Opinion ID: 1819129
Heading Depth: 1
Heading Rank: 3

Heading: Contract For Deed

Text: The trial court held that under the contract for deed the Carvers are not entitled to demand all damages to the ranch at arbitration. The trial court stated first that the Carvers were not limited to the damages under the lease because the contract for deed provided for damages not limited to the four items listed in the lease. The trial court, however, stated second that the Carvers could not recover all damages to the ranch from Heikkilas' or the lessees' operations on the ranch. The court noted the contract for deed gave the Heikkilas the right to develop their mineral interest. The court then held that principles of oil and gas laws should limit Heikkilas' liability to only those damages caused by activities not reasonably necessary to develop and produce Heikkilas' mineral interest. The trial court stated thirdly that the Carvers could not recover from Heikkilas for damages from activities conducted outside the ranch and which did not produce Heikkila reserved mineral interest. The trial court is correct on the first question. Under the contract, Carvers are not limited to damages to the four items listed in the lease. The contract for deed did not limit the categories of damages that Heikkilas would pay. The trial court erred, however, under the second question. The court is correct when it notes the contract allows Heikkilas to develop their mineral interest. The court is also correct in holding the reasonable use doctrine allows the mineral owner to conduct activities reasonably necessary to develop and produce Heikkilas' reserved mineral interest. The reasonable use doctrine applies to both the lessee and mineral owner. Kuntz, supra, § 3.2. However, the contract provided in paragraph III that ... sellers, heirs, etc., and/or mineral lessee shall pay the amount of physical damage ... The trial court held the terms of the contract contemplated reasonable and necessary use of the land by Heikkilas in developing their reserved mineral interest. We hold the plain language of the contract for deed contemplates payment for damages whether the activity was reasonably necessary or not. Paragraph XV does not affect the meaning of paragraph III. The lessee retained rights to conduct operations on the leased property to develop the Heikkilas' interest and other property in the field. Damages are payable from the lessee to the surface owner only if done to the four items listed in the lease or if the damages were in other areas and were not reasonably necessary. Generally, the reasonable use doctrine also applies to mineral owners. However, the contract for deed created a broader independent right against the Heikkilas, and all physical damage from seller operations become payable by Heikkilas whether the surface use was reasonably necessary or not. Therefore, for example, whether construction of a road is reasonably necessary is not important under the contract for deed. It is only important to determine whether the lessee will be the ultimate payee of the damages. The trial court is correct under the third question. Heikkilas are not liable for damages that occur due to the lessee's development outside the ranch, regardless of whether those activities benefit the Heikkilas' mineral interest. There is no provision in the contract that such off-ranch activities will be considered seller operations. Seller operations include only those activities conducted by the lessee on some part of the ranch itself, and such activities are compensable by Heikkilas. The lessee may be liable for off-ranch activities that cause damages, but liability depends upon the application of general tort law principles or statute.