Brown v. Havard

593 S.W.2d 939, 23 Tex. Sup. Ct. J. 161, 65 Oil & Gas Rep. 249, 1980 Tex. LEXIS 300

• Court: Texas Supreme Court
• Decided: January 16, 1980
• Docket: B-8412
• Status: Published

Opinions

BARROW, Justice.

This is a declaratory judgment suit to determine the extent of royalty reserved to the grantors of a deed. The questions presented are whether evidence extrinsic to the deed may be considered to explain its proper construction, or whether the present owners of the property, who are successors to the grantees in the deed, may reform it.

The jury verdict was for respondents, who are successors to the grantees;¹ however, the trial court granted judgment non obstante veredicto in favor of petitioners, who are the grantors of the deed in question. This judgment was based on the trial court’s determination that the deed unambiguously reserved the royalty as claimed by petitioners and that any claim for reformation was barred by limitations as a matter of law. The court of civil appeals reversed and rendered judgment for respondents, holding that the deed was ambiguous and giving effect to the findings of the jury regarding the intent of the parties. It was therefore unnecessary for the court of civil appeals to consider the jury findings which established respondents’ alternative claim for reformation of the deed. 577 S.W.2d 757. We affirm the judgment of the court of civil appeals.

Robert A. and Naomi Brown were co-owners of 526.34 acres of land in Maverick County, Texas. On February 23, 1950, they executed an oil, gas, and mineral lease which reserved to the lessor a royalty of ⅛ of oil or gas produced. The lease’s ten-year primary term was extended until 1965 by the payment of shut-in royalties from a gas well. On May 17, 1957 the Browns assigned ½ of the royalties from their property to John A. Wuensche, Sr. by a royalty deed. Wuensche’s interest was to continue for a term of five years and as long thereafter as production continued in paying quantities. This interest was terminated by the Browns in 1962.

The Browns executed a warranty deed to C. Arleigh King and Mildred Nutt King on May 24, 1963. It contains the following reservation to the Browns which is the subject of this controversy:

“Grantors reserve unto themselves, their heirs and assigns in perpetuity an undivided one-half non-participating royalty (Being equal to, not less than an undivided Vmth) of all the oil, gas and other minerals, in, to and under or that may be produced from said land; this reservation however, being expressly subject to that certain Assignment of a one-half non-participating royalty interest assigned by Robert A. Brown and Naomi Lee Brown to John A. Wuensche, Sr., by assignment dated May 17, 1957, which is of record in Vol. 52, page 503, Deed Records of Maverick County, Texas, and to which Assignment and the record thereof reference is here made for a further description of the interests to which this reservation is made expressly subject; it being provided that any royalties paid under this reservation of royalties in Grantors shall be reduced by any royalties paid by virtue of said royalty assignment to John A. Wuensche, Sr., above described, and that any reversion of the royalties set out in said Assignment to John A. Wuensche, Sr., shall to Grantors herein, and their heirs and assigns.” (Emphasis Added)

The property was eventually conveyed to the respondents, Benjamin Havard, Fred A. Benson, and A. T. Gill in 1972. In 1973 they executed an oil and gas lease to M-Tex, Inc. which covered the entire property except for 80 acres surrounding the shut-in well that had been drilled under the 1950 lease. This well, known as the Gill No. 1, and the surrounding acreage was reserved to respondents. As a result of the 1973 lease and a subsequent modification of it, M-Tex was obligated to pay a ⅝ royalty.

Pursuant to their 1973 lease, M-Tex drilled and operated four wells. M-Tex sent division orders in December of 1975 to the Browns and to respondents to approve distribution of royalties from the wells. The division orders provided that the Browns were to receive a Vie royalty and respondents were to receive the rest, or Vie. The Browns refused to sign their division order and claimed ½ of the ⅝ royalty, or Vie. The Gill No. 1 well was produced and operated by respondents who sold the gas to Tejas Gas Corporation. The Browns claim that their reservation entitled them to one-half of the money received by respondents from the sale of gas produced from Gill No. 1.

On June 18, 1976, respondents brought suit to quiet title and secure a declaratory judgment declaring the rights to the oil and gas production as between them and the Browns. Their interpretation of the reservation in the Browns’ deed is that it reserves to the Browns only a ¼6 royalty interest. In the alternative, they sought to have the Browns’ deed reformed on the ground that if it had been written to reserve ½ of royalties, the reservation of this interest was the result of mistake, accident or fraud.

The jury findings, which are not challenged here by the Browns, were all in favor of respondents. By their verdict, the jury found that the Browns agreed with the Kings to reserve only a Vie non-participating royalty and that the intention of the reservation in question was to reserve such an interest. The jury further found that any language to the contrary in the deed would be the result of an accident or mistake. The trial court disregarded this verdict and held that the Browns were entitled to judgment as a matter of law because the reservation was not ambiguous and further, respondents’ plea for reformation was barred by the four-year statute of limitations. The Browns were awarded a ¾6 royalty on the M — Tex wells and ½ of the production from the Gill No. 1 well free and clear of any expenses and costs by the trial court judgment.

The deed describes the Browns’ reserved interest as follows:

“[A]n undivided one-half non-participating royalty (Being equal to, not less than an undivided Vis) of all the oil, gas and other minerals, in, to and under or that may be produced from said land;

The court of civil appeals held that the reservation is ambiguous because the language used is subject to two or more interpretations. Being ambiguous, extrinsic evidence was properly admissible to show the true intention of the parties. After examination of this evidence under the “no evidence” test,² the court of civil appeals concluded that there was sufficient evidence of probative force to support the findings of the jury as to the intention of the parties in the execution of the reservation. The court of civil appeals reversed the judgment non obstante veredicto and rendered judgment that the Browns are the owners of a Vie royalty interest in the four wells being operated by M — Tex, and the Gill No. 1 well. The court found it was not necessary to consider respondents’ plea for reformation.

In Universal C.I.T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154 (1951), we stated the test for ambiguity as follows:

“In other words, if after applying established rules of interpretation to the contract it remains reasonably susceptible to more than one meaning it is ambiguous, but if only one reasonable meaning clearly emerges it is not ambiguous.”

In Smith v. Liddell, 367 S.W.2d 662 (Tex.1963), we said that where the language contained in the instrument is subject to two or more interpretations, extrinsic evidence may be used to ascertain and give effect to the true intention of the parties.

We agree with the court of civil appeals that a ambiguity arises from the inclusion of the parenthetical phrase (Being equal to, not less than an undivided ½6⅛) in the reservation. If the phrase were omitted, the reservation would read:

Grantors reserve unto themselves, their heirs and assigns in perpetuity an undivided one-half non-participating royalty of all the oil, gas and other minerals, in, to and under or that may be produced from said land.

This language would reserve ½ of all the oil, gas, and other minerals produced, and not ½ of any outstanding or future royalty. Watkins v. Slaughter, 144 Tex. 179, 189 S.W.2d 699 (1945); Schlittler v. Smith, 128 Tex. 628, 101 S.W.2d 543 (1937); 2 H. Williams & C. Meyers, Oil and Gas Law § 327. However, it is apparent that the parenthetical phrase has reference to a reservation of royalty. An ambiguity is illustrated by the fact that the Browns claim and the trial court awarded them ⅛ of the minerals insofar as the Gill No. 1 well is concerned; yet construed the same reservation to entitle the Browns to ½ of the ⅜ royalty received from the four M-Tex wells.

Another ambiguity is seen in the parenthetical phrase “Being equal to) not less than an undivided ½6⅛.” Without the parenthesis, the reservation is either a ½ royalty or ½ of royalties as heretofore pointed out. The parenthetical language itself is subject to more than one interpretation. One interpretation is that the parties intended to reserve ½ of the conventional ⅛ royalty, “being equal to” a ½6. The additional phrase “not less than” insured that the reservation was ½ of the conventional ⅛ royalty, and if the royalty were reduced, the Browns would still receive their ½6. On the other hand, the parenthetical language can be construed, as urged by the Browns, to reserve ½ of the royalties contained in future leases, providing further that such share must not be less than ½6. Such a construction must ignore the presence of the “comma” between the phrase “Being equal to” and the phrase “not less than an undivided Vieth.”

This ambiguity cannot be resolved by the references in the reservation to the Wuensche assignment. This assignment was for a specific term of five years and expired upon termination of production under the 1950 lease then in existence. In fact, no shut-in royalty was paid to Wuensche after 1962 which was prior to the execution of the 1973 lease. In any event, Wuensche was actually entitled to receive Vi6 royalty under that assignment and lease.

We agree with the conclusion of the court of civil appeals that the reservation in controversy is ambiguous and that the trial court properly admitted extrinsic evidence to ascertain the intent of the parties. This evidence, although controverted, is sufficient to support the jury verdict and the judgment of the court of civil appeals.

In any event, this judgment is supported by the jury findings which in sum found that the true intent of the agreement between the Browns and King was for the Browns to reserve a royalty equal to Vm and that any language in the deed to the contrary was the result of an accident or mistake.

It is settled law that the terms of an instrument may be avoided upon proof that the writing fails to state the agreement of the parties. In National Resort Communities, Inc. v. Cain, 526 S.W.2d 510 (Tex.1975), we held that one who seeks to reform a writing on the basis of mutual mistake must satisfy two requirements: 1. He must prove the true agreement of the parties. 2. He must prove that the provision erroneously written into the instrument was there by mutual mistake. In Morrow v. Shotwell, 477 S.W.2d 538 (Tex.1972), we held that where the parties intended to describe a particular and identified tract of land in their contract and that they were mutually mistaken in the belief that the description used was legally sufficient for that purpose, a party would be entitled to reformation of the contract.

Here respondents alleged that if the reservation in the deed from the Browns to their predecessor King should be construed to reserve an interest in one-half of the royalties, this was not the intent of the parties and that the deed was the result of an accident or mistake. In such event, they sought a reformation of the deed to correctly state the interest intended to be reserved. The jury made several findings pertinent to respondents’ claim for reformation: (1) that Brown agreed to sell and convey to King the land in question reserving to himself a ¼6 royalty; (2) that any language in the deed attempting to reserve more than a Vi6 would be contrary to the mutual agreement of the Browns and King and would be the result of an accident or mistake; and (3) that at the time of the deed the intention of the parties was that the Browns reserved a royalty equal to Vie by the terms of that deed.

It is clear that the record, when viewed under the “no evidence” test, fully supports the findings. King, who was a disinterested witness, testified that Brown said that he owned all the royalty, except for a Vie which he had conveyed to John A. Wuensche, Sr. This statement was true in that at the time of the conveyance to Wuensche, the land was under lease and the Browns had reserved a ⅛ royalty. The contract of sale entered into by the Browns with King explicitly states that the Browns are to reserve a Vis non-participating royalty interest.³ An attorney selected by Brown prepared the contract of sale and deed. It was undisputed that the deed was supposed to have been prepared in accord with the contract of sale. King testified that he believed it had been so prepared until he learned in 1976 of the Browns’ contention that they had reserved ½ of the royalty. He further testified that if the deed provided for more than a Vis royalty interest it would be contrary to their agreement. Neither Brown nor the attorney who drew the papers denied that the contract of sale correctly reflected the intent of the parties or that the deed was to be prepared in accord therewith. The evidence in this record supports the findings that if the deed reserved more than a Vi6 royalty interest, such description in the deed was the result of a mutual mistake.

The trial court, although not disturbing these jury findings, concluded as a matter of law that respondents’ claim for reformation was barred by the four year statute of limitations. The trial court correctly held that a suit for reformation of a deed is governed by the four year statute of limitations. Miles v. Martin, 159 Tex. 336, 321 S.W.2d 62 (1959). It erred, however, in concluding that this claim for reformation was barred as a matter of law.

This Court, in three relatively recent cases, has rejected the contention that the grantee was charged as a matter of law with knowledge of the recitals in a deed to him. We held that the statute of limitations commenced to run in these suits for reformation when the mistake was or, in the exercise of reasonable diligence, should have been discovered. Sullivan v. Barnett, 471 S.W.2d 39 (Tex.1971); McClung v. Lawrence, 430 S.W.2d 179 (Tex.1968); Miles v. Martin, supra. The question of when the mistake should have been discovered was held to be one of fact in each of these cases.

In Sullivan v. Barnett, supra, the grantors brought suit to reform certain deeds and deeds of trust executed in 1956 because of a mutual mistake. The trial court entered judgment for grantors on the jury verdict. The court of civil appeals reversed and held that grantors were barred by the four year statute of limitations from having the mutual mistake corrected. In doing so, it applied the rule urged here by petitioners, that a grantor is charged with knowledge of the contents of his deed from the date of its execution and that limitations began to run on such date against any action to correct the deed. In rejecting this contention, we said:

“The weight of authority is that once the presumption of immediate knowledge is rebutted, the statute of limitation will commence to run when the mutual mistake was, or in the exercise of reasonable diligence should have been, discovered.”

In McClung v. Lawrence, supra, we reversed and remanded for trial a summary judgment granted the defendant on his plea of the four year statute of limitations in McClung’s suit to reform a 1947 deed upon allegations of mutual mistake. We held that where the circumstances as shown by the record are such that the parties may have been mutually mistaken as to the legal effect of the deed in question, equity will grant relief against such a mistake of law. In such a situation the statute of limitations will commence to run when the mistake was, or in the exercise of reasonable diligence should have been, discovered.

In Miles v. Martin, supra, we reversed a judgment based on limitations and remanded the case for a trial of grantor’s right to equitable relief of reformation because of an alleged mutual mistake as to the effect of the royalty reservation. The deed sought to be reformed had been executed almost six years prior to filing of the suit.

It is not contended that King had actual knowledge that the Browns were claiming that the deed reserved ½ of the royalty interest to them. Nor can it be said that the mistake is so plainly evident as to charge King with the legal effect of the words used. It is apparent that M-Tex considered the Browns as having reserved only a Vie interest as the proposed division orders so provided. The judges on the lower courts have disagreed as to the meaning of the clause. The members of this Court disagree. Certainly King, who was not a lawyer, cannot be charged as a matter of law with knowledge of the meaning of the reservation.

The question of whether he should have known by the exercise of reasonable diligence is one of fact. The record before us fully supports the jury finding that King did not know, nor should he have known by the exercise of reasonable diligence, that the Browns claimed that they had reserved “a one-half (½) non-participating royalty interest.” King testified unequivocally that he first learned of the Browns’ claim sometime in the summer of 1976 after this suit was filed. The Browns did not assert a claim to anyone that they had reserved more than a Vie non-participating royalty interest until they rejected a division order in this amount which was sent to them about December 20,1975. Suit was filed by respondents on June 18, 1976. Prior to the Browns’ rejection of the division order, King and his assignees were in possession of the land and there was nothing in the deed to King or the Browns’ conduct to place them on notice as a matter of law that the Browns claimed a ½ interest.

The judgment of the court of civil appeals is affirmed.

Dissenting opinion by McGEE, J., in which GREENHILL, C. J., and POPE, J., join. Justice GARWOOD not sitting.

1 . The jury found substantially as follows:

“1. Robert Brown agreed to sell and convey to C. Arleigh King the land in question, including all the mineral and royalty rights, except for an undivided Vioth then outstanding non-participating royalty.

“2. Any language in the deed from the Browns to Mr. King attempting to reserve to the Browns more than a Vioth royalty would be contrary to the mutual agreement of the Browns and Mr. King and would be the result of an accident or mistake.

“3. ■ At the time of the deed, the intention of the parties was that the Browns reserved by the terms of that deed a royalty equal to Vis th.

“4. The Browns and the Kings did not intend that the deed reserve an undivided ⅝ non-participating royalty interest.

“5. King did not know nor should- he have known that the Browns reserved'a ⅛ nonparticipating royalty interest.”

2 . It is fundamental that these fact findings must be upheld if there is more than a scintilla of evidence in support thereof. Moreover, in testing these findings, we must review the evidence and inferences which support the findings and reject the evidence and inferences contrary thereto. Martinez v. Delta Brands, Inc., 515 S.W.2d 263 (Tex.1974).

3 . The contract of sale provides:

“Vendors agree to deliver to Purchasers a good and sufficient deed or deeds conveying the whole fee simple title of the above described real estate, and containing a clause of general warranty, however, said deed to contain an(d) exception of an undivided Vieth now outstanding non-participating royalty interest of all oil, gas and other minerals in and under said land.”

Another provision of said contract of sale provides:

“It is further provided that if vendors, after this date, acquire the now outstanding royalty of Vi6th of all oil, gas and other minerals above described, it shall be retained by vendors and not conveyed to purchasers.”