Plaintiffs have appealed from a judgment dismissing their suit to quiet title to claimed equitable interests in the deep rights to oil and gas formations below the Mesa Verde in San Juan County, New Mexico.
After trial of the issues by the court without a jury, findings of fact and conclusions of law were made and a final judgment entered dismissing the complaint. This appeal resulted.
Plaintiffs, Rock Hill Oil Company (hereafter called Rock Hill), Wood River Oil & Refining Company (hereafter referred to as Wood River), Shoreline Petroleum Corporation (hereafter referred to as Shoreline), and El Paso Natural Gas Company (hereafter referred to as El Paso) complain that certain findings are unsupported and that conclusions are erroneous as a matter of law. Complaint is also made that requested findings based on uncontroverted evidence were refused.
While it is true that an equitable interest in real estate may be quieted, Sullivan v. Albuquerque National Trust & Savings Bank, 51 N.M. 456, 188 P.2d 169; McDaniel v. McDaniel, 36 N.M. 335, 15 P.2d 229, it is nevertheless clear that the interest claimed must be an interest in the title. Holthoff v. Freudenthal, 22 N.M. 377, 162 P. 173. Furthermore, a plaintiff in an action to quiet title to real estate must recover, if at all, upon the strength of his own title and not upon the weakness of his adversary's claim. Union Land & Grazing Co. v. Arce, 21 N.M. 115, 152 P. 1143; Abeyta v. Tafoya, 26 N.M. 346, 192 P. 481; New Mexico Realty Co. v. Security Investment & Development Co., 27 N.M. 664, 204 P. 984; Lawson v. Serna, 48 N.M. 299, 150 P.2d 122; Hughes v. Meem, 70 N.M. 122, 371 P.2d 235; Adams v. Benedict, 64 N.M. 234, 327 P.2d 308.
Wood River and Rock Hill owned legal title to an undivided interest in four federal oil and gas leases. Pursuant to a written agreement, they assigned their interest in these leases to El Paso, excepting and reserving an undivided interest in the deep rights below the Mesa Verde formation. The Bureau of Land Management refused approval of these assignments because of the horizontal separation of rights. The agreement with El Paso was then amended by letter of August 10, 1950, so that Wood River and Rock Hill were to assign the entire leases to El Paso and to receive back from El Paso or its assignees:
The letter granted Rock Hill and Wood River the right to select acreage equal to their undivided interests so that they would be entitled to all of the deep mineral rights
Wood River and Rock Hill thereupon assigned the four leases without exception or reservation to John A. Grambling, El Paso's nominee. Pursuant to a farmout agreement from El Paso to defendant Simmons, Grambling assigned the federal leases to Simmons, subject to certain overriding royalties and with the following provision:
These assignments with the above provision were approved by the Bureau of Land Management and were signed by defendant Simmons as assignee. Simmons made several assignments containing provisions similar to that above set out. Wood River and Rock Hill then selected the acreage in which they were to receive the deep rights as provided by the agreement mentioned in the proviso of the assignments. Each of Simmons' assignees have signed a working agreement granting to them the deep rights in the selected acreage but Simmons has refused to sign, and the suit to quiet title followed.
The basis of the trial court's judgment dismissing the complaint, and the theory upon which defendants rest their argument, is that rights cannot become vested in a stranger by exception or reservation contained in the assignments of the leases. They assert that plaintiffs' claim to an equitable interest rests solely upon the so-called reservation or exception of the proviso of the assignment. We cannot agree with this theory.
If plaintiffs became invested with an equitable interest in the title to the federal oil and gas leases in issue in this case, it must have been created by the contract between Wood River and Rock Hill on the one hand and El Paso on the other. Thus, the issue is whether the agreement under which Wood River and Rock Hill assigned their undivided interest to El Paso's nominee and their selection, pursuant to the agreement, of the partitioned area of the deep rights, rises to the level of an equitable interest in the title, or an "equitable ownership."
Whether an operating agreement operates as an assignment or conveyance of an interest in the land depends upon the language of the agreement. That such an agreement may constitute an interest in the title was held in Herigstad v. Hardrock Oil Co., 101 Mont. 22, 52 P.2d 171, 174:
It is well settled in New Mexico that an oil and gas lease conveys an interest in real estate. Terry v. Humphreys, 27 N.M. 564, 203 P. 539; 1 Thornton on Oil and Gas, par. 50. By the contract in this case, Wood River and Rock Hill were to receive an operating agreement "granting * * * all rights in oil, gas and hydrocarbon substances * * *." It is clear to us that the expressed intention of the parties was to grant something more than a mere right to prospect for oil and gas. It was more than a mere license and amounted to an assignment of all rights below the Mesa Verde formation. That intention is made even more clear by the reservation in the assignments to Simmons which stated that Wood River and Rock
After the assignment to Simmons, El Paso stood in the position of a vendor under the contract and Wood River and Rock Hill of a vendee. The title or interest of the vendor and vendee is explained thus in Mesich v. Board of County Commissioners, 46 N.M. 412, 129 P.2d 974:
It does not appear to be disputed that the only obligation imposed upon Wood River and Rock Hill by the contract was their selection of the acreage in accordance with the terms of the letter contract found by the trial court to have been entered into, nor is it disputed that they made selection of the area in accordance therewith. They, therefore, have complied with all the conditions of the letter contract to entitle them to receive the working agreement granting them the deep rights in the selected acreage and are the holders of the equitable title thereto.
Furthermore, not only were the assignments of the federal leases to defendant Simmons specifically made subject to the contract rights of Wood River and Rock Hill, but, by signing the assignments as assignee, defendant Simmons admittedly had notice of the terms of such contract, and is chargeable with knowledge thereof. Provencio v. Price, 57 N.M. 40, 253 P.2d 582; Taylor v. Hanchett Oil Co., 37 N.M. 606, 27 P.2d 59; Sinclair Refining Co. v. Clay, 102 F.Supp. 732 (N.D.Ohio 1951). The conclusion that the contract was a continuing obligation which defendants must honor is inescapable. 8 Thompson on Real Property (Perm.Ed.) § 4569; Gaskins v. Walz, 409 Ill. 40, 97 N.E.2d 798; see also Henshaw v. Texas Natural Resources Foundation, 147 Tex. 436, 216 S.W.2d 566.
Defendants strongly argue that refusal of the Bureau of Land Management to approve the assignments of the leases with retention by Wood River and Rock Hill of their undivided interest in the deep rights defeats validity of the agreement between El Paso and Wood River and Rock Hill. That cannot be made the basis of denying validity to the agreement because (1) the amended agreement, forming the basis for the equitable title of plaintiffs, was approved by the Bureau of Land Management and (2) defendants are held in a court of equity to the obligation they assumed in accepting the assignment of the leases. Isaacs v. De Hon, 9 Cir., 11 F.2d 943. See also Herigstad v. Hardrock Oil Co., supra.
Additionally, the rules of the Bureau of Land Management under which the governmental department denied approval of the first assignments tendered were for the protection and benefit of the government only, and thus are not available to an individual. Recovery Oil Co. v. Van Acker, 79 Cal.App.2d 639, 180 P.2d 436, 438. The reasoning is expressed thus in Aronow v. Bishop, 107 Mont. 317, 86 P.2d 644:
It follows that the court was in error in dismissing plaintiff's complaint as to all of the plaintiffs except El Paso which admittedly now has no interest in these leases. The judgment appealed from should be reversed and the cause remanded with instructions to vacate the judgment and proceed in a manner not inconsistent with this opinion.
It is so ordered.
COMPTON, C.J., and MOISE, J., concur.