Barker v. Levy
48 Oil & Gas Rep. 371, 1974 Tex. App. LEXIS 2082, 507 S.W.2d 613 (1974)
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Rule of Law:
A deed conveying a fraction of "all minerals that may be produced and saved" from land, especially when it omits the words "in and under" and the land is already under lease, typically creates an expense-free royalty interest rather than an expense-bearing mineral interest in place. Furthermore, a cause of action for reformation of a deed due to fraud or breach of fiduciary duty accrues when the plaintiff discovers or, through reasonable diligence, should have discovered the facts underlying the claim, even when an attorney-client relationship exists, and will be barred by the four-year statute of limitations if not brought within that period.
Facts:
- In the early 1900s, members of the Cade family owned several thousand acres of land in Galveston, Chambers, and Jefferson Counties, Texas.
- Around 1924, litigation (Cade v. Holt) concluded that Margaret Cade Sweet and Katherine Cade Holt each owned an undivided 1/30 interest in the Cade lands, with attorney Adrian F. Levy representing Mrs. Sweet.
- In early 1930, while Mrs. Sweet was in the process of getting a divorce in New York, Levy continued to represent her regarding her interest in the Cade lands and prepared related instruments.
- On May 1, 1930, Levy wrote to Mrs. Sweet suggesting she put her land interest into a Texas corporation and proposed he be given a 1/160 interest in the minerals as a fee for future services, preferring a mineral interest over cash fees.
- Mrs. Sweet approved the arrangement, and Levy prepared a deed dated July 21, 1930, from Mrs. Sweet to him, along with a corporate charter and another deed from Mrs. Sweet to the new corporation.
- On August 5, 1930, Mrs. Sweet, after her New York counsel examined the instruments and attended a meeting, signed the deed to Levy and the other related instruments, which were subsequently filed in Texas.
- In 1933, Mrs. Sweet died intestate, and her only heir, Katherine Cade Holt, inherited her shares in the Long Island Petroleum Company; in 1947, the corporation dissolved, and Mrs. Sweet’s former interest passed to Mrs. Holt’s daughters, Katherine Holt Barker and Melanie Holt Speer.
- Katherine Holt Barker later conveyed a portion of her interest to The First National Bank of Fort Worth as trustee for her children; Mrs. Holt died in 1970.
Procedural Posture:
- On January 15, 1971, Katherine Holt Barker, Melanie Holt Speer, and The First National Bank of Fort Worth (as trustee) (plaintiffs) filed suit against Adrian F. Levy and his two children (defendants) in a trial court.
- The case was tried to a jury.
- After the evidence was closed, the trial judge withdrew the case from the jury and rendered judgment for the defendants.
- The plaintiffs appealed the trial court's judgment to the Court of Civil Appeals of Texas (this court), where they are the appellants and the defendants are the appellees.
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Issue:
Does a deed conveying "One/one hundred and sixtieth (1/160th) part of all oil, gas, petroleum, sulphur and all other minerals that may be produced and saved from the following described lands" unambiguously create an expense-bearing mineral interest in place or an expense-free royalty interest, and is a suit for reformation of such a deed barred by the statute of limitations when the grantor had notice of the alleged discrepancy decades prior to the suit, despite an attorney-client relationship?
Opinions:
Majority - Tunks, Chief Justice
No, the deed did not create an expense-bearing mineral interest in place; rather, it unambiguously conveyed to Levy a 1/160 royalty interest. The court held that the Sweet deed, conveying a "1/160th part of all oil, gas...that may be produced and saved," unambiguously created a royalty interest. This interpretation relied on Texas precedent, specifically Miller v. Speed and Pinchback v. Gulf Oil Corp., which established that language describing interests using "all" and "produced, saved," especially when omitting the phrase "in and under" the land and when an oil and gas lease is already in effect, denotes a royalty interest. The court distinguished out-of-state cases cited by the appellants due to differing state ownership theories, the absence of existing leases, or distinct deed language. Yes, the plaintiffs' suit for reformation of the Sweet deed is barred by the four-year statute of limitations because Mrs. Sweet had received clear notice of the amounts Levy was claiming under the deed within a year of its execution, thereby triggering the limitation period during her lifetime. The court applied the four-year statute of limitations for reformation claims. While acknowledging the special application of the discovery rule in fiduciary relationships, which may excuse a less prompt investigation (Courseview, Incorporated v. Phillips Petroleum Co.), the court found that Mrs. Sweet had actual notice. Evidence, including a letter from Levy to Mrs. Sweet dated between 1930 and 1931, unequivocally demonstrated that Mrs. Sweet knew the amounts Levy was claiming and the ratio of his payments to hers, a letter sent in response to her inquiry or protest about the "great amount" of payments. This clear notice, even considering the attorney-client relationship, triggered the limitation period during Mrs. Sweet's lifetime. Therefore, the plaintiffs’ reformation suit, filed in 1971, was barred as a matter of law because Mrs. Sweet and her successors knew or should have known the facts for more than four years prior.
Analysis:
This case provides crucial clarification on the often-litigated distinction between mineral interests and royalty interests in Texas, emphasizing the significance of specific deed language like "produced and saved" versus "in and under." It reinforces that the presence of an existing lease at the time of conveyance can be a key factor in interpreting such deeds as royalty interests. Additionally, the decision outlines the limits of the discovery rule within fiduciary relationships, establishing that explicit notice of a potential legal claim, such as an attorney's receipt of payments, can trigger the statute of limitations, even if the claimant is a client. This impacts drafting practices for mineral conveyances and highlights the necessity for timely legal action when discrepancies arise, even against trusted fiduciaries.
