The Legal Implications of 1/8 Double Fraction Clauses in Mineral Reservations | Van Dyke v. Navigator Group case
Van Dyke v. Navigator Grp., 668 S.W.3d 353 (Tex. 2023). Interpreting double fractions (1/2 of the usual 1/8) and Presumed Grant.
Key Takeaways
- 1924 mineral reservation utilizing a 1/8 Double Fraction reserved 1/2 mineral interest as a matter of law.
- Double Fraction = Rebuttable presumption of a floating mineral or royalty grant or reservation. Use of 1/8 Double Fraction creates a rebuttable presumption that the 1/8 fraction is intended as a term of art that in fact means 8/8. Presumption can be rebutted by the language of the instrument.
- Though not central to the holding, Presumed Grant removed any doubt in the court’s mind.
- Another example of the “use it or lose it” legal maxim; if you have a legal claim, you had better bring it immediately or you have lots of ways to lose it, including Presumed Grant.
- Title nerds (which term we proudly wear as a badge of honor) unite. If you are a title examiner you had best know this case inside and out.
- This is the default position that we’ve used to interpreting these clauses for the past decade.
The dispute in this case centers around the reservation of minerals in a 1924 conveyance. At that time, Mulkey (successors referred to as “Mulkey”) conveyed his Martin County ranch (“Martin Ranch”) to White (successors referred to as “White’”). The vesting deed contained 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.”
For the next 90-years, both Mulkey and White, as well as their successors and third parties, repeatedly transacted regarding the property via “further conveyances, leases, ratifications, division orders, contracts, probate inventories, stipulations,” both recorded in Martin County and unrecorded, all of which agreed with the premise that both Mulkey and White owned equal 1/2 of 8/8 mineral interests in Martin Ranch.
In 2013, Endeavor Energy began dispersing royalties from production on the Martin Ranch to both Mulkey and White in equal shares. White brought a trespass-to-try-title cause of action claiming rights to 15/16 of the royalties paid on production from the Martin Ranch, on the theory that the 1924 reservation vested Mulkey with a literal 1/2 of 1/8 mineral interest, leaving White with the balance of 15/16.
Mulkey countered under two main arguments: 1) that the term 1/2 of 1/8 was a term of art used by parties in 1924 to mean 1/2 of 8/8, and 2) that even if the 1924 deed did in fact reserve only a 1/16 mineral interest, that they had acquired the remaining 7/16 “by operation of the presumed-grant doctrine at some point after 1924 but long before the $44 million [amount then in suspense] accrued.”
Trial & Appellate Court
Trial court and the appellate court held for White, asserting that the 1924 deed should be interpreted literally as reserving a 1/16 mineral interest. The appellate court based it’s ruling on three main factors: 1) that the Estate Misconception Doctrine did not come into play, as there were no conflicting provisions that court was required to harmonize, 2) that Martin Ranch was not then subject to an oil and gas lease, and 3) that the Presumed Grant Doctrine required a gap in the chain of title.[1]
Texas Supreme Court
Overruled appellate decision, holding that “the trial court and court of appeals erred in holding that [Mulkey does] not have a 1/2 interest in the minerals.” This ruling was based on two main premises: 1) construction of the 1924 deed, and 2) the Presumed Grant Doctrine.
As will be discussed in more detail, this was in turn based on the Texas Supreme Court’s declaration that the use of 1/8 in a double fraction raises a rebuttable presumption that 1/8 was intended as a term of art to mean the entire mineral estate. Because nothing in the 1924 deed was found sufficient to rebut this presumption, the court interpreted the use of 1/8 in the 1924 deed as a term of art intended to represent the entire mineral estate. As such, Mulkey and White each owned a 1/2 of 8/8 mineral interest in Martin Ranch.
Deed Construction
Unless the parties provide otherwise, Texas courts will give words/terms their ordinary and usual meaning. It is important to note that it is the meaning that parties intended at the time of the instrument in question that defines a document term’s meaning, not the present day meaning that has or could have varied from the understanding of the parties at the time they used it. Thus, in the words of the Texas Supreme Court, “the original text does not evolve with the broader language.”
As such, the court determined the question was “whether, in the context of [the 1924 deed’s language], the double fraction reasonably referenced unchanging arithmetic at all.” In order to determine that meaning, the court noted that all deed construction cases start with a four-corners analysis looking solely at the language used by the parties. Only in the case of ambiguity should outside, or extrinsic, evidence be considered.
Furthermore, the court’s charge was to decide “what the ordinary usage of the textually undefined term ‘one-half of one-eighth’ actually was.” To make this determination, the Texas Supreme Court looked to United States Supreme Court precedent in New Prime v. Oliveira, 139 S. Ct. 532, 202 L.Ed.2d 536 (2019), which established the principle that courts must ask “whether there is some objective reason that the” language means something other than the current ordinary meaning; in this case, it meant determining whether the usage of a 1/8 double fraction provided some objective reason that the term meant something other than 1/2 of 1/8 = 1/16.
The court noted that as of 1924, and as more robustly discussed in its Hysaw opinion, the fraction 1/8 was commonly used as a term of art denoting the entire mineral estate. This was due to two compounding mistaken beliefs prevalent at the time:
- Estate Misconception Doctrine: The mistaken belief that after an oil and gas lease was signed, the mineral owner retained only 1/8 of the minerals for the life of the lease, while the lessee was actually granted a 7/8 fee mineral interest, as opposed to actual circumstance that the mineral owner retains the entire fee mineral interest subject to a fee simple determinable grant to the lessee; the mineral owner retains both a royalty interest and the full possibility of reverter of the entire mineral estate when the lease expired.[3]
- 1/8 as Standard Royalty: The mistaken belief that lease royalty rates would always equal 1/8, such that “parties would use the term 1/8 as a placeholder for future royalties generally – without anyone understanding that reference to set an arithmetical value.”
Accordingly, at the time of the 1924 deed, the Court found plenty of objective indications that Mulkey and White intended the 1/8 double fraction to be a term of art denoting the entire mineral estate.
Holdings
- Use of 1/8 Double Fraction Raises Rebuttable Presumption that 1/8 = 8/8
The Texas Supreme Court was explicit in its reaffirmation of the Hysaw holding, though it used Van Dyke as an opportunity to clarify:
“Specifically, when courts confront a double fraction involving 1/8 in an instrument, [Hysaw] 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.”
While the presumption is described as ‘readily and genuinely rebuttable … the rebuttal must come from the document itself …”
In a bit of self-congratulation, the court noted that this middle path allowed courts to maintain strategic flexibility and predictability. Parties would be neither beholden to a mechanical rule and its arbitrary outcomes, nor be required to litigate each case anew regarding a 1/8 double fraction interpretation.
The Presumed Grant Doctrine
It is important to be clear that the court did not base its opinion on the Presumed Grant Doctrine, but rather noted that by applying the doctrine, any remaining doubts were satisfied.
The Presumed Grant Doctrine is a form of adverse possession that is sometimes “referred to as title by circumstantial evidence.” A very stable if infrequently applicable doctrine, based on the 1920 Texas Supreme Court holding in Magee v. Paul, 110 Tex. 470, 221 S.W. 254, 257 (1920), application of the Presumed Grant Doctrine rests on a parties’ burden of proving three essential elements:
- “A long asserted and open claim, adverse to that of the apparent owner.
- Nonclaim by the current owner.
- Acquiescence by the apparent owner to the adverse claim.”
The Texas Supreme Court held that the appellate court in Van Dyke erred in implying a fourth element – that there be a gap in title. Oil and gas professionals can consider this a sufficient rebuke of this requirement to a Presumed Grant claim.
Based on the long-standing 90 year history between Mulkey and White of recognizing a 1/2 of 8/8 mineral split due to the reservation, as documented by both recorded and unrecorded instruments, all elements of the doctrine were satisfied: there was long asserted claim by both Mulkey to 1/2 of the minerals, both parties repeatedly “acted in accordance with each side owning a 1/2 interest,” and it took approximately 90 years for White to contest the prevailing interpretation.
[1] Van Dyke at 358.
[1] Van Dyke at 359.
[1] Van Dyke at 359.
[1] UR, Inc. v. Kleberg County, 543 S.W.3d 755, 763–64 (Tex. 2018).
[1] Van Dyke at 360; Hysaw v. Dawkins, 483 S.W.3d 1, 13 (Tex. 2016).
[1] Van Dyke at 360 (stating that “[t]he way to change a text’s meaning is to change the text, not to observe that an unchanged text includes language that, unbeknownst to those who committed the text to writing, would at some point in the future eventually carry a different meaning.”).
[1] Van Dyke at 361.
[1] Van Dyke 361–62 (quoting U.S. Shale Energy II, LLC v. Laborde Props., L.P., 551 S.W.3d 148, 152 (Tex. 2018)).
[1] Van Dyke at 361.
[1] Van Dyke at 361.
[1] Van Dyke at 362.
[1] Van Dyke at 363 (quoting Hysaw, 483 S.W.3d at 10; Concord Oil Co. v. Pennzoil Expl. & Prod. Co., 966 S.W.2d 451, 460 (Tex. 1998)).
[1] Van Dyke at 363.
[1] Van Dyke at 364.
[1] Van Dyke at 365.
[1] Van Dyke at 367; Fair v. Arp Club Lake, Inc., 437 S.W.3d 619, 626 (Tex. App.—Tyler 2014, no pet.).
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