Medina Interests, Ltd v. William Paul Trial

Fourth Court of Appeals
San Antonio, Texas
OPINION
No. 04-14-00521-CV
MEDINA INTERESTS, LTD.,
Appellant
v.
William Paul Trial
William Paul TRIAL, et al.,
Appellees
From the 218th Judicial District Court, Karnes County, Texas
Trial Court No. 13-04-00098-CVK
Honorable Stella Saxon, Judge Presiding
Opinion by: Sandee Bryan Marion, Chief Justice
Sitting: Sandee Bryan Marion, Chief Justice
Rebeca C. Martinez, Justice
Luz Elena D. Chapa, Justice
Delivered and Filed: June 24, 2015
AFFIRMED
In this appeal, we must construe a 1949 deed to determine whether the six grantors reserved
unto themselves an undivided interest in a fixed royalty or a floating royalty. The parties filed
competing motions for summary judgment on this issue. The trial court denied appellant’s motion
for summary judgment, and granted appellees’ motion for summary judgment stating the grantees
each received a floating royalty interest. We affirm.
04-14-00521-CV
BACKGROUND
The underlying facts are not disputed. Annie Trial and her eight children owned the entire
surface and mineral estates in a 278-acre tract of land located in Karnes County, Texas. By
warranty deed dated September 1, 1949 (“the deed”), Mrs. Trial and six of her children 1 sold all
their “right, title and interest in and to” the 278-acre tract of land to Alex Trial and Leo Trial, Mrs.
Trial’s two other children. The deed reserves to the six children, but not Mrs. Trial, an “undivided
interest in and to the 1/8 royalties paid the land owner upon production of oil, gas and other
minerals from said 278 acre tract of land.” The deed does not specifically mention the royalty
shares belonging to Alex and Leo, but there is no dispute that they each retained their undivided
interest in and to the 1/8 royalties paid the land owner upon production of oil, gas and other
minerals from the 278-acre tract of land.
It is the interpretation of the reservation language that is disputed in this case. Medina
Interests, Ltd. (“Medina”) is the successor-in-interest to Alex and Leo; and the appellees are the
successors-in-interest to each of the six children named in the deed. In 2007, “Paid-Up Oil, Gas
and Mineral Leases” were negotiated on the property. 2 Marathon Oil EL LLC acquired a portion
of each lease. In August 2012, Marathon sent to Medina two “Stipulations of Mineral Interest,”
one for each portion of the property. Medina disputed how the royalty interests were calculated
based on Marathon’s interpretation of the 1949 deed. According to Medina, Marathon interpreted
the deed as reserving to the parties “all of the royalties of leases entered into subsequent to the date
of the 1949 Deed even though the reservation language in the 1949 Deed clearly refers to a
reservation of “the 1/8 royalty interest.”
1
Albertine, William, Valentine, Ernest, Louise, and Augustine.
2
Two leases were executed because Alex and Leo later partitioned the property. These leases are not in dispute, are
not contained in the record, and no other details about the leases are known.
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Medina sued appellees, asserting a claim for trespass to try title and a claim for money had
and received. In its trespass to try title claim, Medina requested a judgment that the royalty interest
reserved in the deed comprised only an undivided 6/8th interest in a 1/8th royalty. In other words,
Medina argued the six children named as grantors shared a fixed 1/8th royalty. Appellees
countersued and asked for a judgment that they each reserved a 1/8th royalty interest out of an
8/8ths of the royalty. The parties each filed motions for summary judgment. The trial court denied
Medina’s motion, granted appellees’ motion, and stated in its summary judgment order that the
deed “reserved the following shares of the royalties paid under any current and future oil, gas or
mineral leases as follows: for each of the eight children “1/8th Floating Royalty Interest” and for
Mrs. Trial “zero (00.00) Interest.” 3
STANDARD OF REVIEW
When both parties file motions for summary judgment, each party must carry its burden
and neither party may prevail because the other failed to discharge its own burden. Pratt v. Amrex,
Inc., 354 S.W.3d 502, 505 (Tex. App.—San Antonio 2011, pet. denied). When one of the motions
for summary judgment is granted and the other is denied, we will determine all questions presented
to the trial court. Jones v. Strauss, 745 S.W.2d 898, 900 (Tex. 1988). We will affirm or reverse
the judgment and render the judgment the trial court should have rendered, including judgment for
the movant who lost below. Id. In this case, each party moved for a traditional summary judgment.
A party moving for traditional summary judgment has the burden of establishing that no
material fact issue exists and the movant is entitled to judgment as a matter of law. TEX. R. CIV.
P. 166a(c). In reviewing the granting of a traditional summary judgment, we consider all the
evidence in the light most favorable to the non-movant, indulging all reasonable inferences in favor
3
At this point, Medina’s money had and received claim became moot.
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of the non-movant, and determine whether the movant proved that there were no genuine issues of
material fact and that it was entitled to judgment as a matter of law. Nixon v. Mr. Prop. Mgmt.
Co., 690 S.W.2d 546, 548-49 (Tex. 1985).
On appeal, Medina asserts there is only a single issue for this court to decide, and that is
whether the six grantors reserved unto themselves an undivided interest in a fixed 1/8 royalty or a
floating royalty. 4 The parties assert the deed is unambiguous, although they offer competing
constructions of the reserved royalty interest. An oil and gas deed is a contract and must be
interpreted as a contract. Tittizer v. Union Gas Corp., 171 S.W.3d 857, 860 (Tex. 2005);
Chesapeake Exploration, L.L.C. v. Hyder, 427 S.W.3d 472, 475 (Tex. App.—San Antonio 2014),
pet. granted). Contract language that can be given a certain or definite meaning is not ambiguous
and is construed as a matter of law. Chrysler Ins. Co. v. Greenspoint Dodge of Hous., Inc., 297
S.W.3d 248, 252 (Tex. 2009). Interpretation of an unambiguous contract is a question of law and
we review the trial court’s interpretation of an unambiguous contract under a de novo standard.
EOG Res., Inc. v. Hanson Prod. Co., 94 S.W.3d 697, 701 (Tex. App.—San Antonio 2002, no pet.).
In construing an unambiguous deed, our primary duty is to ascertain the parties’ intent as expressed
by the words of their agreement. Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550, 554
(Tex. 2002). In doing so, we consider the wording of the deed in light of the circumstances
surrounding its adoption and apply the rules of construction to determine its meaning. Sun Oil Co.
v. Madeley, 626 S.W.2d 726, 731 (Tex. 1981). We must give contractual terms their plain and
ordinary meaning unless the instrument shows the parties’ intent to use the terms in a different
sense. Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). We “examine and
4
Appellant does not take issue with any other portion of the judgment. On appeal, appellees also agree the issue is
“whether ‘an undivided interest in the 1/8th royalties paid to the landowner(s) upon production of oil, gas and other
minerals’ reserved a fixed 1/8th royalty or a floating royalty interest.”
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consider the entire writing in an effort to harmonize and give effect to all the provisions of the
contract so that none will be rendered meaningless.” Coker v. Coker, 650 S.W.2d 391, 393 (Tex.
1983). We determine the parties’ intent from the whole document, not by the presence or absence
of a certain provision. Concord Oil Co. v. Pennzoil Exploration & Prod. Co., 966 S.W.2d 451,
457 (Tex. 1998). “Even if the court could discern the actual intent, it is not the actual intent of the
parties that governs, but the actual intent of the parties as expressed in the instrument as a whole,
‘without reference to matters of mere form, relative position of descriptions, technicalities, or
arbitrary rules.’” Luckel v. White, 819 S.W.2d 459, 462 (Tex. 1991) (quoting Sun Oil Co. v. Burns,
125 Tex. 549, 552, 84 S.W.2d 442, 444 (1935)).
FRACTIONAL INTERESTS: FIXED OR FLOATING
“Royalty is commonly defined as the landowner’s share of production, free of expenses of
production.” Heritage Res., Inc., 939 S.W.2d at 121-22. “A mineral-interest owner may create,
by conveyance, reservation, or exception, a royalty interest out of either the total production
achieved under a lease or from the landowner’s royalty.” Graham v. Prochaska, 429 S.W.3d 650,
656 (Tex. App.—San Antonio 2013, pet. filed). An undivided royalty interest may be conveyed
as a fixed fraction of total production or as a fraction of the total royalty interest. Luckel, 819
S.W.2d at 464. A conveyance of a fractional royalty transfers a fixed fraction of production of the
minerals produced from the land irrespective of the percentage royalty in any subsequently
negotiated oil and gas lease. Dawkins v. Hysaw, 450 S.W.3d 147, 153 (Tex. App.—San Antonio
2014, pet. filed); Graham, 429 S.W.3d at 657; Moore v. Noble Energy, Inc., 374 S.W.3d 644, 647
(Tex. App.—Amarillo 2012, no pet.). On the other hand, if the undivided royalty interest is
conveyed as a fraction of the total royalty interest, its amount (as a percentage of production)
depends upon the royalty reserved in future leases. Luckel, 819 S.W.2d at 464. Thus, in contrast
to a fractional royalty, a fraction of royalty “floats” in the sense that it transfers a fraction of
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whatever royalty interest is reserved by the lessor under an existing mineral lease, or that is retained
under a lease made in the future. Dawkins, 450 S.W.3d at 153. “Its owner is entitled to a share of
mineral production equal to the stated fraction times the royalty retained in the lease.” Moore, 374
S.W.3d at 647.
In Dawkins, this court noted several examples of both types of conveyances. Dawkins, 450
S.W.3d at 153. Examples of a fractional royalty, i.e., a fixed royalty, include:
(1) A one-fourth royalty in all oil, gas and other minerals in and under and hereafter
produced;
(2) A fee royalty of 1/32 of the oil and gas;
(3) An undivided one-sixteenth royalty interest of any oil, gas or minerals that may
hereafter be produced;
(4) One-half of the one-eighth royalty interest;
(5) An undivided 1/24 of all the oil, gas and other minerals produced, saved, and
made available for market;
(6) 1% royalty of all the oil and gas produced and saved.
Id. (citing 2 PATRICK H. MARTIN & BRUCE M. KRAMER, WILLIAMS & MEYERS, OIL AND GAS LAW
§ 327.1, at 81 (2014)). Although the wording is different in each of the above conveyances, “the
effect is the same in each case: a fraction or percentage of gross production has been granted or
reserved as a free royalty.” 2 WILLIAMS & MEYERS, § 327.1, at 81. “The owner of the royalty
interest is entitled to a share of gross production, free of costs, in an amount fixed by the fractional
size of his interest.” Id. “The amount of production received by the royalty owner will not
fluctuate according to the amount of royalty provided for in the lease.” Id. For example, the owner
of a 1/6 royalty interest takes 1/6 of gross production whether the lease provides for a 1/8 royalty,
a 1/6 royalty, or a 1/4 royalty. Id.
Examples of a fraction of royalty, i.e., a floating royalty, include:
(1) 1/16 of all oil royalty;
(2) The undivided 2/3 of all royalties;
(3) One-half interest in all royalties received from any oil and gas leases;
(4) An undivided one-half interest in and to all of the royalty;
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(5) One-half of one-eighth of the oil, gas and other mineral royalty that may be
produced;
(6) One-half of the usual one-eighth royalty.
See Dawkins, 450 S.W.3d at 153; 2 WILLIAMS & MEYERS, § 327.2, at 83-84. Thus, for example,
the owner of a 1/16 of royalty takes 1/16 of whatever royalty the lessor reserves. 2 WILLIAMS &
MEYERS, § 327.2, at 87.
In this case, the 1949 deed states as follows:
There is reserved to each of us signing this deed, except Mrs. Annie Trial,
our undivided interest in and to the 1/8 royalties paid the land owner upon
production of oil, gas and other minerals from said 278 acre tract of land hereby
conveyed, and this royalty interest reserved to each of us shall be non-participating
and perpetual.
It is agreed and here stipulated that the 1/8 royalties paid the land owner
upon production of oil, gas and other minerals is hereby pooled among all the
grantors and grantees to this deed, except the grantor, Mrs. Annie Trial who shall
not participate in said royalties, and in the case of the production of oil, gas and
other minerals from said tract of land, each of the [T]rial heirs named above,
except Mrs. Annie Trial, shall share in said royalties equally.
It is understood that the said Leo Trial and Alex Trial shall have the right to
lease said tract of land for oil, gas or other minerals, without the joinder of the
grantors herein, or their heirs or assigns, and that said grantees shall have the right
to collect the bonus moneys and delay rentals arising out of said mineral leases, but
in case of production of oil, gas or other minerals from said tract of land in paying
quantities each of the Trial Heirs, either grantor or grantee, except Mrs. Annie
Trial, shall share equally in said pooled royalties.
Of course, Mrs. Lysey and her husband shall only receive one share, and
Mrs. Barnett and her husband, one share of said pooled royalties, and Mrs. Annie
Trial shall not receive any part of said pooled royalties.
[Emphasis added.]
Medina asserts the plain language of the deed—“our undivided interest in and to the 1/8
royalties”—unambiguously reserves a fixed 1/8 royalty. However, our standard of review requires
us to “examine and consider the entire writing in an effort to harmonize and give effect to all the
provisions of the [deed] so that none will be rendered meaningless.” Coker, 650 S.W.2d at 393.
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We determine the parties’ intent from the whole document, not by the presence or absence of a
certain provision. Concord Oil Co., 966 S.W.2d at 457.
We begin with the reservation clause, under which six of the grantors reserved unto
themselves an “undivided interest in and to the 1/8 royalties paid the land owner upon production
of oil, gas and other minerals from said 278 acre tract of land . . . .” At the time the deed was
executed, the land was not subject to a mineral lease of any type. 5 However, the language of the
deed clearly indicates the grantors envisioned the possibility of future production from the land,
and, therefore, the possibility that the grantees would enter into mineral leases in the future that
paid a royalty upon production of oil, gas, or other minerals from the land. The language used in
this paragraph—standing alone—bears some similarity to language that has been interpreted as
stating a fixed royalty. 6 But we may not read this language in isolation. See Coker, 650 S.W.2d
at 393 (“No single provision taken alone will be given controlling effect; rather, all the provisions
must be considered with reference to the whole instrument.”). When the reservation paragraph is
5
Therefore, we are not faced with reconciling a fraction mentioned in the reservation clause with a fraction later
mentioned in a future leases clause.
6
See Rutherford v. Randal, 593 S.W.2d 949, 952-53 (Tex. 1980) (“an undivided one two-hundred fortieth (1/240)
interest in and to all of the oil, gas and other minerals in and under, and that may be produced from the following
described land . . . .”); Harriss v. Ritter, 154 Tex. 474, 279 S.W.2d 845, 847 (1955) (disagreeing that “one-half of one-
eighth of the oil, gas and other mineral royalty” means grantors reserved unto themselves 1/2 of 1/8 royalty and holding
“as a matter of law that the term ‘one-half of one-eighth of the oil, gas and other mineral royalty’ could have but one
meaning and that is 1/16th of the royalty on all the oil, gas and other minerals that may be produced from said land”);
Moore, 374 S.W.3d at 647-48 (“a one-half non-participating royalty interest (one-half of one-eighth of production)”);
Pickens v. Hope, 764 S.W.2d 256, 258-59, 267 (Tex. App.—San Antonio 1988, writ denied) (holding “an undivided
1/4 of the usual 1/8 royalty in all oil, gas and other minerals produced . . . .” reserved a fixed 1/32 royalty); Helms v.
Guthrie, 573 S.W.2d 855, 857 (Tex. Civ. App.—Fort Worth 1978, writ ref’d n.r.e.) (“1/2 of the 1/8th royalty (same
being a 1/16th of the total production) of oil, gas and minerals” interpreted to mean “1/16th of the total production”);
see also 2 WILLIAMS & MEYERS, § 327.1, at 81 (“A one-fourth royalty in all oil, gas and other minerals in and under
and hereafter produced,” “An undivided one-sixteenth royalty interest of any oil, gas or minerals that may hereafter
be produced,” “An undivided 1/24 of all the oil, gas and other minerals produced, saved, and made available for
market”).
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read in full and in the context of the entire deed, we do not believe the use of the fraction 1/8 in
the paragraph limits the six grantors 7 to a fixed 1/8 royalty.
As early as 1957, the Texas Supreme Court took judicial notice “of the fact that the usual
royalty provided in mineral leases is one-eighth.” Garrett v. Dils Co., 157 Tex. 92, 96, 299 S.W.2d
904, 907 (1957); see also Luckel, 819 S.W.2d at 462 (“One-eighth was the ‘usual’ royalty so
standard in the 1920s and 1930s that all Texas courts took judicial notice of it.”). Therefore, we
believe the use of the fraction 1/8 “reflects the common misconception of that period that the
landowner’s royalty would always be one-eighth of production obtained under a lease.” Graham,
429 S.W.3d at 660 (citing Concord Oil, 966 S.W.2d at 460).
The reservation clause also refers to “the 1/8 royalties paid the land owner upon production
. . . .” [Emphasis added.] Because there was no existing lease on the land when the deed was
executed, the word “the” can only be interpreted as referring to the landowner’s royalty, i.e.,
whatever royalty the mineral estate owner might reserve in a future lease. See Graham, 429
S.W.3d at 659 (“The use of the word ‘the’ denotes that ‘the one-eighth royalty’ is a distinct or
particular royalty.”). Also, this paragraph speaks in terms of the “royalties paid the land owner,”
which is indicative of a royalty that “floats” in accordance with the size of the landowner’s royalty
contained in the lease.
The next two paragraphs also clearly indicate the parties contemplated the possibility of
leases in the future. These paragraphs read together recite the parties’ agreement, stipulation, and
understanding that: (1) Leo and Alex have the right to lease the land for oil, gas, or other minerals
without the joinder of the grantors, or their heirs or assigns; (2) Leo and Alex have the right to
collect the bonus moneys and delay rentals arising out of any mineral leases; (3) if/when there is
7
There were seven grantors under the deed; however, Mrs. Trial reserved nothing. Therefore, for the purpose of this
opinion, our use of “the six grantors” means the six children/grantors.
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production of oil, gas, or other minerals on the land, “the 1/8 royalties” paid to Alex and Leo (as
the land owners) will be pooled; and (4) Alex, Leo, and their six siblings all share equally in these
pooled royalties. Significantly, these two paragraphs repeat three times the agreement that the
royalties will be pooled and shared equally among the six grantors and the two grantees.
Based on the above, we conclude the unambiguous language of the 1949 deed expresses
the parties’ intent that the six grantors reserved an interest in whatever royalty interest is paid to
the landowner under any lease, whether present or future, that may be negotiated on the land.
Therefore, we hold the deed is properly harmonized to mean that the six grantors reserved unto
themselves an undivided interest in a floating royalty. 8
CONCLUSION
For the reasons set forth above, we affirm the trial court’s judgment in favor of appellees.
Sandee Bryan Marion, Chief Justice
8
Because we conclude the deed is not ambiguous, we do not construe the deed against the grantors. Alexander
Schroeder Lumber Co. v. Corona, 288 S.W.2d 829, 833 (Tex. Civ. App.—Galveston 1956), writ refused n.r.e.) (“The
rule of strict construction against the grantor is resorted to only to resolve ambiguity and as an aid by legal presumption
to arriving at intent. It is not applicable in the absence of ambiguity, and even in its presence is never used as a
hypercritical and overly literal tool to override the manifest object and purpose of the language of writings.”).
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