Smith v. Amerada Petroleum Corp.

• Decision Date: 28 July 1965
• Docket Number: No. 8219,8219
• Citation: 136 N.W.2d 483
• Parties: R. O. SMITH, Plaintiff and Respondent, v. AMERADA PETROLEUM CORPORATION, a corporation, Defendant and Appellant.
• Court: North Dakota Supreme Court

Page 483

136 N.W.2d 483

R. O. SMITH, Plaintiff and Respondent, v. AMERADA PETROLEUM CORPORATION, a corporation, Defendant and Appellant.

No. 8219.

Supreme Court of North Dakota.

July 28, 1965.

Rehearing Denied Aug. 17, 1965.

Syllabus by the Court

1. All persons who are materially interested in the outcome of a suit or in the subject matter should be made parties, either as plaintiffs or defendants, so that the court may grant full relief and adjust in one action the rights of all parties growing out of or connected with the subject matter of the suit.

2. A necessary party is one whose presence is essential to a determination of a controversy.

3. To be a necessary party, a person must be so interested in the subject matter of the suit that a valid judgment cannot be rendered without his presence.

4. Where the only question argued by the appellant in its brief is whether lessors other than the plaintiff are necessary parties to the plaintiff's action against the lessee, the question of the effect of the execution of a second lease by plaintiff on the plaintiff's rights under the original lease will not be considered.

R. O. Smith, Bismarck, for plaintiff and respondent.

Cox, Pearce, Engebretson, Murray & Anderson, Bismarck, and John S. Miller, Tulsa, Okl. [on oral argument], for defendant and appellant.

STRUTZ, Justice.

On August 11, 1949, Maryan Sather, a widow, and Oscar Sather, a single man, executed an oil and gas lease covering certain properties in Mountrail County. The properties covered by this lease consisted of two noncontiguous parcels totaling 640 acres. The lease executed by the Sathers contained an entirety clause, which was in the following words:

'10. If the leased premises shall hereafter be owned in severalty, or in separate tracts, the premises nevertheless, shall be developed and operated as one lease and all royalties accruing hereunder shall be treated as an entirety and shall be divided among and paid to such separate owners in the proportion that the acreage owned by each such separate owner bears to the entire leased acreage. * * *'

This lease contained the usual provisions for the payment to the lessors as royalty of one-eighth of the oil and gas produced and saved, one-eighth of the proceeds from the sale of gas, and one-eighth of the market value at the well for any gas used off the premises or used in manufacturing of gasoline and other products. This 1949 lease, which will be referred to hereafter as the 'original lease,' was acquired by the defendant, Amerada Petroleum Corporation, shortly after its execution.

The plaintiff, Smith, was not a record owner of any interest in the premises at the time of the execution of this original lease. Subsequent to its execution, however, Oscar Sather, one of the lessors in the original lease, conveyed to the plaintiff by mineral deed an undivided one-fourth interest (40 acres) in and to all oil, gas, casinghead gas, casinghead gasoline, and other minerals in and under and that may be produced from a certain 160-acre tract included in the original lease.

Just prior to the giving of the mineral deed by Oscar Sather to the plaintiff, and in anticipation thereof, the plaintiff executed a separate lease covering his interest in the 160-acre tract which he received from Oscar Sather. The plaintiff admits that, when his separate lease covering his interest in the 160-acre tract was executed, the provisions of the original lease containing the entirety clause, given by Maryan Sather and Oscar Sather, became ineffective and inapplicable to his interest in such tracts, and remained inoperative, so far as the plaintiff is concerned, for the entire life of the plaintiff's separate lease. However, the plaintiff further contends that, when his separate lease expired by reason of the defendant's discontinuing payment of rentals under its provisions, the provisions of the original lease with its entirety clause again became effective and applicable to the plaintiff's interest. The defendant, on the other hand, alleges in its answer that, when the plaintiff executed his separate lease, the separate lease became the only lease covering plaintiff's interests, and its execution by the plaintiff and the acceptance of delay rentals under its provisions amounted to a repudiation of the original lease so far as plaintiff's interests were concerned.

When the defendant refused to permit the plaintiff to participate in the benefits under the original lease after the expiration of the separate lease, the plaintiff brought this action to compel payment by the defendant to him of such benefits as his interest appears. The defendant refused to make such payments, contending that the plaintiff, by executing a separate lease covering his interest in this property, waived any rights which he had had under the entirety clause of the original lease; that the plaintiff, by his own voluntary action in executing such separate lease, substituted the rental payments received under his separate lease in lieu of his right to participate in the benefits due under the original lease. Defendant further points out that, while the plaintiff's separate lease remained in force, all of the proceeds due under the original lease were paid by defendant to the remaining persons interested under the original lease; that, when the plaintiff's separate lease expired, his rights under the original lease were not revived. When the plaintiff made demand for payment under the entirety clause of the original lease, the defendant withheld payments to the other owners under the original lease of the amounts to which the plaintiff would be entitled if his claims were upheld. The other owners of interests under the original lease thereupon notified the defendant that they were demanding payment under the original lease on the same basis on which they had been paid after the plaintiff had executed his separate lease, and after the plaintiff had waived his...