Face Challenges Confidently

627 Richardson v. Mills No. 12-15-00170-CV, 2017 WL 511893 (Tex. App.—Tyler Feb. 8, 2017, no. pet. h.)

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.

Richardson v. Mills No. 12-15-00170-CV, 2017 WL 511893 (Tex. App.—Tyler Feb. 8, 2017, no. pet. h.) (Construction of a release of oil and gas lease) held that a “1906 Instrument” was a deed, not an oil and gas lease, and that a 1908 Release did not apply to the deed. The 1906 Instrument did not recite whether it was a deed or an oil and gas lease. It was dated July 9, 1906 and promptly recorded in the county deed records. There were multiple Grantors and multiple Grantees. The parties to the litigation aligned as successors-in-interest to Grantors and Grantees. The 1906 Instrument begins with a recital of what the Grantors desire and that Grantees have agreed to perform those tasks. Those tasks included: abstracting, examining, and curing title; paying off existing indebtedness; investigating whether the land could be productive of oil and gas; and generally to enhance the value of the property. Grantors then convey an undivided 1/2 of the oil, gas, and other minerals to Grantees forever, with a general warranty.

By a “Release Lease” dated January 18, 1908, as recorded on April 5, 1927 in the oil and gas lease records of the county, and re-recorded on July 14, 1934 in the deed records of the county, Grantees purported to release “a contract or lease.” However, the “contract or lease” that is released is recited to be dated July 9, 1907, but the 1906 Instrument was dated July 9, 1906. The “Grantors” under the 1906 Instrument included three men and their spouses, but the “Grantors” to the 1907 “contract or lease” described in the 1908 Release included only the three men. The Grantees under the 1906 Instrument are Robert Lindsey and June C. Harris, but the parties to the 1907 “contract or lease” are identified in the 1908 Release as Nacogdoches Land Company, a firm composed of Robert Lindsey and June C. Harris. Only Robert Lindsey and June C. Harris signed the 1908 Release. The 1906 Instrument has no “term,” but the 1908 Release recites that time for development under the terms of the 1907 “contract or lease” has expired and that the lease is null and void. The 1906 Instrument was recorded, but the 1908 Release does not reference any recording data for the 1907 “contract or lease” being released.

Grantors contended the 1906 Instrument was ambiguous, particularly when construed with the 1908 Release, and introduced testimony from a lawyer as to the construction to be given to the 1906 Instrument. Grantees contended the 1906 Instrument was an unambiguous deed which conveyed 1/2 of the minerals to Grantees.

Grantors first contended that the 1906 Instrument was a lease, not a deed. The court applied the “four corners” rule of construction and found all the attributes of a mineral deed. The 1906 Instrument recited the services rendered and to be rendered as consideration for the unequivocal grant of a 1/2 mineral interest in the granting clause. The granting clause defines the estate conveyed. This is followed by the habendum clause. The habendum clause in Texas deeds delineates the extent of the interests being granted and any conditions affecting the grant. Here, the term is “forever.” The general warranty clause is also “forever.” Harris and Lindsey may have had a right to develop, but there was no duty to develop and no provision specifying a time period within which development must occur. Because the conveyance was unconditional and specified no time period for development, none would be implied.

On the other hand, an oil and gas lease in Texas is a fee simple determinable estate. There were no such limitations in the 1906 Instrument.

Grantors also contended that the 1906 Instrument was only a contract between the parties requiring Harris and Lindsey to develop the subject property for oil, gas, and other minerals. The court noted that in the 1906 Instrument, “there were no further conveyances contemplated in the instrument. Harris and Lindsey were to perform future services as part of the consideration. Performance of the services was not a condition to the transfer of the minerals to them.”

The court also noted that “there is no time specified in the instrument for any development” and the “language in the instrument presents no requirement for Harris and Lindsey to actually develop the property.” The record did not reflect that Grantors made any attempt to set aside the 1906 Instrument for failure of consideration, which further supports that the 1906 Instrument was not a mineral lease. The court ruled that the 1906 Instrument was an unambiguous mineral deed by which the Grantors conveyed a one-half mineral interest in the minerals under the subject property to Grantees.

Grantors argued that the only document recorded and in their chain of title that the 1908 Release could possibly connect to was the 1906 Instrument. Grantees contended that the 1908 Release refers back to an unrecorded oil and gas lease. The court noted that the 1908 Release states that it is releasing an instrument dated July 9, 1907, whereas the 1906 Instrument was executed on July 9, 1906. The 1908 Release specifically refers to the document being released as a “contract” or “lease,” but never describes it as a “deed.” The “release specifically states that by the terms of said contract or lease the time for said development has expired rendering null and void said lease,” but “the [1906 Instrument] includes no language specifying a time period for the development of oil, gas, or other minerals.” The 1908 Release states that the “contract or lease” was delivered to the Nacogdoches Land Company, a firm composed of Robert Lindsey and June C. Harris, however, no reference to “the Nacogdoches Land Company” appears in the 1906 Instrument. Finally, the court thought it significant that the recording information for the 1906 Instrument is omitted from the 1908 Release, because generally the recording information for the instrument to be released is specified in the release itself. The court held that the 1908 Release is unambiguous and that it does not have a connection to the 1906 Instrument.

In 1906, there were only a handful of oil and gas cases in all of Texas jurisprudence. There was not yet a decision on the ownership of oil and gas in place. There was not yet a decision holding that an oil and gas “lease” is a fee simple determinable. Over approximately the next fifteen years, there would be a series of cases holding that a lease, not supported by a bonus payment, was revocable at will by lessor at any time prior to the commencement of operations. It is likely that there were many “no term” leases. In summary, there was no oil and gas law.

The court’s guess that there was an unrecorded “contract or lease” is a reasonable guess, but only a guess, because no one knew what they were doing in 1906. We are today analyzing documents from 1906 after more than a century of precedents has colored our concept of oil and gas law. The significance of this case is that it highlights how much more developed oil and gas law is today.