Freeman v. Magnolia Petroleum Co.
Supreme Court of Texas
171 S.W.2d 339 (Tex. 1943)
Freeman (plaintiff) leased oil and gas rights to Magnolia (defendant) under a ten-year unless lease that would terminate at the end of the term unless gas was being produced, with a provision letting Magnolia treat the well as producing by paying Freeman a $50 annual shut-in royalty. The well was producing but not selling gas when the ten-year term expired, and Magnolia did not pay the shut-in royalty until four months after expiration; Freeman refused the late payment and sued for a declaration the lease had terminated. The trial court treated the royalty clause as an absolute, unconditional obligation on Magnolia's part rather than a time-sensitive option, and the jury and appellate court sided with Magnolia.
Whether a lease automatically terminates when a shut-in royalty required to keep an unless lease in effect is not paid before the primary term expires.