NATURAL GAS PIPELINE COMPANY OF AMERICA, MIDCON GAS SERVICES CORP., AND CHESAPEAKE PANHANDLE LIMITED PARTNERSHIP v. JOSEPH H. POOL, ET AL. (Majority)

SUPREME COURT CASES

Laws-info.com » Cases » Texas » Supreme Court » 2003 » NATURAL GAS PIPELINE COMPANY OF AMERICA, MIDCON GAS SERVICES CORP., AND CHESAPEAKE PANHANDLE LIMITED PARTNERSHIP v. JOSEPH H. POOL, ET AL. (Majority)

State: Texas

Court: Supreme Court

Docket No: 01-0058

Case Date: 12/19/2003

Judge: Priscilla R. Owen

Plaintiff: NATURAL GAS PIPELINE COMPANY OF AMERICA, MIDCON GAS SERVICES CORP., AND CHESAPEAKE PANHANDLE LIMITED

Defendant: JOSEPH H. POOL, ET AL. (Majority)

Preview:NATURAL GAS PIPELINE COMPANY OF
AMERICA, MIDCON GAS SERVICES CORP., AND
CHESAPEAKE PANHANDLE LIMITED
PARTNERSHIP v. JOSEPH H. POOL, ET AL.
(Majority)
IN THE SUPREME COURT OF TEXAS
No. 01-0057
Natural Gas Pipeline Company of America, Midcon Gas Services Corp., and Chesapeake Panhandle Limited
Partnership
v.
Joseph H. Pool, et al.
- consolidated with -
No. 01-0058
Natural Gas Pipeline Company of America, Midcon Gas Services Corp., and Chesapeake Panhandle Limited
Partnership
v.
Joseph H. Pool, et al.
On Petitions for Review from the
Court of Appeals for the Seventh District of Texas
Argued on March 6, 2002
Justice Owen delivered the opinion of the Court, in which Chief Justice Phillips, Justice Hecht, Justice Schneider,
Justice Smith, and Justice Wainwright joined.
Justice Jefferson filed a dissenting opinion.
Justice O=Neill and Justice Brister did not participate in the decision.
We deny Respondents= motion for rehearing. We withdraw our opinion of August 28, 2003, and substitute the
following in its place.
In these consolidated proceedings, lessors under three oil and gas leases contend that the leases terminated because
intermittently over the years there were periods of time ranging from 30 to 153 days when there was no actual
production. We do not decide whether the leases terminated because even assuming they did, the lessees thereafter
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acquired by adverse possession fee simple determinable interests in the mineral estates that are identical to those the
lessees held under the leases. Accordingly, we reverse the judgments of the court of appeals and render judgments for
petitioners.
I
Two separate suits were brought in the same trial court by the same lessors against the same defendants. The first suit
involved two leases; the second suit involved a third lease. The cases were not consolidated in the trial court or the
court of appeals, and the court of appeals issued an opinion in each case.[1] We consolidated the cases in this Court.
For ease of reference, we will refer to the first-filed suit as Pool 1,[2] and the second as Pool 2.[3]
In Pool 1, two leases were executed by J. T. Sneed and his wife in 1926 and 1936, respectively. In a separate
agreement, the leases were consolidated as to a portion of the lands they covered for purposes of natural gas
exploration and production. The 1926 lease at issue in Pool 1 provided it would remain in effect for a term of ten years
and Aas long thereafter as oil or gas, or either of them, is produced from said land by the lessee.@ The 1936 lease
similarly provided that it would remain in effect Aso long as natural gas is produced.@
A well, known as the J. T. Sneed #1 well, was drilled on the consolidated acreage, and it produced gas until a
replacement well was drilled in 1994. The replacement well has produced without interruption. But according to
records from the Texas Railroad Commission, there were periods of time when there was no production from the J. T.
Sneed #1. Those periods were in August 1941, June through September 1963, July and August 1964, June 1979,
March 1983, and July 1984. There is evidence that the J. T. Sneed #1 did not produce for 122 consecutive days in the
summer of 1963 and for 62 consecutive days in 1964. The other periods of non-production were shorter.
The lease at issue in Pool 2 was executed in 1937. It provided that A[s]ubject to the other provisions herein contained,
this lease shall remain in force pending the commencement and continuation of drilling operations on said land as
hereinafter provided, and as long thereafter as natural gas is produced and marketed from any well on said land.@
Two producing wells were drilled on the acreage covered by the lease at issue in Pool 2. However, there was no actual
production from either of these wells in August 1959, July and August 1960, June and July 1961, June through
October 1963, July and August 1964, and June 1969. The periods of no actual production ranged from 30 to 153 days.
Another well was drilled on the Pool 2 lease in 1996, and it has produced in paying quantities without interruption.
The plaintiffs in the trial court, who are the respondents in this Court, are the successors of the Sneeds= interests in all
three leases, and they contend that the leases terminated due to cessation of production. They brought suit to quiet title,
for trespass, conversion, and fraud, and for actual and exemplary damages. The defendants in the trial court, who are
the petitioners in this Court, are Natural Gas Pipeline Company of America, MidCon Gas Services Corp., and
Chesapeake Panhandle Limited Partnership. They are the current owners and operators of the leases. For simplicity, we
will refer to them as the lessees. They contend that the leases did not terminate because there has been production in
paying quantities at all times, notwithstanding the periods of non-production, or that production was restored within a
reasonable period of time under the temporary cessation of production doctrine. In the alternative, the lessees contend
that the lessors= claims are barred by laches, or that the lessees obtained a fee simple determinable in each of the
mineral estates by adverse possession.
In both suits, the trial court granted motions for partial summary judgment in favor of the lessors, declaring in the
partial summary judgment that the leases had terminated Adue to one or more cessations of production from said
land.@ The trial court then tried the remaining issues in Pool 1 to a jury. In a verdict largely favorable to the lessees,
the jury found that the lessees had produced gas in good faith after August 1964 and failed to find that the lessees had
produced gas after 1964 as a result of fraud. The jury also found that the lessees= failure to produce gas was excused
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because the lessors were guilty of laches, and that the lessees had acquired title to the leases by adverse possession
under the three-, five-, ten-, and twenty-five-year statutes of limitations. However, the jury found that the lessors had
not executed any formal document that expressly recognized the validity of the leases and thus that the leases had not
been revived. The trial court rendered judgment notwithstanding the aspects of the verdict that were favorable to the
lessees. The trial court declared that the two leases had terminated, and based on stipulated damage calculations,
awarded $234,766.20 in actual damages to be paid by Natural Gas Pipeline and MidCon, and $545,416.79 in actual
damages to be paid by Chesapeake Panhandle.[4] The trial court also awarded attorneys= fees and costs to the lessors.
The trial court tried the remaining issues in Pool 2 to a different jury in a trial that began a few days after the
conclusion of the Pool 1 trial. Unlike the jury in Pool 1, the jury in Pool 2 rendered a verdict that was entirely
favorable to the lessors. The jury found that the lessees had acted in bad faith in producing gas after August 1964, that
the lessees produced gas after that date as a result of fraud, that the lessors were not guilty of laches, that the lessees
did not acquire title by adverse possession, and that the lessors had not executed any formal document that expressly
recognized the validity of the lease and thus that the lease had not been revived. The trial court rendered a judgment
declaring that the lease had terminated, that the lessees were jointly and severally liable for $1,522,754.93 in actual
damages, that the lessors recover exemplary damages of $1,200,000 from Natural Gas Pipeline Co., $1,200,000 from
MidCon and $1,200,000 from Chesapeake Panhandle, and awarded attorneys= fees, costs, and prejudgment interest.
The lessees appealed both judgments. In Pool 1, the court of appeals held that the leases had terminated due to
cessation of production, the lessees could not establish adverse possession even if they were trespassers because they
had not given notice of repudiation of the lessors= title, laches was not a defense, the lessors were not entitled to
attorneys= fees because the suit was essentially a trespass to try title action rather than an action for declaratory
judgment, and certain offsets should be applied to reduce damages. The court of appeals accordingly modified and then
affirmed the trial court=s judgment.[5]
In Pool 2, the court of appeals held that the lease had terminated due to cessation of production, laches was unavailable
as a defense, the lessors= execution of division orders did not revive the lease, the lessees did not establish adverse
possession because there was no notice to the lessors that the lessees repudiated the lease, the evidence did not support
the fraud finding and therefore exemplary damages were not recoverable, the evidence supported the finding that the
lessors had produced gas in bad faith, the two-year limitations periods applied to the trespass and conversion claims
for recovery of actual damages, and the lessors could not recover attorneys= fees. The court of appeals affirmed the
trial court=s judgment as modified.[6]
We granted the lessees= petitions for review. Because the lessees established adverse possession as a matter of law,
and resolution of that issue is dispositive, we do not reach other issues presented by the lessees= petitions.
II
In Texas it has long been recognized that an oil and gas lease is not a Alease@ in the traditional sense of a lease of the
surface of real property.[7] In a typical oil or gas lease, the lessor is a grantor and grants a fee simple determinable
interest to the lessee, who is actually a grantee.[8] Consequently, the lessee/grantee acquires ownership of all the
minerals in place that the lessor/grantor owned and purported to lease, subject to the possibility of reverter in the
lessor/grantor.[9] The lessee=s/grantee=s interest is Adeterminable@ because it may terminate and revert entirely to
the lessor/grantor upon the occurrence of events that the lease specifies will cause termination of the estate.[10] In the
cases before us today, the lessors retained only a royalty interest. When an oil and gas lease reserves only a royalty
interest, the lessee acquires title to all of the oil and gas in place, and the lessor owns only a possibility of reverter and
has the right to receive royalties.[11] A royalty interest, as distinguished from a mineral interest, is a non-possessory
interest.[12]
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A mineral estate, even when severed from the surface estate, may be adversely possessed under the various statutes of
limitations.[13] Once severance occurs, possession of the surface alone will not constitute adverse possession of
minerals.[14] Generally, courts across the country including Texas courts have said that in order to mature title by
limitations to a mineral estate, actual possession of the minerals must occur.[15] In the case of oil and gas, that means
drilling and production of oil or gas.[16]
In order to acquire title under a statute of limitations, that statute=s requirements must be met. In these cases, we
consider the three-, five-, and ten-year statutes of limitations. Suit was filed in both cases more than ten years after the
last cessation of actual production. The last period of nonproduction occurred in 1984 in Pool 1 and in 1969 in Pool 2.
Both suits were filed in 1998.
The three-year statute of limitations says: AA person must bring suit to recover real property held by another in
peaceable and adverse possession under title or color of title not later than three years after the day the cause of action
accrues.@[17] The five-year statute says,
(a) A person must bring suit not later than five years after the day the cause of action accrues to recover real property
held in peaceable and adverse possession by another who:
(1) cultivates, uses, or enjoys the property;
(2) pays applicable taxes on the property; and
(3) claims the property under a duly registered deed.[18]
The jury in this case was instructed that Aan oil and gas lease is to be considered as a deed.@ The ten-year statute of
limitations requires suit to be brought within ten years Ato recover real property held in peaceable and adverse
possession by another who cultivates, uses, or enjoys the property.@[19]
AAdverse possession@ is defined in the Civil Practice and Remedies Code as Aan actual and visible appropriation of
real property, commenced and continued under a claim of right that is inconsistent with and is hostile to the claim of
another person.@[20] APeaceable possession@ is defined as Apossession of real property that is continuous and is not
interrupted by an adverse suit to recover the property.@[21]
The court of appeals concluded in these cases that the lessees= continuation of oil and gas operations and possession of
the minerals after the leases terminated[22] was not adverse because no notice of repudiation had been given to the
lessors. The court reasoned in Pool 2 that because the lessees= original possession of the mineral estate was permissive,
adverse possession could not be established Aunless notice of the hostile nature of the possession or repudiation of [the
record title owners=] title is clearly manifested.@[23] The court of appeals employed similar reasoning in Pool 1.[24]
We first consider the relationship between the parties, which guides us in determining whether the lessees= possession
was adverse. The parties to the leases were not co-tenants. As discussed above, the lessors retained only a royalty
interest and the possibility of reverter. The lessors had no right to possess, explore for, or produce the minerals. The
exclusive right to do so was conveyed to the lessees. Accordingly, even when the lease was in effect, there was no co-
tenancy.[25] More importantly, if the leases terminated as the lessors contend, the lessees retained no interest
whatsoever in the minerals. The entire mineral interest reverted to the lessors. There was no co-tenancy.
A lessee=s position after a lease expires is more analogous to one holding over after the execution of a deed or after a
judgment vesting title in another is entered. We have long said that Aas a general rule, a party holding over after the
execution of a deed or the rendition of an adverse judgment is merely a permissive tenant.@[26] In such
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circumstances, Apossession cannot be considered adverse until the tenancy has been repudiated, and notice of such
repudiation has been brought home to the titleholder.@[27] But we have said that actual notice of repudiation is not
required. Rather, notice can be inferred, or there can be constructive notice.[28]
This Court held in Tex-Wis Co. v. Johnson that a Ajury [may] infer notice of a repudiation without any change in the
use of the land,@ if there has been Along-continued use.@[29] In Tex-Wis, the Court cited some of its early decisions
to that effect. One of those decisions was Vasquez v. Meaders.[30] This Court said in that case:
It is not necessary that actual notice of adverse claim and disseisin be given to the landlord. It is sufficient if
constructive notice is given, and constructive notice will be presumed where the facts show, as they do in this case,
that the adverse occupancy and claim of title to the land involved in this suit has been long continued, open, notorious,
exclusive and inconsistent with the existence of title in the respondent.[31]
The Court also quoted at length from the decision in Mauritz v. Thatcher:
It is the settled law in this state that a tenant cannot dispute the title of his landlord by setting up a title either in
himself or in a third person during the existence of his tenancy until such notice of a termination thereof is given to the
landlord as amounts to an actual disseizin. Limitation upon an adverse possession in a case of this kind begins to run
from the time of such notice of a termination of tenancy. It is not necessary, however, that actual notice of an adverse
holding and disseizin be given to a cotenant or owner. Such notice may be constructive and will be presumed to have
been brought home to the co tenant or owner when the adverse occupancy and claim of title to the property is so long
continued, open, notorious, exclusive and inconsistent with the existence of title in others, except the occupant, that the
law will raise the inference of notice to the co tenant or owner out of possession, or from which a jury might rightfully
presume such notice.[32]
This Court had articulated the same principles even earlier in Moore v. Knight.[33] The Court also said in Moore that
the failure of the record titleholder to assert a claim during long-continued possession was highly significant from an
evidentiary perspective: ALong-continued possession and assertion of claim by one tenant with nonclaim on the part
of one out of possession has always been regarded as a strong circumstance tending to authorize an inference of notice
of the adverse possession.@[34]
In this case, the lessors asserted no claim for at least fourteen years with regard to the Pool 1 leases, and for at least
twenty-nine years with regard to the Pool 2 lease. That is a strong circumstance tending to authorize an inference of
notice of adverse possession. There is also uncontroverted evidence that the lessees= long-continued possession was
Aopen, notorious, exclusive, and inconsistent with the existence@ of title to all the minerals in the lessors.
It is important to bear in mind that the lessees were not required to give actual or constructive notice that they were no
longer claiming an interest under the leases, but instead that they were claiming an interest that was inconsistent with
the lessors= title to all the minerals when the leases expired. Thus, it was not the leases that the lessees must have been
adverse to, but the lessors= fee title to all the minerals after the leases allegedly terminated. The lessees continued to
claim rights under the leases, and it was that claim that was adverse to the lessors= fee title, unencumbered by the
leases.
It is also important to recognize that the holding over of an oil and gas lessee after the lease has expired can differ
from a tenant of the surface with regard to what is Aopen, notorious, exclusive, and inconsistent.@ A tenant of the
surface that holds over and does nothing more than continue to occupy the premises as before, paying the same rent as
before, is not in the same position as an oil and gas lessee who holds over. Surface leases do not typically contemplate
that the tenant will remove permanent fixtures on or improvements to the property or consume or destroy the property
itself. But an oil and gas lease contemplates that the mineral estate itself may be permanently and irrevocably depleted
by removing and exhausting the minerals. An oil and gas lessee that holds over continues to physically remove and
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dispose of the very valuable, non-renewable minerals for its own account. Such actions are by their nature hostile to
the lessor=s ownership of all the minerals in place once the lease expires and the mineral estate reverts to the lessor in
its entirety.
In both of the cases before us, the court of appeals relied on a decision from this Court, Killough v. Hinds.[35] In the
Killough case, Hinds acquired an oil and gas lease on forty acres of land, the surface of which was owned by the
Killoughs or their predecessors. Hinds and his wife were given permission by the surface owners to construct a home
on the property. Hinds later sold his interest in the oil and gas lease to a third party, but he and his wife continued to
live on the surface of the property. This Court held that Hinds had failed to establish title to the surface under the ten-
year statute of limitations because Athe erection of the barn, pig pen, chicken house and the grazing of milk cows, all
of which were relied on to show adverse possession,@ were not Ainconsistent with the permissive use and the right by
which Hinds entered upon and occupied the property and built his residence, nor are they sufficient as a matter of law
to afford the record owner constructive notice of a repudiation of that permissive use.@[36]
In Killough we relied on and quoted from an earlier decision of this Court, Evans v. Templeton,[37] in explaining
Athe character of evidence necessary to show constructive notice of repudiation to the record owner.@[38] Quoting
Evans, we said:
In order to make the plea of limitation effectual in such case, he must show some notorious act of ownership over the
property, distinctly hostile to the claim of the grantee; and the adverse possession after this must continue for a
sufficient length of time before suit to complete the statutory bar. The Apossession must not only be actual, but also
visible, continuous, notorious, distinct and hostile, and of such a character as to indicate unmistakably an assertion of
claim of exclusive ownership in the occupant.@[39]
There is evidence of a Anotorious act of ownership over the property, distinctly hostile to the claim of the@ lessors
that Aindicate[s] unmistakably an assertion of claim of exclusive ownership@ to show notice in the cases before us
today. Assuming that the leases terminated because of cessation of actual production, an issue that we again note we
are not deciding, the character of the lessors= real property interests changed dramatically and instantaneously, as did
the lessees= interests, as we have explained above. The lessors had owned a mere possibility of reverter in the
respective mineral interests as long as the leases covering those interests remained in effect. The lessors had no right to
possess or explore for minerals. That right had been granted in toto to the lessees. The lessees had the right to explore
for and remove all of the oil and gas from the premises, subject only to the obligation to pay royalties on the oil and
gas that was actually produced. And if the lessees did not properly account to the lessors for that royalty, the leases
would not terminate. The lessors would be relegated to bringing suit to recover the unpaid royalties. As long as the
leases continued in effect, the lessees were entitled to recover and sell one hundred percent of the oil and gas, to the
point of totally exhausting those valuable resources. Once the leases terminated, the lessees had no right to explore for,
produce, or sell any of the oil and gas, much less one hundred percent of all that was produced. Those rights reverted
to the lessors. Thereafter, it was the lessors that had the exclusive right to all the proceeds from production, subject
only to an equitable accounting to the former lessees for the actual cost of production.
After the leases allegedly terminated, the lessees= continued production and sale of all the oil and gas and payment of
royalty on only a relatively small percentage of the proceeds was open, notorious, and hostile to the lessors, who
received payments each month of only a 1/8 royalty for more than ten years after they say the leases terminated.[40]
Moreover, the lessees drilled new wells after the time the lessors contend the leases terminated. The act of drilling
wells is an act hostile to the lessors= exclusive right to explore for and remove the valuable minerals as well as the
lessors= exclusive right to make the decision whether to drill and therefore impact the speculative value of the mineral
estate if the well were unsuccessful.
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Our conclusion is consistent with the Fifth Circuit=s decision in St. Louis Royalty Co. v. Continental Oil Co.,[41] in
which the facts were similar to those before us today. In St. Louis Royalty Co., the lessors brought suit long after the
lessees had conducted successful exploration, drilling, and production operations, contending that the lease had expired
many years earlier because there was no actual production during the primary term. The lease had a 60-day drilling
clause, and a well had been successfully drilled during the 60-day period after the primary term expired. The Fifth
Circuit held that the well maintained the lease under the 60-day clause. But that court also held, as an alternative
ground, that the lessees Aby open, notorious, and adverse possession for more than five years with payment of taxes,
under a claim of right brought home to plaintiff, acquired a good and perfect title, to the leasehold interest.@[42] The
opinion in St. Louis Royalty Co. further observed that Athe things [lessees] were doing were not done secretly and in
a corner, but openly and in the face of all the world, with full knowledge thereof brought home to plaintiff and its
predecessors in title.@[43] Our Court later described St. Louis Royalty Co.=s alternative holding and the facts
supporting it, saying,
[T]he plaintiff and its predecessors in title, although fully informed of the lessee=s claim to and operations under the
lease, did not assert that the same had terminated until some ten years after the end of the primary term, during which
time the lessee had developed the property by drilling seven producing wells. . . . The [Fifth Circuit] then went on to
say that if the leases had lapsed, the plaintiff was still not entitled to recover because the evidence established as a
matter of law that the defendants had perfected a limitation title to the leasehold estate.[44]
In the cases before us today, the fact that the lessees were claiming the right and title to all of the production and the
right to drill and explore for oil and gas, subject only to the royalty obligation, was open and notorious and was hostile
to the lessors= claim that all title and interest reverted to the lessors and that the lessees ceased to own any interest in
the minerals. As one noted treatise has concluded, Aa lessee who develops and produces under a lease which
previously terminated may acquire title to such lease by adverse possession.@[45]
The lessors also contend that the lessees= possession was never Aadverse@ because the lessees did not recognize that
the leases had terminated when they continued operations and therefore lacked the requisite intent to adversely possess
the mineral interests. Our decision in Calfee v. Duke[46] leads us to disagree with this contention. In that case, Calfee,
an heir to J.H. Duke, occupied approximately 248 fenced acres of land. His deed from his parents did not include 24 of
those acres. The other Duke heirs brought a trespass to try title suit, claiming that they and Calfee became co-tenants
upon Calfee=s parents= death with regard to the 24 undeeded acres. We observed that Calfee Anever thought of
himself as claiming adversely to anyone for the simple reason that he thought he was the rightful owner and had no
competition for that ownership.@[47] We held that this satisfied the statute=s requirement of adverse possession:
That being his claim of right, and it being coupled with his actual and visible possession and use, the adverse claim
and possession satisfy the statutory requirements and cannot be defeated by Calfee=s lack of knowledge of the
deficiency of his record title or by the absence of a realization that there could be other claimants for the land.[48]
In the cases before us today, the lessors essentially contend that the lessees should have notified them that the leases
had terminated and that the fee interest in the minerals had reverted to the lessors. This is tantamount to saying that the
running of limitations is suspended until the record titleholder obtains actual knowledge of what it owns. This is a
novel proposition indeed. It would mean, for example, that limitations would be suspended whenever heirs did not
realize that they had inherited an interest. That has never been the law in Texas. A record titleholder=s ignorance of
what it owns does not affect the running of limitations. The lessees= possession of the mineral estates in the cases
before us today was adverse, and all the requirements of the three , five-, and ten-year statutes of limitations were met.
Statutes of limitations require someone with a claim to assert that claim within a specified period of time, and the
statutes of limitations dealing with real property are no different. The Legislature has required those claiming an
interest in real property to Abring suit@ within certain periods of time.[49] Statutes of limitations are designed Ato
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compel the assertion of claims within a reasonable period while the evidence is fresh in the minds of the parties and
witnesses@[50] and to Aprevent litigation of stale or fraudulent claims.@[51] The lessors in the cases before us
contend that title reverted to them a number of years ago, perhaps as long as 57 years before suit was filed under the
Pool 1 leases, and as long as 39 years before suit was filed under the Pool 2 lease. The last occasion when title could
have reverted under the Pool 1 leases was 14 years before suit was filed, and for the Pool 2 lease, it was 29 years.
These are the types of claims that statutes of limitations were intended to foreclose.
Our decision should not be read as awarding fee simple absolute interests to the lessees in the oil and gas resources at
issue. The lessees acquired the same interest that they adversely and peaceably possessed, that is, the oil and gas
leasehold estates as defined by the original leases.[52] Those interests are fee simple determinable interests in the
respective properties on the same terms and conditions as the original leases. The terms that made the original mineral
estates Adeterminable@ continue to apply to the fee simple determinable interests acquired by adverse possession.
The court of appeals accordingly erred in failing to hold that the lessees acquired leasehold interests by adverse
possession.
III
In Pool 1, the lessors have brought forward a cross point in which they contend that some of the instructions and
definitions in the trial court=s charge to the jury on the limitations issues were incorrect. Among these complaints is
the contention that the definition of ANotice of repudiation@ accompanying the question regarding the ten-year statute
of limitations allowed the jury to find adverse possession based on Along-continued@ possession coupled with a
repudiation that occurred less than ten years before suit was filed. The trial court=s instruction said in pertinent part:
You are instructed that, with respect to this question only, Aadverse possession@ means that the Plaintiffs or their
predecessors as titleholders, had notice that the Defendants= gas lease has been repudiated, and Defendants were in
peaceable and adverse possession of the lease and drilled for or operated and produced gas from wells thereon and
used or enjoyed the property under a title instrument for a period of ten (10) years after August of 1964. For purposes
of this instruction, a gas lease is to be considered as a title instrument.
ANotice of repudiation@ may be inferred to have been brought home to a titleholder where there has been long-
continued possession by the adverse possessor under a claim of ownership coupled with the non-assertion of claim by
the titleholder; by Anon-assertion of claim by titleholder@ means the absence of an overt act of ownership on part of
the record owner which is inconsistent with the possession of the adverse possessor.
The language explaining Anotice of repudiation@ substantially tracks the holding of this Court in Tex-Wis Co. v.
Johnson,[53] which concerned the fee simple title to a tract of land. This Court said, A[W]e hold that the jury may
infer that notice of repudiation has been brought home to the titleholder where there has been (1) long-continued
possession under claim of ownership and (2) nonassertion of claim by the titleholder.@[54] In that case, Alexander
lost title to 96 acres of a 150-acre tract in foreclosure proceedings. He, and after him his family, nevertheless continued
to occupy the entire 150-acre tract for 34 years, from 1921 to 1955, without any intervening claim by the record
titleholder.[55] This Court held that this extended period of time was evidence from which the jury could infer notice
of repudiation to the record titleholder.[56] The Court explained that its holding was an application of rules regarding
circumstantial evidence:
[Our holding] is nothing more than an application of the rule of circumstantial evidence that the existence of certain
facts tends to support a reasonable inference that the record owner has been put on notice that the tenancy has been
repudiated. To this extent, both satisfy the rationale for requiring such notice. Where a tenancy relationship has arisen,
the landlord is normally justified in assuming that the tenant=s use of the premises is permissive and in recognition of
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the landlord=s title. However, under certain circumstances, this assumption ceases to be justifiable. Thus acts which are
inconsistent with the original use of the property may be sufficient to put the owner on notice that the tenancy has been
repudiated. The same has been held to be true in cases of long-continued possession by the tenant under claim of
ownership where the landlord has failed to assert any claim. Under such circumstances, the jury may find that
continued reliance on the tenancy by the landlord was unreasonable and unwarranted.[57]
We further explained that the extended period of possession must have occurred and thus have constituted notice of
repudiation before the applicable statute of limitations began to run.[58] We reiterated what had been said in Sweeten
v. Park,[59] which was that possession for three and one-half years before the limitations period began was
insufficient.[60] But we said in Tex-Wis that A24 years in excess of the 10-year statutory period falls within the
Mauritz[61] rule, as constituting >long-continued= possession.@[62]
In Pool 1, the first period when there was no actual production under the leases occurred in 1941, 57 years before suit
was filed and 47 years before the ten-year statute allegedly began to run. The last period of nonproduction occurred in
1984, fourteen years before suit was filed and four years before the ten-year statute allegedly began to run. It is thus
unclear why the date of August 1964 was used in the instruction regarding the ten-year statute of limitations. But we
need not parse through whether another date should have been used, or whether a four-year period of possession
before a ten-year period of possession occurred would be adequate to comport with the Along-continued possession@
principles set forth in Tex-Wis and the cases cited therein. For the reasons discussed above in section II, as a matter of
law, the lessors were put on notice that the lessees= claims were hostile to the claim that the lease had terminated when
the lessees continued to operate the leases, produce oil or gas, sell it, and pay only a royalty to the lessors. Adverse
possession under the ten-year statute was conclusively established. Any error in the charge to the jury was harmless.
And, because adverse possession under the ten-year statute of limitations was established as a matter of law, we need
not consider whether there was any error in the charge to the jury regarding the three- and five-year statutes of
limitations.
IV
As noted throughout this opinion, we have not reached the question of whether the leases terminated due to cessation
of production. Specifically, it is unnecessary to decide whether the terms Ais produced@ or Aso long as natural gas is
produced@ as used in the leases before us mean that the leases would terminate whenever actual production ceased, or
instead, whether the leases would terminate only when production in paying quantities ceased. Nor do we decide
whether the doctrine of temporary cessation of production includes or should include cessation of production for
economic reasons.
The dissent contends that in deciding these cases based on statutes of limitations, we have Aput[] the cart before the
horse.@[63] The dissent proposes that these cases be remanded for a trial of fact issues that it concludes are raised
under its view of the temporary cessation of production doctrine.
For reasons of judicial economy, this Court has long required that dispositive issues must be considered and resolved
and that a judgment moving the case to the greatest degree of finality must be rendered. We held in Bradleys= Electric,
Inc. v. Cigna Lloyds Insurance Co. that when a party presents multiple grounds for reversal of a judgment on appeal,
appellate courts should first address issues that would require rendition.[64] In accord with that principle, in CMH
Homes, Inc. v. Daenen, we addressed whether the evidence was legally sufficient to support the judgment, and
concluding that it was not, rendered judgment without considering whether venue was proper.[65] Any error in venue
would have only required a remand.[66] We similarly have admonished courts of appeals that A[p]rior to ordering a
remand, points calling for rendition of judgment should be considered.@[67] The disposition of the statutes of
limitations questions resolves the cases before us, and therefore, we do not reach other issues presented.
* *
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For the foregoing reasons, we hold that the court of appeals erred in failing to hold that the lessees in these two cases
acquired fee simple determinable mineral estates by adverse possession. Accordingly, we reverse the judgments of the
courts of appeals and render judgments for the lessees.
Priscilla R. Owen
Justice
OPINION DELIVERED: December 19, 2003
[1] 30 S.W.3d 618; 30 S.W.3d 639.
[2] 30 S.W.3d 639.
[3] 30 S.W.3d 618.
[4] The lessees contended in the court of appeals that the damages awarded represented the amounts they had received
for 7/8 of the gas produced, plus transportation costs, from a date four years before suit was filed until trial. The
lessees argued that damages should have been calculated from only two years before suit was filed. The lessors
contended, and the court of appeals held, that the stipulated amount correctly included damages from only two years
before suit was filed. 30 S.W.3d at 648.
[5] 30 S.W.3d at 652-53.
[6] 30 S.W.3d at 638-39.
[7] Cherokee Water Co. v. Forderhause, 641 S.W.2d 522, 525 (Tex. 1982).
[8] See W. T. Waggoner Estate v. Sigler Oil Co., 19 S.W.2d 27, 28-29 (Tex. 1929).
[9] Id.
[10] Id.; Cherokee Water Co., 641 S.W.2d at 525.
[11] See W. T. Waggoner Estate, 19 S.W.2d at 28; see also Walker, Fee Simple Ownership of Oil and Gas in Texas, 6
Tex. L. Rev. 125, 128-29 (1928).
[12] Concord Oil Co. v. Pennzoil Exploration and Prod. Co., 966 S.W.2d 451, 459 (Tex. 1998); see also Walker, The
Nature of the Property Interests Created by an Oil and Gas Lease in Texas, 7 Tex. L. Rev. 539, 547-48 (1929).
[13] See Hanks v. Magnolia Petroleum Co., 14 S.W.2d 348, 354 (Tex. Civ. App.BEastland 1928), aff=d, 24 S.W.2d 5
(Tex. Comm=n App. 1930, judgm=t adopted) (holding on rehearing that title to an oil and gas leasehold had been
acquired by adverse possession under the five-year statute of limitations); Lyles v. Dodge, 228 S.W. 316, 317 (Tex.
Civ. App.BAmarillo 1921, no writ); Wallace v. Hoyt, 225 S.W. 425, 426 (Tex. Civ. App.BAustin 1920, writ ref=d); see
also Mohoma Oil Co. v. Ambassador Oil Corp., 474 P.2d 950, 960 (Okla. 1970).
[14] See Elliott v. Nelson, 251 S.W. 501, 504 (Tex. 1923).
[15] See Hunt Oil Co. v. Moore, 656 S.W.2d 634, 641 (Tex. App.BTyler 1983, writ ref=d n.r.e.); Lyles, 228 S.W. at
318 (citing Gill v. Fletcher, 78 N.E. 433 (Ohio 1906) and Gordon v. Park, 100 S.W. 621 (Mo. 1907)); Mohoma Oil
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Co., 474 P.2d at 960; Hope Land Mineral Corp. v. Christian, 570 N.W.2d 268, 271 (Mich. Ct. App. 1997); Thomas v.
Rex A. Wilcox Trust, 463 N.W.2d 190, 192 (Mich. Ct. App. 1990).
[16] See generally Hunt Oil Co., 656 S.W.2d at 641.
[17] Tex. Civ. Prac. & Rem. Code ' 16.024.
[18] Id. ' 16.025(a).
[19] Id. ' 16.026(a).
[20] Id. ' 16.021(1).
[21] Id. ' 16.021(3).
[22] We reiterate that we do not reach whether the court of appeals correctly held that the leases had terminated.
[23] 30 S.W.3d at 629.
[24] 30 S.W.3d at 644-45.
[25] See In re Bass, ___ S.W.3d ___ (Tex. 2003).
[26] See, e.g., Tex-Wis Co. v. Johnson, 534 S.W.2d 895, 899 (Tex. 1976) (citing Sweeten v. Park, 276 S.W.2d 794
(Tex. 1955) and Kidd v. Young, 190 S.W.2d 65 (Tex. 1945)).
[27] Id.
[28] Id.
[29] Id.
[30] 291 S.W.2d 926 (Tex. 1956).
[31] Id. at 928.
[32] Id. at 929 (quoting Mauritz v. Thatcher, 140 S.W.2d 303, 304 (Tex. Civ. App.BGalveston 1940, writ ref=d)).
[33] 94 S.W.2d 1137, 1139-40 (Tex. 1936).
[34] Id. at 1140.
[35] 338 S.W.2d 707 (Tex. 1960).
[36] Id. at 710.
[37] 6 S.W. 843 (Tex. 1887).
[38] Killough, 338 S.W.2d at 711.
[39] Id.
[40] See generally Thomas v. Rex A. Wilcox Trust, 463 N.W.2d 190, 192-93 (Mich. Ct. App. 1990) (holding adverse
possession established against co-owner of mineral interest because the other owner Ahad openly, notoriously,
exclusively, and successively possessed full working interests in the oil and gas leases under color of title@ and had
Areceived one hundred percent of the working interests proceeds generated by operation of the wells@ even though
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the co-owner owned one-half of the mineral interest).
[41] 193 F.2d 778 (5th Cir. 1952).
[42] Id. at 780.
[43] Id. at 782.
[44] Stanolind Oil & Gas Co. v. Newman Bros. Drilling Co., 305 S.W.2d 169, 172 (Tex. 1957).
[45] 1 Kuntz, A Treatise on the Law of Oil and Gas ' 10.5, at 280 (1987). We also note that the court of appeals=
decisions in the Pool cases regarding adverse possession were questioned by at least one commentator. See 3 Williams
& Meyers, Oil and Gas Law ' 604.9 n.7 (2002) (noting that the requirement of Aactual notice of adverse possession
through some type of act of repudiation after the lease has automatically terminated for lack of production . . . appears
to be inconsistent with the fee simple determinable/automatic termination feature of oil and gas leases@).
[46] 544 S.W.2d 640 (Tex. 1976).
[47] Id. at 642.
[48] Id.
[49] See, e.g., Tex. Civ. Prac. & Rem. Code '' 16.024, 16.025, 16.026.
[50] Computer Assocs. Int=l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996) (citing Price v. Estate of Anderson,
522 S.W.2d 690, 692 (Tex. 1975) and Gaddis v. Smith, 417 S.W.2d 577, 578 (Tex. 1967)).
[51] Robinson v. Weaver, 550 S.W.2d 18, 20 (Tex. 1977).
[52] See generally St. Louis Royalty Co. v. Continental Oil Co., 193 F.2d 778, 780 (5th Cir. 1952); 1 Kuntz, supra note
45 ' 10.5, at 280 (concluding that Aa lessee who develops and produces under a lease which previously terminated may
acquire title to such lease by adverse possession@); 1 Williams & Meyers, supra note 45 ' 224.1, at 355 (A[A]n adverse
possessor acquires no greater interest than that claimed . . . .@).
[53] 534 S.W.2d 895, 901 (Tex. 1976).
[54] Id.
[55] Id. at 898 n.2.
[56] Id. at 902.
[57] Id. at 901.
[58] Id. at 901-02.
[59] 276 S.W.2d 794 (Tex. 1955).
[60] Tex-Wis Co., 534 S.W.2d at 902.
[61] Mauritz v. Thatcher, 140 S.W.2d 303 (Tex. Civ. App.BGalveston 1940, writ ref=d).
[62] Tex-Wis Co., 534 S.W.2d at 902.
[63] __ S.W.3d at __ (Jefferson, J., dissenting).
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[64] 995 S.W.2d 675, 677 (Tex. 1999).
[65] 15 S.W.3d 97, 99 (Tex. 2000).
[66] Id.
[67] Lone Star Gas Co. v. R.R. Comm=n of Tex., 767 S.W.2d 709, 710 (Tex. 1989).
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