Zemp v. Jacobs
87 Oil & Gas Rep. 386, 713 P.2d 25, 1985 OK CIV APP 33 (1985)
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Rule of Law:
A deed reservation will be construed as creating a mineral interest, rather than a royalty interest, when the grantor retains significant incidents of mineral ownership, such as the right to approve leases and the right to receive bonuses and rentals, even if other language in the reservation refers to a fraction of minerals 'produced'.
Facts:
- In April 1917, W.F. Ridge and his wife granted an oil and gas lease on their property for a five-year term.
- In 1920, the Ridges sold the land to Joseph Zemp through a warranty deed.
- The deed contained a reservation stating the grantors 'reserve and retain an undivided one sixteenth (1/16) of all Oil and Gas produced from said land.'
- The same reservation also reserved for the Ridges 'an undivided One Half of all Oil and Gas rentals and bonuses' under any existing or future lease.
- The deed further required Zemp to keep the land under an oil and gas lease with a company 'satisfactory to said first party' (the Ridges) whenever a lease expired.
Procedural Posture:
- The successors of J. Zemp (plaintiffs) sued the successors of W.F. Ridge (defendants) in an Oklahoma trial court to quiet title to a mineral estate.
- The plaintiffs argued a 1920 deed reservation created a 1/16 mineral interest, while the defendants claimed it created a more valuable 1/16 royalty interest.
- The defendants' motion for summary judgment was denied by the trial court.
- The trial court entered judgment in favor of the plaintiffs, holding that the deed reserved a mineral interest.
- The defendants, as appellants, appealed the trial court's judgment to the Oklahoma Court of Appeals.
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Issue:
Does a reservation in a deed create a mineral interest when it reserves a 'one sixteenth (1/16) of all Oil and Gas produced' but also retains for the grantor the right to receive half of all bonuses and rentals and the power to approve future oil and gas leases?
Opinions:
Majority - Rapp, Judge
Yes, this reservation creates a mineral interest. When an instrument contains terms indicative of both a mineral interest and a royalty interest, the tendency is to construe it as creating a full mineral interest. While the phrase 'oil and gas produced' suggests a royalty interest, this is overcome by the grantors' retention of other critical rights associated with mineral ownership. The Ridges retained the right to receive future bonuses and rentals, and more importantly, they retained an executive right to participate in the leasing process by requiring any future lease be 'satisfactory' to them. This right of approval gives them a key role in leasing and is a strong indicator of a retained mineral interest, not merely a passive royalty interest.
Analysis:
This case reinforces the principle that courts interpret ambiguous oil and gas conveyances by looking at the entire instrument to ascertain the parties' intent, rather than focusing on isolated 'magic words.' It establishes that the retention of executive rights (the power to lease or approve leases) and the right to receive bonuses and rentals are powerful indicators of a mineral interest. This decision provides a clear analytical framework for future cases, prioritizing the 'bundle of rights' analysis over formulaic interpretation of terms like 'produced,' thus impacting how ambiguous historical deeds are construed in title disputes.
