Chesapeake Exploration, L.L.C. v. B N W Property Co. , 393 S.W.3d 846 ( 2012 )

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
§
CHESAPEAKE EXPLORATION, L.L.C.,
§ No. 08-11-00239-CV
Appellant,
§ Appeal from the
v.
§ 143rd Judicial District Court
BNW PROPERTY CO.,
§ of Loving County, Texas
Appellee.
§ (TC#06-08-747-CVL)
OPINION
The issue in this appeal is whether two deeds that conveyed a 1/3rd mineral interest also
conveyed a 4/9th executive right incident to the mineral interest. Appellant Chesapeake
Exploration, L.L.C. argues that the entire 4/9ths executive right passed under the deeds. Appellee
BNW Property Co. takes a contrary position, contending that only a 1/3rd (3/9ths) executive right
passed under the deeds and the remaining undivided 1/9th executive right did not so pass.1
Agreeing with BNW, the trial court ruled that the remaining undivided 1/9th executive right did
not pass under the deeds. We reverse.
FACTUAL AND PROCEDURAL BACKGROUND
The common source of the interests at issue was Will P. Edwards, who conveyed to J.A.
Haley 1/4th of his mineral estate. Edwards expressly reserved the other 3/4ths of the mineral
estate and retained the executive rights to the entire mineral estate. After Edwards’s death, his
interests were partitioned among three parties. One of those parties was the Beckhams, who
1
A 1/3rd interest is equal to a 3/9ths interest. Thus, if, as BNW maintains, only a 1/3rd (3/9ths) executive right was
conveyed, then a 1/9th executive right remained because 4/9ths minus 3/9ths equals 1/9th.
inherited 4/9ths of Edwards’s remaining 3/4ths mineral estate, i.e., 1/3rd, plus 4/9ths of the
executive right previously retained by Edwards, 3/9ths of which was attributable to the 3/4ths
mineral estate previously reserved and 1/9th attributable to the 1/4th mineral estate previously
conveyed.2 After the Beckhams’ deaths, the Beckhams’ successors executed two separate deeds
conveying to Earl Vest the 1/3rd mineral interest owned by the Beckhams. The deeds, however,
were silent as to the 4/9ths executive right the Beckhams owned.3 Following a bench trial on
stipulated facts, the trial court rendered judgment in favor of BNW and against Chesapeake.
Chesapeake timely appealed, bringing two issues. In its first issue, Chesapeake contends that the
trial court erred, as a matter of law, in concluding that the remaining undivided 1/9th executive
right did not pass under the two deeds. In its second issue, Chesapeake argues that we “should
hold invalid [BNW’s] claimed implicit reservation of a 1/9th executive interest because the
reservation of a wholly naked executive interest violates Texas law and public policy.” Because
we sustain Chesapeake’s first issue, we need not address its remaining issue.
STANDARD OF REVIEW
The trial court’s decision was based upon stipulated facts. Given that the construction of
an unambiguous deed is a question of law, the standard of review is de novo.4 See Luckel v.
White, 819 S.W.2d 459, 461 (Tex. 1991)(holding that the construction of an unambiguous deed is
a question of law); Karm v. City of Castroville, 219 S.W.3d 61, 63 (Tex.App.--San Antonio 2006,
2
The Beckhams inherited 1/3rd of Edward’s mineral estate because 4/9ths times 3/4ths equals 12/36ths, which yields
a 1/3rd interest. The Beckhams’ inherited 4/9ths of Edward’s executive rights because the executive right attributable
to the 3/4ths mineral estate reserved by Edwards equals 12/36ths (4/9ths times 3/4ths) and the executive right
attributable to the 1/4th mineral estate conveyed to Haley equals 4/36ths (4/9ths times 1/4th). When added together,
12/36ths plus 4/36ths equals 16/36ths, which yields a 4/9ths interest.
3
Through subsequent conveyances not relevant to this appeal, Chesapeake and BNW each acquired their respective
mineral interest.
4
Neither party contends that the deed is ambiguous.
2
no pet.)(“To the extent that the issues involved stipulated facts and only questions of law were
presented to the trial court, this court reviews the trial court’s decision de novo.”).
DEED CONSTRUCTION: THE EXECUTIVE RIGHT
In arguing that the trial court erred, as a matter of law, in construing the two deeds as
conveying only the executive right incident to the 1/3rd mineral estate, i.e., a 3/9ths executive
interest, and not the entire 4/9th executive interest, Chesapeake asserts that the trial court’s
conclusion “contravenes the Texas Supreme Court’s decision in [Day & Co., Inc. v. Texland
Petroleum, Inc., 786 S.W.2d 667 (Tex. 1990)].” We agree.
Applicable Law
Our primary obligation is to determine the parties’ intent as expressed within the four
corners of the deed. Luckel, 819 S.W.2d at 461. In seeking to ascertain the parties’ intent, we
must attempt to harmonize all parts of a deed, even if different parts of the deed appear
contradictory or inconsistent. Id. at 462. Construing the instrument to give effect to all of its
provisions honors the parties’ intent that every clause has some effect and in some measure
evidences their agreement. Id. Accordingly, we may not strike any part of the deed, unless there
is an irreconcilable conflict wherein one part of the deed destroys the effect of another part. Id.
The mineral interest at issue here is the executive right, which provides its owner the
exclusive right to execute oil and gas leases. Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986).
As one of the five interests comprising the mineral estate, the executive right is a separate and
distinct property interest, which may be conveyed or reserved separately and/or conveyed or
reserved relative to any of the other interests.5 See Concord Oil Co. v. Pennzoil Exploration &
5
The five interests of a mineral estate are: (1) the right to develop (the right of ingress and egress); (2) the right to
lease (the executive right); (3) the right to receive bonus payments; (4) the right to receive delay rentals; and (5) the
3
Prod. Co., 966 S.W.2d 451, 467 (Tex. 1998); Day & Co., Inc. v. Texland Petroleum, Inc., 786
S.W.2d 667, 669-70 (Tex. 1990); Altman, 712 S.W.2d at 118-19.
Like any other mineral interest, the executive right is governed by principles of real
property. Day & Co., Inc., 786 S.W.2d at 668-69. Pursuant to these principles, when an
undivided mineral interest is conveyed, reserved, or excepted, it is presumed that all attributes
remain with the mineral interest unless a contrary intention is expressed. Id. at 669 n.1.
Therefore, when a mineral interest is reserved or excepted in a deed, the executive right relative to
that interest is also retained unless specifically conveyed. Id. Likewise, when a mineral interest
is conveyed, the executive right incident to that interest is also conveyed unless specifically
reserved. Id. Accordingly, unless executive rights are expressly reserved or excepted in a deed,
they pass under the deed, even if their proportion is greater than the mineral interest conveyed.
See id. at 669-70; Lesley v. Veteransland Board of State, 352 S.W.3d 479, 486-87 (Tex. 2011).
Discussion
Rather than “naked” executive rights, i.e., executive rights held by a party with no
accompanying mineral interest, the issue here concerns ownership of executive rights arising from
grants that do not mention executive rights. Such issues are governed by the Texas Supreme
Court’s holdings in Day & Co., Inc. and Lesley.
In Day & Co., Inc., the Court held that executive rights not expressly reserved or excepted
in a deed pass under the deed. 786 S.W.2d at 669-70. There, Day & Co. acquired an 80-acre
tract of land from a third party by warranty deed. Id. at 668. The deed reserved an undivided 1/2
mineral interest, but conveyed all of the executive rights. Id. Later, Day & Co. conveyed ten
acres to the Shoafs by warranty deed. Id. The deed reserved an undivided 1/4th mineral interest
right to receive royalty payments. Altman, 712 S.W.2d at 118.
4
for Day & Co. and identified the previously reserved 1/2 non-executive mineral interest. Id. The
deed, however, neither mentioned the executive right previously granted to Day & Co. nor
reserved those rights. Id.
Both Day & Co. and the Shoafs executed mineral leases. Id. Texland acquired the leases
to the entire 80-acre tract and completed a well on the Shoafs’ 10-acre subtract. Id. Claiming
that Texland’s predecessor-in-interest had not maintained its lease on the undivided 1/2
non-executive mineral interest, Day & Co. attempted to exercise the executive right to the mineral
interest. Id. Day & Co. asserted that it owned the executive right to this mineral interest because
the severed executive right was in the nature of a power of appointment. Id. As a result, it could
only be transferred by express assignment under contract principles and not by implication under
principles of real property. Id. Texland asserted that because the executive right to the
undivided 1/2 non-executive mineral interest was not expressly reserved or excepted in the deed,
the executive right passed by implication to the Shoafs. Id. The Texas Supreme Court held that
the executive right to the undivided 1/2 non-executive mineral interest passed to the Shoafs under
the warranty deed, even though the right was previously severed from the mineral estate, conveyed
to another party, and unmentioned in the warranty deed. Id. at 669-70.
In Lesley, the Texas Supreme Court again held that executive rights not expressly reserved
or excepted in a deed pass under the deed. 352 S.W.3d at 486-87. There, a developer named
Bluegreen acquired from Lesley approximately 4,100 acres of land to develop a residential
subdivision. Lesley, 352 S.W.3d at 481, 484. Lesley’s deeds reserved part of her undivided 1/2
mineral interest, but conveyed the executive right to the entire mineral estate. Id. at 481, 484-85.
When developing the subdivision, Bluegreen imposed restrictive covenants to limit oil and gas
5
development to protect lot owners from intrusive exploratory, drilling, and production activities.
Id. at 481. Bluegreen’s deeds conveying the lots to the owners included its mineral interest, but
excepted the mineral interests previously reserved to Lesley and the owners of the other half of the
mineral estate. Id at 482, 486. The deeds, however, did not mention the executive right. Id.
The discovery and exploration of the Barnett Shale prompted Lesley and the owners of the
other half of the mineral estate to sue Bluegreen for imposing restrictive covenants that prevented
mineral development. Id. at 482. One of the issues in the lawsuit was whether Bluegreen’s
deeds conveyed the executive right to the lot owners. Id. at 484. The court held that because the
deeds did not except the executive right, but merely subjected its exercise to the covenant’s
limitations, “[b]y the rules of [Day & Co., Inc.], Bluegreen’s deed to each lot conveyed the
executive right covering both the lot owner’s mineral interest and [Lesley’s mineral interest and
that of the owners of the other half of the mineral estate]. . . .” Id. at 486-87.
The facts of this case compel an outcome identical to those in Day & Co., Inc. and Lesley.
Here, the original grantor conveyed part of his mineral estate, but expressly reserved an interest in
it. Although the original grantor in this case did not convey any of his executive rights, a portion
of the executive rights were inherited by the subsequent grantors, thus placing these grantors in a
position similar to that of the subsequent grantors in Day & Co., Inc. and Lesley. Importantly, like
the subsequent grantors in Day & Co., Inc. and Lesley, the subsequent grantors here conveyed their
interest in the mineral estate in two deeds that, like the deeds in Day & Co., Inc. and Lesley, were
silent as to the executive right. The two deeds in dispute here conveyed to Vest the 4/9ths
executive right owned by the Beckhams because the deeds did not expressly reserve or except the
executive right. See Day & Co., Inc., 786 S.W.2d at 669-70; Lesley, 352 S.W.3d at 486-87.
6
In its brief, BNW does not argue that Day & Co., Inc. and Lesley are inapplicable.
Instead, BNW argues that it is unreasonable to conclude that the parties intended to convey the
entire executive right owned by the Beckhams when the deeds in dispute are construed pursuant to
the principles of deed construction established in Luckel. BNW is correct that nothing in the
deeds compels the conclusion that the parties intended to convey all of the executive rights owned
by the Beckhams. By the same token, however, nothing in the deeds bars the opposite
conclusion: that the parties did not intend to convey all of the executive rights owned by the
Beckhams.
As noted above, the deeds are silent as to the executive rights owned by the Beckhams.
Moreover, nothing in the deeds’ language reveals the parties’ intent regarding the executive
rights.6 Although the “granting” clause, the “subject to” clause, and the “future lease” clauses in
each deed consistently identify the mineral estate conveyed as the 1/3rd mineral estate in the
“property” or “lands,” none of these clauses provides any guidance in ascertaining whether the
parties intended to grant the entire executive right or only that incident to the conveyance.7
Likewise, although the habendum clause in each deed delineates the extent of the interest being
granted as the 1/3rd mineral estate and all the rights and appurtenances “thereto in any wise
6
The two deeds in dispute here are, in essence, three-paragraph deeds. Each deed includes: (1) a “granting” clause,
which is similar to other real property conveyances; (2) a “subject-to” clause, which explains that the conveyance is
subject to an existing lease; and (3) a “future lease” clause, which provides for ownership rights after the existing lease
expires. See Hernandez v. El Paso Production Co., No. 13-09-184-CV, 2011 WL 1442991, *4 (Tex.App.--Corpus
Christi Apr. 14, 2011, pet. denied)(mem. op.)(explaining the form of such deeds). Each deed also contains a
habendum clause, which is “[t]he part of an instrument, such as a deed or will, that defines the extent of the interest
being granted and any conditions affecting the grant.” Black’s Law Dictionary 778 (9th ed. 2009).
7
The “granting” clause in each deed conveys to Vest a 1/3rd “interest in the oil, gas and other minerals” in the tracts of
land relevant to this case. The “subject to” clause in each deed covers and includes all of the oil royalty and gas rental
or royalty due and to be paid under the terms of the then-existing lease on the tracts. The “future lease” clause in each
deed provides that the oil, gas, and mineral privileges are to be owned entirely by Vest after the lease then in existence
expires.
7
belonging,” the clause fails to identify what those rights and appurtenances are.8 Consequently,
this clause, like the others, does not provide any guidance in ascertaining whether the parties
intended to grant the entire executive right or only that incident to the conveyance. Indeed, it is
precisely because the 4/9ths executive right was neither reserved nor excepted in the deeds that,
pursuant to Day & Co., Inc. and Lesley, it passed to Vest.
Based on the foregoing, we are not persuaded by BNW’s argument that the “four corners”
of each deed establishes that the parties intended to grant only the executive right incident to the
1/3rd mineral estate conveyed to Vest. Accordingly, the trial court erred in concluding that only
the executive right incident to the 1/3rd mineral estate passed under the deeds and the remaining
1/9th did not. We therefore sustain Chesapeake’s first issue. Having done so, we do not find it
necessary to reach Chesapeake’s second issue. See TEX.R.APP.P. 47.1.
CONCLUSION
We reverse the trial court’s judgment and render a take-nothing judgment in favor of
Chesapeake Exploration, L.L.C.
November 30, 2012
CHRISTOPHER ANTCLIFF, Justice
Before McClure, C.J., Rivera, and Antcliff, JJ.
8
The habendum clause in each deed provides that Vest is “TO HAVE AND TO HOLD” the right and title to the
specific tracts of property in which the Beckhams owned a 1/3rd mineral interest, “together with all and singular the
rights and appurtenances thereto in any wise belonging . . . .”
8