LITTLE v. MOUNTAIN VIEW DAIRIES (1949)

The controversy here concerns the respective proportions in which plaintiffs and defendant shall share the 1/6 (16 2/3%) landowner's royalty payable by the lessee under an oil and gas lease which covers certain land in the County of Orange. Plaintiffs by their complaint claimed to be entitled to 91 2/3% of such royalty and sought a declaratory judgment to that effect. Defendant answered and cross-complained, asserting that it was entitled to receive 8 1/3% of all oil and gas produced and saved from the land (i. e., 50% of the 1/6 landowner's royalty), and asked judgment determining the respective rights of the parties as well as an accounting from plaintiffs for defendant's share of the royalty. Each party moved for judgment on the pleadings, the court decided in favor of defendant and rendered judgment accordingly, and plaintiffs appeal. We have concluded that the trial court was correct in its decision and that the judgment should be affirmed. Plaintiffs have also attempted to appeal from a minute order which states that their motion for judgment on the pleadings is denied and that the motion of defendant is granted. As hereinafter shown, such order is not an appealable one and the appeal therefrom must be dismissed.

In December, 1935, the then owners of the involved land executed and delivered to defendant an instrument entitled ‘Grant Deed,’ in which it is declared that such owners ‘do hereby grant to (defendant) * * * Eight and one-third per cent (8 1/3%) of all oil, gas and other hydrocarbon substances, and minerals, in, under/or which may be hereafter produced and saved from’ such land. In August, 1936, the land was conveyed to plaintiffs, with the express exception of the percentage interest in the oil, gas, and other minerals which had theretofore been transferred to defendant.

In February, 1945, plaintiffs entered into an oil lease covering the property. The lease provides for a 1/6 (16 2/3%) landowner's royalty. It further provides, among other things, that:

‘10. In case said Lessor (plaintiff) owns a less interest in the * * * lands than the entire and undivided fee simple estate therein, then the royalties and rentals herein provided for shall be paid the said Lessor only in the proportion which his interest bears to the whole undivided fee.

‘10-a. Lessor agrees that in no event shall lessee be required to pay greater rents or royalties than provided in this lease and Lessor further agrees that Lessor will fully satisfy and discharge any and all of the obligations and requirements under that certain Deed (to defendant, of its percentage interest in the oil, gas and other minerals) * * * insofar as the above described land and the production therefrom is concerned.’

Defendant did not sign the lease as a lessor, but under the date of March 1, 1945, executed a writing attached thereto, which reads: ‘The within Oil and Gas Lessee is hereby ratified, approved and confirmed.’

The lessee has produced and saved oil and gas from the demised premises, and the respective parties to this suit, at the time (April, 1946) they sought judgment on the pleadings, stipulated that the lessee had paid to plaintiffs some $3,425 as the 1/6 landowner's royalty for production through February, 1946. As stated hereinabove, the trial court adjudged that defendant owns 8 1/3% of all ‘oil, gas and other hydrocarbon substances and minerals in, under and/or which have heretofore or may hereafter be produced and saved’ from the land; that defendant is entitled to receive that percentage of the total production under the lease; and that plaintiffs ‘shall account to and pay over to the defendants * * * 129 P.2d 383; Tanner v. Olds (1946), 29 100% of’ the total production. Plaintiffs urge that defendant is entitled to only 8 1/3% of the 1/6 landowner's royalty under the lease, and that they themselves should retain 91 2/3% of such royalty.

In support of their position plaintiffs argue that the language of the conveyance to defendant creates a fee interest in minerals, rather than a royalty interest; that, therefore, under the holdings of certain cases from other states, construing various contracts and conveyances, defendant should be held entitled to no more than 8 1/3% of the 1/6 lease royalty; and, further, that as a cotenant holder of a ‘fee interest’ in the oil and gas rights to the land, as well as by reason of defendant's ratification of the lease, defendant should pay its ‘proportion of drilling and operation expenses' (see Dabney-Johnston Oil Corp. v. Walden (1935), 4 Cal.2d 637, 657, 52 P.2d 237, 247) and should share in royalties under the lease on the property in the same proportion that its ‘fee interest bears to the total fee interest.’ Nowithstanding the diligence and earnestness with which plaintiffs' counsel seek to support their position we are satisfied that upon established law such position is untenable. This court has definitely rejected the theory that the transfer of fractional oil rights in land constitutes a transfer of a fee interest in the oil, and has established that in this state the transferee of such rights received a royalty interest, which is defined as a profit a prendre, an interest in real property in the nature of an incorporeal hereditament, which he holds as a cotenant with the other owners of oil rtights in the same land. (See Callahan v. Martin (1935), 3 Cal.2d 110, 125, 126, 43 P.2d 788, 101 A.L.R. 871; Dabney-Johnston Oil Corp. v. Walden, (1935), supra, 4 Cal.2d 637, 649, 650, 654, 52 P.2d 237; Schiffman v. Richfield Oil Co. (1937), 8 Cal.2d 211, 223-224, 64 P.2d 1081; La Laguna Ranch Co. v. Dodge (1941), 18 Cal.2d 132, 135, 114 P.2d 351, 135 A.L.R. 546; Tanner v. Title Ins. & Trust Co. (1942), 20 Cal.2d 814, 819-820, 129 P9id 383; Tanner v. Olds (1946), 29 Cal.2d 110, 116, 173 P.2d 6, 167 A.L.R. 1219; Barnard v. Jamison (1947), 78 Cal.App.2d 136, 138, 177 P.2d 341.

Plaintiffs concede that if the parties to a conveyance ‘intended the conveyance to be of a royalty interest, it is generally held that the grantee takes what may be termed a non-expense bearing interest, or a net interest in the royalty reserved in any lease on the land.’ As pointed out in the Dabney-Johnston case, 4 Cal.2d at page 653, 52 P.2d at page 245, the ‘language of a grant is to be construed most strongly against the grantor,’ (see also Beam v. Dugan (1933), 132 Cal.App. 546, 550) and (page 657, of 4 Cal.2d, page 247 of 52 P.2d), ‘where contenancy interests have been sold with the understanding and agreement that they shall not be subject to such charge (for a proportion of drilling and operation expenses), but that other units shall bear the full expense of production * * * such agreement of the parties, express or necessarily implied (is controlling).’ Here the grant to defendant unequivocally specifies that defendant is to receive 8 1/3% of ‘all oil, gas * * * which may be hereafter produced and saved from’ the land involved, and no mention or provision is made of a requirement that defendant pay, or be charged with, a share of the cost of production, or any other debit against his interest, under a lease for oil development which might subsequently be executed by the grantor or his successors in title. It would seem that, as commented by the court in Barnard v. Jamison (1947), supra, 78 Cal.App.2d 136, 141, 177 P.2d 341, 345, ‘the words of conveyance * * * could not be plainer.’

Moreover, it does not appear that by ‘ratifying, approving and confirming’ the lease, defendant agreed to be charged with any part of the lessee's share in the production. By paragraph 10-a of the lease, quoted hereinabove, plaintiffs expressly agreed to fully satisfy and discharge the obligation to pay over to defendant the latter's share in the oil and gas produced. consequently, it seems only reasonable to conclude that, as impliedly found by the trial court, defendant's ratification of the lease constituted no more than a consent that the lessee named therein should proceed with oil development upon the condition, explicitly set forth in the lease, that defendant's rights be fully satisfied and discharged.

Plaintiffs rely upon cases from other states¹ in which it was held that the landowner's royalty to be paid under an oil and gas lease should be divided between cotenants in proportion to their interests in the land or the minerals. However, those cases differ from ours in language of the conveyances involved, in circumstances under which the leases were made, and in the accepted legal theories of oil and gas rights which were applied, and consequently they are of doubtful assistance here.

Plaintiffs contend, further, that by reason of certain alleged inconsistencies² between the prayer of defendant's answer and that of its cross-complaint, the granting of defendant's motion for judgment on the pleadings was improper. Defendant, in such motion, asked that it be granted ‘judgment on the complaint and cross-complaint in accordance with the prayer of the Answer and Cross-Complaint on file herein.’ In a minute order of the court, dated July 7, 1947, it is recited that ‘Motion of defendant and cross-complaint for judgment on pleadings granted. Motion of plaintiffs and cross-defendants for judgment on pleadings denied.’ The formal written judgment of the court, awarding defendant relief as described hereinabove, was filed on September 3, 1947, and entered the following day. Plaintiffs suggest that if the minute order ‘be considered final and the formal judgment itself is a nullity (see Pessarra v. Pessarra (1947), 80 Cal.App.2d 965, 183 P.2d 279), the final order, from which the appeal is taken, would thus contain wholly inconsistent provisions. If the formal judgment is not a nullity, it is, nevertheless, based upon an order which does have conflicting provisions and would therefore be analogous to a judgment based upon inconsistent findings,’ and should be reversed.

It is settled that an order granting motion for judgment on the pleadings is not final or appealable, and that it is only from the subsequently entered judgment that an appeal will lie. (See Code of Civ.Proc., s 963; Holton v. Noble (1890), 83 Cal. 7, 9, 23 P. 58; Montgomery Ward & Co. v. Welch (1936), 17 Cal.App.2d 127, 129, 61 P.2d 790; Overton v. White (1937), 18 Cal.App.2d 567, 568-569, 64 P.2d 758, 65 P.2d 99; 2 Cal.Jur. 157.) Moreover, where both parties are appearing, the prayers of defendant in its pleadings are not conclusive as to the relief to which it is entitled (see 21 Cal.Jur. 69, s 43), and where, as here, the pleadings warrant the relief granted by the final judgment, technical inconsistencies, if any, between the prayers of the pleadings and the relief provided by such judgment, furnish no ground for reversal on appeal.

For the reasons above stated, the judgment appealed from is affirmed and the attempted appeal from the minute order denying plaintiffs' motion for judgment on the pleadings and granting that of defendant, is dismissed.

I dissent.

In my opinion the grant deed from plaintiffs' grantors to defendant was intended to convey no more than an eight and one-third percent or one-twelfth interest in the grantors' mineral rights in the land. Thereafter the grantors and grantee were tenants in common in the exclusive right to drill for and produce oil from the land. Their interests were in the ratio of eleven to one. Plaintiffs have since succeeded to the grantors' rights in the land. It is settled in this state that if one cotenant produces oil, he is entitled to charge the interests of nonproducing cotenants for their proportionate share of drilling and operating expenses. Dabney-Johnston Oil Corp. v. Walden, 4 Cal.2d 637, 657, 52 P.2d 237. In this case the expense to the owners of the mineral rights in producing the oil from the land is represented by the five-sixths of the oil that the lessee retains from the total produced. By consenting to the lease defendant agreed that this is a fair charge for the expense of bringing the oil to the surface. Defendant is, therefore, entitled to only one-twelfth of the one-sixth royalty that represents the total profits of the cotenants.

The majority opinion holds, however, that the grant deed to defendant conveyed more than one-twelfth of the grantors' mineral rights. It holds that the deed must be interpreted as conveying an expense free interest and that therefore defendant is entitled to one-twelfth of the oil produced free of any cost of production. By the terms of the deed defendant was granted ‘Eight and one-third per cent (8 1/3%) of all oil, gas and other hydrocarbon substances, and minerals, in, under and/or which may be hereafter produced and saved from that certain parcel of real property. * * *’ The majority opinion holds that the words ‘which may hereafter be produced and saved’ clearly evidence an intent that the interest granted should be expense free, and points out that ‘no mention or provision is made of a requirement that defendant pay, or be charged with, a share of the cost of production, or any other debit against his interest * * *.’ If, however, the effect of the deed was to convey an expense bearing or mineral fee interest rather than an expense free or royalty interest, no mention of costs or expenses would be necessary to charge defendant's interest with its proportionate share of the costs of the production of the oil. Defendant, as owner of one-twelfth of the mineral rights, would no more be entitled to realize his share cost free, than plaintiffs would to realize their eleven-twelfths share cost free. ‘There can be no question but that under the line of cases which sustain the right of a single cotenant to produce oil, with the duty to account to the nonproducing cotenants for their fractional interests, it is held that the interests of the nonproducing cotenants are generally subject to a charge or deduction for their proportion of drilling and operation expenses. * * * But where cotenancy interests have been sold with the understanding and agreement that they shall not be subject to such charge, but that other units shall bear the full expense of production, the general rule is controlled by such agreement of the parties, express or necessarily implied.’ Dabney-Johnston Oil Corp. v. Walden, 4 Cal.2d 637, 657, 52 P.2d 237, 247. Accordingly, it is necessary to decide whether the words ‘which may be hereafter produced and saved’ were inserted in the deed for the purpose of indicating that defendant's interest was to be expense free or merely to conform to California's theory of oil and gas rights or to indicate that defendant's interest was not limited to minerals that it itself brought to the surface.

In other jurisdictions a grant of a fraction of all ‘of the oil, gas and other minerals in and under, and that may be produced’ from the land is ordinarily interpreted as creating an expense bearing mineral fee interest rather than an expense free royalty interest. Richardson v. Hart, 143 Tex. 392, 185 S.W.2d 563, 564-565; Watkins v. Slaughter, 144 Tex. 179, 189 S.W.2d 699, 700; Jones v. Bedford, Tex.Civ.App., 56 S.W.2d 305; Gill v. Bennett, Tex.Civ.App., 59 S.W.2d 473, 475; Manley v. Boling, 186 Okl. 59, 96 P.2d 30, 31-32; Shinn v. Buxton, 10 Cir., 154 F.2d 629, 631-635; see also, Brooks v. Mull, 147 Kan. 740, 78 P.2d 879, 883. In cases where there is an oil lease in existence at the time the lessor executes a mineral deed, it is not uncommon for the deed to grant not only a given fraction of all the oil in, under, and that may be produced from the land, but also the same fractional interest in the royalties payable under the lease. See, 3 Summers, Oil and Gas, Perm.Ed., s 606, p. 502. If the first clause of such a deed were construed as creating an expense free royalty interest it would be effective to grant the stated fraction of the total production rather than the stated fraction of the landowner's royalty reserved under the lease, and would therefore be inconsistent with the second clause. It has been specifically held, however, that such deeds are not internally inconsistent and that the grant of the stated fraction of the royalties under the existing lease is merely a statement of the legal effect of granting the same fraction of all the oil in, under, and that may be produced from the land. Shinn v. Buxton, 10 Cir., 154 F.2d 629, 631-635; Richardson v. Hart, 143 Tex. 392, 185 S.W.2d 563, 564-565.

There is nothing in the California theory of oil and gas rights that should cause this court to reject the interpretation that has been adopted by the courts of other states in construing language similar to that in the deed in this case. California has rejected the theory of ownership of oil and gas in place, and language in a grant referring to oil to be produced would therefore have less significance in determining the expense free or expense bearing nature of the interest created than similar language in a deed dealing with land in a state, such as Texas, where the theory of title to oil and as in place has been retained. In California the parties might well doubt the effectiveness of a conveyance limited to a fraction of all of the oil and gas in and under the land and therefore add a reference to oil to be produced without in any way intending to convey more than the stated fraction of all the oil rights appurtenant to the land.

Furthermore, the decision in Dabney-Johnston Oil Corp. v. Walden, 4 Cal.2d 637, 52 P.2d 237, indicates that the addition of the words ‘which may be hereafter produced and saved’ after a grant of a fraction of all of the oil in and under the land does not have the effect of creating an expense free interest. In that case there was a grant of ‘a two per cent. in said land owners royalty of all gas, oil and other hydrocarbon substances to be produced and saved and sold from said described land * * *.’ The interest was described as a royalty interest, and in holding that it was expense free, the court reasoned that since the two per cent interest had been carved from the land owner's 27 1/2 per cent expense free royalty under an existing lease, it could be necessarily implied that after the termination of the lease, the two per cent interest remained expense free. In reaching its conclusion on this point the court placed no reliance on the words ‘to be produced and saved and sold from said described land.’ In fact the court pointed out that the quoted language was inserted for another purpose than to indicate how the expenses were to be allocated. It was contended that under the grant deed the grantee was entitled to royalties only if a lessee was producing oil and not when the production was being carried on by another cotenant himself. In answering this contention the court said, ‘That the parties in the instant case did not contemplate that a single producing tenant should retain the entire output is indicated by the stipulation of facts and the reforming clause added to the assignments, which expressly provide that the rights of the assignees extend not only to oil within and beneath the land, but to all oil and other hydrocarbon substances produced and saved from said land, however said substances should be produced.’ 4 Cal.2d at page 657, 52 P.2d at page 247. It is clear, therefore, that in California as in other jurisdictions, in the absence of parol evidence or other controlling language in the deed, a grant of a fraction of all the oil in, under and that may be produced and saved from the land creates and expense bearing mineral fee interest.

Barnard v. Jamison, 78 Cal.App.2d 136, 177 P.2d 341 does not support a contrary result. In that case the grant deed contained a clause that specifically provided what expenses the fractional interests conveyed should bear, and the court properly held that this clause was determinative of the issue.

The injustice of the result reached by the majority would be immediately apparent if plaintiffs had conveyed a sixth of their oil rights to defendant or had executed a similar deed to another for another twelfth of their oil rights. In either situation, although they would appear to be the owners of five-sixths of the oil rights, they would be entitled to no royalties unless they could find a lessee who would produce the oil for less than five-sixths of the total production. The injustice is no less real because some interest in the royalties is left to plaintiffs. By selling a twelfth of their oil rights the majority in effect holds that they have parted with half of them. Instead of sharing in the profits in the ratio of their respective interests they share equally. There is nothing on the face of the deed or in the record to indicate that this result was intended. If at the time the deed was executed, there had been a lease in existence reserving a one-sixth land owner's royalty it might be contended that by a grant of one-twelfth of the land owner's oil rights it was intended that half the royalty should be conveyed. See, 3 Summers, Oil and Gas, Perm. Ed., s 599, p. 482. Even the existence of a lease providing for a royalty of exactly twice the percentage provided in a deed to a fraction of the mineral fee is not enough, however, to support a holding that the fractional interest in the mineral fee is to be expense free. Manley v. Boling, 186 Okl. 59, 96 P.2d 30, 32; see, 3 Summers, Oil and Gas Perm. Ed., s 606, p. 504. Moreover, in the present case there was no lease in existence at the time the deed was executed, and there is no evidence that a lease was then contemplated or that one-sixth (twice one-twelfth) was the usual royalty specified in oil and gas leases. The effect of the deed was, therefore, to do no more than convey to defendant one-twelfth of the grantors' mineral rights in the land. The parties then became tenants in common in the mineral rights, and they should share in the royalty reserved in the lease in the proportion of their interests of eleven to one.

FOOTNOTES

1.  See Manley v. Boling, 1939, 186 Okl. 59, 96 P.2d 30, 31-32; Swearingen v. Oldham, 1945, 195 Okl. 532, 159 P.2d 247, 250; Murphy v. Dilworth, 1941, 137 Tax. 32, 151 S.W.2d 1004, 1006; Richardson v. Hart, 1945, 143 Tex. 392, 185 S.W.2d 563, 564-565; Shinn v. Buxton, 1946, 10 Cir., 154 F.2d 629, 632-633.

2.  In the answer defendant asks that plaintiffs account to defendant for 8 1/3% of all the oil and gas produced; and in the cross-complaint the prayer is that plaintiffs account for 8 1/3% of the market value of all such production.

SCHAUER, Justice.

SHENK, CARTER and SPENCE, JJ., concur.