This case involves the construction of an oil, gas and mineral lease and the establishment of the rights of the parties thereunder.
The petitioners, as lessors, executed and delivered to the respondents, as lessees, an oil, gas and mineral lease on and to premises described as follows: "All that certain tract of land situated in the County of Yoakum, State of Texas, described as follows, to-wit: The Northwest one-fourth and the West one-half of the Northeast one-fourth of Section 21, Block K, Public School Land in Yoakum County, Texas, and containing 240 acres more or less." The lease was on a Producers 88 Special printed form, contained a covenant of general warranty and provided in usual and customary language for reservation to the lessors of a one-eighth royalty. The lease contained as a part of its printed provisions a proportionate reduction clause in the following language:
Attached in the body of the printed lease contract was a typewritten clause or "rider" reading as follows:
At the time of the execution of the lease petitioners did not own the whole of the mineral fee estate in the 240 acres of land. They owned only an undivided 1/6th interest therein. Their undivided 1/6th interest is the arithmetical equivalent of a 16/96ths interest.
Petitioners do not question but that the proportionate reduction clause in the lease operates to reduce the normal royalty to which they are entitled from 1/8th of production to 1/6th of 1/8th, or 1/48th, of production. They contend, however, that the proportionate reduction clause has no application to the 1/32nd overriding royalty reserved by them. Respondents contend, on the other hand, that the proportionate reduction clause applies not only to the normal royalty reserved but to the reserved 1/32nd overriding royalty as well. If petitioners are correct in their construction of the lease it provides for a normal royalty of 1/48th of production and an overriding royalty of 1/32nd of production, or a total royalty of 5/96ths of production. If respondents' interpretation of the lease is correct it provides for a normal royalty of 1/48th of production and an overriding royalty of 1/6th of 1/32nd, or 1/192nd of production, a total royalty of 5/192nds. We will first address ourselves to this point of difference.
As is often true in litigation involving the interpretation and construction of written instruments both parties insist that the instrument is "plain and unambiguous" and admits of no reasonable meaning other than that for which they contend.
Petitioners, as plaintiffs, having taken the position that the lease was plain and unambiguous, were not permitted on the trial to introduce extrinsic evidence of all of the
In interpreting the lease it is the duty of the court to seek the intention of the parties. 31-A Tex.Jur. 179, Oil and Gas, Sec. 109. The intention of the parties, as that intention is expressed in the lease, is to be ascertained by a consideration of all of the provisions of the lease, 31-A Tex. Jur. 181, Oil and Gas, Sec. 110, and by harmonizing, if possible, those provisions which appear to be in conflict. Woods v. Sims, Tex., 273 S.W.2d 617. If after established rules of interpretation have been applied there still appears to be a conflict or an ambiguity in the provisions of the lease so that it is susceptible of two reasonable meanings, then, and only then, is the court authorized to receive extrinsic evidence to resolve the conflict or ambiguity. Universal C. I. T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154; Lewis v. East Texas Finance Co., 136 Tex. 149, 146 S.W.2d 977.
If the clause providing for the 1/32nd overriding royalty did not provide that the reserved royalty was "without reduction" the problem of construing the lease would present no great difficulty. The overriding royalty is, withal, "royalty", State National Bank of Corpus Christi v. Morgan, 135 Tex. 509, 143 S.W.2d 757, and Griffith v. Taylor, Tex., 291 S.W.2d 673, and in the absence of the words "without reduction" the proportionate reduction clause would require its reduction to a 1/192nd of production. However, the parties have put the words "without reduction" in the clause and we have no right to take them out unless the established rules of construction noted above dictate that action.
On the face of the lease the proportionate reduction clause and the overriding royalty clause present an obvious conflict. The first would require a proportionate reduction of the 1/32nd overriding royalty and the second would prohibit its reduction. One of the rules of construction for resolving conflicts requires that typewritten matter in a contract be given effect over printed matter. J. K. Hughes Oil Co. v. Mayflower Inv. Co., Tex.Civ.App., 193 S.W.2d 971, 973, writ refused; Richardson v. Richardson, Tex.Civ.App., 270 S.W.2d 307, 311, writ refused. And see Annotation, 37 A.L.R. 820, et seq. That rule is peculiarly applicable here. When it is applied the proportionate reduction clause and the overriding royalty clause are harmonized and the language of each is given meaning. The language of the proportionate reduction clause is given effect as requiring a reduction of the normal royalty reserved in the lease, but it is not given an effect which would render the words "without reduction" in the overriding royalty clause meaningless. To refuse to so limit the effect of the proportionate reduction clause would necessarily result in a holding that the ambiguity in the lease cannot be resolved by rules of construction, a result which both parties disavow. This construction of the lease gives the petitioners a greater royalty than the usual 1/8th of the mineral fee owned by them, but parties may validly contract for a greater royalty than 1/8th of the lessor's mineral ownership. Benge v. Scharbauer, 152 Tex. 447, 259 S.W.2d 166; Gibson v. Turner, Tex., 294 S.W.2d 781; King v. First Nat. Bank of Wichita Falls, 144 Tex. 583, 192 S.W.2d 260, 163 A.L.R. 1128. We agree that in so far as the quantum of the royalty
The necessity for construction of the lease is not yet exhausted. The respondents insist here, as they did in their motion for an instructed verdict, that in the final analysis the question in the case is governed by the rule of estoppel laid down in Duhig v. Peavy-Moore Lbr. Co., 135 Tex. 503, 144 S.W.2d 878. In that case a grantor in a deed purported to convey fee simple title to certain land by a deed containing a covenant of general warranty. In the deed the grantor reserved and retained an undivided one-half (½) interest in and to all of the minerals in and under the land. One-half of the minerals in the land had theretofore been severed and on the date of the deed was outstanding in a third person. In that fact situation it was held that the covenant of warranty extended to the surface of the land and to one-half of the minerals therein, that there was an automatic breach of the warranty and that equity would estop the grantor and those claiming under him from asserting against the grantee and those claiming under it the title to the one-half of the minerals reserved and retained. The effect of the holding was to take from the grantor the one-half of the minerals retained by him, without reference to or regard for the intention of the parties, and give the same to the grantee in order to fulfill the covenant of general warranty.
We have examined the record on file in this court in the Duhig case. The rule announced was a novel one in the fact situation before the court. Its adoption was urged by the defendant in error (respondent) and by able amicus curiae. Its adoption was opposed by the plaintiff in error (petitioner) and by able amicus curiae. It is evident from the face of the court's opinion in the case (144 S.W.2d 879-880) that able judges also differed on the wisdom of the adoption of the rule. None of the parties filing briefs cited any case in which the rule had been approved or applied. In support of its adoption of the rule this court cited the following cases: Robinson v. Douthit, 64 Tex. 101, Baldwin v. Root, 90 Tex. 546, 40 S.W. 3; Jacobs v. Robinson, 113 Tex. 231, 254 S.W. 309; Caswell v. Llano Oil Company, 120 Tex. 139, 36 S.W.2d 208; Moore v. Crawford, 130 U.S. 122, 9 S.Ct. 447, 449, 32 L.Ed. 878; Smith v. Williams, 44 Mich. 240, 6 N.W. 662. None of the cases cited support the rule, except by analogy. Each of the cases cited involve an application of the well established rule of estoppel against the assertion by a grantor of an after-acquired title in contradiction of his covenant of warranty. In addition to citing the cases above noted the court quoted the opening sentence from 19 Am.Jur. 614, sec. 16, the language of which gives seeming support to the rule adopted, but no case is cited by the writer of the text and an examination of the remainder of the section and of the cases cited in the footnotes shows that the writer was dealing with the effect of the rule as applied to an after-acquired title.
What has been said with reference to the history of the adoption of the rule of the Duhig case is not said in disparagement of the ultimate decision of the court to adopt and apply it. It is said, rather, in justification of our refusal to extend it to and apply it in the construction of oil, gas and mineral leases.
According to Shepard's Southwestern Reporter Citations the Duhig case has been cited in some twenty-five cases subsequently decided. A reading of the cases in which it has been cited shows that whereas it has been cited in many cases involving the construction of deeds — in most of which it was cited on other points — and that the rule of estoppel has been applied in five of such cases, it has been cited in only two cases involving the construction of a mineral lease. It was cited in the opinion of the Court of Civil Appeals in this case and in the opinion of this court in Gibson v. Turner, Tex., 294 S.W.2d 781. The rule was not given controlling effect in Gibson v. Turner.
In Benge v. Scharbauer, 152 Tex. 447, 259 S.W.2d 166, 169, we declined to extend the Duhig rule to transfer to a grantee any part of a 3/8ths royalty provided for in a deed while at the same time giving effect to the rule to transfer to the grantee a part of a 3/8ths interest in the mineral fee also reserved in the deed. We now decline to extend the rule to oil, gas and mineral leases. The rule is an arbitrary one at best and it should not be applied to work an automatic transfer of rights and interests reserved to a lessor, a transfer which would all too often frustrate rather than effectuate the intention of the parties. In the interpretation and construction of oil, gas and mineral leases we will seek to give effect to the true intention of the parties, following in that endeavor established rules used to interpret and construe contracts and other bilateral written instruments. If that method of construction leads to a breach of warranty it is then soon enough to enforce the fulfillment of the warranty by extoppel or to award damages for a breach thereof.
It is stipulated in the record that respondents had full knowledge that petitioners owned only a 1/6th interest in the minerals in and under the 240 acres of land. We may accept as true the statement in petitioners' brief that respondents themselves then owned 7/8ths of the remaining 5/6ths, or 70/96ths, of the minerals. Rule
As we have heretofore demonstrated, when we seek to apply the lease to its subject matter we encounter serious difficulties. The lease purports to warrant title to so much of the mineral estate in the 240 acres of land as is not reserved to petitioners. It thus purports to warrant title to a 91/96th interest therein. The purpose and operative effect of the covenant is not to guarantee that the lessor has good title to the premises but to guarantee the lessee in his title thereto. 14 Am.Jur. 521, Covenants, Conditions and Restrictions, Sec. 51; McClelland v. Moore, 48 Tex. 355, 363; Langford v. Newsom, Tex.Com. App., 220 S.W. 544; Gibson v. Turner, Tex., 294 S.W.2d 781, 787. As to the 70/96th interest owned by respondents, therefore, the warranty, for all practical purposes, is satisfied. Rancho Bonito Land & Live Stock Co. v. North, 92 Tex. 72, 45 S.W. 994; Gibson v. Turner, Tex., 294 S.W.2d 781, 788. Title to an additional 11/96ths passed to respondents under petitioners' lease and as to that interest the warranty is satisfied. There remains outstanding in third persons, however, an interest of 10/96ths to which the warranty purports to extend and to which respondents' title has failed. The purported warranty of respondents' title to this 10/96ths interest and the purported reservation to petitioners of a 5/96ths interest cannot both stand unimpaired.
If the warranty is enforced to the extent of its full purport the reservation will be destroyed. If the purported reservation is preserved the warranty will be breached pro tanto. This creates a latent ambiguity requiring that we repair once again to the intention of the parties for its resolution.
What did the parties intend? No doubt they intended that the covenant of warranty should have some operative effect or they would not have included it in the lease. No doubt they also intended that petitioners as lessors should have title to and enjoy the fruits of the reserved royalty. The parties were bargaining with respect to an interest of an undivided 16/96ths and not with respect to the whole of the minerals in the 240 acres of land. Respondents knew that petitioners owned only a 16/96th interest. They knew, moreover, as did petitioners, that they themselves and third persons owned all interest in the minerals over and above the 16/96th interest. Respondents paid a cash bonus on a 16/96th interest; they paid no bonus on a greater interest. There was no occasion for respondents to exact from petitioners or for petitioners to furnish a warranty of title to any interest greater than the 11/96th interest which they undertook to convey. It is evident that the parties intended the covenant of warranty to extend only to the 11/96th interest in the minerals title to which passed to respondents under the lease, and we so hold on this record as a matter of law. So holding preserves the reserved royalty and preserves the warranty for its intended purpose. There has been no breach of the warranty as we have interpreted it and the warranty cannot, therefore, be used by respondents as a vehicle
In their answer in the trial court respondents, as defendants, pleaded alternatively that the words "without reduction" were included in the overriding royalty clause as a result of a mutual mistake of the parties, and by cross-action they sought a reformation of the lease to eliminate the words. Inasmuch as the trial court instructed a verdict for respondents at the close of petitioners' evidence the cross-action was never reached for trial and no evidence was offered thereon. They are entitled to a trial of their suit for reformation. The cause must therefore be remanded. Rule 503, Texas Rules of Civil Procedure; Southwestern Drug Corp. v. McKesson & Robbins, 141 Tex. 284, 172 S.W.2d 485, 487, 155 A.L.R. 1056.
The judgments of the Court of Civil Appeals and the trial court are reversed and the cause is remanded to the trial court for trial of respondents' cross-action.
SMITH, Justice (concurring).
I am of the opinion that this case should be reversed by this Court and judgment here rendered for the petitioners. I do not agree with the holding by the majority that the Duhig case has any bearing or application to the present case. The Duhig case is not controlling, therefore, it is unnecessary to a decision here to hold, as the majority does, that it declines to extend and apply the Duhig doctrine in the construction of oil, gas, and mineral leases. I cannot find any sound support for the theory advanced by the majority that the Duhig rule applies in the construction of a deed, but not in the construction of oil, gas, and mineral leases. Granting that the Duhig rule was not given controlling effect in Gibson v. Turner, Tex., 294 S.W.2d 781, 786, yet, in that case the majority discussed at great length the Duhig case. The respondents, in fact, relied upon the Duhig rule to support their position in the Gibson v. Turner case, supra. This Court refused to follow the Duhig rule in that case. In the Gibson v. Turner case, this Court stated: "Respondents' contention amounts to one that a royalty cannot be larger than 1/8th of the interest owned by the lessors". In our case the respondents contend and the Court of Civil Appeals has held that the lessors could not reserve unto themselves an overriding royalty interest greater than the mineral interest which they owned at the time of their execution of the reservation, and that the royalty as reserved must be carved from the mineral estate as owned by the lessors. I think the view of the respondents in our case is in error. The majority opinion seems to say, in effect, that if the rule in the Duhig case is applied in the construction of an oil, gas, and mineral lease, then it would reach a different conclusion and hold with the respondents. With this I cannot agree. The petitioners are entitled to have their rights determined by the principles of law as applicable to the record. I would apply the Duhig rule just as readily in this case which involves the construction of an oil, gas, and mineral lease as in a case where a deed is involved, provided the record supported such application. The rule announced in the Duhig case is sound as applied to the facts in that case. I agree with the majority here that the rule announced has become well established, but I do not agree that this Court can abridge the effect of that rule by refusing its application in the construction of an oil, gas, and mineral lease. A deed conveys an interest in land. An oil, gas, and mineral lease amounts to a determinable fee. We have involved in our case "an overriding royalty". An oil payment has been held to be an interest in land. An oil payment and overriding royalty are virtually the same. See Knight v. Chicago Corporation, Tex.Civ.App., 98, 183 S.W.2d 666, 670, affirmed in 144 Tex. 98, 188 S.W.2d 564, where it was said: "The oil payment is similar to the overriding royalty, except that the interest of the assignee ceases upon his receiving a certain amount of money or value of oil or gas produced from a certain percentage of the working interest."
Again, in an Article entitled "Problems Presented by Joint Ownership of Oil, Gas and Other Minerals", 32 Texas Law Review, p. 697, it is said:
I think it can be said with equal logic that the similarity between the three types of property interests, i.e. (1) a deed conveying a fee interest in land, (2) a deed conveying royalty, (3) a contractual reservation in an oil, gas, and mineral lease which amounts to a conveyance of either an oil payment or an overriding royalty, would call for the adoption of similar rules of law for the construction of the respective instruments in determining the interest conveyed or reserved by contract.
The question in our case is: What principles of law shall be followed and applied to the facts in determining who should receive and in what amount, the overriding royalty?
It is stipulated that petitioners only owned an undivided 1/6 fee simple mineral interest in the 240 acres covered by the lease. The other 5/6 leasehold interest is owned by respondents. It was stipulated that respondents knew, at the time they undertook to acquire the lease and at the time they paid for it, that petitioners only owned an undivided 1/6 interest. The lessors (petitioners) only attempted to reserve 5/96 combined ordinary and overriding royalty out of their admitted 16/96 mineral interest in the leased premises, leaving an 11/96 interest for lessees. This is exactly what lessees bargained and paid for. This suit does not involve the ordinary 1/8 royalty. It involves only the determination of the amount of overriding royalty, and the ownership thereof. However, there are three fractions involved in the lease:
The reservation is a contractual provision just as the reservation provision in the case of Benge v. Scharbauer, 152 Tex. 447, 259 S.W.2d 166, 169, was held to be by this Court. In that case the reservation was as follows:
We held in the Benge case that —
The case of Pollock v. McAlester Fuel Company, 215 Ark. 842, 223 S.W.2d 813, 815, fairly well points up my contention that an agreement clear and unambiguous on its face will be enforced by the courts according to its terms. In that case the Court said in part: "Reservations, if made, may be worded as the parties please. If they provide that the grantor shall have a named fraction of the oil produced on all the described land, that is one thing; if they provide that he shall have a fraction of what is produced from the interest conveyed by the particular lease, it is another thing. The courts will enforce either agreement."
We followed this principle of law in both the Benge v. Scharbauer, supra, and the Gibson v. Turner, cases. We made no distinction in applying the law to the facts
In the Gibson v. Turner case we followed the rule announced in the case of R. Lacy, Inc. v. Jarrett, Tex.Civ.App., 1948, 214 S.W.2d 692, er. ref. The same should be done in this case. The Lacy case involved an oil payment, but the principle of law announced is equally applicable to an overriding royalty. The lease in that case and in the present case were both prepared on virtually the same lease form. Both provide for an ordinary 1/8 on oil and gas, and both contain covenants of warranty and other standard provisions. The oil payment was reserved by a typewritten provision which read in part as follows: "Lessor hereby reserves a production payment of $15,000 out of 1/8 of 7/8 of the oil, if, as and only when produced, saved and marketed from said land under this lease." It was stipulated that the lessor only owned a 7/12 undivided interest, and lessee contended that the production payment was therefore limited to 1/8 of 7/8 of 7/12 of the oil. The Court rejected this theory just as this Court did in Gibson v. Turner, supra, and on this question held:
Under the holding in R. Lacy, Inc., v. Jarrett, supra, a holding approved by this Court in Gibson v. Turner, supra, we should hold that the lease in our case in plain and unambiguous terms expressed a clear intention of the parties to reserve an overriding royalty of 1/32 of the production from 240 acres, and not merely 1/6 thereof.
In the Gibson v. Turner case, supra, we held that case was controlled also by the reasoning and judgment in the case of King v. First National Bank of Wichita Falls, 144 Tex. 583, 192 S.W.2d 260, 163 A.L.R. 1128. The rule in that case is applicable here. In that case grantee King contended that since only a one-half interest was conveyed in the land, the grantor, Duncan, reserved only one-eighth of one-half of the usual 1/8th royalty in the entire 240 acres. The Court held against this contention, and we said in Gibson v. Turner that the Court held in the King case that by "`minerals that may be produced from the hereinabove described land' was meant the total production from the whole of said land rather than from the grantor's one-half interest therein." [294 S.W.2d 784.] Then this Court made its holding in the Gibson case, as follows: "Such holding requires our holding in this case that the reservation of production `from said land' in our lease [Gibson-Turner] covers 1/8th of 40/40ths, or total production from Survey No. 14 in its entirety, and not from the 9/40ths owned by the grantors in the lease." In our case, the rule in Gibson v. Turner, supra, and the several cases cited therein, should be applied, and when that has been done we have a plain, clear and unambiguous contractual provision whereby the respondents did covenant and agree that petitioner would receive 1/32nd of 8/8ths of all oil produced from the 240 acres, without reduction, as an overriding royalty. This contractual provision is binding upon respondents. It is a covenant running with the land. There was no breach of warranty. The Duhig doctrine does not in any manner nullify the contractual covenant in the lease providing for this overriding royalty.
Under my view of the record in this case the contract was sufficient without the use of the words "without reduction". Therefore, I do not believe this case should be remanded to enable respondents to try the issue of mutual mistake as to the inclusion of the words "without reduction". The
The record before us convinces me that the words "without reduction" in the contract are not controlling, and a finding that such words were inserted in the lease by mutual mistake would not entitle respondents to a judgment. In any event, the instructed verdict was proper. There was no evidence of probative force introduced in support of the alternative plea that the words "without reduction" were included in the overriding clause as a result of a mutual mistake of the parties. All of the evidence is to the contrary.
My conclusion is that the judgment of the Court of Civil Appeals should be reversed and rendered.