Oil and Gas Lawyer Blog
Today the Texas Supreme Court handed down its opinion in Van Dyke v. The Navigator Group, resolving a ten-year dispute over the ownership of royalty interests and $44 million in royalties.
In 1924, the Mulkeys conveyed their ranch to White and Tom, with the following reservation:
It is understood and agreed that one-half of one-eighth of all minerals and mineral rights in said land are reserved in grantors … and are not conveyed herein.
The successors of White and Tom contend that this reservation was of a 1/16 mineral interest. The successors of the Mulkeys contend that the reservation reserved ½ mineral interest. The trial court and the court of appeals agreed with Whit and Tom; the Supreme Court reversed, holding that each side owns ½ of the minerals in the Ranch.
The Supreme Court ruled for the Mulkeys on two grounds: the “estate misconception,” and the lost grant doctrine.
The Court first noted that, at the time of the 1924 deed, “’1/8 was widely used as a term of art to refer to the total mineral estate.” The Court remarked that “the estate-misconception theory reflects the prevalent (but, as it turns out, mistaken) belief that, in entering into an oil-and-gas lease, a lessor retained only a 1/8 interest in the minerals rather than the entire mineral estate in fee simple determinable with the possibility of reverter of the entire estate.
Therefore, for many years, lessors would refer to what they thought reflected their entire interest in the “mineral estate” with a simple term they understood to convey the same message: “1/8.” This widespread and mistaken belief ran rampant in instruments of this time involving the reservation or conveyance of a mineral interest—so much so that courts have taken judicial notice of this widespread phenomenon … Therefore, the very use of 1/8 in a double fraction “should be considered patent evidence that the parties were functioning under the estate misconception.” Laura H. Burney, The Regrettable Rebirth of the Two-Grant Doctrine in Texas Deed Construction, 34 S. Tex. L. Rev. 73, 90 (1993).
The Court, again quoting Burney, also remarked that “’the near ubiquitous nature of the 1/8 royalty—dubbed by some as “the legacy of the 1/8 royalty” or “historical standardization”’—is something that ‘influenced the language used to describe the quantum of royalty in conveyances of a certain vintage.’
This prevalent belief and confusion resulted in parties mistakenly assuming the landowner’s royalty would always be 1/8. Therefore, parties would use the term 1/8 as a placeholder for future royalties generally—without anyone understanding that reference to set an arithmetical value.
The Court disagreed with the court of appeals’ conclusion that, because no oil and gas lease was in effect at the time of the 1924 deed, the estate misconception theory did not apply.
The Court then laid down this presumption:
When courts confront a double fraction involving 1/8 in an instrument, the logic of our analysis in Hysaw [v. Dawkins, 483 S.W.3d 1 (Tex. 2016)] requires that we begin with a presumption that the mere use of such a double fraction was purposeful and that 1/8 reflects the entire mineral estate, not just 1/8 of it. … Our analysis in Hysaw thus warrants the use of a rebuttable presumption that the term 1/8 I a double fraction in mineral instruments of this era refers to the entire mineral estate. Because there is “little explanation” for using a double fraction for any other purpose, this presumption reflects historical usage and common sense.
The Court made clear that this presumption may be rebutted by other language in the instrument evidencing a different intent. But there need not be other language in the instrument supporting the presumption (as there was in Hysaw for the presumption to apply. “The use of a double fraction in this deed, combined with the lack of anything that could rebut the presumption, is precisely why we can conclude as a matter of law that this deed did not use 1/8 in its arithmetical sense but instead reserved to the Mulkey grantors a ½ interest in the mineral estate.”
The Court then concluded that, even if the deed did not clearly reserve ½ of the minerals, the record conclusively establishes that the Mulkeys acquired the other 7/16 mineral interest through the “presumed-grant doctrine.” The Court said the presumed grant doctrine has three elements:
A long-asserted and open claim, adverse to that of the apparent owner; (2) nonclaim by the apparent owner; and (3) acquiescence by the apparent owner in the adverse claim. … The presumed grant doctrine, ‘also referred to as title by circumstantial evidence, has been described as a common law form of adverse possession.’
The Court disagreed with the court of appeals that there is a fourth element, a gap in the chain of title. The record showed that, over the entire period from 1924 up until the filing of this suit in 2013, the parties had consistently acted as if each side owned ½ of the royalties. This included conveyances, leases, ratifications, division orders, probate inventories, and other recorded instruments. The Court concluded that this evidence “conclusively satisfies the presumed-grant doctrine’s requirements.” “The filing of this lawsuit in 2013 cannot negate nearly a century of overwhelming evidence that the White parties never previously made such a claim in all those years.”
At the beginning of his opinion Justice Young says:
Only in a legal text could the formula “one-half of one-eighth” mean anything other than one-sixteenth. But in the law, “one-half of one-eighty” sometimes equals one-half–in the context of reservations of mineral interests. Likewise, the law sometimes calculates one-half of 1,000 to be 600, not 500–in the context of contracts for rabbits. [Dwyer v. City of Brenham, 7 S.W. 598, 599 (Tex. 1888)] Those results may seem bizarre, unsatisfying, and literally fuzzy math. They can also be inefficient; resolutely adhering to the rules of arithmetic would more rapidly end litigation. The rules that courts must apply, however, are not primarily those of arithmetic but of textual construction. The rules of construction, in turn, reflect the principle that legal texts–including private-law documents like contracts, deeds, and wills–still bear the meaning that their words had when they were drafted, even if the use of the some words today might generate a different meaning.
Cases like this are why it is sometimes fun to be a lawyer.