Opinion ID: 1717411
Heading Depth: 1
Heading Rank: 1

Heading: Interpretation of the deeds

Text: Anadarko calculated Venable's interest in the Division Orders based solely on the deed's initial granting clause without consideration of the subsequent language concerning the lease because it interpreted the latter language to be explanatory only. In support of its position it relies on the decision in Barret v. Kuhn, 264 Ark. 347, 572 S.W.2d 135 (1978), which essentially held that we would construe deeds in such a way that the granting clause of the deeds would be controlling in the event of an irreconcilable conflict between the mineral deeds granting clause and other clauses. In the Barret case the appellees, or their predecessors, during the 1940s granted essentially identical non-participating royalty interests to the appellants. These deeds gave a fixed interest in any money paid from production of oil and gas from the lands. Subsequently the appellees negotiated with another party and signed other oil and gas leases on the property, granting the working interests. These leases all provided for the appellees to have an overriding royalty if production was obtained. In some instances the overriding royalty amounted to one-eighth (l/8th) and in others a one-sixteenth (l/16th) overriding royalty in addition to the usual one-eighth royalty that was reserved in these leases by the owner. There was no mention in the negotiations for the leases, nor in the leases themselves, of the non-participating royalty holders. When production was obtained, a division order was prepared setting forth in detail who was to be paid a royalty and in what amount. The division order was the first notice to the parties that the non-participating royalty holders were making a claim to the overriding royalty payments to be paid to the appellees. The royalty deeds in question were form instruments, headed in bold type ROYALTY DEED, beneath which was the word, non-participating. The granting clause in the royalty deeds read: That_____ for and in consideration of ... _____, ... do hereby grant, bargain, sell, and convey unto the said _____and unto its successors and assigns forever, subject, however, to all of the terms, conditions and reservations hereinafter mentioned, an undivided one sixty-fourth (1/64) interest in and to all of the oil, gas and other minerals, in, under and upon the following described lands.... After describing the property, the deeds contained two other relevant clauses; the royalty clause and the production clause. The royalty clause read: Provided, that the grantors herein expressly covenant with the grantee that no oil and gas mining lease shall ever be executed covering the above land, or any part thereof, that shall reserve to the grantors herein, their heirs and assigns, as royalty, less than one-eighth of all of the oil and gas produced and saved from said landand this covenant shall be deemed a covenant running with the land. It is the intention of the parties hereto that the grantee herein, its successors or assigns, shall be entitled to receive hereunder one-eighth of all oil and/or gas run to the credit of the royalty interest reserved under and by virtue of any oil and gas mining lease now in force and effect covering said land, and under any oil and gas mining lease hereafter executed covering said land, or any part thereof;.... What is referred to as the production clause follows the royalty clause and it read: [A]nd in any event the grantee herein, its successors or assigns, shall be deemed the owner of and shall be entitled to receive one sixty-fourth of all oil and gas produced and saved from said land or any part thereof. The appellants in the Barret case argued they were entitled to an interest as described in that part of the royalty clause which read: ... the grantee ... shall be entitled to receive hereunder one-eighth of all oil and/or gas run to the credit of the royalty interest. We said: It is our duty to interpret such instruments by trying to make all parts of the instrument harmonize, and stand together, if possible, so as to ascertain the intention of the parties. [Citation omitted.] The granting clause in these deeds says that a one sixty-fourth interest is granted to the oil, gas and minerals produced. This clearly limits the claim of the non-participating holders because if they were to participate in the overriding royalty, they would receive more than a one sixty-fourth interest. Also, this same one sixty-fourth interest is mentioned in the production clause. No doubt it would have been clearer if the parties had said in their instruments that participation would only be in the normal one-eighth royalty, but they did not. However, when examined as a whole, the instrument clearly limits the non-participating interest to one sixty-fourth of the oil, gas and minerals produced. We concluded that the non-participating royalty owners could not participate in the overriding royalty created by the subsequent leases. As can be seen from the language employed in both sets of deeds, those in the Barret case are significantly distinguishable from those employed in this case. The interpretation of deeds advanced by the appellants in the Barret case would have rendered the deeds internally inconsistent, elevated the royalty clause over the granting clause, and ignored the stated intent evidenced in the production clause. There are no such problems with the deeds now before us, and while the language they use does not evidence the clarity of intent we found in the Barret deeds, it is clear that the language in the initial granting clause is supplemented by the language in the subsequent clause granting to Venable an undivided ... part of all royalties on oil or gas produced from the above described land during the term of said lease, or any extension thereof. The Chancellor found as follows: 10. That Plaintiff ... is entitled to receive a royalty amounting to 1/2 of 127/720 of 1/8 of the oil and gas produced, saved and marketed under the terms of Lease D from the 29.8 acre tract covered by said Lease D and forming a part of the unit consisting of the Southwest Quarter of the Southwest Quarter (SW/4 SW/4) of said Section 15 and a royalty amounting to 1/2 of 127/720 of 3/16 of the oil and gas produced, saved and marketed under the terms of Lease E from the 10.2 acre tract covered by Lease E and forming the remaining part of said unit, upon which the Tissue A 1-15 is being operated. That accordingly, Plaintiff is entitled to receive a total royalty amounting to.XXXXXXXXX (29.8/40 × 1/2 × 127/720 × 1/8 plus 10.2/40 × 1/2 x 127/720 × 3/16) from the oil and gas so produced, saved and marketed from the 40 acre unit. 11. That Plaintiff ... is entitled to receive a royalty amounting to 1/2 of 127/720 of 3/16 of the oil and gas produced, saved and marketed under the terms of Lease F from the Northwest Quarter of the Southwest Quarter (NW/4 SW/4) of said Section 15, or to.XXXXXXXXX of the production under the terms of said Lease F from the Northwest Quarter of the Southwest Quarter of said Section. The Chancellor interpreted the deeds to mean that they had to be read in conjunction with the lease or leases to arrive at the proper fractions because of the interaction between these two granting clauses. Anadarko does not dispute that the 1939 deeds utilized the amount of royalty which the grantor had retained under the lease to arrive at the fractions stated within the deeds but characterizes that fact as coincidental and the language as merely explanatory. It is our duty to interpret instruments by trying to make all parts of the instrument harmonize, and stand together, if possible, so as to ascertain the intention of the parties. Barret v. Kuhn, supra . The deeds here clearly sought to convey some interest defined by something in the lease for the same consideration to Venable. We cannot agree that the language was merely explanatory and ignore it as Anadarko would have us to do, as it utilized all the terms of art of conveyance and appears to have granted an additional fractional one-eighth (l/8th) of that which it initially conveyed based on the terms of the lease. While the 1939 lease is not contained in the record, there is no dispute that it expired. The Chancellor clearly considered the 1980 leases to be extensions of the original lease, and we have been presented with nothing which would render that conclusion clearly erroneous which is what is required if we are to reverse such a fact finding. Perry v. Nicor Exploration, 293 Ark. 417, 738 S.W.2d 414 (1987); A.R.C.P. 52(a). Anadarko argues that the deeds do not contemplate a future lease but it ignores the language in the deed which applies to the said lease, or any extension thereof. There is no question that this interpretation by the Chancellor is supported by the deeds.