Opinion ID: 1998443
Heading Depth: 1
Heading Rank: 1

Heading: Statute of Limitations for Finstrom's Contract and Conversion Claims

Text: Before determining whether the statute of limitations had expired on Finstrom's contract and conversion claims, we must determine what interest Finstrom appears to hold in order to determine when his rights accrued. From the facts as set forth in the record, it appears that Finstrom had a right to royalties under the lease with Jeffers for gravel mined on his land. We have held that an unaccrued oil and gas royalty is an interest in real property. GeoStar Corp. v. Parkway Petroleum, Inc., 495 N.W.2d 61, 67 (N.D.1993). The gravel royalties in the instant case are analogous to petroleum royalties. Compare NDCC § 38-11-01(2) (1987) with NDCC § 38-11.1-03(5) (1987) (recognizing both oil and gas as well as all other valuable inert lifeless substance[s] ... found within the earth as minerals yet promulgating different regulations for their extraction); see also NDCC § 47-10-24 (Supp.1993) (recognizing that when specifically included, gravel is treated like all other minerals). [1] Before severance of the gravel, the unaccrued royalty was an interest in real property. GeoStar Corp., 495 N.W.2d at 67; see also Corbett v. La Bere, 68 N.W.2d 211, 214 (N.D.1955) (stating that royalties in oil and gas, until brought to the surface and reduced to possession are interests in real property). However, once Jeffers had extracted the gravel, Finstrom's royalty interest had accrued. See Black's Law Dictionary, 20-21 (6th ed. 1990) (defining accrue as meaning created, vested or matured). The severance of the gravel marks a change in the nature of any interest therein. [A]n interest or right in accrued oil and gas royalties is personal property.... Corbett, 68 N.W.2d at 214, see also Federal Land Bank of St. Paul v. State, 274 N.W.2d 580, 583 (N.D.1979) (deciding for tax purposes that `produced' or `severed' minerals are personal property, not real estate); NDCC § 41-09-05(1)(h) (Supp. 1993) (defining goods for UCC purposes to include all things which are movable at the time the security interest attaches, and not including minerals or the like (including oil and gas) before extraction) (emphasis added); 58 C.J.S. Mines and Minerals § 213 (1948) (stating that it has usually been held that oil and gas rents and royalties are profits issuing out of the land; and, while they become personal property after they have accrued, until they accrue they are part of the estate remaining in the lessor). Upon severance of the gravel, the royalty interest accrues and becomes a personal property interest. The accrued royalty interest is an enforceable or matured right to payment at some time. The date of payment in the instant case is contractually controlled, and is calculated from the date of the sale of any portion of the severed gravel. The complaint alleges that failure to pay at the specified time constitutes a breach of the contract and forms the basis for this cause of action. The complaint also alleges that conversion occurs when there is an improper refusal to pay. This again is directly related to the sale of the severed gravel. In order to calculate the accrual of these actions, the earliest date from which to calculate would be the date of the alleged breach, which appears to have been approximately one month after the first gravel sale. The complaint alleges the first gravel sale did not occur until the summer of 1989. The instant action was commenced October 1, 1992. The shortest statute of limitations considered by the trial court was four years. See NDCC XX-XX-XXX (Supp.1993). Even applying this statute of limitations, Finstrom's claims would survive.