Southland Royalty Co. v. Pan American Petro. Corp.

• Decision Date: 29 January 1964
• Docket Number: No. A-8940,A-8940
• Citation: 378 S.W.2d 50
• Parties: SOUTHLAND ROYALTY COMPANY et al., Petitioners. v. PAN AMERICAN PETROLEUM CORPORATION et al., Respondents.
• Court: Texas Supreme Court

Page 50

378 S.W.2d 50

SOUTHLAND ROYALTY COMPANY et al., Petitioners. v. PAN AMERICAN PETROLEUM CORPORATION et al., Respondents.

No. A-8940.

Supreme Court of Texas.

Jan. 29, 1964.

Rehearing Denied April 29, 1964.

R. M. Coleman, Fort Worth, Jackson, Walker, Winstead, Cantwell & Miller, Kilgore & Kilgore, Dallas, Stubbeman, McRae, Sealy & Laughlin, Midland, Charles B. Wallace, Dallas, Jack Vickrey, Midland, for petitioners.

Turner, Rodgers, Winn, Scurlock & Terry, Dallas, J. K. Smith, Fort Worth, Richard C. Milstead, Kermit, L. A. Thompson, Tulsa, Okl., for respondents.

HAMILTON, Justice.

On motion for rehearing the majority opinion is withdrawn and this opinion is substituted therefor. Also the dissenting opinion filed heretofore is withdrawn.

This case involves the construction of a mineral lease. The petitioners, Southland Royalty Company, Avoca Corporation and Socony Mobil Oil Company, Inc., each filed suit in the district court of Winkler County against respondents, Pan American Petroleum Corporation and Westbrook-Thompson Holding Corporation, alleging they were owners of certain royalty interests in lands covered by a mineral lease and seeking to recover of the respondents, owners of the mineral lease, their pro rata part of one-eighth of the proceeds of the minerals produced from the land under which they held their royalty interests. Both petitioners and respondent filed motions for summary judgment. The trial court denied the motion of petitioners and granted that of the respondents. The Court of Civil Appeals has affirmed the trial court judgment. 354 S.W.2d 184. On appeal to this court the judgments of the Court of Civil Appeals and trial court are reversed.

In 1925 H. G. Hendrick and wife Ida Hendrick leased to J. W. Grant 10,240 acres of land in Winkler County for the purpose of mining and operating for oil, gas, potash and other minerals, subject to certain covenants. We will quote the pertinent parts of said lease:

'* * * do grant, lease and let unto the said lessee for the sole and only purpose of mining and operating for oil and gas potash or other minerals * * *.

'It is agreed that this lease shall remain in force for a term of 20 years from this date, and as long thereafter as oil or gas, potash or other minerals or either of them is produced from said land by the lessee.

'In consideration of the premises the said lessee covenants and agrees:

'1st. To deliver to the credit of lessor, free of cost, in the pipe line to which they may connect their wells, the equal one-eighth part of all oil produced and saved from the leased premises and 1/8 of the net proceeds of potash and other minerals at the mine.

'2d. To pay the lessor One Hundred Dollars, each year in advance for the gas from each well where gas only is found, while the same is being used off the premises, and lessor to have gas free of cost from any such well for all stoves and all inside lights in the principal dwelling house on said land during the time by making their own connections with the well at their own risk and expense.

'3rd. To pay lessor for gas produced from any oil well and used off the premises at the rate of Fifty and No/100 Dollars per year for the time during which such gas shall be used, said payments to be made each three months in advance.

'Lessee shall have the right to use, free of cost, gas, oil and water produced on said land for all operations thereon, except water wells of lessor.'

This lease is on a printed form in which the blanks have been filled in with a typewriter and certain interlineations made in longhand on the printed portions thereof. The interlineations in the quoted part above are italicized. The respondents are the present owners of the lease in so far as it covers three-fourths of a section of land (480 acres) of the 10,240 acres included therein, and petitioners are the owners of varying mineral interests in the lands covered by the lease, including the 480 acres of land which is involved in this lawsuit.

Following the execution of the lease in 1925 oil was discovered in the area in 1926. In 1927 production of oil was obtained from the respondents' portion of the leased premises. Thereafter a number of oil wells were completed on respondents' portion of the lease at depths ranging from 2800 to 3800 feet. From these oil wells some gas was produced. Later on some of the wells quit producing oil and produced only gas. Respondents and their predecessors in title were the owners of substantial portions of another lease identified in the record as the Ida Hendrick lease, which covered some 21,000 acres of land, and on which respondents had many producing wells. Gas was taken from the wells on petitioners' land by means of pipe lines to the other leases of respondents furnishing gas as fuel for boilers, machine shops, garages and the operation of camps. The record reflects that the gas taken from wells producing oil was paid for by respondents on the basis of $50.00 per well per year when used off the premises, and the gas from wells producing gas only was paid for by respondents on the basis of $100 per well per year when used off the premises, and that such payments had been accepted by petitioners and their predecessors in title for practically 32 consecutive years before the filing of this suit in 1959. From time to time it was shown that respondents sold gas to other operators in the field for use in developing their premises. In 1949 respondents made a contract with C. V. Lyman to sell gas produced from shallow wells to be used in his gasoline plant, located off the Hendrick lease. Lyman obtained the gas by connecting on to some of the same wells of respondents from which they were using gas to develop others of their leases. Petitioners were not notified of such sales, nor did the respondents pay petitioners 1/8 of the proceeds of such sales. It is undisputed that the petitioners had no knowledge of any such sales.

Respondents drilled a deep gas well on petitioners' portion of the T. J. Hendrick lease in 1956 which produced gas only. They began selling the gas from this well in 1958. Two other deep gas wells were completed, one in 1958 and one in early 1959, from which respondents began selling gas. Petitioners learned of such sales shortly before filing this suit in 1959, at which time respondents were selling gas from these three wells at the rate of more than a million dollars' worth per year.

Petitioners contend that respondents are obligated to them for the payment of 1/8 of the proceeds of the sale of gas from their portion of the premises covered by the lease as provided in the first royalty clause therein. Respondents contend that they are only obligated to pay for gas used or sold under the provisions of paragraphs 2 and 3, contending that the first royalty provision does not provide for royalty on gas. The Court of Civil Appeals has held that the first royalty provision does not provide for the payment of royalty on gas, and that respondents are liable only under 2 and 3.

We agree with the Court of Civil Appeals that in construing a contract all the provisions thereof must be construed together in order to arrive at the true intent of the parties. We think the orderly manner of proceeding, though, is to start at the beginning of the contract and take up the pertinent provisions as they come, and when we analyze each one of them then look at the matter as a whole and try to arrive at the proper construction to be placed on the whole contract.

There is no controversy over the granting clause. It was a lease or a conveyance of oil, gas, potash and other minerals for the sole and only purpose of mining and operating for those minerals. Neither is there any dispute over the term provision. The right to produce, use and sell said minerals, however, is subject ot certain covenants. The lease provides 'In consideration of the premises the said lessee covenants and agrees:' Then follows three paragraphs numbered 1st, 2nd and 3rd. The first paragraph provides for a 1/8 royalty on the oil and 1/8 of the net proceeds of potash and other minerals at the mine. The second and third paragraphs provide for a flat-rate royalty to be paid on gas used off the premises. The parties disagree on the construction to be given these three royalty provisions.

The principal questions before us are, first, whether or not the term 'other minerals' in the context in which it is used in the first royalty paragraph includes gas. Second, if it does include gas, is this royalty provision repugnant to the second and third royalty provisions which provide for a flat-rate royalty for gas used off the premises? In answering the second question we must determine if the term 'gas used off the premises' means gas sold for use off the premises.

In construing the first royalty provision we note that it provides for 1/8 of the net proceeds of potash and other minerals at the mine. We think there is no question raised but that the 'proceeds of potash and other minerals' means net proceeds from the sale of potash and other minerals. We also think there is no serious question raised but that the words 'mineral' or 'minerals' include gas. This is well settled in our law, as is shown by the following cases:

Luse v. Boatman, 217 S.W. 1096 (Tex.Civ.App.), error refused, where the deed reserved 'all the coal and mineral on and in the above-described land'. Luse v. Parmer, 221 S.W. 1031 (Tex.Civ.App.), error refused, which involved the identical deed.

Donnell v. Otts, 230 S.W. 864 (Tex.Civ.App.), no writ history, which involved a reservation of 'all minerals of all and any kind (except stone coal).'

Elliott v. Nelson, 113 Tex. 62, 251 S.W. 501, in which the reservation was of 'all minerals in, upon and under the said land'.

Warner v. Patton, 19 S.W.2d 1111 (Tex.Civ.App.), error refused, which was a reservation of 'all the mines, minerals, and mineral rights whatsoever that may be with, upon, or under said...