## Facts

- A common grantor conveyed a three-fourths term royalty interest to Peveto in 1960 for a primary term of 15 years and “as long thereafter as” minerals were produced in paying commercial quantities.
- The grantor later executed an oil and gas lease containing a shut-in royalty clause; Peveto’s term royalty deed did not contain a shut-in clause.
- A gas well was completed but shut in due to gas quality; the lessee paid shut-in royalties during the primary term.
- In 1973, the grantor executed a later “top deed” conveying an essentially identical three-fourths term royalty interest to Starkey, with a typed clause stating the grant would become effective only on expiration of the earlier Peveto royalty deed.
- Shortly before the 15-year primary term in Peveto’s deed would expire, the grantor and Peveto executed an instrument purporting to extend Peveto’s primary term from 15 to 25 years.
- Starkey sued for declaratory relief to invalidate Peveto’s interest and to confirm Starkey’s interest as effective.
- The trial court and court of appeals ruled for Starkey; the Texas Supreme Court reversed.

## Issues

1. Whether shut-in royalty payments under a lease can constitute “production in paying commercial quantities” to continue a term royalty deed into its secondary term when the deed contains no shut-in royalty clause.
2. Whether a “top deed” that becomes effective only upon expiration of an earlier determinable fee term royalty interest creates a future interest void under the Rule Against Perpetuities.

## Decision

- Shut-in royalties did not satisfy the deed’s requirement of production in paying commercial quantities because the term royalty deed contained no shut-in clause.
- Peveto’s term royalty interest terminated at the end of its 15-year primary term absent actual production in paying quantities.
- The Starkey top deed created a springing executory interest that might not vest within the perpetuities period and therefore violated the Rule Against Perpetuities.
- The Court reversed the lower courts’ judgments and rendered judgment consistent with Starkey’s deed being void.

## Legal Principles

- Under a term royalty deed that continues only “so long as” there is production in paying commercial quantities, shut-in royalty payments do not constitute “production” unless the deed itself provides otherwise.
- A deed effective only upon termination of a determinable fee creates a future executory interest that does not vest until the prior estate ends; because a determinable fee may continue indefinitely, such an interest may vest too remotely.
- Under the Rule Against Perpetuities, an interest is void if, at the time of conveyance, it could vest beyond the permitted period under any possible contingency.
- When a deed is unambiguous, intent and legal effect are determined from the instrument’s language.

## Conclusion

The court held that shut-in payments could not extend a term royalty lacking a shut-in clause and that a top deed postponed until expiration of a determinable-fee royalty interest creates an executory interest void under the Rule Against Perpetuities, requiring reversal of the judgment validating the top deed.


Peveto v. Starkey, 645 S.W.2d 770 (Tex. 1982)