Court Opinion

ID: 9539328
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:02:18.211243+00
Date Added: 2024-06-11T14:58:42.387021
License: Public Domain

CARTER, Dissenting.
I dissent.
The facts of the controversy presented in this action are simple. Plaintiff, the owner of real property, leased its property to Meacham and Boatright for oil and gas drilling and production purposes. As rental or consideration for the right thus granted, the lessees agreed to pay to the lessor % of the market price of the oil and gas removed from the property and sold, or % of the oil and gas so removed if the same were not sold. Thereafter, the lessees, for valuable consideration, assigned to appellants fractional interests in the oil and gas to be recovered from the leased property. The lessor had notice of the assignment. The lease contained a provision giving to the lessees the option of terminating the lease, surrendering the premises and ceasing operations whenever they chose, and thus be freed of any further liability or obligation under the lease. After the assignment and without the consent of the appellants, assignees, the lessees exercised that option and terminated said lease by delivering a quitclaim deed of the premises to the lessor. The lessor in this action obtained the judgment here appealed from quieting its title against the interests and rights of the assignees.
Briefly stated, the issue is whether a lessee may surrender his lease to the lessor, and thereby cut off the rights of partial assignees of the lessees. To propound the issue is to answer it in the negative, unless all principles of equity and justice are to be ignored.
It is conceded by the majority opinion that the right of lessees in the oil and gas lease is an interest in real property, attaining the status of a profit á prendre. (Callahan v. Martin, 3 Cal. (2d) 110 [43 Pac. (2d) 788, 101 A. L. R. 871].) Therefore, it must necessarily follow that the interest which an assignee of the entire leasehold obtains is an interest in real property, an incorporeal hereditament, a profit á prendre. (See Callahan v. Martin, supra; Dabney-Johnston Oil *142Corp. v. Walden, 4 Cal. (2d) 637 [52 Pac. (2d) 237].) Under such circumstances the law is clear that a lessee cannot defeat his assignee’s interest by surrendering or abandoning the lease. (Payne v. Callahan, 37 Cal. App. (2d) 503 [99 Pac. (2d) 1050]; 32 Am. Jur. 345, 715; Thompson on Real Property, Perm. Ed., vol. 3, p. 778.) By a partial assignment of the entire leasehold the lessee and the assignee become tenants in common of the profit á prendre, an interest in real property. (Payne v. Callahan, supra.) But for some undisclosed reason the majority opinion stops there. When the assignment by the lessee is of what might be termed a portion of the proceeds of the oil to be produced from the property under the lease and the lessee is to develop and operate the oil production enterprise, then the majority opinion determines that the assignee in such an assignment does not acquire a portion of the profit á prendre, or portion of the leasehold. It does cling, however, to the idea that such an assignee acquires an interest in real property but that that interest does not assume the status of a profit a prendre. Why such shift in position is made is not clear. If it is with reluctance, as it apparently is, that the majority opinion denominates the right of an assignee as an interest in real property of any dignity, then it must be that the motive therefore is to protect in some manner the interest of such assignee. That protection sought to be obtained must be to qualify the assignment for recordation, and thereby give constructive notice to subsequent assignees of the lessee that their rights are inferior to the fractional assignment. With the accomplishment of that protection, I am fully in accord. But why stop there? The majority opinion holds that the assignee has an interest in real property, and I see no reason for not carrying the reasoning from that premise to its logical conclusion. The assignee has an interest in real property, namely, an interest in the leasehold. Therefore the rule comes into operation that the lessee cannot defeat that interest by a voluntary surrender of the leasehold or by exercising his option to terminate the lease. The liabilities of the assignee that may flow from such a conclusion should not deter the court in securing to the assignee the rights to which he is entitled. He should assume the burdens along with the benefits and if he desires to limit them he may do so in many instances by appropriate agreement. For these reasons I find no sound *143basis for disapproving the case of Payne v. Callahan, supra, which is based on the same reasoning and is decisive of the conclusion I have reached.
Even if we assume that the majority opinion is correct in concluding that the interest assigned by the lessees in this case is not a profit á prendre or other type of interest in real property, because the right to enter and extract the oil is not included therein, as the assignees are interested in merely a share of the oil produced or the proceeds thereof, and intend to have the lessees operate the property rather than themselves, it must be conceded that the assignee does have an interest that is entitled to equitable protection. In Schiffman v. Richfield Oil Company, 8 Cal. (2d) 211 [64 Pac. (2d) 1081], this court felt obligated to protect the interest of the assignees of the lessee because they had such an interest as deserved and required protection. This result was accomplished without regard to whether those assignments were considered a transfer of an interest in the oil to be produced from the property or in the proceeds from such oil, and notwithstanding the fact that the assignees had no power to enter upon the property and extract the oil. In the case last cited, this court said at page 225:
“We are of the view that whether or not the royalty assignments in this case transferred to the holders thereof an interest in the leasehold, that is, in the profit á prendre to produce oil, in any event they vested in the holders a right to share in the proceeds of oil produced during the continuance of the lease by an assignee of the lease with notice. We prefer to place our decision on this ground without determining the question of interest in the leasehold estate as such, for the reason that a decision as to that matter might have important consequences as to problems such as that of liability under instruments of this type which are not directly presented in the instant case.” And again at page 226:
“The rights of the holders of royalty assignments to an interest in the proceeds of oil produced by an assignee of the leasehold should not depend on whether the assignment is of a percentage of the oil ‘to be produced, saved and sold’, as in Western Oil etc. Co. v. Venago Oil Corp., supra, or is of a percentage of the net proceeds as in the instant case. Purchasers of royalty interests are generally investors who are not prepared to accept delivery of oil in kind, or to market *144their interest in the output of the well. Under the instruments in the Yenago case assigning percentages of the oil to be produced, saved and sold, the lessee clearly had the right to market the oil, returning to the royalty holder a money payment. This likewise was the obligation of the lessees herein.
“The holders of royalty interests from the lessee are not adequately protected unless they have a claim upon the proceeds of oil produced by one to whom the lessee has transferred the lease with notice of the royalty assignments. The purchaser of royalty assignments makes a highly speculative investment. The well may never be brought into production, or may soon fail. In consideration of investing his fionds in an enterprise with a high risk of total loss, the purchaser of a royalty interest receives an assignment of a percentage of the oil to be produced, or the proceeds therefrom, which is expressly, as in the Yenago case, supra, or impliedly, as in the instant case, for the continuance of the lease. It is certainly not within the contemplation of the royalty holder that in addition to the other risks involved, the lessee may at any time terminate the royalty holder’s interest by assigning the lease, and leave the royalty holder either remediless or with a claim for a share of the price received by the lessee for the transfer of the leasehold, or a claim for monetary damages. In view of the impossibility of estimating the life of the well, which may be for a long period of years, the amount of oil to be produced therefrom, and the market price over a long term, to give the royalty holder a present money claim in the event of an assignment of the lease manifestly would be inadequate. He has bargained for an interest in the oil produced during the term of the lease, or in the proceeds therefrom, and that is what he should receive. The law is not powerless to protect him during a lack of exact precedent.”
Surely that interest should be protected whatever may be the ñamé attached to it. There is no magic in a name. The assignees, although they may have contemplated that the operation of the property would be left to the lessee, certainly did not consider their interest so tenuous and uncertain that it could be surrendered at the whim of the lessees, their assignors. If they had had such understanding they would never have given anything of value for the assignment. If the aim of the fractional assignment or assignment of the *145proceeds or oil to be produced is to furnish capital for the operation and development of the property, then it is contemplated that the property will be operated and, of course, in order for such operation to occur, the lessees must not be permitted to surrender the property and terminate the lease. It must be remembered that as between the lessor and lessees the right to terminate the lease is a right pertaining solely to the lessees. It is an option they may exercise without regard to the lessor’s desires. We are not therefore concerned with the interests of the lessor, and it might well be said that the only issue is one of the authority of the lessee to surrender the lease. If he has no such authority because of the assignment, then any assumed exercise of that power is nugatory. There is no violation of equitable principles. The lessor is not injured in any respect by the requirement that the lessee may not terminate the lease without the consent of the assignees for the reason that he has no legal right to compel any such termination or surrender. It is a matter solely within the discretion of the lessee. It is not a case wherein the lessor is terminating the lease for a breach by the lessee, an instance in which the right is his and not the lessee’s. I am firmly convinced that every consideration of justice and equity in this case weighs heavily on the side of the assignees. As I see the situation which is presented in this case, on the one hand we have the lessor who is bound to keep the lease in force and has no legal right to compel the lessees to exercise the option of termination. In other words, he has no legal interest in the matter. He has granted the lease and has therein granted the right to the lessee to terminate it and to assign it. He must, therefore, contemplate that there will be an assignment. On the other hand, we have the assignee who has in good faith invested his money on the assumption that he will receive a return from the oil produced, that the lessee will develop and drill the property, and that he will not without justification terminate the lease and thus wipe out all of his rights. The lessee owes these duties to the assignee. The majority opinion in concluding that the assignees intended to take the risk of a termination by the lessees because of the provision for termination in the lease is based neither on sound reason nor founded on natural human tendencies. True, the assignees knew of that provision, but they also must have contemplated when investing *146their money that the lessees could not destroy their entire right at the lessees’ whim or caprice. To me it is a sad commentary on our system of jurisprudence to concede that this court is so impotent that it cannot give protection to the assignees in a ease of this kind when to do so is to injure no one, violate no rule of law, but on the contrary is to grant a remedy justly deserved. I positively refuse to give my assent to such a doctrine.
The circumstance that the lessor was about to declare a forfeiture of the lease for an alleged breach by the lessees when the surrender was made, is of no importance. The fact remains that no forfeiture had been declared, and from all that appears from the record there may have been many valid defenses to such action, or it may have been a ease justifying equitable relief from forfeiture.
In my opinion the judgment should be reversed.
Appellants’ petition for a rehearing was denied July 19, 1941. Carter, J., voted for a rehearing.