Face Challenges Confidently

034 Luckel v. White

Tuesday, September 1st, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of some significance to you.
Luckel v. White, S.W.2d (1991) [See The PPROA Pipeline, Volume 61, No. 12 (December 1990), for Case Note on Civil Appeals opinion], overrules Alford v. Krum, 671 S.W.2d 870 (Tex. 1984). In an informal vote last year of members of the State Bar’s oil and gas section, Alford ranked No. 1 on the members’ list of most regrettable oil and gas decisions ever issued by the Supreme Court. At stake is a rule of construction that will affect many oil and gas titles in Texas.
It is quite common to find recorded mineral and royalty deeds in Texas which originate with printed forms having blanks in the granting, habendum, warranty, “subject to” and “future lease” clauses. The blanks are provided so that the draftsman may insert the quantum of interest to be conveyed. Luckel is a classic example of a common difficulty. At the time the deed was drafted, the parties were no doubt focused on the existing “usual 1/8” royalty lease. The draftsman was attempting to convey a “1/4 interest” in the royalty. The granting, habendum, and warranty clauses recited that the grantee would receive a 1/32 royalty interest. The “subject to” and “future lease” clauses stated that the grantee would get 1/4 of any present and future royalties. The new lease in Luckel provided for a 1/6 royalty. The grantors argued that the deed entitled the grantees to a fixed 1/32 royalty. They contended that when the mineral estate reverted upon the expiration of the old lease, they owned the rights to any increase in negotiated royalty in future leases. The grantees argued that all provisions of the deed could be harmonized and effect given to the parties’ intent by holding that the grantees were entitled to 1/4 of the 1/6 royalty interest in the current lease.
Held: Grantees are entitled to 1/4 of the 1/6 royalty and 1/4 of the royalties reserved under all future leases, provided grantees are to receive not less than 1/32 of production. The Texas Supreme Court had previously held in Alford, under similar facts, that the provisions of the deed could not be harmonized, and, under such circumstances, the granting clause would control (the “repugnant to the grant” rule). The Supreme Court expressly overruled itself on this point. It restated the well-established rule of construction that when a court is compelled to construe a document its primary purpose is to determine the actual intent of the parties as expressed in the instrument. The intent of the parties will be determined under the “four-corners rule,” which means the court will consider all parts of the document. The court will then attempt to harmonize all parts of the document, so that each clause makes sense. The Court said:

In particular, the label” we have given the clauses of “granting,” “warranty,” “habendum” and “future lease” are not controlling, and we should give effect to the substance of unambiguous provisions. The language “one-fourth of any and all royalties reserved under” future leases is clear and unambiguous . . . .

Rules of construction and their application may seem an arcane and boring subject, but it should be emphasized that Luckel is a very important case. It represents a fundamental shift in who owns the minerals. Moreover, it is a construction of a form of conveyance that is very common in Texas. There are no doubt many leases producing today where the division of interest was determined under the assumption that the Alford construction was the correct application of the law.