Hitson v. Gilman ( 1920 )

On Motions for Rehearing. On March 21, 1918, the Prairie Oil Gas Company paid rentals as specified in the original lease to Gilman on the 160 acres claimed by the company, and due March 24, 1918. At the same time, the company also paid for three additional quarters, to wit: The sum of $30 covering rentals at the rate specified in the original lease on said 160 acres up to March 24, 1919, taking from Hitson a receipt therefor. At the same time, and as part of this transaction, Hitson and wife executed and duly acknowledged the following written agreement:

"Agreement, made this 21st day of March, 1918, between W. T. Hitson and E. A. Hitson, his wife, of Cisco, Texas, parties of the first part, and the Prairie Oil Gas Company, a Kansas corporation of Independence, Kansas, party of the second part, witnesseth:

"Whereas, under date of June 24, 1916, a certain lease for oil, gas and other purposes was executed by and between said W. T. Hitson and E. A. Hitson, lessors, and R. F. Gilman, lessee, covering 1,646% acres, situated in the county of Eastland, state of Texas, which lease is recorded in the lease records of said county in Volume 94, at page 280, and the said lease was made for term of five years, and,

"Whereas, said lease has been assigned to the Prairie Oil Gas Company as to 160 acres described as the southwest quarter of section No. 69, block No. 4, H. T. C. R. R. Co. survey in said county and state:

"Therefore, in consideration of one ($1.00) dollar and the mutual covenants of said lease it is agreed between the parties hereto that in event that the lessee or any assignee or assignees of the other part or parts of said lease shall fail or make default in the payment of the proportionate part of the rents due from him or them such default shall not operate to defeat or affect said lease in so far as it covers the above described land held by the Prairie Oil Gas Company so long as it shall make due payment of its proportion of said rental.

"It is further agreed that the terms and conditions of said lease shall be and remain the same except as herein modified.

"Witness the following signatures the day and year first above written.

"W. T. Hitson.

"E. A. Hitson."

It is urged in a motion for rehearing by the company named that such advance payment was a sufficient consideration to support the original lease to Gilman in so far as the interest of the company was involved, and that therefore the judgment in its favor should be affirmed. After consideration, however, we have been unable to agree with the contention stated. Construing the agreement copied as a whole, we are of the opinion that it is intended to and had the effect of relieving the Prairie Oil Gas Company from all hazard of a default in payment of rentals on the part of any sublessee other than the company, and to extend the time within which the company would be required to drill a well on its 160 acres until March 24, 1919. The concluding part of the agreement itself expressly declares that the terms and conditions of the Gilman lease should "be and remain the same except as herein modified." The only modification made in the agreement was to extend the option of the company to drill a well for one year instead of one quarter, and to make the company liable for its own default alone. We think the advance payment operated as a consideration to support this agreement rather than to relate back and support the original lease to Gilman. Nor, for reasons indicated in our original opinion, de we think that this transaction alone can properly be made the basis of an estoppel.

The same company and also the Empire Gas Fuel Company insist that we were in error in holding that these companies were not purchasers in good faith and for value, and hence that they should be protected as such. In support of this contention, an able brief with numerous citations of authority has been presented to this court by Messrs. Wynn, Johnson, Green Morgan, amici curiæ. It is insisted that the decision in the Teel Case is wrong, and we are urged to right the wrong. As to this phase of the case, we should say that we perhaps unnecessarily noticed this alleged defense in our original opinion for the reason that the Empire Gas Fuel Company presented no such plea to the lower court, and, while the Prairie Oil Gas Company did present such plea, it was not supported by any proof further than a showing that it had purchased its lease on the 160 acres for a valuable consideration and had paid rentals. If we were right in holding, as we did originally, that the payment of rentals merely afforded a consideration for an extension of the option given to the lessees in the original lease to extend the period within which they would be required to drill a well, and we are not disposed to revise our ruling on this point, then the payment of rentals alone would not constitute the lessees and sublessees innocent purchasers for value and without notice of vice, which forms the foundation of the attack upon the original lease. Nor would the single additional fact that the Prairie Oil Gas Company paid a valuable consideration for its lease without proof of a want of notice or knowledge of the defense to which the original lease was subject, or other circumstances showing good faith, be sufficient to establish the defense. And to do this it was not only necessary to allege, but also to prove, that the lessee purchased in good faith for a valuable consideration and without notice of any vital defect or defense in the original lease. Watkins v. Edwards, 23 Tex. 443; Bremer v. Deffenbaugh et al., 60 Tex. 152; Vickers v. Carnahan,4 Tex. Civ. App. 305, 23 S.W. 338.

Moreover, the sublessees were certainly affected with the form and legal effect of the original lease to Gilman, and, if we were right, as we think we were, in holding that the lease from the Hitsons to Gilman did not convey a legal title, but on the contrary amounted to no more than an option or "lease contract," as it is designated at one place in the lease itself, then under the operation of the Teel Case, which we feel it our duty to follow whatever may be the construetion given such leases by courts of other jurisdictions, the defense under discussion is not available. We find ourselves unable to distinguish in any vital particular the lease here under consideration and the one considered by the court in the Teel Case, decided by our Supreme Court, and the decisions of the Supreme Court are controlling with us.

We conclude that the motions for rehearing must be overruled.