Title: Hathorn v. Amoco Production Co.

State: mississippi

Issuer: Mississippi Supreme Court

Document:

472 So. 2d 403 (1985) William HATHORN and R.C. Speights, Jr. v. AMOCO PRODUCTION COMPANY and System Fuels, Inc. No. 54722. Supreme Court of Mississippi. June 5, 1985. *404 Richard D. Foxworth, Foxworth & Shepard, Columbia, for appellants. Hugh Craig Forshner, New Orleans, La., Dale H. McKibben, McKibben, Tolbert & Clark, Jackson, for appellees. Before WALKER, P.J., and DAN M. LEE and ANDERSON, JJ. DAN M. LEE, Justice, for the Court: This is an appeal from the Chancery Court of Jefferson Davis County wherein the chancellor entered an order establishing the rights of the parties as to the various mineral leases and deeds on the subject lands. From the chancellor's order the appellants, William Hathorn and R.C. Speights, Jr. bring this appeal asserting that the chancellor erred in defining their interest in the subject property. All of the facts in this litigation were stipulated to by the parties. The chancellor's opinion provides a readable explanation of the facts. We borrow from that opinion here and have made only minor additions which the record before us requires. After reciting the facts as stated above the chancellor went on to draw the following legal conclusions: The central question on this appeal concerns the validity of the mineral lease granted to Amoco from the remainderman, Burns. At issue is whether a remainderman may grant a valid lease absent joinder by the life tenant. All other issues are dependent on resolution of this question. The law in Mississippi is well settled that oil in place is a part of the real estate and portions of the oil produced and paid as royalties represent the principal or corpus and only the interest thereon derived from any investment of such funds should be paid to the life tenant. Martin v. Eslick, 229 Miss. 234, 90 So. 2d 635 (1956); Martin v. Humble Oil and Refining Co., 199 F. Supp. 648 (S.D.Miss. 1960), affirmed on appeal 298 F.2d 163 (5th Cir.1961). Therefore, the remainderman's (Burns) interest in the minerals vested at the time Sallie Clark gave him a deed, notwithstanding the fact that she reserved a life estate in herself. Accepting that Burns' interest had vested, could he grant a valid lease? In Welborn v. Tidewater Association Oil Co., 217 F.2d 509 (10th Cir.1954), the Tenth Circuit Court of Appeals addressed the right of an Oklahoma remainderman to grant an oil and gas lease. In facts very similar to those now at bar, Smith was the owner of a life estate and Garrett the owner of the remainder interest. Smith was the duly appointed guardian of Garrett, then a minor. Smith leased Garrett's remainder interest in the oil and gas on the subject property to Welborn. Subsequently, Smith and Garrett executed an oil and gas lease to another which was ultimately procured by Tidewater. Welborn demanded Tidewater release its lease because it constituted a cloud on the oil and gas lease held by him. The Tenth Circuit held: Welborn at 510, 511. In Hemmingway, The Law of Oil and Gas, Section 5.2, page 175, 176 (1971), the author has this to say about the remainderman's right to lease his interest: Welborn at 510, 511. Also, in 2 Williams and Myers Oil and Gas Law, § 512.2, page 637, the authors state: "The mere execution of a lease by either the life tenant or the owner of a future interest does not constitute a wrong to either party. As between the lessor and the lessee, the lease is valid." See also, Kuntz, Oil and Gas, § 8.4, page 183. In this regard, the chancellor's opinion was completely in accord with the above cited authorities as he held that the lease to Amoco was valid to the extent of the interest that the Burnses had at the time they granted the lease; however, the chancellor's subsequent findings are in error. Amoco obtained the Burnses remainder interest in the oil and gas on the property subject to Sallie Clark's life estate. As stated by the authorities cited above, particularly Welborn, although the remainderman may validly lease his interest, that lease can in no way grant an immediate right to production absent joinder by the life tenant. Both the life tenant and the remainderman have a present interest in the minerals on the property and neither may work to defeat the interest of the other. Applying that rule, although Amoco obtained a valid lease of Burnses remainder interest, it did not have the right to present production. Under the lease from Burns, Amoco had no right to produce unless Mrs. Clark died within the term of the lease. When Sallie Clark and Burns conveyed their interest to Speights by way of a five year term mineral deed, Speights took an interest subject to the lease Burns had given Amoco. Speights was therefore entitled to Sallie Clark's life estate and a remainder interest subject to Amoco's lease, including the 3/16ths royalty Burns had reserved when he leased the oil and mineral rights to Amoco. Therefore, Speights had no immediate right to production as he owned the entire life estate but the remainder interest was already subject to a valid lease. What did Speights have to lease to Hathorn? Speights' lease to Hathorn was necessarily limited to the life estate he acquired from Sallie Clark. The remainder interest Speights had purchased from Burns was already subject to another valid lease. The lease to Hathorn gave him a 3/4 share of the interest to be made from the investment of the proceeds of the 13/16ths working interest of Amoco for the life of Sallie Clark. The interests and rights of the parties are defined as follows: Amoco is not entitled to the use of the corpus of the 13/16ths working interest or any income from the investment of that sum until the death of Sallie Clark. All profits from that sum during the life of Sallie Clark belong to Speights and Hathorn to be divided as set out above. It is Amoco's duty to insure that the corpus of the 13/16ths working interest provides a fair rate of return for Speights and Hathorn whether it retains the 13/16ths and becomes personally liable for the interest or whether it invests that sum with a third party responsible for paying the interest. Because of the failure of the chancery court to define the parties' interests as we have set them out above, we hereby reverse and remand this cause for proceedings consistent with this opinion. REVERSED AND REMANDED. PATTERSON, C.J., WALKER and ROY NOBLE LEE, P.JJ., and HAWKINS, PRATHER, ROBERTSON, SULLIVAN and ANDERSON, JJ., concur.