Flying Diamond Oil Corp. v. Newton Sheep Co.

• Decision Date: 25 May 1989
• Docket Number: No. 19178,19178
• Parties: FLYING DIAMOND OIL CORPORATION, formerly known as Flying Diamond Corporation, a Utah corporation, Plaintiff and Appellant, v. NEWTON SHEEP COMPANY, a limited partnership, Ralph M. Newton, Eugene B. Newton and Scott F. Newton, general partners, and Eugene B. Newton, individually, and Edna Elliott Newton, his wife, Defendants and Appellees, and Bass Enterprises Production Co., a Texas corporation, Intervenor-Defendant and Appellee.
• Court: Utah Supreme Court

Page 618

776 P.2d 618

FLYING DIAMOND OIL CORPORATION, formerly known as Flying

Diamond Corporation, a Utah corporation, Plaintiff and Appellant, v. NEWTON SHEEP COMPANY, a limited partnership, Ralph M.

Newton, Eugene B. Newton and Scott F. Newton, general

partners, and Eugene B. Newton, individually, and Edna

Elliott Newton, his wife, Defendants and Appellees,

and

Bass Enterprises Production Co., a Texas corporation,

Intervenor-Defendant and Appellee.

No. 19178.

Supreme Court of Utah.

May 25, 1989.

Hardin A. Whitney, John W. Horsley, H. Dennis Piercey, Salt Lake City, for Flying Diamond.

William J. Cayias, Salt Lake City, for Newton Sheep.

Keith W. Meade, Claron C. Spencer, Salt Lake City, for Bass Enterprises.

STEWART, Justice:

Flying Diamond Oil Corporation ¹ appeals a trial court judgment declaring that, as the surface owner of certain lands, it is entitled to only one-quarter of 2 1/2% payments based on the value of all oil and gas produced from Champlin Petroleum Company's ("Champlin") mineral estate that underlies Flying Diamond's lands. Flying Diamond contends that Champlin's promise to pay the 2 1/2% payment to the surface owner is a covenant that runs with the surface of the land to which Flying Diamond is exclusively entitled. It also asserts that the trial court erred in ruling that Flying Diamond is estopped from claiming more than a one-quarter interest in the 2 1/2% payment.

I. FACTS

The lands at issue are "railroad" sections that were patented to the Union Pacific Railroad Company. Newton Sheep Company ("Newton") eventually acquired the surface rights from the railroad, and Champlin, a Union Pacific subsidiary, acquired the underlying mineral estate from its parent corporation. Newton also owned both the surface and mineral interests in adjoining nonrailroad lands (the "fee lands").

In September, 1971, Newton's predecessor in interest, Hyrum J. Newton & Sons Sheep Company, ² and Champlin executed a Surface Owner's Agreement (the "Agreement"), which lies at the heart of this dispute. By section 1 of the Agreement, Newton conveyed to Champlin broad, express rights on the surface of the Newton lands that overlie the Champlin mineral interests. These rights and easements were to enable Champlin and its successors in interest to carry on oil and gas exploration and production:

Land Owner hereby confirms, extends, and grants to Champlin, its agents, lessees, licensees, successors, and assigns, including any operator or unit operator from time to time in charge of operations under a unitization agreement, and their respective successors and assigns, the easements and rights to enter upon the described premises and to drill, construct, maintain and use upon, within, and over said premises all oil wells, gas wells, derricks, machinery, tanks, drips, boilers, engines, pipe, power and telephone lines, roadways, water wells ... and all other structures, [or] equipment ... necessary or convenient in prospecting and developing for, producing, storing, transporting, and marketing oil, gas, and associated liquid hydrocarbon substances under or produced from any portion of the described premises or under or produced from any portion of the unit area created under a unitization agreement, together with the right to remove said facilities and the right to use such water as may be needed from the described premises, not including water from Land Owner's wells.

In exchange, Champlin agreed in Section 2 as follows:

[S]o long as it is receiving oil and/or gas production from or oil and/or gas royalties upon production from the described premises or allocated thereto under the provisions of a unitization agreement, to pay or cause to be paid to the Land Owner in cash the value on the premises of two and one-half percent (2 1/2%) of all the oil and gas and associated liquid hydrocarbons hereafter produced, saved, and marketed therefrom or allocated thereto as aforesaid, except oil and gas and associated liquid hydrocarbons used in operations on the premises or used under the unitization agreement....

Section 7 of the agreement states in part:

[T]he covenants to pay the sums provided in Sections 2, 3, and 5 hereof shall be covenants running with the surface ownership of the described premises and shall not be held or transferred separately therefrom, and any sums payable under this agreement shall be paid to the person or persons owning the surface of the described premises as of the date the oil or gas or associated liquid hydrocarbon production is marketed.

Section 8 states:

The easements, rights, and uses herein shall be binding upon the described premises and each and every part thereof, and the present and future owners thereof, and shall continue for the benefit of the present or future owners of the oil and/or gas and/or associated liquid hydrocarbon rights in the described premises and each and every part thereof and their agents, lessees, licensees, successors, and assigns, including any operator or unit operator, and for the benefit of other lands within any unit area within which the described premises, or any portion thereof may be included, and each and every part thereof.

In other sections of the Agreement, Champlin agreed to pay rent based on the agricultural value of any surface area used in unit operations and to pay for damage caused by drilling operations and for certain surface improvements. The Agreement declares that the surface owner has no rights in Champlin's mineral estate.

On February 1, 1972, approximately five months after the Agreement was executed, Newton executed a deed conveying to Bass Enterprises Production Co. ("Bass"), an intervenor-defendant in this lawsuit, an undivided one-half interest in the mineral estate underlying Newton's fee lands (nonrailroad land). The deed also conveyed "[o]ne-half of the royalty (of any type) from production of minerals that the Grantor actually receives, or is entitled to receive until February 1, 2072," from the railroad lands, i.e., those lands to which Newton held only surface title.

Approximately two years later, Flying Diamond sought to purchase all of Newton's remaining mineral interests and payment rights, but Newton refused. On April 12, 1974, however, Newton sold to Flying Diamond, pursuant to a contract called the Newton Ranch Purchase Contract, the entire surface interest, one-half the mineral estate then owned by Newton in the fee lands, and one-half of Newton's interest in the "royalty (of any type)" from the railroad lands. Flying Diamond drafted the Newton Ranch Purchase Contract.

After Flying Diamond's purchase, Champlin discovered oil and gas on several of the railroad sections included in the Agreement. Since that time, Champlin has remitted the 2 1/2% payments required by the Agreement to Flying Diamond. Pursuant to an agreement among Newton, Bass, and Flying Diamond, the latter has deposited three-fourths of the amount of those payments with an escrow agent pending resolution of this case.

Flying Diamond filed a complaint seeking a decree declaring that, as the surface owner of the lands in question, it is entitled to the entire 2 1/2% payment under the Agreement. Newton Sheep Company, its predecessor, the individual partners of the partnership, and Bass were named defendants. Champlin is not a party to this lawsuit. After a bench trial, the trial court ruled that the Agreement did not prohibit the assignment of the 2 1/2% payment, or any part thereof; that the Newton-Bass deed assigned one-half the 2 1/2% payment to Bass; and that the Newton Ranch Purchase Contract reserved to Newton one-fourth of the 2 1/2% payment. The court held that Flying Diamond owned only the remaining one-fourth interest. It also ruled that Flying Diamond was estopped from claiming a greater interest than its one-fourth interest in the 2 1/2% payment and that Newton and Bass were not estopped by the Agreement from asserting the interests they had in the 2 1/2% payment.

Flying Diamond argues that under the Agreement, the 2 1/2% payment covenant is a covenant that runs with the surface of the land and that since it is the surface owner, it is entitled to the entire amount. Newton and Bass contend that the payment covenant is a personal covenant that is freely assignable. Newton and Bass also argue that Flying Diamond should be estopped from asserting entitlement to the full 2 1/2% payment. ³

The trial court made no findings specifically addressed to the elements of a covenant running with the land. However, the court did find that the Newton-Bass deed conveyed a one-half interest in the 2 1/2% payment to Bass and that the Newton Ranch Purchase Contract retained in Newton a one-quarter interest in the 2 1/2% payment.

II. SCOPE OF APPELLATE REVIEW

The findings and conclusions of the trial court do not address specifically the contention that the payment covenant in the Agreement is a covenant running with the land. It is generally the law that the failure of a trial court to make findings on all material issues necessary to support its judgment is an error that usually requires a remand for the purpose of allowing the trial court to make such findings. See, e.g., Acton v. Deliran, 737 P.2d 996, 999 (Utah 1987). However, a remand is not necessary if the evidence in the record is undisputed and the appellate court can fairly and properly resolve the case on the record before it. See Seattle Box Co. v. Industrial Crating and Packing, Inc., 756 F.2d 1574, 1578 (Fed.Cir.1985); Gulf Towing Co. v. Steam Tanker, 648 F.2d 242, 245 (5th Cir.1981); LaSalle Extension Univ. v. F.T.C., 627 F.2d 481, 485 (D.C.Cir.1980); King v. C.I.R., 458 F.2d 245, 249 (6th Cir.1972); 9 C. Wright & A. Miller, Federal Practice and Procedure § 2577, at 701 (1971 & Supp.1988). Because the issue of the assignability of the covenant to pay 2 1/2% of the value of production is controlled entirely by the Agreement and the wholly undisputed parol evidence, ⁴ this Court...