Gill v. Gipson

In June 1970, Wessie Mae Lowe leased land to D. L. Royals under an oil-and-gas lease. The lease provided for automatic termination if oil-and-gas production ceased for 60 consecutive days. Royals operated the well on the land until his death in 1989, when his daughter, Brenda Gipson (plaintiff), began operating the well. Royals’s interest in the lease passed to his heirs (collectively, the Royals) (plaintiffs). In July 1991, landman Preston O. Gill (defendant) presented the Royals with an offer from PRP, Inc. to purchase the lease. The Royals assigned their interest in the lease to PRP. The lease assignment reserved for the Royals an overriding royalty in oil, gas, and other minerals produced, marketed, or used from the land. The reservation-of-overriding-royalty clause also provided that if the lease expired and the assignee or any of the assignee’s agents or employees secured a future lease of the land, the Royals’ overriding royalty interest would continue. PRP subsequently assigned its interest in the lease to Trinity Oil & Gas Development (Trinity), which later assigned the lease to Gill. Gill continued production from the well and paid royalties to the Royals until October 1998, when Gill ceased production due to alleged cost overruns. The lease automatically terminated 60 days later. Gill then contacted Donald Lowe, the land’s owner at that point, and discussed entering a new lease. In March 1999, Lowe leased the land to Preston O. Gill Operating Company. Gill then put the well back into production but paid the Royals no further royalties, asserting that the Royals’ overriding royalty interest had terminated when the lease automatically terminated. The Royals sued Gill to confirm their right to the overriding royalty interest. The chancellor found that the reservation-of-overriding-royalty clause in the lease bound Gill both because Gill was PRP’s agent and because Gill had accepted assignment of the lease. The chancellor found that by ceasing production from the well, Gill had breached a duty to the Royals. The chancellor awarded the Royals damages including royalties, punitive damages, and attorney fees. Gill appealed.