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           II~XX~_~I.

                                          Ansuat       13, 1949

              Hon. Wm. J.~Uurray,~chaiman
              Railroad Commission of Texas
              Austin, Texas                                 Opinion Ro. V-881
                                                            Re: The appllaabillty
                                                                of the Voluntary
                                                                Subdioieion Rule
                                                                to the Submitted
                                                                Facts.
              Dear Commlssloner may:
                        Your letter requesting the opinion of the At-
              torney Qeneral on the above subject reads, in part, aa
              follows:
                                .Aa Chairman of the Railroad Commls-
                        sion of Texas, I-respectfully       request an
                        opinion frOm your Department that will en-
                        able the Rallroad Commission to Uetermlne
                        whetheror not twc tracts of land In the
                        Qotiachalt fleld, ocllad County, Texw, con-
                        stitate--voluntary    subdivisions of property
                        wlthln the purview of that part of the Co,
                        ~iistilon's apaclng rules(usually referred to
                        as Rule 37) which requires the Copplfselon
                        to ignore such eubdlvlsiona when atitlng up-
                        on applications     to drill wells as exceptions
                        to the spacing rule.       This request is oc-
                        casioned by thcappllcition        of Beulah Rlnch-
                        liffe    for special permit to drill Yell lfo.
                        1-A on the Alice Luedicke lease containing
                         .06 acre of land out of ~the Veesatche toun-
                        site, A. Berq,Survey        Gottschalt ‘Field,
                        Oollad County, Texas tRnle 37, Cabe Ro.
                        37,559) and by the application of Beulah
                        Ellnchliffe for special permit to drill Well
                        Ho. 1-B on the Alice Luedicke lease contain-
                        ing .ll acre of land out of the Weesatche
                        townsite, A. Berry Survey; Gottschalt Field,
                        Qollad County, Texas (Rule 37 Case Ro.
                        37,560). The facts are these:
Hon. Um. J. Uurray, Page 2   (V-881)


           “One of the tractu of land in question,
    referred to in the record as the ‘saloon
    tract’ of .06 acre, has been a separate tract
    since January 31, 1934 when C. C. Luedlcke
    and wife, who 0uned.a traot of approximately
    45.25 feet ln width conveyed the east 23.25
    seekeof such tract do Oe 0. and HermanLua-
              Insofar as the record made beioro the
    Commikon shows, the conveyance x18 made in
    order that 0. a. and Reman Luedicke tight
    own the saloon or tavern located on the east
    23.25 feet.
          “Through‘mesne conveymoee, title to the
     23.25 foot strip became vested in Calvin Lue-
     dlcke on November 17 1944. Testimony before
     the Commission wan &at Calvin Luedlcke pur-
     chased the Btrlp in order that he right own
     and operate the Baloon or tavern looated there-
     on.
           ‘On March 13, 1948, Mrs. Alice Luedlcke,
     wldor of Calvin Luedlcke, executed an 011 and
     gas lease covering the 23.25 foot tract. This
     011 and gas lease Is non owned by Reulah
     Hinchliffe.   Insofar as the record made be-
     fore the Comlaelon shows, this Is the first
     and only lease executed on this tract.
            “The other tract of land in pueation,
     referred to in the record as the elau@ter-
     house tract’ of .I1 ame, MB ,mnstltuted a
     separate parcel Of land since January 8, 1946,
     when Calvin Luedlcke and rife, who then owned
     a tuo acre tract, conveyed all of said two
     acres to Wlllle C. Lude except a tract of 80
     feet by 60 feet upon which a slaughterhouse
     has been operated for many years.    It is this
     tract of 80 feet by 60 feet that constitutes
     the .ll acre tract known as the slaughter-
     house tract.
           “In so far as the record made before the
     Railroad Commlsslon shows, Willie C. Lude
     pu&%aBed all of the two acre tract except
     the -11 acre reserved by Calvin Luedicke and
     rife in order that Wlllle C. Lude and hi8
     family right live in the house on the pur-
     chased tract while the children were going
    Hon. Um. J. Hurray, Page 3   (V-881)


        to' school in the town of Weesatihe. In so
        far a8 the record made before the Railroad
        COti88iOn shou8, Calvin Luedlcke+nd rife
        reserved the .ll acre because they derlred~
        to continue to oun and operate the slaughter-
        house located thereon.
              "On March 13, 1948, ltc8. Alice Luedicke,
        wife of Calvin Luedlcke, executed an 011 and
        gas lease covering the .ll acre tract.    'Phi8
        011 and gaa lease is now owned by Beulah
        Rlnchllffe.   In Bo far as the record made
        before the Railroad Comuis8ion BhOwB,the
        .ll acre tract me never under 011 and gaa
        lease untll~ IWe. dllce Luedlcke executed the
        lease jUBt referred to.
               *Oil was dlacovered In the Oottechalt
         Field on Hay, 13, 1948. In 1930, some 18
         years before, 011 was dlscovered in the Slick
         Field loc~ated more than four mlle~s we8t of
         the Qottschalt Field.    The Slick Field Is an
         entirely separate and distinct field from,
         the oottachalt Meld.
               "The Slick Field Is the only field of
         any consequence located anywhere near the
         Qottachalt Meld.     Four IBOlated well8 have
         been drilled at points .2-l/4 mllee to 3-l/2
         s&lea from the @ottschalt Field but these
         wells either failed to produce 011 or failed
.        to lead to the di8covery of an 011 field con-     ~.
         talnlng more than one oil well.    None of euch
         wells were drilled In the Gottechalt Field.


               "(1)  Should determination of the issue
         of voluntary subdlvlslon be determined by
         reference to whether or not at the tiue of
         the fee traneactlon the tracts In question
         were reasonably thought to be productive of
         oil or gaet
                "(2) Should determlnatlon of the issue
         of voluntary subdivision be made by reference
         to the date of discovery of 011 in the 011
         E;;ii71n which the tract8 In question are lo-
Ron. Nm. J. Murray, Page 4   (V-881)


          "(3)   Should determination of the Issue
     of voluntary BubdlVl8lon be made by reference
     to the date of di8OoVery of 011 In the area
     or territory In which the tracts In question
     are locatedt
           "(4) If question Ro. 3 should be an-
     swered In the afflmtlve,   then what conetl-
     totes the @area' or @terrltorr!t
           “(5) If question lto. 3 should be an-
     swered in the afflrmatlve,  then, under the
     facts of this ca8e, would the tract8 In ques-
     tion be VOluntary BUbdiVi8iOnBt"
            Your first question seeks advice on whether
the Commleslon should conelder evidence showing a pUr-
pose or connivance to circumvent Rule 37. This is manl-
iest fr081 the langu%e "reasonably thought to be produc-
tive of oil and gas.      If the conveyance by fee wa8 made
at a time when the land was reasbnably thought to be, or
anticipated to be, productive of oil and gas, that would
be some evidence that the owner segregated the land In
order to'clrcumvent Rule 37. However, such fact would
not be conclusive that the owner purporely Intended to
avoid the rule.     Our conclusion 18 that if there 18 Sub-
stantial evidence Showing a purpose or connlVance to
avoid the rule, no exception to Rule 37 8hould be al-
lowed to prevent confiscation.     Railroad Comm.v. llagnolla
Petroleum Co., 130 Tex+ 1184, 109 S.Y.,2d 967 m)      .
          ~The rule stated In Rumble Oil and Refining CO.
v. Railroad Comuileslon, 68 S.W.2d bid> (T   Cl      P*#~
 933, error dlsm.), was quoted with appr%     lz'the
Magnoll~acase, supra, as follows:
           "It Is manifest, therefore,  that, where
     a situation which would circumvent the rule
     Is created  by voluntary act, acquiescence, or
     connivance of the parties after the rule has
     attached to the property, such sltUatlOn can-
     not be asserted as a valid ground iOr excep-
     tion to the rule.    The parties, In that event,
     are relegated to their rights as they exlsted
   _ prior to the creation of such eltuation~*
          Your second, third, and fourth queetlons are
so related that we shall dlecusa them together.    The ques-
tion of the consideration  of the date of the discovery
Hon. Wm. J. l&may,   Page 5     (V-881)


of 611 or gas has been before    our courts on several    dlf-
ferent occasions.
           In Nash v. Shell Petroleum Corp., 120 S.W.2d
522, (Tex. Clv. ApP**     36 error dlBR.) the question
was directly before the co&t a8 to whether the voluntary
8ubdlvlBlon rtlle applied to a 8ubdiriBiOn made subsequent
to the promulgation of the original spacing rule In 1919.
The facts in that case were that the tract was conveyed
'about a year before the discovery of oil In the East
Texas Field."   In holding that the subdlvlslon rule did
not apply, the court stated:
           %ule 37 as originally    passed provided
     iOr eXCePtIOn *to protect vested rights',...
     The quoted wording has been changed to read
      'to prevent conflecatlon   of property'....   We
     conclude that the two expressions were used
     eynonymously....    one of the main proposes of
     this exception waB to protect the vested right
     of capture of owners of tracts 80 small or of
     8Ueh lrrtg~lar shape as to preclude develop-
     ment under the general rule....     Raving made
     the exception, we have reached the conclusion
     that It did not have the power to llmlt It to
     8ubdlvl8lons antidating the rule....
           "The voluntary 8ubdlvlslon rule, creat-
     ed by court   construction,   waa essential to
     the preservation of the spacing rule and the
     rtated exception.     Ulthout lt.$he spacing rule
     would have been unenforceable as to anyone who
     desired to circumvent It,      It8 basis, and Viiy
     basle, is to prevent circumvention and there-
     by10 preserve and make effectual       the spacing
          . The several applications      of the volun-
     tary Bubdlvlalon rule have been predicated up-
     on this basil, -- prevention of circumvention
     of the spacing rule....      In no case, where the
     question was expressly raised, has It been
     judicially   determined that the volrmtary sub-
     division rule has been applied on the sole
     ground that the 8ubdlvl8lon post-dated the
     original promulgation of Rule 37. That rule
     as originally   promulgated did not expressly
     so provide, nor do we believe     it8 necessary
     lmpllcatlon calls for such construction.        To
     so construe it would6 as we have already stat-
     ed, be WWeaBOnable.
Ron. Wm. J. Nurray, Page 6     (V-88I)


           In Rrown v. Rumble 011 and Reflnlna Co., 126
Tex. 296, 83 S Y 24 935 (1935) the Supreme Court held
that the 8ubdi;l~lon  rule 18 a~pllcable to 8ubdlvirionB
“where Rule 37 Is in force la a certain territory.’    This
would Indicate by lmplloatlcn that Rule 37 did not apply
to certain other territory,  presumably that which Is not
a proven oil field.   This 18 further dlSCUB8edon page 8
hereof.
          In Shell Petroleum Corp. v. Railroad Commlsalon,
116 S.W.2d 439 (Tex. Clv. App., 1938         dl   1 th ere
was a subdlvl8lon (a partition among'h~~~~ aft:; i919,
but before the discovery of 011.   Thcourt,  In holding
that the permit be granted, wrote:
           'The undisputed evidence showed that at
     the time of the . . . partition . . . . the ter-
     ritory surrounding the land partitioned was
     not known nor anticipated to be productive
     of oil or gas....
             'Neither rule 37 of the 8o-called atate-
     wide application a8 promulgated by the Rall-
     road Comuission in 1919, nor any amendment
     thereto, nor any epeclai ruIe 37 ha8 an a
     pllcatlon      to territory   not kaown -3s
                                             nor an
     clpated    to be productive of oil or gas; and
     the Nie lnhlbltl~          VOlUntary 8UbdiVi8iOn Of
      lands which could have been developed a8 a
     whole In order to oircumvent the provlslons
     of rule 37 has no lDPlloatlon to BubdlvlBlon8
     of 'lands prior to the dlecorery of Oil and
     gas In the territory where the lends are lo-
      08 e . . . .     (Underecoring IS added through-
     outhls        opinion.)
          The latest case bearing upon this qUeStiOn 18
Wencker v. Railroad Commlaalon of Texas; 149 S.ii.2d 1009,
(Tex. Clv. ADD..        . In that case there was a sub-
division of am&ii     &act   after 1919 but before the dis-
covery of oil.    The Railroad Commlsslon denied a permit
on the emall tract.    The court held that the Commlsslon
erred, and that the applicant was entitled to the permit.
The first question before the court wa8:
           "1. Did the segregation of the V.8-acre
     Slaughter tract from the Slaughter l-acre
     tract, by warranty deed conveying the fee
     title to the State for highway purposes In
Hon. Wm. J. Murray, Page 7      (V-881)


     1933, nearly eight years prior to the dia-
     covery of oil or gas In the Hawkins field,
     Gotutltute a voluntary 8egregatlon In viola-
     tion of the State-wide Rule 37 then appll-
     cable to the area?"
           The court held:
            *It Is not controverted that the State
     acquired the fee title to the approximately
     5-l/2-acre   tract for highway purpose8 in 1933,
     nearly eight year8 prior to the discovery of
     oil In that area or territory.     Nor is there
     any contention that the sale of the lend for
     hlghwq purposes was. made In order to clrcum-
     vent the provision8 of any oil well spacing
     rule then In existence.     In con8equence, Ques-
     tion '1' lust be aneuered In the negative
     under the several deCiSiOn8 holding that the
     %oluntary 8ubdlvislon1 Nle LB announced by
     the Courts and as later protilgated b the
     CoEQi8BiOn   by its rule Of My 29, 193f , IS
     not applicable where a tract of land Is sub-
     divided by mere fee conveyance from a larger
     tract prior to the discovery of oil In the
     area or territory where the land Is sltuat-
     cd.,
            Ba8ed upon the above decisionr, it 18 OCROpin-
Ion that the voluntary 8ubdivl8ion rule has no appllca-
tion to subdlvl8lon8 of land by fee title conveyances for
purposes other thaii development for 011 and (a8 prlor.t.0
the dl8covery of oil or gas In the moll field,'   'kea,'
or gterrltorym where the lands are located.
            Particularly     concern@g your third question, we
conclude that while the courts have used the word8 *area=
or 'terrltory*'we     believe it evident that they mean an
"area" or l  territory'    " proven to be productive of oil or
ga8.” The word8 are not word8 of art and have no 8i@-
flcanee except in connection with what they are used.            In
this Instance thex were used In connection with the issue
of appllcablllty     of the voluntary eubdlvlslon rule who8e
purpose   Is to prevent clrcluventlon       of the rpaclng rule.
The purpore of the 8paolng Nle Is to prevent warte of
oil and gas. Accordingly,         .area" or n terrltory8 when se
used must mean an 'area' or %errltorj           productive of 011
or gas. The word8 are not capable of exact deflnltlon.
They are relative and will depend on the fact8 and clr-
cum8tances of Individual ca8e8.          In that regard, the
Hon. Wm. J-Murray, Page 8    (v-881)


courts have uniformly held that the Commlsslon is to pass
upon Issues of fact.
           In Brown v. Rumble 011 & Refining Co., 126 Tex.
296, 83 S.W.2d 935 (19351        I    1 dl        d the
Court held that the rule ~~~t"~~b~lvl~~~~~ea~pliea
"where rule 37 Is In force In a certain terrltorg.*       As
used, the words "certain territory"    could only mean a
territory  productive of oil or gas.    In Shell Petroleum
Corporation v. Railroad Commlsslon, It was held the sub-
aprior                                      to the discovery
of oil and gas In the territory    where the lands are lo-
cated.'
           Writing on the Jktlon fol;' Rehearing In the
Shell Case above, Justice Baugh stated that he agreed
that the subdlvlslon rule "should not and does not ap-
ply to Instances where one In good.fi+lth acquires fee
title to gland In                     :    It iB comnon
]oloWledRe that a                       ry" Is proven to be
productive of 011 or gas only by tk &i&g-In          of a
discovery well.   What territory is "proven" and which
la "reasonably productive of oil or gas. Is a question
of fact depending on the circumstances of each case.
           It may be argued that certain language In Gulf
Land Co. v. Atlantic Refining Co., 134 Tex. 59, 131m
26 73 (1939) I 1ays down the proposition   that no eub-
dlvl~lon of land-made aubseqtient to 1919 can be con-
ridered under any clrcunstances In granting an exception
to Rule 37 to prevent conf.lscatlon.    We would not be In
accord with that argument. In that case the Commlsslon
granted a permit to drill a well on a 2.35acre      tract
which had been senrenated from a 6.88-acre tract.      The
segregation was tide-after   the discovery of oil In Rast
Texas where the land WaB located.     The Co8wilasfon grant-
ed the permit as an exception to the rule on the ground
that It would prevent the confiscation    of property.    The
Supreme MU&i said:
            "An examlnatlon of the order or rule of
     Ray 29, 1934, hereinafter referred to as the
     rule of May 29th. will show that subdlvl8lons
     of land, as such, which have or hereafter may
     come into existence after rule 37 became ef-
     fective,   are not protected at all against
     confiscation.    Whenrule 37 and the rule of
     May 29th are read together, It Is evident
     that exception permits may be Issued to pro-
     tect such tracts from waste; but such exception
Eon. Wm. J. Murray, Page 9         (V-881)


        permits cannot be Issued to protect    such
        tracts, as such, from conflacatlon.R
          The court then quoted a rectlon from the rule
of May 29th and~sald:  ?To our minds, language could not
be made plainer, or more all-1nc1ua1ve."  F~llowlng that
statement, the court said on page 83 of the oplnlont
               'Under such a record, there Is no pos-
        sible escape from the conclusion that, a8 a
        matter of law, the Commission violated Its
        rule of May 29th In granting this well permit
        to prevent a confiscation     of property.  AS
        already shown, this Dermlt Is on a tract of
        2.35 abrea of-land. -This 2.35 acre tract wa8
        constituted a subdivision after Rule 37 became
        effective   In this oil field,   and a8 to this
         an.
             It Is significant to note also that the court
cited    with approval the rule which we have quoted hweto-
fore    frOm Railroad COEUUiBBlOnv. Magnolia Pet. CO., Bupra.
          After a careful examination and study of the
Gulf Land Companycase, we are convinced that the rule8
 fl    therein announced were applicable to the fact8 then
~e?O~~ the court (subdlvlslon after discovery of oil) and
do not conflict  with the rule which we have cited from the
cases of Shell Pet. Corp. v. Railroad Commission; Nash 8.
Shell Pet. Corp.; Shell Pet. Corp. v. Railroad Commleslon
of Texas; and Yencker v. Railroad Caaai8slon of Texas.
‘ptie wencker   cade was decided    after the eeclelonin the
Oulf Land Companycase.    The Wencker decision, by citing
%he three previous Court of Civil Appeals decisions In
all of which writ of error was di8ni88ed, drew into line
authprlty for the rule that where a tract of land Is sub-
dlvlrled for purpose8 other than the development of oil
and gas prior to the discovery of oil In the area or ter-
ritory where the lands are located, euch eltuatlon does
not create a violation of Rule 37 80 as to prevent the
granting of a permit to prevent confiscation.
              The facts In the Oulf Land case and the facts
In all four of the Court of Cl 11 Appeals cases cited are
different.      In the Ml? Land czse the 2.35 acre tract
was subdivided after oil was dlsc&ered        and after Rule
 7 became effe&ive as to that field and as to that land.
    th     th          the aubdivislone were made
 Ee df8~ov~~yc%%l.         ?'t&s*$;t  difference
 ingulshes the cases.                LaWcase did not have
      Eon. Wm. J. Murray, Page 10   (V-881)


      any of the questions    preaentcd in those four cases or by
      your questions.     Consequently, the rules announced In
      that case should not be Interpreted as laying dam such
      an inilexlble   rule that any subdivision made subsequent
      to 1919 is an absolute bar to the granting OS an trctp-
      tlon to Rule 37 to prevent conflsaatlon.      To do so, we
      believe, would place an unreasonable aonstruotlon upon
      that opinion and would also be out of harmony with the
      languaie used by Rr. Justice Sharp in the cake of Brown
      t. Rumble oil and~Rt?inlng Co         , 126 Ttx. 296 r
        . .   935 m>l,      wherein it~sald      at page 945%
                 "Ro ln?ltxlble    rule can be announced,
           but ii an exception be necessary to meet the
           ends o? justice,     the application for such a
           permit is to be addressed to the co~~~&~slon,
           whose orders are subject to review by the
           courts. "
                Your fifth queetion asks whether "under the
      facts o? this cast, would the tracts In question be vol-
      untary subdivisions?*    We'feel that this question pre-
      sents a ouestion of fact uhich should be dettrsnintd by
      the Cod&Ion.       kksequentlg,  we do not pass upon this
      question.  As stated in Rroun v. Rumble Oil i%ndRe?ining
                    "All questions of fact art prlmarllJ for the
      %&.%~'to       determlne."
                               SURMARY
              ~. 1. In determining the Issue of volun-
           tary subdivision,  the Railroad Commlssion
           should consider whether or not at the time
           of the fee transaction the tracts in question
           were in proven territory  or in an area reason-
           ably thought to be productive of 011 and gas.
           I? the tracts in question were reasonably
           thought to be productive of 011 or gas, that
           would be evidence, though not conclusive evl-
           dence, of a purpose, acquiescence, or con-
           nivance to circumvent rule 37, And i? such
           ultimate fact Is aumorted br substantial
           evidence, then a denial of the permit should
           be upheld. Railroad Commlsslon v. Ragnolla
           Petroleum Co., 130 Tex. m,     1OmW. . 26 9b7

/ii
                2. The voluntary subdlvlslon rule does
           not apply where tracts of land are segregated
Eon. Wq. J. Murray, Page 11   (V-881)


    by fee title conveyancefor purposes other
    than the development of 011 or gas, provided
    that at the time of swh eegregatlon the land
    was not louattd in a proven 011 or gas field.




                                   Yours very truly
                              ATTORRRY QRRRRAL
                                             OF TEXAS

                              ,==4~-
                                       Charles B. crenshar
                                                 Assistant




CEC:db




                              E&ST ASSISTAliTATTORRRY QEBE&ILL
