McIntosh v. Vail

By this bill in the nature of an interpleader, brought by F. F. McIntosh and E. W. Grimm, partners doing business as McIntosh and Grimm, in the Circuit Court of Jackson County, plaintiffs sought the determination to which of two groups of claimants certain gas royalties belong. The salient issue is whether language used in the deed of conveyance by Mary E. Clerc created a covenant real or one merely personal. The effect of the decree of the circuit court being to adjudicate it a covenant real, appellants (the administrator and heirs of J. M. Stone, deceased) seek a reversal here.

Involved in this suit are two leaseholds, one of ninety-four acres and one of one hundred two and one-half acres. To each of the leaseholds there are two sets of conflicting interests. This appeal is concerned only with the tract of ninety-four acres, while the other tract is considered in the appeal (No. 9472) of S. G. Starcher, the opinion in which is announced contemporaneously herewith.

The issue was submitted to the trial court on the pleadings filed. Therefrom the following facts appear: On November 2, 1899, Mary E. Clerc conveyed to J. M. Stone, C. T. Gates, and R. L. Rogers, a tract of land containing ninety-four acres, situate in Jackson County. The language of that deed, which furnishes the basis of the instant controversy, is as follows:

"First party also expressly reserves from the sale herein made, the oil and gas in and under all the lands herein conveyed and also the exclusive right of operating thereon for oil and gas, together with the rights of way necessary for such operations and the rights to lay necessary pipes over and to erect tanks thereon and to take and use water from said premises, and also the rights to erect and remove at any time, all property placed thereon by said first part, or her assigns in prospecting for or producing oil or gas. But if oil or gas is found in paying quantities on said lands, first party and her assigns shall yield and pay to parties of the second party or their assigns, one full sixteenth (1/16) of the oil and gas produced and marketed from said lands."

The grantees paid the sum of five hundred dollars cash, and the grantor reserved a "vendors lien on the lands herein conveyed" to secure the unpaid purchase money. Thereafter Rogers granted to Stone and Gates his undivided one-third interest reserving "the oil and gas and privileges mentioned and reserved in * * * [Mary E. Clerc's conveyance], but hereby conveys to second parties all of the interest therein that may accrue to said" Rogers. On November 20, 1900, Stone and Gates and their respective wives conveyed the ninety-four acre tract to W. E. Parrish under a general warranty; and under date of June 29, 1903, W. E. Parrish conveyed a portion of that tract to one Annie M. Miller. Neither deed mentioned any oil, gas or mineral reservation.

In October, 1903, Stone and Gates as individuals and partners were adjudged bankrupts in the District Court of the United States for the Northern District of West Virginia. During the following month Mary E. Clerc applied to the referee in bankruptcy for permission to institute a suit in the Circuit Court of Jackson County, to enforce her rights under the vendor's lien retained by her in the deed to Stone, Gates and Rogers. The answer of appellees avers that the trustee in bankruptcy for each of the adjudicated bankrupts declined to accept any right, benefit or interest of said J. M. Stone in said covenant and that said property was abandoned to and reverted to said J. M. Stone. Mary E. Clerc thereafter instituted a vendor's lien suit and Stone, Gates and Rogers, as well as the trustees of the respective estates of Stone and Gates as bankrupts, were made parties defendant, but Stone and Gates were dismissed from said suit prior to any adjudication of their interests arising by reason of the covenant herein under consideration. According to appellees' answers, Mary E. Clerc was authorized "to institute such actions at law or suits in equity as she may deem necessary to protect her rights and interests in the" ninety-four acre tract of land. The answers aver that the decree ordering sale provided as follows: "But in such sale the oil and gas rights reserved by the plaintiff in said deed shall be reserved and preserved to her to the same extent"; that the commissioners in reporting the sale made of said ninety-four acre tract reported that it was "subject to the oil and gas rights of the plaintiff and rights of way reserved to her"; that the decree of August 3, 1904, directing the execution of the deed provided: "but there shall be reserved in said deed the oil and gas rights to plaintiff reserved to her by said decree of sale"; and that in the deed from the special commissioners to The A. M. Carson Company, purchaser of the property at said judicial sale, it was provided that, "The same reservation as to certain roads or rights of ways and of oil and gas in or under said land and the developments theretofore contained and reserved in said deed of Mary E. Clerc to said Stone, Gates and Rogers dated November 2, 1899, are hereby expressly reserved."

Mary Clerc died intestate in 1923 leaving surviving her as her only heir at law her daughter, Adella Clerc Gardner. On June 1, 1937, Adella Clerc Gardner leased the ninety-four acre tract for oil and gas purposes to the interpleading plaintiffs, F. F. McIntosh and E. W. Grimm, partners. On March 25, 1941, before this suit was brought and any drilling was begun, plaintiffs and some of the royalty claimants in both appeals entered into an agreement consolidating said tracts as a unit aggregating one hundred ninety-six and one-half acres for the purpose of the more economical operation for oil and gas, which agreement provided, in effect, that the royalties be shared proportionate to the ownership interests in both tracts upon production of oil and gas in paying quantities.

The appellees predicate their claims to the royalties in issue upon the title which The A. M. Carson Store Company obtained at the judicial sale, while appellants' position is that the ownership of the oil and gas underlying the ninety-four acre tract is "subject to, charged with the performance of, and encumbered by the covenant of the said Mary E. Clerc, to-wit, that if oil and gas were found in paying quantities on said 94 acres there should be yielded and paid to the said J. M. Stone and the said C. T. Gates, or their assigns, one full sixteenth (1/16) of the oil and gas produced and marketed from said land."

At the outset in the consideration of the instant question, it is noteworthy that, despite the fact that principles governing the transfer and ownership of real property and interests therein, as a general rule, became well established in the various states in this country, there has been utter confusion in judicial decisions involving the question whether covenants contained in deeds of conveyance were real, so as to run with the land, or merely personal. An eminent author stated that it has not been possible to furnish absolute tests to determine "what covenants touch and concern the land and what do not", and concludes that the "question is one for the court to determine in the exercise of its best judgment upon the facts of each case". Clark, Covenants and Interests Running with Land (1929), Page 76.

In Spencer's Case, 5 Coke 16a (1583), it was said that three factors were requisite for a covenant to run with the land, namely: (1) Privity of estate between covenantor and covenantee; (2) the benefit and burden had to "touch and concern" the respective estates of the covenantor and covenantee; and (3) where the covenant related to a thing not in esse, the word "assigns" was necessary. Present day writers say that, conventionally, a real covenant is said to consist of four essential factors: form, intent, nature of the promise (whether "touching" or "concerning" the land) and privity. Clark, id., page 74; Article Enforcement of Affirmative Covenants Running With the Land, 47 Yale Law Journal 821 (1938). Since there is a lack of judicial criteria generally, resort should be had to the cases of our own jurisdiction for legal guidance.

An important consideration bearing upon the question whether the instant covenant is real or personal is whether under the Clerc deed the grantees were vested with an interest in the oil arid gas minerals in and underlying the surface granted. In this jurisdiction it has been held that a grant or reservation, as the case may be, of royalties, rentals and income which might arise from the operation of land for oil and gas purposes is, in fact, a grant or reservation of such minerals in place. Paxton v. Benedum-TreesOil Co., 80 W. Va. 187, 94 S.E. 472; Snodgrass v. Koen, 82 W. Va. 337,96 S.E. 606; Manufacturers Light and Heat Co. v.Knapp, 102 W. Va. 308, 135 S.E. 1. The principle enunciated in these and similar cases is grounded upon the reasoning that the beneficial use is equivalent to ownership in place and that such result effectuates the intention of the parties. SeeToothman v. Courtney, 62 W. Va. 167, 176, 58 S.E. 915. InJackson v. Dulaney, 67 W. Va. 309, 67 S.E. 795, where a grantor excepted and reserved one-tenth of all the mineral oil that may be obtained by the grantee, his heirs and assigns, from the land granted, to be delivered on the land to the grantor, his heirs and assigns, it was held that there had been excepted and reserved one-tenth of all the oil produced, "possessing the same quality of estate as royalty reserved in an ordinary lease for oil and gas purposes." Syl., point 1. There arose in this jurisdiction in a series of cases involving the apportionment of royalties arising under a lease of property which subsequent to the date of the lease had been partitioned by the lessor, the question whether royalty was or is a separate and distinct entity. In Campbell v. Lynch, 81 W. Va. 374, 379,94 S.E. 739, a majority of the Court was of the opinion that royalty was not oil in the ground or the title thereto, but a separate and distinct entity; while in a dissenting opinion Judge Ritz disagreed with that position, declaring that a grant of the rents and profits or the income of land passed the land itself, both in law and in equity. In Pittsburgh and WestVirginia Gas Company v. Ankrom, 83 W. Va. 81, 97 S.E. 593, two of the judges were of the opinion that the Campbell case,supra, should be overruled, but it was not until the recent case of Walker v. West Virginia Gas Corporation, 121 W. Va. 251,3 S.E.2d 55, that the issue whether royalty should be considered as an estate distinct from the oil and gas itself, presented in the majority and dissenting opinions in theCampbell case, became firmly established and unquestionably this Court disapproved the view on that issue expressed in theCampbell case. See Article, Equitable Apportionment of Oil and Gas Royalties, 46 W. Va. Law Quarterly, 66, 76. These cited cases concerned oil and gas in place, and royalty in those instances was considered as an interest in real property since oil and gas in situ were interests real. However, where oil has been brought to the surface the royalty therein has been said to be personal property. Warren v. Boggs, 83 W. Va. 89,97 S.E. 589.

In the instant case Mary E. Clerc covenanted to yield and pay oil and gas produced and marketed from said lands. When oil and gas is produced and marketed from said lands, it loses its character of real property and, as shown in the Warren case, assumes the quality of personal property. Hence it is clear that it was not intended by the grantor that the grantees were to be vested upon delivery of the deed of any interest in real property. The distinction between oil and gas in place and oil and gas produced appears in McDonald v. Bennett, 112 W. Va. 347,164 S.E. 298, wherein the word "produced", qualifying a reservation of oil and gas, was held not to mean oil and gas in place.

That the parties to the deed did not comprehend that the grantees were to be vested with any interest in real property is strengthened by the further fact that the grantor reserved "the exclusive right of operating thereon for oil and gas, together with the rights of way necessary for such operations" has legal significance in this jurisdiction. The bare reservation of the right and privilege to operate lands for oil and gas has been held to effect a severance of oil and gas in place. Jamison Coal Coke Co. v. Carnegie Natural Gas Co.,77 W. Va. 30, 87 S.E. 451. In Hale v. Grow, 88 W. Va. 173,106 S.E. 409, where the grantor expressly reserved "the right to all Oil, Coal and other minerals pumped or excavated from the land herein conveyed, with the privilege of working upon said land for the purpose of obtaining such oil or minerals, the right of ingress and egress to and from the portion of said land necessarily occupied by such mining or pumping, paying therefor as rental to the second party the one-tenth (1/10) part of all such oil, coal or other minerals, if any should be obtained", the Court held:

"A clause in a deed conveying a tract of land, which, in terms, reserves the right to all oil, coal and other minerals taken from the land, with the privilege of entering thereon and obtaining the same and binds the grantor to pay to the grantee, as rental, one-tenth of such minerals, if any should be obtained, constitutes an exception and retention of the title to minerals in place."

By her reservation Mary E. Clerc definitely excluded any idea that the grantees or covenantees were to have any rights so far as the development of the oil and gas was concerned. The choice of words used to grant the land to Stone, Gates and Rogers and to reserve the oil and gas and appendant rights thereto in Mary E. Clerc shows the aptitude of the scrivener in the preparation of that instrument. This is a pertinent factor in considering the effect of the grantor's obligation to "yield and pay" an interest in the oil and gas produced and marketed, and, we think, requires that full meaning be accorded to the choice of the words "yield and pay". Had the parties intended that the grantees be vested with an interest in the oil and gas upon the delivery of the deed, the other portions thereof which show the use of esoteric terms would certainly have impelled the use of terms of grant. Moreover, there would have been no necessity for the covenantor to impose upon herself and her assigns the active duty "to yield and pay". In the construction of the Clerc deed, considered in Appeal No. 9472, the omission of the words imposing this obligation, distinguishes the two cases. Hence, from the foregoing, it must be said that there was effected affirmatively a severance of all the oil and gas in place reserved in their entities to the grantor, and as clearly the same factors negative any right of the grantees to an interest in the oil and gas in place.

From the foregoing it is evident that the effect of the deed from Mary E. Clerc was to vest the grantees with title to the surface while the grantor retained title in fee to the oil and gas. Upon production of oil or gas in paying quantities Mary E. Clerc covenanted then to pay and yield "one full sixteenth" of the oil and gas produced and marketed.

In Tennant v. Tennant, 69 W. Va. 28, 70 S.E. 851, and Rawling v. Fisher, 101 W. Va. 253, 132 S.E. 489, this Court refused to characterize the covenants involved in the respective cases as covenants real because they related to an estate reserved rather than one granted. In each of those cases there existed a severance of the minerals from the surface, and undeniably the covenants respected the minerals reserved rather than the surface estate. So in the instant case the grantor's covenant respected the minerals reserved, for the right of the covenantor as the owner of the minerals in fee to all of the royalties upon production in paying quantities was restricted by the obligation "to pay and yield" pursuant to the terms of the covenant.

In Lydic v. B. O. Railroad Co., 17 W. Va. 427, a right of way through land was granted to the railroad company, and in the deed, as consideration for the grant, the railroad covenanted with the grantor, his heirs and assigns, to build and forever maintain a switch from the railroad to the mill on the land for the use thereof, and this was held to be a covenant real which ran with the mill. That case, it would seem, illustrates a situation in which the thing granted was a right of way, yet the covenant touched and respected — not the right of way — but the estate which remained vested in the landowner after grant of the right of way. With like result areLucas v. Smithfield, C. H. F. Turnpike Co., 36 W. Va. 427,15 S.E. 182, and Harper v. The Virginian Railway Co., 76 W. Va. 788,86 S.E. 919. Are these cases inconsistent with, and contrary to, the Tennant and Rawling cases? We think not. As noted above, one of the essentials of a covenant real is that there must be privity of estate, even where the covenant touches and concerns land. Hurxthal v. Boom Co., 53 W. Va. 87,44 S.E. 520.

It is clear that in neither the Tennant nor the Rawling case was there a vehicle of conveyance to which the covenant respecting minerals could attach: hence, there was no privity of estate. This analysis is consonant with the rule stated in 11 Cyc. 1080, cited in the Tennant case, to the effect that the act covenanted to be done or omitted must concern the land or estate conveyed. The deed of Mary E. Clerc contained a conveyance of surface together with the reservation of the minerals and the covenant relating thereto, just as in both theTennant and Rawling cases, the covenants under consideration there were parts of agreements which involved both the surface and minerals. Hence it is our conclusion that in the instant case there was no privity of estate as to the oil and gas between the covenantor and covenantee, and the covenant therefore may not be held a covenant real.

It is contended by counsel for appellees that the covenant as to gas royalties is analogous "to the free gas covenant, which was held an appurtenance in Harbert v. Natural Gas Co., 76 W. Va. 207 ", 84 S.E. 770. Examination for the reason which prompted the Court's conclusion that the covenant for free gas was a covenant real does not appear from the opinion other than it is as much a covenant real as one to pay money rentals on gas wells and a benefit to the land. The first cases which developed the doctrine of real covenants were those in which covenants between landlords and tenants, relating to the use and enjoyment of leased premises, were involved. In such cases the estate of the tenant was, of course, a possessory one, while that of the landlord was a reversionary one. Existence of privity of estate was clear under such relationship. Covenants on the part of the tenant to repair or to pay rent unquestionably respected and concerned the subject matter of the estate of each of the contracting parties, and such covenants enhanced the value of the reversionary estate of the landlord. Both privity of estate and the factor of touching and concerning the land in a beneficial way existed in the case of landlord and tenant. SeeW. Va. C. P. R. Co. v. McIntire, 44 W. Va. 210, 28 S.E. 696, which holds that a lessee's covenant to pay taxes is a covenant real. Thus it is understandable that courts, when considering covenants in mineral leases to pay royalty, to furnish free gas, to test and develop the land, and to protect it from drainage uniformly applied the rule of covenants running with the land in ordinary leasehold estates. See Summers, Oil and Gas, Perm. Ed., Vol. 3, Section 553; also Millan v. Bartlett,69 W. Va. 155, 71 S.E. 13; Hefner v. Light, Fuel Water Co.,77 W. Va. 217, 87 S.E. 206; Steel v. American OilDevelopment Co., 80 W. Va. 206, 92 S.E. 410; Cummings v. UnitedFuel Gas Co., 116 W. Va. 599, 182 S.E. 789.

Appellee's counsel argue that the covenant touches and concerns the land because the reservation includes rights of way, rights to lay pipe lines, erect tanks and use water from the premises, and that the covenant is a promise of the owner of the minerals to compensate the surface owner for use of the easement. With this position we do not agree. The easement did not emerge from the grant or covenant of the grantor, but embraced only rights which were reserved by Mary E. Clerc in her deed to Stone, Gates and Rogers.

Appellees say, however, that "the agreement enhances the value of the land and renders it more convenient and beneficial to the owner". Of course, the benefit of a covenant such as is involved in this suit would be valuable to anyone, but that factor alone is insufficient to meet the test of a covenant real. In Lydick v. B. O. R. R. Co., supra, point 5 of the syllabus, reads:

"If some interest in land or a right of way or incorporated hereditament issuing out of land is granted, and in the deed the grantee covenants with the grantor and his assigns that he will do something which concerns the land and becomes united to it, so that it affects the value of the land, in whosesoever hands it may come, such covenant runs with the land, and there is privity of estate between such covenantor and such covenantee." (Italics supplied)

Before the question of benefits becomes pertinent as we have already noted, it is essential that there be privity of estate which we have shown to be lacking in the instant case, but, as the Court indicates in the syllabus in the Lydick case, the covenant, if it is to be considered a covenant real, must become united with the land. Where, as in the instant case, the covenant concerned is so detached from the use of the surface and, as was true in the Lydick and Lucas cases, supra, does not relate to the use of the land itself, it cannot be said that the covenant in any wise is beneficial thereto in the legal sense essential to make it a covenant real.

We have heretofore noted that the covenant burdened the estate reserved, and it is well to note also that this Court, adhering to the English or minority rule in this country, is committed to the doctrine that, except as between landlord and tenant, no burden can be imposed on land by a grantor's covenant so as to bind a subsequent grantee of the covenantor.West Virginia Transportation Co. v. Ohio River Pipe Line Co.,22 W. Va. 600; see also 3 Tiffany on Real Property, 3rd Ed., Section 850.

It is suggested by appellant's counsel that even if the covenant is personal the Stone interest therein was vitiated by the vendor's lien suit. In this regard it must be answered that even though this were so, the destruction of the covenant — being personal — could not in any wise inure to appellees' benefit. We do not deem it requisite to inquire of the effect upon the covenant of the vendor's suit and proceedings in the bankruptcy court.

From the foregoing we are of opinion that the decree should be reversed and the cause remanded for entry of a decree consonant with the principles herein set forth.

Reversed and remanded