Court Opinion

ID: 3098951
Source: CourtListenerOpinion
Date Created: 2015-10-16 04:55:01.390834+00
Date Added: 2024-06-11T11:44:23.046394
License: Public Domain

NO. 07-10-00434-CV

                                  IN THE COURT OF APPEALS

                        FOR THE SEVENTH DISTRICT OF TEXAS

                                       AT AMARILLO

                                         PANEL D

                                       JULY 17, 2012

                    CHARLES CALVIN MOORE, ET AL, APPELLANTS

                                             v.

                  NOBLE ENERGY, INC., ET AL, DAISY MOORE AS
               INDEPENDENT EXECUTRIX OF THE ESTATE OF LEO H.
                 MOORE, MELISSA MARIE WILLIAMS AND MICHELLE
                      LEIGH WILLIAM DICKEY, APPELLEES

             FROM THE 31ST DISTRICT COURT OF WHEELER COUNTY;

                    NO. 12,425; HONORABLE LEE WATERS, JUDGE

Before QUINN, C.J., and CAMPBELL and PIRTLE, JJ.

                                         OPINION
       This case requires our construction of a royalty interest reserved in a 1955 deed

conveying land in Wheeler County.         The trial court granted summary judgment for

appellees Noble Energy, Inc., et al. Appellants Charles Calvin Moore, et al., appeal.

We will affirm the trial court.
                                        Background

       By a warranty deed dated May 17, 1955, J. C. Moore conveyed 160 acres in

Wheeler County, Texas, to the Veterans’ Land Board of the State of Texas.1 The deed

contains a reservation reading, in its entirety, as follows:

       THERE IS RESERVED unto the Grantor herein, his heirs and assigns a
       one-half non-participating royalty interest (one-half of one-eighth of
       production). It being understood that the grantor herein, his heirs and
       assigns, shall not be required to join in any lease, bonus money or delay
       rentals, but shall only participate in production.

Appellants (“the Moores”) are the successors of J. C. Moore. The individual appellees

(“the Russells”) aligned with Noble Energy, Inc. are the successors of the Veterans’

Land Board. Noble Energy holds, as lessee, an oil and gas lease signed in 2003,

providing for payment of a 3/16 royalty. Four gas wells were drilled and completed

under the lease.

       A dispute later arose over the division of the 3/16 royalty, and the Moores filed

suit in 2010, seeking relief including a declaration that the 1955 deed reserved a non-

       1
        At the time, the authority of the Veterans’ Land Board to purchase land in Texas
to be sold to Texas veterans was set out in sections 10 and 16 of article 5421m. See
Tex. Rev. Civ. Stat. Ann. art. 5421m § 10, repealed by Act of May 24, 1977, 65th Leg.,
R.S., ch. 871, art. I, § 2(a)(1), 1977 Tex. Gen. Laws 2345, 2689, now codified as Tex.
Nat. Res. Code Ann. § 161.172, .211 (West 2011); Tex Rev. Civ. Stat. Ann. art. 5421m
§ 16, repealed by Act of May 24, 1977, 65th Leg., R.S., ch. 871, art. I, § 2(a)(1), 1977
Tex. Gen. Laws 2345, 2689, now codified as Tex. Nat. Res. Code Ann. § 161.281-.288
(West 2011).

                                              2
participating royalty of one-half the royalty contained in any future lease.2 The Moores

alleged the royalty reservation was ambiguous. Noble Energy and the Russells took the

position the deed unambiguously reserved a fixed 1/16 th non-participating royalty

interest. In response to motions for summary judgment filed by Noble Energy and the

Russells, the Moores asserted the reservation’s ambiguity raised an issue of fact,

precluding summary judgment. On appeal of the summary judgment granted by the trial

court, the Moores again argue the reservation is ambiguous.

Standard of Review

       We review de novo the trial court’s grant of summary judgment.              Valence

Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). When conducting a de

novo review, we exercise our own judgment and redetermine each issue according no

deference to the trial court's decision. Quick v. City of Austin, 7 S.W.3d 109, 116 (Tex.

1998); Range Resources Corp., v. Bradshaw, 266 S.W.3d 490, 493 (Tex.App--Fort

Worth 2008, pet. denied). The movant for a traditional summary judgment must show

that there is no genuine issue of material fact and that it is entitled to judgment as a

matter of law. Tex. R. Civ. P. 166a(c).

       2
         The Moores’ pleadings actually asked that the court determine the reserved
royalty was “equal to one-half of the royalty fraction inserted in the then-existing and all
future leases.” The parties do not describe a lease existing at the time of the execution
of the 1955 deed, and the undisputed statements that J. C. Moore owned one hundred
percent of the surface and mineral estates at the time of his conveyance leave us to
conclude the property was not then subject to a mineral lease.

                                             3
Applicable Law

       Whether an instrument is ambiguous is a question of law for the court to decide.

Friendswood Dev. Co. v. McDade & Co., 926 S.W.2d 280, 282 (Tex. 1996) (per

curiam). To determine whether an instrument is ambiguous, the court must examine

the instrument as a whole in light of the circumstances present at the time of its

execution. Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587,

589 (Tex. 1996); Derwen Resources, LLC v. Carrizo Oil & Gas, Inc., No. 09-07-00597-

CV, 2009 Tex. App. Lexis 3661, at *9-10 (Tex.App.--Beaumont May 21, 2009, no pet.)

(mem. op.); Savage v. Doyle, 153 S.W.3d 231, 234 (Tex.App.--Beaumont 2004, no

pet.). If after applying the pertinent rules of construction, an instrument is subject to two

or more reasonable interpretations, then it is ambiguous, and a fact issue exists as to

the parties' intent. Columbia Gas Transmission Corp., 940 S.W.2d at 589; Universal

C.I.T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 157 (Tex. 1951); Derwen

Resources, 2009 Tex. App. Lexis 3661, at *11; see Brown v. Havard, 593 S.W.2d 939,

942 (Tex. 1980). However, an ambiguity does not arise merely because the parties

advance conflicting interpretations of the instrument's language; instead, for an

ambiguity to exist, both interpretations must be reasonable.                Columbia Gas

Transmission Corp., 940 S.W.2d at 589

       Our primary objective in construing a deed is to determine the intent of the

parties from the four corners of the deed. Luckel v. White, 819 S.W.2d 459, 461 (Tex.

1991). "[W]e must examine and consider the entire writing in an effort to harmonize and

give effect to all the provisions of the contract so that none will be rendered

                                             4
meaningless." J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). No

single provision taken alone will be given controlling effect; rather, all the deed

provisions must be considered with reference to the whole instrument. See Seagull

Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006) (quoting

Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983)).

Analysis
       Mentioned in the record are three possible interpretations of the quantum of

royalty reserved in the 1955 deed:

       (a) a one-half non-participating royalty;

       (b) a royalty of one-half that retained in any future lease; and

       (c) a royalty of one-half of one-eighth, or one-sixteenth.

       The trial court’s order granting summary judgment states its finding the royalty

reservation is not ambiguous. To reach that conclusion, the trial court necessarily found

that the deed is reasonably read to reserve a fixed royalty of one-half of one-eighth of

production, or one-sixteenth, and cannot reasonably be read to reserve a one-half

royalty or a royalty of one-half that retained in a future lease. We agree with the trial

court’s implicit finding.

       Our analysis will consider each possible interpretation in turn, seeking to

ascertain whether the reservation is subject to more than one reasonable interpretation

and thus is ambiguous.

                                             5
       We begin by noting that the reservation language employed in the 1955 deed is

peculiar in that it does not identify expressly the substances as to which the reserved

royalty applies. The primary sentence of the reservation language states the grantor

reserves “a one-half non-participating royalty interest (one-half of one-eighth of

production).” Missing is the typically-found language stating that the reserved royalty is

of “oil, gas and other minerals.”       Despite this peculiarity in the wording of the

reservation, neither the nature of the reserved interest nor its application to the natural

gas being produced by Noble Energy is in dispute. The parties agree the Moores own a

non-participating royalty interest3 in the natural gas; only the quantum of the interest is

disputed.

       It is undisputed also that there was reserved in the deed only a single quantum of

royalty, that is, the language “a one-half non-participating royalty interest (one-half of

one-eighth of production)” was intended by the parties to the deed to express only one

fraction. In that respect, the deed is to be contrasted with those in which its parties

intentionally reserved or conveyed interests described by differing fractions. See, e.g.,

Concord Oil Co. v. Pennzoil Expl. & Prod. Co., 966 S.W.2d 451, 457 (Tex. 1998) (owner

of mineral interest may convey differing fractions of attributes of mineral estate).

       The centerpiece of the Moores’ argument is the contention that the deed

reasonably can be construed to reserve a royalty of one-half the royalty retained by the

lessor in a future lease. Noble Energy argues the language cannot reasonably be so

       3
         See Plainsman Trading Co. v. Crews, 898 S.W.2d 786, 789 (Tex. 1995)
(describing nature of non-participating royalty interest, citing Arnold v. Ashbel Smith
Land Co., 307 S.W.2d 818, 825 (Tex.Civ.App.--Houston 1957, writ ref’d n.r.e.)).

                                             6
read. We agree with Noble Energy, seeing nothing in the deed’s language to suggest

the parties intended such a reservation.

       A grantor of land may reserve an interest consisting of a fraction of the royalty

retained by the lessor under an existing mineral lease, or that retained under a lease

made in the future. Such an interest is commonly referred to as a “fraction of royalty.”

See, e.g., Range Resources Corp., 266 S.W.3d at 493 (contrasting “fraction of royalty”

with “fractional royalty”). Its owner is entitled to a share of mineral production equal to

the stated fraction times the royalty retained in the lease. Id. (noting share of production

attributable to fraction of royalty is not fixed but “floats” with quantum of royalty

contained in lease). “The owner of 1/16 fraction of royalty takes 1/16 of whatever

royalty the lessor reserves.” 2 Patrick H. Martin & Bruce M. Kramer, Williams & Meyers

Oil and Gas Law § 327.2 (LexisNexis Matthew Bender 2009) (italics in original; citation

omitted).

       The owner of a fractional royalty, by contrast, is entitled to the stated fraction of

gross production, unaffected by the royalty reserved in the lease. Range Resources

Corp., 266 S.W.3d at 493.       “Thus the owner of 1/16 royalty takes 1/16 of gross

production whether the lease provides for a lessor’s royalty of 1/16, 1/8 or 1/4.”

Williams and Meyers, § 327.2 (citation omitted).

       The language of the 1955 reservation is typical of that creating a fractional

royalty.    See Williams & Meyers, § 327.1 (listing, as examples of conveyancing

language creating a fractional royalty, “a one-fourth royalty in all oil, gas and other

                                             7
minerals in and under and hereafter produced,”4 and “an undivided one-sixteenth

royalty interest of any oil, gas or minerals that may hereafter be produced.” 5). The

parenthetical language of the 1955 reservation also is indicative of a fractional royalty,

spelling out the reserved interest as one-half of one-eighth of production.

       By contrast, none of the language of the 1955 deed reservation is typical of a

fraction-of-royalty reservation.    See Williams & Meyers, § 327.2 (listing, among

examples of language creating a fraction of royalty, “an undivided one-half interest in

and to all of the royalty,”6 and “one-half of one-eighth of the oil, gas and other mineral

royalty that may be produced”7).

       Comparison of the language in the 1955 deed and that addressed by the Texas

Supreme Court in Brown, 593 S.W.2d 939, is instructive.8 The reservation in Brown,

contained in a 1963 warranty deed, read in pertinent part:

       Grantors reserve unto themselves, their heirs and assigns in perpetuity an
       undivided one-half non-participating royalty (Being equal to, not less than

       4
           Arnold, 307 S.W.2d at 820.
       5
          Masterson v. Gulf Oil Co., 301 S.W.2d 486, 487 (Tex.Civ.App--Galveston 1957,
writ ref’d n.r.e.).
       6
         State Nat’l Bank v. Morgan, 135 Tex. 509, 143 S.W.2d 757 (1940). The treatise
also cites the reservation language from Schlittler v. Smith, 128 Tex. 628, 101 S.W.2d
543 (1937) (“an undivided one-half interest in and to the royalty rights on all of the oil
and gas and other minerals”) as an example of a fraction of royalty. Williams & Meyers,
§ 327.2 n.4
       7
           Harriss v. Ritter, 154 Tex. 474, 279 S.W.2d 845 (1955).
       8
       The court also cited § 327 of Williams & Meyers in its analysis in Brown. 593
S.W.2d at 942.

                                              8
       an undivided 1/16th) of all the oil, gas and other minerals, in, to and under
       or that may be produced from said land.

Id. at 940.

       Construing the language of the parenthetical phrase “Being equal to, not less

than an undivided 1/16th,” the court found it subject to more than one interpretation.

One of the interpretations, the court said, would construe the language to “reserve ½ of

the royalties contained in future leases, providing further that such share must not be

less than 1/16.” Id. at 942.9

       Although we agree with the Moores that the 1955 deed anticipates future leasing

of the land for mineral exploration,10 the ambiguous “equal to, not less than” wording in

the Brown reservation finds no counterpart in the 1955 deed. Although the court in

Brown stated “[w]ithout the parenthesis, the reservation is either a ½ royalty or ½ of

royalties,” it concluded that, omitting the parenthetical phrase, the reservation language

       9
         The dissenting justices in Brown would have found the deed unambiguously
reserved a fraction of royalty. 593 S.W.2d at 945 (McGee, J., dissenting). The
dissenting opinion also focused largely on the language of the reservation’s
parenthetical phrase, noting “[t]here is no language anywhere in the reservation clause
to indicate that the Browns’ royalty was to be limited to a maximum of 1/16 . . . .” Here,
by contrast, there is clear language the Moores’ royalty was intended to be limited to
1/16, the parenthetical language “one-half of one-eighth of production.”
       10
         See Schlittler, 101 S.W.2d at 544 (holding a reservation of royalty on minerals
which may be produced “necessarily implies that the grantor contemplated the leasing
of the land for production”); Range Resources Corp., 266 S.W.3d at 496 (discussing
reservation language similarly indicating parties contemplated future leasing). See also
section 22, article 5421m (authorizing Veterans’ Land Board to execute oil, gas and
mineral leases on land purchased by the Board). Tex. Rev. Civ. Stat. Ann. art. 5421m §
22, repealed by Act of May 24, 1977, 65th Leg., R.S., ch. 871, art. I, § 2(a)(1), 1977
Tex. Gen. Laws 2345, 2689, now codified as Tex. Nat. Res. Code Ann. § 161.072
(West 2011).

                                            9
“would reserve ½ of all the oil, gas, and other minerals produced, and not ½ of any

outstanding or future royalty.” 593 S.W.2d at 942.11       The court went on to say,

“However, it is apparent that the parenthetical phrase has reference to a reservation of

royalty.” Id. (italics in original). The same cannot be said of the language the parties

used in the 1955 deed we examine.          Whether one emphasizes the “one-half non-

participating royalty interest” wording, or the parenthetical language, all of the

reservation language speaks straight-forwardly of a fractional royalty.

       Discussing an example of deed language rendered ambiguous because of a

reservation “cast in the form of fractional royalty and a fraction of royalty,” Williams and

Meyers point to the Texas case of Nugent v. Freeman.12 Williams & Meyers, § 327.2

(italics in original). The deed reserved “an undivided one-half interest in and to the

royalty rights (that is one-sixteenth) of all the oil, gas and other minerals that may be

produced . . . .”     It is clear why the treatise’s authors considered the reservation

contained language suggestive both of a fractional royalty and a fraction of royalty. The

wording “undivided one-half interest in and to the royalty rights,” is precisely the

language other Texas cases have held created a fraction of royalty. See, e.g., State

Nat’l Bank, 143 S.W.2d at 758; Schlittler, 101 S.W.2d at 544. As we have noted, no

language indicative of a fraction of royalty appears in the deed under consideration

       11
            See Range Resources Corp., 266 S.W.3d at 494 (discussing Brown).
       12
         306 S.W.2d 167 (Tex.Civ.App.--Eastland 1957, writ ref’d n.r.e.). The treatise
uses the language from Nugent only as an illustration of ambiguous language. The
issue on appeal in Nugent did not involve the quantum of interest reserved under the
deed’s language. Id. at 169-70.

                                            10
here. The reservation is not cast in the form both of a fractional royalty and a fraction of

royalty.

       Because of the absence of any language indicating the parties intended a

reservation of a fraction of royalty, we must conclude the reservation can reasonably be

read only to reserve a fractional royalty.

       The Moores did not assert the position before the trial court that the deed

reasonably can be read to reserve a one-half fractional royalty.13            Much of their

argument, however, focuses on what they see as contradiction between the one-half

royalty stated in the reservation and the one-half of one-eighth of production also stated.

       It is undisputed the deed’s phrase “one-half non-participating royalty interest,”

standing alone, would reserve to the grantor a fifty percent interest in the production,

free of production costs.     See Plainsman Trading Co., 898 S.W.2d at 789 (non-

       13
          The Moores’ responses to the motions for summary judgment filed by Noble
Energy and the Russells contended that the two reasonable interpretations of the deed
were first, that it reserved one-half of the royalty provided under any future lease, and
second, the reading urged by Noble Energy and the Russells, that the royalty was a
fixed one-half of one-eighth, or one-sixteenth. The Moores maintain this posture on
appeal, arguing at one point in their brief, “Clearly, both parts of the royalty reservation
on their face reserve a fractional royalty (50% and 6.25%). However, since those
fractional royalties are inconsistent and cannot be reconciled under the harmonization
canon, the entire reservation has been rendered ambiguous, thereby leaving the trier of
fact to determine if the royalty reservation is a fixed 1/16 fractional royalty or one-half of
the fractional royalty in any existing or future lease.”

                                             11
participating royalty interest “merely entitles its owner to a share of the production

proceeds, free of the expenses of exploration and production”).14

       Given that the parties contemplated future leasing of the land for mineral

exploration, a construction of the deed to reserve a one-half royalty is of course

doubtful. Leasing would be hindered by the necessity for the remaining half of the

production proceeds to bear the costs of drilling, equipping and operating the well,

together with the royalty reserved in the lease, and provide a profit to the lessee. See

generally Clifton v. Kuntz, 160 Tex. 82, 325 S.W.2d 684, 695 (1959) (discussing

reasonable expectation of profit for lessor and lessee under oil and gas lease).

       Construction of the language to reserve a one-half royalty would also require that

the parenthetical phrase be ignored, contrary to the rule of construction mandating that

we examine the deed as a whole. Columbia Gas Transmission Corp., 940 S.W.2d at

589.

       Comparison of the reservation in the 1955 deed with that addressed in Brown,

593 S.W.2d 939, is again instructive at this point. The court found that reservation

ambiguous not simply because of the language of the parenthetical phrase the court

found subject to more than one interpretation. The court also stated its agreement with

the court of civil appeals “that an ambiguity arises from the inclusion of the parenthetical

       14
          See Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986) (recognizing “five
essential attributes of a severed mineral estate: (1) the right to develop (the right of
ingress and egress), (2) the right to lease (the executive right), (3) the right to receive
bonus payments, (4) the right to receive delay rentals, (5) the right to receive royalty
payments”).

                                            12
phrase (Being equal to, not less than an undivided 1/16th) in the reservation.” The court

further stated that ambiguity “is illustrated by the fact that the Browns claim and the trial

court awarded them 1/2 of the minerals insofar as the Gill No. 1 well is concerned; yet

construed the same reservation to entitle the Browns to ½ of the 3/8 royalty received

from the four M-Tex wells.” 593 S.W.2d at 942.15

       As the Fort Worth court of appeals pointed out in Range Resources Corp., 266
S.W.3d at 495, the property conveyed in Brown was under lease at the time the

reservation was made. The Browns had signed a mineral lease in 1950, and one well,

the Gill No. 1, had been drilled under that lease. The Browns conveyed the property in

1963, reserving the interest in dispute. In 1973, the Browns’ successors leased the

property, except for 80 acres surrounding the Gill No. 1, to M-Tex, Inc., which drilled

four wells. 593 S.W.2d at 941.

       To the extent that the existence of the Gill No. 1 well drilled under the 1950

lease, and the trial court’s award to the Browns of one-half of the minerals produced

from that well, contributed to the court’s conclusion the reservation was ambiguous,

Brown is to be distinguished from our present case. There is no evidence of any well

producing from the 160 acres at the time of the 1955 deed.             See Columbia Gas

Transmission Corp., 940 S.W.2d at 589 (ambiguity determined by examining deed in

light of circumstances present at time of its execution).

       15
         The dissenting justices in Brown, who as we have noted took the position the
reservation language was unambiguous, pointed out the award of half the production
from the Gill No. 1 was the result of a stipulation entered into by the parties at trial. 593
S.W.2d at 945 (McGee, J., dissenting).
                                             13
      While not contending that the deed reasonably can be read to reserve a royalty

of one-half the production, the Moores’ contention seems to be that the presence of the

“one-half” language muddies the interpretive water sufficiently to cause ambiguity. But

the test we must apply asks whether the language is susceptible to two or more

reasonable interpretations.   Columbia Gas Transmission Corp., 940 S.W.2d at 589;

Universal C.I.T. Credit Corp., 243 S.W.2d at 157.

      The Moores contend the trial court effectively has ruled that in situations such as

this a parenthetical phrase will always be found to control over a preceding

unambiguous statement of reservation. We discern no such holding in the trial court’s

ruling. In our view, the case involves simply the application of settled law regarding the

ambiguity of instruments to the language used in the deed, under the undisputed

circumstances existing at the deed’s execution. Unlike that in Brown, the reservation

language in this deed is not susceptible to two or more reasonable interpretations, so

the deed is not ambiguous. That the parties could have used clearer language to

express their intent does not create an ambiguity when only one reasonable

interpretation exists. Columbia Gas Transmission Corp., 940 S.W.2d at 591.

      As noted, the Moores have never denied the reservation reasonably can be read

to reserve a royalty of one-half of one-eighth of production, or one-sixteenth. Of the

three possible interpretations of the language the parties used, it is the only

interpretation we find reasonable. By that reading, the parenthetical phrase explains

and defines the “one-half non-participating royalty interest” as equal to one-half of one-

eighth of production.   See Range Resources Corp., 266 S.W.3d at 496 (in similar

                                           14
reservation, finding parenthetical “interpreted” preceding language); Miller v. Sandvick,

921 S.W.2d 517, 522 (Tex.App.--Amarillo 1996, writ denied) (describing use of

parenthetical “by way of comment, explanation or translation”); Helms v. Guthrie, 573
S.W.2d 855 (Tex.App.--Ft. Worth 1978, writ ref’d n.r.e.). Finding no error in the trial

court’s ruling that the royalty reservation is unambiguous and is equal to a fixed 1/16 th

non-participating royalty interest, we overrule appellants’ contention and affirm the trial

court’s judgment.

                                                               James T. Campbell
                                                                    Justice

Pirtle, J., dissenting without written opinion.

                                              15