IN THE SUPREME COURT OF THE STATE OF MONTANA
BEULAH FARLEY, as an individual and
as power of attorney for others; and
ARMELLS LAND AND CATTLE CO., a Montana
Plaintiffs and Respondents,
BOOTH BROTHERS LAND AND LIVESTOCK
COMPANY, a Colorado corporation, and
WESTERN ENERGY COMPANY, a Montana
Defendants and Appellants.
District Court of the Sixteenth Judicial District,
In and for the County of Rosebud,
The Honorable Joe L. Hegel, Judge presiding.
COUNSEL OF RECORD:
Scot Schermerhorn, Freeman &Schermerhorn,
Old-burg, Karowsky, Witwer, Miller & Oldenburg,
Submitted on Briefs:
October 28, 1994
February 14, 1995
Justice James C. Nelson delivered the Opinion of the Court.
This is an appeal from a Sixteenth Judicial District Court,
Memorandum and Opinion as well as Supplemental
concluding that Western Energy Company
(Western) should be making its payments under the leases at issue,
to Booth Brothers Land and Livestock Company (Booth).
The following are issues on appeal:
scoria a mineral for the purposes of deciding the
II. Is Farley entitled to the compensation payable by Western
for the use of the surface?
The parties have stipulated to an agreed statement of facts.
The following is a summary of the pertinent facts from the agreed
statement of facts.
"Booth Land and Livestock Company, a successor to Booth
Brothers Land and Livestock Company (herein called "Booth")
owner of ranch property located in Treasure, Big Horn and Rosebud
The west part of the ranch, located principally
in Treasure and Big Horn Counties, was purchased from the Federal
Land Bank of Spokane on January 7, 1988, and the east part of the
located principally in Rosebud County, was purchased from
Land and Cattle Company on October 12, 1988."
Inc. and Armells Land and Cattle Company were the original surface
owners of the properties at issue.
"The ranch is burdened with the rights of the owners of the
coal deposits and their lessees to use and consume the surface for
coal mining under three agreements.
provide that Western Energy Company ("Western") has the right to
use the surface of the land subject to the agreements for mining
purposes and provides for compensation for such use."
The owner of the coal deposits,
the owner of the property
subject to the agreements and the lessee under the agreements are
1. The coal deposits are owned by Burlington Northern Railroad
Neither plaintiffs nor Booth own or have any interest in
the coal deposits.
2. The surface of the property at issue is owned by Booth.
3. Western is the current tenant with the right to use the
surface in connection with its mining of Burlington Northern's
under the Consolidation Coal Company Agreement
the Surface Lease and the
Scoria Lease and holds all
rights as a tenant thereunder and has all of the obligations of the
tenant under such agreements
The central issue in the present action is to whom Western
should be making payments under the leases associated with the
On June 20, 1990, Farley filed a complaint in the Sixteenth
Judicial District Court, Rosebud County, seeking a declaratory
judgment that they were to receive royalty payments from Western
for Western's use of the surface land.
August 15, 1990,
March 6, 1991.
Western filed its answer on
and Booth filed its answer and counterclaim on
Booth, in its counterclaim, sought to have title
quieted in the property at issue,
except for the reservation of
mineral rights and the payments under the Consol Agreement and to
receive judgment with respect to the payments by Western for the
use of the surface of the land.
The parties stipulated that
Western did not have to actively participate in the action because
it is not affected, in any meaningful way, by the decision rendered
It simply needs to know to whom to send the applicable
The District Court issued an order, filed on July 16, 1993,
"the right to the compensation for damage to
surface rights contained in the leases regarding coal deposits
passed with the fee to Booth Brothers, except for that which was
reserved by Farley."
Supplemental Opinion, which was filed on May 11, 1994, stating that
scoria was not a mineral for the purpose of this action.
appeal by Farley followed.
scoria a mineral for the purpose of this action?
Farley states that scoria is located in "a relatively small
portion of the United States [and],
and western North DakotaIil~~~'t~nu~~~~'c~~~~~:::
Farley also asserts that scoria is used to manufacture
that because scoria has limited
availability and has a use which is an alternative to its use in
roadways, it has an exceptional value above ordinary
substances such as sand, clay and gravel, and therefore, should be
defined as a mineral.
Booth counters that " [tl he District Court
correctly decided that 'scoria,' as that term is used in eastern
is akin to gravel and,
not a mineral for
judgment was properly granted to
Booth on this issue on the grounds that the scoria rock and all
rights under the Scoria Lease had passed to Booth as the subsequent
We agree with the District Court and Booth.
"mineral" has been the source of considerable
confusion in mineral law litigation nationwide.
As Miller Land &
Mineral v. Highway Com'n (Wyo. 19881, 757 P.2d 1001, 1002, aptly
The courts which have held that the general
reservation of "all minerals" is inherently ambiguous
have traveled over a long and tortuous path in a complex
and hopeless search to discover the particular minerals
the parties intended to reserve. The only reliable rule
which surfaces from the confusing and inconsistent
approaches taken by those courts attempting to ferret out
the subjective intent of the parties is that the word
"mineral" means what the court says it means. The result
is title uncertainty and the need to litigate each
general reservation of minerals to determine which
minerals it encompasses.
We take this opportunity to clarify, in the context of this case,
whether scoria is a "mineral" for the purpose of land transfers in
At the outset, we are concerned here only with "scoria" that
is also characterized as "roof-rock" and which results from burning
We are not concerned with, nor does our opinion
cover scoria of the basaltic lava variety.
Montana statutory law
has previously defined the term "mineral" in specific contexts
concerning mining regulation.
Title 82 is entitled "Minerals, Oil
and Gas" and is pertinent to our discussion in the instant case.
under part 3,
Reclamation, of Chapter 4, Reclamation, provides one definition for
the term "mineral":
"Mineral" means any ore, rock, or substance, other than
oil, gas, bentonite, clay, coal, sand, gravel, phosphate
rock, or uranium, taken from below the surface or from
the surface of the earth for the purpose of milling,
concentration, refinement, smelting, manufacturing, or
other subsequent use or processing or for stockpiling for
future use, refinement, or smelting.
Part 4 of Chapter 4, Reclamation, is entitled Opencut Mining
Reclamation and it provides, under § 82-4-403(6), MCA, that:
"Minerals" means bentonite, clay, scoria, phosphate rock,
sand, or gravel.
It appears that these definitions of the term "mineral" are
not necessarily consistent.
In § 82-4-403(6), MCA, "gravel" is a
mineral but in 5 82-4-303(7), MCA, "gravel" does not come within
the definition of the term "mineral."
Scoria is included in the
definition of "mineral" in 5 82-4-403(6), MCA, but it is unclear
whether it would be included under the definition of "mineral" in
§ 82-4-303(7), MCA.
However, this apparent inconsistency can be
clarified by recognizing that the definition of
differ according to the context
in which it is
definition of the term "mineral" in § 82-4-303(7),
applicable only with respect to the regulation of metal mine
and the term "mineral" as defined in § 82-4-403(6),
applies only in the context of the regulation of opencut
definitions in different contexts.
The issue to be decided here is whether scoria is a "mineral"
for the purpose of determining who should receive the payments from
Western for the use of the surface of the land and the extraction
of the scoria.
This is an issue of first impression in Montana,
and we therefore, consider case law from other jurisdictions which
lead us to conclude that,
for the purposes of land transfers,
including exceptions and reservations, scoria is not a mineral.
In Hovden v. Lind (N.D. 1981), 301 N.W.2d 374, the Supreme
Court of North Dakota,
in deciding whether certain minerals had
been reserved in a land sale contract, stated:
prior to the enactment of §
47-10-25, held in Salzseider v. Brunsdale, 94 N.W.2d 502
that the term did not, in a reservation
clause, include gravel.
We believe this precedent
applies to materials like clay and scoria also. A
reasonable construction of the word "minerals" as used in
a land sale contract excludes clay and scoria, as well as
gravel....Furthermore, we concur in the notion that
materials like gravel, clay and scoria are not ordinarily
classified as minerals because they are not exceptionally
rare and valuable.
Hovden, 301 N.W.2d at 378. Holland v. Dolese Company (Okla. 1975),
540 P.2d 549,
cited in Hovden,
involved the question of whether
limestone was part of the reserved mineral right at issue.
Holland court stated:
II . . . substances such as sand, gravel and limestone
are not minerals within the ordinary and natural meaning
of the word unless they are rare and exceptional in
character or possess a peculiar property giving them
special value, as for example sand that is valuable for
making glass and limestone of such quality that it may
profitably be manufactured into cement. Such substances,
when thev are useful onlv for buildinq and road-makinq
purposes, are not reqarded as minerals in the ordinarv
and senerallv accented meaninq of the word.
cited.) 'I (Emphasis added.)
540 P.2d at 550-551, citing Heinatz v. Allen (Tex.
217 S.W.2d 994.
The court went on to declare:
In the case at bar, the limestone being quarried was
a general part of the soil and subsoil. That limestone
had no peculiar property so as to be rare and exceptional
in character. It was not an exceptional substance and is
comparable to sand and gravel.
The quarry operation
destroyed the surface for its normal uses, such as cattle
grazing. The limestone was not included in the reserved
To hold otherwise would negate much of
the substance of the transaction with the Wards and their
subsequent real estate trade with Dolese. . . It would
destroy the general intent of enjoyment of the surface.
The limestone is not part of the minerals, under the
reserved mineral rights in the deeds here involved.
Holland, 540 P.2d at 551-552.
Finally Miller also cited the above
language from Heinatz, concluding that the appellees should have
been granted the title to the gravel in, on and under the surface
of the land at issue because the court held that "gravel" was not
a mineral, and therefore had not been reserved.
Miller, 757 P.2d
The above precedent leads us to conclude that for the purpose
of determining to which party payments should be made by Western,
scoria is not a mineral.
The District Court stated that scoria is
the appellant agrees that
scoria is used to construct roadways.
Booth appended a letter,
used in road construction.
dated August 19, 1993, to its supplemental brief of September 14,
1993, before the District Court from Contract Analyst Carol Matter
of Western Energy Company, which stated:
We have found that the term "Scoria" is a local term
used to refer to the baked roof rock (which is shale,
outcropping burns. According to Walter T. Huang, author
of the text Petroloqv, the technical definition of Scoria
is "a term applied to basaltic lava, in which the gas
vesicles are numerous and irregular in shape." The local
term "Scoria" may have evolved due to the rock's reddish
brown coloring often identified with basaltic rock.
The use of scoria in constructing roadways does not elevate
scoria to the status of a compound which is "rare
in character" and therefore, a "mineral."
540 P.2d at
The appellants did make one argument that scoria had
special properties which made it rare and exceptional.
argued that an alternative use for scoria was in the manufacture of
Appellants contend that this use makes scoria more
valuable than ordinary sand and gravel, which is used primarily for
building and construction.
However, this argument was raised for
the first time on appeal and will not,
therefore be addressed by
Goodover v. Lindey's Inc. (1992), 255 Mont. 430, 441,
843 P.2d 765, 772.
the only evidence presented to the District Court
and considered by this Court is to the effect that local "scoria"
is baked roof rock, composed of shale, sandstone and clay, and is
used in road construction.
"Such substances, when they are useful
only for building and road-making purposes, are not regarded as
minerals in the ordinary and generally accepted meaning of the
540 P.2d at 550-551.
We agree and hold that the
District Court did not err in determining that scoria, for the
purposes of the present action, is not a mineral.
Because scoria is not a mineral for the purpose of the present
action, the rights to the scoria benefits were not reserved in the
The scoria lease, and its
proceeds, passed with the land at its ultimate transfer
Booth, therefore, is entitled to the entire scoria lease
The District Court did not err in concluding that "En10
specific reservation having been made,
the rights to the scoria
rock passed with the surface and the royalty payments with respect
to the scoria lease passed to the Booth Brothers."
Is Farley entitled to the compensation payable by Western for
the use of the surface?
Farley argues that the payments made by Western under the
leases at issue are "royalty interests" and as such, are the
personal property of Farley and did not pass to Booth upon its
Booth contends that the payments are akin to rent and
are appurtenant to the land.
Therefore, Booth asserts, the right
to the payments passed to Booth because it was not specifically
reserved by Farley in Farley's quitclaim or warranty deeds.
quitclaim from Farley to Armells Land Company, however, Parley did
specifically reserve one-half of all mineral interests.
with Booth that the payments made by Western,
royalties or rents, are appurtenant to the land and passed to Booth
upon conveyance of the surface interest in the lands at issue. We
also agree that Farley did specifically reserve one-half of all
mineral interests in the Armells quitclaim and Farley is entitled
to payments from that specific reservation.
In addressing the question of who should receive the rights to
payments, the District Court stated:
Surface rights, because they are part and parcel of what
most people understand as land ownership, should, as a
matter of public policy, automatically pass, unless
expressly excepted or reserved.
While this case does not involve oil and gas royalties,
Williams and Meyers, Oil and Gas Law, at § 213.8, at 155-157, by
Court's finding that the surface
rights should pass to Booth and provides:
Classification of an interest in oil and gas as
realty or personalty has been considered significant when
the issue in controversy is whether such interest passes
by a conveyance, devise, or mortgage of "real estate."
Thus, after the execution of a lease in which the lessor
retains a royalty interest, when he conveys or mortgages
the land without express mention of the reserved royalty
interest under the lease, it may be contended that the
royalty interest is not covered by the deed or mortgage.
It is our view that the classification of the royalty
interest as realty or as personalty is properly of no
significance in this context; the question is simply
whether the royalty interest, even though it may be
viewed as personalty in the particular state, is viewed
as appurtenant to the land.
Two ALR articles lend further support to the District Court's
conclusion that the Western payments are appurtenant to the sale of
the surface. These articles state:
The cases clearly establish that the rights of a
grantor, provided for under an existing lease, in royalty
unaccrued, that is, royalty not due, at the time of a
conveyance of the land, pass to the grantee. It likewise
seems clear that a mortgage of the land will, at least
upon divestiture of the mortgagor's general title by
foreclosure, divest him of title to royalties unaccrued
at that time...."
94 A.L.R. 660.
The later cases agree that a sale or mortgage of
land which is subject to an oil and gas lease includes
royalty where the same is not specially
reserved and is not excluded by a prior assignment....
Clearly a covenant to pay rovaltv is one which
"touches and concerns" the land, and so may well be
recrarded as running with the land and carrying unaccrued
benefits to the uurchaser of the land.
In this reslsect
royalty may be likened to rent.... The doctrine is well
settled that rent to accrue is incident to,
accompanies, the reversion, unless severed by express
reservation.... (Citation omitted.)
140 A.L.R. 1280, 1280.
156 N.W. 128, was whether payments made under certain
mining leases were
The issue in State v. Royal Mineral Ass'n
"credits" and as such taxable as personal
The Royal Mineral court held that the amount payable by
the lessee under the leases,
"a royalty of twenty-five cents per
ton upon all ore mined...," was rent.
Royal Mineral, 156 N.W. at
"the compensation which the occupier pays the
landlord for that species of occupation which the contract between
Roval Mineral, 156 N.W. at 129. (Citation omitted.)
"[ulnaccrued rents are not personal property. They
are incorporeal hereditaments. They are an incident to
the reversion and follow the land. They pass with a sale
or devise of the land... For what is the land but the
Roval Mineral, 156 N.W. at 129-130.
the profits thereof?
What, indeed is the land but
It makes little sense for Booth to purchase
to the lands at issue,
compensation for the destruction of that surface or the benefits of
the ownership of the surface.
We conclude that the right to the
payments for the surface area destruction passed to Booth upon his
of the lands at issue.
specifically reserved one-half of all mineral interests in the
Farley-Armells quitclaim, it is entitled to one-half of the
payments flowing from the interest retained as described in the
We hold that the payments by
Western for the use of the surface land should be made to Booth,
the owner of the surface lands at issue.
February 14, 1995
CERTIFICATE OF SERVICE
I hereby certify that the following certified order was sent by United States mail, prepaid,
to the following named:
FREEMAN & SCHERMERHORN, P.C.
401 N. 31ST, SUITE 710
P.O. Box 7176
Billings, MT 59103-7176
Gary G. Broeder, Esq.
Transwestern I, Ste. 219
404 No. 31st St.
Billings, MT 59101
R. Sam Oldenburg, Esq.
Karowsky, Witwer, Miller & Oldenburg
P.O. Box 1407
Greeley, CO 80532-1407
CLERK OF THE SUPREME COURT
STATE OF MONTANA