Energetics, Ltd. v. Whitmill

• Decision Date: 01 October 1992
• Docket Number: No. 10,91656,Nos. 91653,s. 91653,10
• Citation: 497 N.W.2d 497,442 Mich. 38
• Court: Michigan Supreme Court
• Parties: ENERGETICS, LTD., a division of Dart Energy Corporation, Plaintiff-Appellee, v. Oak R. WHITMILL, Davey G. Whitmill, Ronald I. Whitmill, Alvin L. Whitmill, William D. Whitmill, Lyle E. Whitmill, Darlene I. Griffin, Ruby M. Straus, Terry L. Whitmill, Verna J. Beebe, Elva B. Austin, Arla Grace Whitmill, Defendants-Appellants. and Elmer R. Benchley, Virginia M. Benchley, and Northern Michigan Health Foundation, Defendants-Appellees, and Jennie Whitmill, Ruth Whitmill, Mamie E. Whitmill, Elaine Whitmill, Ronalda Whitmill, Claude J. Osbourne, George F. Robinson, Richard D. Stauffer, Eddie D. Terrel, Molly R. Huber, Ronald D. Kregel, Agris J. Krautmanis, Hassie Hunt Exploration Company, Hassie Hunt Production Company, Haroldson L. Hunt, Jr. Trust Estate, the Rosewood Corporation, Estate of Archie Cudney, Leonard P. Gregg and Shirley Gregg, Defendants. ENERGETICS, LTD., v. Elmer R. BENCHLEY and Virginia M. Benchley, et al., Defendants-Appellees, and Northern Michigan Hospital Foundation, Defendant-Appellant. Calendar,

Page 497

497 N.W.2d 497

442 Mich. 38

ENERGETICS, LTD., a division of Dart

Energy Corporation, Plaintiff-Appellee, v. Oak R. WHITMILL, Davey G. Whitmill, Ronald I. Whitmill, Alvin L. Whitmill, William D. Whitmill, Lyle E. Whitmill, Darlene I. Griffin, Ruby M. Straus, Terry L. Whitmill, Verna

J. Beebe, Elva B. Austin, Arla Grace Whitmill,

Defendants-Appellants.

and

Elmer R. Benchley, Virginia M. Benchley, and Northern

Michigan Health Foundation, Defendants-Appellees,

and

Jennie Whitmill, Ruth Whitmill, Mamie E. Whitmill, Elaine

Whitmill, Ronalda Whitmill, Claude J. Osbourne, George F.

Robinson, Richard D. Stauffer, Eddie D. Terrel, Molly R.

Huber, Ronald D. Kregel, Agris J. Krautmanis, Hassie Hunt

Exploration Company, Hassie Hunt Production Company,

Haroldson L. Hunt, Jr. Trust Estate, the Rosewood

Corporation, Estate of Archie Cudney, Leonard P. Gregg and

Shirley Gregg, Defendants.

ENERGETICS, LTD., v. Elmer R. BENCHLEY and Virginia M. Benchley, et al.,

Defendants-Appellees,

and

Northern Michigan Hospital Foundation, Defendant-Appellant.

Nos. 91653, 91656.

Calendar No. 10, Oct. Term, 1992.

Supreme Court of Michigan.

Argued Oct. 15, 1992.

Decided March 30, 1993.

James A. Siver, Mason, for plaintiff.

Honigman, Miller, Schwartz & Cohn by Mark A. Stern, Detroit, Dreyer & Ulicki by David J. Dreyer, Harrison, and Donald C. Coulter, Traverse City, for defendants.

ROBERT P. GRIFFIN, Justice.

These consolidated appeals require us to decide whether certain severed oil and gas interests in a tract of land were properly "deemed abandoned" in favor of the surface owners by operation of the dormant minerals act. ¹ Because, as we construe the act, ² the interests in question were not abandoned, we reverse the decision of the Court of Appeals.

I

The relevant facts bearing upon the principal issue in these appeals are not in dispute. ³ Elmer Benchley and his wife, Virginia, own the surface and an undisputed 35/80 interest in the oil and gas rights in an eighty-acre parcel of land in Clare County. The heirs of Edwin Whitmill claim a 40/80 interest in the oil and gas rights, and Northern Michigan Hospital Foundation (NMHF) claims the remaining 5/80 share of the oil and gas rights in the eighty-acre tract. However, the Whitmill and NMHF claims are challenged by the Benchleys, who contend that those severed interests were dormant for more than twenty years and therefore were abandoned by operation of the act.

With respect to each of the disputed interests, a lease was executed and recorded in 1951, giving Sun Oil Company the right to drill for oil and gas during a primary term of ten years. Each lease provided for termination after the first year or any year thereafter in which drilling or production operations were not undertaken unless "delay rental" payments were made by the lessee. The trial court determined that delay rental payments were made as required and that each lease remained in effect until the expiration of its primary term in 1961. ⁴

Subsequently, in 1977 in the case of the Whitmill interest, and in 1978 in the case of the NMHF interest, similar leases in favor of another development company were executed and recorded. After oil was discovered and production from the eighty-acre parcel began in 1985, an interpleader action ⁵ was initiated to determine the proper distribution of royalties. As surface owners, the Benchleys asserted title to the interests claimed by the Whitmills and NMHF on the ground that no qualifying document had been recorded during a twenty-year period before the recording of the leases in 1977 and 1978.

The trial court ruled that the statutory twenty-year dormancy period had not run, and that the disputed interests therefore were not abandoned. The circuit judge reasoned that when each of the Sun Oil leases expired in 1961, the leased interest was "transferred" back to the interest owner in accordance with the terms of a recorded instrument, and that a new twenty-year period then commenced. On appeal, the Court of Appeals disagreed, and reversed. ⁶ We then granted leave to appeal. ⁷

II

Enacted in 1963, ⁸ the dormant minerals act focuses upon a problem that frequently arises when oil and gas rights are severed from the surface estate and then remain undeveloped for long periods of time. ⁹ In the words of one commentator:

"The problem results from the fact that perpetual or very long term mineral interests may be created during a period of activity in a particular industry, and these interests do not terminate when the activity ceases. Ownership of the minerals may thus be lodged in individuals who have long disappeared from the area, leaving no trace, and making it impossible to further develop the mineral estate...." Polston, Legislation, existing and proposed, concerning marketability of mineral titles, 7 Land & Water LR 73 (1972).

The act addresses this problem by providing, in summary, that ownership of a severed oil or gas interest shall be "deemed abandoned" in favor of the surface owner unless at any time during a twenty-year period:

. The interest has been "sold, leased, mortgaged or transferred" by recorded instrument;

. The owner has recorded a "claim of interest";

. There has been "issuance of a drilling permit";

. There has been "production or withdrawal of oil or gas" from land in which the interest is held, or from lands "pooled, unitized or included in unit operations" with lands in which the interest is held; or

. The interest has been used "in underground storage operations."

However, as this Court explained in Van Slooten v. Larsen, 410 Mich. 21, 44, 299 N.W.2d 704 (1980), the purpose of the act is "not to vest title to the severed interests in the surface owner but rather is to facilitate the development of those subsurface properties by reducing the problems presented by fragmented and unknown ownership." ¹⁰

III

The Benchleys maintain that the dormant minerals act clearly and unambiguously requires a new recording at least once every twenty years in order to preserve ownership of a severed oil and gas interest. Appearing to adopt that position, the Court of Appeals panel in this case stated:

"By requiring a periodic recording of mineral interests in the register of deeds office, once every twenty years, the Legislature provided a means of insuring that a person interested in purchasing or leasing mineral rights would have information, not older than twenty years, about the identity and whereabouts of the owners of those mineral rights." 189 Mich.App. 247, 256, 471 N.W.2d 641 (1991).

We disagree with the Court of Appeals to the extent that its opinion can be read to suggest that the act is merely a "recording statute" which automatically triggers forfeiture of title whenever a twenty-year period elapses without the recording of an instrument. As already indicated, although the statute refers to five types of activity that toll the running of a dormancy period, only the first two listed above involve a recording requirement. Even though recording clearly is an important component of the act's design, the Legislature has not relied on recording as the exclusive means to further its objectives.

On the other hand, the Whitmills and NMHF advance two arguments to support their claims. First, they argue for an interpretation of the word "leased" in the act that would preclude the running of a twenty-year dormancy period while a severed interest remains subject to a recorded lease, asserting that an oil and gas interest is just as leased on the last day of a lease as it is on the first day. Some support for this approach can be found in the dictionary. When used as a verb, "lease" may mean "to grant or convey to another by lease" or "to be under lease or be subject to lease." Webster's Third New International Dictionary, Unabridged Edition (1966), p 1286. Thus, common usage of the word suggests that two interpretations might be applicable in this situation: one that would commence a twenty-year period upon execution and recording of a lease, and a second meaning, urged on us by the Whitmills and NMHF, that would toll the running of a dormancy period while the severed interest remains subject to a lease.

They argue that the second meaning would serve the act's ultimate goal, the development of oil and gas interests. ¹¹ However, we must recognize that the expansive interpretation of the word "leased" urged by the Whitmills and NMHF could work also to undermine the purposes of the dormant minerals act. If such a construction were adopted, there would be nothing to prevent the owner of a severed interest from executing a lease with a primary term much longer than twenty years. Thus, a severed interest might be sheltered from the operation of the act for an indefinite period. ¹² Obviously, if the Legislature had intended that result, it easily could have provided explicitly that the twenty-year dormancy period shall not run during a period when a severed interest is "subject to a lease." ¹³ It did not do so, and we are convinced that such a broad interpretation of the word "leased" was not intended.

As their second argument, the Whitmills and NMHF maintain that a "transfer" by recorded instrument, within the meaning of the act, occurred in 1961 at the termination of the leases to Sun Oil. The trial court adopted this approach and determined that two transfers occur when an interest in oil and gas is leased: one at the execution of the lease, and a second when the lease is terminated. Applying this reasoning, the court explained:

"The recorded lease clearly indicated that Sun Oil acquired certain rights in the oil and gas rights in 1951. The recorded lease further indicated that these rights were transferred back to the Whitmills in 1961, when the lease terminated by its own terms. Both of these transfers of interest were evidenced in the recorded lease. A separate act of recording would not have been necessary to put the world on notice of this...