Title: Leonard v. Barnes
Citation: 404 P.2d 292, 75 N.M. 331
Docket Number: 7488
State: new-mexico
Issuer: new-mexico Supreme Court
Date: July 19, 1965

404 P.2d 292 (1965) 75 N.M. 331 J.M. LEONARD and wife, Mary Leonard, Neville G. Penrose and wife, Doris Penrose, Plaintiffs-Appellants, v. J.C. BARNES et al., Defendants-Appellees, Johnson-Walker Oil Company, Intervening Defendant-Appellee, Indiana Oil Purchasing Company, Defendant-Appellee and Counter Claimant and Cross-Claimant in Interpleader. No. 7488. Supreme Court of New Mexico. July 19, 1965. *293 Clarence E. Hinkle, Paul W. Eaton, Jr., Roswell, for appellants. Atwood &amp; Malone, Roswell, for appellees. *294 CHAVEZ, Justice. Appellants, plaintiffs in the lower court, appeal from a judgment dismissing appellants' complaint and adjudging appellees to be the owners of the ¼ of 1/8 royalty interest in question. The stipulated statement of facts is as follows: The trial court made the following findings of fact: This is a case of first impression in New Mexico. The question presented is whether the execution of a joint lease for oil and gas by several owners of contiguous tracts of land, separately owned, should be construed as one providing for pooling the royalties under the entire acreage in the lease, absent an express agreement in the lease to that effect. Under their first point, appellants contend that the trial court erred in "giving effect to the testimony of J.V. Terrill in the face of the stipulated facts which the court adopted * * *." The questions and answers to which appellants refer are: The objection was sustained; however, after a colloquy between the trial court and counsel for appellees, the court ruled: Whereupon the following question and answer were given: No objection was made to the trial court's ruling as to what the witness Terrill could be asked; however, even if we consider appellants' objection, this point cannot be sustained. The objection made by counsel specified no basis on which the answer to the question would be inadmissible. This court has consistently held that an objection to the introduction of evidence, which does not specify the particular ground on which the evidence is objectionable, does not call the trial court's attention to the matter to be decided and, on appeal, will be treated as if no objection to such evidence had been made. Alvarado Min. &amp; Mill Co. v. Warnock, 25 N.M. 694, 187 P. 542; State v. Clarkson, 42 N.M. 289, 76 P.2d 1161; Mares v. New Mexico Public Service Co., 42 N.M. 473, 82 P.2d 257. Therefore, the testimony of Mr. Terrill which was admitted in evidence will be treated on appeal as if no objection had been made to its introduction. The testimony was also consistent with the stipulation of facts that: Mr. Terrill's testimony was that, in addition to the fact that there had been no discussion between the parties as to any intention to pool, he himself had no intention to do so and had "no thought of it." Appellants' second point asserts that the trial court erred in finding that the manner in which the leased premises were described in the lease, and the identification of the interest owned by the respective lessors, evidenced an intention of the parties not to pool their royalty interests. *299 The description in the lease in question consists of separate descriptions of each lessor's land interest, and there is an absence of any single overall description of such property in the lease. The courts of other jurisdictions seem to have considered the manner in which the separate tracts are described in the lease as an important factor evidencing the intent of the parties. In the leading and most cited Louisiana cases the courts hold that, where the tracts of land are described as one tract in the lease, a pooling agreement results. Shell Petroleum Corporation v. Calcasieu Real Estate &amp; Oil Co., 185 La. 751, 170 So. 785; Nabors v. Producers' Oil Co., 140 La. 985, 74 So. 527, L.R.A. 1917D, 1115. See also, Magnolia Petroleum Co. v. Ouart, 200 Okl. 258, 192 P.2d 698; Peerless Oil &amp; Gas Co. v. Tipken, 190 Okl. 396, 124 P.2d 418; Wettengel v. Gormley, 160 Pa. 559, 28 A. 934; Duffy v. Callaway (Tex.Civ.App. 1958), 309 S.W.2d 853; French v. George (Tex.Civ.App. 1942), 159 S.W.2d 566; Parker v. Parker (Tex.Civ. App. 1940), 144 S.W.2d 303; Lynch v. Davis, 79 W. Va. 437, 92 S.E. 427, L.R.A. 1917F, 566; South Penn Oil Co. v. Snodgrass, 71 W. Va. 438, 76 S.E. 961, 43 L.R.A.,N.S., 848. Substantially all of the cases so holding in the above jurisdictions involve leases with contiguous tracts of land described as a single tract of land. We have found no case in which the court found an intention to pool royalties when the individually owned tracts were described separately in the lease. In the light of these decisions and, under the circumstances in the instant case, the trial court properly found that the manner in which the leased premises were described in the lease provided evidence of an intention by the respective lessors not to pool their royalty interests. Appellants place considerable emphasis on the wording in the lease wherein Terrill is referred to as "lessor" in connection with tract No. 1, Iverson and wife as "lessors" in connection with the same tract, and Penrose and wife are referred to as "lessors" in connection with tract No. 2, and argue that this fact "has no legal significance from which the Court can interpret the intention of the parties," and that the court erred in finding No. 3. The court found that: Appellants also contend that the fact that Terrill was named as "lessor" was merely "an error on the part of the landman who drafted the lease." It is appellants' contention that all of the parties, to-wit: Terrill, Iverson and wife, and Penrose and wife, were referred to as "lessor" throughout the lease and that when "lessor" or "lessors" was used in the description, it meant all of the parties collectively and, as such, it could not be meant to indicate that the parties were leasing separately, as the trial court found in finding No. 3. In support of this contention appellants set forth sections 1, 2, 6 and 9 of the lease which contain either the words "lessor" or "said land." Appellants feel that these words are sufficient to show that the land is being leased as one parcel and the lessors are leasing not separately but as one lessor, and that this indicates that the lease is a community lease. Appellants rely on Shell Petroleum Corporation v. Calcasieu Real Estate &amp; Oil Co., supra, which contains language that might be considered as supporting appellants' contention. However, regardless of the fact that the parties were referred to as "lessor," as stated by the court in that case, the contract contained this important stipulation: Appellants' third point is that the trial court erred in giving effect to the trial court's finding that there was nothing in the circumstances surrounding the execution of the lease which indicates or establishes an intention on the part of the lessors to pool their royalty interests. Appellants' discussion on this point is directed to the construction of the lease contract on the basis of provisions contained in it, rather than to the circumstances surrounding the lease. In Brazell v. Brown, 169 Okl. 623, 38 P.2d 17, the court stated: When this is appreciated, the emphasis which some courts have placed upon the use of the word "lessor" in the lease, or on the lesser interest clause which appears in all leases, and on other provisions in the lease, becomes of little significance in determining the intention of the lessors as between themselves. The question before us was discussed in United Gas Public Service Co. v. Eaton (La. Court of Appeals 1934), 153 So. 702, and quoted in the trial court's memorandum of authorities in the principal case. On the question of the intention of the parties to pool, the court said: The rule in Texas is that where several owners of contiguous or adjoining tracts join in a single lease covering their respective tracts, in the absence of an agreement to the contrary, the lease has the effect of communizing the various interests, resulting in the pooling or apportionment of the royalties among the lessors in the proportion that the acreage of each separate owner bears to the total number of acres in the lease. French v. George, supra; Parker v. Parker, supra. The Oklahoma rule, on the division of royalties, depends on the intention of the lessors which may be determined from the language of the lease or by separate agreement between the lessors, or such conduct of the parties after the execution of the lease as would indicate a construction of the lease by the lessors. But when individual owners of contiguous tracts join in *301 a single lease, then there is a presumption that a pooling of royalties is intended, unless a contrary intention or agreement is shown. Peerless Oil &amp; Gas Co. v. Tipken, supra; Magnolia Petroleum Co. v. Ouart, supra. The Louisiana courts hold that, from the fact that the parties join in the same lease contract, from that fact alone there arises no presumption of an intention to pool royalties. The question as to intent rests on the proof admitted at the trial. Louisiana Canal Co. v. Heyd, 189 La. 903, 181 So. 439, 116 A.L.R. 1260. Appellants contend under their fourth point that the trial court erred in finding that the several conveyances made by the lessors, subsequent to the execution of the lease covering their respective mineral interests, evidenced their construction of the lease as not having effected a pooling of their royalty interests. In this case all of the lessors made subsequent conveyances of their mineral interests in their respective tracts, such conveyances describing only that portion of the property separately owned by the grantor upon the execution of the lease. There is nothing in any of the conveyances indicating any claim to royalty under the other tracts in the lease. Appellants' argument rests solely on the lease in question being construed as a community lease. However, the trial court, textwriters, and the impressive decisions of other states, favor a construction of this lease as a joint lease, because there is an absence of an express agreement contrary and the actions of the parties, upon the execution of the lease, show no intention to create a community lease. In Summers Oil and Gas, Vol. 3A, § 612, p. 473, the author states: Since the lease in question has no express provision to pool royalties and does not provide for the development and operation of the lands as a unit, and no intention to so provide appearing, the lease is not a community lease. The Louisiana court of appeals has met the problem of subsequent conveyances squarely in United Gas Public Service Co. v. Eaton, supra, wherein the court held: *302 In Shell Petroleum Corporation v. Calcasieu Real Estate &amp; Oil Co., supra, the supreme court of Louisiana criticizes the Eaton decision but they do not overrule the case because the fact situation was completely different. See Summers Oil and Gas, Vol. 3A, § 611, pp. 460-461, where the author states that the courts all seem to agree that the question of the division of rents and royalties here involved is a matter of intention, and that the conduct of the parties, after the execution of the lease, indicates their construction of the lease. See also, 2 N.M.Digest, 1965 Supp., Contracts, Key No. 170(1), for specific cases. Appellants argue that the character of the lease, i.e., whether or not it was a community lease, became fixed and must be determined as of the time of its execution, and that such character cannot be thereafter changed because of subsequent separate conveyances by the parties. An oil and gas lease is merely a contract between the parties and is to be tested by the same rules as any other contract. However, it is generally said that the purpose of interpretation of a contract is to ascertain the "intention of the parties." Foulke v. Miller, 381 Pa. 587, 112 A.2d 124; Howland v. Stitzer, 240 N.C. 689, 84 S.E.2d 167; United States v. Springfield Fire &amp; Marine Ins. Co., (8 CCA 1953), 207 F.2d 935. It is, therefore, sometimes necessary, in order to give meaning to the words employed in ambiguous contracts as a basis for the determination of the rights of the parties, that extrinsic evidence be heard to make the court aware of the meaning the parties intended by the language used. See also, Mr. Justice Holmes' article "The Theory of Legal Interpretation," 12 Harv.L.Rev. 417. The fact that the parties subsequently acted in a particular manner in making conveyances of portions of the mineral interests indicates their understanding of the words. The fact that such actions may be self-serving, however, only goes to the weight to be given to such evidence. We think such evidence of surrounding circumstances, even though in the form of subsequent action by some of the parties, was admissible on the question of the meaning given to the words employed by one of the parties, and of the other party's "reason to know" the understanding the other party had. See 3 Corbin on Contracts, §§ 536, 537. Appellants cite Schrader v. Gypsy Oil Co., 38 N.M. 124, 28 P.2d 885, which is distinguishable because the lease involved there contained an entirety clause, whereas the lease in the instant case does not. See also, Raley v. Moore, 60 N.M. 200, 289 P.2d 957. Appellants' fifth point contends that the trial court erred in failing to consider two factors as evidencing an intention of the lessors to pool their royalty interests: (1) That the separately owned tracts were contiguous; and (2) that the SW/4SE/4, Sec. 14, was in divided ownership and the entire tract would be required to constitute a well spacing or proration unit under the regulations of the Oil Conservation Commission. Appellees contend that the points are not properly raised in this court because appellants did not submit to the trial court a proposed finding of fact that such two factors evidenced an intention of the lessors to pool their royalty interests. Rule 52(B) (a) (6), Rules of Civil Procedure, provides: Appellees' contention is inapplicable since the trial court adopted, as finding of fact No. 1, the stipulation of facts submitted by the parties, which includes the fact that the tracts were separately owned and contiguous to each other, and that the SW/4 SE/4, Sec. 14, was in divided ownership. Appellants, in their brief, state: The application of Rule 52, supra, to this case, as suggested by appellees, would lead to endless confusion in many cases. However, the trial court did consider the above two facts and stated: Therefore, the trial court did consider the two factors relied upon by appellants, but decided that, in the light of the preponderance of evidence to the contrary, such factors were sufficiently outweighed by evidence showing a lack of any intention to pool by any of the parties. We, therefore, hold that the question of the division of rents or royalties is a matter of intention of the parties, which is to be ascertained and determined from the express language in the lease. Such language may be affected by the subsequent interpretation of the parties, as evidenced by their actions which indicate a construction of the lease with no presumption arising to aid either party. This is somewhat like the Louisiana rule quoted above, and is compatible with our rule in relation to the construction of contracts, i.e., that the court's duty is confined to interpretation of the contract which the parties made for themselves, and the court may not alter or make a new agreement for the parties. Davies v. Boyd, 73 N.M. 85, 385 P.2d 950. Where a written contract is uncertain or ambiguous, the intent of the parties may be ascertained by their language and conduct, the objects sought to be accomplished, and surrounding circumstances at the time of execution of the contract. Jones v. International Union of Operating Engineers, 72 N.M. 322, 383 P.2d 571; Ashley v. Fearn, 64 N.M. 51, 323 P.2d 1093. When the theory of non-apportionment of royalties is applied here, the lessor-owner of the non-producing tract is forced to continue the lease without receiving royalties or delay rentals. The lessee has complied with the lease by drilling a well and the lease is thereby perpetuated as to all of the owners as long thereafter as oil or gas is being produced from the land. In Libby v. De Baca, 51 N.M. 95, 179 P.2d 263, this court stated: Under the theory of the Libby case, lessors could probably require lessee to continue the development as to the undeveloped portion of the leased land. *304 The trial court's finding, that there was insufficient evidence to show that the parties intended to pool the royalties, is clearly supported by substantial evidence and will not be disturbed by this court. The judgment is affirmed. It is so ordered. CARMODY, C.J., and NOBLE, MOISE and COMPTON, JJ., concur.