The Texas Company v. Davis
113 Tex. 321 · 1923
Facts
On February 23, 1901, W. F. Arnold and wife granted to Jno. C. Underwood all oil, gas, and other minerals under 81.5 acres of land for $1.00 and royalties, with the right of ingress and egress for operations. The grant stipulated that operations for drilling must commence and be prosecuted with due diligence within two years, or it would become null and void, though forfeiture could be prevented by a yearly $10 payment. The grant was for 25 years from discovery and as long as minerals were produced in paying quantities. Underwood assigned his interest to Equitable Mining Company, which later assigned a portion to Arnold Oil Company. These companies drilled four wells on 76.5 acres, discovering oil in paying quantities in October 1902, and marketed approximately 1000 barrels, with Arnold receiving royalties. However, by July 1904, all drilling equipment was removed, and operations ceased due to exhausted funds. Underwood attempted to raise additional money for development for many years but failed and abandoned the effort. In 1905, both companies forfeited their right to do business in Texas, and in 1909, Equitable's president issued a release stating the lease was null and void. Between 1906 and 1917, the Arnolds conveyed the land to various parties, including A. McGary, whose interests are now held by the plaintiffs in error. In 1918, The Texas Company, a predecessor to the plaintiffs in error, began drilling on the land and discovered richly productive oil in January 1919.
Issue
Did the grant of mineral rights to Underwood and his assigns create an absolute fee simple title upon discovery of oil, or a determinable fee that terminated upon the abandonment of mineral exploration and production?
Holding
The court held that the grant created a determinable fee, which terminated instantly when Underwood and his assigns abandoned the purpose of mineral exploration, development, and production. Therefore, the defendants in error had no title to the minerals.
Rule
A grant of minerals in place, made for the purpose of exploration and production with royalties as the vital consideration, creates a determinable fee, not an absolute fee simple. This estate is conditioned on the continued prosecution of the purpose of mineral exploration, development, and production. When the grantee abandons this purpose, the determinable fee instantly terminates, and the minerals revert to the grantor or their assigns, without the need for a reconveyance or express forfeiture clause. The court reasons that the true intent of such contracts is mutually profitable production, and allowing a grantee to hold title indefinitely without production would contravene the nature and spirit of the lease. Additionally, a cause of action for the removal of a cloud on title is continuing and never barred while the cloud exists.
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