Court Opinion

ID: 9552339
Source: CourtListenerOpinion
Date Created: 2023-08-07 19:09:02.558802+00
Date Added: 2024-06-11T15:26:08.738474
License: Public Domain

Herd, J.,
dissenting: The majority opinion relies entirely on the rationale of Lathrop v. Eyestone, 170 Kan. 419, 227 P.2d 136 (1951), for the resolution of this controversy. I must respectfully take issue with the reasoning. The facts herein are clearly distinguishable from Lathrop. In Lathrop the two instruments determined to be royalty conveyances both purported to sell and convey a fractional interest in a certain existing oil and gas lease and to convey the same fractional interest in the oil and gas royalty from future leases. The conveyances were conditioned upon such future leases. For emphasis I repeat the court’s statement in Lathrop:
“We need not determine whether these instruments, or any of them, were intended to be binding on subsequent fee title owners. If such was the intention when would the grant of such future interests vest? Appellant or future fee owners might never execute another lease. There is nothing in any of the instruments which imposes a duty on them to do so. Under the last two instruments, at least, the fee title owner would not be precluded from doing his own developing. [Citations omitted.] Moreover there is no limitation of time within which a future lease would be required to be executed, if one were actually executed. It is, therefore, wholly problematical when, if ever, such an interest under future leases would vest. Such a grant violates the rule against perpetuities, a rule against too remote vesting.” 170 Kan. at 428.
Let us now turn to the wording of the instrument out of which this controversy arose:
“[D]o by these presents sell, assign and agree to deliver unto said party of the second part, his heirs and assigns, one-half (%) of the royalty in Oil and Gas produced upon the following described land, to-wit:
The East Half of Section twenty-two (22), in Township thirty-three (33), Range thirty-four (34), in Seward County, Kansas, containing 320 acres, more or less, according to the Government survey thereof;
and that this contract conveys to the second party, said royalty, whether paid in cash by the company now holding the oil and gas lease on said premises, as provided in such lease, or of any royalties to become due and owing by reason of any future oil or gas leases executed and delivered by the said first parties or their assigns; and that this contract further binds said first parties, their heirs or assigns, to deliver to the second party one-half of all royalties to become due and owing to said first parties, their heirs or assigns by reason of any production of oil or gas produced upon said premises.
*722“The said first parties hereby bind themselves, their heirs and assigns, unto said second party, to promptly deliver to said second party his one-half of said royalties immediately upon receipt of said royalty by the said first parties, in the event said royalties are paid to said first parties, and the present lessee, and the lessees of any future leases upon said premises are hereby authorized and directed to pay direct to said second party, his one-half of any and all royalties becoming due first parties by virtue of any oil or gas lease.”
In my opinion, the instant instrument is clearly distinguishable from those in Lathrop v. Eyestone. It does not make the conveyance dependent upon leases, present or future. It merely instructs the lessees to pay royalty to Stewart and his heirs. It provides that the Akers are selling one-half (Ms) their royalty under the half section to Stewart now. There is no delay. The conveyance is not contingent upon leasing as a condition precedent. It is the sale of a present interest and vests immediately. The rule against perpetuities applies only to future interests.
Lathrop v. Eyestone was written to apply narrowly to sales of a future interest dependent upon a condition precedent to vesting. The majority opinion extends the rule against perpetuities to all sales of oil and gas royalty in Kansas which extend beyond twenty-one years regardless of the wording of the instrument of conveyance. Until now this court has been unwilling to take such a step; for example, in Froelich v. United Royalty Co., 178 Kan. 503, 290 P.2d 93 (1955), modified on reh., 179 Kan. 652, 297 P.2d 1106 (1956), decided subsequent to Lathrop, we held a conveyance comparable to the one we are concerned with to be exempt from the rule against perpetuities because “the interest vested immediately.” 178 Kan. at 509.
Our ruling in Lathrop is peculiar to Kansas. The case has been the subject of numerous commentaries by oil and gas authorities. 3 A Summers, Oil and Gas § 576, pp. 31-32, notes our subsequent inconsistent holdings:
“From this decision it may seem that a perpetual nonparticipating royalty interest cannot be validly created in Kansas. There are other decisions, however, which indicate the contrary. In Miller v. Sooy, [120 Kan. 81, 242 Pac. 140 (1926)] where a deed conveyed royalties under future leases to be executed by the grantor, the royalty was valid. In Hickey v. Dirks, [156 Kan. 326, 133 P.2d 107 (1943)] a royalty interest was held to survive an existing lease and continue for the producing life of the property. In Davis v. Hurst, where a grant of land reserved one-half of the oil and gas royalties to the grantor and the grantee later leased the land for oil and gas, the grantor was not entitled to share in the delay rental and cash bonus paid under this lease but was entitled to one-half of the oil and gas royalties reserved therein.”
*7231 Kuntz, Oil & Gas § 17.3, pp. 392-93, contains a brief comparison of the rule in Lathrop v. Eyestone to other states’ handling of the problem:
“In Kansas, an assignment of a right to receive royalties is treated as a valid covenant to pay royalties which are payable to a lessor by a lessee under a lease. If the assignment relates to royalties payable under a present lease, or if the instrument is construed to relate only to leases executed by the grantor of the royalty interest, the grant of such an interest is valid. If, however, the grant purports to be perpetual in duration and relates to all leases granted in the future, it is invalid as a violation of the rule against perpetuities. Such position was presented to the court in Arkansas and was repudiated. In Arkansas, the court examined the question thoroughly and concluded that the non-participating royalty interest is a vested interest in real property and does not violate the rule against perpetuities. In other jurisdictions with decisions on the subject, with the possible exception of Colorado, the non-participating royalty interest is recognized as a vested interest in the minerals, and undoubtedly such interest does not violate the rule against perpetuities unless vesting is postponed beyond the perpetuity period by the terms of the grant.”
Later cases reaching the same result as the Arkansas court in Hanson v. Ware, 224 Ark. 430, 274 S.W.2d 359 (1955), include Price v. Atlantic Refining Company, 79 N.M. 629, 447 P.2d 509 (1968), and McGinnis v. McGinnis, 391 P.2d 927 (Wyo. 1964).
By far the most intensive analysis of Lathrop v. Eyestone, and issues involved therein is contained in 2 Williams & Meyers, Oil & Gas Law § 323, pp. 13-15. After stating Lathrop is not “distinguished by clarity in either the statement of the case or the explanation of the result” the after-effects of that decision are examined:
“In short, the case holds that perpetual non-participating royalty and non-executive mineral interests cannot be created in Kansas. An instrument purporting to create an interest in future bonus, rental or royalty, unlimited in time, is virtually worthless in that state under this decision. ... It seems that Kansas will permit a thereafter clause to be inserted in the deed to preserve the interest after the expiration of the period in gross, but such a clause operates only if there is production. Thus a grant of a one-sixteenth royalty for fifteen years and so long thereafter as oil and gas is produced creates a valid interest, terminable in fifteen years if there is no production on the land at that time, or if there is, when production ceases. While some persons are willing to take such interests, the risks involved will impel many persons to demand a fully participating fraction of the mineral estate, with the result that large areas of mineral land in Kansas are likely to be held by tenancy in common. . . . [I]t is doubtful that the policy of the Rule against Perpetuities is served by encouraging the division of minerals into small shares held in common.”
*724The inconsistency of the Lathrop rule with the treatment afforded similar interests is noted in 2 Williams & Meyers, Oil & Gas Law § 324.4, pp. 59-60:
“The grant or reservation of a perpetual non-participating royalty creates a right-duty with respect to oil or gas produced at any time from the land, whether by a lessee or by the executive. That production is uncertain and may never occur should not defeat the interest. The royalty created by a long-term oil and gas lease has never been thought to offend the Rule against Perpetuities, though subject to precisely the same contingency; namely, the discovery and production of oil or gas. The reservation as rent of a share of crops in a long-term lease for years has never been held to violate the Rule, although the growing and harvesting of the crops is subject to uncertainty. ... To hold perpetual royalty to be too remote is to confuse the value of the right with the right itself. From the time the executive delivers or accepts the deed, he is bound to account to the non-executive for a fraction of the oil; the duty may not be onerous for there may never be any oil; but the lack of production does not remove the duty.”
Finally, Williams & Meyers point out the contradictions in the Kansas court’s application of the rule against perpetuities at § 323, pp. 15-16:
“It is an odd fact that in Kansas the perpetuities attack has succeeded only with respect to royalty and non-executive mineral interests. In Kenoyer v. Magnolia Petroleum Co. [173 Kan. 183, 245 P.2d 176 (1952)] a 640-acre gas pooling clause, in typical form, was held not to violate the Rule against Perpetuities. Lathrop v. Eyestone was not cited. In Howell v. Cooperative Refinery Association [176 Kan. 572, 271 P.2d 271 (1954)] a reservation of an overriding royalty in an assignment of an oil and gas lease was expressly made applicable to any extension or renewal of the lease. The court rejected the argument that provision for payment of overriding royalties out of lease extensions or renewals violated the Rule against Perpetuities. Again Lathrop v. Eyestone was not cited. Of course, factual distinctions exist between Lathrop and the two subsequent cases. Nonetheless, the refusal to apply the Rule to situations where it could, conceptually, have been applied raises a doubt regarding the continued authority of the Lathrop decision.”
Although these cases, along with Froelich v. United Royalty Company, call into question the continued authority of Lathrop, until it is reversed sales of royalty will remain questionable in Kansas.
The rule against perpetuities is, of course, a restraint on the right to create future interests. It is aimed at the unreasonable continuance of indirect restraints on alienation. (See 70 C.J.S., Perpetuities § 2, at p. 574.) In my opinion a conveyance of future royalties does not violate the spirit of the rule. An excerpt from the Arkansas case of Hanson v. Ware, 224 Ark. 430, approves the reasoning behind this position:
*725“It has been demonstrated in some detail that the policy underlying the rule against perpetuities presents no obstacle to the creation of a nonparticipating royalty, for the device actually tends to promote rather than to inhibit the leasing of the minerals. Meyers, The Effect of the Rule Against Perpetuities on Perpetual Non-Participating Royalty and Kindred Interests, 32 Tex. L. Rev. 369.
“We are decidedly of the opinion that the rule against perpetuities was not violated by the conveyance to these appellees, for the reason that they acquired a present interest rather than a future interest in the land. To treat the appellees’ royalty as a future interest involves a failure to distinguish between their estate in real property, which is an abstract legal conception, and the likelihood of their ultimately receiving a share in the production of oil and gas, which is purely a practical matter.
“. . . The appellees’ estate was doubtless speculative in value, but the uncertainty stemmed from a fundamentally different reason from that which makes an ordinary contingent remainder an estate of doubtful worth. In the latter case the physical property is known to exist; the uncertainty is whether the contingent remainderman or some third person will eventually acquire the absolute ownership. Here, however, no third person is involved. The appellees’ title being complete, the doubt is occasioned not by the possibility that someone else may acquire the property but by the possibility that there may in fact be no oil and gas within the land. In short, the typical contingent remainderman has an uncertain interest in the fee simple, while these appellees have a fee simple interest in the uncertain. ” (Emphasis added.) 224 Ark. at 435-36.
The trial court should be reversed and judgment entered for the defendants. The Akers and Stewart entered into a contract in 1918 for valuable consideration. Their successors have treated the contract as binding for a period of 64 years. The subsequent purchaser, Young, relied on the contract and purchased the interest. In light of the inconsistencies of this court’s rulings, the distinguishability of Lathrop from the facts herein, and the history of the contract, he was justified in relying on the contract.
In theory, I would reverse Lathrop v. Eyestone and make Kansas law conform to the better rule of Hanson v. Ware. But we need not go that far to reverse the trial court. This can be accomplished without strain by distinguishing Lathrop and using Froelich as authority.