Coline Oil Co. v. Cannon

1930 OK 39, 289 P. 763, 144 Okla. 133, 1930 Okla. LEXIS 677

• Court: Supreme Court of Oklahoma
• Decided: January 21, 1930
• Docket: 18321
• Status: Published

Opinions

TEEHEB. C.

In our consideration of this cause, we will refer to the defendants in error, Hal M. Cannon, trustee of the estate ■of J. S. Mullen, bankrupt, and W. M. Bonner, plaintiff and intervener, respectively, in the trial court, as plaintiffs, and plaintiff in error, the Coline Oil Company, as defendant, or by name, as the case may be. The cause was one to quiet the title to certain lands of the bankrupt estate acquired by Bonner, against an oil and gas lease thereon held by defendant.

Clarity of the matters for our decision first requires our references to the transactions giving rise to the case, to wit:

On July 30, 1913, J. R. Oottingham was the title holder of 1,940 acres of land situated in Carter county, and on that date he leased the same for oil and gas purposes to W. E. Hodges, the terms of which will hereinafter be noticed.

On May 24, 1915, Cottingham conveyed to J. S. Mullen 1,300 acres of the original tract subject to the lease thereon held by Hodges, hereinafter referred to as the Mullen tract. On November 17, 1915, the remainder of the land, 640 acres, was conveyed by Cottingham to the Coline Oil Company, which was also subject to the Hodges’ lease. On March 8, 1916, Hodges, the lessee, assigned the lease covering the original tract of 1,940 acres to the Coline Oil Company. This being unrecorded, another assignment on (March 8, 1920, was executed.

On November 13, 1922, Mullen was adjudged a bankrupt, with Cannon appointed as trustee of the bankrupt estate, who was, on July 12, 1924, by the bankruptcy court, duly authorized to -bring this action. The-suit was filed on July 15, 1924. Subsequent to the filing of the action, the Mullen tract was purchased by Bonner at a judicial sale of the property, who thereupon, by intervention, became the real party plaintiff in interest.

By suitable pleadings by the parties, both issues of law and fact were framed, which went to the right of defendant to hold the leasehold estate, the validity of the lease contract, severance of the lease as to the Mullen tract by extinguishment of the leasehold as to the fee acreage acquired by defendant by merger upon assignment of the lease to defendant, termination, and abandonment of the lease as respecting the Mullen tract, and trespass by the defendant upon the Mullen tract subsequent to termination of the lease resultant in damages to plaintiff Bonner through unauthorized extraction of oil and gas from the premises.

The cause being tried to the court, all issues of law and fact were in general terms found against defendant, and thereupon judgment was rendered quieting the title to the Mullen tract in plaintiff Bonner, and decreeing an accounting against the defendant for the oil and gas produced therefrom, which phase, by agreement of the parties, has been reserved for settlement following appellate action on this appeal.

The parties have forcefully presented a number of propositions for and against the judgment, several of which raise the general question of whether or not the lease as to the Mullen tract had terminated prior to the institution of the suit, if the lease on defendant’s fee acreage was extinguished as alleged by plaintiffs. Affirmative conclusion in these premises will dispose of the cause on appeal without consideration of the other questions raised.

The general question requires our notice of the terms of the lease contract relevant thereto, and our consideration as to whether or not the lease may have been affected by the acquisition of both the freehold and leasehold estates by defendant, and this well may be prefaced with the observation that, while de-endant refers to the contract as a lease or mineral deed, we will proceed on the theory that it was a lease, as (his wan defendant's theory in the trial court. As noted, the lease was made on July 30, 1913. At the time of the execution, there were a number of producing oil wells on that part of the leased premises later conveyed by lessor to defendant. In its con-stitutent elements, the lease is divided into three parts designated by article numeration.

Article 1 provided that the lands were leased to the lessee “for and in consideration of the payment of the sum of ($10.00) dollars, * * * and other good and valuable consideration, and of the performance by the lessee of the covenants hereinafter set forth to be performed by the lessee,” and “to have and to hold the same from the date of the execution hereof for a period of ten years and as long thereafter as oil or gas may be found in paying quantities on said premises.”

Article 2 dealt with the rights and privileges of the lessee. Thereunder ownership of all the wells then on the property passed to the lessee. As in ordinary leases there were provisions for ingress and egress and occupation of such parts of the surface necessary for the drilling and operation of wells, for derricks, gathering lines, and all other necessary equipment and machinery appurtenant and incident to the operation of a developed and productive leasehold, which xirovisions clearly indicated the intention of the parties that the leasehold should be further developed by the drilling of other wells though no shorter time than the ten-year period was fixed within which such new development should be commenced.

Article 3 related to other uses of the premises; provided for the payment of taxes by the lessee during the life of the lease which may be levied on improvements placed on the leasehold; nonliability of the lessee for damages resultant from the development and operation of the property for the purposes of the lease; that lessee was not required to maintain continuous production or operation, and that the leasehold should not be considered abandoned “unless the lessee shall have ceased to operate hereunder as to all of the wells then in existence for an unbroken period of two years at any one time, and the drilling of additional wells shall extend the lease for an equal periodremoval of all property placed on the premises by lessee upon the expiration of the lease “by limitation or abandonment or whenever the lessee shall conclude that oil or gas cannot thereafter be found in paying quantities on any of the above-described premises, or any part thereof,” and that:

‘ If the lessor shall in the future sell and transfer any of the above-described premises, the terms and conditions of this lease, and each and every part thereof, shall run with such part of such land so transferred, and be binding upon the grantees therein named.”

It is to be observed that the lessee did not provide for the payment of any royalty to the lessor, nor any rental postponement of the drilling wells within the ten-year period, as is usually the ease in this class of contracts.

So far as the record discloses, there were no producing wells drilled on any part of the lease during the ten-year period. One nonproductive well was drilled on the Mullen tract within that period. Three producing wells were drilled on the Mullen tract subsequent to the expiration of the primary term. At that time paying quantities of oil were being produced from the fee acreage acquired by defendant in 1915. In defendant’s gross production reports to the State Auditor, both prior and subsequent to the expiration of the primary term, it ■was stated that the wells on that part of the property defendant had acquired by deed in 1915, were being operated by it as owner of the land.

This state of facts defendant contends shows that the lease did not terminate upon the expiration of the primary term on July 30, 1928, and continued thereafter under the extension provision from the fact that oil and gas were being produced in paying quantities under and by virtue of the lease. Plaintiffs’ contend that upon acquisition by defendant of the freehold and the leasehold, the lease was extinguished as to that part of the leasehold covered by the Oottingham deed of November 17, 1915, by merger ’ of the lesser title with the greater which operated to constitute the Mullen tract as a separate lease, and that as the defendant did not by development render the Mullen tract productive of oil or gas in paying quantities before the expiration of the ten-year period on July 30, 1923, the lease on that date terminated, and the fact that defendant subsequently entered thereupon without plaintiff’s knowledge or consent, and by development rendered the same productive of oil and gas in paying quantities, did not operate as a revival of such lease.

The doctrine of merger of estates is a common-law rule, and has been well defined in Boykin v. Ancrum, 28 S. C. 486, 6 S. E. 305, 13 Am. St. Rep. 698, to be

“the annihilation of one estate in another. It takes place usually when a greater estate and a less coincide and meet in one and the same person, without any intermediate estate, whereby the less is immediately merged; that is, sunk or drowned in the greater.”

Of merger, in respect to a tenancy for years, in 2 Taylor’s Landlord and Tenant (9th Ed.) 97, par. 502, the author .says:

“Another means of dissolving the relation of landlord and tehant is :by an operation of law, called a merger; which follows whenever two or more distinct estates in the same lands are found to meet in the same person, without any intermediate estate. As, when a tenant for life, or for a term of years, purchases the fee, or the fee descends to him as heir-at-law; in either case, the lease is extinguished or merged in the inheritance, since there would be a manifest inconsistency in allowing a person to have two distinct estates, immediately expectant on each other, while one of them includes the time of both, thus uniting the different characters of landlord and tenant in the same person.”

In l Tiffany’s Landlord and Tenant, 87, sec. 12, subd. “G,” it is said:

“Such premature termination of the tenancy may be conveniently termed ‘destruction’ thereof as distinguished from its ‘expiration’ in accordance with the intention of the parties as expressed at the time of the making of the lease,”

—and that this may result

“by the voluntary concurrent action of the landlord and tenant, the voluntary action of one of them, or the action of the law without, reference to their desire or intention.”

Like announcement of the doctrine is made in 1 Washburn on Real Property (6th Ed.) 456, sec. 740; Tiedman on Real Property, 131, sec. 197. Many cases by these authors are cited illustrative of the principle in application, which, as are here pertinent, 'may be epitomized in the language of Shepard v. Spaulding 14 Metec) 45 Mass. 416, to wit:

“Where a lessee for years conveys his leasehold interest to his lessor, who is owner of the fee, by an instrument in the form of the lease which he received from him, the legal operation of such instrument is a surrender of the lease, and a merger of the term.”

The principle applies pro tanto, as was the case in Hill v. Reno, 112 Ill. 154, 54 Am. Rep. 222, where a lessee of an estate held in common purchased the fee in reversion of several of the cotenants, the court holding that such purchase to that extent operated as a merger of the term of the lease, and that as a consequence the covenant in the lease to pay rent, taxes, etc., were thereby extinguished as to the part of the reversion in fee purchased by the lessee. Following that application of the doctrine, in Higgins v. California Petroleum & Asphalt Co., 109 Cal. 304, 41 Pac. 1087, where two individual fee owners made a joint lease, and within the duration of the term of the lease, the lessee purchased the fee from one of the owners, it was held that the lease as to such part by merger was extinguished.

The doctrine of merger is recognized in respect to oil and gas leases. I Thornton’s Law of Oil & Gas (4th Ed.) 206, sec. 69; Thuss, Texas Oil & Gas, 17, sec. 11.

From the foregoing, it- is clear that the principle of merger of estates finds assertion where a leasehold title and a fee-simple title coincide and vest in a single person, as in the case at bar, on the theory that the owner of the estates cannot concurrently play the role of landlord and tenant. Being a principle of the common law, it constitutes a rule of action in this state. Section 170, C. O. S. 1921. In respect to a mineral lease, the principle finds legislative expression, as such a lease being in dignity a servitude (section 8429, C. O. S. 1921; First National Bank of Healdton v. Dunlap, 122 Okla. 288, 254 Pac. 729), vestment thereof and the servient tenement in the same person, by force of section 8438, C. O. S. 1921, extinguishes the servitude.

However, defendant urges upon us the rule that, unless it be the intention of the person in whom the different estates or realty interests unite, that merger should take place, equity will prevent merger where that result in some manner would operate to the disadvantage of such person, and contends that this is the situation here presented as merger would not only be to the disadvantage of defendant in respect to the remainder of the lease, but also that there was no evidence of intention that, upon assignment of the lease to defendant, the same should coalesce with the freehold to that extent. The rule in relation to the question of disadvantage rests upon the principle of subrogation, and thus presupposes the existence of some right in equity in the unitee by virtue of the union that rightfully should be available in his protection as against an existent junior equity of another which would be rendered a senior equity if the other were merged. The rule has often been applied in cases where the equities called for its application, as where a purchaser of realty acquired by assignment a judgment lien in protection of the realty acquired from the judgment debtor, or as where a mortgagee acquired a senior mortgage, in which case the assigned would be kept alive where equity so required as to protect the interests of the lien assignee as against an intermediate lienholder. This it may be said is the gist of the relevant cases cited by defendant in support of the rule. And see Lashley v. Dexter, 133 Okla. 297, 272 Pac. 427.

Seemingly, defendant goes beyond this conception of the equitable rule in this relation, as a theory appears to be advanced that nonintention of merger alone is sufficient to prevent that result by force of the law, as the burden of his argument in that connection, and excerpts from cited eases in support thereof so indicates. If that in reality be defendants’ theory, it must be denied, as certainly the individual fiat standing alone cannot be set up in contravention of the law of the case. The suggestion of such a theory carries with it the elements of its own destruction, for in application it would be subversive of the fundamentals of organized society where-under the individual will is subordinated to the collective will which is symbolized by the law of the state.

At the time of the assignment of the lease to defendant, there was no intervening estate to stay the force of the law, nor was there any equity involved within the meaning of the equitable rule that may be said to have a like effect. If intention of merger be requisite to the operation of the law, which may be either express or implied (2 Kerr on Real Property, 1163, section 1292), proof thereof is to- be found in the instrument of assignment which contained no provision for a reversion of the lease to assign- or under any contingency, and in the operation by defendant of that part of the original leased premises conveyed to it by the Cot-tingbam deed of November 17, 1915, as owner of the property rather than as lessee.

We are of the opinion, therefore, that, as defendant was the owner of the fee simple title to the OáOacre tract covered by the Oottingham deed of November 17, 1915, at the time of the assignment of the lease by Hodges to defendant on March 8, 1916, the leasehold estate as to the 640-acre tract merged with defendant’s fee-simple title thereto, and thereby to that extent the lease was extinguished, notwithstanding the provision of the lease that a sale or transfer of any part of the leased premises should carry with it the burden of the lease and be binding upon the grantee, as that provision by force of said section 8438, which, under a familiar principle, became a part of the contract, did not contemplate acquisition of the fee-simple title and the leasehold title by one and the same person, with the result that the lease continued as to the Mullen tract in respect to the terms thereof having particular application thereto. In other words, the lease stood unaffected by any provisions thereof that may be said to have had particular relation to that part of the original leased premises conveyed by the lessor in fee to defendant. This conclusion does not militate against the oft-repeated rule that courts will not make new contracts for parties, for here the situation is one that arose by operation of law upon the voluntary act of the parties.

In the situation thus brought about, it was clearly incumbent upon defendant, under the remaining terms of the lease, to have found oil or gas in paying quantities on the Mullen tract prior to the expiration of the ten-year period on July 30, 1923, in order to have continued in force the lease beyond that date and as long thereafter as oil or gas may be produced in such quantities. Roach v. Junction Oil & Gas Co., 72 Okla. 213, 179 Pac. 934; 1 Thornton’s Law of Oil and Gas (4th Ed.) 415, sec. 148. This was undertaken about three years before the primary term expired with failure in production. No further effort was made until about July, 1924. The fact that defendant at that time entered upon the premises without the knowledge • and consent of plaintiffs and reduced to control and possession oil in paying quantities did not have the effect of itself to revive a leasehold interest in the premises. Zeigler v. Daily, 37 Ind. App. 240, 76 N. E. 819. There having been no successful development within the ten-year period, the lease contract, on July 30, 1923, automatically terminated. Pettitt v. Double-O Oil Co., 82 Okla. 13, 198 Pac. 616; Curtis v. Harris, 76 Okla. 226, 184 Pac. 574; McKinley v. Feagins, 82 Okla. 193, 198 Pac. 997. In these circumstances it was not error for the court to render judgment quieting plaintiffs’ title to the property involved against defendant’s claim of a subsisting oil and gas lease thereon, on the ground that the term of the lease had expired. Anthis v. Sullivan Oil & Gas Co., 83 Okla. 86, 203 Pac. 187.

The judgment of the district court is therefore affirmed.

By the Court: It is so ordered.