Chicago Mill & Lumber Co. v. Ayer Timber Co.

• Decision Date: 10 March 1961
• Docket Number: No. 9419,9419
• Citation: 131 So.2d 635
• Parties: CHICAGO MILL AND LUMBER COMPANY, Plaintiff-Appellant, v. AYER TIMBER COMPANY, Inc., et al., Defendants-Appellees.
• Court: Court of Appeal of Louisiana — District of US

Page 635

131 So.2d 635

CHICAGO MILL AND LUMBER COMPANY, Plaintiff-Appellant, v. AYER TIMBER COMPANY, Inc., et al., Defendants-Appellees.

No. 9419.

Court of Appeal of Louisiana, Second Circuit.

March 10, 1961.

Dissenting Opinion March 24, 1961.

On Rehearing June 16, 1961.

Rehearing Denied July 7, 1961.

Wilkinson, Lewis, Madison & Woods, Shreveport, for appellant.

Simon, Carroll, Fitzgerald & Fraser, Shreveport, for Ayer Timber Co., Inc.

J. Carter Perkins, Alvin B. Gibson, Geo. C. Schoenberger, Jr., New Orleans, for Shell Oil Co.

Phillips, Risinger & Kennedy, Shreveport, and Burton Wade, St. Joseph, for David C. Tyrrell, J. N. Barineau, Jr., Francis W. Scott, Milton Crow, Inc., and Austin E. Stewart.

BOLIN, Judge.

Plaintiff filed suit against Ayer Timber Company, Inc., to have mineral reservation held by them on lands in Tensas and Madison Parishes, Louisiana, declared extinguished by ten year liberative prescription and that plaintiff, as present owner of the lands, be declared the owner of all minerals under said lands. Plaintiff also prayed that certain oil and gas leases held by the defendants, Shell Oil Co., Francis W. Scott, David C. Tyrrell, J. N. Barineau, Jr., Austin E. Stewart and Milton Crow, Inc. be cancelled from the public records; and that an accounting be made for all oil and gas produced under the leases. All defendants filed exceptions of no right and cause of action which were sustained by the trial judge. From such judgment, plaintiff has perfected this appeal.

As this matter is before us on the exceptions above set forth, the allegations of ultimate fact in the petition of appellant must be accepted as true. It was alleged that Ayer Timber Company was, at one time, a large landowner in Madison and Tensas Parishes; that it desired to divest itself of its land holdings but wished to retain the minerals thereunder for as long as possible; that in furtherance of its desires, Ayer Timber Co. executed certain instruments to plaintiff's authors in title denominated 'Lease with Option to Purchase'; that these 'leases' were for terms of five years and granted the 'lessees' therein the right to purchase the lands for certain stated considerations; that the so-called leases contained reservations of oil, gas and other minerals in favor of Ayer Timber Co., as did the subsequent instruments denominated 'deeds' obtained pursuant to the terms of the original option. Plaintiff also alleged that the rental under the leases to the one-third of the total consideration for the lease and transfer of title.

Further allegations recite that the basis of plaintiff's claim is the intent of Ayer Timber Co., to devise a method to extend the life of a mineral servitude and thus, to circumvent the law of the State and the public policy thereof relative to the life of mineral servitudes. Paragraph VI of the petition reads:

'At the respective dates of execution of the instruments styled 'Lease with Option to Purchase' referred to in paragraphs 2(a), (b), (c) and (d) as Exhibits 'P--1', 'P--3', 'P--5', 'P--6', and 'P--9', It was the intention of the parties to said instruments in executing same that the so-called lessee was in reality the vendee rather than lessee of the property described in said instruments, and that said instruments were styled as such in an attempt to allow the vendor, Ayer Timber Company, Inc., to reserve the mineral rights for a period in excess of ten years.' (Emphasis ours.) Paragraph VII of the petition reads:

'In executing each of the instruments styled 'Lease With Option To Purchase' referred to in paragraphs 2(2), (b), (c) and (d) as Exhibits 'P--1', 'P--3', 'P--5', 'P--6' and 'P--9', it was the purpose and intention of Ayer Timber Company, Inc., to obtain such a large proportion of the purchase price for the so-called rental period, that the purchaser, as a practical matter, would be forced to pay the balance due on the purchase price; and this type of instrument was used for the sole and only purpose of putting the purchaser in a position where, from an economic standpoint, he would be required to consummate the purchase and yet Ayer Timber Company, Inc., would have fifteen, rather than ten years within which to develop the minerals in the respective tracts; and the sole reason for employing this type of instrument was to put into effect a scheme devised by Ayer Timber Company, Inc., to circumvent the Louisiana law relative to the ten-year liberative prescription of minerals servitudes for non-usage as provided in Article 789 of the (LSA--)Civil Code of Louisiana and to thwart and evade the law contrary to the well-recognized and accepted public policy of the State of Louisiana as announced in many decisions of the Supreme Court of Louisiana as well as the Federal and other courts of this State.'

Allegations of circumstances surrounding the execution of the instruments were also contained in plaintiff's petition as follows:

A. The lessor reserved the minerals.

B. The property leased was worthless for all practical purposes during the term of five years.

C. The 'lease' made no provisions as to the use to be made of the lands under 'lease'.

D. The amount of 'rent' paid in the five year term was one-third of the total price required to obtain title.

E. The consideration for the 'lease' bound the 'lessee' to execute the option to purchase as a matter of practical economics.

F. Identical transactions with others show the purpose the Timber Co. sought to accomplish, that is, circumvention of the ten year liberative prescription period applicable to servitudes.

Plaintiff further alleged that Ayer Timber Co. executed two oil and gas leases affecting the property and that it believes production has been obtained on the tract within ten years from the date of the transfer of title under the option but more than ten years from the date of execution of the original instruments.

As we appreciate this case, we have two issues involved, which may be briefly stated as follows:

1. Has the plaintiff alleged sufficient facts to entitle it to a trial on the merits in an effort to show that Ayer Timber Company, Inc., has attempted to extend a mineral servitude beyond the prescriptive period of ten years and thereby circumvent the well established public policy of this state?

2. In the event the instrument in question is set aside as being such an effort to circumvent our laws, do the oil and gas leases affecting the property also become a nullity or are such lessees protected as innocent third parties under the laws of registry?

If there is anything that seems to be well established in our jurisprudence, it is that any instrument which attempts to extend a mineral servitude beyond the prescriptive period set forth in our codal articles will be declared a nullity by our courts, if such fact is properly presented and established. Therefore, the only question presented herein is whether the plaintiff has alleged sufficient facts in its petition, which if proven by it on a trial, would show that the defendant, Ayer Timber Company was attempting to extend such mineral servitude in contravention of our public policy. In connection with this problem, we must admit that our examination of the briefs of counsel representing the litigants, as well as our independent research of the jurisprudence, leads us to the conclusion that the exact factual situation herein has never been decided by our Appellate Courts. In order to arrive at some decision on these facts, we feel it appropriate to briefly comment upon the holdings of other Louisiana cases that have enunciated general rules wherein similar instruments were nullified as being contrary to such public policy.

The landmark case of Frost-Johnson Lumber Co. v. Salling's Heirs, 1922, 150 La. 756, 91 So. 207, 239, is generally regarded as the original decision of our Supreme Court establishing the paramount rule of Louisiana mineral law that a mineral sale or reservation does not create a separate mineral estate, but only a right in the nature of a servitude subject to the liberative prescription of ten years. If restrictions had not been so imposed on the right to hold minerals out of commerce, as Justice O'Niell stated:

'* * * it would recognize a species of perpetual incumbrance upon real estate which has never yet found an abiding place in our civil law system.'

Six years before the Salling's Heirs case, supra, the Court in Bristo v. Christine Oil & Gas Co., 1916, 139 La. 312, 71 So. 521, struck down as being null a contract purporting to give a perpetual option to hold land under a mineral lease, on the ground that it:

'* * * would take the property out of commerce, and would be violative of the doctrine of ownership, defined in the second title of the second book of the Civil Code.' 139 La. 315, 71 So. 522.

In the recent case of Gueno v. Medlenka, 1960, 238 La. 1081, 117 So.2d 817, the Supreme Court restated the basic principle as follows:

'* * * it is contrary to the public policy of this State to hold property out of commerce and this Court has consistently applied the liberative prescription of ten years in dealing with the exercise of mineral rights.' 238 La. 1101, 117 So.2d 824.

It is clear from the Salling's Heirs case, and later decisions, that Louisiana public policy is directed against the withdrawal of valuable property rights from commerce.

In the early period of judicial development of Louisiana's mineral laws, the efforts by the landowners to extend the life of the mineral servitude were by means of direct stipulations in the instrument. The first of these was an agreement between the landowner and the mineral owner that the minerals were reserved for a period in excess of ten years. Such provisions, being contrary to our public policy, were declared a nullity on the ground that prescription could not be renounced before it accrued. Bodcaw Lumber Co. of Louisiana v. Magnolia Petroleum Co., 1929, 167 La. 847, 120 So. 389.

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