Texas & Pacific Coal & Oil Co. v. Kirtley , 288 S.W. 619 ( 1926 )

PANNILD, C. J.

On August 18, 1916, S. R. Hill and wife executed to the Texas & Pacific Coal & Oil Company an oil and gas lease. This lease seems destined to be the subject of litigation as it was before the Supreme Court in the case of Stephens County v. Mid-Kansas Oil & Gas Co., 113 Tex. 160, 254 S. W. 290,. 29 A. L. R. 566, and is copied in the opinion in that case, and is now before this court in a different controversy. After the execution of this lease, said Hill and wife executed to appellees a deed conveying to them an undivided one-fourth interest in all the oil, gas, and other minerals in and under 139 acres of land described in the lease referred to. This conveyance recited that the same was made subject to the oil and gas lease mentioned, but conveyed no part of the rentals which might accrue under said lease thereafter. After the conveyance the coal company and the appellee Mid-Kansas Oil & Gas Company, assignee of one-half interest, deposited in the bank named in said lease the rentals of one dollar per acre provided for. Hill refused to accept the rents and directed the bank to return the money to appellees. Up to this time there had been no development by either the appellants Mid-Kansas Oil & Gas Company, or the Texas & Pacific Coal & Oil Company, upon the premises for oil and gas. After the refusal of the rentals by Hill, he had a conversation with the general attorney of the appellant Texas & Pacific Coal & Oil Company, in which said attorney agreed that the lease had been forfeited and that it would'be necessary for the company to procure a new lease from Hill. This concession appears to have been based upon the fact that the lease was without a definite term, and therefore under the decision of the Supreme Court in National Pipe Dine Co. v. Teel, 95 Tex. 586, 68 S. W. 979 (which was the ruling case at the time) could not be kept alive by the tender of rentals unless such rentals were accepted by the lessee. After considerable negotiations, Hill and wife for a valuable consideration of $33,000, to them paid, executed to the Texas & Pacific Coal & Oil Company on the 18th day of August, 1919, a lease on the entire premises covered by the first lease for a period of three years and providing that the lessee would begin within 70 days from the date thereof a well for oil and gas and prosecute the same with reasonable diligence to completion, and that if such well was not begun that lessees shall pay the lessors the sum of $25 per day for the time of such delay. In other respects the lease does not differ in legal effect from the one first herein referred to.

. Appellees were not parties to this lease and did not join in the execution thereof, and were not asked to do so by the lessees; but it appears from the record that Hill had advised appellees of his negotiations with the appellant looking to the execution of a new lease, and the appellees informed said Hill they would not join therein, and this was communicated by Hill to the attorney for the Texas & Pacific Coal & Oil Company. At the time the second lease was executed, it is shown that the Texas & Pacific Coal &■ Oil Company had both constructive and actual knowledge of the royalty deed above mentioned.

In November, 1916, the appellant began the drilling of a well on the premises conveyed by appellees, which was completed at a cost of about $66,000, and proved to be unproductive and was abandoned. Appellant then drilled well No. 2 on said premises, completed the same in June, 1920, at a cost of about $71,000. This well was a producer of large quantities of oil. Another well was then drilled on these same premises, which also produced oil and gas.

When the first producing well was completed in 1920, and the oil was run into pipe lines, the appellees executed to the appellant Texas & Pacific Coal & Oil Company a division order dated July 16,1920, in which it was stipulated that the appellees held an oil and gas lease recorded in Volume 52, p. 304, Deed Records of Stephens County, Tex., conveying said premises, and that said appellees only owned one-eighth of one-eighth royalty in the oil produced from said lands, and that appellant Texas & Pacific Coal & Oil Company should give credit'from the proceeds of the sale of the oil received from said lands in accordance therewith. Appellee Kirtley on July 14, 1921, executed another division order to the Prairie Oil & Gas Company, wherein it was stated, among other things, that the royalty should be paid to the following persons in the following proportions: S. R. Hill and Mania Hill, %*; B. L. Kirtley, Vei; C. T: Hill, Vei. And on the same day appellee Hill executed a similar division order to the Prairie Oil & Gas Company. Both appellee's Kirtley and Hill, on October 12, 1923, executed a division order to the Mid-Kansas Oil & Gas Company, wherein it- was agreed that the royalty and working interest in the oil produced from said lands was owned and ought to be paid as follows: S. R. and Mania Hill, %i royalty interest; B. L. Kirtley, Vei royalty interest; T. C. Hill, Vei royalty interest; Texas & Pacific Coal & Oil Company, one-half working interest; Mid-Kansas Oil & Gas Company, one-half working interest Each of these division orders described the premises and stated the ownership as set out to be the interest of the appellees. Under these division orders the oil was run into the pipe line and by the pipe line paid to the respective parties, in the proportion as stated in said division order last herein set out and accepted by appellees Kirtley and Hill. The checks from the pipe line company to the appellees Kirtley and Hill, in payment for the royalty interest as agreed to by them, stated that the same was in payment of their royalty interest in the S. R. Hill lease. It was further shown that on several occasions the checks from the Prairie Pipe Line Company were not promptly received, and, when this was the case, that the1 appellee failing to receive it would write to them advising that he had not received his royalty check for a particular month. The payments to appellees was for part of the same oil for which judgment was rendered. The acts evidencing ratification were in writing and sufficient to avoid the condemnation of the statute of frauds. Tiffany on Real Property, vol. 1, p. 682.

Among other defenses urged by appellant was that of ratification on the part of appellees of the lease made by the Hills. On the trial before the court, the trial court concluded upon the facts as stated that on account of no work having been begun by the appellant prior to August 8, 1919, the first lease had been abandoned. That appellees were not precluded by the second lease because they did not join in the execution of the same, and having never executed a conveyance of their title that they were not estopped from claiming their interest in the minerals, because there was no evidence of any injury to appellant, or that appellant had changed its position for the worse on account of the execution of the division order above referred to, and gave judgment against appellant in favor of appellees, for the sum of $22,-053, which was one-fourth the value of all the oil produced from said land within two years prior to the filing of plaintiff’s petition, less the amount of royalty paid appellees on the same oil, and less one-fourth of the cost of producing said oil within that period; and further awarded appellees a recovery of an undivided one-fourth interest in the minerals in the premises covered by their said conveyance.

A number of interesting questions are discussed in the very elaborate and learned briefs, which have been filed by both parties, but it is not found necessary to discuss but the one question of ratification hereinabove referred to.

Distinguished counsel for appellees place great stress and much reliance upon the decisions of the Supreme Court in Stephens County v. Mid-Kansas Oil & Gas Co., 113 Tex. 160, 254 S. W. 290, 29 A. L. R. 566; Robinson v. Jacobs, 113 Tex. 231, 254 S. W. 309; Caruthers v. Leonard, 254 S. W. 779; Thomason v. Hamm, 113 Tex. 239, 254 S. W. 316. But as viewed in this court it does not appear that the decisions of the Supreme Court noted are decisive of this controversy. Appellees insistence is that inasmuch as said eases hold that a cessation of operations terminate an oil and gas lease, and inasmuch as it is further held by the Supreme Court in Waggoner Estate v. Sigler Oil Co., 284 S. W. 922, that a failure to reasonably prosecute the essential obligation of an oil and gas lease with diligence will terminate the title entirely, and the court having found that there was no operations of any kind on said lease prior to November) 1919, the first lease executed by Hill and wife must be held to have terminated, and thereupon Hill and wife and appellees became tenants in common of tlie minerals, and that Hill and wife having the right to lease to appellants and appellants having procured no conveyance from appellees, the appellees are entitled to recover their one-fourth of the minerals less one-fourth of the amount spent for development during the period for which a recovery was awarded them, and the court having found that there is no estoppel in the case, the judgment should be affirmed.

It is not perceived how the decisions of the Supreme Court referred to can avoid the effects of appellees’ acts, which undisputably show a ratification on the part of appellees of both leases executed by the Hills. In none of the cases cited does the Supreme Court say that the law will force down the throat of an unwilling lessor a termination of a lease when such lessor is willing to waive the default which gives him the right to terminate. On the contrary, the Supreme Court, in Benavides v. Hunt, 79 Tex. 383, 15 S. W. 396, say:

“It is universally held that a grantor entitled to re-entry or forfeit an estate on breach of condition, who does not exercise this right when facts within his knowledge occur that would entitle him to do so, has waived his right or is estopped from exercising it, in all cases in which, after breach of condition, he permits the grantee, without objection, to prosecute the enterprise, and expend large sums of money in so doing, which must be lost to the grantee if a forfeiture be subsequently allowed. If a grantor, so situated, on breach of condition, desires to terminate an estate, good faith requires him to act promptly, and on failure to do so. he should not be permitted to reap the benefit of money subsequently expended or labor bestowed, when by his failure to assert his right he induced a grantee to believe that he would not, and to continue the expenditure of money.”

The division orders, above set forth, in Unmistakable terms ratify and confirm the title of appellants to seven-eighths of the oil, and as to appellee Kirtley expressly ratifies and confirms the first lease. If the first lease was terminated, the Hills and appellees would be tenants in common as to the minerals under said land. The law is that a tenant in common has the right to occupy the Whole joint property, but if he takes out oil or gas he must 'account to the cotenant for the value of. their proportionate part of the oil and gas upon one of two basis: If his taking of the oil and gas be with the knowledge and consent of his cotenants, he must respond to that by paying the usual and customary royalties for oil and gas in place in the vicinity of the premises; but if the taking of the oil and gas is contrary to their rights, he must account to 'them by paying them the value of their proportion of the oil and gas at the mouth of the well, for he is regarded as a trespasser. Thornton’s Law of Oil & Gas, vol. 1 (4th Ed.) & 313a; Mills v. Willingham, Law of Oil & Gas, page 270.

In Burnham v. Hardy Oil Co. (Tex. Civ. App.) 147 S. W. 334, it is held that a tenant in common has. a right to lease the premises for oil and gas, and that his lessee may explore for oil and produce the same, but must account to those cotenants who do •not join in the lease for their share of the profits. The rule stated but applies to the law of' mines and minerals the rule applicable to tenancy in common generally, and that is, that tenants in common may ratify the acts of each other or acquiesce therein, and such ratification or acquiescence with full knowledge of material facts is effective. Cook v. I. & G. N. Ry. Co., 3 Tex. Civ. App. 125, 22 S. W. 1012; Broom v. Pearson (Tex. Civ. App.) 180 S. W. 895; Werner v. Mayfield (Tex. Civ. App.) 248 S. W. 766; Stuart v. Mattern, 141 Mich. 686, 105 N. W. 35; Pellow v. Artie Mining Co., 164 Mich. 87, 128 N. W. 918, 47 L. R. A. (N. S.) 573, Ann. Cas. 1912B, 827; Currens v. Lauderdale, 118 Tenn. 496, 101 S. W. 431; 7 R. C. L. Sec’s 72, 75, 77, pp. 877, 879 and 882. 38 Cyc. title Tenancy in Common, pp. 106, 111.

Applying these principles to the facts above recited, it cannot be gainsaid that appellees have so far as humanly possible ratified and confirmed the act of their tenant in common in leasing the land for oil and gas, and the act of lessees, appellants herein, in producing the oil under such instrument.; Having thus ratified the lease executed by Hill and wife, appellees are so much bound thereby as though they had joined in the exfe cution thereof.

The learned trial court held that appellees were not estopped because there was no change of position on the part of appellants and for lack of prejudice. One of these elements is essential to estoppel, but not to ratification. Ratification and estoppel are very often closely associated, and many times the terms are used interchangeably, although there is a clear line of demarcation between the two, in that prejudice is a necessary element of estoppel, while ratification requires no change or condition or prejudice. 4 Fletcher, Cyc. of Corporations, 3378; 10 Cyc. 1084; Steffens v. Nelson, 94 Minn. 365, 102 N. W. 871; 33 Cyc. 1528.

When appellants drilled the first productive well on said premises, appellees had, as to the oil produced therefrom, Open to-them two courses; one was to take one-fourth of the oil less one-fourth of the expenses of drilling said productive well and operating the same, or to ratify the lease executed by the Hills and take their proportion of the royalty and cast upon appellants the-burden of paying all the expenses. Title Cotenancy, 7 R. C. L. § 75, p. 379; Liles v. Producers’ Oil Co., 155 La. 385, 99 So. 339;. Sommers v. Bennett, 68 W. Va. 157, 69 S. E. 690; Patterson v. Clem, 79 W. Va. 666, 91 S. E. 654.

They elected to-take the latter course and must be held to be bound by that election. They were chargeable with notice of appellants’ title. The second lease, as did the first, conveyed the entire premises of Hill and wife, consisting of 165 acres, which included the 139 acres in which appellee held a one-fourth interest in the minerals. By accepting their proportionate part of the royalties provided for in said lease, and by the execution of the written instruments agreeing that they claimed as royalty owners under said lease, appellees made themselves in .effect parties thereto and thereby bound themselves, and as they hound themselves so must they stand bound.

Wherefore, the judgment of the trial court is hereby reversed and here rendered that the appellees, B. L. Kirtley and C. T. Hill, take nothing, and that judgment be here rendered in favor of appellants, with costs ¡both in this court and the court below, and it is so ordered.