Peerless Oil & Gas Co. v. Tipken , 190 Okla. 396 ( 1942 )

Defendant Tipken owned an 80-acre tract. He conveyed to plaintiff an undivided one-half interest in the oil and gas under the north 40 acres thereof. The parties then joined in an oil and gas mining lease covering the entire tract to Yorkan Production Company. Oil was produced from the south 40, and said lessee commenced paying all the royalty to Tipken as the owner thereof. Plaintiff now seeks to establish its claim as owner in one-fourth of said royalty, alleging in substance that the effect of the lease was to communitize the entire tract for the purpose of development, giving to plaintiff that portion of the royalty from the entire 80 acres which its interest bears to the whole.

Plaintiff stood on its petition after demurrer thereto was sustained, and now appeals from the ensuing judgment for defendant.

Plaintiff says there is but one question for decision here, and that is whether an agreement between the parties to so share the royalties is expressed in the following clause contained in the lease:

"If said lessor owns a less interest in the above-described land than the entire and undivided fee-simple estate therein, then the royalties and rentals herein provided for shall be paid the said lessor only in the proportion which lessor's interests bears to the whole and undivided fee."

It is said that since plaintiff owns 20 acres of the 80, it is entitled by reason of the foregoing clause to one-fourth of the royalty from the entire tract.

It should be noted here that there is no allegation of an agreement aside from the lease or of subsequent interpretation by the conduct of the parties.

This court should take judicial knowledge of the fact that the above clause is to be found in virtually every standard form of oil and gas lease executed in this state during the past 25 years. Its principal purpose is to forestall any claim of the lessor to all rentals and royalties where his interest in the premises turns out to be less than the whole. In the absence of such a clause the lease contract on its face would purport to require full payment to the lessor regardless of the extent of his interest and the established interests of others. The primary purpose of the provision is to protect the lessee from such claims.

It can hardly be said that the ordinary man would interpret the clause in question as a conveyance of a portion of his royalty interest to a colessor or constitute an agreement between them to share in each other's lands or the production therefrom. The lease is between the lessors on the one part and the lessee on the other. See Carlock v. Krug, 151 Kan. 407, 99 P.2d 858.

The majority opinion reaches the same conclusion, for therein it is said:

"This provision was inserted in the lease for the protection of the lessee and simply means that if after the execution of the lease it is determined that the lessor or lessors have a lesser interest than that shown by the lease that it or they will take in the proportion which the interest actually owned bears to the full title."

Thus it is seen that the only question raised by the plaintiff in error and the only proposition relied on by it for a reversal of the trial court's judgment are decided adversely to plaintiff in error. But the majority opinion, in effect, reframes the issues, evolves a new theory which was not presented to the trial court and has not been urged here by the parties, and holds:

"Where the owners of separate contiguous parcels of land execute an oil and gas lease jointly providing for the development of the combined tract as an entirety it will be presumed that the individual owners of the various parcels comprising said tract intended that the royalty provided by said lease should be apportioned to them in the proportion that their ownership bears to the entire tract, unless a contrary intention or agreement is shown."

That pronouncement in the majority opinion does not have the support of the established rule in this state. The opinion says that we are committed to the rule that the royalty will be divided as contended by plaintiff in cases of this character, in the absence of an agreement between the lessors to the contrary. Supporting the opinion are cited certain decisions from other states and Seal v. Banes, 183 Okla. 203,80 P.2d 657. But an examination of that case will reveal that it does not only fail to support the statement but expresses a contrary rule. The third syllabus by the court reads as follows:

"In the absence of some agreement or circumstances showing an intent to pool the royalty for the benefit of all the owners of land covered by an oil and gas lease, the royalty belongs to the owner in severalty from whose land the oil was produced."

The latter rule would place on the plaintiff in this case the burden of alleging and proving an intent on the part of the lessors to pool the royalties, or to communitize same, whereas the majority opinion would relieve plaintiff of that duty, permitting it to establish a prima facie case by merely pleading the lease. We have never before held that the mere joint execution of an oil and gas lease by the owners of separate tracts would serve as an agreement, or as evidence of an intention to communitize the royalties produced from the lands.

In Lusk v. Green, 114 Okla. 113, 245 P. 636, the court held as follows:

"Where a husband and wife, each owning a tract of land not contiguous but several miles apart, execute an oil and gas mining lease, and each tract is separately described in and covered by the same lease contract, it will not be presumed that either intended to convey to the other a royalty interest in his or her land, unless there is some affirmative evidence evincing such intention."

It is true the tracts in the Lusk Case were not contiguous, but it is to be seriously doubted whether that is of any material consequence.

In United Gas Public Service Co. v. Eaton (La. App.) 153 So. 702, it was said:

"The question has been before many of the courts of other oil-producing states of the Union. There are two distinct lines of jurisprudence on the subject. The majority rule is that such a lease is severable as between the lessors, and each lessor only shares in production from his own land. The majority rule does not support the contention that from the fact of owners of different tracts, or owners of different interests in parcels of the same tract, joining in the same lease, a presumption arises that they intended thereby to pool their various properties or interests and tacitly agree to have the land operated as an entirety and to share in production from one or all of the tracts covered by the lease, on the basis of proportionate ownership. To the contrary, if any presumption arises at all, it certainly would be in favor of the negative of such a proposition. Intention to pool interests in this matter may only be determined from the express contract of the parties, or from facts and circumstances which certainly establish such intention on their part. It should never be inferred simply from the fact that different owners joined in the same lease contract."

And in Louisiana Canal Co. v. Heyd, 189 La. 903, 181 So. 439, 116 A. L. R. 1260, it was said:

"No presumption of law arises one way or the other as to their intention, from the mere fact that they sign a lease contract together."

The majority opinion relies principally upon Lynch v. Davis,79 W. Va. 437, 92 S.E. 427, L. R. A. 1917F, p. 566. It may be that the conclusion was reached in that case by indulging a presumption like the one employed in the majority opinion, but the circumstances of the two leases differ to such an extent that the same or similar presumptions cannot be indulged. In the West Virginia case it appears that the contiguous tracts, which were joined in one lease, were so small that they were not capable of economical development. Here two tracts of the same size were joined in one lease, and there is no contention that each tract could not be economically developed. Furthermore, Lynch v. Davis, supra, has been limited, criticized, and in part disapproved in Pittsburgh West Virginia Gas Co. v. Ankrom, 83 W. Va. 81, 97 S.E. 593, 5 A.L.R. 1157.

See, also, Walker v. West Virginia Gas Corp., 121 W. Va. 251,3 S.E.2d 55.

In Jackson v. Kent, 106 W. Va. 37, 145 S.E. 572, the court said:

"While it is true that separate and disconnected tracts of land may be merged in an instrument of lease for oil and gas development purposes, it does not follow as a matter of course that, because two or more tracts of land are included in a lease, they must necessarily be deemed to be merged. Whether they are merged or remain separate entities depends upon the intention of the parties as disclosed by the terms of the lease itself, and in determining the meaning of the terms employed in the lease the conduct of the parties with relation thereto may be considered."

In my opinion the majority opinion misstates the present West Virginia rule, but even if it does not, I see no reason for following the rule of some foreign jurisdiction and ignoring our own as stated in Seal v. Banes, supra.

It is my belief that the majority opinion will upset long established usage in this state and understanding in the industry relative to the ownership of royalties in such cases, and will result in immeasurable harm and produce no appreciable good. Witness the action of the lessee in this case. It paid all the royalties to the defendant, who was the owner of the land from which the oil was produced. Evidently it did not consider the lease as a transfer of any interest in the royalties of the lessors. And such, in my opinion, would be the interpretation placed upon the lease by the ordinary lessor and lessee.

I therefore respectfully dissent.

I am authorized to say that Vice Chief Justice CORN and OSBORN and DAVISON, JJ., concur in these views.