Garza v. Prolithic Energy Co., L.P

In Garza v. Prolithic Energy Co., L.P., 195 S.W.3d 137, 146 (Tex. App.--San Antonio 2006, pet. denied), the 1938 deed stated that any lease or contract for the development of minerals "shall provide for at least royalty of the usual one-eighth" Id. at 140. Because of this provision, the court concluded that if the grantor entered into a future lease with a royalty larger than the usual one-eighth, the grantee would be entitled to benefit from the larger royalty interest. Id. at 146. In Garza v. Prolithic Energy Co., L.P., the interpretation of two separate deeds, a Royalty Contract in favor of J.B. Claypool and a Mineral Deed in favor of Homer P. Lee, was in question. In Garza, the Royalty 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." Id. at 139. The Contract further provided that the said land was under an oil and gas lease, providing for a one-eighth royalty. Id. The Contract went on to state that the grantee should receive under any future lease or leases a one-sixteenth part of all oil, gas, and other minerals saved under such lease or leases. Id. The Mineral Deed conveyed an undivided fifteen-thirty-seconds interest in and to all the oil, gas and other minerals under the said property. Id. at 141. The Deed also contained further provisions stating that the said land was under an oil and gas lease, providing for one-eighth of royalty. Id. The Deed went on to state that the grantee should receive under any future lease or leases fifteen-thirty-seconds of one-eighth part of all oil, gas, and other minerals saved under such lease or leases. Id. The operators of the wells responsible for paying royalties sought a judicial interpretation of the deeds. Id. The trial court concluded the Contract entitled Claypool to one-half of the interest reserved in a lease and Lee to fifteen-thirty-seconds of the interest reserved in a lease. Id. After determining both deeds conveyed a mineral interest as opposed to a royalty interest, we addressed the issue of the conflicting fractions by reviewing a line of frequently cited cases dealing with the issue. Id. at 143-45.; see, e.g., Luckel, 819 S.W.2d at 461-63; Concord Oil Co. v. Pennzoil Exploration & Production Co., 966 S.W.2d 451 (Tex. 1998); Alford v. Krum, 671 S.W.2d 870 (Tex. 1984), overruled, Luckel, 819 S.W.2d at 464; Garrett v. Dils, 157 Tex. 92, 299 S.W.2d 904 (1957). Aware that this line of cases involved royalty interests as opposed to mineral interests, we stated this distinction may be without a difference. Id. at 143. The Court also recognized that the conflicting fraction problem arose out of a 1923 case, and that case led to the development of the "three-grant" lease form containing a granting clause, subject to clause, and future lease clause. Id. at 145. Understanding that the typical royalty provided for in oil and gas leases was one-eighth, we pointed out the conflicting fractions in the three clauses were often some multiple of one-eighth. Id. After making these observations, we went on to construe the meaning of the deeds. In harmonizing all the parts of the Contract and the Deed, the Court recognized that if the future lease clause was the controlling clause governing the amount of mineral reservation, then a reversion in interest could potentially occur each time a subsequent future lease was executed. Id. Seeing this position as inconsistent with the four corners of the Contract or Deed, which both involved a single conveyance with fixed rights, we concluded that Claypool and Lee were entitled to receive a one-half interest and fifteen-thirty-seconds interests, respectively, in whatever amount of royalty was paid, even under a future lease. Id. at 145-46; see also Concord Oil, 966 S.W.2d at 457 (indicating the deed did not contain any language that made it evident two differing estates were being conveyed). Our holding was also strengthened by the language in the Deed, "which restricted the ability of the grantor to enter into a future lease that provides for less than a one-eighth royalty." Id. at 146. Accordingly, the Court held the granting clauses of the Contract and Deed, each of which conveyed one-half of interest and fifteen-thirty-seconds of interest to Claypool and Lee, respectively, were the governing clauses in determining the amount of the grantees' mineral interests as opposed to the future lease clauses. Id.