Extraction Resources, Inc. v. Freeman

• Decision Date: 27 July 1977
• Docket Number: No. 6583,6583
• Citation: 555 S.W.2d 156
• Parties: EXTRACTION RESOURCES, INC. and Title Service Company, et al., Appellants, v. Clifford Jefferson FREEMAN et al., Appellees.
• Court: Texas Court of Appeals

Page 156

555 S.W.2d 156

EXTRACTION RESOURCES, INC. and Title Service Company, et al., Appellants, v. Clifford Jefferson FREEMAN et al., Appellees.

No. 6583.

Court of Civil Appeals of Texas, El Paso.

July 27, 1977 Appellants' Motions for Rehearing Denied Aug. 24, 1977.

M. McDonnold, Jr., Jack L. Hart, Midland, Shafer, Gilliland, Davis, Bunton & McCollum, Inc., Odessa, Bullock, Scott & Neisig, Midland, for appellants.

Hultgren, Jewell & Kolb, Edward J. Kolb, William G. Love, Dallas, Garland Casebier, Stubbeman, McRae, Sealy, Laughlin & Browder, W. B. Browder, Jr., David K. Brooks, Midland, Kenneth P. Fountain, Houston, for appellees.

OPINION

PRESLAR, Chief Justice.

This oil and gas case presents two questions. First, the nature of the estate conveyed, whether royalty or an interest in the minerals in place, and second, whether the owners of the royalty interest have a right to receive payment in kind as distinguished from cash.

This case was brought by the Appellees, who were grantees under some of 366 deeds executed by one Burl Stiff, asking for a construction of the deeds and, secondly, to cause Exxon Corporation, the operator of leases on the lands involved, to pay royalties which they were holding in suspense pending a determination of whether they were to be paid in money or in kind. The trial Court construed the deeds in question to convey a perpetual non-participating royalty and it ruled that Exxon should pay the royalties in money. We affirm the judgment of the trial Court.

As indicated, certain of the Appellees were Plaintiffs and grantees under the deeds from Burl Stiff and they originally brought this as a class action, but since that was disallowed by the trial Court, the remaining grantees of the 366 deeds of Burl Stiff were then cited as Defendants and will hereafter be referred to as Defendants-cited-by-publication. Their interest in the litigation is the same as that of the Plaintiffs. In fact, through their attorney ad litem they cross-acted seeking relief as Plaintiffs. The Appellants, who are involved in the first question to be discussed, are Defendants who claim through the heirs of Burl Stiff, and in discussing the first question we will refer to them as Appellants.

The 366 deeds in question were given by Burl Stiff during the period of time from 1926 to 1928. Prior to that, he had acquired a 1/16th non-participating royalty interest in five sections of land in Winkler County, and the trial Court found that the 366 deeds were "for the purpose of dividing and selling the perpetual nonparticipating royalty interest he had acquired." The common source of title for all concerned is that of John A. Haley and wife, Julia, who by two royalty deeds conveyed the 1/16th royalty to one C. F. Lehman, who in turn conveyed it to Burl Stiff. Burl Stiff thereafter gave the 366 deeds, and each of these deeds was identical in form and purported to convey to the grantee therein 1/64th of the oil, gas, and other minerals in a certain number of undivided acres out of each of one or more of the sections involved. Each of the deeds was on a printed form entitled in conspicuous letters "Royalty Deed," but the conveying part of the deed was as follows:

"One sixty-fourth interest in and to all of the oil, gas and other minerals in and under and that may be produced from the following described lands, situated in Winkler County, Texas, to-wit: * * * (description follows), together with the right of ingress and egress at all times for the purpose of mining, drilling and exploring said lands for oil, gas and other minerals, and removing the same therefrom."

Thus, Burl Stiff used a royalty form deed and filled in the blanks accordingly, but he failed to add that it was a royalty interest and left the deed in fact in the form of a conveyance of the minerals in place.

Appellants contend that under the rules of construction of an unambiguous instrument, the interest conveyed by each of these deeds is a mineral interest. This would be a 1/64th of the mineral estate which would include a corresponding 1/64th of the royalty. Pan American Petroleum Corporation v. Texas Pacific Coal and Oil Company, 340 S.W.2d 548 (Tex.Civ.App. El Paso 1960, writ ref'd n. r. e.). The present lease on the premises provides a 3/16ths royalty, and Appellants say that the grantees of Burl Stiff, Appellees, therefore own a 1/64th of that 3/16ths royalty, and this results in a residue of 13/16ths in the grantor Burl Stiff which they now own by reason of having purchased same from his heirs. The Appellees, as grantees from Burl Stiff, contend that since Burl Stiff did not own minerals but owned only royalty, the maximum interest he could have conveyed, and thus did convey, to them was a perpetual free royalty out of total production. With that we agree for two reasons: first, because of the nature of the estate owned by Burl Stiff and, second, because the intention of the parties was to convey a 1/64 royalty interest.

As background, we look briefly to the incidents of ownership of a mineral interest. Under Texas law, the owner of a mineral estate possesses a bundle of interests which can be separately conveyed or reserved; these include the rights to execute oil, gas and mineral leases, and the right to receive bonuses, rentals and royalties. As indicated, each can be severed into a separate interest, and each is a property right and has been so regarded by Texas Courts. Brown v. Humble Oil & Refining Co., 126 Tex. 296, 83 S.W.2d 935 (1935); Sheffield v. Hogg, 124 Tex. 290, 77 S.W.2d 1021 (1934) reh. den. 124 Tex. 290, 80 S.W.2d 741 (1935); Stephens County v. Mid-Kansas Oil & Gas Co., 113 Tex. 160, 254 S.W. 290 (1923). And, as Texas Courts have often said, "The words 'Royalty,' 'Bonus,' and 'Rentals,' each and all have a separate, distinct and well established meaning in the oil and gas business. See Schlittler v. Smith, 128 Tex. 628, 101 S.W.2d 543 * * * ." Masterson v. Gulf Oil Corporation, 301 S.W.2d 486 (Tex.Civ.App. Galveston 1957, writ ref'd n. r. e.). There are...