Knox v. Shell Western E & P, Inc., 56567

• Decision Date: 03 June 1988
• Docket Number: No. 56567,56567
• Citation: 531 So.2d 1181
• Court: Mississippi Supreme Court
• Parties: Etta Mae KNOX, et al. v. SHELL WESTERN E & P, INC., et al.

Page 1181

531 So.2d 1181

Etta Mae KNOX, et al. v. SHELL WESTERN E & P, INC., et al.

No. 56567.

Supreme Court of Mississippi.

June 3, 1988.

As Corrected on Denial of Rehearing Nov. 2, 1988.

John K. Keyes, Keyes & Rogers, Collins, Louis Alford, McComb, for appellants.

Walker L. Watters, Gerald, Brand, Watters, Cox & Hemleben, Jackson, Ernest W. Graves, Gibbes, Graves, Mullins, Bullock & Ferris, Laurel, E.O. Spencer, III, McKibben & Spencer, Jackson, for appellees.

En Banc.

HAWKINS, Presiding Justice, for the court:

Linda Faye Echols and Lewis E. Turner have appealed from a decree of the chancery court of Jefferson Davis County dismissing the complaint filed by Etta Mae Knox, deceased, and Turner against Shell Oil Company.

The issue we address on this appeal is whether the grantors in a mineral conveyance retained only a one-sixteenth non-participating royalty interest, or conveyed a one-sixteenth non-participating royalty interest. We agree with the chancellor that the interest conveyed a fifteen-sixteenths mineral interest, and reserved to the grantors only a one-sixteenth non-participating royalty interest, and affirm.

FACTS

On November 17, 1939, Thomas (Tom) Price was fee simple owner of twenty acres in Jefferson Davis County, described as the South Half of the Northwest Quarter of the Southwest Quarter (S- 1/2 NW- 1/4 SW- 1/4) of Section Three, Township Six North, Range Seventeen West (3-6N-17W). On that date he and his wife Mollie executed a form mineral deed to C.L. Wagner, conveying unto him an undivided fifteen-sixteenths ( 15/16) interest in the oil and gas minerals. The instrument is on Form 0270 Rev. 3-36; a copy is made an appendix to this opinion. Prior to the execution of this instrument, the Prices on the same date executed an oil and gas lease to the same property to Charles W. Kelley. Kelley assigned the oil and as lease to Wagner on November 20, and all three instruments were filed for public record in the chancery clerk's office on December 14.

Tom died intestate in 1941, leaving as his sole heir-at-law his widow Mollie Terrell Price. On January 27, 1971, Mollie executed a general warranty deed to the twenty acres to Etta Mae Knox, which was filed for public record the same day.

There was no development under the 1939 oil and gas lease, and it expired.

On August 7, 1940, Wagner executed a mineral deed to Kelley conveying an undivided one-third interest in the oil and gas minerals on 390 acres of realty in Jefferson Davis County, which included the twenty-acre tract. This conveyance provided that the grantee would have and enjoy all bonuses, rents and royalties and other benefits in proportion to his interest. There were various conveyances of the Kelley interest unnecessary to recite. Their interest will be referred to as the Wagner interest.

In September, 1972, the Shell Oil Company acquired an oil and gas lease from the Wagner interest parties, having as their source of title the November 17, 1939, deed from the Prices to Wagner. Shell in turn assigned the lease to the Florida Gas Exploration Company (Florida).

In October, 1973, Florida obtained a drilling permit for a block of acres, which included the twenty-acre tract, and drilled a well approximately one-half mile from this tract. This well began commercial production in March, 1974.

The Florida interest was also assigned to numerous parties unnecessary to recite.

On August 3, 1982, Knox executed an oil and gas lease of the tract to Lewis E. Turner, which was filed for public record on January 18, 1983. On March 23, 1983, she assigned an overriding royalty equal to one-sixteenth of eight-eights ( 1/16 of 8/8) part of the oil produced under the lease.

On March 28, 1983, Knox and Turner filed a complaint in the chancery court of Jefferson Davis County seeking inter alia to have the court construe the Price deed to Wagner as a conveyance of a one-sixteenth royalty only, and cancel as clouds on their title all oil and gas leases and assignments thereof from the Wagner owners, and all subsequent minerals conveyances of the Wagner interest, insofar as they purported to convey anything more than a one-sixteenth non-participating royalty interest. The complaint also asked for an accounting. The complaint did not charge fraud, and did not ask to reform the conveyance because of mistake.

The basic question before the chancellor was whether the Price deed was a mineral deed of an undivided fifteen-sixteenths interest, or simply a one-sixteenth royalty conveyance, with no right in the grantee to execute oil and gas leases.

The record supports the chancellor's finding that the Prices were illiterate, and that Kelley, when he acquired the oil and gas leases, was acting as agent for Wagner. He found no element of either estoppel or laches. As above noted, there was no charge of fraud on the part of Wagner, and no claim was made that the instrument should be reformed because of mistake.

The chancellor found the instrument to be a mineral deed conveying an undivided fifteen-sixteenths interest in the minerals, less an undivided one-sixteenth royalty interest reserved in the grantors.

The complaint was dismissed; Knox and Wilson have appealed. ¹

LAW

The pertinent portions of the Wagner conveyance are as follows:

MINERAL DEED

The State of Mississippi, County of Jefferson Davis.

KNOW ALL MEN BY THESE PRESENTS:

That Tom Price and Millie Price, husband and wife ... for and in consideration of the sum of Five and 00/100 Dollars, and other good and valuable considerations, cash in hand paid by C.L. Wagner ... the receipt of which is hereby acknowledged, have granted, bargained, sold, conveyed, transferred, set over and delivered and by these presents do grant, bargain, sell, convey, transfer, set over and deliver unto said Grantee, forever, an undivided fifteen-sixteenths ( 15/16th) interest [emphasis added] in, to and of all oil, gas and other minerals, whether similar or dissimilar, on, in, under and that may be produced from the following described land situated in the Court of Jefferson Davis, State of Mississippi, more particularly described as follows, to-wit:

The South half of the Northwest Quarter of the Southwest Quarter (S- 1/2 of NW of SW- 1/4) Section Three, Township Six North, Range Seventeen West. Section 3 Township 6N Range 17 W Containing 20 acres, more or less, ... It is the intent of this instrument to convey Ten (10) Royalty acres. Together with the right of ingress and egress in, upon and over said land at all times for the purpose of mining, drilling and exploring said land for oil, gas and other minerals and removing the same therefrom; together with the use of such amount of the surface of said land as is necessary or useful to produce, save, store, refine, treat, transport and remove such oil, gas and other minerals, including water, and to conduct all operations and erect and use thereon all buildings, derricks, tanks, structures, machinery and equipment as may be necessary or proper for such purpose, together with the right to lay and operate thereon pipe lines, telephone and telegraph lines, and to repair and remove from said land any of Grantee's property thereon at any time, including the right to pull and remove casing.

In respect to the undivided one-sixteenth ( 1/16th) part of and interest in the oil, gas and other minerals retained and reserved by the Grantor in said land, it is understood and agreed that said one-sixteenth ( 1/16th) interest is and shall always be a royalty [emphasis added] interest, and shall not be charged with any of the costs which the Grantee may incur in exploring, drilling, mining, developing and operating wells or mines for the production of oil, gas and other minerals; and, if the grantee or his heirs, executors, assigns or any person or concern to whom the Grantee shall give an oil and gas mining lease thereon, shall, by his or their explorations and operations, discover and produce oil, gas and other minerals the Grantor's one-sixteenth ( 1/16th) royalty interest above referred to shall be delivered free of cost to the Grantor at the wells or mines or to the credit of Grantor in pipe lines or storage provided by the Grantor. It is expressly understood that the Grantee shall never be required or under any covenant or obligation, either express or implied, to drill or operate on said lands or any part thereof for the discovery of or production of oil, gas and other minerals, and that all drilling operations and development for oil, gas and other minerals, before and after discovery, shall be solely at the Grantee's option and election, and that any wells or mines discovered or drilled by the Grantee may be abandoned or operated by him at any time at his election or discretion; provided that, before Grantor's royalty shall be calculated and determined, all oil, gas and other minerals used for light, heat and operations by the Grantee and any taxes against the production shall be first deducted.

Grantor further agrees that the Grantee shall have the right at any time to redeem for the Grantor or his heirs, executors and assigns, by payment, any note, deed of trust, taxes, judgments or other liens on the above described land in the event of default of payment by Grantor and be subrogated to the rights of the holder or holders thereof.

The rights and interest herein granted, created and reserved shall extend to the respective heirs, executors, administrators successors and assigns of the parties hereto, it being agreed that the Grantor shall not be required to join in or ratify any oil or gas mining lease which the grantee may grant by virtue of his ownership hereunder and that Grantor shall be entitled to none of the bonus money therefor and to no part [emphasis added] of the delay rentals paid thereunder; it being further understood that any change of ownership of the one-sixteenth ( 1/16th) royalty belonging to the Grantor, whether effected by conveyance, will, partition...