Court Opinion

ID: 9636076
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:15:23.23758+00
Date Added: 2024-06-11T18:09:41.929505
License: Public Domain

Mr. Justice Smith,
concurring.
I am of the opinion that this case should be reversed by this Court and judgment here rendered for the petitioners. I do not agree with the holding by the majority that the Duhig case has any bearing or application to the present case. The Duhig case is not controlling, therefore, it is unnecessary to a decision here to hold, as the majority does, that it declines to extend and apply the Duhig doctrine in the construction of oil, gas, and mineral leases. I cannot find any sound support for the theory advanced by the majority that the Duhig rule applies in the construction of a deed, but not in the construction of oil, gas, and mineral leases. Granting that the Duhig rule was not given controlling effect in Gibson v. Turner, 156 Texas 289, 294 S.W. 2d 781, 786, yet, in that case the majority discussed at great length the Duhig case. The respondents, in fact, relied upon the Duhig rule to support their position in the Gibson v. Turner case, supra. This Court refused to follow the Duhig rule in that case. In the Gibson v. Turner case, this Court stated: “Respondents’ contention amounts to one that a royalty cannot be larger than 1 /8th of the interest owned by the lessors.” In our case the respondents contend and the Court of Civil Appeals has held that the lessors could not reserve unto themselves an overriding royalty interest greater than the mineral interest which they owned at the time of their execution of the reservation, and that the royalty as reserved must be carved from the mineral estate as owned by the lessors. I think the view of the respon*414dents in our case is in error. The majority opinion seems to say, in effect, that if the rule in the Duhig case is applied in the construction of an oil, gas, and mineral lease, then it would reach a different conclusion and hold with the respondents. With this I cannot agree. The petitioners are entitled to have their rights determined by the principles of law as applicable to the record. I would apply the Duhig rule just as readily in this case which involves the construction of an oil, gas, and mineral lease as in a case where a deed is involved, provided the record supported such application. The rule announced in the Duhig case is sound as applied to the facts in that case. I agree with the majority here that the rule announced has become well established, but I do not agree that this Court can abridge the effect of that rule by refusing its application in the construction of an oil, gas, and mineral lease. A deed conveys an interest in land. An oil, gas, and mineral lease amounts to a determinable fee. We have involved in our case “an overriding royalty.” An oil payment has been held to be an interest in land. An oil payment and overriding royalty are virtually the same. See Knight v. Chicago Corporation, Texas Civ. App., 183 S.W. 2d 666, 670, affirmed in 144 Texas 98, 188 S.W. 2d 564, where it was said: “The oil payment is similar to the overriding royalty, except that the interest of an assignee ceases upon his receiving a certain amount of money or value of oil or gas produced from a certain percentage of the working interest.”
In an Article entitled “Oil Payments,” 20 Texas Law Review, p. 841, I find good support for the holding in the Chicago Corporation case, supra. In that Article it is said:
“On principle there seems to be little justification for making any distinction between the nature of the property interest created by an oil payment and an overriding royalty, and there can be no doubt in Texas, but that an overriding royalty, whether payable in money or by delivery of oil, is an interest in land. The only difference is that the overriding royalty continues throughout the entire life of the lease whereas the oil payment terminates when the sum provided for has been real-izd by the payee. This difference does not appear to justify any distinction in the nature of the property interests created so long as they endure.”
Again, in an Article entitled “Problems Presented by Joint Ownership of Oil, Gas and Other Minerals,” 32 Texas Law Review, p. 697, it is said:
*415“An overriding royalty differs from an oil payment only in that it is of unlimited duration, and most, if not all, that has been said about oil payments will apply with equal force to overriding royalty. * * * The obvious similarity between these two types of interest should result in the adoption of similar rules of law with respect to both within any particular jurisdiction.”
I think it can be said with equal logic that the similarity between the three types of property interests, i.e. (1) a deed conveying a fee interest in land, (2) a deed conveying royalty, (3) a contractual reservation in an oil, gas, and mineral lease which amounts to a conveyance of either an oil payment or an overriding royalty, would call for the adoption of similar rules of law for the construction of the respective instruments in determining the interest conveyed or reserved by contract.
The question in our case is: What principles of law shall be followed and applied to the facts in determining who should receive and in what amount, the overriding royalty?
It is stipulated that petitioners only owned an undivided 1/6 fee simple mineral interest in the 240 acres covered by the lease. The other 5/6 leasehold interest is owned by respondents. It was stipulated that respondents knew, at the time they undertook to acquire the lease and at the time they paid for it, that petitioners only owned an undivided 1/6 interest. The lessors (petitioners) only attempted to reserve 5/96 combined ordinary and overriding royalty out of their admitted 16/96 mineral interest in the leased premises, leaving an 11/96 interest for lessees. This is exactly what lessees bargained and paid for. This suit does not involve the ordinary 1/8 royalty. It involves only the determination of the amount of overriding royalty, and the ownership thereof. However, there are three fractions involved in the lease:
“There are three fractions involved in the lease: (1) the 1/6 mineral interest admittedly owned by petitioners; (2) the 1/8 ordinary royalty, and (3) the 1/32 overriding royalty. The lowest common denominator of all three fractions is 96. Converting petitioners’ 1/6 interest to the lowest common denominator, they owned 16/96 of the minerals under the land described in the lease. Applying the same common denominator, the ordinary 1/8 royalty equals 2/96, since 1/8 of 1/6 equals 1/48, or, converted to the common denominator, 2/96. By the same process, the 1/32 overriding royalty is converted to 3/96 *416of the production. Petitioners therefore received under the terms of the lease 5/96 (2/96 plus 3/96 equals 5/96) in the form of combined ordinary and overriding royalty, and respondents therefore received the remaining 11/96 (5/96 subtracted from 16/96 leaves 11/96) as a net working interest.”
Thus it is seen that this is not a case in which petitioners have reserved royalty not owned by them or royalty in excess of their mineral interest in the leased premises. The lease reserves as overriding royalty 1/32 of 8/8 of all oil or gas produced from the land described in the lease, without reduction for any reason. The reservation reads:
“The lessor herein reserve unto themselves, their heirs and assigns, without reduction, as an overriding royalty, a net 1/32 of 8/8 of all oil and gas produced and saved from the above described premises, free of cost or expense to the credit of the lessors into the storage tank or tanks or into the pipe line to which the well or wells on said land may be connected.
“Fuel oil for operating the premises shall be deducted before computing the overriding royalty herein provided.
“In this connection it is understood and agreed that the overriding royalty reserve by lessors herein is only payable if or when oil or gas is produced, saved and marketed, and that the rights of the lessors herein to receive same shall not create an obligation as to development or operation upon the lessee, his heirs or assigns, express or implied, except as provided for under the terms of this lease.
“Lessors shall pay their portion of all ad valorem taxes.”
The reservation is a contractual provision just as the reservation provision in the case of Benge v. Scharbauer, 152 Texas 447, 259 S.W. 2d 166, 169, was held to be by this Court. In that case the reservation was as follows:
“Saving, excepting and reserving to the grantors herein, however, an undivided three-eighths (3/8) of all the oil, gas and other minerals, in, to and under said above described lands, but the grantee and his assigns shall have the sole power to execute all future oil, gas and other mineral leases without the joinder of the grantors herein, but said leases shall provide for the payment of three-eighths (3/8) of all the bonuses, rentals and royalties to the grantors.”
*417We held in the Benge case that —
“The factual part of the bonuses, rentals and royalties that one is to receive under a mineral lease usually or normally is the same as his fractional mineral interest, but we cannot say that it must always be the same. The parties owning the mineral interests may make it different if they intend to do so, and plainly and in a formal way express that intention. Here that intention is expressed by clear language in the deed that leases executed by the grantee under the power given shall provide for the payment of three-eighths of all bonuses, rentals and royalties to the grantors. The provision is not an agreement that the parties to the deed shall participate in the bonuses, rentals and royalties in proportion to their ownership of mineral interests. It is rather a contractual provision that the grantors shall receive a specified part of the bonuses, rentals and royalties.”
The case of Pollock v. McAlester Fuel Company, 215 Arkansas 842, 223 S.W. 2d 813, 815, fairly well points up my contention that an agreement clear and ambiguous on its face will be enforced by the courts according to its terms. In that case the Court said in part: “Reservations, if made, may be worded as the parties please. If they provide that the grantor shall have a named fraction of the oil produced on all the described land, that is one thing; if they provide that he shall have a fraction of what is produced from the interest conveyed by the particular lease, it is another thing. The courts will enforce either agreement.”
We followed this principle of law in both the Benge v. Schar-bauer, supra, and the Gibson v. Turner, cases. We made no distinction in applying the law to the facts in each case. One involved a reservation in a deed, the other involved the construction of a reservation in an oil, gas, and mineral lease.
In the Gibson v. Turner case we followed the rule announced in the case of R. Lacy, Inc. v. Jarrett, Texas Civ. App., 1948, 214 S.W. 2d 692, er. ref. The same should be done in this case. The Lacy case involved an oil payment, but the principle of law announced is equally applicable to an overriding royalty. The lease in that case and in the present case were both prepared on virtually the same lease form. Both provide for an ordinary 1/8 on oil and gas, and both contain covenants of warranty and other standard provisions. The oil payment was reserved by a typewritten provision which read in part as follows: “Lessor hereby reserves a production payment of $15,000 out of 1/8 of 7/8 *418of the oil, if, as and only when produced, saved and marketed from said land under this lease.” It was stipulated that the lessor only owned a 7/12 undivided interest, and lessee contended that the production payment was therefore limited to 1/8 of 7/8 of 7/12 of the oil. The Court rejected this theory just as this Court did in' Gibson v. Turner, supra, and on this question held:
“The reservation clause in the instant case does not limit the production payment out of the interest ‘herein conveyed’ or the land conveyed, but merely limits the $15,000 payment from oil to that which may be produced ‘from the land under the lease then made,’ not under some other lease. The lease here involved describes the three lots.”
Under the holding in Lacy v. Jarrett, supra, a holding approved by this Court in Gibson v. Turner, supra, we should hold that the lease in our case in plain and unambiguous terms expressed a clear intention of the parties to reserve an overriding royalty of 1/32 of the production from 240 acres, and not merely 1/6 thereof.
In the Gibson v. Turner case, supra, we held that case was controlled also by the reasoning and judgment in the case of King v. First National Bank of Wichita Falls, 144 Texas 583, 192 S.W. 2d 260, 163 A.L.R. 1128. The rule in that case is applicable here. In that case grantee King contended that since only a one-half interest was conveyed in the land, the grantor, Duncan, reserved only one-eighth of one-half of the usual l/8th royalty in the entire 240 acres. The Court held against this contention, and we said in Gibson v. Turner that the Court held in the King case that by “minerals that may be produced from the hereinabove described land” was meant the total production from the whole of said land rather than from the grantor’s one-half interest therein.” Then this Court made its holding in the Gibson case, as follows: “Such holding requires our holding in this case that the reservation of production ‘from said land’ in our lease (Gibson-Turner) covers l/8th of 40/40ths, or total production from Survey No. 14 in its entirety, and not from the 9/40ths owned by the grantors in the lease.” In our case, the rule in Gibson v. Turner, supra, and the several cases cited therein, should be applied, and when that has been done we have a plain, clear and unambiguous contractual provision whereby the respondents did covenant and agree that petitioner would receive l/32nd of 8/8th of all oil produced from the 240 acres, without reduction, as an overriding royalty. This contractual *419provision is binding upon respondents. It is a covenant running with the land. There was no breach of warranty. The Duhig doctrine does not in any manner nullify the contractual covenant in the lease providing for this overriding royalty.
Under my view of the record in this case the contract was sufficient without the use of the words “without reduction.” Therefore, I do not believe this case should be remanded to enable respondents to try the issue of mutual mistake as to the inclusion of the words “without reduction.” The record shows that respondents originally prepared the lease and overriding royalty rider. The instrument was rejected by petitioners. They rejected and tore off respondents’ overriding royalty rider with its reduction clause and substituted therefor the one involved. Respondents acting upon advice of attorneys accepted the substitute provision which contained the words “without reduction.” Respondents recorded the lease and have drilled eight producing oil wells on the land, and have sold the oil for over $700,000 to Stanolind Oil Purchasing Company and Shell Oil Company, stakeholder defendants below.
The record before us convinces me that the words “without reduction” in the contract are not controlling, and a finding that such words were inserted in the lease by mutual mistake would not entitle respondents to a judgment. In any event, the instructed verdict was proper. There was no evidence of probative force introduced in support of the alternative plea that the words “without reduction” were included in the overriding clause as a result of a mutual mistake of the parties. All of the evidence is to the contrary.
My conclusion is that the judgment of the Court of Civil Appeals should be reversed and rendered.
Opinion delivered May 29, 1957.