Court Opinion

ID: 9774461
Source: CourtListenerOpinion
Date Created: 2023-08-29 18:21:24.898754+00
Date Added: 2024-06-11T09:08:31.420265
License: Public Domain

OPINION ON PETITION TO REHEAR
LEWIS, Judge.
Defendant has filed a petition to rehear suggesting that the opinion of this Court failed to consider two aspects of a nonparticipating royalty (NPR) as urged by the defendant: (1) that an NPR is a cost-free royalty and, as such, is properly payable only by a cost-free fractional share of production or the fair market value equivalent thereof; and not by a strict money royalty based on a dollar per unit of production calculation; and (2) that the language of the Campbell reservation, as well as the incidence of an NPR, grants a one-half interest in the total production of the minerals rather than the royalties paid for the extraction of the minerals.
For its first point, defendant relies on the definition of NPR in 54 Am.Jur. Mines and Minerals § 135:
A “nonparticipating royalty” is an interest in minerals which is nonpossessory, which means that it does not entitle the owner to produce minerals himself, or permit him to join in leases of the mineral estate, but merely entitles him to a certain share of the production under the lease, free of expense of exploration and production.
Defendant has cited two cases in support of this definition. Picard v. Richards, 366 P.2d 119 (Wyo.1960); Mounger v. Pittman, 235 Miss. 85, 108 So.2d 565 (1959).
Nevertheless, we decline to follow this aspect of the precedent from other jurisdictions because it is our opinion that it has no application either to the instant case or to the law of Tennessee generally. The Campbell reservation retains “a one-half (½) interest in royalties received from minerals of every kind and nature whatsoever mined on or removed from the property . ... ” (Emphasis ours.) The quantum and the mode of payment must be determined first by the instrument creating the NPR. Defendant’s “nonparticipating royalty” is therefore defined in terms of whatever “royalty” is paid and however it is paid for the extraction of minerals.
Furthermore, the fraction of production method of payment cannot be universally mandated in the NPR context because the word “mineral” encompasses not only oil and gas but also hard minerals. Murray v. Allred, 100 Tenn. 100, 43 S.W. 355 (1897). While cost-free fractions may be the accepted method of payment for oil and gas royalties, that custom has no place in hard-mineral mining. 3 American Law of Mining § 17.3 (Rocky Mountain Mineral Law Foundation 1981). Finally, although the NPR constitutes an interest in the underlying mineral estate, the executive owner controls the disposition of that interest pursuant to the fiduciary duty outlined in the opinion of this Court.
In its second point, defendant urges that the word “royalty” in the Campbell reservation be defined as “the right to share in production on severance” or as a “fractional interest in production of minerals” which *417definitions are among several found in 2 Thompson on Real Estate § 179 (1980).
We are of the opinion that neither the facts nor the law support this contention. The language of the Campbell reservation does not reflect such intent. Furthermore, defendant’s argument in this regard has heretofore been considered by the Court and rejected. Defendant takes one-half of whatever royalty is paid however it is paid for the extraction of minerals from the property by the executive owner or another.
The petition to rehear is denied at the cost of defendant.
TODD, P.J. (M.S.), and CANTRELL, J., concur.