966 S.W.2d 451, 460 (Tex.1998)
In 1937, A.B. Crosby executed a mineral deed conveying an interest in Survey Sixty-four in Zapata County to Southland Lease and Royalty Corporation.1 The granting clause specified an undivided one-ninety sixth (1/96) interest in the oil, gas, and other minerals in and under the land, together with rights of ingress and egress for prospecting and drilling.2 A subsequent clause stated that the conveyance was made subject to the terms of any valid subsisting oil, gas and/or mineral lease or leases. It covered and included one-twelfth (1/12) of all rentals and royalty of every kind and character payable under such lease or leases.3 The day before executing this deed, Crosby had acquired an undivided 1/12 interest in the same minerals through an identical deed except that its granting clause used the fraction one-twelfth (1/12).4 At the time each deed was executed, an oil and gas lease providing for a 1/8 royalty was outstanding on the property. That lease expired before any of the parties to this case entered into new leases covering the survey.5
Crenshaw Royalty Corporation later acquired Southland's interest under the 1937 deed and executed two oil and gas leases under which Concord Oil Company became the lessee.6 In 1961, Crosby executed another mineral deed conveying an undivided 7/96 interest in the minerals under Survey Sixty-four to John M. Robinson.7 Robinson subsequently entered into an oil and gas lease with Pennzoil Producing Company. Through a series of transactions, Pennzoil Exploration and Production Company succeeded to interests under that lease, and Sanchez O'Brien Oil & Gas Corporation acquired a 25% interest in the lease.8
Pennzoil completed producing wells on the property, after which Concord sought a determination of its interest and sued for damages equal to the value of past production.9 Pennzoil counterclaimed seeking a determination of its rights. The case was tried to the court on stipulated facts.10 Concord's primary contention was that the 1937 deed unambiguously conveyed a 1/12 interest in the minerals. Pennzoil contended that the deed conveyed only a 1/96 interest in the minerals together with a 1/12 interest in rentals and royalty limited to the lease existing at the time of the grant.11
The trial court found in favor of Pennzoil and entered a take-nothing judgment against Concord.12 The court of appeals affirmed.13 The Supreme Court of Texas granted review, and after granting rehearing and withdrawing its initial opinion, the Court issued its decision on February 26, 1998.14
Whether the 1937 mineral deed conveyed a single estate in the minerals or two separate estates of differing sizes and durations?15
The construction of an unambiguous deed is a question of law for the court. The primary duty of a court when construing such a deed is to ascertain the intent of the parties from all of the language in the deed by a fundamental rule of construction known as the four corners rule. That intention, when ascertained, prevails over arbitrary rules. The court, when seeking to ascertain the intention of the parties, attempts to harmonize all parts of the deed.16
Yes. The deed refers throughout to a single estate hereby conveyed that covers and includes one-twelfth of all rentals and royalty of every kind and character. It expressly states that the estate does not depend upon the validity of any lease and shall not be affected by the termination thereof.17 Applied to the established facts, the 1937 Concord deed executed by Crosby to Southland contained a granting clause of 1/96 but a subject-to clause of 1/12 of rentals and royalty under any subsisting lease or leases.
The language of a single estate that is unaffected by lease termination demonstrates that the parties intended one mineral interest rather than a 1/96 mineral interest plus a separate 1/12 lease interest that would expire.18
The 1937 mineral deed conveyed a single 1/12 interest in the minerals.19
Related opinions on this issue
Justice Enoch concurs in the judgment because a two-grant reading would produce an over-grant.20 The granting clause would transfer 1/96 of the possibility of reverter carrying 1/96 of royalties under the then-current lease.21 The subject-to clause would transfer an additional 8/96 interest in those royalties.22
This exceeds the 1/12 total royalty interest Crosby actually owned at the time of the deed.23 He therefore concludes that the deed must be read as conveying a single 1/12 mineral interest to avoid an unreasonable construction that violates the four-corners rule.24
Joined by Spector, Baker And Hankinson, Justices
Justice Gonzalez dissents. He would hold that the deed unambiguously conveyed two estates of different sizes and duration under the four-corners rule. The granting clause conveyed a perpetual 1/96 mineral interest and the corresponding royalty.25
The subject-to clause conveyed a separate and additional 1/12 royalty estate from subsisting leases. He maintains that no irreconcilable conflict exists on the face of the instrument. The majority improperly rewrites the fractions by interpolating a future-lease clause where none was expressed.
He would affirm the judgment of the court of appeals.26
Whether the subject-to clause in the 1937 deed extended the 1/12 fraction of rentals and royalty to future leases or limited it to the lease subsisting at the time of the conveyance?27
When differing fractions appear in a mineral deed, the court must examine the entire instrument to determine the intent of the parties and harmonize provisions that appear to conflict if possible, without relying on labels such as granting clause or subject-to clause.28
Yes. The subject-to clause provides that the conveyance is made subject to the terms of any valid subsisting oil, gas and/or mineral lease or mineral lease or leases. It covers and includes one-twelfth of all rentals and royalty payable by the terms of such lease or leases.29 Applied to the established facts, the 1937 Concord deed used the plural phrase or mineral lease or leases after the word subsisting.
This extends the 1/12 fraction beyond the single lease outstanding in 1937 to all future leases, rather than limiting the fraction solely to the lease then in effect.30
The subject-to clause extended the 1/12 fraction of rentals and royalty to future leases.31
Related opinions on this issue
Justice Enoch concurs that the deed conveyed a single larger interest. However, he cautions that the plurality's reading of the subject-to clause as clearly including future leases is unreasonable. He reaches the same result only because the alternative two-grant construction creates an over-grant of royalty under the existing lease that Crosby did not own.32
A two-grant reading would transfer more royalty than Crosby possessed at the time.33 Therefore, the deed must be construed as conveying one estate to avoid an unreasonable result.34
Joined by Spector, Baker And Hankinson, Justices
Justice Gonzalez dissents. He argues that the subject-to clause is expressly limited to existing leases by the modifier valid subsisting. The added phrase or mineral lease or leases is merely lawyerly redundancy within the serial list of lease types that could have existed in 1937.35
He would hold that Crosby retained the possibility of reverter in future lease benefits. The majority's construction ignores the word subsisting and improperly adds a future-lease clause not present in the deed.36
Whether prejudgment interest is recoverable on withheld oil and gas proceeds in a title dispute between working interest owners under sections 91.402 and 91.403 of the Texas Natural Resources Code?37
Sections 91.402(b)(1) and 91.403(b) of the Texas Natural Resources Code provide that payments may be withheld without interest beyond the time limits when there is a dispute concerning title that would affect distribution of payments. This exception applies to working interest owners as well as royalty owners.38
No. The statute expressly permits a payor to withhold or suspend payment without interest when a title dispute exists, and the definitions of payee and payor encompass working interest owners and operators.39 Applied to the established facts, Concord as owner of the disputed 1/12 mineral interest and Pennzoil as operator and lessee under the competing lease were engaged in a title dispute over production from Survey Sixty-four. The statutory exception therefore bars recovery of prejudgment interest.40
Prejudgment interest is not recoverable on the withheld proceeds.41