The Texas Supreme Court recently issued a ruling in Van Dyke v. The Navigator Group, an interesting case involving the use of double fractions in historic oil and gas documents. [Read Opinion here.] As the Court noted to open its opinion, “Only in a legal context could the formula ‘one-half of one-eighth’ mean anything other than one-sixteenth.”
In 1924, the Mulkeys conveyed their ranch and the underlying minerals to White & 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.
After the deed was executed, the parties engaged in a number of transactions and filings indicating that both the buyers and sellers had an equal 1/2 interest in the mineral estate. For the next ninety years, parties on both sides (including new owners who received the various interests over time) understood that each original side owned one-half of the mineral estate.
This mutual understanding ceased when, in 2013, the White parties (owners whose interest derived from the White & Tom interest) filed suit against the Mulkey parties (owners whose interest derived from the Mulkey reservation) with a trespass-to-try-title action. The White parties raised the mineral ownership question when Endeavor Energy began paying royalties to both parties in equal shares. The result of this ownership dispute is at least $44 million in accumulated disputed royalties.
The parties’ dispute revolves around the meaning of the “one-half of one-eighth” interest in the Mulkey’s reservation. The White parties argue the double fraction is simply a mathematical formula, meaning that it was only a 1/16 interest reserved by the Mulkeys. The Mulkey parties contend that the double fraction was actually a term of art at the time to refer to reserving 1/2 of the mineral interest. Further, they argued that even if the deed had only reserved a 1/16 interest, they gained title to the remaining 7/16 interest (equating to 1/2) interest by operation of the presumed-grant doctrine.
The trial court sided with the White parties, holding that the reservation “unambiguously reserved only a 1/16 interest in the mineral estate.” The court rejected the other arguments raised by the Mulkey parties. The Eastland Court of Appeals affirmed, holding the estate-misconception theory did not apply because there were no conflicting provisions in the deed and that the presumed-grant doctrine was inapplicable because there was not a “gap” in the chain of title. The Mulkey parties appealed.
Supreme Court Opinion
The Texas Supreme Court reversed. [Read Opinion here.]
Construction of 1924 Deed
First, the Court turned to the construction of the 1924 deed. The Court noted to those not steeped in Texas oil and gas law, this fact pattern may seem odd, but the framework for analyzing the text of this conveyance is the same as any other. Unless otherwise defined, the Court adopts a term’s ordinary meaning at the time when it was drafted. The meaning of an unamended text is not affected by the passage of time or linguistic developments. The Court offered examples of this in other contexts noting that in early Texas law, a contract for a “thousand” rabbits was understood to mean 1,200 rabbits and that the reference to a “day” could mean 10-hours in certain contexts. Thus, the Court’s analysis turned not “on what we might think ‘one-half of one-eighth’ would mean if written today,” but what the parties meant in 1924.
The Court noted it is a “now-familiar observation” that in 1924, the term “1/8” was “widely used as a term of art to refer to the total mineral estate.” This is true only for the faction 1/8 and not for any other fractional terms. Historical features indicate that 1/8 was widely used as a term of art so much so that courts have taken judicial notice of this “widespread phenomenon.” This became known as the “estate misconception theory.” Legal scholars have noted that the very use of 1/8 in a double fraction should “be considered patent evidence that the parties were functioning under the estate misconception.” Others have noted there would be little use for a double fraction to express a fixed interest absent a misunderstanding about the grantor’s use of the 1/8 as a proxy for the customary royalty. The Court also noted that parties likely believed the mineral owner’s royalty interest would always be 1/8, which resulted in that number being used as a placeholder for future royalties generally, without anyone understanding it as being tied to a mathematical value.
In light of this, the Court noted it was not aware of any double fractions that were aimed at simple multiplication rather than referencing the mineral interest as a whole. It reaffirmed its approach from a prior case, Hysaw v. Dawkins, which created a rebuttable presumption to approach these types of double fractions. “Antiquated instruments that use 1/8 within a double fraction raise a presumption that 1/8 was used as a term of art to refer to the mineral estate.” The presumption can be rebutted if evidence shows that the text itself illustrates that the double fraction was used as nothing more than a double fraction.
Based on this, the Court disagreed with the Eastland Court of Appeals’ approach. The very use of double fractions including 1/8 is, in itself, the primary reason to presume purposefulness. There appear to be no inconsistent provisions elsewhere in the deed that could indicate the parties meant anything other than 1/2 of the mineral estate, meaning there was no evidence to rebut the estate misconception theory presumption. Thus, the Court held that, as a matter of law, the 1924 deed did not use 1/8 in its arithmetical sense but instead reserved to the Mulkey owners a 1/2 interest in the mineral estate.
Turning to the Mulkey parties’ second argument, even were the Court to have held the reservation was only for 1/16, they would still have ownership of 1/2 of the mineral estate pursuant to the presumed-grant doctrine. Essentially, they argue that even if the deed only reserved them 1/16, they acquired the remaining 7/16 over time under the presumed-grant doctrine. The Court agreed.
The presumed-grant doctrine has been described as a common law form of adverse possession. To prove this doctrine, the plaintiff must show three elements: (1) 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. There is no requirement, as the Eastland Court of Appeals imposed, that there be a gap in the title.
The Court stated that the parties’ history of repeatedly acting in reliance on each having a 1/2 mineral interest satisfies the presumed-grant doctrine’s requirements. The ninety-year history includes conveyances, leases, ratifications, division orders, contracts, probate inventories, and a number of other recorded instruments that provided notice. During this entire timeframe, the White parties never said anything to the contrary. For example, in 1926, the White parties acknowledged owning only 1/2 the minerals, with the other half belonging to the Mulkeys, in a Purchase and Escrow Agreement. The Court also noted a document related to a different property whereby the Mulkeys conveyed a 1/16 interest in the minerals to a third party. This, the Court explained, makes clear the Mulkeys could and did refer to the 1/16 royalty directly when meaning a 1/16 interest, rather than by double fractions as was done in the 1924 reservation. The Court discussed additional transactions during the ninety-year timeframe, and held that the 2013 lawsuit filing cannot negate nearly a century of overwhelming evidence that the White parties never previously sought to make that claim. “In fact, all of the transactions suggest that the White parties understood and intended the Mulkey parties to have a 1/2 interest.”
Thus, if the presumed-grant doctrine were necessary, the Court would have found the Mulkey parties satisfied it.
In light of this, the Court concluded that “an accurate construction of the 1924 text requires us to accept that the equation ‘one-half of one-eighth’ equals one-half of the mineral estate.” Further, if it were needed, the presumed-grant doctrine would remove any remaining doubts. The case was reversed and remanded.
This case is obviously important to interpret any historic oil and gas deed utilizing a double fraction. However, beyond that, I think it illustrates an important point for landowners and mineral owners to keep in mind: Texas oil and gas law is complicated. There can be situations, like this, where the plain language of a document may not be so plain after all. It is always advisable to consider seeking advice from a Texas oil and gas lawyer when entering into any transaction related to a mineral estate, whether that might be a deed, a reservation, or an oil or gas lease.