Peerless Oil & Gas Co. v. Tipken

ARNOLD, J. This is an appeal from the district court of Lincoln county wherein the trial court sustained the demurrer of the defendants to the petition of the plaintiff. The plaintiff alleged that the defendant Louis Tipken was the owner in fee simple of the W.% of the N.W. 14 of sec. 15, twp. 13 N., range 6E., Lincoln county, Okla.; that on January 11, 1927, for a valuable consideration, he, together with his wife, executed and delivered to the plaintiff a mineral deed conveying, for a term of 15 years and as long thereafter as oil and gas may be produced, an undivided one-half interest in and to all the oil, gas, and other minerals in and under and that might be produced from the N.WAA of the N.W.V4 of sec. 15; that on May 22, 1935, Tipken and his wife, defendants, and the Peerless Oil & Gas Company, plaintiff, joined in the execution of an oil and gas mining lease covering the entire W.% of the N.W. 14 of said section 15. Thereafter, the iforkan Production Company secured production under said lease from a well on the S.W.% of the N.W. 14 of said section 15; all royalties had been paid to the defendants without division or distribution of any portion thereof to the plaintiff. Plaintiff further alleged that said oil and gas lease above referred to contains a provision and an agreement which is as follows: “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 lessor only in the proportion which . . . interest bears to the whole and undivided fee.” That by virtue of such agreement in said lease, the plaintiff is entitled to one-fourth of all the royalties paid or payable for oil and gas produced and sold from the above lands, the W.% of the N.W. 14 of said sec. 15; that although demand has been made for its proportionate share of said royalties, no part thereof has ever been paid to the plaintiff. A copy of the lease was attached to the petition and made a part thereof. *398 Plaintiff concluded its petition with a prayer for an accounting and one-fourth of the value of all oil and gas royalties accrued under the lease and judgment decreeing it the owner of a one-fourth royalty interest in the oil and gas to be produced under said lease. The above state of facts, standing alone, constitute a cause of action in favor of the plaintiff, and the court erroneously sustained the demurrer to said petition. ■ It is the contention of the plaintiff that said above-quoted provision of said lease means that the royalties must be paid to the lessor, whether one or more, in the proportion which their or its interest bears to the whole and undivided fee, and, therefore, the plaintiff, owning 20 acres out of the 80 acres under the lease, as a colessor, is entitled to one-fourth of the royalties produced from the lands pooled and described in said lease. The defendants take the position that such clause means that if the lessor, Peerless Oil & Gas Company, owns less than the whole of its parcel, it should receive only its proportionate part of the royalties under that particular tract, and that the lease contract should not be enlarged to allow it to participate in the oil produced from a tract that it never acquired any interest in by deed. Galt et al. v. Metscher, 103 Okla. 271, 229 P. 522, and the other cases to the same effect, relied on by defendants, holding that where subsequent to the execution of a lease a tract of land is subdivided and sold in separate tracts subject to the lease, the owners of such separate tracts are entitled to all the royalties accruing from their separate tracts, have no application to the question herein, that is, the division of royalties under a joint lease executed by the owners of separate contiguous parcels of land as a single tract. In Kimbley v. Luckey, 72 Okla. 217, 179 P. 928, we said: “Where a tract of land subject to an oil and gas lease is subdivided by the owner and lessor -by selling a portion thereof, the purchaser of such portion takes the same subject to such lease; and, should the lessee therein thereafter discover and produce oil or gas from the residue of the leased premises, such purchaser is not entitled to an apportionment or share of the royalties accruing from the oil and gas produced thereon.” See, also, Pierce Oil Corp. v. Schacht, 75 Okla. 101, 181 P. 731; Galt et al. v. Metscher, supra, and the other cases to the same effect. Conversely, in Brazell v. Brown, 169 Okla. 623, 38 P. 2d 17, we held that where two tracts of land, owned in severalty, are joined by different owners in an oil and gas lease providing for royalty to the credit of the lessors, and the lease is silent as to the division of royalty between lessors and the development is upon and the production is from one tract of the lands leased, the undeveloped royalty interest so joined is entitled to share proportionately in the production, and a petition so pleading, together with an allegation that at the time of execution of the lease contract it was agreed that such owner of the leased land should share ratably in the royalty, states a cause of action against the colessor and producer. We are committed to the rule that where two or more owners of contiguous tracts of land join in a single lease thereof to a third party for oil and gas purposes as a single tract, and it is provided therein for delivery of one-eighth of the oil produced to the lessor, all the royalty will be divided among the lessors in the proportion that the area of the tract owned by each bears to the total area covered by the lease, in the absence of an agreement between the lessors to the contrary, regardless of the ownership of the particular tract upon which the well or wells may be drilled from which oil is produced. Higgins v. California Petroleum Co., 109 Cal. 304, 41 P. 1087; Lynch v. Davis, 79 W. Va. 437, 92 S.E. 427, L.R.A. 1917F, 566; and Seal v. Banes, 183 Okla. 203, 80 P. 2d 657. *399 However, the question of the division of royalties in such a case is a matter of intention of the colessors, which may be determined from the language of the lease itself, or by separate contracts or agreements between such lessors, or such conduct of the parties after the execution of the lease as would indicate a construction of the lease by them on this matter. Lusk v. Green, 114 Okla. 113, 245 P. 636; Brazell v. Brown, supra; Parker et al. v. Parker et al. (Tex. Civ. App.) 144 S.W. 2d 303; Louisiana Canal Co. v. Heyd et al., 189 La. 903, 181 So. 439, 116 A.L.R. 1260, 1267. See 3 Summers on Oil & Gas (Perm. Ed.) sec. 611. In Lusk v. Green, supra, Selah and Susan Lusk, husband and wife, owned severally in fee simple separated quarter sections of land. They executed in the year 1912 a joint oil and gas lease covering the separate lands. Susan died and production was had on the land owned by her; Selah died and his devi-sees sued for a proportionate royalty share in the oil produced from the land' owned by Susan. The decree of distribution in the probate of Susan’s estate became final, thus distributing the interest in the land leased by Susan adverse to Selah’s devisees. There was no clause in the lease to the effect that royalty should be paid to separate owners in the proportion that noncontiguous acreage owned and leased bore to the entire but separate lands, and this court, under these facts, would not indulge the presumption that a joint lease gave rise to an intention to a mutual conveyance of royalty interest. In Higgins v. California Petroleum & Asphalt Co., supra, it is held that where owners of distinct contiguous parcels of land enter into a joint mineral lease of their properties, which by provision reserves part of production as royalty but remains silent as to division of royalty, the terms of the lease warrant a presumption of equal proportionate division of the royalty payment. In Clark v. Elsinore Oil Co., 138 Cal. A. 6, 31 P. 2d 476, the opinion, while considering that silence would warrant division of royalties to joint lessors of contiguous lands, deems it important that lessors there involved “chose to render it certain that there was to be an equal division of whatever royalties might be received”; such a provision, it was held, indicates an intention “to pool their holdings to the end that one or more oil producing wells might be developed on their joint properties and that no matter what location or on whose land such well or wells might be drilled, whatever profit might result therefrom should be divided equally” to the owners of equal mineral interests in the land. It is noteworthy there, as here, that the terms of the lease agreement made royalty payable to the lessors, not to the particular lessor on whose land a producing well might be drilled. In Lynch v. Davis, supra, there was involved, as here, rights of owners of different tracts of land who executed a joint lease thereon for the production of oil and gas. It was held that where a well was drilled upon one of the adjacent tracts, and oil produced in paying quantities, the royalty therefrom should be equally divided among the different owners. The court approved the rule in Wettengel v. Gormley (1894) 160 Pa. 559, 40 Am. S. Rep. 733, 28 Atl. 934, and Higgins v. California Petroleum & Asphalt Co., supra. In Lynch v. Davis, supra, one issue was involved. It was whether royalty, arising from production from a well drilled upon land under one boundary jointly leased but severally owned without provision for payment of royalty to lessors separately, was to be paid to lessors proportionately. It was observed that as between lessors and lessee such a lease would be treated as a joint contract and not a contract requiring the lessee to perform obligations with each lessor, or in relation to the estate of each of the lessors. So that a well drilled on one of the tracts but not on the other, within the boundary, preserved the rights of the lessee and maintained the lease contract. South Penn Oil Co. *400 v. Snodgrass, 71 W. Va. 438, 43 L.R.A. (N.S.) 848, 76 S.E. 961. Therefore, when lessors of land so owned enter into a joint lease, they are presumed to know not only this limited performance required of the lessee, but also the vagrant character of oil in place. Consequently, as in the case at bar, the contention of the defendant-lessor that he is entitled to all the royalty produced from the well drilled upon his land is in recognition of the rule that such performance on the part of the lessee is sufficient to maintain the lease restricting the use of land of the colessor, thus allowing all of the' oil to be extracted through the one well so located, because of the vagrant character of the petroleum, so as to devastate the oil and gas underlying the colessor’s land without compensation. The West Virginia court found that a more reasonable construction was that the parties, knowing of rights of the lessee and being acquainted with the fugitive character of oil and gas in place, for convenience leased their several tracts of land as one tract, contemplating that whatever oil was produced from the whole tract of land should be paid to them jointly. In fact there, as here, it was pointed out “this is the language of the lease.” It provides for payment to the lessors of the one-eighth of the oil produced from the land. There, as here, it was thought it “not likely that these parties would have made this lease in the form that they did had they believed that one of them might receive all the compensation to be derived from the production of oil.” To hold that each party is entitled to receive the royalty oil or payment from a well drilled on a tract owned by that party is in effect allowing that one party to appropriate the oil and gas of the other without • compensation. That court rejected, as not well founded, the theory that a division of royalties, in such a case, would in effect convey a part of the real estate of one lessor to another without all requisite formalities. The result reached, it was said, instead of having the effect urged, prevented one of the parties from securing a part of the estate of the other without procuring a conveyance or paying compensation therefor. The logic of the decision in Lynch v. Davis, supra, is unanswerable. Counsel make no contention that the lease in question herein is not one providing for the development of the whole tract consisting of 80 acres as a unit. We think, and therefore hold, that the oil and gas lease in question is one providing for the development of the entire tract as a whole or an entirety. It is common knowledge that oil and gas are generally produced from a common source of supply. It seems natural to us, and we assume, and therefore hold, that where the owners of separate contiguous parcels of land execute an oil and gas lease jointly providing for the development of the combined area as an entirety, it will be presumed, in the absence of a showing to the contrary, that the individual owners of the various parcels comprising said tract in- . tended that the royalty provided therein should be apportioned to them in the proportion that their ownership bears to the entire tract. Such presumption arose in this instance when the plaintiff included the lease in question in its petition. The plaintiff by reason of this presumption, therefore, alleged an intention on the part of the lessors to divide the royalty accruing from the entire tract according to and in proportion to their individual ownership. Except for this presumption, it would have been necessary for the plaintiff to have alleged the intention or contract of the lessors as to the division of royalties. This presumption rendered a specific allegation thereon unnecessary. This presumption, of course, is a re-buttable one, which may be overcome by testimony of defendants disclosing a contrary intention. In view of the foregoing discussion and holding, it is obvious that the contention of the plaintiff that the above-quoted provision of said lease constitutes an “entirety clause” and that by *401 reason thereof the royalty must be paid to the lessor, whether one or more, in the proportion which said interest bears to the whole undivided fee, is immaterial, for this lease is one contemplating the development of the entire tract as a whole with or without regard to said clause. However, we cannot agree with such contention. 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, it or they will take in the proportion which the interest actually owned bears to the full title. Carlock v. Krug et al., 151 Kan. 407, 99 P. 2d 858; Brazell v. Brown, supra; Parker et al. v. Parker et al., supra. Notwithstanding this construction, this provision and all other provisions of the lease may be considered along with oral or written contracts or agreements or conduct of the lessors which would indicate the intention of the lessors as to the division of royalties. This cause is reversed, with directions to the trial court to proceed in conformity with the views herein expressed. WELCH, C.J., and RILEY, BAYLESS, and HURST, JJ., concur. CORN, V.C.J., and OSBORN, GIBSON, and DAVISON, JJ., dissent.