Cox v. Kaiser-Francis Oil Co.

Citations: 2007 OK CIV APP 10; 152 P.3d 274; 2006 Okla. Civ. App. LEXIS 142; 2006 WL 4054435Docket: 103487

Court: Court of Civil Appeals of Oklahoma; September 21, 2006; Oklahoma; State Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Ivy Lively Newton Cox, the Plaintiff/Appellant, challenges the trial court's summary judgment favoring the Defendants/Appellees—Kaiser-Francis Oil Company, Vernon E. Faulconer, Inc., and Washita Oil and Gas, LLC. The Court of Civil Appeals of Oklahoma reverses the judgment, determining that the statute of limitations for Grantor's claim for reformation of a mineral reservation did not start until the legal implications of the reservation were questioned. The Court identifies a latent ambiguity in the mineral reservation language due to its connection to a unit well, which necessitates a trial for Grantor's claims concerning reformation, quiet title, and accounting.

The background reveals that Grantor inherited a mineral royalty interest in a specific section of land in Canadian County, Oklahoma. In 1986, she was receiving royalties from two wells. Upon seeking to sell her interest in one well while retaining her interest in another, she received an offer from Kaiser to purchase a non-participating royalty interest in the Stevens 1-12 well. After accepting the offer, the parties finalized the transaction on September 4, 1986, with Grantor and her husband signing a deed that conveyed all their interests in the specified lands, explicitly excluding her rights to production from the S.P. Helm 1 well. The deed acknowledged that the sale was subject to existing lease terms.

Grantor, during her deposition, recounted her conversation with a Kaiser representative at the closing, where she confirmed her understanding that she was selling only the Stephens well and that her grandfather's Helm's property was retained. The representative assured her that the contract was simple and did not require legal counsel. In 2001, Faulconer, as the operator of the S.P. Helm 1 well, sought approval from the Corporation Commission to drill a new well, the S.P. Helm 2, leading to a dispute with Kaiser over the royalty interest Grantor believed she retained. Kaiser filed for summary judgment, arguing that the deed unambiguously reserved only the S.P. Helm 1 wellbore and that the statute of limitations commenced in September 1986 when Grantor signed the deed. Faulconer and Washita also sought summary judgment on statute of limitations grounds. Grantor countered, asserting her entitlement to a declaratory judgment regarding her interest in the S.P. Helm 2, claiming it replaced her interest in the S.P. Helm 1. The trial court ruled in favor of all defendants, prompting Grantor's appeal. The appellate review will employ a de novo standard, examining whether any material facts are in dispute. Reformation of the deed is an equitable remedy that requires clear and convincing evidence of a mutual mistake or inequitable conduct, with a five-year statute of limitations beginning when the mistake is discovered or should have been discovered. The precedent case, Overholt, established that a party has constructive notice of a deed’s contents when recorded, emphasizing that failure to timely act on such notice can bar claims.

In *Maloy v. Smith*, the sellers claimed they intended to reserve half the minerals, but the deed only reserved half the royalty. Their reformation request came over eight years after they learned the buyer's successor asserted that only half the royalty was reserved. The court ruled the sellers' claim was time-barred, emphasizing that the statute of limitations would typically begin when a party is put on notice of a claim, not necessarily at the time of signing the deed. 

In *Good v. Cohlmia*, the action for reformation occurred more than 30 years after the mineral deed was executed. The court found that the statute of limitations did not begin until the legal effect of the deed was disputed, which occurred when a prospective lessee raised questions about ownership in 1956.

In the current case, the Grantor was unaware of adverse claims to her royalty rights while receiving decreasing royalty payments. The legal effect of the deed was questioned only when she learned of Kaiser's claim regarding the royalty interest. She received notice of Kaiser's claim on June 19, 2001, and filed her action on May 2, 2003, within the five-year limitation period. The trial court mistakenly granted summary judgment based on the statute of limitations, as the Grantor presented a prima facie case for reformation due to mutual mistake and inequitable conduct, necessitating a trial.

The Grantor's quiet title claim relies on the deed's construction. A deed is not subject to ambiguity unless it is deemed ambiguous by the court, which must then consider extrinsic evidence to ascertain and effectuate the mutual intent of the parties at the time of contracting.

The deed in question reserves the Grantor's interest in the wellbore rights and production from the S.P. Helm 1 well, located in Section 12. However, since the Grantor owned no participating interest in the well, the reservation of "wellbore rights" is deemed ambiguous. Under existing case law, rights to the well bore belong to the lessee while a lease is active, meaning the Grantor had no such rights. 

Even if the wellbore rights reservation is ineffective, the reservation of the "Grantor's interest in production" would be clear if the well were drilled under the Helm lease. However, the S.P. Helm 1 is classified as a unit well, and the royalty interest in a unit well is defined by statute. This statute mandates that royalty interest owners share production based on their ownership percentage in the unit, calculated against the total acreage of the unit.

Consequently, the Grantor's interest in production from the unit well is determined by her royalty percentage in a tract within the unit, multiplied by that tract's acreage relative to the entire unit. The deed could thus be interpreted to mean that the Grantor reserved a percentage of royalty from the unit, implying she would retain the same interest in any replacement well. These complexities render the mineral reservation legally ambiguous, warranting a trial to ascertain the parties' intent at the time of contracting. The trial court's decision to grant summary judgment to the Defendants was incorrect, leading to the reversal of that order and remanding the case for trial.