Campbell v. Lynch ( 1917 )

POFEENBARGER, JUDGE:

The complaint on this appeal goes to the dismissal of • a bill in equity, praying discovery and an accounting as to oil and gas obtained from two tracts of land, under leases thereof on several demurrers interposed thereto.

The two tracts of land were owned by Edward Lewis, now deceased, and were leased by him to the South Penn Oil' Company, by separate leases, in his lifetime. In each lease, there is a reservation of the usual oil royalty, one-eighth, and', a covenant to pay $200.00 annually for the gas from each gas well. In June, 1902, Lewis died, leaving him surviving-his wife and six children, two sons and four daughters. One of the daughters, Prudentia Campbell, died in 1905, leaving-six children and her husband surviving her. In 1906, the two tracts of land; subject to 'the leases, were partitioned by judicial proceedings, and assignments made as follows: Lot No; 1, containing 200 acres to the widow, Mary M. Lewis, as a.nd for her dower; Lot No. 2, containing 60 acres, to Lucy J. Lynch;'Lot No. 3, containing 74 acres, to James McC. Lewis; Lot No. 4, containing 80 acres, to Fannie M. Simpson; Lot No. 5, containing 95 acres, to Mae L. Goad; Lot No. 6, consisting of two parcels, 52 acres and 30 acres, total 82 acres, to the husband and heirs of Prudentia Campbell, deceased; and Lot No. 7, containing 90 acres to John E. Lewis and F. W. Abney, his grantee.

Meantime, the leases had been kept alive by payment of delay rentals, but no wells had been drilled under them. After the. partition was consummated, operations under the leases were commenced, and, at the date of the filing of the bill, numerous producing wells had been drilled, one or more on each of the lots except No. 6 assigned to the Campbell heirs. On it, no well had been drilled. The purpose of the bill filed by W. C. Campbell, life tenant of said Lot No. 6, and his six children, the reversioners, three of them infants suing by him as their next friend, is to obtain shares of the oil royalties and gas rentals from the wells on the other lots, on the’ theory of right to apportionment thereof, without reference to the lots on which the wells are located.

Demurrers were interposed by the lessee, the South Penn Oil Company, the United Fuel Gas Company, its assignee of the gas right under the leases, the Eureka Pipe Line Company, into whose lines the oil deliveries are made, the widow, the living children of Edward Lewis, save John E. Lewis, and F. W. Abney, grantee of John E. Lewis, all of which were sustained and the bill dismissed.

Postponement of consideration of the rights of the life tenants, particularly that of the widow, until after disposition of the conflicting claims of the heirs, will tend to simplify the questions at issue and free from complication the reasoning by Avhich the conclusion as to the .principal right involved is reached. As to the heirs holding by partition, separate and distinct parts of a tract of land on which oil and gas wells have been drilled under a lease executed by their ancestor, after his death and the partition, the controlling question is whether the royalty from each well goes, by operation of law,- or by virtue of the decree of partition, to the owner of the lot on which the well yielding it happens to be.

The argument submitted for the negative of this question proceeds largely upon the view that the lease effected a severance of the oil and gas in the land from the surface and vested title thereto in the lessee, wherefore it could not have been partitioned and was not. Though there are several judicial declarations that such a lease constitutes a virtual sale of the oil and gas, there are, perhaps, just as many or more to the effect that it does not pass any title, legal or equitable, to the oil and gas in place. All agree that, after discovery of the minerals, it vests a conditional estate in the lessee, but it is not title to the minerals in place. It is an incorporeal right to mine, the exercise of which may exhaust the minerals. This right, of course, is beyond the control of the lessor, his heirs or assigns, as long as the conditions upon which it depends are complied with, wherefore it binds the lands in the hands of the lessor and all persons holding under him. At the same time, if productive, it yields royalties which this court and others say are, in legal effect, rents. Notwithstanding the high character of the right vested by discovery of minerals, the lessor and lessee are everywhere held to be landlord and tenant, wherefore the former must be deemed the owner of the mines and the latter the tenant. A scientific or abstractly judicial view of the subject might reveal inaccuracies in all of these definitions. To call the lessee a tenant, is amply sufficient for some purposes, but he may have a right in addition to that of tenancy. The lessor may be an owner and yet have only a limited, qualified or encumbered estate. So a right may produce ultimately some of the results of a sale of the minerals and yet not be a sale. Whatever the right of the lessee may be, when accurately defined, he is not the owner of the oil and gas in place, and the lease does not sever the minerals from the surface. As to that, the decisions in every jurisdiction are uniform, even though some apparently inconsistent expressions may be found in them. However, the lease vests an estate, potential until discovery of minerals and actual 'afterwards, and that estate carries right to exhaust the minerals.

On the death of the ancestor, the land descended to-the heirs, burdened by this right in the lessee. It was complete master of the situation quo ad the oil and gas, having right to drill where it.would on each of the two tracts, and the partition in no way affected its right or liberty in that respect. Taking the land in this condition, the heirs had right of partition thereof and a proper demand for it by one of them could not have been defeated by the others. Partition was made upon pleadings and by a decree which are wholly silent as to the leases and the rights created by them, just as lands subject to such leases are often divided by deeds silent as to the leases. . On the one hand, it is contended that the oil and gas were not divided because they had been severed from the land by the leases, and, on the other, that they were divided because there had been no such severance. Though there had been no actual severance in law or fact, there may have been a potential one sufficient in law to preclude, right of partition, but whether there was or not, is an academic, rather than a practical, question, determination whereof is unnecessary. If there was a division of the minerals in respect of the title, it does not necessarily follow that the royalties go with the ownership of the minerals, in the manner claimed.

That the lease on a single tract of land broken up into several sub-divisions by a partition or by conveyances, is not segregated and converted into as many distinct leases as there are sub-divisions, is conceded. That could be done only with the consent and co-operation of _ the lessee. As to him, the lease and its subject, the tract of land, are entireties. After as well as before the division, there is one lease of one tract, yielding, when productive, one royalty or rental in the aggregate. The subject of the lease is divisible, just as a tract of land subject to any other lease is, and so is the royalty or rent, in the manner in which other rents are apportionable. The rent is an entire thing arising out of the whole tract of land. Though the royalty oil or gas rental comes from a certain well or certain wells, it is not legally the rent or return of the wells or the severed tract of land on which they are located. It is rent of the whole tract covered by the lease. Production and delivery or payment thereof maintain the lessee’s hold upon the entire tract. Mere sale or conveyance of the portion of the tract on which the well is, without a special provision or contract touching tbe royalty, whether before or after the drilling, cannot change the character of the lease or the rent. In legal contemplation, the wells are not drilled on the severed portions, as under a lease of that portion. . They are drilled under the lease as made, which binds and holds all of the parts, after division, as it did before.

The royalty is a separate and distinct entity. It is not the land nor the land title. It is a wholly different thing from either and is complete in itself, notwithstanding it comes from the land. People buy and sell it as they do other rights, without alteration or disturbance of the land title, the lease or operations under the lease. Though a complete thing, it is susceptible of legal division. It is the fruit of a burden upon the title created by a covenant running with the land. An owner of a tract of land subject to such a burden, may sell and convey the land and retain the royalty, or sell the royalty and keep the land. If he conveys the whole tract and does not reserve, or stipulate for, the royalty, it passes with the land to his grantee, but, if he sells only a part of the land, the situation is altogether different, as will be shown. These illustrations of legal methods of dealing with royalties and their susceptibilities, prove them to be what I have called them, separate and distinct entities, not legally inherent in, nor annexed to the title to the land, but capable of being held and enjoyed by the holder of the title. The royalty itself embraces the element of title, but it is its own title, not the land title, and the same person may hold both. TIis conveyance of the land title does not necessarily include the other. Being no part of the subject matter of a contract of purchase, it does not lie in the direct course or path of the contract, wherefore it may or may not - have been included. At the most, it is only collateral to the subject matter. When the contract includes it, it does so only presumptively, and the presumption rests merely on equity and justice in the interpretation of the contract or conveyance, or in the law applicable thereto. If there is a situation or circumstance raising an opposing or conflicting equity, it repels the presumption and only the title to the land passes, the thing expressly contracted for. Nothing is added to it by imnlication. The doctrine of subjacent-support illustrates tbe principle. A sale of the coal under a tract of land does not vest right in the vendee to take out such portions of it as are necessary to the support of the surface. There is an implied exception from the grant, because it is equitable and just and in accord with presumed intention. As the royalty cannot pass to the owner of a sub-division, as is claimed, without injustice and oppression to the owners of the others, there is a presumption against it, wherefore it is deemed not to haye passed with his acquisition of the land, unless his contract expressly included it.

A decree dividing land subject to such a burden yielding an equivalent return, without mention thereof, based upon pleadings wholly silent as to them, must be construed as deeds effecting a division, without terms applicable to the lease or the royalties. These subjects are not necessarily included in the decree or affected by it, because they are collateral' and do not necessarily fall within its scope or course. That judgments and decrees are to be construed with reference to the pleadings, when there is doubt as to their meaning, is elementary and fundamental. Moreover, a judgment or decree does not, ordinarily, have any force or’ effect beyond the subject matter of the pleadings. Again, there is no conceivable reason why the law, in the absence of provision to the contrary, should not be permitted to define the rights of parties to a decree or judgment, when it is silent as to a matter concerning which it might have spoken. “If a reversion is severed by the death of the lessor and the consequent descent to his heirs at law, the rent will thereby be apportioned, and each of the heirs may separately bring actions for his proportion.” Freeman, Coten. & Par., sec. 346, Cole v. Patterson, 25 Wend. (N. Y.) 457; Reed v. Ward, 22 Pa. St. 149; Crosby v. Loop, 13 Ill. 627. Likewise, there is an apportionment when the reversion is broken up by a grant or devise thereof to two or more persons. Freeman, Coten. & Par., sec. 346. The construction of any instrument ought to be broad enough to make it operate justly and fairly under all the conditions to which it may apply. This is a cardinal rule of construction. It applies to constitutions, 8 Cyc. 733, 6 Am. & Eng. Ency. L. 924, 6 R. C. L. 50, statutes. 26 Am. & Eng. Ency. L. 648, 36 Cyc. 1112, and contracts. 9 Cye. 587; 17 Am. & Eng. Ency. L. 18; 6 R. C. L. 841. We are not told why it does not apply here. Whether the question is determinable by law or contract, the problem for the court is one of interpretation and construction. When a court makes the law of a case, as it is often compelled to do, it does not close its eyes to considerations of equity, fairness and reason. Nor does it do so in construing a contract. It will neither make a rankly unjust law nor place an unjust construction upon a contract, unless the terms thereof compel it to do so..' In either ca-se, strong and manifest equities must be recognized and allowed force and operation. A lessor conveying away the whole of the leased premises, presumptively intends to pass, and his grantee presumptively expects to obtain, the entire rent, for the former shifts from himself, and the latter takes, the entire burden of the lease. Enforcement of these presumptions, in the construction of their contract, effects a complete reciprocity of benefit and burden. A law declared by the court ought to do likewise. A conveyance of only a part of the premises raises no such presumption of .intention as to either party, for neither the entire burden nor the entire benefit passes between them. Circumstances alter cases. Division of the burden calls for an apportionment, division, of the benefits. As equitable considerations, not an inflexible rule of law, govern in the other ease, they must do so here.

As to what is an equitable, just and fair apportionment, there is not the slightest doubt. To permit the lessee and the owner of one parcel of the divided land to irrevocably tie up all the other parcels and drain the oil and gas out of them is flagrantly inequitable. The sub-divisions may be small and often are, so one or two wells on one part will completely drain all of the others, and yet their owners, admittedly powerless to prevent it by drilling themselves or in any other way, are precluded from any share in the royalties. Though their lands are burdened with the lease under and by virtue of which their minerals are taken away, they are denied all benefit. The false premise adopted in the argument for the ap-pellees, gives the owner of a sub-division of the entire tract all of the part of the royalty that comes from his part of the tract, because he is sole owner, of that land, instead of part' of the royalty arising from the entire leased preinises. This makes the lease a-burden upon all the sub-divisions for his benefit. Operation of the well on his part, satisfies the vital and controlling condition of the lease and makes it bind the other sub-divisions, without the drilling of any wells thereon or payment of either rent or royalty to the owners thereof. They can neither drill their land, force the lessee to do so nor cause it to be done by anybody else. They are bound hand and foot for the benefit of the lessee and the owner of the sub-division on which he sees fit to put his well. It is not intimated nor suggested that they can enforce drilling on their parts or drill or compel the drilling of off-set wells thereon, to prevent the lessee and the fortunate owner of the part on which he operates, from draining their oil and gas. That the tract of land involved here is a large one, argues nothing in support of the construction. 'The same rule must apply to both large and small tracts. The injustice of the rule in its application to small ones condemns it as to all. Why this unjust rule should be adopted instead of one that will, admit all- parties to the benefit of the lease which none of them can destroy or escape I am unable to perceive.

Royalty is analogous to rent. The lessor and lessee in an oil and gas lease are landlord and tenant, after the wells are in operation, and the royalties begin then. In substance and effect, .the royalty, is rent for the mines, payable in kind. If a lessor sells and conveys the whole of the leased premises, his grantee takes the whole of the rent. McAdam, Land. & Ten. p. 1026. But, if he conveys only a part of it, or conveys all of it, in parcels to others, the rent must be apportioned, between him and his grantee of a portion of the land, or between the grantees of the several parcels conveyed, comprising the whole, as the case, may be; and the apportionment is made in the. proportion of the relative values of the parcels, if that is practicable. McAdam, Land. & Ten., pp. 1026-27; Taylor, Land. & Ten., sec. 443. This right of apportionment exists, of course, only in the absence of an agreement excluding it. On a sale of the entire premises, the rent may be reserved Taylor v. Cooper, 10 Leigh 317. The rule of apportionment of rent treats it as an entire thing and divides it among the assignees of the reversion, as the land is divided, and according to the relative values of the parts, not with reference to what each part produces. Biddle v. Hussman, 23 Mo. 597; Van Rensselaer v. Gallup, 5 Denio. (N. Y.) 454; Van Renssellaer v. Bradley, 3 Denio. (N. Y.) 335; Reed v. Ward, 22 Pa. St. 144; 18 Am. & Eng. Ency. L. 289; 24 Cyc. 1185, citing numerous authorities. That the rent is payable in kind, instead of money, cannot logically or legally vary the rule. The lease binds all the land. If it did not and the drilling on one tract released the balance, there would be no occasion for an apportionment. Since it does, there must be an apportionment of the benefits, to prevent the existence of a grievous burden without any reciprocal benefit. If the right conferred by the lease is analogous to a hunting, trapping or fishing right, as the courts of Ohio, Indiana and Arkansas intimate, the consideration of that right may be a rental payable in kind. If the subject matter of a single and entire contract of- that kind is a right covering a certain tract of land which is subsequently divided as to ownership, we are not told why the trapper, confining his traps to one piece of the land and there catching the game from all, is justified in paying all the rent to the owner of that piece. The owner of that piece is’not the trapper, and the game caught is not his. It belongs to the lessee whose contract binds him to deliver up a part of it as rent. The law itself is just and fair and parties are not presumed to have intended to make one-sided and unjust contracts. The rule here contended for by the appellees, ought not to be attributed to the law, because it works injustice. For the same reason, it should not be imputed to the parties to a contract, when the division has been made by deed, in the absence of express terms adopting it, for they are presumed to have made a fair and reasonable contract. As the law is just and fair, its interpretation of a decree must be characterized by justice and fairness.

No court has ever been able to lay its finger on any flaw in the reasoning of the opinion in Wettengel v. Gormley, 160 Pa. St. 559, nor to demonstrate inapplicability of the legal principles under which the court disposed of it. The only objection urged against it, namely, that the oil and gas are-legally parts of the land, wherefore assignment thereof otherwise than by deed is either legally impossible, or cannot be deemed to have been within the intention of the parties, or that the lease is not operative until oil is produced, just which is not exactly stated, has been overruled or rejected by this court, in Lynch v. Davis, 79 W. Va. 437. Of course, the oil and gas adhere to the land and are parts of it, until severed. Until severance takes place, the lessee has no title. On severance and not earlier, the royalty is payable. Then the oil or gas, as the case may be, is personal property for alienation or disposition of which no deed or other solemn instrument of conveyance is necessary. It is personal property in the hands of the lessee and he has bound himself to deliver a portion of it, called royalty, to the lessor as rent in kind, for occupation, use and operation of the lessor’s mines. The royalty is a rent susceptible of division and disposition, as if it were a rent payable in money. That is the holding in Wettengel v. Gormley and Lynch v. Davis. Existence of the relation of landlord and tenant between the lessor and lessee in'a lease of this character, is the uniform holding of this court. Likewise, the royalty has been declared to be not the land nor the oil in place, but the usufruct, the rent return from the oil mine in the land. Though the lease does not actually pass title to the oil or gas, it confers right to take it, and the parts of the divided tract go into the hánds of their owners subject to that right, whether they are acquired by deed, will or a decree of partition. The Ohio, Indiana and Arkansas eases relied upon seem to treat the royalty as oil in place. One unsatisfactory feature of the opinions in those cases is the lack of a definition of the royalty. In all of them, it is completely ignored.

The conclusion stated, respecting the rights of the heirs, rests upon a principle which determines the right of the widow. She had no right of dower in possession, in the oil and gas, the lease being alive at the date of the decree, whether the mines be deemed to have been opened in the life-timé of the husband, as held in Koen v. Bartlett, 41 W. Va. 559, Williamson v. Jones, 43 W. Va. 566, and Alderson v. Alderson, 46 W. Va. 242, or not. She had no right to work them. That right was held by the lessee. She had right of dower only in the reversion'and in the rental until oil or gas was produced, and in the royalties afterward. The lease had imparted to the minerals a status different from that of the land. They were subject, in the hands of the widow as well as the heirs, to an irrevocable license; if nothing more, to extract and carry them away. For this right, the equivalent of a rent., had been reserved by the deceased husband and father, in his lifetime. If this lease had wholly excluded the right of possession in the widow and heirs, dower could have been claimed only in the reversion and in the rent. What is true of the entire right of possession must be true of a part of it. The lease gave the lessee exclusive right of possession of the oil and gas and, therefore, necessarily precluded assignment of possession thereof as dower. 'Dower could be had,, for the time being, only in what was substituted for them, the rents and royalties. The common law allowed dower in rents. Scribner, Dower, Vol. I, pp. 373 to 378. “An estate for years, whether created before or after marriage; and if after marriage whether the wife join therein or not, interposes no obstacle to a claim of. dower. In every such case-the wife is entitled to be endowed of the reversion in fee, and also of a proportionate part of the rent as incident to the reversion. ” Scribner, Dower, Vol. I, p. 377.

Neither the .decree nor the pleadings in the cause in which the dower was assigned took any notice of the lease, the burden and restriction it placed upon the minerals, nor the rents, and royalties, wherefore the partition cannot be. deemed to have extended to anything respecting the oil and gas, except, the reversion therein. Of course, it gave dower in the land, subject to the burdens created by the lease, but it does not. touch the renits and royalties. As to them, the decree must be construed as it is between the heirs. She is entitled to-dower in royalties and rents accruing from all the wells on the entire tracts. The leases, the lessee’s right under them and the rents are entireties. To permit her to take the whole of a part of the royalties, instead of her share of all of them, would produce the unjust and absurd results, that would How from the application of that rule, if applied between the heirs. Through wells on her dower, oil and gas could be drained from some or all of the parts assigned to the heirs, or wells on such parts could drain the dower tract. In either case, the injured party would be helpless, because bound by the lease.

The extent of the widow’s -right in the royalties, under the ¡circumstances of this case, need not now be determined. Whether she is entitled to one-third of them absolutely, or only to the interest on one-third of them for her life, the plaintiffs or some of them, have right of participation in the royalties accruing from the wells on the dower tract.

From these conclusions, it necessarily follows that, in so •far as the demurrers were based upon rights claimed by the -défendants, they were not well founded. It is insisted, however, that the husband of Prudentia Campbell, the deceased daughter, and life tenant by the curtesy of the land assigned to him an'd their children, is entitled to the corpus of the royalties that would go to her, if living, and that her heirs ■aré, for that reason, improperly joined as co-plaintiffs. As reversioners, the heirs may well have their interests defined in this suit. They are interested parties. Even though a court, might not be bound to entertain a bill filed by them for that purpose only, no reason is perceived why they may not be entertained therefor, in a suit well founded and well brought, in which the estate in which they have the reversion, •at least, is involved. Whether they have any present interest in the royalties and rents, it is unnecessary to inquire. As to that, there may be no dispute between them and their father.

.The decrée complained of. will be reversed, the demurrers ■overruled and the cause remanded.

Reversed, demurrer overruled, cause remanded.