McGinnis v. McGinnis

• Decision Date: 06 May 1964
• Docket Number: No. 3195,3195
• Citation: 391 P.2d 927
• Parties: William J. McGINNIS, Appellant (Defendant below), and First National Bank of Kemmerer, Wyoming, a national banking corporation (Defendant below), v. Delia F. McGINNIS, Executrix of the Estate of Anderson L. McGinnis, Deceased, Walter C. Yose, Miranda Yose, Viola McGinnis, Lulu Budd, Olive Irwin, and Carrie Warner, Appellees (Plaintiffs below).
• Court: Wyoming Supreme Court

Page 927

391 P.2d 927

William J. McGINNIS, Appellant (Defendant below), and First National Bank of Kemmerer, Wyoming, a national banking corporation (Defendant below), v. Delia F. McGINNIS, Executrix of the Estate of Anderson L. McGinnis, Deceased, Walter C. Yose, Miranda Yose, Viola McGinnis, Lulu Budd, Olive Irwin, and Carrie Warner, Appellees (Plaintiffs below).

No. 3195.

Supreme Court of Wyoming.

May 6, 1964.

Galicich & Hamm, Kenneth G. Hamm, Rock Springs, for appellant.

C. M. Crowell, Casper, for appellees.

Before PARKER, C. J., and HARNSBERGER, GRAY, and McINTYRE, JJ.

Mr. Chief Justice PARKER delivered the opinion of the court.

Plaintiffs filed a complaint against William J. McGinnis and the First National Bank of Kemmerer, alleging in substance that members of the McGinnis family owning lands in Lincoln and Sublette counties had in 1941 executed an Assignment in Trust to the bank of all gas and oil royalties resulting from development operations on the lands they then owned, moneys from the proceeds thereof to be distributed by the bank to all the members of the McGinnis family in proportion to the ownership of shares of capital stock in the late McGinnis Land and Cattle Company; that there was no production on the lands until 1956 when William J. McGinnis received royalties from his lands but refused to deliver them to the bank although Anderson L. McGinnis, one of the plaintiffs, had received payments for royalties which he was willing to deliver to the bank and willing to authorize all future payments on account of royalties to be made to the bank; and praying that William J. McGinnis be required to account for and pay the bank in trust all the sums received by him from royalties and that all the parties be required to authorize payment of future royalties in the same manner. The answer admitted the execution of an instrument purporting to be an assignment in trust and alleged that the complaint failed to state a claim and that the purported assignment was illegal, void, and contrary to law, public policy, and Wyoming's constitution and statutes, and prayed judgment. The case was tried to the court without a jury on an agreed statement of facts, which may be summarized as saying:

The McGinnis Land and Cattle Company was a family corporation, owning lands in Lincoln and Sublette counties, and all eight beneficiaries of the mentioned assignment in trust were members of the family and stockholders in the corporation. Prior to its dissolution in 1922, the corporation had conveyed its lands without mineral reservation to five of the eight members of the family. In 1941 those members owning the lands executed a purported assignment in trust to the bank, providing for distribution by the trustee of all royalties from the lands to the eight members of the family in proportion to the stock each had held in the family corporation. The executed original of the purported assignment was delivered to defendant William J. McGinnis, who in 1954 recorded it in Lincoln County and in 1960 in Sublette County, where production of oil and gas was had on his land in 1957. He refused to pay or authorize to be paid such royalties to the trustee. Production was had on the lands of Anderson L. McGinnis and the Yoses in 1959 and 1962 respectively.

The district court ordered that all amounts which had been received by any of the parties on account of the royalties be paid to the bank as trustee and that the recipients execute proper instruments to effectuate payment due or to become due. From the judgment defendant William J. McGinnis has appealed, arguing that for various reasons the assignment is invalid and contrary to the Wyoming constitution and statutes, principally because it violates the rule against perpetuities, constitutes a prohibited restraint on the power to alienate property, provides no time of performance, was executed without consideration or mutual obligation, and is judicially unenforceable.

The significant portions of the Assignment in Trust, the legality of which is here in issue are:

'WHEREAS, it is the desire of the parties named herein that each shall share in any and all royalties derived or produced from said hereinafter described lands, regardless of the ownership thereof from which such royalties are produced, in the proportion based upon the ownership of each of the capital stock of the McGINNIS LAND AND CATTLE COMPANY now dissolved hereinafter particularly set forth;

'NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that in consideration of the mutual promises and agreements of said parties and of the sum of ONE DOLLAR each to the other in hand paid, and of the fees and commissions to be paid to the trustee hereinafter named, the parties to this agreement hereby assign, transfer and set over unto the FIRST NATIONAL BANK OF KEMMERER, WYOMING, any and all oil and gas royalties due or to become due us, or either of us, under and by virtue of any and all oil and gas leases heretofore executed by the parties hereto, whether jointly or individually, and any and all oil and gas royalties that may hereafter become due and payable to the parties hereto, or any of them, from and by virtue of any oil and gas leases that may hereafter, or at any time executed by us, whether jointly or severally, pertaining to the lands hereinafter mentioned, to any person, firm or corporation to whom we, or any of us shall or may convey by lease or otherwise for the purpose of prospecting for oil and/or gas, together with any and all the oil and gas royalties that may be produced from said lands or any part thereof through the production of oil and/or gas in any other way or manner whatsoever.'

As a prelude to analysis of the case, the concession of defendant should be observed that a nonparticipating royalty interest may be assigned and his failure to challenge the legality of such practice in Wyoming. This concession is in accordance with accepted authority. Annotation, 46 A.L.R. 2d 1268. He, nevertheless, distinguishes the present situation from other assignments of nonparticipating oil and gas royalties and points out that ordinarily both legal and equitable title vest immediately in the assignee whereas in the matter before us legal title of the royalties vests in the trustee but the extent of the equitable title in the beneficiaries is dependent upon 'indeterminate contingent factors.' He argues additionally that since the instrument provides for no termination, gives no power to sell or convey, and there is no right of the beneficiaries to have the trust terminated, there is created an indissolvable trust to continue forever for the purpose of collecting and paying over the royalty proceeds, and thus there is a violation of the rule against restraint on alienation.

A portion of defendant's brief and argument deals with the possibility that under Wyoming law oil and gas royalties are personal property and must be so considered in the determination of any questions here presented. It is unnecessary to review the cases to which he refers since royalties as those here in issue have been found in this jurisdiction to be realty. The reasons for this rule were analyzed by Judge Blume in State ex. rel. School Dist. No. 1 in Weston County v. Snyder, 29 Wyo. 163, 212 P. 758, and summarized by him in Denver Joint Stock Land Bank of Denver v. Dixon, 57 Wyo. 523, 122 P.2d 842, 849, 140 A.L.R. 1270:

'* * * The right to a royalty interest in oil does not merely attach after the oil has been severed from the ground and has become personal property. It is not merely rent issuing out of the annual produce of the land. It goes further than that. The right, extending as it does to oil which is to come from particular land, extends to and is necessarily connected with the corpus of the land, and is, accordingly, a right which exists in the oil which still is in place, inchoate though it may be, follows it as it comes from the ground and still is attached after it has become personal property. To call it personal property is but emphasizing a particular stage of the right on its way to fulfillment. It ignores that it is a right which necessarily extends to part of the corpus of the land. * * *' See Dame v. Mileski, 80 Wyo. 156, 340 P.2d 205.

Two questions of importance are presented by this appeal:

(1) Was the Assignment in Trust invalid because of remoteness of vesting of title in the beneficiaries; and

(2) Was the said assignment void because it constituted an unreasonable restraint on the power of alienation?

The rules that interest must vest within a certain time and that after it has vested it must be alienable have the same fundamental purpose, that is, keeping property alienable, but the objectives are accomplished by different methods. 6 American Law of Property §§ 24.6 and 26.66 (Casner ed. 1952); Gray, The Rule Against Perpetuities §§ 2.1, 119, and 437.1 (4 ed.); and see 44 Ill.L.Rev. 467; 51 Harv.L.Rev. 638.

Rule Against Perpetuities

We consider then defendant's argument that the Assignment in Trust was invalid as a violation of the rule against remoteness of vesting. Some time is devoted by counsel to a discussion of the basis for the existence of the rule against perpetuities in this jurisdiction; however, its applicability is undisputed and its source is not here pivotal. Aside from the effect in this jurisdiction of the rule's existence at common law, Art. 1, § 30, Wyo.Const., provides that perpetuities are contrary to the genius of a free state and shall not be allowed. C. 92, S.L. of Wyoming, 1939, is discussed by counsel for both parties, each presenting his view on its bearing upon the present situation but both agreeing that it was effective at the time the Assignment in Trust was executed. Defendant argues that the statute must be interpreted in the light of the rule against perpetuities and that accordingly the assignment must fail, while plaintiffs contend that the statute makes sense only as a...