Ruthven & Co. v. Pan American Petroleum Corp.

In 1924, C. A. and Paulina Mermis conveyed to George Holland a one-fourth interest in oil, gas, and minerals produced from the west half of a quarter section of land in Kansas. C. A. Mermis subsequently died. In June 1936, Paulina Mermis ratified the earlier conveyance to Holland. Holland died in 1946, and Ruthven & Company (Ruthven) (plaintiff) became the owner of Holland’s interest. In June 1956, Paulina Mermis executed an oil-and-gas lease to Leo Dreiling for the entire quarter section of the land. Ruthven did not execute or join in the lease. The Dreiling lease contained an entirety clause providing that if the “leased premises” were presently or thereafter owned in separate tracts, the premises would be developed as an entirety and royalties would be paid to each owner in proportionate shares based on each owner’s acreage. The lease also contained a lesser-interest clause, in which Paulina Mermis agreed that if she owned a lesser interest than the entire estate, her royalties should be paid proportionately based on her acreage. Oil production under the Dreiling lease occurred entirely from wells located on the east half of the quarter section. Stanolind Oil Purchasing Company, the predecessor of Pan American Petroleum Corporation (Pan American) (defendant), purchased the oil and was directed to pay the full royalty for the production to Paulina Mermis. Ruthven never received any royalty payments. Ruthven brought an action against Pan American, asserting that even though production had occurred on the east half of the property and Ruthven had an interest in the west half of the property, Ruthven was entitled to a proportionate share of the royalties pursuant to the entirety clause in the Dreiling lease. The trial court concluded that the entirety clause was inapplicable because Paulina Mermis could not have leased Ruthven’s interest in the west half, and therefore, that interest was not part of the “leased premises” for purposes of the entirety clause. Ruthven appealed.