Opinion ID: 2612680
Heading Depth: 1
Heading Rank: 9

Heading: THE McKINLEY TWO-PERCENT OVERRIDE

Text: The trial judge concluded that the two-percent overriding royalty granted to McKinley by paragraph 8 of the contract was to be paid out of proceeds derived from Old Rainbow and therefore Rainbow Oil Company's interest in the lease was burdened by this requirement. Appellant attacks this finding by noting that McKinley's testimony established that he believed Christmann was to pay him. His belief stemmed from an original understanding he had with Jeanne Cailliez concerning payment of his fees for finding a buyer for the lease. It seems that this agreement provided that McKinley would negotiate with a prospective purchaser for payment of his fees, and that Rainbow Oil would not be responsible for this payment. McKinley therefore testified that he assumed the same payment scheme would apply to the farmout agreement  at least he said he had no reason to believe otherwise. Notwithstanding this, McKinley also admitted that he was not involved in the negotiations that later occurred between Rainbow Oil Company and Christmann on the issue of his fee payment. These negotiations resulted in the written agreement which provides: It is agreed by all of the parties hereto that Mr. Stuart M. McKinley or Barbara C. McKinley is to receive an overriding royalty of 2% for Mr. McKinley's services in consummation of this agreement. Even though the provision does not say who is to pay, it certainly does not provide that Rainbow Oil Company's interest is not to be burdened by McKinley's royalty. While the provision does not include any reference to the fact that payment is to come out of the gross proceeds derived from Old Rainbow, when we take into account the fact that at the time the parties entered into their agreement, the only extant production was that which was being derived from the existing wells on Old Rainbow, it seems obvious that this must have been the intent of the parties. It is therefore reasonable for the trial court and for us to conclude that the parties must have intended Old Rainbow would be burdened by the override. We fail to see the relevance of McKinley's testimony with respect to ascertaining the intent of the parties as set out in paragraph 8 of the contract. We therefore agree with the holding of the trial court on this issue.