Peppertree Farms, L.L.C. v. Thonen , 2022 Ohio 395 ( 2022 )

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Peppertree Farms, L.L.C. v. Thonen, Slip Opinion No. 2022-Ohio-395.]
NOTICE
This slip opinion is subject to formal revision before it is published in an
advance sheet of the Ohio Official Reports. Readers are requested to
promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65
South Front Street, Columbus, Ohio 43215, of any typographical or other
formal errors in the opinion, in order that corrections may be made before
the opinion is published.
SLIP OPINION NO. 2022-OHIO-395PEPPERTREE FARMS, L.L.C., ET AL., APPELLEES, v. THONEN ET AL.,
APPELLANTS.
[Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as Peppertree Farms, L.L.C. v. Thonen, Slip Opinion No.
2022-Ohio-395.]
Property law—Conveyance of oil and gas interests—Dormant Mineral Act, R.C.
5301.56—Marketable Title Act, R.C. 5301.47 et seq.—Under common law
applicable to quiet-title action, conveyance of real property had to include
words of inheritance for grantor to pass on, or to retain part of, a fee-simple
absolute interest in the land—If conveyance did not include words of
inheritance, then grantee received, or grantor retained, only a life estate in
the land—Marketable Title Act and Dormant Mineral Act provide
independent, alternative statutory mechanisms that may be used to reunite
severed mineral interests with the surface property subject to those
interests—Court of appeals’ judgment affirmed in part and reversed in part,
and cause remanded to the trial court.
SUPREME COURT OF OHIO
(No. 2020-0812—Submitted October 6, 2021—Decided February 15, 2022.)
APPEAL from the Court of Appeals for Stark County,
No. 2019CA00159, 2020-Ohio-3042.
____________________
KENNEDY, J.
{¶ 1} This discretionary appeal from a judgment of the Fifth District Court
of Appeals presents two issues. The first issue is whether a provision in a deed in
which a grantor retained an interest in the oil and gas rights to a property kept only
a life estate in that interest because the provision did not include language stating
that the grantor’s interest was inheritable. The second issue is whether Ohio’s
Dormant Mineral Act, R.C. 5301.56, supersedes Ohio’s Marketable Title Act, R.C.
5301.47 et seq., and provides the exclusive mechanism for reuniting a surface estate
with its severed mineral interest.
{¶ 2} Before the General Assembly abrogated the common-law rule in
1925, a conveyance of real property had to include words of inheritance for the
grantor to pass on, or to retain part of, a fee-simple absolute interest in the land.
See G.C. 8510-1, 86 Ohio Laws 18 (1925). If the deed did not include words of
inheritance, then the grantee received, or the grantor retained, only a life estate in
the land. The common-law courts therefore recognized a distinction between a
reservation of a property interest and an exception to the conveyance of property.
A reservation created a new property right for the grantor, and because that new
interest had not been owned by the grantor in fee simple absolute before the
conveyance, words of inheritance were required to make it inheritable. In contrast,
an exception to the conveyance withheld from the transfer an existing fee-simple
property right owned by the grantor. Because property owned in fee simple
absolute was already inheritable, the grantor did not have to include words of
inheritance to retain more than a life estate in the excepted interest.
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{¶ 3} This case involves two separate deeds to property in which successive
grantors, W.T. Fleahman and Mary Fleahman, conveyed the surface rights and part
of the mineral interest while retaining part of the oil and gas rights. Both deeds
were executed before 1925, and neither deed contained words of inheritance. The
Stark County Court of Common Pleas and the Fifth District both concluded that the
conveyances created reservations of the oil and gas rights that retained life estates
in those rights expiring on the respective deaths of the grantors. 2020-Ohio-3042,
154 N.E.3d 644, ¶ 17, 40. For this reason, the court of appeals affirmed summary
judgments entered in favor of appellees, Peppertree Farms, L.L.C., and Jay and
Amy Moore, quieting title to the oil and gas rights claimed by appellants Richard
Reinholtz, Sylvia Ann Miller, and KOAG, Inc. Id. The lower courts also concluded
that Reinholtz’s and Miller’s interests—but not KOAG’s—would have been
extinguished by operation of the Marketable Title Act. Id. at ¶ 50-51, 56.
{¶ 4} After reviewing the language of the deeds at issue in this case, we
conclude that both deeds contain exceptions to the conveyance that withheld part
of the oil and gas rights from the transfer of property. In both deeds, the oil and gas
rights were in existence and owned by the respective grantors at the time of
conveyance. The grantors therefore held a fee-simple interest that was inheritable.
For this reason, words of inheritance were not required to retain more than a life
estate in the excepted interests in the oil and gas. Consequently, Mary Fleahman’s
death did not terminate the interests claimed by Reinholtz and Miller, and W.T.
Fleahman’s death did not terminate the interest claimed by KOAG.
{¶ 5} Regarding the second issue—whether Ohio’s Dormant Mineral Act
supersedes Ohio’s Marketable Title Act and provides the exclusive mechanism for
reuniting a surface estate with its severed mineral interest—Reinholtz, Miller, and
KOAG argue that oil and gas interests cannot be extinguished by operation of the
Marketable Title Act. This court rejected that position in West v. Bode, 162 Ohio
St.3d 293, 2020-Ohio-5473, 165 N.E.3d 298, ¶ 2. The West court held that the
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SUPREME COURT OF OHIO
Dormant Mineral Act and the Marketable Title Act provide alternative,
independent mechanisms to reunite a surface estate with its severed mineral
interest. No other arguments have been presented challenging the lower courts’
determinations that the Marketable Title Act extinguished the interests claimed by
Reinholtz and Miller. However, the trial court did not find that the Marketable Title
Act extinguished the interest that KOAG claims, so summary judgment against
KOAG was erroneous.
{¶ 6} We therefore affirm the judgment of the court of appeals as it applies
to the claims of Reinholtz and Miller, reverse the judgment of the court of appeals
as it pertains to KOAG, and remand this matter to the trial court for further
proceedings consistent with this opinion.
Facts and Procedural History
{¶ 7} In April 1916, W.T. and Katherine Fleahman conveyed two tracts of
land in Monroe County to W.A. Gillespie. The first tract contained approximately
80 acres and the second tract contained approximately 5 acres. The deed stated,
“Grantor W.T. Fleahman excepts and reserves from this deed the one half of the
royalty of the oil and gas under the above described real estate.”
{¶ 8} Although the transfer is not documented in the record before this
court, it is not disputed that Mary Fleahman acquired W.A. Gillespie’s interest
through a subsequent conveyance. In a deed executed in September 1920 and
recorded in April 1921, Mary Fleahman conveyed the two tracts of land to H.J.
Jones. The deed stated that “the 3/4 of oil Royalty and one half of the gas is hereby
reserved and is not made a part of this transfer.” In a deed recorded on October 5,
1929, Mary Fleahman transferred three-fourths of her rights to the oil and gas to
W.T. Fleahman. The parties call the interest that she retained the “Mary Fleahman
Interest,” as we do herein, and part of it is claimed by Reinholtz and Miller.
{¶ 9} In a deed recorded on October 11, 1929, W.T. Fleahman transferred
to S.E. Headley “the one fourth (1/4) part of his royalty of all oil and gas in and
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January Term, 2022
under the * * * premises.” What the parties and this court herein call the “W.T.
Fleahman Interest” is the interest that was retained by W.T. Fleahman in April
1916, plus the interest he received from Mary Fleahman under the deed recorded
on October 5, 1929, and minus the interest that he conveyed to S.E. Headley a week
later.
{¶ 10} Opal Thonen, the administrator of the estate of W.T. Fleahman, sold
the W.T. Fleahman Interest to T.J. Kremer Jr. in a conveyance recorded in January
1938. Kremer Jr. then transferred by quit-claim deed an “undivided one-fourth of
the oil royalty and one-eighth of the gas royalty” to his father, T.J. Kremer, in
February 1939. The deed, which was recorded in August 1948, stated that it was
“the intention of the parties to this conveyance to convey to the purchaser the one-
half of such interest as Grantor acquired by deed from Opal Thonen.” The parties
call this one-half share of the W.T. Fleahman Interest the “T.J. Kremer Interest,” as
we do herein. It is claimed by KOAG.
{¶ 11} Peppertree Farms owns 78.668 acres and Jay and Amy Moore own
an additional 5.009 acres of the land that was previously owned by W.T. Fleahman
and Mary Fleahman.
{¶ 12} Peppertree Farms brought this action to quiet title in the Stark
County Common Pleas Court against Reinholtz, Miller, and KOAG, among
numerous other defendants. Relevant here, it sought a declaration that the W.T.
Fleahman and Mary Fleahman Interests were only life estates, which if true would
have precluded the subsequent transfer of the T.J. Kremer Interest. It further sought
a declaration that these interests were extinguished by the Marketable Title Act.
Jay and Amy Moore were added as plaintiffs. Reinholtz, Miller, and KOAG filed
counterclaims to quiet title in their favor and for a declaratory judgment that the
W.T. Fleahman, Mary Fleahman, and T.J. Kremer Interests had not expired.
{¶ 13} The trial court entered summary judgment in favor of Peppertree
Farms and Jay and Amy Moore, finding that the W.T. Fleahman and Mary
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SUPREME COURT OF OHIO
Fleahman Interests were reservations and therefore life estates because the
conveyances did not include words of inheritance. It concluded that the Dormant
Mineral Act did not supersede the Marketable Title Act and that the W.T. Fleahman
and Mary Fleahman Interests (but not the T.J. Kremer Interest) would have been
extinguished by the Marketable Title Act if they had not expired upon the deaths
of W.T. Fleahman and Mary Fleahman.
{¶ 14} The Fifth District Court of Appeals affirmed, holding that the W.T.
Fleahman and Mary Fleahman Interests each created new property rights and
therefore were reservations. 2020-Ohio-3042, 154 N.E.3d 644, at ¶ 40. And
because the conveyances did not include words of inheritance, W.T. Fleahman and
Mary Fleahman had reserved only life estates that expired on their respective
deaths. Id. The appellate court held that the Dormant Mineral Act did not
supersede the Marketable Title Act, id. at ¶ 45-46, and it determined that the W.T.
Fleahman and Mary Fleahman Interests were extinguished by the Marketable Title
Act, id. at ¶ 55-56.
{¶ 15} We accepted the discretionary appeal of Reinholtz, Miller, and
KOAG to consider two propositions of law:
1. As a matter of law, prior to 1925 and thereafter, an oil and
gas severance using the words “excepts and reserves” or “reserved
and is not made part of this transfer” in an instrument conveying real
property is the retention of an existing interest, not the creation of a
new property interest.
2. The Ohio Dormant Mineral Act (O.R.C. 5301.56)
supersedes and controls over the Ohio Marketable Title Act (O.R.C.
5301.47, et seq.).
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January Term, 2022
See 160 Ohio St.3d 1407, 2020-Ohio-4574, 153 N.E.3d 104; 160 Ohio St.3d 1462,
2020-Ohio-5332, 157 N.E.3d 798.
Law and Analysis
{¶ 16} “[U]nder the feudal system, land being granted by the lord as strictly
in compensation for personal services, the grant was for no longer than the life of
the grantee. Later the grant was extended to the sons and other issue of the grantee,
under the designation of ‘heirs,’ they being entitled to stand in the place of their
ancestor after his death, if mentioned in the grant, but only then.” 1 Tiffany, Real
Property, Section 28 (3d Ed.1939). This was the basis of the common-law rule that
to pass land in fee simple rather than convey only a life estate, a deed had to state
that the estate transferred was absolute by including words of inheritance. Id. at
Sections 28 and 50; 1 Kuntz, A Treatise on the Law of Oil and Gas, Section 14.2
(2021).
{¶ 17} Additional considerations arose when the grantor sought to retain an
interest in the property being conveyed to the grantee. The common law recognized
a distinction between reservations and exceptions. 1 Kuntz, A Treatise on the Law
of Oil and Gas, Section 14.2. A reservation was created in a conveyance when “an
estate [was] granted and at the same time some new right or privilege [was]
reserved out of it to the grantor.” Gill v. Fletcher, 74 Ohio St. 295, 304, 78 N.E.
433 (1906). For example, a right to revoke the deed or to repurchase the property
has been treated as a reservation. 4 Tiffany, Real Property, Section 972. “[I]f the
grantor makes reservations in his deed of conveyance, words of inheritance must
be used in order to pass [or retain] a fee-simple estate.” Embleton v. McMechen,
110 Ohio St. 18, 25, 143 N.E. 177 (1924). Accord 1 Kuntz, A Treatise on the Law
of Oil and Gas, Section 14.2. Because the conveyance established a new property
right binding the grantee that the grantor did not already own in fee simple absolute,
the ability to inherit that right also had to be created by the conveyance. See 4
Tiffany, Real Property, Sections 876 and 972.
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SUPREME COURT OF OHIO
{¶ 18} On the other hand, “[t]he purpose and effect of an exception in a
conveyance is to except or exclude from the operation of the conveyance some part
of the thing or things covered by the general words of description therein, as when
one conveys a piece of land, excepting a certain part thereof, or the houses thereon,
it being properly always a thing actually existent.” 4 Tiffany, Real Property,
Section 972. “Coal, oil, timber, gas, and minerals are all corporeal things already
in existence; thus, they squarely meet the requirements to be an exception, rather
than a reservation.” Id. If the “conveyance create[d] an exception to the grant,
leaving in the grantor and his heirs a fee-simple estate,” Gill at paragraph two of
the syllabus, words of inheritance were not necessary to retain more than a life
estate, id. at 304.
{¶ 19} “Whether the language used in a deed creates a reservation or
exception from the grant depends upon the intention of the parties as evinced by a
construction of the whole instrument in the light of the circumstances of each case.”
Id. at paragraph one of the syllabus. Therefore, we have explained that the use of
the word “reserve” or the word “except” or the use of both words in the same deed
provision is not determinative of whether a reservation was created or an exception
was made to the conveyance. Id. at 304; Sloan v. Lawrence Furnace Co., 29 Ohio
St. 568, 569 (1876).
{¶ 20} For example, in Gill, the conveyance at issue used both the words
“reserve” and “except,” but because the mineral retained was already in existence
and the grantor saved it to himself, we determined that the deed contained an
exception, not a reservation. 74 Ohio St. at 303-304, 78 N.E. 433. Similarly, in
Sloan, although the deed at issue used the word “reserving,” we concluded “that
‘reserving’ was [t]here used in the sense of ‘excepting.’ The ‘minerals underlying
the soil’ being a part of the land described in the deed, and not a mere future benefit
or interest therein, there can be no doubt the grantor intended to retain the fee-
simple title to the minerals.” Id. at 569.
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January Term, 2022
{¶ 21} Effective March 25, 1925, the General Assembly enacted G.C. 8510-
1, 86 Ohio Laws 18 (1925), to abrogate the common-law requirement of words of
inheritance to pass on a fee-simple estate. That provision, now codified at R.C.
5301.02, states:
The use of terms of inheritance or succession are not
necessary to create a fee simple estate, and every grant, conveyance,
or mortgage of lands, tenements, or hereditaments shall convey or
mortgage the entire interest which the grantor could lawfully grant,
convey, or mortgage, unless it clearly appears by the deed,
mortgage, or instrument that the grantor intended to convey or
mortgage a less estate.
For this reason, the distinction between a reservation and an exception no longer
carries the same historical importance in Ohio that it did prior to 1925. See 1 Kuntz,
A Treatise on the Law of Oil and Gas, Section 14.2.
{¶ 22} However, because the W.T. Fleahman and Mary Fleahman Interests
predate the enactment of the statute, we apply the common law to determine
whether each transaction retained for the grantors only a life estate in the oil and
gas interests. That determination turns on whether the conveyance created a
reservation of the oil and gas rights or excepted them from the transfer of property.
{¶ 23} W.T. and Katherine Fleahman’s deed stated, “Grantor W.T.
Fleahman excepts and reserves from this deed the one half of the royalty of the oil
and gas under the above described real estate.” The oil and gas was already in
existence at the time of the conveyance, and W.T. and Katherine Fleahman had a
fee-simple property interest in it that they could except from the transfer of real
estate. Words of inheritance were not required to make that property interest
inheritable.
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SUPREME COURT OF OHIO
{¶ 24} The deed from Mary Fleahman transferring land to H.J. Jones more
expressly excepted part of the oil and gas interest from the conveyance, stating that
“the 3/4 of oil Royalty and one half of the gas is hereby reserved and is not made a
part of this transfer.” Again, the conveyance did not create this interest, because
the oil and gas was in existence and owned in fee simple before the deed was
executed.
{¶ 25} Peppertree Farms and Jay and Amy Moore maintain that W.T.
Fleahman and Mary Fleahman retained an interest only in oil and gas royalties.
They assert that a royalty is personal property and that the deeds therefore created
new rights that could be inheritable only if the conveyances contained words of
inheritance. Professor Eugene Kuntz, the author of a renowned treatise on the law
of oil and gas, has noted that the word “royalty” has been used “loosely,” including
in the broad sense of referring to the mineral interest itself. 1 Kuntz, A Treatise on
the Law of Oil and Gas, Section 15.4. However, dicta in this court’s decision in
Pure Oil Co. v. Kindall supports their position: “Royalty is a certain percentage of
the oil after it is found or produced, or so much per gas well developed and
producing gas. Royalty is personal property, and is not realty.” 116 Ohio St. 188,
201, 156 N.E. 119 (1927). But as we noted in Pure Oil Co., that issue did not
appear to be properly before this court in that case because the appellants had failed
to perfect the record on appeal. Id. at 198-199. Further, the conveyance at issue
contained words of inheritance, see id. at 191, so the difference between a
reservation and an exception was of no consequence to our analysis in that case.
{¶ 26} However, there is a recognized difference between royalties that
have accrued, which are personal property, and the right to unaccrued royalties,
which is real property. See, e.g., United States v. Noble, 237 U.S. 74, 80, 35 S.Ct.
532, 59 L.Ed. 844 (1915); Sehlstrom v. Sehlstrom, 925 N.W.2d 233, 238
(Minn.2019); Siana Oil & Gas Co., L.L.C. v. Dublin Co., 2018 ND 164, 915
N.W.2d 134, ¶ 19; Weber v. Mobil Oil Corp., 2010 OK 33, 243 P.3d 1, ¶ 19, fn. 25;
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January Term, 2022
Nygaard v. Getty Oil Co., 918 So.2d 1237, 1240, ¶ 14 (Miss.2005); Ferguson v.
Coronado Oil Co., 884 P.2d 971, 977 (Wyo.1994); Price v. Atlantic Refining Co.,
79 N.M. 629, 1968-NMSC-180, 447 P.2d 509, ¶ 4; Krone v. Lacy, 168 Neb. 792,
800, 97 N.W.2d 528 (1959); Mark v. Bradford, 315 Mich. 50, 58, 23 N.W.2d 201(1946); Callahan v. Martin, 3 Cal.2d 110, 124, 43 P.2d 788 (1935); Arrington v.
United Royalty Co., 188 Ark. 270, 65 S.W.2d 36 (1933).
{¶ 27} As Professor Kuntz explained in his treatise on oil and gas, “it is
generally recognized that unaccrued royalty is properly classified as real property,
and the right to receive unaccrued royalty has been so classified for a wide variety
of purposes.” 3 Kuntz, A Treatise on the Law of Oil and Gas, Section 38.2 (2021).
This is because “[t]he right to receive royalty in the future is one of the separately
alienable incidents of ownership of the full mineral interest.” Id. “[E]ven before
an oil and gas lease has been executed describing the payments to be made under
the lease and describing other rights of the lessor, it is recognized that the owner of
a full mineral interest has distinct incidents of ownership with respect to future
leases, and that he may alienate such incidents or property rights in whole or in
part.” 1 Kuntz, A Treatise on the Law of Oil and Gas, Section 15.1. Therefore, the
right to future royalties may be retained by exception. See 1 Williams & Meyers,
Oil and Gas Law, Section 202.3 (2021); 1 Kuntz, A Treatise on the Law of Oil and
Gas, Section 15.1.
{¶ 28} Consequently, at the times that W.T. Fleahman and Mary Fleahman
each conveyed the property, they owned an existing real-property interest in
unaccrued royalties from the production of oil and gas, regardless of whether the
property was then subject to an oil and gas lease. They could sever their present
right to future royalties from both the surface and the mineral estate, which they
did. And because they did so by excepting the royalty interest from the conveyance,
their property rights in the partial interest to the oil and gas were absolute.
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SUPREME COURT OF OHIO
{¶ 29} For these reasons, the W.T. Fleahman and Mary Fleahman Interests
were not life estates and did not terminate on their respective deaths. And because
the W.T. Fleahman Interest was not a life estate, the T.J. Kremer Interest could be
acquired after W.T. Fleahman had died. The court of appeal’s conclusion to the
contrary was in error.
{¶ 30} However, the trial court and the appellate court also decided that the
W.T. Fleahman and Mary Fleahman Interests would have been extinguished by the
Marketable Title Act. Reinholtz, Miller, and KOAG challenge this determination,
asserting that the Dormant Mineral Act is the exclusive mechanism for reuniting a
surface estate with its severed mineral interest. However, as they recognize, this
argument is precluded by this court’s recent decision in West, in which we held that
the Marketable Title Act and the Dormant Mineral Act provide “independent,
alternative statutory mechanisms that may be used to reunite severed mineral
interests with the surface property subject to those interests.” 162 Ohio St.3d 293,
2020-Ohio-5473, 165 N.E.3d 298, at ¶ 2. And because they present no other
argument explaining why the Marketable Title Act did not extinguish the W.T.
Fleahman and Mary Fleahman Interests, we do not disturb the trial court’s summary
judgment entered against Reinholtz and Miller.
{¶ 31} But the trial court did not determine that the Marketable Title Act
had extinguished the T.J. Kremer Interest. And because the W.T. Fleahman Interest
was not a life estate that had expired before the T.J. Kremer Interest was acquired,
the trial court erred in granting summary judgment against KOAG and in favor of
Peppertree Farms and Jay and Amy Moore.
Conclusion
{¶ 32} Prior to March 25, 1925, when a conveyance created new property
rights benefiting the grantor in the transaction, it contained a reservation and words
of inheritance were required to make those new rights inheritable. In contrast, when
the transaction withheld preexisting property rights from the conveyance, those
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January Term, 2022
words were an exception to the conveyance and words of inheritance were not
required to retain more than a life estate in the excepted property interest.
{¶ 33} In this case, the deeds that W.T. Fleahman and Mary Fleahman
executed excepted from the conveyances part of the oil and gas interests that they
owned. Therefore, the oil and gas rights that Reinholtz, Miller, and KOAG claim
did not terminate upon W.T. Fleahman’s and Mary Fleahman’s deaths. However,
the court of appeals below upheld the trial court’s determination that Reinholtz’s
and Miller’s interests were terminated by the Marketable Title Act. Based on our
precedent, we leave that holding in place. Further, because the court of appeals
erred in concluding that W.T. Fleahman’s oil and gas rights terminated upon his
death, it erred in concluding that KOAG could have no interest in those rights.
Summary judgment in favor of Peppertree Farms and Jay and Amy Moore on their
claims against KOAG and on KOAG’s counterclaims was erroneous.
{¶ 34} For these reasons, we affirm the judgment of the court of appeals as
it applies to the claims of Reinholtz and Miller, reverse the judgment of the court
of appeals as it pertains to KOAG, and remand this matter to the trial court for
further proceedings consistent with this opinion.
Judgment affirmed in part
and reversed in part,
and cause remanded.
O’CONNOR, C.J., and DEWINE, STEWART, and BRUNNER, JJ., concur.
DONNELLY, J., dissents, with an opinion joined by FISCHER, J.
_________________
DONNELLY, J., dissenting.
{¶ 35} This case should be dismissed as having been improvidently
allowed. It does not involve issues of “public or great general interest.” Article
IV, Section 2(B)(2)(e), Ohio Constitution. It is highly fact-specific and the issues
involved were resolved below. I dissent.
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SUPREME COURT OF OHIO
FISCHER, J., concurs in the foregoing opinion.
_________________
Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A., Matthew W. Onest,
and Wayne A. Boyer, for appellees.
Hanlon, Estadt, McCormick & Schramm Co., L.P.A., Erik A. Schramm Jr.,
and Kyle W. Bickford, for appellants.
Emens, Wolper, Jacobs & Jasin Law Firm Co., L.P.A., Cody Smith, and
Sean E. Jacobs, urging affirmance for amici curiae, Gregory A. Goble and Brenda
S. Goble.
_________________
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