Little v. Mountain View Dairies, Inc.

TRAYNOR, J.

In 1935 plaintiffs’ predecessors in interest in certain real property granted to defendant a limited interest in that property described as “Eight and one-third per cent (8-%%) of all oil, gas and other hydrocarbon substances, and minerals, in, under and/or which may be hereafter produced and saved from” the property. In 1945 plaintiffs leased the property to Loren L. Hillman, Inc., for the purpose of producing oil and gas. The lease reserved to plaintiffs as lessors a royalty of one-sixth of all oil produced and saved from the premises. The lease also provided in part as follows:

“10. In ease said Lessor owns a less interest in the above described lands 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 his interest bears to the whole undivided fee.

“10-a. Lessor agrees that in no event shall Lessee be required to pay greater rents or royalties than provided in this lease and Lessor further agrees that Lessor will fully satisfy and discharge any and all of the obligations and requirements under [the deed to defendant] insofar as the above described land and the production therefrom is concerned. And Lessor further agrees to protect Lessee against any expense, loss or damage arising as a result of claims or rights asserted by others in or under said deed above referred to.”

Defendant did not sign the lease but executed a separate document attached thereto, which reads as follows: “The within Oil and Gas Lease is hereby ratified, approved and confirmed. ’ ’

The present controversy is over the proportions in which plaintiffs and defendant shall share the one-sixth (16%%) royalty payable by the lessee under the lease. Plaintiffs by their complaint for declaratory relief claimed that they were entitled to eleven-twelfths of the royalty. Defendant answered and cross-complained, claiming one-twelfth of all the oil produced or 50 per cent of the royalty. Bach party moved for judgment on the pleadings, and the court decided in favor of defendant and entered its judgment accordingly. Plaintiffs have appealed from the minute order granting defendant’s motion and denying theirs, and from the judgment. It is settled that an order granting a motion for judgment on the pleadings is not final or appealable, and that it is only from the subsequently entered judgment that an appeal will lie. (Holton v. Noble, 83 Cal. 7, 9 [23 P. 58]; Montgomery Ward & Co. v. Welch, 17 Cal.App.2d 127, 129 [61 P.2d 790]; Overton v. White, 18 Cal.App.2d 567, 568-569 [64 P.2d 758, 65 P.2d 99]; Code Civ. Proc., § 963.) Accordingly, the appeal from the order must be dismissed.

Before the oil and gas lease was executed, plaintiffs and defendant were tenants in common in the exclusive right to drill for and produce oil from the land. (See Dabney-Johnston Oil Corp. v. Walden, 4 Cal.2d 637, 649 [52 P.2d 237].) Their respective interests were defined by the grant deed from plaintiffs’ predecessors in interest to defendant. If, as plaintiffs contend, the deed conveyed no more than a one-twelfth interest in the grantors’ mineral rights, their interests were in the ratio of eleven to one.

It is settled that if one cotenant produces oil, he is entitled to charge the interests of nonproducing cotenants for their proportionate share of drilling and operating expenses. (Dabney-Johnston Oil Corp. v. Walden, 4 Cal.2d 637, 657 [52 P.2d 237]; see, also, McCord v. Oakland Q. M. Co., 64 Cal. 134, 148-149 [27 P. 863, 49 Am.Rep. 686]; anno., 5 A.L.R.2d 1368, 1380.) In this case the expense incurred by the owners of the mineral rights in producing the oil from the land is represented by the five-sixths of the oil that the lessee retains from the total production. By ratifying the lease defendant agreed that this is a fair charge for the expense of bringing the oil to the surface. (Gill v. Bennett, (Tex.Civ.App.) 59 S.W.2d 473, 475; Texas & Pacific Coal & Oil Co. v. Kirtley, (Tex.Civ.App.) 288 S.W. 619, 622.) “If a lease be executed by a cotenant, the nonconsenting cotenants may recognize the lease and receive their fractional interest in the royalty, or they may reject the lease, and receive their fractional part of the oil produced, less their proportionate part of the cost of discovery and production. ’ ’ (Davis v. Atlantic Oil Producing Co., 87 F.2d 75, 77.)

Section 10 of the lease provides for the payment to plaintiffs of that proportion of rentals and royalties that their interest bears to the whole undivided fee in the real property.

Section 10-a of the lease does not increase the share of the royalties to which defendant would otherwise be entitled. That section merely binds plaintiffs to “satisfy and discharge any and all obligations and requirements under” the deed to defendant. It does not purport to state what those obligations are. Accordingly, it is necessary to determine whether the deed conveyed only one-twelfth of the mineral rights, or on the contrary, as defendant contends, it conveyed an expense-free or royalty interest that would entitle defendant to one-twelfth of the oil produced free of any cost of production.

Defendant contends that the addition of the words “and which may hereafter be produced and saved” to a grant of a fraction of all the oil in and under the land clearly evidence an intent that the interest granted should be expense free. It has been generally held, however, that a grant of a fraction of all '“of the oil, gas and other minerals in and under, and that may he produced” from the land creates an expense-bearing mineral fee interest rather than an expense-free royalty interest. (Richardson v. Hart, 143 Tex. 392 [185 S.W.2d 563, 564-565]; Watkins v. Slaughter, 144 Tex. 179 [189 S.W.2d 699, 700]; Jones v. Bedford, (Tex.Civ.App.) 56 S.W.2d 305; Gill v. Bennett, (Tex.Civ.App.) 59 S.W.2d 473, 475; Hinkle v. Gauntt, - Okla. - [206 P.2d 1001, 1005]; Manley v. Boling, 186 Okla. 59 [96 P.2d 30, 31-32]; Shinn v. Buxton, 154 F.2d 629, 631-635; see, also, Brooks v. Mull, 147 Kan. 740 [78 P.2d 879, 883].) When there is an existing oil lease at the time the lessor executes a mineral deed, it is not uncommon for the deed to grant not only a given fraction of all the oil in, under, and that may be produced from the land, but also the same fractional interest in the royalties payable under the lease. (See 3 Summers, Oil and Gas [Perm, ed.], § 606, p. 502.) If the first clause of such a deed were construed as creating an expense-free royalty interest, it would grant the stated fraction of the total production rather than the stated fraction of the landowner’s royalty reserved under the lease, and would therefore be inconsistent with the second clause. It has been held, however, that such deeds are not internally inconsistent and that the grant of the stated fraction of the royalties under the existing lease is merely a statement of the legal effect of granting the same fraction of all the oil in, under and that may be produced from the land. (Shinn v. Buxton, 154 F.2d 629, 631-635; Richardson v. Hart, 143 Tex. 392 [185 S.W.2d 563, 564-565].)

It is contended that because of differences in the applicable theories of oil and gas rights, authorities from other jurisdictions are of no value in interpreting the language of a grant of mineral rights in California land. There is nothing, however, in the theory of oil and gas rights in California to cause this court to reject the interpretation that has been adopted by the courts of other states in construing language similar to that in the deed in this case. California has rejected the theory of ownership of oil and gas in place (Callahan v. Martin, 3 Cal.2d 110, 118 [43 P.2d 788, 101 A.L.R. 871]), and language in a grant referring to oil to be produced would therefore have less significance in determining the expense-free or expense-bearing nature of the interest created than similar language in a deed dealing with land in a state, such as Texas, where the theory of title to oil and gas in place has been retained. (Richardson v. Hart, 143 Tex. 392 [185 S.W.2d 563, 564].) In California the parties might well doubt the effectiveness of a conveyance limited to a fraction of all the oil and gas in and under the land and therefore add a reference to oil to be produced, without in any way intending to convey moré than the stated fraction of all the oil rights appurtenant to the land. (See Dabney-Johnston Oil Corp. v. Walden, 4 Cal.2d 637, 648-649 [52 P.2d 237].)

Furthermore, the decision in Dabney-Johnston Oil Corp v. Walden, 4 Cal.2d 637 [52 P.2d 237], indicates that the addition of the words “which may be hereafter produced and saved” after a grant of a fraction of all of the oil in and under the land does not have the effect of creating an expense-free interest. In that case there was a grant of “a two per cent in said land owners royalty of all gas, oil and other hydrocarbon substances to be produced and saved and sold from said described land. ...” The interest was. described as a royalty interest, and in holding it expense-free, the court reasoned that since the 2 per cent interest had been carved from the land owner’s 27% per cent expense-free royalty under an existing lease, it would necessarily be implied that after the termination of the lease, the 2 per cent interest remained expense-free. It placed no reliance on the words “to be produced and saved and sold from said described land,” pointing out that the quoted language was inserted for another purpose than to indicate how the expenses were to be allocated. It was contended that under the deed the grantee was entitled to royalties only if a lessee was producing oil, not if another cotenant was producing it. In answering this contention the court said, “That the parties in the instant ease did not contemplate that a single producing tenant should retain the entire output is indicated by the stipulation of facts and the reforming clause added to the assignment, which expressly provide that the rights of the assignees extend not only to oil within and beneath the land, but to all oil and other hydrocarbon substances produced and saved from the land, however said substances should be produced.” (4 Cal.2d at 657.) It is clear, therefore, that in California as in other jurisdictions, in the absence of extrinsic evidence or other controlling language in the deed, a grant of a fraction of all the oil in, under and that may be produced and saved from the land creates an expense-bearing mineral fee interest.

Barnard v. Jamison, 78 Cal.App.2d 136 [177 P.2d 341], does not support a contrary result. In that case the grant deed contained a clause that specifically provided what expenses the fractional interests conveyed should bear, and the court properly held that this clause was determinative of the issue.

The appeal from the order granting the motion for judgment on the pleadings is dismissed. The judgment is reversed.

Shenk, J., Edmonds, J., and Spence, J., concurred.