Opinion ID: 2605808
Heading Depth: 1
Heading Rank: 6

Heading: holding oil royalties

Text: The best statement of the law currently with respect to the rights of owners of successive legal interest in the mineral lands can be found in Scott on Trusts, Vol. III, § 239.3. There it is stated:    Where the owner of such land creates a legal life estate in one person and a remainder in another, and it is not otherwise provided by the terms of the instrument by which the successive estates are created, it is held that if mines were opened prior to the creation of the estates the life tenant is entitled to continue to work the mines and to take the proceeds as his own without deduction for depletion. On the other hand, where no mines were opened prior to the creation of the estates, neither the life tenant nor the remainderman is entitled to open the mines without the consent of the other. If the life tenant does open mines, the proceeds will be treated as principal.    (Footnotes omitted.) Here, the oil wells were producing before Mr. Burdick's death.    The classification of    royalty as income or principal turns on the question whether the    well from which the same is derived was an open well in fact or in contemplation of law at the time of the death of the owner of the preceding estate. If a mine or well is open when the life tenant comes into possession, he may work such mine or well to exhaustion unless precluded by the instrument creating the life estate. The income from such well goes to the life tenant and not the remainderman.    Mairs v. Central Trust Co., 1945, 127 W. Va. 795, 34 S.E.2d 742. Elsewhere it has been stated: By the later common law, life estates, whether conventional or arising by operation of law, were impeachable for waste, unless the instrument creating a conventional life estate expressed a contrary intention. Under this rule, a life tenant was not permitted to open new mines.    It has, however, long been the law that where mines were opened or the leases executed before the life estate commenced, the owner of the life estate might, in the absence of restraining words, work the mines, even to the point of exhaustion, and take the profits.    Poole v. Union Trust Co., 1916, 191 Mich. 162, 157 N.W. 430. It has also been held: `When property is granted, all that is necessary to the enjoyment of the grant is impliedly granted as incident to the express grant, and the same rule of construction applies to an exception in a grant.'    It is settled law that tenants for life or years are entitled to work mines, quarries, clay pits, or gravel beds which had been opened and used before the time of the commencement of the particular estate.    This rule is founded upon the principle that the holder is entitled to use and enjoy the land according to the previous and accustomed method. The opening of new mines would be waste, but the working of the old ones is a simple continuation of the use of the land made by the owner.    Waldorf v. Elkhart & W.R. Co., 1895, 13 Ind. App. 134, 41 N.E. 396. The purpose of the so-called open mine rule is to try and match testator's intent. Presumably where she/he has been receiving oil royalty payments she/he considers them to be income. Thus, absent some words of limitation in instrument creating a trust, it is assumed that testator intended the life tenant to enjoy the property in the same fashion and to the same extent it had been enjoyed by the testator. Spangler v. Carlisle, 1976, 70 Mich. App. 288, 245 N.W.2d 720; In re Bruner's Will, 1950, 363 Pa. 552, 70 A.2d 222. In the present case, no words of restriction appear in the will creating the testamentary trust. Thus, Margaret Hewlett was entitled to enjoy the royalty interests in the same manner that they had been enjoyed by her father. As a result she was able to take the royalty payments and treat them as income. The Uniform Principal and Income Act does not dictate a different result. As stated in § 34-18-109(b), W.S. 1977: (b) If a trustee, on the effective date of this act, held an item of depletable property of a type specified in this section he shall allocate receipts from the property in the manner used before the effective date of this act, but as to all depletable property acquired after the effective date of this act by an existing or new trust, the method of allocation provided herein shall be used. Thus, by its own terms, this trust was exempted from coverage since the corpus was acquired nearly forty years before the act. Affirmed.