Energetics, Ltd v. Whitmill

497 N.W.2d 497, 442 Mich. 38
CourtMichigan Supreme Court
DecidedMarch 30, 1993
DocketDocket Nos. 91653, 91656, (Calendar No. 10)
StatusPublished
Cited by35 cases

This text of 497 N.W.2d 497 (Energetics, Ltd v. Whitmill) is published on Counsel Stack Legal Research, covering Michigan Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Energetics, Ltd v. Whitmill, 497 N.W.2d 497, 442 Mich. 38 (Mich. 1993).

Opinion

*40 Griffin, J.

These consolidated appeals require us to decide whether certain severed oil and gas interests in a tract of land were properly "deemed abandoned” in favor of the surface owners by operation of the dormant minerals act. 1 Because, as we construe the act, 2 the interests in question were not abandoned, we reverse the decision of the Court of Appeals.

*41 I

The relevant facts bearing upon the principal issue in these appeals are not in dispute. 3 Elmer Benchley and his wife, Virginia, own the surface and an undisputed 35/80 interest in the oil and gas rights in an eighty-acre parcel of land in Clare County. The heirs of Edwin Whitmill claim a 40/80 interest in the oil and gas rights, and Northern Michigan Hospital Foundation (nmhf) claims the remaining 5/80 share of the oil and gas rights in the eighty-acre tract. However, the Whitmill and nmhf claims are challenged by the Benchleys, who contend that those severed interests were dormant for more than twenty years and therefore were abandoned by operation of the act.

With respect to each of the disputed interests, a lease was executed and recorded in 1951, giving Sun Oil Company the right to drill for oil and gas during a primary term of ten years. Each lease provided for termination after the first year or any year thereafter in which drilling or production operations were not undertaken unless "delay rental” payments were made by the lessee. The trial court determined that delay rental payments were made as required and that each lease remained in effect until the expiration of its primary term in 1961. 4

Subsequently, in 1977 in the case of the Whit-mill interest, and in 1978 in the case of the nmhf interest, similar leases in favor of another development company were executed and recorded. After *42 oil was discovered and production from the eighty-acre parcel began in 1985, an interpleader action 5 was initiated to determine the proper distribution of royalties. As surface owners, the Benchleys asserted title to the interests claimed by the Whit-mills and nmhf on the ground that no qualifying document had been recorded during a twenty-year period before the recording of the leases in 1977 and 1978.

. The trial court ruled that the statutory twenty-year dormancy period had not run, and that the disputed interests therefore were not abandoned. The circuit judge reasoned that when each of the Sun Oil leases expired in 1961, the leased interest was "transferred” back to the interest owner in accordance with the terms of a recorded instrument, and that a new twenty-year period then commenced. On appeal, the Court of Appeals disagreed, and reversed. 6 We then granted leave to appeal. 7

ii

Enacted in 1963, 8 the dormant minerals act focuses upon a problem that frequently arises when oil and gas rights are severed from the surface estate and then remain undeveloped for long periods of time. 9 In the words of one commentator:

*43 The problem results from the fact that perpetual or very long term mineral interests may be created during a period of activity in a particular industry, and these interests do not terminate when the activity ceases. Ownership of the minerals may thus be lodged in individuals who have long disappeared from the area, leaving no trace, and making it impossible to further develop the mineral estate .... [Polston, Legislation, existing and proposed, concerning marketability of mineral titles, 7 Land & Water L R 73 (1972).]

The act addresses this problem by providing, in summary, that ownership of a severed oil or gas interest shall be "deemed abandoned” in favor of the surface owner unless at any time during a twenty-year period:

• The interest has been "sold, leased, mortgaged or transferred” by recorded instrument;
• The owner has recorded a "claim of interest”;
• There has been "issuance of a drilling permit”;
• There has been "production or withdrawal of oil or gas” from land in which the interest is held, or from lands "pooled, unitized or included in unit operations” with lands in which the interest is held; or
• The interest has been used "in under_ground storage operations.”_

*44 However, as this Court explained in Van Slooten v Larsen, 410 Mich 21, 44; 299 NW2d 704 (1980), the purpose of the act is "not to vest title to the severed interests in the surface owner but rather is to facilitate the development of those subsurface properties by reducing the problems presented by fragmented and unknown ownership.” 10

iii

The Benchleys maintain that the dormant minerals act clearly and unambiguously requires a new recording at least once every twenty years in order to preserve ownership of a severed oil and gas interest. Appearing to adopt that position, the Court of Appeals panel in this case stated:

By requiring a periodic recording of mineral interests in the register of deeds office, once every twenty years, the Legislature provided a means of insuring that a person interested in purchasing or leasing mineral rights would have information, not older than twenty years, about the identity and whereabouts of the owners of those mineral rights. [189 Mich App 247, 256; 471 NW2d 641 (1991).]

We disagree with the Court of Appeals to the extent that its opinion can be read to suggest that the act is merely a "recording statute” which automatically triggers forfeiture of title whenever a twenty-year period elapses without the recording of an instrument. As already indicated, although the statute refers to five types of activity that toll *45 the running of a dormancy period, only the first two listed above involve a recording requirement. Even though recording clearly is an important component of the act’s design, the Legislature has not relied on recording as the exclusive means to further its objectives.

On the other hand, the Whitmills and nmhf advance two arguments to support their claims. First, they argue for an interpretation of the word "leased” in the act that would preclude the running of a twenty-year dormancy period while a severed interest remains subject to a recorded lease, asserting that an oil and gas interest is just as leased on the last day of a lease as it is on the first day.

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Bluebook (online)
497 N.W.2d 497, 442 Mich. 38, Counsel Stack Legal Research, https://law.counselstack.com/opinion/energetics-ltd-v-whitmill-mich-1993.