Court Opinion

ID: 9792061
Source: CourtListenerOpinion
Date Created: 2023-08-31 02:22:32.407576+00
Date Added: 2024-06-11T07:37:36.070286
License: Public Domain

JACKSON, Justice
(dissenting).
' In view of the complicated fact situation involved in this case I think it may be helpful if I make my own statements of the facts, ás I understand them, together with my own statement of the issues and contentions presented herein.
This action was brought in the trial court by Charles B. Dilworth, et ah, for the purpose of quieting their alleged title to the mineral and royalty interests in the NEj4 of Sec. 5, Twp. 28 N, Range 1 East, in Kay County, Oklahoma. Plaintiffs deraign their titles from Charles E. Dilworth, the original patentee of the land in question. All parties proceeding with Charles B. Dilworth, et al., and adverse to the principal defendants will be referred to as plaintiffs.
The record shows that an oil and gas lease was executed on the land in 1913, and gas was discovered and produced thereunder from 1918 until 1951. This lease was released in 1952. Gross production taxes were- paid each year- while, gas production . was being obtained from .this land betw'e.en. 1918 and 1951.
The defendants, Earl and Floyd-(Trenary,, Woodruff, and Gogos, claim the .fee title to said land subject to an oil a.nd gas lea.se, in favor of defendant.Fortier, .et’al/ They. deraign their title from various resale" tax ■ • , "" r nO'Joj. ;o"jq a.:o ■ ■ deeds. ■ , , , , .
-..The-record shows -that during -the tjme. gross- production taxes were-.being .paid on’ the gas production from these premises, between 1918-and 1951,: the. ad valorem, taxes. on most of the property became .delinquent, and -resale tax deeds were issued,.to Hartman and others. Defendants’ .claim of title is based-on these resale deeds. .Itis adnait-ted that the resale" tax deeds were v^lid. Pla-intiffs contend., however.,- that-the .tax deeds did not "convey title to either, the- oil or .gas in place -for the , reason, t4at„tlrpre was production and payment of gross .production taxes on the gas for .each,year, involved in the ad valorem tax sales which, plaintiffs assert, prevented .the ad. valorem taxes from being a lien on the minerals, and that therefore no minerals were conveyed by the tax deeds..
The defendants, Earl and" Floyd. Trcnary, are now the owners of the tax titles, subject to a reservation of one-half of the mineral rights in favor of the defendants, Mar-galee Hartman Gogos and Minnie' Myra Woodruff.
In October 1954, after the 1913 lease was abandoned and released, the above named defendants (owners of the tax titles) executed a new lease in favor of the defendant W. R. Yeager, which was assigned to the defendants, Fortier, Wright and National Cooperative Refinery Association, subject to overrides in favor of other defendants. Six producing oil wells have been obtained under this lease.
The trial court, held that by reason of the production of gas and.payment of gross production taxes thereon the oil and gas were severed for tax purposes so that the tax deeds did not pass title to same. The defendant tax deed purchasers, and their *1100lessees have appealed from this part of the judgment. Plaintiffs appealed from other portions of the judgment, but I will first consider defendants’ appeal.
Defendants admit that a purchaser at a tax sale for delinquent taxes assessed during years of production and payment of gross production taxes takes subject to the rights of the lessee, and all others entitled to participate in the production, to extract the minerals on which gross production taxes have been paid for so long as production continues. They argue, however, that the possibility of reverter, in the event the lease is abandoned, does pass to the purchaser at the tax sale so that after the lease has been abandoned said tax deed purchaser owns all the minerals as an integral part of the land, and has the right to execute a new and valid'lease, and the rights of fornler mineral interest owners are terminated. I cannot agree.
68 O.S.1951 § 821 provides that every person, etc. engaged in the production of certain designated minerals, including oil and gas, shall pay a tax on the gross value of the minerals produced and further provides that the payment of such tax shall be in lieu of all taxes “upon any property rights attached to or inherent in the right to said minerals, * * * upon the mineral rights and privileges for the minerals aforesaid belonging or appertaining to land * * In McNaughton v. Beattie, 181 Okl. 603, 75 P.2d 400, 402, this court held that this provision excluded the minerals which were subject to the exemption from the lien for ad valorem taxes, and therefore no title or right thereto could pass to the purchaser of property for taxes which became delinquent during years in which there was production and payment of gross production taxes on said minerals. In that case we said:
“The ultimate basis of a tax deed is a valid assessment and a lien.' The lien can be no broader than the assessment, and the tax deed can be no broader than the lien. Consequently when the mineral rights are excluded from the assessment of the ad valorem tax because of the payment of the gross production tax, they are excluded from the lien and cannot be conveyed by the tax deed. * *
We have also said in numerous cases that during years of production and payment of the gross production tax, such tax is in lieu of all other taxes on the exempt minerals in place. Boone v. Claxton, Okl., 269 P.2d 980; Meriwether v. Lovett, 166 Okl. 73, 26 P.2d 200. In Knutter v. Smith, Okl., 307 P.2d 137, we held that the production and payment of the tax operated to sever the exempt minerals from the whole estate for the purpose of taxation. In view of the foregoing cases I am of the opinion that as to the exempt minerals no interest therein of any kind or nature passes to the tax deed purchaser, not even the so-called possibility of reverter.
Defendants argue that in all previous cases wherein the prior mineral owners prevailed against the tax deed purchaser, there was continuing production at the time of trial. They contend that we have never heretofore considered the rights of a tax deed purchaser after cessation or abandonment of production. In this defendants are in error. In Knutter v. Smith, supra, the production had ceased on part of the property involved in 1943, prior to trial. The opinion was handed down in 1957. We held that the tax'.deed purchaser who purchased for taxes which became delinquent during years in which gross production taxes were paid acquired no interest in the exempt minerals.
There is some merit in defendants’ argument that certain language in Boone v. Claxton, supra, tends to support their contention, but the interpretation given such language by defendants is clearly in conflict with paragraph 4 of the syllabus in that case.
Defendants next contend that the production and payment of gross production taxes on gas alone did not preserve .any rights in the oil -or other minerals; therefore plaintiffs have no interest in the oil *1101rights or the oil from the six producing oil wells under the 1954 lease. I think this contention is correct.
With reference to tax deeds 68 O.S.1951 § 432f provides:
“ * * * The issuance of such deed * * * shall vest in the grantee an absolute and perfect title in fee simple to said lands; * * (Emphasis supplied.)
The gross production tax act is obviously in conflict with the above mentioned statute to a considerable extent. We are not at liberty to take more from the fee simple title than is absolutely necessary to carry out the purpose and intent of the gross production tax act.
The first paragraph of 68 O.S.1951 § 821, provides that everyone engaged in the production of mining of “lead, zinc, jack, gold, silver or copper, or of petroleum or other crude oil or other mineral oil, natural gas and/or casinghead gas” shall file a return with the Tax Commission showing the location, kind, amount and value of such production and at the same time pay a prescribed tax thereon.
The sixth paragraph provides as follows:
“The payment of the taxes herein imposed shall be in full, and in lieu of all taxes * * * upon any property rights attached to or inherent in the right to said minerals, upon producing leases for the mining of asphalt and ores bearing lead, zinc, jack, gold, silver or copper, or for petroleum or other- crude oil or other mineral oil, or for natural gas and/or casinghead gas, upon the mineral rights and privileges for the minerals aforesaid belonging or appertaining to land, * * * and any interest in the land, other than that herein enumerated, * * * shall be assessed and taxed as other property * ¾: * »
In my opinion the above quoted language is equivocal as to the question of whether the production of one mineral and payment of gross production tax thereon, exempts the other designated minerals from ad va-lorem taxation. However, as hereinabove stated, we are not at liberty to extend the exemption or “in lieu” provision any furl ther than necessary in order to carry out the intent and purpose of the Legislature'. What possible reason could there be for preserving the rights to one mineral merely because the owner of another mineral is paying an “in lieu” tax on such other mineral ? It is obvious that a tax paid upon the value of gas produced is not a payment of taxes on the lead, zinc, etc. which might never be produced or mined. A contrary view could completely free the minerals not being produced from any form of taxation, direct or indirect.
In McNaughton v. Beattie, supra [75 P.2d 403], the court did not hold that the tax deed conveyed no minerals, but only that it conveyed no oil and gas rights. The court acknowledged plaintiffs’ contention that they had paid the gross production taxes on oil and gas, and then stated that “the gross production taxes were in fact paid.” In the final paragraph of the opinion the court said:
“We hold that the deeds involved in the instant case operate as a conveyance of the surface rights, but do not convey the oil and gas rights. * *
In Meriwether v. Lovett, supra [166 Okl. 73, 26 P.2d 201], it was stipulated that oil and gas were produced and gross production taxes paid thereon during the years involved. The trial court entered judgment to the effect that any tax deed issued by the county would be “subject to the rights of plaintiffs in and to the oil and gas mineral rights.” In Knutter v. Smith, supra [307 P.2d 139], we said:
“It is well settled that under such circumstances the mineral estate in the oil and gas does not pass with a resale tax deed issued for nonpayment of ad valorem taxes.”
In Boone v. Claxton, supra, it is held in the syllabus that the tax is in lieu of all *1102other taxes upon the oil in place without mention of the gas in place.
In some of the above mentioned cases this court also said in either the body of the opinion or the syllabus that the tax deed did not convey the minerals or mineral rights in said land. However, it is apparent from the facts that the reference to minerals could have only referred to oil and/or gas. Therefore, the only serious question that is presented in this case is whether oil and gas are so nearly identical and so closely related that they must be treated as synonymous, so that production of one will preserve the other.
To begin with it does not appear that the Legislature has treated them as one in the “in lieu” provision of the statute.
In providing that the tax should be in lieu of other taxes upon leases the words of the statute are as follows:
“ * * * upon producing leases for the mining of asphalt and ores bearing lead, zinc, jack, gold, silver or copper, or for petroleum or other crude oil or other ^ mineral oil, or for natural gas and/or casinghead gas, * *
Thus, while natural gas and casinghead gas are grouped together, they both are apparently treated separately from oil.
Of course, if it appeared from a legal standpoint that the words “oil” and “gas” should be considered as synonymous then we might assume that the Legislature so intended. However, there is no legal basis for such a conclusion. In this connection plaintiffs place much reliance upon the fact that oil and gas are both hydrocarbons and are often closely related in many reservoirs. This is admittedly true, but forms no basis for concluding that the terms “oil” and “gas” are synonymous.
. In Vol. I of Thornton on Oil and Gas, Sec. 63, it is stated:
“Oil and gas are not synonymous; and a lease for oil purposes does not embrace the right to take gas. If the lease requires the production of oil, the production of gas will not satisfy the covenant requiring a development, within a certain time, of the territory • for oil.”
In Glassmire’s work on Oil and Gas Leases and Royalties (Second Edition) Sec. 2, page 7, it is stated:
“Such solid minerals as coal, lead and zinc are to be clearly differentiated from fugacious minerals like oil and gas; and even the latter, while related minerals, are not regarded in synonymous terms.”
Plaintiffs argue that it is impractical to separate the oil and gas rights in the same field. Yet the evidence in this case shows that the oil rights and the gas rights under the original lease were severed by assignments and separately owned for many years.
Nor is it material that oil and gas are usually included in the same lease. In fact the original lease in the instant case covered all the minerals. Could it be said this would mean that production and payment of gross production taxes on gas would preserve the zinc? What would be the rule if the owner of the minerals executed no lease but produced one mineral himself? The decision as to what minerals are to be covered by the lease is made by the parties, but can have no bearing upon the question of which of the minerals in place are to be free of the ad valorem tax lien.
Since the Legislature did not see fit to provide that the production of and payment of the tax on one mineral would be in lieu of ad valorem taxes on the other minerals, and did not indicate that oil and gas were to be treated any differently than other minerals in this regard, I cannot believe that the production and payment of the tax on gas alone is in lieu of the ad valorem taxes on the oil in place.
Our prior decisions are not of any substantial assistance on this question since it does not appear that this particular issue has ever been expressly considered by this court before in a case where the issue was material. In the Meriwether case there was production of, and payment of gross production taxes on both oil and gas. We *1103held that this preserved the oil and gas estate. However, the second paragraph of the syllabus suggests that the production and payment of the tax on either oil or gas is in lieu of any other tax on the oil and gas produced, the oil in place (with no mention of the gas in place), and that the tax deed conveys no mineral rights. In McNaughton v. Beattie, supra, it appears that gross production taxes were paid on both oil and gas. In the body of the opinion we held that the tax deed purchaser took subject to the oil and gas rights. But in the fourth paragraph of the syllabus we held that the tax deed did not convey the mineral rights in said land.
In Peteet v. Carmichael, 191 Okl. 593, 131 P.2d 767, we held in the syllabus that production of oil and a levy of gross production taxes thereon severed all the minerals, and that tax deeds such as those in the instant case did not convey any of the mineral rights.
On the other hand, in Edwards v. Gann, 208 Okl. 267, 255 P.2d 499, we held in the syllabus that where oil and gas was not being produced and gross production taxes paid during the years of delinquency in failing to pay the ad valorem taxes the resale tax deed conveyed all the minerals.
In Boone v. Claxton, supra, there is no mention of gas production. The fourth paragraph of the syllabus is identical with the 2nd paragraph of the syllabus in the Meriwether case hereinabove mentioned to the effect that production and payment of the tax on oil or gas is in lieu of other taxes on the oil and gas produced, the oil in place (with no mention of the gas in place), and that the tax deed conveys no minerals.
In Knutter v. Smith, supra, there is no mention of gas production. The first paragraph of the syllabus is identical to the syllabus in Peteet v. Carmichael, supra, to the effect that the production of oil severs the entire mineral estate. However, the body of the opinion limits the severance to the mineral estate in the oil and gas.
In most of the above cases there is language to the effect that production or production and payment severs all the minerals. This is clearly incorrect. The statute doesn’t purport to cover all minerals. I have pointed out the above cases for the sole purpose of showing that this court has never been confronted with the question as to whether the production of and payment of the tax on one mineral will preserve others, and therefore has made no studied effort to resolve this question. I am of the opinion that the production of a certain mineral and payment of the gross production tax thereon, only frees that particular mineral in place from the ad valorem tax lien for the year of production and payment. I am of the further opinion that the production of gas and payment of the gross production tax thereon is not in lieu of the ad valorem tax on oil in place.
The remaining question is whether production alone, without payment of the tax, is sufficient to relieve that particular mineral from the ad valorem tax lien.
A small portion of the land here involved was sold for taxes which became delinquent in 1917. Plaintiffs introduced in evidence a well log showing the completion of an oil well in 1917, and showing an estimated initial production of 10 barrels with a notation thereon that the well had been plugged. The log was not signed until August of 1920, and was later filed with the Corporation Commission. There is nothing in the record to indicate that the discovery of, or production of any oil from this well was ever reported to the Tax Commission as required by the statute. The records of the Oklahoma Tax Commission show the payment of gross production taxes on gas only.
The gross production tax statute provides that the payment of the tax creates the exemption. But in Peteet v. Carmichael, supra, we held that it was not the payment but the production which accomplished this fact. In that case the court relied upon and quoted extensively from McNaughton v. Beattie, supra, [75 P.2d 403] as authority for such view. But in the latter case the court expressly stated that the gross production taxes must be *1104paid, before the “in lieu” provision took effect. The language of the court in this connection was as follows:
“It must be clearly understood that this separate taxable estate in the mineral rights exists only during the time when production is obtained from the property and gross production tax levied and paid thereon.” (Emphasis ours.)
However, the result in Peteet v. Carmichael seems equitable. All the tax on the y%ths working interest had been paid, and a portion of the tax on the royalty interest was paid and a portion unpaid. The court said that the failure of the state officers to collect the taxes could not operate to make the minerals subject to ad valorem taxes.
In the instant case there was no dereliction of duty on the part of the state officials. They never had an opportunity to collect the taxes, because they had no reason to know that taxes were due, if in fact any 'were'due. In this connection in In re Sinclair Prairie Oil Co., 175 Okl. 289, 53 P.2d 221, 223, we said:
“ * * * Oil may be said to be produced for gross production taxation purposes within the meaning of the statute! when it is brought to the surface and confined in such a manner as to permit its measurement as to quantity and its testing as to value.”
Assuming the well log established that there was some showing of oil at or about the .time the well was completed in December of. ,1917, there is a total lack of evidence tending to show that in such year there was any oil confined in such a manner as'to permit its measurement as to quantity and testing as ;to value. The log only shows an estimated annual production of 10 barrels;
' Plaintiffs' produced witnesses who testi'fied that at one time there were tanks on ■ the' léase and a walking beam operating. But they did not testify'as to the years in which these things were observed. Even if production alone is sufficient to create the so-called severance, plaintiffs would be required to prove production in the year the particular ad valorem taxes became delinquent. See Sears v. Randolph, 195 Okl. 200, 156 P.2d 595. In view of the fact that no production of oil in 1917 was reported or tax thereon paid to the tax commission as required by the gross production tax statute, coupled with the fact that the evidence fails to show that any appreciable amount of oil was produced in 1917, I am of the opinion that plaintiffs are not entitled to claim the exemption as to the lots sold for delinquent 1917 taxes.
I am of the further opinion that the tax sales involved herein vested title in the tax sale purchasers to all the mineral rights in said real property except the gas rights, so that now and at the time the lease was executed in favor of the defendant-Yeager, one-half (½) of said 'minerals were owned by the defendants, Earl Trenary and Floyd Trenary, and one-fourth (¼) each by the defendants, Margalee. Hartman Gogos and Minnie Myra Woodruff. The judgment of the trial court should have quieted their title to said minerals subject to the lease, ,and declared the lease to be valid to th.e extent that it covers such mineral interests.
All mineral rights, in the' property acquired by tax deeds, except the gas rights, should have been quieted in the proper defendants free and clear of any claims on the part of the plaintiffs. The gas rights and gas royalty reserved should have been quieted in plaintiffs, except for certain lots and a 15 acre tract which I will not discuss.
While there are other problems presented, any discussion herein'would serve no useful purpose and would unduly burden this dissent.
In view of my conclusions as herein expressed, I must respectfully dissent.