Burnett v. Perkins

Citations: 523 So. 2d 106; 99 Oil & Gas Rep. 461; 1988 Ala. LEXIS 420; 1988 WL 31821Docket: 86-230

Court: Supreme Court of Alabama; March 10, 1988; Alabama; State Supreme Court

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Rafeard and Ruby Z. Perkins initiated a declaratory judgment action against Calvin F. and Lenora S. Burnett to clarify their claim to an undivided 3/32 interest in mineral royalties from a tract of land in Lamar County, Alabama. The trial court ruled in favor of the Perkinses, confirming their entitlement to the claimed royalties. The Burnetts' subsequent motion for a new trial was denied. The key issues for appeal included: 1) the effectiveness of the Perkinses' deed reservation of a half royalty interest, 2) whether the Burnetts had the right to pool the Perkinses' royalty interests, and 3) if the Perkinses' lawsuit constituted ratification of the Burnetts' lease with Alagasco Energy Company, which included pooling rights. The pertinent deed, executed in 1978, reserved for the Perkinses an undivided half interest in any mineral royalties from oil and gas drilled on the property for their lifetimes. In 1985, the Burnetts leased the land to Alagasco, which included a clause allowing pooling of the lease with other properties. The South Brush Creek Oil Field, encompassing the property, was established in 1985 and regulated by the State Oil and Gas Board, creating specific drilling units that included parts of the subject tract.

A well has been drilled on each drilling unit in the South Brush Creek Oil Field, producing oil, but none is located on the specific tract in question. The Perkinses and Burnetts jointly own the minerals beneath two areas in Section 33. The Burnetts argue that the Perkinses cannot claim royalties, as the deed stipulates royalties are tied to wells "actually drilled" on the tract. They reference Texas case law asserting that a power to lease does not include the power to pool without consent from royalty owners, and they argue that the Perkinses failed to participate in or ratify the lease with Alagasco. Conversely, the Perkinses assert that the pooling arrangements permit them to receive royalties based on acreage, regardless of whether the well is directly on their land. They also claim that the Burnetts hold a trust-like responsibility to act in good faith regarding production exploration due to a royalty reservation in the deed. The Perkinses argue the deed indicates an intent to reserve rights to oil and gas beneath the tract, not limited to production from a well on that tract, and that interpreting it otherwise would unjustly deny them royalties due to the pooling agreement. While the Burnetts cite Texas cases reinforcing that executive rights do not inherently include pooling authority, other jurisdictions suggest that leasing powers may include pooling rights. If the Burnetts lacked pooling authority, the Perkinses could choose to ratify or reject the lease, which would affect their royalty rights.

The Perkinses did not repudiate the lease, but there is contention regarding whether they ratified it. They have not made any payments, and acceptance of pro rata royalty payments from unrelated tracts does not constitute ratification, as established in other jurisdictions. In a similar Texas case, filing a lawsuit to enforce a lease was deemed an action that implied ratification of the lease terms. The court ruled that the Perkinses ratified the lease by filing an action for royalties, demonstrating their intention to be bound by the pooling agreement, thus entitling them to royalties from production under the lease. The trial court's judgment is affirmed, with the original opinion withdrawn and replaced.