Reservation or Limitation on Warranty? Navigating the Fine Line — Lessons from Valence Operating Co. v. Davidson

In Valence Operating Co. v. Davidson¹, the Court of Appeals for the Sixth Appellate District of Texas at Texarkana addressed whether the provision, “all Oil, Gas and other Minerals have been excepted and reserved by former owners,” contained in a 1964 deed, functioned as a reservation, thereby creating a new mineral right in favor of the grantor, or as a limitation on the warranty, thereby simply exempting the grantor from the liability on its warranty of title. The Court held that the intent of the provision in the 1964 deed was not to create a reservation in favor of the grantor, but rather to notify the grantee of the prior reservation contained in a 1956 deed, with the only effect of that recitation being to exempt the grantors from liability on their warranty of title had there been a previous reservation and exception.

There are two takeaways from this case: (1) the terms “except and reserve,” while often used interchangeably, have different meanings that must be understood by drafters and interpreters of oil and gas agreements; and (2) when the provision in question expresses an intent only to except a previously reserved interest, Texas courts will construe the provision as an exception to warranty and will not credit the grantor with ownership of the excepted interest.²

I. Background

In 1913, E.L. Briggs (“E.L.”) owned all of the surface and mineral interest in 64.5 acres in Panola County, Texas (the “Property”).³ In 1951, E.L. and his wife, Myrtle, sold the surface interest to their grandson, Jackie, while retaining all the mineral lease and royalty interests. E.L. died after the conveyance, resulting in one-half of the mineral interest devolving to E.L.’s heirs and one-half devolving to Myrtle.⁴ On November 5, 1956, Myrtle and Jackie conveyed the Property to Edmond E. Coleman and his wife, Mildred, through a warranty deed (the “Briggs Deed”).⁵ The Briggs Deed reserved to Myrtle a life estate in the mineral estate under the following provision:

IT IS UNDERSTOOD, HOWEVER, that all of the oil, gas and other minerals in and under the hereinbefore described tract of land are excepted and reserved unto Mrs. Myrtle Briggs, for and during her lifetime, . . . and upon the death of the said Mrs. Myrtle Briggs, such minerals shall pass and vest in the Grantee herein, his heirs and assigns, in fee simple title . . .⁶

On October 21, 1964, Edmond and Mildred granted the Property to Paul Carter, and his wife, Eleanor Carter, through a warranty deed (the “Coleman Deed”).⁷ The Coleman Deed states: “IT IS UNDERSTOOD AND AGREED that all Oil, Gas and other Minerals have been excepted and reserved by former owners.”⁸ The Coleman Deed also contained the following warranty language:

TO HAVE AND TO HOLD the above-described premises, together with all and singular the rights and appurtenances thereto in anywise belonging unto the said, Paul Carter and wife, Eleanor Carter, their heirs and assigns forever and we do hereby bind ourselves, our heirs, executors, and administrators, to Warrant and Forever Defend, all and singular, the said premises unto the said, Paul Carter and wife, Eleanor Carter, their heirs and assigns . . .

After the Coleman Deed was recorded, Myrtle died in 1965, terminating the life estate “excepted and reserved unto [her]” in the Briggs Deed.⁹ On February 20, 2012, Mildred Coleman, believing that she had the mineral estate to the Property, conveyed her interests by a mineral deed to Charles C. Dickerson (the “Dickerson Deed”).¹⁰

On January 22, 2013, Dickerson granted to Debra Smith “one half of the coal and lignite lying in, and on under and that may be produced from [the Property]” and “one half of the oil, gas, and other liquid and gaseous hydrocarbons produced in conjunction with said oil and gas in and under [the Property.]”¹¹ By a separate deed, Dickerson granted the other one half mineral interest in the Property to Bradley Davidson.¹²

In 1991, Paul and Eleanor Carter conveyed by warranty deed all of their right, title, and interest in the Property to Stephen E. Carter and Paula Carter Seewald.¹³ On July 11, 2012, Stephen and Paula, by mineral deed, granted to Valence Operating Company (“Valence”) “all of [their] right, title, interests and estates, in and to all the oil, gas[,] and other liquid and gaseous hydrocarbons in and under and that may be produced from [the Property.]”¹⁴

A disagreement later arose as to whether Valence or Davidson and Smith had a superior claim to the one-half (1/2) mineral interest formerly owned by Myrtle in the Property. The dispute centered around the effect of the phrase “Oil, Gas and other Minerals have been excepted and reserved by former owners” in the Coleman Deed. Specifically, the parties disagreed as to whether this language effectuated a reservation in favor of Mildred.

II. The Trial Court’s Decision

Davidson and Smith sued Valence for trespass to try title, declaratory judgment, conversion of their mineral interests, money had and received, unjust enrichment, promissory estoppel, and breach of contract.¹⁵ Plaintiffs and Valence each claimed to own a 50% mineral interest in and to the Property. Plaintiffs claimed they owned such ownership through and under Mildred Coleman. Valence claimed it owned such ownership through and under the Carters.¹⁶

Valence, as Defendant, sought a directed verdict claiming that Plaintiffs could not meet their burden of proof by showing they had superior title through a chain of title because there was no reservation in the Coleman Deed.¹⁷

The trial court denied Valence’s motion for a directed verdict. In turn, Davidson and Smith sought directed verdict claiming that the reservation in the Coleman Deed was an unambiguous reservation and that Valence was estopped by deed to contest and go behind that reservation.¹⁸ The trial court directed verdict in Davidson and Smith’s favor, finding that in the Coleman Deed, Mildred had reserved a life estate in the mineral interest for herself.¹⁹

III. Appellate Review

The appellate court agreed with Valence’s argument that the language contained in the 1964 Coleman deed was not a reservation.²⁰ Relying on its opinion in Roberson v. El Paso Exploration and Production Co., L.P.,²¹ the court found that language in the deed stating, “It being understood and agreed that all oil, gas, and other minerals . . . in and under the above described tract have heretofore been reserved and excepted,” did not reserve any current mineral interest, but instead operated to alert the grantee that the mineral interests had been reserved and expected by the prior grantor.²² The court concluded that the Coleman Deed merely provided notice of a prior reservation.

IV. Conclusion

This case serves as a reminder that drafters of oil and gas agreements often use the terms “reserve” and “except” interchangeably to both describe prior reservations and to reserve current interests in the grantor. While a reservation is often viewed the same as an exception, it is important to note that an exception is not a reservation. A reservation creates a new right in favor of the grantor, while an exception excludes some interest from the grant. It is important for drafters of oil and gas agreements to understand the differences between the two terms and to use them accordingly. When faced with reservation and exception language, reviewers of oil and gas agreements should attempt to ascertain the true intention of the parties, using the express, plain language of the instrument.

Additionally, even if an exception or reservation clause is drafted correctly and captures the true intention of the parties, the placement of the clause may make it susceptible to multiple interpretations. While an exception or reservation of minerals contained in the granting clause of a conveyance operates to withhold minerals from the grant, if it is placed elsewhere in the deed, it may operate to provide notice of a limitation on warranty, instead of limiting the grant itself.²³ To avoid confusion, the best practice is to include an exception or reservation of minerals in the granting clause if the intent is to place a limitation on the grant itself.

Finally, to avoid confusion, the best practice is for the drafter to use present words of grant and reservation, such as, “does hereby grant or reserve,” when trying to indicate that a transfer or reservation of ownership or rights is present in the immediate agreement. Alternatively, when trying to indicate that a reservation or exception already exists, then using the phrase, “subject to prior reservation and/or exception,” may meet this objective. Implementing these best practices will alleviate any ambiguity or uncertainty as to the intention of the parties when reserving and/or excepting mineral interests.

1. Valence Operating Co. v. Davidson, No. 06-23-00090-CV (Tex. App. Dec. 20, 2024).
2. See, e.g., Klein v. Humble Oil Refg. Co., 126 Tex. 450, 453, 86 S.W.2d 1077, 1080 (Tex. 1935).
3. Valence, No. 06-23-00090-CV at 5.
4. Id.
5. Id.
6. Id.
7. Id.
8. Id. at 6.
9. Id.
10. Id.
11. Id. at 7.
12. Id.
13. Id. at 8.
14. Id.
15. Id.
16. Id.
17. Id. at 8-9.
18. Id. at 9.
19. Id.
20. Id. at 11.
21. Roberson v. El Paso Exploration & Prod. Co., No. 06-12-00017-CV, 2012 WL 3805956, at *1 (Tex. App.—Texarkana Sept. 4, 2012).
22. Id. at 12.
23. Klein, 86 S.W.2d at 180.