Southland Royalty Co. v. Pan American Petroleum Corp. , 378 S.W.2d 50 ( 1964 )

GRIFFIN, Justice

(dissenting).

I cannot agree with the majority opinion and file this dissent.

There are certain fundamental principles of law which we must recognize.

First: The instrument in question, referred to as an oil, gas and mineral lease, conveyed to the lessee %ths of the oil and all of the gas, potash and other minerals. These substances became the absolute property of the lessee with all the attributes of legal ownership. Stephens County v. Mid-Kansas Oil & Gas Co. (1923), 113 Tex. 160, 254 S.W. 290, 29 A.L.R. 566; Humphreys-Mexia Co. v. Gammon (1923), 113 Tex. 247, 254 S.W. 296, 29 A.L.R. 607; Ehlinger v. Clark (1928), 117 Tex. 547, 8 S.W.2d 666(2, 3) ; Magnolia Petroleum Co. v. Connellee (1928, Comm. of App.), 11 S.W.2d 158(3). The personal obligation of lessee was to do the things required of him by the lease contract, one of which was to pay the royalties and rentals provided by the lease.

Second: In construing the terms of a written instrument, the words used therein are to be given their usual and ordinary meaning, unless it is clearly shown the parties intended for a different meaning to be given. 13 Tex.Jur.2d 312, Contracts § 135, and authorities therein cited.

Third: Provisions in a contract, when in apparent conflict, must be reconciled and harmonized whenever possible by any reasonable interpretation, so that the contract as a whole may be given effect. 13 Tex. Jur.2d 323, Contracts § 142 and authorities therein cited.

Fourth: Courts must, if .possible, give effect to all parts of a contract. Leon v. Gulf Production Co. (1931, Tex.Civ.App.), 35 S.W.2d 1101(3), writ refused; City of Stamford v. King (1940, Tex.Civ.App.), 144 S.W.2d 923, writ refused; Chapa v. Reid (1952, Tex.Civ.App.), 248 S.W.2d 299 (2); 109 A.L.R. 1464.

Fifth: Words used in one sense in a contract are as a general rule deemed to have been used in the same sense in another part of the instrument, where there is nothing in the context to indicate otherwise. McDaniel et al. v. Newton et al. (1945, Tex.Civ.App.), 187 S.W.2d 139(2), writ refused w/m; Green Avenue Apartments v. Chambers (1951, Tex.Civ.App.), 239 S.W.2d 675(3), no writ history; Johnson v. Dick (1955, Tex.Civ.App.), 281 S.W.2d 171 (6), no writ history; 13 Tex.Jur.2d 314, § 135; 17A C.J.S. Contracts § 303 p. 150; Williston on Contracts, 3rd Ed. Vol. 4 (1961) § 618, pp. 715-16.

Sixth: Judicial interpretation of a contract does not reach a point where the meaning of some significant word can be said to be in doubt and it is permissible to assign thereto one of two meanings either of which is within the reasonable scope thereof, upon merely arriving at a conclusion that such word may, as an abstract proposition, be given either of two meanings. A word in a contract, taken by itself, often admits of two meanings when from the whole contract to he interpreted there is no reasonable doubt as to the sense in which the parties used it. In that situation, the particular sense they ascribed to the word when the contract was made must be adopted if it is within the reasonable scope thereof. 12 Am.Jur. § 236, p. 761, and authorities therein cited.

Seventh: Courts will not torture words in order to import ambiguity. Words do not become ambiguous simply because lawyers or laymen contend for different meanings or even though their construction becomes the subject matter of law suits. 17A C.J.S. Contracts § 300 pp. 141-142 and authorities therein cited.

All emphasis contained in this opinion is that of the writer, unless shown differently.

With the above rules in mind, let us examine the lease contract to be construed in this cause. The majority opinion says that as a matter of law the words “other minerals” as used in the first royalty clause includes "gas.” With this construction, I do not agree.

The parties first use the term “other minerals” in the granting clause and it does not include “gas” as there used. The lessors granted, demised and let, etc. unto the lessee for the' sole and only purpose of mining and operating for (1) oil, (2) gas, (3) potash and (4) “or other minerals.” It is true that the word “minerals” as a generic term includes "gas” as well as “potash” and “oil,” but that word is not here used in its sense as a generic term. Its use is to define a class of minerals contrasted with and different from “oil,” “gas” and “potash.” If this were not true the use of “other minerals” is meaningless and a mere repetition, and the use of the words “oil,” “gas” and “potash” was wholly unnecessary, because each and every one is a mineral, and included in the term “other minerals.”

It will be noted that in all of those cases cited by the majority to sustain their holding that “other minerals” as a matter of law includes “gas”, the words “gas” or “oil” do not appear anywhere in said instruments. These cases merely hold that “other minerals” was used in the generic sense and includes “oil and gas.” These cases are not in point as authority in our case.

The majority opinion says the rule of ejusdem generis has no application in this cause so as to confine the meaning of “other minerals” to mineral substances like unto “potash.” With this I agree. The word “other” preceding the word “minerals” clearly shows the parties meant something different from, and contrasted with the minerals theretofore mentioned, to-wit, “oil,” “gas” and “potash.”

The parties were setting up a fourth classification which they were granting, to-wit, other minerals not “oil,” “gas” or “potash.”

Webstér’s Third New International Dictionary defines “other” as being one distinct from the one or those first mentioned * *, not the same. Different, distinct. “A different one, an additional' one, something that exists as an opposite of, or excluded by, something else.” This is also the common, ordinary and usually accepted meaning of “other,” and we, as a Court, should give “other” such meaning wherever it is found in this lease.

Let us examine the rest of the lease to see if there are any words used to change the above meaning of the term “other minerals.” The next time we find these words used is in the typewriting which precedes the description of the property conveyed. Here it is stated, “ * * * this lease shall become a mineral deed to seven-eighths of all minerals on, in, under the above described lands * * * this includes potash and all other minerals.” The parties added the last quoted phrase to be sure that the two additional classifications they had made in the granting clause, to-wit, “potash or other minerals” would be covered by the provision that the lease should be “a mineral deed” under certain circumstances. That minerals was not used in its generic sense, but in a particular and specific sense as excluding “oil,” “gas” and “potash” is shown by the phrase “all other minerals.” Had “minerals” in the generic sense been the meaning, there would have been no necessity for adding the last phrase, for in this same typewriting and in the section preceding the words “all other minerals” the parties had prescribed that the lease should become “a mineral deed to seven-eighths of all minerals * * *.” By the use of the words ■“and all other minerals” in this typewritten language, the parties again demonstrated they meant a classification distinct from, and different from the terms “potash” and “all minerals” as above used. Therefore, in this use of “other minerals” there is nothing to justify giving a different meaning to these words than that given by the parties in the granting clause.

The next time we find the words “other minerals” used in the lease is in the term paragraph. This provides for a 20-year life for the lease, “and as long as oil, gas, potash, or other minerals,” or either of them is produced from said land by the lessee. Here the parties confirm their use of “other minerals” as a distinct, separate and contrasting classification from “oil,” “gas” and “potash,” which they have specifically enumerated.

My reasoning heretofore set out as to the meaning of the term “other minerals” applies with equal force to this particular use, and I will not repeat it. The parties show they intend “other minerals” as used the three times we have discussed, to have the same identical meaning in each instance, i. e., a separate and distinct classification from “oil,” “gas” and “potash.”

We now come to the royalty provisions, whereby the parties set out how the lessees should make payment for each of the four distinct classifications of substances, absolute title to which was conveyed to the lessees by the granting clause. So far I have demonstrated that nothing contained in the lease will justify a meaning for the words “other minerals” differing in any particular from that given by the parties when it is first used in the granting clause.

The parties provided that for (1) oil produced by the lessee, it should “deliver to the credit of lessor, free of cost, in the pipeline to which they may connect their wells, the equal one-eighth part of all oil produced and saved from the leased premises; (2) for potash the lessees should pay to lessor one-eighth of the net proceeds at the mine; and (3) for other minerals the same payment as for potash, to-wit one eighth of the net proceeds at the mine; and (4) for gas from each well where gas only is found, while same is being used off the premises, to pay to lessor $100 each year in advance; and (5) to pay lessor for gas produced from any oil well and used off the premises at the rate of $50 per year for the time during which such gas shall be used, payments to be made each three months in advance.”

Thus, we see that the parties agreed on the compensation to be paid for each of the four classifications of the minerals that they had made in the granting clause and confirmed in the typewritten description and in the term clause.

I cannot see nor find anything in the lease that shows the parties intended “other minerals” as used in the first royalty clause to have a meaning different than they had given it when they had used the same expression in the three preceding parts of the lease. Therefore, it must follow that such term “other minerals” must be construed by the Court as not including “gas,” but referring only to minerals distinct and different from “oil,” “gas” or “potash.”

The majority opinion makes an ambiguity in the first royalty provision by “having concluded that the words 'other minerals’ when used in the first royalty clause includes gas, etc.” I have demonstrated above that this just cannot be the correct construction of this lease.

The majority, relies on some language in the case of Reynolds v. McMan Oil & Gas Co. (1928, Tex.Comm. of App.), 11 S.W.2d 778, found on pp. 782-783, opinion approved by the Supreme Court. This language is with regard to the meaning of the words “used off the premises” as contained in the second and third royalty provisions.

In the first place, the language referred to is dictum and is so recognized by the writer of the opinion. The recovery in the Reynolds case was granted to plaintiffs for the reason that the Court determined that the gasoline manufactured from casinghead or wet gas was oil, rather than gas and was covered by the oil royalty provision. The Court said: “The undisputable fact remains that the contract as a whole, in plain, certain, and unambiguous terms, excepted and reserved to the lessor in any and all events one-eighth of all oil produced and saved from the premises, free of cost, and that large quantities of gas containing oil have been produced and saved from the premises. So the conclusion is inescapable that plaintiffs in error are entitled to recover.”

Again, the majority opinion herein attempts to create an ambiguity in the meaning of “other minerals” as used in the first royalty clause by first assuming that it includes gas — which it does not — and therefore using the term “54th of the net proceeds at the mine” might mean this royalty provision covers sale of gas, whereas, the terms of the second and third royalty clauses where it is provided for payment for gas “used off the premises” might not cover a sale, and therefore a conflict between the royalty clauses as to gas might result.

This is erroneous reasoning for it violates the third rule of law laid down at the beginning of this opinion, to-wit: “Provisions in a contract, when in apparent conflict, must be reconciled and harmonized whenever possible by any reasonable interpretation, so that the contract as a whole may be given effect.”

I have demonstrated that the parties to this lease did not use the term “other minerals” in its generic sense, and therefore it does not include “gas.” Such reasoning is a reasonable — and in fact the only interpretation — of the term when used in the three instances preceding its use in the first royalty provision. There is not a word in the lease showing or even intimating that this term was intended by the parties to include "gas.” That it does include “gas” in this lease is pure speculation and without factual basis. In fact, the majority use the words “used off the premises” and “14th of the net proceeds” to create the ambiguity and not the term “other minerals.”

By giving the meaning to the term “other minerals” which I believe the parties gave to it, we avoid any conflict of provisions in the lease, and have definite payments for each of the four component parts. Paragraphs 2 and 3 of the royalty provisions provide for all gas that can be produced from these premises, i. e., gas produced from an oil well, and gas from a well producing gas only. There is no other way to produce gas from land known to the industry at the present time, nor at the time the lease was executed. Therefore, my construction should be given to the term “other minerals” in every place we find it in the lease.

This suit is one for the proceeds of gas sold by lessees to processors off the premises, and is not a suit for gas produced from an oil well as was the situation in the Reynolds case. Petitioners in their application admit that this is true, and explain their failure to sue for gas produced from an oil well by stating, “The record in this case shows that no proceeds of the sale of gas that were made from shallow wells (none of which were known to petitioners) [and which wells were oil wells also producing gas] were so insignificant in amount that as a practical matter the additional royalties, if any, recoverable over and above the amount of the flat rate royalties already paid on the shallow [oil and gas producers] wells, were not worth the'trouble and expense involved in including them in this suit.”

We have, therefore, a suit for the proceeds of gas produced from gas wells only. For such gas the parties made specific provision in the second royalty agreement whereby lessees were to receive $100 per year per well for such gas. The undisputed evidence shows this has. been paid and accepted by the lessors for approximately 30 years prior to filing of this suit.

When the majority opinion says, “In fact, we have concluded that the term ‘used off the premises’ is ambiguous,” it is contrary to at least two opinions of this Court, and of opinions of the Commission of Appeals.

The first case is that of Magnolia Petroleum Co. v. Connellee et al. (1928, Tex.Comm. of App.), 11 S.W.2d 158, decided one week before the Reynolds case. While it is true the royalty provisions in the lease there involved contained provision for gas from a well producing gas only, “sold or used off the premises,” and for “casinghead gas when sold or used off the premises,” the reasoning of Judge Leddy, speaking for the Court is applicable to our case.

The Court says it is immaterial to a decision of that case whether casinghead gas is “oil” or “gas” and said, “This court is asked to hold that because casinghead gas is shown to be the result of a separation of the lighter or volatile part of the oil that it should be paid for as oil when the parties have expressly contracted and agreed that it should be paid for in a particular way as casinghead gas. To so hold would require that this court write into the contract language which the parties themselves did not place there.”

The Court then discusses the fact that casinghead gas is the same as wet gas or gas coming from an oil well, and that this fact was well known by the parties and the industry at the time the lease was executed [October 29, 1917], and said: “The parties to this contract by language certain, specific, and definite, separated the various substances expected to be produced from wells drilled on the premises, and specifically fixed the compensation to be paid for each, and for this court to separate these substances in any different way or provide another and different compensation would be to substitute an entirely new contract for the one made by the parties." 1. c. top 1st col. p. 161 of 11 S.W.2d.

How applicable that language is to our case.

The Connellee case is in point in our case for another reason, which is, that in the royalty paragraph (which was one paragraph instead of being different numbered royalty provisions, but this fact does not distinguish such provision from the provision added to the first royalty paragraph in our lease) after enumerating royalty to be paid'on (1) oil; (2) gas from a well producing gas only; (3) casinghead gas; there was a fourth provision (as in our royalty clauses) “for all other minerals l/^th of the net proceeds thereof.” While not in the exact wording, this means the same as our wording added to the first royalty paragraph.

Plaintiffs in the Connellee case — as in the case at bar — sought recovery under this royalty provision, contending it was a “mineral.”

The Court overruled this contention in the following language:

“The insistence is also made that defendants in error should be permitted to recover one-eighth of the value of the gasoline produced from casinghead gas under the theory that it is neither gas nor oil, but that it is a ‘mineral’ within the contemplation of the provision requiring lessee to pay ‘for all other minerals one-eighth of the net proceeds thereof.’

“Lessors would no more have the right to separate a mineral susbtance from casinghead gas and receive additional compensation than it would have to separate any minerals from the seven-eighths of the oil belonging to lessee and claim compensation for it as other minerals. Whatever minerals were contained in casinghead gas as the same was known, defined and popularly understood at the time of the execution of the lease, were included in the sale thereof at the compensation expressly stipulated therefor. The term ‘other minerals’ refers to separate and distinct minerals not covered by the terms oil, gas, and casinghead gas.”

That holding alone is directly contrary to the holding of the majority opinion and should control all of its reasoning about “other minerals” including “gas” in the lease we have here.

While the Supreme Court did not expressly approve the Connellee case, in the case of Magnolia Petroleum Co. v. Akin et al. (1928, Tex.Comm. of App.), 11 S.W.2d 1113, which was decided on the authority of the Connellee case alone, the Supreme Court said: “We approve the holding of the Commission of Appeals on the questions discussed in its opinion.” This has to be an approval of the Connellee case.

One of the early cases in which plaintiffs sought to recover Ystii of the proceeds of product or products manufactured from gas produced from the leased premises was the case of Harris v. Lone Star Gas Co. (1929, Tex.Civ.App.), 19 S.W.2d 178, writ refused. The trial court sustained a demurrer to plaintiff’s pleadings and rendered judgment for the defendant gas company. On appeal the Court of Civil Appeals held the case until the Reynolds case was decided, because the lease contract was the same as in the Reynolds case and the pleadings were also the same. After the Reynolds case was handed down by the Commission, the Court of Civil Appeals acted on the Harris case. The royalty provisions, so far as the printed provisions are concerned, were identical with those in our case at bar. They provided for the same oil royalty; had the same provision — except as to amount — for payment for gas from a gas well, “While same is being used off the premises,” and for gas produced from any oil well “and used off the premises.”

In reversing the trial court’s action sustaining the general demurrer and ordering that the cause be tried under the theory that the gas from which the products were produced was “oil” and covered by the oil royalty provision, rather than the gas royalty provisions, the court discusses the contention of the plaintiff whereby he sought to recover the value of all the natural gas appropriated by the lessor. Plaintiff contended that by the terms of his lease he did not sell any part of his gas, but only permitted the use thereof, both on the premises and off the premises; and plaintiff further pleaded that the word “used” as employed in the lease, did not constitute a sale of his gas, wherefore, he sued for same, or the value thereof. Thus, we have the court confronted with the meaning of the word “used” in the second and third gas royalty (or rental) clauses of a lease identical with our own. The majority opinion herein says that “used off the premises” might or might not mean “sold”; therefore, we have an ambiguity. This contention was passed upon by the Court of Civil Appeals in the Harris case, and contrary to the contention of plaintiff therein and to the majority opinion herein. The court said:

“Under the above authorities, and especially the opinion in the Reynolds Case, it occurs to us that there is but one conclusion to be reached from the decisions, and that is that under the terms of the appellant’s lease in the instant case, and for the considerations noted, the granting clause of the lease placed title to the ‘natural gas’ in the lessee, and clothed it and its assigns with full and complete authority to sell or dispose of the same without incurring obligations other than may be found in the personal obligation of the lessee to pay the lessor $300 and $50 per year, respectively, under the provisions of sections 2 and 3, setting forth the considerations for the lease.”

This Court within about seven months after the Reynolds case had been handed down, and while the same three Judges were members of this Court, gave the application for writ or error in the Harris case an unqualified “Refused.” That meant that the principles of law declared in the Court of Civil Appeals’ opinion were correctly decided. Heinatz v. Allen (1949), 147 Tex. 512, 217 S.W.2d 994, and this Court adopted the Court of Civil Appeals’ opinion as its own. Myers v. Gulf Coast Minerals Management Corp. (1962, Tex.Sup.Ct.), 361 S.W.2d 193.

In the case at bar, plaintiffs seek no recovery for gas produced from an oil well or on the theory that such substance for which they sue is "oil” within the terms of the oil royalty provision. Plaintiffs sue only for the value of gas produced from the wells on the lease producing gas only, and have so limited their suit.

The Harris case again reached the Court of Civil Appeals after a trial. Lone Star Gas Co. v. Harris (1932, Tex.Civ.App.), 45 S.W.2d 664, writ refused. Plaintiffs amended their petition, so as to sue for the annual rental of $300 per year as provided in the lease, and also sought to recover one-eighth of the gasoline (or oil) and therefore included in the “oil” royalty provision. The trial court awarded judgment for plaintiffs on both theories. The Court of Civil Appeals reversed the recovery of value of gasoline (or oil) but affirmed recovery of $300 per year for gas from each well where gas only is found, while the same is being used off the premises.

In the course of its opinion the court said, speaking of its first opinion (19 S.W.2d 178), “ * * * and whether it was necessary to a decision of the case or not, we did recognize that, under conditions, the right of recovery for gas from a gas well must be limited entirely to the provision of the lease providing the $300 annual gas royalty. In that opinion we stated that, under the Reynolds Case,” (and here the court sets out the quote from the Reynolds case that I have set out next above).

The Court of Civil Appeals then discusses the Commission of Appeals’ case of Lone Star Gas Co. v. Stine (Tex.Com.App.1931), 41 S.W.2d 48, 49, 82 A.L.R. 1299, wherein a recovery was sought for gasoline extracted from gas from a gas well, and concluded that the lessee “acquired the right to all gas from each well where gas only is found by paying $300 each year for the same.”

The court then discusses the case of Humble Oil & Refining Co. v. Poe (1930, Tex.Comm. of App.), 29 S.W.2d 1019, and quotes the following therefrom:

“It is difficult to conceive upon what theory defendant in error was entitled to recover for gasoline which could have been manufactured from gas produced from a gas well, in the face of the provision in the lease that ‘lessee agrees to pay the lessor at the rate of $250 each year, payable quarterly in advance, for the gas from each well where gas only is found, while the same is being used off the premises.’ * n= *

“Plaintiff in error acquired the right to use the gas produced from a gas well it might drill on the premises covered by the lease by the payment of the agreed rental of $250 per annum. Having bought and paid for such gas it owned the same, including all of its constituent elements, and therefore, had the lawful right to make such use of it as it might deem proper. Wilson v. King Smith Rfg. Co., 119 Okl. 256, 250 P. 90; Shaw v. Fender, 138 Ga. 48, 74 S.E. 792; McRae v. Smith, 164 Ga. 23, 137 S.E. 390; Magnolia Petroleum Co. v. Connellee, supra.” (11 S.W.2d 158).

The reasoning for refusing recovery for any amount other than the $300 per year per well, is set out as follows:

“The legal effect of the deed was to convey ‘all natural gas,’ and by the term ‘natural gas’ is meant all the constituent elements composing the same. The gas company, having become the owner of ‘all natural gas’ in or under this land, has the right to make such use thereof as it sees fit. It may sell the gas in its natural form as it came from the earth, or it may split it into its constituent elements and sell such elements, including the gasoline.” Quoting from the Stine case, supra. (Harris opinion hot. 1st col. 667 of 45 S.W.2d).

In discussing the right to recover for the gasoline content of the gas — and which reasoning applies in our case to recovery as “other minerals,” — the court said: “Such recovery would be in the nature of a double recovery for an element of gas theretofore sold in its entirety, together with the right of disposal.”

This Court gave this last Harris case an unqualified “Refused” thus approving the Court of Civil Appeals’ analysis of the Reynolds case, the Stine case and the Poe case.

No trouble was had by the Court in twice unqualifiedly refusing application for writ of error wherein the Court held that “used off the premises” meant right to sell or dispose of the gas. How then can the majority raise any question as to the meaning of "used off the premises” so as to create an ambiguity? By accepting what this Court has approved in two cases, and the Commission of Appeals in’ at least two cases, the majority should construe the lease here in question so as to avoid any conflict between the first royalty provision and the second and third royalty provisions. Such is the duty of a court construing contracts. Also, there would be no basis for the majority holding that an ambiguity is created because the majority cannot say “used off the premises” does not necessarily mean “sold.” If the previous holdings in the cases I have cited above are to be overruled, the majority should face up to that and say so, rather than have in the reports conflicting holdings by the Court.

The Supreme Court of Oklahoma, in construing an oil and gas lease with royalty provisions requiring payment for (1) gas from an oil well, (2) from a gas well “while the same is being used off the premises” and which lease also gave lessee the right to use “free of cost gas * * * for its operations thereon,” said,

“The words ‘off the premises’ had no other meaning to the parties, than if the gas was appropriated to a purpose foreign to utilization for the benefit of development of the property itself. In other words, it did not have particular reference to place where used, but the purpose and objects of its use, to wit, one foreign to the development of the premises in question.” Mussellem v. Magnolia Petr. Co. (1924) 107 Okl. 183, 231 P. 526, 1. c. 2nd col. p. 531.

The above case was cited with approval in the case of Humble Oil & Refining Co. v. Poe (1930, Tex.Comm. of App.), 29 S.W.2d 1019.

Also the case of Lackey v. Ohio Oil Co. (1943, 10th Cir.), 138 F.2d 449 followed and approved the Mussellem case.

I would affirm the judgment of the Court of Civil Appeals.

WALKER and NORVELL, JJ., join in this opinion.

ON MOTION FOR REHEARING

Rehearing denied.