Coline Oil Co. v. Cannon
| Decision Date | 21 January 1930 |
| Docket Number | Case Number: 18321 |
| Parties | COLINE OIL CO. v. CANNON, Trustee, et al. |
| Court | Oklahoma Supreme Court |
¶0 1. Estates--Merger of Estates.
The common-law rule of merger of estates is a rule of action in this state and is operative when a greater and a lesser estate coincide and vest in the same person where there is no intermediate estate intervening. In respect to a union of a servitude and a servient tenement in the same person, the rule is statutory.
2. Same--Equity Jurisdiction to Prevent Merger.
Where justice requires it, a legal merger may be prevented by a court of equity.
3. Oil and Gas--Extinguishment of Lease by Assignment to Purchaser of Property.
Where a lessee of an oil and gas lease assigns his leasehold interest to another, who is the owner in fee of a part of the leased premises by purchaser thereof from the lessor subsequent to the making of such lease, the legal operation of such assignment as to the part of the leased premises owned in fee by the assignee is the extinguishment of the lease.
4. Oil and Gas--Termination of Lease by Expiration of Primary Term Without Development.
In a case as described in paragraph 3 of this syllabus, where an oil and gas lease on the remainder of the leased premises provides that it shall exist "for a period of ten years and as long thereafter as oil or gas may be found in paying quantities on said premises," it is incumbent upon the lessee or his assignee to find oil or gas in paying quantities prior to the expiration of the primary term in order to have continued in force the lease beyond that term under the extension provision, and, where neither of such minerals is so found, the lease upon the expiration of the primary term is automatically terminated.
Commissioners' Opinion, Division No. 1.
Error from District Court, Carter County; W. F. Freeman, Judge.
Action by Hal M. Cannon, trustee of the estate of J. S. Mullen, bankrupt, and W. M. Bonner, against Coline Oil Company. Judgment for plaintiffs, and defendant appeals. Affirmed.
Rainey Flynn, Green & Anderson, for plaintiff in error.
Ledbetter, Stuart, Bell & Ledbetter and Moore & West, for defendants in error.
¶1 In our consideration of this cause, we will refer to the defendants in error, Hal M. Cannon, trustee of the estate of J. S. Mullen, bankrupt, and W. M. Bonner, plaintiff and intervener, respectively, in the trial court, as plaintiffs, and plaintiff in error, the Coline Oil Company, as defendant, or by name, as the case may be. The cause was one to quiet the title to certain lands of the bankrupt estate acquired by Bonner, against an oil and gas lease thereon held by defendant.
¶2 Clarity of the matters for our decision first requires our references to the transactions giving rise to the case, to wit:
¶3 By suitable pleadings by the parties, both issues of law and fact were framed, which went to the right of defendant to hold the leasehold estate, the validity of the lease contract, severance of the lease as to the Mullen tract by extinguishment of the leasehold as to the fee acreage acquired by defendant by merger upon assignment of the lease to defendant, termination, and abandonment of the lease as respecting the Mullen tract, and trespass by the defendant upon the Mullen tract subsequent to termination of the lease resultant in damages to plaintiff Bonner through unauthorized extraction of oil and gas from the premises.
¶4 The cause being tried to the court, all issues of law and fact were in general terms found against defendant, and thereupon judgment was rendered quieting the title to the Mullen tract in plaintiff Bonner, and decreeing an accounting against the defendant for the oil and gas produced therefrom, which phase, by agreement of the parties, has been reserved for settlement following appellate action on this appeal.
¶5 The parties have forcefully presented a number of propositions for and against the judgment, several of which raise the general question of whether or not the lease as to the Mullen tract had terminated prior to the institution of the suit, if the lease on defendant's fee acreage was extinguished as alleged by plaintiffs. Affirmative conclusion in these premises will dispose of the cause on appeal without consideration of the other questions raised.
¶6 The general question requires our notice of the terms of the lease contract relevant thereto, and our consideration as to whether or not the lease may have been affected by the acquisition of both the freehold and leasehold estates by defendant, and this well may be prefaced with the observation that, while defendant refers to the contract as a lease or mineral deed, we will proceed on the theory that it was a lease, as this was defendant's theory in the trial court. As noted, the lease was made on July 30, 1913. At the time of the execution, there were a number of producing oil wells on that part of the leased premises later conveyed by lessor to defendant. In its constituent elements, the lease is divided into three parts designated by article numeration.
¶7 Article 1 provided that the lands were leased to the lessee "for and in consideration of the payment of the sum of ($ 10.00) dollars, * * * and other good and valuable consideration, and of the performance by the lessee of the covenants hereinafter set forth to be performed by the lessee," and "to have and to hold the same from the date of the execution hereof for a period of ten years and as long thereafter as oil or gas may be found in paying quantities on said premises."
¶8 Article 2 dealt with the rights and privileges of the lessee. Thereunder ownership of all the wells then on the property passed to the lessee. As in ordinary leases there were provisions for ingress and egress and occupation of such parts of the surface necessary for the drilling and operation of wells, for derricks, gathering lines, and all other necessary equipment and machinery appurtenant and incident to the operation of a developed and productive leasehold, which provisions clearly indicated the intention of the parties that the leasehold should be further developed by the drilling of other wells though no shorter time than the ten-year period was fixed within which such new development should be commenced.
¶9 Article 3 related to other uses of the premises; provided for the payment of taxes by the lessee during the life of the lease which may be levied on improvements placed on the leasehold; nonliability of the lessee for damages resultant from the development and operation of the property for the purposes of the lease; that lessee was not required to maintain continuous production or operation, and that the leasehold should not be considered abandoned "unless the lessee shall have ceased to operate hereunder as to all of the wells then in existence for an unbroken period of two years at any one time, and the drilling of additional wells shall extend the lease for an equal period;" removal of all property placed on the premises by lessee upon the expiration of the lease "by limitation or abandonment or whenever the lessee shall conclude that oil or gas cannot thereafter be found in paying quantities on any of the above-described premises, or any part thereof," and that:
"If the lessor shall in the future sell and transfer any of the above-described premises, the terms and conditions of this lease, and each and every part thereof, shall run with such part of such land so transferred, and be binding upon the grantees therein named."
¶10 It is to be observed that the lessee did not provide for the payment of any royalty to the lessor, nor any rental postponement of the drilling wells within the ten-year period, as is usually the case in this class of contracts.
¶11 So far as the record discloses, there were no producing wells drilled on any part of the lease during the ten-year period. One nonproductive well was drilled on the Mullen tract within that period. Three producing wells were drilled on the Mullen tract subsequent to the expiration of the primary term. At that time paying quantities of oil were being produced from the fee acreage acquired by defendant in 1915. In defendant's gross production reports to the State Auditor, both prior and subsequent to the expiration of the primary term, it was stated that the wells on that part of the property defendant had acquired by deed in 1915, were being operated by it as owner of the land.
¶12 This state of facts defendant contends shows that the lease did not terminate upon the expiration of the primary term on July 30, 1923, and continued thereafter under the extension provision from the fact that oil and gas were being produced in paying quantities under and by virtue of the lease. Plaint...
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