The question for the Texas Supreme Court in Piranha Partners et al. v. Joe B. Neuhoff et al. was whether an assignment of an overriding royalty in minerals conveyed the override only in production from the identified well (the B #1-28), in production from any well drilled on the identified land (NW/4, Section 28), or in all production under the identified lease (the Puryear).
The Court shrugged off what it referred to as “rigid mechanical, arbitrary rules of construction” and examined the words of the deed itself, concluding that the assignment unambiguously conveyed to Piranha an override in production under the entire lease.
Scriveners of all sorts of agreements: This follows other recent rulings of the Court. ALWAYS consider carefully, especially when using a form you “know”, what it is you are trying to say. Think you’ve got it? Have someone else tell you what they think you are saying.
Today we will consider the Court’s treatment of rules of deed construction. Next week we will take a look at the effect of surrounding circumstances on the transaction.
Neuhoff sold its interest in the lease, reserving a 3.75% override. The B #1-28 was located on the NW/4 of Section 28. The dispute arose after new wells were drilled on other portions of Section 28.
The granting clause was of “ … all of [Neuhoff Oil’s] right, title and interest in and to the properties described in Exhibit “A”.
The clause continued: “ … all oil and gas leases, mineral fee properties or other interests, INSORFAR AND ONLY INSOFAR as set out in Exhibit A, … .”
The Court looked at Exhibit A:
Lands and Associated Well(s): Puryear #1-28, Wheeler County, Texas
NW/4, Secton 28, …
Oil and Gas Lease(s):
Lessor: [the Puryears]
Lessee: Marie Lister
Recorded: Volume 297, Page 818.
Which of the three provisions identified the “properties”?
Piranha cited what it asserted were well recognized rules of deed construction (see bullets below) and asserted that the court of appeal established a new rule that permits courts to imply a limitation on a grant even in the absence of language to that effect. The Court said that whenever it is necessary to harmonize apparently conflicting provisions, courts will do that.
Rejection of arbitrary rules of construction
The Court explained that it lately has been casting off rigid mechanical or arbitrary rules to conduct a careful and detailed examination of the deed in its entirety rather than applying some default rule that appears nowhere in the deed’s text. (We’ve talked about this before). The Court admitted that it has not clearly distinguished between those default rules it has recently rejected and well-settled contract construction principles. The Court rejected these rules as inapplicable:
- The grant must be of the greatest estate permissible (not “possible” as Piranha argued). Even with a conveyance of all right, title and interest … , the Court still must ask whether Exhibit A conveyed all of Neuhoff’s interests under the entire lease.
- Any alleged exception, reservation, or limitation not expressly and clearly stated should be rejected. Piranha ignored the difference between a deed conveying only a partial interest and a deed conveying an entire interest but reserving a portion.
- Because the document was not ambiguous it didn’t need to be construed against one party or the other.
What does the deed say?
The Court harmonized all words in the assignment, refusing to give greater weight to the granting clause than other provisions. For example, the granting clause referred to overriding royalty interests and Neuhoff owned an override in the entire lease. Another section included all contracts that affected “the leases”. And another referred to production “from the leases”.