Cate v. Archon Oil Co., Inc.

• Decision Date: 19 February 1985
• Docket Number: No. 60148,60148
• Citation: 695 P.2d 1352,1985 OK 15
• Parties: 40 UCC Rep.Serv. 1941, 1985 OK 15 Clifford K. CATE, Jr., Appellee, v. ARCHON OIL COMPANY, INC., Appellant.
• Court: Oklahoma Supreme Court

Page 1352

695 P.2d 1352

40 UCC Rep.Serv. 1941, 1985 OK 15

Clifford K. CATE, Jr., Appellee, v. ARCHON OIL COMPANY, INC., Appellant.

No. 60148.

Supreme Court of Oklahoma.

Feb. 19, 1985.

Lawrence A.G. Johnson, Belva M. Brooks, Tulsa, for appellant.

Mitchell E. Shamas, Okmulgee, for appellee.

KAUGER, Justice.

The questions presented are whether an oil and gas lease is personalty or an interest in land, and what procedure should be used in the execution of a sheriff's sale of an oil and gas lease. We find that an oil and gas lease creates an interest in realty although it is not per se real estate, and that procedural due process must be followed before property can be sold at a sheriff's sale.

Clifford K. Cate, Jr., an attorney recovered legal fees in a default judgment in Muskogee County against Archon Oil Co. Inc., appellee, in the amount of $6,775.23 plus attorney fees. The attorney issued execution directing the sheriff of Okmulgee County to levy upon an oil and gas lease owned by Archon, and the sheriff of Okmulgee County summoned appraisers who appraised the property at $10,500.00. The property was advertised for sale as a sale of lands and tenements by publication for two consecutive weeks in accordance with 12 O.S.1981 § 764. Thereafter, the attorney paid $500.00 for the lease at the sale. Archon objected to the confirmation of the sale based on the assertions that because an oil and gas lease is an interest in land, and because the statutory procedure for sale of realty was utilized in notice by publication it must be sold as realty; that a bid of two-thirds of the appraised valuation was required, and, therefore, the sheriff did not follow the proper statutory procedure. At the sale, Archon also argued that the sale price should shock the conscience of the court because the actual value of the lease was $45,000.00. The sale was confirmed and Archon appealed.

AN OIL AND GAS LEASE CREATES AN INTEREST IN REAL PROPERTY

BUT IT IS NOT PER SE REAL ESTATE; AN OIL AND GAS LEASE

TAKEN ON EXECUTION BY THE SHERIFF MUST BE SOLD IN ACCORDANCE

WITH PROCEDURAL DUE PROCESS.

Archon contends that an oil and gas lease is an interest in land, that it must be sold as realty, and that failure of the sheriff to require two-thirds of the appraised value to be paid at the sale is reversible error.

It has been held consistently in Oklahoma that although an oil and gas lease creates an interest or estate in realty, the interest is not per se real estate. ¹ The dispositive issue is not whether the statutory procedure to be followed is that for the sale of personalty or that for the sale of realty, rather it is whether the procedure accords with fundamental notions of due process.

The woeful inadequacy of the bid price in this case underscores the constitutional infirmity of the statutory notice procedures delineated by 12 O.S.1981 § 757 (governing the sale of goods and chattels) and 12 O.S.1981 § 764 (controlling the sale of realty). These statutes, which require notice by publication only, have remained virtually unchanged since 1910, ² despite the numerous rulings of this Court which require personal notice if it reasonably is possible. ³

The Legislature has required pursuant to the Uniform Commercial Code, 12A O.S.1981 § 2-706(3), 12A 1981 9-504(3) ⁴ that the sale of collateral or resale of repossessed goods must be conducted in a commercially reasonable manner. The debtor, as well as any other persons who have a security interest in the property must be notified properly of even a possible sale. If personal notice to the debtor is required of a private sale of relatively inexpensive chattels, surely no less is required of a public sale.

Notice by publication and by posting are designed primarily to attract prospective purchasers, and are unlikely to reach those who have an interest in the property. ⁵ If the actual whereabouts of the parties are known, failure to afford personal notice to those who have an interest or estate in real property ⁶ sought to be sold in satisfaction of a judgment, results in an unconstitutional exercise of jurisdiction insofar as the interest of the owner is affected. ⁷ The United States Supreme Court in Mullane v. Central Hanover Bank and Trust Co., 339 U.S. 306, 313-315, 70 S.Ct. 652, 656-657, 94 L.Ed. 865, 872-874 (1949) determined that the parties should be provided the full opportunity to appear and be heard, the Court said:

"An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. The notice must be of such nature as reasonably to convey the required information, and it must afford a reasonable time for those interested to make their appearance. * * * but when notice is a person's due, process which is a mere gesture is not due process. The means employed must be such as one desirous of actually informing the absentee might reasonably adopt to accomplish it."

Theoretically, publication may be available for all the world to see, but it is presumptuous to suppose that anyone could read all that is published to see if something may be reported which affects his/her property interest. Exclusive reliance on an inefficacious means of notification cannot be permitted under the Mullane doctrine--neither necessity nor efficiency can abrogate the rule that, within the limits of practicability, notice must be reasonably calculated to reach the interested parties. If the names of those affected by a proceeding are available, the reasons disappear for resorting to means less likely than the mails to apprise them of the pending sale. Mail service can be utilized as an inexpensive and efficient mechanism to enhance the reliability of the otherwise unreliable procedure of notice by publication. ⁸

In Mennonite Bd. of Missions v. Adams, 462 U.S. 791, ---- - ----, 103 S.Ct. 2706, 2711-12, 77 L.Ed.2d 180, 187-88 (1983) the United States Supreme Court discussed an analogous situation. The Court held that a mortgagee's knowledge of delinquency in payment of taxes was not the equivalent of notice that a tax sale was pending. The Court reaffirmed Mullane and determined that if the party's name and address are reasonably ascertainable, notice by mail or other means certain to insure actual notice is a constitutional prerequisite to a proceeding which will affect the liberty or the property ⁹ interests of any party.

Notice is a jurisdictional requirement as well as a fundamental element of due process. ¹⁰ Due process requires adequate notice, a realistic opportunity to appear at a hearing or judicial sale, and the right to participate in a meaningful manner before one's rights are irretrievably altered. The right to be heard is of little value unless adequate notice is given. Due process is violated by the mere act of exercising judicial power upon process not reasonably calculated to apprise interested parties of the pendency of an action, ¹¹ and lack of notice constitutes a jurisdictional infirmity. ¹²

Our pronouncement today shall be given effect in this case, and, prospectively, to all sales previously governed by 12 O.S.1981 § § 757, 764 occurring after the mandate herein is issued. ¹³

REVERSED.

HODGES, OPALA and WILSON, JJ., HOWARD, S.J. (was appointed for SUMMERS, J., who disqualified) concur.

SIMMS, C.J., concurs in result;

DOOLIN, V.C.J., and LAVENDER and HARGRAVE, JJ., dissent.

1 Hinds v. Phillips Petroleum Co., 591 P.2d 697-98 (Okla.1979); In the case of DeMik v. Cargill, 485 P.2d 229, 232 (Okla.1971), this Court clearly enunciated the applicable distinction. The Court held:

"Thus, in the character of property created by an oil and gas lease, there is a recognizable distinction between real estate and an estate in real property. Not every kind of estate recognized in law as an interest in real property is real estate. Although an oil and gas lease creates an interest or estate in realty, such interest is not per se real estate."

In Pauline Oil & Gas Co. v. Fischer, 185 Okl. 108, 90 P.2d 411, 412 (1939) the syllabus of the Court states:

"While an oil and gas lease which grants, leases, and lets' certain land for oil and gas mining purposes, conveys to the lessee an estate in the realty described therein, such interest is not real estate within the meaning of section 690, C.O.S.1921, 12 Okl.St.Ann. § 706, which gives a judgment creditor a lien upon the 'real estate' belonging to the judgment debtor."

The Court said in State v. Shamblin, 185 Okl. 126, 90 P.2d 1053, 1055 (1939), that: "It has been repeatedly and consistently held that such oil and gas mining leases are chattels real and are, therefore, personal...