159 P.2d 340 | Mont. | 1945
Lead Opinion
Royalty interests in oil and gas are taxable only on the net proceeds from the production of said oil and gas and are not taxable with and as a part of the land on an advalorem basis.
"Royalty" where used in connection with oil and gas interests has a well defined meaning in Montana. It means a share of the product or profit paid to the owner of the property. Homestake Exploration Corp. v. Schoregge,
It will be observed that, in the form of conveyance used by the original owner in the present instance, the land owner expressly conveyed "all of his right, title, and interest in and to a percentage royalty of all of the oil and of all of the gas produced and saved from" the land owned by him, and royalty interest conveyed is made perpetual by expressly providing that the "royalty" is assigned "under the lease now covering said lands as well as any lease or leases that may be hereafter made covering said premises." The conveyance also contains a covenant warranting title to the royalty interest conveyed (R. 10-13).
The interest transferred was and is a present interest in the oil and gas saved, that is a share of the product from the land and consequently the interest conveyed is a "royalty" within the definition adopted by the Supreme Court of Montana in the cases above cited.
This "royalty" interest in the minerals in the land is real property and the owner has the right to transfer such interest, and the grantee of the "royalty" acquires and is vested with ownership in perpetuity of an interest in fee in land and in real property. Broderick v. Stevenson Consol. Oil Co.,
The foregoing authorities demonstrate that this Supreme Court definitely adheres to the principles of divisibility and separate ownership of mineral interests in oil and gas in land and that such interests are real property.
The combined assessment of the mineral interest with and as a part of the assessment of the land without segregating the respective taxable interests of the owners thereof, is wholly void.
In Montana taxes are levied upon persons and not the property owned by the person. The value of the property owned is merely the measure by which the amount of the taxes to be levied is determined. This appellate court in reaffirming this legal theory of taxation in the case of Wheir v. Dye et al.,
"This Court has long been committed to the theory that all taxes are levied upon persons and not upon property; that it is the person who is taxed, and that while strictly speaking the property which the person owns is used to determine the amount of tax he shall pay, it is the person who after all pays the tax. The person is liable. In addition to the property being a means of determining what the person shall pay, it is also security for the payment." (Citing Ford Motor Co. v. Linnene,
As heretofore discussed (ante pp. 2-5) the law recognizes the separate property ownership of the respective mineral and surface interests owned by different persons. It also insists that each person be taxed upon the basis of the property owned by him, and not by property owned by another.
Where the ownership of the minerals is divided or where there is a division of the mineral and surface interests, each owner is taxable upon the value of his interest only. Homestake Exploration Corp. v. Schoregge,
The judgment decreed that all assessments and tax levies for the years 1927 to 1940, inclusive, were wholly void, and permanently enjoined the defendants from executing or issuing, and defendant county from demanding or receiving, any purported tax deed based upon sale for collection of tax levies for those years, or any thereof.
Plaintiff's and respondent's contention is that his oil and gas royalty interest constitutes a separate fractional mineral title in fee simple segregated from the rest of the fee title to the land, and that the combined assessment of the mineral interest with that of the remaining interests in the land, without segregating the respective interests of the various owners, was wholly void and will not support tax deed proceedings.
Defendants' contention is that the oil royalty is not a fee-simple interest in the land since it relates only to personal property, namely, to oil and gas after production and severance from the real estate; that it, therefore, like the oil lease, constitutes only a profit a prendre which, although an interest in land, is not a separate fractional title in fee, but is incident to and dependent upon that title and falls with it upon issuance of tax deed; that it can be protected only by due payment of or redemption from the tax levied against the fee-simple title.
The question therefore is whether the royalty assigned to *432 plaintiff constitutes an undivided fractional fee-simple interest in the oil, gas and other minerals in place, segregated from the balance of the fee-simple title and therefore to be taxed separately and not included with DeGroat's fee-simple interest for taxation purposes.
It is well settled that the title to mineral interests in[1] land, including oil and gas interests, may be segregated in whole or in part from the rest of the fee-simple title (Krutzfeld v. Stevenson et al.,
This court long ago adopted the standard and universal[2] definition of royalty. In Hinerman v. Baldwin,
This court repeated the same definition in Homestake Exploration Corporation v. Schoregge,
"The general rule is that: `Both petroleum and gas, as long as they remain in the ground, are a part of the realty. They belong to the owner of the land, and are a part of it as long as they are on it or in it, or subject to his control.' Gas Products Co. v. Rankin,
"`The owner of the fee has the same title to the oil and gas in place which characterizes the ownership of solid minerals in like circumstances, but by his lease, regardless of the form of the granting clause, he does not intend to convey the oil and gas in place or any interest therein. * * * By a lease of this description the lessee is vested with a present property right in the leased premises, namely, to search for oil and gas under the conditions of the lease and to appropriate them as personal property if found, yielding the stipulated royalty. This is a right to take a profit from the lands of another, and within the common law classification may be regarded as a profit a prendre.' Veasey on Oil and Gas, 18 Mich. Law Review, 773. * * *
"By the provisions of these leases and the assignments the operator or lessee is given merely a right to enter upon the land for the purpose of exploring for oil, and developing and producing the same, if found. The lessee acquires no corporeal interest in the land itself, but rather a privilege a prendre. Until the actual discovery of oil, the interest of the lessee in the land is inchoate. Oil remaining in the ground before recovery is a part of the land, and belongs to the owner of the land; but, when recovered, it becomes personal property. Such personalty is thereupon subject to division in accordance with the terms of the contract of lease."
In that case this court pointed out that the royalty, whether of the kind known as landowner's royalty or that known as overriding royalty, constituted an interest in the privilege of *434 producing minerals, and in the personal property when and as severed and produced from the land, but not an interest in the minerals in place; in other words, it is a privilege a prendre, and not a portion of the fee-simple title. To the same effect is Broderick v. Stevenson Consolidated Oil Co., supra.
Again in Northern Pacific Ry. Co. v. Gas Development Co.,
Thus the concept of royalty is very different from that of the fee-simple title to minerals in place in the ground, as involved in Krutzfeld v. Stevenson et al.; Broderick v. Stevenson Consolidated Oil Co.; and Hodgkiss v. Northland Petroleum Consolidated, supra. The difference is well summarized as follows in Hickey v. Dirks,
Glassmire's "Oil and Gas Leases and Royalties," 2d Ed., clearly explains the difference as follows:
"A mineral deed is an instrument in the form of a general warranty deed which grants or transfers the minerals in place, or the right to obtain them. It conveys the minerals themselves, which produce the royalty, subject to the lease. To avoid confusion of terms, the distinction must be kept clearly in mind between the thing itself and the proceeds of the thing. *435
"It was recognized that simple assignments of royalty proper, accruing under a lease, conveyed nothing except proceeds when and as obtained, or purely personal property interests. Something more definite and perpetual was demanded, and the mineral deed, as covering oil and gas, then came into its own and accomplished its primary purpose of separating the fee estate in the minerals from the fee estate in the land, not as an operating contract, but as an instrument by which royalties might be obtained in the same way as the owner of the land might obtain them. A royalty proper is a participation in the proceeds derived under the terms of the lease. A mineral deed is not a `royalty' but is an evidence of mineral ownership, or the rights thereto, which interest may or may not produce a royalty under an existing or subsequent lease. * * * (Section 23.)
"Mineral deeds are often erroneously called `royalty deeds,' but that designation is a misnomer for it confuses the royalty proper with that which produces the royalty, or rather it mistakes the proceeds of the thing for the thing itself. * * *
"A conveyance or assignment of royalty for a definite or indefinite term of years does not anywhere constitute a grant of minerals, and no severance from the land is consummated under them. Even in Texas, an ownership state, it has been held that an assignment of rents and royalties accruing under an existing lease amounts merely to a transfer of personal property and is not such a conveyance of land as to bring it within the statute of frauds." (Section 21.)
The subject is similarly discussed in 3 Summers Oil and Gas, Perm. Ed., Chapter 20, in which that authority says, at page 500: "Purchasers of oil and gas rents and royalties have apparently realized partially, if not fully, the precarious nature of the interest procured by a deed granting only rents and royalties under existing and future leases. Consequently many of the royalty deeds now in use purport to grant, not only the rents and royalties under an existing lease, but in addition a proportionate interest in the present or reversionary mineral *436
fee, so that upon expiration of the existing lease the grantor and grantee, or their successors in interest, become owners of the oil and gas and other minerals under the land as tenants in common with legal powers to execute, jointly, a new lease. It would seem to be a simple matter to make this type of conveyance so that there would be no doubt as to the extent and character of the interest or interests conveyed." In a note the author refers to a number of cases in which such deeds of mineral interests are found, including Hochsprung v. Stevenson,
It will be noted that Professor Summers refers to the fact,[3, 4] mentioned above in connection with our discussion of the definition of "royalty," that if the conveyance is of a portion of the fee-simple title to minerals in the ground, the grantee becomes a tenant in common with the grantor as to that title and must join in subsequent leases; otherwise his interest will not be included. Therefore the grant of royalty under future leases is inconsistent with an intention to convey part of the mineral title itself.
The authorities emphasize that it is only by virtue of his ownership of the minerals in place that the lessor is entitled to exact a royalty of part of the oil and gas produced, but that it is neither necessary nor usual for him to convey any part of the mineral title in order to transfer the corresponding royalty interest. Thus where only a royalty interest is purported to be transferred there is no justification for an attempt to read into the grant another and greater interest. This is true whether the express recital is of a royalty interest in general, or of a royalty interest under an existing lease, or of a royalty interest under any and all leases thereafter given. In fact, where the instrument, as here, expressly purports to include royalties under future leases, it is logically impossible to infer the conveyance of mineral interests. For, as noted above, it is impossible *437 for the grantor to make leases covering mineral interests theretofore conveyed to others, and futile for him to attempt the assignment of the corresponding royalties. It follows that the express assignment of royalty in future leases utterly negatives an intent to convey title to the assignee so as to make him a tenant in common, with full authority over his own share of the ownership. It is only where no title, but only a royalty interest is transferred, that a reference to royalty under future leases can have any meaning.
The most recent case we have found concerning a transfer of royalty interest under both existing and future leases is Riffel v. Dieter,
Decisions can be found expressing, or seeming to express, various shades of opinion as to the effect of the reservation or assignment of royalties upon the fee-simple title to minerals in and under the land; but the differences or apparent differences have usually resulted from a failure to distinguish between royalties and mineral interests.
A clear instance of this confusion is plaintiff's reliance upon Broderick v. Stevenson Consolidated Oil Co., supra; Krutzfeld v. Stevenson et al., supra; and Marias River Syndicate v. Big West Oil Co.,
The court was not there speaking of a royalty interest. It expressly distinguished between a mere royalty interest and a conveyance of an interest in the mineral title, and indicated that a mere royalty assignment, like an oil lease, does not constitute a conveyance of part of the estate in fee, but only an assignment of a right dependent upon the assignor's fee.
We have found no Montana decision to the contrary. Fulton Oil Co. v. Toole County,
There are some decisions to the contrary, notably in California, whose courts reject the principle, well settled in Montana, that fee-simple interests can be created in oil and gas in place underground; they therefore recognize no difference between royalty assignments and mineral deeds.
As noted above, plaintiff's sole contention is that the royalty interest is separately taxable because it constitutes "an interest *439 in fee of land." The dissent, however, suggests the further question whether under our statutes real property taxes are limited to fee-simple titles. It is true that section 1996, Revised Codes, provides that, for taxation purposes "The term `real estate' includes:
"1. The possession of, claim to, ownership of, or right to the possession of land.
"2. All mines, minerals, and quarries in and under the land, subject to the provisions of section 2088 of this code, all timber belonging to individuals or corporations growing or being on the lands of the United States, and all rights and privileges appertaining thereto.
"3. Improvements."
Reference is made to the second part of the definition. However, that is expressly made "subject to the provisions of section 2088 of this code," which provides, in accordance with section 3 of Article XII of the Constitution of Montana, that "all mines and mining claims, both placer and rock in place, containing * * * valuable mineral deposits, after purchase thereof from the United States, shall be taxed at the price paid the United States therefor." The only other provisions are that any separate and independent surface value of such mine or claim shall be taxed at its full value for such other purposes; that machinery and surface improvements having a value separate and independent of mines and mining claims shall be taxed as other personal property, and that the annual net proceeds of all mines and mining claims shall be taxed as other personal property.
Assuming what the record does not show, that this land was[5] purchased from the United States as mines or mining claims, either placer or rock in place, certainly a royalty interest does not constitute a surface value, or machinery, or improvements with a value independent of such mines or mining claims. Therefore if included in the first three items of section 2088 at all, it is merely as an incident to the mine or mining claim, which is to be taxed "at the price paid the *440 United States therefor." It is not included in the fourth item, "annual net proceeds," which are to be taxed "as other personal property"; for it is not such proceeds, but represents only the right to a portion of proceeds which may possibly follow in the future. Thus that subdivision of the definition does not support the dissent.
Apart from the express reference to section 2088, the[6, 7] provision is only one of three subdivisions of the definition. If it contemplates a separate assessment and taxation of the various items mentioned, so do the other two subdivisions. The first subdivision refers to the "right to the possession of land." However, it does not follow that the assessor must attempt the separate assessment of every separate possessory interest or right in land, whatever its character. Tenants, like lien-holders and the owners of other interests less than the fee, understand that their interests are not independent of, but are dependent upon the landowner's title, and usually therefore are not separately assessed and taxed. A month to month lease gives a right to the possession of land, but such tenancy has never been considered as an estate taxable separately from the fee. The same is true as to all ordinary tenancies constituting less than an estate of inheritance, including even an estate for life. With respect to the latter the law is not that it shall be taxed separately from the fee, but that "the owner of a life estate * * * must pay the taxes" (Sec. 6776, Rev. Codes), which means the entire tax upon the land itself. Anderson v. McClenathan,
The general rule is stated by textwriters as follows:[8] "Ordinarily, a leasehold interest, although technically a chattel, is not assessable as such against the owner thereof, but is regarded as one of the lesser interests to be included in the single assessment against the owner of the freehold estate in the land. However, * * * under some statutes a leasehold must be valued separately." 61 C.J. 632, sec. 779. "Land or any estate or interest therein is undoubtedly property; but inasmuch as a parcel of land is generally taxed as a unit, the *441 different estates or interests therein are not separately assessed." 51 Am. Jur. 437, sec. 415. The latter rule has been changed in Montana, but only as to separate interests in fee. Northern Pacific Ry. Co. v. Mjelde; Anaconda Copper Mining Co. v. Ravalli County; and Musselshell County v. Morris Development Co., supra.
The only references we have found to the separate taxation of any of the various items included in the three subdivisions of the above definition of "real estate" in section 1996 are the provisions that the improvements (subdiv. 3 of the definition) shall be assessed separately from land (Sec. 2001); and the provision of the classification statute (Sec. 1999) as follows, with regard to Class One (taxable at one hundred per cent of its full value under section 2000): "* * * where the right to enter upon land to explore or prospect or dig for oil, gas, coal, or mineral is reserved in land by any person or corporation, the surface title to which has passed to another, the assessor and the state and county boards of equalization shall determine the value of the right to enter upon said tract of land for the purpose of digging, exploring, or prospecting for gas, coal, oil, or minerals, and the same shall be placed in this classification for the purpose of taxation."
Obviously the royalty right in question here does not come within that provision. There may be other express statutory provisions altering the general rule stated above, but if so they have not been cited. On the contrary, section 1999 classifies "all land, * * * with improvements" in Class Four for taxation upon a basis of thirty per cent of its true value, and, as noted above, section 2001 provides that "land and the improvements thereon must be separately assessed." With the possible exception noted (section 1999, Class One) we find no statute which suggests the separate assessment or taxation of less than the land itself (the fee-simple estate therein). Certainly the use of the word "land" without qualification seems to negative any intention that any of the minor possessory or other rights mentioned in section 1996 shall be assessed and *442 taxed separately from the land itself, except as expressly provided by law. But whatever the rule, it must apply to subdivision one of the definition no less than to subdivision two.
It may be, as suggested, that it is the assessor's duty, under general statutory provisions, separately to assess and tax as real estate all the various types of tenancies and rights therein amounting to less than estates in fee, including royalty interests as distinguished on the one hand from operating rights or interests in fee simple and on the other hand from cash royalties actually paid (taxable under section 2088 ff., as personal property). But as noted above, the general rule is otherwise and has not been shown in this case to have been changed by statute.
A tax deed is not derivative but "creates a new title in the[9, 10] nature of an independent grant from the sovereignty, extinguishing all former titles and liens not expressly exempted from its operation." Sec. 2215, Rev. Codes; State ex rel. City of Great Falls v. Jeffries,
It follows that the remedy of plaintiffs and others similarly situated is not to enjoin the taking of a tax deed, but to prevent it by a redemption of the land from the tax lien. The decree is therefore reversed and the cause remanded with directions to dismiss the complaint.
Associate Justices Morris, Adair, and Cheadle, concur.
Dissenting Opinion
The question before us is this: May the grantee of a landowner's royalty in oil lands holding by an instrument duly *443 acknowledged and recorded lose his rights by tax sale proceedings against the grantor, owner of the land, and to which the grantee was not a party and had no notice?
It seems to me the answer to the question depends upon whether the grantee has what may be called a mineral interest in the land which must be assessed, if at all, to him and to no one else, or whether the recorded royalty interests are to be reduced to the level of scraps of paper. It must, of course, be conceded that oil is a mineral and an oil well a mine. Mid-Northern Oil Co. v. Walker,
It is my contention that the owner of a landowner's royalty in oil lands has an interest in a mine or mining property which must be assessed to him, if assessed at all, and that he may not be divested of his interest by an assessment of the land to the original owner who has parted with such royalty interest.
My associates seem to concede that this would be the rule if the landowner's royalty actually conveyed the oil in place but draw a distinction in this case because of the wording of the conveyance which is a stated percentage of the "royalty of and on all of the oil and gas and other minerals produced and saved" from certain lands. I concede that royalty after it has been produced is personal property, but my belief is that royalty which is the right to receive a certain percentage of the oil from certain described lands, Byrne v. Fulton Oil Co.,
What possible difference is there in a grant of five per cent of "all oil in and under certain described land" and five per cent of "all oil produced and saved from" the same land? The grantee would have no greater right in the one case than in the other. In each instance the grantee obtains only the right to receive the oil when it is captured and brought to the surface. But if one is actually different from the other, the one who has five per cent "of all oil produced and saved" has a more valuable right than the one who has five per cent of "all oil in place" because the latter must bear his proportionate share of the cost of extracting and marketing the oil. Marias River Syndicate v. Big West Oil Co.,
My associates stress the definition of "royalty" and point out that it is a privilege a prendre but they overlook what this court said in Williard v. Federal Surety Co.,
"`Profit a prendre' is defined as `the right to take a part of the soil or produce of the land. A right to the products or proceeds of land. This right, if enjoyed by reason of holding another estate, is regarded as an easement appurtenant to the estate; whereas, if it belongs to an individual, distinct from ownership in other lands, it takes the character of an interest or estate in the land itself, rather than that of a proper easement.' Anderson's Dictionary of Law, p. 822. It is an interest in land (Summers on Oil Gas, p. 169), although incorporeal (Gas Products Co. v. Rankin, supra).
"In our opinion the right of a lessee to take oil or gas stratum from its place and convert it to the lessee's own use is an interest in real estate within the meaning of section 9262 of the Revised Codes 1921, relative to the attachment of real estate. Graciosa Oil Co. v. Santa Barbara County,
This was reiterated in Marias River Syndicate v. Big West Oil Co., supra [
My associates, I think, are in error in supposing that there can be no severance of separate mineral interests without a grant of part of the minerals in place. I think a mineral interest may be conveyed without conveying minerals in place. It is the right to receive the stated royalty that constitutes an interest in real estate. As was said by the United States Supreme Court, speaking through Mr. Justice Washington, in Green v. Biddle, 8 Wheat. 1, 76,
In Drusadow v. Wilde,
In Toothman v. Courteney,
In Weakland v. Cunningham, 7 A. 148, 3 Sad., Pa., 519, it was said: "The following reservation in a deed: `Excepting the profits of one-half of all the stone coal, and of all other kinds of mineral, which may be discovered at any time hereafter,' — is a reservation of the corpus of all such coal and mineral in place." *446
In Updegraff v. Blue Creek Coal Land Co.,
In Paxton v. Benedum-Trees Oil Co.,
A covenant to give to a lessor a portion of all oil as rent or royalty is a covenant running with the land. Akin v. Marshall Oil Co.,
A case which I think is parallel to this is that of Shaw v. Watson,
"The royalty interest of a landowner in oil-producing land is a part of his interest in the land. There is no reason why the royalty interest of the landowner should be assessed separately from his interest in the land for any other value that it has. But a sale of a landowner's royalty interest in oil-producing land, or a sale of his mineral rights, either in whole or in part, is a conveyance of a part of his ownership of the land. And it makes no difference, in that respect, whether a conveyance of the mineral rights be styled a sale or a lease.
"The main argument of the appellants in this case is that an assessment of land for taxes is a proceeding in rem, and that every element of its value should be included in the assessment. There is no dispute about that. But it does not follow that elements of value not owned by the owner of the surface should be assessed to him, or added to the assessment of the surface to him.
"It is argued that a transfer of a landowner's mineral rights, either in whole or in part, whether in the form of a sale or a lease, is nothing more than the imposing of an incumbrance upon his land, like a mortgage, or an ordinary lease for occupancy or cultivation. Our opinion is that a landowner's sale of his mineral rights cannot be compared, in that respect, with his mortgaging his land, or subjecting it to an ordinary lease for occupancy or cultivation. It is settled in this state that a sale of a landowners right to the oil or gas beneath his land is an alienation of a real right, which, with regard to the prescription by which such rights are released, is classed as a servitude upon the land. Frost-Johnson Lumber Co. v. Salling's Heirs [
To the same effect is Humble Oil Refining Co. v. State, Tex. Civ. App.,
I think my associates are not justified under the law in limiting real property taxes to fee-simple titles. Section 1996, Revised Code, defines "real estate" in part as follows: "2. All mines, minerals and quarries in and under the land, subject to the provisions of section 2088 of this code, * * * and all rights and privileges appertaining thereto." This plaintiff, as owner of landowner's royalty, has rights and privileges appertaining to mines and minerals within the meaning of the statute.
A case which I think supports my contention and holds contrary to the views of my associates is that of Graciosa Oil Co. v. Santa Barbara County,
"The royalty is frequently fixed before the discovery of oil, usually at a time when the existence of oil in profitable quantities is a matter of conjecture, and without regard to the adjustment between the parties of the burden of taxation upon the respective interests. The value represented by the royalty is ordinarily very small, as compared to that of the right of the lessee. After the discovery of oil in such leased ground, the value of the lessor's real interest and right is much less than it would be if he had the whole estate, including all the oil thus discovered. There is no real parallel between such a case and that of a lessor under an ordinary lease for occupation and use. It is well known that such leasehold estates or interests in oil strata, after a discovery of oil, often command large prices in the market, out of all proportion to the value of the interests of the landowner receiving only the royalty and enjoying the use only for other purposes. The right of the lessee under this contract is more than that of the ordinary lessee. It is of a different character and for a different purpose. He has no right at all to the usufruct of the soil. His right extends to the extraction of a certain part of the substance of the land itself, to its permanent separation and *450 removal and its conversion to his own use. The whole object of the contract is to effect, if not technically a sale and conveyance of a substantial and specific part of the land, at least a disposition and transfer thereof to another.
"It can be easily seen that the reasons for the rule applicable to ordinary leases for the use only that the entire estate should be assessed to the lessor are entirely lacking here, and that it would be a more just and reasonable adjustment of the burden of taxation of such oil leases to assess each party separately with the value of his right or estate in the land."
The court in holding that the interest was real estate under subdivision 2 of their statute which is identical with subdivision 2 of our section 1996 except for the clause above quoted, said: "The oil strata also constitute `minerals in and under the land,' and the rights and privileges of plaintiff under the lease are clearly `rights and privileges appertaining' to such minerals, and consequently are real estate within the meaning of the second subdivision aforesaid." That case was cited with approval by us in the case of Williard v. Federal Surety Co., supra.
I do not think that the clause "subject to the provisions of section 2088 of the code," detracts from the taxability of rights and privileges appertaining to mines and minerals. All that is meant by that clause is that section 2088 must be read in pari materia with section 1996 so that the taxation under section 1996 shall not conflict with any of the provisions of section 2088, the latter being a reiteration of section 3, Article XII of the Constitution. I do not find anything in section 2088 which prohibits the severability of interests in mines and minerals for tax purposes. Certainly if the owner of the land when he leases it as in the Graciosa case without passing title to the lessee of the oil in place, grants a right or privilege in a mine or minerals, then he also does so when he conveys a royalty interest as here even though he does not pass title in fee to the oil in place.
That there is a wide difference between the rights of the *451 holder of a landowner's royalty and the tenant under an ordinary lease is well illustrated by the above-cited cases. Moreover, it seems to me folly to talk of a fee-simple title to oil in place under the ground, although I realize that some courts have used language which would imply that such a thing is possible. The fugacious character of oil necessarily makes such a title merely a paper right with no method of enforcement except by bringing the oil to the surface. In other words, if the oil before capture escapes to the land of another the supposed fee-simple title has necessarily vanished.
I think it is impossible to have an effective fee-simple title to oil under the ground before it has been taken into actual physical possession. Whatever may be the wording of the grant, an oil royalty on certain lands is but the right or privilege of receiving a portion of the oil therefrom or of its value when brought to the surface. And I think that right is an interest in real estate, which can be divested by tax sale proceedings only by separately taxing it to the owner of the royalty interest and not to some one else. Taxation of different interests in the same property to different persons is not a new thing in taxation. 61 C.J. 141. I think the court was right in the case of Sheffield v. Hogg,
"Endeavoring to reach the true purpose and intent of parties, we can draw no substantial difference, so far as taxation is concerned, between an agreement excepting from a grant or a lease a certain fractional portion of minerals, or an agreement reserving the same portion, or an agreement that the lessor `shall have' or rather shall continue to have the same portion, or an agreement that the lessees shall yield or shall deliver to the lessor exactly the same portion. In either instance, the title to the specified mineral portion is intended to remain or vest, and does actually remain or vest in the lessor. It logically can make no difference, as may have been intimated in this justice's and in other far greater jurists' *452
reasoning, whether the oil is retained by the lessor as oil and gas, readily convertible into cash on the market, or whether the lessee is given a power to sell all of the oil and gas, always accounting for a fixed royalty portion to the lessor. Sound principle, supported by the highest authority, goes further and compels us to accede to the proposition that dealing with oil and gas or dealing with solids in place, like sulphur, lignite, salt, coal, or lime, the lessor owning the entire fee-simple title to the land, and his assigns, who have been careful to secure to themselves, their heirs or assigns (by exception or reservation or by contract for `having' or yielding or paying, or for delivery, or by what-not similar contractual clause), the right to a portion of the proceeds or profits derived from the lessee's or his assigns' authorized sale of the minerals, throughout the duration of a determinable fee, which may be perpetual, have and own a fee-simple interest in the land, or at least have a right belonging or appertaining to the horizontal strata of the land in which the minerals are embedded. Humphreys-Mexia Co. v. Gammon,
The court stressed the importance of its conclusion by saying: "The oil industry of Texas is largely dependent for development, growth, or prosperity, on the doctrine that the interests we are considering — such as the lessee's and the lessor's estates under contracts which are in customary use in Texas — are interests in land; and hence not subject to parol sale, but have the protection of the statute of frauds, the statutes regulating conveyances and mortgages of real estate, and the statutes requiring the record of instruments affecting title to or liens on land, so that purchasers can rely on deed and lien records and can execute and receive transfers and *453 conveyances in reliance on true abstracts of title and lawyers' correct opinions thereon. Were the stability furnished by these rules withdrawn and the fundamental contracts, on which the oil business so largely rests, be adjudged by the Supreme Court to create mere rights in personalty at some uncertain date in the future, the structure of the business would be seriously, if not fatally, jeopardized."
That statement applies with equal force to the industry in Montana. For other cases reaching the same conclusion, see the note in 128 A.L.R. 851, and the main case commencing on page 843.
I think the district court was right in entering judgment for plaintiff and that the judgment should be affirmed.
Rehearing denied June 20, 1945.