Court Opinion

ID: 9571244
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:30:12.637638+00
Date Added: 2024-06-11T12:30:10.347794
License: Public Domain

Fatzer, J.,
dissents: Since the question presented is one of first impression in this state and since it deals with the construction of a statute relating to the disposition of proceeds from our natural resources, I must express my disagreement with the court’s affirmance of the judgment.
Reduced to its simplest terms, the question presented is whether the proceeds of royalty from an oil and gas lease is income to which a life tenant under a will is entitled, or whether it is principal to be invested and conserved for remaindermen, with only the interest thereon being payable to the life tenant.
Had the decedent, Henry Von Lintel, showed a clear intention in his last will and testament with respect to the distribution of the proceeds from oil and gas leases, or from the permanent severance of natural resources, such intention would be controlling. (G. S. 1961 Supp., 58-902; Anno: Mineral Lease-Rights in Royalty, 18 A. L. R. 2d 104.) But the decedent’s will contained no provision for the disposition of royalties as it states that the life tenant is to have the “rents, income and profits” from the testator’s real estate during her lifetime. If any intention could be gathered from the decedent’s will, it would be that the life tenant’s interest did not include “royalties,” but was limited to income from the real property. Royalties from oil and gas leases are not entirely like rents received under an ordinary agriculture lease; they are compensation for the grant to the lessee of privileges with respect to the land and the minerals therein — compensation for rights carved out of the full ownership held by the lessor — by a contract employing the usual means by which the owner of land underlaid by oil and gas realizes upon that part of his property. (Miller v. Sooy, 120 Kan. 81, 83, 242 Pac. 140.) In the absence of any clear intention on the part of the testator, the court must look to the statutory rule enacted to govern under these circumstances. (G. S. 1961 Supp., 58-901, et seq.)
It is hornbook law that a grant of a life estate by its nature creates a limitation on the estate of the life tenant and establishes the rights of remaindermen. In Windscheffel v. Wright, 187 Kan. 678, 360 P. 2d 178, 89 A. L. R. 2d 636, it was held that the relation *798of a life tenant to a remainderman is frequently termed that of a trustee or quasi trustee; that the life tenant is a trustee in the sense that he cannot injure or dispose of the property to the injury of the rights of the remainderman, but he differs from a pure trustee in that he may use the property for his exclusive benefit and take all the income and profits. In the absence of language or circumstances to the contrary, the court presumes the testator intended that the life tenant and remainderman should enjoy his bounty equally and that the natural resources should not be “swallowed up” by the life tenant’s use or enjoyment thereof, leaving little or nothing to the remainderman. The severance of oil and gas in place is in effect the sale or disposition of a portion of the land (Lathrop v. Eyestone, 170 Kan. 419, 227 P. 2d 136) and a life tenant has no right to exploit such natural resources of the property for his own benefit, (Burden v. Gypsy Oil Co., 141 Kan. 147, 153, 40 P. 2d 463.)
In 1931 the National Conference of Commissioners on Uniform State Laws attempted to remedy the inequities of the common-law rule allowing complete exhaustion of natural resources by a life tenant to the exclusion of remaindermen, when it drafted and approved the Uniform Principal and Income Act. The act was adopted by our legislature in 1951 (G. S. 1961 Supp., 58-901, et seq.) to provide rules governing “the ascertainment of principal and income, and the apportionment of receipts . . . between tenants and remaindermen,” in all cases except where the person establishing the “principal” directed the apportionment. (G. S. 1961 Supp., 58-902.) No one questions the fact that once such a statute is enacted, its provisions govern the question presented to the exclusion of any prior case law or common-law rules to the contrary. In Williams v. City of Wichita, 190 Kan. 317, 374 P. 2d 578, it was said:
". . . From the earliest days of Kansas history, flexibility in the common law has been carefully preserved (G. S. 1949, 77-109). Indeed, the great office of statutes is to remedy defects in the common law as they are developed and to adapt it to the changes of time and circumstances. That the legislature may change the principle of tire common law and abrogate decisions made thereunder when in its opinion it is necessary to the public interest is well settled. . . .” (l. c. 331.)
The Uniform Principal and Income Act was adopted prior to the establishment of any of the interests involved in this case, and I am in accord with the majority opinion that 58-909 relating *799specifically to the disposition of natural resources is controlling, but in addition to that section other sections must be considered if the intent and purpose of the act is to be ascertained. Hence, I quote pertinent sections of the act.
“ ‘Principal’ as used in this act means any realty or personalty which has been so set aside or limited by the owner thereof or a person thereto legally empowered that it and any substitutions for it are eventually to be conveyed, delivered or paid to a person, while the return therefrom or use thereof or any part of such return or use is in the meantime to be taken or received by or held for accumulation for the same or another person;
“ ‘Income’ as used in this act means the return derived from principal;
“ ‘Tenant’ as used in this act means the person to whom income is presently or currently payable, or for whom it is accumulated or who is entitled to the beneficial use of the principal presently and for a time prior to its distribution;
“ ‘Remainderman’ as used in this act means the person ultimately entitled to the principal, whether named or designated by the terms of the transaction by which the principal was established or determined by operation of law;
“‘Trustee’ as used in this act includes the original trustee of any trust to which the principal may be subject and also any succeeding or added trustee.” (58-901.)
“This act shall govern the ascertainment of income and principal, and the apportionment of receipts and expenses between tenants and remainder-men, in all cases where a principal has been established with or, unless otherwise stated hereinafter, without the interposition of a trust; except that in the establishment of the principal provision may be made touching all matters covered by this act, and the person establishing the principal may himself direct the manner of ascertainment of income and principal and the apportionment of receipts and expenses or grant discretion to the trustee or other person to do so, and such provision and direction, where not otherwise contrary to law, shall control notwithstanding this act.” (58-902.)
“Where any part of the principal consists of property in lands from which may be taken timber, minerals, oils, gas or other natural resources and the trustee or tenant is authorized by law or by the terms of the transaction by which the principal was established to sell, lease or otherwise develop such natural resources, and no provision is made for the disposition of the net proceeds thereof after the payment of expenses and carrying charges on such property, such proceeds, if received as rent on a lease, shall be deemed income, but if received as consideration, whether as royalties or otherwise, for the permanent severance of such natural resources from the lands, shall be deemed principal to be invested to produce income. Nothing in this section shall be construed to abrogate or extend any right which may otherwise have accrued by law to a tenant to develop or work such natural resources for his own benefit.” (58-909.)
Whether this court has previously adopted the “open mine” or the “unopen mine” common-law rule or doctrine is not a question *800requiring decision in this case. That is purely academic since this litigation must be decided by the terms of the act. Nor can I agree with the majority opinion “that the statute only attempts to cover a situation where the trustee or life tenant makes the lease or otherwise develops the natural resources.” It is well settled that a life tenant has no right to exploit the gas and oil resources of the property for his own benefit, or to authorize by lease or otherwise, another to do so, where the lease was not executed or development begun until after the commencement of his life estate. (Benson v. Nyman, 135 Kan. 455, 16 P. 2d 963; Burden v. Gypsy Oil Co., supra; Fourth & C. Tr. Co. v. Woolley, 31 Ohio App. 259, 261, 165 N. E. 742; 43 A. L. R. 811; 18 A. L. R. 2d 104.) If, however, the life tenant and the remaindermen join in an oil and gas lease, they may agree as to the division of the royalties, and in the absence of such an agreement, the life tenant is entitled either to have the royalties invested and receive the income therefrom, or to receive an apportionment of the royalties dependent upon the value of his expectancy. (Burden v. Gypsy Oil Co., supra.) The Uniform Act was intended to remove any distinction with respect to the division of “royalties” regardless of when the oil and gas lease was executed on property devised to one for life with remainder over in fee where production was begun after the commencement of the life estate.
The word “principal” is defined in 58-901 as any realty which has been set aside or limited by the owner — here the testator— to be delivered to a person — in this case the life tenant — for the term of her natural life. Thus, the real property here involved, the “principal” referred to in 58-909, from which oil, gas or other natural resources are produced, was devised by the testator to the defendant widow subject to the oil and gas leases and was limited for her use during her lifetime without direction as to the distribution of royalty proceeds from oil and gas leases. The phrase “by the terms of the transaction by which the principal was established” can only mean the decedent’s will. It was that instrument which established the life estate and the remainder estate in fee, and I think it is clear that the oil and gas leases executed by the testator in his lifetime did not do so. The terms of the transaction by which the “principal” was established, that is, the life estate in the real property, was created solely by the decedent’s will and there is nothing in that instrument which is any guide to the court in determining the intention of the testator *801with respect to the disposition of the royalty proceeds in question. In fact, the majority opinion concedes this fact when it states: “The will . . . contains no language which will aid in the determination of this controversy.”
Although 58-909 is lacking in clarity, it is my opinion that its intent and purpose is to prescribe a rule in all cases where a testator devises real property to one for life with remainder in fee to others and fails to apportion the royalties between the two estates from oil, gas or other natural resources produced after his death pursuant to a lease executed by him during his lifetime. In that event the proceeds are received as consideration or compensation for the right to drill and produce the natural resources, and are deemed to be principal as defined in 58-901 to be invested to produce income to be paid to the life tenant pursuant to 58-909. (28 California Law Review, The Uniform Principal and Income Act, pp. 44, 45.)
The fact that the decedent’s will contained no language authorizing the life tenant to execute oil and gas leases or to otherwise develop the natural resources is not persuasive since the act was intended to govern the ascertainment of income and principal, and the apportionment of receipts between a life tenant and the remaindermen in all cases where the “principal” was established subject to the right to drill and produce oil and gas by the lessee without the testator directing the manner of the apportionment of receipts between the two estates. (G. S. 1961 Supp., 58-902.) As I view the act, it becomes immaterial, under the facts and circumstances of this case, when or under what circumstances the testator executed the oil and gas leases where production occurred after his death. The term “royalty” in its ordinary meaning is that part of oil and gas payable to the lessor by the lessee out of oil and gas actually produced and saved. It is the compensation or consideration to the lessor provided in the lease for the lessee’s privilege of drilling and producing oil and gas. It does not include a perpetual interest in or to the oil and gas in place. (Bellport v. Harrison, 123 Kan. 310, 255 Pac. 52; Rathbun v. Williams, 154 Kan. 601, 121 P. 2d 243; Hickey v. Dirks, 156 Kan. 326, 330, 133 P. 2d 107.) Clearly, royalty proceeds are not received as rent on an oil and gas lease, but are received as compensation or consideration for the permanent severance of the natural resources from the land within the mean*802ing of 58-909, and are to be deemed principal to be invested to produce income for the use of the life tenant.
The over-all purpose of the Uniform Act was to provide a just and fair rule which would protect the remaindermen s interests as well as provide the life tenant an income, without depriving the remaindermen of any benefit or ownership of the sale of a portion of their interest of the real estate in fee. I cannot import to the legislature an intention to ratify and confirm a rule of property law which the majority opinion states this court has adopted, but, rather, I view the Act as a legislative declaration, in the absence of a settlor’s or testator’s direction otherwise, to make the severance of oil, gas and other natural resources principal, to be invested to produce income for the life tenant for her fife and upon her death, to be distributed among the fee simple owners. I would reverse the judgment of the district court.