Court Opinion

ID: 9636863
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:45:46.891048+00
Date Added: 2024-06-11T18:09:50.292659
License: Public Domain

PHILLIPS, Circuit Judge,
dissenting.
I respectfully dissent from the conclusion reached by the majority and will undertake to state my reasons therefor.
The assignment undertook to transfer to Grace Leydig all of the oil and gas royalties, either reserved by existmg leases or to be reserved by leases to be executed in the future, on the lands described in such assignment. In the ease of Miller v. Sooy, 120 Kan. 81, 242 P. 140, the court held that an instrument in the form of an assignment of a one-half interest in oil royalties, rents and bonuses to accrue to the assignor under any oil and gas lease, which the assignor might thereafter make on certain land, was valid and enforceable. The conclusion of the court in that ease is based upon the theory that such an assignment is valid in eqmty and takes effect when the future lease comes into existence. While the court held that such an assignment did not transfer the title to the oil and gas .underlying the land, it expressly held that such assignment effected a valid transfer of an interest in the royalties reserved in such future lease, upon such lease coming into existence.
In the ease of Bellport v. Harrison, 123 Kan. 310, 255 P. 52, the court held that:
“The ordinary and legal meaning of the word 'royalty,’ as applied to an existing oil and gas lease, is the compensation provided in the lease for the privilege of drilling and producing oil and gas, and consists of a share in the oil and gas produced. It does not include a perpetual interest in the oil and gas in the ground.”
In Horner v. Gas Co., 71 W. Va. 345, 76 S. E. 662, 663, the court defined “royalty” as follows:
“Generally, its legal import is a tax, a duty, a share imposed, like rent of a farm, *497for the privilege of using a property, a portion or sum given the author of a book for the use of his manuscript, to the inventor for the use of his patent, to the landowner for the use of his oil or gas.”
In Kissick v. Bolton, 134 Iowa, 650, 112 N. W. 95, 96, the court held that the word “royalty,” as employed in a coal mining lease, “means the share of the profit reserved by the owner for permitting the removal of the coal and is in the nature of rent.”
The right to receive unaecrued royalties is a species of incorporeal hereditament. It. is usually classed as real, as distinguished from personal property. State v. Royal Mineral Ass’n, 132 Minn. 232, 156 N. W. 128, Ann. Cas. 1918A, 145; Den ex dem. Farley v. Craig, 15 N. J. Law, 191; Hopkins v. Hopkins, 3 Ont. 223; Cox v. Snyder, 241 Ill. App. 475. It may be the subject of a grant or devise. Payn v. Beal, 4 Denio (N. Y.) 405; Hopkins v. Hopkins, supra; Ards v. Watkins Cro. E., 637, 78 E. Reprint 877. But whether such a right is real or personal property, an assignment thereof is a transfer of an interest in property.
If the assignment in the instant case amounted to merely an agreement upon the part of J. V. Leydig to pay Grace Leydig one-half of the future income, which he might receive from an oil and gas lease thereafter to be made, then he is clearly liable for the income tax accruing on the whole of such income. Corliss v. Bowers, 281 U. S. 376, 50 S. Ct. 336, 74 L. Ed. 916.
On the other hand, if such assignment effectuated a transfer of an interest in property when the second lease came into existence, then J. V. Leydig is not liable for the income arising from such interest so transferred. Bing v. Bowers (D. C. N. Y.) 22 F. (2d) 450; Id. (C. C. A.) 26 F.(2d) 1017.
The assignment employs the words “assign, set-over, transfer and convey,” language commonly employed to transfer an interest in real property. It also uses the words “royalty interests,” which aptly describe the subject matter of a grant. It is therefore my opinion that the assignment was not a mere agreement to pay money in the future, but that on the malting of the second lease such assignment effected a transfer to Grace Leydig of one-half of the royalties reserved to the lessors thereunder.
It follows that the Board of Tax Appeals erred in holding J. V. Leydig liable for income taxes on the whole of the royalties derived from the second lease.