Business Law Articles
Written By: Megan Knell
Corpus Christi, Texas
For decades, Texas courts have been stymied by the issue of deed construction, particularly in the context of mineral conveyances. With the development of the Eagle Ford Shale, there has been an increase in disputes where the central issue is the effect of a deed. This trend is likely to continue with the ongoing development of oil and gas throughout Texas.
Historically, Texas courts have agreed that the primary goal when construing a deed is to reach the result originally contemplated by the parties. In order to do this, courts evaluate the language in the deed. Although this seems obvious, courts have used several different approaches to determine the meaning of the words within a deed. In early cases, Texas courts attempted to ascertain the intent of the parties by giving effect to all parts of a deed, if possible. See Harris v. Windsor, 156 Tex. 324, 328 (1956). The Texas Supreme Court later sought to develop bright-line rules in connection with deed construction. Some cases suggested the use of the “two-grant doctrine” in connection with deeds that contained grants of conflicting fractional interests in the mineral estate. See Jupiter Oil Co. v. Snow, 819 S.W.2d 466 (Tex. 1992). Other cases indicated that certain deed provisions should be given more weight than other provisions. For example, in Alford v. Krum the court held that the “key expression of intent” in a deed should be found in the granting clause, and as such, the granting clause would prevail over all other provisions within a deed. 671 S.W.2d 870 (Tex. 1984). However, the rule applied in Alford v. Krum was overruled by the case of Luckel v. White, in which the court held that deeds should be construed by harmonizing all of the provisions contained therein rather than allowing one provision to prevail over others. 819 S.W.2d 459, 464 (Tex. 1991).
Following Luckel, courts have more recently focused on the information within the “four corners” of the contested deed and then attempted to harmonize the conflicting provisions in a manner that reflects the parties’ true intent. In Hunsaker v. Brown Distributing Company, Ltd., 373 S.W.3d 153 (Tex. App.—San Antonio 2012, pet. denied), a case in which this law firm represented the prevailing party, the granting clause in the deed at issue conveyed 1,120.84 acres, “being more particularly described by metes and bounds on the attached EXHIBIT A.” Exhibit A contained a statement that the conveyance included “one-half (1/2) of all oil, gas and other minerals . . . in, on and under said property now owned by Grantor.” In order to harmonize the granting clause and the provisions in Exhibit “A”, the court held that the grantor effectively reserved 1/2 of his undivided 1/4 mineral interest in the 1,120.84 acre tract. The San Antonio appeals court explained that the deed could not be interpreted as conveying all of the grantor’s interest in the 1,120.84 acre tract because such an interpretation would render the provision in Exhibit “A” meaningless.
Subsequent to the Hunsaker case, in Coates Energy Trust v. Frost National Bank, 2012 WL 5984693 (Tex. App.—San Antonio, 2012, pet. filed), the deed at issue contained a granting clause by which the grantor conveyed an “undivided one-half interest in and to all of the oil, gas and other minerals in and under” certain lands described therein. The deed also provided that grantee would receive (1) “one-half of the royalties and rentals provided for” in any lease then-existing, and (2) “1/16th part of oil, gas and other minerals taken and saved” under any future leases. The grantee did not have the right to join in future leases or to receive bonus money or delay rentals attributable to future leases. Like Hunsaker, the San Antonio appeals court sought to harmonize all of the provisions within the deed. The court reasoned that the language “in and under” indicated the grantor’s intent to convey a mineral interest in the land, and the interest remained a mineral interest even though the deed contained express reservations of certain attributes of the mineral estate. Further, the conveyance of “1/16th part of oil, gas and other minerals taken and saved” under future leases was only a recognition that the grantee would receive 1/2 of the “usual” 1/8 royalty under a future lease. As a result, the court held that the deed was effective to convey an undivided 1/2 nonparticipating mineral interest.
Although recent cases indicate that courts are likely to apply the “four corners doctrine” set out in Luckel and seek to harmonize all provisions within a deed, it is virtually impossible to predict the outcome of disputes involving deed construction. Mineral owners and lessors should seek the advice of an attorney in the event that an instrument is provided to them by a party seeking to “clean up” title issues on their acreage. Lessees and operators should be diligent in reviewing their title opinions, identifying issues relating to deed construction and promptly seeking resolution among the necessary parties prior to distributing royalty payments.
Megan Knell is a member of the firm’s Oil, Gas and Energy Group.
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