Dula Dashiell Cockrell v. Texas Gulf Sulphur Co.

Mr. Justice Griffin delivered the opinion of the Court. This is a suit by petitioner for an accounting and recovery of royalties payable out of sulphur produced by respondent. The petitioners were plaintiffs in the trial court, and the respondent was the defendant. On July 27, 1925, Mrs. Ruth Sergent owned in fee simple 729.7 acres of land in Liberty County, Texas. On that date she, joined by her husband, executed an oil, gas and mineral lease on the whole of this land. Erwin W. Smith was the lessee in said lease. Later the south one-half of the 729.7 acres was released from Smith’s mineral lease. Afterwards and on April 12, 1926, Ruth Sergent, joined by her husband, executed an oil and gas mineral lease to A. R. Miller covering this south one-half of the tract of land. These two leases were in all things of the same wording, and for the purposes of this case, we can proceed as if there were only one lease on the entire tract of 729.7 acres. Where there are varying interests in each tract we will set them out at appropriate places in our opinion. The leases provided for royalty payments on sulphur of 50 cents per long ton. Sulphur is the only mineral with which we are concerned. Subsequent to the execution of the leases, but prior to September 28, 1931, Mrs. Sergent had sold and conveyed portions of her minerals and royalties until on the above date she owned, subject to the outstanding leases, l/8th of the mineral fee interest under the west 400 acres of the 729.7 acres, and one-half of — 13 — the mineral fee interest on the east 329.7 acres of the tract. Each of the leases contained the following provisions: “It is further agreed that all the conditions and terms herein shall extend to the heirs, executors, legal representatives, successors in interest and assigns of the parties hereto; but no change of ownership of the land, or part thereof, shall impose any additional obligations or burden on the Lessee, and to that end Lessors hereby covenant for themselves, their heirs, assigns and successors in interest, that in case of any change of ownership of said land, or part thereof, whether_by conveyance, will, inheritance, partition or otherwise, all rentals and royalties accruing hereunder shall be paid to the new owners in proportion to their ownership of the whole of the land hereby leased so that no owner of a segregated part of said land shall be entitled to the whole royalties accruing from developments on said segregated tract, but only to such part of such royalty as the acreage in his tract is to the whole acreage embraced in this lease; this covenant shall be taken and construed as a covenant running with the land and binding on all successors in interests to Lessors herein. On September 28, 1931, and both leases being in full force and effect, and owned by others than Gulf Production Company, Mrs. Ruth Sergent and husband conveyed to Gulf Production Company the 729.7 acres of land by warranty deed. The pertinent portions of the deed are as follows: that Ruth W. Sergent and husband, called grantor, for a consideration of Ten Dollars and other good and valuable considerations paid by Gulf Production Company “and subject to the mineral and/or royalty reservations and exceptions hereinafter set out” has granted, sold and conveyed, etc. to Gulf Production Company the 729.7 acres of land in Liberty County, Texas, describing same by metes and bounds. Immediately following the description and before the habendum clause we find the following, “subject, however, to the terms and conditions of each and all of the existing oil, gas and mineral leases and mineral and/or royalty conveyances, and grantor hereby expressly reserves and excepts unto herself, her heirs, executors, administrators and assigns” seven numbered reservations covering oil, gas and sulphur royalties. Those dealing with sulphur are numbers 5 and 6 and are as follows: “5. 6Y2 cents per ton 2240 pounds on all sulphur produced and marketed from the West 400 acres of said above described premises. — 14 — “6. 25 cents per ton of 2240 pounds on all sulphur produced and marketed from the East 329.7 acres of said above described premises.” It was further provided: “It is expressly understood and agreed that the reservations and exceptions hereinabove enumerated shall be perpetual and shall apply whether such oil, gas, casMnghead gas and/or gasoline, sulphur and/or other mineral or minerals is produced under the existing or any future lease or leases by the lessee or lessees therein or by the grantee herein, its successors and assigns, or otherwise.” . Following.the habendum clause, and at the. beginning of the warranty clause, we find the following: “* * * and subject to the aforesaid oil, gas and mineral leases and mineral and/or royalty conveyances, grantor does hereby bind herself, her heirs, etc.” Plaintiffs hold all the rights of Mrs. Sergent under this deed by proper conveyance from her. Gulf Production Company sold and transferred all of its rights in this land to Texas Gulf Sul-phur Company in December, 1931. Sulphur has been produced from the west 400 acres, but the east 329.7 acres has been nonproductive. Defendant has paid to plaintiffs a royalty of 61/2 cents per long ton on the sulphur production under their construction of reservation 5 set out above. Plaintiffs claim that the entirety clause contained in the lease entitles them to a royalty of 14.72180347 cents per ton on the sulphur produced on the the west 400 acres. This suit was by plaintiffs against the defendant to collect the difference between the 6% cents paid, and the 14 plus cents claimed as due them by virtue of the entirety clause in the leases. The entirety clause is recognized as a binding, enforceable and valid provision in a lease, and this court so held in the case of Thomas Gilcrease Foundation v. Stanolind Oil & Gas Co., 153 Texas 197, 266 S.W. 2d 850. The case of Gypsy Oil Co. v. Schonwald, 107 Okla. 253, 231 Pac. 864, was cited by this Court in the Gilcrease case. The Oklahoma court in discussing the validity and binding effect of an entirety clause in an oil and gas lease says that the lessor has a right to place in his lease any provision which he deems to his or a subsequent purchaser’s advantage. 32 Texas Law Rev. 660; 671 et seq. — 15 — Defendants do not attack the validity of the entirety provision. They contend that the reservations and exceptions in Mrs. Sergent’s deed to Gulf Production Company are unambiguous, clear and certain, and that as to the west 400 acres such reservation specifically provides for a royalty of 6% cents per long ton, and that this royalty has been paid, and that the deed does not contain any entirety clause providing for a payment of royalty on an apportionment basis. Therefore, it is contended the entirety clause in the lease does not govern the rights of the parties to the deed and this suit. On the other hand, plaintiffs claim that the wording of the deed wherein it is provided “subject, however, to the terms and conditions of each and all existing oil, gas and mineral leases and mineral and/or royalty conveyances” expressly recognizes and brings forward into the deed, the entirety clause providing for apportionment of the royalty in accordance with the fractional mineral ownership in the whole 729.7 acre tract. We take it that no authority need be cited for the proposition that a deed can pass no greater estate than that owned by the grantor. Likewise it is fundamental that a warranty deed will pass all of the estate owned by the grantor at the time of the conveyance unless there are reservations or exceptions which reduce the estate conveyed. Harris v. Currie, 142 Texas 93, 176 S.W. 2d 302; Alfrey v. Ellington, Texas Civ. App., 1955, 285 S.W. 2d 383; n.r.e. Also that the property excepted, or the estate reserved is never included in the grant. Benge v. Scharbauer, 152 Texas 447, 259 S.W. 2d 166; King v. First National Bank of Wichita Falls, 144 Texas 583, 192 S.W. 2d 260 (1) ; 163 A.L.R. 1128. What royalty interest in sulphur did Mrs. Sergent own on September 28, 1931, when she executed her deed to Gulf Production Company? She was bound by the entirety clause in her leases to the apportionment of her royalty with those to whom she had theretofore sold and conveyed mineral interests in the 729.7 acres. Out of the west 400 acres she had conveyed 7/8ths mineral interest, leaving her only the owner of an undivided l/8th interest therein. The royalty of 50 cents per long ton on production had been reduced as to her l/8th ownership to that proportionate part of her l/8th ownership in the west 400 acres as it bore to the total acreage of 729.7 acres. In other words, by virtue of her ownership of royalty under the west 400 acres, and by virtue of the entirety clauses in the leases, she owned a royalty from the production on the west 400 acres of 400/729.7 x 1/8 x 50 cents. This figures out to be a royalty per ton from pro — 16 — duction of sulphur anywhere on the 729.7 acres of 3.42606551 cents. Under the entirety clause, and by virtue of her ownership of royalty under the 329.7 acres, she was entitled to additional royalty from any production on the 729.7 acre tract. She had conveyed one-half of her minerals on the 329.7 acre tract, thus leaving her owning only one-half of the minerals. The minerals being leased, she was entitled to receive a royalty proportionate to her ownership in the east 329.7 acres as a part of the total 729.7 acre tract. That is, her royalty interest at that time was 329.7/729.7 X % X 50fS. This figures out to be a royalty of 11.29573796 cents from production anywhere on the 729.7 acre tract. Add these two figures together (3.42606551 plus 11.2957-3796) and you arrive at 14.72180347 as the total royalty per ton of sulphur produced from any part of the 729.7 acre tract. Therefore, she did not own, after applying the apportioning provision, a 25 cents per ton royalty interest in the east 329.7 acres which she could carve out of her ownership. Neither did she own a royalty of 6^$ per ton in the west 400 acres. It is clear that Mrs. Sergent and her grantee could not make a contract for royalty payments which would affect the rights of previous purchasers from Mrs. Sergent not parties to such contract. What was the effect of the provision in the deed that it was made subject to the terms and conditions “of each and all of the existing leases and conveyances ?” As said in the case of Kokernot v. Caldwell, Texas Civ. App., 231 S.W. 2d 528, 531 wr. ref. N.R.E.: “The term ‘subject to’ as used in the mineral deed has a well recognized meaning. The words “subject to,” used in their ordinary sense, mean “subordinate to,” “Subservient to” or “limited by.” There is nothing in the use of the words “subject to,” in their ordinary use, which would even hint at the creation of affirmative rights. Englestein v. Mintz, 345 Ill. 48, 177 N.E. 746, 752. Shell Oil Co. v. Manley Oil Corporation, 7 Cir., 124 Fed. 2d 714.” The inclusion of the “subject to” clause in the deed incorporated in the deed the leases on the 729.7 acres and defined the estate conveyed, and the nature, extent and character of such estate. Greene v. White, 137 Texas 361, 153 S.W. 2d 575, 136 A.L.R. 626. This clause was in the chain of title received by Gulf Production Company from Mrs. Sergent, and Gulf Production Company and its successors in title cannot disregard these provisions. Adams v. Duncan, 147 Texas 332, [3, 7] 215 S.W. 2d 599 [4, 9, 10] and authorities therein cited. The parties to — 17 — the deed are bound by the terms of their contract and cannot repudiate them. Defendant contends that the only purpose of the “subject to” clauses in Mrs. Sergent’s deed was to protect her on her warranty. It might well be argued that such was the purpose of the last “subject to” clause in the deed which appeared between the habendum and the warranty clauses of the deed. However, we find two other “subject to” clauses. The first one makes the deed “subject to” the mineral and/or royalty reservations and exceptions hereinafter set out. The second like clause comes between the description found in the granting clause and the habendum clause. This clause makes the deed “subject to” the terms and conditions of each and all of the existing oil, gas and mineral leases and mineral and/or royalty conveyances, and grantor expressly reserves and excepts unto herself, her heirs, etc. the seven reservations set out in the deed. The wording of the “subject to” clause shows that it deals with two different subjects, (1) existing oil, gas and mineral leases, etc. and (2) grantor’s reservations in that deed which she was presently executing. This shows that these “subject to” clauses were made not only as protection against her warranty, but also to incorporate the existing oil, gas and mineral leases, etc. into her deed to defendant. Giving the deed the construction we give to it harmonizes all of its parts and does not set aside the effect of any language used in the deed. The entirety clauses in the leases are applied to the reservations made in her deed, but do not set aside such reservations. It was stipulated by all parties that the leases were in full force and effect on September 28, 1931, the date of Mrs. Sergent’s deed to Gulf Production Company, who is the immediate predecessor in title to defendant Texas Gulf Sulphur Company. In construing deeds all parts of the deed must be given effee if possible to do so without violating any legal principles. Even though different parts of the deed may appear to be contradictory and inconsistent with each other the courts must construe the deed so as to give effect to all parts thereof and will harmonize all provisions therein and not strike down any part of a deed unless there is an irreconcilable conflict. Benge v. Scharbauer, supra; Woods v. Sims, 154 Texas 59, 273 S.W. 2d 617 (2-4). Since a “subject to” clause is a limiting clause, and a qualifying term, Kokernot v. Caldwell, supra, the entirety clause of the leases and conveyances referred to Mrs. Sergent’s deed to — 18 — Gulf Production Company. To hold with the defendants is to hold that a repugnancy exists between the entiretjr clause in the leases and the reservations in the deed, which results in setting aside the entirety clause. It also is to hold that Mrs. Sergent reserved in her deed more royalty than she owned at the time of the conveyance. To hold that the entirety clause limited and qualified the sulphur royalty reserved will give effect to all parts of the deed, and will not be a holding that Mrs. Sergent attempted to reserve more royalty than she owned. There is no contention on the part of any party to this suit that the reservations in the deed were effective to take from her grantee sufficient sulphur royalty, which added to that which she owned, would equal the reservations set out in 5 and 6 of the deed. This case was not tried below on such theory and we are not passing on that question in this case. We agree with the Court of Civil Appeals that the rights of all parties must be determined as of September 28, 1931 when the deed was executed and delivered. Defendant claims that the leases in existence on September 28, 1931 have lapsed and therefore the entirety clause likewise became inoperative. Defendant cannot maintain such position in view of the many instruments introduced in the record which show defendant has recognized the validity of the leases, and has bound itself not to permit the leases to lapse. Defendant has also asserted in other litigation that the leases were valid. Adams v. Duncan, supra, Grissom v. Anderson, 125 Texas 26, 79 S.W. 2d 619; Reserve Petroleum Co. v. Hodge, 147 Texas 115, 213 S.W. 2d 456; 7 A.L.R. 2d 288; Loeffler v. King, 149 Texas 626, 236 S.W. 2d 772. All parties have at all times prior to this litigation proceeded on the premise that the two leases were in full force and effect. Royalties to all other owners, except Mrs. Ser-gent have been paid in accordance with the entirety clauses found in both the Smith and the Miller leases. The instruments whereby defendant became the owner of the leasehold estates in the sulphur production were all from the assignees of the Smith or the Miller leases. In many of these instruments the defendant expressly bound itself to keep alive the original leases and not permit them to become forfeited. Such provisions were to the effect that Texas Gulf bound and obligated itself to take such steps as may be necessary and at its expense to extend the Sergent lease until a definite future date. The defendant paid out more than $1,850,000.00 as deferment payments to those owning mineral reservations or overriding royalty interests by virtue of the Sergent leases, and for the purpose of keeping said — 19 — leases in force. In the case of the assignment of the sulphur leasehold estate received by defendant from Humble Oil & Refining Company, the defendant agreed that it would not permit the Sergent lease to lapse; and further agreed that if defendant decided to give up operations under that lease, it would reassign to Humble all rights it had received from Humble, and, in addition, it would maintain the lease in full force and effect for at least ninety days subsequent to such reassignment. Defendant further claims that, after the September 28, 1931 deed, it having become the owner of the leasehold as to sulphur production under the 729.7 acres deeded by Mrs. Sergent, there has been a merger of title in defendant, and the leases are no longer effective. On the contrary, the rights of those owning mineral interests in the sulphur — except those of plaintiffs— have been at all times recognized and payments made to such owners in accordance with the terms of the lease. We hold there has been no merger of title so as to set aside the entirety clauses in the leases. Humphrey-Mexia Co. v. Gammon, 113 Texas 247, 254 S.W. 296, 29 A.L.R. 607; West v. Seigler, Texas Civ. App., 265 S.W. 2d 618, wr. ref., n.r.e.; 19 Am. Jur. 590, Sec. 36; Ferguson v. Ragland, Texas Civ. App., 1922, 243 S.W. 721, wr. ref. Defendant does not own the entire title as there are interests outstanding in others. West v. Seigler, supra, is relied upon by defendant to sustain its position that there has been a merger of titles in it. That case specifically recognized that the obligation to carry out the terms of the purchase agreement rested upon the defendant in that case even if there were a merger of titles. We hold that the entirety clauses in the leases are effective so as to require the royalty reservations in the deed to be applied on the apportionment basis. When so applied, the plaintiffs were entitled to receive as royalty on the sulphur produced from any part of the 729.7 acre tract the sum of 14.72180347 cents per long ton. Judgments of both courts below are reversed and judgment is here rendered that plaintiffs shall recover from defendant the difference in amount paid and the amount to which they are entitled under our holding herein. Opinion delivered December 12, 1956. Associate Justice Garwood not sitting.