Wynn v. Sklar & Phillips Oil Co.

• Decision Date: 30 April 1973
• Docket Number: No. 5--6059,5--6059
• Court: Arkansas Supreme Court
• Parties: H. S. WYNN et al., Appellants, v. SKLAR & PHILLIPS OIL COMPANY et al., Appellees.

Page 439

493 S.W.2d 439

254 Ark. 332

H. S. WYNN et al., Appellants, v. SKLAR & PHILLIPS OIL COMPANY et al., Appellees.

No. 5--6059.

Supreme Court of Arkansas.

April 30, 1973.

Chambers & Chambers, Magnolia, for appellants.

McKay, Chandler & Choate, Magnolia, for appellees.

FOGLEMAN, Justice.

This appeal was submitted upon a stipulated record. The case involves the question of proper distribution of royalties under a tract of land. The parties agree that the matter turns entirely upon the interpretation of an instrument entitled 'Royalty Deed' executed on April 4, 1921, by T. M. Talley and his wife to J. M. Talley. The questions involved will be better understood by a description of the various instruments relied upon by the parties. In chronological order, they are:

1. Warranty deed dated November 4, 1919, executed by T. M. Talley, Jr., and wife conveying the 87 1/2-acre tract which is the subject of this litigation to J. H. Merrett, which contains the following clause:

The said Grantors of this Deed of Conveyance T. M. Talley, Jr. and M. S. Talley his wife, do hereby Reserve all the oil and minerals rights on the above described Lands, and hold the right to operate on the said land for same.

2. Lease dated November 22, 1919, by which T. M. Talley and wife leased the lands to J. M. Talley for the sole purpose of mining and operating for oil and gas, for a term of five years and as long thereafter as oil or gas or either of them is produced by the lessee, his successors or assigns. This lease required delivery to the lessors of 1/8 of all oil produced from the leased premises; payment of $200 per year for gas from each well where gas only was found, while gas was used off the premises, and the furnishing of gas to the lessees free of cost for all stoves and lights in dwelling houses on the premises during the same period; and the payment of $25 per year for gas produced from any oil well and used off the premises. The following are the provisions other than that set out above pertaining to the life of the lease:

The parties of the second part further agree that in case operations for either the drilling of a well for oil or gas is not commenced and prosecuted with due diligence within one year from this date then this grant shall immediately become null and void as to both parties; provided, that second parties may prevent such forfeiture from quarter to quarter for three years by paying to the first party the sum of 25 cents per acre per year until such well is commenced. And it is agreed that the completion of such well shall be and operate as a full liquidation of all rent under this provision during the remainder of the term of this lease. * * *

All money that may become due under this grant payable Farmers Bank & Trust Co. or payable direct to T. M. Talley. It is further agreed that upon failure of second parties, their heirs or assigns, to pay said sum of 50 cents per acre within thirty days after the expiration of any rental date, this lease shall be and become null and void.

(It was stipulated that no production was ever had under this lease. The record is silent as to the drilling of wells or payment of delay rentals.)

3. The deed entitled 'Royalty Deed' dated April 4, 1921, by T. M. Talley and wife conveying unto J. M. Talley and unto his heirs and assigns forever 'a one eight (being all the Royalty retained by us) undivided interest of, in and to all the oil, gas and minerals on, in and under the * * * lands * * * granting to the said J. M. Talley, his heirs and assigns, the right of ingress to and upon said lands for the purposes of securing, storing and removing oil and gas, and the right of occupancy of said lands for and only for the purposes of storing, securing and removing oil and gas.' The warranty clause read:

And we hereby covenant with said J. M. Talley that we will forever warrant and defend the title to the said interest in the oil, gas and mineral on, in and under said lands against all lawful claims whatever.

4. A deed from J. M. Talley entitled 'Royalty Deed' dated April 5, 1921, conveying to J. H. Merritt 'a one-sixteenth (being one-half of all the royalty retained in said land by T. M. Talley and sold to J. M. Talley by the said T. M. Talley, 4--4--1921) undivided interest of, in, and to all the oil, gas and minerals on, and under the * * * lands * * *.'

5. An oil and gas lease dated January 28, 1927, by which T. M. Talley, Jr., leased the lands to J. M. Talley for the sole purpose of mining and operating for oil and gas for a term of five years or as long thereafter as oil or gas is produced from the land. The lessee agreed to deliver to the credit of the lessor, free of cost, 1/8 of all oil produced and saved, to pay $200 per year for each well producing gas only, until such time as the gas should be utilized or sold off the premises, when the grantor would be paid 1/8 of the value of the gas and to furnish lessor with gas free of cost for all stoves and inside lights in the main dwelling house on the land, and to pay the lessor 1/8 of the proceeds of sale of gas produced from an oil well and used off the premises or for the manufacture of casing-head gas. This lease contained provisions for termination and delay rentals which were similar to those in the first lease.

6. Mineral deed dated May 3, 1947, by which T. M. Talley conveyed to Mattie Moore an undivided 7/8 interest in and to all of the oil, gas, distillate and other minerals in and under and that may be produced from the lands.

7. Mineral deed dated August 4, 1948, by which Mattie Moore conveyed to T. M. Talley an undivided 7/16 interest in and to all of the oil, gas, distillate and other minerals in and under and that may be produced from the lands. This deed contained the following parenthetical statement:

(It is the intention of the grantor herein to convey to the grantee herein 38.28125 full mineral acres.) ¹

8. Mineral Deed dated August 16, 1948, by which Mattie Moore conveyed to Pauline Dominy an undivided 7/16 interest in all of the oil, gas, distillate and other minerals in and under and that may be produced from the lands. This deed also recites the intent to convey 38.28125 mineral acres. ¹

9. Mineral Deed dated March 26, 1955, by which Pauline Dominy conveyed to J. M. Talley an undivided 7/16 interest in all of the oil, gas, distillate and other minerals in and under and that may be produced from the lands.

If we consider the various meanings which have been accorded the word 'royalty,' and treated the parenthetical clause as controlling, the deed might be taken to have conveyed any of the following: (1) the 'royalty' payable under the lease described in item 2, which was then only slightly more than two years old; (2) fee title to 1/8 of the minerals in place, with all attendant incidents, with the parties considering the 1/8 interest and 'royalty' as synonymous and inserting the parenthetical clause in an effort to clarify the interest conveyed; (3) a perpetual royalty either 'participating' or 'nonparticipating,' which constitutes a beneficial interest in future oil and gas production; (4) a beneficial interest in future production together with an interest in oil and gas in place; and (5) an interest that enabled the grantee to grant an oil and gas lease and collect the entire royalty paid thereunder. See Longino v. Machen, 217 Ark. 641, 232 S.W.2d 826; Keaton v. Murphy, 198 Ark. 799, 131 S.W.2d 625; Arrington v. United Royalty Co., 188 Ark. 270, 65 S.W.2d 36, 90 A.L.R. 765; Green v. Biddle, 21 U.S. 1, 8 Wheat. 1, 5 L.Ed. 547 (1823); Allen v. Thompson, 169 Ark. 169, 273 S.W. 396; 4 Summers Oil & Gas (Perm. Ed.) 8, § 572; Hanson v. Ware, 224 Ark. 430, 274 S.W.2d 359, 46 A.L.R.2d 1262: Annot. 4 A.L.R.2d 496 (1949).

The chancellor held that the deed conveyed a one-eighth interest in oil, gas and minerals under the lands. Appellants contend that the deed described in item 3 above conveyed 'all of the royalty under the lands.' Appellants, in oral argument, described the interest they contend was conveyed as 1/8 of the production of the oil, gas and minerals from the lands. They rely on a definition of the word 'royalty' in McDonald v. Sanders, 207 S.W.2d 155 (Tex.Civ.App.1947), as 1/8 interest in oil and gas produced and contend that the parenthetical clause describes the grant as being all of the 'royalty' reserved in the deed to Merritt, which would leave Talley only a 7/8 working interest.

There would be no ambiguity in the deed except for the parenthetical clause relied upon by appellants. If this clause were omitted, the deed would simply constitute a conveyance of 1/8 of the oil, gas and minerals. See Smiley v. Thomas, 220 Ark. 116, 246 S.W.2d 419. This insertion, however, makes the granting clause ambiguous. See Melton v. Sneed, 188 Okl. 388, 109 P.2d 509 (1940); Mabee Oil and Gas Company v. Hudson, 156 F.2d 450 (10th Cir. 1946). The construction of the deed depends to a great extent upon the sense in which the parties used the word 'royalty.' The word cannot be so precisely defined as to enable us to say that what would otherwise be a deed for one-eighth of all oil, gas and minerals became a conveyance of one-eighth of the oil and gas produced, as appellants contend.

It has been said that a conveyance of a royalty interest and a conveyance of minerals in place appear so much alike to the average person inexperienced in such matters, one may easily be substituted for the other. Neel v. Rudman, 160 Fla. 36, 33 So.2d 234 (1948). See also, Simson v. Langholf, 133 Colo. 208, 293 P.2d 302 (1956). In Longino v. Machen, 217 Ark. 641, 232 S.W.2d 826, we found it necessary to ascribe a meaning to the word in construing a deed. There we said:

We are aware that this term is sometimes loosely used to mean an interest in minerals in place, but it is well settled that the ordinary and legal meaning of the term is a share of the product or profit, to be paid to the grantor or lessor by those who...