Cent. Pipe Line Co. v. Hutson

• Decision Date: 18 November 1948
• Docket Number: No. 30556.,30556.
• Citation: 82 N.E.2d 624,401 Ill. 447
• Parties: CENTRAL PIPE LINE CO. v. HUTSON et al.
• Court: Illinois Supreme Court

401 Ill. 447

82 N.E.2d 624

CENTRAL PIPE LINE CO.

v.HUTSON et al.

No. 30556.

Supreme Court of Illinois.

Nov. 18, 1948.

Appeal from Circuit Court, Wayne County; Caswell J. Crebs, judge.

Action of equitable interpleader by Central Pipe Line Company against Geneva Hutson and others and against Elsie Mae Cornstubble and others to determine the ownership of funds derived from purchase of royalty oil. From a decree in favor of Elsie Mae Cornstubble and others, Geneva Hutson and others appeal.

Decree affirmed.

Hill & Dolan, of Mt. Vernon, and Creighton & Kerr, of Fairfield, for appellants.

Craig & Craig, of Mr. Vernon, for appellees.

CRAMPTON, Justice.

This is an appeal from a decree of the circuit court of Wayne County in favor of appellees, in an action of equitable interpleader instituted by the Central Pipe Line Company to determine the ownership of funds in its hands. The funds were derived from the purchase of royalty oil, and a determination was also sought of the ownership of future funds to be derived from the same source.

We ascertain the basic facts to be as follows: In July, 1936, Emma Tyler, a widow, owned 114 acres of land. On July 13 of that year she leased all of the land for oil and gas; 74 acres thereof being in sections 27 and 28, and 40 acres being in section 4. Before any oil or gas wells were ever drilled upon any of the acrease, Emma Tyler in January, 1938 (as an act of voluntary division between her children), by deeds conveyed all of the land in fee. In each deed she reserved a life estate which she enjoyed until her death intestate in November, 1941. In December, 1945, wells were drilled on the 74-acre tract; no wells were ever drilled on the 40-acre tract. From those wells oil was producted, sold and marketed to an extent whereby the Central company had impounded $4726.95.

By various assignments the oil-and-gas lease as to the 74-acre tract passed to one Mitchell. By mesne conveyances the fee in the 74 acres became vested in Elsie Mae Cornstubble. A one-half of the fee in the 40 acres remained in Geneva Hutson, who is a daughter of Emma Tyler. The other one-half of that fee belonged to Lucille Coil, another daughter of Emma; this one-half became the property of Cecil Tyler subject to a reservation by Lucille of an undivided one-fourth of the minerals for 20 years or so long as oil or gas is produced. The oil-and-gas lease covering the 40-acre tract was retained by the assignee of the original lessee.

The oil-and-gas lease which Emma Tyler gave did not contain a royalty proration clause providing, in the event the leased 114 acres shall thereafter be owned in severalty or in separate tracts, that the entire 114 acres shall be developed and operated as one lease, and that all royalties accruing thereunder shall be treated as an entirety, to be divided among and paid to the separate owners in the proportion the acreage of each separate owner bears to the entire leased acreage.

Errors relied upon by the appellants, and the counter-propositions advanced by appellees to negative them lead to but one issue. It is-Where a lease for oil and gas does not contain a proration clause, and the owner of the fee, subsequent to the execution of the lease, disposes of all by conveying portions thereof to others, and oil or gas is produced from some portion of the leased property after it was fractioned, does the royalty therefrom belong only to the owner of the particular portion upon which the well is located, or does the royalty belong to all the owners of all the portions upon a prorata basis? Courts of last resort of other States have been confronted with this issue, but this is the first time it has been presented to this court.

The appellants advance the point that, as a matter of law, oil-and-gas-lease royalties should be apportioned in the same manner as is the apportionment of rentals payable under surface or business leases. This is predicated upon the fact that apportionment of rentals has long been recognized in Illinois. Crosby v. Loop, 13 Ill. 625;Hill v. Reno, 112 Ill. 154, 54 Am.Rep. 222. Oil before being separated from the land is a mineral and is a part of the land. Jilek v. Chicago, Wilmington & Franklin Coal Co., 382 Ill. 241, 47 N.E.2d 96, 146 A.L.R. 871. A mining lease only gives to the lessee the right to find and reduce minerals to possession, the title to the minerals remaining in the lessor just as long as they remain in the land. The lessee pays the rent or royalty only upon what he finds and takes possession of. Updike v. Smith, 378 Ill. 600, 39 N.E.2d 325;Triger v. Carter Oil Co., 372 Ill. 182, 23 N.E.2d 55. Unaccrued rent is part of the land, being an incorporeal hereditament which follows the land and passes with a devise or sale thereof. People ex rel. Hargrave v. Phillips, 394 Ill. 119, 67 N.E.2d 281.

Where this issue has been presented to the courts of last resort in other States their decisions have not been universally harmonious. The lack of harmony is due to a fundamental difference of opinion regarding the innate character of potential oil or gas royalties. Wettengel v. Gormley, 1894, 160 Pa. 559, 28 A. 934,40 Am.St.Rep. 733, is the earliest reported case dealing with this issue. Gormley owned three farms and gave one oil-gas mining lease. After his death each of his three children obtained a farm by devise. Subsequent to Gormley's death the lessee produced oil from one of the farms, but production was not obtained from the other two. The royalty was apportioned among the three devisees on the ground they were entitled to share therein because the oil may have been drawn from the three farms. Besides giving consideration to the fugacious nature of oil and gas, the court reasoned from the character and legal effect of the lease. An oil lease, it held, partakes of the character of a lease for general tillage, i.e., agricultural, rather than of one for the mining or quarrying of solid minerals. The court lacking any precedent to follow applied to the issue the doctrine of the apportionment of surface rents. The court had occasion in Wettengel v. Gormley, 184 Pa. 354, 39 A. 57, to examine its holding in the prior case. It stood by that holding, stating additionally that, inasmuch as the lease covered the three farms as a single, undivided tract, the rent (royalties) may be said to issue from each and every part. The royalties belonged to all the owners and not to the owner of any part. The court held the royalties to be personal estate which was not disposed of by Gormley in his will, hence were intestate property, to be divided among the three children in the proportion his or her share of the land bears to the whole acreage subject to the lease. The royalties were payable upon the total production from the whole acreage whenever and wherever production took place.

Lynch v. Davis, 79 W.Va. 437, 92 S.E. 427, L.R.A.1917F, 566, presented the question of the division of royalties where the devisees of a tract of land partitioned it and later executed their joint oil-and-gas lease covering the whole tract. No provision was contained in the lease for the payment of the royalties separately to the lessors. The court held the terms of the lease made it mandatory to pay the royalties to all, regardless of upon which portion of the whole tract the oil was produced. The rule laid down in Wettengel v. Gormley, 160 Pa. 559, 28 A. 934,40 Am.St.Rep. 733, was approved and was applied in the succeeding case of Campbell v. Lynch, 81 W.Va. 374, 94 S.E. 739, L.R.A.1918B, 1070. In the latter case the owner of two tracts leased them by separate leases. The owner died, and the two tracts were partitioned by court order and various parts given to respective heirs. Subsequent to the partition producing wells were drilled on several tracts, except lot No. 6 of the partition. The owners of that lot sued to obtain a share of the oil royalties and gas rentals coming from the other lots. The court declared the oil royalty constituted rental of all of the two tracts. It is not the land or the land title, being something complete in itself although analagous to rent, for it comes from the land. The case of Pittsburgh and West Virginia Gas Co. v. Ankrom, 83 W.Va. 81, 97 S.E. 593, 5 A.L.R. 1157, distinguished Lynch v. Davis from Campbell v. Lynch, and repudiated the rule in Wettengel v. Gormley which had been applied in Campbell v. Lynch. The court adhered to the contrary doctrine of treating unaccrued royalty as real property and not as personal property. In Musgrave v. Musgrave, 86 W.Va. 119, 103 S.E. 302, 16 A.L.R. 564;Fisher v. Teter, 89 W.Va. 693, 109 S.E. 896;Walker v. West Virginia Gas Corp., 121 W.Va. 251, 3 S.E.2d 55, and Robinson v. Milam, 125 W.Va. 218, 24 S.E.2d 236, the doctrine adopted in the Ankrom case was consistently adhered to.

In 1919 the Supreme Court of Oklahoma decided Kimbley v. Luckey, 72 Okl. 217, 179 P. 928, involving the following facts. Floyd Luckey, the owner of 160 acres, conveyed his title to all the land to Louis Luckey by warranty deed. Both Luckeys joined in an oil-and-gas lease to Lambert covering the whole acreage; thereafter, but before the development of the property for oil and gas, the Luckeys conveyed 40 acres via intermediary parties to Kimbley and another. Lambert produced oil on the 120 acres remaining with the Luckeys but never produced any on the 40 acres. Kimbley and the other sued to recover a portion of the royalties paid the Luckeys, basing their action upon the proposition the royalties were personal property in the guise of rent, therefore such should be apportioned as coming from the whole 160 acres. They relied upon the holdings in Wettengel v. Gormley, Lynch v. Davis, Campbell v. Lynch, and Higgins v. California Petroleum & Asphalt Co., all of which are cited and discussed herein. The Oklahoma court carefully examined those cases and refused to follow them. It said the warranty deed conveying the 40 acres was made in substantial...