De Mik v. Cargill, 42797

• Citation: 1971 OK 61,485 P.2d 229,58 A.L.R.3d 1042
• Decision Date: 11 May 1971
• Docket Number: No. 42797,42797
• Parties: William J. DE MIK, Plaintiff in Error, v. O. A. CARGILL et al., Defendants in Error.
• Court: Supreme Court of Oklahoma

Page 229

485 P.2d 229

58 A.L.R.3d 1042

William J. DE MIK, Plaintiff in Error, v. O. A. CARGILL et al., Defendants in Error.

No. 42797.

Supreme Court of Oklahoma.

May 11, 1971.

Syllabus by the Court

1. An 'overriding royalty' is a percentage carved out of the lessee's working interest, free and clear of any expense incident to 'production' and sale of oil and gas produced from the leasehold.

2. Partition of real property may be had only when it is held in cotenancy, either as tenants in common, joint tenants or coparceners.

3. An overriding royalty is not an interest in real property which creates a possessory right in the leasehold estate sufficient to support partition.

Appeal from District Court of Oklahoma County; Harold C. Theus, Trial Judge.

Action by plaintiff for partition of undivided overriding royalty interests in oil and gas leasehold estate. From judgment sustaining demurrers to petition and dismissing action as to named defendants the plaintiff appeals. Affirmed.

Bishop & Wantland, Seminole, for plaintiff in error.

Marvin Shilling, Ardmore, Mickey James, Oklahoma City, James A. Clark, Ardmore, for H. R. Shine and W. P. Burch.

Johns, Howell & Webber, by Charles Hills Johns, Midwest City, for O. A. Cargill and O. A. Cargill, Jr., defendants in error.

BERRY, Chief Justice:

The sole question presented concerns propriety of the trial court's action sustaining defendants' demurrer to plaintiff's petition, which sought partition of defendants' overriding royalty interest in an oil and gas leasehold. The precise question appears to be of first impression. Summarized hereafter is the substance of pleadings pertinent to the issue. Neither surface owners nor royalty owners were parties to this action.

Plaintiff alleged ownership of the working interest, plus additional overriding royalty interest, underlying two described quarter sections in Oklahoma County, and defendants' ownership of undivided overriding royalty interest in the producing leasehold. Several other defendants also owned overriding royalty interests created by defendants Cargill while owners of entire lease. Because plaintiff and defendants were cotenants, plaintiff was entitled to partition the producing leasehold estate as a matter of right, which could not be partitioned in kind because of production. The amended petition alternatively asked relief in equity for partition upon the ground defendants' overriding royalty interest overburdened the working interest to the extent further production, development, or sale of the premises no longer was economically feasible.

The trial court sustained defendants' demurrer and dismissed the action as to defendants' overriding royalty interests, but allowed plaintiff to proceed with partition of the working interest.

Two propositions are presented on appeal. Plaintiff first contends an overriding royalty interest is subject to partition as a matter of right, under 12 O.S.1961 § 1501:

'When the object of the action is to effect a partition of real property, the petition must describe the property and the respective interests of the owners thereof, if known.'

Summarized, plaintiff advances the following argument in support of this claim. An oil and gas lease is subject to partition under authority of Sweeney v. Bay State Oil & Gas Co., 192 Okl. 28, 133 P.2d 538. Owners of undivided interests in the working interest in an oil and gas lease are tenants in common. Britton v. Green et al., (10th Cir.) 325 F.2d 377. Although severed from realty, oil and gas rights may be partitioned. Wolfe v. Stanford, 179 Okl. 27, 64 P.2d 335. An overriding royalty interest generally is held to be an interest in real property and may be impressed with statutory materialmen's liens. McInnes v. Robinson, Okl., 341 P.2d 577; Meeker v. Ambassador Oil, (10th Cir.) 308 F.2d 875. Based upon this decisional law plaintiff asserts overriding royalty is real property in this state, owners of such interests being tenants in common with owners of the working interest, hence the overriding royalty is subject to partition as a matter of right. We find no fault with the rules expressed in the cited cases as determinative of the issues considered in each case. We disagree, however, that overriding royalty is real estate and subject to partition as a matter of right, being of the opinion these cited cases cannot be construed as supporting the conclusion stated.

Disposition of this appeal requires determination whether allegations of the petition are sufficient to show existence of a right to partition. In substance, defendants' answer asserts they are not tenants in common, cotenants, or coparceners, have neither joint ownership nor right of possession and, therefore, have no interest which can be subjected to partition. In this connection, this Court consistently has declared partition of real property can be allowed only when held in cotenancy. In Prusa v. Cermak, Okl., 414 P.2d 297, this rule is stated:

'Partition of real property may be had only when it is held in cotenancy, either as tenants in common, joint tenants or coparceners.'

The record does not disclose the instrument by which the involved overriding interests were created. Apparently the parties have no disagreement as to definition of such interest, but disagree only as to the nature thereof as concerns the issue relating to right of partition. The term has become so commonplace as scarcely to require restatement. 'Overriding royalty', as generally understood and accepted within the industry, is a percentage carved out of the lessee's working interest, free and clear of any expense incident to production and sale of oil and gas produced from the leasehold. Thornburg v. Cole, 201 Okl. 609, 207 P.2d 1096; Cities Service Oil Co. v. Geolograph Co., 208 Okl. 179, 254 P.2d 775. Manual of Oil and Gas Terms (Williams & Meyers) at p. 173.

At the outset, we observe some difficulty is engendered as a result of undefinitive language, inappropriately used in many prior decisions. Decided cases are too numerous to cite and compare. Examination of many of these cases reveals imprecise use of words when speaking of ownership in property. Often the intention is to refer to an interest in real property, but the words 'estate in real property' are inaptly used. The instant situation may have such foundation, in view of plaintiff's argument an overriding royalty interest constitutes an estate in cotenancy sufficient to support partition.

Historically, partition of land came into being when persons owning land as coparceners were involved in an unpleasant situation. The law developed procedures by which difficulty was resolved simply by dividing the land into separate tracts. Powell on Real Property, V. 4 § 609. Eventually the right of partition was extended by statute, but the jurisdiction conferred upon courts allowed partition only in instances where land was held in cotenancy. In Pomeroy's Equity Jurisprudence (4th Ed.) V. 5 § 2126, dealing with partition, that text states:

'Following the analogies of the law, equity will grant partition only of property held in co-tenancy and in which the parties have a community of interest, either as co-tenants, tenants in common, or co-parceners; and this rule has not been materially affected by the statutory remedy of partition provided in all the states. Several persons may be owners of the same property without being co-tenants, and the severance of their interests may be desirable or even essential to the enjoyment of such property, but this constitutes no ground for equitable interference by way of partition. If the requisite of co-tenancy be present, all kinds of property are subject in equity to partition, whether it be corporeal or incorporeal, real or personal, and whether it be held by legal or equitable title.'

First National Bank v. Dunlap, 122 Okl. 288, 254 P. 729, involved whether a judgment creditor's lien would attach to a judgment debtor's interest in a producing oil and gas lease. The contention was that the term 'real property' included every interest, estate and right in land, tenements and hereditaments. In affirming a judgment quashing execution levied against the oil and gas interest, this Court stated no statute provides every Estate in real property shall be considered Real property. Thus, in the character of property created by an oil and gas lease, there is a recognizable distinction between Real estate and An estate in real property. Not every kind of estate recognized in law as an interest in real property is real estate. Although an oil and gas lease creates an Interest or Estate in realty, such interest is not per se real estate. In Pauline Oil & Gas Co. v. Fischer, 185 Okl. 108, 90 P.2d 411, syllabus 2 states:

'While an oil and gas lease which 'grants, leases, and lets' certain land for oil and gas mining purposes, conveys to the lessee an estate in the realty described therein, such interest is not real estate within the meaning of section 690, C.O.S.1921, 12 Okl.St.Ann. § 706, which gives a judgment creditor a lien upon the 'real estate' belonging to the judgment debtor.'

In Tiffany, The Law of Real Property (3rd ed.) V. 2 § 475, dealing with who may demand partition, although recognizing this right depends upon construction and effect of particular statutes, the text states:

'* * * Ordinarily, one seeking partition must have an estate in possession, entitling him to enjoy the present rents or possession of the property as a cotenant thereof, and must be the owner of a vested undivided interest in the premises jointly, as a tenant in common, or in co-parcenary with those against whom he seeks partition. * * *'

Recognition of the text rule appears in North v. Coffey, 200 Okl. 44, 191 P.2d 220, and Prusa v. Cermak, supra.

A tenancy in common has been defined as a joint interest in which there is unity of possession, but separate and distinct titles. The relationship exists where property is...