Case Name: CHICAGO MILL AND LUMBER COMPANY, Plaintiff-Appellant, v. AYER TIMBER COMPANY, Inc., et al., Defendants-Appellees
Court: Louisiana Court of Appeal
Jurisdiction: Louisiana
Decision Date: 1961-03-10
Citations: 131 So. 2d 635
Docket Number: No. 9419
Parties: CHICAGO MILL AND LUMBER COMPANY, Plaintiff-Appellant, v. AYER TIMBER COMPANY, Inc., et al., Defendants-Appellees.
Judges: HARDY, J., dissents and will assign written reasons.
Reporter: Southern Reporter, Second Series
Volume: 131
Pages: 635–652

Head Matter:
CHICAGO MILL AND LUMBER COMPANY, Plaintiff-Appellant, v. AYER TIMBER COMPANY, Inc., et al., Defendants-Appellees.
No. 9419.
Court of Appeal of Louisiana. Second Circuit.
March 10, 1961.
Dissenting Opinion March 24, 1961.
On Rehearing June 16, 1961.
Rehearing Denied July 7, 1961.
Wilkinson, Lewis, Madison & Woods, Shreveport, for appellant.
Simon, Carroll, Fitzgerald & Fraser, Shreveport, for Ayer Timber Co., Inc.
J. Carter Perkins, Alvin B. Gibson, Geo. C. Schoenberger, Jr., New Orleans, for Shell Oil Co.
Phillips, Risinger & Kennedy, Shreveport, and Burton Wade, St. Joseph, for David C. Tyrrell, J. N. Barineau, Jr., Francis W. Scott, Milton Crow, Inc., and Austin E. Stewart.

Opinion:
BOLIN, Judge.
Plaintiff filed suit against Ayer Timber Company, Inc., to have mineral reservation held by them on lands in Tensas and Madison Parishes, Louisiana, declared extinguished by ten year liberative prescription and that plaintiff, as present owner of the lands, be declared the owner of all minerals under said lands. Plaintiff also prayed that certain oil and gas leases held by the defendants, Shell Oil Co., Francis W. Scott, David C. Tyrrell, J. N. Barineau, Jr., Austin E. Stewart and Milton Crow, Inc. be cancelled from the public records; and that an accounting be made for all oil and gas produced under the leases. All defendants filed exceptions of no right and cause' of action which were sustained by the trial judge. From such judgment, plaintiff has perfected this appeal.
As this matter is before us on the exceptions above set forth, the allegations of ultimate fact in the petition of appellant must be accepted as true. It was alleged that Ayer Timber Company was, at one timé, a large landowner in Madison and Tensas Parishes; that it desired to divest itself of its land holdings but wished to retain the minerals thereunder for as long as possible; that in furtherance of its desires, Ayer Timber Co. executed certain instruments to plaintiff's authors in title denominated "Lease with Option to Purchase"'; that these "leases" were for terms of five years and granted the "lessees" therein the right to purchase the lands for certain stated considerations; that the so-called leases contained reservations of oil, gas and other minerals in favor of Ayer Timber Co., as did the subsequent instruments denominated "deeds" obtained pursuant to the terms of the original option. Plaintiff also alleged that the rental under the leases to the one-third of the total consideration for the lease and transfer of title.
Further allegations recite that the basis of plaintiff's claim is the intent of Ayer Timber Co., to devise a method to extend the life of a mineral servitude and thus, to circumvent the law of the State and the public policy thereof relative to the life of mineral servitudes. Paragraph VI of the petition reads:
"At the respective dates of execution of the instruments styled 'Lease with Option to Purchase' referred to in paragraphs 2(a), (b), (c) and (d) as Exhibits 'P-r, 'P-3', 'P-5', 'P-6', and 'P-9', it was the intention of the parties to said instruments in executing same that the so-called lessee was in reality the vendee rather than lessee of the property described in said instruments, and that said instruments were styled as such in an attempt to allow the vendor, Ayer Timber Company, Inc., to reserve the mineral rights for a period in excess of ten years." (Emphasis ours.)
Paragraph VII of the petition reads:
"In executing each of the instruments styled 'Lease With Option To Purchase' referred to in paragraphs 2(2), (b), (c) and (d) as Exhibits T-l', 'P-3', 'P-5', 'P-6' and T-9', it was the purpose and intention of Ayer Timber Company, Inc., to obtain such a large proportion of the purchase price for the so-called rental period, that the purchaser, as a practical matter, would be forced to pay the balance due on the purchase price; and this type of instrument was used for the sole and only purpose of putting the purchaser in a position where, from an economic standpoint, he would be required to consummate the purchase and yet Ayer Timber Company, Inc., would have fifteen, rather than ten years within which to develop the minerals in the respective tracts; and the sole reason for employing this type of instrument was to put into effect a scheme devised by Ayer Timber Company, Inc., to circumvent the Louisiana law relative to tiie ten-year liberative prescription of minerals servitudes for non-usage as provided in Article 789 of the [LSA-] Civil Code of Louisiana and to thwart and evade the law contrary to the well-recognized and accepted public policy of the State of Louisiana as announced in many decisions of the Supreme Court of Louisiana as well as the Federal and other courts of this State."
Allegations of circumstances surrounding the execution of the instruments were also contained in plaintiff's petition as follows :
A. The lessor reserved the minerals.
B. The property leased was worthless for all practical purposes during the term of five years.
C. The "lease" made no provisions as to the use to be made of the lands under "lease".
D. The amount of "rent" paid in the five year term was one-third of the total price required to obtain title.
E. The consideration for the "lease" bound the "lessee" to execute the option to purchase as a matter of practical economics.
F. Identical transactions with others show the purpose the Timber Co. sought to accomplish, that is, circumvention of the ten year liberative prescription period applicable to servi-tudes.
Plaintiff further alleged that Ayer Timber Co. executed two oil and gas leases affecting the property and that it believes production has been obtained on the tract within ten years from the date of the transfer of title under the option but more than ten years from the date of execution of the original instruments.
As we appreciate this case, we have two issues involved, which may be briefly stated as follows:
1. Has the plaintiff alleged sufficient facts to entitle it to a trial on the merits in an effort to show that Ayer Timber Company, Inc., has attempted to extend a mineral servitude beyond the prescriptive period of ten years and thereby circumvent the well established public policy of this state?
2. In the event the instrument in question is set aside as being such an effort to circumvent our laws, do the oil and gas leases affecting the property also become a nullity or are such lessees protected as innocent third parties under the laws of registry?
If there is anything that seems to be well established in our jurisprudence, it is that any instrument which attempts to extend a mineral servitude beyond the prescriptive period set forth in our codal articles will be declared a nullity by our courts, if such fact is properly presented and established. Therefore, the only question presented herein is whether the plaintiff has alleged sufficient facts in its petition, which if proven by it on a trial, would show that the defendant, Ayer Timber Company was attempting to extend such mineral servitude in contravention of our public policy. In connection with this problem, we must admit that our examination of the briefs of counsel representing the litigants, as well as our independent research of the jurisprudence, leads us to the conclusion that the exact factual situation herein has never been decided by our Appellate Courts. In order to arrive at some decision on these facts, we feel it appropriate to briefly comment upon the holdings of other Louisiana cases that have enunciated general rules wherein similar instruments were nullified as being contrary to such public policy.
The landmark case of Frost-Johnson Lumber Co. v. Salling's Heirs, 1922, 150 La. 756, 91 So. 207, 239, is generally regarded as the original decision of our Supreme Court establishing the paramount rule of Louisiana mineral law that a mineral sale or reservation does not create a separate mineral estate, but only a right in the nature of a servitude subject to the liberative prescription of ten years. If restrictions had not been so imposed on the right to hold minerals out of commerce, as Justice O'Niell stated:
" it would recognize a species of perpetual incumbrance upon real estate which has never yet found an abiding place in our civil law system."
Six years before the Salling's Heirs case, supra, the Court in Bristo v. Christine Oil & Gas Co., 1916, 139 La. 312, 71 So. 521, struck down as being null a contract purporting to give a perpetual option to hold land under a mineral lease, on the ground that it:
" would take the property out of commerce, and would be vio-lative of the doctrine of ownership, defined in the second title of the second book of the Civil Code." 139 La. 315, 71 So. 522.
In the recent case of Gueno v. Medlenka, 1960, 238 La. 1081, 117 So.2d 817, the Supreme Court restated the basic principle as follows:
" it is contrary to the public policy of this State to hold property out of commerce and this Court has consistently applied the liberative prescription of ten years in dealing with the exercise of mineral rights." 238 La. 1101, 117 So.2d 824.
It is clear from the Salling's Heirs case, and later decisions, that Louisiana public policy is directed against the withdrawal of valuable property rights from commerce.
In the early period of judicial development of Louisiana's mineral laws, the efforts by the landowners to extend the life of the mineral servitude were by means of direct stipulations in the instrument. The first of these was an agreement between the landowner and the mineral owner that the minerals were reserved for a period in excess of ten years. Such provisions, being contrary to our public policy, were declared a nullity on the ground that prescription could not be renounced before it accrued. Bodcaw Lumber Co. of Louisiana v. Magnolia Petroleum Co., 1929, 167 La. 847, 120 So. 389.
In Union Producing Co. v. Parkes, D.C W.D.La.1940, 40 F.Supp. 163, a Federal Court upheld our public policy by declaring a provision giving the purchaser of minerals 30 years to develop same void as an attempt to circumvent the Louisiana law of liberative prescription.
Since it became increasingly clear that no direct contractual efforts to circumvent our public policy relating to prescription of mineral servitudes would be allowed, a resort was made to indirect attempts, carefully concealed in instruments which were valid on their face, but the underlying purpose being to defeat such public policy.
It was maintained that the reservation of a royalty rather than a mineral interest would not fall within the legal category of "servitude" subject to the prescriptive period. The Supreme Court, however, in Vincent v. Bullock, 1939, 192 La. 1, 187 So. 35, held that the interest reserved prescribed, in ten years, it being immaterial what term was used in characterizing the interest.
Another effort was made by classifying the mineral owner as an agent, thus creating a mandate coupled with an interest, which effort was unsuccessful. Childs v. Porter-Wadley Lumber Co., 1938, 190 La. 308, 182 So. 516.
A device was also used whereby undivided interests in outstanding minerals were conveyed to minors in the hope of suspending the running of the prescriptive period. The court again upheld the public policy of the state by holding that any conveyance to a minor for the purpose of suspending prescription would not be recognized. Patton's Heirs v. Moseley, 1937, 186 La. 1088, 1094-1095, 173 So. 772, 774, 775.
In Roy O. Martin Lumber Co. v. Hodge-Hunt Lumber Co., 1938, 190 La. 84, 88, 89-90, 181 So. 865, 866, 867 the Court condemned the use of an instrument vesting title in minors, valid on its face, to circumvent the law.
Still another scheme was a contractual provision taking effect after the ten-year prescriptive period would ordinarily have passed. In Ober v. McGinty, La.App. 2 Cir., 1953, 66 So.2d 385, 386, a deed conveying land contained a clause giving the vendor the right to extend his ownership to the minerals, which he reserved for an additional ten year period by paying a stated price. When the vendor sued to exercise the right to purchase, his case was dismissed on an exception of no cause of action, the court holding:
"It is obvious that Ober had in mind at the time he made this sale, avoidance of or escape from the effects of the law of prescription as applied to mineral servitudes, and this is clearly an effort to establish a servitude for a longer period than ten years."
A vendor of land, who desired to recover mineral interest outstanding at the time of the sale of the realty, stipulated in the contract of sale that when the outstanding minerals prescribed, they would revert to the vendor of the land. When confronted with this situation, the Louisiana Supreme Court held in Hicks v. Clark, 1954, 225 La. 133, 141, 72 So.2d 322, 325, the right of reversion to be a nullity, stating:
"We consider the reservation of the reversionary interest in this case as an effort to circumvent the public policy of this state, and we therefore refuse to recognize or give effect to it." (Emphasis added.)
Almost every device conceivable has been employed in an attempt to circumvent our law on this question. In every instance where the Supreme Court has found such an intent it has zealously protected the State's public policy. This vigilance of the Supreme Court has curtailed the attempts of those who seek to withhold mineral rights from commerce beyond the prescriptive period.
We could cite and analyze many other cases wherein this matter has been before our Appellate Courts, but we do not feel they would add to this decision. We have only briefly discussed the holdings in the cases cited in order to show the definite trend of our courts on this question. We feel that the case of Ober v. Williams, 1948, 213 La. 568, 35 So.2d 219, 224, is the case most appropriate to the factual situation herein. This case has been cited by counsel for all litigants herein, and it has been argued that its holding and dicta supports the position of both the plaintiff and the defendants. We feel that we should, therefore, briefly discuss the case. The contract involved therein was an option to buy forty acres of land within one year. The purchaser bought the land at the end of the option period but the vendor reserved one-half of the minerals. The contention was made that title was vested in the vendee retrospectively as of the date of the original option contract so as to start the running of the prescriptive period against the mineral servitude reserved in the deed. The court held that the prescription did not begin to run until the title was actually vested in the vendee, but in connection with its decision, the court had this to say:
"Finally, plaintiff and amici curiae have expressed great concern respecting the result in this case. Amici curiae say that, unless the decision of the lower court is reversed, it will 'adversely affect vested rights and afford a way to retain mineral servi-tudes for indefinite periods, and thereby do away with the 10-year prescriptive period applicable to such servi-tudes.' They conceive and portray situations wherein owners of land desiring to sell and yet reserve minerals for a longer period than ten years would execute promises to sell, withholding ownership in themselves for many years and thereby circumvent the law extinguishing the ownership of minerals servitudes after ten years where there is no exploration by the servitude owner.
"Our answer to the alarms of counsel is that it will he time enough to deal •with situations involving fraudulent evasions of our laws and public policy when and if occasion arises. Surely, no one will have the temerity to suggest unlavaful scheming on the port of the defendants in the present case." (Emphasis ours.)
It is also interesting to note in the cited case, that an exception of no cause or right of action was filed in the lower court and was overruled and the case was disposed of on its merits.
We feel that the gist of the plaintiff's allegations in the instant case is that the lease with option agreement was primarily designed and executed by the defendant, Ayer Timber Co., as a means of circumventing the public policy of this state. One of the primary elements of such a scheme is the intent of the parties which necessarily must be partially alleged as a conclusion of law. Under these circumstances, we feel the plaintiff should be allowed its day in court in an effort to present any and all facts which would be admissible under the pleadings so that the court would have the benefit of same at the time of rendering an opinion thereon. From the language of Ober v. Williams, supra, we feel that this is the "occasion" when we are called upon "to deal with a situation involving fraudulent evasions of our laws and public policy".
Counsel for the defendants contend that the plaintiff's petition does not specifically allege title to the land was transferred under the lease and option agreement; that if such title did not pass, no servitude could have been retained or created by it because the plaintiff could not have a servitude on its own property. We have previously quoted Paragraph VI of the petition and we feel the underscored portion thereof is sufficient allegation that title to the property passed at the time of the original lease and option agreement rather than the deed, some five years later. In any event, in a case of this magnitude, we feel that any doubt should be resolved against the exceptor in order that the plaintiff may have its day in court.
Even if we were to conclude that the plaintiff had not alleged an actual transfer of title at the time of the original lease and option agreement, we feel that this case should not be disposed of on an exception. As previously stated, the exact factual matter we have before us is res nova, and we are, therefore, fully aware of the far-reaching consequence of any legal pronouncements made on this question. For many years legal scholars have anticipated an effort to take the minerals out of commerce by means of a surface lease. In a Comment entitled "Long Term Leases Affecting Minerals," 8 La.L.Rev. 540 (1947), the author makes the following observations concerning the use of a so-called lease to keep minerals out of commerce:
"From the very beginning of the mineral history of the state, the policy of the law has been steadfastly opposed to the indefinite or perpetual tie-up of mineral interests in all others save the true landowner. Heretofore, the courts have been concerned with curtailing the rights of holders of servitudes and leases in order to prevent perpetual control of these rights and to compel their reversion to the landowner in the absence of reasonably diligent development. Now, however, the problem is presented in reverse, and what was not allowed directly is being undertaken indirectly. The risks encountered by the purported vendors or lessors under such contracts can hardly be exaggerated. (545)
"Thus, it is seen that the courts have been adamant from the very beginning in opposing any circumvention of the clear cut rules governing the duration of mineral rights . In light of this jurisprudential lazv, it is believed that this new device will not stand juridial scrutiny and is fraught with dangers for the purported lessors. A continuation of such a chain of events as is here noted would not only upset prior mineral jurisprudence but might convert Louisiana for all practical purposes to the ownership theory of mineral rights prevailing elsewhere." (547) (Emphasis added.)
A similar concern for the problem may be found in Vol. XXV, Tulane Law Review, page 180, wherein Eugene A. Nabors points out the dangers of retrospectively reserving minerals prior to the subsequent transfer of the title to the land:
"The recognition of transfers or reservations of reversionary interests, over-sales of minerals, and options to purchase a mineral servitude, if accompanied by the adoption of a rule which makes liberative prescription date from the time of the happening of the contingency which makes the mineral servitude come into existence, would create methods of evading the results which the liberative prescription system generally obtains. The evasive feature of contracts for the future transfer of minerals can be eliminated by the adoption of a rule which makes liberative prescription on both the preliminary contract and the contingent mineral servitude begin to run on the date of execution of the preliminary contract.
"A contract or option for the future sale of land subject to a mineral reservation postpones both the date on which the obligee obtains the land and the accompanying right to acquire the reserved minerals through the regular rules of liberative prescription, but the contract or option keeps the minerals in the landowner for a longer period of time than would be accomplished by an immediate sale of the land subject to a mineral reservation. The establishment of a system of control which would make liberative prescription run on the landowner's minerals prior to the change in his status from landowner to a vendor who reserves the minerals would involve the inconsistency of converting liberative prescription from a rule which favors a landowner to a rule which tends to deprive a landowner of his minerals.
"A study of the Louisiana decisions relating to contractual control over the date of creation of a mineral servitude shows some inconsistency and a feeling of judicial uncertainty in developing this new branch of mineral-servitude law."
While we do not minimize the complications that might arise from a decision herein if it ultimately be rendered in conformity to the plaintiff's theory, we say as was held in Ober v. Williams, supra, "it will be time enough to deal with [such] situations when and if occasion arises". We should not deny plaintiff its day in court merely because of what might happen if the case is decided a certain way.
Having concluded that the exception should be overruled as to the principal defendant, we now pass to the question of whether the same rule should apply to the other defendants as lessees under oil and gas leases which were executed more than ten years from the original lease with option agreement, but less than ten years from the subsequent deed. In addition to the arguments advanced by Ayer Timber Company the defendants lessees contend that they are protected by the laws of registry as provided in LSA-R.S. 9 :2721:—
"No sale, contract, counterletter, lien, mortgage, judgment, surface lease, oil, gas or mineral lease or other instrument of writing relating to or affecting immovable property shall be binding on or affect third persons or third parties unless and until filed for registry in the Office of the Parish Recorder of the parish where the land or immovable is situated; and neither secret claims or equities nor other matters outside the public records shall be binding on or affect such third parties."
And LSA-R.S. 9:2722 which provides:
"Third persons or third parties, so protected by and entitled to rely upon the registry laws of Louisiana now in force and effect and as set forth in this chapter, are hereby redefined to be and to include any third person or third party dealing with an immovable or immovable property or acquiring a real or personal right therein as purchaser, mortgagee, grantee or vendee of servitude or royalty rights, or as lessee in any surface lease or leases or a lessee in any oil, gas or mineral lease and all other third persons or third parties acquiring any real or personal right, privilege or permit relating to or affecting immovable property."
The plaintiff counters the contentions of the lessees by citing the following cases which generally hold that a lessee under an oil and gas lease can acquire no greater right than that of a lessor: Calhoun v. Gulf Refining Co., 1958, 235 La. 494, 104 So.2d 547; Arnold v. Sun Oil Company, 1950, 218 La. 50, 48 So.2d 369; Dixon v. American Liberty Oil Company, 1954, 226 La. 911-922, 77 So.2d 533; Reagan v. Murphy, 1958, 235 La. 529, 105 So.2d 210.
The court in all of the cases cited above by the plaintiff had before them the interpretation of LSA-R.S. 9:1105 and it was held that the legislature had only attempted to classify the rights of the lessee under an oil and gas lease as a real right, but that the provisions of the legislative acts in question did not have the effect of changing the substantive rights of such lessees.
However, as pointed out in the case of Jackson et al. v. Golson, La.App. 2 Cir., 1957, 91 So.2d 394, certiorari denied, the lessees are permitted under LSA-R.S. 9:2721, 9:2722 to rely on the public records and are protected against any instruments which are not filed at the time the lease is executed. While it is true, in the instant case, that the plaintiff has not alleged any knowledge or bad faith on the part of the defendants-lessees, we do not feel the law of registry necessarily affords them any greater right than the lessor. Plaintiff alleges that these lessees should have known from the instruments them selves that the minerals had prescribed at the time the leases in question were executed. In order to pass on this question, it will he necessary to examine the instruments of record in light of other evidence that might he presented. In other words, we feel that these defendants should likewise not be dismissed from the case by means of an exception, hut their rights should be adjudicated only after all of the facts have been presented by á trial on the merits. It is obvious that these defendants will not be bound by instruments not of record or of any secret equities between the plaintiff and the principal defendant. It may well be that they will occupy a better position after such a trial than the principal defendant herein, but such conclusions could better be reached after such a trial.
For the reasons stated herein, it is our opinion that the lower court was in error in sustaining the exception of no cause or right of action, and accordingly the case is reversed and the said exception is overruled as to all defendants, and the case is remanded for a trial on the merits consistent with law and the views expressed herein. The costs of this appeal to be paid by appellees and all other costs to await final determination of the cause.
Reversed and remanded.
HARDY, J., dissents and will assign written reasons.