Smith v. Drake

Plaintiffs brought this action to recover a percentage of the oil produced on lot 8, block C, tract No. 3207, Bixby Heights No. 1 in the county of Los Angeles. Judgment was rendered in favor of defendants and from this judgment plaintiffs have appealed. The facts in substance are as follows:

Defendants Thomas Gr. Drake and Sarah E. Drake are the owners of said lot and on or about May 6, 1922, they leased the same to Ed. R. Berwick and Ariel N. Berwick, husband and wife, by said lease granting to them the exclusive right to drill, operate for, develop and remove petroleum, oil, naphtha, natural gas, asphaltum and other kindred substances therefrom, the said Drakes to receive one-sixth of the oil or other kindred substances, the lease to continue for twenty years unless said wells fail to produce oil in paying quantities in a less period of time. This lease was recorded July 6, 1923. On July 18, 1923, the said Herwicks assigned the said lease to John E. Carson, Walter B. Barham and

Appellants rely for reversal mainly upon the point that the overriding royalty reserved by the Herwicks, and of which appellants claim to be the owners by virtue of the bankruptcy proceedings, is an interest in land, and that Camp and Anderson therefore had constructive notice of same, and that the purported assignment of the Herwicks, in which a certain percentage of the oil was reserved, was, in fact, a sublease; that therefore both Camp and Anderson took with notice of their claim. The rule adopted and followed in this state is against this contention of appellants. (Brookshire Oil Co. v. Casmalia etc. Co., 156 Cal. 211 [ 103 Pac. 927 ] ; Black v. Solano Co., 114 Cal. App. 170 [ 299 Pac. 843 ]; Western Oil & Refining Co. v. Venago Oil Corp., 218 Cal. 733 [ 24 Pac. (2d) 971 , 88 A. L. R. 1271 ].) All of these cases hold that an overriding royalty is not an interest in land. In Brookshire Oil Co. v. Gasmalia etc. Co., supra, in speaking of an oil lease the following language was quoted with approval: “This instrument does not vest in the so-called lessees any present title in the land. It grants only the right to do certain things thereon and to take certain mineral substances therefrom, and no title to such substances passes from the original owner until the same is severed from the realty. . . . ‘The title is inchoate and for purposes of exploration only, until oil is found. If it is not found, no estate vests in the lessee, and his title, whatever it is, ends when the unsuccessful search is abandoned. If oil is found, then the right to produce becomes a vested right, and the lessee will be protected in exercising it in accordance with the terms and conditions of his contract. ’ [Citing authorities.] ”

The claim of appellants is based upon an overriding royalty for eight per cent of any oil or gas that may be thereafter produced from the premises under the lease from the Drakes to the Herwicks. Appellants, in acquiring the interest of the Herwicks of the eight per cent overriding royalty under said lease, did not thereby acquire any interest in the said leasehold, or any rights to the oil and gas in place, but only eight per cent of the oil and gas produced

The court found that for more than three months prior to September 29, 1927, the said Deeper had been negotiating with the said Camp and with other persons for the sale to Camp of the second-hand and used piping, machinery and material situate upon the said leasehold; that on the 29th of September, 1927, he reached an agreement with Camp and sold to him all of the said machinery and material on said leasehold; that prior to this said Deeper intended to quitclaim all of his interest in said leasehold to the said Drakes, and on the twenty-ninth day of September, 1927, did quitclaim all of his interest in said lease to the Drakes; that thereafter on October 1, 1927, the Drakes executed to Camp a lease upon said premises for the purpose of prospecting same for oil and other hydocarbon substances.

It appears that the only oil produced on said premises after March, 1927, was that produced by Anderson under his lease from Camp. We are of the opinion that Deeper surrendered to the Drakes and abandoned the original lease from them to Herwick, and that therefore appellants have no right to an overriding royalty in the oil produced under the lease executed by the Drakes to Camp and by him assigned to Anderson.

There is no evidence supporting the contention of appellants that any fraud was perpetrated by the Drakes or Deeper or Camp in the cancellation of the lease of 1922 and the giving of the new lease to Camp by the Drakes, and this was so found by the court. The surrender of the said lease of 1922 to the Drakes by Deeper, and his abandonment thereof, is fully substantiated by the evidence, as is the acceptance of such surrender by the Drakes. In Mall v. Augur, 82 Cal. App. 594 [ 256 Pac. 232 ], it was held that an abandonment may be more readily found in cases of oil and gas leases than in most other cases.

Appellants contend that their overriding royalty was not terminated by the surrender or abandonment by Deeper of the lease from the Drakes to Herwick and which they held as successors of the Herwicks. The reservation by the Herwicks of a royalty in the oil produced under said lease

The foregoing authorities are against appellants’ contention. The judgment is affirmed.

A petition by appellants to have the cause heard in the Supreme Court, after judgment in the District Court of Appeal, was denied by the Supreme Court on December 26, 1933.