Court Opinion

ID: 4221330
Source: CourtListenerOpinion
Date Created: 2017-11-17 06:09:11.61095+00
Date Added: 2024-06-11T14:15:36.194874
License: Public Domain

IN THE SUPREME COURT OF TEXAS
                                         444444444444
                                           NO . 16-0353
                                         444444444444

           BENEDICT G. WENSKE AND ELIZABETH WENSKE, PETITIONERS,

                                                 v.

                   STEVE EALY AND DEBORAH EALY, RESPONDENTS

           4444444444444444444444444444444444444444444444444444
                            ON PETITION FOR REVIEW FROM THE
                  COURT OF APPEALS FOR THE THIRTEENTH DISTRICT OF TEXAS
           4444444444444444444444444444444444444444444444444444

                                     Argued March 22, 2017

       JUSTICE BROWN delivered the opinion of the Court, in which CHIEF JUSTICE HECHT , JUSTICE
GREEN , JUSTICE JOHNSON , and JUSTICE GUZMAN joined.

       JUSTICE BOYD filed a dissenting opinion, in which JUSTICE WILLETT , JUSTICE LEHRMANN ,
and JUSTICE DEVINE joined.

       In this case we construe a deed that conveyed a mineral estate and the surface above it. Doing

so allows us to reinforce a trend in our mineral-deed jurisprudence. Over the past several decades,

we have incrementally cast off rigid, mechanical rules of deed construction. We have warned against

quick resort to these default or arbitrary rules. And we do so again today by reaffirming the

paramount importance of ascertaining and effectuating the parties’ intent. We determine that intent

by conducting a careful and detailed examination of a deed in its entirety, rather than applying some

default rule that appears nowhere in the deed’s text.

       The specific issue in this case is whether the language of the deed passed the entire burden

of an outstanding non-participating royalty interest to the grantees or whether the NPRI
proportionately burdened the grantor’s reserved interest.1 The trial court concluded that the deed

burdened both parties with an outstanding NPRI. And it ruled that the parties must share the burden

of the NPRI in proportion to their respective fractional mineral interests. The court of appeals

affirmed, evaluating the case in light of our holding in Bass v. Harper, 441 S.W.2d 825 (Tex. 1969),

and reasoning that Bass did not control. We affirm the court of appeals’ judgment, though we clarify

that the parties’ intent, not Bass or default rules, decides the case.

                                                              I

         In 1988, Benedict and Elizabeth Wenske purchased a 55-acre mineral estate from Marian

Vyvjala, Margie Novak, and others. From that 55-acre conveyance, Vyvjala and Novak each reserved

a 1/8th NPRI, resulting in a combined 1/4th NPRI over all of the oil, gas, and other minerals

produced from the property for a period of 25 years (Vyvjala NPRI).

         In 2003, the Wenskes sold the property to Steve and Deborah Ealy by warranty deed. The

deed purported to grant all of the surface estate to the Ealys and, by operation of a reservation,

effectively divided the mineral estate between the parties: 3/8ths reserved to the Wenskes and 5/8ths

conveyed to the Ealys. The relevant parts of the deed are:

         Reservations from Conveyance:

         For Grantor and Grantor’s heirs, successors, and assigns forever, a reservation of an
         undivided 3/8ths of all oil, gas, and other minerals in and under and that may be
         produced from the Property. If the mineral estate is subject to existing production or

         1
            “A non-participating royalty interest is ‘an interest in the gross production of oil, gas, and other minerals
carved out of the mineral fee estate as a free royalty, which does not carry with it the right to participate in the execution
of, the [b]onus payable for, or the delay rentals to accrue under oil, gas, and mineral leases executed by the owner of the
mineral fee estate.’” KCM Fin. LLC v. Bradshaw, 457 S.W .3d 70, 75 (Tex. 2015) (quoting Lee Jones, Jr., Non-
Participating Royalty, 26 T EX . L. R EV . 569, 569 (1948) (footnote omitted)).

                                                              2
         an existing lease, the production, the lease, and the benefits from it are allocated in
         proportion to ownership in the mineral estate.[2]

         Exceptions to Conveyance and Warranty:

         ...

         Undivided one-fourth (1/4) interest in all of the oil, gas and other minerals in and
         under the herein described property, reserved by Marian Vyvjala, et al for a term of
         twenty-five (25) years in instrument recorded in Volume 400, Page 590 of the Deed
         Records of Lavaca County, Texas, together with all rights, express or implied, in and
         to the property herein described arising out of or connected with said interest and
         reservation, reference to which instrument is here made for all purposes.

         ...

         Grantor, for the Consideration and subject to the Reservations from Conveyance and
         the Exceptions to Conveyance and Warranty, grants, sells, and conveys to Grantee
         the Property, together with all and singular the rights and appurtenances thereto in
         any way belonging, to have and to hold it to Grantee and Grantee’s heirs, successors,
         and assigns forever. Grantor binds Grantor and Grantor’s heirs and successors to
         warrant and forever defend all and singular the Property to Grantee . . . except as to
         the Reservations from Conveyance and the Exceptions to Conveyance and Warranty.

         In 2011, the Wenskes and Ealys entered into oil-and-gas leases that provided for a royalty

on production. In 2013, a dispute arose concerning from whose share of the royalties the 1/4th

Vyvjala NPRI would come. The Wenskes sought a declaratory judgment that their 3/8ths interest

was unburdened by the NPRI. The Ealys counter claimed and sought a declaratory judgment that the

NPRI burdened both the Ealys’ and the Wenskes’ mineral estates in proportion to each party’s

fractional interest in the minerals.

         2
          The deed’s description of Vyvjala’s interest apparently mischaracterized it as a mineral interest. A prior deed,
expressly referred to in this deed, makes clear Vyvjala’s actual interest is a royalty interest. Neither the W enskes nor the
Ealys argue that Vyvjala has anything other than a royalty interest.

                                                             3
       The trial court granted summary judgment for the Ealys, concluding that they and the

Wenskes must share the NPRI’s burden in proportion to their interests. The court of appeals

affirmed. ___ S.W.3d ___, ___ (Tex. App.—Corpus Christi–Edinburg 2016) (mem. op.). We granted

the Wenskes’ petition for review.

                                                  II

       “The construction of an unambiguous deed is a question of law for the court.” Luckel v.

White, 819 S.W.2d 459, 461 (Tex. 1991). When construing an unambiguous deed, our primary duty

is to ascertain the intent of the parties from all of the language within the four corners of the deed.

Id. The parties’ intent, “when ascertained, prevails over arbitrary rules.” Id. at 462 (quoting Harris

v. Windsor, 294 S.W.2d 798, 800 (Tex. 1956)). In Luckel, we rejected mechanical rules of

construction, such as giving priority to certain clauses over others, or requiring the use of so-called

“magic words.” See Concord Oil Co. v. Pennzoil Expl. & Prod. Co., 966 S.W.2d 451, 465 (Tex.

1998) (citing Luckel, 819 S.W.2d at 462).

       Here, neither party contends the deed is ambiguous, and we agree. See Heritage Res., Inc.

v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996) (explaining that ambiguity is a question of law

for the court). So we begin by attempting to ascertain the parties’ intent as expressed in the language

of the deed. And generally, if we can ascertain their intent, that should also be the end of our

analysis.

       The Wenskes argue, however, that our treatment of a “subject-to” clause in Bass v. Harper

should control this case. They contend we must give the same effect to the subject-to clause in the

                                                  4
deed here as we gave the subject-to clause in Bass. So we take a brief detour to explain why Bass

does not compel a specific outcome in this case.

                                                   A

        In Bass v. Harper, Thomas Bass owned the surface of a tract of land, the executive rights,

and 8/14ths of the 1/8th royalty under the existing lease. 441 S.W.2d at 825. The other 6/14ths of

the 1/8th royalty had been reserved by third parties. Id. Bass executed a warranty deed granting an

undivided 1/2 interest in the minerals to a grantee. Id. at 826. A subject-to clause in the deed

excepted from the conveyance various mineral interests totaling the other 6/14ths of the royalty. Id.

        A dispute arose over royalty payments and Bass argued that (1) the deed conveyed half of his

entire estate and (2) that half (7/14ths) was made subject to the outstanding 6/14ths royalty. Id. at

825. In other words, the 7/14ths was burdened with, or subject to, all of the outstanding royalty

interests. Id. This, in effect, left the grantee with just a 1/14th interest. Id. The grantee’s successor

argued that although the grant was for an undivided one-half interest in the mineral estate (7/14ths),

Bass meant to convey a half of the interest he owned, that is, 1/2 of Bass’s 8/14ths royalty (4/14ths).

Id. He argued that the subject-to clause was included merely to protect Bass from a warranty claim

based on the outstanding interests. Id.

        We agreed with Bass, holding that the deed’s granting clause conveyed 1/2 of the 1/8 royalty

because it contained no language limiting the grant to 1/2 of the interest Bass owned. Id. at 827; see

also Averyt v. Grande, Inc., 717 S.W.2d 891, 894 (Tex. 1986) (interpreting Bass). We further held

that the grant of 7/14ths of the royalty was subject to the exception of 6/14ths, leaving the grantee

with 1/14th of the royalty. Bass, 441 S.W.2d at 828. We reasoned that the exception of 6/14ths of

                                                   5
the royalty in the subject-to clause was “tied specifically to the grant.” Id. at 827. Therefore, it

operated to limit the estate granted and not simply to protect Bass against warranty claims. Id. We

rendered judgment for Bass “under the specific wording of the instrument” at issue. Id. at 828.

        Our reasoning in Bass should remain limited to the specific wording of the instrument in that

case. Our analysis relied, in large part, on the location of the subject-to clause in the deed. Id. at 827

(“The instrument in question does not relate the outstanding mineral royalty interests to the warranty.

It could have done so, but it is tied specifically to the grant.”). We have said for decades, even before

Bass, that:

        The strictness of ancient rules for construing deeds and like instruments has been
        relaxed, and it is now well settled that all parts of the instrument will be given effect
        when possible, and the intention of the parties will be gathered from the whole
        without reference to matters of mere form, relative position of descriptions,
        technicalities, or arbitrary rules.

Sun Oil Co. v. Burns, 84 S.W.2d 442, 444 (Tex. 1935).

        Since Bass, our rules for deed construction have moved even more decisively toward (1) a

focus on the intent of the parties, expressed by the language within the four corners of the deed, and

(2) harmonizing all parts of an instrument, even if particular parts appear contradictory or

inconsistent. See Luckel, 819 S.W.2d at 462; see also Anadarko Petroleum Corp. v. Thompson, 94
S.W.3d 550, 554 (Tex. 2002). As we recently reaffirmed, “[i]ntent must be determined by a careful

and detailed examination of the document in its entirety, rather than by application of mechanical

rules of construction that offer certainty at the expense of effectuating intent.” Hysaw v. Dawkins,

483 S.W.3d 1, 16 (Tex. 2016).

                                                    6
         We do not reject Bass as mistaken jurisprudence and we do not overrule it. But today, in light

of our evolving mineral-deed-construction jurisprudence, courts and practitioners should view Bass

as limited to the specific language at issue in that case.

                                                          B

         Having explained Bass’s inapplicability, we turn to the deed language in this case. The court

of appeals correctly stated that its primary duty was “to ascertain the intent of the parties within the

four corners of the deed.” ___ S.W.3d at ___ (citing Altman v. Blake, 712 S.W.2d 117, 118 (Tex.

1986)). Yet the court was quick to turn to a “default rule” to decide the case. Id. at ___. It held that

because the deed provided no guidance on how to allocate the burden of the Vyvjala NPRI, the

alleged “default rule”3 from Pich v. Lankford should apply: “Ordinarily the royalty interest . . . would

be carved proportionately from the two mineral ownerships . . . .” Id. (quoting Pich v. Lankford, 302
S.W.2d 645, 650 (Tex. 1957)). For that reason, and others we need not address here, the court

affirmed.

         We disagree with the court of appeals’ analysis. The parties’ intent, when ascertainable,

prevails over arbitrary rules. Luckel, 819 S.W.2d at 462. And we can ascertain the parties’ intent here

by careful examination of the entire deed. See Hysaw, 483 S.W.3d at 16. Applying default rules or

other mechanical rules of construction to determine the deed’s meaning is, therefore, both

unnecessary and improper. See id.; Luckel, 819 S.W.2d at 462.

        3
          The W enskes argue that this rule from Pich is dicta and should be ignored. See Pich v. Lankford, 302 S.W .2d
645, 646–50 (Tex. 1957). As set out below, we have no need to expressly interpret or apply Pich today. W e therefore
express no opinion about the vitality of this part of the Pich decision.

                                                          7
       The Wenskes granted the estate “subject to the Reservations from Conveyance and the

Exceptions to Conveyance and Warranty.” Under the heading “Reservations from Conveyance,” they

reserved “an undivided 3/8ths of all oil, gas, and other minerals in and under and that may be

produced from the Property.” Under the heading “Exceptions to Conveyance and Warranty,” the

Wenskes identified an “[u]ndivided one-fourth (1/4) interest in all of the oil, gas and other minerals

in and under the herein described property, reserved by Marian Vyvjala, et al for a term of twenty-

five (25) years in instrument recorded in [county deed records] . . . reference to which instrument is

here made for all purposes.”

       According to the Wenskes, the deed conveyed 5/8ths of the mineral estate and the entire

burden of the 1/4th Vyvjala NPRI, in effect leaving the Ealys with only 3/8ths of the production

royalty. That is, 8/8ths minus 3/8ths reserved to the Wenskes minus the 2/8ths NPRI. According to

the Ealys, the Wenskes conveyed the minerals and effectively reserved 3/8ths to themselves, but both

the Wenskes’ and Ealys’ fractional interests are proportionally burdened by the outstanding 1/4th

NPRI (e.g., the Wenskes must satisfy 3/8ths of the 1/4th NPRI and the Ealys must satisfy 5/8ths of

the 1/4th NPRI).

       Both parties present a wide range of arguments, but they both understand that the

construction of this deed turns, in large part, on the meaning of the subject-to clause. That is, the

precise effect of this conveyance being “subject to the Reservations from Conveyance and the

Exceptions to Conveyance and Warranty” in the deed.

       “The words ‘subject to,’ used in their ordinary sense, mean subordinate to, subservient to or

limited by.” Kokernot v. Caldwell, 231 S.W.2d 528, 531 (Tex. Civ. App.—Dallas 1950, writ ref’d)

                                                  8
(citations and quotation marks omitted). And although the subject-to clause in Bass was tied to the

grant and not the warranty, in general, the principal function of a subject-to clause in a deed is to

protect a grantor against a claim for breach of warranty when some mineral interest is already

outstanding. See Walker v. Foss, 930 S.W.2d 701, 706 (Tex. App.—San Antonio 1996, no writ);

Ernest E. Smith, The “Subject To” Clause, 30 ROCKY MTN . MIN . L. INST . § 15.01 (1984); see also

RICHARD W. HEMINGWAY , THE LAW OF OIL AND GAS § 9.1 (3d ed. 1991) (collecting cases from

multiple jurisdictions to that effect).

        But “the beguiling simplicity of the ‘subject to’ clause has often misled conveyancers into

using it for quite different purposes.” Smith,“Subject To” Clause at § 15.01. “As a long series of

cases has made painfully clear[, use of a subject-to] clause to perform some function other than a

limitation on the deed warranty is likely to introduce an element of ambiguity into the deed which

may be resolved only through litigation.” Id.

        We recognize, as has Professor Smith, that subject-to clauses are widely used for other

purposes. In Averyt v. Grande, for example, we held “that a ‘subject to’ clause that excepts fractional

mineral interests from lands and minerals conveyed does not form part of the description of the

land[,]” but does limit the estate granted and warranted. 717 S.W.2d at 894. Subject-to clauses are

also used when the property to be conveyed is subject to an outstanding mineral lease and that lease

is to be maintained after the conveyance. See, e.g., Hoffman v. Magnolia Petroleum Co., 273 S.W.
828, 829 (Tex. Comm’n App. 1925, holding approved, judgm’t adopted).

        Here, no question exists that the interest granted to the Ealys was “limited by” or “subservient

to” the Vyvjala NPRI. See Kokernot, 231 S.W.2d at 531. But in this transaction between individual

                                                   9
citizens for 55 acres in Lavaca County, we think “[t]he best construction is that which is made by

viewing the subject of the contract as the mass of mankind would view it; for . . . it may be safely

assumed that such was the aspect in which the parties themselves viewed it.” Dunham v. Kirkpatrick,

101 Pa. 36, 43 (1882) (citation omitted). Giving the deed’s words their plain meaning, reading it in

its entirety, and harmonizing all of its parts, we cannot construe it to say the parties intended the

Ealys’ interest to be the sole interest subject to the NPRI. See id.; Hysaw, 483 S.W.3d at 16; see also

In re Office of the Att’y Gen. of Tex., 456 S.W.3d 153, 155–56 (Tex. 2015) (“Given the enormous

power of context to transform the meaning of language, courts should resist rulings anchored in

hyper-technical readings of isolated words or phrases. The import of language, plain or not, must be

drawn from the surrounding context . . . .”). And, declining to apply mechanical rules or require the

use of “magic words,” we will not read such an intent into this document. See Luckel, 819 S.W.2d

at 462.

          The principles of oil-and-gas law inform our interpretation. Generally, “the conveyance of

an interest in the minerals in place carries with it by operation of law the right to a corresponding

interest in the royalty.” Wood v. Sims, 273 S.W.2d 617, 621 (Tex. 1954); see also Benge v.

Scharbauer, 259 S.W.2d 166, 169 (Tex. 1953) (“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 . . . .”). As the dissent correctly notes, this means when a deed conveys or reserves

a 3/8ths interest in the minerals, the nature of that interest, by operation of law, includes the right to

receive 3/8ths of the royalties. See Wood, 273 S.W.2d at 621. And under the same principle, a

severed fraction of the royalty interest—like the Vyvjala NPRI—generally would burden the entire

                                                   10
mineral estate because it necessarily limits the royalty interests attached to the underlying mineral

interests. See post at __.

        But that principle does not compel an outcome in this case. Parties are free to contract for

whatever division of the interests suits them. Their intent, as expressed in the deed, controls. If they

want their agreement to operate differently from this basic principle of mineral conveyance, this

Court has said they should “plainly and in a formal way express that intention.” Benge, 259 S.W.2d

at 169. We see no expression of such intent, plain or not, in the deed here.

        Further, the exceptions to conveyance and exceptions to warranty are combined into one

clause in this deed (“Exceptions to Conveyance and Warranty”). That combined clause, read with

the subject-to clause and compared with the reservations-from-conveyance clause, indicates an intent

to avoid a breach of warranty (and therefore an over-conveyance problem), rather than a clear

attempt to reserve a full 3/8ths interest, free of the Vyvjala NPRI, to the Wenskes.

        Also, in their arguments to this Court, the Wenskes emphasized the fact that the reference

to the outstanding Vyvjala NPRI was “made for all purposes.” “For all purposes” language may

indeed put a grantor on notice that he is receiving an interest subject to all restrictions and

reservations contained in the deed. See Harris v. Windsor, 294 S.W.2d 798, 800 (Tex. 1956). But

again, the Ealys do not contend their interest is free of the Vyvjala NPRI. They merely argue that

their interest is not solely responsible for satisfying it. We agree that the deed here cannot be

reasonably construed as conveying the entire burden of the outstanding NPRI to the Ealys.

        Finally, the mineral-reservation paragraph concludes with this sentence: “If the mineral estate

is subject to existing production or an existing lease, the production, the lease and the benefits from

                                                  11
it are allocated in proportion to ownership in the minerals.” This language strengthens our

confidence that the parties intended to split the benefits and burdens of the minerals in the same

proportion as their ownership of them.

        This deed (1) granted the minerals to the Ealys, (2) reserved 3/8ths of the minerals to the

Wenskes, and (3) put the Ealys on notice that the entirety of the minerals are subject to the

outstanding 1/4th Vyvjala NPRI to avoid a warranty claim. Giving the words of this deed their plain

meaning, reading it in its entirety, and harmonizing all of its parts, we cannot construe it to say that

the parties intended the Ealys’ interest to be the sole interest subject to the NPRI. “[A] careful and

detailed examination of the document in its entirety” leads us to conclude that the only reasonable

reading of the deed results in the Wenskes and Ealys bearing the Vyvjala NPRI burden in shares

proportionate to their fractional interests in the minerals. See Hysaw, 483 S.W.3d at 16.

                                                  III

        To be clear, we do not hold that all conveyances of a fractional mineral interest subject to an

outstanding NPRI will, by default, result in the various fractional-interest owners being

proportionately responsible for satisfying the NPRI. Analytically, our holding is just the opposite.

In construing an unambiguous deed, the parties’ intent—determined by a careful and detailed

examination of the document in its entirety—is paramount. Rigid, mechanical, arbitrary, and arcane

rules, which at one time offered certainty at the expense of effectuating intent, are relics of a bygone

era. We disfavor their use.

        Yet we are acutely aware that parties who draft agreements rely on the principles and

definitions pronounced by this Court. They rightly depend on us for continuity and predictability in

                                                  12
the law, especially in the oil-and-gas field. See Averyt, 717 S.W.2d at 895; Davis v. Davis, 521
S.W.2d 603, 608 (Tex. 1975). Our decision today does not vitiate the established background

principles of oil-and-gas law nor does it open for debate the meaning of clearly defined terms in

every deed dispute. See, e.g., Moser v. U.S. Steel Corp., 676 S.W.2d 99, 102 (Tex. 1984) (defining,

definitively, “minerals”); Clifton v. Koontz, 325 S.W.2d 684, 690–91 (Tex. 1959) (defining the

standard for “production” and “production in paying quantities”). Giving effect to the parties’ intent

advances the principle of certainty under the law. Few things can promote continuity and

predictability more than clear expressions of intent within an instrument.

       The deed here is not a model of clarity. But, read in its entirety, we see only one reasonable

interpretation of its words. Today we give effect to those words. Going forward, drafters of deeds

should endeavor to plainly express the contracting parties’ intent within the four corners of the

instrument they execute. And courts should favor ascertaining and giving effect to that intent over

employing arcane rules of construction. Although the court of appeals did not take this route, it

nonetheless reached the correct result. Therefore, we affirm its judgment.

                                               ________________________________________
                                               Jeffrey V. Brown
                                               Justice

OPINION DELIVERED: June 23, 2017

                                                 13