534 S.W.3d 51
Tex. App.2017Background
- In 1942 L.V. Chenoweth executed a deed titled “Royalty Deed” conveying an undivided one-fourth interest “in and to all of the oil, gas and other minerals in and under and that may be produced from” described La Salle County lands, but the deed also disclaimed certain mineral attributes and tied the grantees to one‑fourth of the one‑eighth royalty in the then‑existing lease.
- At signing the referenced lease provided a 1/8 royalty; a later Hanks lease provides a 22.5% royalty. Rosetta (lessee assignee) was paying the grantees (Reed Plaintiffs, successors to Dossett and Benz) a fixed 1/32 royalty.
- Reed sued Rosetta, TK Hanks Royalties, and the Hankses seeking a declaration that they owned a 1/4 mineral interest (entitling them to 1/4 of the 22.5% royalty). Storey and the Hankses counterclaimed that the deed conveyed only a fixed nonparticipating 1/32 royalty.
- The trial court granted summary judgment for Storey and the Hankses, declaring the 1942 deed conveyed a fixed nonparticipating 1/32 royalty and awarding Storey attorney’s fees; Reed appealed.
- The court of appeals reviewed Texas precedent about “mineral” vs “royalty” characterization, applied a holistic interpretation of the deed, and concluded the deed conveyed a 1/4 mineral interest (with certain attributes reserved by the grantor), reversing and rendering judgment for Reed and remanding for attorney’s fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 1942 deed conveyed a mineral ownership interest or a royalty interest | Reed: deed grants a 1/4 mineral interest (1/4 of minerals in place), so entitled to 1/4 of current royalties | Storey/Hanks: deed conveys a fixed nonparticipating royalty (1/32) tied to 1/8 royalty in original lease | Deed conveys a 1/4 mineral interest (mineral fee stripped of certain attributes), not a fixed royalty |
| If royalty, whether it is floating or fixed (alternative argument) | Reed: if royalty, it is a floating royalty (share of whatever future royalty is set) | Storey/Hanks: fixed 1/32 royalty regardless of future lease royalty | Court did not reach this issue after finding a mineral interest; alternative not considered |
Key Cases Cited
- Watkins v. Slaughter, 189 S.W.2d 699 (Tex. 1945) (deed language unequivocally designating reserved interest as a royalty can support a reservation of a royalty rather than mineral fee)
- Altman v. Blake, 712 S.W.2d 117 (Tex. 1986) (an undivided mineral interest shorn of the executive right and delay rentals remains a mineral interest)
- French v. Chevron U.S.A. Inc., 896 S.W.2d 795 (Tex. 1995) (a granting clause conveying minerals plus a later paragraph labeling the grant "royalty only" was interpreted as conveying a mineral interest stripped of most attributes)
- Temple-Inland Forest Prods. Corp. v. Henderson Family P’ship, 958 S.W.2d 183 (Tex. 1997) (Watkins remains good law; courts must construe the instrument as a whole to determine whether a royalty or mineral interest was intended)
- Hysaw v. Dawkins, 483 S.W.3d 1 (Tex. 2016) (mandates a holistic, harmonizing approach to deed interpretation; words read in context to discern intent)