No. 91-204
IN THE SUPREME COURT OF THE STATE OF MONTANA
1991
EDWARD B. STANFORD, NEAL A. STANFORD,
and BETH STANFORD,
Plaintiffs and Appellants,
-VS-
ROSEBUD COUNTY, MONTANA, a political subdivision,
BOYD KINCHELOE and MAVIS KINCHELOE, his wife,
LEE A. ADAMS, MELVIN A. MURI and CLEMENTINE MURI,
his wife, E.L. GREBE and CAROLINE GREBE, his wife,
DONALD McSWEYN, OIL RESOURCES, INC., RICHARD C. HOEFLE,
ROBERT A. MEEK, EARL M. CRANSTON, SIVERT 0 . MYSSE, JR.,
et al.,
Defendants, Respondents, and Cross-Appellants.
APPEAL FROM: District Court of the Sixteenth Judicial District,
In and for the County of Rosebud,
The Honorable Joe L. Hegel, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
James P. Healow argued; Sweeney & Healow, Billings,
Montana
Joseph W. Sabol argued, Bozeman, Montana
For Respondent:
Robert C. Smith argued; John J. Cavan; Cavan, Smith,
Grubbs & Cavan, Billings, Montana
Submitted: October 31, 1991
DEC 1 6 1991
Justice R. C. McDonough delivered the Opinion of the Court.
This is an appeal from the judgment of the Sixteenth Judicial
District, Rosebud County. The parties to the appeal are: the
Stanfords (appellants), Earl M. Cranston and Richard C. Hoefle
(appellants), and Boyd and Mavis Kincheloe (respondents). The
District Court granted summary judgment whereby an oil, gas and
other minerals royalty, whose title remains in dispute, was
awarded: 88.889 % to the Kincheloes, 5.555% to Hoefle and 5.556% to
Cranston as owners of the subject property's mineral interest in
that proportion. For reasons that follow, the judgment of the
District Court is reversed.
Several issues are raised by the appellants. However, our
review will be limited to the single question of who among the
contesting parties is entitled to the remaining royalty interest.
Hoefle and Cranston raise "equitable" issues most of which regard
Attorney William V. Moore. They claim an interest in Moore's fees
upon an unjust enrichment theory and a further interest in a
portion of anything the Kincheloes are awarded on a theory of
constructive fraud and constructive trust. Attorney Moore is not a
party in this action and resolution of the issues surrounding
Attorney Moore is not necessary to determining the title of the
disputed royalty interest. The constructive fraud and constructive
trust claims are mooted by this opinion.
Stanfords allege that Cranston fraudulently induced them into
quitclaiming their interest in the property to Cranston. Because
the District Court determined Stanfords did not have any interest
in the property, it found this issue moot. In light of our
2
decision, the fraud claim must now be addressed by the District
Court, and we do not address it here.
This case involves quieting title to a royalty interest
previously reserved by Rosebud County. The subject property was
originally vested in Northern Pacific Railway Company. Albert
Farwell purchased the surface estate and later became owner of the
mineral estate when Northern Pacific Railway Company quitclaimed
the previously reserved mineral interests. The Stanfords are the
only remaining heirs of Albert Farwell.
From 1916 to 1927 taxes assessed on the subject real property
each year by Rosebud County went unpaid. In 1927, Rosebud County
applied for and received a tax deed to the subject property. In
1931, a decree was awarded quieting title in Rosebud County. In
1944, Rosebud County quitclaimed its interest in the property to
Adolph Ziesmer reserving to the county a 6.25% royalty interest to
“all oil, gas and other minerals recovered and saved from the said
lands”. In 1945, Ziesmer quieted title to the property,
acknowledging and describing the property as subject to Rosebud
County’s reservation of the 6.25% royalty.
Ziesmer conveyed his interest to Jud and Ruby Smith who in
turn conveyed their interest, with the exception of 25% of the
mineral interest, to the Kincheloes. The Kincheloes have resided on
the property since 1950. Smith later conveyed portions of his
mineral interest to other persons, including Hoefle who conveyed
one half of his share to Cranston.
In 1974, Cranston and Hoefle obtained oil and gas leases from
3
the Xincheloes and Smith's assigns as lessors to Oil Resources Inc.
(Cranston's and Hoefle's company) as lessee. Portions of the
working interest of Oil Resources lease were assigned to Polumbus
Petroleum who obtained production. Polumbus attempted to determine
who was entitled to the revenues of the oil it produced and found
that questions existed regarding the validity of the county's tax
title and the efficacy of Rosebud County's 6.25% royalty
reservation. Polumbus initiated an interpleader action in U.S.
District Court in Billings naming all possible mineral and royalty
owners as defendants. All revenues attributable to the royalty
interest were ordered and remain with the clerk of court.
Several stipulations were entered that resulted in the
dismissal of many of the defendants and the loss of diversity
jurisdiction. Meanwhile, the Stanfords filed a complaint in Rosebud
County alleging the underlying tax deed to the property was void
and the Stanfords as heirs to Albert Farwell are the owners of the
entire mineral estate and royalties, and that they were
fraudulently induced into quitclaiming their interest to Hoefle and
Cranston.
The removed interpleader action and the Stanfords' case were
consolidated with the former action being dismissed. The remaining
parties in the action were Rosebud County, the Stanfords, the
Kincheloes, Hoefle and Cranston. The District Court approved and
adopted a settlement agreement, entered by these remaining parties,
dismissing Rosebud County from the case and awarding the county 1/2
or 3.125% of the disputed royalty and 9/16ths of royalties already
4
paid into the court. Rosebud County waived, relinquished, and
released all right, title and interest in what remains of the
royalty.
Under the terms of the settlement agreement, "all right, title
and interest in and to the remaining 3.125% royalty ...shall be
owned by Kincheloe, Hoefie, Cranston, and/or Stanfords.. .
Is. The
agreement further states that the royalty shall be owned by the
parties "in such proportion and in accordance with their respective
interests, if any, as they may be entitled to under the terms of
any settlement agreement entered into by them or judgment of the
Court.. . that shall determine their respective rights thereto."
The remaining claimants each entered a motion for summary judgment
alleging a legally valid claim to the remaining shares of the
proceeds of production and the remaining royalty. The District
Court ruled in favor of the Kincheloes.
The Kincheloes claim entitlement to a proportion of the
royalty based on their ownership of 100% of the surface rights and
75% of the mineral rights. Kincheloes' title in the surface and
minerals as well as their claim to the royalty interest is based
upon the tax deed and subsequent quiet title actions which
Kincheloes argued, and the District Court found, to be valid.
Alternatively, Kincheloes argue that title in the royalty interest
is independently established by adverse possession.
The Stanfords claim entitlement to all of the proceeds of the
royalty as the sole heirs of Albert Farwell. Stanfords argue that
the tax title proceedings are void and that as heirs to the pre-tax
5
deed title owner, they assert the only valid claim to the royalty
interest.
Cranston and Hoefle claim entitlement to all of the proceeds
of the royalty based upon Cranston's quitclaim deeds from Stanfords
and upon the same grounds as Stanfords. Because we do not address
the fraud claim, our analysis involves only Xincheloes' and
Stanfords' claims.
We have held that in order to quiet title to any property
interest, a party must first establish a prima facie claim to
title. LeVasseur v. Roullman (1933), 93 Mont. 552, 20 P.2d 250. It
is axiomatic that a party must prevail on the strength of his own
title and not on the weakness of others. Funk v. Robbin, (1984),
212 Mont. 437, 689 P.2d 1215. As such, our analysis is reduced to
a question of whether the parties are able to establish prima facie
title to the royalty. Our determination is a question of law and
as such this Court's review will be plenary. Steer, Inc. v.
Department of Revenue (1990), 245 Mont. 470, 803 P.2d 601.
The Stanfords' claim of title to the disputed royalty is
through the pre-tax deed owner, Albert Farwell. Stanfords contend
that Rosebud County failed to follow proper procedure thus
rendering the tax sale and Rosebud County's subsequent quiet title
action defective and void. It is Stanfords' position that while
the tax deed is void, the creation of the royalty interest was
confirmed by the August 25, 1989 settlement agreement. Because the
tax deed is invalid, Stanfords contend the royalty reverts to the
pre-tax sale claimants. The Stanfords assert that as the
6
undisputed heirs to Farwell, who died in 1929, they are entitled to
the royalty.
Stanfords maintain the specific jurisdictional defects in the
tax deed and tax sale proceedings were:
(a) That no affidavit of proof of service of notice for
application for tax deed was filed in the office of the
Treasurer of Rosebud County, Montana, prior to the
issuance of the tax deed as required by statute;
(b) That the affidavit of J.L. Freshour, Deputy County
Clerk and Recorder, dated September 16, 1927, is
defective and deficient and therefore null and void;
(c) That the notice of application f o r tax deed dated
August 15, 1927, indicates on its face, "That the period
within the said above described lands and premises may be
redeemed for the sale to pay the taxes for the year 1916
has long since expired, . . .I,
(d) That no affidavit of notice of publication of tax
sale was filed in the office of the Clerk and Recorder of
Rosebud County, Montana, by the County Treasurer as
required by statute.
The District Court ruled that the 1927 tax deed proceeding
adequately complied with the statutory notice provisions, the
County Treasurer had jurisdiction to issue the tax deed to the
County and that the tax deed was and is valid. We disagree. We
find the tax title proceedings to be deficient as asserted by
Stanfords above.
"Proceedings on tax sales are in invitum. Every essential or
material step prescribed by the statute must be strictly followed.'
King v. Rosebud County (1981), 38 St.Rep. 1145, 631 P.2d 711.
Section 2209, RCM (1921), provides explicit instructions that an
'affidavit of notice of an application for a tax deed' must be
filed with the clerk and recorder of the county in which the
7
property is situated. There is no record of such an affidavit
being filed. Furthermore, 5 2201, RCM (1921), states that
redemption may be made any time prior to giving the notice of and
application for a tax deed. The notice of application for tax deed
in the instant case erroneously states that the right to redemption
has "long since expired." Finally, the record fails to include an
'affidavit of notice of tax sale' which, pursuant to 5 2212, RCM
(1921), must also be filed in the office of the treasurer of the
county. The above evidence makes clear that Rosebud County failed
to follow the statutes as required; therefore, the tax deed
proceeding was deficient and the county treasurer did not have
jurisdiction to issue the tax deed and the issued tax deed was
void.
Furthermore, service was not properly achieved upon Albert
Farwell in the 1931 quiet title action. Specifically, there is a
failure to establish the necessary level of proof required in an
affidavit for publication of summons. The applicable statute
governing the level of proof necessary i s § 9484, RCM (1921), which
provides:
The affidavit ...shall clearly show that the necessary
facts exist, and that the plaintiff has used due
diligence in all respects as to which due diligence is
required ... The facts constitutinq due diliqence shall
be set out in said affidavit. (Emphasis added.)
When construing 5 1984, RCM (1921), in Aronow v. Anderson (1940),
110 Mont. 484, 104 P.2d 104, the Court said:
The affidavit must show the evidentiary facts upon which
the ultimate fact is asserted that the defendant resides
out of the state before a valid order for publication of
summons can be made.
8
The affidavit for publication of summons in the instant case is
deficient because it fails to recite facts to support its
conclusion that Farwell resided in Minnesota. Furthermore, no
specific facts were offered describing a search for Farwell. We
find the Affidavit for Publication of Summons to have been
deficient and the 1931 quiet title action is void. Furthermore,
the 1944 Ziesmer quiet title action is void on the same basis.
We have held that reservations created by counties following
defective tax sales remain intact. Richardson v. Richland County
(1985), 219 Mont. 48, 711 P.2d 777. Here the royalty interest was
held by Rosebud County until it relinquished and waived all rights
to it under the settlement agreement. When Rosebud County
relinquished its interest in this case, the heirs of the pre-tax
sale owner, Albert Farwell, are able to assert their title because
they and their predecessor have not been deprived of their title.
All actions taken relative to the invalid tax sale are void. King
v. Rosebud County (1981), 38 St.Rep. 1145, 631 P.2d 711. The
Stanfords, as heirs to Farwell, have established a prima facie
claim to the royalty on this basis. Because Stanfords have
established a prima facie claim, the burden shifts to Kincheloes to
prove a superior title. Cook v. Rigney (1942), 113 Mont. 198, 126
P.2d 325.
The Kincheloes contend that the royalty interest can only be
derived from mineral interests of which Kincheloes undisputedly own
75%. Kincheloes advance a theory that inasmuch as only mineral
owners have the right to produce or contract for production, they
9
must own some or all of the oil in place. Allegedly, the total
value of production belongs to the lessee subject to the terms of
the lease agreement which obligates the lessee to pay lessors
and/or royalty owners. Kincheloes contend that when the county
abandoned its claim, the obligation for the lessee to pay that part
of the royalty was eliminated. In other words, the mineral owners,
by investing in and being in control of production, are entitled to
all royalties with the exception of those burdened by the lease.
Kincheloes' argument essentially promotes a theory that the
royalty interest should revert to the owners of the mineral
interest. Kincheloes, as well as the District Court, cite Stokes
v. Tutvet (1958), 134 Mont. 250, 328 P.2d 1096, to support the
position that royalty interests are interests in production which
may only be created by the mineral owner and therefore, since
Rosebud County abandoned its claim, only the remaining mineral
interest holders have a right to the royalty. We note that while
the argument has a logical appeal, it does not appear to be
supported by Stokes one way or the other and no other authority is
provided.
We have previously stated it is important to recognize the
distinction between mineral interests and royalty interests.
McSweyn v. Musselshell County (1981), 38 %.Rep. 1260, 632 P.2d
1095. Mineral interests are the right to develop or lease and to
keep the proceeds of the lease, whereas royalties are a right to a
share in production while remaining free from the costs of
production. Problematic with Kincheloes' theory is that it blurs
10
the distinction between the two. If royalty interests are free from
the cost of production by definition, then it would be inherently
contradictory to find they can arise from spending time and money
on production. We decline to find prima facie evidence of
Kincheloes' title in the royalty interest on the basis of their
right and title in the minerals.
The second basis on which the District Court determined that
Kincheloes have title to the royalty is by the doctrine of adverse
possession. There is no dispute that the Kincheloes have valid
title to 100% of the surface and 75% of the minerals. We affirm the
court's finding that the Kincheloes have fulfilled the elements
necessary to establish adverse possession of these portions of the
property. However, we find that Kincheloes do not have an interest
in the royalty interest by adverse possession.
The Kincheloes assert title by adverse possession to the
royalty interest both under color of title and by use and
occupancy. Color of title is derived through the invalid tax deed
and subsequent conveyances. The decree allegedly quieting title to
Ziesmer specifically recognizes that Kincheloesl title is subject
to Rosebud County's 6.25% royalty interest. Kincheloes are
successors in interest to Ziesmer. A purchaser has constructive
notice of every matter that appears in the title and is bound to
these matters. Pluhar v. Guderjahn (1958), 134 Mont. 4 6 , 328 P.2d
129.
A person cannot attack a royalty reservation in a title under
and through which he bases his rights. Russell v. Texas Company
LL
(1956), 238 F.2d 636. In Russell, the court held that a grantee, or
his successors in interest, needs an independent source of title to
challenge a mineral reservation of his grantor. Kincheloes (the
grantees) are estopped by Rosebud County's deed to Ziesmer, through
which they derived their title or at a minimum their color of
title, from attacking Rosebud County's (the grantor) royalty
reservation. Because the Kincheloes' grant expressly subjects the
property to the county's reservation, they have no color of title
to the royalty.
Kincheloes next contend they establish adverse possession by
use and occupancy without need to rely on color of title. Under the
adverse possession doctrine, property must be claimed under a color
of title or by possession which is actual, visible, exclusive,
hostile and continuous for the statutory period. Burlingame v.
Marjerrison (L983), 204 Mont. 464, 665 P.2d 1136.
It is unnecessary to determine whether the royalty in this
case is a possessory or non-possessory interest; under either,
adverse possession will not apply. Kincheloes have failed to
produce evidence that they have in fact possessed or taken the
royalty. The Kincheloes have never possessed or taken any of the
proceeds from the royalty which continues to be held by the clerk
of court, nor, prior to these proceedings, did they ever make an
adverse claim to the royalty.
We conclude the Kincheloes did not adversely possess or take
title to the royalty beginning either under color of title or by
actual taking, use or occupancy. No further basis for the
12
establishment of prima facie title is offered. Instead, the
remainder of Kincheloes' argument is based upon the defense of
laches. Kincheloes have failed to demonstrate any claim to title
whatsoever. Because Kincheloes are unable to establish any claim
to title in their own right, we conclude Kincheloes have no
standing to assert any defenses, including laches.
By virtue of having made a prima facie claim to title, we
conclude that the Stanfords are entitled to all rights and interest
in the royalty, subject to the findings of the District Court on
the issue of fraud. Our conclusion should be construed as unique
to the unusual circumstances the instant case presents. We by no
means intend to stray from our holdings in the line of cases
supporting the position that laches is a bar to pre-tax deed title
owners. See Richardson v. Richland County, (1985), 219 Mont. 48,
711 P.2d 777; Anderson v. Richland (1985) 219 Mont. 60, 711 P.2d
784; Hunter v . Rosebud County (1989), 240 Mont. 194, 783 P.2d 927.
Here, Kincheloes lack standing to assert the defense that laches
should apply to the plaintiffs' claim to the royalty interest.
Laches is a question of the inequity that would result if a
claim were permitted to be enforced. Filler v. Richland County
(1991), 247 Mont. 285, 806 P.2d 537. Kincheloes are not in a
position to be harmed by an inequitable result because they have
always held their property subject to the royalty. No inequity
will arise by the enforcement of Stanfords' claim. Because
Kincheloes lack a valid claim to the royalty, and therefore lack
standing to raise an equitable defense, and because Stanfords are
13
able to make out a prima facie claim to title, the decision of the
District Court is reversed.
We Concur:
Justice
14
December 16, 1991
CERTIFICATE OF SERVICE
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named:
James P. Healow
SWEENEY & HEALOW
1250 15th St. West, Suite 202
Billings, MT 59102
JOSEPH W. SABOL
Attorney at Law
225 Esat Mendenhall
Bozeman, MT 59715
John J. Cavan and Robert Smith
CAVAN, SMITH, GRUBBS & CAVAN
P.O. Box 1297
Billings, MT 59103
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA
BY:
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