Peveto v. Starkey
| Decision Date | 24 November 1982 |
| Docket Number | No. C-947,C-947 |
| Citation | 645 S.W.2d 770 |
| Parties | R.L. PEVETO et al., Petitioners, v. Ernest STARKEY, Jr., et al., Respondents. |
| Court | Texas Supreme Court |
Edwin P. Horner, Waco, Goodwin, Jarrel & Britain, Willis Jarrel, Tyler, Ramey, Flock, Hutchins, Jeffus, McClendon & Crawford, Mike A. Hatchell, Tyler, for petitioners.
Wilson, Miller, Spivey, Sheehy, Knowles and Hardy, James W. Knowles and Murph Wilson, Tyler, for respondents.
This is a suit for a declaratory judgment. Starkey seeks to have a term royalty interest conveyed to Peveto declared void. 1 He also seeks to have a term royalty interest in the same property conveyed to him declared valid. The trial court rendered judgment for Starkey, and the court of appeals affirmed the trial court judgment. 624 S.W.2d 310. We reverse the judgments of the courts below.
A.G. Jones and his wife conveyed an undivided three-fourths term royalty interest 2 in several tracts of land to Peveto. The primary term of the royalty deed was "for a period of fifteen years" from April 23, 1960, and "as long thereafter as oil, gas or other minerals, or either of them is produced ... in paying commercial quantities." Jones then executed an oil and gas lease to Edge and Moehlman. The lease contained a shut-in royalty clause, but the term royalty deed did not.
Thirteen years later, Peveto executed an instrument entitled "Ratification of Oil, Gas and Mineral Lease," which purported to ratify the lease executed by Jones to Edge and Moehlman. This was apparently a unilateral attempt by Peveto to acquire the benefits of the shut-in royalty clause in the Edge and Moehlman lease. Subsequently, Edge and Moehlman completed a test gas well, but due to the high sulphur content of the gas produced, the well was shut-in. Edge and Moehlman made shut-in royalty payments to Jones and Peveto for the duration of the term royalty deed.
In November of 1973, Jones conveyed to Starkey, by top deed, a three-fourths term royalty interest. This royalty deed was for a primary term of ten years and "as long thereafter as oil, gas or other minerals, or either of them, is produced ... in paying commercial quantities." The deed contained the following typed provision:
This grant shall become effective only on the expiration of the above described Royalty Deed to R.L. Peveyto [sic] dated April 23, 1960.
Four months before Peveto's deed was to expire, Jones and Peveto executed another instrument. This instrument purported to extend the primary term of Peveto's deed from fifteen years to twenty-five years.
Peveto first contends his term royalty deed was extended into its secondary term by the payment of shut-in royalties by Edge and Moehlman. We disagree. The payment of shut-in royalties does not constitute "production in paying commercial quantities." Archer County v. Webb, 161 Tex. 210, 338 S.W.2d 435 (1960). "It is now well established that the completion of a gas well capable of producing in paying quantities but shut-in due to lack of pipe line facilities or for other reasons is not considered production, or production in paying quantities, under the provisions of a term royalty deed which contains no shut-in gas well clause." Midwest Oil Corp. v. Lude, 376 S.W.2d 18, 20 (Tex.Civ.App.--Corpus Christi 1964, writ ref'd n.r.e.); See also Archer County v. Webb, 161 Tex. 210, 338 S.W.2d 435 (1960).
The shut-in clause contained in the lease did not modify the terms of the royalty deed. Because the royalty deed did not contain a shut-in royalty clause, it terminated at the expiration of the primary term. "It is the mineral deed, not the lease, which [must contain] the provision securing to the term mineral owners the benefits of the shut-in gas well provision." Archer County v. Webb, 161 Tex. 210, 338 S.W.2d 435, 437.
Peveto further contends his "ratification" of the Edge-Moehlman lease enabled him to rely on the shut-in royalty clause in that lease and extended his deed past the primary term. We do not agree. The payment of shut-in royalties to those claiming under a royalty deed which contains no shut-in payment clause will not extend the interest beyond the primary term. This is so even if the royalty owners have executed an instrument ratifying the lease on the property. Midwest Oil Corp. v. Mengers, 372 S.W.2d 247 (Tex.Civ.App.--Waco 1963, writ ref'd).
Peveto next argues the royalty deed to Starkey violates the Rule against Perpetuities. Article I, section 26 of the Texas Constitution expressly provides: "Perpetuities ... are contrary to the genius of a...
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