084 Hammon v. Bright & Co.

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

Hamman v. Bright & Co., 924 S.W.2d 168 (Tex. App.—Amarillo 1966, no writ history) holds that a top lease violates the Texas constitutional rule against perpetuities, which provides that “[P]erpetuities . . . are contrary to the genius of free government, and shall never be allowed.” Under the Rule, no interest is valid unless it must vest, if at all, within twenty-one years after the death of some life or lives in being at the time of the creation of the interest. The court is careful to say that it does not hold all top leases violate the Rule, only that these particular top leases violate the Rule.

The Hamman Ranch was leased in 1951 and 1952 and then top leased. These top leases provided:

. . . [T]his lease shall be for a term and period (now called “primary term”) covering and embracing, and including also, ten (10) years after and subsequent to the forfeiture, or to the expiration, of said lease [bottom leases] . . .

It being particularly agreed and understood that during the existence and continuance of said prior lease that the rights, interests, estate, privileges and royalties, as fixed thereby, of said Lessors shall remain vested in and held and possessed by said Lessors, free of all claims and demands whatsoever . . . .

The Rule is not applicable to present interests or future interests which vest at their creation, so that the challenged top leases must be examined as of the date the instruments were executed. The top leases are void, if, by any possible contingency, the interest could vest outside the perpetuities period. The court reasoned that a lease creates a fee simple determinable estate in the minerals, leaving a possibility of reverter in the lessor. The possibility of a reverter is freely assignable, and because it is a presently vested interest, it is not subject to the Rule.

However, an executory interest which cannot vest until a condition precedent occurs may be void under the Rule. The Court concluded that the language in these top leases evidenced an intent that the lessors would remain fully vested with the possibility of reverter until the termination of the bottom leases. Because the top leases had the potential for vesting outside the period provided by the Rule, the top leases were void ab initio (from inception) as future conveyances of springing executory interests.

The top leases had been expressly ratified, but the court held that an agreement made in violation of the constitution or a statute is illegal and absolutely void, and is not subject to ratification. Therefore, top leases void ab initio under the Rule cannot be ratified. From the opinion it is not possible to tell how all the facts played out in this case, but it is easy to imagine the significant economic issues which might arise if a void top lease (even a ratified void top lease) is challenged after production is obtained, and the lease is void ab initio.