Face Challenges Confidently

399 Coghill v. Griffith

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 significance to you.
Coghill v. Griffith, 358 S.W.3d 834 (Tex. App.—Tyler 2012, pet. denied)  construes a royalty reservation in a deed as a fraction of royalty rather than a fractional royalty. Coghill’s predecessor in interest, the grantor in a 1961 deed, conveyed land in Rusk County to a grantee, the Griffiths’ predecessor in interest, reserving a royalty interest of 1/8 of the royalty.   At the time of the conveyance, the land was subject to a lease with a 1/8th royalty, but the grantee later executed a new lease for a 3/16ths royalty.  The issue in the case was whether Coghill as successor to the grantor was entitled to 1/8 of 1/8 (1/64 of production) or 1/8 of 3/16 (3/128 of production).  The deed stated:
[T]his Grantor excepts from this conveyance and reserves unto himself, his heirs and assigns an undivided one-eighth (1/8) interest in and to all of the oil royalty [and] gas royalty . . . .  It is understood and agreed that this sale is made subject to the terms of said lease, but the Grantor reserves and excepts unto himself, his heirs and assigns an undivided one-eighth (1/8) of all royalties payable under the terms of said lease, as well as an undivided one-eighth (1/8) of the usual one-eighth (1/8) royalties provided for in any future oil, gas and/or mineral lease covering said lands or any part thereof . . . .
Nevertheless, neither the Grantee herein, nor his heirs, executors, administrators, and assigns of the Grantee shall make or enter into any lease or contract for the development of said land or any other portion of the same for oil, gas or other minerals, unless each and every such lease, contract, leases or contracts, shall provide for at least a royalty on oil of the usual one-eighth (1/8) to be delivered free of cost . . . .  [A]nd in the event Grantee, nor [sic] the heirs, executors, administrators and assigns of the Grantee, or as in the status of the fee owners of the land and minerals, or as a fee owner of any portion of the same, shall operate or develop the minerals therein, Grantor shall own and be entitled to receive as a free royalty hereunder, (1) an undivided one-sixty fourth (1/64) . . . .
The court held that the interest reserved was a fraction of royalty.
In construing the deed, the court applied the harmonization principles from Luckel v. White by striving to construe the document to give effect to all of its provisions.   The reservation in the deed contained five clauses.  The first clause reserved a 1/8th interest in the oil and gas royalty.  The court stated that this clause is a fraction of royalty, which “conveys a fractional share of the royalty that is contained in an oil and gas lease—it is not fixed, but rather floats in accordance with the size of the landowner’s royalty contained in the lease” as opposed to a fractional royalty, which “entitles the owner to the specified fractional amount stated in the deed of oil, gas, or other minerals and remains constant regardless of the amount of royalty contained in a subsequently negotiated oil and gas lease.”   The second clause, the existing lease clause, also reserved a fraction of royalty.
The court harmonized the third, fourth, and fifth clauses (the future lease, minimum royalty, and fee owner development clauses, respectively) with the first two fraction of royalty clauses.   The court followed Luckel in holding the future lease clause conveyed a fraction of royalty, reasoning that even if the parties probably contemplated nothing other than the usual 1/8th royalty, this assumption does not lead to the conclusion that the parties intended a fixed interest based on a 1/8th royalty, but rather that the parties intended the royalty should never fall below 1/8th of the usual 1/8th.   Concerning the minimum royalty clause, the court followed Luckel and the cases of Garza v. Prolithic Energy Co.,  and Range Resources Corp. v. Bradshaw  in holding that such a clause provides a floor but not a ceiling for future royalties, and thus reserved a fraction of royalty as well.
The case follows a pronounced trend to rely heavily upon the “four corners” rule of construction and to apply that rule to royalty provisions following the pattern in this deed so as to conclude that the intent was to describe a fraction of royalty.