, let us enumerate and comment briefly upon some of the incongruities involved in attempts to apply the laws governing freehold estates in corporeal real property to oil and gas in place in the ground as distinct from the land in which they are embedded. In this part of the discussion, for brevity, we shall use the word "deed" as meaning a conveyance of a fee (simple or determinable) estate in corporeal real property, and the word "lease" as meaning a conveyance of a fee (determinable) estate in corporeal real property, consisting, however, only of oil and gas in place in the ground.
Logically, if the estates are truly the same the law as applicable to a deed and the estate it conveys must be applicable to a lease and the interest it conveys; but practically the two are so essentially different, that in some instances such application is impossible and even when possible, the result is often so unreasonable, or so greatly at variance with the actual intention of the parties that the courts have declared exceptions as applied to leases which in themselves demonstrate the essential difference in the character of the two kinds of estates.
Let us call attention to some of these differences.
First. A deed is ineffective unless its subject matter — corporeal real property — is in existence. A lease is not ineffective although its subject matter — oil and gas called land — has no existence. Otherwise, a great majority of leases are ineffective, since it is a matter of common knowledge that far more tracts of land contain no oil or gas than those which do. One who pays his money for a deed, which is ineffective because of the non-existence of the subject matter of the conveyance, is logically entitled to a return of his money. Should the same be true of one who pays his money for a lease upon land in which there is no oil or gas? If the two estates are identical in nature, why not? Is not the answer obvious that, in greater or less part, the value of a lease is the value of the exclusive right to the chance of discovering oil or gas which only, if and when discovered and produced, becomes the property of the lessee? Such value exists even when the land, as subsequently found, contains no oil or gas. Such value is *Page 304 presumably the basis of agreement as to the consideration to be paid. Second. The subject matter of a deed is, within the distinction between actual and constructive possession, capable of actual possession. The subject matter of a lease within such distinction is not capable of actual possession. In the Daugherty case the Court expressed its recognition of the fact that oil and gas until subjected to actual control, were incapable "of absolute ownership in the sense of positivepossession." (Italics ours.) [107 Tex. 226, 176 S.W. 720]. Possession means use; actual possession, actual use. There can be no actual use and, therefore, no actual possession of oil or gas, in place in the ground, as something distinct from possession of the land in which it exists. The only possible actual possession of oil or gas, as property, distinct from the land from which same may be produced, follows, and is dependent upon the process by which the oil or gas, as a part of land, is by severance from the land converted into personal property. Courts, in attempting to apply limitation laws governing corporeal real property to oil and/or gas in place, as corporeal property, distinct from the land in which such minerals exist, have said much that was illogical and vague, to say the least. They fall far short of explaining reasonably or consistently how the mere act of converting a part of land — oil or gas in place in the ground, — useless and valueless except as part of the land, — into personal property of use and value, constitutes actual possession, to say nothing of actual adverse possession, not of the oil or gas so taken into possession, not of the land in which such minerals are embodied, but possession of the oil or gas not so converted into personal property, but yet remaining, as before, in place in the ground. Oil and gas in place cannot be fenced to give notice of the extent of possession; they cannot be cultivated, used or enjoyed in any sense comparable to that in which land must be cultivated, used and enjoyed, as additional evidence of adverse possession, under the five years' statute of limitation. R.S. 1925, Art. 5509. In the absence of any production of oil and gas, at least in the absence of any exploratory drilling operations, our decisions would support the proposition that the laws of limitation, as applicable to the subject matter of a deed, can have no operation as to the subject matter of a lease.
Third. The title to land, as the subject matter of a deed, cannot be lost by abandonment. Dikes v. Miller, 24 Tex. 417. This proposition is necessarily implied in the well known legal truism that freehold estates terminate, if at all, only as the result of conditions or limitations in the deed. The title to land (oil and gas) as the subject matter of a lease may under the decisions be lost by abandonment. W. T. Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 19 S.W.2d 27; Texas Co. v. Davis, 113 Tex. 321, 254 S.W. 304, 255 S.W. 601. This is an especially good example of the refusal of the court to apply the law applicable to determinable fee estates in land to the fictional determinable fee estates in oil and gas as land. The reason is obvious. The court was unable to close its eyes to the obvious fact that the parties to the lease had no intention to convey rights not subject to loss by abandonment.
Fourth. A deed, in addition to express covenants (and possibly such, if any, as may be implied from the language of express covenants), by statutory provision can have at most only two implied covenants, neither of which requires the owner to make any particular use of the land or perform any character of work, or carry on any particular operations, thereon. R. S. 1925, Art. 1297. Because of the actual difference between the subject matter of a deed and a lease, the courts have in the face of said statute declared the existence, in a lease, of implied covenants for reasonable development and protection against off-set drainage. This too is a most apt example of a practical denial of the real identity of the estate conveyed by deed with the state conveyed by lease.
Fifth. As to the interest conveyed by deed, the purpose of the conveyance is immaterial. As to the interest conveyed by lease, the purpose of the conveyance is accorded controlling effect; it constitutes the basis for implying covenants not expressed and as to a deed prohibited by statute, as aforesaid. Giving effect to the purpose is logically essential to the holding that a freehold estate may be lost by mere abandonment. Because of the purpose of a lease, the owner of a determinable fee estate in oil and gas as land, unlike the owner of such estate in other land, cannot do with his land as he pleases, cannot use it or not use it as he pleases. *Page 305
Other examples could be given to emphasize such differences and the consequent impossibility in some respects and impracticability in others, of applying the same rules and principles to such entirely dissimilar rights or interests. However, it is believed that the foregoing, as examples, will be sufficient.
Was it necessary, in order to tax the interest of a lessee against him and not against the lessor, that it be held that a lease conveys a determinable fee estate in oil and gas, in place, under the ground as corporeal real property? As said before, such an assumption, if not expressed, is certainly implied in the opinions in the Daugherty and Mid-Kansas cases. In the first case the court said in the beginning that the question for decision was "Whether the interests or rights conferred upon the Texas Company, in virtue of a number of so-called oil leases, constituted property subject to taxation in its hands." (Italics ours) It was stated that said "Question is to be resolved, in our opinion, by the determination of whether the instruments involved conferred upon the plaintiff in error an interest in the lands therein respectively described." (Italics ours.) Thereinafter, the opinion discloses clearly the assumption of the Court that the question "of whether the instruments involved conferred upon the plaintiff in error [lessee] an interest in the lands therein respectively described", was in turn dependent upon the question of whether said instruments were conveyances of oil and gas in place as corporeal real property. The court said: "We are not dealing with conveyances of simply the right to take the oil and gas from the ground", or, in other words, of conveyances of the character as contended by the lessee. The implications in that statement appear more clearly from the previous decision of the court in National Oil Pipe Line Co. v. Teel, 95 Tex. 586, 68 S.W. 979, wherein it was held that leases of the kind there in question were not conveyances of legal title to anyinterest in land. This view was still maintained in the Daugherty case, the court saying: "There are essential elements of difference between the contract considered in that case and the instruments here under review. * * * The contract [in the Teel case] was construed properly as the creation of a mere option which permitted the acquisition of an interest or performance of conditions — a mere optional right to acquire aninterest in land, a character of instrument plainly distinguishable from those here presented." (Italics ours.) Thus does it appear with certainty that the decision in the Daugherty case was based upon the assumption that unless the leases had the effect of conveying the oil and gas in place as land they conveyed no interest in land and were not taxable as property of the lessee.
In the Mid-Kansas case the distinction above declared between the leases in the Daugherty case and the Teel case was denied and it was decided that they had the same effect. Concerning the above language dealing with such distinction, the court in the Mid-Kansas case [113 Tex. 160, 254 S.W. 293, 29 A.L.R. 566] said: "Much reliance is put on such expressions in the opinion in the case of Texas Co. v. Daugherty * * * as that if the effect of the instruments there considered had been but the creation of a privilege to devote the land to a certain use, coupled with the right to appropriate a portion of such gas or oil as might be discovered, the privilege and right would not be separately taxable", to which it was replied: "The court's determination that the instruments before it had an altogether different legal effect makes it obvious that these expressions concerned matters not presented for decision"; that "It was never intended that such argumentative expressions should be taken as authoritative".
In the Mid-Kansas case the question for decision was "Whether appellee [the lessee] acquired, under the [therein] above-mentioned instruments, such interests or such estates in land as were subject to separate taxation." Thus it appears that the question for decision was the same as in the Daugherty case, the only difference being that it arose because of differences in the form or provisions of the leases. Two contentions of the lease owner appear from the opinion. One was: "Denial that these instruments passed separately taxable interests in lands", of which the court said: "[it] is grounded first on the proposition that there is no such thing as ownership or conveyance of gas or oil in place, because, until the gas or oil is brought to the surface and reduced to possession, any owner of land adjacent to that containing the gas or oil may lawfully appropriate same." The other contention is revealed in the following language: "But it is earnestly insisted that the *Page 306 instruments conveyed only incorporeal hereditaments appertaining two thelands, and that the terms of the instruments precluded the vesting of title to the gas and oil save as personalty after being brought to the surface." (Italics ours.) Had the court then been of the same opinion as subsequently formed and expressed in Sheffield v. Hogg, 124 Tex. 290,77 S.W.2d 1021, 1030, 80 S.W.2d 741, it would have found it wholly unnecessary to answer the first of said contentions, that is, whether oil and gas in place was capable of ownership and conveyance as land apart from the land wherein they are imbedded. Under the logic of said later decision, that question was immaterial to the one before the court for decision. The court could well have answered: we adopt the lessee's contention "that the instruments conveyed only incorporeal hereditaments appertaining to the lands" and regardless of whether or not "the terms of the instruments precluded the vesting of title to the gas and oil, save as personalty, after being brought to the surface", the issue must be determined against the lessee. In other words, the court could very well have said that granting the lessee's contention as last noted, it settles the whole issue against it because "incorporeal hereditaments pertaining to the lands" are interests in the lands, they constitute property belonging to the lessee; and under the Constitution and laws of this state they are taxable against him. The court could have said, as it did say in Sheffield v. Hogg, supra, with reference to rights not precisely the same, but not differing in nature or character: "Classify them [the rights of the lessee as evidenced by the leases] as you may, they are at least rights or privileges belonging or in some wise appertaining to real property," and, therefore, of course, subject to taxation against the owner of such rights.
Looking backward, it also appears that the same answer could have been made in both the Daugherty and Mid-Kansas cases, Furthermore, had such answer been made in the Daugherty case, the decision in the Teel case would have then been overruled, not distinguished and thereby postponing such overruling to the Mid-Kansas decision, which did overrule it, but only upon a ground still embracing the erroneous assumption, as said later decision shows, that unless such a lease conveyed oil and gas in place as corporeal real property, it conveyed no interest in land whatever. Had the question in the Daugherty and Mid-Kansas cases been answered in accordance with the reasoning later employed in Sheffield v. Hogg, supra, the fiction to the effect that an oil and gas lease almost regardless of form, conveys a determinable fee estate in land as corporeal property, with its attendant incongruities, examples of which have hereinbefore been given, and to which many more could be added, would, no doubt, we think, never have received recognition in this state.
Let us next consider the Sheffield v. Hogg case and some of our judicial history preceding it and following the Daugherty and Mid-Kansas decisions. In the Mid-Kansas decision it was implied, if not expressed, that a lease conveys title to all of the oil and gas. Such effect of a lease was recognized in early cases following the Mid-Kansas case, as, for example, Caruthers v. Leonard, Tex.Com.App., 254 S.W. 779.
Later the Supreme Court was confronted with the question of whether certain royalty interests were taxable against the owner. Evidently under the same opinion or assumption as before, that such question as to royalty interests, like the question as to lease interests, depended upon whether such royalty interests constituted corporeal real property, and not mere incorporeal rights therein, the court decided that if a royalty provision obligated the lessee to deliver a part of the oil or other minerals produced in kind as royalty, as, for example, 1/8th of the oil, — such being the character of provisions then in question — such provision constituted an exception of 1/8th of the oil from the conveyance of all the oil to the lessee and was taxable against the owner. Hager v. Stakes, 116 Tex. 453, 294 S.W. 835. It was a necessary implication, of course, that if the royalty provision obligated the lessee to pay royalty in money, as, for example, $100 per annum per well, for each gas well such provision would constitute no exception; the title to all the gas would pass to the lessee, and he, if anyone, and not the royalty owner, would be liable for taxes thereon.
Then came the day when the court was called upon to say what about royalty owners under leases providing that the lessors "shall have 1/8th interest in all money realized from gas marketed from said land, and for the sulphur or other minerals, *Page 307 $1.00 for each ton produced and saved from the land under quarterly cash settlements?" Was the right or interest in land evidenced by such royalty provisions subject to taxation against the royalty owner? Here again, it is apparent, was the same old question which had so frequently arisen before and like Banquo's ghost would not down, that is, it was the same question insofar as it could be affected by questions of whether or not the interest involved was land itself — corporeal real property — or interests in land — incorporeal real property. As already seen, a negative answer to this question was necessarily implied in Hager v. Stakes, supra. In other words, the holding, in effect, in that case that the royalty interests there in question were taxable against the lessor, or his assigns, because it consisted of oil in the ground, excepted from the conveyance of all the oil to the lessee, and could of necessity have no application to a royalty provision not constituting such an exception, and where title to all of the oil or gas, as the case might be, was conveyed to the lessee. The opinion is too long for analysis here. A great part of the discussion and authorities cited and quoted relate to incorporeal interests in land. We regard it as so fundamental that the same interest or estate in land cannot at the same time be both corporeal and incorporeal, that we feel warranted in assuming that it will not be questioned. By way of example, the opinion [124 Tex. 290, 77 S.W.2d 1028] quotes Thompson on Real Property [Vol. 1, pp. 313, 314, § 240] relating to a right to rents in land to the effect that unaccrued rents "are incorporeal hereditaments". After reviewing many authorities at length, mostly discussing incorporeal interests in land, the court, after referring to the statutory definition of land as taxable property, including "the rights and privileges belonging or in any wise appertaining" to land, concludes as follows: "Reading the Constitution and statutes together, there is no escape from the conclusion that interests here involved are meant to be taxed as real estate. Classify them as you may, they are at least rights or privileges belonging or in some wise appertaining to real property", etc.
Thus the court reached a conclusion on the basis of which the Daugherty and Mid-Kansas cases, Hager v. Stakes, supra, and scores of other cases could have been properly determined to the same effect as respecting the question to be decided without resort to the fiction that leases convey title to oil and gas in place in the ground as corporeal real property; but instead, based upon the truth and fact that they convey incorporeal rights in the land of another, which, being in gross and exclusive even as against the owner of the land, may constitute and generally do constitute freehold estates in the land, separate from the ownership of the land as such, and possessing the usual attributes of such interests in land, including liability to taxation against the owner thereof.
The nature of such an interest in land and the fact that it might constitute a determinable fee estate in land, was recognized and discussed by the Supreme Court and identified as a profit à prendre in Texas P. Ry. Co. v. Durrett, 57 Tex. 48. Tiffany says: "A person may have a right to take minerals from another's land in the nature of a profit à prendre. * * * A right to take oil or gas from land in which the person so entitled has no right of ownership is likewise, though not always expressly so stated, a right of profit à prendre. `Under the usual oil and gas lease,' it has been said, `the owner-lessor transfers to his lessee his right to drill for and produce oil and other substances. The rights of the lessee present a clear case of a profit à prendre in gross, a right to remove a part of thesubstance of the land.' And in such case, the lessee has an interest in the land in the nature of an incorporeal hereditament." (Italics ours.) 3 Tiffany on Real Property, § 846.
Further says the same authority: "A profit à prendre, * * * is the right of one to remove and appropriate for his own use some thing or things from the soil of another, or things growing in or attached to or existing on such other's land. * * * The distinguishing feature of profit à prendre is the right to appropriate and take from the land charged with it a part of the soil or product of it in which there is supposable value. Each right [easement or profit à prendre] requires the use of the land in which it exists, and to use is topossess. Each, [easement or profit à prendre as aforesaid] therefore, involves possession, though the title and broader right of possession is in another. Each [as aforesaid] implies such estate in the land as may be necessary to the enjoyment of the right. Each isincorporeal real property." 3 Tiffany on Real Property, § 840. See, also, Bender v. Brooks, 103 Tex. 329, *Page 308 127 S.W. 168, Ann.Cas. 1913A, 559; Right of Way Oil Company v. Gladys City Oil, Gas Mfg. Co., 106 Tex. 94, 157 S.W. 737,51 L.R.A., N.S., 268.
The question is whether now after the decision in Sheffield v. Hogg it is our duty, because of its oft repetition, to continue to recognize the fictional nature of the rights conveyed by an oil and gas lease with the attendant incongruities, inconsistencies, and frequently occurring difficulties of application to different states of fact, as they arise, or to recognize its true nature and thereby enable us to apply the law consistently and logically in the determination of new questions arising, as in this case.
This Court has been confronted with this same question before, and after much consideration decided to abandon the fiction and to recognize and give effect to the truth. Xray Gas Co. v. Lone Star Gas Co., Tex. Civ. App. 139 S.W.2d 142. The Supreme Court in that case, 139 Tex. 546,164 S.W.2d 504, 505, expressed no opinion upon this point, but gave conclusive effect to a practical construction of the instrument therein involved. The Court, however, repeatedly referred to the instrument as a "gas purchase contract", a designation none too apt, it would seem, if as adherence to the fiction required it was really a deed conveying the gas in place as land.
In reaching our conclusion it has been necessary, of course, to consider the possible effect of the doctrine of stare decisis, but we have been unable to imagine any case where because of abandonment of the fiction and adoption of the truth any right of any person could be adversely affected. No recognized attribute of the interest conveyed by a lease would be taken away; none constituting infirmities would be added. The principal effect would be to permit application of time honored rules and principles, without necessity of declaring exceptions and forced distinctions smacking so loudly of judicial legislation.
In the instant case, assuming adherence to the fictional nature of the interest conveyed by the oil and gas lease, the District presses the point that the fixtures, even if real fixtures, are not attached to the oil and gas in the ground — the only land owned by Adkisson and the only property sought to be condemned in this case — but, if attached to any land, they are attached to the land of the lessors or their assigns, not involved in the condemnation sought in this case. The logical force of the argument is inescapable. It is easy for us to see, however, that the "casing in wells, tanks, flow lines, power house, engines", etc., included in the above reference to "fixtures", are so essential and so certainly constitute a part of the value of Adkisson's interest in the land — an exclusive right, in gross of profit à prendre — that the damage for the taking, or destruction of such right cannot be measured so as to afford just compensation except by ascertaining its value as enhanced by the uses of such fixtures. It is, therefore, our conclusion that no error is shown in the action of the court in so determining the damages.
In arriving at such total damages, measured by the total value of the right of profit a prende, the Court, we think, did not err in hearing testimony of the separate values of the different fixtures. It seems clearly evident from the record that the court recognized the proper issue and such evidence was merely considered in arriving at the value of the interest condemned.
However, if we, not being a court of final jurisdiction, should be overruled in our conclusion that the property condemned is an exclusive right of profit a prendre, governed by the laws applicable to incorporeal rights of such nature; but, on the contrary, that the rights involved are of the nature which we have labeled as fictional, then we hold with certainly no more inconsistency than the holdings for example that such an estate may be lost by simple abandonment or be burdened with implied covenants for reasonable development or protection from off-set drainage, and for equally strong reasons, that the fixtures bear the same relation to the oil and gas, in place, as real fixtures bear to land generally; that their use enters into the value of the property taken or destroyed for public use, and the court has properly found such value by including the enhancement resulting from the use of such fixtures.
The Court found that the property condemned was taken as of date, October 30, 1940. In addition to the main award of damages, in the sum of $90,000, the Court awarded interest which, but for the off-set hereafter stated, amounted to $8,550. It was in evidence, however, that after October 30, 1940, Adkisson produced from the lease oil of the net value of $4,479.83, with which sum the Court off-set said amount of interest in the sum of $8,550 and gave judgment for the balance in addition to said $90,000, or the total sum of $94,080.17. *Page 309 The District contends that the Court erred in not allowing it interest upon this net value of oil produced after the date the lease was condemned. Granting that such interest was legally allowable, in our opinion, it was a matter of off-set. The burden was upon the District at least to supply the requisite evidence to enable the court to make the proper calculation and award the proper amount. There was an absense of such evidence, and because thereof we are of the opinion that no error in this respect is shown.
Being of the opinion that the judgment should be affirmed, it is accordingly so ordered.