Court Opinion

ID: 9664433
Source: CourtListenerOpinion
Date Created: 2023-08-24 00:19:00.462452+00
Date Added: 2024-06-11T18:15:06.331485
License: Public Domain

SMITH, Justice.
I respectfully dissent.
It might be well to state here certain facts which will be helpful in arriving at a clearer understanding of the contention of the parties:
«In 1925 and 1926, Mrs. Ruth Ser-gent executed two ‘unless' mineral leases, one to Mr. Erwin W. Smith, the ■other to Mr. A. R. Miller. Each provided for assignments, in whole .or in part, and contained identical apportionment royalty provisions that each subsequent new land owner would be paid royalty in proportion to his ownership of the whole tract. The primary terms of these leases expired in 1931, but production kept them alive until production ceased in June, 1933. From that date until January, 1947, 13Y¡ years, no oil, gas, sulphur or other mineral was produced.
“Prior to September 28, 1931, Mrs. Sergent had conveyed all of her mineral interest except Y$ undivided fee interest in the west 400 acres and undivided fee interest in the east 329 acres.
“On September 28, 1931, Mrs. Ser-gent conveyed to Gulf Production Company her fee title to the entire 729 acre tract (1) ‘subject to’ the reservations and exceptions set out in the deed and (2) ‘subject to’ existing mineral leases and conveyances. In December, 1931, Gulf Production Company assigned to respondent all of the properties so conveyed to it by Mrs. Sergent. Thereafter (and before January 1934) with it owning this Sergent fee interest in the land and minerals, respondent acquired from Mrs. Sergent’s lessees all of the sulphur leases covering said interest. So, before January 1, 1934, respondent owned in severalty all of Mrs. Sergent’s remaining fee title in land and mineral interest and all of the sulphur leasehold estates covering such interest.”
The record in this case and a large portion of the briefs of all parties devote a great deal of space to the question of whether the Smith and Miller leases (mentioned in the majority opinion) had lapsed prior to the sulphur production here in controversy. I agree with the contention of respondent that the special limitations upon which the determinable fee estates created by such leases were granted has heretofore occurred, and that the production of sulphur is not subject to any of the provisions of such leases, including, of course, the apportionment provision. The majority bases its holding, as I understand the opinion, almost entirely on the *679theory that the apportionment provision contained in the leases controls and determines the rights of the parties to the deed from Mrs. Sergent to Gulf, and, therefore the rights of the parties to this suit. The majority opinion gives effect to the entirety clauses contained in the leases and in effect, holds that the entirety clauses in the leases are still effective, alive and enforceable, and thereby destroy the contract between the parties as reflected in the deed from Mrs. Sergent to Gulf Production Company.
The petitioners as plaintiffs in the trial court introduced their written demand before filing suit. This demand, after setting out the entirety clause contained in the leases, contains the following statement:
“In view of the above quoted provision of the leases and in view of the conveyances out of Mrs. Sergent The Second National Bank of Houston, Trustee under the Will of E. Cockrell, deceased, and Mrs. Dula Dashiell Cock-rell are entitled to receive $.147218125 per long ton on all sulphur produced, saved and marketed from the 729.7 acre tract above mentioned under said two leases. Demand is herewith made on behalf of the Trustee and Mrs. Cockrell for an accounting of the production from said tract to date and for payment of royalties due on the basis aforesaid.”
Petitioners urge here in this Court that Mrs. Sergent’s reservations, contrary to their own wording, bring forward and effectively insert into the deed every provision of the leases so as to expunge the reservations themselves as well as the reservation provision in the granting clause.
The deed from Mrs. Sergent to Gulf contains plainly written unambiguous reservations which cannot be destroyed by implication, neither can they be destroyed and incorporate in lieu thereof previous leases and deeds the terms of which are out of harmony with the deed.
As pointed out above, respondent before January 1, 1934 owned in severalty all of Mrs. Sergent’s remaining fee title in land and mineral interest and all of the sulphur leasehold estate covering such interest. Petitioners contend that, nevertheless, respondent agreed with third parties, D. J. Harrison, Humble and others to continue in force respondent’s leases covering the interest owned in severalty by these third parties, and that such third-party agreements effectively continued the leases in full force as to the Sergent interest owned by respondent.
This position cannot be sound. Respondent owned both the Sergent fee in severalty and the leases covering this fee. Under the record, it was free to contract with third parties as to the sulphur they owned in severalty without in any way affecting its own Sergent fee interest. I do not subscribe to the theory advanced by petitioners that in instances after the primary term of a lease has expired, one owner in sever-alty of an undivided interest in the land can be bound by an extension executed by another who owns a different undivided interest in severalty. A contract with third parties based upon different considerations as to their interest only cannot in any manner subject entirely different property to the terms of the contract.
We must look to the contractual considerations between the parties (contained in the Sergent-Gulf deed) and set out in the seven enumerated reservations. That which was reserved is clearly identified in the seven enumerated reservations. It is from the specific language .of each of the reservations that we gain knowledge as to what the parties intended Mrs. Sergent should have and own after her deed was delivered. Subsequent deeds and written demands afford no basis for determining the contractual rights between the parties as fixed in the deed from Mrs. Sergent to Gulf Production Company.
Furthermore, it is apparent to me at least that royalties could not be paid under the *680lease provisions and under the deed provisions because .of the differences in the two. The provisions of either the lease or the deed must control.
The deed from Mrs. Sergent to Gulf should he given effect as it is written. The parties are bound by the contractual provisions contained in the deed. The Sergent-Gulf deed contains no conflicting contractual provisions. See Woods v. Sims, 1S4 Tex. 59, 273 S.W.2d 617; Benge v. Scharbauer, 152 Tex. 447, 453, 259 S.W.2d 166; Thomas Gilcrease Foundation v. Stanolind Oil & Gas Co., 153 Tex. 197, 266 S.W.2d 850; Adams v. Duncan, 147 Tex. 332, 215 S.W.2d 599; Duhig v. Peavy-Moore Lumber Co., 135 Tex. 503, 144 S.W.2d 878.
A reasonable construction of the Sergent-Gulf deed leads to the natural conclusion that the rule stated in Benge v. Scharbauer, supra, and Thomas Gilcrease Foundation v. Stanolind Oil & Gas Co., supra, both by this Court, should be applied in this case. The rule announced in those cases is simply this, as stated in the Benge case [152 Tex. 447, 259 S.W.2d 168]:
“ * * * One-eighth of the bonuses, rentals and royalties normally would go to the grantors as owners of a l^th interest in the minerals and ¡Hjths of bonuses, rentals and royalties would normally go to the grantee as the owner of a -Hiths interest in the minerals. But arc not the owners of such interests in the minerals free to agree, if they desire to do so, that their fractional interests in bonuses, rentals and royalties under leases to be executed shall be in different amounts from what they normally ■would be? [Emphasis added.]
“The fractional 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 %ths 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; namely, %ths.”
In the Gilcrease case, the contention was that the royalties must be paid according to mineral ownership. This Court rejected such contention when it said [153 Tex. 197, 266 S.W.2d 854]: “This contention must be overruled. In the recent case of Benge v. Scharbauer, 152 Tex. 447, 259 S.W.2d 166, decided by this Court, it is held that while normally royalty is paid in exact proportion to the ownership, there is no basis for saying that the parties cannot contract for a different result.”
It is well settled that the owners of land may reserve to themselves minerals or mineral rights, including the oil, or any right or ownership therein. The deed from Mrs. Sergent to Gulf Production Company embraces a plain and unambiguous contract that Mrs. Sergenfs fee interest should pass to Gulf Production Company, but that she vuould reserve specific royalties, so that the royalties would not be paid normally, that is, “in exact proportion to ownership“ (which would have given Gulf all royalties), but would be paid in “different amounts from what they normally would be”, that is, instead of Gulf taking all of the 14-cent royalty allocable to the undivided fee interest conveyed to it by Mrs. Sergent, Gulf would have the 14 cents less the amount reserved by Mrs. Sergent.
*681I see no logical reason why a contract and agreement such as we have here, wherein Gulf agreed to pay Mrs. Sergent 25 cents per ton of 2240 pounds on all sulphur produced and marketed from the west 400 acres of said above described premises, is not enforceable, even admitting that the royalty .of 25 cents which was reserved was more than she owned after having conveyed a great portion of her royalty to others. It may be true that a reservation or exception is not in a strict sense a conveyance, but I think that Gulf, if it desired, could have contracted to pay to Mrs. Ser-gent 25 cents per ton regardless of her ownership, and under the above quoted authorities such a contract is permissible and binding. Such an agreement does not affect the title of third parties, that is, it will not diminish the title of any of Mrs. Ser-gent’s grantees who acquired’interest prior to the Sergent-Gulf deed in September 1931.
When Mrs. Sergent conveyed her fee to her lessee, Gulf Production Company, she effectively agreed to and did waive the entirety clause in the leases, for she in fact conveyed everything she owned except the particular specified benefits set out in her reservations in the deed.
The Sergent deed contains a “subject to” clause in the granting clause which reads, “and subject to the mineral and/or royalty reservations and exceptions hereinafter set out.”
The deed contains a second, “subject to” clause which provides that Mrs. Sergent’s deed was subject to the terms and conditions of existing leases and conveyances. Without this provision, her deed anyway would have been legally “subject to” the same leases and conveyances because they were already of record in Liberty County. This “subject to” provision was not written to conflict with the “subject to” provision in the granting clause but to prevent Mrs. Sergent’s deed from conveying upon its face properties that she had theretofore conveyed. Without this her warranty would have been breached at the instant she delivered her deed to Gulf. Duhig v. Peavy-Moore Lumber Co. and Benge v. Scharbauer, supra.
I think the two “subject to” clauses, the one in the granting clause, and the one following the description, emphasize two harmonious intentions — -the first to require observance of her reservations, and the second to protect her warranty.
I see no reason why any special weight should be given to the words in the deed: “subject, however, to the terms and conditions” of existing leases and conveyances.
The term “subject to” the terms and conditions of prior leases and conveyances did not create rights, but was a term of qualification and not of contract. See Kokernot v. Caldwell, Tex.Civ.App., 231 S.W.2d 528, 531, er. ref.; Alfrey v. Ellington, Tex.Civ.App., 285 S.W.2d 383, er. ref. n. r. e.
The deed from Mrs. Sergent to Gulf con--tains the following clause:
“It is expressly understood and agreed that the reservations and exceptions hereinabove enumerated shall be perpetual and shall apply whether such oil, gas, casinghead gas and/or gasoline, sulphur and/or other minerals is produced under the existing or any future lease or leases by the lessee or lessees therein or by the grantee herein, its successors and assigns, or otherwise.”
In conveying to Gulf her entire mineral fee, Mrs. Sergent knew that the royalties normally would be paid to Gulf and the other fee owners according to their respective mineral ownerships. As a part of the consideration for her mineral fee and apportioned royalties, she reserved therefrom the specified fractional and money royalties upon which she and Gulf had agreed.
Mrs. Sergent and Gulf could have provided that, for so long as the leases were in effect, such reserved royalties were to be apportioned in accordance with the terms *682of the leases, but instead, they provided that her reserved royalties should be perpetual, as set out above. With the mineral fee Gulf acquired the apportioned royalty that normally followed the quantum of mineral ownership, and in accordance with the contract Mrs. Sergent and Gulf agreed that out of the apportioned royalties and the minerals, she would receive the specific royalties set out in her deed, nothing more, nothing less. If the reservations as written cannot legally function, they are not reservations.
Petitioners admit that “without some form of reservation or exception such royalty interest as Mrs. Sergent owned would have passed to the grantee, Gulf Production Company.” For the respondent to recover it is not necessary and it does not challenge the validity of the apportionment provisions in the leases. It is well established that royalties, apportioned, or other kind, may be freely conveyed, or reserved, in whole or in part. See Thomas Gilcrease Foundation v. Stanolind Oil & Gas Co., supra, and Benge v. Scharbauer, supra. The Gilcrease case stated the rule that “while normally royalty is paid in exact proportion to the ownership, there is no basis for saying that the parties cannot contract for a different result” and further stated the rule that “it is well settled that the owners of land may reserve to themselves minerals or mineral rights, including the oil or any right or ownership therein.”
These authorities lead me to answer the question here presented in the affirmative. The question here is: “Could the owner of the minerals and the allocable royalty, in conveying the mineral fee, retain a part of the royalty previously owned, or contract with her grantee, as a part of the consideration for her conveyance for different royalties than those previously owned?” See Iskian v. Consolidated Gas Utilities Corp., Old., 251 P.2d 1073; Harley v. Magnolia Petroleum Co., 378 Ill. 19, 37 N.E.2d 760, 137 A.L.R. 900.
In the case at bar the leases permitted assignments in whole or in part. Mrs. Sergent was free to convey the land, the minerals, and the royalty, in whole or in part. She was free to agree with her grantee as to what royalties she would reserve from the conveyance. After she had sold the larger part of her fee interest, she was free to, and did, sell to Gulf Production Company all title that she had remaining, and in her deed she specifically reserved enumerated royalties different from those previously owned. Some of the royalties reserved in the deed (whether to be apportioned or not) were not created under the terms of the leases. For example, the cas-inghead gas royalty payable under the leases based on four cents per 1,000 cubic feet was not reserved, but a new casing-head gas royalty based on the actual value of the gas sold was reserved. The royalty on casinghead gasoline is mentioned in the deed, not in the leases. The $100 per well per year dry gas royalty payable under the leases was not reserved in the deed, but instead a royalty based on the value of dry gas sold was contracted for.
When we examine the deed to determine what Gulf acquired, it is necessary to look to the contractual considerations between the parties and set out in the enumerated reservations. As heretofore indicated, reservations cannot be made by implication. There is no reservation in her deed that she reserved all of the royalty that she owned before she executed the deed. As was said by this Court in the case of Sharp v. Fowler, 151 Tex. 490, 252 S.W.2d 153, 154: “A reservation of minerals to be effective must be by clear language. Courts do not favor reservations by implication.”
In regard to the perpetual royalty provision, that provision can only apply to the leases if the deed provisions are stricken, and can only apply to the deed if the lease provisions are stricken. Either the lease provisions or the deed provisions must fall. Mrs. Sergent certainly intended her deed to be her final act with respect to the property. Obviously she expected no reversion to her*683self under the terms of the deed. All she could possibly expect was the payments to her in perpetuity as set out in the deed. She knew that her leases were determinable fees, and that the entirety clauses would lapse with the leases. She knew that her deed was a fee conveyance in perpetuity. I think it is conclusive that when she provided for perpetual royalties she intended to and did mean perpetual under the perpetual fee conveyed by the deed, and did not mean perpetual under the determinable fee vested under the lease. It seems to me that the recitations contained in the deed from Mrs. Sergent to the petitioners, which was executed long after the Sergent-Gulf deed, are afterthoughts and cannot have the effect of fixing and determining the interests conveyed and reserved in the former deed.
The two leases involved were “unless” leases that terminated upon the failure of production. The parties stipulated there was no production of oil, gas or other minerals from any of the land between June 30, 1933 and January 1, 1947, a nonproduction period of 13i/£ years. The “unless” leases, after the termination in 1931 of the primary terms, depended for their very lives upon production which ceased before July 1, 1933. When production ceased, the “unless” leases terminated, without notice to and without action by either lessor or lessee. See Tennant v. Matthews, Tex.Civ.App., 19 S.W.2d 1115; Humble Oil & Refining Co. v. Davis, Tex.Com.App., 296 S.W. 285; Hamilton v. Baker, 147 Tex. 240, 214 S.W.2d 460. Each of the leases involved was to terminate at the end of six months “unless” there was actual drilling during that period, or “unless” the specified rental was paid. Production at the end of the primary term kept the leases alive until June 30, 1933. The fact that minerals could have been produced, although none was produced for 13i/£ years, did not keep the leases alive. Neither did the mere discovery of sulphur without production continue the leases forever. See Texas Company v. Davis, 113 Tex. 321, 254 S.W. 304, 255 S.W. 601; W. T. Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 19 S.W.2d 27. have heretofore mentioned and, for emphasis, I here repeat that the fact that respondent entered into new contracts with third parties and paid to them large sums money to keep respondent’s sulphur rights' alive as to properties wholly owned by such third parties does not, for petitioners’ bene-' fit, keep alive its own leases on its own land' purchased from Mrs. Sergent. The third' parties owned no interest in Mrs. Sergent’s interest, and her interest is now owned by respondent.
I disagree with the majority wherein it is held that the leases did not merge into the fee. Respondent owned the separable fee, and when it acquired the sulphur leaseholds theretofore carved out of the fee, the two estates merged. See West v. Sigler, Tex.Civ.App., 265 S.W.2d 618, er. ref. n. r. e.; State v. Moak, 146 Tex. 322, 207 S.W.2d 894; Sharp v. Fowler, Tex.Civ.App., 248 S.W.2d 322, affirmed 151 Tex. 490, 252 S.W.2d 153.
Under its deed from Mrs. Sergent, respondent was under no duty to develop or produce. The leases imposed obligations upon the fee owner. Respondent acquired the leases, therefore, the lessee obligations ceased.
Petitioners argue that intervening estates prevented the leases from merging into the fee. This position is not supported by the record or by authority. All the land Mrs. Sergent conveyed to Gulf was acquired by respondent, and all sulphur leases covering it were acquired by respondent, before 1934. This being true, the fact that respondent expended large sums to acquire interests of third parties in the other lands owned by the third parties in no wise prevented the merger of its sulphur leases into its separable fee purchased from Mrs. Sergent. Suppose Mrs. Sergent still owned her fee interest, and before 1934 had acquired the sulphur leasehold rights, could it be successfully argued that respondent’s contracts with third party interests prevented her leases from merging into her fee ? Respon*684dent lawfully acquired the fee and lawfully acquired the leases. The original leases permitted assignment. Mrs. Sergent’s deed permitted Gulf or its vendee to acquire the leases. Mrs. Sergent’s fee and the leasehold estates, vested in respondent, are as separate estates in respondent as they would be if Mrs. Sergent still owned them. Respondent having acquired the full title to the fee and having acquired the leases, the two estates completely merged to the destruction of the leases.
In order for petitioners to recover in this case they must avoid this Court’s holding in the Gilcrease and Benge cases, supra, that normally royalty follows the mineral ownership but that parties may contract for a different result. I have been unable to find a single case that sustains petitioners in their contention that Mrs. Sergent continued to own the same royalties after her deed to Gulf as she owned before the deed. See Thomas Gilcrease Foundation v. Stanolind Oil & Gas Co., supra; Harley v. Magnolia Petroleum Co., supra; Gypsy Oil Co. v. Schonwald, 107 Okl. 253, 231 P. 864; Eason v. Rosamond, 173 Okl. 10, 46 P.2d 471; Schrader v. Gypsy Oil Co., 38 N.M. 124, 28 P.2d 885. As I understand these cases, not one of them held that the owner after conveying all minerals still continued to own all the royalty because of prior lease provisions. In the Gilcrease case, Gilcrease Oil Company owned 14th of the minerals in the west part of the land and %ths of the minerals in the east part. This Court held tne entirety clause applicable to the mineral ownerships of Gilcrease Oil Company. No question of right to royalty without mineral ownership was involved.
It is my conclusion that the contention of petitioners should not be upheld. Mrs. Sergent’s entire royalties would have vested in Gulf Production Company had there been no specific royalty reservation in her deed. See Harris v. Currie, 142 Tex. 93, 176 S.W.2d 302. Had her deed not reserved tire specified royalties enumerated therein, she would have owned no royalty to convey to petitioners. In my judgment, the basis for the majority opinion must fall. The provisions of the entirety clauses became inoperative if for no other reason because Mrs. Sergent was free to contract and did so contract with Gulf for a different royalty reservation than normally would follow her minerals conveyed to Gulf Production Company.
It follows that, in my opinion, the judgments of the trial court and Court of Civil Appeals should be affirmed.
CULVER, J., joins in this opinion.