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Freeman v. Magnolia Petroleum Co. - 141 Tex. 274, 171 S.W.2d 339 (1943)

Rule:

Upon cessation of production after termination of the primary term, an oil and gas lease automatically terminates.

Facts:

The lessors and lessees' oil and gas lease provided that the lease would remain in force for 10 years from April 7, 1930, as long as oil and gas was produced from the land. The lease also stated that a well from which gas was not used or sold off the premises would be regarded as a producer by virtue of the lessees paying $ 50 per year. The lessees did not pay the $ 50 royalty on or before April 7, 1940. They tendered it four months later, and the lessors declined to accept the money on the ground that the lease had terminated. Plaintiff lessors filed a petition to cancel the lease, and the lower court affirmed a judgment rendered in favor of defendant lessees. The lessors challenged the decision.

Issue:

Should the oil and gas lease be terminated for the lessee’s failure to timely pay the $ 50 royalty on or before April 7, 1940?

Answer:

Yes.

Conclusion:

The Court reversed the lower court’s decision, holding that if defendant lessees did not pay the $ 50 on or before April 7, 1940, gas was not being produced from the premises on that date, and the lease terminated for nonproduction. According to the Court, the lease lapsed as a matter of law when the lessees failed to pay the lessors, and it could not be revived by the lessee's attempt to perform the condition more than four months after the contract it should have been performed.

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