Untitled Texas Attorney General Opinion

OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN

Honorable Bascom Giles
Commissioner,General Land Office ,'
Austin, Texas
Dear Sir: ./

You submitted to us co

roii0ws:

No. 20520.

the drilling of a
not commenced on
ore one year from this
ease shall terminate as to both
es8 the lessee shall, on or be-
year from this date, pay or
e lessor or for lessor's credit
redo National Bank at Laredo, Texas,
ccessors,,whichbank and its succesy
re the lessor's agent and shall con-
tinue as the depository of any and all sums
payahle under this lease, regardless of change
of ownership in said land or in the oil and
gas, or in the rentals to accrue thereunder,
the sum of Six Hundred Fifteen Dollars ($615.00),
which shall operate as rental and cover the
privikege of'deferring the commenoementof
Hon. Bascom Giles, Dage 2

drilling operations ior a period of one
year. In like manner and upon like pay-
lllent
or tenders, the oommenoemadtof
drilling operationsmay be further defer-
red ror like periods suooessivelyduring
the original term of this lease as fixed
in the habendum clause hereof.*
You sent us a photostatlocopy of a receipt dated
May 22, 1939, signed by yourself acknowledgingreoeipt rrom
D. D. Oil Company, Mission, Texas, of $307.50 rental on State
lease No. 20580, 615 acres, Starr County.
2. A lease dated April 7, 1936, executed
by Dr. M. J. Brooks, et al, and as agent for the
State of Texas, lessor, to F. Davenport, lessee,
covering 342 acres, more or less, in Starr County,
Texap. The lease being designated as M. F. 20602.
It provides for a primary term of five (5) years
and contains among others, the tollowing provisionsa
"It operations for drilling are not
oommenoed on said land on or berore one
year from this date, the lease shall then
terminate as to both.parties,unless on or
before such anniversary date Lessee shall
pay or tender to.Lessor or to the credit
of Lessor in Atlanta National Bank at At?
lanta, Texas, (which bank and its suoces-
sors are Lessor's agent and shall continue
as depository for all rentals payable here-
under regardless of ohan es in ownership of
said land or the rentalsf the sum of Three
gzi=;i Forty-ei@t and no/100 ($348.00)
($348.00) herein called rental);
vahiohshall cover the privilege of deferring
commencement of drilling operations ior a
period of twelve (12) months. In like man-
ner and upon like payments or tenders annu-
ally the commencementof drilling 0 erations
may be further deterred for suooessPve
periods of twelve (12) months each during
the primary term. The payment -ortender of,
rentals may be made by the oheok or draft
of hasee mailed or delivered to said bank
on or before such date of payment."
Said lease further provided:
Hon. Basoom Giles,.Page3

"The rights of either party hereunder
may be assigned in whole or in part and the
provisionshereof shall extend to the heirs,
suooessorsand assigns, but no change or di-
vision in ownership of the land, rentals, or
'royalties,'
however accomplished,shall oper-
ate to-enlarge the obligationsor ~diminish
the rights of Lessee. No sale or aaslgnment
.byLessor shall be binding on Lessee until
Lessee shall be furnished with a certified
copy of recorded instrument,evidenoing same.
In event of assignment of this lease as to a
segregatedportion of said land, the rentads
payable hereunder shall be,apportlonableas
between the several leasehold owners ratably
according to the surface area of each, and
default in rental payment by one shall not
affect the rights of other leasehold owners
hereunder.w.
Tou also burnished us two receipts executed by W.,lk
MoDonald, who was Cammissionerof the General &md Office dur-
ing the year 193S. One receipt was dated April 4, 1998, aok-
nowledging receipt from D. D. 011 Company of $1$3.00 -rental,
Seotion 920, Certificate1918, W. M. Pierce, StarrrCouhty,
Iii2C6C2. The other reoelpt, by b¶r.McDonald, is dated h¶ay7,
193S, and acknowledgesreceipt from D. D. Oil Company of $11.00
balanoe rental,'Seotion'920,Starr County, L, 20602.
3. A lease dated'Juhe.13,1936, from F. Dav-
enport, individuallyand as agent of the State of
Texas, lessor, to D. D. Oil Company and Slick-
: Ursohel Oil Compaq, lessee, oovering 146 aoces
in the T. R. Wright Survey, Starr County, Texas,
and being designated as M. F. 20350. 'Thelease is
for a primary term of five (5) years and'has the
following provisionr
*If operationsfor drilling are not
commenced on said land on or before one
year from this date the lease shall then
terminate as to both parties, unless on
or before such anniversarydate Lessee
shall pay or tender to Lessor or to the
credit of Lessor in First State Bank dc
Trust Company 'ofMission, Texas (which
bahk and its suooessors~are,Lassor~s agent
and shell'continueES .thedepository Sor all 1
 Hon..P~soom~Gilea,Fa@ 4

rehtals.payablehereunder regardless of
ehanges'inownership of said land or the
rentals) the sum of One Wdred Forty-Sir
and No/l00 Dollars (#146.00), (herein call-
ed rental), which shall oover the privilege
of deferring eommenoementof drilling opera-
tions for a period of twelve (12) months.
In like manner and upon like payments or
tenders annually the oommenoementof dr1l.l~
ing operationsmay be further deferred for
suooesslveperiods or twelve (12) months
eaoh during the arimary term. The payment
or tender of rental may be made by the oheck.
or draft of Lessee mailed or delivered to
.
said bank on or before such date of payment.?
You furnishedua a photostatic copy of a receipt
executed by yourself aoknowledgingrsaelpt frcunthe I?..&
Oil Company oP$73.Ob rental on State Lease No, 2035O, 146. .,~:
MT
-. ’ acres, Starr County, dated June 14, 1939.
Iiioouneationwith said leases and reaa$p$~~ybu,ask
ua hr questfons. As. we understand your request'.yo$di)s%ra
.
an answer to the last three only,531the event re~ah&wer?$+.
fir& question in the.negative.' Since we anWer.y&i&:ffi:s$...,~
question in the affirmative,we will only set it .out'he$?&
and prooeed to answer it.
"(1) Did the aforesaid leases expire ipso~. .'
facto when the lessee fafled to pay the rentals'
due the State of Texas on the.date due and pay-
able under the terms of said leases'l"
You stated in your letter that 'thelandown& par-
U& of the rental under said leases.was
- paid to them in due
.
,The RelinquishmentAct and particularlythat portion a
of same'as incorporatedin Artiole 5368. Revised Oivil Statutes
of 1925, authorizes the owner of th 3&a3 to ereeute an oil d
-se upon such terms aiWcondi&fs as s&h owner may d%&
best, subject only to the provisions of.the Act.
Artiole 5368. Revised Civil Statut~esof 1925; pro?
@des as follows:
The owner of sal+.iand is hereby t&h&
riced to.sell or lease to any p.B‘SPqn,
firm err
oerporation'theoil.and $a8 that may be'the,reon
 Hon. Basoom Giles, Rage 5

or therein upon such terms and conditionsas
such owner may deem best, subject only to the
provisionshereof, and he may have a second lien
thereon to secure the payment of any sum due him.
All leases and sales so made shell be assignable.
No oil or gas rights shall be sold or leased here-
under 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 aore
per year of sales and rentals;'andin case oS
production shall pay the State the undivided
one-sixteenthOS the value of the oil and gas
deserved herein, and like amounts to the owner
of the s0i1.~
We find nothing in'the statute which preventsthe
owner from executingwhat is commonly known as an Qnless
.leasen with provisionssimilar to those pointed out above in
the leases submittedto us Sor examination. That being true,
.tidthe terms of the above leases specifioallyprodding that
- they would terminateat the end.oS the first year or any year
during their primary term on failure to drill or pay rental
on the.date provided,and the receipts submitted showingthat
such rental payments were not made in time, all OS theabove
leases ipso Saoto terminated.-The first lease listed above,
being No. 20580, terminated on May'8, 1939;.the second lease
.llsted above, being No. 20602, terminated on April 7;1938,
and.the third lease listed above,.beingNo. 20350, terminated
on June 13, 1938, for Sailure to pay the delay rental8 on or
before the dates therein provided. or oourse; we are assuming
in all instancesthat operations for the drilling of a well
for oil and gas were not commenced on the land oovered by any
of said.leaseson or before the dates above mentioned,and
t.hatall OS said leases had.been assigned to D. D. Oil Company.
It is well settled that in construi& and detetin-
lng the right8 of the parties under an oil end gas lease as
nrovided Sor in the RelinauishfnentAot the'oontract‘itself and
.& statu&s relating theGet must be.co&rued together. See
Rmnire Gas and Fuel Co. v. State, 47 8. Wi (2) 265, Supreme
Court of Texas. There being no.provisions in the statutepre-
venting the type of leases in question 'inso far as the delay
rental feature is concerned, then we must'give full eSfeOt to
Hon. Bascom Giles, Page 6

theexpressed language in the lease oontract.We could cite
and discuss many authoritiesholding that the failure to pay
delay rentals under,an'"unless lease" by the time provided
in the lease caused the lease to terminate,drilling opera-
tions not having been begun.
In the aase of Gulf Produotion Company. et al., vs.
ContlnenMl~Oil Company et1 a . eo de
of Texas; opinion deliveredby Chief Justice Cureton on Nov.
1, 1939, and not yet reported; the court removed all doubt as
to the righta of the parties with respeot to delay rentals in
an "unless lease" by the following language:
"The lease here inv'olvedis an 'unlesslease,?,
and Imposed no obligationon Joiner, Trustee, to
either drill or pay; and upon his failure to
.eitherdrill, pay, or make the deposit in the
named bank, no liability of any kind arose in Sa-
vor of the Turners against'him;nothing was due
thereunder;there was nothing for Turner to ool-
leot; and nothing oould be reoovered. 31 Tex. Jur.
7W, sec. 134, Davis v. Bussy, 298 SW. 656
writ
P' refuEed)fWeiss v. Claborn, 219 S.W. 254,
587 twrit refused); Stovall v. Texas Co., 262 S.W:
152, 153 (wi@& refused); McLaughlin v. Brook, 225
S.W,,575, 577; Jones v. Murphy, 253 S.W. 634;
Summers on Oil & Gas (Perm. ea.), 701 2, Sea. 339
wThe t&of Texas Jurisprudenoeoited (sea.
l&$1,-ln part reads:
*'Its is clear from the wordin of the *unless"
clause that lt'does not operate to L pose any duty .
upon the lessee either to drill or to nay delay ren-
tals; the matter Is entirely optional with him, and
thelessor cannot oompel him to drill nor oblige
him to pay any rentals.! 31 Tex. Jur., P. 744, sea.
134. (Italics Oars.)
11** *

*The result or the failure of Joiner, Trustee,
to al&her begin a well, pay the speoified.amount
of money, or make the named deposit bg.April 7,
1928, was to ~ facto terminate the lease, and
the Turners became-vested with the entire es-
tate without the necessity of re-entry, declara-
c, tlon, or legal aotion. 31 Tex. Jur., pp. 744, 745
Hon. Rascom Giles, Page 7

746 sec. 134; Waggoner Estate v. Sigler Oil
co., 118 Tex. 509, 19 S.W. (2d) 27; Humble
Oil & Ref. Co. v. Davis, 296 S.W. 285, 287
Corn.App.); Mitchell v. Simms 63 S.W.
1?$*371 373 (Tex Corn.App )* Weiis v. Cla-
born, 214 S.W. S84'(writ ref;sAd);Wi,lsonv.
Gass, 289 S.W. 141, 142 (writ refused);Mor-
rissey v. Ambrugey, 292 S.W. 255, 256 (writ refused);
Thornton on Oil & Gas &h ea.), vol..l, seo. 124;
Summers on Oil and Gas (Perm.'ed.),vol. 2, pp.217,
218, sec. 337; EmFire Baa k.Fuel Co. v. Sannders,
22 Fed. (2d) 733, 735 (writ of certioraridismisses),
278 U.S. 581.
"The *unless*provisions~orthe lease, there-
fore, are obviously a iimitation on the grant;
since ra limitation determines an estate upon the
happening of the event Itself without the neces-
~~~~e~~~"~~~a~~~~~~~r~~~~~~~~~~~~,
(Perm. ed.), vol. 2, seo. 337, p. 215; Waggoner
Estate v. Sigler Oil Co., 118 Tex. ,509,519, 520;.
Humble Oil & Ref. Co. v. Davis, 296 S.W. 285, 287;
Caruthers v. Leonard, 254 S.W.~ 779, 782, Morrissey
v. Amburgey, 292 S.W. 255, 256 (wkit refused); au-
thorities supra."
Artiole 5372 0r the Wevised civil Statutes or 1925
provides in part:
*If any person, rim or corporationoperat-
ing under tnls law anal1 rail or refuse to makd
the payment of zn$ sum within thirty days after
it becomes due * the rights acquired under
the permit or lease shall be subjeot to forfel-
ture by the Commissioner*,etc.

The above quoted provisions of Article 5372 has re-
ference only to sums which become due and for which there Is
a liabillty.onthe part of the landowner or lessee to pay.
Under the terms of the lease oontraots in question the ren-
tal never.becamedue in the ordinary sense of the word in that
the payment thereof could not be enforced. The lessees had to
make the payment8 in proper time to keep the leases alive for
another year, but they were not required to keep the leases
alive. That being true, Article 5372 had no applicationto
the rental provided in the above leases. Certainly the leases
 545
Hon. Basoom Giles, Page 8

did not remain alive until thirty days after the rental
payment date, the rental hot having been paid In time and
until the Lana Commissionerdecided to forfeit the leases
for failure to pay same in spite of the plain provisions
in the leases to the contrary. The lessees could not se-
cure this valuable right without paying a consideration
therefor or being obligated in any way. There would be no
mutuality between the parties to the extension.
Mr. Summers in his most reoent edition on oil and
gas discusses this question as follows:
sRemediesof the Lessor for'Failure of the
Lessee to Drill or Pay Where the *Unless*Drlll-
ing Clause is used
wWhen the 'unless'drilling clause is used,
the lessee'doesnot convenant to drill% pay.
The olsuse relative to the drilling of wells
within a stated time, or the periodic payment
of money, Is used, not for the purpose of fixing
a duty upon the lessee to drill,or pay, but to'
state a limitationupon which the'lease termi-
nates If these acts are not performed. Conse-
quently, if the lessee fails to drill within the
stipulatedtime, the lessor cannot recover in an
action for rent, or recover in an action for
damaaes for failure to drill. for the obvious
reason that there is no duty'upon which to found
such action.* Summers' Oil & Gas, Vol. 2, p. 494,
Section 452.
See also W. T. Waggoner Estate vs. Sigler Oil Com-
19 S.W. (2d) 27 b S . Ct. of Texas; Humble Oil k
RE: Aing Co. v. Davia'etyalUP296S.W..295 Corn.App..Seo.B'.
: fit ulr Production Co. et Al, vs. Continktal Oil Co., et'
al.. sunra.
The provision of Article 5368 that in every lease
the state shall be paid a minimum Of ten oents Per acre Per
year rental Is complied with in the above leasein so far
s the year in uired about, being the year be&iwing May 8,
1 939, in the fP rst lease; the year beginning April 7, 1938,
in the seoond lease, and the year beginning June 13, 1939,
in the third lease, for eaoh lease, provides not only that
a rental of which the state is to get more than ten cents
per acre is to be paid but that it must be paid in advance,
Hon. Basoom Giles, Page 9

in order gor the lease to be in effect for the year. The
lessees were not liable for this rental but as we have
pointed out they lost their leases by not paying it in,
time and the leases were not in erreat at any time unless
the state had received its rental in advance; thus the
provisionsor Article 6368, supra were rollowed.
It ~111 be noted that in conneationwith the dls-
dussion or the second lease above, being the M. J. Brooks
Lease No. 20602, that one-half of the rental therein pro-
vlded ia $174.00, being the portion to which the state is
entitled, that the anniversarydate or the lease, being the
date on or before which the rental had,to be paid in order
to keep the lease alive for another year, was April 7, 1938,
and that'$163,00was paid before the anniversarydate',to-
wit, on April 4, 1938, but the balanoe of $11.00 was not
paid until after the anniversarydate, to.-wit,on May 7,
1938. The lessee not having tendered or paid on or before
April 7, 1938, all of the rental.providedin the lease, the
lease Ipso raato terminated by Its own terms, assuming that.
the lease on April 4, 1938,'was owned by the same party or
parties. This presents a similar situationwhloh was be
fore the El Pay W;; 0;~Czi1 Appeals Sor decision in the
ease or YOUIM 222 S.W. 691, wherein the
lessee laoked $&96 pa&g ali'of the delay rentals provided
for in the lease, the Court used the iolloviinglanguage:
"It wfll be noted the lessee assumed no-ob-
ligation ta oommenoe a well in twelve (12) months
rrom the date or the contract nor did he agree to
pay a rental If suoh a well was not oanmenoed.
It was wholly optional with him. In this oonneo-
tion it will be noted also that by the express
terms of the contract ii such well was not oommenaed
in twelve (12) months'or the rental paid, the lease
was terminatedas to both parties. *,* * The oom-
menoement 0r a well or payment or rental was a oon-
dition precedent to a continuanoeor*esn*gion,or
lessee's privilege after that date.
We are of the'opinion that under the aontract
in question where all the rights and privileges
granted by the instrument as to all of the land
described therein wer.evested..inone person, the
optional right to ay rental was Indivisibleand
that suoh an dndlvsdual would have n0 right to pay
rental upon a part or the land,only..* * * And
the failure to pay the'whole stiplated amount
terminatedthe entire oontraot.*
Hon. Bascom Giles, Page 10

This question was involvedvinK;;;ect;ya;ith a
surfaoe lease In the oase of MoCray . 9, .< 130
S.W. (2) $58. The lease had the following provision:
'It is further provided that If said rental
becomes delinquentfor as much as three (3) months
then and in that event this lease shall beoome
null and void and shall revert immediatelyto the
parties of the first part gogether with all im-
provements thereon laoated."
SudRe Graves. who wrote the opinion for the Court
of Civil Appe&s of Gaiveston, in dieouksingthe above pro-
vision in the lease used.the following language:
Vinae this lease contained the recited au-
tomatic rorfeiture dlause upon derault in payment
of rental no eleation to deolare it rorfeltad was
required of appellee. * * *"
Y'he relied upon tender must have been of
the rull amount due from the appellant to the ap-
pellees at the date thereor 'tohave been valid as
such, which was not the aase in any or the three
instanoes.w.
For the reasons disonaaed herein, it is the opinion
of this department that eaoh of the leases in question ipso
raoto expired when the lessees failed to pay the rental In
full on or before the date speclried in the lease, and that
Article 5372, supra, hever had any applioationto.the rentals
in qudstion under the facts presented.
Yours very truly
ATTORNEy GENXZALOFTEX@

BY

DDM:jm APPI?CVEDD.=7, 1939