Denney v. Teel
| Decision Date | 25 September 1984 |
| Docket Number | No. 58870,58870 |
| Citation | 1984 OK 63,688 P.2d 803 |
| Parties | , 1984 OK 63 Thomas H. DENNEY, Appellant, v. Roy M. TEEL, an Individual, Roy M. Teel Company, Inc., d/b/a HJF, Inc., Appellees. |
| Court | Oklahoma Supreme Court |
On Certiorari to the Court of Appeals, Div. 3.
In breach of contract action, the District Court, Tulsa County, William M. Means, Judge, granted summary judgment for the defendants. The Court of Appeals affirmed. Certiorari was granted.
OPINION OF THE COURT OF APPEALS VACATED, JUDGMENT OF THE TRIAL COURT REVERSED AND CAUSE REMANDED.Earl W. Arnold, Tulsa, for appellant.
James R. Eagleton, Todd Maxwell Henshaw, Houston & Klein, Tulsa, for appellees.
The issues presented on certiorari are: In an action for breach of contract involving royalty interests to be conveyed from future oil-and-gas leases in Kentucky, is "royalty" a real property interest governed by the law of the situs? If law of the situs governs, will full performance by one party take the oral contract out of the Kentucky Statute of Frauds? and if the second question be answered in the affirmative, Will Kentucky's Rule Against Perpetuities operate as a bar to the enforcement of the contract?
We hold that: (a) royalty to be derived from future leases is an interest in land, and a contract involving such royalty is governed by the law of the situs; (b) full performance under the contract by one party, where no reciprocal performance within a year was contemplated, takes the oral contract out of the Kentucky Statute of Frauds; and (c) application of Kentucky's Rule Against Perpetuities, as revised, will not invalidate royalty contracts contingent on future oil-and-gas leases.
Thomas H. Denney [Denney] commenced an action for breach of an alleged oral contract by which he was to receive, in exchange for specific information and documentation on certain mineral leases in Wayne County, Kentucky, a one-percent (1%) overriding royalty in all mineral leases to be obtained in that county by defendants Roy M. Teel et al. [Teel]. The alleged contract was entered into in Oklahoma, where the parties resided and where Denney also supplied the requested information and materials. A letter, signed by Teel and prepared in his offices in Tulsa, Oklahoma, allegedly memorialized the agreement. Denney argued that the letter (which assigned to him one-percent overriding royalty interest in specified leases) constituted only partial performance on Teel's part, and that Denney was to receive overriding royalty on future Wayne County leases as well. In his deposition Teel denied any agreement whatsoever, and stated that the specific written assignment constituted his voluntary disposition of Denney's entire asserted royalty claims to the Wayne County leases. In the breach-of-contract action, Denney alleged complete performance on his part and part performance on Teel's part. He sought assignment of one-percent overriding royalty on all future Wayne County leases for specific performance of the alleged contract. As an alternative theory of recovery, he sought judgment in quantum meruit for the reasonable value of his services.
The trial court granted summary judgment for the defendants, ruling that: (1) the action involved an interest in real estate, necessitating resort to Kentucky law; (2) the alleged oral contract was barred by the Kentucky Statute of Frauds, and (3) the agreement was void under the Kentucky Rule Against Perpetuities. Implicit in its summary judgment is the trial court's denial of Denney's alternative theory of recovery.
The Court of Appeals affirmed the judgment of the trial court, holding that: (1) Kentucky law was applicable because in Oklahoma royalty interests are treated as interests in real property and would be governed by the law of the situs rather than general Oklahoma contract law; and (2) Kentucky law provides that an agreement not to be performed within one year must be in writing and partial performance is insufficient to take the contract out of the statute. Because the Court of Appeals found the alleged Denney/Teel agreement unenforceable under the Kentucky Statute of Frauds, it did not deal with the Kentucky Rule Against Perpetuities.
We granted certiorari on Denney's petition and now vacate the Court of Appeals opinion, reverse the summary judgment and remand the cause to the trial court for further proceedings not inconsistent with this pronouncement.
DISPUTES CONCERNING UNACCRUED ROYALTY ARE GOVERNED BY THE
Denney insists that general principles of Oklahoma contract law should be applied rather than the law of the situs. He argues that royalty, as an interest in real estate, is only incidental to the making of this particular contract.
To determine which law governs, it is necessary to examine the term "royalty" as applied to the disputed contract. "Royalty" reduced to possession is to be distinguished from "unaccrued royalty" as an interest in unpossessed oil in the ground. The former assumes the character of personalty; the latter is classed as real estate. 1 While neither the trial court nor the court of appeals specifically distinguished between these types of royalty interests, we believe that royalty in this instance should be treated as real property because it falls within the second category. This analysis accords with prior decisions of this court. 2 Disputes concerning interests in real property are properly governed by the law of the state where the land is located. 3
The Kentucky Statute of Frauds would at first blush appear to prevent recovery on the contract here alleged. 4 While Kentucky does not subscribe to the doctrine of part performance, it does recognize another exception. Where one party has fully performed and the other party has more than one year in which to perform his part, the statute will not prevent recovery. 5
Denney claims to have rendered full performance by supplying the requested information and materials. Although it is doubtful that all future leases to be obtained by Teel in Wayne County, Kentucky, could be executed within one year from time of contracting, the case does fall within the exception to Kentucky's Statute of Frauds. Denney should hence be given the opportunity to prove his case on its merits.
Inasmuch as the disputed contract does fall within the exception to Kentucky's Statute of Frauds, the question remains whether the agreement is contrary to Kentucky's Rule Against Perpetuities. 6
The rule against perpetuities is one of property law which precludes the postponement of vesting of contingent interests for a period of time considered to be too long. 7 The classical common-law period of "lives in being plus 21 years" is the period of perpetuities in Kentucky. 8
Teel argues that since the evidence shows that the agreement provided for no time limit on the oil-and-gas leases that he might acquire in the future, 9 Denney's interest does not necessarily vest within the Kentucky period of perpetuities. Denney contends that by the very terms of the agreement, the rule would not be violated. He asserts that the contract pertains only to leases obtained by Teel and that since his is the life in being which measures the time of vesting of rights under the contract, there could be no violation of the rule.
From Denney's deposition, it is clear that he considered the agreement to be one made with Teel and his companies and that he expected those business entities to honor the agreement should Teel be deceased. We must therefore look to the Kentucky rule against perpetuities to ascertain whether it operates to invalidate the contract.
Kentucky reformed its perpetuities law in 1960. 10 Interpretations of the old statute, enacted in 1852, had resulted in much confusion. The rule was criticized for its nightmarish intricacies and harsh consequences. 11 One aspect of the old rule, the "remote possibilities test", was eliminated by the new statute. Under this test any possibility (at the creation of the interest) that a future interest may not vest within the limits of the rule was held fatal to its validity. Criticism of the old rule targeted on the requirement of absolute certainty that the interest would vest in due time. The possibilities concept was supplanted in 1960 by a "wait-and-see" approach by which contingent future interests are to be measured by actual instead of possible events. 12 The new statute also provided for reformation of invalid interests by cy pres. 13 If the contingency upon which the interest is limited actually occurs within the period of the rule, the interest is valid; if not, it is void. 14 Rationale for this new concept centers on relieving the harshness of prior law and on allowing unfettered transfer of commercial interests in land. 15
Contingent events not causally related to any life in being, as well as events bearing causal connection with the measuring life, are affected by the new statute. 16 Should the event not be causally related to the continuance of any life in being, the interests are valid if the contingencies occur within twenty-one years. 17 The contingency in the case at bar is the execution of future oil and gas leases in Wayne County, Kentucky, by Teel or his companies.
Kentucky cases decided after the 1960 amendment of Ky.Rev.Stats. 380.215 and 380.216 are few, 18 but the trend is clear. It indicates simplification of the rule and substitution of the more relaxed version of "wait and see" to validate contingencies actually occurring within the period of the rule. Because the execution of future oil-and-gas leases is a contingent future event which would be entitled to the benefit of the wait-and-see doctrine, Denney's interest in those leases would not be rendered invalid until vesting is shown to...
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...Cir. 1957), cert. denied, 355 U.S. 907 (1957); Cambridge Co. v. Eastern Slope Inv. Corp., 700 P.2d 537, 540 (Colo. 1985); Denney v. Teel, 688 P.2d 803, 807-10 (Okla. 1984); Harnett v. Jones, 629 P.2d 1357, 1362-63 (Wyo. 1981). In Larson Operating Co. v. Petroleum, Inc., 84 P.3d 626 (Kan. Ap......
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...Cir. 1957), cert. denied, 355 U.S. 907 (1957); Cambridge Co. v. Eastern Slope Inv. Corp., 700 P.2d 537, 540 (Colo. 1985); Denney v. Teel, 688 P.2d 803, 807-10 (Okla. 1984); Harnett v. Jones, 629 P.2d 1357, 1362-63 (Wyo. 1981). More recently, in Larson Operating Co. v. Petroleum, Inc., 32 Ka......