

COURT OF APPEALS
EIGHTH DISTRICT OF
TEXAS
EL PASO, TEXAS
 



 
CHESAPEAKE EXPLORATION, L.L.C.,
 
                            Appellant,
 
v.
 
BNW PROPERTY CO.,
 
                           
  Appellee.


§
 
§
 
§
 
§
 
§
 
§ 
 


 
 
No. 08-11-00239-CV
 
Appeal from the
 
143rd
  Judicial District Court
 
of Loving
  County, Texas
 
(TC#06-08-747-CVL)
 



 
O
P I N I O N
            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
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, 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 & 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 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
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.
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 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.




[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.


[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.


[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 right to receive royalty payments.  Altman,
712 S.W.2d at 118.


[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.
 


[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 . . . .”


