McMahon v. Christmann

• Decision Date: 29 May 1957
• Docket Number: No. A-5696,A-5696
• Citation: 303 S.W.2d 341,157 Tex. 403
• Parties: John L. McMAHON, Jr., et al., Petitioners, v. John J. CHRISTMANN et al., Respondents.
• Court: Texas Supreme Court

Page 341

303 S.W.2d 341

157 Tex. 403

John L. McMAHON, Jr., et al., Petitioners, v. John J. CHRISTMANN et al., Respondents.

No. A-5696.

Supreme Court of Texas.

May 29, 1957.

Rehearing Denied July 10, 1957.

James E. Prothro, Wichita Falls, Turpin, Kerr & Smith, Emil C. Rassman & Irby Dyer, Midland, for petitioners.

Crenshaw, Dupree & Milam, Paul New, Lubbock, for respondents.

CALVERT, Justice.

This case involves the construction of an oil, gas and mineral lease and the establishment of the rights of the parties thereunder.

The petitioners, as lessors, executed and delivered to the respondents, as lessees, an oil, gas and mineral lease on and to premises described as follows: 'All that certain tract of land situated in the County of Yoakum, State of Texas, described as follows, to-wit: The Northwest one-fourth and the West one-half of the Northeast one-fourth of Section 21, Block K, Public School Land in Yoakum County, Texas, and containing 240 acres more or less.' The lease was on a Producers 88 Speical printed form, contained a covenant of general warranty and provided in usual and customary language for reservation to the lessors of a one-eighth royalty. The lease contained as a part of its printed provisions a proportionate reduction clause in the following language:

'If said lessor owns a less interest in the above described land than the entire undivided and fee simple estate therein, then the royalties and rentals herein provided for shall be paid the lessor only in the proportion which lessor's interest bears to the whole and undivided fee.'

Attached in the body of the printed lease contract was a typewritten clause or 'rider' reading as follows:

'The lessors herein reserve unto themselves their heirs and assigns, without reduction, as an overriding royalty, a net 1/32nd of 8/8ths of all oil or gas produced and saved from the above described premises, free of cost or expense to the credit of the lessors into the storage tank or tanks or into the pipeline to which the well or wells on said land may be connected.'

At the time of the execution of the lease petitioners did not own the whole of the mineral fee estate in the 240 acres of land. They owned only an undivided 1/6th interest therein. Their undivided 1/6th interest is the arithmetical equivalent of a 16/96ths interest.

Petitioners do not question but that the proportionate reduction clause in the lease operates to reduce the normal royalty to which they are entitled from 1/8th of production to 1/6th of 1/8th, or 1/48th, of production. They contend, however, that the porportionate reduction clause has no application to the 1/32nd overriding royalty reserved by them. Respondents contend, on the other hand, that the proportionate reduction clause applies not only to the normal royalty reserved but to the reserved 1/32nd overriding royalty as well. If petitioners are correct in their construction of the lease it provides for a normal royalty of 1/48th of production and an overriding royalty of 1/32nd of production, or a total royalty of 5/96ths of production. If respondents' interpretation of the lease is correct it provides for a normal royalty of 1/48th of production and an overriding royalty of 1/6th of 1/32nd, or 1/192nd of production, a total royalty of 5/192nds. We will first address ourselves to this point of difference.

As is often true in litigation involving the interpretation and construction of written instruments both parties insist that the instrument is 'plain and unambiguous' and admits of no reasonable meaning other than that for which they contend.

Petitioners, as plaintiffs, having taken the position that the lease was plain and unambiguous, were not permitted on the trial to introduce extrinsic evidence of all of the acts and conduct of the parties leading up to the preparation and execution of the lease. They were permitted to prove that the lease was prepared by respondents, that the typewritten rider providing for the 1/32nd overriding royalty was prepared by and attached to the lease by petitioners, and that as a part of the consideration for executing the lease petitioners were paid a cash bonus of $15 per acre on an ownership of 40 acres. At the close of petitioners' evidence the trial judge instructed the jury to return a verdict for respondents, and thereafter he rendered judgment for the parties in keeping with respondents' interpretation of the lease. The Court of Civil Appeals affirmed. 285 S.W.2d 818.

In interpreting the lease it is the duty of the court to seek the intention of the parties. 31-A Tex.Jur. 179, Oil and Gas, Sec. 109. The intention of the parties, as that intention is expressed in the lease, is to be ascertained by a consideration of all of the provisions of the lease, 31-A Tex.Jur. 181, Oil and Gas, Sec. 110, and by harmonizing, if possible, those provisions which appear to be in conflict. Woods v. Sims, Tex., 273 S.W.2d 617. If after established rules of interpretation have been applied there still appears to be a conflict or an ambiguity in the provisions of the lease so that it is susceptible of two reasonable meanings, then, and only then, is the court authorized to receive extrinsic evidence to resolve the conflict or ambiguity. Universal C. I. T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154; Lewis v. East Texas Finance Co., 136 Tex. 149, 146 S.W.2d 977.

If the clause providing for the 1/32nd overriding royalty did not provide that the reserved royalty was 'without reduction' the problem of construing the lease would present no great difficulty. The overriding royalty is, withal, 'royalty', State National Bank of Corpus Christi v. Morgan, 135 Tex. 509, 143 S.W.2d 757, and Griffith v. Taylor, Tex., 291 S.W.2d 673, and in the absence of the words 'without reduction' the proportionate reduction clause would require its reduction to a 1/192nd of production. However, the parties have put the words 'without reduction' in the clause and we have no right to take them out unless the established rules of construction noted above dictate that action.

On the face of the lease the proportionate reduction clause and the overriding royalty clause present an obvious conflict. The first would require a proportionate reduction of the 1/32nd overriding royalty and the second would prohibit its reduction. One of the rules of construction for resolving conflicts requires that typewritten matter in a contract be given effect over printed matter. J. K. Hughes Oil Co. v. Mayflower Inv. Co., Tex.Civ.App., 193 S.W.2d 971, 973, writ refused; Richardson v. Richardson, Tex.Civ.App., 270 S.W.2d 307, 311, writ refused. And see Annotation, 37 A.L.R. 820, et seq. That rule is peculiarly applicable here. When it is applied the proportionate reduction clause and the overriding royalty clause are harmonized and the language of each is given meaning. The language of the proportionate reduction clause is given effect as requiring a reduction of the normal royalty reserved in the lease, but it is not given an effect which would render the words 'without reduction' in the overriding royalty clause meaningless. To refuse to so limit the effect of the proportionate reduction clause would necessarily result in a holding that the ambiguity in the lease cannot be resolved by rules of construction, a result which both parties disavow. This construction of the lease gives the petitioners a greater royalty than the usual 1/8th of the mineral fee owned by them, but parties may validly contract for a greater royalty than 1/8th of the lessor's mineral ownership. Benge v. Scharbauer, 152 Tex. 447, 259 S.W.2d 166; Gibson v. Turner, Tex., 294 S.W.2d 781; King v. First Nat. Bank of Wichita Falls, 144 Tex. 583, 192 S.W.2d 260, 163 A.L.R. 1128. We agree that in so far as the quantum of the royalty reserved in the lease is concerned the lease is unambiguous and we hold that the quantum reserved is a 5/96th interest.

The necessity for construction of the lease is not yet exhausted. The respondents insist here, as they did in their motion for an instructed verdict, that in the final analysis the question in the case is governed by the rule of estoppel laid down in Duhig v. Peavy-Moore Lbr. Co., 135 Tex. 503, 144 S.W.2d 878. In that case a grantor in a deed purported to convey fee simple title to certain land by a deed containing a covenant of general warranty. In the deed the grantor reserved and retained an undivided one-half (1/2) interest in and to all of the minerals in and under the land. One-half of the minerals in the land had theretofore been severed and on the date of the deed was outstanding in a third person. In that fact situation it was held that the covenant of warranty extended to the surface of the land and to one-half of the minerals therein, that there was an automatic breach of the warranty and that equity would estop the grantor and those claiming under him from asserting against the grantee and those claiming under it the title to the one-half of the minerals reserved and retained. The effect of the holding was to take from the grantor the one-half of the minerals retained by him, without reference to or regard for the intention of the parties, and give the same to the grantee in order to fulfill the covenant of general warranty.

We have examined the record on file in this court in the Duhig case. The rule announced was a novel one in the fact situation before the court. Its adoption was urged by the defendant in error (respondent) and by able amicus curiae. Its adoption was opposed by the plaintiff in error (petitioner) and by able amicus curiae. It is evident from the face of the court's opinion in the case (144 S.W.2d 879-880) that able judges also differed on the wisdom of the adoption of the rule. None of the parties filing briefs cited any case in which the rule had been approved or applied. In support of its adoption of the rule this court cited the following cases: Robinson v. Douthit, 64 Tex. 101...