Davis v. Mann

• Decision Date: 18 May 1956
• Docket Number: No. 5289.,5289.
• Citation: 234 F.2d 553
• Parties: Cora J. DAVIS, also known as Mrs. W. A. Davis, and Irvine J. Vawter, Appellants, v. Loyd MANN, D. Perkins Cobb, Harry Gradour, M. L. Shipley and C. H. Alberding, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

234 F.2d 553 (1956)

Cora J. DAVIS, also known as Mrs. W. A. Davis, and Irvine J. Vawter, Appellants, v. Loyd MANN, D. Perkins Cobb, Harry Gradour, M. L. Shipley and C. H. Alberding, Appellees.

No. 5289.

United States Court of Appeals Tenth Circuit.

May 18, 1956.

COPYRIGHT MATERIAL OMITTED

B. W. Tabor, Tulsa, Okl. (John Pendleton, Nowata, was with him on the brief), for appellants.

R. L. Davidson, Jr., Tulsa, Okl. (J. B. Houston, G. B. Klein and Garland Keeling, Tulsa, Okl., were on the brief), for appellees.

Before BRATTON, Chief Judge, and HUXMAN and MURRAH, Circuit Judges.

MURRAH, Circuit Judge.

The sole question on this appeal is whether a reservation in a conveyance denominated a "Warranty Deed" is in legal effect a determinable oil and gas lease, as the trial court held, or a mineral deed, as the appellants contend. The facts are not in dispute.

On July 30, 1910, Cora J. Davis and her now deceased husband, W. A. Davis, executed a "Warranty Deed" to lands located in Nowata County, Oklahoma, reserving "unto themselves, their heirs and assigns, the oil and gas deposits under said premises for the purpose of prospecting and developing the same for oil and gas mining purposes. And parties of the second part hereby acknowledge that the oil and gas deposits under said premises together with the right to prospect and develop said premises for oil and gas mining purposes are vested in said parties of the first part and that the same are excepted from the operation of this conveyance.

"But it is understood that if the parties of the first part, their heirs or assigns, should develop said premises for oil and gas mining purposes that they shall pay to parties of the second part their heirs or assigns a cash royalty of $100 per year for each gas well the product of which is used off the premises and they shall deliver as royalty one-eighth of all oil produced on said premises."

In October 1924, the Davises executed an oil and gas lease on a portion of the lands to John G. Phillips. This lease was recorded and later released without any development. The husband died in February 1936, and the wife was appointed executrix of his estate. In her inventory filed in the County Court, she omitted any reference or itemization of any oil or gas rights in and to the property now in controversy.

In 1953, Clark S. Moore, the fee owner of the property by mesne conveyance from the Davises, executed an oil and gas lease covering the same. The assignees of such lease entered upon the property, and in 1954 drilled and completed oil wells thereon. After completion of the wells and in March 1955, Cora Davis executed a lease covering the same property to appellant, Vawter, whom the trial court found knew or should have known of the appellee's leasehold interest.

On these facts the trial court found that the Davises, their successors and assigns, were obligated within a reasonable time to develop said premises for oil and gas purposes for the benefit of the grantees in said deed, their successors and assigns; that their failure to do so for a period of forty-four years effected a termination and extinguishment of all the right, title, interest and estate reserved unto them in their warranty deed of 1910. This appeal is from the judgment of the court quieting the appellees' title to their oil and gas lease.

While under controlling Oklahoma law, oil and gas are incapable of absolute ownership in place, they are nevertheless severable as a separate interest or right in the lands of which they are a part, with the exclusive right, subject to legislative control, to explore, produce and convert to possession as personal property of the possessor. And, such right may be created by grant or reservation. Barker v. Campbell-Ratcliff Land Co., 64 Okl. 249, 167 P. 468, L.R.A.1918A, 487; Rich v. Doneghey, 71 Okl. 204, 177 P. 86, 3 A.L.R. 352; Crain v. Pure Oil Co., 8 Cir., 25 F.2d 824; United States v. Stanolind Crude Oil Purchasing Co., 10 Cir., 113 F.2d 194; Continental Supply Co. v. Marshall, 10 Cir., 152 F.2d 300; Phillips Petroleum Co. v. Jones, 10 Cir., 176 F.2d 737. Indeed, the appellees freely concede the severability of the mineral estate, and further sharpen the issue by also conceding that the first paragraph of the reservation in the deed "standing alone, would have created in the grantors a severed mineral interest and estate, unconditionally and with no obligation to prospect and develop for oil and gas purposes." They contend, however, that "the addition of the second paragraph so changed things that grantors and their successors were obligated within a reasonable time to explore and develop the premises for oil and gas, and that their failure to develop the same amounted to an extinguishment of their reserved interest." In other words, the contention is that the second paragraph in the reservation had the legal effect of creating in the appellants an estate in the nature of an oil and gas leasehold with the usual provisions for the payment of royalties and implied covenants to protect from drainage and to develop within a reasonable time.

This "Warranty Deed" is said to be decisively similar to the "`Oil and Gas Deed'" in Crain v. Pure Oil Co., supra 25 F.2d 825, involving the identical question whether an instrument called a "Deed" was in legal effect an oil and gas lease. The instrument there recited that for and in consideration of one dollar and further considerations thereafter stated, the parties of the first part bargained and sold to party of the second part, his heirs and assigns, all the oil and gas and all other minerals beneath the surface of the described property. The instrument further provided that if oil and gas be found on the premises by the grantee, his heirs or assigns, in paying quantities, the producing and marketing of the same should begin within one year from the date of discovery and continue so long as the second party deemed it profitable. It further provided that the grantee should pay to the grantor, his heirs and assigns, five percent of the value of all the oil produced from the land and $50 per annum for each gasproducing well, if the gas was sold. The instrument granted the right to so much of the surface as was necessary to develop and operate the premises with the right to remove all equipment and fixtures placed thereon. The court was satisfied that the first part of the instrument which "bargained and sold" all the oil and gas and other minerals beneath the surface of the land "to have and to hold forever", standing alone, would operate to convey a mineral fee in the land. But, looking at the whole instrument in its contemporary setting to ascertain and effectuate the intention of the parties, the court concluded that "Whatever these instruments may technically be called, it seems clear, from all the terms thereof and the circumstances surrounding the transactions, that the intention of the parties thereto was merely to grant rights to go upon the lands, prospect for oil and gas and other minerals, and, if found, to develop the same and pay royalties thereon to the owners of the lands; hence they were nothing more than mining leases"; and that the failure to develop for an inordinate length of time worked a forfeiture of same. The court was brought to its ultimate conclusions by a consideration of the express covenants in the instrument with respect to development of the premises for oil and gas, saying that if the instrument of conveyance was not a lease, the provisions with respect to the rights and duties of the grantee were "superfluities". The court also thought it significant that in the absence of the development and the payment of royalties provided in the deed, the grantors would receive only $1.00 for their mineral interest "and no other benefit."

And, reliance is also placed upon Eastern Kentucky Mineral & Timber Co. v. Swann-Day Lbr. Co., 1912, 148 Ky. 82, 146 S.W. 438, 46 L.R.A.,N.S., 672, involving the question whether a deed purporting to grant, bargain and sell seven-eighths of the minerals and timber, the grantors reserving one-eighth of the minerals and timber outside the seven-eighths, operated to convey a fee simple interest in the timber and minerals or merely a right thereto upon the condition that they commenced development within a reasonable time. Emphasizing that the primary consideration for the grant was the obligation upon the part of the grantee to return one-eighth of the profits from the development of the property, the court concluded that the instrument called a deed was in legal effect a lease terminable upon failure to develop within a reasonable time. But the court was careful to recognize a "marked difference between the construction and effect of a conveyance of timber and minerals * * * for a stipulated consideration, payable in cash * * * or in some other valuable property, and the construction and effect of a conveyance in consideration of a royalty or per cent., to be paid out of the income derived by the grantees from the property conveyed." Id. 146 S.W. at page 441.

Unlike these cases, in our case there was no grant of the mineral rights or estate; no new right was created and initially vested in Davis and his wife to develop the premises. That right was vested in them prior to the execution of the deed and it remained with them after they conveyed the surface estate. In mutual recognition of that right, the provisions in the deed recited in clear language that Davis and his wife as owners of the mineral estate had the right at any time to develop the premises for oil and gas. The only limitation upon that right was the understanding or agreement that "if" the Davises "should" develop the premises for oil and gas mining purposes, they would pay the grantees or their assigns a stipulated royalty. The agreement to pay royalty was not the primary consideration for the reservation from the conveyance.

Judged therefore by the...