Interpretation of Mineral Deed to Grant Mineral Interest Despite “Lease-like” Language

In Richardson v. Mills, No. 12-15-00170-CV, 2016 App. LEXIS 7316 (Tex. Civ. App. - Tyler, July 12, 2016) the Court of Appeals concluded that an instrument that used the word "forever" in the habendum and warranty clauses was not a mineral lease, but was an unambiguous mineral deed. Although the instrument included consideration for future services, it lacked any implied covenant for development.

The dispute in Richardson arose from the interpretation of a 1906 instrument, which pertained to the minerals under property in Nacogdoches County. Appellees, Donald Roger Miller, Rhonda Mills, and Beverly Mills Pool (collectively, the "Mills"), owned an undivided one-half interest in the oil, gas, and other mineral described in the 1906 instrument. After receiving royalty payments for many years, the payments stopped in October 2010 and Mills filed suit against Appellants, Robert Lindsey and June C. Harris (collectively "Lindsey") to resume the royalty payments.

The trial court concluded that the 1906 instrument was a contract, and that the one-half mineral interest had reverted to the Mills. The trial court entered a judgment that the Mills take one-half of the oil, gas, and other minerals under the property, and Lindsey appealed.

First, the court addressed the legal construction of the 1906 instrument. When construing an unambiguous deed, the primary duty of the court is to ascertain the intent of the parties from all of the language in the deed by applying a fundamental rule of construction known as the "four corners" rule. Luckel v. White, 819 S.W.2d 459, 461 (Tex. 1991). Under that rule, the court considers the entire writing and attempts to harmonize and give effect to all of its provisions by analyzing those provisions with reference to the document as a whole... and assumes that the parties to the instrument intended every clause to have some effect. See, Frost Nat'l Bank, 165 S.W.3d at 312; Union Pac. R.R. Co. v. Ameriton Prop., Inc., 448 S.W.3d 671, 678 (Tex. App. - Houston [1st Dist.] 2014, pet. denied).

The Court concluded the 1906 instrument was an unambiguous mineral deed by which the Mills conveyed one-half of the minerals to Lindsey. Richardson, 2016 Tex. App. LEXIS 7316, at *17.

The Court reviewed the recitals of the 1906 instrument and noted, "it is significant Lindsey may have a right to develop the oil, gas and other minerals under the land, but no duty to do so. " The Court also explained that it was important that neither Mills nor Lindsey specified a time period within which the enumerated actions must be taken. Richardson at 12. Both factors suggested that the instrument is a deed and not a mineral lease.

The habendum clause of the 1906 instrument used the word "forever." The Court explained that the use of the word "forever" was significant because it "means that there is no limitation or condition upon the one-half mineral interest being conveyed to [Lindsey]." Id. at 12. Further, a warranty clause used the word "forever" - meaning that Mills did not limit the warranty of one-half mineral interest that was being conveyed.

Lindsey raised two arguments that the 1906 instrument was not a deed but an executor contract. First, Lindsey asserted that the 1906 instrument was only a contract between the parties that required Harris and Lindsey to develop the subject property for oil, gas, and other minerals. The Court disagreed because there was no time specified in the instrument for any development, and also because there was no requirement in the instrument for Harris and Lindsey to actually develop the property. Richardson at 14. The Texas Supreme Court held that there is no implied covenant for development where there is language of an unconditional conveyance and the instrument is silent about whether the grantee is required to either explore the land for oil and gas or develop it in any manner after the discovery thereof. Danciger Oil & Refining Co. of Texas v. Powell, 137 Tex. 484, 154 S.W.2d 632 (Tex. 1941). Because there was no limitation on the one-half mineral interest being conveyed by Mills to Lindsey, the Court found that the 1906 instrument was not a contract or an oil and gas lease, but mineral deed - which does not contain limitations or qualifications on the mineral interest conveyed. Richardson at 14.

Second, Lindsey argued that the 1906 instrument was a contract, and that the conditions described in the first paragraph (that Lindsey was to cure defects, investigate the property for potential exploitation of oil, gas, and mineral resources, etc.) made the instrument a mineral lease rather than a mineral deed. The Court, however, disagreed and explained that there were no further conveyances contemplated in the instrument, that Lindsey was to perform future services as part of the consideration, and that performance of the services was not a condition to the transfer of the minerals to Lindsey.

Accordingly, the Court held that the 1906 instrument was an unambiguous mineral deed by which Mills conveyed a one-half interest in the minerals under the subject property to Lindsey.

Richardson highlights the importance of operators and mineral owners to review carefully the language in mineral deeds, oil and gas leases and other instruments to avoid an interpretation that may be contrary to the original intent of the parties.