Appendix — Spurlock v. Santa Fe Pacific Railroad

y) Fe OR. Oe Oe Me ten*, oF i.

621608 ES

—— APR 29 1985

ALEXANDER L. STEVAS.

IN THE CLERK

Supreme Court of the United Stafes

OCTOBER TERM, 1984

RANSOM THEODORE SPURLOCK, et al.,

Petitioners,

Vv.

SANTA FE PACIFIC RAILROAD COMPANY AND

KERR-MCGEE CORPORATION,

Respondents.

APPENDICES TO

PETITION FOR A WRIT OF CERTIORARI

TO THE COURT OF APPEALS

OF THE STATE OF ARIZONA

\

BRENT N. RUSHFORTH *

JUDITH A. MATHER

Dow, LOHNES & ALBERTSON

1255 23rd Street, N.W.

Washington, D.C. 20037

(202) 857-2714

JACK E. EVANS

JACK E. EVANS, LTD.

73 North Country Club Drive

Phoenix, Arizona 85014

(602) 266-5752

Counsel for Petitioners

April 29, 1985 * Counsel of Record

TA A SIGS: TiS RS SO AT LI DE EEE ET, TEE ERIE ATC EE EI EEE AEST IE

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

TABLE OF CONTENTS

APPENDIX A

Opinion of the Court of Appeals of the State of

pe Ra ee en mn Le ae

APPENDIX B

Judgments of the Superior Court of Arizona,

Apache County, May 234, 1968 ..............205.220....:......

APPENDIX C

Order of the Supreme Court of the State of Ari-

zona (Denying Petition for Review), January 29,

OSE Se ERO OE PEPER TRE ONT I UT: FRINGED Sc oe She VOR

APPENDIX D

Order of the Supreme Court of the Siate of Ari-

zona (Denying Petition to Recall Mancate and Mo-

tion for Reconsideration of Order Denying Petition

foe Mavine), TAPE GB, BO iiss

APPENDIX E

Order of the Supreme Court of the State of

Arizona (Denying Motion for Reconsideration),

PL Sts II sek basses ee res DE RE a

APPENDIX i

Constitutional Provisions and Statutes Involved....

APPENDIX G

Minutes of the Meeting of the Board of Directors

of Santa Fe Pacific Railroad Company, September

EE ASS EN (AOS eee ley aes ree REAL eee dS

APPENDIX H

Minutes of the Meeting of the Board of Directors

of Santa Fe Pacific Railroad Company, May 6,

RAST etna AER OR LORD ONE Dnreeme ne ROM eet PIF

Page

la

32a

65a

66a

68a

69a

98a

ii

TABLE OF CONTENTS—Continued

APPENDIX I

Indenture between Santa Fe Pacific Railroad Com-

pany and Santa Fe Pacific Development Company,

BNE Fh, TID hist incised da sesariahiccenlnsainwia ie ttbarwiacenens

APPENDIX J

Indenture between Santa Fe Pacific Railroad Com-

pany and The Atchison, Topeka and Santa Fe Rail-

way Company, duly 1, 10068 ...006............................

APPENDIX K

Indenture between Santa Fe Pacific Development

Company and Santa Fe Pacific Railroad Company,

Mesh 23, FROe ke ieclaeeeon

Page

97a

109a

la

APPENDIX A

IN THE COURT OF APPEALS

STATE OF ARIZONA

DIVISION ONE

1 CA-CIV 6938

DEPARTMENT C

RANSOM THEODORE SPURLOCK and VERNIE MARIA SPuUR-

LOCK, his wife; and CHARLES PATRICK SPURLOCK and

NANCY JENEEN SPURLOCK, his wife,

Plaintiffs-A ppellees, |

V.

SANTA FE PACIFIC RAILROAD COMPANY, a corporation;

and KERR-MCGEE CORPORATION, a Delaware corpora-

tion,

Defendants-A ppellants.

Appeal from the Superior Court of Apache County

Cause Nos. C-4779, 4910, 4936, 4961, 4949, and 4998

(consolidated )

The Honorable Paul G. Rosenblatt, Judge

AFFIRMED IN PART; REVERSED IN PART

[Filed Oct. 18, 1984]

Jack EK. Evans, Ltd., by Jack E. Evans, Attorneys for

Plaintiffs-Appellees, Phoenix.

Fennemore, Craig, von Ammon, Udall & Powers, P.C.,

by Philip E. von Ammon, Donald R. Gilbert and Tim-

2a

othy Berg, Attorneys for Defendant-Appellant Santa Fe

Pacific Railroad Company, Phoenix.

Martori, Meyer, Hendricks & Victor, P.C., by Robert

L. Palmer, Ron Kilgard and James A. Bush, Attorneys

for Defendant-Appellant Kerr-McGee Corporation, Phoe-

nix.

OPINION

MEYERSON, Judge

I. NATURE OF THE ACTION

The issues involved in this appeal arise from an action

filed by Ransom and Vernie Spurlock and Charles and

Nancy Spurlock (hereinafter collectively referred to as

Spurlock) charging the defendants-appellants with the

conversion of helium extracted from deposits underlying

lands owned by Spurlock.

The conversion charges against defendant Santa Fe

Pacific Railroad Company (Santa Fe Pacific) were based

on the extraction of helium ‘from underneath Spurlock’s

lands by various third parties who had leased mineral

rights from Santa Fe Pacific. Santa Fe Pacific pre-

viously owned all of the ranch lands involved and claimed

ownership of the underlying helium and other substances

by reason of a mineral reservation in its original convey-

ances to Spurlock’s predecessors in title. In addition to

requesting damages for the conversion of helium, Spur-

lock also sought to quiet title to the helium as against

Santa Fe Pacific. The conversion charges against de-

fendant Kerr-McGee Corporation (Kerr-McGee) were

based on the purchase of the raw helium gas by Kerr-

McGee from Santa Fe Pacific’s mineral lessees for proc-

essing at a plant constructed by Kerr-McGee for that

purpose.

After the filing of the Spurlock action for conversion

of the helium, Santa Fe Pacific filed separate actions

3a

against Spurlock seeking to quiet Santa Fe Pacific’s title

under the mineral reservation clause to nitrogen, potash,

petrified wood and industrial clay. Subsequently, Spur-

lock also filed a quiet title action against Santa Fe Pa-

cific relating to sand and gravel on the lands involved.

As to the sand and gravel, Santa Fe Pacific did not

claim ownership by reason of ihe mineral reservation

clause, but rather claimed a nonexclusive right to take

gravel and ballast for railroad purposes pursuant to a

different provision contained in the deeds to Spurlock’s

predecessors in title. These actions were all consolidated

in the trial court proceedings.

After the denial by the trial judge of various motions

and cross-motions for summary judgment, the consoli-

dated matters eventually proceeded to trial before a

jury.’ An extended trial lasting approximately eight

months was held, and eventually judgments were en-

tered in favor of Spurlock and against Santa Fe Pacific

and Kerr-McGee on virtually all issues. These judg-

ments quieted title in favor of Spurlock and against

Santa Fe Pacific as to all of the substances in issue, with

an award to Spurlock of attorney’s fees on the quiet title

issues.

On the conversion claim, judgment was entered against

Santa Fe Pacific in the amount of $664,502 for compen-

satory damages and in the amount of $20,000,000 for

punitive damages. The judgment against Kerr-McGee on

the conversion claim was in the amount of $250,305 for

compensatory damages and $487,732 for punitive dam-

ages. Spurlock was also awarded pre-judgment interest

on the compensatory damages awards. Attorney’s fees

were awarded to Spurlock in the amount of $525,000

against Santa Fe Pacific and $325,000 against Kerr-

McGee.

1 As to the quiet title claims, the jury’s function was advisory

only.

4a

Many issues have been raised in this appeal by Santa

Fe Pacific and Kerr-McGee, and we will not attempt in

this preliminary overview to state these issues individ-

ually or to set forth in detail the complete factual back-

ground necessary for their resolution. However, a prin-

cipal issue involves the trial judge’s refusal to grant

judgment as a matter of law in favor of Santa Fe Pa-

cific and Kerr-McGee under the mineral reservation

clause. Other issues concern alleged misconduct of coun-

sel for Spurlock; the trial judge’s legal conclusions re-

garding the corporate nonexistence of Santa Fe Pacific;

the trial judge’s conclusion that the mineral reservation

clause was void in its entirety; the sufficiency of the evi-

dence to support the amount of compensatory damages

awarded; and the amount and propriety of an award for

punitive damages in an action for conversion of miner-

als in place. In light of our holding that judgment as a

matter of law should have been rendered in favor of

Santa Fe Pacific and Kerr-McGee (on all claims except

sand and gravel), we need not reach every issue raised

by appellants.

II. THE MINERAL RESERVATION

A. Factual Background

Prior to 1946, Santa Fe Pacific was the owner in fee

simple of virtually all of the lawsuit lands. Most of these

lands were acquired by Santa Fe Pacific under patents

issued by the United States. The remainder of these

lands was acquired by warranty deed from the New

Mexico and Arizona Land Company. Santa Fe Pacific

leased almost all of this property for grazing purposes.

During 1945 and 1946, Santa Fe Pacific decided to sell

many of its land holdings and offered the lands for sale

to its grazing lessees. Each of these offers was made by

a letter from E. O. Hemenway, the land commissioner of

Santa Fe Pacific, to the grazing lessee, and each letter

5a

stated that Santa Fe Pacific intended to “retain all

minerals.”

Under this program, in three separate transactions,

Santa Fe Pacific conveyed what became the lawsuit lands

to others. In 1946, Santa Fe Pacific conveyed by war-

ranty deed 864.35 acres to Grace Porter. In 1947, Santa

Fe Pacific contracted to sell some 76,000 acres of its hold-

ings to Cowden Livestock Company and approximately

37,000 acres to the partnership of Spurlock & Wetzler.

In September of 1951, Santa Fe Pacific issued warranty

deeds to Cowden Livestock Company and Spurlock &

Wetzler. Each of the three warranty deeds contained an

identical reservation. See Secticn II.B., infra.

In 1950, non-combustible helium-bearing gas was dis-

covered in the “Pinta Dome,” an ares 4o the west of the

lawsuit lands and the Spurlock ranch. Kerr-McGee and

others began to explore for and develop this helium-

bearing gas. By 1959-60, exploration efforts expanded to

the east into an area on the Spurlock ranch known as

Navajo Springs, which was largely land subject to the

Santa Fe Pacific mineral reservation. Beginning in 1959,

Santa Fe Pacific entered into mineral leases for portions

of the lawsuit lands with persons interested in exploring

for and producing helium gas. In 1960, helium-bearing

gas deposits were discovered under the lawsuit lands.

B. Law of Other Jurisdictions

The primary issue in this case is whether a deed res-

ervation of “all oil, gas, coal and minerals whatsover,

already found or which may hereafter be found, upon or

under said lands”? includes the disputed substances of

2 The reservation, in its entirety, is as follows:

Grantor expressly reserves and excepts all oil, gas, coal and

minerals whatsoever, already found or which may hereafter be

found, upon or under said lands, with the right to prospect for,

mine and remove the same, and to use so much of the surface

of said lands as shall be necessary and convenient for shafts,

6a

helium, nitrogen, potash, petrified wood, and industrial

clay. Although we find no Arizona cases construing such

a reservation, similar provisions have been the source of

extensive litigation in other jurisdictions.

All jurisdictions agree that in construing deeds, the

court’s role is to give effect to the intent of the contract-

ing parties. E.g., Shulansky v. Michaels, 14 Ariz. App.

402, 405, 484 P.2d 14, 17 (1971). If the instrument is

unambiguous, the intent of the parties must be discerned

from the four corners of of the document. £.g., Pass

v. Stephens, 22 Ariz. 461, 466, 198 P. 712, 714 (1921).

If, however, the instrument is ambiguous, then extrinsic

evidence of intent is admissible. Jd., 198 P. at 714.

But beyond agreeing on these basic principles of con-

struction, courts have adopted varying approaches to as-

certain what substances the parties intended to include

in a general mineral reservation. Courts have focused

their analysis on the proper definition of “mineral” with

widely divergent results. Because of the importance of

this issue in Arizona, we believe it appropriate to sum-

marize some of the common approaches used in other

jurisdictions.

Some courts find the term mineral* to be inherently

(and always) ambiguous and admit extrinsic evidence

to determine the parties’ intent. In Colorado, for ex-

ample, extrinsic evidence is admissible to show what the

word mineral means “in the vernacular of the mining

world, the commercial world and [to] landowners at the

time of the grant, and whether the particular substance

wells, tanks, pipe lines, rights of way, railroad tracks, storage

purposes, and other and different structures and purposes

necessary and convenient for the digging, drilling and working

of any mines or wells which may be operated on said lands.

3 Throughout this opinion the term “mineral” will be used to

refer to general mineral reservations regardless of the precise

terminology employed. Courts have not differentiated among reser-

vations of “all minerals,” “minerals,” “minerals of whatever kind,”

“all minerals whatsoever,” etc.

7a

was so regarded as a mineral.” Morrison v. Socolofsky,

43 Colo. App. 212, 213, 600 P.2d 121, 122 (1979) (quot-

ing Farrell ». Sayre, 129 Colo. 368, 373, 270 P.2d 190,

193 (1954)). Thus, in determining whether gravel was

included within a reservation of “oil, gas and other min-

erals,” the Morrison court concluded that evidence re-

garding the geological location of gravel with respect

to the surface, the impact on the surface of extracting

the gravel deposits, the nature of the use of the surface

estate, and testimony of geologists-consultants in the

gravel industry and of agricultural lenders and land-

owners on the common meaning of the term mineral at

the time of the conveyance, were all properly admissible

as bearing on the parties’ intent. Jd. at 214, 600 P.2d

at 122.

Likewise the Arkansas courts find the term mineral

to be ambiguous and require the admission of extrinsic

evidence as to whether the substance at issue would be

cousidered a mineral in the common commercial speech

and usage at the time of the conveyance. See, e.9.,

Thomas v. Markham & Brown, Inc., 353 F. Supp. 498

(E.D. Ark. 1973) (pulaskite stone not considered a min-

eral at the time of the conveyance) ; Middleton v. West-

ern Coal & Mining Co., 241 F. Supp. 407 (W.D. Ark.

1965) (“other minerals” does not include oil and gas).

A second general approach used by many jurisdictions

is to find the term mineral to be unambiguous. Urder

this view, a grant or reservation containing the word

mineral is found to completely sever the mineral estate

from the surface estate. Amoco Prod. Co. v. Guild Trust,

636 F.2d 261, 265 (10th Cir. 1980), cert. denied, 452

U.S. 967, 101 S. Ct. 3128, 69 L. Ed. 2d 981 (1981)

(oil and gas are minerals). In Union Pac. Land Re-

sources Corp. v. Moench Inv. Co., 696 F.2d 88 (10th Cir.

1982), cert. denied, US. , 103 S. Ct. 1776, 76

L. Ed. 2d 348 (1983), the court found a reservation in

a conveyance by the Union Pacific Railroad Company, a

8a

successor to a federally-chartered corporation, to be un-

ambiguous. The deed reserved to the railroad all “coal

and other minerals.” Applying Wyoming law, the court

found the term minerals was unambiguous and included

oil and gas. Id. at 98. Other courts use the doctrine of

ejusdem generis to make the term unambiguous.’ Allen

v. Farmers Union Co-Op. Royalty Co., 588 P.2d 204

(Okla. 1975).

Despite the lack of ambiguity, many of these courts

still admit extrinsic evidence to ascertain whether the

substance at issue is commercially valuable, commonly

regarded as a mineral, and/or whether extraction of the

substance would result in surface destruction. For ex-

ample, in Geothermal Kinetics, Inc. v. Union Oil Co.,

75 Cal. App. 3d 56, 141 Cal. Rptr. 879 (1977), the court

found the reservation of “all minerals” reflected the

general intent to reserve “those commercially valuable,

underground, physical resources of the property.” Id.

at 62, 141 Cal. Rptr. at 882. The court described the

expectation of the parties as being that the enjoyment

of the mineral estate “would not destroy the surface

estate and would involve resources distinct from the sur-

face soil.” Id., 141 Cal. Rptr. at 882. The trial court

found that the “mining” of geothermal steam would not

substantially destroy the surface of the property. Id. at

61, 141 Cal. Rptr. at 881-82.

Some of these jurisdictions determine that all com-

mercially valuable substances that are commonly under-

stood to be within the technical and/or practical mean-

4 Ejusdem generis is essentially a rule of construction whereby

the term minerals is limited to substances of the same species as

minerals previously enumerated. Thus, a lease of “natural gas,

petroleum and other mineral substances” would include only those

minerals related to oil and gas in nature. Wulf v. Shultz, 211 Kan.

724, 508 P.2d 896 (1973). Some courts that determine the term

mineral is ambiguous also employ ejusdem generis to define what

substances are within a general mineral reservation. See Keller v.

Ely, 192 Kan. 698, 391 P.2d 182 (1964).

9a

ings of the term mineral are included in a general min-

eral reservation, even though development of these sub-

stances would result in surface destruction. See, e.g.,

Moser v. United States Steel Corp., No. B-9735 (Tex.

Sup. Ct. June 27, 1984); New Mexico & Ariz. Land Co.

v. Elkins, 187 F. Supp. 767 (D.N.M.), appeal dismissed,

239 F.2d 645 (10th Cir. 1956). But other courts re-

fuse to include substances whose extraction would result

in surface destruction or which possess no distinguishing

characteristics from the surface itself. E.g., Wulf v.

Shultz.

Perhaps because of the disparate results produced by

the above approaches, some courts have concluded that

the term mineral may be ambiguous or unambiguous de-

pending upon the circumstances of the case. Thus, in

Kansas, a reservation of “all of the oil, gas and other

minerals in and under, and that may be produced from”

the land was ambiguous as to commercial clay, Hans »v.

Great Bend Brick & Tile Co., 172 Kan. 478, 241 P.2d

475 (1952); but a lease of “natural gas, petroleum and

other mineral substances” unambiguously excluded lime-

stone, coal, clay, gypsum, gravel, rock and dirt under the

doctrine of ejusdem generis. Wulf v. Shultz. In Ken-

tucky, a reservation of all local and mineral rights un-

ambiguously includes oil and gas, Kentucky-West Vir-

ginia Gas Co. v. Browning, 521 S.W.2d 516 (Ky. App.

1975), but a reservation of minerals, vil, and gas is

ambiguous with respect to clay and sandstone constitut-

ing about 75% of the subsurface. Cumberland Mineral

Co. v. United States, 518 F.2d 1399 (Ct. Cl. 1975).

Finally, some courts rely on legislative inter*+ or rules

of construction to determnie the extent of a mineral res-

ervation. E.g., Watt v. Western Nuclear, Inc., U.S.

, 103 S. Ct. 2218, 76 L. Ed. 2d 400 (1983) (the term

minerals under the Stock-Raising Homestead Act of 1916

includes gravel). California courts have utilized state

legislation regulating mineral and geothermal resources

10a

to aid in the interpretation of the term mineral. Pariani

v. State, 105 Cal. App. 3d 923, 164 Cal. Rptr. 683

(1980). In Colorado and Washington, grants are to be

construed against the grantor. Bell Petroleum Co. v.

Cross V. Cattle Co., 492 P.2d 80 (Colo. App. 1971);

Weyerhaeuser Co. v. Burlington Northern, Inc., 15 Wash.

App. 314, 549 P.2d 54 (1976). North Dakota has a

statute requiring reservations of certain substances to be

specifically and separately set forth in the instrument.

MacMaster v. Onstad, 86 N.W.2d 36 (N.D. 1957). And

in a very recent decision, Division Two of this court

held that pantano clay was a mineral within the con-

templation of Arizona’s mineral leasing laws. Tanner

Cos. v. Arizona State Land Dept., 2 CA-CIV 4798 (Ariz.

App. July 18, 1984). This holding is of little assistance

in the case before us because it concerns the authority

of the land department to lease state lands for mineral

exploration—a case involving the department’s power un-

der an extensive statutory scheme. See also State Land

Dept. v. Tucson Rock & Sand Co., 107 Ariz. 74, 481 P.2d

867 (1971).

C. Critique of Other Jurisdictions

Each of the above approaches has its drawbacks. Ju-

risdiction utilizing the same general approach reach

different conclusions as to what substances are minerals.

Inconsistent results are even produced within a single

jurisdiction. E.g., compare United States v. 1,253.14

Acres of Land, 455 F.2d 1177 (10th Cir. 1972) (under

Colorado Law, “all minerals” includes sand and gravel)

with Morrison v. Socolofsky, 43 Colo. App. 212, 600 P.2d

121 (1979) (reservation of “other minerals” did not

include gravel).

Courts that hold mineral to be an ambiguous term are

often thrust into a complex and hopeless search for the

“true intentions” of the original contracting parties.

With the passage of decades and a series of mesne con-

lla

veyances, this task can be impossible.” And, as many

courts have noted, attempting to discover the parties’

specific intent regarding a substance that was unknown

to anyone at the time of the original conveyance is anti-

logical. E.g., Northern Nat. Gas Co. v. Grounds, 441

F.2d 704, 714 (10th Cir.), cert. denied, 404 U.S. 951,

92 S. Ct. 268, 30 L. Ed. 2d 267 (1971). The most con-

sistent results produced by these cases are title uncer-

tainty and the need to litigate each mineral reservation

to determine what substances it encompasses.® “[T]he

5 The difficulties inherent in this approach are highlighted by

the facts of this case. The land which is the subject of this law-

suit was initially held by Santa Fe Pacific. The land was conveyed

in three separate transactions to Spurlock’s predecessors. Spurlock

eventually succeeded to the titles in all three transactions.

The negotiations for these transactions were handled by E. O.

Hemenway on behalf of Santa Fe Pacific. He negotiated with

Grace Porter about the sale to her; with Ray Cowden about the

sale to Cowden Livestock Company; and with J. C. Wetzler about

the sale to Spurlock & Wetzler. Mr. Hemenway and Mrs. Porter

died before the commencement of these proceedings.

The difficulty in ascertaining the intent of the parties in the

three transactions is apparent. Two of the principals are deceased.

The remaining participants in the transactions were asked to

testify as to their intent about events transpiring almost forty

years ago. Much of the trial time was consumed by testimony con-

cerning the intent of the parties to the three conveyances.

® The trial court reasoned that minerals is an ambiguous term

because “[t]jaking minerals from the general trichotomy of animal,

vegetable or mineral, it means everything which is not animal or

vegetable.” Applying this logic, Spurlock argues that the reserva-

tion therefore consumes the grant and invalidates it.

The trial court’s approach was repudiated by the United States

Supreme Court over eighty years ago.

[T]he scientific division of all matter into the animal, vege-

table, or mineral kingdom would be absurd as applied to a

grant of lands, since all lands belong to the mineral kingdom,

and therefore could not be excepted from the grant without

being destructive of it.

Northern Pac. Ry. Co. v. Soderberg, 188 U.S. 526, 530, 23 S. Ct.

365, 367, 47 L. Ed. 575, 581 (1903). To apply the rule enunciated

12a

courts ultimately determine the meaning of the word

‘minerals,’ and all too often the only reliable rule ap-

pears to be that the word ‘minerals’ means what the

courts say it means.” Reeves, The Meaning of the Word

“Minerals,” 54 N.D.L. Rev. 419, 482 (1978).

To hold the term ‘other minerals’ ambiguous as a

matter of law appears at first glance to be a laud-

able attempt by the courts to give effect to the

intentions of the grantor. However, this assumes

that the grantor had a specific and identifiable in-

tent that can be discovered. The discovery of the

grantor’s intent, particularly in a remote transaction,

is difficult. The problem with the ambiguity ap-

proach is that it creates instant uncertainty about

any conveyance using ‘other minerals’ or ‘all min-

erals.’ It is almost impossible for an outsider or

prospective purchaser to detemine what was granted

or reserved. The effect of this approach is to en-

courage or increase the amount of litigation to

determine the scope of the grant or reservation.

Comment, A Proposal for the Construction of “Other

Minerals” in Idaho, 18 Idaho L. Rev. 97, 104 (1982)

(Comment).

To alleviate these problems, many courts find the term

minerals to be unambiguous. Under this approach title

uncertainty is minimized and courts are able to avoid the

tortuous process of attempting to discover the parties’

specific intent. See, e.g., Moser v. United States Steel

Corp., No. B-9735 (Tex. Sup. Ct. June 27, 1984).

The policy considerations in favor of this interpre-

tation are considerable. An established rule of law

provides a reliable means of ascertaining mineral

ownership. This certainty is important because of

by the trial court would result in the reservation consuming the

conveyance, a result certainly not intended by the parties. Thus,

the animal, mineral, vegetable approach is not correct.

ae A no AA eos BK hehe til

13a

the heavy investment of capital required to develop

petroleum and other mineral resources. Without an

established rule of law, the courts would necessarily

be called upon to interpret numerous reservations.

This is evident from the series of cases that result

in states following Arkansas authority. With every

new technology that develops a use for a particular

gas or hard rock mineral, resort is made to the

courts. Conservation of judicial resources is another

valuable advantage of [this] rule.

Amoco Prod. Co. v. Guild Trust, 686 F.2d 261, 265 (10th

Cir. 1980), cert. denied, 452 U.S. 967, 101 S. Ct. 3123,

69 L. Ed. 2d 981 (1981) (quoting Amoco Prod. Co. v.

Guild Trust, 461 F. Supp. 279, 288 (D. Wyo. 1978) ).

This approach, however, is not always free from diffi-

culty. In jurisdictions which attempt to narrowly define

minerals as only those substances whose extraction does

not result in surface destruction, courts must still ex-

amine scientific and geological evidence to determine the

mineral composition of the land and the impact of min-

eral production on the surface estate. Downstate Stone

Co. v. United States, 712 F.2d 1215 (7th Cir. 1988).

Courts employing a legal standard of those substances

“technically or commonly understood” to be minerals may

have to admit evidence of custom or usage. See, e.g.,

New Mexico & Ariz. Land. Co. v. Elkins, 137 F. Supp.

767 (D.N.M.), appeal dismissed, 239 F.2d 645 (10th Cir.

1956).

Furthermore, the unambiguous approach may result

in “ignoring the intent of parties which might have been

discovered through diligent examination of extrinsic evi-

dence.” Comment at 101. This problem is exacerbated in

jurisdictions employing ejusdem generis to arbitrarily

and often artificially limit the substances included within

14a

the term mineral.” Allen v. Farmers Union Co-op. Roy-

alty Co., 588 P.2d 204 (Okla. 1975) (reservation of “all

oil, gas & mineral rights” does not include copper, silver,

gold or any other metallic ores under ejusdem generis) ;

Hammett Oi Co. v. Gypsy Oil Co., 95 Okla. 235, 218

P. 501 (1921) (“oil and gas” does not include casing

head gas).

D. Conclusion

1. Ownership

On balance, however, we believe the better reasoned

approach is to treat the term minerals as unambiguous.

Thus, it becomes the court’s duty to determine the extent

of a general reservation as a matter of law, without

resorting to extrinsic evidence to try to establish any

unexpressed, subjective intent of the parties. In this con-

text, we believe a reservation of “all minerals whatso-

ever” reflects a general intent of the parties to sever the

surface estate from the underlying mineral estate. May-

nard v. McHenry, 271 Ky. 642, 113 S.W.2d 13 (1938).

It indicates that the parties intended to create two dis-

tinct, co-existing, and individualy valuable estates. Thus,

the grantor retains ownership of all commercially valu-

able substances separate from the soil, while the grantee

assumes ownership of a surface that has value in its use

and enjoyment. See Watt v. Western Nuclear, Inc., ——

US. : , 103 S. Ct. 2218, 2226-29, 76 L. Ed.

2d 4900, (1983). The grantor further retains owner-

ship of mineral substances that are unknown at the time

of the conveyance. Northern Natural Gas Co. v. Grounds,

441 F.2d 704 (10th Cir.), cert. denied, 404 U.S. 951, 92

7A related problem with the use of ejusdem generis is the diffi-

culty some courts have in determining what is the common char-

acteristic among the minerals enumerated in order to apply the

doctrine to disputed substances. See, e.g., Western Dev. Co. v. Nell,

4 Utah 2d 112, 288 P.2d 452 (1955); see generally Comment at

107-08.

15a

S. Ct. 268, 30 L. Ed. 2d 267 (1971). This approach is

consistent with the views expresed by the leading com-

mentators. As Professor Eugene Kuntz observed:

When a general grant or reservation is made of all

minerals without qualifying language, it should be

apparent that the parties intended to sever the entire

mineral estate from the surface estate, leaving the

respective owners of each estate with an estate which

is enjoyable in a special manner. The manner of

enjoyment of the mineral estate is through extrac-

tion and removal of substances from the earth,

whereas the enjoyment of such substances as are

necessary for the use of the surface, and these re-

spective modes of enjoyment should be taken into

account in arriving at the proper subject matter of

each estate. The severance of ‘minerals’ generally

should be construed to sever from the surface owner-

ship all substances presently valuable in themselves,

apart from their location in the earth, whether their

presence is known or not known, and all substances

which become valuable through the development of

the arts and sciences, and that nothing presently or

prospectively valuable as extracted substances would

be intended to be excluded from the mineral estate.

1 E. Kuntz, A Treatise on the Law of Oil and Gas § 13.3

at 305-06 (1962) ; Comment, The Meaning of “Minerals”

in Grants and Reservations, 30 Rocky Mtn. L. Rev. 3438,

357 (1958); see generally R. Pruitt, Mineral Terms—

Some Problems in Their Use and Definition, 11 Rocky

Mtn. Min. L. Inst. 1 (1966).

2. Surface Destruction

Ownership of the mineral estate, however, is not the

only issue which must be addressed in construing a min-

eral reservation. We must also determine what rights

the mineral owner possesses to develop his estate. We

l6a

recognize that in order for both the surface and mineral

estates to co-exist and retain their individual value, some

accommodation between the respective owners is neces-

sary.

In general, the owner of the mineral estate possesses

the incidental right of entering, occupying, and utilizing

the surface to explore for and develop the underlying

minerals. 58 C.J.S. Mines and Mineral § 159 (1948). If

the grant or reservation specifically authorizes surface

destruction by the mineral owner, then courts should give

effect to this intention.’ Rarely, however, is such a right

expressly conferred in the conveying instrument. Never-

theless, the court should examine the four corners of the

document and give effect to any specific provisions regu-

lating the use of the surface estate by the mineral

owner. See Reeves, The Meaning of the Word “Min-

erals,” 54 N.D.L. Rev. 419, 442, 450-53 (1978); Mac-

Master v. Onsiad, 86 N.W.2d 36 (N.D. 1957).

In the absence of such provisions, the court should

focus its analysis on the substances reserved or granted.

With respect to minerals specified in the conveyance or

minerals commercially known to exist at the time of the

conveyance, reasonable destruction of the surface estate

is permissible. Christman v. Emineth, 212 N.W.2d 543

(N.D. 1973). The enumeration of such minerals indi-

cates a specific intent on the part of the contracting

parties that these substances would be fully developed.

In essence, the surface owner knew of and agreed to this

burden on his estate. It is logical to assume that parties

intending to sever the mineral from the surface estate

would contemplate some surface destruction in the de-

velopment of substances which were commonly known to

be commercialiy valuable minerals ai the time of the con-

8 The reservation in this case grants Santa Fe Pacific the express

right to use the surface for “digging, drilling and working of any

mines or wells.” See Section IV. B., infra.

EEE

17a

veyance. Schwarz v. State, 658 S.W.2d 822 (Tex. App.

1983).

However, no such specific intent can be found with

respect to substances which were unknown or had no

commercial value at the time of the conveyance. See, ¢.g.,

Pariani v. State, 105 Cal. App. 3d 923, 930, 164 Cal.

Rptr. at 683, 687 (1980); Northern Natural Gas Co. v.

Grounds, 441 F.2d at 714. The holder of the mineral

estate owns such substances, but his development of these

resources must not substantially interfere with the sur-

face owner’s estate. Only in this way can the general

intention of the parties to create and enjoy two co-

existing, individually valuable estates be given effect.

Many jurisdictions have recognized that the mineral

owner’s rights to develop his estate are limited when they

infringe upon the surface owner’s use and enjoyment of

the land itself. Generally, courts solve this conflict by

determining that the term minerals excludes substances

whose extraction would destroy the surface. For ex-

ample, in Farrell v. Sayre, 129 Colo. 368, 270 P.2d 190

(1954), the Supreme Court of Colorado refused to in-

clude sand and gravel in a reservation of “all mineral

and mineral rights.” Emphasizing that most of the

surface was composed of sand and gravel, the court con-

cluded that the contracting parties could not have in-

tended to, in effect, “nullify the grant.” Such a result

would be tantamount to saying that the grantor retained

the entire estate, the deed served no useful purpose, and

the grantee received nothing. Jd. at 372-73, 270 P.2d at

192. See also Downstate Stone Co. v. United States, 712

F.2d 1215 (7th Cir. 1983) (limestone); Christensen v.

Chromalloy Am. Corp., —— Nev. , 656 P.2d 844

(1983) (barite); New Mexico and Arizona Land Co. v.

Elkins Ranch, Inc., No. 74-285 (D.N.M. Dec. 3, 1974)

(limestone) ; State Land Bd. v. State Dept. of Fish &

18a

Game, 17 Utah 2d 287, 408 P.2d 707 (1965) (sand and

gravel).°

While this approach protects the surface owner’s estate,

it is not necessarily an equitable solution to the problem.

By refusing to include such substances in the definition

of mineral, ownership of such commercially valuable de-

posits passes to the surface owner. The surface owner

himself is then free to extract and commercially produce

the substance. This result appears to contravene the

parties’ original intention that the grantor retain the

ownership and profit potential of the mineral resources.

Comment, The Meaning of “Minerals” in Grants o 7%

Reservations, 30 Rocky Mtn. L. Rev. 348, 351 (195s’.

The Supreme Court of Alabama distinguished between

the ownership itself of a mineral and the incidental rights

of the mineral owner to utilize the surface to produce it

in Bibby v. Bunch, 176 Ala. 585, 58 So. 916 (1912).

Recognizing that shale was a mineral and its ownership

was retained by the grantor under a reservation of “all

minerals and mining rights,” the court nonetheless re-

fused to allow shale extraction because of the resultant

surface destruction. Jd. at 588, 58 So. at 917-18. The

court concluded that while the mineral owner had the

righ’, to some reasonable use of the surface to procure

underlying minerals, that right was subservient to the

rights of the surfa* owner to have his estate main-

tained in its natura: condition. Jd. at 589, 58 So. at 917.

See also New Mexico and Ariz. Land Co. v. Elkins, 137

F. Supp. 767, 773 (D.N.M.), appeal dismissed, 239 F.2d

® Indeed, concern for surface destruction is paramount in the

minds of many courts which are called upon to interpret mineral

reservations. In our view, the issue of surface destruction is more

properly examined as an adjunct to the question of how the mineral

estate owner is to exercise his right of ownership. To consider

surface destruction as an element of the ownership issue results

in inconsistent and varying results which are evidenced in the many

reported decisions.

et eS ee kas mine 9 Finite

we tStheeht SRST i “oe

19a

645 (10th Cir. 1956) (finding uranium and thorium to

be minerals, but reserving to the surface owner a cause

of action against the mineral owner for destruction of

his surface interests) ; Moser v. United States Steel Corp.,

No. B-9735, slip op. at 7 (Tex. Sup. Ct. June 27, 1984).

We believe the distinction drawn by the Bibby court is

a critical one. It comports with the general intention of

the parties to sever the mineral from the surface estate.

It gives ownership of commercially valuable substances

distinct from the soil to the mineral owner. Yet it also

recognizes that rights incidental to that mineral ownership

are not unlimited. Thus, as to unspecified minerals, not

known to be commercially valuable at the time of the con-

veyance, the mineral estate owner must not destroy or

substantially interfere with the surface owner’s right to

use and enjoy his land by the mining or taking of

minerals.

In the present case, only the issue of ownership rights

under the general mineral reservation is before us.’°

Issues relating to the effect of extraction of the disputed

substances upon the surface estate have not been briefed

or argued before this court. Nor do the judgments below

purport to rule on these matters. Accordingly, we do not

believe it appropriate for this court to speculate as to

whether or not production of any minerals would sub-

stantially interfere with the surface estate.

3. Holding

Under the principles expressed herein, we hold that

the term minerals as used in this reservation is un-

ambiguous. A reservation of “all oil, gas, coal and min-

erals whatsoever, already found or which may hereafter

be found” indicates the parties’ general intention to

10 Santa Fe Pacific did not claim ownership of sand and gravel

under the general mineral reservation either in the trial court or

on appeal. Ownership of sand and gravel was claimed under another

provision in the conveyance. This issue is addressed separately.

20a

sever the mineral from the surface estate. No specific

intent to limit this reservation is found within other

provisions of the deeds nor is contrary extrinsic evidence

of intent admissible to vary its effectiveness.

As a matter of law, we hold that helium,” nitrogen

potash, industrial clay, and petrified wood are minerals

and that Santa Fe Pacific retained ownership of them

under the general mineral reservation. See supra note

2. All are inorganic, commercially valuable substances

which are distinct from the soil itself. As we have previ-

ously discussed, the fact that the original contracting

parties may have been unaware of the existence or value

of these minerals at the time of the conveyance is ir-

relevant to the question of ownership.”

With respect to sand and gravel, Santa Fe Pacific

claims title by virtue of another reservation in the

deeds. This reservation permitted Santa Fe Pacific to

come upon the surface and take sand and gravel for

“railroad purposes.” Because specific mention is made

of “gravel and ballast,” the foregoing discussion concern-

ing the general mineral reservation is not applicable to

these substances. The trial court found that Santa Fe

Pacific “has abandoned any right it may have had to

take sand and gravel for railroad purposes.” Santa Fe

Pacific has not raised on appeal any issue concerning

error with regard to this finding. Thus, the trial court’s

judgment quieting title to the sand and gravel i: favor

of Spurlock is affirmed.

11 Even if we had not determined that the reservation completely

severed the subsurface estate in favor of Santa Fe Pacific, the use

of the term “gas” in the reservation would reserve the helium and

nitrogen in favor of the railroad. Northern Natural Gas Co. v.

Grounds, 441 F.2d at 715; Navajo Tribe of Indians v. United

States, 364 F.2d 320 (Ct. Cl. 1966).

12 Ag discussed herein, this knowledge is only relevant to the

mineral owner’s rights to burden the surface estate in the course

of developing and producing these mineral.

Saree PN. AA Ne P.M Mec *

2la

Ill. DE JURE AND DE FACTO DISSOLUTION;

ULTRA VIRES

All of the judgments in this consolidated action recite

that the reservation clause in the deeds from Santa Fe

Pacific to Spurlock’s predecessors in interest “is void and

unenforceable.” This ruling is apparently based upon the

trial court’s conclusion that Santa Fe Pacific was de jure

and de facto dissolved and that the conveyances were

therefore ultra vires acts. Immediately after the jury

verdicts were read the trial judge stated:

THE COURT: So that we leave the courtroom

in a position to carry on the post-verdict proceedings,

the Court will now enter a ruling on the corporate

existence of Santa Fe, and it is the Court’s finding

that Santa Fe Pacific was de jure and de facto

dissolved; that the acts of the defendants were ultra

vires, consistent with all of the theories propounded

by plaintiffs, Spurlocks.

MR. GILBERT: Would you give that ruling

again? I missed part of that.

THE COURT: I had indicated that the Court

found that Santa Fe Pacific was de jure and de

facto dissolved, that the acts were therefore ultra

vires—

MR. GILBERT: What acts, Your Honor?

THE COURT: To the extent that they involved

any issue in this lawsuit. If there are theories con-

sistent with that that I’ve overlooked in that simple

statement of findings, they would also be adopted.

The trial court’s ruling was apparently based upon Spur-

lock’s contention that Santa Fe Pacific had been de jure

and de facto dissolved at the time it conveyed the law-

suit lands to Spurlock’s predecessors in interest. Spur-

lock also argued successfully to the trial court that pur-

suant to a 1902 federal law, Act of June 27, 1902, ch.

22a

1159, 32 Stat. 405 (1902 Act), Santa Fe Pacific was

required to convey the lawsuit lands to the Atchison, To-

peka and Santa Fe Railway Company. Thus, Spurlock

contends that since Santa Fe Pacific was not empowered

to retain title to these lands under the 1902 Act, it could

not have been the legal owner of these lands when it

subsequently conveyed them te Spurlock’s predecessors."

Alternatively, Spurlock argues that Santa Fe Pacific’s

continued ownership of these lands and/or its convey-

ances to Spurlock’s predecessors were ultra vires acts

under the terms of the 1902 Act. We find it unneces-

sary, however, to decipher historical events which trans-

pired eighty years ago because we conclude that Spurlock

may not challenge the legal existence of Santa Fe Pacific

nor complain that the conveyances were ultra vires.

A. De Jure Dissolution

The power of Congress to charter corporations to ef-

fectuate its lawful purposes is well established. McCul-

loch v. Maryland, 4 Wheat. (U.S.) 316, 4 L. Ed. 579

(1819). Congress, in exercising those powers, has in-

corporated railroad corporations, including the Santa Fe

Pacific. Act of March 3, 1897, ch. 374, 29 Stat. 622.

Furthermore, “Congress has not only the power to create

a corporation to facilitate the performance of govern-

mental functions, but has the power to protect the opera-

tions thus validly authorized.” Pittman v. Home Owners’

Loan Corp., 308 U.S. 21, 32-33, 60 S. Ct. 15, 18, 84 L.

Ed. 11, 16 (1939). “[A] power to create implies a power

to preserve. ... [A] power to destroy, if wielded by a

13 Exhibits admitted at trial establish that in 1903, Santa Fe

Pacific actually conveyed its railroad operating properties to the

Atchison, Topeka & Santa Fe Railway Company and ‘ts land grant

lands to the Santa Fe Pacific Development Company. Ia 1904, the

Santa Fe Pacific Development Company conveyed the lawsuit lands

back to Santa Fe Pacific. Spurlock refers to certain fraudulent

transfers by Santa Fe Pacific, but we find nothing in the record

to sustain that contention.

Se a ener

ee eee nee Sent, ee tee eo

be Se oath Be ee i RE aa

23a

different hand, is hostile to, and incompatible with these

powers to create and to preserve.” McCulloch v. Mary-

land, 4 Wheat. (U.S.) at 426, 4 L. Ed. at 606.

The respective supremacies of the state and national

governments in their particular spheres must be observed

in regard to their power to create and destroy corpora-

tions. Neither may terminate the existence of a corpora-

tion of the other. State ex rel. Wilcox v. Curtis, 35

Conn. 374, 378 (1868). Therefore, “no court can declare

a forfeiture of franchise or a dissolution of a corporation

except the courts of the jurisdiction which created it.”

J. Beale, The Law of Foreign Corporations § 821 (1904).

The state courts must, therefore, look to federal law to

determine whether a national, congressionally incorpo-

rated corporation, has been dissolved de jure. See gen-

erally 16A W. Fletcher, Cyclopedia of the Law of Private

Corporations § 7971 (rev. perm. ed. 1979) (Fletcher).

Spurlock has been unable to point to any federal en-

actment which revokes the corporate charter of Santa Fe

Pacific. Instead, Spurlock argues that de jure dissolution

is effectively accomplished by the 1902 Act. We disagree

with Spurlock’s strained interpretation of this legislation.

The act authorized Santa Fe Pacific

to sell or lease its railroad and other property,

including all rights, powers, privileges, grants, and

franchises, to the Atchison, Topeka and Santa Fe

Railway Company, a corporation of the State of

Kansas, its successors and assigns; but such pur-

chaser or lessee shall take, hold, and use the railroad

and property sold or leased subject to all duties, ob-

ligations, condilions, and restrictions relating thereto

which at the time of such sale or lease shall be bind-

ing upon said Senta Fe Pacific Railroad Company as

fully as though such sale or lease had not been

made; and thereupon such purchaser or lessee shall

have and enjoy all rights, powers, privileges, grants,

24a

and franchises relating to said railroad and prop-

erty; or any part thereof, that were conferred by

Congress upon said Santa Fe Pacific Railroad Com-

pany....

82 Stat. at 405. The 1902 Act authorizes Santa Fe Pa-

cific to transfer its railroad and properties to the Atchi-

son, Topeka and Santa Fe Railway Company. The Act

does not dissolve Santa Fe Pacific. Nor do we believe

it appropriate for the trial court or this court to con-

jure an unexpressed congressional intent to nullify the

corporate existence of the very corporation whose powers

Congress was expressly clarifying.

B. De Facto Dissolution

Spurlock has argued that Santa Fe Pacific is de facto

dissolved by virtue of its failure to exercise the rights

accorded to it by its articles, or the federal act creating

it. This contention is legally and factually unsound.

First, Spurlock has pointed to nothing in the federal

law creating Santa Fe Pacific which would even remotely

suggest that its corporate existence could be challenged

in the state courts. Indeed, the power to dissolve a cor-

poration must find its authority in the law of the sover-

eign creating the corporation. As in Section III.A., supra,

we find no federal authority granting to the states the

power to dissolve Santa Fe Pacific.

Second, even if Congress had given the states the

power to dissolve Santa Fe Pacific, the facts in this

case would not sanction the exercise of that power. De

facto dissolution, in contrast to de jure dissolution, is

largely a question of fact. The issue is what acts will

give rise to a proper determination of corporate nonuse

such tha’ a court may declare such corporation de facto

dissolved. The mere fact that a corporation has stopped

doing business does not necessarily constitute a de facto

dissolution. Greenville Nat'l Exch. Bank v. Nussbaum,

earner enteral

25a

154 S.W.2d 672, 674 (Tex. App. 1941). A corporation

may cease to exist for all practical purposes, and yet

not be dissolved as a matter of law. See Eastern Grain

Elevator Corp. v. McGowan, 95 F. Supp. 40 (W.D.N.Y.

1950). A corporation does not pass out of existence be-

cause it has become insolvent or has lost its property

and ceased to carry on business. Lucas v. Swan, 67 F.2d

106 (4th Cir. 1933). And finally, the mere transfer of

corporate assets is not sufficient to work a dissolution.

E.g., Hunn v. United States, 60 F.2d 430 (8th Cir.

1932). Only a “total voluntary abandonment of its fran-

chise [charter]” is sufficient to work a de facto dissolu-

tion. Id. at 432.

Contrary to Spurlock’s contention, the evidence in this

case indicates that Santa Fe Pacific has actively engaged

in business from 1897 to the present. Letters, leases and

other documents both from and to employees of Santa Fe

Pacific evidence the ongoing business of Santa Fe Pacific

in the 1940’s and 1950’s. Santa Fe Pacific offered into

evidence minutes of several directors’ and stockholders’

meetings which reflect that the company was engaging in

business. Similarly, the United States continued to recog-

nize the existence of Santa Fe by issuing patents to it

which are in evidence in this case.

Further, since 1904, Santa Fe Pacific has been in-

volved in many litigated cases relating to its land grant

holdings. Its existence has never been questioned in these

suits. See, e.g., United States v. Santa Fe Pac. R., 314

U.S. 339, 62 S. Ct. 248, 86 L. Ed. 260 (1941); Santa Fe

Pac. R. Co. v. Work, 267 U.S. 511, 45 S. Ct. 400, 69

L. Ed. 764 (1925); Santa Fe Pac. R. Co. v. Cord, 14

. Ariz. App. 254, 482 P.2d 503, cert. denied, 404 U.S. 912,

) 92 S. Ct. 229, 30 L. Ed. 2d 185 (1971). In New Mexico

. ex rel. Caledonian Coal Co. v. Baker, 196 U.S. 482, 25

S. Ct. 375, 49 L. Ed. 540 (1905), the United States Su-

reme Court discussed the fact that Santa Fe Pacific had

conveyed away its railroad property and was in the busi-

ie

a en

ae

26a

ness of administering its land grants. Nothing in the

opinion states that there was anything improper about

this arrangement or that Santa Fe Pacific had ceased

to be an existing corporation. Thus, we can see no fac-

tual basis for the trial court’s ruling that Santa Fe

Pacific has been dissolved de facto.

Finally, even if inactivity by Santa Fe Pacific could

somehow constitute de facto dissolution, Spurlock would

be estopped from denying the company’s corporate ex-

istence. First, in each complaint, Spurlock alleged that

Santa Fe Pacific is an existing corporation. One who

sues a corporation as such or who has pleaded that an

opposing party is a corporation, has elected to treat that

party as a corporation and cannot deny its corporate

existence. 8 Fletcher § 3944; see also American Zinc

Prods. Co. v. Sanders, 175 Ark. 133, 142, 298 S.W. 857,

860 (1927).

Second, Spurlock and his predecessors have dealt with

Santa Fe Pacific since the early 1940’s as an existing

corporation by entering into contracts and leases with

Santa Fe Pacific, accepting deeds from Santa Fe Pacific

and dealing with Santa Fe Pacific’s lessees and accept-

ing surface damages from them. Parties who contract

with or otherwise deal with an entity as a corporation

are estopped from denying the corporate existence of that

entity in a subsequent lawsuit. Exum Walker, M.D. P.C.,

Pension Trust v. Joanna M. Knox & Assocs. Inc., 132

Ga. App. 12, 13, 207 S.E.2d 570, 572 (1974); see As-

sociated Students v. Arizona Board of Regents, 120 Ariz.

100, 103, 584 P.2d 564, 567 (App. 1978).

C. Ultra Vires Acts

The trial judge ruled that because Santa Fe Pacific

was de jure or de facto dissolved, the conveyances to

Spurlock’s predecessors in title were ultra vires. But the

trial court’s holding is a non sequitur. An ultra vires act

is one outside the corporation’s power as found directly

Se ae a eee

|

:

|

|

i

:

;

27a

or impliedly in its articles of incorporation. See Lurie

v. Arizona Fertilizer & Chem. Co., 101 Ariz. 482, 421

P.2d 330 (1966). Thus, in order for a corporation to

perform an ultra vires act it must necessarily exist.

Having concluded that Santa Fe Pacific had been dis-

solved, it was logically impossible for the trial court to

conclude that “therefore” its conveyances of the lawsuit

lands were ultra vires.

In any event, Spurlock has no standing to raise a

claim that the conveyance by Santa Fe Pacific were ultra

vires. “[F]ederal corporations derive their existence and

powers from acts of Congress, and ordinarily, proceed-

ings to question the right of such corporations to exercise

the corporate franchise or powers should be undertaken

by the United States.” 5 Fletcher § 2336. See, e.g., First

Nat’l Bank v. Missouri, 263 U.S. 640, 660, 44 S. Ct. 213,

216, 68 L. Ed. 486, 494 (1924).

In summary, we conclude that (1) Congress has not

dissolved Santa Fe Pacific; (2) Santa Fe Pacific is not

de facto dissolved; and (3) Spurlock may not complain

that the conveyances of the lawsuit lands by Santa Fe

Pacific were ultra vires.

IV. ADVERSE POSSESSION AND

RULES AGAINST PERPETUITIES

A. Adverse Possession

Santa Fe Pacific contends, as an alternative basis for

reversal, that it acquired title to certain of the minerals

by adverse possession. In light of the holding in Section

II., supra, we need not reach this contention. Spurlock

argues, however, that regardless of how the mineral res-

ervation is construed the judgments should be sustained

because he acquired title to the mineral estate by adverse

possession. We disagree.

After the surface estate has been severed from the

underlying mineral estate, title to the minerals cannot be

28a

acquired by adverse possession of the surface alone.

See generally Annot., 35 A.L.R.2d 124, 154-55 (1954).

Adverse possession requires an actual and visible appro-

priation of the mineral estate, commenced and continued

under a claim of right inconsistent with and hostile to

the claim of another. A.R.S. § 12-521(A). Where there

has been a severance of the mineral and surface estate,

such as in this case, “title by adverse possession can be

acquired to the mineral rights, but all the essential ele-

ments of adverse possession must exist .... The explora-

tion for minerals and mining operations . . . must be

open, notorious, continuous and hostile.’ McCoy v.

Lowrie, 42 Wash. 2d 24, 26-27, 253 P.2d 415, 417

(1953). See Lehfeldt v. Adams, 130 Mont. 395, 303 P.2d

934 (1956). Mining for domestic purposes is insufficient

to establish the requisite elements of adverse possession.

Mountain Mission School, Inc. v. Buchanan Realty Corp.,

207 Va. 518, 151 S.E.2d 403 (1966). Similarly, the

occasional taking of minerals, White v. McNabb, 140 Ky.

828, 131 S.W. 1021 (App. 1910), or taking from “time

to time,” Central Trust Co. v. Harless, 108 W. Va. 618,

152 S.E. 209 (1930), are likewise insufficient.

Turning to the facts of this case, it is clear that as

to the disputed minerals, Spurlock did not acquire title

by adverse possession. First, with respect to helium,

nitrogen and potash, Spurlock does not contend that he

produced these minerals or gained title to them through

adverse possession. Second, with respect to industrial

clay and petrified wood, there is some evidence that

Spurlock has taken these minerals off the land. This

evidence shows, however, that the taking by Spurlock

was intermittent and erratic and not of a sufficiently

continuous nature to establish title by adverse possession.

14 Spurlock contends that because the deed conveyances of the

lawsuit lands were void, his claim of title to the surface estate

is predicated upon the doctrine of adverse possession. But this con-

tention has been rejected. See Section III., supra.

29a

B. Rule Against Perpetuities

In light of our holding that title to the disputed sub-

stances lies with Santa Fe Pacific, it is also necessary to

address the propriety of the trial court’s ruling that

Santa Fe Pacific’s reserved right to use the surface to

locate and remove minerals is in reality a repurchase

option which violates the rule against perpetuities and

the rule against unreasonable restraints on alienation.

Each of the deeds conveying the lawsuit lands to Spur-

lock’s precedessors provided that Santa Fe Pacific re-

served the right:

[T]o use so much of the surface . . . as shall be

necessary and convenient for shafts, wells, tanks,

pipe lines, rights of way, railroad tracks, storage

purposes, and other and different structures and pur-

poses necessary and convenient for the digging, drill-

ing and working of any mines or wells which may

be operated on said lands. Grantor, or its successors

or assigns, will pay to Grantee, or the legal repre-

sentatives, heirs, successors or assigns of Grantee, a

fixed price per acre for the surface of all lands

appropriated under this exception and reservation,

which price shall be equal to the average price per

acre paid for all the lands above described, together

with the fair value of the buildings and permanent

improvements, if any, on the land the surface of

which is so appropriated. If the parties cannot agree

upon such fair value it shall be fixed by three ap-

praisers, of whom each party shall appoint one and

the two so appointed shall appoint the third.

Little time need be spent in establishing that the fore

going does not violate the rule against perpetuities or

any rule prohibiting unreasonable restraints on aliena-

tion.

The reservation merely states what would otherwise be

an implied right to reasonably use the surface in order

al

30a

to obtain “enjoyment” of the mineral estate. See Keviile

v. Hollister Co., 29 Cal. App. 3d 203, 105 Cal. Rptr. 238

(1972). In short, the reservation is simply not an option

to repurchase the fee title of the surface owner, as

claimed by Spurlock, but rather merely a provision for

compensation to the surface owner for the reserved right

of use incidental to the mineral reservation.

| V. CONCLUSION

In conclusion, we hold that the mineral reservation is

unambiguous and reflects the intent of the parties to

completely sever the mineral estate from the surface

estate. Thus, helium, nitrogen, potash, industrial clay

and petrified wood are part of the mineral estate and

have been reserved by Santa Fe Pacific.° With respect

to sand and gravel, however, the trial court found that

Santa Fe Pacific had abandoned its claim of ownership.

Because Santa Fe Pacific has not disputed that ruling

on appeal, the judgment granting title to the sand and

gravel in Spurlock is affirmed.

We further hold that the trial court erred in ruling

that the deed reservation was void in its entirety because

Santa Fe Pacific was dissolved de jure or de facto or

that the conveyances were ultra vires. Additionally,

Spurlock has not acquired the mineral estate by adverse

possession. Furthermore, Santa Fe Pacific’s reserved

right to use the surface for mining activities does not

violate the rule against perpetuities nor does it constitute

an unreasonable restraint on alienation.

15 Santa Fe Pacific has filed a motion for an award of attorney’s

fees “incurred in that portion of the underlying action in the

Superior Court relating” to its claim of title to the helium. Santa

Fe Pacific’s claim for fees is based upon A.R.S. § 12-1103(B). We

need not decide whether a prevailing defendant-counterclaimant

in a quiet title action is entitled to fees because even if Santa Fe

Pacific could establish its entitlement to fees, in the exercise of

our discretion we would decline to award it fees.

3la

Accordingly, we reserve the lower court’s judgments

quieting title to helium, nitrogen, potash, industrial clay

and petrified wood in Spurlock. We reverse the judg-

ments of conversion against Santa Fe Pacific and Kerr-

McGee. We affirm the judgment quieting title in sand

and rock to Spurlock. On remand, the trial court is

directed to enter judgments quieting title to helium,

nitrogen, potash, industrial clay and petrified wood in

Santa Fe Pacific.

/s/ Bruce Meyerson

BRUCE MEYERSON

' Judge

CONCURRING:

/s/ Levi Ray Haire

LEVI RAY HAIRE

Presiding Judge

/3/ William E. Eubank

WILLIAM E. EUBANK

Judge

5

;

:

;

|

liieesineiaiiieeiians well

32a

APPENDIX B

SUPERIOR COURT OF ARIZONA

APACHE COUNTY

Nos. 4779

4910

4936

4961

4949

4998

RANSOM THEODORE SPURLOCK and VERNIE MARIA SPUR-

LOCK, his wife; and CHARLES PATRICK SPURLOCK and

NANCY JENEEN SPUPLOCK, his wife,

Plaintiffs,

vs.

SANTA FE PACIFIC RAILROAD COMPANY, a corporation; and

KERR-MCGEE CORPORATION, a Delaware corporation,

Defendants.

JUDGMENT

(4779)

(Helium)

The plaintiffs, Ransom Theodore Spurlock and Vernie

Maria Spurlock, his wife; and Charles Patrick Spurlock

and Nancy Jeneen Spurlock his wife (‘Spurlocks”)

brought this action against Santa Fe Pacific Railroad

Company (“Santa Fe’) and Kerr-McGee Corporation

(“Kerr-McGee’’) to quiet title to the helium located on

or beneath the land owned by the Spurlocks which land

33a

is located in Apache County, Arizona and is specifically

described on the attached Exhibit A which is incorporated

herein by reference thereto and to recover damages for

the helium removed from the Exhibit A land.

Among the many issues presented was the interpreta-

tion and effect of a reservation clause which appeared in

the deeds executed by Santa Fe to the Spurlocks’ prede-

cessors in interest, to wit: Cowden Livestock Company,

Grace Porter, and the partnership of Spurlock and

Wetzler taken in the name of R.C. Spurlock and Georg-

anna Spurlock which reservation clause appears on the

attached Exhibit B.

The Court ruled on August 22, 1977 that the re-entry

clause contained in the first paragraph of the reserva-

tion clause set forth on Exhibit B violated the common

law rule against restraints upon alienation and the rule

against perpetuities.

After an eight month jury trial the Court submitted

written interrogatories to the jury pursuant to Rule

39(1) ARCP on advisory issues and general verdict

forms on the nonadvisory issues. The Court reserved

unto itself certain legal issues concerning the validity

and enforceability of the reservation clause on the an-

nexed Exhibit B.

The advisory issues submitted to the jury related to

whether the parties to the transactions between Santa

Fe and the persons and entities from whom the Spur-

locks had acquired the Exhibit A land by mesne con-

veyances, to wit: Cowden Livestock Company, Grace

Porter and the partnership of Spurlock and Wetzler

taken in the name of R.C. Spurlock and Georganna Spur-

lock, (“Spurlocks’ predecessors in interest”) had a gen-

eral or specific intent that Santa Fe was to be the owner

of the helium located on or beneath the land described

on the annexed Exhibit A and whether there existed a

custom and usage under which a reservation of “all oil,

34a

gas, coal and minerals whatsoever” reserved unto Santa

Fe the helium located on or beneath the lands described

on the annexed Exhibit A.

On June 20, 1981, the jury determined in response to

the written interrogatories that while the parties to the

transactions between Santa Fe and the Spurlocks’ prede-

cessors in interest did not have a mutually agreed upon

specific intent regarding Santa Fe’s ownership of the

helium the parties did have a general intent that Santa

Fe was not the owner of the helium.

The jury further found, in its answers to written

interrogatories, that the terms used in the reservation

clause, Exhibit B, were terms for which there was a

custom and usage and that the custom and usage existed

both in 1947 and 1951, being the dates of the transac-

tions between Santa Fe and the Spurlocks’ predecessors

in interest. Further, the jury found, in response to writ-

ten interrogatories, that the custom and usage was ap-

plicable to the transactions between Santa Fe and the

Spurlocks’ predecessors in interest. Finally, the jury

found, in the answers to written interrogatories, that

under the custom and usage which existed a reservation

of “all oil, gas, coal and minerals whatsoever,” could not

reserve unto Santa Fe the helium located on or beneath

the Exhibit A land.

The jury returned a general verdict quieting title to

the helium located on or beneath the Exhibit A land in

the Spurlocks and assessed damages in the amount of

Six Hundred Sixty-Four Thousand Five Hundred Two

Dollars ($664,502.00) and punitive damages in the

amount of Twenty Million Dollars ($20,000,000.00)

against Santa Fe and damages in the amount of Two

Hundred Fifty Thousand Three Hundred Five Dollars

($250,305.000) and punitive damages in the amount of

Four Hundred Eighty-Seven Thousand Seven Hundred

Thirty-Two Dollars ($487,732.00) against Kerr-McGee.

After the jury returned its answers to interrogatories

and its general verdict, the Court then ruled upon legal

eee

35a

issues affecting the validity and enforceability of the

reservation clause (Exhibit B) in its entirety. The

effect of the Court’s ruling on those issues was that the

reservation clause is, as a matter of law, void and un-

enforceable in its entirety.

After the jury returned its verdict the Spurlocks filed

a motion for prejudgment interest on the actual damages

assessed against Santa Fe and Kerr-McGee. On Septem-

ber 30, 1981, the Court granted the Spurlocks’ motion for

prejudgment interest in the amount of Three Hundred

Twenty-Seven Thousand Seven Hundred Thirty-Five Dol-

lars ($327,735.00) as against Sante Fe and in the amount

of One Hundred Twenty-Three Thousand Nine Hundred

One Dollars ($123,901.00) as against Kerr-McGee. The

Court further ruled that the prejudgment interest awarded

by the Court would not be subject to post judgment

interest .

The Spurlocks, after the jury returned the verdict,

moved to add Santa Fe Industries, Inc., (‘Industries’),

a corporation, as a defendant for the purpose of entering

judgment against it upon the ground that Santa Fe was

merely an operating division and the alter ego of In-

dustries. Industries had been previously joined as a de-

fendant pursuant to an order of the Court dated June

27, 1980. However, the Court thereafter granted Indus-

tries’ motion to dismiss it from the action before the trial

commenced. The Court ruled on September 30, 1981, that

the Court’s prior ruling dismissing Industries would not

have been entered if the Court had then possessed the

knowledge of the relationship between Industries and

Santa Fe that was developed during the trial of the case.

Further, the Court ruled that Santa Fe was the alter ego

of Industries and that Industries had received a fraud-

ulent transfer from Santa Fe but that Industries could

not be added as a defendant for the entry of judgment.

On September 30, 1981, the Court entered an order

finding that the advisory answers to the interrogatories

36a

submitted to the jury pursuant to Rule 39(1) ARCP were

either consistent with, or not inconsistent with the Court’s

findings on the same issues of fact and entered an order

adopting the answers. Also, on September 30, 1981, the

Court further entered an order that the answers of the

jury to the written interrogatories were not inconsistent

with the general verdict on the non advisory issues and

directed the entry of judgment thereon.

More than twenty (20) days prior to bringing the ac-

tion to quiet the title to the helium, the Spurlocks had

requested Santa Fe and Kerr-McGee to execute a quit

claim deed thereto and tendered to each of Santa Fe and

Kerr-McGee Five Dollars ($5.00) for execution and de-

livery of the deed in compliance with A.R.S. § 12-1103.B.,

but each of Santa Fe and Kerr-McGee refused to execute

the quit claim deed. After the trial of the case, the Spur-

locks filed a motion for an award of attorney’s fees pur-

suant to A.R.S. § 12-1103.B. The Court ordered an evi-

dentiary hearing to determine whether the Spurlocks were

entitled to attorney’s fees and the amount thereof. After

the evidentiary hearing the Court read and considered ex-

tensive memoranda filed by the Spurlocks, Kerr-McGee

and Santa Fe. The Court then ruled that the Spurlocks

were entitled to attorney’s fees in the amount of Four

Hundred Thousand Dollars ($400,000.00) as against

Santa Fe and Three Hundred Twenty-Five Thousand

Dollars ($325,000.00) as against Kerr-McGee.

Now, therefore, the Court having heard and seen all

of the evidence, and having heard and considered all of the

arguments of counsel, and having read and considered all

of the briefs and memoranda submitted by the parties

and being fully advised in the premises:

IT IS ORDERED, ADJUDGED AND DECREED that

the reservation clause which is set forth on the annexed

Exhibit B and which appears in the deeds to the Exhibit

A land from Santa Fe to the Spurlocks’ predecessors in

interest is void and unenforceable in its entirety; and,

37a

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the parties to the deeds between Santa Fe

and the Spurlocks’ predecessors in interest had a mutually

agreed upon general intent as to which of them would

own the helium located on or beneath the land described

on Exhibit A and that the intended owner of the helium

was not Santa Fe; and,

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the terms used in the reservation clause con-

tained in the deeds between Santa Fe and the Spurlocks’

predecessors in interest were terms for which there was

a custom and usage, which custom and usage existed both

in 1947 and in 1951, and further, that the custom and us-

age was applicable to the transactions between Santa Fe

and the Spurlocks’ predecessors in interest; and, further

that a reservation of “all oil, gas, coal and minerals

whatsoever” did not reserve title to the helium located on

or beneath the land described on the attached Exhibit A;

and,

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the rights of reentry contained in the first

paragraph of the reservation clause (Exhibit B) contained

in the deeds from Santa Fe to the Spurlocks’ predecessors

in interest violated the rule against restraints upon aliena-

tion and the rule against perpetuities; and,

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that Santa Fe is the alter ego of Industries and

there were fraudulent transfers of property from Santa

Fe to Industries; and,

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the Spurlocks are the owners of all of the

helium located on or beneath the lands described on the an-

nexed Exhibit A and the title to said helium is hereby

quieted in the Spurlocks and that Kerr-McGee and Santa

Fe have no estate, title, or interest therein, and that the

title to the helium in or under the land described on the

38a

annexed Exhibit A is owned by the Spurlocks free and

clear of any claim or claims whatsoever of Kerr-McGee

or Santa Fe and each of Kerr-McGee and Santa Fe, and

any persons claiming by, under or through them, are

barred and forever estopped from claiming or having

any estate, title, interest, lien or right in or to the helium

in or under said land adverse to the Spurlocks; and,

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the plaintiffs Spurlocks have and recover

judgment against the defendant Santa Fe in the sum of

Six Hundred Sixty-Four Thousand Five Hundred Two

Dollars ($664,502.00) as and for actual damages; and the

sum of Twenty Million Dollars ($20,000,000.00) as and

for punitive damages, together with interest on the fore-

going sums at the highest legal rate from June 20, 1981,

until paid, together with the Spurlocks’ costs incurred

herein and attorney’s fees in the amount of Four Hun-

dred Thousand Dollars ($400,000.00), with the costs and

attorney’s fees to bear interest at the highest legal rate

from the date of this judgment until paid; plus the sum

of Three Hundred Twenty-Seven Thousand Seven Hun-

dred Thirty-Five Dollars ($327,735.00) as and for pre-

judgment interest, which sum shall not bear interest;

and,

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that plaintiffs Spurlocks have and recover judg-

ment against the Defendant Kerr-McGee in the sum of

Two Hundred Fifty Thousand Three Hundred Five Dol-

lars ($250,305.00) as and for actual damages, and the

sum of Four Hundred Eighty-Seven Thousand Seven Hun-

dred Thirty-Two Dollars ($487,732.00) as and for puni-

tive damages, together with interest on the foregoing

sums at the highest legal rate from June 20, 1981, until

paid, together with the Spurlocks’ costs incurred herein

and attorney’s fees in the amount of Three Hundred

Twenty-Five Thousand Dollars ($325,000.00) with the

costs and attorney’s fees to bear interest at the highest

39a

legal rate from the date of this judgment until paid; plus

prejudgment interest in the amount of One Hundred

Twenty-Three Thousand Nine Hundred One Dollars

($123,901.00), which sum shall not bear interest.

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that judgment is awarded in favor of Santa Fe

and Kerr-McGee and against the Spurlocks on Counts

Three, Four, Five, Six and Seven of the Spurlocks’ Fourth

Amended Complaint.

The Court expressly determining herewith that there is

no just reason for delay, the Court herewith expressly di-

rects entry of the foregoing Judgment.

DONE IN OPEN COURT this 24 day of May, 1982.

/s/ Paul G. Rosenblatt

THE HONORABLE PAUL G. ROSENBLATT

Judge of the Superior Court

40a

EXHIBIT “A”

PROPERTY DESCRIPTION:

PARCEL NO. 1: Lots 1, 2, 3, 4, 5, and 6; the North-

east quarter of the Southwest quarter; the Southeast

quarter of the Northwest quarter; the Southwest quarter

of the Northeast quarter and the North half of the South-

east quarter of the Northeast quarter of Section 6, Town-

ship 17 North, Range 27 East of the Gila and Salt River

Base and Meridian, Apache County, Arizona.

PAR( .L NO. 2: All of Sections 1, 3, 5, 7, 9, 11, 18, 15

and 17 and 19; the West half of the West half of Section

29, and all of Section 31, Township 18 North, Range 27

East of the Gila and Salt River Base and Meridian,

Apache County, Arizona.

PARCEL NO. 8: Sections 1, 3, 4, 5, 6, 7, and 18 lying

North of the Puerco Rim, in Township 18 North, Range

28 East of the Gila and Salt River Base and Meridian,

Apache County, Arizona.

PARCEL NO. 4: All of Sections 1, 3, 4, 5, 6, 7, 8, 9,

10, 11, 12, 13, 14, 15, 17, 18, 19, 20, 21, 22, 28, 24, 25,

26, 27, 28, 29, 30, 31, 33, 34 and 35, in Township 19

North, Range 27 East of the Gila and Salt River Base

and Meridian, Apache County, Arizona.

PARCEL NO. 5: All of Sections 6, 7, and Southwest

quarter of the Southeast quarter of Section 8, all of Sec-

tions 13, 14, 15, 17, 18, 19, 21, 23, 24, 25, 27, 28, 29, 30,

31, 33, 34, and 35, Township 19 North, Range 28 East of

the Gila and Salt River Base and Meridian, Apache

County, Arizona.

PARCEL NO. 6: All of Section 1; the South half of Sec-

tion 2; all of Section 3, EXCEPTING THEREFROM a

strip of land 400 feet in width adjoining the Southeastly

line of the 200 foot wide right of way of the Atchison,

Topeka and Santa Fe Railway Company, extending across

eas

ee ie nen

1h Sins an NIN CN

4la

said Section; all of Section 9, EXCEPTING THERE-

FROM a strip of land 400 feet in width adjoining the

Southeasterly line of the 200 foot wide right of way of

the Atchison, Topeka and Santa Fe Railway Company, and

a strip of land 100 feet in width adjoining the North-

westerly line of the said 200 foot wide right of way of the

Atchison, Topeka and Santa Fe Railway Company across

the North half of said Section; all of Sections 10, 11, 12,

13, 14, and 15; all of Section 17, EXCEPTING THERE-

FROM all of the triangular portion of the Northwest

quarter of said Section 17 lying Northwest of the North-

westerly line of the 200 foot wide right of way of the

Atchison, Topeka and Santa Fe Railway Company; the

East half of the Southeast quarter of the Northwest quar-

ter; the North half of the Northeast quarter; and the

Northwest quarter of the Southwest quarter of Section 18,

Township 20 North, Range 27 East of the Gila and Salt

River Base and Meridian, Apache County, Arizona.

EXCEPT all those portions of Section 18 describes as

follows: The original 200 foot right of way of the Atchi-

son, Topeka and Santa Fe Railroad; and

EXCEPT a 100 foot strip of land adjoining the North-

westerly line of the Atchison, Topeka and Santa Fe Rail-

way Company’s 200 foot wide right of way and extend-

ing across the North half of the Northeast quarter of said

Section 18; and

EXCEPT that portion of Lot 3 (Northwest quarter

of the Southwest quarter) of said Section 18, lying be-

tween said Northwesterly line of 200 foot right of way

and a line drawn parallel from the Northeast corner of

said Lot 3 to a point in the West line of said Lot, distant

200 feet Northwesterly at right angles from said 200

foot right of way, All of Sections 19, 20, 21, 22, 23, 24,

25, 26, 27, 28, 29, 30, 31, 33, 34 and 35, all in Township

20 North, Range 27 East of the Gila and Salt River Base

and Meridian, Apache County, Arizona.

42a

EXCEPT a strip of land 306 feet in width situated in

the Northwest quarter of the Northwest quarter of Sec-

tion 18, Township 20 North, Range 27 East of the Gila

and Salt River Base and Meridian, Apache County, State

of Arizona, lying within the right of way of the relocated

Holbrook-Lupton Interstate Highway. Said strip of land

lying 210 feet on the northwesterly side of and 96 feet

on the Southeasterly side of the following described East-

bound center line of said highway:

BEGINNING at the point of intersection of the East-

bound center line of the relocated Holbrock-Lupton In-

terstate Highway with the West line of Section 28, at

approximate Highway Engineer’s Station 825+-05, from

whence the Northwest corner of said Section 28 bears

Northerly approximately 520 feet; thence North 67 de-

grees 09 minutes 00 seconds East traversing said Sec-

tion 28 and Sections 21, 22 and 23 approximately 12,678

feet, to a point lying in said Section 25 at Highway En-

gineer’s Station P.C. 951+83.34; thence Northeasterly

along a 0 degrees 12 minute curve, concave to the North-

west, a distance of 7808.34 feet, to Highway Engineer’s

Station P.T. 1029+-91.68; thence North 51 degrees 32

minutes 00 seconds East traversing Section 13, a dis-

tance of 3356.42 feet, to a point on the East line of said

Section 13, at Highway Engineer’s Station P.O.T.

1063+-48.1, from whence the Northeast corner thereof

bears Northerly 53.4 feet; thence continuing North 51

degrees 32 minutes 00 seconds East traversing Sections

18 and 7, a distance of 6914.3 feet, to a poirt on the East

line of said Section 7, at Highway Engineer’s Station

P.O.T. 1432+-62.4, from whence the Norsheast corner

thereof bears Northerly 1231.3 feet.

PARCEL NO. 7: All of Section 31, Township 20 North,

Range 28 East of the Gila and Salt River Base and

Meridian, Apache County, Arizona.

PARCEL NO. 8: All of Section 10, containing 640.00

acres, section 12, containing 640.00 acres and section

43a

14, containing 540.00 acres in Township 20 North, Range

26 East of the Gila and Salt River Base and Meridian,

Apache County, Arizona.

PARCEL NO. 9: Section 7, containing 626.10 acres, and

Lots 1, 2, 3, N-'4 NE-14, and E-% NW-1, Section 18,

less original 200 foot right of way of the Atchison, Topeka

and Santa Fe Railway Company, also less a 100 foot

strip of land adjoining the northwesterly line of the

Atehison, Topeka and Santa Fe Railway Company’s said

200 foot wide right of way and extending across the

north half of the northeast quarter of said section 18,

containing an area of 5.20 acres, more or less, and also

less that portion of Lot 3 of said Section 18 lying be-

tween said northwesterly line of 200 foot right of way

and a line drawn from the northeast corner of said Lot

3 to a point in the west line of said lot distant 200 feet

northwesterly at right angles from said 200 foot right

of way, containing an area of 5.00 acres more or less,

containing 238.25 acres. Containing in the aggregate

eight hundred sixty-four and thirty-five hundredths

(864.35) acres, more or less. Township 20 North, Range

27 East of the Gila and Salt River Base and Meridian,

Apache County, Arizona.

44a

EXHIBIT B

Grantor expressly reserves and excepts all oil, gas,

coal and minerals whatsoever, already found or which may

hereafter be found, upon or under said lands, with the

right to prospect for, mine and remove the same, and to

use so much of the surface of said lands as shall be neces-

sary and convenient for shafts, wells, tanks, pipe lines,

rights of way, railroad tracks, storage purposes, and other

and different structures and purposes necessary and con-

venient for the digging, drilling and working of any

mines or wells which may be operated on said lands.

Grantor, or its successors or assigns, will pay to Grantee,

or the legal representatives, heirs, successors or assigns of

Grantee, a fixed price per acre for the surface of all

lands appropriated under this exception and reservation,

which price shall be equal to the average price per acre

paid for all the lands above described, together with the

fair value of the buildings and permanent improvements,

if any, on the land the surface of which is so appropriated.

If the parties cannot agree upon such fair value it shall

be fixed by three appraisers, of whom each party shall

appoint one and the two so appointed shall appoint the

third.

This conveyance is made subject to and upon condition

that in the event that Grantor, or its successors or as-

signs, or The Atchison, Topeka and Santa Fe Railway

Company, or its successors or assigns, or any railroad

company at least a majority of whose stock it owns, may

any time hereafter desire to construct across the premises

hereinabove described, any railroad tracks, telegraph and

telephone lines, or other electric wire lines, oil or water

pipe lines, roadways, ditches, flumes or aqueducts, or to

operate on said premises gravel and ballast pits and quar-

ries and take material therefrom for railroad purposes, the

right of way for any such tracks, telegraph, telephone or

other electric wire lines, pipe lines, roadways, ditches,

flumes and aqueducts, of sufficient width for the proper

Mai eel Dentin naa th

45a

protection, maintenance and operation thereof, and the

land necessary and convenient for the operation of such

gravel and ballast pits and quarries and the taking of

material therefrom for railroad purposes, may be appro-

priated by any such Company desiring to construct such

tracks, wire lines, pipe lines, roadways, ditches, flumes or

aqueducts, or to operate such gravel and ballast pits and

quarries, upon such Company paying or offering to pay to

Grantee, or the legal representatives, heirs, successors or

assigns of Grantee, a fixed price per acre for the land so

appropriated, which price shall be equal to the average

price per acre paid for all the land above described, to-

gether with the fair value of all buildings and permanent

improvements constructed upon the land so appropriated;

and Grantee, or the legal representatives, heirs, suc-

cessors or assigns of Grantee, will convey to such Company

such appropriated right of way upon demand and tender

of payment as aforesaid.

46a

SUPERIOR COURT OF ARIZONA

APACHE COUNTY

Nos. 4779

4910

4936

4961

4949

4998

RANSOM THEODORE SPURLOCK and VERNIE MARIA SPUR-

LOCK, his wife; and CHARLES PATRICK SPURLOCK and

NANCY JENEEN SPURLOCK, his wife,

Plaintiffs,

vs.

SANTA FE PACIFIC RAILROAD COMPANY, an corporation,

Defendant.

JUDGMENT

(4998)

(Sand and Gravel)

The plaintiffs, Ransom Theodore Spurlock and Vernie

Maria Spurlock, his wife; and Charles Patrick Spurlock

and Nancy Jeneen Spurlock, his wife (“Spurlocks’’)

brought an action against Santa Fe Pacific Railroad Com-

pany (“Santa Fe’) to quiet title to the sand and gravel

located on or beneath the land owned by the Spurlocks

which land is located in Apache County, Arizona and is

specifically described on the attached Exhibit A which

is incorporated herein by reference thereto.

Among the many legal and factual issues presented was

the interpretation and effect of a reservation clause which

47a

appeared in the deeds executed by Santa Fe to the Spur-

locks’ predecessors in interest, to wit: Cowden Live-

stock Company, Grace Porter, and the partnership of

Spurlock and Wetzler taken in the name of R.C. Spur-

lock and Georganna Spurlock which reservation clause

appears on the attached Exhibit B.

Santa Fe admitted that the only interest it claimed

in the sand and gravel located on the Exhibit A land was

the right to take sand and gravel for railroad purposes

under the second paragraph of the reservation clause on

Exhibit B.

After an eight month jury trial the Court submitted a

written interrogatory to the jury pursuant to Rule 39 (1)

ARCP on the advisory issue and general verdict forms.

The Court reserved unto itself certain legal issues con-

cerning the validity and enforceability of the reserva-

tion clause on the annexed Exhibit B.

inate > nla inant

The advisory issue submitted to the jury related to

whether Santa Fe had abandoned any right it may have

had under the reservation clause, Exhibit B, to take sand

and gravel for railroad purposes from the Exhibit A

land.

On June 20, 1981, the jury determined in response to

the written interrogatory that Santa Fe had abandoned

any right it may have had to take sand and gravel for

railroad purposes.

The jury returned a general verdict quieting title to the

sand and gravel located on or beneath the Exhibit A land

in the Spurlocks.

After the jury returned its answer to the interrogatory

and its general verdict the Court then ruled upon legal

issues affecting the validity and enforceability of the res-

ervation clause (Exhibit B) in its entirety. The effect

of the Court’s ruling on those issues was that the reserva-

tion clause is, as a matter of law, void and unenforce-

48a

able in its entirety. The Court further ruled on September

30, 1981, that Santa Fe was the alter ego of Santa Fe

Industries, its parent company, and that Santa Fe In-

dustries received fraudulent transfer from Santa Fe.

On September 30, 1981, the Court entered an order

finding that the advisory answer to the interrogatory

submitted to the jury pursuant to Rule 39(1) ARCP was

either consistent with, or not inconsistent with the Court’s

finding on the same issue of fact and entered an order

adopt.ng the answer. Also, on September 30, 1981, the

Court further entered an order that the answer of the

jury to the written interrogatory was not inconsistent

with the general verdict and directed the entry of judg-

ment thereon,

More than twenty (20) days prior to bringing the ac-

tion to quiet the title to the sand and gravel and Spur-

locks had requested Santa Fe to execute a quit claim

deed thereto and tendered to Santa Fe Five Dollars

($5.00) for execution and delivery of the deed in com-

pliance with A.R.S. § 12-1103.B but Santa Fe refused to

execute the quit claim deed. After the trial of the case

the Spurlocks filed a motion for the award of attorney’s

fees pursuant to A.R.S. § 12-1103.B. The Court ordered

an evidentiary hearing to determine whether the Spur-

locks were entitled to attorney’s fees and the amount

thereof. After the evidentiary hearing the Court read

and considered extensive memoranda filed by the Spurlocks

and Santa Fe. The Court then ruled that the Spurlocks

were entitled to attorney’s fees in the amount of One

Hundred Twenty-Five Thousand Dollars ($125,000.00).

Now, therefore, the Court having heard and seen all of

the evidence, and having heard and considered all of the

arguments of counsel, and having read and considered

all of the briefs and memoranda submitted by the parties

and being fully advised in the prernises:

IT IS ORDERED, ADJUDGED AND DECREED that

the reservation clause which is set forth in the annexed

49a

Exhibit B and which appears in the deeds to the Exhibit

A land from Santa Fe to the Spurlocks’ predecessors in

interest is void and unenforceable in its entirety; and

IT IS FURTHERED ORDERED, ADJUDGED AND

DECREED that Santa Fe has abandoned any right it

may have had to take sand and gravel for railroad pur-

poses; and

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the Spurlocks are the owners of all of the

sand and gravel located on or beneath the land described

on the annexed Exhibit A and the title to such sand and

gravel is hereby quieted in the Spurlocks and Santa Fe

has no estate, title or interest therein, and the title to

the sand and gravel in or under the land described in the

attached Exhibit A is owned by the Spurlocks and any

persons claiming by, under or through it, are barred and

forever estopped from claiming or having any estate,

title, interest or right in or to the sand and gravel in or

under said land adverse to the Spurlocks.

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the Spurlocks have and recover judgment

against Santa Fe in the sum of One Hundred Twenty-

Five Thousand Dollars ($125,000.00) as and for attor-

ney’s fees, together with interest thereon at the rate of

ten percent (10%) per annum from the date of this

judgment.

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the Spurlocks have and recover from Santa

Fe all of their costs.

The Court expressly determining herewith that there

is no just reason for delay expressly directs entry of the

foregoing judgment.

DONE IN OPEN COURT this 24 day of May, 1982.

/s/ Paul G. Rosenblatt

THE HONORABLE PAUL G. ROSENBLATT

Judge of the Superior Court

50a

SUPERIOR COURT OF ARIZONA

APACHE COUNTY

Nos. 4779

4910

4936

4961

4949

4998

SANTA FE PACIFIC RAILROAD COMPANY, a corporation,

Plaintiff, and

Counterdefendant,

vs.

RANSOM THEODORE SPURLOCK and VERNIE MARIA SPUR-

LOCK, his wife; and CHARLES PATRICK SPURLOCK and

' NANCY JENEEN SPURLOCK, his wife,

Defendants and

Counterclaimants.

JUDGMENT

(4910)

(Nitrogen)

The plaintiff and counterdefendant, Santa Fe Pacific

Railroad Company (“Santa Fe’) brought an action to

quiet title to the nitrogen located on or beneath land

owned by the defendants and counterclaimants, Ransom

Theodore Spurlock and Vernie Maria Spurlock, his wife;

and Charles Patrick Spurlock and Nancy Jeneen Spur-

lock, his wife, (“Spurlocks”) which land is located in

Apache County, Arizona and is specifically described on

iP a a 1 la

5la

the attached Exhibit A which is incorporated herein by

reference thereto. The Spurlocks, in their counterclaim,

sought to have the title to the nitrogen quieted in them.

Among the many legal and factual issues presented

was the interpretation and effect of a reservation clause

which appeared in the deeds executed by Santa Fe to the

Spurlocks’ predecessors in interest which reservation

clause appears on the attached Exhibit B.

The Court ruled on August 22, 1977 that the re-entry

claus: contained in the first paragraph of the reserva-

tion clause set forth on Exhibit B violated the common

law rule against restraints upon alienation and the rule

against perpetuities.

After an eight month jury trial the Court submitted

written interrogatories to the jury pursuant to Rule

39(1) ARCP on advisory issues and general verdict

forms. The Court reserved unto itself certain legal issues

concerning the validity and enforceability of the reserva-

tion clause on the annexed Exhibit B.

The interrogatories submitted to the jury related to

whether the parties to the transactions between Santa Fe

and the persons and entities from whom the Spurlocks

had acquired the Exhibit A land by mesne conveyances,

to-wit: Cowden Livestock Company, Grace Porter and

the partnership of Spurlock and Wetzler taken in the

name of R.C. Spurlock and Georganna Spurlock, (“Spur-

locks’ predecessors in interest’) had a general or specific

intent that Santa Fe was to be the owner of the nitrogen

located on or beneath the land described on the annexed

Exhibit A and whether there existed a custom and usage

under which a reservation of “all oil, gas, coal and

minerals whatsoever” reserved unto Santa Fe the nitro-

gen located on or beneath the lands described on the

annexed Exhibit A.

On June 20, 1981 the jury determined in response to

the written interrogatories that the parties to the trans-

52a

actions between Santa Fe and the Spurlocks’ predecessors

in interest had no mutually agreed upon specific intent

as to which of them would own the nitrogen but did have

general intent that Santa Fe was not to own the nitrogen

located on or beneath the Exhibit A land.

The jury further found, in its answers to written

interrogatories, that the terms used in the reservation

clause, Exhibit B, were terms for which there was a

custom and usage and that the custom and usage existed

both in 1947 and 1951, being the date of the agreements

for sale and the deeds between Santa Fe and the Spur-

locks’ predecessors in interest. Further, the jury found,

in response to the written interrogatories, that the cus-

tom and usage was applicable to the transactions between

Santa Fe and the Spurlocks’ predecessors in interest.

Finally, the jury found, in the answers to written in-

terrogatories that under the custom and usage which

existed a reservation of “all oil, gas, coal and minerals

whatsoever” could not reserve unto Santa Fe the nitro-

gen located on or beneath the Exhibit A land.

The jury returned a general verdict quieting title to

the nitrogen located on or beneath the Exhibit A land in

the Spurlocks.

After the jury returned its answers to interrogatories

and its general verdict the Court then ruled upon legal

issues affecting the validity and enforceability of the

reservation clause (Exhibit B) in its entirety. The effect

of the Court’s ruling on those issues was that the reserva-

tion clause is, as a matter of law, void and unenforce-

able in its entirety.

On September 30, 1981 the Court entered an order

finding that the advisory answers to the interrogatories

submitted to the jury pursuant to Rule 39(1) ARCP

were either consistent with, or not inconsistent with the

Court’s findings on the same issues of fact and entered

53a

an order adopting the answers. Also, on September 30,

1981 the Court further entered an order that the answers

of the jury to the written interrogatories were not in-

consistent with the general verdict and directed the entry

of judgment thereon.

Now, therefore, the Court having heard and seen all

of the evidence, and having heard and considered all of

the arguments of counsel and having read and considered

all of the briefs and memorandum submitted by the

parties and being fully advised in the premises:

IT IS ORDERED, ADJUDGED AND DECREED that

the reservation clause which is set forth on the annexed

Exhibit B and which appears in the deeds to the Exhibit

A land from Santa Fe to the Spurlocks’ predecessors in

interest, is void and unenforceable in its entirety; and,

IT IS FURTHER ORDERED, ADJUDGED AND

DECREED that the parties to the deeds between Santa

Fe and the Spurlocks’ predecessors in interest had a

mutually agreed upon general intent as to which of them

would own the nitrogen located on or beneath the land

described on Exhibit A and that the intended owner of

the nitrogen was not Santa Fe; and,

IT IS FURTHER ORDERED, ADJUDGED AND

DECREED that the terms used in the reservation clause

contained in the deeds between Santa Fe and the Spur-

locks predecessors in interest were terms for which there

was a custom and usage, which custom and usage existed

both in 1947 and in 1951, and further, that the custom

and usage was applicable to the transactions between

Santa Fe and the Spurlocks’ predecessors in interest;

and, further that a reservation of “all oil, gas, coal and

minerals whatsoever” did not reserve title to the nitrogen

located on or beneath the land described on the attached

Exhibit A; and,

IT IS FURTHER ORDERED, ADJUDGED AND

DECREED that the right of re-entry contained in the

54a

first paragraph of the reservation clause (Exhibit B)

contained in the deeds from Santa Fe to the Spurlocks’

predecessors in interest violated the common law rule

against restraints upon alienation and the rule against

perpetuities and, is therefore, void; and,

IT IS FURTHER ORDERED, ADJUDGED AND

DECREED that the Spurlocks are the owners of all of

the nitrogen located on or beneath the land described on

the annexed Exhibit A and the title to such nitrogen is

hereby quieted in the Spurlocks and Santa Fe has no

estate, title or interest therein, and the title to the nitro-

gen in or under the land described on the attached

Exhibit A is owned by the Spurlocks free and clear of

any claim or claims whatsoever of Santa Fe, and any

persons claiming by, under or through it, are barred and

forever estopped from claiming or having any estate,

title, interest, or right in or to the nitrogen in or under

said land adverse to the Spurlocks.

IT IS FURTHER ORDERED, ADJUDGED AND

DECREED that the Spurlocks are awarded their costs

herein.

The Court expressly determining herewith that there

is no just reasons for delay expressly directs entry of the

foregoing judgment.

DONE IN OPEN COURT this 24 day of May, 1982.

/s/ Paul G. Rosenblatt

PAUL G. ROSENBLATT

Judge of Superior Court

55a

IN THE SUPERIOR COURT OF THE STATE OF

ARIZONA IN AND FOR THE COUNTY OF APACHE

Nos. 4779

4910

4936

4949

4961

4998

SANTA FE PACIFIC RAILROAD COMPANY, a corporation,

Plaintiff /Counterdefendant,

VS.

RANSOM THEODORE SPURLOCK and VERNIE MARIA SPuUR-

LOCK, his wife; and CHARLES PATRICK SPURLOCK and

NANCY JENEEN SPURLOCK, his wife,

Defendants/Counterclaimants.

JUDGMENT

(4949)

(Petrified Wood )

The Plaintiff/Counterdefendant, SANTA FE PA-

CIFIC RAILROAD COMPANY (“Santa Fe”) brought

an action to quiet title to the petrified wood located on or

beneath land owned by the Defendants/Counterclaimants,

RANSOM THEODORE SPURLOCK and VERNIE

MARIA SPURLOCK, his wife; and CHARLES PAT-

RICK SPURLOCK and NANCY JENEEN SPURLOCK,

his wife, (“Spurlocks”)' which land is located in Apache

56a

County, Arizona, and is specifically described on the

attached Exhibit A which is incorporated herein by

reference thereto. The Spurlocks, in their Counterclaim,

sought to have the title to the petrified wood quieted to

them.

Among t’ 2 many legal and factual issues presented was

the interpretation and effect of a reservation clause which

appeared in the deeds executed by Santa Fe to the Spur-

locks’ predecessors in interest which reservation clause

appears on the attached Exhibit B.

The Court ruled on August 22, 1977, that the re-entry

clause contained in the first paragraph of the reserva-

tion clause set forth in Exhibit B violated the common

law rule against restraints upon alienation and the rule

against perpetuities.

After an eight month jury trial, the Court submitted

written interrogatories to the jury, pursuant to Rule

39(1) Arizona Rules of Civil Procedure, on advisory

issues and general verdict forms. The Court reserved

unto itself certain legal issues concerning the validity

and enforceability of the reservation clause on the an-

nexed Exhibit B.

The advisory issues submitted to the jury related to

whether the parties to the transactions between Santa Fe

ana the persons and entities from whom the Spurlocks

had acquired the Exhibit A land by mesne conveyance,

to-wit: Cowden Livestock Company, Grace Porter and

the partnership of Spurlock and Wetzler taken in the

name of R. C. Spurlock and Georganna Spurlock, (“Spur-

locks’ predecessors in interest”) had a general or specific

intent that Santa Fe was to be the owner of the petrified

wood located on or beneath the land described in the

annexed Exhibit A and whether there existed a custom

and usage under which a reservation of “all oil, gas, coal

and minerals whatsoever” reserved unto Santa Fe the

petrified wood located on or beneath the land described

on the annexed Exhibit A.

Milt MO aa Be the

ee TT ee

57a

On June 20, 1981, the jury determined in response to

the written interrogatories that the parties to the trans-

actions between Santa Fe and the Spurlocks’ predecessors

in interest had a mutually agreed upon specific intent

that Santa Fe was not to own the petrified wood located

on or beneath the Exhibit A land.

The jury further found, in its answers to written

interrogatories, that the terms used in the reservation

clause, Exhibit B, were terms for which there was a

custom and usage and that the custom and usage existed

both in 1947 and 1951, being the dates of the agreements

for sale and the deeds between Santa Fe and the Spur-

locks’ predecessors in interest. Further, the jury found,

in response to the written interrogatories, that the cus-

tom and usage was applicable to the transactions between

Santa Fe and the Spurlocks’ predecessors in interest.

Finally, the jury found in the answers to written inter-

rogatories that under the custom and usage which existed

a reservation of “all oil, gas, coal and minerals whatso-

ever” could not reserve unto Santa Fe the petrified wood

located on or beneath the Exhibit A land.

The jury returned a general verdict quieting title to

the petrified wood located on or beneath the Exhibit A

land in the Spurlocks.

After the jury returned its answers to interrogatories

and its general verdict, the Court then ruled upon legal

issues affecting the validity and enforceability of the

reservation clause (Exhibit B) in its entirety. The effect

of the Court’s ruling on those issues was that the reserva-

tion clause is, as a matter of law, void and unenforceable

in its entirety.

On September 30, 1981, the Court entered an Order

finding that the advisory answers to the interrogatories

submitted to the jury pursuant to Rule 39(1), Arizona

Rules of Civil Procedure, were either consistent with, or

not inconsistent with the Court’s findings on the same

58a

issues of fact and entered an Order adopting the answers.

Also, on September 30, 1981, the Court further entered

an Order that the answers of the jury to the written

interrogatories were not inconsistent with the general

verdict and directed the entry of judgment thereon.

Now, therefore, the Court having heard and seen all of

the evidence, and having heard and considered all of the

arguments of counsel, and having read and considered

all of the briefs and memoranda submitted by the: par-

ties, and being fully advised in the premises:

IT IS ORDERED, ADJUDGED AND DECREED that

the reservation clause which is set forth on the annexed

Exhibit B and which appears in the deeds to the Exhibit

A land from Santa Fe, to the Spurlocks’ predecessors in

interest, is void and unenforceable in its entirety; and

IT IS FURTHER ORDERED, ADJUDGED AND

DECREED that the parties to the deeds between Santa

Fe and the Spurlocks’ predecessors in interest had a

mutually agreed upon specific intent as to which of them

would own the petrified wood located on or beneath the

land described on Exhibit A and that the intended own-

ers of the petrified wood was not Santa Fe; and

IT IS FURTHER ORDERED, ADJUDGED AND

DECREED that the terms used in the reservation clause

contained in the deeds between Santa Fe and the Spur-

locks’ predecessors in interest were terms for which there

was a custom and usage, which custom and usage existed

both in 1947 and 1951, and further, that the custom and

usage was applicable to the transactions between Santa

Fe and the Spurlocks’ predecessors in interest; and, un-

der such custom and usage, a reservation of “all oil, gas,

coal and minerals whatsoever” did not reserve title to

the petrified wood located on or beneath the land de-

scribed on the attached Exhibit A; and

IT IS FURTHER ORDERED, ADJUDGED AND

DECREED that the right of reentry contained in the

ye

59a

first paragraph of the reservation clause (Exhibit B)

contained in the decds from Santa Fe to the Spurlocks’

predecessors in interest violated the common law rule

against restraints upon alienation and the rule against

perpetuities and, is therefore void; and,

IT IS FURTHER ORDERED, ADJUDGED AND

DECREED that the Spurlocks are the owners of all of

the petrified wood located on or beneath the land de-

scribed on the annexed Exhibit A and the title to such

petrified wood is hereby quieted in the Spurlocks and

Santa Fe has no estate, title or interest therein, and the

title to the petrified wood in or under the land described

in the attached Exhibit A is owned by the Spurlocks free

and clear of any claim or claims whatsoever of Santa Fe

and any persons claiming by, under or through it, are

barred and forever estopped from claiming or having

any estate, title, interest, or right in or to the petrified

wood in or under said land adverse to the Spurlocks.

IT IS FURTHER ORDERED, ADJUDGED AND

DECREED that the Spurlocks are awarded their costs

incurred herein.

The Court expressly determining herewith that there

is no just reason for delay expressly di ects entry of the

foregoing Judgment.

DONE IN OPEN COURT this 24 day of May, 1982.

/s/ Paul G. Rosenblatt

THE HONORABLE PAUL G. ROSENBLATT

Judge of the Superior Court

60a

SUPERIOR COURT OF ARIZONA

APACHE COUNTY

Nos. 4779

4910

4936

4949

4961

4998

SANTA FE PACIFIC RAILROAD COMPANY, a corporation,

Plaintiff and Counterdefendant,

vs.

RANSOM THEODORE SPURLOCK and VERNIE MARIA SPUR-

LOCK, his wife; and CHARLES PATRICK SPURLOCK and

NANCY JENEEN SPURLOCK, his wife,

Defendants and Counterclaimants.

,

JUDGMENT

(4961)

(Clay)

The plaintiff and counterdefendant, Santa Fe Pacific

Railroad Company (“Santa Fe”) brought an action to

quiet title to the clay located on or beneath the land

owned by the defendants and counterclaimants, Ransom

Theodore Spurlock and Vernie Maria Spurlock, his wife;

and Charles Patrick ‘Spurlock and Nancy Jeneen Spur-

lock, his wife, (“Spurlocks”) which land is located in

Apache County, Avizona and is specifically described on

the attached Exhibit A which is incorporated herein by

reference thereto. The Spurlocks, in their counterclaim,

sought to have the title to the clay quieted in them.

6la

Among the many legal and factual issues presented was

the interpretation and effect of a reservation clause which

appeared in the deeds executed by Santa Fe to the Spur-

locks’ predecessors in interest which reservation clause

appears on the attached Exhibit B.

The Court ruled on August 22, 1977, that the re

entry clause contained in the first paragraph of the reser-

vation clause set forth in Exhibit B violated the common

law rule against restraints upon alienation and the

rule against perpetuities.

After an eight month jury trial the Court submitted

written interrogatories to the jury: pursuant to Rule

39(1) ARCP on advisory issues ind general verdict

forms. The Court reserved unto itself certain legal

issues concerning the validity and enforceability of the

reservation clause on the annexed Exhibit B.

The interrogatories submitted to the jury related to

whether the parties to the transactions between Santa

Fe and the persons and entities from whom the Spur-

locks had acquired the Exhibit A land by mesne convey-

ances, to-wit: Cowden Livestock Company, Grace Porter

and the partnership of Spurlock and Wetzler taken in the

name of R. C. Spurlock and Georganna Spurlock, (“Spur-

locks’ predecessors in interest”) had a general or specific

intent that Santa Fe was to be the owner of the clay

located on or beneath the land described on the annexed

Exhibit A and whether there existed a custom and usage

under which a reservation of “all oil, gas, coal and min-

erals whatsoever” reserved unto Santa Fe the clay located

on or beneath the land described on the annexed Exhibit

A.

On June 20, 1981, the jury determined in response to

the written interrogatories that the parties to the trans-

actions between Santa Fe and the Spurlocks’ predecessors

in interest had a mutually agreed upon specific intent

62a

that Santa Fe was not to own the clay located on or be-

neath the Exhibit A land.

The jury further found, in its answers to written in-

terrogatories, that the terms used in the reservation

clause, Exhibit B, were terms for which there was a

custom and usage and that the custom and usage existed

both in 1947 and 1951, being the date of the agreement

for sale and the deeds between Santa Fe and the Spur-

locks’ predecessors in interest. Further the jury found, in

response to the written interrogatories, that the custom

and usage was applicable to the transactions between

Santa Fe and the Spurlocks’ predecessors in interest.

Finally, the jury found, in the answers to written inter-

rogatories, that under the custom and usage which existed

a reservation of “all oil, gas, coal and minerals whatso-

ever” could not reserve unto Santa Fe the clay located on

or beneath the Exhibit A land.

The jury returned a general verdict quieting title to

the clay located on or beneath the Exhibit A land in the

Spurlocks.

After the jury returned its answers to interrogatories

and its general verdict the Court then ruled upon legal

issues affecting the validity and enforceability of the reser-

vation clause (Exhibit B) in its entirety. The effect of

the Court’s ruling on those issues was that the reservation

clause is, as a matter of law, void and unenforceable in

its entirety.

On September 30, 1981 the Court entered an order

finding that the advisory answers to the interrogatories

submitted to the jury pursuant to Rule 39/1) ARCP

were either consistent with, or not inconsistent with the

Court’s findings on the same issues of fact and entered an

order adopting the answers. Also, on September 30, 1981,

the Court further entered an order that the answers to

the jury to the written interrogatories were not incon-

sistent with the general verdict and directed the entry of

judgment thereon.

63a

Now, therefore, the Court having heard and seen all of

the evidence, and having heard and considered all of the

arguments of counsel and having read and considered all

of the briefs and memoranda submitted by the parties and

being fully advised in the premises:

IT IS ORDERED, ADJUDGED AND DECREED that

the reservation clause which is set forth on the annexed

Exhibit B and which appears in the deeds to the Exhibit

A land from Santa Fe to the Spurlocks’ predecessors in in-

terest is void and unenforceable in its entirety; and,

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the parties to the deeds between Santa Fe

and the Spurlocks’ predecessors in interest had a mutually

agreed upon specific intent as to which of them would

own the clay located on or beneath the land described

on Exhibit A and that the intended owner of the clay was

not Santa Fe; and,

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the terms used in the reservation clause con-

tained in the deeds between Santa Fe and the Spurlocks’

predecessors in interest were terms for which there was

a custom and usage, which custom and usage existed both

in 1947 and in 1951, and further, that the custom and

usage was applicable to the transactions between Santa

Fe and the Spurlocks’ predecessors in interest; and, fur-

ther that a reservation of “all oil, gas, coal and minerals

whatsoever” did not reserve title to the clay located on or

beneath the land described on the attached Exhibit A; and

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the right of re-entry contained in the first

paragraph of the reservation clause (Exhibit B) con-

tained in the deeds from Santa Fe to the Spurlocks’ prede-

cessors in interest violated the common law rule against

restraints upon alienation and the rule against perpetui-

ties and, is therefore, void; and,

64a

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the Spurlocks are the owners of all of the

clay located on or beneath the land described on the

annexed Exhibit A and the title to such clay is hereby

quieted in the Spurlocks and Santa Fe has no estate, title

or interest therein, and the title to the clay in or under

the land described in the attached Exhibit A is owned by

the Spurlocks free and clear of any claim or claims what-

soever of Santa Fe and any persons claiming by, under or

through it, are barred and forever estopped from claiming

or having any estate, title, interest, or right in or to the

clay in or under said land adverse to the Spurlocks.

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the Spurlocks are awarded their costs in-

curred herein.

The Court expressly determined herewith that there is

no just reason for delay expressly directs entry of the

foregoing judgment.

DONE IN OPEN COURT this 24 day of May, 1982.

/3/ Paul G. Rosenblatt

PAUL G. ROSENBLATT

Judge of Superior Court

65a

APPENDIX C

[SEAL]

SUPREME COURT

STATE OF ARIZONA

201 - West Wing

Capitol Building

(602) 255-4536

Phoenix 85007

January 30, 1985

RE: SPURLOCK et ux et al vs. SANTA FE PACIFIC RAIL-

ROAD COMPANY et al

Supreme Court No. 17849-PR

Court of Appeals No. 1 CA-CIV 6938

Apache County Nos. C-4779, C-4910, C-4936, C-4961,

C-4949 & C-4998 (Consolidated)

GREETINGS:

The following action was taken by the Supreme Court

of the State of Arizona on January 29, 1985, in regard

to the above-referenced cause:

“ORDERED: Petition for Review — DENIED.

Justices Gordon and Cameron did not participate in

the determination of this matter.”

Record returned to the Court of Appeals, Division

One, Phoenix, this 30th day of January, 1985.

S. ALAN Cook, Clerk

To: Jack E. Evans, Esq.

Philip E. von Ammon, Esq., Donald R. Gilbert, Esq.,

and Timothy Berg, Esq., Fennemore, Craig, von

Ammon, Udall & Powers

Robert L. Palmer, Esq., Ronald Kilgard, Esq., and

James A. Bush, Esq., Martori, Meyer, Hendricks

& Victor

Glen D. Clark, Clerk, Court of Appeals, Division One

eh

66a

APPENDIX D

ee [SEAL] |

SUPREME COURT

STATE OF ARIZONA

201 - West Wing

Capitol Building

(602) 255-4536

Phoenix 85007

March 6, 1985

Bid Fi

RE: SPURLOCK vs. SANTA FE PACIFIC RAILROAD COMPANY

et al

Supreme Court No. 17849-PR

Court of Appeals No. CA-CIV 6938

Apache County Nos. C-4779, C-4910, C-4936, C-4961,

C-4949 & C-4998 (Consolidated )

GREETINGS:

The following action was taken by the Supreme Court

of the State of Arizona on March 5, 1985, in regard to

the above-referenced cause:

“ORDERED: Petition to Recall Mandate —

DENIED.

FURTHER ORDERED: Motion for Permission to

file Motion for Reconsideration of Order Denying

Petition for Review — DENIED. 4

FURTHER ORDERED: Motion for Reconsidera-

tion —= DENIED as moot.

Justice Feldman voting to grant petition to recall

mandate.

Justices Gordon and Cameron did not participate in

the determination of this matter.”

67a

S. ALAN Cook, Clerk

To: Jack E. Evans, Esq., Jack E. Evans, Ltd.

Philip EL. von Ammon, Esq., Donald R. Gilbert, Esq.,

and Timothy Berg, Esq., Fennemore, Craig, von

Ammon, Udall & Powers

Robert L. Palmer, Esq., Ronald Kilgard, Esq., and

James A. Bush, Esq., Martori, Meyer Hendricks

& Victor

eh

68a

APPENDIX E

[SEAL]

SUPREME COURT

STATE OF ARIZONA

201 - West Wing

Capitol Building

(602) 255-4536

Phoenix 85007

27 March 1985

RE: SPURLOCK et al vs. SANTA FE PACIFIC RAILROAD

COMPANY et al

Supreme Court No. 17849-PR

Court of Appeals No. 1 CA-CIC 6938

Apache County Nos. C-4779, 4910, 4936, 4961, 4949

& 4998 (Consolidated )

GREETINGS:

The following action was taken by the Supreme Court

of the State of Arizona on March 26, 1985, in regard to

the above-referenced cause:

“ORDERED: Motion for Reconsideration =

DENIED.

Justices Gordon and Cameron did not participate in

the determination of this matter.”

S. ALAN Cook, Clerk

To: Jack E. Evans, Esa.

Philip E. von Ammon, Esq., Donald R. Gilbert, Esq.,

and Timothy Berg, Esq., Fennemore, Craig, von

Ammon, Udall & Powers

Robert L. Palmer, Esq., Ronald Kilgard, Esq., and

James A. Bush, Esq., Martori, Meyer, Hendricks

& Victor

pgk

tae RRM AN Nell cles

Seatac Date ara) a hele ele al ahh he Mie

69a

APPENDIX F

CONSTITUTIONAL PROVISIONS AND

STATUTES INVOLVED

Section 1 of the Fourteenth Amendment to the Con-

stitution of the United States provides:

Section 1. All persons born or naturalized in the

United States, and subject to the jurisdiction thereof,

are citizens of the United States and of the State

wherein they reside. No State shall make or enforce

any law which shall abridge the privileges or immu-

nities of citizens of the United States; nor shall any

State deprive any person of life, liberty, or prop-

erty, without due process of law; nor deny to any

person within its jurisdiction the equal protection of

the laws.

The Act of Congress of July 27, 1866, ch. 278, 14

Stat. 292, provides:

CHAP. CCLXXVIII.—An Act granting Lands to aid

in the Construction of a Railroad and Telegraph Line

from the States of Missouri and Arkansas to the Pacific

Coast.

Be it enacted by the Senate and House of Representa-

tives of the United States of America in Congress as-

sembled, That John B. Brown, [et al.] * * *; and all

such other persons who shall or may be associated with

them, and their successors, are hereby created and

erected into a body corporate and politic, in deed and in

law, by the name, style, and title of the “Atlantic and

Pacific Railroad Company,” and by that name shall have

perpetual succession, and shall be able to sue and be

sued, plead and be impleaded, defend and be defended,

in all courts of law and equity within the United States,

70a

and may make and have a common seal. And said cor-

poration is hereby authorized and empowered to lay out,

locate, and construct, furnish, maintain, and enjoy, a

continuous railroad and telegraph line, with the appurte-

nances, namely: Beginning at or near the town of

Springfield, in the State of Missouri, thence to the west-

ern boundary line of said State, and thence by the most

eligible railroad route as shall be determined by said

company to a point on the Canadian River, thence to the

town of Albuquerque, on the River Del Norte, and thence,

by way of the Agua Frio, or other suitable pass, to the

head-waters of the Colorado Chiquito, and thence, along

the thirty-fifth parallel of latitude, as near as may be

found most suitable for a railway route, to the Colorado

River, at such point as may be be selected by said com-

pany for crossing; thence by the most practicable and

eligible route, to the Pacific. The said company shall have

the right to construct a branch from the point at which

the road strikes the Canadian River eastwardly, along

the most suitable route as selected, to a point in the

western boundary line of Arkansas, at or near the town

of Van Buren. And the said company is hereby vested

with all the powers, privileges, and immunities neces-

sary to carry into effect the purposes of this act, as

herein set forth. The capital stock of said company shall

consist of one million shares of one hundred dollars each,

which shall in all respects be deemed personal property,

and shall be transferable in such manner as the laws of

said corporation shall provide. The persons hereinbefore

named are hereby appointed commissioners, and shall be

called the board of commissioners of the “Atlantic and

Pacific Railroad Company,” and fifteen shall constitute

a quorum for the transaction of business. The first meet-

ing of said board of commissioners shall be held at the

Turner Hall, in the city of Saint Louis, on the first day

of October, anno Domini eighteen hundred and sixty-six,

or at such time within three months thereafter as any

ten commissioners herein named from Missouri shall

ein lt te

ih eee ee ee ee

a

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appoint, notice of which shall be given by them to the

other commissioners by publishing said notice in at least

one daily newspaper in the cities of Boston, New York,

Cincinnati, Saint Louis, Memphis, and Nashville, once a

week for at least four weeks previous ‘o the day of meet-

ing. Said board shall organize by the choice from its

number of a president, vice-president, secretary, and

treasurer, and they shall require from said treasurer

such bonds as may be deemed proper, and may from time

to time increase the amount thereof, as they may deem

proper. The secretary shall be sworn to the faithful per-

formance of his duties, and such oath shall be entered

upon the records of the company, signed by him, and the

oath verified thereon. The president and secretary of

said boards shall, in like manner, call all other meet-

ings, naming the time and place thereof. It shall be the

duty of said board of commissioners to open books, or cause

books to be opened, at such times and in such principal

cities or other places in the United States as they or a

quorum of them shall determine, within twelve months

after the passage of this act, to receive subscriptions to

the capital stock of said corporation, and a cash payment

of ten per centum on all subscriptions, and to receipt

therefor. So soon as ten thousand shares shall in good

faith be subscribed for, and ten dollars per share actually

paid into the treasury of the company, the said presi-

dent and secretary of said board of commissioners shall

appoint a time and place for the first meeting of the

subscribers to the stock of said company, and shall give

notice thereof in at least one newspaper in each State

in which subscription books have been opened, at least

fifteen days previous to the day of meeting, and such

subscribers as shall attend the meeting so called, either

in person or by lawful proxy, then and there shall elect,

by ballot, thirteen directors for said corporation; and in

such election each share of said capital stock shall en-

title the owner thereof to one vote. The president and

secretary of the board of commissioners, and in case of

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their absence or inability any two of the officers of said

board, shall act as inspectors of said election, and shall

certify, under their hands, the names of the directors

elected at said meeting. And the said commissioners,

treasurer, and secretary shall then deliver over to said

directors all the moneys, properties, subscription books,

and other books in their possession, and thereupon the

duties of said commissioners and the officers previously

appointed by them shall cease and determine forever,

and thereafter the stockholders shall constitute said body

politic and corporate. Annual meetings of the stock-

holders of the said corporation for the choice of officers,

(when they are to be chosen.) and for the transaction

of business, shall be holden at such time and place and

upon such notice as may be prescribed in the by-laws.

Sec. 2. And be it further enacted, That the right of

way through the public lands be, and the same is hereby,

granted to the said Atlantic and Pacific Railroad Com-

pany, its successors and assigns, for the construction of

a railroad and telegraph as proposed; and the right,

power, and authority is hereby given to said corporation

to take from the public lands adjacent to the line of said

road material of earth, stone, timber, and so forth, for

the construction thereof. Said way is granted to said

railroad to the extent of one hundred feet in width on

each side of said railroad where it may pass through the

public domain, including all necessary grounds for station-

buildings, workshops, depots, machine-shops, switches,

side-tracks, turn-tables, and water-stations; and the right

of way shall be exempt from taxation within the Ter-

ritories of the United States. The United States shall

extinguish, as rapidly as may be consistent with public

policy and the welfare of the Indians, and only by their

voluntary cession, the Indian title to all lands falling

under the operation of this act and acquired in the dona-

tion to the road named in the act.

Sec. 3. And be it further enacted, That there be, and

hereby is, granted to the Atlantic and Pacific Railroad

73a

Company, its successors and assigns, for the purpose of

aiding in the construction of said railroad and telegraph

line to the Pacific coast, and to secure the safe and speedy

transportation of the mails, troops, munitions of war,

and public stores, over the route of said line of railway

and its branches, every alternate section of public land,

not mineral, designated by odd numbers, to the amount

of twenty alternate sections per mile, on each side of

said railroad line, as said company may adopt, through

the Territories of the United States, and ten alternate

sections of land per mile on each side of said railroad

whenever it passes through any State, and whenever, on

the line thereof, the United States have full title, not

reserved, sold, granted, or otherwise appropriated, and

free from pre-emption or other claims or rights, at the

time the line of said road is designated by a plat thereof,

filed in the office of the commissioner of the general land

office; and whenever, prior to said time, any of said sec-

tions or parts of sections shall have been granted, sold,

reserved, occupied by homestead settlers, or pre-empted,

or otherwise disposed of, other lands shall be selected by

said company in lieu thereof, under the direction of the

Secretary of the Interior, in alternate sections, and des-

ignated by odd numbers, not more than ten miles beyond

the limits of said alternate sections, and not including the

reserved numbers: Provided, That if said route shall be

found upon the line of any other railroad route, to aid

in the construction of which lands have been heretofore

granted by the United States, as far as the routes are

upon the same general line, the amount of land hereto-

fore granted shall be deducted from the amount granted

by this act: Provided further, That the railroad com-

pany receiving the previous grant of land may assign

their interest to said “Atlantic and Pacific Railroad

Company,” or may consolidate, confederate, and asso-

ciate, with said company upon the terms named in the

first and seventeenth sections of this act: Provided fur-

ther, That all mineral lands be, and the same are hereby,

74a

excluded from the operations of this act, and in lieu

thereof a like quantity of unoccupied and unappropriated

agricultural lands in odd-numbered sections nearest to

the line of said road, and within twenty miles thereof,

may be selected as above provided: And provided fur-

ther, That the word “mineral,” when it occurs in this

act, shall not be held to include iron or coal: And pro-

vided further, That no money shall be drawn from the

treasury of the United States to aid in the construction

of the said “Atlantic and Pacific Railroad.”

Sec. 4. And be it further enacted, That whenever said

Atlantic and Pacific Railroad Company shall have twenty-

five consecutive miles of any portion of said railroad and

telegraph line ready for the service contemplated, the

President of the United States shall appoint three com-

missioners to examine the same, who shall be paid a

reasonable compensation for their services by the com-

pany, to be determined by the Secretary of the Interior;

and if it shall appear that twenty-five consecutive miles

of said road and telegraph line have been completed in a

good, substantial and workmanlike manner, as in all

other respects required by this act, the commissioners

shall so report under oath, to the President of the United

States, and patents of lands, as aforesaid, shall be issued

to said company, confirming to said company the right

and title to said lands situated opposite to and cotermi-

nous with said completed section of said road. And from

time to time, whenever twenty-five additional consecutive

miles shall have been constructed, completed, and in

readiness as aforesaid, and verified by said commission-

ers to the President of the United States, then patents

shall be issued to said company conveying the additional

sections of land as aforesaid, and so on as fast as every

twenty-five miles of said road is completed as aforesaid.

SEC. 5. And be it further enacted, That said Atlantic

and Pacific Railroad shall be constructed in a substan-

tial and workmanlike manner, with all the necessary

75a

draws, culverts, bridges, viaducts, crossings, turn-outs,

stations, and watering-places, and all other appurtenances,

including furniture and rolling stock, equal in all re

spects to railroads of the first class when prepared for

business, with rails of the best quality, manufactured

from American iron. And a uniform gvage shall be es-

tablished throughout the entire length of the road. And

there shall be constructed a telegraph line, of the most

substantial and approved description, to be operated along

the entire line: Provided, That the said company shall

not charge the government higher rates than they do in-

dividuals for like transportation and telegraphic service.

And it shall be the duty of the Atlantic and Pacific Rail-

road Company to permit any other railroad which shall be

authoritzed to be built by the United States, or by the

legislature of any Territory or State in which the same

may be situated, to form running connections with it,

on fair and equitable terms.

Sec. 6. And be it further enacted, That the President

of the United States shall cause the lands to be surveyed

for forty miles in width on both sides of the entire line

of said road after the general route shall be fixed, and as

fast as may be required by the construction of said rail-

road; and the odd sections of land hereby granted shall

not be liable to sale or entry, or pre-emption, before or

after they are surveyed except by said company, as pre-

vided in this act; but the provisions of the act of Septem-

ber, eighteen hundred and forty-one, granting pre-emption

rights, and the acts amendatory thereof, and of the act

entitled “An act to secure homesteads to actual set-

tlers on the public domain,” approved May twenty,

eighteen hundred and sixty-two, shall be, and the same

are hereby, extended to all other lands on the line of said

road when surveyed, excepting those hereby granted to

said company.

Sec. 7. And be it further enacted, That the said Atlantic

and Pacific Railroad Company be, and is hereby, author-

76a

ized and empowered to enter upon, purchase, take, and

hold any lands or premises that may be necessary and

proper for the construction and working of said road, not

exceeding in width one hundred feet on each side of the

line of its railroad, unless a greater width be required for

the purpose of excavation or embankment; and also any

lands °r premises that may be necessary and proper for

turn-outs, standing places for cers, depots, station-houses,

or any other structures required in the construction and

working of said road. And the said company shall have

the right to cut and remove trees and other material that

might, by falling, encumber its road-bed, though standing

or being more than two hundred feet from the line of said

road. And in case the owner of such lands or premises

and the said company cannot agree as to the value of the

premises taken, or to be taken, for the use of said road,

the value thereof shall be determined by the appraisal of

three disinterested commissioners, who may be appointed

upon application by either party to any court of record

in any of the Territories in which the lands or premises

to be taken lie; and said commissioners, in their assess-

ment of damages, shall appraise such premises at what

would have been the value thereof if the road had not

been built. And upon return into court of such ap-

praisement, and upon the payment into the same of the

estimated value of the premises taken for the use and

benefit of the owner thereof, said premises shall be deemed

to be taken by said company, which shall th-~eby acquire

full title to the same for the purposes aforesaid. And

either party feeling aggrieved at said appraisement may,

within thirty days after the same has been returned into

court, file an appeal therefrom, and demand a jury of

twelve men to estimate the damage sustained; but such

appeal shall not interfere with the rights of said company

to enter upon the premises taken, or to do any act neces-

sary and proper in the construction of its road. And said

party appealing shall give bonds, with sufficient surety or

sureties, for the payment of any cost that may arise upon

th A Aa ne ath hit NORMED te ate SA tl LOS te Mal ll ie te

77a

euch appeal; and in case the party appealing does not

obtain a verdict more favorable, such party shall pay the

whole cost incurred by the appellee, as well as his own,

and the payment into court, for the use of the owner of

said premises taken, at a sum equal to that finally

awarded, shall be held to vest in said company the title

of said land, and the right to use and occupy the same for

the construction, maintenance, and operation of said

road. And in case any of the lands to be taken as afore-

said shall be held by an infant, femme covert, non compos,

insane person, or persons residing without the Territory

within which the lands to be taken lie, or persons sub-

jected to any legal disability, the court may appoint @

guardian, for any party under any disqualification, to ap-

pear in proper person, who shall give bonds, with sufiicient

surety or sureties, for the proper and faithful execution of

his trust, and who may represent in court the person dis-

qualified, as aforesaid, from appearing, when the same

proceedings shall be had in reference to the appraisement

of the premises to be taken for the use of said company,

and with the same effect as has been already described;

and the title of the company to the lands taken by virtue

of this act shall not be affected or impaired by reason of

any failuure by any guardian to discharge faithfully his

trust. And in case any party shall have a right or claim

to any land for a term of years, or any interest therein,

in possession, reversion, or remainder, the value of any

such estate, less than a fee simple, shall be estimated and

determined in the manner hereinbefore set forth. And in

ease it shall be necessary for the company to enter upon

any lands which are unoccupied, and of which there is

no apparent owner or claimant, it may proceed to take and

use the same for the purposes of said railroad, and may

institute proceedings, in manner described, for the pur-

pose of ascertaining the value of, and of acquiring a title

to, the same; but the judge of the court hearing said suit

shall determine the kinds of notice to be served on such

owner or owners, and he may in his discretion appoint

78a

an agent or guardian to represent such owner or owners

in case of his or their incapacity or non-appearance. But

in case no claimant shall appear within six years from the

time of the opening of said road across any land, all claims

to damages against said company shall be barred.

SEc. 8. And be it further enacted, That each and every

grant, right, and privilege herein are so made and given to

and accepted by said Atlantic and Pacific Railroad Com-

pany, upon and subject to the following conditions,

namely: That the said company shall commence the work

on said road within two years from the approval of this

act by the President, and shall complete not less than

fifty miles per year after the second year, and shall con-

struct, equip, furnish, and complete the main line of the

whole road by the fourth day of July, anno Domini eigh-

teen hundred and seventy-eight.

SEC. 9. And be it further enacted, That the United

States make the several conditional grants herein, and that

the said Atlantic and Pacific Railroad Company accept

the same, upon the further condition that if the said com-

pany make any breach of the conditions hereof, and allow

the same to continue for upwards of one year, then, in

such case, at any time hereafter, the United States may

do any and all acts and things which may be needful and

necessary to insure a speedy completion of the said road.

Sec. 10. And be it further enacted, That all people of

the United States shall have the right to subscribe to the

stock of the Atlantic and Pacific Railroad Company until

the whole capital named in this act of incorporation is

taken up by complying with the terms of subscription.

Sec. 11. And be it further enacted, That said Atlantic

and Pacific Railroad, or any part thereof, shall be a post

route and military road, subject to the use of the United

States for postal, military, naval, and all other govern-

ment service, and also subject to such regulations as Con-

gress may impose restricting the charges for such govern-

ment transportation.

79a

SEC. 12. And be it further enacted, That the accept-

ance of the terms, conditions, and impositions of this act

by the said Atlantic and Pacific Railroad Company shall

be signified in writing under the corporate seal of said

company, duly executed pursuant to the direction of its

board of directors first had and obtained, which accept-

ance shall be made within two years after the passage of

this act, and not afterwards, and shall be deposited in the

office of the Secretary of the Interior.

SEC. 13. And be it further enacted, That the directors

of said company shall make and publish an annual report

of their proceedings and expenditures, verified by the af-

fidavits of the president and at least six of the directors,

a copy of which shall be deposited in the office of said

Secretary of the Interior, and they shall, from time to

time, fix, determine, and regulate the fares, tolls, and

charges to be received and paid for transportation of per-

sons and property on said road, or any part thereof.

SEC. 14. And be it further enacted, That the directors

chosen in pursuance of the first section of this act, shall,

so soon, as may be after their election, elect from their

own number a president and vice-president; and said

board of directors shall, from time to time, and so soon

as may be after their election, choose a treasurer and

secretary, who shall hold their offices at the will and

pleasure of the board of directors. The treasurer and

secretary shall give such bonds, with such security as the

said board from time to time may require. The secretary

shall, before entering upon his duty, be sworn to the

faithful discharge thereof, and said oath shall be made

a matter of record upon the books of said corporation.

No person shall be a director of said company unless he

shall be a stockholder, and qualified to vote for directors

at the election at which he shall be chosen.

SEC. 15. And be it further enacted, That the president,

vice-president, and directors shall hold their offices for

~

80a

the period indicated in the by-laws of said company, not

exceeding three years, respectively, and until others are

chosen in their place, and qualified. In case it shall so

happen that an election of directors shall not be made on

any day appointed by the by-laws of said company, the

corporation shall not for that excuse be deemed to be dis-

solved, but such election may be holden on any day which

shall be appointed by the directors. The directors, of

whom seven, including the president, shall be a quorum

for the transaction of business, shall have full power to

make and prescribe such by-laws, rules, and regulations

as they shall deem needful and proper touching the

disposition and management of the stock, property, estate,

and effects of the company, the transfer of shares, the

duties and conduct of their officers and servants touch-

ing the election and meeting of the directors, and all

matters whatsoever which may appertain to the concerns

of said company; and the said board of directors may

have full power to fill any vacancy or vacancies that may

occur from any cause or causes from time to time in

their said board. And the said board of directors shall

have power to appoint such engineers, agents, and sub-

ordinates as may from time to time be necessary to carry

into effect the object of the company, and to do all acts

and things touching the location and construction of said

road.

Sec. 16. And be it further enacted, That it shall be

lawful for the directors of said company to require pay-

ment of the sum of ten per centum cash assessment upon

all subscriptions received of all subscribers, and the bal-

ance thereof at such times and in such proportions and

on such conditions as they shall deem to be necessary to

complete the said road and telegraph lines within the

time in this act prescribed. Sixty days’ previous notice

shall be given of the payments required, and of the time

and place of payment, by publishing a notice once a week

in one daily newspaper in each of the cities of Boston,

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8la

New York, Cincinnati, Saint Louis, Memphis, and Nash-

ville, and in case any stockholder shall neglect or refuse

to pay, in pursuance of such notice, the stock held by

such person shall be forfeited absolutely to the use of the

company, and also any payment or payments that shall

have been made on account thereof, subject to the condi-

tion that the board of directors may allow the redemption

on such terms as they may prescribe.

SEc. 17. And be it further enacted, That the said

company is authorized to accept to its own use any grant,

donation, loan, power, franchise, aid, or assistance which

may be granted to or conferred on said company by the

Congress of the United States, by the legislature of any

State, or by any corporation, person, or persons, or by

any Indian tribe or nation through whose reservation the

road herein provided for may pass; and said corporation

is authorized to hold and enjoy any such grant, donation,

loan, power, franchise, aid, or assistance, to its own use,

for the purpose aforesaid: Provided, That any such grant

or donation, power, aid, or assistance from any Indian

tribe or nation shall be subject to the approval of the

President of the United States.

SEC. 18. And be it further enacted, That the Southern

Pacific Railroad, a company incorporated under the laws

of the State of California, is hereby authorized to con-

nect with the said Atlantic and Pacific Railroad, formed

under this act, at such point, near the boundary line of

the State of California, as they shall deem most suitable

for a railroad line to San Francisco, and shall have a

uniform gauge and rate of freight or fare with said

road; and in consideration thereof, to aid in its construc-

tion, shall have similar grants of land, subject to all the

conditions and limitations herein provided, and shall be

required to construct its road on the like regulations, as

to time and manner, with the Atlantic and Pacific Rail-

road herein provided for.

SEC. 19. And be it further enacted, That unless the

said Atlantic and Pacific Railroad Company shall obtain

82a

bona fide subscriptions to the stock of said company to

the amount of one million of dollars, with ten per centum

paid, within two years after the passage of and approval

of this act, it shall be null and void.

Src. 20. And be it further enacted, That the better to

accomplish the object of this act, namely, to promote the

public interest and welfare by the construction of said

railroad and telegraph, and keeping the same in working

order, and to secure to the government at all times, but

particularly in time of war, the use and benefits of the

same for postal, military, and other purposes, Congress

may, at any time, having due regard for the rights of

said Atlantic and Pacific Railroad Company, add to,

alter, amend, or repeal this act.

Sec. 21. And be it further enacted, That whenever in

any grant of land or other subsidies, made or hereafter

to be made, to railroads or other corporations, the United

States has reserved the right, or shall reserve it, to ap-

point directors, engineers, commissioners or other agents

to examine said roads, or act in conjunction with other

officers of said company or companies, all the costs,

charges, and pay of said directors, engineers, commis-

sioners, or agents, shall be paid by the respective com-

panies. Said directors, engineers, commissioners, or

agents shall be paid for said services the sum of ten

dollars per day, for each and every day actually and

necessarily employed, and ten cents per mile for each and

every mile actually and necessarily travelled, in discharg-

ing the duties required of them, which per diem and

mileage shall be in full compensation for said services.

And in case any company shall refuse or neglect to make |

such payment, no more patents for lands or other subsi-

dies shall be issued to said company until these require-

ments are complied with.

APPROVED, July 27, 1866.

de eens asbseht v

A hon ttt.

83a

The Act of Congress of April 20, 1871, ch. 33, 17 Stat.

19, provides:

CHAP. XXXIII.—An Act to enable the Atlantic and

Pacific Railroad Company to mortgage its Road.

Be it enacted by the Senate and House of Representa-

tives of the United States of America in Congress as-

sembled, That the Atlantic and Pacific Railroad Company,

organized under act of Congress of July twenty-seven,

eighteen hundred and sixty six, is hereby authorized to

make and issue its bonds in such form and manner, for

such sums, payable at such times, and bearing such rate

of interest, and to dispose of them on such terms as its

directors may deem advisable; and to secure said bonds,

the said company may mortgage its road, equipment,

lands, franchises, privileges, and other rights and prop-

erty, subject to such terms, conditions, and limitations as

its directors may prescribe. As proof and notice of the

legal execution and effectual delivery of any mortgage

hereafter made by said company, it shall be filed and

recorded in the office of the Secretary of the Interior:

Provided, That if the company shall hereafter suffer any

breach of the conditions of the act above referred to,

under which it is organized, the rights of those claiming

under any mortgage made by the company to the lands

granted to it by said act shall extend only to so much

thereof as shall be coterminous with or appertain to that

part of said road which shall have been constructed at

the time of foreclosure of said mortgage.

APPROVED, April 20, 1871.

The Act of Congress of March 3, 1897, ch. 374, 29

Stat. 622, provides:

CHAP. 374.—An Act To define the rights of purchasers

under mortgages authorized by an Act of Congress ap-

proved April twentieth, eighteen hundred and seventy-

84a

i

one, concerning the Atlantic and Pacific Railroad Ccm-

pany.

Be it enacted by the Senate and House of Representa-

tives of the United Staies of America in Congress as-

sembled, That whenever any mortgage made by the

Atlantic and Pacific Railroad under and by virtue of Acts

of Congress is foreclosed in any court of the United

Sta’ or of any State or Territory thereof, and any sale

of u... road, equipment, lands, franchises, privileges, and

other rights and property covered by said mortgage is

made under a decree or decrees of such courts, the pur-

chaser at any such sale or sales, and their associates or

assigns, shall constitute a new company, which shall have

and shall be entitled to hold and possess the franchises

and property so sold, and to exercise the same rights,

powers, privileges, grants, and franchises, including the

franchise to be a corporation, granted by the Act of

Congress approved July twenty-seventh, eighteen hundred

and sixty-six, incorporating the Atlantic and Pacific Rail-

road Company, and by acts amendatory thereof and

supplemental thereto, which were owned and possessed

by said Atlantic and Pacific Railroad Company, or said

mortgagees at the time of such decree of foreclosure; and

the incorporation as hereby provided shall be completed

and become effective whenever the said purchasers and

their associates or assigns shall file with the Secretary of

the Interior a certificate of incorporation hereunder, duly

acknowledged, specifying the name of such new co:’pora-

tion, its president, and the names of its directors, the

amount of its proposed capital stock and bonds, together

with certified copy of the decree or decrees ratifying

such sale; but such new company shall be subject to all

the obligations and duties to the United States which

said Atlantic and Pacific Kailroad Company was subject

under its charter or Act of incorporation, and nothing

in this Act shall be held to deprive the United States of

any right or remedy they may at any time have had

85a

against said Atlantic and Pacific Railroad Company; but

nothing in this Act shall make such purchasers and their

associates or such new corporation liable for any debts

or claims or contracts of the old corporation except all

debts, demands and liabilities which were due or owing

by the old company, which were contracted, accrued, or

were incurred or are due or owing for tickets and freight

balances, or for wages, work, labor, materials, machinery,

fixtures, and supplies of every kind and character, done,

performed, or furnished in the repair, equipment, opera-

tion, or extension of said road and its branches so pur-

chased, and all liabilities incurred by said old company

in the transportation of freight and passengers thereon,

including damages for injuries to employees or other

persons, and to property, and which debts, demands and

liabilities have accrued or upon which such had been

brought ot was pending, or judgment rendered, within

twelve months prior to the appointment of a receiver or

receivers in the foreclosure proceeding or since the ap-

pointment of any such receiver, but such liabilities shall

not include any liabilities to other railroad companies

except for tickets and freight balances: Provided, The

capital stock of the corporation herein authorized shall

be divided into shares each of the par value of one

hundred dollars, and shall not exceed the amount of the

mortgage debt due and unpaid at the time of the decree

of foreclosure: Provided, That additional stock and bonds

may be issued by the corporation upon the payment into

its treasury therefor the full par value thereof in cash.

No stock shall be issued until the Secretary of the In-

terior shall approve its issue and certify that it is issued

in conformity to the provisions of this Act. The total

stock issued under the provisions of this Act shall not

exceed one hundred million dollars. But no stock shall be

issued by said corporation, until such issue shall be ap-

proved by the Secretary of the Interior as actually repre-

senting money, labor or property, estimated at its actual

cost value, at the full or par value of said issue of stock:

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Provided further, That nothing herein contained shall be

construed as making any additional grant of lands or

other franchises to such successor corporation, or as a

waiver of any rights of the United States now existing

to enforce any forefeiture of lands heretofore granted to

the said Atlantic and Pacific Railroad Company, or as in

any manner affecting the vested rights of any settler or

settlers on any of the lands heretofore granted to the

Atlantic and Pacific Railroad Company or of any pur-

chaser or purchasers of said lands from said company:

Provided further, That as a condition precedent to re-

organization the purchasers of the railroad property and

their associates shall relinquish in writing and convey to

the United States (by a proper deed or instrument to be

filed with and approved by the Secretary of the Interior

within six months after the passage of this Act and

before this Act shall take effect) all claim, right, title,

and interest to all lands granted to the Atlantic and

Pacific Railroad Company embraced within both the

granted and indemnity limits, which were adjacent to and

coterminous with the uncompleted portions of the road on

the sixth day of July, eighteen hundred and eighty-six:

And provided further, That in every case of failure of

the title to any lands conveyed or contracted to be sold

by said Atlantic and Pacific Railroad Company to any

bona fide settler and occupant in a tract of six hundred

and forty acres or less any and all rights of such pur-

chaser or his assigns, in respect of such land, or in re-

spect of the failure of such title, or in respect to the

liability of said Atlantic and Pacific Railroad Company on

any such contract, shall survive and may be enforced

against such successor company with the same force and

effect and in the same manner as against the Atlantic

and Pacific Railroad Company; and such successor com-

pany, upon making compensation for such loss of title or

failure to comply with the conditions of any such land

contract, shall be subrogated to the rights of such pur-

chaser in respect of the lands for which such compensa-

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tion shall have been made: And provided further, That

in case any uncompleted contracts for the purchase of

said land shall be pending at the time of such foreclosure

sale, such new company shall, upon payment to it of any

unpaid balance of purchase money for such land at the

time provided in such contracts for the sale thereof, con-

vey and release to the holders of such contracts al! its

title, interest, and estate in and to the land embraced in

such contracts.

Sec. 2. Where the line of such railway is now located

within the limits of any state, or where such line is now

located within a territory which may hereafter become a

state, such state or such territory, when it shall become

a state, shall be empowered to require such corporation to

become incorporated within such state or states as may be

provided by the laws thereof.

Sec. 3. That Congress shall at all times have the power

to alter, amend, or repeal this Act.

APPROVED, March 3, 1897.

“The Act of Congress of June 27, 1902, Pub. L. No.

177, 32 Stat. 405, provides:

CHAP. 1159.—An Act Authorizing the Santa Fe Pacific

Railroad Company to sell or lease its railroad property

and franchises, and for other purposes.

Be it enacted by the Senate and House of Representa-

tives of the United States of America in Congress as-

sembled, That the Santa Fe Pacific Railroad Company, a

corporation incorporated under the Act of Congress, ap-

proved March third, eighteen hundred and ninety-seven,

entitled “An Act to define the rights of purchasers under

mortgages authorized by an Act of Congress approved

April twentieth, eighteen hundred and seventy-one, con-

cerning the Atlantic and Pacific Railroad Company,” be,

and it hereby is, authorized and empowered to sell or lease

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its railroad and other property, including all rights,

powers, privileges, grants, and franchises, to the Atchi-

son, Topeka and Santa Fe Railway Company, a corpora-

tion of the State of Kansas, its successors and assigns;

but such purchaser or lessee shall take, hold, and use the

railroad and property sold or leased subject to all duties,

obligations, conditions, and restrictions relating thereto

which at the time of such sale or lease shall be binding

upon said Santa Fe Pacific Railroad Company as fully

as though such sale or lease had not been made; and

thereupon such purchaser or lessee shall have and enjoy

all rights, powers, privileges, grants, and franchises re-

lating to said railroad and property, or any part thereof,

that were conferred by Congress upon said Santa Fe

Pacific Railroad Company: Provided, however, That said

railroad shall remain as heretofore a post route and

military road, subject to the use of the United States for

postal, military, naval, and all other Government service,

and also subject to such regulations as Congress may im-

pose restricting the charges for such Government trans-

portation, and subject also to all other rights of the

United States.

SEc. 2. That from and after the passage of this Act

the said Santa Fe Pacific Railroad Company, its successors

or assigns, shall pay an annual tax at the rate of one

hundred and seventy-five dollars per mile to the Terri-

tories of New Mexico and Arizona, respectively, for each

mile of main track in said Territories, respectively, the

same to be apportioned among the counties of said Ter-

ritories in which said railroad is located according to the

mileage in each county, respectively, and said taxes shall

be in lieu of all other taxes on said property hereby

authorized to be leased or sold and the rolling stock used

thereon, but excepting the land-grant lands and the shops

as hereinafter otherwise provided, and the payment of the

said tax as to each Territory shall be made on or before

the first day of December of every year after nineteen

hundred and two, until it shall have been admitted into

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the United States of America as a State: and that upon

the admission of the said Territories of New Mexico and

Arizona, or either of them, as States, the property hereby

authorized to be transferred, situated therein, shall be sub-

ject to all the laws and regulations of either of the said

States of New Mexico or Arizona in the same maner and

to the same extent as any other railroad property situated

therein. The payment of the said one hundred and

seventy-five dollars a mile shall not extend to or apply to

any of the land-grant lands owned by the said Santa Fe

Pacific Railroad Company which are in no wise con-

nected with the right of way and station grounds of said

company, said land-grant lands to remain as now charge-

able with taxes as assessed and collected under and by vir-

tue of the laws of the said Territories of New Mexico and

Arizona, and the shops situated at Albuquerque, New

Mexico, including the machinery therein, and the lands

upon which the same are situated, shall be assessed sepa-

rately, and the taxes thereon paid annually according to

the laws of New Mexico.

Sec. 3. That the sale or lease herein authorized shall

be made on or before January first, nineteen hundred and

four: otherwise this Act shall become inoper

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