Court Opinion

ID: 9631549
Source: CourtListenerOpinion
Date Created: 2023-08-22 10:42:00.572258+00
Date Added: 2024-06-11T18:07:56.628813
License: Public Domain

SUMMERS, Vice Chief Justice,
Concurring in part and dissenting in part.
¶ 1 Although I agree with much of the Court’s opinion, I respectfully disagree with its method of determining when an implied covenant is present, and with the Court’s *1209reliance upon Kile v. Amerada Petroleum Corp., 118 Okla. 176, 247 P. 681 (1926).
¶ 2 The Court’s opinion states that an implied covenant arising from an oil and gas lease cannot ordinarily be enforced by the possessor of an overriding royalty interest. I agree. But that is not our case today. Rather, the possessor of the overriding interest is attempting to enforce an implied covenant arising from the assignment of the override. In this case overriding interests were assigned to Beasley and Lee pursuant to a written instrument entitled “Assignment of Overriding Royalty Interest.” The issue before us is whether any implied covenants arise from this assignment.
¶ 3 This Court has applied principles of contract jurisprudence to instruments creating royalty interests. See Briggs v. Waggoner, 1962 OK 108, 375 P.2d 896, 898-899, where we relied upon contract law in construing oil and gas leases. This view is consistent with our statement in Bonner v. Oklahoma Rock Corp., 1993 OK 131, n. 16, 863 P.2d 1176, 1181, that construction-of-contract rules are used by courts when interpreting other writings.
¶ 4 In the context of construing a conveyance of a real estate interest in Bonner, we said the following:
¶ 17 Contractual duties may arise from implied covenants. Implied-in-fact and implied-in-law (or constructive) covenants are the two varieties of implied covenants. A covenant implied in fact is raised by inference from words used in the agreement to effect the intention of the parties. A constructive covenant, sought here by the Bonners, arises only when the relation of the parties to each other, the nature of the contract, and the public’s interest in the parties’ activity vis-a-vis one another dictates duties beyond those expressly imposed by contract. Because, as a matter of public policy, constructive covenants impose duties on contracting parties without their assent, they are disfavored in law; courts are reluctant to imply them where the obligations sought to be imposed are not expressed in the written text.
Bonner v. Oklahoma Rock Corp., 1993 OK 131 at ¶ 17, 863 P.2d at 1184-1185, notes omitted. Plaintiffs’ arguments, although they are not identified as such by the parties, contend for an implied-in-law (constructive) covenant creating a duty to market the gas, and an implied-in-fact covenant that no post-production costs would be deducted from the overriding interest.
¶ 5 We have indicated that a basis for judicial recognition of implied-in-law (constructive) covenants is to enforce conduct which amounts to fair and equitable dealing dependent upon the circumstances. Producers Pipe and Supply Co. v. James, 1958 OK 255, 332 P.2d 958, 960, quoting, Merrill, Covenants Implied in Oil and Gas Leases, § 221, (1940 ed.). Courts impose principles of equity on the agreement by requiring the performance of certain duties by a party thereto, although the agreement creating the relationship is silent on that party’s duties at issue.1 This concept was used in Rees v. Briscoe, 1957 OK 174, 315 P.2d 758, where we held that the plaintiff could impose an overriding royalty interest by a constructive trust upon the defendant when the defendant did not develop the leases while obtaining renewals of the leases without the overriding interest. The Court’s opinion in Rees recognized the holdings of Kile, supra, and Phoenix Oil Co. v. Midcontinent, 177 Okla. 530, 60 P.2d 1054 (1936), but explained that they did not apply to the circumstances involving the overriding interest in Rees. The Court said that several cases where assignments had been given could be distinguished because the assignor received compensation at the time of the assignment. Id. 315 P.2d at 763. It also examined the reasonable expectations of the assignor. It explained that with regard to the assignor Rees, “It is un*1210reasonable to assume that Rees would assign his lease for no present consideration unless he felt that he could depend upon Briscoe to undertake the development of the lease.” Id.
¶ 6 The Court in Rees did not look for an express covenant to drill or develop in the instrument that assigned the interest and retained the override. However, the Court in Kile did just that when determining whether an implied covenant existed. Kile, 247 P. at 688. Kile denied the existence of an implied covenant because of the absence of express covenant on the same issue. But this analysis in Kile was characterized by Doctor Merrill as resting upon an untenable ground. He said that in Kile, “the existence of an implied covenant between the assignor reserving the overriding royalty and the as-signee is squarely denied, largely upon the untenable ground that an implied covenant must rest upon an express obligation to drill.” M. Merrill, Covenants Implied in Oil and Gas Leases, 417 (2d ed.1940), emphasis added.
¶ 7 Doctor Merrill is correct in his criticism of Kile. Implied covenants are not created by the presence of an express covenant. Rather, an implied covenant can only exist in the absence of an express covenant. See Jones v. University of Central Oklahoma, 1995 OK 138, 910 P.2d 987. There we said that “a contract covering the identical subject cannot be implied, because an implied agreement cannot coexist with the express contract.” Id. 1995 OK 138 at ¶ 11, 910 P.2d at 990. Simply, an implied covenant to market does not arise because of an express promise to market is found in the lease, agreement, or contract. Kile’s rationale to the contrary is truly untenable.
¶ 8 The Court relies upon Professor Kuntz for the proposition that an overriding royalty interest does not include implied covenants. But the author goes on to make distinctions based upon which implied covenant is being discussed and how the override is created. For example, he states that: “If the retained overriding royalty is the sole consideration for the transfer, covenants might be implied on the theory that the fundamental purpose of the transaction was not a simple sale but development and proper operation of the premises.” 5 E. Kuntz, A Treatise on the Law of Oil and Gas, § 55.3(e) (1991). Thus, both Rees and Professor Kuntz recognize that the purpose of the transaction is examined even if it is an assignment of an overriding interest to determine what, if any, implied covenants are created.
¶ 9 Further, as it appears from Rees, the reasonable expectation and intent of the parties is used to determine the purpose of the instrument creating the interest. Other courts use a similar analysis, and have held that when construing agreements creating such interests the intent of the parties must be examined. Moncrief v. Harvey, 816 P.2d 97, 103 (Wyo.1991). That court also stated that “an assignor who retains an overriding-royalty interest is also entitled to the protection afforded by the express or implied covenants of the lease.” Id. 816 P.2d at 103, citing opinions from Texas. One of these states that: “Where there is no express agreement between the assignor and the as-signee, there is an implied covenant on the part of the assignee to protect the premises against drainage when there is an overriding royalty reserved for assignor.” Wes-Tex Land Co. v. Simmons, 566 S.W.2d 719, 721 (Tex.Civ.App.1978).
■ ¶ 10 It may very well be that when a geologist receives an override for his services his interest should be considered as a type of sale of the override without implied covenants relating to the operations of the lease. However, neither the courts nor authors such as Kuntz or Merrill argue that creation of an override should ipso facto exclude the presence of implied covenants. Thus I respectfully dissent from a portion of the Court’s opinion.
¶ 11 This matter is before us on an appeal from a summary judgment granted by the trial court. Our review of a summary judgment requires us to determine if there is a genuine issue of material fact, and we view the evidentiary materials in the light most favorable to the non-moving party. First American Bank v. Industrial Finance Authority, 1997 OK 155, ¶ 2, 951 P.2d 625, 627. Pursuant to this standard the summary judgment for Plaintiffs must be reversed. An *1211implied covenant arises, if at all, from the nature of the transaction. Plaintiffs have cited no authority for an implied covenant to market arising ipso facto from an agreement creating an overriding royalty interest. But clearly, an implied covenant may arise from an agreement creating an overriding royalty interest. Rees v. Briscoe, supra. Rees indicates that we must look at the intent of the parties and the nature of the agreement at issue. The record fails to contain undisputed material facts, on the intent of the parties to the agreement, or any evidence on custom and usage involving overriding royalty interests created as compensation to geologists for their work involving leased mineral interests. See Oxley v. General Atlantic Resources, Inc., 1997 OK 46, ¶¶ 14, 18-19, 936 P.2d 943, 942, where we discussed the absence of facts sufficient to support a summary judgment involving custom and usage concerning the intent of the parties to a joint operating agreement. The record is similarly insufficient to support summary judgment for Defendants. Thus I would reverse the summary judgment and remand to the District Court for trial.

. This concept is similar to a quasi-contractual obligation recognized by a court when applying equitable principles to the particular circumstances before the court. See Booker v. Sears Roebuck & Co., 1989 OK 156, n. 2, 785 P.2d 297, 301, (Summers, J., Concurring,), and the explanation that modern law of quasi-contract law is derived from Lord Mansfield's opinion in Moses v. Mcferlan, 2 Burr. 1005, 97 Eng.Rep. 676 (1760), and the description that the quasicontrac-tual obligation arises from the "ties of natural justice” and the law recognizes an action "founded in equity.”