Louisiana Canal Co., Inc. v. Heyd

• Decision Date: 04 April 1938
• Docket Number: 34579
• Citation: 189 La. 903,181 So. 439
• Court: Louisiana Supreme Court
• Parties: LOUISIANA CANAL CO., Inc., v. HEYD et al

181 So. 439

189 La. 903

LOUISIANA CANAL CO., Inc., v. HEYD et al

No. 34579

Supreme Court of Louisiana

April 4, 1938

Rehearing Denied May 2, 1938

Appeal from Fourteenth Judicial District Court, Parish of Calcasieu Mark C. Pickrel, Judge.

Suit for accounting of royalties from an oil lease by the Louisiana Canal Company, Inc., against Ferdinand Heyd and others. From a judgment dismissing the suit, the plaintiff appeals.

Judgment reversed and set aside and case remanded, with directions.

Pujo Hardin & Porter, of Lake Charles, for appellant.

Plauche & Stockwell, of Lake Charles, for appellee Ferdinand Heyd.

Geo. C. Schoenberger, Jr., of Houston, Tex., and Oliver L. Stone, of Baton Rouge, for appellee Shell Petroleum Corporation.

ODOM, Justice. O'NIELL, C. J., did not take part. LAND, J., absent.

OPINION

ODOM, Justice.

The facts disclosed by the petition in this case are that, on November 22, 1928, the defendant Heyd sold to plaintiff a strip of land 66 feet wide and one-half mile long "in a north and south direction, the center line of which is the half section line running north and south through the North half (N 1/2) of Section Thirteen (13), Township nine (9) South, Range seven (7) West, containing four (4) acres."

Plaintiff did not record its deed until September 12, 1929. Subsequent to the date of the deed and prior to its recordation, Heyd granted to Frank W. Bennett an oil lease covering the entire half section of land, including the strip he had sold to plaintiff. The lease was recorded in the notarial records on June 19, 1929. On June 22 Bennett sold the lease to the Shell Petroleum Corporation. The lease was for one year and provided that in the absence of drilling operations it might be kept alive for an additional period by the payment of delay rentals of $ 800 each six months. The lease was kept alive by the payment of delay rentals until May, 1932, when Shell began drilling operations under the lease and brought in oil. It has since drilled some seven or eight wells, all producers. No well was drilled on the strip sold by Heyd to plaintiff, but some of them were drilled within a short distance from it.

In making the lease, Heyd ignored plaintiff entirely. Plaintiff was not consulted, but its land was covered by the lease. The deed to plaintiff not having been recorded at the time the lease was made, it seems that the lessee knew nothing of the sale. However, it is alleged that, when plaintiff learned that the lease had been made and recorded, it then recorded its deed and served notice on Shell that it had purchased the strip of land from Heyd, the notice being given in accordance with the following stipulation in the lease:

"No sale or assignment by lessor shall be binding on lessee for any purpose until lessee shall be furnished with an instrument in writing evidencing the sale or assignment."

Plaintiff alleged that a certified copy of the deed of purchase by plaintiff from Heyd had been furnished to Shell Petroleum Corporation, and paragraph 10 of the petition sets out that no drilling operations were begun within one year and that Shell paid the delay rentals and that

"* * * petitioner was paid by the Shell Petroleum Corporation on June 16, 1930, the sum of Ten ($ 10.00) Dollars, as petitioner's share of the 'rental' under the terms of the said oil and mineral lease, and that similar payments or rentals, and of the same amounts, were made to petitioner December 20, 1930, June 15, 1931 and December 8, 1931, in order to secure similar extensions of said lease."

It is alleged that the Shell Petroleum Corporation has produced large quantities of oil from the land covered by the lease and

"That one-eightieth (1/80) of one-eighth (1/8) of the proceeds of all of the oil produced on the said lands and which oil belonged to petitioner, has been paid by the Shell Petroleum Corporation to Ferdinand Heyd, and that by reason of all of the above, petitioner is entitled to recover from Ferdinand Heyd the payments so made to him."

Paragraph 23 of the petition reads as follows:

"That Ferdinand Heyd and the Shell Petroleum Corporation should be ordered to account for all of the oil produced on the above described lands, and the proceeds of the sale of such oil, in order that petitioner's rights therein may be determined."

It is alleged that the Shell Corporation paid to Heyd the proceeds of royalties due plaintiff after it had knowledge of all the facts, which was a violation of the terms of the lease, and for that reason the lease should be cancelled.

Plaintiff prayed for judgment ordering Heyd and the Shell Corporation to make an accounting showing the amount of oil extracted from the land and "condemning them jointly, to pay unto petitioner a one-eightieth (1/80) part of all sums paid as royalty coming from oil produced from the said above described lands," and that the lease be cancelled.

Defendants excepted to the petition on the ground that it set out no cause of action. The exception was sustained, and the suit was dismissed.

Plaintiff appealed.

According to plaintiff's petition, it owns in fee 4 acres of land in the N. 1/2 of section 13, T. 9 S., R. 7 W., or one-eightieth of the total acreage of that half section. This is not an undivided fractional interest, but the entire interest in a fractional portion of the tract. Heyd, without plaintiff's consent or knowledge, granted an oil lease covering the N. 1/2 of section 13, including plaintiff's 4-acre tract. At the time the lease was executed, plaintiff had not recorded the deed which Heyd had executed in its favor. Whether, as argued by counsel for plaintiff, Heyd committed a legal fraud by leasing plaintiff's land is not material to the issue involved, because it is conceded by both sides, and the trial judge so held, that by accepting its pro rata share of the delay rentals the plaintiff accepted and ratified the lease and made it its own.

Plaintiff is as firmly bound as if it had joined Heyd in making the lease. The effect of the ratification was to make the contract a lease by Heyd and plaintiff, covering both tracts of land, the small 4-acre tract owned by plaintiff and the larger tract owned by Heyd. This being one lease covering both tracts, the question is whether plaintiff has any royalty interest in the oil extracted from Heyd's tract of land, no well having been drilled on plaintiff's tract. That depends upon whether the contract became a joint lease by plaintiff's acceptance of it.

While plaintiff did not originally join Heyd in making the lease, the effect of accepting its share of the delay rentals after it had knowledge of all the facts was to make the contract its own. Heyd knew, of course, that a portion of these rentals was being paid to plaintiff. He made no objection. Therefore, these parties, as between themselves, are in precisely the same situation in so far as their mutual rights and benefits under the lease are concerned as if they had signed the lease together. After plaintiff had accepted the contract, it was no longer Heyd's lease but the lease of both, covering two adjacent tracts of land, made to one individual who assumed the obligation of delivering to the lessors as royalties, in case there was production, one-eighth of the oil produced. This was the consideration of the lease, aside from the delay rentals which were paid in order to keep the lease alive until operations were begun. The consideration which the lessee received was the privilege, granted by the lessors, of going upon and exploring the land covered by the lease for the production of minerals.

It is conceded by counsel for Heyd that, in as much as plaintiff owned one of the tracts covered by the lease, it was entitled to that proportion of the delay rentals which its tract bears to the total acreage. But counsel argue that, since there was no community, pooling or proportionate sharing clause in the lease, neither party is entitled to any royalty interest in oil produced from the land of the other.

It is argued by counsel for defendants that the issue here involved was settled by the cases of United Gas Public Service Co. v. Eaton, 153 So. 702, and of Herring v. United Gas Public Service Co., 153 So. 710 (both decided the same day by the Court of Appeal, Second Circuit), the Eaton Case having been approved by this court by its refusal to grant writs.

The Eaton Case is similar to this one in that Eaton and Emmons owned adjacent 40-acre tracts of land and executed together one lease covering both tracts. Young, who owned one-half of the minerals in both tracts, joined them in making the lease. A producing gas well was drilled on the tract owned by Eaton, but no well was drilled on the Emmons tract. It was held that Emmons had no interest in the royalty or mineral rights on Eaton's tract.

It is argued that the Eaton Case is on all fours with this one, and that, since Emmons had no royalty interest in the gas produced from Eaton's land, it follows that plaintiff in the case at bar has no royalty interest in the oil produced from Heyd's land.

We approved the holding in the Eaton Case, but our reasons for doing so are explained at length in the case of Shell Petroleum Corporation v. Calcasieu Real Estate & Oil Co., 185 La. 751, 170 So. 785. In the course of our opinion, we said (page 790):

"The ruling was that Emmons and his transferees had no interest whatever in the royalty, or mineral rights on Eaton's 40 acres, because Emmons and his transferees had construed their contract to mean exactly that. Emmons and Eaton each sold off parts of their mineral rights, or interest in the royalty after they and Young had entered into the lease; and, in each instance, Emmons sold the mineral rights, or interest in the...