Concord Oil Co. v. Pennzoil Exploration and Production Co.
| Decision Date | 30 March 1994 |
| Docket Number | No. 04-93-00374-CV,04-93-00374-CV |
| Citation | 878 S.W.2d 191 |
| Parties | CONCORD OIL COMPANY and Crenshaw Royalty Corporation, Appellants, v. PENNZOIL EXPLORATION AND PRODUCTION COMPANY, Pennzoil Producing Company, Sanchez-O'Brien Oil & Gas Corporation, and John M. Robinson, Appellees. |
| Court | Texas Court of Appeals |
Andy Carson, Matthews & Branscomb, P.C., Corpus Christi, Ernest E. Smith, Austin, Judith R. Blakeway, Matthews & Branscomb, San Antonio, Bruce M. Kramer, Lubbock, Luther H. Soules, III, Soules & Wallace, San Antonio, for appellants.
John M. Robinson, Houston, John G. Soule, Jaime L. Capelo, Jr., Scott, Douglas & Luton, L.L.P., Austin, Tevis Herd, Cotton, Bledsoe, Tighe & Dawson, Midland, Frank Douglas, Scott, Douglass & Luton, L.L.P., Dallas, Kenneth E. Broughton, Jeff Nobles, Alene Levy, John Gaston, Maria Teresa Arguindegui Before CHAPA, C.J., and PEEPLES and LOPEZ, JJ.
Haynes and Boone, L.L.P., Houston, for appellees.
At issue in this oil and gas case is the size of a mineral interest conveyed by a 1937 deed executed while the grantor's interest was subject to a producing lease. The deed in question contains two different fractions: the granting clause conveys a 1/96 interest in the minerals, while the subject-to clause says the deed covers and includes 1/12 of rentals and royalty. The deed does not contain a future-lease clause. The case was tried to the court on stipulated facts. The trial court held that the deed conveyed two estates of different sizes and durations: a 1/96 perpetual interest in the minerals, and a 1/12 interest in rentals and royalties which ended when the existing lease expired. Appellants contend that when all parts of the deed are harmonized and interpreted in the context of oil and gas law of the 1930's, one estate of 1/12 of the minerals was conveyed. We affirm the judgment.
All parties trace their title to A.B. Crosby, who received a 1/12 mineral interest from Emilia T. de la Garza on August 4, 1937. The following day, August 5, Crosby executed a deed to Southland Lease and Royalty Corporation which contained the following pertinent provisions:
[The granting clause:]
That I, A.B. Crosby ... do Grant, Sell and Convey unto Southland Lease & Royalty Corporation ... an undivided one-ninety sixth ( 1/96) interest in and to all of the oil, gas and other minerals in and under, and that may be produced from [legal description of leasehold] together with the right to prospect for and exploit the same ... with the right of ingress and egress at all times ... together with all rights of every kind and character necessary and convenient to the full use and enjoyment of such estate herein conveyed....
[The subject-to clause:]
While the estate hereby conveyed does not depend upon the validity thereof, neither shall it be affected by the termination thereof, this conveyance is made subject to the terms of any valid subsisting oil, gas and/or mineral lease or mineral lease or leases on above described land or any part thereof, but covers and includes one-twelfth ( 1/12) of all rentals and royalty of every kind and character that may be payable by the terms of such lease or leases insofar as the same pertain to the above described land, or any part thereof.
The deed does not contain a clause expressly dealing with future leases.
Plaintiff-Appellants Concord Oil Company and Crenshaw Royalty Corporation ("Concord") are the successors in title to Southland. Defendant-Appellees Pennzoil Exploration and Production Company, Pennzoil Producing Company, Sanchez-O'Brien Oil & Gas Corporation, and John M. Robinson ("Pennzoil") also hold title from Crosby pursuant to a 1961 warranty deed conveying a 7/96 mineral interest to Robinson.
Three distinct issues are presented. The first and central issue is whether the 1937 Crosby-Southland deed conveyed all of Crosby's 1/12 interest, or only 1/96; if it conveyed Crosby's entire 1/12 to Southland, the Concord parties succeeded to all of his 1/12 and he did not own 7/96 to convey to the Pennzoil parties in 1961. Second, if the deed conveyed a 1/96 interest in the minerals, an additional issue is whether the subject-to clause nevertheless grants a 1/12 interest in future leases. The third and final issue is whether the court erred in ruling the deed unambiguous and excluding extrinsic evidence.
The trial court accepted Pennzoil's argument that the deed made two separate grants: (1) the granting clause conveyed a perpetual 1/96 fee in the mineral estate, and (2) the subject-to clause conveyed a limited-duration 1/12 interest in the existing 1/8 royalty, which terminated when the 1937 lease terminated and which did not extend to any future leases. Under this reading, the deed conveyed 1/96 of the minerals in perpetuity; Crosby still owned the other 7/96 and ultimately it passed to the Pennzoil parties beginning with the 1961 conveyance to Robinson.
Concord contends that the parties were acting under the oil and gas notions that prevailed during the 1920's and 1930's, and the deed conveyed only one interest, a single estate consisting of 1/12 of the minerals. This 1/12 interest was subject to a producing lease which entitled the owner to a 1/8 royalty on the 1/12 mineral interest equal to 1/96 of production. According to Concord this explains why the parties used the fraction 1/96 in the granting clause.
Form deeds from the 1920's and 1930's often contain different fractions in different blanks. Scholars and practitioners agree that the three-grant deed 1 from this era was not meant to convey separate estates but was developed in response to the holding in Caruthers v. Leonard, 254 S.W. 779 (Tex.Comm'n App.1923, judgm't adopted). The Caruthers court held that a mineral deed did not convey an interest in delay rentals (or, presumably, the royalties) under an existing lease unless there was express language of assignment. "Thus, the three-grant deed came into vogue, not to provide parties with a mode for making separate conveyances in one deed, but to insure that a single grant of a fractional mineral interest included a proportionate interest in benefits under existing and future leases." Laura H. Burney, The Regrettable Rebirth of the Two-Grant Doctrine in Texas Deed Construction, 34 S. TEX. L.REV. 73, 86 (1993) [hereafter cited as "Burney"].
The supreme court overruled Caruthers in Harris v. Currie, 142 Tex. 93, 176 S.W.2d 302 (1943), and under present law a conveyance of a mineral interest also conveys the corresponding rights to receive royalties under existing and future leases. No separate assignment is necessary. The subject-to clause serves to protect the grantor from a breach-of-warranty suit when the leasehold is subject to an existing lease. See RICHARD W. HEMINGWAY, THE LAW OF OIL AND GAS § 9.1, at 497 (3d ed. 1991). But multi-clause deed forms were widely used for several years and are commonly present in the chain of title. 2 Tevis Herd, Conveyancing--The Implications of Alford v. Krum on the Two-Grant Theory and a Review of the Duhig Rule, STATE BAR OF TEXAS, ADVANCED OIL, GAS AND MINERAL LAW COURSE, at F-3 (September 1989).
Parties may of course convey different fractional interests in one instrument. Luckel v. White, 819 S.W.2d 459, 463-64 (Tex.1991); Woods v. Sims, 154 Tex. 59, 273 S.W.2d 617, 621 (1954); Richardson v. Hart, 143 Tex. 392, 185 S.W.2d 563, 564-65 (1945). But it is highly unlikely that many parties really mean to do so; on the contrary, most parties mean for the deed to convey a single fractional interest in the minerals, the existing lease, and future leases. 3 Ernest E. Smith, The "Subject To" Clause, 30 ROCKY MTN. MINERAL LAW INSTITUTE § 15.02 1985); Burney, supra, at 91; Cross, supra, at F-1. As Professors Williams and Meyers have written, "The oft-repeated expression that a grantor has the power to convey by one instrument different interests in the possibility of reverter and under the subsisting lease should not obscure the fact that very few grantors really intend to convey interests of different magnitude." See 2 HOWARD R. WILLIAMS & CHARLES J. MEYERS, OIL AND GAS LAW § 340.2, at 242-43 (1991).
When interpreting deeds courts avoid using mechanical, arbitrary rules of construction and instead determine the intent of the parties from the language found within the instrument's four corners. Luckel v. White, 819 S.W.2d at 461-63; Garrett v. Dils Co., 157 Tex. 92, 299 S.W.2d 904, 906 (1957); Harris v. Windsor, 156 Tex. 324, 294 S.W.2d 798, 800 (1956); Sun Oil Co. v. Burns, 125 Tex. 549, 84 S.W.2d 442, 443-44 (1935). In Luckel and Garrett the supreme court used the four-corners approach to deed construction and held that multi-clause deeds with different fractions granted a single interest. We are urged to use certain canons of construction; for example, it is often said that deeds are construed against the grantor to convey the greatest estate possible. We are not convinced that the greatest-estate canon is appropriate in this multiple-grant case. See Bruce M. Kramer, The Sisyphean Task of Interpreting Mineral Deeds and Leases: An Encyclopedia of Canons of Construction, 24 TEX.TECH.L.REV. 1, 121 (1993). In any event, we decline to rely on such canons because the deed before us can be harmonized, and its meaning determined, without them. See Texas Pac. Coal & Oil Co. v. Masterson, 160 Tex. 548, 334 S.W.2d 436, 438-39 (1960); Kramer, 24 TEX.TECH.L.REV. at 118-19.
Having studied the deed before us and sought the intent of the parties as expressed within the four corners of the instrument, we conclude that the deed conveys 1/96 of the minerals. We recognize that this may not have been the...
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Garza v. Prolithic Energy Co., L.P.
... ... entitled to one-half and 15/32nds of the proceeds from their production, respectively. 2 If they chose not to produce the minerals, their right ... Page 142 ... See Concord Oil Co. v. Pennzoil Exploration & Production Co., 966 S.W.2d 451 ... ...