Dilworth v. Fortier

• Decision Date: 12 May 1964
• Docket Number: No. 39843,39843
• Citation: 405 P.2d 38
• Parties: Charles B. DILWORTH et al., Plaintiffs in Error, v. Leo R. FORTIER and Wayne W. Wright, d/b/a Fortier and Wright, National Cooperative Refinery Association, a corporation, W. R. Yeager, M. P. Yeager and Roy John Evans, Defendants in Error. Earl H. TRENARY, Floyd Trenary, Margalee Hartman Gogos and Minnie Myra Woodruff, Plaintiffs in Error, v. Charles B. DILWORTH et al., Defendants in Error. NATIONAL COOPERATIVE REFINERY ASSOCIATION, a corporation, Wayne W. Wright, doing business as Fortier and Wright, John Rey Evans, W. R. Yeager and M. P. Yeager, Plaintiffs in Error, v. Charles B. DILWORTH et al., Defendants in Error.
• Court: Oklahoma Supreme Court

Page 38

405 P.2d 38

1964 OK 112

Charles B. DILWORTH et al., Plaintiffs in Error, v. Leo R. FORTIER and Wayne W. Wright, d/b/a Fortier and Wright, National Cooperative Refinery Association,

a corporation, W. R. Yeager, M. P.

Yeager and Roy John Evans,

Defendants in Error.

Earl H. TRENARY, Floyd Trenary, Margalee Hartman Gogos and Minnie Myra Woodruff, Plaintiffs in Error, v. Charles B. DILWORTH et al., Defendants in Error.

NATIONAL COOPERATIVE REFINERY ASSOCIATION, a corporation, Wayne W. Wright, doing business as Fortier and Wright, John Rey Evans, W. R. Yeager and M. P. Yeager, Plaintiffs in Error, v. Charles B. DILWORTH et al., Defendants in Error.

No. 39843 Supreme Court of Oklahoma.

May 12, 1964.

Rehearing Denied Sept. 30, 1964.

Application for Leave to File Second Petition for Rehearing

Denied Aug. 3, 1965.

Syllabus by the Court

1. Where a person in good faith enters into peaceful possession of land upon which he owns an oil and gas lease and produces oil and gas therefrom, and thereafter said lease is declared void or invalid, the measure of damages to the landlord in an action for an accounting for the oil and gas produced from said premises by the lessee is the value of the oil at the surface or in pipe line or tanks wherever the same may be less the reasonable cost of producing the same.

2. An action to recover damages for the unlawful production and taking of oil and gas against a lessee who does not have a valid and subsisting oil and gas lease on the premises, is in the nature of a tort and to permit the rightful owner of the oil and gas rights to recover the value of the production at the surface or in pipe line or tanks wherever the same may be, without deducting therefrom a reasonable cost of developing and producing the same, would be analogous to permitting the recovery of exemplary damages against the lessee. To entitle such recovery, the proof must show some element of fraud, malice, or oppression, or the lessee's actions must be shown to be actuated by or accompanied with some evil intent, or must be the result of such gross negligence--such disregard of another's rights--as is deemed equivalent of such intent.

3. Where an oil and gas lease is executed by a lessor, who deraigns his title through tax sale proceedings, and the lessee develops the leasehold estate, and the lease is subsequently declared invalid for the reason the tax sale proceedings did not vest in tax deed holders or their assigns the oil and gas rights because of production and the payment of gross production tax thereon, the rights of the lessee to recover reasonable costs of his development from the proceeds of the production, depends upon the facts and circumstances in each particular case.

4. The owners of undivided interests in oil and gas rights in and under real estate are tenants in common and each co-tenant has the right to enter upon the premises for the purpose of exploring and developing the premises for oil and gas without the consent of the other tenants in common; provided, however, he cannot exclude his co-tenants from exercising the same rights with reference to the common property.

5. Where a lessee in good faith takes peaceful possession of leased premises, believing that the lessor owned the entire title in the premises, and an action is brought by another person who establishes an interest in the premises, the measure of damages arising in favor of the party establishing a partial interest in the premises is the value of his share of the production at the surface or in pipe line or in tanks wherever the same may be, less the reasonable cost of production.

6. Where the 'lesser interest' clause in an oil and gas lease is stricken and there is inserted in lieu thereof a provisions which in effect, provides that 'if the lessor owns a lesser interest therein than the entire and undivided fee simple interest, the lessor nevertheless shall never receive less than the full one-eighth of the production from the premises', said lessor is entitled to receive payment equal to one-eighth of the total value of the total production for so long as the lease remains in force and effect on all the leased premises although the lessor owns a lesser interest than the entire fee simple interest.

7. Where a lessee develops a leasehold estate and the lease is subsequently declared invalid by this Court on appeal and the cause is remanded to the trial court for further proceedings to determine the accounting feature of such action, it is not error for the trial court to appoint a receiver to take possession of and operate the leasehold estate.

The case of Dilworth v. Fortier, Okl., 354 P.2d 1091, involved, inter alia, the validity of an oil and gas lease. That case was remanded to the trial for a determination of the ownership of the minerals and an accounting. The three appeals herein (Being No.'s. 39,843; 39,881; and 39,895, consolidated in this court as case No. 39,843) challenge the accounting feature of the judgment rendered by the trial court on remand.

Affirmed in part, reversed in part, modified in part, and remanded with directions.

Robert G. Braden, Wichita, Kan., T. Murray Robinson, Oklahoma City, for Leo R. Fortier, and another.

Ross & Ross, Newkirk, for Earl H. Trenary, and another.

Janicke & Herlocker, Winfield, Kan., Rodgers & Gurley, Blackwell, Walter M. Doggett, Ponca City, by Neal A. Sullivan, Newkirk, for Charles B. Dilworth and another.

IRWIN, Justice:

National Cooperative Refining Association and Les R. Fortier and Wayne W. Wright, d/b/a Fortier and Wright, hereinafter referred to as Lessees, caused to be drilled six producing oil and/or gas wells on a quarter section of land in Kay County. The Lessees were operating under the terms of an oil and gas lease which had been executed by lessors who deraigned their title through tax sale proceedings.

An action was brought which had the effect of challenging the force and effect of the above described lease. The basis for that action was that the lessors had no interest in the minerals because the tax sale proceedings vested no interest in the minerals in the holders of the tax deeds and their assigns by reason of production of gas and the payment of the gross production tax thereon. The first appeal in this cause, Dilworth v. Fortier, Okl., 354 P.2d 1091, determined the force and effect of that oil and gas lease. We remanded the cause to the trial court for further proceedings and the present appeals challenge the trial court's judgment which was rendered after the cause was remanded.

In Dilworth v. Fortier, supra, we determined that the lessors did not obtain all of the mineral interest under the quarter section of land by virtue of the tax sale proceedings (because of production of gas and the payment of the gross production tax) and we held that the oil and gas lease executed by the lessors, who deraigned their title through the tax sale proceedings, was not a valid and subsisting lease on all the mineral interest purportedly covered by said lease.

The principal issues presented to the trial court after the cause was remanded and which are challenged in these appeals are: (1) Whether the lessors, who own only a portion of the minerals purportedly covered by the oil and gas lease, are entitled to receive from the Lessees an amount equal to one-eighth (1/8) of the value of all the production under the terms of the oil and gas lease, or entitled to only one-eighth of the production attributable to the minerals which lessors own and are actually covered by the lease. (The trial court determined the lessors were entitled to receive an amount equal to one-eighth of the value of all the production). (2) Whether the Lessees, who developed and produced the leasehold estate are entitled to recoup their costs of development and operation from the proceeds of production. (The trial court did not allow the Lessees the right to recoup their costs for drilling and developing the leasehold estate under two tracts where the lessors owned no minerals but did allow a proportionate share of the costs under one tract where the lessors owned one-half of the minerals). (3) Whether or not a receiver should have been appointed. (The trial court appointed a receiver).

The judgment appealed from will be set forth in detail in the separate propositions hereinafter considered.

To better understand the issues, a brief summary of the facts should be stated. The mineral interest involved is under a northeast quarter section of land in Kay County. The property was homesteaded by clarles E. Dilworth and in 1913 he and his wife executed an oil and gas lease covering the entire quarter section. The following spring a producing well was drilled on this property. Subsequent wells were drilled and the well records were filed with the Corporation Commission of the State of Oklahoma. The records of the Oklahoma Tax Commission disclose that a gross production tax on the gas produced was paid every quarter or every month between the first quarter of 1918 to and including September, 1951. There is no evidence of oil production under the 1913 Dilworth lease. It was by virtue of this continued production of gas and the payment of the gross production tax thereon, under the 1913 lease and assignments thereof, that we determined in the case of Dilworth v. Fortier, supra, that all the minerals under the quarter section of land did not vest in the holders of the resale tax deeds and the oil and gas lease executed by the lessors, who deraigned their title through the tax sale proceedings, was not a valid and subsisting lease on the entire quarter section of land.

In 1928, the oil and gas lease executed by the Dilworths in 1913, in so far as the gas rights were concerned, was assigned to Cities Service Gas Company. This assignment of the gas rights covered the entire quarter section except the Dilworth Townsite located in the center of the quarter section. The trial court...