608 Aery v. Hoskins, Inc., 493 S.W.3d 684 (Tex. App.—San Antonio 2016, pet. denied)
Tuesday, July 17th, 2018
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Aery v. Hoskins, Inc., 493 S.W.3d 684 (Tex. App.—San Antonio 2016, pet. denied) (Pooling by cross-conveyance as appurtenant to the land or interest in gross) held that a conveyance of a part of a unit pooled for royalty will not convey the royalty in the remainder of the pooled unit. The Quinn Ranch was divided among three siblings into three separate tracts, so that each sibling acquired all rights within that sibling’s separate tract, except that each sibling owned an undivided 1/3 mineral interest across the entire Quinn Ranch. In 1963, the three siblings executed the “Sibling Agreement,” which acknowledged this ownership. It also partitioned the mineral estate, so that each sibling gained complete ownership of the minerals in the sibling’s separate tract, and no sibling held any interest in any other sibling’s separate tract. However, the Sibling Agreement then carved out the royalty interest from each sibling’s mineral estate held in their separate tracts and pooled the royalty interest by stating:
[The Quinn siblings] desire to and do hereby pool their interests in the royalties from the production of oil, gas and any other mineral, produced and saved from any part of the . . . [Quinn Ranch], so that in the event of production . . . from said . . . [Quinn Ranch] . . . they shall share in the royalties therefrom in the same proportions that their respective interests in the oil, gas and mineral estate bears to the entire oil, gas and mineral estate in said . . . [Quinn Ranch] . . . .
The broad concept of the “royalty interest” was interpreted by the parties and the court to mean “the right to receive royalty payments” that is one of the five attributes comprising the mineral estate. There was also a cross-conveyance provision in the Sibling Agreement, so that the court expressly declined to consider whether, under Texas law, pooling is effectuated by cross-conveyance or is effectuated under a contract theory. In this case, the pooling is expressly effectuated by cross-conveyance.
On February 8, 1966, one of the siblings (as “Grantor Sibling”) conveyed his tract by general warranty deed to an unrelated Grantee “together with all and singular rights and appurtenances thereto in anywise belonging.” Three days later, on February 11, 1966, the Grantor Sibling conveyed to his sister all of his interest in the other two tracts. There were many parties with some differences in positioning, but simplified, the dispute was between the “Siblings” and the Grantee. It was undisputed that the general warranty deed conveyed all of Grantor Sibling’s interest in Grantor Sibling’s tract to Grantee. The dispute was centered on whether the Grantor Sibling’s undivided royalty interest held in the other siblings’ tracts passed to Grantee under the general warranty deed, or whether these undivided royalty interests were personal interests and were passed to the sister in the second deed.
The first issue was the scope of the royalty interest under the Sibling Agreement. Under the Sibling Agreement, did it create an undivided royalty interest in the entire Quinn Ranch, or an undivided royalty interest in each of the three individual tracts? The court concluded that the Sibling Agreement did clearly grant an undivided right to royalty across the entire Quinn Ranch. However, pooled interests are freely assignable, and the Sibling Agreement did not “express clear or unequivocal intention of the siblings with regard to the issue whether any future conveyance of a sibling’s tract would include that sibling’s right to royalty payments from production on the other siblings’ tracts.” Therefore, the effect of the conveyances was a question of law.
The second issue, the nature of the royalty interest created, was the decisive issue. Was the royalty interest in the other tracts appurtenant to Grantor Sibling’s tract (passing to Grantee), or a personal interest owned by Grantor Sibling (passing to Grantor Sibling’s sister)? An “appurtenance” to land “is any right or obligation that attaches to and is tied to ownership of a particular parcel of land.” “Appurtenances include all rights and interests necessary for the full enjoyment and beneficial and necessary use of property. “An appurtenance to a particular property can include rights or interests in other property… if the right or interest is necessary for the full enjoyment of the property (dominant property).” An appurtenance automatically passes when the property is conveyed, and in this case, appurtenances were expressly conveyed.
“A benefit or burden related to property that is not tied to ownership or possession of the property is a personal interest, or an interest ‘in gross.’ Because an interest in gross is personal, it attaches to the holder, and the holder must specifically pass or convey the interests.”
The court reasoned that each sibling’s royalty interest in the pool could be divided and conveyed. The royalty interest in each tract was appurtenant to that tract. But the undivided royalty interest in the other two tracts was not necessary for the use and enjoyment of Grantor Sibling’s tract. Therefore, the Grantor Sibling’s warranty deed conveyed only the royalty in that tract, Grantor Sibling’s interest in the other two tracts was an interest in gross, and that interest was conveyed by Grantor Sibling’s subsequent deed to his sister.
The significance of the case is the holding that a conveyance of a part of a unit pooled for royalty will not convey the royalty in the remainder of the pooled unit.