Rist v. Toole County

• Decision Date: 26 May 1945
• Docket Number: 8513.
• Parties: RIST v. TOOLE COUNTY et al.
• Court: Montana Supreme Court

159 P.2d 340

117 Mont. 426

RIST v. TOOLE COUNTY et al.

No. 8513.

Supreme Court of Montana

May 26, 1945

Rehearing Denied June 20, 1945.

Appeal from District Court, Ninth Judicial District, Toole County R. M. Hattersley, Judge.

Action by George W. Rist against Toole County and its treasurer to enjoin defendants from issuing or taking tax deed to certain lands in which plaintiff owned a fractional royalty interest in minerals. The district court granted an injunction, and defendants appeal.

Reversed and remanded with directions.

A fractional royalty interest in oil, gas, and other minerals under existing and future leases was not a separate fee simple interest in minerals or land taxable as realty separately from the rest of the fee title, and hence where land had been assessed as a whole to fee simple owner and had been sold to county for unpaid taxes, royalty holder could not enjoin county from issuing or taking tax deed thereto. Rev.Codes 1935, §§ 1996, 1999-2001, 2088 et seq., 2215.

W. M. Black, of Shelby, for appellants.

E. J McCabe, of Great Falls, for respondent.

JOHNSON, Chief Justice.

Defendants Toole county and the treasurer thereof appeal from a judgment permanently enjoining them from issuing or taking tax deed to certain lands. The cause was submitted upon an agreed statement of facts reciting that on April 16, 1926, one DeGroat was the owner in fee simple of certain lands in Toole county; that on that date he executed, acknowledged and delivered to one Reisinger a written instrument assigning to the latter 'an undivided five and one-half per cent (5 1/2%) royalty of and in all of the oil and gas and other minerals produced and saved' from those lands; that on May 12, 1926, said Reisinger by like instrument assigned to the plaintiff an undivided 1/10 of 1% royalty therein; that the said instruments were recorded in the office of the clerk and recorder of that county on May 7 and May 15, 1926 respectively; that the lands are in the Kevin-Sunburst oil field, in which oil and gas in paying quantities had theretofore been discovered and produced; that the land had a separate surface value for agricultural and grazing purposes that the county assessor assessed the land to DeGroat for taxation for the years 1927 to 1940, inclusive, 'on the value of the whole thereof including the value of the probable oil and gas production therefrom and without in any manner segregating the independent surface value of said lands from the value of the probable oil and gas production therefrom and without segregating the value of the interest of said Walter DeGroat from the value of the interest of plaintiff in said lands'; that the taxes were levied on the basis of such assessments and were not paid for 1927; that on February 2, 1928, the county treasurer sold the lands to Toole County for the said taxes and issued a certificate of sale to the county; 'that Toole County, Montana, has heretofore on the 20th day of November, 1940, given plaintiff and other persons interested in said lands, written notice in conformity with the statutes of Montana' of its intention to apply for a tax deed embracing said lands; 'that there are approximately forty-five owners of oil and gas royalties in and to aforesaid lands which royalties are of the same character as the royalty interest of plaintiff whose rights will be prejudicially affected by the issuance of the aforesaid tax deed * * *.' The transfers of royalty were by written documents entitled 'Assignment of Royalty' and transferred fractional 'royalty of all of the oil and all of the gas produced and saved' from the land. They recited 'and I do hereby assign said royalty under the lease now covering said lands as well as any lease, or leases, that may be hereafter made covering said premises.'

The judgment decreed that all assessments and tax levies for the years 1927 to 1940, inclusive, were wholly void, and permanently enjoined the defendants from executing or issuing, and defendant county from demanding or receiving, any purported tax deed based upon sale for collection of tax levies for those years, or any thereof.

Plaintiff's and respondent's contention is that his oil and gas royalty interest constitutes a separate fractional mineral title in fee simple segregated from the rest of the fee title to the land, and that the combined assessment of the mineral interest with that of the remaining interests in the land, without segregating the respective interests of the various owners, was wholly void and will not support tax deed proceedings.

Defendants' contention is that the oil royalty is not a fee-simple interest in the land since it relates only to personal property, namely, to oil and gas after production and severance from the real estate; that it, therefore, like the oil lease, constitutes only a profit a prendre which, although an interest in land, is not a separate fractional title in fee, but is incident to and dependent upon that title and falls with it upon issuance of tax deed; that it can be protected only by due payment of or redemption from the tax levied against the fee-simple title.

The question therefore is whether the royalty assigned to plaintiff constitutes an undivided fractional fee-simple interest in the oil, gas and other minerals in place, segregated from the balance of the fee-simple title and therefore to be taxed separately and not included with DeGroat's fee-simple interest for taxation purposes.

It is well settled that the title to mineral interests in land, including oil and gas interests, may be segregated in whole or in part from the rest of the fee-simple title ( Krutzfeld v. Stevenson et al., 86 Mont. 463, 284 P. 553; Broderick v. Stevenson Consolidated Oil Co., 88 Mont. 34, 290 P. 244; Hodgkiss v. Northland Petroleum Consolidated, 104 Mont. 328, 67 P.2d 811), and that the separate fractional titles should be taxed separately to their several owners. Northern Pacific Ry. Co. v. Mjelde, 48 Mont. 287, 137 P. 386; Anaconda Copper Mining Co. v. Ravalli County, 52 Mont. 422, 158 P. 682; Musselshell County v. Morris Development Co., 92 Mont. 201, 11 P.2d 774. The method of taxation of separate mineral interests has been considered by this court on numerous occasions but need not be examined here. The issue presented by this appeal is whether the royalty interest in question constitutes such fee-simple interest in the land as is taxable as real estate separately from the balance of the title.

This court long ago adopted the standard and universal definition of royalty. In Hinerman v. Baldwin, 67 Mont. 417, 215 P. 1103, 1108, it said: 'The word has a very well understood and definite meaning in mining and oil operations. As thus used, it means a share of the produce or profit paid to the owner of the property. Webster's Dictionary.' The expression 'a share of the produce or profit paid to the owner of the property' is quite different from a share or interest in the property itself. It recognizes that the originator of the royalty is still the owner of the real property to which it relates, and that the assignee's interest is only in the 'produce or profit' therefrom,--namely, in the personal property which the owner is to receive for the granted privilege of producing minerals from his land.

This court repeated the same definition in Homestake Exploration Corporation v. Schoregge, 81 Mont. 604, 264 P. 388, 391, and proceeded to say:

'The general rule is that: 'Both petroleum and gas, as long as they remain in the ground, are a part of the realty. They belong to the owner of the land, and are a part of it as long as they are on it or in it, or subject to his control.' Gas Products Co. v. Rankin, 63 Mont. 372, 207 P. 993, 24 A.L.R. 294; 18 R.C.L. p. 1205; Mills-Willingham on Oil and Gas, pp. 20, 21.

"The owner of the fee has the same title to the oil and gas in place which characterizes the ownership of solid minerals in like circumstances, but by his lease, regardless of the form of the granting clause, he does not intend to convey the oil and gas in place or any interest therein. * * * By a lease of this description the lessee is vested with a present property right in the leased premises, namely, to search for oil and gas under the conditions of the lease and to appropriate them as personal property if found, yielding the stipulated royalty. This is a right to take a profit from the lands of another, and within the common law classification may be regarded as a profit a prendre.' Veasey on Oil and Gas, 18 Mich. Law Review, 773. * * *

'By the provisions of these leases and the assignments the operator or lessee is given merely a right to enter upon the land for the purpose of exploring for oil, and developing and producing the same, if found. The lessee acquires no corporeal interest in the land itself, but rather a privilege $aa prendre. Until the actual discovery of oil, the interest of the lessee in the land is inchoate. Oil remaining in the ground before recovery is a part of the land, and belongs to the owner of the land; but, when recovered, it becomes personal property. Such personalty is thereupon subject to division in accordance with the terms of the contract of lease.'

In that case this court pointed out that the royalty, whether of the kind known as landowner's royalty or that known as overriding royalty, constituted an interest in the privilege of producing minerals, and in the personal property when and as severed and produced from the land, but not an interest in the minerals in place; in other words, it is a privilege a prendre, and not a portion of the fee-simple title. To the same effect is Broderick v. Stevenson Consolidated Oil Co., supra.

Again in Northern Pacific Ry. Co. v. Gas Development Co., 103...