Opinion
Johnson C. Montgomery, Redwood City, for appellants.
Cavalero, Dietrich & Bray, by Mark S. Bray, Stockton, for respondents.
OPINION
STONE, Associate Justice.
Respondents derived title to their real property by mesne conveyances from the General American Life Insurance Company. The grant deed from General American to respondents' predecessors in interest contained the following reservation:
" * * * excepting and reserving to General American Life Insurance Company and its successors and assigns an undivided one-half interest in oil, gas and other minerals on, in and under said land for a period of ten years and as long thereafter as such oil, gas or other minerals are produced from said land in paying quantities together with the right at all times to explore, drill for, mine and remove the same together with all other rights and privileges incident thereto, subject to and except reservations, exceptions and mineral grants of record, if any and rights-of-way, leases and easements, whether or not of record, encroachments and questions of survey, if any."
The county assessor separately assessed the reserved oil and gas rights, and, in accordance with section 107 of Revenue and Taxation Code, placed the interest of General American on the secured roll, using the following description:
"Und 1/2 int in--The poss int & all other right title & int in & to certain oil-petroleum & other hydro-carbon substances inc natural gas located on foll desc real estate * * *."
Tax bills were sent directly to General American, who paid the taxes for the first nine years of the 10-year life of the reservation, but not for the tenth year.
Upon notification by the assessor of the delinquency, the tax collector, in transferring the assessment to the delinquent roll, treated General American's interest as secured property. Although the reserved interest of General American expired by its own terms at the end of the primary period, July 18, 1954, no oil and gas having been discovered, the reserved interest was sold to the state for delinquent taxes and deeded to the state June 29, 1959. General American quitclaimed any interest in the property to respondents on June 10, 1960.
In 1963, at a public auction held by the state for the purpose of selling parcels of tax-delinquent real property, appellants purchased the oil and gas interest here involved. Deeds from the state to appellants were executed in March and May 1963. The interest in each parcel the state purported to deed to appellants was described as follows:
"und 1/2 INT IN--THE POSS INT AND ALL OTHER RIGHT TITLE AND INT IN AND TO CERTAIN OIL-PETROLEUM AND OTHER HYDRO-CARBON SUBSTANCES INC NATURAL GAS LOCATED ON FOLL DESC REAL ESTATE--"
It is significant that the deed not only describes the property deeded as "the possessory interest," but that it specifically limits the interest to "certain oil-petroleum and other hydro-carbon substances including natural gas." The importance of this will Respondents filed an action to quiet title to the property and to clear from the record appellants' claim of an unlimited interest in one-half of the oil and gas. Appellants answered, claiming ownership in perpetuity in an undivided one-half of all oil, petroleum and other hydrocarbon substances including natural gas, unfettered by the limiting terms of General American's reservation "to ten years and as long thereafter" as such oil and gas are produced.
The trial court entered judgment in favor of respondents, quieting title as against appellants' claimed one-half interest in the oil and gas rights, upon the ground these rights were sold in the manner of real property and accordingly tax deeded in violation of Revenue and Taxation Code, section 107, which requires that such rights shall be seized and sold in the manner provided for the seizure and sale of possessory interests.
The pertinent part of section 107 reads as follows:
"Except as provided in this section, possessory interests shall not be considered as sufficient security for the payment of any taxes. Leasehold estates for the production of gas, petroleum and other hydrocarbon substances from beneath the surface of the earth, and other rights relating to such substances which constitute incorporeal hereditaments or profits a prendre, are sufficient security for the payment of taxes levied thereon. Such estates and the rights shall not be classified as possessory interests, but shall be placed on the secured roll.
"In the event of delinquency in the payment of any installment of taxes on such leasehold estates or rights, they shall be subject to seizure and sale in the same manner as provided for the seizure and sale of possessory interests in Sections 2914 to 2919, inclusive, at any time within one year after the delinquency. Suit may be brought against an assessee of such taxes in the event of delinquency in the payment thereof."
In 1957 this was amended to read "within three years."
The crux of the case lies in whether the reservation of General American constituted an incorporeal hereditament or profit a prendre within the rationale of section 107, or an interest in real property outside the purview of section 107.
Appellants contend that although oil and gas leasehold interests are clearly covered by section 107, a reservation of an interest in oil and gas for a period of years cannot be deemed an incorporeal hereditament or profit a prendre since it derives from ownership of the land in fee. Their reasoning seems to be that since General American owned the entire property in fee simple its reservation of oil and gas for a period of years somehow constitutes a partial reservation of the fee simple interest that remains real property, as contrasted with an incorporeal hereditament or a profit a prendre.
The cases are against them, since California follows the rule that even the owner of land in fee simple absolute has only the right to drill for and produce oil and gas; he does not own the oil and gas in place beneath the surface. In Callahan v. Martin, 3 Cal.2d 110, 43 P.2d 788, 101 A.L.R. 871, the California Supreme Court rejected the oil and gas in place doctrine, giving "recognition to the fugacious character of the substances involved." The attributes of the ownership of oil and gas are given lengthy consideration in Dabney-Johnston Oil Corp. v. Walden, 4 Cal.2d 637, 52 P.2d 237. The court said, at pages 649-650, 52 P.2d at page 243:
"The owner of land has the exclusive right on his land to drill for and produce oil. This right inhering in the owner by virtue of his title to the land is a valuable right which he may transfer. The right when granted is a profit a prendre, a right to remove a part of the substance Callahan v. Martin,
Thus whether oil and gas rights are leased, a lessee has the right to go on the land described in the lease, but only for the purpose of drilling for and producing oil and gas. This right is limited to the term delineated in the lease of oil and gas rights. When the landowner separates his ownership of the surface of the land from his right to drill for oil and gas by conveying away all of his right, title and interest in and to the land except an interest in oil and gas for a term, as General American did here, the rights he retains are identical to the rights granted to a lessee under an oil and gas lease. He has a right to go on the land he formerly owned, but, like a lessee, he may enter for the limited purpose of drilling for and producing oil and gas. (Dabney-Johnson Oil Corp. v. Walden, supra, 4 Cal.2d at p. 651, 52 P.2d 237; Delaney v. Lowery, 25 Cal. 561, 570-571, 154 P.2d 674.)
We conclude that the interest created by the lease of oil and gas rights and that created by a reservation of oil and gas rights for a term of years and so long as oil and gas are produced thereon, must both be classed as profits a prendre, or as incorporated by La Laguna Ranch Co. v. Dodge, 18 Cal.2d 132, 114 P.2d 351, 135 A.L.R. 546, wherein the court said, at page 139, 114 P.2d at page 355:
"Where, however, the landowner grants an oil 'royalty' without having previously leased the land to another [citation]; or where the operating lessee grants an 'overriding royalty', it is clear that the interest thus created cannot be fitted into the category of rent. This court has recently referred to the fact that the traditional categories of real property interests crystallized long before interests such as these found their way into the courts. [Citation.] The law relating to such oil rights has been said to be in a formative stage and the interests thus created have been considered sui generis. [Citations.] Thus, although only a portion of the oil royalties here considered can actually be compared to rent in the traditional sense, the purpose and scope of all such royalty interests are so similar that all should be considered equally to be incorporeal interests in real property, subject to the same requirements and protected by the same safeguards." (Last emphasis added.)
Therefore the trial court correctly found that the 10-year determinable fee in oil and Appellants appear to argue that since section 107 provides that oil and gas leases and incorporeal hereditaments and profits a prendre must be placed on the secured roll, the provision that
"In the event of delinquency in the payment of any installment of taxes on such leasehold estates or rights, they shall be subject to seizure and sale in the same manner as provided for the seizure and sale of possessory interests in Sections 2914 to 2919, inclusive,"
is contradictory and, at most, optional. Looking, first, at the contention the procedure is optional, we note that the requirement such rights be seized and sold is not discretionary; it is mandatory. (Lieb. Day, 130 Cal.App.2d 376, 279 P.2d 53.) The section uses the language "shall be," not "may be."
Section 107 does provide an alternative method of collecting delinquent taxes assessed against an incorporeal hereditament or profit a prendre, whether created by lease or reservation, but the alternative is not between treating the interest as secured or unsecured, but between seizing the interest and selling it or bringing suit against the assessee.
In support of their argument that the two paragraphs of section 107 are contradictory, appellants assert that to treat a reservation of oil and gas rights as an incorporeal hereditament or a profit a prendre for assessment purposes (place them on the secured roll) but to treat them as possessory interests in the event of a delinquency, defeats the secured rolls in the first place. The argument overlooks the proceedings to assess taxes and proceedings to collect delinquent taxes are entirely separable. The case of Delaney v. Lowery, supra, 25 Cal.2d 561, 52 P.2d 237, although primarily concerned with the constitutionality of section 107, makes it clear that the reason for placing oil and gas leases, incorporeal hereditaments and profits a prendre, on the secured roll is not to facilitate collection of unpaid taxes, but to fix the tax at the rate for the current year and to permit payment in two installments. The opinion makes it equally clear that it is not constitutionally impermissible to provide for the assessment of an interest in oil and gas rights as secured property on the one hand, while on the other hand to provide for collection of delinquent taxes assessed against such right by seizure and sale.
Appellants assert that public policy requires a determinable interest in oil and gas rights when reserved, as here, to be assessed in the same manner as a fee interest in real property, and if there is a sale for delinquent taxes such an interest must be sold and deeded as a perpetual interest in oil and gas, freed from the express limitations of the reservation for ten years and so long as oil and gas are produced. Otherwise, they argue, no one would buy the interest at tax sale, and the state would lose the taxes. The argument, if void, would apply to oil and gas leases for a term of years and as long as oil and gas are produced. Yet Delaney v. Lowery, supra, determined that the interest conveyed by an oil lease for a term of years and as long thereafter as oil and gas may be produced must, under section 107, be placed on the secured roll for assessment purposes, but in case of delinquency seized and sold as a possessory interest as provided in sections 2914 to 2919, inclusive.
This contention is also designed to circumvent the finding that no oil or gas was discovered or produced on the property during the 10-year period of the reservation of rights.
Since we conclude that a reservation of an interest in oil and gas for a term of years is essentially the same as the interest conveyed by a lease for a term of years, the rationale of Delaney v. Lowery, supra, is applicable. "Suit may be brought against an assessee of such taxes in the vent of delinquency in the payment thereof."
Suit could have been brought against General American Life Insurance Company; the right to file suit for a delinquency under section 107 obtains whether the incorporeal hereditament or profit a prendre is created by a leasehold interest or by a reservation of an interest in oil and gas rights.
Granting, arguendo, that some taxes on incorporeal hereditaments and profits a prendre may be uncollectible under section 107 if the assessee is insolvent, this possibility does not empower the taxing authorities or this court to ignore the plain language of section 107. (Lieb v. Day, supra, 130 Cal.App.2d at p. 378, 279 P.2d 53.)
We conclude that the tax proceeding, whereby appellants obtained a deed to what they allege to be an undivided one-half interest in perpetuity to the oil and gas rights in respondents' property, is void by reason of the tax collector's failure to follow the provisions of section 107. (Lieb v. Day, supra.)
Appellants filed a notice of appeal from an order denying motion to vacate judgment and enter a different judgment. Apparently this appeal was abandoned since it is not mentioned in the briefs nor was it mentioned at oral argument.
The judgment and the order are affirmed.
CONLEY, P.J., and GARGANO, J., concur.