Rucker v. Delay

• Decision Date: 23 July 2010
• Docket Number: No. 101,766.,101
• Parties: Donald R. RUCKER and Barbara L. Rucker, Appellees,v.Earl R. DeLAY and Leah Griffith DeLay, Henry Choquette and Ruth Mary Choquette, Leigh G. DeLay, Edith L. DeLay, John E. DeLay, Elizabeth Bennett, Harriet DeLay, Marian Allender, Eloise Hayes, and Wendy Anderson, Appellants.
• Court: Kansas Court of Appeals

235 P.3d 566

Donald R. RUCKER and Barbara L. Rucker, Appellees,v.Earl R. DeLAY and Leah Griffith DeLay, Henry Choquette and Ruth Mary Choquette, Leigh G. DeLay, Edith L. DeLay, John E. DeLay, Elizabeth Bennett, Harriet DeLay, Marian Allender, Eloise Hayes, and Wendy Anderson, Appellants.

No. 101,766.

Court of Appeals of Kansas.

July 23, 2010.

COPYRIGHT MATERIAL OMITTED

Syllabus by the Court

1. Rules for determining whether a mineral interest or a royalty interest has been reserved in a deed are stated and applied.

2. The term “royalty interest” refers to a share in the production of oil and gas at severance. It is personal property and concerns the proceeds from oil and gas leases if and when there is production.

3. The term “mineral interest” refers to the oil and gas in place and constitutes a present ownership of an interest in real property. A prime characteristic of a mineral interest is the right to enter the land to produce and carry on production activities. This right may be leased to others.

4. Whether an interest is one of royalty or a mineral interest is important because in Kansas, a mineral interest is deemed to vest immediately upon the creation of the interest, while a royalty interest is an interest in personal property and not immediately vested.

5. A grant of an interest in royalties “that may hereafter be developed under any oil and gas lease made by the grantees or subsequent grantees” is based on the possible but wholly uncertain execution of a future oil and gas lease by subsequent landowners which does not render certain the vesting of title within the period of the rule against perpetuities and is void.

6. The reservation in the deed which has been examined is held (1) to reserve only a royalty interest and (2) to be in violation of the rule against perpetuities.

Richard N. Raleigh, of Medicine Lodge, for appellants.

Alan C. Goering, of Goering and Slinkard, of Medicine Lodge, for appellees.

Before RULON, C.J., GREENE, J., and LARSON, S.J.

LARSON, J.

In this quiet title action, Earl R. DeLay and other heirs of Earl R. DeLay and Leah Griffith DeLay, his wife, appeal from the trial court's entry of judgment after a trial on stipulated facts in favor of Donald R. Rucker and Barbara L. Rucker that a reservation in a 1924 deed was of a royalty interest which violated the rule against perpetuities.

The record and stipulation reflect that on May 17, 1924, in consideration of $1,200, Earl R. DeLay and Leah Griffith DeLay, his wife, executed a general warranty deed in favor of Lurena Keener covering the NW/SW/4 of Section 4 and the NE/4SE/4 of Section 5, all in Township 32, Range 10, West of the 6th P.M. in Barber County, Kansas, which contained the following reservation: “The grantor herein reserves 60% of the land owner's one-eighth interest to the oil, gas or other minerals that may hereafter be developed under any oil and gas lease made by the grantee or by his subsequent grantees.”

The DeLays are the successors in interest of the grantors in the above-described deed, and the Ruckers are the present owners of the described real property and, thus, the successors in interest of the grantee of the above-described deed.

In 2008, the Ruckers filed a quiet title action against the DeLays in which the Ruckers contended the reservation violated the rule against perpetuities in that it was an attempt to retain a royalty interest in the grantor in production, and not a mineral interest in place. Since it is violative of the rule against perpetuities, the purported reservation was alleged to be null and void.

The DeLays answered, contending they owned 60% interest in the minerals under the described land, arguing the reservation did not violate the rule against perpetuities and that it was a mineral interest under Kansas decisions, and requesting the court quiet their title in and to such interest.

The parties entered into stipulations of fact which included the description of the property, the wording of the reservation in the 1924 deed, that the deed was not filed until August 29, 1925, that there has never been oil and/or gas produced on the property, and that in 1946 and 1966 ratifications of oil and gas leases were executed by the DeLays but since 1966 no DeLay successor has executed an oil or gas lease or satisfied one. It was also stipulated the Barber County Clerk's Severed Mineral Book lists the DeLays' interest as six mineral acres (60% x 1/8 x 80), the mineral rights were not exhibited to the county clerk prior to August 29, 1925, and all taxes against the severed mineral interests assessed by Barber County have been paid by the DeLays.

The issues were well briefed and argued by counsel for the parties. The trial court in its memorandum decision noted that Drach v. Ely, 237 Kan. 654, 703 P.2d 746 (1985), stated that applying the rule against perpetuities is not favored, but Drach involved interpretation of the language of a will where unique rules of construction favor protecting the intent of the testator that do not apply here. The court concluded that “developed” has a similar meaning to “produced and marketed.” The memorandum decision stated:

“A different construction is possible almost everywhere but Kansas which treats oil or natural gas in place as realty but produced oil or natural gas as personalty. [Citations omitted.]

“Kansas has consistently held the rule against perpetuities will be applied (even with the harsh result of forfeiture of an intended property right) if the interest in question was a nonparticipating [no interest in the leasing aspects of ownership] royalty interest. Miller v. Sooy, 120 Kan. 81 (1926) and many following decisions.

“The question in this case is what was created by the language of the deed in question. The Court concludes it is a perpetual nonparticipating royalty interest subject to termination by the Kansas authorities cited above.

....

“The language here attempts to create an interest which has no leasing rights (nonparticipating) with no reservation of a right to enter and produce. The one-eighth is a traditional leasehold royalty a portion of which is attempted to be reserved forever but which may not ever come to fruition (if land is never leased or developed).”

The trial court stated that its ruling for the Ruckers was not what was intended by the parties to the transaction in 1924 but that the court was not permitted to ignore settled Kansas precedent. Because the court's ruling on this issue was dispositive, it declined to rule on the delay in the recording of the deed issue.

From this decision, the DeLays have appealed. With the district court's decision being based on the language of the deed and the stipulations of the parties, “the standard of appellate review is de novo for cases decided by the district court based on documents and stipulated facts.” Double M Constr. v. Kansas Corporation Comm'n, 288 Kan. 268, 271, 202 P.3d 7 (2009).

We are called upon in this appeal to construe a reservation in a deed executed in 1924 which requires us to consider the direction of K.S.A. 58-2202 which provides in part: “[E]very conveyance of real estate shall pass all the estate of the grantor therein, unless the intent to pass a less estate shall expressly appear or be necessarily implied in the terms of the grant.”

In Corbin v. Moser, 195 Kan. 252, 258, 403 P.2d 800 (1965), a case with facts similar to ours, we find the following direction relative to the constructions of deeds.

“[W]here an ambiguity exists so that a deed is capable of two possible constructions the one most favorable to the grantee will be selected. We find the rule stated in 16 Am.Jur., Deeds, § 165, p. 530, as follows:

“ ‘The general rule is well settled that if there is any ambiguity in a deed so that it is capable of two possible constructions, one of which will be more favorable to the grantee, the other of which will be more favorable to the grantor, that method of construction which will be more favorable to the grantee will be selected and the deed will be construed against the grantor. All doubts, therefore, are to be resolved against the grantor. This rule is statutory in some jurisdictions. The rule is predicated upon the reasoning that since a grant is expressed in words of the grantor's own selection, it is, prima facie, an expression of his intention, and he is therefore chargeable with the language used. If, therefore, the deed can inure in different ways, the grantee, it is said, may take it in such way as will be most to his advantage.’ ”

The contentions of the parties on appeal are predictable and consistent with those made in the trial court.

The DeLays argue the district court erred in determining that the interest reserved in the deed was a royalty interest. They contend the language in the reservation is similar to language in cases they cite, which the appellate court of Kansas have determined were reservations of mineral interests.

The Ruckers assert the district court was correct in its ruling that the reservation in the deed was of a royalty interest. They assert there is no reserved right to lease or receive bonus or delay rentals, the reservation is of a share of production being the landowner's one-eighth interest under an oil and gas lease executed by grantees or subsequent grantees.

The difference between whether an interest is one of royalty or a mineral interest is important because in Kansas, a mineral interest is deemed to vest immediately upon the creation of the interest Lathrop v. Eyestone, 170 Kan. 419, 423-24, 227 P.2d 136 (1951), while a royalty interest is an interest in personal property and not immediately vested.

When we are called upon to interpret whether a conveyance or a reservation is a royalty or mineral interest, we look to the summary set forth in 1 Pierce, Kansas Oil and Gas Handbook §§ 6.14 to 6.18 (1991), hereafter Pierce, where the following construction rules are set forth at § 6.14:

“ ‘The cardinal principle or test to be

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