LE BARD v. RICHFIELD OIL CORPORATION

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District Court of Appeal, Second District, Division 2, California.

Mary V. LE BARD, Plaintiff and Appellant, v. RICHFIELD OIL CORPORATION, a Delaware Corporation, Defendant and Respondent. *

Civ. 24903.

Decided: March 29, 1961

Joseph R. Grillo, South Gate, for appellant. William E. Woodroof and William D. Foote, Los Angeles, for respondent.

This is an appeal from a judgment following the sustaining of a demurrer without leave to amend. The complaint alleges two causes of action: (1) A cause of action to quiet title in plaintiff to a prorated share ‘of all oil royalties in an amount not less than 1/8 of the oil and gas produced and derived from the lands included in a community oil lease known as ‘Operating Unit A”; and (2) a second cause of action for an accounting by defendant Richfield Oil for plaintiff's claimed share of said royalties.

In this state drilling is prohibited on parcels aggregating less than one acre by §§ 3600–3607 of the Public Resources Code. In 1947 these sections were repealed and re-enacted together with a new § 3608. The 1947 act also stated that it was an emergency measure enacted for conservation purposes, made necessary by the fact that §§ 3600–3607 had been held unconstitutional in Bernstein v. Bush, 29 Cal.2d 773, 177 P.2d 913 (Stats.1947, c. 1559, § 3). The objectionable feature was that owners of parcels of less than one acre were prevented from offsetting the effect of wells on adjoining property. Section 3608 was intended to overcome this objection (Hunter v. Justice's Court, 36 Cal.2d 315, 223 P.2d 465.) This section provides that: (1) When such a parcel is surrounded by other land subject to an oil and gas lease, and (2) notice of intention to drill on the other lands is filed with the State Oil and Gas Supervisor, and (3) a declaration is filed by the Supervisor that the parcel is deemed included (required by the statute) in the surrounding leasehold, then the parcel shall be deemed included in that leasehold. The section further provides that ‘the owners of the oil and gas mineral rights in said land so deemed included in said oil and gas leasehold on said other lands, as herein provided, shall thereafter receive in money, based upon the production of oil and gas from said leasehold including said land, a pro rata share of the landowners' royalty determined in accordance with the provisions of said oil and gas lease in the proportion that the area of said land bears to the aggregate of the total area covered by said oil and gas lease including the area of said land; * * *’ The constitutionality of section 3608 was upheld in Hunter v. Justice's Court, supra.

It appears from the complaint that from December 13, 1954 to March 18, 1955, plaintiff was the owner in fee of real property aggregating less than one acre, designated parcel 23, and that this parcel is surrounded by other lands subject to an oil and gas lease with defendant Richfield; that on or about March 2, 1955 defendant Richfield recorded a Declaration of Pooling Individual Oil and Gas Leases into ‘Operating Unit A’ Pooled Lease; and on March 4, recorded a notice of intent to drill on the land surrounding parcel 23; and on March 14, 1955 the aforementioned declaration was recorded with the County Recorder. The pooling was accomplished through a pooling clause contained in each of the individual leases held by Richfield which permits the lessee to combine numerous leases into one operating unit.

On March 18, 1955, Mrs. LeBard sold parcel 23 to defendants Mike and Sally Kalmikov, who in turn sold parcel 23 to defendants Alfredo P. and Mary H. Flores. The latter conveyance to the Flores contained a reservation of mineral rights. The Flores did not appear in this action. The dispute herein centers about the question whether plaintiff, while conveying her property in fee to the Kalmikovs without reservation of mineral rights, has nevertheless retained the right to the pro rata payment granted by section 3608.

In Callahan v. Martin, 3 Cal.2d 110, 43 P.2d 788, 101 A.L.R. 871, it was held that the owner of the surface does not have a corporeal real property interest in the oil and gas underlying his land (the oil and gas in place theory) but rather he has an exclusive right to drill on his own land and to retain all he can bring to the surface. This right was classified as an incorporeal hereditament. Then in Tanner v. Title Ins. & Trust Co., 20 Cal.2d 814, 820, 129 P.2d 383, 386, the question arose as to what mineral rights were obtained by a grantee when he was sold the fee without reservation of mineral rights by a grantor who had entered into a community oil lease. The opinion stated: ‘By executing the community lease, the respondents and each of the other lessors assigned or conveyed to his co-lessors a percentage interest in all oil produced on his land by the lessee during the continuance of the lease. The consideration for that transfer was the similar mutual assignments of the other lessors. The royalty interest thus transferred by each landowner to his colessors is an incorporeal hereditament in gross (Callahan v. Martin, supra) and the grantee's interest in the oil produced upon the property of one of the colessors is entirely separate and distinct from the royalty interest retained by him in oil which might be produced from his own premises. The only connection between the two interests is that the pro-rata assignment by one of the lessors of the royalty from his land is the consideration for the conveyance of the other lessors to him.

‘Although the cases clearly establish that the percentage of the royalty reserved by a lessor in oil produced from his land passes to a grantee of the fee as an incident of the conveyance (see cases collected in note 94 A.L.R. 660), except as such rights are reserved by the deed, the incorporeal hereditament owned by the grantor in the oil produced from the land of the colessors, existing in gross, obviously does not follow the conveyance of the lessor's land, but can only be conveyed by a specific transfer of that interest.’ (Emphasis added.) Stated succinctly, the rule is that ‘a conveyance of land subject to a community oil and gas lease does not carry with it the interest of the community lessor in oil produced from the lands of his colessors.’ Maxwell, A Primer of Mineral and Royalty Conveyancing, 3 UCLA L.Rev. 449, 466.

The question here is: Does the right to payment created by section 3608 pass to a grantee of the fee? A major issue in deciding this question is whether the doctrine of the Tanner case applies. It will be noted that the basis of the Tanner decision is that the execution of a community lease effects reciprocal grants of interests in real property among the lessors to be held in gross by each colessor as grantee. Section 3608 does not purport to effect cross-conveyances, nor is it to be presumed that such was the intent of the legislature. Nor is there any reason to impute an intent on the part of the legislature, in the absence of language so indicating, that the nature of the surrounding leasehold whether community, pooled or otherwise, was to have any effect whatever on the nature of the statutory right to payment. No such effect was necessary to secure the constitutionality of sections 3600–3607. Statutes must be given a reasonable and common sense construction in accord with the apparent purpose of the lawmakers—one that is practical rather than technical so as not to lead to unnecessary and absurd results. See 45 Cal.Jur.2d 625, 626.

But we need not speculate as to the limitation of purpose of the legislature in enacting section 3608. The language of the section itself contains abundant manifestations of these limitations. It does not say that the parcel being drained is to be included in the surrounding leasehold but rather that it is to be deemed included. ‘[I]t is presumed that every word, phrase and provision employed in a statute was intended to have some meaning and to perform some useful office.’ Prager v. Isreal, 15 Cal.2d 89, 93, 98 P.2d 729, 731; County of Los Angeles v. Emme, 42 Cal.App.2d 239, 108 P.2d 695. ‘The word ‘deemed’ connotes a supposition that something is true which in fact is not.' People of State of California v. Jules Fribourg, D.C., 140 F.Supp. 333, 338. (Emphasis added.) We are supposing the inclusion for a purpose. The purpose is ascertained from the legislative history of the statute, which indicates that compensation for encroachment upon a right was the sole purpose. Furthermore, the rights of the owner of the parcel deemed included may differ in many ways from those of the surrounding lessors. The section provides that the amount of compensation to which the owner of the isolated parcel is entitled is payable in money, while the lease in which the parcel is deemed included may provide alternatively for delivery of production in kind. It provides further that the money payment shall not be less than ‘the value of one-eighth part of the oil and gas produced * * * from the operating unit’ computed in accord with the lease, even if the lease should provide for a lesser royalty. In addition, the section says the lessee shall have no right to use the surface of the isolated parcel, or the subsurface down to a depth of 200 feet, whereas the lease may provide for surface use by the lessee. Moreover, many oil and gas leases provide certain obligations on the part of the lessor, such as payment of a portion of the taxes; and upon the lessee, such as drilling and offset obligations. It is clear that the statute does not purport to make a contract for the parties, establishing between them such obligations. It is therefore apparent that the surrounded parcel is not actually included in the leasehold but is only treated as if it were for the very limited purpose of computing the money to be paid its owner.

In Hunter v. Justice's Court, supra, 36 Cal.2d at page 319, 223 P.2d at page 468, it was acknowledged that section 3608, while providing a substitute for the right inhibited by sections 3600–3607, does not provide the most usual, or perhaps even the best method of compensating those deprived of the right to drill by well-spacing regulations. But there is no reason to assume that the legislature intended to create an interest in the owner of the isolated parcel in the oil produced on his neighbor's land merely because the surrounding property happens to be subject either to a community lease or individual leases that have been pooled into an operating unit.

Plaintiff contends that section 3608 creates in the owner of the isolated parcel a real property interest in the production had on the land of the surrounding lessors that, under the Tanner rule, can be transferred only by a specific conveyance. Her arguments are largely in the form of conclusions. She states that the Oil and Gas Supervisor is in effect made an agent by the statute to accomplish a cross conveyancing. Certainly the statute did not expressly do so, and we see no reason to infer such a meaning. Plaintiff cites Braly v. Board of Fire Commissioners, 157 Cal.App.2d 608, 613, 321 P.2d 504, for the statement that section 3608 ‘effectively pooled’ the parcel on which drilling is prohibited with those surrounding it. The extent to which it is ‘effectively pooled’ was not before the court. The section was stated to have no application to the facts of the case (157 Cal.App.2d at page 614, 321 P.2d at page 507) but was merely discussed tangentially.

Thus it is clear that the Tanner decision has no direct application. On what theory, then, can it be argued that the right to payment in section 3608 does not pass with a conveyance of the fee without reservation? The dissent presents the argument that this right to payment is a right held in gross, personal to the grantor, and it is therefore retained by the grantor when he sells his land just as is the right of a colessor to oil produced on the land of his colessors under the Tanner rule. This argument assumes, unnecessarily it seems to us, that the right to extract oil has been totally abrogated by the sections aforementioned, and that the right to payment is a new right which must be measured independently of that which it replaces. It is further argued that it would be putting words in the mouth of the legislature to ascribe the incident of appurtenance to this new statutory right. It is the assumption that the former right is gone with which we disagree. It appears to overlook the continuing nature of the compensation for which the statute provides.

It will be noted that section 3608 does not provide compensation merely for the prohibition against placing a well on the small parcel. This is not like the case where by right of eminent domain property rights are completely taken away and a lump sum payment is made therefor. The payment provision of section 3608 becomes operative only when its prohibitive features prevent the owner of the small parcel from offsetting the effect of wells on a surrounding leasehold. If there are no such operations for a period of time, there is no compensation. If operations are resumed, then payment must be made. But why must payment be made unless it is contemplated that a right still exists which is now being infringed upon to an extent that is unconstitutional? The right to offset the effect of wells on the property of others over the common pool is an incident of the general right to produce oil on one's own property. When the statute conflicts with the right to offset then the degree of encroachment upon the general right to produce violates due process and equal protection (see Bernstein v. Bush, supra). But this approach clearly indicates a legislative concept of an existing right which may be encroached upon by degrees and which need only be compensated when the degree becomes unconstitutional. In a sense the right still exists although its exercise is prohibited.

A further indication that the legislature contemplated the continued existence of mineral rights which might be passed on to successive grantees (by conveyance of the fee without reservation) is that the third paragraph of section 3608 provides that ‘the owners of the * * * mineral rights in said land so deemed included * * * shall thereafter receive in money * * *.’, and further on it is provided that the consent of the owners is needed before the surface of the small parcel can be used by the lessee. Was the plural used because the legislature assumed that there would always be a number of concurrent owners of the small parcel? The phrase ‘owner or owners' is the usual way to provide for the contingency that there may be more than one current owner. In fact, this very phrase is used in the second paragraph in the statute when it is obvious that the statute is speaking of the owner or owners at one point of time. The use of the plural alone indicates a contemplation that there must be more than one owner, a view that makes sense only when successive owners are contemplated.

Since the right itself continues to rest with the owner, and since that right passes with a conveyance of the fee (Tanner v. Title Ins. & Trust, supra), the new owner is the one who is entitled to compensation when drainage makes the inhibition of the exercise of his right unconstitutional.

Thus it is apparent that the Tanner case also has no indirect application. Section 3608 does not confer any rights on plaintiff in the oil produced by her neighbors; and a reading of sections 3600–3607, together with section 3608 with which they were reenacted, makes it clear that the right to payment should not be analyzed by itself as to its personal or appurtenant nature, but rather it must follow the still existing right to produce oil so that when the continuing inhibition of its exercise becomes unconstitutional because of drainage, compensation may be made.

In light of the view we take of this case it is not necessary to discuss other points made by plaintiff.

The judgment is affirmed.

I dissent because I believe the prevailing opinion cannot withstand the application of sound principles of statutory construction or the common law rules upon which the Tanner line of decisions rests.

As to statutory construction, it is said in Anderson v. I. M. Jameson Corp., 7 Cal.2d 60, 67, 59 P.2d 962, 966: ‘In a late case this court said: ‘It is probably safe to assume that the Legislature had in mind (a certain proviso) but the difficulty is that they have not expressed this intent in the language used. This court had no power to rewrite the statute so as to make it conform to a presumed intention which is not expressed. This court is limited to interpreting the statute, and such interpretation must be based on the language used’' To the same effect see, Application of Monrovia Evening Post, 199 Cal. 263, 269, 248 P. 1017; Ex parte Goodrich, 160 Cal. 410, 416, 117 P. 451; Gilbert v. Ashley, 93 Cal.App.2d 414, 416, 209 P.2d 50; Seaboard Acceptance Corp. v. Shay, 214 Cal. 361, 366, 5 P.2d 882; In re Lavine, 2 Cal.2d 324, 327, 41 P.2d 161, 42 P.2d 311; People v. Pacific Guano Co., 55 Cal.App.2d 845, 848, 132 P.2d 254; 45 Cal.Jur.2d § 128, page 636; § 132, page 638.

The language of § 3608, Public Resources Code, is free from ambiguity. Original § 3600 having been declared unconstitutional (Bernstein v. Bush, 29 Cal.2d 773, 177 P.2d 913), that and related sections were repealed and reenacted in 1947 with the addition of § 3608. This latter section was held constitutional in Hunter v. Justice's Court, 36 Cal.2d 315, 317, 223 P.2d 465, 467 as ‘an ‘adequate means of protection [or] substitute,’ for his [owner of small parcel] right to extract oil from his property.' It does not purport in the slightest respect to confer upon that owner a property interest in the oil produced from adjoining lands, but merely a monetary compensation for the loss of a right to drill on his own land. The text: ‘The owners of the oil and gas mineral rights in said land so deemed included in said oil and gas leasehold on said other lands, as herein provided, shall thereafter receive in money, based upon the production of oil and gas from said leasehold including said land, a pro rata share of the landowners' royalty determined in accordance with the provisions of said oil and gas lease in the proportion that the area of said land bears to the aggregate of the total area covered by said oil and gas lease including the area of said land.’ Pub.Res.C.A. § 3608. The foregoing truths are recognized in the majority opinion. It recognizes the settled doctrine that the right to produce oil on one's own land is an appurtenant right which passes with a conveyance of the fee and then wends its way to the conclusion that, since this right passes with the fee, it would seem only reasonable that its statutory substitute must also pass. There is not a word, or combination of words, in the statute which points to this result. Its provisions plainly show that the owner's right to drill has been taken from him in invitum, that the compensation made to him for that taking is to be measured by the terms of a lease made by other persons, plus statutory requirements, viz., ‘provided further, that said owners of said oil and gas mineral rights in said land shall in no case receive less than their pro rata share determined, as herein provided, of the value of one-eighth part of the oil and gas produced, saved and sold from the operating unit comprising said leasehold on said other lands and said land, computed in accordance with the provisions of said oil and gas lease with respect to the computation of landowners' royalty; and provided further, that without the consent of said owners of said land the lessee or operator of said oil and gas leasehold shall have no right to use the surface of said land nor to use the subsurface thereof down to a depth of 200 feet below the surface thereof.’

This substitute is nothing more nor less than a personal right to periodic accounting to be made by the lessee to the small owner. That that right is an appurtenance to the small owner's land is but a solecism. To conclude that a statute which says not a word on the subject introduces by way of an expressed money obligation a right appurtenant to the small owner's land is to violate the settled principles of statutory construction above quoted. In a way the majority of the court recognize this when they say: ‘It will be noted that the basis of the Tanner decision is that the execution of a community lease effects reciprocal grants of interests in real property among the lessors to be held in gross by each colessor as grantee. Section 3608 does not purport to effect cross-conveyances, nor is it to be presumed that such was the intent of the legislature.’ Also: ‘There is no reason to assume that the legislature intended to create an interest in the owner of the isolated parcel in the oil produced on his neighbor's land * * *.’ Again: ‘It is therefore apparent that the surrounded parcel * * * is only treated as if it were [actually included in the leasehold] for the very limited purpose of computing the money to be paid to its owner.’

This matter of rights appurtenant to land involves technical, but settled, rules of real property. ‘An analysis of the nature of oil interests which may be created involves an application of the common-law rules which crystallized before there were extensive dealings in subsurface fugacious substances.’ Dabney-Johnston Oil Corp. v. Walden, 4 Cal.2d 637, 651, 52 P.2d 237, 244. In order to demonstrate that plaintiff's right to an accounting from Richfield Oil Company cannot possibly be appurtenant to plaintiff's land (a right which passes upon conveyance of the land without mention of that right), it seems proper to start with the case of Tanner v. Title Ins. & Trust Co., 20 Cal.2d 814, 129 P.2d 383. It holds that the right of one of the colessors of a community lease with respect to his colessors is an ‘incorporeal hereditament in gross' (relying upon Callahan v. Martin, 3 Cal.2d 110, 43 P.2d 788, 794, 101 A.L.R. 871), which, ‘existing in gross, obviously does not follow the conveyance of the lessor's land’ (20 Cal.2d at page 820, 129 P.2d at page 387). This doctrine is restated in Gillis v. Royalty Service Corp., 91 Cal.App.2d 365, 367–368, 204 P.2d 968; Friedrich v. Roland, 95 Cal.App.2d 543, 549, 213 P.2d 423; Agajanian v. Cuccio, 141 Cal.App.2d 828, 831, 297 P.2d 755. Turning to Callahan v. Martin, supra, it appears that the lessee in an oil lease has ‘an interest or estate in real property in the nature of a profit a ́prendre, which is an incorporeal hereditament, and that the assignee of a royalty interest in oil rights under an assignment by the landowner also has an interest or estate in real property in the nature of an incorporeal hereditament.’ 3 Cal.2d at page 118, 43 P.2d at page 792.

‘A ‘profit a ́prendre’ is considered an interest or an estate in the land itself and this is the principal feature which distinguishes it from a pure easement, which is a right or interest without profit. It is a right to take something out of the soil of another, as a right of common, and also some minor rights as a right to fish, hunt and hawk, or to mine metals, dig for oil; take oil from the land.' Richfield Oil Co. of California v. Hercules Gasoline Co., 112 Cal.App. 431, 434, 297 P. 73, 75. 3 Tiffany on Real Property, Third Edition, § 839, page 427: ‘A profit a ́prendre involves primarily a power to acquire, by severance or removal from another's land, some thing or things previously constituting a part of the land, or appertaining thereto, the holder of the profit a ́prendre having, as an integral part thereof, rights against the members of the community generally that they shall not interfere with the exercise or enjoyment of the power.’

Such a profit can be created only by grant or prescription. 3 Tiffany on Real Property, Third Edition, § 842, p. 432; 28 C.J.S. Easements § 3, p. 633; 17A Am.Jur. § 5, p. 622. It is a far cry from this settled proposition to hold that such a profit may be created by a statute which makes no mention of the subject directly or by implication.

To say that this case presents a profit a prendre which is appurtenant to the land of the small property holder is more clearly erroneous. ‘A right of profit, in order that it may be appurtenant to other land, and pass therewith, must be in some way connected with the enjoyment of the right of property in the dominant tenement, and must be limited by the needs of the latter. Consequently one cannot claim as appurtenant to land owned by him a right to take all the wood which may grow on other land, and dispose of it as he pleases, or a right to take turf or seaweed from other land, without regard to the requirements of his own tenement. Since a right of profit appurtenant is limited and admeasured by the uses of the dominant tenement, it follows that such profit cannot be separated from the latter by a grant thereof to a third person without the tenement.’ 3 Tiffany on Real Property, Third Edition, § 843, p. 434.

Von Rohr v. Neely, 76 Cal.App.2d 713, 715, 173 P.2d 828, 829: ‘A thing is appurtenant to something else when it stands in the relation of an incident to and is necessarily connected with the use and enjoyment of the principal [citations] and agreeing in its nature and quality with the thing to which it is appendant or appurtenant. * * * Nothing passes by the word ‘appurtenances' except such rights or privileges as are strictly necessary and essential to the proper enjoyment of the estate granted, and a mere convenience is not sufficient to create such a right or easement.’ See also, Civ.Code, § 662; Owsley v. Whelan Drug Co., 83 Cal.App.2d 454, 457, 189 P.2d 50; Schumann v. C. R. Reichel Engineering Co., 187 Cal.App.2d 309, 9 Cal.Rptr. 486; 28 C.J.S. Easements § 4c, p. 636.

The right here under discussion, receipt from lessee of money equivalent to a proportionate part of not less than a one-eighth royalty, is in no way a right whose enjoyment is essential or beneficial to the owner's land. Bernstein v. Bush, supra, 29 Cal.2d 773, 778, 177 P.2d 913, rests upon the concept that impairment of the owner's right to drill on his own land and thus capture its fugacious substances is the property right which was wrongfully taken by original § 3600. That right now is gone; it has ceased to exist and the enjoyment of the right to receive a share of the royalties cannot be said to be necessary to or in furtherance of this non-existent right to which the majority opinion has assumed to make it appurtenant. In fact, § 3608 operates in derogation of the small owner's property right to drill on his own land. A burden upon a property does not pass with the land. Berryman v. Hotel Savoy Company, 160 Cal. 559, 565, 117 P. 677, 37 L.R.A.,N.S., 5.

Viewing the matter from another angle there is here no dominant tenement to which a profit a prendre can attach. Balestra v. Button, 54 Cal.App.2d 192, 197, 128 P.2d 816, 818: ‘The principal distinction between an easement appurtenant and an easement in gross is that in the first there is a dominant tenement and in the second there is not. [Citations.] An easement in gross is a personal right, or a right attached to the person; it is an interest in the real property of another; but it is not personal property. This has been definitely decided in this state.’ Substantially the same language is found in Wagner v. Hanna, 38 Cal. 111, 116, to which is added: ‘The owner of premises may grant the right of way in either form, and, if it is the intention to grant a right of way in gross, there is no mention of dominant premises. If the grant is of an easement, it is always made for the benefit of other premises, and the premises to which the way becomes appurtenant, are described in the grant. There is nothing in the reservation in the deed mentioned in the complaint, which points to a dominant tenement.’

In my opinion the judgment should be reversed.

FOX, Presiding Justice.

McMURRAY, Justice pro tem., concurs.