Opinion ID: 2615097
Heading Depth: 1
Heading Rank: 5

Heading: The Land Bank's Estate

Text: By reason of its exception, the Bank owned a fee simple defeasible estate in one-half of the minerals We have said that: Oil and gas, while in situ, are part of the realty; part of the corpus of the land. State ex rel. School Dist. No. 1 in Weston County v. Snyder, 29 Wyo. 163, 212 P.2d [P.] 758, 762 (1923). See Burnell v. Roush, Wyo., 404 P.2d 836 (1965), and Denver Joint Stock Land Bank of Denver v. Dixon, 57 Wyo. 523, 122 P.2d 842, 140 A.L.R. 1270 (1942). In Denver Joint Stock Land Bank of Denver v. Dixon, supra, we affirmed the district court's decision, which held that the royalty interest was real and not personal property. See also State ex rel. Cross v. Board of Land Commissioners, 50 Wyo. 181, 58 P.2d 423 (1936), and Picard v. Richards, Wyo., 366 P.2d 119 (1961), where it was held that a conveyance or reservation of a mineral interest gave title to oil in place. A landowner has the power to create separate interests in oil and gas by grant or exception, they being leasehold, mineral and royalty interests. [4] It follows that he may create such interests for years, for life, or in fee. See 1A Summers Oil and Gas, Ch. 6, Landowner's Powers and Liabilities, § 136  Nature of the Legal Interest in Oil and Gas Created by Deed, Exception or Reservation. See also, Goodson v. Smith, 69 Wyo. 439, 243 P.2d 163, reh. denied 244 P.2d 805 (1952). See Krug v. Reissig, Wyo., 488 P.2d 150 (1971), where we recognized a life estate in the minerals. In a conveyance excepting the minerals from the grant, we said in Ohio Oil Co. v. Wyoming Agency, 63 Wyo. 187, 179 P.2d 773, 774-775 (1947):    It is admitted that a severance of the mineral estate from the surface estate was effected by this conveyance. See Tiffany on Real Property (3d ed.) § 587; Lindley on Mines (3d ed.) §§ 9,812; cases cited in State ex rel. Cross v. Board of Land Com'rs, 50 Wyo. 181, 200-203, 58 P.2d 423, 429, 430. 62 P.2d 516. The mineral estate, after severance, is often called the `mineral fee' (see Dabney-Johnston Oil Corp. v. Walden, 4 Cal.2d 637, 650, 52 P.2d 237, 243)   . In State ex rel. Cross v. Board of Land Commissioners, 58 P.2d at 430, we referred, with approval, to a case citing Thompson on Real Property, where that author said: `Since minerals in place are part of the land, the owner of the fee in the land has the absolute right of property in the mines and quarries beneath the surface (citing cases), and all the mineral substances, while thus in place, are things of a real, and not a personal character (citing cases). As we have seen, that part of the land consisting of minerals, or specified minerals, may become the subject of separate ownership by grant of the minerals by the owner of the land, or by a grant of the land with an exception of the minerals, and in either case an estate in fee simple is created in the minerals, as corporeal hereditaments. (Citing cases).' [ Barlow v. Security Trust & Savings Bank, 197 Cal. 263, 240 P. 19, quoting from 1 Thompson on Real Property, § 87.] In Summers Oil and Gas, supra, the author says: Separate estates or interests in oil and gas may be created for a definite term of years and as long thereafter as oil or gas is produced from the land in paying quantities. (Emphasis added.) § 136, supra, p. 282. As has been noted, the Land Bank's exception was subject to a contingency for an indefinite term, i.e. 20 years and as long thereafter as oil and gas are produced therefrom. Since mineral and surface estates may be severed one from the other under the circumstances of this case, it follows that the Federal Land Bank's exception severed the minerals from the land conveyed to Williams. In his brief and argument, appellant Williams reaches the erroneous conclusion that the contingency contained in the Land Bank grant to Williams expressed a term for years which was not a freehold interest. [5] From this faulty term-for-years assumption, it is reasoned that, since it was necessary that the fee be held to reside in someone, it must be in Williams and therefore he could and did reserve it when he executed the warranty deed to the Watts. Even though this court and Williams come to the same ultimate result  i.e., that Williams owned an exceptable interest which he could and did except  we do not travel the same path in order to arrive there. Appellant Williams represents that at the time of the Land Bank's deed to him    100% of the minerals became vested in Maurice Williams, subject to a twenty (20) year term interest in 50% of the minerals held by the Federal Land Bank. He goes on to say: The Federal Land Bank reserved an undivided one-half interest in the minerals for a period of twenty years. `Every estate which must expire at a period certain and prefixed, by whatever words created, is an estate for years.' 2 Blackstone, Commentaries on the Common Law, 143, quoted in Ralston Steel Car Company v. Annie M. Ralston, [112 Ohio St. 306], 147 N.E. 513, 516, 39 ALR. 334, 338 (1925). The interest reserved by the Federal Land Bank is an estate for years. An estate for years is not a free-hold interest. King v. White, 499 P.2d 585. (Wyo. 1972). Since the Federal Land Bank reserved only an estate for years in 50% of the minerals, seizen to 100% of the minerals had to be vested in someone at the time of the conveyance from the Federal Land Bank to Maurice Williams. Because a term interest is not a freehold interest, the minerals could not have been vested in the Federal Land Bank. All of the mineral rights were vested in Maurice Williams. Maurice Williams had a present vested interest in 100% of the minerals, subject to a twenty-year estate for years in 50% of the minerals reserved by the Federal Land Bank. See Bergin and Haskel, Preface to Estates and Land and Future Interest, p. 41 (Foundation Press 1966). Maurice Williams owned the entire mineral estate. He owned 50% of the minerals in fee simple absolute, and 50% of the minerals in fee subject to an estate for years. On April 10, 1960, when the term of years held by the Federal Land Bank expired, Maurice Williams became owner in fee simple absolute of 100% of the minerals in the subject lands. The exception in the Land Bank's grant to Williams did not describe an estate for years and, during the life of the contingency, a determinable fee interest in the minerals did in fact reside in the Land Bank and the fee estate was not held by Williams. The term of the contingency was not definite as the appellee contends. Had there been production within the base period, the Federal Land Bank's right to save, keep and dispose of its one-half of the disputed minerals would have continued for such a period of time as could only be considered to be beyond ascertainment when either of the deeds with which this appeal is concerned is executed and delivered. The appellant was therefore in error in making the assumption that the contingency was for a term of years and that for this reason fee title to 100% of the minerals was in Williams at all times following the grant from the Federal Land Bank. As we have previously noted, this court has on other occasions inquired into the status of an oil and gas lease which conveys such a mineral interest to its lessee as that which is retained by a grantor who excepts minerals from a grant by deed. In Torgeson v. Connelly, Wyo., 348 P.2d 63, 68-69 (1959), where the court was concerned with an oil and gas operating agreement with a primary term of 20 years and `   so long thereafter as oil and gas and hydrocarbon substances are produced in commercial quantities,' the agreement undertook to grant the exclusive right to drill in accord with a federal lease. The court was of the opinion that    it in effect conveys a portion of the lease or the rights thereunder and constitutes real property. We held in Torgeson, supra, that leases for a limited term are personalty, while leases for an indefinite period are realty. In that same opinion we said, in referring to our holding in Denver Joint Stock Land Bank of Denver v. Dixon, supra:    We noted Dutton v. Interstate Investment Corporation, Cal. App., [19 Cal.2d 65], 113 P.2d 492 and Arrington v. United Royalty Co., 188 Ark. 270, 65 S.W.2d 36, 90 A.L.R. 765, as holding that leases for a limited term of years had been held to be personalty    348 P.2d at 68, but that    [t]he Dutton and Arrington cases both held that leases for an indefinite term had been considered to be realty, the latter indicating that the term of the lease is indefinite if the contract provided `and so long as oil and gas is produced.'  (Emphasis added.) 348 P.2d at 69. It was said in Arrington v. United Royalty Co., 188 Ark. 270, 65 S.W.2d 36, 38, 90 A.L.R. 765 (1933):    It seems, also, that whether the royalty, when severed from the reversion, is to be deemed real or personal property, depends upon the duration of the lease. If the oil and gas lease is for a term of years expiring at a certain time, it is a chattel real, and the severed royalty would be personal property; but, where the lease may endure for an indeterminate period, it creates an estate in the nature of a qualified fee, and the royalty reserved would be an interest in realty.  We have held that leases given for a definite period in which exploration and discovery of the mineral might be made, to continue as long thereafter as oil and gas is produced conveys not merely a license but an interest and easement in the land itself. Standard Oil Co. v. Oil Well Salvage Co., 170 Ark. 729, 281 S.W. 360; Clark v. Dennis, 172 Ark. 1096, 291 S.W. 807; Henry v. Gulf Refining Co., 176 Ark. 133, 2 S.W.(2d) 687; and Henry v. Gulf Refining Co., 179 Ark. 138, 15 S.W.(2d) 979. (Emphasis added.) Accordingly, the exception for 20 years and as long thereafter as oil, gas or other minerals continue to be produced therefrom constituted a real-property interest in the Land Bank. There is no doubt but that such an exception as that contained in the Land Bank's deed is acceptable to real property and to mineral and oil and gas law. The estate structured by such an exception is a base or determinable fee which is defeasible at the end of the base term or  in the event production is attained  when production ceases. The Restatement of the Law of Property calls it an estate in fee simple determinable. Restatement of the Law of Property § 44, p. 121.    [A] `determinable,' `qualified,' or `base' fee is an estate limited to a person and his heirs, with a qualification annexed to it providing that such estate must determine whenever that qualification is at an end. Because the estate may last forever, it is a fee; and because it may end on the happening of an event, it is called a `determinable or qualified fee.' 28 Am.Jur.2d Estates § 22. It was said in United States v. Union Pacific Railroad Company, 230 F.2d 690, 694 (1956), rev'd on unrelated grounds: Generally the terms `limited', `determinable', `qualified', or `base' fee, as applied to the title of real estate, are used synonymously. Because of the possibility that it may endure forever, the owner of such an estate, so long as it exists, even though title may revert upon the happening of a condition, has the same rights as an owner in fee simple and may remove underlying minerals. 19 Am.Jur., Estates, Secs. 28, 30, 31; 31 C.J.S., Estates, §§ 9, 10; Restatement of Property, Sec. 193, Comment (h); United States v. Illinois Central R. Co. [D.C., 89 F. Supp. 17], supra; Frensley v. White, 208 Okl. 209, 254 P.2d 982; Davis v. Skipper, 125 Tex. 364, 83 S.W.2d 318; Johnson Irrigation Co. v. Ivory, 46 Wyo. 221, 24 P.2d 1053; D.C., 126 F.Supp 646. The existence of an estate in fee simple determinable requires the presence of special limitations. Restatement of the Law of Property, § 44, p. 121. The term special limitation denotes that part of the language of a conveyance which causes the created interest automatically to expire upon the occurrence of a stated event. Restatement of the Law of Property, § 23, p. 55. An estate in fee simple determinable may be created so as to be defeasible upon the occurrence of an event which is not certain ever to occur. Restatement of the Law of Property, § 44, p. 125. As we have seen, we approved the Arrington v. United Royalty rule in Denver Joint Stock Land Bank of Denver, supra, where the Arrington court said:    [W]here the lease may endure for an indeterminate period it creates an estate in the nature of a qualified fee  . 65 S.W.2d at 38. Chapter 4 of the Restatement of the Law of Property, pp. 117-118, provides: Introductory Note: An estate in fee simple defeasible is defined as an estate in fee simple which is subject to a special limitation, a condition subsequent, an executory limitation or a combination of these restrictions. The estate in fee simple subject to a special limitation is also designated as an `estate in fee simple determinable.' It expires in accordance with its terms. It ends automatically upon the occurrence of the event stipulated in its limitation. In Baker v. Hugoton Production Company, 182 Kan. 210, 320 P.2d 772 (1958), the grant of a mineral interest from A to B carried the proviso that it was to be held by B for a term of twenty years and as long thereafter as oil, gas or either of them, are being produced from said land. The court held that the instrument grants    a base or determinable fee in the oil, gas and other minerals in place  . 320 P.2d at 774. In Wilson v. Holm, 164 Kan. 229, 188 P.2d 899, 904 (1948), it was said:    [I]t should be stated that in this state a deed, conveying oil and gas in place for a fixed term of years and so long thereafter as either or both are produced in paying quantities, creates a base or determinable fee and that title to the estate so created vests immediately upon the execution and delivery of such an instrument but remains defeasible in the event of cessation of production, [citing a Kansas case]. In the case at bar, the Land Bank's exception carried no restriction as to use  only a condition which made it subject to the possibility of defeasance. It was, therefore, a determinable qualified or base fee.