Opinion
Rehearing Denied April 25, 1936.
Hearing Granted by Supreme Court June 1, 1936.
Appeal from Superior Court, Los Angeles County; William A. Bowen, Judge.
Action by A. F. Schiffman against the Richfield Oil Company of California. Judgment for plaintiff, and defendant appeals.
Reversed.
COUNSEL
Gibson, Dunn & Crutcher (by H. F. Prince), of Los Angeles (Robert F. Schwarz and George W. Nilsson, both of Los Angeles, of counsel), for appellant.
Philip Grey Smith and Woodruff, Musick & Hartke, all of Los Angeles, for respondent.
OPINION
McCOMB, Justice.
This is an appeal by defendant from a judgment in favor of plaintiff after a trial before the court without a jury, predicated upon plaintiff’s alleged right to recover the value of a certain percentage of oil which defendant had produced from an oil well.
The conceded facts are:
September 6, 1922, Monrovia Oil Company, a trust estate, took an assignment of a sublease upon certain real property situated in the county of Los Angeles, state of California. Thereafter the trustees of Monrovia Oil Company executed a document purporting to transfer to plaintiff an undivided per cent. of the proceeds that should be derived or received by the Monrovia Oil Company from the sale or other disposal of 662/3 per cent. of the net production of a well to be drilled on the leased property. Subsequently an oil well known as Monrovia No. 1 was placed on production on the leased premises. Later through mesne conveyances defendant acquired title to the sublease of the land upon which the well was located, and produced oil from it.
Defendant relies for reversal of the judgment on this proposition:
The lessee of an oil and gas lease, by assigning a percentage of the proceeds derived from the sale or other disposal of the net production of an oil well, creates a personal covenant of the assignor to pay the designated percentage to the assignee and does not assign an interest in the production of the well .
The instruments, upon which plaintiff relies to sustain the judgment of the trial court, designated Monrovia Oil Company as first party and himself as second party, and read in part as follows:
"First party does by these presents assign and transfer to said second party an undivided __-- per cent of the proceeds that shall be derived and received by said party from the sale or other disposal of Sixty-six and two-thirds (662/3%) Per Cent. of net production of said well, * * *
"Whenever and as often as said first party shall receive any proceeds from such net production of said well, said first party shall pay to said purchaser on or before the 10th day of the month next succeeding the calendar month in which such proceeds shall be so received, that portion thereof to which said purchaser shall be entitled hereunder." (Italics ours.)
From a reading of the foregoing document, which is clear and unambiguous in its terms, it appears that Monrovia Oil Company agreed to pay plaintiff a certain percentage of the proceeds derived from the sale or other disposal of the oil taken from the well known as Monrovia No. 1. The agreement constituted a personal covenant of the Monrovia Oil Company and did not constitute an assignment of an interest in the production of the well. In the case of In re Lathrap, 61 F.2d 37, the United States Circuit Court of Appeals, Ninth Circuit, had for construction an instrument similar in wording to the one before us. Judge Sawtelle at page 39 of 61 F.(2d), said:
"We find an instrument that purports to ‘sell, assign, transfer and set over’ to the holder ‘a royalty interest equivalent to one per cent of the gross proceeds received from the sale of one hundred per cent of the oil and/or gas produced and sold’ from a certain well ‘now being sunk.’ [Italics ours.]
"Counsel for the appellants strenuously argue that these assignments in effect ‘constitute a present sale to the assignee thereof of a portion of the oil and gas to be produced from the well.’ But an examination of the instruments themselves discloses that they do not purport to convey any title to oil . The royalty interest is measured in terms of ‘gross proceeds,’ and not in terms of the commodity from which those proceeds are to be derived. Had a sale of oil been intended, it would have been a simple matter to have specified that the royalty interest conveyed was to be ‘equivalent to one per cent of the oil or gas produced.’ From the assignments as they now stand, it can be seen that a share in proceeds is transferred, and that there is a designation merely of the source from which the proceeds are to be derived. There is no attempt to transfer the corpus itself. * * *
"These per cent. holders acquired title to the oil itself for not even a fleeting instant. They were not interested in oil; they were interested in proceeds. There are no provisions for delivery, but elaborate provisions for payment ."
On the question here presented for determination Western Oil, etc., Co. v. Venago Oil Corp., 218 Cal. 733, 737, 24 P.2d 971, 88 A.L.R. 1271, is in no way in conflict with In re Lathrap, supra. The instrument before our Supreme Court for construction in Western Oil, etc., Co., v. Venago Oil Corp., supra, by its terms assigned, transferred, and conveyed certain percentages of all gross oil, gas, and other hydrocarbon substances produced, saved, and sold under the terms of a certain lease. In the case of In re Lathrap, supra, as in the instant case, the document conveyed only an interest in the proceeds derived from the sale of oil.
For the foregoing reasons plaintiff’s cause of action, if any, was against Monrovia Oil Company and not the defendant herein.
The judgment is reversed.
We concur: CRAIL, P. J.; WOOD, J.