## Facts

- On June 16, 1970, Wessie Mae Lowe leased about 84 acres in Pearl River County, Mississippi, 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 a producing well on the property until his death in 1989; his interest passed to his heirs (the Royals), and his daughter, Brenda Royals Gipson, operated the well thereafter.
- In July 1991, landman Preston O. Gill presented the Royals with an offer from PRP, Inc. to purchase the lease.
- The Royals assigned their lease interest to PRP, Inc., reserving an overriding royalty on minerals produced, marketed, or used from the land.
- The reservation also included a future-lease clause stating that if the lease expired and the assignee or any of the assignee’s agents or employees later obtained a new lease on the same land, the overriding royalty would continue.
- PRP later assigned the lease to Trinity Oil & Gas Development, and Trinity later assigned it to Gill.
- Gill operated the well and paid the Royals the overriding royalty until October 1998, when he ceased production, claiming cost overruns.
- After 60 days of nonproduction, the lease terminated by its automatic-termination provision.
- Gill then contacted Donald Lowe (the landowner at that time) about a new lease; in March 1999, Lowe leased the land to Preston O. Gill Operating Company.
- Gill restored production but paid no further overriding royalties to the Royals, asserting the overriding royalty ended when the original lease terminated.
- The Royals sued in chancery court to confirm their overriding royalty interest and recover unpaid amounts and other relief.
- After trial, the chancellor found Gill bound by the assignment and the future-lease clause (including because he acted as PRP’s agent in the transaction), found Gill breached duties owed to the Royals by letting the lease lapse and then re-leasing, and awarded royalties, prejudgment interest, punitive damages, attorney’s fees, and future royalty payments.
- Gill appealed.

## Issues

1. Whether the 1991 assignment’s reservation and future-lease clause required Gill to honor the Royals’ overriding royalty after the original lease terminated and Gill (or his company) obtained a new lease on the same land.
2. Whether Gill was bound by the clause as a successor assignee and/or as PRP’s agent involved in procuring the Royals’ assignment.
3. Whether the award of prejudgment interest was improper because it was not specifically requested in the pleadings.
4. Whether the evidence supported punitive damages and attorney’s fees.
5. Whether the future-lease clause violated the rule against perpetuities.

## Decision

- The Mississippi Court of Appeals affirmed the chancery court’s judgment.
- The court agreed the assignment language reserved an overriding royalty for the Royals and, by its terms, carried that burden forward to a later lease obtained by the assignee or the assignee’s agents or employees.
- The court upheld the chancellor’s finding that Gill was bound by the reservation and future-lease clause, both through the chain of assignments and based on the proof that Gill acted as PRP’s agent in securing the Royals’ assignment.
- The court affirmed the chancellor’s determination that Gill’s conduct in ceasing production, permitting termination, and promptly re-leasing and restarting production supported liability and relief for unpaid royalties.
- The court affirmed compensatory awards for unpaid royalties and prejudgment interest (including on the ground that the issue was tried by implied consent).
- The court affirmed punitive damages and attorney’s fees based on the chancellor’s findings of bad-faith conduct.
- The court rejected the rule-against-perpetuities challenge to the future-lease clause.

## Legal Principles

- Contract language reserving an overriding royalty and extending it to future leases obtained by the assignee (or the assignee’s agents or employees) will be enforced according to its terms.
- An assignee and a successor in the assignment chain may be held to the burdens stated in the recorded assignment, and a participant who helped procure the assignment as the buyer’s agent may not accept the benefits while avoiding its obligations.
- An operator’s deliberate lapse of a lease followed by a prompt re-lease to the operator or an affiliated entity can support findings of bad faith and justify equitable and monetary relief to protect an overriding royalty interest described in the parties’ agreement.
- Prejudgment interest may be awarded when supported by the proof and tried by express or implied consent, even if not expressly demanded in the initial pleadings.
- Punitive damages and attorney’s fees may be upheld where the factfinder determines the defendant acted in bad faith in withholding royalties.
- A future-lease clause tied to leases later obtained by identified parties (the assignee and its agents or employees) does not necessarily violate the rule against perpetuities under Mississippi law.

## Conclusion

Gill v. Gipson affirmed a chancery judgment enforcing an overriding royalty reservation that expressly continued onto a later lease obtained after the original lease terminated, where the operator stopped production, allowed automatic termination, then quickly re-leased the property through his operating company and resumed production without paying the reserved overriding royalty; the court also affirmed prejudgment interest, punitive damages, and attorney’s fees, and rejected a rule-against-perpetuities attack on the future-lease clause.


Gill v. Gipson, 982 So. 2d 415, 169 O. & G.R. 127 (2007)