Court Opinion

ID: 9671586
Source: CourtListenerOpinion
Date Created: 2023-08-24 03:39:55.784197+00
Date Added: 2024-06-11T18:16:10.953726
License: Public Domain

HAMILTON, Justice.
On motion for rehearing the majority opinion is withdrawn and this opinion is substituted therefor. Also the' dissenting opinion filed heretofore is withdrawn.
• This case involves the construction of a mineral lease. The petitioners, Southland Royalty Company, Avoca Corporation and Socony Mobil Oil Company, Inc., each filed suit in the district court of Winkler County against 'respondents, Pan American Petroleum Corporation and Westbrook-Thompson Holding Corporation, alleging they were owners of certain royalty interests in lands covered by a mineral lease and seeking to recover of the respondents, -owners 'of' the mineral lease, their pro rata part of one-eighth of the proceeds of the minerals produced from the land under which they held their royalty interests. Both petitioners and respondent filed mo*52tions for summary judgment. The trial court denied the motion of petitioners and granted that of the respondents. The Court of Civil Appeals has affirmed the trial court judgment. 354 S.W.2d 184. On appeal to this court the judgments of the Court of Civil Appeals and trial court are reversed.
In 1925 H. G. Hendrick and wife Ida Hendrick leased to J. W. Grant 10,240 acres of land in Winkler County for the purpose of mining and operating for oil, gas, potash and other minerals, subject to certain covenants. We will quote the pertinent parts of said lease:
“ * * * do grant, lease and let unto the said lessee for the sole and only purpose of mining and operating for oil and gas potash or other minerals * * *.
“It is agreed that this lease shall remain in force for a term of 20 years from this date, and as long thereafter as oil or gas, potash or other minerals . or either of them is produced from said land by the lessee.
“In consideration of the premises the said lessee covenants and agrees:
“1st. To deliver to the credit of lessor, free of cost, in the pipe line to which they may connect their wells, the equal one-eighth part of all oil produced and saved from the leased premises and i/s of the net proceeds of potash and other minerals at the mine.
“2d. To pay the lessor One Hundred Dollars, each year in advance for the gas from each well where gas only is found, while the same is being used off the premises, and lessor to have gas free of cost from any such well for all stoves and all inside lights in the principal dwelling house on said land during the time by making their own connections with the well at their own risk and expense.
“3rd.- To pay lessor for gas produced from any oil well and used off the premises at the rate of Fifty and No/100 Dollars per year for the time during which such gas shall be used, said paymeñts to be made each three months in advance.
******
“Lessee shall have the right to use, free of cost, gas, oil and water produced on said land for all operations thereon, except water wells of lessor.”
This lease is on a printed form in which the blanks have been filled in with a typewriter and certain interlineations made in longhand on the printed portions thereof. The interlineations in the quoted part above are italicized. The respondents are the present owners of the lease in so far as it covers three-fourths of a section of land (480 acres) of the 10,240 acres included therein, and petitioners are the owners of varying mineral interests in the lands covered by the lease, including the 480 acres of land which is involved in this lawsuit..
Following the execution of the lease in 1925 oil was discovered in the area in 1926. In 1927 production of oil was obtained from the respondents’ portion of the leased premises. Thereafter a number of oil wells, were completed on respondents’ portion of the lease at depths ranging from 2800 to 3800 feet. From these oil wells some gas was produced. Later on some of the wells quit producing oil and produced only gas. Respondents and their predecessors in title were the owners of substantial portions of another lease identified in the record as the Ida Hendrick lease, which covered some 21,000 acres of land, and on which respondents had many producing wells. Gas was taken from the wells on petitioners’ land by means of pipe lines to the other leases of respondents furnishing gas as fuel for boilers, machine shops, garages and the operation of camps. The record reflects that the gas taken from wells producing oil was paid for by respondents on the basis of $50.00 per well per year when used off the premises, and the gas from wells producing gas only was paid for by respondents on the *53basis of $100 per well per year when used off the premises, and that such payments had been accepted by petitioners and their predecessors in title for practically 32 consecutive years before the filing of this suit in 1959. From time to time it was shown that respondents sold gas to other operators in the field for use in developing their premises. In 1949 respondents made a contract with C. V. Lyman to sell gas produced from shallow wells to be used in his gasoline plant, located off the Hendrick lease. Lyman obtained the gas by connecting on to some of the same wells of respondents from which they were using gas to develop others of their leases. Petitioners were not notified of such sales, nor did the respondents pay petitioners Ys of the proceeds of such sales. It is undisputed that the petitioners had no knowledge of any such sales.
Respondents drilled a deep gas well on petitioners’ portion of the T, J. Hendrick lease in 1956 which produced gas only. They began selling the gas from this well in 1958. Two other deep gas wells were completed, one in 1958 and one in early 1959, from which respondents began selling gas. Petitioners learned of such sales shortly before filing this suit in 1959, at which time respondents were selling gas from these three wells at the rate of more than a million dollars’ worth per year.
Petitioners contend that respondents are obligated to them for the payment of Ys of "the proceeds of the sale of gas from their portion of the premises covered by the lease -as provided in the first royalty clause therein. Respondents contend that they are only obligated to pay for gas used or sold under the provisions of paragraphs 2 and 3, contending that the first royalty provision does not provide for royalty on gas. The Court ■of Civil Appeals has held that the first royalty provision does not provide for the •payment of royalty on gas, and that respondents are liable only under 2 and 3.
We agree with the Court of Civil .Appeals that in construing a contract all the provisions, thereof must be construed together in order to arrive at the true intent of the parties. We think the orderly manner of proceeding, though, is to start at the beginning of the contract and take up the pertinent provisions as they come, and when we analyze each one of them then look at the matter as a whole and try to arrive at the proper construction to be placed on the whole contract.
There is no controversy over the granting clause. It was a lease or a conveyance of oil, gas, potash and other minerals for the sole and only purpose of mining and operating for those minerals. Neither is there any dispute over the term provision. The right to produce, use and sell said minerals, however, is subject to certain covenants. The lease provides “In consideration of the premises the said lessee covenants and agreesThen follows three paragraphs numbered 1st, 2nd and 3rd. The first paragraph provides for a Ys royalty on the oil and Ys °f the net proceeds of potash and other minerals at the mine. The second and third paragraphs provide for a flat-rate royalty to be paid on gas used off the premises. The parties disagree on the construction to be given these three royalty provisions.
The principal questions before us are, first, whether or not the term “other minerals” in the context in which it is used in the first royalty paragraph includes gas. Second, if it does include gas, is this royalty provision repugnant to the second and third royalty provisions which provide for a flat-rate royalty for gas used off the premises ? In answering the second question we must determine if the term “gas used off the premises” means gas sold for use off the premises.
 In construing the first royalty provision we note that it provides for Ys of the net proceeds of potash and other minerals at the mine. We think there is no question raised but that the “proceeds of potash and other minerals” means net pro*54ceeds from the sale of potash and other minerals. We also think there is no serious question raised but that the words “mineral” or “minerals” include gas. This is well settled in our law, as is shown by the following cases:
Luse v. Boatman, 217 S.W. 1096 (Tex.Civ.App.), error refused, where the deed reserved “all the coal and mineral on and in the above-described land”. Luse v. Parmer, 221 S.W. 1031 (Tex.Civ.App.), error refused, which involved the identical deed.
Donnell v. Otts, 230 S.W. 864 (Tex.Civ.App.), no writ history, which involved a reservation of “all minerals of all and any kind (except stone coal).”
Elliott v. Nelson, 113 Tex. 62, 251 S.W. 501, in which the reservation was of “all minerals in, upon and under the said land”.
Warner v. Patton, 19 S.W.2d 1111 (Tex.Civ.App.), error refused, which was a reservation of “all the mines, minerals, and mineral rights whatsoever that may be with, upon, or under said tract”.
Rio Bravo Oil Company v. McEntire, 128 Tex. 124, 95 S.W.2d 381, 96 S.W.2d 1110, involving a reservation of “coal, mineral, stone, or any other valuable deposit”.
Anderson & Kerr Drilling Company v. Bruhlmeyer, 134 Tex. 574, 136 S.W.2d 800, 127 A.L.R. 1217, involving a reservation of “Yz interest in all Minerells Paint Rock &c. found or will be found on said described tract of land”.
Branham v. Minear, 199 S.W.2d 841 (Tex.Civ.App.), writ refused, n. r. e., • in which there was a reservation of “any mineral on said land”.
Watkins v. Certain-Teed Products Corporation, 231 S.W.2d 981 (Tex.Civ.App.), involving a deed conveying “all of the gypsum, gypsum plaster and gypsum stone and all other minerals of any kind whatsoever”.
Each of the above cases held without qualification that the particular deed or reservation quoted above using the word “minerals” included oil and gas.
We have concluded that the term “other minerals” as used in the first royalty provision includes gas. Referring back to the granting clause quoted above, the term “other minerals”, being preceded by “oil, gas and potash”, necessarily means other minerals than oil, gas and potash. The words have the same meaning in the term clause because there it is preceded by oil, gas and potash. In the first royalty clause the words “other minerals” is preceded only by the specifically named minerals, oil and potash, consequently the words as used in this sentence must mean minerals other than oil and potash. Gas is necessarily one of the minerals other than oil and potash. “Other minerals” used by itself could have no meaning. It .only takes on meaning when used in connection with a certain specific mineral or minerals. Consequently, the term “other minerals” need not always have the same meaning in the same instrument. Its meaning is determined by the specifically named minerals with which it is used.
The Court of Civil Appeals has held that the words “other minerals” used in connection with the word “potash” could not be construed to cover -gas, but must ■ be construed to cover minerals of a like kind as potash. That court overlooks the fact that “other minerals” was preceded not only by “potash”, but by “oil”. But be that as it may, the doctrine of ejusdem generis as applied to minerals has never been accepted in this state. The reason for the reluctance of our courts to apply the doctrine is clearly stated by the Court of Civil Appeals in the case of Luse v. Boatman, supra. The most recent case on this subject by the Supreme Court of Texas is one of the cases cited above, Anderson & Kerr Drilling Company v. Bruhlmeyer, in which the court said:
“To the authorities last cited may be added the decisions above discussed which hold that a reservation of 'minerals’ is sufficient as a matter of law to include oil and gas, although at the time the reservation was made coal or *55other solid mineral had been produced in the community, or state, hut oil and gas had not.
“From our conclusion that the deed by its terms plainly and clearly evidences the intention of the grantors to reserve all minerals, including oil and gas, it follows that it became the duty of the court to give the deed that construction without looking to the attending circumstances for explanation.
“We answer the first certified question as follows: The clause of exception and reservation contained in the deed excepts and reserves as a matter of law a fee simple title in the grantors in and to an undivided one-half interest in all oil and gas in and under the land conveyed by the deed, and such provision is not so ambiguous, or so lacking in definiteness, that its meaning requires proof or explanation.” 136 S.W.2d p. 805, 127 A.L.R. 1217.
In the earlier case of Rio Bravo Oil Company v. McEntire, supra, the Supreme Court, in construing the words “coal, mineral, stone, or any other valuable deposit”, said:
“The Court of Civil Appeals correctly held that the language used in the reservation of minerals in the contracts by which the railway company in 1882 sold the land to Kelley was sufficient as a matter of law to include oil and gas.”
It should be noted that in the two Supreme Court cases, above cited, this court has said that the word “minerals” is to be construed to include oil and gas as a matter of law. These cases not only answer the holding of the Court of Civil Appeals in incorrectly applying the doctrine of ejus-dem generis to a mineral conveyance, but they answer the Court of Civil Appeals opinion’s holding that the royalty covenant above covered only those minerals which the parties contemplated might be produced from the premises. The quoted language pf the court’s opinion in the Anderson & Kerr Drilling Company case shows that the court frowns upon the consideration of surrounding circumstances as an aid to construction because the word “minerals” includes oil and gas as a matter of law and is clear and unambiguous.
The only case cited by the Court of Civil Appeals in support of its position with reference to the application of the doctrine of ejusdem generis is Right-of-Way Oil Co. v. Gladys City Oil, Gas & Manufacturing Co., 106 Tex. 94, 157 S.W. 737, 51 L.R.A., N.S., 268. This case involved a deed which conveyed to a railroad company (Right-of-Way’s predecessor in title) “the right of way, two hundred feet in width, over and upon the above-described tract of land; together with the right to take and use all the timber, earth, stone and mineral existing or that may be found within the right of way hereby granted”. Concerning this deed, the court said:
“The interest granted in the land is the right of way. What right did the railroad company acquire? As we have seen, by the use of the terms, ‘right of way,’ a ‘grant of the right of way,’ the company did not acquire the fee in the land. It got but an easement, * * *”. 157 S.W. 739, 51 L.R.A.,N.S., 268.
Having found that the deed conveyed only a surface easement, the Supreme Court held that the minerals conveyed were limited to those at or near the surface, and the appurtenant minerals did not include oil and gas lying beneath the surface. What minerals were conveyed were for right of way purposes, not for mining purposes. This is quite different from holding that the word “mineral” in the right of way deed did not cover oil and gas under the doctrine of ejusdem generis.
The fact that the royalty provision in the case before us provides for proceeds of other minerals “at the mine” seems to have given the Court of Civil Appeals some concern, but since the grant is for the pur*56pose of mining and operating for gas, and since it is so well settled that an oil or gas well is a mine, it is thought that it is not necessary to discuss this matter. See Luse v. Boatman, 217 S.W. 1096, at pp. 1100— 1101.
The Court of Civil Appeals has held as a matter of law that the second and third royalty provisions which provide for a flat rate per well to he paid on gas while “used off the premises” means gas “sold” to other parties. It reaches that conclusion on the authority of the holding in Harris v. Lone Star Gas Co., Tex.Civ.App., 19 S.W.2d 178, writ refused, 45 S.W.2d 664 (Tex.Civ.App.), writ refused (second appeal), which it says is in conflict with Reynolds v. McMan Oil & Gas Co., Tex.Comm.App., 1928, 11 S.W.2d 778, opinion adopted by the Supreme Court. We do not agree that these cases are in conflict. When these cases are read in the light of the different fact situations involved, it is readily seen that there is no conflict. Both the Reynolds v. McMan Oil Company case and the Harris v. Lone Star Gas Company case had similar covenants as does the lease which we have before us.
The difference in the case before-us and the two other cases is that the other two cases provided 'in the first covenant for l/s royalty only on oil, whereas the case before us provided for the royalty on oil and 1/6 of the proceeds of potash and other minerals. The difference in the Reynolds case and the Harris case is that the Reynolds case involved recovery of i/i royalty on gasoline produced from gas from an oil well and sold, whereas the Harris case involved recovery of royalty on gasoline produced from gas from a well producing gas only and sold. In the Reynolds case the court held that the gas coming from an' oil well is subject to the l/s royalty payment as oil. The court further held with reference to the flat rate gas clause that “used” in this connection is not necessarily synonymous with “sold” or “disposed of”, rather it is synonymous with “employed” or “consumed”, and that the clause must he construed in the light of other provisions of the lease, the implication being that since gas from an oil well was subject to payment of royalty as oil, the term “used off the premises” did not include “sold”.
In the Harris case there was an alternative suit for the recovery of the payment under the flat rate gas payment clause,, which was the same as our second covenant in this case. The trial court allowed recovery both under the Vé oil royalty clause and under the flat rate gas payment clause. The Court of Civil Appeals denied recovery under the oil royalty clause for the reasons, above stated, but affirmed the trial court in allowing recovery on the flat rate gas. covenant. There was no controversy on this matter. The proof showed there that the lessee had tendered the flat rate payment for each and every year sued for. The only controversy was whether or not the claim for payment under the flat rate gás covenant was barred by limitation. Both the trial court and the Court of Civil Appeals held that the claim for payment of the flat rate was not barred. Consequently this case does not support the Court of Civil' Appeals in its holding that “used” as a matter of law is synonymous with “sold”.
While we have concluded that the. term “used” • as employed in these flat rate gas-, clauses is not as a matter of law synonymous with “sold”, we are not willing to say that the term “used” as employed in these clauses can never be construed as meaning-“sold” or “disposed of”. In fact, we have concluded that the term “used off the premises” is ambiguous. It could mean used off the premises by the lessee for purposes of developing other leases or it may mean used off the premises in many ways 'by third', parties to whom lessee has assigned the-right or sold the right. The clauses do not limit the manner of use. Since we have noway of knowing what the parties actually intended by the use of the term “used off the premises” in the second and third covenants, we must arrive at their intention-'as-best we can by the applicatidn of standard, rules of interpretation and construction.-
*57We reject the theory of the respondents, adopted by the Court of Civil Appeals, that the parties themselves have answered the question by their own practical construction of the lease over a long period of time. The summary judgment proofs, detailed in the opinion of the Court of Civil Appeals, show, perhaps, that those claiming under the lessee construed the lease to require payment of the flat-rate royalties provided in the second and third royalty clauses on gas sold for use off the premises by others, but there are no proofs that those holding under the lessors so construed them. Application of the “construction-by-the-parties” rule can not be predicated upon evidence that one of the parties by the exercise of diligence should have known that the other was construing a contract in a particular manner. Before that rule may be used to ascertain the intention of the parties, the evidence must show that the practical construction was “deliberately given it by both parties.” Galveston, H. & S. A. Ry. Co. v. Johnson, 74 Tex. 256, 11 S.W. 1113, 1116. The evidence before us is undisputed that those holding under the lessors did not know that the successors to the lessees were so construing the lease and were paying royalties accordingly. It is also undisputed that respondents have for more than thirty years been using gas off the land of petitioners in the development of their other leases in the area. The payment of the flat-rate royalties under paragraphs 2 and 3 of the lease during this time is entirely consistent with petitioners’ contention that the payment of such royalties was not notice that respondents were selling gas.
It is our view that the question should be answered by the application of the rule of construction which requires a court to harmonize and thus to give meaning to all apparently conflicting provisions of a contract when this reasonably may be done.
On the face of the lease as finally written and executed by the parties there is a possible conflict between the first royalty clause and the second and third royalty clauses. The first royalty clause, as amended, imposes a clear legal obligation to pay royalty of }4th 0f the net proceeds on gas sold, including gas sold for use by others off the premises, and which in its second and third royalty clauses does not impose clear legal obligations to pay flat-rate royalties on gas sold for use by others off the premises but are ambiguous in that respect. If we construe the second and third clauses as imposing obligations to pay the flat-rate royalties while gas is being used off the premises by others to whom the gas is sold, as well as by the lessee, we either create an absolute repugnancy between the royalty clauses or we impose an obligation to pay both the percentage and the flat-rate royalties for gas sold. On the other hand, if we construe the second and third royalty clauses as imposing obligations to pay the flat-rate royalties only while gas is being used off the premises by the lessee, repug-nancy is avoided. The obligation would be to pay the percentage royalty on gas sold and the flat-rate royalty on the gas used off the premises. Thus none of the clauses are nullified and all three clauses are given meaning and operative effect. Sound rules of construction require us so to construe them. Woods v. Sims, 154 Tex. 59, 273 S.W.2d 617, 620; Benge v. Scharbauer, 152 Tex. 447, 259 S.W.2d 166, 167.
While there is no need here to resort to them, there are other secondary rules of construction for resolving apparent conflicts which, if applied, would lead to the same result. One is the rule which gives effect to written or typewritten provisions over printed provisions. McMahon v. Christmann, 157 Tex. 403, 303 S.W.2d 341, 344. Another is the rule which gives effect to an earlier over a later provision. Benskin v. Barksdale, Tex.Com.App., 246 S.W. 360, 363; Williston on Contracts, Revised Edition, § 624.
The effect of our holding here is that a lease which contains a specific pro*58vision for the payment of royalty for gas sold and also contains a provision for the payment of royalty on a flat-rate basis for gas used off the premises, the term “used off the premises” does not include “sold for use off the premises”. This holding is in harmony with this court’s holding in Reynolds v. McMan Oil & Gas Company, supra, and is not in conflict with Harris v. Lone Star Gas Company, supra, as pointed out above. Neither is it in conflict with Humble Oil & Refining Company v. Poe, Tex.Com.App., 29 S.W.2d 1019, Mussellem v. Magnolia Petroleum Company, 107 Okl. 183, 231 P. 526, and Lackey v. Ohio Oil Company, 10th Cir., 138 F.2d 449, because in each of these cases the leases involved did not contain a specific provision for the payment of royalty on gas sold. The cases of Magnolia Petroleum Company v. Connellee, Tex.Com.App., 11 S.W.2d 158, on rehearing Tex.Com.App., 14 S.W.2d 1020, and Magnolia Petroleum Company v. Akin, Tex.Com.App., 11 S.W.2d 1113, relied on by respondents, are not in conflict with our opinion. The lease involved in each of these cases, after providing for royalty of Ys on oil and a flat-rate royalty to be paid on gas sold or used off the premises, pr07 vided as follows: “For all other minerals, Yz of the net profits thereof.” In these cases recovery was sought for royalty on gas under the last provision on the theory it was a mineral. Recovery was properly denied, first, because specific provision was made for gas sold, and second, because the term “other minerals” used in the last royalty provision could only refer to minerals other than oil and gas.
Petitioners’ motion for rehearing is granted, the judgment heretofore rendered and entered is set aside, and the judgments of the District Court and the Court of Civil Appeals are reversed and the cause is remanded to the District Court for further proceedings in accordance with this opinion.
GRIFFIN, WALKER and NORVELL, JJ., dissenting.