Face Challenges Confidently

371 Hernandez v. El Paso Prod. Co.

Monday, August 31st, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Hernandez v. El Paso Production Co., No. 13-09-184-CV, 2011 WL 1442991 (Tex. App.—Corpus Christi Apr. 14, 2011, no pet.) (mem. op.) held that grantors appearing to convey a one-sixteenth mineral interest in the granting clause of a “three-paragraph” deed, while also appearing to convey a one-half interest in royalties in the same instrument, intended to, and did, convey a one-half interest in all minerals and royalties in the subject land. The dispute was between successors to the grantor (“Grantor”) and successors to the grantee (“Grantee”) under a 1932 deed. The three-paragraph deed, typical of those used at the time, conveyed the mineral interest in three separate paragraphs. The first paragraph, referred to as the granting clause, conveyed a “[o]ne sixteenth interest in and to all of the oil, gas, and other minerals in and under” the land described therein. The second paragraph, referred to as the subject to or existing lease clause, described the lease then burdening the land, and conveyed “one half (1/2) of all the oil royalty and gas rental or royalty due and to be paid under the terms of said lease.” Finally, the third paragraph, referred to as the future lease clause, provided that if and when the existing lease ended:

[T]he lease interests and all future rentals on said land, for oil, gas and mineral privileges shall be owned jointly by [Grantor and Grantee] each owning one half (1/2) of Royalty same being 1/2 of 1/8 or 1/16 interest in all oil, gas and other minerals in and upon said land under the present lease or any future lease on said land together with 1/2 one half interest in all future rents.

Grantor’s claim to the mineral interest rested on the argument that the court should consider only the granting clause in its interpretation of the deed. The court held that the four corners rule articulated in Luckel v. White required them to look beyond the granting clause and to consider all of the language in the deed. The court then addressed the recurring issue in interpreting these common “three-paragraph” deeds when the deeds contain differing fractions in each of the three clauses. Such deeds were common in the 1930s, and, as the Texas Supreme Court has noted, one-eighth was then the “prevailing royalty.” The court reasoned that drafters tended to misunderstand what interest was owned by the lessor-grantors. The common mistake was the assumption that lessor-grantors owned only one-eighth of the mineral estate, while the other seven-eighths was owned by the lessees. Accordingly, when drafting a mineral deed, the drafter would assume that a lessor-grantor who wanted to convey one-half of his estate would thus convey one-half of his perceived one-eighth interest, or one-sixteenth of the total mineral estate. However, the lessor-grantor in fact retained the possibility of reverter in the entire mineral estate. The court cited to other cases in which similar three-paragraph deeds were construed to harmonize all parts of the deed to find that, notwithstanding the smaller fraction in the granting clause, the grantor intended to convey the larger interest. Thus, although the granting clause of the deed only purported to convey a one-sixteenth interest in the mineral estate, because the subject to clause conveyed one-half of the royalties, and because the future lease clause confirms that the Grantor believed Grantor’s estate was a 1/8 royalty interest, the court held that Grantor intended to grant one-half of what Grantor owned to Grantee.
Hernandez is significant for holding that clauses other than the granting clause in a 1930s three-paragraph deed can reveal the true intention of the grantor. When a granting clause conveys a one-sixteenth mineral interest, but the subject to clause and future lease clause demonstrate that the grantor intended to convey a one-half interest, the court will construe the deed as conveying a one-half interest, despite the language of the granting clause. This outcome rests on the assumption that the grantor misconceived the interest he owned as only a one-eighth royalty, rather than the entire mineral estate subject to an existing lease. The case continues the trend of applying the four corners rule and rejecting “two-grant” theory.