174 Stewman Ranch, Inc. v. Double M Ranch, Ltd.

CASE NOTE

Richard F. Brown

 
Stewman Ranch, Inc. v. Double M. Ranch, Ltd., 192 S.W.3d 808 (Tex. App.—Eastland 2006, pet. denied), construed a deed reservation to determine whether it reserved one-half of the royalty in “the described lands,” or only one-half of the royalty grantors then owned. Grantors did not own 100% of the royalty interests conveyed in the deed. Grantors owned undivided interests of varying amounts under the several tracts conveyed. The deed contained the following reservation:

There is, however, excepted and reserved to the    Grantors an undivided one-half (1/2) of the royalties to be paid on the production of oil, gas, and other hydrocarbons from the described lands which are presently owned by Grantors. . . .

Grantors argued the reservation was for one-half of the total royalties from the described lands, which as to some tracts would zero out the grantees, because grantors did not even own one-half in certain tracts at the time of the conveyance. Grantors contended they should win under the established rules distinguishing between reservations in the lands “conveyed” (which reserve a fraction of the mineral estate conveyed) and reservations in the lands “described” (which reserve a fraction of the minerals under the land described). The court refused to apply this rule because of the unique language in the reservation providing “which are presently owned by Grantors.”
 
The difficulty of the language in the deed lies with the inclusion of the clause “which are presently owned by the Grantors.” If the clause modifies the preceding words “the described lands,” then the reservation operates to reserve one-half of the total royalties.   If the clause modifies “royalties to be paid,” then the reservation means that the grantors retained only one- half of the royalty they owned at the time of the conveyance.
 
To determine the meaning of the clause, the court referred to the basic rules of grammatical construction, including the doctrine of last antecedent. The restrictive dependent clause, “which are presently owned by Grantors,” would ordinarily refer to the last antecedent, “the described lands,” which would mean grantors win. However, the court also refused to apply this rule. The court held the clause would be superfluous, if it modified “the described lands,” because the sentence would not change if the clause was removed. The court reasoned that it must find a reference that would make the clause meaningful, and that it could not ascribe a “futile” or “vain” purpose to the words of an agreement. Applying the clause to the phrase “one- half (1/2) of the royalties” harmonizes and gives effect to every part of the agreement. The Court held the clause refers to and defines “one-half (1/2) of the royalties” and that the grantors reserved an interest in one-half of the royalties that were owned by them at the time of the conveyance.
 
The court effectively read the words “which are presently owned by Grantors,” so as to convert a reservation of 1/2 of the royalties from the lands described, to 1/2 of the royalties from the interest conveyed in the lands described.