Earle v. International Paper Co.

• Citation: 429 So.2d 989
• Parties: Martha Lee EARLE, et al. v. INTERNATIONAL PAPER COMPANY, a Corporation, et al. 81-490.
• Decision Date: 25 March 1983
• Court: Alabama Supreme Court

Page 989

429 So.2d 989

Martha Lee EARLE, et al. v. INTERNATIONAL PAPER COMPANY, a Corporation, et al.

81-490.

Supreme Court of Alabama.

March 25, 1983.

J. Michael Rediker and W. Clark Goodwin of Ritchie & Rediker, Birmingham, Allan R. Chason of Chason & Chason, Bay Minette, Verner F. Chaffin, Athens, Ga., for appellants.

L. Murray Alley and Maibeth J. Porter of Cabaniss, Johnston, Gardner, Dumas & O'Neal, Birmingham, and Norborne C. Stone of Stone, Partin, Granade & Crosby, Bay Minette, for appellee Intern. Paper Co.

Susan Dominick Doughton of Dominick, Fletcher, Yeilding, Acker, Wood & Lloyd, Birmingham, for appellee Birmingham-Southern College.

G. Sage Lyons and J.P. Courtney, III of Lyons, Pipes & Cook, Mobile, for appellee Shell Oil Co.

BEATTY, Justice.

This appeal concerns application of the rule against perpetuities to the mineral interest a grantee was to receive upon expiration of the grantor's interest, which had been reserved for 15 years and so long thereafter as production of minerals continued in paying quantities. We affirm the trial court's dismissal of the complaint, concluding that the reservation clause in the deeds left to the grantee a possibility of reverter, which is not subject to the rule against perpetuities.

By contract executed on September 30, 1953, Frank F. Earle, plaintiff's testator, and his wife, Martha Lee Earle, agreed to sell four parcels of land to the defendant, International Paper Company (IP), over a four-year period. This was in fact accomplished, the last conveyance occurring on January 16, 1956. Each of the four deeds contained the following clauses:

"Frank F. Earle and his wife, Martha Lee Earle, ... for [certain consideration] do hereby grant, bargain, sell and convey (subject to the reservations hereinafter set forth) unto International Paper Company ... all that certain real property ... described as follows:

"...

"EXCEPTING AND RESERVING unto the said Grantor, Frank F. Earle, and his heirs and assigns, an undivided one-half ( 1/2) interest in and to all of the oil, gas and minerals in, under or upon said land (but not excepting and reserving to said Grantor any interest in or to the sand, clay or gravel), but only for a period of fifteen (15) years from and after the date of this conveyance, provided that if at the expiration of said period of fifteen (15) years such oil, gas or minerals are being produced from said lands in paying quantities, then such reservation shall extend thereafter as long as such oil, gas or minerals continue to be produced from said lands in paying quantities; and upon the expiration of such period of reservation as hereinabove provided, the said reservation shall then terminate and become void and ineffective and the title to such interest in said oil, gas and minerals and the right to control, develop and lease the same shall vest in Grantee, or its successors and assigns."

Each deed contained an additional clause giving Earle, during the reservation term, exclusive leasing rights for the entire mineral interest in the property.

No production of minerals occurred during the respective 15-year primary terms. By 1971 IP had thus acquired the entire fee in each parcel, including all mineral interests.

Frank Earle died in 1969, leaving his widow as his only surviving heir and next of kin. His will established two trusts, one for the benefit of Mrs. Earle and the other for the benefit of Birmingham-Southern and Huntingdon colleges. By agreement all real estate interests were allocated to Mrs. Earle's trust share.

In 1979 IP began a complex series of transactions to develop its mineral interests. The parties to these transactions (defendants) received certain rights to the oil and gas in the property. Drilling operations began and in December 1980 one of the defendants struck oil. Another defendant then apparently obtained a title opinion raising questions about the effect of the rule against perpetuities on the Earle deeds.

In September 1981 the Earle trustees filed suit, seeking a declaration that IP's claim to the mineral estate originally reserved by Earle was a springing executory interest, subject to and voided by the rule against perpetuities. The defendants filed answers and motions to dismiss. The plaintiffs filed a motion for partial summary judgment to determine the applicability of the rule against perpetuities. The trial court granted the defendants' motions to dismiss the complaint.

Under Code of 1975, § 35-4-4, the common-law rule against perpetuities applies in Alabama. ¹ Professor Gray's authoritative work states the common-law rule as follows: "No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest." J. Gray, The Rule Against Perpetuities, § 201 (4th ed. 1952). This classic formulation is accepted in Alabama, e.g. First Alabama Bank of Montgomery v. Adams, Ala., 382 So.2d 1104 (1980).

The rule against perpetuities applies only to estates that have not vested in interest. For these estates the rule sets a time limit within which vesting in interest must occur. Estates that may vest too remotely, i.e. that may remain contingent beyond the perpetuities period, are void ab initio. Vesting in possession is unaffected by the rule. See generally W. Leach, "Perpetuities In A Nutshell," 51 Harv.L.Rev. 638, 639-640 (1938). Accord Lyons v. Bradley, 168 Ala. 505, 53 So. 244 (1910) (applying the common-law rule).

The primary issue in this case is whether IP's estate ², at the time of its creation, was vested in interest or otherwise not subject to the rule against perpetuities. ³ Clearly, at the time of delivery of the deeds the possibility existed that paying production would begin in the 15-year primary term and continue beyond the perpetuities period. The plaintiffs contend that IP's interest was not vested when the deeds were delivered and might vest too remotely. Accordingly, the plaintiffs conclude that IP's interest was void ab initio under the rule against perpetuities, with the result that Earle owned a fee simple absolute interest in one-half of the minerals, free of any future interest in IP.

To reach this conclusion the plaintiffs analyze Earle's interest under the deeds as a fee simple determinable (i.e. a fee simple that is to last only so long as certain conditions exist) and IP's as a springing executory interest. Since executory interests are by definition not vested until they become possessory, the plaintiffs are able to argue that IP's estate is subject to the rule. In making their analysis the plaintiffs emphasize that under our common-law version of the rule against perpetuities, orthodox common-law distinctions among estates in real property are controlling. The plaintiffs make this point in reply to the defendants' argument that certain statutory definitions abrogate the common-law definitions on which the plaintiffs rely to characterize the interests of Earle and IP. However, the plaintiffs gloss over another common-law distinction--that between exceptions and reservations--which if applied, turns their analysis on its head.

This distinction is relevant to defining IP's interest if we assume, as the plaintiffs argue, that common-law definitions control and that Earle's estate is a fee simple determinable. At common law, the definition of IP's estate then depends on the manner in which the deeds severed Earle's mineral interest from the fee simple absolute he held originally. The terms "exception" and "reservation" denote two ways such severance can occur under a deed by which the grantor keeps for himself some interest in property otherwise conveyed to the grantee.

"An 'exception' exists when some part of the ownership of the grantor is never parted with, while a 'reservation' is the term applicable when the instrument transfers all that the grantor had but recreates in him some specified interest with respect to the land transferred."

6A R. Powell, Law Of Real Property, § 887 (Rohan rev. 1982). Thus a reservation is traditionally regarded as "the equivalent of a grant by the grantee to the grantor," Jackson v. Snodgrass, 140 Ala. 365, 37 So.2d 246, 247 (1904). In contrast, "an exception withdraws from operation of deed part of thing granted which would otherwise pass to grantee." Black's Law Dictionary, 502 (5th ed. 1979). See also Frank v. Myers, 97 Ala. 437, 11 So. 832 (1892). Typically, although not necessarily, an exception is used to withhold from the conveyance an interest already severed (and usually held by someone other than the grantor) or to sever a portion of the property in which the grantor wishes to retain the entire interest (e.g. a conveyance of lot A excepting the northwest quarter). In contrast, a reservation typically severs an interest different in kind from the fee conveyed.

If, as the plaintiffs urge, we conclude that the deeds excepted Earle's mineral interest, then that interest was unaffected by Earle's conveyance to IP. Earle simply withheld half of the mineral interest he had received years earlier as part of the fee simple absolute from his predecessor. From this premise the plaintiffs characterize IP's interest as executory and subject to the rule. To do so, they use an analysis that we need not consider here, because in our view the deeds reserved Earle's mineral interest. Under the common-law definition of a reservation, it follows that IP recreated the one-half mineral interest in Earle as grantee.

We have assumed that the plaintiffs are correct in characterizing Earle's interest as a fee simple determinable. What then is the nature of the interest left in IP? "A possibility of reverter is the interest left in a transferor who creates a fee simple determinable." C. Moynihan, Introduction To The Law Of Real Property 95 (1962). At common-law possibilities of reverter are not subject to the rule. Hinton v. Gilbert, 221 Ala. 309, 128 So. 604 (1930), 4 Restatement Of...