Face Challenges Confidently

615 Kardell v. Acker, 492 S.W.3d 837 (Tex. App.—San Antonio 2016, no pet.)

Monday, June 19th, 2017

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

Kardell v. Acker, 492 S.W.3d 837 (Tex. App.—San Antonio 2016, no pet.) (Conveyance of royalty) held that a deed was a non-participating royalty deed, and it conveyed 1/5 of the entire royalty interest, not 1/5 of a 1/8 royalty interest. In a 1980 correction deed, Grantor conveyed to Grantee “an undivided non-participating one-fifth (1/5) of the whole and entire royalty interest . . . in and to all of the oil, gas and other minerals in the [Real Property].” The 1980 correction deed also recited that it was to replace a 1965 deed “wherein by error or mistake, Grantors conveyed to Grantee an undivided 1/5th mineral interest in and to all of the oil, gas and other minerals, when in truth and fact Grantors should have conveyed an undivided non-participating 1/5th of the whole and entire royalty interest.” The court held that the deed unambiguously conveyed 1/5th of royalty as a non-participating royalty. However, there were prior deeds in the chain of title in 1948, 1953, and 1965, which Grantor contended were evidence that the intent of the 1980 correction deed was to convey a 1/5 of a 1/8 royalty as a non-participating royalty. There is a split in authority as to when and under what circumstances prior deeds should be considered in construing a deed. Without considering that question, and although the court held that the 1980 correction deed was unambiguous, it also reviewed the prior deeds and reached the same conclusion.

In the 1948 deed, Mabel conveyed to her four siblings “an undivided four-fifths (4/5ths) interest as their separate individual property so that each will hold an undivided one-fifth (1/5th) interest in and to all of the oil, gas and other minerals acquired by Mabel [in the Real Property].” However, the future lease clause of the 1948 deed provided that:

Grantees shall have no interest in any bonus money or oil payment above the one-eighth (1/8th) royalty received by the Grantors in any future lease . . . Grantees shall receive under such lease or leases four-fifths (the same being one-fifth (1/5th) to each Grantee) part of all the oil, gas and other minerals taken and saved under any such lease or leases and he or she shall receive the same out of the royalty provided for in such lease or leases. . . .

In the 1953 deed, sibling Johnie and another sibling conveyed to Mabel all the mineral interest Mabel conveyed to them in the 1948 deed which was “an undivided two-fifths (2/5ths) interest . . . in and to all of the oil, gas and other mineral in and to the [Real Property].”

In the 1965 deed, Mabel conveyed back to Johnie all of the interest conveyed by Johnie to Mabel in the 1953 deed which was “[an] undivided one-fifth (1/5) interest . . . in and to all of the oil, gas and other minerals in and to the [Real Property].”

The court applied the reasoning from Garza v. Prolithic Energy Co., L.P., where the court construed a contract substantially similar to Mabel’s 1948 deed. In Garza, the contract conveyed “an undivided one-half (1/2) interest in and to all of the oil, gas and other minerals in and under” the property, which was “under an existing lease that provided for a one-eighth (1/8th) royalty, and the grantee would receive one-half of the royalties and rentals provided in that lease but no part of any annual rentals.” However, the future lease clause provided that the grantee would receive one-sixteenth of all oil, gas and other minerals taken and saved under future leases.

The Garza court examined the Texas Supreme Court’s analysis in Altman v. Blake. Based on the Court’s analysis in Altman, the court in Garza “held the contract in question conveyed a mineral interest although it reserved at least the second, third, and fourth Altman rights, and possibly also the first Altman right.” The court also “harmonized the contract provisions and held the 1/2 interest in the mineral estate entitled the grantee to consistently receive 1/2 in whatever royalty was paid under the future leases.”

Applying the same reasoning as in Garza, the court held that Mabel’s 1948 deed “conveyed to the grantees a four-fifths mineral interest shorn of various Altman rights.” The court further concluded that the 1948 deed “entitle[d] each of the four grantees to consistently receive 1/5th of whatever royalty is owed under the future leases,” which the court found to be “consistent with the 1953 deed in which Johnie conveyed to Mabel an unqualified 1/5th mineral interest, the 1965 deed in which Mabel conveyed to Johnie an unqualified 1/5th mineral interest, and the 1980 correction deed in which Mabel conveyed to Johnie a non-participating one-fifth of the ‘whole and entire royalty interest.’”

This is a deed construction case, but it also follows prior authority in holding, on alternative grounds, that a mineral interest stripped of some of the attributes of a mineral interest is still a mineral interest.