Parham v. Worthen Bank

933 S.W.2d 384, 326 Ark. 754, 1996 Ark. LEXIS 641
CourtSupreme Court of Arkansas
DecidedNovember 25, 1996
Docket96-100
StatusPublished

This text of 933 S.W.2d 384 (Parham v. Worthen Bank) is published on Counsel Stack Legal Research, covering Supreme Court of Arkansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Parham v. Worthen Bank, 933 S.W.2d 384, 326 Ark. 754, 1996 Ark. LEXIS 641 (Ark. 1996).

Opinion

ANDREE Layton Roaf, Justice.

This appeal involves the construction of a 1922 deed by which the appellants, heirs and grantees, obtained a non-participating royalty interest in the mineral rights to property located in Columbia County, Arkansas. The appellees own the property, including the mineral rights. On appeal, the appellants claim that the Columbia Chancery Court erred when it found that they owned a V16 instead of a V12 royalty interest in the oil and gas produced pursuant to a lease executed by the appellees in 1992. We find no error and affirm.

By the execution of a release deed dated August 10, 1922, Claude and Helen Smith conveyed to I.L. and J.P. Cooper a nonparticipating royalty interest in the mineral rights in some 200 acres of land located in Columbia County, Arkansas. The Smiths subse-quendy conveyed ownership of this property in 1922 and 1927 to T.A. and Alice E. Monroe. The property is currendy held by appellees, the Monroe Family Trust, with Worthen Trust Company, Inc. and Anne H. Monroe as trustees, and T. Archie Monroe (“Monroe family”). Over the years, the Coopers devised or conveyed their non-participating royalty interest to various individuals, twelve of whom are the appellants (“Cooper heirs”).

In 1992, the Monroe family executed oil and gas leases of the property to a third party. The new leases provided that the Monroe family’s reserved royalty interest would be V6 of the gross production of the wells on their property.

The Cooper heirs in essence contend that the 1922 deed granted them a V2 interest in whatever royalty interest was retained by the Monroe family. Accordingly, the Cooper heirs asserted that they are entitled to V2 of the x/b royalty interest retained by the Monroe family in the 1992 leases, or V12 of the total royalties from the wells. The Monroe family disputed this claim, and contended that the 1922 deed granted the Cooper heirs only a Vis royalty interest in the wells regardless of the interest retained by the Monroe family, and that the Cooper heirs’ V16 interest was thus unaffected by the 1992 leases.

The oil purchaser and well operator refused to pay the portion of the royalties in dispute until the Monroe family and the Cooper heirs resolved their conflict. The Monroe family filed suit in the Columbia County Chancery Court seeking a declaratory judgment. Both the Monroe family and the Cooper heirs filed motions for summary judgment.

After a hearing, Chancellor Hamilton H. Singleton granted summary judgment in favor of the Monroe family and found that the Cooper heirs were only entitled to V16, instead of V12, of the royalties from the oil and gas wells. In a letter opinion, the chancellor explained that the 1922 deed gave the Cooper heirs an absolute, V16 “fractional share” royalty which was unaffected by the interest retained by the Monroe family in subsequent leases. Hence, the 1992 leases had no bearing on the Cooper heirs’ royalty interest in the wells. The Cooper heirs appeal from this grant of summary judgment.

This Court has jurisdiction pursuant to Ark. S. Ct. R. 1-2(a) (15) & (17) because this appeal involves a question of oil and gas law, and the construction of a deed.

The sole issue on appeal is whether the 1922 release deed granted the Cooper heirs a “fractional share” royalty, as was decided by the chancellor, or a “fraction of a share” royalty. A “fractional share” royalty means that the royalty owner will receive an absolute, predetermined fraction of the gross production of the well. Howard R. Williams & Charles J. Meyers, 2 Oil and Gas Law § 327 (1986). The royalty owner’s fractional interest will not fluctuate according to the amount of royalty interest retained by the grantor in subsequent leases. Id. For example, “an undivided Vi6 royalty interest in any oil, gas or minerals that may hereafter be produced” creates a “fractional share” royalty whereby the royalty owner is entided to Vi6 of the gross production of the well, regardless of the interest retained by the grantor in subsequent leases to third parties. Id.

In contrast, a “fraction of a share” royalty is dependent upon the interest retained by the grantor in leases to third parties. Id. While language creating a “fractional share” royalty refers to a fraction of the gross production, a “fraction of a share” royalty refers to a fraction of the royalty interest retained by the grantor. Id. For example, “an undivided one-sixteenth interest of the royalty” creates a “fraction of the royalty” interest whereby the royalty owner is entitled to Vi6 of whatever interest is retained by the grantor in leases to third parties. Id. Hence, if the grantor retains a Vs interest, the royalty owner will be entitled to Vi6 of the grantor’s Vs royalty or Vi28 interest.

The granting clause of the 1922 release deed in question states:

That we, Claude L. Smith and Helen E. Smith...grant, bargain, sell, convey, set over and assign and deliver unto the said I.L. and J.P. Cooper the following to-wit: An undivided Vi6 interest in and to all of the oil, gas and other minerals in the soil and under the surface thereof that may be produced from the land hereinafter described.

(Emphasis added.) This language clearly establishes that the royalty owners are entitled to a fraction of the gross production and not of the royalty interest. Hence, the chancellor was correct that the granting clause creates a “fractional share” royalty whereby the Cooper heirs are entitled to a consistent, Vi6 of the gross production regardless of the interest retained by the Monroe family in subsequent leases. See Phillip E. Norvell, Pirfalls in Developing Lands Burdened by Non-Participating Royalty, 48 Ark. L. Rev. 934, 937 (1995) (referring to Hanson v. Ware, 224 Ark. 430, 274 S.W.2d 359 (1955)).

If the pertinent language in the deed had ended at this point, there would be no dispute as to amount of the royalty interest conveyed to the Cooper heirs. However, after describing the property to be conveyed, the deed further provides:

.. .said undivided Vi6 interest in the oil, gas and other minerals herein conveyed is to cover and apply to that portion only, which is V2 of1/s of the oil, gas and other minerals, reserved by the grantor herein, his heirs or assigns, in any lease for the development of oil, gas and other minerals now in existence, or that may hereafter be executed and delivered to any lessee...
.. .it being the intention of the parties hereto that this grant in no way shall prevent or interfere with the grant herein or his heirs or assigns in their own name to lease the land herein described for the purpose of developing for oil, gas and other minerals, the grant herein giving the grantee a mineral interest only to Vj t of the oil, gas or other minerals to be delivered out of any royalty existing by virtue of any lease now on said land, or any that may be placed on said land by any party.

(Emphasis added.) The issue is thus whether either or both of these additional explanatory clauses create a “fraction of a share” royalty, and if so, how these clauses should be construed with the granting clause which clearly creates a “fractional share” royalty.

In Palmer v. Lide, 263 Ark.

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Related

Anadarko Petroleum Co. v. Venable
850 S.W.2d 302 (Supreme Court of Arkansas, 1993)
Wilson v. Brown
897 S.W.2d 546 (Supreme Court of Arkansas, 1995)
Wynn v. Sklar & Phillips Oil Company
493 S.W.2d 439 (Supreme Court of Arkansas, 1973)
Hanson v. Ware
274 S.W.2d 359 (Supreme Court of Arkansas, 1955)
Palmer v. Lide
567 S.W.2d 295 (Supreme Court of Arkansas, 1978)
Barret v. Kuhn
572 S.W.2d 135 (Supreme Court of Arkansas, 1978)

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Bluebook (online)
933 S.W.2d 384, 326 Ark. 754, 1996 Ark. LEXIS 641, Counsel Stack Legal Research, https://law.counselstack.com/opinion/parham-v-worthen-bank-ark-1996.