Dudley v. Fridge

Bruce Dudley and others (plaintiffs) purchased a 100-acre tract of land and one-half of the land’s mineral rights. The land was subject to an oil and gas lease (the Daws lease) that reserved a one-eighth royalty for the lessor. The plaintiffs also purchased a 20.5-acre tract of land adjacent to the 100-acre tract. The plaintiffs owned all mineral rights on the adjacent tract. The plaintiffs issued an oil and gas lease to Harris Anderson (defendant) on the 20.5-acre tract in exchange for a royalty and a bonus. As part of the transaction, the plaintiffs also granted Anderson a one-tenth royalty interest in the minerals the plaintiffs owned on the 100-acre tract. The royalty deed stated that Anderson’s royalty was “subject to the present [Daws lease], and to be subject to any and all further leases at [the plaintiffs’] option.” Subsequently, the plaintiffs signed a new lease on the 100-acre tract with AMAX Petroleum Corporation (AMAX). The AMAX lease, which superseded the Daws lease, reserved for the plaintiffs a one-fourth royalty. AMAX attempted to pay Anderson one-tenth of the one-eighth royalty reserved for the plaintiffs under the Daws lease. Anderson claimed that he was owed one-tenth of the one-fourth royalty the plaintiffs reserved under the AMAX lease. The plaintiffs sought a declaratory judgment that Anderson was entitled to one-tenth of the one-eighth royalty. The trial court ruled that under the terms of the royalty deed, Anderson was entitled to one-tenth of the one-fourth royalty. The plaintiffs appealed.