341 Hudspeth v. Berry

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
 
Hudspeth v. Berry, No. 2-09-225-CV,  2010  WL 2813408 (Tex. App.—Fort Worth July 15, 2010, no pet.) (mem. op.), holds that a reservation of a royalty in a 1943 deed making reference to “the usual 1/8th” royalty would be given its plain meaning, without regard to the fact that in 1943 “1/8th” was commonly used to refer to the landowner’s share of production. In 1943, two brothers conveyed their interests in jointly owned land to a third brother and reserved nonparticipating royalty interests for both grantors. The pertinent portion of the reservation clause read as follows:
 

There is…expressly reserved and excepted from this conveyance, for the benefit of [first grantor] . . . [an] undivided 1/40th royalty interest (being 1/5th of 1/8th) and for the benefit of [second grantor] . . . an undivided 1/40th royalty interest (being 1/5th of 1/8th) . . . . But the grantee herein . . . [is] hereby expressly authorized to lease the said land at will for oil, gas and other mineral privileges without our consent or ratification[,] but in any such lease . . . there shall be reserved the usual 1/8th royalty of which 1/8th [first grantor] shall be entitled to and receive 1/5th, and [second grantor] shall be entitled to and receive 1/5th.

 
In 2005, the land was leased for a leasehold royalty rate of 1/5th of production.
 
Grantors’ heirs argued that the 1943 deed reserved a “fraction of royalty” interest, being a fractional share of the royalty contained in an oil and gas lease that is not fixed but rather “floats” in accordance with the then applicable leasehold royalty rate. In other words, grantors’ heirs’ share of royalty would always be 1/5th of the applicable leasehold royalty rate, but it could be a variable share of production. Under this lease, it would be 1/5th of 1/5th, or 1/25th of production. On the other hand, grantee’s heirs argued that the 1943 deed reserved a “fractional royalty” interest, in that the grantors were entitled to the specified fractional amount stated in the deed, and that interest was to remain constant regardless of the amount of the then applicable leasehold royalty rate. In other words, grantors’ heirs’ share of royalty would always be a fixed 1/40th royalty interest.
 
Grantors’ heirs contended that they were entitled to 1/5th of any leasehold royalty because “the usual 1/8th” in a 1943 deed means “something very different from its plain language.” Specifically, grantors’ heirs asserted that in 1943, when the deed was executed, “‘1/8th’ was commonly intended as a synonym for ‘landowner’s share.’” Thus, the parties’ intent at the time the 1943 deed was conveyed was to reserve 1/5th of “‘any leasehold royalty,’ not a fixed 1/5th of 1/8th royalty interest (a 1/40th royalty interest).”
 
The court disagreed and held that the plain language of the reservation was unambiguous and did not contain conflicting language.  The court stated that the first half of the reservation clause expressly reserved an undivided 1/40th royalty interest. The clause further provided that “there shall be reserved the usual 1/8th royalty of which 1/8th [first grantor] shall be entitled to receive, and [second grantor] shall . . . receive 1/5th.” Based on the plain language of the deed, each grantor was entitled to receive a 1/40th royalty interest and both portions of the reservation clause referred to 1/40th royalty interests. Therefore, because the reservation did not contain conflicting fractions and because the plain language of the deed was unambiguous, the court held that the reservation provided for a “fractional royalty” interest, rather than a “fraction of royalty” interest.
 
The case does not fall within the universe of cases with conflicting fractions or “two- grant” theory, because there was no conflict and no ambiguity. The case was tried on motions for summary judgment, and it does not appear that any evidence was introduced on the meaning of the “usual 1/8th” in 1943. Rather, in the absence of ambiguity and no evidence of extrinsic ambiguity, a court will limit its determination of the parties’ intent to that intent which was expressed within the four corners of the conveyance instrument.