Court Opinion

ID: 9593792
Source: CourtListenerOpinion
Date Created: 2023-08-22 00:24:56.233641+00
Date Added: 2024-06-11T13:02:17.119590
License: Public Domain

SUMMERS, Justice,
dissenting opinion on rehearing.
I respectfully dissent. Application of the Surface Damages Act (52 O.S.Supp.1982 § 318.2-318.9 to the lease in this case (which had been executed prior to effective date of the Act) would impair contractual rights established by that lease. Because the legislature in the Act expressed that “Nothing herein contained shall be construed to impair existing contractual rights-”, 52 O.S.Supp.1982 § 318.7, I would not hold the Act applicable in this case.
The trial court instructed the jury that even though the operator had a right to use so much of the surface as was reasonably necessary for its operations, the operator was required to pay the surface owner for damage to the land used. The jury was instructed that diminution in the market value of Cloud’s property due to the drilling operations was the proper standard for determining such damages. Such instruction properly states the law under the present Surface Damages Act, but is an incorrect statement if the parties’ rights are governed by an agreement that pre-dat-ed the Act. Cities Service Oil Co. v. Dacus, 325 P.2d 1035 (1958).
The operator in contending that application of the Surface Damages Act and mea*1354suring damages by the diminution in the market value of the land was improper, points out that the right to reasonable use of the surface under the lease included the right to such use without payment of damages. It contends that the application of the Surface Damages Act to leases executed prior to the effective date of the Act is a retroactive impairment of an obligation of contract prohibited by the Okla. Const. Art. II, § 15 and the U.S. Constitution, Art. I, § 10.
The “right” at issue arises from the obligations created by the lease. Specifically, it is the lessee’s right to reasonable use of the surface estate. In describing an oil and gas lease we have said:
“In other words, it was a grant of the exclusive right, for the time specified, to take all the oil and gas that could be found by drilling wells upon the particular tract of land, with the accompanying incidental right to occupy so much of the surface as required to do those things necessary to the discovery of and for the enjoyment of the principal right so to take oil or gas,” Rich v. Doneghey, 71 Okl. 204, 177 P. 86, 89-90 (1918)
The oil and gas lease grants a present vested interest in the land of the grantor. Rich v. Doneghey, 177 P. at 89. A part of this vested interest is the lessee’s right to use the surface estate. Anschutz Corp. v. Sanders, 734 P.2d 1290, 1291 (Okl.1987); Ricks Exploration v. Oklahoma Water Resources Board, 695 P.2d 498, 503 (Okl.1984). The surface estate is servient to the estate created by the oil and gas lease for purposes of the lease. Wellsville Oil Co. v. Carver, 242 P.2d 151, 154 (Okl.1952). However, the lessee’s right to use the surface estate is not without restriction. The lessee is only entitled to the use of the surface estate reasonably necessary for exploration and production of oil and gas. Lanahan v. Meyers, 389 P.2d 92, 93 (Okl.1963).
The majority holds that an operator’s reasonable use of the surface estate is a common law defense to an action for damages to the surface estate. Language is found in Pulaski Oil Co. v. Connor, 62 Okl. 211, 162 P. 464, 466 (1916), which describes the reasonable use of the surface estate as an “affirmative defense.” The argument then adopted is that the Legislature may abolish the defense of reasonable use of the surface estate because vested rights are not created by affirmative defenses or rules of common law. However, characterizing the lessee’s interest as an affirmative defense does not define that interest. The characterization merely indicates the procedure for judicial recognition of the interest so as to bar a surface owner’s claim for damages to the surface estate.
Affirmative defenses may represent a variety of legally cognizable interests. For example, the affirmative defense of a true or ordinary statute of limitations is a matter of legislative grace and no vested right to a particular statute of limitations exists until a claim is barred by the statute which governs it. Trinity Broadcasting Corp. v. Leeco Oil Co., 692 P.2d 1364 (Okl.1984). However, an affirmative defense such as an accord and satisfaction expresses a contractual right. Continental Gin Co. v. Arnold, 52 Okl. 569, 153 P. 160 (1915). Contractual rights receive some protection from legislative infringement by the Oklahoma Constitution, specifically Okla. Const. Art. II, § 15: “No ... law impairing the obligation of contracts ... shall ever be passed.” Classifying the operator’s right to reasonable use of the surface estate as a defense does not address the issue of determining that degree of legislative infringement which may be constitutionally permissible. Additionally, classifying the operator's right to reasonable use of the surface estate as an affirmative defense is not in accord with pronouncements of this Court more recent than Pulaski Oil Co. v. Connor, supra.
The burden of proof of an affirmative defense is on the party asserting the defense. Pacific Ins. Co. of N. Y. v. Frank, 452 P.2d 794 (Okl.1969). But we have held *1355that reasonable nse of the surface estate by the operator is not a defense to be pled and then proved by the operator; rather that the surface owner must plead and prove that the operator’s use was unreasonable. In Davon Drilling Co. v. Ginder, 467 P.2d 470 (Okl.1970), we stated:
“[P]laintiff’s only recourse would have been to establish injury resulting from defendant’s unreasonable operations. Magnolia Petroleum Co. v. Howard, 182 Okl. 101, 77 P.2d 18. The burden of \proving unreasonableness, that defendant [lessee operator] used more of the surface than necessary, would have been upon plaintiff [surface owner].” Id. 467 P.2d at 473. (Explanations and emphasis Added).
See also Cities Service Oil Co. v. Dacus, supra. The cause of action for unreasonable use must be pled and proved by the plaintiff/surface owner, a view inconsistent with classifying the operator’s reasonable use of the surface as a defense.
The rights granted by an oil and gas lease are contractual and the lease constitutes the contract. Indian Territory Illuminating Oil Co., v. Rosamond, 190 Okl. 46, 120 P.2d 349, 353 (Okl.1941). See also, Ricks Exploration v. Oklahoma Water Resources Board, 695 P.2d 498, 503-504 (Okl.1984), which held that contractual rights created by an oil and gas lease are “vested rights” and protected from legislative invasion by Art. 5, § 52 and § 54 of the Oklahoma Constitution. The issue presented is whether the operator’s interest in the reasonable use of the surface estate is a contractual right.
The operator’s right to use the surface was derived from the “implications” of the oil and gas lease. Pulaski Oil Co. v. Connor, 62 Okl. 211, 162 P. 464, 466 (1916), citing Gulf Pipe Line Co. v. Pawnee-Tulsa Petroleum Co., 34 Okl. 775, 127 P. 252 (1912). In Indian Territory Illuminating Oil Co. v. Rosamond, 120 P.2d at 353-54, the Court stated the following:
“In the leading case of Brewster v. Lanyon Zinc. Co., 8 Cir. 140 F. 801, 811, 72 C.C.A. 213, it was said:
‘Whatever is necessary to the accomplishment of that which is expressly contracted to be done is part and parcel of the contract, though not specified. * * * The question is essentially one of intention. * * * A covenant arising by necessary implication is as much a part of the contract — is as effectually one of its terms — as if it had been plainly expressed.’ We have held that such covenants arise ‘be necessary implication from the nature of the lease and other stipulations therein contained.’ Indiana Oil, Gas and Development Co. v. McCrory, 42 Okl. 136, 140 P. 610.” Id. “In Acme Oil & Mining Co. v. Williams, 140 Cal. 681, 74 P. 296, 297, it is said that the implied covenant for diligent operation ‘stands upon the same footing as if it was expressly contained therein.’ ” Id. 120 P. at 354.
“That such covenants are part of the lease, embodied therein in order to carry out the evident intention of the contracting parties seems reasonably well settled.” Id.
The court then found that the implied covenant to protect against drainage “is a part of the written lease as fully as if it had been expressly contained therein.” Id. Cf. Rogers v. Heston Oil Co., 735 P.2d 542, 546 (Okl.1984) which held the implied covenant to protect from drainage is implied in fact “to carry out what the parties must have intended which the courts read into the lease as an integral part thereof.” In Anschutz Corp. v. Sanders, 734 P.2d 1290 (Okl.1987), we quoted with approval the following:
“An oil and gas lease, either by express grant or by implication, carries the right to surface possession so far as necessarily incident to perform the obligations imposed by the lease. Summer’s Oil and Gas (Per Ed.) § 652; Pulaski Oil Co. v. Connor, 62 Okl. 211, 162 P. 464; L.R.A. 1917, C, 1190. Basis of the Rule rests upon the principle that when a thing is granted all means to obtain it and all fruits and effects likewise are granted....” Id. 734 P.2d at 1291.
*1356The implied covenant to reasonable use of the surface estate is thus “a part of the written lease as fully as if it had been expressly contained therein”. Indian Territory Oil Co. v. Rosamond, supra, and Anschutz Corp. v. Sanders, supra.
The operator had a right to use the surface estate, and if the use was reasonably necessary for the production of oil and gas the surface owner was not entitled to compensation. Cities Service Oil Co. v. Dacus, supra. If the operator’s use of the surface was unreasonable then the surface owner would have a cause of action against the operator for such wrongful conduct. Wilcox Oil Co. v. Lawson, 341 P.2d 591, 594 (Okl.1959). Thus, the exercise of the right to reasonable use of the surface did not impose any liability for damages on the operator.
I would find that application of the Surface Damages Act to leases executed prior to the effective date of the Act does impair a contractual right. The Act requires the operator to bargain with the surface owner for what was recognized as an operator’s contractual right to reasonable use of the surface estate without the payment of damages. Cf. Ricks Exploration v. Oklahoma Water Resources Board, 695 P.2d 498, 504 (Okl.1984), where the Board “placed the mineral owner in the position of having to bargain with the surface owner for what is recognized as his common law right of free access to reasonable use of groundwater for oil and gas purposes” and the Court refused “to conclude that the Act [82 O.S. 1981 § 1020.11(D)] operates to alter private common law rights of the mineral owner”.
A finding of statutory impairment of contractual obligations is of itself insufficient to hold that the statute violates the state or federal Contracts Clause. A state may in some cases exercise its police power and properly alter existing contractual obligations. Anderson-Prichard Oil Corp. v. Corporation Commission, 241 P.2d 363 (Okl.1951), appeal dismissed, 342 U.S. 938, 72 S.Ct. 562, 96 L.Ed. 698 (1952). That police power is, of course, subject to certain limits by the Contracts Clause. Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 242, 244 N. 15, 98 S.Ct. 2716, 2721, 2722 n. 15, 57 L.Ed.2d 727 (1978). However, further analysis of the Contracts Clause or Oklahoma Constitution Art. II, § 15 is not necessary here. That is because the Legislature stated that the Surface Damages Act should not impair existing contractual rights. 52 O.S.Supp.1982 § 318.7 provides in part:
“Nothing herein contained shall be construed to impair existing contractual rights nor shall it prohibit parties from contracting to establish correlative rights on the subject matter of the act. Id. (emphasis added)
The operator’s right to reasonable use of the surface estate without payment for the exercise thereof was an “existing contractual right” by reason of the lease executed prior to the effective date of the Surface Damages Act. The contractual right arises from an implied covenant and as such it is treated as if fully expressed in the written lease. Thus, no distinction may be drawn for enforcement purposes between provisions fully expressed and those implied but treated as if fully expressed. The operator had a statutory right to not have the Act applied to the lease in question. Id. In summary: 1. Application of the Act to leases executed prior to the Act impairs contractual rights; 2. The Act provides that it shall not be construed to impair contractual rights; and therefore, 3. The Act does not apply to leases in existence prior to its effective date. The judgment on the jury verdict should be vacated.
Although the Act should not be held applicable the parties have nonetheless invoked the trial court’s subject matter jurisdiction to determine damages, if any, to Cloud’s surface ownership. This court may reverse a judgment, remand a case for further proceedings, and direct the recasting of pleadings in order that justice may be done. Johnston v. Dill, 179 Okl. 32, 64 P.2d 329 (1937). I would remand and direct *1357the trial court to permit the parties to amend their pleadings in order to frame the issues ripe for resolution of this controversy without resort to the Surface Damages Act, and conduct such further proceedings as may be appropriate to that end.
I am authorized to state that Vice Chief Justice OPALA, and Justices HODGES and SIMMS share these views.