{ "id": 1580100, "name": "S.B. CHRISTY, IV, Plaintiff-Appellant, v. PETROL RESOURCES CORPORATION, Energy Group, Cibola Energy Corp. (formerly Coronado Exploration Corporation); and, all unknown claimants of interest in the premises adverse to the Plaintiff, Defendants-Appellees", "name_abbreviation": "Christy v. Petrol Resources Corp.", "decision_date": "1984-10-25", "docket_number": "No. 7729", "first_page": "58", "last_page": "63", "citations": [ { "type": "official", "cite": "102 N.M. 58" }, { "type": "parallel", "cite": "691 P.2d 59" } ], "court": { "name_abbreviation": "N.M. Ct. App.", "id": 9025, "name": "Court of Appeals of New Mexico" }, "jurisdiction": { "id": 52, "name_long": "New Mexico", "name": "N.M." }, "cites_to": [ { "cite": "89 N.M. 423", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2867773 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/nm/89/0423-01" ] }, { "cite": "54 N.M. 27", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1582042 ], "weight": 2, "year": 1949, "opinion_index": 0, "case_paths": [ "/nm/54/0027-01" ] }, { "cite": "73 N.M. 85", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 5321524 ], "weight": 2, "year": 1963, "opinion_index": 0, "case_paths": [ "/nm/73/0085-01" ] }, { "cite": "486 P.2d 906", "category": "reporters:state_regional", "reporter": "P.2d", "case_ids": [ 10566048 ], "year": 1971, "opinion_index": 0, "case_paths": [ "/p2d/486/0906-01" ] }, { "cite": "291 S.W.2d 673", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 10179669, 2252415 ], "year": 1956, "opinion_index": 0, "case_paths": [ "/sw2d/291/0673-01", "/tex/156/0001-01" ] }, { "cite": "78 N.M. 634", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 5320645 ], "weight": 2, "year": 1968, "opinion_index": 0, "case_paths": [ "/nm/78/0634-01" ] }, { "cite": "203 P. 539", "category": "reporters:state_regional", "reporter": "P.", "year": 1922, "opinion_index": 0 }, { "cite": "27 N.M. 564", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 8842961 ], "year": 1922, "opinion_index": 0, "case_paths": [ "/nm/27/0564-01" ] }, { "cite": "58 N.M. 18", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1587684 ], "weight": 2, "year": 1953, "opinion_index": 0, "case_paths": [ "/nm/58/0018-01" ] }, { "cite": "54 N.M. 97", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1582019 ], "weight": 2, "year": 1950, "opinion_index": 0, "case_paths": [ "/nm/54/0097-01" ] }, { "cite": "90 N.M. 256", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2872048 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/nm/90/0256-01" ] }, { "cite": "90 N.M. 391", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2872528 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/nm/90/0391-01" ] }, { "cite": "84 N.M. 717", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2766048 ], "weight": 2, "year": 1973, "opinion_index": 0, "case_paths": [ "/nm/84/0717-01" ] }, { "cite": "34 N.M. 664", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1556142 ], "weight": 2, "year": 1930, "opinion_index": 0, "case_paths": [ "/nm/34/0664-01" ] }, { "cite": "72 N.M. 201", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2853190 ], "weight": 3, "year": 1963, "opinion_index": 0, "case_paths": [ "/nm/72/0201-01" ] }, { "cite": "72 N.M. 242", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2854673 ], "weight": 2, "year": 1963, "opinion_index": 0, "case_paths": [ "/nm/72/0242-01" ] }, { "cite": "93 N.M. 135", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1568815 ], "weight": 2, "year": 1979, "opinion_index": 0, "case_paths": [ "/nm/93/0135-01" ] }, { "cite": "63 N.M. 359", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2776873 ], "weight": 2, "year": 1957, "opinion_index": 0, "case_paths": [ "/nm/63/0359-01" ] }, { "cite": "73 N.M. 142", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 5321117 ], "weight": 2, "year": 1963, "opinion_index": 0, "case_paths": [ "/nm/73/0142-01" ] } ], "analysis": { "cardinality": 653, "char_count": 14155, "ocr_confidence": 0.801, "pagerank": { "raw": 7.278780742269658e-08, "percentile": 0.4333217882586977 }, "sha256": "7916f17c1002115ee10a5bab47ea78a8c9778ce2f88f68c6220bbc901dec41b6", "simhash": "1:26a4656435189c5e", "word_count": 2347 }, "last_updated": "2023-07-14T22:42:54.117025+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "HENDLEY and NEAL, JJ., concur." ], "parties": [ "S.B. CHRISTY, IV, Plaintiff-Appellant, v. PETROL RESOURCES CORPORATION, Energy Group, Cibola Energy Corp. (formerly Coronado Exploration Corporation); and, all unknown claimants of interest in the premises adverse to the Plaintiff, Defendants-Appellees." ], "opinions": [ { "text": "OPINION\nWOOD, Judge.\nThe United States issued an oil and gas lease for lands in Eddy County, New Mexico. Plaintiff sought to quiet title, alleging that he was \u201cthe owner and holder in fee simple of (i) a 10% net profits interest, and (ii) an overriding royalty of 1% of the amount of all oil, gas, casinghead gas and other hydrocarbon substances which may be produced, each under\u201d the United States lease. The case was tried on stipulated facts. The trial court dismissed plaintiffs quiet title claims with prejudice. Plaintiff appeals. We discuss: (1) the net profits interest, and (2) dismissal with prejudice in light of the undisputed overriding royalty interest.\nGallo was the original lessee; he assigned the lease to Petrol Resources Corporation (Petrol), reserving an overriding royalty equal to 3% of %ths of production. Thereafter Petrol executed, contemporaneously, two documents in favor of plaintiff. One document conveyed a 1% of %ths overriding royalty to plaintiff. The second document assigned a 10% net profits interest in the lease to plaintiff. Thereafter Petrol assigned the lease to Cibola Energy Corp., formerly Coronado Exploration Corporation (Cibola), reserving a 1% of %ths overriding royalty.\nCibola owns the lease in fee simple, subject to (a) 12%% royalty reserved by the United States; (b) 3% overriding royalty reserved by Gallo; (c) 1% overriding royalty reserved by Petrol; and (d) plaintiff\u2019s claims.\nIn seeking to quiet title, plaintiff\u2019s claim is that each of his two interests was an interest in the title to real property. NMSA 1978, \u00a7 42-6-1; Rock Island Oil & Refining Co. v. Simmons, 73 N.M. 142, 386 P.2d 239 (1963); Lanehart v. Rabb, 63 N.M. 359, 320 P.2d 374 (1957), overruled on other grounds in Ortega, Snead, Dixon & Hanna v. Gennitti, 93 N.M. 135, 597 P.2d 745 (1979). If either of plaintiff\u2019s interests was not an interest in the title to real property, the trial court properly dismissed the quiet title suit as to that interest.\nNet Profits Interest\nPetrol assigned plaintiff a 10% net profits interest in the lease. The phrase \u201cnet profits interest\u201d has not been defined in New Mexico appellate decisions. The only New Mexico appellate decision that we have found which uses the phrase is Boylin v. United Western Minerals Co., 72 N.M. 242, 382 P.2d 717 (1963). What does the phrase mean?\nPlaintiff suggests that we should treat a \u201cnet profits interest\u201d in the same manner as overriding royalty is treated, citing J. Sherrill, Net Profits Interest \u2014 A Current View, 19th Oil & Gas Inst, at 165 (Matthew Bender 1968), and 2 H. Williams & C. Meyers, Oil and Gas Law \u00a7 424.1 (1983).\nPlaintiff\u2019s argument fails to recognize that both texts assign a meaning to the phrase\u2019 \u201cnet profits interest\u201d and likens the interest, as defined, to an overriding royalty. J. Sherrill, supra, explains that the \u201ctypical\u201d net profits interest requires the working interest owner to advance all moneys necessary for the development and operation of the property, and entitles the working interest owner to receive all of the proceeds attributable to the production until he recovers all amounts previously advanced. J. Sherrill, supra, at 165, states: \u201cThus, traditionally, within the oil and gas industry, the \u2018net profits\u2019 of a net profits interest exist only when total receipts from the property exceed total expenditures with respect thereto, and it is in this sense that net profits are herein considered.\u201d 2 H. Williams & C. Meyers, supra, at \u00a7 424 states that net profits are fractional interests in oil and gas property and at \u00a7 424.1 states \u201c[a] net profits interest is a share of gross production from a property measured by net profits from the operation of the property.\u201d See also 8 H. Williams & C. Meyers, Oil and Gas Law at 457 (1982). The definitions in both texts involve production from the property. Plaintiff\u2019s \u201cnet profits interest\u201d is not based on production. This distinction makes the definitions in the above texts inapplicable in this case.\nPlaintiff also suggests that his \u201cnet profits interest\u201d should be treated as proceeds from the property. He relies on Fullerton v. Kaune, 72 N.M. 201, 382 P.2d 529 (1963) and cites Hodges v. Rutherford, 34 N.M. 664, 287 P. 289 (1930) as being contrary to Fullerton but inapplicable because Hodges has never been followed.\nThe syllabus in Hodges, prepared by the court, states: \u201cA contract for one-half of the net proceeds of all mineral and oils taken from lands is a personal contract and does not convey an interest in realty.\u201d We have no authority to override a supreme court decision. Alexander v. Delgado, 84 N.M. 717, 507 P.2d 778 (1973). However, we may consider whether the Hodges decision is applicable. See Peralta v. Martinez, 90 N.M. 391, 564 P.2d 194 (Ct.App.1977); State v. Scott, 90 N.M. 256, 561 P.2d 1349 (Ct.App.1977) and cases cited in Scott. Hodges has never been cited in other New Mexico decisions. Fullerton held that an oral contract for a percentage of the value of all oil and gas produced and saved was an interest in realty within the statute of frauds. A written contract to execute an oil and gas lease is a contract for the sale of an interest in land. Vanzandt v. Heilman, 54 N.M. 97, 214 P.2d 864 (1950); see also Keirsey v. Hirsch, 58 N.M. 18, 265 P.2d 346 (1953). If Hodges ever accurately stated New Mexico law, cf. Terry v. Humphreys, 27 N.M. 564, 203 P. 539 (1922), it was not to be followed after the decisions in Vanzandt, Keirsey and Fullerton. Hodges is not applicable; therefore, we answer plaintiffs argument which is based on Fullerton.\nFullerton considered the argument that the production (in that case, gas) was realty, but the value of the gas was personalty. Fullerton states: \u201c[I]t matters not whether the production from a mineral well is claimed or whether a portion of the fund resulting from the sale of the production is claimed; in New Mexico, both assets are realty.\u201d 72 N.M. at 205, 382 P.2d 529. Plaintiffs \u201cnet profits interest\u201d is not based on production or a fund resulting from the sale of production. Fullerton does not determine whether plaintiffs \u201cnet profits interest\u201d is an interest to which title may be quieted.\nThe fallacy in plaintiffs argument is to assume that the phrase \u201cnet profits interest\u201d has a meaning that may be analogized to interests which have been determined to be real property.\nJ. Sherrill, supra, states:\nThe frequent use through the years of net profits interest arrangements has tended to lead many practitioners to consider the words \u201cnet profits interest\u201d to be words of art describing a unique interest \u2014 almost in the same sense as do the words \u201coverriding royalty.\u201d The nature of a net profits interest is much too indefinite to deserve such independent status, and our inarticulate use of net profits interest arrangements has led to substantial litigation, usually in connection with the income tax.\n* * * Thus any consideration of the nature of a net profits interest arrangement, which contains no further specificity beyond the words \u201cnet profits interest\u201d per se, is a leap into fantasy, for such words have no independent meaning.\nId. at 165-66 (emphasis added).\n5 E. Kuntz, Oil and Gas \u00a7 63.5 (1978) states there are \u201cmany decisions\u201d by the United States Supreme Court which deal with the nature of a \u201cnet profits interest\u201d for purposes of the federal income tax.\nUnfortunately, there is not the same volume of cases dealing with the nature of the net profits interest for purposes other than the federal income tax. As a result there is no body of law clearly defining the net profits interest, its nature, and its incidents. The only thing that can be said with any assurance is that a net profits interest may or may not be an interest in land and that the nature of the interest and the rights of its owner must be determined from the provisions of the instrument which created it.\nId. at 228 (emphasis added).\nIn deciding whether plaintiffs \u201cnet profits interest\u201d is an interest in the title to real property, we proceed on the following basis: (1) the phrase \u201cnet profits interest\u201d has no independent meaning, and (2) the nature of plaintiff\u2019s interest must be determined from the provisions of the instrument which created plaintiff\u2019s interest. This approach accords with New Mexico decisions which hold that it is immaterial by what name plaintiffs interest is called and that the courts will look to the language used in the instrument to determine its legal effect. Rock Island Oil & Refining Co.; Terry v. Humphreys. See also Atlantic Refining Co. v. Beach, 78 N.M. 634, 436 P.2d 107 (1968).\nThe document assigning a \u201cnet profits interest\u201d to plaintiff provides:\n(1) Net profits are to be computed \u201cby deducting from the cash bonus received for the sale of the Lease\u201d certain costs identified in the assignment.\n(2) \u201cThe decision to sell the Lease and the bonus consideration for which it is sold shall be made solely by PETROL * * *.\u201d\n(3) The sale by Petrol \u201cmust be made to an independent third party for a cash bonus and overriding royalty not exceeding a total of five percent (5%), which in the opinion of * * * [a named individual] is not less than fair market value * * *.\u201d\n(4) Plaintiff is not to receive any interest in the overriding royalty retained by Petrol other than the 1% overriding royalty assigned to plaintiff contemporaneously with the assignment of the \u201cnet profits interest.\u201d \u201cHowever, if PETROL RESOURCES CORPORATION retains any economic interest in the Lease other than an overriding royalty of not more than five percent (5%), such as a net profts [sic] or carried interest, S.B. CHRISTY IV shall be entitled to an assignment of ten percent (10%) of such additional retained interest.\u201d\nThe \u201chowever\u201d clause, quoted in the preceding paragraph, states that plaintiff would be entitled to an interest in addition to the 10% net profits interest assigned to plaintiff if Petrol retained an economic interest other than an overriding royalty of not more than 5%. The stipulated facts show that Petrol did not retain such an interest. Accordingly, we are not concerned with the nature of such a nonexistent interest.\nPetrol sold the lease to Cibola; it was stipulated that Cibola was an independent third party. Cibola paid a cash consideration. There is no claim the cash consideration was other than the cash bonus referred to in the assignment. There is no claim that the decision to sell for an amount that was stipulated was by other than Petrol or that the amount paid was other than fair market value. Plaintiffs \u201cnet profits interest\u201d was 10% of the cash bonus amount remaining after identified costs were deducted.\nPlaintiffs \u201cnet profits interest\u201d was an interest in the cash bonus received by Petrol when it sold to Cibola. \u201cBonus\u201d is the consideration paid, in this case the consideration paid by Cibola for Petrol\u2019s assignment of the lease. The bonus is usually a sum of money, but may take other forms. Griffith v. Taylor, 291 S.W.2d 673 (Tex. 1956); see also Kelly v. Zamarello, 486 P.2d 906 (Alaska 1971); 1 H. Williams & C. Meyers, Oil and Gas Law \u00a7 301 (1983); 8 H. Williams & C. Meyers, supra, at 65. In this case the bonus was cash. Plaintiff\u2019s net profits interest was an interest in the cash received by Petrol for its assignment of the lease to Cibola; it was not an interest in the proceeds of production (a royalty interest) as in Fullerton v. Kaune. Plaintiff\u2019s percentage interest in the cash bonus received by Petrol was not an interest in the title to land; it was money due by contract. 5 E. Kuntz, supra.\nSeeking to avoid this result, plaintiff asserts the parties intended the \u201cnet profits interest\u201d as an interest in real estate and the assignment should be construed to give effect to that intention. Construction is inappropriate where the language is not ambiguous. In the absence of ambiguity the court\u2019s function is to interpret the contract which the parties made for themselves. Davies v. Boyd, 73 N.M. 85, 385 P.2d 950 (1963). There is no ambiguity in the assignment to plaintiff. Accordingly, we do not construe the assignment; rather, we interpret the assignment. The assignment provides that plaintiff was to have a net profits interest in the cash bonus received by Petrol. Cf. Boylin v. United Western Minerals Co.\nThe trial court properly dismissed plaintiff\u2019s complaint seeking to quiet title to plaintiff\u2019s interest in the cash bonus.\nDismissal With Prejudice as to the Overriding Royalty Interest\n\u201cAn overriding royalty is, first and foremost, a royalty interest.\u201d 2 H. Williams & C. Meyers, supra, \u00a7 418.1. See also 8 H. Williams & C. Meyers, supra, at 518. A royalty interest is real property. Duvall v. Stone, 54 N.M. 27, 213 P.2d 212 (1949).\nPlaintiff sued to quiet title to a 1% overriding royalty interest. Cibola\u2019s answer admitted that plaintiff owned this overriding royalty. The trial court\u2019s order refers only to plaintiff's claim concerning the \u201cnet profits interest,\u201d yet it dismissed the entire complaint with prejudice. Did the trial court intend no further proceedings in connection with the overriding royalty? See Chavez v. Chenoweth, 89 N.M. 423, 553 P.2d 703 (Ct.App.1976). The trial court\u2019s order, as to the overriding royalty, is ambiguous. It should be clarified.\nThe order of the trial court dismissing plaintiff\u2019s suit to quiet title to a net profits interest is affirmed. The order of the trial court dismissing plaintiff\u2019s suit to quiet title to an overriding royalty is vacated. The cause is remanded for further proceedings as to the overriding royalty.\nNo costs are awarded.\nIT IS SO ORDERED.\nHENDLEY and NEAL, JJ., concur.", "type": "majority", "author": "WOOD, Judge." } ], "attorneys": [ "Michael T. Murphy, Rosenberg, Shuler, Murphy & Meyer, Carlsbad, for plaintiff-appellant.", "Elizabeth Losee, Losee, Carson & Dickerson, P.A., Artesia, for defendant-appellee, Cibola Energy Corp." ], "corrections": "", "head_matter": "691 P.2d 59\nS.B. CHRISTY, IV, Plaintiff-Appellant, v. PETROL RESOURCES CORPORATION, Energy Group, Cibola Energy Corp. (formerly Coronado Exploration Corporation); and, all unknown claimants of interest in the premises adverse to the Plaintiff, Defendants-Appellees.\nNo. 7729.\nCourt of Appeals of New Mexico.\nOct. 25, 1984.\nMichael T. Murphy, Rosenberg, Shuler, Murphy & Meyer, Carlsbad, for plaintiff-appellant.\nElizabeth Losee, Losee, Carson & Dickerson, P.A., Artesia, for defendant-appellee, Cibola Energy Corp." }, "file_name": "0058-01", "first_page_order": 96, "last_page_order": 101 }