Court Opinion

ID: 9673995
Source: CourtListenerOpinion
Date Created: 2023-08-24 04:21:41.157083+00
Date Added: 2024-06-11T18:16:24.487020
License: Public Domain

Ed. F. McFaddin, Justice (Dissenting). The majority is holding that the owner of a nonparticipating royalty1 is a necessary party in a suit to cancel an outstanding oil and gas lease; and I dissent from such holding. In May, 1938, McWilliams and others, as owners of the surface and minerals, executed to Childers an oil and gas lease, which, by assignment, is now owned by the appellants, Hunt, et al. This was a regular 88 and l/8th commercial oil and gas lease, in which the lessors were to receive l/8th royalty of all oil, etc., produced. After the execution of the lease, McWilliams acquired the interest of the other landowners; and thereafter, McWilliams executed certain nonparticipating royalty deeds, hereinafter to be discussed; but he continued, at all times, to be the owner of the lands and the participating mineral rights. In 1948, McWilliams, as plaintiff, brought this suit against Hunt, et al., to cancel the lease, because there had been no development2 on the 40 acres here involved. Hunt, et al., claimed that all of the nonparticipating royalty holders should have been made parties to this suit; and the majoritjr is holding that Hunt’s contention was correct. There is no suggestion that McWilliams, in seeking to cancel the lease, is prompted by motives that would fraudulently affect the holders of the nonparticipating royalty.3 Tlie only point decided by tbe majority is that a nonparticipating royalty holder (holding under an instrument now to be copied) is a necessary party to this suit; and that is the point on which I dissent. Essential to an understanding of this case — and, from my point of view, determinative of the issues — is the exact wording of the nonparticipating royalty deed here involved. I copy the pertinent provisions: McWilliams conveyed to one grantee “An Undivided 5/113 interest in and to all of the oil, gas and other minerals, in, under and upon the following described lands.” Then follows the description of the 80 acres. Immediately after the description, the deed contains the language which makes it a nonparticipating royalty deed and which reads as follows : “The grantor herein expressly reserves to himself, his heirs or assigns, the exclusive right to lease said lands, or any part thereof, for oil and gas purposes, without interference or hindrance upon the part of the grantee, her heirs or assigns; and the grantee herein, her heirs or assigns, shall never be entitled to receive any part of the consideration, cash or otherwise, paid or to be paid, for any oil and gas mining lease heretofore or hereafter executed covering said land, or any part thereof, nor shall the grantee, her heirs or assigns, ever be entitled to receive any part of any delay rentals to defer the commencement of drilling operations provided by any such lease; and the grantee herein, her heirs or assigns, shall not be required to join in the execution and delivery of any oil and gas mining lease covering said land, or any part thereof, in order to convey good title to lessee thereunder, PROVIDED, that the grantor herein expressly covenants with the grantee that no oil and gas mining lease shall ever be executed covering the above land, or any part thereof, that shall reserve to the grantor herein, his heirs and assigns, as royalty, less than one-eighth of all of the oil and gas produced and saved from said land and this covenant shall be deemed a covenant running with the land. “It is the intention of the parties hereto that the grantee herein, her heirs, or assigns, shall be entitled to receive hereunder 5/113 of all oil and/or gas run to the credit of the royalty interest reserved under and by virtue of any oil and gas mining lease now in force and effect covering said land, and under any oil and gas mining lease hereafter executed covering said land, or any part thereof; and in any event the grantee herein, her heirs or assigns, shall be deemed the ’ owner of and shall be entitled to receive 5/904 part of all oil and gas produced and saved from said land, or any part thereof. ’ ’ Except as to the interest conveyed, each of the other nonparticipating royalty deeds executed by McWilliams contains language identical to that copied above; and I maintain that the plain language of the nonparticipating royalty deed makes the majority holding indefensible. I point out: (1) —Clearly, the parties to the nonparticipating royalty deed intended that McWilliams should have the unrestricted right to again lease the land for the production of oil and gas after the termination of the existing lease. If Hunt had voluntarily released the oil and gas lease on the west 40 acres, McWilliams could have executed a new lease without consulting the nonparticipating royalty holder. Why, then, is it necessary for McWilliams to bring in these nonparticipating royalty holders in his suit to obtain a cancellation from Hunt, when if Hunt had voluntarily surrendered, McWilliams could have leased without consulting the nonparticipating royalty holders ? (2) At the time the nonparticipating royalty deeds were executed in this case, it was well known to all informed persons that a portion of an oil and gas lease covering lands in Arkansas could be forfeited for non-development.'4 Such forfeiture is not self-executing but must be effected by a decree in Chancery. If a part of an entire tract could be forfeited for nondevelopment of such part, then by no process of reasoning can I see why one royalty holder cannot declare his part free of a lease without being required to bring in all of the other royalty holders. (3) — I submit that if the holder of a nonparticipating royalty deed is a necessary party to a suit to cancel a pre-existing lease — as the majority holds' — then the same reasoning carried to its logical conclusion would mean that the holder of a nonparticipating' royalty deed is an essential party to sign a new oil and gas lease on the premises. I don’t believe the majority of the Court will ever go that far. It would certainly be revolutionary in the oil business for a person holding such an instrument as the one here copied to have to be consulted about the execution of a lease, when the very instrument under which he claims, says that he has no right to be consulted. The majority opinion cites five cases but only one of these is a case involving a nonparticipating' royalty deed. That case is Calcote v. Texas Pacific Coal and Oil Co., 157 Fed. 2d 216, 167 A. L. R. 413, and is an opinion from the Circuit Court of Appeals of the Fifth Circuit. The full text of the nonparticipating royalty deed there involved is not contained in the opinion. But at all events, the zealousness, with which Federal Courts watch the matter of diversity of citizenship and indispensable parties, is well known; and that opinion from a Federal Court in another Circuit should not. be seized upon as sufficient justification to change the contractural rights between parties as stated in the instrument under which they claim. A recent case not cited by the majority, and apparently opposed to the Calcóte case, is that of Superior Oil Co. v. Stanolind Oil Co., 230 S. W. 2d 346. It was decided by the Eastland Texas Court of Civil Appeals, and a writ of error was granted by the Supreme Court of Texas on January 10, 1951 (148 Texas 648). The crux of the whole question in the case at bar is whether the rights of the grantor and grantee in a nonparticipating royalty deed are to be determined by the clear language of the said instrument.   In 3 Arkansas Law Review 190, there is an article entitled “Arkansas Form of Royalty Deed for Oil and Gas Conveyances”; and in speaking of “a nonparticipating royalty interest” the writer says, “By which is meant only the right to share in the royalty to be delivered by lessee under a present or future lease, . . .”    See Poindexter v. Lion Oil Co., 205 Ark. 978, 167 S. W. 2d 492; Ezzell v. Oil Associates, 180 Ark. 802, 22 S. W. 2d 1015; Standard Oil Co. v. Giller, 183 Ark. 776, 38 S. W. 2d 766; and Drummond v. Alphin, 176 Ark. 1052, 4. S. W. 2d 942.    In the majority opinion there is the statement, “We assume— and the assumption presupposes that none of the parties here are actuated by ulterior motives — that in seeking cancellation, the landowner did not intend to serve his own interest to the detriment of royalty holders.”    See cases cited in Footnote No. 2, supra.