Densmore v. Chainey

California Court of Appeal May 22, 1935 No. Civ. 8658Published

Before: Roth

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Holding. The court held that a contract granting a party a share of oil and gas royalties creates an interest that cannot be unilaterally defeated by the landowner, entitling the royalty holder to an accounting for payments made without their consent.

Issues

Whether a royalty-sharing agreement creates an interest that prevents a landowner from unilaterally reducing royalty payments without the royalty holder's consent.
Whether a subsequent grant deed of the underlying property waives the royalty holder's rights under a prior royalty-sharing agreement.

Disposition. reversed

Quotations verified verbatim against the opinion

“a reservation or sale by the land owner of an interest in the royalty or the rentals to be obtained from the land creates in the purchaser a right incident to the land itself which cannot be defeated by the act of the land owner”

“the grant deed did not impair or in any manner affect the right of the Densmores to continue to receive their agreed share of the royalty.”

ROTH, J.,

pro tem.

Appellant Margaret Densmore and her husband, Darlot Densmore, during his lifetime on March

[110]

29, 1921, entered into an agreement with George and Kate Chainey to sell certain real property, reserving title in themselves until the amount required had been paid and the other terms of the agreement complied with, pursuant to which the Chaineys entered into possession of the property. (Unless otherwise stated, the term “appellant” when hereafter used is intended to include both Densmores.)

On July 13, 1921, the Chaineys as lessors entered into an oil and gas lease, hereinafter referred to as original lease, with Oceanic Oil Company, as lessee, for a term of twenty years, lessee therein to have the right to continue to operate and produce as long thereafter as it could he done in paying quantities. On June 23, 1921, appellant consented in writing to the execution of said lease, but two days prior thereto appellant and the Chaineys had entered into a written agreement referred to hereinafter as sales agreement. In the sales agreement the Chaineys are the first parties and the Densmores the second parties. It is recited that the Dens-mores are the owners of the property which is then described, and which is the same property demised in the original lease, and thereafter said sales agreement reads as follows:

“Whereas, by a certain contract of sale dated March 29th, 1921, the second parties agreed to sell and the first parties agreed to buy the said property; and

“Whereas, the first parties did on the 13th day of June, 1921, enter into a certain Oil and Gas Lease with the Oceanic Oil Company, providing for the exploration and exploitation of said property; and .

“Whereas, it is the desire of the parties hereto to divide between them the royalty that may be received under said lease.

“Now, Therefore, in consideration of the mutual concessions of the parties hereto and the execution of the said lease by each of the parties, it is agreed as follows:

“1. That the one-sixth (%) royalty shall be divided equally between the first and second parties, until the second parties shall have received the full amount due them under the said contract of sale, together with accrued interest.

Densmore v. Chainey

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ROTH, J.,

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