Court Opinion

ID: 9770432
Source: CourtListenerOpinion
Date Created: 2023-08-29 16:05:08.457884+00
Date Added: 2024-06-11T07:31:17.362723
License: Public Domain

Mr. Justice Smedley
joined by Justices Brewster and Smith, dissenting.
I cannot agree with the opinion of the majority in its decision that there was a valid valuation of respondents’ oil payment for taxes for the years 1942 to 1946, inclusive. I have carefully examined the entire record, and in my opinion it conclusively and unquestionably demonstrates that the valuations of the oil payment for those years were made by the taxing officials in accordance with an arbitrary and fundamentally unfair method or plan that discriminated against respondents, the owners of the property, and denied to them the equality and uniformity of taxation that is guaranteed by Section 1 of Article VIII of the Constitution of Texas. The district court should have granted respondents’ motion for peremptory instruction in so far as it applied to the taxes for the years 1942 to 1946, and should have *217rendered judgment denying petitioner’s claim for taxes as assessed and levied for those years.
The facts as to the execution of the oil and gas leases by respondents on July 20, 1937, the reservation of the one-eighth royalty and the further reservation of an additional one-fourth of the minerals to be produced by the lessees, free of cost and expense to lessors, until the lessors should receive from the net proceeds derived from the sale of the additional one-fourth interest reserved a sum of money equal to $1,250.00 per acre are correctly stated in the opinion of the majority.
The production of oil was continuous and substantial before and during the period for which the taxes are sought to be collected. The undisputed evidence is that the land involved in this suit was considered to be “in about the best area in the country.” Payments from production were regularly made and the full payment of the $2,400,000 measuring and limiting the reservation of the one-fourth interest was completed early in 1949. There was from the beginning of substantial production before 1942 a steady reduction each year of the amount of the balance remaining unpaid on the oil payment.
The well-founded complaint of respondents was and is that notwithstanding the steady reduction of the amount of the balance due on the oil payment and the consequent steady reduction of the value of the oil payment, the Board of Equalization in fixing the value of the oil payment for taxation used an arbitrary and discriminatory plan or method which wrongfully fixed the value as if it were an unlimited royalty; that the Board wrongfully and arbitrarily failed and refused to take into consideration the fact that the value of the oil payment was being steadily reduced each year, and failed and refused to make fair division of the value of the one-fourth reserved interest between the lessors and the lessee, and that the Board persistently and wrongfully refused to follow the rule for the valuing of such property as set out in State of Texas (O’Conner) v. Quintana Petroleum Company, 134 Texas 179, 133 S.W. 2d 112, 134 S.W. 2d 1016, 128 A.L.R. 843, all to respondents’ prejudice and injury.
The county of Yoakum employed experts to make or recommend valuations of oil interests, and the valuations so made or recommended by them were adopted or used by the Tax Assessor and the Board of Equalization. For the years 1942 to 1946 inclusive the Board of Equalization, in valuing the leasehold or working interest of Denver Producing and Refining Company, *218considered that interest as representing only a five-eighths mineral interest, deducting from the seven-eighths the one-fourth interest reserved for the oil payment, and it placed substantial values on the five-eighths interest, making no considerable changes in the values during the years 1942 to 1946. At the same time it placed during each of those years the nominal valuation of $500 on what is described in the assessment as a “reversion” or “equity,” consisting of the right to receive “1/4 of 8/8 leasehold estate if and when $1,250 per acre has been fully paid out of the proceeds of a reserved interest of one-fourth of all the oil and gas.” No change was made in the assessed value of the “reversion” or “equity” during the five years. It remained constant at $500.
During the same five years, 1942 to 1946, the assessor and the Board of Equalization valued the one-eighth royalty interest and also separately valued and assessed the one-fourth interest reserved to the lessors for the payment of the sum of $1,250 per acre. During those years the interest so reserved, the oil payment, was valued by the Board of Equalization as if it were an unlimited free royalty. For example, the one-eighth royalty on Sections 831 and 863 for the year 1942 was valued at $90,280, and the one-eighth oil payment assessed against the J. A. Whittenburg estate for that year was valued at $90,030- The same method of valuing the oil payment as if it were unlimited royalty was followed during the entire five-year period. This is shown by the exhibits giving the details of the valuations, to the correctness of which petitioner agreed. And in the course of the trial petitioner agreed and stipulated that during that period “the oil payments were taxed at substantially, at the same valuation as a commensurate royalty interest, with the exception of less $500 for the reversionary interest.”
Of the total oil payment 85% remained unpaid in 1942, 82% in 1943, 77% in 1944, 68% in 1945, and 60% in 1946. And yet the Board of Equalization failed, and indeed refused, to take into consideration the constant reduction of the amount remaining unpaid. It continued in spite of that to place the same value on the oil payment that it placed on a commensurate royalty. And it continued to assess the lessee’s “equity” or “reversion” at $500. Thus in relation to the royalty and in relation to the lessee’s interest, more than its fair share of the value was imposed upon the oil payment. In so doing the Board of Equalization failed to take into consideration the fact that the interest or estate of the lessee had greater value on account of the limitation imposed upon the one-fourth interest reserved for the oil payment than *219it would have had if the one-fourth interest had been reserved without limitation; and it failed to take into consideration the fact that, assuming continued production as there was here, the interest or estate of the lessee became more valuable each year as the time approached when all of the reserved one-fourth interest would vest in the lessee. And it failed to take into consideration the fact that the value of the oil payment decreased as the amount unpaid was reduced by the payments regularly made out of production. It is further shown by undisputed evidence that respondents each year protested against the method or plan used in valuing the property and that their protests were ignored.
All of the facts set out above are established by undisputed evidence.
It is settled by the decisions in this state that when the taxing officials employ an arbitrary and unjust method of valuing and assessing property, as was done here, the property owner is entitled to relief against the valuations and assessments. Lively v. Missouri, Kansas & Texas Ry. Co., 102 Texas 545, 120 S.W. 852; Simkins v. City of Corsicana, 86 S.W. 2d 792; Dallas National Bank v. Dallas County, 173 S.W. 2d 558, id. 142 Texas 439, 179 S.W. 2d 288; Whelan v. State, 252 S.W. 2d 271; State v. Richardson, 126 Texas 11, 84 S.W. 2d 1076; French Independent School District v. Howth, 134 Texas 211, 134 S.W. 2d 1036; State v. Houser, 138 Texas 28, 33, 156 S.W. 2d 968; Bashara v. Saratoga Independent School District, 139 Texas 532, 163 S.W. 2d 631.
Repeatedly in the opinion of the majority the fact is stressed that respondents offered no proof of the reasonable cash market value of the oil payment and no evidence that the valuations fixed by the Board were in excess of the reasonable cash market value. Indeed, that is the theme of the opinion, and seems to be the reason for the decision made. The view disregards the authorities cited above. It is true that respondents do not attack the valuations as being in excess of reasonable cash market value. That is not necessary when it is proved that the taxing officials used an arbitrary and fundamentally unfair and unjust method in arriving at the valuations, or when the valuations so made work discrimination against respondents or result in the imposition of more taxes than respondents would be required to pay had a fair method of valuation been used-
For example, in Lively v. Missouri, Kansas & Texas Ry. Co., 102 Texas 545, 120 S.W. 852, the law required that property be *220valued for taxes at its full market value, and the State Tax Board had apportioned and certified to Dallas County its proportionate part of the value of the railway company’s intangible assets, representing the full market value of the company’s intangible assets in Dallas County, and the county officials approved the assessment so made on full value. These officials had valued and assessed the property of the people in the county at sixty-six and two-thirds per cent of its fair market value. In the railway company’s successful suit to enjoin the collection of taxes as assessed against it the county authorities, among other grounds, defended on the ground that the railway company’s property was not assessed beyond its true value. The court held that the assessment was invalid and should be reduced to the same proportion of value as was placed on the mass of property in the county. In so holding the court said: “The fact that appellee was not required to pay more than it should does not satisfy the constitutional right to have all others owning property in the same territory and subject to like taxation to bear their equal proportion of the burden of government. That is a substantial right that may be asserted and enforced in the courts.” In that case the assessment was held to be invalid although it was on a valuation not in excess of true value, but on true value.
In the instant case facts were not developed to show that like oil interests in other properties than the land here involved were valued in amounts substantially less than the valuation placed on respondents’ property. But there was discrimination as between respondents and the owner of another interest in the very property here involved, that is, as between respondents, the owners of the oil payment, and the owner of the leasehold interest. Respondents were charged for taxation with the full value of the one-fourth reserved for the oil payment, or the full value less che nominal sum of $500- The lessee was charged with practice’Tly nothing, that is, the nominal valuation of $500 on its so-called “reversion” or “equity.” The assessed value of the “reversion” or “equity” remained at $500 through the years 1942 to > 946, although its value in proportion to that of the oil payment was obviously and necessarily increasing each year as the balance due on the oil payment was steadily being reduced. The result of the method thus arbitrarily used was that each year the lessee was required to pay less than it should have paid on its interest, and the respondents are required under the opinion of the majority to pay more on their interest than they should be required to pay. And this discrimination is made, not in valuing similar property, but in valuing interests owned in the very same property. It is thus more clearly discriminatory and unfair than *221when comparisons are made of the valuations of similar but different property. For example, one owns an undivided three-fourths interest in property and another owns an undivided one-fourth interest in the same property. The one’s interest is valued for taxation at $10,000, while the other’s interest is valued at $10.00 — a clear case of discrimination on account of which relief would be granted as a matter of course.
Similarly, in Dallas National Bank v. Dallas County, 173 S.W. 2d 558, 561, id. 142 Texas 439, 179 S.W. 2d 288, where there was illegal discrimination against the bank in the valuation of its property for taxation, the court rejected as a defense to the bank’s suit to invalidate the assessment the contention of the county that the bank suffered no legal injury, in that its assessment, after all, was upon less than actual or market value.
In Simkins v. City of Corsicana, 86 S.W. 2d 792, 793, the court said: “If the Board acts arbitrarily or capriciously or applies wrong principles in ascertaining the true value, then such valuations may be set aside by the courts,” citing authorities. In State of Texas v. Houser, 138 Texas 28, 33, 156 S. W.2d 968, the court’s opinion, after the statement of the rule that if a board fairly and honestly endeavors to fix a just valuation for taxing purposes, the mistake on its part is not subject to review by the court, contains the following: “Of course if a board adopts a method that is illegal, arbitrary, or fundamentally wrong, or if the valuation is grossly excessive, the decision of such board may be attacked and set aside.”
Here the method used by the Board in valuing respondents’ property for taxation for the years 1942 to 1946 was illegal, arbitrary, and fundamentally wrong, and because such was the method used by the Board the Court of Civil Appeals correctly held that the assessment should be set aside.
The method used was fundamentally wrong because the record shows without dispute that during each of the five years the Board persisted in giving the oil payment the same value as if it were an unlimited royalty. In each of those years the oil payment was valued at twice the value placed on the one-eighth unlimited royalty, although the one-fourth interest reserved for the oil payment, because it was limited to the payment of the stated amount and would automatically terminate when full payment had been made, was necessarily of substantially less value than a commensurate unlimited royalty.
*222The method used was fundamentally unfair and wrong because the Board persisted in declining to reduce the valuation of the oil payment when its value was necessarily and steadily decreasing as the amount of the balance due steadily decreased. It must be remembered that during these five years the production was very substantial and continuous, and that the balance due was during the entire period being reduced by the payments regularly made.
The method used was fundamentally wrong and discriminatory because during the years 1942 to 1946 the Board continued to value the oil payment as if it were unlimited royalty and declined to reduce its valuation, although the balance due on the oil payment was steadily declining, and at the same time and during each of those years valued the lessee’s interest in the reserved one-fourth, referred to as “reversion” or “equity,” at the nominal sum of $500, and did not increase that valuation.
The method used was illegal and arbitrary because, although the rule given for the valuation of oil payments such as that here involved in State of Texas (O’Connor) v. Quintana Petroleum Company, 134 Texas 179, 133 S.W. 2d 112, 134 S.W. 2d 1016, 128 A.L.R. 843, 850, was called to the attention of the taxing officials, and they were urged to follow it, they failed and refused to follow it. Apparently, the taxing officials followed the decision of the Court of Civil Appeals in that case, the effect of which was to charge against the lessors, the respondents, for taxes the full value of the fractional interest reserved for the oil payment as if it were unlimited royalty, and without reducing the valuation as the balance due on the oil payment became less, and to charge none of the value of that reserved fractional interest save the nominal sum of $500 against the lessee- The rule set out in the Quintana case, 134 Texas 179, 189, 133 S.W. 2d 112, 117, is:
“It is apparent that, where there is substantial production, as here, the right to a part of the minerals as they are produced, subject to the limitation that the right ceases when a certain sum has been realized from the proceeds- thereof, is not of as great value as would be the right to an equal part of the minerals not subject to limitation; and it is further apparent that the value of the lessor’s right or interest so limited, assuming continued production, will decrease each year. These facts must be taken into consideration in valuing such interest for taxation. Likewise it is apparent that the leasehold estate under this lease has a greater value on account of the limitation imposed upon *223the reserved 7/32 interest, with the provision that upon the termination of title under the reservation the 7/32 shall vest in the lessee, than it would have if the 7/32 interest had been reserved without limitation; and it is further apparent, still assuming continued production, that the leasehold estate will become more valuable each year as the time approaches when the 7/32 interest will vest in the lessee. And these facts must be taken into consideration in valuing the leasehold estate for taxation.” (Emphasis added.)
The opinion of the majority is in error in stating that there is no evidence in the record, save the amounts of the assessed valuations, that the Board refused to follow the rule of the Quintana case for valuing the oil payment. On the contrary, the record shows persistent and obstinate refusal on the part of the Board to follow it. As early as February 2, 1940, respondents wrote a letter to the tax collector of Yoakum County in which they referred to the fact that uncertainty had existed as to the correct method of valuing this property before this Court’s decision of the Quintana case, pointed out that the owner of the leasehold interest had been relying on the opinion of the Court of Civil Appeals in that case, quoted at length from this Court’s opinion in the Quintana case, and explained carefully that according to it the value of the interest reserved for the oil payment should be divided between the lessors and the lessee according to their respective interests. Following this letter some small adjustments were made in the valuations for the years 1938, 1939 and 1941, but it is thoroughly demonstrated by record evidence that the Board for the years 1942 to 1946 deliberately disregarded the rule thus called to their attention. They did not decrease the valuations placed on respondents’ oil payment, and they left at the nominal sum of $500 the valuation of lessee’s interest. The record also contains written protests made each year by respondents of the valuations placed on the oil payment. Further, Mr. Bartlett, deputy tax assessor and collector, testified that he attended meetings of the Board of Equalization during the hearings for the years 1942, 1943 and 1944, and that he knew that respondents continually pointed out from year to year that as the oil payment was paid off by virtue of production their interest in the oil payment became less valuable each year, and the lessee’s interest became more valuable each year, and that the valuation of the oil payment should be reduced, but he said that he did not agree with the contention. Questioned whether representatives of respondents were present every year trying to get the Board to consider their position, Mr. Bartlett answered: “They were down here, and for a number of years we laughed *224when we saw them coming — there comes the objectors again.” Despite all of these protests the Board adhered to its arbitrary method of valuing the property, kept placing on the oil payment the same values that it placed on a commensurate unlimited royalty, and charged the whole value of the reserved one-fourth against respondents, except the paltry sum of $500 charged against the lessee.
To support its conclusion that there is no proof of the use by the taxing authorities of an arbitrary and unjust method in valuing the oil payment, the opinion of the majority refers to testimony of the deputy tax assessor and collector, Bert Bartlett, that several factors were used in arriving at the valuations, including the amount of reserves, allowable, the price of oil, etc. Such testimony was given by Mr. Bartlett in answer to leading questions, but the testimony was directed generally to the valuing of interests in oil producing properties instead of being directed specifically to the method of valuing the property here involved. Futhermore, that isolated testimony is not contradictory of what is apparent from the entire record, including Mr-Bartlett’s testimony, as to the method by which the valuations of the interests here involved were made.
That method was this: The county employed experts, referred to as tax engineers, to investigate the oil producing properties and place values on the different interests in those properties. The experts made what Mr. Bartlett referred to as proposed values, to be submitted to the county officials, which were used by the county officials, save in exceptional instances. It was those experts who, in arriving at the values, took into consideration the various factors such as the number of producing wells and the other factors above referred to. Having made the investigation, the experts set a value on the seven-eighths working interest and a value on the one-eigth royalty interest, and then if they found that an interest had been taken out of the royalty or out of the working interest, they used for its value a proportionate part of the valuation of the royalty or of the working interest, giving consideration to the different terms of the overriding royalty or the oil payment contained in the instrument creating or retaining it. Bert Bartlett testified that if two different persons owned the one-eighth royalty, one-sixteenth being owned by each, the taxing officials took one-half of the value of the one-eighth royalty for the value of the one-sixteenth; that when an overriding royalty was found the same method was followed, using whatever fraction was owned, that is, taking the valuation that had been placed on the royalty interest, provided *225the overriding royalty did not bear operating expenses. And he testified that the same method was used in valuing oil payments, and was used in this case, the Whittenburg case.
It is apparent from this testimony and from the record evidence showing the valuations each year of the royalty interest and of the oil payment that when the tax experts and the county taxing officials came to value the oil payment owned by respondents they found that it was payable out of a one-fourth mineral interest not charged with operating expenses, and accordingly they gave it the value that they had decided upon for unlimited royalty, and charged the whole of the one-fourth interest to respondents, and that they thus valued it each year from 1942 to 1946, never reducing it and never increasing the value of the lessee’s “reversion” or “equity” in the reserved one-fourth.
The unfairness and illegality in the plan used do not consist in a failure to take various factors into consideration in the original valuation of the royalty interest. The tax engineers did take them into consideration in arriving at the valuation placed on the unlimited royalty interest. The illegality and unfairness are in the arbitrary use of the value of unlimited royalty in valuing the oil payment, in the refusal to reduce the valuation of the oil payment as the amount of the balance due on it was steadily reduced by payments, and in the arbitrary refusal to divide the value of the one-fourth interest between respondents and the lessee instead of charging all of it against respondents.
The opinion of the majority argues that even if an arbitrary and unfair method was used in valuing respondents’ property they are entitled to no relief and must pay on that valuation because there is no proof that respondents have been injured by the use of such a method. This harks back to the repeated statement heretofore answered that respondents made no proof that the valuations exceeded the fair market value, and therefore have not shown that they are required by the judgment to pay more taxes than they should pay.
Furthermore, under the record before us respondents have been injured by the use of the arbitrary and unjust method- It clearly appears that if the taxing officials had followed a legal and fair method respondents would not have been subjected to the payment of taxes in such a great amount as that which the trial court’s judgment imposes upon them. If the oil payment had been valued at less than the value of an unlimited royalty as it should have been, respondents’ taxes would have been less. *226If the valuation of the oil payment for taxes had been reduced each year as the balance due on its steadily became less each year, as it should have been reduced, respondents’ taxes would have been less. If all of the one-fourth reserved for the oil payment had not been charged against respondents but fair division of its value had been made between respondents and the lessee, respondents’ taxes would have been less.
Too much has been written, but there seems to be justification for it in the firm conviction that the record made proves conclusively the arbitrary use of an illegal and fundamentally wrong method in valuing respondents’ property for taxation for the years 1942 to 1946 inclusive.
A judgment declaring invalid the valuations and assessments made for the years 1942 to 1946 inclusive and denying to petitioner a recovery of taxes, interest and penalty on the basis of those valuations need not deprive petitioner of taxes on the property for those years, for the judgment could be rendered without prejudice to the right of petitioner to make a proper and fair revaluation and reassessment and collect taxes thereon.
I do not dissent from the part of the majority opinion which holds valid the valuations and assessments for the years 1947, 1948 and 1949, for the record does not show that the Board in valuing the oil payment for those years followed the arbitrary method that it used for the years 1942 to 1946. It did not during the three later years place the same values on the oil payment that it gave to like fractional interests of royalty, and it did not give to the lessee’s “equity” or “reversion” the mere nominal value of $500. The valuations, or some of the valuations, for the years 1947 to 1949 are excessive when compared to the values given to the unlimited royalty, and they, or at least some of them, are in amounts out of proportion to the values given to the lessee’s “equity” or “reversion,” when consideration is given to the percentages of the oil payment remaining unpaid. Such differences, however, are not clearly shown to have been caused by the use of a plan that is arbitrary or fundamentally wrong. The valuations for those years may be sustained as valid under such decisions as Victory v. State, 138 Texas 285, 158 S.W. 2d 760; State of Texas v. Houser, 138 Texas 28, 156 S.W. 2d 968; Zachry v. City of Uvalde, (Com. App.) 42 S.W. 2d 417; and Lubbock Hotel Co. v. Lubbock Independent School District, 85 S.W. 2d 776.
Opinion delivered February 24, 1954.
Rehearing overruled March 31, 1954.